Today, on June 9, 2016, the Supreme Court of Canada granted former Livent auditor, Deloitte & Touche, leave to appeal from the decision of the Court of Appeal for Ontario, in Livent v. Deliotte & Touche that it was liable for more than $80 million in damages to the receiver for theatre company, Livent, due to its failure to detect fraud by Livent’s senior management. Two members of Livent’s management team, Myron Gottlieb and Garth Drabinsky, were ultimately criminally convicted of fraud and served jail time in connection with the Livent fraud.
It is expected that this case will continue to be watched very closely by auditors and the legal counsel that advise them – as it will set the rules for when an auditor will be held responsible for frauds committed by the very company it has audited. The decisions in this case in both the Superior Court of Justice and the Court of Appeal for Ontario diverged sharply from decisions in similar circumstances in the U.S. where courts have found that auditors should not be held liable to a corporation for negligently failing to detect the corporation’s own fraud, at least where the fraud was committed by the directing minds of the corporation. It will be interesting to see whether the Supreme Court of Canada continues to set a very different course from the courts South of the border.