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Court of Criminal Appeal 20 November 2013

Fysh v R

[2013] NSWCCA 284

Fraud & dishonesty
CRIMINAL LAW CONVICTION APPEAL TWO COUNTS OF INSIDER TRADING LIMITATIONS IN CROWN'S EXPERT EVIDENCE

Citation: Fysh v R [2013] NSWCCA 284
Court: NSW Court of Criminal Appeal
Date: 20 November 2013
Judges: Bathurst CJ, Hoeben CJ at CL, Schmidt J

Background

The appellant was charged with four counts of insider trading under the Corporations Act 2001 (Cth) in connection with share purchases in Queensland Gas Company Ltd (QGC) made in early December 2007. A jury acquitted him on the first two counts but convicted him on counts three and four, which alleged he purchased 240,000 and 10,000 QGC shares respectively while in possession of inside information that was not generally available. He was sentenced to two years imprisonment on count three and 18 months on count four, with release on recognisance after 12 months.

The Crown's case rested on a bundle of information items identified in a trial exhibit (MFI 4). Central to the appeal was item (f) of that bundle, which the applicant argued the Crown had failed to prove he actually possessed at the relevant time. The Crown case was that the applicant had possessed the information in MFI 4 as a whole, and that this information was "inside information" in the statutory sense: not generally available and material in that a reasonable person would expect it to affect the price or value of QGC shares.

BG Group, a large international energy company, was the corporate entity whose intentions formed the backdrop to the alleged inside information. The context involved BG's interest in the coal seam gas (CSG) sector in Queensland, with QGC being one of four companies under consideration. The significance of that interest, and what it would have meant for QGC's share price, was hotly contested.

  • Whether the verdicts were unreasonable because the Crown had not proved beyond reasonable doubt that the applicant possessed item (f) of the information in MFI 4 at the time he purchased the QGC shares.
  • Whether, absent item (f), the Crown had proved the applicant possessed the substance of the information in MFI 4 taken as a whole or in combination.
  • Whether the information in MFI 4 satisfied the statutory materiality requirement: that a reasonable person would expect it to have a material effect on the price or value of QGC shares if it were generally available.

Decision

The Court of Criminal Appeal unanimously allowed the appeal on all three grounds. On the first and second grounds, the Court found it was not open to the jury to be satisfied beyond reasonable doubt that the applicant possessed item (f) of MFI 4 at the relevant time. Item (f) was treated as a significant component of the Crown's case, and the failure to establish its possession fatally undermined the Crown's overall position.

The Court then considered whether the remaining information in MFI 4, stripped of item (f), was sufficient to establish the materiality element. It concluded that, without item (f), the information went no further than indicating a general interest by BG in the Queensland CSG sector. Four companies were under consideration; no specific terms of any proposed arrangement between BG and QGC existed; and the nature of the proposed relationship remained entirely inchoate as at 2 December 2007.

On the materiality question, the Court was not satisfied that a reasonable person would expect the residual information in MFI 4 to have a material effect on QGC's share price, or that it would be likely to influence persons who commonly acquire such securities. The vague and general nature of the information, absent item (f), meant it fell short of the statutory threshold in ss 1042A and 1042D of the Corporations Act.

The Court also addressed the argument that the rise in QGC's share price following an announcement in February 2008 supported materiality. It rejected this reasoning because the announcement was accompanied by a contemporaneous disclosure of substantial additional gas reserves held by QGC, and because the terms of the BG-QGC arrangement were fully known at that point. Those circumstances were fundamentally different from the inchoate position existing in December 2007.

Orders Made

  • Leave to appeal granted.
  • Appeal allowed.
  • Convictions on counts three and four quashed, and a verdict of acquittal entered on each count.

Key Takeaways

  • A conviction for insider trading under s 1043A(1)(c) of the Corporations Act 2001 (Cth) requires proof beyond reasonable doubt that the accused actually possessed each material item of information alleged to constitute "inside information" at the time of the relevant transaction.
  • Where a critical item of information forming part of the Crown's case is not proved to have been possessed by the accused, the remaining information must independently satisfy the statutory requirements, including the materiality test, for the conviction to stand.
  • Under ss 1042A and 1042D of the Corporations Act, information meets the materiality threshold only if a reasonable person would expect it to have a material effect on the price or value of the relevant securities, meaning it would, or would be likely to, influence persons who commonly acquire such securities in deciding whether to do so. General, inchoate information indicating a large company's interest in a sector, without specifics as to terms or identified targets, may not meet that standard.
  • The Court of Criminal Appeal confirmed that subsequent price movements following a later public announcement do not necessarily establish the materiality of earlier, more limited information, particularly where the announcement involved additional disclosures not available at the earlier date.
  • Limitations in the Crown's expert evidence on materiality contributed to the Court's conclusion that the jury should have entertained the same reasonable doubt that the Court itself had regarding whether the residual information would have influenced the market.

Legislation and Cases Referenced

Legislation:
- Corporations Act 2001 (Cth), ss 1042A, 1042B, 1042C, 1042D, 1043A(1)(c), 1311(1)
- Criminal Appeal Act 1912 (NSW), s 6(1)

Cases:
- Libke v R [2007] HCA 30; 230 CLR 559
- SKA v The Queen [2011] HCA 13; 243 CLR 400