Regina v Robert Bart Doff [2005] NSWSC 50

Reported Decision : (2005) 23 ACLC 317

New South Wales Supreme Court

CITATION : Regina v Robert Bart Doff [2005] NSWSC 50

HEARING DATE(S) : 8 November 2004 - 19 November 2004, 17 December 2004, 11 February 2005

JUDGMENT DATE : 11 February 2005

JUDGMENT OF : Barr J at 1

DECISION : Offender sentenced to serve 350 hours' community service work and fined $30,000.00.

PARTIES : Regina, Robert Bart Doff

FILE NUMBER(S) : SC 2002/100

P Byrne SC COUNSEL : R J H Maidment SC and P R McGuire

S Kavanagh SOLICITORS : John De Mestre & Co

LOWER COURT JURISDICTION :

- 6 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

GRAHAM BARR

11 FEBRUARY 2005

2002/100 REGINA V ROBERT BART DOFF

SENTENCE 1 HIS HONOUR: The offender was found guilty by a jury of an offence under s1002G Corporations Act 2001 known as Insider Trading. The maximum penalty is a fine of $200,000 or imprisonment for five years or both. 2 These are the facts. Mr Gerard McGowan was Chief Executive Officer of Impulse Airlines. During the first few months of 2001 there was intense competition between Australian domestic airlines, particularly for business on the trunk routes in eastern Australia. The competition had been created in part by the entry into the industry of Impulse Airlines, which had previously been a charter and freight operator. There were four airlines competing for business, namely Qantas, Ansett, Virgin and Impulse. Seats were being sold at uneconomically low rates and the general feeling in the industry was that this state of affairs was unlikely to last much longer. At least one airline was likely to fail. The only prediction that anyone would make with any confidence was that it would not be Qantas. 3 Impulse was losing money at a rate which concerned Mr McGowan and those who advised him and financed Impulse's operations. Mr McGowan held meetings with the representatives of institutional investors, hoping to persuade them to invest a further $50 million. It was apparent to him that the provision of the additional money was not a foregone conclusion. One of the investors was expressing some reluctance and the attitude of that investor was likely to affect the others, so Mr McGowan entered into simultaneous negotiations with representatives of Qantas, intending, if the efforts to obtain further finance should fail, to solve Impulse's problems another way. Mr McGowan believed that if Impulse could not solve its problems by one means or the other it would fail. 4 Ultimately the efforts to obtain further finance failed and the negotiations with Qantas were successful. On 1 May 2001 a joint announcement was made that the two airlines had entered into a long-term commercial relationship that would involve Impulse's supplying Qantas with aircraft and crew and operating certain services for Qantas. Qantas was to lend money to pay out Impulse's investors and Impulse was to withdraw from operating scheduled air services in Australia under its own brand. 5 The agreement was subject to approval by the Australian Competition and Consumer Commission. 6 Mr McGowan was looking for a house. During the period of negotiations between Impulse and Qantas he twice inspected a house owned by a company controlled by a stockbroker, Mr Rene Rivkin. The offender was Mr Rivkin's real estate agent. Mr McGowan knew the offender, who had been involved in the sale to Mr McGowan of the house in which he was then living. Mr McGowan twice inspected the house and on the second occasion told the offender that he was in the process of selling part of his business and that if he was successful he would be interested in making an offer on the house. The offender telephoned him a day or two later and said that Mr Rivkin would be interested in receiving an offer. A figure was discussed. 7 Mr McGowan believed by that time that his negotiations with Qantas were going to be successful and that if they were he would be in a position to buy the house. However, he also knew that any agreement between Qantas and Impulse would effectively lessen competition between airlines and would therefore have to have the approval of the Australian Competition and Consumer Commission. He wanted a clause in the contract which would enable him to withdraw from any obligation to purchase if the Australian Competition and Consumer Commission should not approve the arrangements. 8 Mr Rivkin knew that Mr McGowan wanted the right to withdraw from his obligations under the contract. The house had already been passed in at auction and Mr Rivkin wanted to sell it without undue delay. He was not enthusiastic about entering into a contract for sale if the intending purchaser had the right to withdraw. He wanted to make sure that the circumstances justified the inclusion of the clause that Mr McGowan wanted. Accordingly, an appointment was made for Mr McGowan to meet Mr Rivkin's attorney, Mr Dassakis, at the offender's office at 11:30am on 24 April 2001. Mr McGowan and Mr Dassakis attended. Mr McGowan's brother, Mark McGowan, was also there. The offender was present as well. 9 The four men spoke in a meeting room. Mr Dassakis told Mr Gerard McGowan that for Mr Rivkin to assess the offer he would need to know more about the matter of his business deal. Then followed a conversation between Mr Gerard McGowan and Mr Dassakis. After that conversation Mr Dassakis sent a message to Mr Rivkin. Mr Rivkin responded by telephoning the office and there followed a conversation over the telephone between Mr Gerard McGowan and Mr Rivkin. Mr Gerard MrGowan, Mr Mark McGowan and Mr Dassakis gave evidence about the terms of the conversations between Mr McGowan and Mr Dassakis and Mr McGowan and Mr Rivkin. The offender did not give evidence. 10 The Crown case was that the offender was present during both conversations and heard everything that Mr McGowan said. The substance of its case was that the effect of the words used by Mr McGowan was that there was a deal for the merging of Impulse's business with Qantas and that Mr McGowan had to wait until he had Australian Competition and Consumer Commission approval before buying the house. 11 Mr Gerard McGowan's evidence was that he said that they were in the process of a sale of part of their business to Qantas. However, they needed Australian Competition and Consumer Commission approval before that transaction could go through. Mr McGowan also said that he went on to warn Mr Dassakis that now that he had that knowledge he could not trade in Qantas shares. 12 Speaking about the same conversation, Mr Mark McGowan said that Mr Gerard McGowan said that he needed a clause in the contract that said that it was conditional upon Government approval of a business deal that was imminent and that Mr Dassakis said that he would need to know the nature of that deal, that a potential sale had fallen over and that Mr Rivkin was quite anxious. He said that Mr Gerard McGowan said that Impulse was going to merge its business with Qantas and that now that he had disclosed that information he, Mr Dassakis, could not trade in Qantas shares. 13 Speaking about the same conversation, Mr Dassakis said that Mr Gerard McGowan said that the sale was conditional upon a financial arrangement being made with his company and that that arrangement was subject to Australian Competition and Consumer Commission approval. 14 There was no dispute that after the first conversation Mr Dassakis made arrangements for Mr Gerard McGowan to speak to Mr Rivkin on the telephone. Speaking of that conversation, Mr Gerard McGowan said that he made the call as he stood in the meeting room in the presence of Mr Dassakis, the offender and Mr Mark McGowan. The words spoken by Mr Rivkin were not amplified, so those present would have been able to hear only what he, Gerard McGowan, said. He said that he said to Mr Rivkin that he was currently negotiating with Qantas for a sale of part of his business to them, that he needed Australian Competition and Consumer Commission approval for that transaction to complete, that he was interested in purchasing Mr Rivkin's property and that now that he had that knowledge Mr Rivkin could not trade in Qantas shares. 15 Speaking of that conversation, Mr Mark McGowan said that Mr Gerard McGowan said that the funds to purchase the house were coming from a deal that required Government approval, that the deal was that Impulse merge its business with Qantas, that Mr Gerard McGowan needed a week or so for approval to come through from the Australian Competition and Consumer Commission to allow him to complete the purchase and that now that he had disclosed that information to him Mr Rivkin could not trade in Qantas shares. 16 Speaking of the same conversation, Mr Dassakis said that Mr Gerard McGowan said to Mr Rivkin that his company was entering into a financial arrangement with, he believed, Qantas, and he expressed great interest in purchasing the property. Mr Dassakis could not recall anything else said in the conversation. 17 The verdict of the jury shows that they were satisfied beyond reasonable doubt that the words used by Mr Gerard McGowan were to the effect that there was a deal by which the business of Impulse was to merge with the business of Qantas and that the deal was subject to approval by the Australian Competition and Consumer Commission.