An Ontario judge has ordered Deloitte & Touche to pay $33-million in interest payments to creditors of defunct theatre company Livent Inc., bringing the auditing firm’s total payments in the long-running negligence case to $118-million.
The interest payments were the final issue to be determined by Ontario Superior Court Justice Arthur Gans in a lawsuit between Livent’s lenders and Deloitte. He ruled in April that Deloitte must pay $85-million in damages to creditors because auditors were negligent in their review of Livent’s 1997 financial statements, but said at the time he would hear further submissions on how to calculate interest on the payment.
In his latest decision, Justice Gans said he would apply interest on damages stretching back to March of 1998 when Livent released its inaccurate 1997 financial statements, calculating a total interest award at $33-million.
Deloitte has appealed Justice Gans’ April decision to the Ontario Court of Appeal, so the case is not concluded and the payments are not yet definite.
The audit firm said it stands by the work it did on Livent’s books and said Justice Gans failed to properly apply the law, exposing auditors to significant new obligations that will expand their liability far beyond levels previously established by the Supreme Court of Canada.
In his April decision, Justice Gans found Deloitte auditors negligent and said they breached their “duty of care” to Livent investors.
He said auditors “seemed to turn a blind eye to warning signs” about a controversial transaction in 1997 to sell air rights to develop a condominium-hotel above Livent’s Pantages Theatre in Toronto, and said he was “at a loss” to understand how Deloitte signed a clean audit opinion for 1997.
He also ruled that work on another decision to take $27.5-million of writedowns in 1998 “left me breathless.”
The creditors initially sought $450-million from Deloitte, but Justice Gans awarded $84.75-million in damages. The case has been closely watched because creditors have rarely been successful in lawsuits against auditors of public companies.
Livent collapsed in 1998 after new investors discovered problems with the company’s books. Co-founders Garth Drabinsky and Myron Gottlieb were found guilty of fraud in 2009 for systematically misstating Livent’s financial statements in every quarter between 1993 and 1998.