Supreme Court of Canada Addresses Limitation Periods and Discoverability in Unanimous Decision

In Grant Thornton LLP v. New Brunswick, the Supreme Court of Canada (SCC) unanimously held that a claim is discovered – and the limitation period begins to run – when the plaintiff knows, or ought to know, the material facts upon which a plausible inference of liability on the defendant’s part can be drawn. This important decision has brought much needed clarity to the law of limitations and is likely to result in more motions for summary judgment by defendants on the basis of the expiry of the limitation period.

BACKGROUND

In 2009, the province of New Brunswick guaranteed C$50-million in bank loans for The Atcon Group of Companies (Atcon), after receiving an audit report by Grant Thornton LLP (Grant Thornton or the Defendant). Atcon subsequently defaulted on its loans and asked the province to pay the guarantees, which it did in March 2010. The province then hired another independent auditing company (Richter) to report on Atcon’s finances. Richter delivered a draft report to the province on February 4, 2011, finding that Atcon’s financial statements had not been prepared according to generally recognized accounting principles.

Over three years later, on June 23, 2014, the province filed a claim against the Defendant, alleging that it was negligent in preparing its audit. The Defendant brought a motion for summary judgment to dismiss the province’s claim, stating that the claim was barred by the New Brunswick Limitation of Actions Act (LAA), which requires that a plaintiff bring a claim within two years of discovering it. The motions judge agreed with the Defendant and dismissed the claim. On appeal, however, the Court of Appeal for New Brunswick set aside the dismissal order and held that the essential components of the province’s negligence claim could not be known unless and until the Defendant produced its audit-related files for the province’s inspection, which it had not yet done. According to the Court of Appeal, the two-year limitation period begins to run the day after “the plaintiff knows or ought reasonably to have known facts that confer a legally enforceable right to a remedy”.

SUPREME COURT DECISION

The SCC rejected the approach taken by the Court of Appeal, and unanimously held that the province discovered its claim when the draft Richter report was delivered on February 4, 2011. As the province brought the claim more than two years after this date, the claim was statute-barred.

Pursuant to section 5(2) of the LAA (which was modelled on nearly identical statutes in Ontario, Saskatchewan, and Alberta), 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 SCC determined that the LAA was consistent with the common law discoverability rule first articulated in Central Trust Co. v. Rafuse.

In terms of the degree of knowledge required to discover a claim and trigger the limitation period, the SCC held that a claim is discovered when a plaintiff knows, or ought to know, the material facts upon which a plausible inference of liability on the defendant’s part can be drawn. A plaintiff is required to exercise reasonable diligence in discovering the material facts. The suspicion of certain facts of a potential claim may be enough to put a plaintiff on inquiry and trigger a due diligence obligation to investigate further.

The plaintiff does not need to know the exact type of harm it has suffered, or the precise cause of its injury, in order for a limitation period to run. The SCC found that certainty of liability is too exacting a standard; the degree of knowledge needed to discover a claim must be more than mere speculation but does not rise to the level of absolute certainty.

Finally, the SCC held that in negligence claims, a plaintiff does not need knowledge that the defendant owed it a duty of care or that the duty was breached. If this were the case, limitation periods could be indefinitely postponed, as knowledge that the defendant breached the applicable standard of care often arises only through expert reports or in the document discovery process after a plaintiff has commenced a claim.

PRACTICAL TAKEAWAYS

• Plaintiffs must exercise reasonable diligence in pursuing their claims. The SCC affirmed that plaintiffs are expected to start their claims in a timely manner. Potential claimants, as soon as they have suffered a loss or suspect they have suffered a loss, should exercise due diligence in investigating the circumstances giving rise to the loss and whether they wish to bring a claim in response. Sitting on a claim to await further information may increase the risk of a successful summary judgment motion based on a limitations defence.

• Plaintiffs do not need to have knowledge of every element of a cause of action before starting a claim. The discovery of a claim is a fact-based exercise driven by the requirements of the applicable limitations statute or the common law limitations rule. The SCC rejected the Court of Appeal’s approach that would require plaintiffs to await confirmation of each element of a cause of action before bringing a claim. Plaintiffs should focus instead on the facts that gave rise to the claim, even where they may support multiple potential causes of action.

• Limitations statutes may modify the discoverability rule. Although the SCC confirmed that the LAA codifies the common law discoverability rule, it also stated that legislatures may modify or oust the discoverability rule by statute. For this reason, plaintiffs should always review the applicable provincial limitations statute when contemplating a claim. For example, Ontario’s Limitations Act sets out a rebuttable presumption that a claimant has discovered a claim on the day the act or omission on which the claim is based took place.

For further information, please contact:

Robin Linley                416-863-3047
Gregory Sheppard     416-863-2616

or any other member of our Litigation & Dispute Resolution group.