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Professional Responsibility - SELF-GOVERNING PROFESSIONS - Duties - Duty of care - Negligence - Professions - Public accountants - Chartered accountants and auditors

Thursday, January 12, 2017 @ 7:00 PM  


Appeal by the plaintiff lenders from an order granting partial summary judgment dismissing a portion of their claims against the defendant auditors. In 1998, an accounting fraud was discovered at Philip, a publicly traded company. The fraud required a material restatement of Philip’s financial statements and led to the company’s financial collapse and default on its credit facilities. The appellants were Phillip’s lenders. They sued Philip’s auditors, the respondents. The respondents denied negligence in the conduct of the audits and denied the appellants relied on the financial statements and audit opinions at issue in making lending decisions. A motion judge granted partial summary judgment dismissing the appellants’ claims of negligence and negligent misrepresentation. The judge found no risk of duplicative or inconsistent findings arising from partial summary judgment, and concluded it was not inadvisable in the context of the litigation as a whole. A trial was scheduled for 2017 to consider the appellants’ remaining claim of reckless misrepresentation, along with other claims by Philip and the respondents’ third party claims against Philip’s directors and officers for contribution and indemnity. The lenders appealed.

HELD: Appeal allowed. The motion judge erred in finding no risk of duplicative or inconsistent findings and in concluding that partial summary judgment was advisable. The claim for reckless misrepresentation and Philip’s claims against the respondents arose from the same factual matrix as the appellants’ negligence claim. The facts found by the motion judge in relation to the negligence claim would likely remain in issue at trial. The partial summary judgment did not release any party from the proceedings or materially shorten the scheduled trial. The conclusion that the spectre of indeterminate liability negated the respondents’ prima facie duty of care to the appellants remained an open issue for trial based on the extent to which the respondents were aware of their maximum potential liability as opposed to just their knowledge of the identity of each member of the lending syndicate. Furthermore, determination of the purpose of the audit required consideration of the complete factual matrix at trial. The partial summary judgment was set aside with a direction that the issue of the respondents’ liability to the appellants in negligence proceed to trial with the other claims.