In a significant decision on December 20, 2017, the
Supreme Court of Canada provided important guidance on the scope of
responsibility of auditors in Canada. The Supreme Court found that
Livent's auditor was liable to the corporation due to its
negligence in performing an audit and thereby failing to uncover
fraud committed by Livent's management. The Supreme Court
reaffirmed the general principle established in Hercules
Management Ltd. v. Ernst & Young (Hercules) that
an auditor performing a statutory audit will generally owe its duty
of care to the audit client, not to shareholders or other third
parties. In the Livent case, the Supreme Court found that
a court-appointed receiver of an audit client could pursue claims
against the auditor, even though the ultimate beneficiaries of the
claims are creditors. In allowing the underlying appeal, the
Supreme Court also placed some significant limits on the scope of
liability of an auditor, and substantially reduced the
