Securities and class actions: screening authorizations

February 9, 2018

Anyone who wants to bring an action in damages relating to the secondary securities market must prove that the action is brought in good faith and has a reasonable chance of success (s. 225.4 QSA). In Quebec,¹ as elsewhere in Canada,² no prior disclosure of evidence may be obtained by plaintiff for the purpose of meeting this burden. The procedure prescribed by the QSA is complete and sufficient, so recourse to the rules Code of Civil Procedure is unwarranted.

Where such an action is brought by way of class action, the court must furthermore be convinced that the criteria for authorizing a class action are also met. The Court of Appeal does not expressly rule on whether prior disclosure is available to the investor to sustain the proposed class action.

These specific rules have no impact on the general rules regarding insurance, such as a plaintiff's direct right of action against the insurer of the person who caused the damage (art. 2501 CCQ). Regardless of the subject matter (the secondary market) or the procedural vehicle (class action), a court may order a defendant to disclose such documents which are necessary for a meaningful exercise of this right, such as insurance policies.

In its recent decision in Amaya Inc. v. Derome, 2018 QCCA 120, the Court of Appeal ruled on the interaction between the Securities Act, CQLR, c.V-1.1 (QSA) and the rules specific to class actions in relation to applications by investors for prior disclosure of documents by a public issuer. We summarize here a much-anticipated decision.

The Specific Framework of the QSA

The QSA governs actions relating to financial markets. Although such actions may be introduced on an individual basis, class actions are regarded as the preferred vehicle, “given that publicly-traded issuers generally have many investors in like circumstances and, if something goes wrong, they are likely to come together to avail themselves of the advantages of a class action.”³ Class actions are merely one of the available vehicles, and it is in no way a requirement to use this type of proceeding.

With respect to actions relating to the secondary market, section 225.4 QSA requires that any investor, whether acting personally or as representative of a proposed group, be authorized by the court before bringing the proposed action. This restriction was enacted –and similarly so across Canada–⁴ to preserve public confidence in stock markets,⁵ but also to protect public issuers against opportunistic actions brought in hopes of obtaining a settlement rather than to obtain compensation for actual damage.⁶ Accordingly, an investor who claims to have been defrauded will have to prove to the court from which authorization is requested that the proposed action is “in good faith and there is a reasonable possibility that it will be resolved in favour of the plaintiff” (s. 225.4 para. 3 QSA). Motions for authorization should be addressed as early as possible, so that judicial resources are allocated only to meritorious cases.

Interaction With Class Actions

If the action takes the form of a class action, the investor must also meet the criteria for authorization of a class action (art. 575 CCP), a burden which has been established to be a light one, since it simply involves proving that “the facts alleged appear to justify the conclusions sought” (art. 575(3) CCP).⁷

Not only do the QSA and the CCP impose different burdens, but the authorization they require arises at different moments in the course of the proceedings o: the authorization required by section 225.4 QSA must, necessarily, precede the authorization required by article 575 CCP. As the Court of Appeal points out: “This is eminently logical: where leave is required under the Act, there is no action upon which the class action, as a procedural vehicle, can rest until that leave is granted.”⁸ Of course, both issues can be disposed of in one judgment.⁹

With these distinctions made, it is clear that any application brought for the purpose of enabling an investor to meet the burden established by section 225.4 QSA must be analyzed pursuant to the rules set out in that provision and not the rules that generally apply to class actions.¹⁰ The judgment appealed from was therefore not a “pre-authorization class action judgment”; it was a “judgment prior to leave under the [QSA]”.¹¹ Accordingly, it had to be reviewed in accordance with the requirements and the spirit of the QSA.¹²

The Judgment Under Appeal

The trial judge had granted an application for documentary disclosure, relying on the parties’ general duty to cooperate set forth by article 20 of the CCP.¹³ He thus arrived at a solution that is unique in the Canadian legal landscape.¹⁴

Though rendered during a case management conference, the judgment under appeal went significantly beyond the confines of case management. Accordingly, the application for leave should follow the rules applicable to judgments rendered in the course of proceedings, set out in article 31 para. 2 CCP.¹⁵ The trial judge's decision has addressed a point of law regarding to discovery, which impacted “the character of the proceedings themselves,” and which, if decided wrongly could cause irreparable harm to defendant, regardless of the expenses involved.¹⁶ Leave was granted and the Court of Appeal had to consider, on the merits, whether the trial judge was correct in applying the general principles of Quebec civil procedure to the applications for documentary disclosure that were before him.

For the Code of Civil Procedure to “compensate[e] for the silence of the other laws if the context so admits,” as provided by its preliminary provision, such a silence must exist. In the opinion of the Court of Appeal, considering the purpose and history of section 225.4 QSA – in particular its goal of screening out opportunistic actions as soon as possible¹⁷ – and the uniformity of legislation on this subject in Canada,¹⁸ no such silence can be found to exist. On the contrary: in order to avoid short-circuiting the requirement for prior authorization and avoid fishing expeditions and mini-trials, judges who are responsible for authorizing actions of this nature must require that applicants meet their burden themselves.¹⁹ Neither the combination of articles 20 and 221 CCP or the specific context of class actions can sidestep that prohibition.²⁰

Insofar as it was sought to allow the investor to meet the burden imposed by section 225.4 QSA, the application for documentary disclosure should have been dismissed. By contrast, the application to obtain disclosure of the insurance policies did not fall within the specific context of section 225.4 SA, and the trial judge's order was left undisturbed, Given the principle of cooperation (art. 20 CCP), but most importantly the long-settled principle that a third party seeking to exercise their right of action against the insurer of the person who caused the damage they suffered (art. 2501 CCQ) such applications can be justified in that they allow potential parties to the case to be identified.²¹ The Court of Appeal’s decision does not directly address whether class counsel may succeed in a request for “relevant evidence to be submitted” within the meaning of article 574 para. 3 CCP; such requests are traditionally considered to be properly made to contest the application, that is, necessarily by defendant, given that the allegations in the application for authorization to institute a class action must be assumed to be true at that stage.²²

Summary

Section 225.4 QSA is the expression, in Quebec law, of an intent common to all Canadian legislatures to create a screening mechanism for actions relating to the secondary market, in order to preserve investor confidence and deter frivolous suits. Accordingly, where an applicant seeks prior disclosure in order to meet the criterion for authorization set out in section 225.4 QSA, his or her application should be dismissed, including in a class action context. Where the objective of the application for prior disclosure is not one germane to the QSA, for instance, where an applicant seeks information to join an insurer to the proceedings, such application needs to be considered under the ordinary rules of Quebec law.

Theratechnologies Inc. v. 121851 Canada inc., [2015] 2 SCR 106, 2015 SCC 18
Canadian Imperial Bank of Commerce v. Green, [2015] 3 SCR 801, 2015 SCC 60
Par. 52
Par. 97
Par. 84
Paras. 49 and 84; following, inter alia, Theratechnologies Inc. v. 121851 Canada inc., [2015] 2 SCR 106, 2015 SCC 18 or Canadian Imperial Bank of Commerce v. Green, [2015] 3 SCR 801, 2015 SCC 60
Para. 50
Para^.46.
Paras. 20, 46 and 54
Para. 45
Paras. 42, 45 and 55
Para. 55
Derome v. Amaya inc., 2017 QCCS 44, paras. 79 et seq.
Para. 36; compare: Mask v. Silvercorp Metals Inc., 2016 ONCA 641 and Mask v. Silvercorp Metals Inc., 2014 ONSC 4161 – leave to appeal ref’d: Mask v. Silvercorp Metals, Inc., 2014 ONSC 464 (Ont. Div. Ct); Bayens v. Kinross Gold Corp., 2013 ONSC 6864; Silver v. Imax, (2009) 66 B.L.R. (4th) 222, leave to appeal ref'd, Silver v. Imax,2011 ONSC 1035 (Ont. Div. Ct)
Paras. 73 to 79
Paras. 66 et seq.; leave to appeal had been referred to a panel of the Court: Amaya inc. v. Derome, 2017 QCCA 335.
Paras. 49 and 84
Paras. 9 and 97
Paras. 9 and 93
Paras. 106 and 107
Collège d'enseignement général et professionnel de Jonquière (CÉGEP) v. Champagne, 1996 CanLII 4413 (CA)
Benizri v. Canada Post Corporation, 2016 QCCS 454, para. 6

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Laurence Bich-Carrière
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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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March 13, 2024

An insurer ordered to pay damages – The Court of Appeal intervenes

On February 12, 2024, the Court of Appeal of Quebec handed down its decision in Société d’assurance Beneva inc. c. Bordeleau,1 dealing in particular with the burden of proof incumbent on an insurer when it denies coverage on the basis of an insured’s intentional fault, and an award of damages against an insurer for breach of its duty of good faith. The facts This decision was rendered further to a dispute between Société d’assurance Beneva inc. (hereinafter the “Insurer") and some of its insureds, including Mr. Michel Bordeleau, the owner of a multi-storey rental building that was damaged by fire. He lived in one of the units with his parents. According to the uncontested expert evidence presented, the fire originated in one of the storage spaces in the basement of the building, which was assigned to a lessee couple. Access to the basement and all storage spaces was locked. The cause of the fire was deemed to be intentional, given the traces of accelerant found in the area of the fire’s origin. The instigator or instigators were not identified. On November 21, 2016, 60 days after the fire, the Insurer denied coverage because of the intentional nature of the fire, which it attributed to its insured, Mr. Bordeleau. A few months later, on March 22, 2017, it reached an agreement with Mr. Bordeleau’s hypothecary creditor. The subrogation release provides for the Insurer’s payment of the balance of the hypothecary debt of $149,720.99, and subrogation to the creditor’s rights up to the amount paid. Mr. Bordeleau, in his belief that he had been harmed by the Insurer’s decision, instituted legal proceedings to recover the insurance benefit to which he claimed to be entitled, while also claiming damages. The Insurer filed a cross-application for recovery of the balance paid to the hypothecary creditor. The trial The trial judge, relying on the evidence, concluded that although the fire was intentional in nature, the Insurer had not discharged its burden of establishing the insured’s involvement in the fire. Taking this conclusion into account, she then proceeded to analyze the plaintiffs’ claim and to weigh the damages in light of the evidence and the limits of the insurance policy. In particular, she ruled in favour of Mr. Bordeleau’s claim for damages for the building, the amount of which was admitted. In addition, she ordered the Insurer to pay $15,000.00 in damages for nuisance and inconvenience caused by its conduct, which she considered faulty. This conclusion was based on the Insurer’s duty to act in good faith, to consider the facts and act on their basis, and to conduct a full investigation, duty which the Insurer had breached by failing to sufficiently follow-up on leads that could have identified who was responsible for the fire. In order to deny coverage, clear and compelling evidence of the insured’s involvement, going beyond mere suspicion, was necessary. Given the sometimes implausible and sometimes contradictory testimonies of the people met during the investigation, there was no such evidence. In other words, the claims adjuster had jumped to conclusions. In light of her conclusions, the trial judge dismissed the Insurer’s cross-application, which she deemed to be unfounded, without giving further reasons. The appeal The Court of Appeal first refrained from intervening in light of the Superior Court’s conclusions regarding the failure to demonstrate Mr. Bordeleau’s involvement in the fire. It did however intervene on the damages awarded for nuisance and inconvenience suffered by the insureds, and pointed out the following: [40] [translation] Firstly, apart from the strict mathematical calculation of the amounts payable, and perhaps other technical aspects not requiring the exercise of judgment, the processing of a claim is an obligation of means, not one of result. The fact that a court found at the end of a trial held many years after the incident that an insurer should have covered in the first place obviously does not mean that the insurer necessarily committed a fault other than its refusal to pay, making it civilly liable, let alone that it acted in bad faith. [41] In this case, there was nothing in the evidence to support a finding of fault or breach of the duty of good faith. [42] On the contrary, there is enough evidence to conclude that the investigation by the appellant and its experts, which led to the denial of coverage, was not botched. . . . In the opinion of the Court of Appeal, the evidence showed that the Insurer’s investigation had been done in a conscientious manner, in particular because it had transferred the claim file to a special investigative unit, mandated a fire origin and cause expert and external investigators, and interviewed many witnesses who could have provided information on the circumstances of the incident. Moreover, it had no allegations that the Insurer had failed to consider exculpatory evidence against its insured. In this context, although it took several years for the insured to obtain his due, with all the inconveniences of going through proceedings, the Insurer’s conduct could not be considered offending or revealing of bad faith. No damages could be awarded. Lastly, the Court of Appeal took a closer look at the question of the Insurer’s subrogation to the hypothecary creditor’s rights, which was little discussed in the judgment under appeal. Reiterating the fundamental principle in property and casualty insurance that the indemnification of an insured cannot result in enrichment, the Court of Appeal concluded that dismissing the Insurer’s cross-application would have such an effect. In addition to receiving an insurance benefit for the damages sustained, Mr. Bordeleau would also have had seen his hypothecary debt discharged. This would have given him a clear advantage. In this case, the benefit paid to the hypothecary creditor needed to be deducted from the damages claimed by the insured. The trial judge’s finding were thus revised accordingly. Conclusion Despite the clear principles addressed in this case, the Court of Appeal’s analysis points to practical difficulties that insureds and insurers can encounter when dealing with similar claims. It points to the coexistence of two factors that can be difficult to balance: First, the burden of proof where coverage is denied on the basis of the insured's intentional fault, and second, the insurer’s obligation of means in processing the associated claim. The dismissal of a coverage defence does not in itself warrant awarding damages. Société d’assurance Beneva inc. c. Bordeleau, 2024 QCCA 171

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March 11, 2024

Class actions to watch in 2024

Quebec is a fertile ground for class actions, with over 550 active cases and between 50 to 100 applications for authorization filed each year. While 2023 marked the fifth anniversary of the “new” class action division: what is there to watch in 2024? Read on to find out. Opioids and the State: Sanis Health v. British Columbia Can a state be a plaintiff to a class action? Can it be the plaintiff to a class action in another state? Can it be a class member in another state? In 2018, British Columbia adopted the Opioid Damages and Health Care Costs Recovery Act1 [ORA] allowing the government to institute class action proceedings regarding “opioid-related wrongs.” This was modelled after an earlier legislation targeting “tobacco-related wrongs,”2 the constitutionality of which had been upheld by the Supreme Court.3 The ORA, however, allowed not only British Columbia to institute such proceedings, but also, provided it had commenced such an action, to bring it forward “on behalf of a class consisting of one or more of the governments of Canada and the provinces or territories of Canada.”4 The constitutionality of this provision was challenged, without success in the first instance5 and on appeal.6 Though the Court of Appeal upheld the validity of the provision, it did characterize it as “a bold step, if not an experiment, in bringing government-led class litigation as close as possible to truly “national” proceedings in Canada’s federal structure.”7 This boldness snowballed: Similar laws have been adopted throughout Canada.8 Unsurprisingly, the Supreme Court of Canada has granted leave.9 A hearing should be scheduled in 2024. Relatedly, in Quebec, the parties are awaiting judgment on an application for authorization to institute a class action against several pharmaceutical companies10 relating to the manufacturing, marketing, distribution and sale of opioids. In this case, the plaintiff is seeking to represent all persons in Quebec who suffer, or has suffered, from opioid use disorder following the use of prescription opioids since 1996. It is now settled law that one person may sue several defendants in a single action regarding an allegedly common practice even if that person does not have a direct cause of action against each defendant, provided that the proposed representative is otherwise able to adequately represent the members who do.11 It remains to be seen whether the representative plaintiff put forward in this case will be able to fulfill his role against approximately 20 companies having marketed more than 150 different products over more than 25 years. Jurisdiction over foreign defendants Are allegations sufficient to establish the jurisdiction of Quebec authorities over foreign defendants that are distinct from their Quebec subsidiaries?12 And if so, how should the geographical limits of the putative class members be defined? In the Bourgeois case, the proposed representative, a Quebec resident, is seeking authorization to institute a class action against several companies that develop and market video games with a “loot box” mechanism, which he claims constitutes a form of illegal gaming. Putative class members are not limited to Quebec residents such as himself. Moreover, many of the respondents are foreign companies, and some have no establishment in Quebec. Some of these foreign entities filed a declinatory exception, which the court dismissed. An appeal was filed, which includes arguments that the dismissal of the declinatory exception unduly broadened the definition of “establishment” within the meaning of article 3148 C.C.Q. Will the Court of Appeal give guidelines for determining whether such an issue should be addressed at the authorization stage? We should know soon as the Court of Appeal is expected to render judgment on this matter within the coming months. The appeal was heard on February 2, 2024. In 2023, the Quebec Court of Appeal had closed the door on the use of the guiding principles of procedure to broaden the scope of its jurisdiction.13 Earlier in the year, the British Columbia Court of Appeal had ruled that it had no jurisdiction over a class action relating to misrepresentations made outside its territory for lack of a “real and substantial connection”,14 and the Ontario Superior Court had followed suit.15 Clearly, class action law and private international law continue to cross paths, if not swords. More than 10 years later16 The majority of class actions are settled before they reach the merits. The same cannot be said for the case involving the Lac-Mégantic tragedy, in which the Court of Appeal is slated to hear the case on liability of certain defendant this year. On July 6, 2013, at 1:14 a.m., downtown Lac-Mégantic was set ablaze after a tank car train derailed. Images of the derailment were broadcast around the world. A class action ensued, filed on July 15, 2013. Authorized on June 8, 2015,17 it was joined with two civil suits, one instituted by the Attorney General of Québec [translation] “for all of the damages suffered by the Quebec State as a result of the tragedy,” estimated at over $231,000,000, and the other by a group of insurers.18 These proceedings were also split in order to first address the liability of the defendants Montreal, Maine & Atlantic [MMA] and Canadian Pacific [CP].19 On December 14, 2022, after a 63-day trial, spanning nine months, the Superior Court did not hold CP liable for the derailment, finding only MMA liable.20 Appeals were filed by both sides in January 2023, suspending the continuation of the trial for the remainder of the case.21 As the appeal materials were filed in the fall of 2023, there should be a hearing in 2024. Class counsel or representative’s counsel?22 Are the lawyers of the representative also those of the class? A trial judgment suggests that they should be considered so if it is in the interest of the class. The Court of Appeal will be ruling on this issue. The Court of Appeal may be called on to rule on this recurrent point of contention between lawyers who act mainly for the plaintiffs and those who act mainly for the defendants: does class counsel have a direct relationship with the members of the class, or is their legal relationship thereto contingent on the relationship they have with the representative? Labour law in Canada’s major junior hockey leagues gives the case its backdrop. Around 2020, the parties to three certified class actions, one in Alberta, one in Ontario and one in Quebec,23 agreed to a settlement that included a release. The scope of said release was the stumbling block—the three courts involved refused to approve the transaction and sent the parties back to the drawing board.24 A new release under the same agreement was drawn up in 2023. It was signed by the two representatives of the Quebec class, Lukas Walter and Thomas Gobeil, on May 9 and June 5, 2023. A date was then set for approval. In a surprising turn of events, on June 14, 2023, Walter and Gobeil informed their lawyers that they no longer agreed to the amended transaction, and notices of revocation of mandate were sent out a few days before the scheduled hearing date. Class counsel, claiming the need to safeguard the interests of the class members, asked the Court to reject the notices of revocation.25 The text of article 576 C.C.P. is unequivocal: the court appoints the representative. It is also clear from case law that it is the representative plaintiff who mandates counsel, not the reverse.26 Because the representative plaintiff is entitled to the counsel of his or her choice, like any other litigant, Walter and Gobeil were in principle entitled to revoke the mandates of their lawyers, even though said lawyers had been involved from the outset of the case. The matter complexifies when one considers the interests of the class members, as the trial judge writes: [translation] “Who will act in the case and whom will they be representing?”27 Possibly to assuage both sides, she acknowledged the revocation of mandate, but confirmed that the lawyers would continue to represent the class, stating that they [translation] “must uphold their duty to represent the class and present the terms of the settlement agreement as amended for approval.”28 In other words, she considered that class counsel had a direct relationship with the class. Needless to say, the case was appealed. The hearing on leave to appeal took place on February 29, 2024. Price higher than advertised: where’s the harm? What burden is imposed on plaintiffs who wish to institute proceedings under section 224(c) of the Consumer Protection Act, prohibiting the practice of hidden charges or drip pricing? A trial judgment states that the mere finding of a prohibited practice is not sufficient to prove actual harm. For the first time in reported case law, the Court of Appeal will consider a judgment on the merits dealing with the application of article 224(c) of the Consumer Protection Act. In this case, Union des consommateurs claims that Air Canada, during the first stage of an online ticket purchase process, failed to indicate the amount of taxes, fees, charges and surcharges included in the final price charged, thereby violating applicable legislation. Union des consommateurs is seeking a reduction in the price paid by members of the class corresponding to the sum of the charges, as well as punitive damages of $10 million. The Superior Court found that Air Canada had indeed advertised a price lower than that ultimately charged to class members. This finding of fault, however, did not relieve the plaintiff of the burden of proving actual harm. Because Air Canada demonstrated that there were clearly visible warnings that the advertised prices did not include all of the fees charged, the Court concluded that the prohibited practice was not likely to influence the formation of the contract.29 Since no harm has been demonstrated, no compensatory damages were awarded. As for punitive damages, the evidence did not show that Air Canada had engaged in “conduct […] which display[ed] ignorance, carelessness or serious negligence”. Moreover, Air Canada had ceased engaging in the contentious practice before the class action was authorized. The appeal was lodged on December 28, 2022, and should be heard this year. The upcoming decision will have a significant impact on a number of ongoing class actions under section 224(c) CPA. The decision will certainly shed some interesting light on the required proof of actual harm and the impact of the prohibited practice on consumers’ purchasing decisions. Devaluation of taxi licenses Will the Superior Court find that by adopting the Act respecting remunerated passenger transportation by automobile,30 the Quebec government expropriated taxi owners without paying fair and reasonable compensation? From April 1 to 24, 2024, the Superior Court will hear a class action on the revenue decline in the taxi industry attributed to the arrival of Uber, an online transportation platform having transformed the urban travel landscape by connecting users with independent drivers via a mobile app. The class action was authorized in 2018.31 The representative, who holds a taxi license, represents a group of taxi drivers and owners. He alleges that his loss of income and the depreciation in the value of his permits were caused by the legislator’s authorization of Uber’s business activities. He argues that the exemption provided to Uber by the law relative to taxi permit fees and the non-regulation of fares for its drivers have enabled Uber to charge far lower fares than those that regulated taxi operators charge. In this case, it will be interesting to see whether the Superior Court will apply the foundations of expropriation law to the class, which establish that no expropriation can take place without compensation for property rights. Member participation and class counsel’s fee to impose conditions relating to class counsel’s fees Can the Court make the full payment of the plaintiff’s lawyer fees contingent on achieving a certain level of participation of members of the class, even though it has already held that the fees agreed to in the settlement agreement were reasonable? Following the authorization of a class action on the false or misleading use of the word “champagne” by an airline that rather served a sparkling wine,32 the parties agreed to a settlement awarding the class members a 7% discount on their next purchase to be made within the next three years, without any restrictions. The settlement also provided for the payment of $1,500,000 to the class counsel, the reimbursement of expert fees and an envelope of up to $20,000 to maximize the settlement’s visibility on social media, without affecting the 7% compensation offered to members. The judgment approving the settlement authorizes the immediate payment of $751,450 to class counsel but makes payment of the balance conditional on achieving a participation rate of 50% of members, or 469,398 claims.33 The plaintiff applied for and obtained leave to appeal the decision.34 He also applied for the revocation, rectification and clarification of the judgment, in particular on the grounds that, under article 593 C.C.P., final payment of professional fees cannot be made conditional on achieving a recovery rate, and that the 50% rate is excessive. Only the second ground of the application was allowed, and the 50% participation rate was reduced to 10%, or 93,880 claims.35 The plaintiff has appealed this second decision. The judgment granting him leave to do so has been joined to the two appeals,36 and the factums are slated to be submitted in 2024. A number of decisions have already suggested that there needs to be a correlation between the professional fees of class counsel and participation of members in the benefits negotiated for them.37 The Court of Appeal’s upcoming ruling is certain to have significant implications on future settlements, and it will provide an interesting perspective on the discretionary power of trial judges to impose conditions relating to plaintiffs’ lawyers’ fees. Greenwashing: can a class action help the environment? Will the Superior Court authorize a class action on a misrepresentation that certain bags are recyclable?38 Does consumer law provide an entry for asking the courts to address environmental concerns? In recent years, many businesses have adopted environmental, social and governance practices (better known by the acronym ESG), often specifically performance criteria in these areas. However, some observers question the sincerity of these actions and sometimes consider them to be public relations schemes rather than genuine efforts on the part of businesses to reduce their environmental footprint or improve their social impact. This context will make it interesting to follow the progress of a class action on misleading representations concerning bags, which a number of superstores present as “recyclable,” when in fact they are only reusable as they are discarded by recycling plants in Quebec. If this class action is authorized, it could pave the way for further similar actions. Businesses that have adopted ESG practices and have made their commitment public should pay attention to the outcome of this case. SBC 2018, c 35. Tobacco Damages and Health Care Costs Recovery Act, SBC 2000, c. 30. British Columbia v. Imperial Tobacco Ltd, 2005 SCC 49. Sandoz Canada Inc. v. British Columbia, 2023 BCCA 306, para. 2. British Columbia v. Apotex Inc., 2022 BCSC 2147. Sandoz Canada Inc. v. British Columbia, 2023 BCCA 306. Sandoz Canada Inc. v. British Columbia, 2023 BCCA 306, para. 3. Québec being the last one with the Opioid-related Damages and Health Care Costs Recovery Act, SQ 2023, c 25, having been assented to and having come into force on November 2, 2023. Sanis Health Inc. v. British Columbia, SCC 40864 (November 9, 2023). Of the initial thirty-four defendants, a certain number agreed to settle out of court. Lavery, de Billy represents one of these defendants. Bank of Montreal v. Marcotte, 2014 SCC 55, para. 43. Bourgeois c. Electronics Arts Inc., 2023 QCCS 1011, leave to appeal granted: Electronics Arts Inc. c. Bourgeois, 2023 QCCA 826, only judge. Otsuka Pharmaceutical Company Limited c. Pohoresky, 2022 QCCA 1230, leave to appeal denied: SCC 40452 (May 25, 2023). Hershey Company v. Leaf, 2023 BCCA 264. Gebien v. Apotex Inc., 2023 ONSC 6792. Lavery, de Billy represented one of the defendants between 2013 and 2016. Ouellet c. Rail World inc., 2015 QCCS 2002, amended by Ouellet c. Canadian Pacific Railway Company, 2016 QCCS 5087. Ouellet c. Compagnie de chemin de fer Canadien Pacifique, 2017 QCCS 5674. Two other civil cases were suspended in the wake of these three cases, one by the same judgment, the other by 9020-1468 Québec inc. c. Canadian Pacific Railway Company, 2019 QCCS 366. Ouellet c. Compagnie de chemin de fer Canadien Pacifique, 2017 QCCS 5674. Ouellet c. Compagnie de chemin de fer Canadien Pacifique, 2022 QCCS 4643. Since June 30, 2023 article 211 C.C.P. prohibits the immediate appeal of a judgment rendered in a split proceeding that does not terminate the proceeding; there was therefore no reason to consider the consequences of possible asymmetry in res judicata in the case of a judgment that only partially puts an end to such a proceeding. Walter c. Quebec Major Junior Hockey League Inc., 2023 QCCS 3655. Walter v. Western Hockey league, 2017 ABQB 382; Berg v. Canadian Hockey League, 2017 ONSC 2608 and Walter c. Quebec Major Junior Hockey League Inc., 2019 QCCS 2334. Walter c. Western Hockey League, 2020 ABQB 631; Berg v. Canadian Hockey League, 2020 ONSC 6389 and Walter c. Ligue de hockey junior majeur du Québec Inc. 2020 QCCS 3724. Walter c. Quebec Major Junior Hockey League Inc., 2023 QCCS 3655, para. 13. Deraspe c. Zinc électrolytique du Canada ltée, 2018 QCCA 256, paras. 38 et s. Walter c. Quebec Major Junior Hockey League Inc., 2023 QCCS 3655, para. 23. Walter c. Quebec Major Junior Hockey League Inc., 2023 QCCS 3655, para. 24. Union des consommateurs c. Air Canada, 2022 QCCS 4254, para. 113, quoting to Richard v. Time Inc., 2012 SCC 8, para. 125. Act respecting remunerated passenger transportation by automobile, CQLR c. T-11.2. Metellus c. Procureure générale du Québec, 2018 QCCS 4626. Macduff c. Vacances Sunwing inc., 2018 QCCS 1510. MacDuff c. Vacances Sunwing inc., 2023 QCCS 343. MacDuff c. Vacances Sunwing inc.,2023 QCCA 476, only judge. MacDuff c. Vacances Sunwing inc., 2023 QCCS 4125. MacDuff c. Vacances Sunwing inc., 2024 QCCA 61, only judge. E.g., Daunais c. Honda Canada inc., 2022 QCCS 2485, paras. 132–133. Cohen c. Dollarama et al., SC 500-06-001200-225.

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February 21, 2024

New corporate transparency requirements in Canada, Québec and the U.S. – What Canadian and Québec companies need to know

Over the last several years, member countries of the OECD, including Canada and the U.S., have committed to various international undertakings dealing with corporate governance. In keeping with these commitments, since 2019, the Canada Business Corporations Act (CBCA) has required business corporations incorporated under the CBCA to prepare and maintain a register of individuals with significant control over the corporation. Nearly all Canadian provinces, including Québec, have also amended their legislation to make control of companies incorporated in their jurisdiction more transparent. For instance, since March 31, 2023, companies registered with the Québec Enterprise Register (REQ) must report their ultimate beneficiaries to the REQ. Providing greater transparency in the control of Canadian businesses is a continuing process, and additional provisions that apply to federal business corporations came into force on January 22, 2024, and others, applicable to businesses registered with the REQ, will come into force on July 31, 2024. The provisions of the Corporate Transparency Act of the United States requiring companies to report beneficial ownership information came into force on January 1, 2024; some of these provisions are of interest for Canadian companies. Canada – Public register of individuals with significant control Since June 2019, business corporations incorporated under the Canada Business Corporations Act have been required to maintain a register of “individuals with significant control” (ISCs) containing the following information: the name, date of birth and last known personal address of each ISC the citizenship, country or countries where the ISCs are residents for tax purposes the date on which each of these individuals became an ISC the manner in which the individual is an ISC and any other information required by the regulation.1 Although federal corporations must make this register accessible to the Director tasked with administering the Canada Business Corporations Act, to shareholders and creditors of the corporation and to investigative bodies, the register was not accessible to the public until recently. On November 2, 2023, the federal legislator amended the provisions of the Canada Business Corporations Act to, among others: allow ISCs to provide an address for service in addition to their personal address provide that a portion of the ISC information compiled by federally incorporated businesses must be sent to the Director tasked with administering the CBCA provide that the Director must make the following information on ISCs accessible to the public: their name their address for reporting purposes if such an address is provided or, failing which, their personal address the date on which they became an individual with significant control and a description of the manner in which each one is an individual with significant control Note that even if the date of birth, citizenship, country or countries where the ISC is a resident for tax purposes and their personal address (if they provided an address for reporting purposes) must be provided to the Director overseeing the Canada Business Corporations Act, this information will not be made public. The Director may, however, in turn provide to any police force, the Canada Revenue Agency and any provincial body that has responsibilities similar to those of the Canada Revenue Agency, bodies that have investigative powers in relation to certain offences, a provincial enterprise register or provincial agency enforcing corporate law in that province all or part of a corporation’s ISC information, which goes beyond the information it makes available to the public. A corporation must send its ISC information electronically through the Corporations Canada website, at incorporation (if incorporated after January 22, 2024), annually and concurrently with the filing of its annual declaration, within 30 days following its merger with another CBCA corporation, within 30 days of the date on which it becomes subject to the CBCA after incorporating under the laws of another jurisdiction, and within 15 days following any changes made to its register of ISCs. These amendments came into force on January 22, 2024. To assist federal corporations in drawing up a list of their ISCs, the Director tasked with administering the Canada Business Corporations Act posted a letter template on its website that federal corporations may send to their shareholders, their ISCs and to anyone who could reasonably be expected to have the relevant knowledge to identify their ISCs.2 The purpose of that letter is to help the corporation in identifying its ISCs. It is mandatory for shareholders to respond to the corporation’s request and failure to respond may result in significant fines and even imprisonment. Québec – Search a natural person by last name and first name Since April 1, 2023, most private businesses that required to register in Québec must report to the Registre des entreprises du Québec the names, residential address and date of birth of each of their ultimate beneficiaries, and the type of control exercised by them or the percentage of shares or units of the corporation owned by these ultimate beneficiaries or of which they are the beneficiaries. In general, an ultimate beneficiary of a business is a natural person who owns or is the beneficiary of 25% or more of the voting rights for that business, who owns or is the beneficiary of 25% or more of its fair market value or who has an influence that could result in de facto control over the business. The information reported on ultimate beneficiaries is accessible to the public and free for anyone consulting the REQ. The requirement to report ultimate beneficiaries applies to almost all businesses registered in Québec and is not limited to businesses incorporated under Québec law nor to business corporations. Therefore, any foreign legal person that is required to register in Québec must report its ultimate beneficiaries. The same applies to partnerships, such as general partnerships and limited partnerships, and some trusts. As of July 31, 2024, it will be possible to search the REQ using the last name and first name of a natural person. Accordingly, from that date, it will be possible to obtain the list of all businesses registered in the REQ of which a person is a director, officer, one of the three shareholders controlling the greatest number of votes and an ultimate beneficiary by searching by his or her last name and first name. The last and first name of the natural person and his or her residential address will appear in the search results. However, if a work address was reported to the register for that person, only the work address will appear. Federally incorporated businesses registered with the REQ A federally incorporated business that does business in Québec must maintain a register of its ISCs under the Canada Business Corporations Act and report information on its ultimate beneficiaries to the REQ. Although most ISCs of a federally incorporated business will also be the ultimate beneficiaries under the Act respecting the legal publicity of enterprises and vice versa, the two acts do not define an ISC and ultimate beneficiary in exactly the same way. A person may be an ultimate beneficiary under the Act respecting the legal publicity of enterprises without necessarily being an ISC under the Canada Business Corporations Act (and vice versa). Consequently, the content of the register of ISCs for a federally incorporated business — and thus information it will have reported to the Director in charge of the Canada Business Corporations Act — may not be identical to the ultimate beneficiary information it will have reported to the REQ. However, federally incorporated businesses that do not do business in Québec are not required to register under the Act respecting the legal publicity of enterprises. All other provinces, except for Alberta,3 have now incorporated provisions into their business corporations legislation requiring corporations registered under the laws of that province to maintain a register of individuals with significant control. As a result, these provisions only apply to business corporations incorporated under the law of the province and, therefore, do not apply to business corporations incorporated under the Canada Business Corporations Act or under the business corporation act of another province. Corporate Transparency Act in the United States coming into force – Impact on Canadian businesses On January 1, 2021, the Corporate Transparency Act, part of the U.S. Anti-Money Laundering Act of 2020, came into force. Just like the amendments made to the Canada Business Corporations Act and to the Act respecting the legal publicity of enterprises (Québec), the aim of the Corporate Transparency Act is to prevent and fight against money laundering, terrorism financing, corruption, tax fraud and other illicit activities, among others, by increasing the transparency of private companies incorporated in or registered in the United States. On January 1, 2024, the reporting requirements in the Corporate Transparency Act to identify “beneficial owners,” which are basically equivalent to ISCs under the Canada Business Corporations Act and “ultimate beneficiaries” under the Act respecting the legal publicity of enterprises (Québec), came into force. Businesses covered by the act and incorporated before January 1, 2024, have until January 1, 2025, to file their first Beneficial Ownership Information Report. Businesses incorporated after that date must file their first report no later than 30 days after the date they first register with a U.S. government authority. Reports on beneficial ownership of businesses are filed with the Financial Crimes Enforcement Network, an agency of the U.S. Department of the Treasury, better known by its acronym FinCEN. Reporting businesses must submit an updated report within 30 days of any change in information previously reported to FinCEN. Reports on beneficial ownership are not accessible to the public and are not subject to the U.S. Freedom of Information Act. The information contained in these reports will be, however, generally accessible to United States law enforcement agencies and United States federal tax authorities. Foreign law enforcement authorities may also be granted access in certain circumstances through United States federal intermediary agencies. Provided they have received the consent of their clients, financial institutions will also have access to the information to facilitate compliance with customer due diligence requirements under applicable law. All corporations incorporated in the U.S. must file beneficial ownership information reports unless they are legally exempt. Exempt businesses include: most businesses whose securities are registered under the Securities Act of 1934 large businesses, i.e., businesses with more than 20 full-time employees in the U.S., having a facility in the U.S., and having reported over U.S.$5 million in gross revenues or sales in the previous reporting period. It follows that in most cases, unless it is exempted, usually because it will qualify as a “large business” due to the number of its employees and its revenues, a U.S. subsidiary of a Canadian corporation will have to comply with the act and report the identity of its Canadian beneficial owners. A reporting business must, among other things, report the full name, the date of birth and the address of all its beneficial owners. The U.S. subsidiary of a Canadian corporation must also submit a copy of the Canadian passport (or from the country of citizenship of the person in question) for each of its beneficial owners. A person is deemed a beneficial owner of a corporation if he or she is a natural person who, directly or indirectly, exercises substantial control over the reporting corporation, or owns or controls at least 25% of the corporation’s ownership interests (shares, units or others), in voting rights or in value. The definition of “substantial control” for the purposes of the Corporate Transparency Act is much broader and more specific than what is found in equivalent Canadian legislation. An individual has “substantial control” over a reporting corporation under the Corporate Transparency Act if such individual (i) is a senior officer in the corporation, (ii) has authority to appoint or remove certain officers or a majority of the directors (or similar body) of the reporting corporation, (iii) is an important decision maker of the reporting corporation or (iv) has any other form of substantial control over the reporting corporation. The Corporate Transparency Act imposes serious penalties on individuals who willfully fail to file or update beneficial ownership information or who willfully file false information. These penalties include civil penalties of up to U.S.$500 per day of violation, fines of up to U.S.$10,000, as well as potential; imprisonment for a period up to two years. Note that the act contains a presumption against senior officers in respect to reported information that is false, incomplete or not up to date. These officers could therefore be held personally held liable for civil penalties and fines and could be subject to imprisonment if the reported information proves to be false or incomplete or not up to date. Senior officers must therefore be especially vigilant and ensure that the reporting requirements under the Corporate Transparency Act are met. The Director tasked with administering the Canada Business Corporations Act has posted a template for the register of ISCs on its website. This register can be found at: https://ised-isde.canada.ca/site/corporations-canada/sites/default/files/documents/2023-12/04.3_isc-register-template_en.xlsx This template can be found at: This template can be found at: https://ised-isde.canada.ca/site/corporations-canada/sites/default/files/documents/2023-12/06.1_request_for_information_template_isc_en.pdf The three territories, Yukon, Northwest Territories and Nunavut, still have yet to amend their legislation to require a register of individuals with significant control to be maintained for business corporations incorporated under the business corporation acts of those territories.

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