In Grant Thornton LLP v. New Brunswick, the Supreme Court of Canada (“SCC”) unanimously found that a claim is discovered, and accordingly the (typically two-year) limitation period begins to run, when the plaintiff knows, or ought to know, the facts upon which a plausible inference of liability of the defendant can be determined.
In 2008, a New-Brunswick based company sought loans form a bank, but needed the loan guaranteed from the province of New Brunswick (the “Province”). The Province agreed to $50 million in loan guarantees, conditional on a review of the company’s assets by its auditor, Grant Thornton LLP (the “Auditor”). The Province, relying on Grant Thornton’s favourable report of the Company’s assets, executed and delivered the loan guarantees, enabling the company to borrow funds from the bank. However, the company exhausted its capital within four months of receiving the loan, leading the bank to require the Province to pay the loan guarantees. The Province did this in 2010, but retained another auditing firm to review the company’s financial position. In 2011, the second auditing firm found the company’s assets and net earnings were significantly overstated.
In June 2014, the Province commenced a claim against the Auditor, alleging negligence. The Auditor sought summary judgment to have the claim dismissed, as it was statute-barred by New Brunswick’s limitation period of two years from the day the claim was discovered. The motions judge agreed with the Auditor and dismissed the claim, finding the Province had the requisite knowledge of a potential cause of action by March 2010, and therefore more than two years had passed since the Province brought the claim. The Court of Appeal allowed the Province’s appeal and set aside the summary judgment. The Court rejected the standard used by the motions judge, and instead held the governing standard was whether a plaintiff “knows or ought reasonably to have known facts that confer a legally enforceable right to a remedy” (para 23), which can only exist if the plaintiff has knowledge of each constituent element of the claim. Accordingly, the Court found the limitation period had not been triggered as the Province had not yet discovered the claim.
The SCC identified two key issues in this case:
1. What is the standard of limitation to be applied in determining whether a plaintiff has the requisite degree of knowledge to discover a claim, so as to trigger the limitation period?
2. When, if ever, did the Province discover its negligence claim against the Auditor?
SUPREME COURT OF CANADA DECISION
Moldaver J., for the unanimous SCC, stated the general principle for discoverability is “a cause of action arises for the purposes of al limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence”, as set out in Kamloops (City of) v Nielsen, 1984 SCC 21. The SCC found this long-standing common law rule is consistent with section 5(2) of the Province’s Limitation of Actions Act (“LAA“), which holds that a claim is discovered when a plaintiff knows, or ought reasonably to have known, that an injury, loss, or damage occurred, which was caused or contributed to by an act or omission of the defendant.
The SCC then addressed the degree of knowledge required to identify a cause of action under the LAA. The SCC disagreed with both the motions and Court of Appeal’s interpretation of this requirement, instead finding the proper test is “a claim is discovered when a plaintiff has knowledge, actual or constructive, of the material facts upon which a plausible inference of liability of the defendant’s part can be drawn” (para 42). Further, the SCC clarified that the material facts that must be “actually or constructively known” are generally set out in the relevant limitation statute (para 43), and in assessing the plaintiff’s state of knowledge of a potential cause of action, both direct and circumstantial evidence can be used (para 44). The SCC also held that a plaintiff does not need to have knowledge of every element of a cause of action before starting a claim; rather, a plaintiff will have constructive knowledge when the evidence shows the plaintiff ought to have discovered the material facts by exercising reasonable diligence, and suspicion alone may trigger that exercise (para 44). The SCC further found the governing standard to determine whether a limitation period has been triggered requires the plaintiff to be able to draw a plausible inference of liability on the part of the defendant from the material facts that are actually, or constructively, known (para 45).
Lastly, the SCC held that in negligence claims, a plaintiff does not need knowledge that the defendant owed it a duty of care, or whether that duty of care was breached. The SCC cautioned against this approach, as if this were the standard, limitation periods would be indefinitely postponed, as knowledge that the defendant breached the applicable standard of care often arises through document discovery and/or expert reports once the plaintiff has commenced a claim.
Based on these principles, the SCC rejected the Court of Appeal’s approach, and unanimously determined the Province discovered its claim when the when the second auditing firm delivered its draft report on February 4, 2011. Accordingly, as the Province brought its claim in 2014, the claim was statute-barred.