Canada: Time's Up! SCC Provides Clarification On When The Limitation Clock Starts Running

The Supreme Court of Canada ("SCC") recently set the standard for what knowledge a claimant needs to have to trigger the limitation period to sue. In In Grant Thornton LLP v. New Brunswick, 2021 SCC 31, the SCC rejected the Court of Appeal's test that a Plaintiff must know all of the elements of the action against a Defendant for the clock to start running. Instead, the test that now applies is that of "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".

Essentially, the SCC has clarified the common law test for discoverability with a standard that makes it easier for Defendants to successfully argue that claims are statute-barred under Limitations legislation.

Background

The Province of New Brunswick ("the Province") brought a lawsuit against Grant Thornton LLP for their negligence in preparing an auditor's report that the Province relied on when deciding whether to provide loan guarantees in the amount of $50 million to Atcon, a company doing work for the Province. Atcon went into receivership, and as a result, the Province had to pay on those guarantees.

The Province retained a second accounting firm, RSM Richter, to review Atcon's financial position. Richter advised that Atcon's financial statements had not, in fact, been prepared in conformity with generally accepted accounting principles, specifically stating that their assets and net earnings had been overstated by anywhere between $28.3 million and $35.4 million. Richter provided a draft report on February 4, 2011, with the finalized report provided on November 30, 2012. The finalized report was identical to the draft in substance.

On June 23, 2014, the Province commenced its claim against Grant Thornton. Grant Thornton brought a summary judgment application to have the Province's claim dismissed on the basis that it was barred by the two-year limitation period under s. 5(1)(a) of New Brunswick's Limitation of Actions Act ("LAA").

Proceedings

Court of Queen's Bench of New Brunswick, 2019 NBQB 36

The motions judge granted the summary judgment, finding that there were prima facie ¹ grounds that the Province knew or ought to have known that it had a potential claim against Grant Thornton more than two years prior to June 23, 2014. 

The motions judge found that the Province had this knowledge on March 18, 2010, when it paid the $50 million to the bank under the loan guarantees. The judge determined that the Province could have reasonably inferred that Grant Thornton caused or contributed to the act or omission that gave rise to the loss. The judge also found that the Province received requisite knowledge after obtaining the draft Richter Report on February 4, 2011. In either event, the Province failed to commence its claim within the two-year limitation period under s.5(1)(a) of the LAA. The claim was found to be statute-barred and was dismissed.

Court of Appeal of New Brunswick, 2020 NBCA 18

The Court of Appeal overturned the motions judge's decision, rejecting the "prima facie grounds" standard, finding instead that the standard is whether the Plaintiff knows or ought reasonably to have known facts that confer a legally enforceable right to a remedy. The Court of Appeal determined that the Plaintiff must know each constituent element of the claim for the two-year period to commence.

The Court of Appeal found that the standard imposed by the motions judge was not stringent enough. The Court found that, in negligence claims, "that right only exists if the Defendant was under a relevant duty of care and its loss-causing act or omission fell below the applicable standard of care". The Court of Appeal also found that the Province could not have known whether Grant Thornton's audit had fallen below the applicable standard of care without the production of Grant Thornton's audit-related files to the Province for inspection, which had not been done. The Court found that while the Province may have suspected the failure to meet the applicable standard of care, the Province could not have known, actually or constructively, without the evidence.

The Province had not yet discovered its claim, so no limitation period had commenced, and therefore the summary judgment order was set aside.

SCC Decision

The Court stated that s.5(2) of the LAA  makes it plain 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 Court found that in setting the appropriate standard to be applied, two distinct inquiries are required:

1. Is the Plaintiff's state of knowledge to be assessed in the same manner as the common law rule of discoverability?
2. What is the particular degree of knowledge required to discover a claim under s.5(2)?

Common Law Rule of Discoverability

The common law discoverability rule was established in Central Trust Co. v Rafuse, 1986 CanLII 29 (SCC), which stated that "a cause of action arises for 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 by the exercise of reasonable diligence." The Court noted that the common law rule does not apply to every statutory limitation period and is instead an interpretive rule for construing such statutes, and can therefore be ousted by clear legislative language.

The Court found that in this case, the New Brunswick legislature chose to codify the common law rule in sections 5(1)(a) and (2) of the LAA. The Court disagreed with Grant Thornton's position that "claim" in the LAA had a different meaning than "cause of action" in the common law rule. The Court pointed to the language used in both the French text of the LAA as well as Hansard debates, wherein the Minister of Justice stated that the use of the word "claim" versus "cause of action" was just semantics, with both meaning to bring forward your matter for purposes of litigation.

The Requisite Degree of Knowledge

The Court found that neither approach of the preceding decisions accurately described the requisite degree of knowledge to discover a claim under the LAA. The Court instead held the approach to be as follows: "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."

The Court found that the three criteria listed in s.5(2), being: (a) the injury, loss or damage occurred; (b) the injury loss or damage was caused by or contributed to by an act or omission; and (c) the act or omission was that of the Defendant, are cumulative and not disjunctive. All three must be met to trigger the limitation period.

In determining a Plaintiff's state of knowledge, both direct and circumstantial evidence can be used. A Plaintiff is deemed to have constructive knowledge when such evidence shows that the Plaintiff should have discovered the material facts by exercising reasonable diligence. 

Finally, the Court stated that the governing standard requires the Plaintiff to be able to draw a plausible inference of liability on the part of the Defendant. This requirement ensures the degree of knowledge needed to discover a claim is more than mere suspicion or speculation but is not so high as to require certainty of liability (i.e. the exact extent or type of harm suffered, of the precise cause of its injury).

With respect to a claim in negligence, the Court determined 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 – to do so could have the unintended consequence of indefinitely postponing the limitation period, as knowledge of the breach of the standard of care is often only discernable through the discovery process.

The Court summed up the requisite knowledge as follows: "[w]hat is required is actual or constructive knowledge of the material facts from which a plausible inference can be made that the Defendant acted negligently."

Application to the Facts of the Case

The Court determined that the Province had actual or constructive knowledge of the materials facts that a loss occurred that was caused or contributed to by an act or omission of Grant Thornton when it received the draft Richter Report on February 4, 2011. The Court found that a plausible inference of liability could be drawn due to the Richter Report, given the misstatements identified in that report. 

Applicability to Alberta

The Court was dealing with the New Brunswick Limitations of Actions Act, specifically sections 5(1) and (2), which reads as follows:

The Court noted in this decision that the New Brunswick LAA is expressly modelled on similar limitation provisions found in other provinces, which codified the common law rule of discoverability. At paragraph 35, the Court specifically notes that one such Province is Alberta, citing the Court of Appeal decision De Shazo v Nations Energy Co., 2005 ABCA 241.

The similar provision in the Alberta Limitations Act, RSA 2000, c L-12, reads as follows:

The Alberta Limitations Act essentially combines sections 5(1)(a) and 5(2) of the New Brunswick LAA, as is seen in 3(1)(a)(i) and (ii). Therefore, the discoverability principle and plausible inference of liability, in this case, will certainly apply to those two provisions in the Alberta Act. However, there is a further criterion in the Alberta Act  – namely, that the injury warrants bringing a proceeding under s.3(1)(a)(iii).

The issue of when knowledge that an injury warrants bringing a proceeding was an issue in the Supreme Court of Canada case Novak v Bond, 1999 CanLII 685 (SCC), where the Court was dealing with a similar provision in the BC legislation. The Court had stated that the test is whether a reasonable person would consider someone in the Plaintiff's position, acting reasonably in light of their own circumstances and interests, could – not necessarily should – bring an action. Examples provided by the Court included "where the costs and strains of litigation would overwhelm a Plaintiff, where the prospects for recovery are minimal or speculative, or where other personal circumstances combined make it unfeasible to commence an action".

Whether Grant Thornton will affect the way s.3(1)(a)(iii) is interpreted remains to be seen, as no similar provision was dealt with by the Supreme Court here.

Takeaways

The big takeaway from Grant Thornton  is that once the facts that give rise to a potential claim are known or ought to be known, the Plaintiff has actual or constructive knowledge, and therefore the limitations period will begin. While this knowledge needs to be above suspicion, such suspicion may trigger a need for the Plaintiff to conduct reasonable diligence. Failing to do so can still be considered constructive knowledge, as the Plaintiff ought to have known they needed to conduct such diligence, and therefore the same will be regarded as sufficient to begin the running of the limitation period.

This standard likely makes it easier for Defendant parties to bring dismissal applications for statute-barred claims, as any evidence that there is a possibility of an injury due to a Defendant's actions could be considered sufficient for the Plaintiff to have actual or constructive knowledge that they have a claim. Therefore, claimants should be much more cautious in estimating limitations periods and err on the side of filing a claim sooner rather than later.

Footnote

1  Prima facie: “sufficient to establish a fact or raise a presumption unless disproved or rebutted.”

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