Khoo v Regina

Judgment 1LEEMING JA: I have had the advantage of reading, in draft, the judgment of R S Hulme AJ. I agree with his Honour's reasons and conclusions. I also agree with the additional observations of Bellew J. I wish to provide the following additional reasons why ground (viii), which asserted that the sentence of full time imprisonment was manifestly excessive, should be rejected. 2I start with authority. In R v Glynatsis [2013] NSWCCA 131, McCallum J said at [79]: "The acquisition or disposal of financial products by people having the unfair advantage of inside information is criminalised because it has the capacity to unravel the public trust which is critical to the viability of the market. It is, as previously observed by this Court, a form of cheating. The fact that people of otherwise good character and compelling personal circumstances are tempted to engage in such conduct emphasises the need for the clear deterrent that insider traders should expect to go to gaol." The applicant submitted that that passage was obiter, and distinguishable from the "tipping" offences he had committed. I disagree. 3First, the passage was not obiter. It was a summary statement of her Honour's reasons for agreeing with the orders proposed by Hoeben CJ at CL. Moreover, the third member of the Court, Rothman J, expressly associated himself with it. It follows that the passage amounts to reasoning which two members of the Court treated as dispositive. If it were a principle of law, it would be ratio, for, as Jordan CJ said, "we are not entitled to pick out one reason for the judgment as the ratio decidendi and neglect the other": Ex parte King; Re Blackley (1938) 38 SR (NSW) 483 at 490. 4Secondly, the distinction between ratio decidendi and obiter dicta is not directly applicable to appellate statements about the sentencing process. Nevertheless, the applicant was correct to appreciate that the passage in Glynatsis was a substantial obstacle to his submission. The need for consistency in sentencing under federal law is self-evident, and in considering the sufficiency of sentences passed on federal offenders, intermediate appellate courts should not depart from what is decided by other Australian intermediate appellate courts, "unless convinced that the decision is plainly wrong": Hili v The Queen [2010] HCA 45; 242 CLR 520 at [57]. This is not the occasion to consider what is meant by "plainly wrong" in this context (which has been examined by Heydon J in Green v The Queen [2011] HCA 49; 244 CLR 462 at [83]-[87] and Basten JA in R v XY [2013] NSWCCA 121 at [30]-[40]), for in my view the passage is plainly right, at least in relation to the present form of the legislation. How else to construe the increase in maximum penalty from 5 to 10 years imprisonment? (See item 310 of Schedule 3 of the Corporations Act 2001 (Cth), amended by Corporations Amendment (No 1) Act 2010; some of Mr Khoo's offences preceded the amendment.) 5Thirdly, the approach contained in Glynatsis - that offenders should expect to go to gaol - ought not be read as confined to insider trading as opposed to "tipping". True it is that her Honour's proposition was expressed to be based upon the acquisition or disposal of financial products. But s 1043A(2) of the Corporations Act applies only when there is a trade or likely trade, and the same unravelling of public trust occurs when inside information is communicated in those circumstances. There is no sound basis in the text of the statute, or the penalty imposed for its contravention, or the legislative purpose, to distinguish insider trading forbidden by s 1043A(1) from "tipping" forbidden by s 1043A(2). The primary contravention is the misuse of "inside information" as defined by s 1042A (broadly, market-sensitive information which is not generally available). 6Central to Mr Khoo's submission on this issue was the proposition that the offence of insider trading involved more elements than tipping (possession and use of insider information plus trading) and was therefore necessarily more objectively criminal. As it was put by his counsel, "until there's a trade, the impact on the integrity of the market is not affected". 7To the extent that the legislation protects equality of information in a fair market, Mr Khoo's submission cannot be true. The dissemination of information to a "tippee" may indeed be a greater threat to market integrity than actual trading by an insider. There is no novelty in that observation. The issues paper prepared for the National Companies and Securities Commission, Insider Trading Legislation for Australia: An Outline of the Issues and Alternatives (1986, AGPS) stated at p 62: "Indeed, because of the ready transmissibility of information, tipping is arguably a more serious threat to the integrity of the securities market than trading, for the more widespread it becomes the greater will be the potential for trading." 8That passage cited the concurring judgment of Celebrezze J in Fridrich v Bradford 542 F 2d 307 at 327 (1976), who said: "Tipping because it involves a more widespread imbalance of information presents an even greater threat to the integrity of the marketplace than simple insider trading. Tipping, by its very nature, is a more open-ended violation than that of the insider who enters the market, trades on his own account and withdraws." 9Care must be taken in relying on United States decisions (which are a product of a body of judge-made law derived from high level prohibitions against market fraud: see R Baxt, A Black and P Hanrahan, Securities and Financial Services Law, 8th ed (2012) LexisNexis, at 690-692). But what Celebrezze J said is (to my mind self-evidently) correct. 10Further, it is clear that the "victims" of insider trading are not merely those participants who trade, but the investing community at large, because the injury derives from "the loss of confidence in the efficacy and integrity of the market in public securities": R v Rivkin [2004] NSWCCA 7 at [412]. "Tipping" is no different. The vice of tipping is not confined to the individual securities which are traded by the tippee. Where the size of the trade is small compared with daily turnover (which will be most cases), it is no answer to the objective criminality to submit, as Mr Khoo in substance did, that the trade made not a jot of difference to the price. Indeed, although it is unnecessary for present purposes to express a concluded view, it seems plausible that the impact of tipping extends beyond the particular security. Australian securities markets are relatively attractive to local and overseas investment because there is perceived to be an efficient and effective regime protecting their integrity. The attractiveness of the market as a whole is impacted by the unequal dissemination of information. 11Mr Khoo's submission that the criminality of insider trading inevitably exceeds that of "tipping" must be rejected. There is no a priori rule that mandates that tipping is less criminal than insider trading. Both are forms of conduct prohibited by subsections (1) and (2) of the same section. Within the class of conduct which contravenes s 1043A(2), there are varying degrees of criminality (contrast communicating inside information to a relative in need to communicating the same information to a broker, for reward, in the belief that it will be disseminated more broadly). The relevant factors in any particular case are identified by Bellew J. Those factors were taken into account by the sentencing judge, as R S Hulme AJ has explained in detail, and I respectfully agree with his Honour's conclusion that the ultimate sentence imposed was within the range open to the sentencing judge. 12BELLEW J: I have had the advantage of reading, in draft, the judgment of R S Hulme AJ. I agree with his Honour's reasons, and the orders that he proposes. I have similarly had the advantage of reading, in draft, the judgment of Leeming JA and I also agree with his Honour's observations. 13However, I wish to add the following observations in respect of ground (viii) which asserted that the sentences imposed were manifestly excessive. 14In my view, the factors relevant to an assessment of the objective seriousness of so-called "tipping" offences include (although are not limited to) the following: (i)the nature and importance of the information which was disclosed; (ii)the extent of the disclosure; (iii)whether the offender knew that the person(s) to whom the information was disclosed would use it for the purposes of trading and/or profit taking; (iv)the nature and extent of any breach of trust involved in such disclosure; (v)whether such disclosure involved any element of sophistication or subterfuge; (vi)whether the offending involved a course of conduct; and (vii)the extent of any profit made, be it by the offender or by those to whom the information was disclosed. 15In the present case Judge Marien found that the offending was toward the mid range of objective seriousness. Taking into account the factors to which I have referred, that finding was clearly open. 16The information disclosed by the applicant in the present case was, in each instance, properly described by the sentencing judge (at ROS 30) as being of a "high quality". It related to significant take-over bids and its general nature was such that, once publicly released, it would be expected to have an immediate effect upon the relevant share price. The fact that the people to whom the applicant disclosed the information were friends does not, in my view, render that aspect of his conduct any less serious. The more important consideration is that once the information was disclosed, the applicant lost control over it. 17Moreover, Judge Marien found (at ROS 22) that it was highly likely that the applicant acted in the knowledge that those to whom he passed the information would use it to trade. He also found (at ROS 22) that the applicant hoped that a profit would be made, and (at ROS 33) that the applicant was motivated by a desire that such a profit would in fact eventuate. 18The applicant obviously knew that the information was highly confidential. In the case of the offences relating to Macarthur Coal, he had been a member of the relevant advisory team for more than two months in the period leading up to the date of his offending. His role included providing advice as to the proposed takeover, as a consequence of which confidential information was communicated to him. The fact that such information was communicated in a partially coded form necessarily served as a constant reminder to the applicant of the need to protect its confidentiality. Moreover, as a condition of his employment, the applicant had been made aware of relevant policies, and had undergone training, which focussed upon the necessity to preserve the confidentiality of such information, and the legal prohibitions against insider trading. 19All of these matters lead to Judge Marien finding (at ROS 29) that the applicant's conduct constituted a gross breach of trust. That finding was clearly open, even in circumstances where the applicant's conduct did not involve any element of sophistication or subterfuge (see R v De Silva [2011] NSWSC 243 at [61]). 20It was also relevant for Judge Marien to take into account the fact that the applicant's offending was not limited to one isolated instance. He disclosed information on four separate occasions, to two separate individuals, over a period of ten months. The recipients of the information derived total profits exceeding $100,000.00. As I have previously noted, Judge Marien not only found that the applicant had hoped that such profits would eventuate, but that he was motivated by a desire that they would. 21I would, for my part, eschew the use of labels such as "true insider" to describe the applicant's position and offending (see De Silva (supra) at [61]). Such an approach has the capacity to obscure an assessment of what the applicant actually did (see R v Olbrich (1999) 199 CLR 270; [1999] HCA 54 at 279; [19]). The important consideration is that the applicant's position gave him access to confidential information. In the circumstances I have summarised, and which are more fully set out in the reasons of Judge Marien, the applicant used that information in a way which had the capacity to cause damage not only to the market, but to those who invested in it. 22In my view, all of these matters supported Judge Marien's conclusions as to the objective seriousness of the offending. General deterrence remained an important consideration (see Hartman v R [2011] NSWSC 261 at [77]) particularly in light of the difficulty in detecting offending of this nature. Even allowing for the applicant's subjective case, the overall sentence imposed was not manifestly excessive. 23R S HULME AJ: On 8 August 2013, the abovenamed Applicant was sentenced by Judge Marien SC in respect of 4 offences arising pursuant to the terms of s 1043A(2)(d) of the Corporations Act 2011 (Cth). The offences were to the effect that: Between ... and ... whilst in possession of inside information concerning (a named company) that was not generally available, being information which if it was generally available a reasonable person would expect to have a material effect on the price of the Division 3 financial products in (the company) and being information which the defendant knew, or ought reasonably to have known - (i) was not generally available, and (ii) if it were generally available, a reasonable person would expect it to have a material effect on the price or value of the relevant Division 3 financial products, directly communicated the inside information to another, knowing that person would, or would be likely to acquire relevant Division 3 financial products in the company. 24The first offence occurred between 19 September and 12 October 2010, related to a company Caledon Resources PLC and the person to whom the information was communicated was Jia Tan. 25The second offence occurred between 1 October and 28 November 2010, related to a company Mantra Resources Ltd and the person to whom the information was communicated was Jia Tan. 26The third offence occurred between 25 June and 7 July 2010, related to a company Macarthur Coal Limited and the person to whom the information was communicated was again Jia Tan. 27The fourth offence occurred between 25 June and 8 July 2010, related also to Macarthur Coal Limited and the person to whom the information was communicated was David Luong. 28The sentences imposed by his Honour were:- Counts 1 and 2 - imprisonment for 9 months commencing on 8 August 2013; and Counts 3 and 4 - imprisonment for one year and eight months commencing on 8 November 2013. 29The effective sentence was thus imprisonment for 1 year and 11 months. His Honour directed the Applicant's release on 8 October 2014, i.e. after the expiration of 14 months, conditional upon him entering a recognisance to be of good behaviour. 30The offences arose under s 1043A, s 1311 and Schedule 3 of the Corporations Act 2001 (Cth). In the circumstances of this case the maximum penalty provided for each of the first and second offences was 5 years imprisonment and, by reason of the Corporations Amendment (No 1) Act 2010 (Cth), for each of the third and fourth offences 10 years imprisonment plus a fine of $495,000. 31The matter proceeded before his Honour largely by way of a Statement of Facts originally drafted by ASIC, but ultimately containing some amendments to which both parties had agreed. At all relevant times the Applicant was employed at the Sydney office of the Royal Bank of Canada (hereinafter referred to as "RBC"), working in the Investment Banking Team. In that capacity he routinely acquired information about proposed takeovers, mergers, acquisitions and capital raisings. He had a base salary of some $140,000 and his last annual bonus was something over $120,000. 32In the course of his employment he had received substantial instructions on RBC's Code of Conduct and other policies proscribing the unjustified publication and misuse of confidential information and demonstrated a knowledge and understanding of such matters. At all relevant times he was aware of the legal prohibitions on insider trading and passing on "inside information" as that term is defined in the Corporations Act 2011 (Cth) to others. 33Mr Tan was a close friend of the Applicant. To the knowledge of the Applicant, Mr Tan had for many years been a day trader in high volumes of CFDs and other securities. 34Mr Luong was also a close friend of the Applicant. To the knowledge of the Applicant Mr Tan had for many years been a regular day trader in CFDs and other securities. 35The information provided by the Applicant to these persons was:- Count 1 Guangdon Rising Assets Management Co Ltd intended to make a takeover bid for Caledon Resources PLC; Count 2 JSC Atomredmetzoloto was planning to made an all cash takeover bid for the acquisition of Mantra Resources Limited at a price involving a substantial premium of the prevailing share price Counts 3, 4 A client of Royal Bank of Canada would soon be launching a takeover bid for Macarthur Coal Limited 36Although I do not think it matters, the Statement of Facts said that it was not alleged that the Applicant actually knew that Mr Tan and Mr Luong would engage in their particular trading at the time he communicated the respective pieces of information. 37Each of Mr Tan and Mr Luong acted on the information supplied by the Applicant. Mr Tan and Mr Luong acquired financial products worth some $257,800 and $49,600 respectively. The profits made were:- Count 1 $26,750 (approximately), Count 2 $18,660, Count 3 $39,820, and Count 4 $24,987 38The Applicant pleaded guilty to the charges against him on the first occasion when he could have done so. Earlier, he had been interviewed by officers of the ASIC and had provided a degree of co-operation referred to in more detail below. 39The Grounds advanced in support of the challenge to the sentences imposed were:- (i) His Honour failed to provide an appropriate discount for the admissions made by Mr Khoo to ASIC. (ii) Given the submissions made by the Crown, his Honour erred by failing to have regard to the sentences imposed in DPP v Lindskog [2013] VCC (unreported, Parsons CCJ, 14 March 2013) (iii) His Honour erred by failing to provide for the pregnancy termination by Mr Khoo's partner (iv) His Honour erred by placing undue emphasis that the fact that the offences involved tipping (v) His Honour failed to have regard to the principles of parity. (vi) His Honour erred by failing to have regard to the fact that the offender tipped persons who were: - (a) not of a familial identity, (b) in financial need. (vii) Given his Honour imposed a sentence of full time imprisonment and Mr Khoo had cooperated with ASIC and the Crown a discount ought to have been allowed for the more difficult custodial environment. (viii) The sentence were manifestly excessive. 40Ground (i) His Honour failed to provide an appropriate discount for the admissions made by Mr Khoo to ASIC. 41In his Honour's remarks on sentence he observed that he was satisfied that assistance offered by the Applicant to give evidence against Tan and Luong played an important role in those persons pleading guilty to charges against them. His Honour recorded that the Applicant's pleas of guilty were entered at the earliest opportunity and he proposed to accord those pleas full weight. Later his Honour went on:- I propose to discount the sentences that I would otherwise impose upon the offender, firstly in relation to sequences 1 and 2 for his pleas of guilty and co-operation and with some allowance of an Ellis discount by a factor in the order of 40% and in relation to sequences 3 and 4 for his co-operation and his pleas of guilty a discount in the order 35%. (sic) 42In support of this ground attention was directed to aspects of the evidence before his Honour, in particular some remarks by an ASIC officer, a Mr Watson. Under cross-examination Mr Watson agreed that the Applicant's "admission and concession in relation to Mantra and Caledon were very important in being able to put evidence to the DPP to be here today" and that the Crown would have had a difficulty in showing that the Applicant realised the possibility that Tan and Luong would trade if he had not made admissions in that regard. However Mr Watson was not challenged on other statements to which I now refer. 43This evidence was to the effect that in July 2011 as an incident of its normal activities ASIC became suspicious of transactions by Mr Tan and Mr Luong involving Macarthur Coal. On 13 October 2011 the Applicant was first interviewed concerning those transactions. He made no significant admissions and denied speaking to Tan or Luong about the proposed takeover of that company. At the time and although there was then no discussion concerning Caledon and Mantra, ASIC officers contemplated they would seek to identify any other examples of insider trading by the Applicant, Mr Tan or Mr Luong. 44On 20 October 2011 the Applicant participated in a compulsory examination. On 11 November 2011, according to the Statement of Facts, the Applicant's solicitor met with offices of ASIC and indicated that the Applicant was willing to voluntarily co-operate with ASIC and consider pleading guilty to appropriate offences. 45On 17 November 2011 the Applicant participated in a second voluntary interview and was asked whether he had told Tan about any other deals he had worked on. According to a statement of Mr Watson, an ASIC investigator, the Applicant referred to "some aspect of the insider trading offences relating to Caledon and Mantra" but his answers did not significantly add to ASIC's prior knowledge of those suspected offences. His answers were relatively general and vague and he stated that he could not remember or recall various relevant details. The answers did not constitute full admissions to any offence." Somewhat inconsistently the Statement of Facts also said that during this 17 November interview the Applicant "Made substantial admissions in relation to all of the offences ..." 46Mr Watson went on to say that even if the Applicant had provided no information about the Caledon and Mantra offences, he was certain that ASIC would have identified them by its standard investigation strategies although he conceded that he could not positively state that ASIC would have been able to prove the Caledon and Mantra offences beyond reasonable doubt in the absence of the Applicant's admissions. 47His Honour did not attempt to resolve the inconsistencies in Mr Watson's evidence and of course this Court cannot do so. For my part I am not persuaded that but for the Applicant's admissions the Crown would have had difficulty in proving that the Applicant provided information to Tan and Khoo and that he knew that they would trade. 48One may take judicial notice of the fact that transactions in securities are recorded so there would seem to have been no difficulty in the Crown proving what Messrs Tan and Luong did. There would seem to have been no difficulty in proving that that trading was at times when the Applicant was in possession of confidential information. I would not infer that the Crown could not have proved that the Applicant and Messrs Tan and Luong were close friends and that he was aware that they were traders in securities. It was conceded that the Crown had plenty of phone records to demonstrate contact between the Applicant and those persons. 49Of course any tribunal faced with these facts would have had to recognise the possibility that it was simply coincidence that Mr Tan traded when he did in securities in respect of which the Applicant had confidential information. However, given that this occurred 3 times, that possibility is not likely to have been accepted. The most probable inference is that Mr Tan had received the information that that Applicant had possessed. And if the inference were drawn that the Applicant had provided such information, it is almost inconceivable that he would have provided it without expecting his share trading friend to use it. 50A similar argument may be made in the case of Mr Luong. Given Mr Luong's dealings the subject of the charges involved only one company, the argument is weaker but the Crown could still pray in aid the similarities with Mr Tan's dealings. 51A further answer to the complaints made on behalf of the Applicant under this ground is that the Applicant's admissions, though made earlier, went no further than those implicit in his plea. To regard those earlier admissions as entitling the Applicant to any substantial discount in addition to that given for the plea involves an element of double counting. 52The submissions under this ground also contended that the Ellis discount should have been higher. In R v Ellis (1986) 6 NSWLR 603 the Chief Justice, with the concurrence of the other members of this Court, observed:- ... the disclosure of an otherwise unknown guilt of an offence merits a significant added element of leniency, the degree of which will vary according to the degree of likelihood of that guilt being discovered by the law enforcement authorities, as well as guilt being established against the person concerned. 53When regard is had to the totality of Mr Watson's evidence I am not persuaded that the Applicant was entitled to much by way of an Ellis discount. Nor am I persuaded that there was any other error by his Honour in the other discount or discounts he did allow. 54This ground fails. 55Ground (ii) Given the submissions made by the Crown, his Honour erred by failing to have regard to the sentence imposed in DPP v Lindskog [2013] VCC (unreported, Parsons CCJ, 14 March 2013) 56The submissions of the Crown were that the Applicant's offending required the imposition of a custodial sentence. 57This ground is without substance. If any authority is needed for that conclusion - and it is not - the authority may be found in the numerous decisions of this Court eschewing arguments to the effect that a decision in one case demonstrates or constitutes persuasive evidence of what should be the decision in another - see R v Morgan (1993) 70 A Crim R 368 at 371; R v Mungomery [2004] NSWCCA 450 at [5]; and RR v R [2011] NSWCCA 235; 216 A Crim R 489 at 514 [118]. 58Ground (iii) His Honour erred by failing to provide for the pregnancy termination by Mr Khoo's partner 59The Applicant's partner was a Ms Pham. His Honour made reference to the subject of this ground when he remarked:- Ms Pham also gave evidence before me in the sentencing proceedings. She stated that she first became aware in October 2011 that the offender was being investigated by ASIC. She said, "This news came as a shock to me as it was out of character for John." Ms Pham stated that in November 2011 she became aware the offender resigned from RBC because of the ASIC investigation. She said that at that time she discovered she had fallen pregnant with the offender and she states that the combination of the unplanned pregnancy, the ASIC investigation and the offender losing his job caused her significant emotional and mental distress. She states that in December 2011, faced with the uncertainty of the offender's predicament and the fact that he lost his job with RBC, she made the difficult decision to have a termination of her pregnancy. She states this was a very traumatic, stressful and saddening process to deal with. She states that she was scared of facing the prospect of raising child alone. Of course I am required under s 16A (2)(p) of the Crimes Act to take into account the effect of the sentence on the offender's family and dependants. While I have every sympathy for Ms Pham and for the offender in relation to the decision she made, I do not regard the fact that Ms Pham made a free and considered decision to terminate her pregnancy because she was fearful of facing the prospect of raising a child alone as a matter which should mitigate the sentence. 60The conclusion was one reasonably open to his Honour. Particularly is this so once it is recognized that the reference in s 16A(2)(p) of the Crimes Act to "the probable effect that any sentence or order under consideration would have on any of the person's family or dependents" should be read as if it were preceded by the words "in an exceptional case" - R v Hinton [2002] NSWCCA 405; (2002) 134 A Crim R 286 at [31]; R v Zerafa [2013] NSWCCA 222 at [93]. 61This ground fails.