R v Morrissey ; R v Staines
| Jurisdiction | England & Wales |
| Judge | THE LORD CHIEF JUSTICE |
| Judgment Date | 24 April 1997 |
| Judgment citation (vLex) | [1997] EWCA Crim J0424-3 |
| Docket Number | No. 94/1052/Z2 |
| Court | Court of Appeal (Criminal Division) |
| Date | 24 April 1997 |
[1997] EWCA Crim J0424-3
The Lord Chief Justice of England
(Lord Bingham of Cornhill)
Mr Justice Latham
and
Mr Justice Poole
No. 94/1052/Z2
94/1053/Z2
IN THE COURT OF APPEAL CRIMINAL DIVISION
Royal Courts of Justice
The Strand
London WC2
MR DAVID GIBSON-LEE appeared on behalf of THE APPELLANT STAINES
MR STEPHEN BATTEN QC and MR ALEXANDER CAMERON appeared on behalf of
THE APPELLANT MORRISEY
MR PETER CLARKE QC and MR JAMES EADIE appeared on behalf of THE CROWN
Thursday 24 April 1997
On 17 January 1994, in the Crown Court at Inner London, before Judge Selwood and a jury, the appellants were convicted of counselling or procuring another to deal in securities while being a prohibited person. So far as the appellant Mrs Staines is concerned, that was count 5 of the indictment, and so far as the appellant Mr Morrisey is concerned, count 2. They were each fined. No verdicts were taken on certain other counts against them on the indictment. At the conclusion of the prosecution case in the course of the trial on 12 January 1994, a submission was made on behalf of each of the appellants that there was no case against them fit for consideration by the jury. The trial judge rejected that submission for reasons which he gave, and the trial accordingly proceeded. Mr Morrisey gave evidence; Mrs Staines did not.
Since the conviction there has been considerable delay in determination of the appeal. That is because the hearing has been held up awaiting the decision of the European Court of Human Rights in Saunders v United Kingdom (1997) 23 EHRR 313. That case was decided by a majority in favour of the applicant on 17 December 1996. Both appellants now challenge their convictions by leave of the single judge.
Section 1(7) of the Company Securities (Insider Dealing) Act 1985 , under which the appellants were convicted, provides:
"Subject to section 3, an individual who is for the time being prohibited by any provision of this section from dealing on a recognised stock exchange in any securities shall not counsel or procure any other person to deal in those securities, knowing or having reasonable cause to believe that that person would deal in them on a recognised stock exchange."
The meaning of that provision is not self-evident until one refers to parts of the rest of the section. The relevant parts for present purposes are these:
"(1) Subject to section 3, an individual who is, or at any time in the preceding 6 months has been, knowingly connected with a company shall not deal on a recognised stock exchange in securities of that company if he has information which—
(a) he holds by virtue of being connected with the company,
(b) it would be reasonable to expect a person so connected, and in the position by virtue of which he is so connected, not to disclose except for the proper performance of the functions attaching to that position, and
(c) he knows is unpublished price sensitive information in relation to those securities.
(2) Subject to section 3, an individual who is, or at any time in the preceding 6 months has been, knowingly concerned with a company shall not deal on a recognised stock exchange in securities of any other company if he has information which—
(a) he holds by virtue of being connected with the first company,
(b) it would be reasonable to expect a person so connected, and in the position by virtue of which he is so connected, not to disclose except for the proper performance of the functions attaching to that position,
(c) he knows is unpublished price sensitive information in relation to those securities of that other company, and
(d) relates to any transaction (actual or contemplated) involving both the first company and that other company, or involving one of them and securities of the other, or to the fact that any such transaction is no longer contemplated.
(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.
(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, and
(b) shall not himself deal on a recognised stock exchange in securities of any other company if he knows that the information is unpublished price sensitive information in relation to those securities and it relates to any transaction (actual or contemplated) involving the first company and the other company, or involving one of them and securities of the other, or to the fact that any such transaction is no longer contemplated.
….
(8) Subject to section 3, an individual who is for the time being prohibited as above mentioned from dealing on a recognised stock exchange in any securities by reason of his having any information, shall not communicate that information to any other person if he knows or has reasonable cause to believe that that or some other person will make use of the information for the purpose of dealing, or of counselling or procuring any other person to deal, on a recognised stock exchange in those securities."
Section 3 is irrelevant for present purposes. Reference should, however, be made to section 9 which defines the expression "Connected with a company". It reads:
"For purposes of this Act, an individual is connected with a company if, but only if—
(a) he is a director of that company or a related company, or
(b) he occupies a position as an officer (other than a director) or employee of that company or a related company or a position involving a professional or business relationship between himself (or his employer or a company of which he is a director) and the first company or related company which in either case may reasonably be expected to give him access to information which, in relation to securities of either company, is unpublished price sensitive information, and which it would be reasonable to expect a person in his position not to disclose except for the proper performance of his functions."
Lastly, reference should be made to section 10 which defines "Unpublished price sensitive information". It reads:
"Any reference in this Act to unpublished price sensitive information in relation to any securities of a company is a reference to information which—
(a) relates to specific matters relating or of concern (directly or indirectly) to that company, that is to say, is not of a general nature relating or of concern to that company, and
(b) is not generally known to those persons who are accustomed or would be likely to deal in those securities but which would if it were generally known to them be likely materially to affect the price of those securities."
The meaning of these provisions is very far from obvious. The court has profound sympathy with judges who have the task of directing juries on them. Nonetheless, the underlying rationale of the Act is clear. It is a familiar, if not a necessary, feature of capitalist society that there should be a market in publicly quoted securities which permits members of the public, whether corporate or individual, to buy and sell. The integrity of the market depends on equality of knowledge, since fair operation of the market is jeopardised if those who are "in the know" (often called "market insiders") can exploit information for their personal advantage which they have obtained in the course of their professional activities when such information is unavailable to others. It is, for example, obviously unfair if an officer of a company or a professional adviser, who obtains information that the prospects of a company are poor, is enabled to sell securities he owns in the company so as to avoid loss which other shareholders will sustain. Conversely, it is unfair if an officer of a company or a professional adviser obtains information that the market price in securities of a company is likely to rise and is so enabled to buy in order that he may personally profit from an increase in the market price. A paradigm example of the latter situation occurs where Company A proposes to make an offer for the share capital of Company B, particularly if the shareholders in Company B are expected to decline the offer. A hostile takeover bid may then be likely to ensue, with the predictable effect of driving upwards the market price of the shares in Company B. That is an obvious advantage to the shareholders in Company B and gives an opportunity to profit by buying or increasing the holding of shares in Company B. Anyone who is in a position to anticipate the upward movement of shares in Company B by buying or increasing a holding of shares in Company B before news of the impending offer becomes known to the general public, may expect to make a personal profit which may be significant. That is what is meant by insider dealing, which distorts the orderly and fair operation of the market. That is the mischief which the 1985 Act is intended to counteract. It is for that reason that those connected with companies are...
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