In the recent decision of the Supreme Court of Canada (“SCC”) in Grant Thornton LLP v New Brunswick, 2021 SCC 31, the SCC clarified the correct standard to apply when determining whether a plaintiff has the requisite degree of knowledge to discover a claim. The SCC stated that 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” thereby introducing the standard of “plausible inference of liability” (para 3).
The Backdrop
In the fall of 2008, the Atcon Group of Companies (“Atcon”) encountered financial difficulties requiring several significant loans to remain operational. Atcon required the Province of New Brunswick (the “Province”) to provide guarantees in order to obtain the loans. The Province agreed to guarantee the Atcon loans on the condition that Atcon agree to an external review of its assets by an auditor. Atcon’s own auditor, Grant Thornton LLP (“Grant Thornton”), performed the audit. Grant Thornton provided a letter to the Province in May 2009 which outlined the work Grant Thornton had done in auditing Atcon’s consolidated financial statements. The letter also said that the audit had been conducted in accordance with Generally Accepted Auditing Standards (para 7). On the basis of Grant Thornton’s findings, the Province provided the guarantees.
Four months later, Atcon ran out of working capital, resulting in a receivership and ultimately, the Bank calling on the Province’s guarantees. The Province hired RSM Richter Inc. (“Richter”) to review Atcon’s financial statements.
Richter issued its findings in draft form on February 4, 2011 (the “Richter Report”) which reflected a very different view of Atcon’s financial state. Specifically, the Richter Report identified several issues that were not addressed in Grant Thornton’s audit. The Richter Report: (1) stated that Atcon’s financial statements had not been prepared in conformity with Generally Accepted Accounting Principles; (2) identified a “systematic approach” by Atcon to “overstate assets, revenues, and profits, and understate liabilities, expenses, and losses”; and, (3) determined that the financial statements contained material errors (para 14).
On June 23, 2014, the Province commenced an action against Grant Thornton. Grant Thornton applied to dismiss the claim on the basis it was barred by the two-year limitation period under s. 5(1)(a) of the Limitation of Actions Act, S.N.B. 2009, c. L-8.5 (the “LAA”). Accordingly, the SCC was tasked with determining “whether and when a plaintiff has the requisite degree of knowledge to discover a claim” under the LAA.
As the dispute progressed between the lower courts in New Brunswick, the Court of Queen’s Bench and the Court of Appeal disagreed on the correct degree of knowledge required to discover a claim under the LAA. The Court of Queen’s Bench explained that the claim was discovered when the Province “knew or ought to have known that it had prima facie grounds to infer that it had a potential cause of action against the defendants”(para 19). Conversely, in advocating for a more stringent approach, the Court of Appeal opted to apply a “more exacting test” which provided that “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” (para 23).
The test applied by the Court of Appeal required that the Province have knowledge of every “constituent element” of the cause of action being pled before the Province could have the requisite degree of knowledge to discover a claim (para 41). According to the Court of Appeal, viewed through the lens of a negligence claim, this would require the Province to have knowledge of the loss and causation, knowledge of the duty of care, and knowledge of whether the standard of care had been breached (para 41). The SCC declined to follow either approach.
Grant Thornton argues that the Province is out of Time
In support of its position that the Province’s claim was statute barred, Grant Thornton argued that s. 5(1)(a) and (2) of the LAA displaced or at least modified the common law discoverability rule. In raising this argument Grant Thornton sought to establish that a lower degree of knowledge was required to start the limitation clock in contrast to the degree of knowledge mandated under the common law. The common law rule of discoverability 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 diligence" (Central Trust Co. v Rafuse, [1986] 2 SCR 147, at p. 224, citing Kamloops (City of) v Nielsen, [1984] 2 SCR 2; Grant Thornton at para 29).
The SCC disagreed with Grant Thornton and recognized that New Brunswick had chosen to codify the common law rule of discoverability within s. 5(1)(a) and (2) of the LAA.
The Alberta Context: A Distinction without a Difference?
In Grant Thornton, the SCC recognized that in order for a plaintiff to discover a claim, a plaintiff is not required to know all constituent elements of the claim, but rather, the plaintiff must have knowledge of the material facts from which a plaintiff can draw a plausible inference of liability (para 61).
The New Brunswick LAA is modelled on the limitation provisions found in Ontario, Saskatchewan, and Alberta’s limitation statutes. In addressing New Brunswick’s codification of the common law within s. 5(1)(a) and (2) of the LAA, the SCC explained that the distinction between the common law rule’s use of the term “cause of action”, in contrast to the LAA’s use of “claim” in the context of discovering a “cause of action” or a “claim” was not a meaningful distinction but rather a “distinction without a difference” (para 39).
Alberta’s Limitations Act, R.S.A. 2000, c. L-12 (the “Limitations Act”) provides:
Limitation Periods
3(1) Subject to subsections (1.1) and (1.2) and sections 3.1 and 11,
if a claimant does not seek a remedial order within
(a) 2 years after the date on which the claimant first knew, or in
the circumstances ought to have known,
(i) that the injury for which the claimant seeks a remedial
order had occurred,
(ii) that the injury was attributable to conduct of the
defendant, and
(iii) that the injury, assuming liability on the part of the
defendant, warrants bringing a proceeding,
or
(b) 10 years after the claim arose,
whichever period expires first, the defendant, on pleading this Act
as a defence, is entitled to immunity from liability in respect of the
claim.
Conversely, reference to “claim” rather than “cause of action” in Alberta’s Limitations Act in the context of the two-year limitation period has been recognized as a distinction of critical importance, as the “focus of the inquiry under section 3(1)(a) of the Limitations Act is on the injury, not the cause of action” (Geophysical Service Incorporated v Encana Corporation, 2018 ABCA 384, at para 31; Lay v Lay, 2019 ABCA 21, at para 29). Consequently, in Alberta the limitation period will start to run at the time the injury was discovered, not when the cause of action was discovered.
Although the SCC in Grant Thornton viewed this distinction as a matter of semantics in respect of the New Brunswick LAA, the distinction has not been cast aside by Alberta Courts. However, at the end of the day, both Courts recognize that all elements of a cause of action need not be known, rather, the plaintiff must have knowledge of the material facts in order to draw a plausible inference of liability.
The Requisite Amount of Time Required to Start the Limitation Period
The SCC said that under s. 5(1)(a) of the LAA a claim must be commenced two years from the day on which the claim is discovered. Moreover, s. 5(2) provides 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 (para 27).
In determining the applicable standard to be applied when assessing whether the Province had the requisite degree of knowledge to discover its claim against Grant Thornton under s. 5(2), so as to trigger the limitation period under s. 5(1)(a) of the LAA, the SCC explained that two distinct inquiries are required: first, in assessing whether the limitation period has been triggered, a court must determine whether the plaintiff’s state of knowledge is to be assessed in the same way as the common law rule of discoverability (or has it been modified by the provincial statute), and second, what is the degree of knowledge required to discover a claim under the LAA? (para 28).
In answer to the first question, the SCC held that the plaintiff’s degree of knowledge under the LAA represents a codification of the common law, and therefore mandates the same degree of knowledge as the common law. Accordingly, in the case at hand, the plaintiff’s knowledge was to be assessed in the same way as the common law rule of discoverability.
Second, the SCC found that in assessing the particular degree of knowledge required to discover a claim, a claim will be 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” (para 42). The SCC further explained knowledge of material facts as follows:
43 By way of explanation, the material facts that must be actually or constructively known are generally set out in the limitation statute. Here, they are listed in s. 5(2)(a) to (c). Pursuant to s. 5(2), a claim is discovered when the plaintiff has actual or constructive knowledge that: (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. This list is cumulative, not disjunctive. For instance, knowledge of a loss, without more, is insufficient to trigger the limitation period.
A plaintiff must be able to draw “a plausible inference of liability” on the part of the defendant from the material facts known (or constructively known) to the plaintiff (para 45). A plausible inference of liability requires:
- “A degree of knowledge that is more than mere suspicion or speculation” (para 46);
- “This standard does not require “certainty of liability” or “perfect certainty” as a plaintiff does not need to know the exact extent of the harm it has sustained nor the precise cause of its injury for a limitation period to start to run” (para 46);
- “This requisite degree of knowledge does not require knowledge of a legally enforceable right to a judicial remedy” (para 47);
- Finally, the SCC mentioned in closing, “the standard cannot be so high as to make it possible for a plaintiff to acquire the requisite knowledge only through discovery or experts” (para 48).
The above principles discussed in Grant Thornton provide a clear sampling of the ingredients required to establish that a plaintiff has discovered a claim through a plausible inference of liability.
Applied to the case at hand the SCC found that as of February 4, 2011 (when the Province received the draft Richter Report), the Province’s knowledge about its potential claim “crystalized” (para 55). The representations made by Grant Thornton in their report to the Province were blatantly wrong. As a result, this act or omission by Grant Thornton contributed to the Province’s loss, as the Province advanced the loan guarantees based on the representations made by Grant Thornton (para 58).
Therefore, based on the Province’s appreciation of the material facts, the SCC determined that the Province had sufficient knowledge to draw a plausible inference of liability that Grant Thornton had been negligent on February 4, 2011 which in turn triggered the limitation period. When the Province commenced their claim against Grant Thornton on June 23, 2014, the two-year limitation period had already expired.
What does this mean for you?
An awareness of when a limitation period will start to run and when it has expired is an inherently important element of litigation. As is illustrated by the SCC’s decision, this area of the law is complex, ever-changing, and highly litigated.
In Grant Thornton, the SCC clarified that a claim is discovered when the claimant has actual or constructive knowledge of the material facts upon which a plausible inference of liability can be drawn (para 3). This clarification is congruent with Alberta’s Limitations Act, which also arises from the common law.
Moving forward, it is likely that Alberta Courts will continue to recognize that the 2-year limitation period will start to run when the claimant knew or ought to have known that “all three elements of s. 3(1)(a) warranted bringing a proceeding”(Clark Builders and Stantec Consulting Ltd. v GO Community Centre, 2019 ABQB 70 at para 254), with the particular degree of knowledge required to discover the claim assessed on the “plausible inference of liability” standard.
Additionally, the approach mandated by the SCC in Grant Thornton aligns with the requirement in Alberta, that a plaintiff need not know all constituent elements of the cause of action in order to have discovered their claim.
If you have questions about limitation periods in litigation, please contact one of our own lawyers for further information.
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