eLaw - Business Law Update | January  2018 - No. 81

The Law Society of Manitoba
Professional Education and Competence 		The Law Society of Manitoba
eLaw Business Law Update January  2018
In This Issue
Framework for Imposing Liability in Negligent Misrepresentation Cases: SCC
Courts Play a Critical Role in Safeguarding Treaty Rights: SCC
Certainty in Commercial Relations Critical: MBCA
Retroactive COLA Payments Not Oppressive: MBQB
No Proprietary Interest in Client Files: MBQB
By-law Interpretation Challenge Compelling but Unsuccessful: MBQB
Legislative Update
FinTech Report: Competition Bureau
Recommended Reading
Final Week of Winter Replays
2018 Mid-Winter Conference: MBA

Framework for Imposing Liability in Negligent Misrepresentation Cases: SCC

In Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, the Supreme Court affirms “the analytical framework by which liability may be imposed in cases of negligent misrepresentation or performance of a service by an auditor.” (para. 1) Deloitte was only partially successful in its appeal of a trial judgment awarding Livent damages for breach of duty of care/contract when Deloitte failed to discover and act on a fraud (manipulation of financial records) by Livent directors or when it later signed off on the financial statements. The majority agreed with the lower courts that Deloitte owed a duty of care to Livent and was liable in relation to the negligently prepared statutory audit, but found Deloitte not liable for Livent’s increase in liquidation deficit which followed Deloitte’s provision of negligent services in relation to the solicitation of investment. The court reduced the amount of the trial award from $84,750,000 to $40,425,000. The minority, while agreeing with the analytical framework set out by the majority, concluded that Deloitte was not liable for the losses claimed. These articles discuss the decision:

Auditor Liability for Negligence – Fulton & Company LLP

Supreme Court Split in Long-Awaited Auditor Negligence Case – LexCanada Litigation blog

Courts Play a Critical Role in Safeguarding Treaty Rights: SCC

The Supreme Court provides guidance on the law applying to treaty interpretation and the role of courts in resolving disputes concerning treaty implementation in First Nation of Nacho Nyak Dun v. Yukon, 2017 SCC 58. The court set aside Yukon’s final plan for development of a largely untouched wilderness area with an intact ecosystem supporting the traditional activities of the First Nations, finding that Yukon’s conduct in breaching the planning process by making extensive changes to the Final Recommended Plan was “not becoming of the honour of the Crown.”  The court discusses the appropriate judicial role in resolving this type of dispute at paras. 32 to 34 of the decision, concluding that “under s. 35 of the Constitution Act, 1982, modern treaties are constitutional documents, and courts play a critical role in safeguarding the rights they enshrine. Therefore, judicial forbearance should not come at the expense of adequate scrutiny of Crown conduct to ensure constitutional compliance.” These articles discuss the decision:

Supreme Court of Canada Sets Aside Regional Land Use Plan in Yukon – MLT Aikins
Judicial Intervention In Modern Treaty Processes Should Promote Negotiation And Reconciliation – Torys LLP

Certainty in Commercial Relations Critical: MBCA

The appeal in Elias et al v Western Financial Group Inc, 2017 MBCA 110, “raises issues involving contractual interpretation and the application of the doctrine of rectification in the context of a commercial transaction between sophisticated parties with equal bargaining power, both represented by experienced counsel.” The issue, said the court, “is whether the defendant should bear legal responsibility for the plaintiffs having repeatedly agreed to a formula that the plaintiffs themselves proposed but which they now say undervalued their shares.” The court found that the trial judge erred in interpreting the USA and the share purchase agreements (particularly as regards the correct test to determine legal ambiguity and in allowing parol evidence as to the parties’ intent) and in taking too expansive an approach to the doctrine of rectification. In a final comment, the court stressed the importance of certainty in commercial relations, noting that “the protection of the reasonable expectations of parties to commercial contracts cannot be overemphasized.” In this case, said the court, where the defendant had done everything possible to ensure that it knew what its rights and obligations were under the documents signed, the approach taken to interpret the contracts “had the potential to send the practice of commercial law sideways.” (para. 142)

Retroactive COLA Payments Not Oppressive: MBQB

Although retroactive cost of living salary increase payments totalling $260,000 to two mangers/directors of a family owned and operated business made after the business was sold breached the reasonable expectations of the opposing directors/shareholders, they did not unfairly disregard their interests and were neither oppressive nor unfairly prejudicial according to the court in 3461662 Manitoba Ltd. et al. v. 3211304 Manitoba Ltd. et al., 2017 MBQB 204. Regardless of the reasonable expectations of the opposing directors, the COLA payments were made with notice to and input from them on the basis of a majority vote of the board, and there was entitlement based on the work and contributions of the managers, whose salaries had been well below market value for years. In addition, the opposing directors had received a considerable return on their investment, due, presumably, to the efforts of the managers. The court also rejected the opposing director’s assertion that a threat by one of the other directors (a lawyer, whose firm was counsel to the business) to consider additional severance payments if the oppression action was not withdrawn, was both a breach of conflict of interest and evidence of further oppressive conduct.

No Proprietary Interest in Client Files: MBQB

In South Eye Centre Incorporated v. Shelton et al, 2017 MBQB 185, the court denied an optometry centre’s request for an interlocutory injunction to compel an optometrist who left the centre to open a competing business to return client files taken surreptitiously while the centre’s owner was on vacation. The parties had a long term relationship of mutual support and dependency, but had never formalised their arrangement with a written contract or non-competition agreement. The court found that the centre had not established an exclusive proprietary interest in and right to return of the files, but did find merit to their claim to a proprietary interest in their client list and to their assertion that the optometrist had breached a fiduciary duty by taking files of patients referred to her by the centre. In the end, the court ordered continuation of an interim injunction prohibiting the optometrist from soliciting the centre’s clients.  

By-law Interpretation Challenge Compelling but Unsuccessful: MBQB

Despite a compelling argument by the applicant company challenging the interpretation of a city by-law concerning permitted uses under C2 zoning in 4282800 v. Winnipeg, 2017 MBQB 187, the court dismissed their application to quash the decision of the Committee confirming that storing car inventory on an empty parking lot fell within the definition of “outside storage” and not within the definition of “auto/light truck/motorcycle, sales and rental” in s. 48 of By-Law 200/2006. According to the court, the more reasonable interpretation of the by-law was that the auto sales and rental definition did not include car storage as a stand-alone activity, especially since there was a separate “outside storage” definition to cover such situations. 

Legislative Update

Federal

Paras. 313(a), (b), (d), (f), (h), (j), (l), (n), (p), (r), (s), (u), (w), (y), (z.01), (z.03), (z.05), to (z.09), (z.2), (z.3), (z.7) and (z.9) and s. 317(2) of the Canada Not-for-profit Corporations Act, S.C. 2009, c. 23 came into force December 31, 2017.

Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act, and the Competition Act, is progressing through the Senate. It was reported as amended on December 14, 2017 and awaits third reading and royal assent when the Senate returns at the end of the month. It proposes significant changes to corporate governance, shareholder participation, and gender diversity for issuers incorporated under the CBCA. For further details see the legislative summary and these articles and blog posts from Canadian Lawyer, Blakes, BLG, Dentons, Norton Rose Fulbright, and Osler.

Proposed regulations to Bill C-25, fleshing out the details of the changes to corporate law, were published December 14, 2016. They are discussed in this article from the CBA: CBA welcomes diversity measures in Bill C-25.

Bill C-49, An Act to amend the Canada Transportation Act and other Acts respecting transportation and to make related and consequential amendments to other Acts, is progressing through the Senate and was referred to the Standing Senate Committee on Transport and Communications on December 8, 2017. It aims to modernize transportation laws in Canada, improving freight rail safety and efficiency; liberalizing international ownership restrictions for Canadian air carriers; and establishing new air passenger rights. For further information see the legislative summary, departmental information, and Transportation 2030 strategic plan. 

Provincial 

Bill 30, The Local Vehicles for Hire Act, received royal assent on November 10, 2017 and will come into force on proclamation or by February 28, 2018. It repeals The Taxicab Act and allows municipalities to make by-laws regulating the entire vehicle-for-hire industry. Further details can be found in the explanatory note to the bill and in this government news release.

FinTech Report: Competition Bureau

The Competition Bureau released its final report on technology-led innovation in the Canadian financial services sector on December 14, 2017. This study focuses on three broad service categories: retail payments and the retail payments system; lending and equity crowdfunding; and investment dealing and advice. This MLT Aikins article comments on the report recommendations.

Recommended Reading

PIPEDA: Draft Guidelines for Obtaining Meaningful Online Consent – this CBA report comments on and suggests revisions to the draft guidelines released by the Office of the Privacy Commissioner in September 2017.

Doing Business in Canada  - this recently updated BLG guide provides a practical overview of Canada's legal landscape to international businesses looking to establish operations in Canada or considering an investment in a Canadian business.

Can a Mortgage Lender be Held to be an “Owner” Under the Builders’ Liens Act? –Ned Brown discusses an Alberta case involving a priority dispute in which a mortgagee was alleged to have acted so as to be deemed to be an "owner" under Alberta’s builders’ liens legislation.

Addressing Corporate Wrongdoing in Canada – this CBA joint section submission comments on a possible Deferred Prosecution Agreement (DPA) regime and enhancements to the Integrity Regime as part of the government’s consultation on expanding Canada’s toolkit to address corporate wrongdoing.

Important Changes to the Manitoba Provincial Nominee Program – this Pitblado Law blog post outlines recent changes made to the MPNP, particularly those affecting the business immigration stream.

Clarifications – and a New Name – for CASL – this MLT Aikins article discusses the report of the House of Commons committee tasked with reviewing Canada’s anti-spam legislation.

Corporate Amalgamations – this TDS LLP publication is a quick guide to the various forms of corporate amalgamation, how they apply and in which circumstances.

Final Week of Winter Replays

Next week's final round of winter replays take place Monday, January 8th and Friday, January 12th at the Law Society. Among those popular programs which you may have missed the first time around is Getting and Growing Grit: The Secret to Success scheduled from 11:30 am -12:45 pm on January 8, 2018. It's not too late to register  ~ walks ins are welcome!

2018 Mid-Winter Conference: MBA

The Manitoba Bar Association’s 2018 Mid-Winter Conference will take place January 18-19, 2018 at the Fairmont Hotel.  Continuing professional development sessions of interest to solicitors include: Director’s Liability; Mines and Minerals; This Changes Everything; and Wikipedia and Legal Research (all January 18, 2018); and Business Law Issues Arising from Internet Transactions; Current Issues in Tax Law; What’s Diversity Got to Do with It?; and Technology Skills Every Lawyer Should Master (January 19, 2018).

 

ISSN 1916-3916

 

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