The Airocean Appeal: The Concepts of Materiality and Trade Sensitive Information

Introduction

The concept of materiality applies to a wide spectrum of offences under the Securities and Futures Act [Chapter 289, 2002 revised edition] ("SFA"). Under Section 203 of the SFA, the intentional or reckless failure to disclose information must relate to information which "would likely to materially affect the price or value of [the company's] securities." With respect to Section 199 of the SFA, it is an offence to make a statement which is misleading in "a material particular". At section 218 of the SFA, an element of the insider trading offence is whether, if the information in question was available to the general public, a reasonable person would expect the information to have a material effect on the price or value of the company's shares.

Until recently, it was widely understood and believed by market participants that there was no distinction in the application of this concept of materiality to the various offences under the SFA. It was believed that the test of materiality was the same across the various offences under the SFA in so far as those offences refer to the concept of materiality. The recent landmark decision by the High Court in Madhavan Peter v Public Prosecutor and other appeals [2012] SGHC 153 ("commonly referred to as "the Airocean Appeal") has now corrected this hitherto held common perception of the concept of materiality under the SFA.

Another landmark ruling arising from the High Court's decision in this case is the introduction of the concept of "Trade Sensitive Information" in relation to offences for insider trading. The Court ruled that the concept of materiality for insider trading offences under Section 218 of the SFA was less rigorous by reason of the deeming provision contained in Section 216 of the SFA. In determining whether the information in question would have had a material effect on the price or value of the securities, Section 216, (which applies solely to insider trading trading offences), states that where the information had the likelihood of influencing persons who commonly invest in securities in deciding whether to subscribe, buy or sell those securities, that information shall be presumed to have a material effect on the price or value of the securities. The Court termed this information falling within Section 218, when read together with Section 216, as "trade-sensitive information."

The purpose of this article is to consider these landmark rulings and the analysis underpinning them.

Facts

Airocean was a company listed in the Singapore Stock Exchange (SGX). Through several subsidiaries, Airocean, provided air cargo logistics services such as freight forwarding and air terminal ground cargo handling. As at September 2005, the directors of Airocean were Thomas Tay ("Tay"), an executive director and the Chief Executive Officer (CEO); Johnson Chong ("Chong"), an executive director and the Chief Operating Officer (COO); Peter Madhavan ("Madhavan"), an independent director; Ong Seow Yong ("Seow Yong"), an independent director; (e) Ong Chow Hong, an independent director and the non-executive Chairman of the Board; and, Paul Dunn, an executive director.

On 6 September 2005, Tay and 3 officers of the subsidiaries of Airocean were questioned by the Corrupt Practices Investigation Bureau ("CPIB") in connection with transactions between Airocean's subsidiaries and Jetstar Asia Airways Pte Ltd ("Jetstar") and Lufthansa Technik Logistik Pte Ltd ("Lufthansa"). Tay was questioned on whether he had offered any gratification to one Chooi Yee Cheong ("Chooi") of Jetstar and to one Edward Goh of Lufthansa. During this questioning at the CPIB, Tay had admitted that he had told Simon Ang (a regional manager of one of the subsidiaries) to tell Chooi that "if he would help us, in the future if he needed help, we would help him."

In view of these investigations against Tay, on 7 September 2006, the directors of Airocean decided that Airocean should seek legal advice on whether it had to disclose to SGX that its officers were involved in the CPIB investigations. For this purpose, the law firm of Tan Rajah & Cheah ("TRC") was engaged to provide this legal advice to Airocean. TRC then requested to speak to the officers involved in the investigations. On the same day, it transpired that Tay was placed under arrest by the CPIB pursuant to section 6(b) of the Prevention of Corruption Act (Cap 241, 1993 Rev Ed) and was released on bail. His passport was also impounded.

On the following day, 8 September 2005, the directors of Airocean, except Dunn, met and reviewed the events concerning the CPIB investigations, details of which were recorded in the minutes of that meeting ("the 8th September Minutes"). The directors at that meeting agreed that "technically no action need[ed] to be taken."

On 8, 9 and 16 September 2005, the solicitors from TRC interviewed Tay and three officers of the subsidiaries of...