Loss of personal information: The Superior Court dismisses a class action

April 14, 2021

On March 26, 2021, the Superior Court rendered a decision dismissing a class action against the Investment Industry Regulatory Organization of Canada (“IIROC”) on the loss of personal information of thousands of Canadian investors.¹ The lack of evidence of compensable injury and IIROC’s diligent behaviour are the main reasons for the dismissal of the class action.

The Facts

On February 22, 2013, an inspector working for IIROC forgot his laptop computer in a public place. The computer, which contained the personal information of approximately 50,000 Canadians, was never found. The information had originally been collected by various securities brokers who were under inspection by IIROC.

Mr. Lamoureux, whose personal information was on the computer, brought a class action on behalf of all persons whose personal information was lost in the incident. He claimed compensatory damages for the stress, anxiety and worries associated with the loss of personal information, as well as compensation for the injury associated with the identity theft or attempted identity theft of members. He also claimed punitive damages for unlawful and intentional infringement of the right to privacy protected by the Quebec Charter of Human Rights and Freedoms. On this point, the members claimed that IIROC had been reckless and had delayed in notifying affected persons and brokers, as well as relevant authorities.

Decision

The class action is dismissed in its entirety.

Compensatory damages

The Superior Court started by acknowledging IIROC’s admission that it was at fault for the loss of the computer, and that the computer was not encrypted as it should have been to comply with IIROC policies.

With respect to compensatory damages, the Court reiterated the principle according to which the existence of fault does not presume the existence of injury; each case must be analyzed on the basis of the evidence.² In this case, the injury alleged by the members can be summarized as follows:

They suffered worry, anger, stress and anxiety about the incident.
They were forced to monitor their financial accounts, and in particular their credit cards and bank accounts.
They were inconvenienced and wasted time in having to deal with credit agencies and ensuring that their personal information was protected.
They felt shame and suffered delays caused by identity checks on their credit applications attributable to flags on their files.

In its analysis, the Court held that, apart from the fact that the members were generally troubled by the loss of their personal information, there was no evidence of any particular and significant difficulties related to their mental state. Relying on Mustapha v. Culligan of Canada Ltd.,³ the Court reiterated that “the law does not recognize upset, disgust, anxiety, agitation or other mental states that fall short of injury.” If the injury is not serious and prolonged, and is limited to ordinary discomforts and fears that are inherent to life in society, it does not constitute compensable injury.

In this case, the Court found that the negative feelings experienced as a result of the loss of personal information did not rise above the level of ordinary discomforts, anxieties and fears that people living in society routinely accept. Having to monitor one’s personal accounts more closely does not qualify as a compensable injury, as the courts equate this practice with that of [translation] “a reasonable person who protects their assets.”⁴ The Court also considered the fact that IIROC provided members with free credit monitoring and protection services. It thus concluded that, in this respect, there was no injury to compensate.

Finally, the experts who were mandated to analyze the circumstances and wrongful use of the investors’ personal information found that there was no clear indication of wrongful use of the information by a person or group of persons, although evidence of wrongful use of personal information is not necessary to assert a claim.

Punitive damages

The plaintiff, on behalf of the members of the class action, also sought punitive damages on the grounds that IIROC had been reckless in its handling of the incident.

To analyze IIROC’s diligence, the Court noted the following facts.

IIROC launched an internal investigation in the week that followed that of February 22, 2013, the date on which the computer was lost.
On March 4, 2013, the investigation revealed that the computer likely contained the personal information of thousands of Canadians.
IIROC filed a police report.
On March 6, 2013, it mandated Deloitte to identify what personal information was lost and who were the affected persons and brokerage firms, and to help it manage the risks and obligations associated with the loss of the personal information.
On March 22, 2013, Deloitte informed IIROC that the computer contained “highly sensitive” and “increased sensitivity” information about thousands of Canadian investors.
On March 27, 2013, IIROC notified the Commission d’accès à l’information du Québec and the Office of the Privacy Commissioner of Canada.
On April 8 and 9, 2013, IIROC met with representatives of the affected brokerage firms, and simultaneously mandated credit agencies to implement safeguards for investors and brokerage firms.
IIROC also set up a bilingual call center, issued a press release about the loss of the computer and sent a letter to affected investors.

The Court also accepted expert evidence according to which IIROC’s response was consistent with industry best practices, and that the measures put in place were appropriate in the circumstances and consistent with other responses to similar incidents.

In light of the evidence, the Court concluded that the loss of the unencrypted laptop computer and the resulting violation of the right to privacy were isolated and unintentional. It therefore dismissed the claim for punitive damages. The outcome is that IIROC was not reckless: it rather acted in a timely manner.

Comments

This decision introduces a basis for analyzing the diligent conduct of a company should the personal information that it holds be compromised, and confirms that a prompt and diligent response to a security incident can safeguard against a civil suit.

It also confirms that the mere loss of personal information, no matter how sensitive, is not in itself sufficient to justify financial compensation, and that it must be proven that injury was suffered. Furthermore, ordinary annoyances and temporary inconveniences do not constitute compensable injury, and monitoring financial accounts is not exceptional, but is rather considered the standard practice expected of a reasonable person protecting their assets.

At the time of writing this bulletin, the time limit for appeal has not expired and the plaintiff has not announced whether he intends to appeal the judgment.

Lamoureux v. Organisme canadien de réglementation du commerce des valeurs mobilières (OCRCVM), 2021 QCCS 1093.
Sofio v. Organisme canadien de réglementation du commerce des valeurs mobilières (OCRCVM), 2014 QCCS 4061, paras. 21 and 22.
Mustapha v. Culligan of Canada Ltd., 2008 SCC 27 [2008] 2 SCR 114.
Lamoureux v. Organisme canadien de réglementation du commerce des valeurs mobilières, 2021 QCCS 1093, para. 73.

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Myriam Brixi
Partner, Lawyer
Guillaume Laberge
Partner, Lawyer

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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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November 27, 2023

The forgotten aspects of AI: reflections on the laws governing information technology

While lawmakers in Canada1 and elsewhere2 are endeavouring to regulate the development and use of technologies based on artificial intelligence (AI), it is important to bear in mind that these technologies are also classified within the broader family of information technology (IT). In 2001, Quebec adopted a legal framework aimed at regulating IT. All too often forgotten, this legislation applies directly to the use of certain AI-based technologies. The very broad notion of “technology-based documents” The technology-based documents referred to in this legislation include any type of information that is “delimited, structured and intelligible”.3 The Act lists a few examples of technology-based documents contemplated by applicable laws, including online forms, reports, photos and diagrams—even electrocardiograms! It is therefore understandable that this notion easily applies to user interface forms used on various technological platforms.4 Moreover, technology-based documents are not limited to personal information. They may also pertain to company or organization-related information stored on technological platforms. For instance, Quebec’s Superior Court recently cited the Act in recognizing the probative value of medical imaging practice guidelines and technical standards accessible on a website.5 A less recent decision also recognized that the contents of electronic agendas were admissible as evidence.6 Due to their bulky algorithms, various AI technologies are available as software as a service (SaaS) or as platform as a service (PaaS). In most cases, the information entered by user companies is transmitted on supplier-controlled servers, where it is processed by AI algorithms. This is often the case for advanced client relationship management (CRM) systems and electronic file analysis. It is also the case for a whole host of applications involving voice recognition, document translation and decision-making assistance for users’ employees. In the context of AI, technology-based documents in all likelihood encompass all documents that are transmitted, hosted and processed on remote servers. Reciprocal obligations The Act sets out specific obligations when information is placed in the custody of service providers, in particular IT platform providers. Section 26 of the Act reads as follows: 26. Anyone who places a technology-based document in the custody of a service provider is required to inform the service provider beforehand as to the privacy protection required by the document according to the confidentiality of the information it contains, and as to the persons who are authorized to access the document. During the period the document is in the custody of the service provider, the service provider is required to see to it that the agreed technological means are in place to ensure its security and maintain its integrity and, if applicable, protect its confidentiality and prevent accessing by unauthorized persons. Similarly, the service provider must ensure compliance with any other obligation provided for by law as regards the retention of the document. (Our emphasis) This section of the Act, therefore, requires the company wishing to use a technological platform and the supplier of the platform to enter into a dialogue. On the one hand, the company using the technological platform must inform the supplier of the required privacy protection for the information stored on the platform. On the other hand, the supplier is required to put in place “technological means” with a view to ensuring security, integrity and confidentiality, in line with the required privacy protection requested by the user. The Act does not specify what technological means must be put in place. However, they must be reasonable, in line with the sensitivity of the technology-based documents involved, as seen from the perspective of someone with expertise in the field. Would a supplier offering a technological platform with outmoded modules or known security flaws be in compliance with its obligations under the Act? This question must be addressed by considering the information transmitted by the user of the platform concerning the required privacy protection for technology-based documents. The supplier, however, must not conceal the security risks of its IT platform from the user since this would violate the parties’ disclosure and good faith requirements. Are any individuals involved? These obligations must also be viewed in light of Quebec’s Charter of Human Rights and Freedoms, which also applies to private companies. Companies that process information on behalf of third parties must do so in accordance with the principles set out in the Charter whenever individuals are involved. For example, if a CRM platform supplier offers features that can be used to classify clients or to help companies respond to requests, the information processing must be free from bias based on race, colour, sex, gender identity or expression, pregnancy, sexual orientation, civil status, age except as provided by law, religion, political convictions, language, ethnic or national origin, social condition, a handicap or the use of any means to palliate a handicap.7 Under no circumstances should an AI algorithm suggest that a merchant should not enter into a contract with any individual on any such discriminatory basis.8 In addition, anyone who gathers personal information by technological means making it possible to profile certain individuals must notify them beforehand.9 To recap, although the emerging world of AI is a far cry from the Wild West decried by some observers, AI must be used in accordance with existing legal frameworks. No doubt additional laws specifically pertaining to AI will be enacted in the future. If you have any questions on how these laws apply to your AI systems, please feel free to contact our professionals. Bill C-27, Digital Charter Implementation Act, 2022. In particular, the U.S. Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, October 30, 2023. Act to establish a legal framework for information technology, CQLR c C-1.1, sec. 3. Ibid, sec. 71. Tessier v. Charland, 2023 QCCS 3355. Lefebvre Frères ltée v. Giraldeau, 2009 QCCS 404. Charter of Human Rights and Freedoms, sec. 10. Ibid, sec. 12. Act respecting the protection of personal information in the private sector, CQLR c P-39.1, sec. 8.1.

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April 11, 2023

Artificial intelligence in business: managing the risks and reaping the benefits?

At a time when some are demanding that artificial intelligence (AI) research and advanced systems development be temporarily suspended and others want to close Pandora’s box, it is appropriate to ask what effect chat technology (ChatGPT, Bard and others) will have on businesses and workplaces. Some companies support its use, others prohibit it, but many have yet to take a stand. We believe that all companies should adopt a clear position and guide their employees in the use of such technology. Before deciding what position to take, a company must be aware of the various legal issues involved in using this type of artificial intelligence. Should a company decide to allow its use, it must be able to provide a clear framework for it, and, more importantly, for the ensuing results and applications. Clearly, such technological tools have both significant advantages likely to cause a stir—consider, for example, how quickly chatbots can provide information that is both surprising and interesting—and the undeniable risks associated with the advances that may arise from them. This article outlines some of the risks that companies and their clients, employees and partners face in the very short term should they use these tools. Potential for error and liability The media has extensively reported on the shortcomings and inaccuracies of text-generating chatbots. There is even talk of “hallucinations” in certain cases where the chatbot invents a reality that doesn’t exist. This comes as no surprise. The technology feeds off the Internet, which is full of misinformation and inaccuracies, yet chatbots are expected to “create” new content. They lack, for the time being at least, the necessary parameters to utilize this “creativity” appropriately. It is easy to imagine scenarios in which an employee would use such technology to create content that their employer would then use for commercial purposes. This poses a clear risk for the company if appropriate control measures are not implemented. Such content could be inaccurate in a way that misleads the company’s clients. The risk would be particularly significant if the content generated in this way were disseminated by being posted on the company’s website or used in an advertising campaign, for example. In such a case, the company could be liable for the harm caused by its employee, who relied on technology that is known to be faulty. The reliability of these tools, especially when used without proper guidance, is still one of the most troubling issues. Defamation Suppose that such misinformation concerns a well-known individual or rival company. From a legal standpoint, a company disseminating such content without putting parameters in place to ensure that proper verifications are made could be sued for defamation or misleading advertising. Thus, adopting measures to ensure that any content derived from this technology is thoroughly validated before any commercial use is a must. Many authors have suggested that the results generated by such AI tools should be used as aids to facilitate analysis and decision-making rather than to produce final results or output. Companies will likely adopt these tools and benefit from them—for competitive purposes, in particular—faster than good practices and regulations are implemented to govern them. Intellectual property issues The new chatbots have been developed as extensions to web search engines such as Google and Bing. Content generated by chatbots may be based on existing copyrighted web content, and may even reproduce substantial portions of it. This could lead to copyright infringement. Where users limit their use to internal research, the risk is limited as the law provides for a fair dealing exception in such cases. Infringement of copyright may occur if the intention is to distribute the content for commercial purposes. The risk is especially real where chatbots generate content on a specific topic for which there are few references online. Another point that remains unclear is who will own the rights to the answers and results of such a tool, especially if such answers and results are adapted or modified in various ways before they are ultimately used. Confidentiality and privacy issues The terms and conditions of use for most chatbots do not appear to provide for confidential use. As such, trade secrets and confidential information should never be disclosed to such tools. Furthermore, these technologies were not designed to receive or protect personal information in accordance with applicable laws and regulations in the jurisdictions where they may be used. Typically, the owners of these products assume no liability in this regard. Other issues There are a few other important issues worth considering among those that can now be foreseen. Firstly, the possible discriminatory biases that some attribute to artificial intelligence tools, combined with the lack of regulation of these tools, may have significant consequences for various segments of the population. Secondly, the many ethical issues associated with artificial intelligence applications that will be developed in the medical, legal and political sectors, among others, must not be overlooked. The stakes are even higher when these same applications are used in jurisdictions with different laws, customs and economic, political and social cultures. Lastly, the risk for conflict must also be taken into consideration. Whether the conflict is between groups with different values, between organizations with different goals or even between nations, it is unclear whether (and how) advances in artificial intelligence will help to resolve or mitigate such conflicts, or instead exacerbate them. Conclusion Chat technologies have great potential, but also raises serious legal issues. In the short term, it seems unlikely that these tools could actually replace human judgment, which is in and of itself imperfect. That being said, just as the industrial revolution did two centuries ago, the advent of these technologies will lead to significant and rapid changes in businesses. Putting policies in place now to govern the use of this type of technology in your company is key. Moreover, if your company intends to integrate such technology into its business, we recommend a careful study of the terms and conditions of use to ensure that they align with your company’s project and the objectives it seeks to achieve with it.

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March 16, 2023

Insurers: Two-headed hydras

On January 30, 2023, the Court of Appeal of Quebec rendered a decision in Commission scolaire De La Jonquière c. Intact Compagnie d’assurance.1 The key issues in this case are the potential for conflicts arising from liability insurance policies and the obligation to disclose documents where insurers’ duty to defend conflicts with their duty to indemnify insureds. The facts This case is part of a class action in which all Quebec school boards—now referred to as school service centres (SSCs)—were accused of violating the right to free elementary and secondary education. As part of this class action, the SSCs brought an action in warranty against their insurers, seeking compensation for any amount they may be required to pay. The insurers acknowledged their obligation to defend the appellants in the main proceedings; however, they argued that the claim was not covered by the insurance contract. Following negotiations, the parties to the class action reached a settlement. The action in warranty against the insurers is still pending. At the examination for discovery stage of the action in warranty, the insurers asked to obtain a copy of all communications exchanged between the appellants and their counsel since the beginning of the main proceedings. The SSCs objected to this request on the basis of professional secrecy and litigation privilege. The Court therefore had to rule on the merits of the objection. The trial Drawing on the decision in Domtar2, the Superior Court dismissed the SSCs’ objection, holding that they had waived their right to assert solicitor-client privilege regarding anything relating to the reasonableness of the settlement. It appears that the Court inferred this waiver from certain allegations made and from the disclosure of certain documents as part of the action in warranty. The Court concluded that the appellants had to provide the insurers with the documents, risk analyses, letters, exchanges with the appellants and expert opinions having related to the reasonableness of the settlement since the beginning of the main proceedings. However, according to the Court of Appeal, the Court failed to provide a framework for such disclosure of information and to grant the SSCs the right to raise new objections in relation to said documents. The appeal The Court of Appeal considered the conflicts that may arise from the dual responsibility of insurers: their duty to defend insureds and their duty to indemnify them. In this regard, it described liability insurers and their role as follows: [20] The liability insurer is effectively a two-headed hydra: A type of two-headed creature with a single corporate identity, but where one head handles the insured’s defence and the other protects the insurer’s financial interests by ensuring that it only pays out for covered losses.[21] Each head must base its decisions on the interest it is defending and the information available to it. The two heads must remain separate in order to give effect to the insurance contract. […] The risk of a conflict of interest is therefore very real, which is why the insurer must put measures in place to ensure that it complies with the coverage provided by the policy, while also ensuring the full and complete defence of the insured.] As for the ethical obligations of the lawyer mandated by the insurer to represent the insured, the Court stated that the lawyer becomes the insured’s counsel in all respects and owes the insured absolute loyalty. As such, the right to professional secrecy in the insured’s relationship with the lawyer can be set up against the insurer. That being said, the lawyer must report on the progress of the case to the head of the hydra handling the insured’s defence. The Court then stated that it was essential in this context that the information thus obtained be accessible only to that head, and that the insurer put in place the necessary measures to keep the two heads separate. The Court of Appeal found that the trial judge did not err in concluding that the SSCs were required to provide the evidence necessary to examine the reasonableness of the settlement reached with the insurers. However, in order to do so, an exemption mechanism could be implemented, giving the SSCs the possibility to object to the disclosure of certain information. The Court also confirmed that there was no basis for concluding that the appellants had waived solicitor-client or litigation privilege with respect to all of their exchanges with their counsel. This information must remain protected by professional secrecy and therefore cannot be disclosed to the person at the insurer’s office in charge of the compensation file. The same goes for the accounts for fees, reports, opinions and other documents sent to the person at the insurer’s office handling the defence, unless the insured waives this right. Conclusion This case highlights the conflicts that can arise from the duality of insurers’ responsibilities and the distinction between insurers’ obligation to defend insureds and their obligation to indemnify them. Although the Court ruled that evidence aimed at verifying the reasonableness of a settlement from a qualitative and quantitative standpoint should be disclosed, it concluded that certain information and documents that are strictly relevant to insureds’ defence need not be disclosed. In so doing, it reiterated insurers’ dual responsibility and the importance of keeping the two heads separate when an insurer agrees to take on an insured’s defence, but maintained its refusal to indemnify the insured. Commission scolaire De La Jonquière c. Intact Compagnie d’assurance, 2023 QCCA 124. Chubb Insurance company of Canada c. Domtar, 2017 QCCA 1004.

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