Final

Question 1

What is the contract balancing act

Answer 1

Contract law is a balancing act between freedom to contract as well as predictability and fairness to both businesses and their clients or customers

Question 2

What are the components of valid contract

Answer 2

To create a “valid” contract you need to have an offer, acceptance of that offer, consideration, capacity, legality and intention and whenever possible, put things in writing

Question 3

Explain contract formation

Answer 3

In order to form a contract, you need to have consensus, consideration, capacity, intention, legality, and in writing (but only rarely)
Contracts do not have to be in writing to be valid but written contracts have obvious advantages (clarity, do not have to find evidence elsewhere)

Question 4

Explain contract language

Answer 4

when writing a contract, try to use plain language and avoid “legalese”

but there is a lot of language that is typically used in standard form contracts that does not sound very plain

this legalese is used because those who are writing the contracts (lawyers) know exactly how courts have interpreted these legalese expressions and are reluctant to use other language, even if more plain

Question 5

Explain plain language (WRT contact language)

Answer 5

Title to property in the goods shall remain vested in the Company (notwithstanding the delivery of the same to the Customer) until the price of the Goods comprised in the contract and all other money due from the Customer to the Company or any other account has been paid in full

We shall retain ownership of the goods until you have finished paying for them

Question 6

Explain consensus or how parties agree on a deal

Answer 6

Did the parties reach agreement on all important elements of the agreement such as parties/people, price, location, delivery times etc. through offer and acceptance?

clear and unambiguous terms even if not fully understood (one party cannot say did not read)

courts will “fill in the gaps” but NOT about important terms (What is important?)

agreeing to agree not consensus (text: Zynik Capital)

counter-offers not contracts (eg Grades for $)

offer must still be valid and not withdrawn or revoked (should include deadlines to respond)

Question 7

What are the criteria for consideration (are both parties getting something)

Answer 7

Consideration must be:
legal (not drugs),
possible (not contract to sell mining rights on the moon),
of some value (court won’t judge too much if fair value),
specific (can’t just say “something” since imprecise),
new and not past consideration or existing obligation,
not gratuitous or free (something for nothing),
or under “seal” if no real consideration

Question 8

What are the laws on capacity for contracts

Answer 8

Can you contract with this person or is society concerned that they may be taken advantage of?
Infants (minors): How old is old enough to enter into contract? 19 in BC unless ratify or agree after becoming 19

contracts binding on adults but not on “infant”

contracts with infants are “voidable” rather than void unless the contract is about “necessities” (unless BC where contact only enforceable if law says so e.g. student loans)

void means no valid contract and voidable means not valid unless the infant wants to go ahead

Question 9

Explain legality for contracts

Answer 9

Is the subject of the contract something that is legal?

Examples of potentially illegal contracts: sale of illicit drugs, online gambling (unless ?), or a contract for an A grade in exchange for $ (or is it?)

Restrictive covenants: must be necessary and reasonable. Is it unreasonable?

What is unreasonable? (Example: There is a term in your employment contract that says that after you quit you cannot start a similar business for 5 years within BC)

legality differs from place to place, country to country, jurisdiction to jurisdiction (eg online gambling)

Question 10

Explain intention for contracts

Answer 10

Intention is like consensus but focuses on whether parties intended to enter into a legally binding agreement based on an objective test

Objective test?: Would a reasonable person conclude that the parties intended to enter into a legally binding contract?
Example: You can’t say “just kidding” after the fact to get out of contract
Example: Entering into a contract is not like inviting someone to a party

Family situations: law presumes that family members do not intend to enter into legally binding contracts (unless explicitly mentioned otherwise)

Question 11

When are exclusion clauses part of contract

Answer 11

Exclusion clauses form part of the contract if certain conditions are met and these allow businesses to manage their risk of liability

Question 12

Explain Exclusion Clauses, Standard Forms and Consent Forms and what are the 3 conditions for validity

Answer 12

there are clauses or conditions used by one of the parties to the contract in order to control or limit liability, usually in a standard form contract ( a take it or leave it contract) and business can use the clauses as a risk management technique

can be called waivers, disclaimers, exculpatory or exclusion clauses, consent forms etc. but all of them do the same thing to limit liability of one of the parties in the contract

What does an exclusion clause look like? Or a consent form? (Example: Car rental, hockey game, taking a flight, consent forms to get credit check for credit card, no return policy on store receipt)

What is allowed? General principle is freedom of contract so parties can agree to exclusion clauses, unless they are unfair.

Conditions for validity: (1)does the exclusion clause apply to the situation (2) if it does apply was it unconscionable when it was created (3) are there public policy reasons to invalidate the exclusion clause (see Case: Tercon Contractors)

Question 13

What should you do when making a contract and why

Answer 13

When you make a contract, be very specific and anticipate as many situations and problems as you can to avoid mistakes and disputes

Question 14

What are disputes on contracts

Answer 14

Things impacting a valid contract other than rules

exemption clauses
mistakes
misrepresentation
duress and undue influence

Question 15

What are mistakes and what are the 3 types (contract)

Answer 15

Mistakes typically occur about what was agreed to and what terms of contract mean

Types: shared or common mistake, misunderstanding or mutual mistake, one-sided or unilateral mistake

Shared or common mistake: In Grades for Cash, we both thought this was a permissible or legal contract

Misunderstanding: I thought I was clear that my offer was to give an A grade whereas you thought I was offering an A grade for the entire course

Unilateral mistake: You thought that any student who gave me the money was entitled to the offer

Question 16

What is misrepresentation in contracts

Answer 16

What is misrepresentation? It is false and misleading statements (or omissions) that induce someone to enter contract but that are not part of the contract, and these statements are either innocent, negligent, fraudulent but they are not just opinions (unless experts give the opinion such as a mechanic about a car)

Grades for Cash: Was there misrepresentation? If so, what type of misrepresentation was it?

Innocent: I say that I am sure that most of your classmates will go ahead with the offer

Negligent: I say that if you fail this course, since it is mandatory, you will not be able to continue in the Business program (I believe it to be true but I never checked)

Fraudulent: I say you can deduct the $100 from your taxes and part of education expenses ( I know that is not true)

Why does it matter what type of misrepresentation? It impacts your possible remedies and what a court will do

Question 17

Explain duress and undue influence for contracts

Answer 17

Duress: Free will to bargain lost due to coercion, threat of violence, imprisonment, scandal, damage to property, or inappropriate economic pressure

Undue influence: not threat of force or financial consequences but rather the abuse of a relationship of trust

Lawyers, doctors, trustees, guardians, parents have a presumption of undue influence against them unless the victim has obtained independent advice

Unconscionability: abuse of fairness (What about charging high interest rates? Is that unconscionable?)

Grades for $: You could argue that you felt undue influence from the professor to participate, or from other students. You could also argue enforcing this contract is unconscionable, even if legal.

Remedies: typically voidable contract (victim decides how to proceed)

Question 18

Explain Unconscionability for contracts

Answer 18

Mandatory Arbitration Clauses: The Supreme Court of Canada recently decided that mandatory arbitration clauses that Uber requires drivers to sign and that require all disputes to be settled through arbitration (in the Netherlands, at the driver’s cost) are unconscionable and therefore invalid

Question 19

When is a contract over

Answer 19

Performance: you do what the contract requires and this includes substantial performance (eg buy a car and order special wheels but the car comes with normal wheels, or you order 1000 cars and get 999, but this is no reason to end contract for breach, so this is substantial performance and the other party has opportunity to correct the problem)

Breach including incomplete performance (eg different model of car delivered) and repudiation (communicate you do not intend to follow contract)

Frustration: events are out of control of the parties (such as natural disaster and goods destroyed) unless one party creates the problem through self-induced frustration (Example: Getting SFU involved so contract cannot proceed) Parties anticipate these events using a force majeure clause in their contract

Agreement: including a new contract (start over)

Question 20

Explain enforceability and material change and how they are used for COVID 19

Answer 20

Enforceability: Contracts can end and be therefore unenforceable when important material changes have occurred such as a “material change” but does COVID19 constitute a material change? (see Casebook on Contracts, COVID and Enforceability)

This issue has not yet been settled by a court so it currently represents a risk that businesses need to consider and try to resolve by clarifying the risk event in the contract

Question 21

Explain remedies for contracts and what are the remedies for general problems and breach of contract

Answer 21

Purpose: put the parties back into the position that is fair i.e. if it is an invalid contract then puts parties back to beginning, but if valid contract then into position if contract had been properly performed

General Remedies when problems with contracts: (1) void or voidable (someone gets to decide whether to continue with contract) as is case with capacity issues or duress, (2)rectification (fix) so contract continues, (3) rescission (return parties to original position if possible), (4) damages

Specific Remedies for breach of contract: (1)damages (usually money through special and general damages and sometimes punitive), (2) specific performance (must do the thing in the contract), (3) injunction (stop something such as selling to someone else), (4) accounting (disclose financial records to determine damages), (5) quantum meruit (give reasonable payment for service already performed)

Strategy? Some businesses will choose to breach a contract if they calculate that even when damages for breach are imposed they are still further ahead ( Example: When the price of a product goes up significantly from the time that the contract was made until the time that the contract is supposed to be performed, it may be financially better for a business to breach the contract and accept the damages)

Question 22

Explain insurance risk and contract

Answer 22

Insurance Contracts and Purpose: businesses can use insurance as a risk management technique to transfer risk to someone else (an insurer)

Types of Insurance contract: general liability insurance, car insurance and ICBC, life insurance, health insurance and disability, condo insurance, building insurance, flood, hurricane, earthquake insurance (insurance for both consumers and businesses)

Liability insurance: liability for employee or other business operations including negligence (but not wilful acts) (Insurance thereby helps deal with problem of vicarious liability and product liability)

New types of insurance: climate change, hacker insurance

Things to Consider: cost and premiums (fees), riders (specific terms for a client like bike insurance on home policy), policy coverage and terms including exclusion clauses

Insurance brokers can be liable for mistakes and misrepresentation about policy

Typical Problems?: Insurer won’t pay based on interpretation of provision of insurance contract (eg COVID) AND premiums increasing so may not make financial sense to get insurance coverage (may be better to avoid risk or accept risk)

Question 23

Explain online contracts

Answer 23

Contract law also applies to online contracts BUT there are some specific problems that arise with online contracts:

What Rules Apply? Consensus occurs when “I Accept” communication reaches offeror’s office and therefore contract rules are those where offeror/seller’s business is located

Exclusion Clauses: Businesses can use embedded exclusions and waivers to manage liability through “Terms and Conditions” and “I Accept” but these clauses must still follow rules about exclusions, fairness and consumer protection laws

Capacity: Businesses must try to identify contracting party (and legal age) using various means of authentication

Legality: Businesses often move illegal operations to a country where it is not illegal (eg online gambling businesses)

Online payment: Businesses use online payment services such as PayPal and this also gives users recourse in the case of fraud

Question 24

Explain risk management for contracts

Answer 24

Write things down and use clear language to manage risk

Know how to control and limit liability using risk management techniques (exemptions clauses and insurance and negotiating as many terms to anticipate as many situations as possible)

Understand the rules and limits to using exemptions clauses

Be very clear on the process you want to use when there is a dispute (and include this process in the contract)

Can use “Arbitration clauses” in contracts including choices about who will be the arbitrator, and what law will apply (example: rules in Canada or US or ? ) BUT these clauses must be fair and NOT unconscionable

Consider Online dispute resolution as part of your Strategy

Remedies: know what a court can and cannot give you and how to quantify your damages

Question 25

what is the purpose of law on IP and how does it work

Answer 25

Purpose of Law on IP? Law balances your right to benefit financially from your ideas and creations with the right of others to use the ideas to create new ideas and products and inventions (society wants to avoid a monopoly on ideas in order to promote innovation)

How? Ideas receive legal protection through creation or registration and then you can benefit financially from your protected ideas and prevent others from taking your ideas

Why is this legal protection necessary? Innovation and investment? Would Tesla invest in new technologies or Pfizer in new drugs unless they could be assured that it is worthwhile to invest in creating these ideas?

But for how long should law protect ideas/IP? There are time limits on how long you can benefit from your idea or creation (eg length of a patent is 20 years) Why? Should there be any limit?

Question 26

Explain value in ideas (3 main strategies)

Answer 26

idea entrepreneurship and business innovation rely on intellectual property rights and protections in order to create value and profit, typically through 3 main strategies:

(1) licensing: using your copyright, trademark ( eg franchising) and patents to lend to others for a fee (royalties) which are the fees you get when someone uses your ideas (eg the fees a creator gets for writing book, or from the distribution and sale of music, or using a patent)
(2) selling patents and other forms of IP
(3) using your IP to make things and make profits (with the protection of IP laws)

Strategy: investors and shareholders expect you to protect these important business assets otherwise they may not invest or even worse, investors and shareholders may hold you liable (eg negligence) for failing to protect these assets

Question 27

How do you protect your ideas (Process)

Answer 27

Creation: in some cases, the law will protect your idea as soon as you create it (eg music or writing through copyright)

Mandatory Registration: in some cases you are required to register your idea (patents)

Voluntary (or strategic) Registration: you may not be required to register but registration provides additional protection, particularly internationally ( e.g. copyright and trademark)

Confidentiality: sometimes the only way to protect your idea is by not sharing it ( e.g. trade secrets) or by protecting it through contract ( e.g. NDA which is a non-disclosure agreement)

Question 28

What are the types of IP

Answer 28

copyright
trademark
patent
industrial designs
trade secrets
privacy (is this property?)

Question 29

What can you protect

Answer 29

my company name or logo?
training and business strategy manuals?
software I write?
things I invent or modify?
my privacy?
things I post to Facebook or Instagram (Have you looked at Facebook’s Terms and how to deal with copyright issues?)(Licence to post?)
a tattoo (who has protection)? or the word “face”

Question 30

What is copyrights and what are the 3 criteria from copyright act

Answer 30

Definition: monopoly over the use of a creative work, but only the expression of the idea not the idea itself ( e.g. cannot copyright the idea of a romance novel or the idea of a film about aliens but can copyright your romance novel or Avatar)

What is a creative work?: literary works such as books, dramatic works such as films, musical works such as compositions, artistic works such as paintings, performances such as acting, sound recordings such as CDs, communication signals such as broadcast signals

How are copyright rights created? with the creation of the idea, no registration required and no publication required, and some international protections (eg. Universal Copyright Convention, Bern Convention, Rome Convention, WTO)

Criteria (3) from Copyright Act:
original: not copied from other sources but derived from author’s skill and judgement

fixed: needs to be written down or fixed somewhere not just in your head

connection: work created in Canada or by a Canadian living elsewhere, or a country that is a member of IP treaties such as Universal Copyright Convention

Question 31

Explain how long copyright lasts, public domain, ownership laws and exceptions and where the rules are outlined

Answer 31

How long do your rights last? The period of copyright protection is the life of the author plus 70 years (or 70 years maximum if a corporation), then the work goes into the “public domain” (protection used to be only 50 years until changes to Copyright Act came into force January 2023)

Public domain: works that belong to community at large (Are works of Shakespeare public domain? What about Happy Birthday song (2016)?)

Who has ownership? The creator has ownership, or the employer for whom person is working (unless agreement otherwise), but the creator can assign or license these rights, yet the creator still retains the “moral rights” (cannot distort or harm to author’s image) unless these moral rights are waived (agree to give up usually for some price)

Important exceptions to copyright rights: “fair dealing/fair use” (private purpose like research or private study or critique)(eg. using otherwise copyright protected material in the classroom, or listening to an iTunes music preview )

Where are the rules outlined? Copyright Act (1985) and Copyright Modernization Act (2012)

Question 32

What are the two main ways of creating value from copyright

Answer 32

2 Main ways of creating value from copyright:

(1) Licensing: allows people to use your intellectual property (license copyright for a song or image, license patent technology for a product, license trademark for franchise)

(2) Royalties: monetary compensation given to the creator or owner of the intellectual property for the use of their copyrighted materials and usually done through a licensing agreement (usually as a percentage of receipts or money received)

Question 33

Explain trademarks

Answer 33

What is a Trademark?: name, symbol or logo that identifies a business service or product and distinguishes it from a competitor

Examples: Coca Cola, Kodak, Apple logo, McDonald’s golden arches, Facebook

Violations/infringement: Apple logo without the bite taken out, “MacDonalds” restaurants

Question 34

What is the trademark process

Answer 34

Process: do search to see if already in use and eligible for registration, can use trademark agent, include search in the US, then register with Canadian Intellectual Property Office (CIPO) and publish, and may want to register in other countries where you are doing business

Ineligible: cannot be obscene (compare with US), or just a sound, symbols of royalty, or similar to existing trademark, no surnames unless “acquired distinctiveness” (eg McDonald’s and Campbell’s )

Rights if registered: gives protection for 10 years (used to be 15 years until changes in rules with Bill C-31), and can be renewed indefinitely, but must be used

International registration: proof of registration in Canada can be proof of registration in another country but must still register, and country must be part of international agreements

Rights if unregistered: passing off (tort law)

symbol R for registered trademarks and TM for unregistered

Question 35

What is the value of trade marking

Answer 35

trademark adds value to your company and becomes a visible symbol for marketing and brand reputation (eg goodwill)

franchising: licensing your brand and reputation to others to use in accordance with the rules you create

Question 36

Explain trademark infringement and the rules around it

Answer 36

Key issue: Would someone be confused about who is really offering a product or service in ways that could harm the brand or reputation?

Knockoffs and counterfeiting: using another company’s brandname or design to counterfeit or copy products is a trademark violation

Confusion?: In the case of Barbie v. Barbie’s Bar-B-Q a restaurant called Barbie’s in Montreal was sued by Mattel (manufacturer of Barbie dolls) for violation of Mattel’s Barbie trademark for its dolls but the court decided the use of Barbie’s does not cause confusion since they are completely different products (food versus dolls)

Confusion? : A company markets a hamburger called BigMac? A hamburger called a BigMic? A hat called a BigMac? (Is there confusion?)

Question 37

Explain patents

Answer 37

What is a patent?: government granted monopoly that allows inventor the right to produce, sell or otherwise profit from a specific invention (including licensing to someone else) for a period of 20 years from date of application

Why? allows creator to recover investment costs and profit from invention in exchange for the written description of how to make invention and avoid duplication of ideas

Question 38

What are the 4 criteria for a successful patent (Patent act)

Answer 38

(1) patentable subject matter: cannot patent scientific theory or medical treatment (but can patent drug used in medical treatment), can patent business methods (such as Amazon’s “one-click” ordering system), can patent computer programs
(2) novelty: this means “new” and not previously disclosed or known to the public, does not have to be completely new idea (even if new invention the patentability can be a problem if disclosed to public eg through a presentation or trade show)
(3) non-obvious: “in light of the state of the art and of common general knowledge as at the claimed date of invention, would a technician have come directly and without difficulty to the solution taught by the patent” (eg this is why bread is not patentable but you can patent a unique food that you have composed or created)
(4) utility: must serve some useful function (makes society better, or life or production of things easier)

Question 39

What is the patent process

Answer 39

Register: first come first protected (first to file rather than first to invent) i.e. saying “patent pending” is useless

International registration: if you have a valid patent in Canada, then you can use that registration to register your patent in another country, usually within one year, and this applies IF the other country is part of international agreements (eg. Paris Convention, or Patent Cooperation Treaty)

Who owns? employers can patent inventions of employees but there is a presumption in favour of the employee/creator (unlike copyright) unless developing the patent was the purpose of employment

What is “evergreening”? : making small changes to extend patent for another term (eg 20 years)

Question 40

What is the value of a patent

Answer 40

develop and market product

license the patent: either exclusive or non-exclusive licensing that provides you with royalties

sell the patent (some companies make a business of buying and selling patents)

how much $ can you earn: ranges from 1% of gross sales for a patent pending to up to 10% for a patent of an approved drug with market share

Question 41

What are the remedies for IP infringement

Answer 41

injunction (interlocutory or permanent) (eg useful to stop knockoffs and counterfeiting)
seizure (Anton Piller order): give up goods before they can be destroyed or removed
accounting: disclose what improper profits were made
damages including punitive damages: need to be able to quantify
criminal penalties (selling imitations, identity theft etc.)

Question 42

Explain confidential info and what breach of that must prove

Answer 42

There is a general duty to keep information private either by contract (see Casebook on Justin Bieber’s non-disclosure agreement (NDA) for a private party) or an employee’s fiduciary duty to an employer (and this is different from the obligations and opportunities around privacy see next slide)

Why use confidentiality?: When the information cannot be kept secret but you want to protect the information from others including competitors

Breach of confidential information: must prove (i) information was confidential (ii) disclosed to defendant in ways that created obligation of confidentiality (iii) there was misuse or unauthorized use of the information

Trade secret: formula, pattern or device that creates a business advantage or product

Why use trade secret rather than registration of idea?: When businesses don’t want to disclose information to public and trade secrets don’t expire like patents (eg Kentucky Fried Chicken secret recipe, Coca Cola recipe, Google algorithm )

Strategy: employers add confidentiality agreements to employment contracts

Question 43

Explain privacy and data

Answer 43

Privacy can be understood as a type of property (i.e. owning your own identity) and sometimes that privacy is violated

Violation: sometimes our privacy is violated through identity theft using personal identifiers (to mimic your identity), spyware on your computer, phishing emails

Violation: governments and businesses are limited in what information they can collect, store and share with others (rules outlined in Privacy Act and Personal Information Protection and Electronic Documents Act (PIPEDA)

Rules? government and business have encryption and security obligations to protect private information (of customers and employees) from hackers and employees and may be sued if they fail to do so

Consent to violation? employees give up some degree of privacy in their work environment particularly if their employment contract or company policies inform them of the monitoring of their computer, calls or email

Consent to violation? sometimes we willingly (or unintentionally) give up our privacy by doing certain things such as using social media where we “consent” to giving up information about ourselves including our digital footprint (often used for marketing data)

Question 44

Explain IP and technology

Answer 44

easier to steal or copy ideas through digital transmission (such as music, movies, video games)

easier to copy things (imitations and knock-offs) using different software, design and copying technologies (Can you tell the difference?)

easier to copy or use someone else’s trademark since they may not even notice since in other part of the world

law has difficulty in keeping up with all the new ways that intellectual property is being violated, particularly around the world

understanding how easy it is for IP to be infringed or stolen increases risk and requires risk management strategies for how best to protect ideas

Question 45

What are the global risks of ideas

Answer 45

Different countries have different approaches to intellectual property and different ways of balancing the interests of the creator and the public (eg some countries require registration for copyright rather than through creation)

Variations in Canada and US: copyright protection is 70 years in the US and not 50, and it is easier to get patents in the US

International agreements: trying to make the rules more consistent around the world

businesses operating globally need to identify and evaluate how to protect their IP in all the various parts of the world where they operate

Question 46

Explain risk management for IP

Answer 46

protect an idea when you can through registration or strategic registration or some other strategy like keeping information confidential (eg trade secrets, NDAs)

know what you can protect, what you cannot, and the process and strategy for doing so

understand the potential value of your ideas (IP)

understand that shareholders or business partners get angry when you fail to protect your business assets (including IP) and may not invest or even take legal even if you do not protect these assets

understand that even if your idea is registered in Canada that recognition is NOT immediately international (more complicated)

understand that new technologies make your IP and customer information more vulnerable so you must develop increasingly more sophisticated technology in order to protect this intellectual property (data locks, counterfeit prevention, anti-hacking etc.)

Question 47

What are the types of businesses

Answer 47

Sole proprietorship: raises concerns about personal liability

Partnerships: raises issues about the duties of partners including fiduciary duties, the different types of partnership and your liability in each situation

Corporations: raises issues of limited liability, greater flexibility for raising money, but with various corporate governance and shareholder obligations

Agents and Obligations: Anyone who is your “agent”, including employees, can create obligations and risks for you and your business

Electronic or Online Business: Operating your business online can create different risks such as which rules apply to your business, online contracts, contract creation and enforcement, and determining which rules apply to the contract

Question 48

Explain sole propriotorship

Answer 48

Numbers: one person doing business (eg consulting) or one person who hires employees (if more than one owner then starts to look like partnership but can hire lots of employees)

Unlimited personal liability: if things go wrong, including harm caused by your employees, then you are liable and the plaintiff can go after your personal assets

Insurance: limited protection and costly

Taxes: typically higher since personal income tax rates rather than corporate rate but can claim expenses

Process: very simple since only need to register business name and pay taxes such as PST/HST

Question 49

Explain partnership

Answer 49

common type of business where partners share equally in decision making (unanimous on some things and majority on others) and share equally in profits and liabilities unless agree otherwise through partnership agreement (senior and junior partners)

but you can be liable for the actions of your partners including contracts they sign and their negligence

you can create 3 different types of partnerships: general, limited, limited liability

general partners have unlimited personal liability and fiduciary duties to each other (loyalty, fairness, avoid conflicts of interest)

limited partners are investors where they are only risking their investment, and they cannot participate in the day to day decisions

limited liability partnerships for professions like law or accounting where partners are not liable for partners’ mistake, only their own mistakes and negligence

Process: typically a contract, but even if you do not create a partnership agreement, if you act like a partnership, the law will assume you are a partnership

Question 50

Explain corporations

Answer 50

What is a Corporation?: an institution (created by law) that is separate from the shareholders who create it, so if things go wrong, the corporation (and NOT the individual shareholders/owners) is responsible

Limited legal liability: Shareholders and Directors and Management have no personal liability so the creator of the business or its shareholders are not at risk for personal liability and this also makes it easier to raise money/capital (note lenders such as banks still usually ask for personal guarantees)

Purpose? Gives businesspeople and investors (including shareholders) incentive to create a business without being concerned that they will be personally liable and ruined if something goes wrong

Types: broadly held (public) or closely held (private, family firms)

Process: registration of articles of incorporation either provincially (BC) or nationally (Canada) and creation of shareholder agreement

Governance: Directors, Officers/Management (CEO, CFO etc.), shareholders

Question 51

Explain management duties

Answer 51

Fiduciary duty is the duty of the Officers and Directors of the corporation to act honestly and in good faith with a view to the best interests of the corporation (section 122 (1)(a) of the Canadian Business Corporations Act (CBCA)

Violations of Fiduciary Duty: fraud (stealing corporate assets), conflicts of interest such as transacting with the corporation, taking corporate opportunities (harming corporation), competing with the corporation

Best Interests of the Corporation: business judgment rules gives deference to Officers and Directors in making complicated decisions and balancing interests (profits, wages, layoffs)

Not Just Shareholder Interest: fiduciary duty can require Officers and Directors to consider interest of employers, suppliers, government and the environment in the evaluation of what is in the “best interests”

Duty of Care: Every director and officer of a corporation in exercising his powers and discharging his duties shall…exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances (see s.122 (1)(b) CBCA)

Protecting Creditors: officers and directors cannot pay dividends or purchase shares unless there are reasonable grounds to believe corporation can pay debts to creditors as they come due (solvency test)

Business Judgement Rule: Directors and Management have discretion to exercise their judgement about what is in the best interests of the corporation, and so courts will not usually second-guess those business judgements (eg Global Financial Crisis 2008)

Lifting Corporate Veil: When owners, shareholders or directors of the business act negligently or fraudulently, courts will look deeper than the business judgement and may find personal liability

When will courts turn aside the business judgment rule and lift the corporate veil?
When Directors and Officers (Management) (1) fail to abide by statutory duties like reporting through prospectus and holding annual meetings (2) breach their fiduciary duty to the corporation or (3) fail to act according to their duty of care to do their job with care, diligence and skills that a reasonably prudent person would expect in the circumstances

Question 52

Explain avoiding liability WRT duty of care and due diligence

Answer 52

In situations where there has been some type of environmental pollution by the corporation which breaks the law and where the pollution was caused by employee error, Management/Officers and Directors can claim that they acted with care and due diligence IF they can provide evidence that they created procedures to avoid environmental accidents AND that the Management and Directors were not aware that these procedures were not being followed. If they cannot provide this evidence, courts will not apply the business judgement rule, and will l find the corporation legally responsible and, sometimes, find the Directors or Management personally liable, and rarely, criminally responsible (for very serious violations of law)

Question 53

Explain shareholders and remedies

Answer 53

Corporations (through the Directors and Management) are expected to act in the overall best interests of the corporation, but they are also expected to maximize shareholder value (balancing act)

Shareholder Value: What happens when maximizing shareholder value means firing lots of employees. Is that really in the long-term interests of the company? Or what about proposed take-overs or mergers? How determine whether the decision is made for the corporation, the shareholders, or Management (if they may benefit). Or are these complicated decisions within the business judgement rule?

Other Duties: Corporations have other duties to shareholders such as ensuring voting rights and paying out dividends when these voting rights have been violated

Shareholder Remedies: When corporations fail to respect shareholders’ rights, these shareholders can take actions to defend their rights: (1) oppression remedies, (2) dissent actions and pre-emptive rights for minority shareholders, (3) representative or derivative actions when corporation has been wronged (not just shareholder)

Question 54

Explain bankruptcy and insolvency

Answer 54

Problem: When a business fails, what are the risks and what are the rules for dealing with debts, creditors and business assets?

Purpose: the laws for bankruptcy make it easier to deal with paying creditors and debts of corporations and consumers

Process: a person or corporation files for bankruptcy and then all debt actions are stayed (suspended) until the bankruptcy process are finished by liquidating assets and paying creditors (usually according to a list of priority creditors eg banks) after which the debt is discharged or the corporation ceases to exist

Question 55

What is agency and its obligations

Answer 55

What is an agent? An employee or independent contractor that represents you (principal/employer) in dealing with a third party

Examples: lawyers, accountant, real estate, boards

Problems: agents cause others harm (contract or tort)

How is this similar to vicarious liability for employees?

Does the agent have the authority to act for the principal?: Actual, implied, apparent?

Has a third party been misled? If so, third party can accept (ratification) or sue

What are the remedies and against whom? The principal or the agent, for contract or tort (vicarious liability depends if conduct “authorised”)

Duties of agents: fiduciary duties and best interests

Question 56

What are the online business risks

Answer 56

Online Presence: Are there issues in creating a business name and getting on online domain name and registration?

Jurisdiction: Where is your online business located or registered? Which laws apply?

Website: How do I deal with issues of Terms of Use, Privacy and User-Generated Content (my liability)?

Contracts: When you enter into contracts with customers, how do you ensure compliance with contract laws (capacity, exclusion clauses and fairness and disclosure, legality, disputes and arbitration or going to court)?

Online Payment Systems: Who is responsible for these payment systems? What if I want to use cryptocurrency or other payment systems?

Privacy, Data Security and Identity Theft: Who is liable when a website is hacked? What is the business liable for?

Question 57

What is regulatory risk

Answer 57

Governmental regulatory risks arise from laws (statutes) that require businesses to operate in a certain way and if they fail to do so then the government (not other business, or clients or consumers) will take legal action against the business

The risk of government (federal or provincial or municipal) pursuing legal action against business occurs in many forms including consumer protection and false advertising/deceptive marketing, competition (or monopoly regulations also called anti-trust in the US) and environmental protection

When you are running a business, or considering starting one, businesses need to consider governmental regulation and the risk of government enforcement of legal obligations

Examples: Canadian and provincial governments (eg BC) create and enforce environmental and climate change rules such as carbon taxes or pipeline approval process, the municipal government of Vancouver creates and enforces local rental restrictions for Airbnb, the Canadian and federal government enforce consumer protection rules about false claims made about products such as masks or PPE (quality, origin etc.)

Question 58

Explain and what are the government regulations

Answer 58

If you run a business, you will have customers and consumers, possibly in other countries, and you will have obligations and rules about how you run your business, how you compete with other business and try to restrict competition, how you sell things using contracts with consumers, including online contracts

(1) Sale of Goods Act: implies warranties and conditions into a sale contract, including product safety
(2) Consumer protection legislation prevents false advertising and deceptive marketing, addresses exclusion clauses being used to override warranties, prevents unconscionable transactions, mandates disclosure of important information for the consumer (eg. the true cost of borrowing)
(3) Online and Electronic Commerce has recently led to other consumer protection rules about spam and phishing, telemarketing
(4) Competition Act is also for consumer protection and prohibits price-fixing and collusion, misleading advertising and deceptive marketing e.g. health products and claims, what can you get away with saying or claiming, what facts you must disclosure
(5) Environmental regulations and protections: national and provincial rules exist to protect the public from pollution and other harms to environment and our health

Question 59

Why do businesses want laws

Answer 59

Laws provide clarity and predictability

Laws ensure that everyone has to operate according to the same rules

The cost of deregulation or no rules is often greater than having rules

Rules can create opportunities for innovation, new products and ideas, and opportunities to perform better than your competition

Poll: Environmental regulation can promote economic development, growth and innovation? How?

Question 60

Explain consumers and competition

Answer 60

Competition: Why is it important and why do businesses want laws to ensure fair competition? Why is “impact on the consumer” the focus of competition cases?

What business practices interfere with competition?: (1) restraint of trade clauses in contracts including employment contracts, (2) mergers and market domination through monopolies, (3) market manipulation through collusion (eg price-fixing)

Should markets be left to sort out issues of competition?

Poll: Amazon is a monopoly and should be broken up? Facebook is a monopoly and should be broken up? Companies should never be broken up using laws to prevent monopolies since the market will deal with the issue.

Competition Act uses criminal and civil penalties to prevent monopoly and promote competition by (1) preventing conspiracy to manipulate markets through cooperation among competitors such as bid rigging (businesses agree to bid a certain price), (2) abuse of a dominant position such as price fixing (gas stations all agree to sell gas at the same price), and (3) certain mergers that create a dominant market position (Amazon?) and the Act provides remedies (stop to anti-competitive practice, dissolve the merger, hold the merged companies separate)

Question 61

Explain consumer protection (gov regulations)

Answer 61

Laws on consumer protection (federally and provincially) protect consumers against false or deceptive claims about products or services, including claims or sales made online

Rules: Business Practices and Consumer Protection Act (BC) and Competition Act (Canada), Consumer Packaging and Labelling Act, Textile Labelling Act, Hazardous Products Act, Food and Drugs Act, Sale of Goods Act, AntiSpam Legislation

Advertising and Marketing: consumers protected from misleading advertising or deceptive marketing but determining what is misleading and deceptive can be difficult (What can businesses get away with? e.g. health products and claims)

Product Safety: rules ensure that products and services meet minimum standards for quality and safety

Sale of Goods Act: implies warranties and guarantees when consumers purchase products or services (eg implied warranty that the product is safe and will not cause harm)

Information Disclosure: rules promote disclosure of information so consumers can make informed decisions (cost of borrowing, product origin, food ingredients etc.)

Electronic Commerce: consumers protected from identity theft, privacy, spam and phishing, telemarketing, misuse of data (unless consumer has agreed through Terms of Use contract)

Question 62

Explain misleading advertising

Answer 62

What is can be misleading or deceptive?:

statement about a “material” fact, and deceptive is determined objectively rather than subjectively, with defence of due diligence (reasonable care), and statement can be made on packaging, any marketing including online, by seller or employee or other “agents”, and can result in either criminal or civil penalties

unsupported performance claims

multilevel marketing plans including pyramid selling

bargain claims for regular prices (MSRP manufacturer’s suggested retail price)

selling at higher price than advertised, bait-and-switch selling (only 1 available at that price)

incorrect labelling about origin and proper disclosure (what does “Made in” mean and how is that different from “assembled in” ?)

prizes and contests (chances of winning, how many prizes) (contest for a “car”)

failure to disclose where product made (or assembled) and food ingredients, credit card and borrowing rates, or product safety issues (recalls)

Question 63

Explain online risks ads and marketing (Gov regulations)

Answer 63

Selling things online and through social media raises additional risks:

Restrictions on Spam and Online Marketing: There is new Anti-spam legislation where business must have consent to send marketing email, must identify the business in the subject of email, and must provide an “unsubscribe” mechanism, and failure to do so means that ISPs (internet service providers) can cancel service to marketers/businesses AND violations can lead to fines

Disclosure: You are obligated to disclose known risks of your product AND product promoters are obligated to indicate whether they are gaining any financial benefit from their promotion of a product?

Question 64

Explain product regulation and safety

Answer 64

What claims can you make about what is natural, what health benefits will be derived, and do they need to be scientific or proven?

Natural Health Product Regulations: require product licensing, evidence requirements for safety and efficacy, labelling and disclosure, adverse reaction reporting, following rules on human clinical trials, disclose warning and recalls

Health Canada (a governmental regulatory body) is trying to strengthen regulation of natural health products and has created a Natural and Non-Prescription Health Products Directorate (NNHPD)

Question 65

Explain online marketing and spam

Answer 65

Rules: Competition Act, CRTC Act, PIPEDA, have all been updated and amended to address online marketing and are now referred to as Canadian Anti-Spam legislation (CASL)

Spam and Consent: businesses cannot send electronic messages to encourage participation in a commercial activity (CEM) unless you have the express consent from the recipient (cannot rely on implied consent) AND businesses must provide way to “unsubscribe” at no cost

Penalties: if businesses do not obtain express consent, they can be sued for damages up to $200 for each non-compliant CEM up to maximum of $1 million per day, AND CEOs, officers and directors of a company can be held personally liable of the violation

Defence: only defence is due diligence (such as drafting and implement CASL policies, procedures and training)

Question 66

What are penalties and remedies for online marketing and spam

Answer 66

Right to Rescind Contact: right to change mind, also called cooling off period

Right to refuse unsolicited goods: don’t have to pay

Criminal penalties for some offences such as price-fixing and any agreement to restrict competition

Civil penalties and damages

Question 67

Explain environmental rules and risks

Answer 67

There are many types of environmental rules and risks including the following: Canadian, provincial, local/municipal, international agreements (and there is sometimes overlap between them) and common law rules

Federal and provincial statutes create liability for environmental harm and that includes businesses and corporations, business owners (sometimes personal liability), landlords, also banks and lenders are liable (whoever is partially responsible for the polluting property)

Canadian Environmental Protection Act, Canadian Environmental Assessment Act, Fisheries Act

common law tort rules can be used to create liability for environmental harm where a polluting substance from a business harms property and causes injury then businesses are liable

examples of common law rules: negligence, riparian rights, nuisance, trespass, strict liability and Rylands v Fletcher

Permits: must be obtained in order to conduct certain business activities such as mining, fishing, forestry, certain types of land use

Environmental and Social Impact Assessments: processes that businesses must complete in order to evaluate risk and obtain approval from government

Duty to Consult: rules that obligate business to consult with communities impacted by a proposed activity (eg pipeline development, mining operation)

Reputational risk, CSR and Social Licence: it is increasingly important for businesses to manage the reputational risk and harm of environmental harm and mismanagement, since business want to appear as “socially responsible” (CSR) and want to follow a process where they have properly consulted with stakeholders (eg communities) in order to have social licence

Shareholders: investors can respond negatively when businesses do not manage their environmental risks (divestment campaigns targeting oil and gas companies)

Insurance costs and Liabilities: insurers increasingly evaluate the cost of environmental risks and whether a business or industry is managing these risks (eg climate change risk)

POLL: There are too many environmental regulations and environmental regulations should be reduced

Question 68

What is Cepa

Answer 68

Purpose: prevent and respond to environmental pollution in order to promote environmental and human health alongside economic development, particularly sustainable development

What does CEPA do?: research, setting of standards, guidelines, codes of conduct, monitoring, inspection, prohibited substances, enforcement, remediation and penalties for violation, protect whistleblowers

Government powers: inspection powers, examine records, computers, require environmental assessments

Business obligations: duty to report environmental problem or hazard, create pollution prevention plan and due diligence

Penalties and Remedies: criminal penalties, company officials can be held personally liable unless due diligence, individuals can seek damages from business

Question 69

Explain projects and consultation

Answer 69

Purpose of Laws: projects that may have environmental impact must undergo “impact assessment” to identify and mitigate environmental and social impact and that impact assessment include hearings and consultations with impacted communities

Rules: Canadian Environmental Assessment Act, also provincial rules

Challenges with an Impact Assessment: how do you assess environmental impact, and social impact, and possibilities for mitigation, and what are the costs associated with environmental harm and mitigation

What is the Duty to Consult?: the obligation to hear the concerns from communities impacted by projects BUT this process does not give these communities a “veto” over a project

Social Licence: business need to create a process where they have community support and this support can be challenging (eg indigenous communities where support may differ within the community)

Risk Management and Investment: how much should a business invest in reducing the risks of environmental harm, and in the process of consultation

Question 70

What is Consultation, Public Relations and Business Strategy

Answer 70

Reputation Management and Corporate Social Responsibility (CSR): while it is costly to develop environmental harm prevention procedures, and consultation takes a lot of time, the reputational cost of environmental disasters is huge (see BP oil rig disaster and Deepwater Horizon)

Consultation Requirements: there are rules in the Canadian Environmental Assessment Act about consultation when big projects with potential environmental implications are being proposed (eg oil pipelines)

Social Licence: Businesses need to work with governments and communities to follow those rules and create a “social licence to operate” even when consultation is not required by law (otherwise there could be more reputational harm and costs)

Question 71

What are the rules and strategies on climate change

Answer 71

Purpose: balance sustainable economic growth and development with policies that will reduce the impact of human activity on the climate

Rules: Canada’s Climate Change Action Plan (CCCAP) (in addition to federal, provincial and municipal environmental laws)

CCCAP promotes “clean” energy and business activities such as clean electricity, methane regulations for oil and gas industry

Carbon taxes & Cap and Trade System: provinces set carbon tax and trading rules (cap and trade systems where pollution is given a price then traded in markets so carbon emissions are priced by market supply and demand)

International Rules: International initiatives to address climate change (eg Paris Convention) become part of Canadian law

Insurance Risk and Costs: as climate change worsens, it becomes more difficult and more costly for businesses to obtain insurance policy coverage

Business Strategy and Reputation: consumers and investors increasingly expect businesses to develop environmental management policies that also address climate change and to engage in “ corporate social responsibility”

Legal Risks: businesses (and governments) are increasingly being sued for their failure to meet climate change rules and obligations (see City of Victoria v Shell and other oil and gas companies)

Question 72

What are the gov regulations beyond borders

Answer 72

International Operations: if you are a business operating globally (or anywhere outside Canada) you must comply with the rules in those jurisdictions where you are doing business (eg US and EU) and those rules may be even more stringent than the rules in Canada (eg EU rules on GMO foods, food quality and safety, ingredient and origin disclosure)

International Operations and Liability: the Nevsun case at the Supreme Court of Canada (see Module One) decided that Canadian businesses can be held legally responsible in Canada for business conduct outside of Canada (and that may also include international environmental obligation)

International Rules: agreements and treaties such as the Paris Convention on Climate Change create legal obligations for governments AND businesses

Absence of Rules: some countries have few if any environmental rules, or they are not enforced, and so Canadian businesses can see this as either an opportunity or a risk. Why? Is lack of environmental regulation a good thing for business?

Question 73

How do rules regulating the environment encourage innovation?

Answer 73

Compliance Innovation: there are many innovative ways to comply with environmental laws and these options create opportunities for innovation and competitive advantage

Best Available Technology: many environmental laws require businesses to use BAT but do NOT specify exactly which technology must be used since the main objective is to meet the environmental target through any numbers of ways

New Products, Services and Markets: environmental rules may prohibit certain products and activities BUT promote or encourage other products and activities and this creates new opportunities (examples: rules on carbon production and energy alternatives such as solar or battery or wind, recycling requirements create new markets for recyclables and new incentives for recycling technologies) Rules on plastic use and plastic bags also create new opportunities. How?

Question 74

What are the risk management strategies on gov regulation

Answer 74

Identify Rules and Obligations: rules not only deal with environmental harm, but also evaluation through impact assessments and consultation, and rules exist at various levels of government (federal/Canadian, provincial, municipal)

Evaluate Compliance at your Business: determine whether your business is not only managing environmental risks (through monitoring technologies and training) but also whether your business is taking advantage of new opportunities that environmental laws create

Evaluate Costs of Compliance and Compliance Strategies: determine the costs and benefits of compliance and environmental risk reduction and include in that evaluation the financial and reputational harm of an environmental accident (including on investors and shareholders, and the costs of your insurance policies)

Evaluate Benefits of your Environmental reputation: businesses that invest in environmental protection and have a reputation for corporate social responsibility (CSR) have a better relationship with consumers, and, increasingly, investors