Regina v Fysh

Judgment 1HER HONOUR: Stuart Alfred Fysh is being tried before me with a jury on four counts of insider trading contrary to the Corporations Act 2001. The Crown case includes a statement made by Mr Daniel Dreyfus annexing a report prepared by him at the request of the Australian Securities and Investment Commission (ASIC). The Crown seeks to rely upon the report as expert opinion evidence under s 79 of the Evidence Act 1995. The accused objects to the whole of the report. This judgment determines the admissibility of that evidence. 2The accused was called for trial and arraigned in the presence of a jury panel on 15 October 2012. A jury was then empanelled but had to be discharged almost immediately after it was discovered that one of the jurors was a legal practitioner and so was ineligible to serve as a juror: see s 6 and Schedule 2 of the Jury Act 1977. There being no panel available for the empanelment of a new jury that day, the time was used to hear the beginning of legal argument as to the admissibility of the report. Before argument began, the accused was arraigned again so as to put beyond doubt the Court's jurisdiction with respect to the conduct of the proceedings: see s 130 of the Criminal Procedure Act 1986. A new jury was empanelled the following morning. 3The charges against the accused are brought under s 1043A(1)(c) and 1311(1) of the Corporations Act. The operation of those provisions is that s 1043A prohibits certain conduct (referred to in shorthand as insider trading). By virtue of s 1311(1), a person who contravenes such a prohibition is guilty of an offence. 4Section 1043A(1) provides: 1043A Prohibited conduct by person in possession of inside information (1)Subject to this Subdivision, if: (a)a person (the insider) possesses inside information; and (b)the insider knows, or ought reasonably to know, that the matters specified in paragraphs (a) and (b) of the definition of inside information in section 1042A are satisfied in relation to the information; the insider must not (whether as principal or agent): (c)apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products; or (d)procure another person to apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products. 5The four charges against the accused allege that, in contravention of that prohibition, he acquired two separate parcels of shares in Arrow Energy N/L (counts 1 and 2) and two separate parcels of shares in Queensland Gas Company Ltd (counts 3 and 4). The Crown has provided written particulars of the alleged inside information in respect of each company. As to the two counts relating to Arrow Energy N/L, it is alleged that the accused possessed the information set out in MFI 3. As to the two counts relating to Queensland Gas Company Ltd, it is alleged that he possessed the information set out in MFI 4. 6The starting point is to consider the elements of the offence of insider trading. The articulation of those elements is complicated by the convoluted structure of the relevant provisions. The pivotal circumstance (since it is what gives rise to the relevant prohibition) is the possession of "inside information". That term is defined in s 1042A of the Act as follows: inside information means information in relation to which the following paragraphs are satisfied: (a)the information is not generally available; (b)if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of particular Division 3 financial products. 7Regrettably, each limb of that definition includes a term that is itself further defined in the Act. The terms "generally available" and "material effect" are each defined in s 1042A to have the meanings given by ss 1042C and 1042D respectively. Those sections state definitively when (for the purposes of the insider trading prohibitions) information is "generally available" and when a reasonable person would be taken to expect information to have a "material effect" on the price or value of particular Division 3 financial products. 8The section dealing with "material effect" (s 1042D) is a difficult section. Its operation is explained in the definition section (s 1042A) as follows: material effect, in relation to a reasonable person's expectations of the effect of information on the price or value of Division 3 financial products, has the meaning given by section 1042D. 9Section 1042D provides: When a reasonable person would take information to have a material effect on price or value of Division 3 financial products For the purposes of this Division, a reasonable person would be taken to expect information to have a material effect on the price or value of particular Division 3 financial products if (and only if) the information would, or would be likely to, influence persons who commonly acquire Division 3 financial products in deciding whether or not to acquire or dispose of the firstmentioned financial products. 10One of the complications created by that section is that, although it is directed to defining the term "material effect", it does so in terms that burden the application of the "reasonable person" test in the second limb of the definition of "inside information" (set out above). The test in full as to which the jury will have to be directed in this case is that a reasonable person would expect the information in MFI 3 to have a material effect on the price or value of shares in Arrow if (and only if) that information would, or would be likely to, influence persons who commonly acquire Division 3 financial products in deciding whether or not to acquire or dispose of shares in Arrow. 11The intention of the legislature appears to have been that materiality must be measured against both reasonableness and some knowledge of the market. The expectations of a reasonable person are quintessentially within the province of the jury. That is an issue that need not, and should not, be informed by any subjective opinion or assessment, whether or not based on specialised knowledge. However, in expressly confining materiality to the likely influence of the information on "persons who commonly acquire Division 3 financial products", the statute requires the jury to apply that test by reference to a reasonable person armed with some knowledge of the matters likely to influence the trading decisions of persons who commonly trade in the market. That is an issue which draws in part on matters of common sense well within the province of the jury, but one as to which specialised knowledge might also be brought to bear. 12In order to establish count 1, the Crown will have to prove (omitting expansion of the defined terms considered above): (a)that, between the dates alleged, the accused acquired 150,000 shares in Arrow Energy N/L; (b)that, at the time he acquired those shares, the accused possessed the information set out in MFI 3; (c)that the information set out in MFI 3 was "inside information", that is: (i)that the information was not "generally available"; and (ii)that, if the information were generally available, a reasonable person would expect it to have a "material effect" on the price or value of particular Division 3 financial products. (d)that the accused knew, or ought reasonably to have known: (i)that the information was not "generally available"; and (ii)that, if the information were generally available, a reasonable person would expect it to have a "material effect" on the price or value of particular Division 3 financial products. 13It should be noted that the dates on which it is alleged the shares were acquired are between 13 and 20 June 2007 (count 1); between 17 and 22 June 2007 (count 2); between 2 and 7 December 2007 (count 3) and between 3 and 8 December 2007 (count 4).