Litigation Privilege – What About Communications Amongst the Board of Directors?

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Does Litigation Privilege Apply to Communications Amongst the Board of Directors?

Litigation privilege prevents a party to litigation from having to disclose documents that were made in anticipation of or for the purpose of litigation. Litigation privilege ensures the efficacy of Canada’s adversarial process by giving parties a “zone of privacy” to conduct investigations and prepare for litigation.[1]

While solicitor-client privilege is broader in scope, litigation privilege is distinct in that it is not limited to confidential communications between a solicitor and client. Litigation privilege does not require a solicitor to be a party to the communications whatsoever. However, the courts have noted that litigation privilege, in comparison to solicitor-client privilege, is “less absolute, more fact-driven and subject to challenge.”[2]

A pertinent question then arises: does litigation privilege protect communications among directors of a corporation or society?

Litigation Privilege Criteria

The short answer is it depends. For litigation privilege to apply, the party asserting privilege must establish for each document over which privilege is being claimed:

(1) that litigation was ongoing or was reasonably contemplated at the time the document was created; and

(2) that the dominant purpose of creating the document was to prepare for that litigation.[3]

The two-prong test is objectively assessed, meaning very little consideration is given to the party’s subjective thoughts. The first prong of the test is assessed by asking: “Would a reasonable person being aware of the circumstances conclude that the claim will not likely be resolved without litigation?”[4] The analysis of the second prong is fact-driven, focusing on the surrounding circumstances in which the document was created.[5] Considerations in this analysis include “when [the document] was created, who created it, …and what use was or could be made of it.”[6]

How to Protect Directors’ Correspondence

If directors intend to rely on litigation privilege to protect their correspondence, they must ensure that the documents are created in the face of litigation, and that the dominant purpose of the documents is for the impending litigation. It is prudent practice for directors to specify that the dominant purpose of the document is for litigation. Additionally, directors should avoid including disparaging or irrelevant comments in the correspondence to maintain the dominant purpose of litigation.

[1] Blank v Canada (Minister of Justice), 2006 SCC 39 at paras. 27 and 34.
[2] Stone v Ellerman, 2009 BCCA 294 at para. 27.
[3] Gichuru v British Columbia (Information and Privacy Commissioner), 2014 BCCA 259 at para. 32.
[4] Raj v Khosravi, 2015 BCCA 49 at para. 11.
[5] Ibid, at para. 17.
[6] Birring Development Co. Ltd. v Binpal, 2021 BCSC 1298 at para. 31.

 

Contact Heath Law in Nanaimo for any questions.

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Understanding the Short-Terms Rental Accommodations Act of British Columbia

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How BC’s Short-Term Rental Accommodations Act Affects Your Property

The government of British Columbia has recently enacted new legislation regarding short-term rentals. The Short-Term Rental Accommodations Act (the “Act”) came into effect in October 2023 and will continue to be rolled out over the course of two years. The primary aim of the Act is to address the housing shortage by transitioning short-term rental units into long-term housing options. However, there are certain exemptions to the new legislation including hotels, motels, student accommodations, as well as ski and resort regions, and farmlands.

A short-term rental is defined as the service of accommodation by a property host, in exchange for a fee, that is provided to members of the public for a period of less than 90 consecutive days. The Act limits short-term rentals to where the host utilizes the property as their principal residence, meaning they reside at the residence for a longer period of time in a calendar year than any other place. Further, the property host may offer for rent a secondary suite or an accessory dwelling unit where the property is the host’s principal residence. The principal residence requirement applies to communities with a population higher than 10,000 people, including smaller neighbouring communities. Communities such as Tofino and Whistler are not included in the principal residence requirement, however, their local governments may choose to opt-in to include this requirement.

The Act also imposes obligations on the host of short-term rentals as well as the platform service providers, such as Airbnb and VRBO, to be registered with the province. The host must include their provincial registration number, and where applicable, a business licence number on the rental listing.

The Act will have impacts on short-term rentals found on Airbnb, VRBO and other platforms, however, rentals will still be available where the property is the principal residence of the host. Where it is the principal residence, the host can rent the property, as well as one secondary suite or one accessory dwelling unit.

Do you have questions about turning your primary residence into a short-term rental, or how the Act affects secondary properties? Contact Heath Law to schedule your consultation.

*This blog is up to date as of June 1, 2024*

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What annual documents need to be prepared for a corporation in B.C.?

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Key Annual Obligations for Corporations in British Columbia

The British Columbia Business Corporations Act (BCA) requires all corporations to file an annual report with the registrar, pursuant to section 51 of the Act. By filing your annual report, you are informing the B.C. Registry that your company is in active standing. A failure to file an annual report after two consecutive years may result in company dissolution. This post looks at important annual maintenance responsibilities and obligations of a corporation.

Annual Reference Date and Annual General Meeting

Section 1(1) of the BCA describes the annual reference date as the date when the next general meeting is to be held. This date is to be one year from the previous annual general meeting or before as approved by shareholders which needs to be filed in the annual general meeting.

The BCA requires that a corporation hold an annual general meeting every year, within two months after each anniversary of the date on which the company was recognized. At the meeting, the directors are to provide financial statements as well as any auditor’s report on the financial statements. Note that the BCA does allow all shareholders to vote on a resolution to waive an annual general meeting and if it is unanimously passed then the meeting does not have to be held.

Financial Statements

A corporation and its directors are required by law to produce and publicize annual financial statements under s. 198(2) of the BCA, ensuring that the financial statements are prepared properly. Section 199(1) provides that financial statements are to be approved and signed by the directors before they are published and completed with an auditor’s report. Section 200(1)(a) of the BCA allows directors to be relieved of this obligation if all shareholders unanimously resolve to waive the requirement.

Director Elections and Appointing an Auditor

Every annual filing requires that at least one director be appointed to the corporation. This needs to be shown in the documents of the annual general meeting. Section 203(1) of the BCA requires that every corporation have an auditor and the auditor has to report on the financial statements of the corporation, s. 212(1). Hiring an auditor for a small corporation can be an expense that is unnecessary. The act does allow a corporation to waive the need for an auditor, as per s. 203(2). To waive the requirement all shareholders must unanimously resolve to waive the requirement on the resolution.

 

If you need professional consultation to understand your legal responsibilities when choosing to incorporate your business, contact Heath Law, in Nanaimo, BC or read more commercial law articles here.

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I have a small business, what are the advantages of incorporation?

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Advantages of Incorporation for Small Businesses

As a small business grows, there are risks of personal liability. The act of Incorporating a business is one way to mitigate personal liability. Limited liability is not the only advantage that incorporation provides. This post explores the advantages of incorporation, focusing on its legal, financial and operational benefits.

Limited Liability Protection

Incorporation establishes the business as a distinct legal entity, separate from its owners. This pivotal separation shields personal assets from business liabilities and debts. Incorporations offer some protection from potential lawsuits or financial encumbrances, bolstering financial security and risk management.

Transfer of Ownership Interests

The ownership of corporations is generally in the form of shares, rather than holding specific assets. Shares permit increased flexibility in ownership transitions, which may enable smoother succession planning or acquisitions.

Unlimited Life Span

Provided the corporation maintains its registration with the provincial government (as the case may be), it has an everlasting existence. This is in contrast to other forms of business, such as a sole proprietorship where the business may dissolve upon the owner’s demise, and corporations sustain operational continuity.

Enhanced Credibility

Incorporating signifies a commitment to long-term business viability, enhancing credibility among stakeholders. The enduring corporate structure conveys stability and reliability, instilling confidence in investors, lenders, employees, suppliers, and customers alike. This credibility may foster stronger business relationships and growth opportunities.

Improved Access to Financing and Tax Benefits

Corporations attract greater attention from investors and lenders due to their transparent organizational structure. Moreover, corporations may leverage tax advantages such as lower tax rates, deductions, and income splitting among shareholders.

Provincial vs. Federal Incorporation

The choice between provincial and federal incorporation hinges on the business’s expansion plans and operational scope. Local businesses with limited geographical reach may opt for provincial incorporation, while those considering national or international expansion may benefit from federal incorporation.

The above list is just a small sampling of the advantages of incorporation for small businesses. Heath Law’s team of commercial and business law experts can provide the legal advice you need for your small business type.

Contact us to book an appointment with one of our lawyers today or read more commercial law blogs.

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What are the tax implications of buying a business, and how can I minimize them?

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When purchasing a business it is essential for buyers to consider the potential tax implications and strategies to minimize them. Two key tax considerations are the Goods and Services Tax (GST) and provincial sales tax (PST). The method of acquisition, whether through share or asset transfer, significantly impacts the tax outcome. In general, when buying a business by transferring shares, GST is often exempt, as shares are considered financial instruments. However, in asset transfers, the GST exemption does not apply, so careful evaluation of the transaction is necessary to determine GST obligations. To further complicate matters, the choice between share and asset transactions can also affect provincial sales tax liabilities. Real estate holdings within the business, for instance, can significantly impact property transfer tax costs.

To navigate these complexities and minimize tax burdens, buyers should conduct a thorough tax assessment and consider seeking professional guidance to make informed decisions during the acquisition process. An asset purchase as opposed to a share purchase can be better for the buyer when considering potential tax implications, however, it tends to cost the seller more. Therefore, a seller may demand a higher price in an asset deal to offset its reduced proceeds.

In a share purchase transaction, the purchaser becomes responsible for any unpaid GST, source deductions and income tax that was to be paid by the target company. These tax compliance matters could expose the purchaser to significant liabilities after the share purchase. Reviewing all financial matters including tax compliance by your tax/accounting consultant is essential. Unknown tax liabilities could be mitigated by a holdback (from the purchase proceeds) to be held for a set period of time after the share purchase to meet any unknown tax obligations.

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What intellectual property considerations are important in a business acquisition?

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When acquiring a business, prospective buyers should give careful attention to the realm of intellectual property (IP). Protecting and leveraging these intangible assets is paramount. A buyer would do well to consider any trademarks, and whether they are owned by the business or individuals, and to ensure they are registered. A buyer should evaluate the business’s brand recognition in the market.

They should also assess patents and inventions, scrutinize copyrighted material, and confirm ownership and usage rights. A buyer of a business should not overlook the safeguarding of trade secrets and confidential information, as these may be pivotal to the business’s success.

Moreover, to further ensure the value of the business the buyer is looking to acquire, they should delve into the web of existing non-compete and non-disclosure agreements, as they could impact the business’s post-acquisition operations.

The buyer should examine licensing agreements and the potential need for updates. During the due diligence process, the buyer should uncover any lingering IP issues, such as disputes or potential or ongoing lawsuits. Post-acquisition, the buyer may wish to chart a clear IP strategy to maximize the value of the assets, including any purchased IP, and potentially expand the business’s IP portfolio.

Collaborating with legal experts and IP professionals will help ensure a seamless transition and long-term protection for your intellectual property investments.

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What permits, licenses, or regulatory compliance issues should I be aware of?

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Purchasing a business can be an exciting endeavor. However, it comes with a complex regulatory landscape that demands a prudent buyer’s attention. To ensure a seamless transition and long-term success, it is crucial to be aware of various potential permits, licenses, and compliance matters.

Firstly, business licenses are a fundamental requirement, with specific criteria varying by municipality. A buyer will need to ensure that the business is registered and in good standing. Industry-specific regulations, zoning and land-use requirements, employment standards, and environmental regulations also factor in, which all demand careful consideration.

Additionally, a buyer will need to consider federal regulations, tax obligations, and intellectual property concerns. To navigate these complexities effectively, consulting with legal and business professionals is highly advisable. By addressing permits, licenses, and regulatory compliance diligently, a buyer can avoid many potential roadblocks on the way to operating their new business.

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How do I negotiate the terms of the purchase agreement?

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Negotiating a business purchase agreement requires a systematic approach.

We recommend engaging experienced legal and financial professionals to guide you through the process. A recommended step to begin with is to send a non-binding Letter of Intent (LOI) that outlines key terms and conduct thorough due diligence to uncover any issues.

Either on your own or with the assistance of counsel, negotiate the purchase price, terms, and financing, taking into account asset and liability allocation, as well as ongoing involvement by the seller. Ensure you address essential legal components, including whether it is an asset or share purchase, employee considerations, tax considerations, and non-disclosure and non-compete clauses.

Finally, ensure the agreement is meticulously reviewed by your counsel before the closing date. A well-structured purchase agreement and professional guidance are critical for a successful business acquisition and can help avoid headaches and pitfalls in the future.

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What contracts and agreements do I need to review or create during the acquisition process?

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The acquisition of a business is a multi-faceted endeavour, where understanding and navigating a web of contracts and agreements is paramount. At the heart of the acquisition process lies the Purchase Agreement. This all-encompassing contract outlines the terms and conditions of the sale, from the purchase price to the assets and liabilities to be transferred. It is the lynchpin of the transaction and warrants thorough review. Employee and customer relationships are the lifeblood of any business. Consequently, review and, in the event of an asset sale, amend Employment Contracts to retain key staff, and to ensure you are aware of the existing contracts. If you are purchasing the shares of a business, you will want to review the employment contracts as you will inherit the employees on the same terms. Analyze Customer Contracts to ensure they are transferrable, and address any clauses related to change of control. Likewise, scrutinize Supplier Contracts, assess their transferability, and gauge the favorability of their terms. Lease Agreements for the business premises should be reviewed, and you should secure assurance that they can be assigned to the new owner. Intellectual property is another critical facet, and if applicable, inspect related agreements to ensure a seamless transition of ownership. For franchises, study the Franchise Agreement thoroughly and secure approval from the franchisor for the change in ownership. Do not forget to examine any outstanding Loan Agreements, ensure you understand their terms, and determine your responsibility for repayment. Furthermore, look into existing insurance policies to assess coverage and determine the need for additional coverage, such as liability insurance.

The art of crafting a successful business acquisition also involves careful consideration of Warranties and Representations from the seller, employment and severance agreements for affected employees, Non-Competition and Non-Disclosure Agreements to safeguard sensitive information, and if applicable, agreements related to environmental and regulatory compliance. In this intricate dance of contracts and agreements, seeking guidance from legal counsel is strongly advised. The exact array of agreements may vary depending on the nature of the business, industry, and unique circumstances of the acquisition, so meticulous attention to detail is the name of the game when you choose to step into the world of business acquisition, and retaining legal and accounting professionals can ensure you are protecting your interests.

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How can I protect myself from assuming the seller’s liabilities?

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When acquiring a business, whether in British Columbia or elsewhere, safeguarding yourself from inheriting the seller’s liabilities is of paramount importance. Several strategies can help mitigate these risks.

First, a comprehensive due diligence process is vital, specifically you will want to examine the seller’s financial, legal, and operational history with expert assistance from lawyers and accountants. A well-structured purchase agreement is equally essential, and it should delineate which liabilities you will assume and which the seller will retain. Including indemnification clauses within this agreement will offer protection by allowing you to seek compensation for any unforeseen liabilities after the sale.

Choosing an asset purchase over a share purchase can limit exposure to the seller’s liabilities, while holdback provisions and environmental assessments may provide further security. You will want to carefully review existing contracts, renegotiate where applicable, and invest in insurance coverage to guard against unforeseen liabilities. Finally, legal guidance is indispensable to ensure that your interests are comprehensively protected throughout the acquisition process. Tailoring these strategies to your specific situation is key, underscoring the importance of diligence, knowledge, and proactive measures to minimize the risk of assuming unwanted liabilities.

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