Business Law Assignment - Case Analysis ASIC v Citigroup Global Markets Australia Pty Ltd
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Added on 2020-05-28
Business Law Assignment - Case Analysis ASIC v Citigroup Global Markets Australia Pty Ltd
Added on 2020-05-28
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Business law assignmentCase AnalysisASIC v Citigroup Global Markets Australia Pty Limited[2007] FCA 963 (Student Details: )
Business law assignmentIntroduction The case of Australian Securities and Investments Commission v Citigroup Global MarketsAustralia Pty Limited [2007] FCA 963 saw a landmark decision been given by the judges, whichwas a matter of keen interest world-wife (Hanrahan, 2008). The case saw ASIC alleging certainissues and the Federal Court putting them down, which proved as an important winning point forthe present practices adopted by the investment banks. This case presented two importantprinciples, which provided that the law never restricted the investment banks from contractingout the fiduciary relations in a given situation, and secondly that the insider trading liabilitycould be easily determined through the information barriers. This led to the court coming to theconclusion that the company in question, had not indulged in insider trading activities, and noneof the conflict of interest related provisions had been breached by the company (ASIC, 2018).This report is focused on highlighting what went down in this case, particularly regarding thedirector duties and the decision of this case. Background of the caseThe background covering the facts of this matter is quite diverse and yet an effective summary ofthese, in simplest of forms, is covered here. Citigroup Global Markets Australia Pty Ltd (thecompany) was the defendant of this case which had undertaken business through its variousdivisions. These divisions included equities trading (ET) and investment banking (IB); where theformer were public employees, who were not exposed to confidential and market sensitiveinformation; whilst the latter were private side employees who were exposed to this information(O'Brien, 2007). The company had, in order to restrict the flow of information between itsdifferent divisions, set up Chinese Walls. Upon the shares of Patrick Corporation Limited (PCL)
Business law assignmentbeing bought by the public employees, i.e., the ET division, the proceedings in this case wereinitiated (Seeto, 2008).This was due to the controversial timings of this purchase, as at that time IB division ofCitigroup was acting on the takeover bid proposed for Toll Holdings (TH) by PCL. The shareshad been bought before the bid by TH had been announced by PCL, on the last trading day.Upon the IB coming to know about this, they took the steps whereby ET had been instructed torestrict from purchasing any more shares in PCL. Following this instruction of IB, ET refrainedfrom purchasing any more shares in PCL. Though, when merely thirty minutes were left inclosure of trading, ET made sale of 200,000 shares of PCL, which they had bought on that veryday, for a good profit. On the next day, the announcement for takeover of PCL was made by TH(Seeto, 2008). Duties/ Responsibilities breachedThe allegations put forth by ASIC in this matter were regarding the contravention of differentsections covered in the Corporations Act, 2001 (Cth). The ASIC stated that section 912 (1) (aa)had been contravened in this case on five distinctive bases. Under this section, a holder ofAustralian financial services licence (AFSL), is required to make enough arrangements in orderfor the conflict of interest to be properly managed and this is related to the financial servicesprovisions (ICNL, 2018). ASIC’s claims were based on the presence of a fiduciary relationshipbetween Citigroup and TH (Stringer and Harkness, 2007). ASIC also contended that owing to thefiduciary duties owed by the company towards TH, the company had indulged in unconscionableconduct owing to section 12 CA (1) of the Australian Securities and Investments Commission
Business law assignmentAct, 2001 (Cth), having been contravened, with the contravention of common law as a conflict ofinterest was allowed to be present here (Jacobson, 2007). The company had also failed in informing TH that the PCL shares had been acquired by one oftheir divisions, which led to the allegations that the company had undertaken misleading anddeceptive conduct, resulting in contravention of the ASIC Act’s section 12 DA and CorporationsAct’s section 1014H. The reason for these contraventions was owing to the fiduciary duty of thecompany in making the proper disclosures to TH regarding any and all information which wasrelated to the bid. Thus, there were two claims made by ASIC against the company regardinginsider trading. The initial claim was regarding the shares of PCL being sold by the company byusing the proprietary trader, holding the insider information. Secondly, the company hadindulged in trading of shares of PCL when the IB division of the company did hold the insiderinformation with them (Stringer and Harkness, 2007).Decision of CourtIn order to decide upon the various claims made in this case, the court held that there had been alack of fiduciary relationship between the company and TH. This was due to the fact that themandate letter had been present which covered the express terms in which the pre-contractualdealings between Citigroup and TH, which could have shown easily that this relationship waspresent (Allens, 2007).The court came to this verdict on the basis of different reasons. The relationship which waspresent between the client and the advisor was not inherently a fiduciary relationship, till thesame was covered under the special category of client-solicitor. In place of this, the presence andthe scope of this fiduciary relationship was dependent on the facts of the situation, along with on
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