Canada: Ontario Court Of Appeal Identifies "Potential Danger" In Moving For Summary Judgment

The Court of Appeal for Ontario released its decision last week in Canadian Imperial Bank of Commercie v. Deloitte & Touche.  Thiis was an appeal from the partial summary judgment granted in favour of the defendant, Deloitte, in a case brought by a syndicate of lenders against Deloitte for its alleged negligence relating to audit services provided prior to the collapse of Philip Services Corp ("Philip").

Justice Perell heard the motion earlier this year and granted partial summary judgment dismissing the lenders' claim in negligence against Deloitte.  Our commentary on Justice Perell's decision can be found here.

The appeal, as stated by Associate Chief Justice Hoy, "illustrates a potential danger when a party brings a motion for partial summary judgment". 


A group of lenders, led by CIBC, (the "Lenders") sued Deloitte and Deloitte-Verein for approximately US $1,000,000,000 that was advanced to Philip under a credit agreement dated August 11, 1997 (the "Credit Agreement"). The action was certified as a class action. The Lenders are seeking damages for negligence and reckless or negligent misrepresentation. The alleged negligence relates to unqualified opinions provided by Deloitte regarding the audits of Philip's financials for the financial years ending in 1995 and 1996. It is also not disputed between the parties that the financial statements at issue materially misstated Philip's financial position.

Philip pleaded that it (through its officers and directors) relied on the audited financial statements when it undertook a series of acquisitions and expansion in the late 1990s. Philip further pleaded that if the audits had been performed in accordance with the applicable contract and professional standards, then Philip would not have undertaken the acquisitions that the misstated financial statements made possible.

Deloitte denies that the Lenders and Philip relied on the audited financial statements and also denies that one of the purposes of the audit opinions was "to permit the ... Lenders to make investment or lending decisions in respect of Philip" or to assist Philip's management and directors in "charting the course of the company" or making investment decisions. The Court of Appeal found that these denials were a key factor in the conclusion that the summary judgment motion created a real risk of inconsistent findings at trial.

Summary Judgment was "Inadvisable"

On the motion for summary judgment, the Lenders argued that granting partial summary judgment was inadvisable in the context of the litigation as a whole and risked duplicative or inconsistent findings at trial. The motion judge rejected this argument and held that there was no risk of duplicative or inconsistent findings and carved out the claims relating to Deloitte's recklessness or whether it performed its contractual obligations to Philip as being the issues to be determined at trial. He further held that the duty of care issue relating to the negligence claim was discrete from the issues relating to the reckless misrepresentation and breach of contract claims to be decided at trial and that the mechanisms of the trial would not assist with the duty of care issue.

The Court of Appeal disagreed with the conclusion that there was no risk of duplicative or inconsistent findings and that partial summary judgment was advisable in the circumstances. The Court of Appeal held that while the Lenders' claim for reckless misrepresentation and breach of contract do not involve establishing a duty of care, these claims do arise in the same factual matrix as the Lenders' claim in negligence. The overlap in the factual matrix creates the possibility of duplicative or inconsistent findings at the trial of the reckless misrepresentation and breach of contract claims and this error undermines the motion judge's findings that the summary judgment motion was advisable in the context of the litigation as a whole. The Court of Appeal further points out that the summary judgment motion was long and complex and did not result in any party being released from the proceedings and, further, was not expected to materially shorten the lengthy trial which is currently scheduled for four months.

The Court of Appeal further disagreed on several conclusions made by the motion judge in support of his conclusion that indeterminate liability was a serious concern on the facts of the particular case. The Court of Appeal held that in order to determine the purpose of the audit and who was entitled to rely upon it, a trial judge must consider "the complex 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".

The Court of Appeal ordered that the Lenders' claims in negligence proceed to trial with the other claims.

Potential Impact

The Court of Appeal's overturning of the partial summary judgment may represent an ebb against the flow of the "cultural shift" encouraged in the Supreme Court of Canada's Maudlin v. Hryniak decision and may provide parties resisting summary judgment with arguments that the summary judgment motion would result in impermissible inefficiency or unfairness.  The decision should further encourage counsel to look not only at the legal issue they wish to have determined on the summary judgment motion, but the impact the determination of this issue will have on the entirety of the litigation.

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