Barrington et al. v. Institute of Chartered Accountants (Ont.), 2011 ONCA 409

• Judge: Winkler, C.J.O., Lang and Karakatsanis, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: May 27, 2011
• Jurisdiction: Ontario
• Citations: 2011 ONCA 409;(2011), 279 O.A.C. 148 (CA)

Barrington v. Chartered Accountants (2011), 279 O.A.C. 148 (CA)

MLB headnote and full text

Temp. Cite: [2011] O.A.C. TBEd. MY.033

J. Douglas Barrington, F.C.A. (applicant/respondent in appeal) v. The Institute of Chartered Accountants of Ontario (respondent/appellant)

(C52683)

Anthony Power, F.C.A. and Claudio Russo, C.A. (applicants/respondents in appeal) v. The Institute of Chartered Accountants of Ontario (respondent/appellant)

(C52683)

Anthony Power, F.C.A. and Claudio Russo, C.A. (applicants/appellants) v. The Institute of Chartered Accountants of Ontario (respondent/respondent in appeal)

(C52711; 2011 ONCA 409)

Indexed As: Barrington et al. v. Institute of Chartered Accountants (Ont.)

Ontario Court of Appeal

Winkler, C.J.O., Lang and Karakatsanis, JJ.A.

May 27, 2011.

Summary:

These proceedings arose out of the audit of the 1997 financial statements of Livent Inc. by Deloitte & Touche. The applicants (Barrington, Power and Russo), all chartered accountants, were involved in the audit. The Institute of Chartered Accountants of Ontario (ICAO) laid charges against the applicants, alleging breaches of generally accepted accounting principles because of the release of an unqualified opinion in the 1997 financial statements, as well as breaches of generally accepted auditing standards in the conduct of the audit. The Discipline Committee found the applicants guilty of professional misconduct, fined each of them $100,000 and ordered them to pay costs of $1.251 million, apportioned equally. Those decisions were upheld by the Appeal Committee. The applicants sought judicial review on a number of grounds, including a denial of procedural fairness, errors in law relating to the standard of professional misconduct adopted and the treatment of the expert evidence, and a lack of jurisdiction to order costs.

The Ontario Divisional Court, in a decision reported at 260 O.A.C. 199, granted the Barrington application for judicial review and quashed the penalty decision. The court granted the Power and Russo applications in part. The court also set aside the penalty decision as against them, and remitted the matter to the Discipline Committee to determine an appropriate penalty. The court also quashed the costs award. Power and Russo appealed, with leave, seeking to have the four remaining convictions against them quashed. The ICAO, in turn, appealed, with leave, seeking to have the Discipline Committee's convictions and costs award reinstated.

The Ontario Court of Appeal allowed the ICAO's appeal and dismissed Power's and Russo's appeal. The decisions of the Discipline Committee, including the costs award, were reinstated.

Administrative Law - Topic 549

The hearing and decision - Decisions of the tribunal - Reasons for decisions - Sufficiency of - [See Professional Occupations - Topic 213 ].

Professional Occupations - Topic 213

Boards and tribunals - Domestic tribunals - Reasons for decisions - The Ontario Court of Appeal stated that "The reasons for decision in professional discipline cases must address the major points in issue in the case. A failure to deal with material evidence or a failure to provide an adequate explanation for rejecting material evidence precludes effective appellate review ... A tribunal is not required to refer to all the evidence or to answer every submission. ... [T]he [Discipline Committee] was required to identify the 'path' taken to reach its decision. It was not necessary to describe every landmark along the way ... The reasons should be reviewed bearing in mind that this is a statutory tribunal comprised of non lawyers possessing training and expertise in the standards of their profession. The legislature determined that members of the self-governing profession are best qualified to determine whether the professionals fall short of the standards of professional conduct" - See paragraphs 113 to 121.

Professional Occupations - Topic 1427

Accountants - Discipline - Professional misconduct - Incompetence or neglect - These appeals arose from professional disciplinary proceedings brought against three members by the Professional Conduct Committee of the Institute of Chartered Accountants of Ontario (ICAO) - The charges related to their roles with regard to Livent Inc.'s 1997 audited financial statements - The Discipline Committee concluded that all three members were guilty of professional misconduct for two instances of failing to ensure that the 1997 financial statements were in accordance with Generally Accepted Accounting Standards (GAAP) - Power and Russo were also convicted of a third breach of GAAP and five instances of failing to perform an audit in accordance with Generally Accepted Auditing Standards - The Ontario Court of Appeal stated that "this case is important to the ICAO and the self-regulation of the accounting profession. ... The hearing was the longest in the history of the Institute. More significantly, the issues of audit process and opinion go to the heart of the integrity of our commercial system. The public, shareholders, investors, lenders, and business partners of public companies depend upon the objectivity and professionalism of the auditors of financial statements" - In the end result, the court allowed the ICAO's appeal and dismissed Power's and Russo's appeal - See paragraphs 8 to 10.

Professional Occupations - Topic 1427

Accountants - Discipline - Professional misconduct - Incompetence or neglect - Charges brought against three members by the Institute of Chartered Accountants of Ontario related to their roles with regard to Livent Inc.'s 1997 audited financial statements - The reviewing judge declined to quash the findings of misconduct against members Power and Russo on charges 2(ii) to (v), relating to Generally Accepted Auditing Standards - On appeal, Power and Russo challenged their convictions - They took the position that the judge erred in accepting the Appeal Committee's observation that the "real issue" as to the charges was whether the members had exercised sufficient "professional scepticism" in carrying out their work and that the Discipline Committee (DC) had found that they had not - The Ontario Court of Appeal stated that the members' position was founded upon an overly narrow approach to the nature of the charges - The DC explained that professional scepticism was an integral part of professional judgment and was relevant to the members' acceptance of audit evidence - Further, the DC examined each of the particulars individually and determined that the members had breached the relevant standards of the profession, and in some cases, their own audit guidelines - In the end result, the court dismissed the appeal and affirmed the decision upholding the convictions - See paragraphs 140 to 151.

Professional Occupations - Topic 1435

Accountants - Discipline - Punishment - Penalties and costs - A reviewing judge concluded that the Discipline Committee of the Institute of Chartered Accountants of Ontario (ICAO) did not have the jurisdiction to order costs, in that s. 17.1 of the Statutory Powers Procedure Act prevailed over the Committee's bylaw adopted pursuant to s. 8 of the Chartered Accountants Act - The ICAO submitted that the judge's decision should be overturned in light of s. 38 of the Chartered Accountants Act, 2010, enacted two months after the decision - The Ontario Court of Appeal concluded that the effect of s. 38 was to retroactively validate the costs award - The language was sufficiently clear: s. 38(4) expressly deemed orders for costs to have been validly made if such an order was made on or after December 6, 2000 and the other conditions of the section were met - The provision would not have been included in the new Act if it were not intended to validate costs orders retroactively - See paragraphs 130 to 138.

Professional Occupations - Topic 1484

Accountants - Disciplinary proceedings - Notice - [See Professional Occupations - Topic 1490 ].

Professional Occupations - Topic 1490

Accountants - Disciplinary proceedings - Duty of fairness - A reviewing judge quashed the findings of misconduct on charges concerning the recognition of income (charges 1(i) and (iii)), on the grounds that the Discipline Committee (DC) of the Institute of Chartered Accountants of Ontario breached the rules of natural justice and procedural fairness by finding the members guilty "on a basis that did not form part of the charges [the Put Side Agreement] and the case disclosed and led against them" - The Ontario Court of Appeal held that the members had adequate notice in relation to the charges and the case they had to defend - "(1) The Put was not a new allegation, a particular or an essential element of charges 1(i) and (iii); (2) The DC did not find the members guilty of breaching GAAP [Generally Accepted Accounting] standards by failing to obtain sufficient audit evidence regarding the Put. It found the members guilty of recognizing income even though there was no reasonable assurance that the significant act of construction would be completed; (3)The Put was evidence that was relevant to the charge based upon the DC's interpretation of the [Canadian Institute of Chartered Accountants] Handbook ... and GAAP; (4) The DC was entitled to consider the evidence led by the members despite the fact that no concerns were raised about the Put in the Investigator Report or in the evidence led by the [Professional Conduct Committee]. The DC was entitled to take a different route to liability; and (5) The members were not surprised or prejudiced by the DC's reliance on the evidence surrounding the Put" - See paragraph 42.

Professional Occupations - Topic 1498

Accountants - Disciplinary proceedings - Appeals to the courts - [See Professional Occupations - Topic 213 ].

Professional Occupations - Topic 1586

Accountants - Duty to client - Auditing financial statements - [See first Professional Occupations - Topic 1427 ].

Statutes - Topic 6705

Operation and effect - Commencement, duration and repeal - Retrospective and retroactive enactments - Presumption against retrospectivity or retroactivity rebutted - [See Professional Occupations - Topic 1435 ].

Cases Noticed:

R. v. Pickton (R.W.), [2010] 2 S.C.R. 198; 404 N.R. 198; 290 B.C.A.C. 264; 491 W.A.C. 264, refd to. [para. 96].

New Brunswick (Board of Management) v. Dunsmuir, [2008] 1 S.C.R. 190; 372 N.R. 1; 329 N.B.R.(2d) 1; 844 A.P.R. 1; 2008 SCC 9, refd to. [para. 111].

Gray v. Disability Support Program (Ont.) (2002), 158 O.A.C. 244; 59 O.R.(3d) 364 (C.A.), refd to. [para. 113].

Law Society of Upper Canada v. Neinstein (2010), 259 O.A.C. 313; 99 O.R.(3d) 1; 2010 ONCA 193, refd to. [para. 113].

Clifford v. Ontario (Attorney General) et al. (2009), 256 O.A.C. 354; 98 O.R.(3d) 210; 2009 ONCA 670, leave to appeal refused (2010), 405 N.R. 388; 270 O.A.C. 395 (S.C.C.), refd to. [para. 114].

Zadvorny v. Saskatchewan Government Insurance (1985), 38 Sask.R. 59; 11 C.C.L.I. 256 (C.A.), leave to appeal refused (1985), 60 N.R. 78; 40 Sask.R. 121 (S.C.C.), refd to. [para. 135].

Statutes Noticed:

Chartered Accountants Act, 1956, S.O. 4-5 Elizabeth II, c. 7, sect. 8(1) [para. 130].

Chartered Accountants Act, S.O. 2010, c. 6, Schedule C, sect. 38 [para. 132].

Statutory Powers Procedure Act, R.S.O. 1990, c. S-22, sect. 17.1 [para. 130].

Counsel:

Brian Bellmore and Paul Farley, for the Institute of Chartered Accountants of Ontario;

Peter H. Griffin and Kristian Borg-Olivier, for J. Douglas Barrington;

J.L. McDougall, Q.C., Brian R. Leonard, and Jeremy Millard, for Anthony Power and Claudio Russo.

These appeals were heard on April 19 and 20, 2011, before Winkler, C.J.O., Lang and Karakatsanis, JJ.A., of the Ontario Court of Appeal. In reasons written by Karakatsanis, J.A., the Court of Appeal delivered the following judgment, released on May 27, 2011.