Yesterday the High Court handed down its decision in a case brought by the Commonwealth Director of Public Prosecutions against WA businessmen John Kizon and Nigel Mansfield concerning insider trading.
Mr Mansfield and Mr Kizon had been tried together in the District Court of Western Australian on an indictment alleging conspiracy to commit offences against insider trading provisions of the Corporations Act 2001 (Cth). The indictment also alleged that Mr Mansfield and Mr Kizon had committed the substantive offences subject of the alleged conspiracy. The “inside information” Mr Mansfield and Mr Kizon allegedly possessed related to AdultShop.com Ltd (a publicly listed company). Mr Mansfield and Mr Kizon were said to have become aware, from private conversations with a Mr Day (the managing director of AdultShop), that:
- the expected profit for AdultShop for the 2002 financial year had risen from $3 million to $11 million;
- the expected turnover for AdultShop for the 2002 financial year had risen from between $30 million and $50 million, to about $111 million; and
- Mr Kerry Packer had brought 4.9% of AdultShop.
The trial judge acquitted Mr Mansfield and Mr Kizon on the basis that the information they possessed could not be inside information as it was false. The Court of Appeal of Western Australia set aside the judgment of the trial judge and ordered a new trial. On appeal to the High Court, arguments by the parties proceeded on the basis that the information possessed by Mr Mansfield and Mr Kizon was false.
All members of the High Court dismissed the appeal and the two sets of reasons were consistent in holding that:
- the word “information” in its ordinary usage is not to be understood as confined to objective truths;
- nothing in the provisions concerning insider trading or market misconduct support the reading that “information” must be taken to exclude false information, nor is such a reading more consistent with the purpose behind the insider trading provisions. Rather, the purpose of the provisions is to ensure that the securities market operates freely and fairly. In this regard, false and correct information can equally affect the free and fair operation of the market;
- a key element in the prohibition of insider trading is information which “a reasonable person would expect…to have a material effect on the price or value of securities”. Untrue information can have that effect as well as true information; and
- international practice is not directly relevant to the interpretation of Australian legislation unless the latter is modelled on the former or vice versa, or (in the view of Heydon J) if they share a common original, for example, a treaty or statute. It was not shown in this case that the insider trading provisions in the Corporations Act were modelled on, or shared a common origin with, any foreign laws (or vice versa).
Implications for the current insider trading provisions in the Corporations Act
This case concerned a now-repealed version of the insider trading provisions in the Corporations Act. However, the High Court’s reasoning would appear equally applicable to the current form of the provisions. In particular, the current provisions also define information as including “matters of supposition” and prohibit conduct by persons in possession of information that is not generally available and would be expected to have a material effect on the price or value of certain securities if it were generally available.
A copy of the decision by the High Court may be found here.