Australian Securities and Investments Commission v Narain [2008] FCAFC 120 | Case summary

Federal Court of Australia (Full Court)|2008-07-03|Before: Gordon JJ, Finkelstein J

FINKELSTEIN J: 1 The provisions dealing with market misconduct - market manipulation, false trading and market rigging, dissemination of information about illegal trading, false and misleading statements, fraudulent inducement to deal and insider trading - are to be found in Part 7.10 of the Corporations Act 2001 (Cth). One provision, s 1041H(1), provides that "a person must not … engage in conduct, in relation to a financial product … that is misleading or deceptive or is likely to mislead or deceive." (By a complex series of interlocking sections "financial product" is defined to include "a share".) There are two questions in this appeal that depend on the proper construction of s 1041H. The first is whether conduct that is constituted by publishing a written statement will only be "in relation to" a financial product (shares) if the statement refers to those shares. The second question is whether s 1041H is infringed if an officer of a company prepares a misleading statement that he intends to be published but does not publish himself, instead instructing the company secretary to do so. 2 Citrofresh International Ltd (CTF) is a public company whose shares are quoted on the Australian Securities Exchange (ASX). Its business includes the supply of disinfectant products that contain a biocide called "Citrofresh". The respondent, Mr Narain, was the managing director of CTF. On 25 August 2005 CTF received a report of tests that had been conducted by Retroscreen Virology Laboratory to determine the efficacy of Citrofresh in reducing the presence of various bacteria and viruses. The report claimed that "Citrofresh exhibits significant virucidal activity against all four viruses [which the laboratory had] tested." The viruses were Human Immunodeficiency Virus (HIV), Human Influenza A-Type virus (Influenza), Urbani SARS virus (SARS) and Human Rhinovirus (the cause of common colds). 3 Mr Narain, with the assistance of others, prepared an "ASX Release" by which CTF would announce the results of the tests through the ASX. The Release contained the following statements: "[CTF] can now offer a global solution to reduce and eventually stop the spread of [HIV] using Citrofresh"; "Citrofresh provides a non-hazardous, non-toxic and effective solution that deal[s] with … emergency disease control and prevention [of the four viruses]"; "[CTF] will market a range of 'Barrier Protection' products to be used in the first instance for Men's Health (post intercourse spray or lotion)"; "[T]he use of Citrofresh as a postcoital application will act as an 'invisible condom' for the prevention of STD[s] including HIV"; "The ability to use Citrofresh as a postcoital application will have a significant impact on reducing the transmission of HIV and STD[s]". 4 At about 11.29 am on 27 September 2005 Mr Narain instructed the company secretary, Mr Hanlon, to send the Release to the Company Announcements Office of the ASX. Within a few minutes it was received by the ASX. It was released to the market shortly thereafter. The publication had an immediate effect on the price of CTF shares. Just prior to publication the shares were trading at $0.225. Following the announcement the price surged to $0.70. Later in the day CTF requested a trading halt. In response to an ASX query, CTF made a further announcement on 29 September 2005. This announcement stated that Citrofresh is not a vaccine and is not a cure for HIV. Within a day the shares fell to $0.295. 5 In this action it was alleged that the Release contained misleading representations (as to present facts, future matters and implicitly by non-disclosure) relating to CTF shares. In broad outline the complaint was that Citrofresh: (1) was a disinfectant and not a cure or vaccine; (2) would not stop the spread of HIV; and (3) would have only a minimal impact in controlling or preventing HIV, Influenza, SARS and the common cold. Presumably the statements related to CTF's shares because they concerned CTF's business prospects and would have an impact on its share price. Finally it was alleged that by virtue of his role in preparing the Release and directing that it be sent to the ASX, Mr Narain contravened both s 1041H and s 180 (the directors' duties section). 6 The trial judge did not make any finding about the accuracy of the statements in the Release. There was no need to do so because he was satisfied that the case against Mr Narain was not made out on two threshold points. First of all he found that the Release did not contain representations "in relation to" CTF shares. His reasoning was as follows. The cases that considered the expression "in relation to" show that its meaning is to be gathered from the context in which it is used. The expression has a wide meaning, but it does not necessarily extend to any relationship between two subject matters however tenuous. Sometimes the relationship must be direct and substantial and, in other circumstances, an indirect or less than substantial connection will suffice. In the context of s 1041H the judge said that the relationship must appear "on the face of the conduct", that is, the conduct (in this case the statements) must "deal with shares". The judge held that the statements in the release were made "'in relation to' [CTF] itself or to a product manufactured, distributed and sold by [CTF]", but were not statements made in relation to the company's shares. 7 Secondly, the judge found that Mr Narain had not engaged in any conduct that could result in a contravention of s 1041H. He said: "The fact that [Mr Narain] has participated in the preparation and drafting of the [Release], approved of its contents and authorised and directed its transmission to the Stock Exchange" was not enough to bring him within the operation of the section. The judge went on to say: "Mr Narain may have been engaged personally in the conduct of the preparation and drafting of the [Release] but he was not personally engaged in sending it to the Stock Exchange. That conduct was engaged in by [CTF] and the person who transmitted [the Release] to the Stock Exchange. That was not Mr Narain." 8 I regret to say that I think the judge has fallen into error both as to the construction of s 1041H and as regards the section's application to the facts as found. 9 As regards the first issue in the appeal (whether the representations were "in relation to" CTF shares), it is of course true, as the judge said, that the words "in relation to" require a relationship or connection between two subject matters. In the context of Part 7.10 generally, and s 1041H in particular, the expression ought to receive broad construction. One important object of the Part is to ensure that participants in the market for financial products and financial services act with integrity and honesty and that consumers are adequately protected. To further this object I do not think the connection between misleading statements on the one hand and shares in a company on the other must necessarily be immediate or direct. I particularly do not accept as a necessary condition for conduct to be "in relation to a financial product" that the conduct must "on its face" refer to or, as the judge would have it, "deal with" the financial product. With great respect to those who hold the opposite view, that approach gives s 1041H an unnecessarily narrow construction; a construction that will not promote its objects. 10 The facts of this case well illustrate the problems that will arise if one adopts the narrow construction favoured by the primary judge. Having been admitted to the official list of the ASX, CTF must comply with the ASX Listing Rules relating to continuous disclosures: ss 674-677. Listing Rule 3 imposes that obligation. It is fundamental to the statutory scheme of continuous disclosure. The object of Rule 3 is that the market in listed securities "must be advised by timely disclosure of any information which may affect security values or influence investment decisions, or in which security holders, investors and the exchange have a legitimate interest": ASX Discussion Paper, "The Role of the Australian Stock Exchange and Its Listing Rules" (October 1990), para 22. The rule relevantly provides that "[o]nce an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell ASX that information." Section 677 defines information that would have a material effect on price or value to be information that a reasonable person would be taken to expect to have a material effect on price or value if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not to acquire or dispose of those securities. 11 There can be no doubt that once it became public, the information in the Release (provided it was believed to be true) would have a material effect on the price of CTF shares. Indeed that was the reason it was given to the ASX. That is to say, CTF provided the Release to the ASX in purported discharge of its statutory duty and listing rule obligation of continuous disclosure. 12 Now, the real question that must be answered is this. Is the publication on the ASX of a statement that, as in this case, a reasonable person would expect to have, or would be likely to have, a material effect on the price or value of CTF shares, conduct that "relates to" those shares? I am in no doubt that it does. Indeed, in my view, the statements in the Release "relate to" CTF shares whether one takes a narrow or broad view of those words. There is a sufficient connection between the statements and CTF shares by reason of (1) the content of the statements, concerning, as they do, the business of CTF, and (2) the place of their publication, namely on the exchange where the shares are traded. 13 As to the second issue raised by this appeal (whether Mr Narain engaged in the relevant conduct) again I must disagree with the judge. I will explain why in a moment. First of all I should say something about the shape of the action. In its statement of claim ASIC set out the following case against Mr Narain. He was involved in preparing the Release and approved its contents. He directed the company secretary to send the Release to the ASX and it was sent in accordance with that instruction. He breached s 1041H by "making" the representations in the Release. When read as a whole, it is clear that ASIC meant that Mr Narain made the representations by preparing the Release and directing that it be sent to ASX. 14 Several steps were missing from the allegations. There is no allegation that Mr Narain directed that the Release be sent to the ASX for the purpose of and with the expectation that it would be published. Nor is there an allegation that following the receipt of the Release it was published by the ASX. That publication by the ASX was important did not go unnoticed by the pleader. All the paragraphs in the statement of claim were grouped under headings. One heading is "Market Disclosure on 27 September 2005". But there is nothing about disclosure beneath that heading. 15 Despite the state of the pleadings the case against Mr Narain was run on the following basis. In his opening counsel for ASIC told the primary judge: "[T]here is ample evidence of conduct by Mr Narain himself that he engaged in conduct in relation to a financial product by drafting the announcement, authorising it and releasing it to the market, that is conduct in relation to a financial product and that conduct was misleading or deceptive." In his closing submissions counsel said that there was sufficient conduct of Mr Narain to result in a finding against him: "He was the CEO. He was responsible for the production and publication of this [R]elease. There is no doubt about that … That is conduct, Your Honour, and it is conduct in relation to a financial product because it results in the making of a release to the Stock Exchange which is likely to and inevitably did affect the price of shares in [CTF]." 16 The issue presented by the facts was whether a person can engage in conduct if he procures that conduct to be done, or to be partly done, by a third party who may be innocent of any wrongdoing. This issue brings to mind some old criminal cases where the court had to deal with a similar problem. I need only refer to two cases to illustrate the point. The first is R v Michael (1840) 9 Car & P 356 [173 ER 867]. The prisoner had been charged with the murder of her infant child by poison. The child was in the care of a woman named Mrs Stevens. The prisoner told Mrs Stevens that she had a bottle of medicine (into which poison had been placed) for the child and instructed Mrs Stevens to give the child a teaspoon. Mrs Stevens did not do so but left the bottle on a mantle. It was discovered by one of her children (aged about 5) and given to the prisoner's child who, shortly thereafter, died. The jury found the prisoner guilty. The judgment was respited and the opinion of all the judges taken. When passing sentence Alderson B said that: "[T]he judges were of opinion that the administering of the poison by the child of Mrs Stevens was, under the circumstances of the case, as much, in point of law, an administering by the prisoner as if the prisoner had actually administered it with her own hand." 17 The second case is R v Butcher (1858) Bell 6 [169 ER 1145]. There the prisoner was charged with obtaining money by false pretences. He had sent a young boy aged about 10, to whom he had paid a penny, to collect the pay owed by a company to two of its employees, telling the boy to say that he was collecting the money for "the two Jim Butchers". The paymaster gave the boy the money and he then passed it on to the prisoner. The indictment alleged that the prisoner had falsely pretended to the paymaster that he, the prisoner, was the agent of the two employees and had been sent by them to collect their pay. The prisoner was convicted. The opinion of the Court of Criminal Appeal was sought on the question whether the facts would support the indictment. Cockburn CJ said: "This case when it comes to be considered, does not appear to me to present any real difficulty. The prisoner was, no doubt, guilty of obtaining the money by false pretences; but it is also clear to me that the pretence by which the money was in fact obtained was that the boy had authority to receive it, and that it was not one of the pretences laid in the indictment. The prisoner is responsible for the representation made by the boy as his innocent agent; but that does not meet the difficulty I feel on the ground that the pretence is not correctly stated." 18 This appeal is not concerned with a criminal case. Section 1041H is one of the few provisions in Part 7.10 that is not an offence or civil penalty provision; a contravention of the section attracts liability for loss and damage through s 1041I. It would, nevertheless, be surprising if, for example, the author of a misleading statement about shares can escape the operation of the section by instructing an "innocent agent" to make the statement public. I am of opinion that the person will not avoid liability. It remains to explain why. 19 To find that a person has contravened s 1041H(1) it is necessary to show that he "engaged" in the proscribed conduct. Subsection (2) gives examples of the kind of conduct that would bring a person within subsection (1). Each example requires (as does the word "conduct" itself) some act on the part of the person. In this case the relevant act might be "publishing a notice in relation to [shares]": cf s 1041H(2)(b)(ii). Or the relevant act could be giving the Release to the ASX for publication on the Exchange. As the judge pointed out, Mr Narain did not publish the Release. Speaking strictly, the Release was published by the ASX. Nor did Mr Narain send the notice to the ASX. But the publication of the Release by the ASX was the natural consequence of giving the Release to the ASX and its publication should, in the first instance, be attributed at least to the person who sent it to the ASX. As the judge pointed out, that person is CTF or the company secretary, or both of them. The real culprit, however, is not the individual who sent the Release to the ASX; in many cases that person might just be an office worker. It is the person in authority who, with knowledge of its contents, gave the instruction that the Release be sent to the ASX for publication. In my opinion the action of the company secretary must be treated as the action of Mr Narain. It is his action either because the company secretary was his agent, or, as I would prefer, because, in the circumstances of a case such as this, the secretary's actions should, as a matter of law, be attributed to Mr Narain. I note in passing that in reaching this conclusion I have acted on the basis that there is nothing in s 1041H which, as a matter of construction, requires the conclusion that every act that goes to make up a contravention must be that of the defendant personally. That must be so if for no other reason than that a company, which can only act through individuals, may breach the section. 20 If it were not possible to attribute to the defendant the act of a third person which was procured by the defendant, the result would be far-reaching indeed. Take s 1041G, the companion section, as an example. That section provides that: "A person must not … engage in dishonest conduct in relation to a financial product or financial service." If the judge's approach were to hold sway, the use by a dishonest person of an innocent agent to publish a false statement would avoid the section. The section would not be breached because the person who published the false statement did not know it was false and the person who knew it was false did not publish the statement. I would not apply a line of reasoning that would produce that result. 21 In the view that I take, the Release does relate to CTF shares and Mr Narain is responsible for its publication. That, however, is not sufficient to dispose of the case. There is still the question whether the statements in the Release were misleading. The judge did not make any finding to that effect, though the evidence of Professor Wesselingh, the Dean of Medicine at Monash University, who was called by ASIC, leaves me in no doubt that they were. But, because the case must go back to the judge for a different reason, it is best to leave it to him to determine in precisely what respects the statements were misleading. 22 The aspect that must go back to the judge in any case is whether, by authorising the publication of the Release, Mr Narain breached his duties as a director and thereby contravened s 180. The judge approached the matter on the basis that for there to be a breach of s 180 it was necessary to find that Mr Narain had breached s 1041H. That is not how the case was put at trial. ASIC contended that Mr Narain had breached s 180 for having caused CTF to contravene s 1041H, whether or not he had also contravened s 1041H. Such a finding is clearly open, but it is a matter that requires full examination. 23 I would allow the appeal with costs, set aside the orders made below and remit the matter for rehearing. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate: Dated: 3 July 2008 IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY VID 1173 of 2007

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Introduction 24 Citrofresh International Ltd ("the Company") carries on the business of supplying disinfectant products which contain an active ingredient known as "Citrofresh". The Company's shares are listed on the Australian Stock Exchange ("the ASX"). 25 On 27 September 2005, the Company sent an announcement to the ASX stating that in a "landmark" test result, Citrofresh demonstrated significant virucidal activity against four major viruses including HIV/AIDS. The announcement included a statement that the Company believed it could now offer "a global solution" to reduce and stop the spread of HIV using Citrofresh. 26 The text of the announcement was approved by the respondent, Mr Ravi Narain, who was the Chief Executive Officer of the Company. He participated in the preparation and drafting of the announcement, approved its contents and directed the Company's secretary to send the announcement to the ASX. 27 Shortly after the release of the announcement to the market, the price of the Company's shares increased from 22.5 cents to a high of 70 cents before trading was halted. 28 The Australian Securities and Investments Commission ("ASIC") brought proceedings against the Company and Mr Narain. ASIC claimed declarations against both of them that they had engaged in misleading and deceptive conduct in contravention of s 1041H of the Corporations Act 2001 (Cth) ("the Act"). Certain other relief was sought against Mr Narain including a claim for pecuniary penalty for contravention of s 180 of the Act. 29 Section 1041H of the Act does not replicate s 52 of the Trade Practices Act 1974 (Cth) by proscribing a company from engaging in misleading conduct per se. Rather, s 1041H provides, relevantly, that a person must not engage in conduct "in relation to a financial product, that is misleading or deceptive". 30 The Company consented to the making of orders against it but Mr Narain defended the proceedings. The learned primary judge, Goldberg J, dismissed the proceedings against Mr Narain for two reasons. 31 First, the primary judge found that Mr Narain did not engage in conduct "in relation to" a financial product. His Honour was of the view that the statements in the announcement on which ASIC relied were not made in relation to shares in the Company but were made in relation to the Company itself or to a product manufactured and sold by it: see Australian Securities and Investments Commission v Citrofresh International Ltd [2007] FCA 1873 at [74]. 32 Second, his Honour held that, notwithstanding Mr Narain's role in the preparation and transmission of the announcement, he did not undertake that conduct personally. Accordingly, the primary judge held that Mr Narain's conduct did not expose him to liability as a principal under s 1041H of the Act: ASIC v Citrofresh at [78]-[79]. 33 ASIC did not assert at the trial that Mr Narain was liable as an accessory for the Company's contravention of s 1041H. 34 The issues which arise on this appeal are whether the primary judge was in error in the two findings referred to above. The first question involves an issue of the construction and application of s 1041H, in particular, the meaning of the words "in relation to a financial product" in their particular statutory context. 35 The second does not involve a challenge to the factual findings made by the primary judge. It turns upon a consideration of the way the case was pleaded against Mr Narain, although ASIC also relies upon the way the case was opened and conducted at the trial.

The legislation 36 Section 1041H(1) of the Act provides: A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive. 37 Section 1041H(2) provides, relevantly: The reference in subsection (1) to engaging in conduct in relation to a financial product includes (but is not limited to) any of the following: (a) dealing in a financial product; (b) without limiting paragraph (a): (i) issuing a financial product; (ii) publishing a notice in relation to a financial product; … (x) carrying on negotiations, or making arrangements, or doing any other act, preparatory to, or in any way related to, an activity covered by any of subparagraphs (i) to (ix). 38 The term "financial product" is defined in s 761A of the Act to have the meaning given by Div 3. The relevant sections in that Division are ss 763A and 764A. 39 Section 763A contains a general definition of "financial product". It provides, relevantly: (1) For the purposes of this Chapter, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following: (a) makes a financial investment (see section 763B); (b) manages financial risk (see section 763C); (c) makes non-cash payments (see section 763D). This has effect subject to section 763E. 40 Section 764A sets out a list of things that are financial products. They include a security, an interest in a managed investment scheme and a financial instrument such as a derivative, a debenture or a bond.

The announcement 41 The background to the release of the announcement, and the text of it, are set out in the judgment of the primary judge: ASIC v Citrofresh at [4]ff. The relevant facts may be stated briefly. 42 On or about 25 August 2005, Mr Narain received a report from an European medical laboratory, Retroscreen Virology Ltd, on the virucidal activity of Citrofresh against SARS, influenza A, human rhinovirus (ie common colds) and HIV. 43 The Retroscreen report described Citrofresh as a wholly natural organic compound derived from extracts of citrus fruit. It continued by stating that, due to the synergistic activity between its various components, Citrofresh is an effective pesticide, disinfectant and anti-fungal agent. The report found that Citrofresh had some efficacy as a virucide. 44 Mr Narain asked an Australian laboratory, the Australian Rickettsial Reference Laboratory Foundation Ltd to evaluate Retroscreen's test results. On 25 September 2005, two days before the announcement to the ASX, the Australian laboratory reported to Mr Narain that Retroscreen's test results were: very conclusive to determine the effective concentration of Citrofresh against enveloped and non-enveloped viruses... 45 The announcement to the ASX of 27 September 2005 stated that in a landmark result, the Retroscreen test report confirmed that Citrofresh exhibited: significant virucidal activity against all four viruses tested. 46 The Company's announcement went on to describe HIV as one of the most serious viral diseases in the world with an estimated 40 million people infected. 47 Five statements in this part of the announcement were said by ASIC to be misleading and deceptive within s 1041H. They were: · "We believe that we can now offer a global solution to reduce and eventually stop the spread of this disease [i.e. HIV/AIDS];" · "Citrofresh provides a non-hazardous, non-toxic and effective solution that deal [sic] with emergency disease control and prevention for HIV, human influenza A virus, SARS virus and human rhinovirus." · the Company "will market a range of "Barrier Protection" products to be used in the first instance for Men's Health (post intercourse spray or lotion)"; · "the use of Citrofresh as a postcoital application will act as an "invisible condom" for the prevention of STDs including HIV; · "The ability to use Citrofresh as a postcoital application will have a significant impact on reducing the transmission of HIV and STDs."

Mr Narain's participation 48 Mr Narain's role in the preparation, drafting and despatch of the announcement is set out in the primary judge's reasons at [15]ff. His Honour described Mr Narain's participation in the drafting process with two consultants engaged by the Company to assist in corporate governance, public relations and preparation of company announcements. 49 On the evening of 26 September 2005, Mr Narain sent an email to the Company's board members and to the Company's secretary, Mr Hanlon, attaching the latest draft of the announcement and saying, "I will be releasing [the announcement] to the market tomorrow." 50 Importantly, his Honour found at [20] that in this email Mr Narain was not seeking the approval or authorisation of the Board to the making of the announcement; rather he was inviting the directors to correct any mistakes in the document. 51 It is critical to note that the primary judge did not accept Mr Narain's explanation that the purpose of the email was to gain the approval of the Board. This finding was not challenged in the appeal. 52 On the morning of 27 September 2008 there were email communications between Mr Narain and the consultants about the text of the announcement. One of the consultants added the "invisible condom" statement set out in the fourth bullet point in [47] above. 53 About an hour and a half later Mr Narain sent an email to the consultants, the Board members and Mr Hanlon, stating "Announcement to be released this morning". The announcement was attached. 54 Within approximately 45 minutes, shortly before midday, Mr Hanlon confirmed that the announcement had been sent to the ASX. 55 The primary judge's critical findings in relation to Mr Narain's conduct were set out at [78] as follows: I am satisfied that Mr Narain participated in the preparation and drafting of the letter, that he approved of its contents and that he authorised and directed that it be sent to the Stock Exchange. However, he was not the author or creator of all the statements in the letter which the Commission claims are misleading or deceptive. Nevertheless he adopted them and approved of them being contained in the letter which he authorised and directed CIL's company secretary to send to the Stock Exchange.

The evidence of Professor Wesselingh 56 ASIC called evidence from Professor Steven Wesselingh, an eminent expert in the field of infectious diseases. He was asked to address the question of whether the Retroscreen report, or the Rickettsial report, provided a scientific basis for the statements which were the subject of the claim against Mr Narain. 57 Professor Wesselingh's evidence is set out at [44]ff of the judgment of the primary judge. The effect of it was that there was no evidence in those reports that Citrofresh could act in any way other than as a disinfectant; a disinfectant cannot provide a global solution to reduce or stop the spread of HIV. 58 Moreover, the Professor went on to observe that post-coital application of Citrofresh is not "barrier protection," that being a term used to describe the use of a condom or other barrier to direct contact; nor was there any evidence that post-coital application of a spray or lotion could have any impact in reducing the spread of HIV or other STDs.

The primary judge's reasons: "in relation to a financial product" 59 The learned primary judge referred to a number of authorities which establish that the words "in relation to" are of very wide import and that they take their meaning from the particular statutory context in which they appear: ASIC v Citrofresh at [66]. 60 His Honour placed considerable emphasis on the decision of the High Court in Tooheys Limited v Commissioner of Stamp Duties (NSW) (1961) 105 CLR 602. He extracted from this, and another authority to which we will refer later, two propositions which were essential to his reasons. 61 These propositions were: first, that there must be some relationship between the two subject matters which are said to be related; second that the relationship must appear "on the face of the conduct": ASIC v Citrofresh at [69] and [73]. 62 The essence of his Honour's reasoning may be found in the following passages of his judgment: 73. The context in which s 1041H appears suggests that subs (1) is to have a wide operation. So much can be gleaned from subsec (2) and the varied types of conduct specified which do not limit the scope of s 1041H(1). Nevertheless there must be some ostensible connection or relationship on the face of the conduct, that is, a connection or relationship on the face of the letters with shares in CIL. To adopt and adapt the words of Dixon CJ in Tooheys Limited v Commissioner of Stamp Duties (NSW) (supra), the letters do not deal with shares in CIL. I also adopt and adapt the words of Taylor J in the same case: the relationship between the contents of the letters relied upon by the Commission and shares in CIL does not appear upon an examination of the letters themselves. As Taylor J said, and I accept, it is the character of the letters which is the material consideration. The contents of the letters on which the Commission relies do not relate to shares in CIL. 74…The letters and the statements in them relied on by the Commission are not notices, statements or representations "in relation to" shares and securities in CIL, that is to say, in relation to financial products or financial services. Rather they are notices, statements or representations "in relation to" CIL itself or to a product manufactured, distributed and sold by CIL…

The primary judge's reasons: whether Mr Narain was liable as a principal 63 The primary judge said at [79] that the findings which he had made about Mr Narain's participation in the preparation and transmission of the announcement (as set out in the passage we have reproduced at [55] above) did not of themselves mean that he had undertaken the relevant conduct personally. 64 His Honour referred to Australian and English authority for the proposition that an officer of a company may be personally liable for conduct even though he or she also carries out that conduct as an officer of the company: ASIC v Citrofresh [81]ff, citing Houghton v Arms (2006) 225 CLR 553 and Standard Chartered Bank v Pakistan National Shipping Corp (No 2) [2003] 1 AC 959 (HL). However, his Honour distinguished all of the Australian and English authorities. 65 The primary judge's reasons on the issue are to be found in [88] of his judgment: The Commission's case is that Mr Narain personally and directly engaged in the conduct relied on, not that he was an accessory to it, or knowingly engaged in it such as to attract accessorial liability within s 79 of the Act. Mr Narain may have been engaged personally in the conduct of the preparation and drafting of the 27 September letter but he was not personally engaged in sending it to the Stock Exchange. That conduct was engaged in by CIL and the person who transmitted it to the Stock Exchange. That was not Mr Narain. Insofar as the 27 September letter was sent by a person to the Stock Exchange it was sent by Mr Hanlon, CIL's company secretary, not by Mr Narain.

"in relation to a financial product" 66 Mr Myers QC, who appeared for Mr Narain, emphasised that the words "in relation to a financial product" are an adjectival phrase which qualify the conduct that is proscribed by s 1041H. He submitted that the phrase narrows or qualifies the breadth of the proscribed conduct and it directs attention to the characteristics of the conduct itself, not its consequences. 67 So much may be accepted. However, to narrow the scope of the conduct to that which appears "on its face", as the learned primary judge did, is in our view contrary to the meaning of s 1041H(i) considered as a whole. Indeed, it would be contrary to the well-known principles of statutory construction stated in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69]-[71]. 68 There is a wealth of authority for the proposition that the expression "in relation to" is extremely wide and that its meaning will be determined by the context. The leading authorities were collected and stated by Beaumont and Lehane JJ in Joye v Beach Petroleum NL (1996) 67 FCR 275 at 285; see also Australian Competition and Consumer Commission v Maritime Union of Australia (2001) 114 FCR 472 at [68] per Hill J. 69 As those cases point out, the words "in relation to" signify the need for there to be some relationship or correlation between the two subject matters that are specified. 70 But as Hill J observed in ACCC v Maritime Union of Australia at [68] there will always be a question of degree involved where the issue is the relationship between those matters. 71 What must be borne in mind is that, as Beaumont and Lehane JJ said in Joye, the context will determine whether the relationship must be direct or substantial or whether an indirect or less than substantial connection will be sufficient: Joye at 285 (citing a number of decisions of the High Court). 72 Section 1041H was part of a package of measures introduced by the Financial Services Reform Act 2001 (Cth). It replaced s 995 of the Corporations Law. The Revised Explanatory Memorandum to the Financial Services Reform Bill states at [15.8] that the new section was proposed as a general prohibition on misleading and deceptive conduct. 73 The next paragraph of the Revised Explanatory Memorandum is perhaps of little assistance on the question of construction. It states that the new provision is to provide a general prohibition on misleading and deceptive conduct which will apply in relation to financial products and services. 74 But what the Revised Explanatory Memorandum shows is that the particular statutory context is that of a prohibition against misleading and deceptive conduct; the relationship between the two subject matters is that of misleading conduct and financial products. So much is also plain from the terms of s 1041H(1) itself. 75 Misleading and deceptive conduct takes many forms. The degree of the relationship between the financial product and the proscribed conduct is informed by the examples set out in s 1041H(2). They range from issuing a financial product (s 1041(2)(b)(i)) to carrying on negotiations or making arrangements or doing any other act preparatory to "or in any way related to" an activity referred to in the nine earlier examples listed in that subsection: see s 1041H(2)(b)(x). 76 In our view this indicates that the relationship which is contemplated by s 1041H(1) is at the lower end of the spectrum so that an indirect or less than substantial connection is sufficient. 77 This is what distinguishes the present case from the decision of the High Court in Tooheys. That case was not a useful analogy because the statutory context was quite different. It was concerned with an exemption from stamp duty under the Stamp Duties Act 1920 (NSW) for "All instruments relating to the services of apprentices, clerks and servants." 78 The question in Tooheys was whether a particular document, namely a trust deed establishing a pension fund for retiring employees, was an instrument relating to the services of employees so as to fall within the exemption. The provision of the Stamp Duties Act which imposed liability for duty and the exemption provision were concerned with "instruments", not with conduct. 79 This explains why in Tooheys, Taylor J emphasised at 622 that in considering whether the relationship contained in the exemption was applicable, the Court was confined to an examination of the instrument, without regard to extraneous circumstances. 80 The breadth of the relationship between the conduct proscribed by s 1041H(1) and the financial product is not confined in this way because the concept of misleading and deceptive conduct is one which embraces all of the circumstances in which the conduct takes place. This is illustrated not only by the terms of s 1041H(2) but by what the High Court has said about the amplitude of the "conduct" which must be considered in analysing the question of whether it is misleading: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 605. 81 Here, the relevant conduct was not merely the text of the announcement, as was urged upon us by Mr Myers. The conduct consisted of an announcement made to the ASX about a "landmark" test result for the Company's products. It was an announcement that consisted of disclosure to the market that the test results indicated that the Company believed it could offer a global solution to a disease which affects 40 million people. 82 To say that one must parse and analyse the announcement to determine whether it expressly refers to the company's shares or the value of them, is, with respect to the primary judge, contrary to the meaning of the section and to commercial reality. 83 As Senior Counsel for ASIC, Mr Bathurst QC, pointed out, upon the construction adopted by the primary judge, a company could announce to the ASX with impunity that it had struck gold but it could not say, "Buy our shares because we have struck gold." 84 This is not to apply an ex post facto rationalisation by looking at what actually occurs in the marketplace. It is simply to reject, as a matter of statutory construction and commercial common sense, the narrow view of s 1041H(1) for which Mr Myers contended. 85 We reject the submission of Mr Myers that s 1041H(1) is narrower than its predecessor in s 995 of the Corporations Law. The earlier legislation contained narrow definitions of "securities" and "futures contract," which have since been broadened to cover a new range of products. The definitions were extended by the Financial Services Reform Act to cover the new types of products within the definition of "financial product": see s 763A of the Act. This is reflected, at least in part, in the matters referred to in s 1041H(2). 86 Moreover, s 995 of the Corporations Law was not as narrow as was suggested in Mr Narain's written submissions because sub-section (2)(b)(iv) of that provision included conduct in almost the same terms as that which is now stated in s 1041H(2)(x). 87 In our opinion, the requisite connection between the conduct and the financial product was established so as to give rise to a possible contravention of s 1041H(1). Whether Mr Narain engaged in the conduct as a principal 88 Mr Myers submitted that the claim against Mr Narain as argued by Mr Bathurst on the appeal fell outside the case as pleaded or run before the primary judge. 89 In particular, Mr Myers focused upon [35] of the Statement of Claim in which ASIC alleges that, by making the representations contained in the letter of 27 September 2005 (ie the announcement), Mr Narain engaged in misleading conduct in contravention of s 1041H of the Act. He submitted that the effect of this was that ASIC alleged the representation was made by sending the letter, which was, as the primary judge found, an act of Mr Hanlon, not Mr Narain. 90 However, in our view this submission takes too narrow an approach to the pleading. The question of fact which arose on [35] of the Statement of Claim considered in light of the document as a whole, including [22], was whether Mr Narain's conduct amounted to representations made by him personally. 91 Mr Narain's conduct included the drafting and approval of the content of the announcement and his direction to Mr Hanlon to send it to the ASX. The findings which the primary judge made about this, as set out in the passage at [55] above, fell squarely within the pleaded case. 92 Accordingly, we do not need to consider Mr Bathurst's further argument that the claim of primary liability was covered by the oral opening at the trial. 93 In our view, for the reasons set out below, the primary judge erred by failing to determine that these findings amounted to the making of the representations by Mr Narain. This conclusion follows inevitably from the findings when considered in light of the principles established by the authorities. 94 First, the High Court has followed the House of Lords in holding that in the world of tort law the status of a person as an employee or director of a company does not divest him or her of personal liability for wrongful acts committed in that capacity; the same applies under s 52 of the Trade Practices Act and other statutory analogues: Houghton v Arms at [40]; Standard Chartered Bank at [20], [39]-[40]. 95 This view had already been recognised by the High Court in Hamilton v Whitehead (1988) 166 CLR 121 at 128. Mason CJ, Wilson and Toohey JJ observed that it is a logical consequence of Salomon's Case that one person may function in dual capacities. See also Houghton v Arms at [46]. 96 Second, the question in each case is whether all of the elements of the contravention are made out against the individual or whether he or she merely acted as a corporate organ, binding the company but not the person individually: Cleary v Australian Co-Operative Foods Ltd (Nos 2 & 3) (1999) 32 ACSR 701 at [54], [56] and [57]; Pico Holdings Inc v Voss [2004] VSC 263 at [157]; Genocanna Nominees Pty Ltd v Thirsty Point Pty Ltd [2006] FCA 1268 at [297]-[305]. 97 Third, as the authorities referred to in the previous paragraph make clear, it is a question of fact in each case whether all the elements of the contravention are made out: see also Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 6) (2007) 63 ACSR 1 at [1056]-[1057]. 98 In the present case, as in Cleary, Mr Narain was personally liable for the contravention by having authorised Mr Hanlon to send the announcement to the ASX. Mr Hanlon's actions were ministerial, as an organ of the Company or an agent of Mr Narain, and quite independent of any liability on his own behalf. 99 Mr Narain's participation in the conduct was even greater than that of some of the directors in Cleary because, as the primary judge found, Mr Narain participated in the preparation and drafting of the announcement, adopted and approved the contents as well as authorising and directing the transmission of the document to the ASX. 100 It is plain in our view that Mr Narain was personally liable for any contravention of s 1041H. Misleading and deceptive conduct 101 The primary judge made no finding as to whether the announcement was misleading or deceptive because of the views he reached in relation to the two issues referred to above. 102 The learned primary judge summarised the expert evidence of Professor Wesselingh and we have referred to that evidence. 103 Professor Wesselingh was a Director of the Macfarlane Burnet Institute for Medical Research and Public Health, a Professor of Microbiology and Medicine at Monash University and a Professorial Fellow at Melbourne University when he gave evidence before Goldberg J. He is now the Dean of Medicine at Monash. 104 Mr Narain apparently led no expert evidence in response to that of Professor Wesselingh. He gave his own evidence to meet the claim that the announcement was misleading in the respects claimed. 105 In our view, the evidence points strongly in favour of a finding that the announcement was misleading. However, since the matter must be remitted to the primary judge, or another judge of the Court, to determine the claim of contravention of s 180 of the Corporations Act, we think the appropriate course is that the remitter include the issue of whether the announcement was misleading. Conclusion and Orders 106 We agree with the orders proposed by the learned presiding judge. I certify that the preceding eighty-three (83) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jacobson and Gordon.

Associate: Dated: 3 July 2008 Counsel for the Appellant: T F Bathurst QC and J P Moore

Solicitor for the Appellant: Australian Securities and Investments Commission

Counsel for the Respondent: A J Myers QC, F M McLeod SC and J E Treleaven

Trade Practices Act 1974(Cth)

Financial Services Reform Act 2001(Cth)

Stamp Duties Act 1920(NSW)

Corporations Act 2001(Cth)ss 761A, 763A, 764A, 1041H

Australian Securities and Investments Commission v Narain

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