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CIVIL EVIDENCE - Weight - Opinion evidence - Expert evidence

Friday, January 31, 2020 @ 7:31 AM  

Appeal by the plaintiff from trial judgment dismissing its action for negligent misrepresentation. Cross-appeal by the respondents from the judge’s approach to the question of damages. The appellant, a large co-operative bank, did significant business over several years with Agra Services, an Alberta company that bought and sold agricultural commodities in Mexico. Agra obtained accounting services from the respondent accounting firm which provided audits for Agra between 2008 and 2011. A massive fraud orchestrated by Agra was uncovered in 2011 which, the appellant claimed, resulted in significant losses to the appellant. Starting in 2009, Agra paid the appellant for maturing receivables with money it had previously obtained from the appellant for new fake receivable rather than by collecting from a non-existent purchaser. A forensic investigation revealed that Agra’s sales and costs of sales for 2009 and 2010 were misstated by at least 25 per cent and 40 per cent, respectively, in the company’s financial statements, including sales to companies that no longer existed and with which it never did business. The respondents never uncovered the fraud in the audits and always assessed the fraud risk as low. The appellant argued that the respondents were negligent for not assessing the risk of fraud as high. The appellant argued that had it done so, the respondents would have had to confirm Agra’s purported sales with its suppliers and customers, which would have in turn led to the discovery of the fraud. The trial judge preferred the evidence of the respondents’ expert who took the view that it was well within the professional judgment of the respondents to assess the risk of fraud as they did. Both parties agreed that if the fraud risk was properly characterized as low, the audit procedures performed were appropriate. The trial judge thus concluded that the respondents did not breach the standard of care. On the issue of damages, the trial judge accepted that the misrepresentations caused the loss in question and that the appellant would not otherwise have purchased the 99 receivables and rejected the respondents’ claim that the appellant would have lost essentially the same amount of money absent the misrepresentations.

HELD: Appeal allowed. New trial ordered. The trial judge was mistaken in suggesting that there was any significant difference between the files reviewed by the two experts. Neither expert reviewed the working paper files for the previous audits in 2007 and 2008. This misapprehension amounted to a reviewable error. The trial judge’s errors relating to what the two experts reviewed were determinative of the outcome. The misapprehensions went to the core of the reasoning process, having formed the basis of the trial judge’s decision to reject the appellant’s expert opinion on the question central to the standard of care. There was no basis in the evidence for why the trial judge preferred the respondents’ expert over the appellant’s expert on the critical question of whether the respondents should have assessed the risk of fraud as high. There was no error of law in the trial judge’s approach to the question of damages. The respondents bore the onus of showing that the appellant would have suffered the same loss absent their wrongdoing.

Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. v. Liebig & Keown LLP (appeals by Stout & Co. LLP and Stout), [2019] A.J. No. 1583, Alberta Court of Appeal, T.W. Wakeling, S.J. Greckol and D. Pentelechuk JJ.A., November 27, 2019. Digest No. TLD-January272020010