Attorney-General's Reference (No. 1 of 1989)

JurisdictionEngland & Wales
JudgeTHE LORD CHIEF JUSTICE
Judgment Date31 July 1989
Neutral Citation[1989] EWCA Crim J0731-20,[1988] EWCA Crim J1018-39,[1989] EWCA Crim J0731-19
Judgment citation (vLex)[1989] EWCA Crim J0731-11
Docket NumberNo. 3249/R/89
CourtCourt of Appeal (Criminal Division)
Date31 July 1989

[1988] EWCA Crim J1018-39

IN THE COURT OF APPEAL

CRIMINAL DIVISION

Royal Courts of Justice

Before:

The Lord Chief Justice of England (Lord Lane)

Mr. Justice Hutchison

and

Mr. Justice Tucker

Attorney General's Reference No. 1 of 1988 Under Section 36 of the Criminal Justice Act 1972

THE HONOURABLE THE ATTORNEY GENERAL, MR. N. PURNELL, Q.C. and MR. T. NASH appeared on behalf of the Attorney General.

MR. R. FERGUSON, Q.C. and MR. A. WHITE appeared on behalf of the Respondent.

THE LORD CHIEF JUSTICE
1

On 11th April 1988 the respondent appeared at Southwark Crown Court and pleaded not guilty to two offences of dealing in the securities of a company as a prohibited person, contrary to section 1(3) and section 1(4)(a) of the Company Securities (Insider Dealing) Act 1985 ("The Act").

2

The material facts were as follows. In the autumn of 1985 the respondent held himself out as a possible purchaser of Company A. He was put in touch with Miss M., an employee of the company's Merchant Bankers. He asked her to provide him with financial information about the company. In the event the type of information envisaged did not reach the respondent until after the date of the offences alleged.

3

On the morning of 5th December 1985 the Chairman of the company agreed with representatives of Company B for their take-over of Company A. The Merchant Bank took no part in the negotiation of this agreement.

4

Miss M., on hearing of the agreed take-over and with the Chairman's blessing, informed the respondent of the agreement and that an announcement would be made shortly. She told the respondent that the information she was imparting to him was sensitive and highly confidential and that as a result of what she was saying to him he would be an "insider". Ten minutes later the respondent telephoned to his stockbroker and placed an order for 10,000 shares in Company A. In the event he actually purchased two blocks of shares, 5,000 shares at one price and 1,000 shares at another price.

5

The next day a public announcement of the take-over was made. The share price rose quickly and five weeks later he sold his two blocks of shares at a handsome profit.

6

The prosecution conceded that the respondent had taken no step directly or indirectly to secure, procure or acquire the information given to him by Miss M. Whether that concession was wisely made it is not our task to enquire.

7

The two counts in the indictment reflected the purchase by the respondent of the two blocks of shares and charged him in the following terms: "For that he on or about the 5th December 1985, having information which he knowingly obtained from [Miss M] who was connected with the company and whom he knew or had reasonable cause to believe held the information by virtue of being so connected, and

8

"Knowing or having reasonable cause to believe that because of the said [Miss M's] connection and position it would be reasonable to expect her not to disclose that information except for the proper performance of the functions attaching to that position, and

9

"Knowing that the information was unpublished price sensitive information in relation to the securities of [the company] purchased 5,000 (1,000) ordinary shares in [the company] on a recognised stock exchange, namely the Stock Exchange."

10

The wording of that indictment followed the wording of the material sections in the Act, which provide as follows:

11

Section 1(3): "The next subsection applies where – (a) an individual has information which he knowingly obtained (directly or indirectly) from another individual who – (i) is connected with a particular company, or was at any time in the 6 months preceding the obtaining of the information so connected, and (ii) the former individual knows or has reasonable cause to believe held the information by virtue of being so connected, and (b) the former individual knows or has reasonable cause to believe that, because of the latter's connection and position, it would be reasonable to expect him not to disclose the information except for the proper performance of the functions attaching to that position."

12

Section 1(4): "Subject to section 3, the former individual in that case – (a) shall not himself deal on a recognised stock exchange in securities of that company if he knows that the information is unpublished price sensitive information in relation to those securities ….".

13

Section 3(1)(a) exempts a person acting otherwise than with a view to making a profit or the avoidance of a loss. Section 3(1)(b) exempts an individual entering into a transaction in good faith as a liquidator, receiver or trustee in bankruptcy. Section 3(1)(c) exempts an individual acting in the course of a business of a jobber if the information was obtained by him in that capacity. Section 174 of the Financial Services Act 1986 provides a further exception in relation to market-makers.

14

Counsel for the respondent at the close of the prosecution case submitted, inter alia, that there was no evidence that the respondent "obtained" information from the connected individual (i.e. Miss M); that he merely received it; that the prohibition contained in section 1(4) of the Act did not therefore operate against the respondent since the proper construction of the word "obtained" in section 1(3) of the Act connoted active conduct on the part of the respondent.

15

The learned trial Judge upheld the respondent's submissions and in the light of the concession made by the prosecution had no option but to direct the respondent's acquittal, which he did.

16

The Attorney General now refers the following points of law Co this Court for our consideration:

17

"(a) Whether or not the word 'obtained' in section 1(3) of the Company Securities (Insider Dealing) Act 1985 has the restricted meaning of 'acquired by purpose and effort' or whether it has a wider meaning.

18

"(b) Whether or not any individual who has, from another, information within the scope of the Act and is otherwise within the scope of the prohibitions contained in sections 1(4), 1(6) and 2 of the Act, may be an individual who has 'obtained' within the terms of sections 1(3), 1(6) and 2 of the Act."

19

The first task in these circumstances is to discover the ordinary meaning of the word "obtained". As Lord Diplock observed in Black-Clawson Ltd. v. Papierwerke A.G. (1975) A. C. 591 at page 638, "…. the court must give effect to what the words of the statute would be reasonably understood to mean by those whose conduct it regulates."

20

There are, it is clear from the lexicographers and one's own experience, two such meanings. The definition in the Shorter Oxford English Dictionary is, "to procure or gain, as the result of purpose and effort; hence, generally, to acquire, get". Webster's New International Dictionary is not dissimilar: "to get hold of by effort; to gain possession of, to procure, to acquire, in any way". Thus the word is capable of supporting the contention of either party; that of the Attorney General, who argues that it means to "acquire in any way", and that of the respondent that it means to "procure as the result of purpose or effort".

21

The Attorney General, to support his submission that it is the latter, broader, meaning which the draftsman was intending to adopt, draws our attention to the scheme of the Act. This shows that potential offenders are divided into classes. The first target of section 1 is the primary insider. Broadly speaking, subject to the defences in section 3, any individual who is or at any time in the preceding 6 months has been knowingly connected with a company may not deal on a recognised stock exchange in securities of that company if he is in possession of inside information as defined in the section. It is not necessary for the prosecution to establish that the inside information was actually used by the person in reaching his decision to deal.

22

The other class is the secondary insider. It was to this class that the respondent was alleged to have belonged. As already indicated, to succeed against such a defendant, the prosecution must prove that he had information which he knowingly obtained directly or indirectly from another individual who was connected with a particular company, or who was so connected at any time during the preceding six months, who the defendant knew or had reasonable cause to believe, held the information by virtue of being so connected; that the information was, in short, confidential and that it was price sensitive. As with the primary insider, the offence is committed when he deals in the securities of that company.

23

Thus in the case of each type of insider, the offence is not one of using information but of dealing in the securities whilst being in possession of the relevant information.

24

The Attorney General submits that, looking at the Act as a whole, as one is entitled to do in construing the relevant word, one should conclude that the vice aimed at is the exploitation of an unfairly privileged advantage gained from a particular source. If so, why, he asked rhetorically, should the unsoliciting "tippe" (to adopt the inelegant but convenient expression used by the editors of Gore-Browne on Companies), be any less culpable than the person who has deliberately sought out the information? The vice lies in the way the information is used, not in the method of its receipt.

25

Moreover, picking up the words of Lord Diplock already cited and making the not unreasonable assumption that the editors of Gore-Browne on Companies are comparable to those whose conduct the Act regulates, it is clear from paragraph 12.21 of that publication that they assume that the broader interpretation of the word...

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