SOUTHERN EQUITIES CORP LTD (IN LIQ) v ARTHUR ANDERSEN & CO

The plaintiff (SECL) in this action claims damages against the defendant, a firm of chartered accountants, arising out of their audit of the accounts of SECL and of the SECL group of companies for the financial year ended 30 June 1988. At issue is the accounting and audit treatment of some 19 transactions or circumstances said to have resulted in a gross over-statement of the profit of SECL and the SECL group for that financial year. The plaintiff seeks to tender, without reservation, the relevant working papers of the defendant concerning the relevant transactions and circumstances. The defendant objects to the tender other than on a limited basis which I will explain.

On the first day of the trial the plaintiff tendered exhibits P994 to P998 inclusive, being the whole of certain files kept by the defendant known as the "Deals and Meetings Files". They were admitted, at that stage, without argument, for the purpose only of showing the audit work carried out by the defendant and not as evidence of the truth of the contents of the documents. The plaintiff indicated that it would seek to argue in due course that they should be admitted unconditionally. Counsel for the defendant indicated that he was not seeking to impose that qualification on every document but in respect of those to be identified in due course.

On 30 November 2001 the plaintiff sought to tender a series of exhibits namely P966, P992, P993, P999, P1000, P1001, P1394 and P2832 (the first group). They were admitted, subject to the defendant checking certain matters overnight (T.475 - T.476). On the following sitting day (3 December 2001) the defendant's position was resolved (T.515) by exhibits P992, P993, P999, P1000 and P1001, being audit work papers from the defendant's files, being tendered subject to what was in effect a similar limitation to that accepted in respect of the "Deals and Meetings" files, but which were expressly identified in a letter dated 28 September 2001 from the defendant's solicitors to the plaintiff's solicitors in the following terms:

"Where the plaintiff seeks to tender entire audit working paper files, or entire sections of audit working paper files, ......... the responses below have been prepared on the basis of the documents are sought to be tendered as going to establish audit work carried out by the defendant. However without any indication as to the use to which the document is proposed to be put, admissibility for any wider purpose cannot be admitted at this stage."

The responses referred to in that letter, in respect of most of the documents concerned, indicated that the plaintiff did not object. It was therefore clear on that day that the documents referred to were admitted, again without argument, upon that limited basis. The other documents sought to be tendered at the same time in the first group (exhibits P966, P1394 and P2832) were not described by the defendant's counsel as falling within that limitation. Accordingly, they were admitted without reservation[1], notwithstanding that they also appear to be memoranda and other papers relating to the audit generated by the defendant.

There was another series of documents tendered on 30 November (T.479 - T.482), namely exhibits P964 - P991 (the second group) which were admitted with a similar qualification and to which no further reference was made on 3 December.

It was accepted that the qualification quoted above from the letter would apply, for the time being, in respect of any audit work papers of the defendant. Since then, many hundreds of work papers from the files of the defendant have been admitted, apparently unconditionally. It is to be noted from the reservation set forth above that the qualification only applied to "entire audit working paper files, or entire sections of audit working paper files". However, each relevant working paper has been tendered separately, and I am in no position to know whether groups of them together comprise entire audit working paper files or entire sections of audit working paper files. The defendant has not attempted to identify any such groups, and they have been admitted unconditionally.

After completion of the plaintiff's opening, extensive discussions took place between the representatives of the parties, and a large number of objections of the defendant to documents which the plaintiff sought to tender were resolved. One of the groups of documents not the subject of resolution comprises a number of documents which come from the audit working paper files of the defendant. They were identified in a document entitled "No objection if tendered as document received in the course of the audit". That remains the defendant's position in respect of that group of documents which I will call the "limited tender list". The plaintiff seeks their unconditional tender.

Whilst it would appear that that list comprises the only list of audit working papers which are now the subject of qualification, at the end of his submissions Mr I Robertson, counsel for the defendant, sought to restate the general position I have referred to above in respect of all the defendant's audit working papers. If that remains the case, I fail to see why the limited tender list was agreed to identifying only those documents from the audit working papers in respect of which the defendant agreed to a qualified admission.

Unless there are other documents admitted subject to a qualification which I have inadvertently overlooked, I am prepared to accept that the qualification remains in respect of the deals and meetings files (exhibits P994 - P998 inclusive) and to exhibits P992, P993, P999 - P1001 inclusive and exhibits P964 - P991) inclusive, save to the extent that any of these exhibits or any parts of them have been separately tendered without objection. The qualification also remains with respect to the documents referred to in the limited tender list, although expressed in slightly different terms. If there are any other documents which the defendant claims have been wrongly admitted without qualification, it will now have to provide sound reasons why a previous apparently uncontested tender should now be reversed.

The final observation I make about the scope of the defendant's objection in respect of the limited tender list is this. The defendant's reservation is that there is no objection to the tender if the relevant document is tendered only as a document received by the defendant in the course of the audit. However, a substantial number of the documents listed are documents actually generated by the defendant. They are plainly business records of the defendant created by the defendant. The reservation in the limited tender list in its own terms can have no application to them.

The plaintiff seeks to tender the audit working paper documents without qualification as business records pursuant to s 45A of the Evidence Act 1929. As I understood the thrust of the defendant's argument, it was that documents originating from third parties and found within the defendant's audit working papers could not be admitted as evidence of the truth of the contents of those documents, but only of the fact that they were received by the defendant and (presumably) became the subject of consideration by the defendant. Where those documents had been marked in some way by the defendant, those markings were admissible unconditionally as business records of the defendant.

The defendant's argument was founded on a decision of Perry J in Duke Group Ltd (In Liq)) v Arthur Young (No 3) (1990) 55 SASR 11. That was a case, like the present, where the documents sought to be admitted had been generated by third parties, and had been discovered in the defendant's files. The plaintiff sought to tender the documents unconditionally in reliance upon s 45A.

After setting out the text of s 45A, and discussing R v Nicholson (1984) 113 LSJS 125; 12 A Crim R 231, Perry J held that incoming material generated by others "may be regarded as constituting a business record." However, as to whether such documents could constitute evidence of the facts stated in the documents, Perry J said, at 17:

"...[I]n considering the manner in which the section should properly be applied to such documents, one must first pose the question: what is the nature of the record? In the case of correspondence or other documents received from outside the business, the 'record' constituted by the placing of the documents within the file or other repository within which documents are kept by the business, whether with or without some annotation on it, constitutes the record of the business of its receipt of the document; in the case of communications, a record of the nature and content of the communications and, depending on the circumstances, the use made by the business of the document.

It is not a record by the business purporting to speak of the truth of the matters stated in the document. Within the meaning of s 45A(1), it is not a document 'purporting to be a business record' speaking to the truth of those facts.

Viewed in that light, having regard to the nature and purpose of the record, such documents when received by the defendant and placed in the appropriate classification within the various divisions in its file are not, at least when not annotated by the defendant to indicate the date or circumstances of their receipt, 'evidence of any fact stated in the record' within the meaning of s 45A(1)(b), as there is no relevant fact stated in the 'record'. What the document is admissible to prove, by means of its reception in evidence under s 45A, is a fact 'that may be inferred from the record', that fact being that the defendant has received the document and at leaset made use of it to the extent of putting it within its file under one or other of the classifications into which the file is divided." [Emphasis added].

The defendant argued that documents generated by third parties appearing in the files of the defendant could only be admitted subject to the same qualification. I will need to return to the judgment of Perry J, but it should be noted that His Honour treated the documents generated by third parties and appearing in the defendant's files as being business records only of the defendant, and it appears that it was that somewhat restricted view which may have led His Honour to impose the qualification that he did.

Section 45A of the Evidence Act 1929 provides as follows:

"(1) An apparently genuine document purporting to be a business record -

(a) shall be admissible in evidence without further proof; and

(b) shall be evidence of any fact stated in the record, or any fact that may be inferred from the record (whether the inference arises wholly from the matter contained in the record, or from the matter in conjunction with other evidence).

(2) A document shall not be admitted in evidence under this section if the court is of the opinion -

(a) that the person by whom, or at whose direction, the document was prepared can and should be called by the party tendering the document to give evidence of the matters contained in the document; or

(b) that the evidentiary weight of the document is slight and is outweighed by the prejudice that might result to any of the parties from the admission of the document in evidence; or

(c) that it would be otherwise contrary to the interests of justice to admit the document in evidence.

(3) For the purpose of determining the evidentiary weight, if any, of a document admitted in evidence under this section, consideration shall be given to the source from which the document is produced, the safeguards (if any) that have been taken to ensure its accuracy, and any other relevant matters.

"business" means business, occupation, trade or calling and includes the business of any governmental or local governmental body or instrumentality;

(a) any book of account or other document prepared or used in the ordinary course of a business for the purpose of recording any matter relating to the business; or

(b) any reproduction of any such record by photographic, photostatic, lithographic or other like process."

Although section 45A(2) may be invoked and considered in respect of the admissibility of particular documents, as and when they are sought to be admitted by either party, it was not put to me by the defendant that any particular document or class of documents ought to be excluded by the operation of s 45A(2). The defendant's case, as I have outlined it above, does not rely upon s 45A(2). Further consideration of that subsection in relation to these documents can therefore be put aside.

It is well established that the purpose of s 45A, (along with s 45B and s 45C) is to facilitate the proof of evidence, particularly for present purposes the proof of documents, without requiring the author of the documents to be called; Hillier & Carney v Lucas [2000] SASC 331, R v Calabria (1982) 31 SASR 423; Burnside Sub-Branch RSSLA Inc v Burnside Memorial Bowling Club Inc (1990) 58 SASR 324; SECL (In Liq) & Ors v Bond & Ors [2001] SASC 70; (2001) 78 SASR 554.

In R v Calabria (1982) 31 SASR 423 King CJ, with whom the other members of the Full Court agreed, described the purposes of s 45A and s 45B in this way (at 429-430):

"Sections 45A and 45B were inserted into the Act in 1972 to overcome some of the problems created by the technicalities of the common law and statutory rules of evidence relating to documentary evidence and to hearsay. Properly applied in circumstances to which they are suitable, those rules operate to exclude much unreliable and dangerous material. Applied rigidly, and without modification, or to circumstances to which they are unsuitable, however, they can exclude from the consideration of the courts evidence which is of undoubted probative value or which, at least, ought to be considered and weighed by a court before reaching a decision. Moreover, the exclusion of such evidence, not only leads to a decision being made on incomplete material, but sometimes on material whose true significance is distorted by the incomplete picture resulting from the exclusion. It is those mischiefs which the sections are designed to alleviate."

R v Nicholson (1984) 113 LSJS 125; 12 A Crim R 231 was an appeal to the Court of Criminal Appeal against a conviction for fraudulent conversion. A key document which was admitted in the trial was a printout, generated by a telex machine in an Adelaide branch of the National Australia Bank, being a record of a message from a Hong Kong bank. King CJ (with whom Walters and Mohr JJ agreed) said at 133; [A Crim R Reference]

"It is not necessary under s 45A for the document to be compiled in the ordinary course of business; it is sufficient that it should be 'used in the ordinary course of business for the purpose of recording any matter relating to the business.' If the messages were retained by the bank as a record of the communications, they could be regarded as documents 'used in the ordinary course of business for the purpose of recording any matter relating to the business', and therefore be business records for the purpose of s 45A. They would have evidentiary weight to prove that the communications took place. The fact sought to be proved by the prosecution however, is that the appellant requested the Hong Kong bank to seek the transfer of funds to Hong Kong. ... It is known from other evidence that the appellant was in Hong Kong at the time. In all the circumstances I have reached the conclusion that the Adelaide Bank's record, in the form of the retained message, of the communication from Hong Kong bank possesses considerable evidentiary weight in proof of the alleged request by the appellant to the Hong Kong bank. The record is "evidence of any fact stated in the record, or any fact that may be inferred from the record (whether the inference arises wholly from the matter contained in the record, or from that matter in conjunction with other evidence)". Statutory provisions of this kind are intended to make available to courts evidence which would be acceptable in other matters of serious concern in the community, but have been excluded from consideration of the Court by the common law rules of evidence. They are intended to render hearsay admissible. I see no reason why the language used should not be given its full meaning and effect, Albrighton v Royal Prince Alfred Hospital [1980] 2 NSWLR 524 esp per Hope JA at 548 and 549; R v Smart [1983] VicRp 22; 1983 VR 265 at 291-3. Adequate safeguards exist in s 45A(2) to enable a trial judge to prevent the use of the section in a way which might prejudice a fair trial. There were, however, strong grounds in the present case for admitting the telex messages as business records and for leaving it open to the jury to infer that the appellant had made the request referred to in the inward message. [Emphasis added].

The telex printout was a business record of the bank. The Chief Justice nevertheless favoured admitting the telex message as evidence not only of its receipt by the bank, but also as evidence of the facts stated within the message, notwithstanding that the message had been generated by a third party and concerned the activity of the accused. It was left to the jury as the trier of fact to determine how much weight to give to that evidence.

Perry J was of the view that his decision in Duke Group v Arthur Young (No 3) (supra) was consistent with the Full Court's view in R v Nicholson. That is true in so far as Nicholson decided that the telex message was a business record because it was "used" in the ordinary course of the bank's business. So were the third party documents in Duke Group v Arthur Young (No 3). However, the qualification placed on the use of the documents by Perry J and now relied on by the defendant is not consistent with the decision in Nicholson. The telex message in that case was admitted for any of the purposes stated in s 45A(1)(b).

In R v Perry (No 4) (1981) 28 SASR 119, a murder trial, the Victorian Police Department maintained files, the contents of which Cox J accepted were "business records" for the purpose of s 45A. The prosecution sought to tender from the files a report from an analyst to the Department as to the analysis of certain specimens. Cox J held that the report was a "business record" of the Victorian Police and was therefore admissible as evidence of the facts stated therein.

"The definition of 'business record' in s 45A is not confined to documents having their origin in the business to which they relate. They may be prepared elsewhere and achieve the requisite status by being used in the ordinary course of a business for the purpose of recording any matter relating to the business." (at 122)

Once admitted as a business record it became evidence of the fact stated in the record, namely that the analyst held a certain opinion as to the nature of the specimens analysed. There were other protections against the misuse of such material in s 45A(2) and s 45A(3).

In Hillier & Carney v Lucas [2000] SASC 331 the plaintiff sought to tender the Memorial Hospital's case notes pursuant to s 45A for the purpose of establishing the facts stated in the notes. The defendants argued that the case notes should not be allowed to be tendered, because the authors of the various notes could and should be called. Lander J (with whom Duggan J and I agreed) accepted this submission, and held that pursuant to s 45A, "this was a case where the person by whom the document was prepared could and should have been called by the party seeking to tender the document to give evidence of the matter contained in the document."

In the course of his reasons, however, Lander J at [189] correctly stated that by admitting the hospital case notes the trial Judge had admitted them for all purposes in s 45A(1)(b). Although obiter, this clearly supports the view that where documents are admitted under s 45A, they are admitted without qualification for which the defence in the present case contends. That is, they are admitted as evidence of the facts asserted therein or of facts which may be inferred from them.

Finally, I turn briefly to a case relied on by the plaintiff before me: Burnside Sub-Branch RSSILA Inc v Burnside Memorial Bowling Club Inc (1990) 58 SASR 324. At issue in this case was the admission into evidence of an old-style carbon copy of a lease executed in 1957. It was held by the Full Court (Jacobs, Cox and Matheson JJ) that the document was admissible pursuant to s 45A of the Evidence Act:

"The very use of the document, certainly over any length of time, may fulfil the purpose of recording a particular matter relating to the business, whether the document was originally created for that reason or not. It need not have had its genesis within the business if the user alternative is satisfied, though that is hardly a relevant consideration in this case. Cf R v Nicholson (1984) 12 A Crim R 231. It follows that we would reject the appellant's submission that only the signed original from which D4 was ostensibly copied could be a 'business record.'

It is now well established that s 45A and s 45B of the Evidence Act are to be given a liberal interpretation....having in mind the remedial policy to which they give expression." (at 338)

The Court discussed the safeguards which exist in s 45A(2) which go to the document's reliability, and suggested that there is an onus on the party seeking to exclude a document to establish that one or more of the grounds in s 45A(2) is satisfied. As I said, that has not been argued in relation to the relevant documents in the present case. The Court concluded that the trial judge correctly admitted the copy as evidence of the memorandum of lease dated 3 October 1957 of which it purported to be a copy.

Although the Full Court in Burnside agreed that the carbon copy of the lease could be admitted as evidence of the facts asserted therein, the case is of little assistance in resolving the defendant's argument as to the use that may be made of third party documents other than to assert, once again, that the document, once admitted, is admitted for all purposes.

None of the authorities to which I have referred provide any support for the reservation expressed by Perry J in the Duke Group Case as to the use that may be made of documents created by third parties which become a business record of another party. Indeed, there is no warrant in the Evidence Act for the reservation. Once admitted as a business record, the document stands as evidence of any facts stated in it, or of any facts that may be inferred from it. Sub-section (3) sets out the matters to be taken into account in determining the evidentiary weight (if any) to be given to the document, but that does not affect its admissibility for the purposes described in s 45A(1)(b).

There also seems to be some confusion in the defendant's argument as to what constitutes the "record" which, once admitted, becomes evidence of the facts stated in the record. It is the document itself the subject of tender which is and which constitutes the record and which, on admission into evidence, becomes evidence of the facts stated in it or the fact that may be inferred from it. The record is not the file or collection of documents from which the particular document is produced.

Before being admitted under s 45A the document itself must qualify as a business record as defined in s 45A(4). Two things should be noted about that definition for present purposes. First, it need only be a document prepared or used in the ordinary course of a business. That need not necessarily be the same business as the business the proprietor of which held the document. In most cases it will be. However, the document might also be a business record of another business. Indeed, this is most likely in the case of third party documents held by an auditor. Thus, many of the documents in question, whilst they may undoubtedly be business records of the defendant, will also be business records of the plaintiff.

Secondly, the documents admitted may be a copy or a reproduction of an original document. The clearest application of that provision appears in the Burnside Case where a carbon copy of a lease was admitted containing in typewritten form the purported signatures of the parties to the lease.

A document admitted under s 45A is evidence of the fact stated in the record, which is the document itself. It is not merely evidence of the content of the file in which it appears and from the presence of which on that file certain inferences relating to that business may be drawn. If the document is only evidence of the fact that a particular document was received by the defendant, there is no need to rely on s 45A at all. That can be proved by an admission or some other form of proof that it was found on the defendant's file.

Whether the document is a document "prepared or used in the ordinary course of a business for the purpose of recording any matter relating to the business" will depend on the nature of the record, its apparent author (if known), to whom it was sent, its content and other matters to be inferred from the document itself. Sometimes, it may depend on where the document was located. Because it is located (in this case) in the files of the defendant may well mean that it becomes a business record of the defendant. It does not mean that it ceases to be a business record of the plaintiff or a copy thereof (admissible also under s 45A). As I have said, s 45A does not require that a business record be limited to a record of the business from whose custody it is produced, nor is it limited to proof of the fact pertaining to that business.

However, whether the documents in question are business records of the defendant or of the plaintiff or of both, once it is established that a particular document is a business record, the only qualification on its admissibility is to be found in s 45A(2).

If the third party documents from the defendant's files were admitted only for the limited purpose sought by the defendant, a serious anomaly could arise. The documents themselves might be the best evidence of some event or transaction undertaken by the plaintiff or some third party. Yet, they would not, on the defendant's contention, be able to be used as proof of that event or transaction. However, a business record created by the defendant in which the event or transaction is summarised or discussed would be admissible for all purposes under 45A, that being a less reliable and less complete form of evidence of the transaction or event than the third party document itself.

There was some faint suggestion by the defendant that some of the documents in question, namely minutes of Board meetings of the plaintiff and copies of the plaintiff's seal register were not genuine, and may have been concocted by one or more of the directors at the time. There is no evidence of that before me at present. The documents are apparently genuine records. If admitted as business records under s 45A, the ultimate weight to be afforded to them, and their reliability as evidence of the facts stated in them, will depend on other evidence before me which might either tend to confirm or cast doubt on the genuineness of the record. However, such a suggestion cannot determine the admissibility of the document under s 45A unless, on its face and at the time of tender it appears to be something less than an apparently genuine document.

It follows that the qualification sought to be placed by the defendant upon the use which may be made of the documents contained in the limited tender list, exhibits P994 - P998 inclusive, exhibits P992, P993 and P999 - P1001 inclusive and exhibits P964 - P991 inclusive cannot be sustained. The documents must be admitted without reservation. The question of their evidentiary weight will need to be addressed in the context of the whole of the evidence in the case.

I have heard separate argument and will deal separately with objections to the transcript of examinations of various people. Subject to that I will hear counsel as to what remaining documents should now be admitted, particularly in relation to those contained in two other lists of documents identified at the hearing on 1 March 2002.

JUDGMENT CITATIONS AS THEY APPEAR IN THE JUDGMENT

1 I note that in the electronic court book exhibit P966 purports to contain a qualification on its admission. That is an incorrect endorsement and should probably be removed.