COVID-19 and Contract Obligations

Contracts are of vital importance to the workings of society.  They hold people accountable to their promises and actions.  When a contract has the necessary elements (offer, acceptance, and consideration) as well as being properly signed, the parties will be bound to whatever promises were made in the contract.

Often, contracts have stipulations that address situations in which a party does not meet their contractual obligations.  It is easy to see why such stipulations are placed in contracts.  If you exchange promises with someone else and you fulfill your obligations and the other party does not, you should have recourse against the other party.

However, what if something arises that couldn’t be anticipated by either party to the contract which stops one or both parties from fulfilling their promises under the contract.  A “Force Majeure” clause is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, plague, or an event described by the legal term act of God prevents one or both parties from fulfilling their obligations under the contract.

Could COVID-19 activate a force majeure clause in a contact?  It depends on a multitude of factors.  A non-exhaustive list is as follows:

  • The wording of the particular force majeure clause;
  • What the obligations were under the contract; and
  • The steps the parties have taken to try to fulfill their obligations.

The force majeure clause must have language broad enough to capture events such as COVID-19.  Further, the obligations under the contract must be such that the effects of COVID-19 would make it impossible for the party to complete their obligations under the contract and the parties must act with the honest intention of actually fulfilling their obligations.  A party cannot simply rely on COVID-19 as an excuse for not performing.

It is always advisable for one to fulfill their contractual obligations but sometimes situations arise in which contract performance is impossible through no fault of their own.  In those situations, a force majeure clause may save a party from recourse by the other.

 

Child Support Obligations Even if not Married?

Is there potential for child support obligations even if you are not the child’s biological parent.  Yes. Similarly, can there be child support obligations even if you are not living with the child? Yes.

For a stepparent to have support obligations the following must be true:

  1. You must be considered a stepparent under the Family Law Act (FLA);
  2. The stepparent contributed to the support of the child for at least one year; and
  3. A proceeding for an order under this Part, against the stepparent, is started within one year after the date the stepparent last contributed to the support of the child.

 

  1. Being a Stepparent

A stepparent under the FLA means a person who is a spouse of the child’s parent and lived with the child’s parent and the child during the child’s life. Being a stepparent is therefore incumbent on the definition of “spouse” as well as “lived with”.

Spouse

A spouse under the FLA is a person who has lived with another person in a marriage-like relationship, and has done so for a continuous period of at least 2 years. There is no checkbox list to determine when there is a marriage like relationship. But here are some indicia:

  • Whether the parties lived in the same residence and, if so, what were the sleeping arrangements in the shared residence;
  • Whether the parties prepared and ate their meals together;
  • Whether the parties performed domestic chores, tasks and services together;
  • Whether the parties had sexual relations, maintained an attitude of fidelity, and communicated on a personal level with one another;
  • Whether the parties bought each other gifts and celebrated special occasions together;
  • Whether the parties shared financial arrangements and supported each other financially;
  • Whether the parties conducted themselves socially and in public as a married couple.

The presence or absence of any one of these factors is not determinative of a marriage-like relationship. The relationship must be taken in its entirety to determine whether a marriage-like relationship exists.

Lived With

As a matter of law, it is well established that parties can maintain two residences and still be in a marriage-like relationship: W. (S.L.M.) v. W. (M.R.G.), 2016 BCSC 272. “Lived with” can involve parties living under different roofs for extended periods of time.  Staying over several times per week could be found to be “cohabitation”.

  1. Contributed to the Child for at Least One Year

Expenditures by the stepparent on behalf of the stepchild that are trivial in nature or are sporadic or in the character of gestures of occasional generosity or kindness may not qualify as contributions that attract a duty to support: McConnell v. McConnell, 2007 BCSC 748 (B.C. S.C.) and D. (D.C.) v. C. (R.J.P.) 2014 BCSC 2420. The support contributions must be of a more significant nature. Examples from the case law include contributions made by the stepparent to shelter, food or vacations: Z. (O.) v. Z. (M.), 2016 BCPC 416.

Conclusion

It is very important to know your legal rights and obligations when you enter into a relationship with another person, especially when that other person has a child from a previous relationship. If you are unaware of your legal position in relation to the child, you may end up subject to unwanted support obligations.

If you are concerned about potential child support obligations or if you have any other family law concerns please contact Heath Law LLP 250-753-2202.    

Confidentiality of Medical Records

You have recently been injured due to another person’s negligence (the “Incident”). The injuries are ongoing and starting to affect your daily living. You are considering starting a lawsuit but are hesitant because of a story you heard from your friend when they started a lawsuit. The friend told you that all of their personal information was no longer private, even the conversations they had with their doctor.

The truth of the matter is that the legal process is both private/confidential as well as public. The confidential portion of the legal process is that information you share is only made available to your lawyer and the opposition’s lawyer. There are very strict rules controlling lawyers and how they deal with information provided to them by clients. The public aspect arises if a lawsuit goes to trial, the public is at liberty to watch the trial and read any decisions that a judge makes with regard to the lawsuit. Quite often, especially in cases involving personal injury, one’s medical information becomes relevant and therefore potentially available to the public.

When it comes to medical reports not all of one’s medical history is necessarily relevant. A lot depends on the nature of the lawsuit one brings. For example, if from the Incident you are claiming that an injury to your arm is affecting your livelihood, then medical records pre-dating the Incident that relate to your arm should be disclosed.

The reason your medical history is disclosed is because it is necessary during the legal process to determine how much the Incident actually contributed to your current ailments.

The courts will always try to balance the privacy interests of plaintiffs against necessary document disclosure to ensure a fair trial. Only medical records that are considered relevant should be disclosed.

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.

 

Does a Child Get To Choose Which Parent They Will Live With?

When parents separate an obvious and perhaps most important decision is where the children of the relationship are going to live.  Any decisions about the time the child will spend with their parents have to be made in the best interests of the child.

What choice does the actual child have in the matter?  It depends.

Either the parents themselves or the courts will have to make the decision as to the time the children will spend with each of the parents.

The separating parents can come to an agreement with regard to parenting arrangements.  Parents when making such agreements may hear the opinions of their children and come to the agreement accordingly.

If the parents cannot come to an agreement then the courts will have to get involved.  The court will decide where the child should live and how much time the child will spend with each of the parents.

The BC Family Law Act says that the court must think only about the child’s best interests which includes a consideration of the following:

  • the child’s health and emotional well-being;
  • what the child thinks or wants, unless it’s inappropriate to consider this;
  • the love and affection between the child and important people in the child’s life;
  • need for stability, which can depend on the child’s age and stage of development;
  • who looked after the child in the past and how well they looked after the child;
  • how well the parents or any other person who wants guardianship, parenting time, or contact will be able to look after the child;
  • if there was any family violence, its effect on the child’s safety, security, and well-being; and
  • whether arrangements that need the child’s parents to cooperate with each other are appropriate.

When considering the opinion of the child a major factor is the age and maturity of the child.  An older more mature child’s opinion will be given much more weight than a younger more immature child.

It is very helpful to get legal advice when children are involved in a separation.  Meeting with a lawyer does not mean you have to go to court.  Seeing a lawyer can in fact often help avoiding going to court and will ensure a fair deal for all parties involved.  Please call Heath Law LLP at 250-753-2202 for family law related inquiries.

 

Wills – No-Contest Clause Validity

A no-contest clause in a Will attempts to limit a beneficiary’s ability to challenge the Will.  An example of such a provision would be:

To X but if X directly or indirectly attempts to contest or oppose the validity of this Will, then X shall forfeit his or her right to the legacy, bequest or gift.

How have the BC courts treated no-contest clauses?

There have been two BC cases that have dealt with no-contest clauses.  In both of the cases, the no-contest clause was deemed invalid.  In one case the no-contest clause was deemed invalid as it breached the in terrorem doctrine by not including a gift-over provision in the no-contest clause and the other was deemed invalid on the basis of public policy as the no-contest clause attempted to circumvent the provisions of legislation formerly known as the Wills Variation Act (“WVA”).

In Bellinger v. Nuytten Estate, 2003 BCSC 563, a no-contest clause was the subject of judicial scrutiny.  The court deemed the no-contest clause void.  The court based its decisions on a breach of the in terrorem doctrine.  This doctrine is creature of equity and stands for the proposition that the will-maker had not really meant to impose the no-contest clause, and that therefore the condition could only be valid if the will-maker demonstrated, by the inclusion of an explicit gift-over clause, that the will-maker intended as the Will suggests.  So in other words, for a no-contest clause to be valid it must include an explicit gift over clause.  A gift over clause using the example above would look like this:

To X but if X directly or indirectly attempts to contest or oppose the validity of this Will, than X shall forfeit his or her right to the legacy, bequest or gift.  If X forfeits his or her right to the legacy, bequest or gift, then the forfeited gift will fall into the residue of my estate.

In Kent v Mckay, [1982] B.C.J. No. 67 the court determined that the no-contest clause was void not because of the lack of a gift over clause but on the basis of public policy.

The court observed that the no-contest clause in Kent purported to forbid “any litigation in connection with any of the provisions of this my Will.” It therefore encompassed even applications under the WVA.

The court in Kent further stated that it is a matter of public policy that support and maintenance be provided for those defined individuals under the WVA and it would be contrary to public policy to allow a testator to circumvent the provisions of the WVA by the creation of such a no-contest clause as was present in Kent. It is important to the public as a whole that widows, widowers and children be at liberty to apply for adequate maintenance and support in the event that sufficient provision for them is not made in the will of their spouse or parent.

Executor’s Remuneration

When you are named as the Executor in another’s Will, there are many duties, obligations and rights associated with that designation.  One of those rights is Executor remuneration.

Executor’s remuneration in BC is guided by s. 88 of Trustee Act.  An executor can receive a maximum of 5% of the gross aggregate value of the estate for his or her care, pains, trouble and time spent in and about the executorship.  The Executor can also receive a fee of .4% of the average market value of the assets on a yearly basis for the care and management of the assets by the Executor.

In addition to the principles found in s.88 the Will itself could designate the amount of remuneration for the Executor.

In either scenario, the amount of remuneration still must be fair and reasonable and bear some reasonable relationship to the work and responsibility of the Executor.  If there is a dispute amongst the beneficiaries and Executor as to how much remuneration an Executor is entitled to, the court will have to intervene and determine the appropriate level of remuneration. The factors that a court will consider when determining Executor remuneration include:

  1. the magnitude of the estate;
  2. the care and responsibility involved;
  3. the time occupied;
  4. the skill and ability displayed; and
  5. the success achieved in the final results.

An Executor can also be reimbursed for expenses he or she may have incurred as a result of fulfilling his or her duties as Executor.  For example, an Executor may have to seek the aid of lawyers or accountants when handling the estate.  The fees that the Executor pays to these various professionals can be recovered as long as they related to the estate and for services that the Executor could not have performed themselves.

The Family Maintenance Enforcement Program (FMEP) and Cost Awards

The purpose of this blog will be to provide a brief overview of the purpose behind the FMEP as well as discuss the type of cost awards the FMEP will enforce.

The FMEP is a free service provided by the BC government. The FMEP enforces support orders and agreements on behalf of the person who is owed support (“Creditor”).  Once someone is enrolled in the FMEP, all support payments must be sent to the FMEP. The FMEP processes the payments and sends them on to the Creditor.

To enforce a support order or agreement, the FMEP can take all legal steps the Creditor could take on their own. The FMEP can also take other steps the Creditor cannot, like restricting the driver’s licence of the person who owes support (the “Debtor”) or taking away their passport.

If support payments are missed and arrears are owed, the enforcement steps the FMEP takes depend on how much arrears are owed, the current situation of the Debtor, and the actions the FMEP thinks have the best chance of success in the circumstances.

The FMEP can garnish wages, redirect money from government institutions, file liens on the Debtor’s property, place restrictions on the Debtor’s licence or passport and even put the Debtor in jail.

As can be seen from the above the FMEP can be a very forceful tool in enforcing payments under maintenance orders.  However, what type of court costs will the FMEP enforce?

First, what are court costs?  There are costs associated with going to court.  They can include court filing fees, legal bills, attendance at court, “disbursements” (i.e., photocopy charges, printing etc.) and other related matters.  The general rule of costs is that absent any special circumstances or considerations, a successful litigant can obtain an order for his or her costs.  This means that if you win your case, the other party may have to pick up a significant portion of your court costs.

The FMEP will enforce maintenance payments and included in the definition of maintenance under the Family Maintenance Enforcement Act is fixed costs awarded under the regulations in favour of the director or a creditor.  Section 15 of the Family Maintenance Enforcement Regulations (the “Regulations”) say that the court can award costs if the court believes the default under the maintenance order could have been avoided.  This would lead to the conclusion that the FMEP will only enforce court costs that stem from s.15 of the Regulations.

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.

 

 

 

Best Efforts vs Reasonable Efforts
Contracts require the performance of certain obligations. These obligations can be in the form of mandatory obligations which are referred to as covenants. Covenants are usually drafted with imperative language such as “shall” or “must”. There are also contingent obligations which arise upon certain events occurring. They are usually drafted with “If…then” clauses. There can also be obligations that are based on an objective standard. An example of those types of obligations in a contract would be if the contract stipulated a party to use its “best efforts”, “reasonable efforts” or “commercially reasonable efforts”.
One looking at a contract would not probably put much thought into the implications of the words “best efforts” and “reasonable efforts”. However, at law there is a legally significant difference between these standards.
In general, the case law has established that an obligation to use “best efforts” imposes a higher standard than some of the other common phrases found in contracts such as “reasonable efforts”. The leading case on the interpretation of “best efforts” is Atmospheric Diving Systems Inc. v. International Hard Suits Inc. (1994), 89 B.C.L.R. (2d) 356 (B.C. S.C.) [Atmospheric].

The court summarized the principles relating to “best efforts” as follows:

1. “Best efforts” imposes a higher obligation than a “reasonable effort”.

2. “Best efforts” means taking, in good faith, all reasonable steps to achieve the objective, carrying the process to its logical conclusion and leaving no stone unturned.

3. “Best efforts” includes doing everything known to be usual, necessary and proper for ensuring the success of the endeavour.

4. The meaning of “best efforts” is, however, not boundless. It must be approached in the light of the particular contract, the parties to it and the contract’s overall purpose as reflected in its language.

5. While “best efforts” of the defendant must be subject to such overriding obligations as honesty and fair dealing, it is not necessary for the plaintiff to prove that the defendant acted in bad faith.

6. Evidence of “inevitable failure” is relevant to the issue of causation of damage but not to the issue of liability. The onus to show that the failure is inevitable regardless of whether the defendant made “best efforts” rests on the defendant.

7. Evidence that the defendant, had it acted diligently, could have satisfied the “best efforts” test, is relevant evidence that the defendant did not use its “best efforts”.

“Best efforts” does not require a party to disadvantage themselves economically to the point of bankruptcy but it does require for the interests of the other party to be of high priority.
When a contract requires “reasonable efforts” or “commercially reasonable efforts” something less than “best efforts” is required but more than no effort at all. Generally, the courts have interpreted “reasonable efforts” to mean efforts that are reasonable in the circumstances all things considered.