Date: Tue, 20 Nov 2007 23:40

From: David Cheifetz

Subject: Alice in Wonderland (or how to extract millions from auditors)

Dear Neil,

You're welcome.

But ... but-for requires a more likely than not level of confidence that the act would have made a difference. Would your "plausible claim" require that level of confidence or are you falling back on what you're entitled to do, under Australian law as I understand it - through the March v Stramere fudge - to the equation of material contribution and but-for? Are you suggesting that some level of possibility below whatever level of confidence you think is needed for likelihood is nonetheless sufficient?

Assuming the auditors had reported SR to somebody what level of confidence is there that the person (police?) would have acted in a way that makes a difference? Can we say more likely than not? How do we decide if it would it have made a difference? This triggers the discussion that Vaughan covers in his decision-causation paper, no?

I suppose one issue depends what the police would and could have done, legally. In that vein, consider what happened in Mooney v British Columbia. There's no doubt the police were negligent but on the evidence the majority found there was nothing the police could have done legally that probably would have made a difference.

That's the substance of the Mooney dissent. What more could victim have done?

Analyzing these cases in terms of causation does send us chasing our tails, doesn't ?

David

----- Original Message ----
From: Neil Foster
Sent: Tuesday, November 20, 2007 5:45:10 PM
Subject: Re: ODG: Re Alice in Wonderland (or how to extract millions from auditors)

Dear David

Thanks for the reference to BSA, it is an interesting case. For a NSW case where a solicitor was sued for negligence in assisting a fraudster to get a registered mortgage, see Chandra v Perpetual Trustees Vic Ltd [2007] NSWSC 694 - since the fraudster had disappeared, the solicitor would have had to pay the full value of the stolen property, except for the fact that in NSW now we have a "proportionate liability" regime for economic loss cases, which was applied to Chandra.

On the issue of causation in Stone & Rolls, however, I beg to differ. What the auditors should have done (and there were a series of audits over 3 years) was to have reported their suspicions to some appropriate authority - see para [18] of Langley J's judgment. Presumably the argument is that this would have stopped or at least limited the scam. I agree that there are many questions as to whether a private auditor's duty extends as far as "dobbing in" their client (to use the Australian term) simply on the basis of suspicion. And one could argue that the client in that case would simply have got rid of the auditor and got another one. But there is at least a plausible claim that "but for" the failure of the auditor the full extent of the harm, at least, would not have been suffered.

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