Artificial intelligence and its legal challenges

May 1, 2017

Is there a greater challenge than to write a legal article on an emerging technology that does not exist yet in its absolute form?

Artificial intelligence, through a broad spectrum of branches and applications, will impact corporate and business integrity, corporate governance, distribution of financial products and services, intellectual property rights, privacy and data protection, employment, civil and contractual liability, and a significant number of other legal fields.

What is artificial intelligence?

Artificial intelligence is “the science and engineering of making intelligence machines, especially intelligent computer programs”.¹ Essentially, artificial intelligence technologies aim to allow machines to mimic “cognitive” functions of humans, such as learning and problem solving, in order for them to conduct tasks that are normally performed by humans. In practice, the functions of artificial intelligence are achieved by accessing and analyzing massive data (also known as “big data”) via certain algorithms.

As set forth in a report published by McKinsey & Company in 2013 on disruptive technologies, “[i]mportant technologies can come in any field or emerge from any scientific discipline, but they share four characteristics: high rate of technological change, broad potential scope of impact, large economic value that could be affected, and substantial potential for disruptive economic impact”.²

Despite the interesting debate over the impact of artificial intelligence on humanity,³ the development of artificial intelligence has been on an accelerated path in recent years and we witnessed some major breakthroughs. In March 2016, Google’s computer program AlphaGo beat a world champion Go player, Lee Sedol, by 4 to 1 in the ancient Chinese board game. The breakthroughs reignited the world’s interest in artificial intelligence. Technology giants like Google and Microsoft, to name a few, have increased their investments in the research and development of artificial intelligence.

This article will discuss some of the applications of artificial intelligence from a legal perspective and certain areas of law that will need to adapt - or be adapted - to the complex challenges brought by current and new developments in artificial intelligence.

Legal challenges

Artificial intelligence and its potential impacts have been compared to those of the Industrial Revolution, a form of transition to new manufacturing processes using new systems and innovative applications and machines.

Health care
L’intelligence artificielle est certes promise à un bel avenir dans le Artificial intelligence certainly has a great future in the health care industry. Applications of artificial intelligence with abilities to analyze massive data can make such applications a powerful tool to predict drug performance and help patients find the right drug or dosage that matches with their situation. For example, IBM’s Watson Health program “is able to understand and extract key information by looking through millions of pages of scientific medical literature and then visualize relationships between drugs and other potential diseases”.⁴ Some features of artificial intelligence can also help to verify if the patient has taken his or her pills through an application on smartphones, which captures and analyzes evidence of medication ingestion.

In addition to privacy and data protection concerns, the potential legal challenges faced by artificial intelligence applications in the health care industry will include civil and contractual liabilities. If a patient follows the recommendation made by an artificial intelligence system and it turns out to be the wrong recommendation, who will be held responsible?

It also raises legitimate complex legal questions, combined with technological concerns, as to the reliability of artificial intelligence programs and software and how employees will deal with such applications in their day-to-day tasks.

Customer services
A number of computer programs have been created to make conversation with people via audio or text messages. Companies use such programs for their customer services or for entertainment purposes, for example in messaging platforms like Facebook, Messenger and Snapchat. Although such programs are not necessarily pure applications of artificial intelligence, some of their features, actual or in development, could be considered as artificial intelligence.

When such computer programs are used to enter into formal contracts (e.g., placing orders, confirming consent, etc.), it is important to make sure the applicable terms and conditions are communicated to the individual at the end of the line or that a proper disclaimer is duly disclosed. Contract enforcement questions will inevitably be raised as a result of the use of such programs and systems.

Financial industry and fintech
In recent years, many research and development activities have been carried out in the robotic, computer and tech fields in relation to financial services and the fintech industry. The applications of artificial intelligence in the financial industry will vary from a broad spectrum of branches and programs, including analyzing customers’ investing behaviours or analyzing big data to improve investment strategies and the use of derivatives.

Legal challenges associated with artificial intelligence’s applications in the financial industry could be related, for example, to the consequences of malfunctioning algorithms. The constant relationship between human interventions and artificial intelligence systems, for example, in a stock trading platform, will have to be carefully set up to avoid, or at least confine, certain legal risks.

Autonomous vehicles
Autonomous vehicles are also known as “self-driving cars”, although the vehicles currently permitted to be on public roads are not completely autonomous. In June 2011, the state of Nevada became the first jurisdiction in the world to allow autonomous vehicles to operate on public roads. According to Nevada law, an autonomous vehicle is a motor vehicle that is “enabled with artificial intelligence and technology that allows the vehicle to carry out all the mechanical operations of driving without the active control or continuous monitoring of a natural person”.⁵

Canada has not adopted any law to legalize autonomous cars yet. Among the significant legal challenges facing autonomous cars, we note the issues of liability and insurance. When a car drives itself and an accident happens, who should be responsible? (For additional discussion of this subject under Québec law, refer to the Need to Know newsletter, “Autonomous vehicles in Québec: unanswered questions” by Léonie Gagné and Élizabeth Martin-Chartrand.) We also note that interesting arguments will be raised respecting autonomous cars carrying on commercial activities in the transportation industry such as shipping and delivery of commercial goods.

Liability regimes

The fundamental nature of artificial intelligence technology is itself a challenge to contractual and extra-contractual liabilities. When a machine makes or pretends to make autonomous decisions based on the available data provided by its users and additional data autonomously acquired from its own environment and applications, its performance and the end-results could be unpredictable.

In this context, Book Five of the Civil Code of Québec (CCQ) on obligations brings highly interesting and challenging legal questions in view of anticipated artificial intelligence developments:

Article 1457 of the CCQ states that:
Every person has a duty to abide by the rules of conduct incumbent on him, according to the circumstances, usage or law, so as not to cause injury to another. Where he is endowed with reason and fails in this duty, he is liable for any injury he causes to another by such fault and is bound to make reparation for the injury, whether it be bodily, moral or material in nature. He is also bound, in certain cases, to make reparation for injury caused to another by the act, omission or fault of another person or by the act of things in his custody.
Article 1458 of the CCQ further provides that:
Every person has a duty to honour his contractual undertakings. Where he fails in this duty, he is liable for any bodily, moral or material injury he causes to the other contracting party and is bound to make reparation for the injury; neither he nor the other party may in such a case avoid the rules governing contractual liability by opting for rules that would be more favourable to them.
Article 1465 of the CCQ states that:
The custodian of a thing is bound to make reparation for injury resulting from the autonomous act of the thing, unless he proves that he is not at fault.

The issues of foreseeable damages or direct damages, depending on the liability regime, and of the “autonomous act of the thing” will inescapably raise interesting debates in the context of artificial intelligence applications in the near future. In which circumstances the makers or suppliers of artificial intelligence applications, the end-users and the other parties benefiting from such applications could be held liable – or not – in connection with the results produced by artificial intelligence applications and the use of such results? Here again, the link between human interventions - or the absence of human interventions - with artificial intelligence systems in the global chain of services, products and outcomes provided to a person will play an important role in the determination of such liability.

Among the questions that remain unanswered, could autonomous systems using artificial intelligence applications be “personally” held liable at some point? And how are we going to deal with potential legal loopholes endangering the rights and obligations of all parties interacting with artificial intelligence?

In January 2017, the Committee on Legal Affairs of European Union (“EU Committee”) submitted a motion to the European Parliament which calls for legislation on issues relating to the rising of robotics. In the recommendations of the EU Committee, liability law reform is raised as one of the crucial issues. It is recommended that “the future legislative instrument should provide for the application of strict liability as a rule, thus requiring only proof that damage has occurred and the establishment of a causal link between the harmful behavior of a robot and the damage suffered by an injured party”.⁶ The EU Committee also suggests that the European Parliament considers implementing a mandatory insurance scheme and/or a compensation fund to ensure the compensation of the victims.

What is next on the artificial intelligence front?

While scientists are developing artificial intelligence at a speed faster than ever in many different fields and sciences, some areas of the law may need to be adapted to deal with associated challenges. It is crucial to be aware of the legal risks and to make informed decisions when considering the development and use of artificial intelligence.

Artificial intelligence will have to learn to listen, to appreciate and understand concepts and ideas, sometimes without any predefined opinions or beacons, and be trained to anticipate, just like human beings (even if some could argue that listening and understanding remain difficult tasks for humans themselves).

And at some point in time, artificial intelligence developments will get their momentum when two or more artificial intelligence applications are combined to create a superior or ultimate artificial intelligence system. The big question is, who will initiate such clever combination first, humans or the artificial intelligence applications themselves?

John McCarthy, What is artificial intelligence?, Stanford University.
Disruptive technologies: Advances that will transform life, business, and the global economy, McKinsey Global Institute, May 2013.
Alex Hern, Stephen Hawking: AI will be “either best or worst thing” for humanity, theguardian.
Engene Borukhovich, How will artificial intelligence change healthcare?, World Economic Forum.
Nevada Administrative Code Chapter 482A-Autonomous Vehicles, NAC 482A.010.
Committee on Legal Affairs, Draft report with recommendations to the Commission on Civil Law Rules on Robotics, article 27. (2015/2103 (INL))

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Jean-Sébastien Desroches
Partner, Lawyer

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Nearly four years after the Canada-United States-Mexico Agreement (the “CUSMA” or the “Agreement”) came into force, U.S. President-elect Donald Trump announced on November 25, 2024, that he would impose 25% tariffs on all products entering the U.S. from Canada and Mexico, starting on the first day of his presidency, that is, January 20, 2025. Mr. Trump added that the tariffs would remain in effect until Canada and Mexico strengthened their border policies, which he blames for the increase in illegal immigration and the trafficking of devastating drugs in the United States. As a reminder, under the current provisions of the CUSMA, most products made in Quebec and Canada can be sold on U.S. markets without tariffs applying. And so, although we can only speculate and although Mr. Trump did not give details on this subject in his announcement, his future administration could indeed invoke a number of legislative authorities to implement such a measure. In particular, it could invoke the CUSMA’s essential security exception, which allows a party to the Agreement to apply any measure deemed necessary to protect its essential security interests, the national security exception in the Trade Expansion Act of 1962, which President Trump’s first administration used in 2018 to introduce tariffs on U.S. imports of certain steel and aluminum products, or the provisions of the National Emergencies Act. Needless to say, the announcement sent shockwaves through the political and business communities in Canada and Quebec what with the close commercial ties that the U.S. has with Canada, including with Quebec. In the first quarter of 2024 alone, Quebec’s merchandise exports to the U.S. reached CAN$21.2 billion, which accounts for nearly 74.6% of the province’s international merchandise exports and makes the U.S. Quebec’s main trading partner on the world stage. The imposition of 25% tariffs would therefore significantly affect Quebec businesses. It would make them less competitive on the U.S. market, on which they rely heavily to export their products. The measure could be particularly detrimental to the Canadian forestry industry, which is already severely affected by tariffs of nearly 15% on lumber. The U.S. economy would also be considerably affected by such protectionist tariffs. While in the short term, tariffs could benefit certain domestic manufacturers and producers, in the longer term, they are likely to harm the U.S. economy as a whole. Many U.S. manufacturers would face higher costs of inputs, and established supply chains would be disrupted, in particular in the automotive and steel industries. To continue to make profits, many U.S. companies could be forced to pass on the additional costs to their end consumers by raising the prices of their products, which would undoubtedly result in another wave of inflation. Worth mentioning also are the retaliatory measures that the Canadian government may want to implement in response to such tariffs, which could affect certain parts of the U.S. economy. Although the CUSMA provides for dispute resolution mechanisms, they are unlikely to lessen the impact of the measures that the Trump administration is considering in the short term, as a final decision under these mechanisms could take a long time to be issued. The new U.S. administration could use the announcement made on November 25 as leverage in future CUSMA renewal negotiations, the preparatory discussions for which are slated to begin next year, or in negotiations for a separate trade agreement between the U.S. and Canada that would exclude Mexico. Canadian businesses would do well to encourage their various trade associations to take steps to lobby both American decision-makers and their corporate customers in the U.S. and remind them of the harmful effects that the announced tariffs may have on American businesses. While we wait for a more detailed announcement with information concerning specific tariff exemptions in particular, we suggest that businesses choose their future trading partners with great care. In an increasingly protectionist global economic context, a strategy involving the diversification of trading partners is the best way for businesses to offset the risks associated with a particular country’s tariff policies. The Comprehensive Economic and Trade Agreement signed by Canada and the European Union in 2017, which our firm helped to negotiate, may prove to be an interesting solution in this respect. Our team of commercial law and tax professionals is available to help you find solutions to the issues arising from this announcement. With our expertise, we can assist you in your commercial negotiations and help you develop strategies to mitigate the impact that the announced tariff increase may have on your business.

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October 2, 2024

Proof of incapacity: analysis of CIUSSS de L’Ouest-de-L’île-de-Montréal (ST. Mary’s Hospital Center) c. R.C.

PROOF OF INCAPACITY: ANALYSIS OF CIUSSS DE L’OUEST-DE-L’ÎLE-DE-MONTRÉAL (ST. MARY’S HOSPITAL CENTER) c. R.C.1 Summary The authors comment on this decision rendered on September 20, 2024, in which the Court of Appeal ruled on the capacity to consent to care in the presence of a psychiatric disorder. The Court of Appeal overturned the first instance decision, which had found the respondent capable of refusing treatment with antipsychotic medications even though he had refuted his diagnosis, because he understood the benefits that antipsychotic medications could afford him and refused to take them because of their side effects. The Court of Appeal rather concluded that the trial judge had misapplied the five criteria to be used to assess whether a person is capable of consenting to care, particularly in the context where (i) the trial judge’s conclusion ran counter to the uncontradicted opinion of an expert; and (ii) there was much evidence supporting the fact that the respondent was incapable of making an informed decision. INTRODUCTION In this case, the Centre intégré universitaire de santé et de services sociaux de l’Ouest-de-l'Île-de-Montréal (the “CIUSSS”) appealed a decision rendered by the Superior Court on March 14, 2024, dismissing its application for an authorization to provide care to R.C., a 51-year-old man. The Superior Court had concluded that the CIUSSS had not proven that the respondent was incapable of consenting to care. The Court of Appeal was thus called upon to review the trial judge’s answer to the first question (incapacity to consent) in the analytical framework2 surrounding the test that has now been used for three decades.3 THE FACTS R.C. has a complex medical history. He was hospitalized several times between 2007 and 2019 for mental health issues, including suicidal ideation and personality disorders. In 2021, he was admitted to the CHUM for COVID-19-related complications having resulted in brain damage caused by hypoxia. From 2022 onwards, he made repeated visits to the emergency room, often to obtain benzodiazepines, leading him to become addicted. Even though he adhered to treatment with antipsychotic medication for a time, R.C. stopped taking his medication because of undesirable side effects. In January 2024, after an episode of confusion, he was taken to hospital where he was diagnosed with late-onset schizophrenia. However, R.C. refuted the diagnosis, claiming that his health problems were caused by an artificial intelligence device he believed had been implanted in his body. The psychiatrists who assessed him concluded that he was incapable of consenting to care. On February 16, 2024, the CIUSSS filed an application for authorization to re-hospitalize R.C. and administer antipsychotic medications, despite his categorical refusal. After analyzing the evidence, which essentially consisted of R.C.’s testimony and that of the CIUSSS psychiatrist, the Superior Court concluded that R.C. understood the nature of his condition and the benefits of the proposed treatment, despite his refusal to accept his diagnosis. The Court was of the opinion that the CIUSSS psychiatrists, in their analysis of R.C.’s capacity, had erroneously and repeatedly carried over his rejection of the diagnosis in a cascading fashion in their analysis of the five criteria from the decision in A.G.,4 thereby making the same error as the one that the Court of Appeal had identified in the M.H. decision.5 Despite the absence of a second opinion on R.C.’s capacity, the Superior Court had determined that he was able to consent to his care. According to the trial judge, in keeping with the teachings of the Court of Appeal in the F.D. decision,6 he therefore lacked jurisdiction to order care. For this reason, he dismissed the application for an authorization to provide care. THE COURT OF APPEAL’S DECISION The Court of Appeal began by reiterating the five criteria for assessing a person’s capacity, namely: Does the person understand the nature of the illness for which treatment is proposed? Does the person understand the nature and purpose of the treatment? Does the person understand the risks and benefits involved in undergoing the treatment? Does the person understand the risks involved in not undergoing the treatment? ls the capacity to consent to treatment affected by the patient's illness?7 It pointed out that the criteria are not cumulative and that it is incumbent upon the trier to assess them as a whole.8 Moreover, the mere fact that a person refuses care that would be in their best interest is not enough to conclude that the person is incapable,9 nor is their mere rejection of their diagnosis.10 In this case, the Court of Appeal considered that the Superior Court judge had committed a palpable and overriding error making its intervention warranted. It stated that the trial judge was obliged to express an opinion on whether the evidence proffered was sufficient, adding that the judge had a proactive role to play in protecting the interests of the person involved. If the trial judge felt that a point that had not been the subject in a genuine adversarial debate raised a problem in his view, it was up to him to ask questions.11 Subsequently, the court took extracts from the evidence consisting of a psychiatric report and the testimony of its author and went on to note that the evidence did not allow the trial judge to conclude that R.C. was capable of consenting or refusing the proposed treatment plan, on the contrary. Based on the same evidence, the Court declared R.C. incapable of consenting to care and sent the case back to the Superior Court so that it could determine whether there was indeed categorical refusal and assess the terms of the treatment plan sought. AUTHORS’ COMMENTS This decision of the Court of Appeal follows approximately 20 other decisions12 respecting orders authorizing care handed down by this same court, which have all further established and clarified the guiding principles surrounding such orders since the F.D. decision of 2015.13 These successive decisions have not only added to case law, they have refined the assessment criteria and legal requirements pertaining to applications for authorization to provide care. Such a development in case law shows that the courts are committed to circumscribing complex healthcare situations. Doing so involves striking a balance between the rights to freedom and self-determination and the protection of those who are vulnerable or otherwise unable to consent. On July 6, 2015, the Court of Appeal of Quebec marked a decisive turning point where orders authorizing care are involved by rendering a decision that sent a clear message to the Superior Court, namely F.D. c. Centre universitaire de santé McGill (Hôpital Royal-Victoria).14 In that decision, an analytical framework was established to ensure compliance both with the provisions of the law and the spirit of the law. Since then, the Court has handed down some 20 other significant decisions, each shedding additional light. The guiding principles derived from these decisions can be summarized under the following themes: Rights relating to the judicial process Every person has the fundamental right to contest an application for a order authorizing care, to be heard and to be represented.15 The judge must proactively protect the user’s interests and ensure that they are represented by a lawyer.16 Scope of the care plan Requiring a definite care plan does not mean dictating which medication should be administered in a limitative way.17 A judge may remove certain substances from a treatment plan if they deem that to be in the patient’s best interest.18 It is crucial to draw a distinction between preventive care and a treatment plan that includes various alternatives as the situation evolves.19 For a future hospitalization clause to be valid, there must be a reasonable foreseeability of hospitalization.20 When a patient is to be placed, the application for authorization must indicate where they are to be placed.21 Physical restraint may only be used if it is necessary to avoid serious harm, and must be limited to the minimum.22 A parent’s refusal to consent to a treatment plan may not be warranted if the plan is in the child’s best interests.23 Duration of the authorization When the person concerned is not cooperating and access to their previous medical records is not available, the judge must be especially careful in assessing whether the proposed care plan is legal, in particular in terms of its duration and scope.24 The duration of the care order should be as short as reasonably possible, without compromising the effectiveness of the treatment.25 When a future hospitalization is contemplated, the judge must take into account the time required to stabilize the patient.26 The 30-day period for a future hospitalization should not be considered an absolute limit, as a longer period may be deemed necessary after a thorough analysis.27 The evidence The mere fact that a relationship exists between an expert and a party does not make the expert’s testimony inadmissible: The circumstances surrounding the expert’s role must be reviewed.28 An expert who does not know a patient’s reasons for refusing treatment is not deemed to have breached their duty to inform.29 An expert may testify to reported facts without the possibility of anyone opposing them; however, this does not mean that reported facts are proven, as the rules of evidence remain stringent in this context.30 An expert report may suffice as testimony; the judge need not require the patient’s testimony if the patient cannot understand the issues at hand.31 Applications for safeguard orders may be unsuccessful where there is no expert report and it is not demonstrated that the matter is urgent.32 This review highlights the significant advances that the courts have made in overseeing applications for orders authorizing care and protecting vulnerable people. The analytical framework established in the F.D. decision remains relevant, and subsequent decisions have further refined its questions. The decision that the Court of Appeal handed down in Centre intégré universitaire de santé et de services sociaux de l’Ouest-de-l'Île-de-Montréal c. R.C. is milestone in the jurisprudence on court orders authorizing care. By overturning the lower court’s judgment, the Court of Appeal reaffirmed the need for a thorough assessment of the capacity to consent, emphasizing that the work of medical teams and applications made by healthcare institutions are important to ensure appropriate care. This decision not only underscores the fact that it is important to protect the rights of users, but also that the work of the court is crucial, for it must ensure that the criteria are met without substituting its opinion for that of the experts heard. CONCLUSION The decision discussed in this paper is part of a series of decisions that have clarified and enhanced the guiding principles established since the F.D. decision was handed down in 2015.33 The Court of Appeal has provided valuable guidelines for judges, institutions and healthcare professionals to use in their assessment of applications for authorization to provide care. Through a careful review of the circumstances of each case, the courts have shown that they are committed to effectively circumscribing complex health situations by ensuring that institutions have the tools they need to respond appropriately. Lastly, we must recognize that while progress has been made, there are still unresolved issues that need to be addressed. Recent court decisions, including the one that led to the R.C. decision,34 illustrate the importance of constant dialogue between those involved in the legal aspect of cases and those dealing with clinical realities. As jurisprudence continues to develop, paying close attention to future developments will be key to ensuring that healthcare institutions can act effectively in consideration of patients’ needs. 2024 QCCA 1231. F.D.c. Centre universitaire de santé McGill (Hôpital Royal-Victoria), 2015 QCCA 1139. See the landmark decision, Institut Philippe Pinel de Montréal c. A.G., 1994 CanLII 6105 (QC CA). Institut Philippe Pinel de Montréal c. A.G., 1994 CanLII 6105 (QC CA). M.H. c. Centre intégré universitaire de santé et de services sociaux de la Capitale-Nationale, 2018 QCCA 1948, para. 57. F.D. c. Centre universitaire de santé McGill (Hôpital Royal-Victoria), 2015 QCCA 1139. This decision, para. 13; with reference to Institut Philippe Pinel de Montréal c. A.G., 1994 CanLII 6105 (QC CA), pp. 28 to 33. This decision, para. 14; with reference to M. B. c. Centre hospitalier Pierre-le-Gardeur, 2004 CanLII 29017 (QC CA), para. 45; M.C. c. Service professionnel du Centre de santé et de services sociaux d’Arthabaska-et-de-L’Érable, 2010 QCCA 1114, para. 13. This decision, para. 14; with reference to M. B. c. Centre hospitalier Pierre-le-Gardeur, 2004 CanLII 29017 (QC CA), para. 46. This decision, para. 14, with reference to Starson v. Swayze, 2003 SCC 32, para. 79 and M.H. c. Centre intégré universitaire de santé et de services sociaux de la Capitale-Nationale, 2018 QCCA 1948, paras. 61–62. This decision, para. 18. We have excluded the following decisions from our analysis: Bédard c. Centre intégré universitaire de santé et de services sociaux du Nord-de-l’Île-de-Montréal, 2023 QCCA 508; M.G. c. Centre intégré universitaire de santé et de services sociaux de la Capitale-Nationale, 2019 QCCA 203; S.F. c. CIUSSS de Centre-Ouest-de-l’île-de-Montréal – Hôpital général juif – Sir Mortimer B. Davis, 2021 QCCA 1531; P.L. c. Centre intégré de santé et de services sociaux de la Montérégie-Centre, 2018 QCCA 318; N.G. c. Sir Mortimer B. Davis Jewish General Hospital, 2021 QCCA 1892; F.D. c. Centre intégré universitaire de santé et de services sociaux de la Capitale-Nationale, 2017 QCCA 1206. F.D.c. Centre universitaire de santé McGill (Hôpital Royal-Victoria), 2015 QCCA 1139. Ibid. M.H.c. Centre intégré universitaire de santé et de services sociaux de la Capitale-Nationale, 2018 QCCA 1948, paras. 68 and 69. A.N. c. Centre intégré universitaire de santé et de services sociaux du Nord-de-l’île-de-Montréal, 2022 QCCA 1167 , para. 30. Centre intégré universitaire de santé et de services sociaux de la Capitale-Nationale c. D.M., 2017 QCCA 1333, para. 25. Centre intégré universitaire de santé et de services sociaux du Saguenay-Lac-Saint-Jean c. O.G., 2018 QCCA 345, paras. 15 and 16. C.R.c. Centre intégré de santé et de services sociaux du Bas-St-Laurent, 2017 QCCA 328, para. 28. G.J. c. Centre intégré de santé et de services sociaux de Laval, 2021 QCCA 1944, paras. 24 to 26. Centre intégré universitaire de santé et de services sociaux de la Mauricie-et-du-Centre-du-Québec (CIUSSS MCQ) c. J.B., 2017 QCCA 1638,, paras. 30 to 35. X.Y.c. Hôpital général du Lakeshore, 2017 QCCA 1465, para. 20. A.P. c. Centre hospitalier universitaire Sainte-Justine, 2023 QCCA 58, para. 19. L.C. c. Centre hospitalier de l’Université de Montréal (CHUM), 2015 QCCA 1139, paras. 4 and 5. D.A. c. Centre intégré de santé et de services sociaux des Laurentides, 2016 QCCA 1734, para. 31. T.F. c. CIUSSS de l’Est-de-l’île-de-Montréal , 2022 QCCA 1306, para. 25. N.M. c. Centre intégré de santé et de services sociaux de la Montérégie-Centre, 2022 QCCA1567, para. 17. M.G. c. Centre intégré universitaire de santé et de services sociaux du Centre-Sud-de-l’Île-de-Montréal , 2021 QCCA 1326, para. 11. Centre intégré universitaire de santé et de services sociaux de l’Ouest-de-l’île-de-Montréal (Douglas Mental Health University Institute) c. I.A., 2023 QCCA 1100, para. 30. Institut universitaire en santé mentale Douglas c. W.M., 2016 QCCA 1081, para. 5 A.D. c. Centre intégré universitaire de santé et de services sociaux du Centre-Sud-de-l’île-de-Montréal, 2023 QCCA 1240, paras. 50, 56–57. A.F. c. Centre intégré de santé et de services sociaux des Laurentides, 2021 QCCA 928, para. 50. F.D. c. Centre universitaire de santé McGill (Hôpital Royal-Victoria), 2015 QCCA 1139. CIUSSS de l'Ouest-de-l'Île-de-Montréal (St. Mary’s Hospital Center) c. R.C.,2024 QCCA 1231.

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July 23, 2024

Sponsorship agreements in the sports world: the promise of fame and exposure

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In addition to defining what they are, we will focus on how these agreements are used and structured, including their objectives and associated risks. WHAT ARE SPONSORSHIP AGREEMENTS? Sponsorship agreements, also known as sponsorship deals, are commercial agreements entered into by a beneficiary (an organization, individual or event) and a sponsor (a company or brand). As a general rule, these agreements provide financial compensation, goods and/or services in return for visibility, promotional impact or the sponsor’s association with the beneficiary. To be sure, such deals are not exclusive to the sports world. However, sports have definitely played a key role in how these agreements have evolved, transforming them into tools at the forefront of commercial progress. In this article, we will focus on how these agreements are used in the sports world. THE POWER OF SPONSORSHIP AGREEMENTS In essence, sponsorship agreements enable a sponsor to benefit from the exposure, fame and/or positive image associated with an athlete. At the same time, they may allow athletes to boost their own visibility and develop their own brands in partnership with the sponsor. The film Air, initially released in cinemas in 2023 and now exclusively available on the Prime Video streaming platform, depicts the dynamic of sponsorship agreements. It retraces the origins of the emblematic partnership between Nike and basketball legend Michael Jordan, which ended up redefining how athletes approach business partnerships. The Nike partnership gave rise to Air Jordan, the world-famous line of basketball shoes, marking an initial milestone in the history of sponsorship deals. In April 1985, the first series of Air Jordans came onto the market (see Figure 2); Nike was aiming for $3 million in sales over an initial three-year period. However, by the end of the first year alone, sales topped an impressive $126 million. In 2022, it was reported that Michael Jordan had earned between $150 million and $256 million just from his contract with Nike. KEY OBJECTIVES OF SPONSORSHIP AGREEMENTS FOR ATHLETES Main objective: financial gain Quite often, the main objective is financial gain. In addition to Michael Jordan, other star athletes have signed agreements with Nike. LeBron James’ and Cristiano Ronaldo’ own deals with Nike are reportedly valued at US$1 billion. Meanwhile, Argentina’s Lionel Messi, the eight-time Ballon d’Or winner, entered into a similar agreement with the brand Adidas. The case of Michael Jordan, however, is unique insofar as a family of strong and distinctive brands was developed, including Air Jordan and various logos representing Michael Jordan playing basketball. This brand family is owned by Nike, although it is inherently linked to the athlete reaping its benefits. In Quebec, tennis player Félix Auger-Aliassime, a victim of his recent success, signed agreements with Dior and Renault in early 2023 as these companies added their names to his existing list of sponsors, which included Adidas. The compensation paid by these brands has not been disclosed, but Félix is now displaying the Renault logo on his T-shirts—even more prominently than the brand of the T-shirt itself. Objective: enhanced reputation and greater credibility Reputation and credibility are vitally important in the sports world. Teaming up with a reputable sponsor can boost an athlete’s credibility in the eyes of fans, the media, potential partners and other teams. As with naming rights agreements, upholding the same values and selecting the right sponsor are the key to these agreements. Consider Félix Auger-Aliassime’s remarks after signing his deal with Renault: “I’m proud to be associated with Renault because we share the same ambitions and values […].”3 Chelsea FC, which competes in England’s Premier League, kicked off its 2023-204 season without its main sponsor. In addition, there was no corporate logo displayed on the front of the players’ jerseys, even though that has become the norm in the soccer world. In fact, Chelsea had signed an agreement with Stake.com, an online casino that describes itself as a pioneer in the area of crypto sports betting. As soon as the deal was announced, fans made their displeasure known: Chelsea Supporters’ Trust, which serves as the voice of the team’s fans, declared: “We understand CFC’s desire to maximise revenue streams across the whole club. Whilst we accept that will happen, it must not take place at the expense of the club’s values.”4 Chelsea thus terminated the agreement but appears to have found a new partner, the US-based technology company Infinite Athlete. That deal is valued at around $66 million per year. Objective: an equitable relationship between the parties (student athletes) For some athletes, sponsorship agreements are also a way to establish an equitable relationship between all parties, ensuring that they do not lose out on any benefits derived from their name, image or likeness. This is certainly the case for student athletes competing in the American university system, particularly the National Collegiate Athletic Association (NCAA). In June 2021, the US Supreme Court ruled that the NCAA was not legally authorized to limit payments related to students’ education. This gave rise to what are known as “NIL deals”(name, image, and likeness). Student athletes are now entitled to enter into sponsorship agreements covering their name, image and likeness (the latter term refers to any representations of the athlete, whether in videogames, cartoons, etc.). The champion of NIL deals is undoubtedly Olivia Dunne, a gymnast at Louisiana State University. She is one of the first student athletes to become a millionaire thanks to these deals; she is certainly the best known (Figure 6). Her arrangements with brands such as American Eagle, Forever 21 and Vuori have generated more than $4.7 million. She ranks third in earnings in the list of athletes with NIL deals, just behind quarterback Arch Manning at $5.1 million (nephew of former football players Peyton and Eli Manning) and basketball player Bronny James at $9.7 million (son of LeBron James). Will we ever see NIL deals for student athletes in Quebec? KEY OBJECTIVES FOR SPONSORS As far as sponsors are concerned, their objectives are usually quite similar. They hope to obtain greater visibility and promotion by linking their brand, products or services to a famous professional athlete. This may entail significant media exposure while targeting a specific segment of the public. This was what lululemon had in mind when it partnered with Connor Bedard, the most recent #1 draft choice in the National Hockey League (NHL). The company, which started out selling yoga wear, is now reaching out to hockey fans in a bid to strengthen its reputation as a top-of-the-line sports apparel retailer. In the run-up to the NHL draft, the name of Connor Bedard—a once-in-a-generation talent—was on everyone’s lips. His endorsement deal with lululemon was announced a few days before the draft, thanks in part to a video in which he said: “If I make this shot, I’ll join lululemon as their newest ambassador.” He then executed a perfect shot, adding a dramatic note to the announcement (Video 1). Video 1: Announcement marking the sponsorship agreement between lululemon and Connor Bedard. Following the partnership announcement, Connor Bedard said: “Being from Vancouver, I’ve been a fan of lululemon for as long as I can remember. The gear is so comfortable, stylish, and great for training.”5 Since the company was founded in Vancouver, it is understandable that this partnership is seeking to capitalize on a shared sense of belonging. Obviously, sponsors are also seeking to boost their sales or profitability via increased exposure and visibility derived from a sponsorship deal. Gaining access to a specific target audience heavily engaged in the athlete’s chosen sport can be a major selling point. HOW SPONSORSHIP AGREEMENTS ARE STRUCTURED As regards structure, sponsorship agreements differ in terms of the breadth and scope of the visibility being sought. Structure of local sponsorship agreements Local sponsorship agreements are entered into when: A local company decides to fund an athlete or a sports event. A company sponsors a local athlete or a local sports organization. A local sponsorship agreement does not necessarily mean a smaller-scale deal. RBC’s and Air Canada’s sponsorship arrangements, under which their respective logos are featured on Montreal Canadiens jerseys, are examples of local agreements. Structure of national or international sponsorship agreements Seeking much more extensive visibility, national or international sponsorship agreements are typically larger-scale initiatives. More sophisticated and with farther-reaching ramifications, these types of agreements must also take into account issues spanning multiple jurisdictions. Compensation structure In certain major agreements, the athlete’s financial compensation structure may vary widely. Fixed and pre-determined compensation is typically the norm. Understandably, agreements in which a trademark linked to an athlete is used for a specific product line may include royalties or tiers (thresholds) associated with the products’ commercial performance. Duration impacts the structure of sponsorship agreements Sponsorship agreements also vary in terms of their duration. A company may decide to sponsor an athlete for a lengthy period or for a one-time event or competition. On September 13 2023, the new Professional Women’s Hockey League (PWHL) announced its very first sponsor: Canadian Tire Corporation (CTC). Strictly speaking, this is an international agreement because the PWHL operates in both Canada and the US. At the time, Sarah Nurse, a forward with PWHL Toronto, said: “Through numerous conversations with their key leaders, it has always been clear that [CTC was] committed to supporting a women’s hockey league. It is no surprise that CTC is an inaugural partner now that we have launched the PWHL. With our shared values and vision, I know that CTC will continue to put women’s hockey at the forefront”6. RISKS OF SPONSORSHIP AGREEMENTS: WHAT YOU NEED TO KNOW There are also a number of risks associated with signing a sponsorship agreement. Professional athletes are continually being placed under a microscope. Everything they do has a potential impact on their sponsors. Morality clause Consider the case of golfer Tiger Woods, who was embroiled in a personal scandal back in 2010 that left his reputation in tatters. Seeking to avoid being associated with this loss of reputation, various companies and organizations terminated their deals with him (Table 1). Table 1: List of sponsors that terminated or continued their involvement with Tiger Woods in the wake of his scandal. Today, Nike and Upper Deck are still associated with Tiger Woods, along with 10 new sponsors. To enable the parties to terminate agreements easily and at no charge should any situations akin to that of Tiger Woods arise, sponsorship agreements typically include a morality clause (also known as a “morals clause”). Morality clauses impose “good conduct” obligations on athletes and stipulate that if they engage in any actions that could tarnish or harm their own reputation or that of their sponsor, the sponsor has the right to suspend or unilaterally terminate the agreement. It was thanks to this clause that Gatorade and Gillette, to take only two examples, ended their agreements with Tiger Woods. The first morality clause in the sports world was included in the employment contract of Babe Ruth, the renowned baseball player with the New York Yankees in the 1920s. Reciprocal clause One might think that certain athletes would prefer to have a reciprocal clause in place enabling them to cut ties with any sponsor whose reputation is marred by scandal (inhumane work conditions, pollution, financial wrongdoing, etc.). Although less frequent, these clauses could still prove useful, especially now that society is calling on the corporate world to conduct itself more ethically. On the credit side of the ledger, an athlete who stands out positively off the playing field may end up attracting new sponsors. On September 24, 2023, the pop singer Taylor Swift was spotted at a Kansas City Chiefs game, cheering on tight end Travis Kelce (Figure 9). Given Taylor Swift’s unprecedented levels of public adulation, Travis Kelce saw his social networks explode with 500,000 more followers; sales of his jerseys soared by 400% in less than a week. Sponsors are well known for appreciating the value of athletes associated with another celebrity, e.g. Tom Brady and Gisele Bündchen, or David and Victoria Beckham. Kelce, who is already pocketing $3 million annually from his sponsorships, now has the door wide open for some shiny new deals. Conclusion All in all, sponsorship agreements play a pivotal role in the sports world. Above and beyond the financial benefits they generate, they reflect the values and identity of the partners involved. Transcending transactional considerations, these deals have turned into alliances that stimulate growth, emotional engagement and long-term viability. They embody shared passions for sports and an ongoing quest for excellence. As the sports world evolves and new opportunities emerge, we should continue to question how these agreements align with our collective values. In the future, these partnerships will not just be a critical component of commercial strategies; they will also be statements of principle. And they will continue to shape how sports are lived, perceived and experienced. Chronique de Ray Lalonde, August 16, 2023 Link. Ouest-France, Neymar: “Peut-être que le championnat d’Arabie saoudite est meilleur que la Ligue 1”, September 8, 2023 Link. QMI Agency, Nouvelle alliance entre Félix Auger-Aliassime et Renault, TVA Sports, January 25, 2023 Link. Ryan Dabbs, Why don't Chelsea have a sponsor for their new kit?, FourFourTwo, July 19, 2023 Link. Matt Carlson, Conor Bedard signs… with lululemon, The Hockey News, June 28, 2023 Link. News release, Professional Women’s Hockey League, Canadian Tire Corporation joins the PWHL with a landmark multi-year agreement, September 13, 2023 Link.

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July 9, 2024

Presumptive Evidence of an Insured’s Intentional Fault: The Superior Court Dismisses Proceedings Instituted Against an Insurer

Introduction On July 2, 2024, the Superior Court rendered a decision in Lallier c. Société d’assurance Beneva inc.,1 ruling on an insured’s claim against his insurer for an insurance benefit further to a loss, as the insurer had denied coverage, alleging the insured’s intentional fault. Despite the absence of hard evidence of the insured’s intentional fault, the Court ruled in favour of the insurer based on evidence established by presumption. The facts During the night of August 2 to 3, 2020, a fire destroyed the home of Plaintiff, Mr. Réjean Lallier (hereinafter “the Insured”). His version is that he accidentally left a candle burning in the bathroom before running errands with his son. When he returned, the Insured saw that the house was on fire. Having no telephone, he rushed to a convenience store to call the fire department, rather than asking a nearby resident for help. After the loss, the Insured contacted his insurer Société d’assurance Beneva inc., the defendant in the case (“the Insurer”), to obtain compensation for the damage to his property. The claims adjuster that the Insurer had assigned to the case and who had been tasked with investigating the loss and compensating the Insured raised several anomalies in the Insured’s deposition. These included the Insured’s precarious financial situation, the fact that the residence was poorly maintained and the fact that, despite the urgency of the situation, the Insured had decided to take his car to call for help rather than go to a neighbour’s house. In these circumstances, the case is referred to the Insurer's special investigation unit. The Insurer’s investigation ultimately led to the conclusion that the Insured had intentionally caused the fire. This meant that contractual and legal exclusions applied, allowing the Insurer to deny coverage and justify its refusal to pay an insurance benefit. The Insured, who represented himself at the trial, instituted legal proceedings for the sum of $680,000, seeking reparation for damage to the immovable, his movable property and for living expenses. He also claimed $20,000 in compensation for the alleged inconvenience he suffered as a result of the Insurer’s “abusive behaviour.” Analysis The Honourable Justice Sébastien Vaillancourt, J.S.C., pointed out that, under article 2464 of the Civil Code of Québec2 and the provisions of the insurance policy, the Insurer is not obliged to compensate for damages intentionally caused by the Insured. However, the Insurer has the burden of establishing the Insured’s intentional fault. The Court reiterated that intentional fault is defined as behaviour that is deliberately and voluntarily intended to cause harm.3 The offender’s intention must not only be evident in the actions taken, but also in the ensuing consequences.4 This can be demonstrated through serious, precise and concordant presumptions, in accordance with the teachings of the Court of Appeal in Barrette on the subject.5 To meet its burden of proof, the Insurer presented to the Court the inconsistencies and improbabilities in the Insured’s statements. For example, in some statements, he claimed to be in a good financial position, while in others, he stated the opposite. In addition, the time at which he left his house after lighting the candle, what he did with his son after he left and how long he was gone changed from one statement to the next. The Insured had trouble explaining in a coherent manner why he was gone for so long late in the evening while his house was going up in flames. The Insured indicated that he went to the convenience store to contact the fire department after seeing the fire, stating that he did not want to go to his neighbour’s house because they had had a disagreement in the past. The Court concluded that this version was implausible given the gravity of the situation. Several other contradictions were noted in the Insured’s testimony at trial. The Insured tried to justify himself by claiming that he had trouble speaking in public and that his medication was causing him to lose his memory.6 However, there was no evidence to support these claims, and they were not upheld by the Court.7 Ultimately, the judge did not accept the Insured’s version. The sheer number of contradictions in his statements went beyond what was acceptable to the Court to consider them reliable. Given that certain contradictions emerged as early as the first statement after the fire, the time lapse between the incident and the trial could not be used as a justification.8 The statements were considered untrue, as they were mutually inconsistent.9 What is more, the contradictions and inconsistencies in the statements pointed to fraudulent intent on the Insured’s part. Lastly, the claim for damages in compensation for the Insurer’s abusive behaviour was also dismissed, given the absence of evidence in this regard.10 Conclusion Demonstrating fraudulent intent to deny coverage is no simple feat for insurers. In this case, the Insurer succeeded in meeting its burden of proof by relying on presumptions rather than hard evidence. The facts spoke for themselves. And faced with the Insured’s numerous inconsistent and contradictory statements, the Court ruled in favour of the Insurer. The Insured’s fraudulent intent was successfully substantiated and his claim against the Insurer was dismissed.11 Lallier c. Société d’assurance Beneva inc., [2024] n° 500-17-116356-216, QCCS. [Lallier] (Time limit for appeal: 30 days after the date of the notice of judgment). Civil Code of Québec, a. 2464; Lallier, para. 34. Allstate du Canada, compagnie d’assurances c. D., SOQUIJ AZ-50101469, J.E. 2001–1891, (C.A.), para. 18, as quoted in Lallier, para. 36. [Allstate] Allstate, para. 18, as quoted in Lallier, para. 36. Lallier, paras. 37–38; see Barrette c. Union canadienne (L’), compagnie d’assurances,2013 QCCA 1687, paras. 12–13. Lallier, para. 43. Lallier, paras. 44–46. Lallier, para. 47. Maud Rivard, Dispositions générales applicables aux assurances de dommages, JCQ-Droit civil Contrats nommés II, Fascicle 20, para. 92, updated to June 20, 2023, as quoted in Lallier para. 49. Lallier, paras. 59–62. Lallier, paras. 56–58.

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