Solicitors:
Clifford Chance (Accused)
Commonwealth Director of Public Prosecutions (Crown)
File Number(s): 2013/12117
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Judgment
HER HONOUR: Oliver Curtis stands charged with an offence of conspiracy to commit the offence of insider trading contrary to ss 1043A(1)(d) and 1311(1) of the Corporations Act 2001 (Cth). His trial commenced with a jury on 11 May 2016. The Crown closed its case yesterday (25 May 2016).
The Crown gave notice in advance of the trial of its intention to adduce coincidence evidence. The evidence in question is identified in an amended coincidence notice dated 29 January 2016. By notice of motion filed 7 March 2016, the accused sought a pre-trial ruling in the following terms:
that the coincidence evidence identified in the Amended Notice of Intention to Adduce Coincidence Evidence is not admissible for the purpose of proving that the accused did a particular act and/or had a particular state of mind identified in that Notice on the basis that, having regard to the similarities in the events and/or the circumstances in which they occurred, it is improbable that the events occurred coincidentally pursuant to ss 98 and 101 of the Evidence Act.
This judgment determines that application.
The application invoked the Court's authority under s 192A of the Evidence Act 1995 (NSW). That section authorises the Court, if it considers it to be appropriate to do so, to give a ruling or make a finding in relation to a question as to the admissibility or use of evidence proposed to be adduced before the evidence is adduced in the proceedings. It will often be appropriate to give such a ruling in advance of the trial where the proposed coincidence evidence would not otherwise be admissible. However, it is common ground in the present case that the evidence is relevant for another purpose (to prove overt acts pursuant to the alleged agreement). Accordingly, the parties accepted that it would not be necessary for the Court to rule on the coincidence issue before the evidence was adduced.
The indictment on which the accused was arraigned alleges the following offence:
Between about 1 May 2007 and about 30 June 2008 at Sydney in the State of New South Wales, did conspire with John Joseph Hartman to commit an offence, being the contravention of sub-sections 1311(1) and 1043A(1)(d) of the Corporations Act 2001 (Cth).
Particulars
The agreement was that John Joseph Hartman would, from time to time, procure Oliver Peter Curtis to acquire or dispose of relevant Division 3 Financial Products, namely, Contracts for Difference, when John Joseph Hartman possessed inside information about the trading intentions of Orion Asset Management Limited in relation to the purchase or sale of shares in certain companies and when John Joseph Hartman knew that such information was not generally available and if it were generally available, a reasonable person would expect it to have a material effect on the price or value of those Contracts for Difference.
The Crown case rests primarily on the evidence of the alleged co-conspirator, Mr Hartman. He was employed as an equities dealer by Orion Asset Management Limited. Orion conducted the business of managing investments, primarily for institutional investors such as superannuation fund managers. It had over $5 billion under management during the relevant period. Orion offered four different investment portfolios. Each portfolio consisted of a list of stocks chosen by Orion's senior investment managers according to the profile of the relevant portfolio. The investment managers determined the "target weighting" (by percentage) of each stock within a portfolio (that is, the composition of stock Orion would strive to acquire for that portfolio).
It was not possible for a portfolio ever to meet its target weightings exactly. The actual weightings fluctuated constantly as the price of the relevant stocks fluctuated on the stock market. In addition, the target weightings were regularly revised by the senior investment managers. In order to keep the composition of each portfolio as close as possible to the target weightings from time to time, Orion bought and sold large volumes of shares on a daily basis. Mr Hartman's job was to execute those trades in accordance with instructions from the senior investment managers. The instructions were specific as to the stock to be acquired or disposed of over particular periods of time and the parameters (as to volume and price) within which that was to occur but a measure of discretion was left to Mr Hartman as to the timing of his trading (in theory, so as to enable him to trade in the optimum volume at the best achievable price). Mr Hartman traded millions of dollars' worth of shares on behalf of Orion each day. He was aged 21 years at the time.
Mr Hartman observed that, owing to the type and volume of shares in which it traded, Orion's trading could have an impact on the price of the relevant stock. In mid-2006, unlawfully and contrary to the terms of his employment, he began trading in his own right using inside information about Orion's trading intentions.
Mr Hartman and the accused were best friends and each worked in the financial sector. The Crown alleges that, in early 2007, Mr Hartman told the accused what he had observed about the impact of Orion's trades on the market and that they began discussing the prospect of trading cooperatively using the information available to Mr Hartman about Orion's trading intentions. The Crown alleges that the two men agreed on a plan to capitalise on that information by "front-running" Orion's trading. The plan was that Mr Hartman would identify occasions on which his knowledge of Orion's intended trading could be used and would provide trading instructions to the accused based on that information. The accused was to place the trades as instructed and they would share the profits.
The Crown alleges that, in the course of those discussions, the accused informed Mr Hartman about a method of communicating, using a Blackberry device, which was secure and virtually undetectable (known as "PIN" messaging or "pinning"). There is evidence suggesting that the accused bought a Blackberry on 23 May 2007. The Crown alleges that he bought it for Mr Hartman, to enable them to communicate secretly.
On 24 May 2007, the accused opened an account with CMC Markets Asia Pacific Pty Ltd, a company that trades in contracts for difference (CFD's). The account was opened in the name of a company, Encounter Investments Pty Ltd, of which the accused was the sole director. According to the Crown case, the accused and Mr Hartman began trading in accordance with their unlawful agreement the following day (25 May 2007).
Mr Hartman has been cross-examined at length and there is a substantial attack on his credit. He pleaded guilty to a number of charges arising from his own insider trading not involving the accused. He also pleaded guilty to a number of "tipping" offences arising from the trading he says he undertook with the accused. For the purpose of his sentencing proceedings, he gave an undertaking pursuant to s 21E of the Crimes Act 1914 (Cth) to co-operate with law enforcement agencies. He received a discount on sentence for that assistance, including a 10% discount for future assistance in giving evidence against the accused. He was given an indemnity by the Crown in respect of his evidence in these proceedings. The burden of the cross-examination on those and other issues was that his evidence about the unlawful agreement is unreliable and should not be accepted.
Apart from the evidence of Mr Hartman, the Crown case rests primarily on documents, including records of the relevant trading undertaken by Mr Hartman and the accused. Most if not all of that evidence was admitted by consent and is undisputed.
The documentary evidence includes records of 45 separate incidents of trading by Encounter which bore significant similarities to Orion's trading at around the same time. The Crown alleges that, on those 45 occasions, the accused acted on trading instructions sent to him by Mr Hartman via Blackberry PIN message, on each occasion causing Encounter to buy or sell CFD's in accordance with those instructions. The similarities with Orion's trading are striking. On each of the 45 occasions, Encounter and Orion traded in the same stock, on or about the same day, at about the same time and in the same direction (buy or sell). In many instances, the accused opened Encounter's position before Orion began trading and closed it before Orion finished. Most of the accused's trading on those occasions earned a profit; on five occasions he incurred a loss.
It is important to understand the very limited scope of the issue raised by the present application. First, as already noted, the accused accepts that the evidence of the 45 occasions on which Encounter's trading matched Orion's is admissible for another purpose in the trial. Specifically, that evidence is relied upon by the Crown as evidence of overt acts pursuant to the alleged agreement. The accused accepts that the evidence is admissible to prove the alleged overt acts.
Secondly, the accused accepts that the similarities between Encounter's trading and Orion's are such that some improbability reasoning is permissible (if not inevitable). The present contest concerns the extent of the permissible reasoning. The critical issue raised by the accused's application is whether the coincidence evidence can be used for the purpose of proving the existence of any anterior agreement or the existence of an agreement in the precise terms alleged by the Crown. The accused accepts that the existence of such an agreement could be proved or at least corroborated by inference but says that such an inference could not rely on improbability or coincidence reasoning based on the obvious similarities between the 45 matching trades of Encounter and Orion.
Finally, in the event that the Court accepts that the evidence in question is not admissible for a coincidence purpose, the accused nonetheless specifically asks the Court not to give a direction to the jury to that effect. That was the position taken by Mr Dhanji SC, who appeared with Ms Huxley to argue the pre-trial application for the accused, and it was expressly confirmed (at my request) by Mr Thangaraj SC, who appears with Dr Higgins for the accused in the trial (T 452). The reason for adopting that approach, as I understood it, was that such a direction could be self-defeating (and so damaging to the accused's case) because it could inspire the jury to engage in the very kind of reasoning prohibited by the Court's ruling, which reasoning might not otherwise occur to them. In my view, there is force in that concern.
Further, in my view, even if the evidence is admissible for a coincidence purpose, it may be doubted whether it is necessary or appropriate to direct the jury to that effect. That issue is considered further below.
For those reasons the accused's application, as developed in argument, was ultimately concerned for all practical purposes with identifying the submissions that can permissibly be put to the jury in closing addresses.
The coincidence notice is directed to the documentary evidence, focussing on the objective similarities between the trades in CFD's undertaken by the accused and Orion's trades in the same underlying stock. The notice attaches a schedule providing particulars of the 45 occasions on which the accused's trading matched Orion's in the ways specified above.
Section 98 of the Evidence Act provides:
98 The coincidence rule
(1) Evidence that 2 or more events occurred is not admissible to prove that a person did a particular act or had a particular state of mind on the basis that, having regard to any similarities in the events or the circumstances in which they occurred, or any similarities in both the events and the circumstances in which they occurred, it is improbable that the events occurred coincidentally unless:
(a) the party seeking to adduce the evidence gave reasonable notice in writing to each other party of the party's intention to adduce the evidence, and
(b) the court thinks that the evidence will, either by itself or having regard to other evidence adduced or to be adduced by the party seeking to adduce the evidence, have significant probative value.
Note: One of the events referred to in subsection (1) may be an event the occurrence of which is a fact in issue in the proceeding.
(2) Subsection (1) (a) does not apply if:
(a) the evidence is adduced in accordance with any directions made by the court under section 100, or
(b) the evidence is adduced to explain or contradict coincidence evidence adduced by another party.
It is accepted that the Crown has given reasonable notice in accordance with s 98(1)(a). The critical task is to determine whether the evidence, either by itself or having regard to other evidence adduced by the Crown, has significant probative value on the basis of improbability reasoning (as opposed to ordinary inferential reasoning). The "probative value" of evidence means the extent to which it could rationally affect the assessment of the probability of the existence of a fact in issue. That assessment must be made by reference to the particular acts and states of mind specified in the notice.
The "two or more events" specified in the s 98 notice are the 45 occasions on which the accused's trading matched Orion's. As I understood the argument, the Crown would rely on each or any pair of matching trading as a separate pair of events for the purpose of the section.
The accused accepts that the similarities between each pair of matching trading (Orion's and Encounter's) are such that it is improbable that they occurred coincidentally. It was expressly accepted by the accused at the pre-trial argument that the evidence of the matching trades was admissible to prove a particular act by Mr Hartman (that he communicated something to the accused which was "relevant to the desirability of trading in particular shares in a particular direction"). It was also expressly accepted that the evidence was admissible to prove that the accused had a particular state of mind ("that it is desirable to trade in particular shares in a particular direction on the basis of information provided to him by Mr Hartman": transcript of 4 May 2016 at 12.40).
The accused submitted, however, that the coincidence notice "significantly overreaches" as to any further acts or states of mind able to be proved by improbability reasoning based on the evidence of Encounter's and Orion's matching trades.
The acts and states of mind sought to be proved by the Crown by improbability reasoning were specified in the coincidence notice as follows:
a. (Act of the Accused and Hartman): The accused and Hartman formed an agreement that Hartman would communicate information to the Accused, being information that concerned, related to or was derived from information Hartman possessed because of his employment as an equities trader with Orion Asset Management Pty Ltd ("Orion"), regarding the trading intentions of Orion in respect of particular securities.
b. (States of minds of the Accused and Hartman): At the time the Accused and Hartman formed the subject agreement they each intended that the Accused would use the information received from Hartman to buy or sell Contracts for Difference ("CFDs") in respect of the relevant securities at times that would pre-empt Orion's intended trading in those securities.
c. (Acts of the Accused and Hartman): Pursuant to the subject agreement, Hartman communicated, and the Accused received, information about Orion's trading intentions.
d. (Act of the Accused): Pursuant to the subject agreement, on the 45 sets of occasions between 25 May 2007 and 11 June 2008, summarised in Schedule 1 ("the Encounter Trades") and Schedule 2 the Accused used the information he received from Hartman, to buy and sell CFDs through his company, Encounter Investments Pty Ltd ("Encounter"), in respect of securities that were the subject of the information he received.
e. (State of mind of the Accused): When conducting the subject trading in CFDs the Accused knew or believed that:
i. the information he had received from Hartman was information that concerned, related to or was derived from information Hartman possessed regarding the trading intentions of Orion; and
ii. Hartman had become aware of the trading intentions of Orion because of his employment at Orion; and
iii. Hartman would carry out Orion's trading intentions; and
iv. Orion's trading would sustain a movement in the price of the relevant security for a period of time that was favourable for the CFDs he had bought or sold; and
v. the information had been communicated to the Accused by Hartman pursuant to their agreement.
As implicitly accepted by the accused, the probability that any of the pairs of trading (Encounter's and Orion's) occurred coincidentally is so remote as to be dismissed as fanciful. The similarities between the relevant trading events are so striking as to give rise to an irresistible inference that there was some communication between the two men in respect of those trades.
Further, in my view, the accused's concession on that issue falls short. The similarities between the trades and the circumstances in which they occurred are such as to give rise to a strong inference that there was some anterior understanding or agreement between the two men. It is not only a matter of the trades being in the same stock and in the same direction; the timing of the trading is such as to give rise to a strong inference that the men had discussed front-running Orion's trading and that it was their intention to do just that. The Crown should be allowed to address the jury on that basis.
However, I do think the coincidence notice "over-reaches", as submitted by Mr Dhanji. It may be observed that the acts and states of mind specified in the notice exactly reflect the elements the Crown must prove to establish the guilt of the accused. I apprehend that was deliberate; the Crown submitted that those are the "facts in issue" against which the probative value of the improbable coincidence must be assessed in accordance with the provisions of the Evidence Act.
It may be correct, as a matter of logic, that the improbability of the matching trades occurring by coincidence is capable of sustaining an inference that the accused entered into an anterior agreement in the terms alleged by the Crown. I confess I have found that issue very difficult, but it is not ultimately necessary to determine it.
In the case of evidence admitted only for a coincidence purpose and not otherwise admissible, it would ordinarily be necessary to explain the relevance of the evidence to the jury. Where evidence has been admitted for both a coincidence purpose and another purpose, however, the position is more complex. The primary purpose of the evidence of the 45 occasions of matching trading, as I understand the Crown case, is to prove that there were overt acts pursuant to the alleged unlawful agreement (not a coincidence purpose). In that context, to explain that the same evidence could also be used for the purpose of proving the alleged unlawful agreement pursuant to which those overt acts were committed could be very confusing.
For that reason, assuming the evidence is capable of sustaining the inferences contended for in the coincidence notice (that is, all of the elements of the offence), I consider that the use of the evidence for that purpose could have a prejudicial effect on the accused. In particular, it could confuse the jury in the important task of determining whether the Crown has established the unlawful agreement beyond reasonable doubt. I am not persuaded that the probative value of the evidence to prove the existence of the agreement described in the indictment (as opposed to some anterior discussion or agreement) based on improbability reasoning substantially outweighs that potential prejudicial effect on the accused.
It follows, in accordance with s 101 of the Evidence Act, that the evidence of the 45 trades cannot be used to prove the unlawful agreement alleged by the Crown by improbability reasoning. That is not to preclude the Crown from addressing on the basis that that evidence is part of the circumstantial case to support the existence of the unlawful agreement. The critical question in the trial is whether, before the trading began, the accused entered into an agreement in the terms described by Mr Hartman. In determining whether that is established beyond reasonable doubt, the jury is entitled to draw inferences from all the circumstances, including the subsequent conduct of the two men (as I think is acknowledged by the accused). The effect of this ruling will be to constrain the Crown from addressing the jury as to an additional basis for inferring the existence of the agreement described in the indictment founded upon improbability reasoning by reference to the 45 trades.
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Decision last updated: 07 June 2016