Grant Thornton LLP v. New Brunswick, 2020 NBCA 182021 SCC 31 (39182)

“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. The auditor opined in a report that the company’s financial statements presented fairly, in all material respects, the company’s financial position in accordance with generally accepted accounting principles. Relying upon that report, the province executed and delivered the loan guarantees, which, in turn, enabled the company to borrow funds from the bank. 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. The province then retained another accounting and auditing firm to review the company’s financial position. The other firm’s report was issued in draft on February 4, 2011, and opined that the company’s financial statements had not, in fact, been prepared in conformity with generally accepted accounting principles. Specifically, the other firm estimated that the company’s assets and net earnings were overstated by a material amount. Those misstatements had not been identified by the auditor in its report. On June 23, 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 s. 5(1)(a) of the provincial Limitation of Actions Act (“LAA”), which provides that no claim shall be brought after two years from the day on which the claim was discovered. The motions judge held that, properly interpreted, s. 5(2) of the LAA, which sets out when a claim is discovered, required that 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 auditor. He granted summary judgment and struck the province’s action, finding that the province had the requisite knowledge by March 18, 2010, more than two years before it commenced its claim. The Court of Appeal allowed the province’s appeal and set aside the motion judge’s judgment. It rejected the standard used by the motions judge and held 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 court found can only exist if the plaintiff has 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.”

The SCC (7:0) granted the appeal and restored the Motions Judge.

Justice Moldaver wrote as follows (at paras. 3-4, 23-24, 37, 40, 44, 47, 62):

“This case turns on the standard to be applied in determining whether a plaintiff has the requisite degree of knowledge to discover a claim under s. 5(2), thereby triggering the two-year limitation period in s. 5(1)(a). Respectfully, the Court of Appeal adopted too high a standard. In my view, a claim is discovered when the 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. It follows from this standard that a plaintiff does not need knowledge of all the constituent elements of a claim to discover that claim.

In the present case, I am satisfied that the Province discovered its claim against Grant Thornton on February 4, 2011. By then, the Province knew or ought to have known that a loss occurred and that the loss was caused in whole or in part by conduct which Grant Thornton had been retained to detect. This was sufficient to draw a plausible inference that Grant Thornton had been negligent. Although the Province had this knowledge by February 4, 2011, it did not bring its claim until June 23, 2014, more than two years later. The claim is therefore statute-barred by s. 5(1)(a) of the LAA. I would accordingly allow the appeal brought by Grant Thornton LLP and Kent M. Ostridge and the appeal brought by Grant Thornton International Ltd., set aside the Court of Appeal’s judgment, and restore the motions judge’s judgment.


Regarding the legal test, the court rejected the motions judge’s test — “prima facie grounds to infer . . . a potential cause of action” — on the basis that it was not stringent enough (paras. 6-7 (emphasis deleted), quoting trial reasons, at para. 108). Instead, the court set out what it believed to be the correct and “more exacting” test, namely that “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” (para. 7). In claims for negligence, the court explained, “that right only exists if the defendant was under a relevant duty of care and its loss-causing act or omission fell below the applicable standard of care” (para. 7).

Applying that test, the court found that the two-year limitation period under s. 5(1)(a) had not been triggered because the Province had not yet discovered its claim. Specifically, the Province could not know whether Grant Thornton’s audit of Atcon’s financial statements for F2009 fell below the applicable standard of care by failing to comply with Generally Accepted Auditing Standards. According to the court, this 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’s inspection — something it had consistently refused to do. Without those files, “the Province may suspect and allege, but it does not know, actually or constructively, the F2009 audit was non-compliant with Generally Accepted Auditing Standards” (para. 8). The motions judge’s failure to consider the absence of evidence on that issue constituted a “palpable and overriding error in the assessment of the evidential record” (ibid.). This accounted for his erroneous finding that the Province discovered its claim on either March 18, 2010, or February 4, 2011.

I recognize that the distinction between “claim” and “cause of action” could be meaningful in some circumstances; but in my view, it is not so here. In fact, the LAA’s own wording shows that the use of “claim” does not rule out a shared meaning with “cause of action”. Section 1(1) defines a claim as a “claim to remedy the injury, loss or damage that occurred as a result of an act or omission”. In short, s. 1(1) indicates that the legislature’s use of the term “claim” focuses on a set of facts giving rise to a remedy, which is the same meaning that Grant Thornton attributes to the term “cause of action”.

In sum, I am satisfied that s. 5(1)(a) and (2) codifies the common law rule of discoverability. As established by that rule 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. Having so found, I turn now to ascertaining the particular degree of knowledge required to discover a claim under s. 5.

In assessing the plaintiff’s state of knowledge, both direct and circumstantial evidence can be used. Moreover, a plaintiff will have constructive knowledge when the evidence shows that the plaintiff ought to have discovered the material facts by exercising reasonable diligence. Suspicion may trigger that exercise (Crombie Property Holdings Ltd. v. McColl-Frontenac Inc., 2017 ONCA 16, 406 D.L.R. (4th) 252, at para. 42).

In my respectful view, 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. A plausible inference of liability is enough; it strikes the equitable balance of interests that the common law rule of discoverability seeks to achieve.

In sum, having regard to the material facts that I have identified, which the Province knew or ought to have known, the Province had ample knowledge as of February 4, 2011, to draw a plausible inference that Grant Thornton had acted negligently. This does not mean that Grant Thornton was in fact negligent. That question would have been for trial, had the Province brought its claim within the limitation period.”