Mansfield v The Queen; Kirzon v The Queen (2012) 293 ALR 1

By Roslyn Kaye

Corporations Act 2001 – Insider trading provisions – definition and interpretation of ‘information’

In this case, the High Court rejected an argument that to constitute ‘insider’ trading in contravention of the Corporations Act 2001, the information of which the accused person is in possession must be true and accurate.  Justices Hayne, Crennan, Kiefel and Bell delivered a joint judgment and Justice Heydon delivered a separate judgment in which his Honour agreed with the plurality that the appeal ought to be dismissed.

It was alleged that the first appellant had been told certain information about the profitability of a listed company by its managing director and that he had passed that information onto the second appellant.  For example, the managing director of the company had told the first appellant that the expected profit for the financial year in question had risen from $3 million to $11 million.  It was alleged that the first and second appellant purchased or procured shares in the relevant company after receiving the information.  The information that had been communicated by the company’s managing director was false.

The appellants were charged with various offences against the insider trading provisions of the Corporations Act 2001 (which provisions were originally found in Division 2A of Part 7.11 and were later re-located to a new Part 7.10 of that Act).  The prosecution in the District Court of Western Australia failed at first instance, as the trial judge ruled that the Corporation Act provisions are only contravened if the information upon which the appellants acted was ‘a factual reality’.  The prosecution’s appeal to the Court of Appeal of the Supreme Court of Western Australia was allowed.

The principal question in the High Court appeals was whether the appellants possessed ‘information’ for the purposes of the Corporations Act insider trading provisions, given that the information provided by the company’s managing director to the first appellant was not factually correct?

The High Court considered the proper construction of the term ‘information’, as it is found in the Corporations Act insider trading provisions.  The plurality judgment held that

The word ‘information’ in its ordinary usage is not to be understood as confined to knowledge communicated which constitutes or concerns objective truths.  Knowledge can be conveyed about a subject matter…and properly be described as ‘information’ whether the knowledge conveyed is wholly accurate, wholly false or a mixture of the two.

The Court also rejected the appellants’ arguments that other elements of the insider trading provisions and provisions found elsewhere in the Corporations Act supported a finding that ‘information’ does not include false information.  Furthermore, the Court held that a finding that ‘information’ includes false information is consistent with the purposes of prohibiting insider information.  The plurality judgment observed that the purpose of the insider trading provisions is to ensure that the securities market operates freely and fairly, with all participants having equal access to relevant information.  If the motive for the managing director’s provision of the false information was to ‘pump up’ the company’s stock, then the market would not meet those objectives of operating freely or fairly if the appellants acted on what the managing director had told them.

Finally, the Court held that although the practices of regulating insider trading in other jurisdictions are ‘interesting’, they did not assist with the resolution of the issue in the present case, as it was not shown that the Australian Corporations Act was based on any other particular legislative model.

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