Written by Scott Bower, Preet Gill, Ciara Mackey and Joan Bilsland
A claim is "discovered" (and therefore the statutory limitation period ordinarily begins to run) when a plaintiff has actual or constructive knowledge of the material facts upon which a plausible inference of liability on the part of the defendant can be drawn. That is the conclusion of the Supreme Court of Canada in a July 29, 2021, unanimous decision that sets the standard to be applied for discoverability under Canadian limitations laws: Grant Thornton LLP v New Brunswick, 2021 SCC 31.
While the decision is an interpretation of the New Brunswick Limitation of Actions Act (the Limitations Act), the New Brunswick statute is modeled after similar statutes found in Ontario, Saskatchewan and Alberta, and therefore this important decision will undoubtedly have wide application on the standard for discoverability on limitation questions in Canada.
The facts in the New Brunswick case involved the provincial government's efforts to support a business, Atcon, with loan guarantees for $50 million. The province required Atcon to provide an external review of its assets by its auditors. The auditors' review in June 2009 advised that the financial statements fairly presented Atcon's financial position. The province executed and delivered the guarantees, but within four months, Atcon ran out of money. The province paid out the loan guarantees in March 2010 and then hired a different accounting firm, Richter, to review Atcon's position. Richter released a draft report in 2011, and a nearly identical final report in November 2012, both of which showed the financial statements overstated Atcon's assets and net earnings by between $28 million and $35 million, which the auditors had apparently not caught. In 2014, the province launched an action in the New Brunswick Court of Queen's Bench against the auditors, claiming negligence. The auditors then brought a motion for summary judgment seeking to dismiss the claim as limitation-barred.
The key issue on the summary judgment motion was whether the action was commenced prior to, or after, the expiry of the applicable two-year limitation period, which began whenever the province "discovered" its claim. The motion judge found the action was barred by the limitation period as he found that the province had the requisite knowledge in 2010 when it had suffered the loss or, alternatively, in 2011 after it reviewed the draft report from Richter and learned the financial statements may have been overstated.
The New Brunswick Court of Appeal overturned the ruling and applied a more stringent test for discoverability, concluding that the province could not have discovered its claim unless and until the auditors had produced their audit-related files and could be determined to have been at fault for not detecting the overstatement.
The Supreme Court of Canada's Decision
The Supreme Court of Canada overturned the Court of Appeal and reinstated the motion judge's decision, finding that the Court of Appeal's standard for discoverability had been set too high. The Court concluded that the province had in fact discovered its claim in 2011 when it received the draft report from Richter, and that the claim was therefore statute-barred as it was commenced more than two years after the date of the claim's discovery.
The Limitations Act
Each province has a limitations statute which determines when a claim becomes statute-barred. The general limitation period is typically two years from the date a plaintiff "discovers" that it has a claim. The relevant provision in the New Brunswick Limitations Act (which is similar to legislation in most other provinces) provides that:
A claim is discovered on the day on which the claimant 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.
But at what point does a plaintiff have the necessary degree of knowledge to have "discovered" a claim?
The New Approach for Discoverability
The SCC articulated the following approach to discoverability: "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."
Previous decisions have stressed that while the plaintiff need not have perfect knowledge to realize there is a claim, he or she must have some knowledge and ought to make reasonable inquiries in the circumstances. In this case, the SCC effectively modified the approach to now require the plaintiff to know (actually or constructively) material facts upon which the plaintiff can draw a plausible inference of liability. This "plausible inference" is a new term for discoverability in limitations law, and the SCC indicated using this term will ensure consistency; "[a] plausible inference is one which gives rise to a 'permissible fact inference.'"
In assessing the plaintiff's state of knowledge, the SCC indicated that both direct and circumstantial evidence can be used, and a plaintiff will have constructive knowledge when the plaintiff ought to have discovered the material facts by exercising reasonable diligence. The plausible inference of liability requirement is also intended to ensure that 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 or perfect knowledge.
In the New Brunswick case, the limitation period was found by the SCC to have started running once the province knew the following: the guarantee was paid out; the guarantee was provided in reliance upon the financial statements; the financial statements overstated Atcon's assets and net earnings; and the auditors had audited the financial statements. That was sufficient for the plausible inference to be drawn. Importantly, in this case the province did not need to know whether not detecting the overstatement was actually the auditors' fault or not (which has never been determined).
The new "plausible inference" approach to discoverability developed by the SCC will likely have wide application outside of New Brunswick, as the SCC expressly noted that the New Brunswick Limitations Act is modelled on Alberta, Saskatchewan and Ontario limitations statutes. Courts will expect plaintiffs to act with reasonable diligence and timeliness in launching actions, and not to wait for complete or perfect information before deciding whether to sue.
Another interesting aspect of the SCC's decision, which may now need to be explored through future cases, is the extent to which the "plausible inference" approach may affect how courts address limitation questions on summary judgment, and motions to strike claims where certain facts are admitted, as against a full examination of factual discoverability through a trial process with live witnesses. The New Brunswick case involved a summary judgment motion to determine discoverability, and the result would imply that "plausible inferences of discoverability" may fairly be drawn in many (but not all) cases on summary judgment evidentiary records, without the need for trials on discoverability questions.
If you have any questions about this case or limitations period more generally, please contact a member of the Bennett Jones Commercial Litigation or Legal Research and Opinions teams.