High Court · Decided 27 July 2012

Madhavan Peter v Public Prosecutor and other appeals

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[2012] SGHC 153Case no. Magistrate's Appeals Nos 1, 10 and 13 of 2011

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Chan Sek Keong CJ:
Introduction
[1] These are appeals by Madhavan Peter (“Madhavan”), Chong Keng Ban @ Johnson Chong (“Chong”) and Ong Seow Yong (“Ong”) against their convictions by the district judge (“the DJ”) for certain offences under the Securities and Futures Act (Cap 289, 2002 Rev Ed) (“the SFA”) in connection with the affairs of Airocean Group Limited (“Airocean”), a company which was previously listed on the main board of the Singapore Exchange (“SGX”) and of which the appellants (collectively, “the Appellants”) were directors at all material times (see Public Prosecutor v Chong Keng Ban @ Johnson Chong, Peter Madhavan, Ong Seow Yong [2011] SGDC 97 (“the Judgment”)).
[2] The Appellants were each convicted of the following charge:
[3] I shall hereafter refer to the charges against the Appellants under s 199(c)(ii) read with s 331(1) of the SFA as “the Misleading Disclosure Charges”, and to the announcement mentioned in the Misleading Disclosure Charges as “the 25/11/05 Announcement”.
[4] Two of the Appellants, Chong and Madhavan, were also each convicted of the following charge:
[5] I shall hereafter refer to the charges against Chong and Madhavan under s 203(2) read with s 331(1) of the SFA as “the Non-disclosure Charges”, and to the information described in the italicised words in the quotation above as “the Information”.
[6] One of the Appellants, Chong, was also convicted of three charges of insider trading of shares in Airocean which he had carried out on three occasions. Save for differences in the dates of the trades and the quantities of shares sold, each charge was as follows:
[7] I shall hereafter refer to the charges against Chong under s 218(2)(a) of the SFA as “the Insider Trading Charges”. As the information referred to in these charges is the same as the information referred to in the Non-disclosure Charges (ie, the Information as defined at [5] above), I shall likewise use the term “the Information” when discussing the Insider Trading Charges.
Background facts
[8] Airocean was the holding company of a group of air cargo logistics companies that provided services in freight forwarding, airline general sales agency as well as air terminal ground cargo handling. The operating subsidiaries involved in these proceedings were Airlines GSA Holdings Pte Ltd (“Airlines GSA”) and WICE Logistics Pte Ltd (“WICE Logistics”) (collectively, “the Subsidiaries”). The following were Airocean’s directors at the material time:
(a) Thomas Tay Nguen Cheong (“Tay”), an executive director and Chief Executive Officer (“CEO”) of Airocean;
(b) Madhavan, an independent director, who is the appellant in Magistrate’s Appeal No 1 of 2011 (“MA 1/2011”);
(c) Chong, an executive director and Chief Operating Officer (“COO”) of Airocean, who is the appellant in Magistrate’s Appeal No 10 of 2011 (“MA 10/2011”);
(d) Ong, an independent director, who is the appellant in Magistrate’s Appeal No 13 of 2011 (“MA 13/2011”);
(e) Ong Chow Hong (“Ong CH”), an independent director, who was also the non-executive chairman of Airocean’s board of directors; and
(f) Dunn Shio Chau Paul (“Dunn”), a director who was based in Hong Kong and the United States.
[9] On 6 September 2005, Tay and three officers of the Subsidiaries (namely, Ray Teo, Senior Vice-President of Airlines GSA; Bob Lee, Director of Airfreight and Logistics of WICE Logistics; and Simon Ang Teck Choon (“Simon Ang”), Regional Manager of Airlines GSA) were questioned by the Corrupt Practices Investigation Bureau (“CPIB”) in connection with suspected corruption in the air cargo handling industry. Tay was asked:
(a) whether he had given any gratification to one Chooi Yee Cheong (“Chooi”) of Jetstar Asia Airways Pte Ltd (“Jetstar”) to procure the appointment of Airlines GSA as Jetstar’s cargo agent; and
(b) whether he had given any gratification to one Edward Goh of Lufthansa Technik Logistik Pte Ltd (“Lufthansa”) in exchange for introducing Lufthansa’s business to WICE Logistics.
[10] Tay admitted to CPIB that he had previously instructed Simon Ang to inform Chooi that “if he [Chooi] would help us, in the future if he needed help, we would help him”. While at the premises of CPIB, Tay instructed Mak Oi Leng Sharelyn (“Sharelyn”), Director of Human Resource and Administration of Airocean, to surface the following documents as requested by CPIB:
(a) Airlines GSA’s business proposal to Jetstar;
(b) WICE Logistics’ quotations to Lufthansa;
(c) WICE Logistics’ cheque payment vouchers; and
(d) Tay’s bank statements from January to August 2005.
[11] On the same day (viz, 6 September 2005), CPIB officers accompanied Tay to Airocean’s office, where they conducted a search and seized the aforesaid documents.
[12] Also on the same day, Sharelyn informed Chong of the CPIB investigations (“the CPIB Investigations”) and Chong thereupon apprised Madhavan of what had happened. Tay was then still at CPIB’s premises. Chong telephoned Madhavan and informed him that Tay’s wife was concerned and had asked him what she should do. Madhavan suggested that Tay’s wife should seek advice from Mr Sant Singh, a lawyer.
[13] Chong attempted to convene a meeting of Airocean’s board of directors on 7 September 2005, but there was no quorum. Nevertheless, the directors present decided that Airocean should seek legal advice on whether it had to disclose to SGX that its officers were involved in the CPIB Investigations. Madhavan suggested that Airocean seek legal advice from Mr Chelva Rajah SC (“Mr Rajah”) of Tan Rajah & Cheah (“TRC”). Later that evening, Chong, Madhavan and Doris Koh Bee Leng (“Doris Koh”), Airocean’s Director of Finance, met up with Mr Rajah to seek his advice. Mr Rajah informed them that before he could give his opinion on the issue, he would have to speak to Tay and the officers of the Subsidiaries who had been questioned by CPIB. His partner, Mr Imran Hamid Khwaja (“Imran”), was assigned to do this task. Imran was assisted by another lawyer from TRC, Mr Eusuff Ali s/o N B M Mohamed Kassim (“Eusuff”).
[14] On 7 September 2005, at around 9.30pm, Tay was placed under arrest pursuant to s 6(b) of the Prevention of Corruption Act (Cap 241, 1993 Rev Ed) and released on bail. His passport was impounded. That same night, Chong and Madhavan met Tay at his house. At the trial, Chong and Madhavan disputed the Prosecution’s version of what Tay allegedly told them that night. They also claimed that they did not read Tay’s bail bond that night. However, the DJ found that Chong and Madhavan were shown the bail bond while they were at Tay’s house on 7 September 2005 and did read the contents of the bail bond.
[15] On 8 September 2005, Chong chaired a meeting of Airocean’s board, which was attended by all the directors except Dunn, to review the events concerning the CPIB Investigations (“the 8/9/05 Board Meeting”). The minutes of the 8/9/05 Board Meeting (“the 8/9/05 Board Minutes”) recorded, inter alia, that Madhavan informed the directors that he had spoken to Tay’s counsel, whose view was that in “the worst-case scenario”, Tay might be exposed to a charge of offering a gratification to Chooi. Madhavan, however, expressed the view that the Public Prosecutor could not prefer such a charge against Tay based only on Tay’s own statement to CPIB, which, according to Tay, was untrue and had been made under pressure. The 8/9/05 Board Minutes also recorded the fact that CPIB had detained the passports of Tay and Simon Ang, and that Chong had stated that legal counsel should write to CPIB to release the passports. At the end of the meeting, the directors agreed that “technically no action need[ed] to be taken”.
[16] Imran also met and had a conversation with Madhavan on 8 September 2005. Imran’s attendance note dated 8 September 2005 recorded, inter alia, a telephone conversation and a meeting with Madhavan, and it included the statement “No need for announcement”.
[17] On 8, 9 and 16 September 2005, Imran and Eusuff interviewed Tay and the three officers of the Subsidiaries who had been questioned by CPIB. They completed their interviews by mid-September 2005. At the trial, Imran testified that sometime in September 2005, he gave Madhavan the following oral advice (“the Oral Advice”): (a) “the information and evidence available was vague”; (b) “it was difficult to assess whether or not [Airocean] needed to make an announcement”; and (c) “unless and until further information [became] available, no disclosure need[ed] to be made at [that] stage”. In the Judgment, the DJ noted that neither Imran nor Madhavan kept a record of the conversation during which the Oral Advice was allegedly conveyed (see the Judgment at [163]).
[18] On 26, 27 and 28 September 2005, Chong sold, respectively, 1,000,000, 500,000 and 515,000 Airocean shares which were held in his mother’s account.
[19] On 25 November 2005, The Straits Times published an article with the caption “Airocean’s chief executive [Tay] under CPIB probe” (“the ST Article”). Apart from this caption, the ST Article provided little information about the nature of the CPIB Investigations. But, it reported Tay’s role in building up Airocean. It also reported that: (a) Tay “denied that he was being investigated personally”, although he admitted that he had been called up by CPIB for an interview “months ago”; and (b) Tay believed that interview concerned “an investigation over some people in [the air cargo] industry and … [had] nothing to do with [him]”. In reaction to the ST Article, a representative from SGX contacted Ang Lay Hua (“Ang”), Airocean’s company secretary and group financial controller, the same morning to inform her that Airocean was required to issue a clarificatory announcement on the ST Article, in particular, to clarify if Tay was under investigation by CPIB. This request was relayed to Airocean’s directors.
[20] On the same day, Madhavan prepared a draft clarification (“the First Draft”) and e-mailed it to Imran. Imran amended it and sent the amended draft (“the Second Draft”) to Madhavan. Madhavan faxed the Second Draft to Ang with instructions to circulate it to Airocean’s directors for their approval. According to Madhavan, Ang and Doris Koh later called him and queried the accuracy of the second paragraph of the Second Draft, which stated as follows:
[21] Madhavan then amended the Second Draft and his secretary sent the amended version of that draft (“the Third Draft”) to Imran. Madhavan claimed that Imran approved the Third Draft in a telephone conversation after pointing out a typographical error in the draft. After correcting the typographical error, Madhavan sent the corrected version of the Third Draft (“the Corrected Third Draft”) to Airocean’s office for consideration by the other directors. A dispute arose at the trial as to whether Imran had indeed approved the Third Draft as alleged by Madhavan. On this point, the DJ held that “[t]here [was] … no indication from Imran that he had approved [Madhavan’s] re-amended draft [ie, the Third Draft]” (see the Judgment at [196]).
[22] Ong was informed orally of the contents of the Corrected Third Draft. He objected to two paragraphs in it and suggested that they be redrafted. He was, however, overruled by the other directors, and, thus, the Corrected Third Draft was released as the 25/11/05 Announcement (see [2] above for the full text of the announcement). Even though the First Draft went through several revisions, it will be seen that the 25/11/05 Announcement did make clear, as required by SGX, that Tay was under investigation by CPIB (see also [96] below). However, what was not made clear was the nature of the CPIB Investigations.
[23] On 28 November 2005, TRC sent Airocean a written advice dated the same day (“the Written Advice”) after Imran and Eusuff discovered that a draft dated 28 September 2005 of that advice in substantially the same terms (“the Draft Advice”) had not been sent out. At the trial, Imran, Eusuff and Mr Rajah, all of whom testified as witnesses for the Prosecution, were not able to explain why the Written Advice was not sent to Airocean earlier. In the Written Advice, TRC advised that disclosure of the CPIB Investigations was not necessary at that stage of the investigations. The material paragraphs of the Written Advice read as follows:
[24] As mentioned earlier, the Written Advice, although dated 28 November 2005, was substantially the same as the Draft Advice, which was dated 28 September 2005. The only difference lay in para 28 of the Draft Advice, which was as follows:
[25] It is not disputed that after Imran and Eusuff finished interviewing Tay and the three officers of the Subsidiaries who had been questioned by CPIB (see [17] above), TRC was not aware of any further developments in the CPIB Investigations.
[26] After the 25/11/05 Announcement was released, Lorraine Chay (“Chay”), Vice-President of SGX’s Issuer Regulation Unit, sent an e-mail to Ang on 28 November 2005 (the first trading day after the release of the 25/11/05 Announcement) asking six questions in relation to the announcement. On 30 November 2005, Winston Seow, one of Airocean’s company secretaries, sent Chay Airocean’s response.
[27] On 1 December 2005, Chay and two of her colleagues met Tay and Madhavan at SGX’s premises. The minutes of this meeting recorded, inter alia, that SGX informed Tay and Madhavan that it “had received information that the [25/11/05] Announcement [might] not be accurate”, and that “[a]s such, [Airocean’s] Board should decide whether a further clarification was warranted”. The minutes further recorded that SGX “advised [Airocean] to conduct independent investigations into the matter rather than to rest only on [Tay’s] words”. On the same day, Madhavan, Ong CH and Ong met Chay and her colleagues at SGX’s premises without the presence of Airocean’s management. The minutes of this meeting recorded, inter alia, that “SGX expressed concern that [Airocean’s] Board [had] relied heavily on the words of [Tay] in their investigations”, and that the directors present at the meeting “said that they would go back to consider whether and how a further clarification of the [25/11/05] Announcement should be made”.
[28] Later that day, Airocean made another announcement (“the 1/12/05 Announcement”) as follows:
[29] On 2 December 2005, the Commercial Affairs Department (“CAD”) started investigations into alleged contraventions of the disclosure provisions in the SFA by Airocean. This led Airocean to make the following announcement on the same day (“the 2/12/05 Announcement”):
The decision below
The DJ’s decision on the Non-disclosure Charges
[30] In a reserved judgment issued on 29 March 2011, the DJ convicted Chong and Madhavan of the Non-disclosure Charges on the basis of the following findings:
(a) Airocean had knowledge of the Information as confirmed by, inter alia, the 8/9/05 Board Minutes (“finding (a)”) (see the Judgment at [116]);
(b) the Information was likely to affect the price or value of Airocean shares, as testified by the Prosecution’s expert witness, Chan Heng Toong (“Chan”) (“finding (b)”) (see the Judgment at [128]–[137]);
(c) Airocean’s failure to disclose the Information was reckless as it took a deliberate risk that the legal advice from TRC could be wrong, in that its directors and officers did not bother to ask Imran for the reasons for the opinion expressed in the Oral Advice (“finding (c)”) (see the Judgment at [166]); and
(d) Chong and Madhavan had consented to Airocean’s reckless failure to disclose the Information (see the Judgment at [170]).
[31] I do not propose to deal with the submissions of Chong and Madhavan that finding (a) is wrong as, in my view, it is fully supported by the evidence.
[32] Apropos finding (b), the DJ said (at [128]–[130] of the Judgment):
[33] Apropos finding (c), the DJ said (at [166] and [168] of the Judgment):
The DJ’s decision on the Misleading Disclosure Charges
[34] The DJ convicted the Appellants of the Misleading Disclosure Charges. He found against the Appellants on the following crucial issues:
(a) the 25/11/05 Announcement was misleading in a material particular (“finding (i)”) (see [179] and [183] of the Judgment);
(b) the 25/11/05 Announcement was likely to have the effect of stabilising the market price of Airocean shares at a higher level (“finding (ii)”) (see [190] of the Judgment);
(c) at the time when Airocean made the 25/11/05 Announcement, it knew that the announcement was misleading in a material particular (“finding (iii)”) (see [195] of the Judgment); and
(d) the Appellants consented to the release of the 25/11/05 Announcement (“finding (iv)”) (see the Judgment at [197] and [224]).
I shall consider the correctness of only finding (i) and finding (ii). If these two findings are wrong, there will be no need for me to consider finding (iii) and finding (iv).
[35] Apropos finding (i), the DJ said (at [179] and [183] of the Judgment):
[36] Apropos finding (ii), the DJ said (at [189]–[190] of the Judgment):
The DJ’s decision on the Insider Trading Charges
[37] The DJ convicted Chong of the Insider Trading Charges for the following reasons: (a) Chong was “a person … connected to a corporation” for the purposes of s 218 of the SFA (a “connected person”) (see [234] of the Judgment); (b) Chong was in possession of the Information (see [233]–[234] of the Judgment); (c) the Information was “price-sensitive” (see [236] of the Judgment); (d) Chong was presumed under s 218(4) of the SFA to know that the Information was not generally available and that if the Information were generally available, it might have a material effect on the price or value of Airocean shares (see [234] of the Judgment); (e) Chong had failed to rebut the presumption in s 218(4) of the SFA (see [234] and [238] of the Judgment); and (f) Chong had sold Airocean shares whilst in possession of the Information (see [239] of the Judgment).
The sentences imposed by the DJ
[38] In respect of the Non-disclosure Charges, the DJ, after noting that the sentencing norm for offences under s 203 was a fine and that Tay, who had pleaded guilty, had been fined $80,000 for a similar offence, fined Chong $100,000 and Madhavan, $120,000 (see the Judgment at [250]–[252]). Madhavan was fined a higher amount as he was the principal director whom the other directors looked to for advice. He had also actively liaised with TRC to obtain legal advice. The default sentences were imprisonment terms of ten months in Chong’s case and 12 months in Madhavan’s case (see the Judgment at [252]).
[39] In respect of the Misleading Disclosure Charges, the DJ, having noted that Tay, who had pleaded guilty to a similar offence (for making a false statement to the press), had been fined $160,000, fined Chong $180,000 (in default, 18 months’ imprisonment) and Ong, $170,000 (in default, 17 months’ imprisonment) (see the Judgment at [254]–[255]). As for Madhavan, the DJ sentenced him to four months’ imprisonment on the ground that he had played a dominant role in the commission of the offence, even though he had not profited from his criminal act (see the Judgment at [254]–[255]).
[40] In respect of the Insider Trading Charges, the DJ noted the Prosecution’s submission that a custodial sentence was warranted by the need for general deterrence (see the Judgment at [257]). The DJ then held that a custodial sentence of two months’ imprisonment on each charge (with the sentences for two of the charges to run consecutively) was warranted due to the following “aggravating” factors (see the Judgment at [258]–[259]): (a) Chong had avoided a loss totalling $191,450; (b) Chong had obtained the Information because of his position as the COO and an executive director of Airocean; (c) the Information was material and “would have an impact on investors trading in Airocean’s shares” (see the Judgment at [258]); and (d) “the exploitation of confidential information … would undermine public confidence in the transparency and integrity of the securities market” (see the Judgment at [258]).
The disqualification orders imposed by the DJ
[41] In relation to disqualification, the DJ held that s 154(1) of the Companies Act (Cap 50, 1994 Rev Ed) (“the CA”) was not applicable because “it [was] concerned with disqualification where an offence [was] committed that involve[d] fraud or dishonesty and no provision [was] made for the pronouncement of disqualification as it appear[ed] to follow immediately upon conviction” (see the Judgment at [264], referring to Public Prosecutor v Foo Jong Kan and Another [2005] SGDC 248). However, the DJ held that s 154(2) of the CA was applicable as the offences concerned were committed in connection with the management of Airocean (see the Judgment at [272]–[273]). He therefore disqualified Madhavan from holding office as a director or being involved in the management of any company for a period of five years upon his release from prison after serving the imprisonment term imposed for the Misleading Disclosure Charges. Similarly, Chong was disqualified for five years upon his release from prison after serving the imprisonment term imposed for the Insider Trading Charges. In contrast, Ong was disqualified for only two years because, in the DJ’s view, he was less culpable than Madhavan and Chong (see the Judgment at [273]).
The appeals against the convictions on the Non-disclosure Charges, the Misleading Disclosure Charges and the Insider Trading Charges
The element of materiality in the three types of charges
The relevant provisions
[42] The common element of materiality runs through the three types of charges in issue in these appeals. The Non-disclosure Charges involve the offence under s 203 of the SFA (referred to hereafter as “s 203” for short where appropriate) of intentionally or recklessly breaching rule 703(1)(b) of the Singapore Exchange Trading Limited Listing Manual (“the Listing Rules”), which requires a company that issues securities traded on SGX (referred to as an “issuer” in the Listing Rules) to disclose information that “would be likely to materially affect the price or value of its securities”. The element of materiality for the purposes of the Non-disclosure Charges relates to the likely effect of the Information on the price or value of Airocean shares. As for the Misleading Disclosure Charges, they are based on s 199 of the SFA (referred to hereafter as “s 199” for short where appropriate), which prohibits, inter alia, the making of any statement that is misleading in “a material particular”. The element of materiality for the purposes of the Misleading Disclosure Charges pertains to whether the misleading portions of the 25/11/05 Announcement were likely to have the effect of “stabilizing the market price of … Airocean shares”. With regard to the Insider Trading Charges under s 218 of the SFA (referred to hereafter as “s 218” for short where appropriate), the element of materiality relates to whether, if the Information were generally available, a reasonable person would expect it to have a material effect on the price or value of Airocean shares (see s 218(1)(a) of the SFA). In this regard, s 216 of the SFA (referred to hereafter as “s 216” for short where appropriate) provides that a reasonable person would be taken to expect information to have “a material effect on the price or value of securities” if the information “would, or would be likely to, influence persons who commonly invest in securities in deciding whether or not to subscribe for, buy or sell the … securities [concerned]”. It can be immediately seen from the terms of these provisions that the concept of materiality in s 218 read with s 216 is different from that in s 218 read on its own, s 199 and rule 703(1)(b) of the Listing Rules (referred to hereafter as “rule 703(1)(b)” for short where appropriate). This distinction is crucial to the determination of the guilt or otherwise of the Appellants with respect to the offences which they were charged with and convicted of in the court below. As will be seen, both Chan’s expert opinion and the DJ’s decision appear to have been based on the premise that the concept of materiality is the same for the purposes of the Non-disclosure Charges, the Misleading Disclosure Charges and the Insider Trading Charges. It is necessary that I now consider the meaning of “materiality” of information in the context of the securities market.
[43] The ordinary or dictionary meaning of the word “material” connotes something of importance. In a legal context, anything that is material to a particular issue is not simply relevant to that issue, but is also important or significant to the determination or resolution of that issue. For example, evidence may be relevant but not sufficient – ie, not “material” – to prove a fact. In relation to information, the central idea of materiality is that the information in question must be relevant and also significant to the subject matter concerned. In the context of the securities market generally, for information to be material, it must have some significant effect either on the behaviour of investors in subscribing for, buying or selling securities, or on the price or value of securities. In the specific context of rule 703(1)(b) of the Listing Rules, which imposes an obligation on an issuer to disclose information that would be likely to have a material effect on the price or value of its securities, the word “material” must necessarily refer to information that is likely to effect a significant change in the price or value of an issuer’s securities.
[44] This interpretation is supported by Hans Tjio, Principles and Practice of Securities Regulation in Singapore (LexisNexis, 2nd Ed, 2011) (“Hans Tjio”), where the author states (at para 8.30) that Chapter 7 of the Listing Rules, which is the chapter in which rule 703(1)(b) is contained, imposes on issuers the obligation to ensure “prompt market disclosure of all material information which would result in a significant change in the market price or value of [their] securities”. I agree with this interpretation of rule 703(1)(b) as it strikes a fair balance between the need for continuous disclosure to investors of “material information which would result in a significant change in the market price or value of [an issuer’s] securities” (see Hans Tjio at para 8.30) and the need to ensure that issuers are not unduly burdened by having to disclose every kind of information, however trivial, that may be likely to have an effect – but not a material effect – on the price of their securities. It calls for a fine, and often difficult, judgment on the part of issuers to decide whether or not information needs to be disclosed under rule 703(1)(b). For clarity and convenience, I shall refer to information falling under rule 703(1)(b) as “materially price-sensitive information”.
[45] In respect of s 199, the words “material particular” apply to a false or misleading particular that is likely to have the effect of, inter alia, “raising, lowering, maintaining or stabilising the market price of securities” (see s 199(c)), and not simply any kind of false or misleading particular. The focus of this provision is on the price impact of false or misleading statements. It follows from the nature of the offence under s 199 that the false or misleading particular in question must, just as in the case of the offence under s 203 (read with rule 703(1)(b)), be of sufficient importance to significantly affect the price or value of securities. As such, I shall also refer to information falling under s 199 as “materially price-sensitive information”.
[46] The concept of materiality in s 218 of the SFA, when read without s 216, is the same as the concept of materiality in rule 703(1)(b) and s 199 because s 218 read on its own is likewise concerned with the likely effect of information on the price or value of securities. In other words, information which falls under s 218 read on its own is likewise materially price-sensitive information. The character or quality of materially price-sensitive information in all three provisions – viz, s 199, rule 703(1)(b) and s 218 read on its own – is the same. However, for the purposes of the offence under s 218 (also referred to hereafter as “the offence of insider trading” where appropriate), s 216 makes it unnecessary for the Prosecution to show that the information in question may have a material effect on the price or value of securities in order to satisfy the requirement of materiality set out in s 218. The reason is that s 216 provides that:
The effect of s 216 is to equate the concept of “material effect on the price or value of securities” in s 218 with the likelihood of influencing persons who commonly invest in securities (“common investors”) in deciding whether to subscribe for, buy or sell the securities concerned. For clarity and convenience, I shall refer to information falling under s 218 read with s 216 as “trade-sensitive information”. I must at the same time emphasise that s 216 is expressly stated to apply only “[f]or the purposes of this Division”, ie, Division 3 of Part XII of the SFA, which is the Division in which s 218 is contained. Section 216 does not apply to any other Division of Part XII of the SFA. It therefore does not apply to Division 1 of Part XII, which is the Division in which s 199 and s 203 are contained. Accordingly, information which “a reasonable person would expect … to have a material effect on the price or value of securities” under s 218 read with s 216 cannot be equated with information which “would be likely to materially affect the price or value of … securities” under rule 703(1)(b) of the Listing Rules. If the position were otherwise, it would entail that whenever a connected person (as defined at [37] above) is found guilty of insider trading under s 218, the company may be held to have committed the offence under s 203 read with rule 703(1)(b) as it may have put itself in a position of having either intentionally or recklessly failed to notify SGX of the inside information in question. Furthermore, all its directors who were aware of that inside information may also be held, pursuant to s 331(1) of the SFA, to have consented to or connived in the company’s commission of the s 203 offence, provided that the exception under rule 703(3) of the Listing Rules is inapplicable.
[47] In summary, a pure textual reading of the relevant provisions shows that Parliament and SGX have prescribed different concepts of materiality for the purposes of the offence under s 199 and the offence under s 203 on the one hand, and the offence under s 218 on the other, in relation to information concerning securities.
[48] This distinction is not found in the Australian legislation and rules from which Singapore’s continuous disclosure and insider trading regimes are derived (see the Table of Derivations annexed to the Securities and Futures Bill 2001 (Bill 33 of 2001) (“the SF Bill”)). The asymmetry between Singapore’s continuous disclosure regime and Australia’s continuous disclosure regime has been noted in Walter Woon on Company Law: Revised Third Edition (Tan Cheng Han gen ed) (Sweet & Maxwell, 2009) (“Walter Woon”) at para 15.50 (which Chong has referred to in his written submissions for MA 10/2011) as follows:
[49] Walter Woon points out that at the consultation stage, the draft of the SF Bill imported the Australian deeming provision (viz, the deeming provision in s 1001D of the Corporations Act 2001 (Cth) (“the Australian Corporations Act 2001”), which has since been repealed (see [55] below)) into the continuous disclosure regime (ie, the disclosure regime under s 203 of the SFA), but it was omitted in the final version of the SF Bill when it was passed by Parliament. Even though the parliamentary materials are silent on the reasons for this omission, it is reasonable to infer that the omission was deliberate. The result is that the SFA provides two separate regimes in relation to the concept of materiality, viz, the continuous disclosure regime under s 203 (when read with provisions in the Listing Rules such as rule 703(1)(b)), which regulates the disclosure of material information, and the insider trading regime under s 218, which prohibits the use of inside information for the purposes of trading in securities. Even though the two regimes are intended to work in tandem, the relevant provisions provide different legal tests for determining the materiality of the information concerned.
[50] As will be seen, the DJ made no distinction between the different concepts of materiality in convicting the Appellants of the different types of offences with which they were charged as he relied uncritically on Chan’s expert opinion in answer to three questions posed to him by the Prosecution (set out in the quotation at [69] below), which questions also did not make such a distinction.
The decision in Jubilee Mines NL v Riley (2009) 69 ACSR 659
[51] Before I leave this subject, it is relevant to consider how the Western Australian courts have dealt with the related problem of an inconsistency between the statutory and the regulatory regimes governing the obligation to disclose material information under the corresponding securities legislation. In Jubilee Mines NL v Riley (2009) 69 ACSR 659 (“Jubilee Mines NL”), the Court of Appeal of the Supreme Court of Western Australia (“the WACA”) was required to interpret the meaning of the word “material” in the context of the phrase “material effect on the price or value of securities” in rule 3A of the Australian Securities Exchange Listing Rules at the material time (“the ASX Listing Rules”) (from which rule 703(1)(b) of the Listing Rules appears to be derived) and s 1001A of the Australian Corporations Act 2001 (on which s 203 of the SFA is modelled (see the Table of Derivations annexed to the SF Bill)). Although s 1001A of the Australian Corporations Act 2001 has since been repealed, the reasoning of the WACA in Jubilee Mines NL is nonetheless instructive.
[52] The headnote of Jubilee Mines NL sets out succinctly the facts of the case and the decision of the WACA as follows (see Jubilee Mines NL at 659–660):
[53] Rule 3A(1) of the ASX Listing Rules (which corresponds, but is not identical to rule 703(1)(b) of the Listing Rules) provided as follows at the material time (see Jubilee Mines NL at [42]):
[54] Section 1001A of the Australian Corporations Act 2001 (which corresponds, but is not identical to s 203 of the SFA) provided as follows at the material time (see Jubilee Mines NL at [44]):
[55] Section 1001D of the Australian Corporations Act 2001 (which has since been repealed and which corresponds, but is not identical to s 216 of the SFA) provided as follows at the material time:
[56] Because s 1001D of the Australian Corporations Act 2001 applied to s 1001A but not rule 3A of the ASX Listing Rules, the appellant in Jubilee Mines NL argued that the master at first instance erred in applying s 1001D to “the antecedent question of whether [rule 3A(1) of the ASX Listing Rules] had been breached” (see Jubilee Mines NL at [56]). In other words, the appellant argued that rule 3A(1) of the ASX Listing Rules would only be triggered if it was shown that a reasonable person would expect the information in question to have a material effect on the price or value of the securities concerned. The WACA rejected the appellant’s argument for the reasons set out at [57]–[62] as follows (per Martin CJ):
[57] In Jubilee Mines NL, the WACA construed the requirement of materiality in rule 3A of the ASX Listing Rules as being the same as the requirement of materiality in s 1001A(2)(b) read with s 1001D of the Australian Corporations Act 2001 because the contrary construction would have created “a significant inconsistency in the regime which was quite deliberately created in 1993 and 1994” (see Jubilee Mines NL at [61]), and “the use of potentially broadening language in the statutory regime would be pointless” if one had to satisfy the requirement of a narrower concept of materiality in rule 3A of the ASX Listing Rules (see likewise Jubilee Mines NL at [61]).
The different concepts of materiality in s 218 read with s 216 and s 203 read with rule 703(1)(b)
[58] The apparent inconsistency between the statutory and the regulatory regimes which was resolved by the WACA in Jubilee Mines NL does not arise under the Listing Rules and the SFA because our continuous disclosure regime does not provide for an equivalent of s 1001D of the Australian Corporations Act 2001 to apply to our equivalent of s 1001A of the Australian Corporations Act 2001, viz, s 203 of the SFA (see [46] and [49] above). In other words, there is no provision in s 203 or any other section of Division I of Part XII of the SFA (viz, the Division in which s 203 is found) to deem the phrase “materially affect” in rule 703(1)(b) of the Listing Rules to have the characteristic referred to in s 1001D of the Australian Corporations Act 2001 (which, as mentioned earlier, corresponds, but is not identical to s 216 of the SFA). As pointed out earlier, s 216 of the SFA is enacted in substantially the same terms as s 1001D of the Australian Corporations Act 2001, but s 216 applies only to insider trading under s 218. It should be noted that the DJ’s attention was, in fact, drawn to these differences between the two legislative frameworks. In his closing submissions to the DJ, Chong referred to the passage in Walter Woon reproduced at [48] above and pointed out that the definition of “material effect on the price or value of securities” in s 216 was applicable only to the offence of insider trading in Division 3 of Part XII of the SFA, and not to any other Division of Part XII (and, in particular, not to s 203, which, as just mentioned, is found in Division 1 of Part XII). On that basis, Chong submitted that the Prosecution had erroneously charged him on the basis that the information needed to prove the Insider Trading Charges against him was the same as the information needed to prove all the other charges against him.
[59] I agree with Chong’s submission for the reasons given above. Rule 703(1)(b) of the Listing Rules read with s 203 of the SFA has a narrower scope of operation than s 218 read with s 216 of the SFA (the precise scope of rule 703(1)(b) has already been noted above at [44]). The former set of provisions applies only to information that would be likely to have a significant impact on the price or value of securities, but not to any other kind of information nor to trade-sensitive information (ie, information deemed by s 216 to satisfy the requirement of materiality set out in s 218 (see [46] above)) which may not have a material effect on the price or value of securities. The two tests of materiality are distinct as a matter of law, and the court should not apply the broader test under s 218 read with s 216 to determine whether the information in question crosses the threshold of materiality for the purposes of rule 703(1)(b) of the Listing Rules.
[60] I should make three further observations. First, the information that has to be disclosed under rule 703(1)(b) is information which “would be likely to materially affect the price or value of … securities” [emphasis added]. Such information is not the same as information which would merely be likely to affect the price or value of securities. I have earlier stated that I agree with the statement in Hans Tjio (at para 8.30) that Chapter 7 of the Listing Rules imposes on an issuer the obligation to disclose all material information which is likely to have the effect of making a significant change in the price or value of its securities (see [44] above). The concept of materiality in rule 703(1)(b) is different from the concept of materiality in s 216, which assesses the materiality of information based on whether the information is likely to influence a common investor in deciding whether to subscribe for, buy or sell the securities concerned. That said, and this is my second observation, all information that is required to be disclosed under rule 703(1)(b) (ie, materially price-sensitive information) will, for practical purposes, be information which also falls under s 218 read with s 216. In other words, materially price-sensitive information will also be trade-sensitive information. As the WACA in Jubilee Mines NL observed at [59] (reproduced at [56] above) apropos the relationship between s 1001D of the Australian Corporations Act 2001 and rule 3A(1) of the ASX Listing Rules:
My third observation relates to the WACA’s comment in Jubilee Mines NL at [58] (reproduced at [56] above) that s 1001D of the Australian Corporations Act 2001 (which, as mentioned earlier, corresponds, but is not identical to s 216 of the SFA) is not exhaustive of what is material information for the purposes of rule 3A(1) of the ASX Listing Rule (which, although not an insider trading provision, uses the same test of materiality as that set out in s 218 of the SFA read on its own, viz, the test of whether or not “a reasonable person would expect [the information in question] to have a material effect on the price or value of securities”). This entails, in the context of our insider trading regime, that information which is material for the purposes of the offence of insider trading is not limited to information which satisfies the test of materiality in s 216. Instead, the element of materiality for the purposes of this offence can be proved in two different ways, viz, with the aid of s 216 (ie, by establishing that the information in question is trade-sensitive information), or, alternatively, without the aid of s 216 (ie, by establishing that the information in question is materially price-sensitive information). As s 216 provides a different and (from the Prosecution’s perspective) less rigorous test of materiality than the test in s 218, most prosecutions for the offence of insider trading are likely to be based on s 218 read with s 216, rather than on s 218 read on its own.
[61] My analysis of the relevant provisions may seem surprising to some market participants. But, in my view, this differentiation between the continuous disclosure regime and the insider trading regime is not indefensible from the perspective of commercial morality and market integrity. If trade-sensitive information is not disclosed to the market, no investor can be said to be worse off, provided investors in possession of trade-sensitive information (“‘inside’ investors”) do not trade in securities using such information. There is no question of an uneven playing field being created to the disadvantage of common investors who do not possess the same trade-sensitive information. Criminalising insider trading on trade-sensitive information would serve the interest of maintaining a level playing field between common investors and “inside” investors because the level playing field would only be made uneven if “inside” investors in possession of trade-sensitive information trade in securities using such information. If “inside” investors do so, there would be good commercial reason to punish them for taking advantage of trade-sensitive information. In any event, whether or not this distinction between our continuous disclosure regime and our insider trading regime is defensible is not the point here. It is a distinction that flows from the legislative and the regulatory structures that Parliament and SGX have put in place.
The concept of materiality in s 199
[62] Let me now discuss the scope of s 199 of the SFA. This section is derived from s 999 of the Australian Corporations Act 2001 (see the Table of Derivations annexed to the SF Bill), with one major difference (see [63] below). Section 199 provides as follows:
[63] Apart from differences in the drafting style, the only substantial difference between s 199 of the SFA and s 999 of the Australian Corporations Act 2001 is that s 199 of the SFA does not contain the words “or materially misleading” immediately after the words “in a material particular”. In my view, the word “material” in the phrase “a material particular” has the same meaning as the word “materially” in the phrase “materially misleading”. However, the first phrase (viz, “a material particular”) applies to a particular in a statement, whereas the second phrase (viz, “materially misleading”) applies to the whole of the statement. This suggests that the scope of s 199 of the SFA is narrower than the scope of s 999 of the Australian Corporations Act 2001 in this respect. In other words, if, hypothetically, the 25/11/05 Announcement is misleading only when it is read as a whole, it may, arguably, not be caught by s 199 of the SFA because the whole of the announcement is not a particular. However, this is not an issue in these appeals.
[64] The word “material” in s 199 is not defined, but, read in its proper context, it must mean sufficiently important to be likely to, inter alia, “have the effect of raising, lowering, maintaining or stabilising the market price of securities” (see s 199(c) and also [45] above). As s 216 of the SFA is not applicable to s 199, it is reasonable to infer that Parliament intended s 199 to have a narrower scope than s 218 read with s 216. In other words, the expression “a material particular” in s 199 refers to a particular that is likely to materially affect the price or value of securities as per the concept of materiality in rule 703(1)(b), and not as per the concept of materiality set out in s 216.
[65] With this legal framework in mind, I shall now examine the evidence of materiality relied upon by the DJ in convicting the Appellants of the offences which they were charged with.
The evidence of materiality relied on by the DJ
[66] The DJ held that the Prosecution had made out its case on the Misleading Disclosure Charges and the Non-disclosure Charges based solely on Chan’s expert evidence that the misleading parts of the 25/11/05 Announcement (in the case of the Misleading Disclosure Charges) and the Information (in the case of the Non-disclosure Charges) were likely to have a material effect on the price or value of Airocean shares. Before me, Chong and Madhavan (and also Ong in so far as the Misleading Disclosure Charges are concerned) have reiterated their argument (which was rejected by the DJ) that this requirement was not made out. Before considering the rival arguments, I shall first consider the threshold argument that Chan was not qualified or competent to give expert evidence on the issue of the materiality (or otherwise) of the aforesaid information vis-à-vis Airocean’s share price.
Whether Chan was qualified to give expert evidence
[67] In substance, it is argued that Chan’s expertise was of limited value as it was derived not from any practical experience in share trading, but from advising clients on initial public offering (“IPO”) issues and tracking the price performance of shares subsequent to an IPO with a view to identifying the reasons or causes of their price performance. Chan’s expertise, in other words, lay in explaining the movements in share prices after an event and not in predicting the likely movements in share prices before an event – the latter being, so it is argued, a very different kind of exercise which requires greater skills and knowledge of how investors behave.
[68] There is some merit in this argument. However, if investors are assumed to act rationally in making investment decisions, then past experience of investors’ behaviour can be a good guide as to their future behaviour as well. Thus, for example, if Chan had studied a previous case where investors had reacted in a certain way to information that a company’s CEO was under investigation by CPIB or CAD, such a study would be useful in his prediction as to how Airocean shareholders might likely have reacted to the news that Tay, Airocean’s CEO, was being investigated by CPIB. Although there is no evidence that Chan had such a specific level of experience, I am prepared to accept him as an expert on the basis of his general experience in monitoring the price performance of securities after their issue. I must, however, also emphasise that, ultimately, the question of whether the information in issue apropos the Misleading Disclosure Charges and the Non-disclosure Charges was likely to materially affect the price or value of Airocean shares is a question of mixed law and fact for the court, and not the expert, to decide after considering the evidence before it. The expert cannot usurp the court’s function in this respect (see The H156 [1999] 2 SLR(R) 419 at [27] and Pacific Recreation Pte Ltd v S Y Technology Inc and another appeal [2008] 2 SLR(R) 491 at [85]).
Chan’s report on the three questions posed by the Prosecution
[69] Chan’s report dated 12 August 2009 (“the Report”) was specially prepared for the trial below at the request of the Prosecution. Paragraph 2(b) of the Report sets out the Information as defined at [5] above (ie, the information which is the subject matter of the Non-disclosure Charges and which also constitutes the relevant inside information in relation to the Insider Trading Charges). Paragraph 3 sets out the three questions on which Chan’s expert opinion was sought, which opinion he provided from para 5 onwards. Paragraph 3 reads as follows:
[70] The question in para 3(a) of the Report, which relates to the Non-disclosure Charges, seeks Chan’s opinion, in an oblique way, as to whether “the information contained in the [8/9/05 Board Minutes]” [emphasis added] was likely to “materially affect the price or value of [Airocean] shares” [emphasis added] for the purposes of rule 703(1)(b) of the Listing Rules. If so, Airocean ought to have disclosed it. Two preliminary issues arise from the way in which this question was framed. First, what part of the information contained in the 8/9/05 Board Minutes ought to have been disclosed? Second, was Chan provided with any guidance on the meaning of the phrase “materially affect” in rule 703(1)(b) in relation to the price or value of securities? As the question in para 3(a) of the Report is a mixed question of law and fact, how would Chan have been able to give his opinion on it if he did not know what the phrase “materially affect” in rule 703(1)(b) meant? As to the first preliminary issue, it was left to Chan to select what he considered to be the material information contained in the 8/9/05 Board Minutes which might come within the purview of rule 703(1)(b) and which, therefore, ought to have been disclosed. At para 6 of the Report, Chan concluded as follows:
[71] It is clear from this conclusion that Chan selected from the 8/9/05 Board Minutes the information concerning Tay being questioned by CPIB in relation to two transactions involving the Subsidiaries as the crucial information that ought to have been disclosed. In this judgment, I shall refer to this composite information as “the Tay/Subsidiaries Information”. At para 7 of the Report, Chan explained the likely impact of the Tay/Subsidiaries Information on the price of Airocean shares as follows:
[72] At para 8 of the Report, Chan referred to the fact that Tay had been released on bail and that his passport had been impounded (“the Bail Information”) as additional reasons why Airocean shareholders would be concerned by the CPIB Investigations:
[73] In summary, Chan’s opinion was that the Tay/Subsidiaries Information, together with the Bail Information (which collectively form the Information as defined at [5] above), was likely to materially affect the price or value of Airocean shares because reasonable investors would conclude that Tay would not be able to attend to the affairs of Airocean, and this was likely to lead to their selling down their Airocean shares; that would, in turn, cause Airocean’s share price to fall. Chan’s conclusions at paras 7 and 8 of the Report provided the Prosecution with the basis of the Non-disclosure Charges against Chong and Madhavan (see [4] above).
[74] Chan’s opinion was hypothetical in relation to what reasonable investors would have perceived to be the likely state of affairs at Airocean if the Information (ie, the Tay/Subsidiaries Information and the Bail Information) had been disclosed. In short, his opinion seemed to be that any investigation by CPIB into the CEO of any listed holding company in connection with the transactions of its operating subsidiaries was likely to materially affect the holding company’s share price, irrespective of whether CPIB’s investigations concerned serious or minor corruption. In the present case, as will be seen, if the Tay/Subsidiaries Information had been disclosed together with other relevant information, investors would have known that the CPIB Investigations were not concerned with serious corruption involving Tay (see [105]–[106] below). Indeed, Tay’s corrupt act eventually turned out to be minor, and, furthermore, the undisputed evidence is that his attempted bribe to Chooi was unsuccessful in securing any business from Jetstar for Airocean via its subsidiary, Airlines GSA.
[75] As to the second preliminary issue mentioned at [70] above, because Chan did not know what the expression “materially affect the price or value of … securities” in rule 703(1)(b) of the Listing Rules meant in law, he gave his expert opinion on the basis of: (a) the likelihood of investors selling their Airocean shares as they would be alarmed by the Information if it were disclosed; and (b) the market impact evidence of investors’ reaction to the 25/11/05 Announcement and the 2/12/05 Announcement on, specifically, the first trading day after each of these announcements.
[76] In respect of the question in para 3(b) of the Report, which relates to the Misleading Disclosure Charges, Chan explained (at para 11 of the Report) that he was specifically asked to consider the following question:
[77] Chan’s opinion on this question is set out at para 13 of the Report as follows:
[78] In summary, Chan’s opinion in relation to the Misleading Disclosure Charges was that because Airocean’s investors did not know of the Tay/Subsidiaries Information, they were not alarmed and therefore were not likely to sell their Airocean shares, which they would otherwise likely have done if that information had been disclosed (and which would, in turn, have caused Airocean’s share price to fall). This sequence of events would result in the 25/11/05 Announcement being likely to stabilise the market price of Airocean shares at a higher level than what their market price would likely have been had the Tay/Subsidiaries Information been disclosed.
[79] The question in para 3(c) of the Report is concerned with whether any information in the 8/9/05 Board Minutes was “price sensitive”. It is unclear, on the face of this question, whether it was directed at the Non-disclosure Charges or the Insider Trading Charges. Chan was not informed of what the words “price sensitive” meant in this context. He assumed, and on that basis opined (at para 15 of the Report), that “the information as recorded in the [8/9/05 Board Minutes] that [Tay] and [the Subsidiaries] were being investigated [ie, the Tay/Subsidiaries Information] … and the seriousness of the investigation which resulted in [Tay’s] passport being surrendered to the CPIB [ie, the Bail Information]” was “price sensitive” as it “would, or would be likely to,influence persons who commonly invest in securities in deciding whether to subscribe for, buy or sell [Airocean shares]” [emphasis added]. Although Chan did not refer to s 216 of the SFA, he obviously took the italicised words from that provision. This meant that to Chan, the question in para 3(c) of the Report was concerned with the offence of insider trading, with the words “price sensitive” meaning trade-sensitive as per the concept of materiality set out in s 216 (see [46] above). At paras 17–26 of the Report, Chan set out his opinion on this question as follows:
[80] As mentioned earlier, the DJ, in convicting the Appellants of the offences which are the subject matter of these appeals, accepted in toto Chan’s opinion on the three questions set out in para 3 of the Report. It is now necessary for me to examine whether Chan’s failure to distinguish between the different concepts of materiality applicable to the three types of charges which the Appellants were convicted of is an error that is fatal to their convictions. I shall at the same time also consider whether the DJ was right in finding that the other essential elements of the three types of charges had been proved by the Prosecution. I start with the Non-disclosure Charges.
Analysis of the DJ’s findings on the Non-disclosure Charges
[81] As mentioned earlier, Chong and Madhavan were charged under s 203(2) read with s 331(1) of the SFA for consenting to Airocean’s reckless failure to notify SGX of the Information. Rule 703(1)(b) of the Listing Rules provides as follows:
[82] Sections 203(2) and 203(3) of the SFA provide as follows:
[83] Section 331(1) of the SFA provides as follows:
[84] For the purposes of the present proceedings, s 331(1) is predicated on Airocean having committed the offence under s 203. Reading these provisions together, the Non-disclosure Charges against Chong and Madhavan require the following elements to be proved: (a) Airocean had knowledge of the Information (as noted at [31] above, I agree with the DJ that this element was satisfied on the evidence); (b) the Information was likely to materially affect the price or value of Airocean shares; (c) Airocean was reckless in not disclosing the Information to SGX under the Listing Rules; and (d) Chong and Madhavan consented to Airocean’s reckless failure to make disclosure.
The DJ’s findings on the requirement of materiality
[85] Having considered the arguments of Chong and Madhavan on the findings of the DJ, I am of the view that the DJ’s decision that the requirement of materiality had been satisfied vis-à-vis the Non-disclosure Charges was wrong in law on three main grounds, namely:
(a) the DJ misdirected himself on the law in relation to the concept of materiality applicable to the Non-disclosure Charges;
(b) the DJ erred in accepting Chan’s opinion that the CPIB Investigations could impair the future performance of Airocean; and
(c) the DJ erred in accepting Chan’s analysis of the movements in Airocean’s share price after the 25/11/05 Announcement and after the 2/12/05 Announcement.
(1) The DJ’s misdirection on the law
[86] Madhavan argues that the DJ misdirected himself on the law in holding that the Information was likely to affect the price of Airocean shares. The misdirection, Madhavan contends, lay in the DJ’s omission of the vital ingredient of “materially affect” in his consideration of the Non-disclosure Charges. As a result, the DJ’s interpretation contradicted the plain words of rule 703(1)(b) of the Listing Rules and also the policy reasons underlying the continuous disclosure regime.
[87] Madhavan has referred to two passages in the Judgment where such omission occurred. In the heading immediately above [119] of the Judgment, the DJ framed the price sensitivity element of the Non-disclosure Charges as follows, contrary to the terms of rule 703(1)(b):
[88] At [130] of the Judgment, the DJ again omitted the word “materially” twice in considering the likely effect of the Information on the price of Airocean shares:
[89] I accept Madhavan’s argument on this issue. The element of a likely material effect on the price or value of Airocean shares is an essential ingredient of the Non-disclosure Charges under s 203 of the SFA read with rule 703(1)(b) of the Listing Rules. That requirement is expressly set out in the plain words of rule 703(1)(b). The phrase “likely to materially affect the price or value of … securities” [emphasis added] in that rule does not have the same meaning as “likely to affect” the price or value of securities. In this connection, I note that there are two other passages in the Judgment where the DJ repeated the same omission of the word “materially”, namely:
[90] The consequence of this misdirection in law is that the DJ made no finding on an essential element of the Non-disclosure Charges. It follows that the convictions of Chong and Madhavan on the Non-disclosure Charges for the reasons given by the DJ cannot stand. In this connection, it is necessary that I consider the Prosecution’s response to the argument that the DJ misdirected himself in law. The Prosecution’s case is that: (a) the DJ did not err because Chan’s opinion was that the Information was likely to materially affect Airocean’s share price; and (b) the DJ did use the word “material” in some parts of the Judgment, and his omission to do so in other parts of the Judgment was inadvertent. I disagree with the Prosecution on this point. In my view, there are just too many passages in the Judgment which have omitted the crucial word “materially” to support the Prosecution’s submission that the omission was inadvertent. The passages in the Judgment quoted earlier clearly show that the references therein to “material” were merely pro forma for the reason that the meaning of “materially affect” in rule 703(1)(b) of the Listing Rules was never articulated. The pith and substance of the DJ’s decision was that the Information fell within rule 703(1)(b) because it was “likely to affect the price or value of the shares in Airocean” [emphasis added] (see [168] of the Judgment (reproduced at [89] above); see also the other passages from the Judgment reproduced at [87]–[88] above). The Prosecution has made no submission that the DJ’s decision can still be supported on other grounds on the basis of other evidence before the DJ.
(2) The DJ’s erroneous acceptance of Chan’s opinion that the CPIB Investigations could impair Airocean’s future performance
[91] Madhavan’s second main argument is that in any event, Chan’s opinion – viz, that the CPIB Investigations would impair Tay’s ability to continue to effectively attend to the affairs of Airocean and this could affect Airocean’s future performance (see the Report at para 7 (reproduced at [71] above)) – was inconsistent with the actual state of affairs at the time Chan gave his opinion. Similarly, Madhavan submits that Chan’s further opinion – viz, that the information about Tay’s release on bail with his passport impounded (ie, the Bail Information) would affect the price of Airocean shares even more because investors would be even more concerned about Tay’s continued ability to attend to the affairs of Airocean (see the Report at para 8 (reproduced at [72] above)) – was also flawed for the same reasons.
[92] I agree with this submission. Tay’s ability to manage the affairs of Airocean was not, in actual fact, impaired at any time during the period from September to December 2005. After being questioned by CPIB, Tay was released on bail without being formally charged with any offence. He was able to travel to Shanghai between 8 September 2005 and 2 December 2005. It was also Tay’s evidence that Airocean had an increased turnover of over $700m in 2005.
[93] Instead of considering the actual factual position that Tay’s role in running Airocean was not impaired (and indeed, if Airocean had disclosed the Information, common investors would have known from such disclosure that Tay was not being held in custody and would thus still be in charge of the affairs of Airocean), Chan hypothesised that if the Information had been disclosed, common investors would have perceived that Tay’s ability to attend to the affairs of Airocean would be impaired. As I have just pointed out, this hypothesis was contrary to the actual facts. This may possibly explain the curious way in which the DJ formulated his acceptance of Chan’s opinion. At [128] of the Judgment, the DJ said:
[94] The DJ’s ruling in the above passage is a self-evident proposition. Naturally, Airocean shareholders would be concerned if anything were to happen to Tay that would curtail his ability to manage Airocean. The DJ’s finding was premised on the following assumptions: (a) the CPIB Investigations would lead to something happening to Tay; (b) that something would impair Tay’s ability to attend to the affairs of Airocean; (c) that impairment would in turn cause alarm to Airocean shareholders; (d) alarmed Airocean shareholders would sell their Airocean shares; and (e) consequently, the price of Airocean shares would fall. Hence, the DJ concluded, the CPIB Investigations would likely affect the price of Airocean shares. The DJ’s ruling was a self-evidently syllogistic holding based on a premise which was factually untrue, ie, that Tay would not be able to attend to the affairs of Airocean.
[95] The same comment applies to the fact of Tay being investigated in connection with two transactions of the Subsidiaries. In the Judgment, the DJ did not explain how and why this particular fact was so significant that it would be likely to materially affect the price of Airocean shares. He appeared to have overlooked the consideration that Tay was investigated in connection with two transactions whose total value was financially negligible and insignificant compared to Airocean’s turnover of over $700m in 2005 (see [105(d)] below).
(3) The DJ’s erroneous acceptance of Chan’s analysis of the movements in Airocean’s share price
[96] Madhavan has argued that the DJ erred in accepting Chan’s analysis of the movements in Airocean’s share price after the 25/11/05 Announcement and after the 2/12/05 Announcement. Before I consider this argument, it is pertinent to note that the DJ made a serious factual error in his understanding of the 25/11/05 Announcement. At [190] of the Judgment, the DJ said:
The above statement gives a specific meaning to “the affairs of Airocean”. It is incorrect in a significant aspect. As a matter of fact, the 25/11/05 Announcement did disclose that CPIB was looking into the affairs of Airocean. What it did not disclose were the details or particulars identified at [190] of the Judgment. The 25/11/05 Announcement was issued in order to clarify the statement in the ST Article that Tay was under a CPIB probe. That announcement disclosed, inter alia, that Tay had been called in by CPIB for an interview, that he had given statements to CPIB and that he had co-operated in full with CPIB. In making these clarifications, Airocean confirmed that Tay was being investigated by CPIB, but, at the same time, tried to downplay the significance of this news on Tay’s ability to continue to attend to Airocean’s affairs and, in turn, on Airocean’s business. Any reasonable reader of the 25/11/05 Announcement would immediately have reached the same conclusion, viz, that CPIB was investigating Tay in relation to the affairs of Airocean. The 25/11/05 Announcement painted a true picture of what was really significant to Airocean shareholders, viz, Tay, as the CEO of Airocean, was being investigated by CPIB in connection with the affairs of Airocean. That the affairs of Airocean concerned, specifically, two transactions of the Subsidiaries was a mere detail. Airocean shareholders would know that Airocean was a holding company whose operations were carried out by (inter alia) the Subsidiaries. In my view, the 25/11/05 Announcement, when read as a clarification of the ST Article, would have communicated to any reasonable reader that Tay was being investigated by CPIB in connection with the affairs of Airocean.
[97] Since the 25/11/05 Announcement disclosed that Tay was under investigation by CPIB, it is important to consider carefully the market impact evidence after that announcement was released. It is also necessary to determine what information disclosed in the 25/11/05 Announcement caused the movements in the price of Airocean shares. Similarly, it is important to consider the market impact evidence after the 2/12/05 Announcement disclosed the additional information that the CPIB Investigations concerned, specifically, two transactions involving the Subsidiaries.
[98] On the first day of trading after the 25/11/05 Announcement, the volume of trade in Airocean shares went up to 17,585,000 from 2,328,000 at the close of the previous trading day, and the price went down from $0.125 to $0.11, a drop of 12%. But, the price recovered the following day, dropped again for a few days to as low as $0.095 (this was after the 2/12/05 Announcement was released) and then climbed back to the region of $0.115 to $0.12, where it remained stable for a few days. Equally important is the fact that the highest price done on many of these trading days was $0.12 to $0.125, with the exception of 28 November 2005 (highest price done was $0.11), 1 December 2005 (highest price done was $0.115) and 5 December 2005 (highest price done was $0.10). Thus, over a period of some two weeks, Airocean’s share price fluctuated within a relatively small band of prices and at times reached the same price as that around 23–24 November 2005.

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Madhavan Peter v Public Prosecutor and other appeals

Laws this judgment relies on

Grounds of decision

Introduction

Background facts

The decision below

The DJ’s decision on the Non-disclosure Charges

The DJ’s decision on the Misleading Disclosure Charges

The DJ’s decision on the Insider Trading Charges

The sentences imposed by the DJ

The disqualification orders imposed by the DJ

The element of materiality in the three types of charges

The relevant provisions

The decision in Jubilee Mines NL v Riley (2009) 69 ACSR 659

The different concepts of materiality in s 218 read with s 216 and s 203 read with rule 703(1)(b)

The concept of materiality in s 199

The evidence of materiality relied on by the DJ

Whether Chan was qualified to give expert evidence

Chan’s report on the three questions posed by the Prosecution

Analysis of the DJ’s findings on the Non-disclosure Charges

The DJ’s findings on the requirement of materiality

(1) The DJ’s misdirection on the law

(3) The DJ’s erroneous acceptance of Chan’s analysis of the movements in Airocean’s share price