Royal Court
(Samedi Division)
10 March 1998
Before Sir Godfray Le Quesne, QC, Commissioner
sitting alone
AG
-v-
Robert John Young
Alfred George Williams
ROBERT JOHN YOUNG
6 counts of inducement to take part in arrangements with respect to the management of property by statements known to be misleading, false or deceptive, contrary to Article 12(c) of the Investors (Prevention of Fraud)(Jersey) Law, 1967: (counts 1A, 2C, 3A, 4A, 5A, 6.)
ALFRED GEORGE WILLIAMS
5 counts of inducement to take part in arrangements with respect to the management of property by statements known to be misleading, false or deceptive, contrary to Article 12(c) of the Investors (Prevention of Fraud)(Jersey) Law, 1967: (counts 1A, 2A, 3A, 4A, 5A); and
5 counts of inducement to take part in arrangements with respect to the management of property by the reckless making of statements which were misleading, false or deceptive, contrary to Article 12(c) of the Investors (Prevention of Fraud)(Jersey) Law, 1967: (counts 1B, 2B, 3B, 4B, 5B).
Preliminary point raised by the Defendants that the facts of the case cannot be brought within the terms of Article 12 of the Investors (Prevention of Fraud)(Jersey) Law, 1967.
CE Whelan Esq., Crown Advocate
Advocate DF Le Quesne for RJ Young
Advocate S Young for AG Williams
JUDGMENT
THE COMMISSIONER: The two Defendants are charged with offences against Article 12, paragraph (c), of the Depositors and Investors (Prevention of Fraud, (Jersey) Law, 1967. I set out as much as is necessary of that article.
"Any person who, by any statement, promise or forecast which he knows to be misleading, false or deceptive, or by any dishonest concealment of material facts, or by the reckless making (dishonestly or otherwise) of any statement, promise or forecast which is misleading, false or deceptive, induces or attempts to induce another person -
(a)(i) to lend to him or to any other person money..or
(and there follow other provisions dealing with loans of money or agreements for loans]
(b)to enter into or offer to enter into -
(there follow other provisions dealing with securities]
(c)to take part or offer to take part in any arrangements with respect to property other than securities, being arrangements the purpose or effect, or pretended purpose or effect, of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of the property or otherwise) to participate in or receive profits or income alleged to arise or to be likely to arise from the acquisition, holding, management or disposal of such property, or sums to be paid or alleged to be likely to be paid out of such profits or income; or
shall be liable to a fine or to imprisonment…"
Both Defendants have submitted that the evidence for the Crown, even if accepted completely, does not reveal a state of things covered by paragraph (c) because the arrangements in which investors were induced to take part were not arrangements described by that paragraph. In fact, on the Crowns evidence, the arrangements in which investors took part were not in every case the same. There were, in the first place, what I shall call the Troy arrangements, in which the investor, Troy, Mayo, the Bank Cantrade and Dr Young all took part. There were also what I shall call the Young arrangements, under which Troy and Mayo dropped out and the participants were the investor, the Bank and Dr Young.
Under the Troy arrangements, money was paid by the investor to Troy and put into a deposit account at the Bank in the name of TTSI, which was a company owned by Mayo. This account was known as the collateral account. On the security of this deposit, the Bank allowed TTSI a facility up to a sum of several times greater than the sum deposited to be used for dealing in foreign exchange. This dealing was conducted on a number of accounts known as trading accounts, each in a different currency. These trading accounts were also accounts of TTSI. TTSI authorised Anagram to conduct the dealing. Dr Young was the individual who conducted it on Anagram’s behalf.
Under the Young arrangements, the investor paid money into the Bank in his own name. The money was held on a deposit account and dealing was conducted on trading accounts in the way in which I have described in connection with the Troy arrangements, but, under the Young arrangements, all the accounts were accounts of the investor and it was to the investor that the Bank granted the facility. Dr Young conducted the dealing under the authority given to him by the investor.
If the language of paragraph (c) is applied to the Troy arrangements, the first question which arises is whether those arrangements were arrangements with respect to property. The arrangements respected the foreign currency which was to be bought and sold. In these transactions, the foreign currency was not used as a medium of exchange; it was bought and sold like commodities or securities. It is true that when a deal was closed no currency was actually transferred. The transaction took place on the books of the Bank and its result was a debit or a credit between the Bank and TTSI. This currency, in my judgment, was property within the meaning of paragraph (c).
The wording is wide enough to bear such a meaning. As Bramwell B said in Queensbury Industrial Society -v- Pickles, (1865) LR 1 Exch. at page 5:
"Any ordinary person would certainly think it strange if he were told that a debt due to him was not part of his property."
I see no reason to restrict the meaning in the context of paragraph (c). Paragraph (a) deals with loans of money or arrangements for loans, paragraph (b) with agreements concerning securities and paragraph (c) with arrangements with respect to property other than securities. This context appears to me to show an intention to cover, by paragraph (c) all property not already covered by paragraphs (a) and (b).
The purpose of the arrangements was clearly to enable persons taking part in them to participate in profits. These persons were not only the investors but also Troy, which was entitled to 10 per cent of any profits.
The remaining question is whether these profits were alleged to arise or to be likely to arise from the acquisition, holding, management or disposal of such property.
Once the property has been identified as the foreign currency being bought and sold, the answer to this question too is plain. It was from the acquisition, holding, management and disposal of these currencies by Dr Young that profits were alleged to be likely to arise.
When one goes on to consider the application of paragraph (c) to the Young arrangements, what I have said about its application to the Troy arrangements can be exactly repeated. If attention is concentrated simply on the language of paragraph (c), both the Troy arrangements and the Young arrangements fall, in my judgment, within its ambit.
However, Mr Le Quesne and Mr Young contend that this is not the right way to interpret paragraph (c). Paragraph (c), they say, should not be considered by itself, it must be considered together with the decision in the English case of Hughes -v- Trapnell (1963), 1 QB, 737, and the observations made in that case about the interpretation of an English statute closely similar to paragraph (c) though not identical with it. When that is done, they submit the result is considerably to reduce the ambit of paragraph (c).
Hughes -v- Trapnell was a case under section 13(1) of the English Prevention of Fraud (Investments) Act 1958, which read:
"Any person who, by any statement, promise or forecast which he knows to be misleading, false or deceptive, or by any dishonest concealment of material facts, or by the reckless making of any statement, promise or forecast which is misleading, false or deceptive, induces or attempts to induce another person…
The facts of the case were summarised thus by the Lord Chief Justice, Lord Parker, at pages 744/5.
"The appellant was a partner in a firm named Hughes, Palmer & Co. This firm devised a plan called ‘the Lombard Plan’, whereby they invited people who hoped to make money to place bets through them. They put forward a system which, aided by their knowledge of racing, was such as they felt would produce a profit to those who participated in the plan. The invitation was to put up what was called a ‘bank’ of £50 or £100 pounds or more with a limit of £500. One-tenth of the bank was to be invested each day on a horse recommended by the promoters. If it lost, the stake money would be deducted from the amount in the bank. If it won, the winnings would be divided at the end of the week in certain proportions. The promoters would get from any resulting profit at the end of the week 15 percent, and the balance, as I understand it, would be dealt with according to the wishes of the client. Either the whole of the balance of the winnings would go to increase the bank, or some proportion of it, or the whole of it, would be paid out to him. In addition, the promoters were going to charge 10 shillings weekly to cover office expenses, postage and the like.
Circulars were sent out inviting persons to participate in this scheme, together with an illustration of how it would work out over a period. I should perhaps add that it could be operated in one of three ways. In one, the promoters would do the whole of the work; they would not only provide the tip, but they would place the bet with a bookmaker and render accounts. In the second, they were prepared to ring up the client and give him the tip, and allow him to place the bet himself. In the third, the promoters would place the bet, but would do it with a bookmaker of the client’s choice."
Lord Parker sets out his reasoning in this passage on pages 746/7:
"Paragraph (b) requires that three things must be proved: first, that there was an invitation to acquire or offer to acquire any right or interest; secondly, that the right or interest must be under arrangements the purpose or effect of which is to provide facilities for the participation by persons in profit or income; and thirdly, that those profits or income must arise in one or other of the following ways, namely, from the acquisition of any property other than securities, the holding of any property other than securities, the management of any property other than securities, or the disposal of any property other than securities.
What is said here, and this is the charge laid, is that under the promoter’s plan, provision was made for the participation by persons in profits arising from the management of property other than securities, and that the property other than securities referred to was the money which was going to be put up under this plan by way of a bank.
As I understand it, it is said, and I confess I think rather loosely, that what was being done here was that the promoters were in fact saying: ‘We will manage your money, and can manage it in such a way as it is hoped will result in profits’.
In truth, and in fact, it seems to me that that does not disclose the true nature of this transaction. This is a very simple transaction in which in effect a tipster who has got, as he thinks, good information as to horses, invites other people to use his selected horse, and to make bets, either himself or through the tipster as agent, in return for a commission in the form of a percentage of the profits. Ancillary to that, it is of course vital and necessary that the person availing himself of those facilities should put up a bank by way of security representing the limit of his commitments. Looked at in that way, which is, it seems to me, the essence of the transaction, it appears to me, I confess, at first sight, to be miles away from anything to which section 13(1)(b) could conceivably relate. It is said that that paragraph is designedly drafted in very wide terms to catch all schemes that are not connected with securities, and that it is really preventing the opportunity of fraud, fraud being dealt with by section 13 itself.
Accordingly, it is necessary to consider a little more whether, although at first sight this transaction seems wholly outside the section, there are valid grounds for so holding. In my judgment there are. It seems to me in the first place that ‘the property other than securities’ is some property which is the property of the promoter. It is something which is derived from some subscription made by the recipient of the circular.
The first point taken by the appellant here was that money as such could not be property other than securities. I find it unnecessary to deal with that, and I think it is a mistake to do so, because there might well be a case in which the property concerned was foreign exchange which might be said to be money. It seems to me that this section is directed to investment, money taken from the subscriber and invested in some property other then securities. That was, I think, the scheme of the Prevention of Fraud (Investments) Act 1939, sections 12 and 13 of which were in similar form to sections 13 and 14 of the present Act, where it appears from the pre-amble that the Act is dealing with investments and matters connected therewith.
Again, as it seems to me, section 13(1)(b) on its natural meaning is dealing with investments, and in that connection I find it unnecessary to look at the sidenote, whether in regard to section 13 or section 14. Again, the reference to participation in profits seems to be directed to subscribers participating in the profits of some property which is the property of the promoter. It does not, in my judgment, cover the management of somebody else’s property for reward.
Finally, and this is a slightly different point, it seems to me that in any event, however one reads the word ‘property’, and assuming that it does mean the money put up by the recipient of the circular, no profits are made out of that money at all. That money, as I have said, is merely the security representing the limit of the subscriber’s commitments; when that is lost, he is finished. The winnings are in no sense profits arising from the management of that money. They are winnings obtained on credit, and that money is merely the security."
The first thing to be noted about Hughes -v- Trapnell is that there are differences between the language on which it was decided and the language of paragraph (c). I refer particularly to two differences. First, under section 13 (1) (b) of the English Act, the inducement had to be inducement to acquire or offer to acquire any right or interest under any arrangements. Under paragraph (c), the required inducement is simply inducement to take part of offer to take part in any arrangements. Secondly, under section 13 (1) (b) the purpose or effect of the arrangements had to be to provide facilities for participation by persons in profits or income and so on. Under paragraph (c), the required purpose is to enable persons taking part in the arrangements, whether by becoming owners of the property, or any part of the property, or otherwise, to participate in or receive profits or income and so on.
In fact, section 13 of the English Act of 1958 was amended after Hughes -v- Trapnell, and possibly as a result of Hughes -v- Trapnell, by the Protection of Depositors Act 1963. Section 21(1) of the latter Act substituted for section 13(1)(b) of the earlier Act a new paragraph. Paragraph (c) of the Jersey law is identical with the new paragraph thus substituted and obviously was copied from it.
Interpreting the language of the 1958 Act unamended, Lord Parker said section 13 was directed to investment, money taken from the subscriber and invested in some property other than securities. Since the money had been taken from the subscriber, the property in which it was invested could not be his property but could only be property which is the property of the promoter. This was confirmed by the reference to participation in profits, which seemed to Lord Parker to be directed to subscribers participating in the profit of some property which was the property of the promoter.
In my judgment, this reasoning cannot be applied to paragraph (c), the language of which is not the language considered by Lord Parker but the language resulting from subsequent amendment. Paragraph (c) is still directed to investment but it does not require that the investment be in property which is the property of the promoter. This is clear from the parenthesis, which provides expressly that the subscriber may become owner of the property from the acquisition, holding, management or disposal of which profits are anticipated.
This view of paragraph (c) is supported by the other terms of the amendments which I have mentioned. First, the requirement that the inducement should be to acquire any right or interest under any arrangements has been removed. This removes the basis of the view of Winn J, as he then was, at page 749, that the inducement had to be to acquire for the first time some right or interest in an arrangement, in which there might be participation in profits, derived otherwise than from property of the invitee himself. Secondly, Lord Parker thought the reference to participation in profits indicated that the subscriber was to participate in the profits of the property of someone else, i.e. that is the promoter. This reference to participation has been extended in paragraph (c) to ‘participate in or receive profits’, and the addition of ‘receive’ suggests that the paragraph is meant to cover arrangements for receipt of profits derived from the subscribers own property.
The foundation of the view taken by the court in Hughes -v- Trapnell was Lord Parkers statement at page 747, that the property other than securities had to be some property which is the property of the promoter. For the reasons which I have stated, I do not consider this interpretation can be applied to paragraph (c) of Article 12. Hughes -v- Trapnell, in my judgment, is not an authority on the interpretation of the Jersey Law.
The obvious difference between the facts of Hughes -v- Trapnell and the facts of this case is that the arrangements in Hughes-v-Trapnell did not contemplate any investment in anything, while in this case, alike under the Troy arrangements and the Young arrangements, there will be investment in foreign currency. It is true that this investment was not to be made directly by the subscriber, nor by the direct use of the subscriber’s funds. Neither point, in my judgment, is relevant to the application of paragraph (c).
As to the first point, even under the unamended section 13 (1) (b), Lord Parker contemplated that money would be taken from the subscriber and then invested in some property. As to the second, the essential feature is that the arrangements should enable persons taking part in them to participate in or to receive profits arising from the acquisition, et cetera, of the property. If the arrangements do that, it does not matter, in my judgment, whether the reason for the subscriber’s participation in the profits or receipt of them is the use, in the acquisition of the property, of his funds or of assets obtained by the use of those funds.
I return to my starting point. On the ordinary meaning of paragraph (c), there were, on the Crowns evidence, arrangements with respect to property other than securities, to wit the foreign currency to be bought and sold. The purpose of the arrangements was to enable persons taking part in them, including the investors but not limited to them, to participate in profits alleged to be likely to arise form the acquisition, holding, management and disposal of the foreign currency. These conclusions apply both to the Troy arrangements and to the Young arrangements.
Counsel for the defendants relied on Lord Parkers statement at page 747, that the unamended section 13 (1) (b) did not cover the management of somebody elses property for reward. Counsel submitted that this showed that the Young arrangements at least were outside the ambit of paragraph (c). Lord Parkers statement follows naturally from his interpretation of the section before him. For the reasons which I have set out, I do not think the different terms of the law before me exclude a case in which the arrangements provide for someone specifically appointed by the subscriber for this purpose to acquire, hold, manage and dispose of property which is the property of the subscriber.
I, therefore, overrule these submissions.
Authorities
Depositors and Investors (Prevention of Fraud) (Jersey) Law, 1967: Article 12
Queensbury Industrial Society -v- Pickles (1865) Law Reports 1 Exchequer 1 @ p5
Hughes -v- Trapnell (1963) 1 QB 737
Prevention of Fraud (Investments) Act 1958: s13
Protection of Depositors Act 1963: s21(1)