OTTAWA -- The corporate auditor to the former high-flying Livent theatre company will be allowed to appeal against a multimillion-dollar judgment over its audit work for the one-time entertainment giant.
The Ontario Court of Appeal said in January that Deloitte and Touche was partly responsible for the hundreds of millions of dollars creditors ended up losing to the fraudulent behaviour of impresario Garth Drabinsky and his long-time partner, Myron Gottlieb.
The appeal judges upheld a lower court ruling that ordered Deloitte to pay $85.6-million -- $118 million with interest.
The appeal court agreed with the trial judge that the auditor had been negligent in failing to detect and act on Drabinsky's fraud.
The Supreme Court of Canada agreed on Thursday to hear Deloitte's appeal.
Under the flamboyant Drabinsky, Livent Inc. brought popular shows like "Phantom of the Opera" and "Joseph and the Amazing Technicolor Dreamcoat" to stages across North America.
But the courts ruled the apparent success was based on a massive sleight of hand that included cooking the books, kickbacks and manipulated expenses.
The courts said there were numerous red flags for several years that Deloitte essentially ignored.
"Deloitte knew that Drabinsky and Gottlieb were aggressive entrepreneurs who pushed the envelope in terms of accounting and financial measures," the appeal court said in a 100-page judgment.
"It is more likely than not that a careful and objective investigation into Livent's financial statements, pursued with 'an attitude of professional skepticism,' would have revealed the fraud."
The fraud shenanigans were discovered in mid-1998 when a new management team took over Livent. Within months, the company went under, leaving investors and banks about $500 million out of pocket
Drabinsky and Gottlieb were convicted of fraud and forgery and sent to prison. Drabinsky was stripped of his Order of Canada.
Livent's bankruptcy receiver sued Deloitte -- which audited the company's books from 1989 through to 1998 -- on behalf of those owed money.
