MONTREAL, Jan. 9, 2014 /CNW Telbec/ - The Supreme Court of Canada
announced earlier today that it had dismissed Coopers & Lybrand's
Application for Leave to Appeal in Canada's longest-running trial. The
ruling extinguishes any hope that Coopers & Lybrand ("Coopers") had that it could evade liability for its professional negligence in
the services it provided to the Montreal-based company, Castor Holdings
Ltd. ("Castor") and for the resultant harm suffered by third parties who relied on
its opinions when deciding to invest in or lend money to Castor. The
questions Coopers put forward to the Supreme Court of Canada were
largely based on whether the civil law of Quebec or the common law
should govern the issue of auditors' liability and today's decision
sends the message that negligent auditors can and should be held
accountable for their failure to comply with the applicable
Although the audited financial statements of Castor for the year ended
1990 reported assets of more than $1.8 billion, Castor declared
bankruptcy in early 1992 and investors, lenders and creditors soon
learned from the Trustee in Bankruptcy, Richter Advisory Group Inc. ("Richter"), that the reported assets were virtually worthless. A multitude of
lawsuits against Coopers and each of the individual partners of the
firm practicing in Canada in 1988, 1989 and 1990 were instituted in
1993 and 1994 in the Quebec Superior Court making the Castor litigation
the largest auditors' negligence case in Canadian history. With
interest, the pending Castor claims against Coopers amount in the
aggregate to more than a billion dollars. In 1998, a test case was
selected to proceed first to trial. Although liability would only be
determined for that one plaintiff, investor Peter Widdrington, the
judgment was to resolve and be binding on all the Castor-related cases
on the key common issues including, primarily, Coopers' negligence with
regard to its audit work and other professional opinions.
The Widdrington trial commenced in September 1998, 2 months after
Coopers merged with accounting firm Price Waterhouse to form
PricewaterhouseCoopers ("PwC"). The plaintiff was represented by the Montreal law firm of Fishman
Flanz Meland Paquin LLP ("FFMP") which also represents the Trustee in Bankruptcy as well as various
Canadian and foreign banks. Extensive delays were caused by the
litigation strategy of Coopers which included more than 40 appeals on a
myriad of issues. The defence strategy was described by the courts as a
scorched-earth war of attrition.
Notwithstanding the delays and roadblocks to which plaintiff was
subjected, he prevailed in full before the Quebec Superior Court. In
her 753-page trial judgment issued in April 2011, the Honourable Marie
St-Pierre upheld the positions put forward by the plaintiff. She held
that Coopers breached generally accepted auditing standards and that
the audited financial statements of Castor contained numerous material
misstatements and did not fairly present the financial position of
Castor. She found that "superficiality and brevity characterized the audits" conducted by Coopers and that the audit planning "was performed in an automatic, thoughtless manner without professional
judgment or serious consideration of anything other than going through
the motions of mindlessly filling out forms." Judge St-Pierre also determined that the civil law of Quebec would
govern the issue of civil liability. However, given the unique
circumstances of the case and the specific factual matrix, she also
concluded that, had the common law applied, Coopers would still have
been liable for its negligence.
The Quebec Court of Appeal, which substantially upheld the trial
judgment, held that the audit work performed by Coopers was "botched" and that it was "easy to see why the result was a fiasco."
The legal team at FFMP is gratified that, after such a long and
challenging legal journey, a final decision has been rendered
confirming the liability of Coopers.
FFMP's Avram Fishman describes the result as the "satisfying culmination of an arduous 20-year journey" and Mark Meland of the same firm states that "the time for Coopers to run and hide is over and Coopers and its
partners must now face the music for the harm caused to investors and
Richter also played a pivotal role in providing litigation support to
counsel throughout this long process.
As a result of this decision, the plaintiffs will now intensify their
efforts to take all steps necessary to recover their losses from
Coopers, its individual partners across Canada, its professional
liability insurers and PwC, the successor firm that emerged from the
merger of Coopers and Price Waterhouse.
In respect of PwC, proceedings are currently pending before the courts
seeking to hold the firm liable for an amount up to the value of all of
Coopers' assets transferred to PwC at the time of the merger. In the
Superior Court judgment, the court held that "it is not believable" that one of the managing partners of PwC, who acted as an expert for
the defence, "would assume that he has and had no economic interest in the outcome of
the present litigation either directly as a partner of
PricewaterhouseCoopers or indirectly because of the potential liability
of a number of his partners".
With respect to the issue of insurance, a Motion for Declaratory
Judgment will be heard by a judge of the Quebec Superior Court in early
2015. The court has been asked to declare that Coopers' professional
liability insurance policies are governed by and subject to Quebec law.
The public order provisions of the Civil Code of Quebec stipulate that
the amount of insurance is for the exclusive benefit of the third party
victim and that costs and expenses, including defence costs, and
interest on the amount of the insurance are borne by the insurer over
and above the limits of insurance.
SOURCE: Fishman Flanz Meland Paquin LLP
For further information:
Me Avram Fishman, email: firstname.lastname@example.org and Me Mark E. Meland, email: email@example.com, Fishman Flanz Meland Paquin LLP, 1250 René-Lévesque Blvd. West, Suite 4100, Montreal, Quebec, H3B 4W8, tel: 514-932-4100.