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Triggering Limitation Periods and the Plausible Inference of Liability Test: Grant Thornton LLP v New Brunswick

10 minute read

The Supreme Court of Canada has now offered important, unifying guidance on the standard to be applied in determining whether a plaintiff has the requisite degree of knowledge to “discover” a claim and trigger a limitation period for commencing a legal proceeding.

In its newest decision in Grant Thornton LLP v New Brunswick, 2021 SCC 31, a unanimous Court held that a limitation period will start running 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.”[1] Although decided in the context of applying New Brunswick’s Limitation of Actions Act,[2] the implications of Grant Thornton will reverberate broadly across common law provinces and territories, most of which – including Ontario – have limitations statutes containing similar or identical language to the New Brunswick act.

Background and Decisions Below

In 2009, New Brunswick agreed to provide $50 million in loan guarantees to a New Brunswick-based company, relying on an unqualified audit report prepared by Grant Thornton concerning the company’s financial position. The company ran out of working capital four months later and the bank called on the province to pay out the loan guarantees, which the province did on March 18, 2010.

New Brunswick retained another auditing firm to review the company’s financial position. That firm’s draft report issued on February 4, 2011 opined that the company’s financial statements had not been prepared in conformity with generally accepted accounting principles and identified myriad material misstatements. The Grant Thornton unqualified audit report had not identified any of those material misstatements. The province did not commence its action until June 23, 2014.

On a summary judgment motion brought by Grant Thornton, the motion judge dismissed the province’s action as being out of time as it was commenced more than two years after the province discovered it had a claim. The motion judge reached this conclusion finding that the province had “prima facie grounds to infer… a potential cause of action” more than two years before it commenced the action.

The Court of Appeal of New Brunswick allowed the province’s appeal, holding that the motion judge’s test was “not stringent enough”. The Court of Appeal set out a “more exacting” test: “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”.[3] The Court of Appeal explained that in negligence claims “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”.[4]

The Supreme Court of Canada allowed Grant Thornton’s appeal, reversing the Court of Appeal and restoring the decision of the motion judge granting summary judgment.

Clarification on the Commencement of Limitation Periods

The main question the Supreme Court of Canada answered in Grant Thornton was:

What is the standard to be applied in determining whether a plaintiff has the requisite degree of knowledge to discover a claim and commence a limitation period?

In answering this question, the Court first considered the applicability of the common law rule of discoverability before determining the particular degree of knowledge required to discover a claim.

The Court reaffirmed that the common law rule of discoverability does not automatically apply to every statutory limitation period, but is simply an interpretive tool for construing limitation statutes. It remains a matter of statutory interpretation to determine whether limitation period legislation has codified, limited, or ousted the common law rule.[5] In Grant Thornton, the Court found that the New Brunswick legislature chose to codify the common law rule in section 5 of the Limitation of Actions Act which provides:[6]

General limitation periods

5(1) Unless otherwise provided in this Act, no claim shall be brought after the earlier of

(a) two years from the day on which the claim is discovered, and

(b) fifteen years from the day on which the act or omission on which the claim is based occurred.

5(2) A claim is discovered on the day on which the claimant first knew or ought reasonably to have known

(a) that the injury, loss or damage had occurred,

(b) that the injury, loss or damage was caused by or contributed to by an act or omission, and

(c) that the act or omission was that of the defendant.

The Court observed that this language was modelled on similar limitation provisions found in Ontario, Saskatchewan, and Alberta, “all of which have been found to codify the common law rule of discoverability”.[7]

Turning to the particular degree of knowledge required to discover a claim, the Supreme Court of Canada rejected the approach set out by both lower courts. Instead, Moldaver J. held:

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.[8]

Justice Moldaver then explained the application of this approach:

  • the “material facts” that must be actually or constructively known are those set out in the applicable limitation statute;[9]
  • both direct and circumstantial evidence can be used to assess the plaintiff’s knowledge;[10]
  • a plaintiff will have constructive knowledge when the evidence shows that the plaintiff ought to have discovered the material facts by exercising reasonable diligence;[11]
  • suspicion alone may trigger to requirement to exercise reasonable diligence;[12] and
  • the plausible inference of liability test is the same assessment as the approach previously established by the Court of Appeal for Ontario which asks whether a plaintiff “had all of the material facts necessary to determine that [it] had prima facie grounds for inferring [liability on the part of the defendant]”.[13]

The Court further clarified that the plausible inference of liability test requires “more than mere suspicion or speculation” but “does not rise so high as to require certainty of liability” nor even knowledge of the exact extent or type of harm or precise cause of the injury.[14]

For negligence claims, Moldaver J. held that a plaintiff need not know “the defendant owed it a duty of care or that the defendant’s act or omission breached the applicable standard of care.”[15] To require the plaintiff to know the defendant owed a duty of care or breached the standard of care in order to trigger the limitation period, Moldaver J. noted, could indefinitely postpone the limitation period or set a standard so high that a plaintiff could only discover a claim “through discovery or experts”.[16]

Applying the “governing standard” just established, the Supreme Court of Canada concluded that that by February 4, 2011, the date of the draft audit report commissioned by the province, the province had sufficient knowledge to draw a plausible inference that Grant Thornton had been negligent. By that date, the province knew it had suffered a loss, and knew or ought to have known that loss was caused by an act or omission of Grant Thornton, on whose report the province relied to advance the loan guarantees. The Court rejected the province’s argument that the limitation period still had not commenced because without Grant Thornton’s audit files, the province could not know whether Grant Thornton breached the standard of care. Justice Moldaver emphasized that the ultimate question of whether Grant Thornton had, in fact, been negligent would have been determined at trial if that action was brought on time, but all that was needed to commence the limitation period was sufficient knowledge on which to base a plausible inference of liability.

Closing

While set in the context of section 5 of the New Bruswick Limitation of Actions Act, the Supreme Court of Canada’s decision in Grant Thornton is brushed with strokes of broad applicability. It certainly seems explicit that the “plausible inference of liability” test, which Moldaver J. describes as the “governing standard”[17] will apply in all those jurisdictions where the limitations statutes have codified the common law rule of discoverability (including Ontario, Alberta, and Saskatchewan). How the plausible inference of liability approach will interplay with the “appropriate means to seek a remedy” element in section 5(1)(a)(iv) of Ontario’s Limitation Act[18] remains to be seen and may need to be reconciled by the Court of Appeal for Ontario in coming decisions.

[1] Grant Thornton LLP v New Brunswick, 2021 SCC 31, at para. 3.

[2] Limitation of Actions Act, S.N.B. 2009, c. L-8.5.

[3] 2020 NBCA 18, at para. 7.

[4] 2020 NBCA 18, at para. 7.

[5] Grant Thornton, at para. 30, citing Pioneer Corp. v. Godfrey, 2019 SCC 42, at paras. 32 & 42.

[6] Grant Thornton, at paras. 32-40.

[7] Grant Thornton, at para. 35.

[8] Grant Thornton, at para. 42.

[9] Grant Thornton, at para. 43.

[10] Grant Thornton, at para. 44.

[11] Grant Thornton, at para. 44.

[12] Grant Thornton, at para. 44, citing Crombie Property Holdings Ltd. v. McColl-Frontenac Inc., 2017 ONCA 16, 406 D.L.R. (4th) 252, at para. 42.

[13] Grant Thornton, at para. 45, citing Brown v. Wahl, 2015 ONCA 778, 128 O.R. (3d) 583, at para. 7-8; Lawless v. Anderson, 2011 ONCA 102, 276 O.A.C. 75, at para. 30.

[14] Grant Thornton, at para. 46.

[15] Grant Thornton, at para. 48.

[16] Grant Thornton, at para. 48.

[17] Grant Thornton, at para. 45.

[18] See also, e.g. Limitation Act, S.B.C. 2012, c. 13, s. 8(d);  The Limitations Act, S.S. 2004, c. L-16.1, s. 6(1)(d); c.f. “sufficiently serious to warrant a proceeding”, Limitations Act, R.S.A. 2000, c. L-12, s. 3(1)(a)(iii); Limitation of Actions Act, SNS 2014, c 35, s. 8(2)(d).

Jacob R. W. Damstra

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