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Digest Of The Week | Fairfield Sentry Limited v. PricewaterhouseCoopers LLP

2018 ONCA 696; affirming Fairfield Sentry Limited et al v. PwC et al (2017), 2017 ONSC 3447
Digest Of The Week | Fairfield Sentry Limited v. PricewaterhouseCoopers LLP

Bankruptcy and insolvency — Proving claim — Provable debts — General principles

British Virgin Islands fund, F Ltd., was part of group (F Group) which provided funds on behalf of itself and S Ltd. and L Ltd. to B's security brokerage, B LLC, for investment — In December 2008, B was arrested for operating Ponzi scheme and trustee and liquidator was appointed under US Securities Investor Protection Act (SIPA) to collect and set aside fund of BLMIS customer property for distribution among BLMIS customers — SIPA trustee sought return of 3.5 billion from F Group — F Ltd. filed claims in SIPA proceeding — In 2011, liquidator appointed for F Ltd., K, agreed to pay SIPA trustee $70 million, parties consented to judgments in favour of SIPA trustee against each F Group fund, and F Ltd. was granted $230 million claim in SIPA proceeding — F Group brought action in breach of contract and negligence against auditor of its 2006 and 2007 financial statements for failing to discover and disclose Ponzi scheme, claiming US $2.577 billion difference between actual and estimated liquidation deficits had auditors discovered scheme earlier — Auditor admitted negligence — Auditor's motion for summary judgment was granted — Trial judge found liquidators failed to establish damages so there was no genuine issue requiring trial — Trial judge found evidence of auditor's witness that F Group were better off by some $857.5 million was accepted — Trial judge found liabilities of F Group or their liquidators to SIPA trustee or customers of B LLC were incorrectly included in calculations — Trial judge found net liability figure $2,329,525,000 used in calculation was invalid — Trial judge found investments S Ltd. and L Ltd. made in B LLC were double-counted — Trial judge found phantom earnings were included in calculations based on fictitious entries on B LLC statements — Trial judge found hypothetical, statute-barred claims of B LLC investors against F Fund were included in calculations — Trial judge found liquidators gave no details as to claims they rejected or included in damage calculation and no details of separate proceedings in British Virgin Islands in which F Group were allegedly liable to investors — F group appealed — Appeal dismissed — Liquidators did not file evidence replying to critiques of evidence, and motion judge did not err in considering absence of evidence — Trial judge did not improperly draw adverse inference against liquidators for not seeking court's permission to file sur-reply evidence, rather trial judge simply observed that certain arguments advanced by liquidators lacked evidentiary support — No error of fact by treating funds' net withdrawal of $1.03 billion as benefit to funds and then using that amount to eliminate funds' damages — Funds did not bear ultimate burden of demonstrating existence of genuine damages issue requiring trial — No error regarding treatment of amounts in judgments funds consented to in favour of trustee, and related settlements were treated properly.

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