Mason & Cox Pty Ltd v KPMG Peat Marwick - [1999] SASC 214

MASON & COX PTY LTD v KPMG PEAT MARWICK
[1999] SASC 214

Magistrates Appeal: Civil

PERRY J. In this matter, two appeals from orders of a Master were heard together.
The appellant in both appeals is the proposed defendant to an action (“the substantive action”) contemplated by the respondent. For convenience, I will refer to the appellant as KPMG and to the respondent as Mason & Cox.
Mason & Cox is a company which for many years has conducted a steel foundry at Torrensville. It asserts that KPMG audited its accounts between 1989 and 1995. Mason & Cox’s chief financial officer was one Peter Ladner (“Ladner”). As such he had management and control of its financial matters since about 1989. From 1998 he was joint managing director of the company. In April 1998, Ladner’s employment with the company ceased.
After Ladner’s departure from the company, it was found that during the course of his period as chief financial officer Ladner had systematically diverted funds from Mason & Cox to entities associated with him. Ladner has now been charged with fraud.
By application made on 16 December 1998 in the within proceedings, Mason & Cox sought an order that KPMG “provide discovery by way of pre-action discovery of all files of the defendant with respect to the audit by the defendant and its predecessor firms of the financial statements of Mason & Cox Pty Ltd between 1989 and 1996”. In an affidavit sworn in support of the application, Mr Giles French, the managing director of Mason & Cox, stated inter alia:
“10... I verily believe that an audit of the accounts should have identified the diversion of funds to Ladner’s bank accounts. I am advised by Cowell Clarke, lawyers, that in order to maintain a claim against KPMG it will be necessary to identify the manner in which KPMG failed to exercise reasonable care in the conduct of the audit.”
11.................
12.... ...............
13.The plaintiff is advised that it has a sustainable claim and should initiate proceedings against the defendant.
14.... The plaintiff is further advised that to initiate proceedings without the documents would necessarily involve a statement of claim which would not be properly pleaded and unnecessary costs both to the plaintiff and the defendant would result.
15..............”
The application came on for hearing before a Master. While he was seized of the matter and before ruling on the application, KPMG issued a subpoena directed to Mason & Cox seeking production by them of “all documents containing or recording” the advices referred to in paragraphs 10, 13 and 14 of Mr French’s affidavit, and legal advice referred to in certain other correspondence between the parties. They also sought leave to cross-examine Mr French on his affidavit.
Mason & Cox produced the documents sought in the subpoena, at the same time claiming privilege against their production to KPMG. The Master thereupon placed the documents in a sealed envelope. They remain in the sealed envelope on the court file.
Against the plea…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Keep reading for free

Create a free CaseChat account to read Mason & Cox Pty Ltd v KPMG Peat Marwick and more:

Read every judgment in full
Ask AI and get answers linked to paragraphs
See how each paragraph was cited in later cases
Download judgments as PDF or Word

Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details

Case: [1999] SASC 214
Decision Date: 2 June 1999

CaseChat Overview and Summary

In Mason & Cox Pty Ltd v KPMG Peat Marwick, the court addressed two appeals from orders made by a Master in the Supreme Court of South Australia. The first appeal, brought by KPMG, challenged the Master's decision to uphold Mason & Cox's claim to legal professional privilege over certain documents, while the second appeal contested the Master's order for pre-action discovery of KPMG's audit files. The case revolved around allegations that KPMG failed to detect fraudulent activities by Mason & Cox's former chief financial officer, Peter Ladner, during its audits between 1989 and 1995.

The court first examined whether Mason & Cox had waived its privilege over the legal advice mentioned in the affidavit supporting its application for pre-action discovery. The court found that the references to the legal advice in the affidavit did not amount to an imputed waiver of privilege, as the act of seeking legal advice and subsequently referring to it in an affidavit did not necessarily imply a waiver of privilege. The court concluded that such references did not prejudice KPMG's contentions and did not warrant an imputation of waiver.

The second appeal questioned the Master's order for pre-action discovery, which required KPMG to produce its audit files for the specified period. The court found that while both parties were likely to be involved in future proceedings, the Master had erred in granting the order without sufficient justification. The court emphasized that pre-action discovery should not be granted lightly, especially when it involves a substantial disclosure of documents. The court held that Mason & Cox should be able to identify the manner in which KPMG might have breached its duty of care based on the information already available to it, including its own records and legal advice.

For these reasons, the court dismissed the appeal against the order upholding Mason & Cox's claim to privilege but allowed the appeal against the order for pre-action discovery, quashing it and substituting an order dismissing Mason & Cox's application. The court also noted that it would hear the parties regarding costs.

Orders