Contractual relationship impacted by COVID-19? Planning on initiating a liability claim? Time is ticking.

September 2, 2021

In Nova Scotia, generally a person has two years from the date a claim is discovered to begin an action. Those who wait to achieve certainty regarding their claim may find the two year period has already elapsed.

In a recent Supreme Court of Canada case the Province of New Brunswick brought a claim against the accounting firm Grant Thornton LPP regarding financial information provided to support a $50 million loan guarantee to The Atcon Group of Companies. Atcon failed soon after the guarantee was provided. The Province, under the terms of the guarantee, was forced to re-pay the $50 million to the lender and, ultimately – but too late according to the Supreme Court of Canada – the Province initiated an action against Grant Thornton.

New Brunswick, like Nova Scotia, generally requires claimants to file claims within two years from the date they discover the claim. The Supreme Court of Canada decision hinged on when the Government knew, or should have known, of its potential claim, effectively starting the two year count down.

Legislation in both provinces provides direction as to when a claim is to be considered “discovered”.

In Nova Scotia, 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;

(c)   That the act or omission was that of the defendant; and

(d)   That the injury, loss or damage is sufficiently serious to warrant a proceeding.

The Supreme Court of Canada provided additional guidance, stating that in assessing the plaintiff’s state of knowledge, both direct and circumstantial evidence can be used. A plaintiff will have constructive knowledge when the evidence shows that the plaintiff ought to have discovered the material facts by exercising reasonable diligence. The standard requires the plaintiff to be able to draw a plausible inference of liability on the part of the defendant from the material facts that are actually or constructively known.

Put another way, the clock begins to run when the evidence shows that the claimant discovered the material facts, or would have discovered the material facts if they exercised reasonable diligence.

In application of these principles, the Court reviewed the evidence and determined that New Brunswick discovered the claim on the date it received a draft audit report which found a relevant financial statement prepared by Grant Thornton – which New Brunswick relied on – had not been prepared in conformity with Generally Accepted Accounting Principles. New Brunswick received the draft report more than two years prior to the date they commenced the action – their claim was therefore statute-barred.

Given the last 18 months of COVID-related disruptions, it has been more difficult for some to ensure proper oversight of their businesses.

Nevertheless, the Court makes clear that the two year window in which to initiate an action still stands.

As we approach the two year anniversary of the beginning of the impacts of COVID-19, business owners should be conscious of any claims which may have arisen as a direct or indirect result of COVID-19.

Consulting a lawyer well before the expiry of the two year countdown is the first step towards recovering a loss from an instance of negligence or breach of contract.

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Cox & Palmer publications are intended to provide information of a general nature only and not legal advice. The information presented is current to the date of publication and may be subject to change following the publication date.