eLaw

eLaw - Business Law Update | October 2018 - No. 83

The Law Society of Manitoba
Professional Education and Competence

eLaw Business Law Update

October 2018

In This Issue

Application of Common Interest Privilege in Commercial Transactions Restored: FCA
Private Disputes Not Enforceable Via the Oppression Remedy: MBCA
Exclusion Clause a Bar to Negligent Misrepresentation Claim: MBCA
Other Decisions
Legislative Update
Draft Proposals on Taxation of Cannabis
Corporate Governance Guideline Update: OFSI
PIPEDA Amendments
CSA Staff Notice 46-308
General Data Protection Regulation
Recommended Reading
2018 Isaac Pitblado Lectures
Fall CPD: LSM
CPD Programs: MBA

Application of Common Interest Privilege in Commercial Transactions Restored: FCA

Common interest privilege applies to commercial transactions, according to the Federal Court of Appeal in Iggillis Holdings Inc. v. Canada (National Revenue), 2018 FCA 51, which overruled a lower court decision ordering one of the parties to a share purchase transaction to turn over privileged documents (a legal memorandum outlining the tax implications of the transaction) to the Minister of National Revenue. The court criticized the lower court’s reliance on American case law and policy in its finding that privilege was waived when the legal memo was shared by the parties to the transaction, noting at para. 40 that it was “not appropriate” to effectively overturn Canadian court rulings that common interest privilege is strongly implanted in our law. The court summarizes the current law on this issue as follows:

... solicitor-client privilege is not waived when an opinion provided by a lawyer to one party is disclosed, on a confidential basis, to other parties with sufficient common interest in the same transactions. This principle applies whether the opinion is first disclosed to the client of the particular lawyer and then to the other parties or simultaneously to the client and the other parties. In each case, the solicitor-client privilege that applies to the communication by the lawyer to his or her client of a legal opinion is not waived when that opinion is disclosed, on a confidential basis, to other parties with sufficient common interest in the same transactions. (para. 41)

These articles review the decisions and outline the takeaways for Canadian businesses:

Private Disputes Not Enforceable Via the Oppression Remedy: MBCA

In Brar v Brar et al, 2018 MBCA 87, the Court of Appeal considers, for the first time, the important question of the limits of the oppression remedy (s. 234 of The Corporations Act) and gives direction on whether the section provides redress for what is, in essence, a breach of contract dispute between shareholders in their personal capacities. The case involved a dispute between two brothers, each fifty per cent shareholders and directors in two Manitoba corporations, as to whether they had come to a binding agreement to transfer ownership and control of the corporations to one of them via a share purchase. The case proceeded on the assumption that a claim for breach of a contract between individuals, who also happen to be shareholders in the same corporations, could properly form the basis for an oppression remedy. The application judge found that it could, but the Court of Appeal disagreed, finding that the oppression remedy is not appropriate for a simple breach of contract case where no allegations of oppressive conduct were made against the corporations per se. According to the court at para. 41, “the language used in section 234 of the Act clearly indicates that the Legislature intended the oppression remedy to be used to redress corporate actions that are not otherwise amenable to a legal remedy.”

Exclusion Clause a Bar to Negligent Misrepresentation Claim: MBCA

In Virden Mainline Motor Products Limited v Murray et al, 2018 MBCA 82, an appeal of a dismissal of a motion for summary judgment in a breach of contract, negligent misrepresentation and fraudulent misrepresentation claim concerning warranties and representations made in a share purchase agreement, the Court of Appeal deferred to the decision of the motion judge with respect to the need to adjudicate the credibility issues in the claim for fraudulent misrepresentation, but found that the judge erred in not fully dealing with the limitation bar to the contract and tort allegations. After reviewing the terms of the carefully drafted share purchase agreement (negotiated between knowledgeable, sophisticated businesspersons with experience in the industry), the court went on to dismiss those portions of the purchaser’s claim dealing with breach of contract and negligence, finding that they were barred by the 5-year limitation period for survival of warranties made by the vendor.

Other Decisions

Larry Penner Enterprises Inc v The Deputy Minister of Finance (Manitoba), 2018 MBCA 78 – the Court of Appeal upheld the order of the Tax Appeals Commission (upholding a tax assessment by the Taxation Division of the Department of Finance) requiring the appellant company to pay retail sales tax on fuel tanks and other equipment it provided to customers as a “promotional distribution” under The Retail Sales Tax Act. The company took the position that the contracts for the provision of petroleum products included a lease agreement for the equipment and were therefore tax exempt, but the court agreed with the Commission’s conclusion that the price in the contracts did not include any amount for the lease of the equipment and that it was a reasonable interpretation of the contracts that the retailers were given the use of the equipment as an inducement to purchase petroleum products exclusively from the company.

5801916 Manitoba Ltd v 6191763 Manitoba Inc, 2018 MBCA 73 - the motion judge did not err in finding that a law firm was in a conflict of interest and must be removed as lawyer of record for the corporation in this action, which, in essence, involved a shareholder dispute. The law firm was counsel to the corporation and had prepared both versions of a unanimous shareholder agreement and attended to corporate filings related to the settlement agreement, the effect of which was at issue in the case.

63833 Manitoba Corporation v Cosman’s Furniture (1972) Ltd et al, 2018 MBCA 72 – in another case involving a dispute among siblings over a family business, the Court of Appeal upheld the finding of oppressive conduct, but found that the trial judge erred in granting an overly broad remedy (ordering an accounting of dividends paid well before the oppression arose).

PricewaterhouseCoopers Inc v Ramdath, 2018 MBCA 71 – the court denied an application by the former chief financial officer of a bankrupt company for leave to appeal an order of the bankruptcy judge approving a s.59 proposal which included a section allowing the trustee to complete its investigation of the financial circumstances of the company despite the fact that the proposal had been approved. The applicant argued that the proceedings in the bankruptcy court could create unfairness in the company’s civil action against him for alleged misdoings and that investigative powers expire once a proposal has been approved. The court agreed with the bankruptcy judge’s finding that it was not appropriate to place limits on the trustee’s powers to investigate. In PricewaterhouseCoopers Inc v Ramdath, 2018 MBCA 41, an earlier decision concerning whether this type of appeal fell within the automatic right of appeal provided for in s. 193(a) of the Bankruptcy and Insolvency Act as a challenge to a “future right,” the court found it did not, and that leave was required.

Guarantee Company of North America v Manitoba Housing and Renewal Corporation et al, 2018 MBCA 32 - the Court of Appeal upheld the application judge’s decision to grant an interpleader order permitting MHRC to pay the balance of funds due on a construction agreement into court, extinguishing the owner’s liability in respect to the funds and vacating all lien and trust claims. The bonding company, which paid some of the subcontractors when the general contractor defaulted, argued that, as surety, it was entitled to the funds pursuant to the equitable principles of mitigation and subrogation and the law of guarantee, but the Court of Appeal saw no reason to interfere with the application judge’s conclusion that the owner had no obligation to pay the subcontractors and that the principles of mitigation and subrogation did not apply to the owner.

Business Development Bank of Canada v 8000140 Canada Ltd. carrying on business as Servpro Winnipeg et al, 2018 MBQB 94 – the master found that court ordered stays in interim and final receivership orders do not extend to sureties or guarantors of debts unless there is very specific and express language so directing, which did not exist in this case. Default judgment against the guarantor was set aside, however, given the reasonable basis for his belief that he did not need to defend the action in light of the stay.

Diduck v. Simpson, 2018 MBQB 76 – a distributor agreement did not meet the definition of a franchise agreement set out in The Franchises Act, given the lack of “significant assistance in the franchisee’s method of operation under a business plan.” This McCarthy Tetrault article discusses the case.

Toyota Credit Canada Inc. v. MNP Ltd., 2018 MBQB 57 – the court upheld the registrar’s finding that Toyota’s failure to use the full name of the debtor in a financing statement was “seriously misleading” and therefore invalidated its registration, even though the financing statement had been registered against the correct serial number and the trustee was aware of the claim. According to the court, given the objective test set out in the legislation, knowledge of the existence of a financing statement in this context is irrelevant and cannot validate the registration.

Legislative Update

Federal

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, received royal assent May 1, 2018, enacting significant changes to corporate governance. Although some provisions are in effect now, most will come into force by proclamation. Regulations introduced in December 2016 are still in draft form. For further details see these articles:

CBCA Reforms Receive Royal Assent – Torys LLP
Bill C-25 to Amend the Canada Business Corporations Act Becomes Law – McCarthy Tetrault
Amending the Canada Business Corporations Act - Bill C-25 Receives Royal Assent – McMillan

Bill C-45, An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts, passed third reading in the Senate on June 7, 2018 (after 46 amendments) and was given royal assent on June 21, 2018. It is scheduled to come into effect October 17, 2018. It enacts the Cannabis Act to provide legal access to cannabis and to control and regulate its production, distribution and sale. For further detail see the legislative summary, task force report, press release and background documents, and this Slaw summary: Status of Federal, Provincial and Territorial Cannabis Act.

Regulations controlling the production, distribution, sale, importation and exportation of cannabis by federal licence holders were filed July 11, 2018. These Aird Berlis and Dentons articles summarize the licencing basics.

For information on the packaging regulations see the Slaw article Packaging Prohibitions: A Closer Look at Some Interesting Quirks of the Packaging Regulations Under the Cannabis Act.

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, received royal assent on May 23, 2018, making extensive changes to air and rail transportation. Details can be found in the legislative summary and in the McCarthy Tetrault articles Bill C-49 Brings Important Changes to Rail Transportation in Canada and Bill C-49 Shakes Up Air Transportation Law in Canada.

C-81, An Act to ensure a barrier-free Canada, was referred to committee after second reading September 26, 2018. Its aim is to enhance the full and equal participation of all persons, especially persons with disabilities, in society. The executive summary provides details on how this is to be achieved, but this Slaw article is critical of the legislation’s limited reach.

C-82, An Act to implement a multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting, was introduced and had first reading June 20, 2018. It implements a multilateral instrument in respect of conventions for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. For further information see the executive summary and the Gowlings article Canada takes next steps towards implementing MLI.

Provincial

Bill 11, The Safe and Responsible Retailing of Cannabis Act (Liquor and Gaming Control Act and Manitoba Liquor and Lotteries Corporation Act Amended), received royal assent June 4, 2018 and will come into force on proclamation. Section 1, s. 3(1)(a) and ss. 22 to 32 were proclaimed in force effective June 20, 2018. As detailed in the explanatory note, it amends The Liquor and Gaming Control Act and The Manitoba Liquor and Lotteries Corporation Act to authorize and regulate the retail sale of cannabis in Manitoba.

Draft Proposals on Taxation of Cannabis

The government of Canada released technical draft regulatory and legislative proposals under the Excise Act, 2001 on September 17, 2018, setting out additional excise duty rates for each province or territory that has signed a Coordinated Cannabis Taxation Agreement (CCTA). The rates would come into effect when cannabis for non-medical purposes becomes available for legal retail sale. Comments on the draft proposals will be received until October 17, 2018. For further information see the explanatory notes, backgrounder, duty rates, and this Minden Gross LLP article.

Corporate Governance Guideline Update: OFSI

The Office of the Superintendent of Financial Institutions released the final version of its revised Corporate Governance Guideline on September 18, 2018. The revised guideline consolidates all OFSI requirements for boards in one place; provides boards with greater discretion in meeting principles; and clarifies the delineation between board and senior management responsibilities. For commentary on the changes see these Fasken and Stikeman Elliott articles

PIPEDA Amendments

Amendments to the Personal Information Protection and Electronic Documents Act will come into force on November 1, 2018, imposing mandatory reporting and notification obligations for data breaches on both Canadian and foreign organizations. The Office of the Privacy Commissioner of Canada released guidelines explaining these obligations on September 17, 2018 and is inviting feedback on the guidelines and draft form by October 2, 2018. For a summary of what businesses need to do to prepare for the changes see these articles:

Draft Guidance Released Regarding Mandatory Breach Reporting Under PIPEDA – MLT Aikins
PIPEDA Privacy Breach Notification Coming Nov 1 – Slaw
PIPEDA – How to Obtain "Meaningful" Consent, and When Consent is Not Enough - McMillan

CSA Staff Notice 46-308

The Canadian Securities Administrators issued new guidance on how securities law applies to cryptocurrencies on June 11, 2018. Staff Notice 46-308 - Securities Law Implications for Offerings of Tokens updates an earlier staff notice on Cryptocurrency Offerings from August of 2017. The update provides guidance on when an offering of tokens may or may not involve an offering of securities.

General Data Protection Regulation

The European Union’s General Data Protection Regulation came into force May 25, 2018 and will impact Canadian businesses dealing with EU resident data. For details on what constitutes non-compliance and on what Canadian companies need to do to avoid the legal risks see:

GDPR Is Here …. Now What? – Slaw
Batten down the hatches: The GDPR wind is about to blow – Osler