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The Supreme Court clarifies the parameters of “discoverability”

By John Paul Ventrella, Glaholt Bowles LLP

 

There are few, if any, dates on the legal landscape as important as the second anniversary from the date upon which a claim was “discovered.” This is because, subject to limited exceptions and particular circumstances, two years marks the strict deadline after which parties are no longer able to pursue their legal claims, irrespective of merit or value.

Indeed, as the Province of New Brunswick recently learned in the case of Grant Thornton LLP v. New Brunswick, 2021 SCC 31,1 failing to identify and commence a claim properly within the two-year window can be a costly mistake – a mistake that denied them the opportunity to seek $50 million in damages.

 

The facts

In the fall of 2008, the Atcon Group of Companies (Atcon) was having difficulties meeting its financial obligations and sought loans from the Bank of Nova Scotia (the Bank) who, in turn, required loan guarantees from the Province of New Brunswick (the Province). The Province agreed to $50 million in loan guarantees conditional upon an audit.

On June 19, 2009, Grant Thornton2 delivered an unqualified report which was relied upon by the Province in delivering the loan guarantees. Despite the funds being advanced, Atcon’s financial position worsened, the Bank applied for a receivership order and in March 2010, the Province paid out the $50 million.

In June 2010, the Province retained RSM Richter, Inc. (Richter), to review Atcon’s financial statements an additional time. Richter’s draft report, issued on Feb. 4, 2011, and finalized on Nov. 30, 2012, opined that Atcon’s financial statements did not comply with generally accepted accounting principles and included material misstatements not identified by Grant Thornton.

On June 23, 2014, the Province commenced a claim in negligence against Grant Thornton. Grant Thornton denied the allegations and brought a motion for summary judgment on the basis that the claim was statute barred.

 

The Limitation of Actions Act

Central to this matter was s.5 of New Brunswick’s Limitation of Actions Act (LAA),3 which is similar to provisions found in limitations statutes throughout the country (e.g. Ontario’s Limitations Act at s.4 and s.5, Alberta’s Limitations Act, s.3 and Saskatchewan’s The Limitations Act, s.6).

The LAA requires that claims be brought within two years from the day on which the claim was “discovered,” which is expressed in the LAA as the day on which the claimant first knew or ought reasonably to have known:

  1. That the injury, loss or damage had occurred;
  2. That the injury, loss or damage was caused by or contributed to by an act or omission, and;
  3. That the act or omission was that of the defendant.

 

Though the requirements under s.5 appear clear, intervention of the Supreme Court of Canada was required to provide clarity as to the LAA’s interpretation and application.

 

The Court of Queen’s Bench and the Court of Appeal

Following Grant Thornton’s summary judgment motion, the Court of Queen’s Bench found that the Province had prima facie grounds to infer the existence of a potential claim against Grant Thornton as early as March 18, 2010, when it paid out $50 million in loan guarantees. Alternatively, the Court found that the Province had the requisite knowledge after receiving the Richter draft report on Feb. 4, 2011. In either scenario, the Province’s claim was statute barred and therefore was dismissed.

New Brunswick’s Court of Appeal set aside the dismissal order. According to the Court, “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.” The Court found that the essential components of the Province’s negligence claim against Grant Thornton could not be known unless and until Grant Thornton produced its audit-related files for the Province’s inspection, which had not yet been completed. Accordingly, the two-year period had not expired.

 

The Supreme Court of Canada

Grant Thornton appealed the decision of the Court of Appeal to the Supreme Court who overturned the decision because it “adopted too high a standard.” The Supreme Court found that the Province knew or ought to have known that a loss occurred and that the loss was caused in whole or in part by the conduct of Grant Thornton as of Feb. 4, 2011, being the date of issuance of the Richter draft report. Accordingly, the Province’s $50 million action was statute barred.

In coming to its conclusion, the Supreme Court focused on the following issue: What is the standard to be applied in determining whether a plaintiff has the requisite degree of knowledge to discover a claim under s.5(2), so as to trigger the limitation period under s.5(1)(a)?

Two distinct lines of inquiry were pursued by the Supreme Court in addressing the issue. First, the Supreme Court assessed the common law rule of discoverability, 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 diligence.” The Supreme Court found that the common law rule was an interpretive tool used for construing limitations statutes that could be “ousted” by clear legislative language. However, in this case, the Supreme Court found that the New Brunswick legislature did not oust the common law, but instead chose to codify it through s.5(1)(a) and s.5(2) of the LAA.

Second, was the degree of knowledge required to discover a claim under s.5. The Supreme Court found 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. The material facts are expressly set out in s.5(2)(a) to s.5(2)(c) of the LAA.

  1. In reaching its decision, the Supreme Court provided clarity with respect to identifying the commencement of the two-year limitation period, as follows:
  2. In assessing the plaintiff’s state of knowledge, both direct and circumstantial evidence can be used;
  3. A plaintiff will have constructive knowledge when the evidence shows that the plaintiff ought to have discovered the material facts by exercising reasonable diligence;
  4. Suspicion alone may be enough to trigger the exercise of reasonable diligence;
  5. The degree of knowledge needed to discover a claim is more than mere suspicion or speculation;
  6. A plaintiff does not need to know the exact extent or type of harm it has suffered, or the precise cause of its injury, in order for a limitation period to run; and
  7. In a negligence claim, a plaintiff does not need knowledge that the defendant owed it a duty of care or that the defendant’s act or omission breached the applicable standard of care. What is required is actual or constructive knowledge of the material facts from which a plausible inference can be made that the defendant acted negligently.

 

Conclusion

While focused on the interpretation of New Brunswick’s LAA, the decision has general applicability across the country and especially in those provinces that have codified the common law principles of discoverability, including Ontario, Alberta, and Saskatchewan.4

Statutory limitation periods are strict and, if not complied with, provide the Court with no discretion to allow the action to continue, regardless of the merit or value of the claim.

This is especially important to those involved in the deep foundation construction industry as much of the work commences or is performed in the early stages of a project. Notwithstanding that a project may be ongoing or incomplete, the Supreme Court has made clear that suspicion of a claim may be enough to trigger the requirement of reasonable diligence and that the “clock will begin ticking” even if the extent or type of harm suffered, or the precise cause of injury, is not known.

Parties must remain diligent in identifying potential claims, act with reasonable diligence in the face of those (potential) claims and seek the assistance of counsel, if necessary, to ensure that their interests are protected. Failure to take such steps could be a costly mistake, as the Province learned. 

John Paul Ventrella is an associate at Glaholt Bowles LLP.

 

References

  1. Grant Thornton LLP v. New Brunswick, 2021 SCC 31.
  2. The action was commenced against Grant Thornton LLP, Kent M. Ostridge, and Grant Thornton International Ltd. (collectively “Grant Thornton”).
  3. Limitation of Actions Act, S.N.B. 2009, c. L8.5.
  4. The differences between the limitation legislation in each province as compared to New Brunswick’s LAA must be considered in any analysis regarding the discoverability of claims.

 

 

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Piling Canada is the premier national voice for the Canadian deep foundation construction industry. Each issue is dedicated to providing readers with current and informative editorial, including project updates, company profiles, technological advancements, safety news, environmental information, HR advice, pertinent legal issues and more.