Grounds 3 and 4
28 Mr Dalton accepted that these grounds could not be relied upon by Mr Austin in respect of transactions 11 and 15 in the first of which he used his business name, Glenoak, to purchase the shares and in the second of which he sold the shares using the name Glenoak and purchased them himself.
29 In written reasons for judgment Bell J gave on 19 February 2001 on an application by the appellants for directed verdicts, her Honour said:
"10. The Crown submitted that the evidence was capable of establishing that the accused, Manasseh, controlled the various companies through which he conducted the subject transactions. He was the alter ego of the companies. In the Crown's submission the accused's liability was that of a principal.
…..
12. Each of the Manasseh companies is said to be a trustee company holding its assets for interests associated with Mr Manasseh.
13. No evidence has been led to establish that the purchase or sale of shares in any of the transactions was authorised by resolution of the Board of any of the companies. The proceedings have been conducted by both the Crown and the accused upon the basis that Mr Manasseh had effective control of each of the Manasseh companies. Mr Manasseh was a director of each of the Manasseh companies. Each company had two directors. Mrs Manasseh was the other director of Nissim Securities. Prior to February 1997 she was the second director of each of the Manasseh companies. Around that time she suffered from ill health and sought to resign from a number of her directorships. On 20 February 1997 Leslie Austin was appointed a director of each of the Manasseh companies save Nissim Securities (Mrs Manasseh continued as a director of this company). Leslie Austin's role in the Manasseh companies was a nominal one.
14. The Crown contended that s998(5) is concerned to impute criminal liability in respect of actions and not with considerations of contractual liability. It addresses 'transactions of sale and purchase' and not sales or purchases per se. In the Crown's submission a person may enter a transaction of sale notwithstanding that he or she does not own shares. Further, the Crown submitted that one must read subpara (a) in the context of subparas (b) and (c). The latter paragraphs, dealing with matching orders, are directed to offers to sell or to buy. There could be no issue but that a person may offer to buy or to sell that which he or she does not own. I consider there is merit to this submission.
15. I am in any event of the view that I should leave the matter to the jury upon the basis that it is a question of fact for them to determine whether the accused in each case entered into the transactions (or offered to buy or to sell shares) on behalf of the company such that their act was that of the company or whether they entered the transactions (or offered to buy or to sell shares) personally. In this regard I note Lee CJ at CL's observations in J [at 623-624]:
'It is apparent that in a case where the evidence shows that a director of a company is not only in a position of control but in fact personally controls the receipt and disposition of cheques paid to the company upon terms requiring the company to pay the whole or any part of the proceeds, it will be a question of fact for the jury whether his receipt and disposition of those moneys is to be regarded only as a receipt and disposition by the company or whether the conclusion is open that it is he personally, apart altogether from the company, who has received the cheques on terms.'
16. I am of the opinion that the deeming provisions are capable of application in the case the Crown makes against each accused. Accordingly, I decline to direct verdicts of acquittal in each case.
17. It will be necessary for me to direct the jury as to the distinction between acts done by a director on behalf of the company and acts done in a personal capacity; R v Maharaj (1995) 85 A Crim R 374."
30 In summing up to the jury Bell J said:
"How then does the Crown seek to prove beyond reasonable doubt that it was Mr Manasseh who entered the transaction of sale and transaction of purchase in respect of those Diamond Rose shares on 1 May 1997? The Crown submits to you that the evidence in this case establishes that Mr Manasseh used various companies which he controlled as vehicles for his, that is Mr Manasseh's, share trading activities and that you would conclude that when Mr Manasseh gave instructions to Mr Lee and Mr Stokes and the other brokers he did so in his personal capacity and not on behalf of the company in any case.
….
Thus the Crown contends it was Mr Manasseh who had effective control both of Minosea and of Shellplan and so the Crown submits he used those companies as vehicles for his share trading activities."
31 In similar fashion her Honour told the jury that the Crown said in the case it made against Mr Austin that the evidence of the accountant they might think established that Mr Austin made use of the three companies, Landmark, Cerberus and AFS in order to conduct his share trading activities. "They were vehicles used by him".
32 The appellants argue that as a matter of law it was not open to the jury to conclude that the appellants entered into the relevant transactions. They each submitted that s998(5) of the Law applied only to a person who entered into, or carried out, either directly or indirectly, a transaction of sale or purchase or offered to sell any securities or offered to buy any securities. In each of the relevant transactions, other than transactions 11 and 15, the person who entered into or carried out the transaction or sale or purchase or offered to sell or to buy securities was, it was said, not Mr Manasseh or Mr Austin, but the company or person which was the registered owner of the shares sold or which became the registered owner as the result of the purchase. It was either a company or, in two cases Mrs Manasseh, which was the seller or buyer.
33 In the relevant transactions, other than 11 and 15, when either appellant placed the order to sell or to purchase he did so on behalf of another party. Thus it could be said that the appellant on behalf of the particular company entered into or carried out directly a transaction of sale or purchase of or offered to sell or offered to buy shares. On the other hand it could be said that the company, by its agent the appellant, entered into or carried out indirectly the transaction of sale or purchase of or offered to sell or offered to buy the shares. As a matter of language both the agent and the principal entered into the transaction or offered to sell or buy. The question in such a case is whether s998 applied to both principal and agent or only to the principal. The language was capable of embracing both.
34 The appellants referred to the decision of Lockhart J in Trade Practices Commission v Australian Iron and Steel Pty Ltd (1990) ATPR 41-001. In the context of s50(1) of the Trade Practices Act 1974 which provided relevantly that a corporation shall not acquire "directly or indirectly" any shares in the capital or any assets of a body corporate in certain events, Lockhart J said at 51,032:
"The words 'directly or indirectly' in subsec 50(1) plainly control the immediately preceding word 'acquire'. They relate to the method of acquisition, not its subject matter. They do not qualify the nature or character of the shares or assets the acquisition of which is prohibited. This follows not only from the syntax of subsec 50(1) but from its evident purpose. What is a 'direct' as opposed to an 'indirect' acquisition? A 'direct' acquisition is one by the corporation itself. An 'indirect' acquisition is an acquisition by someone on behalf of the corporation acting as agent, trustee or nominee."
35 Section 998(5) provided "[w]ithout limiting the generality of subsection (1)" that a person who engaged in the activities described in relation to any transaction of sale or purchase of any securities (my emphasis) "shall be deemed to have created a false or misleading appearance of active trading in those securities on a stock market". Subject to the defence provided for in s998(6), that person has offended s998(1). Section 998(5) must be so construed. Section 998(1) was directed against a person creating, or doing anything that was intended or likely to create, a false or misleading appearance of active trading in any securities on a stock market or a false or misleading appearance with respect to the market for, or the price of, any securities [my emphasis]. Its operation was not limited to the case where the person buys or sells that person's own securities.
36 North v Marra Developments Limited (1981) 148 CLR 42 concerned s70 of the Securities Industry Act 1970 (NSW) which in substance differed from s998(1) only by the expression "or cause to be created or do anything which is calculated to create" for the expression "or do anything that is intended or likely to create". At 58-59 in the reasons for judgment, with which on this point all members of the Court agreed, Mason J observed:
"In terms the statutory prohibition is directed against activity which is designed to give the market for securities or the price of securities a false or misleading appearance. In this setting, 'calculated' means 'designed' or 'intended' rather than 'adapted' or 'suited'. It is not altogether easy to translate the generality of this language into a specific prohibition against injurious activity, whilst at the same time leaving people free to engage in legitimate commercial activity which will have an effect on the market and on the price of securities. Purchases or sales are often made for indirect or collateral motives, in circumstances where the transactions will, to the knowledge of the participants, have an effect on the market for, or the price of, shares. Plainly enough it is not the object of the section to outlaw all such transactions.
It seems to me that the object of the section is to protect the market for securities against activities which will result in artificial or managed manipulation. The section seeks to ensure that the market reflects the forces of genuine supply and demand. By 'genuine supply and demand' I exclude buyers and sellers whose transactions are undertaken for the sole or primary purpose of setting or maintaining the market price. It is in the interests of the community that the market for securities should be real and genuine, free from manipulation. The section is a legislative measure designed to ensure such a market and it should be interpreted accordingly.
I agree with Hope and Samuels JJA in rejecting the suggestion that the section strikes only at fictitious or colourable transactions. Transactions which are real and genuine but only in the sense that they are intended to operate according to their terms, like fictitious or colourable transactions, are capable of creating quite a false of misleading impression as to the market or the price. This is because they would not have been entered into but for the object on the part of the buyer or of the seller of setting and maintaining the price, yet in the absence of revelation of their true character they are seen as transactions reflecting genuine supply and demand and having as such an impact on the market.
When purchases have been made of shares in a company at or about a particular level for the purpose of setting and maintaining a market price for those shares there is a breach of the statutory prohibition. At the very least purchases have then been made which are calculated to create 'a false or misleading appearance with respect to the market, for or the price of' the shares. In reality the purchases are calculated to create a false market or false price. The false or misleading appearance is that the market, in the absence of any disclosure that a market support operation is on foot, appears to be real or genuine, there being no overt sign of market support of manipulation.
In passing I note that it is enough to breach the section that the activities are calculated to create a false or misleading appearance. It is not necessary that they do in fact create that appearance."
Section 998(1) prohibited activity designed to give the market for securities or the price of securities a false or misleading appearance, that is to say, activity which resulted in artificial or managed manipulation.
37 In Fame Decorator Agencies Pty Ltd v Jeffries Industries Ltd (1998) 28 ACSR 58 there were recorded on the SEATS on 28 April 1995 offers to buy shares in the respondent company Jeffries which ranged from 35 cents on 31 March 1995 back to 13 cents on 9 March 1995. According to the SEATS' system if the appellant Fame wished to sell shares in Jeffries it was required to accept those bids in the sequence beginning with the latest and highest price. At 3.52 pm on 28 April as a result of a telephone conversation between Mr O'Halloran, who principally controlled Fame's business, and his stockbroker, Fame that afternoon accepted all the outstanding offers to buy the Jeffries' shares at prices down to and including some at 13 cents. The question before the trial judge was whether sales of 20,000 of the Jeffries' shares at 14 cents and 74,000 of the Jeffries' shares at 13 cents involved, inter alia, contravention of s998. The trial judge, Cohen J, said that the only conclusion that could be drawn was that 94,000 shares had been deliberately sold on 28 April at a price well below the previous sale prices in order to create an artificially low figure for purposes of the conversion calculation to be made in respect of certain preference shares held by Fame in Jeffries.
38 In the Court of Appeal, Gleeson CJ at 61 pointed out that the objective was unusual in that Mr O'Halloran, on behalf of Fame, set out to achieve a sale of its shares in Jeffries not at the highest possible price but at the lowest possible price. The Chief Justice referred to the judgment of Mason J in North and, at 62, to United States authority on similar legislation "where a price reflecting basic forces of supply and demand working in an open, efficient and well informed market, is contrasted with an artificial price resulting from manipulative conduct: see eg Cargill Inc v Hardin 452 F 2d 1154 (1971); Freeman v Laventhol & Horwath 915 F 2d 193 (1990)." At 62-63 the Chief Justice said:
"Section 998 aims to preserve the integrity of the share market. Markets, in reflecting the interaction of forces of supply and demand, may suffer from a variety of imperfections, including mismatches of information, without such imperfections destroying their integrity. However, the conduct of a seller of thinly traded shares, calculated to effect sales at the lowest, rather than the highest, obtainable price, and timed so as to deflect the possibility of some purchasers bidding up the price, had both the purpose and effect of creating, temporarily, an artificial market and price.
There is a difference between the market and the individual buyers who had current bonds immediately before the close of trading on 28 April 1995. The effect of Fame's conduct upon the market for shares in Jeffries, and the market price, was not merely incidental. The central object of such conduct was to influence the market price.
As Mason J acknowledged in North , in individual cases there may be difficulty in determining whether the conduct of a buyer or a seller, unless fully disclosed, falsifies the assumptions upon which a market operates, and damages the integrity of the market. In the present case, however, Cohen J was right to conclude that both the purpose and the effect of Fame's conduct was to create an artificial market price for shares in Jeffries and that such conduct contravened s998."
By a majority, Gleeson CJ and Powell JA, Priestley JA dissenting, the Court dismissed the appeal.
39 As these decisions demonstrate, the emphasis is on the nature of the activity not the status of the participants. The activity proscribed is that which results in artificial or managed manipulation. It matters not whether the person engaged in the proscribed activity is for the purpose using securities which belong to another party. Donald v Australian Securities & Investment Commission [2000] FCA 1142 (20 October 2000) concerned an order banning the applicant from acting as a representative of a securities dealer pursuant to s829 of the Law. Paragraph (d) conferred power to make a banning order if a person contravened a "securities law" which by definition included s998(1). The allegation against the applicant arose out of a transaction in which, acting as a representative of a securities dealer, he caused securities to be bought at a price higher than that available on the market. The applicant was carrying out an order placed by a client to sell shares in a listed company. He said that it was at the time his intention to purchase the shares "so that the shares would be purchased at a price higher than that at which they have previously been trading". The Administrative Appeals Tribunal upheld the ban, holding that the applicant's actions were likely to have created a false or misleading appearance with respect to the price of the shares purchased and that accordingly a breach of s998(1) had occurred. It was common ground that the relevant part of s998(1) was that which prohibited the doing of anything that was likely to create a false or misleading appearance with respect to the price of any securities. Heerey J referred to North and the reasons for judgment of Gleeson CJ in Fame. His Honour said:
"21 Applying those principles I have no doubt that it was open to the Tribunal to find that what the applicant did was likely to create a false or misleading appearance with respect to the price of Burswood shares. I accept, as senior counsel for the applicant submitted, that share trading calls for skill and judgment. Timing can be critical. For example, a buyer might have to pay a premium over the market price to acquire a substantial parcel of a thinly traded stock. But the problem with this argument is that it is not what the applicant says happened. In his own carefully considered statement, made in circumstances where he was subject to a Commission enquiry, he said that the price had been 'unsatisfactory' and 'unreasonably low' compared with their 'true value' and that he intended to have the shares 'moved to a more reasonable level'.
22 This was plainly an artificial or managed manipulation of the price. In his own words, the applicant wanted to give the Burswood shares 'a bit of a nudge upwards' so that the price appeared higher than it would if the market had operated in accordance with the normal expectations of participants, with buyers buying for the lowest price obtainable and sellers selling for the highest."
40 Addressing whether mens rea was an ingredient of the offence, Heerey J concluded that the Tribunal was not required to find that the applicant knew or had in mind at the time of the contravening conduct that a false or misleading appearance was likely to be created by that conduct. His Honour continued:
" Lack of Authority
30 It is apparent from par 19 of the Tribunal's reasons that it treated as a factor adverse to the applicant its finding that he had acted 'contrary to a client's instructions'. Although for other reasons the Tribunal reduced the period of the banning order from four years to two it seems likely that the finding of lack of authority operated against any further reduction. But was this a relevant matter for the purposes of s998 and the imposition of a banning order for a contravention? In my opinion not. Transactions on the stock exchange by dealers such as the applicant are legally binding, whether or not within the authority conferred by the client principal. For a potential buyer or seller of securities assessing the posted price for a sale, the possibility that it might have been made without the authority of a dealer principal is simply irrelevant. Sales might also have been made as a result of incompetent advice, or unsubstantiated rumour, or misunderstanding. All these may be considered, along with lack of authority, as examples of dealings by imperfectly informed participants in a market. But they do not, as Gleeson CJ points out in Fame , destroy the integrity of the market.
31 Conversely, if a dealer creates a false or misleading appearance with respect to the price of securities but does so with the express authority of the client that would not be a matter going to the mitigation of the period of a banning order. All it would show was that the client had also contravened s998(1)."
41 The careful reasoning of Heerey J demonstrates that s998(1) applied to a person engaged in the conduct described even though that person so engaged by dealing in the securities of another with or without the authority of that other. Accordingly, it was not alone an answer for either appellant, if the matter had proceeded without the prosecution relying on s998(5), to say that he was merely selling or buying the shares on behalf of the various share trading companies.
42 The object and purpose of s998 was to prevent the creation of a false or misleading appearance of active trading in any securities on a stock market. Section 998(5) provided that a person who engaged in any of the activities described in paras (a), (b) or (c) should be deemed to have created a false or misleading appearance of active trading in those securities on a stock market. The statutory presumption that the person had created the false or misleading appearance of active trading flowed from proof of that person's involvement in any one or more or the activities described. It was no part of the Crown case to prove what the purpose or purposes were of the person engaged in the conduct described. Once the presumption arose the person charged was left with a defence under subs(6). It was for the defence to persuade the jury on the balance of probabilities that the purpose or purposes for which the person engaged in the activity were not or did not include the purpose of creating a false or misleading appearance of active trading of securities on a stock market. But this did not require that subs(5) be read as limited to deeming that a person has created a false or misleading appearance of active trading only where that person's activity was activity on his or her own behalf and not on behalf of another. The section was concerned with the creation of a false or misleading appearance of active trading in securities, not the ownership of the securities.
43 We were referred to other decisions. In Stanley Yeung Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 787 the plaintiff claimed that the bank had accepted and acted upon forged instruments of transfer of shares registered in the plaintiff's name. In third party proceedings the bank sought an indemnity from the plaintiff's brokers alleging a request by them to effect the transfers. It was submitted that the brokers warranted that the plaintiff's signatures on the transfers were genuine and the transfers were genuine instruments. The plaintiff proved the forgeries and obtained judgment against the bank. The bank obtained judgment against the brokers. The letters of request were signed and stamped with the broker's name. There was no qualification to the signature. The Court of Appeal in Hong Kong dismissed an appeal against the judgment in favour of the bank on the third party proceedings.
44 On appeal Lord Scarman, who delivered the judgment of the Privy Council, said at 794B:
"The presentation was an ordinary stockbroking transaction, conducted in all good faith by the brokers on behalf of a customer in ignorance of the forgeries of the signature and stamp of the transferor. In presenting the documents the brokers were acting upon the instructions of the transferee."
In fact, unknown to the brokers, the transferee, Mr Wong, had forged or procured to be forged, the plaintiff's signature and the stamp to the deeds of transfer. The bank registered the transfers and dispatched the certificates as requested. At 794-795 Lord Scarman said:
" Counsel for the brokers urged upon the Board that 'the true requester' was not the brokers but Mr Wong, on whose behalf they wrote. The brokers acted, it was submitted, 'as a mere conduit pipe.' Their Lordships reject this view of the letters. The letters were the letters of the brokers notwithstanding the fact that they were written on behalf of Mr Wong. The brokers (as they have admitted in their pleading) made the request to the bank; and they requested the bank not only to effect the transfer but to send the new certificates, when prepared, to them. The fact that the request, by the law of agency, was also Mr Wong's request in the sense that it was made with his authority does not necessarily prevent it from being a request made by the brokers. There is nothing in the letters or in the signature, which in each case was unqualified, to suggest that the request being made was exclusively Mr Wong's and not theirs. On the contrary, the terms of the letters convey irresistibly the message that Stanley Yeung & Co., stockbrokers and members of the Far East Exchange, were making the request. The courts below were fully justified in so construing the letters. When, therefore, Mr Leggatt for the brokers opened the appeal by asking the question, 'Is it I, or my broker, who should be liable?', he was either misconstruing the letters, or basing himself on an incorrect view of the law. It is not the law that, if a principal is liable, his agent cannot be. The true principle of the law is that a person is liable for his engagements (as for his torts) even though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability. But, upon the view of the letters, which the courts below accepted and this Board believes to be correct, the brokers cannot avoid personal responsibility for whatever consequences the law attaches to the making of the request and the bank's compliance with it. It was their request - even though made on Mr Wong's behalf."