Supreme Court denies Coopers & Lybrand leave to appeal in Castor bankruptcy

MONTREAL – The Supreme Court of Canada says it won’t hear an appeal from Coopers & Lybrand of a decision holding it liable for professional negligence related to work performed for Castor Holdings Ltd., before the Montreal real estate investment firm went bankrupt in 1992.

Lawyers involved in the case issued a statement Thursday night saying the ruling “extinguishes any hope” that the auditing firm can evade liability for its actions and “the resultant harm suffered by third parties who relied on its opinions when deciding to invest in or lend money to Castor.”

Although the audited financial statements of Castor for the year ended 1990 reported assets of more than $1.8 billion, Castor declared bankruptcy in early 1992.

Investors, lenders and creditors subsequently learned from the trustee in bankruptcy, Richter Advisory Group Inc., that the reported assets were “virtually worthless,” said the statement issued by Montreal law firm Fishman Flanz Meland Paquin LLP.

In its petition to the Supreme Court, Cooper & Lybrand sought to appeal a July ruling of the Quebec Court of Appeal that upheld an earlier decision that found Coopers & Lybrand liable for negligence in connection with their work for Castor before its $1.6-billion financial collapse.

The court sided with most of the April 2011 decision by the Quebec Superior Court, putting Castor creditors a step closer to having their losses repaid from the bankruptcy. Coopers had only appealed a portion of the earlier ruling.

Nearly 100 creditors, including major European banks, Chrysler Canada’s pension fund and two Canadian credit unions, launched a lawsuit in 1994 claiming about $1 billion in damages.

The trial started in the fall of 1998 and lasted 12 years. It’s considered one of Canada’s longest-running lawsuits.

It was so long that two judges were required to complete the process. One accounting expert testified over the course of more than three years.

In a lengthy ruling, Justice Marie St-Pierre of the Quebec Superior Court said Coopers & Lybrand failed to perform its duties as auditors, in accordance with auditing and accounting standards.

She also said the firm issued “faulty opinions” about Castor’s financial situation that prevented investors from evaluating its financial health.

In its 122-page ruling, the Quebec Appeals Court found that the trial judge had appropriately relied on experts in the trial.

“Our work on this file, before, during and after the hearing, convinces us that this conclusion of the judge doesn’t constitute an error — far from it,” the three-judge panel wrote at the time.

The appeals court maintained the liability of Coopers and its individual partners across Canada.

They have been ordered to pay about $2.6 million including interest to the estate of former John Labatt CEO Peter Widdrington, who died in 2005, six years before the Quebec Superior Court issued its ruling.

Avram Fishman, who represented Widdrington, said at the time that the court’s findings “are also applicable and binding on all pending cases against Coopers in the aggregate amount of well over $1 billion.”

Coopers was subsequently merged with Pricewaterhouse to create PricewaterhouseCoopers (PwC).

“The legal team at FFMP is gratified that, after such a long and challenging legal journey, a final decision has been rendered confirming the liability of Coopers,” it said Thursday.

“As a result of this decision, the plaintiffs will now intensify their efforts to take all steps necessary to recover their losses from Coopers, its individual partners across Canada, its professional liability insurers and PwC, the successor firm that emerged from the merger of Coopers and Price Waterhouse.”

Note to readers: Fixes typo in headline