Prosecution authorities have tried and failed for a third time to argue that the proceeds of crime for an insider trading offence are the gross proceeds of the sale of the shares in question. 

The Tasmanian Supreme Court has confirmed in Director of Public Prosecutions (Cth) v Gay that the purchase price of the tainted shares should normally be deducted from the sale proceeds, and it is only the difference (the net benefit to the offender) that can be recovered by the Commonwealth as proceeds of the crime.

While the objects of the proceeds of crime legislation are to punish and deter, Justice Estcourt had no difficulty in concluding that the value of the benefit derived from the unlawful sale of shares purchased lawfully, must involve bringing into account the purchase price of the shares against the proceeds of their sale. He said there was no ambiguity about that in the relevant sections of the Act.2

He consequently rejected the Commonwealth’s position that it was entitled to payment of the whole of the $3.095 million proceeds from the unlawful sale of 3.4 million shares and ordered that there be further argument as to the method for determining the quantum of the net benefit.


In December 2009, the defendant, John Gay (Gay), sold 3.4 million shares in timber company Gunns Ltd (Gunns), of which he was then chairman, while in possession of inside information about the financial performance of the company. At the time, Gay held a management report from October 2009 that revealed a steep decline in the half-yearly profits of the company that had not been disclosed to the market.

In August 2013, Gay pleaded guilty to one count of insider trading in breach of s 1043A(1) of theCorporations Act 2001 (Cth) (Corporations Act).  Gay “ought to have known” that the information was price sensitive and hence ought not to have gone ahead with the sale.  He was convicted and fined $50,000 for the offence – a penalty criticised by some as being too lenient. At the same time, he was automatically disqualified from managing corporations for 5 years under s 206B(1)(b) of the Corporations Act.5  

In May 2014, the Commonwealth commenced proceedings to recover the proceeds of Gay’s crime under the Proceeds of Crime Act 2002 (Cth) (the Act).  It claimed that the proceeds were the “gross benefit” obtained by Gay on sale of the 3.4 million shares.

Amongst other things, the Commonwealth argued:6

  •  in assessing the value of the benefit a person has derived, section 122(1)(a) of the Act requires the Court to have regard to the money, or value of property, that, “because of the illegal activity” came into their possession or under their control. These words create a causal nexus with the offending and there is no justification for reading into the paragraph extra words to the effect that the relevant benefit is the “net gain”, a “profit” or represents a loss avoided;
  •  section 126(a) prohibits the assessed benefit being reduced by “expenses or outgoings” incurred in relation to the illegal activity. The capital outlay to acquire the shares is an “expense or outgoing”;
  •  this prohibition is consistent with the related objects of the Act to deprive persons of objects and instruments of offending. Gay used his shares to commit the offence. The shares were thus tainted as were the gross proceeds of the sale;
  •  the meaning of the word “benefits” is analogous to that found in legislation considered in cases involving the sale of illegal drugs, where courts have refused to deduct expenditure incurred in acquiring or selling the drugs;
  •  the intention of the legislature was to obtain anything got by way of “income” (or asset representing it) from the crime itself;8 
  •  the gross benefit approach accords with decisions in other jurisdictions, such as the United Kingdom9 and New Zealand10;
  •  the decision in The Commissioner of the Australian Federal Police v Fysh [2013] NSWSC 81 was “plainly wrong” and should not be followed, particularly because McCallum J’s determination of the terms benefit and “expenses and outgoings” was made only in the context of unlawful share trading, and the interpretation of the Act should be applicable in all contexts.11

The Judgment

Justice Estcourt decided that the position taken by the Western Australian Court of Appeal in Mansfield v DPP12 and the New South Wales Supreme Court in Fysh should be the preferred approach in proceedings involving the illegal purchase or disposition of shares.13

Fysh was a proceeds of crime proceeding in which the Australian Federal Police sought to recover the gross proceeds of the sale of shares allegedly purchased by reference to price sensitive information.  Gilbert + Tobin acted for the defendant in the case, and successfully argued that the word “benefit” should not be construed to mean gross proceeds in circumstances where the money used to purchase the shares was legally obtained.  Dr Fysh was later acquitted of all charges.

His Honour had no difficulty with the idea that the Act could legitimately be applied so as to achieve different results in different contexts and said it would be “quite irrational” to ignore the fact that the acquisition of the shares by Gay bore no relevant relationship to the later unlawful conduct, in order to achieve some consistency in outcome in other contexts.14

His Honour agreed with Gay that the authorities on proceeds of crime recovery proceedings relating to drug trafficking offences were not analogous to insider trading cases because the purchase or sale of shares is not an inherently unlawful act. By contrast, [t]he purchase of the drugs and thus the money used to make the purchase” in such cases “was as tainted with criminality as was their sale”.15  

Moreover, Justice Estcourt found that, notwithstanding the pecuniary purpose of the Act and that it is “deliberately draconian”, the “single minded pursuit of a draconian outcome” was not a proper approach to legislative construction and there was no precedent supporting the approach encouraged by the CDPP.



1  [2015] TASSC 15

2  [2015] TASSC 15 at [92]

3  Being either the difference between the price of the shares vs the sale price or the sale price vs the price which could have been achieved had the market been aware of the inside information  

4  The maximum sentence for insider trading at the time was five years’ imprisonment and a pecuniary penalty of $220,000. Since 13 December 2010, that has increased to ten years’ imprisonment and $765,000.

5  Re Gay (2014) 99 ACSR 199.

6  [2015] TASSC 15 at [45] to [46]

7  [2015] TASSC 15 at [47]

8  [2015] TASSC 15 at [47]

9  [2015] TASSC 15 at [58]

10  [2015] TASSC 15 at [55] to [57]

11  [2015] TASSC 15 at [59]

12  Mansfield v DPP (2007) 33 WAR 227 (CA), which considered the provisions of the Criminal Property Confiscation Act 2000 (WA) which were on similar terms to those under the Act

13  [2015] TASSC 15 at [62] to [69]

14  [2015] TASSC 15 at [91]

15  [2015] TASSC 15 at [73] to [74] and [90].

Expertise Area