How to Negotiate Temporary Agreements or Contracts in Times of Crisis?

April 17, 2020

The rapid spread of COVID-19 and the introduction of strict government measures are limiting or changing many businesses’ operations. These measures impose unusual restrictions that make it more difficult to meet certain contractual obligations.

In such a situation, many companies will want to assess the possibility of modifying certain undertakings and terms of their contracts in order to get through the pandemic and resume their business activities post-crisis.

To that end, we have gathered a few thoughts on how to look into negotiating a temporary agreement, some legal principles that can be applied to begin discussions and negotiations, and some other elements to consider in a negotiation approach, which we share with you below.

How to do it and where to begin: some ideas

It is relevant to review all your contracts and sort them to determine which are essential for your business operations and which have the most significant financial impact. Think about the other contracting party as well, who may also be affected by the pandemic.

Has the other party defaulted of performing its correlative obligations to you, or is your inability to meet your obligations causing it prejudice in any way? Most of the obligations included in a contract cannot be changed unilaterally. However, contracting parties must still perform their respective obligations in good faith. The occurrence of an exceptional situation such as COVID-19 is likely to force each of the parties to act more flexibly in order to comply with their duty of good faith.
It is possible to validate whether some of these contracts, by their very nature, are still relevant or whether they will remain relevant once the curve flattens and economic activity recovers. For less relevant contracts, you can check whether they include provisions allowing for unilateral termination, by the mutual agreement of the parties or by a particular mechanism.

Otherwise, you could then consider initiating a discussion with the other contracting party to negotiate certain terms of the agreement in order to mitigate negative impacts, if any, during the pandemic.
For each contract that must be maintained, you can list all the obligations that you are unlikely to be able to meet, in whole or in part, as well as those that your contracting party might not be able to meet, in order to open the door to an out-of-court negotiation of certain provisions for the coming months. In your analysis, you should pay particular attention to the following clauses:
- Default: What constitutes a default under the terms of the contract? What are the consequences of defaulting? Does a default under this contract constitute a default under another contract? Does the contract provide for a time period to cure a default? On what conditions?
- Time limit: Does the contract set specific time limits for the performance of certain obligations? Which ones? Does the contract provide for the possibility of postponing the time limit for its performance? Should a notice be sent to this effect? Does it expire soon?
- Exclusivity: Is the contract exclusive? Can this exclusivity be overridden? Under what circumstances and on what conditions?
- Force majeure: Does the contract include a superior force clause (most commonly called a “force majeure”) forgiving a party’s inability to perform its obligations? What happens to each party’s obligations, especially financial obligations, in a context of superior force? Although the Civil Code of Québec defines such a notion, the contract can always provide its own definition. A case of superior force usually requires the presence of an unforeseeable, irresistible event external to the party invoking it.
- Continuous information: Does the contract provide for the obligation to keep the other contracting party informed when certain events occur? If so, which ones? Is COVID-19 or any other pandemic included?
- Negotiation: Does the contract provides for the parties the possibility to renegotiate certain terms ? Which ones? When? On what conditions?
- Payment: Does the contract set out time limits for payments to the other contracting party or for making any other kind of payment, depending on the nature of the contract? Does it provide for additional time limits to proceed to the payments? What is the impact of delaying or not making a payment?
- Financial performance: Does the contract establish financial performance criteria (e.g. compliance with certain financial ratios)? How often? What are the consequences of not meeting these financial criteria?
- Penalties: Does the contract contain penalties for late payment of certain amounts or for failure to meet certain contractual obligations? When is this penalty due? What amount can it reach?
- Liability: Is the liability of the contracting parties unlimited under the terms of the contract or does the contract instead provide for limits on the amount that may be claimed?(maximum/minimum amount)? Is there a predetermined time limit to make a claim? Does the contract provide for a notice to be sent to this effect?
- Dispute resolution: Does the contract provide for a dispute resolution process? Mediation or arbitration? Under which conditions can these mechanisms be applied?
List all the impacts that result from a breach of obligations (e.g., penalties, notice of default, interest), and make a list of viable proposals that you can submit to the other contracting party as an alternative.

What legal principles can you use to negotiate a temporary agreement with your contracting party or a postponement of your obligations?

Certain provisions or legal principles may make it possible to terminate a contract or may serve as arguments for a temporary agreement or a postponement of your obligations. Here are a few examples. (This list is non-exhaustive, of course.)

Force majeure

Some parties to a contract will want to invoke the concept of superior force to terminate or temporarily suspend the effects of the contract. Although this concept is interesting, it applies only to very specific situations and its application is not generalized.

As previously mentioned, the Civil Code of Québec¹ provides that superior force is an unforeseeable and irresistible event that must not arise from the actions of the contracting parties. Depending on the nature of the obligations covered, a contracting party may be released from its obligations or have its successive obligations suspended during the superior force period.

The contract may also provide for other parameters and circumscribe the terms of what may constitute a case of superior force between the parties.

The right to invoke superior force requires a case-by-case assessment of each contract and of the relationship between the parties. In any event, a party that is unable to perform its obligations, in whole or in part, must take all steps at its disposal to minimize its damage.

You will find more information on the concept of superior force and its application in the bulletin The Impact of COVID-19 on Contracts.

Right to terminate

Certain contractual provisions may allow for resiliation (termination) by either party, on specific terms or for specific reasons. Some contracts will provide for a termination mechanism at either party’s discretion or further to their mutual consent.

In the absence of such clauses in the contract, it remains essential to characterize the nature of the contract, since legislative provisions could allow its resiliation. That is also the case of a contract of enterprise or a contract for services, which the client may unilaterally resiliate as permitted by sections 2125 and following of the Civil Code of Québec, subject to certain limits, of course. Before deciding to unilaterally resiliate a contract, it is important to consult your legal advisor in order to properly determine the nature of the contract, validate its terms and conditions with respect to resiliation and determine the possible impacts of such resiliation (e.g., penalties, prejudice to the other party, etc.).

Obligation of good faith in contractual performance

The obligation of good faith imposes certain contractual duties, including those of loyalty and cooperation. The duty of loyalty entails certain prohibitions such as not increasing the burden on a contracting party, not compromising the contractual relationship, and not engaging in excessive and unreasonable² behaviour. The duty of cooperation, on the other hand, is more positive in nature and aims for assistance and collaboration between the contracting parties to encourage contract performance.

Thus, beyond the contractual relationship between the parties, the obligation of good faith allows for a genuine collaborative relationship, a partnership, even, between the parties.

A party being a victim of its contracting party’s actions, which are not in accordance with its obligation of good faith under the terms of the contract or which are implicitly derived from those terms, may be in a favourable position to claim damages.

Thus, if a party experiences difficulties in performing its obligations because of an event beyond its control, it is entitled to expect the other contracting party to show good faith in the performance of the contract and to act reasonably.

Abuse of rights

A party’s exercise of its contractual rights may, in certain situations, constitute an abuse of rights. For example, a party that is in default of its payment obligations under the contract, due to the closure of its business as required by government authorities, may trigger the application of a contract default clause by the other party. Such other partycould proceed with the immediate resiliation of the contract upon simply providing notice.

While the terms of the contract may be clear, the other party’s haste in resiliating the contract may constitute an abuse of rights. Indeed, the nature of the relationship between the parties, the duration of the business relationship and the facts that led to the default have an impact on the way a party may exercise its rights under the contract. The exercise of rights provided for in the contract in such a way as to create devastating or catastrophic effects for one of the contracting parties could constitute an abuse of rights in the performance of the contract.

Mediation

The contract may provide for dispute resolution processes such as mediation or arbitration. To the extent that a dispute arises between the contracting parties and that the contract provides for recourse to alternative dispute resolution mechanisms, it will be possible or even mandatory to submit the dispute to a process such as mediation before a third party, which will attempt to help the parties find an acceptable common ground. In the event of non-performance by a contractual party, this may be a very good option, insofar as the contract contains a provision providing for recourse to such mechanisms, of course.

How can a temporary agreement be negotiated, and are there elements that can be put forward as part of the discussions?

Given the exceptional current situation, it may also be appropriate for the contractual parties to communicate and verify the impacts of the pandemic on the contractual performance. In this way, the parties may jointly conclude that there are particular difficulties in performing certain obligations under the contract.

In such a case, propose solutions or present scenarios that aim to minimize the negative impacts for your respective businesses. Rely on the mutual aid factor to meet certain obligations and/or suspend others (performance, manufacture, delivery, time limits, forbearance, etc.).
It is possible to suggest performing certain obligations in consideration for the performance of your contracting partner’s correlative obligations.
Where feasible, consider partial payments, deferred payments, staggered payments over time or a reimbursement based on a percentage of revenues or sales once operations resume after the pandemic.
If it is possible, offer additional guarantees to the other contracting party (e.g. collateral security, personal suretyship, third party guarantee).
Validate whether your insurance covers the cessation of your operations, business interruption, delays in the performance of your obligations, or financial losses arising from some of your contracts, to enable you to propose viable alternatives.
Determine which suppliers or partners are willing to conclude a temporary arrangement and those who refuse or are less open to it. You can then to try to optimize your agreements with the more conciliatory partners, allowing you to continue performing certain obligations with your more reluctant contracting parties.
Innovate! Think about alternatives that might not have been possible, or that you might not have considered before the pandemic, that allow you to optimize your business practices or relationships. In short, think outside the box.

A few thoughts before undertaking a negotiation

Do not restrict your thinking to the period of restriction on non-essential activities which is, at the time of writing, until May 4, 2020. Think instead about the weeks and months that will be required to re-establish your business relationships and resume normal business operations, while performing your ongoing obligations and any deferrals negotiated during the pandemic;
The inability to adapt, or the maintenance of a hard line, will bring some businesses to the brink and force them to consider various insolvency processes. You must be in a position to show your contracting parties why a position that is too firm or inflexible will not, in the long term, be satisfactory or serve the parties’ interests, in addition to being detrimental to those parties who are likely to require flexibility in the performance of their contractual obligations.
You need to be able to identify the considerations specific to your business and business model, and determine the elements that may influence your decisions, such as the nature of the relationship with the other contracting party, particularly if it is a long-standing customer or supplier, whether it is a relationship that will continue into the future or if it is a one-time contract that is non-recurring, and what impacts and reputational risk your actions may entail.
Beyond legal principles, the long-term business relationship must be prioritized and protected. This argument should not be underestimated. The objective of most Quebec businesses is to find satisfactory common ground for the parties involved, while trying to minimize the impacts on both sides. The watchword the parties should keep in mind is “flexibility.”

During these times when solidarity is in order, it seems to us that it would be wise for each party to make the effort to reach a duly negotiated temporary agreement.

We are sharing these options to provide you with ideas on how to approach the negotiation of ongoing contracts, knowing that each contract, relationship and situation are unique. For more information, our corporate law team remains at your disposal to accompany you during the pandemic. #WeWillGetThroughThis

Section 1470 para. 2 C.C.Q.
Didier Luelles, La bonne foi dans l'exécution des contrats et la problématique des sanctions, Canadian Bar Review, Vol. 83, 2004, pp. 189-190.

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Jean-Paul Timothée
Senior Associate

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September 19, 2024

Financing Quebec’s Energy Transition: Unlocking the Potential of Flow-Through Shares

Quebec has set ambitious energy transition and industrial decarbonization targets. The shift to greener practices has to be taken in a context where our energy consumption could rapidly grow under the combined effect of a number of factors, such as the reindustrialization of our economy, population growth, transport electrification and the potential for artificial intelligence to consume vast amounts of energy. Investing in the development of energy infrastructure is therefore critically important, as an abundance of energy is key to economic prosperity. The problem is that public finances are already stretched to the limit with the need to renovate our aging infrastructure, among other things. Encouraging private equity investment is thus vital, and tax incentives can be very effective in this respect. The American example In 2022, the United States passed its Inflation Reduction Act (IRA), with the goal of stimulating investment in the renewable energy sector, in particular. More specifically, the IRA altered or created a number of tax credits to encourage private investment.1 Over the past two years, US businesses have announced a total of almost US$276 billion in new investments in clean energy generation and the capturing or elimination of carbon dioxide and other forms of industrial decarbonization, an increase of 34% on the two years previous.2 The IRA is effective in that it takes the respective situations of various energy sector stakeholders into account in a creative, flexible and pragmatic way, especially where taxation is involved. Energy project promoters often have to wait many years for their projects to generate income and profits, even though the banks and other investment funds they solicit financing from can be presumed to be operating profitable businesses. The tax losses that occur in the years during which such projects are designed and built are therefore of little interest to developers, but of immediate interest to investors. And so, a tax equity market has emerged, in which businesses subject to taxes can invest in the shares of entities set up to develop such projects so as to benefit from tax credits and faster depreciation. Typically, the entity that cashes in the investment and develops the project distributes 99% of income, losses and tax credits to investors until a predetermined return is achieved. Once that return is achieved, the investor’s share of the benefits decreases, and the developer has the option of buying out the investor’s residual share. The IRA has transformed how federal clean energy tax credits are monetized, and it is now possible to buy and sell such credits without having to make a long-term investment. For businesses, this new way of doing things is an additional and attractive way to participate in the growing tax credit market.3 In 2023, the volume of the tax equity market for American projects was around US$20 to 21 billion, up about US$18 billion from the previous year.4 It appears that the trend will continue. It is estimated that the value of the current market, which is particularly attractive to banks, is set to double to US$50 billion a year by 2025.5 The equivalent of flow-through shares The Quebec and Canadian tax deductions mechanism that most closely resembles the US tax equity market is probably flow-through shares. Through these, businesses in the mining and renewable energy sectors can transfer their mining exploration expenses and other expenses—specifically designated as eligible—to investors, who can then deduct them from their own taxable incomes.6 These businesses can thus issue shares at a higher price than they would receive for common shares to finance their exploration and development operations. Investors are willing to pay a higher price in return for the tax deductions afforded by the eligible expenses incurred by the issuing businesses, which can amount to a maximum of 120% of the equity invested in the shares.7 Investors can also claim a 15% or 30% federal tax credit. However, because tax incentives cannot be transferred, our mechanism is more rigid than the American one, and it can only be applied to mineral exploration and development expenses and certain specific expenditures related to renewable energy and energy conservation projects, such as electricity generation using renewable sources like wind, solar energy and geothermal energy.8 With ambition and innovation comes the need to take action Quebec could draw inspiration from the IRA to increase the attractiveness of flow-through shares and broaden their scope of application, thereby creating a new tool to finance the energy transition. The renewable energy sector is similar to the mining sector in many respects, not least in terms of the considerable amount of capital required to build the infrastructure needed to operate a mine or energy generation facility. The flow-through share mechanism, which is well-established and popular with investors,9 could be just as successful in our energy transition context. Making such incentives easier to transfer would also drive the emergence of a market similar to the US tax equity market. A number of Québec flagship companies, such as Hydro-Québec,10 Innergex11 and Boralex,12 are also very ambitious when it comes to developing large-scale energy projects. They face major financing challenges, as do those in the industrial decarbonization and infrastructure renewal sectors. Innovation is necessary to meet these challenges and make the transition to a more sustainable, but just as prosperous, world, and to do so in good time.13 Link Rhodium Group and MIT’s Center for Energy and Environmental Policy Research (CEEPR), Clean Investment Monitor, link Brandon Hill, How to take advantage of tax credit transferability though the Inflation Reduction Act, Thomson Reuters Institute, April 16, 2024, link Allison Good, Renewables project finance to keep pace in 2024, but tax equity rule looms, S&P Global, January 12, 2024, link Lesley Hunter and Mason Vliet, The Risk Profile of Renewable Energy Tax Equity Investments, American Council on Renewable Energy, December 2023, link Link, page in French only Link Link Prospectors & Developers Association of Canada, Flow-through shares & the mineral exploration tax credit explained, link Link Link Link The authors would like to acknowledge the participation and the work done by Sophie Poirier in this publication

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August 9, 2024

The elected domicile appearing in the Québec Enterprise Register cannot provide a basis for the Superior Court’s territorial jurisdiction within the meaning of article 41(3) of the Code of Civil Proce

Introduction On July 11, 2024, the Court of Appeal1 rendered a decision that, for the first time, addresses the question of whether the elected domicile appearing in the Québec Enterprise Register (the “REQ”), established under the Act respecting the legal publicity of enterprises,2 can provide a basis for the Superior Court’s territorial jurisdiction within the meaning of article 41(3) of the Code of Civil Procedure.3 Upholding the decision rendered by the Superior Court,4 the Court of Appeal answered that it cannot. The Facts On April 25, 2023, Promark Electronics Inc. and Electrical Components International Inc. (collectively, “Promark”) filed a claim for damages against Bombardier Recreational Products Inc. (“BRP”) in the judicial district of Montréal, alleging that a letter of agreement had been terminated and related purchase orders cancelled. On June 22, 2023, BRP raised a declinatory exception asking the court to issue an order transferring the case to the judicial district of Bedford, where its head office is located. Promark argued that filing its claim in the judicial district of Montréal was warranted because of BRP’s elected domicile indicated in the REQ, which corresponded to the office of its counsel located in Montréal. On September 5, 2023, the Honourable Tiziana Di Donato, J.S.C. (the “Judge”) allowed BRP’s declinatory exception and issued an order referring the case to the judicial district of Bedford. On November 10, 2023, the Honourable Stephen W. Hamilton, J.C.A., granted leave to appeal the Judge’s decision, indicating that the courts have never settled the question of whether the domicile elected under section 33 ALPE is sufficient to make paragraph 3 of article 41 of the C.C.P. apply. He added that it appeared to him that the lower courts had rendered contradictory judgments in this regard.5 The Trial Judgement The Judge began by pointing out that, generally, for a purely personal action, the judicial district of the defendant’s domicile is the natural forum (article 41(1) C.C.P.) and that, in the case of a corporation, the domicile would be that of its head office. The Judge further clarified this principle by explaining that, where more than one judicial district has jurisdiction, the plaintiff may institute its proceedings before another court having territorial jurisdiction (article 42 C.C.P.), provided that it establishes that it is entitled to make such an election. In support of its contestation to the declinatory exception, Promark argued that it was entitled to institute the proceedings in the judicial district of Montréal because BRP had elected its domicile under the ALPE, and that, consequently, that district constituted an “elected domicile” under article 41(3) C.C.P., which reads as follows: So far as public order permits, the court of the defendant’s elected domicile, or the court designated by an agreement between the parties other than a contract adhesion, also has territorial jurisdiction. [Our emphasis] To render her decision, the Judge determined that article 41(3) C.C.Q. should be interpreted using modern rules of statutory interpretation, adding in particular that it is useful to refer to prior provisions of a law to ascertain the legislature’s intent. The Judge thus revisited the legislative history of article 41 C.C.P., affirming that it essentially restates the prior law, in particular article 68 of the former Code of Civil Procedure, CQLR c. C-25, which provided in paragraph 1, subparagraph 1 that “. . . a purely personal action may be instituted: (1) [b]efore the court of the defendant’s real domicile or, in the cases contemplated by article 83 of the Civil Code, before that of his elected domicile.” Although paragraph 3 of article 41 C.C.P. no longer specifically refers to article 83 of the Civil Code of Québec (the “C.C.Q.”)6 the Judge, following an interpretive analysis, found that said article still applies to determine whether a party has elected domicile, and stressed the fact that the election of domicile must be express and unequivocal. The Judge added that election of domicile is the exception and must be interpreted restrictively. As for the scope of an election of domicile under the ALPE, the Judge pointed out that subsection 33(1) ALPE indicates that a business may elect domicile and appoint a person to “receive documents for the purposes of this Act.” Article 98(5) ALPE also indicates that the domicile elected by a business under the ALPE is intended to inform third parties of the address where the business wishes to receive documents “for the purposes of this Act.” The Judge was thus of the opinion that sections 33(1) and 98(5) ALPE, as drafted, cannot have the scope that Promark seeks to ascribe to them, as they are clear and they do not need to be interpreted. In the case of an election of domicile under the ALPE, the purpose of the election is to provide an address where documents can be sent to the business, unless there is specific evidence to the contrary. For these reasons, the Judge allowed the declinatory exception and referred the case to the judicial district of Bedford. The Judgement on Appeal From the outset, the Court of Appeal confirmed that the Judge did not commit a reviewable error: (1) the domicile elected for purposes of attributing territorial jurisdiction under article 41 (3) C.C.P. is the domicile designated by the parties for the execution of their agreement within the meaning of article 83 C.C.Q., and (2) the domicile elected under the ALPE is elected for the purposes of applying the ALPE (para. 23). The Court of Appeal is of the opinion that the Judge’s decision is consistent with what the legislature had prescribed in article 68 of the former Code of Civil Procedure and upholds stability in the law, which is particularly important in matters of jurisdiction. After analyzing the parliamentary debates surrounding the enactment of article 41 C.C.P. and the Commentaires de la ministre de la justice, the Court indicated that there is a presumption of the survival of the existing legal rule and that, contrary to what the appellants claimed, the wording of article 41 C.C.P. and articles 33 and 98 ALPE do not give the courts territorial jurisdiction other than that of the defendant’s domicile. The removal of the reference to article 83 C.C.Q. in article 41 C.C.P. does not constitute a clear indication of the legislature’s intent to set aside the requirements of article 83 C.C.Q., under which, for the purposes of determining territorial jurisdiction, the parties must establish the elected domicile in their agreement. On that basis, the Court of Appeal dismissed the appeal without costs and confirmed the Judge’s reasoning that territorial jurisdiction of the courts under article 41(3) C.C.P. is established based on the election of domicile made under article 83 C.C.Q., and not on the election of domicile made by a corporation under the ALPE, whereby a business elects a domicile for the purposes of the application of that law. Conclusion This case serves as a reminder that the C.C.Q. establishes the general law in our province. It is therefore important to refer to it when interpreting other laws enacted by the Quebec legislature. Because the legislature is “deemed to know its legislative fabric as well as the existing law,”7 the Court cannot interpret a given law—such as the ALPE—in a way that would amend a substantive statutory provision of general application—in this case, the C.C.Q.—where there is no clearly expressed intention to that effect. Promark Electronics Inc. c. Bombardier Recreational Products Inc., 2024 QCCA 906 CQLR, c. P-44.1 (the “ALPE”) CQLR, c. C-25.01 (the “C.C.P.”) Promark Electronics Inc. c. Bombardier Recreational Products Inc., 2023 QCCS 3405 Promark Electronics Inc. c. Bombardier Recreational Products Inc., 2023 QCCA 1427, para. 8 83. “The parties to a juridical act may, in writing, elect domicile with a view to the execution of the act or the exercise of the rights arising from it. Election of domicile is not presumed.” Promark Electronics Inc. c. Bombardier Recreational Products Inc., 2024 QCCA 906, para. 24

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July 26, 2024

A tenderer’s failure to comply with the preliminary complaint process as part of a municipality’s public call for tenders leads to a fin de non-recevoir

Introduction On June 14, 2024, the Superior Court of Québec issued a decision1 interpreting section 938.1.2.2 of the Municipal Code of Québec, which came into force in 2019. This provision gives a person interested in participating in the awarding process the opportunity to file a preliminary complaint about a requirement in the tender documents that they believe does not ensure the honest and fair treatment of tenderers. To our knowledge, this is the first time a court has considered the impact on a claim for damages for loss of profits2 when an unsuccessful tenderer fails to comply with this relatively new provision The Superior Court concluded that a tenderer’s failure to submit a complaint in a timely manner should be considered as [translation] “a form of fin de non-recevoir, or at the very least, a break in the chain of causation between the alleged fault and the damages claimed” (paragraph 40). Facts The dispute at hand pitted Transport Martin Forget Inc. (“Transport Forget”) against the Municipality of Saint-Alexis (the “Municipality”). On May 6, 2019, the Municipality issued a call for tenders for a snow clearing and salting contract. Transport Forget submitted the lowest bid, which was $150,000 below that of the winning tenderer. Transport Forget was excluded from the call for tenders given its failure to comply with the tender specifications requiring it to provide a Régie du bâtiment du Québec (“RBQ”) licence number, together with an attestation that its licence was in good standing. Further to the Municipality’s refusal to award the contract to Transport Forget, it claimed $300,000 in damages for alleged loss of profits. Transport Forget believed that its tender was compliant, that the RBQ licence requirement imposed by the Municipality was frivolous and unreasonable, that the Municipality failed to uphold the principle of equal treatment of tenderers and that the complaint process provided for in section 938.1.2.2 of the Municipal Code of Québec did not deprive it of its rights. As for the Municipality, it considered the irregularity in Transport Forget’s tender to be major and Transport Forget’s failure to comply with the complaint process concerning this requirement—both reasonable and in the public interest—was fatal to its legal action. The evidence showed that the RBQ licence number provided in Transport Forget’s tender was invalid and that Transport Forget deliberately chose not to renew said licence before submitting its tender, as it was unsure as to whether it would win the bidding process and wished to avoid needlessly paying the $1,000 annual fee required for the licence renewal. Applicable principles In order to determine the outcome of this dispute, the Court analyzed the case based on the decision in Tapitec,3 a landmark ruling in tendering matters. It reiterated the Court’s view that the decisive factor in determining whether an irregularity is minor or major is the equal treatment of tenderers. It also pointed out that municipalities can set out conditions aimed at limiting the number of tenderers, provided that this is done for an important and legitimate purpose. As for section 938.1.2.2 of the Municipal Code of Québec, the Court viewed it as a mechanism for monitoring all contracts awarded by public bodies which is designed to establish a process to ensure compliance with the principles of integrity needed to protect the public interest. According to the Court, the legislator’s intention is also to protect small municipalities such as the one in question (with a population of approximately 1,500) from potential legal action following the opening of tenders by ensuring that issues concerning the principle of equal treatment of tenderers are resolved prior to the tendering process. Tenderers that fail to comply with this requirement will not be entitled to claim damages for loss of profits, as in this case, except where there has been fraud or blatant bad faith, as in cases of collusion. The purpose of the provision in question is to prevent a tenderer that is aware of the requirements set out in the tender documents from contesting such requirements after the fact. Decision The Court found that the requirement to hold an RBQ licence number was a condition intended to limit the number of tenderers, which the Municipality was entitled to do. Although the Court recognized that there is no correlation between being able to perform snow clearing operations and holding an RBQ licence, it accepted the evidence that this condition was an appropriate and quick way for the Municipality to ascertain the credibility and organizational skills of tenderers, which was a important and legitimate objective. The Court therefore concluded that this requirement of the tender specifications was neither frivolous nor arbitrary. The Court considered the irregularity in Transport Forget’s tender to be major. Although the obligation to hold a valid RBQ licence is neither a requirement of public policy nor a substantive requirement, it is intended precisely to proscribe the lack of seriousness shown by Transport Forget when it opted not to pay the renewal fees for its RBQ licence before submitting its tender. The Municipality exercised its administrative discretion in a reasonable manner and ensured that all tenderers were treated equally. The Court found that the Municipality was right to reject Transport Forget’s tender. Although the Court dismissed the claim, it did nevertheless consider section 938.1.2.2 of the Municipal Code of Québec. In the Court’s view, Transport Forget could have lodged a preliminary complaint about the validity of the condition imposed by the Municipality to hold an RBQ licence. Doing so would have given the Municipality the opportunity to amend its call for tenders before the opening of tenders. Transport Forget’s failure to do this rendered its claim for damages inadmissible. Commentary Tenderers for public calls for tenders issued by a municipality must be aware of section 938.1.2.2 of the Municipal Code of Québec4 and understand how to apply it in a timely manner. As demonstrated by the Superior Court’s interpretation of this section in the judgment in question, an unsuccessful tenderer that has not complied with the complaint process set out in said section and who intends to sue for damages for an alleged loss of profits could have their claim turned down on grounds of a fin de non-recevoir. Transport Martin Forget Inc. c. Municipalité de Saint-Alexis, 2024 QCCS 2208 We came across the decision in Sintra inc. c. Municipalité de Noyan, 2019 QCCS 4293 (CanLII), which also deals with this provision, but in the context of an application for an interim injunction from the lowest tenderer attempting to prevent the awarding of the contract to a third party: the Court dismissed the claim, in particular because the tenderer had not lodged a complaint about the process provided for the awarding of the contract, in accordance with section 938.1.2.2 of the Municipal Code of Québec, and concluded that the prima facie case requirement had not been met. Tapitec c. Ville de Blainville 2017 QCCA 317 We would also like to draw your attention to section 573.3.1.4 of the Cities and Towns Act, which is identical to section 938.1.2.2 of the Municipal Code of Québec. We have not found any decisions interpreting this section, so we urge tenderers to be cautious and comply with the complaint process applicable to calls for tenders issued by cities and towns, to avoid having their claim turned down on grounds of a fin de non-recevoir.

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June 5, 2024

Almost two years after the issuance of the Single-use Plastics Prohibition Regulations, where do we stand and how are businesses affected?

On December 20, 2022, the federal government's Single-Use Plastics Prohibition Regulations1 (the “Regulations”) gradually came into force, with the effect, as the name suggests, of prohibiting (or restricting, in certain cases) the manufacture, import and sale of certain single-use plastics that pose a threat to the environment. In principle, it is now prohibited to manufacture, import and sell certain single-use plastic products made entirely or partially of plastic, such as foodservice ware, checkout bags and straws. On June 20, 2024, beverage ring carriers and flexible straws packaged with beverage containers have been added to this list.2 However, there are cases currently pending before the courts that have the potential to change the situation. Currently contested: the Regulations and the Order A contestation to the Regulations has been before the Federal Court since July 15, 2022, in an application for judicial review brought by Petro Plastics Corporation Ltd et al3 (the “Petro Plastics Case”). However, the parties to this case have asked for it to be suspended pending a final judgment in another case4 brought by the Responsible Plastics Use Coalition (the “Coalition Case”).5 In the Coalition case, the validity of the order by which plastic products were added to the list of toxic substances in Schedule 1 of the Canadian Environmental Protection Act (“CEPA”)6 is called into question. The Federal Court of Appeal will soon hear this case and render a judgment that will affect the Petro Plastics case. On November 16, 2023, in the Coalition Case, the Federal Court ruled in favour of the Coalition, retroactively quashing the Order Adding a Toxic Substance to Schedule 1 to the Canadian Environmental Protection Act (the “Order”) and declaring it invalid and unlawful as of April 23, 2021.7 Essentially, the Federal Court had two main reasons for concluding that the registration was illegal. Findings of the Federal Court Order found unreasonable The Federal Court concluded that the Order was unreasonable because the evidence that the federal government had in hand did not support the conclusion that all plastic manufactured articles were toxic within the meaning of CEPA. On the contrary, the evidence showed that certain plastic manufactured articles included in the scope of the Schedule 1 list were not toxic. According to the Federal Court, the government acted outside its authority by listing the broad category of plastic manufactured articles on Schedule 1 in an unqualified manner. Order found unconstitutional The Federal Court also concluded that the Order was unconstitutional because it did not fall within the federal government’s criminal law power. Only substances that are toxic in “the real sense” can be included on the list of toxic substances. They must be substances that are harmful, dangerous to the environment or human life, and truly have the potential to cause harm. In other words, according to the Federal Court, the power to regulate the broad and exhaustive category of “single-use plastics” lies with the provinces. The Attorney General of Canada appealed this decision with the Federal Court of Appeal on December 8, 2023. The Federal Court of Appeal granted a stay of the judgment rendered on November 16, 2023, until disposition of the appeal,8 such that the Order and the Regulations remain in force, at least for the time being. If the Federal Court of Appeal upholds the decision that the Federal Court rendered on November 16, 2023, this will affect the validity of the Regulations. Under section 90 of CEPA, a substance can only be added to Schedule 1 by order if the federal government determines that it is toxic within the meaning of CEPA, and, under section 93 of CEPA, the government only has the power to regulate such a substance after it has been added to the list. The plastic items in question Subject to the outcome of the court cases discussed above, here is the exhaustive list of items that the Regulations prohibit: Single-use plastic ring carriers designed to surround beverage containers in order to carry them together.9 Single-use plastic stir sticks designed to stir or mix beverages or to prevent a beverage from spilling from the lid of its container.10 Single-use plastic foodservice ware that (a) is formed in the shape of a clamshell container, lidded container, box, cup, plate or bowl, (b) is designed to serve or transport ready-to-eat food or beverages and (c) contains certain materials.11 Single-use plastic checkout bags designed to carry purchased goods from a business and : (a) whose plastic is not a fabric,12 or (b) whose plastic is a fabric that will break or tear, as the case may be, (i) if it is used to carry 10 kg over a distance of 53 m 100 times; (ii) if it is washed in accordance with the washing procedures specified for a single domestic wash in the International Organization for Standardization standard ISO 6330, as amended from time to time.13 Single-use plastic cutlery that is formed in the shape of a fork, knife, spoon, spork or chopstick and that (a) contains polystyrene or polyethylene; or (b) changes its physical properties after being run through an electrically operated household dishwasher 100 times.14 Single-use plastic straws that either (a) contain polystyrene or polyethylene, or (b) change their physical properties after being run through an electrically operated household dishwasher 100 times. Exceptions Single-use flexible plastic straws Single-use flexible plastic straws, i.e., those with a corrugated section that allows the straw to bend and maintain its position at various angles,15 may be manufactured and imported.16 These flexible straws may also be sold in any of the following circumstances:17 The sale does not take place in a commercial, industrial, or institutional setting. This exception means that individuals can sell such flexible straws. The sale is between businesses in packages of at least 20 straws. The sale of a package of 20 or more straws is between a retail store and a customer if the customer requests straws and the package is not displayed in a manner that permits the customer to view the package without the help of a store employee.18 The sale of straws is between a retail store and a customer, if the straw is packaged together with a beverage container and the packaging was done at a location other than the retail store. The sale is between a care facility, such as a hospital or long-term care facility, and its patients or residents. Export of single-use plastic items All the manufactured single-use plastic items listed above may be manufactured, imported or sold for export until December 20, 2025.19 That said, any person who manufactures or imports such items for export will be required to keep a record of certain information and documents as appropriate for each type of plastic manufactured item.20 Records of the information and documents will have to be kept for at least five years in Canada.21 Conclusion: an opportunity to rethink the use of plastics In the short term, businesses will need to start thinking about how they will replace the plastic manufactured items they use. To help businesses select alternatives to single-use plastic items, the federal government has released its Guidance for selecting alternatives to the single-use plastics in the proposed Single-Use Plastics Prohibition Regulations.m22 According to this document, the aim should be to reduce plastics. Businesses may begin by considering whether a single-use plastic product should be replaced or no longer provided. Only products that perform essential functions should be replaced with non-plastic equivalents. Stir sticks and straws can be eliminated most of the time. Another way to reduce waste is to opt for reusable products and packaging. Businesses are invited to rethink their products and services to provide reusable options. Reusable container programs (i.e., offering customers the option of bringing their own reusable containers) are a reuse option that businesses may want to consider, in particular to reduce the amount of plastic foodservice ware. Only where reusable products are not feasible should businesses substitute a single-use plastic product with a recyclable single-use alternative. In such cases, businesses are encouraged to contact local recycling facilities to ensure that they can successfully recycle the products at their end of life. Ultimately, charging consumers for certain single-use alternatives (e.g., single-use wooden or moulded fibre cutlery) may also discourage their use. SOR/2022-138 Regulations, ss. 3 (2), s. 11 and ss. 13 (4) Petro Plastics Corporation Ltd et al v Canada (Attorney General), Court File No. T-1468-22. Order registered on April 23, 2021 and published in the Canada Gazette on May 12, 2021 Court File No. T-824-21 S.C. 1999, c. 33 Responsible Plastic Use Coalition v. Canada (Environment and Climate Change) 2023 FC 1511 2024 FCA 18 Regulations, s. 1 and 3 Regulations, s. 1 and 6 Regulations, s. 1 and 6 “Any material woven, knitted, crocheted, knotted, braided, felted, bonded, laminated or otherwise produced from, or in combination with, a textile fibre” as defined in section 2 of the Textile Labelling Act, RSC 1985, c. T-10 Regulations, s. 1 and 6 Regulations, s. 1 and 4 and ss. 5 (1) Regulations, s. 1 Ibid, s. 4 Regulations, ss. 5 (2)–(6) According to Guidance for selecting alternatives to the single-use plastics in the proposed Single-Use Plastics Prohibition Regulations, the goal is to ensure that people with disabilities who need flexible single-use plastic straws continue to have access to them at home and can carry them to restaurants and other premises. Regulations, ss. 2 (2), s. 10 and ss. 13 (5). Ibid., s. 8 Ibid, ss. 9 (1). https://www.canada.ca/en/environment-climate-change/services/managing-reducing-waste/consultations/proposed-single-use-plastics-prohibition-regulations-consultation-document.html

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