DMG Industries Pty Ltd v KPMG [2007] VSC 358

What the court decided

KPMG served a statutory demand (the demand) on DMG Industries Pty Ltd (DMG), and DMG applied to set it aside [2]. Master Efthim set the demand aside, and Robson J heard the appeal against that order [1]. Under section 459G, a supporting affidavit had to be filed and served within 21 days after service of the demand [2]. The first issue was whether the initial affidavit of a director of DMG, Mr Cain (the affidavit), was sufficient for section 459G(3) [4]–[6], [8]. The second was whether DMG's evidence, including later affidavits of Mr Cain and Mr Baxter, satisfied section 459H [5], [8], [36].

The affidavit's first ground, that DMG had made no permanent tax saving, raised no genuine dispute that the fees had arisen under the contract or were properly calculated [13]–[14]. So far as it complained of no material financial advantage to DMG, it was dealt with under the second ground [15]. That ground alleged that KPMG ought to have advised DMG to pursue a car industry grant scheme instead of tax concessions, causing loss [18]–[20].

Mr Bigmore QC for KPMG conceded that, to satisfy section 459G, DMG need not expressly identify its legal causes of action, but submitted that Mr Cain had not sufficiently identified the facts giving rise to the obligations alleged [30]. Robson J held those facts identified, including engagement terms which on one construction provided for KPMG to advise DMG about the grant scheme [24]–[29], [31]. His Honour set out Sundberg J's statement that, in a dispute case, a supporting affidavit had to disclose facts showing a genuine dispute but need not make out a section 459H case [34]. On the facts so identified, Robson J concluded that the affidavit satisfied section 459G(3) [31], [35].

On the second issue, Robson J set out passages in which Young J required more than mere assertion but less than proof, and Hayne J said that, at least in most cases, the court would not weigh the merits [37]–[39]. He found that Mr Cain's affidavit went beyond mere assertion, and that it was not a fictitious or colourable claim to say that, given KPMG was a major accounting firm advising in a very complicated area, and in the context of the written agreement, KPMG may have been bound to exercise reasonable care and skill to ensure DMG was best served by its use of the tax laws and schemes on KPMG's advice [40].

Robson J acknowledged that Mr Bigmore may be right that the engagement letter confined KPMG to the role of a functionary, and that the court may ultimately so hold, but found nothing in the letter establishing that beyond reasonable argument [41]. He was satisfied that there was a genuine dispute about the existence of the debt and/or that DMG had an offsetting claim within section 459H(1) [42]. Robson J dismissed the appeal with costs, so the demand remained set aside [1], [43].

Why it matters

Robson J did not decide whether KPMG's retainer was limited to the specified tasks; the letter, he found, did not prevent DMG from genuinely disputing that the retainer was so limited and/or raising an offsetting claim [41]. In my view, a company served with a demand is safer setting out, in the supporting affidavit filed and served within the 21 days, the facts of any dispute or offsetting claim.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.