Source: https://www.queenslandjudgments.com.au/case/id/69636
Timestamp: 2020-07-02 11:44:06
Document Index: 195271619

Matched Legal Cases: ['art 9', 'art 10', 'art 2', 'art 7', 'art 7', 'art 7']

[2010] QSC 216 - Director of Public Prosecutions (Cth) v Fysh
Commonwealth Director of Public Prosecutions v Fysh
[2010] QSC 216
Director of Public Prosecutions (Cth) v Fysh
Commonwealth Director of Public Prosecutions v Fysh [2010] QSC 216
FYSH, Stuart Alfred
SC No 13687 of 2009
11 January, 11 February 2010; written submissions
The applicant pay the respondent’s costs of and incidental to the proceeding, including the respondent’s costs of and incidental to the interlocutory application filed 18 December 2009.
This order take effect on 28 June 2010.
CRIMINAL LAW – PROCEDURE – CONFISCATION OF PROCEEDS OF CRIME AND RELATED MATTERS – PECUNIARY PENALTY AND LIKE ORDERS – GENERALLY – FORFEITURE OR CONFISCATION – JURISDICTION – where the Commonwealth Director of Public Prosecutions seeks restraining orders and a pecuniary penalty order against respondent pursuant to the Proceeds of Crime Act 2002 (Cth) (POCA) – where restraining orders were made by consent at a time when respondent had not been charged with any offence – where orders were made on the basis there were reasonable grounds to suspect he had committed certain insider trading offences "at Brisbane in the State of Queensland and elsewhere" contrary to ss 1311(1) and 1043A(1) of the Corporations Act 2001 (Cth) – where pursuant to s 335 of the POCA, if all or part of the conduct constituting an offence to which the order would relate occurred in a particular State or is reasonably suspected of having occurred in that State, the courts that have proceeds jurisdiction for the order are those with jurisdiction to deal with criminal matters on indictment in that State – where DPP submits that respondent acquired/disposed of shares only upon his name being entered on/removed from the companies’ share registers, that were located in Queensland – where DPP and respondent agree some conduct occurred in New South Wales and where respondent alleges no conduct occurred in Queensland – whether any of the conduct constituting the offence took place in Queensland – whether Queensland has proceeds jurisdiction
CORPORATIONS – FINANCIAL SERVICES AND MARKETS – MARKET MISCONDUCT AND OTHER PROHIBITED CONDUCT – INSIDER TRADING – where respondent allegedly acquired and disposed of shares contrary to ss 1311(1) and 1043A(1) of the Corporations Act – where respondent, from outside Australia, instructed his broker to conduct transactions on the ASX in Sydney – where application proceeded on the basis of reasonable suspicion that information had by respondent when he acquired and disposed shares was "inside information" – whether any of the conduct constituting the offence occurred in Queensland
CORPORATIONS – SHARE CAPITAL – SHARES – TRANSFER – REGISTRATION – where the companies’ share registries are maintained by Link Market Services in Brisbane – where by s 1070A of the Corporations Act, shares are transferable as provided by the operating rules of a prescribed CS facility – where a transfer of shares will be valid if the operating rules are complied with – where ASTC (ASX Settlement and Transfer Corporation Pty Ltd) is a subsidiary of the ASX and a "prescribed CS facility", ie a licensed clearing and settlement facility prescribed by the Corporations Regulations – where its operating rules are the ASTC Settlement Rules – where the computer system used by ASTC is the Clearing House Electronic Subregister System ("CHESS") – where pursuant to the ASTC Settlement Rules the transfers took effect when ASTC electronically deducted the shares from the source holdings – where three days later, the purchase moneys were transferred simultaneously with the change in ownership of the shares being recorded on the CHESS Subregister in Sydney – where subsequently an electronic message was sent by ASTC to Link Market Services in Brisbane, which updated the "principal register" – whether CHESS Subregister is part of the company’s register required to be kept under ss 168 and 169 of the Corporations Act – whether the respondent acquired/disposed of legal title to the shares upon the transfers being recorded on CHESS Subregister – whether respondent acquired/disposed of the shares within the meaning of s 1043A when the transfers took effect – whether he acquired/disposed of them when his name/the name of the buyer of the shares he disposed of was entered on the companies’ share registers upon entry on the CHESS Subregisters in Sydney
PROCEDURE – COURTS AND JUDGES GENERALLY – COURTS – CONCURRENT JURISDICTION OF DIFFERENT COURTS – TRANSFER OF PROCEEDINGS UNDER CROSS-VESTING LEGISLATION – WHERE APPROPRIATE AND IN INTERESTS OF JUSTICE – GENERALLY – where if the Supreme Court of Queensland has proceeds jurisdiction, respondent seeks an order transferring the proceeding to the Supreme Court of New South Wales pursuant to s 5(2)(b)(iii) Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) – whether it is in the interests of justice that the proceeding be determined in New South Wales
Acts Interpretation Act 1901 (Cth), s15AA
Corporations Act 2001 (Cth), s 9, s 52, s 142(1), s 168, s 169, s 172, s 173, s 178, s 761A, s 761E(1), s 761E(7), s 769B, s 1042A, s 1043A(1), s1070A, s 1074A, s 1074C, s 1074D, s 1074E, s 1074G, s 1300, s 1301, s 1308A, s 1311(1)
Corporations Regulations 2001 (Cth), reg 1.0.02, reg 7.11.03, reg 7.11.24, reg 7.11.27, reg 7.11.36
Criminal Code Act 1995 (Cth), s 3.1, s 4.1, s 4.2(1), s 4.2(5), s 5
Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), s 5(2)(b)(iii)
Proceeds of Crime Act 2002 (Cth), s 11, s 18(1), s 116(1), s 335, s 338
Uniform Civil Procedure Rules 1999 (Qld), r 16(a)
Allina Pty Ltd v Commissioner of Taxation (1991) 28 FCR
203; [1990] FCA 78, cited
AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2007] QSC 238;
[2007] QSC 238, cited
Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353; [1949] HCA 26, cited
Bankinvest AG v Seabrook (1988) 14 NSWLR 711, cited
BHP Billiton Ltd v Schultz (2004) 221 CLR 400; [2004] HCA 61, cited
Dalgety Downs Pastoral Co Pty Ltd v Federal Commissioner of Taxation (1952) 86 CLR 335; [1952] HCA 54, cited
Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52; [1970] HCA 33, cited
Kingston v Keprose Pty Ltd (1987) 12 ACLR 323, cited
Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104; [1982] HCA 17, cited
Re Margart Pty Ltd (in liq); Hamilton v Westpac Banking
Corporation (1984) 9 ACLR 269, cited
Roache v Mercantile Loan & Finance Co Ltd (No 2) [1968] 1 NSWR 384, cited
Rose v Federal Commissioner of Taxation (1951) 84 CLR 118; [1951] HCA 68, cited
Trade Practices Commission v Australian Iron & Steel Pty Limited (1990) 22 FCR 305; [1990] FCA 23, cited
R P Devlin SC, and G Del Villar, for the applicant.
N H Ferrett for the respondent.
Commonwealth Director of Prosecutions.
Gilbert & Tobin for the respondent.
MARGARET WILSON J: By an originating application filed in this Court on 3 December 2009 the Commonwealth Director of Prosecutions (“the DPP”) sought orders against Dr Fysh (“Fysh”) pursuant to the Proceeds of Crime Act 2002 (Cth) (“POCA”) - restraining orders pursuant to s 18 and a pecuniary penalty order pursuant to s 116(1). On 10 December 2009 restraining orders were made by consent.
By an application filed on 18 December 2009 and amended on 11 February 2010 Fysh seeks:
a declaration pursuant to UCPR r 16(a) that the proceeding has not been properly started because of want of jurisdiction;
that the originating application be struck out;
(c) that the orders made on 10 December 2009 be vacated;
in the alternative, that the proceeding be transferred to the Supreme Court of New South Wales pursuant to cross-vesting legislation.
The scheme of the Proceeds of Crime Act 2002 (Cth)
The POCA establishes a scheme to confiscate the proceeds of crime. It provides various processes relating to confiscation, including restraining orders and pecuniary penalty orders requiring the payment of amounts based on benefits derived from committing offences.
Under s 18(1) of the POCA “a court with proceeds jurisdiction” must make a restraining order:
(d) there are reasonable grounds to suspect that a person has committed aserious offence; and
(e) any affidavit requirements in subsection (3) for the application have been met; and
(f)the court is satisfied that the authorised officer who made the affidavit holds the suspicion or suspicions stated in the affidavit on reasonable grounds."
"Serious offence" is defined in s 338 as:
"(a) an indictable offence punishable by imprisonment for 3 or more years, involving:
(i) unlawful conduct relating to a narcotic substance; or
(ia) unlawful conduct constituted by or relating to a breach of Part 9.1 of the Criminal Code (serious drug offences); or
(ii) unlawful conduct constituted by or relating to a breach of section 81 of the Proceeds of Crime Act 1987 or Part 10.2 of the Criminal Code (money‑laundering); or
unlawful conduct by a person that causes, or is intended to cause, a benefit to the value of at least $10,000 for that person or another person; or
unlawful conduct by a person that causes, or is intended to cause, a loss to the Commonwealth or another person of at least $10,000; or …"
The insider trading in which Fysh is suspected of having engaged is within paragraph (a)(iii) of the definition of "serious offence".
Under s 116(1) of the POCA "a court with proceeds jurisdiction" must make a pecuniary penalty order if:
"(a) the DPP applies for the order; and
(b) the court is satisfied of either or both of the following:
(i)the person has been convicted of an indictable offence, and has derived benefits from the commission of the offence;
(ii)subject to subsection (2), the person has committed a serious offence.
Note: The conviction for, or reasonable grounds for suspecting commission of, an indictable offence could be used as grounds for a restraining order under Part 2‑1 covering all or some of the person's property."
Proceeds jurisdiction
So far as presently relevant, s 335 of the POCA provides:
"Proceeds jurisdiction
(1)Whether a court has proceeds jurisdiction for an order depends on the circumstances of the offence or offences to which the order would relate.
(2)If all or part of the conduct constituting an offence to which the order would relate:
(a)occurred in a particular State or Territory; or
(b)is reasonably suspected of having occurred in that State or Territory;
the courts that have proceeds jurisdiction for the order are those with jurisdiction to deal with criminal matters on indictment in that State or Territory.
(3)If all of the conduct constituting an offence to which the order would relate:
(a)occurred outside Australia; or
(b)is reasonably suspected of having occurred outside Australia;
the courts that have proceeds jurisdiction for the order are those of any State or Territory with jurisdiction to deal with criminal matters on indictment."
When the restraining orders were made, Fysh had not been charged with any offence. The orders were made on the basis there were reasonable grounds to suspect he had committed certain insider trading offences "at Brisbane in the State of Queensland and elsewhere" contrary to ss 1311(1) and 1043A(1) of the Corporations Act (2001) (Cth).
Fysh's acquisition and disposition of shares in Arrow Energy NL ("Arrow") and his acquisition of shares in Queensland Gas Company Limited ("QGC") is at the heart of the proceeding. The submissions on jurisdiction focussed principally on the circumstances in which he acquired the QGC shares. I understood those submissions to relate mutatis mutandis to his acquisition and disposal of the Arrow shares.
The DPP's case is based on reasonable suspicion as to where conduct constituting the offences occurred. Its critical contention is that there is a reasonable suspicion Fysh engaged in conduct in Queensland in that he acquired/disposed of the shares only upon his name being entered on/removed from the companies’ share registers, which were in Queensland.
On 11 January 2010 counsel for Fysh submitted that all of the conduct constituting each offence occurred outside Australia.[1] But by 11 February 2010 it was common ground that at least some conduct occurred in New South Wales. Counsel for the DPP maintained the submission that some conduct had occurred in Queensland (or was reasonably suspected of having done so), and counsel for Fysh maintained his submission that none had occurred in this State.[2]
Thus, the DPP’s contention invokes subsection (2) of s 335 of the POCA, and its counsel have submitted that entry on the share register in Queensland was part of the conduct constituting the offence.
If this Court does have proceeds jurisdiction under the POCA, then Fysh seeks an order transferring the proceeding to the Supreme Court of New South Wales pursuant to s 5 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth). That section provides relevantly:
"Transfer of proceedings
(A)whether, in the opinion of the first court, apart from this Act and any law of a State relating to cross‑vesting of jurisdiction, the relevant proceeding or a substantial part of the relevant proceeding would have been incapable of being instituted in the first court and capable of being instituted in the Supreme Court of another State or Territory;
(B)the extent to which, in the opinion of the first court, the matters for determination in the relevant proceeding are matters arising under or involving questions as to the application, interpretation or validity of a law of the State or Territory referred to in sub-subparagraph (A) and not within the jurisdiction of the first court apart from this Act and any law of a State relating to cross‑vesting of jurisdiction; and
(9)Nothing in this section confers on a court jurisdiction that the court would not otherwise have." (Emphasis added)
The determination whether to transfer a proceeding to another court under cross-vesting legislation has been said to call for "a 'nuts and bolts' management decision as to which court, in the pursuit of the interests of justice, is the more appropriate to hear and determine the substantive dispute".[3]
Suspected insider trading offences
Section 1043A of the Corporations Act provides:
"1043AProhibited conduct by person in possession of inside information
(1)Subject to this Subdivision, if:
(a)a person (the insider) possesses inside information; and
(3)For the purposes of the application of the Criminal Code in relation to an offence based on subsection (1) or (2):
(a) paragraph (1)(a) is a physical element, the fault element for which is as specified in paragraph (1)(b)… "
Contravention of s 1043A is an offence.[4] Subject to the Corporations Act, Chapter 2 of the Criminal Code (Cth), which contains general principles of criminal responsibility, applies to the offence.[5]
The QGC and Arrow shares were “Division 3 financial products”.[6]
The application proceeded on the basis of reasonable suspicion that information had by Fysh when he acquired the Arrow shares, when he disposed of the Arrow shares, and when he acquired the QGC shares was "inside information" – that is:
"information in relation to which the following paragraphs are satisfied:
if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of particular Division 3 financial products".[7]
The shares were "relevant Division 3 financial products" because, in relation to the information held by Fysh, they were Division 3 financial products within paragraph (b) of that definition.[8]
Share trades on the ASX
Fysh instructed his broker, Mr Woodward of Goldman Sachs JB Were ("Woodward"), to conduct the transactions for him, communicating with the broker by email and telephone. The trades took place on the Australian Securities Exchange ("ASX") in Sydney.
On 14 June 2007 Fysh telephoned Woodward and instructed him to buy 100,000 Arrow shares at $2.85 per share. That day Woodward placed an appropriate order in his firm's computer system to allow them to buy the shares on the ASX. Later that day Woodward emailed Fysh to advise him that the additional shares had been bought at an average price of $2.8257 per share. That transaction settled on 19 June 2007.
On or about 18 June 2007 Woodward received an email from Fysh instructing him to buy a further 150,000 Arrow shares at up to $2.85 per share. That day Woodward placed an appropriate order in his firm's computer system to allow them to buy the shares on the ASX. About an hour later Woodward emailed Fysh advising him that the shares were trading at $2.91, that is, above his stated limit. In a subsequent telephone conversation Fysh instructed Woodward to amend the buy order to market price. Later that day he emailed Fysh to advise him that the additional shares had been bought for $3.06 per share. That transaction settled on 21 June 2007.
On 3 December 2007 Fysh telephoned Woodward and instructed him to sell his entire holding in Arrow and certain other shares and to use the proceeds to buy 240,000 QGC shares at $3.20 per share. That day Woodward placed appropriate orders in his firm's computer system to allow them to conduct the trading on the ASX. Later that day he emailed Fysh to advise him that the trades had been completed for him. The Arrow shares had been sold at an average price of $3.03 and the QGC shares had been bought at an average price of $3.1839. Those transactions settled on 6 December 2007.
On 4 December 2007 Woodward received an email from Fysh instructing him to buy a further 10,000 QGC shares at up to $3.25 per share. That day Woodward placed an appropriate order in his firm's computer system to allow them to buy the shares on the ASX. Later that day he emailed Fysh to advise him that the additional shares had been purchased for $3.25 per share. That transaction settled on 7 December 2007.
BG Group PLC ("BG") is an international gas company with business operations in 27 countries. At all material times Fysh was Executive Vice President and Managing Director for BG Africa, Middle East and Asia. In early/mid 2007 a development team within BG identified utilising coal seam gas to produce liquefied natural gas as a business opportunity. The leader of the team, Maxwell, had discussions with Fysh about the prospects of obtaining the resource in Australia, and four Australian companies (including Arrow and QGC) were identified as potential sources. Maxwell made a presentation of his group's strategic plan to the BG Group Executive Meeting on 12 June 2007 at which Fysh was present.
Fysh acquired 250,000 shares in Arrow in June 2007.
Allan James Scadden, an ASIC officer, has sworn:
"19. From the investigations I have made and from the information I have obtained as detailed in the preceding paragraphs, I believe that, at the time of purchasing the Arrow shares, Dr Fysh was in possession of the following information, namely that:
(i)The development team had presented to the GEC a strategic plan relating to a new business opportunity for BG with a company that had existing CSG interests in Australia;
(ii)The development team had identified the process of using CSG to produce LNG as a business opportunity for BG;
(iii)The GEC, of which Dr Fysh was a member, had shown interest in the concept;
(iv)Arrow and QGC conducted pure CSG businesses in Australia; and
(v)The development team had rated the ‘availablity/doabilty’ of Arrow as much higher than that of QGC.
20. I believe that at the time he purchased the Arrow shares, Dr Fysh knew the above information was not generally available. I believe from my extensive experience investigating matters relating to markets, that if the above information were generally available, it would have had a material effect on the price of Arrow shares."
Maxwell's team continued to investigate the business opportunities. By the beginning of October 2007 they had concluded that:
(i)Arrow had large acreage but not in the best CSG regions;
(ii)QGC had a very significant resource position in the best CSG regions;
(iii)Arrow’s resource was of lower quality causing a higher gas cost than with QGC;
(iv)QGC had successfully developed efficient extraction methods and techniques;
(v)Arrow’s ASX share price was trading at a premium to BG’s assessment of its worth;
(vi)QGC’s ASX share price was trading at a discount to BG’s assessment of its worth.[9]
Late that month representatives of the group met with Fysh, told him of their conclusions and received his advice on the further development of this business opportunity.
Negotiations between Maxwell's group and QGC ensued. On 27 November 2007 Maxwell had dinner with Fysh in Singapore and informed him that:
(a)there was a world class CSG resource in Queensland;
(b)Origin, Santos and QGC held the best acreage;
(c)Arrow’s holding was considered inferior;
(d)Maxwell was travelling to Australia the following week in relation to joint venture negotiations;
(e)negotiations were going very well with a company.[10]
Maxwell sent Fysh more information on 28 and 30 November and 2 December 2007.
Fysh disposed of his shares in Arrow in December 2007.
Mr Scadden has sworn:
"43. I believe that, at the time of disposing of the Arrow shares, Dr Fysh was in possession of the following information:
(a)BG had looked at Arrow as one of a number of potential companies with which to form a strategic alliance and BG had decided not to pursue a business opportunity with Arrow;
(b)Arrow’s shares were trading at a premium to BG’s assessment of their worth;
and I believe that Dr Fysh knew or ought reasonably to have known that if such information were generally available, a reasonable person would expect it to have a material effect on the price or value of Arrow shares. I believe from my extensive experience investigating matters relating to markets, that if the above information were generally available, it would have a material effect on the price of Arrow shares."
Fysh applied the proceeds towards the acquisition of shares in QGC.
"46. I believe that, at the time of acquiring the QGC shares, Dr Fysh was in receipt of the following information:
(a)It was highly likely that BG would enter into a significant arrangement with QGC;
(b)the size of the CSG reserves in Eastern Australia was significantly larger than was generally understood;
(c)QGC had an excellent position in these reserves; and
(d)QGC’s shares were trading at a discount to BG’s assessment of their worth;
and I believe that Dr Fysh knew or ought reasonably have known that if such information were generally available, a reasonable person would expect it to have a material effect on the price of the QGC shares."
On 4 February 2008 BG and QGC announced an AUD $ 870 million joint venture which included BG acquiring a 9.9% shareholding in QGC at $3.07 per share and a direct ownership interest of up to 30% of QGC's coal seam gas assets.
On 28 October 2008 BG announced an on-market takeover of QGC at $5.75 per share. On 19 November 2008 Fysh sold his QGC shares for $5.75 per share.
Transfers effected through prescribed CS facility
Section 1070A of the Corporations Act (which is in Chapter 7, Part 7.11 - Title and Transfer) provides:
"1070ANature of shares and certain other interests in a company or registered scheme
(1)A share, other interest of a member in a company or interest of a person in a registered scheme:
(i)the company's, or scheme's, constitution; or
(ii)the operating rules of a prescribed CS facility if they are applicable; and
(c)is capable of devolution by will or by operation of law.
... " (Emphasis Added)
Chapter 7 Part 7.11 Division 4 of the Corporations Act (ss 1074A – 1074G) deals with the transfer of certain financial products through a prescribed CS facility. The shares were "Division 4 financial products" to which that division of the Act and Chapter 7 Part 7.11 Division 4 of the Corporations Regulations 2001 (Cth) (regulations 7.11.23 – 7.11.39) applied.[11]
Under the relevant provisions of the Act, the operating rules of a prescribed CS facility may deal with the transfer of title,[12] and a transfer will be valid and effective if the operating rules are complied with.[13] Regulations may govern the transfer of financial products in accordance with the operating rules of a prescribed CS facility.[14] Section 1074G gives paramountcy to the relevant provisions of the regulations; it provides:
"(1)This section deals with the effect of the provisions of:
(2)The provisions apply in relation to a transfer of financial products despite anything to the contrary in:
(b) another law, or instrument, relating to the transfer of the financial products.
(3)Except as provided in the provisions, the provisions do not affect the terms and conditions on which financial products are sold.
(4) Nothing in the provisions (other than in regulations made for the purpose of paragraph 1074E(2)(e)) affects any right of the issuer of a financial product to refuse:
(a) to acknowledge or register a person as the holder of a financial product; or
(b) to issue a financial product to a person;
on a ground other than an objection to the form of document, or electronic message or other electronic communication, that is lodged with or sent to the issuer and purports to transfer the financial product to the person.
(5) The registration of a transfer, or the issue, of a financial product by means of a transfer effected in accordance with the operating rules of a prescribed CS facility does not breach any law, constitution, trust deed or other instrument relating to financial products.
(6) Nothing in the provisions (other than in regulations made for the purpose of paragraph 1074E(2)(d)) prevents or affects the use of:
(a) any other form of transfer of financial products; or
(b) any other mode of executing a document transferring financial products;
(7) A transfer of a financial product by or to a trustee or legal representative may be effected by means of a transfer in accordance with the operating rules of a prescribed CS facility despite any law or the provisions of the instrument (if any) creating, or having effect in relation to, the trust or will under which the trustee or legal representative is appointed.
‘legal representative’ means:
(b) the administrator of the estate of a dead person."
ASTC (ASX Settlement and Transfer Corporation Pty Ltd) is a subsidiary of the ASX. It is a "prescribed CS facility", ie a licensed clearing and settlement facility prescribed by the Corporations Regulations.[15] Its operating rules are known as the ASTC Settlement Rules.[16]
Corporations Regulations2001 (Cth)
The Corporations Regulations contain the following definitions of a "proper ASTC transfer" and an "ASTC-regulated transfer":
"proper ASTC transfer means:
(a) an ASTC‑regulated transfer of a Division 4 financial product effected:
(b)an ASTC‑regulated transfer that the ASTC, in accordance with its operating rules, determines:
(i)to comply substantially with the applicable provisions of those operating rules; and
(ii)to be taken to be, and always to have been, a proper ASTC transfer."
"ASTC-regulated transfer means a transfer of a Division 4 financial product:
(ii)regulations relating to transfer made for sections 1074A and 1074E of the Act; and
(c)that, according to the ASTC operating rules, is an ASTC‑ regulated transfer."[17]
Regulation 7.11.24 provides:
"7.11.24 Application of ASTC operating rules
If the ASTC operating rules include provisions determining:
when a proper ASTC transfer takes effect;
those provisions have effect for this Division."
Regulation 7.11.27 provides:
"7.11.27 Effect of proper ASTC transfer on transferee:
Division 4 financial products other than rights
(1) If a proper ASTC transfer of a Division 4 financial product (other than rights) takes effect at a particular time:
(a)the transferee is taken to have agreed at that time to accept the Division 4 financial product subject to the terms and conditions on which the transferor held them immediately before that time; and
(b)the terms and conditions are the terms and conditions applicable as between the issuer in relation to, and the holder for the time being of, the Division 4 financial product.
(2) If the Division 4 financial product is shares, the transferee is also taken to have agreed at that time:
(a)to become a member of the issuer; and
(b)to be bound by the issuer’s constitution.
(4)…"
Under regulation 7.11.36 a company may not refuse to register a proper ASTC transfer of a share.
CHESS is an acronym for Clearing House Electronic Subregister System, the computer system used by ASTC. Under the ASTC Settlement Rules CHESS has two major functions: (a) it facilitates the clearing and settlement of trades in shares; and (b) it provides an electronic subregister for shares in companies listed on the ASX.
Under the ASTC Settlement Rules transfers take effect when ASTC electronically deducts the financial products from the source holding pursuant to one of rr 9.4.3(a), 9.5.5(a) or 10.12.3 (whichever is applicable). Usually three days after a buyer and a seller agree to a trade, it is settled by the simultaneous transfer of the purchase moneys and the registration of the change in title on the CHESS subregister.
Company’s share register
Pursuant to s 168 of the Corporations Act a company must set up and maintain a register of members. The register must contain the information in s 169:
"169 Register of members
(b)the date on which the entry of the member’s name in the register is made.
Note 1: Transfers of shares are entered in the register under section 1092.
Section 1091C deals with the registration of trustees etc. on the death, incapacity or bankruptcy of the shareholder.
(a) all of the company’s shares were issued before 1 July 1998;
(6) In deciding for the purposes of subsection (5A) whether a member holds shares beneficially or non-beneficially, the company is to have regard only to information in notices given to the company under section 1072H, 672B or 672C.
(8)For the purposes of this section:
They may also be members of the company or scheme because of shares or interests that they hold, or a guarantee that they have given, in their own right or jointly with others."
Section 172 provides for the location of the register: so far as presently relevant, it must be kept at the company’s registered office[18] or at a place in this jurisdiction[19] (whether of the company or someone else) where the work involved in maintaining the register is performed.[20]
By s 1070A(4) a share entered on a register kept under s 169 is taken to be situated in the State or Territory where the register is kept.
The company must allow anyone to inspect the register. If the register is kept on computer, a person inspects a hard copy of the information.[21]
At all material times Arrow had its registered office at Level 19, AM60, 42-60 Albert Street, Brisbane, and QGC had its registered office at Level 11, 307 Queen Street, Brisbane. Link Market Services, which had offices at Level 12, 300 Queen Street, Brisbane, maintained share registries for the companies, recording all on-market and all off-market trades.
Under r 8.1 of the ASTC Settlement Rules ASTC may approve a company as an "Issuer" in relation to a "class of Financial Products" and may approve that class of Financial Products (i.e. Division 4 financial products as defined in the Corporations Regulations).[22] The present proceeding was conducted on the basis QGC and Arrow were Issuers, and the shares bought and sold by Fysh were an approved class of Financial Products within r 8.1.
Rule 5.2 provides:
"5.2 CHESS SUBREGISTER AND ISSUER OPERATED SUBREGISTER
5.2.1 CHESS Subregister
When ASTC gives approval to a class of an Issuer’s Financial Products under Rule 8.1, the Issuer:
(a)irrevocably authorises ASTC to establish and administer a CHESS Subregister in respect of that class of Financial Products; and
(b)acknowledges that ASTC acts as its agent in administering that CHESS Subregister in accordance with these Rules.
5.2.2Issuer Operated Subregister
Unless otherwise agreed between an Issuer and ASTC, in addition to a CHESS Subregister established in accordance with Rule 5.2.1, the Issuer must administer an Issuer Operated Subregister."
The two subregisters together constitute the company’s register of members for the purposes of the Corporations Act.
The CHESS Subregister is part of the company’s register which is maintained by ASTC as agent for the company.[23] ASTC must record and maintain on the CHESS Subregister the registration details and HIN (Holder Identification Number) of each person with a CHESS holding of a particular class of approved financial products and the number of those financial products he holds.[24]
The company is responsible for maintaining the Issuer Operated Subregister,[25] and for reconciling the two subregisters.[26]
The evidence does not deal expressly with the keeping of the Issuer Operated Subregisters of QGC and Arrow. I infer that they were maintained on behalf of the companies by Link Market Services.
By s 1300 of the Corporations Act the company’s (whole) share register must be available for inspection at the place where, in accordance with the Act, it is kept. This requirement is "subject to and in accordance with" the Act.
The information maintained by ASTC on the CHESS Subregister is stored at ASTC’s registered office, but the register is taken to be located at the "place of inspection" – ie where it is otherwise required to be kept. This is the effect of compliance with r 8.6.4 of the ASTC Settlement Rules and s 1301 of the Corporations Act, which provide:
"8.6.4Notice of location of stored information
As soon as a class of an Issuer’s Financial Products are Approved, the Issuer must:
(a)give notice to the Commission in accordance with Section 1301(1) of the Corporations Act specifying (subject to Rule 8.6.5) the registered office of ASTC as the situation of the place of storage of the information maintained by ASTC on a CHESS Sub-register;
(b)give a copy of that notice to ASTC; and
(c)give a copy of that notice to the exempt or special stock market or exempt financial market where the Issuer’s Financial Products are quoted."
"1301 Location of books on computers
(a) a corporation records, otherwise than in writing, matters (the stored matters) this Act requires to be contained in a book; and
(b) the record of the stored matters is kept at a place (the place of storage) other than the place (the place of inspection) where the book is, apart from this section, required to be kept; and
(A) except where sub-subparagraph (B) applies – the book; or
(B) if the stored matters are only some of the information that is required to be contained in the book—the book and matters that are of the same kind as the stored matters; and
(2)Subject to subsection (4), the corporation is taken to have complied with the requirements of this Act as to the location of the book, but only in so far as the book is required to contain the stored matters.
(3) Subject to subsection (4), for the purposes of the application of subsection 1085(3) and section 1300 in relation to the corporation and the book, the book is taken to be kept at the place of inspection, even though the record of the stored matters is kept at the place of storage.
this section, as it applies to the corporation because of the lodging of the notice referred to in paragraph (1)(d), ceases to so apply at the end of that period of 14 days."
For the purposes of s 1300, the company’s share register was taken to be kept at the offices of Link Market Services - "the place of inspection" referred to in s 1301. Thus, the whole share register had to be available for inspection (in hard copy) at Link Market Services in Brisbane.
Link Market Services had offices in Sydney, as well as Brisbane. As the company’s share register was computerised, presumably it could have provided a hard copy for inspection in Sydney, as well as in Brisbane. The implications of this were not fully explored in submissions.
By s 172 each company's share register was required to be kept at the place where the work involved in maintaining it was performed. There were two places: Sydney were ASTC maintained the CHESS Subregister and Brisbane where Link Market Services maintained the Issuer Operated Subregister. Link Market Services attended to reconciliation of the subregisters, and provided a place of inspection of the whole register.
Nicole Wren, an investigative officer in the Brisbane Office of ASIC has sworn:
"4. I am informed by Rachel Teo[27] and believe that:
the Register of Members for QGC held in accordance with section 169 of the Corporations Act 2001 ("the Principal Register") records all share trades whether they are conducted on market through Chess or off market;
electronic messages are sent from the Chess sub-register to the Principal Register on a daily basis and the Principal Register is updated to include any on market transactions;
the Chess sub-register does not record off-market transactions and is merely a record of on market transactions.
5. I am informed by Rachel Teo and believe that the Principal Register maintained by Link records the dates on which Dr Fysh became the registered holder of shares in AGC…"
Ms Teo's description of records maintained by Link Market Services cannot answer the question of whether the CHESS Subregister was part of the register kept under s 169 or something distinct from it.[28]
What took place in Queensland?
The application proceeded on the assumption that all that happened in Queensland was the (electronic) entry of the share transfers on the companies’ registers here.
There is no evidence where Fysh was when the Arrow shares were acquired. According to an affidavit sworn by his solicitor:
he was not in Australia between 27 November and 7 December 2007;
he lived in the United Kingdom during that period and remains resident there;
during that period he travelled between Singapore, Mumbai, Hyderabad and the United Kingdom;
he was at his home in the United Kingdom from the evening of Saturday 1 December 2007 to the end of that period;
the broker was located in Melbourne during that period.
The trades were conducted electronically on the ASX by Fysh’s broker, in accordance with his instructions. By s 52 of the Corporations Act:
"52Doing acts
A reference to doing an act or thing includes a reference to causing or authorising the act or thing to be done."
Fysh’s conduct in instructing the broker was a step taken in each of the share trades, and Fysh is responsible for the broker’s actions pursuant to those instructions.[29] There is no suggestion that the broker did other than follow his instructions: he is not alleged to have had any part in the suspected insider trading aspects of the transactions.
Prohibition on acquiring shares or disposingof shares
Section 1043A provides that a person in possession of inside information must not "acquire, or dispose of" or "enter into an agreement to… acquire, or dispose of" relevant shares. Neither "acquire" nor "dispose of" in this context is defined.
Section 761E(1)(a) provides that if a financial product is issued to a person, the person acquires the product from the issuer. But, as the note to the subsection explains, a financial product can also be acquired from someone other than the issuer (e.g. on secondary transfer), which is what occurred in the present case. Section 761E(7) provides that regulations may provide the meaning of "acquire" (and/or related parts of speech) in relation to a class of financial product for the purpose of chapter 7, but the Corporations Regulations do not define "acquire" in relation to shares for the purposes of chapter 7 of the Act.
The law draws a distinction between legal and equitable ownership. It is clear that equitable ownership of shares does not make a person a shareholder: entry on the share register is necessary to constitute membership of a company.[30]
The ordinary meaning of "acquire" includes to get or gain as one’s own. For example, the New Shorter Oxford English Dictionary on Historical Principles[31] defines "acquire" as including "to get or gain as one’s own, by one’s own exertions or qualities; to come into possession of".[32]
Pursuant to s 761A “dispose”, in relation to a financial product, includes “terminate or close out the legal relationship that constitutes the financial product”. That is not relevant to the sale of shares.
The ordinary meaning of "dispose of" includes to get rid of or part with. The definitions in the New Shorter Oxford English Dictionary, for example, include “get rid of; deal conclusively with”.
“Dispose of” and “disposition” have been widely construed by Courts as covering all forms of alienation, or as connoting a change in the beneficial ownership of an asset.[33]
Pursuant to the ASTC Settlement Rules the transfers took effect when ASTC electronically deducted the shares from the source holdings.[34] Fysh/the buyer of the Arrow shares he sold is taken to have thereupon agreed:
to accept the shares on the terms and conditions on which the seller held them; and
to become a member of the company and to be bound by its constitution.[35]
At that moment, equitable title to the shares was acquired. Three days later, the purchase moneys were transferred simultaneously with the change in ownership of the shares being recorded on the CHESS Subregister in Sydney. Subsequently an electronic message was sent by ASTC to Link Market Services in Brisbane, which updated the "principal register".
If I am correct in holding that the CHESS Subregister was part of the company’s register required to be kept under ss 168 and 169 of the Act, then Fysh acquired/disposed of legal title to the shares upon the transfers being recorded on that subregister.
I am not persuaded that it is necessary to establish a transfer of legal title to shares in order to establish that those shares were acquired or disposed of within the meaning of s 1043A. The section is expressed in terms of acquiring/disposing of shares or agreeing to do so, rather than in terms of becoming/ceasing to be a shareholder or agreeing to do so. This seems a deliberate choice of words, wide enough to embrace conduct which is part of a sophisticated scheme whereby someone with inside information takes the benefit of share trading without ever becoming registered as the holder of shares.
In my view Fysh acquired/disposed of the shares within the meaning of s 1043A when the transfers took effect according to the ASTC Settlement Rules. That occurred in Sydney.
If I am wrong in that, and he acquired/disposed of them only when his name/the name of the buyer of the Arrow shares was entered on the companies’ share registers, that occurred on entry on the CHESS Subregisters in Sydney.
Conduct constituting an offence – POCA s 335
Under s 335 of POCA "proceeds jurisdiction" depends on where "all or part of the conduct constituting an offence" took place. "Conduct" is not defined in that legislation.
Criminal offences usually contain physical elements (actus reus) and fault elements (mens rea) which must concur. This analytical division is reflected in chapter 2 of the Criminal Code Act 1995 (Cth).[36] Section 3.1 of the Code provides:
"3.1 Elements
(1)An offence consists of physical elements and fault elements.
(2)However, the law that creates the offence may provide that there is no fault element for one or more physical elements.
(3)The law that creates the offence may provide different fault elements for different physical elements."
Physical elements are defined in s 4.1:
"4.1 Physical elements
(1)A physical element of an offence may be:
(a)conduct; or
(b)a result of conduct; or
(c)a circumstance in which conduct, or a result of conduct, occurs.
(2)In this Code:
conduct means an act, an omission to perform an act or a state of affairs[37]
(b)omit to perform an act." (Emphasis Added)
By s 5.1 the fault element for a particular physical element may be intention, knowledge, recklessness or negligence.
Counsel for the DPP submitted:
that the share transfers were not registered until they were entered on the register in Queensland; and
that Fysh, by his acts, created a state of affairs in this State – namely, the registration of the share transfers.
I have already stated my reasons for rejecting the first proposition. I reject the second proposition, too. Section 4.2(1) provides that conduct "can only be a physical element if it is voluntary" and s 4.2(5) provides that a "state of affairs is only voluntary if it is one over which the person is capable of exercising control". Entry on the share registers in Queensland was something beyond Fysh’s control once the transfers had taken effect under the ASTC Settlement Rules.
Counsel for Fysh submitted:
that at most the conduct constituting the offence was that of Fysh himself and the broker; and
that what was done subsequently in registering the transfers:
was not done by either of them, and
was the result of their conduct.
He submitted that "conduct" in the POCA does not have the same meaning as in the Criminal Code – in particular, that it does not include a state of affairs. Under s 15AA of the Acts Interpretation Act 1901 (Cth) the purposive approach to statutory interpretation is to be preferred. I agree with him that the object of s 335 is to ensure that confiscation proceedings take place in a court local to where things allegedly constituting the offence occurred (a reflection of the policy that crimes should where possible be dealt with locally). He submitted further that the absence of a definition of "conduct" in the dictionary in s 11 of POCA, is inconsistent with an intention to import a definition from the Code. Finally he sought to invoke the principle that in construing a provision interfering with property rights any ambiguity should be resolved in favour of the party whose rights are diminished.
Having rejected counsel for the DPP’s submission that Fysh created a state of affairs in Queensland, I do not find it necessary to determine whether "conduct" has the same meaning in the POCA and the Criminal Code. There was no conduct of either Fysh or his broker in Queensland.
Therefore, I conclude that none of the conduct constituting the offences occurred in Queensland. Accordingly this Court does not have proceeds jurisdiction under the POCA.
Cross-vesting application
If, contrary to my conclusion, this Court does have proceeds jurisdiction, it is necessary to consider the application to transfer the proceeding to the Supreme Court of New South Wales.
The applicable provision of the Jurisdiction of Courts (Cross-vesting) Act (Cth) is s 5(2)(b)(iii). The Supreme Court of Queensland must transfer the proceeding to the Supreme Court of New South Wales if it is "in the interests of justice" that it be determined there.
As I have said, this calls for a 'nuts and bolts' management decision as to which court is the more appropriate to hear and determine the dispute.[38] In my view the relevant considerations are as follows.
In the substantive application, neither the applicant (the Commonwealth DPP) nor the respondent (Fysh) has a closer tie with one of these jurisdictions rather than the other. The applicant is a statutory authority with offices in both Brisbane and Sydney. Fysh is resident in the United Kingdom.
The broker retained by Fysh was located in Melbourne. He caused the transactions to be conducted electronically on the ASX in Sydney.
The companies had their registered offices in Queensland.
After the share transfers were recorded on the CHESS subregisters in Sydney, information was transmitted electronically to Link Market Services in Brisbane.
Before the substantive application was filed, ASIC conducted litigation against Fysh in the Supreme Court of New South Wales arising out of the same alleged insider trading. Fysh engaged Sydney solicitors and senior and junior counsel from the Sydney Bar to defend that litigation. Those lawyers invested much time in familiarising themselves with the facts and applicable law, and Fysh incurred considerable expense thereby. Those Sydney solicitors have acted for him in this proceeding in the Supreme Court of Queensland, and he wishes to have the same Sydney counsel represent him on the substantive application. Accordingly his legal expenses are likely to be higher if the substantive proceeding is conducted in Brisbane rather than in Sydney.
While ASIC is a quite distinct statutory authority from the DPP, the DPP relies on investigations undertaken by Mr Scadden, an ASIC officer based in Sydney.
Mr Scadden referred to about ten potential witnesses apart from Fysh, the broker and himself. There is no evidence of the locations of most of them. In oral submissions counsel for the DPP identified four of them as being Brisbane based, the majority overseas, and one in Sydney.
What took place in Queensland is within a very short compass, and proof of it is unlikely to be a protracted or costly aspect of the case. In most cases the location of the legal representatives selected by a litigant will have little, if any, bearing on which is the more appropriate Court to hear and determine a matter. But Fysh's reasons for retaining Sydney solicitors and counsel are objectively reasonable. Other factors seem to be evenly balanced, if not weighted in favour of Sydney. There is nothing to suggest that the DPP would be disadvantaged by the substantive dispute being litigated in Sydney: indeed litigating in Sydney may result in some logistic advantages for it.
In all the circumstances I think the Supreme Court of New South Wales would be the more appropriate court for the hearing and determination of the substantive application, and that it would be in the interests of justice to transfer the proceeding to that court.
I will hear counsel on the form of orders.
[1]Transcript of Proceedings on 11 January 2010 at 1-4, 1-10 – 1-11, 1-12.
[2]Transcript of Proceedings on 11 February 2010 at 1-11, 1-13, 1-14, 1-24 – 1-25; Director of Public Prosecutions’ Supplementary Submissions (Court Document 15) at [10], Director of Public Prosecutions’ Further Supplementary Submissions (Court Document 16) at [16]; Outline of Argument on Behalf of Dr Fysh (Court Document 17) at [18]; Further Submissions on Behalf of Dr Fysh (Court Document 19) at [9], [10] – [12].
[3] Bankinvest AG v Seabrook (1988) 14 NSWLR 711 at 713-714; approved in BHP Billiton Ltd v Schulz (2004) 221 CLR 400 at 420-421.
[4] Corporations Act s 1311.
[5] Corporations Act s 1308A.
[6] Corporations Act ss 1042A, 761A.
[7] Corporations Act s 1042A.
[8] Corporations Act s 1042A.
[9] Affidavit of Allan James Scadden sworn on 4 December 2009 at [27].
[10] Affidavit of Allan James Scadden sworn on 4 December 2009 at [36].
[11] Corporations Act s 1074A; Corporations Regulations reg’ns 7.11.03(1), 1.0.02(1).
[12] Corporations Act s 1074C.
[13] Corporations Act s 1074D.
[14] Corporations Act s 1074E.
[15] Corporations Act ss 761A, 768A; Corporations Regulations reg’n 7.1.03.
[16] For the content of operating rules and their effect as a contract under seal between licensees, issuers of financial products and participants in the facility, see Corporations Act ss 822A, 822B.
[17] Corporations Regulations reg’n 1.0.02.
[18] By s 142(1) of the Corporations Act, a company must have a registered office in this jurisdiction.
[19] See the definition of “this jurisdiction” in Corporations Act s 9: in effect, the Australian States and Territories.
[20] Corporations Act s 172(1) (a) and (c).
[21] Corporations Act s 173.
[22] ASTC Settlement Rules r 2.13.1; Corporations Regulations reg’n 7.11.03.
[23]ASTC Settlement Rules rr 2.13.1, 8.6.1.
[24] ASTC Settlement Rules r 8.6.2.
[25] also referred to as the “Issuer Sponsored Subregister”: ASTC Settlement Rules r 2.13.1.
[26] ASTC Settlement Rules r 5.13.1.
[27] Client Relationship Manager, Client Relationship Group employed by Link Market Services.
[28] I note that the only reference to the "principal register" in the Act is in s 178, which is concerned with the keeping of an overseas branch register - which must be kept "in the same manner as this Act requires the company to keep the register kept under s 169 (the principal register)". That does not throw any light on the status of the CHESS Subregister.
[29] Corporations Act s 769B.
[30] Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104 at 117; Avon Downs Pty Ltd v FCT (1949) 78 CLR 353 at 363; Dalgety Downs Pastoral Co Pty Ltd v FCT (Cth) (1952) 86 CLR 335 at 342; Franklin's Selfserve Pty Ltd v FCT (1970) 125 CLR 52 at 71; Kingston v Keprose Pty Ltd (1987) 12 ACLR 323 at 329; AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2007] QSC 238 at [55]-[66].
[31] Oxford: Clarendon Press, 1993.
[32] See also Trade Practices Commission v Australian Iron & Steel Pty Limited (1990) 22 FCR 305 at 314 – 315 per Lockhart J (where the legislation in question provided that a reference to the acquisition of shares should be construed as a reference “to an acquisition, whether alone or jointly with another person, of any legal or equitable interest in such shares”); and Allina Pty Ltd v Commissioner of Taxation (1991) 28 FCR 203 at 209 – 211.
[33] See, for example, Rose v FCT (1951) 84 CLR 118 at 123; FCT v Wade (1951) 84 CLR 105 at 110; Re Margart Pty Ltd (in liq); Hamilton v Westpac Banking Corporation (1984) 9 ACLR 269 at 272; Roache v Mercantile Loan & Finance Co Ltd (No 2) [1968] 1 NSWR 384 at 388.
[34] Infra para [45].
[35] Corporations Regulations reg’n 7.11.27.
[36] See the discussion in Watson & Watson, Australian Criminal Law: Federal Offences: Sydney: Law Book, 1995 at [10.720]-[10.820].
[37] See Watson & Watson, Australian Criminal Law: Federal Offences: Sydney: Law Book, 1995 at [10.980].
[38] Infra para 15.