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Top Ten Canadian legal tips - a summary of corporate, commercial, computer, franchise, wills and estates  and general laws prepared by a Toronto, Ontario law firm
Last updated August 31,  2010 - Updated weekly

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  Franchise Agreements
   
  If you are purchasing a franchise it is important to review the franchise agreement and negotiate changes to any provisions that are create a potential business problem. While franchisors may say their agreement is non-negotiable, in most cases changes can be made.
   

   

 

• Director Liability

   

  Directors of corporations have potential personal liability under different statutes, for example for unremitted tax withholdings or for environmental liabilities of the corporation.  Shareholders and officers of a corporation do not normally have personal liability.

   

• New Simplified Procedure Court Rules
   
  The Ontario rules for Simplified Procedures were amended in early 2010 and now provide that claims up to $100,000 can be brought under those rules.
   

• Shareholder’s Agreement
  
  A shareholder’s agreement should normally set out how control and financing issues are to be dealt with and also provide a buy sell mechanism.

 

• Charter of Rights and Freedoms
  
  In the recent case of City of Vancouver, et al. v. Alan Cameron Ward, et al. the Supreme Court of Canada has confirmed a damage reward for breach of an individual rights under the Canadian Charter of Rights and Freedoms.
   

 

• Ontario Chartered Accountants Powers of Seizure

  The Ontario government has granted powers to the Institute of Chartered Accountants of Ontario to search member’s offices and seize files or information without a warrant or court approval.  This power exceeds that of the police.

   

• Shareholder’s Agreement
   
  Without an executed shareholder’s agreement it is impossible to resolve shareholder disputes without suing in court.
   

• Corporate Directors

  The original incorporating director of an Ontario Business Corporation Act (OBCA) corporation cannot resign without being replaced.   Any subsequent director can resign at any time.

   

• Occupational Health and Safety Act  (OHSA)

 

 Ontario employers must prepare and review a policy on workplace harassment at least annually, as required by the Occupational Health and Safety Act [Section 32.0.1(b) and (c)].
The policy is required regardless of the size of the workplace or the number of workers.
If six or more workers are regularly employed at the workplace, the policy must be in writing and it must be posted in a conspicuous place in the workplace.
If less than six workers are regularly employed in the workplace, the policy does not necessarily have to be written [Sections 32.0.1(2) and (3)]. However, a Ministry of Labour inspector may order the policy to be in writing [Section 55.1].
 

• At the beginning of 2010 the rules in Ontario related to documentary disclosure in civil litigation were amended.  Now only documents “relevant to any matter in issue” have to be produced. 

 

• There is no legal rule establishing how long business records or documents should be kept.  Tax records should be kept as long as there is a possibility of audit.  When destroying business records they should be destroyed as a class rather than selectively.  Records pertaining to litigation should not be destroyed.  Any confidential records should be destroyed in a way that preserves their confidential nature.

 

• A second time bankrupt with surplus income will have to make payments for 36 months to qualify for a discharge under the new bankruptcy rules that became effective in September 2009.

 

• If you sell a business and part of the price is payable in the future a promissory note is merely evidence of the debt – not security.  You need security such as a pledge of assets or shares to protect the loan.

 

• A Consumer Proposal remains on a debtors credit report for 3 years after making the last payment under the proposal.

 

• Under the new Bankruptcy and Insolvency Act rules automatic discharge after nine months will only be available to those bankrupts who have no surplus income.

 

• The limit for claims in the Ontario Small Claims Court has now increased from $10,000 to $25,000.

 

• New rules in the Bankruptcy and Insolvency Act require first time bankrupts with surplus income to make payments for at least 21 months before they qualify for discharge from bankruptcy.

 

• When entering into a franchise agreement all terms should be reviewed by the franchisee’s lawyer to ensure that the written agreement conforms to the business understanding between the parties.

 

• Amendments to the Bankruptcy and Insolvency Act that became effective in September 2009 increase the debt owing for which a consumer proposal can be made from $75,000 to $250,000.

 

• A commercial tenant’s lawyer should search to confirm that the landlord actually owns the property in which it is granting a lease. The tenant’s lawyer should also determine if there are prior interests such as mortgages, ground leases or easements to which the lease will be subject.

 

• A distribution agreement specifies the details allowing a distributor to sell products on behalf of the manufacturer or importer.  Territory, possible exclusivity, quotas and payment terms are usually set out.

   

• The Construction Lien Act in Ontario provides that all funds for services related to any construction project are impressed with a trust until the trust is discharged.  This means that the owner holds the funds in for the general contractor and the general contractor holds them in trust for any sub-contractors.

 

• When buying or selling shares or assets of a business an Agreement of Purchase and Sale setting out the details of the transaction and the closing conditions is entered into by the purchaser and vendor.

 

• When purchasing shares or assets of a business you need to ensure that the person selling to you is giving you clean title free of liens or encumbrances.  This is done through a combination of searches and representations and warranties.

 

• Any agreement involving intellectual property (IP), such as production of a video or creation of software, should clearly specify who owns the various rights to the IP.

 

• A promissory note is merely evidence of debt owed - not security.  You need separate security such as a general security agreement (GSA or chattel mortgage) to protect your debt.

 

• If you purchase shares of a business, instead of assets, you will also assume all liabilities including potential unknown liabilities.  It is important to protect yourself from these potential claims.

 

• Under the amendments to the Bankruptcy and Insolvency Act, which are expected to take effect in December 2008, a consumer debtor can now be considered for filing a consumer proposal if the individual's aggregate debts, excluding debts secured by the individual's principal residence, are not more that $250,000. This is an increase from $75,000.

 

• If you hire an independent website design company to create your website, the developer will own the copyright to your website unless you obtain an assignment of copyright.  Assignment wording should be included in the development contract.

 

• If you have a renewal clause in your commercial lease be sure that you exercise your renewal rights in the manner and time frame set out in the lease.  If you fail to do so you may lose your premises.

 

• An Ontario corporation is required to maintain a minute book with copies of annual shareholder and director minutes.  If you are trying to borrow money from the bank or private lenders, or you are trying to sell your shares, an up to date minute book will be essential.

 

• Before making an offer to purchase a business, it is normal to be provided with financial disclosure.  The vendor will usually require the potential purchaser to sign a confidentiality agreement before releasing any confidential information.

• Tariff classification determines what customs duties are imposed on imported goods.  Duties are based on a percentage of the value for duty.

• When selling business assets in Ontario the vendor needs to ensure that the creditors of the business are paid in full.  The purchaser of the assets needs an affidavit under the Bulk Sales Act that verifies this, and the sale needs to be registered.

 

• Commercial goods exported to all countries except the United States must be reported to the Canada Border Services Agency.

 

• The Ending Mandatory Retirement Statute Law Amendment Act takes effect in Ontario on December 12, 2006.  It generally makes mandatory retirement illegal in Ontario, except where age is a bona fide occupational requirement.

 

• The Accredited Investor exemption from prospectus and registration requirements of securities offerings in Canada is applicable to different classes of investors including high net worth individuals.

 

• The Supreme Court of Canada held in the recent case of Blank v. Canada that the Litigation Privilege is different than the Solicitor-Client Privilege, and terminates when the litigation does.

 

• Probate fees in Ontario are 1.5% of the estate value.

 

• All commercial imports into Canada must be reported to the Canada Border Services Agency and certain errors or non-compliance carry fines or seizure of goods.

 

• National Instrument 45-106 came into force on September 14, 2005 and groups all of the prospectus and registration exemptions applicable to Securities Offerings in all Canadian jurisdictions in one place.

 

• A Mareva injunction allows the freezing of assets before a judgment is granted where there is a risk the assets will disappear.

 

• When involved in civil litigation each party will have to produce all documents relating to the matters in issue.  This includes electronic evidence such as e-mails or other electronic documents on computers or Blackberries.

 

• A Norwich pharmacal order is a legal order used to oblige banks to make disclosure of relevant bank records without alerting the account holder to the existence of the order.

 

• Solicitor client privilege is a basic right under common law.  However it does not extend to a lawyer’s time dockets which can be used as evidence or a trail for further investigations by authorities.

 

• Amendments to the Ontario Securities Act scheduled to be proclaimed on December 31, 2005 will give investors the statutory right to cue public companies for stock market losses where there has been a misrepresentation of lack of timely disclosure.  It also makes directors, officers and experts responsible for their actions.

 

• The Canadian Bankruptcy and Insolvency Act is being amended to require a court hearing prior to discharging anyone who owes more than $200,000 on account of taxes.

 

• Individuals may not want to own assets, such as shares of a private corporation, in their own name, so they arrange for a relative or friend to own the assets.  This is not a good approach due to risks associated with the approach, including what happens to the asset on the death of the legal owner, and tax liability if the asset is ever transferred to the behind the scenes owner.

 

• In Ontario, in order to release a sub-contractors construction holdback prior to substantial completion of the project the architect (or the owner and main contractor) must certify that the subcontractors work is complete using a form prescribed under the Construction Lien Act.  If holdback is released without that form the owner will be liable to pay the amount again.

 

• If you wish to challenge a proposed trade-mark registration you must file an opposition with the Canadian Intellectual Property Office within 60 days of advertisement of the proposed mark and pay a fee of $750.

 

• If you have entered into a contract then your rights and options if the other party does not meet their obligations will depend on the wording of the agreement.  Proper drafting is important to protect your rights.

 

• When considering a merger and acquisition (M&A) structuring the transaction can mean the difference between success and failure. Debt offers some advantages over equity, including significant tax benefits, but the load shouldn't be too heavy or the new entity may fail due to high interest charges.

 

• Where a property is owned by more than one person and they cannot agree on how to deal with it, the courts in Ontario can order that the property be sold and the proceeds divided pursuant to the Partition Act.

 

• After a court authorized wire tap has been ended the subject of the wire tap can find out details about it by contacting the security department of the local telephone company.

 

• The Ministry of Consumer and Business Services recently announced that the regulations have been filed under the Consumer Protection Act 2002 and will take effect July 30, 2005. The Act includes new rules regarding Internet agreements in addition to new disclosure requirements, cooling-off periods and requirements for amendments and extensions to consumer agreements.

 

• US authorities could, at least under some circumstances, use powers enacted by the USA Patriot Act to make orders for access to personal information located in Canada (or elsewhere) that is outsourced to a US linked contractor or that is located in the US.  These access orders would not be revealed to the owner of the data.

 

• Based on the recent Ontario Court of Appeal decision in Hobbs, an employer cannot unilaterally demand an amendment to an employment contract in exchange for refraining to fire the employee.  In order for the amendment to be binding some value, as a bonus, promotion or salary increase should be provided to the employee as consideration for the employment contract amendment.

 

• Succession planning for the owner manager of a private business involves preparing for a sale (or transfer) to a family member, sale to a third party or taking the business public.

 

• The Supreme Court of Canada decided in a 2004 case that internet service providers (ISP’s) are not liable for paying copyright royalties in respect of music transmitted over the internet.

 

• Changes to the Rules of Professional Conduct of the Law Society of Upper Canada, enacted in order to assist in the fight against money laundering, mean that Ontario lawyers are prohibited from accepting cash in excess of $7,500 from clients or third parties.

 

• If you have a real estate dispute based on a written agreement you can register a caution against title to the property on the land registration system, alerting possible third parties about your interest.

 

• An Anton Pillar order is a private search warrant and allows a party to civil litigation to go to the premises of a defendant and search for and seize evidence related to the case, including electronic records.

   

• In the case of London Drugs Ltd. v. Kuehne & Nagel International Ltd. the Supreme Court of Canada issued three separate reasons for judgment holding employees personally liable to their employer’s customer, but limiting their liability to the limit in the agreement between the customer and the employer. Mr. Justice Iacobucci writing for the majority of the court said: “There is no general rule in Canada to the effect that an employee acting in the course of his or her employment in performing the ‘very essence’ of his or her employer’s contractual obligations with a customer, does not owe a duty of care to the employer’s customer.

 

• The Federal Court of Canada released a trade-mark decision in Effigi Inc. v. Canada (Attorney General) 2004 FC 1000 that, if upheld, will move Canada closer to a first to file system, since the Canadian trade-mark examination system will provide that the first to file will be the first to be published and owners of trade-marks with prior use may find that their applications for registration are superseded by previously filed applications.

 

• (Canada) Inc. v. Justan Consulting Ltd. – the court ruled that  the sole officer and director of Justan  intentionally decided to pay himself and reimburse other expenses in contravention of the trust provisions of the Ontario Construction Lien Act (the “Act”). Since the  breach of the statutory trust provisions of the Act was held to be intentional, the director was ascribed with liability under the common law for breach of trust. As a result, the debt obligation owing to Superior Crane survived his personal proposal in bankruptcy that followed the financial failure of Justan.

 

• The Ontario Superior Court in Denise Ferenczy v.MCI Medical Clinics and Dr. Gary Weinstein. issued one of the first decisions on the issue of the admissibility of video surveillance after January 1, 2004, but prior to the new regulations, in the context of a civil lawsuit.  The court ruled that video surveillance, obtained in the context of a civil litigation, was not a contravention of the Personal Information Protection and Electronic Documents Act (“PIPEDA”) and, as such, was admissible as evidence.

 

• The Supreme Court of Canada, in the case of Caron Bélanger Ernst & Young Inc. in its capacity as Trustee to the bankruptcy of Peoples Department Stores Inc. v. Lionel Wise, et al, in considering reviewable transactions under the Canada Business Corporation Act, held:

  
  “A finding that a person was "privy" to a reviewable transaction does not of course necessarily mean that the court will exercise its discretion to make a remedial order against that person. For liability to be imposed, it must be established that the transaction occurred: (a) within the past year; (b) for consideration conspicuously greater or less than fair market value; (c) with the person's knowledge; and (d) in a way that directly or indirectly benefited the person. In addition, after having considered the context and all the above factors, the judge must conclude that the case is a proper one for holding the person liable.”

 

• The Ontario Securities Commission (OSC) has just published for the first time the guidelines it uses to determine when to make its investigations public.  Its general policy is not to disclose ongoing investigations, but it set out a list of exceptions including a need to protect investors from an ongoing fraud.

 

• In Rita Côte et al v. Jean-Pierre Rancourt et al the Supreme Court of Canada held that a lawyer’s duty to advise may be met when the lawyer acknowledges the limitations of his or her competence and recommends that a client consult a specialist regarding a matter in respect of which the lawyer feels less qualified.

 

• Anyone who collects accounts receivable in Ontario on behalf of another person will be required to comply with the provisions of the Collection Agency Act including passing a written exam and being bonded.

 

• All funds owing to contractors under a building contract are impressed with a trust under the Ontario Construction Lien Act. A property owner who enters into a construction contract is liable to pay the full amount of the trust funds to trades who have performed services under the contract.

 

• The Ontario Court of Appeal in Shelanu Inc. v. Print Three Franchising Corp recognized a common law duty of good faith in the performance of contractual obligations.

 

• On October 1, 2004 the contaminated site clean-up provisions of the Brownfields Statue Law Amendment Act 2001 will come into force, thereby creating a new regime for remediation and redevelopment of contaminated sites in Ontario.

 

•  At present, there may be no completely reliable way for a commercial landlord to secure a bankrupt tenant’s obligations in the event the trustee in bankruptcy disclaims the lease, even through the use of bank letters of credit.  However to maximize chances of success the letter of credit must be properly drafted.

 

• As of 2004, there are new rules in Canada about who can donate to the political process and how much may be donated. For individuals, changes to the Canada Elections Act mean a new $5,000 contribution limit at the federal level. For corporations, the changes mean a contribution limit of $1,000.

 

• The new Ontario Limitations Act does not affect commercial agreements made prior to January 1, 2004.

 

• In Ontario the Arthur Wishart Act (Franchise Disclosure) allows a franchisee who has not been provided with franchise disclosure documentation 2 years in which to rescind the franchise agreement and receive a refund of fees paid.

 

• The following is a partial list of federal statutes under which directors of a corporation have potential liability.  There are also numerous provincial statutes that impose potential liability; Bankruptcy and Insolvency Act; Canada Business Corporations Act;  Canada Labour Code; Canada Pension Plan; Canadian Environmental Protection Act; Competition Act; Consumer Packaging and Labeling Act; Employment Insurance Act; Excise Tax Act; Income Tax Act; Pension Benefits Standards Act; Winding-up and Restructuring Act.

 

• The Ontario Limitations Act, 2002 came into force on January 1, 2004.  It provides for a 2 year limitation period in which to commence an action for most matters.