The Court of Appeal’s decision in Lavender clarifies the extent to which an auditor may owe a duty of care to parties other than its own client, and supplements the growing body of post-Livent case law that recognizes the high threshold for imposing a duty of care in a claim for pure economic loss.

The Court of Appeal’s decision in Lavender is significant for at least two reasons. First, it will likely have a dampening effect on negligence claims brought against auditors by parties other than their own clients.

Second, and more broadly, the decision emphasizes that plaintiffs seeking to establish a duty of care in a claim for pure economic loss must meet a high threshold that requires careful consideration of not only the scope of the auditor’s undertaking, but also the degree of reliance by plaintiffs and applicable statutory schemes. This aspect of the decision will be of interest to underwriters, securities dealers and other advisers and service providers who may become secondary targets to class action litigation in scenarios where an issuer defendant is insolvent or judgment-proof.

Review the full article on Blakes' website and the case on the Court of Appeal for Ontario's website.