Supreme Court of Canada clarifies statute of limitation; explains the standard of plausible inference

Canada SC

Supreme Court of Canada: The 7-Judges Bench comprising of Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer, JJ., clarified the law related to limitation. The Bench, while addressing the standard to be applied in determining whether and when a plaintiff has the requisite degree of knowledge to discover a claim, thereby triggering the limitation period, stated,

“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. This approach remains faithful to the common law rule of discoverability, which recognizes that it is unfair to deprive a plaintiff from bringing a claim before it can reasonably be expected to know the claim exists.” 

Background

In 2008, a New Brunswick-based company sought loans from a bank, but it needed loan guarantees from the province. The province agreed to $50 million in loan guarantees, conditional upon the company subjecting itself to an external review of its assets by its auditor. Consequently, the province agreed to take the guarantee of loan for the company. When the company ran out of working capital four months after receiving the loan guarantees from the province, the bank called on the province to pay out the loan guarantees, which it did on March 18, 2010.

It was only when the province retained another accounting and auditing firm to review the company’s financial position, it came to know that the company’s financial statements had not been prepared in conformity with generally accepted accounting principles and that the other firm had overstated the company’s assets and net earnings by a material amount.

Findings of Lower Courts

 On 23-06-2014, the province commenced a claim against the auditor, alleging negligence. The auditor moved for summary judgment to have the claim dismissed as statute-barred by virtue of the limitation period under Section 5(1)(a) of the provincial Limitation of Actions Act, which provides that no claim shall be brought after two years from the day on which the claim was discovered. The Motion Court struck the province’s action, finding that the province had the requisite knowledge by 18-03-2010, more than two years before it commenced its claim.

On appeal, the Court of Appeal allowed the province’s appeal and set aside the motion judge’s judgment stating that the governing standard was whether a plaintiff knows or ought reasonably to have known facts that confer a legally enforceable right to a remedy, which the Appellate Court found can only exist if the plaintiff had knowledge of each constituent element of the claim. Applying that standard, it found that the limitation period had not been triggered because the province had not yet discovered its claim.

Issues before the Court

  1. The first question before the Bench was 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 in Section5(1)(a)?
  2. The second question related to the particular degree of knowledge required to discover a claim.

Observation and Analysis

  • The Requisite Degree of Knowledge

 Answering the first question, the Supreme Court stated that the standard to be applied in determining whether a plaintiff had the requisite degree of knowledge to discover a claim under Section 5(2) of the LAA, thereby triggering the two-year limitation period in Section 5(1)(a), is whether the plaintiff had knowledge, actual or constructive, of the material facts upon which a plausible inference of liability on the defendant’s part could be drawn.

The Court opined that 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. All that is required is actual or constructive knowledge of the material facts from which a plausible inference can be made that the defendant acted negligently. Noticing that the province had actual or constructive knowledge of the material facts — namely, that a loss occurred and that the loss was caused or contributed to by an act or omission of the auditor — when it received the draft report from the other firm on 04-02-2011, and that the said act or omission caused or contributed to the province’s loss, the Bench stated that nothing more was needed to draw a plausible inference of negligence. Ensuring that the standard does not rise so high as to require certainty of liability or perfect knowledge, the Bench held,

“A plausible inference of liability is enough; it strikes the equitable balance of interests that the common law rule of discoverability seeks to achieve.”

  • The Common Law Rule of Discoverability

 Rejecting the contention of the province that the Common Law rule of Discoverability is not applicable on Canadian Law, the Bench stated that as evidenced by the words of the provision, there is no clear legislative language ousting or limiting the common law rule; in fact, quite the opposite. 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 Bench expressed,

“Section 5(1) (a) and (2) of the LAA does not contain any language ousting or limiting the common law rule; rather, it codifies it.”

 As per Sections 5(2)(a) to (c) of LAA, 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.

Thus, as established by the rule of discoverability and the LAA, the limitation period is triggered when the plaintiff discovers or ought to have discovered, through the exercise of reasonable diligence, the material facts on which the claim is based. The Bench explained, 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 and this approach remains faithful to the common law rule of discoverability and accords with Section 5 of the LAA.

Findings of the Court

Opining that endorsing the Court of Appeal’s approach that to discover a claim, a plaintiff needs knowledge of facts that confer a legally enforceable right to a judicial remedy, including knowledge of the constituent elements of a claim, would move the needle too close to certainty, the Bench opined that in a claim alleging negligence, 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.

“The standard cannot be so high as to make it possible for a plaintiff to acquire the requisite knowledge only through discovery or experts.”

Hence, considering that the Province discovered its claim on 04-02-2011, when it received the draft Richter Report (second auditor) and that at that point, the Province had actual or constructive knowledge of the material facts — namely, that a loss occurred and that the loss was caused or contributed to by an act or omission of Grant Thornton, the Bench opined that nothing more was needed to draw a plausible inference of negligence.

Verdict          

In conclusion, considering that the Province discovered its claim on 04-02-2011, more than two years before commencing it on 23-06-2014 and had sufficient knowledge to draw a plausible inference that Grant Thornton had been negligent, the Bench held that its claim was statute-barred by Section 5(1)(a) of the LAA.

Accordingly, the judgment of the Court of Appeal was set aside and the decision of the motions judge was restored.[Grant Thornton LLP v. Province of New Brunswick, 2021 SCC 31, decided on 29-07-2021]


Kamini Sharma, Editorial Assistant has reported this brief.

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