COURT OF APPEAL FOR ONTARIO

Transcription

1 COURT OF APPEAL FOR ONTARIO CITATION: Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2016 ONCA 922 DATE: DOCKET: C61569 BETWEEN Hoy A.C.J.O., Benotto and Huscroft JJ.A. Canadian Imperial Bank of Commerce, High River Limited Partnership and Philip Services Corp. by its Receiver and Manager, Robert Cumming and Plaintiffs (Appellants) Deloitte & Touche, Deloitte & Touche LLP, Deloitte Touche Tohmatsu, Deloitte Touche Tohmatsu LLP and Deloitte Touche Tohmatsu f/k/a Deloitte Touche Tohmatsu International Defendants (Respondents) Thomas J. Dunne, Q.C., John E. Callaghan and Benjamin Na, for the appellants, High River Limited Partnership and Canadian Imperial Bank of Commerce Robb C. Heintzman, Michael D. Schafler and Mark G. Evans, for the respondents, Deloitte & Touche LLP, Deloitte Touche Tohmatsu LLP and Deloitte Touch Tohmatsu f/k/a Deloitte Touche Tohmatsu International Heard: October 5, 2016 On appeal from the order of Justice Paul M. Perell of the Superior Court of Justice, dated December 10, 2015, with reasons reported at 2015 ONSC 7695, 25 C.C.L.T. (4th) 194.

2 Page: 2 Hoy A.C.J.O.: [1] This appeal illustrates a potential danger when a party brings a motion for partial summary judgment. [2] In 1998, an accounting fraud was discovered at Philip Services Corp. ( Philip ), a publicly traded company. As a result, Philip s financial statements were materially restated. Philip s financial collapse including a default under its credit facility followed. Philip s lenders and Philip, by its receiver and manager, sued Philip s auditors, Deloitte, 1 and the international association of accounting firms of which Deloitte was the Canadian member, Deloitte Touche Tohmatsu f/k/a Deloitte Touche Tohmatsu International ( Deloitte-Verein ). The motion judge granted partial summary judgment, dismissing the lenders claim in negligence (negligent misrepresentation) against the defendants. [3] A four-month trial is scheduled for the fall of 2017 to determine the lenders remaining claim for reckless misrepresentation, Philip s claims and Deloitte s third-party claims against certain of Philip s directors and officers for contribution and indemnity under the Negligence Act, R.S.O. 1990, c. N.1. [4] The threshold issue on appeal is whether the motion judge erred in concluding that there was no risk of duplicative or inconsistent findings at trial 1 As the motion judge did, I refer to the respondents Deloitte & Touche, Deloitte & Touche LLP, Deloitte Touche Tohmatsu, and Deloitte Touche Tohmatsu LLP collectively as Deloitte.

3 Page: 3 and that granting partial summary judgment was advisable in the context of the litigation as a whole. Respectfully, I conclude that the answer to that question is yes. In the circumstances, I would allow the appeal and order that the lenders claims in negligence against Deloitte and Deloitte-Verein proceed to trial with the other claims. [5] The lenders also argued that the motion judge erred: in ruling inadmissible some of the expert evidence they adduced in response to the summary judgment motion; in concluding that the spectre of indeterminate liability negated the prima facie duty of care that he found Deloitte owed to the lenders; and in concluding that Deloitte-Verein did not owe the lenders a duty of care. [6] As I would order that the lenders negligence claims proceed to trial, it is unnecessary to determine these issues. However, for the assistance of the trial judge, I will make some comments on the approach taken by the motion judge in determining that Deloitte s prima facie duty of care was negated by the spectre of indeterminate liability. [7] To provide a framework for what follows, I will begin by outlining the nature of the claims advanced by the lenders and Philip and provide an overview of the facts.

4 Page: 4 1. The claims advanced [8] Canadian Imperial Bank of Commerce ( CIBC ) and High River Limited Partnership ( High River ) sued Deloitte and Deloitte-Verein on their own behalf and on behalf of all the other lenders (the Original Lenders ) who, collectively, advanced approximately US $1,000,000,000 to Philip under a US $1,500,000,000 credit agreement dated as of August 11, 1997 (the Credit Agreement ), and their successors and assigns (collectively, the Lenders ).The Lenders action was certified as a class action. The Lenders seek damages for negligence and reckless or negligent misrepresentation. [9] Philip, by its receiver and manager, sues Deloitte for breach of contract and for professional negligence. [10] The Lenders and Philip allege (and it is not in dispute) that Deloitte gave unqualified opinions in connection with its audits of Philip s consolidated financial statements for the financial years ending December 31, 1995 and It is also not in dispute that those financial statements materially misstated Philip s financial position. [11] The Lenders plead that the Original Lenders relied on those statements in entering into the Credit Agreement and that they would not have entered into the Credit Agreement and advanced the funds that they did had the consolidated financial statements reflected Philip s true financial position and results. They

5 Page: 5 further plead that Deloitte knew or ought to have known that one of the purposes for which Philip s audited financial statements and Deloitte s opinions were prepared was so that they could be provided to the Original Lenders to assist them in determining whether, or to what extent, they would advance funds to Philip. [12] Philip pleads that its directors and management relied upon these audited financial statements in charting the course of the company and in particular its rapid expansion through a series of acquisitions. Philip further pleads that if Deloitte had performed its audits in accordance with its contracts with Philip and in accordance with the applicable professional standards, Philip would have stopped the accounting fraud and would not have embarked upon the string of acquisitions that the misstated financial statements made possible. [13] The Lenders and Philip also claim against Deloitte-Verein. They plead that Deloitte-Verein promulgates auditing standards for use by Deloitte firms worldwide and set some of the standards by which Deloitte conducted its audits of Philip and, accordingly, is responsible for those audits failure to comply with applicable professional standards. [14] In its statement of defence, Deloitte, among other things, denies that the Original Lenders and Philip relied on the audited financial statements. It also denies that one of the purposes of its audit opinions was to permit [the Original

6 Page: 6 Lenders] to make investment or lending decisions in respect of Philip or to assist Philip s management, directors and shareholders in charting the course of the company or making investment decisions. As I will explain below, these denials are a key factor in my conclusion that there is a real risk of inconsistent findings at trial. [15] Deloitte pleads that directors and senior management relied or should have relied on Philip s more current unaudited quarterly financial statements (which were also disseminated to analysts and investors) and its unaudited pro forma financial statements. [16] Deloitte further pleads that it was not negligent in the conduct of its audits and that, in any event, any losses sustained by the Lenders and Philip are attributable to events that occurred well after the frauds were disclosed, and not to any negligence on the part of Deloitte. [17] Deloitte and Deloitte-Verein also deny that Deloitte-Verein is responsible in law for any of Deloitte s alleged audit failures. These further denials are also a factor in my conclusion that there is a real risk of inconsistent findings at trial. [18] Deloitte sued certain officers and directors, claiming contribution and indemnity as a result of their negligence and negligent misstatements, in the event Deloitte is adjudged liable to any extent in the main action.

7 Page: 7 2. Factual overview [19] The motion judge made extensive and detailed findings of fact. Because I would order that the Lenders negligence claim proceed to trial, I will limit my overview to those findings necessary to provide context for the issues addressed in these reasons. [20] Philip s business plan was to grow by acquisitions. Deloitte had a close relationship with Philip and knew this. Between 1993 and the 1996 year-end, Philip had acquired 29 companies for total consideration of $591.7 million. It acquired 30 more businesses in [21] Deloitte knew how Philip went about obtaining financing for its business plans and that Philip would disclose its audited financial statements to its lenders in order to obtain financing. [22] Deloitte knew that Philip had entered into a credit agreement with a consortium of banks, led by CIBC, in 1994; had amended that agreement twice in 1995 to increase the credit limit; and had entered into a new, replacement credit agreement in 1996 with an increased credit limit of $550 million (US), also with a consortium led by CIBC. Deloitte knew that the 1994 and 1996 credit agreements required Philip to provide copies of its audited financial statements and an

8 Page: 8 unqualified auditor s opinion to the lenders within 120 days of the end of Philip s financial year. [23] Deloitte was kept apprised of how much Philip borrowed under its credit facilities, whether or not Philip had capacity under those facilities, and Philip s need to increase its credit facilities for acquisitions. It knew that more acquisitions were planned for 1997 and that Philip required a loan of more than $1 billion to finance capital acquisitions and operations. [24] On March 6, 1997, Philip announced it had signed agreements for two more acquisitions: one involving $540 million (US) and the other $72 million. Deloitte knew about these transactions. [25] The financial statements and audit opinion were released to Philip for inclusion in its 1996 Annual Report in the third week of March 1997 and CIBC received copies of them by April 4, Deloitte knew that the lenders would rely on the representations contained in the financial statements. [26] On April 11, 1997, the 1996 credit agreement was amended to provide for a short-term $250 million (US) increase to the credit limit. [27] On April 22, 1997, Deloitte learned of Philip s plan to seek a $1.5 billion (US) credit facility to finance its ambitious expansion and acquisition program. It knew that lenders would, in the ordinary course, review Philip s financial statements before making a loan.

9 Page: 9 [28] On May 7, 1997, Philip advised Deloitte that it had negotiated a new $1.5 billion credit facility. On May 15, 1997, CIBC s Credit Committee approved the new loan, and on May 29, 1997, CIBC, along with Bankers Trust, made a commitment to lend $1.5 billion (US) to Philip. The new facility was expected to be in place by mid-august, [29] CIBC relied on the audited financial statements prepared by Deloitte in making its decision to enter into the Credit Agreement and would not have made the loan if it had known that the financial statements did not accurately reflect Philip s financial situation. [30] The engagement letter for Deloitte s audit of the financial year ending December 31, 1996 was finalized on May 22, [31] Deloitte knew that the Credit Agreement required Philip to provide CIBC with Philip s financial statements and an auditor s opinion. As it had done in the 1994 and 1996 credit agreements, Philip represented and warranted in the Credit Agreement that all consents and authorizations to provide audited financial statements to CIBC for the purpose of entering into the loan had been obtained. On the closing of the Credit Agreement, Philip certified that it was in compliance with all representations, warranties and covenants under the Credit Agreement.

10 Page: Granting partial summary judgment was inadvisable in the context of the litigation as a whole 3.1 The motion judge s reasons on this issue [32] The motion judge rejected the Lenders argument that granting partial summary judgment was inadvisable in the context of the litigation as a whole and risked duplicative or inconsistent findings at trial. [33] He wrote, at para. 162 of his reasons, that, [u]pon analysis, CIBC s examples of factual disputes, credibility issues, and gaps in the record are a sham and there is no risk of duplicative findings on material issues. [34] He continued, at para. 167: And, there is no risk of duplicative or inconsistent findings. The breach of contract claim does not involve establishing a duty of care and the reckless or fraudulent misrepresentation claim also does [not] involve establishing a duty of care. For the purpose of this summary judgment motion, I make no finding about Deloitte s recklessness or whether it performed its contractual obligations to Philip. [35] The motion judge indicated that he had assessed the advisability of a partial judgment in the context of the litigation as a whole. He concluded, at para. 170, that the duty of care issue is discrete from the issues that will be decided at trial and the forensic machinery of a trial will not provide a better appreciation of the duty of care issue than achieved on this summary judgment motion.

11 Page: Analysis [36] I respectfully disagree with the motion judge that there is no risk of duplicative or inconsistent findings and that partial summary judgment was advisable in this instance. [37] The motion judge correctly states that the Lenders claim for reckless misrepresentation and Philip s breach of contract claim do not involve establishing a duty of care. However, the Lenders claim for reckless misrepresentation and Philip s claims arise out of the same factual matrix as the Lenders negligence claim. As I will explain below, the facts found by the motion judge in relation to the Lenders negligence claim will likely be at issue in the trial of the Lenders claim for reckless misrepresentation and Philip s claims. [38] Therefore, there is a real risk of duplicative or inconsistent findings at trial. This error taints the motion judge s conclusion that partial summary judgment was advisable in the context of the litigation as a whole. [39] Moreover, the summary judgment motion was long and complex. It did not result in any party being released from the proceedings. And it did not eliminate nor is it expected to materially shorten the lengthy trial that was scheduled at the time the summary judgment motion was heard and remains scheduled to begin next fall. The evidence of third party directors and officers and other members of the Deloitte audit team will be available to the trial judge, possibly providing a

12 Page: 12 more accurate factual matrix on which to determine whether Deloitte owed the Lenders a duty of care. Similarly, the witness list for the trial indicates that, unlike on the motion below, a representative of Deloitte-Verein will be produced as a witness at trial. In my view, these are further reasons why, in the context of the litigation as a whole, partial summary judgment was not advisable and the Lenders negligence claim should be ordered to proceed to trial. [40] I am mindful of the fact that the motion was heard and determined at considerable expense to the parties and that the motion judge provided detailed reasons why, in his view, the spectre of indeterminate liability negated Deloitte s prima facie duty of care to the Lenders. I acknowledge that judicial resources are scarce and that ordering the Lenders claims in negligence to proceed to trial will require the trial judge to re-determine this very issue. However, as I will explain later in these reasons, I disagree with some of the motion judge s analysis leading to his conclusion that the spectre of indeterminate liability negated Deloitte s prima facie duty of care to the Lenders. This disagreement diminishes my concern about the impact on judicial resources of ordering that the Lenders negligence claims proceed to trial. [41] With this overview, I will briefly expand upon why the facts found by the motion judge in relation to the Lenders negligence claim will likely be at issue in the trial of the Lenders claim for reckless misrepresentation and Philip s claims against Deloitte.

13 Page: 13 [42] Reckless misrepresentation is a kind of fraudulent misrepresentation: Redican v. Nesbitt, [1924] S.C.R. 135, at p In the law of torts, a fraudulent misrepresentation that causes loss to the recipient grounds an action in deceit or civil fraud : Bruce MacDougall, Misrepresentation (Toronto: LexisNexis Canada, 2016), at para Recently, the Supreme Court held that a claim for civil fraud requires proof of the following facts: (1) a false representation made by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether through knowledge or recklessness); (3) the false representation caused the plaintiff to act; and (4) the plaintiff s actions resulted in a loss : Combined Air Mechanical Services Inc. v. Flesch, 2014 SCC 8, [2014] 1 S.C.R. 126, at para. 21. [Emphasis added.] [43] The third element of civil fraud summarized in Combined Air entails considering inducement and reliance. As the Divisional Court noted in respect of the lenders claims in Canadian Imperial Bank of Commerce v. Deloitte & Touche (2003), 172 O.A.C. 59, at para. 24, The claims of negligent and reckless misrepresentation both require the plaintiffs to prove at trial that there have been representations of fact by each of the defendants upon which they relied. [44] The motion judge found that Deloitte knew that the audited financial statements were and would be used by Philip to obtain financing and that CIBC relied on the audited financial statements prepared by Deloitte in deciding to enter into the Credit Agreement. He also found that CIBC would not have made

14 Page: 14 the loan if it had known that the financial statements did not tell the truth of Philip s financial situation. [45] As I have indicated above, in its statement of defence Deloitte denies that the Original Lenders relied on its audit opinion and presumably the issue of reliance will again be an issue at the trial of the Lenders reckless misrepresentation claim. I appreciate that the motion judge s finding that CIBC relied on the audit opinion is a finding against Deloitte. However, some of the motion judge s findings were against CIBC. [46] Philip pleads that it relied upon the audited statements in charting the course of the company and in particular its rapid expansion through a series of acquisitions. Again, Deloitte s statement of defence denies this assertion. The motion judge made findings about Deloitte s role and Deloitte s purpose for writing the audit opinion. He found that: Philip took its own counsel and did not take the counsel or advice of Deloitte in making decisions about how to finance its operations and its acquisitions. Deloitte s role was not to be a business advisor or consultant for any business or financing decisions. Deloitte s role focussed on performing a statutory audit so that Philip could comply with its corporate and tax filing disclosure requirements. When the audit opinion was written, Deloitte s purpose for writing it was to have it read by Philip s management and Philip s shareholders as a supervising collective. The expressed audience for Deloitte s audit opinion was the shareholders of Philip, and representations were never addressed to any other audience.

15 Page: 15 [47] Deloitte s role and the purposes for which Philip could rely on the audited statements will clearly be issues at trial. [48] Philip also claims against Deloitte-Verein and whether Deloitte-Verein shares responsibility for Deloitte s auditing failures will be adjudicated at the coming trial. The motion judge made findings on these very issues. He determined the following: Deloitte-Verein is legally distinct from its members and is not organized as a partnership. Member firms such as Deloitte are not partners of Deloitte- Verein. Deloitte-Verein was not responsible to Philip in any capacity, including in relation to the audit of Philip s financial statements for the years ending December 31, 1995 and Deloitte-Verein had no relationship with CIBC and played no active role in the audits. It made no representations to CIBC and CIBC did not rely on anything that Deloitte-Verein did, published or said. The evidence was that there was no relationship between Deloitte and Deloitte-Verein on which to assert vicarious liability. [49] I turn now to the motion judge s conclusion that the spectre of indeterminate liability negated Deloitte s prima facie duty of care to the Lenders. 4. Some comments on the motion judge s indeterminate liability analysis [50] Because I would order the issue of whether Deloitte owed the Original Lenders a duty of care to be determined at trial, I do not decide this issue. It will

16 Page: 16 be for the trial judge to determine whether Deloitte owed the Original Lenders a duty of care, based on applicable law and the record at trial. However, the motion judge provided detailed reasons on the issue of indeterminate liability which will no doubt be considered by the trial judge. Having heard argument, I will make a few comments with respect to the analysis undertaken by the motion judge that may be helpful to the trial judge. [51] To provide context for those comments, I will first provide a brief legal framework and summarize the motion judge s reasons on this issue. 4.1 The framework [52] As the motion judge detailed, the leading Canadian case on the liability of auditors to non-clients who rely on their audit opinions is Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R [53] In summary, Hercules provides, at para. 24, that an auditor will owe a prima facie duty of care to a person if the auditor should foresee that the person will rely on its audit opinion and reliance would, in the particular circumstances of the case, be reasonable. However, as the Supreme Court of Canada explained, these criteria can be quite easily satisfied. In modern commercial society, auditors almost always should foresee that many different persons will rely on their reports for various reasons. Hence, the policy concern that auditors could be exposed to limitless or indeterminate liability arises: Hercules, at para. 32.

17 Page: 17 [54] Generally, this policy concern of indeterminate liability will serve to negate a prima facie duty of care at the second stage of what is now the Anns/Cooper test: R. v. Imperial Tobacco Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at paras. 39, However, where indeterminate liability can be shown not to be a concern on the facts of a particular case, a duty of care will be recognized. [55] In cases where the auditor knows the identity of the plaintiff (or of a class of plaintiffs) and where the defendant s statements are used for the specific purpose or transaction for which they were made, indeterminate liability will not be a concern: Hercules, at para. 37. Although these two factors were the focus of the analysis in Hercules, the reasons suggest that the Supreme Court remained open to the identification of other contextual factors that might sufficiently determine the scope of the defendant s liability: Hercules, at paras The motion judge s reasons on this issue [56] The motion judge held that Deloitte owed the Lenders a prima facie duty of care, but concluded that the circumstances of this case did not negate the concern of indeterminate liability. [57] He held that, to succeed, the Lenders had to show that this was one of the exceptional cases where (a) the auditor knows the lenders identities; and (b) the lenders use the auditor s work for the purpose for which the auditor undertook the work.

18 Page: 18 [58] He found that Deloitte did not know the relevant lenders identities. Although Deloitte knew that a syndicate of lenders would be required to finance Philip s acquisition plans and its operations and that the lenders would reasonably rely on its audit opinions, it did not know the size and composition of the group of lenders and the amount they would lend when it undertook its 1996 audit engagement or before it completed its audit work. The group of lenders was not determinate. The size and composition of the lender group was not known until the summer of 1997, by which time Deloitte already had expressed its audit opinion. [59] Further, he found that Deloitte had no way of controlling the number of lenders and the amount that they would lend, and therefore no way of controlling the extent of its potential liability. [60] The motion judge accepted Deloitte s evidence and found that when the audit opinion was written, Deloitte s purpose for writing it was to assist Philip s management and shareholders in their collective supervision of the affairs of Philip. He held that the purpose of having it read by Philip s lenders for a new and large loan did not exist at the time the audit engagement was actually made. He wrote, at para. 182: The purpose of preparing financial statements for the use of lenders in their deciding whether to invest in Philip was not the subject of Deloitte s audit engagement at the time the engagement was actually

19 Page: 19 made, and there is no evidence that Philip ever commissioned Deloitte to deliver an auditor s opinion for purposes other than expressed in the original letter of engagement. [61] The motion judge concluded that it did not make sense to think that Deloitte undertook an audit for a purpose that did not yet exist; the duty of care in making a representation that the financial statements are free of material misstatement would be formed at the time when the work began. The misrepresentation was made when Deloitte released its audit opinion to Philip in the third week of March 1997, before there even were discussions with CIBC about a $1.5 billion loan. [62] Further, Deloitte s audit opinions were incorporated in the Auditors Report to Shareholders, addressed, To the Shareholders of Philip. The expressed audience was the shareholders of Philip and representations were never addressed to any other audience. [63] The motion judge rejected the argument that Deloitte must be taken to have de facto consented to the use of its audit opinion for the $1.5 billion loan because it knew that its audited statements were disclosed for the 1994 credit agreement, would be disclosed for the 1996 credit agreement, and there would be more borrowing to finance Philip s ambitious growth plans. The motion judge explained that he did so because the audits were undertaken and Philip s financial statements completed with an audit opinion dated as of February 26,

20 Page: and delivered in March at a time before Philip began discussions for a $1.5 billion loan. The temporal issue was determinative. [64] The motion judge also rejected the Lenders argument that Deloitte s failure to address any restrictions on the use of its audit report in its engagement letter, as required by Deloitte s Audit Manuals, was significant. 2 He reasoned that one need not disclaim a non-existent duty of care. Further, it makes no sense to disclaim responsibility for the use of the audited statements for the purposes of undetermined lenders-plural who were yet to be constituted as a syndicate and who themselves had not determined whether they were lending any amount of money. 4.3 Comments [65] As I have said, I am not in complete agreement with the motion judge s approach. [66] In my view, the overriding question is whether indeterminate liability can be shown not to be a concern on the facts of a particular case. It may be shown by establishing that the auditor knows the identity of the plaintiff (or of a class of plaintiffs) and that the auditor s statements were used for the specific purpose or 2 In its Audit Planning Memo, dated December 31, 1996, Deloitte quantified its engagement risk as higher than normal and identified accountability to lenders as a factor affecting its assessment. Deloitte s Audit Manuals provided that where engagements were classified as greater than normal risk, Deloitte s engagement letter needed to address any restrictions on the use of its audit report.

21 Page: 21 transaction for which they were made. But it is possible that indeterminate liability can otherwise be shown not to be a concern on the facts of a particular case. [67] The motion judge found that, 15 days before the engagement letter for the audit of the year ending December 31, 1996 was finalized, Philip advised Deloitte that Philip had negotiated a new $1.5 billion credit facility to be underwritten by CIBC, Wood Gundy and Bankers Trust. It appears that, ultimately, only CIBC and Bankers Trust underwrote the loan. The motion judge found that CIBC s Credit Committee approved the new loan on May 15, 1997, so quite possibly Deloitte, as well as Philip, knew by then that only CIBC and Bankers Trust would underwrite the new loan. After the commitment was finalized, CIBC made efforts to syndicate the loan over the ensuing months. In an underwritten transaction such as the Credit Agreement, knowledge of the number and identity of the members of the lending syndicate and the amount to be advanced by each member of the syndicate may not be necessary to dispel the spectre of indeterminate liability. It might suffice if the auditor knew the identity of the committed lead lender or lenders and the aggregate amount of the credit facility the auditor s maximum potential liability. [68] Nor do I agree with the motion judge that the purpose of the audit must necessarily be determined at the time that work on the audit begins. Hercules did not preclude the possibility that an audit could have multiple purposes: Hercules, at paras The purposes of the audit can change during the course of the

22 Page: 22 engagement, and surely an auditor can consent explicitly or otherwise to a particular person or class of persons relying on its audit opinion for a particular type of transaction, even after the audit is completed and the audit engagement letter is finalized. Consent to reliance would eliminate the spectre of indeterminate liability. [69] Regarding the purposes of the audit in this case, I do not agree with the motion judge that the fact that Deloitte s opinion was incorporated into the Auditors Report to Shareholders, addressed To the Shareholders of Philip indicated that the sole purpose of the audit opinion was to provide representations to the shareholders. The motion judge elsewhere described the intended audience as shareholders and management. There was no indication in the motion judge s reasons that addressing the auditor s opinion in this manner was anything other than standard practice or that an auditor would address its opinion differently if the opinion served more than the purpose of providing representations to shareholders or even to management. [70] Further, the motion judge appears to have relied on the engagement letter 3 in concluding that the purpose of the engagement was merely to assist Philip s shareholders and management in their collective supervision of Philip s affairs. In 3 The engagement letter states that the purpose of Deloitte s engagement to audit Philip s financial statements is to evaluate the fairness of presentation of the statements in conformity with generally accepted accounting principles. It further states that the objective of the audit is the expression of an opinion on Philip s financial statements.

23 Page: 23 so doing, he appears to have granted substantial weight to Deloitte s subjective intention. To the extent that the determination of the purposes of an audit turns on the terms of the audit engagement letter, it would be an error to interpret the engagement letter from Deloitte s subjective perspective rather than to construe the letter holistically and contextually in determining the parties objective intention : Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 57; UBS Securities Canada Inc. v. Sands Brothers Canada Ltd., 2007 ONCA 405, 224 O.A.C. 315, at para. 2; S.M. Waddams, The Law of Contracts, 6th ed. (Toronto: Canada Law Book, 2010), at para [71] In determining the purpose of the 1996 audit, the trial judge should consider the complete factual matrix that emerges at trial, which may include Deloitte s ongoing position as Philip s auditor from 1991 to 1999, Philip s series of credit agreements with CIBC during those years, each providing for increase of credit and each containing similar financial disclosure terms, and Deloitte s knowledge of Philip s borrowing needs. Then, the trial judge should determine whether the factual matrix justifies the implication that Deloitte had accepted that one of the purposes of the 1996 audit was to provide financial disclosure to CIBC so that CIBC could decide whether to provide the credit that Philip required. 5. Disposition

24 Page: 24 [72] For the reasons above, I would allow the appeal and direct that the issue of Deloitte and Deloitte-Verein s liability to the Lenders in negligence proceed to trial with the other claims. The parties advised that they were confident that they could agree on the costs of the appeal and costs below. I would direct that, if they are unable to do so, they provide brief written submissions on costs within 21 days. Released: AH DEC Alexandra Hoy A.C.J.O. I agree M.L. Benotto J.A. I agree Grant Huscroft J.A.