(b) The provision of subsection (a) does not prevent the existence of liability on the part of the auditing accountant under any law."
- In addition, the responsibility of the auditor is not limited to the contractual relationship with the audited company. The case law recognized that the accountant also owes a conceptual and concrete duty of care towards third parties, including creditors and bondholders, by virtue of the tort of negligence in the Torts Ordinance. This duty arises because the accountant serves as a "gatekeeper" who is responsible for the reliability of the financial information published to the public (Yefet, at p. 446; Civil Case (Economic) 48631-06-17 Sunny Cellular Communications in Tax Appeal v. Ilan Ben Dov, para. 389 [Nevo] (March 22, 2021); Mendzitzky, at para. 529; Gross, at p. 785).
- The scope of liability towards creditors and bondholders is contingent on the fact that the accountant could and should have expected that they would rely on his opinion. In the circumstances of public companies, there is a presumption that the accountant is aware that his reports serve as the basis for investment decisions made by external parties. However, it is required to prove that the injured party actually relied on the misleading representation and that he suffered damage as a result ( Mendzitzky, para. 529; Tzipora Cohen Shareholders in the Company - Claim Rights and Remedies - Part C 192 (2010) (hereinafter: "Tzipora Cohen")).
- According to the accepted approach, in order to impose liability on an accountant towards a third party for pure economic damage, restrictive conditions must be met: the accountant was aware of the type of transaction planned; he knew that the information would be transferred to the plaintiff or to a defined group; and the purpose for which the plaintiff relied on the information was identical to the purpose for which the report was prepared (The Sayig case, para. 21; Amos Herman Torts Law 102 (2020) (hereinafter: "Herman")).
- The scope of the obligation expands when the accountant is faced with "red lights" or suspicious signs. In such cases, the accountant is required to exercise caution and perform additional examination procedures, such as verifying lies. Ignoring these signs and signing a "clean" opinion may be considered a breach of the duty of care towards the bondholders insofar as they relied on the reports (Civil Appeals Authority 8268/96 Dan Reichert v. Moshe Shemesh, 55(5) 276, para. 33 (2001); Anonymous Case, at p. 680).
Independence and independence from the preparation of reports
- As to independence and independence in the preparation of the reports, I cannot accept the plaintiffs' argument that it was the defendant who actually prepared the reports, contrary to the demand for separation between the management and the comptroller (in paragraph 119 of the plaintiffs' summaries).
- I will mention basic concepts - in a civil law, the burden of proof is on the plaintiff, in the sense of "the one who takes the evidence out of his friend." This burden is lifted when, at the end of the day, and on the basis of the totality of the evidence submitted by all the parties, the balance of probabilities is tilted in the plaintiff's direction, i.e., from the totality of the evidence placed before it, the court determines that the plaintiff's factual version is more reasonable and plausible and closer to the truth than the counter-party version (see Civil Appeal 78/04 HaMagen Insurance Company in Tax Appeal v. Shalom Gershon Moving Ltd.; Civil Appeal 8385/09 Sajur Local Council v. Sonol Israel in Tax Appeal; Civil Appeal Authority 1530/13 Gadov v. HaHargaz - Transportation Factory Ltd.). An additional burden is the burden of proof, which is a secondary and accompanying duty to the burden of persuasion, which obligates the party bearing the burden of persuasion to bring sufficient evidence to meet it (Civil Appeal 462/20 Uri Attias v. Gilad Bublil, para. 27 [Nevo] (September 12, 2021)).
- This rule, of course, is also applicable to our case - the plaintiffs must convince the court that their factual and weighty version that the accounting firm was the one that prepared the reports - it was preferable. In our case, the plaintiffs enlist in support of their position the testimony of the Chairman of the Board of Directors, Yuval Oren (Transcript, at p. 839, paras. 21 to p. 840, s. 8):
"Q: I will refer you to page 175 for your inquiry, if you would be interested. Lines 16-20. You say, "Look, Micha, Micha Canning, he was, he's the thinker. He should have prepared financial statements, but he didn't do it. This was one of the reasons David decided that he would not continue to work. In other words, it was impossible to get information about the cash flow situation, so there were." I just want to suggest maybe, if the accountant didn't prepare the financial statements, then maybe the firm prepared them. If you remember. Or who did prepare the financial statements.