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Annual reports as evidence

Feature Articles

Cite as: June 2013 87 (6) LIJ, p.56

For an annual report to be admitted as evidence as a business record, it is prudent to consider whether the report is a statutory requirement and whether the information within is supported by facts.

By Leonid Sheptooha

Recent judicial consideration of the admissibility of annual reports as “business records” highlights the difficulties faced by practitioners when seeking to admit annual reports pursuant to the statutory exception to the hearsay rule in s69 of the Evidence Act 1995 (Cth) (EA).1

“Business records” and the hearsay rule

Section 69 contains a statutory exception to the hearsay rule and provides for the admissibility into evidence of “business records” (Business Records Exception). This provision is founded on the concept that business records are likely to be sufficiently accurate to be acceptable as evidence, and documents which are regarded in the commercial community as probative should not be ignored by the courts.2

From the outset, it is important to note that the former New South Wales provisions3 on the Business Records Exception were the basis of the model adopted in the federal Evidence Acts.4 As such, New South Wales’ case law regarding the Business Records Exception is relevant to the interpretation of “business records” and has been adopted by the Federal Court when considering s69.5

Annual reports as “business records”

Before considering whether a particular annual report is a “business record”, a practitioner should first satisfy themselves that their client is a “business” within the meaning of the EA. The definition of “business” in cl 1 of Part 2 of the Dictionary of the EA is broad and includes “a profession, calling, occupation, trade or undertaking”. Further, the business does not have to be carried on for profit or operate in Australia.6 While it is likely that most businesses would fall within this definition, it is prudent for a practitioner to check cl 1 of Part 2 of the Dictionary to confirm that the annual report has been prepared by a “business” within the meaning of the EA. Where this is the case, consideration may then be given as to whether the particular annual report sought to be admitted into evidence is a “record”.

The terms “business records” and “records” are not defined by the EA. Case law regarding the interpretation of the term “records” in s69 suggests that the concept is broad and has not been limited to a particular category or categories of documents.7 Generally speaking, the cases have drawn a distinction between the “records” of a business and the “products” of a business. Recently in Hansen Beverage Company v Bickfords (Australia) Pty Ltd,8 Middleton J held that “the concept of a business record is an internal record, kept in an organised form accessible in the usual course of business, actually recording the business activities themselves and does not include the product of the business itself”.9

While these general principles provide some judicial guidance as to what types of documents may be considered a “business record” pursuant to s69, they are provided by way of background only. The key case concerning whether an annual report is a “business record” is Ritz Hotel Ltd v Charles of the Ritz Ltd & Anor [Nos 13, 18 and 19]10 (Ritz Hotel). In that case, McLelland J, held that annual reports made by a corporation to the US Securities and Exchange Commission pursuant to a duty imposed by statute were records of the business for the purposes of the provisions of the former NSW Evidence Act. Relevantly, McLelland J held: “Such a report, in my view, is made as a record of the business because the relevant statute requires such a record to be made and it seems to me that it is made for the purposes of the business because the report is required to be prepared and made as a necessary incident of the carrying on of the business. Therefore in my view such a document is a record of the business which satisfies the requirements of sub-s4-5 of s14CE”.11

The same view was taken by McCallum J in the recent decision, McMahon v John Fairfax Publications Pty Ltd (No 4)12 (John Fairfax Publications) where her Honour cited Ritz Hotel with approval and held that annual reports prepared by the Commissioner of Taxation pursuant to a statutory duty could be admitted into evidence pursuant to s69 Evidence Act 1995 (NSW).13 This was because the annual reports were required by statute and were therefore, considered by her Honour to be “a necessary incident of the carrying on of the business”.

At present, it is not entirely clear whether an annual report that has not been prepared pursuant to a statutory duty will be admitted into evidence pursuant to s69 and this issue has not been the subject of any judicial consideration. There is certainly no judicial principle which says that an annual report which has not been prepared pursuant to a statutory duty cannot be a “business record” for the purposes of the Business Records Exception. It should also be noted that in the recent case Winnebago Industries, Inc v Knott Investments Pty Ltd (Winnebago Industries)14 Foster J did not consider whether the annual report was a “business record” and seemingly accepted that it was.15 Regrettably, there is no discussion in the case as to whether the annual reports were required by statute and it may be that this issue was simply not considered relevant by his Honour.

Despite this uncertainty, it appears that where an annual report has been prepared pursuant to a duty imposed by statute, it will be considered a “record” for the purposes of the Business Records Exception. As such, practitioners seeking to admit annual reports or parts of annual reports into evidence under s69, should consider whether the “business” in question was under any statutory duty to produce an annual report.

Further, it may also be prudent to consider whether the information sought to be admitted into evidence is actually required by the statute in question to form part of the annual report. Typically, annual reports cover a broad range of topics and a significant amount of information is often provided on a voluntary and unsubstantiated basis. While this is common, it is important to note that any information in the annual report which has been provided on a voluntary basis (not required by statute) runs a greater risk of not being admitted pursuant to s69. This is due to the emphasis placed by the case law on whether there was a statutory duty to prepare an annual report. As such, it is considered that there is a much stronger argument for admission pursuant to s69 where the business was not only under a statutory obligation to prepare an annual report, but also under a statutory duty to include the specific information now sought to be admitted. Additionally, this would avoid being blindsided by a challenge regarding admissibility based on an argument that the business was not under any statutory obligation to provide the particular information sought to be admitted into evidence.

The court’s opinion

Recent case law has revealed that for an annual report (or part of an annual report) to be admitted under s69 other conditions beyond being a “business record” must also be satisfied.

The Court is afforded a very wide discretion to exclude or limit the use of evidence in the EA. Section 135 provides the Court with a general discretion to exclude evidence if its probative value is substantially outweighed by the danger of it being unfairly prejudicial, misleading or confusing or causing or resulting in, an undue waste of time.16

Thus, despite the fact that in both John Fairfax Publications and Winnebago Industries cases, the Court accepted that the annual report was a “business record”, the annual reports were not fully admitted into evidence in either case.

In John Fairfax Publications, the annual reports were not admitted into evidence on the basis that the representations relied on by the defendants in the annual reports were in the form of summaries or conclusions that did not reveal the underlying facts.17 The form of the representation was said by McCallum J to inform the Court’s assessment of the probative value of the evidence18 and his Honour ultimately declined to admit the evidence on the basis that its probative value was substantially outweighed by the danger that it might unfairly prejudice the plaintiff. The evidence in that case was adduced to establish that the plaintiff was a “major scalp” in the Legal Profession Project established within the Australian Taxation Office19 and an example of the type of representation that McCallum J refused to admit under s69 was as follows:

“We’ve made significant inroads in improving compliance in the Legal Profession, and have noted positive changes in the attitudes and behaviour of barristers and solicitors towards meeting their tax obligations.

“During the year we built and maintained relationships with professional and regulatory bodies in every state and territory. We explored opportunities for regulators to educate their members on how to comply with their tax obligations, and the consequences of failing to comply. We included tax compliance messages for barristers and solicitors in the publications of peak regulatory bodies”.20

The decision in John Fairfax Publications reveals the problems that may arise where the evidence sought to be admitted pursuant to s69 includes statements in annual reports that are in the form of summaries or conclusions that do not reveal the underlying facts on which they are based. As such, practitioners should review the statements in the annual reports they are seeking to admit into evidence and consider whether they are in the form of factually unsupported summaries or conclusions and could therefore, be challenged on this basis.

The recent decision of Winnebago Industries also gives rise to potential issues regarding the admission of statements in annual reports pursuant to s69. In that case, Foster J exercised his discretion to limit the use of certain statements made in the applicant’s annual reports only to prove the fact that it was made in the annual report and not to prove the truth of any of the facts asserted therein.21 His Honour did so because there was neither a source provided for the statement nor any evidence as to the basis upon which the statement was included in the annual report.22 Foster J did however, admit the following passage in the applicant’s annual reports due to the fact that the material clearly identified the source:

“According to Statistical Surveys, Inc, an independent retail reporting service, Winnebago Industries’ retail market share of the total US Class A and C motor home market leads the industry at 21.0 per cent for the calendar year to date, through August, compared to 18.8 per cent for the same period in calendar 2001”.23

The approaches taken by Foster J in Winnebago Industries McCallum J in John Fairfax Publications highlights the importance of annual reports containing evidence (whether it be a source or underlying facts) as to the basis upon which statements have been included in that annual report. As such, it would also be prudent for a practitioner seeking to admit statements or passages in annual reports to review the annual report and consider whether the statements are sourced or whether they contain any evidence as to the basis upon which they were made.

Conclusion

The cases outlined above suggest that annual reports prepared pursuant to a duty imposed by statute will be considered “business records” for the purposes of s69. However, whether an annual report that has not been prepared pursuant to a statutory duty is a “business record” has not been the subject of any detailed judicial consideration. Given the breadth afforded to the concept of “records”24 and the treatment of annual reports in Winnebago Industries, it may well be arguable that annual reports are “business records” whether prepared under a statutory duty or otherwise.

It is important to note that while it is common for annual reports to include information that is provided on either a voluntary (not required by statute) or unsubstantiated basis, case law suggests that issues may arise regarding admission under s69 in both these cases.

From a practical perspective, it appears that for an annual report or part of an annual report to be admitted under s69, other conditions beyond being a “business record” need to be satisfied. Thus, to be aware of any potential challenges to admission and the Court’s likely position regarding admission of annual reports, practitioners seeking to admit annual reports under s69 should also review the statements in their client’s annual reports and consider whether they are in the form of summaries or conclusions that are not supported by any underlying facts, and whether they are sourced or whether they contain any evidence as to the basis upon which those statements were made.

In this way, practitioners will be better placed to prepare arguments in favour of admission of the annual reports into evidence under s69. Conversely, it should be noted that practitioners seeking to resist the admission of content in annual reports could also point to the issues raised above to support arguments in favour of non-admission.



LEONID SHEPTOOHA is a solicitor in the dispute resolution team at King & Wood Mallesons.

1. Section numbers in the body of the article refer to the Evidence Act 1995 (Cth) unless otherwise specified.

2. Albrighton v Royal Prince Alfred Hospital [1980] 2 NSWLR 542 at [548]-[549] per Hope JA.

3. Part 2C Evidence Act 1898 (NSW) (repealed).

4. The former New South Wales’ provisions were also the basis of the current model in the Northern Territory, New South Wales and Tasmania.

5. See for example, Forbes Engineering (Asia) Pty Limited v Forbes (No 4) [2009] FCA 675 at [101] and Hansen Beverage Company v Bickfords (Australia) Pty Ltd [2008] FCA 406 at [133] (reversed but on a different point). It is considered that Tasmanian and Northern Territory case law would also be relevant but no authoritative tests or principles regarding annual reports as “business records” appear to have emerged from those jurisdictions.

6. See cl 1 of Part 2 of the Dictionary of the EA.

7. ASIC v Rich [2005] NSWSC 417 at [180]-[182] and Southern Cross Airports v Chief Commissioner of State Revenue [2011] NSWSC 349 at [41]-[44].

8. [2008] FCA 406 (reversed but on a different point).

9. At [133].

10. (1988) 14 NSWLR 116.

11. At [122].

12. [2012] NSWSC 216.

13. At [22]-[27]. It should be noted that the federal Evidence Act is in identical terms to the current New South Wales Evidence Act.

14. [2011] FCA 625.

15. At [7].

16. Section 136 also allows the Court to limit the use of the evidence and is in fairly similar terms.

17. See [2012] NSWSC 216, at [28]-[30] and [33].

18. At [29].

19. At [30].

20. At [28].

21. See [2011] FCA 625 at [13].

22. At [11]-[12].

23. At [17]-[20].

24. Note 7 above.

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