Catena v Australian Securities and Investments Commission

PRIMARY JUDGE's REASONING 7 Sections 1043A(1) and (2) of the Corporations Act prohibit certain conduct by persons possessing "inside information". Section 1043A(1) provides that: (1) Subject to this Subdivision, if: (a) a person (the insider) possesses inside information; and (b) the insider knows, or ought reasonably to know, that the matters specified in paragraphs (a) and (b) of the definition of inside information in section 1042A are satisfied in relation to the information; the insider must not (whether as principal or agent): (c) apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products; or (d) procure another person to apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products. 8 Section 1043A(2) provides that: (2) Subject to this Subdivision, if: (a) a person (the insider ) possesses inside information; and (b) the insider knows, or ought reasonably to know, that the matters specified in paragraphs (a) and (b) of the definition of inside information in section 1042A are satisfied in relation to the information; and (c) relevant Division 3 financial products are able to be traded on a financial market operated in this jurisdiction; the insider must not, directly or indirectly, communicate the information, or cause the information to be communicated, to another person if the insider knows, or ought reasonably to know, that the other person would or would be likely to: (d) apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products; or (e) procure another person to apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products. 9 Section 1043A(1) thus prohibits a person possessing inside information from engaging in certain conduct in respect of financial products, whereas s 1043A(2) prohibits such a person from communicating that information to another person whom they know or ought reasonably to know would be likely to engage in that conduct. 10 Section 1042A of the Corporations Act includes the following definitions: generally available, in relation to information, has the meaning given by section 1042C. information includes: (a) matters of supposition and other matters that are insufficiently definite to warrant being made known to the public; and (b) matters relating to the intentions, or likely intentions, of a person. inside information means information in relation to which the following paragraphs are satisfied: (a) the information is not generally available; (b) if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of particular Division 3 financial products. 11 Section 1042C provides that: (1) For the purposes of this Division, information is generally available if: (a) it consists of readily observable matter; or (b) both of the following subparagraphs apply: (i) it has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in Division 3 financial products of a kind whose price might be affected by the information; and (ii) since it was made known, a reasonable period for it to be disseminated among such persons has elapsed; or (c) it consists of deductions, conclusions or inferences made or drawn from either or both of the following: (i) information referred to in paragraph (a); (ii) information made known as mentioned in subparagraph (b)(i). (2) None of the paragraphs of subsection (1) limits the generality of any of the other paragraphs of that subsection. 12 As identified by the appellant and accepted by the primary judge at [44] of his reasons for judgment, the key elements of a contravention of s 1043A thus include that a person (the insider): possesses inside information; knows or ought reasonably to know that the information is not generally available; [and] knows or ought to reasonably to know that if the information were generally available a reasonable person would expect it to have a material effect on the price or value of securities. 13 The primary judge described the appellant's argument in these terms: 46 The applicant accepts that the [Tribunal] correctly identified the necessity to apply the standard of proof in Briginshaw v Briginshaw [(1938) 60 CLR 336], but says that the [Tribunal] thereafter failed to evaluate the material before it to determine, in respect of each element that gives rise to a contravention of s 1043A, whether the relevant standard identified in Briginshaw v Briginshaw had been met. 47 The applicant says that while the [Tribunal] correctly identified that the applicant had raised before it a case that the Tribunal could not fairly discount the possibility of the information he had being of a speculative nature based on market rumours, the Tribunal: misunderstood this presuming only that the Appellant's case was going to the state of knowledge of the Appellant (being the separate element to the offence namely that the insider knew or ought reasonably to know that the matters within the definition of inside information were satisfied in relation to the information in question). The Tribunal failed to identify that the fundamental issue raised by such a case was that the information was not inside information within the meaning of the terms as statutorily defined. 48 The core of the applicant's argument then is put in these terms: Nowhere in the Tribunal's decision does the Tribunal directly confront and deal with the issue of determining whether the information in question was inside information within the statutory meaning of that expression. 49 The applicant contends that the Tribunal misstated the correct test to be applied. Rather than go back to the statutory definition to determine whether the information was not generally available, the Tribunal expressed the test in terms of considering: the Applicant's contention that the Tribunal could not fairly discount the possibility that what the Applicant knew was of a speculative nature based on market. The applicant argues that the application of the proper test involved more than a mere evaluation of a "contention" by the applicant. 50 The applicant also points to the Tribunal's analysis of the words spoken by the applicant to his clients as being consistent only with lying or knowing information above and beyond mere rumour or speculation. The applicant contends that the Tribunal discounted lying as a reasonable inference and merely concludes that the applicant knew information. The applicant contends that the Tribunal engaged in impermissible reasoning inconsistent with the tests enunciated by the High Court, for example in Martin v Osborne [1936] HCA 23; (1936) 55 CLR 367 at 375, per Dixon J; and Luxton v Vines (1952) 85 CLR 352 at 358. 51 As to the witness statement of Mr Pizzey, the applicant says that Mr Pizzey did not say that the information had not been further communicated by any of the people who were aware of it. He did not say that the information was not generally available. There was no relevant material from which it could be inferred that the information was not generally available (in this regard see by way of contrast the relevant material that was available to the Court in R v Rivkin [2004] NSWCCA 7, at [178] - [182]). 52 The applicant then goes on to contend that, in [77] of the [Tribunal]'s reasons, the Tribunal commented, in a manner suggesting that an onus lay upon the applicant, that the applicant had not led evidence to establish the existence of a market rumour or speculation. 53 The applicant contends that, at [81] of the Tribunal's reasons, the Tribunal fundamentally mistook its task and "wrongly phrases the test in a diametrically opposite manner to the Corporations Act". It states the test as being one of whether or not the applicant could establish "the existence of market rumour or speculation". The applicant contends that the statutory offence requires evidentiary material that positively disproves that there was market rumour or speculation - in other words, material which establishes that the information was not generally available. 54 In the event, the applicant contends that the analysis by the Tribunal failed to address the central issue as to whether or not the respondent had discharged its obligation to show to the Tribunal that there was evidentiary material of sufficiently persuasive weight to establish each of the elements of the alleged contravention of s 1043A. 55 The applicant says that upon the evidentiary material before it, the Tribunal should have concluded that the respondent had failed to adduce sufficient evidentiary material to the requisite standard to establish each of the elements of the alleged contravention. 14 The primary judge did not accept these submissions. 15 At [57] the primary judge noted that the Tribunal had before it all of the material that had been available to ASIC at the time of its original decision, including transcripts of the telephone calls the appellant had made and witness statements of Mr Pizzey and Mr Stranger. Further, the primary judge noted that the appellant did not require any person to be produced for the purpose of cross-examination and did not challenge the evidence. 16 At [58] the primary judge said that the appellant's primary argument before the Tribunal was that, on the evidence as a whole, the Tribunal could not discount the possibility that the information used by the appellant was subject to market rumour and speculation at the time, "such that it was generally available". As the primary judge put it: If the [Tribunal] accepted that this was the state of the evidence then obviously ASIC could not establish the information used and communicated by the applicant was "not generally available", as required by para (a) of the definition of "inside information". In my view, the Senior Member of the [Tribunal] understood exactly why the issue had been framed in this way by senior counsel for the applicant. 17 According to the primary judge at [60], this "is why, at [74] of the [Tribunal]'s reasons, the Tribunal specifically turned to 'consider the applicant's contention that the Tribunal could not fairly discount the possibility that what the applicant knew was of a speculative nature based on market [rumour or speculation]'. The [Tribunal] appreciated this was critical to the finding it had to make as to whether the information constituted 'inside information' as defined." 18 The primary judge concluded as follows: 61 It was in that context that the Tribunal gave close consideration to, first, what the applicant had said to his clients. At [75], having suggested that the words spoken by the applicant in telephone conversations could only be explained by the applicant having lied or knowing of information above and beyond mere rumour and speculation, the [Tribunal] ultimately found, at [83], that the applicant knew information that was not merely rumour or speculation. 62 It seems to me it was reasonably open to the Tribunal to draw this inference having regard to the evidence considered as a whole. In this regard, the test for the drawing of an inference in a criminal prosecution, as discussed in Martin v Osborne at 375, is not directly relevant in an administrative review hearing where a tribunal must be satisfied as to a state of affairs. Arguably, nor is the basis upon which an inference will be drawn from circumstantial evidence in a civil case, as discussed in Luxton v Vines at 358. It might be suggested, however, (without deciding) that the civil approach of only drawing an inference where it is a more probable inference than other available inferences, has much to commend it in the type of administrative review decision-making undertaken by the [Tribunal] in this case, even though no party bears a formal onus or burden to prove a case in a review proceeding (as to which see McDonald v Director‑General of Social Security (1984) 1 FCR 354 at 358). 19 As to the evidence of Mr Pizzey, the primary judge at [63] characterised the Tribunal's use of that evidence as emphasising the fact that there "was not any obvious leakage of information to the market". Mr Pizzey was the Company Secretary and Chief Financial Officer of the relevant company, Vision Systems Limited (VSL). Mr Pizzey's evidence was to the effect that the proposed merger (to which the alleged inside information related) was highly confidential and known to a limited number of people. Further, and as the primary judge recorded at [63], Mr Pizzey's evidence also included the fact that he had not heard any rumours or speculation within the market before the merger was announced. Hence, the primary judge concluded that: The [Tribunal] was entitled to consider this evidence in determining the question of what information was generally available. It was obviously relevant. 20 As to the evidence of Mr Stranger, an analyst who covered VSL stock, the primary judge at [65] considered that it was not unreasonable for the Tribunal to treat that evidence as merely establishing a high level of rumour or market speculation, and not as suggesting that: there existed market rumour or speculation that extended both to the likely price and timing of a takeover. It was that part of the information possessed by the applicant - that the price was about $2.15 and that the timing of takeover was in about the middle of August - that was critical to the Tribunal's assessment that information was not generally available. 21 Having reached these conclusions, the primary judge answered the principal issue in the appeal in the following terms: 66 In all of these circumstances, the Tribunal focussed on the issue that had been made critical to its determination by the way this case was argued before it. Given that the case proceeded on documentary evidence, and counsel for the applicant drew what he could in order to press the case of the applicant, the approach taken on behalf of the applicant (not surprisingly) was simply that the information he possessed could not be shown to be inside information because it was information readily available, given that it was the subject of market rumour and speculation. The submission was encapsulated in the contention that the Tribunal "could not fairly discount the possibility". 67 In those circumstances, it is artificial to suggest that the Tribunal failed to address the central issue as to whether or not the respondent had discharged its obligation to show to the [Tribunal] that there was evidentiary material of sufficiently persuasive weight to establish each of the elements of the alleged contravention of s 1043A. In my view, construed fairly as a whole, the Tribunal did not lose sight of the task it had, to decide if it was satisfied that ASIC had made out its case on the evidence that the information utilised by the applicant was inside information as defined. 68 In these circumstances, the appeal on the central issue, encapsulated in question of law 2.1 of the amended notice of appeal, must fail. 22 The primary judge (at [70]) rejected the appellant's contention that [77] of the Tribunal's reasons (specifically, the first sentence which states "No evidence was led by the applicant to establish the existence of market rumour or speculation") indicated that the Tribunal had impermissibly imposed an onus on the appellant to establish that such rumour or speculation existed, and so that the information was not "not generally available". The primary judge continued as follows: All that the Tribunal did at [77] was observe, as was the fact, that the applicant had not led any evidence to establish the existence of market rumour or speculation. The Tribunal then went on immediately, in [77], to note that senior counsel for the applicant in that regard relied upon material that would enable the Tribunal to find that ASIC's case was not made out. As explained above, the Tribunal, having regarded all the evidence, obviously was satisfied there was a use of "inside information" as defined that fell within the two areas of concern. At no time did it expressly or constructively approach its review functions on the basis that, unless the applicant established that the information in question was the subject of market rumour and speculation, his review application must fail. 23 The primary judge was satisfied that the Tribunal applied the correct approach to the onus and standard of proof in the matter, including the well-known principle in Briginshaw v Briginshaw (1938) 60 CLR 336 (see [71]). 24 The primary judge summarised his conclusions in these terms at [72]: In summary, in the circumstances of the proceeding, the Tribunal's focus on the issue formulated by senior counsel for the applicant, that it could not fairly discount the possibility that the information possessed by the applicant was of a speculative nature based on market rumours, did not lead the Tribunal into error.

THE GROUNDS OF APPEAL 25 The appellant's submissions were not structured by reference to the grounds of appeal and thus implicitly recognised that the substance of those grounds overlaps. 26 The appellant's basic proposition - that the evidence before the Tribunal "did not deal with the question as to whether or not the information was not generally available" - is untenable. As ASIC submitted, the information alleged to be "inside information" was that it was "likely there would be a merger/takeover proposal for VSL at a price of about $2.15 per share before 23 August 2006" (these facts are defined as "the information" in the Tribunal's reasons at [8]). 27 The evidence before the Tribunal included the text of telephone conversations between the appellant and various clients (identified at [26]-[58] of the Tribunal's reasons), the statement of Mr Pizzey (discussed at [76]), and the evidence of Mr Stranger (discussed at [77]-[81]). 28 According to the appellant's submissions, this material was incapable of establishing a necessary element of the alleged contravention - that the information was "not generally available" - because the material failed to exclude the possibility that the information (as the appellant put it) was not "not generally available". As such, it was not open to the Tribunal to find that the information was "inside information", as it purported to do at [83(b)] of its reasons. As put by the appellant, this submission involved the following steps: - (i) the test for whether information consists of "readily observable matter" (as referred to in the definition of information which is "generally available" in s 1042C(1) of the Corporations Act) is objective not subjective, (ii) thus, the appellant's own statements about the nature of the information cannot be relevant in determining whether the test was met, (iii) the evidence of Mr Pizzey identified the fact that Board members and a "limited number of [other] people" knew about the proposed merger, (iv) Mr Pizzey's evidence did not establish whether this "limited number of people" were bound by confidentiality arrangements or not, (v) Mr Pizzey's evidence did not establish that the Board members or the "limited number of people" who possessed the relevant information had not disclosed that information in a way that made it "readily observable", (vi) none of the other evidence established that such disclosure had not occurred, (vii) to prove the required negative proposition that the information was "not generally available" it was necessary for the Tribunal to have before it evidence from each person who possessed the information confirming that they had not disclosed it; and (viii) without such evidence, it was not open to the Tribunal to conclude that the information was "not generally available" so that all elements of the alleged contravention had been made out. 29 These submissions cannot be accepted. Properly analysed, they are to the effect that there was insufficient evidence for the Tribunal to find that the information was "inside information". A submission regarding mere insufficiency of evidence, however, does not involve any question of law. Provided there was some evidence capable of supporting the finding, and that the finding was reasonably open on that evidence, no question of law arises (Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 358). It is apparent in this case that there was evidence capable of supporting the Tribunal's finding, as identified in [27] above. Contrary to the appellant's submissions, the appellant's own statements were relevant to the question whether the information was "inside information" as defined. The appellant's statements added to the weight of the material before the Tribunal because they disclosed both what the appellant knew and what he said to be the source of the information. The other evidence, including that of Mr Pizzey and Mr Stranger, supported the inference the Tribunal drew in making its finding. It is not the case that the Tribunal could draw that inference only if it had before it evidence from each person who possessed the relevant information, confirming that they had not disclosed it. The fact that, on the language of the statute, one element of the definition of "inside information" involves a negative proposition (the information was "not generally available") does not alter the nature of the task of the Tribunal or its capacity to draw inferences from the available material. 30 It was an obvious (and thus necessarily open) inference from the available material that the information (that there was a proposed merger of VSL at a price of $2.20 per share scheduled to occur before 23 August 2006) was "not generally available" until 10 August 2006 (the date the merger was announced). That is the inference the Tribunal drew (see its reasons at [83(b)]), and properly so on the evidence before it. In so doing the Tribunal engaged in the orthodox process of reviewing evidence and drawing inferences from that evidence. It cannot be said, therefore, that the Tribunal "had not considered at all whether the evidence established that the information was not generally available". Nor can it be said that there "was no logical basis for the finding" in [83(b)] other than the alleged misstatement of the legal elements of the contravention in [77] of the Tribunal's reasons. The Tribunal had considered the material relevant to the requirement that the information not be "generally available", and [83(b)] was logically founded on that consideration. In particular, and as ASIC submitted, the available material properly founded an inference that the information about the likely timing and price of the takeover was "not generally available". 31 The primary judge was correct to conclude that this inference was open. In analysing the inferences which could be drawn from the available material the primary judge did not fail to consider the appellant's argument by impermissibly descending into a factual analysis of the Tribunal's reasons. The primary judge was bound to consider the Tribunal's reasoning process to determine whether the questions of law arose as the appellant contended. Far from exceeding the permissible scope of review, the assessment was necessary in order for the primary judge to perform the task of review required by the appellant's contentions of legal error - contentions the essence of which was that it was not open to the Tribunal to reach the conclusion it did on the material available to it. 32 Ground 5 of the notice of appeal is thus unfounded. 33 The appellant's secondary proposition - that [77] of the Tribunal's reasons misstated the onus - is also unfounded. As ASIC submitted, the reference to onus obscures the Tribunal's true function. By s 33(1)(c) of the AAT Act, the Tribunal is "not bound by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate". By s 43(1) of the AAT Act the Tribunal, for the purpose of reviewing a decision, "may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision". These provisions, which place the Tribunal in the same position as the administrative decision-maker at first instance, exclude the "introduction of concepts of onus of proof into the determination of claims under the legislation where no onus of proof in the legal sense arises" (McDonald v Director-General of Social Security (1984) 1 FCR 354 at 366; see also 356-358). As ASIC submitted, the appellant's arguments erroneously attempt to impose not only an onus of proof on ASIC, but an onus which must be discharged to the criminal standard (that is, by excluding any possibility consistent with the information not being "not generally available"). 34 It follows that the appellant's claim that the Tribunal misstated the onus is misconceived. In any event, the first sentence of [77], as the primary judge found at [70], is nothing more than an accurate statement of fact by the Tribunal. That sentence cannot be read as purporting to impermissibly subject the appellant to an onus of proof. Such a reading is not open either on the terms of the sentence alone or having regard to its context. Its context is the Tribunal's express recognition of the case the appellant sought to run before it - a case which, as the Tribunal put it in the next sentence at [70], relied upon the material before the Tribunal to establish the existence of market rumour or speculation. Again, this was in fact how the appellant ran its case. In recognising that fact the Tribunal was saying nothing about the onus of proof. 35 The appellant's other complaints about the reasoning of the primary judge (and of the Tribunal to which those reasons relate) are similarly without substance. As the primary judge found, the Tribunal did not apply a test of whether it could or could not "fairly discount the possibility that what the [appellant] knew was of a speculative nature based on market [rumour]" (see the primary judge's reasons at [49] and [58]-[60]). The Tribunal correctly understood that what was being put to it was that the requirement of the definition of "inside information" that "the information is not generally available" was not satisfied on the available evidence. This is apparent from the Tribunal's reasons at [74], [77] and [81]-[83]. The Tribunal's reasons at [74] and [77], in particular, do not express any form of test. They describe the way in which the appellant chose to put his case. The primary judge was right to dismiss the appellant's arguments to the contrary. 36 Similarly, the primary judge did not incorrectly postulate that the appellant's case was that the information "was readily available" when the correct analysis was that "the respondent had not established that the alleged inside information was not generally available". This incorrect analysis, according to the appellant, is apparent from the primary judge's reasons at [66]. Those reasons do not assume any onus upon the appellant to show that the information was "generally available". To the contrary, those reasons accurately identify the appellant's case as being that the information "could not be shown to be inside information". In other words, the primary judge recognised that the appellant's case was that the Tribunal was required, on the material before it, to reach a positive state of satisfaction that the information was "inside information", a necessary element of which was that the information was "not generally available". The primary judge's other observations in [66] reflect the appellant's case that the Tribunal could not discount the possibility that the information did not satisfy this element because it had been the subject of market rumour and speculation; the market rumour and speculation thus gave rise to the possibility that the information was generally available, meaning that the Tribunal could not be satisfied of the contrary conclusion. Having correctly understood the appellant's case before the Tribunal (and in the appeal), the primary judge also correctly concluded that the Tribunal properly performed its task of deciding whether "it was satisfied that ASIC had made out its case on the evidence that the information utilised by the [appellant] was inside information as defined" (at [67]). 37 For these reasons Grounds 1 to 4 of the notice of appeal are also unfounded.

CONCLUSION 38 For the reasons given above, the appeal must be dismissed with costs. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices North, McKerracher and Jagot.