Last week the SCC rendered its judgment in Deloitte & Touche v Livent Inc (receiver of), 2017 SCC 63. It is available here: http://canlii.ca/t/hpdq9. The Court of Appeal for Ontario having awarded some $80 million, the majority of the SCC cut the award to some $40 million while the dissent would have awarded nothing. The decision is a 4-3 split.
The claim is by the receiver of now-bankrupt Livent Inc (synonymous in Canada with The Phantom of the Opera) against the corporation's auditors for statements they made in 1997. The contention was that those statements fell (well) below the standard of care and had they not, the true (awful) financial situation of Livent Inc would have become known (significant fraud was being committed by key individuals) and it would have shut down rather than carrying on to lose some $80 million more.
There is much to consider in the lengthy decision. Here are a few points that strike me:
1. The majority subsumes (para 22) the analysis for a duty of care in an auditor negligent misrepresentation case into the more general Cooper (Caparo) framework. This means several elements come to be considered in a different place in the analysis than they were in Hercules Managements. Work that used to happen at the second stage (general policy considerations) now happens at the first stage (reasonable foreseeability and proximity). The second stage will rarely be reached (para 42). Does all this just affect future cases about auditors, or is this equally true for other negligent misrepresentation cases (and negligent performance of a service cases)?
2. The majority puts more emphasis on the defendant's "undertaking" (assumption of responsibility) in defining the scope of the duty than seen in previous decisions (paras 30-31). The plaintiff's foreseeable and reasonable reliance still matter, but alongside the defendant's undertaking. Weinrib and Beever, among others, get cited on this. See also the dissent (paras 170-172) on assumption of responsibility. I find this latter discussion difficult to fit into the overall analysis.
3. The majority considers (para 24) proximity first, then reasonable foreseeability, which is a change from prior decisions. Does anything turn on that?
4. The majority halves the award because some $40 million of loss flowed from statements by the auditors made for the purpose of Livent Inc raising money (which it did). Negligence in the scope of this undertaking was not actionable by the corporation. In contrast, the other $40 million of losses flowed from statements the auditors made in a statutory audit with the purpose of allowing the shareholders to properly manage the corporation. Negligence in the scope of this undertaking was actionable. The majority puts great stress on the issue of the purpose for which the statements were made (paras 2-3, 10, 15).
5. The dissent, it seems, does not disagree a great deal on the law (though paras 170-172 make me wonder). It bases its denial of recovery on a factual point: that Livent Inc did not prove any actual reliance on the statements relating to the managing of the corporation (paras 159-162). It did not prove that it would have avoided the additional $40 million in losses had the statements disclosed the truth. The majority rejects this with some scorn (paras 82-84), finding more than sufficient proof.
6. The dissent also thinks these losses are too indeterminate to allow recovery (para 164). The majority disagrees: they are large losses but not indeterminate (para 72).
There is much more here: the issue of attribution of acts of key individuals to the corporation (for defences of illegality and contributory negligence), remoteness of loss, the SAAMCO principle.
All the best for the holiday season and 2018.
Stephen
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Professor Stephen G.A. Pitel
Faculty of Law, Western University
(519) 661-2111 ext 88433
President, University of Western Ontario Faculty Association
Professor Stephen G.A. Pitel
Faculty of Law, Western University
(519) 661-2111 ext 88433
President, University of Western Ontario Faculty Association