THE PROVINCE OF NEW BRUNSWICK Plaintiff - v. -, 2019 NBQB 036

SJC-254-2014 IN THE COURT OF QUEEN’S BENCH OF NEW BRUNSWICK TRIAL DIVISION JUDICIAL DISTRICT OF SAINT JOHN Citation: The Province of New Brunswick v. Grant Thornton LLP, et al – 2019 NBQB 036 Date : 2019 02 22 BETWEEN: THE PROVINCE OF NEW BRUNSWICK Plaintiff - and - GRANT THORNTON LLP, GRANT THORNTON INTERNATIONAL LTD., KENT M. OSTRIDGE Defendants BEFORE: Justice William T. Grant HEARING HELD: Saint John DATES OF HEARING: March 15, July 24-5 and August 1-2, 2018 COUNSEL: Frederick C. McElman, Q.C., Stephen J. Hutchison, Q.C. Josie Marks and Lara J. Greenough for the Province of New Brunswick Patrick E.

Hurley, Q.C., Anthony S. Richardson and Romain J.F. Viel for Grant Thornton LLP and Kent M. Ostridge J. Charles Foster, Q.C., Steven R. Barnett and Matthew R.S. Pearn for Grant Thornton International Ltd. DECISION GRANT, J [ 1 ] By Notice of Action with Statement of Claim attached, the plaintiff, the Province of New Brunswick (“the Province”), has sued the defendants, Grant Thornton LLP, Kent M. Ostridge (“hereinafter referred to collectively as “LLP”) and Grant Thornton International Ltd. (“GTIL”) for what it alleges was negligence.

[ 2 ] The action arises from the Province’s guarantee of 50 million dollars in loans made by the Bank of Nova Scotia (“the Bank” or “BNS”) to the Atcon Group of Companies (“Atcon”). The Province alleges that in extending those guarantees which it signed on June 30, 2009, it relied on an audit of Atcon’s financial statements of January 31, 2009 (“the F2009 Audited Financial Statements”), an opinion letter dated May 19, 2009 and an unqualified auditor’s report dated June 18, 2009 (“the documents”) all of which were prepared by LLP under the direction of Mr.

Ostridge. [ 3 ] On July 15, 2009 the Bank retained the financial consulting firm of Ernst & Young Inc. (“E&Y”) to review the financial affairs of Atcon as of January 31, 2009. In the

summary of its report dated August 4, 2009 E&Y stated that Atcon had “… a serious working capital shortage and requires a significant equity injection or other arrangement that provides the Company with sufficient working capital to satisfy its existing liabilities as they become due and to fund its ongoing operations in a meaningful way.” [ 4 ] E&Y, with the concurrence of Atcon’s management, identified errors that reduced Atcon’s June, 2009 Borrowing base by $2.8 million or more than 10% from $26.2 million to $23.5 million.

It also identified $18.6 million of items that it believed to be non- compliant with the credit agreement between Atcon and the Bank and which E&Y said “… may or may not have been properly treated by Management in calculating the June Borrowing Base.” Atcon’s management did not agree with that finding. [ 5 ] Atcon was subsequently placed into Receivership and on March 5, 2010 the Bank called on the Province to pay on the loan guarantees which it did on March 18, 2010. [ 6 ] In August, 2010 the Province retained the accounting and consulting firm of RSM Richter Inc. to determine, inter alia , whether Atcon’s F2009 financial statement had been prepared, in all material respects, according to Canadian generally accepted accounting principles or “GAAP” (“the Richter report”). [ 7 ] On February 4, 2011 Richter issued a draft report in which it stated in its Executive

Summary, inter alia: … we are of the opinion that these financial statements have not been prepared in accordance with GAAP in all material respects. We estimate that Atcon’s F2009 assets had overstatements ranging between $28.3MM and $35.4MM. […] [ 8 ] Richter issued its final report on November 30, 2012. Save for grammatical corrections it was identical to the draft report received by the Province in February, 2011. [ 9 ] The Province filed this action on June 23, 2014. On September 29, 2014, all three defendants filed statements of defence.

The pleadings are closed and the parties have had some documentary discovery. Shortly before the date for the hearing of these motions the Province filed and served its affidavit of documents but the defendants have yet to do so. [ 10 ] In its action the Province alleges that the defendants owed a duty of care to it, that they relied on the defendants, that the defendants negligently breached that duty in preparing the documents and as a result they are liable to reimburse it for the 50 million dollars and other damages.

THE MOTIONS LLP/OSTRIDGE [ 11 ] On October 12, 2017 LLP filed a notice of motion, which was amended on February 9, 2018 (“the LLP motion”), in which they claim

summary judgment on the grounds, pleaded in their statement of defence, that the Province’s claim is barred by the Limitation of Actions Act , S.N.B. 2009 c. L-8.5 as amended (“the LAA ”). [ 12 ] The LLP motion was originally scheduled to be heard on January 9 and 10, 2018 but later re-scheduled for March 15, 16 and 19, 2018. It is supported by two affidavits sworn by Mr. Ostridge who is a partner with Grant Thornton LLP, one sworn by Norman Victor Raynard of Vancouver, B.C. who is Grant Thornton LLP’s Regional Managing Partner for Western Canada and one sworn by Miranda Joy Munroe, a litigation legal assistant with McInnes Cooper, solicitors for LLP.

GTIL [ 13 ] On February 20, 2018 the defendant GTIL filed a similar motion for

summary judgment based on the limitation period (“the GTIL motion”) to be heard together with the LLP motion. It is supported by an affidavit sworn by Jonathan Block of Bethesda, Maryland who is senior counsel for GTIL and who coordinates with external counsel on litigation on behalf of GTIL. In its statement of claim the Province refers to all three defendants collectively as “Grant Thornton” so I will treat them as a single defendant for purposes of this decision and my findings will apply to all of them and to both

summary judgment motions equally. Unless specified otherwise any reference to the LLP motion will include the GTIL motion and they will be hereafter referred to as “the GT motions”. PROVINCE [ 14 ] On March 2, 2018 the Province filed a motion for an order that the defendants file their affidavits of documents and produce their

Schedule “A” documents within 30 days and that the

summary judgment motions be adjourned or dismissed pending completion of documentary discovery (“the PNB motion”). [ 15 ] In the alternative it requested that the GT motions be adjourned or dismissed until the defendants produce,

a) their full working papers and audit file(

s) relating to the audit referenced in the May, 2009 Opinion Letter issued by LLP to the Province; and

b) all written submissions made by LLP and Mr. Ostridge to the New Brunswick Institute of Chartered Accountants (“the NBICA”) in response to a complaint against them filed by the Province wherein the defendants argued that the materials submitted in support of the complaint were insufficient for the complaint to be referred to a Disciplinary Panel (“the key documents”). [ 16 ] The Province also requested leave to cross-examine Mr.

Ostridge, Norman Victor Raynard and Jonathan Block on the key documents as well as their affidavits filed in support of the GT motions. [ 17 ] It also requested leave to file Replies to the two statements of defence. [ 18 ] Prior to the hearing the Province also notified the defendants and the court of its intention to object to the admissibility of certain paragraphs of the Ostridge, Raynard, Block and Munroe affidavits filed in support of the GT motions as well as certain exhibits attached to those affidavits. [ 19 ] The hearing convened on March 15, 2018 at which time the court heard argument and granted leave to the Province to file Replies which they have done. [ 20 ] The court also heard argument on the Province’s objections to the admissibility of certain portions of the affidavits filed by the defendants and ruled that two paragraphs in the Raynard affidavit and the exhibits to which they referred were inadmissible.

It also limited the use and the weight to be assigned to other portions of the affidavits as set out in its decision of March 15, 2018 while ruling that other portions of the affidavits to which the Province objected were admissible. [ 21 ] In its March 15, 2018 ruling the court also granted leave to the Province to cross-examine the defendant Kent Ostridge on his two affidavits and Norman Victor Raynard on his affidavit, all of which were filed in support of the GT motions. The ruling was subject to the limitation that any cross-examination of Mr.

Ostridge concerning the proceeding before the NBICA would be limited to the issue of what other documents were received by the defendants as a result of that process. The Province’s request to cross-examine Jonathan Block was denied. [ 22 ] Cross-examination of Mr. Ostridge took place on July 24 and 25, 2018 after which the Province elected not to cross-examine Mr. Raynard. [ 23 ] Submissions on the merits of the

summary judgment motions, including the Province’s submission that they are premature because the moving parties have not filed their affidavits of documents, were heard on August 1 and 2, 2018.

ISSUES [24] The limitation issue raised in these motions concerns which

section of the LAA applies to this case. LLP and GTIL submit that it issection 5(1)(

a) which is two years. The Province submits that it is not

section 5 but

section 27.1 which means that the limitation does notexpire until July 1, 2021. In the alternative the Province submits that if

section 5 does apply then this case is still within the 15 yearlimitation set out in section 5(1)(

b) because its cause of action has not yet been discovered. [25] The Province also raises the issue of whether or not the GT motions are premature given that the defendants have not filed andserved their affidavits of documents.

SUMMARY JUDGMENT [26] The GT motions are brought under Rule 22, the applicable portions of which read: 22.01 Where Available

(3) After the defendant has served a Statement of Defence, the defendant may move with supporting affidavit or other evidencefor

summary judgment dismissing all or part of the claim in the Statement of Claim. 22.04 Disposition of Motion

(1) The court shall grant

summary judgment if (

a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence, or … [27] In Hryniak v. Mauldin, 2014 SCC 7 the Court discussed the process to be followed in a

summary judgment motion underthe Ontario Rule which is virtually identical to our new Rule 22: 66. On a motion for

summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiringtrial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring atrial if the

summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is atimely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial,she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). Shemay, at her discretion, use those powers, provided that their use is not against the interest of justice.

Their use will not be againstthe interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability andproportionality in light of the litigation as a whole. [28] In O’Toole v. Peterson, 2018 NBCA 8 Drapeau, CJNB, after discussing the test under the pre-2017

summary judgmentrule, states at paragraph 68: 68. The "no merit" test is nowhere to be found in our new Rule 22. The test for

summary judgment is simply whetherthere is a genuine issue requiring a trial: Rule 22.04(1)(

a) and 22 King Street Inc. et al. v. The Bank of Nova Scotia, 2018NBCA 16 , at para. 15. As is well known, adjudication in civil litigation involves the application of the balance-of-probabilities standard. Since the moving party is the one making the allegation that there is no genuine issuerequiring a trial, he or she bears the burden of persuading the court it has been established on a balance of probabilities. That isthe extent of the moving party's evidential and persuasive burden.

Both sides must "put their best foot forward" (Cannon v.Lange, at para. 23), the responding party having to "lead trump or risk losing": 1061590 Ontario Ltd. v. Ontario Jockey Club, (ON CA), [1995] O.J. No. 132 (C.A.) (QL), at para. 35. As Justice Clendening astutely noted in Gillis v. LawSociety of New Brunswick et al., 2017 NBQB 212 [2017] N.B.J. No. 283 (QL), the process-liberalizing instructionsprovided by Cannon v.

Lange "retain all of their relevance notwithstanding the legislative and jurisprudential changes" (para.26). [29] Having reviewed the records on these motions, including the cross-examination of Mr. Ostridge, for the reasons hereinafter set out,I find that the limitation issue and the issues related to it such as discoverability are not genuine issues requiring a trial because theserecords provide the court with the evidence needed to justly and fairly adjudicate those issues. I further find that doing so on thesemotions is a timely, affordable and proportionate procedure.

[ 30 ] Moreover, because the GT motions concern the limitation issue, if they are granted, there will be no other genuine issue requiring a trial. The merits of the case and all related issues will be irrelevant. As observed by Rideout, J. in Phillips Bros. Excavating Ltd. v. Le Blanc and Rooney, 2018 NBQB 6 at paragraphs 24-5 the limitation issue trumps all others. LIMITATION OF ACTIONS ACT [ 31 ] The defendants base their motions on their pleading that this action is time-barred by section 5(1) (

a) of the LAA . The Province replies that the applicable limitation is found in

section 27.1 or, if not, then section 5(1) (b). [ 32 ] If

section 5 of the LAA applies then the issues that arise are:

a) the date of discoverability of the cause of action which includes the issue of whether or not the GT motions should be dismissed or adjourned pending documentary discovery; and

b) whether this action was filed within the applicable limitation period. [ 33 ] If, as the Province submits,

section 27.1 of the LAA applies then the GT motions are moot so I will deal with that issue first.

SECTION 27.1 [ 34 ]

Section 27.1 of the LAA reads as follows: Transition- debts due to the Crown 27.1 Despite anything else in this Act, if the limitation period that applies to a claim by the Crown for the recovery of money owing to it would, if not for this section, expire after the commencement of this

section but before July 1, 2021, that limitation period expires on July 1, 2021. [ 35 ] The Province submits that in order to succeed on these motions the moving parties must first satisfy the Court that

section 27.1 should be interpreted in these motions. It submits that since this provision of the LAA has not been judicially interpreted previously, its

interpretation should be left for trial because,

a) a full evidentiary record would be before the court;

b) its

interpretation is likely to have precedential value which transcends the parties; and

c) it raises questions of public policy. [ 36 ] This is not an issue of important precedential significance such as the

interpretation of the word “accident” in the then newly- enacted minor injury regulation under the Insurance Act R.S.N.B. 1973 c. I-12 which was at issue in LeBlanc v. Boisvert 2005 NBCA 115 . [ 37 ] Nor is it comparable to the complex and difficult issue of statutory

interpretation that was before the court in Village of Saint- Francois de Madawaska v. Nadeau Poultry Farm Limited and Maple Lodge Farms Limited 2011 NBCA 55 which, as Drapeau, C.J.N.B. stated, involved “ … unsettled, difficult and complex questions of law that turn, … not only on policy considerations but, as well, on the contextual

interpretation of numerous multi-sourced legislative provisions that may well have been drafted without regard to the larger context and, in particular, the liability-associated issues.” [ 38 ] Rather, I find that the

interpretation of this section, though it may be novel, is neither difficult nor complex. I further find that the precedential value of this ruling is likely to be minimal since the provision is transitional only and will expire in less than three years. I am also not persuaded that there are important public policy issues associated with the issue given the transitional nature of the provision and I note that the Province did not actually refer, either in its brief or in argument, to a single one. [ 39 ] Moreover, given the culture shift signaled by the Supreme Court in Hryniak v.

Mauldin , supra., which encourages courts to deal with issues such as this where the material facts are clear, and considering the relative simplicity of the issue and its potential to bring this litigation to an end versus the enormous cost of leaving it to be decided after the completion of a trial, I find that this motion is the

appropriate time to deal with this issue. [ 40 ] The Province further submits that when the Act as a whole is examined it deals with two types of claims, monetary and property claims and that this one is clearly a monetary claim. It submits that the term “money owing to the Crown” should be given a broader

interpretation than simply a debt and that other statutes such as the Crown Debts Act , S.N.B. 2011 c. 135 deal specifically with “debts due to the Crown” and refer to them as such. [ 41 ] In the alternative the Province submits that if

section 27.1 is restricted to debts then it’s clear from the facts of this case that it is owed a debt by Atcon, a debt that it seeks to recover from the defendants due to their negligence. [ 42 ] In

summary, the Province says that while its claim is in tort it is a liquidated claim for a pecuniary loss. ANALYSIS AND DECISION [ 43 ]

Section 27.1 supersedes any other limitation set out in the LAA in any action where the Province is the plaintiff provided that the action falls within the parameters of the section. [ 44 ] Those parameters, i.e. the elements of the section, are,

a) whether it is a “claim” by the Crown;

b) whether it is for the recovery of money; and

c) whether it is for money that is owing. [ 45 ] The term “claim” is defined in section 1(1) of the Act as follows: “claim” means a claim to remedy the injury, loss or damage that occurred as a result of

an act or omission. (réclamation) [ 46 ] Clearly this action meets the criteria of that definition as the Crown seeks to remedy a loss it suffered as a result of what it alleges was

an act or omission, i.e. the negligence of the defendants. [ 47 ] It is also clear that the claim is for the recovery of money. [ 48 ] The issue, then, is whether or not it is a claim for the recovery of money that is “owing”. [ 49 ] In the text S.M. Waddams, The Law of Damages (Canada Law Book, 2014) (loose-leaf revision 25: November 2016) the authors state at 7.10: 7.10 There is an important distinction between debt and damages; in an action on a debt the plaintiff claims money that is owed as money.

The law of damages is concerned with the assessment of money compensation for legal wrongs – the translation, so to speak, of a legal wrong into a money sum. But in the case of a debt there is no translation to be done. To say that the debt is due is to say that the amount of the debt is recoverable. … [ 50 ] This action is a tort claim for negligence. In bringing this action the Province asks the court to translate that legal wrong, that negligence, into a money sum that is owing to it. It is a claim for damages, not a claim for debt or for money owing to the Crown.

Whether or not the money it paid pursuant to the loan guarantees is owing by these defendants to the Province is, in fact, the overarching issue that the Province seeks to have resolved in this litigation. That is clear from the statement of claim. [ 51 ] I therefore find that the claim being made by the Province in this action does not satisfy the third element of

section 27.1 of the LAA because it is not a claim for the recovery of money that is “owing” to the Crown.

[52] I further find that

section 27.1 of the LAA does not apply to this action.

SECTION 5 [53] That leaves the question of which of the limitation periods found in

section 5 of the LAA applies in this action.

Section 5 reads asfollows: 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.

(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. [54] As stated earlier the defendants submit that section 5(1)(

a) applies while the Province submits that section 5(1)(

b) applies. Theissue then becomes when, if ever, did the Province discover its claim in accordance with section 5(2)? DISCOVERABILITY [55] The discoverability rule was set out by Larlee J.A. in the case of Dupuis v. City of Moncton 2005 NBCA 47 at paragraph 29 asfollows: 29. The second issue that arose on the motion for

summary judgment was the issue of discoverability. In Central Trust Co. v.Rafuse, (SCC), [1986] 2 S.C.R. 147 at 224. Justice Le Dain described the discoverability principle in the followingterms: ... [A] cause of action arises for purposes of a limitation period when the material facts on which it is based have been discoveredor ought to have been discovered by the plaintiff by the exercise of reasonable diligence. ... See also Kamloops (City of) v. Nielsen et al., (SCC), [1984] 2 S.C.R. 2 and Zapfe v. Barnes (2003), (ON CA), 66 O.R. (3d) 397 (C.A.). See also Ryan v.

Moore 2005 SCC 38 at para. 2; and Canada (Attorney General) v. Lameman 2008 SCC 14 at para. 16. [56] In Windsor Energy Inc. v. Northrup, 2015 NBQB 199, Morrison J. adopted the following statement from Johnson v.

Studley,2014 ONSC 1732 where the Court stated at paragraph 60: However, the discovery of a claim does not depend upon the plaintiff knowing that his or her claim is likely to succeed; thelimitation period runs from when the prospective plaintiff has or ought to have had, knowledge of a potential claim, and the laterdiscovery of facts which change a borderline claim into a viable one does not give rise to the discoverability principle.

Thequestion is whether the prospective plaintiff knows enough facts to base a cause of action against the defendant, and, if so, thenthe claim has been discovered and the limitation period begins to run. (Underlining by Grant J.) [57] It is clear from the Act that the discoverability test is both subjective – i.e. what did the Province know? – and objective – i.e. whatought it reasonably to have known?

AFFIDAVITS OF DOCUMENTS [58] The Province submits that these motions are premature because they haven’t had discovery of documents. Rule 22.01(3) states: After the defendant has served a Statement of Defence, the defendant may move with supporting affidavit or other evidence forsummary judgment dismissing all or part of the claim in the Statement of Claim. [59] On its face Rule 22 does not require that a defendant serve and file its affidavit of documents before it can bring a motion forsummary judgment. [60] In Whelton v. Mercier, 2004 NBCA 83 Drapeau, CJNB dealt with this issue. He stated at paragraph 26: 26.

The delivery of an affidavit compliant with Rule 31.03(4) should lead to the disclosure of every document related to a matterin issue. Armed with this affidavit, the adverse party can insist that documents of interest to him or her be produced. Throughproduction of those documents, he or she can acquire a thorough understanding of the case. An Affidavit of Documents thatcomplies with the Rules of Court is generally indispensable in uncovering the truth. This is particularly so in cases such as thepresent, where the answers to controversial questions lie deep within documents held exclusively by one party.

In cases of thisnature, motions for

summary judgment should, as a general rule, be dismissed with costs if the moving party has not compliedwith the requirements of Rule 31. [61] In SAR Petroleum et al v. Peace Hills Trust Company, 2010 NBCA 22 Robertson J.A. discussed this issue in a casewhere he agreed with the motions judge that the moving party was not required to serve and file its affidavit of documents beforebringing a motion for

summary judgment because liability depended upon a single issue about which the essential facts were not indispute. He stated, in part, at paragraphs 67 to 69: 67. The appellants claim the motion judge erred in holding that the failure of Peace Hills to provide an Affidavit of Documents,in response to the appellants’ request, was not fatal to the motion for

summary judgment. The motion judge concluded that“[t]here are no answers to controversial questions within documents held exclusively by one party. Everything is known andundisputed.” The motion judge reached his conclusion after examining this Court’s decision in Whelton v. Mercier andacknowledging that an affidavit is “generally indispensable in uncovering the truth”. As Drapeau C.J. stated: “This isparticularly so in cases such as the present, where the answer to controversial questions lie deep within the documents heldexclusively by one party” (para. 26). 68.

The appellants list nine controversial questions or issues which are disputed. For example, the question of whether PeaceHills had knowledge of the fact that SAR Petroleum’s suppliers and subcontractors were not being paid has yet to be decided. Iagree the question is relevant to the issue of damages, but it has no bearing on whether the essential element of intention ispresent. The same reasoning applies to other questions. . . 69. In conclusion, the motion judge was correct in holding that the failure to exchange Affidavits of Documents was not fatal tothe motion for

summary judgment. Any documents that do exist and have not been disclosed would not and could not reasonablyimpact on the pivotal issue of whether there was an intention on the part of Peace Hills to induce a breach of contract. [62] The Whelton v. Mercier statement of the law was affirmed as being applicable under the new Rule 22 by Drapeau, C.J.N.B. inO’Toole v. Peterson, 2018 NBCA 8 where he stated at para. 47: 47. Mr. Peterson’s motion for

summary judgment proceeded to a hearing. The record consisted of a copy of the Notice ofMotion, Mr. Peterson’s supporting affidavit, Mr. O’Toole’s responding affidavit and the letters (and documents) referencedhereinabove. Prior to the hearing in the Court of Queen’s Bench, the parties exchanged affidavits of documents. Given themanifest relevance of letters, emails, notes and drafts of documents other than those exchanged between the parties, any failureby Mr. Peterson to serve a Rules-compliant affidavit of documents could have fueled a legitimate objection to his motion forsummary judgment.

The Court’s decision on point in Whelton v. Mercier et al., 2004 NBCA 83 277 N.B.R. (2d) 251, atparas. 26-29, remains authoritative for purposes of our new Rule 22; that decision is designed to achieve transparency and toensure a just and fair adjudication on the merits. [63] The Province’s position is that without the defendants’ affidavits of documents as well as their

schedule “A” documents, includingparticularly their audit file, it does not yet have the information that it needs to know that it has a cause of action against the defendants. It has suspicions which is why it started its action when it did. It submits however that suspicions do not amount to knowledge for thepurpose of discovery of a claim under the LAA.

[64] It further submits that the audit file is the single most material document in this action and that without it their cause of action, ifthey have one, is not yet discoverable. [65] The Province further notes that it has also not had access to the files from the New Brunswick Institute of Chartered Accountants inrespect to a complaint it filed against Mr.

Ostridge in December, 2012. [66] Lastly, the Province submits that in an action of this magnitude it is only just and fair to the responding party and works noprejudice on the moving party to require documentary discovery before considering the merits of these motions. [67] To elaborate on my finding at paragraph 29, supra., I find that the records on these motions are sufficient because the documentsthat the Province says it needs in order to discover the claim – primarily LLP’s audit file and working papers - are not, in my view,required to decide the issue of discoverability.

That issue is concerned strictly with what the Province knew or ought to have known andwhen. If they had sufficient knowledge from other sources more than two years before the action was commenced which, for the reasonsset out below I find that they did, it doesn’t matter what is in the audit file or any other documents. [68] With respect to the NBICA files it is clear from the record that the Complaints Enquiry Committee (“the CEC”) of the NBICAadvised both the Province, as complainant, and Mr.

Ostridge that, as per its procedural resolution of March 24, 2006, they were entitledto disclosure of “… all documents which either the complainant(

s) or the member(

s) complained of intend to tender to the CEC for itsconsideration.” I therefore find that the Province either had or, possibly still has, access to those documents. [69] As stated earlier at paragraph 29 the records before the court on these motions provide sufficient evidence to adjudicate on thelimitation issue so I dismiss the province’s motion to adjourn or dismiss the GT motions pending completion of documentary discovery.

Ifurther dismiss the Province’s motion to adjourn or dismiss the GT motions pending production by the defendants of the key documentsas described at paragraph 15, supra. [70] The Province submits that because discoverability is a question of fact it should not generally be resolved on a

summary judgmentmotion. It relies on the case of Sheeraz v. Kayani, ONSC where the Court stated at paragraphs 57 and 58: 57. The discoverability rule is a rule of fairness which provides that a limitation period does not begin to run against a plaintiffuntil he or she knows, or ought to reasonably know by the exercise of due diligence, the fact, or facts upon which his or her claimis based: see Peixeiro v. Haberman [See Note 17 below] and Smyth v. Waterfall. . . 58. The Court of Appeal of Ontario has held that the determination of when the limitation period begins to run is one of fact.

Ithas also held that, generally speaking, it is not appropriate for the motions judge, hearing a motion for

summary judgmentwhere the application of the discoverability rule is central to the resolution, to resolve this issue: see Smyth v. Waterfall, supra,and Aguonie v. Galion Solid Waste Materials Inc. [71] In my view while the known facts must be sufficient, the culture shift referenced in Hryniak v. Mauldin regarding

summaryjudgment overtakes that statement of the law which pre-dates our new rule on

summary judgment that was enacted in 2017 provided themoving parties are able to prove the essential elements of discoverability. [72] The Province further submits that LLP has been concealing documents and particularly its audit file and other documents that maybe contained in its affidavit of documents. That concealment, they submit, suspends any limitation period. [73] In this case there is no evidence of concealment that is alleged to have occurred before the notice of action was issued.

TheProvince refers to the possibility of fraudulent concealment being discovered in the audit file but that is mere speculation and certainlyno basis for a finding that the limitation period is suspended. Moreover, I find that the issue of concealment is moot if, as in this case, theProvince had already discovered its cause of action before the alleged concealment took place. THE PLAINTIFF’S CLAIM

[ 74 ] The Province’s claim is based on negligence so it must prove that the defendants owed it a duty of care, that they breached the standard of care, that it suffered damage and that the damage was caused, in fact and in law, by the defendants; see Mustapha v. Culligan of Canada Ltd. 2008 SCC 27 at paragraph 3 . It is those elements of negligence the Province must have discovered before the limitation period begins to run. [ 75 ] In the Statement of Claim the Province alleges at paragraphs 19-20 and 26: 19.

On or about June 18, 2009, Grant Thornton released its unqualified auditors report (the “GT F2009 Unqualified Auditors’ Report”) and the audited F2009 consolidated financial statements of Atcon (the “Atcon F2009 Audited Financial Statements”). 20. At all material times, Grant Thornton knew, or ought to have known, that: (

a) one of the purposes for which the Atcon F2009 Audited Financial Statements and the GT F2009 Unqualified Auditors’ Report were prepared and provided to the Province was to fulfill the External Review Prior Condition and the Direct Reporting Condition for the Guarantees; (

b) the Atcon F2009 Audited Financial Statement and the GT F2009 Unqualified Auditors’ Report were intended to be, and in fact were, relied upon by the Province in fulfillment of the External Review Prior Condition and the Direct Reporting Condition and in deciding to execute and deliver the Guarantees to Atcon and BNS; (

c) the Province relied on Grant Thornton to conduct the “external review” of Atcon and to perform the appropriate review, investigation and audit procedure in the F2009 Audit without conflict of interest to justify Grant Thornton’s opinion as to the fairness of Atcon’s financial statements prepared by Atcon management; (

d) the Province would suffer loss if Grant Thornton did not perform the F2009 Audit in accordance with GAAS and without conflict of interest; and (

e) the Province would suffer loss if the Atcon F2009 Audited Financial Statements were not prepared in accordance with GAAP and contained material misstatements. … 26. But for the Grant Thornton Opinions and Representations, the Province would not have executed and delivered the Guarantees to Atcon and BNS.

Furthermore, but for the Grant Thornton Opinions and Representations, the Province would not have sustained a loss in excess of $50,000,000 when the Province was subsequently called upon by BNS to make the payments required under and in accordance with the Guarantees, as hereinafter alleged. [ 76 ] From those pleadings and the record in the GT motions it is clear and I find that the Province knew that LLP owed it a duty of care when it signed the guarantees. [ 77 ] Based on the record before the court in these motions I find that the Province also knew the following material facts which were relevant to its cause of action in this case:

a) In response to a request from Atcon, on April 24, 2009 the Province offered to provide loan guarantees totalling $50,000,000 to the Bank of Nova Scotia for the indebtedness of the Atcon Group of Companies subject to conditions which included an external review of Atcon’s assets by an auditing firm satisfactory to the Minister and a requirement that Atcon “… adhere to generally accepted accounting principals (sic) in any reporting to the Minister …”;

b) On April 24, 2009 Atcon, with the concurrence of LLP, made a written proposal that LLP carry out the work required to satisfy the external review condition;

c) On April 27, 2009 the Province agreed;

d) On May 19, 2009 LLP provided the Province with an Opinion Letter updating the status of its work on the F2009 Audit and detailing its audit procedures;

e) On June 18, 2009 LLP released its Unqualified Auditors Report and the F2009 Audited financial statements; the Unqualified Auditors Report stated, inter alia , that LLP “… conducted our audit in accordance with Canadian generally accepted auditing standards. …” and “In our opinion these financial statements present fairly, in all material respect, the financial position of the company as at January 31, 2009 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.”;

f) Relying on LLP’s May, 2009 Opinion Letter, the LLP F2009 Unqualified Auditors report and the Atcon F2009 Financial Statements audited by LLP, the Province, on June 30, 2009 executed and delivered the Guarantees to Atcon and BNS;

g) In March, 2010 Insolvency proceedings concerning Atcon resulted in the appointment of a Receiver and the commencement of proceedings under the CCAA;

h) On March 5, 2010 BNS demanded payment of the $50,000,000 under the Guarantees;

i) On March 18, 2010 the Province paid $50,000,000 to BNS pursuant to the Guarantees. [ 78 ] Furthermore, in February, 2010 BNS filed Receivership and CCAA applications. A hearing was held before Mr. Justice Thomas W. Riordon on March 1 st , 2010 at which time he gave an oral decision.

In the appearances listed on the written version of that decision two lawyers who worked with the Province at the time, are listed as having appeared on the application for the Province of New Brunswick. [ 79 ] In support of the Receivership application BNS filed an affidavit sworn by Rocco Fabiano, the assistant general manager of the Special Accounts Management Division of BNS, on February 25, 2010 in which he deposes at paragraphs 26 to 30 as follows: 26.

The Bank has had various concerns with Atcon's operations over the years and has issued various default letters beginning as early as October 19, 2007, all of which were accepted and acknowledged by Atcon. 27. Shortly after the completion of the Credit Agreement in June 2009, the Bank became concerned with various aspects of Atcon's operations and retained E&Y as its consultant in July 2009 to review Atcon's financial affairs. The Companies agreed to cooperate with E&Y in carrying out its work. 28.

By August 2009, based on information provided by the Companies, it was clear that the Companies had a serious working capital shortage and required a significant equity injection or other arrangement that would provide the Companies with sufficient working capital to satisfy their existing liabilities as they became due and to fund their ongoing operations in a meaningful way. 29. The Companies' borrowing base had to be reduced by 10% from $26.2 million to $23.5 million in order to address reporting errors by the Companies. Mr. Tozer, President, and Ms.

Katrina Donovan, Vice President Finance and CFO (collectively, hereinafter referred to as "Management") of the Companies agreed that these items were errors. 30. The Companies also had potentially non-compliant items in accounts receivable, inventory and work in progress calculations totaling $18.6 million. Specifically, aged receivables were not being removed from the borrowing base promptly within the period provided for under the Credit Agreement.

Management believed that no adjustment was necessary in respect of those items. [ 80 ] Given that the Province was both listed on the Record on Application and as having appeared at the hearing, I find that it had knowledge of the contents of the applications, including Mr. Fabiano’s affidavit.

I further find that by March, 2010 the Province knew of the most egregious findings of the E&Y report, i.e. that the June borrowing base had been overstated by $2.8 million - which amount was revised to $13.2 million in the report submitted by E&Y as proposed monitor in the concurrent CCAA application - and that E&Y had identified $18.6 million of items that it deemed non-compliant with Atcon’s credit agreement with BNS. [ 81 ] Moreover, these findings were relied on by this court in appointing E&Y as Receiver under BNS’s security in the written decision dated March 3, 2010 where Riordon J. stated, in part, at paragraph 29, I have read the report of the proposed monitor, Ernst & Young Inc. in regard to the parallel proceedings.

They have been involved since July, 2009, as a consultant to the Bank in reviewing and monitoring the affairs of the Atcon Group companies and in efforts at restructuring. They have looked at the financial information of the companies. The monitor’s report prepared (sic) says that there are serious cash liquidity problems …

[ 82 ] Furthermore, there is evidence in the GT motion records of the Province’s level of concern about these material facts in an excerpt of the transcript of John Watt’s testimony before the Inquiry of the Conflict of Interest Commissioner in or about December, 2010. Mr. Watt, who swore the affidavit of documents on behalf of the Province in this action, was a Project Executive Officer with Business New Brunswick from 2007 until he retired in March, 2010 and was the Financial Officer assigned to the Atcon group of companies for the Province. [ 83 ] In response to questions about the E&Y Report Mr.

Watt told the Commissioner that the report indicated to him that, on their monthly statutory declarations to BNS pursuant to their credit agreement, Atcon was misleading the Bank by misreporting their accounts receivable and under-reporting their statutory debts such as HST. He described these as “serious omissions” and “multi-million dollar errors”. [ 84 ] I find that the Province knew all of those material facts by March 18, 2010 when it paid the $50 million to BNS pursuant to the guarantees. Those facts clearly gave the Province knowledge that a loss had occurred.

I further find that they gave it knowledge that the loss was caused by or contributed to by

an act or omission of Atcon at the very least. Of course Atcon was insolvent by this time but the Province had tried to protect itself by requiring and obtaining the unqualified auditor’s report and the F2009 audited financial statements from LLP. [ 85 ] I further find that with that knowledge the Province ought to have known as well that LLP, on whom it relied to protect its interests which clearly were not protected, was a contributor in causing their loss.

While LLP was not singled out as the responsible party in the E&Y report or the insolvency proceedings, the Province knew that it was LLP that it relied on to protect its interests and, that as it turned out, its interests were not protected. [ 86 ] If a couple buying a house retains a lawyer to protect their interests in the transaction and, after the purchase is complete, learns that the person who signed the transfer was not the sole owner of the house for which they’ve paid full price, those buyers have sufficient knowledge to infer that they have the prima facie grounds to support a cause of action against the lawyer on whom they relied because, inter alia, that lawyer was the only person on whom they relied to protect their interests. [ 87 ] Similarly, in this case the Province relied on LLP to protect its interests in signing the guarantees.

Less than nine months later it suffered a total loss under those guarantees. Clearly something had gone terribly wrong to cause such a catastrophic loss virtually overnight. The only entity it relied on to protect it against suffering that loss in that transaction was LLP. The inference that they caused or contributed to this loss was inescapable. [ 88 ] As stated in Johnson v.

Studley , supra . “… the limitation period runs from when the prospective plaintiff has or ought to have had, knowledge of a potential claim. […]” I find that by March 18, 2010 when it paid the $50 million to BNS pursuant to the guarantees, the Province had sufficient knowledge of material facts that they ought to have known, if not through direct evidence then by inescapable inference, that they had the prima facie grounds to prove that the defendants owed it a duty of care, that it had suffered a loss and that the defendants caused or contributed to that loss. [ 89 ] That leaves the issue of when, if ever, the Province knew or ought to have known that the defendants breached the standard of care.

In the statement of claim the province alleges at paragraph 32: 32. Grant Thornton, negligently, and in breach of its duties to the Province: (

a) failed to conduct the F2009 Audit in accordance with GAAS; (

b) failed to exercise the care, diligence, and skill of an auditor of reasonable competence and prudence; (

c) failed to exercise the care, diligence, and skill of an auditor with special knowledge and expertise in the consolidated business operations of Atcon (which Grant Thornton held itself out to possess); (

d) rendered an unqualified Opinion with respect to Atcon's F2009 Audited Financial Statements when those statements did not present fairly, in all material respects the financial position of Atcon as at January 31, 2009 and the results of its operations and the changes in its financial position for the year then ended in accordance with GAAP; and (

e) acted in conflict of interest. [ 90 ] Knowledge of any one of those allegations would amount to knowledge that the defendants had breached the standard of care. I find that with the knowledge that the Province had by March 18, 2010 it ought to have been able to infer that the defendants had committed most, if not all of those breaches of the standard of care. It may not have had all the information it needed to prove each of

them but I find that given the rest of what it knew or ought to have known by then, the conclusion that the defendants had breached them would also have been inescapable. [ 91 ] I therefore further find that by March 18, 2010 the Province had discovered that it had a potential claim against the defendants for negligence. [ 92 ] While that finding disposes of these motions I feel it is incumbent on me to make provisional findings on what occurred later in case that finding is overturned. [ 93 ] In or about August, 2010 the Province retained RSM Richter Inc. to review and comment on Atcon’s financial position as at January 31, 2009 as well as its operating results for the year then ended. [ 94 ] The draft of the Richter Report which the Province received in February, 2011 states in the Executive

Summary at page 6: As a result of not having access to senior management’s knowledge of facts, we took a conservative approach to quantifying accounts and were conservative to not utilize assumptions that would result in an overstatement of misstatements in Atcon’s F2009 financial statements. Notwithstanding this approach, we are of the opinion that these financial statements have not been prepared in accordance with GAAP in all material respects. We estimate that Atcon’s F2009 assets and net earnings had overstatements ranging between $28.3MM and $35.4MM.

Certain additional other material misstatements may have occurred but we are unable to provide an estimate of value due to scope limitations, the weakness of Atcon’s accounting records and/or insufficient information. [...] . [ 95 ] That Executive

Summary was unchanged in the final report which was dated November 30, 2012. [ 96 ] Andrew Adesskey of the Richter Advisory Group Inc. who signed the Richter Report swore an affidavit, which was not challenged in these motions, in which he states: 3. Richter was retained by PNB to review and determine whether Atcon’s January 31, 2009 financial statements were prepared in all material respects in accordance with Generally Accepted Accounting Principles (“GAAP”).

Our conclusion, subject to the limitations set out in the Richter Report, is that the financial statements were not prepared in accordance with GAAP in all material respects. 4. Our mandate, and the inquiry we undertook to reach our conclusions, is separate and distinct from an inquiry into whether the external auditor of Atcon conducted its audit in accordance with Generally Accepted Auditing Standards ("GAAS"). Our finding that the financial statements were not prepared in accordance with GAAP does not mean that the auditor who audited same failed to comply with GAAS in the conduct of its audit.

The two inquiries are separate and distinct and should not be conflated. 5. In order for Richter to have provided an opinion on the work performed by Grant Thornton LLP (“Grant Thornton”) as auditor of Atcon's financial statements: (

a) Richter would have had to have access to and undertaken a full review of Grant Thornton's audit working paper files related to the Atcon audit. Access to additional information, arising from review of the Grant Thornton audit working paper files, may have also been required. (

b) Richter's Inquiry would have been focused upon compliance with GAAS. A

summary of the GAAS principles that would have applied is attached. . . 6. Richter did not have access to the audit working paper files of Grant Thornton, which files would include an audit plan showing their approach for conducting the audit, as well as the information known to, and considered by, the auditor in performing their audit and supporting their opinion on the January 31, 2009 financial statements. 7. The Richter Report does not provide any opinion on, nor should any comment in the Richter Report be construed as an opinion on, the work of Atcon's auditor Grant Thornton. 8.

Based on the records, documents and information available to us, we were not in a position to discover, or express any opinion on, whether Grant Thornton conducted its audit work in compliance with GAAS. 9. Further, Richter itself did not conduct an audit or verification of Atcon's financial information or accounting systems in

accordance with GAAS. … [97] The Province submits that the Richter Report and the Ernst & Young Report did not state as a fact that they were contradictingLLP’s opinions. They merely expressed opinions, not facts.

It also points out that the author of the Richter Report, Andrew Adessky,deposes at paragraph seven of his affidavit, supra., that in the Richter Report he did not comment or express an opinion on the opinionsof LLP. [98] The Province further submits that the defendants have not identified any material facts in the Richter Report or the Ernst & YoungReport which would give the Province knowledge that the defendants are liable in this case. [99] The opinion expressed in the Richter Report concerning the compliance of the financial statements with GAAP is clearly differentfrom that expressed by LLP on which the Province alleges it relied. [100] Moreover, as observed by the court in Johnson v.

Studley, supra., and adopted by Morrison J. in Windsor Energy v. Northrup,supra., discoverability is not dependent on the certainty of liability. [101] In Kowal v. Shyiak, 2012 ONCA 512 the plaintiff sued a subcontractor that had worked on the construction of his new house. There was water leakage around their windows and doors and damage to their floors. The plaintiffs tried to resolve the situation with thecontractors but the general contractor refused to take responsibility.

Three experts were retained, two of which blamed the generalcontractor and one the subcontractor. [102] The water leakage was discovered in the spring of 2006 and the action was started November 17, 2009. A motion for

summaryjudgment was dismissed but the Court of Appeal overturned the motion judge’s ruling. In doing so it stated that the plaintiffs were familiar with all material facts at least by November 1st, 2007. Pepall, J.A. stated at paragraph 18: 18. Certainty of a defendant’s responsibility for the act or omission that caused or contributed to the loss is not a requirement. It is enough to have prima facie grounds to infer that the acts or omissions were caused by the party or parties identified: Gaudetet al. v. Levy et al. (1984), (ON SC), 47 O.R. (2d) 577 (H.C.).

Expert opinions are not required in all cases: McSween v. Louis (2000), (ON CA), 187 D.L.R. (4th) 446 (Ont. C.A.); and Lawless v. Anderson, 2011ONCA 102 , at para. 28. [103] At this point it is worthwhile re-producing a portion of the Executive

Summary of the Richter Report. After making the point thatthey took a conservative approach to quantifying accounts and did not utilize assumptions that would result in an overstatement ofmisstatements in the F2009 Financial Statements, Richter states: … Notwithstanding this approach, we are of the opinion that these financial statements have not been prepared in accordancewith GAAP in all material respects.

We estimate that Atcon’s F2009 assets and net earnings had overstatements rangingbetween 28.3 million and 35.4 million dollars . . . [104] That is a very strong opinion given that Richter had no access to senior management’s knowledge, and that it is based on limitedassumptions.

While it does not comment on the LLP opinion, it directly contradicts it, presumably based in no small measure onRichter’s alarming estimates of Atcon’s overstatement of its net assets and earnings. [105] Possibly the most telling evidence concerning the state of the Province’s knowledge arising from the Richter Report is a letterfrom the Deputy Minister of Economic Development, Bill Levesque, dated December 21, 2012 to the New Brunswick Institute ofChartered Accountants in which he states that the Government of New Brunswick is proceeding with a formal complaint against GrantThornton LLP.

In support of that complaint he encloses a copy of a single document, the RSM Richter Report, from which he highlightsonly its conclusion that “. . . the overstatement of net assets and earnings for Atcon’s F2009 ranged between 28.3 MM and 35.4 MM. (executive

summary – pg. 6)”. I find that the mere fact that Mr. Levesque used that report as the basis for the complaint is sufficient toprove that the Province knew it had a potential claim against LLP.

[ 106 ] Moreover, if the Province had that state of knowledge when it filed the complaint then it had that state of knowledge in February, 2011 when it received the draft of that Report. [ 107 ] While the fact that the Province laid a complaint against LLP does not necessarily equate to its having a cause of action against LLP, in my view it is compelling evidence that by February, 2011 when it received the Richter Report, the Province knew or ought to have known that it had the prima facie grounds to infer that LLP had breached the standard of care in preparing the unqualified audit and that its loss was caused or contributed to by

an act or omission of LLP, particularly when that knowledge is combined with what it knew as of March 18, 2010. [ 108 ] I therefore find that if the Province hadn’t already discovered its claim in March, 2010, after receiving the Richter Report in February, 2011 it knew or ought to have known that it had prima facie grounds to infer that it had a potential cause of action against the defendants. There was no other party on whom it relied to protect its interests when it signed the guarantees.

Therefore, given the knowledge it had at that time, I find that its claim was discovered and the limitation period commenced. [ 109 ] In conclusion, I find that by March 18, 2010 the Province knew, or ought to have known, (

a) that a loss had occurred; (

b) that the loss was caused by or contributed to by

an act or omission; and (

c) that the act or omission was that of the defendants. [ 110 ] Since this action was not commenced until June 23, 2014 I further find that whether the limitation period started to run in March, 2010 or February, 2011 the action was not commenced within the applicable two year limitation period which is set out in section 5(1)(

a) of the LAA and that the Province’s claim against the defendants is therefore statute-barred. DISPOSITION [ 111 ] The Province’s motion is dismissed. The LLP and GTIL motions for

summary judgment are allowed and the Province’s action against them is hereby dismissed. COSTS [ 112 ] LLP and GTIL are entitled to costs on their motions which I assess at $3,500.00 and $2,500.00 respectively. These awards are inclusive of disbursements which I infer have been considerable. [ 113 ] If the parties cannot agree on the costs of the action I will hear further submissions and decide that issue on the motion of any of the parties. __________________________________________ William T. Grant ​​​​ Judge of the Court of Queen’s Bench of New Brunswick