More You Know: Supreme Court of Canada Clarifies Common Law’s Discoverability Principle – Litigation, Mediation and Arbitration

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Although procedural in nature, limitation periods are among the most important rules for litigants and litigants — taking too long to present your claim, and you may be prevented from seeking redress. Fortunately, the discoverability principle generally rules out the limitation period before the claimant knows they have a claim. But decisive when whether a claimant discovered or should have discovered a claim is a contextual issue based on the claimant’s knowledge of material facts. In Grant Thornton LLP v. New Brunswick, 2021 SCC 31, the Supreme Court of Canada clarified the role of the common law rule of discoverability in the application of provincial limitation laws, and the standard of knowledge required to “discover” a claim under of the common law standard.

What would you like to know

  • Limitation statutes can codify, limit or oust the common law rule of discoverability.
  • Whether a statute of limitations has changed or ousted the common law rule is a matter of statutory interpretation. Clear legislative language is needed to oust the common law rule.
  • The degree of knowledge required to uncover a claim is “a plausible inference of responsibility”, more than mere suspicion or speculation, but less than certainty.

Background

In 2008, Atcon Group of Companies asked the Province of New Brunswick to guarantee certain loans it needed to meet its financial obligations. The province has agreed to provide the guarantees, on condition that Atcon receives an external review of its assets by an audit firm. The province has agreed that Atcon’s auditor Grant Thornton could conduct the external review.

In its audit report, Grant Thornton considered Atcon’s statements to be a fair representation, in all material respects, of Atcon’s financial condition. Based on Grant Thornton’s audit, the province turned over the loan guarantees to Acton.

Shortly thereafter, Atcon’s financial situation deteriorated and the lender asked the province to pay the loan guarantees. The province paid the guarantees and, at the same time, retained the services of an audit firm to perform a review of the same financial statements reviewed by Grant Thornton. The province’s audit firm provided a different report than Grant Thornton’s: Acton’s financial statements were not in accordance with GAAP and contained various material errors, including an overestimation of its assets and net income. This report was provided to the province in draft form on February 4, 2011. The report was finalized on November 30, 2012, with only minor grammatical changes.

On December 12, 2012, the Deputy Minister of Economic Development filed a formal complaint against Grant Thornton, attaching the province’s audit report. A year and a half later, on June 23, 2014, the province sued Grant Thornton for negligence. Grant Thornton requested that the province’s claim be summarily dismissed on the basis that it was prescribed by the two-year limitation period.

Two approaches to discoverability

Grant Thornton’s motion was about the standard to be applied in determining whether a claimant possesses the requisite level of knowledge to have “discovered” a claim, which triggers the two-year limitation period. As in most provinces, New Brunswick statute of limitations provides that a claim is discovered when a claimant “knew or should reasonably have known” of certain material elements of the claim.

The Motions Judge rendered summary judgment, finding that the province “knew or should have known” that it had At first glance grounds for inferring that she had a potential cause of action against the defendants as of the date she paid $ 50 million to repay the Atcon loan. In the alternative, he concluded that the province had the requisite knowledge when it received the draft report from its audit firm in February 2011.

The Court of Appeal reversed the decision, finding that the motions judge had applied the wrong test in considering “prima facie grounds for inferring … a potential cause of action”. Instead, the Court of Appeal determined that until Grant Thornton produced its audit-related records for the province’s inspection (which it refused to do), the province could not not know that the verification was not compliant.

The Supreme Court’s decision

The Supreme Court unanimously overturned the Court of Appeal’s decision and restored the motions judge’s ruling that the province’s claim was time-barred. However, he rejected the approaches to discoverability applied by the two lower courts. The Court (1) ruled on the role of the common law discovery rule in the application of the limitation period and (2) affirmed that a claim is discovered when a plaintiff has knowledge, real or suspected, material facts upon which a “plausible inference claim” of liability on the part of the defendant can be drawn.

The discoverability of the common law

The Supreme Court began its analysis with a review of the common law discovery rule: “a cause of action arises for the purposes of a limitation period when the material facts on which it is based have been or would have been discovered. had to be discovered by the applicant through the exercise of due diligence.1 The rule seeks both to avoid the unfairness of excluding a claim before the claimant becomes aware of it and to realize the underlying rationale for limitation periods (the guarantee of rest, the risk of stale evidence, and the hope that the complaints will be pursued quickly).

The Court explained that the common law rule is an interpretive tool for interpreting limitation statutes. However, provincial statutes of limitation can codify, limit or oust the common law rule. Although the Court noted that the extent to which the common law rule applies is a matter of statutory interpretation, “clear legislative language” is necessary to set aside the common law rule.

After reviewing New Brunswick’s discoverability provision, the Court ruled that it codified the common law rule of discoverability.

The degree of knowledge required

The court disagreed with either court below on the level of knowledge required to uncover a claim and trigger the limitation period. Instead, he held that “a claim is discovered when a claimant has knowledge, real or suspected, of material facts upon which a plausible inference of liability on the part of the defendant can be drawn.” Where the provision sets out material facts of which the applicant must have actual or presumed knowledge, the terms of that provision shall prevail.

What is a “plausible inference” of liability? The Court held that this is a case which gives rise to a “permissible inference of fact”. The standard requires more than mere suspicion or speculation, but does not go so far as to require certainty of responsibility. A claimant does not need to know the exact type of harm they suffered or the extent or cause of the harm in order for the limitation period to begin to run.

The Court held that it is permissible to assess both direct evidence and circumstantial evidence to determine the state of knowledge of a claimant. If the evidence shows that the claimant should have discovered the material facts by exercising due diligence, implied knowledge will be established.

In that case, the Court found that the Province had actual or suspected knowledge of its claim against Grant Thornton as of the date it received its auditor’s interim report indicating that Atcon had made various material errors in its financial statements. . The Court of Appeal had set too high a standard by requiring the province to be aware of the constituent elements of negligence, as this might require a claimant to be aware of facts – such as a breach of a standard of care – which do not could only be known through the process of discovery. The province did not need access to the files relating to Grant Thornton’s audit to infer a breach of the standard of care.

The unanswered question

While the Supreme Court said that a statute of limitations would begin to run when the plaintiff should have discovered the material facts by exercising “due diligence”, Grant Thornton did not give the Court an opportunity to rule on what constitutes due diligence. This issue is an often contentious and fact-specific issue that is likely to remain an important feature of limitation disputes.

Footnote

1 Central Trust Co. v Rafuse, [1986] 2 SCR 147, at p 224, citing Kamloops (City of) vs. Nielsen, [1984] 2 RCS 2; see also Ryan vs. Moore, 2005 SCC 38, [2005] 2 SCR 53, at paragraphs 2 and 22

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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