Corporations & Commercial Law Updatehttps://www.stikeman.com/en-ca/rss/corporations-commercial-law?utm_source=corpcomm-list-en&utm_medium=email&utm_campaign=corpcommCorporations & Commercial Law Updateen-CA{5055E3A5-3F0C-4864-A563-36CB16DF95B4}https://www.stikeman.com/en-ca/kh/canadian-ma-law/public-safety-canada-updates-guidance-on-forced-and-child-labour-reportingKeith R. Chatwinhttps://www.stikeman.com/en-ca/people/c/keith-r-chatwinAndrew S. Cunninghamhttps://www.stikeman.com/en-ca/people/c/andrew-s-cunninghamBrendan Kennedyhttps://www.stikeman.com/en-ca/people/k/brendan-kennedyIan Trimblehttps://www.stikeman.com/en-ca/people/t/ian-trimbleCanadian M&A LawCanadian Securities LawCorporations & Commercial Law UpdateCanadian Mining LawCanadian Employment, Labour & Pension LawPublic Safety Canada Updates Guidance on Forced and Child Labour Reporting<p><strong>On March 5, 2024, Public Safety Canada made changes to the </strong><a rel="noopener noreferrer" target="_blank" href="https://www.publicsafety.gc.ca/cnt/cntrng-crm/frcd-lbr-cndn-spply-chns/index-en.aspx"><strong>guidance on reporting requirements</strong></a><strong> (“Guidance”) under the </strong><a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/LegisInfo/en/bill/44-1/S-211?view=progress"><strong><em>Fighting Against Forced Labour and Child Labour in Supply Chains Act</em></strong></a><strong>, S.C. 2023, c. 9 (“the Act”) revising its original December 2023 guidance (discussed in our </strong><a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/government-of-canada-issues-key-guidance-on-forced-and-child-labour-reporting"><strong>previous post</strong></a><strong>)</strong><strong>. </strong></p> <h2>Key Changes to the Guidance</h2> <p>The changes to the Guidance include:</p> <ul> <li><strong>Changes to the guidance on which entities must report: </strong>the updated guidance states that “Reporting requirements are for entities producing goods in Canada or elsewhere or importing goods produced outside Canada. Reporting requirements are also for entities controlling other entities engaged in these activities.” Notably, there is no longer a reference to “selling” or “distributing” goods. Although presumably intended to clarify which entities must report, the Guidance now stands in contrast with the underlying statutory obligation, which remains unchanged and requires entities “selling” or “distributing” goods in Canada or elsewhere to report.</li> <li><strong>Clarification on the reporting obligations of subsidiaries: </strong>the Guidance states that subsidiaries must determine their reporting obligations independently of their parent companies and that subsidiaries should use their own financial statements (i.e., they should not include the financials of the parent company) in determining if they meet the definition of “entity” under the Act.</li> <li><strong>Clarification of the length requirement: </strong>the 10-page limit set out in the original Guidance has been changed to a recommendation rather than a requirement. The 100MB maximum size and requirement to submit as a pdf is unchanged.</li> <li><strong>Guidance on use of the questionnaire in preparing the report: </strong>previously, the Guidance had stated that the “exact same information and structure provided through the questionnaire” could be used to prepare the report. This has been removed from the updated Guidance, and it is now only recommended that the questionnaire be used as a resource when preparing the report.</li> <li><strong>Clarification on uploading bilingual reports: </strong>if an entity chooses to file in both official languages, it should upload two separate pdfs.</li> <li><strong>Clarification on timing of posting on website: </strong>the May 31 deadline applies only to submission to Public Safety Canada and entities should publish their reports on their websites “at their earliest convenience following submission”.</li> <li><strong>Clarification on applicability to Crown Corporations: </strong>the updated Guidance clarifies that provincial and municipal institutions are not considered government entities, but that some non-federal Crown Corporations may meet the definition of “entity” and may therefore have corresponding reporting obligations.</li> </ul> <h2>What Should Entities Be Doing?</h2> <p>Corporations, trusts, partnerships and other unincorporated organizations should be determining whether or not they are required to file under the Act. This includes non-Canadian entities that have certain connections with Canada. Entities that have filing obligations should be working to prepare and file their reports prior to the May 31, 2024 filing deadline or potentially sooner in the case of <em>Canada Business Corporations Act </em>entities with pending annual financial statement delivery obligations.</p> <p>Our team has developed several resources to assist clients in complying with the Act. Please contact the authors if you have any questions or if you need any assistance in determining your filing obligations and/or preparing and filing your report.</p>21-Mar-2024 08:46:00{C0F34826-3667-4A08-9E4E-A30991C1C28F}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/VIDEO-Understanding-Canadas-New-Supply-Chain-Transparency-LegislationKeith R. Chatwinhttps://www.stikeman.com/en-ca/people/c/keith-r-chatwinJean-Guillaume Shoonerhttps://www.stikeman.com/en-ca/people/s/jean-guillaume-shoonerCandace Ceronehttps://www.stikeman.com/en-ca/people/c/candace-ceroneBrendan Kennedyhttps://www.stikeman.com/en-ca/people/k/brendan-kennedyIan Trimblehttps://www.stikeman.com/en-ca/people/t/ian-trimbleCorporations & Commercial Law UpdateTax Law UpdateVIDEO: Understanding Canada's New Supply Chain Transparency Legislation<p>A new Canadian law requires large and midsized businesses, including some foreign businesses, to file annual public reports on the steps they have taken to prevent the use of forced labour and child labour in their supply chains. Our expert panel recently discussed some of the compliance considerations that the legislation is raising (55 minutes, 21 seconds). </p> <div style="position:relative;height:0;padding-bottom:59.56%;"><iframe title="VIDEO: Understanding Canada's New Supply Chain Transparency Legislation" style="position:absolute;width=;" 100%;height="100%;left:0'" width="100%" height="100%" src="https://www.youtube.com/embed/CuLJ70qQ9MM" frameborder="0" allow="encrypted-media"></iframe></div> <br /> <a href="https://www.stikeman.com/en-ca/kh/guides/videos-podcasts">> See all Stikeman Elliott multimedia content</a>11-Mar-2024 03:01:00{B266E825-33C1-422D-9F83-79BDC2222889}https://www.stikeman.com/en-ca/kh/canadian-class-actions-law/meal-delivery-services-mandatory-arbitration-clause-for-couriers-unconscionableGary T. Clarkehttps://www.stikeman.com/en-ca/people/c/gary-t-clarkeCheryl Reahttps://www.stikeman.com/en-ca/people/r/cheryl-reaEmily Tessierhttps://www.stikeman.com/en-ca/people/t/emily-tessierCanadian Class Actions LawCanadian Employment, Labour & Pension LawCorporations & Commercial Law UpdateMeal Delivery Service’s Mandatory Arbitration Clause for Couriers Unconscionable: Manitoba Court of Appeal<p><strong>The Manitoba Court of Appeal (the “Court”) in </strong><strong><em><a rel="noopener noreferrer" href="https://canlii.ca/t/k2blp" target="_blank">Pokornik v. SkipTheDishes Restaurant Services Inc.,</a></em></strong><strong><a rel="noopener noreferrer" href="https://canlii.ca/t/k2blp" target="_blank"> 2024 MBCA 3</a></strong><strong>, recently upheld a </strong><strong><a href="https://www.stikeman.com/en-ca/kh/canadian-employment-labour-pension-law/online-meal-services-arbitration-clause-doesnt-deliver-the-goods">lower court decision</a></strong><strong> dismissing a large online meal delivery service’s motion to stay a class proceeding in favour of arbitration, although it did not accept the lower court’s finding with respect to agreement “under protest”. The decision reinforces the high level of scrutiny that courts may apply to standard form contracts in the “gig” economy and, in particular, to arbitration clauses. </strong></p> <h2>Background</h2> <p>The plaintiff courier (the “<strong>Plaintiff</strong>”) brought an action against SkipTheDishes Restaurant Services Inc. (“<strong>Skip</strong>”), seeking a declaration that she was an employee of Skip and not an independent contractor, that Skip had breached the terms of applicable employment standards legislation, and for damages. The Plaintiff also applied for an order that the claim proceed as a class action and filed a motion for certification.</p> <p>Skip applied to stay the Plaintiff’s action based on the arbitration clause in Skip’s new standard service agreement with couriers (the “<strong>New Agreement</strong>”), which required disputes to be submitted to individualized arbitration.</p> <p>When the Plaintiff began working as a courier in 2014, her relationship was governed by an agreement (the “<strong>2014 Agreement</strong>”) that did not contain an arbitration clause, but rather conferred jurisdiction on the Manitoba Court of Queen’s Bench (as it then was). When Skip emailed the Plaintiff to inform her it was implementing the New Agreement, the Plaintiff was required to click “I Accept” to the New Agreement on the Skip application before she could continue working. To keep working, the Plaintiff, who was also a single mother with a high school education, sent an email back saying, “I do not agree with the new terms, but will indicate ‘Agree’ so I can continue to get shifts because I want to work. I am doing this under protest.”</p> <h2>Decision of the Manitoba Court of King’s Bench</h2> <p>The motion judge held that there was no arbitration agreement between the parties (see our discussion of the case <span style="text-decoration: underline;"><a rel="noopener noreferrer" href="https://canlii.ca/t/k2blp" target="_blank">here</a></span>) and found, among other things, as follows:</p> <ul> <li>the arbitration clause in the New Agreement was forward-looking and did not encompass a pre-existing court action;</li> <li>as the Plaintiff clicked “I Agree” under protest so she could keep working, the Plaintiff had not accepted the terms of the New Agreement; and</li> <li>even if the New Agreement could apply, the arbitration agreement was invalid for unconscionability and lack of consideration (i.e., continued ability to perform services was not consideration).</li> </ul> <p>In finding the arbitration agreement unconscionable, the motion judge applied the two-step test from <em><a rel="noopener noreferrer" href="https://canlii.ca/t/j8dvf" target="_blank">Uber v. Heller</a></em><a rel="noopener noreferrer" href="https://canlii.ca/t/j8dvf" target="_blank">, 2020 SCC 16</a> (“Uber”): (i) was there inequality in bargaining power?; and (ii) was the resulting bargain improvident? Ultimately, the motion judge held that:</p> <ul> <li>there was significant inequality of bargaining power between the parties; and</li> <li>the bargain was improvident, because the arbitration clause (if applied as interpreted by Skip) would benefit Skip at the expense of the Plaintiff “by retroactively removing her ability to access the courts”.</li> </ul> <h2>Grounds of Appeal</h2> <p>Skip appealed the motion judge’s decision on the grounds that the motion judge had erred (i) in undertaking an analysis of what agreement governed rather than referring the matter to an arbitrator, and (ii) in finding that the New Agreement did not govern the parties’ relationship.</p> <h2>Decision of the Court of Appeal of Manitoba</h2> <p>The Court of Appeal upheld the motion judge’s decision in part, affirming that the mandatory arbitration clause was void for unconscionability, and quashed Skip’s appeal.</p> <p>However, the Court held that the motion judge had erred in finding that the Plaintiff was governed by the 2014 Agreement (without an arbitration clause), rather than the New Agreement (with the arbitration clause). The 2014 Agreement clearly stated that the terms of the agreement could be amended at any time, and that the continued provision of services after notice of new terms would constitute consent to be bound by them. According to the Court, it was not enough for the Plaintiff to rely on sending an email to Skip stating “I do not agree” as an objective outward manifestation of assent, especially since she clicked “I agree” in the Skip platform and continued to provide services after the 2014 Agreement was amended. Therefore, the Court found that the Plaintiff was bound by the New Agreement that contained the mandatory arbitration clause.</p> <p>Finding that the New Agreement applied, the Court then examined whether the motion judge erred in refusing to stay the action because the New Agreement was invalid by virtue of either unconscionability or lack of consideration. The Court affirmed the motion judge’s findings that the two elements of unconscionability – an inequality of bargaining power and a resulting improvident transaction – were present in this case, and thus, the Agreement was invalid. Specifically, the Court found that the nature of the contract (one of adhesion that left no opportunity to negotiate), and the presence of the class action waiver, were the two main factors that made the arbitration clause unconscionable.</p> <p>While the Court acknowledged that arbitration can be an appropriate and acceptable alternative to litigation, it also reiterated the important role that class actions play in upholding principles of efficiency and access to justice, especially in circumstances where there is the possibility of many similarly situated claimants. The Court also noted that any disputes likely to arise would concern relatively small amounts, and that, while the New Agreement provided that Skip would pay the reasonable arbitration costs, the Plaintiff would still have to pay for her legal costs to advance the claim through arbitration, which would work out to be “grossly disproportionate” compared to the monetary value of her claim. Given this context, the Court concluded that the practical effect of the mandatory arbitration clause was to make arbitration realistically unattainable, so as to functionally preclude resolution altogether.</p> <h2>Key Takeaways</h2> <ul> <li>This decision is another example of Canadian courts applying high scrutiny to standard form contracts in the “gig” economy and, in particular, to arbitration clauses. It underscores how companies using standard form contracts will want to be cautious in drafting arbitration clauses that are enforceable.</li> <li>Inequality of bargaining power and the resulting unfairness of the contract are factors that will inform whether a mandatory arbitration clause should be voided for public policy reasons. A court may find a mandatory arbitration clause unenforceable if the practical effect of the clause makes arbitration unrealistic or unattainable, so as to functionally preclude resolution altogether.</li> <li>The decision paves the road for the Plaintiff’s class action to move forward through the courts, where ultimately a determination may be made as to the classification of couriers as independent contractors or employees. We will keep readers informed of further developments.</li> </ul>06-Feb-2024 05:10:00{AE174481-E694-4DD8-9A34-45050A0D7E3C}https://www.stikeman.com/en-ca/kh/canadian-class-actions-law/class-action-practice-10-highlights-from-2023Alexandra Urbanskihttps://www.stikeman.com/en-ca/people/u/alexandra-urbanskiCanadian Class Actions LawCorporations & Commercial Law UpdateClass Action Practice: 10 Highlights from 2023<p><strong>The arrival of 2024 marked the end of a year filled with class action activity. Our Litigation group in Toronto has prepared a list of some of the more notable cases (and other developments) of 2023, with a focus on Ontario. They are grouped into the following four categories: procedure; competition; securities; and product liability. </strong></p> <p>Here are our top 10 picks:</p> <h2>Procedure</h2> <ol> <li><strong>Ontario Court Considers New Preferable Procedure Test </strong><em>– </em>In <em>Banman v. Ontario, </em><a rel="noopener noreferrer" target="_blank" href="https://canlii.ca/t/k0wmc">2023 ONSC 6187</a><em>, </em>the Ontario Superior Court considered the new preferable procedure criterion of the certification test under the amended <em>Class Proceedings Act </em>in certifying a systemic negligence and institutional abuse case. The decision represents the first interpretation and application by the Court of the new preferable procedure test and confirms the legislative intent behind the superior predominance criteria was to create a more rigorous certification test in Ontario. See <strong><a href="https://www.stikeman.com/en-ca/kh/canadian-class-actions-law/ontario-superior-court-considers-new-preferable-procedure-test-in-banman-v-ontario"><strong>our post</strong></a> </strong>for a review of the decision and some key takeaways.</li> </ol> <ol start="2"> <li><strong>Mandatory arbitration clauses in standard form contracts found enforceable by British Columbia Court of Appeal </strong>– In <em>Williams v. Amazon com Inc., </em><a rel="noopener noreferrer" href="https://canlii.ca/t/jzh27" target="_blank">2023 BCCA 314</a> and <em>Petty v. Niantic Inc., </em><a href="https://canlii.ca/t/jzh28">2023 BCCA 315</a> the British Columbia Court of Appeal upheld the partial stays of proposed class actions finding that the mandatory arbitration clauses contained within electronic standard form contracts were valid and enforceable. In both cases, the plaintiffs opposed the stay on the basis that, among other things, the arbitration clauses were unconscionable and/or contrary to public policy. The British Columbia Court of Appeal held that there were insufficient grounds to support a finding that the arbitration clauses were unconscionable and/or contrary to public policy. The decisions suggest that in the absence of clear legislative intention to limit the application of mandatory arbitration clauses to consumer claims, such clauses may be enforceable, even in standard form contracts, provided the arbitration process is accessible and offers a viable means for resolving disputes. The plaintiff in <em>Williams </em>has sought leave to appeal to the Supreme Court of Canada.</li> </ol> <ol start="3"> <li><strong>Ontario Court reinforces that section 29.1 of the <em>Class Proceedings Act, 1992 </em>is mandatory </strong>– In <em>Tataryn v. Diamond & Diamond, </em><a rel="noopener noreferrer" href="https://canlii.ca/t/k0wn5" target="_blank">2023 ONSC 6165</a> the Ontario Superior Court of Justice dismissed a proposed class action, reinforcing that the language of s. 29.1 is mandatory and that an action must be dismissed if it is clear that none of the enumerated steps are taken in time. The Court also confirmed that s. 29.1 is a statutory provision in which there is a substantial public interest and cannot be waived if defendants bring pre-certification motions and wait a substantial time in advance of bringing a motion for dismissal for delay. The Court also found that a “phoenix order” as was granted in <em>D’Haene v. BMV Canada Inc., </em><a href="https://canlii.ca/t/jst0j">2022 ONSC 5973</a>, where the action was dismissed but leave was granted to start a new action, would be contrary to the policy goal of s. 29.1 and that resurrecting an identical case after a dismissal for delay could constitute an abuse of process in certain circumstances.</li> </ol> <ol start="4"> <li><strong>Ontario Court provides guidance on defendants’ rights and role in motion to approve third-party funding</strong> – In <em>Gebien v. Apotex, </em><a rel="noopener noreferrer" href="https://canlii.ca/t/k03g9" target="_blank">2023 ONSC 4651</a>, the plaintiff sought to approve a third-party funding agreement in a putative class action against opioid manufacturers and distributors. The defendants raised several objections to the agreement, including that the agreement did not effectively protect the defendants’ confidentiality rights. The Court provided the plaintiff with an opportunity to justify the existing provisions of the agreement or submit a proposal that would resolve the defendants’ objections, highlighting that a defendant may make objections to the approval of an agreement where it would affect the defendants’ legitimate interests.</li> </ol> <h2>Competition</h2> <ol start="5"> <li><strong>Courts must do more than “a rubber-stamping and symbolic review of proposed class actions at the certification stage” </strong>–<strong> </strong>In <em>Jensen v. Samsung Electronics Co. Ltd</em><em>.</em>, <a href="https://canlii.ca/t/jwxk4" target="_blank"></a><span style="text-decoration: underline;"><a rel="noopener noreferrer" href="https://canlii.ca/t/jwxk4" target="_blank">2023 FCA 89</a></span>, the Federal Court of Appeal upheld the lower court’s refusal to certify a proposed class action involving allegations that the defendants had breached the <a rel="noopener noreferrer" target="_blank" href="https://laws.justice.gc.ca/eng/acts/C-34/index.html"><em>Competition Act, </em>R.S.C. 1985, c. C-34</a> by conspiring through direct communications in private meetings and through public statements – or “signalling” – to each other, to suppress the global supply of dynamic random-access memory chips and increase prices. This decision highlights the increased willingness of courts to exercise their gatekeeper function and scrutinize proposed causes of action and<strong> </strong>pleadings in determining whether proposed class actions should move forward. See <a href="https://www.stikeman.com/en-ca/kh/canadian-class-actions-law/jensen-v-samsung-federal-court-of-appeal-confirms-evidentiary-requirement-more-than-mere-formality">our post</a> for a review of the decision and some key takeaways. The plaintiffs have filed an application for leave to appeal to the Supreme Court of Canada.<strong> </strong></li> </ol> <ol start="6"> <li><strong>Ontario Court denies certification of proposed class action alleging price-fixing conspiracy by canned tuna companies </strong>–<strong> </strong>In <em>Lilleyman v. Bumblebee Foods LLC, </em><a rel="noopener noreferrer" href="https://canlii.ca/t/k08vq" target="_blank">2023 ONSC 4408</a>, the Ontario Superior Court of Justice dismissed the motion for certification of a proposed competition class action commenced in Ontario involving allegations of price fixing of canned tuna. The representative plaintiff had tried to compare and draw parallels to the conspiracy class action that was commenced in the U.S. against three leading tuna producers there, and which entailed the CEO of one of the producers being convicted and certain employees of tuna producers entering guilty pleas. Relying on industry evidence tendered by the defendants concerning the differences between the U.S. and Canadian tuna markets, the Ontario Court held that the guilty pleas in the U.S. did not provide some basis in fact for the existence of an alleged conspiracy in Canada. The plaintiffs have appealed the decision. </li> </ol> <ol start="7"> <li><strong>Proposed class action involving Amazon has no prospect of success, says the Federal Court </strong>– In <em>Difederico v. Amazon.com Inc., </em><a rel="noopener noreferrer" href="https://canlii.ca/t/jzcvr" target="_blank">2023 FC 1156</a> the Federal Court refused to certify a proposed class action involving allegations that a collection of Amazon entities had breached sections 45 and 46 of the <a rel="noopener noreferrer" target="_blank" href="https://laws.justice.gc.ca/eng/acts/C-34/index.html"><em>Competition Act, </em><em>S.C. 1985, c. C-34</em></a><em>, </em>which establish indictable criminal offences for conspiring, agreeing, or arranging certain anti-competitive conduct. See <a href="https://www.stikeman.com/en-ca/kh/canadian-class-actions-law/difederico-v-amazoncom-inc-federal-court-finds-proposed-class-action-has-no-prospect-of-success">our post</a> for a review of the decision, which is a further example of courts exercising their gate-keeping function at the certification stage to weed out claims that have no prospect of success. The plaintiffs have sought leave to appeal to the Supreme Court of Canada.<em> </em></li> </ol> <h2>Securities</h2> <ol start="8"> <li><strong>“Material Change” Under the Securities Act? Ontario Court of Appeal provides guidance </strong>–The Court of Appeal for Ontario released a pair of decisions, <em>Markowich v. Lundin Mining Corporation</em>, <a rel="noopener noreferrer" href="https://canlii.ca/t/jxbjs" target="_blank">2023 ONCA 359</a> (“<em>Lundin</em>”) and <em>Peters v. SNC-Lavalin Group Inc</em><em>.</em>, <a rel="noopener noreferrer" href="https://canlii.ca/t/jxbjt" target="_blank">2023 ONCA 360</a> (“<em>SNC”</em>) that provide guidance on the requirement to disclose a “material change” under the Ontario <em>Securities Act</em>. The decisions underscore that the test for a “material change” under the <em>Securities Act </em>consists of two inquiries: i) whether there has been a change in risk in an organization’s business, operations, or capital; and ii) if so, whether it would reasonably be expected to have a significant effect on the marketplace of the issuer’s securities. Leave to appeal to the Supreme Court of Canada has been sought in <em>Lundin</em>, but not in <em>SNC.</em></li> </ol> <h2>Product Liability</h2> <ol start="9"> <li><strong>British Columbia Court dismisses proposed class action brought by rantidine users in Canada finding the “plaintiff has failed to raise a bona fide triable issue regarding injury due to the ingestion and/or purchase of rantidine</strong>” –<em> </em><em>In Dussiaume v. Sandoz Canada Inc.</em>, <a rel="noopener noreferrer" href="https://canlii.ca/t/jx5wb" target="_blank">2023 BCSC 795</a>, several pharmaceutical companies successfully defeated certification and obtained summary dismissal of a proposed pharmaceutical product liability class action, arguing that the plaintiff’s claims of alleged increased risk of contracting cancer should be summarily dismissed because there is no basis in evidence or law to support such claims. The decision underscores the willingness of courts to exercise their gatekeeper function and how lack of present injuries and reliable scientific evidence could prove fatal to advancing plaintiffs’ claims.</li> </ol> <ol start="10"> <li><strong>Ontario Introduces a New Consumer Protection Act </strong>– On December 6, 2023, Ontario’s new <a rel="noopener noreferrer" target="_blank" href="https://www.ola.org/sites/default/files/node-files/bill/document/pdf/2023/2023-12/b142ra_e.pdf"><em>Consumer Protection Act, 2023</em></a> (the “New CPA”) received Royal Assent, with effect on proclamation (not yet received). The New CPA alters the regulatory landscape for many businesses operating in the province, and potentially enhances their class action risk. We are monitoring the implementation of this legislation. </li> </ol>15-Jan-2024 06:44:00{721B6E81-FBD4-4114-AB9B-C2D7BB106497}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/quebecs-language-legislation-release-of-draft-regulations-impacting-commercial-contractsRomy Proulxhttps://www.stikeman.com/en-ca/people/p/romy-proulxRachel Zuroffhttps://www.stikeman.com/en-ca/people/z/rachel-zuroffCorporations & Commercial Law UpdateQuébec’s Language Legislation: Release of Draft Regulations Impacting Commercial Contracts and Trademarks<p><strong>This post summarizes a newly published </strong><a rel="noopener noreferrer" target="_blank" href="https://www.publicationsduquebec.gouv.qc.ca/fileadmin/gazette/pdf_encrypte/lois_reglements/2024A/106627.pdf"><strong>draft regulation</strong></a><strong> (“Draft Regulation”) that, if passed, will amend the Québec <em>Charter of the French Language</em> (“Charter”) and the <em>Regulation respecting the language of commerce and business</em> in certain key areas, such as commercial contract drafting and the use of English-language trademarks. See our posts from </strong><a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/corporations-commercial-law/business-impacts-of-quebecs-language-law-changes-an-update-on-bill-96"><strong>August 2022</strong></a><strong> and </strong><a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/corporations-commercial-law/quebecs-language-legislation-be-ready-for-important-changes-impacting-commercial-contracts-trademark"><strong>June 2023</strong></a> <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/corporations-commercial-law/quebecs-french-language-charter-how-the-proposed-amendments-will-affect-businesses"><strong>for</strong></a><strong> a summary of</strong><strong> the main business-related changes that </strong><a rel="noopener noreferrer" target="_blank" href="https://assnat.qc.ca/en/travaux-parlementaires/projets-loi/projet-loi-96-42-1.html"><strong>Bill 96</strong></a> <strong>made to the Charter.</strong></p> <p>Note that, for the sake of simplicity, we refer in this post to certain impacts of the legislation and regulations on the use of English in commercial contexts, but the cited provisions generally apply in the same way to any “language other than French.” Please also note that the Draft Regulation is subject to a <strong>45-day comment period</strong> and that it is possible that the final version of its provisions could differ from those described in this post.</p> <h2>Trademarks on Products, Packaging and External Signs: Clarifying the New Rules</h2> <p>Bill 96 established June 1, 2025 as the date on which the exception permitting “recognized” non-French trademarks to appear on external signage and inscriptions (labels on and documents supplied with products) will be restricted to only those marks that are “registered<strong>”</strong> under the <em>Trademarks Act </em>(Canada). The Draft Regulation clarifies that registered trademarks will include those whose applications with the Registrar of Trademarks are pending.<a href="#_ftn1" name="_ftnref1"><sup>[1]</sup></a></p> <p>For both inscriptions and public signage, the Draft Regulation clarifies that a “generic term” refers to one or more words describing the nature of the product,<a href="#_ftn2" name="_ftnref2"><sup>[2]</sup></a> while “description” refers to one or more words describing the characteristics of the product.<a href="#_ftn3" name="_ftnref3"><sup>[3]</sup></a></p> <h3>Additional information about equivalent French terms on products</h3> <p>Under Bill 96, if a generic term or product description in English forms part of the mark on the product, the term or description will have to also appear in French on the product or on a medium permanently attached to it. According to the Draft Regulation, this applies equally if the mark that includes the English generic term or product description appears on the product’s container or wrapping or any document or object supplied with it.<a href="#_ftn4" name="_ftnref4"><sup>[4]</sup></a> Additionally, the English generic term or product description cannot be given greater prominence than the French version or be available for users on more favourable terms.<a href="#_ftn5" name="_ftnref5"><sup>[5]</sup></a></p> <h3>Date after which non-compliant products may no longer be offered</h3> <p>Non-compliant products will, however, still be allowed to be distributed, retailed, leased or sold until June 1, 2027, provided they were manufactured before June 1, 2025 and that no French-language version of the product’s trademark was registered before the end of February 2024.<a href="#_ftn6" name="_ftnref6"><sup>[6]</sup></a></p> <h3>Predominance of French on public signs and posters and commercial advertising</h3> <p>French must also be markedly predominant on public signs and posters visible from outside the premises of a business that include any of the following: (i) a trademark in a language other than French, or (ii) the name of a business that includes an expression from a language other than French. To ensure that French is markedly predominant, the signage must be accompanied by French terms, such as a generic term, a description of the products or services concerned, or a slogan.<a href="#_ftn7" name="_ftnref7"><sup>[7]</sup></a> Additionally, the French must have a greater visual impact than the English. To meet this requirement, the French text must be at least twice as large as the English text and its legibility and permanent visibility must be equivalent to the English within the same visual field.<a href="#_ftn8" name="_ftnref8"><sup>[8]</sup></a></p> <p>Public signs and posters whose French components are permanent and that are designed, lighted and situated in such a way as to make the French always easy to read at the same time as the English are considered to meet the requirements for legibility and visibility.<a href="#_ftn9" name="_ftnref9"><sup>[9]</sup></a> In contrast, public signs and posters that are of a precarious nature – such as those that are easily removed or torn off – are not considered to ensure permanent visibility, unless the display system has measures to guarantee the presence or replacement of the signage.<a href="#_ftn10" name="_ftnref10"><sup>[10]</sup></a></p> <p>Lastly, the <em>Regulation defining the scope of the expression “markedly predominant” for the purposes of the Charter of the French language</em> is revoked considering that the notion of “markedly predominant” is now addressed in the Draft Regulation.<a href="#_ftn11" name="_ftnref11"><sup>[11]</sup></a>I</p> <h2>Effective date of the changes</h2> <p>If the draft regulation is passed, these changes will come into force on June 1, 2025.<a href="#_ftn12" name="_ftnref12"><sup>[12]</sup></a></p> <h2>Language of Adhesion Contracts and Related Documents with Private Parties</h2> <p>Adhesion contracts are contracts where the principal clauses were drafted by one party (the “Business”) and the other party (the “Adhering Party”) was not afforded an opportunity to negotiate them.<a href="#_ftn13" name="_ftnref13"><sup>[13]</sup></a> Standard examples include employment contracts, collective agreements, insurance contracts, leases, and co-ownership declarations.</p> <p>Unless an exemption applies, an Adhering Party may choose to sign an adhesion contract in English <strong>only if</strong> the Business has <strong>first</strong> remitted (provided) the French version to the Adhering Party. If the parties have chosen to enter into the contract exclusively in English, the related documents may be exclusively in English as well. Related documents include those that:</p> <ul> <li>attest to the existence of the contract, such as an insurance certificate;</li> <li>are required to be attached by law, such as a resiliation or resolution form;</li> <li>otherwise constitute an ancillary document.<a href="#_ftn14" name="_ftnref14"><sup>[14]</sup></a></li> </ul> <h3>Contracts entered into online</h3> <p>For contracts of adhesion entered into online or via other technological means, the requirement to provide a French version of the contract is met by providing the adhering party with the applicable standard clauses in French.<a href="#_ftn15" name="_ftnref15"><sup>[15]</sup></a></p> <h3>Contracts entered into via telephone</h3> <p>For contracts of adhesion entered into by telephone, the requirement to provide a French version of the contract is met if the adhering party has stated their express wish to enter into the contract in English, provided that the adhering party had an opportunity to consult the applicable standard clauses in French electronically. In cases where the adhering party does not have the technological means to access the applicable standard clauses in the contract and the contract will take effect immediately, the requirement to issue a French version of the contract is met by the adhering party stating their express wish to enter into the contract in English.<a href="#_ftn16" name="_ftnref16"><sup>[16]</sup></a></p> <hr /> <p><a href="#_ftnref1" name="_ftn1">[1]</a> Section 9 of the Draft Regulation, new section 27.4 of the <em>Regulation respecting the language of commerce and business</em>.</p> <p><a href="#_ftnref2" name="_ftn2">[2]</a> Section 9 of the Draft Regulation, new section 27.3(1) of the <em>Regulation respecting the language of commerce and business</em>.</p> <p><a href="#_ftnref3" name="_ftn3">[3]</a> Section 9 of the Draft Regulation, new section 27.3(2) of the <em>Regulation respecting the language of commerce and business</em>.</p> <p><a href="#_ftnref4" name="_ftn4">[4]</a> Section 9 of the Draft Regulation, new section 27.2(1) of the <em>Regulation respecting the language of commerce and business</em>.</p> <p><a href="#_ftnref5" name="_ftn5">[5]</a> Section 9 of the Draft Regulation, new section 27.2(2) of the <em>Regulation respecting the language of commerce and business</em>.</p> <p><a href="#_ftnref6" name="_ftn6">[6]</a> Section 10 of the Draft Regulation. The exact date is still to be confirmed considering there is a mandatory 45-day period prior to the adoption of the draft regulation.</p> <p><a href="#_ftnref7" name="_ftn7">[7]</a> Section 9 of the Draft Regulation, new section 27.10 of the <em>Regulation respecting the language of commerce and business</em>.</p> <p><a href="#_ftnref8" name="_ftn8">[8]</a> Section 9 of the Draft Regulation, new section 27.9 of the <em>Regulation respecting the language of commerce and business</em>.</p> <p><a href="#_ftnref9" name="_ftn9">[9]</a> <em>Ibid</em>.</p> <p><a href="#_ftnref10" name="_ftn10">[10]</a> <em>Ibid</em>.</p> <p><a href="#_ftnref11" name="_ftn11">[11]</a> Section 11 of the Draft Regulation.</p> <p><a href="#_ftnref12" name="_ftn12">[12]</a> Section 12 of the Draft Regulation.</p> <p><a href="#_ftnref13" name="_ftn13">[13]</a> The legislation refers to these contracts as “contracts pre-determined by one party”.</p> <p><a href="#_ftnref14" name="_ftn14">[14]</a> Section 9 of the Draft Regulation, new section 27.6(1) of the <em>Regulation respecting the language of commerce and business</em>.</p> <p><a href="#_ftnref15" name="_ftn15">[15]</a> Section 9 of the Draft Regulation, new section 27.6(3) of the <em>Regulation respecting the language of commerce and business</em>.</p> <p><a href="#_ftnref16" name="_ftn16">[16]</a> Section 9 of the Draft Regulation, new section 27.6(2) of the <em>Regulation respecting the language of commerce and business</em>.</p>12-Jan-2024 07:15:00{451F79A1-ECCB-40FC-802A-86E72FB453C4}https://www.stikeman.com/en-ca/kh/canadian-ma-law/cbca-corporations-to-begin-submitting-transparency-registers-to-the-governmentJanene Charleshttps://www.stikeman.com/en-ca/people/c/janene-charlesAndrew S. Cunninghamhttps://www.stikeman.com/en-ca/people/c/andrew-s-cunninghamDenise Duifhuishttps://www.stikeman.com/en-ca/people/d/denise-duifhuisTrevor Rowleshttps://www.stikeman.com/en-ca/people/r/trevor-rowlesCanadian M&A LawCorporations & Commercial Law UpdateCBCA Corporations to Begin Submitting Transparency Registers to the Government: Public Access to Follow<p><strong>Canada’s federal beneficial ownership transparency requirements are changing again. </strong><strong>Beginning January 22, 2024, federal corporations will be required to provide certain information from their registers of individuals with significant control (“ISC Registers”) to the federal government, which will then enter that information into what is to become a publicly accessible database. In this post, we discuss this development and a number of other recent changes to the CBCA ISC Register requirements. </strong></p> <h2>ISC Information: The New Public Access Model</h2> <p>As discussed in our <a href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/cbca-beneficial-ownership-register-2-0-public-access-stronger-investigatory-powers">previous post</a>, most CBCA corporations have been required since 2019 to maintain an ISC Register (also known as a beneficial ownership register or a transparency register), to be retained internally by the corporation. These registers record the names of a CBCA corporation’s “individuals with significant control” (“<strong>ISCs</strong>”), as defined in the legislation, along with certain personal information and a description of the ISC’s relationship to the corporation. The purpose is to record information relating to the beneficial ownership and control of CBCA corporations for enforcement purposes as well as for the use of shareholders and creditors in certain circumstances.</p> <p>Initially, access to the registers was limited to the Government of Canada, various law enforcement and investigative bodies, and to the corporation’s shareholders and creditors. The Government’s intention, however, has always been to make information from the ISC Registers public. Under Bill C-42, which received <a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/LegisInfo/en/bill/44-1/C-42">Royal Assent on November 2, 2023</a>, <strong>most private CBCA corporations will be required, from January 22, 2024 onward, to submit their ISC Register information to the Government of Canada when they file their annual returns and whenever changes in ISC Register information trigger ad hoc updating filings. </strong></p> <p>Additionally, under the Bill C-42 amendments, <strong>the Government of Canada will make some of the submitted information publicly available</strong>, including the following in respect of each ISC of the corporation:</p> <ul> <li>Full legal name;</li> <li>Address for service (or residential address, if no address for service is provided);</li> <li>The date on which the individual became / ceased to be an ISC;</li> <li>The rights, interests and/or influence that make the individual an ISC of the corporation; and</li> <li>Any other prescribed information.</li> </ul> <p>Other required ISC Register information, including an ISC’s date of birth, country or countries of citizenship and tax jurisdiction, will not be publicly disclosed, unless prescribed by regulation in the future. The Government has also stated that it will make the public register system available to the provinces with the goal of integrating provincially and federally incorporated corporations in a single register system. Québec already has a public registry system and British Columbia has announced that it intends to launch its own register in 2025.</p> <p>While the submitted ISC information that is publicly accessible will be limited, note that Corporations Canada, tax authorities, law enforcement and other prescribed investigative bodies will have access to all ISC information submitted to the Government of Canada.</p> <p>While it is not clear whether the infrastructure allowing public access to ISC information will be up and running by January 22, 2024, the obligation to start submitting the required ISC Register information to Corporations Canada will apply as of that date.</p> <p>As of January 22, 2024, ISC Register information filings are required at the following times:</p> <ul> <li><strong><em>Annually</em></strong>, together with the corporation’s annual return filing;</li> <li><strong><em>Within 15 days of </em></strong><em><strong>any change</strong></em> in a corporation’s ISC Register information;</li> <li><em>Upon<strong> incorporation</strong></em> under the CBCA; and</li> <li>Within 30 days of the date of the certificate of <strong><em>amalgamation</em></strong><em> or <strong>continuance</strong></em>, as applicable, under the CBCA.</li> </ul> <p>Note that the annual ISC disclosure will comprise part of an updated federal annual return which can only be filed after the anniversary of the corporation’s incorporation date. Accordingly, <strong>for many existing CBCA corporations, their first ISC information submission to Corporations Canada will be as part of their next (2024) annual return filing </strong>(subject to a change in their existing ISC Register that occurs after January 22, 2024 but before their annual return filing window opens, which would trigger an earlier filing obligation).</p> <h2>Other Changes</h2> <p>The shift to public access is just one of a number of changes announced in 2023 impacting the CBCA corporate transparency regime. As described in detail in <a href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/cbca-beneficial-ownership-register-2-0-public-access-stronger-investigatory-powers">our earlier blog post</a>, Bill C-42 mandates:</p> <ul> <li>New disclosure requirements with respect to an ISC’s citizenship and residential address information in the CBCA ISC Register;</li> <li>Enhanced investigatory powers for law enforcement and tax authorities, including amendments to the <em>Income Tax Act</em> to permit access to tax records of corporations and their significant (at least 10%) shareholders for the purpose of verifying register data; and</li> <li>Whistleblower protections.</li> </ul> <p>Three further changes were effected through an <a rel="noopener noreferrer" target="_blank" href="https://www.canlii.org/webdiff/diff.do?lang=en&path=%2Fen%2Fca%2Flaws%2Fregu%2Fsor-2001-512%2Flatest%2Fsor-2001-512.html&path=%2Fen%2Fca%2Flaws%2Fregu%2Fsor-2001-512%2F200778%2Fsor-2001-512.html#h=4097.625">amendment to the <em>Canada Business Corporations Act Regulations, 2001</em></a>:</p> <ul> <li>An exemption for wholly-owned subsidiaries of most public companies from the requirement to maintain an ISC Register (this also applies to wholly-owned subsidiaries of Crown corporations);</li> <li>A more precise description of the “reasonable steps” that must be taken to identify a corporation’s ISCs, including sending a request for information at least once a year to existing ISCs, all shareholders, and any other person that the corporation has reasonable grounds to believe may have relevant knowledge with respect to an ISC; and</li> <li>More precise guidance about situations in which a corporation has determined that it has no ISCs or no ISCs can be identified.</li> </ul> <h3>An additional change: increased penalties</h3> <p>At a late stage of Parliament’s consideration of Bill C-42, the maximum fine for a corporation in contravention of the requirements relating to the submission of information to the Director was increased from $5,000 to $100,000. Individual liability also increased under Bill C-42: penalties for directors, officers and shareholders were increased from the previous 6 months’ imprisonment and/or fines up to $200,000, to now up to 5 years’ imprisonment and/or fines as high as $1 million.</p> <h3>Other consequences of a failure to make required disclosures</h3> <p>Due to the manner in which the ISC information must be submitted to Corporations Canada once the requirement is in force, <strong>a corporation will not be able to file its annual returns</strong> without completing the required ISC disclosure portions of the filing. In addition, failure to comply with these new filing requirements may mean that a CBCA corporation cannot obtain a certificate of compliance or certificate of status. Further, and as mentioned in our previous blog post, the <strong>Director may dissolve a corporation</strong> in default for more than one year, or where a corporation fails to submit the required ISC information within 30 days of an amalgamation or continuance under the CBCA.</p> <h3>Corporations Canada guidance</h3> <p>Corporations Canada has launched <a rel="noopener noreferrer" target="_blank" href="https://ised-isde.canada.ca/site/corporations-canada/en/individuals-significant-control/control-fact-guidance">a web page</a> that provides information to help CBCA corporations understand their ISC Register obligations. This includes a <a rel="noopener noreferrer" target="_blank" href="https://ised-isde.canada.ca/site/corporations-canada/en/individuals-significant-control">sample template ISC Register</a> and guidance with respect to the <a rel="noopener noreferrer" target="_blank" href="https://ised-isde.canada.ca/site/corporations-canada/en/individuals-significant-control/control-fact-guidance">“control in fact”</a> concept.</p> <h2>Selected Issues</h2> <p><a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/cbca-beneficial-ownership-register-2-0-public-access-stronger-investigatory-powers">Our previous blog post</a> reviews the amendments in detail. In this post, we highlight several issues of interest to those who may be working on their ISC Register analysis and disclosure.</p> <h3>Control in fact</h3> <p>As noted above, Corporations Canada has issued <a rel="noopener noreferrer" target="_blank" href="https://ised-isde.canada.ca/site/corporations-canada/en/individuals-significant-control/control-fact-guidance">Control in Fact Guidance</a> which indicates the factors that would need to be considered to determine if an individual is an ISC on the basis of exercising control over the CBCA corporation, including:</p> <ul> <li>how much control the individual has to direct the activities of the corporation;</li> <li>provisions within the articles of incorporation, rights attached to the individual's shares or securities, shareholders agreement or other agreement that give the individual the right to exercise significant influence or control in the corporation;</li> <li>whether the individual has the right to veto decisions related to the corporation's business management (for example: adopting/amending the business plan, securing additional loans from lenders, appointing the majority of directors);</li> <li>whether the individual has sufficient influence to control a family member who is a shareholder, officer, creditor or supplier of the corporation;</li> <li>whether the individual's relationships with the corporation and its management give the individual the capacity to have significant influence or control; and</li> <li>whether the corporation is economically dependent on the individual because they are its main or sole supplier/customer.</li> </ul> <p>Note that the Bill C-42 amendments insert a provision into the legislation (s. 261(1)(a.2)) granting the Governor in Council the regulatory authority to define “control in fact”, “direct influence” and “indirect influence” as those terms relate to the transparency register requirements. Whether “control in fact” will be defined by regulation, and whether that definition will be based on the Corporations Canada Guidance, remains to be seen.</p> <h3>Keeping ISC residential addresses out of the public register</h3> <p>Those responsible for ISC information filings should be aware that the residential addresses of ISCs must now be provided to the Director. In order to ensure that those addresses do not eventually appear on the public register, an alternative “address for service” will need to be provided. There is no requirement that this be an address in Canada. <strong>If an address for service is not provided, then the ISC’s residential address will appear on the public register by default.</strong></p> <h3>ISCs who are citizens of more than one country</h3> <p>The amendments add “citizenship” to the information that must be collected about each ISC. While the legislation does not address dual citizenship, Corporations Canada appears to be taking the position that all citizenships must be disclosed (see their <a rel="noopener noreferrer" target="_blank" href="https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fised-isde.canada.ca%2Fsite%2Fcorporations-canada%2Fsites%2Fdefault%2Ffiles%2Fattachments%2F2023%2Fisc-register-template-en.xlsx&wdOrigin=BROWSELINK">template ISC Register</a>).</p> <h3>Disclosure when no ISCs are found</h3> <p>In certain situations, a corporation may fail to identify any ISCs. This is typically either because no individual meets the applicable tests or because of the corporation’s inability to obtain information needed to identify its ISCs. In either case, the corporation must still maintain an ISC Register which must include a statement that no ISCs have been found, along with a summary of the steps taken by the corporation to identify its ISCs.</p> <h3>Disclosure requirement for exempt corporations</h3> <p>In cases where a corporation is exempt from the requirement to maintain an ISC Register (e.g. as a public company or a wholly-owned subsidiary thereof), corporations are not required to maintain an ISC Register with their corporate records, but are required to disclose this fact in the applicable Government filings. This information will likely appear in the public registry.</p> <h3>Exceptions and exemptions from the public register</h3> <p>The CBCA, as amended by Bill C-42, will allow for limited exceptions and exemptions to the requirement that ISCs be included in the public register of their corporation. It is important to remember that <strong>these exceptions and exemptions do not negate the requirement to include an ISC – including an ISC who is a minor – in the corporation’s ISC Register or to submit that individual’s information to Corporations Canada</strong>.</p> <p>Non-discretionary exceptions apply to certain classes of person, with no need for an application:</p> <ul> <li>Minors – individuals who are less than 18 years of age; and</li> <li>Individuals to whom prescribed circumstances apply (none prescribed as at the date of this post).</li> </ul> <p>Corporations Canada has not yet commented on what the process will be for ensuring the omission of minors (and others to whom prescribed circumstances may apply in future) from the ISC information publicly available online. In the case of a minor, however, we expect that submission of the ISC’s date of birth will determine (presumably automatically) whether the ISC will appear in the public database.</p> <p>In contrast to exceptions, exemptions are granted to specific pieces of information about specific ISCs, on application, where the Director:</p> <ul> <li>Reasonably believes that publicizing the information “presents or would present a serious threat to the safety of the individual”;</li> <li>Is satisfied that the ISC is incapable (i.e., is found, under the laws of a province, to be unable, other than by reason of minority, to manage their property or is declared to be incapable by any court in a jurisdiction outside Canada);</li> <li>Is satisfied that the <em>Conflict of Interest Act</em> (or equivalent provincial legislation) requires that the information remain confidential; or</li> <li>Is satisfied that prescribed circumstances apply to the individual.</li> </ul> <p>The Director’s discretion to grant (or refuse) exemptions on any of the above grounds does not appear to be limited to the consideration of a specific set of factors or objectives. On December 18, 2023, the Government of Canada <a rel="noopener noreferrer" target="_blank" href="https://ised-isde.canada.ca/site/corporations-canada/en/individuals-significant-control/not-publishing-information-about-corporations-individual-significant-control">released Guidance on applying for discretionary exemptions</a>, including regarding the recommended timing for exemption applications, the review process and necessary summary, arguments and supporting documents for the application. The Guidance states, for example, that an application for an exemption on grounds of personal safety should contain a description of the serious threat, documentation supporting its existence (e.g. a police report) and arguments demonstrating that making the ISC Register information public would seriously threaten the ISC’s personal safety. Note that Corporations Canada has indicated that it is unable to review and process exemption applications until Bill C‑42 comes into force on January 22, 2024.</p> <h3>Shareholder and creditor access</h3> <p>Bill C-42 will repeal the right of shareholders and creditors to request access the ISC Register maintained by the corporation as of January 22, 2024. Like all members of the public, however, shareholders and creditors will have access to the ISC information included in the public database.</p> <h3>Going Forward</h3> <p>While CBCA corporations are only required to submit this new ISC disclosure in respect of incorporations, amalgamations and continuances federally on and after January 22, 2024 and in respect of 2024 annual return filings submitted on or after that same date, they should take the opportunity to review their ISC Registers to ensure that they are up to date. ISCs should ensure that an address for service is provided if they would prefer their residential address to remain private.</p>22-Dec-2023 04:40:00{28818F49-54ED-422D-B1A1-D53E70C7A616}https://www.stikeman.com/en-ca/kh/canadian-ma-law/government-of-canada-issues-key-guidance-on-forced-and-child-labour-reportingKeith R. Chatwinhttps://www.stikeman.com/en-ca/people/c/keith-r-chatwinAndrew S. Cunninghamhttps://www.stikeman.com/en-ca/people/c/andrew-s-cunninghamBrendan Kennedyhttps://www.stikeman.com/en-ca/people/k/brendan-kennedyIan Trimblehttps://www.stikeman.com/en-ca/people/t/ian-trimbleCanadian M&A LawCanadian Securities LawCorporations & Commercial Law UpdateCanadian Mining LawGovernment of Canada Issues Key Guidance on Forced and Child Labour Reporting<p><strong>On December 20, 2023, the Government of Canada issued long-awaited </strong><a rel="noopener noreferrer" target="_blank" href="https://www.publicsafety.gc.ca/cnt/cntrng-crm/frcd-lbr-cndn-spply-chns/index-en.aspx"><strong>guidance on reporting requirements</strong></a><strong> (“Guidance”) under the </strong><a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/LegisInfo/en/bill/44-1/S-211?view=progress"><strong><em>Fighting Against Forced Labour and Child Labour in Supply Chains Act</em></strong></a><strong>, S.C. 2023, c. 9 (“the Act”). The Guidance addresses some of the interpretation questions discussed in our </strong><strong><a href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/canadian-legislation-on-forced-and-child-labour-in-global-supply-chains-takes-effect">previous posts</a></strong><strong> and also fleshes out the submission process – notably by unveiling an online questionnaire that all entities that are required to report will have to complete. </strong></p> <p>In this post we look at some of the more significant aspects of the Guidance and how they may guide businesses in preparing their reports. While some questions remain, the Guidance has significantly clarified a number of key issues, as discussed below.</p> <h2>Application of the Act</h2> <h3>Guidance relating to the determination of entity status</h3> <p>In assessing whether an organization has a “place of business in Canada”, “does business in Canada” or “has assets in Canada”, issuers should make reference to the ordinary sense of these terms and to the criteria applied by the Canada Revenue Agency. Importantly, doing business in Canada does not require a physical presence in Canada.</p> <p>With respect to the monetary and numeric thresholds (“Size Thresholds”) for assets, revenue and employees, the Guidance suggests that the Government is expecting each entity to report on a consolidated basis (i.e. including entities that it controls and excluding any entity that controls it).</p> <p>The Guidance confirms that the Size Thresholds apply to the organization’s worldwide assets, revenue and employees and specifies that assets are “gross” rather than “net”, while noting that employees exclude independent contractors.</p> <h3>Guidance on whether an entity is a reporting entity</h3> <p>Under section 9 of the Act, an entity is a reporting entity if it:</p> <ul> <li>Produces, sells or distributes goods in Canada;</li> <li>Imports into Canada goods produced outside Canada; or</li> <li>Controls an entity engaged in any of the above.</li> </ul> <p>With respect to the application of the Act to services businesses, the Guidance states that the terms “selling, distributing and importing … are not intended to capture services that solely support the production, sale, distribution or importation of goods.” Examples of such services are marketing, administrative services, financial services and software services.</p> <p>“Goods” is to be given its ordinary meaning within the subject of trade and commerce and “importing goods” does not include those who buy from a third party who is considered the importer for the purposes of the <em>Customs Act</em>.</p> <p>The Guidance also acknowledges that there is no prescribed minimum value of goods that an entity must produce, sell, distribute or import, however it states that these terms should be understood as excluding very minor dealings.</p> <p>The Guidance states that “control” is to be interpreted broadly and is not limited to the understanding of the term under IFRS or GAAP.</p> <h2>Form of the Report</h2> <p>The Guidance sets out detailed rules for the attestation of the report, including recommended text. It also discourages the use of joint reports unless all included entities have similar risk profiles and similar policies and recommends that reports be filed in both English and French.</p> <p>The report should be in PDF format, limited to a maximum of 100 MB and no longer than 10 pages in length (20 pages if provided in both French and English). The report is to be accompanied by a completed questionnaire and, while it is not required, the Guidance states that entities can use the exact same information and structure provided in the questionnaire to prepare their report; however, entities may include additional information and supplementary content in their report, including charts and graphs.</p> <h2>Contents of the Report</h2> <p>The Guidance recommends that entities include in their reports the names of all foreign legislation under which they have made similar reports (this information is also requested in the Questionnaire). Among other things, the Guidance:</p> <ul> <li>Reaffirms that no prescribed level of detail is required in the report, provided that detail is appropriate to the size and risk profile of the entity and that each of the content requirements of the Act is addressed.</li> <li>States that commercially sensitive information may be excluded and that no specific instances of forced and/or child labour need be referenced.</li> <li>Provides examples of the nature of information that may be included in respect of each of the component elements of the report.</li> <li>Requires that entities that control other entities describe the policies, activities, diligence, risk assessment, remediation, training and assessment undertaken in respect of such controlled entities as well.</li> <li>Welcomes the inclusion of existing action plans and information about planned future steps, but not to the point of turning the report into a mission statement.</li> <li>Recommends that straightforward language appropriate to a public-facing document be used.</li> </ul> <h2>The Questionnaire</h2> <p>The report must be accompanied by a completed <a rel="noopener noreferrer" target="_blank" href="https://www.publicsafety.gc.ca/cnt/cntrng-crm/frcd-lbr-cndn-spply-chns/sbmt-rprt-en.aspx">questionnaire</a>. Essentially, the questionnaire is an online form designed to elicit answers to specific questions that can easily be compared between entities. There is both a set of basic, mandatory questions that typically involve choosing from among a number of predetermined responses and an opportunity to expand on those responses, if the entity chooses, with freeform answers up to a 1500 character limit.</p> <h2>Going Forward</h2> <p>In light of the looming initial report filing deadline of May 31, 2024 (and potentially earlier in respect of <em>Canada Business Corporations Act</em> issuers required to provide the report along with their financial statements), entities that have not done so already should be proceeding in earnest to mobilize internal resources to the task of assessing the applicability of the Act and preparing their reports. With the benefit of the newly issued Guidance, they are now much better positioned to do so with confidence.</p>22-Dec-2023 03:37:00{8D79F228-AC33-42C7-9DA4-EF43D5DBB83B}https://www.stikeman.com/en-ca/kh/canadian-ma-law/employee-ownership-trusts-full-steam-ahead-after-governments-fall-economic-statementMichael Deciccohttps://www.stikeman.com/en-ca/people/d/michael-deciccoSimon A. Romanohttps://www.stikeman.com/en-ca/people/r/simon-a-romanoJill Wintonhttps://www.stikeman.com/en-ca/people/w/jill-wintonCanadian M&A LawCorporations & Commercial Law UpdateEmployee Ownership Trusts: Full Steam Ahead After Government’s Fall Economic Statement<p><strong>On November 21, 2023, the Government of Canada released its Fall Economic Statement. Among the measures included in the statement are improved tax incentives for Employee Ownership Trusts (“EOTs”). As discussed in </strong><a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/employee-ownership-trusts-a-potential-new-option-for-sellers-of-canadian-businesses"><strong>our post from March 2023</strong></a><strong>, EOTs are a mechanism that allows exiting business owners to sell their businesses to employees in a tax-efficient manner. While the Government had previously taken some steps to bring the EOT concept to Canada, these additional measures appear likely to make EOTs a genuinely practical option for many more Canadian businesses.</strong></p> <p>Specifically, in the Fall Economic Statement, the Department of Finance has proposed to exempt business owners from paying tax on the first $10 million in capital gains realized upon selling a business to an Employee Ownership Trust (subject to certain conditions). Like the previously announced EOT measures, this exemption is proposed to come into force as of January 1, 2024, but is initially planned to apply to only the 2024, 2025 and 2026 taxation years as the Government pilots the incentives.</p> <p>Stikeman Elliott LLP is monitoring developments in Canada pertaining to EOTs and will be ready to assist our clients in understanding the latest developments in the space. We invite you to contact us with any questions regarding EOTs.</p> <p><em>For information on other aspects of Canada’s 2023 Fall Economic Statement, please see the <a rel="noopener noreferrer" href="https://www.stikeman.com/en-ca/kh/tax-law/canadas-2023-fall-economic-statement" target="_blank">Stikeman Elliott Tax Group’s commentary</a>. </em></p>22-Nov-2023 09:27:00{E2F3D19B-3C8C-4F43-9AD8-B5FF2D5C0122}https://www.stikeman.com/en-ca/kh/tax-law/canadas-2023-fall-economic-statementRebekah Donghttps://www.stikeman.com/en-ca/people/d/rebekah-dongJonathan Willsonhttps://www.stikeman.com/en-ca/people/w/jonathan-willsonTax Law UpdateCorporations & Commercial Law UpdateCanada’s 2023 Fall Economic Statement<p><strong>On November 21, 2023, the Canadian Department of Finance (“Finance”) released its 2023 Fall Economic Statement (“FES 2023”). The focus of FES 2023 was on affordability measures, particularly with respect to housing. New spending commitments in FES 2023 were relatively modest and it notably did not include any increases to personal or corporate income tax rates. Nevertheless, FES 2023 did include some tax-related announcements that we expect will be of interest to our clients. These measures are summarized below. </strong></p> <h2><strong>Employee Ownership Trusts</strong></h2> <p>In the 2023 Federal Budget (“<strong>Budget 2023</strong>”), Finance introduced new measures designed to permit business owners to transfer shares of Canadian-controlled private corporations to trusts established for the benefit of employees (“<strong>Employee Ownership Trusts</strong>”) with such rules coming into force as of January 1, 2024. In FES 2023, Finance is proposing to exempt business owners from paying tax on the first $10 million in capital gains realized upon selling a business to an Employee Ownership Trust (with some exceptions). This exemption would also become effective as of January 1, 2024, but will be limited in its duration – applying to only the 2024, 2025 and 2026 taxation years. For more detailed information about Employee Ownership Trusts, <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/employee-ownership-trusts-a-potential-new-option-for-sellers-of-canadian-businesses">see our commentary from earlier this year</a>. </p> <h2><strong>Pensions and the “30 Per Cent Rule”</strong></h2> <p>In order “to enable pension funds to more fully participate in Canada’s economic growth,” Finance announced in FES 2023 that it will explore the possibility of removing the “30 per cent rule” from pension fund investments in Canada. In general terms, current federal rules prevent Canadian pension funds from holding more than 30% of the voting shares of most corporations. By removing the 30% rule from investments in Canadian corporations, the government apparently hopes to encourage Canadian pension funds – who have well over two trillion dollars of assets under management – to deploy some of their significant capital to promote the growth of Canadian businesses.</p> <h2><strong>Dividend Received Deduction – Financial Institutions</strong></h2> <p>The <em>Income Tax Act</em> (Canada) (“<strong>Tax Act</strong>”) generally allows a Canadian corporation to claim a deduction for dividends that it receives from other Canadian corporations. In Budget 2023, Finance announced an exception to this general rule which would have the effect of denying the dividend received deduction to financial institutions who received dividends on shares held as mark-to-market property. In FES 2023, Finance has proposed a refinement to this exception which to permit financial institutions to deduct dividends received on “taxable preferred shares” (defined in the Tax Act). Presumably, Finance has concluded that existing rules imposing a special tax on taxable preferred shares adequately address the policy concerns associated with banks that provide debt-like preferred share financing to Canadian corporations. Both the original proposal and the new exception to it are intended to apply to dividends received by financial institutions after 2023. For more information about the initial proposal, <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/guides/2023-federal-budget-commentary">see our Budget 2023 commentary</a>.</p> <h2><strong>Concessional Loans</strong></h2> <p>As a result of recent case law, a taxpayer that receives a non-interest bearing loan (or a loan with a below market interest rate) from a public authority could generally be considered to have received taxable governmental assistance. In response to this jurisprudence, Finance has proposed to amend the Tax Act so that <em>bona fide </em>concessional loans from governmental agencies that include reasonable repayment terms will not, in general, be characterized as taxable government assistance. This amendment would come into force as of November 21, 2023. This is a welcome and unexpected change; in our experience, it is unusual for the federal government to propose legislative changes to overturn case law that was favourable to the government.</p> <h2><strong>Digital Services Tax and Global Minimum Tax</strong></h2> <p>In FES 2023, Finance reaffirmed its commitment to proceed with implementing a Digital Services Tax (“<strong>DST</strong>”) and a Global Minimum Tax (Pillar Two) in Canada. FES 2023 notes that several countries – including a number of Canada’s major trading partners, such as the United Kingdom, France, Italy, and Spain – have continued to apply their own DSTs in anticipation of multilateral measures being implemented. Interestingly, FES 2023 indicated that “forthcoming legislation would allow the government to determine the entry-into-force date” of the DST. It therefore remains to be seen when this new regime will actually become effective, and what the full economic consequences of the DST will be. We note that the United States has criticized Canada’s DST proposals as discriminatory and has threatened to retaliate if the DST is implemented.</p> <h2><strong>Clean Energy Investment Tax Credits</strong></h2> <p>In FES 2023, Finance outlines a delivery timeline for implementing the Clean Economy Investment Tax Credits, proposes additional details for the Clean Hydrogen Investment Tax Credit and expands the Clean Technology and Clean Electricity Investment Tax Credits to include eligibility for systems generating electricity, heat or electricity and heat from specified waste materials. For additional information about the Clean Economy Investment Tax Credits, <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/guides/2023-federal-budget-commentary">see our Budget 2023 commentary</a>.</p> <h2><strong>Underused Housing Tax</strong></h2> <p>In its 2021 Federal Budget, Finance introduced a 1% tax imposed on vacant or underused real estate owned by non-residents (including certain non-Canadian owned entities). The resulting Underused Housing Tax (“<strong>UHT</strong>”) took effect on January 1, 2022. In FES 2023, Finance has proposed to narrow the scope of these rules with the stated intention of facilitating compliance and ensuring that the tax applies as intended.</p>22-Nov-2023 08:27:00{DF6AE95C-A2DD-4C79-8A11-01EDF75510A6}https://www.stikeman.com/en-ca/kh/tax-law/canadas-proposed-share-buyback-taxJonathan Willsonhttps://www.stikeman.com/en-ca/people/w/jonathan-willsonTax Law UpdateCanadian Securities LawCorporations & Commercial Law UpdateCanada’s Proposed Share Buyback Tax<p><strong>On November 30, 2023, <a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/legisinfo/en/bill/44-1/c-59">Bill C-59</a> (the “Bill”) received first reading in the House of Commons. The purpose of the Bill is to enact certain tax proposals from the recent fall economic statement, the 2023 federal budget and other previously announced measures. Included in Bill C-59 is a further-updated version of the proposed 2% equity buyback tax (“Buyback Tax”). Although not strictly speaking an income tax, the Buyback Tax will be included in the <em>Income Tax Act</em> (Canada) (“Tax Act”) as the new Part II.2. The Buyback Tax will apply to relevant transactions that occur on or after January 1, 2024, and does not include a safe harbour for equity issued prior to that date. Given its inclusion in Bill C-59, it is highly unlikely that the Buyback Tax will undergo any further changes prior to its enactment.</strong></p> <p><em>Note: This post replaces our original post of November 9, 2023 in order to incorporate references to the further updates that the Government of Canada have introduced in Bill C-59 to certain aspects of the Buyback Tax. These changes are listed in the section entitled “Changes Relative to August Legislation”, below.</em></p> <p>The draft legislation implementing the Buyback Tax was previously released by the Department of Finance on August 4, 2023 (“<strong>August Legislation</strong>”) which was, itself, a revised version of the initial rules introduced as part of the 2023 federal budget. The current version of the Buyback Tax rules is largely the same as the August Legislation but there are some useful refinements, the most significant of which are noted below. Despite these changes, the scope of the Buyback Tax remains broad and it will likely apply to a variety of ordinary course capital market transactions including, in particular, normal course issuer bids and substantial issuer bids. Capital markets participants will therefore need to carefully consider the Buyback Tax when evaluating transactions that involve the redemption, repurchase or cancellation of publicly traded equity.</p> <h2><span style="text-decoration: underline;">Who does the Buyback Tax apply to?</span></h2> <p>The Buyback Tax will apply to a corporation, trust or partnership that is a “covered entity,” a term which has been defined to include publicly listed Canadian resident corporations, real estate investment trusts, specified investment flow-through (“<strong>SIFT</strong>”) trusts, and SIFT partnerships. For these purposes, “equity” is defined to mean a share of a corporation, an income or capital interests in a trust or an interest as a member of a partnership.</p> <h2><span style="text-decoration: underline;">How is the Buyback Tax calculated?</span></h2> <p>In general terms, the amount of the Buyback Tax is equal to 2% of a covered entity’s net equity repurchases in the taxation year. More specifically, the Buyback Tax is computed by reference to a formula, a somewhat simplified version of which is set out below:</p> <p><img src="/-/media/files/kh-general/taxbulletin_chart.ashx?la=en-ca&hash=6C7BDC68D02AA8DC13301AA4F343BFE0" style="height:406px; width:730px;" alt="TaxBulletin_Chart" /></p> <p>Note, a “qualifying issuance” is defined for the purposes of variable C of the above formula to include the <span style="text-decoration: underline;">portion</span> of a particular issuance of equity by a covered entity that is made: (i) in exchange for cash and/or a convertible note, bond or debenture issued by the covered entity, or (ii) to an arm’s length third party in exchange for property that is used in the covered entity’s active business.</p> <p>The Buyback Tax rules contain a <em>de minimis</em> rule such that a covered entity will not be subject to the tax in any taxation year in which the <span style="text-decoration: underline;">total</span> of the amounts determined for it under variables A and B is less than C$1,000,000.</p> <h2><span style="text-decoration: underline;">Exceptions to the Buyback Tax</span></h2> <p>There are two conceptual exceptions, which, if applicable, will result in equity of a covered entity being excluded from the Buyback Tax formula. These two exceptions are summarized below.</p> <ol> <li><em><span style="text-decoration: underline;">Substantive Debt</span></em> – While this term is comprehensively defined in the Buyback Tax legislation, it is intended to capture equity that possesses debt-like characteristics (namely, limited voting, non-convertible, non-exchangeable, fixed value preferred shares).</li> <li><em><span style="text-decoration: underline;">Reorganization Transactions</span></em> – Conceptually, this exception applies to certain transactions that technically include a redemption, acquisition, or cancellation of the covered entity’s equity but that do not from a policy perspective warrant being included in variables A or B of the Buyback Tax formula. In most cases, the exception is triggered when the investor does not decrease his/her financial investment in the covered entity (or one or more successor entities). The term “reorganization transaction” is defined in detail in the Buyback Tax legislation but generally includes equity that is repurchased, redeemed, or cancelled in the course of a wind-up, an amalgamation or equity exchange whereby a holder receives consideration that includes equity, as well as so-called “butterfly transactions” covered by subsection 55(3) of the Tax Act.</li> </ol> <h2><span style="text-decoration: underline;">Anti-Avoidance Rules</span></h2> <p>The Buyback Tax provisions contain specific anti-avoidance rules which, in general terms, prevent the following transactions from reducing the amount of tax payable by a particular covered entity under the rules:</p> <ul> <li>Equity issuances or repurchases by a covered entity that are part of a transaction or series of transactions the primary purpose of which is to manipulate the Buyback Tax formula.</li> <li>Repurchases of equity issued by a covered entity by an affiliated corporation, trust, or partnership where the covered entity controls the affiliate or (ii) owns, directly or indirectly, more than 50% of the equity of the affiliate.</li> </ul> <h2><span style="text-decoration: underline;">Changes Relative to August Legislation</span></h2> <p>As noted above, while the current version of the Buyback Tax is largely unchanged from the August Legislation, the Department of Finance has fine-tuned certain aspects of the rules. The most notable changes are:</p> <ul> <li>The current version of the Buyback Tax rules deals more effectively with share exchange and amalgamation transactions in which equity holders receive both equity and non-equity consideration. This has been achieved by: (i) expanding the scope of the “reorganization transaction” definition so that it does not automatically exclude mixed consideration transactions, and (ii) adding new variable B to the Buyback Tax formula which, in general terms, only subjects to tax that portion of the equity that was redeemed, acquired or cancelled by the covered entity in exchange for non-equity consideration. In contrast, under the previous version of the Buyback Tax rules, the reorganization exception generally applied to share exchange and amalgamation transactions under which equity was the only consideration received by equity holders on the exchange.</li> <li>Similarly, the latest version of the Buyback Tax rules deals more fairly with equity issuance transactions in which the property received by the covered entity includes a non-cash component. In general terms, under the revised rules, the fair market value of any portion of an equity issuance (other than one involving substantive debt) for which the covered entity receives cash consideration will reduce the base on which the Buyback Tax is imposed. In contrast, under the August Legislation, a covered entity generally received relief under the Buyback Tax formula only when it issued equity exclusively for cash consideration.</li> <li>The definition of “covered entity” has been revised to exclude most exchange traded funds (other than SIFT trusts or real estate investment trusts) whose investments would otherwise bring them within the confines of the definition.</li> <li>The redemption by an open-ended unit trust of its equity pursuant to its terms will generally be excluded from the scope of the Buyback Tax (as a result of including such a transaction in the reorganization transaction definition) provided that the redemption occurs at the demand of a holder and the redemption proceeds do not exceed their fair market value at the time of redemption.</li> <li>The definition of “substantive debt” has been broadened to include equity with: (i) voting rights, provided that such rights do not apply to the election of the board of directors, the trustees, or the general partner (as applicable) of the covered entity, except in the event of a failure or default under the terms or conditions of the equity, and (ii) fixed dividend or distribution entitlements.</li> <li>The redemption of equity by a covered entity pursuant to the exercise by the equity holder of a statutory right of dissent (again, as a result of including such a transaction in the definition of a reorganization transaction).</li> </ul> <h2><span style="text-decoration: underline;">Observations</span></h2> <p>The Buyback Tax was likely inspired by a similar 1% tax that was implemented in the United States at the beginning of 2023, but the underlying policy rationale for the tax is less clear. According to the Department of Finance, the purpose of the Buyback Tax is “to make sure that large corporations pay their fair share [of tax], and to encourage them to reinvest their profits in workers and in Canada.” While reasonable people can differ as to whether public corporations pay enough tax, it is troubling that the federal government seems to think it is better positioned than a business to determine how its surplus capital ought to be allocated. This mindset also seems to presuppose that the funds received by investors on an equity repurchase transaction will not be reinvested in a productive manner. Perhaps the Department of Finance simply wanted to add to its assortment of revenue tools in order combat the deficit – it has been estimated that the Buyback Tax will raise on average C$500-600 million per year in revenue over its first five years of existence. While this is not an immaterial amount of money, when viewed in the context of the federal government’s total annual revenues of approximately C$457 billion (for its 2023-2024 fiscal year) it is not a significant amount either. Finally, the federal government may be of the view that equity repurchase transactions provide inappropriate tax advantages to shareholders relative to the payment of dividends. Again, what is and is not appropriate from a tax policy perspective is a subjective assessment, but it should be noted that, at least in the case of a substantial issuer bid, a significant portion of the purchase price is often characterized as a dividend for Canadian income tax purposes.</p> <h2><span style="text-decoration: underline;">Conclusion</span></h2> <p>Capital markets participants will therefore need to carefully consider the Buyback Tax when evaluating transactions that involve the redemption, repurchase or cancellation of equity by publicly traded entities.</p>09-Nov-2023 04:33:00{6A6CD947-DDEE-48E2-B039-555DA736DB65}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/quebec-repeals-its-contest-regime-reducing-the-regulatory-burden-for-canada-wide-promotionsRachel Zuroffhttps://www.stikeman.com/en-ca/people/z/rachel-zuroffCorporations & Commercial Law UpdateQuébec Repeals Its Contest Regime, Reducing the Regulatory Burden for Canada-Wide Promotions<p><strong>On October 27, 2023, Québec repealed the provisions of the <em>Act respecting lotteries, publicity contests, and amusement machines</em> pertaining to publicity contests and abolished the <em>Rules respecting publicity contests</em> entirely. These changes mark a significant regulatory shift in the province: previously, anyone conducting a contest that was open to Québec residents was required to adhere to a strict and unique set of rules administered by the <em>Régie des alcools, des courses et des jeux</em> (“Régie”), the Québec regulator that also has responsibility for alcohol and gaming. </strong></p> <p>Over the years, the cost of complying with Québec’s unique rules led some companies conducting promotional contests to exclude Québec residents from eligibility. Going forward, however, such exclusions should no longer be necessary: <strong>contest</strong><strong> sponsors will no longer need to register the contest with the Régie, seek permission from the Régie for any modifications to a contest once it starts, file a winners’ report</strong>,<strong> or pay fees or duties to the Régie, among other things. Additionally, contest ru</strong><strong>les will no longer need to include certain previously prescribed disclosures.</strong></p> <p>One of the motivating factors behind this legislative change was to reduce the administrative burden on contest sponsors and make the regulatory landscape in Québec more in line with those of the other provinces. This initiative should accomplish that, but it should be noted that the Régie will continue to govern any contests that were declared prior to October 27, 2023, regardless of the contest’s start date. Additionally, the Québec <em>Consumer Protection Act</em> will continue to apply, as well as the “illegal lotteries” provisions of the <em>Criminal Code</em>, the disclosure requirements of the <em>Competition Act,</em> and general contracts law.</p>07-Nov-2023 10:41:00{169E23C3-0C2C-46AC-A4EE-DB00572A1F0C}https://www.stikeman.com/en-ca/kh/tax-law/tax-base-erosion-canada-responds-with-draft-eifel-rules-legislationJonathan Willsonhttps://www.stikeman.com/en-ca/people/w/jonathan-willsonTax Law UpdateCorporations & Commercial Law UpdateTax Base Erosion: Canada Responds with Draft EIFEL Rules Legislation<p><strong>On August 4, 2023, the Department of Finance released an </strong><a rel="noopener noreferrer" target="_blank" href="https://fin.canada.ca/drleg-apl/2023/ita-lir-0823-l-2-eng.html"><strong>updated version of the draft legislation</strong></a><strong> that will incorporate the excessive interest and financing expense limitation rules (“EIFEL Rules”) into the <em>Income Tax Act</em> (Canada) (“Tax Act”). Although they have not yet been passed into law, once implemented, the EIFEL Rules will have retrospective effect – applying to taxation years beginning on or after October 1, 2023.<a href="#_ftn1" name="_ftnref1"><sup>[1]</sup></a> Because the EIFEL Rules have not yet been enacted, it is possible that there could be further amendments to them – although our expectation is that they are now in their near final form.</strong></p> <h2>Background</h2> <p>For context, the EIFEL Rules are the Department of Finance’s legislative response to the recommendations of the Organization for Economic Co-operation and Development (“<strong>OECD</strong>”) included in its 2015 <a rel="noopener noreferrer" target="_blank" href="https://www.oecd.org/tax/beps/beps-actions/action4/#:~:text=The%202015%20Action%204%20report,of%20exempt%20or%20deferred%20income.#:~:text=The%202015%20Action%204%20report,of%20exempt%20or%20deferred%20income.">Action 4 Report</a> (“<strong>Report</strong>”) that was released in connection with its Base Erosion and Profits Shifting Project (“<strong>BEPS Project</strong>”). In the Report, the OECD expressed concern about the ability of multinational enterprises to use interest and financing expenses to reduce taxable income in high-tax jurisdictions and/or to shift taxable income to low-tax jurisdictions. To address this concern, the Report recommended that countries implement comprehensive earnings stripping rules that would limit a taxpayer’s deductible interest and financing expenses to a fixed percentage of its earnings.</p> <p>The Department of Finance announced its intention to implement this recommendation as part of their 2021 Federal Budget, with draft legislation first being released on February 4, 2022. A revised draft of the EIFEL Rules was released on November 3, 2022, and as noted above, the most recent version of these rules was released in August 2023.</p> <h2>General Rule: Interest and Financing Expenses Limited to 30% of Tax EBITDA</h2> <p>Conceptually, the EIFEL Rules are intended to restrict a taxpayer’s ability to deduct interest and certain other financing related expenses to a fixed percentage of the taxpayer’s earnings before interest, tax, depreciation and amortization (“<strong>EBITDA</strong>”) with such EBITDA being computed in accordance with Canadian income tax principles. The fixed percentage specified by the EIFEL Rules is 30% (which was at the high-end of the range recommended in the Report) although there is also a limited transitional rule which sets this percentage at 40% for taxation years that begin on or after October 1, 2023, but before January 1, 2024.</p> <p>The EIFEL Rules do not contain carte blanche exclusions for arrangements that are in place when the rules come into force. As such, existing financing arrangements will need to be carefully reviewed in light of the EIFEL Rules, and all financing arrangements will similarly need to be monitored going-forward.</p> <p>Interestingly, the EIFEL Rules operate as an accessory regime in that they only apply to interest and financing expenses that are otherwise deductible in accordance with the existing rules in the Tax Act (for example, the general interest deductibility rule and the thin-capitalization provisions). Accordingly, the EIFEL Rules will need to be considered alongside the existing rules in the Tax Act, adding another layer of complexity to an already complex array of rules.</p> <h2>Who Will the EIFEL Rules Apply To?</h2> <p>The EIFEL Rules generally apply to Canadian resident corporations and trusts, as well as to Canadian branches for non-residents, but not to individuals and partnerships. The EIFEL Rules contain special rules that apply to financial institutions, taxpayers that hold interests in partnerships and/or controlled foreign affiliates of Canadian resident taxpayers. Additional provisions operate to exclude from the application of the EIFEL Rules, interest and financing expenses incurred in connection with certain private-public infrastructure projects and inter-affiliate transactions.</p> <p>The EIFEL Rules do not apply to taxpayers that are excluded entities. An “excluded entity” is comprehensively defined in the EIFEL Rules but, in general terms, includes:</p> <ul> <li>smaller Canadian-controlled private corporations;</li> <li>members of a group having aggregate net interest and financing expenses for the year that are not more than $1,000,000, and</li> <li>members of a group that carry on substantially all of their activities in Canada, do not have significant connections to foreign jurisdictions and pay substantially all of their interest and financing expenses to persons that are not tax-indifferent (i.e., tax-exempt entities and non-residents).</li> </ul> <p>As was consistent with the Report, the Department of Finance made it clear in the explanatory notes accompanying the EIFEL Rules that it did not consider excluded entities to pose a significant base erosion and profit shifting threat and therefore were outside the scope of the legislation.</p> <h2>The EIFEL Rules in Detail</h2> <p>The EIFEL Rules are largely mechanical in nature. Its provisions rely on multiple formulae, comprehensively defined terms and, in some instances, accounting concepts. These provisions are supplemented by many detailed anti-avoidance and transitional rules. As a result, when first considered in their entirety, the EIFEL Rules can be quite daunting and difficult to absorb.</p> <p>The heart of the EIFEL Rules is, not surprisingly, its charging provision which contains a complex formula (“<strong>Main Formula</strong>”) which determines the proportion of a taxpayer’s otherwise deductible “interest and financing expenses” that will be denied. In other words, the purpose of the Main Formula is to produce a fraction or percentage that is then used to determine the amount of any resulting expense reductions of the taxpayer. For example, if the Main Formula generates an output of 50% in respect of a taxpayer, then one-half of each of the taxpayer’s specified interest and financing expenses will be reduced for the purposes of computing its income for a particular taxation year.</p> <p>In simplified terms, the Main Formula sets out a fraction, the numerator of which is the aggregate amount of a taxpayer’s interest and financing expenses for the taxation year, as reduced by certain amounts, while the denominator is essentially the same aggregate amount of interest and financing expenses but without the reductions. In other words, the adjustments to the numerator determine how much of the taxpayer’s interest and financing expenses will be denied (the less significant the adjustments, the more significant the denial). The key variables that reduce the numerator (and thus reduce the fraction or percentage of the expense reduction) of the Main Formula for a particular taxation year are as follows:<a href="#_ftn2" name="_ftnref2"><sup>[2]</sup></a></p> <ul> <li>an amount equal to 30% of the taxpayer’s “adjusted taxable income” for the taxation year (“<strong>ATI Safeharbour</strong>”);<a href="#_ftn3" name="_ftnref3"><sup>[3]</sup></a></li> <li>the taxpayer’s “interest and financing revenues” for the taxation year;</li> <li>excess capacity carryforwards, if any, from the three prior taxation years of the taxpayer, and</li> <li>excess capacity carryforwards, if any, transferred to the taxpayer from eligible affiliates.</li> </ul> <p>A taxpayer’s “interest and financing expenses” for a particular taxation year are defined in the EIFEL Rules in great detail. In general terms, they include the taxpayer’s interest and financing expenses, capitalized interest, the financing component of certain leases as well as costs and expenses of certain financing related derivatives (such as currency hedges and interest rate swaps). The definition of “interest and financing revenues” is similarly comprehensively defined in the EIFEL Rules but conceptually includes the reciprocal items to those included in the interest and financing expenses definition (such as interest income, income from certain financial leases etc.). Finally, the definition of “adjusted taxable income” has been drafted to capture a taxpayer’s “tax EBITDA” for the taxation year calculated in accordance with Canadian income tax rules and concepts. For example, in most cases, the definition of adjusted taxable income starts with a taxpayer’s taxable income (determined in accordance with the other rules in the Tax Act) and then adds back certain amounts in respect of capital cost allowance, terminal losses and resource expenditures. The definition then subtracts from the adjusted taxable income computation certain income or revenue amounts such as recaptured capital cost allowance and certain sources of income that are effectively exempt from Canadian income tax (including via the application of foreign tax credits).</p> <p>To the extent that the application of the EIFEL Rules in a particular taxation year results in the denial of a portion of a taxpayer’s interest and financing expenses that would otherwise be tax-deductible for that taxation year, the aggregate of all such denied amounts generally becomes a “restricted interest and financing expense” of the taxpayer. Such restricted interest and financing expenses can generally be carried forward indefinitely by the taxpayer and deducted in the computation of its taxable income in subsequent taxation years where the taxpayer has excess deduction capacity (see below).</p> <p>In cases where a taxpayer’s actual interest and financing expenses for a particular taxation year are less than the maximum of what it could have incurred without triggering the application of the Main Formula, the taxpayer has “excess deduction capacity” (i.e., it could have incurred additional tax-deductible expenses without restriction).<a href="#_ftn4" name="_ftnref4"><sup>[4]</sup></a> In such circumstances, the EIFEL Rules contain provisions which enable the taxpayer to either: (i) use this excess deduction capacity in one or more of its three following taxation years so as to eliminate the application of the Main Formula in those other years,<a href="#_ftn5" name="_ftnref5"><sup>[5]</sup></a> or (ii) transfer such excess deduction capacity to an affiliate so that it is able to eliminate the application of the Main Formula to it for that taxation year. Note that the EIFEL Rules effectively contain ordering provisions which require (or at least motivate) a taxpayer that has excess deduction capacity in a particular taxation year to use such capacity to absorb its existing restricted interest and financing expenses before it is able to: (i) carry forward such capacity for use in its future taxation years, or (ii) transfer such excess capacity to an affiliate.<a href="#_ftn6" name="_ftnref6"><sup>[6]</sup></a></p> <p>Finally, the EIFEL Rules also include provisions under which certain taxpayers can elect to use an amount determined by a group ratio rule to replace the ATI Safeharbour amount in the Main Formula. In general terms, this election is available to taxpayers that are members of consolidated groups for financial reporting purposes in cases where the ratio of the consolidated group’s net third-party interest and financing expenses to the group’s book EBITDA implies that a higher deduction limit (relative to that provided by the ATI Safeharbour) would be appropriate. The consolidated group for these purposes would generally encompass all of the entities that are fully consolidated into a parent entity’s audited consolidated financial statements.</p> <h2><span style="text-decoration: underline;">Simplified Example</span></h2> <p>The basic operation of the EIFEL Rules is perhaps best illustrated with example. Consider the following simplified fact pattern. A Canadian resident corporation (“<strong>Canco</strong>”) carries on an active business in Canada and, in a particular taxation year, Canco has: (i) taxable income (“<strong>TI</strong>”) of $7,000; (ii) interest and financing expenses (“<strong>IFE</strong>”) of $8,000, and (iii) interest and financing revenues (“<strong>IFR</strong>”) of $1,000. Canco does not have any affiliates nor does it have any unused excess capacity carryforwards. </p> <p>Using the above facts, Canco’s adjusted taxable income (“<strong>ATI</strong>”) and ATI Safeharbour can be calculated as follows:<img src="/-/media/files/kh-general/table_adjustable_taxable_income_ati_safeharbour-resized.ashx?la=en-ca&hash=53C7AD7D3D69211B340E258C4FD2C992" style="height:264px; width:750px;" alt="Table_Adjustable_Taxable_Income_ATI_Safeharbour resized" /></p> <p> Using the above noted facts, the Main Formula produces the following result:</p> <p><img src="/-/media/files/kh-general/table_denied_expense-resized.ashx?la=en-ca&hash=C773F787849EE10D6B61069EB05BC64B" style="height:153px; width:750px;" alt="Table_Denied_Expense resized" /></p> <p>Accordingly, Canco’s $8,000 of otherwise tax-deductible financing expenses will be reduced by 35% (i.e., $2,800) to $5,200 as a result of the application of the EIFEL Rules. The $2,800 of denied interest and financing expenses can generally be carried forward by Canco and applied in any future taxation year. Note, if Canco (and/or an affiliate) did have unused excess capacity carryforwards of not less than $2,800, it may have been possible for Canco to reduce the numerator of the Main Formula (and by extension the denied expense percentage) to nil.</p> <h2>Conclusion</h2> <p>In sum, the EIFEL Rules are a complicated set of legislative measures that will provide both substantive and compliance challenges to taxpayers, particularly in the first few taxation years while the inevitable teething pains are sorted out. Taxpayers to whom the EIFEL Rules will apply should proceed with caution.</p> <hr /> <p><a href="#_ftnref1" name="_ftn1">[1]</a> In other words, for a trust or corporation with a calendar tax year-end, the EIFEL Rules will apply as of January 1, 2024.</p> <p><a href="#_ftnref2" name="_ftn2">[2]</a> Put another way, the numerator (after the specified reductions have been taken into account) represents what are considered, under the EIFEL Rules, to be “excessive” interest and financing expenses.</p> <p><a href="#_ftnref3" name="_ftn3">[3]</a> As noted above, for taxation years that begin on or after October 1, 2023, but before January 1, 2024, the fixed percentage will be 40%. Also, as mentioned below, this fixed ratio can be replaced by a group ratio concept in certain circumstances.</p> <p><a href="#_ftnref4" name="_ftn4">[4]</a> For example, if a taxpayer were to incur interest and financing expenses in a particular year in an aggregate amount equal to the sum of its: (i) ATI Safeharbour, and (ii) interest and financing revenue for that taxation year, the application of the Main Formula would not generate an expense reduction percentage. Accordingly, to the extent that its aggregate interest and financing expenses are less than this amount, it will generally cause the taxpayer to have excess deduction capacity.</p> <p><a href="#_ftnref5" name="_ftn5">[5]</a> This carryforward mechanism produces a similar conceptual result as a system in which a taxpayer’s restricted interest and financing expenses for a particular taxation year could be carried back to any of its three prior taxation years.</p> <p><a href="#_ftnref6" name="_ftn6">[6]</a> Similarly, the variable in the Main Formula which deals with excess capacity received from affiliates effectively requires a taxpayer to first apply such transferred capacity to reduce is restricted interest and financing expenses before being able to use such transferred capacity to reduce the numerator in the Main Formula in the taxation year in which the transferred capacity was received.</p>31-Oct-2023 06:19:00{08277020-FA83-4E86-B752-1406859BBFAD}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/canada-officially-jettisons-the-hamburg-rules-marine-liability-act-amendedSimon Ledshamhttps://www.stikeman.com/en-ca/people/l/simon-ledshamCorporations & Commercial Law UpdateCanada Officially Jettisons the Hamburg Rules: Marine Liability Act Amended<p><strong>After two decades of consistent recommendations by Transport Canada, it appears that the Canadian Parliament has finally given up hope of implementing the Hamburg Rules as a new liability regime for the carriage of goods by water. Among the several amendments made by the omnibus <em>Budget Implementation Act, 2023, No. 1</em> (S.C. 2023, c. 26) to the <em>Marine Liability Act </em>(S.C. 2001, c. 6) (the “MLA”), all mention of the Hamburg Rules has been removed from the MLA, effective as of June 22, 2023. </strong></p> <p>The Hamburg Rules, officially known as <em>The United Nations Convention on the Carriage of Goods by Sea, 1978</em>, were drafted by UNCITRAL in 1976 as a proposed replacement for the Hague Rules of 1924 and the Hague-Visby Rules of 1968. While Canada has not ratified any of these instruments, it has incorporated the Hague-Visby rules into its domestic law with certain changes, through the MLA.</p> <p>The coming-into-force provision for the Hamburg Rules, s. 45 MLA, was repealed on January 1, 2021 by an amendment implementing s. 3 of the <em>Statutes Repeal Act </em>(S.C. 2008, c. 20), as the provision had not come into force for over 10 years. Pursuant to the reporting requirement in s. 44 MLA, Transport Canada (“TC”) had been reporting to Parliament every 5 years on the possibility of applying the Hamburg Rules and having s. 45 MLA come into force.</p> <p>However, each TC report had recommended not to take any action to apply the Hamburg Rules, due to insufficient international adoption. The last TC report had been delivered in 2019, and it had followed all preceding reports in recommending that the Hamburg Rules not be adopted. This report had concluded that <em>“despite its shortcomings, the Hague-Visby Rules continue to be the marine cargo liability regime that is best able to support Canada’s objective of maintaining uniformity with our major trading partners”<sup>.</sup></em><a href="#_ftn1" name="_ftnref1"><sup>[1]</sup></a></p> <p>The Hamburg Rules are widely considered to be shipper friendly, at the expense of carriers.<a href="#_ftn2" name="_ftnref2"><sup>[2]</sup></a> In particular, contrary to the previous Hague and Hague-Visby regimes, they provide for <strong>(i) </strong>joint and several liability between contracting and performing carriers, <strong>(ii) </strong>the abolishment of carriers’ defense of error in navigation or management of the ship, <strong>(iii) </strong>the extension of the Rules to all contracts of carriage except charterparties (and not only contracts of carriage evidenced by bills of lading), and <strong>(iv) </strong>the extension of the Rules to deck cargo, live animals, and non-commercial cargoes. While Canada, as a “consumer nation” with a relatively smaller marine shipping industry, had considered the adoption of the Hamburg Rules, the limited international adoption of this regime proved prohibitive.</p> <p>The Hamburg Rules are now adrift. Where does this leave us? It seems that the new-generation Rotterdam Rules, codified in <em>The United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea, 2008</em>, may face similar issues to the ill-fated Hamburg Rules. The Rotterdam Rules have been adopted by a limited number of states. They are even more ambitious in scope, covering international multimodal carriage where part of the carriage occurs by water.</p> <p>The vital efforts to promote uniformity of the law of marine cargo carriage, spearheaded by international organizations such as the Comité Maritime International and UNCITRAL, are clearly braving rough seas. Time will tell where they come ashore.</p> <p><strong>This article is also available in the October 2023 edition of Legal Industry Reviews, available here: </strong><a rel="noopener noreferrer" target="_blank" href="https://www.flipsnack.com/cejchile/the-legal-industry-reviews-canada-vol-3-october-2023.html">The Legal Industry Reviews, Canada Vol. 3, October 2023 by Industria Legal - Flipsnack</a></p> <hr /> <p><a href="#_ftnref1" name="_ftn1"><sup>[1]</sup></a> Transport Canada, “Report to Parliament, Marine Liability Act, Part 5: Liability for the carriage of goods by water”, 2019: Read more <a rel="noopener noreferrer" target="_blank" href="https://tc.canada.ca/en/marine-transportation/marine-safety/report-parliament-marine-liability-act-part-5-liability-carriage-goods-water">HERE</a>.</p> <p><a href="#_ftnref2" name="_ftn2"><sup>[2]</sup></a> See e.g. Francesco Berlingieri, “A Comparative Analysis of the Hague-Visby Rules, the Hamburg Rules, and the Rotterdam Rules”, Paper delivered at the General Assembly of the AMD, Marrakesh, November 5-6, 2009; see also Lord Diplock, “Introduction”, in Comité Maritime International, <em>Colloquium on the Hamburg Rules</em>, Vienna, January 8-10, 1979.</p>26-Oct-2023 03:06:00{B9E121BA-4907-4095-9352-3FD823E042A6}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/quebec-consumer-protection-reforms-focus-on-planned-obsolescence-durability-repairabilityRachel Zuroffhttps://www.stikeman.com/en-ca/people/z/rachel-zuroffCorporations & Commercial Law UpdateQuébec Consumer Protection Reforms Focus on Planned Obsolescence, Durability, Repairability and Maintenance of Goods<p><strong>The province of Québec recently enacted Bill 29, </strong><a rel="noopener noreferrer" target="_blank" href="https://www.assnat.qc.ca/en/travaux-parlementaires/projets-loi/projet-loi-29-43-1.html?appelant=MC"><strong><em>An Act to protect consumers from planned obsolescence and to promote the durability, repairability and maintenance of goods</em></strong></a><strong>. This legislation adds important new provisions on product durability, repair and maintenance to the Québec <em>Consumer Protection Act </em>(“CPA”) and will need to be carefully considered by manufacturers and retailers of consumer products sold in Québec.</strong></p> <p>While certain provisions came into force on October 5, 2023, most of the provisions are scheduled for phased implementation over the next six months to three years.</p> <h2>Major Changes to Consumer Protection Law</h2> <p>These amendments to the CPA bring important changes to the consumer protection landscape in Québec, notably prohibiting the use of planned obsolescence techniques and strengthening consumer rights to the repair and maintenance of goods.</p> <p>Many of the details of the new consumer rights and merchant obligations are still to be determined by regulation. For the moment, however, some of the major changes include:</p> <ul> <li><strong>Planned obsolescence: </strong>The Act prohibits anyone manufacturing or offering goods for sale or lease from using techniques aimed at reducing the normal operating life of the goods. Merchants and manufacturers are also prohibited from making it more difficult for consumers to maintain or repair their goods. This includes the use by a car manufacturer of any technique that makes it more difficult for the owner or long-term lessee to have access to the car’s data for diagnostics, maintenance or repair.</li> <li><strong>Warranty of good working order</strong>: The Act introduces a warranty of good working order for certain common goods, such as household appliances, electronics, and climate control systems. The list of goods currently includes ranges, refrigerators, freezers, dishwashers, washing machines, dryers, televisions, computers, tablets, cellphones, video game consoles, air conditioners and heat pumps, as well as other goods that may be added in the future by regulation. To comply with the new provisions, merchants will need to disclose the duration of the warranty near the advertised price of the goods as well as communicate to consumers certain information relating to the warranty (as determined by future regulation). Merchants must also inform consumers of the warranty, if applicable, before attempting to sell them an extended warranty. During the warranty period, merchants will have to cover the cost of repairs to the goods, including the cost of parts, labour, and reasonable shipping or transportation fees. The warranty does not, however, cover normal maintenance or damage resulting from misuse by the consumer. The duration of the warranty will be determined by forthcoming regulations and will vary depending on the type of good.</li> <li><strong>Replacement parts and repair services warranty</strong>: The Act builds on the existing obligation under the CPA to make replacement parts and repair services available for goods that require maintenance for a reasonable time after the contract is entered into. It extends this right by requiring the merchant or manufacturer to provide the consumer with information (available in French) needed to repair or maintain the goods, including diagnostic software. Additionally, the Act requires that it be possible to install the replacement parts using commonly available tools, without causing irreversible damage to the goods. The replacement part, repair service and information necessary to maintain or repair the goods must be available at a reasonable price that does not discourage consumers from accessing it. In the case of information that is accessible on a technological medium, it must be available for free. Where a merchant or manufacturer fails to make available the replacement parts, repair services or information necessary to repair the goods, the consumer may request that the merchant or manufacturer repair the goods, replace them by new or reconditioned goods with equivalent functionalities or reimburse the price.</li> <li><strong>Cooling off period</strong>: Consumers have 10 days to cancel their purchase of an extended warranty without cost or penalty, and merchants are required to inform them of this right. Additionally, the cooling off period is extended to one year if the merchant fails to inform the consumer of the existence of a warranty provided by law. This does not apply to a contract for which the underwriter is an insurer authorized under the <em>Insurers Act</em>.</li> <li><strong>Long-term leases</strong>: Long-term lease agreements are prohibited from including clauses whereby a merchant may claim the following types of charges: <ul> <li>charges on the ground that the nature or quality of a part or component installed as part of the normal maintenance service does not satisfy the merchant, unless the contract expressly provides that the goods may only be returned with a component of a specific nature or quality; and</li> <li>charges on the ground that the part is not an original part from the manufacturer or that the maintenance service was not performed by the manufacturer or a merchant approved by the manufacturer.</li> </ul> </li> <li><strong>Automobile leases</strong>: The Act provides that, in the case of a long-term lease of an automobile, merchants must offer consumers a free inspection of the automobile before the end of the lease. Following the inspection of the automobile or the end of the lease, the merchant must give the consumer an opportunity to repair those parts which, in the merchant’s opinion, show abnormal wear. If the merchant fails to do so, it may not claim charges for the abnormal wear of goods.</li> <li><strong>Vehicle “lemon” law</strong>: The Act introduces measures aimed at protecting consumers against vehicles declared to be "seriously defective automobiles."</li> <li><strong>Interoperability: </strong>The Act gives the Government the regulatory power to determine technical or manufacturing standards for goods, including standards for interoperability between goods and chargers.</li> <li><strong>Increased penalties</strong>: If a merchant fails to mention the legal warranty, the fines have been increased to between $2,500 and $62,500 for individuals and between $5,000 and $125,000 in other cases or an amount equal to 5% of worldwide turnover for the preceding fiscal year, whichever is greater. The penalty for failing to mention that the consumer has the right to terminate an extended warranty without cost or penalty is a fine of between $1,500 and $37,500 for individuals and between $3,000 and $75,000 in other cases. The Act also introduces a regime of monetary administrative penalties for any breach of the CPA. The details remain to be determined by regulation, other than that the penalties may not exceed $1,750 for individuals and $3,500 in other cases for each day that the failure to comply continues. Notably, if an entity commits an offence under the CPA, its directors and officers are presumed to have committed the offence, unless they can show a due diligence defence.</li> </ul> <h2>Entry into Force</h2> <p>As mentioned above, most of the provisions in the Act are scheduled for phased implementation over the next three years. For instance:</p> <ul> <li>The provisions prohibiting trading in goods for which obsolescence is planned are now in effect, whereas the associated fines will only come into force on January 5, 2025.</li> <li>The provisions prohibiting the use of techniques designed to make it more difficult to maintain or repair goods will come into force on October 5, 2025.</li> <li>The warranty of good working order and the fines for failing to mention it before selling an extended warranty will come into force on October 5, 2026.</li> <li>The penalty for failing to mention the prescribed cooling-off period to a consumer who buys an extended warranty will come into force on October 5, 2026.</li> </ul> <h2>Thinking Ahead</h2> <p>Given these new provisions, companies that sell or manufacture goods for Québec consumers should carefully review their practices to ensure they are in conformity with the CPA. We will continue to monitor any regulations the government may adopt.</p>24-Oct-2023 06:48:00{23D7104C-606D-40E6-A4B4-39A9B515EA25}https://www.stikeman.com/en-ca/kh/litigation/limitations-on-good-faith-damages-no-presumption-of-loss-for-breach-of-honest-performanceSara Wrighthttps://www.stikeman.com/en-ca/people/w/sara-wrightLitigation UpdateCorporations & Commercial Law UpdateCanadian M&A LawLimitations on Good Faith Damages: No Presumption of Loss for Breach of Honest Performance<p><strong>In <em>Bhatnagar v. Cresco Labs Inc.</em>, </strong><a rel="noopener noreferrer" target="_blank" href="https://www.canlii.org/en/on/onca/doc/2023/2023onca401/2023onca401.pdf"><strong>2023 ONCA 401</strong></a>,<strong> the Ontario Court of Appeal elaborated on the Supreme Court’s decision in </strong><strong><em>C.M. Callow Inc. v. Zollinger, </em></strong><a rel="noopener noreferrer" target="_blank" href="https://www.canlii.org/en/ca/scc/doc/2020/2020scc45/2020scc45.html?autocompleteStr=C.M.%20Callow%20Inc.%20v.%20Zollinger&autocompletePos=1"><strong>2020 SCC 45 </strong></a><strong>(“<em>Callow</em>”), and clarified that a breach of the contractual duty of honest performance does not create an automatic presumption of loss. The court found that there must be evidence supporting a loss of opportunity to support an award for damages. </strong></p> <h2>Background</h2> <p>On February 19, 2019, an OBCA corporation in the vape products business was acquired by a U.S. public company buyer. Under the share purchase agreement (the “SPA”), the U.S. company paid the shareholders $25M on closing, with an earnout that could have entitled them to up to an additional $15M if the target corporation met certain revenue and license milestones in each of the first three years post-acquisition. Before the SPA was executed, the shareholders became aware of a potential acquisition of the buyer. They had a provision added to the SPA providing that a change of control of the buyer during the three year earn-out period would trigger the shareholders’ entitlement to the full amount of the earnout for the year of the change of control and for any following years that remained in the three-year earnout period. Such change of control payment was referred to as the “Unearned Milestone Payment”.</p> <p>On April 1, 2019, the buyer announced that it had entered into an agreement with the respondent, by which the respondent would purchase the buyer. It was initially expected that the transaction would close by the end of 2019; however, by June 13, 2019, it was known that there would be at least a several months closing delay. The shareholders asked what would happen if the transaction did not close, to which the buyer responded that there was no reason to believe that the transaction would not close. By October 20, 2019, the respondent informed the buyer that they were proposing a new closing date in January 2020. When the transaction ultimately closed in January 2020, (a) the revenue and license milestone had not been met by the target for the 2019 year, and (b) since the closing date was in 2020, the Unearned Milestone Payment was paid for 2020 and 2021 only.</p> <p>The shareholders claimed that the buyer breached the duty of honest performance by not informing them of the delayed closing date, and brought an application seeking payment of the 2019 revenue milestone pursuant to the terms of the SPA as damages, or alternatively, that any failure on their part to achieve the 2019 revenue and license milestones was a result of breaches of contract by the buyer.</p> <h2>The Parties’ Positions</h2> <p>In <em>Callow</em>, the Supreme Court confirmed the contractual duty of honest performance, but in doing so it did not confirm whether a finding of a breach of that duty would result in an automatic presumption that the injured party suffered a lost opportunity (<em>Callow</em> discussed further <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/litigation/scc-affirms-honesty-Is-the-best-policy-In-exercising-contractual-rights">here</a>). The shareholders submitted that, if the court found that the U.S. company had breached its duty of honest performance, the court was required to presume damages, and its only task was to quantify those damages. Specifically, the shareholders relied on paragraph 116 of <em>Callow </em>that states:</p> <p style="padding-left: 30px;">[E]ven if I were to conclude that the trial judge did not make an explicit finding as to whether Callow lost an opportunity, <span style="text-decoration: underline;">it may be presumed as a matter of law that it did,</span> since it was Baycrest’s own dishonesty that now precludes Callow from conclusively proving what would have happened if Baycrest had been honest. [Emphasis added]</p> <p>In response, the respondent submitted that there was no evidentiary foundation for the shareholders’ damages claim and that, even if a lost opportunity could be presumed, the evidentiary record needed to establish what was lost and support the claim that it was lost because of the breach of contract.</p> <h2>The Application Decision</h2> <p>The Application Judge found that the buyer had breached its duty of honest performance by repeatedly advising the shareholders that the transaction would close in 2019, and neither correcting nor updating that information once the buyer was informed that the closing date would be pushed to January 2020. However, no damages were awarded because the Application Judge concluded that, even if the shareholders had been informed of the change of closing date in October 2019, they would not have been able to meet their revenue or license milestones or force the transaction to close. Furthermore, the Application Judge would not presume that there had been a lost opportunity that should result in damages since no evidence of such an opportunity was presented.</p> <h2>The Ontario Court of Appeal Decision</h2> <p>The shareholders were unsuccessful on appeal. The Ontario Court of Appeal rejected the proposition that <em>Callow</em> created an automatic legal presumption of loss where a breach of the contractual duty of honest performance is found. The Court of Appeal held that evidence must be presented by the claimant to establish there has been a lost opportunity resulting from that breach.</p> <h3>No Legal Presumption of Loss</h3> <p>The shareholders again relied on para. 116 of <em>Callow</em> to support their proposition that <em>Callow</em> established a presumption of loss where there has been a breach of the duty of honest performance. However, the Court of Appeal pointed to the use of the word “may” in <em>Callow</em>, noting that there is no legal obligation for a court to presume that a loss has been suffered.</p> <p>The Court of Appeal also held that the Application Judge did not err in refusing to award damages on a basis other than expectation damages. The Court of Appeal drew on <em>Callow</em>, where Justice Kasirer explained that the ordinary approach to a breach of the duty of honest performance should result in expectation damages, which return the injured party to the position it would have been in had the duty been performed.</p> <h2>Key Takeaways</h2> <p>The decision of the Court of Appeal:</p> <ul> <li>elaborates on <em>Callow </em>and clarifies that there is no automatic presumption of loss when there has been a breach of honest performance;</li> <li>underscores that a claimant must bring evidence of the loss they suffered because of the breach of honest performance; and</li> <li>highlights that parties ought to carefully consider what evidence is available to support a claim of lost opportunity when bringing a claim for damages resulting from a breach of honest performance.</li> </ul>24-Oct-2023 04:56:00{8D4A12CF-1DE5-4876-904F-0F1F2A4388EA}https://www.stikeman.com/en-ca/kh/canadian-energy-law/majority-of-supreme-court-finds-federal-impact-assessment-act-largely-unconstitutionalDennis P. Langenhttps://www.stikeman.com/en-ca/people/l/dennis-langenMatti Lemmenshttps://www.stikeman.com/en-ca/people/l/matti-lemmensAmy Barringtonhttps://www.stikeman.com/en-ca/people/b/amy-barringtonCanadian Energy LawLitigation UpdateCorporations & Commercial Law UpdateMajority of Supreme Court Finds Federal Impact Assessment Act Largely Unconstitutional<p><strong>On October 13, 2023, the Supreme Court of Canada (“SCC”) released <em>Reference re Impact Assessment Act</em>, <a href="https://www.canlii.org/en/ca/scc/doc/2023/2023scc23/2023scc23.html">2023 SCC 23</a> (“SCC Reference”), in which the majority found a large portion of the federal <em>Impact Assessment Act, </em>SC 2019, c 28 (“<em>IAA</em>”) exceeds federal jurisdiction.</strong></p> <p><strong>The majority, five of the presiding seven Justices, found that the portion of the<em> IAA</em> that dealt with “designated projects” was <em>ultra vires</em> Parliament, both because it is not directed at regulating “effects within federal jurisdiction” and because the defined term “effects within federal jurisdiction” is out of step with Parliament’s legislative jurisdiction.</strong></p> <h2>The SCC Reference</h2> <p>The SCC was tasked with considering an appeal of a reference to the Alberta Court of Appeal (“ABCA”)<a href="#_ftn1" name="_ftnref1"><sup>[1]</sup></a> Involving the evaluation of the constitutional validity of the <em>IAA</em> and the related <em>Physical Activities Regulations</em>, SOR/2019-285 (“Regulations”), enacted to protect the environment from certain human activities.<a href="#_ftn2" name="_ftnref2"><sup>[2]</sup></a></p> <h2>The Scheme Under the <em>IAA</em></h2> <p>The scheme established by the<em> IAA </em>and the Regulations has two components. The first concerns projects carried out or financed by federal authorities on federal lands or outside Canada.<a href="#_ftn3" name="_ftnref3"><sup>[3]</sup></a> The second component operates to consider projects that do not fall within the first component.</p> <p>Under the <em>IAA</em>, the Governor in Council has enacted the Regulations. The Regulations list physical activities – “designated projects” – that, in the government’s view, are major projects with the greatest potential for adverse effects on areas of federal jurisdiction related to the environment and include<a href="#_ftn4" name="_ftnref4"><sup>[4]</sup></a></p> <p>“any physical activity that is incidental to those physical activities”.<a href="#_ftn5" name="_ftnref5"><sup>[5]</sup></a></p> <p>Beyond these designated projects, the Regulations also allow the Minister to “designate a physical activity that is not prescribed by regulations . . . if, in his or her opinion, either the carrying out of that physical activity may cause adverse effects within federal jurisdiction or adverse direct or incidental effects”, or if public concern warrants the designation.<a href="#_ftn6" name="_ftnref6"><sup>[6]</sup></a></p> <p>A key feature distinguishing the first and second components of the scheme “is that assessments under [the first component] are conducted by the federal authority with primary regulatory decision making responsibility for the project rather than by the [Impact Assessment Agency of Canada] or a review panel” <a href="#_ftn7" name="_ftnref7"><sup>[7]</sup></a> who conduct assessments under the second component.</p> <p>The impact assessment process for “designated projects” has three main phases: the planning phase, the impact assessment phase, and the decision-making phase. During the planning phase, a proponent provides the Impact Assessment Agency with a project description. After consultation, the Agency decides whether the project requires an impact assessment.</p> <p>In the impact assessment phase, the proponent provides the necessary information to the body conducting the assessment, which then prepares an assessment report. The assessment report sets out the likely adverse direct and incidental project effects.</p> <p>In the decision-making phase, the decision maker determines whether such effects are in the public interest. If the decision maker concludes they are, the Minister of the Environment issues a Decision Statement that sets out the determination and any conditions that the project must meet.</p> <h2>The Majority</h2> <p>The majority<a href="#_ftn8" name="_ftnref8"><sup>[8]</sup></a> found that the first component of the <em>IAA</em> scheme is constitutional<a href="#_ftn9" name="_ftnref9"><sup>[9]</sup></a> but that the second component dealing with “designated projects” is beyond Parliament’s constitutional competence.<a href="#_ftn10" name="_ftnref10"><sup>[10]</sup></a> The unconstitutionality of the second component hinges on its focus on the impacts of “designated projects” instead of any effects arising within federal jurisdiction. That is, due to the second component of the scheme having a broad designation mechanism, projects with little or no potential for adverse federal effects may be required to undergo an impact assessment.<a href="#_ftn11" name="_ftnref11"><sup>[11]</sup></a></p> <p>The majority found the pith and substance of the “designated projects” component “is to assess and regulate designated projects with a view to mitigating or preventing their potential adverse environmental, health, social and economic impacts…”<a href="#_ftn12" name="_ftnref12"><sup>[12]</sup></a> In the view of the majority, this component of the scheme is not, by contrast, aimed at regulating the “effects within federal jurisdiction” as defined in the<em> IAA.</em><a href="#_ftn13" name="_ftnref13"><sup>[13]</sup></a></p> <p>In describing the impact assessment process under the <em>IAA</em>, the majority highlighted how that process enables a public interest decision that lies at the heart of the scheme.<a href="#_ftn14" name="_ftnref14"><sup>[14]</sup></a> The <em>IAA </em>sets out factors the decision maker must consider in determining whether adverse effects within federal jurisdiction, and the adverse direct or incidental effects noted in the assessment report, are in the public interest.<a href="#_ftn15" name="_ftnref15"><sup>[15]</sup></a></p> <p>In this regard, the majority found that the “decision-making process transforms what is <em>prima facie</em> a determination of whether adverse federal effects are in the public interest into a determination of whether the project as a whole is in the public interest,” and is in this way an arrogation of power by Parliament.<a href="#_ftn16" name="_ftnref16"><sup>[16]</sup></a></p> <p>The factors set out in in the <em>IAA</em> that must be considered in the public interest determination allow “the decision maker to blend their assessment of adverse federal effects with other adverse effects that are not federal…”<a href="#_ftn17" name="_ftnref17"><sup>[17]</sup></a> The decision maker therefore enjoys untrammeled power to regulate projects whether or not the physical activity is within federal jurisdiction.<a href="#_ftn18" name="_ftnref18"><sup>[18]</sup></a></p> <p>In considering the definition of “effects within federal jurisdiction” contained in the <em>IAA</em>, a term central to the scheme’s decision-making functions, the majority concluded it was overbroad. The definition shifts the decision maker’s focus from solely areas of federal jurisdiction to the overall adverse effects of the project in question, including those adverse effects that are non-federal or solely provincial in nature.<a href="#_ftn19" name="_ftnref19"><sup>[19]</sup></a></p> <p>In concluding that the definition of “effects within federal jurisdiction” in the <em>IAA</em> is overbroad, the majority highlighted the influence of the definition on key decision-making junctures under the assessment scheme:</p> <p>First, it is on the basis of potential adverse “effects within federal jurisdiction” that some physical activities are designated as “designated projects” (s. 9(1); see also Regulatory Impact Analysis Statement). Second, the ultimate decision made under the scheme is, at least on its face, concerned with whether the adverse “effects within federal jurisdiction” are in the public interest (ss. 60(1) and 62). Finally, conditions imposed along with a positive public interest determination must be “in relation to the adverse effects within federal jurisdiction” (s. 64(1)).<a href="#_ftn20" name="_ftnref20"><sup>[20]</sup></a></p> <p>Finally, because the definition informs certain enumerated effects-based prohibitions under the <em>IAA</em> for project proponents of designated projects, Parliament has exceeded the range of conduct that it can validly regulate.<a href="#_ftn21" name="_ftnref21"><sup>[21]</sup></a></p> <p>In sum, the majority found that the “designated projects” scheme intrudes more than incidentally into areas of exclusive provincial legislative jurisdiction, including property and civil rights in the province,<a href="#_ftn22" name="_ftnref22"><sup>[22]</sup></a> matters of a local nature,<a href="#_ftn23" name="_ftnref23"><sup>[23]</sup></a> local works and undertakings,<a href="#_ftn24" name="_ftnref24"><sup>[24]</sup></a> and non-renewable natural resources, forestry resources, and electrical energy.<a href="#_ftn25" name="_ftnref25"><sup>[25]</sup></a></p> <h2>The Dissent</h2> <p>The dissenting Justices<a href="#_ftn26" name="_ftnref26"><sup>[26]</sup></a> concluded that the <em>IAA</em> and the Regulations are constitutional in their entirety<a href="#_ftn27" name="_ftnref27"><sup>[27]</sup></a> finding that the pith and substance of the “designated projects” scheme is:</p> <p style="padding-left: 30px;">…to establish an environmental assessment process to (1) assess the effects of physical activities or major projects on federal lands, Indigenous peoples, fisheries, migratory birds, and lands, air, or waters outside Canada or in provinces other than where a project is located, and (2) determine whether to impose restrictions on the project to safeguard against significant adverse federal effects, unless allowing those effects is in the public interest.<a href="#_ftn28" name="_ftnref28"><sup>[28]</sup></a></p> <p>In the dissent’s view, the <em>IAA</em>’s purpose is not to regulate all aspects of the designated projects, but to consider all positive and negative effects of the designated project.<a href="#_ftn29" name="_ftnref29"><sup>[29]</sup></a></p> <p>As to the decision-making criteria and factors to assess the public interest contained in the <em>IAA</em>, the dissent found them to “…promote political accountability, the rule of law, and meaningful judicial review…”<a href="#_ftn30" name="_ftnref30"><sup>[30]</sup></a> In concluding the designated projects scheme is <em>intra vires</em> Parliament, the dissent found that “the adverse federal effects set out in the <em>IAA</em> anchor federal review and decision making under the <em>IAA</em> legislative scheme and fit within multiple heads of Parliament’s legislative jurisdiction…”<a href="#_ftn31" name="_ftnref31"><sup>[31]</sup></a></p> <p>Further, the dissent found that the project designation process under the<em> IAA</em> appropriately reflects the precautionary principle and the need to gather information in the early stage of a project to properly inform federal decision making about whether a designated project may cause adverse federal effects.<a href="#_ftn32" name="_ftnref32"><sup>[32]</sup></a></p> <h2>The Federal Government’s Response</h2> <p>As reference opinions are not binding, there was no immediate legal effect flowing from the release of the SCC Reference. Notably, while acknowledging that Parliament can enact impact assessment legislation to minimize the risks that some major projects pose to the environment, the majority does not direct Parliament on a way forward.<a href="#_ftn33" name="_ftnref33"><sup>[33]</sup></a></p> <p>However, following the release of the SCC Reference, the <a href="https://www.canada.ca/en/impact-assessment-agency/services/policy-guidance/practitioners-guide-impact-assessment-act/statement-interim-administration-impact-assessment-act-pending-legislative-amendments.html">federal government confirmed</a> its intentions to make legislative changes to respect the SCC’s opinion. In the interim, on October 26, 2023, the federal government released <a rel="noopener noreferrer" target="_blank" href="https://www.canada.ca/en/impact-assessment-agency/news/2023/10/government-of-canada-releases-interim-guidance-on-the-impact-assessment-act.html">interim guidance</a> on the administration of the <em>IAA</em> “to ensure that projects currently in the assessment process have an orderly and clear path forward.”</p> <p>The guidance specifies that:</p> <ul> <li>The Impact Assessment Agency of Canada will assess all projects currently under assessment and provide an opinion on whether they impact areas of federal jurisdiction;</li> <li>Proponents are invited to continue information sharing to advance their assessments;</li> <li>Consultation will continue with Indigenous Peoples through existing assessment processes, as they relate to a clear area of federal jurisdictional responsibility;</li> <li>The Minister’s discretionary authorities to designate projects will be paused.</li> <li>Consideration of any new designation requests will only resume, as appropriate, once amended legislation is in force;</li> <li>The Impact Assessment Agency of Canada remains prepared to provide an opinion on whether a full impact assessment is warranted, and to invite proponents to collaborate on an assessment; and</li> <li>The three regional assessments underway, the Ring of Fire in Ontario and offshore wind in Nova Scotia and Newfoundland and Labrador, will continue, as these seek only to understand impacts and do not involve decision-making on specific projects.</li> </ul> <p>According to the federal Government, this guidance is intended to provide certainty to ongoing processes while it works to introduce “targeted and meaningful amendments to the <em>IAA</em>” that align with SCC Reference.</p> <h2>Closing Thoughts</h2> <p>The SCC Reference is the most recent case in a series of cases regarding constitutional jurisdiction over matters relating to the environment, including the carbon pricing reference (<em>Reference re Greenhouse Gas Pollution Pricing Act</em>, 2021 SCC 11) (“Carbon Pricing Reference”), that are revisiting the balance between federal and provincial interests in the division of powers. The SCC Reference is a different outcome than in the Carbon Pricing Reference, and the majority’s finding of unconstitutionality in this most recent reference may result in a slightly more restrained approach by the federal government when legislating to meet environmental policy objectives. </p> <p>Stikeman Elliott will continue to monitor developments following from the SCC Reference. If you have any questions regarding the SCC Reference or its impact, please contact a member of our team involved in this blog.</p> <hr /> <p><a href="#_ftnref1" name="_ftn1">[1]</a> The majority of the ABCA had found the<em> IAA</em> and the Regulations to be unconstitutional in their entirety, agreeing with Canada’s argument before the </p> ABCA that it would not be practical to sever any offending provisions from the<em> IAA </em>or the Regulations from the<em> IAA</em> while allowing others to stand (para 55). <p><a href="#_ftnref2" name="_ftn2">[2]</a> Para 3.</p> <p><a href="#_ftnref3" name="_ftn3">[3]</a><em>IAA, </em>ss. 81-91.</p> <p><a href="#_ftnref4" name="_ftn4">[4]</a> Para 35.</p> <p><a href="#_ftnref5" name="_ftn5">[5]</a> Para 34.</p> <p><a href="#_ftnref6" name="_ftn6">[6]</a> Para 36.</p> <p><a href="#_ftnref7" name="_ftn7">[7]</a> Para 103.</p> <p><a href="#_ftnref8" name="_ftn8">[8]</a> The majority consisted of: Wagner C.J., Côté, Rowe, Martin and Kasirer JJ. The majority reasons were authored by Wagner C.J.</p> <p><a href="#_ftnref9" name="_ftn9">[9]</a> Para 5. The constitutional validity of this component of the scheme was not challenged (para 208).</p> <p><a href="#_ftnref10" name="_ftn10">[10]</a> Para 6.</p> <p><a href="#_ftnref11" name="_ftn11">[11]</a> Para 154.</p> <p><a href="#_ftnref12" name="_ftn12">[12]</a> Para 6.</p> <p><a href="#_ftnref13" name="_ftn13">[13]</a> Para 6.</p> <p><a href="#_ftnref14" name="_ftn14">[14]</a> Para 162.</p> <p><a href="#_ftnref15" name="_ftn15">[15]</a> Paras 163-164.</p> <p><a href="#_ftnref16" name="_ftn16">[16]</a> Para 166.</p> <p><a href="#_ftnref17" name="_ftn17">[17]</a> Para 169.</p> <p><a href="#_ftnref18" name="_ftn18">[18]</a> Para 178.</p> <p><a href="#_ftnref19" name="_ftn19">[19]</a> Paras 179-181.</p> <p><a href="#_ftnref20" name="_ftn20">[20]</a> Para 181.</p> <p><a href="#_ftnref21" name="_ftn21">[21]</a> Para 180 and 191.</p> <p><a href="#_ftnref22" name="_ftn22">[22]</a><em> The Constitution Act, 1867, </em>30 & 31 Vict, c 3, s. 92(13).</p> <p><a href="#_ftnref23" name="_ftn23">[23]</a><em>The Constitution Act, 1867, </em>30 & 31 Vict, c 3, s. 92(16).</p> <p><a href="#_ftnref24" name="_ftn24">[24]</a><em>The Constitution Act, 1867, </em>30 & 31 Vict, c 3, s. 92(10).</p> <p><a href="#_ftnref25" name="_ftn25">[25]</a><em>The Constitution Act, 1867, </em>30 & 31 Vict, c 3, s. 92A; para 205. </p> <p><a href="#_ftnref26" name="_ftn26">[26]</a> The minority dissent consisted of Karakatsanis and Jamal JJ.</p> <p><a href="#_ftnref27" name="_ftn27">[27]</a> Para 217.</p> <p><a href="#_ftnref28" name="_ftn28">[28]</a> Para 257.</p> <p><a href="#_ftnref29" name="_ftn29">[29]</a> Para 263.</p> <p><a href="#_ftnref30" name="_ftn30">[30]</a> Para 294</p> <p><a href="#_ftnref31" name="_ftn31">[31]</a> Para 304.</p> <p><a href="#_ftnref32" name="_ftn32">[32]</a> Para 308.</p> <p><a href="#_ftnref33" name="_ftn33">[33]</a> The majority does provide implicit guidance on how the <em>IAA </em>could be amended to address its <em>ultra vires</em> aspects. See paras 174-178 and 206.</p>16-Oct-2023 12:44:00{3136712B-C8E6-4032-9993-304488712CAC}https://www.stikeman.com/en-ca/kh/canadian-ma-law/bill-s-211-in-context-five-ways-that-canada-regulates-forced-and-child-labourCandace Ceronehttps://www.stikeman.com/en-ca/people/c/candace-ceroneAndrew S. Cunninghamhttps://www.stikeman.com/en-ca/people/c/andrew-s-cunninghamBrendan Kennedyhttps://www.stikeman.com/en-ca/people/k/brendan-kennedyShawn C.D. Neylanhttps://www.stikeman.com/en-ca/people/n/shawn-c-d-neylanJean-Guillaume Shoonerhttps://www.stikeman.com/en-ca/people/s/jean-guillaume-shoonerIan Trimblehttps://www.stikeman.com/en-ca/people/t/ian-trimbleCanadian M&A LawCanadian Securities LawCanadian Employment, Labour & Pension LawCorporations & Commercial Law UpdateCanadian Mining LawBill S-211 in Context: Five Ways That Canada Regulates Forced and Child Labour<p><strong>Bill S-211 – the <em>Fighting Against Forced Labour and Child Labour in Supply Chains Act</em> – which requires businesses to report on their efforts to combat forced and child labour, is set to take effect in 2024. In this post, which supplements </strong><a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/canadian-legislation-on-forced-and-child-labour-in-global-supply-chains-takes-effect"><strong>our previous posts on Bill S-211</strong></a><strong>, we look at the new legislation in the context of the broader Canadian regulatory landscape affecting what is often referred to internationally as “modern slavery”. </strong></p> <p>In addition to the new legislation, this regulatory context encompasses:</p> <ul> <li>The Canadian Ombudsperson for Responsible Enterprise (“CORE”), with respect to the oil & gas, mining and garment sectors;</li> <li>The <em>Customs Tariff</em>, with respect to control of the importation of goods produced with forced or child labour;</li> <li>The <em>Criminal Code</em>, with respect to the trafficking or exploitation of individuals; and</li> <li>The class actions process, with respect to alleged misrepresentations by businesses of their internal practices, policies and past issues relating to forced and child labour.</li> </ul> <p>While these are arguably the key regulatory initiatives in this area, other factors may be relevant to businesses as they develop their anti-forced and child labour policies. Two of these are also referred to in this post: the international context of the legislation and role of securities regulation in encouraging and potentially enforcing accurate corporate disclosure in this area.</p> <h2>1. Bill S-211: Canada’s New Forced Labour and Child Labour Legislation</h2> <p>As discussed in our <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/canadian-legislation-on-forced-and-child-labour-in-global-supply-chains-takes-effect">earlier posts</a>, the <a rel="noopener noreferrer" target="_blank" href="https://laws.justice.gc.ca/eng/acts/F-10.6/index.html"><em>Fighting Against Forced Labour and Child Labour in Supply Chains Act</em></a> (the “Act”; previously Bill S-211) imposes certain reporting obligations in relation to efforts made to reduce the risk of forced and child labour.</p> <p>The stated purpose of the Act is to implement Canada’s international commitment to contribute to the fight against forced labour and child labour through the imposition of <strong>reporting obligations</strong> on business entities (described below) and government institutions (which includes <a rel="noopener noreferrer" target="_blank" href="https://laws-lois.justice.gc.ca/eng/acts/A-1/page-14.html#docCont">individual government departments and many federal agencies</a>).</p> <p>Under the Act, any “entity” – a term that encompasses a corporation, trust, partnership or other unincorporated organization – must file a report annually with the federal government, provided that it satisfies the two following tests:</p> <ol> <li>It is <strong>either</strong> (i) listed on a Canadian stock exchange (in which case, proceed directly to (2)); <strong>or</strong> (ii) does business, has a place of business or has assets in Canada and, in either of its two most recent financial years, has met or exceeded a size threshold based on its consolidated financial statements. The size threshold is any two of: $40 million in revenue, $20 million in assets or 250 employees;<br /> and</li> <li>It produces, sells or distributes goods in Canada or elsewhere and/or imports goods into Canada (or controls any entity that does so).</li> </ol> <p>The annual report must be filed with the Minister of Public Safety and Emergency Preparedness (the “Minister”) and published on the entity’s website before May 31 of each year. The legislation does not contemplate that an entity might not have a website.</p> <p>The exact format of the report, and of its website version, may be further specified by government guidance that is expected in the fall of 2023, but, in general, it will need to describe the steps the entity has taken during its previous financial year to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods in Canada or elsewhere by the entity or of goods imported into Canada by the entity. The report must also include specified supplementary information pertaining to the entity’s structure, activities and supply chains, as well as information about its training programs and risk assessments as well as its responses to any forced or child labour situations that it has detected.</p> <p>The first report must be filed with the Minister no later than <strong>May 31, 2024</strong>.</p> <p>Persons and entities that fail to comply with certain provisions of the Act, including a failure to file and publish their report, are guilty of an offence punishable on summary conviction and liable to a fine of not more than $250,000. Further, the Act extends liability to an entity’s directors, officers, agents and mandataries to the extent that they directed, authorized, assented to, acquiesced in or participated in the commission of an offence.</p> <h3>International context</h3> <p>While new to Canada, many of the reporting requirements that the Act establishes will be familiar to many multinational corporations, because they overlap significantly with existing requirements in the United States (California), United Kingdom, Australia, France, Germany and elsewhere. However, the Canadian legislation has certain distinctive aspects that will require all companies – including multinationals that are already filing in foreign jurisdictions – to ensure that their responses are tailored to Bill S‑211’s specific requirements.</p> <p>The basic approach Canada has taken follows that of the <a rel="noopener noreferrer" target="_blank" href="https://modern-slavery-statement-registry.service.gov.uk/search-results?Search=&t=4&t=5&s=9">U.K.</a>, <a rel="noopener noreferrer" target="_blank" href="https://oag.ca.gov/SB657">California </a>and <a rel="noopener noreferrer" target="_blank" href="https://modernslaveryregister.gov.au/">Australia</a> by requiring entities to focus their disclosure on the steps they are taking to ensure that forced labour and child labour are not present in their supply chains. This “reporting” approach is less demanding than the “diligence” approach underlying the <a rel="noopener noreferrer" target="_blank" href="https://www.economie.gouv.fr/files/files/directions_services/cge/Duty-of-Vigilance.pdf?v=1620744564">French</a> and <a rel="noopener noreferrer" target="_blank" href="https://www.csr-in-deutschland.de/EN/Business-Human-Rights/Supply-Chain-Act/supply-chain-act.html">German</a> legislation (note that <a rel="noopener noreferrer" target="_blank" href="https://www.ag.gov.au/crime/publications/report-statutory-review-modern-slavery-act-2018-cth">Australia is considering whether to move to a diligence model</a>). That approach requires entities to actively investigate their suppliers and to report on the results of those investigations.</p> <p>Many multinational corporations that are subject to multiple forced and child labour reporting requirements produce a single combined statement to addresses the requirements across each regime, and it is likely that this approach can be extended to Canada to meet the requirement to post compliance information on the corporate website. However, unlike some other jurisdictions, Canada also requires that a report addressing a list of specified topics be filed with the government for publication on a searchable government website. (In other words, unlike the U.K., for example, the Canadian government website will not simply link to the website statements of the reporting entities.) In the absence (so far) of formal reporting guidelines under the Act, Canadian corporations not already subject to reporting requirements in foreign countries may find it useful to review reports filed by their peers in other jurisdictions to inform their responses. The <a rel="noopener noreferrer" target="_blank" href="https://modern-slavery-statement-registry.service.gov.uk/search-results?Search=&t=4&t=5&s=9">U.K. site</a>, for example, is easily searchable and can be broken down by sector and size of business.</p> <p>While the Act, like its counterparts in other jurisdictions, does not itself include substantive prohibitions on the use of forced and child labour, businesses should be mindful of the potential application of other statutes, notably the <em>Criminal Code</em>, in cases where forced and child labour are used, whether this occurs domestically or in foreign countries. The applicability of the <em>Criminal Code</em> is discussed in Section 4 of this post.</p> <h2>2. The CORE: Ongoing Investigations in the Mining and Garment Sectors</h2> <p>Canadian companies in three specific sectors – mining, oil & gas and apparel – are also subject to investigations into alleged human rights abuses in their international operations by the <a rel="noopener noreferrer" target="_blank" href="https://stikeman.com/en-ca/kh/canadian-energy-law/CORE-New-Federal-Office-to-Investigate-Human-Rights-Complaints-Against-Canadian-Multinationals">Canadian Ombudsperson for Responsible Enterprise</a>. Although the CORE does not have any direct enforcement powers, it can refer complaints that raise criminal liability to law enforcement, make recommendations to the company (e.g., compensation, mitigation measures, apologies) and monitor subsequent compliance, and make recommendations for the withdrawal of federal support (e.g., trade advocacy).</p> <p>On July 11, 2023, the CORE published its initial assessments into allegations that two businesses – <a rel="noopener noreferrer" target="_blank" href="https://core-ombuds.canada.ca/core_ombuds-ocre_ombuds/activities-nike-canada-corp-activities.aspx?lang=eng">one in the apparel sector</a> (the “First Apparel Business”) and <a rel="noopener noreferrer" target="_blank" href="https://core-ombuds.canada.ca/core_ombuds-ocre_ombuds/activities-dynasty-gold-corp-activities.aspx?lang=eng">one in the mining sector</a> (the “Mining Business”) have relationships with businesses based in China that have used or benefitted from Uyghur forced labour.</p> <p>On August 15, 2023, the CORE published two more initial assessments relating to allegations: one <a rel="noopener noreferrer" target="_blank" href="https://core-ombuds.canada.ca/core_ombuds-ocre_ombuds/activities-gobimin-activities.aspx?lang=eng">in relation to an investment company</a> that formerly held an interest in a mining company (the “Investment Business”) and one <a rel="noopener noreferrer" href="https://core-ombuds.canada.ca/core_ombuds-ocre_ombuds/activities-ralph-lauren-activities.aspx?lang=eng" target="_blank">into a second apparel business</a> (the “Second Apparel Business”).</p> <p>All four allegations were made by a coalition of 28 Canadian organizations (the “Complainants”) on June 21, 2022 (as noted below, three further allegations made by these organizations were also considered by the CORE in late August).</p> <h3>The First Apparel Business investigation</h3> <p>The initial assessment report for the First Apparel Business states that the company declined the CORE’s request for an initial meeting on the basis that its previously published statements responded fully to the concerns raised. The CORE assessment report states that upon receiving a draft of the initial assessment report, the First Apparel Business engaged with the CORE and requested a meeting at that point, which was declined by the CORE.</p> <p>On reviewing the submissions of the Complainants and the First Apparel Business, the ombudsperson agreed that there was a need for further investigation of relationships between certain suppliers and other entities that had been associated with forced labour and of the sufficiency of the human rights due diligence efforts of the First Apparel Business. The fact that the First Apparel Business had initially declined to meet with the CORE appears to have factored into the decision.</p> <h3>The Mining Business investigation</h3> <p>The Mining Business reportedly did not respond at all to repeated inquiries, although it did make submissions after receiving the CORE’s draft initial assessment. This case involved a mining operation in China that was established as a joint venture. The Mining Business was one of the joint venturers but had lost effective control over the mining operation 10 years ago due to an ongoing dispute with the other joint venturer. Nevertheless, the Mining Business was said to have continued to publicly assert 70% ownership of the joint venture and the Complainants argued that, even if there was a dispute, the company should have acted on human rights concerns about the mine. The ombudsperson characterized the Mining Business as having “deliberately avoided participating in and cooperating with the CORE’s dispute resolution process without providing any explanation” and agreed with the Complainants that serious issues had been raised that had not been adequately addressed by the Mining Business.</p> <h3><strong>The Investment Business investigation</strong></h3> <p>This allegation relates to the activities of an indirectly owned subsidiary of the Investment Business involved in the mining project that was the subject of the complaint. The Investment Business’ interest in the subsidiary was sold in July 2022. The Investment Business also provided substantive responses to the complaint, including submissions relating to certain employment practices of the subsidiary prior to the sale. </p> <p>The CORE declined to launch an investigation, but did provide recommendations to the Investment Business based on its mandate to advise Canadian companies on their practices and policies with regards to responsible business conduct. The CORE recommended that the Investment Business:</p> <ul> <li>Revise and update its policies on responsible exit or (if it does not have such policies) develop and adopt policies on responsible exit, including from high-risk areas, as part of its human rights due diligence;</li> <li>Share these policies with the CORE by December 29, 2023, and incorporate any feedback or comments from the CORE;</li> <li>Post the final policies on its website by March 15, 2024; and</li> <li>Publicly commit to implement and apply these policies in the context of its operations abroad.</li> </ul> <p>The CORE has stated that it will report publicly on the findings of its follow-up on the above.</p> <h3><strong>The Second Apparel Business investigation</strong></h3> <p>The initial assessment report states that the Second Apparel Business declined to attend an initial assessment meeting, but submitted responses in two emails which referred to policies and strategies. Upon receiving a draft of the initial assessment report, the Second Apparel Business provided further comments indicating that it had undertaken further investigations and expanding on measures taken. It also clearly stated that it was committed to cooperating with the CORE in good faith. </p> <p>The CORE agreed with the Complainants that there was a need for a limited investigation on specific points where, in the ombudsperson’s view, there was conflicting information. Given the Second Apparel Business’ willingness to cooperate in good faith, the CORE encouraged the parties to consider mediation as an option.</p> <h3>Early participation and clear indication of good faith cooperation could assist in early resolution</h3> <p>Of note, all four reports state that the Complainants were willing to participate in early resolution or mediation. However, in the cases of the First Apparel Business and the Mining Business the ombudsperson found that the companies were not willing to participate. The Apparel Business “did not confirm [its] intention to participate in mediation” when it was offered and the Mining Business simply stated it had no further comment. A clear indication from the Second Apparel Business of an intention to participate in good faith led to a recommendation for mediation.</p> <h3>Additional investigations announced</h3> <p>On August 24, 2023, <a rel="noopener noreferrer" target="_blank" href="https://core-ombuds.canada.ca/core_ombuds-ocre_ombuds/press-release_walmart-hugo-boss_diesel_communique.aspx?lang=eng">the CORE announced three additional investigations</a> with respect to companies in the apparel sector, in response to submissions from what appears to be the same group of Complainants. These cases were generally similar to the first four in that, while the Complainants’ allegations related only to imprecisely described indirect connections to forced labour, they met the CORE’s low threshold for proceeding. It should be noted that the CORE’s decisions in these cases appear to have been influenced by <span>what the CORE characterized as the</span> respondents’ reluctance to participate fully at each stage of the process and/or their failure to respond in sufficient detail (in the CORE’s view) to the Complainants’ allegations.</p> <h2>3. The Customs Tariff’s Import Prohibitions</h2> <p>Goods that are mined, manufactured or produced wholly or in part by forced labour, or goods manufactured or produced wholly or in part by prison labour, are currently prohibited from entering Canada pursuant to tariff item No. 9897.00.00 in the List of Tariff Provisions set out in the schedule to the <em>Customs Tariff.</em> As prohibited items, such goods cannot enter Canada and must therefore be abandoned, destroyed or re-exported by the importer.</p> <h3>Expanded definitions under the Act will mean more exclusions</h3> <p>The Act amends the <em>Customs Tariff</em> and also modifies the description of goods covered under tariff item <a rel="noopener noreferrer" target="_blank" href="https://www.cbsa-asfc.gc.ca/publications/dm-md/d9/d9-1-9-eng.pdf">No. 9897.00.00</a> by extending the existing prohibition on the importation of goods mined, manufactured or produced wholly or in part by forced labour so that it includes goods mined, manufactured or produced wholly or in part by child labour, whether coerced or not. Such amendments refer to the broad definitions of “forced labour” and “child labour” as provided for in section 2 of the Act.</p> <p>In practice, these broadened definitions will likely increase the risk of a violation for importers. For example, the new concept of “forced labour” may require less evidence of the involuntariness of the labour or service. Moreover, the definition of “child labour” in the Act should expand import prohibitions significantly when compared to the former definition of “forced labour”. Notably, the Act substantially supplements that definition by including labour or services provided by persons under the age of 18: under circumstances that are contrary to the laws applicable in Canada (where the labour or services are provided within Canada); and/or that interfere with schooling by depriving them of the opportunity to attend school, obliging them to leave school prematurely or requiring them to “combine school attendance with excessively long and heavy work”. </p> <p>The result of the above is that many goods that are not “mined, manufactured or produced wholly or in part by forced labour” under current legislation (and thus not subject to the import ban) could become subject to the import prohibition based on the new broadened definitions effective as of January 1, 2024.</p> <h3>Enforcement powers</h3> <p>To enforce the import ban, the Canada Border Services Agency (“CBSA”) has been granted significant powers such as: examination and detention of goods at the border, issuance of monetary penalties, seizure of goods, destruction or disposition of goods, application of ascertained forfeitures (i.e., imposition of monetary penalties when the goods cannot be seized), search of an entity's property, and criminal prosecution.</p> <p>In order to detain goods at the border, seize them, or take other enforcement actions, the CBSA must have reasonable grounds to believe that forced labour or child labour was involved in the production of the goods. Different elements can give rise to such suspicion, including, for example, information retrieved by the CBSA itself or by other government entities, warnings issued by foreign authorities, public reports, etc.</p> <p>Businesses may wish to reassess any contractual safeguards that they may have established to allocate these risks among the entities through which imported goods typically pass (importer, distributor, merchant, end user, etc.). In this respect, any entity named as “importer of record” on the Canada Customs Coding Form (Form B3) should be the first target of investigations and enforcement measures by the CBSA. It is worth noting that the CBSA may exercise its powers not only at the border, but also once the goods have been sold or passed on to other persons in Canada. In other words, the CBSA is authorized to enforce the import prohibition pursuant to the <em>Customs Act </em>post-importation. In essence, as the powers of the CBSA subsist even after the imported goods have changed hands, all businesses (irrespective of their size) that directly or indirectly deal with imported goods should make proper inquiries about their origins.</p> <p>Furthermore, it should be pointed out that the <em>Customs Act</em> specifically prohibits any person from possessing, purchasing, selling, exchanging or otherwise acquiring or disposing of any imported goods that are subject to an import ban. Therefore, this means that a Canadian retailer or end-user, for example, could also (in theory) face criminal charges just for selling or being in possession of goods subject to the import prohibition. Accordingly, all businesses dealing with imported goods (irrespective of their size) should take reasonable steps to ensure such goods are compliant with Canadian law. </p> <p>As the CBSA is the only federal department or agency in charge of enforcing the import prohibition, any business or end-consumer finding that they may be in possession of imported goods subject to the import prohibition should contact the CBSA’s Border Watch Tip Line. It is noteworthy that the acceptance of a voluntary disclosure by the CBSA does not necessarily preclude criminal prosecution. </p> <h2>4. Criminal Code Provisions</h2> <p>While the Act establishes reporting requirements, direct regulation of coercive exploitation of individuals (modern slavery) is left to the <a rel="noopener noreferrer" target="_blank" href="https://laws-lois.justice.gc.ca/eng/acts/c-46/page-41.html#h-120700"><em>Criminal Code</em></a>. Section 279.01 of the <em>Code</em>, “Trafficking in Persons”, establishes a sentencing range of 4 years to life imprisonment for anyone who transfers, holds, harbours (etc.) a person, or controls the person’s movements for the purpose of exploiting them or facilitating their exploitation (the most severe penalties apply where the exploitation involves a kidnapping or violent act). Since 2010, child labour has been dealt with by Section 279.011: where the person is a minor, the sentencing range is 5 years to life imprisonment (or 6 years to life, if a kidnapping or violent act occurs).</p> <p>“Exploitation” in this context is defined in Section 279.04 as causing a person to provide labour or a service by:</p> <p>“engaging in conduct that, in all the circumstances, could reasonably be expected to cause the other person to believe that their safety or the safety of a person known to them would be threatened if they failed to provide, or offer to provide, the labour or service.”</p> <p>The same words are used in the definition of “forced labour” in the Act. In determining whether exploitation has occurred, courts may consider factors such as the use of coercion (i.e., a threat or use of force) or deception by the accused and/or any abuse by the accused of a position of trust, power or authority (<em>Criminal Code</em>, s. 279.04(2)).</p> <p>Those who knowingly materially benefit from a breach of the trafficking provisions, whether directly or indirectly, can also face charges and up to 10 years incarceration or 14 in the case of the trafficking of a child.</p> <p>The above provisions apply extraterritorially to Canadian citizens and permanent residents. It appears that any conduct by a business within Canada, or material benefits derived from exploitation occurring in Canada, could create criminal liability under these sections. But so could conduct outside of Canada by a Canadian, or material benefits derived from such conduct.</p> <p><em>Criminal Code</em> provisions relating to extortion (s. 346(1)), kidnapping (s. 279(1)) and forcible confinement (s. 279(2)) could also be relevant in extreme situations, although there is no provision in the <em>Criminal Code</em> for applying them to conduct outside Canada.</p> <h2>5. Class Actions and Regulator Scrutiny</h2> <p>A recent British Columbia Court of Appeal <a rel="noopener noreferrer" target="_blank" href="https://www.canlii.org/en/bc/bcca/doc/2023/2023bcca264/2023bcca264.html?autocompleteStr=Hershey%20Company%20v%20Leaf&autocompletePos=1">class action certification ruling</a> raises a significant issue for companies making “modern slavery” statements under Bill S-211 or otherwise. The representative plaintiff in the proposed class action (the “Plaintiff”) argued that he and other members of the proposed class had been influenced to purchase grocery items associated with the two defendants (the “Defendants”), a U.S.-based candy manufacturer (the “Appellant”) and its Canadian subsidiary (the “Canadian Defendant”).</p> <p>This ruling concerned the Appellant’s claim that the B.C. court lacked jurisdiction over it due to the lack of a real and substantial connection between the Appellant and British Columbia. The Court of Appeal agreed and dismissed the class action as regards the Appellant (the Canadian Defendant did not dispute the B.C. court’s jurisdiction in this hearing). Thus this ruling did not attempt to resolve the negligent misrepresentation issues themselves, the existence of which nonetheless provides some food for thought.</p> <p>The Plaintiff’s notice of civil claim noted two publications of the Defendants:</p> <ul> <li>Their <strong>2014 Corporate Social Responsibility Report,</strong> in which it was stated: <ul> <li>that the Defendants were “actively involved in large-scale efforts that are committed to rooting out forced labour, especially forced labour” in their cocoa supply chain; and</li> <li>that they “have zero tolerance for the ‘worst forms of child labour’ in their supply chain” as defined under two different ILO conventions; and</li> </ul> </li> <li>Their <strong>Supplier Code of Conduct</strong>, which stated: <ul> <li>that the Defendants are “committed to the elimination of the ‘worst forms of child labor’;” and</li> <li>that certain forms of child labour are prohibited from their supply chain.</li> </ul> </li> </ul> <p>The Plaintiff then went on to assert that child labour and slavery are in fact “prevalent” in the Defendants’ supply chain in the developing world and that the impression to the contrary created by the documents referred to above is false and misleading to retail purchasers of Defendants’ chocolate products given that it is not corrected by any disclosures on the packaging.</p> <p>Overruling the trial judge, the Court of Appeal held that the Plaintiff had not provided sufficient evidence of the facts surrounding the alleged misrepresentations to allow a B.C. court to take jurisdiction over the Appellant. Nor had the Plaintiff shown that the Appellant carried on business in the province, a fact that might also, in theory, have grounded an assertion of jurisdiction even if the tort had occurred elsewhere.</p> <p>Nevertheless, the case against the Canadian Defendant is apparently proceeding. One takeaway from this is that, while it is natural to make optimistic and positive assertions in public statements, advertising or more formal types of disclosure, all such disclosure should be subject to proper diligence and support to avoid the risk of this type of exposure. Furthermore, while the viability of this type of negligent misrepresentation class action is not clear, there may be exposure under applicable Canadian securities laws that impose liability for both primary and secondary market disclosure, and risk of regulatory action. As the popularity of “ethical investing” creates real economic advantages for organizations with strong CSR records, supply chain transparency claims may come under the scrutiny of the Competition Bureau and securities regulators – much as has already happened with “greenwashing” controversies surrounding some corporate environmental claims (see our post on <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/competitor/highlights-from-the-competition-bureaus-green-growth-summit">the Competition Bureau’s “Green Growth” summit</a> and, with respect to securities regulators, <a rel="noopener noreferrer" target="_blank" href="https://www.osc.ca/sites/default/files/2022-11/csa_20221103_51-364_continuous-disclosure-review.pdf">CSA Staff Notice 51-364 Continuous Disclosure Review Program Activities for the fiscal years ended March 31, 2022 and March 31, 2021</a>, at 9363-64).</p> <p><em>The authors would like to thank Ryan Albaum and David Kumar, summer students in the Toronto office of Stikeman Elliott LLP, for their contributions to this article.</em></p>06-Sep-2023 04:45:00{B7C04A6C-C5CC-4E5A-94BB-933385545ACB}https://www.stikeman.com/en-ca/kh/canadian-ma-law/british-columbias-beneficial-ownership-transparency-registerDenise Duifhuishttps://www.stikeman.com/en-ca/people/d/denise-duifhuisCanadian M&A LawCorporations & Commercial Law UpdateBritish Columbia's Beneficial Ownership Transparency Register: Overview and Status Update<p><strong>As part of a global effort to improve corporate transparency and combat serious financial crime, private companies incorporated under the British Columbia <em>Business Corporations Act </em>(“BCBCA”) have been required to prepare and maintain a Transparency Register since October 1, 2020. The Register must list individuals who directly or indirectly control 25% or more of the shares or votes of the company and include certain personal information about them. The British Columbia legislature recently approved changes to the BCBCA that would require BC companies to submit certain information from their respective Transparency Registers to the BC Registrar of Companies for publication. As discussed below, the public registry is expected to be up and running by 2025.</strong></p> <p><em>Note: This post updates and replaces our original March 5, 2020 and September 23, 2020 posts in light of recent legislative changes and other developments.</em></p> <h1>Overview and Status Update</h1> <h2>Comparison with the CBCA’s ISC Register</h2> <p>Private BCBCA companies have been required to prepare a Transparency Register since October 1, 2020. The Transparency Register is similar in principle to the <a rel="noopener noreferrer" target="_blank" href="https://stikeman.com/en-ca/kh/canadian-ma-law/Corporate-Control-Transparency-in-Canada">register of individuals with significant control</a> (“<strong>ISC Register</strong>”) under the <em>Canada Business Corporations Act</em> (“<strong>CBCA</strong>”), which has been in effect since mid-2019. However, the BCBCA Transparency Register does depart from the CBCA model in a number of significant respects, unlike the other provinces which, with a few exceptions, adopted transparency provisions that are virtually identical to those in the CBCA. Some of the differences between the BCBCA and CBCA registers are summarized at the end of this post. Additional analysis is available in our discussions of the <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/corporations-commercial-law/beneficial-ownership-transparency-in-canada-an-evolving-regulatory-landscape">progress of beneficial ownership transparency legislation across Canada</a> and of <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/cbca-beneficial-ownership-register-2-0-public-access-stronger-investigatory-powers">changes to the CBCA model</a> that have been recently been proposed and/or implemented.</p> <h2>Overview of the BCBCA provisions</h2> <p>As discussed below in greater detail, the Transparency Register provisions in <a rel="noopener noreferrer" target="_blank" href="https://www.bclaws.gov.bc.ca/civix/document/id/complete/statreg/02057_055#part4.1">Part 4.1 of the BCBCA</a> impose the following obligations, among others:</p> <ul> <li>BCBCA private companies are<strong> required to prepare and regularly update </strong>a Transparency Register that includes for each person who is a significant individual, as discussed below:</li> <ul> <li>the significant individual’s name, birthdate, address, citizenship and tax jurisdiction;</li> <li>a description of how the individual is a significant individual; and</li> <li>the date on which the individual became or ceased to be a significant individual. </li> </ul> <li>There are <strong>several tests for determining who is a significant individual</strong>, as discussed below.</li> </ul> <ul> <li><strong>Wholly-owned subsidiaries of public companies</strong>, as well as certain other entities, as discussed below, are exempt from the requirement to maintain a Transparency Register. The B.C. Ministry of Finance may consider future exemptions.</li> </ul> <ul> <li>Access to the Transparency Register is currently <strong>restricted </strong>to directors of the company, police officers, the tax authorities of British Columbia and Canada and certain regulators (including but not limited to the British Columbia Securities Commission, the British Columbia Financial Services Authority, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and the Law Society of British Columbia). Those who access the Register may use the information for certain specific purposes only.</li> </ul> <ul> <li>A company that fails to maintain a Transparency Register or incorrectly includes or omits information could be <strong>liable to fines of up to $100,000</strong>, and individuals who fail to comply with the requirements can be liable to fines of up to $50,000.</li> </ul> <p>The Government of British Columbia (“<strong>BC Government</strong>”) has created a <a rel="noopener noreferrer" target="_blank" href="https://www2.gov.bc.ca/gov/content/employment-business/business/bc-companies/transparency-register/transparency-register-questions">website</a> that provides guidance on creating a Transparency Register and on how to decide who qualifies as a “significant individual”.</p> <h2>Proposed changes to the BCBCA to create a central repository for Transparency Registers</h2> <p>On March 29, 2023, the BC Government introduced proposed amendments to the BCBCA in <a rel="noopener noreferrer" target="_blank" href="https://www.bclaws.gov.bc.ca/civix/document/id/bills/billscurrent/4th42nd:gov20-1">Bill 20</a> (the “<strong>BCBCA Amendments</strong>”). The BCBCA Amendments received royal assent on May 11, 2023, but will come into force by regulation. The BCBCA Amendments will create a central corporate beneficial ownership registry to make public certain information regarding beneficial owners of BCBCA companies. The new registry would follow similar privacy practices as the British Columbia Land Owner Transparency Registry. According to the Ministry of Finance <a rel="noopener noreferrer" target="_blank" href="https://news.gov.bc.ca/releases/2023FIN0025-000395">news release</a>, “The registry is expected to be launched in 2025. Once it is up and running, businesses will be required to submit and confirm this information once per year and any time there is a significant change in ownership or control.”</p> <p>Other changes in the BCBCA Amendments include:</p> <ul> <li>Adding the social insurance number or individual tax number assigned to the significant individual by the Canada Revenue Agency to the information required to be included in the Transparency Register; and</li> <li>Reducing the time to update changes in information in the Transparency Register from 30 days to 15 days.</li> </ul> <p>The analysis for determining who is a significant individual is not expected to change as a result of the BCBCA Amendments, and private BC companies will continue to be required to prepare and maintain the Transparency Register. However, they will also need to file certain information from the Transparency Register with the BC corporate registry.</p> <p>Many provisions in the BCBCA Amendments refer to matters that may be prescribed by regulation. Therefore, further details may be provided before the BCBCA Amendments come into force. We also understand that the BC Government may hold public consultations with respect to the regulations, will update the information on its website, and expects to give presentations before the new requirements from the BCBCA Amendments come into effect.</p> <p>We will continue to monitor the BCBCA Amendments and any proposed regulations and will provide further updates as they become available.</p> <p>The balance of this post addresses the Transparency Register requirements currently in force in BC for BCBCA companies.</p> <h1>Frequently Asked Questions</h1> <h2>Which companies need a Transparency Register?</h2> <p>The requirement to maintain a Transparency Register applies to any “private company” incorporated under the BCBCA – specifically a company that is not a reporting issuer, a reporting issuer equivalent, listed on a <a rel="noopener noreferrer" target="_blank" href="https://www.canada.ca/en/department-finance/services/designated-stock-exchanges.html">designated stock exchange</a> within the meaning of section 248(1) of the <a rel="noopener noreferrer" target="_blank" href="http://canlii.ca/t/7vb7"><em>Income Tax Act</em></a> (Canada), or within a prescribed class of companies.</p> <p>The following classes of BC companies have been exempted by regulation from the requirement to maintain a Transparency Register:</p> <ul> <li>wholly-owned subsidiaries of reporting issuers, reporting issuer equivalents or companies listed on a designated stock exchange within the meaning of section 248(1) of the <em>Income Tax Act </em>(Canada) (“<strong>public companies</strong>”);</li> <li>trust companies and insurance companies, each as defined in the <em>Financial Institutions Act</em>;</li> <li>government corporations as defined in the <em>Financial Administration Act </em>(“<strong>government </strong><strong>corporations</strong>”);</li> <li>wholly-owned subsidiaries of a special act corporation;</li> <li>companies that operate as independent schools;</li> <li>companies resulting from the conversion of a corporation under the <em>School Act</em>; and</li> <li>wholly-owned subsidiaries of municipalities, regional districts, and Indigenous nations.</li> </ul> <p>Additional exemptions may be made by regulation in the future.</p> <p>All BCBCA companies that do not fall under an exemption are required to prepare and maintain a Transparency Register.</p> <h2>Where is the Transparency Register kept, and in what format?</h2> <p>A private company must keep its Transparency Register at its records office in British Columbia either in electronic form or in a bound or loose-leaf form. Provided that it is available for inspection and copying at its records office by means of a computer terminal or other electronic technology, the Transparency Register, in a bound or loose-leaf form, may be kept at a location other than the company’s records office.</p> <h2>Whose names go into the Transparency Register?</h2> <p>The Transparency Register must contain information for each “significant individual”. An individual will be considered significant with respect to the company if the individual has:</p> <ul> <li>any of the following interests or rights or a combination of them in a significant number of the shares (being 25% or more of the issued shares, or 25% or more of the voting rights):</li> <ul> <li>an interest as a registered owner of at least one of the company’s shares;</li> <li>an interest as a beneficial owner of at least one of the company’s shares (other than an interest contingent on the death of another individual); or</li> <li>indirect control of at least one of the company’s shares;</li> </ul> <li>the right, indirect control of the right, and/or the ability to exercise direct and significant influence over an individual who has the right or indirect control of the right to elect, appoint or remove a majority of the directors; or a prescribed interest, right or ability, or is subject to a prescribed criterion or circumstance.</li> </ul> <p>The regulations set out additional detail with respect to “indirect control” and when certain persons are deemed to control intermediaries, including corporations, partnerships and trusts.</p> <p>As noted above, the BCBCA provisions specifically exempt wholly-owned subsidiaries of public companies from the Transparency Register requirement. In addition, as discussed below, certain “Special Intermediaries” (and their owners) are not required to be listed in the Transparency Register.</p> <p>Some of the key concepts in the “significant individual” definition are considered below.</p> <h2>Significant influence</h2> <p>Under certain circumstances, an individual who would otherwise not qualify as a significant individual may nevertheless be able to influence a second individual who has or indirectly controls the right to elect, appoint or remove one or more of the company’s directors. If such influence is “direct and significant”, the first individual is a significant individual under the legislation and must be included the Transparency Register.</p> <p>Importantly, the BC Government states on its <a rel="noopener noreferrer" target="_blank" href="https://www2.gov.bc.ca/gov/content/employment-business/business/bc-companies/transparency-register/transparency-register-questions">website</a> that “direct and significant influence” for these purposes “must come from a legally binding or enforceable arrangement, such as a legal agreement or contract.” The corollary of this is that significant influence does not include non-legal forms of influence, such as the influence of familial relationships, major customers or other business circumstances involving economic dependence.</p> <p>Examples of arrangements that would count as “significant influence” include:</p> <ul> <li>share transfer agreements whereby the transferor retains approval rights for the replacement of the board of directors; and</li> <li>loan agreements (to finance the private company) whereby the lender retains the right, in its absolute discretion, to recall the loan <strong>and </strong>the following were made clear:</li> </ul> <ul> <ul> <ul> <li>the lender will recall the loan if the lender disagrees with who sits on the board of directors; <strong>and</strong></li> <li>the private company will not survive without the financial support of the loan.</li> </ul> </ul> </ul> <h2>Interests or rights held jointly</h2> <p>If two or more individuals jointly own one of the above interests or rights, then each such individual is “significant” for the purposes of the Transparency Register and must therefore be listed.</p> <h2>Interests or rights exercised in concert</h2> <p>Groups of individuals who, under an agreement or arrangement, are acting in concert must add their interests together for the purpose of the “significant individual” test. If the group as a whole has interests that meet either the 25% threshold or, alternatively, has the direct or indirect right to elect, appoint or remove a majority of the directors of a private company, the company must list every member of the group in its Transparency Register.</p> <p>The rules regarding acting in concert may have potentially significant impacts on family businesses because certain persons, such as a spouse or a son, daughter or other relative of the person or person’s spouse living in the same home, are all presumed to act in concert. This means that, when determining who is a significant individual, private companies must add together the interests of persons who are “associates” if their combined interests meet the requirements to be a significant individual. Associates include spouses as well as children or other relatives who live in the same home.</p> <h2>Registered vs. beneficial ownership</h2> <p>The BCBCA provides that beneficial ownership “includes ownership through any trustee, personal or other legal representative, agent or other intermediary,” but does not otherwise define “beneficial ownership”. The BC Government’s website differentiates “registered ownership” from “beneficial ownership” as follows:</p> <ul> <ul> <ul> <li>A registered owner holds the shares personally and is listed as a shareholder in the central securities register; and</li> <li>A beneficial owner is an individual who is legally entitled to receive benefits of property rights in equity even though legal title of the property belongs to another person (e.g. the trustee of a trust is the registered owner and the beneficiary is the beneficial owner).</li> </ul> </ul> </ul> <h2>Direct vs. indirect control</h2> <p>When shares are held by an intermediary, the following control concepts may be important in determining who the significant individuals of the company are:</p> <ul> <li><strong>Corporation: </strong>control is a product of the right to elect or appoint a majority of the directors of the corporation;</li> <li><strong>Partnership (other than a limited partnership): </strong>each partner is deemed to control a partnership;</li> <li><strong>Limited Partnership: </strong>the general partner and any limited partner with any of the following rights are deemed to control a limited partnership:</li> <ul> <li>entitlement to at least 25% of the profits of the limited partnership;</li> <li>entitlement to at least 25% of the assets of the limited partnership on windup;</li> <li>the right to at least 25% of the votes in partnership management; or</li> <li>the right to appoint or remove the majority of the partnership’s management.</li> </ul> <li><strong>Agent: </strong>controlled by the principal of the agent; and<strong></strong></li> <strong> </strong> <li><strong>Trustee or a legal representative: </strong>control derives from the ability to direct the exercise of the rights attached to shares or the rights creating the ability to appoint or remove one or more of the directors of a private company.</li> </ul> <p>An individual will have indirect control over shares if the individual (who is not an intermediary) controls an intermediary that is the registered owner of the shares or controls a chain of intermediaries, the last of which is the registered owner of the shares.</p> <p>An individual will have indirect control of rights relating to the ability to elect, appoint or remove one or more directors of a private company if the individual (who is not an intermediary) controls an intermediary that has the right or controls a chain of intermediaries, the last of which has that right. Additionally, an individual will be considered to have such a right if the individual is a trustee or personal or other legal representative in a chain of intermediaries, the last of which has that right.</p> <h2>Special Intermediaries not required to be included in Transparency Register</h2> <p>Under the indirect control rules described above, a natural person who indirectly controls the shares or the board of the company must generally be included in the Transparency Register. This is not the case, however, if an entity that is a “Special Intermediary” under the Regulations owns shares of the company or is in its chain of ownership. Where that is the case, the analysis with respect to those shares simply stops: it is not necessary to “look through” the entity for natural persons who own or control it and no such persons need be included in the Transparency Register (unless they qualify on another ground).</p> <p>Special Intermediaries include:</p> <ul> <li>public companies;</li> <li>wholly-owned subsidiaries of public companies;</li> <li>special act corporations and their wholly-owned subsidiaries;</li> <li>government corporations;</li> <li>corporations that are agents of or controlled by Canada or a province;</li> <li>companies incorporated or wholly-owned by municipalities or regional districts;</li> <li>trust companies, insurance companies and credit unions, each as defined in the <em>Financial Institutions Act</em>;</li> <li>certain schools;</li> <li>trustees of a testamentary trust; and</li> <li>the Public Guardian and Trustee (the “<strong>PGT</strong>”), or a public officer or corporation with functions similar to the PGT.</li> </ul> <p>For example, if a public company directly or indirectly owns 25% of the shares of the company, the company does not need to determine if any individual controls that public company. However, the company still needs to determine if there are significant individuals with respect to the remaining 75% of the shares of the company. On the other hand, if a company is wholly-owned by a public company, the company is not required to prepare a transparency register at all.</p> <h2>How do we prepare the Transparency Register?</h2> <p>For some private companies, it is relatively easy to determine who the significant individuals are. In other cases, the analysis is more complicated, particularly if:</p> <ul> <li>shares are registered in the name of an intermediary (whether a corporation, partnership, agent, trustee or personal or other legal representative); or</li> <li>there are multiple classes of shares or an agreement that governs voting rights and control of the company.</li> </ul> <p>The BC Government suggests that companies start by looking at the central securities register and the articles of the company to determine which individuals have one or both of the following:</p> <ul> <li>direct or indirect interests in 25% of the shares or 25% of the votes; or</li> <li>rights to elect, appoint or remove a majority of the directors of the company.</li> </ul> <p>Such a review might also help to identify individuals who are related to one another or who could be acting in concert.</p> <p>Once the company has identified who the significant individuals are or has determined that it needs more information from a shareholder that is an intermediary, the company will need to contact the shareholders in order obtain the required information for the Transparency Register.</p> <p>The BC Government’s website provides a <a rel="noopener noreferrer" target="_blank" href="https://www2.gov.bc.ca/assets/gov/employment-business-and-economic-development/bc-companies/sample-significant-individual-questionnaire.docx">sample questionnaire for shareholders</a> as well as a sample <a rel="noopener noreferrer" target="_blank" href="https://www2.gov.bc.ca/assets/gov/employment-business-and-economic-development/bc-companies/transparency-register-template.docx">Transparency Register template</a>.</p> <p>As noted below, once a company has prepared its Transparency Register, the company has an obligation to notify each individual who is listed on the Transparency Register within 10 days.</p> <h2>What information must the Transparency Register contain?</h2> <p>The Transparency Register must include the following details for each significant individual of the private company:</p> <ul> <li>full name, date of birth and last known address;</li> <li>citizenship;</li> <li>whether the individual is a resident of Canada for purposes of the <em>Income Tax Act </em>(Canada);</li> <li>a description of how the individual is a significant individual; and</li> <li>the date on which the individual became or ceased to be a significant individual. </li> </ul> <p>If there are no significant individuals, the Transparency Register must expressly say so.</p> <h2>What if a shareholder does not provide the required information to the company?</h2> <p>Shareholders have a duty to take reasonable steps to compile and promptly provide information to the private company following a request by the company for information for the Transparency Register. However, if a private company is unable to obtain or confirm some or all of the required information, the Transparency Register must set out the information that the company was able to obtain, together with the steps it took to obtain or confirm the missing or unconfirmed information.</p> <p>Certain penalties apply to shareholders who fail to provide accurate information, as noted below under “Penalties”.</p> <h2>Who has access to the Transparency Register?</h2> <p>Only the following persons currently have access to the Transparency Register:</p> <ul> <li>directors of the company;</li> <li>police officers;</li> <li>the tax authorities of British Columbia and Canada; and</li> <li>certain specific regulators, including but not limited to the British Columbia Securities Commission, the British Columbia Financial Services Authority, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and the Law Society of British Columbia.</li> </ul> <h2>For what purposes can these persons inspect the Register?</h2> <p>It is important to remember that those with access to the Transparency Register may do so only for specific purposes relating to their functions:</p> <ul> <li>Officials and employees of taxing authorities are permitted to inspect the Transparency Register only for specific purposes related to the administration and enforcement of tax laws.</li> <li>Police officers are permitted to inspect the Transparency Register only for specific law enforcement purposes.</li> <li>Officials and employees of other regulators are permitted to inspect the Transparency Register only for purposes related to administering or enforcing a law for which the regulator is responsible.</li> </ul> <p>In each case, the authorities may also inspect the Transparency Register to provide information to assist their counterparts in another jurisdiction if this assistance is authorized under an arrangement, written agreement or treaty.</p> <p>Unlike the CBCA’s ISC Register, shareholders and creditors are not permitted to access the Transparency Register (unless they are entitled to do so in their separate capacity as directors).</p> <h1>Ongoing Obligations</h1> <p>After the company has prepared its Transparency Register, it must notify each individual who is listed in the register within 10 days (the same applies whenever an individual is added to the register as well as when the company notes in its register that an individual is no longer a “significant individual”). Significant individuals must remain on the Transparency Register for 6 years after they cease to have that status and must then be removed from the register within 1 year.</p> <p>Companies with a Transparency Register are required to take reasonable steps to confirm or update the register annually within 2 months of the company’s anniversary of incorporation. In addition, if the company becomes aware of new information relevant to the Transparency Register (for example, because of a share transfer or issuance of shares), the register must be updated within 30 days.</p> <h1>Offences and Penalties</h1> <h2>Companies</h2> <p>A private company will be considered to have committed an offence (subject to a knowledge and diligence defence) if it does the following in respect of the company:</p> <ul> <li>incorrectly identifies an individual as a significant individual;</li> <li>excludes an individual who is a significant individual;</li> <li>includes information about a significant individual that is false or misleading in respect of a material fact; or</li> <li>omits information about a significant individual and the omission makes the information false or misleading.</li> </ul> <h2>Directors and officers</h2> <p>Any director or officer of the company who permits or acquiesces in the above listed offences also commits an offence, whether or not the company is prosecuted (similarly subject to a knowledge and diligence defence).</p> <h2>Shareholders</h2> <p>A shareholder commits an offence if the shareholder:</p> <ul> <li>fails to comply with its obligation to provide to the company the information for the Transparency Register; or</li> <li>provides information for the Transparency Register that is false or misleading or omits a material fact, and the omission is false or misleading (and the shareholder knows or should reasonably have known that such information or omission is false or misleading).</li> </ul> <h2>Amounts</h2> <p>A person other than an individual who commits one of these offences is liable to a fine of not more than $100,000.00, while an individual who commits one of these offences is liable to a fine of not more than $50,000.00. Imprisonment is not a penalty under the British Columbia legislation.</p> <h1>Notable Exclusions</h1> <p>These requirements do not apply to public companies, wholly-owned subsidiaries of public companies, extra-provincial companies or certain other companies (described above under <em>Which companies need a Transparency Register?</em>). The BC Government may consider additional exemptions in the future.</p> <h1>BCBCA and CBCA: Some Key Differences</h1> <p>There are several significant differences between BCBCA Transparency Register and the CBCA ISC Register, including those summarized below:</p> <h2>Individuals who belong on the Register</h2> <p>The following criteria and concepts are used in determining who is to be included in the CBCA ISC Register but not in the BCBCA Transparency Register:</p> <ul> <li>value of shares owned;</li> <li>“voting rights” (rather than “rights to vote at general meetings” in the BCBCA); and</li> <li>“direct control” of a company’s directors (rather than the right to elect, appoint or remove one or more of the company’s directors in the BCBCA).</li> </ul> <p>On the other hand, there are some things in the BCBCA provisions that are absent, or at least differently treated, in the CBCA, including:</p> <ul> <li>“indirect control” with respect to the company’s shares and/or the right to elect, appoint or remove one or more of the company’s directors is addressed in the British Columbia regulations, with specific reference to chains of intermediaries;</li> <li>a narrower definition “influential person” in the BCBCA; and</li> <li>the requirement that specific family members be included when making the determination for significant individuals under the BCBCA.</li> </ul> <h2>Form and contents of the Register</h2> <p>The BCBCA provides more specifications in some instances than the CBCA regarding content of the Transparency Register. Notably, it requires citizenship information (whether Canadian or otherwise). The Bill C-42 amendments to the CBCA, which are currently before Parliament, would add citizenship to the list of information to be collected under the federal statute as well.</p> <h2>Maintenance of the Register</h2> <p>Unlike the CBCA, the BCBCA specifically requires the following with respect to maintenance of the Transparency Register:</p> <ul> <li>A company must notify individuals within 10 days of such individual being placed on or removed from the Transparency Register.</li> <li>The Transparency Register must be reviewed annually within 2 months of the company’s anniversary of incorporation (whereas the CBCA ISC Register must be updated at least once during each financial year, but without a specific time frame for the update).</li> </ul> <p>Recent amendments to the CBCA regulations now require CBCA corporations to take certain steps if they are unable to identify any individuals with significant control, including sending a request for information to individuals listed in the ISC Register, shareholders, and any other person that the corporation has reasonable grounds to believe may have relevant knowledge regarding an individual with significant control.</p> <h2>Inspection rights</h2> <p>There are a number of differences between the two regimes when it comes to access rights, including the following:</p> <ul> <li>The tests for access to the Transparency Register by the tax authorities, police officers and regulators are different under the BCBCA than the CBCA (for example, the CBCA lists specific offences to which an access request must relate).</li> <li>Shareholders and creditors do not currently have access rights under the BCBCA, although under the BCBCA Amendments certain information will become publicly available.</li> <li>General public access rights have been proposed in the Bill C-42 amendments to the CBCA but have not yet been passed by Parliament.</li> </ul> <h2>Various requirements and penalties</h2> <p>Other distinctions between the BCBCA Transparency Register and the CBCA ISC Register include:</p> <ul> <li>The BCBCA’s prohibition against listing someone who is <strong>not </strong>a significant individual (the CBCA has no comparable provision).</li> <li>The heavier burden placed on the shareholders under the BCBCA by virtue of the fact that they must complete due diligence (rather than answering to the best of their knowledge as under the CBCA).</li> <li>The possibility of imprisonment as a penalty for individuals who fail to comply with the requirements under the CBCA (imprisonment is not a potential penalty under the BCBCA).</li> </ul> <h1>Exemptions</h1> <p>As discussed above under <em>Which companies need a Transparency Register?, </em>wholly-owned subsidiaries of public companies and certain other types of companies are exempt from the requirement to prepare a Transparency Register. There are now exemptions from the CBCA ISC Register requirements for wholly-owned subsidiaries of public companies, federal Crown corporations or provincial Crown corporations, but the other BC exemptions do not apply for CBCA corporations.</p> <p>As discussed under <em>Special Intermediaries not required to be included in Transparency Register</em>, Special Intermediaries, including public companies, are not required to be listed in the transparency register. Currently, there are no equivalent exemptions from the CBCA ISC Register requirements.</p>06-Sep-2023 02:03:00{038CE294-F6C0-4216-98FA-A0B94B9BDAAA}https://www.stikeman.com/en-ca/kh/canadian-employment-labour-pension-law/quebec-language-requirements-in-the-workplacePatrick Essiminyhttps://www.stikeman.com/en-ca/people/e/patrick-essiminyCanadian Employment, Labour & Pension LawCorporations & Commercial Law UpdateQuébec Language Requirements in the Workplace<p>Montréal partner Patrick Essiminy recently updated the Practice Note, <a href="/-/media/files/kh-general/practical-law---quebec-language-requirements-in-the-workplace---sept-23.ashx" target="_blank">Québec Language Requirements in the Workplace</a>, published by Practical Law Canada. This publication provides an excellent overview of the key obligations under the Charter of the French Language, as amended by Bill 96, that affect businesses with employees in Québec, including the following topics:</p> <ul> <li>Communication to employees</li> <li>Job offers</li> <li>Specific knowledge of a language other than French</li> <li>Prohibited sanctions and other retaliatory measures</li> <li>Workplace free of discrimination and harassment</li> <li>Francization of companies</li> <li>Office investigative powers</li> <li>Penalties</li> <li>Other non-compliance risks</li> <li>Practical recommendations</li> </ul> <p>We are pleased to be able to make this<a href="/-/media/files/kh-general/practical-law---quebec-language-requirements-in-the-workplace---sept-23.ashx" target="_blank"> 7-page publication</a> available for downloading.</p>01-Sep-2023 04:02:00{89E31DD3-5908-4D19-A7B7-D061FAAE2159}https://www.stikeman.com/en-ca/kh/tax-law/federal-court-of-appeal-confirms-tax-court-of-canadas-decisionJean-Guillaume Shoonerhttps://www.stikeman.com/en-ca/people/s/jean-guillaume-shoonerAntonin Lapointehttps://www.stikeman.com/en-ca/people/l/antonin-lapointeTax Law UpdateLitigation UpdateCorporations & Commercial Law UpdateFederal Court of Appeal Confirms Tax Court of Canada’s Decision: Supply of Right to Place and Operate ATMs is a Taxable Supply<p><strong>On June 8, 2023, the Federal Court of Appeal upheld a Tax Court of Canada decision that, by allowing a supplier of Automated Teller Machines (“ATMs”) to place and operate ATMs throughout its casino resort, a casino operator was making GST/HST taxable supplies. The casino operator was paid a fee for each ATM transaction that took place on its premises.</strong></p> <h2>Summary</h2> <p>The case, <a rel="noopener noreferrer" target="_blank" href="https://canlii.ca/t/jxl65"><em>River Cree Resort Partnership v. The King</em></a>, 2023 FCA 130, raised issues similar to those considered previously by the Tax Court of Canada (hereafter, “TCC”) in <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/tax-law/the-mac-decision-making-space-for-a-third-party-abm-is-a-taxable-supply"><em>Mac’s Convenience Stores Inc. v. The Queen</em></a>, 2012 TCC 393. In <em>Mac’s</em>, the TCC made a distinction between leased or owned (by Mac’s Convenience Stores) ATMs. With respect to supplies made by Mac’s to the ATM supplier regarding the leased ATMs, the TCC concluded that such supplies were tantamount to taxable supplies of real property (i.e., making space for an ATM) rather than exempt supplies of financial services. On the other hand, it was clear that Mac’s supplied financial services to its own customers insofar as the ATMs it owned were concerned.</p> <p>In the case at hand, River Cree, the casino operator, tried to recharacterize the main issues at the Federal Court of Appeal (hereafter, “FCA”) level by asking the court to make its own determination of the facts. Essentially, River Cree wanted the FCA to determine which party (it or Access Cash, the ATM supplier) was the actual operator of the ATMs. Following the similar reasoning in <em>Mac’s</em>, if River Cree were determined to be the operator of the ATMs, its supplies (to its own patrons rather than to Access Cash) would have been exempt financial services.</p> <p>However, as this was not an appeal <em>de novo</em>, the FCA refused to reframe the issues as suggested by River Cree. Instead, it concluded that the TCC had made no palpable and overriding errors in finding that: (1) the predominant element of the single compound supplies made by River Cree to Access Cash (as the sole ATM owner and operator) were taxable supplies of “the exclusive right to place and operate ATMs” at River Cree’s resort and casino, and (2) the parties did not intend to create a joint venture relationship with respect to the ATM operations. </p> <h2>Detailed Analysis</h2> <h3>Background</h3> <p>River Cree operates a resort and casino in Alberta. During the relevant period, all ATMs located at the resort were supplied by Access Cash. Between September 1, 2011, and May 31, 2015, River Cree was paid over $8 million in fees by Access Cash in connection with the operations of those ATMs, for which River Cree did not collect GST. For each ATM transaction, River Cree was paid by Access Cash an amount equivalent to the “surcharge fee” charged to the cardholder by the ATM operator as well as another amount equivalent to a pre-determined portion of the “intercharge fee” payable to the ATM operator by the Interac network member who received such fee directly from the cardholder’s bank.</p> <p>River Cree’s position was that amounts received from Access Cash for each ATM transaction were earned in connection with the provision of financial services, and thus were GST exempt supplies for the purposes of Part IX of the <em>Excise Tax Act</em>.</p> <p>The Minister of National Revenue reassessed River Cree on the basis that the payments received from Access Cash were in connection with taxable supplies made to Access Cash and that River Cree should have therefore collected GST.</p> <h3>Tax Court of Canada decision</h3> <p>In the <a rel="noopener noreferrer" target="_blank" href="https://canlii.ca/t/jnvkt">TCC decision</a>, the key issue for the trial judge was to determine the nature of the supplies made by River Cree. This required the court to analyze River Cree’s role in the ATM transactions. In the case of a “white label” ATM (one not owned by a bank or other financial institution), there are typically five parties to a transaction:</p> <ul> <li>a cardholder (usually wanting to withdraw cash);</li> <li>a card issuer;</li> <li>the operator of the network that the ATM is connected to;</li> <li>an ATM provider (which provides and operates the machine as part of a network, such as Interac in this case, with which it has an agreement); and</li> <li>a cash provider (which provides the cash that is loaded into the ATM) (para. 8).</li> </ul> <p>When a cardholder withdraws money from a white label ATM, a surcharge fee is imposed (para. 10). Depending on the contractual arrangements that apply to the particular ATM, the ATM provider and ATM cash provider can be either one or two entities (para. 9). Where two distinct entities take on these roles, the court must determine which of them the cardholder contracts with – the cash provider for transferring the cash or the ATM provider for arranging for the transfer of money (para. 135).</p> <p>The issues before the TCC were therefore (1) to determine who, as between River Cree and Access Cash, was the cash provider and who was the ATM provider and (2) what this implied in terms of GST liability. Because the arrangements surrounding the ATMs changed during the period in question, the TCC divided the reporting periods into two stages: the “Initial Periods” (September 2011-May 2014), and the “Subsequent Periods” (June 2014-May 2015) (paras. 23-24).</p> <h4>Initial periods</h4> <p>The TCC found that during the “Initial Periods”, Access Cash was both the cash provider and ATM provider, meaning that it earned the surcharge fees (para. 84). During those periods, Access Cash borrowed cash from River Cree, which it loaded into the ATMs (para. 28). Given that Access Cash’s cash was loaded in the ATMs, it was the cash provider. Access Cash was also the ATM provider, as it owned the ATMs, operated them, and arranged for the transfer of money to the cardholders (paras. 46-47).</p> <p>Considering that River Cree was neither cash provider nor ATM provider, the TCC found that it played no role in the series of financial supplies (para. 88). Rather, River Cree provided Access Cash with a physical location in which to place its ATMs – free of any competitors – as well as support and maintenance services (paras. 107-108). The TCC therefore ruled that River Cree made a single compound supply, the predominant element of which was the “exclusive right to place and operate ATMs at the resort and to process all transactions arising therefrom” (para. 124). As this supply was taxable, River Cree should have been collecting GST.</p> <h4>Subsequent periods</h4> <p>In the “Subsequent Periods”, the TCC concluded that River Cree was the cash provider. That was because after mid-2014, it loaded the ATMs with its own money (para. 128). After this point, Access Cash was just the ATM provider (para. 133). Typically, as a standalone supply, providing cash would be an exempt supply of financial services, but River Cree also provided other supplies to Access Cash.</p> <p>Given that the roles of cash provider and ATM provider were held by different entities, the TCC had to determine who the cardholder contracted with (para. 135). The TCC found that it is more likely that the cardholders paid the surcharge fee to Access Cash. The cardholders were not looking for someone to lend them money but rather to allow them to access their own money (para. 138). Access Cash did that; it arranged for the transfer of money by connecting the cardholders with the Interac network. The TCC therefore found that the cardholders paid the surcharge fee to Access Cash (para. 141).</p> <p>The pleadings forced the trial judge to consider that the supply made by River Cree was a single compound supply even though he believed that the supplies were distinct (paras. 152-153). Therefore, as was the case for the Initial Periods, the TCC found that the predominant element of the single compound supply made by River Cree to Access Cash during the Subsequent Periods was the exclusive right to place and operate ATMs in its resort and casino – which was a taxable supply (para. 158).</p> <h4>Joint venture argument</h4> <p>River Cree also argued that the parties intended to create a joint venture relationship and that such joint venture provided the financial services to the cardholders (para. 159). The TCC rejected this argument as there was no evidence that the parties intended to create a joint venture in either of the two agreements between them (para. 160).</p> <h3>Federal Court of Appeal ruling</h3> <p>On appeal to the FCA, River Cree asked the court to recharacterize the main issues by making its own determination of the facts. In particular, River Cree wanted the FCA to determine which party was the actual operator of the ATMs. However, the FCA refused to reframe the issues as this was not an appeal <em>de novo </em>(para. 34).</p> <p>Rather, to reflect the proper role of the FCA in a GST/HST appeal, the court identified two key questions:</p> <ul> <li>Did the trial judge err in finding that River Cree did not make supplies of a financial service, but rather that River Cree made taxable supplies to Access Cash?</li> <li>Did the trial judge err in finding that River Cree and Access Cash were not carrying on a joint venture in providing financial services? (para. 35)</li> </ul> <p>The standard of review for any question of fact is palpable and overriding error and the standard of review for any question of law (including any extricable question of law) is correctness (para. 36).</p> <h4>Finding that River Cree made taxable supplies</h4> <p>River Cree’s appeal to the FCA pertained to the factual finding by the TCC that the predominant element of the single compound supply was the exclusive right to place and operate ATMs at the resort and to process all transactions arising therefrom (para. 30).</p> <p>Therefore, absent a palpable and overriding error, the finding about the predominant element of the single compound supply made by River Cree will stand (para. 41).</p> <p>The FCA found that River Cree did not establish that the TCC made a palpable and overriding error in determining the predominant element of the supply (para. 44).</p> <h4>Finding that there was no joint venture agreement</h4> <p>River Cree argued that the TCC erred in not properly determining whether the legal relationship between River Cree and Access Cash was a joint venture. The alleged error was the failure to cite the six factors identified in a specific Nova Scotia Supreme Court case (para. 45).</p> <p>According to the FCA, since the intention to create a joint venture is also to be determined based on the contracts between the parties, it is a question of mixed fact and law. As a result, the standard of review for a finding that the parties did not intend to create a joint venture relationship is palpable and overriding error (para. 47).</p> <p>The FCA determined that absent the intention to create a joint venture, there was no need to consider any of the other factors mentioned in the Nova Scotia Supreme Court case. The TCC therefore did not err by not referring to all of the factors identified in such decision. The FCA also stated that River Cree did not establish that the TCC made any palpable and overriding error in finding that River Cree and Access Cash did not intend to operate the ATMs as a joint venture (para. 49).</p> <p>For all the reasons set out above, the FCA dismissed River Cree’s appeal with costs.</p> <h2>Key Takeaways</h2> <ul> <li>As was the case in the TCC’s 2012 <em>Mac’s</em> decision, granting an ATM supplier a right of exclusivity for the placement and operation of ATMs in the grantor’s commercial premises in consideration for a fee is a taxable supply subject to GST/HST.</li> <li>This decision underlines the fact that any specific financial component related to a supply may not be sufficient on its own to classify the compound supply as a financial service. It is crucial to verify the terms of the commercial agreement and the circumstances in which the supplies are made before reaching the conclusion that any single supply is exempt as a financial service or otherwise.</li> <li>In a situation where one of the contracting parties insists that sales taxes do not apply to the supplies made to them, the supplier may seek appropriate advice from tax counsel and/or obtain an advance ruling from the tax authorities, as the case may be.</li> </ul> <p><em><span style="color: black;">The author would like to acknowledge the support and assistance of <em><span>Danielle Maor and <em><span>Chrystophe Simard</span></em></span></em>, students at law.</span></em></p>25-Jul-2023 07:00:00{3701AC35-D716-440C-865C-70E8308E0F9E}https://www.stikeman.com/en-ca/kh/litigation/thumbsup-emoji-conveys-acceptance-of-commercial-contract-saskatchewan-court-rulesAlexandra Urbanskihttps://www.stikeman.com/en-ca/people/u/alexandra-urbanskiLitigation UpdateCorporations & Commercial Law UpdateThumbs-Up Emoji Conveys Acceptance of Commercial Contract, Saskatchewan Court Rules, as Plaintiff Gets the Last LOL<p><strong>In <em>South West Terminal Ltd. v. Achter Land & Cattle Ltd., </em></strong><a rel="noopener noreferrer" target="_blank" href="https://www.canlii.org/en/sk/skkb/doc/2023/2023skkb116/2023skkb116.html?autocompleteStr=2023%20SKKB%20116&autocompletePos=1"><strong>2023 SKKB 116</strong></a><strong>, the King’s Bench for Saskatchewan (the “Court”) ruled that a “thumbs-up” emoji can convey acceptance of a contract. The ruling, which has garnered significant media attention, highlights some of the legal issues courts may have to grapple with as emojis and digital images in electronic communications become more commonplace. </strong></p> <h2>Background</h2> <p>A Saskatchewan grain and crop inputs company (the “Plaintiff”) had been purchasing grain from the defendant farming corporation (the “Defendant”) since 2012. Typically, the Plaintiff’s representative would have conversations in person or over the telephone with the Defendant’s representative and agree on a price and volume of grain, and then the Plaintiff’s representative would draft a contract and send it to the Defendant’s representative.</p> <p>As a result of the COVID-19 pandemic, in approximately March 2020, the Plaintiff’s sales team stopped meeting with grain farmers in person, including the Defendant, and would typically agree to contracts through email or text messages. </p> <p>In March 2021, the Plaintiff’s representative sent a text to farmers indicating that the company was looking to purchase flax for delivery in the fall of 2021. Following this text, the Plaintiff’s representative spoke with the Defendant’s representative over the phone and then had a contract drafted for the Defendant to sell the Plaintiff 87 tonnes of flax for $669.26 per tonne, with a delivery period listed as “Nov”. The Plaintiff’s representative signed the contract, then took a photo of it using his cell phone and texted the photo of the contract to the Defendant’s representative with a message: “Please confirm flax contract”. The Defendant’s representative texted back a thumbs-up emoji.</p> <p>The Defendant did not deliver the flax to the Plaintiff in November 2021, and the Plaintiff sued for breach of contract and damages of $82,200.21 plus interest and costs.</p> <h3>The positions of the parties</h3> <p>The parties disagreed as to whether there was a meeting of the minds (<em>consensus ad idem</em>), which is the basis of a contractual obligation. The Plaintiff contended that a thumbs up emoji means “I agree” or “I accept” or some sort of positive affirmation. Meanwhile, the Defendant took the position that the thumbs up emoji meant that the Defendant’s representative acknowledged receipt of the contract, but not that he approved the contract.</p> <p>Among other things, the Defendant also argued that:</p> <ul> <li>an actual signature is essential because it confirms a person’s identity and conveys acceptance, and that allowing a simple thumbs up emoji to signify identity and acceptance would open the flood gates to cases asking for interpretations of what various emojis mean; and</li> <li>the requirements of s.6(1) of <em>The Sale of Goods Act, </em><a rel="noopener noreferrer" target="_blank" href="https://www.canlii.org/en/sk/laws/stat/rss-1978-c-s-1/latest/rss-1978-c-s-1.html?autocompleteStr=The%20Sale%20of%20Goods%20Act%2C%20RSS%201978%2C%20c%20S-1%20&autocompletePos=1">RSS 1978, c S-1</a> (“<em>SGA</em>”) were not met in the circumstances because there was no note or memorandum of the contract made or signed by the parties. Subsection 6(1) of the <em>SGA </em>states:</li> </ul> <p>A contract for sale of goods of the value of $50 or upwards shall not be enforceable by action unless the buyer shall accept part of the goods so sold and actually receive the same or give something in earnest to bind the contract or in part payment or <span style="text-decoration: underline;">unless some note or memorandum in writing of the contract is made and signed by the party to be charged </span>or his agent in that behalf. [Emphasis added]</p> <h2>Decision</h2> <p>The Court did not accept the Defendant’s arguments and awarded the Plaintiff damages of $82,200.21 plus interest and costs.</p> <h3><strong>There was a valid contract between the parties </strong></h3> <p>The Court held that there was a valid contract between the parties and that the Defendant had breached the contract by failing to deliver the flax.</p> <p>The Court confirmed that the test for agreement to a contract for legal purposes is not what the parties had subjectively in mind, but rather, whether their conduct would lead a reasonable person to conclude that they had intended to be bound. In considering this question, courts are not restricted to the four corners of the agreement but can consider the surrounding circumstances.</p> <p>Accordingly, the Court examined the evidence as to the nature and relationship of the parties and found that there was “an uncontested pattern of entering into what both parties knew and accepted to be valid and binding deferred delivery purchase contracts on a number of occasions”. Based on the evidence, which included the Defendant’s representative accepting contracts in the past by texting words like “ok”, “yup” or “looks good” to the Plaintiff’s representative, the Court was satisfied that the Defendant’s representative had intended the thumbs up emoji to signify its acceptance of the flax contract as proposed – and not simply that he had received the contract and was going to think about it. According to the Court, a reasonable bystander knowing all the background would have concluded that the parties had reached a meeting of the minds and intended to be bound by the terms as proposed, just as they had done on numerous other occasions.</p> <p>The Court rejected the Defendant’s argument that allowing a thumbs up emoji to signify acceptance would open the floodgates to all sorts of cases asking for interpretations of various emojis. While the Court accepted that the facts of the case were novel (at least in Saskatchewan), it stated that it “cannot (nor should it) attempt to stem the tide of technology and common usage – this appears to be the new reality in Canadian society and courts will have to be ready to meet the new challenges that arise from emojis and the like”.</p> <h3><strong>Provisions of s. 6 of the SGA were satisfied </strong></h3> <p>The Court held that the provisions of s. 6 of the <em>SGA </em>had been met (<em>i.e., </em>contract was “in writing” and was “signed” by both parties) and the flax contract was therefore enforceable.</p> <p>The Court noted that there is jurisprudence that supports the use of email and the use of electronic non-wet ink signatures to identify the person signing and to establish the person’s approval of the document’s contents. According to the Court, there was no dispute that the Plaintiff’s representative electronically signed on behalf of the Plaintiff, but the question was whether the thumbs up emoji of the Defendant representative constituted a “signature”. The Court held that based on the facts of this case – the texting of the contract and then the seeking and receipt of approval was consistent with the previous process between the representatives of the Plaintiff and Defendant to enter grain contracts. The thumbs up emoji was held to be a valid way to convey the purposes of a “signature”, <em>i.e.,</em> to identify the signator (the Defendant’s representative using his unique cell phone number) and convey the Defendant’s acceptance of the contract.</p> <h2>Conclusion</h2> <p>The parties’ history of entering into grain contracts undoubtedly played a major role in the Court’s finding that the thumbs up emoji conveyed acceptance of the contract by the Defendant. Nevertheless, while not every dispute of this type will occur in the context of an ongoing commercial relationship, the decision serves as a cautionary reminder that all forms of digital communication, right down to text messages consisting entirely of emojis, can have unintended legal consequences if a court can be convinced that they were reasonably understood to convey the sender’s consent (or other legally significant message). Parties should therefore be as careful when texting or using emojis in commercial communications as they are in their more formal and traditional written communications. </p>11-Jul-2023 03:23:00{C9C06CD6-C89F-41DE-8311-641D1E32E85C}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/quebecs-language-legislation-be-ready-for-important-changes-impacting-commercial-contracts-trademarkRomy Proulxhttps://www.stikeman.com/en-ca/people/p/romy-proulxRachel Zuroffhttps://www.stikeman.com/en-ca/people/z/rachel-zuroffCorporations & Commercial Law UpdateQuébec’s Language Legislation: Be Ready for Important Changes Impacting Commercial Contracts, Trademark Usage and Government Filing Requirements<p><strong>Our <a href="https://www.stikeman.com/en-ca/kh/corporations-commercial-law/business-impacts-of-quebecs-language-law-changes-an-update-on-bill-96">August 2022 post</a> summarized the main business-related changes that <a rel="noopener noreferrer" target="_blank" href="https://assnat.qc.ca/en/travaux-parlementaires/projets-loi/projet-loi-96-42-1.html">Bill 96</a> made to the Québec <a rel="noopener noreferrer" target="_blank" href="https://www.legisquebec.gouv.qc.ca/en/document/cs/c-11"><em>Charter of the French Language</em></a> (“Charter”). This post provides updates on several key issues, particularly the potential impact on commercial contract drafting of amendments to Bill 96 that took effect on June 1, 2023 and also notes (among other issues) the importance for many businesses of getting out in front of changes to the Charter that will affect trademark usage as of June 1, 2025.</strong></p> <p>The issues considered are:</p> <ul> <li>French-language requirements when contracting with the Québec civil administration: the rule and the exceptions</li> <li>Adhesion contracts and related documents: new rules</li> <li>Registration filings: a new requirement for small businesses</li> <li>Signage and inscriptions: narrowing the trademark exception</li> <li>Mandatory translation of court pleadings: an update</li> </ul> <p>Note that, for the sake of simplicity, we refer in this post to certain impacts of the legislation and regulations on the use of English in commercial contexts, but the cited provisions generally apply in the same way to any “language other than French”.</p> <h2>Language of Contracts With Québec’s Civil Administration: New Rules in Force June 1, 2023</h2> <p>The basic rule remains the same after June 1, 2023: contracts with the Québec civil administration (the “<strong>Civil Administration</strong>”)<a href="#_ftn1" name="_ftnref1"><sup>[1]</sup></a> must be in French, subject only to limited exceptions. However, as of June 1, 2023, the following additional exceptions apply:</p> <p>First, certain types of contracts <strong>may have an English version attached to the French version</strong>. These include:</p> <ul> <li>Contracts between the Civil Administration and a party located outside of Québec (i.e., not residing (individuals) or required to be registered in Québec (enterprises));</li> <li>Certain international and intergovernmental agreements; and</li> <li>Agreements with First Nations (ss. 21 and 21.1)</li> </ul> <p>Secondly, certain types of contracts <strong>may be drafted in English only</strong>, as listed in section 21.5 of the Charter and as prescribed by regulation:</p> <ul> <li>Contracts with clearing houses;</li> <li>Contracts entered into on a platform that makes it possible to trade in derivatives, securities or other movable property, provided, in the latter case, that the contract is not a consumer contract; and</li> <li>Insurance policies from outside Québec or uncommon in Québec where there is no French equivalent in Québec.</li> </ul> <p>The <em>Regulation respecting the language of the civil administration</em> (the “<strong>RLCA</strong>”), in force as of June 1, 2023, sets out the situations in which the Administration will be permitted to include an English version of the contracts and related documents referred to in sections 21 and 21.3 with the French version.</p> <p>Pursuant to section 14 of the RLCA, when the new rules in the Charter permit a contract with the Civil Administration to be in French and English or an English version to be attached to the French version, the parties may determine the legal value of each version. In the absence of an express determination by the parties, the French version will prevail.</p> <h3>Sanctions for non-compliance</h3> <p>The new sanctions for a non-compliant contract or act with the Civil Administration also come into force on June 1, 2023 (s. 204.18). An English-only contract that should have been drawn up in French may be held to be <strong>absolutely null</strong>, whether or not the contravention causes any prejudice, if the following three elements are <strong>all</strong> present:</p> <ul> <li>An agency of the Civil Administration is a party to the contract or act;</li> <li>The provisions of the contract or act contravene the rules on the language of contracts with the Civil Administration in sections 21 to 21.2 of the Charter; and</li> <li>The contract or act has no foreign element (see our <strong><a href="https://www.stikeman.com/en-ca/kh/corporations-commercial-law/business-impacts-of-quebecs-language-law-changes-an-update-on-bill-96">August 2022 post</a></strong> for more details).</li> </ul> <p>Contracts with the Civil Administration that have a foreign element should accordingly not be at risk of being declared absolutely null under s. 204.18 for contravening Charter language rules.</p> <p>Even if a contract with the Civil Administration is compliant with the Charter, if the performance of the contract leads to a failure to comply the Government of Québec may apply to a court for the “resolution, resiliation [termination] or suspension” of the contract. The court shall grant the Government’s request if the Government is able to show that this would be in the interest of maintaining the status of the French language in Québec although the court will also take into account the public interest in maintaining the contract.</p> <h2>Language of Adhesion Contracts and Related Documents with Private Parties: New Rules in Force June 1, 2023</h2> <p>Adhesion contracts (which the legislation also refers to as “contracts pre-determined by one party) are contracts whose principal clauses have been drafted by one party (the “<strong>business</strong>”) and which cannot be negotiated by the other party (the “<strong>adhering party</strong>”). Standard examples include employment contracts, collective agreements, insurance contracts, leases, and co-ownership declarations. “Contracts containing standard clauses” is not defined in the Charter (or other Québec law) and may include contracts with boilerplate and other contracts with certain non-negotiable clauses drafted by one party.</p> <p><strong>As of June 1, 2023, new rules apply to contracts of adhesion.</strong> The rules that apply to a given contract of adhesion depend on whether or not it falls under an exemption (“exempted adhesion contract”). The new rules with respect to contracts containing standard clauses are the same as for an exempted adhesion contract and similar to the current rules.</p> <h3>New rules for adhesion contracts (where no exemption applies)</h3> <p>Businesses must have a French version of adhesion contracts and related documents to be used in Québec. An adhering party may choose to sign an adhesion contract in English <strong>only if</strong> the business has <strong>first</strong> remitted (provided) the French version to the adhering party. This means that a business cannot avoid the obligation to have French versions of its contracts of adhesion by agreeing with its customers to use English versions.</p> <p>If the parties have chosen to enter into the contract exclusively in English, the related documents may be exclusively in English as well.</p> <p style="padding-left: 30px;"><em>Businesses may wish to consider adding a clause to the English-language version of an adhesion contract noting that the French-language version was remitted first and that the parties subsequently chose to have the contract and related documents drawn up and concluded in English only.</em></p> <h3>New rules for exempted adhesion contracts and contracts with standard clauses</h3> <p>Exempted adhesion contracts include:</p> <ul> <li>Loan contracts, financial instruments, derivatives contracts, and certain special insurance policies; and</li> <li>Any contract used in relations with persons outside Québec.</li> </ul> <p>The adhering party may sign exempted adhesion contracts and contracts with standard clauses in English only if that party has expressed the wish to do so. As we noted in our initial blog post, the last exemption may be of particular interest to foreign companies dealing with Québec businesses and consumers but its exact scope remains unclear.</p> <p style="padding-left: 30px;"><em>Businesses may wish to consider adding a clause to the English-language version of these contracts stating that the parties wish to have the contract and related documents drawn up and concluded in English only.</em></p> <h2>New Filing Requirements Under the Legal Publicity Act: In Force June 1, 2023</h2> <p>Effective June 1, 2023, Bill 96 adds a new requirement relating to the registration declaration that enterprises must file with the Québec Enterprise Register (“<strong>REQ</strong>”) under the Québec <em>Act respecting the legal publicity of enterprises</em> (“<strong>Legal Publicity Act</strong>”). Specifically, the amended Legal Publicity Act will require that<strong> enterprises employing between 5 and 49 people</strong> state on their REQ declaration the proportion of their employees who are not capable of communicating in French. This new requirement will apply from June 1, 2023 until June 1, 2025, after which it will apply only to <strong>enterprises with between 5 and 24 employees</strong>. </p> <p>Enterprises registering for the first time will need to declare this information in their registration declaration or in their initial declaration. Enterprises that are already registered will be required to make the declaration in their annual update or by filing an updating declaration. The information will be publicly available.</p> <p>Note that this new requirement under the Legal Publicity Act is separate from the amendments to the Charter introduced by Bill 96 in respect of francization which will, as of June 1, 2025, require companies employing between 25 and 49 employees in Québec to register with the <em>Office québécois de la langue française</em> as a first step to obtaining a francization certificate. </p> <h2>Getting ready for the New Rules on the Trademark Exception for External Signs and Inscriptions: In Force June 1, 2025</h2> <p>The exception for “recognized” non-French trademarks for external signage and on inscriptions (labels on and documents supplied with, products) will be limited to marks that are “registered<strong>”</strong> under the <em>Trademarks Act </em>(Canada) as of June 1, 2025.</p> <p style="padding-left: 30px;"><em>Businesses will wish to file any needed trademark applications as soon as possible since trademark application delays of three years or more are currently being experienced at the Canadian Intellectual Property Office.</em></p> <p>For inscriptions, if a generic term or product description is included in the English language mark on the product, the term or description will have to appear in French on the product or on a medium permanently attached to it. The purpose of this new provision appears to be to prevent companies from including non-distinctive information in their trademarks to avoid providing this information on the inscription in French.</p> <p>French must also be markedly predominant on public signs and posters visible from outside the premises of a business that include any of the following: (i) a trademark in a language other than French, or (ii) the name of a business that includes an expression from a language other than French.</p> <p style="padding-left: 30px;"><em>Businesses will wish to begin to prepare new designs for labels and signage to ensure they will be able to comply with the new rules by June 1, 2025.</em></p> <h2>French Translations of Court Pleadings: Status Update</h2> <p>The Bill 96 amendments to the Charter required court pleadings in English filed by corporations in Québec courts to include a certified French translation by a licensed translator, prepared at the corporation’s expense, as of September 1, 2022. However, this requirement was suspended by a court decision on August 12, 2022 pending a decision on the merits which, as of the date of this post, has not yet been rendered.</p> <hr /> <p><a href="#_ftnref1" name="_ftn1">[1]</a> “Civil Administration” is defined in Schedule I of the Charter to include the Government of Québec, Québec government agencies, corporations fully owned by the Government, most municipalities, school bodies, and bodies in the health and social services network, among others.</p>01-Jun-2023 04:19:00{9BF793B7-53AB-4FA0-8A7F-E8BA7C5FF50A}https://www.stikeman.com/en-ca/kh/canadian-ma-law/cbca-beneficial-ownership-register-2-0-public-access-stronger-investigatory-powersAndrew S. Cunninghamhttps://www.stikeman.com/en-ca/people/c/andrew-s-cunninghamJanene Charleshttps://www.stikeman.com/en-ca/people/c/janene-charlesDenise Duifhuishttps://www.stikeman.com/en-ca/people/d/denise-duifhuisTrevor Rowleshttps://www.stikeman.com/en-ca/people/r/trevor-rowlesCanadian M&A LawCorporations & Commercial Law UpdateCBCA Beneficial Ownership Register 2.0: Public Access, Stronger Investigatory Powers and Better Guidance are Coming<p><strong>Canada’s federal beneficial ownership transparency provisions are changing. Since 2019, most <em>Canada Business Corporations Act</em> (CBCA) corporations have been required to create and maintain registers of Individuals with Significant Control (“ISC Registers”). Now the federal government is clarifying certain existing requirements and adding new ones. One change that has attracted attention would – once in force and with certain exceptions – require information from ISC Registers to be submitted to the Government for publication in a public database. </strong></p> <p>Other changes, some of which are still proposals making their way through the legislative process, include:</p> <ul> <li>Exempting wholly-owned subsidiaries of public companies from the requirement to maintain an ISC Register;</li> <li>Clarification of the “reasonable steps” that must be taken to identify Individuals with Significant Control (“ISCs”);</li> <li>Providing for future regulations that may define key concepts such as “control in fact”;</li> <li>Adding citizenship and a residential address to the information that must be obtained for each ISC;</li> <li>Rules relating to the submission of ISC Register information to the Government;</li> <li>Whistleblower protection provisions;</li> <li>Significantly greater investigative powers for the Director of Corporations Canada; and</li> <li>Information-sharing with the CRA with respect to information about private companies.</li> </ul> <h2>Topics Covered in this Post</h2> <p>The main sections of this post are as follows:</p> <ul> <li>The new legislation and regulations</li> <li>Existing requirements that are being fine-tuned</li> <li>New provisions on investigations and information sharing</li> <li>Requirement to submit information to Corporations Canada</li> <li>Public access requirement</li> <li>Going forward</li> </ul> <h2>The New Legislation and Regulations</h2> <p>The changes to the federal transparency regime are contained in two distinct initiatives:</p> <ul> <li><a rel="noopener noreferrer" target="_blank" href="https://www.gazette.gc.ca/rp-pr/p1/2022/2022-10-29/html/reg3-eng.html?utm_campaign=ised-isde-cc_risc-22-23&utm_source=gazette_services_email&utm_medium=read_regs&utm_content=eng">Amendments to the <em>Canada Business Corporations Regulations, 2001</em></a> (“CBCA Regulations”), which <strong>took effect on May 4, 2023</strong>; and</li> <li>The <a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/Content/Bills/441/Government/C-42/C-42_1/C-42_1.PDF">Bill C-42 amendments</a> to the CBCA (“CBCA Amendments”), which are still under consideration in Parliament. Bill C-42 passed First Reading on March 22, 2023 and MPs’ <a rel="noopener noreferrer" target="_blank" href="https://www.ourcommons.ca/DocumentViewer/en/44-1/house/sitting-177/hansard#12130180">speeches delivered on Second Reading</a> on March 31, 2023 suggest strong all-party support for the legislation.<a href="#_ftn1" name="_ftnref1"><sup>[1]</sup></a> Nevertheless, <strong>the final form of Bill C-42 (the CBCA Amendments) may differ from the First Reading version described in this post.</strong></li> </ul> <p>Over the longer term, the Government of Canada <a rel="noopener noreferrer" target="_blank" href="https://www.canada.ca/en/innovation-science-economic-development/news/2023/03/government-of-canada-tables-new-legislation-to-create-a-beneficial-ownership-registry.html">plans to make its public registry open to any province</a> that wishes to use it for its provincially incorporated corporations, with the goal of creating a <strong>single, integrated platform on which beneficial ownership can be searched across multiple federal, provincial and territorial jurisdictions</strong>. It is currently seeking provincial buy-in for this plan. Even if not all provinces join this effort, some may create their own public registers, <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/corporations-commercial-law/quebec-announces-in-force-dates-for-new-corporate-transparency-requirements">as Québec already has</a>. The ultimate intentions of Alberta, the only province that has not introduced transparency legislation, may become clearer after the May 29, 2023 provincial election.</p> <p><strong>UPDATE</strong>: Bill C-42 received Third Reading in the House of Commons on June 22, 2023, with the support of all members present, but as of August 1, 2023 has not progressed beyond <a rel="noopener noreferrer" href="https://www.parl.ca/LegisInfo/en/bill/44-1/C-42" target="_blank">First Reading in the Senate</a>.</p> <h2>Existing Requirements That Are Being Fine-Tuned</h2> <p>Before considering the new elements that the Government is introducing into the transparency law – submission of data to Corporations Canada, public access to that data and whistleblower protections – it is important to note the changes and clarifications that are being made to the existing requirements, which include the following:</p> <ul> <li>Subsidiaries of most public companies are now exempt;</li> <li>The “reasonable steps” that must be taken to identify ISCs are described more precisely;</li> <li>Some additional information must now be collected about a corporation’s ISCs; and</li> <li>Provision has been made for definition, by regulation, of several key concepts in the legislation.</li> </ul> <h3>Subsidiaries of most public companies now exempt</h3> <p>As passed in 2019, the CBCA transparency register requirements did not exempt subsidiaries of public companies from the register requirement even though their parent companies were already subject to extensive disclosure requirements. The new s. 34 of the CBCA Regulations exempts wholly-owned subsidiaries of federal and provincial business corporations that are:</p> <ul> <li>Reporting issuers under provincial securities laws; <strong>or</strong></li> <li>Listed on a “designated stock exchange”, a term that includes most of the world’s significant exchanges.</li> </ul> <p>Note that s. 34 applies to subsidiaries of both Canadian and foreign public companies. This corrects an oversight in the draft version of the amendment to the CBCA Regulations, under which the exemption would not have applied to wholly-owned subsidiaries of foreign public companies. A similar exemption in s. 34 that applies to subsidiaries of Crown corporations <strong>does not</strong> apply to subsidiaries of similar entities outside Canada.</p> <h3>“Reasonable steps” clarified</h3> <p>Section 21.1(2) of the CBCA currently requires that the corporation take “reasonable steps” at least once per year to ensure the accuracy of its ISC Register entries, which list the corporation’s “individuals with significant control” (ISCs) and certain information about them. Because the term “reasonable steps” was not defined in the original legislation, CBCA corporations have sometimes been uncertain about the sufficiency of their efforts. The amendments to the CBCA Regulations have clarified some of these issues, with the promise of further guidance to come, as follows.</p> <h4>Who to ask</h4> <p>According to s. 33(1) of the amended CBCA Regulations, “reasonable steps” include sending requests for information to each of the following:</p> <ul> <li>Existing ISCs;</li> <li>Shareholders; and</li> <li>Other persons whom the corporation has reasonable grounds to believe may have “relevant knowledge” with respect to an ISC (and to persons who may have relevant knowledge about those persons).</li> </ul> <h4>What to ask</h4> <p>All requests for information should ask for contact information about persons in the last of the three categories above. In addition:</p> <ul> <li>the notice to existing ISCs should ask them whether there are any changes in the information that is currently recorded in the register; and</li> <li>the notice to shareholders should ask them whether or not they have become ISCs of the corporation.</li> </ul> <p>Responses to these questions are to be requested “as soon as feasible” and each person is to answer “to the best of their knowledge”.</p> <h4>Guidance from ISED</h4> <p>Innovation, Science and Economic Development Canada (“ISED”) is planning to publish a <strong>template request for information</strong>, although details have yet to be released.</p> <h3>More information required about ISCs</h3> <p>The CBCA Amendments are proposing three significant changes to the information that is recorded in a corporation’s CBCA ISC register:</p> <ul> <li>The ISC’s residential address <strong>must</strong> be listed;</li> <li>An address for service <strong>may</strong> be listed; and</li> <li>The ISC’s citizenship <strong>must</strong> be listed.</li> </ul> <p>Previously, the requirement for an address did not specify a particular type of address. As noted below, if no address for service is provided, the ISC’s residential address will appear in the public version of the register, so most ISCs will want to include an address for service.</p> <h3>Definitions for other key concepts</h3> <p>Several other key concepts, in addition to “reasonable steps”, could in future be defined by regulation, under authority granted to the Governor in Council under the proposed s. 261(1)(a.2) of the CBCA. These concepts include:</p> <ul> <li>Direct influence;</li> <li>Indirect influence; and</li> <li>Control in fact.</li> </ul> <p>To date, no definitions for these terms have been publicly proposed.</p> <h2>New Provisions on Investigations and Information Sharing</h2> <p>The CBCA Amendments would amend s. 237 of the CBCA to give the Director the authority not only to make inquiries of any person (as s. 237 currently states) but also to require the person to provide “any records or other documents or information” as well as to require a response to any inquiry. This provision would not be restricted to ISC Register compliance.</p> <h3>Sharing tax information</h3> <p>Bill C-42 proposes to amend the <em>Income Tax Act</em>, adding a new paragraph 241(4)(u) under which ISED (Corporations Canada) would be authorized to request and receive – solely for the purpose of verifying and validating ISC Register information submitted under the proposed new s. 21.21 in respect of a private corporation – a variety of taxpayer information, including:</p> <ul> <li>With respect to a corporation (the “Related Corporation”) that is related to, or associated with, the corporation for which the ISC Register information was submitted (the “Submitting Corporation”), the Related Corporation’s <strong>name, business number </strong>and<strong> jurisdiction of residence</strong>, as well as its <strong>relationship with the Submitting Corporation</strong> including details of the Submitting Corporation’s shareholdings; and</li> <li>With respect to <strong>shareholders holding 10% or more</strong> of any class of the capital stock of the Submitting Corporation, each shareholder’s <strong>name</strong>, its <strong>legal status</strong> (individual, corporation, trust or partnership), the <strong>percentage of each class of capital stock that it owns</strong>, and its social insurance number, business number, trust account number or partnership number (as the case may be).</li> </ul> <h3>Whistleblower protection</h3> <p>The proposed amendments protect whistleblowers by forbidding the release (other than to FINTRAC or an investigative body referred to in s. 21.31(2)) of any information that could reasonably be expected to reveal the identity of someone who voluntarily provides information about the commission or potential commission of a wrongdoing, unless the person consents. In this context, “wrongdoing” refers not only to a contravention of the CBCA or its regulations but also to:</p> <ul> <li>The formation of a corporation for a fraudulent or unlawful purpose; and</li> <li>Any fraudulent or dishonest actions of person concerned with the formation, business or affairs of a corporation.</li> </ul> <h2>Requirement to Submit Information to Corporations Canada</h2> <p>In a major policy change, the information gathered for the ISC register would, once the CBCA Amendments are in force, no longer be held exclusively by the corporation itself. Instead, under the proposed s. 21.21(1)(a), the corporation would be required, on an annual basis, to provide the Director of Corporations Canada with such information from the Register as the Director required.<a href="#_ftn2" name="_ftnref2"><sup>[2]</sup></a> Some details relating to this process have yet to be clarified, including:</p> <ul> <li>The specific information from the ISC register that the Director will require (see additional discussion below);</li> <li>The timeline for providing the information; and</li> <li>The format in which the information may be submitted.</li> </ul> <h3>Annual and periodic updates</h3> <p>In addition to the annual update, the corporation would be required (once the CBCA Amendments are in force) to send the Director any information from any periodic updates that are made to the records of individual ISCs over the course of each year (to the extent that such information is among the information that the Director requires). This information would be required to be sent within 15 days after the day on which it is recorded in the register (which must in turn happen within 15 days of the corporation’s having become aware of the information – so the time limit for submission appears to be, at most, 30 days in total). Finally, the CBCA Amendments specify that a corporation that is newly incorporated, continued or amalgamated must submit the information that the Director requires within a period to be determined by the Director. (see proposed s. 21.21(1)(b) and s. 21.21(2))</p> <h3>Fees</h3> <p>The CBCA Amendments would allow a fee to be charged (in an amount to be established by regulation) in relation to the receipt, examination, filing, issuance or copying of any submitted information. (s. 261(1)(b))</p> <h3>Penalties, including dissolution</h3> <p>In addition to penalties for directors and officers who knowingly authorize, permit or acquiesce in the contravention of the reporting requirements, a corporation would be subject (once the CBCA Amendments are in force) to dissolution by the Director if it failed to comply with the requirements relating to the submission of information (including periodic updates) (proposed s. 212(3.1)) or if it were in default for one year (proposed s. 212(1)(a)(iii).</p> <p>While maximum penalties for offences relating to directors and officers would not be increased from the existing maximum of $200,000 or 6 months in prison, the press release surrounding the CBCA Amendments underscores the “strong compliance regime” that has been put in place, possibly signalling an intention to impose administrative sanctions and criminal penalties more readily than has previously been the case. The offences for which directors and officers are potentially liable would be expanded under the CBCA Amendments to include authorizing, permitting or acquiescing in the corporation’s failure to submit the required information to the Director.</p> <h3>Registers will continue to be kept by the corporation</h3> <p>It should be noted that <strong>nothing in the CBCA Amendments would limit the corporation’s obligation to maintain its ISC Register internally</strong>. In other words, <em>information from</em> the Register would be shared with the federal government, but the Register would continue to be kept by the corporation itself.</p> <h2>Public Access Requirement</h2> <h3>Form of public access</h3> <p>The CBCA Amendments do not provide significant direction with respect to the nature of the public access that the Director would be required to provide, beyond the general requirement that the submitted information be made available to the public, with certain limitations as discussed below.</p> <h3>Information to be made public</h3> <p>While, as noted above, the proposed new s. 21.21(1) ostensibly gives the Director discretion to determine which information from the ISC Register must be submitted to the Government, that discretion appears to be circumscribed by the proposed s. 21.303, which <strong>requires</strong> the Director to provide public access to the following submitted information for each ISC:</p> <ul> <li>Name;</li> <li>Address for service (if provided);</li> <li>Residential address (otherwise);</li> <li>Date on which the individual became or ceased to be an ISC;</li> <li>Description of how the individual is an ISC, including his or her rights and interests in the corporation.</li> </ul> <p>The Director would not have discretion to expand this list, although additional categories could be prescribed through the regulatory process.</p> <p>Note that if no address for service is provided, the ISC’s residential address would be included in the public register. <strong>It is therefore important for CBCA corporations to review their registers and add an address for service for any ISC who does not want his or her residential address made public.</strong></p> <h3>Exemptions for minors, those with safety concerns, incapable persons and others</h3> <p>Under the CBCA Amendments, information relating to persons under the age of 18 years could not be disclosed to the public. In addition, the proposed s. 21.303(3) would allow individuals with safety concerns, incapable persons, public office holders (with respect to certain <em>Conflict of Interest Act</em> disclosures) or other prescribed persons to apply to the Director to have some or all of their ISC Register information withheld from the public. Such requests could be granted if the Director was satisfied that the appropriate conditions had been met – for example, that there is or would be a “serious threat to the safety of an individual”.</p> <p>Under the proposed s. 262.2, the Director would be required to publish a public notice of any decision to grant such a request, but under a proposed amendment to s. 266(1), copies of the request itself (or of any related documentation) will not be made available to members of the public.</p> <p>The proposed s. 21.303(2) provides for the possibility of further exemptions by regulation.</p> <h2>Going Forward</h2> <p>While it is not certain when the CBCA Amendments will be passed by Parliament, or whether they will be revised before being finalized, there appears to be broad all-party agreement on the need for them and it is therefore highly likely that they will be passed. As we await Parliament’s further consideration of this legislation, CBCA corporations should take the opportunity to review their ISC Registers to ensure that they are up to date and ISCs should ensure that an address for service is provided and may also wish to consider whether an exemption might be available to them.</p> <hr /> <p><a href="#_ftnref1" name="_ftn1">[1]</a> Some of the Bill C-42 amendments supersede amendments that were passed in 2022 as Division 30 of <a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/DocumentViewer/en/44-1/bill/C-19/royal-assent">Bill C-19</a> but never implemented.</p> <p><a href="#_ftnref2" name="_ftn2">[2]</a> This requirement was first created under Bill C-19, but was not proclaimed in force. The current CBCA Amendments would replace the relevant provision from Bill C-19 with a similar but slightly more detailed one.</p>30-May-2023 02:34:00{E57CC313-5FFD-41B8-ADBD-C1DEADE5BCF8}https://www.stikeman.com/en-ca/kh/canadian-ma-law/canadian-legislation-on-forced-and-child-labour-in-global-supply-chains-takes-effectGary T. Clarkehttps://www.stikeman.com/en-ca/people/c/gary-t-clarkeJean-Guillaume Shoonerhttps://www.stikeman.com/en-ca/people/s/jean-guillaume-shoonerShawn C.D. Neylanhttps://www.stikeman.com/en-ca/people/n/shawn-c-d-neylanDavid M. Pricehttps://www.stikeman.com/en-ca/people/p/david-priceCandace Ceronehttps://www.stikeman.com/en-ca/people/c/candace-ceroneAndrew S. Cunninghamhttps://www.stikeman.com/en-ca/people/c/andrew-s-cunninghamCanadian M&A LawCanadian Securities LawCanadian Employment, Labour & Pension LawCorporations & Commercial Law UpdateCanadian Mining LawCanadian Legislation on Forced and Child Labour in Global Supply Chains Takes Effect: First Reports Due by May 2024<p><strong>On May 11, 2023, the </strong><a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/LegisInfo/en/bill/44-1/S-211?view=progress"><strong><em>Fighting Against Forced Labour and Child Labour in Supply Chains Act</em></strong></a><strong>, S.C. 2023, c. 9 (the “New Act”) received Royal Assent and became law. Formerly known as Bill S-211, the New Act requires certain companies to file reports on their efforts to combat forced and child labour, the first of which will be due by May 31, 2024. As noted below, the legislation also amends the <em>Customs Tariff</em> to prohibit the importation of goods produced by either forced or child labour – concepts that it defines more broadly than previously.</strong></p> <p>This post also considers the global context of the legislation and the possibility that the New Act will not be Parliament’s “last word” on the issue of forced and child labour, often referred to as “modern slavery”. For a discussion of this new legislation in the context of the broader Canadian regulatory landscape, please see <a href="https://can01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.stikeman.com%2Fen-ca%2Fkh%2Fcanadian-ma-law%2Fbill-s-211-in-context-five-ways-that-canada-regulates-forced-and-child-labour&data=05%7C01%7CKPrintsios%40stikeman.com%7C4cc6564468404f1dd22d08dbb3cfa3c0%7C394646dfa1184f83a4f46a20e463e3a8%7C0%7C0%7C638301476599345666%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=GqGnJiQtbEGqBTZImoZecT7fHPER9V6Bye7bm6qOU6E%3D&reserved=0">our post of September 6, 2023 which considers five ways that Canada regulates forced and child labour</a>.</p> <h2>Supply Chain Reporting Obligations</h2> <p>Our <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-securities-law/canadas-modern-slavery-bill-nears-final-approval-new-reporting-requirements-are-coming">post from August 2022 explains the reporting obligations under the New Act in detail</a>. In brief, the reporting obligations apply to all entities<a href="#_ftn1" name="_ftnref1"><sup>[1]</sup></a> that:</p> <ul> <li>are <strong>either</strong> (i) listed on a Canadian stock exchange <strong>or</strong> (ii) do business, have a place of business or have assets in Canada and meet a size threshold based on their consolidated financial statements (any two of: $40 million in revenue, $20 million in assets or 250 employees); <strong>and</strong></li> <li>produce, sell or distribute goods in Canada or elsewhere and/or import goods into Canada (or which control any such entity).</li> </ul> <p>The size threshold does not specify that the revenue, assets or employees must be from or in Canada. Thus the obligations might apply to a <strong>multinational business</strong> even if its Canadian operations do not independently meet the threshold. Note also that the requirement that the entity produce, sell, distribute or import goods has <strong>no <em>de minimis</em> exception</strong>. In other words, even entities that deal only incidentally with small quantities of goods, or which import goods only for internal or office use rather than dealing in goods commercially, will need to consider whether a report is required.</p> <p>In terms of substance, the New Act:</p> <ul> <li>Requires a publicly accessible report to be made about each entity’s corporate structure and supply chains, as well as any measures it has taken with respect to forced labour and child labour (see our previous post for an <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-securities-law/canadas-modern-slavery-bill-nears-final-approval-new-reporting-requirements-are-coming">extensive review of the requirements relating to these reports</a>);</li> <li>Adopts definitions of “child labour” and “forced labour” that are broader than those used in International Labour Organization (“ILO”) conventions (these definitions are discussed in the “Import Prohibitions” section, below);</li> <li>Includes some special rules for corporate groups, including a provision that allows a single report to be filed on behalf of multiple related entities;</li> <li>Includes warrantless search provisions;</li> <li>Creates a maximum penalty of $250,000, which can apply to the entity itself or to corporate directors, officers, and other individuals; and</li> <li>Will take effect on January 1, 2024, with the first Annual Report due on May 31, 2024.</li> </ul> <p>Please refer to our previous post for a <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-securities-law/canadas-modern-slavery-bill-nears-final-approval-new-reporting-requirements-are-coming">detailed review of the reporting requirements</a> under the New Act. The legislation, which originated in the Senate, passed through the House of Commons after that post was written but was not altered in any significant respect.</p> <p><strong>It is important for entities that are required to report to attend to this issue well in advance of the May 2024 deadline, as understanding how the obligations apply to a particular organization may take some time.</strong></p> <h2>Import Prohibitions</h2> <p>In addition to the reporting requirement, the New Act amends the <em>Customs Tariff</em> – specifically tariff item No. 9897.00.00 – in two important respects. First, it extends the existing prohibition on the importation of goods mined, manufactured or produced wholly or in part by <strong>forced labour</strong> so that it includes goods mined, manufactured or produced wholly or in part by <strong>child labour</strong>. Second, it broadens the definitions of the terms “forced labour” and “child labour”. Specifically, under the general definitions section of the New Act:</p> <ul> <li>The <strong>“forced labour”</strong> provision includes the traditional definition under the ILO’s <a rel="noopener noreferrer" target="_blank" href="https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:C029">Forced Labour Convention, 1930</a> – essentially, and with certain exceptions, <em>involuntary work exacted from a person under the menace of any penalty</em> – but supplements that definition with an alternative definition that refers to <em>work or services provided by a person who reasonably believes that the person’s safety, or the safety of another person known to him or her, would be threatened if the person did not perform the labour or provide the service</em>. It is not apparent why this addition was considered to be necessary, although superficially it appears that it may require less evidence of the involuntariness of the labour or service.</li> <li>The <strong>“child labour”</strong> provision expands import prohibitions significantly with respect to child labour, which was previously not distinguished from the broader category of “forced labour”. The New Act’s definition incorporates the definition from the ILO’s <a rel="noopener noreferrer" target="_blank" href="https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:C182">Worst Forms of Child Labour Convention, 1999</a>, which includes, <em>inter alia</em>, all forms of slavery and similar bondage, the use of children in pornography, prostitution and the illegal drug trade and the recruitment of child soldiers. However, the New Act substantially supplements that definition by including labour or services provided by persons under the age of 18: <ul> <li>under circumstances that are contrary to the laws applicable in Canada (where the labour or services are provided within Canada); and/or</li> <li>that interfere with schooling by depriving them of the opportunity to attend school, obliging them to leave school prematurely or requiring them to “combine school attendance with excessively long and heavy work”.</li> </ul> </li> </ul> <p>These broadened definitions may require businesses that import, distribute, sell, or use imported goods to reassess their risks under the <em>Customs Act</em>, which can include trade compliance verifications by the Canada Border Services Agency (“CBSA”) that could lead, among other things, to the seizure of goods or ascertained forfeitures in lieu of seizure in certain situations. The issuance of penalties under the Administrative Monetary Penalty System (AMPS) could also be used for less serious offences. In all cases, criminal prosecution could be undertaken where warranted.</p> <p>While the extent of the necessary compliance effort may depend on a situation-specific assessment of the real risk of a violation, in theory all importers of goods (and all users of imported goods) should <strong>implement appropriate compliance procedures to identify any potential supply chain risks</strong>. The key element would in all cases be to determine where and how the imported goods are mined, manufactured, or produced (as applicable).</p> <p>Businesses may wish to reassess any <strong>contractual safeguards</strong> that they have established to allocate these risks among the entities through which imported goods typically pass (importer, distributor, merchant, end user, etc.). In this respect, any entity named as “importer of record” on the <strong>Canada Customs Coding Form (B3 Form)</strong> should be the first target of verifications and enforcement measures by the CBSA. However, it is noteworthy that even if the imported goods are sold or transferred to third parties in Canada subsequent to their importation, the CBSA would still be authorized to enforce the import prohibition pursuant to the <em>Customs Act</em>.</p> <h2>Global Context of the Legislation</h2> <p>The New Act is part of a worldwide effort to enact “modern slavery” legislation. Such legislation aims to curtail the use of child and forced labour by preventing products made with such labour from entering global supply chains. To date, the legislation that has been introduced internationally has been of one of two types:</p> <ul> <li><strong>Due diligence</strong> legislation, under which companies are required to actively investigate their supply chains, with a due diligence defence. This type of legislation, which exists in France and Germany, generally allows for third-party lawsuits against allegedly non-complying entities on human rights grounds.</li> <li><strong>Reporting</strong> legislation, under which companies are only required to file public reports on what, if anything, they have done to combat forced labour and child labour in their supply chains, with penalties generally limited to failure to file reports (and no provision for third-party suits).</li> </ul> <p>While “due diligence” legislation sets a higher bar, it is also costly to comply with. Thus, in the jurisdictions that have implemented this type of legislation, it has been limited to very large business enterprises with thousands of employees. According to John McKay, MP for Scarborough-Guildwood and the New Act’s sponsor in the House of Commons, fewer than 100 Canadian companies would be large enough to be required to comply if the French or German standards applied here. Accordingly, <strong>the New Act has been framed as broadly applicable “reporting” legislation</strong> that will require thousands of Canadian entities to file reports.</p> <p>At Third Reading, Mr. McKay characterized the philosophy behind the New Act as follows:</p> <p style="padding-left: 30px;">“Bill <a rel="noopener noreferrer" target="_blank" href="http://apps.ourcommons.ca/ParlDataWidgets/en/bill/11474494">S-211</a> is a supply chain transparency bill. Companies of a certain size would be expected to examine their supply chains annually and certify that they are free of slave products, or if they are not, what are they going to do about it. Powers would be given to the Minister of Public Safety to examine the filing, and if not satisfied, cause an investigation to be made. We expect that the mere existence of the bill will create a high level of compliance as companies worry about their reputational damage, government investigations, consumer disapproval and increased financial costs for non-compliance and additional financial risk. Keeping it simple is the essence of this bill: examine our supply chains; certify there is no slavery; and if there is, tell us what they are going to do about it.”</p> <h2>Future Developments</h2> <p>While support for Bill S-211 had been unanimous at earlier stages of the legislative process, at its third and final reading it was supported only by members of the Liberal and Conservative parties, together with one of the two Green Party MPs and all three Independents. The NDP and Bloc Québécois agreed with the legislation’s intent but voted against it because they preferred the due diligence approach. To that end, the NDP (with Bloc support) has introduced alternative legislation, <a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/DocumentViewer/en/44-1/bill/C-262/first-reading">Bill C-262</a>, that would potentially require entities of all sizes to examine and report on their supply chains and would include third-party litigation rights. While Bill C-262 is unlikely to become law, Mr. McKay, a member of the governing Liberal Party, recently stated that the New Act may be only a first step on a road toward more extensive requirements.</p> <h2>For Further Reading</h2> <p>The Library of Parliament has provided a <a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/LegisInfo/en/bill/44-1/S-211?view=about">set of readings on modern slavery issues</a>. On the same page, they have also provided links to several similar bills that were introduced into Parliament in recent years, none of which ultimately became law.</p> <hr /> <p><a href="#_ftnref1" name="_ftn1">[1]</a> Part I of the legislation, which imposes similar reporting obligations on Crown entities (“government institutions”), is not discussed in this post.</p>26-May-2023 07:00:00{6ED25233-0BD5-4AED-B248-1D1F167E1CB8}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/quebec-announces-in-force-dates-for-new-corporate-transparency-requirementsTrevor Rowleshttps://www.stikeman.com/en-ca/people/r/trevor-rowlesCorporations & Commercial Law UpdateCanadian M&A LawQuébec Announces In-force Dates for New Corporate Transparency Requirements<p><strong>The Québec Government has announced that the transparency requirements set out in Bill 78, </strong><a rel="noopener noreferrer" target="_blank" href="https://assnat.qc.ca/en/travaux-parlementaires/projets-loi/projet-loi-78-42-1.html"><strong><em>An Act mainly to improve the transparency of enterprises</em></strong></a><strong>, will come into force on March 31, 2023. These requirements will apply to all entities operating an enterprise in Québec, without regard to their jurisdiction of formation.</strong></p> <p><em><em>Note: This post updates our previous post from January 24, 2023.</em></em></p> <h2><strong><strong>Background</strong></strong></h2> <p>Bill 78, which passed with the unanimous support of the National Assembly on June 3, 2021, introduces significant transparency disclosure requirements to Québec's <em><em>Act respecting the legal publicity of enterprises</em></em> ("Québec Legal Publicity Act").</p> <p>While these changes follow the implementation of corporate transparency initiatives in the <em><em>Canada Business Corporations Act</em></em> ("CBCA") and in a number of other provinces (for further details, see our post: <a href="https://www.stikeman.com/en-ca/kh/corporations-commercial-law/beneficial-ownership-transparency-in-canada-an-evolving-regulatory-landscape">Beneficial Ownership Transparency in Canada: An Evolving Regulatory Landscape</a>), Québec is the first Canadian jurisdiction to put in place a system that will make corporate and other ultimate beneficiary information publicly accessible. Furthermore, these requirements will apply to all corporations, partnerships, commercial trusts and other entities ("Registrants") required to register with the Québec enterprise register (the "REQ"), which includes all such entities operating an enterprise in Québec, not just those formed under Québec laws.</p> <h2><strong><strong>In-force Dates</strong></strong></h2> <p>The transparency obligations will come into force on March 31, 2023 and it is expected that searches by names of individuals on the REQ will be possible starting on March 31, 2024.</p> <p>While the in-force date is fast approaching, as of the date of publication, various related amendments and regulations remaining pending. As such, the remainder of this post is based on our understanding of which of these amendments and regulations are expected to come into force, and will be updated if that changes.</p> <p>Based on the information on the current version of the Government's corporate transparency <a rel="noopener noreferrer" target="_blank" href="https://www.quebec.ca/entreprises-et-travailleurs-autonomes/demarrer-entreprise/immatriculer-constituer-entreprise/nouvelles-obligations-transparence/declarer-beneficiaire-ultime/faire-declaration"><strong><strong>website</strong></strong></a> (available in French only), entities registered with the REQ will be required to file the required corporate transparency information by no later than the filing of their annual updating declarations filed after March 31, 2023. As such, based on the current regulations, we expect that the applicable periods for filing such updating declarations would be as follows:</p> <ul> <li>in the case of a legal person required to file a fiscal return under section 1000 of Québec's <em><em>Taxation Act</em></em>, the period that starts on the day after the end date of its taxation year and ends on the day that is 6 months after that date (for example, a July 1, 2023 deadline for corporations with a December 31, 2022 taxation year-end and that file tax returns in Québec – if they have not already filed a 2023 updating declaration prior to March 31, 2023);</li> <li>in the case of a trust required to file a fiscal return under section 1000 of Québec's <em><em>Taxation Act</em></em>, the period that starts on the day after the end date of its taxation year and ends on the day that is three months after that date (for example, a March 31, 2024 deadline for trusts with a December 31, 2022 taxation year-end);</li> <li>in the case of a natural person or a partnership, the period that starts on 1 January and ends on 15 June (i.e., a June 15, 2023 deadline – if they have not already filed a 2023 updating declaration prior to March 31, 2023); and</li> <li>in all other cases, the period that starts on 15 May and ends on 15 November (i.e., a November 15, 2023 deadline for corporations and trusts that do not file tax returns in Québec).</li> </ul> <h2><strong><strong>Ultimate Beneficiaries</strong></strong></h2> <p>A key concept in Québec's transparency regime is that of "ultimate beneficiaries". In respect of a Registrant, ultimate beneficiaries are individuals who are holders, "even indirectly", or beneficiaries of, or control, a number of shares or units of the Registrant:</p> <ul> <li>conferring on the person the power to exercise 25% or more of the voting rights attached to the shares or units issued by the Registrant, or</li> <li>the value of which corresponds to 25% or more of the fair market value of all the shares or units issued by the Registrant.</li> </ul> <p>Where individuals, or the entities they control, agree to jointly exercise voting rights attached to such shares or units, and the agreement confers on them, together, the power to exercise those voting rights (a "Voting Agreement"), their holdings are aggregated for these purposes and each such individual is an ultimate beneficiary if these aggregated voting rights exceed the 25% threshold.</p> <p>Ultimate beneficiaries also include (i) any person who has any direct or indirect influence that, if exercised, would result in control in fact of the Registrant within the meaning of sections 21.25 and 21.25.1 of Québec's <em><em>Taxation Act</em></em> ("control in fact" is often not a simple determination – see further discussion below); (ii) in respect of partnerships, their general partners or the ultimate beneficiaries of the general partners and (iii) in respect of trusts, their trustees and certain beneficiaries. There are additional rules that apply to determining the ultimate beneficiaries of trusts and partnerships, as well as entities that are directly or indirectly owned by trusts or partnerships.</p> <p>Entities that are themselves exempt from disclosing their ultimate beneficiaries (further discussed below) are considered to be natural persons for the purposes of determining the ultimate beneficiaries of non-exempt entities (i.e., exempt entities can be ultimate beneficiaries of non-exempt entities, for example, if a reporting issuer controls a private company, the reporting issuer will need to be disclosed as an ultimate beneficiary of that private company).</p> <h2><strong><strong>Obligations on Registrants</strong></strong></h2> <p>When the transparency regime comes into effect, Registrants that are subject to the ultimate beneficiary disclosure obligations will be required to "take the necessary measures to locate them and to ascertain their identities".</p> <p>An earlier draft of Bill 78 had proposed that this obligation be to take "reasonable measures". The Québec Government has made clear with the wording of the final version of the legislation - “take the necessary measures”, that it is imposing a more onerous standard. The Government's corporate transparency <a rel="noopener noreferrer" target="_blank" href="https://www.quebec.ca/entreprises-et-travailleurs-autonomes/demarrer-entreprise/immatriculer-constituer-entreprise/nouvelles-obligations-transparence/declarer-beneficiaire-ultime/qui-doit-declarer"><strong><strong>website</strong></strong></a> further interprets this obligation as follows (our translation from the original French version):</p> <p style="padding-left: 30px;">"Enterprises must take the necessary measures to locate and identify their ultimate beneficiaries. This means all measures which are necessary to locate and identify their ultimate beneficiaries. Necessary measures are greater than reasonable measures.</p> <p>The enterprise must proceed with a legal, documentary and factual analysis of its situation. For example, in the case of a corporation, it must analyze its share capital as well as any agreements that are likely to influence the manner in which voting rights are exercised.</p> <p>Furthermore, ultimate beneficiaries are sometimes different from the shareholders of the enterprise. In complex cases, we recommend that you consult with legal counsel."</p> <p>Certain Registrants, however, are exempt from the ultimate beneficiary disclosure requirements, including non-profit legal persons established for a private interest (i.e., private non-profit corporations), associations, legal persons established in the public interest (i.e., crown corporations), reporting issuers within the meaning of the <em><em>Securities Act</em></em> (Québec) and certain financial institutions. Notably, unlike several of the other transparency regimes in Canada, there is currently no exemption for foreign listed companies that are not reporting issuers in Canada.</p> <p>Non-exempt Registrants will be required to file with the REQ, in respect of each of their ultimate beneficiaries, (i) their name, (ii) residential address, (iii) date of birth, (iv) any other names they use in Québec and by which they are identified and (v) the condition in respect of which they became an ultimate beneficiary, including, if applicable, the percentage of shares or units they hold or are the beneficiary of (expressed in terms of ranges of 25% to 50%, over 50% to 75% or over 75%), as well as the date on which they became an ultimate beneficiary. As with other information filed with the REQ, Registrants must file an updating declaration within 30 days of any change in this information or immediately upon discovering any inaccuracy in it.</p> <p>Bill 78's amendments to the Québec Legal Publicity Act leave intact its existing penalties for non-compliance, which can include fines of up to $25,000 (which can be doubled in the case of a subsequent offence) and the cancellation of a registration.</p> <h2><strong><strong>Uncertainties and Challenges</strong></strong></h2> <p>While it may be simple to determine an entity's ultimate beneficiaries in many cases, more complex ownership structures or the presence of indicia of control in fact could make this a much more cumbersome exercise for Registrants.</p> <h3><strong><em><strong><em>Indirect holdings</em></strong></em></strong></h3> <p>Most other transparency regimes in Canada only apply to indirect holdings to the extent that the indirect holder has direct or indirect control over the requisite amount of equity securities of the subject entity (such that non-controlling interests in entities up the chain of ownership would not need to be disclosed). The wording of Bill 78 is ambiguous on this point, but the REQ, in its recently published <a rel="noopener noreferrer" target="_blank" href="https://www.registreentreprises.gouv.qc.ca/documents/publications/IN-914(2023-03).pdf"><strong><strong>guide</strong></strong></a> (available in French only), has made clear that it believes that Québec has opted for a more expansive concept of indirect ownership which will require Registrants to analyze whether any individual (or exempt entity) has, through direct or indirect holdings, an interest in shares or units of the Registrant which meets or exceeds the specified threshold. As such, in Québec, non-controlling interests in entities up the chain of ownership may need to be disclosed in certain circumstances.</p> <h3><strong><em><strong><em>Fair market value</em></strong></em></strong></h3> <p>The 25% threshold for determining ultimate beneficiaries applies to both voting rights and to the fair market value of a Registrant's issued shares or units and we expect that the latter test may be more difficult to determine in certain instances (although a similar test applies under the CBCA). For example, it may be very difficult to assess the fair market value of one block of shares or units if there are multiple classes of shares or units with different economic entitlements and/or with contingent economic entitlements.</p> <h3><strong><em><strong><em>Control in fact (also known as “de facto control”)</em></strong></em></strong></h3> <p>In cross-referencing tax laws for determinations of control in fact, Québec's transparency regime has brought in a complex and uncertain set of rules. The Government's corporate transparency <a rel="noopener noreferrer" target="_blank" href="https://www.quebec.ca/entreprises-et-travailleurs-autonomes/demarrer-entreprise/immatriculer-constituer-entreprise/nouvelles-obligations-transparence/declarer-beneficiaire-ultime/trouver-identifier"><strong><strong>website</strong></strong></a> offers the following guidance (our translation from the original French version):</p> <p style="padding-left: 30px;">"Control in fact of an enterprise exists when a person is able to influence the decisions of the enterprise in an important way. To determine if such an influence exists, articles 21.25 and 21.25.1 of the <em><em>Taxation Act </em></em>(chapter I-3) apply, with the necessary adaptations. As such, to determine if a person has, in respect of an enterprise, a direct or indirect influence which, if exercised, would result in control in fact, you must take into account all of the factors that are relevant in the circumstances. This requires a legal, documentary and factual analysis. This could include, for example, the influence on the management of the enterprise of a family member, a long-term employee, a client or a creditor. It should be noted that control in fact situations are not limited to the foregoing examples."</p> <p>Certain commentators have pointed out that, because of the complexity of the relevant jurisprudence on control in fact, Registrants may need to consult with tax experts to determine whether any individuals hold de facto control over them.</p> <h2><strong><strong>Additional Filing Obligations</strong></strong></h2> <p>In addition to the new corporate transparency regime, Bill 78 has introduced the following new requirements into the Québec Legal Publicity Act, which are also expected to come into force on March 31, 2023 and necessitate compliance by each Registrant in conjunction with their annual updating declarations in 2023:</p> <ul> <li>Registrants will be required to file copies of government issued identification for each of their directors;</li> <li>Registrants will be required to provide the dates of birth for the individuals who are listed in their filings (i.e., their directors, officers, three largest shareholders, ultimate beneficiaries, etc.); and</li> <li>Registrants will be permitted to declare a professional address for their listed individuals in addition to their residential address.</li> </ul> <p>Dates of birth, the residential addresses of any individual who has also filed a professional address and the names and addresses of minors will not be accessible to the public (although bailiffs may access residential addresses). Copies of identification filed with the REQ are to be destroyed after the applicable registration or updating date.</p> <h2><strong><strong>Next Steps</strong></strong></h2> <p>With the in-force date for Québec's new transparency regime fast approaching, Registrants would be well advised to start preparations for obtaining and disclosing the necessary information. We will be available to assist our clients in interpreting how these new requirements may apply to their situation, and plan to make additional resources available.</p>Wed, 16 Nov 2022 12:00:00 Z27-Mar-2023 05:20:00{17644F64-A1F8-43C9-A78A-B0800562A354}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/beneficial-ownership-transparency-in-canada-an-evolving-regulatory-landscapeJanene Charleshttps://www.stikeman.com/en-ca/people/c/janene-charlesTrevor Rowleshttps://www.stikeman.com/en-ca/people/r/trevor-rowlesAndrew S. Cunninghamhttps://www.stikeman.com/en-ca/people/c/andrew-s-cunninghamCorporations & Commercial Law UpdateCanadian M&A LawBeneficial Ownership Transparency in Canada: An Evolving Regulatory Landscape<p><strong>As of April 1, 2023, the number of Canadian jurisdictions with beneficial ownership transparency requirements in force will have risen to ten. With the implementation of new transparency regimes in Saskatchewan, Québec and Nova Scotia, only four jurisdictions – Alberta and the three Territories – have not proposed or implemented this type of legislation at this time. Below we explore some of the key similarities and differences among the laws enacted to date, with particular attention to Québec’s unique approach, which include</strong><strong>s </strong><strong>transparency filing obligations in respect of corporations and other entities registered</strong><strong> to do business in the province, even if they were incorporated or established outside the province or outside Canada.</strong></p> <h2>Introduction</h2> <p>As noted above, the number of Canadian jurisdictions with transparency legislation will soon rise to ten. Three new beneficial ownership transparency laws are taking effect in early 2023:</p> <ul> <li><strong>Saskatchewan</strong>: March 12, 2023;</li> <li><strong>Québec</strong>: March 31, 2023 (see our detailed <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/corporations-commercial-law/quebec-announces-in-force-dates-for-new-corporate-transparency-requirements">blog post</a>); and</li> <li><strong>Nova Scotia</strong>: April 1, 2023.</li> </ul> <p>Information about earlier developments is available in a series of blog posts that we released, beginning in 2019, dealing specifically with the legislation in the following jurisdictions:</p> <ul> <li><a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/Corporate-Control-Transparency-in-Canada"><strong>Canada</strong></a>, under the <em>Canada Business Corporations Act</em> (“CBCA”);</li> <li><strong><a href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/british-columbias-beneficial-ownership-transparency-register">British Columbia</a></strong>, under the <em>Business Corporations Act</em> (“BCBCA”) ; and</li> <li><a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/corporations-commercial-law/ontarios-new-transparency-register-getting-your-obca-corporation-ready-for-january-1-2023"><strong>Ontario</strong></a>, under the <em>Business Corporations Act</em> (“OBCA”).</li> </ul> <p>The provinces of Manitoba, New Brunswick, Newfoundland & Labrador and Prince Edward Island also implemented transparency legislation between 2019 and 2022. As noted above, only Alberta, Yukon, Northwest Territories and Nunavut have yet to propose or adopt transparency laws.</p> <p>On March 22, 2023, the <a rel="noopener noreferrer" href="https://www.canada.ca/en/innovation-science-economic-development/news/2023/03/government-of-canada-tables-new-legislation-to-create-a-beneficial-ownership-registry.html" target="_blank">Government of Canada introduced proposed legislative amendments</a><em><a rel="noopener noreferrer" href="https://www.parl.ca/legisinfo/en/bill/44-1/c-42" target="_blank"></a> “</em>as part of the government’s commitment to corporate transparency and the implementation of a free, publicly accessible and scalable beneficial ownership registry of corporations governed under the CBCA.” If passed, <a href="https://www.parl.ca/legisinfo/en/bill/44-1/c-42" target="_blank">the proposed amendments</a> (along with consequential and related amendments to other statutes) will, among other things, make public certain information regarding beneficial owners of CBCA corporations, introduce an exemption regime for individuals who may face harm from public disclosure, provide Corporations Canada with additional enforcement and compliance powers, and facilitate enforcement efforts through information-sharing and data validation among Corporations Canada, the Canada Revenue Agency and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). We will continue to monitor the progress of Bill C-42 and will provide further updates as they become available.</p> <h3>Regulator guidance</h3> <p>As might be expected of new legislation, there is still significant uncertainty about the interpretation of some aspects of Canada’s transparency laws. To date, published regulator guidance has been relatively minimal, although the Government of British Columbia has produced a <a rel="noopener noreferrer" target="_blank" href="https://www2.gov.bc.ca/assets/gov/employment-business-and-economic-development/bc-companies/webinar-presentation-bc-companies.pdf">useful guide to the B.C. legislation</a> and the Government of Québec is expected to publish guidance in time for the implementation of the Québec transparency regime.</p> <h2>Canada’s Transparency Laws: Common Ground</h2> <p>The federal CBCA was the first Canadian legislation to adopt amendments relating to beneficial ownership transparency. Those provisions, which took effect on June 13, 2019, influenced the transparency regimes that were subsequently established at the provincial level, with the result that the ten legislative regimes share most (and in many cases all) of the following features:</p> <ul> <li>A requirement that individuals<strong> be listed in a register</strong> that also includes their name, address, birthdate, and other specified information;</li> <li>Requirements relating to disclosure of the <strong>steps taken</strong> by entities to determine which individuals, if any, should be listed in the register, and what should be done if an entity is unable to identify any ISCs;</li> <li>Criteria for <strong>identifying the individuals</strong> to be listed (referred to as “Individuals with Significant Control” or “ISCs” under the CBCA), such as: <ul> <li>Direct or indirect ownership/control/direction of or over <strong>at least 25% of the shares</strong> of the corporation (“indirect direction” may be found where an individual who controls the top entity of a corporate group is able to control how corporations “down the chain” vote their shares of the subject corporation);</li> <li>In most jurisdictions, the possession by an individual of <strong>“influence” </strong>that, if exercised, would give the individual <strong>“control in fact”</strong> of the corporation, as these (or similar) concepts are understood under the governing legislation;</li> <li>Being a <strong>joint holder</strong> of (or party to a <strong>voting agreement or arrangement</strong> that encompasses) shares that in the aggregate meet the 25% threshold;</li> </ul> </li> <li>An exemption for qualifying <strong>publicly-traded corporations</strong> from the requirement to maintain a register (including, in most jurisdictions, their wholly-owned subsidiaries);</li> <li>Criteria for <strong>accessing and searching</strong> the register: in all cases, those who may access the register include police forces, tax authorities and such regulators as may be listed in the statute or provided by regulation (and also, in many cases, the equivalent foreign entities, where the necessary arrangements or agreements exist). Certain jurisdictions also give shareholders and/or creditors rights of access, while only one (Québec, as discussed below) currently provides for broad public access.</li> <li>Rules for reviewing and <strong>updating the register:</strong> typically one mandatory review and update per financial year to ensure the information is accurate and up to date, plus a requirement for periodic updates whenever the entity learns of new information that affects prior disclosure.</li> <li><strong>Penalties for violations</strong> of the requirements: both the corporation and its directors and officers can be liable for violations, although some statutes create potential liabilities for other persons and may include incarceration as a possible penalty.</li> </ul> <p>For the sake of simplicity we have used the term “corporation” in the above discussion, but it should be noted that in Québec the transparency rules apply to certain entities that are not corporations.</p> <h2>Canada’s Transparency Laws: Key Differences</h2> <p>While there are many similarities among the regimes, some provinces have diverged from the CBCA model more than others, as highlighted below (from least to most divergent):</p> <ul> <li>The provincial laws of <strong>Saskatchewan, Manitoba, Prince Edward Island, Nova Scotia </strong>and<strong> Newfoundland & Labrador </strong>closely follow the CBCA model;</li> <li>The <strong>Ontario</strong> and <strong>New Brunswick</strong> provisions are broadly similar to the CBCA provisions but include some substantive differences;</li> <li><strong>British Columbia</strong>’s provisions were influenced by the CBCA model, but diverge from it in a number of significant respects;</li> <li>The <strong>Québec</strong> transparency regime, while based on many of the same concepts as the CBCA, is the most distinct of all, in both approach and substance.</li> </ul> <p>The remainder of this post looks at some of the key differences among Canada’s beneficial ownership transparency regimes. We have focused on differences that have the broadest impact, but there are a number of others, such as those relating to the treatment of limited partnership entities in chains of corporate ownership.</p> <h3>1. Québec’s register will be publicly accessible in 2023 and will be searchable by individual names in 2024</h3> <p>While <a rel="noopener noreferrer" href="https://www.parl.ca/DocumentViewer/en/44-1/bill/C-19/royal-assent#ID0E4DA" target="_blank">amendments to the CBCA</a> will, once in force, require the filing of ISC information with the federal regulator, Corporations Canada, and proposed amendments to the CBCA will require some information regarding the beneficial owners of federal corporations to be made public, for the time being ISC registers are generally kept at a corporation’s registered office, to be produced on request to those who are entitled by law to examine them. The same is currently true under most of the provincial statutes. However, as noted above, on March 22, 2023,  <a rel="noopener noreferrer" href="https://www.parl.ca/legisinfo/en/bill/44-1/c-42" target="_blank">a new bill proposing further amendments to the CBCA</a> was published that if passed, would create a publicly accessible beneficial ownership registry for CBCA corporations that would bring the federal approach into alignment with Québec’s as described below. </p> <p>Québec’s approach is currently different than all other Canadian jurisdictions: its transparency information is not maintained in a stand-alone register, rather it is included as part of a registrant’s submission <strong>filed with the Québec Enterprise Registrar (“Enterprise Registrar”)</strong>. Two important points to note are that:</p> <ul> <li>Much of the information will be <strong>publicly available</strong>; and</li> <li>As of March 31, 2024, the information is expected to be <strong>searchable by individuals’ names</strong>.</li> </ul> <p>This broad accessibility presently stands in contrast to the other Canadian jurisdictions where registers are available for inspection only to the government itself as well as to tax authorities, police services and designated regulators (which vary from jurisdiction to jurisdiction, but often include securities commissions and financial regulators, including those from other jurisdictions where certain conditions are met). Shareholders and creditors also have a limited right of access under the CBCA and the corporate statutes of many provinces (exceptions include British Columbia and Ontario). If the new CBCA amendments are adopted as currently proposed, Québec’s broad accessibility may soon become the norm across Canada.</p> <h3>2. Québec’s statute applies to entities doing business in Québec generally – not just to QBCA corporations</h3> <p>Québec’s transparency rules <strong>apply territorially</strong> to any entity that is required to register with the Enterprise Registrar to conduct business in the province, <strong>without regard to the statute under which the entity was incorporated or formed</strong>. This means the Québec transparency rules apply to limited partnerships, business trusts and other entity types in addition to corporations, even if not formed under the laws of Québec, if they are required to be registered with the Enterprise Registrar.</p> <p>The reason is that Québec’s transparency rules, unlike those of other jurisdictions, were enacted under its <strong>business registration legislation</strong> – <em>An Act Respecting the Legal Publicity of Enterprises</em> (ALPE) – rather than under the Québec <em>Business Corporations Act</em> (QBCA). Under the ALPE, registration is required of almost any entity that operates a business or performs any act for profit in Québec, including corporations and other entities formed in other Canadian and foreign jurisdictions. As a result:</p> <ul> <li>Non-Québec corporations established under Canadian or foreign corporate statutes that are registered with the Enterprise Registrar may <strong>effectively have <em>two</em> transparency registers</strong> – one for their jurisdiction of incorporation and one for Québec; and</li> <li>Businesses incorporated or formed under<strong> legislation (in Canada or elsewhere) that does not currently require transparency registers</strong>, such as the Alberta <em>Business Corporations Act</em> or provincial limited partnership statutes, need to be aware of the transparency disclosure requirements in Québec if they are or plan to be registered with the Enterprise Registrar.</li> </ul> <p>Furthermore – and very importantly – where both Québec and the jurisdiction of incorporation require transparency disclosure, <strong>it may sometimes be the case that different individuals will need to be identified </strong>based upon differing statutory criteria for identifying ISCs.</p> <h3>3. Economic interests vs. legal control: a potentially important difference between Québec’s legislation and other Canadian legislation</h3> <p>Generally, to be listed in a transparency register, an individual must have control (as defined) over at least 25% of the shares of the corporation as measured by voting rights or (in all jurisdictions except B.C.) by value. Such control may be “indirect” – achieved, for example, by “influence”, through an individual’s stake in a holding company, or by means of a shareholder agreement – but it must, at the end of the day, result from interests or rights that the individual holds in connection with specific shares of the corporation constituting at least 25% of the total.</p> <p>Importantly, it follows from this that, under the CBCA and most of its provincial equivalents, <strong>an individual is not an ISC merely because the individual has a 25% economic</strong><strong>interest</strong> in the corporation that derives from the individual’s holdings in another entity that sits above the corporation in a “stacked” ownership structure, if this economic interest is <strong>not</strong> accompanied by 25% control of the corporation’s shares.</p> <p>The following corporate structure illustrates this point:</p> <p><em>In a corporate group, Individuals A and B own 60% and 40%, respectively, of the only class of shares in Holdco X. Holdco X, in turn, owns 100% of the shares of Corporation Y, for which a transparency register is being prepared. In this very simple structure, there are no shareholder agreements or other voting arrangements, no family relationships and no influential persons other than the two shareholders.</em></p> <p>In this example, if Y were a CBCA corporation, <strong>only A would be listed</strong> in Y’s CBCA transparency register. While B might be said to hold a 40% indirect “economic interest” in Y, B is not in a position of control over 40% (or even 25%) of Y’s shares – in fact, A’s <strong>60%</strong> holding in Holdco X gives A control over the voting of <strong>100%</strong> of the shares of Y. An identical analysis would apply under the B.C. and Ontario legislation and most of the other provincial statutes.</p> <p>Québec appears to be different, however, as it refers to indirect <strong>holdings</strong> of the specified thresholds of shares or units, and not only indirect <strong>control</strong>. While the precise implications of this distinct approach are debatable, particularly for entities with separate legal personality, some prominent commentators have drawn the plausible conclusion that the references in the Québec law to direct or indirect holdings of 25% or more are intended to refer to economic interests.</p> <p>If this analysis is correct, it would follow that, in the example above, both <strong>A </strong><strong>and B</strong> would be ultimate beneficiaries of Corporation Y. B would have this status by virtue of being the beneficiary of shares that represent 40% (25% or more) of the value of Y (40% of X’s 100%). As already noted, B would <strong>not</strong> be an ISC under the CBCA or the statutes of the other provinces.</p> <p>Note that the control analysis that applies under the CBCA and other provincial legislation also applies under the Québec legislation – the possible scenario discussed in above would essentially establish an <em>additional</em> criterion under which certain individuals might have to be listed.</p> <h3>4. The jurisdictions differ about what constitutes “influence”, particularly with respect to the applicability of the “control in fact” concept from tax law</h3> <p>In addition to individuals who satisfy the 25% control test, individuals with sufficient “influence” over the corporation must also be listed in the transparency register. In eight of the ten jurisdictions that have adopted transparency legislation to date, “influence” is expressly defined as the possession of “control in fact” (“<strong>CIF</strong>”), which many will recognize as a concept in Canadian tax law. One apparent difference among these jurisdictions is how closely their respective concepts of influence and CIF track the understanding of CIF that has developed in the taxation context. Jurisdictions that have taken a different approach include British Columbia (discussed below) and New Brunswick, which does not include influence among the factors to be considered when creating an ISC Register.</p> <p>In <strong>Ontario </strong>and<strong> Québec</strong>, the CIF definition to be applied under ISC analysis is based on the understanding of CIF in tax law. The Ontario legislation takes its CIF language almost word-for-word from the <a rel="noopener noreferrer" target="_blank" href="https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-256.html"><em>Income Tax Act</em> (Canada)</a> (“<strong>ITA</strong>”), while Québec’s legislation explicitly states that the <a rel="noopener noreferrer" target="_blank" href="https://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php?type=2&file=/I_3/I3_1_A.html"><em>Taxation Act </em>(Québec)</a> (“<strong>QTA</strong>”) definition of CIF applies in this context. The two key components of both definitions are:</p> <ul> <li>that an individual can have “influence” even in the absence of a legally enforceable right or ability to effect a change in the membership or powers of the board (ITA s. 256(5.11)(b); QTA s. 21.25.1(b)); and</li> <li>that franchising, licensing, leasing, distribution and supply management arrangements, and other similar arrangements, do not, in and of themselves, result in “control in fact” (ITA s. 256(5.1) QTA s. 21.25).</li> </ul> <p>The consequence may be that, as is the case under tax law, <strong>operational control</strong> can be sufficient to produce CIF (and, by extension, to give an individual who has such control “influence”), even in the absence of <strong>legal control</strong> over the board’s composition and/or powers.</p> <p>It is important to note that the second component of the definition does not exclude individuals involved in the listed arrangements from consideration for inclusion in the transparency register. It does mean, however, that they will not be included <strong>merely</strong> because they are involved in such arrangements.</p> <p>The <strong>federal legislation</strong> – the CBCA – also defines “influence” in terms of CIF, but because it does not include an express reference to tax law (as the Québec statute does) or incorporate the ITA’s definition of CIF (as the Ontario statute does), the relevance of the tax law analysis of CIF for CBCA corporations is unclear. In the absence of guidance from the Government of Canada, this could make some questions about influence difficult to resolve with confidence.</p> <p><strong>British Columbia</strong> has taken a distinct and very clear approach, defining “influence” as “significant influence”, which refers to the direct or indirect power to appoint or remove at least one director. According to the B.C. Government’s website, this requires a legally binding or enforceable arrangement. In other words, B.C. appears to have deliberately rejected the application of the CIF concept as reflected in the tax legislation. There is no express exclusion in the BC legislation for franchising, licensing, leasing, distribution and supply management arrangements, but few of these would involve the legally enforceable power to appoint or remove board members.</p> <h3>5. Ontario and British Columbia create a presumption relating to family/household members</h3> <p>When it comes to deciding whether an <strong>informal voting arrangement</strong> exists among small shareholders (so that their interests must be considered collectively), both the British Columbia and Ontario statutes create a presumption that the interests of those from the same family and/or household should be aggregated. The persons whose holdings must be combined in this way are defined differently under the two statutes, however. The federal, Québec and other provincial statutes <strong>do not</strong> include a provision of this type, although family and household members could still be “caught” under the more general provisions in those statutes.</p> <h3>6. The 25% threshold is defined more narrowly in the B.C. legislation</h3> <p>In most Canadian jurisdictions, the 25% interest that generally triggers inclusion in the register is defined as an interest in 25% of the corporation’s shares, <strong>either in terms of voting rights or fair market value</strong>. The only exception is <strong>British Columbia</strong>, where the legislation defines the 25% interest in terms of <strong>voting rights only</strong> – an approach that will simplify the analysis for many B.C. companies.</p> <h3>7. The Québec legislation does not require shareholders to provide information to the corporation if requested</h3> <p>Unlike the other Canadian statutes, <strong>the Québec law does not include a provision specifically requiring shareholders to respond to inquiries</strong> that the corporation makes in the course of completing its beneficial owner analysis or register entries. All of the other statutes require a prompt response to such an inquiry, with substantial fines and (in most jurisdictions) a potential prison sentence imposed on shareholders who fail to respond, or who knowingly respond inaccurately. By contrast, the Québec law places responsibility solely on the registrant, requiring it to “take the necessary measures” to ascertain the identity of its ultimate beneficiaries.</p> <h2>Conclusion</h2> <p>The similarities and differences in transparency legislation across Canada discussed above are by no means an exhaustive list. Nevertheless, this overview should help Canadian, U.S. and overseas readers understand how beneficial ownership transparency is evolving in Canada – while underscoring the fact that, as is so often the case in this country’s corporate and commercial law, there is no single, uniform “Canadian” approach.</p>22-Mar-2023 01:22:00{1F409946-72A8-44FD-BAC1-B276D10E0764}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/shareholder-activism-and-shareholders-rights-in-canadian-private-and-public-companies-an-overviewChristian Brandshttps://www.stikeman.com/en-ca/people/b/christian-brandsMeghan Joneshttps://www.stikeman.com/en-ca/people/j/meghan-jonesCorporations & Commercial Law UpdateShareholder Activism and Shareholders’ Rights in Canadian Private and Public Companies: An Overview<p>Two members of our Corporate Group recently co-authored “<a rel="noopener noreferrer" target="_blank" href="https://uk.practicallaw.thomsonreuters.com/w-014-1307?comp=pluk&navId=1F0ED78A460E2756608AEDE1B9D65513&transitionType=Default&contextData=(sc.Default)&firstPage=true">Shareholder Activism in Canada</a>” and “<a rel="noopener noreferrer" target="_blank" href="https://uk.practicallaw.thomsonreuters.com/w-014-1304?comp=pluk&navId=5412F8EB284EBA9411C2D008C5CF7871&transitionType=Default&contextData=%28sc.Default%29#co_anchor_a884840">Shareholders’ Rights in Private and Public Companies in Canada</a>” for Thomson Reuters’ <em>Practical Law Global Guide</em>. This Q&A-style publication provides an overview of key issues affecting shareholders in Canada, including (among others):</p> <ul> <li>Types of companies in Canada;</li> <li>General shareholder rights and rights relating to meetings;</li> <li>Shareholder meetings;</li> <li>Shareholders’ rights against directors;</li> <li>Shareholders’ rights against auditors;</li> <li>Disclosure of information;</li> <li>Shareholder agreements;</li> <li>Shareholder activists’ goals, tools and strategies;</li> <li>Regulatory and corporate responses to shareholder activism; and</li> <li>Trends and developments.</li> </ul> <p>We are pleased to be able to make this <a href="/-/media/files/kh-general/practical_law_shareholders_rights-2023.ashx">39-page publication</a> available for downloading.</p>08-Mar-2023 05:00:00{2365A79E-0CE3-48D4-9AD7-E0BE574EA17F}https://www.stikeman.com/en-ca/kh/canadian-technology-ip-law/privacy-and-data-protection-in-canada-a-concise-legal-overviewDavid Elderhttps://www.stikeman.com/en-ca/people/e/david-elderCanadian Technology & IP LawPrivacy & CybersecurityCorporations & Commercial Law UpdatePrivacy and Data Protection in Canada: A Concise Legal Overview<p><strong>Canadian privacy and data protection laws are complex and evolving, thanks to rapid global technological change and Canada’s federal constitutional structure. Stikeman Elliott recently published a <a href="/-/media/files/kh-guides/dbic/se-canada---privacy-law-overview-2023.ashx">clear and concise overview</a> of privacy law that will be of value to corporate counsel, businesspeople and others who deal with the issues it covers. The overview was authored by David Elder, chair of the firm’s privacy and data protection practice and a widely recognized authority in the field.</strong></p> <p>Topics discussed in the publication include:</p> <ul> <li>Private sector privacy laws, including PIPEDA (the federal statute) and its equivalents in Alberta, British Columbia and Québec;</li> <li>Jurisdictional issues arising from Canada’s federal system, including areas of overlapping federal and provincial authority;</li> <li>Roles of the federal and provincial Privacy Commissioners;</li> <li>Means of redress – orders, fines and penalties;</li> <li>Relationship between Canadian privacy law and laws of other countries, including the European GDPR;</li> <li>Scope of Canada’s “adequacy” status with the EU and UK;</li> <li>The principles-based approach of Canada’s privacy laws;</li> <li>The concept of consent in Canadian privacy and data protection law;</li> <li>Breach reporting and notification;</li> <li>Privacy laws relating to the health sector and governmental entities; and</li> <li>Outsourcing and data transfer issues in Canada.</li> </ul> <p>We are pleased to be able to provide this <a href="/-/media/files/kh-guides/dbic/se-canada---privacy-law-overview-2023.ashx">updated publication</a> and welcome your comments as always.</p>01-Mar-2023 08:00:00{6C6B1573-CC38-4BE3-8CA3-6D710416E56B}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/pharma-and-medical-device-regulations-2023-a-canadian-law-updateSara Zborovskihttps://www.stikeman.com/en-ca/people/z/sara-zborovskiIan Trimblehttps://www.stikeman.com/en-ca/people/t/ian-trimbleCorporations & Commercial Law UpdateCanadian Technology & IP LawPharma and Medical Device Regulations 2023: A Canadian Law Update<p>Stikeman Elliott’s <a href="/en-ca/people/z/sara-zborovski">Sara Zborovski</a> and <a href="/en-ca/people/t/ian-trimble">Ian Trimble</a> recently co-authored the <a href="/-/media/files/kh-general/2023-pharma--medical-device-regulation---canada.ashx">Canadian chapter of <em>Pharma & Medical Device Regulations 2023</em></a>, published by Lexology. This publication provides an excellent overview of the area of law, notably of the following topics:</p> <ul> <li>Regulatory Framework</li> <li>Clinical Practice</li> <li>Marketing Authorization</li> <li>Amending Authorizations</li> <li>Recall</li> <li>Advertising and Promotion</li> <li>Off-Label Use and Unlicensed Products</li> <li>Sale and Supply</li> <li>Regulatory Trends</li> </ul> <p>We are pleased to be able to make this <a href="/-/media/files/kh-general/2023-pharma--medical-device-regulation---canada.ashx">13-page publication </a>available for downloading.</p>Tue, 13 Dec 2022 12:00:00 Z13-Dec-2022 09:08:00{6D3DF8FC-2EA9-41D1-83BD-07F934F4C96D}https://www.stikeman.com/en-ca/kh/canadian-employment-labour-pension-law/online-meal-services-arbitration-clause-doesnt-deliver-the-goodsGary T. Clarkehttps://www.stikeman.com/en-ca/people/c/gary-t-clarkeCheryl Reahttps://www.stikeman.com/en-ca/people/r/cheryl-reaCameron Pennhttps://www.stikeman.com/en-ca/people/p/cameron-pennCanadian Class Actions LawCanadian Employment, Labour & Pension LawCorporations & Commercial Law UpdateOnline Meal Service’s Arbitration Clause Doesn’t Deliver the Goods: Manitoba Court Rules in Favour of Courier Who Agreed To It “Under Protest”<p><strong>The Manitoba Court of King’s Bench <a href="https://canlii.ca/t/jrw4v">recently rejected a motion by a large online meal delivery service</a> to stay a class proceeding in favour of arbitration in accordance with the terms of a new agreement with its couriers. The plaintiff courier had commenced an action seeking relief that included a declaration that she was an employee of the company and to have her action certified as a class proceeding. The ruling is another example of Canadian courts applying high scrutiny to standard form contracts in the “gig” economy and, in particular, to arbitration clauses.</strong></p> <p>The Court sided with the plaintiff courier (the “Plaintiff”), finding that:</p> <ul> <li>the new arbitration clause did not apply retroactively to the lawsuit, which started before the new agreement came into effect;</li> <li>there was no effective acceptance of the terms of the new agreement because the Plaintiff clicked “I accept” under protest;</li> <li>the arbitration provision in the new agreement <ul> <li>lacked consideration; and,</li> <li>was unconscionable (applying the unconscionability test set out by the Supreme Court of Canada in <a rel="noopener noreferrer" target="_blank" href="https://canlii.ca/t/j8dvf"><em>Uber v Heller</em>, 2020 SCC 16</a> (“<em>Uber</em>”)).</li> </ul> </li> </ul> <h2>Background</h2> <p>The company, SkipTheDishes (“Skip”), applied to stay the Plaintiff’s action – which sought a declaration that she was an employee as well as certification of the class action – on the basis of the arbitration clause in Skip’s new standard service agreement with couriers (the “New Agreement”). The company argued that this clause deprived the Court of King’s Bench (and all courts) of jurisdiction over the matter.</p> <h3>Original agreement, with no arbitration clause (2014)</h3> <p>When the Plaintiff began working as a courier in 2014, her relationship with Skip was governed by an earlier agreement (the “Original Agreement”) that did not contain an arbitration clause but instead conferred jurisdiction on the Manitoba Court of Queen’s Bench (as it then was), and established Manitoba law as the governing law of the agreement.</p> <p>Another point that was of significance to the decision was that the Plaintiff, a single mother with a high school education, was a relatively unsophisticated party in comparison with the company.</p> <h3>New agreement, with an arbitration clause, accepted “under protest” (2018)</h3> <p>In July 2018, Skip emailed the Plaintiff to inform her that it was implementing the New Agreement, which would take effect one week later. This email included highlights of the New Agreement and specifically noted that the New Agreement required disputes to be submitted to individualized arbitration. The New Agreement’s arbitration clause sited arbitration in Ontario, made Skip responsible for paying reasonable arbitration costs, and barred class proceedings. Further, the arbitration clause purported to apply to disputes “arising from or related to this Agreement or any previous Agreement…”.</p> <p>The Plaintiff was required to click “I Accept” to the New Agreement on the Skip application before she could continue working. The company confirmed that if she did not accept the New Agreement, she could not continue using its platform. To keep working, the Plaintiff sent an email back saying, “I do not agree with the new terms, but will indicate ‘Agree’ so I can continue to get shifts because I want to work. I am doing this under protest”. The company did not reply to this email and the Plaintiff proceeded to click “I Accept”.</p> <p>The Plaintiff engaged legal counsel and, before the New Agreement came into effect, commenced the action.</p> <h2>Analysis and Decision</h2> <p>The Court concluded that there was no arbitration agreement between the parties. In so doing it found as follows:</p> <ul> <li>The New Agreement and arbitration clause could not be construed as applying retroactively. When the Plaintiff filed the action, the Original Agreement was in force. The arbitration clause in the New Agreement was forward-looking and did not encompass a pre-existing court action.</li> <li>The Plaintiff had not accepted the terms of the New Agreement (which meant that the Original Agreement continued to apply). Specifically, the Court pointed to the Plaintiff’s email to Skip saying that she did not agree with the terms but would click “I Agree” under protest so she could keep working. Although the company received the email it did not reply, which the Court held to demonstrate its acquiescence to the Plaintiff’s position.</li> <li>Even if the Court’s interpretation of the arbitration clause and applicability of the New Agreement was wrong, it was of the view that the arbitration agreement was invalid for unconscionability and lack of consideration. The Court’s reasoning with respect to these two issues is interesting, so we will consider it in detail.</li> </ul> <h3>Unconscionability</h3> <p>In finding the arbitration agreement unconscionable, the Court applied the <strong>two-step test from <em>Uber</em>:</strong> (i) was there inequality of bargaining power?; and (ii) was the resulting bargain improvident?</p> <p>Here, the Court found that there was significant<strong> inequality of bargaining power</strong> between the parties. The New Agreement was a contract of adhesion, imposed without any opportunity to negotiate and while the Plaintiff had legal assistance in reviewing the contract, that did not change the inequality of bargaining power in the relationship. Further, there was also a significant gap in sophistication between the parties.</p> <p>The resulting bargain was also <strong>improvident</strong> because the arbitration clause, if applied as interpreted by Skip, would benefit the company at the expense of the Plaintiff “by retroactively removing her ability to access the courts”. While noting that <em>Uber </em>recognized judicial respect for arbitration based on arbitration being a cost-effective and efficient method of resolving disputes, the Court stated that arbitration agreements that preclude the possibility of class actions undermine the principle of efficient adjudication of claims given the access to justice benefits of class actions. It should be noted that the Court found that the arbitration clause had been included in the New Agreement at least in part to prevent class actions.</p> <h3>Lack of consideration</h3> <p>Finally, the Court ruled the arbitration agreement was invalid for <strong>lack of consideration</strong>. In return for a new promise by an employee – in this case, adjudicating disputes in arbitration – the employer must pass new consideration on to the employee. Continued employment is not consideration. Further, the removal of the right to sue, as well as removing the right to participate in class actions, was not a benefit to the Plaintiff but to Skip. Additionally, while the New Agreement expressly allowed couriers to provide services to other platforms, the Court found this not to be new consideration as the Original Agreement had also recognized that the relationship was “non-exclusive”.</p> <h2>Takeaways for Employers</h2> <p>After <em>Uber v. Heller</em>, the decision in this case, cited as<a rel="noopener noreferrer" target="_blank" href="https://www.canlii.org/en/mb/mbkb/doc/2022/2022mbkb178/2022mbkb178.html"><em> </em></a><em><a href="https://canlii.ca/t/jrw4v">Pokornik v. SkipTheDishes Restaurant Services Inc.</a></em><a href="https://canlii.ca/t/jrw4v">, 2022 MBKB 178 (CanLII)</a>, is another example of Canadian courts applying high scrutiny to standard form contracts in the “gig” economy and, in particular, to arbitration clauses. While companies and employers may prefer adding arbitration clauses to avoid court disputes and class actions, they must be wary of several issues raised in the case.</p> <h3>Offer and acceptance</h3> <p>First, for any contract to take effect, there must be a clear offer, acceptance, and consideration:</p> <ul> <li>The Court held that an email stating that the Plaintiff accepted the terms “under protest” invalidated her act of clicking “I Accept” as a legitimate form of acceptance.</li> <li>Further, Skip failed to provide new consideration for the New Agreement to become effective – mere continuation of employment or service was not “new” consideration.</li> </ul> <p>Companies wishing to insert arbitration clauses in their agreements must ensure the acceptance is unqualified and that they provide something new of value (e.g., a pay raise, increase in other benefits, promotion, etc.).</p> <h3>Courts’ reluctance to enforce arbitration clauses in standard form contracts</h3> <p>Second, companies should be wary about the enforceability of arbitration clauses in standard form contracts. The arbitration clause in this case differed from the clause that was at issue in <em>Uber</em> – notably, it placed arbitration in Canada and required the company to pay the costs – but, like the clause in that case, it was found to be unconscionable. Similarly to the<em> Uber</em> ruling, the Court in this case emphasized the gap in sophistication between the parties in finding an inequality of bargaining power existed, while also broadly criticizing arbitration clauses that prohibit class actions as undermining access to justice and the efficient adjudication of claims.</p>Wed, 23 Nov 2022 12:00:00 Z23-Nov-2022 06:48:00{A53566EA-FA3B-42FE-ABA6-41ECA12D330A}https://www.stikeman.com/en-ca/kh/canadian-securities-law/virtual-currency-regulation-in-canada-the-legal-and-regulatory-framework-for-2023Ramandeep K. Grewalhttps://www.stikeman.com/en-ca/people/g/ramandeep-k-grewalAlix d'Anglejan-Chatillonhttps://www.stikeman.com/en-ca/people/d/alix-d-anglejan-chatillonÉric Lévesquehttps://www.stikeman.com/en-ca/people/l/eric-levesqueChristian Vieirahttps://www.stikeman.com/en-ca/people/v/christian-vieiraCanadian Securities LawCorporations & Commercial Law UpdateInsurance Law UpdateFinancial Services UpdateTax Law UpdateVirtual Currency Regulation in Canada: The Legal and Regulatory Framework for 2023<p>Four Stikeman Elliott lawyers recently updated the <a href="/-/media/files/kh-general/the-law-reviews--the-virtual-currency--regulation-review-2022.ashx">Canada chapter</a> of The Virtual Currency Regulations (5<sup>th</sup> edition), published by <a rel="noopener noreferrer" href="https://www.lbresearch.com/" target="_blank">Law Business Research Ltd</a>. This chapter provides an excellent overview of the rapidly developing area of law in Canada, focusing on the following topics:</p> <ul> <li>Introduction to the Legal and Regulatory Framework</li> <li>Anti-Money Laundering</li> <li>Other Legislative Requirements</li> <li>Criminal and Civil Fraud Enforcement</li> <li>Tax</li> <li>Regulation of Miners</li> </ul> <p>We are pleased to be able to make this <a href="/-/media/files/kh-general/the-law-reviews--the-virtual-currency--regulation-review-2022.ashx">12-page publication</a> available for downloading.</p>Mon, 07 Nov 2022 12:00:00 Z07-Nov-2022 02:32:00{29E2891F-7767-4C86-80E8-D5BD44A44E4B}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/ontarios-new-transparency-register-getting-your-obca-corporation-ready-for-january-1-2023Stikeman ElliottCorporations & Commercial Law UpdateCanadian M&A LawOntario’s New Transparency Register: Getting Your OBCA Corporation Ready for January 1, 2023<p><strong>Under new rules in force as of January 1, 2023, private corporations incorporated or continued under Ontario’s<em> Business Corporations Act</em> (“OBCA”) will be required to maintain a register (“Transparency Register”) of “individuals with significant control” (“ISCs”) over the corporation. </strong><strong>The <a href="https://can01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.ola.org%2Fen%2Flegislative-business%2Fbills%2Fparliament-42%2Fsession-2%2Fbill-43%23BK4&data=05%7C01%7CAToure%40stikeman.com%7Cbf59fada46cc40c5fd4a08dad14d219c%7C394646dfa1184f83a4f46a20e463e3a8%7C0%7C0%7C638052426444467349%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=z90IYaSteZIwLEI5zFQowvWGbVxm3mHYyo9ou3Fkxgw%3D&reserved=0">new rules</a> are part of a global effort aimed at improving corporate transparency by preventing and detecting the use of corporations for tax evasion, money laundering or other illicit financial activities. Ontario’s provisions are similar to those that are already in force for </strong><strong><a href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/Corporate-Control-Transparency-in-Canada">federal corporations</a></strong><strong> and corporations in several other Canadian provinces.</strong></p> <h2>Which Ontario Corporations Must Maintain a Transparency Register?</h2> <p>All <strong>private Ontario corporations</strong> will need to prepare and maintain a Transparency Register (other than private corporations that are <strong>wholly-owned subsidiaries</strong> of a public company). <strong>Public companies </strong><strong>are exempt</strong> if they are offering corporations and/or are listed on a <a rel="noopener noreferrer" target="_blank" href="https://www.canada.ca/en/department-finance/services/designated-stock-exchanges.html">“designated” Canadian or foreign stock exchange</a>, which includes most of the world’s significant stock exchanges. The Ontario Government may consider additional exemptions in the future.</p> <p>Corporations should take steps prior to the January 1, 2023 implementation date to gather the information required to prepare their Transparency Registers. Ontario private corporations with <strong>complex ownership structures, in particular, may want to get an early start on their ISC analyses.</strong> Our experience with similar requirements under other corporate statutes is that identifying ISCs – the people whose information needs to go on the register – can take time. This is especially true for stacked corporate structures and structures that include foreign entities and/or non-corporate entities such as partnerships and trusts.</p> <h2>What Information is Required in the Transparency Register?</h2> <p>The Transparency Register must record the following information for each ISC:</p> <ul> <li>name, date of birth and last known address;</li> <li>jurisdiction of residence for tax purposes;</li> <li>the date on which the individual became or ceased to be an ISC;</li> <li>a description of how the individual is an ISC (including a description of the ISC’s rights and interests in respect of the corporation’s shares); and</li> <li>any other information that may be required under future regulations.</li> </ul> <p>The Transparency Register must also describe the reasonable steps taken (at least once during each financial year of the corporation) to ensure the Register is accurate, complete and up-to-date.</p> <h3>How often does the Transparency Register need to be updated?</h3> <p>As noted above, the Transparency Register must be reviewed and, if necessary, updated to reflect changes in a corporation’s ISCs or their required information <strong>at least once during each financial year</strong>. The update does not have to be conducted on any particular date or on the same date each year, as long as there is one update in each financial year. If new information is discovered in the course of a review, it must be recorded in the Register within 15 days of the date on which the corporation becomes aware of it.</p> <p>In addition to annual updates, Registers must also be updated on an <em><strong>ad hoc</strong></em><strong> basis</strong> whenever relevant information comes to light, within 15 days of the date on which the corporation becomes aware of it.</p> <h3>What obligations do the corporation’s shareholders have?</h3> <p>The legislation requires <strong>shareholders</strong> to respond to any related inquiries from the corporation promptly and to the best of their knowledge, with accurate and complete information.</p> <h3>Where is the Register kept?</h3> <p>Corporations must keep the Transparency Register at the corporation’s registered office in Ontario, unless the directors designate another location in the province.</p> <h2>Who Must Be Listed on the Register?</h2> <p>Information for each individual identified as an “individual with significant control” of the private corporation must be included in the Register.</p> <h3>The basic tests</h3> <p>An individual will be considered an ISC of the corporation if they meet either of the following tests:</p> <ul> <li>The individual holds a <strong>25% or greater interest</strong> in the corporation, either by votes or by fair market value (including registered shareholdings, beneficial ownership of shares and direct/indirect control or direction over the shares, and also including certain joint interests); or</li> <li>The individual has <strong>direct or indirect influence</strong> that, if exercised, would give him or her “control in fact” of the corporation.</li> </ul> <p>Importantly, the <strong>“indirect control”</strong> concept means that an individual at the top of a corporate chain may be an ISC of entities lower down the chain in which he or she does not hold a direct personal interest.</p> <p>If there is <strong>no individual identified who meets either of the tests</strong>, then no one needs to be listed (although a Transparency Register must still be created and maintained, describing the steps taken as required under the legislation).</p> <p>The description above covers the basic considerations, but<strong> the tests have important nuances that are discussed in the final section of this post</strong>. Note that only individuals can be ISCs and that it is possible for new classes of ISC to be created by regulation.</p> <h2>Who Will Have Access to the Register?</h2> <p>The legislation provides for access by the Ontario Government for compliance purposes, and by law enforcement and regulators for investigative purposes as they relate to the administration or enforcement of applicable Ontario or federal laws (or similar laws of other provinces or of foreign jurisdictions, in certain circumstances).</p> <p>Only the following persons may make requests to access an Ontario corporation’s Transparency Register:</p> <ul> <li>the Minister;</li> <li>police forces;</li> <li>tax authorities of Ontario and Canada; and</li> <li>certain specified regulators, including the Ontario Securities Commission, the Financial Services Regulatory Authority of Ontario and the Financial Transactions and Reports Analysis Centre of Canada (others may be designated by regulation).</li> </ul> <p>Other than as described below, the Transparency Register will not be publicly available, nor do the OBCA provisions require disclosure to shareholders or creditors.</p> <h3>The Minister</h3> <p>The Minister’s authorized representative may make any inquiry considered necessary for the purposes of enforcing the requirement to maintain a Transparency Register and for the making of required disclosures.</p> <h3>Law enforcement, tax authorities and certain regulators</h3> <p>A request to access a Transparency Register may be made only for law enforcement, tax or regulatory purposes:</p> <ul> <li>Requests from <strong>police forces</strong> must be “for the purpose of conducting an investigation into an offence under a law of Ontario or Canada” or to provide information to a law enforcement agency outside Ontario for a similar purpose.</li> <li>Requests from <strong>tax authorities</strong> must be “for the purpose of administering or enforcing a law of Ontario or Canada that provides for the imposition or collection of a tax, royalty or duty”, or to provide information to the officials of other jurisdictions to assist in the administration or enforcement of a similar law of that jurisdiction.</li> <li><strong>Designated regulators</strong> may make requests for the purpose of assisting agencies with similar mandates in other provinces and foreign jurisdictions. Such requests must be for the purpose of administering or enforcing a law for which the regulatory body is responsible.</li> </ul> <p>In each case, requests may be made on behalf of entities outside of Canada only where authorized under an arrangement, written agreement, treaty or law.</p> <p>Note that these provisions appear to contemplate requests with respect to investigations of unrelated entities and do not appear to require any suspicion of wrongdoing by the corporation itself.</p> <h2>Penalties</h2> <h3>The Corporation</h3> <p>Fines of up to $5,000 for failing, without reasonable cause, to comply with any of the requirements to prepare and maintain a Transparency Register, respond to inquiries or meet disclosure obligations under the legislation.</p> <h3>Directors and officers</h3> <p>Fines of up to $200,000 and/or up to 6 months imprisonment for knowingly authorizing, permitting or acquiescing in an Ontario corporation’s failure to perform any of its duties relating to the creation, maintenance or disclosure of the Transparency Register, whether or not the corporation has been prosecuted or found guilty.</p> <p>The same penalties apply where a director or officer records false or misleading information in the Transparency Register, or provides false or misleading information relating to the Register to any person or entity (or who knowingly authorizes, permits or acquiesces in any of these acts).</p> <h3>Shareholders</h3> <p>Fines of up to $200,000 and/or up to 6 months imprisonment for knowingly failing to reply to the corporation’s Transparency Register requests as required by the legislation).</p> <h3>General</h3> <p>Fines of up to $5,000 for failing, without reasonable cause, to respond promptly to enforcement inquiries authorized by the Minister. This could apply to anyone to whom such an inquiry is made.</p> <h2>Identifying Your ISCs: Detailed Discussion</h2> <p>We noted above that, at the most basic level, an individual is an ISC if either of the following is true: (i) the individual has control or direction over a 25% shareholding, or (ii) the individual has “any direct or indirect influence that, if exercised, would result in control in fact of the corporation”. However, there are a number of nuances that can complicate the ISC analysis for each of these tests:</p> <h3>First test: control or direction over a 25% shareholding</h3> <p>As noted above, an individual will be considered an ISC with respect to a corporation where the individual holds a <strong>25% or greater interest</strong> in the corporation, either by votes or by fair market value. This includes registered shareholdings, beneficial ownership of shares and direct/indirect control or direction over the shares.</p> <p>Combinations of the above are sufficient (e.g. an individual can meet the 25% threshold by virtue of being the registered holder of some shares and the beneficial owner of other shares).</p> <h4>Situations involving multiple individuals, including family groups</h4> <p>The legislation addresses certain situations in which two or more individuals jointly or collectively hold or exercise rights or interests in an OBCA corporation, including the following:</p> <ul> <li>Where two or more individuals <strong>jointly hold rights or interests meeting the 25% threshold</strong>, each of those individuals will be considered an ISC.</li> <li>Where a <strong>voting agreement or similar arrangement</strong> exists between two or more individuals under which individuals agree to exercise any rights that they hold in the corporation <strong>“jointly or in concert”</strong>, and those rights collectively meet the 25% threshold, all individuals who are party to the agreement or arrangement will generally be considered ISCs.</li> <li>An individual may also be considered an ISC by virtue of being <strong>a member of a family group</strong> with interests or rights that collectively meet the 25% threshold. Under the OBCA's definition of “related persons”, such groups include spouses and children and potentially other relatives if they live in the family home.</li> </ul> <p>In situations such as those described above, each individual who is identified as an ISC must be included in the Transparency Register.</p> <h3>Second test: control in fact through direct or indirect influence</h3> <p>An individual will also be considered an ISC if the individual has direct or indirect influence that, if exercised, would result in control in fact of the corporation. The legislation provides that, in making the “control in fact” determination, <strong>“all relevant factors”</strong> should be taken into consideration and that those “factors” <strong>need not include</strong> the existence (or non-existence) of a legally enforceable right or ability to effect a change in the board of directors or its powers (not even in the looser sense of having influence over shareholders that have such a right or ability).</p> <p>Despite the open-endedness of this definition, the legislation includes an important and useful set of <strong>exclusions</strong>. Control in fact, it states, <strong>does not</strong> arise only by reason of an individual’s influence that derives from an arm’s length relationship involving any of the following kinds of agreements affecting the “manner in which a business carried on by the corporation is conducted”:</p> <ul> <li>Franchising;</li> <li>Licensing;</li> <li>Leasing;</li> <li>Distribution;</li> <li>Supply; or</li> <li>Management.</li> </ul> <p>The express presumptive exclusion of these common commercial arm’s-length arrangements will provide welcome certainty for many businesses that fall into these categories.</p> <h2>Going Forward</h2> <p>As the OBCA amendments will take effect on January 1, 2023, Ontario private corporations should take steps to assemble the required information as soon as practicable.</p>20-Sep-2022 06:56:00{85124D17-CCE1-4830-9A27-91038827EAD1}https://www.stikeman.com/en-ca/kh/competitor/canadas-economic-sanctions-and-anti-terrorism-laws-a-guideShawn C.D. Neylanhttps://www.stikeman.com/en-ca/people/n/shawn-c-d-neylanLaura Rowehttps://www.stikeman.com/en-ca/people/r/laura-roweThe CompetitorCanadian Energy LawCorporations & Commercial Law UpdateFinancial Services UpdateCanada’s Economic Sanctions and Anti-Terrorism Laws: A Guide<p><strong>Economic sanctions and anti-terrorism laws are having increasing impact on day-to-day business operations for companies in many industries and have also become an important area of diligence for equity transactions and financings. All companies with a nexus to Canada should be aware of these laws and their responsibilities thereunder and take appropriate risk-based steps directed towards compliance. </strong></p> <p>Canada has a broad range of economic sanctions and anti-terrorism laws targeting certain foreign states and some of their nationals, as well as various terrorist organizations. These laws are generally stated as being binding on individuals and entities when in Canada as well as on Canadian citizens and Canadian-incorporated businesses when they are or are operating outside Canada. These laws prohibit dealings with designated individuals, entities or organizations and in some cases have sector-specific or country or region-specific prohibitions or other limitations such as export controls in addition to those under the Export and Import Permits Act. They often impose reporting obligations regarding property of designated persons and in some cases impose periodic screening and reporting obligations on regulated financial institutions and other businesses.</p> <p>Our Guide to <em>Canada’s Economic Sanctions and Anti-Terrorism Laws</em>  provides an overview of Canada’s economic sanctions and anti-terrorism laws and a summary of potential measures that businesses can implement to enhance their compliance regime.</p> <p><em><a href="/-/media/files/kh-guides/canada’s-economic-sanctions-and-anti-terrorism-laws.ashx">Click here for a copy of the Guide</a></em></p> <p><em><a href="/-/media/files/kh-guides/canada’s-economic-sanctions-and-anti-terrorism-laws.ashx"></a></em>Note: This Guide was originally published on March 2, 2022. It has been updated following the numerous developments with respect to Canada’s economic sanctions laws which have occurred since Russia’s invasion of Ukraine in late February 2022. </p>14-Sep-2022 06:23:00{59E74E32-2E58-497A-A51F-488B1FD2D7A0}https://www.stikeman.com/en-ca/kh/canadian-securities-law/canadas-modern-slavery-bill-nears-final-approval-new-reporting-requirements-are-comingAndrew S. Cunninghamhttps://www.stikeman.com/en-ca/people/c/andrew-s-cunninghamCanadian Securities LawCanadian Employment, Labour & Pension LawCorporations & Commercial Law UpdateCanadian M&A LawCanada’s Modern Slavery Bill Nears Final Approval: New Reporting Requirements Are Coming<p><em>Update: This legislation has now been passed and received Royal Assent on May 11, 2023. It was not altered in any significant respect after this post was written, but please note that references to a possible January 1, 2023 implementation date in this post should be disregarded. The legislation is in effect as of January 1, 2024, with first reports due by May 31, 2024. Please see our <a href="https://www.stikeman.com/en-ca/kh/canadian-ma-law/canadian-legislation-on-forced-and-child-labour-in-global-supply-chains-takes-effect">May 26, 2023 post for additional details about the legislation</a>.</em></p> <p><strong>Canada’s proposed “modern slavery” legislation – the <em>Fighting Against Forced Labour and Child Labour in Supply Chains Act</em></strong><strong> (“New Act”) – is currently awaiting consideration by the House of Commons Standing Committee on Foreign Affairs and International Development. Once passed, the New Act could become law as early as January 1, 2023, creating new reporting obligations for many Canadian businesses across all sectors, including many Canadian-listed public companies and potentially foreign businesses that do business in Canada. The reports will be accessible to the general public.</strong> </p> <h2>What You Need To Know</h2> <p>The New Act is part of <a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/legisinfo/en/bill/44-1/s-211"><strong>Bill S-211</strong></a>, which passed Second Reading in the House of Commons on June 1, 2022. While broadly similar to the <a rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/canadian-employment-labour-pension-law/canadian-modern-slavery-bill-would-cast-a-wide-net-on-supply-chain-transparency-practices">other modern slavery bills</a> that Parliament has considered in recent years, some of its requirements are more onerous than the corresponding requirements in those bills.</p> <p>Briefly, the New Act:</p> <ul> <li>Requires a publicly accessible report to be made about each entity’s<strong> corporate structure and supply chains</strong>, as well as of measures taken with respect to forced labour and child labour. The extent of disclosure may be more than some companies are expecting.</li> <li>Applies to <strong>Canadian-listed companies and other entities that meet a size threshold</strong> (any two of: $40 million revenue, $20 million assets, 250 employees).</li> <li>Might apply to a <strong>foreign business that meets the size threshold globally</strong>, even if its Canadian operations do not meet the threshold independently.</li> <li>Extends the reporting obligation to entities that produce, sell, distribute or import goods into Canada, with <strong>no <em>de minimis</em> exception</strong> – even entities that deal only incidentally with goods will need to consider whether a report is required.</li> <li>Includes some special rules for <strong>corporate groups</strong>, including a provision that allows a single report to be filed on behalf of multiple entities.</li> <li>Includes <strong>warrantless search </strong>provisions</li> <li>Creates a <strong>maximum penalty</strong> of $250,000, which can apply to the entity itself or to corporate directors, officers and other individuals.</li> <li>Could become law as early as <strong>January 1, 2023</strong>, with the first Annual Report due (in that case) on <strong>May 31, 2023</strong>.</li> </ul> <h2>Which Businesses Must File Reports?</h2> <p>Determining whether an entity has obligations under the New Act will generally involve two tests.</p> <h3>First Test</h3> <p>First, the organization must determine whether it falls under the definition of “entity” in the New Act, which applies to:</p> <ul> <li>Any <strong>listed entity</strong> (on a Canadian stock exchange);</li> <li>Any<strong> other corporation, </strong>or to any<strong> trust, partnership or other unincorporated organization</strong>, that in at least one of its two previous financial years, has met at least two of the following three conditions (the “Size Threshold”): <ul> <li>C$20 million in assets;</li> <li>C$40 million in revenue; and</li> <li>250 employees (on average); and</li> </ul> </li> <li>Any other entity that may be <strong>prescribed</strong> by regulation.</li> </ul> <h4>Note: This could potentially apply to non-Canadian entities with a nexus of some sort to Canada.</h4> <p>The Size Threshold applies to any corporation, trust, partnership, or other unincorporated organization that “does business in Canada” and/or has assets or a place of business in Canada. <strong>This appears to bring foreign entities within the ambit of the New Act</strong> and it is noteworthy that the definition of the Size Threshold does not state that the asset, revenue and employment figures on which it is based refer to assets, revenue or employees in Canada. It is hoped that the application of this test to non-Canadian entities will be addressed prior to implementation.</p> <h3>Second Test</h3> <p>An organization that is an “entity” under the First Test will have a reporting obligation if it does any of the following (“Qualifying Activities”):</p> <ul> <li>Produces, sells or distributes goods in Canada or elsewhere;</li> <li>Imports into Canada goods produced outside Canada; or</li> <li>Controls an entity that does either of the above.</li> </ul> <p>While some key terms are left undefined, the proposed legislation does provide definitions for the following: </p> <ul> <li><strong>“Production of goods”</strong> is defined to include “the manufacturing, growing, extracting and processing of goods”.</li> <li><strong>“Controlled by another entity”</strong> is defined broadly, as direct or indirect control “in any manner”. Any entity that controls another entity is deemed to control any entities controlled by that other entity.</li> </ul> <h4>Note: This could potentially apply to entities that deal in goods only incidentally</h4> <p>In its current form, the New Act does not include any <em>de minimis</em> threshold or exemption with respect to the Qualifying Activities. <strong>As such, an entity may have a reporting obligation even if the production, sale, distribution and/or importation of goods is not its core business. </strong>For example, a services business might need to consider whether the importation of office supplies for its internal use could trigger a duty to report.</p> <h4>Note: Distributors are now included</h4> <p>A key change from previous versions of this legislation is that the New Act includes the<strong> distribution of goods</strong> in the list of Qualifying Activities.</p> <h2>The Reports: Form and Content</h2> <p>Every entity must file a report (“Annual Report”) with the Minister of Public Safety and Emergency Preparedness (“Minister”). As discussed below, it is also possible to submit a revised report (“Revised Report”) that updates or corrects the Annual Report.</p> <h3>Focus on avoidance of child labour and forced labour</h3> <p>The Annual Report must report on the steps taken during the financial year “to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods in Canada or elsewhere by the entity or of goods imported into Canada by the entity.”</p> <p>The definitions section of the New Act includes definitions of “child labour” and “forced labour”. <strong>“Child labour”</strong> is broadly defined to include labour by persons under the age of 18 years that has any of a range of negative impacts, including (for example) physically dangerous work and work that interferes with schooling. <strong>“Forced labour”</strong> includes labour performed under duress, e.g. under the reasonable expectation that the personal safety of the labourer or another person would be threatened if they failed to perform the labour. The complete definitions and underlying <strong>international conventions</strong> should be consulted with respect to the meaning of these terms.</p> <h3>Required information</h3> <p>In addition to describing specific steps taken during the financial year, the Annual Report must include the following information in respect to each entity covered by the report (the language is taken directly from section 11(3) of the proposed legislation):</p> <ul> <li>Its structure, activities and supply chains;</li> <li>Its policies and due diligence processes in relation to forced labour and child labour;</li> <li>The parts of its business and supply chains that carry a risk of forced labour or child labour being used and the steps it has taken to assess and manage that risk;</li> <li>Any measures taken to remediate any forced labour or child labour;</li> <li>Any measures taken to remediate the loss of income to the most vulnerable families that results from any measure taken to eliminate the use of forced labour or child labour in its activities and supply chains;</li> <li>The training provided to employees on forced labour and child labour; and</li> <li>How the entity assesses its effectiveness in ensuring that forced labour and child labour are not being used in its business and supply chains.</li> </ul> <p>While no specific format is set out in the New Act, the Minister may issue a public written statement that sets out the required form and manner of reporting.</p> <h3>Extent of public disclosure of structure, activities and suppliers</h3> <p>The content of the Annual Report has been expanded considerably from previous “Modern Slavery” bills. One potentially significant change is a result of what initially appears to be a minor change in wording: while the previous version of the legislation required only that <strong>“information respecting” each entity’s structure (etc.)</strong> be provided, the corresponding section in the New Act states that each entity must provide<strong> “the following information …: its structure, activities and supply chains”.</strong></p> <p>The new wording could be understood to require something more than just unspecified “information respecting” an entity’s structure (etc.) – for example, to be requiring that <strong>precise information identifying each entity’s suppliers and setting out its corporate structure</strong> be made available in these public documents. It is hoped that additional clarity about this aspect of the Annual Report will be available before the first reports are to be filed.</p> <h3>Revised reports</h3> <p>An entity may submit a Revised Report provided that the approval process outlined above has been followed and provided that the report includes a description of the changes made to the original report.</p> <p>There is no explicit restriction on the reasons for which a Revised Report may be submitted and the provision of such a report is always at the option of the company.</p> <h2>The Reports: Timelines, Processes and Access</h2> <h3>Timelines</h3> <p>The period of the Annual Report is the entity’s<strong> financial year</strong>. The filing deadline is the following <strong>May 31</strong>.</p> <h3>Joint filing process</h3> <p>A single Annual Report may be filed on behalf of multiple entities (“Joint Report”), although information must still be broken down by entity within that report. There is no express requirement that the multiple entities be related in any particular way.</p> <h3>Internal approval process</h3> <p>The New Act requires that entities filing a report include specific steps in their internal approval process.</p> <h4>Approval by board of directors (or other governing body)</h4> <p>The Annual Report must be <strong>approved by the “governing body”</strong> of each entity to which the report applies, except in a case where, in a Joint Report, one entity controls each of the others – in that circumstance, only the governing body of the controlling entity need approve the report. “Governing body” is defined as “the body or group of members of the entity with primary responsibility for the governance of the entity.”</p> <h4>Attestation</h4> <p>The approval of the governing body or bodies must be attested by a <strong>statement</strong> that sets out whether the report is a single-entity or a joint report. The <strong>signature</strong> of at least one member of the governing body – or of each governing body, in the case of a joint report – is also required.</p> <h3>Distribution to shareholders (CBCA corporations)</h3> <p>Any federally incorporated entity, including <em>Canada Business Corporations Act</em> (“CBCA”) corporations, must provide its Annual Report, and any Revised Report, to each of its shareholders along with its annual financial statements.</p> <h3>Public access to the reports</h3> <p>The Annual Report or any Revised Report must be made available to the public, including by publishing it in a prominent place on the entity’s website. As noted under “Administration of the New Act”, below, all reports will also be available on the website of the Department of Public Safety and Emergency Preparedness.</p> <h2>Administration of the New Act</h2> <p>The New Act will be administered by the Minister of Public Safety and Emergency Preparedness, who will be required to maintain an electronic registry, available to the public, that includes copies of all submitted reports. The Minister is required, on an annual basis (generally on or before September 30), to table a report in Parliament that sets out the particulars of any charge laid under the New Act. This report will be posted on the Minister’s website.</p> <h2>Compliance Orders</h2> <p>The New Act provides for warrantless searches (and searches with warrants of dwelling places) for the verification of compliance with the Report requirements. As a consequence of such a search, the Minister may issue an order requiring the entity to take any measures required to bring its report into compliance, including with respect to its public availability.</p> <h2>Offences</h2> <p>Offences under the New Act fall into two categories:</p> <ul> <li>Offences directly related to the Annual and Revised Reports; and</li> <li>Offences related to a search of premises in verification of compliance with the New Act.</li> </ul> <h3>Directly related to the reports</h3> <p>A person or entity that fails to comply with certain provisions relating to Annual and Revised Reports, including the requirement to make them publicly available, is liable to a fine on summary conviction of up to $250,000.</p> <h3>Related to conduct during a search</h3> <p>A fine of up to $250,000 also applies to persons or entities that obstruct or fail to cooperate with a search conducted to verify compliance.</p> <h3>Attribution of offences to other persons or entities</h3> <p>Two provisions of the New Act attribute offences to persons or entities other than those that actively committed them:</p> <ul> <li>An entity’s directors, officers, agents and mandataries are parties to and guilty of an offence, and subject to a fine of up to $250,000, to the extent that they directed, authorized, assented to, acquiesced in or participated in its commission; and</li> <li>If an offence is committed by an agent, mandatary or employee of the “accused” (presumably the entity), it will also be considered an offence by the accused regardless of whether the employee, agent or mandatory has been identified or prosecuted, unless the accused establishes a due diligence defence.</li> </ul> <h2>Application to Government Institutions</h2> <p>In contrast with previous versions of this legislation, the New Act will apply to any government institution that produces, purchases or distributes goods in Canada or elsewhere. The reporting requirements for government institutions are similar to those that apply to business entities, although the “Offences and Punishment” section does not apply to them.</p> <h2>Customs Tariff Amendment</h2> <p>Bill S-211 makes minor amendments to the <a rel="noopener noreferrer" target="_blank" href="https://laws-lois.justice.gc.ca/eng/acts/c-54.011/FullText.html"><em>Customs Tariff</em></a> and to tariff item 9897.00.00 to ensure that the provisions that currently concern the importation of goods produced by “forced labour” are updated to conform to the broader definitions and concepts in the New Act.</p> <h2>Next Steps</h2> <p>The New Act must still go through Committee stage and Third Reading in the House of Commons.<strong> If it receives Royal Assent in 2022, it will come into force on January 1, 2023.</strong> Otherwise, it will come into force on January 1 of the year following Royal Assent.</p> <p>Because this legislation could potentially be in force as early as January 2023, businesses that qualify as “entities” should anticipate the possibility of having to file their first report by May 2023, while bearing in mind that the current version of Bill S-211 may differ from the finalized version and that the passage of the New Act in any form is not a certainty.</p>31-Aug-2022 03:29:00{05C413AB-0800-4F46-8D4A-98F2C36A2B39}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/business-impacts-of-quebecs-language-law-changes-an-update-on-bill-96Anna C. Romanohttps://www.stikeman.com/en-ca/people/r/anna-c-romanoRomy Proulxhttps://www.stikeman.com/en-ca/people/p/romy-proulxCorporations & Commercial Law UpdateBill 96 and the Charter of the French Language: The Language of Business in Québec<p><strong>On June 1, 2022, Bill 96 received assent and officially became law. As a result, Québec’s <em>Charter of the French Language</em> (the “Charter”) underwent its first major transformation since it was passed in 1977. Highlighted below are the major business-related changes to the Charter made by Bill 96. Some of the changes took effect immediately, on the date of assent (June 1, 2022), while others will take effect at later dates, as noted below.</strong></p> <p>Employer French-language obligations and francization requirements (government certification that the use of French is generalized in a workplace) are covered in detail in <a href="https://www.stikeman.com/en-ca/kh/canadian-employment-labour-pension-law/quebec-s-bill-96-takes-in-effect-as-of-june-1-2022-what-quebec-employers-need-to-know" target="_blank">a separate blog post from our Employment Group</a>. </p> <h2>1. Main Aspects of Business Affected by the Changes</h2> <p>Bill 96 strengthens the rules respecting when French is to be used by businesses operating in Québec and businesses transacting with Québec clients and customers. As discussed below, the business community will be particularly affected by changes in the following areas:</p> <ul> <li><a href="#Section2">Communications with customers and clients</a>;</li> <li><a href="#Section3">Contracts between private parties and related documents</a>;</li> <li><a href="#Section4">External signage and commercial publicity</a>;</li> <li><a href="#Section5">Inscriptions on products</a>;</li> <li><a href="#Section6">Contracts with the Québec civil administration</a>;</li> <li><a href="#Section7">Court pleadings</a>;</li> <li><a href="#Section8">Registration filings</a>;</li> <li><a href="#Section9">New Sanctions and Powers of the OQLF</a>.</li> </ul> <p>The Charter rules set out when French must be used by a business in its relations with Québec entities and individuals and when “a language other than French” may be used. In this post, we use English as an example of “a language other than French”, but other non-French languages are affected in a similar way.</p> <p>The <em>Office québécois de la langue française</em> (“OQLF”) is the body responsible for enforcement of Charter compliance.</p> <h2><a id="Section2"></a>2. Communications with Customers and Clients</h2> <p>Businesses which offer goods or services in Québec must inform and serve their clientele, both consumer and business clients, in French. This principle is now an express obligation which, if contravened, is an offence punishable by fines.</p> <p>This comes into force immediately upon assent: <strong>June 1, 2022.</strong></p> <h2><a id="Section3"></a>3. Contracts between Private Parties (non-Government) and Related Documents</h2> <p>The following does not cover employment contracts, which are addressed separately in our <a href="https://www.stikeman.com/en-ca/kh/canadian-employment-labour-pension-law/quebec-s-bill-96-takes-in-effect-as-of-june-1-2022-what-quebec-employers-need-to-know">employment blog</a>. </p> <h3><em>Adhesion Contracts (Contracts pre-determined by one party) and Contracts with Standard Clauses </em></h3> <p>The new language rules for “contracts pre-determined by one party” (now called adhesion contracts) and contracts with standard clauses are somewhat complex and we will therefore only briefly summarize below certain of the main impacts of the changes made to Bill 96. </p> <p>These new rules for adhesion contracts and contracts with standard clauses will come into force one year from assent: <strong>June 1, 2023.</strong></p> <h4><strong>Basic new rule: adhesion contracts and related documents</strong></h4> <p>Adhesion contracts are contracts whose main clauses have been stipulated by one party, i.e., that could not be negotiated. Sometimes it is difficult to determine whether a partially negotiated contract is an adhesion contract.  Examples of standard-form contracts (now called adhesion contracts) from the site of the OQLF include employment contracts, collective agreements, insurance contracts, leases and co-ownership declarations.</p> <p>Parties may still choose to enter into an English-only version of an adhesion contract (formerly called a standard-form contract) but only if they have first had the opportunity to examine a French version of the contract. If the parties then choose to enter into the contract exclusively in English, the related documents may be exclusively in English. </p> <p>Therefore the basic new rule is that businesses must present a French version of an adhesion contract to the adhering party (whether a consumer or a business) prior to the other party choosing to sign an English-only version. A party may not require that the other party pay for a French version of an adhesion contract or related documents if that party is entitled to a French version.</p> <h4><strong>Exempted adhesion contracts </strong></h4> <p>The following business adhesion contracts are exempted from the above rule if the adhering party has expressly asked that the contract be in English only:</p> <ol style="list-style-type: lower-roman;"> <li>Loan contracts, financial instruments and contracts whose object is the management of financial risks, including currency exchange or interest rate exchange agreements, contracts for the purchase or sale of options, or futures contracts;</li> <li>Contracts entered into with a person or company that carries on the activities of a clearing house;</li> <li>Contracts entered into on a platform for trading a derivative instrument referred to in the <em>Derivatives Act</em> (Québec), a security referred to in the <em>Securities Act</em> (Québec) or other movable property, provided, in the latter case, that it is not a consumer contract;</li> <li>An insurance policy if there is no French-language equivalent in Québec and it meets one of the following conditions: (a) it originates outside Québec; or (b) its use is not widespread in Québec; and</li> <li>A contract used in relations outside Québec. <br /> (together, “exempted adhesion contracts”).</li> </ol> <p>The exception for a contract “used in relations outside Québec” will likely be very important for certain businesses involved in cross-border transactions. However, pending any further guidance from the legislator, its exact scope is unclear.</p> <h4><strong>Contracts with standard clauses</strong></h4> <p>Like exempted adhesion contracts, contracts with standard clauses may be entered into in English only if the parties have expressed their wish to do so (which is similar to the current rule in the Charter, e.g. pre-Bill 96).</p> <h4><strong>Related documents</strong></h4> <p>If the parties choose to enter into an adhesion contract or contract with standard clauses exclusively in English, the related documents – such as invoices, receipts and acquittances (releases) – may be exclusively in English as well. Otherwise, there must be a French version of these related documents.</p> <h3><em>Sanctions for Non-compliance</em></h3> <p><strong>Exempted adhesion contracts and contracts with standard clauses</strong>: non-compliance (such as sending an exempted adhesion contract or contract with standard clauses in English only to a party without that party having asked that it be in English only) may lead to a fine and/or order for compliance.</p> <p><strong>Other adhesion contracts</strong>: if the non-compliance of the contract with the Charter (e.g. no French version being presented when required to do so) causes prejudice to the adhering party (which is assumed without further proof if there is non-compliance), the contract may be declared null and void at the request of the person who suffers the prejudice or that person may claim damages instead.</p> <h3><strong><em>Consumer Contracts </em></strong></h3> <p>The new rule under the Québec <em>Consumer Protection Act </em>is that the parties to a consumer contract may be bound by a version of this contract in English only if, after examining a French version of the contract, such is their express wish. The documents related to this contract may then be drawn up exclusively in English.</p> <p><span style="background-color: #ffffff; color: #000000;">This new rule will come into force one year from assent: <strong>June 1, 2023</strong>.</span></p> <h2><a id="Section4"></a>4. Public Signs and Posters</h2> <h3><em>Basic Rule and Modified Trademark Exemption</em></h3> <p>Bill 96 has modified the current trademark exemption for public signs and posters visible from the outside and added new requirements if these signs and posters include the name of a business which includes a non-French expression. </p> <p>The <strong>basic rule</strong> will remain the same:  French must be markedly predominant (as defined in a regulation under the Charter) on public signs and posters visible from outside the premises. </p> <p>The current regulations under the Charter include an exemption for recognized non-French trademarks. As detailed in a <a href="https://www.stikeman.com/en-ca/kh/canadian-technology-ip-law/signs-with-registered-english-only-trademarks-in-quebec-not-a-problem-if-you-have-sufficient-and-visible-french-somewhere-close-by" target="_blank">previous post</a>, the rules for external signage were changed in 2016 to permit the use of recognized non-French trademarks on external signage as long as there was sufficient French in the same visual field. There was no requirement that the “sufficient French” be equal in size to that of the non-French trademark.</p> <p>This <strong>exemption</strong> permitting <strong>recognized</strong> non-French trademarks to appear on public signs and posters visible from the outside will now be limited to marks that are <strong>registered</strong> under the federal <em>Trademarks Act</em>. Further, French must be markedly predominant on such signs and posters if they include (i) a non-French trademark or (ii) the name of business which includes an expression taken from a language other than French.</p> <p>These changes come into force three years after assent: <strong>June 1, 2025.</strong></p> <h3><em>Sanctions for non-compliance</em></h3> <p>The OQLF may, among other things, ask for an injunction to order the removal of signage which contravenes the Charter at the expense of the offending party.</p> <h2><a id="Section5"></a>5. Inscriptions : Labels, Directions for Use and Other Documents that Accompany a Product</h2> <p>The rule for French on inscriptions on products applies to labels, directions for use, warranties and other documents accompanying a product.</p> <h3><em>Basic rule </em></h3> <p>There must be a French version of everything on an inscription and on documents supplied with the product such as directions for use, warranty, etc. unless an exception applies.  Another language may also be used but the other language cannot have greater prominence than the French inscription and cannot <strong>be available on more favourable terms</strong>.</p> <p>This change comes into force on assent: <strong>June 1, 2022</strong>. </p> <h3><em>Exceptions</em></h3> <p>The current exemption permitting <strong>recognized</strong> English trademarks to be used on labels and on documents supplied with a product has been modified to permit a <strong>registered</strong> non-French trademark to appear <strong>on a product</strong>, even in part, where there is no corresponding registered French version of the trademark. However, if a generic term or a description of the product is included in the mark, the generic term or description must appear in French on the product or on a medium that is permanently attached to it.</p> <p>The changes in the trademark exemption for inscriptions come into force three years after assent:  <strong>June 1, 2025</strong>.</p> <h3><em>Sanctions for non-compliance</em></h3> <p>The OQLF may order a party which contravenes the Charter requirements for inscriptions to comply with the Charter or stop selling the product with the contravening inscription. Notice must be given in certain cases.</p> <h2><a id="Section6"></a>6. Contracts with the Québec “Civil Administration”</h2> <p>“Civil administration” is defined in Schedule I of the Charter to include the Government of Québec, Québec government agencies, corporations fully owned by the Government, most municipalities, school bodies, and bodies in the health and social services network, among others. </p> <p>The changes to the exceptions come into force one year from assent: <strong>June 1, 2023.</strong> </p> <h3><em>Basic Rule </em></h3> <p>The basic rule remains the same: contracts with the Québec civil administration must be in French, subject only to limited exceptions.</p> <h3><em>Exceptions </em></h3> <p>The exceptions include the following:</p> <ol style="list-style-type: lower-roman;"> <li>Contracts may be in English only when the Québec civil administration is contracting outside Québec. This exception is the same as in the current Charter.</li> <li>Certain contracts may be in French and English including loan contracts, financial instruments and contracts whose object is the management of financial risks, certain international and intergovernmental agreements and agreements with First Nations.</li> </ol> <h3><em>Sanctions for non-compliance</em></h3> <p>A non-compliant contract or instrument (e.g. English-only when it should be in French) with the Québec civil administration may be held to be <strong>absolutely null</strong>, whether or not the contravention causes any prejudice, if the following three elements are all present:</p> <ol style="list-style-type: lower-roman;"> <li>An agency of the Québec civil administration is a party to the contract;</li> <li>The provisions of the contract contravene any of sections 21 to 21.2 of the Charter, i.e., the Charter rules on the language of contracts with the Québec civil administration; and</li> <li>The contract has no foreign element.</li> </ol> <p>Therefore, contracts with the Québec civil administration which have a foreign element should not be declared absolutely null for contravention of Charter language rules although fines may be imposed for non-compliance. The term “foreign element” is also used in article 3111 (choice of law governing a contract) of the <em>Civil Code of Québec</em> and interpretation by the courts in that context (looking to the residence or domicile of the parties, place where contract is concluded, etc.) should be useful in determining the scope of (iii). </p> <p>If a contract is compliant with the Charter but the performance of the contract leads to a failure to comply, the Government of Québec may apply to a court for the “resolution, resiliation [termination] or suspension” of the contract. The court shall grant the Government’s request if the Government is able to show that this would be in the interest of maintaining the status of the French language in Québec although the court will also take into account the public interest in maintaining the contract.</p> <h2><a id="Section7"></a>7. Court Pleadings</h2> <p>Court pleadings in English filed by legal persons, such as corporations, must include a certified French translation prepared at the legal person’s expense. The translation must be done by a licensed translator.</p> <p>This change comes into force three months from assent: <strong>September 1, 2022</strong>. </p> <p>UPDATE: <em>On August 12, 2022, a Quebec Superior Court judge <a href="/-/media/files/kh-general/mitchell-et-al-c-pgq.ashx">suspended the coming into force of two sections of Bill 96 regarding the French translation of English Court Pleadings</a> until the case can be heard on its merits later this year. The coming into force date of these provisions had been set for September 1, 2022.</em></p> <h2><a id="Section8"></a>8. Registration Filings</h2> <p>Bill 96 also introduces amendments to certain provisions of the <em>Civil Code of Québec</em> ("CCQ") requiring that registrations filed in certain registers be registered exclusively in French.</p> <p>Amended articles include:</p> <ol style="list-style-type: lower-roman;"> <li>Article 1060 of the CCQ concerning declarations of co-ownership, amendments to the act constituting the co-ownership, and descriptions of the fractions of the divided co-ownership filed at the land register will now require that these be drawn up exclusively in French. Amendments to by-laws filed in the register held by the syndicate of co-owners must also be exclusively in French.<br /> <br /> This change comes into force on assent: <strong>June 1, 2022.</strong> <br /> <br /> </li> <li>Article 2984 of the CCQ concerning applications for registration will now require that such applications be drawn up exclusively in French. This article forms part of the general rules governing applications for registration in the land register and at the Register of personal and movable real rights<br /> <br /> This change comes into force three months from assent: <strong>September 1, 2022.</strong></li> </ol> <p>Further, Article 3006 of the CCQ, as amended, will require documents that by law must accompany an application for registration be submitted for registration along with a translation authenticated in Quebec if such document is in a language other than French.</p> <p>Note that there are certain exceptions to the above rules for modifications or corrections to acts filed at the land registry office before June 1, 2022. </p> <h2><a id="Section9"></a>9. New Sanctions and Powers of the OQLF</h2> <p>Fines for contravention of certain provisions of the Charter have been increased to between $700 and $7,000 for individuals and $3,000 and $30,000 in other cases. The fines apply for each day that the offence continues. These amounts are doubled for a first offence and tripled for additional offences. In addition, fines are doubled for directors and executive officers who commit an offence under the Charter.  Note that, if a legal person or its agent, mandatary or employee commits an offence under the Charter, the directors of the legal person are presumed to have committed the offence, although there is a due diligence defence for them.</p> <p>Repeated Charter contraventions may lead to revocation of a business’s permit or other authorization.</p> <p>Bill 96 also provides the OQLF with broader enforcement powers including increased powers of inspection and investigation and new powers to issue orders.</p> <p>The changes to the sanctions and powers of the OQLF come into force on assent:  <strong>June 1, 2022.</strong> </p>12-Aug-2022 08:00:00{6315FC40-6EFD-4E7D-B4B6-8459D50B375C}https://www.stikeman.com/en-ca/kh/canadian-technology-ip-law/quebecs-proposed-confidentiality-incident-regulationDanielle Miller Olofssonhttps://www.stikeman.com/en-ca/people/m/danielle-miller-olofssonCanadian Technology & IP LawCorporations & Commercial Law UpdatePrivacy & CybersecurityQuébec’s Proposed Confidentiality Incident Regulation: When to Notify and What to Include<p><strong>A little over nine months after it passed </strong><a rel="noopener noreferrer" target="_blank" href="http://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php?type=5&file=2021C25A.PDF"><strong><em>An Act to modernize legislative provisions as regards the protection of personal information</em></strong></a><strong> (“Bill 64”) overhauling, among other legislation, the province’s public and private sector personal information protection laws, Québec has introduced its </strong><a rel="noopener noreferrer" target="_blank" href="https://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php?type=1&file=105822.pdf"><strong>Draft Regulation</strong></a><strong> (the “Regulation”) detailing how entities will be expected to handle breaches involving personal information (“Confidentiality Incidents”). </strong></p> <p>Québec is late to the game when it comes to mandatory breach reporting. Every American state, the European Union, as well as Alberta and Canadian provinces subject to the <a rel="noopener noreferrer" target="_blank" href="https://www.canlii.org/en/ca/laws/stat/sc-2000-c-5/latest/sc-2000-c-5.html"><em>Personal Information Protection and Electronic Documents Act</em></a> (“PIPEDA”) require entities to report breaches involving personal information to appropriate regulators and to the individuals whose personal information is compromised. Each law, however, is somewhat different with respect to how, when and what to disclose. Québec’s Regulation is no exception. The following paragraphs identify some of the specificities that mark the Regulation, notably with respect to record keeping, thresholds, and the definition of a Confidentiality Incident. They then present the specific disclosure and record keeping requirements this Regulation imposes. </p> <ol> <li><strong>Record keeping:</strong> Unlike PIPEDA that requires an organization to maintain a record of every breach of security safeguard for 24 months, the Regulation proposes a 5-year retention period from the date or time-period the entity became aware of the Confidentiality Incident.</li> <li><strong>Threshold:</strong> Whereas PIPEDA and Alberta’s <em>Personal Information Protection Act</em> require notification to their respective privacy commissions and the individuals whose personal information is compromised, if the breach could lead to a “real risk of significant harm”, Bill 64 requires notification in the event of a “risk of serious injury”. Although it is too soon to know whether this difference in terminology will lead to significantly different reporting thresholds, the possibility exists.</li> <li><strong>Confidentiality Incident:</strong> PIPEDA defines a breach of security safeguards as “the loss of, unauthorized access to or unauthorized disclosure of personal information resulting from a breach of an organization’s security safeguards […] or from a failure to establish those safeguards.” Bill 64, however, defines a “confidentiality incident” as follows:</li> <ol style="list-style-type: lower-alpha;"> <li>access not authorized by law to personal information;</li> <li>use not authorized by law of personal information;</li> <li>communication not authorized by law of personal information; or</li> <li>loss of personal information or any other breach in the protection of such information.</li> </ol> </ol> <p>Again, although it is too soon to know the impact of this differing terminology, the definition of a Confidentiality Incident appears to cover a broader scope of activity than the “breach of security safeguards”.</p> <h2>Disclosure and Record-keeping Requirements</h2> <p>If the Regulation comes into effect as is, an entity located in Québec that is subject to a Confidentiality Incident will be required to adhere to the following disclosure and record-keeping requirements.</p> <h3>Notice to the <em>Commission d’accès à l’information</em> (“CAI”)</h3> <table style="width: 100%;"> <tbody> <tr> <td style="width: 79px;"> <p>When</p> </td> <td style="width: 559px;"> <p>If the entity holding personal information has reason to believe that a Confidentiality Incident has occurred that could cause a risk of serious injury. No specific time frame.</p> <p>If some of the information below becomes available after the sending of a first notice, follow up notices must be sent as soon as the information is available.</p> </td> </tr> <tr> <td style="width: 79px;"> <p>How</p> </td> <td style="width: 559px;"> <p>In writing.</p> </td> </tr> <tr> <td style="width: 79px;"> <p>Content</p> </td> <td style="width: 559px;"> <p>· Name of the entity that was the target of the Confidentiality Incident and its Québec business number – if applicable;</p> <p>· Name of a contact person designated by the entity to respond to questions regarding the Confidentiality Incident;</p> <p>· Description of the Personal Information that was compromised or if it is not known, the reasons why it is not known;</p> <p>· A brief description of the Confidentiality Incident and it cause - if known;</p> <p>· Date or (approximate) time period during which the Confidentiality Incident occurred;</p> <p>· Date or time period when the entity became aware of the Confidentiality Incident;</p> <p>· The number of people whose personal information was compromised and the (approximate) number of those residing in Québec;</p> <p>· A description of why the entity believes that the Confidentiality Incident could cause a risk of serious injury;</p> <p>· The measures and the date at which the entity took or intends to take such measures to notify the people whose personal information was compromised;</p> <p>· The measures and the date at which the entity took or intends to take such measures following the incident to reduce the risk of injury and to prevent incidents of the same nature in the future; and</p> <p>· Any data protection commission other than the CAI that has been notified of the Confidentiality Incident. </p> </td> </tr> </tbody> </table> <h3>Notice to individuals whose personal information was compromised</h3> <table style="width: 100%;"> <tbody> <tr> <td style="width: 79px;"> <p>When</p> </td> <td style="width: 559px;"> <p>If the entity holding personal information has reason to believe that a Confidentiality Incident has occurred that could cause a risk of serious injury. No specific time frame.</p> </td> </tr> <tr> <td style="width: 79px;"> <p>How</p> </td> <td style="width: 559px;"> <p>By personal notice to each individual whose personal information was compromised.</p> <p>By public notice if:</p> <p>· sending a personal notice would cause increased injury to the individual concerned;</p> <p>· sending the notice will cause undue hardship to the entity; or</p> <p>· the entity does not have the contact information of the individual concerned.</p> <p>By public notice to reduce the risk of serious injury or mitigate such risk. The individuals concerned must still receive an individual notice.</p> </td> </tr> <tr> <td style="width: 79px;"> <p>Content</p> </td> <td style="width: 559px;"> <p>· Description of the Personal Information that was compromised or if it is not known, the reasons why it is not known;</p> <p>· A brief description of the Confidentiality Incident;</p> <p>· Date or time period when the entity became aware of the Confidentiality Incident;</p> <p>· A description of the measures the entity took or intends to take to reduce the risk of injury;</p> <p>· The measures that the individual whose personal information was compromised can take to reduce the risk of injury; and</p> <p>· Contact information where the individual can receive more information on the Confidentiality Incident.</p> </td> </tr> </tbody> </table> <h3>Contents of the Confidentiality Incident Register</h3> <table style="width: 100%;"> <tbody> <tr> <td style="width: 91px;"> <p>When</p> </td> <td style="width: 547px;"> <p>A Confidentiality Incident occurs at an entity that holds personal information regardless of whether such incident requires notice to the CAI and to the individuals whose personal information was compromised.</p> </td> </tr> <tr> <td style="width: 91px;"> <p>How Long</p> </td> <td style="width: 547px;"> <p>5 years from the date or time-period the entity became aware of the Confidentiality Incident.</p> </td> </tr> <tr> <td style="width: 91px;"> <p>Content</p> </td> <td style="width: 547px;"> <p>· Description of the Personal Information that was compromised or if it is not known, the reasons why it is not known;</p> <p>· A brief description of the Confidentiality Incident;</p> <p>· Date or (approximate) time period during which the Confidentiality Incident occurred;</p> <p>· Date or time period when the entity became aware of the Confidentiality Incident;</p> <p>· The number or if not known the approximate number of individuals affected;</p> <p>· A description of why the entity believes that the Confidentiality Incident could cause a risk of serious injury;</p> <p>· If the Confidentiality Incident presents a risk of serious injury, the notifications dates of the CAI and of the Individuals whose personal information was compromised as well as whether a public notice was required; and</p> <p>· Description of the measures taken post Confidentiality Incident to reduce the risk of injury.</p> </td> </tr> </tbody> </table> <h2>Timetable for Implementation</h2> <p>The Regulation, which was introduced on June 29, 2022, is scheduled to take effect 45 days after – roughly a month before the first provisions of Bill 64, including the breach notification piece, are scheduled to take effect. As of <strong>September 22, 2022</strong>, entities operating in Québec will be required to disclose Confidentiality Incidents and comply with the above notice and record keeping requirements.</p>29-Jul-2022 12:50:00{5D56553F-85C3-4204-AF4A-F242E247E3F8}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/VIDEO-Deconstructing-Privacy-Representations-and-CovenantsDanielle Miller Olofssonhttps://www.stikeman.com/en-ca/people/m/danielle-miller-olofssonCorporations & Commercial Law UpdateVIDEO: Deconstructing Privacy Representations and Covenants<p>In this webinar, Danielle Miller Olofsson of our Privacy & Data Protection Group uses practical examples to discuss the privacy representations and covenants that are usually encountered in legal documents that deal with data protection and anti-spam issues (54 minutes, 18 seconds).</p> <p> </p> <div style="position:relative;height:0;padding-bottom:59.56%;"><iframe title="VIDEO: Deconstructing Privacy Representations and Covenants" style="position:absolute;width=;" 100%;height="100%;left:0'" width="100%" height="100%" src="https://www.youtube.com/embed/9Nxyv9JE9h0" frameborder="0" allow="encrypted-media"></iframe></div> <p> </p> <a href="https://www.stikeman.com/en-ca/kh/guides/videos-podcasts">> See all Stikeman Elliott multimedia content</a> <p> </p>08-Jul-2022 08:06:00{CDB89772-400C-4637-B9B1-C5EE41595C5C}https://www.stikeman.com/en-ca/kh/competitor/canada-pushes-through-competition-act-amendmentsMichael Kilbyhttps://www.stikeman.com/en-ca/people/k/michael-kilbyMichael Laskeyhttps://www.stikeman.com/en-ca/people/l/michael-laskeyThe CompetitorCorporations & Commercial Law UpdateCanada Pushes Through Competition Act Amendments<p><strong>The Government of Canada has now passed significant amendments to the <em>Competition Act </em>via its </strong><a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/DocumentViewer/en/44-1/bill/C-19/third-reading"><strong><em>Budget Implementation Act, 2022, No. 1</em></strong></a><strong> (the “BIA”), which received Royal Assent on June 23, 2022. The inclusion of these changes in the BIA – a budget bill – ensured that there was no opportunity for meaningful debate on their merits and indeed there was not even a prospect of making modest revisions to the proposed language, which has been passed exactly as it was introduced. While the private sector had no ability to shape or influence these changes, it must now adapt to them.</strong></p> <p>Remarkably, this marks the second time running that the <em>Competition Act</em> – a core piece of economic legislation in Canada – has been substantially amended via a budget bill. This mirrors the experience of 2009, when the then Conservative government adopted the same approach, an approach that at the time generated considerable criticism from many quarters, including from the then Liberal opposition, which, now in government, has done the very same thing.</p> <p>The details of the changes are <a href="https://www.stikeman.com/en-ca/kh/competitor/first-stage-of-competition-act-amendments-released-canada-joins-the-global-chorus">summarized in our prior post</a>. We do not revisit each of the changes herein; readers are encouraged to review these details and to reach out to discuss any of them with a member of the Stikeman Elliott Competition & Foreign Investment Law Group.</p> <h2>Abuse of Dominance Amendments</h2> <p>In our view, the changes that are most likely to have a meaningful impact on large business in Canada are the amendments to the abuse of dominance provision.</p> <p>In short, it is now possible for private litigants, with leave, to commence litigation against larger companies alleging that they are dominant and are engaged in anti-competitive conduct having the effect of substantially lessening competition. In so doing, such private litigants will be able to seek financial penalties – payable to the government – of up to triple the amount of the benefit gained by the dominant firm, or, where that amount cannot be determined, 3% of that firm’s global revenues. It is entirely plausible that, in certain circumstances, these sought-after penalties may amount to tens or hundreds of millions of dollars. It is of course less clear at the moment how inclined the Competition Tribunal will be to issue such penalties.</p> <p>This all stands in marked contrast with how the law of abuse of dominance has operated in Canada since it was last amended in 2009 and indeed since its creation in 1986. More particularly, the Competition Bureau itself has, until now, always served an important “gatekeeper” function as the only party who had standing to bring such a case. And the Competition Bureau, notwithstanding its tremendous expertise in such matters, its extensive information-gathering powers and its considerable resources, was extremely judicious in bringing such cases, with the result that most Canadian businesses would generally not have viewed an abuse of dominance proceeding as a very likely occurrence, in part because, in many cases, following a detailed investigation, and following discussion with the firm(s) in question, the Competition Bureau exercised its expert judgment not to commence litigation. This state of affairs has been fundamentally disrupted by the amendments and we would expect in the coming years, or even months, to see private litigants bring or threaten to being abuse of dominance cases, incentivized by the leverage the new penalties may give them in settlement discussions. </p> <h2>Other Changes</h2> <p>Also of note is that the <strong>enhanced, unlimited fines for criminal cartel offences</strong> (also <a href="https://www.stikeman.com/en-ca/kh/competitor/first-stage-of-competition-act-amendments-released-canada-joins-the-global-chorus">described in our earlier post</a>) will only take effect a year from now. The practical effect of this delay is likely to be minimal as cartel offences are already subject to large fines, imprisonment and class-action liability, such that there are already enormous disincentives from engaging in such conduct.</p> <p>Finally, it should be recalled that the amendments include the <strong>criminalization of wage-fixing and no-poach agreements</strong>, also to take effect one year from now. Employers in Canada will soon have to exercise extreme care that they are not engaged in any agreements or arrangements with each other that could be said to fix or control salaries, wages or other terms of employment or not to solicit or hire each other’s employees.</p> <h2>The Next Round</h2> <p>It is widely understood that the government has in mind further significant amendments to the <em>Competition Act</em>. The Commissioner of Competition has been calling for an overhaul of the <em>Competition Act</em> – much, but not all, of which will have been accomplished via the <a href="https://www.stikeman.com/en-ca/kh/competitor/commissioner-of-competition-signals-a-litigation-focused-approach-to-contentious-merger-reviews">BIA amendments</a>. The most notable major area only minimally impacted by the BIA is the merger area, including the efficiencies defence, which we would expect to be an area of heavy focus in any subsequent amendments. </p> <p>It is also understood that the government will engage in a form of consultation before proceeding with further changes. The nature of such consultation and the willingness of the government to allow its proposals to be shaped and influenced by the Canadian competition bar and the private sector more broadly remains to be seen, however. In our view, particularly following two successive rounds of forcing through changes in budget bills, it is imperative that Canada gets these next changes right and that can only be done through in-depth engagement with stakeholders outside the federal government who can bring their informed and diverse perspectives to bear.</p>28-Jun-2022 01:54:00{A1A321B0-88F1-44E3-88BB-F2CAC661CC9D}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/quebec-economic-reopening-the-latest-developmentAndrew S. Cunninghamhttps://www.stikeman.com/en-ca/people/c/andrew-s-cunninghamCorporations & Commercial Law UpdateCOVID-19 Legal ResourcesQuébec Ends COVID-19 State of Emergency and Mandatory Masking on Public Transportation<p>On June 1, 2022, the Québec government officially ended the province’s state of emergency first declared in March 2020 to deal with the COVID-19 health crisis. </p> <p>The government also lifted the COVID-19 mask mandate for public transportation on June 18, 2022. Mask mandates will remain in effect in <a rel="noopener noreferrer" target="_blank" href="https://www.quebec.ca/en/health/health-issues/a-z/2019-coronavirus/mask-or-face-covering/wearing-a-face-covering-in-public-settings-covid-19">health-care settings</a>, including hospitals (excluding psychiatric hospitals), public and private long-term care facilities (public or private), CLSCs and most medical clinics.</p> <h2>Recap</h2> <p>Since October 2020, the Government of Québec has tightened and loosened restrictions on businesses as COVID-19 cases have increased and diminished. All businesses were permitted to reopen with capacity limits and vaccine passports were no longer required as of the middle of March 2022. The province's mandatory mask mandate, put in place in July 2020, was eliminated in all public places except public transport and health care settings on May 14, 2022.</p> <p>The recommended measures for workplaces throughout Québec are established by the <em>Commission des normes, de l’équité, de la santé et de la sécurité du travail</em> (see the CNST’s <a rel="noopener noreferrer" target="_blank" href="https://www.cnesst.gouv.qc.ca/sites/default/files/documents/ajustements-milieu-travail_1.pdf">plan for adjustments to workplace health measures (non-healthcare setting) </a>(available in French only) following the announcement of the elimination of mandatory masking.)</p> <p>Rapid antigen tests for personal use are available at no cost, with limits on the number of tests each person may obtain. Here is more <a rel="noopener noreferrer" target="_blank" href="https://www.quebec.ca/en/health/health-issues/a-z/2019-coronavirus/testing-for-covid-19/rapid-home-testing">information on testing</a>.</p> <h2>Vaccine Passports (phased out in March 2022)</h2> <p>As of March 12, 2022, the vaccine passport is <span style="text-decoration: underline;">no</span> longer required for Québec businesses except it may be required for international travel and places and activities regulated by federal authorities. Here is more information on the <a rel="noopener noreferrer" target="_blank" href="https://www.quebec.ca/en/health/health-issues/a-z/2019-coronavirus/progress-of-the-covid-19-vaccination/covid-19-vaccination-passport/places-and-activities-requiring-covid-19-vaccination-passport">vaccine passport</a>.</p> <h2>Mandatory Masking (mainly eliminated June 18, 2022)</h2> <p>Masks remain mandatory only in <a rel="noopener noreferrer" target="_blank" href="https://www.quebec.ca/en/health/health-issues/a-z/2019-coronavirus/mask-or-face-covering/wearing-a-face-covering-in-public-settings-covid-19">health-care settings</a>.</p> <h2>Other Restrictions</h2> <p>Remaining restrictions were lifted as of March 12, 2022.</p> <h2>Nunavik and Terres-cries-de-la-Baie-James</h2> <p>For information about the measures in force in Nunavik and Terres-cries-de-la-Baie-James, consult the websites of the <a rel="noopener noreferrer" target="_blank" href="https://nrbhss.ca/en">Nunavik Regional Board of Health and Social Services</a> (where there are currently no restrictions on travel although rapid antigen test prior to travel is strongly recommended) and the <a rel="noopener noreferrer" target="_blank" href="https://www.creehealth.org/home">Cree Board of Health and Social Services of James Bay</a>.</p> <h2>Going Forward</h2> <p>As set out here, the Government of Québec has lifted almost all of the COVID-19 restrictions still in place and intends to lift the last remaining ones as soon as it deems it reasonable to do so. When and if future waves come, the province will be closely monitoring the characteristics of the variant involved and the efficacy of the available vaccines.</p>23-Jun-2022 03:39:00{861B1C06-961C-466D-BDBB-5148812E2508}https://www.stikeman.com/en-ca/kh/competitor/new-canadian-sanctions-against-russia-impact-service-providers-in-the-mining-oil-and-gasShawn C.D. Neylanhttps://www.stikeman.com/en-ca/people/n/shawn-c-d-neylanThe CompetitorCanadian Energy LawCanadian Mining LawCorporations & Commercial Law UpdateNew Canadian Sanctions Against Russia Impact Service Providers in the Mining, Oil and Gas and Chemical Sectors<p><strong>In this post, we describe the Government of Canada’s new ban on certain services to Russia’s extractive resource and refining and chemical manufacturing sectors.</strong></p> <p>As discussed below, the key points are:</p> <ul> <li>The Canadian government has imposed a ban on the provision of certain services by a person in Canada, or by Canadians outside Canada, to Russia or any person in Russia in relation to certain industries in Russia.</li> <li>The standard ban on causing, facilitating or assisting in prohibited activities also applies to the services ban.</li> </ul> <h2>The Ban</h2> <p>The <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.international.gc.ca/world-monde/international_relations-relations_internationales/sanctions/russia_regulations-reglement_russie20.aspx?lang=eng">new regulation</a>, which amends the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://laws.justice.gc.ca/eng/regulations/SOR-2014-58/FullText.html"><em>Special Economic Measures (Russia) Regulations</em></a> and took effect on June 7, 2022, specifies certain services and certain industries. The specified services cannot be provided by any person in Canada or any person outside Canada to Russia or to any person in Russia in relation to the specified industries.</p> <h3>Affected services</h3> <p>The list of services that are within the scope of the regulation is both lengthy and broad. It includes:</p> <ul> <li>construction work,</li> <li>specified activities regarding fuel sales and trading;</li> <li>sales of metals, ores, timber, building materials and certain types of chemicals;</li> <li>transport of certain fuels;</li> <li>water transportation,</li> <li>bulk storage services of liquids or gases;</li> <li>leasing of machinery and equipment;</li> <li>computer services;</li> <li>research and development services;</li> <li>accounting, auditing and bookkeeping services;</li> <li>market research and polling services;</li> <li>management consulting and related services;</li> <li>architectural services;</li> <li>engineering services;</li> <li>technical testing and analysis services;</li> <li>advertising services;</li> <li>services incidental to mining;</li> <li>repair services incidental to metal products, machinery and equipment;</li> <li>services incidental to energy distribution;</li> <li>sewage and refuse disposal and sanitation and other environmental protection services.</li> </ul> <p>The regulations should be checked for the precise definition of these services.</p> <h3><strong>Affected industries</strong></h3> <p>The list of industries is generally limited to the mining and oil and gas and chemical sectors. It includes mining of coal and lignite, extraction of crude petroleum and natural gas, mining of metal ores, other mining and quarrying, mining support service activities, manufacture of coke and refined petroleum products and the manufacture of chemicals and chemical products. The regulations should be checked for the precise definition of these services.</p> <p>The standard ban on causing, facilitating or assisting in a prohibited activity applies to the new services ban.</p> <h2>Potential Implications for Canadian Businesses</h2> <p>Canadian businesses that are involved in any way in the provision of services to Russia or to any person in Russia, in relation to the listed industries in Russia, will need to assess whether their formerly lawful business activities have become unlawful under the new regulation. </p> <p>The listed industries are quite significant within the Russian economy (crude petroleum and natural gas being the prime example) and Canadian businesses are quite active in providing services to resource extractive sector globally. There is thus the potential for significant impacts on Canadian businesses.</p> <h2>Conclusion</h2> <p>Canada continues to increase sanctions pressure on Russia. This will inevitably have impacts on some Canadian businesses both in terms of compliance activities and loss of business.</p>22-Jun-2022 07:24:00{D94B101D-EB4E-4705-BA64-F72549B64C6C}https://www.stikeman.com/en-ca/kh/canadian-technology-ip-law/bill-c26-introducing-canadas-critical-cyber-systems-protection-actDanielle Miller Olofssonhttps://www.stikeman.com/en-ca/people/m/danielle-miller-olofssonCanadian Technology & IP LawCanadian Energy LawCorporations & Commercial Law UpdateFinancial Services UpdateBill C-26: Introducing Canada’s Critical Cyber Systems Protection Act<p><strong>On June 14, 2022, the Government of Canada introduced</strong><a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/DocumentViewer/en/44-1/bill/C-26/first-reading"><strong> Bill C-26, <em>An Act Respecting Cyber Security</em></strong></a><strong> which, among other things, seeks to enact the <em>Critical Cyber Systems Protection Act</em> (“CCSPA”). The </strong><a rel="noopener noreferrer" target="_blank" href="https://www.canada.ca/en/public-safety-canada/news/2022/06/protecting-critical-cyber-systems.html"><strong>“Backgrounder” that accompanies the Bill</strong></a><strong> explains that the CCSPA “addresses longstanding gaps in the Government’s ability to protect the vital services and systems Canadians depend on” by enabling it to (in the words of the Backgrounder): </strong></p> <ul> <li>Designate services and systems that are vital to national security or public safety in Canada as well as the operators or classes of operators responsible for their protection;</li> <li>Ensure that designated operators are protecting the cyber systems that underpin Canada’s critical infrastructure;</li> <li>Ensure that cyber incidents that meet or exceed a specific threshold are reported;</li> <li>Compel action by organizations in response to an identified cyber security threat or vulnerability; and</li> <li>Ensure a consistent cross-sectoral approach to cyber security in response to the growing interdependency of cyber systems.</li> </ul> <p>To accomplish its objective, the CCSPA proposes to impose new compliance and reporting duties on certain classes of federally regulated personal, partnership, or unincorporated organizations in sectors that are deemed vital to Canadian security (“Designated Operators”), as well as severe penalties for non-compliance by the Designated Operators and their directors and officers.</p> <h2>Compliance Duties</h2> <p>The CCSPA would require Designated Operators to</p> <ul> <li>Establish a cyber security program;</li> <li>Notify appropriate regulators of certain events;</li> <li>Mitigate supply-chain and third-party risks;</li> <li>Immediately report cyber security incidents; and</li> <li>Maintain compliance records.</li> </ul> <p>It would also allow the Governor in Council to issue cyber security directions to address immediate threats and vulnerabilities.</p> <h3>Cyber security program</h3> <p>Although the Bill has not yet identified specific Designated Operators in its Schedule 2, once the Governor in Council determines that an entity is a Designated Operator, the entity must, within 90 days, establish and make available to the appropriate regulator, a cyber security program in respect of its critical cyber systems (“<strong>CCS</strong>”s). A CCS is “a cyber system that, if its confidentiality, integrity or availability were compromised, could affect the continuity or security of a vital service or vital system”. The CCSPA provides a list of vital services or systems in its Schedule 1. These include:</p> <ul> <li>Telecommunications services;</li> <li>Interprovincial or international pipeline and power line systems;</li> <li>Nuclear energy systems;</li> <li>Transportation systems that are within the legislative authority of Parliament;</li> <li>Banking systems;</li> <li>Clearing and settlement systems.</li> </ul> <p>The Bill would require the Designated Operator’s cyber security program to:</p> <ul> <li>Identify and manage any organizational cyber security risks, including risks associated with the Designated Operator’s supply chain and its use of third-party products and services;</li> <li>Protect the Designated Operator’s CCS from being compromised.</li> <li>Detect any cyber security incidents (“CSI”) affecting, or having the potential to affect, its CCSs. The Bill defines a CSI as “an incident, including an act, omission or circumstance, that interferes or may interfere with: (a) the continuity or security of a vital service or vital system; or (b) the confidentiality, integrity or availability of the critical cyber system”;</li> <li>Minimize the impact of a CSI affecting its CCS; and</li> <li>Do anything that is prescribed by the regulation.</li> </ul> <p>Once the program has been established the Designated Operator must</p> <ul> <li>Inform the appropriate regulator in writing and,</li> <li>Implement and maintain the program.</li> </ul> <p>The program must be reviewed on a date specified by regulation or annually if no date is specified. The review must be completed within 60 days and any change to the program in response to the review communicated to the appropriate regulator within 30 days of the review’s completion. </p> <h3>Notification duties</h3> <p>The Bill would require Designated Operators to notify their appropriate regulators of an event involving: (a) any material change in the Designated Operator’s ownership or control; (b) any material change in the Designated Operator’s supply chain or use of third-party products; and (c) any circumstances prescribed in a regulation. The Designated Operator would also be required to inform the appropriate regulator of any change to its cyber security program as a result of events mentioned in (a) to (c) within 90 days of providing notification of the event.</p> <h3>Mitigation of supply-chain and third-party risks</h3> <p>If a Designated Operator were to identify a cyber security risk associated to a supply-chain or a third-party product or service, the Bill would require the Designated Operator to take reasonable steps to mitigate the risk.</p> <h3>Reporting</h3> <p>A Designated Operator would also be required to report immediately a CSI affecting any of its CCSs first to the Communications Security Establishment and then to the appropriate regulator.</p> <h3>Record keeping</h3> <p>The Bill would require a Designated Operator to keep a record of the following information in Canada at any place prescribed by the regulation or at the Designated Operator’s place of business:</p> <ul> <li>Any steps taken to implement its cyber security program;</li> <li>Every CSI reported to the Communications Security Establishment;</li> <li>Any steps taken to mitigate any supply chain or third party risks;</li> <li>Any measures to implement a cyber security direction; and</li> <li>Any matter prescribed by regulation.</li> </ul> <h3>Cyber security direction</h3> <p>Another feature that the Bill proposes is to allow the Governor in Council to issue a cyber security order to direct any Designated Operator or class of operators to comply with any measure for the purposes of protecting a CCS. In addition to the name or class of the Designated Operator, this order must specify the measures to be taken and the period within which they must be taken. Failure to comply with a cyber security direction could be punishable on conviction on indictment and subject to the sanctions described below.</p> <h2>Enforcement</h2> <p>To enforce the above compliance requirements, CCSPA proposes administrative penalties for violations and criminal sanctions for offenses. Both types of sanctions carry a three-year statute of limitation. Both provide for director and officer liability in the event the individual “directed, authorized, assented to, acquiesced in or participated in the commission of” the violation or offence. A violation or an offence that lasts for more than one day will be considered a separate offence for each day it is allowed to continue.</p> <p>Additionally, the following regulatory bodies would be given the power to enter a place – including a dwelling –, require internal audits, and order compliance orders: (i) the Superintendent of Financial Institutions, (ii) the Ministry of Industry, (iii) the Bank of Canada, (iv) the Canadian Nuclear Safety Commission, (v) the Canadian Energy Regulator, and (vi) the Ministry of Transport.</p> <p>As stated above the Bill proposes two types of sanctions depending on whether the breach of the CCSPA constitutes a violation or an offense. The draft legislation, however, precludes any activity that is proceeded against as a violation from being tried as an offence and vice versa. A violation, defined as any activity that contravenes the CCSPA, would be punishable by a financial monetary penalty of no more than $1 million for an individual and $15 million in any other case. An offence, defined as any breach of specific provisions such as those requiring the establishment of a cyber security program or the notice obligations, could be punishable either on summary conviction or on conviction on indictment. A summary conviction would result in either or both of a fine or a prison sentence of two years less a day for an individual or a fine for the entity involved. A conviction on indictment would result in (for an individual) a fine or a prison sentence of no more than five years (or both) or (for the entity involved) a fine. In both instances, the amount of any fine would be up to the discretion of the court.</p> <h2>Conclusion</h2> <p>Bill C-26 proposes compliance measures intended to protect CCSs in sectors that are deemed vital to Canadian security. The Bill has only passed first reading in the House of Commons and is thus not assured of implementation in its current form. If it is implemented “as is”, however, Bill C-26 will require additional compliance and record-keeping duties by private sector entities conducting business in these sectors. We will continue to follow the legislation as it proceeds through the legislative process (see the <a rel="noopener noreferrer" target="_blank" href="https://www.parl.ca/LegisInfo/en/bill/44-1/C-26">Parliament of Canada website</a> for the Bill’s current status). </p>Mon, 20 Jun 2022 11:00:00 Z20-Jun-2022 08:36:00{715B04D2-D5C8-4BC3-B9AC-449B11EC39F6}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/key-changes-to-albertas-business-corporations-actCraig A. Storyhttps://www.stikeman.com/en-ca/people/s/craig-a-storyAya Taher-Donnellyhttps://www.stikeman.com/en-ca/people/t/aya-taher-donnellyCorporations & Commercial Law UpdateLitigation UpdateKey Changes to Alberta's Business Corporations Act<p><strong>Alberta’s Bill 84, </strong><a rel="noopener noreferrer" target="_blank" href="https://www.assembly.ab.ca/assembly-business/bills/bill?billinfoid=11944&from=bills"><em>Business Corporations Amendment Act</em>, <em>2021</em></a><strong> (Alberta) received Royal Assent on December 2, 2021, and came into force on May 31, 2022</strong><strong>. Bill 84 introduced significant amendments to the <em>Business Corporations Act</em> (Alberta) (the “ABCA”) as part of the Alberta government’s goal to reduce red tape and administrative burdens in order to attract investment into the province and diversify its economy. In this update, we break down the key changes to the ABCA resulting from Bill 84 (the “ABCA Amendments”)</strong></p> <h2>Corporate Opportunities—Waivers</h2> <p>Generally, the corporate opportunity doctrine prevents directors and officers from personally participating in or taking advantage of business opportunities of which, they become aware as a result of their position as a fiduciary to a corporation.</p> <p>Pursuant to the ABCA Amendments, a corporation governed by the ABCA now has the option to waive its interest in certain corporate opportunities offered to it or its officers, directors or shareholders (which would then allow its officers, directors or shareholders to separately participate in a specified business opportunity, or specified classes or categories of business opportunities). To utilize this waiver, a corporation’s articles of incorporation or unanimous shareholder agreement must include provisions permitting the corporation to provide such a waiver of opportunity (and so existing ABCA corporations will likely need to amend their articles (or their unanimous shareholder agreement, if one exists) in order to use this waiver concept, subject to the forthcoming regulations). This is the first time that statutory corporate opportunity waivers have been introduced in Canada, although they do exist in some U.S. states, and contractual waivers have been used in unanimous shareholder agreements for some time as well. These waivers are intended to be helpful to facilitate investment by certain institutional investors (including private equity and venture capital funds) who invest in multiple portfolio companies in the same lines of business and therefore would have representatives sitting on multiple boards of directors in those same lines of business. Since Alberta is the first Canadian jurisdiction to introduce this statutory corporate opportunity waiver concept, investors on boards of directors of portfolio companies organized under other Canadian jurisdictions will still need to obtain specific case-by-case waivers for non-ABCA corporations.</p> <p>We note that the amended ABCA provisions relating to the waiver of corporate opportunities remain subject to further regulations, which (as of May 31, 2022) have not yet been published.</p> <h2>Plans of Arrangement</h2> <p>A plan of arrangement is a court-sanctioned procedure that allows a corporation to reorganize itself, combine with another corporation or otherwise to effect one or more fundamental corporate changes. The <em>Canada Business Corporations Act </em>(the “CBCA”) and its provincial and territorial counterparts (including the ABCA) allow a wide range of transactions to be implemented by plan of arrangement. The ABCA Amendments to the plan of arrangement provisions of the ABCA enhance the flexibility and discretion of a court in respect of such arrangements. For instance, similar to equivalent CBCA provisions that already exist, courts now have broad discretion under the ABCA to "make any interim or final order it thinks fit" in connection with a plan of arrangement, including allowing the court to:</p> <ul> <li>grant a corporation’s request for a stay of proceedings at the outset of the arrangement proceeding which allows the corporation additional time to focus on the arrangement without facing the risk of collateral proceedings; and</li> <li>approve a plan of arrangement without first obtaining shareholder approval in circumstances in which shareholder rights are not affected or material to the arrangement<strong>.</strong></li> </ul> <p>Prior to the ABCA Amendments, the ABCA required a meeting and vote by a corporation's shareholders and a two-third majority approval on a proposed arrangement even where shareholder rights were not material to the arrangement, unless there was a unanimous shareholder resolution to this effect. With the ABCA Amendments, it is now within the discretion of the court on whether shareholder approval will be required. Additionally, previous ABCA provisions also required a two-thirds majority approval from each class of creditors and holders of debt obligations (where the court considered such stakeholders affected by the arrangement). The ABCA Amendments do not require a minimum voting threshold for affected stakeholders and the court will have broad discretion in the circumstances.</p> <p>The ABCA Amendments to the plan of arrangement provisions are favourable to financially distressed companies that historically may have chosen to change their home jurisdiction and continue as a CBCA corporation in order to benefit from some of the flexibility offered by the equivalent CBCA provisions.</p> <p>The ABCA Amendments adopt some of the more favorable and flexible elements in the CBCA plan of arrangement provisions but go even further in not requiring a company to be solvent to pursue a plan of arrangement coupled with the express language permitting an arrangement in the nature of a compromise between a corporation and its creditors. It is expected that the ABCA Amendments will encourage more Alberta based corporations to pursue a debt restructuring plan of arrangement under the ABCA rather than changing jurisdictions and continuing under the CBCA to pursue same. The ABCA Amendments may have the effect of decreasing the number of formal insolvency proceedings but for more contentious matters where solvency of the corporation is at issue, proceedings related to debt restructurings for financially distressed companies will likely continue to be dealt with under the <em>Companies’ Creditors Arrangement Act</em>, RSC 1985, c. C-36.</p> <p>We also note that the ABCA Amendments introduce a requirement that the applicant for an order in connection with ABCA plans of arrangement must give the Registrar of Corporations appointed under the ABCA notice of the application to allow the Registrar to appear and be heard in connection with the application, if deemed necessary by the Registrar.</p> <h2>Shareholder, Director and Officer Responsibilities and Protections</h2> <h3>Expanding circumstances of good faith defence</h3> <p>The ABCA provides that directors of ABCA corporations will not be liable for breach of the duty of care if the director demonstrates they relied in good faith on an opinion or report of a person, including a lawyer, accountant, engineer, appraiser or employee of the corporation, whose profession or expertise lends credibility to a statement made by that person. Prior to the ABCA Amendments, the equivalent ABCA provision did not expressly include employees of a corporation to the list of parties on whose opinions or reports a director may rely on in good faith in order to be relieved of liability for certain actions in respect of a breach of the duty of care. </p> <h3>Enhancing indemnification provisions</h3> <p>Pursuant to the ABCA Amendments, directors and officers of ABCA corporations are also afforded greater protections for indemnification from the corporation than they were previously, as such persons may now be indemnified in respect of:</p> <ul> <li>“investigative” proceedings in addition to civil, criminal, and administrative proceedings;</li> <li>investigations, actions and proceedings in which the person is not a formal party but rather, is involved by reason of being or having been a director or officer of the corporation; and</li> <li>cases where the director was not judged by a court or competent authority to have committed any fault or omitted to do anything that the director ought to have done (in contrast to the former ABCA requirement of being substantially successful on the merits in the director's defence of the action and being fairly and reasonably entitled to an indemnity).</li> </ul> <p>Prior to the ABCA Amendments, the ABCA provided that, generally, a corporation may indemnify a director or officer for costs incurred in connection with a civil, criminal, or administrative action or proceeding to which the director or officer is made a party, provided the director or officer acted in good faith.</p> <p>Additionally, the ABCA Amendments remove current barriers against a corporation purchasing directors’ and officers’ insurance for liability related to that person's failure to act honestly and in good faith with a view to the best interest of the corporation.</p> <h3>Material Interest </h3> <p>The ABCA generally requires directors to disclose and abstain from voting where they have a material interest in any contracts or transactions, subject to certain exemptions. These exemptions are expanded by the ABCA Amendments, as directors are now permitted to vote on a contract or transaction in which they have an interest but only where the director’s interest would benefit the corporation, such as guaranteeing a loan.</p> <h3>Shareholder Discretion</h3> <p>The ABCA Amendments specifically provide that a shareholder who is a party to a unanimous shareholder agreement may "fetter" their discretion when exercising the powers of a director under such unanimous shareholder agreement. This enables shareholders to rely on the advice or written reports of others when making decisions, bringing Alberta in line with similar provisions already existing in Ontario legislation as well as the CBCA.</p> <h2>Reducing administrative burdens</h2> <p>The ABCA Amendments allow the administration of corporations to be more streamlined and flexible, particularly for corporations with no securities that are publicly traded. Such amendments include the following, among others.</p> <h3>Shareholder voting</h3> <p>For a corporation that is not a reporting issuer (a “Non-Reporting Issuer”), the ABCA Amendments have purported to reduce the threshold approval for a written shareholder resolution from unanimity to at least two-thirds of the shareholders entitled to vote on that resolution or at that shareholder meeting. We understand that further amendments to the ABCA are expected to be proposed in order to clarify and clean up the language used in the ABCA Amendments (which language leaves some uncertainty). Note that the language in the ABCA Amendments speaks to counting the number of shareholders (regardless of the number of shares held by such shareholders), whereas other jurisdictions with non-unanimous written resolutions such as Ontario and British Columbia require signatures from shareholders holding at least two-thirds (or other applicable threshold) of the applicable shares.</p> <h3>Lower approval threshold for dispensing with audit requirement</h3> <p>The ABCA Amendments allow a Non-Reporting Issuer to dispense with auditor requirements by passing a special resolution of the shareholders, thereby requiring approval from shareholders holding two-thirds of the voting shares of the corporation (unless otherwise provided in the corporation’s articles or in an unanimous shareholders agreement). Previously, approval by of all voting and non-voting shareholders was necessary to dispense with the requirement to appoint an auditor under the ABCA. This will reduce administrative burden and costs for Non-Reporting Issuers who choose to forego the appointment of an auditor and the provision of audited financial statements. This change differentiates the ABCA from most other jurisdictions in Canada which still require unanimous shareholder approval to dispense with auditor and audited financial statements. Minority shareholders with less than two-thirds of the voting shares of a corporation will not be able to compel an ABCA corporation on a go forward basis to obtain audited financial statements. </p> <h3>Notice period</h3> <p>For Non-Reporting Issuers, after the ABCA Amendments, the notice period for shareholder meetings may now be a minimum of 7 days and to a maximum of 60 days (if permitted in the corporation’s by-laws), whereas this range was formerly between a minimum of 21 days to a maximum of 50 days.</p> <h3>Revival of dissolved corporations</h3> <p>The ABCA Amendments extend the time in which a dissolved corporation may be revived by the Registrar, from five to ten years, and removes the current five-year revival period for non-profit companies, societies, and cooperatives altogether. These extended timelines allow more flexibility for corporations to resume business or resolve outstanding legal issues which may arise following dissolution including those involving litigation or assets.</p> <h3>Modernizes by repealing provisions that are repetitive, unnecessary, or addressed by other legislation</h3> <p>The ABCA Amendments include various changes involving the repeal of provisions that are repetitive, unnecessary, or addressed by other legislation, including provisions pertaining to:</p> <ul> <li>allowing corporations to issue securities certificates in electronic form, rather than as a physical certificate;</li> <li>expanding acceptable contact information to include email; and</li> <li>removing references in legislation that require faxed or handwritten documents.</li> </ul> <h2>Key Take-Aways</h2> <p>The ABCA Amendments seek to modernize the ABCA and reduce administrative burdens on companies to save time and money for management teams and boards of Alberta corporations. The amendments to the corporate waivers and plan of arrangement provisions along with the shareholder voting for a Non-Reporting Issuer are the most substantial changes to the ABCA. Further regulations and amendments are expected to clarify the application of the ABCA Amendments. It remains to be seen if these amendments will encourage more corporations to incorporate in Alberta and keep Alberta as its home jurisdiction.</p>10-Jun-2022 01:58:00{96BDC71E-3761-421E-ABB1-C33317BCFC73}https://www.stikeman.com/en-ca/kh/corporations-commercial-law/quebec-to-delay-eliminating-mandatory-masking-to-end-of-april-as-covid-cases-riseAndrew S. Cunninghamhttps://www.stikeman.com/en-ca/people/c/andrew-s-cunninghamCorporations & Commercial Law UpdateCOVID-19 Legal ResourcesQuébec to Delay Eliminating Mandatory Masking to End of April as COVID-19 Cases Rise<p>With the recent rise in Covid-19 cases and hospitalizations, the interim Québec National Director of Public Health announced on April 5, 2022 that the wearing of masks in public places indoors (scheduled to be eliminated mid-April) will remain mandatory until at least the end of April. Access to the fourth dose of the COVID-19 vaccine is also being progressively expanded to those under 70 years of age. </p> <h2>Recap</h2> <p>Since October 2020, the Government of Québec has tightened and loosened restrictions on businesses as COVID-19 cases have increased and diminished. Most of the restrictions on businesses were lifted in November 2021 throughout Québec (with continuing special measures in force in Terres-cries-de-la-Baie-James and in Nunavik) but some were reimposed in December.</p> <p>On February 28, 2022, bars, casinos and taverns were permitted to reopen with capacity limits. Capacity limits also remained for certain businesses, including restaurants, very large cinemas, performing arts venues and sporting events and vaccine passports were still required for most non-essential businesses. Remote working has not been mandatory since February 28, 2022 although a hybrid method continues to be recommended.</p> <p>All businesses have now been permitted to reopen with capacity limits and vaccine passports eliminated in the middle of March 2022.</p> <p>Québec’s public health state of emergency continues to be extended (currently to April 8, 2022) by the Québec Minister of Health and Social Services, who is empowered under this order to take measures necessary to protect public health.</p> <p>The recommended measures for workplaces throughout Québec are established by the <em>Commission des normes, de l’équité, de la santé et de la sécurité du travail</em> (see the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.cnesst.gouv.qc.ca/fr/prevention-securite/coronavirus-covid-19/trousse-covid-19-guide-outils">summary of workplace measures</a> and the CNST’s <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.cnesst.gouv.qc.ca/fr/salle-presse/communiques/cnesst-presente-un-calendrier-ajustements-mesures">plan for loosening workplace measures</a> (available in French only)).</p> <p>Rapid antigen tests for personal use are available at no cost, with limits on the number of tests each person may obtain. Here is more <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.quebec.ca/en/health/health-issues/a-z/2019-coronavirus/testing-for-covid-19/rapid-home-testing">information on testing</a>.</p> <p>This post highlights the remaining restrictions on business and will be updated as Québec’s pandemic response evolves.</p> <h2>Vaccine Passports (phased out in March 2022)</h2> <p>As of March 12, 2022, the vaccine passport is <span style="text-decoration: underline;">no</span> longer required for Québec businesses except for international travel and places and activities regulated by federal authorities.</p> <p>Here is more information on the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.quebec.ca/en/health/health-issues/a-z/2019-coronavirus/progress-of-the-covid-19-vaccination/covid-19-vaccination-passport/places-and-activities-requiring-covid-19-vaccination-passport">vaccine passport</a>.</p> <h2>Mandatory Masking (to be phased out at the end of April and in May 2022)</h2> <p>Masks remain mandatory in <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.quebec.ca/en/health/health-issues/a-z/2019-coronavirus/mask-or-face-covering/wearing-a-face-covering-in-public-settings-covid-19">public places and businesses</a>.</p> <h4>End of April (or as further recommended by the interim Québec National Director of Public Health)</h4> <ul> <li>End of the obligation to wear a mask in public places (except public transport).</li> </ul> <h4>In May</h4> <ul> <li>End of the obligation to wear a mask in public transport.</li> </ul> <h2>Other Restrictions</h2> <p>Remaining restrictions were lifted as of March 12, 2022.</p> <h2>Nunavik and Terres-cries-de-la-Baie-James</h2> <p>For information about the measures in force in Nunavik and Terres-cries-de-la-Baie-James, consult the websites of the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://nrbhss.ca/en">Nunavik Regional Board of Health and Social Services</a> and the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.creehealth.org/home">Cree Board of Health and Social Services of James Bay</a>.</p> <h2>Going Forward</h2> <p>As set out here, the Government of Québec has lifted almost all of the COVID-19 restrictions in place and intends to lift the last remaining ones in the coming months. It will, however, continue to monitor the situation closely. This post is updated regularly when the Government rules are modified.</p>05-May-2022 07:54:00{6ED73B8D-44DD-4DE1-9E9A-538060DD49E0}https://www.stikeman.com/en-ca/kh/competitor/disclosure-obligations-under-canadian-economic-sanctions-and-anti-terrorism-laws-a-primerShawn C.D. Neylanhttps://www.stikeman.com/en-ca/people/n/shawn-c-d-neylanThe CompetitorCorporations & Commercial Law UpdateFinancial Services UpdateDisclosure Obligations Under Canadian Economic Sanctions and Anti-Terrorism Laws: A Primer<p><strong>In this post we discuss disclosure obligations under Canadian economic sanctions and anti-terrorism laws, including in respect of financial services providers. </strong></p> <p>As discussed below:</p> <ul> <li>There are disclosure obligations that are applicable to all persons in Canada and all Canadians outside of Canada.</li> <li>Certain financial services providers are subject to a continuing obligation to determine whether they are in possession or control of property of a designated person and subject to requirements to file regulatory reports with their primary regulator pursuant to <em>Criminal Code</em> and <em>Sergei Magnitsky Law.</em></li> <li>FINTRAC reporting requirements are distinct from reporting requirements under Canada’s economic sanctions and anti-terrorism laws.</li> </ul> <h2>Generally Applicable Disclosure Obligations</h2> <p>Most economic sanctions are imposed on a jurisdiction-by-jurisdiction basis under the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://laws-lois.justice.gc.ca/eng/acts/s-14.5/index.html"><em>Special Economic Measures Act</em></a> and the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://laws-lois.justice.gc.ca/eng/acts/u-2/index.html"><em>United Nations Act</em></a>. However, restrictions similar to economic sanctions are imposed under the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://laws-lois.justice.gc.ca/eng/acts/F-31.6/index.html"><em>Freezing Assets of Corrupt Foreign Officials Act</em></a>, economic sanctions in respect of terrorists are imposed under the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://laws-lois.justice.gc.ca/eng/acts/c-46/"><em>Criminal Code</em></a> (as well as the <em>United Nations Act</em>) and economic sanctions in respect of individuals for engaging in gross human rights violations or significant acts of corruption are imposed under the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://laws.justice.gc.ca/eng/acts/J-2.3/"><em>Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law)</em></a>. Persons listed in these sanctions are generally referred to as designated persons or listed persons.</p> <p>Almost all of these sanctions have generally applicable disclosure obligations that require persons in Canada and Canadians outside of Canada to disclose without delay to the Royal Canadian Mounted Police (or, alternatively, in some cases, the Canadian Security Intelligence Service (“CSIS”)):</p> <ul> <li><strong>property in their possession or control</strong> that is owned or controlled by a designated person (in some cases this explicitly includes a requirement in respect of property owned or controlled by a person that is owned or controlled by a designated person); and</li> <li><strong>information about a transaction or proposed transaction</strong> in respect of any such property.</li> </ul> <h2>Continuing Duty to Determine</h2> <p>Most of the above-noted sanctions regimes also impose an obligation on a wide range of financial services providers <strong>to determine on a continuing basis whether they are in possession or control of property owned, held or controlled by or on behalf of a designated person</strong>. These entities include banks, credit unions and caisses populaires, insurance companies, trust companies, loan companies, money services businesses (in some cases) and entities authorized under provincial legislation to engage in the business of dealing in securities or to provide portfolio management or investment counselling services (“Federally or Provincially Authorized Entities”).</p> <p>Combined with the generally applicable disclosure obligations discussed above, the continuing duty to determine is intended to result in <strong>prompt disclosure to law enforcement (or CSIS in some cases)</strong> by specified financial services providers. However, not all specified financial services providers are either persons in Canada or Canadians outside of Canada. In particular, some Provincially Authorized Entities are non-Canadian entities located outside of Canada without any personnel in Canada. While such entities are subject to the continuing duties to determine, they are not subject to the generally appliable disclosure obligations except, potentially, if they have another relevant nexus to Canada.</p> <h2>Financial Services Provider Regulatory Filing Requirements</h2> <p>Two of Canada’s economic sanctions and anti-terrorism laws, namely the <em>Criminal Code</em> and the <em>Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law)</em>, impose additional regulatory reporting requirements on specified financial services providers, including in some cases non-Canadian entities that are not subject to the generally applicable disclosure obligations.</p> <p>The <em>Criminal Code</em> requires that a specified financial services provider must report monthly to the principal agency or body that supervises or regulates it under federal or provincial law either:</p> <ul> <li>that it <strong>is not</strong> in possession or control of any property owned or controlled by a listed terrorist entity; or</li> <li>that it <strong>is</strong> in possession or control of such property, in which case it must also report the number of persons, contracts or accounts involved and the total value of the property.</li> </ul> <p>Thus, in many cases, monthly “nil” reports are required to be filed.</p> <p>The <em>Sergei Magnitsky Law</em> requires that if a specified financial services provider determines that it is in possession or control of any property of a person designated under that statute it must disclose without delay, and once every three months after that, to the principal agency or body that supervises or regulates it under federal or provincial law the fact that it is in possession or control of the property, the number of persons or dealings involved and the total value of the property.</p> <p>Because a wide range of financial services providers are subject to specific financial service provider regulatory filing requirements with the regulatory body that oversees their business, it follows that a wide range of regulators receive such reports. While some regulators have published forms that are intended to assist parties with filing requirements, in practice it is not always clear exactly what information is required to be filed. When making filings to comply with requirements imposed under the <em>Criminal Code</em> and the <em>Sergei Magnitsky Law</em>, it is helpful to refer to the provision that imposes the requirement, in order to better understand what information is required.</p> <h2>Asset Freezing and FINTRAC Reporting Obligations</h2> <p>This note focusses on disclosure obligations under economic sanctions and anti-terrorism laws. It is important to note that such laws also impose restrictions on dealing with designated persons as well as sectoral and geographic restrictions. In addition, it is important to keep in mind that obligations to report suspicious transactions to FINTRAC pursuant to the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://lois-laws.justice.gc.ca/eng/acts/P-24.501/"><em>Proceeds of Crime (Money Laundering) and Terrorist Financing Act</em></a> are distinct from the obligations discussed in this note.</p> <h2>Conclusion</h2> <p>Disclosure obligations under Canada’s economic sanctions and anti-terrorism laws can in some cases be a significant burden on businesses. This is particularly true of financial services providers that are subject to more onerous requirements. Nevertheless, it is important for affected businesses to ensure that they have the processes in place to comply with such obligations, as a failure to comply can lead to criminal charges.</p>28-Apr-2022 03:25:00{7C4132FE-A323-486F-96A8-BBED7DD652ED}https://www.stikeman.com/en-ca/kh/canadian-ma-law/british-columbia-court-of-appeal-says-shotgun-offer-cant-be-revokedJonathan Buysenhttps://www.stikeman.com/en-ca/people/b/jonathan-buysenBrendan Kennedyhttps://www.stikeman.com/en-ca/people/k/brendan-kennedyCanadian M&A LawCorporations & Commercial Law UpdateLitigation UpdateBritish Columbia Court of Appeal Says Shotgun Offer Can’t Be Revoked<p><strong>Be careful before you pull the trigger – this is the main takeaway from the recent decision of <em><a rel="noopener noreferrer" target="_blank" href="https://www.canlii.org/en/bc/bcca/doc/2022/2022bcca117/2022bcca117.html?autocompleteStr=2022%20BCCA%20117%20&autocompletePos=1">Blackmore Management Inc. v. Carmanah Management Corporation</a></em>, in which the British Columbia Court of Appeal (BCCA) concluded that an “offer” made pursuant to a standard shotgun clause in a shareholders’ agreement could not be unilaterally revoked.</strong></p> <h2>Background</h2> <p>The respondent shareholders (Carmanah and Amphitrite; together, the Respondents) elected to invoke the shotgun clause in their shareholders’ agreement. Pursuant to the clause, the Respondents delivered a “compulsory offer” to the other shareholder (Blackmore), who then had sixty days to elect whether to sell its shares to the Respondents or purchase the Respondents’ shares at a valuation stipulated in the shotgun offer.</p> <p>Blackmore filed a petition to freeze the election period until certain financial information was disclosed. The parties ultimately agreed to freeze the election period until the petition was heard, the hearing of which was then delayed due to the COVID-19 pandemic.</p> <p>During this period, the company’s value increased. As a result, some four months after the shotgun offer had been delivered, the Respondents wrote to Blackmore purporting to revoke their shotgun offer. A month later, Blackmore delivered a notice advising that it elected to buy-out the Respondents’ shares.</p> <h2>The B.C. Supreme Court Decision</h2> <p>The petition judge held that the shotgun offer was revocable. The judge relied on the general principle of contract law that “an offer to contract can be revoked prior to acceptance unless the parties have specifically agreed otherwise”.</p> <h2>The B.C. Court of Appeal Decision</h2> <p>The BCCA overturned the lower court’s decision, finding that the shotgun offer could not be revoked.</p> <p>The Court noted that a shotgun offer was not an offer to enter into a new contract, but rather the exercise of an existing contractual buy-out process. Thus, the general principles of offer and acceptance did not apply. Rather, the shotgun process was governed by the terms of the shotgun clause in the shareholders agreement. It found that the plain meaning of the shotgun clause (i.e., the fact that a recipient could elect to buy or sell within sixty days) reflected that such a process, once triggered, could not be revoked.</p> <p>The Court also put great emphasis on the commercial purpose of a shotgun clause. In particular, the Court noted that:</p> <ol> <li>A shotgun clause is intended to be a mechanism to “terminate the shareholder relationship by forcing a sale” and that “an interpretation that would allow the shotgun process to be unilaterally stopped once triggered is inconsistent with this objective.”</li> <li>The fairness of a shotgun clause, in which the instigator choses the sale price, depends on the possibility that the instigator will be forced to sell their shares at the offered price. To conclude that such an offer was revocable would “weaken the incentive for shareholders to make a fair offer”. It would allow a shareholder to make an offer “at a below-market rate and revoke the offer if it became apparent that the recipient shareholder intended to elect to buy”.</li> </ol> <h2>Conclusions</h2> <p>While each shotgun clause must be considered based on its specific terms, this decision suggests that, absent clear language to the contrary, a shotgun offer will likely not be revokable. Therefore, parties should take care in considering both whether to trigger the shotgun clause and what valuation to select.</p> <p>In addition, if drafting a shotgun clause that will not be revocable, parties should also consider the length of notice period, knowing that a longer period brings increased risks that the market will fluctuate while the offer is outstanding.</p> <p>Finally, the issue at hand could potentially have been solved through contractual drafting. Consider, when agreeing to a delay to the shotgun period, whether the parties should consider adding conditions to such agreement, such as a re-evaluation of the purchase price if the delay is significant or if material changes to the business occur during such delay period.</p>13-Apr-2022 06:15:00{E804184B-778A-4AC4-9C90-3256FB8A614D}https://www.stikeman.com/en-ca/kh/tax-law/canadas-2022-federal-budget-commodity-tax-measuresJean-Guillaume Shoonerhttps://www.stikeman.com/en-ca/people/s/jean-guillaume-shoonerAlexandra Iannarinohttps://www.stikeman.com/en-ca/people/i/alexandra-iannarinoTax Law UpdateCorporations & Commercial Law UpdateCanada’s 2022 Federal Budget: Commodity Tax Measures<p><strong>On April 7, 2022, the Government of Canada unveiled its 2022 federal budget (“Budget 2022”) and announced certain important commodity tax measures. Budget 2022 includes proposed amendments to past proposals, as well as some completely new rules.</strong></p> <p>The highlights of Budget 2022 from a commodity tax standpoint are set out below. Readers may also be interested in Stikeman Elliott’s general <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/firm/news/stikeman-elliott-s-federal-budget-commentary-2022">commentary on Budget 2022</a>.</p> <h2>GST/HST Health Care Rebate</h2> <p>Under the current Goods and Services Tax/Harmonized Sales Tax (“GST/HST”) rules, hospitals can generally claim an 83 percent rebate and charities and non-profit organizations can claim a 50 percent rebate of the GST/HST that they pay on inputs used in their exempt supplies. In 2005, the 83 percent rebate was expanded to cover eligible charities and non-profit organizations that provide health care services similar to those traditionally performed in hospitals. One of the conditions to be eligible for the expanded hospital rebate is that a charity or non-profit organization must deliver the health care service with the active involvement of, or on the recommendation of, a physician. This eligibility condition may also be met by the active involvement of a nurse practitioner, but only in a geographically remote community.</p> <p>Budget 2022 proposes to remove that geographical limitation. In other words, it proposes that to be eligible for the expanded hospital rebate, a charity or non-profit organization must deliver the health care service with the active involvement of, or on the recommendation of, <strong>either a physician or a nurse practitioner, irrespective of their geographical location</strong>. This measure would generally apply to rebate claim periods ending after April 7, 2022, in respect of tax paid or payable after that date.</p> <h2>GST/HST on Assignment Sales by Individuals (Residential Housing)</h2> <p>An assignment sale in respect of residential housing is a transaction in which a purchaser under an agreement of purchase and sale with a builder of a new home sells their rights and obligations under the agreement to another person.</p> <p>Under the current GST/HST rules, an assignment sale in respect of newly constructed or substantially renovated residential housing may be either taxable or exempt, depending on the reason for purchasing the home:</p> <ul> <li>An assignment sale made by an individual would generally be <strong>exempt</strong> if that individual had originally entered into the agreement of purchase and sale for the primary purpose of occupying the home as a place of residence.</li> <li>An assignment sale made by an individual would be <strong>taxable</strong> if that individual had originally entered into the agreement of purchase and sale with the builder for the primary purpose of assigning their interest in the agreement.</li> </ul> <p>The current rules have created opportunities for speculators who are willing to misrepresent their original intentions, leading to uncertainty as to whether such assignments are taxable or not. To address these issues, Budget 2022 proposes to make <strong>all assignment sales of newly constructed or substantially renovated residential housing taxable for GST/HST purposes</strong>, effective May 7, 2022.</p> <p>If the consideration for an assignment sale would include a deposit that had previously been paid to the builder by the assignor, Budget 2022 proposes to exclude such deposit from the consideration for a taxable assignment sale to avoid double taxation considering such deposit will already be subject to tax when applied against the purchase price at the time of the sale.</p> <h2>Taxation of Vaping Products</h2> <p>Further to public consultations that took place following Budget 2021 regarding a proposal for a new excise duty on vaping products, Budget 2022 contains refinements to the originally proposed taxation framework.</p> <p>In particular, the <strong>proposed federal excise duty rate</strong> would be $1 per 2 ml (or fraction thereof) for containers with less than 10 ml of vaping liquid. For containers with more than 10 ml, the applicable federal rate would be $5 for the first 10 ml, and $1 for every additional 10 ml (or fraction thereof). The proposed federal excise duty framework for vaping products would come into force on October 1, 2022.</p> <p>Budget 2022 proposes to allow <strong>duty-free importations by travellers</strong> returning to Canada of unstamped vaping products for personal use. For an absence of 48 hours or more, there will be a duty-free importation for personal use of:</p> <ul> <li>up to 12 vaping products (e.g., pods, bottles, or disposable vape pens) of less than 10 ml each (for a total of 120 ml), or</li> <li>any combination of vaping products of 10 ml or more, so long as the total volume imported is below 120 ml.</li> </ul> <p>The Government has also invited its provincial and territorial counterparts to join a coordinated vaping taxation framework, under which an additional duty equal to the proposed federal rate would be applied.</p> <h2>Cannabis Taxation Framework and General Administration under the <em>Excise Act, 2001</em></h2> <p>Budget 2022 proposes to allow licensed cannabis providers to remit excise duties on a quarterly rather than monthly basis, starting from the quarter that began on April 1, 2022.</p> <p>Budget 2022 also proposes other technical amendments to strengthen and adapt the cannabis excise duty framework to this relatively new and evolving sector of the Canadian economy with respect to the following matters:</p> <ul> <li>Contract-for-service arrangements between two licensed cannabis producers;</li> <li>Penalty provision for lost stamps;</li> <li>Exemptions for holders of a Health Canada-issue Research Licence or Cannabis Drug Licence; and</li> <li>General administration matters under the <em>Excise Act, 2001.</em></li> </ul> <h2>WTO Settlement on the 100 Percent Canadian Wine Exemption</h2> <p>Wine that is produced in Canada and composed wholly of agricultural or plant products (i.e., 100 percent Canadian wine) is currently exempt from excise duties. In 2018, the 100 percent Canadian wine excise duty exemption was challenged at the World Trade Organization. Canada reached a settlement on this dispute in July 2020 in which it agreed to repeal the excise duty exemption by June 30, 2022, as Budget 2022 proposes to do as of that date.</p> <h2>Beer Taxation</h2> <p>Budget 2022 proposes to eliminate excise duty for beer containing no more than 0.5 percent ABV, bringing the tax treatment of such beer into line with the treatment of wine and spirits with the same alcohol content. The proposed measure would come into force on July 1, 2022.</p> <h2>Previously Announced Measures</h2> <p>Budget 2022 also confirms that the Canadian government intends to move forward with respect to certain previously announced measures, as modified to take into account consultations and deliberations since their release, notably:</p> <ul> <li>Legislative proposals relating to the <em>Select Luxury Items Tax Act</em> released on March 11, 2022.</li> <li>Legislative proposals released on February 4, 2022 in respect of the following measures: <ul> <li>a technical fix related to the GST Credit top-up; and</li> <li>crypto asset mining.</li> </ul> </li> <li>Original measures announced in Budget 2014 and later confirmed in subsequent budgets relating to the GST/HST joint venture election. In theory, a GST/HST joint venture election is available only if the activities of the joint venture are prescribed by regulation as eligible activities. Prescribed activities are generally restricted to certain specific endeavours. Budget 2014 proposed to significantly broaden the scope of permitted joint venture activities for the purpose of the joint venture election. Based on this proposal, joint venturers would be allowed to make the election as long as the activities of the joint venture are exclusively commercial activities and the participants are engaged exclusively in commercial activities.</li> </ul>11-Apr-2022 08:11:00{17DB0D30-0E0C-48E1-9FE0-45B268EABB95}https://www.stikeman.com/en-ca/kh/competitor/update-on-canadas-sanctions-and-other-responses-to-russias-war-in-ukraineShawn C.D. Neylanhttps://www.stikeman.com/en-ca/people/n/shawn-c-d-neylanThe CompetitorCanadian Energy LawCorporations & Commercial Law UpdateFinancial Services UpdateUpdate on Canada’s Sanctions and Other Responses to Russia’s War in Ukraine<p><strong>In this post we look at the latest sanctions-related developments relating to the invasion of Ukraine. These restrictions are in addition to those already imposed in relation to Russia, Belarus and Ukraine under the </strong><a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://laws-lois.justice.gc.ca/eng/acts/s-14.5/index.html"><strong><em>Special Economic Measures Act</em></strong></a><strong> (“SEMA”) as described in our blog posts of </strong><a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/competitor/canada-imposes-further-sanctions-on-russia-in-response-to-the-invasion-of-ukraine"><strong>February 25</strong></a><strong>, </strong><a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/competitor/canada-imposes-another-round-of-sanctions-on-russia-in-response-to-the-war-in-ukraine"><strong>March 3</strong></a><strong>, </strong><a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/competitor/further-canadian-responses-to-russias-invasion-of-ukraine"><strong>March 4</strong></a>, <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/competitor/another-round-of-canadian-sanctions-on-russia-and-belarus"><strong>March 15</strong></a><strong> and </strong><a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/competitor/g7-financial-intelligence-units-cooperate-on-sanctions-on-russia"><strong>March 21</strong></a><strong>. </strong></p> <p>As discussed below, the new developments include:</p> <ul> <li>The issuance by FINTRAC of guidance on compliance with money laundering laws as they may relate to sanctions evasion by persons designated under economic sanctions laws;</li> <li>More Russians and Belarusians have become designated persons;</li> <li>New prohibitions in relation to restricted goods and technology;</li> <li>The withdrawal by Export Development Canada (“EDC”) of export finance support for Russia and Belarus (EDC will continue to support Ukraine); and</li> <li>The prohibition of insurance and reinsurance in relation to Russian and Belarusian aircraft.</li> </ul> <h2>FINTRAC Issues Special Bulletin on Russia-linked Money Laundering Related to Sanctions Evasion</h2> <p>We <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.stikeman.com/en-ca/kh/competitor/g7-financial-intelligence-units-cooperate-on-sanctions-on-russia">previously reported</a> that FINTRAC entered into <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://fintrac-canafe.canada.ca/new-neuf/nr/2022-03-16-eng">a statement of intent</a> with the financial intelligence units of the other G7 members, as well as those of Australia, New Zealand and the Netherlands, to enhance financial intelligence on sanction-related matters and associated financial flows and economic activities. FINTRAC has since issued a <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://fintrac-canafe.canada.ca/intel/bulletins/rlml-eng">Special Bulletin</a> on that topic. Highlighting the potential application of Canadian <strong>money-laundering and proceeds of crime laws</strong> to sanctions violations, the Special Bulletin notes that:</p> <ul> <li>Attempts to evade sanctions imposed against Russian individuals and entities are likely to be conducted through the use of intermediary jurisdictions to set up complex networks of shell and front companies (often registered to addresses in offshore financial centres or tax havens) and non-resident bank accounts (generally located in jurisdictions known to cater to Russian-speaking customers).</li> <li>In order for money laundering to occur in the context of sanctions evasion, the sanctions evasion would either need to be attempted or committed using proceeds of crime (as defined in the <em>Criminal Code</em>, which includes proceeds of crimes committed outside of Canada), or the sanctions evasion would need to give rise to or generate proceeds of crime that would then be laundered or attempted to be laundered.</li> <li>Alternative financial channels – among them, cryptocurrencies and other emerging financial technologies – may also play an important role in Russia-linked illicit financial flows related to the proceeds of crime.</li> </ul> <p>The Special Bulletin describes several <strong>risk factors</strong> that may be relevant to assessing money laundering risks any particular case:</p> <ul> <li>The involvement of legal firms, including company service providers based in offshore financial centres, that have historically specialized in Russian clientele or in transactions associated with Russian elites and their associates.</li> <li>A pattern of shell companies registered in traditional tax havens conducting international wire transfers using financial institutions in jurisdictions distinct from the company’s registration (i.e., non-resident banking) and associated with Russian financial flows.</li> <li>Jurisdictions with low barriers to set up shell companies as general trading companies with particular attention being paid to entities located in international trade hubs with noted anti-money laundering deficiencies, including the 23 jurisdictions <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-march-2022.html">recently highlighted by the Financial Action Task Force</a> (which include the Cayman Islands, Turkey and the UAE) or in jurisdictions that have seen a recent decline in accountable governance and democratic development (which is a rather general consideration of potentially wide application but still worth considering when assessing compliance risk).</li> <li>Accounts with financial institutions or in jurisdictions associated with Russian financial flows that are experiencing a sudden rise in the value being transferred to their respective institutions or areas, without a clear economic or business rationale. The Special Bulletin also states that some Russia-linked individuals and entities have been known to use real-estate transactions for money laundering purposes.</li> </ul> <h2>More Russians and Belarusians Have Been Designated</h2> <p>Canada has designated more Russians and Belarusians under its economic sanctions laws. Currently there are 735 Russian individuals and 136 Russian entities that have been sanctioned by Canada under SEMA. In the case of Belarus, 146 Belarusian individuals and 37 Belarusian entities are currently sanctioned under SEMA.</p> <h2>Restricted Goods and Technologies List</h2> <p>The SEMA Russia and Belarus Regulations now include, subject to certain exceptions, prohibitions on exporting, selling, supplying or shipping any goods on the <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.international.gc.ca/world-monde/international_relations-relations_internationales/sanctions/goods_gechnologies-marchandises_technologies.aspx?lang=eng">Restricted Goods and Technology List</a> or to provide any technology on that list to Russia or Belarus or to any person in Russia or Belarus.</p> <h2>Withdrawal of Export Finance Support</h2> <p>Export Development Canada together with the export credit agencies of the U.K. and the U.S. <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.edc.ca/en/about-us/newsroom/ukef-edc-usexim-joint-statement.html">have withdrawn new export finance support for Russia and Belarus</a> while retaining such support for Ukraine.</p> <h2>Prohibition on Insurance for Russian and Belarusian Aircraft</h2> <p>Canada has prohibited the provision of insurance or reinsurance to Russia or any person in Russia in relation to goods described in Chapter 88 of the Harmonized Commodity Description and Coding System, published by the World Customs Organization, or in relation to technology for a good described in that chapter. This mainly relates to aircraft and spacecraft.</p> <h2>Conclusion</h2> <p>Canada continues to enact new restrictions in relation to Russia’s war in Ukraine. Compliance with such laws, and also with money laundering laws that may be triggered in relation to sanctions evasion, continues to be important for Canadian businesses.</p>07-Apr-2022 07:15:00{6D8D0EC7-D4B3-4506-935A-210E7C77A83F}https://www.stikeman.com/en-ca/kh/canadian-technology-ip-law/quebecs-new-personal-information-protection-legislation-what-it-means-for-businessVanessa Coiteuxhttps://www.stikeman.com/en-ca/people/c/vanessa-coiteuxGeneviève Paradishttps://www.stikeman.com/en-ca/people/p/genevieve-paradisDanielle Miller Olofssonhttps://www.stikeman.com/en-ca/people/m/danielle-miller-olofssonCanadian Technology & IP LawCorporations & Commercial Law UpdatePrivacy & CybersecurityQuébec’s New Personal Information Protection Legislation: What It Means for Business<p><strong>On September 21, 2021, the Québec National Assembly adopted </strong><a rel="noopener noreferrer" target="_blank" href="http://m.assnat.qc.ca/en/travaux-parlementaires/projets-loi/projet-loi-64-42-1.html"><strong>Bill 64, <em>An Act to modernize legislative provisions as regards the protection of personal information</em></strong></a><strong>. This new Act introduces significant changes to the protection of personal information in the private and public sectors in Québec. </strong></p> <p>We have summarized the important provisions of this Act that will affect companies doing business in Québec. These new requirements and sanctions, which take effect progressively on September 22, 2022, September 22, 2023 or September 22, 2024, target three areas in particular: governance, operations, and data subject rights.</p> <p>Please <a rel="noopener noreferrer" target="_blank" href="https://emarketing.stikeman.com/reaction/emsdocuments/20220328_Personal_Information_Protection_by_Companies_Conducting_Business_in_Quebec-Adoption_Bill_64.pdf">click here to read or download our analysis</a>.</p>01-Apr-2022 05:26:00{7A3D3BC2-6553-4D9A-A1DF-438882B44CDB}https://www.stikeman.com/en-ca/kh/competitor/g7-financial-intelligence-units-cooperate-on-sanctions-on-russiaShawn C.D. Neylanhttps://www.stikeman.com/en-ca/people/n/shawn-c-d-neylanThe CompetitorCanadian Energy LawFinancial Services UpdateCorporations & Commercial Law UpdateG7 Financial Intelligence Units Cooperate on Sanctions on Russia<p><strong>In the latest sanctions-related developments, Canada’s FINTRAC has agreed to work with other financial intelligence units in relation to sanctions and related anti-money laundering, while Canada has also imposed an additional set of sanctions on Belarusians. These restrictions are in addition to those already imposed in relation to Russia, Belarus and Ukraine under the <em>Special Economic Measures Act</em> as described in our blog posts of </strong><strong><a href="https://www.stikeman.com/en-ca/kh/competitor/canada-imposes-further-sanctions-on-russia-in-response-to-the-invasion-of-ukraine">February 25</a></strong><strong>, </strong><strong><a href="https://www.stikeman.com/en-ca/kh/competitor/canada-imposes-another-round-of-sanctions-on-russia-in-response-to-the-war-in-ukraine">March 3</a></strong><strong>, </strong><strong><a href="https://www.stikeman.com/en-ca/kh/competitor/further-canadian-responses-to-russias-invasion-of-ukraine"><strong>March 4</strong><strong> </strong></a>and </strong><strong><a href="https://www.stikeman.com/en-ca/kh/competitor/another-round-of-canadian-sanctions-on-russia-and-belarus"><strong>March 15</strong><strong>.</strong></a></strong></p> <h2>Financial Intelligence Units to Focus on Sanctions Violations and Related AML Concerns</h2> <p>FINTRAC has entered into <a rel="noopener noreferrer" target="_blank" href="https://fintrac-canafe.canada.ca/new-neuf/nr/2022-03-16-eng">a statement of intent</a> with the financial intelligence units of the other G7 members, as well as those of Australia, New Zealand and the Netherlands. The statement shows that there is agreed intent to enhance financial intelligence on sanction-related matters and associated financial flows and economic activities. This is likely to assist law enforcement authorities in these jurisdictions in investigations of potential sanctions violations as well as related potential money-laundering offences. This may signal greater scrutiny and (potentially) investigation and prosecution of economic sanctions violations than was the case in Canada before Russia’s invasion of Ukraine. Greater cooperation between these jurisdictions will make it more difficult for persons designated under sanctions to successfully liquidate assets and move proceeds of sale.</p> <p>The development also highlights the potential application of Canadian money-laundering and proceeds of crime laws to sanctions violations. In particular, proceeds of transactions that are in breach of Canadian or other jurisdictions’ sanctions laws could be determined to be funds that were obtained or derived directly or indirectly from an offence. Canadian criminal law prohibits persons from using, transferring, sending or delivering such proceeds in order to either conceal or convert such proceeds if they know or believe, or are reckless as to whether they were derived from crime.</p> <p>It is important to understand that proof of intent to conceal is not required if intent to convert is proved. Conversion could be shown, for example if the funds were used to buy an asset or converted into a fiat or cryptocurrency. It will therefore be prudent for Canadian businesses to take steps to ensure that proffered funds that are potentially related to designated persons are not proceeds from transactions that are prohibited under sanctions laws.</p> <h2>More Belarusians Designated by Canada</h2> <p>In yet another round of sanctions imposed by Canada in relation to Russia’s war in Ukraine, 22 Belarusian individuals have been designated and are thus subject to a general dealing prohibition. These appear to generally be government officials.</p> <h2>Conclusion</h2> <p>The statement of intent issued by FINTRAC and its partner financial intelligence units is a harbinger of future law enforcement in relation to Canadian and other economic sanctions violations including under anti-money laundering laws. This provides yet another impetus for Canadian businesses to promptly take steps to ensure that they are in compliance with the many new sanctions imposed by Canada in relation to Russia’s war in Ukraine.</p>21-Mar-2022 03:38:00{61D1E725-70AF-489B-B838-3A5655EF6EAF}https://www.stikeman.com/en-ca/kh/competitor/another-round-of-canadian-sanctions-on-russia-and-belarusShawn C.D. Neylanhttps://www.stikeman.com/en-ca/people/n/shawn-c-d-neylanThe CompetitorCanadian Energy LawFinancial Services UpdateCorporations & Commercial Law UpdateAnother Round of Canadian Sanctions on Russia and Belarus and Higher Scrutiny for Russian Investment in Canada<p><strong>Canada has imposed further sanctions and an investment ban on Russia due to its continuing invasion of Ukraine. These restrictions are in addition to those already imposed in the <em>Special Economic Measures (Russia) Regulations</em> as described in our blog posts of </strong><strong><a href="https://www.stikeman.com/en-ca/kh/competitor/canada-imposes-further-sanctions-on-russia-in-response-to-the-invasion-of-ukraine">February 25</a></strong><strong>, </strong><strong><a href="https://www.stikeman.com/en-ca/kh/competitor/canada-imposes-another-round-of-sanctions-on-russia-in-response-to-the-war-in-ukraine">March 3</a></strong><strong> and </strong><strong><a href="https://www.stikeman.com/en-ca/kh/competitor/further-canadian-responses-to-russias-invasion-of-ukraine">March 4</a></strong><strong>. Sanctions have also been imposed on Belarus. </strong></p> <h2>Ban on Russian Vessels in Force</h2> <p>The <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.international.gc.ca/world-monde/international_relations-relations_internationales/sanctions/russia_regulations-reglement_russie7.aspx?lang=eng">Canadian government has now prohibited</a> “any person to dock in Canada or pass through Canada any ship that is registered in Russia or used, leased or chartered, in whole or in part, by or on behalf of or for the benefit of Russia, a person in Russia or a designated person, unless such docking or passage is necessary to safeguard human life or to ensure navigational safety.</p> <h2>Ban on Russian Oil in Force</h2> <p>The <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.international.gc.ca/world-monde/international_relations-relations_internationales/sanctions/russia_regulations-reglement_russie8.aspx?lang=eng">Canadian government has now prohibited</a> any person in Canada and any Canadian outside Canada to import, purchase or acquire any petroleum or related oils or petroleum gas or related gases, wherever situated, from Russia or from any person in Russia.</p> <h2>More Designated Russians and Belarusians</h2> <p>Thirty-two more Russian entities and forty more Russian individuals have been designated and are therefore subject to a general dealing prohibition.</p> <p>Nineteen Belarusian individuals have been designated in relation to the war in Ukraine. The Belarusians previously sanctioned under the pre-existing sanctions on Belarus were designated in relation to human rights violations in Belarus. Twenty-five Belarusian entities have been designated and are thus subject to a general dealing prohibition.</p> <h2>Russian Investments in Canada to Face Higher Scrutiny</h2> <p>On March 8, 2022 the Government of Canada issued a <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://www.ic.gc.ca/eic/site/ica-lic.nsf/eng/lk81228.html">Policy Statement on Foreign Investment Review and the Ukraine Crisis</a>, which states that approval of Russian acquisitions of control of Canadian businesses (where approval by the Minister of Industry or the Minister of Heritage is required under the <em>Investment Canada Act</em>) will be granted on an exceptional basis only.</p> <p>The Policy Statement also states that a determination by the Canadian government that an investment, regardless of its value, has ties, direct or indirect, to an individual or entity associated with, controlled by or subject to influence by the Russian state, “will support a finding” by the Minister that there are reasonable grounds to believe that the investment could be injurious to Canada’s national security as set out in <a rel="noopener noreferrer" rel="noopener noreferrer" target="_blank" href="https://laws-lois.justice.gc.ca/eng/acts/I-21.8/page-4.html#h-278745">Part IV.1 of the <em>Investment Canada Act</em></a>. This is the test for commencing a national security process under the <em>Investment Canada Act</em>. Thus all such investments are likely to receive higher scrutiny that might otherwise be the case.</p> <p>The Policy Statement recommends that all non-Canadian investors and Canadian businesses carefully review their investment plans to identify any potential connections to Russian investors and entities that may be involved in both controlling and minority investments. It is clear that the Canadian government will until further notice thoroughly scrutinize transactions for any Russian involvement.</p> <h2>Conclusion</h2> <p>Canada’s economic sanctions and other measures imposed on Russia and Belarus in response to Russia’s invasion of Ukraine continue to expand. This is posing significant challenges for Canadian businesses to quickly assess whether any counterparties have become designated and are thus subject to dealing prohibitions, breaches of which are subject to criminal prosecution. Such assessments must be conducted in order to avoid violating the law.</p>15-Mar-2022 02:58:00