Supreme Court of Canada Provides Clarity on Expiry of Limitation Periods
GRANT THORNTON v NEW BRUNSWICK
PLAUSIBLE INFERENCE OF LIABILITY
Summary
The Supreme Court of Canada has provided clarity on the expiry of limitation periods, and in particular when claims are discovered. More specifically, the plausible inference of liability requires knowledge that is more than mere speculation but not to the level of certainty of liability.
The Facts
In the fall of 2008, the Atcon Group of Companies (“Atcon”), a provider of construction, energy and waste management services was having issues meeting its financial obligations. On April 24, 2009, the Province of New Brunswick (the “Province”) agreed to guarantee a $50 million loan from the Bank of Nova Scotia (the “Bank”) to Atcon, subject to an external review by an auditing firm. The Province agreed Grant Thornton, Atcon’s auditor, would conduct the review.[1]
Atcon continued to have financial difficulties, and was placed in receivership and on March 5, 2010, the Bank called on the Province to pay on the loan guarantees, which it did.[2]
In the summer of 2010, the Province retained RSM Richter Inc. (“Richter”), an accounting and auditing firm, to review Atcon’s F2009 financial position, and to issue a report on its findings (the “Richter Report”). The Richter Report was issued in draft on February 4, 2011 and finalized on November 30, 2012, the draft and final version were virtually identical.[3]
The Richter Report opined that Atcon’s financial statements for F2009 were not prepared in accordance to Generally Accepted Accounting Principles (“GAAP”). And that net earnings were overstated by a material amount, ranging between $28.3 million and $35.4 million.[4]
The Province commenced an action on June 23, 2014, 1½ years after the finalized Report, claiming negligence against Grant Thornton. Grant Thornton moved to have the Province’s claim dismissed on the basis that it was barred by the two-year limitation period.[5]
The Statutory Provisions:
General Limitation Periods
5(1) Unless otherwise provided in this Act, no claim shall be brought after the earlier of
- Two years from the day on which the claim is discovered, and
- Fifteen years from the day on which the act or omission on which the claim is based occurred.
5(2) A claim is discovered on the day which the claimant first knew or ought reasonably to have known
- That the injury, loss or damage had occurred,
- That the injury, loss or damage was caused by or contributed by an act or omission, and
- That the act or omission was that of the defendant.[6]
Motion Decision
The Superior Court, in its view, under s. 5(2), the legal question was whether 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”. The motion judge held that the Province had the requisite knowledge by March 18, 2010. In the alternative, the Province had the requisite knowledge after it received the draft Richter Report on February 4, 2011.[7] As such, the motion judge granted summary judgement in favour of Grant Thornton and dismissed the Province’s claim.[8]
Court of Appeal Ruling
The Court of Appeal unanimously allowed the appeal and found that the motion judge applied the wrong legal test and the failure constituted a “palpable and overriding error”.[9] The Court of Appeal rejected the Motion judge’s test of “prima facie grounds to infer … a potential cause of action” and found that the test was not stringent enough.[10]
The essential component of the Province’s negligence claim could not be known unless and until Grant Thornton produced its audit-related files for the Province to inspect.[11] This failure by the Motion judge resulted in the incorrect finding that the Province discovered its claim on either March 18, 2010 or February 4, 2011.[12] The Court of Appeal allowed the appeal and set aside the summary judgement order.[13]
Supreme Court Decision
The Supreme Court focused its reasons and decision on the governing standard of the “plausible inference of liability”.
The Common Law Rule
The Court went through an analysis of the common law and found that the plain words of the provision are unambiguous. The event triggering the limitation period in s. 5(1)(a) is linked to the state of the plaintiff’s knowledge in the same manner as the common law rule. The claim is discovered on the day that a claimant knew or ought reasonably to have known the facts that are material, as noted in the wording of s.5(2).[14]
Plausible Inference
Referring to cases throughout the Provinces, the Supreme Court stated that the governing standard requires the plaintiff to be able to draw a plausible inference of liability on the part of the defendant from the material facts that are actually or constructively known. More specifically, that the plausible inference of liability requirement ensures that the degree of knowledge needed to discover a claim is more than mere suspicion or speculation. At the same time, requiring a plausible inference of liability ensures the standard does not rise so high as to require certainty of liability.[15]
Applying the plausible inference test on the facts at hand, the Supreme Court found that when Richter undertook its review and issued the 88-page draft Richter Report on February 4, 2011, was the moment that the Province’s knowledge about its potential claim crystalized.[16] Based on all of the material facts that the Province knew or ought to have known, the Court was satisfied that by February 4, 2011, the Province had enough knowledge to draw a plausible inference that Grant Thornton had been negligent.[17]
The Supreme Court therefore concluded that the Province discovered the claim on February 4, 2011, more than two years before commencing its action on June 23, 2014, and as such the Province’s claim is statute-barred.[18]
Implications
This case provides important guidance in the assessment of limitation period issues, and in particular the discovery of claims and limitation periods. Specifically, the plausible inference test requires knowledge that is more than mere speculation but not to the level of certainty of liability.
On a practical level, the Court’s decision attempts to balance the plaintiff’s interests in not being barred prior to knowing they have a cause of action and the defendant’s interests in eliminating stale claims and creating certainty and finality. As such, lawyers should not wait until a claim is 100% certain, but instead immediately commence action when there is enough information to make a plausible inference of liability.
Julius T. Ko, Lawyer, BSc (Hons). JD.
[1] The Province of New Brunswick v. Grant Thornton LLP, 2019 NBQB 036 [Motion], at para 2; Grant Thornton LLP v. New Brunswick, 2021 SCC 31 [SCC], at paras 5-6.
[2] Motion, at para 5.
[3] Motion, at para 6; SCC, at paras 12-13.
[4] SCC, at para 15.
[5] SCC, at para 16.
[6] These statutory provisions from News Brunswick are different, but the test is the same substance as in Ontario’s.
[7] Motion, at para 108; SCC, at paras 18-20.
[8] SCC, at para 21.
[9] The Province of New Brunswick v Grant Thornton, 2020 NBCA 18 [CoA], at para 108.
[10] CoA, at paras 6-7.
[11] CoA, at para 8.
[12] The Court of Appeal did not make a finding in regards to which date the limitation period started to run.
[13] SCC, at paras 22-25.
[14] SCC, at para 34.
[15] SCC, at paras 45-46.
[16] SCC, at para 55.
[17] SCC, at para 59.
[18] SCC, at para 63.
