A plaintiff is typically required to commence an action within two years of when they ‘knew or ought to have known’ they had a claim against the other party; failure to do so may result in their claim being dismissed under limitations legislation. In Grant Thornton LLP v New Brunswick,1* the Supreme Court of Canada (SCC) clarified when a claim is considered to have been ‘discovered’ in this context.
What you need to know
- The unanimous SCC decision concluded that a claim is discovered when a plaintiff has knowledge, actual or constructive, of material facts that support a plausible inference of the defendant’s liability.
- Constructive knowledge may be established when the plaintiff “ought to have discovered” material facts “by exercising reasonable diligence” and a plausible inference is one which gives rise to a “permissible fact inference” of liability.
In 2008, the Atcon Group (Atcon) sought loans from the Bank of Nova Scotia. The Province of New Brunswick agreed to provide $50 million in loan guarantees on the condition that Atcon undergo a review by an external auditor (the Accounting Firm). The audit concluded that Atcon’s financial position was fairly presented in its financial statements. The Province then executed and delivered $50 million in loan guarantees. Atcon ran out of working capital four months later, and the Province paid the loan guarantees on March 18, 2010.
The Province retained RSM Richter Inc. (Richter) to prepare a second report on Atcon’s financial position. Richter issued a draft report on February 4, 2011, and a substantially similar final report on November 30, 2012. Both reports concluded that Atcon’s financial position had been materially misstated in its financial statements.
i. New Brunswick Court of Queen’s Bench
The Province commenced a negligence claim against the Accounting Firm on June 23, 2014. The Accounting Firm sought summary judgment on the basis that the Province had “discovered” the claim more than two years before commencing the action. The judge found that the Province “knew or ought to have known that it had prima facie grounds to infer that it had a potential claim” more than two years before commencing its action. The claim was dismissed. The Province appealed this decision.
ii. New Brunswick Court of Appeal
On appeal, the Court reasoned that a claim could only be “discovered” if the plaintiff had knowledge, actual or constructive, of “facts that confer a legally enforceable right”. The Court found that the Accounting Firm’s failure to produce its audit-related files prevented the Province from determining whether it had a claim in negligence, and by extension, “discovering” its claim. As a result, the New Brunswick Court of Appeal reversed the decision of the lower court, permitting the Province to pursue its claim against the Accounting Firm.
iii. Supreme Court of Canada
The Accounting Firm appealed the decision to the SCC, which held that the Province’s claim was limitation-barred. The SCC reviewed the provincial limitations legislation, which provides that a claim is “discovered” on the day that the claimant first knew, or ought to have reasonably known, that their loss was caused, in full or in part, by an act or omission of the defendant2.
The SCC unanimously held that a claim is “discovered” when the plaintiff has “knowledge, actual or constructive, of the material facts upon which a plausible inference of liability on the defendant’s part can be drawn” (para 42). The SCC provided the following guidance:
- The material facts are generally set out in the applicable limitations statute;
- A plaintiff’s knowledge may be established through direct and circumstantial evidence;
- Constructive knowledge may be imputed if a plaintiff is not reasonably diligent in investigating potential claims; and
- A plausible inference of liability requires more than suspicion or speculation, but less than certainty or perfect knowledge.
The SCC stated this interpretation preserved the common law rule’s equitable balance between: (1) protecting potential claims, and (2) ensuring claims are brought in a timely manner. Despite this, the Court emphasized that the common law rule should be viewed as an interpretive tool that can be displaced by clear legislative language.
The SCC used this refined approach to discoverability to conclude that the Province had “discovered” its claim when it received the draft report from Richter on February 4, 2011. At that time, the Province had knowledge, actual or constructive, of material facts that supported a “plausible inference” of the Accounting Firm’s negligence.
- Applicable limitations periods may begin to run when a plaintiff has more than mere suspicion that a claim exists but less than certain or perfect knowledge.
- In a claim alleging negligence, discovery does not require knowledge that the defendant owed a duty of care or that the defendant’s act or omission breached the applicable standard of care.
- Knowledge or reasonable inference of certain facts may trigger applicable limitations periods even if a claimant does not know the exact nature of the harm it has suffered, or the precise cause of its injury.
- Pre-litigation reviews/investigations by third parties may form a plausible inference of liability on the defendant’s part, even if they do not directly address the defendant’s potential negligence.
- Parties contemplating litigation should seek early legal advice related to limitation periods and deadlines.
The SCC’s decision is likely to have far-reaching impacts, given that the discovery provision in the New Brunswick legislation was modelled after those in Alberta, Saskatchewan, and Ontario. For plaintiffs sitting on causes of action, the SCC’s decision sends a clear warning: act on potential claims.
If you have any further questions regarding the SCC’s decision, please reach out to the key contacts listed below from our Commercial Litigation Group in Calgary and Montréal.
*Guy J. Pratte, Nadia Effendi and Julien Boudreault of BLG acted on behalf of the intervener Chartered Professional Accountants of Canada (CPA Canada) before the Supreme Court of Canada.
1 Grant Thornton LLP v New Brunswick, 2021 SCC 31.