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[2009] WASCA 178
Court of Appeal (WA)
2009-10-16
Pullin JA
Original judgment source is linked above.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : BRAYSICH -v- THE QUEEN [2009] WASCA 178
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Criminal law - Creating a false or misleading appearance of active trading in securities on a stock market contrary to s 998(1) of the Corporations Law - Share trading involving 'wash sales' or no change in beneficial ownership - Whether mens rea required - The nature and effect of the deeming provisions in s 998(5) - What the accused must prove to make out the defence under s 998(6) - The meaning of 'active trading'
Criminal law - The elements of the offence of creating a false or misleading appearance of active trading in securities on a stock market contrary to s 998(1) of the Corporations Law - Share trading involving 'wash sales' or no change in beneficial ownership - Prosecution relied on the deeming provision in s 998(5)(a) - Whether the trial judge erred in failing to leave to the jury the defence under s 998(6) - Whether the trial judge erred in refusing to permit the accused to adduce expert evidence to the effect that the share trading transactions did not in fact create, and were not in fact likely to create, a false or misleading appearance of active trading - Whether the trial judge erred in failing to direct the jury that expert evidence called by the prosecution was only relevant to the prosecution case against the co-accused and not to the prosecution case against the accused
Criminal law - Creating a false or misleading appearance of active trading in securities on a stock market contrary to s 998(1) of the Corporations Law - Whether the trial judge failed adequately to put the defence case to the jury in summing up - Whether the verdicts of conviction were 'unsafe or unsatisfactory' - Whether there was sufficient evidence from which the jury could conclude beyond reasonable doubt that there was no change in beneficial ownership of the shares sold and purchased and that the accused knew there was no change in beneficial ownership
Corporations Act 2001 (Cth), s 998, s 1041B, s 1311, s 1401
Corporations Law, s 998, s 1311
Adelaide Building Co Pty Ltd (in liq) v ABC Investments Pty Ltd (1990) 8 ACLC 445
Australian Securities Commission v Nomura International Plc [1998] FCA 1570; (1998) 89 FCR 301
Brown v The Queen [2006] WASCA 145; (2006) 202 FLR 98
Cameron v Holt [1980] HCA 5; (1980) 142 CLR 342
Cesan v The Queen [2008] HCA 52; (2008) 236 CLR 358
CTM v The Queen [2008] HCA 25; (2008) 236 CLR 440
Donald v Australian Securities & Investments Commission [2000] FCA 1142; (2000) 104 FCR 126
Endresz v Whitehouse (1994) 14 ACSR 31
Endresz v Whitehouse [1998] 3 VR 461
Ernst & Ernst v Hochfelder [1976] USSC 76; (1976) 425 US 185
Fame Decorator Agencies Pty Ltd v Jeffries Industries Ltd [1998] NSWSC 157; (1998) 28 ACSR 58
Fingleton v The Queen [2005] HCA 34; (2005) 227 CLR 166
Forge v Australian Securities & Investments Commission [2006] HCA 44; (2006) 228 CLR 45
Gammon (Hong Kong) Ltd v Attorney-General of Hong Kong [1985] 1 AC 1
Harrold v Plenty [1901] 2 Ch 314
He Kaw Teh v The Queen [1985] HCA 43; (1985) 157 CLR 523
Hepples v Federal Commissioner of Taxation [1991] HCA 39; (1991) 173 CLR 492
Hunter Douglas Australia Pty Ltd v Perma Blinds [1970] HCA 63; (1970) 122 CLR 49
Interlego AG v Croner Trading Pty Ltd [1992] FCA 624; (1992) 39 FCR 348
Kennedy v Australian Securities & Investments Commission [2005] FCAFC 32; (2005) 142 FCR 343
Kural v The Queen [1987] HCA 16; (1987) 162 CLR 502
Leonard v Morris (1975) 10 SASR 528
Libke v The Queen [2007] HCA 30; (2007) 230 CLR 559
M v The Queen [1994] HCA 63; (1994) 181 CLR 487
Macquarie Bank Ltd v Fociri Pty Ltd (1992) 27 NSWLR 203
Mahmood v The State of Western Australia [No 2] [2008] WASCA 259
MFA v The Queen [2002] HCA 53; (2002) 213 CLR 606
North v Marra Developments Ltd [1981] HCA 68; (1981) 148 CLR 42
Pemble v The Queen [1971] HCA 20; (1971) 124 CLR 107
Plomp v The Queen [1963] HCA 44; (1963) 110 CLR 234
R v Hillier [2007] HCA 13; (2007) 228 CLR 618
R v Manasseh [2002] NSWCCA 27; (2002) 167 FLR 44
R v Wampfler (1987) 11 NSWLR 541
Re Woods; Ex parte Braysich [2004] WASCA 120; (2004) 28 WAR 530
RPS v The Queen [2000] HCA 3; (2000) 199 CLR 620
Scook v The Queen [2008] WASCA 114; (2008) 185 A Crim R 164
Shepherd v The Queen [1990] HCA 56; (1990) 170 CLR 573
Sherras v De Rutzen [1895] 1 QB 918
St Aubyn v Attorney-General [1951] UKHL 3; [1952] AC 15
Stingel v The Queen [1990] HCA 61; (1990) 171 CLR 312
Stubbs v Slater [1910] 1 Ch 632
The Council of the Shire of Redland v Stradbroke Rutile Pty Ltd [1974] HCA 4; (1974) 133 CLR 641
The State of Western Australia v Pollock [2009] WASCA 96
United States v Brown (1935) 79 F 2d 321
Van Den Hoek v The Queen [1986] HCA 76; (1986) 161 CLR 158
Weiss v The Queen [2005] HCA 81; (2005) 224 CLR 300
1 PULLIN JA: I have read a draft of Buss JA's reasons and I agree with them. I agree that the orders should be that leave to appeal should be granted and the appeal dismissed.
2 I only wish to take the opportunity of making the following observations about the formulation of ground 5 because it is a formulation which persists despite observations by the High Court that it is undesirable.
3 Ground 5 reads that the verdicts of the jury were:
[U]nsafe or unsatisfactory, as there was no evidence, or insufficient evidence, from which the jury could conclude beyond reasonable doubt that there was no change in beneficial ownership of the shares sold by Walthamstow to Challiston or that in any event the appellant knew that.
4 The appellant said that this ground relied upon s 30(3)(a) of the Criminal Appeals Act 2004 (WA) which provides that the Court of Appeal must allow an appeal if in its opinion the verdict of guilty on which the conviction is based should be set aside because, having regard to the evidence, it is unreasonable or cannot be supported. As Buss JA observes, that section does not contain the expression 'unsafe or unsatisfactory'. It was 'once common' for that expression to be used in place of the language of the section. See MFA v The Queen [2002] HCA 53; (2002) 213 CLR 606 [25] (Gleeson CJ, Hayne and Callinan JJ). However, the High Court has recently said, (in relation to another aspect of the Victorian equivalent of s 30) that it would be preferable if the words of the section were used, and not the many 'judicial expositions' about what the words mean, because substitutes for the language of the section may 'mask the nature of the appellate court's task' in considering the application of the statute. See Weiss v The Queen [2005] HCA 81; (2005) 224 CLR 300 [9] and [33]. See also Cesan v The Queen [2008] HCA 52; (2008) 236 CLR 358 [126] (in relation to the New South Wales equivalent of s 30).
5 BUSS JA: The appellant was convicted, after a trial in the District Court before Wisbey DCJ and a jury, on 25 counts of creating a false or misleading appearance of active trading on the Australian Stock Exchange (ASX), contrary to s 998(1) of the Corporations Act 2001 (Cth) (the Act). A person who contravened s 998(1) was guilty of an offence. See s 1311(1) of the Act. The penalty applicable to the offence was 200 penalty units or imprisonment for 5 years, or both. See s 1311(3) and sch 3 of the Act.
6 The appellant was tried with Dean George Scook on an indictment containing 285 counts of alleged breaches of s 998(1). The appellant was charged on 26 of those counts. Mr Scook was tried on the balance and convicted on 158 counts. See Scook v The Queen [2008] WASCA 114; (2008) 185 A Crim R 164 [1].
7 The counts against the appellant and Mr Scook concerned trading on the ASX in the shares of Intrepid Mining Corporation NL (Intrepid).
8 Section 998(1) prohibited a person from creating, or doing anything that is intended or likely to create, a false or misleading appearance of active trading in any securities on a stock market. The prosecution relied on s 998(5)(a), by which, relevantly, a person who enters into, or carries out, either directly or indirectly, any transaction of sale or purchase of any securities, being a transaction that does not involve any change in the beneficial ownership of the securities, is deemed to have created a false or misleading appearance of active trading in those securities on a stock market. The appellant, in his defence, sought to rely on, amongst other things, s 998(6), by which, in a prosecution of a person for a contravention of s 998(1) constituted by an act referred to in s 998(5), it is a defence if it is proved that the purpose or purposes for which the person did the act was not, or did not include, the purpose of creating a false or misleading appearance of active trading in securities on a stock market.
9 The appellant has appealed to this court against his conviction. On 4 April 2008, Miller JA ordered that the application for leave to appeal be heard together with the appeal.
The relevant interaction between the Act and the Corporations Law
10 The offences were committed by the appellant between 2 February 1998 and 27 February 1998. At that time, the creation of a false or misleading appearance of active trading on the ASX was an offence against s 998(1) of the Corporations Law. Contraventions of this provision occurring before the commencement of the Act were preserved as a 'pre-commencement liability' within s 1401(1) of the Act. By s 1401(2)(a) of the Act, for the purposes of subs (3) and (4) of s 1401, the Act was taken to include, relevantly, s 998 and s 1311 of the Corporations Law as enacted when the offences were committed. By s 1401(3) of the Act, the appellant incurred a 'substituted liability', equivalent to the 'pre-commencement liability' under s 998(1) and s 1311(1) of the Corporations Law, as if the provisions taken to be included in the Act by s 1401(2)(a) had applied to the conduct or circumstances that gave rise to the 'pre-commencement liability' in February 1998. See Forge v Australian Securities & Investments Commission [2006] HCA 44; (2006) 228 CLR 45 [103] - [115]; Kennedy v Australian Securities & Investments Commission [2005] FCAFC 32; (2005) 142 FCR 343 [40] - [57].
11 All of the offences concerned fully paid ordinary shares in Intrepid and conduct on the ASX.
(a) each of the transactions in the indictment relating to the appellant involved Challiston Pty Ltd (Challiston), a company associated with Mr Scook, purchasing shares in Intrepid from Walthamstow Pty Ltd (Walthamstow), a company associated with Steven Masel and his father, Lance Masel; and
(b) each of these transactions did not involve any change in the beneficial ownership of the shares.
13 The prosecution relied on the deeming provision in s 998(5)(a) of the Act in relation to each of the counts against the appellant.
14 The prosecution accepted at the trial that the deeming provision in s 998(5)(a) would not apply unless it proved beyond reasonable doubt that:
(a) the appellant entered into or carried out, either directly or indirectly, the relevant transactions;
(b) the transactions did not involve any change in the beneficial ownership of the shares; and
(c) the appellant knew there was no change in beneficial ownership.
15 The prosecution alleged the appellant caused the relevant transactions to take place.
(a) at all material times, the appellant was a director of Paul Morgan Securities Pty Ltd (Paul Morgan Securities), a stockbroking company;
(b) he was the broker who effected each of the transactions by taking the buy and sell orders; and
(c) he dealt directly with Mr Scook in relation to the placing of the orders, and also with members of the Masel family in relation to the re-booking of shares which Challiston had previously purchased, so that after the re-booking they were held by Walthamstow.
17 The facts and circumstances relied on by the prosecution to establish there was no change in beneficial ownership were these:
(a) Challiston purchased the shares in its own name.
(b) Walthamstow was a finance company that traded under the name Reliance Finance & Mortgage Services. It advanced money on the security of shares. Walthamstow perfected its security by transferring the shares into its name.
(c) From late 1997, Walthamstow advanced money to Mr Scook or one of his companies (including Challiston) under a series of nine loan facility letters for the purpose of enabling Mr Scook or one of his companies to buy shares in Intrepid. There were also a series of bridging loans in or about February 1998.
(d) At or before the time when settlement of a purchase of shares in Intrepid was required, the shares in question were re-booked to Walthamstow, with Walthamstow paying the purchase price.
(f) The re-booking to Walthamstow was necessary to enable Walthamstow to hold the shares as security for the finance made available by it to Mr Scook or one of his companies (including Challiston) for the purpose of purchasing the shares.
(g) The shares were held on the CHESS system (that is, the Clearing House Electronic Subregister System), with Paul Morgan Securities as the sponsoring broker. (CHESS performs two major functions for the ASX. First, it facilitates the settlement and clearing of trades in shares. Secondly, it provides an electronic subregister for shares in companies listed on the ASX.)
(h) Walthamstow was registered under the CHESS system as the holder of the shares. It could initiate transactions or cause transactions to be initiated on the CHESS system in relation to the shares. Walthamstow authorised Mr Scook to initiate sales, but not purchases, on Walthamstow's account. Walthamstow might itself sell shares or it might require Mr Scook to sell them if the value of the shares (and, therefore, the value of Walthamstow's security for its loans) fell.
18 According to the prosecution, in the circumstances, at all material times Challiston retained a beneficial interest in the shares in question.
19 The prosecution alleged the appellant knew that the shares were being re-booked to Walthamstow pursuant to finance arrangements between Mr Scook/Challiston and Walthamstow. In particular:
(a) The appellant was the broker in each of the trades.
(b) The appellant knew of, and initiated, the re-booking of each parcel of shares upon taking instructions from Mr S Masel on behalf of Walthamstow.
(c) The number of, and reason for, the re-bookings was unusual. Ordinarily, re-booking was undertaken to correct an error.
(d) The appellant marked the re-booking forms with the word 'finance' or 'financing'.
(e) The appellant knew that Walthamstow was a finance company and was acting as Mr Scook's/Challiston's financier in connection with the purchases. The appellant spoke to Mr S Masel of Walthamstow 'probably dozens of times' about whether Walthamstow was financing shares or was prepared to accept a transfer of shares into its name. Also, the appellant received facsimile transmissions from Walthamstow addressed to Paul Morgan Securities regarding the loans to Mr Scook/Challiston and the financing of particular purchases. On occasions, the appellant approached Mr S Masel about whether Walthamstow would be advancing finance even before Mr S Masel had received a request for finance from Mr Scook/Challiston.
(f) The appellant informed his colleague at Paul Morgan Securities, Carol Simpson (who was the manager in charge of compliance with rules and regulations affecting the company and its business), that the re-bookings were necessary, as a result of Walthamstow's provision of finance to Mr Scook/Challiston, because Walthamstow did not want to accept a credit risk and therefore did not want any of the shares booked to its name until the settlement date for each transaction.
20 The appellant made extensive admissions at the trial. In particular, he admitted, in relation to each transaction in question:
(a) Challiston was the buyer and Walthamstow the seller;
(c) Paul Morgan Securities was the broker for both buyer and seller; and
(d) the time and place of the buy order, sell order and trade.
21 The appellant also admitted that 11 of the relevant transactions were effected by a 'crossing'. The term 'crossing' describes a securities transaction where a broker acts for both the seller and the buyer. On one of these trades, the subject of count 283 on the indictment, the appellant was acquitted.
22 Further, the appellant admitted various facts which facilitated the tendering of numerous documents.
23 The appellant did not admit he caused all of the relevant transactions to occur. He denied the transactions did not involve any change in beneficial ownership. Further, he denied he knew that Challiston was the beneficial owner of the shares held in Walthamstow's name.
Section 998 of the Corporations Law: legislative history and proper construction
24 This appeal raises several issues as to the proper construction and application of s 998 of the Corporations Law. It is convenient to identify and address those issues, in the context of the legislative history, before turning to the grounds of appeal.
25 In the United States, federal regulation of securities transactions emerged from the ruins of the 1929 stock market crash. The Securities Act 1933, 48 Stat 74, as amended, 15 USC chap 77a and following, was intended to provide investors with proper disclosure of material information in relation to public offerings of securities in commerce, to protect investors against fraud and to promote ethical standards of honesty and fair dealing. The Securities Exchange Act 1934, 48 Stat 891, 15 USC chap 78j(b) (the 1934 Act) was intended primarily to protect investors against manipulation of stock prices by regulating securities transactions and imposing regular reporting requirements on companies listed on national securities exchanges. See Ernst & Ernst v Hochfelder [1976] USSC 76; (1976) 425 US 185, 194 - 195.
26 Section 9(a)(1) of the 1934 Act prohibited 'wash sales' and 'matched orders' effected for the purpose of creating a false or misleading appearance of active trading in any security register on a national securities exchange, or a false or misleading appearance with respect to the market for any such security. A 'wash sale' is a securities transaction in which, by the intent of the parties, there is no change in the beneficial ownership: s 9(a)(1)(A). 'Matched orders' are orders entered for the purchase of a security with the knowledge that an order or orders of substantially the same size at substantially the same price have been or will be entered at substantially the same time for the sale of such security and vice versa with respect to sale and purchase: s 9(a)(1)(B) - (C). It appears the United States Congress specifically prohibited 'wash sales' and 'matched orders' in the 1934 Act because this form of activity was considered in 1934 to be 'the most vicious practice of the stock exchanges ... on a par with the use of loaded dice ... however, more reprehensible': 78 Cong Rec 7,717 (1934). See also Poser NS, 'Stock Market Manipulation & Corporate Control Transactions' (1986) 40 University of Miami Law Review 671, 702; Lowenfels LD, 'Sections 9(a)(1) and 9(a)(2) of the Securities Exchange Act of 1934: An analysis of two important anti-manipulative provisions under the federal securities laws' (1991) 85 (Spring) Northwestern University Law Review 698, 698 - 700. In United States v Brown (1935) 79 F 2d 321, it was said:
'Wash' sales are a deceit, because they broadcast the fact that a buyer and a seller have agreed to exchange the shares at the published price, when they have not done so (325).
27 In 1970 and 1971, New South Wales, Victoria, Western Australia and Queensland (the four States that were parties to the Interstate Corporate Affairs Agreement) enacted securities industry legislation. The statutes were, relevantly, comparable. Section 79 of the Securities Industry Act 1970 (WA) provided, relevantly:
(1) A person shall not, by means of the purported purchases or sales of securities involving no change in the beneficial ownership of the securities, or by any fictitious transaction or other device, inflate, depress, or cause fluctuations in, the market price of any securities.
Penalty - On conviction on indictment, two thousand dollars or imprisonment for two years, or both.
(2) For the purposes of subsection (1) of this section, a purchase or sale of securities involves no change in the beneficial ownership of the securities if a person, or a person associated with him in relation to the securities, who held an interest in the securities, before the purchase or sale, holds an interest in them after the purchase or sale.
...
28 On 19 March 1970, the Senate of the Parliament of the Commonwealth resolved to appoint a select committee to inquire into and report on the desirability and feasibility of establishing a securities and exchange commission by the Commonwealth, either alone or in cooperation with the States, to act against, amongst other things, market manipulation and other injurious practices. In July 1974, the report of the select committee (the Rae Report) was published. In chapter 8 of the Rae Report, reference was made to three manipulative practices which it described as 'pools', 'churning' and 'runs in shares'. The committee had received evidence on how share traders operating in the Australian markets had used the device of 'churning'. The Rae Report reads, relevantly:
They first acquired a holding in a share and then proceeded to place both buying and selling orders for that share, usually at about the same price, or at slightly rising prices, in order to build up the turnover. The buying and selling following the initial purchase about balanced each other out, so that no great additional investment was required. These schemes apparently were usually carried out through several brokers, some of whom did not know that they were being used for the purpose of market manipulation.
When sales arising from the churning were reported to the stock exchanges, unsuspecting investors interpreted the statistics as reflecting genuine interest by the market, and were induced to buy the shares. As the process gathered way, both price and turnover increased further, thereby providing the opportunity for the organisers of this churning to sell the shares they had originally acquired at a profit (8.2 - 8.3).
The device of 'churning' was similar to (if not identical with) 'wash sales' as defined in s 9(a)(1)(A) of the 1934 Act. The device of 'pooling' was similar to (if not identical with) 'matched orders' as defined in s 9(a)(1)(B) - (C) of the 1934 Act.
29 The Rae Report recommended that a new national regulatory body be established by the Commonwealth Government and legislation be enacted to ensure the securities market was properly regulated. The objects of the legislation would be, first, to maintain, facilitate and improve the performance of the capital market in the interests of economic development, efficiency and stability and, secondly, to ensure adequate protection of those who invest in the securities of public companies and in the securities market (16.14 - 16.15).
30 In 1975, New South Wales, Victoria, Western Australia and Queensland enacted new securities legislation. Again, the statutes were, relevantly, comparable. Section 109 of the Securities Industry Act 1975 (WA) provided, relevantly:
(1) A person shall not create, or cause to be created, or do anything that is calculated to create, a false or misleading appearance of active trading in any securities on a stock market in the State, or a false or misleading appearance with respect to the market for, or the price of, any such securities.
...
(3) Without affecting the generality of [subsection (1)], a person who -
(a) effects, takes part in, is concerned in or carries out, either directly or indirectly, any transaction of sale or purchase of any securities, being a transaction that does not involve any change in the beneficial ownership of the securities;
(b) ... ; or
(c) ...
shall be deemed to have created a false or misleading appearance of active trading in securities on a stock market.
(4) It is a defence to a prosecution of a person for an offence under this section in respect of acts referred to in subsection (3) done by him if the person proves that he did the acts for a purpose other than the purpose of creating a false or misleading appearance of active trading in securities on a stock market.
(5) A purchase or sale of securities does not involve a change in the beneficial ownership for the purposes of this section if a person who had an interest in the securities before the purchase or sale, or a person associated with the first-mentioned person in relation to those securities, has an interest in the securities after the purchase or sale.
31 On 22 December 1978, the Commonwealth and the six States executed a formal agreement that provided the framework for a cooperative Commonwealth/State scheme for a uniform system of law and administration in relation to company law and the regulation of the securities industry in the six States and the Australian Capital Territory. Pursuant to that agreement, a new securities industry code was drafted and enacted. It included a provision based on s 109 of the 1975 legislation. See s 124 of the Securities Industry Act 1980 (Cth).
32 At the material time, for the purposes of this appeal, s 998 of the Corporations Law read, relevantly:
(1) A person shall not create, or do anything that is intended or likely to create, a false or misleading appearance of active trading in any securities on a stock market or a false or misleading appearance with respect to the market for, or the price of, any securities.
...
(5) Without limiting the generality of subsection (1), a person who:
(a) enters into, or carries out, either directly or indirectly, any transaction of sale or purchase of any securities, being a transaction that does not involve any change in the beneficial ownership of the securities;
(b) offers to sell any securities at a specified price where the person has made or proposes to make, or knows that an associate of the person has made or proposes to make, an offer to buy the same number, or substantially the same number, of securities at a price that is substantially the same as the first-mentioned price; or
(c) offers to buy any securities at a specified price where the person has made or proposes to make, or knows that an associate of the person has made or proposes to make, an offer to sell the same number, or substantially the same number, of securities at a price that is substantially the same as the first-mentioned price;
shall be deemed to have created a false or misleading appearance of active trading in those securities on a stock market.
(6) In a prosecution of a person for a contravention of subsection (1) constituted by an act referred to in subsection (5), it is a defence if it is proved that the purpose or purposes for which the person did the act was not, or did not include, the purpose of creating a false or misleading appearance of active trading in securities on a stock market.
(7) A purchase or sale of securities does not involve a change in the beneficial ownership for the purposes of this section if a person who had an interest in the securities before the purchase or sale, or an associate of the person in relation to those securities, has an interest in the securities after the purchase or sale.
...
(9) The reference in paragraph (5)(a) to a transaction of sale or purchase of securities includes:
(a) a reference to the making of an offer to sell or buy securities; and
(b) a reference to the making of an invitation, however expressed, that expressly or impliedly invites a person to offer to sell or buy securities.
33 In North v Marra Developments Ltd [1981] HCA 68; (1981) 148 CLR 42, the High Court considered s 70 of the Securities Industry Act 1970 (NSW), which was relevantly comparable to s 79 of the Securities Industry Act 1970 (WA). See [27] above. Mason J (with whom the other members of the court agreed) examined the meaning to be ascribed to the word 'calculated' in s 70, in the context of the prohibition against doing anything which is calculated to create 'a false or misleading appearance with respect to the market for, or the price of, any securities':
In terms the statutory prohibition is directed against activity which is designed to give the market for securities or the price of securities a false or misleading appearance. In this setting, 'calculated' means 'designed' or 'intended' rather than 'adapted' or 'suited'. It is not altogether easy to translate the generality of this language into a specific prohibition against injurious activity, whilst at the same time leaving people free to engage in legitimate commercial activity which will have an effect on the market and on the price of securities. Purchases or sales are often made for indirect or collateral motives, in circumstances where the transactions will, to the knowledge of the participants, have an effect on the market for, or the price of, shares. Plainly enough it is not the object of the section to outlaw all such transactions (58 - 59).
34 His Honour then noted that the object of s 70 was to protect the market for securities against activities which will result in artificial or managed manipulation:
The section seeks to ensure that the market reflects the forces of genuine supply and demand. By 'genuine supply and demand' I exclude buyers and sellers whose transactions are undertaken for the sole or primary purpose of setting or maintaining the market price. It is in the interests of the community that the market for securities should be real and genuine, free from manipulation. The section is a legislative measure designed to ensure such a market and it should be interpreted accordingly (59).
See also Fame Decorator Agencies Pty Ltd v Jeffries Industries Ltd [1998] NSWSC 157; (1998) 28 ACSR 58, 62 - 63 (Gleeson CJ, Powell JA agreeing).
35 In North, Mason J rejected the suggestion that s 70 struck only at fictitious or colourable transactions:
Transactions which are real and genuine but only in the sense that they are intended to operate according to their terms, like fictitious or colourable transactions, are capable of creating quite a false or misleading impression as to the market or the price. This is because they would not have been entered into but for the object on the part of the buyer or of the seller of setting and maintaining the price, yet in the absence of revelation of their true character they are seen as transactions reflecting genuine supply and demand and having as such an impact on the market (59).
36 Section 998(1) of the Corporations Law is materially different from s 70 of the Securities Industry Act 1970 (NSW) in that s 998(1) removed the phrase 'cause to be created', and substituted the phrase 'intended or likely to create' for 'calculated to create'.
37 Section 998(1) is directed at numerous forms of related conduct. In Australian Securities Commission v Nomura International Plc [1998] FCA 1570; (1998) 89 FCR 301, Sackville J illustrated this point by re-formulating the provision as follows:
Section 998(1) of the Corporations Law provides that a person shall not:
(i) create; or
(ii) do anything that is intended to create; or
(iii) do anything that is likely to create
a false or misleading appearance
(iv) of active trading in any securities on a stock market;
(v) with respect to the market for any securities; or
(vi) with respect to the price of any securities (390). (original emphasis)
38 As Wheeler JA (Martin CJ & Buss JA agreeing) observed in Brown v The Queen [2006] WASCA 145; (2006) 202 FLR 98, his Honour could have broken down the proscribed conduct further in that, at least in some circumstances, conduct may be characterised as creating either a false or a misleading appearance [18].
39 Section 998(1) does not create a hierarchy of offending. The provision, read with s 1311(1), creates one offence which can be committed in numerous different ways with but one penalty attached to it. See Brown [19]. For the purposes of this appeal, s 998(1) has, relevantly, three limbs. The first prohibits a person from creating a false or misleading appearance of active trading in any securities on a stock market. The second prohibits a person from doing anything that is intended to create a false or misleading appearance of active trading. The third prohibits a person from doing anything that is likely to create a false or misleading appearance of active trading.
40 Section 998(5)(a) refers, in substance, to wash sales. Section 998(5)(b) and (c) refer, in substance, to matched orders. The deeming provisions of s 998(5), and the defence in s 998(6), are confined to the creation of a false or misleading appearance of active trading in securities on a stock market, within the first limb of s 998(1). That is, the deeming provisions and the defence do not apply to the creation of a false or misleading appearance with respect to the market for, or the price of, any securities. Also, the deeming provisions and the defence do not apply to the second and third limbs of s 998(1). The words 'without limiting the generality of subsection (1)' in s 998(5) manifest a Parliamentary intention that the prohibition in the first limb of s 998(1), against the creation of a false or misleading appearance of active trading in any securities on a stock market, is not confined to wash sales and matched orders.
41 In the present case, all of the counts against the appellant in the indictment charged that he had 'created a false or misleading appearance of active trading' in the fully paid ordinary shares of Intrepid. That is, it was alleged he had actually created, within the first limb of s 998(1), a false or misleading appearance of active trading. It was not alleged he had done anything that was 'intended or likely to create' a false or misleading appearance of active trading.
42 Counts 260, 261, 262, 264, 265, 267, 269, 270, 272, 276, 277 and 278 alleged that the appellant created a false or misleading appearance of active trading in that he 'caused to be made an offer to buy' (emphasis added) a specified number of fully paid ordinary shares in Intrepid at a specified price, and thereby caused to be carried out a transaction that did not involve any change in the beneficial ownership of those shares. Counts 263, 268 and 271 alleged that the appellant created a false or misleading appearance of active trading in that he 'caused to be made an offer to sell' (emphasis added) a specified number of fully paid ordinary shares in Intrepid at a specified price, and thereby caused to be carried out a transaction that did not involve any change in the beneficial ownership of those shares. Counts 266, 273, 274, 275, 279, 280, 281, 282, 283, 284 and 285 alleged that the appellant created a false or misleading appearance of active trading in that he 'caused to be carried out a transaction' in respect of a specified number of fully paid ordinary shares in Intrepid which did not involve any change in beneficial ownership. The appellant was acquitted on count 283.
43 As I have mentioned, the prosecution relied on the deeming provision in s 998(5)(a) in relation to all of the counts against the appellant.
44 In the present case, the issues which arise as to the proper construction and application of s 998 are as follows. Where a person has been charged with actually creating a false or misleading appearance of active trading, within the first limb of s 998(1), and the prosecution relies on the deeming provision in s 998(5)(a):
(a) What is the nature and effect of the deeming provision?
(b) Is it necessary for the prosecution to prove that the accused had the intention or purpose of creating a false or misleading appearance of active trading or to prove some other aspect of mens rea?
(c) What must the accused prove to make out the defence conferred by s 998(6)?
(d) What is the meaning of a false or misleading appearance of 'active trading'?
Section 998 of the Corporations Law: the deeming provision in s 998(5)(a)
46 By s 998(5)(a) of the Corporations Law, relevantly, a person who enters into, or carries out, either directly or indirectly, any transaction of sale or purchase of any securities, being a transaction that does not involve any change in the beneficial ownership of the securities, 'shall be deemed' to have created a false or misleading appearance of active trading in those securities on a stock market.
47 It is necessary, in considering s 998(5)(a), to distinguish between two different questions. First, what is the meaning of the word 'deemed'? Secondly, what was the intention of the Parliament in enacting the deeming provision?
48 As to the first question, the word 'deemed' means 'judged'. See Macquarie Bank Ltd v Fociri Pty Ltd (1992) 27 NSWLR 203, 207 (Gleeson CJ, Cripps JA agreeing). See also Hunter Douglas Australia Pty Ltd v Perma Blinds [1970] HCA 63; (1970) 122 CLR 49, where Windeyer J explained:
[T]o deem means simply to judge or reach a conclusion about something (65).
49 As to the second question (that is, the intention of the Parliament in enacting the deeming provision), Gleeson CJ observed in Macquarie Bank (207):
It commonly happens that, because legislation contains a deeming provision, there may arise a question of construction which turns, not so much upon the meaning of the word 'deemed', as upon a view concerning the statutory purpose for which it has been used. Such a question may turn, for example, upon whether the legislature is intending to create a statutory fiction or whether, on the other hand, it is merely making a provision for the removal of doubt which might otherwise exist: see, eg, Muller v Dalgety & Co Ltd [1909] HCA 67; (1909) 9 CLR 693 at 696 per Griffith CJ.
50 In Hunter Douglas Australia, Windeyer J expounded upon the legislative contexts in which the word 'deemed' is used (65 - 67). His Honour said the word does not necessarily import artificiality or fiction (67):
There is no presumption, still less any rule, that wherever the word 'deemed' appears in a statute it demonstrates a 'fiction' or some abnormality of terminology. Sometimes it does. Often it does not. Much depends upon the context in which the word appears, as appears among other cases from Minister for Lands v. Everingham ((1915) 15 SR (NSW) 311) and more recently in the judgment of Walsh J in the Supreme Court in Ex parte Armstrong; Re Hughes ((1962) 80 WN (NSW) 566, at p 568).
Compare The Council of the Shire of Redland v Stradbroke Rutile Pty Ltd [1974] HCA 4; (1974) 133 CLR 641, 655, where Gibbs J said it is clear that in many contexts the word 'deemed' does import artificiality or fiction. His Honour referred, at 655, to this passage from Lord Radcliffe's speech in St Aubyn v Attorney-General [1951] UKHL 3; [1952] AC 15:
The word 'deemed' is used a great deal in modern legislation. Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible (53).
51 In Re Woods; Ex parte Braysich [2004] WASCA 120; (2004) 28 WAR 530, Murray J (Templeman J agreeing & McLure J agreeing in substance) said in relation to s 998(5):
Proof of any of the matters to which the subsection refers, in this case the carrying out of transactions of sale or purchase of securities which do not involve any change in the beneficial ownership of the securities, will prove the creation of a false or misleading appearance of active trading in those securities on a stock market, whether the subsection is applied with or without benefit of the assistance of the expanded notion of a transaction of sale or purchase of securities provided by the application of subs (9).
To rely upon those provisions in aid of the process of proving an offence charged contrary to s 998(1), is not to create an offence of entering into or carrying out a transaction of sale or purchase of the kind described in s 998(5)(a). It remains a mode of proof of an offence against s 998(1). Therefore the offence with which the Court is concerned in this case may be described as an offence constituted by any act or omission which has the effect or result of creating the false or misleading appearance of active trading proscribed by s 998(1) [9] - [10].
52 In my opinion, s 998(5)(a) facilitates proof. Section 998(5)(a) may be relied on by the prosecution to prove that the accused, by engaging in the activity described in the provision, created a false or misleading appearance of active trading in the securities in question on a stock market, within the first limb of s 998(1). Proof of the activity described in s 998(5)(a) is sufficient to produce the consequence that the accused, for the purposes of s 998(1) read with s 1311(1) of the Corporations Law, is to be judged to have created a false or misleading appearance of active trading. These observations also apply, with necessary modifications, to s 998(5)(b) and (c).
53 The prosecution is not, of course, confined to s 998(5) in proving that an accused created a false or misleading appearance of active trading. Section 998(5) expressly states that its provisions are without limitation to the generality of s 998(1). So, where the prosecution is unable or, for some reason, chooses not to rely on the deeming provisions in s 998(5), it may prove, by conventional evidentiary means, that the accused in fact created a false or misleading appearance of active trading.
54 In my opinion, where the prosecution relies on and proves beyond reasonable doubt that the accused knowingly engaged in the activity described in s 998(5)(a) then, subject to s 998(6), the prosecution will have established the offence created by the first limb of s 998(1), read with s 1311(1). The accused will have 'knowingly engaged' in the activity described in s 998(5)(a) if he or she knew that the transaction of sale or purchase of securities did not involve any change in the beneficial ownership of the securities. See [90] - [94] below. The accused cannot go behind the deeming provision once the prosecution has proved the conditions for its engagement. He or she may, however, endeavour to make out the defence conferred by s 998(6).
Section 998 of the Corporations Law: where the prosecution relies on the deeming provision in s 998(5)(a), is it necessary for the prosecution to prove that the accused had the intention or purpose of creating a false or misleading appearance of active trading or to prove some other aspect of mens rea?
55 The first limb of s 998(1) (that is, a person shall not create a false or misleading appearance of active trading) does not expressly incorporate a subjective fault element. The second limb (that is, a person shall not do anything that is intended to create a false or misleading appearance of active trading) embodies a subjective fault element in that an intention to create the proscribed consequence or result is an element of the offence. The third limb (that is, a person shall not do anything that is likely to create a false or misleading appearance of active trading) does not expressly incorporate a subjective fault element.
56 At common law, there is a presumption that all offences, including statutory offences, involve a subjective fault element. See Sherras v De Rutzen [1895] 1 QB 918, 921 (Wright J); Cameron v Holt [1980] HCA 5; (1980) 142 CLR 342, 346 (Barwick CJ), 348 (Mason J).
57 In Gammon (Hong Kong) Ltd v Attorney-General of Hong Kong [1985] 1 AC 1, Lord Scarman, delivering the advice of the Privy Council, said:
In their Lordships' opinion, the law relevant to this appeal may be stated in the following propositions ... (1) there is a presumption of law that mens rea is required before a person can be held guilty of a criminal offence; (2) the presumption is particularly strong where the offence is 'truly criminal' in character; (3) the presumption applies to statutory offences, and can be displaced only if this is clearly or by necessary implication the effect of the statute; (4) the only situation in which the presumption can be displaced is where the statute is concerned with an issue of social concern, and public safety is such an issue; (5) even where a statute is concerned with such an issue, the presumption of mens rea stands unless it can also be shown that the creation of strict liability will be effective to promote the objects of the statute by encouraging greater vigilance to prevent the commission of the prohibited act (14).
See also He Kaw Teh v The Queen [1985] HCA 43; (1985) 157 CLR 523, 528, 530 (Gibbs CJ), 566 (Brennan J).
58 In R v Wampfler (1987) 11 NSWLR 541, Street CJ (Hunt & McInerney JJ agreeing) reviewed the High Court's decision in He Kaw Teh and said the case was authority for the proposition that, for the purposes of considering criminal intent, statutory offences fall into three categories (546). The first category is those in which there is an original obligation on the prosecution to prove mens rea. The second is those in which mens rea is presumed to be present unless and until the defence adduces or points to evidence of the existence of honest and reasonable belief that the impugned conduct is not criminal, in which case the prosecution bears the burden of negativing such belief beyond reasonable doubt. The third is those in which mens rea is irrelevant, and guilt is established by proof of the objective elements of the offence (546).
59 The common law presumption that all offences, including statutory offences, involve a subjective fault element, may be displaced either expressly or by necessary implication. See Cameron, 346 (Barwick CJ), 348 (Mason J); He Kaw Teh, 566 (Brennan J).
60 In He Kaw Teh, Gibbs CJ pointed out that the presumption is not always easy to apply. He referred, in the context of the case before him, to two difficulties. The first was in deciding whether the Parliament intended that the proscribed conduct should be punishable even in the absence of some blameworthy state of mind. The second was, if it is held that mens rea is an element of the offence, in deciding exactly what mental state is imported (529).
61 The expression 'mens rea' is ambiguous and imprecise. See He Kaw Teh, 530 (Gibbs CJ), 568 (Brennan J). As Brennan J noted in that case:
It is the 'beginning of wisdom', as Lord Hailsham of St. Marylebone said in Reg v Morgan ([1976] AC 182, at p 213), to see 'that "mens rea" means a number of quite different things in relation to different crimes'. Indeed, it may connote different states of mind in respect of the several external elements of the same crime (568).
62 In He Kaw Teh, Gibbs CJ held that in deciding whether, on the facts of that case, the Parliament intended that the statutory offence in question should have no mental element, several matters must be considered. First, the language of the provision creating the offence. Secondly, the subject matter dealt with by the statute. Thirdly, the seriousness of the consequences of the offence for the community. Fourthly, the seriousness of the consequences for a defendant who had no intention to do anything wrong and no knowledge that he or she was doing something wrong (529 - 530).
63 He Kaw Teh was concerned with the form of mens rea that relates to conduct defined as 'importing' and 'having in possession', in the context of the offence created by s 233B(1) of the Customs Act 1901 (Cth). According to Brennan J:
The principle applicable at common law was stated by Jordan CJ in R v Turnbull ((1943) 44 SR (NSW) 108, at p 109):
' ... it is also necessary at common law for the prosecution to prove that he knew that he was doing the criminal act which is charged against him, that is, that he knew that all the facts constituting the ingredients necessary to make the act criminal were involved in what he was doing. If this be established, it is no defence that he did not know that the act which he was consciously doing was forbidden by law. Ignorance of the law is no excuse. But it is a good defence if he displaces the evidence relied upon as establishing his knowledge of the presence of some essential factual ingredient of the crime charged' ...
In O'Connor ((1980) 146 CLR, at p 97), Stephen J defined 'criminal intention' by citing Jordan CJ's statement of the requirement of knowledge. Prima facie, the requirement of knowledge relates not only to the facts which give character to the physical act involved in the commission of the offence but also to the circumstances which attend its occurrence and make it criminal (572). (original emphasis)
64 As Mason CJ, Deane and Dawson JJ pointed out in Kural v The Queen [1987] HCA 16; (1987) 162 CLR 502, the mental elements in different offences vary widely and, as a result, it is impossible to make a statement which is universally valid for all purposes about the essential elements of a guilty mind (504). Their Honours elaborated:
Depending upon the nature of the particular offence the requirement of a guilty mind may involve intention, foresight, knowledge or awareness with respect to some act, circumstance or consequence (504).
65 Where an offence comprises a subjective fault element and a physical element, and the physical element involves a consequence or result brought about by the accused's conduct, the prosecution must ordinarily prove beyond reasonable doubt that the accused's purpose was to produce the consequence or result in question. If an accused has the requisite purpose, he or she will have acted intentionally even though, to the accused's knowledge, it is improbable that the consequence or result will eventuate. See Leonard v Morris (1975) 10 SASR 528, 531 - 532 (Bray CJ). See also the discussion in Bronitt S and McSherry B, Principles of Criminal Law (2nd ed, 2005) 174 - 178.
66 Where an offence involves the commission of a proscribed act, a guilty mind exists where the accused's intention was to do the proscribed act. In Kural, Mason CJ, Deane and Dawson JJ said in relation to the proof of the existence of the requisite intention in such circumstances:
Sometimes there is direct evidence in the form of an admission by the accused that he intended his conduct to involve the forbidden act. More often, the existence of the requisite intention is a matter of inference from what the accused has actually done. The intention may be inferred from the doing of the proscribed act and the circumstances in which it was done (504).
67 In Endresz v Whitehouse (1994) 14 ACSR 31, Hansen J said, in the context of a prosecution under s 124(1) of the Securities Industry (Vic) Code (being the counterpart of s 998(1)), that where s 124(3)(a) (being the counterpart of s 998(5)(a)) applies, evidence of mens rea is not required for a conviction. Remarkably, in the present case, neither counsel for the appellant nor counsel for the respondent referred to Hansen J's decision, although counsel for the respondent did cite the judgment on appeal from his Honour.
68 The salient facts of Endresz were these. The appellant was a director of CTC Nominees Pty Ltd (CTC). He was also a director of Emu Hill Goldmines NL (Emu), a company listed on the stock exchange. The appellant, on behalf of CTC, negotiated an agreement to acquire from a third party a majority interest in Emu, subject to the approval of the shareholders of Emu. The agreement was terminated before being submitted for approval to Emu's shareholders. Some time later, a similar agreement was entered into between the parties for the acquisition of a majority interest in Emu at a lower price. The appellant then instructed a broker to purchase four million shares in Emu at a price in excess of the then current market price. He also gave instructions to another broker to sell four million shares in Emu at the same price. The appellant was charged with, relevantly, breaching s 124(1) of the Securities Industry (Vic) Code in that he had created a false or misleading appearance of active trading in Emu on a stock market in Victoria. He was convicted by a magistrate and appealed. Hansen J dismissed the appeal.
69 The respondent in Endresz argued relevantly that, as a matter of construction, the burden of proof in relation to intention for the purpose of proving (or disproving, as the case may be) a charge under s 124(1) was reversed where s 124(3)(a) is invoked. It was submitted that the burden lies on the defendant by reason of s 124(4) (being the counterpart of s 998(6)). Hansen J held that it was unnecessary to resolve 'these questions of intention' because the magistrate had not merely based his decision upon the deeming provision in s 124(3)(a) and a rejection of the defence under s 124(4). Rather, the magistrate had, in addition, found that the appellant had in fact created a false or misleading appearance of active trading in the stock contrary to the specific terms of s 124(1) (39).
70 Nevertheless, Hansen J expressed his view on the point:
While proof of the commission of an offence against s 124(1), standing alone, may be taken as requiring proof by the informant of the necessary mens rea of the defendant, where s 124(3)(a) applies, the necessity of proving this element is removed. It was argued by the appellant that the legislature could not have intended this and that by reference to the principles in He Kaw Teh the court should be reluctant to find that the presumption of mens rea was not a necessary element of the offence. It seems to me that this ignores the specific terms of s 124(3) and the operation of the defence in s 124(4). The latter provision makes consideration of the element of intention or purpose relevant to a charge under s 124(1) where the deeming provisions contained in s 124(3) apply, but only in terms of the defendant establishing that the purpose was not or did not include the purpose of creating a false or misleading appearance of active trading. Of course the prosecution may by the evidence seek to counter the defence but in such a case it remains for the defendant to establish the defence and not for the prosecution to prove a positive intention to commit the offence (which has been 'deemed' to have occurred). On the facts the learned magistrate found that the defence was not made out (40).
71 The Court of Appeal of Victoria dismissed an appeal from Hansen J's decision: Endresz v Whitehouse [1998] 3 VR 461. It was unnecessary for the Court of Appeal to rule on the correctness of the view expressed by the learned primary judge, and it did not make any comment on the point.
72 In Nomura International, Sackville J considered whether the third limb of s 998(1) (that is, a person shall not do anything that is likely to create a false or misleading appearance of active trading) required proof of mens rea. It was not essential to his Honour's decision in the case to resolve this point, but he expressed the view that s 998(1) did not 'require proof that the defendant knew, at the time of the allegedly contravening conduct, that the false or misleading appearances were likely to be created by the conduct' (405 - 406). His Honour then said:
It is true that, as Brennan J said in He Kaw Teh v The Queen [1985] HCA 43; (1985) 157 CLR 523 at 567:
'[h]owever grave the mischief at which a statute is aimed may be, the presumption is that the statute does not impose criminal liability without mens rea unless the purpose of the statute is not merely to deter a person from engaging in prohibited conduct but to compel him to take preventive measures to avoid the possibility that, without deliberate conduct on his part, the external elements of the offence might occur.'
Nonetheless, his Honour recognised (at 567) that the question of whether mens rea is an essential element of an offence is 'after all, a question of statutory construction'. Brennan J also pointed out (at 568) that mens rea may 'connote different states of mind in respect of the several external elements of the same crime'; see also Gibbs CJ, at 530.
As Mr Bathurst accepted, s 998(1) embodies alternatives. The subsection specifically proscribes the conduct intended to create a false or misleading appearance of active trading or with respect to the price of any security. The introduction of the expression 'likely to create' in s 998(1) of the Corporations Law was clearly designed to cover conduct other than conduct intended to create misleading appearance. By the words 'likely to create', the drafter sought to prohibit conduct which, objectively assessed, was likely to create a false or misleading appearance and thus be likely to detract from the operation of the ordinary forces of supply and demand. The severity of the consequences attaching to a breach of s 998(1) are sufficiently recognised by construing 'likely' to mean more probable than not.
This does not mean, of course, that the third limb of s 998(1) involves no mental element. Doubtless, it is necessary to show that the alleged contravener intended to carry out the conduct relied on as creating the likelihood of a misleading or deceptive appearance. But I do not think it is necessary to prove that the alleged contravener was aware that the conduct would be likely to have a false or misleading appearance of the kind specified in s 998(1). However, as I have already indicated, it is not necessary to express a final view on this issue (406).
His Honour did not express any view in relation to whether the first limb of s 998(1) required proof of mens rea, either where the deeming provision in s 998(5) was relied on or where it was not.
73 In Donald v Australian Securities & Investments Commission [2000] FCA 1142; (2000) 104 FCR 126, Heerey J agreed with Sackville J's obiter view in Nomura International that the third limb of s 998(1) did not import any requirement of mens rea. His Honour elaborated as follows:
[Sackville J's obiter view] is also supported by an examination of other provisions of Div 2 of Pt 7.11 where the statute specifically provides for carefully differentiated states of minds, and in some cases no state of mind at all. Section 995(2) prohibits misleading or deceptive conduct in relation to dealings in securities. No mental element is specified. The section corresponds to s 52 of the Trade Practices Act 1974 (Cth) where it has long been established that proof of intention to engage in misleading or deceptive conduct is not required to establish a contravention. By contrast, s 997 prohibits carrying out two or more transactions in securities which are likely to have the effect of increasing the price of those securities with a particular defined intent; namely an 'intent to induce other persons to buy or subscribe for securities of the body corporate'. A specific intention is also prescribed in s 998 itself. Subsections (5) and (6) are concerned with that part of s 998(1) which prohibits creating etc a false or misleading appearance of active trading in any securities. Subsection (5) stipulates certain forms of conduct which are deemed to create such an appearance, for example, a transaction for the sale of securities which does not involve any change in beneficial ownership: s 998(5)(a). However if any of the deeming provisions are relied on s 998(6) provides a defence if it is proved that the purposes for which the person did the act did not include the purpose of creating a false or misleading appearance of active trading. Section 999 prohibits the making of a statement that is false in a material particular or materially misleading and is likely to induce other persons to subscribe for securities if the person making the statement 'does not care whether the statement or information is true or false' or 'knows or ought reasonably to have known' that statement or information is false in a material particular or materially misleading. Section 1001A(2) prohibits a 'disclosing entity' contravening the provisions of the listing rules of a securities exchange by 'intentionally, recklessly or negligently' failing to notify the securities exchange of certain information.
An example of different states of mind being required for different elements of the same offence is Alphacell Ltd v Woodward [1972] UKHL 4; [1972] AC 824 where a statute made it an offence if a person 'causes or knowingly permits to enter a stream any poisonous, noxious or polluting matter'. The House of Lords held there was no reason to read 'knowingly' into the provision before 'causes' and the concept of mens rea was inapplicable [25] - [26].
His Honour concluded that there was no requirement that the applicant, Donald, knew or had in mind at the time he engaged in conduct contravening the third limb of s 998(1) that a false or misleading appearance was likely to be created by that conduct [27]. His Honour did not consider whether any requirement of mens rea existed in relation to the first limb of s 998(1).
74 In R v Manasseh [2002] NSWCCA 27; (2002) 167 FLR 44, the appellants, Manasseh and Austin, were convicted after a trial before a judge and jury of creating a false or misleading appearance of active trading in shares on the ASX, contrary to the first limb of s 998(1). The Crown relied on the deeming provisions in s 998(5). On appeal, the Court of Criminal Appeal of New South Wales discussed Heerey J's decision in Donald. Sheller JA (Simpson & Howie JJ agreeing) held that where the Crown relies on the deeming provisions in s 998(5), it is not required to prove what the purpose or purposes were of the person who engaged in the conduct alleged to contravene the first limb of s 998(1). His Honour said that once the presumption under s 998(5) arises, it is for the accused to make out the defence conferred by s 998(6). His Honour's reasoning was this:
The object and purpose of s 998 was to prevent the creation of a false or misleading appearance of active trading in any securities on a stock market. Section 998(5) provided that a person who engaged in any of the activities described in pars (a), (b) or par (c) should be deemed to have created a false or misleading appearance of active trading in those securities on a stock market. The statutory presumption that the person had created the false or misleading appearance of active trading flowed from proof of that person's involvement in any one or more [of] the activities described. It was [not] part of the Crown case to prove what the purpose or purposes were of the person engaged in the conduct described. Once the presumption arose the person charged was left with a defence under subs (6). It was for the defence to persuade the jury on the balance of probabilities that the purpose or purposes for which the person engaged in the activity were not or did not include the purpose of creating a false or misleading appearance of active trading of securities on a stock market [42].
75 The intention of the Parliament in enacting s 998(1) and creating the relevant offence was to maintain the integrity of stock markets. As Gleeson CJ noted in Fame Decorator:
Markets, in reflecting the interaction of forces of supply and demand, may suffer from a variety of imperfections, including mismatches of information, without such imperfections destroying their integrity (62).
76 In North, Mason J observed that purchases or sales on a stock market are often made for indirect or collateral motives in circumstances where, to the knowledge of the sellers and buyers, the transactions will have an effect on the market for, or the price of, shares. His Honour added that it was plainly not the object of the Parliament in enacting s 70 of the Securities Industry Act 1970 (NSW) to outlaw all such transactions (58 - 59).
77 However, it is apparent from the case law and the extrinsic material to which I have referred that wash sales and matched orders are, ordinarily and of their nature, pernicious practices which will, invariably, have the purpose and, often, the effect of interfering with the integrity of a stock market. The interference will arise from the creation of the false or misleading appearance of trading between unassociated sellers and buyers who do not intend, by their dealings, to create an artificial market or price. Wash sales and matched orders are devices for creating or maintaining an appearance of market activity or a price. See 'Regulation of Stock Market Manipulation' (1947) 56 Yale Law Journal 509, 513. These features of wash sales and matched orders explain, no doubt, why the Parliament enacted the deeming provisions in s 998(5). As I have mentioned, the first limb of s 998(1) includes wash sales and matched orders (they are the subject of the deeming provisions in s 998(5)), but it is not confined to them.
78 The physical elements of the offence created by the first limb of s 998(1), read with s 1311(1), are these:
(a) the accused must create the appearance of active trading in securities on a stock market; and
(b) the appearance of active trading so created must be false or misleading.
79 In my opinion, the Parliament did not intend that where the prosecution does not rely on the deeming provisions in s 998(5), a person who contravenes the first limb of s 998(1) should be guilty of a criminal offence in the absence of a blameworthy state of mind. I am of that opinion for these reasons.
80 First, the offence created by the first limb of s 998(1), read with s 1311(1), is a serious criminal offence, as demonstrated by the maximum penalty, namely 200 penalty units or imprisonment for 5 years, or both. Plainly, the consequences for a person who contravenes the first limb of s 998(1), without a blameworthy state of mind, are, potentially at least, severe.
81 Secondly, the second limb of s 998(1) (that is, a person shall not do anything that is intended to create a false or misleading appearance of active trading) embodies a subjective fault element, namely, the person must have had the intention of creating the proscribed consequence or result. It is unlikely the Parliament would have intended that the first limb, involving the actual creation of a false or misleading appearance of active trading, should be an offence without any blameworthy state of mind, but an attempt to create a false or misleading appearance of active trading by doing anything that is intended to create that result or consequence should depend on proof of intention.
82 Thirdly, where the prosecution does not rely on the deeming provisions in s 998(5), the prosecution must prove beyond reasonable doubt, by conventional evidentiary means, relevantly, that the accused in fact created a false or misleading appearance of active trading. No statutory defence is available. Where the prosecution relies on the deeming provisions, it is unnecessary for the prosecution to prove that the accused in fact created a false or misleading appearance of active trading. It is sufficient if the prosecution proves beyond reasonable doubt that the accused knowingly engaged in the relevant activity described in s 998(5). The accused may rely on the statutory defence in s 998(6). It is unlikely the Parliament would have intended that the absence of a blameworthy state of mind should be relevant to the defence of a charge where the prosecution has the advantage of the deeming provisions, but irrelevant to the prosecution or defence of a charge where the deeming provisions are not available to, or are not relied on by, the prosecution and there is no statutory defence available.
83 Fourthly, the structure or scheme of div 2 of pt 7.11 of the Corporations Law does not, in my opinion, provide a reliable basis for concluding that where a provision creates an offence (either by itself or read with s 1311(1)) and the provision does not expressly state a mental element, then the Parliament intended that a person should be guilty of the offence in the absence of a blameworthy state of mind. I will refer to some of the provisions of div 2 of pt 7.11. Section 995(2) prohibited a person from, in essence, engaging in misleading or deceptive conduct or conduct that is likely to mislead or deceive in, or in connection with, any dealing in securities. No express mental element is specified but, significantly, s 995(3) provides that a person who contravenes s 995 is not guilty of an offence. By s 996(1), a person must not authorise or cause the issue of a prospectus in relation to securities of a corporation if the prospectus has been, or is required to be, lodged under pt 7.12 and, either a material statement in the prospectus is false or misleading, or there is a material omission from the prospectus. No express mental element is specified. However, a statutory defence, which applies generally, is contained in s 996(2). It is a defence to a prosecution for a contravention of s 996(1) if it is proved that the defendant, after making such inquiries (if any) as were reasonable, had reasonable grounds to believe, and did until the time of the issue of the prospectus believe, that the statement was true and not misleading or the omission was not material; or, where there was an omission from the prospectus, that the omission was inadvertent. Section 997 prohibited stock market manipulation. In particular, s 997(1), (4) and (7), in essence, prohibited a person from entering into or carrying out, either directly or indirectly, two or more transactions in securities of a body corporate, being transactions that have, or are likely to have, a specified effect, with intent to induce other persons to engage in a specified form of dealing in the securities. Each of the subsections expressly requires that the person who contravenes the subsection engage in the relevant conduct 'with intent to induce other persons' to deal in a specified manner in the securities in question. Section 997(1), (4) and (7) do not, however, expressly incorporate a subjective fault element in relation to the transactions having, or being likely to have, the specified effect; namely, increasing or reducing the price of securities or maintaining or stabilising the price of securities, as the case may be. In my opinion, it is necessary in the case of s 998(1) (and, indeed, in the case of s 997(1), (4) and (7)) to construe the provision by reference to the factors referred to by Gibbs CJ and Brennan J in He Kaw Teh in order to determine whether the common law presumption has been displaced.
84 Fifthly, there is no doubt that the stock markets are an important and integral feature of the Australian economic system and that interfering with their integrity may undermine investor confidence, cause loss to innocent third parties and damage the reputation of the stock markets. However, the protection of the public interest in relation to those matters does not necessarily require the imputation to the Parliament of an intention that a person who contravenes the first limb of s 998(1) should have committed the serious criminal offence which that provision, read with s 1311(1), creates, in the absence of a blameworthy state of mind. That is, it is not apparent to me that the Parliament intended that such a person should take preventative measures to ensure that the physical elements of the offence do not occur.
85 Sixthly, in North, Mason J noted that it was not 'altogether easy' to translate the generality of the language of s 70 of the Securities Industry Act 1970 (NSW) into 'a specific prohibition against injurious activity, whilst at the same time leaving people free to engage in legitimate commercial activity which will have an effect on the market and on the price of securities' (58). His Honour referred to the 'indirect or collateral motives' of participants in the purchase or sale of shares and their knowledge that their transactions will have an effect on the market for, or the price of, shares (58 - 59). His Honour emphasised that s 70 sought to ensure the market reflects the forces of genuine supply and demand; that it was in the public interest for the market for securities to be real and genuine and free from manipulation; that s 70 was designed to ensure such a market, and that s 70 should be interpreted accordingly (59). Mason J's observations about s 70 are applicable generally to s 998(1). His Honour appears to have been of the view that the legislative precursor to s 998(1) which he was considering presupposed the existence of a mental element in the offence it created.
86 I am not satisfied the common law presumption that offences (including statutory offences) have a subjective fault element has been displaced, either expressly or by necessary implication, in the offence created by the first limb of s 998(1), read with s 1311(1), where the prosecution does not rely on the deeming provisions in s 998(5).
87 I turn now to consider the precise blameworthy state of mind required under the first limb of s 998(1) where the prosecution does not rely on the deeming provisions in s 998(5).
88 In my opinion, it is apparent, from the context of the deeming provisions in s 998(5) and the defence under s 998(6), that the requisite state of mind, for the purposes of the first limb of s 998(1), is purpose.
89 As I have mentioned, the physical elements of the offence created by the first limb of s 998(1), read with s 1311(1), are that the accused must have created the appearance of active trading in securities on a stock market and the appearance of active trading so created must be false or misleading. In my opinion, where the prosecution does not rely on the deeming provisions in s 998(5), it must prove beyond reasonable doubt that the accused's purpose was to bring about those consequences or results. That is, the prosecution must prove to the requisite standard that the accused's purpose, by his or her conduct, was to create a false or misleading appearance of active trading in the securities in question on a stock market.
90 However, in my opinion the Parliament did not intend that, where the prosecution does rely on the deeming provisions in s 998(5), the prosecution must prove that the accused had a blameworthy state of mind beyond knowledge of the relevant activity, the subject of the deeming provisions. (In the present case, the relevant activity was entering into or carrying out transactions of sale or purchase of shares in Intrepid that did not involve any change in the beneficial ownership of the shares.) My reasons for that opinion are as follows.
91 First, the Parliament may provide for different states of mind in respect of different elements of the same offence.
92 Secondly, offences relating to trading in securities which require proof of the accused's subjective intention or purpose are often difficult to prove, because they usually involve transactions which are also commonly engaged in for legitimate commercial reasons. Proof will invariably depend on inferences drawn from circumstantial evidence. Where the prosecution bears the burden of proof and relies on circumstantial evidence, guilt should not only be a reasonable and rational inference, but must be the only reasonable and rational inference that could be drawn from the circumstances. See Plomp v The Queen [1963] HCA 44; (1963) 110 CLR 234, 243 (Dixon CJ); Shepherd v The Queen [1990] HCA 56; (1990) 170 CLR 573, 578 (Dawson J).
93 Thirdly, as I have mentioned, s 998(5)(a) refers, in substance, to wash sales and s 998(5)(b) and (c) refer, in substance, to matched orders. Also, as I have mentioned, it is well established that these kinds of transactions are, ordinarily and of their nature, pernicious and they will, invariably, have the purpose and, often, the effect of undermining a stock market's integrity. The Parliament's intention in enacting the deeming provisions in s 998(5) was to facilitate proof of an offence under the first limb of s 998(1), read with s 1311(1), by, in essence, deeming a person who enters into or carries out a wash sale or matched order on a stock market to have created a false or misleading appearance of active trading in the securities in question. The legislative object was that where an accused has entered into or carried out, either directly or indirectly, a wash sale or matched order, and the prosecution proves beyond reasonable doubt that the accused knowingly entered into or carried out the transaction in question, then the accused should be deemed to have created a false or misleading appearance of active trading. Further, the accused should bear the burden of proving that the purpose or purposes for which he entered into or carried out the transaction was not, or did not include, the proscribed purpose.
94 Fourthly, where the prosecution relies on the deeming provisions in s 998(5) it is evident, when the first limb of s 998(1) is read together with s 998(5) and (6), that upon the prosecution proving beyond reasonable doubt that the accused knowingly engaged in the relevant activity described in s 998(5), purpose (or intention) is only relevant in the context of the defence under s 998(6). The accused will be convicted unless he or she, in reliance on the statutory defence, proves, on the balance of probabilities, that the purpose or purposes for which he or she engaged in the relevant activity were not or did not include the purpose of creating a false or misleading appearance of active trading.
Section 998 of the Corporations Law: what must the accused prove to make out the defence conferred by s 998(6)?
95 As I have mentioned, an accused who seeks to rely on the defence under s 998(6) must prove, on the balance of probabilities, that the purpose or purposes for which he or she engaged in the relevant activity (that is, the activity the subject of the relevant deeming provision in s 998(5)) were not, or did not include, the purpose of creating a false or misleading appearance of active trading in the securities in question on a stock market.
96 The accused will not establish the defence if he or she merely proves that he or she entered into or carried out the relevant transaction or transactions for a permissible or non-proscribed purpose. The accused must prove that none of his or her purposes, for entering into or carrying out the transaction or transactions, included the purpose of creating a false or misleading appearance of active trading in the relevant securities on a stock market.
97 Also, the defence will not be made out if the accused merely raises a reasonable doubt as to whether he or she had the proscribed purpose, or merely establishes that there is a reasonable and rational inference, available on the evidence, that he or she did not have the proscribed purpose.
Section 998 of the Corporations Law: what is the meaning of a false or misleading appearance of 'active trading'?
98 The first limb of s 998(1) prohibits the creation of a false or misleading appearance of 'active trading' in any securities on a stock market. The legislation does not, however, define 'active trading'.
99 In my opinion, the meaning to be ascribed to the expression 'active trading' is to be discerned from the statutory context and the Parliamentary intention in enacting s 998(1).
100 The impugned transactions must 'create' a false or misleading appearance of 'active trading'. The word 'active' requires something more than ordinary volume or price changes in the securities in question. This distinguishes 'active' trading from trading that is not 'active'. In 'Regulation of Stock Market Manipulation' it is said in relation to the phrase 'creating actual or apparent active trading in such security' in s 9(a)(2) of the 1934 Act:
The determination whether a particular pattern of new trading has created actual or apparent active trading is a function of the prior state of the market in the security, the number of shares actively traded, and the general level of market activity as well as of the particular trading attributable to the alleged manipulator. Therefore, generalization as to how much trading is active trading is impossible. In the Meehan case, over a period of ten days, 15,400 out of a total of 40,900 purchases were attributed to Meehan directly, in addition to which considerable activity by specialists, stimulated by Meehan's trading, was considered as part of the active trading created (In the Matter of Meehan, 2 SEC 588, 616 (1937)). In the Wright case 79% of the purchasing in the manipulated stock on one day of trading constituted the illegal activity (In the Matter of Wright, 3 SEC 190, 195 (1938)). The trading which will be considered as created by a series of transactions is, first, the series of transactions itself and, second, whatever trading by outsiders may be considered as induced by or drawn in by the appearance of the market, as was the trading by specialists mentioned above in the Meehan case. In the Kidder Peabody case the placing of a market bid for twenty-five bonds following a nine-day period in which the largest block traded consisted of three bonds was said to create an 'impression of sudden active interest in the bonds' (In the Matter of Kidder Peabody & Co, Securities Exchange Act Release No 3673, April 3, 1945, p 12). This was followed by evidence that an outside trader, influenced by the large bid, entered a purchase order for eleven bonds, believing that he would be unable to get them at a lower price due to the presence of a strong bidder in the market. His trading was considered to be created by the series of manipulative transactions (Id at 13).
It should be noted that in the statute, 'creating actual or apparent active trading' as an element of liability is alternative to raising or depressing the price. Nevertheless, there have been no published cases since the passage of the Act in which both the creation of active trading and a price change have not been present (525 - 526).
See also Jacobs AS, 'Regulation of Manipulation by SEC Rule 10(b) - 5' (1973) 18 New York Law Forum 511, 521.
101 In my opinion, it is apparent, from the statutory context and the Parliamentary intention in enacting s 998(1), that a person will create a false or misleading appearance of 'active trading' in securities for the purposes of the first limb of s 998(1) if, relevantly:
(a) the person enters into, or carries out, either directly or indirectly, any transaction or transactions of sale or purchase which do not reflect the forces of genuine supply and demand; that is, the transaction or transactions are undertaken for the purpose of establishing an artificial market or price; and
(b) the transaction or transactions in question constitute or induce a pattern of new trading in volumes or at prices that would not otherwise have occurred.
102 The false or misleading appearance is created because, in the absence of any disclosure of the illegitimate purpose, there will appear to be trading which reflects genuine supply and demand, and not a scheme to promote or maintain an artificial market or price. See North, 58 - 59; Nomura International, 391 - 392, 399 - 400, 403, 404 - 405.
103 The grounds of appeal, without the supporting particulars, read:
2A. The trial Judge erred in law when directing the jury, by failing to direct the jury with respect to the relevance of, and the use to which, the evidence of the prosecution's expert witness, Professor [da] Silva Rosa, could be used by the jury. He should have directed that it was not relevant to the case against the Appellant.
Ground 1: the learned trial judge's rulings
104 The appellant alleges that the learned trial judge made an error of law in not leaving to the jury the defence under s 998(6).
105 His Honour ruled that the defence was not available to the appellant because in his evidence at the trial:
(a) he had denied knowing that the transactions did not involve any change in the beneficial ownership of the shares in question; and
(b) he had not expressly stated that his purpose, in causing the sell or buy orders to be made, was not to create a false or misleading appearance of active trading.
The crown case against [the appellant] is based on what can loosely be described as the deeming provision in the legislation. It is the crown's position and it can only succeed in respect of the counts against [the appellant] if it establishes beyond reasonable doubt that in respect of the transaction under consideration there was no change in beneficial ownership and further that [the appellant] was aware of that fact.
That is that the transaction he was facilitating did not involve a change in beneficial ownership. If those facts are established by the crown then [the appellant] would in respect of the transaction be deemed to have created a false or misleading appearance of active trading. At that stage there is room for section 998 subsection (6) to come into play.
... the subsection provides that... it is a defence if it is proved that the purpose or purposes for which [the appellant] did that act was not or did not include the purpose of creating a false or misleading appearance. [The appellant] gave evidence and enunciated in very clear terms that he at no stage had knowledge or belief that the shares in the Walthamstow account were held by that company other than as the beneficial owner and that he did not engage in any transaction in the knowledge that there was no change in beneficial ownership.
In fact his evidence is to the effect that he took positive steps because of some concerns to ensure that the position was that these transactions involved a change in beneficial ownership. It is proposed by [the appellant] to call at this stage the two experts, the content of whose evidence has been outlined a short time ago. The crown asserts that the evidence cannot properly be lead because it does not go to any issues between the crown and [the appellant] particularly having regard to the nature of the evidence given by [the appellant].
In my view, having regard to the way the case has proceeded, there is no room in the evidence of [the appellant] or the other material adduced in the crown case and the case of the accused, Scook, from which the jury would be entitled to infer another purpose. The case against [the appellant] stands or falls on the deeming provision (ts 1182).
107 The learned trial judge directed the jury to convict the appellant if they were satisfied beyond reasonable doubt that:
(a) the appellant had caused a transaction to be carried out;
(b) the transaction did not involve any change in beneficial ownership; and
(c) the appellant knew there was no change in beneficial ownership (ts 1451, 1473, 1488 - 1489, 1498).
108 His Honour also directed the jury that the defence under s 998(6) was not available to the appellant because he had given evidence that he thought there was a change in beneficial ownership (ts 1473).
109 Counsel for the appellant requested the learned trial judge to redirect the jury that the statutory defence was open to the appellant. His Honour declined (ts 1507).
110 Counsel for the appellant submitted that, on the learned trial judge's construction of s 998(6), the defence would not be available to an accused who denied knowledge that the impugned transactions involved no change in beneficial ownership. According to counsel, nothing in the language of either s 998(6) or s 998 generally supports his Honour's restrictive construction which, so it was submitted, renders the defence nugatory.
111 It was contended that it was open to the appellant to assert that he did not know the transactions involved no change in beneficial ownership and that, in any event, it was not his purpose to create a false or misleading appearance of active trading. According to counsel, it should then have been left to the jury to decide:
(b) if he did, whether, nevertheless, it was not his purpose to create a false or misleading appearance of active trading.
112 Counsel for the appellant submitted that although the appellant did not expressly state, in examination-in-chief, that his purpose was not to create a false or misleading appearance of active trading, he said, in cross-examination, that he did not believe that the transactions were intended to create, did create, or were likely to create, that appearance (ts 1109). According to counsel, that, of itself, was clear evidence that that was not his purpose. It was submitted there was other evidence to support a conclusion that, on the balance of probabilities, he did not have the proscribed purpose:
(a) The appellant was a stock broker and, in the ordinary course of his business, executed the trades in question on instructions from his clients, conveyed to him by a SEATS operator with Paul Morgan Securities. He did not initiate any of the sell or buy orders, but acted only on instructions from Mr Scook or Mr S Masel (as clients). The appellant did not give any advice. He was merely providing an 'execution service'.
(b) There was no evidence that either Mr Scook or Mr S Masel ever told the appellant that the purpose of either of them was to create a false or misleading appearance of active trading. Mr Scook and Mr S Masel were known to the appellant and he believed them to be reputable people. There was no reason for the appellant to form the belief, nor was there any basis for a suspicion, that the purpose of either Mr Scook or Mr S Masel was to create a false or misleading appearance.
(c) The appellant had no reason or motive to create a false or misleading appearance of active trading. The only 'benefit' he received from executing the trades was the receipt of discounted brokerage fees, which were comparatively insignificant.
(d) Mr Scook's evidence was that it was not his purpose to create a false or misleading appearance. Rather, it was his purpose to accumulate a large holding of shares in Intrepid.
(e) The appellant said in examination-in-chief that his purpose in completing two sell order notes was to distinguish between the shares sold on the Walthamstow account that were beneficially owned by Walthamstow, and those shares that were beneficially owned by Challiston. That is, it was not his purpose in completing the two forms to create a false or misleading appearance.
(f) There was considerable evidence as to the appellant's good character and reputation for honesty.
(g) The appellant was cross-examined at length by the prosecutor in relation to matters relevant to whether the appellant had the purpose of creating a false or misleading appearance of active trading. In particular:
(i) The appellant's knowledge of the ASX business rules including the requirement of those rules that brokers be vigilant in not acting on orders that create a false appearance of active trading.
(ii) Whether the 'Miller transactions' raised the appellant's suspicions, which he denied.
(iii) Whether Mr Scook was a person who the appellant thought may have an interest in creating a false or misleading appearance, which the appellant denied.
(iv) The trading of Intrepid shares in January/February 1998, before the transactions the subject of the counts against the appellant occurred.
(vi) What legitimate commercial reason explained the transactions the subject of the charges, to which the appellant responded that Mr S Masel 'wanted out of the placement stock' and Mr Scook was 'a believer' in Intrepid stock.
(vii) The execution of orders late in the trading day may set a higher price for the stock.
(viii) The execution of a significant order late in the trading day may give the impression of an increased volume of shares being traded.
(ix) Whether Tania Robson, a SEATS operator employed by Paul Morgan Securities, had shared with the appellant her concerns that the transactions in question may be misleading the market.
(x) Whether the timing of the trades raised the appellant's suspicions.
(xi) Whether the appellant was 'concerned' that a particular crossing raised the trade price.
(xii) The significance of the volume of shares being traded on the appearance of the 'liquidity' of the stock.
113 Counsel for the appellant submitted that, as a result of the learned trial judge's refusal to put to the jury the defence under s 998(6), the jury was bound to convict if it concluded that the appellant knew there was no change in beneficial ownership because the appellant was 'deemed' under s 998(5) to have committed the offences and they were unable to consider whether, in fact, the purpose or a purpose of the appellant was to create a false or misleading appearance of active trading.
114 It was submitted on behalf of the appellant that a trial judge is bound to put to the jury every lawful defence open to an accused. See Van Den Hoek v The Queen [1986] HCA 76; (1986) 161 CLR 158; Fingleton v The Queen [2005] HCA 34; (2005) 227 CLR 166 [77], [82] - [83], [107]. According to the appellant, his Honour's failure to put the statutory defence to the jury was an error of law, and the error resulted in a miscarriage of justice.
115 Where an accused is tried for an offence against the first limb of s 998(1), read with s 1311(1), and the prosecution relies on the deeming provisions in s 998(5), the trial judge must leave the defence under s 998(6) to the jury if there is evidence on the basis of which a reasonable jury, properly directed, could conclude that the defence has been made out. See Pemble v The Queen [1971] HCA 20; (1971) 124 CLR 107, 117 - 118 (Barwick CJ, Windeyer J agreeing), 132 - 133 (Menzies J); Van Den Hoek, 161 - 162 (Gibbs CJ, Wilson, Brennan & Deane JJ).
116 The position where an accused bears the burden of proving a defence on the balance of probabilities is materially different from the position where the accused merely has an evidentiary onus of raising a defence, and the burden of negativing the defence beyond reasonable doubt rests on the prosecution.
117 Where the accused merely has an evidentiary onus, the question for the trial judge is whether there is evidence, fit for the jury's consideration, that on the version of events most favourable to the accused, suggested by material in the evidence, a jury acting reasonably might fail to be satisfied beyond reasonable doubt that the prosecution has negatived each of the elements of the defence. See Stingel v The Queen [1990] HCA 61; (1990) 171 CLR 312, 334 (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron & McHugh JJ); CTM v The Queen [2008] HCA 25; (2008) 236 CLR 440 [8], [35] (Gleeson CJ, Gummow, Crennan & Kiefel JJ).
118 In the present case, the learned trial judge was not bound to leave the defence under s 998(6) to the jury unless there was evidence on the basis of which the jury, acting reasonably and properly directed, could conclude that the defence had been made out. In particular, it was necessary that there be evidence on the basis of which the jury, acting reasonably, could be satisfied, on the balance of probabilities, that none of the appellant's purposes for entering into or carrying out any transaction, the subject of a count against him, included the purpose of creating a false or misleading appearance of active trading in Intrepid shares on the ASX. His Honour was not bound to leave the defence if the jury, acting reasonably and properly directed, could only conclude that the appellant entered into or carried out the transactions for a permissible or non-proscribed purpose, and could not be satisfied, on the balance of probabilities, that none of the appellant's purposes in entering into or carrying out the transactions included the purpose of creating a false or misleading appearance of active trading.
119 Where, as in the present case, the prosecution relies on the deeming provision in s 998(5)(a), it is necessary for the prosecution to prove beyond reasonable doubt:
(a) the relevant physical elements of the offence, namely, the accused entered into or carried out the transactions of sale or purchase of the relevant securities and the transactions did not involve any change in the beneficial ownership of the securities; and
(b) the relevant subjective fault element, namely, the accused knew that the transactions did not involve any change in beneficial ownership.
The physical elements are concerned with the establishment of objective facts, and the subjective fault element with the establishment of the accused's subjective state of mind.
120 The defence under s 998(6) relates solely to the accused's state of mind. It requires the accused to prove on the balance of probabilities a negative proposition; that is, in entering into or carrying out the transactions in question his or her subjective purpose or purposes was not, or did not include, the purpose of creating a false or misleading appearance of active trading. The defence is concerned only with the accused's subjective purpose.
121 Where the prosecution relies on the deeming provision in s 998(5)(a) and the prosecution fails to satisfy the jury beyond reasonable doubt in relation to the physical elements or the subjective fault element, and the trial judge has left the defence under s 998(6) to the jury, it will be unnecessary for the jury to consider the defence. If, however, the jury is satisfied beyond reasonable doubt as to the physical elements and the subjective fault element, and the trial judge has left the defence to the jury, it will be necessary for the jury to consider whether the accused has proved, on the balance of probabilities, that he or she did not have the proscribed purpose in the context of the jury's satisfaction beyond reasonable doubt that he or she knew that the transactions in question did not involve any change in the beneficial ownership of the securities.
122 So, in the present case, if the appellant was to make out the defence under s 998(6) (if the jury was satisfied beyond reasonable doubt that the transactions in question did not involve any change in the beneficial ownership of the Intrepid shares and the appellant knew there was no change in beneficial ownership) it was necessary for him to prove, on the balance of probabilities, a negative proposition about his subjective state of mind.
123 The appellant denied that the relevant transactions did not involve a change in beneficial ownership. Also, he denied that he knew there was no change in beneficial ownership. But he did not give any evidence to the effect that his subjective purposes in entering into or carrying out the relevant transactions did not include the proscribed purpose of creating a false or misleading appearance of active trading.
124 The appellant gave the following evidence in cross-examination:
(a) Mr Scook's use of accounts with Paul Morgan Securities in the name of different people to purchase shares in Intrepid did not raise any suspicions in his mind (ts 1102).
(b) It did not cross his mind that Mr Scook was a person who had an interest in creating a false appearance of active trading (ts 1109).
(c) Ms Simpson (the manager in charge of compliance with rules and regulations affecting Paul Morgan Securities and its business) told him to make sure there was a change of beneficial ownership in the trading being carried out on behalf of Mr Scook/Challiston and Walthamstow (ts 1110).
(d) He understood that Ms Simpson was concerned about the possibility of the transactions involving no change in beneficial ownership (ts 1110).
(e) He was not concerned by the fact that Mr Scook/Challiston were buying shares from Walthamstow at a price in excess of the last trading price even though there was some association between the parties (ts 1144 - 1145).
This was not evidence of the appellant's subjective purpose or purposes, or the absence of the proscribed purpose, in entering into or carrying out the transactions pleaded in the counts against him in the indictment.
125 As to the points raised by counsel for the appellant in his submissions:
(a) The defence under s 998(6) may be available to an accused who denies knowledge that transactions within s 998(5)(a) involved no change in beneficial ownership. It would, ordinarily, be necessary for there to be some direct evidence as to the accused's subjective purposes, including the absence of the proscribed purpose, in entering into or carrying out the transactions in question. This evidence may be found in the accused's sworn evidence at the trial or, if he or she does not give sworn evidence, in exculpatory out of court statements in, for example, a record of interview with an investigating authority which is tendered by the prosecution on the basis that it contains some alleged admissions against interest. It may not be essential, in a particular case, that there be direct evidence as to the accused's subjective purposes, including the absence of the proscribed purpose; that is, it may be possible, in a particular case, for the absence of the proscribed purpose to be inferred from other (objective) evidence. Each case turns on its own facts.
(b) The fact that the appellant was a stock broker and, in the ordinary course of his business, executed the trades in question on instructions from his clients, conveyed to him by a SEATS operator with Paul Morgan Securities, does not address the appellant's subjective purpose or purposes.
(c) The absence of any evidence that either Mr Scook or Mr S Masel ever told the appellant that the purpose of either of them was to create a false or misleading appearance of active trading, and the appellant's alleged belief that they were reputable people, does not address the appellant's subjective purpose or purposes.
(d) The submission that the only 'benefit' the appellant received from executing the trades was the receipt of discounted brokerage fees, which were comparatively insignificant, gives a misleading impression in relation to the alleged absence of motive. At the material time, Paul Morgan Securities was the underwriter of a private placement of 7,000,000 fully paid ordinary shares in the capital of Intrepid at 50 cents, being a discount of 30 cents per share. The placement was made pursuant to a resolution passed at a general meeting of Intrepid's members held on 15 November 1997. On or shortly before 27 February 1998, the shares were allotted. Paul Morgan Securities earned an underwriting fee of 4% and 2,000,000 options exercisable at 50 cents on 30 June 1999. See the letter dated 4 February 1998 from the appellant, on behalf of Paul Morgan Securities, to Mr S Masel (exhibit P00113897). The private placement was sub-underwritten. After Paul Morgan Securities paid the sub-underwriter, it received about $55,000 or $60,000. See the appellant's evidence at ts 1100. Also, Boulder Enterprises Pty Ltd (a wholly owned subsidiary of Saxby Bridge Pty Ltd) received 40,000 shares in the private placement. At all material times, the appellant owned 40% of the issued share capital of Saxby Bridge Pty Ltd. Further, Paul Morgan Securities subscribed for 50,000 shares in the private placement. See the letter dated 3 March 1998 from Ms Simpson, on behalf of Paul Morgan Securities, to the ASX and the annexure attached to that letter (exhibit P00239255), and see the appellant's evidence at ts 1100.
(e) Mr Scook's evidence to the effect that it was not his purpose to create a false or misleading appearance concerns his subjective purpose or purposes, and not the subjective purpose or purposes of the appellant.
(f) The appellant's evidence-in-chief in relation to completing two sell order notes was as follows:
What was the purpose of making that differentiation between shares that he said were 'my shares', that's Scook said that they were his shares and shares that were said to be [Lance Masel's] shares?---It was for me to comply with what Carol Simpson wanted me to do which was to fairly differentiate them and by writing separate orders, I could ensure that the ones that were [Dean Scook's] shares were not crossed to Challiston and they were sold all into the market (ts 1076).
As I understand it, you say [Scook] would tell you or undertook to tell you whose shares they were that were being sold?---Yes.
Either [Lance Masel's] shares or his shares?---Yes.
How did you intend to record that then to make sure there was no mistakes?---Write two separate orders.
There's no space on the order forms though for that to be recorded, is there, as such? That is whose shares they are? There is nothing to say beneficial ownership?---No, sir.
... on the shares, on the contract notes. So you decided to use the contact box for that, did you?---Yes, I did.
So regardless of who it was in fact [that] had contacted you, you would write whose shares you were told they were?---Yes.
So when we look at the contact box, that doesn't necessarily mean who it was who contacted you?---No, or if I was contacted.
So did you record anywhere who it was that contacted you?---No, I already had the letter from 31 January, they were all authorised to do it (ts 1110).
This evidence does not address the appellant's subjective purpose or purposes.
(g) The evidence as to the appellant's good character and reputation for honesty does not address his subjective purpose or purposes.
(h) The lengthy cross-examination of the appellant on the topics listed at [112(g)] above, including his knowledge of the ASX business rules and the requirement of those rules that brokers be vigilant in not acting on orders that create a false appearance of active trading, related to whether the appellant knew that the transactions in question did not involve any change of beneficial ownership, and not to his subjective purpose or purposes, including the absence of the proscribed purpose, in carrying out those transactions.
126 The evidence to which I have referred at [112] above is, at best, circumstantial evidence from which an inference could be drawn that at all material times the appellant was acting in the ordinary course of his business as a stock broker in carrying out the relevant transactions. However, on the evidence as a whole in the present case, the absence of any direct evidence as to the appellant's subjective purpose or purposes, including the absence of any direct evidence that he did not enter into or carry out the transactions for the purpose of creating a false or misleading appearance of active trading in the shares of Intrepid, was a critical omission. In my opinion, the circumstantial evidence was not sufficient to require the learned trial judge to leave the defence under s 998(6) to the jury. On the evidence as a whole, the jury, acting reasonably, could not have been satisfied, on the balance of probabilities, that none of the appellant's subjective purposes for entering into or carrying out any transaction, the subject of a count against him, included the purpose of creating a false or misleading appearance of active trading in Intrepid shares on the ASX.
127 In my opinion, the learned trial judge was correct in deciding not to leave the defence to the jury.
129 In any event, even if the learned trial judge should have left the defence to the jury, I am satisfied that no substantial miscarriage of justice has occurred. See s 30(3) and s 30(4) of the Criminal Appeals Act 2004 (WA). In Mahmood v The State of Western Australia [No 2] [2008] WASCA 259, I examined in detail the principles applicable to the application of the 'proviso' in s 30(4) and the recent pronouncements of the High Court on the topic [160] - [172], [201], [212] - [215]. It is unnecessary to reproduce those observations in these reasons. In the present case, the parties filed and served written submissions on the 'proviso' issue after the hearing of the appeal.
130 The verdicts of guilty against the appellant in the present case are part of the trial record. See Weiss v The Queen [2005] HCA 81; (2005) 224 CLR 300 [43].
131 The jury, by their verdicts, rejected the appellant's denial (in evidence) that the relevant transactions did not involve a change in beneficial ownership and his assertion (in evidence) that he did not know the transactions involved no change in beneficial ownership. They were satisfied beyond reasonable doubt that there was no change in beneficial ownership and that the appellant knew there was no change.
132 The jury's rejection of the appellant's evidence was not affected by the learned trial judge's refusal to leave the defence under s 998(6) in relation to the counts against the appellant. Also, it was not affected by any of the other matters raised in the appellant's grounds of appeal. As I will explain, none of his grounds has merit. It is therefore permissible to accord weight to the jury's verdicts in considering the application of the 'proviso'.
133 As I have mentioned, Mr Scook was convicted on 158 counts. His conviction on 84 counts related to contravention of the first limb of s 998(1) and his conviction on 74 counts related to contravention of the third limb of s 998(1) (ts 1648). The jury, by their verdicts in relation to the 84 counts, were satisfied beyond reasonable doubt that there was no change in beneficial ownership and that Mr Scook knew there was no change. Also, they were not satisfied, on the balance of probabilities, that none of Mr Scook's subjective purposes in terms of s 998(6) for entering into or carrying out any transaction, the subject of the 84 counts, included the purpose of creating a false or misleading appearance of active trading in Intrepid shares on the ASX. The jury's verdicts in relation to Mr Scook are relevant to the point made on behalf of the appellant at [112(d)] above.
134 I am not satisfied, on the balance of probabilities:
(a) based on my examination of the trial record, including the jury's verdicts against the appellant and their necessary finding beyond reasonable doubt that the transactions in respect of which the appellant was convicted involved no change in beneficial ownership, and the appellant knew there was no change;
(b) on the assumption, favourable to the appellant, that his evidence (apart from his evidence bearing on whether there was no change in beneficial ownership and whether he knew there was no such change) is truthful and reliable;
(c) subject to [133] and [134(a) - (b)] above, accepting the truthfulness and reliability of the circumstantial evidence referred to at [112] above; and
(d) in the absence of any evidence from the appellant that his subjective purposes did not include the proscribed purpose,
that none of the appellant's subjective purposes for entering into or carrying out the transactions in question (or any of them) included the purpose of creating a false or misleading appearance of active trading in the shares of Intrepid on the ASX.
135 Ground 2 asserts that the learned trial judge made an error of law in refusing to permit the appellant to adduce expert evidence to the effect that the transactions in question did not in fact create, and were not in fact likely to create, a false or misleading appearance of active trading.
136 The prosecution called an expert witness, Professor Raymond da Silva Rosa. He was at the material time a professor in the faculty of economics and commerce at the University of Western Australia, specialising in investment analysis and mergers and acquisitions. He was also, at the material time, the director of the Western Australian Centre for Capital Markets Research at the University. In addition to his oral evidence, two written reports of Professor da Silva Rosa were received in evidence.
137 The prosecutor, in his opening address, informed the jury, in relation to the relevant share trading, that '[you] will hear something in regard to the effect it had, that there was a change in the price of the shares', but that 'there are other things besides price that are significant to people, in particular the volume ... of shares that is changing hands' (ts 206).
138 The purpose and relevance of the evidence of Professor da Silva Rosa, in the context of the prosecution case against the appellant, was stated by the prosecutor, in the course of debate with the learned trial judge about the admissibility of the Professor's written reports, to be the rebuttal of the s 998(6) defence:
The ... reason Prof [da] Silva Rosa was called was in the event that the defence was raised by either of the accused. If the defence was raised by either of the accused on those counts where the deeming provision does arise of course the jury would have to consider what the purpose of the person was and the fact that there may have been movements in the price and that there were large volumes trading that were relevant to considering what their purpose might be. It was relevant to rebut him.
WISBEY DCJ: Relevant to evaluating his evidence as to purpose.
HALL, MR: Correct and rebutting that defence as it is raised (ts 1174).
139 Professor da Silva Rosa, in the course of his evidence, analysed the transactions the subject of the counts against the appellant (which were referred to as the green transactions), the transactions the subject of the counts against Mr Scook (which were referred to as the yellow transactions) and both sets of transactions together. Professor da Silva Rosa then addressed the following questions:
(a) The proportion of the total volume of trading in Intrepid which the respective transactions comprised (ts 820, 824 - 825, 827).
(b) The effect, if any, of the respective transactions on the price of Intrepid shares (ts 821, 825, 827).
(c) Whether the respective transactions created, or were likely to create, any particular appearance with respect to the market for Intrepid shares and, if so, what that appearance was (ts 822, 826, 827).
(d) Whether the respective transactions created an appearance of active trading in Intrepid shares and, if so, why and to what extent they did so (ts 822 - 823, 826, 827 - 828).
(e) How the market in Intrepid shares, both as to volume and price, would have appeared had those transactions not occurred (ts 823, 826 - 827, 828- 829).
140 In addition to Professor da Silva Rosa's evidence, there was some evidence from other prosecution witnesses (James Berry, the national manager of surveillance of the ASX, and Ms Robson) in relation to the appearance which the transactions, the subject of the counts against the appellant, conveyed of trading in Intrepid shares on the ASX.
141 The appellant gave evidence in examination-in-chief as to the demand for laterite nickel stocks in late 1997/early 1998, the high demand for Intrepid shares in late 1997, his belief that Intrepid had good future prospects and his knowledge of Intrepid's share trading history.
142 The appellant sought to lead evidence from two expert witnesses, Dr Michael Aitken (a former professor at the University of Sydney and an expert on stock exchange surveillance systems and trading) and Mr Guy Le Page (a geologist and stock broker) to rebut Professor da Silva Rosa's evidence. They would have given evidence as to the appearance which the relevant transactions had on the trading of Intrepid shares on the ASX, and evidence as to the status and history of Intrepid shares at the material time in the context of the nickel exploration market. Before the commencement of the trial, written reports by Dr Aitken and Mr Le Page had been filed and served on the prosecution. The prosecutor did not object to the appellant relying on those reports until after the jury had heard the evidence of Professor da Silva Rosa and the appellant. The prosecutor objected to the proposed evidence of Dr Aitken and Mr Le Page after the prosecution had closed its case and when they were about to be called to give evidence.
143 The learned trial judge ruled that the proposed evidence of Dr Aitken and Mr Le Page was inadmissible.
144 Counsel for the appellant submitted that the learned trial judge's ruling was highly prejudicial to the appellant's defence.
145 Counsel submitted that the appellant was cross-examined at length in relation to matters raised by Professor da Silva Rosa. For example, the volume of trade in Intrepid shares; that the execution of orders late in the trading day may set a higher price for the stock; that the execution of a significant order late in the trading day may give the impression of increased volume being traded; whether the timing of the trades in question raised the appellant's suspicions; whether the appellant was 'concerned' that a particular crossing raised the trade price; and the significance of volume on the appearance of the 'liquidity' of stock.
146 It was submitted that Professor da Silva Rosa's evidence was the foundation of that part of the cross-examination of the appellant, the purpose of which was to establish that he knew the impugned transactions were intended to create, or were likely to create, a false or misleading appearance of active trading. The appellant was obliged to answer questions that addressed Professor da Silva Rosa's evidence, but his own expert evidence in rebuttal (which would have addressed the same issues as the prosecution's expert) was later held to be inadmissible.
147 Further, counsel for the appellant submitted that the jury was left with a large body of evidence from an impressive and highly qualified expert, namely Professor da Silva Rosa, without hearing a contradictor.
148 In the result, according to counsel for the appellant, the jury received evidence from an expert witness called by the prosecution on the question of whether the transactions, the subject of the counts against the appellant, were likely to create a false or misleading appearance of active trading in Intrepid shares. The appellant was cross-examined on that issue but was not permitted to rebut Professor da Silva Rosa's evidence. It was submitted that this was unfair, and resulted in a miscarriage of justice.
149 Professor da Silva Rosa gave evidence as to whether the much larger set of transactions, the subject of the counts against Mr Scook, were likely to create a false or misleading appearance of active trading. As I have mentioned, the counts against him included charges alleging he had engaged in transactions that were likely to create a false or misleading appearance of active trading, within the third limb of s 998(1). Also, as I have mentioned, the deeming provisions in s 998(5) do not apply to conduct within the third limb. Professor da Silva Rosa's evidence was admissible on the issue of the likely effect of the transactions engaged in by Mr Scook in alleged breach of the third limb.
150 Professor da Silva Rosa also gave evidence as to the volume and effect of transactions engaged in by Mr Scook and the appellant which were alleged to have created a false or misleading appearance of active trading, within the first limb of s 998(1), and in respect of which the prosecution relied on the deeming provision in s 998(5)(a). This evidence was admissible in the prosecution's case to rebut any defence which Mr Scook or the appellant might raise under s 998(6). Mr Scook raised the defence and the learned trial judge left it to the jury. However, as I have mentioned, his Honour did not leave the defence to the jury in relation to the appellant. I have held that his Honour's decision in this respect was not in error and that, in any event, no substantial miscarriage of justice was occasioned.
151 A consequence of the appellant not invoking the defence under s 998(6) was that Professor da Silva Rosa's evidence, to the extent it related to the appellant, ceased to be relevant in that there was nothing for the Professor's evidence to rebut. If the jury was satisfied beyond reasonable doubt that the appellant had knowingly engaged in the activity described in s 998(5)(a), the transactions in question were deemed to have created a false or misleading appearance of active trading in the shares of Intrepid on the ASX. The appellant was not entitled, by expert evidence or otherwise, to go behind the deeming provision once the prosecution had proved the conditions for its engagement.
152 The learned trial judge was correct in ruling that the expert evidence proposed to be adduced by the appellant was not admissible.
Ground 2A: the learned trial judge's failure to direct the jury that Professor da Silva Rosa's evidence was not relevant to the prosecution case against the appellant
154 The prosecutor volunteered, in the absence of the jury, to withdraw the tender of Professor da Silva Rosa's written reports (ts 1183 - 1184). The following exchange occurred between the learned trial judge, the prosecutor and counsel for the appellant:
McCUSKER, MR: I would like some direction as to whether the jury is entitled to read that part of Prof [da Silva] Rosa's ... report which deals with the green highlighted transactions. As I understand my learned friend, he contends that these matters are not in issue so far as the [appellant] is concerned so my great concern is that if the jury gets that document and indeed it would need a direction as well, the document refers to market manipulation and makes no distinction between the green and the yellow transactions so that's a matter that I just flag will need to be discussed.
WISBEY DCJ: Yes.
HALL, MR: Can I say, your Honour, I'm happy if it assists my learned friend in that regard to withdraw that report from the tender. It is in fairly technical language and I would have thought the jury would rely upon the evidence that was given rather than the report itself. So I would be content to do that.
WISBEY DCJ: Anyway, we can discuss it later. We will have the jury in, thank you (ts 1183 - 1184).
155 Later, the following exchange occurred in the absence of the jury:
HALL, MR: The report of Prof [da] Silva Rosa - of course I'm not saying that his evidence was in any way irrelevant but because of the concern [counsel for the appellant] raised and that there might be some potential for it to be misused, I'm happy to withdraw the report. There are some annexures to it that I wouldn't seek to have maintained, although not all of them, I think. Perhaps I should (indistinct) because the jury may want to refer to them again.
WISBEY DCJ: Do you wish to discuss that with counsel because I can adjourn for a short time.
HALL, MR: I'm certainly happy to do that, your Honour. It would be quicker, I suppose.
...
HALL, MR: Yes, your Honour, what we would seek to do is just retain appendix B to the supplementary report in an amended form. We will amend it so that the column in relation to Green Trades is deleted and the heading Any Colour Trades [is] deleted from the third column so it just reads All Trades, so it will still have the volumes for all trades on it.
WISBEY DCJ: Your position on that [counsel for Mr Scook]?
ROBINSON, MR: I'm happy with that, your Honour.
WISBEY DCJ: [counsel for the appellant]?
McCUSKER, MR: Yes, your Honour, although I would like to know what use has been made of it because we come back to the question of Mr [da Silva] Rosa's evidence in relation to the Green Trades and whether there's going to be some reference made in the course of my learned friend's closing address to the Green Trades, Mr [da Silva] Rosa's view about the Green Trades has yet to be decided.
HALL, MR: The particular use I intended to make of it in closing was in regard to Mr Scook and your Honour may recall that I cross examined him in regard to the volume of trading that was occurring and he said it was 10 per cent and it was 10 per cent over the larger period and I intend to show the jury this and with a view to pointing out that the trading that Mr Scook was engaged in represented a very significant portion in total and of course a great deal of this trading has got nothing to do with [the appellant], I don't intend to suggest it does, this is to do with Mr Scook, that was between 11.46 at the lowest and 87.86 at the highest. It relates to Mr Scook's purpose.
WISBEY DCJ: You are acutely aware of [counsel for the appellant's] concern.
HALL, MR: I am.
WISBEY DCJ: and no doubt we will bear them steadfastly in mind.
HALL, MR: I will, your Honour, yes (ts 1225 - 1226).
156 Shortly afterwards, in the presence of the jury, the prosecutor withdrew the tender of Professor da Silva Rosa's reports (with the exception of annexure B) and counsel for the appellant closed the appellant's case:
WISBEY DCJ: Now, I think in respect to the reports of Raymond [da] Silva Rosa, you seek leave to withdraw these reports as an exhibit.
HALL, MR: Yes, I withdraw the tender. Yes, with the exception of annexure B, the lists of the volumes of trading which will be provided to the court subsequently.
WISBEY DCJ: And referrable to all trades.
HALL, MR: Yes, thank you.
WISBEY DCJ: Yes, thank you. Yes, [counsel for the appellant]?
McCUSKER, MR: If it please your Honour, I close my case in view of your Honour's rulings (ts 1227).
157 Counsel for the appellant submitted that Professor da Silva Rosa gave substantial oral evidence as to the appellant's 'green transactions'. In particular, he gave evidence that the green transactions created an appearance of active and liquid trading in Intrepid shares. He also gave evidence in respect of:
(a) all of the trades, including those relevant to the appellant, for example, the change in Intrepid's share price compared with other industrial and mining indices;
(b) his review of Intrepid's company announcements;
(c) his conclusion that Intrepid's company announcements did not justify the company's remarkable performance over the relevant period;
(d) market manipulation and market manipulators in the context of no change in beneficial ownership;
(e) the volume of trading in Intrepid shares and the effect the trades would have had on the price of Intrepid shares;
(f) all of the trades the subject of the counts in the indictment, including the green transactions, created the appearance of active trading and of a liquid market and, without that trading, the price and volume would have been likely to have been lower;
(h) the fluctuations in the price of Intrepid shares and the difficulties in predicting nickel prices.
158 It was submitted that the learned trial judge, in his summing up, gave the jury no explanation as to why Professor da Silva Rosa's written reports had been withdrawn or why the appellant's expert witnesses (whose evidence had been foreshadowed by counsel for the appellant, in the presence of the jury, during the cross-examination of the Professor (ts 845 - 846) and later during the trial, again before the jury (ts 1162)) were not called.
159 According to counsel for the appellant, the learned trial judge's failure to give such directions occasioned a miscarriage of justice.
160 In my opinion, the learned trial judge was not bound to have directed the jury to the effect that, for legal reasons with which they need not be concerned, the evidence of Professor da Silva Rosa was irrelevant to the case against the appellant and, to the extent that the evidence related to him, should be ignored.
161 In any event, the learned trial judge's failure to give this direction to the jury did not, in the circumstances, occasion a miscarriage of justice. I am of that opinion for the following reasons.
162 First, the learned trial judge directed the jury, in substance, that if they were satisfied beyond reasonable doubt that the transactions in question involved no change in beneficial ownership and that the appellant knew there was no change, then the offences charged against him were deemed to have been committed. See ts 1488 - 1489, 1493, 1498.
163 Secondly, Professor da Silva Rosa's evidence was properly adduced when it was led as part of the prosecution's case for the purpose of rebutting the appellant's anticipated reliance on the defence in s 998(6).
164 Thirdly, Professor da Silva Rosa's evidence related to the creation of a false or misleading appearance of active trading on the ASX. That was a consequence or result which s 998(5) deemed to have occurred upon the jury being satisfied beyond reasonable doubt that the appellant had knowingly engaged in the activity described in s 998(5)(a) in relation to the relevant transactions.
165 Fourthly, Professor da Silva Rosa did not give any evidence to the effect that the appellant should have known that he was engaging in the activity described in s 998(5)(a) in relation to the relevant transactions.
166 Fifthly, the learned trial judge did not, in his summing up, refer to the evidence of Professor da Silva Rosa in relation to the appellant, or to the experts that were not called by the appellant. Similarly, neither the prosecutor nor the appellant's trial counsel referred to these matters in closing.
167 Sixthly, the appellant's very experienced trial counsel did not request the learned trial judge to direct the jury that they should disregard Professor da Silva Rosa's evidence. He did not seek a redirection. It may be inferred that counsel thought it better, tactically, for nothing to be said about the Professor's evidence.
Ground 3: the learned trial judge's failure to direct the jury that they could not convict the appellant unless they were satisfied that he knew the relevant transactions would create, or were likely to create, a false or misleading appearance of active trading
169 The learned trial judge ruled that it was not necessary for the prosecution to prove the appellant's state of mind. His Honour directed the jury, relevantly, as follows:
The crown does not have to establish the accused person's state of mind at the material time, that is that he intended or knew that his actions would or were likely to create a false or misleading appearance of active trading although it may prove intent if it is able to do so.
It is sufficient if it establishes that the [appellant] by deliberate conduct or action caused that consequence.
...
In respect of the counts against [the appellant], if you are satisfied that he executed - arranged the transaction deliberately, or facilitated the transaction is probably a better word, deliberately, and that the shares being sold were beneficially owned by Challiston and consequently there was no change in beneficial ownership and he had knowledge that there was no change in beneficial ownership, the proper verdict would be one of guilty. So that is in respect to the [appellant's] counts. The crown must satisfy you beyond reasonable doubt [first] that he facilitated the transaction, secondly that it was a transaction where there ... was no change in beneficial ownership and thirdly and importantly that he had knowledge that there was no change in beneficial ownership (ts 1444, 1451).
170 After the learned trial judge completed his summing up, counsel for the appellant requested his Honour to redirect the jury that they could not convict unless they were satisfied beyond reasonable doubt that:
[The appellant] knew that the effect of the transactions would be or were likely to create a false and misleading impression, and that has not been put to the jury. That's in other words mens rea (ts 1507).
His Honour declined to redirect in the manner requested.
171 Counsel for the appellant submitted that the first limb of s 998(1), which prohibits a person from creating a false or misleading appearance of active trading in any securities on a stock market, involves not merely an objective element, but requires proof of mens rea. According to counsel, it must be proven that the person concerned knew, at the time of the allegedly contravening conduct, that the proscribed appearance would be created by that conduct. Mere suspicion or uninformed apprehension that the proscribed appearance could occur is insufficient. According to counsel, if it is unnecessary to establish mens rea for the first limb of s 998(1), an offence of strict liability would be created. Counsel submitted that there is no indication in the words of the section (nor the statute) that this was the Parliament's intention.
172 During oral argument in the appeal, counsel for the appellant said that mens rea, in the context of the present case, required the prosecution to prove beyond reasonable doubt that the appellant knew his conduct would create a false or misleading appearance of active trading (appeal ts 194). Later, counsel repudiated the approach of the learned trial judge and the prosecutor at the trial which involved the jury being directed that the prosecution must prove beyond reasonable doubt that, in terms of s 998(5)(a), the appellant knew the impugned transactions involved no change in beneficial ownership. The following exchange occurred:
McCUSKER, MR: ... although we understandably went along with the prosecution approach in this trial, that the prosecution had set out to prove not only no change but that the accused knew there was no change in beneficial ownership, we would respectfully submit that this being a true deeming provision, once no change in beneficial ownership is established, full stop, that then proves that a misleading appearance was created. The question then becomes: ... did the accused know that a misleading impression would be or was or was likely to be created. And there you have the application without any qualification of mens rea which is presumed to apply to criminal offences and which of course, in the subsequent legislation, has been treated as applying by not creating a special mental element so the default mental element applies ...
BUSS JA: So that I clearly understand this, Mr McCusker, you are submitting to us that the trial judge was wrong to direct the jury that it needed to be satisfied beyond reasonable doubt that your client knew there was no change of beneficial ownership and the prosecutor was wrong to have made that concession.
McCUSKER, MR: Yes (appeal ts 201 - 202).
173 Counsel for the appellant submitted that the application of the Criminal Code (Cth) to s 998 of the Act supports the construction of s 998(1) advanced on behalf of the appellant.
174 It was submitted on behalf of the appellant that on 15 July 2001, s 998 of the Corporations Law was repealed and replaced by s 998 of the Act. Further, on 11 March 2002, s 998 of the Act was repealed and replaced by s 1041B of the Act. Counsel referred to the Financial Services Reform Act 2001 (Cth). As from 15 December 2001, the Criminal Code (Cth) applied generally to the Act. Counsel referred to s 1308A of the Act which was introduced by the Treasury Legislation Amendment (Application of Criminal Code) Act (No 3) 2001 (Cth).
175 Accordingly, between 15 December 2001 and 11 March 2002, the Criminal Code (Cth) applied to s 998 of the Act. Counsel for the appellant submitted that the application of the Criminal Code (Cth) to s 998 during this period supported his contention that at all material times mens rea has applied in respect of the first limb of s 998(1).
176 Counsel further submitted that ch 2 of the Criminal Code (Cth) codifies the general principles of criminal responsibility and applies to Criminal Code (Cth) offences from its commencement, and to all other Federal offences after 15 December 2001. Counsel referred to s 1.1 and s 2.2(2) of the Criminal Code (Cth).
177 It was submitted on behalf of the appellant that from 15 December 2001 (being the date of commencement of the codification of the Commonwealth criminal law), the Parliament expressly provided for mens rea to apply to the first limb of s 998. Further, upon the repeal of s 998 on 11 March 2002, mens rea continued to apply to the new offence creating provision (that is, s 1041B of the Act).
178 The Criminal Code (Cth) required all existing Commonwealth statutes to be amended so as to denote each offence provision as either a fault, strict or absolute liability offence. If any Commonwealth statute was not amended, any offences it created had, by implication, the fault elements of the Criminal Code (Cth). The Treasury Legislation (Application of Criminal Code) Act (No 3) amended the Act for the purpose of harmonising the Act with the Criminal Code (Cth). However, no amendments were made to s 1041B. It follows, according to counsel for the appellant, that the Parliament's intention was that the 'fault' provisions of the Criminal Code (Cth) should apply to s 1041B.
179 It was further submitted that when a statute does not specify the mental element required for an accused to be convicted of creating a result, s 5.6(2) of the Criminal Code (Cth) specifies that 'recklessness' is the fault element. By s 5.4(4), 'recklessness' can be established by proving intention, knowledge or recklessness. Counsel for the appellant submitted that, given the applicability of the Criminal Code (Cth) to s 1041B(2) of the Act, an alleged contravener of that provision would only be liable if he or she:
(a) intended the result (that is, intended to created a false or misleading appearance); or
(b) was aware that the result would exist in the ordinary course of events (that is, was aware that such an appearance would exist in the ordinary course of events); or
(c) was aware of a substantial risk that the result would occur and, having regard to the circumstances which the accused knows, it is unjustifiable to take the risk (that is, he or she is aware of a substantial risk that the conduct will create a misleading appearance and, having regard to the circumstances which he or she knows, it is unjustifiable to take the risk).
180 Counsel for the appellant referred to Nomura International. In Nomura International, Sackville J said, in the context of the third limb of s 998(1), that he did 'not think it is necessary to prove that the alleged contravener was aware that the conduct would be likely to have a false or misleading appearance', but added that 'it is not necessary to express a final view on this issue' (406). In Donald, Heerey J said that he thought the view expressed by Sackville J in Nomura International should be followed [24] - [25]. According to counsel for the appellant, the reasoning of Sackville J in Nomura International is incorrect.
181 In my opinion, for the reasons I have already given, where the prosecution does not rely on the deeming provisions in s 998(5), the prosecution must prove beyond reasonable doubt that the accused's purpose in relation to an offence against the first limb of s 998(1), read with s 1311(1), was to create a false or misleading appearance of active trading in the securities in question on a stock market. See [79] - [89] above.
182 However, in my opinion, for the reasons I have already given, where the prosecution relies on the deeming provisions in s 998(5), it is unnecessary for the prosecution to prove intention or purpose (or any other aspect of mens rea) in relation to an offence against the first limb of s 998(1), read with s 1311(1), except knowing engagement in the relevant activity described in s 998(5). See [90] - [94] above.
183 It is true, as counsel for the appellant has submitted, that the intention of the Parliament in enacting the Treasury Legislation (Application of Criminal Code) Act (No 3) was, relevantly, to harmonise the Act with the Criminal Code (Cth).
184 Between 1998 and 2001, when the Criminal Code (Cth) came into effect, s 998 of the Corporations Law was amended. Further, in 2001, s 998 of the Act was repealed and replaced with s 1041B. It is s 1041B that was, relevantly, harmonised with the Criminal Code (Cth).
185 On a proper construction of ch 2 of the Criminal Code (Cth) and its application to s 1041B, it is only necessary for the prosecution to prove that an accused who is alleged to have contravened s 1041B was reckless in carrying out a transaction that did not involve a change in beneficial ownership.
186 In Interlego AG v Croner Trading Pty Ltd [1992] FCA 624; (1992) 39 FCR 348, Gummow J (Black CJ & Lockhart J agreeing) noted:
There is a line of authority that an amendment may be taken into account in determining the scope of the prior legislation, at least to avoid a result which would render the amendment unnecessary, or futile or deficient: see especially Grain Elevators Board (Vic) v Dunmunkle Corporation [1946] HCA 13; (1946) 73 CLR 70 at 85 - 86; Hunter Resources Ltd v Melville [1988] HCA 5; (1988) 164 CLR 234 at 254 - 255; But in doing so caution should be exercised: see D C Pearce and R S Geddes, Statutory Interpretation in Australia (3rd ed, 1988), s3.26. It is, after all, a curious way of revealing parliamentary intention at the time of passing the earlier provision (382).
See also Hepples v Federal Commissioner of Taxation [1991] HCA 39; (1991) 173 CLR 492, 539 (McHugh J).
A person must not do, or omit to do, an act (whether in this jurisdiction or elsewhere) if that act or omission has or is likely to have the effect of creating, or causing the creation of, a false or misleading appearance:
(a) of active trading in financial products on a financial market operated in this jurisdiction; or
(b) with respect to the market for, or the price for trading in, financial products on a financial market operated in this jurisdiction.
188 It will be noticed that s 1041B(1) does not reproduce precisely the first limb of s 998(1). In any event, ch 2 of the Criminal Code (Cth) did not apply to s 998 of the Corporations Law in 1998. It is not a satisfactory process of reasoning to infer, on the basis of a different statutory provision (s 1041B) enacted by a later Parliament, that s 998, in its form in 1998, required the prosecution to prove recklessness (or some other form of mens rea).
189 In my opinion, the first limb of s 998(1) did not require the prosecution to prove that the accused knew, at the time of the allegedly contravening conduct, that his or her conduct would create a false or misleading appearance of active trading.
Ground 4: the learned trial judge's alleged failure adequately to put the defence case
191 Ground 4 alleges, in essence, that the learned trial judge failed adequately to put the defence case to the jury, in his summing up, as to whether there was a change in beneficial ownership and as to whether the appellant knew that such a change occurred.
192 The learned trial judge sought to explain to the jury in his summing up the nature of a 'beneficial interest' and the nature of a 'change in beneficial interest'. His Honour said:
Now, what's a beneficial interest? A beneficial interest relevantly means an entitlement to the use and benefit of property. So a shareholder has a beneficial interest in the share even if it is charged by way of security. If you take your shares to the bank and say, 'I need a thousand dollars in a hurry,' in the days when we used to have shares scrip and, 'I will deposit these with you, you can hold them as security until I can repay this thousand dollars?' the bank does not become the owner of your shares. The bank holds those shares in trust for you subject to the terms of the loan agreement. You retain the beneficial interest in the shares.
A purchase or sale of shares does not involve a change in beneficial ownership if a person who had an interest in the securities before the purchase or sale or an associate of the person in relation to these securities has an interest in the securities after the purchase or sale (ts 1447).
193 Counsel for the appellant submitted that this direction was 'an over simplification' of the issue before the jury, and was likely to mislead. Counsel referred to some evidence from Mr S Masel to the effect that the provision of finance by Walthamstow to Mr Scook/Challiston was nothing like a mortgage of a residential property because no mortgage document was created. By contrast, Walthamstow's security comprised the booking of the shares in Walthamstow's name when it provided the loan funds and the requirement that the proceeds of any sale of the shares be credited to Walthamstow's account (ts 459).
194 The learned trial judge instructed the jury on the issue of whether or not there was a change in beneficial ownership, as follows:
All the counts against [the appellant] are deeming counts in that it is contended by the crown that in respect of the transaction referable to each count [there] was no change in beneficial ownership. The position taken by [the appellant] is that firstly you could not be satisfied beyond reasonable doubt in respect of any of the counts against him that there was in fact no change of beneficial ownership. That is that the shares sold or transferred by him from the Walthamstow account to Challiston were at the material time beneficially owned by Challiston (ts 1493).
195 Counsel for the appellant submitted that although the learned trial judge correctly stated the aspect of the appellant's defence concerning whether there was a change in beneficial ownership, he did not refer to the relevant evidence on which the appellant relied, so that the jury could evaluate that evidence, together with the prosecution evidence, for the purpose of determining whether the prosecution had discharged its burden of proof.
196 It was submitted that the prosecution case that there was no change of beneficial ownership in the relevant shares was 'circumstantial and tenuous'. It relied entirely on the loan facility letters between Walthamstow and Mr Scook/Challiston, the terms of which were unknown to the appellant.
197 Counsel contended that it was the prosecution case that under the loan facility letters Walthamstow lent money to Mr Scook/Challiston to purchase shares in Intrepid. Although the shares were registered in Walthamstow's name, that was only for security purposes, and they remained beneficially owned by Challiston.
198 Counsel for the appellant complained that the learned trial judge failed to remind the jury in his summing up that Walthamstow had also applied for and had been allotted (in tranches) a total of 2,050,000 shares in Intrepid pursuant to the private share placement; that it had applied for those shares in its own name and not as trustee; and that before the placement shares were granted official quotation (on 27 February 1998) it had sold shares of an equivalent number to the shares that were to be allotted to it and for which it had paid. Counsel said in his written submissions:
To do that, as Steven Masel stated in evidence, it had 'borrowed' shares from the 'pool' or 'basket' of shares held in the Walthamstow account, so that even if all or most of the shares in that 'pool' were shares to which Challiston was beneficially entitled, when the Masels 'borrowed' (which they did from time to time with the acquiescence of Mr Scook, as Steve Masel stated) Walthamstow then became the beneficial owner of the 'borrowed' shares which it caused to be sold, and for which it received the proceeds (T467.2-3, T468.1, 885.3-886.2, 887.1-3 - S Masel XXN). To 'repay' Challiston, it had credited Challiston with an equivalent number of shares after the listing of the placement shares (T467.2-3 - S Masel XXN, T494.1-2 - S Masel REXN). This is much more complex than the simple analogy put to the jury by the trial judge.
199 It was submitted that the evidence of Mr S Masel to the effect that he did not know whether Walthamstow became the beneficial owner of the shares when they were re-booked from Challiston to Walthamstow was a 'concession' of importance to the appellant's defence, but the learned trial judge failed to mention it in his summing up. Further, his Honour did not remind the jury of the evidence of Mr S Masel and the appellant to the effect that a sell order could be filled by 'borrowed shares' or that Walthamstow's fees often included a parcel of shares.
200 According to counsel for the appellant, the learned trial judge should have reminded the jury of all of the evidence referred to at [198] - [199] above, which (if accepted) made it difficult (if not impossible) for the jury to be satisfied beyond reasonable doubt that the shares in question were not beneficially owned by Walthamstow when the sales from Walthamstow to Challiston took place.
201 Counsel contended that there was no evidence that when the appellant accepted and placed sell orders from Walthamstow to Challiston, he knew that Walthamstow was not, or would not be as at settlement, the beneficial owner of the number of shares it had sold. It was submitted that the learned trial judge did not address this issue 'adequately or at all' in his summing up, and left the jury without any guidance or explanation as to the evidentiary basis of the defence or its application to the law.
202 In RPS v The Queen [2000] HCA 3; (2000) 199 CLR 620, Gaudron ACJ, Gummow, Kirby and Hayne JJ explained the fundamental task of a trial judge in giving instructions to the jury in criminal trials [41]:
The fundamental task of a trial judge is, of course, to ensure a fair trial of the accused. That will require the judge to instruct the jury about so much of the law as they need to know in order to dispose of the issues in the case (Alford v Magee [1952] HCA 3; (1952) 85 CLR 437 at 466, per Dixon, Williams, Webb, Fullagar and Kitto JJ). No doubt that will require instructions about the elements of the offence, the burden and standard of proof and the respective functions of judge and jury. Subject to any applicable statutory provisions it will require the judge to identify the issues in the case and to relate the law to those issues (Alford v Magee [1952] HCA 3; (1952) 85 CLR 437 at 466, per Dixon, Williams, Webb, Fullagar and Kitto JJ). It will require the judge to put fairly before the jury the case which the accused makes. In some cases it will require the judge to warn the jury about how they should not reason or about particular care that must be shown before accepting certain kinds of evidence (eg, Longman v The Queen [1989] HCA 60; (1989) 168 CLR 79; Domican v The Queen [1992] HCA 13; (1992) 173 CLR 555). (original emphasis)
203 Section 112 of the Criminal Procedure Act 2004 (WA) provides, relevantly, that before the jury retires to consider its verdict, the judge must instruct the jury on the law applicable to the case and may make any observations about the evidence that the judge thinks necessary in the interests of justice.
204 In Fingleton, McHugh J made these observations in relation to a statutory provision in Queensland which is comparable to s 112 of the Criminal Procedure Act [77]:
Section 620 of the _Criminal Cod_e declares that, after the evidence has concluded and counsel have addressed the jury, 'it is the duty of the court to instruct the jury as to the law applicable to the case, with such observations upon the evidence as the court thinks fit to make.' The court does not discharge that duty by merely referring the jury to the law that governs the case and leaving it to them to apply it to the facts of the case. The key term is 'instruct'. That requires the court to identify the real issues in the case, the facts that are relevant to those issues and an explanation as to how the law applies to those facts (cf Alford v Magee [1952] HCA 3; (1952) 85 CLR 437 at 466). As McMurdo P said in Mogg ((2000) [2000] QCA 244; 112 A Crim R 417 at 427 [54]), ordinarily the duty imposed on a trial judge in respect of a summing-up requires the judge to identify the relevant issues and relate those issues to the relevant law and facts of the case. In the same case, after referring to s 620 Thomas JA said ((2000) [2000] QCA 244; 112 A Crim R 417 at 430 [73]):
'The consensus of longstanding authority is that the duty to sum up is best discharged by referring to the facts that the jury may find with an indication of the consequences that the law requires on the footing that this or that view of the evidence is taken.' (Footnote omitted.)
See also The State of Western Australia v Pollock [2009] WASCA 96 [2] - [4] (Martin CJ, Wheeler JA agreeing); [105] - [138] (Miller JA).
205 I turn, first, to the evidence relating to the shares allotted to Walthamstow pursuant to the private placement of Intrepid shares I have described at [125(d)] above. A total of 2,050,000 shares were allotted to Walthamstow. The learned trial judge referred to the shares at the trial as the 'placement shares'. The prosecution's case was that at all material times Challiston (and not Walthamstow) was the beneficial owner of these shares.
206 It is necessary to set out the material terms of several of the loan facility letters pursuant to which Walthamstow made advances to Mr Scook/Challiston.
207 By letter dated 2 December 1997 (exhibit P00090473), Walthamstow agreed to make available a loan facility of $409,710, being loan facility no 2. The security for the loan facility included 374,000 shares in Intrepid 'to be supplied by Challiston'. Walthamstow agreed to advance Challiston 50 cents per share in relation to the 374,000 shares. Walthamstow's obligation to make an advance in respect of any shares was conditional upon the shares being transferred into its name. The purpose of the loan was stated to be assistance towards payment for the shares.
208 By letter dated 9 December 1997 (exhibit P00090477), Walthamstow agreed to make available another loan facility, being loan facility no 3. The amount to be advanced related to, amongst other shares, 126,000 Intrepid shares 'being purchased direct from Intrepid'. The letter said that subject to the relevant shares being transferred into Walthamstow's name, an advance would be made on the basis of and against, relevantly, '126,000 Intrepid shares from Intrepid' in the amount of $63,000, 'being 100% of the purchase cost of 50 cents/share'. The purpose of the loan was to fund the purchase of the shares. The letter made provision for a sharing of profits, as follows:
In relation to the 126,000 Intrepid shares referred to in clause 'Security iv' which are being purchased for 50 cents/share (ex option), the Borrowers agree to pay the Lender, upon sale of same, 50% of all profits made on these shares. The profits will be calculated after repayment to the Lender of the funds advanced for purchase of the shares, ie $50,000.00 [sic: $63,000.00].
209 By letter dated 11 December 1997 (exhibit P00090481), Walthamstow made available another loan facility, being loan facility no 4. It agreed to advance, relevantly, $75,000 to enable application to be made 'to Intrepid for 150,000 placement Intrepid shares'. The purpose of the loan facility was to fund the purchase of Intrepid shares. The security for the loan facility included the 150,000 placement shares to be purchased from the funds made available under the loan facility. The letter contained a profit sharing arrangement in relation to the 150,000 placement shares in, relevantly, the same terms as the profit sharing arrangement set out in the letter dated 9 December 1997.
210 By letter dated 20 January 1998 (exhibit P00090483), Walthamstow agreed to make available another loan facility, being loan facility no 5. The amount to be advanced included $350,000 'at the rate of 50c/share direct to Intrepid for 700,000 Intrepid placement shares'. The purpose of the loan facility was to fund the purchase of Intrepid shares. The security to be provided to Walthamstow included the 700,000 placement shares to be purchased with funds made available under the loan facility. The letter contained a profit sharing arrangement in relation to the 700,000 placement shares, as follows:
In consideration of the lender agreeing to this subject loan, and also in consideration of the bridging facilities supplied by the same lender and described in the previous share finance facility No 4 loan, the borrowers agree as follows:
The borrowers are entitled to take up 700,000 50 cent placement shares in Intrepid over and above those 50 cent placement shares that have been mentioned in earlier loan facility letters 1 to 4. These placement shares will be financed by this office, with the profits on sale of such shares to be shared by the borrower & lender on a 50/50 basis. (emphasis added)
211 By letter dated 9 February 1998 (exhibit P00090484), Walthamstow agreed to make available another loan facility, being loan facility no 6. The amount of the loan facility included $350,000 to be advanced 'by way of application for 700,000 placement shares' in Intrepid. The purpose of the loan facility was, relevantly, to fund the purchase of Intrepid shares. The security for the loan facility was described in the letter as follows:
The letter contained a profit sharing agreement which reads:
212 The placement shares financed by Walthamstow pursuant to loan facility nos 2, 3, 4, 5 and 6 totalled 2,050,000. By letter from Walthamstow to the appellant, undated but sent by facsimile transmission on 4 February 1998 (exhibit P00113898), Walthamstow made application for the 2,050,000 placement shares. The application was made pursuant to a letter dated 4 February 1998 (exhibit P00113897), sent by facsimile transmission, from the appellant to Mr S Masel. On or shortly before 27 February 1998, the shares were allotted to Walthamstow.
213 Mr S Masel was called by the prosecution. He gave evidence that the only shares in Intrepid which Walthamstow may have owned beneficially were 45,000 shares that may have been paid to Walthamstow by way of a fee. The following question and answer appear in his evidence-in-chief:
So other than in respect of that possibility, somewhere approximating 45,000 shares that may have been paid to you by way of a fee at some stage, other shares, Intrepid shares, held on Walthamstow accounts at brokers, who did they belong to?---They belonged to Mr Scook or his entities (ts 352).
214 There was no evidence that, at any material time, Walthamstow acquired any shares in Intrepid, except for the 2,050,000 placement shares and, possibly, about 45,000 shares by way of a fee.
215 Mr Scook gave this evidence in cross-examination by the prosecutor:
Now I just want to be very clear about the placement stock. You were asked some questions by [counsel for the appellant] about this. You accepted that the applications for the placement stock - and it was 2,050,000 in total, wasn't it?---Over a variety of tranches, yes.
Sure. So you weren't - you didn't get offered all of that placement stock at one go. It was over a number of weeks that that occurred?---Yes. That's right.
But the total was 2,050,000?---Mm'hm.
And the application for those shares was made by Walthamstow?---Yes, it was.
Yes. The reason for that was that those shares were to be held by Walthamstow as security under some of the loan agreements?---That's what they were doing, yes (ts 1026).
216 Mr S Masel gave evidence-in-chief in relation to the arrangements between Walthamstow and Challiston in connection with the placement shares. He said:
Can you tell me: were there also some shares that were placement shares, that is, new shares that were going to be issued by Intrepid that Mr Scook was going to apply for and sought finance from you?---Yes, there were.
Did you agree to finance those as well?---Yes.
Was there something different about the terms of that finance agreement in terms of what you expected to receive for financing those shares?---Well, we expected to receive a fee for financing those shares, similar to a fee for financing the ordinary shares.
But in that case was it also a share of profits?---Yes. The fee could take the form of a share of profits or a share of the shares or a monetary amount.
Do you recall what the percentage was of the share of profits that was specified for that?---I think on many occasions - in particular the placement shares I think we had half of the profits for many of them, if not most or all of them.
Just to explain what that means. Those placement shares would issue to Mr Scook at some point in time?---No. The application for the placement shares were made in the name of Walthamstow.
Walthamstow?---Mm.
So they would issue to Walthamstow?---Yes.
The profit would be realised on the sale of those shares?---Yes.
So you would then expect to receive 50 per cent of that profit?---Yes.
And Mr Scook would get the balance?---Correct.
Did that happen?---Yes (ts 347).
217 Mr S Masel was also cross-examined on this point:
Walthamstow had applied for the shares, Walthamstow had them allotted. They were allotted to Walthamstow not as trustee for anyone but simply allotted to Walthamstow, weren't they? Because it had applied for them, it paid for them, it got them. Is that right?---Yes it did, that is what happened.
And although there was a loan agreement in respect of the money that was used to finance the purchase of these shares, Walthamstow never executed any declaration of trust or anything of that nature saying, 'We are holding them in trust for Challiston,' did it?---No, it didn't.
It got the shares in its name, they remained in its name until they were ultimately sold?---Yes.
It is the fact, isn't it, that in anticipation of this placement, Walthamstow from time to time sold shares which it intended to replace by shares coming to it from the placement?---If Walthamstow owned the shares, that is the case.
Would it be fair to say that at this stage, you are not too sure whether Walthamstow did or did not own the shares?---It is fair to say that, yeah.
What you do know is that it paid for them?---Yes.
And what you do know is that they were sold?---Yes.
HALL, MR: Which shares are we now talking about? The placement shares?
McCUSKER, MR: The placement shares.
...
McCUSKER, MR: You couldn't sell the placement shares, as such, until they became tradeable on 27 February 1998, could you?---Correct.
But did you before that date - or Walthamstow - sell shares by borrowing shares against the anticipated placement?---Yes.
Do you know where it borrowed the shares from?---From the Scook basket of shares it was holding as security.
Do you know how many shares it borrowed from the Scook basket?---I don't remember numbers. I could probably digest and work it out.
But you don't remember at this stage the numbers and I wouldn't blame you for a moment?---No, no.
But the - was that done with the concurrence or knowledge of Scook?---Yes (ts 467 - 468).
218 Counsel for the appellant referred to a three-page handwritten document prepared in or about late 1997 or early 1998 by Mr S Masel (exhibit 6). The first page was headed 'purchases', the second page 'sales' and the third page 'distribution/receipts'. The document related to Challiston and shares in Intrepid. The page headed 'purchases' sets out purchases of various Intrepid shares made between 17 November 1997 and 9 February 1998. The second page headed 'sales' does not contain any dates. The third page headed 'distribution/receipts' sets out various monetary payments received between 9 December 1997 and 27 February 1998.
219 Mr S Masel was cross-examined on the document, as follows:
Could I just ask you to look at this document. It's a photocopy, first of all do you recognise the handwriting and what it is a photocopy of?---Yes, that's my handwriting.
Right and?---And it's
Yes, go on?---It's a record of purchases of Intrepid shares.
Over a period - starting with loan 1 right through?---Yes, correct.
Can I take you to what appears under the item 'loan 3.' Your Honour, we have got a spare copy that your Honour can use but I apologise for the difficulty in reading it. It's all handwritten of course.
WISBEY DCJ: Yes.
McCUSKER, MR: If you look under the item 'loan 3' you will see there you have written, 'Total 126,000 shares.' Is that right?---Yes.
Which were Intrepid shares, correct?---Yes, yes.
Date 9 December?---Yes.
That's December 97 and then across there you have got under the heading 'purchases' 63,000?---Yes.
And you have got an asterisk against that?---Yes.
So it's just - it's one half of the total number?---That's right.
And then if we go - follow through there's - after the item, 'Lender's fee,' we have got - just before I leave that one. Opposite the figure 63,000 you have got in the column, 'Finance cost', 31,500?---Yes.
Is that in dollars, that amount?---Yes, it is.
Yes. What does that actually signify then in your journal?---That signifies that we were debiting Challiston's account with half of the placement shares and half of the cost.
Right, so you were debiting Challiston's account with half of the Intrepid shares that were purchased, the cost of it, that is?---Correct.
What about the other half, you weren't debiting Challiston's account with that?---No, they would have been for us as part of the profit.
They were for you?---Yes.
If we go down further we have got an item - it's about four lines down - 'Total 150,000' and that's 150,000 Intrepid shares purchased?---Yes.
Then again you have debited Challiston's account with the cost of 75,000 of that hundred and fifty thousand, exactly half?---Correct.
The other half, you didn't debit Challiston's account because they were yours?---Correct.
That - without going through every one - it's clear that that was the way in which you dealt with these purchases; that every time there was a purchase made, you debited Challiston with half the cost of the shares, not the total number because the other half were yours?---Yes (ts 474 - 476).
220 Mr S Masel said in re-examination that the purpose of the document (exhibit 6) was 'to keep track of a number of Challiston shares that we were holding for finance and the amount of money that was owed against them' (ts 477). He said Walthamstow needed to know how many shares it was holding 'in respect of finance' for security purposes (ts 478). A little later, the following exchange occurred in relation to the second and third pages of the document which, as I have mentioned, deal with 'sales' and 'distribution/receipts' respectively:
In relation to that, you mentioned borrowing then and there were some propositions put to you by [counsel for the appellant] in that regard. If shares were borrowed or if those shares in particular were borrowed, it would be on the basis that they would have to be given back at some stage, clearly?---Yes. I always learned if you borrow - that reminds me of the mathematics; you borrow, you pay back, yep.
Yes, and in this case if it was placement shares that would have to occur at some point after they were quoted, after they were allotted on 27 February?---The answer is yes; however, they were still only notional placement shares. They weren't the real placement shares being sold.
Sure; realise that. I realise they're different shares. It's not the same shares?---It's only an accounting entry, yes. Correct.
But if they were being treated as - the placement occurs or the quotation of the placement shares occurs on 27 February, you have told us?---Yes.
If in advance of 27 February you borrow some shares from Challiston on the basis these are treated as placement shares - sorry, these are ordinary shares treated as placement shares?---Yes.
In order to give them back, you would have to do that within five days of 27 February, wouldn't you?---No. Well, there's really no - whilst you give them back again notionally, there's really no give-back because they are all in the same basket. It was just what you called them. We called those placement shares for the purpose of calculating our profit share.
Yes?---So there wasn't - you know, you do give them back but you don't give them back. It's still only an internal classification of them.
...
But the accounting of that would occur, would it, at what point?---Well, as of the date of 27 February when the placement shares came in, there was no longer a necessity to separate the notional calling of the replacement shares because they were all in the same basket (ts 485).
221 Mr S Masel said that the document 'showed the sale of any shares we notionally called the profit-sharing shares, which were the placement shares' (ts 486). He then gave this evidence:
But if half of the shares on each of those four occasions we can see on that sheet was being treated as Challiston and the other half you told us was Walthamstow, on what basis was Walthamstow getting half of the proceeds, beneficially?---On the basis that we were entitled to a profit share on the sale of those from the loan agreements.
Were you in fact borrowing those shares or not?---It depends upon your interpretation, definition of the word, of 'borrowing'. It was a very - you know, that's
That's what interests me because it was put to you on the basis that the shares were borrowed and you weren't asked what the arrangement in fact was. Was there a formal arrangement to borrow shares in the sense that you asked Mr Scook, 'Can you take those shares for yourself beneficially'?---The arrangement was that we said we would like to sell - 'We're happy with the price of Intrepid at that time and therefore there's a big basket of shares that are saleable. What about we sell some of that big basket of shares rather than waiting for the placement shares and we notionally call those shares the ones that we were to account for with our profit sharing?' And what you call that could be interpreted in a number of ways.
Right. Now was Mr Scook obliged to do this under the loan agreements?---Obliged to as in forced to?
Yes, did?---No.
So it was something that you were putting to him that you would like to do?---Yes.
And I take it he agreed to do it on at least these occasions?---Yes, he did.
As a result of that, you were able to get the profit earlier than you might otherwise have done?---Yes.
If you had waited till 27 February and the shares had sold, you would have got 50 per cent of the profit at that time?---Correct.
But by this means you were able to get some of that profit at least earlier?---Correct.
On those occasions when - did that happen more than once when Mr Scook approached you and - or you approached him and said, 'We'd like to do this. There's lots of shares'?---It would have because it occurred - you know, a number of sales so
Right?---If they came from different tranches of placement shares, then that would be the obvious conclusion, yeah.
On those occasions when you put that to Mr Scook and he agreed, who was it then who would determine the timing, the price of the shares and which broker would be used?---We - it's likely to be us, as in Walthamstow, because we placed the orders on each of the brokers' accounts - apart from Paul Morgan - and I can see those 50-cent sales took place at Carmichaels and Eyres Reed so we would have placed the shares on the market and the time.
Was there any discussion with Mr Scook in regards to those details?---We would've said that we were putting them on the market and it was always at best.
What do you mean by 'at best'?---At market price.
Was there in that regard any occasion when you or - and when I say 'you' I mean your family?---Family, yes.
Acted unilaterally, that is, placed an order with a broker for shares held in Walthamstow's name on the financing arrangement without any discussion with Mr Scook?---You mean, forcibly sold them without
Forcibly, yes?---No, there wasn't (ts 486 - 488).
222 Finally, Mr S Masel was re-examined about whether and to what extent Walthamstow was the beneficial owner of any shares in Intrepid:
[Counsel for the appellant] asked you was it not the case that Walthamstow was the beneficial owner of some shares?---Yes.
And you said at times?---Yes.
Can you tell me at what times it was that Walthamstow was the beneficial owner of shares held on it's account?---We received some shares as a fee.
Right?---Under the loan agreements.
And we have seen those in those loan agreements, haven't we?---And we have seen those.
That was for 45,000 shares on one occasion?---Yes, it was.
And 17 and a half I think on another occasion?---I can't remember the other numbers but
Yes?---So we would have been the beneficial owner of those shares.
Yes?---The placement shares is a matter of interpretation as to whether we were the beneficial owner of some placement shares or not (ts 492).
223 In my opinion, there is no substance in the appellant's complaint in relation to the learned trial judge's directions concerning the placement shares. The complaint is without merit for these reasons:
(a) The evidence was not to the effect that Walthamstow was the legal and beneficial owner of the shares held in its name and sold to Challiston.
(b) Rather, the evidence was that the placement shares were to be allotted to Walthamstow and held in its name as security for the loans made by it to Challiston. See Mr S Masel's evidence at ts 886 - 887; Mr Scook's evidence at ts 958- 959, 965, 966; loan facility letters nos 2 - 6. The 2,050,000 placement shares equate to the shares to be held by Walthamstow as security and referred to in loan facility letters nos 2-6.
(c) Mr S Masel's evidence was that the shares held in Walthamstow's name occurred pursuant to the loan facility letters.
(d) The critical issue was whether Challiston had an interest in the shares before and after the relevant transactions. See s 998(7).
224 Also, there is no substance in the appellant's complaint in relation to the learned trial judge's directions concerning whether no change occurred in the beneficial ownership of the relevant shares. The learned trial judge properly directed the jury:
(a) that a beneficial interest is an entitlement to the use and benefit of the property, and that, relevantly to the manner in which the case had been run, a shareholder has a beneficial interest in a share even if it is charged by way of security (ts 1447);
(b) as to when a transaction does not involve a change in beneficial ownership (ts 1446 - 1447, 1481);
(c) that the Crown was required to satisfy the jury beyond reasonable doubt that the deeming provision in s 998(5)(a) applied: in the appellant's case, the Crown was required to prove that he caused the relevant transactions to be carried out; that the shares sold were beneficially owned by Challiston and as a result there was no change in beneficial ownership; and that he knew there was no change in beneficial ownership (ts 1449, 1451, 1473);
(e) as to the appellant's case (ts 1492 - 1498), including the submission that the Crown had not proved there was no change in beneficial ownership (ts 1493), the circumstances relating to the placement shares and whether they were being received by Walthamstow other than as its own property (ts 1494 - 1495), and the elements of the charges against the appellant and his answer to them (ts 1498).
225 Further, there is no substance in the appellant's complaint in relation to the learned trial judge's directions concerning the appellant's knowledge that there was no change in the beneficial ownership of the shares in question. His Honour instructed the jury that this was a critical factor (ts 1489). His Honour summarised the Crown case (ts 1488 - 1492). His Honour then dealt at length with the appellant's case including the appellant's contention that he knew the Masels as share traders (ts 1494); his knowledge of the placement arrangements including that there was nothing 'in the applications, the covering correspondence or the cheques to indicate that the shares were being received by Walthamstow other than as its own property' (ts 1494); the circumstances attending the opening of accounts at Paul Morgan Securities (ts 1495) and his discussions with Ms Simpson, Mr Scook and Lance Masel (ts 1495 - 1497). His Honour reminded the jury that the appellant's case was that the inference of knowledge could not be drawn beyond reasonable doubt (ts 1498).
226 In my opinion, on an examination of the learned trial judge's charge as a whole, the jury were adequately instructed as to the law applicable to the case. Also, his Honour made such observations about the evidence as were necessary in the interests of justice. The jury were informed of the real issues at the trial. His Honour referred to the evidence and arguments relied on by the appellant to the extent necessary to ensure the jury had a sufficient knowledge and understanding of the evidence to perform their duty.
Ground 5: the verdicts are 'unsafe or unsatisfactory'
228 Ground 5 alleges in essence that the verdicts are 'unsafe or unsatisfactory' in that there was insufficient evidence from which the jury could conclude that there was no change in beneficial ownership of the shares sold by Walthamstow to Challiston or that, in any event, the appellant knew there was no change in beneficial ownership.
229 As to the contention in relation to no change of beneficial ownership, counsel for the appellant relied on his submissions in relation to ground 4 which I have summarised at [192] - [201] above.
230 As to the contention in relation to the appellant's knowledge, counsel for the appellant submitted:
(a) There was insufficient evidence on which it could be concluded beyond reasonable doubt that the appellant knew that the shares sold by Walthamstow to Challiston were not beneficially owned by Walthamstow.
(b) The appellant was never informed of the terms and conditions of the loan facility letters between Walthamstow and Mr Scook/Challiston. Mr S Masel said in evidence that he did not inform the appellant of the terms of those letters. Counsel also referred to the evidence of Ms Simpson and Mr Scook. According to counsel, that, of itself, was a 'fatal hole' in the prosecution case. There was no direct evidence of the appellant's knowledge, and no inference as to knowledge could be drawn merely from the fact that the appellant knew there was some kind of 'financing arrangement' between Walthamstow and Mr Scook/Challiston.
231 Counsel for the appellant submitted that there was no evidence the appellant was ever told that the shares booked to Walthamstow's account were only 'mortgaged' to Walthamstow, or that Walthamstow was to be a trustee or was not to become the beneficial owner of them. It was submitted that, for all the appellant knew, there was an arrangement under which:
(a) Mr Scook would purchase shares in Challiston's name;
(b) if Mr S Masel agreed, the shares would be re-booked to Walthamstow, and Walthamstow would pay for them; and
(c) when re-booked and paid for, Walthamstow became the beneficial owner of the shares, but with a profit sharing arrangement under which, as and when shares were sold from Walthamstow's account, profits from the sale would be divided in some (unspecified) proportions.
232 It was contended that it cannot follow, from the mere fact the appellant knew Walthamstow was paying the purchase price of the shares at settlement, that the appellant therefore knew all of the shares registered in Walthamstow's name were not beneficially owned by it.
233 According to counsel for the appellant, the following inferences were open on the evidence, and were consistent with innocence:
(a) the appellant thought that Walthamstow was to be both the registered and beneficial owner of the shares, but under some kind of (undisclosed) profit sharing arrangement the profits made from the sale of the shares would be divided between Walthamstow and Challiston; or
(b) that some (again undisclosed) portion of the shares purchased with funds advanced by Walthamstow would be owned by Walthamstow, and the remainder would be owned by Challiston.
234 It was submitted that the inference relied on by the prosecution (namely, the appellant knew that the beneficial ownership of the shares booked to Walthamstow, and for which Walthamstow paid, did not pass to Walthamstow) was the weakest of any possible inferences to be drawn from the evidence (if, which counsel disputed, this inference were open at all). In particular, counsel argued:
(a) Mr S Masel said in evidence he never told the appellant that Walthamstow was holding the shares on trust or other than beneficially.
(b) Walthamstow's account with Paul Morgan Securities was opened with a registration form completed by Walthamstow. The form required the client to state if the account was opened 'as trustee'. There was no reference in Walthamstow's registration or account opening form to its acting 'as trustee', or other than on its own behalf.
(c) Walthamstow always paid for the shares re-booked to its account. Mr S Masel informed the appellant that any one of the Masels or Mr Scook had authority to give sell orders on the account, with all proceeds to be credited to the account.
(d) The applications for the placement shares were made by Walthamstow. There was no suggestion that Mr Scook or Challiston was to have any interest in the placement shares. The cost of the placement shares was paid by cheques drawn by Walthamstow.
(e) Ms Simpson informed the appellant that she had run the re-booking process and transactions past Mr Berry, and he could not see anything wrong with them.
(f) At Ms Simpson's request, the appellant made enquiries with Mr Scook to ensure the transactions involved a change in beneficial ownership.
(g) After receipt of Walthamstow's application forms for the placement shares, Mr Scook told the appellant in late January/early February 1998 that Walthamstow had 'equity' in the arrangement and would be taking 50% of the placement shares.
(h) Mr Scook told the appellant that when sales were made of shares in Intrepid on Walthamstow's account, he was selling either his/Challiston's shares or Walthamstow's shares.
235 It was submitted on behalf of the appellant that, in the circumstances, there was no evidence from which it could be concluded, beyond reasonable doubt, that the shares in question were not beneficially owned by Walthamstow when they were sold to Challiston. Further, there was no basis in the evidence on which a reasonable jury, properly directed, could be satisfied beyond reasonable doubt that the appellant knew that to be the case.
236 By s 30(3)(a) of the Criminal Appeals Act, in the case of an appeal against conviction, the Court of Appeal must allow the appeal if, in its opinion, the verdict of guilty on which the conviction is based should be set aside because, having regard to the evidence, it is unreasonable or cannot be supported.
237 In M v The Queen [1994] HCA 63; (1994) 181 CLR 487, Mason CJ, Deane, Dawson and Toohey JJ said, in relation to s 6(1) of the Criminal Appeal Act 1912 (NSW) (which is in substance identical to s 30(3) of the Western Australian Criminal Appeals Act), that although the phrase 'unsafe and unsatisfactory' does not appear in the statutory provision:
Where a court of criminal appeal sets aside a verdict on the ground that it is unreasonable or cannot be supported having regard to the evidence, it frequently does so expressing its conclusion in terms of a verdict which is unsafe or unsatisfactory (492).
See also Jones v The Queen (1997) 191 CLR 439, 450.
238 In M, McHugh J held that a 'miscarriage of justice' arises whenever the accused has not had a fair trial according to law or whenever the nature of the evidence, the directions to the jury or the procedures that were followed raise a real doubt as to whether the conviction can be regarded as a safe or just conviction (523). In Jones, Gaudron, McHugh and Gummow JJ said that, having regard to the statements in M, there can be no doubt that a 'miscarriage of justice' also occurs when the findings or verdicts of the jury raise a real doubt as to whether a conviction is safe or just (450).
239 In M, Mason CJ, Deane, Dawson and Toohey JJ held that the test for an unsafe or unsatisfactory verdict was whether the court thought that
upon the whole of the evidence it was open to the jury to be satisfied beyond reasonable doubt that the accused was guilty (493).
[T]he court must not disregard or discount either the consideration that the jury is the body entrusted with the primary responsibility of determining guilt or innocence, or the consideration that the jury has had the benefit of having seen and heard the witnesses. On the contrary, the court must pay full regard to those considerations (493).
Their Honours explained the application of the test:
In most cases a doubt experienced by an appellate court will be a doubt which a jury ought also to have experienced. It is only where a jury's advantage in seeing and hearing the evidence is capable of resolving a doubt experienced by a court of criminal appeal that the court may conclude that no miscarriage of justice occurred. That is to say, where the evidence lacks credibility for reasons which are not explained by the manner in which it was given, a reasonable doubt experienced by the court is a doubt which a reasonable jury ought to have experienced. If the evidence, upon the record itself, contains discrepancies, displays inadequacies, is tainted or otherwise lacks probative force in such a way as to lead the court of criminal appeal to conclude that, even making full allowance for the advantages enjoyed by the jury, there is a significant possibility that an innocent person has been convicted, then the court is bound to act and to set aside a verdict based upon that evidence. In doing so, the court is not substituting trial by a court of appeal for trial by jury, for the ultimate question must always be whether the court thinks that upon the whole of the evidence it was open to the jury to be satisfied beyond reasonable doubt that the accused was guilty (494 - 495). (footnotes omitted)
See also Jones, 450 - 451. The test formulated by the majority in M is the appropriate test for determining whether a verdict is unsafe or unsatisfactory: Jones, 452; MFA v The Queen [2002] HCA 53; (2002) 213 CLR 606 [25].
240 In Libke v The Queen [2007] HCA 30; (2007) 230 CLR 559, Hayne J (with whom Gleeson CJ & Heydon J relevantly agreed) said that where it is alleged that a conviction is unsafe or unsatisfactory, the question for an appellate court is
whether it was open to the jury to be satisfied of guilt beyond reasonable doubt, which is to say whether the jury must, as distinct from might, have entertained a doubt about the appellant's guilt (M v The Queen [1994] HCA 63; (1994) 181 CLR 487 at 492 - 493). It is not sufficient to show that there was material which might have been taken by the jury to be sufficient to preclude satisfaction of guilt to the requisite standard. In the present case, the critical question for the jury was what assessment they made of the whole of the evidence that the complainant and the appellant gave that was relevant to the issue of consent to the digital penetration that had occurred in the park. That evidence did not require the conclusion that the jury should necessarily have entertained a doubt about the appellant's guilt [113]. (original emphasis)
See also Weiss [41] (Gleeson CJ, Gummow, Kirby, Hayne, Callinan & Heydon JJ).
241 In my opinion, in the present case the appellant's conviction is not unsafe or unsatisfactory. His conviction is capable of being supported, having regard to the evidence.
242 As to the appellant's contention that there was insufficient evidence from which the jury could conclude that there was no change in beneficial ownership of the shares sold by Walthamstow to Challiston, in my opinion there was sufficient evidence to prove beyond reasonable doubt that there was no change in beneficial ownership. I refer, in particular, to the following evidence:
(a) The shares were purchased by Challiston in its own name.
(b) Walthamstow made loans to Challiston pursuant to the loan facility letters for the purpose of financing Challiston's acquisition of the shares. It was a term of the loan facility letters that the shares would be charged or mortgaged to Walthamstow to secure the repayment of the loans. Upon Challiston acquiring the shares, Walthamstow's security was perfected by the shares being transferred into its name. The transfer of the shares into Walthamstow's name occurred at or prior to settlement of their acquisition, by the shares being re-booked to Walthamstow. Pursuant to the loan facility letters, Walthamstow paid the purchase price. It then held the shares in its own name. See the material terms of the loan facility letters at [207] - [211] above. See also the evidence of Mr S Masel at ts 341 - 342, 344, 346, 354 - 356, 387 - 398, 461; the evidence of Ms Robson at ts 585, 587 - 590; and the evidence of Mr Scook at ts 1026.
(c) The shares were held on the CHESS system with Paul Morgan Securities as the sponsoring broker. Walthamstow was registered as the holder of the shares under the CHESS system and could initiate transactions on it (or cause them to be initiated). Walthamstow authorised Mr Scook to initiate sales, but not purchases, on Walthamstow's account. See the evidence of the appellant at ts 1074. See also the facsimile transmission form sent by Mr S Masel to the appellant on 30 January 1998 (exhibit P00090998). The jury were entitled to conclude that this indicated that Mr Scook/Challiston had a continuing interest in the shares. Walthamstow might itself sell the shares, or might require Mr Scook to sell them if their value fell. See Mr S Masel's evidence at ts 346.
(d) The number of re-bookings and the reasons for them were unusual. Normally, re-booking was undertaken to correct an error. See Ms Robson's evidence at ts 585; Ms Simpson's evidence at ts 648; the appellant's evidence at ts 1068. In the present case, the reason specified by the appellant on the re-booking forms was 'finance' or 'financing'.
243 If the jury were satisfied beyond reasonable doubt that the shares held in Walthamstow's name were held by it as security for loans advanced by it to Challiston for their purchase, it was a question of law whether Challiston had a beneficial interest in them.
244 In my opinion, based on the evidence referred to at [242] above, at all material times Challiston retained a beneficial interest in the shares. See Harrold v Plenty [1901] 2 Ch 314, 316; Stubbs v Slater [1910] 1 Ch 632, 638 - 639; Adelaide Building Co Pty Ltd (in liq) v ABC Investments Pty Ltd (1990) 8 ACLC 445, 447 - 448. By s 998(7), a purchase or sale of securities does not involve a change in the beneficial ownership, for the purposes of s 998, if a person who had an interest in the securities before purchase or sale, or an associate of the person in relation to those securities, has an interest in the securities after the purchase or sale.
245 As to the appellant's contention that there was insufficient evidence from which the jury could conclude that the appellant knew there was no change in beneficial ownership, in my opinion there was sufficient evidence to prove beyond reasonable doubt that the appellant knew there was no change in beneficial ownership. It was open to the jury to be satisfied beyond reasonable doubt that the only reasonable and rational inference that could be drawn from the circumstances disclosed by the evidence was that the appellant knew there was no change in beneficial ownership. See Plomp, 243; Shepherd, 578. I refer, in particular, to the following evidence:
(a) The appellant was a very experienced stock broker.
(b) The appellant was the broker in relation to each of the trades. See Ms Robson's evidence at ts 603 - 604. (Compare the appellant's evidence to the effect that some of the trades may have been made by colleagues.)
(c) The appellant knew of and initiated the re-booking from Challiston to Walthamstow of each acquisition of shares. See Ms Robson's evidence at ts 585, 587 - 590. He did so on taking instructions from Mr S Masel.
(d) The number of re-bookings and the reasons for them were unusual. Normally, re-booking was undertaken to correct an error. See Ms Robson's evidence at ts 585; Ms Simpson's evidence at ts 648; the appellant's evidence at ts 1068. In the present case, there was no error and, on the basis of the evidence referred to at [242] above, no sale.
(e) The appellant knew that the re-bookings were as a result of financing arrangements, and he marked the re-booking forms, relevantly, either 'finance' or 'financing'. See Ms Robson's evidence at ts 587; the appellant's evidence at ts 1072.
(f) The appellant knew that Walthamstow was a finance company and was acting as financier to Mr Scook/Challiston in connection with the purchases. See Ms Simpson's evidence at ts 648; Lindsay Phillips' evidence at ts 668; Mr Scook's evidence at ts 1030 - 1031; the appellant's evidence at ts 1072, 1074, 1098, 1101, 1103. The appellant spoke to Mr S Masel 'probably dozens of times' about whether Walthamstow was financing shares and was prepared to take shares into its name. See Mr S Masel's evidence at ts 350 - 351. Also, the appellant received facsimile transmissions from, and sent facsimile transmissions to, Walthamstow regarding the loans and financing of particular purchases. See exhibits P00090561, P00113976, P00113988. On occasions, the appellant approached Mr S Masel about whether Walthamstow would be advancing money, sometimes even before Mr S Masel had a request for finance from Mr Scook. See Mr S Masel's evidence at ts 408.
(g) The appellant informed Ms Simpson that the re-bookings were as a result of the financing arrangements between Challiston and Walthamstow because Walthamstow did not want to accept a credit risk, and accordingly did not want the shares booked to its name until the settlement date. See Ms Simpson's evidence at ts 648, 649; the appellant's evidence at ts 1072, 1109.
(h) In the printed order forms for the shares, the appellant completed a space on the forms marked 'Contact'. In this space he inserted the word 'Dean' (being Mr Scook), S Masel or Steve (being Mr S Masel) or Lance Masel or Lance/Steve (being Lance Masel and Mr S Masel). See the bundle of order forms in the combined blue and green appeal book volume 2, pages 171 - 205. The jury were entitled to reject the appellant's evidence to the effect that the name he inserted in the 'Contact' box did not refer to the person who had given him the order but to the entity (Challiston or Walthamstow) who, according to his belief, was the owner of the shares.
(i) Ms Robson's evidence of this conversation with the appellant (which the appellant denied):
You may recall the first of them, the crossing buy and sells, the one I showed you that related to 415,000 shares. Those shares crossed at a price of $1.37. You remember me showing that to you a moment ago? I can tell you that at that time the last trade on the market was $1.34. Do you recall at some point having a discussion with [the appellant] in regard to crossing transactions that he was instructing you to undertake?---I have some recollection of a - not a dispute, not even an argument, just a comment, a passing comment, saying that I was not happy with going up into the market up to 1.37 when the market was only 1.34.
All right. When you say you had a dispute, was that with [the appellant]? You raised it with him?---I did raise it with him and said I wasn't happy about this kind of crossing.
Do you recall the words you used?---That he could possibly be - or he would [get] me in trouble with SEATS market control and possibly manipulating the market.
Did he respond?---Well, he did tell me to be quiet or shut up and just 'Get on with your job'.
And did you?---Get on with my job?
Did you do that transaction there?---Yes, I did. I felt I had to (ts 605).
Ms Robson said in cross-examination, in relation to this conversation, that she was informing the appellant that she was not happy with the transactions or the manner in which the trading was occurring (ts 616). She did not, however, make 'a big fuss' because she did not want to 'get [herself] sacked' (ts 616).
246 Also, there was evidence on the basis of which the jury could be satisfied that the appellant had a motive for engaging in the impugned conduct. As I have mentioned, at all material times Paul Morgan Securities was the underwriter of the private placement. The placement was made pursuant to a resolution passed at a general meeting of Intrepid's members held on 15 November 1997. The placement shares were allotted on or shortly before 27 February 1998. The private placement was sub-underwritten. After Paul Morgan Securities paid the sub-underwriter, it received about $55,000 or $60,000. See the appellant's evidence at ts 1100. Also, Boulder Enterprises Pty Ltd (a wholly owned subsidiary of Saxby Bridge Pty Ltd) received 40,000 shares in the private placement. At all material times, the appellant owned 40% of the issued share capital of Saxby Bridge Pty Ltd. Further, Paul Morgan Securities subscribed for 50,000 shares in the private placement. See the letter dated 3 March 1998 from Ms Simpson, on behalf of Paul Morgan Securities, to the ASX and the annexure attached to that letter (exhibit P00239255), and see the appellant's evidence at ts 1100.
247 The circumstantial evidence relied on by the prosecution to prove knowledge must, of course, be evaluated in its entirety, and not considered on a piecemeal basis. See R v Hillier [2007] HCA 13; (2007) 228 CLR 618 [46] (Gummow, Hayne & Crennan JJ).
248 None of the matters raised on the appellant's behalf precluded the jury's finding that he was guilty beyond reasonable doubt on each of the counts in respect of which verdicts of conviction were recorded (including their finding beyond reasonable doubt that the only reasonable and
rational inference that could be drawn from the circumstances disclosed by the evidence was that the appellant knew there was no change in beneficial ownership). My examination of the trial record does not require the conclusion that the jury must have entertained a doubt about his guilt (including a doubt as to whether the only reasonable and rational inference that could be drawn was that he knew there was no change in beneficial ownership). I do not experience such a doubt. The verdict of the jury was not unreasonable, and it is a verdict which is supported by the evidence.
250 I would grant leave to appeal but, for the reasons I have given, the appeal should be dismissed.
(1998) 89 FCR 301
(2006) 202 FLR 98
(1980) 142 CLR 342
(2008) 236 CLR 358
(2008) 236 CLR 440
(2000) 104 FCR 126
(2005) 227 CLR 166
(2006) 228 CLR 45
(1985) 157 CLR 523
(1991) 173 CLR 492
(1970) 122 CLR 49
(1992) 39 FCR 348
(1997) 191 CLR 439
(2005) 142 FCR 343
(1987) 162 CLR 502
(1975) 10 SASR 528
(2007) 230 CLR 559
(1994) 181 CLR 487
(1992) 27 NSWLR 203
(2002) 213 CLR 606
(1981) 148 CLR 42
(1971) 124 CLR 107
(1963) 110 CLR 234
(2007) 228 CLR 618
(2002) 167 FLR 44
(1987) 11 NSWLR 541
(2004) 28 WAR 530
(2000) 199 CLR 620
(1990) 170 CLR 573
(1990) 171 CLR 312
(1974) 133 CLR 641
(1986) 161 CLR 158
(2005) 224 CLR 300
(1909) 9 CLR 693
(1946) 73 CLR 70
(1988) 164 CLR 234
(1952) 85 CLR 437
(1989) 168 CLR 79
(1992) 173 CLR 555