6 August 2021By Aaron Gold
Last week, the Supreme Court of Canada released its decision in Grant Thornton LLP v. New Brunswick.1 The judgment provides important guidance on interpreting and applying the basic two-year limitation period contained in most provincial limitations statutes. Ultimately, the Court 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.
Background: In 2008, the Atcon Group of Companies (“Atcon”) sought loans from the Bank of Nova Scotia, but it needed loan guarantees from the Province of New Brunswick. The Province agreed to provide $50 million in loan guarantees, conditional upon Atcon undertaking an external review by an auditing firm. The parties agreed to use Atcon’s auditor, Grant Thornton LLP.
The audit opinion letter was delivered to the Province, along with an unqualified audit report on the company’s financial statements opining that Atcon’s statements presented fairly, in all material respects, the company’s financial position in accordance with generally accepted accounting principles. Relying on this report, the Province executed and delivered the loan guarantees on June 30, 2009.
Atcon ran out of working capital in October 2009, and ultimately went into receivership. The Bank of Nova Scotia called on the Province to pay out the full $50 million in guarantees, which it did on March 18, 2010.
In June 2010, the Province retained a second accounting firm to review and report on Atcon’s financial position for the same fiscal period as the original report prepared by Grant Thornton (The “Richter Report”). The Richter Report was delivered on February 4, 2011, opining that Atcon’s financial statements had not been prepared in accordance with generally accepted accounting principles, contained material errors, and overstated the company’s assets, revenues and profits by material amounts.
On June 23, 2014, the Province commenced an action in negligence against Grant Thornton. In response, Grant Thornton brought a motion for summary judgment to dismiss the claim as statute-barred under s. 5(1)(a) of New Brunswick’s Limitation of Actions Act on the basis that it was commenced more than two years after it was discovered.
The Decision of the Motions Judge: The motions judge granted summary judgment and dismissed the action, holding that the Province “knew or ought to have known that it had prima facie grounds to infer that it had a potential cause of action against the defendants” by March 18, 2010. By this date, it had suffered the loss (paying out the loan guarantees) and could reasonably have inferred that Grant Thornton caused or contributed to the act or omission giving rise to that loss.2 In the alternative, he found that the Province had acquired the requisite knowledge upon receiving the draft Richter Report on February 4, 2011.3
The Decision of the Court of Appeal: The Court of Appeal for New Brunswick allowed the Province’s appeal, holding that the two-year limitation period begins to run when the plaintiff knows or ought reasonably to have known facts that confer a legally enforceable right to a remedy.4 This standard, the Court noted, is only met if the plaintiff has knowledge of each constituent element of the cause of action. Applying this standard, the Court held that the Province had not yet discovered its claim because it could not know whether Grant Thornton’s audit of Atcon’s financial statements fell below the applicable standard of care.
The Decision of the Supreme Court of Canada: The Supreme Court of Canada held that the question is whether 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. Writing for the Court, Moldaver J. concluded that two inquiries are required to evaluate this standard.
The inquiry asks whether the plaintiff’s state of knowledge is to be assessed in the same manner as the common law rule of discoverability, or whether discoverability has been modified by statute.5 The common law rule states that a cause of action arises for the purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff through the exercise of reasonable diligence. At this stage, the court examines the governing statute to determine whether the common law rule of discoverability has been limited or ousted as a matter of statutory interpretation.
The second inquiry considers the degree of knowledge required to discover the claim. The Court held that a claim is discovered when a 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.6 Here, the “material facts” are typically set out in the limitations statute. Contrary to the Court of Appeal’s view, the plaintiff need not have knowledge of each constituent element of the claim.
Applying this standard to negligence claims, Moldaver J. noted that a plaintiff does not need knowledge that the defendant owed it a duty of care or that the defendant’s act or omission breached the applicable standard of care.7 Rather, what is required is actual or constructive knowledge of the material facts from which a plausible inference can be made that the defendant acted negligently.8
On the facts of the case, Moldaver J. concluded that the Province had knowledge of the material facts when it received the Richter Report on February 4, 2011. The claim was therefore discovered more than two years before the Province commenced its proceedings on June 23, 2014, and the action was statute-barred.
Takeaways: There are at least three important takeaways from the Grant Thornton decision:
1 2021 SCC 31 [Grant Thornton].
2 2019 NBQB 36 at para 88.
3 Ibid at para 108.
4 2020 NBCA 18 at para 7.
5 Grant Thornton, supra note 1 at para 28.
6 Grant Thornton, supra note 1 at para 42.
7 Grant Thornton, supra note 1 at para 48.