Ontario Court Of Appeal Summaries (August 20 – 24, 2018)

Following are the summaries for this week's civil decisions of the Court of Appeal for Ontario. There was one noteworthy decision released relating to Bernard Madoff's Ponzi scheme. Almost 10 years have passed since Madoff's confession!

In Fairfield Sentry Limited v. PricewaterhouseCoopers LLP, several Fund companies that invested heavily into Madoff's scheme brought an action against auditors PWC, asserting that PWC was negligent in performing the audits of the Funds' financial statements for the two years prior to Madoff's fraud confession in December 2008. The Funds alleged that PWC should have uncovered the Ponzi scheme and its failure to do so resulted in damages to the Funds of $2.5 billion. PWC brought a successful motion for summary judgment dismissing the action (note PWC assumed liability for the purposes of the motion and the only issue was whether there was a genuine issue for trial regarding damages). The Court of Appeal dismissed the Funds' appeal and found that the motion judge, who was faced with several expert opinions ranging from accounting and insolvency to United States law, correctly applied the facts and evidence of this case to the test established in Livent Inc. v Deloitte & Touche for calculating damages.

Other topics included Condominium Law, Environmental Law and Child Custody and Access.

Lea Nebel Blaney McMurtry LLP lnebel@blaney.com Tel: 416 593 3914 https://www.blaney.com/lawyers/lea-nebel

Civil Decisions

Fairfield Sentry Limited v. PricewaterhouseCoopers LLP, 2018 ONCA 696

[Benotto, Brown and Miller JJ.A.]

Counsel:

P.F.C. Howard, P. O'Kelly, and A.L. Kreaden, for the appellants

G.L.R. Ranking, S.J. Armstrong, and K. Potter, for the respondents

Keywords: Auditors, Financial Statements, Negligence, Breach of Contract, Summary Judgment, No Genuine Issue Requiring a Trial, Damages, Livent Inc. v. Deloitte & Touche, 2016 ONCA 11

Facts:

The appellants were funds incorporated in the British Virgin Islands ("BVI"), and were investors in Bernard Madoff's Ponzi scheme. The truth of the scheme only became known in December of 2008 when Madoff confessed. The respondents audited the appellants' financial statements for 2006 and 2007.

The appellants were put into liquidation subsequent to the revelation of Madoff's scheme, following which — by their BVI court-appointed liquidators (the "Liquidators") — the appellants brought an action seeking damages from the respondents for breach of contract and/or negligence in performing the funds' audits. The Liquidators alleged that the respondents should have uncovered Madoff's Ponzi scheme no later than April 24, 2007, when they delivered the funds' audited 2006 financial statements. Because the respondents did not do so, the funds remained invested in the Ponzi scheme, as a result of which they argued they suffered approximately $2.5 billion in damages.

The respondents moved for summary judgment dismissing the action on the basis that the funds had not suffered any damages. For purposes of the motion, liability was assumed. The only issue was whether there was a genuine issue regarding damages that required a trial.

The motion judge granted summary judgment and dismissed the action, applying the approach to calculating damages set out by the Ontario Court of Appeal in Livent Inc. v Deloitte & Touche, 2016 ONCA 11. He accepted the evidence of the respondents' damages expert in concluding that the funds had not suffered any damages, and there was therefore no genuine issue that required a trial.

The appellants appealed this decision.

Issues:

(1) Did the motion judge make an improper adverse inference against the appellants for not seeking the court's permission to file "sur-reply evidence" in response to the respondents' reply evidence?

(2) Did the motion judge commit a palpable and overriding error by treating the appellants' withdrawal of $1.03 billion from Madoff's company between the date the respondents delivered their audits for the 2006 year (the date for calculating the "Estimated Liquidation Deficit" or "ELD") and the date Madoff's fraud was revealed (the date for calculating the "Actual Liquidation Deficit" or "ALD") as a "benefit" to the appellants, subsequently eliminating that amount from the appellants' damages?

(3) Did the motion judge commit a palpable and overriding error in his treatment of the amounts set out in certain non-forbearance judgments that the appellants consented to in favour of the trustee for Madoff's investment company?

(4) Did the motion judge fail to consider the effect of what was, in the Liquidators' view, the improper removal of two line items from a balance sheet calculation chart submitted in support of the damages estimate of $2.5 billion?

(5) Did the motion judge commit a palpable and overriding error in...