Supreme Court of Canada clarifies the limits of the discoverability rule

7 GERMAN minute read
12 August 2021

In Grant Thornton LLP v New Brunswick[1], the Supreme Court of Canada (SCC) overturned the decision of the New Brunswick Court of Appeal[2] (Court of Appeal) and clarified the test for determining when a claim is discoverable. For limitation periods subject to the common law discoverability rule, the clock starts to run when the plaintiff has actual or constructive knowledge of material facts upon which it may make a plausible inference of the defendant's liability. The SCC found that this standard properly balances the policy objectives of the discoverability rule: it avoids unfairly depriving a plaintiff from bringing a claim before it can be reasonably expected to know the claim exists, while allowing for reasonable certainty and finality for defendants.



Background

In 2009, the province of New Brunswick (the Province) guaranteed loans totalling over $50 million for the Atcon Group of Companies (Atcon), conditional on an external review of Atcon's assets. Grant Thornton LLP (Grant Thornton) conducted the review and delivered a satisfactory opinion, including a statement that Atcon's 2009 financial statements had been prepared in conformity with Generally Accepted Accounting Principles (GAAP).

In 2010, the Province was required to pay out the loan guarantees after Atcon defaulted on the loans. The Province then retained RSM Richter Inc. (Richter) to review Atcon's financial position in 2009. The Richter delivered a draft report in February 2011, which was identical in all material aspects to the final report delivered in November 2012. In each version, Richter reported that Atcon's 2009 financial statements had not been prepared in accordance with GAAP, in contradiction to the opinion delivered by Grant Thornton.

In June 2014, the Province filed a statement of claim against Grant Thornton seeking damages for negligence. Grant Thornton successfully moved for summary judgement to dismiss the claim as barred by New Brunswick's Limitations of Actions Act[3] (LAA). The LAA provided that no claim shall be brought more than "two years from the day on which the claim is discovered", and defines the time of discovery as the day when the claimant first had constructive or actual knowledge that it suffered injury, loss or damage that was caused or contributed to by an act or omission of the defendant.[4] Many jurisdictions across Canada have limitations statutes with similar language.[5]

The Province appealed the motion judge's decision, and the dismissal order was set aside by the Court of Appeal for New Brunswick (Court of Appeal). The Court of Appeal found that the limitation period had not begun to run, as the Province did not have knowledge of the facts conferring a legally enforceable right to a remedy, including every element of the cause of action. For a negligence claim, this would require knowledge that Grant Thornton's conduct fell below the standard of care. The Province could not have knowledge of these facts, unless and until Grant Thornton produced its audit-related files for the Province's inspection — which Grant Thornton had refused to do.

Supreme Court of Canada decision

The SCC unanimously reinstated the dismissal order, finding that the Province discovered the claim when it received the draft report from Richter in 2011, and was therefore statute-barred from bringing the claim in 2014.

The SCC held that determining the level of knowledge required to trigger a statutory limitation period requires two distinct inquiries:

  1. Is the requisite level of knowledge under the statute equivalent to that of the common law rule of discoverability?
  2. What is the particular degree of knowledge required to discover a claim under the statute in question?

After determining that the LAA merely codified, not modified, the common law rule of discoverability, the SCC held that this required a plaintiff to know, or ought to know, sufficient material facts to draw a plausible inference of liability on the part of the defendant. The limitation period therefore begins when a plaintiff can plausibly infer that a loss suffered was caused or contributed to by an act or omission of the defendant. This standard requires a degree of knowledge that is more than suspicion or speculation, but less than certainty.

The SCC found that the Court of Appeal applied a degree of knowledge too close to certainty, which would, in some cases, indefinitely postpone the limitation period. The SCC decision noted that knowledge of some elements of a claim, such as causation or a breach of the standard of care in negligence actions, may only become available through the discovery process or the exchange of expert reports in the course of litigation.

Key takeaways

  • Plaintiffs must diligently pursue claims. Opting to wait rather than pursue judicial enforcement of legal rights may result in the loss of those rights.
  • The decision only applies to limitation periods subject to the common law discoverability rule. A statute may modify or oust the common law rule.
  • If you believe you may have a claim, contact one of our litigation professionals in your region to determine the applicable statutory limitation period, whether the limitation period has commenced, and when it may expire.
 

[1] 2021 SCC 31.

[3] S.N.B. 2009, c. L‑8.5 ("LAA").

[4] LAA, s. 5.

[5] See for example: British Columbia's Limitation Act, S.B.C. 2012, c. 13, ss. 6 and 7; Alberta's Limitations Act, R.S.A. 2000, c. L-12, s. 3(1); and Ontario's Limitations Act, 2000, S.O. 2002 c. 24, Sched. B, ss 4–5(1).


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