The appellants, shareholders in two corporations that went into receivership, brought an action against the respondent auditors alleging negligent misrepresentation in the preparation of the corporations' audit reports.
The appellants claimed they relied on these reports to make further investments and to monitor their existing shareholdings.
The Supreme Court of Canada applied the Anns/Kamloops test and held that while a prima facie duty of care existed, it was negated by policy considerations regarding indeterminate liability.
The audit reports were prepared to assist shareholders collectively in overseeing management, not for individual investment decisions.
Furthermore, the Court held that claims regarding the devaluation of existing shares due to an inability to oversee management properly belonged to the corporation under the rule in Foss v. Harbottle and should have been brought as a derivative action.
The appeal was dismissed.
