Southern Equities Corp Ltd (in Liq) v Arthur Andersen & Co (Reg) (No 11) No. Scciv-94-1474 - [2002] SASC 148

SOUTHERN EQUITIES CORPORATION LTD (IN LIQUIDATION) v ARTHUR ANDERSEN & CO (REG) (NO 11)
[2002] SASC 148
Civil
BLEBY J
Background

The plaintiff (SECL), a company in liquidation, brings this action for damages against the defendant (Arthur Andersen), a firm of chartered accountants, arising out of and in connection with the audit by Arthur Andersen of SECL’s and the SECL group’s accounts for the year ended 30 June 1988. SECL seeks to admit into evidence transcripts of examinations of four individuals, namely Derek Parkin, Justin Gardener, John Greene and Brian Smith (“the examinees”).
A Master of this Court issued orders pursuant to s 596B of the Corporations Law, for the examination of Parkin (5 September 1994), Gardener (12 July 1995) Smith (15 August 1997) and Greene (29 August 1997) in respect of the examinable affairs of SECL. These orders were issued in proceedings for the winding-up of SECL.
Parkin and Gardener were both partners of Arthur Andersen at the date of the orders for their respective examinations and at the time of their respective examinations. They are both parties to these proceedings as partners of Arthur Andersen. Smith and Greene, although they played a part in the engagement of and in the audit by Arthur Andersen, are not parties to the proceedings. SECL submits that the transcript of the examinations of Parkin and Gardener are admissible for all purposes in these proceedings under s 597(14) of the Corporations Law. In addition, SECL submits that the transcript of the examinations of all four examinees is admissible pursuant to s 45B of the Evidence Act 1929.
The plaintiff wishes to tender these transcripts without calling any of the examinees, as they are each considered to be adverse to the plaintiff. The defendant, for its part, has indicated, “without making any commitment or giving any undertaking”, that it intends to call Greene and Smith “and a number of other members of the audit team, or people involved in the audit or associated with the audit”.
Section 597(14) Corporations Law
The purpose of s 597 of the Corporations Law and of an examination conducted under it is well known. In this regard I respectfully refer to the discussion of the predecessor of s 597 by Mullighan J in The Duke Group Ltd (In Liq) v Pilmer (1994) 63 SASR 364 at 385 – 387. That discussion is equally relevant to an examination under s 597.
No-one now suggests in these proceedings that any of these examinations was conducted for other than a proper purpose, and to assist the liquidator in the prosecution of these proceedings.
It is with that purpose in mind that s 597 relevantly provided:
“(12) A person is not excused from answering a question put to the person at an examination on the ground that the answer might tend to incriminate the person or make the person liable to a penalty.”
(12A) Where:
(a)before answering a question put to a person (other than a body corporate) at an…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

AGLC: Southern Equities Corp Ltd (in Liq) v Arthur Andersen & Co (Reg) (No 11) No. Scciv-94-1474 [2002] SASC 148
Case: [2002] SASC 148
Decision Date: 6 May 2002

CaseChat Overview and Summary

Southern Equities Corp Ltd (in Liquidation) v Arthur Andersen & Co (Reg) (No 11) No. Scciv-94-1474 was a case brought by the liquidator of Southern Equities Corp Ltd, seeking to hold Arthur Andersen & Co accountable for their role in the auditing process of the company. The dispute involved the admissibility of transcripts from examinations of certain individuals, including Gardener and Parkin, under section 45B of the Evidence Act. Arthur Andersen & Co argued that the plaintiff had to establish the basis for the admissibility of these transcripts, a contention rejected by the court. The legal issues at the heart of this case revolved around the admissibility of the examination transcripts under section 45B of the Evidence Act, and the extent to which section 597(14) of the Corporations Law could be used to facilitate the admissibility of such transcripts in court.

The court found that the transcripts of the examinations were admissible under section 45B of the Evidence Act, as they contained statements of fact relevant to the case. The plaintiff argued that these transcripts should be independently admissible, while Arthur Andersen & Co contended that the admissibility of the transcripts depended on common law principles or other statutory provisions. The court disagreed, stating that section 45B of the Evidence Act was sufficient for the admissibility of the transcripts. The court further held that the admissibility of the transcripts under section 597(14) of the Corporations Law was facilitative, meaning that the plaintiff had to establish the admissibility of the transcripts according to the rules of evidence. The court ruled that the transcripts of all examinees were admissible, subject to further argument regarding specific passages that may be deemed inadmissible.

In conclusion, the court ruled that the transcripts of the examinations of all examinees, including Gardener and Parkin, were admissible under section 45B of the Evidence Act. The admissibility of the transcripts under section 597(14) of the Corporations Law was found to be facilitative, meaning that the plaintiff had to establish their admissibility according to the rules of evidence. The court's decision was based on the rationale that the purpose of section 597 of the Corporations Law and the examinations conducted under it was to assist the liquidator in the prosecution of these proceedings. The court's final orders allowed for the admission of the transcripts subject to further argument, if necessary, as to particular passages said to be inadmissible for some particular reason not yet identified.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

I do not accept Arthur Andersen’s argument that the plaintiff must establish the basis on which the transcripts are admissible. On their face, the transcripts are relevant in so far as the examinee identifies and explains particular documents, describes his understanding of the nature of the transactions and circumstances of the plaintiff being audited and describes the role of the examinee and others in the audit of the plaintiff’s accounts. It is not easy to identify particular passages in the examinations as, standing alone, being admissible to the exclusion of other seemingly irrelevant statements. Very often apparently irrelevant passages will give colour and necessary background to the more obviously relevant statements. The answers will often need to be read as a whole. It is for Arthur Andersen, in this case, to identify particular passages in the transcripts which it says are inadmissible before me for some particular reason, and to justify its objection.Section 45B, Evidence Act The plaintiff argued that the transcripts of the examinations of all examinees, including Gardener and Parkin, were independently admissible under s 45B of the Evidence Act. That section provides:“(1)An apparently genuine document purporting to contain a statement of fact, or written, graphical or pictorial matter in which a statement of fact is implicit, or from which a statement of fact may be inferred shall, subject to this section, be admissible in evidence.(2) A document shall not be admitted in evidence under this section where the court is not satisfied that the person by whom, or at whose direction, the document was prepared could, at the time of preparation of the document have deposed of his own knowledge to the statement that is contained or implicit in, or may be inferred from, the contents of the document.(3) 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.(4)In determining whether to admit a document in evidence under this section, the Court may receive evidence by affidavit of any matter pertaining to the admission of that document in evidence.(5)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 was produced, the safeguards (if any) that have been taken to ensure its accuracy, and any other relevant mattes.(6)In this section-“document” means-(a) any original document; or(b) any reproduction of an original document by photographic, photostatic or lithographic or other like process.”

Decision

Reasons for decision

In my opinion the transcripts of the examinations of all four examinees are admissible under s 45B of the Evidence Act.Conclusion The transcripts of all examinees will be admitted subject to further argument, if necessary, as to particular passages said to be inadmissible for some particular reason not yet identified.

Ratio Decidendi

Legal Principle Established

The plaintiff wishes to tender these transcripts without calling any of the examinees, as they are each considered to be adverse to the plaintiff. The defendant, for its part, has indicated, “without making any commitment or giving any undertaking”, that it intends to call Greene and Smith “and a number of other members of the audit team, or people involved in the audit or associated with the audit”.Section 597(14) Corporations Law The purpose of s 597 of the Corporations Law and of an examination conducted under it is well known. In this regard I respectfully refer to the discussion of the predecessor of s 597 by Mullighan J in The Duke Group Ltd (In Liq) v Pilmer (1994) 63 SASR 364 at 385 – 387. That discussion is equally relevant to an examination under s 597. No-one now suggests in these proceedings that any of these examinations was conducted for other than a proper purpose, and to assist the liquidator in the prosecution of these proceedings. It is with that purpose in mind that s 597 relevantly provided:“(12) A person is not excused from answering a question put to the person at an examination on the ground that the answer might tend to incriminate the person or make the person liable to a penalty.”(12A) Where:(a)before answering a question put to a person (other than a body corporate) at an examination, the person claims that the answer might tend to incriminate the person or make the person liable to a penalty; and(b)the answer might in fact tend to incriminate the person or make the person so liable;the answer is not admissible in evidence against the person in:(c)a criminal proceeding; or(d)a proceeding for the imposition of a penalty;other than a proceeding under this section, or any other proceeding in respect of the falsity of the answer.(13) The Court may order the questions put to a person and the answers given by him or her at an examination to be recorded in writing and may require him or her to sign that written record.(14)Subject to subsection (12A), any written record of an examination so signed by a person, or any transcript of an examination of a person that is authenticated as provided by the rules, may be used in evidence in any legal proceedings against the person.” SECL submits that the admissibility of the transcripts of the Parkin and Gardener examinations in this trial does not depend upon any common law principle, or any other statutory provision. Rather, it submits that under s 597(14) “the clear intent ……. is to make the transcript admissible in proceedings against the examinee”: SECL (In Liq) v Bond (No. 2) (2001) 78 SASR 554 at [60]. SECL submits that as Parkin and Gardener are parties to the action, the transcripts of their examinations are admissible by virtue of s 597(14) for all purposes against all defendants without qualification. Arthur Andersen on the other hand, submits that s 597(14) is facilitative only. That is to say that the transcript must be shown by SECL to be otherwise admissible pursuant to the rules of evidence.