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Court of Criminal Appeal 21 May 2001

REGINA v FIRNS

[2001] NSWCCA 191

Fraud & dishonesty
CORPORATIONS LAW S1002G INSIDER TRADING WHEN IS MATERIAL "READILY OBSERVABLE" APPEAL UPHELD. D

Citation: Regina v Firns [2001] NSWCCA 191
Court: New South Wales Court of Criminal Appeal
Date: 21 May 2001
Judge(s): Mason P, Hidden J, Carruthers AJ

Background

Carpenter Pacific Resources NL was an Australian company listed on the ASX whose primary operations in 1995 involved gold exploration licences in Papua New Guinea held through subsidiaries. One of those subsidiaries, Matu Mining Pty Ltd, had challenged the validity of a Papua New Guinea regulation that effectively stripped it of a valuable aspect of its exploration licence. The challenge ultimately reached the Supreme Court of Papua New Guinea, which reserved its judgment after hearing the appeal in October 1994.

On the morning of 28 July 1995, the Supreme Court of Papua New Guinea handed down its judgment in open court, upholding Matu's appeal and declaring the regulation invalid. The news was telephoned to company officers in Australia almost immediately. Within roughly an hour of the judgment being delivered, the appellant (the son of an executive director of Carpenter) purchased a total of 738,000 Carpenter shares through a Brisbane stockbroker, using his wife's maiden name and arranging a further parcel for a friend. The ASX was not notified of the judgment until the following Monday.

The appellant was convicted in the District Court on two counts of insider trading under s 1002G of the Corporations Law. He appealed, contending principally that the information he acted upon was "generally available" because it consisted of "readily observable matter," namely a judgment delivered in open court. A co-accused, Mr Kruse (who had been physically present in the PNG courtroom when the judgment was read), had been acquitted separately on the same facts.

  • Whether the information contained in the PNG Supreme Court judgment constituted "readily observable matter" and was therefore "generally available" within the meaning of s 1002G of the Corporations Law, so as to defeat the insider trading charge.
  • Whether information must be readily observable by persons within Australia before it qualifies as "readily observable matter" under the Corporations Law.
  • Whether the trial judge erred in directing the jury that the relevant question was whether the judgment was readily observable in Australia at the time the shares were purchased.
  • Whether the acquittal of the co-accused Kruse could be reconciled with the conviction of the appellant on the same underlying facts.

Decision

Mason P (Hidden J agreeing) upheld the appeal on the basis of misdirection. The trial judge had directed the jury that the test was whether the PNG judgment was readily observable by those in Australia at the relevant time. The majority held that this direction impermissibly narrowed the statutory test by grafting on a geographical limitation that does not appear in the legislation.

On the substantive question of "ready observability," the majority held that information may be readily observable even if no one in fact observed it. A judgment delivered in open court is accessible, understandable and available to any member of the public present in the courtroom. The principles of open justice proceed on the assumption that everything occurring in open court is capable of observation and reporting. Accordingly, the PNG Supreme Court judgment was, on the majority's analysis, readily observable at the moment it was handed down.

The majority also noted that modern telecommunications, including telephone, television and fax, form part of how Australians and investors perceive events. Confining the concept of ready observability to what is perceptible by persons physically within Australia was seen as both artificial and difficult to justify given the structure of the legislation. The misdirection created a significant risk that the jury convicted on an incorrect legal basis, and the conviction could not stand.

Carruthers AJ dissented. His Honour concluded that the phrase "readily observable matter" cannot operate in a vacuum and must be assessed by reference to some class of persons. On his Honour's view, that class must at minimum be members of the Australian public, otherwise the protective purpose of the insider trading provisions would be defeated. The dissent would have dismissed the appeal, finding the jury direction correct and the verdict open on the evidence.

Orders Made

  • Appeal upheld.
  • Conviction and sentence quashed.
  • Acquittal entered.

Key Takeaways

  • A judgment delivered in open court constitutes "readily observable matter" for the purposes of the insider trading provisions of the Corporations Law, because open justice principles make such a judgment available and accessible to all those present at the time of delivery, regardless of whether anyone in fact observed it.
  • Under the Corporations Law's insider trading scheme, the test of whether information consists of "readily observable matter" does not require that the information be perceptible by persons within Australia specifically. Adding a geographical limitation to the statutory test constitutes a misdirection that may vitiate a conviction.
  • The Court of Criminal Appeal confirmed that the legislative history of Division 2A of the Corporations Law reflects an unresolved ambiguity between market fairness and market efficiency rationales. The market fairness or "equal access" theory cannot alone determine how the criminal offence is to be construed.
  • Irreconcilable verdicts between co-accused tried separately on the same facts were a significant feature of the analysis, underscoring the need for consistency in how the jury is directed on key elements of the statutory test.
  • In dissent, Carruthers AJ emphasised that "readily observable matter" must be assessed by reference to a defined class of persons and that, at a minimum, Australian investors must be able to observe the information before it can be treated as generally available, a view the majority rejected.

Legislation and Cases Referenced

Legislation:
- Corporations Law (Cth), s 1002G and Division 2A generally
- Papua New Guinea Mining Act 1992

Cases:
- R v Hannes [2000] NSWCCA 503
- Birmingham v Corrective Services Commissioner (1988) 15 NSWLR 292
- Regina v James Byron Kruse (District Court, ruling of O'Reilly QC, 2 December 1999) (referred to in the dissent)