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

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 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.
SECL relies on the dictum of Lander J in SECL (In Liq) v Bond (No. 2) (supra) at [61]:
“I think the transcript is admissible provided it is signed by the examinee or authenticated as provided by the rules in any proceedings against the examinee. In my opinion, the transcript does not have to satisfy any of the common law requirements for admissibility. Nor does its admission against the examinee depend upon any other statutory provision. It is admissible in its own right. Its admission, of course, will be subject to relevance. An irrelevant examination could not be admissible because it is irrelevant and in those circumstances it would not tend to prove any matter in issue in the proceedings: Re Norman Baker Pty Ltd (In Liq); ex parte Hillmann (1981) 6 ACLR 257.”
I do not accept that, in order to be admitted into evidence, the record or transcript of an examination does not have to satisfy any of the common law requirements for admissibility. In my opinion the subsection merely means that the record or transcript may be used in evidence without any further proof of its content. Subsection (14) says nothing about the admissibility of the evidence or the use to which it may be put. It is significant that the subsection itself merely says that the record or transcript “may be used in evidence”. It does not specify how it may be used. By contrast with the wording of s 597(12A), it does not use the word “admissible”. Subsection (12A) specifically renders inadmissible in criminal and like proceedings any answer which tends to incriminate the examinee. That is a qualification on admissibility. If s 597(14) intended the record or transcript to be otherwise admissible for all purposes, I think it would have said so.
There is another feature of s 597(14) which should be noted. The phrase “against the person”, by virtue of its position in the subsection, qualifies the phrase “legal proceedings”, rather than the phrase “may be used in evidence”. In other words, the transcript or record may be used for purposes other than as an admission against the examinee. It can be used in evidence as if the examinee were giving evidence in the subsequent proceedings about events and conversations which the examinee witnessed. That is not surprising, given that the questions that may be asked of an examinee under s 597 are “such questions about the corporation or any of its examinable affairs as the Court thinks appropriate”: s 597(5B). Furthermore, the examinee can be represented and can be asked questions by his counsel or solicitor: s 597(16). The only qualification on the subsequent use of the record or transcript is that it be in proceedings “against the person”: s 597(14).
It follows that I disagree with the assertion of Lander J in SECL v Bond (No. 2) (supra) at [132] that s 597(14) is limited in its terms to the admissibility of the transcript against the examinee. There may be good reasons why the transcript should not be admitted against other persons based on other rules of evidence, but that prohibition does not arise out of s 597(14). How the transcript will be used and the extent to which it may be used will be governed by those other rules of evidence.
The dictum of Lander J in SECL (In Liq) v Bond (No. 2) at [61] which I have set out in full would appear on its face to go further by suggesting that the admissibility of the transcript is not dependent upon other rules. However, the qualification expressed in the same paragraph that the evidence must be relevant necessarily imports the application of other rules. Furthermore, the apparent breadth of the dictum is not borne out by other aspects of His Honour’s reasons. Lander J held, with respect correctly, that there is a residual common law discretion to exclude such evidence: see [63] – [113], thereby importing a further set of common law rules.
I respectfully agree with the observations of Malcolm CJ in Douglas-Brown v Furzer (1994) 13 ACSR 184 at (194):
“At one stage in the argument a suggestion was canvassed that s 597(14), which provides that a written record signed by the person examined or an authenticated transcript ‘may be used in evidence in any legal proceedings against the person’, imported a discretion on the part of the court to include a direction to the contrary in the order for the examination. In my opinion, the provision is facilitative only and does no more than provide that both a signed written record and an authenticated transcript may be used in evidence in any legal proceedings. The provision does not confer any relevant discretion on a court to determine at the stage of making the order for examination whether or not the record or transcript is admissible. The provision does not have the effect that the whole of the record or transcript is necessarily admissible as evidence in the court or tribunal before which it is sought to be used in other legal proceedings. Clearly, it would be for that court or tribunal to determine whether all or any part of the record or transcript was admissible according to the ordinary rules of evidence: Re Norman Baker Pty Ltd (In Liq); Ex parte Hillman [1982] WAR 349 at 352, per Brinsden J (with whom Burt CJ and Jones J agreed). In my opinion, s 597(14) simply has nothing to say on the subject of admissibility. It is concerned only with proof of the answers in other legal proceedings. The question of admissibility, including any question of relevance or oppression, is a matter for the court or tribunal in those other proceedings.”
Ipp and Andersen JJ agreed. The passage was also cited with approval by Mullighan J in The Duke Group Ltd (In Liq) v Pilmer (1994) (supra) at 388.
It follows that s 597(14) of the Corporations Law permits the record or transcript to be used subject to any relevant statutory or common law conditions or exclusions. It does not permit hearsay to be admitted unless pursuant to some common law or statutory qualification on the rule against hearsay. It does not permit a discretionary exclusion save in accordance with some common law or statutory provision. It does not permit irrelevant evidence to be admitted.
Messrs Gardener and Parkin were, at all material times, partners in the firm of Arthur Andersen. They were summoned to be examined as partners. They were required to produce and to explain many documents in the custody and possession of their firm. They gave evidence in the ordinary course of their business as partners. There was no other reason for them to be examined. Section 15 of the Partnership Act 1891 provides:
“An admission or representation made by any partner concerning the partnership affairs, and in the ordinary course of its business, is evidence against the firm.”
Therefore, to the extent that the transcript contains admissions or representations concerning Arthur Andersen’s affairs, it is admissible against the other defendants.
It has not been suggested in argument that there are any grounds at common law why the whole of the transcripts of the examinations of either Messrs Gardener or Parkin should not be admitted into evidence. They may therefore be used in the proceedings pursuant to s 597(14). Subject to hearing argument as to the admissibility of any particular passages contained in any of the transcripts based on particular exclusionary rules, as to which I have not heard any argument, I consider that the transcripts are admissible for all purposes in these proceedings.
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.”
The functions of s 45A and s 45B of the Evidence Act were well described by King CJ, (with whom White and Matheson JJ agreed) in R v Calabria (1982) 31 SASR 423 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 as 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.
The subject matter of s. 45b comprises statements contained in documents, whether written, graphical or pictorial and whether express, implied or inferential. It seeks to remove the restrictions imposed by the ordinary rules of evidence as to documentary evidence and hearsay, on what the court may know of such statements. Sub-section (3)(b) makes it clear that the statement must have evidentiary weight and there is, therefore, no reason to suppose that the section affects the rule as to relevance as the basis of admissibility. The statements which are the subject matter of the section, are statements which would be admissible if given on oath by the maker in the witness box. The method adopted in the section to achieve the desired remedial effect, is to provide a very broad ground of admissibility and to surround that ground with safeguards. The ground of admissibility consists of the apparent genuineness of the document containing the statement of fact, together with the apparent ability of the person by whom or at whose direction the document is prepared, to have deposed of his own knowledge, at the time of the preparation of the document, to the statement contained in the document. The safeguards consist of discretions vested in the trial judge to exclude the document on the widest of grounds. The very breadth of the ground of admissibility and of the discretions to exclude, suggests that the section is not to be construed narrowly or technically. Its remedial character and the mischief which it is evidently designed to remedy, combine to indicate the need for a broad construction, giving the courts the widest discretion as to which documents containing statements should be admitted. In order to give full effect to the remedial purpose of the section, the dangers associated with unreliable material coming before courts should be met, not by giving a narrow or technical meaning to the ground of admissibility, but by reliance upon the judicial discretion to exclude.”
Some doubt has been expressed about the literal application of the dictum of King CJ suggesting that it allows for the tender of otherwise inadmissible hearsay evidence contained in a document, that being inconsistent with the requirement expressed in the section 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 contained in the document: see Ryan v ETSA (No. 2) (1987) 47 SASR 239 at 244; SECL (In Liq) v Bond (No. 2) (supra) at [197] – [206].
However, I do not interpret King CJ’s remarks as allowing the admission of a written statement under s 45B, which statement, if made by the same person giving oral evidence, would be hearsay. In my opinion, King CJ’s reference to removing restrictions on ordinary rules of evidence as to hearsay, when read in the context of the preceding paragraph, was merely a reference to removing any restriction brought about by the statement being contained in the document rather than by it being given viva voce by the maker of the statement before the Court which is asked to receive the statement. That view of what King CJ intended is confirmed by the statement which follows, namely that the statements admitted under the section “are statements which will be admissible if given on oath by the maker in the witness box”.
It is not in dispute that the transcripts of the examinations in question are “apparently genuine documents”. However the defendant contends that the transcripts do not contain a “statement of fact”. Alternatively, it was put in submissions that there ought to be a requirement for the plaintiff to identify the fact or series of facts which it seeks to take from each relevant statement. No authority was cited for that proposition. I reject that argument.

Assuming that the other necessary criteria specified in s 45B are met, the transcripts contain many statements of fact which, as I have already said, on their face, are relevant. Prima facie, they are admissible as such. It is for the defendant to raise a particular objection as to relevance or hearsay or some other ground which would render a particular passage inadmissible. Once again, in the case of relevance, this requires a flexible approach to ensure that a particular relevant statement of fact is read in its proper context in the examination. Such objections can be the subject of a particular ruling if necessary. That was the approach taken by Perry J in The Duke Group Ltd (In Liq) v Arthur Young (1990) 54 SASR 498 at 507. Alternatively, as Lander J said in SECL (In Liq) v Bond(No. 2) (supra), having concluded that the transcripts contained statements of fact [at 208]:
“It will only be the statements of fact which, on the tender of the document, may be used. Anything which does not meet the definition of statement of fact in s 45B(1) will be ignored. Obviously anything that is not a statement of fact will be irrelevant.”
The next point of contention under s 45B is the claim by the defendant, that the examinees are not persons “by whom or at whose direction” the transcripts of their examinations were prepared. This submission is contrary to binding and overwhelming authority: R v Calabria (supra) per King CJ at 430 - 431, with whom White J (at 450) and Matheson J (at 454) agreed; The Duke Group Ltd v Arthur Young (No. 1) (supra) per Perry J at 507; The Duke Group Ltd (In Liq) v Pilmer (supra) at 391 – 392; and SECL (In Liq) v Bond (No. 2) (supra) at [214] – [215]. I therefore reject that submission.
Arthur Andersen did not press the “can and should be called” proviso in s 45B(3)(a). Nor was it argued that the evidentiary weight of the transcripts was slight so that they ought to be excluded under s 45B(3)(b).
Interests of justice
Arthur Andersen contends that it would be contrary to the interests of justice to admit the transcripts, and that I should therefore use my discretion to exclude the transcripts pursuant to s 45B(3)(c). The basis for this argument is that the acceptance of the transcript would permit SECL to circumvent the rules of evidence. Arthur Andersen submits that it would confer an unfair forensic advantage on SECL to tender the transcripts, rather than to use the transcript only as envisaged by s 27 to s 29 of the Evidence Act, namely as evidence of a prior inconsistent statement to be put to the examinee when giving oral evidence.
There is no authority for the proposition that the use of s 45B is or should be limited to proof of a prior inconsistent statement. True it is that the section does not render admissible a written statement which, if given in oral evidence, would be inadmissible: Beauregard-Smith v R (1995) 180 LSJS 188 at 192; Question of Law Reserved (No. 3 of 1997) (1998) 70 SASR 555 per Prior J at 563. However, the section is intended to facilitate the proof of written statements as primary evidence of the maker of the statement in a variety of possible circumstances.
Arthur Andersen sought to derive assistance from a number of authorities. In Question of Law Reserved (No. 3 of 1997) (supra), on a joint charge of murder, one of three defendants successfully argued for the exclusion from evidence of a portion of a police interview obtained in breach of s 74D of the Summary Offences Act 1953. That section relates to the recording of police interviews and the procedures to be adopted in relation to such recording. The trial Judge held that it could be unfair to the accused to admit the evidence. The two co-accused then sought to tender the relevant record of interview as tending to contribute materially to their innocence. By a majority, the Court of Criminal Appeal held that there was no statutory barrier rendering the record of interview inadmissible on the application of the co-accused, subject to the trial Judge giving a firm direction as to the lack of use that could be made of the evidence as against the first defendant. Counsel for the two co-accused sought, as an alternative, to justify the admissibility of the record of interview under s 45B of the Evidence Act. All three Judges rejected the argument on the basis that the finding of unfairness by the trial Judge and the introduction of hearsay evidence would be contrary to the interests of justice. In particular, as Perry J pointed out (at 570), to use the statement to facilitate the introduction of hearsay evidence against the objection of the accused most affected by it would be contrary to the interests of justice. No such questions arise in this case.
In Beauregard-Smith v The Queen (1995) (supra) the defence applied to recall a witness for the purpose of cross-examining the witness as to a prior inconsistent statement where the statement was available to the defence before the witness gave evidence, but was not known to the defendant’s trial counsel. The Court of Criminal Appeal held that there was no miscarriage of justice. It also held that the alleged prior inconsistent statement could not be tendered under s 45A of the Evidence Act, as it would not have been permissible for the author of the statement to have given the evidence in the absence of laying a proper foundation under s 28 of the Evidence Act. It would have been a “misuse of s 45A to permit it to be proved pursuant to that section”. (per King CJ at 192). Section 45A contains a similar provision to s 45B(3)(c).
Arthur Andersen has not pointed to any parts of the several transcripts which, if admitted under s 45B of the Evidence Act, would amount to the admission of evidence which would otherwise be inadmissible if given viva voce by the examinee in these proceedings.
Arthur Andersen also sought comfort from the decision of Lander J in SECL (In Liq) v Bond (No. 2) (supra) in his application of s 45B to the circumstances then before him. Those were circumstances where transcripts of examinations under s 597 of the Corporations Law were sought to be admitted under s 45B against all defendants in the action, Lander J holding that they were admissible only against the particular examinee who made the statement. As I have already pointed out, that was based, in part, upon what I consider to be a misunderstanding of the effect of s 597(14). However, Lander J approached the application of s 45B independently, but in a way which provides no comfort to Arthur Andersen. His Honour took the view, consistent with Question of Law Reserved (No. 3 of 1997) and Beauregard-Smith, that s 45B cannot be used to circumvent the common law rules of evidence. His Honour said at [231]:
“In my opinion s 45B(3)(c) has been included to prevent s 45B being used to make what would otherwise be wholly inadmissible evidence admissible.”
I respectfully agree that that may be one of the purposes. There may also be others. Nevertheless, on that basis Lander J rejected the tender of the transcripts of the examinations in that case other than against the defendant who was examined, the defendants in that case having conflicting interests and being separately represented. As His Honour pointed out, if the evidence was admitted against all defendants and the examinee did not give evidence, the other defendants would not be able to test the examinee’s evidence and it would stand uncontradicted. This was in circumstances where, because of confidentiality orders, no defendant had an opportunity to object to the examination of the others, were not present at the other examinations and were not aware of the evidence given by the others when they themselves were examined.
The circumstances in this case are rather different. Messrs Gardener and Parkin were at the time represented by the same solicitors, and still are. At all times their interests have been in common. Messrs Green and Smith, if not represented by the same solicitors at the time preceding and during their examinations, conferred extensively with the solicitors and counsel representing the defendants, including Gardener and Parkin. Smith and Green are each associated with the operations of a business trading as Arthur Andersen in other countries. They are shown to have had an active participation with Gardener and Parkin and other defendants and their employees in the audit of the accounts of SECL and the SECL group for the year ended 30 June 1988. Their interests would appear to be in no way divergent. It was not suggested in this case that any one defendant would suffer through not being able to cross-examine an examinee if he were not called to give evidence. If that were a genuine complaint (and it was not), it might have been a ground for arguing that the discretion should be exercised against admission of the transcript under s 45B(3)(a), namely that the examinee could and should be called by SECL. However, no such argument has been addressed.
It is no answer to SECL’s application to tender the transcripts to say that the relevant examinees will be called in any event by Arthur Andersen. There has been no undertaking to do so, nor would I expect such an undertaking. It may well be counsel’s present intention to call some or all of the examinees as part of Arthur Andersen’s case. There is no obligation to do so, and that may require reassessment at the close of the plaintiff’s case. If the evidence is otherwise admissible and it is not otherwise contrary to the interest of justice to admit the transcript, it should be admitted.
The evidence before me shows that the examinees were given and indeed three of them took every opportunity they could to avoid their examinations. They were properly and adequately represented and advised throughout their examinations. There have been no other grounds advanced which would render it contrary to the interests of justice to admit the transcripts in evidence. That is not to say, as in the case of s 597(14) of the Corporations Law, that objection cannot be taken on particular grounds to the admissibility of certain passages in the transcript.
There is no reason to admit the transcripts only as against the examinees. To do so would be to render the transcripts of the examination of Smith and Green inadmissible at all under s 45B, and would be to frustrate the proper operation of the section in the circumstances now before me.
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.

[2002] SASC 148

6 May 2002