“This contract represents the entire agreement between the parties. The contract supersedes all prior negotiations, representations or agreements, either written or oral, including the bidding documents.”

This clause, or something similar to it, is known as an entire agreement clause. It is often included within commercial contracts to limit the parties’ liability to the contract’s four corners. In other words, it prevents one party from asserting that the other breached a contractual promise made but not recorded within the contract. This creates legal certainty by lifting the final contract out of the messiness of negotiations. However, there are several circumstances where entire agreement clauses will not be strictly applied.

Where the parties are sophisticated or where they have legal representation during the contract’s negotiations, an entire agreement clause may be strictly enforced.[1] Where there is an asymmetry of bargaining power between the parties, however, the entire agreement clause must have been brought to the weaker party’s attention prior to the contract’s formation.[2] Following from this reasoning, courts have held that an entire agreement clause within a standard form contract will be given less weight; this is because the parties are less likely to have read and understood the clause’s meaning.[3]

Entire agreement clauses will not necessarily prevent a party from suing for negligent misrepresentation of terms not included within the contract. Between sophisticated parties or parties with legal representation, the Supreme Court of Canada has held that protection from liability for negligent misrepresentation is implicitly included within an entire agreement clause.[4] For unsophisticated or unrepresented parties, the possibility remains open. That is, they may sue the other party for breaching a representation made prior to but excluded from the final written contract. Such lawsuits are especially likely to succeed where that representation induced them to enter the contract.[5]

Finally, entire agreement clauses will not shield parties from liability for acting in bad faith. In the 2014 decision of Bhasin v. Hrynew, the Supreme Court of Canada created a new common law duty of honest performance in contracts.[6] Parties cannot use an entire agreement clause to contract out of this duty. Therefore, fraudulent misrepresentations during a contract’s formation will always remain actionable.

If you’re entering a commercial contract be mindful of the entire agreement clause and its effect on any representations the other party has made to you during the negotiations. For more information please call our office at (250) 753-2202.

 

[1] No. 2002 Taurus Ventures Ltd. v. Intrawest Corp., 2007 BCCA 228; Power Consolidated (China) Pulp Inc. v. British Columbia Resources Investment Corp., [1989] B.C.J. No. 114 (B.C.S.C.).

[2] Zippy Print Enterprises Ltd. v. Pawliuk, [1995] 3 W.W.R. 324.

[3] Turner v. DiDonato, 2009 ONCA 235, at para. 46; Wright v. 2137737 Ontario Inc., 2010 ONSC 2956;

Parkland Industries Ltd. v. Smart Gas and Auto Detailing Ltd., 2013 BCSC 1046.

[4] Bow Valley Husky Ltd. v. St. John Shipbuilding Ltd. [1997] 3 SCR 1210, 1997 CanLII 307 (SCC)

[5] Tilden Rent-A-Car Co. v. Clendenning, 1978 CanLII 1446 (ON CA)

[6] 2014 SCC 71

When non-medical cannabis became legal on October 17, 2018, provincial and municipal governments were handed the responsibility of regulating cannabis retail stores.  British Columbia has one of the most progressive stances of cannabis, but that does not mean that applying for a retail store is easy.  Applications for cannabis retail store licences are time consuming, costly, and extremely detailed.

The precise requirements for applicants will depend on whether they are applying as a sole proprietor, partnership, corporation, or as an Indigenous Nation.  There is a financial integrity check and a criminal record screening.  These steps are to ensure that the applicants are not connected to organized crime.  Applicants should be prepared to share their past addresses, employment history, corporate associations, financial accounts, and any connections they have with federal producers of cannabis.  Applicants must also prepare floor plans and site plans of the proposed retail store.

A critical step in the process will be getting the approval of the local government or Indigenous nation whose land the store will be on.  Local governments and Indigenous nations can set restrictions for these licences, such as location and hours of operations.  They can even outright ban non-medical cannabis retail stores in their area if they wish.  This process may be a simple application or it could develop into a full community consultation.  For an Indigenous nation that wants to build a store on its own land, this step is rather straightforward.  For everyone else, it will be important to check the relevant bylaws and policies before starting an application.

Finally, the licence application fee is $7,500.00.  This is in addition to the annual retail store licence fee of $1,500.00.  Applicants will also want to consider whether they will need to create a corporation or a partnership, purchase or lease the property, and construct a store that meets the specifications set by the provincial government.

If you have any questions about how to apply for a cannabis retail store licence, 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)

Change of Business Name

Approximately 30 years ago, you started a masonry business.  You decided to call this company “Smith’s Masonry Services”.  Business was good so you started to look at adding different business lines.  You found that there was a need for masonry in the assembly of fireplaces.  Things further evolve and you notice that there is a demand for the installation of the fireplaces.  As years pass on your firm is capable of installing fireplaces.  Business is booming, in fact there are so many requests for the installation of fireplaces, that your original masonry business is almost inactive.  Because of this change in business your company’s name may be somewhat misleading.

How does a business change their Company’s name?

In British Columbia, there are two steps.  The first step is to request a name approval.  This step is to ensure the public is not confused or misled by similar corporate names.  New corporate names must be approved by the Corporate Registry.  Before making application for the name approval, one should conduct an online search of the registered BC companies and organizations database on BC Online to ensure that new business name is not already taken.

The second step is file a change of corporate name.  In order to submit the application through Corporate Online you will need your incorporation number, company password and Customer Profile ID.  If you do not have a Customer Profile ID, you need to create one on Corporate Online before you can file the change of the company name.  Also, companies must be in good standing with all filings up-to-date before altering the company name.

As per the Government of British Columbia Website, these are the 3 most common reasons why names are not approved:

  1. Name is too similar to an existing corporate name within the same industry.
  2. Research was not conducted before applying to make sure the name wasn’t already in use.
  3. Name lacks a distinctive and/or descriptive element.

 

Can You Modify a Contract Without Consideration?

Imagine that you lend $100.00 to a friend named Sally, so that she can buy a car. You are a good friend and you agree to lend Sally the money interest-free. You ask to be paid back the full amount within a year. When the year is up, you ask for your money back from Sally. However, Sally is still in a tight spot and she asks if she can have another year to pay you back. Due to your gracious nature, you agree to the extension of the loan. This cycle happens for another few years, where Sally always asks if she can pay you back next year. Finally, after Sally refuses to pay you back the loan, you become frustrated and sue Sally to get your money back. In her defence, Sally says that you have waited too long, and that your claim for your money is barred as the limitation period has expired.

Sally’s argument in Court is that the limitation period started to run after the first year was up, since this is when you first demanded the loan back. This means, that since you waited longer than two years to sue, the limitation period has expired and consequently you cannot sue. Further, Sally is arguing that because she did not give you any fresh consideration (i.e. some benefit for modifying the terms of the contract), that her promises to pay you back in the following years do not modify the original terms of the loan.

This is exactly what happened to the Plaintiff in the recent BC case of Rosas v Toca, 2018 BCCA 191. When Rosas sued Toca in the BC Supreme Court, the Court found that Rosas was barred from pursuing her claim against Toca, as the limitation period had expired. Further the Court found that because Ms. Toca was already under an obligation to pay back to the loan, her further promises to pay were not enforceable. Ms. Rosas appealed to the British Columbia Court of Appeal.

The BC Court of Appeal found that Ms. Rosas could rely on the promises of Ms. Toca to pay back the loan. This case is interesting, as it signals an important change in the law. The Court found that there was an evolution in the law regarding the doctrine of consideration in the context of contract modifications. The Court found

[176]  In the final analysis, I am persuaded that the legitimate expectations of the parties in the case of a modification to a going transaction should be protected. This is the motivating premise in the many cases where courts have struggled to find “consideration” so as to do justice between the litigants. It is but an incremental evolution of the law to say that in these cases, in the absence of duress, unconscionability or other proper policy considerations, such modifications should be enforceable            

[emphasis added]

Specifically, the Court held that Toca’s promises to pay back the loan every year were made in the absence of duress, unconscionability or other proper policy considerations. For this reason, the Court found that the promises to pay back the loan were enforceable, in spite of the fact that Toca did not give Rosas any further consideration for the extension of the loan. The last promise that Toca made to Rosas was inside of the limitation period, which means that the terms of the original loan were modified and Rosas could rely on the promises to pay back the loan.

Overall, the implications of this case could be far reaching, as it means that contracts are able to be modified without fresh consideration between the parties. In the words of the Court, “in absence of duress, unconscionability or other proper policy considerations”, such modifications to a contract should be enforceable.