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Supreme Court of Canada Addresses Discoverability in New Brunswick’s Limitation of Actions Act

By Mark G. Evans and Ara Basmadjian
August 4, 2021
  • Discoverability
  • Limitation Periods contained in "Other Acts"
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Overview

In Grant Thornton LLP v. New Brunswick, 2021 SCC 31 (“Grant Thornton”), the Supreme Court of Canada held that a claim is discovered under section 5(2) of New Brunswick’s Limitation of Actions Act, SNB 2009, c L-8.5 (the “LAA”) 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.” Accordingly, a plaintiff does not require knowledge of each constituent element of a claim to discover that claim and, in turn, trigger the two-year limitation period within which to commence an action. While section 5 of New Brunswick’s LAA was at issue, the decision has an important impact on all Canadian jurisdictions with similar limitation statutes that codify the common law rule of discoverability.

Factual Background

The Atcon Group of Companies (“Atcon”) applied for loans from the Bank of Nova Scotia (the “Bank”). As part of the process, Atcon required loan guarantees from the Province of New Brunswick (the “Province”). On April 24, 2009, the Province agreed to $50 million in loan guarantees on condition that Atcon would be subjected to an external review of its assets by its auditor, Grant Thornton LLP (the “Auditor”). 

On June 18, 2009, the Auditor delivered its report to the Province confirming that Atcon’s financial statements presented “fairly, in all material respects, the financial position of [Atcon] as at January 31, 2009 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.” Relying on the Auditor’s report, the Province executed the loan guarantees on June 30, 2009, which allowed Atcon to borrow money from the Bank.

Atcon ran out of working capital approximately four months later. The Bank commenced insolvency proceedings against Atcon, and then called on the Province to satisfy its loan guarantees. On March 18, 2010, the Province paid out the $50 million loan guarantees to the Bank.

The Province later engaged RSM Richter Inc. (“Richter”) to review Atcon’s consolidated financial statements for the fiscal year ending January 31, 2009. In a draft report issued on February 4, 2011, Richter was of the view that Atcon’s financial statements had not, in fact, been prepared in accordance with generally accepted accounting principles. Richter identified a “systematic approach” by Atcon to “overstate assets, revenues and profits, [and] understate liabilities, expenses and losses.” According to Richter, Atcon’s assets and net earnings were overstated in the range of $28.3 million and $35.4 million.

On June 23, 2014, the Province issued a claim for negligence against the Auditor. The Auditor defended the claim and brought a motion for summary judgment on the grounds that the Province’s claim was barred by the two-year limitation period in section 5(1)(a) of the LAA.

The Court of Queen’s Bench of New Brunswick granted the Auditor’s motion and summarily dismissed the Province’s claim. The Court of Appeal of New Brunswick allowed the appeal and set aside the motion judge’s order. In a unanimous decision, the Supreme Court of Canada set aside the decision of the Court of Appeal and restored the motion judge’s order.

Codification of the Common Law Rule

Under section 5(1)(a) of the LAA, no claim shall be brought after two years from the day on which the claim is “discovered.” Section 5(2) of the LAA states that a claim is “discovered” on the day on which the plaintiff first knew or ought reasonably to have known “(a) that the injury, loss or damage had occurred, (b) that the injury, loss or damage was caused by or contributed to by an act or omission, and (c) that the act or omission was that of the defendant.”

In that context, the Supreme Court confirmed that section 5 of the LAA codifies the common law discoverability rule, which provides 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 due diligence.” The rule seeks to balance the reasons for implementing limitation periods (i.e., “the guarantee of repose, the desire to foreclose claims based on stale evidence and the expectation that a plaintiff will start a claim in a timely manner”) with the need to avoid injustice by barring a claim before the plaintiff has knowledge of the claim.

Plausible Inference of Liability

According to the Supreme Court, a claim is discovered under section 5(2) of the LAA “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 “material facts” that must be known are set out in section 5(2) of the LAA.

Notably, the plausible inference of liability requirement does not mean that a plaintiff has to know the constituent elements of the claim. In an auditor’s negligence claim, for example, the plaintiff does not require knowledge that the defendant owed it a duty of care, or that the defendant breached the requisite standard of care, before discovery of the claim. Such an exacting standard could indefinitely postpone the commencement of the limitation period.

On the facts, the Supreme Court determined that the Province knew or ought to have known that it had a claim against the Auditor on February 4, 2011 when the Province received the draft report from Richter, which concluded that Atcon’s financial statements had not been prepared in accordance with generally accepted accounting principles. The Province had sufficient knowledge at this time to draw a plausible inference that the Auditor had been negligent, but failed to commence a claim until June 23, 2014. In the result, the Supreme Court determined that the Province’s claim was statute-barred under section 5(1)(a) of the LAA.

Comment

The Supreme Court’s decision in Grant Thornton stands for the proposition that a claim is discovered under section 5(2) of the LAA when the plaintiff has actual or constructive knowledge of the material facts that lead to a plausible inference of the defendant’s liability. The material facts that must be known (on an actual or constructive basis) are set out in section 5(2) of the LAA. The plaintiff does not need knowledge of the constituent elements of the claim to discover the claim. The plausible inference of liability requirement “strikes the equitable balance of interests that the common law rule of discoverability seeks to achieve.”

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Mark G. Evans

About Mark G. Evans

Mark is the Practice Lead for the Litigation and Dispute Resolution Group of Dentons’ Toronto office and the Co-Global Lead for Dentons Fraud and Asset Recovery Group. Mark is a leading banking and commercial litigation lawyer and acts as lead litigation counsel for a number of Canadian and multinational clients on significant class action briefs.

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Ara Basmadjian

About Ara Basmadjian

Ara Basmadjian is a partner in the Litigation and Dispute Resolution group at Dentons Canada LLP. His practice involves a variety of complex corporate, commercial and civil litigation matters. Ara has particular experience in cases involving commercial contracts, negligence, product liability, class actions, limitations law, cannabis in Canada, and extraordinary remedies, such as injunctions.

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