Further Edit: I have been pointed to the decision of Connex Group Australia v Butt  NSW 379 on this point. White J delivers a comprehensive judgment explaining his decision to allow lay opinion about the substance of conversation, where the words themselves could no longer be recalled.
I’ll write a full post on it when time permits.
Jeremy Gans expressed the view (in his comment on When is lay opinion necessary) that the NSW Court of Appeal suggested in Jackson v Lithgow City Council that the Evidence Act 1995 (NSW) should not be interpreted so narrowly that a witness would be prevented from giving the ‘gist’ of a conversation unless they could demonstrate they were unable to recount the exact words used.
Basten JA [at 63]:
63 The submissions did not seek to make good that last proposition. It gives rise to a question, not addressed in argument, as to whether the exclusion of opinion evidence found in s 76 of the Evidence Act was intended to exclude the kinds of inference and impression which would have been admissible under the general law, so that their continued admissibility depends upon the operation of the exceptions. If the exclusionary rule were intended to have such a comprehensive effect, it would be necessary to give a broad construction to, for example, s 78, so as to avoid the exclusion of evidence of impression and inference without which much testimony would become an unhelpful artefact. Even giving s 78 a broad operation might not properly resolve the matter. The recounting of a conversation commencing, “she then said words to the following effect …” would only be admissible once the proponent of the evidence demonstrated the impossibility (or perhaps the impracticability) of repeating word for word what had been said. It seems unlikely that the structure of the Evidence Act (stating a rule of general exclusion, followed by exceptions) was intended to have such an impractical effect.
Basten JA’s remarks were not essential to the deciding of the case, and so should not be conclusive on the subject. For further discussion, see also the later post and discussion Indirect speech in evidence.
Edit: R v Noble  QCA 523 was referred to in LMI v Baulderstone  NSWSC 688.
8 There is no rule of law, whether under the Evidence Act or otherwise, which makes inadmissible evidence of a conversation given in indirect speech, but there are obviously very good reasons why courts have, over the years, been astute to regard the direct speech form as the best form. The statements in the two Queensland cases to which Mr Campbell took me share a common thread of the witness’s inability to remember the precise words used. In each of the passages I have quoted there is a statement that the witness was unable to remember the precise words. Obviously if a witness can remember them, evidence should be given of the ipsissima verba.
9 The possibility that s.135 may be invoked where evidence of a conversation is given in indirect speech is, of course, real. However, the question under that section will be not merely be whether there is prejudice, but whether that prejudice is unfair prejudice operating against the opposing party because of a curtailment of the ability to cross-examine. I accept that not all the cross-examination opportunities available in a case of direct speech report will arise in case of an indirect speech report, but the ability to engage in meaningful cross-examination will exist nevertheless. There is also the point that the probative value of the evidence may be diminished by its form.
The trial judge, Barret J, confirmed that the position under the Evidence Act 1995 (NSW) is the same as under the common law, largely agreeing with the Queensland Court of Appeal in Noble.
Spend any time at all in the Magistrates’ Court and you will soon hear a witness being told off (often publicly, in the witness box), “No, say the words that he actually used!”
There’s no doubt the precise words would be the best evidence. Whether the witness will be able to recall them or not is a separate question.
McMurdo P said in R v Noble  QCA 523:
 There is, in my respectful opinion, no rule that a witness who does not claim to remember the words spoken in a conversation must attempt to give it in direct speech, manufacturing a conversation from a recollection of its effect. Of course, the ideal is that the exact words be given, but it is so unlikely that [the witness] could have remembered anything other than the substance of the conversations that the judge plainly erred in attempting to have him give evidence using direct speech. The erroneous idea that people can accurately recall conversations in direct speech, long after their occurrence, appears to have been encouraged by practices observed by some magistrates and police, in days gone by. That it is erroneous can be easily demonstrated, if one tries to perform this feat oneself.
The Queensland Court of Appeal relied on Wigmore on Evidence in coming to this unanimous conclusion that the absence of direct speech doesn’t offend any rule of evidence. This case has now found its way into Cross on Evidence, and nothing that I’ve seen in our new Evidence Act 2008 says differently.