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Business Law

Shibley Righton LLP has a long standing reputation for its results-oriented advice to business clients. That tradition continues today, with a focused team of professionals long on knowledge, legal and business experience, and particularly strong on reacting quickly and creatively to solve client issues. We strive to deliver legal services on a basis that emphasizes our team approach to bring together the skills required for each particular transaction in a manner that minimizes costs.

Our business law team carries on a full-service practice, including:

  • financing encompassing everything from conventional debt, equity and asset-based lending to custom structures such as limited partnerships, leasing and trusts;
  • domestic and international mergers, acquisitions and divestitures;
  • planning and implementation of simple and complex corporate reorganizations,
  • domestic, cross-border and international distributorships, licensing, joint ventures, and other strategic relationships;
  • commercial agreements, including purchase and sale of goods, provision and acquisition of services, delivery and transportation, research;
  • corporate governance and management, including building and advising boards of directors, directors and officers liability and insurance, meetings and other statutory compliance;
  • formation of domestic and international corporations, partnerships and trusts;
  • securities law, particularly relating to junior public companies;
  • shareholders' and partnership agreements, relationships, and disputes including creative settlement approaches, divisive reorganizations, and corporate divorce;
  • franchising agreements, planning, and disputes;
  • entertainment law, including recording artist agreements, producer agreements, management agreements, publishing agreements and the development and marketing of entertainment;
  • intellectual property law including trade-mark and copyright applications, trade-mark oppositions and intellectual property licensing; and
  • not-for-profit and charitable corporations.

While our business law team is well known for its work with small and medium-sized enterprises, as well as its expertise relating to private and junior public companies, it also acts for larger and multinational companies and governmental agencies. In addition, our business law team regularly acts as local counsel for non-Canadian law firms whose clients are carrying out transactions in Canada or need Canadian legal advice.

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Publications

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Bill Northcote Head Shot

A $20-million judgment against a website for pirating obituaries may turn out to be a symbolic victory for the families of the deceased, says Toronto business lawyer Bill Northcote.

In her decision, Federal Court Justice Catherine Kane found the now-defunct website had infringed the copyright of class members — families of more than one million Canadians whose obituaries and pictures were reproduced on the website.

“Unfortunately, the likelihood of collection is probably remote, as is indicated by the fact that the website didn’t defend the claim at all,” says Northcote, partner with Shibley Righton LLP’s Toronto office.

He says he was somewhat surprised to see that the judge declined to award punitive damages, given her description of the defendant’s “obituary piracy” as “high-handed, reprehensible and ... a marked departure from standards of decency.”

“I suspect the quantum of the other damages were so high that it didn’t seem appropriate to award, even though there may have been sufficient grounds,” Northcote tells AdvocateDaily.com.

According to Kane’s decision, the website’s terms of service asserted copyright over all its contents and generated profits via advertising for third-party businesses, as well as the sale of flowers and virtual candles for posting on individual obituary pages.

The representative plaintiff wrote an obituary for her father following his death in early 2017 and allowed a funeral home to publish it, only to discover that it had been reproduced on the defendant website without her permission.

“The evidence of many Class Members is that they had written the obituaries in a personal way and that their discovery that the obituaries had been reproduced with the addition of sales of candles and other advertising was an emotional blow to them. In some cases, inconsistent information was added, for example, inaccurate details about the deceased or options to order flowers where the family had specifically discouraged flowers,” the judge wrote.

Following an uncontested trial, the judge ordered a permanent injunction prohibiting the website and its representatives from infringing the copyright of the class members. She also awarded the class $10 million in statutory damages for the copyright violations, plus a further $10 million in aggravated damages.

However, Kane declined to award the plaintiffs any damages for breach of moral rights. Although they had produced plenty of subjective evidence of their embarrassment and anger about the website’s use of their material, the judge found the plaintiffs’ case lacking in terms of the objective evidence required for a damages award based on a breach of moral rights, showing that a person’s honour or reputation has been prejudiced.

“Moral rights is an area of copyright law that seems not to be well-understood among members of the public,” Northcote says. “I would have thought they could have obtained some outside evidence from members of the public, testifying that reputations were tarnished because of the association with commercial elements.”

Still, he says that may not have been enough to meet the burden for moral rights because of the changing nature of advertising in the online world.

“In this day and age, the connection between the copyrighted work and the commercial activity is not always as obvious, because people know that the advertising that pops up may have more to do with the algorithms of Google or whoever else, rather than an endorsement by the author of the work,” Northcote says.

Even his more sophisticated commercial clients struggle with the concept of moral rights, largely because of the significant difference between the U.S. and Canadian copyright regimes.

“I regularly have to explain to clients exploiting commercial rights that moral rights need to be taken into account,” Northcote says. “Licensees who fail to get a moral-rights waiver can get themselves into trouble.”

He says the precedential value of the obituary decision is limited by the fact that the claim was not defended, allowing potentially significant issues — such as the authorship of individual obituaries — to be glossed over.

“I expect that the practice varied quite a bit. In some cases, family members probably wrote them, while in others, it could have been the funeral home,” he says. “If money is ever collected, another proceeding may be needed to adjudicate that issue.”

 

 

Date_Published
2019-06-04
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peter murphy headshot

In the final instalment of a two-part series on privacy compliance for private-sector cannabis retail, Toronto business lawyer Peter Murphy looks at the privacy commissioner’s guidelines on the subject.

Recreational cannabis retailers will need legal help to balance regulatory compliance and customers’ privacy expectations, says Toronto business lawyer Peter Murphy.

Following the federal government’s recent legalization of the drug for recreational use, the Ontario government unveiled its own framework for its sale at bricks-and-mortar outlets in the Cannabis Statute Law Amendment Act (CSLAA).

Meanwhile, the Office of the Privacy Commissioner of Canada (OPC) released its own guidelines to help private-sector cannabis retailers comply with the Personal Information Protection and Electronic Documents Act (PIPEDA).

In the first part of this series, Murphy, partner with Shibley Righton LLP, explained how the heightened sensitivity of cannabis purchase information raises the standards private operators must satisfy to comply with PIPEDA and to succeed in a market that promises to grow ever more competitive in the coming years.

“Some conflicts arise from the interplay between the heavily regulated environment of cannabis sales, and the demands of privacy law compliance,” he says. “Satisfying both will be a challenge, and retailers should seek expert privacy law and cannabis regulatory advice to assist them.”

Murphy says the OPC guidelines for privacy in cannabis sales are typical of most Canadian government missives on privacy law — written as they are in “broad strokes” and without many specifics requirements.

“While the principles-based guidelines afford retailers some flexibility, they also make it more difficult for retailers to know if they are in compliance,” he says. "Knowledge of how the privacy law has been interpreted and applied in the past is necessary to achieve compliance in the present, particularly in this new industry."

For example, Murphy points out that the OPC's guidelines advise retailers to only collect and use personal information in a way that “a reasonable person would consider to be appropriate in the circumstances.”

“That language reflects PIPEDA, and it’s important for retailers to be aware that this 'reasonable person' standard applies regardless of whether or not the individual consented to the collection or use of the information,” Murphy says.

He says the OPC's guidelines "urge retailers to obtain meaningful consent to the collection and use of customer personal information, by informing customers about what is being collected and why, as well as who it may be disclosed to, and any residual risks of harm," he says.

"Retailers will have to develop procedures with care to ensure consent is obtained in a compliant way."

Murphy says the OPC's guidelines also call for cannabis retailers to use video surveillance only if “less privacy-intrusive measures cannot achieve the same ends,” and requires retailers to notify individuals with clearly visible signage before they enter the store.

He says these guidelines could bump up against Ontario’s cannabis regulations, which require 24-hour video surveillance both inside and outside stores.

“While the cannabis regulations make video surveillance a must for retailers, the privacy law still applies,” Murphy says. “Retailers must have policies and procedures in place to limit employee access to the recordings to those who need it for legitimate purposes, to ensure the information is properly safeguarded and to ensure the videos are retained only as long as they’re needed — keeping in mind the retention requirements in the cannabis regulations.”

Another potential conflict arises in the area of customer identification, he says, because provincial regulations require retailers to check customers’ identification to prove they are over 19 years of age.

"The regulations also require retailers to provide the regulator, on request, with records demonstrating the retailer's compliance with this requirement."

Murphy says retailers may be tempted to keep copies of customer IDs in order to ensure they have the necessary records to satisfy the regulator.

Doing so, he says, "would likely be in breach of privacy laws. For example, the OPC guidelines direct retailer to only collect the least amount of personal information necessary to achieve the retailer's legitimate purpose.

“Customers are not going to be comfortable with retailers keeping copies of their IDs, given the sensitivity of the personal information,” he says. "Retailers should establish some other form of documentation to satisfy the regulator, such as policies and procedures and employee sign-off sheets."

The sensitive nature of buying cannabis also raises concerns about the use of payment cards and where that information will be processed, says Murphy. While PIPEDA does not bar custodians of personal information from processing data on servers outside Canada, the guidelines are clear that it is generally safer to use servers based in this country.

"There is a good chance that payment card information will be processed outside Canada, making that information potentially accessible by foreign law enforcement," he says.

“Retailers should notify customers up front if payments will be processed outside Canada,” Murphy says. “Consumers who are mindful of that fact may choose to patronize retailers who provide an assurance that their information will not be processed at any point outside Canada, or they may wish to limit their purchases to cash transactions.”

The OPC guidelines conclude by noting that organizations must create privacy policies and practices to comply with PIPEDA, including procedures for accepting and responding to complaints from customers. To ensure they are effective, the OPC also recommends training for all staff.

“Retailers should keep in mind that policies are not static documents,” Murphy says. “They must reflect the existing practice of the organization and the current state of both privacy laws and cannabis regulations, which means they need to be regularly updated and consistently followed in practice.”

Click here to read part one, where Murphy discussed the role that privacy will play in the market. 

Date_Published
2019-05-09
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Laura Stairs Head Shot

A dramatic U.S. company dispute is a cautionary tale for new business partners, Windsor corporate lawyer Laura Stairs tells AdvocateDaily.com.

The New York Post reports on a series of lawsuits between a pair of Manhattan real estate moguls over money, artwork, and even an alleged plan to poison one partner with psychedelic drugs.

While they’re typically not as colourful as the one described in the Post, Stairs, associate with Shibley Righton LLP’s Windsor office, has plenty of experience with similar disputes.

“It’s relatively common for business partners or shareholders in corporations to take legal steps or engage in disparagement against each other,” says Stairs, who explains that precautionary measures taken at the outset of a commercial relationship can minimize the chances of an ugly legal fight further down the line.

For example, she says conducting a background check should be part of the due diligence process before partners jump into a business relationship.

“It's most important for people to know who they’re going into business with, including their past dealings and any issues that arose,” Stairs says. “We can do a number of different searches on people, including looking for judgments against them, to help determine if they’re the type of person you want to be doing business with.”

In addition, since disputes of some kind are almost inevitable in any business or personal relationship, she says lawyers often advise partners to formalize a dispute resolution process as part of any shareholder or partnership agreement.

“It’s always better to have a formal structure in place for dealing with disputes before you get to that point,” Stairs says.

However, she warns that each party should seek independent legal advice to ensure their interests are being protected, particularly if one person is taking the lead in organizing the business.

“When one party doesn’t necessarily know their rights and entitlements, it can be dangerous for them when there is a dispute down the road,” Stairs says. “It’s best to stay in touch with the professional advisers, such as a corporate lawyer or accountant, to keep up to date and involved with what’s happening.”

According to the Post, the New York business partners fell out over a collapsed real estate deal, and the company’s former CEO sued its president.

As well as alleging his old colleague planned to inject him with psychedelic drugs to make him look "insane,” the ex-CEO’s lawsuit claims the company president "secreted millions of assets through a complex labyrinth of associates, closely held corporations, limited liability companies, and charities in an attempt to thereby render himself insolvent so as to avoid the consequences of certain litigated matters.”

The president, meanwhile, tells the paper the allegations were manufactured to scare him off from his own lawsuit filed earlier against the CEO.

Whatever the truth of the matter, Stairs says Ontario’s Fraudulent Conveyances Act provides residents of this province with a remedy for transactions they claim were carried out fraudulently to defeat creditors.

“If the claim is proven in court, then a judge can set aside a transaction deemed to have been done in fraud,” she says.

Date_Published
2019-04-29
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peter murphy headshot

In the first instalment of a two-part series on privacy compliance for cannabis retail stores, Toronto business lawyer Peter Murphy looks at the role privacy will play in the market.

Customer privacy policies will become a selling point for recreational cannabis retailers as Ontario’s private market develops, Toronto business lawyer Peter Murphy tells AdvocateDaily.com.

Following the federal government’s recent legalization of the drug for recreational use, the provincial government unveiled its own framework for sales in the Cannabis Statute Law Amendment Act.

While the Ontario Cannabis Store retains a monopoly over online sales, Murphy, partner with Shibley Righton LLP, says the model selected for private-sector bricks-and-mortar retailers has created opportunities for smaller players to enter the market after the new administration abandoned the previous Liberal government’s plans for complete provincial control over sales.

Though only a few stores are officially up and running since winning the licensing lottery, Murphy expects privacy compliance to take centre stage as they attempt to differentiate themselves in an increasingly competitive industry.

“Recreational cannabis consumers prefer retailers who offer the greatest protection of their personal information, and who best limit its use,” he says. “Privacy compliance will not only be a legal necessity in this industry, but also a key competitive factor.

“Cannabis consumers are sensitive about their personal information for a number of reasons, and that sensitivity leads them to focus even more on the retailers' privacy policies and practices.”

For example, Murphy says some employers have banned employees from ever using cannabis. He says cannabis use remains illegal in many jurisdictions outside Canada, most notably in the U.S., where border authorities have threatened to bar Canadians who use the drug or are involved in the cannabis industry from entering the U.S. or from being granted citizenship.

In addition, the Associated Press reports that nations including Japan and South Korea have warned their citizens they could face criminal arrest back home for possession of cannabis while in Canada, despite its legal status here.

Murphy warns that, as a result, the disclosure of payment card or other cannabis purchase information will be a huge concern for many consumers.

"My view is that any cannabis retailer who wants to be successful in the long run will need to demonstrate robust privacy compliance," he says.

“The sensitivity of this information raises the bar on privacy compliance in a number of areas, including the safeguarding necessary to protect that information, the form of consent required for its collection, use and disclosure, and the handling of payment card information," says Murphy.

Stay tuned for part two where Murphy will look at the privacy commissioner’s guidelines on the subject.

 

Date_Published
2019-04-26
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Marlin Horst head shot

A Canadian Securities Administrators’ (CSA) plan to increase oversight of syndicated mortgages is an effort to protect ‘unsophisticated’ investors from risk, Toronto corporate lawyer Marlin Horst tells The Lawyer's Daily.

The CSA has issued a call for comments on proposed amendments that were first suggested in March 2018, The Lawyer's Daily reports.

The council for the provincial and territorial securities regulators indicates the changes will harmonize a regulatory framework for syndicated mortgage investments (SMI) and increase safeguards for investors, the publication reports.

An SMI is a way of funding commercial or residential developments with multiple investors putting their money together to target large-scale real estate projects, The Lawyer's Daily reports, adding the investment is a mortgage registered against title to the property being developed.

Horst, partner with Shibley Righton LLP, tells the publication that the mortgages are not uncommon in development, but there have been some high-profile “blow-ups.”

“They involved non-institutional, Mom and Pop-type investors who lost a lot of money when a big development went sideways,” he says. “The people who invested didn’t understand how risky their investment really was — so these regulations, if you cut right through them, are trying to protect those ‘unsophisticated’ investors from putting money in something they don’t understand.”

Horst tells The Lawyer's Daily that what is being introduced is not radical by securities regulation standards, but a big departure for the SMI market.

The publication reports that updates include proposals from a number of provinces calling for dealer registration and prospectus exemptions for larger, sophisticated institutional issuers. Among the suggested changes is a requirement that property appraisals take place within a six-month period as well as more guidance on establishing the identity of SMI issuers, says The Lawyer's Daily.

“I think what you are going to find is the more sophisticated and above-board syndicated mortgage operators are going have a bit of cost added to their business model, but not too much because they were probably already doing most of these things in terms of regulation and the like,” Horst says.

“What it should do is get rid of a lot of these developers going off on their own and putting together syndicated mortgages with people who don’t really understand what they are getting into. There will be more regulation, so it’s going to be the professionals who understand how the system works that are going to be best able to do them.”

The comment period on the proposals ends May 14, with the updates set to take effect Dec. 31, The Lawyer's Daily reports.

Date_Published
2019-04-10
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peter murphy headshot

Canadian businesses may need to account for the European Union’s wide-reaching General Data Protection Regulation (GDPR) in their processing contracts, Toronto business lawyer Peter Murphy tells AdvocateDaily.com.

The GDPR came into effect in May last year, replacing the looser Data Privacy Directive (DPD) which had governed the handling of personal data within the EU for more than two decades.

Murphy, partner with Shibley Righton LLP, says Canadians may wonder why they must comply with a regulation from a foreign jurisdiction, but he explains that GDPR’s reach is extensive.

"The GDPR applies to any business that engages in data processing related to goods and services offered to EU residents, regardless of where their business is located," he says.

“It also applies to businesses that monitor the behaviour of individuals where the behaviour takes place in the EU,” Murphy adds. “Where the GDPR applies, Canadians may be surprised by some of the resulting requirements.”

Whatever difficulties that compliance with the new regulation imposes on data processing businesses in this country, Murphy says they can’t afford to ignore the GDPR, thanks to the eye-watering nature of its potential penalties. Under the GDPR, fines for non-compliance may be imposed in amounts up to the larger of four per cent of an organization’s global turnover, or 20 million euros — about $30 million Canadian.

“That’s way beyond any fines that may be awarded under Canadian privacy laws,” Murphy says.

Although companies that are currently in compliance with Canada’s federal Personal Information Protection and Electronic Documents Act (PIPEDA) face a smaller jump than their counterparts south of the border, Murphy says there is still a significant gap they will need to bridge to achieve GDPR compliance.

“Canadian privacy laws are more onerous than the American ones, but they still tend to be principle-based and open to interpretation, whereas the GDPR is more prescriptive and specific in terms of the obligations it imposes,” he says.

For example, Murphy says the GDPR divides its data processing requirements into two categories: those for “data controllers” who determine the purpose and means of processing certain personal data, and a separate set for “data processors,” who process data on behalf of controllers.

“It’s important to understand the distinction,” says Murphy, adding that the GDPR lays out specific requirements for inclusion in contracts concerning the processing of personal data. These requirements include the following:

  • Data processors must be obligated to process personal data based only on a documented instructions from the data controller: “Every instruction must be documented, so those given orally may not be sufficient,” Murphy says.

  • Persons authorized to process data must be subject to confidentiality requirements.

  • Data controllers and processors must implement appropriate technical and organizational measures to ensure a level of security appropriate to the risk, which may include the use of encryption, the ability to restore the availability and access to personal data in the event of a physical technical incident and a method for security testing and assessment.

  • The contract must stipulate that the data processor will assist the data controller by the appropriate technical and organizational means to respond to requests concerning the data subject’s rights, which includes their rights of access, rectification of errors, data portability, and to be forgotten. “These requirements are not only more explicit than in PIPEDA but go beyond the requirements in that legislation,” Murphy says.

  • Processors must be obligated to assist controllers in complying with their data protection impact assessments and breach notification obligations under the GDPR, both to government authorities and individual data subjects.

  • Data processors must be obliged to delete or return all personal data to the controller after the end of their provision of service, at the data controller’s request.

  • Data processors must be required to make available all the information necessary for a data controller to demonstrate compliance with these GDPR requirements and allow for compliance audits.

Murphy says that covering the GDPR properly in data processing contracts is more than just an exercise in legal compliance.

"Complying with these requirements may impose unanticipated costs on one or more parties to these agreements,” Murphy says. “Taking the GDPR's requirements into account is of great importance now that the GDPR is in force, not only to avoid fines but also to properly allocate obligations arising from compliance and related costs among the parties to data processing contracts.”

Date_Published
2019-03-06
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Marlin Horst head shot

Succession planning can ease the transition when the time comes to transfer ownership of family-run businesses, Toronto corporate lawyer Marlin Horst tells AdvocateDaily.com.

A recent report commissioned by the Canadian Federation of Independent Businesses (CFIB) found that just eight per cent of small and medium enterprise (SME) owners had a formal succession plan in place.

Around 40 per cent of the 2,500 respondents to the CFIB survey had an informal plan in place but more than half of the business owners had no plan at all for the life of the company after their departure.

That was despite evidence that 47 per cent of owners intended to leave their businesses within five years, and almost three-quarters wanted to be out within a decade. In addition, around 62 per cent intended to rely on the proceeds of an eventual sale to partially fund their retirement.

Horst, partner with Shibley Righton LLP, says it’s never too early to start planning a succession, but adds that he’s not surprised by the results of the survey.

“When I ask my clients if they’ve thought about a succession plan, the answer is usually no, because they’re not ready to retire,” he says. “But that’s not really a good answer, because you have to think about the possibility that something happens before then. You don’t want to be forced into a sale without a plan.”

Horst says implementing a succession plan can be a tough sell for owners who would rather get on with the day-to-day running of the business, a task that is frequently all-encompassing.

“They are reluctant to spend their energy on anything else,” he says.

However, he says the investment of time and money it takes to put together a formal plan is worth it, and has no shortage of scare stories to boost his argument.

“The worst circumstance is when someone falls ill or dies suddenly, and the business has to be sold on short notice. If no thought has been given to who might take over, the chances are you’re going to end up with a lower price than if you’d planned in advance,” Horst says.

Things may feel less urgent in a family business where the assumption is someone in the younger generation will take over, but Horst says the new boss may need a period of transition.

“If a family member isn’t ready to take over, then you might have to look to third parties or maybe one of the other executives,” he says. “But without a formal plan in place, it’s more difficult to discuss the transfer.”

According to the CFIB report, the organization expects a wave of Baby Boomer retirements to trigger a busy period of transfers in the coming years.

“While it is encouraging that a good proportion of business owners intend to pass their business on to a new generation, the lack of formal planning gives rise to significant risks for Canada’s competitiveness and prosperity,” research analyst Marvin Cruz wrote. “With potentially over $1.5 trillion in assets changing hands during the next 10 years, Canada cannot afford to have so many SME owners unprepared to make that transition.”

Date_Published
2019-01-23
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Joel Berkovitz Head Shot

Several recent cases help spell out the duty of good faith contractual performance that exists in contract law, Toronto business lawyer Joel Berkovitz tells The Lawyer’s Daily.

In this case, for example, the Supreme Court of Canada “recognized that a duty of good faith contractual performance exists as a general organizing principle of the common law of contract,” writes Berkovitz, a lawyer with Shibley Righton LLP.

And two recent Ontario Court of Appeal (OCA) cases “interpreted this duty in the context of lending relationships and the termination of fixed-term service contracts,” he says.

In this case, writes Berkovitz, the OCA “considered whether a lender was obligated to continue providing overdraft lending to a borrower, given a history of such lending.”

The plaintiff was a commercial client of the defendant bank, he explains.

“Its nursery business was seasonal, and so during its busy season it routinely requested to borrow above the maximum amount of its line of credit so that it had the working capital it needed. [The bank] granted these requests for several years. However, in 2007 [the nursery] did not repay in full the additional amount which it borrowed, and in 2008, when [the company] again sought to borrow additional funds … above its credit line, [the bank] refused to provide the funding,” says Berkovitz.

The company sued, claiming the bank “had breached the duty of good faith contractual performance by refusing to advance the additional funds,” he says.

The OCA upheld the trial court decision in the bank’s favour, writes Berkovitz, “and found that it had not breached its duty of good faith contractual performance. While this duty required a bank to give its customer a notice if there was a change in the ‘prevailing course of lending conduct between the parties’ with respect to overdraft lending, the court found that, in this case, it was [the nursery] which had changed the prevailing course of conduct by failing to repay its 2007 overdraft in full as it had in previous years.”

Citing the Supreme Court decision, the court “reiterated that the duty of good faith contractual performance does not require a party to forgo advantages flowing from a contract or impose a general duty on a party to subordinate its interests to that of the other party,” he says.

In the nursery’s case, the court found that the bank exercised “rights afforded to it under its contract with [the nursery], and was under no obligation to advance further funds … if this was contrary to [the bank’s] interests.”

In a more recent case, says Berkovitz, the OCA “considered whether the duty of good faith contractual performance required a party to provide notice of termination earlier than required by its contract, when it knew well in advance that it intended to end the contractual relationship.”

The plaintiff in the matter provided maintenance services to 10 condominiums under separate seasonal contracts.

The winter contract allowed the condominiums to terminate it on only 10 days’ notice, says Berkovitz. Because of performance issues during the first winter, the condominium decided to terminate the contract, but they decided to wait to tell them so that the summer work wouldn’t be affected.

“When the condominiums eventually terminated the winter contract,” he says, the company “sued and claimed they had acted in bad faith by withholding the fact that they intended to terminate the winter contract and by representing that the winter contract was not in danger of non-renewal.”

At trial, says Berkovitz, the judge “found that the minimum standard of honesty would have required the condominiums to address the alleged performance issues … and provide prompt notice, or refrain from any representations in anticipation of the termination notice period.”

He says the condo appealed and the OCA overturned the trial judge’s decision.

“While the court found that the condominiums may have failed to act honourably, they had not breached the duty of good faith contractual performance,” he explains.

“Significantly, the court found that there is no unilateral duty to disclose information relevant to termination. All [the company] was entitled to was 10 days’ notice of termination as per the contract. While [the plaintiffs] may have been hopeful for a renewal and a new contract, the duty of good faith performance did not limit the condominiums’ freedom regarding future contracts which had not yet been negotiated or entered into.”

Berkovitz says the duties imposed by the trial judge “went beyond what the duty of good faith performance required.”

In the first case cited above, the Supreme Court “emphasized that its recognition of a duty of good faith contractual performance was a modest, incremental step, and that it was not to be applied to undermine long-standing principles of contract law and create commercial uncertainty,” writes Berkovitz, adding that subsequent decisions “affirm the limits of the duty’s application.

Date_Published
2018-12-24
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Laura Stairs Head Shot

Due diligence by a prospective buyer of a business could prevent serious problems in the future, Windsor corporate lawyer Laura Stairs tells AdvocateDaily.com.

Stairs, an associate with Shibley Righton LLP, advises clients that the first step in avoiding pitfalls is to get a copy of the corporate record of the target firm.

"We want to ensure the person the client is dealing with has the authority to make agreements and decisions with respect to the corporation," she says.

"The next thing we look at are the financial statements," Stairs says. "We want to know if this business is profitable, look at the liabilities and debts that are out there and determine whether it's worth investing in."

She says she encourages clients not to enter into any share purchase agreement before having an opportunity to review these types of documents.

"Instead, we often advise them to enter into a Letter of Intent," Stairs says. "This is a document that sets out the general terms, but it is not binding on the parties.

"You want to make sure that it specifically says it is a non-binding agreement, but it allows the potential buyer to undertake a due diligence review," she says. "As a seller, you would want to include a provision in the Letter of Intent that is binding, confirming that any information shared with the potential purchaser is confidential and won't be distributed or used outside the document's terms."

Stairs says she also urges buyers to investigate those employed by the business to understand how long they have worked there because the common law protects employees when they are being terminated.

"If you buy a business through a share purchase agreement, you are responsible for the employees unless you come to some agreement that the previous owner terminates them," she says. "The reason this becomes an issue is that the longer the term of service an employee has, the more notice and severance pay they're entitled to on their termination."

If a buyer agrees to accept the employees, they become responsible for them, including any entitlements and their seniority within the company, Stair says.

"That's why it’s important to do your due diligence up front and understand what the obligations might be, so you can structure the agreement to protect yourself as much as possible," she says.

Stairs says if the labour costs are beyond expectations, it may be possible that before purchasing the business, the vendor is required to terminate all the employees and assume responsibility for all the associated costs.

Another issue a buyer needs to ensure is dealt with involves regulatory bodies that oversee various businesses and trades, she says.

"There are some businesses that require regulatory licences to operate," Stairs says. "You need to ensure before you buy the operation that you will be entitled to continue on with that licence or that your application for a new licence will be granted,” she says.

Some regulatory bodies will work with the buyer to determine whether the new owner would be able to continue the business, Stairs says.

"It depends on the ministry or body that oversees the regulation of the business," Stairs says, adding the firm should investigate what the ministry requires and "quite possibly you would be interacting directly with the ministry as a buyer."

Date_Published
2018-11-28
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peter murphy headshot

In the final instalment of a two-part series, Toronto business lawyer Peter Murphy discusses the unique issues facing landlords of cannabis stores.

Landlords should seek legal advice when negotiating leases with prospective cannabis retailers, Toronto business lawyer Peter Murphy tells AdvocateDaily.com.

Murphy, partner with Shibley Righton LLP, explains that prospective cannabis retailers in Ontario are rushing to secure leases long before they are licensed due to the timing of the provincial government’s framework for selling the drug in shops across the province.

“We’re in a new gold rush,” Murphy says, adding the Cannabis Licence Act (CLA) opened up opportunities for a multitude of players in the bricks-and-mortar retail market after Premier Doug Ford's new administration abandoned the former Liberal government’s plans for a provincial monopoly over recreational cannabis sales.

“Prospective cannabis retailers want to secure leases to lock up the best locations in Ontario now so that they’re in a good position when retail licensing begins,” he says.

However, Murphy says landlords are at risk of leasing their space to a prospective cannabis retailer who might not have a viable business by the time the market finally starts in 2019.

For example, municipalities still have until Jan. 22 to opt out of cannabis retail sales.

Meanwhile, the Alcohol and Gaming Commission of Ontario (AGCO), which will oversee the licensing regime for private retailers, has not started accepting licence applications.

"Landlords should be aware that the viability of a cannabis retailer's business remains uncertain — at least until all the necessary licences are granted and zoning is confirmed," says Murphy.

He says landlords will be opening themselves up to the AGCO's scrutiny by agreeing to lease their premises to a prospective retailer of recreational cannabis. He explains that the CLA allows AGCO officers to investigate the “character, financial history and competence” of persons, including landlords, as part of their licensing decisions. The law also makes it an offence to “hinder, obstruct or interfere” with an investigation under certain circumstances.

Murphy says some landlords may find their tenants selling cannabis without a licence, pointing to the recent spate of illegal dispensary closures, which were swiftly followed by re-openings.

“The regulations under the CLA provide that anyone who sells cannabis illegally after Oct. 17, 2018 will be denied a licence. However, the potential profits of selling before the licensed market starts are so lucrative, that many dispensaries are open for business anyway,” he says.

Murphy says landlords could be on the hook if their tenants are caught operating illegally because Ontario's recreational cannabis laws create specific offences for landlords who “knowingly permit” their premises to be used for unlicensed sales of marijuana. The resulting penalties for landlords include large fines and up to two years in jail.

“To defend this charge, landlords would have to show they took reasonable actions to prevent such activity, and that starts with carefully addressing the issue in leases,” he says.

"Landlords will not be able to rely on a technique known as 'distraint' that allows them to seize other types of inventory and sell it to cover rent arrears," says Murphy.

“The remedy of distraint will not be possible here, because the sale of this particular inventory would be illegal without the proper licences. As a result, landlords should expect to have more limited remedies for defaults on the lease," he explains.

"When entering into leases or offers to lease with prospective cannabis retailers, landlords should carefully consider the new cannabis laws and regulations and ensure appropriate protections are obtained," says Murphy.

For part one, where Murphy discussed the issues facing cannabis store retailers, click here.

Date_Published
2018-11-26
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Marlin Horst head shot

Sandbagging reflects poorly on all parties to a transaction, Toronto corporate lawyer Marlin Horst tells AdvocateDaily.com.

Horst, a partner with Shibley Righton LLP, explains that the practice arises in mergers and acquisitions when a buyer becomes aware that the seller will be unable to meet all the representations and warranties made in the agreement.

That allows the purchaser to close the deal with the intention of later suing the vendor in court for damages related to the known deficiencies since contracts normally provide indemnities for buyers in the event promises can’t be met.

Horst says examples of sandbagging are relatively rare in Canada, but the issue is growing as parties on both sides take the risk of an episode into consideration when completing transactions. Nevertheless, he says the trend is concerning.

“If vendors are making representations and warranties that are not correct, then it means they’re not doing their own internal due diligence properly,” Horst says. “If the buyer discovers something that the vendor itself doesn’t know, it shows a lack of knowledge about their own business.”

On the purchaser side, he says they are generally better served by addressing any deficiency they uncover, rather than holding it back to use as a weapon after closing.

“If a buyer finds something that’s contrary to the representations and warranties and it’s brought up before the deal closes, the chances are it can be handled with a reduction to the purchase price or some other fix,” Horst says.

In most cases, he says a risk analysis would favour dealing with these issues up front rather than turning to the courts later.

“The problem with bringing a lawsuit afterward, and litigators might not like to hear this, is that there is no certainty about what is going to happen,” Horst says. “You can have a case that you and everyone agrees is iron-clad, except for the judge, who sees it differently. You’re always taking a risk.”

In any case, Horst says buyers should be put off by the whiff of bad faith that sandbagging leaves behind.

“In the end, I think the duty to negotiate in good faith — as weak as it is in Canada at the moment — will stop the practice,” he says.

Horst explains that, historically, such a duty was never recognized at common law, but that it has developed over time, influenced by similar requirements in nations that operate under a civil code.

“The idea has crept into common law countries to lesser or greater degrees,” he says, adding that Canada is at the lower end of the spectrum.

“It has come up in a few cases with horrifically bad facts where the judges felt they had to find a way to help the aggrieved party,” Horst says. “Although there is a sense of a duty to negotiate in good faith in Canada, the jurisprudence is not very well developed here. A vendor could certainly make a case based on it, but it wouldn’t be a sure thing.”

Date_Published
2018-06-19
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Joel Berkovitz Head Shot

The “long and twisting saga” that pits South American villagers against a global oil giant took another turn recently in a Canadian courtroom, Toronto business lawyer Joel Berkovitz tells The Lawyer’s Daily.

“At its core,” explains Berkovitz, a lawyer with Shibley Righton LLP, “this case is about attempts to enforce a US$9.5 billion judgment in Canada which was obtained in Ecuador against the U.S. company … A New York court declined to enforce this judgment in the United States, finding that the Ecuadorian judgment was obtained by fraud.”

In a previous post with AdvocateDaily.com, Berkovitz said the case began in 1993, after roughly 30,000 Ecuadorian villagers alleged that an oil company dumped billions of litres of toxic oil-drilling byproducts into the environment. They alleged the toxins caused increased health problems, including more frequent cancer deaths and a higher rate of miscarriages.

In a 2011 decision, Ecuadorian courts ordered the company to pay the villagers US$9.5 billion. Since the company didn’t have assets in Ecuador, the plaintiffs looked elsewhere to collect on the judgment. They tried in the U.S., but the judge found there had been extensive acts of fraud, bribery, forgery, intimidation and collusion in the Ecuadorian proceedings.

The plaintiffs then sought to seize the shares of the company’s Canadian subsidiary — a seventh-level subsidiary of the American company — by piercing the Canadian company’s “corporate veil so that its shares and assets would be available to satisfy the judgment against its parent,” writes Berkovitz.

“In a 2017 ruling, the Ontario Superior Court of Justice granted the … defendants summary judgment, finding that the shares and assets of [the Canadian company] were not available for seizure to satisfy the Ecuadorian judgment, and that [the Canadian company’s] corporate veil should not be pierced.”

On appeal, he says, the Ecuadorian plaintiffs sought to overturn the Superior Court ruling on both issues.

“The Court of Appeal unanimously dismissed the appeal and ruled in favour of the … defendants, though the majority and concurring minority opinions came to different conclusions about the test for piercing the corporate veil,” says Berkovitz.

“The majority opinion largely echoed the analysis and findings of the Superior Court’s ruling, finding that [the Canadian company’s] shares and assets were not subject to be seized under the Execution Act (as these shares were not held directly by [the U.S. company]) and that the applicable test to pierce [the Canadian subsidiary’s] corporate veil had not been met.

“The majority rejected the argument that courts can pierce the corporate veil for reasons of equity, reiterating that the applicable test for piercing the corporate veil is set out in” this case.

To pierce a subsidiary’s corporate veil, says Berkovitz, the court must be satisfied that “the subsidiary was incorporated for a fraudulent or improper purpose or used by the parent as a shell for improper activity. In the present case, the majority found that this test was not satisfied as there was no allegation of wrongdoing against [the Canadian company].”

He says the majority worried that abandoning the test “would lead to ad hoc applications of equity to pierce the corporate veil, introducing uncertainty into corporate law.”

“While Justice Ian Nordheimer (writing a concurring minority opinion) also dismissed the appeal, he disagreed with the majority about whether the Transamerica test was applicable in these circumstances and on the general approach with respect to when the corporate veil can be pierced,” says Berkovitz.

“Regarding the Transamerica test, Justice Nordheimer explained that it was adopted in the context of deciding whether liability could be imposed by lifting the corporate veil, but that it may not be applicable to the judgment enforcement context, as ‘it would appear to be very difficult to conceive of a factual situation where the Transamerica test could be met by a judgment creditor, that is, where the corporate structure would be found to have been ‘used as a shield for fraudulent or improper conduct’ solely in the execution context.’”

The judge then reviewed the case law for piercing the corporate veil, “noting several instances in which it appeared that the courts had applied equity to do so and observing that the power to pierce the corporate veil stems from the courts' equitable jurisdiction,” writes Berkovitz.

Nordheimer wrote that “it would take much stronger language in the jurisprudence, or a clear statutory amendment, to displace or limit the courts’ equitable power to pierce the corporate veil in those extraordinary situations where liability has been established but the judgment creditor is nevertheless left without any remedy because of the judgment debtor’s internal corporate structure.”

Berkovitz says “even if principles of equity can be applied to pierce the corporate veil, Justice Nordheimer was not convinced that it would be appropriate to do so in this case in light of the U.S. court’s conclusion that the judgment against [the company] was obtained by fraud. Absent a Canadian court finding that the Ecuadorian judgment was valid, he could not conclude that failing to enforce the judgment would be ‘too flagrantly opposed to justice’ as to permit the corporate veil to be pierced.”

He says the decision “confirms the principle of corporate separateness and the applicable test for piercing the corporate veil, the concurring minority opinion may provide fodder for further arguments that principles of equity should be applied to pierce the corporate veil in some cases where a party is seeking to enforce a judgment whose validity is not in question.”

Given the dollar value of the judgment and “the legal issues at stake, the Supreme Court of Canada may be called upon to review this matter in the near future,” says Berkovitz.

Date_Published
2018-06-19
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Bill Northcote Head Shot

An American court has ruled there can't be any monkey business involved in the country's copyright laws, says Toronto business lawyer Bill Northcote.

The U.S. Court of Appeals for the 9th Circuit recently found that American copyright laws do not allow a monkey to hold copyrights, says Northcote, chair of Shibley Righton LLP's business law group.

"From a copyright perspective, the most important point in the case is that the monkey doesn't have statutory standing," Northcote says. In other words, copyright law only covers humans.

The two sides battling over the photos reached a settlement in September and asked the 9th Circuit to dismiss the case and throw out a lower court ruling in favour of the photographer whose camera was used to take the photographs, according to an Associated Press story.

"The decision really says they want the litigation to proceed," Northcote tells AdvocateDaily.com.

The court suggested the settlement was a way for PETA to avoid a precedent it may not like, he says, adding that the case was precedent-setting because it dealt with an issue not previously looked at — whether a non-human can own a copyright.

Northcote says the court's decision was "pretty critical of the role that PETA played because it really was pursuing its institutional interests rather than interests as the best friend of the monkey."

He notes there's evidence in the ruling that the court had reached a decision before a settlement was reached and decided to vacate that deal.

"At least two of the judges thought it was sufficiently important in the development of the law that they should issue this judgment in the public interest," says Northcote.

The court said a decision in this "developing area of the law" would help guide lower courts, says the Associated Press.

The case centres around a “selfie” taken in 2011 by a Macaque monkey in Indonesia using the camera of a British photographer.

According to an article in The Telegraph, the photographer was taking pictures of a group of monkeys when one named Naruto grabbed his camera and snapped off hundreds of pictures. While most were out of focus, the animal did manage to capture some incredible images in the process, including the infamous monkey's self-portrait.

The stunning selfie went viral and the photograph landed in Wikipedia's royalty-free database. The photographer asked the site not to use the photograph without his permission, but Wikipedia refused, arguing that he didn't take the picture and therefore, it cannot be copyrighted, says The Telegraph.

The People for the Ethical Treatment of Animals (PETA) then filed a copyright infringement lawsuit in 2015, claiming proceeds from the image should be donated to preserve the monkey’s habitat in Indonesia, that the photographer infringed on Naruto's copyright when the animal's picture was printed in a book, and that the organization was the guardian of the monkey's rights in the photograph, says an article in the Washington Post.

The appeal court found "the animal had constitutional standing but lacked statutory standing to claim copyright infringement of photographs known as the 'Monkey Selfies,'” according to the article.

The ruling emphasized that while Congress authorized “next friend” lawsuits on behalf of habeas petitioners and for children or incompetent persons, the legislative body did not extend that right to animals, says the Post.

"Our precedent on statutory interpretation should apply to court rules as well as statutes: if animals are to be accorded rights to sue, the provisions involved therefore should state such rights expressly," the 9th Circuit Court found.

An animal "could have legal rights in other areas" but not have copyright ownership, Northcote says. "Copyright is entirely the creation of a statute."

One element of copyright is the ability of the owner to commercially exploit it, and if the monkey were, for example, the owner of the photograph, he wonders how the animal would make money from the image.

"Copyright law is quite similar in many countries," Northcote says. "In fact, there's an international treaty that recognizes that if you're a copyright owner in Canada, then you are recognized in other countries. The broad outline is similar around the world."

Northcote offers advice to anyone who may find themselves in a similar situation.

"I would advise them to do some post-capture editing — crop it, manipulate the colour, lighten or darken certain areas of the photo," he says. "I would try to rely on that as creating some copyright in what's called derivative work."

He says he would then carefully control the distribution of the work.

"I would have a licence agreement that would limit users in what they could do with it. I would say don't post it on places like Wiki, where it could be reproduced widely,” Northcote advises.

"There are technology controls like putting a digital watermark on it so you can track where it's being used," he says.

Northcote suspects the issue will return, as animal law is a growing field.

"It is a fascinating area," he says.



Date_Published
2018-05-03
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Bill Northcote Head Shot

A large chain of taco restaurants will have a tough time trying to keep others from using “Taco Tuesday,” Toronto business lawyer Bill Northcote tells Metro News.

Claiming it has a trademark on the phrase, the fast-food giant recently told a Calgary taco restaurant to stop using it to advertise its weekly half-priced specials, says the publication.

Northcote, chair of Shibley Righton LLP’s business law group, says the fast-food giant doesn't actually have a registered trademark on “Taco Tuesday” — just the Tuesday part.

“The word taco was disclaimed because it is descriptive of the services (selling tacos),” he says.

According to the report, the chain trademarked “Taco Tuesday” in 1997. The company sent a cease-and-desist letter to the Calgary restaurant last Friday, demanding they stop using the slogan. The company plans to comply, says the report.

Northcote and other trademark lawyers say there’s a good chance the chain wouldn’t win if a legal challenge were to be launched.

While the moniker may have been trademarked in 1997, several lawyers tell Metro News that it has become “genericized” over the years through widespread use. In order to be enforced, they say, a trademark has to be distinctive.

 

Date_Published
2018-02-16
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Bill Northcote Head Shot

The Federal Court of Appeal (FCA) “got it right” in resolving the issue of trademark confusion in a case involving a Canadian luggage company and a Swiss firm, Toronto business lawyer Bill Northcote tells The Lawyer’s Daily.

As the article notes, the FCA ruled that several of the Canadian company’s logos would be “likely to cause confusion” with the trademark of the Swiss company, which specializes in goods marked with a symbol resembling the cross on the Swiss flag.

“To me, there is a likelihood of confusion to the casual observer, which is, of course, the test,” says Northcote, chair of Shibley Righton LLP’s business law group.

“I can understand why [the Swiss company] pursued this, because [the Canadian company] was infringing on their mark and attempting to appropriate part of the goodwill associated with it.”

In an earlier decision, a Federal Court trial judge ruled there was a lack of resemblance between the marks that was not likely to confuse consumers and thus no “passing off” of the Canadian company’s bags as the Swiss company’s product.

As The Lawyer’s Daily reports, the decision was appealed, with the Swiss company arguing that the judge erred in concluding there was no likelihood of confusion and no passing off. The FCA agreed unanimously, saying the Canadian company’s marks would likely cause confusion with the Swiss product in the “mind of a casual consumer in somewhat of a hurry … [and] does not pause to give the matter any detailed consideration or scrutiny.”

"Under s. 6(2) of the Trade-marks Act, the use of one trademark causes confusion with another if the use of both trademarks in the same area would be likely to lead to the inference that the goods have the same source," says The Lawyer’s Daily. Subsection 6(5) of the Act says a court should give regard to “all the surrounding circumstances” of the marks, including factors such as their distinctiveness and length of time in use.

The FCA judge wrote that she agreed with the appellants that the lower court made a reviewable error when it discussed only the resemblance factor between the marks, rather than looking at all the circumstances as provided for under s. 6(5) of the Act, says the article.

 

Date_Published
2017-11-28
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The fight over the ownership of a monkey selfie could soon be resolved as the parties pursue an out-of-court settlement, says Toronto business lawyer Bill Northcote.

“That could leave some of the legal issues unresolved, but to most copyright lawyers, even without litigation, this was a settled point,” says Northcote, chair of Shibley Righton LLP’s business law group.

“The trial court already decided that copyright cannot be owned by an animal,” he tells AdvocateDaily.com. “That decision will be persuasive, although not binding, on another trial court hearing.”

But if the appeal court had heard the case to completion, the decision would be binding on other American trial courts and would be persuasive in some other jurisdictions. Northcote suspects PETA (People for the Ethical Treatment of Animals) was afraid it wouldn’t win.

“Presumably that’s the reason PETA wants to settle because they figure they don’t have any chance of being successful. So better to fight another day,” he says.

The parties recently asked the judge to hold off deciding the case while they pursue settlement discussions.

“Given the current progress of settlement discussions, the parties are optimistic that they will be able to reach an agreement that will resolve all claims in this matter,” the parties said in a joint motion to stay the appeal, according to the World Intellectual Property Review (WIPR).

Under all the monkey business and the clever headline possibilities like “Monkey see, monkey sue,” is a real legal conundrum.

The case centres around a “selfie” taken in 2011 by a Macaque monkey in Indonesia using the camera of British photographer David Slater.

According to an article in The Telegraph, Slater was taking pictures of a group of monkeys when one of them grabbed his camera and snapped off hundreds of pictures. While most were out of focus, the animal did manage to capture some incredible images in the process, one of which is the infamous monkey's self-portrait.

The photo then went viral, and when Slater saw the picture on Wikipedia in its royalty-free database, he asked the website to stop using it without his permission.

Wikipedia refused, stating that the picture cannot be copyrighted as Slater did not take the picture.

This led to a copyright infringement lawsuit in September 2015 by PETA, which claimed proceeds from the photo should be given to preserve the monkey’s habitat.

In response, reported WIPR, Slater filed a motion to dismiss the case, arguing that American law did not give animals the right to assert copyright ownership.

At trial, a California judge rejected PETA’s claim and stated that any copyright ownership by animals is a matter for Congress, not the courts. PETA appealed and the court recently heard arguments from both sides.

PETA’s attorneys argued the copyright ownership should belong to the monkey, not Slater, while the photographer’s defence asked if PETA has a close enough relationship to the monkey named Naruto to represent it in court, WIPR reports.

“From a lawyer’s perspective,” says Northcote, “the initial case was interesting because it reinforced the concept that there could be works which have no author for copyright purposes.”

It was “helpful to have the case, but the results weren’t surprising,” he says, adding it’s unlikely the courts would ever extend copyright ownership to animals.

“It would lead to all kinds of bizarre results. For example, if the monkey did own the copyright, how does it administer it? Implicit in copyright ownership is the right to license others to use it. Well, how can a monkey agree to that?” Northcote wonders.

“And if you extend it, which is what lawyers like to do, suppose you’re in a forest and a bird sings and you record it. The act of recording it doesn’t create the copyright because there’s no creative effort expended in the creation of it. So, does that mean the bird can copyright its song? And does that mean that other birds have the right to sue?”

Northcote says settling the case is an appropriate resolution on two fronts.

“First, why would PETA have the right to represent this monkey? And second, an animal cannot assert copyright ownership,” he says.

Date_Published
2017-08-24
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On June 7, the federal government announced that it is suspending the implementation of the private right of action under Canada’s anti-spam legislation (CASL). The move was in response to concerns raised by Canadian businesses, charities and the not-for-profit sector.

The suspended provisions of CASL were scheduled to come into force on July 1, 2017 and would have allowed any interested person to file lawsuits for alleged violations of the legislation.

The government has not stated how long this indefinite suspension will last. The legislation will be submitted to a parliamentary committee for review.

According to the press release issued by Innovation, Science and Economic Development Canada, “Canadians deserve an effective law that protects them from spam and other electronic threats that lead to harassment, identity theft and fraud. At the same time, Canadian businesses, charities and non-profit groups should not have to bear the burden of unnecessary red tape and costs to comply with the legislation.”

The government claimed it is committed to striking the right balance between protection from spam and Canadians’ reasonable use of electronic communication. It also said it “supports a balanced approach that protects the interests of consumers while eliminating any unintended consequences for organizations that have legitimate reasons for communicating electronically with Canadians.”

CASL came into effect on July 1, 2014. The law prohibits individuals and organizations from sending commercial electronic messages to Canadians without their consent. Penalties for the most serious violations of the legislation can be issued up to a maximum of $1 million for individuals and $10 million for businesses.

The private right of action promised to extend enforcement of CASL beyond government agencies to all interested persons. The suspended right would have permitted interested persons to file lawsuits, starting July 1, 2017, seeking actual and statutory damages for alleged breaches of CASL. Statutory damages would have amounted to $200 per occurrence, up to $1 million per day. It is widely expected that the CASL private right of action, if implemented, will lead to class-action lawsuits joining the recipients of infringing electronic messages into large group lawsuits.

Canadians should keep in mind that, despite the indefinite suspension of the private right of action, CASL remains in force and significant fines can still be issued for breaches. Since CASL came into effect, the CRTC (Canadian Radio-television and Telecommunications Commission) has issued numerous fines, including one case where the penalty exceeded $1 million.

Date_Published
2017-06-26
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A recent decision in small claims court makes it clear that paralegals must leave lien work to lawyers, says Toronto business lawyer Joel Berkovitz.

“This case is significant because it recognizes that paralegals cannot and should not register or discharge condo liens,” says Berkovitz, a lawyer with Shibley Righton LLP.

The case began when the plaintiff missed an assessment notice from her condominium corporation and failed to pay by the deadline, he tells AdvocateDaily.com. The corporation then registered a lien against her property and charged her for the legal fees.

The plaintiff, a paralegal herself, knew that registering and discharging a lien falls outside of a paralegal’s authorized area of practice and that the condo management company couldn't then collect legal fees for the work, explains Berkovitz.

The condo owner paid the entire amount, then launched the small claims action to recoup the legal fees.

Berkovitz says there was a separate investigation by the Law Society of Upper Canada, which found that the work was outside of the paralegal’s licence.

The judge in small claims court also ruled that the condo corporation's paralegal was acting outside of her scope of authority. In his decision, he wrote “the paralegal was engaged in unauthorized practice, and that preparing and placing liens on property is properly the work of lawyer licensees.”

The question before him, however, was whether the condo corporation could collect fees for those “unauthorized” services.

“On its face, [the Solicitors Act ] prohibits someone who is not a solicitor from recovering legal costs. However, on closer reading, the section appears to be restricted to situations where a person who is not a solicitor represents a party in 'any action or proceeding,'” wrote the judge.

Since discharging liens is neither an action nor a proceeding under the law, the judge dismissed the claim. Usually when that happens, the defendant is entitled to costs, but in this case, the judge decided against it.

He wrote that it was “in the public interest to prevent unauthorized practice, and to discourage [the defendant] from continuing its practice of using paralegals for work they are not authorized to do. [The plaintiff] obviously put time and effort into this and did so at her own expense. Her efforts should have some recognition.”

He awarded her $500.

“While the award doesn’t come close to covering the actual time she expended on this case, it is symbolically significant,” says Berkovitz. “The judge said that while she didn’t win the case, she was entitled to some cost for it.”

He says the case means that the practice in some larger management companies to have in-house paralegals do lien registration work must now stop.

Berkovitz suspects that paralegals can continue to issue the notices that are sent out 10 days in advance of registering a lien. Since the case didn’t address notices, he says paralegals can continue to send them out and charge for the work.

“It’s a reasonable presumption from the case that they can continue to send out notices since this is an administrative task — unless there is some finding in the future that says sending a Notice of Lien is part of the lien registration process. If that happens, the entire lien process must be handled by lawyers,” says Berkovitz.

As for the question that remained surrounding whether liens should be viewed as an “action or proceeding,” the judge wrote: “I regard this as something of a legislative oversight, and one in need of remediation. That however is a matter that must be dealt with by the Legislative Assembly of Ontario.

Date_Published
2017-06-08
Description

A new government-backed capital fund is a good opportunity for underserved small and medium-sized businesses to get access to expertise as well as cash, says Toronto corporate and commercial lawyer Marlin Horst.

A number of financial institutions, including the country’s biggest banks, have teamed up to create the Canadian Business Growth Fund, which aims to make available up to $500 million over the next year to help smaller companies grow. If it takes off, the fund will double in size over the following nine years.

The fund’s sponsors have also promised to provide advice and mentorship to businesses so that they can reach their potential.

Horst, a partner in the Toronto office of Shibley Righton LLP, says a large swath of early stage Canadian businesses are caught in the gap between angel investment funding — unavailable to all but a select few — and the public markets, which tend to be a viable option only for larger, more established companies.

“Angel investors see a company with a great idea, but they don’t just hand over the funds. They come in and partner with founders to try to make it a success for both of them,” Horst tells AdvocateDaily.com. “It looks like this program is going to do more than just provide loans. They will actually help companies develop business plans to get the most out of their ideas. Not everyone has access to that type of advice right now.

“Typically angel investors tend to be successful business people who have exited from their own enterprise. Normally this type of investment doesn’t come from big institutions, so it will be interesting to see how it works,” Horst adds.

RBC CEO David McKay told the Canadian Press it's a big challenge for small businesses to get their hands on cash for growth to fund new hires, equipment purchases or business acquisitions.

“We do have a very strong and vibrant investment community ... but it's sub-scale and it's fragmented,” McKay said. “So we do have a challenge raising capital for growth in our economy.”

The fund plans to take a minority stake in the businesses selected for the program. According to the federal Department of Finance, which supported its foundation, the typical investment level for each company is expected to range between $3 million and $20 million.

"The Government of Canada welcomes the announcement by Canada's leading financial institutions to establish a business growth fund that will help ambitious Canadian companies get the capital they need to grow and succeed globally. This will help them create good, well-paying middle class jobs, and will grow Canada's economy over the long term,” federal Finance Minister Bill Morneau said in a statement.

Date_Published
2017-04-24
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Canadian subsidiaries can rest easier after the Ontario Superior Court ruled that Chevron Canada can’t be held financially liable for a judgment against its American parent company, says Toronto business lawyer Joel Berkovitz.

“This was a case about whether the assets of a subsidiary can be seized to satisfy a judgment against the parent company and the court here conclusively said, ‘No,’” says Berkovitz, a lawyer with Shibley Righton LLP.

In Yaiguaje v. Chevron Corporation, 2017 ONSC 135 (CanLII), the court ruled that Chevron Canada is a separate entity from the Chevron Corp. and, therefore, not responsible for any judgments against the parent company.

The Chevron case began in 1993, after roughly 30,000 Ecuadorian villagers alleged that Texaco, now owned by Chevron, dumped billions of litres of toxic oil-drilling byproducts into the environment. They alleged the toxins caused increased health problems, including more frequent cancer deaths and a higher rate of miscarriages.

In a 2011 decision, Ecuadorian courts ordered Chevron to pay the villagers US$9.5 billion. But Judge Lewis Kaplan of the United States District Court for the Southern District of New York found, following a seven-week trial, that there were extensive acts of fraud, bribery, forgery, intimidation and collusion in the Ecuadorian proceedings. Chevron has refused to pay the Ecuadorian judgment.

As part of an effort to seize Chevron assets elsewhere in the world, 47 plaintiffs asked the Ontario Superior Court of Justice to execute the Ecuadorian judgment against the assets of Chevron Canada, an indirect subsidiary of the U.S.-based parent company, Chevron Corp.

In his Ontario Superior Court decision, Justice Glenn Hainey refused, effectively protecting Chevron Canada’s assets from being seized.

Hainey wrote: “Chevron Canada’s major business activities involve petroleum and natural gas exploration in Canada. It has never carried on business in Ecuador and played no role in the events leading up to the Ecuadorian judgment.”

The plaintiffs have applied for leave to appeal the decision to the Ontario Court of Appeal.

Berkovitz tells AdvocateDaily.com that Canadian subsidiary companies should be relieved by Hainey’s ruling.

“Companies can rely on the fact that affiliated, subsidiary and parent companies can all be treated as separated corporate persons. That means there is a large degree of protection that their assets will not be available to satisfy judgments against the other companies in their group,” explains Berkovitz.

“The only exception is if the courts find the parent or affiliate exercises complete domination and control of that company and there is some sort of wrongdoing akin to fraud. If those two criteria are met, the courts can pierce the corporate veil and seize the assets of that company. Aside from that, you can rest fairly easy that the general principle of corporate independence and separate corporate personhood is upheld in this case.”

Berkovitz says it’s not unusual for plaintiffs to go after international subsidiaries, especially if they’re not having any luck collecting on the original judgment.

In the Chevron case, the company didn’t have any assets in Ecuador, which is why the plaintiffs looked elsewhere to collect on the judgment.

“Given the size of the judgment, they're going to try and execute it anywhere they have a reasonable legal argument and that there are assets to satisfy the judgment.”

In fact, the plaintiffs have taken their fight to courts in other countries, including the United States.

Date_Published
2017-03-29

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