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Arbitration
In Murphy v Amway Corporation the Federal Court of Appeal affirmed that class claims brought under Section 36 of the Competition Act are arbitrable. The decision reiterates prior jurisprudence that in the absence of legislative language to the contrary, Canadian courts will enforce arbitration agreements and class action waivers.
Negotiations with China on a foreign investment protection agreement have been ongoing since 1994, but were repeatedly frustrated by China's intransigence on the issue of dispute resolution. An agreement has now been hammered out; once it enters into force, investors will need to consider carefully whether to invoke any available domestic legal remedies before submitting claims to arbitration under the treaty.
Choosing a dispute resolution mechanism
Businesspeople and corporate counsel often seem not to pay much attention to their choice of dispute resolution mechanism when negotiating a contract. They should consider carefully the kinds of dispute likely to arise and choose a dispute resolution mechanism accordingly. A poor choice could result in a commitment to an inappropriate mechanism; and if no choice is made, then by default litigation is chosen.
In 1986 the Uniform Law Conference of Canada developed the Uniform International Commercial Arbitration Act. The conference has now established a working group to bring forward recommendations to update the act in 2013. The aim of this initiative is to help to maintain Canada's reputation as a leader in the field of international commercial arbitration.
The Ontario Court of Appeal has held that when an application is brought under the United Nations Commission on International Trade Law Model Law to set aside an arbitral award, made under Chapter 11 of the North American Free Trade Agreement, on the grounds of jurisdictional error, the standard of review to be applied by a court is 'correctness', not 'reasonableness'.
A potential tug-of-war between courts and arbitration tribunals concerning their respective roles in shareholder disputes involving both statutory and contractual claims has been averted. The Supreme Court of British Columbia has ruled that a claim for statutory oppression relief should be stayed until the determination, by arbitration, of the underlying issue of the proper interpretation of a unanimous shareholder agreement.
Asset Finance
Overview
Including: Taking Security; Types of Security Agreements; Personal Property Security Acts; Real Property Registrations; Bank Act Security; Canada Transportation Act; Canada Shipping Act; Enforcement
Title insurance is now widely used in Canada in real estate financings because it provides two forms of protection - a duty to indemnify and a duty to defend.
Aviation
Federal Court backs TATC in pilots' appeal
The Federal Court has dismissed an application for judicial review by the minister of transport. The court found that the Transportation Appeal Tribunal of Canada's decision in an appeal by two pilots who had failed their pilot proficiency check over use of the autopilot system was "intelligible, transparent and justified".
In a recent case the Provincial Court of Alberta found the limitation of liability provisions in Air Canada's standard-form air waybill inapplicable. The decision illustrates the manner and extent to which lower-level courts in Canada will go to find in favour of individual plaintiffs in cargo cases and is of interest in understanding how courts of equity deal with such matters.
A business jet insured for C$40 million was rendered a total loss after an accident. The insurance policy included a pilot training clause, requiring any pilot operating the aircraft to have completed a certain amount of classroom and flight training hours. The insurer denied the claim, stating that the pilot's training did not comply with the requirements of the clause. Three actions were commenced as a result of the insurance dispute.
Gabor Lukács has successfully challenged yet another air carrier's tariff before the Canadian Transportation Agency. On this occasion the carrier was Porter Airlines, a regional airline operating out of Toronto. This latest decision is the culmination of the various and sundry battles that Lukács has had against other carriers in recent years.
Following a crash, a passenger brought a claim against the minister of transport and the government on the grounds that their implementation of the safety management systems within the regime created by the Canadian Aviation Regulations created a lax regulatory environment that contributed to the circumstances of the crash. However, the court concluded that neither party owed the passenger a duty of care.
The Supreme Court of British Columbia recently held that course materials used in Ministry of Transport training were protected by solicitor-client privilege, and consequently the crown could not be ordered to produce such materials. The case commenced when International Express Aircharter Ltd challenged the revocation of its operations manager's authority, and the resulting suspension of its air operator certificate.
Banking
Overview
Including: Regulatory Matters Relating to Foreign Banks; Tax Matters; Legislative Framework for Taking Security; Enforcing Security; Priorities Issues.
A recent Ontario Superior Court of Justice decision provides valuable guidance to creditors on how to protect the enforceability of guarantees where material changes have been made to the underlying loan agreements. The case underscores that where material terms of a loan agreement are amended, restated or replaced, creditors should ensure that the guarantor either confirms the original guarantee or provides a new one.
The government recently published the final versions of the new Credit Business Practices Regulations and the Regulations Amending the Cost of Borrowing Regulations, which will require increased disclosure, changes to customer documentation and changes to business practices in the consumer credit business.
The Supreme Court recently held that banks may, in certain circumstances, recover fraud-related losses from accounts of unwitting beneficiaries of a fraud and assist each other in such recovery efforts. Relying on the common law principle of mistake of fact, the court held that the defendant was entitled to debit funds from its client's accounts in order to indemnify another bank for losses relating to payment on a counterfeit cheque.
With 68 million cardholders and over 27 million active cards in circulation, it is clear that Canadians love their credit cards. On the heels of similar measures introduced in the United States, Finance Minister Jim Flaherty recently unveiled a number of new proposed regulations that will affect the credit card industry.
A recent Ontario Court of Appeal decision highlights the risks facing lenders that rely on standard form security agreements to enforce the obligations of defaulting borrowers. The court applied the remedy of rectification to the plaintiff bank's standard personal guarantee and collateral mortgage forms, allowing the bank to enforce on only the collateral mortgage, even though the personal guarantee was a separate obligation.
The Quebec Act Respecting the Transfer of Securities and Establishment of Security Entitlements recently entered into force. Modernizing the law governing securities transfer is certainly warranted and perhaps somewhat overdue. Today's economic frenzy highlights the importance of clear settlement rules for all stakeholders. This is particularly true for creditors taking the securities as collateral.
Capital Markets
The Joint Forum of Financial Market Regulators recently assessed disclosure of mutual funds and segregated funds. The forum's view is that the current disclosure regime is inadequate. Specifically, it found that the current disclosure regime does not give meaningful information to fund investors before investors make purchase decisions.
Regulatory Changes for 2007
The Canadian Securities Administrators recently enacted numerous changes to the continuous disclosure requirements applicable to reporting issuers in Canada. For example, the definition of the term 'venture issuer', which was created in order to identify smaller reporting issuers with a view to imposing a reduced continuous disclosure regulatory burden on those issuers, has been expanded.
The Toronto Stock Exchange has issued a notice of importance to listed issuers which have security-based compensation plans or are proposing security-holder rights plans. The notice reminds listed issuers with security-based compensation plans that they must obtain security-holder approval for their plans every three years.
In June 2006 the Toronto Stock Exchange issued a notice with important implications for listed issuers with stock incentive compensation plans. The notice advises listed issuers that they have until June 30 2007 to alter their plans in order to avoid a requirement to obtain securityholder approval for any amendments to the plans.
The Canadian Securities Administrators (CSA) has issued a notice updating its earlier proposals with respect to internal control reporting requirements. The most important change is that the CSA no longer proposes to require internal control audit opinions from external auditors concerning management's assessment of the effectiveness of internal control over financial reporting.
In an eagerly awaited decision the Ontario Court of Appeal has reversed the May 2004 ruling of Justice Sidney Lederman in Kerr v Danier Leather Inc, which had held that Danier and certain of its senior officers were liable to investors for a misrepresentation relating to an earnings forecast included in a prospectus.
Commercial Property
The ongoing uncertainty in the economy and the resultant market slowdown have tenants re-evaluating their space needs. After considering their options and weighing demand, some tenants determine that the appropriate way to shed space on a cost-effective basis is to sub-let all or a portion of it to a third-party sub-tenant. Often a condition of a sub-lease is the sub-tenant's waiver of its rights in case of termination of the head lease.
In economic downturns, talk in the commercial leasing industry inevitably turns to what to do with unreliable tenants and how best to protect the position of the landlord. However, it is not only landlords and sub-landlords that are facing problems; tenants and sub-tenants are increasingly finding themselves left out in the cold, figuratively and literally, when their landlord or sub-landlord faces financial difficulties.
Buying Time: Rent Relief Agreements
As a result of the current economic downturn, many commercial tenants are finding themselves in precarious financial positions and are approaching landlords to seek rent relief in order to survive until the economy recovers. While landlords are often hesitant to diminish their revenue stream by granting rent relief, they may have a strong self-interest in facilitating a successful lease restructure if the tenant's need is genuine.
Tenant Exit Strategies
Given the weak economy, many tenants may find themselves with premises that they no longer require or which they need to dispose of in order to cut costs. This update explores some of the more common exit strategies employed by tenants, each of which is fraught with business and legal issues.
Commercial Lease Gross-Ups
Commercial leases often contain gross-up provisions relating to the calculation of the tenant's share of operating costs and realty taxes. In addition, commercial leases often include gross-up provisions relating to the calculation of the tenant's rentable area. What are gross-up provisions? Why are they necessary and are they fair? What are the issues associated with gross-ups that landlords and tenants must consider?
Key amendments to the regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act have now come into force. These amendments include real estate developers in the group of people required to keep records and report certain transactions. Most importantly, real estate developers will have to develop comprehensive compliance regimes specifically to manage this reporting.
Company & Commercial
Overview
Including: Legislative Framework; Forms of Business Association; Cooperatives; Principles of Contract Law; Recent Developments.
The Supreme Court of Canada recently rendered judgment on the rules governing false and misleading representations under Quebec's Consumer Protection Act. It held that the test is not what a consumer of average intelligence, scepticism and curiosity would understand from the commercial representation, but rather what a credulous and inexperienced consumer would comprehend.
All searches or seizures must be expressly authorized by an 'authority' - a statute, order or warrant - which may give investigators the right to access premises and records. It is often an offence to refuse authorized access, obstruct an authorized investigation or hide or destroy documents relevant to the inquiry. If a company finds itself under investigation, key objectives should be taken into account in order to manage the situation effectively.
Companies that communicate with the British Columbia provincial government on a regular basis may be affected by the changes to the British Columbia Lobbyists Registration Act which recently came into effect. This update looks at these changes and compares the amended act to the Federal Lobbying Act, which deals only with lobbying the Canadian federal government and Canadian federal public office holders.
Following amendments to the Business Corporation Act, the province of Alberta has moved into the area of unlimited liability corporations (ULCs), previously a bread-and-butter source of revenue for Nova Scotia and its law firms. The new legislation has raised questions as to whether the Alberta ULC will replace its Nova Scotian counterpart.
Codes of Business Conduct
Regulators in Canada have recognized the effectiveness of a well-considered and properly enforced code of business conduct. Although many companies already have codes in place, new corporate governance regulations will soon require many of those companies to update their codes and others to adopt a code for the first time.
New listing standards would require companies listed on the New York Stock Exchange (other than foreign private issuers) to adopt specified governance practices as a condition of listing. The changes are significant and impose requirements which differ in many respects from those to which Canadian companies listed on the Toronto Stock Exchange are subject.
Competition
Overview
Including: criminal matters; civil matters; general matters.
The Competition Tribunal recently rejected the commissioner of competition's argument that the Toronto Real Estate Board was engaging in anti-competitive acts contrary to Section 79 of the Competition Act. An interesting question arising from this case is whether behaviour that is harmful to competition generally, but which is not targeted specifically at a particular competitor, can ever be considered an abuse of dominance.
The Federal Court of Appeal recently released its reasons in the appeal of Commissioner of Competition v Tervita Corporation. This update summarises the key findings and provides practical suggestions for merging parties whose transaction may be viewed as anti-competitive and consequently investigated by the Competition Bureau.
Interim Competition Commissioner John Pecman recently announced that the Competition Bureau will be changing its approach to Section 11 orders under the Competition Act. Such orders – made during the course of an inquiry – allow the commissioner to examine any person which has or is likely to have relevant information, and to obtain documents or information that is deemed relevant to an inquiry.
Stricter sentences have recently been introduced for criminal convictions under the Competition Act. As there will now be less flexibility in the sentences that can be agreed to, these changes will also affect the way that corporations and individuals work out plea agreements with the Competition Bureau and the director of public prosecutions.
Following the resignation of Melanie Aitken as commissioner of competition, the federal government has announced that John Pecman will serve as interim commissioner of competition for up to one year. The fact that Pecman's appointment is for up to one year suggests that the government may well take its time to conduct an exhaustive search for the next commissioner.
In her final days as commissioner of competition, Melanie Aitken has launched a significant action, laying criminal charges over an alleged breach of a merger-related consent order. The approach is unusual, as breaches of consent orders are often dealt with in civil contempt proceedings before the Competition Tribunal.
Construction
The Ontario Court of Appeals recently released its judgment in the Kennedy Electric Case. The decision is expected to give rise to debate over the extent to which the supply of certain types of machinery, assembly line and process equipment is lienable.
In any construction tendering process a balance must be struck between ensuring that the process is competitive and yet remains fair to all participating parties. In a recent decision regarding the tendering process, the courts were once again called upon to examine the fairness of the construction tendering process.
Latent defects or deficiencies in buildings may be discovered long after the construction project is complete, thereby potentially exposing parties to indefinite liability. However, the Limitations Act 2002 sets out a new legislative regime, under which a party must commence a lawsuit within 15 years of the act or omission, regardless of when the negligence was discovered.
Within the construction industry there is always a potential tension between a general contractor and a subcontractor regarding the scope of work for which the subcontractor is responsible. If the parties to a contract are unable to resolve a conflict over one party's scope of work, the courts may be called upon to interpret and make the final decision regarding the parameters of a contract.
As the trend towards design-build construction projects continues, questions are being raised regarding the ability of members of a design-build team to make claims against the owner in respect of the owner's actions during the tender stage. The Federal Court of Canada recently reviewed the owner's duties to a design-build team when the owner fails to award the tender to the lowest compliant bidder.
A recent decision by the Ontario Superior Court of Justice examined the reasonableness of a general contractor's objection to and ultimate dismissal of the electrical subcontractor that was initially carried in the general contractor's tender to the owner.
Corporate Finance/M&A
Overview
Including: Obtaining control of a public company; Hostile bids; Regulation and regulatory bodies; Pre-bid; Announcing and making the offer; Consideration; Post-bid; Target's response; Tax; Other regulatory restrictions.
In its recent decision in Stetson Oil & Gas Ltd v Stifel Nicolaus Canada Inc the Ontario Superior Court of Justice ruled that Stifel had breached its obligation to Stetson to purchase C$25 million of Stetson's subscription receipts pursuant to a 'bought deal' financing and ordered Stifel to pay Stetson approximately C$16 million in damages for the failed private placement.
In a move that could limit the options of potential acquirers and activist investors, while significantly increasing the paper burden for institutional investors and mutual funds, the Canadian Securities Administrators has proposed a significant expansion to the early warning obligations for investors in securities. The regulator aims to provide greater transparency and address concerns regarding hidden ownership and empty voting.
Drafting go-shop clauses in M&A transactions
While still used sparingly, there has been a slight increase in the use of 'go-shop' clauses by Canadian targets in friendly acquisitions over the past few years. Given the potential benefits and limitations of go-shops, it is critical that targets and their advisers carefully negotiate and draft go-shops to maximise effectiveness.
The impact of pension deficits on M&A
Deficits in defined benefit pension plans will continue to be an issue in 2013. Purchasers and lenders must carefully review the financial position of the target's pension plans, and the target's current and future legal obligations under those plans, and determine the impact of those obligations on the value of the enterprise.
Investment Canada and SOEs
In 2012 the government reviewed its guidelines on how it will evaluate proposed acquisitions of Canadian businesses by foreign investors and, in particular, state-owned entities (SOEs). The revised guidelines and the government's announced policy as it relates to SOE investment in Canada continue to allow the government much flexibility in its decision-making process as it relates to such investors.
New tax issues for foreign buyers
One of the most important considerations for M&A purchasers (especially in cross-border transactions) is managing tax issues. Foreign purchasers of Canadian entities will need to plan around significant changes to the Income Tax Act, which were enacted in 2012. It is advised that foreign purchasers work through these rules carefully whenever the Canadian target has interests in foreign entities.
Corporate Immigration
CIC launches new Start-Up Business Class
The minister of citizenship, immigration and multiculturalism has announced that Citizenship and Immigration Canada (CIC) will launch its Start-Up Visa Programme to recruit innovative immigrant entrepreneurs to create new jobs and spur economic growth. To this end CIC has published the Ministerial Instructions in the Canada Gazette, thus formally establishing the new Start-Up Business Class.
CIC announces Start-Up Visa Programme
Citizenship and Immigration Canada is to launch the Start-Up Visa Programme to recruit innovative immigrant entrepreneurs who will create new jobs and spur economic growth. Foreign entrepreneurs seeking permanent residence under the programme will require the support of a Canadian angel investor group, venture capital fund or business incubator before they can apply.
Citizenship and Immigration Canada has begun accepting applications under the Federal Skilled Trades Programme. Eligible occupations are split into two groups: Group A includes 17 jobs with a moderate labour market need, while Group B includes 26 in-demand jobs. In addition to falling under one of the listed occupations, applicants must satisfy four minimum requirements.
Citizenship and Immigration Canada recently published proposed regulations that will authorise the collection and use of biometric data from certain foreign nationals who apply for a temporary resident visa, study permit or work permit. Biometrics is the measurement of an individual's unique physical identifiers, such as fingerprints and facial image, through which an applicant's identity can be established.
Canada and the United States have signed the US-Canada Visa and Immigration Information-Sharing Agreement. Both countries have committed to share immigration information to improve border efficiency and security by establishing and verifying the identity of foreign nationals and identifying those who are inadmissible.
The minister of citizenship, immigration and multiculturalism has announced that citizenship applicants must now provide upfront objective evidence of their language ability at the time of their citizenship application. Under the new rules, applicants are required to submit objective evidence that they have achieved the Canadian Language Benchmark Level 4, in speaking and listening, when they file their application.
Corporate Tax
Overview
Including: Inbound Transactions: Net Basis Taxation; Inbound Transactions: Withholding Taxation; Outbound Transactions; Taxation of Investments; Taxation of Indirect Loans; Transfer Pricing.
According to the recent 2013 Federal Budget, the government remains on track to return to balanced budgets by 2015-2016, despite continued global economic uncertainty. Budget 2013 proposes a number of significant business income tax and international tax measures. The government's intentions in introducing these measures are, among other things, to improve the integrity of the tax system and to close tax loopholes.
The Federal Court of Appeal has held that the minister of national revenue could not use her authority to demand information for the primary purpose of 'chilling' a business. The minister was held to have acted improperly by using audit powers primarily for "sending a message to the industry" rather than for a valid audit purpose, and for failing to provide full and frank disclosure to the court.
Tax Court compels disclosure in GAAR case
A recent Tax Court of Canada ruling set an important precedent that compels Canadian tax authorities to provide greater disclosure in the pleadings that they file when litigating a case under the general anti-avoidance rule in the Income Tax Act. The Canada Revenue Agency can now be compelled to disclose what it assumes to be the object, spirit and purpose of the relevant provisions that were allegedly abused or misused.
The year 2012 brought significant Canadian tax developments in several areas. Among other things, the 2012 federal budget strengthened Canada's thin capitalisation rules by reducing the debt-to-equity limit and treating disallowed interest as a dividend for Canadian withholding tax purposes. In addition, persons doing business in Canada were busy preparing for significant commodity tax changes in 2013.
A recent Supreme Court decision provides important guidance on the factors that taxpayers - and tax authorities and judges - can or should consider in determining appropriate transfer prices in non-arm's-length transactions. The decision in GlaxoSmithKline is expected to have a major influence on the interpretation and application of Canada's transfer pricing rules.
The Federal Court of Appeal has issued its latest decision under the general anti-avoidance rule (GAAR) in Triad Gestco Ltd v The Queen. The taxpayer's capital loss was denied under the GAAR on the basis that there was no economic loss. Although the legislation does not expressly state that a taxpayer must suffer an economic loss, the court read this requirement into the tax provisions that allow for a capital loss.
E-commerce
E-government Update
A recent government survey has shown that electronic service delivery is no longer the priority that it once was. The survey showed subtle shifts in the way the government sees the role of information technology, with only 25% of respondents citing electronic services as a pressing policy issue.
News Round-up
A Québec court has ruled that a company violated the Charter of the French Language by failing to provide a French version of its website. In addition, the federal government has issued regulations to complete the definition of 'secure electronic signature' given in the Personal Information Protection and Electronic Documents Act.
E-government Update
The federal government is planning major changes in the way it serves Canadian citizens. Ottawa is considering consolidating its services under the banner of Services Canada, the tentative name for a super-agency that has been two years in the making. It would provide an online one-stop shop for Canadian citizens in need of various services
E-government Update
Export Development Canada and the Canadian Trade Commissioner Service have joined forces to expand the tools available to Canadian exporters on the online Virtual Trade Commissioner service. The Newfoundland Registry of Deeds and Companies has also taken an important step towards modernizing its operations with the launch of new online electronic services.
Case Law Round-up
The Canadian privacy commissioner has taken a strict approach to the Personal Information Protection and Electronic Documents Act in a case involving unsolicited commercial email. The commissioner found that business email addresses can be classed as personal information and are therefore subject to the act's protection.
E-government Update
The government of British Columbia has launched the OneStop Business Registry, an improved e-government service designed to meet modern business needs. The registry provides a portal through which people starting, moving or expanding a business can contact a wide range of public agencies.
Employment & Labour
The Federal Court has confirmed the importance of timely and effective resignations by directors, and of retaining evidence of when this was tendered if directors wish to avoid liability for unpaid wages and other compensation owing to employees. The matter serves as a stark reminder that the payment order appeal process set out in the Labour Code should not be taken lightly.
The Saskatchewan Court of Appeal recently ruled that members of the Saskatchewan public service pension plan are not entitled to indexed pension benefits, beyond what was already provided for in legislation. Entities involved with the administration and communication of pension plans must take the utmost care and diligence to ensure that pension benefits are described accurately, consistently and clearly.
The Supreme Court of Canada recently issued its ruling in Indalex Limited, regarding competing interests in an insolvency between pension plan members and a debtor-in-possession lender. The court decided in favour of the lender, meaning that pension plan members would not receive full benefits. The decision could have collective bargaining implications, especially in situations of under-funded pension plans.
In a recent British Columbia case, employees who transferred employment as part of a corporate transaction were awarded monetary damages on account of lost pension benefits. The court awarded damages based on the difference in value between the pension benefits that the employees would have earned at their former employer during a reasonable notice period and what they actually earned at their new employer.
There is a growing awareness of mental health issues in the workplace and increasing calls for the government to enact legislation to provide employees with a psychologically safe workplace. One of the most recent developments in this area is a standard prepared by the Canadian Standards Association and the Bureau de normalisation du Québec, which sets out optimistic suggested goals and processes in this regard.
The Supreme Court of Canada recently released its eagerly awaited decision in R v Cole. In this criminal case, a high-school teacher argued that his right under Section 8 of the Canadian Charter of Rights and Freedoms to be free from unreasonable search and seizure was violated when police reviewed the contents of his work-issued laptop without first obtaining a search warrant.
Environment
Overview
Including: Environmental Policy and its Enforcement; Environmental Permits; Waste; Liabilities; Contaminated Land; Powers of Regulators; Reporting and Disclosure Obligations; General; Emissions Trading and Climate Change; Asbestos; Environmental Insurance Liabilities; New Cases, Trends and Developments.
The minister of sustainable development, environment and parks recently introduced Bill 42, which, if passed into law, will create government regulatory powers that will deepen its control over greenhouse gas emissions through market mechanisms. Essentially, the bill will allow for the creation of a provincial cap-and-trade system, the details of which will be established by government regulation following the enactment of the law.
Ontario Embraces a Green Energy Economy
Ontario's deputy premier and minister of energy and infrastructure recently introduced Bill 150 for its first reading in the legislature. If passed, the bill would create a new standalone Green Energy Act 2009 and significantly amend or repeal 17 other statutes in order to set Ontario on course to a greener economy and a conservation culture.
New Regulation on Use of Water Resources
The Quebec government plans to adopt a new regulation in order to collect information on the impact of water withdrawals and allow for better management of conflicting uses of water resources. Industries, businesses, municipalities and institutions will be required to communicate various data to the government on the water that they withdraw from the natural environment.
A new list of Canadian governmental incentives targeted specifically at businesses is now making it easier to be green. This update provides an overview of the environmental incentive programmes available to businesses located in Ontario, together with a description of the respective eligibility requirements.
Under British Columbia’s Environmental Management Act, the Ministry of Environment has the authority to issue contaminated sites approvals, notably certificates of compliance and approvals in principle of remediation plans. The newly created and independent Society of Contaminated Sites Approved Professionals of British Columbia now processes the vast majority of applications.
Canadian companies face an uncomfortable new reality with respect to cross-border pollution: even if they conduct no activities in the United States, the long arm of the US Environmental Protection Agency is applicable if their Canadian operations result in pollution south of the border.
Franchising
The Quebec Superior Court recently rejected a motion for a provisional injunction to prevent a former franchisee from operating another restaurant from the same premises where it had previously operated the franchised restaurant. The case will now go to trial on the merits; the court's analysis of the non-compete provision and the obligation to de-identify will be of great interest in the Canadian franchising community.
In Bertico Inc v Dunkin' Brands Canada Ltd the Quebec Superior Court ordered Dunkin' Brands Canada Ltd, the franchisor, to pay more than C$16 million in damages (the full amount of the claim) to 21 former franchisees for repeatedly failing to protect and enhance the Dunkin' Donuts brand in Quebec over the course of a decade. This landmark decision may be seen to impose a burdensome obligation on franchisors.
The Quebec Court of Appeal decision in Réal Martineau v Canadian Tire Corporation Ltd has surprised many in the Quebec franchising community. The court did not, as many had expected, intervene to protect the dealer from a seemingly abusive clause which permitted the supplier to build new stores in the same geographic area as the store operated by the dealer.
TA & K Enterprises Inc v Suncor Energy Products Inc concerned the application of the exemption in the Arthur Wishart Act whereby a franchisor is not required to deliver a disclosure document in circumstances if the franchise agreement is not valid for more than one year and does not involve the payment of a non-refundable franchise fee. The decision has now been confirmed on appeal.
A recent decision may have significant implications for franchisors whose franchisees become insolvent, as the Alberta Court of Appeal ruled that pursuant to the Bankruptcy and Insolvency Act of Canada, a franchise agreement may be assigned by a trustee in bankruptcy.
In a recent case the Ontario Superior Court of Justice offered further interpretation of the disclosure exemptions outlined in Section 5(7) of the Arthur Wishart Act. Adding to previous decisions on this matter, this latest judgment provides new insight into the transfer of franchises, as well as the events that may trigger a disclosure requirement on the part of franchisors.
Information Technology
Costs containment for IT projects
Recent reports in the Canadian media suggest that a number of large IT projects have gone badly. This is nothing new; IT projects are notorious for failing to deliver on time or on budget. However, business and contractual tools are available when negotiating large or complex IT transactions.
Traditional outsourcing services are challenged by new technology and approaches and a range of options in the delivery of IT services. Multi-sourcing is one of those challenges. This relatively new sourcing model has been proposed by many as an alternative to customary outsourcing services and is seen as the opportunity to establish a collection of externally and internally delivered services.
A cloud-computing bandwagon? Not yet!
In Canada, data portability, lack of trust and privacy issues have been stated in the press as potential barriers to a greater penetration of cloud-computing services. This update looks at two of the most important barriers to cloud computing: data protection and security.
Reducing structural costs
In a recent article in the McKinsey quarterly, chief information officers, chief technology officers and other executives were asked about their IT strategies and their response to the recession. The article mentioned four actions as possible measures to reduce structural costs. Such measures need to be addressed carefully from a contractual perspective to avoid becoming problematic.
Be wary of settlement agreements
A recent Court of Quebec case acts as a reminder that achieving a settlement requires attention to detail. The case revolved around a service supplier which was hired contractually to create a website. Upon payment of the service fees, the service supplier was to remit to the client the source codes related to such services. As is the case with many IT-related contracts, delivery problems ensued.
In these hard economic times, companies are seeking ways to compete better. IT outsourcing arrangements have been, and continue to be, seen as a tool to address certain corporate goals. However, innovation seems to be lacking in such arrangements. This update looks at how an outsourcing relationship can enable innovation.
Insolvency & Restructuring
The Supreme Court of Canada recently released its much-anticipated decision in the Indalex Limited proceedings under the Companies' Creditors Arrangement Act. The decision is important for secured lenders, both in the context of an insolvency proceeding (ie, debtor-in-possession lenders) and outside such proceedings (ie, secured lenders).
The Supreme Court of Canada recently considered the difficult intersection of Canada's federal insolvency regime with provincial environmental protection laws. Lower courts administering Companies' Creditors Arrangement Act proceedings have observed that Canada's insolvency statutes and environmental legislation do not mesh very well; the Supreme Court's decision attempts to strike a balance between the two regimes.
A recent decision of the Ontario Superior Court of Justice refined the factors to be considered when determining the centre of main interests (COMI) of debtor companies which are part of a larger corporate group. The court identified three principal factors which, considered as a whole, will indicate whether the location in which the proceeding has been filed is the debtor's COMI.
The Ontario Superior Court of Justice recently considered the evidence required when seeking the appointment of a receiver and the approval of a 'quick-flip' sale of a debtor company's assets in circumstances where the debtor, secured party and proposed purchaser are related parties. If privately appointing a receiver appears to be viable, the applicant must show sufficient grounds for the court to intervene.
The Alberta Court of Appeal recently released the first Canadian appellate court decision interpreting a bankruptcy trustee's rights to assign a franchise agreement of a bankrupt franchisee over the franchisor's objections. Permission was granted pursuant to Section 84.1 of the Bankruptcy and Insolvency Act – a relatively new provision which was introduced into the act in 2009.
Recently, the Supreme Court of Canada granted leave to appeal the Ontario Court of Appeal's decision in Indalex Limited (Re). The appeal court's decision has potentially far-reaching implications for lending transactions and has also created uncertainty with respect to the extent of an employer's fiduciary obligations in its role as pension plan administrator.
Insurance & Reinsurance
The Ontario Court of Appeal has confirmed that insurance sales brokers may be free to take their books of business to competing firms following the termination of their services. In addition to clarifying the law on unlawful conduct conspiracy and wrongful resignation, the decision confirms that – in the absence of an agreement to the contrary – an independent contractor is the sole owner of his or her own book of business.
In late January the Office of the Superintendent of Financial Institutions released its final version of the revised Corporate Governance Guideline, which reflects its response to commentary received on the first version published in August 2012. Among other things, the revised guideline confirms that insurers and other regulated institutions may implement its requirements in a manner that is best suited to the organisation.
Whether an insurer providing professional insurance to an employer is liable for the acts of employees at a non-traditional work event will be a fact-specific determination and will differ depending on the policy and the event. However, a recent British Columbia Court of Appeal decision has made it clear that liability will not extend indefinitely and courts will likely take a practical, commercially reasonable approach.
A recent Ontario Court of Appeal case illustrates that insurance policies are significant commercial contracts that deserve to be treated as such. The case also illustrates how parties may protect themselves for anticipated claims under 'claims-made' policies that are about to expire and under subsequent claims-made policies.
The Office of the Superintendent of Financial Institutions has issued a new draft guideline on corporate governance. The most obvious change introduced by the new guideline, and one of particular relevance to the insurance industry, is the increased focus on risk. Risk management is now a mere subset of risk governance, which entails a more systematic, defined and holistic approach to dealing with risk.
The Financial Services Commission of Ontario recently released a consultation paper outlining four proposals to reform Ontario's insurance regime. Among other things, insurers (with the exception of farm mutuals) licensed in Ontario must comply with the International Association of Insurance Supervisors' stringent solvency standards, which were established in response to the recent global financial turmoil.
Intellectual Property
The Supreme Court has denied Philip Morris's request for leave to appeal the Federal Court of Appeal's precedent-setting decision in Imperial Tobacco Canada Limited v Philip Morris Products SA. The appeal court had held that Philip Morris had infringed the MARLBORO trademark by selling no-name cigarettes in packaging incorporating the well-known 'red roof' packaging trade dress of Philip Morris's Marlboro brand.
The Federal Court has dismissed an action brought by Apotex to impeach the patent claiming escitalopram (Lundbeck's Cipralex), declaring the patent to be valid and infringed by Apotex and Apotex Pharmachem, and granting certain remedies to Lundbeck. Escitalopram is the S-enantiomer of citalopram, a previously known compound.
The Combating Counterfeit Products Act addresses Canada's lack of an effective regime for tackling counterfeit goods by proposing trademark prohibitions and offences and new customs measures for detaining counterfeits. However, significant improvements could be made. It remains to be seen whether there will be robust debate, appropriate amendment and passage of the bill into law.
Justice Snider recently dismissed actions by Teva and Apotex to impeach Novartis's patent claiming imatinib mesylate (GLEEVEC). She also granted prohibition orders under the Patented Medicines (Notice of Compliance) Regulations against Teva and Apotex regarding the same patent. The decisions were the result of the consolidation of four proceedings. Teva and Apotex may yet appeal.
The Canadian Patent Office has released examination guidelines for computer-related subject matter to take into account the Federal Court of Appeal decision in Canada (Attorney General) v Amazon.com Inc. The guidelines should be a welcome development to applicants for computer-related inventions, as they put an end to the Patent Office's assessment of statutory subject matter based on the inventive concept.
The government recently introduced the Combating Counterfeit Products Act, which proposes long-overdue amendments to the Copyright Act and Trademarks Act, including the addition of improved border measures and clear prohibitions to address the proliferation of counterfeit and pirated products. The bill also includes provisions dealing with significant trademark issues, including expanding the definition of 'trademark'.
Leisure & Tourism
For many people, the dream of owning a cottage as a summer getaway is increasingly moving out of reach as the most desirable and accessible areas become prohibitively expensive. As a result, there is an increasing market for shared ownership and use of resort accommodation that a person can still call home. One of the more popular ways to do this is through the fractional-share condominium.
Litigation
Silver v IMAX: avoiding war on two fronts
The Ontario Superior Court of Justice recently recognised the conditional settlement of a US class action, which had been approved by a US court, and granted an order to amend the class definition in the parallel Ontario class proceedings by excluding those persons that had been included in the US settlement. This decision will likely have important implications for litigants involved in parallel class actions in multiple jurisdictions.
The Federal Court of Appeal recently handed down its decision in Murphy v Amway Canada Corporation, affirming the Federal Court's decision and declining jurisdiction to hear a motion to certify a class action in respect of the Competition Act, given the parties' binding arbitration agreement and class action waiver. This decision saw the enforcement of both a binding arbitration agreement and a class action waiver.
Litigators in Ontario have found themselves in the midst of what some jurists have called a "cultural revolution" with respect to the manner in which the courts expect litigants and their counsel to behave. One of the driving forces behind this has no doubt been the proliferation of protracted interlocutory disputes over the sufficiency and adequacy of documentary production that has hamstrung the court, spawning scheduling bottlenecks.
The lack of scholarly commentary on multi-party settlements raises interesting questions in the context of corporate, commercial and personal injury litigation. What are the rights and obligations of the parties? How does the court reconcile the litigants' competing interests - namely, the privileged nature of communications in furtherance of settlement and the non-settling defendants' right to know the case against it?
A recent landmark decision raises the question of whether the Canadian courts' application of the 'real and substantial connection' test makes Canada a more attractive destination than the United States for investors seeking to commence class actions against multinational companies whose shares are traded on a foreign exchange and which have a significant presence in North America - specifically, Ontario.
The Ontario Court of Appeal recently considered whether the appellant was entitled to production of documents and information from the court-appointed receiver that had been appointed to investigate a Ponzi scheme in which the appellant was allegedly involved. The decision is important because of the protection it affords both to court-appointed receivers and to the procedural integrity of regulatory tribunals.
Media & Entertainment
Overview
Including: The Canadian Film and Television Industry; Non-Canadian Originated Productions in Canada; Tax Credits; CRTC 'Canadian Content'; Direct Federal Assistance; Direct Provincial Assistance; Private Assistance; Producing in Canada without Canadian Financing.
The Federal Court of Canada has erected a substantial roadblock to the efforts of the Canadian recording industry to curtail the unauthorized sharing of audio recordings over the Internet (BMG Canada Inc v John Doe). The court declined to order some of Canada's largest internet service providers (ISPs) to disclose the identities of select ISP customers.
Titanic Costs for Canada/UK Feature Films?
The UK government has launched a review of international film co-production treaties. The announcement of the review coincides with the release by its Department for Culture, Media and Sport of the updated Guidelines on Film Co-production. Among the changes to the guidelines is an increase in the minimum expenditure requirement for Canada/UK feature film co-productions.
The Alliance of Canadian Cinema, Television and Radio Artists (ACTRA) has approved a new independent production agreement. The agreement was negotiated with the Canadian Film and Television Production Association and the Association des Producteurs de Film et de Télévision de Québec, and governs the employment of ACTRA members with respect to independent film and television.
The first budget of the new Québec government has reduced government subsidies and tax benefits for most Québec-based industries, including the film and television industry. The proposed changes, which are outlined by Finances Québec in the 2003-2004 Budget - "Additional Information on the Fiscal Measures", will modify various film and television-related tax credits in Québec.
A report on Canadian English-language drama prepared for the Canadian Radio-television and Telecommunications Commission and Telefilm Canada addresses the state of English Canadian television drama and offers a number of recommendations that are designed to encourage the growth of Canadian audiences for homegrown drama.
Canadian Finance Minister John Manley has tabled the federal Budget in the Canadian House of Commons, announcing changes to the film or video production services tax credit and the Canadian Television Fund (CTF). For those who rely on CTF financing for domestic production, the Budget will give cause for concern.
Offshore Services
Several media outlets have revealed the existence of leaked financial documents apparently showing that more than 130,000 people throughout the world - reportedly more than 450 of whom are Canadian - have placed funds in offshore tax havens. The revelations have heightened the need for Canadian taxpayers to consider making voluntary disclosures where unreported amounts have been invested offshore.
In a recent case the Tax Court of Canada considered whether two Barbados trusts were entitled to claim the benefit of the capital gains exemption in Article XIV(4) of the Canada-Barbados Income Tax Convention on their dispositions to an arm's-length purchaser of shares of two Canadian holding corporations which indirectly owned a Canadian automotive parts manufacturing and assembly business.
Lipson's ‘Spousal Twist’ Subject to GAAR
A majority of the Supreme Court of Canada recently dismissed the taxpayer’s appeal in Lipson v The Queen. The case involved a transfer of company shares between spouses financed with borrowed funds secured against the taxpayer’s residence, which triggered the application of the spousal attribution rules. The minister of national revenue challenged the transactions under the general anti-avoidance rule.
Product Liability
Health Canada has released a public consultation proposal to amend the Playpens Regulations under the Canada Consumer Product Safety Act. The proposal seeks to enhance infant/child safety by aligning the regulations with existing requirements under the Canadian Cribs, Cradles and Bassinets Regulations and by further aligning Canada's safety requirements with certain international standards and US requirements.
The Divisional Court of Ontario has upheld a landmark decision denying certification of a product liability class action. The court endorsed the reasons and analysis of Justice Horkins, a lower court judge who had denied certification of a proposed class action involving an anti-psychotic drug.
The Safe Food for Canadians Act has passed its third reading in the House of Commons and now awaits royal assent. The act, which consolidates four key pieces of legislation, includes a mechanism for formalising and strengthening the controls applicable to imported foods and a prohibition on the sale of foods that have been recalled by federal order.
The Ontario Superior Court of Justice recently handed down the first-ever trial decision in a product liability class action in Canada. This is the first class action to go to trial that included a claim in waiver of tort and therefore is an important decision in the development of Canadian class action jurisprudence.
A recent Ontario Superior Court decision denying certification of a pharmaceutical class action could have a significant impact on the conduct of product liability class actions in the province. In rejecting certification, the court closely analysed the claim being advanced and the common issues proposed, and concluded that the action was unsuitable for certification.
The Quebec Court of Appeal has sided with respondents Wyeth Consumer Healthcare Inc and Johnson & Johnson Inc in dismissing an appellant's motion for a class action. The appellant sought to represent parents who had purchased certain over-the-counter medicines for children, alleging that the respondents had provided no warning about the lack of efficacy of the medicines or their potential health risks.
Projects & Procurement
Overview
Including: Relevant Authorities and Legislation; Structure of PFI/PPP Arrangements; Procurement of PFI/PPP Arrangements; Financing of PFI/PPP Arrangements; Contract Terms - General; Contract Terms - Change of Law/Political Risk; Property and Planning Law; Employment and Pensions Law; Insurance.
The Federal Court of Appeal recently issued a decision that solidified the ability of foreign companies to initiate procurement complaints under the Agreement on Internal Trade. Furthermore, the decision will require government institutions to adhere to recommendations of the Canadian International Trade Tribunal.
In the 2007 Budget the federal government announced a significant investment in infrastructure of more than C$16 billion over a period of seven years. This brings federal support under the new long-term plan for infrastructure to a total of C$33 billion.
In the past 18 months two major requests for proposals have been issued in Quebec. The first, announced by Hydro-Québec Distribution, relates to the supply of 2,000 megawatts of wind power and could generate as much as C$5 billion in investment in Quebec. The wind power generated by this project will be phased in between 2009 and 2013.
Well-established markets for public-private partnerships (PPPs) already exist in the United Kingdom and Australia. These models are being imported and adapted for use in British Columbia; as the Canadian and provincial PPP markets mature and become more familiar with these models, greater opportunities for cost-effective, value-added solutions to traditional public sector service delivery exist.
Recent Developments in Quebec
In recent months there have been several notable developments in relation to major projects taking place in Quebec. For example, the Quebec Treasury Board has released a second progress report on its 2004-2007 Modernization Plan, which involves several projects initiated as public-private partnerships.
Securitisation & Structured Finance
This update addresses various questions that have arisen recently regarding Canada’s decision to accelerate the elimination of withholding tax on arm’s-length (unrelated party) interest payments and the impact of the decision on cross-border securitization and loans.
Two recent developments will finally permit the tax-efficient securitization of billions of dollars of Canadian consumer and corporate receivables in US, European and other capital markets throughout the world. For the first time, structuring a cross-border securitization of interest-bearing Canadian receivables need not face the impediment of Canadian withholding tax.
The Canadian government recently announced that it would soon eliminate withholding tax on arm's-length payments of interest to US parties and other non-residents of Canada. Once implemented, this will significantly affect how Canadians raise debt capital for securitization and other structured finance products.
The forthcoming amendments to the Ontario Personal Property Security Act address three separate issues faced by receivables financiers in Ontario. Among other things, the amendment deals with the issue of the non-assignability of certain types of receivable, which are therefore not available as collateral.
In June 2005 the Canadian government repealed a 30% cap on the amount of foreign debt that certain Canadian investors could hold. Since then, non-Canadian issuers have raised more than C$22 billion in Canadian-dollar 'maple' bonds, converting the proceeds back to their home currency.
Borrowing Base and Priority Payables
The amount financed in a revolving asset-based lending transaction is directly related to the borrowing base provided by the assets. Only assets that can be turned into cash in the medium-term business cycle are financed in this way - in other words, a borrower's inventory and receivables.
Shipping & Transport
Regulations brought into effect in November 2010 satisfy Canada's obligation as a contracting state to the International Convention for the Safety of Life at Sea to require that certain of its passenger vessels and cargo vessels transmit long-range identification and tracking information to other participating states. The regulations are intended to increase marine safety and enhance the security of Canada's marine environment.
Fourth Officer Karl Lilgert pleaded not guilty to charges of criminal negligence causing death in connection with the 2006 sinking of the passenger ferry the Queen of the North. The criminal justice branch of the British Columbia Ministry of the Attorney General appears to have concluded that the available evidence does not support the charging of any officer or crew member other than Lilgert with respect to the sinking.
The new Maritime Occupational Health and Safety Regulations under the Canada Labour Code are now in force. Part of a govemment effort to ensure that "employees working on board vessels enjoy the same level of health and safety protection as off‑board employees", the new regulations apply to employees employed on vessels registered in Canada or uncommissioned vessels of the Canadian government, among others.
In British Columbia, tort feasors liable for personal injuries suffered in a marine context are now also subject to claims by the provincial government for the recovery of healthcare costs expended (past and future) by the Ministry of Health relating to the injury pursuant to the Health Care Costs Recovery Act. The British Columbia Supreme Court recently determined an important point on when the act applies retrospectively.
In a recent case the Supreme Court of Canada considered the matter of payments in lieu of property taxes made by federal corporations (including major Canadian ports) to municipalities in which these corporations are located. This is an important issue for Canadian ports, as making payments in lieu of taxes can affect their economic viability.
Telecommunications
Do-Not-Call Registry Moves One Step Closer
The Canadian Radio-Television and Telecommunications Commission announced the rules for its national do-not-call registry. However, the date on which the registry will come into force remains uncertain, as its operation is dependent on the appointment of a do-not-call list operator.
Two parliamentary committees separately reviewing the status of foreign investment rules governing the communications sector in Canada have generated directly conflicting recommendations. At the heart of the debate are Canada's decade-old telecommunications ownership and control laws.
Canada's House of Commons Standing Committee on Industry, Science and Technology has concluded a review of the foreign ownership and control restrictions imposed on telecommunications common carriers operating in Canada. Its proposals include the removal of legislative provisions that limit foreign ownership and control of telecommunications common carriers and broadcasting distribution undertakings.
Many companies assume that if they are exempt from the requirement to hold a spectrum licence under the Radiocommunication Act, this entitles them to exemption from federal radiocommunication and telecommunications law. However, this is not the case.
Over the next few months, federal lawmakers will attempt to make sense of the complex foreign investment laws governing ownership and control of Canada's telecommunications, cable television and broadcasting sectors. Parallel sets of parliamentary committee hearings are now underway, launched by political rivals within the Chretien cabinet.
In a landmark telecommunications ruling that signals a major shift in the course of Canadian pricing regulation, the Canadian Radio-television and Telecommunications Commission has issued its Regulatory Framework for Second Price Cap Period (Decision 2002-34 issued on May 30 2002), which effectively outlines a new scheme for Canadian telecommunications pricing and regulation.
Trade & Customs
The Supreme Court of Canada recently issued a ruling that clearly restricts the ability of foreign companies to initiate procurement complaints under the Agreement on Internal Trade. The court found that the agreement is focused on domestic trade, and that in order to have standing to complain under the agreement, the complainant must fall within the agreement's scope.
The texts of the Canada-Jordan Free Trade Agreement and several parallel agreements were recently presented to Parliament. The agreements will be open for review and debate for 21 sitting days. If brought into force, the free trade agreement will eliminate all non-agricultural tariffs and most agricultural tariffs, in addition to introducing commitments to reduce non-tariff barriers.
A recent Canadian International Trade Tribunal decision demonstrates the complexity of international trade rules, but also the resulting benefits to those companies that take extra care to work through them in detail. In this case an importer of t-shirts successfully demonstrated that the goods were eligible for duty-free importation into Canada under the North American Free Trade Agreement.
The historic launch of negotiations towards an economic partnership agreement between Canada and the European Union was recently announced. The negotiations will be guided by a joint 'scoping exercise' that culminated in the Joint Report on the EU-Canada Scoping Exercise, which outlines the areas proposed by both parties as subjects for upcoming negotiations.
Bill C-2, the domestic legislation required to implement the Canada-EFTA Free Trade Agreement, has passed its final reading in the Senate, meaning that the free trade agreement between Canada and the European Free Trade Association (EFTA) will come into effect on July 1 2009. The agreement will open new markets for exporters and alleviate some of the burdens faced by those that import goods from EFTA countries.
The Supreme Court of Canada recently released a precedent-setting decision in the first appeal of a goods and services tax (GST) assessment to be heard by Canada's highest court. The decision serves to broaden the number of eligible claimants beyond the person with the 'legal liability' to pay GST in the case of claims for rebate in respect of GST paid in error.
