The Duke Group Ltd (in Liquidation) v Angus Claymore Pilmer, Alan Robert Crawford, Domenic Vincent Martino, Peter John Messer, Peter Lawson Munachen, Geoffrey James Stokes and Robert John Gray (Defendants), Francis..
[1994] SASC 4823
•4 November 1994
COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA MULLIGHAN J
CWDS
Evidence - documentary evidence - Admissibility of internal financial accounts of company prepared for management - not admissible pursuant to 51305 of the Corporations Law - not kept under a requirement of a previous law, namely the Companies (South Australia) Code - admissible pursuant to s45a, Evidence Act 1929 - consideration of s45a(2) of whether there is a discretion to exclude admissible evidence in civil proceedings - annual report of company - admissible pursuant to s1305 of Corporations Law - required to be kept by the Code - consideration of meaning of "kept" - admissible as a public document - admissibility of transcript taken at examination pursuant to s541 of Companies (South Australia) Code - s45b, Evidence Act 1929 applicable - s541 does not constitute an exclusive code as to admissibility. Corporations Law sl3os; Companies (South Australia) Code and Evidence Actss45a and 45b. The Queen v Perry (No 3) (1981) 28 SASR 112 at 115; The Queen v Calabria
(1982) 31 SASR 423 at 429-430; R v Halpin (1975) QB 907 at 913; The Nalanda Pt/L (In Liq) (1983) 1 ACLC 1000; Re Hugh J Roberts P/L (In Liq) and the Companies Act (1970) 91 WN(NSW) 537 at 541; In re John Arnold's Surf Shop P/L (In Liq) (1979) 23 SASR 222; Gerah Imports P/L v The Duke Group Ltd (In Liq)
(1994) 12 ACLC 116 and Masinski v Bakka (1979) 20 SASR 350, applied. Van Reesema v Flavel (1992) 10 ACLC 291; Manning v Cory and Sumner (1974) CLC
40-140 at 28,017; (1974) WAR 60 at 62; Residues Treatment and Trading Co Ltd and Anor v Southern Resources Ltd and Ors (1989) 52 SASR 54 at 77; Burnside Sub-branch RSSILA Inc v Burnside Memorial Bowling Club Inc (1990) 58 SASR 324; Pooraka Holdings P/L v Participation Nominees P/L, McAuley and Ors (1991) 58 SASR 184; Re Rothwells Ltd (No 2) (1989) 7 ACLC 576; Hong Kong Bank of Australia Ltd and Ors v Murphy and Ors (1992) 10 ACLC 1573; Douglas-Brown v Furzer (1994) 13 ACSR 184 and Duke Group Ltd (In Liq) v Arthur Young and Anor
(1990) 54 SASR 498 at 504-505, considered.
HRNG ADELAIDE, 7 July - 4 November 1994 #DATE 4:11:1994
Counsel for plaintiff: Mr T Gray QC with Mr S Lipman,
Mr D Whitington and Mr A D'Arcy
Counsel for defendants: Mr J Mansfield QC with Mr S Lane
and Mr P Zappia
Third parties: No appearance
ORDER
Unnecessary to decide whether the transcript is admissible.
JUDGE1 MULLIGHAN J In this action the plaintiff claims damages from the group of defendants referred to as "the first defendants" who, at all relevant times, were the partners of the firm of accountants known as "Nelson Wheeler" in Perth for breach of contract and negligence and the group of defendants referred to as "the fifth defendants", also accountants, who are alleged to be liable to the plaintiff for the same damages by reason of their being in a national partnership with the first defendants known as Nelson Wheeler or because there had been a holding out to that effect relied upon by the plaintiff. In the alternative, the plaintiff claims damages against the other defendants who, at relevant times, were directors of the plaintiff ("the director defendants"). Even a brief description of the causes of action against them is unnecessary for present purposes. It is necessary only to mention the proceedings against the first defendants.
2. In brief terms the causes of action are said to arise in this way. The plaintiff was formerly Kia Ora Gold Corporation NL ("Kia Ora"), a publicly listed company. In 1987 it acquired the shares in Western United Limited ("Western United"), also a publicly listed company. Some shareholders and directors of Kia Ora were also shareholders and directors of Western United. Consequently the approval of the unassociated shareholders of Kia Ora in general meeting was required, pursuant to listing rules of the Australian Stock Exchange Ltd which, it is said, have the force of law. For that purpose a report from an independent qualified expert to the effect that the price to be paid for the shares in Western United was fair and reasonable had to be obtained and placed before the unassociated shareholders of Kia Ora in general meeting. The first defendants were engaged to, and did, prepare such a report in September 1987 and the plaintiff claims that they did so incompetently and in breach of their duty to Kia Ora in consequence of which it suffered substantial loss. The plaintiff claims that the true measure of its loss is the difference between the amount paid by Kia Ora for Western United shares and the value of those shares, said to be in excess of $85 million together with many tens of millions of dollars for loss of use of that money since late 1987. It may be seen that if the result in these proceedings is adverse to the first defendants and the fifth defendants the consequences to them may be very serious indeed.
3. Earlier the plaintiff prosecuted an action against another firm of accountants, known as Arthur Young, for damages by reason of the manner in which those accountants went about the preparation of a report submitted to shareholders of the plaintiff in 1988 for the purpose of what has been described as a reverse takeover of the plaintiff by a group of companies referred to as the Duke Group. The detail of that transaction is not relevant for present purposes but, according to the first defendants, it is of significance in the present litigation. Subsequent to the reverse takeover, the plaintiff became insolvent and was placed in liquidation by order of the Court made on 11th July 1989. The trial of that action occupied a very long time, about 260 sitting days, before there was settlement of the plaintiff's claim. The terms of that settlement were approved by the Master who had heard many previous applications relating to aspects of the liquidation of the plaintiff. It was a term of the settlement that the liquidator was free to take any further proceedings arising out of the takeover by the plaintiff of Western United and to conduct examinations under s541 of the Companies Code. I am told that a provision to that effect was thought desirable in the interests of the parties to the settlement. The Master was aware of these matters in late February 1992 when he approved the settlement.
4. On 5th March and later the liquidator made applications for, and obtained, orders that the defendant Pilmer, one of the first defendants and a partner of Nelson Wheeler in Perth at relevant times, and a former employee of that partnership, Mr Newman, be examined under s541. Also an order was made that the working file of Nelson Wheeler be produced. Mr Newman had undertaken much of the work in the preparation of the report when employed by the first defendants. The working file was produced to the Master who made it available to the plaintiff's solicitors well in advance of the examination of Mr Newman and Mr Pilmer. Mr Newman was examined on 4th and 5th May 1992. Mr Pilmer was examined on 15th and 23rd June 1992 and he was represented by counsel on the second day. A transcript was taken of these examinations and each of the two men read over and signed the transcript of his evidence acknowledging it to be accurate.
5. During the course of the plaintiff's case thus far, Mr Gray QC tendered four documents and their admission into evidence was opposed by Mr Mansfield QC. They are described below and two of them are the transcripts of s541 examinations of Mr Pilmer and Mr Newman. At their own choice the director defendants were not present at the trial at the relevant times and no attitude to the admission of the documents into evidence has been expressed by them. Subsequent reference in these reasons to the defendants is a reference to the first defendants and the fifth defendants. After hearing lengthy submissions, I made rulings with respect to each of the documents and indicated that I would publish reasons for those rulings at a later time and I now do so.
6. The first of those documents is MFI P69Q and is described by the plaintiff as the management accounts for the month of July 1987 of Kal Assay Southern Cross Pty Ltd ("Kal Assay") which, at all relevant times, was a member of the Western United Group of companies. It is comprised of a balance sheet as at 31st July 1987, a profit and loss statement for the period ending 31st July 1987, including such a statement for the month of July 1987, a statement of the budget of income and expenditure of the company and the performance of the company during the year to date and a document entitled "General Ledger Trial Balance Report". This report purports to set out in detail financial information of the company. The plaintiff contends that these documents were internal financial accounts and were supplied each month to the management of Kal Assay; hence the name "management accounts" which has been given to them. The defendants contend that they do not know, and therefore cannot acknowledge the use, if any, made by the company of these documents or who prepared them. It has not yet been established if the documents are monthly financial accounts submitted to management of the company for the purpose of management. Nevertheless, for the sake of convenience I shall refer to them as "the management accounts".
7. Already submitted into evidence is ExP97 which is the general ledger of Kal Assay for a relevant period of time. That document was admitted pursuant to s1305 of the Corporations Law and, by virtue of that section, is prima facie evidence of any matter stated in it. The general ledger contains a record of all of the financial transactions of the company during relevant periods. Mr Gray contends that the management accounts contain only information which is to be found in the general ledger and they are a convenient way of ascertaining the financial position of the company at the end of July 1987. That exercise may be undertaken by perusing the general ledger which would be very time consuming. The correctness of this assertion is not acknowledged by the defendants, however, it is agreed that the management accounts are a business record of the company.
8. Mr Gray argued that the document is admissible pursuant to s1305 of the Corporations Law and to s45a and s45b of the Evidence Act (SA) and at common law. Mr Mansfield disputes admissibility pursuant to s1305 and at common law. He acknowledges that it is admissible as a business record pursuant to s45a but contends that it should not be admitted in the exercise of discretion pursuant to s45a(2). He makes a similar submission with respect to s45b.
9. The plaintiff seeks to have the documents admitted into evidence for various purposes: to prove that they are part of a body of material in the nature of management accounting reports that were in existence at relevant times and were available to any valuer, including the first defendants, and were relied upon for the purposes of making the report. They are admissible to show that management of the company had the information contained in the documents available on a monthly basis which permitted management to periodically review the performance of the company. It follows that, for this purpose, the plaintiff seeks admission of the documents into evidence to prove the truth of their contents. Also the plaintiff contends that the facts contained in the management accounts are a basis of valuing the company at relevant times, an exercise said to be relevant in establishing that the first defendants were in breach of their duty in preparation of the report and in the assessment of damages. There may be other evidentiary purposes of the documents not presently apparent, but they may be considered should they arise.
10. Section 1305 is in the following terms:
"1305(1) A book:
(a) kept by a body corporate under a requirement of this Law; or
(b) kept by a corporation under a requirement of a previous
law corresponding to a provision of this Law;
is admissible in evidence in any proceeding and is prima
facie evidence of any matter stated or recorded in the book.
1305(2) A document purporting to be a book kept by a body
corporate shall, unless the contrary is proved, be deemed to
be a book kept as mentioned in subsection (1)."
11. The Corporations Law came into operation on 1st January 1991 and so the obligation to keep "a book" at times relevant to this matter is to be found in the former uniform Companies Code. Under the Code a book is defined as follows:
"5(1) 'books' includes any register or other record of
information and any accounts or accounting records, however
compiled, recorded or stored, and also includes any
document;"
12. Without question the management accounts are a book within this definition. The issue is whether they were kept under a requirement of the Code. Section 267 of the Code imposes the obligation upon a company to keep accounting records:
"267(1) A company shall -
(a) keep such accounting records as correctly record and
explain the transactions of the company (including any
transactions as trustee) and the financial position of the
company; and
(b) keep its accounting records in such a manner as will
enable -
(i) the preparation from time to time of true and fair
accounts of the company; and
(ii) the accounts of the company to be conveniently and
properly audited in accordance with this Code.
267(2) Subject to section 9 of the Evidence (Reproductions)
Act, 1967, a company shall retain the accounting records kept
under this section or under a corresponding provision of a
previous law of the State for a period of 7 years after the
completion of the transactions to which they relate.
267(3) The company shall keep the accounting records at such
place or places as its directors think fit.
267(4) If any accounting records of a company are kept at a
place outside the State, the company shall, if required by
the Commission to produce those records at a place in the
State, comply with the requirement no later than 14 days
after the requirement is made.
267(5) If any accounting records of a company are kept at a
place outside Australia the company shall keep at a place
within Australia determined by the directors such statements
and records with respect to the matters dealt with in the
records kept outside Australia as would enable true and fair
accounts and any documents required by this Code to be
attached to the accounts to be prepared.
267(6) A company shall lodge with the Commission notice in
writing of the place in Australia where any statements and
records kept pursuant to sub-section (5) are kept unless the
statements and records are kept at the registered office of
the company.
267(7) The accounting records of the company shall be kept
in writing in the English language or so as to enable the
accounting records to be readily accessible and readily
convertible into writing in the English language.
267(8) The Court may, on application by a director of a
company, make an order authorising a registered company
auditor acting for the director to inspect the accounting
records of the company.
267(9) A company shall make its accounting records available
in writing in the English language at all reasonable times
for inspection without charge by any director of the company
and by any other person authorised or permitted by or under
this Code to inspect the accounting records of the company.
267(10) Where a registered company auditor inspects the
accounting records pursuant to an order of the Court under
sub-section (8), he shall not disclose to a person other than
the director on whose application the order was made any
information acquired by him in the course of his inspection.
267(11) If default is made in complying with a provision of
this section other than sub-section (10), the company, a
director of the company who failed to take all reasonable
steps to secure compliance by the company with the provision
and any officer of the company who is in default are each
guilty of an offence.
Penalty: $2,500 or imprisonment for 6 months, or both."
13. "Accounting records" is defined in s5(1):
"includes invoices, receipts, orders for the payment of
money, bills of exchange, cheques, promissory notes, vouchers
and other documents of prime entry and also includes such
working papers and other documents as are necessary to
explain the methods and calculations by which accounts are
made up."
14. It may be seen that s267(1)(b) reveals the purpose for keeping accounting records and a distinction is drawn between accounting records and the accounts of a company in that subsection and in s267(5).
15. It is the plaintiff's contention that s267 requires a company to keep accounting records which are sufficient to explain the transactions of the company. How it discharges that obligation is a matter for the company. Kal Assay discharged the obligation by keeping a general ledger, P97, and management accounts which show the financial position of the company month by month. Mr Gray argued that in order to discharge the obligation the accounts of a company must be kept in such a way that the directors of the company are in a position, on a regular basis, to be aware of the financial position of the company so management decisions may be made on an informed basis. In support of this argument, he relied upon the decision of the Full Court in Van Reesema v Flavel (1992) 10 ACLC 291. There, the Court had to consider whether a director of a company had failed to take reasonable steps to secure compliance by the company with the obligation to keep accounting records pursuant to s267(1). The company had kept no books or accounting records. King CJ, with whom the other members of the Court agreed, said at p294:
"The expression 'accounting records' in its ordinary
connotation is, in my opinion, apt to include the various
books of prime entry such as cashbook and journal as well as
the ledgers. The definition in s5 extends the expression to
include a range of source materials being 'invoices,
receipts, orders for the payment of money, bills of exchange,
cheques, promissory notes, vouchers and other documents of
prime entry and also includes such working papers and other
documents as are necessary to explain the methods and
calculations by which accounts are made up'. The obligation
then is to keep such books of account and source materials as
are necessary for the purposes specified in s267(1).
It is hardly necessary to say that the obligation is not met
simply by keeping the source materials from which a set of
books may be written up."
16. He went on to cite, with approval, the following passage from the judgment of Burt J in Manning v Cory and Sumner (1974) CLC 40-140 at 28,017;
(1974) WAR 60 at 62, which although dealing with a statutory obligation to keep proper books, he considered apt to describe the obligation under s267(1):
"It is not altogether clear from the magistrate's reasons
whether he did hold that as matter of law it could not on
that evidence, if accepted, be held that proper books of
account had not been kept by the company. His reasons do
however carry a very firm suggestion that such was his
opinion, the basis for it being that the records, i.e. the
cheque butts, pay-in slips and the like were accurate and
were sufficient to enable proper books of account to be
prepared. In my opinion this is not the test. The section
requires that such books be kept as are necessary 'to exhibit
and explain the transactions and financial position of the
trade or business of the company' cf. sec. 161. The evident
policy of that requirement is that the accounts should
disclose or exhibit the financial position of the company at
all times and at any time. They must be such as to enable
one to say at any point of time where, in a financial sense,
the company is, and it is not enough that they be such as to
enable a competent accountant by producing a set of accounts
long after the happening of the events to which they, i.e.
the cheque butts, receipts and so on relate, to say where it
has been and to establish the fact that it is then insolvent
and unable to carry on. The whole policy of the section is
to prevent this from happening, that is to say to prevent its
officers from flying the company blind and upon its crash,
and without having any information capable of sustaining the
opinion, from then saying that he thought that he had more
altitude."
17. King CJ accepted that minimum requirements are the keeping of a ledger organising entries of transactions into proper accounts to enable the accounts to be audited and for a profit and loss statement and balance sheet to be prepared. He did not regard the keeping of source materials as sufficient and said, at p295:
"In my opinion the journal entries and the balance sheet and
profit and loss account written up after liquidation, do not
fulfil the company's obligation. The obligation is to keep
accounting records and that, as Burt J points out in Manning
v Cory and Sumner supra, implies that they should be kept on
a regular basis so as to disclose the financial position of
the company 'at all times and at any time'. It may be, as
the liquidator conceded in this evidence, that in some
companies with a small number of transactions, it might be
sufficient to have the organised accounts written up at the
end of the financial year. That was not, however, what
occurred in this company."
18. Mr Gray argued that the management accounts were required to discharge the obligation of preventing the officers of the company "from flying the company blind" which would be the case if they were not prepared and of ensuring that financial position of the company was disclosed "at all times and at any time". The obligation could not be discharged by merely keeping the general ledger. He contended that the obligation is to keep records which explain the financial position of a company at any time and a company must ensure that the obligation is discharged. How it chooses to do so is a matter for the subjective commercial judgment of the company and may vary from company to company but it must keep accounts which will serve the needs of management. Annual accounts, as required by s266, are obviously insufficient to discharge the obligation because for the other eleven months of the year, the officers of the company would be flying blind. This company chose to do so in the form of management accounts on a monthly basis and consequently it has kept these accounts pursuant to the obligations imposed by the Code.
19. I reject this argument. The answer to it is to be found in the correct understanding of the relevant statutory obligations and their purpose. As King CJ observed in Van Reesema v Flavel (supra), at p294, the two obligations imposed by s267(1) are to keep such accounting records as correctly record and explain the transactions of the company and its financial position and to keep those records in such a manner as will enable the preparation from time to time of the accounts of the company and enable these accounts to be conveniently and properly audited. The accounts of the company are defined in s266 and mean, in general terms, profit and loss accounts, balance sheets and accompanying statements, reports and notes attached to them and intended to be read with them. It may be seen that accounting records and accounts are different concepts. The existence of the former is usually necessary for the creation of the latter. The distinction between the two is apparent in s267. Accounting records include all the primary documents, such as invoices, receipts, cheques and the like and "other documents of prime entry". The Code imposes the obligation that these records be kept and for the stated purposes.
20. Mr Mansfield drew a distinction between these types of records which he described as primary accounting records and documents such as the management accounts which he described as derivative records and argued that the Code draws a distinction between the two. Clearly the primary materials, invoices, cheques and receipts, are on one side of the line and are clearly accounting records required to be kept. The same must be said of documents of prime entry such as a general ledger in the nature of P97. Those records do not contain any interpretation and record and explain the transactions of the company and its financial position. They enable the preparation and audit of the accounts of the company. Derivative reports interpret the primary records and in doing so become judgmental in the sense, for example, that a particular transaction is said to have resulted in the acquisition of an asset of a particular type, an asset is the subject of depreciation at a particular rate or an expense should or should not be amortised over a particular period of time.
21. I accept this argument. The Code did not require a company to keep records of the interpretative or judgmental type. No doubt it is good practice in the management of affairs of a company to ensure that interpretative reports, including performance against budget, are prepared for and considered by management as often as the particular circumstances require, but I do not think such reports, even if in the form of financial accounts, were required to be kept by the Code, or now by the Law. I do not think the words "... and explain the transactions" appearing in s267(1)(a) deny the soundness of this interpretation. "Explain" in this context means record in a way which reveals relevant and appropriate information about a transaction, eg to whom a payment was made and the purpose of the payment. It does not require any interpretative or judgmental function.
22. The management accounts are not documents in the nature of accounting records as defined in the Code. They are in the nature of accounts and are not required to be kept by the Code and s1305 is not an aid to their admission into evidence. This conclusion is not inconsistent with the dicta in Van Reesema v Flavel (supra). There the Court was concerned with the failure to keep accounting records not with what records may be so described. As King CJ observed, accounting records must be kept for the purposes set out in s267(1)(a) and (b). It is in that context that accounting records must disclose the "financial position of the company at all times and at any time" and enable management to be able to appreciate the true financial position of the company. The retention of primary records and the keeping of documents of primary entry is what is required. Van Reesema v Flavel (supra) is not concerned with interpretative or judgmental reports as such management reports of the nature presently under consideration.
23. Mr Gray also contended that the documents are admissible by reason of s1305(2). He argued that the true interpretation of the subsection leads to the conclusion that if the documents purport to be a book kept by the company, they are admissible because they are deemed to be a book kept as mentioned in subsection (1), ie, under a requirement of the Law or the Code. I reject that argument. The deeming provision in subsection (2) is to be read in conjunction with subsection (1). Under the former, there are three criteria: the document under consideration must be a book, it must be kept by a corporation and it must be kept under a requirement of the Law or the Code. Subsection (2) enables the first two of these criteria to be deemed to be proved where the document in question purports to be a book kept by a corporation. For example, it would not be necessary to prove that P97 is the general ledger of Kal Assay kept by that company if it purports to be so. It is unnecessary to have recourse to subsection (2) as it is acknowledged that the management accounts are genuine records of that company and kept by it. The words "as mentioned in subsection (1)" in subsection (2) cannot be understood to mean that a book is deemed to be kept under a requirement of the Law. If that was so, any document within the definition of a book kept by a company would be deemed to be kept under a requirement of the Law. I think support for this construction may be found by comparison of s1305(2) with its predecessor in the Code, s550(2). Section 550(1) was in similar terms to s1305(1). Section 550(2) provided:
"550(2) A document purporting to be a book kept by a
corporation shall, unless the contrary is proved, be deemed
to be such a book and to be kept pursuant to a requirement
mentioned in sub-section (1)."
24. The last clause of that subsection has not been included in s1305(2) which lends some support to the contention that there was no legislative intention to include a provision deeming that a book is kept according to a requirement of the Law, particularly as that provision was part of the uniform Companies code.
25. In my view the management accounts are not admissible by reason of s1305.
26. It is contended that they should be admitted pursuant to s45a of the Evidence Act 1929. That section provides:
"45a (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 that 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;
(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.
(4) In this section -
'business' means business, occupation, trade or calling and
includes the business of any governmental or local
governmental body or instrumentality:
'business record' means -
(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."
27. As it is acknowledged that the management accounts are a business record of Kal Assay and they are relevant to a fact in issue, they are admissible pursuant to s45a(1) and for the purpose specified in s45a(1)(b), notwithstanding that facts stated in them are clearly hearsay: The Queen v Perry (No 3) (1981) 28 SASR 112 at p115. The first question is whether the document should not be admitted into evidence for any of the reasons stated in s45a(2). It is said, in some of the cases, that consideration of those matters involves the exercise of a discretion but I do not accept that such is the case. If the court concludes that any of the reasons set out in s45a(2) exist, the document cannot be admitted into evidence, which does not suggest that there is any discretion to be exercised only a matter of judgment. Before turning to the reasons advanced for rejecting the tender of the management accounts, it is appropriate to have regard to the purpose of the section. In The Queen v Perry (No 3) (supra), Cox J, at p115, accepted that the section is designed to mitigate the strictness of the hearsay rule in the case of documents produced by an organisation in the ordinary course of its affairs and went on to refer, at pp117-118, with approval, to the observations of Hope JA in Albrighton v Royal Prince Alfred Hospital (1980) 2 NSWLR 542 as to a similar provision in the Evidence Act 1898 (NSW), at pp548-549:
"Any significant organisation in our society must depend for
its efficient carrying on upon proper records made by persons
who have no interest other than to record as accurately as
possible matters relating to the business with which they are
concerned. In the everyday carrying on of the activities of
the business, people would look to, and depend upon, those
records, and use them on the basis that they are most
probably accurate.
...
The purpose of Pt IIc is to bring into the court room a
method of establishing the truth which is relied upon by our
society outside the court room - to bring into the rules of
evidence a reality which they otherwise lacked ... Properly
understood and applied, Pt IIc makes available to courts, in
a way to be found in many other parts of the common law
world, a most valuable source of evidentiary material which
rules of evidence devised in another age would exclude."
28. In The Queen v Calabria (1982) 31 SASR 423 King CJ, with whom the other members of the Full Court agreed, described the purpose in this way, at pp.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."
29. With these purposes in mind, I turn to the grounds of the objection to admitting the management accounts into evidence.
30. I am informed that the identity of the person or persons by whom or at whose directions the management accounts were prepared is not presently known. They were prepared about seven years ago and enquiries are being made, on behalf of the plaintiff, to ascertain if the identity can be ascertained and if so whether any such person or persons can be called to give evidence. I have deferred my decision whether to admit the document pursuant to s45a until the result of those enquiries is known so that I may consider whether the person or persons can and should be called. However, it is convenient to resolve, at this stage, other issues raised by Mr Mansfield on the question of whether the management accounts should be admitted pursuant to s45a.
31. There can be no reason to exclude the document on the ground that the evidentiary weight is slight and is out-weighed by the prejudice that may result to any of the defendants. This reason to exclude relevant evidence is similar to, if not the same as, a familiar ground for excluding evidence in criminal proceedings, often described as the Christie discretion: R v Christie (1914) AC 545. It is as well to be reminded of the circumstances in which that "discretion" falls to be exercised. They were discussed by Lord Du Parcq in Noor Mohamed v The King (1949) AC 182 at p192:
"... in all such cases the judge ought to consider whether
the evidence which it is proposed to adduce is sufficiently
substantial, having regard to the purpose to which it is
professedly directed, to make it desirable in the interest of
justice that it should be admitted. If, so far as that
purpose is concerned, it can in the circumstances of the case
have only trifling weight, the judge will be right to exclude
it. To say this is not to confuse weight with admissibility.
The distinction is plain, but cases must occur in which it
would be unjust to admit evidence of a character gravely
prejudicial to the accused even though there may be some
tenuous ground for holding it technically admissible. The
decision must then be left to the discretion and the sense of
fairness of the judge."
32. Also, as King CJ observed in The Queen v Duke (1979) 22 SASR 46 at pp47-48:
"The prejudice there referred to must, of course, be a
prejudice additional to or distinct from the detriment to the
accused's interests involved in the probative force of the
evidence. The prejudicial tendency must out-weigh the
probative value, as Cross on Evidence puts it in the
Australian edition (1970) at p31 'in the sense that the jury
may attach undue weight to it or use it for inadmissible
purposes'."
33. The decision to be made in accordance with s42a(2)(b) should be exercised in accordance with these principles. The management accounts have evidentiary weight in proof of facts in issue which cannot be assessed as slight. Any prejudice to the defendants arises from the probative force of the evidence itself and consequently, in my view, there can be no basis for their exclusion on that account.
34. I am unable to identify any circumstances which could lead to the conclusion that to admit the management accounts into evidence would be contrary to the interests of justice. They are logically probative of facts in issue, namely the financial position of Kal Assay at a relevant time which is, or may be, of significance in determining the value of the shares in Western United and whether the price to be paid by Kia Ora for those shares was fair and reasonable as well as what damages, if any, have been suffered by the plaintiff. As a general rule, any evidence which is logically probative and is relevant to a fact in issue must be admitted in civil proceedings. Subject to consideration of whether the person by whom or at whose direction the management accounts were prepared can, and should be, called, I see no reason not to admit them into evidence pursuant to s45a.
35. Mr Mansfield also submitted that the management accounts should be excluded in the exercise of discretion apart from any direction which exists under s45a. He contended that the court has a discretion to exclude admissible evidence if its reception would be unfair to the non-tendering party. Here, the perceived unfairness is identified in this way. The plaintiff has chosen to try and prove its case by use of documents by employing statutory aids such as s1305, s45a and s45b with the consequence that if they are admitted they are evidence of the facts stated in them or of inferences which may be inferred from those facts. The plaintiff proposes to call experts to explain the significance of such facts and to express opinions relevant to matters in issue. None of the former directors or employees of the various relevant companies are to be called by the plaintiff to explain the records, affairs and transactions of the company or any of the companies. Consequently the defendants will be deprived of the opportunity to cross-examine such persons to test the factual basis of the plaintiff's case and to elicit evidence favourable to, or supportive of, their case. It is submitted that the unfairness is all the more apparent because the documents sought to be admitted into evidence, including the management accounts, are not the documents of any of the defendants. They have no knowledge of them and no way of checking the accuracy of the facts stated in them. Also, this is a case where the consequences to the defendants of a judgment adverse to them could be horrendous in view of the quantum of the plaintiff's claim. It is submitted that the plaintiff should not be permitted to present its case in that way and fairness to the defendants dictates that tendering of the documents should be rejected.
36. I do not accept that there is a discretion in a court to reject admissible evidence in civil proceedings except in one and perhaps two types of circumstances. In Mazinski v Bakka (1979) 20 SASR 350, King CJ expressed the view that the courts should seriously consider assuming a discretionary power in civil cases of the nature described in The Queen v Ireland (1970) 126 CLR 321 and Bunning v Cross (1978) 52 ALJR 561 to reject evidence "which a party has obtained by a serious and deliberate infringement of the legal rights of another": p361. Wells J, with whom White J agreed, accepted that there was no such discretion to exclude admissible evidence but said that where it was obtained "by means of conduct that was deliberately and cynically criminal or otherwise outrageous", the court could reject the evidence by employing its residual power to prevent an abuse of its processes: p.381. Pincus J went further in Pearce v Button (1985) 8 FCR 388 and held that a discretion to exclude illegally obtained evidence does exist in civil proceedings. In Sheldon v Sun Alliance Ltd (1988) 50 SASR 236 von Doussa J acknowledged that a discretion of this nature may exist. Even if such a discretion may be exercised in civil proceedings, the circumstances in which it may be exercised are very limited and do not exist with respect to the management accounts or any other document tendered thus far. The liquidator obtained those documents pursuant to the lawful processes open to him under the Companies Code and there is no suggestion that he obtained them unlawfully or by infringing the rights of any person, let alone any of the defendants.
37. The other circumstance in which admissible evidence may be rejected in the exercise of discretion in civil proceedings is if admitting the evidence would result in procedural unfairness to the non-tendering party. Such a discretion appears to have been recognised in Mood Music Publishing Co Ltd v De Wolfe Limited (1976) 1 Ch 119, Berger v Raymond Sun Ltd and Ors (1984) 1 WLR 625 and in DF Lyons Pty Ltd and Ors v Commonwealth Bank of Australia
(1991) 100 ALR 468 at p.478. The probative value must be considered together with the extent to which admitting the evidence will complicate and prolong the trial. In these days of pre-trial procedures designed to ensure that a party is not taken by surprise at trial and that only matters genuinely in issue are to be litigated, it is likely that the consideration of this type of discretion would only rarely arise. There are no circumstances here present which call for consideration of that discretion.
38. The Christie discretion has no application in civil proceedings at common law: Christies' case (supra) per Lord Moulton at p.559 and Lord Reading at pp.564-565; Ibrahim v The King (1914) AC 599 at p.610; Hurst v Evans (1917) 1 KB 352 at pp.357-358; Manenti v Melbourne and Metropolitan Tramways Board
(1954) VLR 115 at p.120, David Syme and Co Ltd v Mather (1977) VR 516 at p.531, Mazinski v Bakka (supra) per Wells J at p.381 and Sheldon v Sun Alliance Limited (supra) per von Doussa J at p.247. It is to be noted that in Taylor v Harvey (1986) 2 Qd.R 137, Carter J accepted that this type of discretion existed in civil proceedings and "may generally be exercised by reference to at least the same kind of considerations which may be seen to be relevant in a criminal trial": p.141. In my view, there is no support for that view to be found in the cases and it denies the true role and function of a trial judge in civil proceedings. In Evans v F (1964) SASR 130 the existence of such a discretion in a Magistrate trying a summary charge was rejected. Mayo J said, at pp.133-134:
"Admission and possible prejudice have to be decided by the
Magistrate himself. The probative value of the testimony
tendered concerns its logical relationship to some issue.
The possibility of engendering prejudice, and the exercise of
the discretion concern the aspect that the details may tend
to characterise the alleged offender in a manner likely to
raise serious criticism of him personally. What is the
nature of such a prejudice? It concerns the Magistrate as
constituting the tribunal that will decide fact. He receives
the knowledge in the first place, however, as that part of
the tribunal dealing with a matter of law. He is then asked
to decide whether it will affect him adversely to the alleged
offender in his capacity as the tribunal of fact. This
question of prejudice relates to a possible emotional
stimulus. The danger is of it having subconscious operation
in the mind of the tribunal. The emotional stimulus, if any,
is just as likely to result, if at all, from the disclosure,
the mere disclosure to him in either capacity, as tribunal of
law as well as of fact. But it may thus be disclosed to a
Magistrate in many cases where such evidence is sought to be
tendered, and thus will have likelihood of stimulating
emotion in whichever guise the Magistrate receives it. The
situation differs with a jury. If improperly, or by
accident, disclosure is made, the verdict of the jury if
adverse to the alleged offender, if the matter goes that far,
will not perhaps be likely to stand.
But no such consequence follows in the Magistrate's court.
Should testimony that is probative be excluded on the ground
of likelihood to prejudice the mind of the Magistrate? The
facts have already been disclosed, and possible prejudice
introduced. Can that aspect be the basis of exclusion? I do
not think it should be in the circumstances of this matter.
Can the Magistrate be heard to say, in effect, 'this evidence
is strictly admissible, but, as it may prejudice my mind
against the alleged offender, I will exclude it'?"
39. Hogarth J expressed his view as follows, at p.147:
"I think that the question whether the probable effect of the
evidence if admitted, 'would be out of proportion to its true
evidential value' must be considered in an atmosphere of
reality, and in relation to the tribunal which, it is
suggested, would be subjected to the prejudicial effect of
the evidence to such a degree that the proper exercise of its
judicial functions might be affected. I think it is
improbable that evidence which is technically admissible
would be given weight out of proportion to its true
evidential value where it is being considered by a trained
tribunal, e.g. as in this case, a Court constituted by a
Special Magistrate. In order to exercise his discretion to
exclude the evidence, the magistrate would have to consider
it and its allegedly prejudicial effect, and, assuming that
he were to exercise his discretion to exclude it, the law
proceeds on the assumption that he is able to shut out from
his mind what he should ignore as being unduly prejudicial.
It is not unreasonable to expect that the same magistrate
could perform the mental feat of admitting evidence which is
technically admissible, but of not giving it any weight
beyond its true probative value."
40. It is to be assumed that the court will weigh evidence appropriately and will not be impermissibly prejudiced by any evidence.
41. There is no suggestion in the cases that there is any other basis for exercising the discretion to exclude admissible evidence in the exercise of discretion in civil proceedings. In Pallante v Stadiums Pty Ltd (No.2) (1976) VR 363, McInerney J did not decide, but doubted, whether he had a discretion to reject evidence once the conditions of admissibility are shown to exist in order to prevent a miscarriage of justice. In my view the proper use of admissible and logically probative evidence tends to ensure that a miscarriage of justice will not occur.
42. There is no basis to exclude the management accounts or any other documents of that nature in the exercise of discretion.
43. It is unnecessary to consider whether the management accounts may be admitted pursuant to s45b of the Evidence Act as they are acknowledged to be business records, but I mention that, at this stage, the evidence does not permit a finding that the person by whom, or at whose direction, they were prepared could have deposed of his own knowledge as to the matters set out in them and it is unlikely that s45b could provide a path for their reception into evidence.
44. As the management accounts are business records of Kal Assay, they are admissible at common law but not as evidence of the facts stated in them. That will only be so if they are admitted pursuant to s45a and I admitted them on that basis.
45. Before parting with this document, I mention one further matter with respect to the perceived prejudice to the defendants. It is difficult to see how any impermissible prejudice can be caused to the defendants. The plaintiff is entitled to adduce evidence in any acceptable manner. The Court cannot require the plaintiff to call any witness or witnesses. If the management accounts are admitted pursuant to s45a, consideration must be given to the matters set out in s45a(3) when considering the evidentiary weight to be given to them. Those matters must be considered in the context of all of the other evidence in the case. It does not follow that because the documents are evidence of any facts stated in them that such facts will be found proved merely by use of the documents.
46. The Court must consider all relevant and logically probative evidence and give it such weight as it deserves in the whole evidential context of the case. At this stage I am concerned only with admissibility and whether the management accounts should be admitted. All sorts of matters will have to be considered when assessing the weight to be given to any fact sought to be proved by the documents. If there is a tactical disadvantage to the defendants because persons employed by or associated with the company cannot be cross-examined, that is not a prejudice in any relevant sense. Any party may call a witness.
47. The second of the documents is MFI P59C, the annual report of Kal Assay. It is not suggested that the report is not relevant to facts in issue in the proceedings, eg to the value of Kal Assay shares at relevant times, and it is accepted that it is comprised of authentic documents and that it is what it purports to be. MFI P59C is comprised of the following documents, a certificate of the secretary of Kal Assay to the effect that they are a true copy of the accounts required by law to be laid before the annual general meeting of the company, the report of the directors to the members, the balance sheet, the profit and loss account, notes to and forming part of the accounts, a statement by directors that the accounts have been drawn up so as to give a true and fair view of the result of the company for the relevant year, that there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due and that the accounts have been made out in accordance with Australian accounting standards and applicable approved accounting standards, and an auditor's report.
48. Mr Gray contends that this report, and the annual reports of various other companies, is admissible by reason of s1305 of the Corporations Law, because it is a public document and by reason of s45a and s45b of the Evidence Act. He seeks to use the report as evidence of the facts stated in it. Mr Mansfield argued that whilst it may be admissible in proof of what it purports to be, if relevant, but is not admissible as evidence of the truth of the matters stated in it. He contended that it is not a public document and none of the statutory routes to admission into evidence is applicable to it.
49. With respect to s1305, the question is whether the annual report was required to be kept by Kal Assay under a requirement or requirements of the Code. Section 270(1) provides that the directors of a company shall, within a specified period before the annual general meeting of the company, cause to be made out a report, made in accordance with a resolution of the directors of the company and signed by at least two of them stating certain specified information of the nature set out in the director's report contained in MFI P59C. Section 269(1) provides that the directors of a company shall, before the annual general meeting, cause to be made out a profit and loss account for the previous financial year being a profit and loss account which gives a true and fair view of the profit or loss of the company for that year. Section 269(2) imposes a similar obligation upon the directors with respect to the making out of a balance sheet that gives a true and fair view of the state of affairs of the company as at the end of the financial year. Section 266(1) provides that the notes to the accounts form part of the accounts. Section 269(4) provides that the directors must take steps to ensure that the accounts are audited. Section 269(8A) requires the directors to ensure that the accounts of the company are made out in accordance with applicable approved accounting standards. Section 275 provides that the directors cause the annual accounts to be laid before the annual general meeting of the company and s269(9) requires the directors to attach to the accounts a statement in accordance with a resolution of the directors and signed by at least two of them that (inter alia) the profit and loss statement and the balance sheet give a true and fair view of the profit or loss and the state of affairs of the company.
50. It may be seen that these obligations are imposed upon the directors of a company and not upon the company itself: cf various provisions of the Code which impose obligations upon a company, eg to keep a register of options granted to take up unissued shares in the company (s131), to establish a register of "buy-backs" of shares (s133VA), a register of holders of debentures (s147), of directors and office holders (s238) and of its members (s256). Section 263 requires a company to lodge an annual return and s267(1), previously mentioned, which imposes the obligation on a company to keep accounting records.
51. Section 285 imposes an obligation upon the auditor of a company to report to members on the accounts required to be laid before the company at the annual general meeting and on the accounting and other records relating to those accounts. Section 285(2) provides that the report by the auditor shall be furnished to the directors within sufficient time to enable the company to provide the same with all those entitled to receive notice of general meetings of the company as required by s274(1).
52. Mr Mansfield contends that because none of these obligations are imposed upon a company, if there is no obligation upon a company to keep any of these accounts and reports, s1305 has no application. The only relevant obligations imposed upon a company by the Code is to keep accounting records and not accounts and reports which may be compiled from those records or with respect to the non-financial activities of a company. There is no specific provision of the Code which requires a company to keep the accounts and reports of the nature contained in MFI P59C.
53. In the consideration of these arguments, it is appropriate to first consider the true interpretation of the word "kept" in s1305. In Residues Treatment and Trading Co Ltd and Anor v Southern Resources Ltd and Ors (1989) 52 SASR 54, Perry J had to consider the meaning of that word in the similar provision in s550(1) of the Code. He said (at p77):
"In my opinion, given its context, the word 'kept' in s550(1)
does not simply mean a document which is retained by a
corporation. It seems to me that it is an essential part of
the quality of a document which is said to come within the
scope of s550, that it should be in the nature of a document
or record which is in some way maintained by the corporation
in a systematic or periodic fashion.
It is true, as Mr Bathurst QC put in the course of his
argument, that a company would normally keep a copy of its
Annual Report and make it available, from time to time, for
inspection by people who had a legitimate reason to see it.
But that consideration is not sufficient to lead me to the
view that the Annual Report should be regarded as within the
scope of the relevant words of s550, as it does not seem to
me to answer the description of a book 'kept' by the
corporation in the relevant sense of that word."
54. With respect, I disagree. There is no reason, in my view, to attribute such a restrictive meaning to the word "kept". In its ordinary meaning it includes the narrow meaning given to it by Perry J but it includes the well understood wider meanings of "keep" of which "kept" is the past participle, namely "to have in stock", "to have the charge or custody of": The macquarie Dictionary Second Revision or "to guard, defend, protect, preserve, save", "to take care of, to look after": Shorter English Oxford Dictionary. That wider meaning was adopted in Burnside Sub-branch RSSILA Inc v Burnside Memorial Bowling Club Incorporated (1990) 58 SASR 324 where the Full Court held that a copy of a lease kept in the safe of one of the parties was "a record kept by an incorporated association". It may be seen that s267(2) distinguishes between "retain" and "kept" in that accounting records kept under the section must be retained for a specified period, but the use of "retained" in that section does not, in my view, qualify or assist in determining the meaning of "kept". In s267(3) the word "keep" is used in a wider sense than merely retained, whereas in s267(4) the word is used in the wider sense adopted in Burnside RSSILA Inc (supra). In s544(3) the Legislature has drawn the distinction between "kept" and "prepared" which suggests that the narrow meaning given to "kept" in Residue Treatment (supra) is not appropriate. That section also casts an obligation upon a company to ensure the safe keeping, accuracy and integrity of such documents required to be kept by the Code which suggests the wider meaning of "kept". So, it may be seen that the Legislature has used the words "keep" and "kept" with different shades of meaning to suit the definitions of the various obligations imposed in the section.
55. For these reasons I see no reason to conclude that the word "kept" should be given other than its plain ordinary English meaning.
56. It remains to consider whether, by reason of the Code, a company is obliged to keep annual accounts and reports as contained in MFI P59C. The Code imposes obligations of this nature both specifically and by implication. As has been seen, the Legislature has seen fit to specifically impose certain obligations upon a company, such as the keeping of accounting records and specific obligations upon directors, such as the preparation and presentation of annual reports and accounts of a company. Because that obligation is specifically cast upon the directors does not mean that no obligations with respect to annual reports and accounts are not cast upon the company.
57. Section 274(1) imposes upon a company the obligation, within a specified time, to send a copy of all accounts that are to be laid before the annual general meeting pursuant to s269, a copy of the director's report required under s270 and a copy of the auditor's report required by s285 to all persons entitled to receive notice of general meetings. By reason of s274(2) a company is obliged to furnish to a member of the company, in specified circumstances, a copy of the last of such accounts and copies of the director's and auditor's reports. Failure to comply with any of these obligations constitutes an offence. Section 275 imposes the obligation upon a company, upon receiving notice by the Corporate Affairs Commission, to lodge documents with the Commission which could, and was likely to include, the annual accounts and director's and auditor's reports: s275A(5). Obviously a company cannot comply with any of these important obligations unless it has kept the accounts and reports, using the wider meaning of that word. It could not discharge any of these obligations if it had no other obligations than to maintain them "in a systematic or periodic fashion" and no more. If that was the case a company could dispose of the accounts and reports after they had been prepared and presented in the discharge of the obligations cast upon the directors and in consequence could not discharge the obligations under s274 and s275. The common sense interpretation of the Code leads to the conclusion that upon the accounts and reports having been prepared, they must be kept by the company so that it may discharge the obligations to which I have referred. Consequently, in my view, the annual accounts and reports of a company, of the type contained in MFI P59C are a book kept by a corporation under a requirement of a previous law, namely the code. It is not suggested that those requirements do not correspond to a provision of the Corporations Law. Section 1305 is of application and MFI P59C is admissible, and such parts of it as were required to be included by the Code were admitted, pursuant thereto.
58. In Residue Treatment Perry J held that an annual report of a company, such as MFI P59C, is admissible as a public document. He applied the conditions of admissibility laid down by Lane LJ in R v Halpin (1975) QB 907 at p913, and applied the decision that returns of a company required by legislation to be lodged with the Registrar of Companies are public documents. It is unnecessary to repeat the reasoning of Perry J with which I agree. His Honour set out the relevant legislative framework applicable to the annual report and noted that by reason of s263(1) of the Code and reg56A of the Companies Regulations and, in particular, reg56A(b)(ii), the annual accounts and reports of the type included in MFI P59C had to be lodged with the Commission. He concluded that R v Halpin (supra) should be followed and justified the admission into evidence of the annual report. As was noted by Perry J, the same approach was taken by Jenkinson J in Stohl Aviation v Electrum Finance Pty Ltd (1984) 56 ALR 716 with respect to company returns of directors and in Trade Practices Commission v TNT Management Pty Ltd and Ors
(1984) 56 ALR 647 at 669 by Franki J with respect to the annual report of a company.
59. Attention has been drawn to the later decision of the Full Court in Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd, McAuley and Ors
(1991) 58 SASR 184, where the admissibility of two reports as to the affairs of a company of a director were submitted to the liquidator of the company pursuant to s375(1) of the Code and filed by the liquidator with the Court and lodged with the Commission pursuant to s375(7). King CJ, at pp190-191, followed R v Halpin and concluded that the reports should have been admitted as public documents. He took the same approach as that of Perry J in Residue Treatment. Zelling AJ expressed the view, without reasons, that the reports were not public documents at common law. Mohr J merely said that he agreed with Zelling AJ and did not indicate whether his agreement extended beyond the conclusion reached by Zelling AJ as to the fate of the appeal. Mohr J did not expressly indicate any view about the admissibility of the reports. Consequently, I do not consider that there is a majority decision, by which I am bound, and which governs the conclusion to be reached as to whether MFI P59C is a public document. With respect, I prefer the reasoning of King CJ and also of the approach taken by Perry J in Residue Treatment and of Lane LJ in R v Halpin. I also admitted the same parts of MFI P59C which were admitted pursuant to s1305 as a public document on common law principles.
60. It is not necessary to consider reception of the exhibit pursuant to s45a or s45b of the Evidence Act and I have not done so.
61. The remaining documents admitted over the objection of the defendants are the transcripts of the examination of Mr Pilmer and Mr Newman pursuant to s541 of the Code. It is necessary to consider them separately but a preliminary matter was raised with respect to both. The defendants sought further and better discovery so as to facilitate proof on a factual basis for the rejection of the tender. They sought discovery and inspection of all documents in the custody, possession or control of the plaintiff which bear upon the stage of the investigation of the liquidator and his state of mind as to instituting proceedings against the first defendants when the applications were made for orders for the examinations. They contend that the liquidator did not disclose these matters to the Master when applying for the orders and had he done so the orders may not have been made. It is submitted that if the liquidator had decided to institute proceedings for damages against the defendants and merely wanted the examinations to advance proof of its case against them, that would be an improper purpose and orders for the examinations would not have been made. Consequently, the transcripts should not be admitted into evidence in these proceedings. The defendants claim that it is not possible for them to establish such matters unless the plaintiff gives discovery as sought. It was accepted that unless the defendants have an arguable case against the admission of transcripts into evidence, an order for further and better discovery should not be made.
62. The material placed before the Master in support of the application for an order for the examination of the defendant Pilmer and the production of the working file was contained in an affidavit of his solicitor filed on 5th March 1992. It is as follows:
"3. A further matter is being investigated by the liquidator
concerns the acquisition of Western United Limited in
consequence of an independent expert's report prepared by
Nelson Wheeler. Kia Ora paid $26,446,820 in cash and issued
67,951,754 shares of $1.00 each in Kia Ora to acquire Western
United Limited. At 30 June 1988 Kia Ora's investment in
Western United Limited was recorded in Kia Ora's general
ledger at the sum of $17,000,000.
4. It appears that Mr A C Pilmer and Mr M L Sudbury of Nelson
Wheeler were responsible for the preparation of Nelson
Wheeler report. In the circumstances I am instructed to
apply to have Mr Paul Ferguson Fitzsimmons, Paul Dowd Mr A C
Pilmer, Mr M L Sudbury and Mr Peter Allen Wicks examined in
connection with the affairs of the Kia Ora. I am also
instructed to apply to have all documents held by Nelson
Wheeler relating to the affairs of Kia Ora produced to this
Honourable Court. Without limiting the generality of the
forthcoming, such records would include all documents in
connection with the independent expert's report."
63. On 23rd March 1992 the solicitor filed a further affidavit in support of the application with respect to Mr Newman. The only relevant matter, for present purposes, contained in the affidavit was that Mr Newman had "the most intimate knowledge of the report" within Nelson Wheeler concerning that takeover of Western United by Kia Ora Gold. It is contended that these disclosures fall a long way short of the material which should have been placed before the Master and that there is a real possibility that the examinations were for an improper purpose.
64. The relevant provisions of s541 for present purposes are as follows:
"(2) Where it appears to the Commission or to a prescribed
person that -
(a) a person who has taken part or been concerned in the
promotion, formation, management, administration or winding
up of, or has otherwise taken part or been concerned in
affairs of, a corporation has been, or may have been, guilty
of fraud, negligence, default, breach of trust, breach of
duty or other misconduct in relation to that corporation; or
(b) a person may be capable of giving information in relation
to the promotion, formation, management, administration or
winding up of, or otherwise in relation to affairs of, a
corporation,
the Commission or prescribed person may apply to the Court
for an order under this section in relation to the person.
(3) Where an application is made under sub-section (2) in
relation to a person, the Court may, if it thinks fit, order
that the person attend before the Court on a day and at a
time to be fixed by the Court to be examined on oath or
affirmation on any matters relating to the promotion,
formation, management, administration or winding up of, or
otherwise relating to affairs of, the corporation concerned.
(5) The Court, on making an order for an examination, or at
any later time, on the application of any person concerned,
may give such directions as to the matters to be inquired
into, and, subject to sub-section (4), as to the procedure to
be followed (Including, in the case of an examination in
private, directions as to the persons who may be present), as
it thinks fit.
(8) A person attending before the Court for examination
pursuant to an order made under sub-section (3) shall not
refuse or fail to answer a question that he is directed by
the Court to answer.
(12) A person is not excused from answering a question put to
him at an examination held pursuant to an order made under
sub-section (3) on the ground that the answer might tend to
incriminate him but, where the person claims, before
answering the question, that the answer might tend to
incriminate him, the answer is not admissible in evidence
against him in criminal proceedings other than proceedings
under this section or other proceedings in respect of the
falsity of the answer.
(14) Subject to sub-section (12), 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."
65. It may be seen that the Master has a discretion as to whether to make the orders: s541(3), and may give directions as to the matters to be enquired into and as to the procedure to be followed: s541(5): Re Rothwells Ltd (No.2)
(1989) 7 ACLC 576 and Hong Kong Bank of Australia Ltd and Ors v Murphy and Ors
(1992) 10 ACLC 1573 and as to whether a person attend for examination. An order may only be made where the requirements of s541(2) exist. It cannot be seriously disputed that the authors of the report came within the types of persons referred to in the section and that an order could be made if sought for a proper purpose. The purpose of examination of this nature has been discussed in a number of cases. It is proper purpose if the examination is genuinely for the information of the liquidator to aid him in considering whether there is a cause of action upon which he will proceed: The Nalanda Pty Ltd (In Liq) (1983) 1 ACLC 1000 and Re Rothwells Ltd (No 2) (supra). An order may be made whether the liquidator seeks information in connection with proceedings "he believes he might be able to bring, proceedings he contemplates bringing, proceedings he has decided to bring, and proceedings he has already brought: Re Hugh J Roberts Pty Ltd (In Liq) and the Companies Act
(1970) 91 WN(NSW) 537 per Street J at p 541 and Re Rothwells Ltd (No 2) (supra). The Court will give weight to the liquidator's opinion expressing the purpose which he sees being served by the examination: Re Rothwells Ltd (No 2) (supra) at p 588 and the cases referred to therein. It is of no significance that an examination will give an advantage to the liquidator even in proceedings already in train which may not be enjoyed by any other litigant: In re John Arnold's Surf Shop Pty Ltd (In Liq) (1979) 23 SASR 222 and Gerah Imports Pty Ltd v The Duke Group Ltd (In Liq) (1994) 12 ACLC 116, provided that the examination is not sought solely for the purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures: Hong Kong Bank of Australia v Murphy (supra) at p.1577. These decisions must be followed in preference to dicta in some English cases which suggests that an examination will not be ordered where the liquidator is seeking information for the purpose of assisting him in proceedings which have already commenced or which he has made a firm decision to commence: In re Castle New Homes Ltd (1979) 1 WLR 1075, or so as to enable the liquidator to obtain an advantage over his opponent: In re Spiraflite Ltd (1979) 1 WLR
1096.
66. It is accepted that the examination must be for a proper purpose. Applications of this nature cannot be used in a vexatious or offensive manner or in abuse of the process of the court: Hong Kong Bank of Australia v Murphy (supra). Examples given of an improper purpose are to rehearse the cross-examination of a potentially hostile witness in pending litigation and to warn the prospective or existing witnesses of a defendant and exercise them simply for the purposes of their credit: Re Hugh J Roberts Pty Ltd (supra) and Re Rothwells Ltd (No.2) (supra). In deciding whether to order an examination, the Court will have to consider two important public interests, namely ensuring that the liquidator, in the interests of the creditors, shareholders and the public, is able to collect all necessary information to carry out his public responsibility and the interest in justice to the witness: Hamilton v Oades (1989) 166 CLR 486 and Re Spedley Securities Ltd (In Liq): ex parte Potts and Gardiner (1990) 2 ACSR 152. That latter interest may be of more weight in the balancing exercise when criminal proceedings are contemplated or pending as was the case in Hamilton v Oades (supra). In general terms these principles, or most of them, were accepted by the Full Court in Gerah Imports Pty Ltd v The Duke Group Ltd (In Liq) (1994) 12 ACLC 116.
67. The application of them to the present circumstances does not suggest that the Master was in error in making the orders for the examination of Mr Pilmer and Mr Newman. There was not a great deal of information in the affidavits of the solicitor but sufficient for the Master to know of the nature of the enquiries which the liquidator wanted to pursue. He was aware of the earlier proceedings and of the general purpose of the enquiries which he was making. The proceedings against the first defendants were not instituted until 19th August 1992 well after the completion of both examinations. The orders were made regularly and having been served there was no application to discharge them. Shortly after the commencement of the examination of Mr Pilmer, the question of the privilege against self-incrimination arose. He said that he understood he could claim that privilege and went on to say:
"... because I am unaware of whether I have been called
before this court on a matter or a suggestion of fraud or
negligence or guilt of misconduct or what and I am somewhat
apprehensive."
68. The Master said:
"You are called before the court at the request of the
liquidator of the company who is making enquiries to
determine whether or not there are situations where the
liquidator might have claims against person or persons and
that is the purpose of the examination."
69. This interchange reveals something of the understanding of both the defendant Pilmer and the Master at that stage. It was clear to the former that an issue of fault or culpability was under investigation. He knew that investigation concerned the report and the takeover of Western United by Kia Ora. The Master knew and explained that a purpose of the examinations was to see if the liquidator might have a claim against anyone. This level of understanding of the Master does not suggest that he had any misunderstanding.
70. There is nothing in the material before me to suggest that the liquidator had an improper purpose in seeking the examinations. He was entrusted with serious responsibilities. He had been investigating the affairs of the plaintiff for a long time and it was made clear to the Master that the stage had been reached to investigate the subject takeover and the role played by Nelson Wheeler. It must have been obvious to the Master and to Mr Pilmer that the quality of the work in making the report would be the subject of the investigation. Even if the liquidator had in mind to institute proceedings against the defendants, there is no reason to suppose that the investigations had proceeded to the stage where no further investigation was required. I can see no reason to suppose, or even suspect, that the liquidator may have had an improper purpose in applying for the examinations.
71. The application for discovery was made for the speculative reason of hopefully obtaining information suggestive of an improper purpose and was, accordingly, refused. There is another reason why it could not succeed. The examinations took place. No application was made to set aside the orders for the examinations. They were conducted according to law. The statements made by the defendant Pilmer during the examination are statements made out of court by a party to these proceedings and are admissible against him subject to relevance. Without doubt, what he said is relevant to facts in issue in the proceedings.
72. It was suggested that if the liquidator had an improper purpose, then the transcripts may be excluded from the evidence in the exercise of discretion. This discretion is said to exist by reason of s541(14) and at common law. In my view s541(14) does not provide a discretion in the court to reject the tender of the transcript of the examination in any circumstances. Section 541 establishes a procedure for the compulsory examination of a relevant person and s541(14) merely permits the transcript to be used in evidence in any legal proceedings against that person regardless of the compulsory circumstances in which the examination may have taken place. The use of the word "may" in the subsection in its context does not create a discretion to reject admissible evidence.
73. This view accords with the observations in Douglas-Brown v Furzer (1994) 13 ACSR 184 where the court considered a similar argument in the context of s597(14) of the Corporations Law, a provision in the same terms as s541(N). Malcolm CJ, with whom Ipp and Anderson JJ agreed, said, at p.194:
"At one stage in the argument a suggestion was canvassed that
s597(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 (1981) 6 ACLR 257 at 260-1; (1982-83) 1 ACLC 79 at
81-82 per Brinsden J (with whom Burt CJ and Jones J agreed).
In my opinion, s597(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."
74. For the reasons previously expressed, there is no other reason to reject the tender of this transcript in the exercise of discretion. Even if such a discretion exists in the limited circumstances earlier identified, no such circumstances are here present.
75. There was no reason to reject the tender of the transcript of the examination of the defendant Pilmer and it was admitted into evidence on the understanding that any parts of it which are not relevant to any fact in issue or are inadmissible for any other reason would be excluded.
76. I now turn to the transcript of the s541 examinations of Mr Newman. Mr Gray contended that it is admissible and should be admitted at common law, pursuant to s34c, s45a, s45b or s59j of the Evidence Act.
77. At the time of the examination Mr Newman was no longer in the employ of the first defendants. On 21st March 1992 two of the remaining partners of Nelson Wheeler spoke of Mr Newman having been contacted by the plaintiff's solicitors regarding their file. I had admitted an inter office memorandum of Nelson Wheeler pursuant to s45a for the limited purpose of a voir dire inquiry as to the admissibility of the transcript of examination of Mr Newman. In part it reads:
"Peter and myself got Geoff Newman into the office on 21st
March, 1992 to further review the file and Geoff is confident
that he can justify all of his work.
Geoff is aware that he may be called upon by Fisher Jeffreys
to be examined on the file."
78. This evidence does not provide a basis for admitting the transcript into evidence at common law. Mr Newman was not employed at the time and what he said may not be regarded as admissions of an employer. The principles of agency do not assist the plaintiff. An out of court statement by an agent will bind the principal if it was made as part of a conversation or communication which he was authorised to make: Cross on Evidence, Australian Edition at p.33,182. Neither the relationship of principal and agent nor such authority can be inferred from the memorandum. Mr Newman was obliged to answer questions at the examination and the evidence does not disclose that in doing so he was acting as an agent of Nelson Wheeler or that any of the defendants had authorised him to answer questions in any particular manner or at all. The transcript is not admissible at common law.
79. Mr Lane contended that this transcript could not be admitted into evidence, as Mr Newman is not a party to these proceedings, because s541(14) ensures that such a transcript can only be admitted in legal proceedings against the person who has been examined. On his argument the use of the concluding words "against the person" necessarily mean that there is a legislative intention to preclude the admission into evidence of such a transcript against anyone else. This argument was considered and properly rejected, in my view, by Perry J in Duke Group Ltd (In Liq) v Arthur Young and Anor (1990) 54 SASR 498 at pp504-505. The evidentiary provisions in s541(12) and (14) are not concerned with legal proceedings against persons other than the examinee. For such a transcript to be admissible in those circumstances, some other path to admissibility must be found. Section 541(14) does not operate as an exclusive code for the admissibility of transcripts of examinations under the section and therefore override any other statutory aid to admissibility. There is no reason to interpret the provision in that way. The true interpretation is to enable the admission into evidence of the transcript of the examination of a person in legal proceedings against that person. Section 541(14) does not bear upon any other situation. I have not overlooked the argument of Mr Lane based upon consideration of s76 and s77 of the Australian Securities Commission Act 1989 which provides for circumstances in which statements made at hearings conducted by the Australian Securities Commission pursuant to that Act are used in legal proceedings. Those provisions have similarities to other statutory aids for the reception of evidence but do not assist in the true interpretation of s541(14). Also they do not support the contention that they form part of a code relating to the admissibility of statements made by persons under compulsion in the context of the law relating to corporations. Section 541(14) falls to be interpreted upon its own language and in its context in the Code.
80. Mr Lane drew attention to various authorities concerning bankruptcy legislation in the United Kingdom and Australia. I need not spend time in reviewing these cases in these reasons. They do no more than recite the common law principle that statements by a person out of court who is not a party to legal proceedings are generally inadmissible in those proceedings as evidence of the truth of the matters contained in the statements without some statutory aid to that effect.
81. However, in my view, it is admissible pursuant to s45b which is as follows:
"45b (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 the 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;
(b) that the evidentiary weight of the document is slight and
is out-weighed 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 matters.
(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."
82. The transcript and the circumstances in which it was prepared satisfy the criteria set out in s45b(1) and (2). I agree with the conclusion and the reasoning of Perry J in Duke Group Ltd (In Liq) v Arthur Young and Anor (supra). Mr Newman, as a former employee of Nelson Wheeler who has expressed the view that "he is confident that he can justify his work", is not a person who can and should be called by the plaintiff. It is very likely that his evidence would be adverse to the plaintiff's case in crucial respects and it is reasonable that the plaintiff should not have to call him as part of its case. He is available to be called by the defendants. The transcript is evidence which is relevant to facts in issue in the proceedings and its evidentiary weight is much more than merely slight. There is no relevant prejudice to any of the defendants from admitting the transcript into evidence and there are no circumstances which suggest that it is contrary to the interests of justice to do so.
83. I was invited not to follow the decision of Perry J and to consider whether s45b applies. I have carefully considered Mr Lane's argument but I have reached the conclusion that the approach of Perry J is correct.
84. For the reasons expressed by Perry J, following the observations in R v Calabria (supra) at pp.431-432, the transcript is a document prepared at the direction of Mr Newman and satisfies that criterion in s45b(2). In Calabria King CJ said at pp.431-432:
"I think that, having regard to the purpose of the section,
the words 'by whose direction' should not be construed
strictly or technically. The word 'direction' is not used,
in my opinion, in the sense of command or even request. It
is sufficient that the maker of the statement should have
uttered the words in the knowledge that it was likely that
they would be recorded in a document. Such a liberal and
non-technical construction will best ensure the attainment of
the object of the enactment according to its true intent,
meaning and spirit (Acts Interpretation Act, s22)."
85. The transcript was not prepared by Mr Newman and Mr Lane argued that, in the circumstances, it could not be said that it was prepared at his direction. He sought to distinguish R v Calabria (supra) on the factual basis that Mr Newman had no control of the making of the statement let alone the recording of it. He was examined under compulsion and had no say as to whether a transcript would be prepared, whereas the maker of the statement in R v Calabria (supra) was not under compulsion and could control whether he would make a statement and consequently. Attention was drawn to dictionary definitions of "direction" such as "guidance, instruction, management and control": The Macquarie Dictionary Second Revision at p510. There are similar definitions in the Shorter Oxford English Dictionary. Mr Lane contended that whatever was the factual situation in R v Calabria (supra), the circumstances of the compulsory examination of Mr Newman did not admit of the interpretation that the transcript was made at his direction, using the plain English meaning of that word.
86. To interpret the word "direction" as suggested by Mr Lane, would necessarily result in a different interpretation than was adopted in R v Calabria. The other members of the Court in that case expressly agreed with the approach adopted by King CJ; see White J at p450 and Matheson J at p454. I can see no reason not to follow and apply that reasoning and approach and, at all events, I feel obliged to do so. It is of no consequence that Mr Newman was obliged to answer questions and could not bring the examination to an end. He knew that what he said was being recorded.
87. As with the transcript of the examination of the defendant Pilmer, there was no reason to reject the tender in the exercise of discretion and the transcript of the examination of Mr Newman was admissible into evidence pursuant to s45b on the same undertaking that the transcript of Mr Pilmer was admitted.
88. It was unnecessary to decide whether the transcript was admissible pursuant to s34c, s45a or s59j.
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