NBCA Decision Broadens Limitation Rules for Plaintiffs

April 1, 2020

In its March 26, 2020 decision of Province of New Brunswick v. Grant Thornton, 2020 NBCA 18, the New Brunswick Court of Appeal expanded the “discoverability principle” as enumerated in s. 5 of the New Brunswick Limitation of Actions Act, SNB 2009, c L-8.5. Section 5(2) holds that, for general limitation periods, a claim is discovered on the day on which the claimant first knew or ought reasonably to have known:

  • that the injury, loss or damage occurred,
  • that the injury, loss or damage was caused by or contributed to by an act or omission, and
  • that the act or omission was that of the defendant.

Writing for the Court, Drapeau, JA held that the general limitation period does not begin running until “knowledge, actual or imputed, of facts that accord the claimant a legal right to a judicial remedy for the defendant’s loss-causing act or omission” is acquired (para. 101). This broad interpretation counters what has routinely been thought of the discoverability principle in New Brunswick, which has functioned to bar actions from proceeding if commenced more than two years after enough facts are discovered by the claimant on which to base a cause of action (ex. see Windsor Energy Inc. v. Northrup, 2015 NBQB 199).

Although a seemingly small grammatical distinction, this decision could serve to substantially impact parties on both sides of the aisle.

Background

On June 23, 2014, the Province of New Brunswick (the “Province”) filed an action for negligence against Grant Thornton LLP, Grant Thornton International Ltd. and Kent M. Ostridge (together, “Grant Thornton”). The claim arose out of the Province’s guarantee of $50 million dollars in loans made by the Bank of Nova Scotia to a group of Atcon corporations in 2009. In signing the guarantees, the Province relied on an audit of Atcon’s financial statements prepared by Grant Thornton. On March 5, 2010, the Province was called upon to pay on the loan guarantees after Atcon went bankrupt. It did so on March 18, 2010.

In August, 2010, the Province retained the services of RSM Richter Inc. (“RSM Richter”), an accounting and consulting firm, to assess whether Atcon’s 2009 financial statements had been prepared according to generally accepted accounting principles (“GAAP”). On February 4, 2011, RSM Richter issued a draft report, wherein it concluded that Atcon’s F2009 assets contained overstatements and that its financial statements had not been prepared in compliance with GAAP. RSM Richter issued a final report on November 30, 2012 with the same findings.

After filing their statements of defence on September 29, 2014, Grant Thornton filed motions for summary judgment pursuant to Rule 22 of the New Brunswick Rules of Court (the “Rules”). Rule 22 requires the moving party to establish that there is “no genuine issue requiring trial”. Relying on s. 5 of the Limitation of Actions Act (the “Act”), Grant Thornton requested that the Court bar the action on the basis that the Province had discovered, or ought reasonably to have discovered, its claim against the defendants on or before the date on which it received the draft RSM Richter report. The Province opposed the motions and relied in part on the affidavit Andrew Adessky, co-author of the report and partner at RSM Richter. It argued that RSM Richter could not have formed a conclusion with respect to Grant Thornton’s negligence without having examined its audit-related files to determine liability, and requested that Grant Thornton be compelled to provide all relevant documentary disclosure forthwith. Up until that point, only the Province had provided an affidavit of documents.

The New Brunswick Court of Queen’s Bench granted Grant Thornton’s motions and statute barred the Province’s action for being commenced outside of the 2-year general limitation period. In its decision, Grant, J held that the limitation period had commenced either on March 18, 2010, when the Province paid on the loan guarantees, or on February 4, 2011, when it received the draft RSM Richter report. Either of those dates, the Court advanced, provided the Province with the knowledge it required to conclude “that it had prima facie grounds to infer that it had a potential cause of action against the defendants” (2019 NBQB 36, para. 108). The Province disagreed with this assessment and appealed to the Court of Appeal.

The Court of Appeal Decision

At the Court of Appeal level, the Province sought an order reversing the motions judge’s decision. The core issue for determination, as articulated by the Court at para. 89, was as follows:

  1. … whether, in actions for negligence, the discovery-based limitation period prescribed under s. 5(1)(a) of the Act begins to run the day after the claimant knows or ought reasonably to have known he or she had “a potential claim” or the day after the claimant knows or ought reasonably to have known material facts, notably the defendant’s breach of the standard of care, as a result of which he or she has a claim.

In canvassing the relevant principles of statutory interpretation, Justice Drapeau held that the general limitation period under s. 5(1)(a) of the Act does not begin running until the plaintiff knows, or ought reasonably to know, the facts which “confer a legally enforceable right to a remedy” (para. 7). The Court opined that “[i]n actions for negligence, 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).

In the circumstances at bar, the Court concluded that these requirements could not be satisfied until the Province was provided the opportunity to examine Grant Thornton’s audit-related files and establish that the 2009 audit was not prepared in accordance with generally accepted auditing standards (“GAAS”). Failing this, the Province could not be expected to know that it had a “legally enforceable right to a judicial remedy” relative to the applicable standard of care (para. 7). The Court summarized its comments at para. 101:

  1. At the end of the day, the analysis for s. 5(1)(a) purposes remains faithful to Central Trust Co. v. Rafuse. A plaintiff discovers a material fact when he or she knows or ought to know that fact by the exercise of due diligence. Perceptions or assumptions based on suspicion, guesswork, speculation or any other means short of knowledge, actual or imputed, are insufficient to trigger the two-year limitation period. What is required is knowledge, actual or imputed, of facts that accord the claimant a legal right to a judicial remedy for the defendant’s loss-causing act or omission. Unless the Province discovered more than two years before the action was commenced that Grant Thornton’s key audit-based confirmations/representations were not only erroneous, but also the fruit of a substandard audit, s. 5(1)(a) is not engaged.

[Emphasis added]

With these conclusions in mind, the Court of Appeal reversed the motions judge’s decision and ordered that Grant Thornton provide all required documentary disclosure pursuant to Rule 31. It reasoned that because the Province had not acquired actual knowledge of Grant Thornton’s negligence, the limitation period had not yet begun.

 Conclusions

On its face, this decision greatly expands the discovery principle in s. 5 of the Act beyond what was previously contemplated by relevant authorities. In short, it has the ability to change the landscape of how limitation periods are applied in New Brunswick. One could speculate that Plaintiffs may now be afforded more time to evaluate the validity of their claims, and even prove them, before the limitation period starts running. Defendants, on the other hand, could now be forced to “look over their shoulders” for extended periods of time before being permitted to invoke a limitations remedy.

However, even with the above in mind, it is imperative to note that, although broad-reaching in its analysis, Justice Drapeau’s decision was very much fact driven. The Court focused intently on the fact that the RSM Richter report, and the evidence of Mr. Adessky, did not conclude that Grant Thornton had breached the standard of care in completing its 2009 audit:

  1. There is no expert opinion evidence to establish Grant Thornton did not comply with Generally Accepted Auditing Standards in carrying out its audit. The uncontested evidence of Mr. Adessky, one of the authors of the Draft and Final RSM Richter Reports, is that RSM Richter could not have formed such an opinion without access to Grant Thornton’s audit-related files.

In addition, this decision focused primarily on the relevant principles associated with negligence claims. Thus, there is no way to know its ultimate applicability to other areas of law.

What we do know however, and all we will know for the foreseeable future, is that for the time being, a potential claim may not be enough to start the clock.

 

This article was written by Lynda Rogers, an Articled Clerk in Cox & Palmer’s Saint John office.
Lynda Rogers | 506.633.2712 | lrogers@coxandpalmer.com

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