"Plausible Inference" Test Affirms That Plaintiffs Must Exercise Reasonable Diligence To Discover Claims

• Published date: 02 August 2021
• Law Firm: Gardiner Roberts LLP
• Author: Mr James R.G. Cook

In Grant Thornton LLP v. New Brunswick, 2021 SCC 31 (CanLII), the Supreme Court of Canada determined that a claim by the Province of New Brunswick against Grant Thornton LLP was statute-barred as the government had discovered or ought to have discovered the material facts giving rise to the claim before the two-year limitation period expired. The decision affirmed two cornerstones of limitations periods:

1. A 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 (para 40); and
   
2. 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 (para. 42).

The claim stemmed back to 2009 when the Province agreed to guarantee a total of $50 million in loans from the Bank of Nova Scotia to a company providing construction, industrial and waste management services. A condition of the guarantees was that the company be subjected to an external review of their assets by an auditing firm, which was conducted by Grant Thornton.

Grant Thornton prepared an unqualified auditors' report in which it confirmed that it had reviewed the borrowers' financial statements in accordance with "Generally Accepted Auditing Standards." Grant Thornton opined that the company's financial statements presented fairly, in all material respects, the financial position of the company and its operations and cash flows as of January 31, 2009. The Province was satisfied with Grant Thornton's report and it executed and delivered the loan guarantees in the amount of $50 million to enable the company to borrow funds from the Bank.

Four months later, the company shut down its operations in western Canada and ran out of working capital. The Bank obtained a receivership order and called upon the...