The South Australian Supreme Court has allowed an appeal and reduced the amount payable by a company to its accountants following the company’s claim that its accountants were negligent concerning the preparation of certain of its BASs.
The respondent in this case is an accountancy firm which had been retained by the appellant, Thalia Corporation Pty Ltd (“Thalia”), to provide services including lodging quarterly activity statements, and drafting and lodging annual income tax returns. At the relevant times, Thalia was the trustee of the Adelaide Discretionary Trust, and in that capacity held and dealt with commercial properties which were leased through a real estate agency.
The firm sued the appellant in the Magistrates Court of South Australia for outstanding fees. As part of its defence, the appellant maintained that the firm’s negligence had caused the ATO to conduct an audit of the appellant’s business, such that the firm was liable for the fees, which it charged in relation to the audit.
The Magistrate (Milazzo SM) concluded that the firm had been negligent in failing to correct a misallocation of elevator invoices in 3 BASs in the 2008 financial year. The Magistrate found that while discrepancies between the BASs and tax returns were a cause of the audit, the appellant had not established that the firm’s negligence as to the elevator invoices was a sufficient cause of the audit. As to other discrepancies between BASs and tax returns, the Magistrate found that without evidence as to how those discrepancies arose, he could not find the firm negligent. The Magistrate entered judgment for Bentleys in the sum of $29,103.40. Thalia Corporation appealed.
On appeal, the company argued that the Magistrate had erred in a number of respects, while the firm submitted that if it was liable, the appellant was liable for contributory negligence.
The Supreme Court of South Australia allowed the appeal holding that:
- the Magistrate correctly found that the firm had been negligent in respect of the elevator invoices;
- the ATO audit was within a reasonably foreseeable class of loss resulting from the firm’s negligence;
- the Magistrate erred in finding that the appellant had not established that the firm’s negligence as to the elevator invoices was a sufficient cause of the audit;
- the appellant’s bookkeepers’ conduct was such that the appellant should be liable for contributory negligence. The Court fixed the firm’s liability at 75% and the appellant’s liability at 25%.
The Supreme Court set aside the judgment of the Magistrate and gave judgment in favour of Bentleys in the amount of $3,096.03, plus interest.
(Thalia Corporation Pty Ltd v Bentleys (SA) Pty Ltd [2013] SASC 172, South Australia Supreme Court, Sulan J, 12 November 2013.)
[LTN 2224, 19/11/13]