The Ontario Court of Appeal in Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP 2016 ONCA 916, has overturned two lower decisions, certifying a securities fraud class action against a Canadian auditor in which 98% of the class members were not Canadian. The judgment offers helpful guidance to parties seeking to bring or defend global class actions in Ontario.
The class action is based on allegations of negligence and negligent misrepresentation over an audit report prepared by Schwartz Levitsky Feldman LLP (“SLF”). Excalibur is a Toronto-based fund and was one of 57 “accredited investors” that invested a total of $7.5 million in Southern China Livestock International Inc. (“Southern China”), a Nevada company that owned and operated hog farms in China. One other investor was a Canadian resident, 50 were American and the remaining investors resided in the Cayman Islands, Samoa, Malaysia and the United Kingdom. In 2010, SLF prepared a one-page audit report of Southern China’s financial statements that was appended to a private placement memorandum. The essence of the claim is that in light of the true state of Southern China’s all-cash business, SLF could not have provided a clean audit report in accordance with generally accepted accounting principles, as it had professed to.