Records, records everywhere, and a reason to stop and think — the admissibility of company books stored in data files

This week’s TGIF considers a recent decision in the Raine Square development litigation, where the WA Supreme Court considered whether data files from software packages such as ‘Quickbooks’ are admissible as evidence of financial records.

WHAT HAPPENED?

A dispute over the admissibility of a data file arose in the context of the broader Raine Square development litigation. In those proceedings, Westgem’s liquidator is seeking to set aside certain transactions entered into between Westgem and the defendants’ predecessors in law as voidable transactions.

Evidence of Westgem’s finances during the period in which the liquidator claims that Westgem was insolvent was contained in a ‘Quickbooks’ data file, which was generated by Westgem using an electronic accounting system. The data file was stored on a USB.

The Supreme Court of Western Australia considered whether the data file was admissible under section 1305 of the Corporations Act 2001 (Cth) (Corporations Act).

THE CORPORATIONS ACT

Section 1305 of the Corporations Act provides that:

• a book kept by a body corporate under a requirement of the Corporations Act is admissible in evidence in any proceeding, and is prima facie evidence of any matter stated or recorded in the book; and
• a document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book.

The term ‘books’ is defined in the Corporations Act (s 9) as including financial reports or financial records, however compiled, recorded or stored.

WHAT DID THE PARTIES CLAIM?

The Liquidator claimed that the data file was admissible because it was an electronic record of Westgem’s financial information within the meaning of ‘books’, and was kept by Westgem as a systematic set of accounting data file records. The Liquidator submitted that the data file constituted financial records kept by Westgem as required by the Corporations Act.

The defendants objected to the admission of the data file on the basis that no evidence had been given as to the provenance of the data file, and the Liquidator had not proved that the software used to access the data file could do so fully and accurately.

The defendants also claimed that the data file was not a ‘book’, because it did not state or record matters that may be reproduced, but instead was a compilation of data that could be used to generate reports. The defendants submitted that a report produced from the data file is not a ‘book’ which has been ‘kept’, and it is impossible to know whether the data file contains relevant information without generating reports.

WHAT IS A BOOK? IS A DATA FILE ADMISSIBLE?

The Court found the Quickbooks data file, and reports prepared using that data, were ‘books’ kept by Westgem, and were admissible under s 1305.

In reaching this conclusion, Tottle J observed that:

• authenticating evidence is not required in order for a company’s books to be introduced into evidence, and s 1305(1) allows such books to be relied on to prove transactions recorded in them;
• as documents ‘purporting’ to be a book are taken to be a book pursuant to s 1305(2), when applied to a document in electronic form viewable on a computer screen, the document is, without more, taken to be kept by the body corporate unless the contrary is proved;
• the Liquidator need not prove the software used to access the data file, or the software or device used to reproduce the data in writing; and
• the data file was a ‘book’ of Westgem, as it comprised documents and financial records stored on it, and contained records that were financial records that Westgem was required to keep under s 286 of the Corporations Act.

In finding that the Liquidator was not required to prove the software, Tottle J emphasised that a book is admissible as prima facie evidence of any matter stated or recorded in it, and that it was open to the defendants to show that reliance should not be placed on the book, including evidence that the software is unreliable.

WHAT ABOUT REPORTS PRINTED OR PREPARED FROM THE DATA FILE?

The Court adopted a broad interpretation of ‘books’, finding that ‘books’ includes reports generated from the data file and print outs of information contained in the data file.

In this regard, Justice Tottle observed that if a ‘book’ storing data in electronic form is printed, the writing will be taken to be a reproduction of the matter recorded, unless the contrary is proved.

His Honour also observed that accounting software such as Quickbooks is used to generate reports or financial statements to retrieve the data as required, and while this retrieval of data in report form involves selection and calculation, this is the method by which data in accounting software is accessed.

COMMENT

This decision demonstrates that a broad range of financial information maintained by companies in electronic form may be admitted into evidence as ‘books’ of those companies. If so, that information can be relied on as evidence of the financial and business activities of a company without the need to put on evidence from a person with personal knowledge about how those records came into existence.

Unless it can be shown that software used to access or generate the data is unreliable, or reliance should not be placed on the ‘book’, reports or financial statements prepared using accounting software are also likely to be admissible, without the need for authenticating evidence.