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Livent theatre executive Garth Drabinksy, left, arrives at a downtown Toronto courthouse for sentencing Aug. 5, 2009.

Kevin Van Paassen/THE GLOBE AND MAIL

Accounting firm Deloitte & Touche has filed an appeal of an Ontario court decision ordering the firm to pay $85-million to creditors of failed theatre company Livent Inc. over a negligent audit of Livent's books in 1997.

In a statement Wednesday, the firm said it stands by the work it did on the Livent audit and concluded "an appeal was both appropriate and necessary." The appeal was filed Wednesday in the Ontario Court of Appeal.

Deloitte said an April 4 decision by Justice Arthur Gans of the Ontario Superior Court failed to properly apply the law and will expose auditors to significant new obligations that will expand their liability far beyond levels previously established by the Supreme Court of Canada.

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"Given the implications of this decision for our firm, the audit profession and the broader business community, these important legal issues need to be assessed by a higher court," Deloitte said in an e-mailed statement.

"We stand by our work and our decisions, and it is our belief that we should not be held liable to Livent for its fraud that was both complex and well-orchestrated by senior members of management, members of the board, suppliers and others."

Justice Gans said in his ruling that he found evidence that Deloitte auditors were negligent and 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 work on another controversial decision in 1998 to record $27.5-million of writedowns "left me breathless."

The lawsuit was filed by Livent's special receiver on behalf of creditors, and originally sought $450-million from Deloitte. Justice Gans awarded $84.75-million in damages and asked both sides to make arguments to him about how to assess interest on the amount and how to award costs for lawyers' fees.

Livent collapsed in 1998 after new investors in the company 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.

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