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Court of Criminal Appeal 25 February 2002

R v MANASSEH and AUSTIN

[2002] NSWCCA 27

Fraud & dishonesty
CORPORATIONS LAW CORPORATIONS LAW, S998 'RELEVANT TRANSACTION' 'INTEREST' 'BENEFICIAL OWNERSHIP' BURDEN OF PROOF

Citation: R v Manasseh and Austin [2002] NSWCCA 27
Court: NSW Court of Criminal Appeal
Date: 25 February 2002
Judge(s): Sheller JA, Simpson J, Howie J

Background

Two business associates were each convicted by a jury of creating a false or misleading appearance of active trading in shares on the Australian Stock Exchange, an offence under s 998 of the Corporations Law. The charges arose from seventeen securities transactions occurring over approximately five weeks in 1997. Most of those transactions took place between trust companies holding assets for beneficiaries associated with each appellant respectively.

The Crown initially ran a common purpose case but abandoned that approach during the hearing. It instead relied on the deeming provisions in s 998(5) of the Corporations Law, which treat a transaction that produces no change in beneficial ownership as evidence of the prohibited conduct. The trial judge ordered each appellant to enter a recognizance for good behaviour for three years, without passing sentence.

Both appellants appealed their convictions. The Commonwealth Director of Public Prosecutions cross-appealed on the ground that the sentences were manifestly inadequate.

  • Whether s 998 of the Corporations Law applies to both a principal and an agent, or only to the principal, when dealing in another person's securities
  • Whether the Crown was required to prove that an appellant knew or intended that a false or misleading appearance of active trading would result from the conduct
  • How the concepts of "beneficial ownership" and "interest" in ss 998(5) and 998(7) should be defined and applied, including where securities are held through trusts
  • Whether the trial judge's directions to the jury on those concepts were adequate
  • Whether the reasoning in KBT v The Queen (1997) 191 CLR 417, requiring jury unanimity about specific acts, applied to a charge under s 998

Decision

Section 998 applies to agents as well as principals. The Court held that the language of s 998 is broad enough to cover a person who engages in the proscribed conduct by dealing in securities belonging to another, whether or not authorised to do so. The provision is directed at the nature of the activity, not the ownership status of the participants, and the emphasis is on the creation of a false or misleading market appearance rather than on who owns the securities.

No mental element required once the statutory presumption is invoked. The Court confirmed that the Crown did not need to prove that an appellant knew or had in mind that the conduct was likely to create a false or misleading appearance. Once s 998(5) was engaged, it fell to the person charged to persuade the jury on the balance of probabilities, under s 998(6), that the relevant purpose or purposes did not include creating such an appearance.

The jury directions on "beneficial ownership" and "interest" were fatally deficient. Section 998(5) focuses on whether a transaction involved any change in beneficial ownership of the securities. Section 998(7) treats a continuity of a person's "interest" before and after a transaction as equivalent to no change in beneficial ownership. The Court held that appropriate directions required a structured, multi-step analysis: first identifying the person or persons alleged to have had unchanged beneficial ownership, then explaining what interest those persons held before and after each transaction, then ruling on whether those persons could as a matter of law hold beneficial ownership within the meaning of s 998, and finally leaving the factual questions to the jury. The trial judge's general directions did not follow this process, leaving the jury with material that could not fairly resolve the issue. That failure constituted a miscarriage of justice.

The KBT ground failed. The Court rejected the argument that KBT v The Queen required the jury to be unanimously satisfied about which specific transactions were made out. The structure of the s 998 offence is entirely different from the Queensland provision considered in KBT. Under s 998, a single occasion of creating a false or misleading appearance is sufficient for conviction, and no KBT-style direction was required.

Orders Made

  • Appeals by both appellants allowed
  • Crown appeals (against sentence) dismissed
  • Verdict against each appellant quashed
  • Judgment and verdict of acquittal entered in favour of each appellant

Key Takeaways

  • Section 998 of the Corporations Law captures anyone who engages in the prohibited conduct, including agents dealing in another person's securities; ownership of the securities is not a prerequisite for liability.
  • Once the deeming provision in s 998(5) is engaged, the prosecution bears no obligation to prove purpose or intent; the burden shifts to the accused under s 998(6) to establish, on the balance of probabilities, that the prohibited purpose was absent.
  • Where beneficial ownership is held through trust structures, jury directions on "beneficial ownership" and "interest" under ss 998(5) and 998(7) require a structured, stepwise analysis identifying the relevant persons, their alleged interests, and the legal and factual questions that flow from those findings; a general direction is insufficient.
  • Failure to give adequate directions on the central statutory concepts of "beneficial ownership" and "interest" constituted a miscarriage of justice sufficient to quash the convictions and enter verdicts of acquittal.
  • The Court of Criminal Appeal confirmed that the unanimity principle from KBT v The Queen does not apply to s 998 charges, because a single act creating a false or misleading appearance is sufficient to establish the offence.

Legislation and Cases Referenced

Legislation
- Corporations Law, s 998 (and ss 998(5), (6), (7))
- Trade Practices Act 1974
- Securities Industry Act 1970 (NSW)
- Income Tax Assessment Act 1936
- Companies (Western Australia) Code
- Securities Industry Code
- Queensland Criminal Code

Cases
- North v Marra Developments Ltd (1981) 148 CLR 42
- Fame Decorator Agencies Pty Ltd v Jeffries Industries Ltd (1998) 28 ACSR 58
- Donald v Australian Securities & Investment Commission [2000] FCA 1142
- KBT v The Queen (1997) 191 CLR 417
- Cathels v Commissioner of Stamp Duties (1959) 62 SR (NSW) 455
- Gartside v Inland Revenue Commissioners [1968] AC 553
- Trade Practices Commission v Australian Iron and Steel Pty Ltd (1990) ATPR 41-001
- Cargill Inc v Hardin 452 F 2d 1154 (1971)
- Freeman v Laventhol & Horwath 915 F 2d 193 (1990)
- Stanley Yeung Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 787
- Lee v Lee's Air Farming Ltd [1961] AC 12
- Hamilton v Whitehead (1988) 166 CLR 121
- Mallan v Lee (1949) 80 CLR 198
- Tesco Supermarkets Ltd v Nattrass [1972] AC 153