Analysis of North v Marra Developments Ltd: A Case Study Report

This case study report analyzes the landmark case of North v Marra Developments Ltd [1981] HCA 68, focusing on market manipulation and its implications under Australian corporate law. The case involved stockbrokers seeking remuneration for services, with the client company arguing the contract was illegal due to market manipulation aimed at facilitating a takeover bid and mitigating vulnerability to a takeover. The report examines breaches of duty under the Securities Industry Act 1970 (NSW) and the Corporations Act 2001 (Cth), highlighting how the parties' actions contravened provisions against creating false market appearances and market rigging. It analyzes the court's decision, emphasizing the illegality of the contract and the principle that manipulation perverts genuine market forces. The report also discusses the relevance of the decision to the development of Australian corporations law, including its influence on subsequent legislation and case law regarding market manipulation and false trading. The case established a precedent for understanding and addressing market manipulation within the legal framework.

North v Marra Developments: A Case Study 1
NORTH V MARRA DEVELOPMENTS LTD [1981] HCA 68: A CASE STUDY REPORT
by [Author(s) name(s)]:
Business & Corporate Law
(Tutor)
(University)
(City and State)
(Date)

North v Marra Developments: A Case Study 2
Table of Contents
North v Marra Developments Ltd [1981] HCA 68: A Case Study Report................................2
Introduction................................................................................................................................2
An Examination for Breach of Duties and Responsibilities......................................................2
A Critical Analysis of the Court’s Decision..............................................................................2
The Relevance of the Decision to the Development of Australian Corporations Law..............2
Conclusion..................................................................................................................................2

North v Marra Developments: A Case Study 3
North v Marra Developments Ltd [1981] HCA 68: A Case Study Report
Introduction
The North v Marra Developments Ltd [1981] case sets precedence in the area of market
manipulation. As the facts go, stockbrokers had brought proceedings against a client
company claiming remuneration for services rendered. In their defence, the client company
argued that the contract under which remuneration was being claimed was an illegal contract
and as such, they should not be required to pay. With regard to the contract in question, the
brokers had raised the market price of the client company shares to aid the client in a
takeover bid for another company as well as to mitigate the defendant’s vulnerability to a
takeover. The court held that contract and the subsequent actions of the parties amounted to
an illegality and as such fees could not be recovered by the plaintiff (White Collar Crimes
and Serious Fraud Conference, 2010). The following report has been commissioned to
analyse the arguments and findings in the aforementioned case. It will highlight any breach of
duties outlined in the case and discuss the rationale behind the Court’s findings. Further, the
study will investigate the contributions the decision has made toward the development of
Australian Corporations Law thus far.
An Examination for Breach of Duties and Responsibilities
The following segment aims to examine obligations that may have been breached as
presented in the arguments outlined in the case study. The prime statute relied on in the
determination of this case was the Securities Industry Act 1970(NSW). The conduct of the
parties in the case was found in contravention of the provisions of Section 70 of the Act 1970
which prohibited the creation of false or misleading appearances of active trading of
securities in the bourse (Armson, 2009). This prohibition extended to the manipulation of the
market price of the securities. Any person found in contravention of this provision would be
held liable for a breach of duty not to create false trading. From the case study, it can be

North v Marra Developments: A Case Study 4
adduced that the scheme to reconstruct Marra’s share capital and subsequent transactions on
the Sydney bourse were aimed at establishing a market for the defendant company at a price
that would facilitate the takeover offer by Marra to another company. The deliberate
agreement to manipulate the share capital so as to paint a particular picture amounted to a
breach of duty as per section 70 of the Securities Industry Act 1970 (NSW).
Further, the Securities Industry Act 1970 (NSW) also prohibited market rigging by engaging,
either directly or indirectly, in the transactions that affected the price of a class of shares so as
to influence a trade in this class of shares. In the case study provided, Marra Developments
Ltd was interested in engaging Scottish Australia Holdings Ltd for a takeover action. The
market price of Marra’s shares as discussed in the case study was crucial to the completion of
negotiations and the success of the offer. This is because the Scottish share price at the time
of negotiations was high and it was likely that without the proposed share price a shareholder
at Scottish would have fared much better trading on the market than accepting the takeover
offer. As such, manipulating the share price was crucial to influencing the purchase and as it
was deliberate this amounts to an outright breach of the duty against market rigging.
With regard to current legislation, the parties in the case study provided would have been
held liable for breach of s 1041A of the Corporations Act 2001 (Cth) which prohibits market
manipulation by providing that individuals must not, either directly or otherwise, engage in
transactions that would likely affect the pricing of financial products in the stock market by
creating an artificial price (Wilson & Burns, 2017). This breach of duty constitutes a criminal
offence punishable by imprisonment of up to five years. In Director of Public Prosecutions v
JM [2013] HCA 30, relying on the findings by Mason J in North v Marra [1987] and the
provisions of s 1041A, the High Court of Australia found the actions of the defendant to be in
breach of the provisions of statute and as such he was held guilty of market manipulation.

North v Marra Developments: A Case Study 5
The defendant had been brought before court on charges that he has conspired with his
daughter and son in law to manipulate the trading price of X Ltd on the ASX.
In addition to the contraventions illustrated above, the law also bestows certain obligations on
company directors for which the actions of the parties in the case study herein amount to
breach. Directors and other officers with controlling powers in an organisation must exercise
their powers and execute their duties in a manner that adopts a reasonable degree of care and
diligence (Langford, 2014). This is a fiduciary duty adopted into Australian Company law via
the provisions of s 180 of the Corporations Act 2001 (Cth). In exercising this obligation, a
director must demonstrate that any actions or inactions taken with regard to company affairs
were rational and lack the element of material personal interest (ASIC, 2016). In the case
study provided it is evident that albeit their intentions were for the overall benefit of the
organisations, the transactions undertaken were illegal. A reasonable director or company
official exercising due diligence and care would desist from any transaction that would result
in an illegality on the part of the company. As such, the directors and officers involved were
in breach of their duty of care and diligence.
A Critical Analysis of the Court’s Decision
Ultimately, the position of the Court, in this case, was that the appellants could not claim
remuneration as the contract for which they had rendered their services was illegal. Stephen
and Aickin JJ, having analysed the reasons for illegality provided by the respondent were
convinced that the agreement and subsequent transactions of both parties constituted an
illegality and such conduct was in contravention of section 70 of the Securities Industry Act
1970 (NSW). The judges stated that the conduct of the parties illuminated a conspiracy under
common law which led to an offence as per s 70 described above. They, therefore, held that
the appeal be dismissed as the amounts claimed could not be recovered on an illegality.

North v Marra Developments: A Case Study 6
In his determination, Mason J acknowledged the finding by Mahoney J.A at a prior hearing
that the plaintiffs and defendants had conspired in a scheme to reconstruct Marra’s share
capital and to establish a market for the company’s stock by engaging in transactions on the
stock exchange. This conclusion is supported by the discussion between Mr North from the
appellant company and Mr Killen a director from the respondent company as well as the
answers to the interrogatories. In the discussion, the parties expressly acknowledged that the
purpose of the arrangement was to establish a market so as to subsequently boost the success
of the takeover bid.
Further, in his determination, Mason J upheld the finding of the previous court that the
references in the documents prepared by the stockbroker company to the Stock Exchange
with regard to the share price were misleading. In the documents in question, the intended
price of $16.50 was quoted as the ‘market value’, ‘market price’ and ‘sale price’ on
accession. However, these references lacked backing by way of disclosure ascertaining the
company’s operations in the market. In essence, Mason J agreed that this lack of disclosure
was purposeful to mislead a reader as to the significance of the price in future transactions
like the takeover bid.
In his analysis and determination, Mason J assumed the objective of the provision of s 70 of
the Securities Act to be the protection of the securities market against any activity that would
constitute artificial or calculated manipulation. In his view, manipulation would pervert the
market price as it ceases to be a result of the interchange between genuine market forces
(McIntyre, 2014). As such, this provision was a statutory measure to ensure a real and
genuine securities market. He further held that mere calculation to create a false or
misleading appearance amounted to breach; activities did not necessarily have to create the
breach outlined. As such, culpable manipulation is determined by the intent to engage in an
activity that would constitute a false appearance (Horefield, 2007).

North v Marra Developments: A Case Study 7
Guided by this analysis the court was, therefore, able to come to the conclusion that the
appellants could not claim a recovery of costs for services rendered as their actions amounted
to an illegality by virtue that they were a contravention of section 70 of the Securities
Industry Act 1970 (NSW).
The Relevance of the Decision to the Development of Australian Corporations Law
As aforementioned, the North v Marra Developments Ltd [1981] case set precedence in
corporate law and regarded as a leading case in issues of price manipulation and false trading.
The holding in the case has been adopted in subsequent cases and its principles reiterated in
subsequent legislation. The Corporations Act 1989, under s 997, provided a prohibition
against stock market manipulation. This provision, in essence, adopted themes from the
conclusions drawn in North v Marra Developments Ltd [1981] and similar prior cases such as
Cargill Inc v Hardin {1971] USCA8 443. The current legislation, the Corporations Act 2001
(Cth) maintains the principles upheld in the case via a prohibition on market manipulation
and false trading provided for under ss 1041A and 1041B of the Act.
The provisions of the aforementioned statute have been further developed through judicial
interpretation evinced in case law. Cases such as ASIC v Soust [2010] FCA 68 relied on the
rationale adopted in the case in question to analyse and determine the concept of artificial
price with regard to price manipulation. In this case, a company director had purchased shares
in his mother’s name prior to close of the market for the year in anticipation of increasing the
share price in order to earn a larger bonus under his employment contract (Inhouse Legal,
2017). The court found the director in contravention of ss1041A and 1041B of the
Corporations Act guided by the reasoning in North v Marra Developments Ltd [1987] with
regard to interpreting the concept of artificial price.
Similarly, in Director of Public Prosecutions v JM [2013] HCA 30, the court relied on the
rationale in North v Marra Developments Ltd [1987] to interpret the concept of ‘genuine

North v Marra Developments: A Case Study 8
supply and demand’. (Carter Newell Lawyers, 2013) As held by Mason J, this notion
excludes parties whose transactions are aimed at setting or maintaining the share price. As
such, the actions of the defendant in the case could not qualify as genuine as they were aimed
at creating an artificial price. He was therefore found to be in contravention of s1041A of the
Act 2001 (Cth).
Conclusion
From the discourse above it is evident that the main issue outlined in the North v Marra
Developments Ltd [1981] case was the creation of false or misleading appearances in order to
manipulate the price of securities. In this case, the stockbroking company laid claim to costs
for services rendered to Marra Developments for a transaction culminating in a takeover
contract. The Court in its deliberations upheld that the conduct of the parties amounted to a
contravention of s 70 of the Securities Industry Act 1970 (NSW) as they have purposefully
engaged in transactions that affected the market price of the company’s shares in order to
influence the success of a takeover bid with another company. This contravention further
amounts to a breach of duty as illustrated above. Additionally, the discussion illustrated how
the principles highlighted by Mason J in the case have affected the development of
Corporations Law in Kenya. The case is considered a leading precedent in false trading and
price manipulation cases. Further, the principles have been maintained and incorporated in
subsequent statutes such as ss 1041A and 1041B of the Corporations Act 2001 (Cth).
Therefore these illustrations, as discussed above, illustrate the significance of the holding in
this case to Australian Corporations to date.

North v Marra Developments: A Case Study 9
References
Armson, E., 2009. False Trading and Market Rigging. s.l., Corporate Law Teachers
Association Conference.
ASIC v Soust (2010) FCA 68.
ASIC, 2016. Directors-What are My Duties as A Director?. [Online]
Available at: http://asic.gov.au/regulatory-resources/insolvency/insolvency-for-directors/
directors-what-are-my-duties-as-a-director/
[Accessed 3 February 2017].
Cargill Inc v Hardin (1971) USCA8 443.
Carter Newell Lawyers, 2013. What Amounts to artificial market manipulation of share
prices. [Online]
Available at:
http://www.carternewell.com/page/Publications/Archive/What_amounts_to_artificial_market
_manipulation_of_share_prices/
[Accessed 19 September 2017].
Corporations Act 1989
Corporations Act 2001 (Cth)
Director of Public Prosecutions (Cth) (DPP) v JM (2013) HCA 30.
Horefield, D., 2007. Review of Sanctions for Breaches of Corporate Law. Sydney: Securities
& Derivatives Industry Association.
Inhouse Legal, 2017. Compliance: Theory and Practice in the Financial Services Industry.
[Online]
Available at: http://www.inhouselegal.com.au/Compliance_Course/lecture_4.htm
[Accessed 19 September 2017].
Langford, R. T., 2014. Director's Duties: Principles and Application. s.l.:Federation Press.

North v Marra Developments: A Case Study 10
McIntyre, G., 2014. Reforming the Regulation of Financial Market Manipulation, s.l.:
University of Sydney.
North v Marra Developments Pty Ltd (1981) HCA 68.
Securities Industry Act 1970 (NSW)
White Collar Crimes and Serious Fraud Conference, 2010. Insider Trading and Market
Manipulation. s.l., New Zealand Governance Centre.
Wilson, J. & Burns, A. G., 2017. Stock Market Manipulation Trials: Avoiding the Traps, s.l.:
Denver's List.