HAYNE, CRENNAN, KIEFEL AND BELL JJ. The Corporations Act 2001 (Cth) prohibits trading in securities by persons who possess information that is not generally available and know, or ought 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 the securities. It will later be necessary to make more particular reference to the relevant provisions of the Act (which were altered during the times relevant to these matters) but the general tenor of the provisions is sufficiently captured by the description just given.
It was alleged in these matters that, in January 2002, Mr Malcolm Day, the managing director of a listed public company (AdultShop.com Limited - "AdultShop") told one of the appellants (Mr Mansfield) that AdultShop's expected profit for the then current year had risen from $3 million to $11 million and that its expected turnover had risen from between $30 million and $50 million to about $111 million. It was alleged that Mr Mansfield then told the other appellant (Mr Kizon) what Mr Day had said.
It was alleged that Mr Day and Mr Mansfield later had other conversations in which Mr Day gave optimistic assessments of AdultShop's financial performance and that Mr Mansfield told Mr Kizon what Mr Day said in those conversations. It was alleged that there were other conversations between the men but what was said in all these other conversations need not be described. It is useful, however, to refer to a conversation alleged to have taken place in June 2002 between Mr Day and Mr Kizon. It was alleged that Mr Day told Mr Kizon that "Packer [a well-known businessman] had bought 4.9% of AdultShop" and that the projected revenue for AdultShop for the following month would exceed what had been forecast. It was alleged that Mr Kizon told Mr Mansfield what Mr Day had said in this conversation.
It was alleged that, knowing the matters revealed in the conversations, Mr Mansfield and Mr Kizon bought or procured the purchase of AdultShop shares, and thus contravened the Corporations Act.
Argument of the appeals in this Court proceeded on the footing that what Mr Day said to Mr Mansfield and to Mr Kizon was false. In particular, AdultShop's expected profit and turnover for the period of which Mr Day spoke in his conversation with Mr Mansfield had not risen, and neither Mr Packer nor any company associated with Mr Packer had bought 4.9 per cent of the issued capital of AdultShop. Interests associated with Mr Packer had for two days held a little under 1.5 per cent of the capital of AdultShop but, at the time of the alleged conversation between Mr Day and Mr Kizon which was described above, all of those shares had been sold.
The issue
The central question in these appeals was: did the appellants possess "information" that was not generally available? The appellants argued that, to establish contravention of the relevant provisions of the Corporations Act, the prosecution must prove that the "information" which the appellants possessed was "a factual reality". They alleged that Mr Day had told them lies about AdultShop and that "a lie cannot constitute information".
The appellants' arguments should be rejected and each appeal dismissed. If the alleged conversations took place, each appellant possessed information about AdultShop that was information not generally available. Mr Day communicated knowledge about a subject (the expected profit and turnover of the company or a particular shareholding in the company) and what Mr Day communicated was not generally available. That the knowledge communicated was not true does not deny that it is "information". It will have to be decided at a new trial whether the information was material, in the sense that, had it been generally available, a reasonable person would have expected it to have a material effect on the price or value of AdultShop's shares.
Indictment and trial
The appellants were tried together in the District Court of Western Australia on an indictment alleging five counts of conspiracy to commit offences against insider trading provisions of the Corporations Act with respect to securities in AdultShop. The indictment further alleged (for the most part as counts alternative to the conspiracy counts) that Mr Mansfield or Mr Kizon had committed the substantive offences alleged to be the subject of the conspiracy counts. The indictment also charged the appellants with offences relating to trading in securities of another listed company but no issue arises in this Court about those counts and they need not be noticed further.
The prosecution provided particulars of the "information" which it was alleged that the appellants had possessed. Those particulars followed a common form exemplified by the particulars given of count 1:
"In relation to AdultShop, the information of which the two accused were possessed was to the effect that:
a. The expected profit for AdultShop for the 2002 financial year had risen from $3 million to $11 million;
b. The expected turnover for AdultShop for the 2002 financial year had risen from between $30 million and $50 million, to about $111 million;
c. The information at sub‑paragraphs a. and b. above had been obtained on or about 4 January 2002 as a result of private conversation between Malcolm Day, the Managing Director of AdultShop, and a person or persons the said Malcolm Day apparently treated as a confidant."
At trial the case was conducted by the prosecution on the basis that the first two sub‑paragraphs of the particulars (which set out the substance of what Mr Day had said) identified the relevant "information" and that the third sub‑paragraph of the particulars set out facts and circumstances relevant to the materiality of that information.
No evidence was led by the prosecution to establish the truth of any of the statements allegedly made by Mr Day to either Mr Mansfield or Mr Kizon. Evidence was led which showed that any statement that "Packer had bought 4.9% of AdultShop" was false.
At the close of the prosecution case, Mr Mansfield and Mr Kizon submitted that there was no case to answer in respect of any count and that the trial judge (Judge Wisbey) should find the appellants not guilty. Each appellant submitted that the prosecution had not established that he had possessed "information".
The trial judge ruled that the relevant provisions of the Corporations Act were contravened only if the "information" alleged to be not generally available, and to have been acted upon by the accused, was "a factual reality". The trial judge entered judgments of acquittal on all of the counts of the indictment that related to trading in the securities of AdultShop.
Appeals
The prosecution appealed to the Court of Appeal of the Supreme Court of Western Australia against the judgments of acquittal entered by the trial judge. That Court (Buss JA and Murray J, McLure P dissenting) allowed the appeal, set aside the judgments of acquittal and ordered that a new trial be had.
By special leave the appellants appealed to this Court.
Relevant provisions of the Corporations Act
At the time of the earliest of the alleged offences, the Corporations Act dealt with certain prohibited conduct in relation to securities in Div 2 of Pt 7.11 (ss 995‑1001D) and dealt separately with the subject of "insider trading" in Div 2A of Pt 7.11 (ss 1002‑1002U). Division 2 of Pt 7.11 prohibited misleading or deceptive conduct in or in connection with any dealing in securities and created various offences, including stock market manipulation, false trading and market rigging transactions as well as offences depending upon a fraudulent intent, an offence of disseminating information about illegal transactions and offences in connection with continuous disclosure requirements.
For present purposes, the central provision of Div 2A of Pt 7.11 was s 1002G, which prohibited certain conduct by persons in possession of "inside information". The appellants were charged with conspiracy to commit a contravention of s 1002G (contrary to s 1311(1) of the Corporations Act) and Mr Mansfield was charged with committing the substantive offence. Sub‑section (1) of s 1002G identified when the other provisions of the section were to apply. It provided:
"Subject to this Division, where:
(a) a person (in this section called the insider) possesses information that is not generally available but, if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of securities of a body corporate; and
(b) the person knows, or ought reasonably to know, that:
(i) the information is not generally available; and
(ii) if it were generally available, it might have a material effect on the price or value of those securities;
the following subsections apply."
Sub‑section (2) of s 1002G relevantly provided that the insider must not (whether as principal or agent) buy or sell, or procure another to buy or sell, the securities. Sub‑section (3) relevantly provided that the insider must not, directly or indirectly, communicate the information or cause it to be communicated to another, if the insider knows or ought reasonably to know that the other person would be likely to buy or sell or procure another to buy or sell the securities.
Sections 1002A‑1002D gave further content to four of the elements of s 1002G: "information" (s 1002A(1)); what is information that is "generally available" (s 1002B); when a reasonable person would be taken to expect information to have a "material effect on the price or value of securities" (s 1002C); and trading and procuring trading in securities (s 1002D). For present purposes, it is important to refer to only s 1002A(1) and its provision about "information", and s 1002C and its provision about material effect on price or value.
Section 1002A(1) provided, so far as presently relevant, that:
"In this Division and in section 1013:
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 the likely intentions, of a person."
Section 1002C provided:
"For the purposes of this Division and section 1013, a reasonable person would be taken to expect information to have a material effect on the price or value of securities of a body corporate if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not to subscribe for, buy or sell the first‑mentioned securities."
Although the offence created by s 1002G may sometimes be referred to as an offence of "insider trading", it is more accurately described, in the words of the heading to the section, as "Prohibited conduct by [a] person in possession of inside information" (emphasis added). That is, s 1002G prohibited persons in possession of information of a certain character from trading in shares. The relevant character of the information was that it "is not generally available but, if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of securities" of the relevant body corporate. And by operation of s 1002C, "a reasonable person would be taken to expect information to have a material effect on the price or value of securities of a body corporate if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not" to trade in those securities. Noticeably absent from these provisions was any requirement that the information in question come from within the corporation the securities of which were the subject of the prohibition.
The Financial Services Reform Act 2001 (Cth) ("the FSR Act") made numerous amendments to the Corporations Act. So far as now relevant, with effect from 11 March 2002, the FSR Act repealed Ch 7 of the Corporations Act and substituted, among other provisions, a wholly new Pt 7.10 (ss 1040A‑1044A) dealing with "[m]arket misconduct and other prohibited conduct relating to financial products and financial services". Division 2 of the new Pt 7.10 (ss 1041A‑1041K) dealt with prohibited conduct other than insider trading prohibitions and Div 3 (ss 1042A‑1043O) dealt with insider trading prohibitions.
The general scheme of the new insider trading prohibitions did not differ in any presently relevant way from the provisions it replaced. The new s 1043A prohibits a person who possesses information that the person knows, or ought reasonably to know, is not generally available and that, if it were, a reasonable person would expect it to have a material effect on the price or value of particular securities (or certain other identified financial products) from trading in the securities or procuring another to do so. As in the earlier form of the prohibition, "information" is defined as including "matters of supposition", "other matters that are insufficiently definite to warrant being made known to the public" and "matters relating to the intentions, or likely intentions, of a person". Section 1042D identifies when a reasonable person would take information to have a material effect on price or value.
Because argument of the present matters proceeded on the basis that the appellants' arguments about what is "information" applied equally to the new Div 3 of Pt 7.10 and to the provisions which were repealed, it is not necessary to set out the text of the new provisions or to notice any of the textual differences between the new and the former provisions.
The appellants' arguments
The central proposition advanced by the appellants proceeded in three steps. First, they submitted that the word "information" in the relevant provisions of the Corporations Act takes its ordinary meaning. Second, they submitted that the word "information", in its ordinary usage, means "[k]nowledge communicated concerning some particular fact, subject, or event" (emphasis added). Third, they submitted that it followed that, if what is communicated is not fact but fiction, the knowledge imparted is not properly described as "information".
The appellants sought to support this central proposition in several ways. Both appellants submitted that construing "information" to exclude false information is consistent with other elements of the insider trading provisions and with other provisions of the Corporations Act generally. Both submitted that the interpretation they advanced was more consistent with the legislative purpose of prohibiting insider trading than an interpretation that encompassed false information. Mr Mansfield further submitted that the interpretation the appellants urged was consistent with equivalent provisions in overseas jurisdictions.
For the reasons that follow, the appellants' central proposition, and each of their supporting submissions, must be rejected. For the purposes of the insider trading provisions that apply in these matters, "information" includes false information.
Ordinary usage of "information"
The word "information" in its ordinary usage is not to be understood as confined to knowledge communicated which constitutes or concerns objective truths. Knowledge can be conveyed about a subject‑matter (whether "fact, subject, or event") and properly be described as "information" whether the knowledge conveyed is wholly accurate, wholly false or a mixture of the two. The person conveying that knowledge may know or believe that what is conveyed is accurate or false, whether in whole or in part, and yet, regardless of that person's state of mind, what is conveyed is properly described as "information".
Both appellants relied heavily upon dictionary definitions of "information", but these definitions do not establish the appellants' central proposition about ordinary usage. It will be recalled that one definition of "information" is "[k]nowledge communicated concerning some particular fact, subject, or event". Both appellants fixed on the word "fact", which may indeed imply truthfulness. But no distinction between truth and falsity is implied by the other elements of the definition. In particular, no distinction of that kind is to be made in respect of "information" that is "[k]nowledge communicated concerning some particular ... subject".
Other statutory provisions
Contrary to the appellants' submissions, other elements of the insider trading provisions do not support the construction they proffer - that "information" does not include false information.
First, the reach of the word "information" is of course increased by the Corporations Act providing, for the purposes of the provisions now in issue, that "information" includes "matters of supposition", "other matters that are insufficiently definite to warrant being made known to the public" and "matters relating to the intentions, or the likely intentions, of a person". Contrary to the appellants' submissions, the inclusion of matters of these kinds within the reach of the term "information" emphasises that it is not to be read as confined to matters shown to be true.
Secondly, the requirement that the information be "not generally available", found originally in s 1002G, and now in the definition of "inside information" in s 1042A, does not support the interpretation that "information" excludes false information. To understand why this is so, something more needs to be said about how this particular submission proceeded.
In the Court of Appeal, McLure P, in her dissenting reasons, understood the reference to information "not generally available" to mean "confidential information" that could be said to "belong to" someone. The appellants in this Court submitted that information could only be said to be confidential information that belongs to someone where that information conveys a fact and not a fiction.
The premise for this submission should be rejected. The provisions now under consideration do not refer to who provided the information or to what connection that person had with the corporation in question. And because the provisions now under consideration do not direct attention, let alone confine the application of the prohibition, to information coming from within the corporation the securities of which are traded, it is wrong to approach the construction of the relevant provisions from some assumption that they deal with "confidential information" of the corporation. That expression is not used in the provisions. Its introduction into the debate is apt to mislead.
That the current provisions do not direct attention to confidential information belonging to someone (whether the particular corporation or anyone else) can be understood by reference to the legislative history of the provisions now under consideration. Insider trading prohibitions of the kind now in issue were introduced into the legislative predecessors of the Corporations Act following a report on insider trading in Australia by the Standing Committee on Legal and Constitutional Affairs of the House of Representatives. That report, known as the Griffiths Report, recommended substantial changes to the provisions that then regulated insider trading. Like the Securities Industry Act 1980 (Cth), which had formed a part of the earlier co‑operative scheme, the Corporations Act 1989 (Cth) (and thus the Corporations Law of each State) prohibited persons who were or had been connected with a corporation from dealing in the securities of that corporation if, because of the connection, the person was in possession of information not generally available which, if it were, would be likely materially to affect the price of those securities. The change proposed by the Griffiths Report, and subsequently implemented, was to alter the focus of the prohibition from the connection which a person had with a corporation to the use of certain information.
The appellants further submitted that provisions found elsewhere in the Corporations Act support their central proposition that "information" excludes false information. They do not.
First, the market misconduct provisions of the Corporations Act (at the times relevant to these matters Div 2 of Pt 7.11 and then Div 2 of Pt 7.10) amply demonstrate that "information" should be understood to include false information. So, for example, s 999, and later s 1041E, prohibited the dissemination of information that is false in a material particular or materially misleading. Yet if the appellants were right, "information" in its ordinary meaning excludes falsehoods.
Second, the existence of the market misconduct provisions does not require the interpretation that "information" excludes false information. Again, to understand why this is so, something more needs to be said about how the submission proceeded.
The appellants observed that the prohibition of, for example, misleading or deceptive conduct penalises the maker of a misleading or deceptive statement and enables recovery by the person misled or deceived. They then submitted that, in the words of Mr Kizon's written submissions, "[i]t would be anomalous if that same person should also be prosecuted because the false statements they were induced by also constituted inside information under the Act".
The appellants' arguments proceeded from the premise that Mr Day had engaged in misleading or deceptive conduct, at least contrary to s 1041H and perhaps contrary to its predecessor, s 995. Their arguments may have gone so far as to assume that Mr Day had committed offences against provisions prohibiting market misconduct such as s 999 (concerning false or misleading statements in relation to securities), s 1000 (concerning fraudulently inducing persons to deal in securities), or their later equivalents (ss 1041E and 1041F). But whether the appellants' arguments made an assumption of that latter kind need not be examined. It is enough to acknowledge that there may be cases where a person conveys false information to another, knowing or intending that the recipient will trade in the relevant securities, and two offences are committed. The person supplying the information may contravene one or more provisions prohibiting market misconduct and the person receiving the information may contravene the provisions prohibiting conduct by persons in possession of inside information. Such a result is consistent with the purpose of prohibiting insider trading. As explained later, that purpose can be described as the maintenance of a free and fair market for securities.
The appellants assumed that if Mr Day contravened s 1041H he would be liable to the appellants in a civil action under s 1041I for any loss or damage they suffered by that conduct. Whether loss suffered by them acting in contravention of the insider trading prohibitions of Div 3 of Pt 7.10 would be recoverable in an action under s 1041I may be open to question but need not be decided. Even if the loss were recoverable that does not entail that "information" when used in Div 3 of Pt 7.10 should be read as confined to information that, at the time it was made available, was not misleading or deceptive or likely to mislead or deceive. There is no textual or other basis for reading down the references to information in Div 3 of Pt 7.10 or in the earlier provisions of Div 2A of Pt 7.11 in this way.
The other provisions of the Corporations Act to which the appellants pointed do not support their submissions that "information" excludes false information.
Purpose of prohibiting insider trading
Both appellants submitted that excluding false information from the meaning of the word "information" was more consistent with the purpose of prohibiting insider trading than including it. This submission should be rejected.
It may readily be accepted that the provisions now under consideration have, as the Griffiths Report acknowledged, the purpose identified in 1981 by the Committee of Inquiry into the Australian Financial System ("the Campbell Committee") of ensuring "that the securities market operates freely and fairly, with all participants having equal access to relevant information" (emphasis added). And as the Campbell Committee pointed out, "[i]nvestor confidence ... depends importantly on the prevention of the improper use of confidential information".
But contrary to the appellants' submissions, it does not follow that the only information to which the provisions now in issue apply is information that could be described as the corporation's confidential information or information that is wholly or even substantially true. The reference made by the Campbell Committee, and picked up by the Griffiths Report, to "the improper use of confidential information" does not require either of those conclusions. The facts of these cases show why that is so.
If, as counsel for Mr Mansfield submitted, Mr Day's motive for saying what he did to Mr Mansfield and Mr Kizon was "pumping the stock of AdultShop", the market would not operate freely or fairly if the appellants acted upon what Mr Day said and invested in AdultShop shares. Prohibiting those who received false information from Mr Day that was material to the price or value of AdultShop shares from trading in those shares allows the market to operate freely and fairly. It matters not whether what Mr Day said was true or was information actually derived from the company. The operation of the market would be adversely affected by trading that was founded on information not generally available which, if generally available, would reasonably be expected materially to affect the price or value of the securities.
International practice
In this Court, Mr Mansfield sought to explain the "international regulatory situation". His written submissions elaborated on the insider trading prohibitions of the United Kingdom, Germany, France, Spain, the Netherlands, the European Union, New Zealand, Canada, South Africa and the United States as a step towards his conclusion that "the international regulatory approach to insider trading is consistent only with the appellant's primary submission that 'information' necessarily means a matter of fact or precise circumstances as opposed to a falsity".
Mr Mansfield's written submissions did not explain why this Court should construe Australian legislation by reference to international practice - assuming that his summary of the laws of these foreign jurisdictions is correct - beyond the bald assertion that "[t]he construction of 'information' submitted by the appellant is consistent with this global regulatory framework". In oral argument, counsel for Mr Mansfield amplified the submission by explaining that "the Griffiths Report highlighted 13 years ago the importance of [the] Australian regulatory framework being viewed in the context of the international regulatory framework. What was apposite 13 years ago is even more apposite today in terms of the globalisation of securities markets worldwide".
The practice of other jurisdictions is interesting, and may be of interest to the legislature. Indeed, as noted by counsel for Mr Mansfield, "the Griffiths Report urged the legislature to consider" the "full panoply of international regulation[s]" (emphasis added). But it was not shown that the legislation now under consideration was based on any particular legislative model. General reference of the kind made by Mr Mansfield to other statutory regimes does not assist in the resolution of the question of construction raised by these appeals for determination in this Court.
Conclusion and orders
The appellants have failed to establish their central proposition about the ordinary usage of the word "information" and each of their secondary submissions in support of that central proposition. The appeals to this Court should be dismissed.