Supreme Court of Canada’s decision warns plaintiffs: Act on potential claims

By: Nadia Effendi, Michael Gaber, Julien Boudreault, Marin Leci, Aidan Pau from Borden Ladner Gervais LLP

A plaintiff is typically required to commence an action within two years of when they ‘knew or ought to have known’ they had a claim against the other party; failure to do so may result in their claim being dismissed under limitations legislation. In Grant Thornton LLP v New Brunswick,1* the Supreme Court of Canada (SCC) clarified when a claim is considered to have been ‘discovered’ in this context.

What you need to know

• The unanimous SCC decision concluded that a claim is discovered when a plaintiff has knowledge, actual or constructive, of material facts that support a plausible inference of the defendant’s liability.
• Constructive knowledge may be established when the plaintiff “ought to have discovered” material facts “by exercising reasonable diligence” and a plausible inference is one which gives rise to a “permissible fact inference” of liability.

Discussion

Background

In 2008, the Atcon Group (Atcon) sought loans from the Bank of Nova Scotia. The Province of New Brunswick agreed to provide $50 million in loan guarantees on the condition that Atcon undergo a review by an external auditor (the Accounting Firm). The audit concluded that Atcon’s financial position was fairly presented in its financial statements. The Province then executed and delivered $50 million in loan guarantees. Atcon ran out of working capital four months later, and the Province paid the loan guarantees on March 18, 2010.

The Province retained RSM Richter Inc. (Richter) to prepare a second report on Atcon’s financial position. Richter issued a draft report on February 4, 2011, and a substantially similar final report on November 30, 2012. Both reports concluded that Atcon’s financial position had been materially misstated in its financial statements.

Procedural History

i. New Brunswick Court of Queen’s Bench

The Province commenced a negligence claim against the Accounting Firm on June 23, 2014. The Accounting Firm sought summary judgment on the basis that the Province had “discovered” the claim more than two years before commencing the action. The judge found that the Province “knew or ought to have known that it had prima facie grounds to infer that it had a potential claim” more than two years before commencing its action. The claim was dismissed. The Province appealed this decision.

ii. New Brunswick Court of Appeal

On appeal, the Court reasoned that a claim could only be “discovered” if the plaintiff had knowledge, actual or constructive, of “facts that confer a legally enforceable right”. The Court found that the Accounting Firm’s failure to produce its audit-related files prevented the Province from determining whether it had a claim in negligence, and by extension, “discovering” its claim. As a result, the New Brunswick Court of Appeal reversed the decision of the lower court, permitting the Province to pursue its claim against the Accounting Firm.

iii. Supreme Court of Canada

The Accounting Firm appealed the decision to the SCC, which held that the Province’s claim was limitation-barred. The SCC reviewed the provincial limitations legislation, which provides that a claim is “discovered” on the day that the claimant first knew, or ought to have reasonably known, that their loss was caused, in full or in part, by an act or omission of the defendant2.

The SCC unanimously held that a claim is “discovered” when the plaintiff has “knowledge, actual or constructive, of the material facts upon which a plausible inference of liability on the defendant’s part can be drawn” (para 42). The SCC provided the following guidance:

• The material facts are generally set out in the applicable limitations statute;
• A plaintiff’s knowledge may be established through direct and circumstantial evidence;
• Constructive knowledge may be imputed if a plaintiff is not reasonably diligent in investigating potential claims; and
• A plausible inference of liability requires more than suspicion or speculation, but less than certainty or perfect knowledge.

The SCC stated this interpretation preserved the common law rule’s equitable balance between: (1) protecting potential claims, and (2) ensuring claims are brought in a timely manner. Despite this, the Court emphasized that the common law rule should be viewed as an interpretive tool that can be displaced by clear legislative language.

The SCC used this refined approach to discoverability to conclude that the Province had “discovered” its claim when it received the draft report from Richter on February 4, 2011. At that time, the Province had knowledge, actual or constructive, of material facts that supported a “plausible inference” of the Accounting Firm’s negligence.

Takeaways

• Applicable limitations periods may begin to run when a plaintiff has more than mere suspicion that a claim exists but less than certain or perfect knowledge.
• In a claim alleging negligence, discovery does not require knowledge that the defendant owed a duty of care or that the defendant’s act or omission breached the applicable standard of care.
• Knowledge or reasonable inference of certain facts may trigger applicable limitations periods even if a claimant does not know the exact nature of the harm it has suffered, or the precise cause of its injury.
• Pre-litigation reviews/investigations by third parties may form a plausible inference of liability on the defendant’s part, even if they do not directly address the defendant’s potential negligence.
• Parties contemplating litigation should seek early legal advice related to limitation periods and deadlines.

Conclusion

The SCC’s decision is likely to have far-reaching impacts, given that the discovery provision in the New Brunswick legislation was modelled after those in Alberta, Saskatchewan, and Ontario. For plaintiffs sitting on causes of action, the SCC’s decision sends a clear warning: act on potential claims.

If you have any further questions regarding the SCC’s decision, please reach out to the key contacts listed below from our Commercial Litigation Group in Calgary and Montréal.

*Guy J. Pratte, Nadia Effendi and Julien Boudreault of BLG acted on behalf of the intervener Chartered Professional Accountants of Canada (CPA Canada) before the Supreme Court of Canada.

1 Grant Thornton LLP v New Brunswick, 2021 SCC 31.

2 Limitation of Actions Act, SNB 2009, c L-8.5, ss 5(2) [Limitations Act].

*Reprinted with permission.

Update on the Treatment of Sealing Orders: The Supreme Court of Canada’s Decision in Sherman Estate v. Donovan

By: Sanja Sopic from Stikeman Elliott LLP

In Sherman Estate v. Donovan, released on June 11, 2021, the Supreme Court of Canada refined the common law test for the granting of sealing orders in civil matters and, in particular, recognized privacy as an important public interest that may warrant sealing relief. This post considers the reasoning behind the Supreme Court’s decision and also reviews several subsequent Ontario and British Columbia sealing order rulings that have applied Sherman Estate’s refined common law test in commercial contexts.

Background

The open court principle

It is a fundamental element of Canadian law that court proceedings are open to the public. Courts have long recognized the importance of the open court principle in preserving the constitutionally protected rights to freedom of expression and freedom of the press under section 2(b) of the Charter of Rights and Freedoms.

Nevertheless, courts have the jurisdiction to order that documents, or information filed in court proceedings, be sealed from the public record in certain circumstances. In determining whether to grant such relief, referred to as a “sealing order”, courts must weigh the positive effects of protecting confidential or sensitive information against the negative effects arising from restricting access to court files.

History of the proceeding

In 2017, a prominent couple was found dead in their home. Following the couple’s death, their estate trustees sought sealing orders over the court files related to the probate of the couple’s estates (the “Probate Files”).

The Ontario Superior Court of Justice granted the sealing orders for a period of two years, finding, among other things, that the harmful effects of the sealing orders were outweighed by their beneficial effects on the privacy of the affected individuals, including the beneficiaries of the estates.

A journalist and the newspaper for which he wrote appealed the Ontario Superior Court decision, arguing that the sealing orders violated the open court principle and the constitutional rights of freedom of expression and freedom of the press.

The sealing orders were unanimously lifted by the Ontario Court of Appeal (2019 ONCA 376), which concluded, among other things, that the privacy concerns of the estate trustees were insufficient to justify the sealing orders that had been granted.

The Court of Appeal’s order setting aside the sealing orders was stayed pending the disposition of the appeal to the Supreme Court of Canada, which was brought by the estate trustees.

The Supreme Court of Canada’s Decision

Central to the appeal was the issue of whether protecting the privacy of the individuals affected by the Probate Files amounts to an important public interest that could justify the sealing of the Probate Files under the applicable legal test for discretionary limits on court openness. Established by the Supreme Court of Canada in Sierra Club of Canada v. Canada (Minister of Finance), that test requires a party seeking a sealing order to show that:

• a sealing order is necessary to prevent a serious risk to an important interest, including a commercial interest, because alternative measures would not prevent the risk; and
• the positive effects of the sealing order outweigh the negative effects, including the public interest in open court proceedings.

The Supreme Court’s analysis

In Sherman Estate, the Supreme Court found that the Sierra Club test requires that three “core prerequisites” be established in order to obtain a sealing order:

• court openness poses a serious risk to an important public interest;
• the sealing order sought is necessary to prevent the serious risk to the identified interest because reasonably alternative measures will not prevent this risk; and
• as a matter of proportionality, the benefits of the sealing order outweigh its negative effects.

Since Sierra Club, the jurisprudence has established that a sealing order will only be granted if the interest sought to be protected has a public component (such as, for instance, the public interest in upholding confidentiality agreements or in protecting the integrity of judicial proceedings).

Notably, the Supreme Court in Sherman Estate recognized an aspect of privacy, namely the preservation of individual dignity, as an important public interest, and held that this interest is sufficiently important that it may justify an exception to the open court principle. The Supreme Court characterized dignity as “the right to present core aspects of oneself to others in a considered and controlled manner”.

Writing for a unanimous Court, Justice Kasirer cautioned that the presumption in favour of open courts cannot be overcome lightly, and reasoned that the public interest in preserving dignity will only be at risk where the information sought to be protected:

…strikes at what is sometimes said to be the core identity of the individual concerned: information so sensitive that its dissemination could be an affront to dignity that the public would not tolerate, even in service of open proceedings.

The Court went on to note that examples of such sensitive information include stigmatized medical diagnoses, stigmatized work, sexual orientation, and subjection to sexual assault or harassment.

The Supreme Court’s decision

Applying this framework, the Supreme Court dismissed the appeal on the basis that, among other things, the information at issue in the Probate Files was not of such a highly sensitive character that it engaged the dignity of the affected individuals.

Notably, Justice Kasirer remarked that even if a serious risk to a privacy interest had been established, it would likely not have justified a sealing order because alternative measures, such as a publication ban, would likely have prevented this risk.

Application of Sherman Estate to Recent Sealing Order Requests

Ontario

While Sherman Estate did not address sealing order requests made in the commercial context, a number of recent decisions of the Ontario Superior Court of Justice (Commercial List) (the “Ontario Court”) have cited Sherman Estate in considering whether to grant sealing order relief, including:

• In the receivership proceedings of Canadian investment management firm Bridging Finance Inc. (Ontario Securities Commission v. Bridging Finance Inc., 2021 ONSC 4347), Chief Justice Morawetz applied the Supreme Court’s analysis in Sherman Estate in approving the sealing of: (i) a key employee retention plan containing confidential and personal information with respect to the compensation of each eligible employee; and (ii) information regarding the receiver’s recommended course of action in connection with a proposed repayment transaction whose terms were confidential.
• In the Companies’ Creditors Arrangement Act (the “CCAA”) proceedings of Guardian Financial Corporation and certain related entities – affiliates of a U.S. company that operates a network of co-working spaces in the United States and Canada – Justice Dietrich relied on Sherman Estate in approving the sealing of a lease amending agreement, finding that it contained commercially sensitive information about lease negotiations.
• In the CCAA proceedings of Laurentian University of Sudbury (“Laurentian”) (Re Laurentian University of Sudbury, 2021 ONSC 4769), Chief Justice Morawetz considered whether to seal an unredacted version of a proposal prepared by a real estate advisor sought to be engaged by Laurentian. According to Laurentian, the proposal contained commercially sensitive and proprietary information that could jeopardize the business of the real estate advisor if disclosed publicly and made available to competitors. Drawing on the Sherman Estate decision, Chief Justice Morawetz expressed concerns about the scope of the sealing relief sought, noting that certain aspects of the proposal did not appear to contain commercially sensitive and proprietary information. Counsel to Laurentian subsequently disclosed certain portions of the proposal related to the real estate advisor’s pricing and budget, thereby narrowing the scope of the requested sealing order, which order was granted.

British Columbia

The British Columbia Supreme Court (the “B.C. Court”) has also drawn on the Sherman Estate decision in deciding whether to grant a sealing order. In the recent decision of United States v. Meng, 2021 BCSC 1253, the B.C. Court declined to seal certain bank documents in the extradition proceedings of Wanzhou Meng, the Chief Financial Officer of Huawei, a telecommunications company. The extradition proceedings involved allegations that Ms. Meng misled a bank into facilitating certain transactions in violation of U.S. sanctions against Iran. The documents sought to be sealed included bank reports and high-level bank communications relating to strategy and decisions about its business with Huawei.

In considering the sealing request, the B.C. Court acknowledged that commercial information may engage privacy interests that may give rise to an important public interest. Applying the Sherman Estate analysis, the B.C. Court reasoned that the commercial confidentiality interest at issue did not engage an important public interest as it was specific to the bank. The B.C. Court further held that, even if the bank’s interest in preserving the confidentiality of its internal documents could be characterized as an important public interest, that interest was not shown to be at serious risk from the publication of the documents since some of the documents had already been summarized in the proceedings and were heavily redacted. Notably, the B.C. Court held that it expected the identities and contact information of the bank representatives in the documents to be redacted in accordance with an earlier “media protocol” established in the proceedings.

Key Take-aways

• The Supreme Court’s decision in Sherman Estate emphasizes the importance of the open court principle as a reflection of the constitutionally‑protected right of freedom of expression.
• As such, and in keeping with the recent decisions noted above, there may be greater judicial scrutiny of sealing order requests going forward, including in the commercial context.
• Parties seeking sealing relief in the future should bear this in mind, and may want to consider whether alternative measures, such as redaction, could be used to prevent the disclosure of commercially sensitive information.

DISCLAIMER: This article was first published on Stikeman Elliott LLP’s Knowledge Hub and originally appeared at www.stikeman.com. All rights reserved.

*Reprinted with permission.

Mutual Fund Class Action Not Certified on Appeal: Divisional Court Confirms No Duty of Care Between Auditor and Investors

By: Michael Ng from Stikeman Elliott LLP

The Ontario Divisional Court’s recent decision in Whitehouse et al. v. BDO Canada LLP provides guidance on when a certification motion can be dismissed in the context of a pleading that fails to disclose a cause of action. The Divisional Court upheld a previous ruling in determining that a financial auditor, in performing audit engagements for a portfolio management firm, owed no duty of care to the firm’s unitholders in funds.

Key Takeaways

The Divisional Court’s decision has some direct implications for financial auditors and defendants to class actions. Specifically, it reinforces that:

• where the plaintiff has not specifically pled material facts showing a precise undertaking/representation to assist unitholders, allegations of negligence brought against auditors by third-party investors will likely not succeed and a corresponding class proceeding will likely not be certified; and
 
• an action will not be certified as a class proceeding if the cause of action in negligence is based on a duty owed to an overly broad, unknown, and indeterminate group of class members.

Background

The plaintiffs were individual unitholders in mutual fund trusts (the Funds) issued by Crystal Wealth Management System Ltd (the Company), a portfolio management firm. In accordance with the Securities Act (Ontario) (OSA), the Company was required to prepare annual audited financial statements to send to every unitholder and file with the Ontario Securities Commission (OSC). The Company retained BDO Canada LLP (the Auditor) to audit the Funds.

From 2007 to 2015, the Auditor provided clean audit opinions. In April 2017, the OSC issued a temporary order prohibiting trading in the Funds and trading in securities held by the Funds. In April 2017, the OSC also appointed Grant Thornton LLP as receiver (the Receiver) over all the assets of the Company. The Receiver subsequently found that the Funds’ net asset values, as disclosed by the Company, were false or manipulated and that, as a consequence, the net asset values of certain Funds had been materially overstated. Since April 2017, the unitholders have been unable to redeem their investments in the mutual funds.

In June 2017, the plaintiffs commenced an action under the Ontario Class Proceedings Act, 1992 against the Auditor, alleging negligence in preparation of the audit reports for the Company. The claim sought a declaration that the Auditor had a duty of care to the class members, which it breached by negligently performing its professional services. The “class members” included every person who invested in any of the Funds of the Company from April 12, 2007 to April 7, 2017 and who retained investments in any of the Funds on April 7, 2017.

Certification Decision

On June 15, 2018, the plaintiffs brought a motion at the Ontario Superior Court of Justice to certify the action as a class proceeding. The motion judge refused to certify the class proceeding against the Auditor, stating that the pleading failed to disclose a cause of action.

For negligent performance of a service to be a cause of action, there must have been a duty of care, which in turn requires (inter alia) sufficient proximity and reasonable foreseeability. However, any duty that is owed can be negated by public policy concerns.

After reviewing existing settled law on the duty of care owed to unitholders (including Hercules Managements Ltd v Ernst & Young, Deloitte & Touche v Livent Inc. (Receiver of) and Lavender v Miller Bernstein LLP each as discussed below), the motion judge held that for cases arising from the negligent performance of a service:

• there must be a specific undertaking from the defendants to the plaintiffs; and
 
• the plaintiffs’ reliance must be sourced within that undertaking.

However, any duty that appears to be owed on that basis might nevertheless be negated on the ground, for example, that it would impose indeterminate liability on the defendants.

The motion judge held that the plaintiffs failed to plead any facts indicating a “direct relationship, undertaking or representation” between the Auditor and the class members. Without a pleaded basis for sufficient proximity, the motion judge held it was plain and obvious that the Auditor, in performing statutory audits, did not owe the plaintiffs a duty of care with respect to their investment decisions. There was no undertaking for the class members to rely on.

The motion judge further considered whether a duty of care arose from the Auditor’s role in ensuring the Company’s compliance with Ontario securities law. The motion judge ultimately concluded that the relationship between the Auditor, the OSC and the unitholders was too remote to ground a duty of care. The motion judge noted that there was no undertaking by the Auditor to assist the proposed class members in their investment decisions or safeguard them from the Company’s non-compliance with the OSA.

The plaintiffs appealed the motion judge’s decision to the Divisional Court.

Divisional Court Decision

On appeal, the Divisional Court upheld the motion judge’s ruling that the plaintiffs had not properly pleaded a cause of action in negligence. Specifically, the Divisional Court held that (i) there was no duty of care that the Auditor owed to the class members, and (ii) the class member definition, as pleaded, was overly broad and indeterminate.

Relationship between auditor and investors

The Divisional Court noted that the judicial and appellate authority considered by the motion judge confirmed that pleaded facts must suggest a precise undertaking of responsibility that gives rise to a relationship owed to the class members. Two cases were particularly influential in the ruling:

• Hercules Managements Ltd v Ernst & Young involved a similar fact pattern in which investors claimed for loss against a company’s auditor. The Supreme Court of Canada ultimately reasoned that the auditor’s mere knowledge of the investors is insufficient for a claim in negligence. The Court also acknowledged that many investors could conceivably review and rely on an audit report even after an auditor ceases to act for the company. Therefore, the Court cautioned that a finding of a category of duty of care would create a risk of indeterminate liability, which might be contrary to public policy.
 
• Lavender v Miller Bernstein LLP involved a company that retained an auditor to audit reports to file with the OSC. The Ontario Court of Appeal confirmed that absent making representations to the members of the class, or an undertaking to assist the investors in particular investment decisions, there was no direct relationship between the Auditor and the investors.

On appeal, the plaintiffs argued that the motion judge failed to accept, as pleaded, that: (i) the audit reports were delivered directly to the unitholders, (ii) the Auditor knew and intended that the unit-holders would rely on the reports for investment decisions, and (iii) the unitholders did rely on the audit reports in making their investment decisions. The Divisional Court affirmed the motion judge’s conclusion that simply providing audit reports to the OSC did not give rise to a level of undertaking to assist unitholders with investment decisions. Similarly, the Court held that the Auditor’s mere knowledge that the unitholders might rely on the reports did not establish an undertaking either. Ultimately, the Court held that in failing to plead specific facts in which intent could be inferred, a conclusion could not be drawn that the Auditors intended for the unitholders to rely on the reports for their investment decisions.

Class member definition

The Divisional Court held that the class definition, which included every person who invested in any Funds from April 12, 2007 to April 2017 and retained those investments on April 7 ,2017, was overly broad and indeterminate.

Specifically, the Divisional Court reasoned that the class definition implied that there would be members who relied on the Auditor’s reports but acquired units after the Auditor ceased to be the Auditor. The Court observed that, if the plaintiffs’ argument were to be accepted, a cause of action in negligence could be founded on a duty an auditor owed to an unknowable group of prospective investors. The Court concluded that this would lead to the risk of indeterminate liability, against which the Supreme Court of Canada had cautioned in Hercules.

DISCLAIMER: This publication is intended to convey general information about legal issues and developments as of the indicated date. It does not constitute legal advice and must not be treated or relied on as such. Please read our full disclaimer at www.stikeman.com/legal-notice.

*Reprinted with permission.

Appellate Court Overturns WSIAT Decision That Held Constructive Dismissal Claim Barred by WSIA

By: Lucy Wu from Hicks Morley

In Morningstar v. WSIAT (Morningstar), the Divisional Court partially overturned a decision of the Workplace Safety and Insurance Appeals Tribunal (WSIAT) that had barred a constructive dismissal claim which was based on alleged workplace harassment from proceeding in Superior Court.

The WSIAT had found that the claim fell within the entitlement for chronic mental stress provision in the Workplace Safety and Insurance Act, 1997 (WSIA) and therefore a civil action was barred by virtue of section 31 of the WSIA (which prevents workers from suing their employer for workplace injuries). The Court disagreed, holding that the WSIAT’s reasons were unreasonable and flawed, and that it erred in linking the facts of the case only to a workplace injury while ignoring a viable claim for constructive dismissal, which was separate and apart from any claim of a workplace injury.

The judicial review decision arose out of an action by the applicant against her former employer. The applicant alleged she had been constructively dismissed, that her employer had committed Occupational Health and Safety Act violations, that she had been subject to the tort of harassment, and that she was entitled to punitive, aggravated and/or moral damages. The applicant alleged that ongoing workplace harassment and bullying caused her to suffer from mental stress, which led to her being incapable of returning to work. She resigned from her employment and filed both a human rights application as well as a constructive dismissal claim. The employer brought an application under section 31 of the WSIA, claiming that, as the applicant’s constructive dismissal claim was based on harassment, it fell under the WSIA and therefore it was barred and jurisdiction lay under the WSIA.

In its decision granting the employer’s application, the WSIAT noted that while the right to bring an action for wrongful dismissal was generally not removed by the WSIA, the exception to this rule applied in that case given that the “circumstances of the wrongful dismissal claim are inextricably linked to the workplace injury.”

In a reconsideration decision, WSIAT affirmed the finding in the original decision. A full discussion of the original WSIAT decision can be found in our previous publication.

On judicial review, the Divisional Court partially overturned the WSIAT’s decision.

The Court reviewed the purpose of the “historic trade-off” in the enactment of the workers’ compensation legislation, as reflected in section 31 of the WSIA, and found that the proper scope of section 31 was to identify and prohibit personal injury claims disguised as other causes of action that would otherwise frustrate the historic trade-off. Importantly, the Court stated that “bona fide claims for constructive/wrongful dismissal should be permitted to proceed, as they are not tort actions and are distinct from personal injury claims, and attract damages for which the Act offers no compensation.”

The Court found that the WSIAT had failed to consider that the employer’s alleged treatment of the applicant, in addition to harassment, could also be construed as an intention to terminate the employment contract (i.e. a constructive dismissal).

The Court also held that the WSIAT had failed to consider that a harassment claim focuses on a different legal relationship than a wrongful dismissal claim, the latter of which requires compensation for damages not within the purview of the WSIA.

Consequently, while the Court found that the claim for harassment was statute-barred, the applicant’s claim for constructive dismissal and aggravated moral and punitive damages could proceed.

In overturning the WSIAT decision, the Court narrowed the spectrum of claims that are statute-barred under the WSIA. It is now more difficult for employers to successfully bring a section 31 application claiming that a constructive dismissal claim based on workplace harassment should be statute-barred in its entirety.

With thanks to Quinn Brown, 2021-2022 Hicks Morley articling student, for her assistance with this article.

*Reprinted with permission.

Canadian Securities Administrators Propose New Prospectus Exemption for Listed Issuers

By: Andrea Chabot from Fasken

The Canadian Securities Administrators (CSA) published for a 90 day comment period proposed amendments to National Instrument 45-106 Prospectus Exemptions and CSA Staff Notice (NI 45-106), National Instrument 13-101 System for Electronic Document Analysis and Retrieval (NI 13-101) and National Instrument 45-102 Resale of Securities (NI 45-102) to introduce a new capital raising exemption for reporting issuers that are listed on a Canadian stock exchange (Listed Issuer Financing Exemption).

The Listed Issuer Financing Exemption would allow reporting issuers that have securities listed on a Canadian stock exchange to issue freely tradable listed equity securities to the public using a new offering document (Offering Document) and the issuer’s existing continuous disclosure record on the System for Electronic Document Analysis and Retrieval (SEDAR).

The proposed changes contemplate allowing qualified issuers to raise the greater of $5,000,000 or 10% of the issuer’s market capitalization to a maximum of $10,000,000 or up to 100% dilution during any 12 month period.

Background and Rationale

The CSA is seeking to provide a more efficient method for issuers to access the capital markets that requires less time and costs than a short form prospectus.  As a result of the responses to CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers, the CSA undertook a research project on potential alternative offering models and analysis of data on all prospectus and private placement offerings conducted in 2017 by issuers listed on Canadian exchanges.

In doing such work, the CSA heard that for smaller offerings (that is, under $10 million), the current prospectus regime can be onerous, the costs associated with preparing a prospectus can be prohibitive, and that dealers have limited interest in smaller offerings. Consequently, issuers are not as inclined to access public markets for smaller offerings. The CSA also heard that the costs of completing a short form prospectus offering are a barrier for issuers who want to raise smaller amounts of capital. Issuers cited underwriter and legal costs as the most significant expenditures. The CSA survey also showed that the costs of a prospectus offering were disproportionate to the amounts raised.

According to the CSA, the proposed Listed Issuer Financing Exemption would benefit smaller issuers more specifically, as it would:

• reduce the cost of accessing public markets;
• allow smaller issuers access to public markets and retail investors;
• provide retail investors with a greater choice of investments available in the primary public;
• provide investors with a greater choice of investments available in the primary public markets;
• result in better and more current disclosure in the market for those smaller issuers that previously only used the private placement system; and
• provide an incentive for all issuers raising smaller amounts of capital to do so by public offerings instead of by private placement.

Qualification Criteria and Procedure to use the Listed Issuer Financing Exemption

Issuers would be able to use the Listed Issuer Financing Exemption if the meet the following criteria:

1. the issuer must have equity securities listed on a Canadian stock exchange (or convertible securities that are convertible into equity securities);
2. the issuer must have been reporting issuer for at least 12 months prior to the News Release;
3. the issuer must have active business operations;
4. the issuer must have filed all timely and periodic disclosure documents;
5. the securities being distributed are:
   a) a listed equity security;
   b) a unit consisting of a listed equity security and a warrant; or
   c) a security convertible into a listed equity security or a unit consisting of a listed equity security and a warrant;
6. before soliciting an offer to purchase from a purchaser, the issuer issues and files a news release (News Release) that announces the offering and states that a purchaser can access the offering document for the distribution under the issuer’s profile on SEDAR+ (the upcoming new filing system to replace SEDAR) and on the issuer’s website;
7. files a completed Offering Document on SEDAR+ and the issuer’s website;
8. the purchase agreement contains the contractual right of rescission; and
9. the distribution is completed within 45 days after the issuance of the News Release.

The exemption would not available if the issuer is planning to use the proceeds for a significant acquisition or restructuring transaction that would otherwise require the issuer to produce additional financial statements.

Offering Document

The Offering Document would not be subject to review or approval by the CSA.  The Offering Document would become part of the issuer’s continuous disclosure record for the purposes of secondary market civil liability.  In the event of a misrepresentation, purchasers under the Listed Issuer Financing Exemption would have the same rights of action under secondary market civil liability as purchasers on the secondary market. Purchasers will have a contractual right of rescission against the issuer for 180 days following the distribution.  The issuer would be required to certify that the Offering Document and the issuer’s continuous disclosure for the past 12 months contains disclosure of all material facts about the issuer or the securities being distributed and does not contain a misrepresentation.

The content of the proposed form of Offering Document would include the following disclosure:

1. any new developments in the issuer’s business;
2. details on the issuer’s financial condition;
3. confirmation that the issuer will have sufficient funds to last 12 months after the offering; and
4. details on how the proceeds will be used from the current offering and how proceeds of any previous offerings in the last 12 months have been used.

The Offering Document would be filed with 3 business days after the date of the Offering Document.

Translation Requirements

If the offering will be conducted in Québec, the Offering Document must be prepared in French, or in English and French.

Material Changes

If a material change occurs after the date of the News Release and before the completion of the distribution, the issuer must cease the distribution until it complies with the material change reporting requirements in National Instrument 51-102 Continuous Disclosure Obligations, files an amended Offering Document and issues and files a news release that states that an amended Offering Document has been filed.

Registration Requirements

Investments dealers could be involved in offerings using the Listed Issuer Financing Exemption, but there is no requirement for an underwriter to be involved.

Report of Exempt Distribution

The issuer would be required to file a Form 45-106F1 Report of Exempt Distribution within 10 days following the distribution but the issuer would not be required to complete Schedule 1, which provides the purchaser information.

Consequential Amendments to NI 45-102 and NI 13-101

The proposed consequential amendment to NI 45-102 include the addition of the Listed Issuer Financing Exemption to Appendix E Seasoning Period Trades, and no hold period would apply.

The Offering Document would be included in the list of documents required to be filed on SEDAR.

Consultation Process

The CSA are welcoming comments on the proposed Listed Issuer Financing Exemption until October 26, 2021. In addition to general comments from market participants, the CSA are seeking input on a series of specific questions listed in the CSA notice. These questions include the following topics;

1. the size of financings that should be allowed using the Listed Issuer Financing Exemption;
2. the post-reporting filing requirements;
3. the filing fees payable;
4. the kind of additional securities that could be issued under the proposed exemption and the manner securities are distributed, including the involvement of dealers;
5. whether any existing exemptions should be repealed if the Listed Issuer Financing Exemption is adopted; and
6. the proposed liability regime applicable.

*Reprinted with permission.

CSA Announces Merger of IIROC and MFDA into New SRO

By: Renee Reichelt, Allyson Hopkins and Peter Howorun-Maleschuk (Articling Student) from Blakes

On August 3, 2021, the Canadian Securities Administrators (CSA) announced that it intends to consolidate the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) into a new single enhanced Self Regulatory Organization (New SRO). The CSA will also consolidate the Canadian Investor Protection Fund and the MFDA Investor Protection Corporation into an integrated fund (New IPF), independent of the New SRO. The CSA’s primary aims are to enhance governance, foster harmonization and efficiencies, reduce industry costs and strengthen proficiency.

The CSA implementation process will begin immediately and will be conducted in two phases. Phase one begins with the formation of an Integrated Working Committee (IWC). The IWC will design the corporate structure of the New SRO and consolidate the New IPF. They will also review current IIROC and MFDA rules and propose changes to harmonize the respective rules, policies and processes. Additionally, many of the proposed governance enhancements for the New SRO and New IPF will require new Recognition Orders and a new Memorandum of Understanding, which must be approved by each statutory regulator. The IWC will also be establishing other sub-committees and specialized working groups that will address areas such as OBSI, Investor Education, SEDAR+ Project and Market Surveillance.

In Phase two, the CSA will form a working group to engage with stakeholders and consider incorporating other registration categories into the New SRO, such as Portfolio Managers, Exempt Market Dealers and Scholarship Plan Dealers. Additionally, a Joint Forum of Financial Market Regulators will be tasked with harmonizing select securities regulation with that of insurance regulators.

As part of the announcement, the CSA outlined several solutions intended to support the New SRO. Some of the key solutions that have been proposed include:

The announced merger represents a significant shift in the regulation of the investment industry. While there will likely be some speed bumps as the implementation process unfolds, the CSA's announcement represents a welcome change to the current regulatory regime. It is expected that the New SRO will allow for greater innovation, efficiencies and cost savings in the investment industry.

The CSA is accepting comments about the proposed changes until October 4, 2021.

For further information, please contact:

Renee Reichelt           403-260-9698
Allyson Hopkins         403-260-9789

or any other member our Securities Litigation group.

For permission to republish this content, please contact the Blakes Client Relations & Marketing Department at communications@blakes.com. © 2021 Blake, Cassels & Graydon LLP

*Reprinted with permission.

Primary Business Requirements: CSA Publish Proposed Guidance to Reduce Financial Statement Uncertainty in IPO Prospectuses

By: Colin Burn, David Tardif from Stikeman Elliott LLP

The Canadian Securities Administrators (CSA) have proposed changes to the Companion Policy to National Instrument 41-101 General Prospectus Requirements (NI 41-101CP), notably intended to reduce uncertainty surrounding the requirement to include the financial statements of certain acquired businesses in an IPO prospectus. Specifically, Form 41-101F1Information Required in a Prospectus requires issuers to include in a long form prospectus the financial statements of businesses acquired in the previous three years, or that are proposed to be acquired, if a reasonable investor would regard the primary business of the issuer to be the business acquired or proposed to be acquired (the Primary Business Requirements). The Primary Business Requirements also apply with respect to securities legislation or exchange rules that require prospectus-level disclosure. Importantly, the Primary Business Requirements currently include very limited objective financial thresholds or guidance on the level of materiality of the acquisition or proposed acquisition that would trigger financial statement disclosure requirements. This has generally resulted in the need to apply for exemptive relief and inconsistent relief being granted across various jurisdictions.

According to the CSA, issuers preparing an IPO prospectus often consult with CSA staff on a pre-file basis with respect to whether an acquired business should be considered part of the primary business of the issuer and whether, as a result, financial statements are required in respect of those businesses. This frequently results in added time and costs for issuers and, as noted above, the application by CSA members of the Primary Business Requirements has, at times, been inconsistent across various jurisdictions. For example, the Ontario Securities Commission’s (OSC) interpretation of the financial statement requirements in Form 41-101F1 has become broader than that taken in other jurisdictions, requiring audited financial statements to be included in a prospectus for acquisitions that may not otherwise be considered significant. This OSC interpretation had been formally expressed in OSC Staff Notice 51-728 Corporate Finance Branch 2016-2017 Annual Report, which stated that an IPO prospectus was required to include “a three-year financial history […] of the business that investors are investing in, even if this financial history spans across multiple legal entities over the three-year period [including] the financial history for those businesses acquired or that will likely be acquired if those businesses are in the same primary business of the issuer.”

As such, and in response to feedback received as part of the CSA’s burden-reduction initiative, the proposed changes to NI 41-101CP would include:

1. additional guidance on the interpretation of the Primary Business Requirements, including illustrative examples. For example, the amended NI 41-101CP would state that historical financial statements would be required not only where an acquisition exceeded the 100% significance threshold, but also where an acquisition that fell below the 100% significance threshold changed the primary business of the issuer;
2. additional guidance in respect of predecessor entities;
3. guidance and examples of when additional information may be required in order to meet the requirement for full, true and plain disclosure. The amended NI 41-101CP would discuss a broader range of exceptional scenarios where issuers could be required to include additional financial information; and
4. guidance in regards to determining what constitutes a business in the context of acquired mining assets. Specifically, the acquisition of mining assets would not be considered a business requiring financial statements where the acquisition was (a) an arm’s length transaction, (b) no other assets were transferred and no other liabilities were assumed, and (c) there had been no exploration, development or production activity on the mining assets in the three years (two years for an IPO venture or venture issuer) prior to the date of the preliminary prospectus.

According to the CSA, the proposed changes are expected to result in a significant decrease in pre-file applications and the time spent thereon by issuers and their advisors. Importantly, materials annexed to the proposed changes suggest that the CSA have decided not to pursue a “coverage model” whereby a certain percentage of the issuer’s business, inclusive of past acquisitions, would be required to be comprised in the audited financial statements included in an IPO prospectus. The review of such coverage calculations and related analysis has often been a focal point of pre-file applications for issuers that had completed multiple acquisitions within the three most recent financial years prior to IPO.

The CSA are accepting comments on the proposed amendments until October 11, 2021.

DISCLAIMER: This publication is intended to convey general information about legal issues and developments as of the indicated date. It does not constitute legal advice and must not be treated or relied on as such. Please read our full disclaimer at www.stikeman.com/legal-notice.

*Reprinted with permission

OSFI Tightens Technology and Cybersecurity Incident Reporting Requirements for FRFIs

By: Shawn Smith, Andrew S. Cunningham, Stuart S. Carruthers from Stikeman Elliott LLP

On August 13, 2021, Canada’s Office of the Superintendent of Financial Institutions (OSFI) announced new technology/cybersecurity incident reporting requirements for Federally Regulated Financial Institutions (FRFIs). Incidents to which the policy applies are no longer subject to an express materiality threshold and must now be reported within 24 hours, with specific consequences for failure to report. In addition, OSFI updated the Cyber-Security Self-Assessment for FRFIs. This stricter approach reflects OSFI’s growing concern about the potential impact of cybercrime and technology incidents on the financial sector.

Reportable Incidents

The updated Technology and Cyber Security Incident Reporting Advisory (“New Advisory”) replaces the OSFI advisory that has been in effect since March 31, 2019 (“2019 Advisory”). The New Advisory defines “technology or cyber security incident” as:

An incident that has an impact, or the potential to have an impact on the operations of a FRFI, including its confidentiality, integrity or the availability of its systems and information.

The explicit materiality qualifier in the 2019 Advisory has not been retained in the New Advisory, which instead recommends that:

• “FRFIs should define priority and severity levels within their incident management framework” (the New Advisory does not set expectations for these frameworks); and
 
• FRFIs consult their Lead Supervisors if uncertain whether an incident should be reported.

In general, the New Advisory lowers the threshold for reporting while expanding the scope of reportable incidents as discussed below. Because the previous materiality test is no longer applicable, the requirement to report could potentially be triggered by almost any incident that affects a FRFI’s systems.

Characteristics of reportable incidents

The New Advisory states that reportable incidents may have any of the following characteristics (note that OSFI does not intend the examples given to be exhaustive of the points that they illustrate):

• The potential to affect other FRFIs or the Canadian financial system generally;
 
• An impact on FRFI systems affecting financial market settlement, confirmations or payments, or impact on payment services;
 
• An impact on FRFI operations, infrastructure, data, systems (e.g. an impact on the confidentiality, integrity or availability of customer information, among others);
 
• A disruptive effect on business systems or operations (e.g. data centre or utility centre outages or “loss or degradation” of connectivity);
 
• An operational impact on key or critical systems, infrastructure or data;
 
• An activation of disaster recovery plans or teams or a declaration of disaster by a third-party vendor, affecting the FRFI;
 
• An operational impact on internal users that affects business operations or external customers;
 
• An impact on external customers that is growing and likely to attract media attention, with a potential to negatively affect the FRFI’s reputation;
 
• An impact to a third party affecting the FRFI;
 
• The FRFI’s technology/cyber incident protocols or response team have been activated;
 
• An incident has been reported to the board of directors or senior management;
 
• A report has been made to another federal government department or to the Office of the Privacy Commissioner, to a law enforcement agency or to any other regulator or supervisory authority anywhere in the world;
 
• The FRFI “has invoked internal or external counsel”;
 
• A FRFI incident for which a cyber insurance claim has been initiated;
 
• The FRFI has internally assessed the incident as a Tier 1 or Tier 2 incident (high or critical severity); or
 
• A breach of internal risk appetite or thresholds.

However, even if an incident does not appear to meet any of these criteria (or where the FRFI is uncertain), notification of OSFI is “encouraged” on a precautionary basis.

Appendix I of the New Advisory lists four reportable scenarios as examples of reportable incidents. These appear to be similar to those included in the 2019 Advisory: an account takeover botnet campaign, a data centre technology failure, a breach at a material third party and DDoS extortion attacks.

Notification Requirements

The New Advisory differentiates between “initial” notification requirements and those that apply subsequently.

Initial notification requirements

In a major change, the notification timeframe has been reduced from 72 hours to 24 hours, although OSFI’s preference continues to be that notification take place as soon as possible. The New Advisory does not specify when the reduced 24-hour period begins to run, although (as noted below) it clearly contemplates that reports will sometimes have to be submitted before the FRFI has ascertained all of the required information. The 2019 Advisory stated that the 72-hour period began to run when the FRFI had determined that the incident was reportable.

Incidents must be reported to the appropriate Lead Supervisor and to OSFI’s Technology Risk Division using the Incident Reporting and Resolution Form, whether or not all details are known. A facsimile of the form is provided in Appendix II of the New Advisory.

Note that the 24-hour reporting period is shorter than the corresponding requirement under section 10.1 of PIPEDA, which requires that notifications be made “as soon as feasible after the organization determines that the breach has occurred”. The FRFI continues to be responsible for complying with the PIPEDA requirement, however.

Subsequent notification requirements

The subsequent notification requirements are more open-ended. In whatever form it takes, such notification should be “regular (e.g. daily)”, although OSFI may issue more specific requirements in specific cases. The regular updates should continue until the incident is contained or resolved and are expected to include both short-term and long-term remediation actions and plans. A post-incident review, including “lessons learned” should also be submitted at an appropriate time.

Failure to report

Failure to report incidents as required can now lead to specific consequences, such as increased supervisory oversight, e.g. enhanced monitoring of a FRFI’s activities, or watch-listing or staging of the FRFI (among other potential consequences).

Cyber Security Self-Assessment

The Cyber Security Self-Assessment (“Self-Assessment”) assists the FRFI in identifying areas of potential vulnerability to cyber incidents and addresses both incident prevention and incident response. Changes in the revised version were designed in part to reflect recent rapid growth in financial services digitization. While not mandatory, the Self-Assessment will supplement OSFI’s forthcoming guidance for the sound management of technology and cyber risk, referred to in the Near-Term Plan of Prudential Policy, issued on May 6, 2021.

The Self-Assessment encompasses 90 “control statements” such as “The FRFI conducts regular reviews of the cyber risk strategy and cyber risk framework, to ensure compliance with legal and regulatory requirements” (no. 3). The control statements are divided into the following categories:

• Planning and strategy
 
• Policy
 
• Risk management
 
• Business environment
 
• Asset management
 
• Risk assessment
 
• Identity management and access control
 
• Network security
 
• Data security
 
• Vulnerability management
 
• Change and configuration management
 
• Monitoring and logging
 
• Benchmarking, reviews and assessments
 
• Secure software development
 
• Incident management
 
• Testing and planning
 
• Continuous improvement
 
• Security education
 
• Governance and management
 
• Cloud service providers

In completing the Self-Assessment, the FRFI will rate each control statement on a scale from 0-5 with respect to “cyber security maturity”. The data produced by this exercise will help the FRFI focus its future cyber security planning on its most pressing areas of deficiency.

Next Steps

Steps that FRFIs should consider in light of the New Advisory include (among others):

• Assessing the implications of the changes to the reporting standards in the New Advisory on their internal procedures;
 
• Reviewing and (if necessary) updating supplier and outsourcing agreements to ensure compliance with the new requirements; and
 
• Undergoing a Cyber Security Self-Assessment based on the new template.

DISCLAIMER: This publication is intended to convey general information about legal issues and developments as of the indicated date. It does not constitute legal advice and must not be treated or relied on as such. Please read our full disclaimer at www.stikeman.com/legal-notice.

*Reprinted with permission.

When Parents’ Decision-Making Authority and the Vaccine Views Clash

By: Allie Cuperfain from Mills & Mills LLP

With medical experts announcing the beginning of the 4th wave of COVID-19 in Ontario and school beginning in a few weeks, the topic of vaccinating children against COVID-19 has again come to the surface. When does the child’s perspective on vaccinations get taken into account? Also, what happens if separated or divorced parents have different views on vaccinations – which parent’s viewpoint should be followed?

Youth Aged 12 to 17 Can Consent To or Refuse the COVID-19 Vaccine

According to section 4(1) of the Health Care Consent Act, 1996, SO 1996, c 2, Sched A [HCCA], a person has the capacity to decide medical decisions “if the person is able to understand the information that is relevant to making a decision about the treatment, admission or personal assistance service, as the case may be, and able to appreciate the reasonably foreseeable consequences of a decision or lack of decision.” While 16 is the default age at which HCCA says a person can give or refuse consent, the common law has established that a “mature minor” under the age of 16 is capable of voicing medical opinions without requiring parental approval.

Currently Ontario has approved the Pfizer-BioNTech vaccine for youth aged 12-17. Youth in this age group need to provide informed consent when getting the vaccine, which means they acknowledge that they understand (a) what is involved in receiving the vaccine; (b) why the different levels of government and medical practitioners are recommending people get the vaccine and (c) what risks and benefits are associated with either getting or refusing the vaccine. People between 12-17 years old are able to provide consent to receive or refuse the vaccine without parental guidance.

Recent Ontario Decisions Lean in Favour of the Parent Who Supports Following Public Health Vaccination Guidance

In two recent Ontario Superior Court decisions, the court has had to address the issue of which parent should be entitled to decision-making authority when they disagree on whether to vaccinate their children against vaccine-preventable diseases and COVID-19.

In AP v LK, 2021 ONSC 150, the appellant father successfully appealed a final arbitration award where the arbitrator had found that vaccinating the parties’ two children, was not in the best interest of the children. The children, aged 14 and 10, had not received any of the standard childhood vaccines. During the marriage both parents agreed not to give the children any vaccinations. Following separation, the appellant father began to argue the children should get vaccinated. Tension related to vaccinations was causing anxiety in both the children, leading them to be reluctant to get vaccinated. The arbitrator found that it was in the children’s best interest not to get vaccinated for the following reasons at paragraph 34:

1. The status quo supports the children remaining unvaccinated;
2. There is no risk to the children if they do not become vaccinated;
3. The children are at increased risk from vaccination due to the respondent’s MTHFR genetic variation;
4. The children are anxious and stressed due to the prospect that they will be forced to become vaccinated, and only an Award that they not become vaccinated will free them from the conflict between the parties.

On appeal, the court found that the arbitrator had relied on incorrect medical opinions and had made a palpable error in ignoring valuable evidence about the benefits of vaccines and the risks associated with contracting a vaccine-preventable illness. The arbitrator also erred in finding that the children had a greater risk of having complications following vaccinations because of their genetic marker. While the status quo was to allow the children to remain unvaccinated, there was minimal evidence to demonstrate that the children were anxious or stressed about becoming vaccinated. Ultimately, the court found that the arbitrator’s errors collectively were overriding, allowing the court to set aside the arbitrator’s award. The court held at paragraphs 276-278 that,

it is in the best interests of the children to order, on a final basis, that the appellant shall have the sole responsibility to make vaccination-related decisions for them. This order will ensure that the children become vaccinated in accordance with the advice of a physician as to the vaccines to be administered, and the manner and timing by which to administer the vaccinations… Any concerns the children may have about vaccines and vaccination can be alleviated through communication with them about the fact that vaccines are well-tested and safe, with only minor side effects, and the provision of any other information that may be necessary to dispel any misconceptions they may have about the safety and efficacy of vaccines.

Similarly, in IS v JW, 2021 ONSC 1194, the vaccination of a six-year-old child was at issue. The applicant mother, who had decision-making authority, did not believe in the value of vaccines as a preventative treatment against illness and disease. The mother opposed vaccinating the child because her adult son had an allergic reaction to a vaccine when he was one-month old and she herself had been vaccinated against measles yet still contracted the disease. In contrast, the respondent father advocated for the benefit of vaccines. A developmental pediatrician testified during the trial to the efficacy of vaccines and his intention to recommend to his patients that they receive the COVID-19 vaccine once it became available. 

In its analysis of vaccine efficacy (at paragraph 182), the court took judicial notice of two facts based on the Justice Finlayson’s in-depth analysis of vaccine-related case law in BCJB v E-RRR, 2020 ONCJ 438:

1. Ontario’s publicly funded vaccines are safe and effective at preventing vaccine preventable diseases. Their widespread use has led to severe reductions or eradication of incidents of these diseases in our society; and 
2. The harm to a child, flowing from contracting a vaccine preventable disease, may even include death; at paras. 186-187.

Taking into consideration these established facts as well as the reasons for the mother’s hesitancy to vaccinate her child, the mother’s history of making other conscientious decisions related to the child’s health, the pediatrician’s views on vaccines and the mother’s lack of a future plans for immunizations, the court determined that it was in the child’s best interest not to allow the mother to continue refusing the child vaccines. The mother was ordered to immediately create and implement a schedule for immunizing the child according to Public Health Ontario’s recommendations. While the mother maintained her decision-making authority, the court also ordered that in the event the immunization schedule was not properly progressing, the father was entitled to initiate a review of the decision and request sole decision-making authority for all aspects of the child’s medical care. As the child was too young to be eligible for the COVID-19 vaccine, the order did not mention a requirement to vaccinate the child against COVID-19.

Conclusion

While Ontario courts have yet to order that parents vaccinate their children against COVID-19, based on these two recent decisions it is clear that they are leaning towards supporting public health guidance about the safety of vaccines and their efficacy in protecting children from disease and illness. When parents disagree on vaccination plans for their children, the courts are likely to follow public health guidance and award medical decision-making authority to the parent who wishes to vaccinate the child. It remains to be seen if courts will specifically order parents to vaccinate their children against COVID-19.

Thank you to Lucia Kim for her assistance with the research on recent case law.

If you have family law questions, including questions about decision-making and parenting time, contact the knowledgeable family lawyers at Mills & Mills LLP at 416­-863-0125 or via email.

*Reprinted with permission.

Federal Government Designates September 30 as Public Holiday for National Day for Truth and Reconciliation

By: Paul E. Broad from Hicks Morley

On June 3, 2021, Bill C-5, An Act to amend the Bills of Exchange Act, the Interpretation Act and the Canada Labour Code (National Day for Truth and Reconciliation), received Royal Assent. It officially designates September 30 of each year as National Day for Truth and Reconciliation. This marks a new public holiday under the Canada Labour Code (Code).

Traditionally September 30 of each year has been commemorated as Orange Shirt Day. National Day for Truth and Reconciliation seeks to honour First Nations, Inuit and Métis survivors, their families and communities, and to ensure that public commemoration of their history and the legacy of residential schools remains a vital component of the reconciliation process. The Bill comes into force on August 3, 2021, meaning that the new holiday will first occur this Fall, on September 30, 2021.

A number of other statutes will also be amended to enact this change, including the Interpretation Act and the Bills of Exchange Act. Most importantly for employers, the definition of “general holiday” in the Code will be amended to include the new National Day for Truth and Reconciliation. In addition, this new holiday is included in the special rule under the Code that applies to a limited number of general holidays when they fall on a non-working Saturday or Sunday (the rule requiring employees to be given the day immediately preceding or following as the general holiday). As a result of this change, there will now be 10 general holidays under the Code.

This new holiday only applies to federally regulated employers which are subject to the Code. As such, this new holiday does not apply to provincially regulated employers unless a provincial legislature makes similar amendments to provincial employment standards legislation.

The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hicks Morley Hamilton Stewart Storie LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hicks Morley Hamilton Stewart Storie LLP. ©

*Reprinted with permission.

Assessing Drake’s Estate Planning Needs 

By: Demetre Vasilounis from Fasken

As a Toronto native, I couldn’t help but listen to rapper Drake’s highly-anticipated new album Certified Lover Boy, which he released just a few weeks ago. In fact, it has been enjoying record-breaking streaming numbers from music fans around the world, amassing a staggering 153 million global Spotify streams in its first 24 hours of release.

Drake and his music are clearly influential on a global level. Drake’s songs have generated popular phrases such as “YOLO” and “0 to 100”, and his music videos have inspired exploitable internet memes. But, beyond the memes, what is particularly interesting is that a lot of Drake’s music—and certainly this is the case for Certified Lover Boy—is based on his own experiences, his family, his relationships and similar deeply personal themes. What this means is that much of his personal life is known by the public.

The song “Knife Talk” off of Certified Lover Boy provides a good example of this. In “Knife Talk”, Drake raps about, among other things, the wealth he has amassed despite the antagonism he has faced from others in the music industry (including, most notably, Kanye West). As I listened to this track, one verse in particular stood out to me:

I’m on everything

Jacob charged me four-fifty for a tennis chain

US Open, had it on us at the tennis game

Tell the coach don’t take me out, I like to finish games

And my pen insane, and my men insane

There’s like eighty of us now, that’s the scary thing

[Expletive] they doin’ on that other side embarrassing

We in Paris with it, hundred carats with it

All this [expletive] is for my son, ’cause he’s inheritin‘ it [Emphasis added.]

In this verse, Drake is referring to his son, Adonis Graham. While Drake tends to discuss his life in detail in his music, the existence of his son is something that he did not publicly acknowledge at first until he addressed rumours of him having a son in his 2018 album Scorpion. It is also not clear if he is living in a conjugal relationship with Adonis’ mother, Sophie Brussaux (although his most recent music implies that that is not the case).

So the question is, now that we know Drake has a son…well, Drake, is Adonis going to inherit all of your assets?

As an estate planning lawyer, I find “Knife Talk” notable because this is perhaps the first major instance of Drake discussing his own estate planning in his music.[1] And although I don’t expect Drake will be explaining his estate planning in great depth on his future releases, considering Drake’s influence on the public, I do wonder how many people have started to think about their own estate planning (or their future inheritances) as a result of this one lyric.

In addition, because of how public Drake’s life has become, including information about the assets he owns and his net worth, it is possible to identify some of the things Drake will have to think about in his own estate planning:

• Probate Tax Planning for Ontario Real Estate: One of Drake’s most well-known assets is his luxurious Toronto home nicknamed “The Embassy”, which is worth approximately $100 million. This home, on Drake’s death, will be subject to Ontario probate tax, which is 1.5% of the value of assets subject to probate. Therefore, Drake could have a $1.5 million probate tax bill on The Embassy…unless he does the proper probate tax planning.[2]
• Planning for International Property: Drake also owns property in locations all over the world (including, for example, California). Drake will need advice from each jurisdiction in which he owns foreign-situate property; for example, in the United States of America, there are estate taxes and gift taxes that differ from the taxes here. Drake may also want to do wills in each such jurisdiction with respect to such property, as opposed to having his executors submit his Ontario wills to foreign courts for approval (which may involve additional administrative procedures). In any event, it will be important to navigate any conflicts of laws between those jurisdictions and Ontario.
• Shares of OVO: A significant portion of Drake’s wealth comes from his October’s Very Own (“OVO”) collection of businesses. He has launched both a record label and a clothing line under the OVO name. If any of those businesses involve Ontario or Canadian-incorporated private corporations, then they will have shares with an inherent value. As the OVO brand becomes larger and more successful, Drake may wish to engage in an estate freeze transaction to “freeze” any capital gains tax liability on his OVO shares that may arise on his death, and then pass on any future capital gains to a trust for Adonis’ benefit.[3] OVO will likely also require a management transition plan; Drake may wish to in his will direct the trustees of his estate to elect certain directors or officers of the OVO businesses, as well as provide guidance as to how he wants OVO to operate after his death.
• Trust for Adonis: Drake has a great deal of wealth spread across a breadth of assets, and this may be a lot for Adonis to handle should he come into this wealth at a young age. Drake may wish to set up a trust for Adonis and have others (e.g. relatives, close confidants, advisors) act as trustees of the trust and help Adonis manage the wealth. He may also wish to include a protector to help ensure that the trustees of the trust are exercising their discretions appropriately. Depending on the location of Drake’s more significant assets, it may make sense for Drake to have trustees situate in such jurisdictions.
• Contractual Obligations and Intellectual Property: Someone of Drake’s status has likely entered into hundreds of agreements, including with respect to his likeness and image as well as his intellectual property rights for his music. It is important to understand all of the obligations and entitlements Drake’s estate has under these agreements. If Drake has retained copyright in any of his music, this will be an asset that forms part of his estate that can subsequently be sold or licensed (or transferred directly to Adonis or put in the aforementioned trust).
• Personal Items: Lastly, Drake has not been shy about his love for fancy cars, designer clothes, and everything in between. If Adonis is inheriting everything, he may not be able to make use of nor want certain luxury items. For example, Drake owns a private jet called “Air Drake”, valued at $181.5 million. That jet will require maintenance and its own crew, which will incur significant annual expenses. Thus, Drake may want to give his executors and trustees the flexibility to sell or donate certain items to increase his estate’s liquidity or obtain tax credits to reduce taxes, respectively.

These are just some of Drake’s estate planning considerations that can be glossed from what is publicly known about him. There would clearly be a lot of complexity involved in a complete plan, but of course the first step is actually having a will. Just a few years ago, Prince, who owned a home in the same neighbourhood as Drake, died without a will, and this caused family legal battles.

Drake is certainly one of the most well-known and influential Canadians of all time, and he has impacted popular culture more than most musicians. Considering the public’s interest in his family life and his ever-growing wealth, it will be interesting to see if he can inspire others to look after their own estate planning affairs.

[1] Drake does have a huge catalogue, though, so I’m not 100% certain if he has made any estate planning references in his music beforehand.

[2] For more information on probate tax planning, please see my colleague Corina Weigl’s blog post here.

[3] For more information on estate freezes, please see this informative article by PwC here.

*Reprinted with permission.

[4][ps2id id='4' target=''/] CSA Staff Notice of Amendments to NI 31-103 and to CP 31-103 – Reforms to Enhance the Client-Registrant Relationship (Client Focused Reforms), (2019) 42 OSCB (Supp-1).

[5][ps2id id='5' target=''/] For more guidance on this topic, see CSA Staff Notice 31-354 Suggested Practices for Engaging with Older or Vulnerable Clients (21 June 2019).

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2021

DISCLAIMER: This article was published by McMillan LLP and and not reprinted anywhere else. All rights reserved.

*Reprinted with permission.

Significant Estates Law Changes are Coming for All Ontarians: An Overview of Bill 245 & Rule Changes for Small Estates

By: Lori Isaj, Jessica DeFilippis and Lucinda Main from Beard Winter LLP

Bill 245

On February 16, 2021, the Government of Ontario introduced the Accelerating Access to Justice Act, 2021, or Bill 245 (“Bill 245”) that received Royal Assent on April 19, 2021. Bill 245 introduces significant changes to various aspects of estates and substitute decision-making law in Ontario, particularly to the Succession Law Reform Act, R.S.O. 1990, c. S.26 (“SRLA”). The legislation aims to continue building on changes already implemented as a response to the COVID-19 pandemic, and to make estate planning and estate administration more accessible, affordable, and efficient for Ontarians.

Key among these changes are permanently implementing the option to sign wills and powers of attorney virtually and in counterpart, changing the amount a parent can accept on behalf of a minor child without guardianship, marriage no longer revoking a will, treating separated spouses similar to divorced spouses for the purposes of estate distribution, and introducing court-validated compliance for testamentary documents.

Signing Wills and Powers of Attorney Virtually and in Counterpart

The virtual counterpart execution provisions were initially introduced as a temporary measure to allow people to execute wills and powers of attorney while respecting social distancing guidelines during the COVID-19 pandemic. Bill 245 seeks to revise the SLRA and the Substitute Decisions Act, 1992, S.O. 1992, c. 30 (governing the executions of powers of attorney) to make permanent the provisions to execute wills and powers of attorney made on or after April 7, 2020, in counterpart through audiovisual communication technology. Similar to the provisions introduced under emergency orders, witnesses to wills and powers of attorney can be present by means of audio-visual communication technology defined as “any electronic method of communication in which participants are able to see, hear and communicate with one another in real time.” Specifically, at least one of the witnesses must be a Law Society of Ontario licensee, meaning a lawyer or a paralegal.

In addition, the witnesses and the testator/grantor must contemporaneously sign complete, identical copies of the will or powers of attorney in counterpart, which counterparts together constitute the validly executed document(s). Notably, there can be minor, non-substantive differences in format or layout between the copies executed by the testator/grantor and the witnesses.

The provisions come into force on May 20, 2021 and will allow Ontarians to more easily and safely access legal services when preparing their wills and powers of attorney.

Increasing the Monetary Amount a Parent Can Receive on Behalf of a Minor

Bill 245 revises the section in the Children’s Law Reform Act, R.S.O. 1990, c. C.12 (“CLRA”) setting out the quantum of money payable and the value of personal property, including an inheritance, a parent or a person with lawful custody of the minor can receive on the minor’s behalf without requiring a court order for guardianship of the minor’s property. Specifically, the revision sets out that the prescribed amount is set out by regulation, and applies to money payable under a judgment, court order, or on an intestacy.

Previously, the amount a parent or person with lawful custody could receive was set at $10,000.00. Ontario Regulation 120/21 provides that the new prescribed amount is $35,000.00. This change will result in some parents or persons having lawful custody to receive a larger sum on behalf of the minor and avoid costly guardianship court proceedings.

Marriage No Longer Revokes a Will

Bill 245 repeals the sections in the SLRA that provide that a will is revoked by marriage of the testator. Amongst others, this is a welcome change to address situations of predatory marriages on vulnerable individuals.

Relationship Breakdowns: Treating Separated Spouses Like Divorced Spouses

The current SLRA provides that where a marriage ends as a result of divorce or is declared a nullity, subject to a contrary intention in the will, a former spouse of the testator is deemed to have predeceased the testator. This means that the appointment of the former spouse as estate trustee and any gifts to the former spouse are revoked. Currently, this provision does not apply to separated spouses.

Bill 245 addresses this gap by ensuring that a spouse separated at the testator’s death does not benefit under the testator’s will. Spouses are considered to be separated if the following conditions or circumstances apply:

before the testator’s death:

1. they lived separate and apart for three years as a result of the breakdown of their marriage;

2. they entered into an agreement that is a valid separation agreement under Part IV of the Family Law Act, R.S.O. 1990, c. F.3;

3. a court made an order with respect to their rights and obligations in the settlement of their affairs arising from the breakdown of their marriage; or

4. a family arbitration award was made under the Arbitration Act, 1991, S.O. 1991, c. 17 with respect to their rights and obligations in the settlement of their affairs arising from the breakdown of their marriage; and at the time of the testator’s death, they were living separate and apart as a result of the breakdown of their marriage.

These provisions come into force on January 1, 2022.

Separated Spouses No Longer Entitled to Benefit on an Intestacy

Where a married person dies without a will, the surviving married spouse is entitled to some, or all, of the deceased person’s estate. The provision applies even when spouses are separated, but not divorced. Effective January 1, 2022, Bill 245 aims to address this often unintended effect by ensuring that separated spouses, as defined above, do not inherit the estate of a former spouse who died without a will.

Spouses inheriting on an intestacy were previously entitled to the preferential share, that was set at $200,000.00 since 1995. If the estate was greater than $200,000.00, the spouse was entitled to the first $200,000.00, and to split the remainder above the preferential share equally with the remaining beneficiaries on an intestacy (if any). Under Ontario Regulation 54/95, the preferential share for a surviving spouse has increased to $350,000.00 for the estates of persons who die on or after March 1, 2021.

Introducing Court-Ordered Validity of Testamentary Documents

Bill 245 introduces a new provision under the SLRA that allows for the court to validate a document that sets out the testamentary intentions of the deceased or intentions to revoke, revive, or amend a will, but that was not properly created or signed under the SLRA. By application made to the court, the court may order that the document is a valid testamentary document if it sets out the testamentary intentions of the deceased, or an intention of the deceased to revoke, alter, or revive a will. Importantly, such testamentary document cannot be an electronic will.

The court-ordered validity provision comes into force on January 1, 2022.

Changes for Small Estates

In addition to Bill 245, the Government of Ontario introduced changes to the Estates Act, R.S.O. 1990, c. E.21 (“Estates Act”) in the Smarter and Stronger Justice Act, 2020, S.O. 2020, c. 11 (“Stronger and Smarter Justice Act, 2020”) to make it easier, faster, and more affordable for individuals to administer small estates.

The simplified rules for small estates, effective as of April 1, 2021, include changes to the Rules of Civil Procedure (R.R.O. 1990, Reg. 194) (“Rules of Civil Procedure”) set out in O. Reg. 111/21 creating new provisions related to the probate process for small estates. Previous to these changes, the probate procedure was the same for all estates regardless of the size. The changes include:

Increasing the Value of a “Small Estate”

As of April 1, 2021, a “small estate” in Ontario is one that does not exceed $150,000.00 in value. Importantly, the new small estate value will not affect estate administration tax, which will continue to apply to the portion of the estate exceeding $50,000.00.

Removal of Bond Requirement

Previously, the Estates Act set out a number of circumstances when the filing of a bond was required, often resulting in delay and increased costs. The new rules provide that the requirement to post a bond for a small estate is removed, except where a beneficiary is a minor or is deemed incapable.

The Simplified Small Estates Probate Process

Rule 74.1 of the Rules of Civil Procedure allows estate trustees to apply for a Small Estate Certificate both when there was a will and even if there was no valid will. This certificate has the same effect as a Certificate of Appointment of Estate Trustee, except that the authority of an estate trustee pursuant to the Small Estate Certificate is limited to the estate assets listed in the application.

The applicant for a Small Estate Certificate must provide a copy of their court application along with copies of the will and codicil(s), if any, to all persons entitled to share in the distribution of the estate. Notably, the applicant can provide a copy of the documents by e-mail, as well as by regular mail or courier. The applicant must then wait 30 days before filing the application with the court located in the jurisdiction where the deceased person last resided.

If the applicant discovers additional assets after the court issues a Small Estate Certificate, but that do not exceed the $150,000.00 small estate threshold, the applicant can file an Application to Amend Small Estate Certificate, and the court will issue an Amended Small Estate Certificate.

If the applicant discovers additional assets after the court issues a Small Estate Certificate that exceed the $150,000.00 threshold, the applicant can proceed with a regular application for a Certificate of Appointment of Estate Trustee under Rule 74 of the Rules of Civil Procedure.

Various aspects of Ontario estates law merit a revisiting due to the rapidly evolving times and demographics. The changes set out in Bill 245, the Estates Act, and the Stronger and Smarter Justice Act, 2020 are welcome and needed for Ontarians navigating the law related to preparing for incapacity, finalizing their testamentary wishes, and administering the estates of loved ones.

Originally published in STEP Canada Connection Toronto Branch Newsletter, May 2021.

*Reprinted with permission.

We hope this article has helped provide some clarity regarding what the term ‘law clerk’ means in Ontario and other jurisdictions, so the next time someone tells you they are going to school to become a law clerk or states, “I’m a law clerk”, you can nod and smile acknowledging what they do with some level of confidence.

About the Authors

Kellie Burdon, Jina Ahmad and Susan Taylor-Kusek are recent graduates of the Seneca Law Clerk (Accelerated) Program in Ontario. They participated in Athennian’s internship program and were provided the opportunity to work as corporate law clerks utilizing Athennian’s Entity Management software to maintain corporate records and build virtual minute books for Canadian and international clients. The authors were collectively referred to as the ‘Seneca Hooterns’.

*Reprinted with permission.

Big changes for small estates

By: Kim Gale  and Malvin Seto from Gale Law

On April 1, 2021, the estates law changes from the Smarter and Stronger Justice Act came into effect in Ontario. The result of the bill raised the limit for a small estate to $150,000 and introduced Rule 74.1 in the Rules of Civil Procedure pertaining to the administration of small estates.

This is similar to the increased limit in the Children’s Law Reform Act in instances where there is no Will or there is a Will but no trust provisions, the estate trustee can only pay $35,000 to the minors parent. Anything above that must be paid into court. The parent or guardian can then apply to be guardians of property their child. The amount was $10,000 previously.

As wills, trusts and estates practitioners it is important to note these changes to the legislation – in particular, estate administrators should be aware of the rules relating to small estates and how it affects the estates administration practice.

Small estates bond requirements

Pursuant to s. 35 of the Estates Act, there is a general requirement that requires every person to whom a grant of administration, including administration with the will annexed, shall give a bond to the judge of the court by which the grant is made. Generally, the administration bond that needs to be obtained is required to be double the amount of the assets of the estate. Pursuant to s. 36(3), an administration bond shall not be required in respect of a small estate, now up to $150,000 (unless a beneficiary is a minor or incapable).

Rule 74.1 small estates forms and procedures: What is the difference?

 The major difference of Rule 74.1 is the probate process for small estates

• mainly the less stringent requirements to  be appointed  an estate trustee of a small Rule 74.1.02(2), states that Rule 74 continues to apply  with respect  to the  small estates except for Rules 74.04 to 74.11 and 74.14 .

The following demonstrates the requirements under Rule 74.04 in comparison to the requirements under Rule 74.1 (italic emphasis added):

Rule 74.04 Requirements for Probate Application

• the original of the will and of every codicil; (a.l) proof of death;
• Form 74. 6 an affidavit attesting that notice of the application, and Form 7 has been served in accordance with subrules (2) to (7);
• if the will or a codicil is not in holograph form,
• Form 8 an affidavit of execution of the will and of every codicil or, Form 74.10 an affidavit as to the condition of the will or codicil at the time of execution, or
• such other evidence of due execution as the court may require;
• Form 74.9 if the will or a codicil is in holograph form, an affidavit attesting that the handwriting and signature in the will or codicil are those of the deceased;
• a renunciation (Form 11) from every living person who is named in the will or codicil as estate trustee who has not joined in the application and is entitled to do so;
• if the applicant is not named as an estate trustee in the will or codicil, a consent to the applicant’s appointment (Form 74.12 or, if the application is for a certificate limited to the assets referred to in the will, Form 12.1) by persons who are entitled to share in the distribution of the estate and who together  have a majority  interest in the value of the assets of the estate at the date of death;

(g.1 ) Form 74.13.2 in the case of an application for a certificate of appointment of estate trustee with a will limited to the assets referred to in the will, a draft order granting the certificate of appointment;

• the security required by the Estates Act; and
• such additional or other material as the court

Small Estates Rule 74.1.03 Requirements for Probate Application

• Form 74, 1B, a request to file an application for a small estate certificate or an amended small estate certificate form;
• proof of death;
• Form 74. l C, a draft small estate certificate;
• if there is a will, the original of the will and of any codicils, together with the following evidence of due execution of the will and each codicil, similar to the requirements in Rule 74;
• any security required by the Estates Act, which should be nil; and
• such additional or other material as the court

Small estates have a less formal notice equivalent under Rule 74.1.03(3) that requires the applicant to send a copy of the application for a small estate certificate, any attachments and copies of the wills or codicils to the beneficiaries. It acts very similar to a Notice of Application for estates over $150,000.

As the highlighted passages above indicate, there are more requirements for probate under Rule 74.04 . There are up to six less forms required under Rule 74.1 and generally, there is no security required pursuant to s. 36 of the Estates Act, in comparison to a traditional Certificate of Appointment of Estate Trustee. Forms require time and time is money.

Comparison of forms 

The small estate forms themselves are newer and easier for an administrator of a small estate to complete.

On an analysis of the Small Estate Certificate Form (Form 74. lA) in comparison to the Certificate of Appointment of Estate Trustee Form (Form 74.4) as downloaded from the Ontario Court forms website, at first glance, there are colour indicators in Form 74. lA that easily guide an administrator on where to fill in the forms as compared to the monochromatic Form 74.4. The spacing and larger text in Form 74. lA is placed in a way where it is more intuitive and user friendly than Form 74.4.

In terms of guiding  language, the small estate form is clearer than its “traditional”  counterpart,  and as a snippet, the Personal Property section of Form 74. lA has a more in-depth definition of Personal Property as compared to Form 74.4 .

One interesting note from Form 74. lA, is that this form asks for the beneficiaries to be listed, whereas in 74.4, the beneficiaries are to be provided in another court form.

Who benefits?

According to Attorney General Doug Downey, raising the small estate limit was a part of the changes made “to ease the burden on grieving loved ones and ensure fairness for everyone regardless of the size of an estate, the government is making the process to claim a small estate faster, easier and less costly for Ontarians.”

Overall, the new changes make it easier for administrators of any estate under $150,000.

As some administrators may utilize legal counsel for the administration of their estate, having a process where there are potentially six less legal documents to complete, and a process that requires less correspondence with other parties will drastically help small estates by reducing time and legal fees paid from the small estates.

For the administrators who wish to administer a small estate by themselves, the new process is more simplified. Overall, it is faster, easier, and less costly in comparison to the process for estates over $150,000.

Do changes ensure fairness for everyone regardless of size of an estate?

For there to be winners, there must be losers borne from these changes . In terms of fairness for everyone, regardless of the size of the estate, it is puzzling how the line was arbitrarily drawn at $150,000.

What happens to the still relatively modest estates valued between $150,000 to $200,000? Should there be a system in place that is less onerous and less expensive than obtaining an administrative bond to compel an administrator to fulfil their duties?

The changes are a good start, but there are still questions that need to be answered.

*Reprinted with permission.