Decision date: September 5, 2018
Miller Bernstein LLP was the auditor of Buckingham Securities Corp., a securities dealer whose registration was suspended by the Ontario Securities Commission in 2001 for failing to segregate client assets and maintain a minimum level of net capital. When Buckingham collapsed, its assets were insufficient to make its clients whole.
One of Buckingham’s clients, Barry Lavender, commenced a class action against Miller Bernstein in 2005 on behalf of all clients at the time that Buckingham Securities was suspended. The action was certified on consent in 2010. The key issue was whether a duty of care could be established between Miller Bernstein and the class.
Lavender moved for summary judgment in 2017. At first instance, Justice Edward Belobaba of the Ontario Superior Court of Justice held that Miller Bernstein owed a duty of care to the class, and that the duty arose because, in the circumstances, Miller Bernstein “as a matter of simple justice had an obligation to be mindful of the plaintiff’s interests” when undertakings its audit.
Miller Bernstein appealed. In a unanimous decision, the Ontario Court of Appeal overturned Justice Belobaba’s decision in its entirety. Applying the recent Supreme Court of Canada decision in Deloitte & Touche v Livent, the Court of Appeal held that there was a lack of a close and direct connection between Miller Bernstein and Buckingham’s clients, and therefore the requisite proximity to establish a duty of care could not be established. The Court of Appeal concluded that Miller Bernstein did not owe a duty of care to the class, granted summary judgment to Miller Bernstein, and dismissed the action. Counsel for the plaintiff has sought leave from the Supreme Court of Canada to appeal the decision.
The case represents the Ontario Court of Appeal’s first opportunity to apply Livent to an auditor’s negligence claim. In doing so, it affirmed the high threshold established in Livent that non-clients must meet when seeking to establish an auditor’s liability.
The plaintiff, Barry Lavender, was represented by Siskinds LLP, with a team led by Daniel Bach and including Paul Bates, Serge Kalloghlian and Garett Hunter.