Canada: Auditor Held To Owe Duty To "Client's Clients"

In Lavender v. Miller Bernstein LLP, Justice Belobaba heard a motion by the representative plaintiff for summary judgment on several of the common issues certified in the class proceeding against the defendant auditor. The disposition of the motion turned on the question of whether a duty of care arose between Miller Bernstein and the class members who held investments with the auditor's client, a defunct securities dealer. Such a duty was found by Justice Belobaba, with the motion being decided in favour of the representative plaintiff.

The facts of the case are straightforward, and concern the failure of a securities dealer, Buckingham Securities ("Buckingham") to segregate investor (class member) assets and maintain minimum net free capital in breach of regulatory requirements. The Ontario Securities Commission ultimately placed Buckingham in receivership, yet the unsegregated assets had by that time been appropriated resulting in a loss to the class members. In the course of subsequent OSC proceedings, it was admitted that materially untrue statements had been made in "Form 9" reports, which were to be audited and filed with the OSC to confirm the asset segregation and minimum capital. The Form 9s had been audited in the material years by Miller Bernstein ("MB").

A class action was commenced in 2005, and subsequently certified, on behalf of investors in Buckingham, alleging that MB had breached its duty of care owed to class members through its negligent audit of the reports filed with the OSC. In short, the class allegation was that losses had been sustained which, but for MB's negligent audit of the Form 9s, would not have arisen since accurate Form 9s would have alerted OSC and precipitated an earlier intervention.

On the summary judgment motion, there was little dispute over several of the common issues, such as causation or whether Buckingham had in fact failed to comply with regulatory requirements. Rather, the central point of contention was whether a duty of care was in fact owed to class members by MB. Justice Belobaba embarked on the established Anns-Cooper analysis, namely to determine i) whether the facts disclose a sufficient level of foreseeability and proximity to establish a prima facie duty of care, and ii) if so, whether there are residual policy considerations that would justify declining to impose liability in tort.

On the first stage of the test, the Court held the question was simply whether "the defendant may be said to have had an obligation to be mindful of the plaintiff's interests in going about his business." The facts supported a prima facie duty of care. While the class members had little meaningful contact with MB, the auditor knew the Form 9s were used by the OSC to police securities dealers and to protect investors, and MB understood the consequences to its "client's clients" if the segregation or capital deficiency information was misstated. Moreover, MB was retained by Buckingham to do an assurance audit and had access to the individual investor names and account details.

Moving to the residual policy concern stage, Justice Belobaba noted that the Court's primary concern when imposing a duty of care in cases of pure economic loss is the spectre of indeterminate or unlimited liability. However, it was determined that such a concern did not arise on the facts of the case. MB knew the identity of the class of plaintiffs, and the auditor's statements were used for the specific purpose for which they were prepared. As such, MB was aware of the narrowly circumscribed class of people to whom it could be liable for a negligent audit, and also its potential monetary liability through knowledge of the investments at issue.

As a result, the Court held in favour of the representative plaintiff with respect to the common issues concerning the omissions of Buckingham, the duty owed by MB, and the auditor's breach of that duty through the preparation of negligent audit reports.

Interestingly, while the representative plaintiff was largely successful the ultimate outcome remains to be seen. The plaintiff failed to put before the Court evidence of class members' actual losses, nor a proposed methodology for making such a determination. Belobaba J. noted that clarification would be needed in light of the fact, inter alia, that Class members received a court-approved distribution from the Receiver in 2005.

Justice Belobaba reaffirmed that expert evidence speaking to estimated aggregate losses was of not assistance, as actual loss is a precondition to liability in tort, and aggregate damages under the Class Proceedings Act cannot be used to establish actual loss/liability. Consequently, whether liability is ultimately established, and recovery obtained for class members, will depend upon any further evidence proffered.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions