Deloitte v. Livent – Supreme Court of Canada finds that auditor negligence in providing comfort to investors in a public company did not result in liability
Deloitte was found to have negligently provided a comfort letter in October 1997, which assisted Livent in raising money from new investors, and to have also negligently provided an unqualified audit opinion in April 1998 respecting Livent’s 1997 financial statements. Gascon and Brown JJ, speaking for a bare majority of the Supreme Court, found that Deloitte was not liable to the receiver for Livent for the negligent comfort letter, because it helped accomplish Livent’s purpose of raising money, stating:
Deloitte never undertook, in preparing the Comfort Letter, to assist Livent’s shareholders in overseeing management; it cannot therefore be held liable for failing to take reasonable care to assist such oversight. … Consequently, the increase in Livent’s liquidation deficit which arose from its reliance on the Press Release and Comfort Letter was not a reasonably foreseeable injury.
However, they went on to find that Deloitte was liable for the increase in Livent’s liquidation deficit which followed the completion of the negligent statutory audit, stating that the very purpose of a statutory audit was to “to allow shareholders to collectively 'supervise management’,” so that the consequences of failure to permit the shareholders to see the losses that were being racked up by management resulted in Deloitte responsibility for those losses.
The minority thought that Deloitte should not be liable on either basis.
This decision might assist those who have provided negligent tax disclosure in offering documents.
Neal Armstrong. Summary of Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63 under General Concepts – Negligence.