Local governments, such as the City of Nanaimo, are empowered by section 31 of the Community Charter to expropriate land. Section 289 of the Local Government Act gives the same power to regional districts. Expropriation is the taking of land without the owner’s consent and is an exceptional power which isn’t often exercised. The Expropriation Act must be adhered to by the local government and covers procedural requirements to be taken, as well as compensation for the land itself and disturbance caused to the landowner. Local governments can expropriate in order to provide services for the benefit of all or part of the community or in order to provide any services which are considered necessary or desirable.

In 2011 Nanaimo City Council adopted bylaw no. 7130 to expropriate land along Bowen Road. The purpose was to improve the public road and to carry out the replacement of the Quarterway Bridge. The city was unable to acquire the land through negotiation, although negotiation is the preferred option. Local governments secure certainty of costs if able to negotiate a set purchase price, while under expropriation, expenses and damages to be paid to the landowner are much less certain. Local governments are statutorily obligated to pay the market value of the property plus reasonable damages for the disturbance caused by the expropriation – amounts that are challenging to predict.

After a decision to expropriate, the local government will need to physically inspect the land, as certain issues can affect the value of the property. Under section 6 of the Expropriation Act, notice of intent to expropriate the land must be given to the owner, as well as posted on the land itself. Section 32 of the Community Charter provides authority for a local government to enter and inspect the land. Section 290 of the Local Government Act provides the same power for a regional district to enter and inspect, as does section 9 of the Expropriation Act. Consent of the owner is not necessary, but the local government is responsible for paying any compensation related to loss or damage caused by entrance and/or inspection. In compliance with the Expropriation Act, the local government will conduct an appraisal of the market value of the land which would have been obtained had the owner sold under normal circumstances. Reasonable compensation to be paid to the owner must also be calculated, covering factors such as moving expenses, legal expenses, and potentially increased mortgage rates for the owner’s subsequent property purchase.

 

In Royal Pacific Real Estate Group Ltd. v. Dong, 2020 BCCA 323, the British Columbia Court of Appeal made it clear that unauthorized use of a trademark carries legal consequences. The Court found that the Defendant, Mr. Dong, had committed the tort of passing off, despite his arguments that he had proper consent from the Plaintiff, Royal Pacific Real Estate Group Ltd., to use the Royal Pacific trademark. Mr. Dong had signed an agreement with the Plaintiff whereby he would work under the real estate group as an independently contracted real estate representative. The agreement allowed and even encouraged Mr. Dong to use the Royal Pacific trademark in this capacity, because the group is well-known for success in the Vancouver area, having arranged billions of dollars of sales. But Mr. Dong could only properly use the trademark for his work under the real estate group; he was not authorized to use the trademark for his other private businesses. One of these included his business named Bliip Box, which he’d hoped to have as a supplier of real estate websites.

Mr. Dong took several actions which constituted trademark infringement including making available the contact information of the Royal Pacific group on his personal website, such that the public would consider Royal Pacific to be endorsing or associated with Mr. Dong’s personal site. The Defendant also sent solicitation emails to various real estate agents, saying that Royal Pacific was seeking to endorse local businesses through his personal Bliip Box company, while Royal Pacific had no intent of this. Even after Royal Pacific lawfully terminated their agreement with the Defendant, and as such he no longer had authority to use the trademark whatsoever, he continued to do so. Bliip Box continued to display Royal Pacific’s trademark, and in launching this business relied on the Royal Pacific online domain name. The Court of Appeal upheld the trial judgement that Mr. Dong had committed the tort of passing off outlined under section 7 of the Trademark Act. The Court recognized that the three elements of passing off were present, being: The existence of reputation or goodwill, a misrepresentation leading the public to believe an association between the parties, and damage or potential damage to the Plaintiff, as outlined in Vancouver Community College v. Vancouver Career College (Burnaby) Inc., 2017 BCCA 41.

The goodwill associated with familiar trademarks has commercial value, and companies such as Royal Pacific will not stand silent in the face of passing off. The Defendant passing off his goods and services as being endorsed by and associated with the trademarked name can be viewed as the unauthorized use of goodwill, and wrongful confusion of the public. While the trial judge only awarded nominal damages of $6,000 to the Plaintiff, an injunction restraining Mr. Dong from continued trademark infringement was also granted. The Court held that the Plaintiffs underwent considerable inconvenience, but that Mr. Dong hadn’t financially benefited from his conduct.

 

In the recent case of Canex Investment Corporation v. 0799701 B.C. Ltd., 2020 BCCA 231, the British Columbia Court of Appeal showed its flexibility in offering oppression remedies for wronged minority shareholders. The case involved exceptionally high-handed conduct by the two directors of Canex Investment Corporation (“Canex”), leading to their personal financial gain at the expense of the minority shareholder Plaintiffs. Neither Canex nor its minority shareholders benefited from the $500,000 loan taken out and secured by Canex’s properties, rather, the loan was used to finance a related company (Flame Engineering & Construction) controlled by the Defendants. Further, the Defendants falsified financial records related to the Flame Engineering loan, manipulated Canex’s records to reduce the Plaintiffs’ investment through charging excessively high interest and management fees, and advanced arguments which Justice Harris termed as “bogus”.

Section 227 of the Business Corporations Act allows shareholders to apply for remedies when they’ve suffered harm that is typically, but not necessarily, separate from the harm suffered by the corporation as a whole. The remedy granted in this case was the return of the minority shareholders’ initial investment plus interest. In addition, the Court of Appeal found that punitive damages of $100,000 were appropriate, considering the egregious conduct of the Defendants. While the Defendants tried to assert that a derivative rather than an oppression action ought to have been brought by the shareholders, meaning that the Plaintiffs would have additional hurdles in order to obtain financial relief, the Court held that the oppression action was supported. Typically, if harm has been done to the company itself, a derivative action is appropriate. Oppression actions are brought when harm has been done to individual shareholders. But the Court held that the remedy of oppression will not be limited by mere corporate structure, and that the substantive reality of how a company is operated, instead of the legal from, is what matters.

On appeal, the Defendants argued that the trial judge had failed to recognize the formalities of corporate governance when imposing personal liability on the Defendants as directors. But based on the Defendants’ wrongful conduct and taking financial advantage, personal liability had to be imposed despite the separate legal personality of Canex as a corporation. Further, one of the Defendant’s personal liability survived beyond her declaration of bankruptcy because the fraud was committed while acting in a fiduciary capacity. While directors typically only owe fiduciary duties to a company itself rather than individual shareholders, the Court recognized the reality of this closely held corporation. Here, the two shareholders were in a special relationship of trust and dependency with the directors; the directors were expected to manage the company’s financial records honestly and in good faith, yet breached those duties. The Court brought home its disapproval of the Defendant’s oppressive conduct by imposing punitive damages. These types of damages are appropriate when conduct is so high-handed or malicious that it offends the Court’s sense of dignity. Particularly relevant for closely held corporations such as Canex, this case highlights the Court’s willingness to offer expanded remedies to minority shareholders based on the substantive conduct that occurred, and to turn down arguments based on technical corporate structure.

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.

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.

 

On September 1, 2020, British Columbia’s Arbitration Act, S.B.C. 2020, c. 2 (the “New Act”) came into force. The New Act introduces important amendments that aim to improve the efficiency of the Province’s arbitral process. This will improve commercial dealings by clarifying ambiguities in the previous legislation and creating greater uniformity in arbitrations laws nationally. To that end, the New Act closely resembles The Uniform Law Conference of Canada’s Uniform Act. In turn, the Uniform Act is a national project that strives to harmonize Canada’s arbitration laws with the United Nations’ UNCITRAL Model Law. Generally, these national and international model laws seek to limit judicial intervention in arbitral proceedings, and, thereby, create greater certainty in private dispute resolutions. The New Act strives towards this end as well.

The New Act introduces several important changes worth highlighting. First, Sections 21 and 22 impose a duty on the arbitrator and parties, respectively, to seek a “just, speedy, and economical determination of the proceeding based on its merits.” This explicit focus on the timely and economic resolution of disputes is the principle that underpins all of the New Act’s reforms. Appeals, for instance, are sent directly to British Columbia’s Court of Appeal on questions of law (s.59). Likewise, the time period for appealing an arbitral award or setting it aside due to an apprehension of bias has been shortened from 60 to 30 days (s.60).

In further regards to time limits, section 11 of the New Act reads: “the law with respect to limitation periods for commencing court proceedings applies to commencing arbitral proceedings.” This provision was absent from the previous legislation, creating an ambiguity because British Columbia’s Limitation Act, SBC 2012, c 13, does not specify that it applies to arbitrations and it contains court-centric language. Consequently, it is now clear that parties to an arbitration agreement will have two years from the date that they knew or ought to of known they have a potential claim against another party to pursue arbitration or their claim will be statute barred.

Arbitrators now have expanded authority.  Section 23 of the New Act empowers arbitrators to rule on their own jurisdiction. Where this power is exercised as a preliminary matter, either party may refer the issue to the Supreme Court of British Columbia within 30 days of receiving notice of the arbitrator’s ruling for a re-determination. In exercising their jurisdiction, arbitrators are now permitted under section 25 of the New Act to apply equitable principles, whereas the previous legislation limited their authority to the application of statutory law.

Turning to procedures, the New Act no longer specifies default rules. The British Columbia International Commercial Arbitration Centre’s rules (“BCICA”) previously applied by default, unless the parties agreed otherwise. While the New Act removes any reference to the BCICA’s rules, it has incorporated some of their key elements. For example, section 29 allows arbitrators to subpoena non-party witnesses. Where parties have not specified and cannot agree on the applicable rules, arbitrators appear to have discretion under section 32 to make procedural orders that could include the selection of arbitral rules.

Where the parties cannot agree on an arbitrator, the selection is made by the legislation’s designated appointing authority. Under section 2 of the New Act’s attendant Arbitration Regulation, BC Reg. 160/2020, this appointing authority is the Vancouver International Arbitration Centre (“VIAC”).[1] Previously, such appointment disputes were resolved by application to the British Columbia Supreme Court. By creating the VIAC, the New Act increases efficiency by reducing arbitrations’ reliance on the courts. In addition, the VICA can set arbitrators fees and impose terms on awards whenever an arbitrator’s fees remain unpaid.

Finally, the New Act introduces three other significant changes that were previously absent from the legislation. First, a witness’s evidence is to be written, unless otherwise agreed to by the parties. Oral evidence is limited to cross-examinations. Second, section 68 requires confidentiality. The parties may not disclose information about the proceeding or its outcome. Third, arbitrators may grant interim orders, even on an ex parte basis. However, these orders do not constitute an arbitral award, nor are they enforceable in the courts.

The New Act applies to all arbitral proceedings commenced on or after September 1, 2020. However, it does not apply to proceedings that fall within the jurisdiction of the International Commercial Arbitration Act, RSBC 1996, c 233, nor does it apply to family law matters.

[1] The BCICA was re-branded as the VIAC.

Ski-hill Lift Tickets – Liability, Unilateral Contracts, Negligence Exclusion

In certain situations, such as obtaining a lift ticket for a ski-hill, “unilateral contracts” are used by one of the parties to the contract (i.e., the ski hill) which set out specific conditions the other party (i.e., the consumer) must accept if the consumer wants to proceed with using the ticket.  Are all the terms and conditions of these unilateral contracts binding on the consumer even if the consumer did not sign or have any part in the formation of the contract?

A recent case from the British Columbia Court of Appeal (“BCCA”) Apps v. Grouse Mountain Resorts Ltd., 2020 BCCA 78 [Apps] addressed the requirements for unilateral contracts to be binding when the consumer does not sign a contract.

The unfortunate facts of Apps are as follows.  The plaintiff was a snowboarder who became a quadriplegic after attempting a large jump at Grouse Mountain in Vancouver, BC.  The plaintiff was an Australian who was living, working and snowboarding in Whistler, he was only 20 at the time of his injury.

The plaintiff alleged that the jump was negligently designed, constructed, maintained and inspected by Grouse Mountain. Grouse Mountain, in defence, relied on an exclusion of liability waiver which it said constituted a complete defence. The British Columbia Supreme Court (“BCSC”) dismissed the plaintiff’s action. The BCCA overturned the BCSC’s decision.

The type of waiver Grouse Mountain was relying on was an “own negligence exclusion”.  This type of exclusion not only excludes liability for the risks inherent in the use of Grouse Mountain’s product or service, but also liability for negligence caused by Grouse Mountain itself.

The BCCA stated that “own negligence exclusions” are among the more onerous conditions to be placed into contracts, meaning that for Grouse Mountain to rely on the exclusion it must have taken reasonable steps to bring the exclusion to the attention of the Plaintiff.

The BCCA concluded that not enough had been done by Grouse Mountain to bring the “own negligence exclusion” to the plaintiff’s attention before he entered into the contract. The exclusion was included in a posted sign above the counter where the lift tickets were sold, but the text was difficult to read, and the “own negligence exclusion” was not emphasized.  This would be considered the pre-contractual notice (before the ticket was purchased).  Post-contractual notice (after the ticket was purchased) of the “own negligence exclusion” appeared on the back of the lift ticket and on a sign in the terrain park.  The BCCA concluded that post-contractual notice has no bearing on whether Grouse Mountain gave sufficient notice to the Plaintiff.

Grouse Mountain also attempted to rely on the plaintiff’s knowledge of the presence of these types exclusions due to his previous employment at Whistler and having signed such an exclusion for his Whistler’s Season Pass.  The BCCA found that the plaintiff’s previous experience with “own negligence exclusions” from his experiences at Whistler did not mean he had actual knowledge of Grouse Mountain’s specific clause.

The BCCA therefore overturned the BCSC decision and allowed the plaintiff to continue his action.

For businesses that are concerned about what proper notice would look like, the BCCA provided some indicators of proper notice.  To rely on any type of waiver which will result in the consumer losing legal rights, a service provider should, before contract formation, ensure that the “own negligence clause” is clearly brought to the attention of the consumer by using large, colorful and bold text and literally mention the “own negligence clause” to the consumer.

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.

Corporate Law – The Impending Requirement for a Transparency Register in British Columbia

 

British Columbia Bill 24-2019: Business Corporations Amendment Act, 2019 (“Bill 24-2019”)‎ ‎received Royal Assent on May 16, 2019. A copy of Bill 24-2019 can be found here. While Bill 24-2019 is not in effect as of the date of writing this article, the anticipated requirements on businesses in British Columbia are significant.

 

This Bill requires many corporations to maintain a “transparency register” which must list significant individuals. For the purposes of Bill 24-2019, a significant individual is either someone who owns a significant number of shares (i.e. 25% or more of the issued shares of the company or issued shares of the company that carry 25% or more of the rights to vote at general meetings) or someone who can elect, appoint, or remove a majority of the directors of the company. The relevant provisions of Bill 24-2019 with respect to “significant individuals” are reproduced below:

 

Significant individual

119.11  (1) In this section, “significant number of shares”, in respect of a private company, means either of the following:

 

(a) 25% or more of the issued shares of the company;

 

(b) issued shares of the company that carry 25% or more of the rights to vote at general meetings.

 

(2) Subject to any prescribed class of exclusions, an individual is a significant individual in respect of a private company if any of the following apply:

 

(a) the individual has any of the following interests or rights, or any combination of them, in a significant number of shares of the private company:

 

(i) an interest as a registered owner of one or more of the company’s shares;

 

(ii) an interest as a beneficial owner of one or more of the company’s shares, other than an interest that is contingent on the death of another individual;

 

(iii) indirect control, within the meaning of the regulations, of one or more of the company’s shares;

 

(b) the individual has any of the following rights or abilities, or any combination of them, that, if exercised, would result in the election, appointment or removal of the majority of the directors of the private company:

 

(i) the right to elect, appoint or remove one or more of the company’s directors;

 

(ii) indirect control, within the meaning of the regulations, of the right to elect, appoint or remove one or more of the company’s directors;

 

(iii) the ability to exercise direct and significant influence over an individual who has the right or indirect control described in subparagraph (i) or (ii);

 

(c) the individual has a prescribed interest, right or ability in relation to the private company, or a prescribed criterion or circumstance applies to the individual in relation to the private company.

 

At least once a year, within two months of the anniversary the company was recognized as a company in BC, a BC company must update their transparency register. Steps a company can take to determine who significant individuals are may include requesting that a shareholder provide the company with information about significant individuals for the purpose of maintaining the company’s transparency register.

 

Particularly onerous on shareholders, directors, and officers of BC companies impacted by Bill 24-2019 are the new offence provisions under Bill 24-2019. These offence provisions state as follows:

 

Transparency register – incorrect entries and false information

427.1  (1) In this section:

 

“private company” has the same meaning as in section 119.1;

 

“significant individual” means a significant individual under section 119.11.

 

(2) Subject to subsection (4), a private company commits an offence if its transparency register

 

(a) identifies an individual as a significant individual who is not a significant individual in respect of the company,

 

(b) excludes an individual who is a significant individual in respect of the company,

 

(c) contains information about a significant individual that is false or misleading in respect of any material fact, or

 

(d) omits information about a significant individual, the omission of which makes the information false or misleading.

 

(3) If a private company commits an offence under subsection (2), any director or officer of the company who, subject to subsection (4), authorizes, permits or acquiesces in the commission of the offence also commits an offence, whether or not the company is prosecuted or convicted.

 

(4) No person is guilty of an offence under subsection (2) or (3) if the person

 

(a) did not know that the identification or exclusion of the individual was incorrect or that the information about a significant individual was false or misleading, and

 

(b) with the exercise of reasonable diligence, could not have known that the identification or exclusion of the individual was incorrect or that the information was false or misleading.

 

(5) Subject to subsection (6), a shareholder of a private company who sends information to the company for the purposes of the company’s transparency register commits an offence if the information

 

(a) is false or misleading in respect of any material fact, or

 

(b) omits any material fact, the omission of which makes the information false or misleading.

 

(6) No person is guilty of an offence under subsection (5) if the person

 

(a) did not know that the information was false or misleading, and

 

(b) with the exercise of reasonable diligence, could not have known that the information was false or misleading.

 

In addition to the proposed amendments Bill 24-2109 proposes to make to the Business Corporations Act, regulations with respect to the transparency register are also anticipated to come into force. Due to the prospective liability under the proposed amendments, and the uncertainty with respect to the regulations which have not yet been passed, shareholders, directors, and officers in BC companies should remain vigilant to ensure the requirements of the transparency register are met accurately and within the mandated timelines.