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.

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.

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.

 

 

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.

Force Majeure Provisions to add to Real Estate Contracts: Do you need one?

 

Generally, 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 (e.g. COVID-19), or an event described by the legal phrase ‘Act of God’ prevents one or both parties from fulfilling their obligations under the contract.

Before the COVID-19 Pandemic, the standard Contract of Purchase and Sale for real estate contracts in British Columbia did not include Force Majeure provisions.

Realtors, buyers, and sellers now need to consider the use of such provisions within these contracts.

The events that trigger the Force Majeure clause must be clearly defined in the clause. For example, it may not be sufficient to simply reference the phrase “COVID-19”.  It is suggested that more needs to be stated, such as:

“In this contract, a Force Majeure event is deemed to have occurred where, because of COVID-19, any of the following events make it impossible to complete a party’s obligation under the contract:

  • The closure of government offices including without limitation the Land Titles Office including the inability to register transfer or mortgage documents;
  • The closure of banks and credit unions and the inability to obtain financing, cash, credit or immediately available funds in the form of cashier’s cheques, bank drafts or official credit union cheques;
  • The inability to obtain advice from professional consultants including appraisers and engineers;
  • The inability to provide vacant possession because a tenant cannot be evicted until the Pandemic is over;
  • The closure of law and notary offices and the inability to retain and instruct counsel; and
  • The inability of counsel to close the transaction due to a lack of staff or lawyers conversant with the subject matter of the transaction;”

Such an operative clause will act as a shield for the party affected by the event of Force Majeure so that a party can rely on that clause as a defence to a claim that it has failed to fulfil its obligations under the contract.

An Operative Clause should also specifically deal with the rights and obligations of the parties if a Force Majeure event occurs and affects the transaction. In other words, should the inability to complete the transaction only continue as long as the Force Majeure event continues, following which both parties shall promptly resume performance under the contract as soon as is practicable.

 

The following is an example of an Operative Clause:

  1. Neither party is responsible for any failure to perform its obligations under this contract if it is prevented or delayed in performing those obligations by an event of Force Majeure.
  2. Where there is an event of Force Majeure, the party prevented from or delayed in performing its obligations under this contract must immediately notify the other party giving full particulars of the event of Force Majeure and the reasons for the event of Force Majeure preventing that party from, or delaying that party in performing its obligations under this contract and that party must use its reasonable efforts to mitigate the effect of the event of Force Majeure upon its or their performance of the contract and to fulfil its or their obligations under the contract.
  3. Upon termination of those Force Majeure events that have caused a party to be unable to perform, the party affected must as soon as reasonably practicable recommence the performance of its obligations under this contract.
  4. An event of Force Majeure does not relieve a party from liability for an obligation which arose before the occurrence of that event, nor does that event affect the obligation to pay money in a timely manner which matured prior to the occurrence of that event.
  5. Neither party has an entitlement or liability for:
    • any costs, losses, expenses, damages or the payment of any part of the contract price during an event of force majeure; and
    • any delay costs in any way incurred by either party due to an event of Force Majeure.

 

Heath Law LLP provides experienced legal services to realtors, buyers, and sellers. Contact us via phone or email if you require legal advice regarding a real-estate contract.

COVID-19 – Occupational Health and Safety Policy: Do you have one?

Worksafe BC requires that those employers whose employees are working from home due to COVID-19 should ensure they have a basic Health and Safety Policy.

The Health and Safety Policy should contain an acknowledgment from the employee that he or she understands their role, duties, and responsibilities and that they agree to abide by the Health and Safety Policy.

The employer would also sign an acknowledgment that they acknowledge and are aware of the contents of the Health and Safety Policy.

The Health and Safety Policy should require employees to conduct an assessment of their workplace and report any possible or actual hazards to their manager or supervisor.

If any such hazards are discovered, there should be a plan made by both the employer and employee to ensure the safety of the employee.

The Health and Safety Policy should also specifically refer to the following:

  • The procedure for the employee to evacuate from the home or temporary workplace to a safe location in case of emergency; this can only be done by the employee as the employer should not access the home at this time due to COVID-19.
  • The manner in which the employee is to contact the employer in case of an emergency; identify the contact person of the employer, their office, and cell number and e-mail.
  • A statement from the employer to the employee that the employee working at home should use the same safe workplace practices that are expected from them at work.
  • A statement from the employer to the employee describing the procedure for how an employee should report a work-related incident or injury to their employer; identify the contact person of the employer, their office and cell phone numbers, and e-mail.
  • A statement from the employer to the employee that the employee should be as cognisant at home as they are at work about ergonomics; that the employee should take steps to mitigate the risk of developing a musculoskeletal injury.
  • A statement from the employer that the physical risk factors associated with an employee developing musculoskeletal injury by working at home include without limitation repetition and work posture.
  • A statement by the employer that the employee can learn more about musculoskeletal injury, assess the risk in their home, and actively take steps to reduce the risk by reading the following: https://www.worksafebc.com/en/health-safety/hazards-exposures/ergonomics

 

Heath Law LLP provides a full range of services to employers in British Columbia. If you require assistance contact Heath Law LLP by phone or email.

COVID-19 and Parenting Time: What are your rights for parenting time during a pandemic?

Two recent cases from the Courts of British Columbia have discussed COVID-19’s effects on a parent’s right to parenting time.

In N.J.B v S.F., 2020 BCPC 53 (April 1, 2020) a father began denying the mother parenting time.  His justification for doing so was based on the changed landscape arising from the COVID-19 crisis and the health and safety issues arising from it. More specifically, the father asserted that the mother is unlikely to be able to comply with social and physical distancing measures and other protocols currently recommended by public health authorities.

The facts and procedural history are as follows:

The parents separated in October 2018.

After the parents separated the mother’s parents submitted a report to the Ministry of Children and Family Development (the “MCFD”) regarding the mother being unable to care for the child due to the mother’s mental health, parenting skills, and substance abuse.  This report resulted in the MCFD and the father agreeing not to permit the mother to have any unsupervised access to the child.

Over the next few months, the mother and father attended multiple Family Case Conferences, the first being on February 14, 2019, which made orders allowing for the mother to have supervised parenting time.

On March 24, 2020, the father’s lawyer sent a letter to the mother’s lawyer stating that due to concerns related to COVID-19, the mother would not be permitted to exercise her parenting time.  The father had two reason for refusing the mother parenting time.  First, given the mother’s history of mental health challenges, which appear to result in her fabricating ideas and experiencing delusions, the present COVID-19 crisis is likely to impact her mental health further, and cause her to behave in a manner that will pose a risk to the child.  Second, there are seven people who live in the mother’s home.  The father claimed that the large number of people residing in the mother’s home will increase the child’s risk of contracting the virus.

The Courts Decision:

The Court ordered compliance with the parenting order. The father was unable to point to any concrete concerns about the mother and her family’s lack of compliance with COVID-19 protocols.  His concern appears to be based on the mother’s historical, and likely ongoing, challenges with her mental health which has sometimes manifested in paranoid or conspiratorial ideas.  The court accepted that the mother’s variable mental health gives rise to concern, but that concern has been addressed by the fact that all of her parenting is supervised. The court did not find concerns in relation to the mother are any greater under COVID-19 than they were before COVID-19, and as such, ordered compliance with the parenting order.

In another case

In SR v MG, 2020 BCPC 57 (April 7, 2020) a father was denying a mother her agreed to parenting time.  The father’s reason for denying parenting time was due to the mother being a licenced practical nurse.  He believed that her exposure as a nurse to the COVID-19 virus would create undue risk for their child.

In considering a multitude of factors, the Court found the mother to be entitled to her parenting time despite the father’s concerns.  While there was some risk that the mother would catch the virus, it was appropriately mitigated by the mother abiding by the precautions placed upon all front-line workers.

The Court noted that if the child was particularly vulnerable, it would not expose the child to even the slightest risk.

Conclusion from the two cases:

Using COVID-19 as a rationale for not complying with parenting time orders is not prima facie accepted by the Courts.  The parent withholding the child from the other has to supply the Court with concrete evidence which shows that the child is either particularly more vulnerable to COVID-19 or the other parent has created undue risk for the child by disregarding COVID-19 protocols.

 

If you think you may have cause to deny a parenting order due to safety concerns during Covid-19, or if your parenting time is being denied and you would like to discuss your options, call Heath Law LLP or email us.

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.

 

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.

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)