KPMG defended in a C$150 million claim commenced by Cash Store

Fasken is defending KPMG in a C$150 million claim commenced by Cash Store Financial Services Inc. (“Cash Store”) alleging breach of contract and negligence in the discharge of KPMG’s role as Cash Store’s auditor. The claim arises from Cash Store’s insolvency proceedings under the Companies’ Creditors Arrangement Act. Cash Store alleges that, as a result of alleged misstatements in its financial statements, it was able to complete a series of transactions which supposedly caused Cash Stores insolvency. Cash Store commenced similar parallel actions against its former directors and officers, its former lenders, its former financial advisors and its former lawyers. KPMG is moving to dismiss Cash Store’s claim based on the expiry of the applicable two year limitation period. In particular, approximately two and a half years before Cash Store commenced its claim against KPMG, a short-seller of Cash Store’s securities sent two detailed letters of complaint to Cash Store’s board of directors which set out the material allegations on which the claims against KPMG are based. KPMG therefore alleges that Cash Store was aware, or ought to have been aware, of the material facts that form the basis of its claim more than two years before it initiated the action. Similar motions are being brought (relying on KPMG’s materials) by the other professional firms. The matter involves a novel legal issue. The decision will be the first in Ontario to determine when the knowledge of a company’s board of directors will be attributed to the company to trigger the commencement of a limitation period under the Ontario Limitations Act, 2002. The outcome of this motion will be important to both lawyers and clients as it will provide guidance on how the Ontario Limitations Act, 2002 applies to corporate boards of directors. If unsuccessful, KPMG denies all allegations of negligence and it will vigorously defend the claim through trial.