The Application of Ontario's Bill 198 to Securities Class Actions in Quebec

December 1, 2005

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Ian Rose
Counsel

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July 3, 2024

Environmental claims about a product, a service or business activities: stricter rules to combat greenwashing

Greenwashing is a form of marketing that misrepresents a product, service or practice as having positive environmental effects,1 thereby misleading consumers and preventing them from making an informed purchasing decision.2 Several initiatives have been launched around the world to counter this practice. In California, a law requires business entities to disclose information in support of environmental claims.3 In France, ads featuring environmental claims such as “carbon-neutral” and “net zero” must include a quick response (QR) code that links to the studies and data supporting such claims.4 Within the European Union, a proposal for a directive was published with a view to possibly banning generic terms like “environmentally friendly.”5 In South Korea, the Korea Fair Trade Commission proposed an amendment to its Guidelines for Review of Environment-Related Labeling and Advertising that would simplify the process of issuing fines to businesses engaged in greenwashing.6 The Parliament of Canada seemingly followed suit by tabling Bill C-597 on November 30, 2023, which introduces a provision into the Competition Act8aimed at improving the means to fight greenwashing. Amended on May 28, 2024, Bill C-59 finally received royal assent on June 20, 2024, date on which it partially came into force. Because the provision will apply to “any person,” all businesses will be subject to it, regardless of their size or legal form. Amendments to the Competition Act regarding environmental claims The Competition Act now allows9 the Commissioner of the Competition Bureau (the “Bureau”) to inquire into10 the conduct of a person who promotes 1) a product by making an environmental claim or warranty11 or 2) any business interest by making representations about the environmental benefits of a business or business activity. Claim concerning a product or service Insofar as a business or person is unable to demonstrate a product’s benefits for protecting the environment or mitigating the environmental and ecological effects of climate change, the Commissioner of Competition will be entitled to apply to a court for an order requiring such business or person to (i)cease promoting the product on the basis of a non-compliant environmental claim or warranty, (ii)publish a corrective notice and (iii)pay an administrative monetary penalty12 of up to, for a legal person, the greater of $10 million and three times the value of the benefit derived from the deceptive conduct, or, if that amount cannot be reasonably determined, 3% of the legal person’s annual worldwide gross revenue. The penalty for each subsequent offence could be as high as $15 million. A “product” within the meaning of the Competition Act may be an article (real or personal property of every description) or a service.13 This new provision expressly requires any person or business to base their environmental claims on “an adequate and proper test”.14 A “test” within the meaning of this Act consists in an analysis, verification or assessment intended to demonstrate the result or alleged effect of a product. It does not necessarily have to be a scientific method nor do the results need to meet a test of certainty, as the courts have generally interpreted the term “proper” to mean fit, apt, suitable or as required by the circumstances.15 With regard to misleading claims, the courts16 have clarified the nature of the criteria that must be considered to determine whether a particular test is “adequate and proper.” Thus, an adequate and proper test depends on the claim made as understood by the common person. The test must also meet the following criteria: It must be reflective of the risk or harm which the product is designed to prevent or assist in preventing. It must be done under controlled circumstances or in conditions which exclude external variables or take account in a measurable way for such variables. It must be conducted on more than one independent sample wherever possible (e.g., destruction testing may be an exception). The results need not be measured against a test of certainty, but must be reasonable given the nature of the harm at issue and establish that it is the product itself which causes the desired effect in a material manner. It must be performed regardless of the size of the seller’s organization or the anticipated volume of sales.17 Representations accompanying product that come from a person outside Canada are deemed to be made by the person who imports the product into Canada.18 General claims about a company’s activities While Bill C-59 was initially intended to cover only environmental statements, warranties or guarantees regarding products, the assented version of the bill provides that any representation made regarding the benefits of a business or business activity for protecting or restoring the environment or mitigating the environmental and ecological causes or effects of climate change are subject to a Bureau inquiry.19 As an example cited by the Bureau, a company’s claims about being “carbon neutral” or that it commits to becoming so within a certain number of years20 would constitute “representations of the benefits of a business or business activity in mitigating the causes of climate change.” The company making such claims must be able to demonstrate that they are based on “adequate and proper substantiation” obtained using an “internationally recognized methodology”.21 The Competition Act does not specify which internationally recognized methods may be used for this purpose. Should the substantiation the company uses be inadequate, improper or obtained using a method that is not recognized internationally, it will be subject to the same consequences as those mentioned in the previous section.22 Regardless of whether the claims concern a product or service or a business activity, the persons concerned are allowed to defend themselves under the Competition Act by establishing that they exercised due diligence.23 What impact will these amendments really have? Notwithstanding the proposed legislative amendment, the Competition Act already covers false or misleading representations with respect to green advertising.24 The current provisions already prohibit making representations to the public that are false or misleading in a material respect.25 In recent years, several complaints of greenwashing have been lodged with the Bureau on that basis, prompting it to open a number of investigations. Some have led to major settlements involving companies having made representations regarding their products.26/27/28/29 In all of these cases, the heavy burden of establishing that the business’s environmental claim was false or misleading fell on the Bureau. The proposed amendments to the Competition Act would change this by shifting the burden of proof onto businesses. The onus would therefore be on them to demonstrate that their product benefits the environment in some way or mitigates the environmental and ecological effects of climate change or that its claims are based on adequate and proper substantiation obtained using an internationally recognized method. These new legislative provisions now confirm what was already a general standard since 1999, and they ease the Bureau’s burden of proof. In addition to the Competition Act, other laws applicable in Quebec provide a general framework for greenwashing, such as the Consumer Protection Act.30Under this Act, no merchant, manufacturer or advertiser may, by any means whatsoever, make false or misleading claims to a consumer, which implicitly includes greenwashing.31 To determine whether a representation constitutes a prohibited practice, the general impression it gives, and, as the case may be, the literal meaning of the terms used therein must be taken into account. In particular, it is prohibited to falsely ascribe particular advantages to a product or service, or to claim that a product has a particular feature or ascribe certain characteristics of performance to it.33 Offences are subject to criminal34 and civil35 penalties. Private remedies Another new measure to combat greenwashing in the Competition Act is the possibility for any person (individual, organization, competitor, etc.) to apply directly to the Competition Tribunal for an order against a business making environmental claims or representations about a product, service or activities without adequate substantiation.36 In the first version of Bill C-59, only the Commissioner of Competition could institute such proceedings before the Tribunal.37 However, the Competition Tribunal must first give leave to make such an application.38 The Tribunal’s power to give leave is largely discretionary, meaning that the Tribunal may grant it if it deems that it is in the public interest to do so.39 This new measure will come into force in one year on June 20, 2025.40 Best practices It is crucial for a company to adopt and display a realistic image of its environmental impact based on credible data and facts. Making sure that claims are legally compliant is not all that’s at stake. A business’s failure to do the above is likely to seriously harm not only its reputation, but also its relationship with its stakeholders. Thus, before claiming to be “green,” businesses must consider the following questions. Are the real motivations behind the business’s sustainability commitments clear, legitimate and convincing? Is sustainable development an integral part of the business strategy? Is it applied when addressing key business issues and taking new actions? Does the company have a sustainable development policy that is credible and based on relevant issues? Was it developed collaboratively with and approved by its Board of Directors? Has the company set specific, clear, measurable and achievable objectives and targets? Considerations for public companies As concerns public companies subject to continuous disclosure obligations under Canadian securities legislation (“reporting issuers”), these considerations are set against a backdrop of increasing pressure from investors, including institutional investors, and others for greater transparency on climate-related issues. Although climate-related disclosure requirements for Canadian reporting issuers are still relatively limited, many issuers choose to voluntarily disclose such information, for example in sustainability reports. Reporting issuers must pay particular attention to their communications, which could constitute greenwashing within the meaning of the Competition Act and give rise to the penalties and other consequences mentioned above. This is another risk to add to reporting issuers’ liability in the secondary market for misrepresentation and failure to make disclosures within prescribed time limits. As far as climate issues are concerned, the risk arises in particular from overestimating or inadequately disclosing how activities contribute to protecting the environment or how they mitigate the environmental and ecological effects of climate change. The current move towards standardized methodologies and frameworks and the forthcoming adoption of binding rules on climate-related disclosures should help to limit greenwashing in this context. In the meantime, reporting issuers can reduce the risk of greenwashing by following a well-established international methodology and by including disclaimers for forward-looking statements adapted to the risks and uncertainties inherent to the climate-related information they provide. Conclusion The new provisions of the Competition Act are already having an impact. As a precaution, some companies have removed ads, promotional documents and websites containing claims that certain activities were undertaken specifically to mitigate the causes of climate change. Parliament’s message could not be clearer: Shifting the burden of proof onto businesses means closing the door on an era when products, services and business activities could be marketed as green in the absence of tangible evidence. Definition of the Autorité des marchés financiers: 8 questions and answers about carbon credits and related concepts | AMF (lautorite.qc.ca). Definition of the Competition Bureau: Environmental claims and greenwashing (canada.ca). Assembly Bill No. 1305: Voluntary carbon market disclosures, California, 2023. Read it here: Bill Text – AB-1305 Voluntary carbon market disclosures. Décret no 2022-539 du 13 avril 2022 relatif à la compensation carbone et aux allégations de neutralité carbone dans la publicité, Journal officiel de la République française, 2022. Read it here: Légifrance – Publications officielles – Journal officiel – JORF n° 0088 du 14/04/2022 (legifrance.gouv.fr). Proposal for a Directive of the European Parliament and of the Council amending Directives 2005/29/EC and 2011/83/EU as regards empowering consumers for the green transition through better protection against unfair practices and better information, Council of the European Union, Brussels, 2022. Read it here: pdf(europa.eu). Read it here: KFTC Proposes Amendment to Review Guidelines Regarding Greenwashing – Kim & Chang (kimchang.com). An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st Session. Read it here: Government Bill (House of Commons) C-59 (44-1) – First Reading – Fall Economic Statement Implementation Act, 2023 – Parliament of Canada. The Bill is currently at second reading in the House of Commons. R.S.C. 1985, c. C-34. These provisions came into force on June 20, 2024. This power to make inquiry would be available, as the Competition Act already provides, upon receipt of a complaint signed by six persons who are not less than 18 years of age or in any situation where the Commissioner has reason to believe that a person has contravened section 74.01 of the Competition Act (see R.S.C. 1985, c. C-34, ss. 9 and 10). An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st Session, section 236. Read it here: Government Bill (House of Commons) C-59 (44-1) – First Reading – Fall Economic Statement Implementation Act, 2023 – Parliament of Canada; section 236 of this Act adds paragraphs b.1 and b.2 to subsection 74.01(1) of the Competition Act. Competition Act, R.S.C. 1985, c. C-34, article 74.1. Competition Act, R.S.C. 1985, c. C-34, subsection 2(1). An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st Session, para. 236(1). Read it here: Government Bill (House of Commons) C-59 (44-1) – First Reading – Fall Economic Statement Implementation Act, 2023 – Parliament of Canada The Commissioner of Competition v. Imperial Brush Co. Ltd. and Kel Kem Ltd. (c.o.b. as Imperial Manufacturing Group), 2008 CACT 2, paras. 122 et seq. Competition Act, R.S.C. 1985, c. C-34, section 74.09: “courts” means the Competition Tribunal, the Federal Court and the superior court of a province. The Commissioner of Competition v. Imperial Brush Co. Ltd. and Kel Kem Ltd. (c.o.b. as Imperial Manufacturing Group), 2008 CACT 2. Competition Act, R.S.C. 1985, c. C-34, subsections 74.03(1) and (2). An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st Session, section 236. Read it here: Government Bill (House of Commons) C-59 (44-1) – First Reading – Fall Economic Statement Implementation Act, 2023 – Parliament of Canada; paragraph b.2 of section 74.01 of the Competition Act was added by amendment adopted on May 28, 2024. Letter from Anthony Durocher and Bradley Callaghan to the Honourable Pamela Wallin dated May 31, 2024. Read it here: BANC_Follow-up_CompetitionBureau_e.pdf (sencanada.ca). An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st Session, section 236. Read it here: Government Bill (House of Commons) C-59 (44-1) – First Reading – Fall Economic Statement Implementation Act, 2023 – Parliament of Canada. Competition Act, R.S.C. 1985, c. C-34, article 74.1. Competition Act, subsection 74.1(3). Louis-Philippe Lampron, “L’encadrement juridique de la publicité écologique fausse ou trompeuse au Canada : une nécessité pour la réalisation du potentiel de la consommation écologique?” Revue de Droit de l’Université de Sherbrooke, Vol. 35, No. 2, 2005, p. 474. Read it here: A:\lampron.wpd (usherbrooke.ca). Competition Act, R.S.C. 1985, c. C-34, paragraph 74.01(1)(a). Amanda Stephenson, Des groupes écologistes misent sur la Loi sur la concurrence(Environmental groups banking on the Competition Act), October 1, 2023, La Presse. Read it here: Des groupes écologistes misent sur la Loi sur la concurrence | La Presse. Brenna Owen, Un groupe accuse Lululemon d’« écoblanchiment » et demande une enquête (A group accuses Lululemon of “greenwashing” and calls for an investigation) February 13, 2024, La Presse. Read it here: Un groupe accuse Lululemon d’« écoblanchiment » et demande une enquête | La Presse. Martin Vallières, “Gare aux tromperies écologiques” (Beware of greenwashing), January 26, 2022, La Presse. Read it here: Écoblanchiment | Gare aux tromperies écologiques | La Presse; Keurig Canada to pay $3 million penalty to settle Competition Bureau’s concerns over coffee pod recycling claims – Canada.ca. The Commissioner of Competition v. Volkswagen Group Canada Inc. and Audi Canada Inc., 2018 Competition Tribunal 13. Consumer Protection Act, CQLR c. P-40.1, ss. 219, 220 and 221. Definition of the Competition Bureau: Environmental claims and greenwashing (canada.ca). Richard v. Time Inc., 2012 SCC 8, paras. 46 to 57. Consumer Protection Act, CQLR c. P-40.1, ss. 220 and 221. Consumer Protection Act, CQLR c P-40.1, ss. 277 to 279: Fines range from $600 to $15 000 in the case of a natural person and $2 000 to $100 000 in the case of a legal person. Offenders convicted a second time are liable to fines twice as high as those prescribed. Id. at ss. 271 to 276: Consumers may request that the contract be annulled, that the merchant’s obligation be performed or that their obligation be reduced, among other things. For civil matters only; An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st Session, subsection 254(1). See subsection 103.1(1) of the Competition Act, R.S.C. 1985, c. C-34, effective before June 20, 2024. An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st Session, subsection 254(1). Id. at 254(4). An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st Session, section 272.

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March 11, 2024

Class actions to watch in 2024

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

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February 21, 2024

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

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

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June 9, 2023

Competition Act amendments are about to come into force – What businesses need to know following the release of the official Enforcement Guidelines

On June 23, 2023, major amendments to section 45 of the Competition Act1 (the “Act”) are set to come into force. Adopted in 2022 by the Parliament of Canada, these amendments are primarily designed to harmonize Canadian non-competition law with legislation in various other countries, particularly the U.S., which restricts certain business practices regarded as harmful to workers. The amendments to the Act will have an impact on employers across Canada, whether or not they operate in an area of federal or provincial jurisdiction. Beginning on June 23, 2023, the Act will prohibit “unaffiliated” employers from entering into agreements aimed at: i) fixing wages or employment conditions; or ii) restricting the job mobility of employees by means of reciprocal non-solicitation and no-poaching agreements. In this regard, it should be noted that agreements between affiliated companies (e.g., controlled by the same parent company) do not violate the Act. This bulletin seeks to provide a summary of various amendments of interest to employers in light of the official version of the related enforcement guidelines (the “Guidelines”), which were published by the Competition Bureau (the “Bureau”) on May 30, 2023.2 Although the Guidelines do not have the force of law, they set out the Bureau’s approach when interpreting applicable prohibitions and defences. AGREEMENTS FIXING WAGES AND EMPLOYMENT CONDITIONS Paragraph 45 (1.1) (a) of the Act prohibits agreements between unaffiliated employers aimed at fixing, maintaining, decreasing or controlling wages and other employment conditions. In this regard, the Bureau’s Guidelines state that “terms and conditions of employment” typically refer to any condition that could affect a person’s decision to enter into, or remain in, an employment contract. This may include “job descriptions, allowances such as per diem and mileage reimbursements, non-monetary compensation, working hours, location and non-compete clauses, or other directives that may restrict an individual’s job opportunities”. Citing an example of a problematic case in light of the Act’s new provisions, the Bureau describes a situation in which two unaffiliated employers hold a lunch meeting during which they agree to limit the annual bonuses of their employees to 5% of their gross salary. This type of agreement would, in all likelihood, be prohibited under the Act. NON-POACHING AND NON-SOLICITATION AGREEMENTS Paragraph (1.1) (b) of the Act also prohibits agreements between unaffiliated employers that could limit the prospects of their employees being hired by the other employer. This new provision concerns reciprocal non-solicitation and non-poaching agreements between employers. These agreements are found fairly frequently in commercial contracts covering mergers/acquisitions, joint ventures, partnerships, sales, procurement/supplies of goods and services, franchises, recruitment and personnel placement, etc. However, as discussed below, it should be noted that these types of agreement would only violate the Act if the parties had reciprocal non-poaching obligations in place. In other words, if the obligation is only “one-way”, i.e., only one of the parties is subject to the obligation not to solicit or poach the employees of the other employer, there is no infraction. POTENTIAL EXEMPTIONS AND DEFENCES The main defence against proceedings initiated under subsection 45 (1.1) is based on the ancillary restraints defence (“ARD”). To use it, employers must demonstrate that: The restraint is ancillary to a broader or separate agreement between the parties; The restraint is directly related to and reasonably necessary for achieving the objective of the broader or separate agreement; and The broader or separate agreement does not otherwise violate subsection 45 (1.1) of the Act (when considered without the restraint). For example, it is reasonable to expect that an agency specializing in temporarily placing personnel with its clients would want to prevent its clients from hiring said personnel for the duration of their agreement. In that case, the ARD defence could be used. The agreement, however, must be carefully drafted so the employer can demonstrate that it was reasonably necessary for achieving the desired objective. In this regard, the Bureau notes that the duration, objective and geographical scope of the restraint, among other factors, will be examined when determining whether the agreement is in fact “reasonably necessary”. The Guidelines states that the Bureau “will generally not assess wage-fixing or no-poaching clauses that are ancillary to merger transactions, joint ventures or strategic alliances under the criminal provisions”. However, the Bureau “may start an investigation under subsection 45(1.1), where those clauses are clearly broader than necessary in terms of duration or affected employees, or where the business agreement or arrangement is a sham.” Other exemptions and defences may also apply, such as the defence based on regulated conduct3 or the exemption with respect to collective bargaining.4 APPLICABLE SANCTIONS Violations of the new subsection 45 (1.1) could lead to criminal charges. A person found guilty of an offence could be subjected to a fine at the discretion of the court or may be imprisoned for up to 14 years, or both. In addition, under section 36 of the Act,individuals (in all likelihood workers) who suffer losses or damages due to violations of provisions of the Act, including section 45 (thus including the new subsection 45 (1.1)), can claim from the person engaging in such misconduct (in this case, the employer) a sum corresponding to the amount of the losses or damages suffered. Therefore, violations of these provisions could lead to civil suits and possibly, in certain cases, to a class action suit. SPECIFICATIONS REGARDING EXISTING AGREEMENTS AND NEXT STEPS The Guidelines specify that the prohibitions set in out subsection 45(1.1) apply not only to agreements entered into on or after June 23, 2023, but also to conduct that reaffirms or implements agreements that were entered into before that date. In this respect, at least two of the parties to these prior agreements must reaffirm or implement the restraint. This may include, for example, the renewal by two or more parties of an agreement containing a prohibited undertaking. The Bureau also notes that it will be focusing on the intent of the parties on or after June 23, 2023. In that context, companies are advised to review their contract templates and to update their pre-existing agreements in the normal course of business. We therefore recommend that all companies, whether operating in an area of provincial or federal jurisdiction, examine the contracts currently in effect to which they are party and identify any clauses that might constitute violations under the new provisions of the Act. Various strategies or corrective measures aimed at limiting business risks could then be evaluated and implemented depending on the necessity and reasonableness of the undertakings in question are (e.g., renegotiating an undertaking or adopting a directive confirming that the employer will not apply an undertaking on or after June 23, 2023, etc.). Please feel free to contact the members of our teams for further details or for ad R.S.C. 1985 c. C-34, as amended by Bill C-19, Budget Implementation Act 2022, No. 1, S.C. 2022, c. 10. Competition Bureau. Enforcement guidelines on wage-fixing and no-poaching agreements on line, May 30, 2023. Subsection 45(7) of the Act. Section 4 of the Act.

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