BRAYSICH -v- THE QUEEN [2009] WASCA 178 (16 October 2009)

BRAYSICH -v- THE QUEEN [2009] WASCA 178 (16 October 2009) - WASCA 2009 case summary — Zoe

[200]

[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].

[215]

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.

[235]

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).

[250]

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).

[353]

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).

[451]

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).

[455]

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).

At a glance

Court

Decision date

Before

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Source

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Judgment (532 paragraphs)

BRAYSICH -v- THE QUEEN [2009] WASCA 178 (16 October 2009)

Legislation Cited (9)

Cases Cited (39)