Law Clerks' Review

Significant amendments to the Canada Business Corporations Act (CBCA) proposed in the federal government’s omnibus budget implementation bill (Bill) would codify into statute some of the principles relating to directors’ duties set out in the landmark Supreme Court of Canada (SCC) 2008 decision BCE Inc. v. 1976 Debentureholders (BCE).

The Bill would also require that certain CBCA corporations develop an approach to remuneration, hold an advisory “say-on-pay” vote on an annual basis, provide annual disclosures on diversity and on compensation clawback mechanisms and the well-being of employees, retirees and pensioners.

STATUTORY CHANGES TO DIRECTORS’ DUTIES

One significant proposal in the Bill is a codification and to a degree, expansion upon certain of the principles stated by the SCC in BCE, which remains the leading case on the fiduciary duties of directors of Canadian corporations (see our December 2008 Blakes Bulletin: Supreme Court of Canada Releases Reasons for Decision in BCE).

If implemented, these amendments would reinforce the divergence of Canadian law on directors’ duties from U.S. law on that point, where cases centre on maximizing shareholder value, especially when faced with a potential change of control (see our December 2015 Blakes Article: The Balancing Act: Directors’ Duties in Canada vs. the U.S.). The CBCA, like other Canadian corporate statutes, requires that directors and officers of corporation act “honestly and in good faith with a view to the best interests of the corporation,” a duty commonly referred to as the “fiduciary duty”.

The Bill proposes to amend the CBCA to specify that, when acting with a view to the best interests of the corporation, directors and officers of the corporation may consider (but are not limited to) the interests of shareholders, employees, retirees and pensioners, creditors, consumers, and governments; the environment; and the long-term interests of the corporation.

Notably, the Bill includes “retirees and pensioners” (a common theme across other statutes impacted by the Bill) as a class of people whose interests may be considered, although they were not specifically mentioned by the SCC in BCE.

The proposed changes would expressly embed these principles in statute, rather than for allowing for the flexibility afforded by the development of the common law. They also emphasize the fact that, in exercising their duties, directors are not necessarily bound to consider exclusively, or perhaps even primarily, the interests of shareholders and investors, but that shareholders and investors are but one set of “stakeholders” among many.

SAY-ON-PAY

The Bill’s changes to the CBCA would mandate that certain corporations develop and annually disclose their approach to the compensation of directors and members of senior management. The corporations affected will be prescribed by regulations, and are not now known, although they would likely be distributing (i.e., public) corporations.

In a significant change from existing law, the Bill would also require that shareholders of prescribed corporations be provided a non-binding “say-on-pay” vote on the corporation’s approach to compensation at each annual shareholder meeting and that the results of the vote be disclosed to shareholders.

An increasing number of large Canadian public companies have been holding say-on-pay votes in recent years, but such votes remain rare among smaller issuers. If the Bill becomes law and the regulations provide that all distributing corporations are subject to the requirement to hold say-on-pay votes, a very large number of Canadian public companies, including many junior issuers, and controlled public companies (many of which do not currently hold such votes as the results are preordained), will be required to hold say-on-pay votes annually.

DIVERSITY DISCLOSURE

The Bill also contains requirements relating to disclosure regarding diversity among directors and members of senior management of a prescribed corporation. Substantially identical requirements were approved in 2018, but have not yet been proclaimed in force.

If the regulations relating to diversity disclosure are not changed from those previously released, distributing corporations under the CBCA would, based on current disclosure requirements in Form 58-101F1 under National Instrument 58-101 – Disclosure of Corporate Governance Practices concerning gender diversity among the corporation’s board and senior management, be required to provide information relating to further categories of diversity (i.e., including, but not be limited to, Aboriginal Peoples, persons with disabilities, members of visible minorities – each as defined by the federal Employment Equity Act).

ADDITIONAL ANNUAL DISCLOSURE ON COMPENSATION AND EMPLOYMENT

In addition to the diversity disclosure, the Bill proposes additional disclosure requirements for certain corporations regarding the recovery of incentive benefits or other benefits paid to directors and members of senior management of the corporation (i.e., clawbacks) and “the well-being of employees, retirees and pensioners”. The regulations associated with the Bill have not been released, so the specifics of what such disclosure might entail are not yet clear, but if the same corporations are subject to these requirements as to the diversity disclosure requirements, these requirements would apply to distributing (i.e., public) corporations.

SIGNIFICANCE OF CHANGES

As noted, the statutory changes to the ambit of directors’ duties are significant, as they “hard-wire” and expand common law principles into the CBCA and open the door to potentially de-emphasize the interests of shareholders and investors. As well, the imposition of a “say-on-pay” vote will be a significant change for many corporations.

In addition, the imposition of disclosure requirements on CBCA corporations, beyond those prescribed on a uniform national basis by the provincial and territorial securities regulatory authorities, represents a significant foray by the federal government into an area that has been, for some time, the domain of securities regulators. It also provides for uneven disclosure between CBCA public corporations and public corporations incorporated provincially under the Ontario, Quebec, Alberta or other provincial corporate legislation, none of which jurisdictions have, to date, advanced on adopting similar requirements.

Interestingly, these changes are not currently proposed for chartered banks and life insurance companies, which are among the most significant public companies regulated federally, as they are incorporated under legislation other than the CBCA.

WHAT NEXT?

The Bill received its first reading in the House of Commons on April 8, 2019. It is expected that, following its second reading in the House of Commons, the Bill will be referred to the House of Commons Standing Committee on Finance. Following review in committee, it will be returned to the House of Commons for third reading, after which it will be sent to the Senate for consideration.

It is expected that, absent strong opposition, the proposed changes to the CBCA will remain part of the Bill and will be passed before the federal election scheduled for October 21, 2019. The changes to the CBCA would come into force on a date to be selected by the federal cabinet and it is expected that the associated regulations would be enacted before the changes to the CBCA come into force. However, it is unclear whether the regulations will be enacted before or after the federal election.

For further information, please contact:

John Tuzyk                               416-863-2918
Matthew Merkley                       416-863-3328
Liam Churchill                           416-863-3057

or any other member of our Capital Markets or Corporate Governance groups.

Posted by: 

John Tuzyk, Matthew Merkley and Liam Churchill

Posted in: Capital Markets, Corporate Governance

Blakes and Blakes Business Class communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue.

We would be pleased to provide additional details or advice about specific situations if desired.

For permission to reprint articles, please contact the Blakes Client Relations & Marketing Department at communications@blakes.com. © 2019 Blake, Cassels & Graydon LLP

https://www.blakesbusinessclass.com/broad-changes-cbca-proposed-directors-duties-additional-disclosure-annual-say-pay/

Teraview account holders (“Account Holders”) are reminded that authorizations to register documents in the electronic land registration system are typically good for five (5) years only, at which time such authorizations need to be renewed. An “Authorization Renewal Form” (the “Renewal Form”) and instructions can be found on the ServiceOntario website, which can also be accessed through a link on Teraview.

Account Holders are responsible for renewing their registration authorizations well before the expiration date to allow sufficient time for processing. It is not the responsibility of Teranet or ServiceOntario to remind Account Holders of their respective expiration dates.

Account Holders are reminded to read the Renewal Form carefully. Although the Renewal Form is very short, it has some important details. For instance, the Renewal Form provides, inter alia, that:  

By signing this form, the account holder representative confirms…[w]here the Teraview Account Holder has licenced Users under the Account who are members of a regulated organization those Users are listed on the page attached to this form with their organization membership numbers, and the Teraview account holder representative has informed the Director of Land Registration if any of those Users…have been the subject of disciplinary proceedings by the regulated organization where the User has been found to have engaged in professional misconduct…[emphasis added] 

Section 5.1 of the Electronic Land Registration Agreement (the “ELR Agreement”), which all Account Holders originally entered into in order to gain registration rights in Teraview, provides, similarly, that:  

The Account Holder shall give notice to the Director, as soon as reasonably possible [of…any change to] professional standing of an individual Account Holder or any of its Users, if the change arose out of disciplinary proceedings…[emphasis added] 

We have already seen a number of Account Holders attempt to renew authorizations without disclosing relevant user professional misconduct histories. Such renewals will be denied. Furthermore, by not disclosing such disciplinary histories as required in both the ELR Agreement and the Renewal Form, the Account Holder may be immediately suspended from registering any further documents in Teraview, with all of the consequences to his/her practice that such loss of registration rights entails.

Applications that do disclose disciplinary histories will be considered on a case by case basis. For more information, please see the ServiceOntario website.

In R v Jarvis, the Supreme Court of Canada unanimously decided that a person still has a reasonable expectation of privacy even when being observed or visually recorded in a public place.[1] The decision concerned a high school teacher who was charged with the offence of voyeurism under the Criminal Code. But, it could have far-reaching implications outside the criminal realm. A majority of the Supreme Court created a framework by which individuals, including employees, can potentially assert their privacy rights against others, including co-workers and employers, when in public areas. 

Section 162(1)(c) of the Criminal Code prohibits a person from surreptitiously observing or visually recording another person who is "in circumstances that give rise to a reasonable expectation of privacy" if the observation or recording is for a sexual purpose. The teacher accused in this case made video recordings of female students using a camera concealed inside a pen. The videos focused on the upper bodies of female students, who were unaware they were being video recorded. The only question before the Supreme Court was: do high school students have a reasonable expectation of privacy when in common areas of the school, including classrooms and hallways?

According to the majority of the Supreme Court, the entire context must be examined to answer this question, including the following non-exhaustive list of considerations:[2]

• A person expects complete privacy in certain locations. However, a person does not waive all reasonable expectations of privacy in a public location where the person expects to be observed by strangers.[3]
• There is a fundamental difference between a person's expectations of being observed and being recorded. Recordings are permanent, can capture minute details, and can be accessed, edited, manipulated, studied, and shared.[4] 
• A person's awareness or consent to the observation or recording is a relevant, but not determining factor. A surreptitious recording may not always breach a person's reasonable expectation of privacy. Similarly, a person's expectation of privacy may still be breached if she is being observed or recorded openly.[5]
• A person's expectations of privacy vary depending on the nature of the observation or recording: is it fleeting or sustained? Is it aided or enhanced by technology? The use of certain technologies creates permanent records or allows a person to hear or see things that are not ordinarily visible or audible (such as a zoom function).[6] 
• The type of activity observed or recorded is an important consideration. Courts have placed a high value on a person's expectations of personal privacy, which includes the intimate or sexualized parts of the body as well as personal information.[7]
• Any rules, regulations, or policies that govern the observation or recording in question must also be examined. The analysis depends on whether the rule, regulation, or policy is well known or whether it aligns with established norms of behaviour.[8]
• A person's expectation of privacy is higher where there is a relationship of trust between the person observing or recording and the person being observed or recorded. 
• The purpose of the observation or recording affects a person's expectation of privacy. For example, there is a minimal expectation of privacy when a patient disrobes for the purpose of allowing a physician to examine him.[9]
• Finally, a Court should take into consideration whether the person being observed or recorded is a child or young person.

After analyzing these relevant considerations, the Court determined that the female students being filmed by the accused teacher had a reasonable expectation of privacy in their school hallway and classrooms, despite being in a public place and having security cameras in the school. Interestingly, the Court also found that it would have come to the same conclusion had the accused been a stranger using a camera hidden in a pen on a public street.[10]   

Given the novelty of this framework, the implication of this decision on individual privacy rights and an individual's ability to commence a civil claim for a violation of these privacy rights remains unknown. However, with the ubiquitous and commonplace use of technology, it is likely that this area of law could potentially be used by employees to assert privacy rights at the workplace, even in "public" areas of the workplace, depending on whether the employee can be said to have an expectation of privacy according to the framework developed by the Supreme Court.

[1]  R v Jarvis, 2019 SCC 10 at para 37, 131.

[2]  Ibid at para 28-29.

[3]  Ibid at para 61.

[4]  Ibid at para 62.

[5]  Ibid at para 33.

[6]  Ibid at paras 63, 75, 81.

[7]  Ibid at paras 65-66, 82.

[8]  Ibid at para 83.

[9]  Ibid at para 31.

[10]  Ibid at para 90

This article was reprinted with the permission of Fasken. Fasken is one of the world's leading international business law and litigation firms. You can read Fasken's weekly bulletin, "The HR Space" here.

Health Canada has released the final regulations (Regulations) that will govern cannabis edibles, extracts and topical products. The Regulations will come into force on October 17, 2019, in substantially the same form as the draft regulations published by Health Canada in December 2018.

Market participants and the public have been eagerly awaiting legislative changes to allow for the production and sale of alternative cannabis products such as edibles, beverages and cannabis concentrate vaporizers. In a recently released report, Deloitte estimated that the Canadian market for these alternative cannabis products could be worth as much as $2.7 billion annually. With significant consumer demand looming, licensed processors will need to quickly figure out how to navigate the Regulations in order to bring alternative cannabis products to market in short order.

Overview of the Regulations

Products

The Regulations prescribe a maximum of 10 milligrams of THC per package of edible products and a maximum of 1,000 milligrams of THC per package of cannabis extract (such as a vape cartridge) or a cannabis topical intended to be applied to skin, hair or nails.

The Regulations prohibit products that are appealing to youth, causing many to question the permissibility of popular edible cannabis product forms such as cannabis-infused gummy bears. Health Canada officials have indicated that whether a product is appealing to youth will be assessed on a case-by-case basis, taking into account factors such as shape, colour, branding, packaging and overall presentation.

Packaging and Branding

Consistent with the requirements for other forms of cannabis currently available for purchase, the Regulations require that edibles, extracts and topical products be packaged in child-resistant, plain packaging and prohibit the presentation of any health-related claims.

The Regulations also prohibit the use of brand elements that would associate the product with alcoholic beverages, tobacco products or vaping products. This prohibition would appear to restrict the use of known alcohol, tobacco or vape brands on cannabis products. Health Canada has suggested that this prohibition would also restrict the use of terms generally associated with alcoholic beverages, such as “cannabis beer” or “cannabis wine.”

Production Facilities

The Regulations have maintained one of the most controversial provisions from the draft legislation: the prohibition on producing cannabis products in the same facility that conventional food products are produced in. The capital cost associated with building a standalone cannabis processing facility, coupled with the strict product requirements set out in the Regulations, may deter existing food processors and traditional consumer packaged goods companies from entering the market. This may afford vertically integrated licensed producers who have invested in production facilities for alternative cannabis products with a first mover advantage over unlicensed competitors looking to take advantage of a new market opportunity.

Challenges Ahead

Timing

In order to produce and sell cannabis edibles, extracts and topical products, federally licensed processors will need to seek a licence amendment authorizing such activities. Health Canada will begin accepting licence amendment applications on July 15, 2019, but is not expected to start approving amendments until the Regulations come into force on October 17, 2019.

Consistent with the Cannabis Regulations currently in force, licensed processors are required to provide Health Canada with a written notice at least 60 days before making a new cannabis product available for sale. Health Canada will begin accepting new product notices for alternative cannabis products on October 17, 2019. As a result, the earliest that consumers can expect to see cannabis edibles, extracts and topical products on the shelves is mid-December 2019.

Given the likely volume of licence amendments and new product notices that Health Canada will need to process, it is expected that a limited variety and quantity of products will be available initially.

Products

The onus to ensure that any new cannabis product complies with the Regulations falls on the licence holder. Health Canada has indicated that it will not entertain pre-approval requests for new cannabis products. The nebulous requirement that these alternative cannabis products not be appealing to youth, together with other ambiguous product requirements set out in the Regulations, creates uncertainty for licensed processors as they develop cannabis edibles, extracts and topical products to bring to market. There is a risk that time and capital will be spent developing products that Health Canada ultimately deem to be non-compliant.

As a result of the potential regulatory burden of processing licence amendment applications and new product notices, there is a risk that licensed processors may have to hold significant amounts of inventory while awaiting the requisite approvals. Many licensed producers have earmarked significant amounts of dried cannabis flower to use in the production of edibles, extracts and topical products in anticipation of robust demand for such products. However, ultimately Health Canada will control the quantity of and speed at which alternative cannabis products are introduced into the consumer market. It appears likely that demand for such products will exceed supply for a prolonged period.

Finally, Health Canada has suggested that it may engage in a consultation process with respect to the regulation of CBD, the non-intoxicating cannabinoid found in cannabis, which is purported to have therapeutic benefits. No timeline has been proposed for such consultation process. Currently, CBD is subject to the same regulation as THC, the intoxicating cannabinoid in cannabis. Many industry participants have argued that products containing only CBD, and not THC, should be subject to less stringent regulation as a natural health product. However, for the time being, the Regulations will apply to such products.

Conclusion

The next generation of cannabis products has been greatly anticipated by cannabis consumers and producers alike. Although the Regulations present a number of challenges for licensed processors to develop and bring products to market, with definitive regulations now in place, industry participants now have a road map and four short months to prepare to bring alternative cannabis products to market.

We will be watching closely as the next exciting chapter in Canada’s nascent cannabis industry unfolds.

In a recent Blog we talked about an Ontario Court of Appeal case called M. v. F., where Justice Benotto made some observations about the “win/lose” mentality of provincial child custody laws. Specifically, she noted that:

“For over twenty years, multi-disciplinary professionals have been urging the courts to move away from the highly charged terminology of “custody” and “access.” These words denote that there are winners and losers when it comes to children. They promote an adversarial approach to parenting and do little to benefit the child. The danger of this “winner/loser syndrome” in child custody battles has long been recognized.”

That call-to-arms by Justice Benotto has finally been heeded by the federal government, in the form of upcoming changes to the Divorce Act. Those amendments, which are found in Bill C-78 but are not yet in force, have an unwieldy title: “An Act to amend the Divorce Act, the Family Orders and Agreements Enforcement Assistance Act and the Garnishment, Attachment and Pension Diversion Act and to make consequential amendments to another Act”.

Although these Bill C-78 amendments implement a broad and ambitious range of changes to existing Family legislation, one of the more important ones is to replace the terms “custody” and “access” in the Divorce Act with more neutral terms like “parenting orders” and “contact orders”, respectively. These newer concepts also give courts an embedded opportunity to give specific directions as to the care of children.

That revised Divorce Act wording also acknowledges the fact that family law academics – and judges like Justice Benotto in the M. v. F. case – have long encouraged this tweak to the terminology. It eliminates the “winner/loser syndrome” she spoke of, as well as the unproductive mindset that the current custody regime fosters. By allowing courts to grant orders for “parenting” and “contact” instead, the level of parental conflict will be reduced, and by extension the best interests of children will be promoted.

As yet, there is no specific date announced for the implementation of the Divorce Act changes, but they are expected to be rolled out at some point in 2019.

Is this a promising development in the legislation around custody? Will it work in helping to reduce parental conflict, as hoped? What are your thoughts?

For a copy of the legislative amendments to the Divorce Act, see here.

M v. F., 2015

[This post by Russell Alexander first appeared on FamilyLLB.com on April 4, 2019]