A basic knowledge of the rules of evidence can be of use to an accountant. Typical situations in which an accountant might be involved in legal proceedings are:

a) he sues in the Small Claims Tribunal or Court to recover his fees and he conducts the case himself;

b) he represents a client before the Administrative Appeals Tribunal in taxation matters;

c) he is called as a witness in legal proceedings;

d) he is called as an Expert Witness in legal proceedings;

e) he has to defend a claim of negligence and breach of contract in respect of professional work e.g. auditing;

f) he has to defend himself on a criminal charge of any kind.

Obviously, he is more likely to be involved in legal proceedings if he is in public practice. Some firms have a litigation- support section. A general idea of what would be expected of them in Court would be useful to persons working in this area.

To give an outline of the evidence rules that an accountant needs to be aware of, we shall commence by giving a short description of a hypothetical case in which an auditor is sued for professional negligence and breach of contract.


The plaintiff's counsel will begin the action in the Supreme Court by filing a writ and a Statement of Claim. These are served on the defendant. Before the trial begins, the contesting parties will try to narrow the issues to be decided. Obviously, if successful, this will reduce time and costs for both parties. They will each admit non- contested facts, and produce lists of documents that they intend to rely on. These are called the "pleadings". Each will next marshal his witnesses and taken written statements from them.

When the trial opens, the plaintiff's counsel will outline his case. He will call his witnesses and examine them. The defendant's counsel will cross-examine them. The plaintiff's counsel will re-examine them. Both plaintiff and defendant will probably call Expert Witnesses.

The defendant's counsel will then outline his case and call his witnesses. The plaintiff's counsel will cross-examine them. The defendant's counsel will re-examine them.

The plaintiff will then have a right of reply. This is to clear up any points raised by the defence. No new evidence can be introduced at this stage.

The judge will then give his decision.


The person who brings the action has the burden of proof. For instance, the defendant does not have to prove that he has not been negligent. It is for the plaintiff to prove that he has been negligent. In a criminal case, the defendant does not have to prove his innocence. Rather, it is for the prosecutor to prove his guilt. In taxation matters, the burden of proof is effectively reversed. When the Taxation Office raises an assessment, it is up to the tax-payer to disprove it.


In a civil case, the plaintiff must prove his case on the balance of probabilities. In a criminal case, the prosecutor must prove his case beyond reasonable doubt. If one were to try to express it mathematically, one might say that in a civil case there must be 60% certainty and in a criminal case, there must be 95% certainty.


When evidence is being given, there is an overriding requirement that it be relevant. The judge has a discretion to disallow any evidence that he believes is irrelevant. He can stop the questioning of a witness if he believes the questions are irrelevant. The opposing party can object to questions if he believes they are irrelevant. In U.S.A. jurisdictions, opposing counsel are much more likely to object to questions. We have all seen it countless times on T.V. In Australia, this happens with much less frequency.


Normally, a witness can only relate to the Court what he himself saw. In general, it must be an eye-witness account. He is not allowed to relate what somebody else told him about an event. This is known as the Rule against Hearsay. If the plaintiff wishes to put in evidence what was said to the witness, then he must call the person who told the witness. Then it will be a first-hand account.


The same reasoning applies to a document. The maker of the document must be called to give evidence. To prove a purchase of goods, it would not be sufficient to produce the invoice in Court. The person who wrote the invoice must be called. Does all documentary evidence then offend the Rule against Hearsay, you may ask? In fact, taking the matter further, do all accounting records offend the Rule against Hearsay? The answer is, in general, yes. With accounting records, they are very often double, treble, or even more, hearsay. Each person in the chain has passed the information on to somebody else. Take an entry in a bank statement, for example. How far back in the chain would you have to go to get an eye-witness account of a bank deposit? Again, are auditors obliged to reject hearsay evidence? The answer is no. Under the companies legislation, an auditor is obliged only to report on the accuracy of the Financial Statements. He is not bound by the rules of evidence when framing his report. Certain transactions are required by law to be in writing. These include sales of land, contracts of guarantee, wills, conditional bills of sale etc. It is also common for contracts to be reduced to writing. Can oral evidence be given to contradict the contents of any of these documents? The answer, in general, is No. For example, if a contract has been reduced to writing, the Court will not allow evidence to be given of what was said in prior negotiations. However, oral evidence is allowed in certain cases. Oral evidence is allowed to clear up any ambiguity in the contract. It is also allowed to prove a trade custom.


But all is not lost for the accountancy profession just because all its records are hearsay. There are exceptions to the Hearsay Rule. Many have existed at common law and, more recently, some have been created by statute. Each State and Territory has an Evidence Act. The most usual common law exceptions are dying declarations, statements in public documents, admissions and confessions and words said in the heat of the moment. With regard to admissions, it will be remembered that parties are encouraged in the pleadings to admit facts that can, in any case, be easily proved by the opposite party. This saves time and costs.


Confessions are relevant only in criminal cases. The important thing to remember is that a confession ("I did it") is not admissible in evidence unless it was made voluntarily. This means that no reward must have been held out to the defendant to confess and that no undue pressure must have been brought to bear on him. Many years ago, in an effort to be fair to persons charged with criminal offences, the judges made rules for the guidance of arresting officers. If these rules are not followed, the judge will not admit evidence obtained in contravention of the rules. The rules stipulate that, before a person is arrested, he must be cautioned. For example, "I arrest you for fraud. I must caution you that anything you say can be, and will be, taken down and used in evidence against you". Possibly, more people are now familiar with the American version "You have the right to remain silent. If you give up that right, anything you say will be taken down and used in evidence against you. You have the right to have a lawyer present. If you cannot afford a lawyer, the Court will appoint one for you" etc.


In recent years, statutory exceptions have been made to the Hearsay Rule. Each State has different exceptions. The broad thrust is that, in civil cases, the Hearsay Rule no longer applies. Business records, and statements in writing by persons who had first-hand knowledge of the events, are admitted.

In criminal cases, the Hearsay Rule is more strictly adhered to but there is a tendency to reduce its scope.


In this regard, it is interesting to note the diametrically opposing views taken by the Courts and the Australian Taxation Office. Traditionally, the Courts have insisted on oral evidence and have rejected documentary evidence as being hearsay. The Taxation Office, on the other hand, insists upon documentary evidence and places little credence on oral evidence.


When the plaintiff calls his witnesses, he may not ask them leading questions. A leading question is one which suggests the answer. For instance, he may not ask "Did you notice a vehicle being driven recklessly on the wrong side of the road?" This should be split up into "Did you notice any other traffic?" "What speed was this vehicle travelling at?" "What side of the road was it on?" etc.


When the defendant cross-examines the witness, he tries to elicit information favourable to his case. He may question him about matters not raised by the plaintiff. He may also try to cast aspersions on the witness's credit-worthiness. He may try to show that the witness is, in general, not a person to be believed. He may try to show that the witness is biased. He may ask the witness if he has previously made a statement which contradicts what he is now saying. If the witness does not own up, the cross-examiner may call evidence to show that the witness has made a previous inconsistent statement. This could be achieved by calling a second witness to whom the first witness had made the statement.


In general, the person who calls a witness initially cannot cross-examine his witness. He can only examine him. Only the opposing party can cross-examine a witness. However, if his witness proves hostile, the party calling the witness can ask the permission of the judge to treat him as a hostile witness. When is a witness hostile? A witness is hostile when he is unwilling to tell the truth or is withholding information. It may be that he has been bribed before the trial or otherwise "got at". If the judge grants permission to treat the witness as hostile, then the calling-party can cross-examine his own witness. He can ask him about previous inconsistent statements. If the witness denies the previous statements, he can prove them. Counsel normally takes affidavits from witnesses before trial so proof should not be too difficult. A hostile witness can also be asked leading questions.


A witness can refresh his memory from a document when he has no definite recollection of the event. For example, a policeman can refer to his notebook when giving evidence about an incident. Cross-examining counsel can examine the notebook.


A witness cannot express an opinion on a matter. He can only state facts and then only state facts to which he was an eye-witness. There is an exception to this rule. An Expert witness can express an opinion. Who can be an Expert witness? The answer is anybody who is qualified in any field of knowledge. Formal professional or trade qualifications are not absolutely necessary. It is desirable that the person has had practical experience. Experts include accountants, auditors, scientists, engineers, handwriting experts, medical experts such as pathologists etc. In an action for negligence against an auditor, another auditor could be called as an Expert witness. He would testify as to what were proper standards in the profession. He could be asked, and could express an opinion on, whether certain hypothetical work practices were in accordance with acceptable professional standards. Obviously, in this case, he would not be giving eye-witness testimony of facts.


Some witnesses can legally refuse to answer questions. A witness can refuse to answer a question on the ground that it might incriminate him. This means that if he were to answer the question, it might provide evidence for the bringing of criminal charges against him. If a witness claims this privilege, the judge will decide whether he has to answer the question. In the USA, claiming this privilege is known as "pleading the Fifth Amendment".


A lawyer can refuse to answer a question regarding matters confided to him by a client. He can refuse to produce a client's documents. Public policy requires that persons should be free to obtain legal advice without fear of subsequent disclosure. Some State and Federal Acts have extended this right, of refusing to answer questions regarding professional matters, to doctors, priests, patent attorneys and journalists. The privilege does not apply to accountants, auditors or tax-agents. However, the Australian Taxation Office has recently stated that it will not seek access to auditors working-papers nor compel tax-agents to disclose taxation advice provided to clients. Journalists very often refuse to answer questions in Court regarding their sources of information. They are now within their rights for such refusal in Federal courts but in many State jurisdictions they have no legal protection for such refusal and can be sent to jail for contempt of court. However, in all cases, where a witness refuses to answer a question, the judge has a discretion to disallow the question. Government Departments sometimes claim Crown privilege and refuse to produce certain documents, even though these might show that are liable to pay damages to a citizen.


Can illegally obtained evidence be admitted? In general, yes. However, the judge has a discretion to disallow it. He will take into account the public interest. For example, it is generally illegal to tap telephones without a warrant. If evidence is obtained by the police or others through illegal tapping, generally, it can be put forward in evidence. In the USA, illegally obtained evidence cannot be admitted.


The plaintiff does not have to prove all facts. Some matters will be judicially noticed by the judge without proof. Such matters will include ordinary everyday things which are known to everybody. Every schoolboy knows that the world is round, who the Prime Minister is etc. The Court will also take judicial notice of things like the normal period of human gestation is nine months, whether a state of war exists, the existence of inflation etc. The Court will also take judicial notice of matters after enquiry. This means the Court will consult books, records, maps etc.


There are also certain presumptions in law which do not have to be proved. However, the opposing party can disprove them. The most obvious of these is the presumption of innocence. Another example is presumption of death. If a person has not been heard of for seven years by those who would normally have heard from him, then he is presumed dead. In this case, it would be open to the opposing party to adduce evidence showing that the person is, in fact, alive. Another presumption is a presumption of regularity. The world, in general, is presumed to continue in its normal course. For example, if an employer is bound to deduct PAYE tax and there is no evidence either way that he has or that he has not done so, it is presumed that he has deducted PAYE contributions. Another presumption of regularity would be the posting of a letter. The letter would be presumed to be delivered in the normal way in the normal time.


Normally, a person cannot be sued for defamation for anything said in Court. However, the judge can stop a line of questioning and also prevent publication of evidence.


Juries are not now used in civil cases. The exception is actions for defamation. When juries are used, for example in criminal cases, the function of the jury is to decide questions of fact and the function of the judge is to decide questions of law.


When a dispute arises, people often try to settle the dispute before resorting to legal action. Frequently, in a business setting, this will involve correspondence between the parties. Unwise admissions of liability can be made. Normally, these admissions could afterwards be put in evidence. However, if the correspondence is marked "Without Prejudice", then the correspondence cannot be put in evidence. Very often these days, it is assumed that when parties try to settle their differences, the correspondence is "Without Prejudice" even though it is not marked as such.


Most Tribunals are so constituted that they do not have to observe the strict rules of evidence. For example, section 193(2) of the Australian Securities Commission Act states that the Corporation and Securities Panel "is not bound by the rules of evidence". Section 218(1) of the same Act states that the Company Auditors and Liquidators Disciplinary Board "is not bound by the rules of evidence". Section 103(1) of the Trade Practices Act states that the Trade Practices Tribunal "is not bound by the rules of evidence." Section 33(1) of the Administrative Appeals Tribunal Act states that "the Tribunal is not bound by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate." Consequently, a person appealing against a tax assessment does not have to follow the strict rules of evidence. Even some Courts do not have to observe the strict rules of evidence. Typically, the Small Claims Court in a State does not have to.


From what has been said, it can be seen that adhering to the strict rules of evidence can be onerous. It is debatable whether the rules achieve much. In the past few years, there has been a push for reform of the legal system. For any protracted action in the Supreme Court, the costs can be horrendous. Such costs will deter any individual from taking on a corporation. However, for ordinary everyday legal disputes, the law is much more accessible to litigants. Small Claim Courts and Tribunals can generally hear actions where the amount at issue does not exceed $5,000. This limit is sufficient for disputes between individuals and disputes between small businesses. Rules of evidence are not adhered to in the Small Claims Court. Legal representation is not required and, in some jurisdictions, is not allowed. Costs are not awarded against the losing party.

A major reform of the law occurred this year when the Federal Court Rules were changed to allow "class actions". Where Federal laws are involved, one person can now bring one action on behalf of many plaintiffs. This should greatly reduce the costs. "Class actions" can be brought in any matter where the Corporations Law is involved. For instance, after a corporate collapse, one plaintiff can bring an action on behalf of all plaintiffs who have suffered loss. However, even in this case, the plaintiff will have to pay the plaintiff's and the defendant's costs if he loses the action. In the USA and Canada, a plaintiff can hire a lawyer on a "contingency fee" basis. The plaintiff pays no costs if he loses; they are borne by the lawyer. The lawyer gets a share of the compensation if he wins the case. Until recently, "contingency fees" were not allowed in Australia. However, lately New South Wales announced that it was introducing a modified version of the contingency fees system. Other States are likely to follow suit.

Also, in recent years, various experiments have been tried in alternative dispute resolution. Parties to a dispute can decide not to litigate their dispute in a court of law but, instead, hire a private judge. Retired judges have made themselves available, for a fee, as private judges. Perhaps, in due time, we shall see "Rent-a-judge" under a Yellow Pages classification. Arbitration is common in commercial disputes. Some psychologists have asserted that they are professionally better qualified than lawyers to resolve disputes and they have advertised their services as dispute resolvers.

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Copyright 1994.