Hidden Tendering Terms

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In Triton Hardware Limited v. Torngat Regional Housing Association, 2020 NLSC 72, the owners of a construction project (“Torngat”) sought to rely on a privilege clause in the project’s tendering documents to select its preferred bidder, not the lowest bidder. This case serves as a cautionary tale to owners that a general privilege clause does not afford them absolute discretion.

In the case, the plaintiff (“Triton”) made a material supplier bid to Torngat for the construction of a housing project. Triton’s bid was the lowest. Yet, Torngat selected another bidder with whom it had previously worked and preferred. In making this preferential selection, Triton relied on the following clause: The awarding of the contract will be based on the lowest average price for quality material. *The Lowest of Any Quotes Will Not necessarily Be Accepted.

At trial, Knickle J. interpreted the impugned privilege clause as allowing the owner to either select the lowest bidder or to select no bidder at all. The asterisk-qualification did not permit the owner to select from any of the bidders according to undisclosed criteria (para. 63). As a result, Triton was awarded $126,852.14 for its lost profits.

If general privilege causes were not read strictly but, instead, granted owners complete discretion when selecting bidders, the tendering process would be rendered meaningless. As the Supreme Court of Canada established in Martel Building Ltd., v. R., 2000 SCC 60, the tendering process must treat all bidders fairly and equally.

As such, there must be reasonable certainty regarding the terms of selection. If otherwise, all bidders would be prejudiced. That is, the losing bidders would expend resources in producing a hopeless tender, and the winning bidder’s tender would be arbitrarily reduced by fictional market competition.

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Signing a Will in British Columbia by Video Conference

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Due to COVID-19, the Wills, Estates, Succession Act of BC (WESA) was amended in August 2020 to permit a Will-maker to sign a Will in the electronic presence of witnesses and the Will-maker and witnesses to sign by electronic signature.

Section 35.1 of WESA defines “electronic presence” or “electronically present” to mean the circumstances in which two or more persons in different locations communicate simultaneously to an extent that is similar to communication that would occur if all the persons were physically present in the same location. We believe this means that the Will-maker and the witnesses may sign by way of videoconference.

When witnessing a Will by videoconference, each of the Will-maker and the two witnesses must sign an identical Will, and those two (or three, if none of them are in the same place) documents compiled together form the Will. As a result, the Will could be two or three times as long because slipping in signature pages is not permitted. A copy of a Will is considered identical even if there are minor, non-material differences in the format between the copies.

We recommend that a Will signed electronically include a statement that the Will was signed in counterpart in the electronic presence of two witnesses while connected by Audio and Video Conference.

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Engineers’ Liability

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Engineers have specialized skill and knowledge on which their clients rely. When engineers are found to be professionally negligent, this relationship of reliance limits an engineer’s ability to shield themselves from liability by operating their business as a corporation. To consider why this is the case, we review several key decisions that create a duty of care between engineers and their firm’s clients.

Employee’s Liability

In London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), the Supreme Court of Canada found that employees of a company, who performed the services for which their company has been hired to complete, may owe a duty of care to the company’s customer. That is, the individual employee may be liable for any damages arising from services they negligently perform on behalf of their employer. In the case, warehouse workers were found to have negligently handled the Plaintiff’s machinery resulting in significant damages. Because the Plaintiff’s contract with the Warehouse owner contained a limitation of liability clause which restricted recovery to $40, the Plaintiff sued the owner’s employees personally. The Supreme Court of Canada found that, although the employees owed a duty of care to the owner’s customers, the contract’s limitation of liability clause logically extended to the Owner’s employees, for they were the ones performing all of the contract’s enumerated tasks.

In the construction context, this principle of an employee’s liability arose in Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd., 1993 CanLII 67 (SCC). In the case, Edgeworth, the plaintiff company, was the successful tenderer on a provincial highway contract. Edgeworth claimed that it lost money on the project due to errors in the specifications and construction drawings prepared by the defendant engineers, N. D. Lea. Consequently, Edgeworth sued N.D. Lea and its individual engineers for negligent misrepresentation.

While the Supreme Court of Canada found that N.D. Lea was liable for negligent misrepresentation, it held that the firm’s individual engineers were not liable because they only affixed their professional seals to the impugned designs. Therefore, the Court found that the tenderers in the bidding process did not rely on any individual engineer’s representations because the seal merely represented that the designs were prepared by a qualified engineer, not that the designs were accurate. Since no representations were made by an individual engineer, there was no basis for finding that the engineers had a duty of care to the tenderers (viz. Edgeworth).

The British Columbia Court of Appeal considered the Edgeworth decision in British Columbia v. R.B.O. Architecture Inc., 1994 CanLII 1740 (BC CA) and in Boss Developments Ltd. v. Quality Air Maintenance Ltd., 1995 CanLII 3213 (BC CA). In Boss, Gibbs J.A. distinguished the case from Edgeworth on the grounds that the engineer did more than simply affix their seal to a design. Instead, the engineer signed a report indicating that an aircraft was properly maintained when it was not. Despite the fact that the engineer’s employer had the inspection contract with the customer, the engineer was found personally liable. Gibbs J.A. justified his finding by writing: “only an individual can be qualified as an aircraft maintenance engineer in this field of special skill and knowledge, … it is the individual mechanic who certifies [and] whose skill is being relied upon.”

Boss was applied and extended to a firm’s engineering employees generally in Maritime Steel and Founderies Ltd. v. Whitman Benn and Associates Ltd., 1996 CanLII 5415 (NS SC) and Strata Plan No. VR 1720 (Owners) v. Bart Developments Ltd., 1999 CanLII 5428 (BC SC). In both cases, the engineers did not simply attach their seals to tendering materials –as in Edgeworth—but rather, they provided negligent services to the plaintiffs directly.

Concerning an engineer’s personal liability, Edwards, J. wrote in Bart:
It cannot be plausibly argued that a limited company purporting to offer professional services of “consulting engineers” and indicating that its employees have special skill and experience is not inducing its clients to rely on those individuals’ expertise. It is immaterial whether the client can identify that expertise with individual employees of the firm.
In other words, engineering firms cannot perform engineering services without qualified employees. As such, the firm’s employees must know that their specialized skill and knowledge is being relied upon by the customer, and therefore, they owe a duty of care to their firm’s customers generally.

In conclusion, individual engineers working for an incorporated engineering firm are not shielded from liability by virtue of their employer’s corporate structure. Likewise, engineering firms may be held vicariously liable for the negligence of an employed engineer.

To limit their liability, engineers have four options:

First, they may contractually limit their liability for damages, e.g. to the amount of fees paid. Second, they may place disclaimers on their designs to prevent other parties from unreasonably relying on them. Third, engineers can increase their professional liability insurance coverage. And fourth, engineers can supervise the construction process to ensure their designs are properly constructed.

 

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British Columbia’s New Arbitration Act

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On September 1, 2020, British Columbia’s Arbitration Act, S.B.C. 2020, c. 2 (the “New Act”) came into force. The New Act introduces important amendments that aim to improve the efficiency of the Province’s arbitral process. This will improve commercial dealings by clarifying ambiguities in the previous legislation and creating greater uniformity in arbitrations laws nationally. To that end, the New Act closely resembles The Uniform Law Conference of Canada’s Uniform Act. In turn, the Uniform Act is a national project that strives to harmonize Canada’s arbitration laws with the United Nations’ UNCITRAL Model Law. Generally, these national and international model laws seek to limit judicial intervention in arbitral proceedings, and, thereby, create greater certainty in private dispute resolutions. The New Act strives towards this end as well.

The New Act introduces several important changes worth highlighting. First, Sections 21 and 22 impose a duty on the arbitrator and parties, respectively, to seek a “just, speedy, and economical determination of the proceeding based on its merits.” This explicit focus on the timely and economic resolution of disputes is the principle that underpins all of the New Act’s reforms. Appeals, for instance, are sent directly to British Columbia’s Court of Appeal on questions of law (s.59). Likewise, the time period for appealing an arbitral award or setting it aside due to an apprehension of bias has been shortened from 60 to 30 days (s.60).

In further regards to time limits, section 11 of the New Act reads: “the law with respect to limitation periods for commencing court proceedings applies to commencing arbitral proceedings.” This provision was absent from the previous legislation, creating an ambiguity because British Columbia’s Limitation Act, SBC 2012, c 13, does not specify that it applies to arbitrations and it contains court-centric language. Consequently, it is now clear that parties to an arbitration agreement will have two years from the date that they knew or ought to of known they have a potential claim against another party to pursue arbitration or their claim will be statute barred.

Arbitrators now have expanded authority.  Section 23 of the New Act empowers arbitrators to rule on their own jurisdiction. Where this power is exercised as a preliminary matter, either party may refer the issue to the Supreme Court of British Columbia within 30 days of receiving notice of the arbitrator’s ruling for a re-determination. In exercising their jurisdiction, arbitrators are now permitted under section 25 of the New Act to apply equitable principles, whereas the previous legislation limited their authority to the application of statutory law.

Turning to procedures, the New Act no longer specifies default rules. The British Columbia International Commercial Arbitration Centre’s rules (“BCICA”) previously applied by default, unless the parties agreed otherwise. While the New Act removes any reference to the BCICA’s rules, it has incorporated some of their key elements. For example, section 29 allows arbitrators to subpoena non-party witnesses. Where parties have not specified and cannot agree on the applicable rules, arbitrators appear to have discretion under section 32 to make procedural orders that could include the selection of arbitral rules.

Where the parties cannot agree on an arbitrator, the selection is made by the legislation’s designated appointing authority. Under section 2 of the New Act’s attendant Arbitration Regulation, BC Reg. 160/2020, this appointing authority is the Vancouver International Arbitration Centre (“VIAC”).[1] Previously, such appointment disputes were resolved by application to the British Columbia Supreme Court. By creating the VIAC, the New Act increases efficiency by reducing arbitrations’ reliance on the courts. In addition, the VICA can set arbitrators fees and impose terms on awards whenever an arbitrator’s fees remain unpaid.

Finally, the New Act introduces three other significant changes that were previously absent from the legislation. First, a witness’s evidence is to be written, unless otherwise agreed to by the parties. Oral evidence is limited to cross-examinations. Second, section 68 requires confidentiality. The parties may not disclose information about the proceeding or its outcome. Third, arbitrators may grant interim orders, even on an ex parte basis. However, these orders do not constitute an arbitral award, nor are they enforceable in the courts.

The New Act applies to all arbitral proceedings commenced on or after September 1, 2020. However, it does not apply to proceedings that fall within the jurisdiction of the International Commercial Arbitration Act, RSBC 1996, c 233, nor does it apply to family law matters.

[1] The BCICA was re-branded as the VIAC.

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Secret Trusts – Alive And Well In British Columbia

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This article concerns the recent British Columbia Court of Appeal decision in Bergler v Odenthal, 2020 BCCA 175 [“Bergler”] The appeal concerned the validity of a “secret trust” that Ms. Stuhff, now deceased, had allegedly imposed on her common-law partner, Mr. Odenthal. Secret trusts contain two essential features: “communication by the deceased person to his or her devisee, legatee or intestate heir, and an acceptance by that person of the request that he or she will hold the property in trust for the stated person or purposes.”[1] Acceptance may occur in the form of silence. The secret trust must also meet the usual trust requirements of certainty of intention, objects, and subject-matter.

 

The trial judge held that Mr. Odenthal had accepted Ms. Stuhff’s request that her estate would go to her niece, Susanne Bergler. The trial judge determined the acceptance occurred at the hospital shortly before Ms. Stuhff’s death. Ms. Stuhff’s niece and sister testified that in the days leading to Ms. Stuhff’s death, Mr. Odenthal had told them that Ms. Stuhff told him that she wanted her estate to go to her niece, Susanne. Susanne did not have a career or a home and wanted to go back to school. Ms. Stuhff’s sister testified that Ms. Stuhff told her that Mr. Odenthal was to transfer her estate to the Bergler family when he started a relationship with a new partner.

 

A conflict arose concerning when the estate was to be transferred to the Bergler family. Mr. Odenthal claimed he was to hold Ms. Stuhff’s assets until his death (he was 51 years old). After Ms. Stuhff’s death, Mr. Odenthal received the entire estate as heir on intestacy. He later married and removed Susanne as a beneficiary under his will, leaving nothing to the Bergler family. A relative of Ms. Stuhff testified that he overheard Ms. Stuhff tell Mr. Odenthal that when he ‘had a new chick’, she wanted ‘all her money’ to go back to her family.[2] The relative said he did not hear Mr. Odenthal object to the request. The trial judge found the relative’s evidence to be reliable. According to Mr. Odenthal’s testimony, he told Ms. Stuhff that he would abide by her wishes concerning the distribution of her estate. The trial judge held that this constituted the requisite acceptance for the creation of a secret trust.

 

On appeal, Mr. Odenthal claimed there was no evidence of his acceptance of the secret trust. The Court held that the trial judge did not err in finding that Mr. Odenthal had accepted the secret trust. He was required to transfer the assets either upon death or upon entering into a new relationship, whichever came first. A secondary issue on appeal concerned a property owned in joint tenancy by Ms. Stuhff and Mr. Odenthal. Mr. Odenthal claimed it passed to him automatically upon her death and, as a result, never became part of her estate. The Court held that the creation of the secret trust severed the joint tenancy and that once the secret trust came into existence, “nothing was left to pass by the intestacy to the defendant”.[3] The Court upheld the trial judge’s decision and dismissed the appeal.

[1] Bergler at para 2.

[2] Ibid at para 5.

[3] Ibid at para 40.

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Exclusion of Liability Clauses

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Ski-hill Lift Tickets – Liability, Unilateral Contracts, Negligence Exclusion

In certain situations, such as obtaining a lift ticket for a ski-hill, “unilateral contracts” are used by one of the parties to the contract (i.e., the ski hill) which set out specific conditions the other party (i.e., the consumer) must accept if the consumer wants to proceed with using the ticket.  Are all the terms and conditions of these unilateral contracts binding on the consumer even if the consumer did not sign or have any part in the formation of the contract?

A recent case from the British Columbia Court of Appeal (“BCCA”) Apps v. Grouse Mountain Resorts Ltd., 2020 BCCA 78 [Apps] addressed the requirements for unilateral contracts to be binding when the consumer does not sign a contract.

The unfortunate facts of Apps are as follows.  The plaintiff was a snowboarder who became a quadriplegic after attempting a large jump at Grouse Mountain in Vancouver, BC.  The plaintiff was an Australian who was living, working and snowboarding in Whistler, he was only 20 at the time of his injury.

The plaintiff alleged that the jump was negligently designed, constructed, maintained and inspected by Grouse Mountain. Grouse Mountain, in defence, relied on an exclusion of liability waiver which it said constituted a complete defence. The British Columbia Supreme Court (“BCSC”) dismissed the plaintiff’s action. The BCCA overturned the BCSC’s decision.

The type of waiver Grouse Mountain was relying on was an “own negligence exclusion”.  This type of exclusion not only excludes liability for the risks inherent in the use of Grouse Mountain’s product or service, but also liability for negligence caused by Grouse Mountain itself.

The BCCA stated that “own negligence exclusions” are among the more onerous conditions to be placed into contracts, meaning that for Grouse Mountain to rely on the exclusion it must have taken reasonable steps to bring the exclusion to the attention of the Plaintiff.

The BCCA concluded that not enough had been done by Grouse Mountain to bring the “own negligence exclusion” to the plaintiff’s attention before he entered into the contract. The exclusion was included in a posted sign above the counter where the lift tickets were sold, but the text was difficult to read, and the “own negligence exclusion” was not emphasized.  This would be considered the pre-contractual notice (before the ticket was purchased).  Post-contractual notice (after the ticket was purchased) of the “own negligence exclusion” appeared on the back of the lift ticket and on a sign in the terrain park.  The BCCA concluded that post-contractual notice has no bearing on whether Grouse Mountain gave sufficient notice to the Plaintiff.

Grouse Mountain also attempted to rely on the plaintiff’s knowledge of the presence of these types exclusions due to his previous employment at Whistler and having signed such an exclusion for his Whistler’s Season Pass.  The BCCA found that the plaintiff’s previous experience with “own negligence exclusions” from his experiences at Whistler did not mean he had actual knowledge of Grouse Mountain’s specific clause.

The BCCA therefore overturned the BCSC decision and allowed the plaintiff to continue his action.

For businesses that are concerned about what proper notice would look like, the BCCA provided some indicators of proper notice.  To rely on any type of waiver which will result in the consumer losing legal rights, a service provider should, before contract formation, ensure that the “own negligence clause” is clearly brought to the attention of the consumer by using large, colorful and bold text and literally mention the “own negligence clause” to the consumer.

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Does Shared Custody Mean No Child Support?

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Does Shared Custody Mean No Child Support?

In Canada, child support obligations are usually dictated by the federal child support guidelines.  The guidelines work on the principle that both parents should share the same portion of their income with their children as if they lived together.  The guidelines set out monthly child support amounts in a table that uses the paying parent’s level of income and the number of children eligible for child support.

In almost all cases, judges are required to follow the guidelines when determining the amount of child support.  There are however exceptions one of which is when the parents have split or shared custody of the children.

Split custody refers to a child custody arrangement in which one parent has sole custody of one or more children while the other parent has sole custody of the remaining siblings.

In split custody situations the child support is guided by s.8 of the guidelines which states:

Where each spouse has custody of one or more children, the amount of a child support order is the difference between the amount that each spouse would otherwise pay if a child support order were sought against each of the spouses.

In other words, if parent A’s obligation to parent B for the children in B’s care is $1,000 per month, and that parent B’s obligation to parent A for the children in A’s care is $250 per month, A would pay $750 per month in child support, the difference between A’s obligation and B’s obligation, and B would pay nothing.

Shared custody refers to a child custody arrangement where a child spends about an equal amount of time in the care and home of each of the two separated parents, and the parents share the legal rights in regards to the child.

In shared custody situations the child support is guided by s.9 of the guidelines which states:

Child support must be determined by taking into account the amounts set out in the applicable tables for each of the spouses, the increased costs of shared custody arrangements and the conditions, means, needs and other circumstances of each spouse and of any child for whom support is sought.

The analysis starts by determining each parent’s income, finding each parent’s support obligation amount under the applicable Guidelines tables then offsetting the two numbers to come up with a figure that the higher earning parent owes the other. If parent A would pay $940 per month under the guidelines, and parent B would pay $1,040 per month under the guidelines, then the set-off amount is $100.

Shared or split custody does not mean no child support but a different formula is used to determine what the child support obligation should be.

 

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Tax Evasion vs Tax Avoidance

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Tax Evasion vs Tax Avoidance

The purpose of this blog is to give an overview of the main differences between tax evasion and tax avoidance.  Everyone wants to avoid paying taxes but it is simply not possible to avoid paying them all together.  Many businesses and individuals devise schemes and plans with third parties (accountants, lawyers) to limit their amount of tax payable.  It is important know the line between what is legal and what is not.  This leads to the first and likely most important takeaway: tax avoidance complies with the letter of the law whereas tax evasion does not.

The Canada Revenue Agency (“CRA”) says that tax avoidance is legal but “is inconsistent with the overall spirit of the law”.  In other words, tax avoidance occurs when the taxpayer does not provide false information to the CRA, but the provisions of the law are used in a manner that was not intended by Parliament.  Even though tax avoidance is legal, the CRA can still use s. 245 of the Income Tax Act, the general anti-avoidance rule, to invalidate tax savings if the benefit came from a series of transactions done with no commercial purpose other than avoiding tax.  Notwithstanding the ‘legality’ of tax avoidance, the CRA can still recapture some of your avoided tax.

The CRA has legitimate avenues available for individuals and businesses to reduce their taxes.  These avenues are referred to as “effective tax planning” by the CRA.  Examples of effective tax planning would be taking advantage of RRSP tax deductions and using tax credits or gaining benefit form certain small business deductions.  Where effective tax planning starts to turn into something more sinister is when the CRA starts to become concerned.  For example, if you start to divert your business income to family members that can be a legitimate way of reducing tax.  However if it is discovered that you are diverting your business income to your 8 year old child, that would likely be considered unscrupulous by the CRA as there is likely no commercial purpose behind the income diversion besides the avoidance of tax.

This leads to a discussion regarding tax evasion.  The CRA describes tax evasion as deliberately ignoring a specific part of the law.  For example, those participating in tax evasion may under-report income or claim deductions for receipts or expenses that are non-deductible or overstated. They might also attempt to evade taxes by willfully refusing to comply with legislated reporting requirements.  Tax evasion violates the object, spirit and letter of the law.  A very important distinction to be made aware is that tax evasion, unlike tax avoidance, has criminal consequences. Tax evaders can face prosecution in criminal court.

Both tax avoidance and tax evasion are not looked at kindly by the CRA as they both violate the spirit of the law.  However, tax evasion goes one step further in actually breaking the law.  This is an important distinction which can result in significant consequences for the tax-payer if they are not careful in their tax planning strategies.

 

 

 

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Yield To Emergency Vehicles

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What is the Duty of a Driver to Yield to an Emergency Vehicle?

 

When travelling on a roadway or highway it is inevitable that you will encounter an emergency vehicle.  What are your obligations on the road in relation to this emergency vehicle?  Section177 of the British Columbia Motor Vehicles Act (MVA) states:

On the immediate approach of an emergency vehicle giving an audible signal by a bell, siren or exhaust whistle, and showing a visible flashing red light, except when otherwise directed by a peace officer, a driver must yield the right of way, and immediately drive to a position parallel to and as close as possible to the nearest edge or curb of the roadway, clear of an intersection, and stop and remain in that position until the emergency vehicle has passed.

 

In short, section 177 states that if the emergency vehicle is giving an audible signal and showing a visible signal there is an obligation on drivers of the road to yield to the emergency vehicle.  However, as stated in the BC case of Watkins v Dormuth, 2014 BCSC 543:

“The duty imposed by s. 177 of the MVA to yield to an emergency vehicle is not absolute. A driver must have time to perceive and react.”

 

In Watkins, a police officer crashed into another driver while attempting to overtake the vehicle.  The police officer claimed that the other driver should have pulled over by virtue of s.177 of the MVA.  The court placed 100% of the blame on the police officer as the police car was behind her for only a short period of time. The driver of the police car did not show that this time was long enough such that a reasonably alert driver would have perceived the lights and sirens of the police car and pulled over.

Emergency vehicles do not have free rein in exercising their driving privileges.  They are constrained by the duty to drive with regard to due safety.

 

If you would like legal advice as a result of a car accident, please contact Heath Law LLP at 250-753-2202 or Toll-free: 1-866-753-2202.

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Benefits Corporations

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British Columbia is the First Canadian Province to Introduce Benefit Corporations

 

In May 2019, British Columbia amended its Business Corporations Act (BCA) to allow for the inclusion of “benefit corporations.”[1] This new business entity provides an intermediary position between the existing non-profit and for-profit options. Specifically, it allows new and existing companies to include a benefit provision within their articles of incorporation. This provision alters the corporate executives’ responsibilities by including a non-shareholder interest that must be factored into all major business’ decisions. In this respect, it differs from the traditional corporate structure where the corporation’s executive body is principally tasked with maximizing shareholders’ interests. The amendment was introduced as a private member’s bill by Andrew Weaver, the B.C. Green Party Leader. In his address to the legislature, Mr. Weaver explained that the introduction of benefit corporations would “provide…companies with the legal framework to operate in an environmentally sustainable and socially responsible way and to pursue public benefits, in addition to pursuing profits.” [2] While British Columbia is the first Canadian province to authorize benefit corporations, this new corporate structure has been widely recognized throughout the United States. In June 2018, 33 States, plus the District of Columbia, had passed similar legislation.[3]

 

What function does the benefit corporation serve? Similar to third-party certification programs which label a company as environmentally sustainable, committed to fair-trade practices, or otherwise, the designation of being a benefit corporation signals to prospective clients, investors, and businesses that a company is committed to a broader social, cultural, or environmental purpose. As Mr. Weaver argues, “by incorporating as benefit companies, businesses would achieve clarity and certainty for their directors and investors about their goals and mandate, thus enabling them to attract capital investment while staying true to their mission as they grow.”[4] That is, the benefit provision can serve to stabilize a company’s activities by ensuring it adheres to broader principles over the long-term. This may assist some companies in attracting new owners, investors, or clients, but simultaneously, it ensures that these new business participants cannot fundamentally alter the company’s foundational purpose. This stability can preserve a company’s brand by ensuring its reputation is not undermined by fundamental changes to its value-based practices, e.g. sourcing materials from certified supply-chains.

How do benefit corporations differ from Canada’s existing Community Contribution Company (C3) designation? The C3 framework is a share-capital corporate structure that incorporates both for- and not-for-profit elements. These companies adhere to market principles related to growth; however, they are subject to restrictions regarding their distribution of assets by dividends or dissolution. Benefit corporations, by contrast, have no such restrictions. Instead, a benefit corporation’s adherence to their beneficial purpose will be monitored by new transparency and accountability requirements that will be assessed against an independent, third-party standard. This structure is commonly observed in existing certification programs such as: Clean Marine B.C., The Forestry Stewardship Council, Leadership in Energy and Environmental Design, et cetera.

 

By special resolution, a majority of shareholders may alter a company’s articles of incorporation to become a benefit corporation. This requires the addition of a benefit statement. What is this statement? Under the Act, all participating corporations must include the following statement within its articles:

“This company is a benefit company and, as such, has purposes that include conducting its business in a responsible and sustainable manner and promoting one or more public benefits.”[5]

To clarify, all participating corporations must commit to responsible and sustainable business practices generally. This means that the company will “take into account the well-being of persons affected by the operations of the benefit company, and endeavour to use a fair and proportionate share of available environmental, social, and economic resources and capacities.”[6] Thereafter, companies must select a specific public benefit. Under section 51.991(1) of the amended Act, this benefit can include “artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological” objectives. However, the benefit must accrue to a class of persons, communities, or organizations other than the shareholders qua shareholders. That is, shareholders may indirectly benefit from an improved community, environment, etcetera, but they cannot be the class of person for whom the benefit is directed. Due to these provisions, benefit corporations cannot amalgamate with regular corporations, unless the amalgamation results in a benefit corporation.[7] Alternatively, a majority of shareholders may discontinue a corporation’s beneficial designation by simply removing the above provisions via a special resolution.

 

 

Once established a benefit corporation’s public commitment is assessed through annual benefit reports. These reports are to be published along with the corporation’s existing financial auditing obligations under the BCA.[8] As mentioned, these reports must be accompanied by and be evaluated against a third-party standard, e.g. a standards-setting body such as the Forestry Stewardship Council.[9] While the company may select this third-party comparator, there are various restrictions on this selection process to ensure the evaluation’s independence. For example, a standard-setting body is not independent whenever “a person who beneficially owns shares of the benefit company, or an associate of such a person, is a member of the governing body of, or controls the operation of, or otherwise controls, the third-party standard-setting body.” In other words, there can be no relationship between the principle company and its third-party comparator when that comparator is a standard-setting body (i.e. a charity or non-profit organization).[10] The report itself must specify what activities the company took to pursue its general and specific benefit provisions and any impediments experienced therein over the previous year.[11] It must be approved by the directors, signed by one or more of them, and published on the corporation’s website.[12]

 

The benefit corporation model could advantage entrepreneurs looking to gain market-share or attract capital investments by espousing a societal benefit. Should they fail to adhere to their self-selected third-party standard, their liability is limited. Under section 51.994(2)(b), stakeholders are barred from pursuing legal action against a company simply because it failed to realizes its espoused benefits. This limitation is supported by section 51.994(2)(a) which excludes persons “whose well-being may be affected by the company’s conduct, or … who [have] an interest in the public benefit specified in the company’s articles.” As for shareholders, their remedies are limited with regards to the company’s benefit provisions. Directors and officers cannot be found to have breached their fiduciary duty under section 142(1) simply because they failed to meet their beneficial duties under section 51.994(1). Should shareholders of a public corporation seek a remedy against their directors or officers for failing to adhere to the company’s third-party standards, they must—in aggregate—represent at least the lesser of 2% of issued shares or their shares must have a fair-market value equal to or greater than $2,000,000. Finally, shareholders are precluded from pursuing a monetary award under section 51.994(5). Rather, they are limited to injunctive relief.

 

In summary, the benefit corporation model introduces a legislative framework for third-party certification programs which enables companies to integrate a beneficial purpose into their articles of incorporation. This may strengthen a company’s brand by solidifying its value-based practices over time and over ownership arrangements. It may also help attract ethically motivated consumers and investors. To ensure compliance, participating companies are required to evaluate and publish their beneficial activities against independent third-party standards. Should directors or officers fail to abide by these standards, shareholders may seek injunctive relief. This limitation on directors’ and officers’ liability ensure that corporations can pursue their benefit provisions without facing onerous financial liabilities from their shareholders. If your company is interested in becoming a benefit corporation, please call our office for further information.

 

[1] Business Corporations Amendment Act, 2018, BC Legislature, Canada.

[2] Weaver, Andrew, “Introducing a bill to enable BC companies to be incorporated as benefit corporations.”

[3] Fitzpatrick, Sarah: “B.C. Considers Benefit Corporations,” Miller Tompson Blog

[4] Supra, note 2.

[5] Ibid., s. 51.992(2)

[6] Iibd., s. 51.991 (1)

[7] Ibid., s. 51.998

[8] Ibid., s. 51.996(1)

[9] Ibid., s. 51.996 (3)

[10] Ibid., s. 51.991(1)

[11] Ibid., s. 51.996 (2)(d)

[12] Ibid., s. 51.996 (4)-(5)

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