Litigation Blog

Directors and Officers Must Defend Secondary Market Misrepresentation Claim

December 04, 2017

The directors and officers of a company mining coal in Mongolia were named personally as defendants in a securities class action in Ontario.  On the plaintiff’s motion for leave to bring the action, the court permitted the claim to proceed against the company, but not the directors and officers. Not so fast, said the Ontario Court of Appeal in allowing the claim against the individuals to go ahead.

In Rahimi v. SouthGobi Resources Ltd., shareholders claimed against SouthGobi Resources Ltd., two former CEOs and three Directors after the company restated previous audited financial statements. The company announced in a press release that the statements did not meet revenue recognition criteria, resulting in a share price drop.
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Auditors’ Assessment of Risk Determines Appropriate Audit Procedures

November 22, 2017

The Court of Queen’s Bench of Alberta recently released an interesting decision dealing with auditors’ liability and the relevance of appropriately assessing the risk of fraud in planning and performing an audit: Cooperatieve Centrale Raiffeisen-Boerenleenbank BA v Stout & Company LLP, 2017 ABQB 637.  The Plaintiff, Cooperatieve Centrale Raiffeisen-Berenleenbank B.A. (“Rabobank”) is a Dutch cooperative bank with international operations.  One of Rabobank’s customers was Agra Services Canada Inc. (“Agra”), an Alberta corporation which was in the business of purchasing agricultural commodities and selling them in Mexico.  James Stout Professional Corporation (“Stout”) began auditing the financial statements of Agra commencing with the 2007 year end.

Rabobank financed Agra’s operations by purchasing its receivables.  However, commencing in September 2009, Agra began to enter into fake purchase and sale agreements.  Stout did not identify any of these fake transactions during its audit of the 2009 or 2010 financial statements.  Rabobank ended up losing about $36 million.  Rabobank sued Stout on the basis that its audit opinions to the effect that the financial statements were free from fraud and material misrepresentations constituted a negligent misrepresentation on the part of Stout.
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That cause of action is sooo three years ago: limitation periods barring negligence claims

November 22, 2017

Below two cases will be reviewed: one from British Columbia in 2017 and an Ontario case from 2016. Both cases deal with statutory and contractual limitation periods barring negligence claims against an architecture firm and an engineering consulting firm, respectively. In both cases, the claims were found to have been time-barred based on contractual limitation clauses exemplifying the importance of contractual limitations in professional services contracts and their potential to limit liability.

In Thom v. Laird Custom Homes Ltd., 2017 BCSC 1577 (“Laird”), the Thoms contracted with a construction company to build a home and garage. The project was completed by the end of June 2008. In 2012, water damage and leaks became an issue. More problems were discovered in 2014. The Thoms filed a notice of civil claim in October 2015. In December 2015, they applied to add Hearth, an architecture firm, as a party.
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