Statutes of limitations in Canadian provinces generally bar plaintiffs from bringing claims against a defendant within a specified period of time from the date on which the plaintiff knew or reasonably ought to have known they had a claim against a defendant. For many types of claims, the date on which the limitation period begins to run is more easily determined (for example, the date of a car crash in which the plaintiff was hurt). But for other types of claims, particularly misrepresentation and professional negligence, figuring out when the plaintiff knew or ought to have known of the claim can be more difficult. Is it enough for the plaintiff to merely have held a suspicion or belief the defendant did something wrong? Or must the plaintiff know with some certainty that the defendant committed each of the required legal elements of the cause of action? Or something in-between?
In Grant Thornton LLP v. New Brunswick, 2021 SCC 31, the Supreme Court of Canada addressed these fundamental questions about the law of discoverability, a topic that has not been considered by the Court for many decades. The Supreme Court rejected a higher threshold of knowledge found by the lower court and applied a new--and quite low—test for discoverability which the Court described as a “plausible inference of liability”. Under the plausible inference of liability test, it is not necessary for the plaintiff to know the defendant owed or breached a duty of care from a legal perspective or the exact type or amount of the loss. Rather, so long as the plaintiff actually or constructively knew or ought to have known a loss had occurred generally, and was plausibly due to the conduct of the defendant, this will be sufficient knowledge for “discovery” of a claim.
The Supreme Court avoided setting any bright analytical lines in its new test; instead, the Court held knowledge must be more than mere suspicion or speculation but less than perfect knowledge or certainty of liability. Essentially, a notional state of knowledge which is more than a hunch and less than an indisputable fact. However, practically speaking, when a plaintiff’s state of mind moves from the foggy realm of suspicion to the clarity of plausible inference of liability will be a fraught and highly individualistic analysis requiring a close inquiry into the state of mind of the plaintiff and all of the surrounding circumstances. The analysis is further complicated by the Court’s statement that a suspicion alone may trigger an obligation on the plaintiff to investigate whether it has a claim. As a result, future litigation interpreting and applying the Supreme Court’s new (or at least re-articulated) test for discoverability can be anticipated.
Based on the Court’s reasoning in Grant Thornton, parties who have suffered losses and are considering prospective claims are commended to retain counsel and examine closely whether the facts and circumstances indicate there is a plausible (or better, arguable) inference of liability of the contemplated defendant and, if so, the date on which that plausible inference was first known, or reasonably knowable. Claims should be commenced well within the applicable statutory limitation period from that date. Equally, defendants are recommended at the time of pleadings to closely scrutinize the applicable limitation act, and the facts and circumstances underlying discoverability, to evaluate whether there is a limitation defence.
Facts and Background
The Grant Thornton case involved a negligence claim by the Province of New Brunswick against auditors Grant Thornton. The claim arose out of the Province’s guarantee of a $50 million dollar loan by the Bank of Nova Scotia to Atcon Group of companies in 2009. As a condition of providing the guarantee, the Province relied on a 2009 audit of Atcon’s financial statements by Grant Thornton which audit essentially gave Atcon a clean bill of financial health. In March 2010, shortly after the loan was made, Atcon defaulted on the loan and went bankrupt. The Province was then called upon by Bank of Nova Scotia under the loan guarantee to pay almost the entire $50 million debt, which it did.
In 2010, the Province retained an accounting consultant to assess whether Atcon’s financial statements had been prepared according to generally accepted accounting principles (“GAAP”). The Province received a draft report from the consultant in February 2011 which concluded the statements had not been prepared in compliance with GAAP. However, the report did not include any assessment or opinion whether Grant Thornton had properly audited Atcon’s financial statements in accordance with GAAP. The Province received a final report in late 2012 and subsequently made a complaint with Grant Thornton’s regulator. The Province asked, for but did not receive, Grant Thornton’s file relating to the audit through this process, and claimed it could not assess whether Grant Thornton’s work had fallen below the standard expected of a reasonable auditor without the file.
In June 2014, frustrated that it could not obtain more information about Grant Thornton’s audit, the Province sued Grant Thornton in the New Brunswick Queen’s Bench alleging that Grant Thornton had negligently performed the 2009 audit and negligently misrepresented the state of Atcon’s finances. The Province claimed that but-for the auditor’s alleged negligence, it never would have guaranteed the loan and suffered the loss.
As part of its defence, Grant Thornton asserted the Province’s claim was time barred under the New Brunswick Limitation of Actions Act on the basis that the claim was commenced more than two years after the date on which the Province did or ought to have discovered its claim.
Grant Thornton brought a summary trial application seeking to dismiss the Province’s claim on the basis the claim was time barred. The issue, broadly speaking, was when did the Province know or ought to have known it had a claim against Grant Thornton for negligent misrepresentation? If Grant Thornton could establish that the Province did or ought to have discovered its claim before June 2012, then the Province’s claim would be time barred under the limitations act. The motions judge dismissed the Province’s claim as time barred on the grounds that the Province only needed to know enough facts to have “prima facie grounds” to infer the existence of a potential claim. The judge found that the Province had this knowledge when it received its consultant’s report in February 2011.
On appeal, the New Brunswick Court of Appeal set aside the dismissal on the basis that discovery of a claim requires actual or constructive knowledge of facts that confer a legally enforceable right to a judicial remedy, which includes knowledge of every constituent element of the cause of action being pleaded. Thus, on the Court of Appeal’s analysis, in addition to knowledge of a loss and causation, the limitation period for a claim in negligence did not begin to run until the plaintiff had actual or constructive knowledge that the defendant both owed a duty a care and breached the standard of care. On the evidence, the Court of Appeal found the Province could not have reasonably discovered its claim before June 2014 because it did not have access to the auditor’s file and thus could not reasonably determine whether Grant Thornton breached the standard of care.
The New Brunswick Court of Appeal’s analysis, while not a complete departure from previous authority respecting discoverability (there are numerous Canadian cases which have found the plaintiff did not discover the claim until it received expert or legal advice that the defendant’s wrongful conduct had caused the plaintiff’s loss), was nonetheless a high-water mark for the threshold of knowledge for discoverability in Canada.
Supreme Court of Canada
The Supreme Court of Canada, in a unanimous decision (Justice Moldaver writing), rejected the New Brunswick Court of Appeal’s approach and allowed the appeal. It also did not endorse the formulation advanced by the chambers judge that a plaintiff must have “prima facie grounds to infer” there was a claim against a defendant. The Supreme Court reiterated the general rule governing common law discoverability 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”, citing Central Trust Co. v. Rafuse,  2 S.C.R. 147. However, the Court expanded on this general principle by applying a two-stage test as follows:
1. Does the subject limitation act codify, limit or oust the common law rule of discoverability?
2. If not, was the claim commenced within the limitation period from the date on which 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”?
Accordingly, to trigger the running of the limitation period, a plaintiff needs to have, in all of the circumstances, a “plausible inference” – also described as a “permissible fact inference” – of liability on the part of the defendant. This does not require the plaintiff to know the defendant owed a duty of care, breached the standard of care or that there are facts arguably establishing all the elements of a cause of action. At the same time, while the plaintiff’s actual or constructive knowledge (which can arise from circumstantial evidence) must be more than pure speculation or suspicion, a suspicion can be sufficient trigger an obligation on the plaintiff to exercise due diligence in investigating whether they have a cause of action against the defendant.
Applying the reformulated test, the Supreme Court overturned the New Brunswick Court of Appeal and restored the motion judge’s dismissal of the claim on the basis it was time barred because the Province knew or ought to have known upon receiving its consultant’s report in February 2011 that there was a plausible basis to infer Grant Thornton was negligent in the preparation of the 2009 audit. Quite simply, upon receiving the consultant’s report, the Province: (i) knew it has suffered a loss (the $50 million pay-out on the guarantee); and (ii) had constructive knowledge there was a plausible inference Grant Thornton’s negligence was responsible for the loss for failing to detect Atcon’s financial statements were inaccurate and not prepared according to GAAP.
As the Grant Thornton decision concerned, in part, the interpretation of the New Brunswick Limitations of Actions Act, parties in Canada will need to examine the applicable provincial limitation act to see whether the discoverability section: (i) ousts or modifies the common law rule; and (ii) substantively departs from the statutory language considered in Grant Thornton. Acts which are similar to the New Brunswick act can expect very similar treatment.
The British Columbia Limitation Act, Ontario Limitations Act and Saskatchewan Limitations Act, have an additional statutory discovery requirement that the plaintiff must know or ought to know that “having regard to the nature of the injury, loss or damage, a court proceeding would be an appropriate means to seek to remedy the injury, loss or damage.” Similarly, the Nova Scotia Limitations of Actions Act requires the plaintiff to know “the injury, loss or damage is sufficiently serious to warranty a proceeding.” Accordingly, courts in provinces with limitation acts containing such language will need to take this additional appropriateness requirement into consideration when applying the plausible inference test. Arguably there are situations where such a requirement could operate to extend the running of the limitation period on the basis that it was not appropriate to commence a claim despite the other elements of discovery being satisfied: see, for example: Brown v. Baum, 2016 ONCA 325 and Q Licensing S.A. v. LPQ Central Canada Inc., 2018 ONCA 331. Other differences between the discoverability provisions of the provincial acts also exist and will need to be considered. However, generally speaking, the test articulated in Grant Thornton should be applicable to much of the analysis in other Canadian common law provinces as to whether a plaintiff has accumulated enough direct, indirect or circumstantial knowledge to trigger the start of a limitation period.
The Supreme Court of Canada has unequivocally rejected the concept that a plaintiff needs to have detailed and certain knowledge of all elements of a cause of action before the limitation period will begin to run. Instead, the Supreme Court has applied a fairly low and fluid standard of plausible inference of liability in all of the circumstances. It can be anticipated the Court’s lower threshold for discoverability will be used by defendants to closely scrutinize limitation defences and more frequently defend claims on the basis the plaintiff knew or ought to have known of the claim sooner than previous authority and analysis would suggest.
Accordingly, it is recommended that parties who have suffered losses (even where such losses have not completely crystallized) and know (or can reasonably find out) the identify of the believed wrongdoer, expeditiously investigate and seek advice as to whether a claim ought to be commenced. This likely means retaining counsel and experts at an earlier stage to evaluate whether a party’s suspicion or belief is borne out by the evidence and warrants a claim being commenced. Applying the reasoning in Grant Thornton, lower courts may be less inclined in future cases to give plaintiffs the benefit of the as to when the limitation period began to run on the basis the plaintiff did not have sufficient information, was reasonable in waiting for other events to transpire or did not have adequate certainty until the completion of comprehensive investigations or reports.