F2024 Quiz 1.pdf

Knowledge of Business Law as a Business Asset Canadian Business and the Law, EIGHTH EDITION Objectives After studying this chapter, you should have an understanding of how legal knowledge is a strong advantage in the business environment the role of law in providing protection...

Knowledge of Business Law as a Business Asset Canadian Business and the Law, EIGHTH EDITION Objectives After studying this chapter, you should have an understanding of how legal knowledge is a strong advantage in the business environment the role of law in providing protection and guiding conduct how the law facilitates commercial activity and dispute resolution the challenges posed by business ethics and their relationship to legal requirements 2 Law in the Business Environment (1) Business Law defines general rules of commerce protects business ideas and more tangible forms of property provides mechanisms that permit business people to select their desired degree of participation and exposure to risk in business ventures seeks to ensure that losses are borne by those who are responsible for them facilitates planning by ensuring compliance with commitments 3 Law in the Business Environment (2) business law: A set of established rules governing commercial relationships, including the enforcement of rights. Lack of knowledge of business law o may result in failure to maximize opportunities or in losing out on them altogether; and o may result in the business being subjected to regulatory and judicial sanctions, including being fined, forced to pay penalties, or closed down altogether 4 Business and Legislation 1.1 (1) The Regulation of Business Names A business owner named her café and plant store “Haus of Plants.” Another local business had trademarked the name “House of Plants” in relation to “the trade of flowering plants, live flower arrangements, live flowers, live plants and other forms of natural plants.” House of Plants alleged use of “Haus of Plants” would cause confusion of customers because of the similar sounding names. “Haus of Plants” reluctantly agreed to change its name. trademark: A sign or a combination of signs used to distinguish a person’s products or services from those of others. 5 Business and Legislation 1.1 (2) The Regulation of Business Names According to the Supreme Court of Canada in Mattel Inc v 3894207 Canada Inc, 2006 SCC 22, at para 21: “[T]rademarks assure consumers ‘that they are buying from the source from whom they think they are buying and receiving the quality which they associate with that particular trademark’.” Trademark legislation protects the holder from use by others of names that are similar, especially if the two operate in a similar commercial space. 6 Rules and Principles law: The set of rules and principles guiding conduct in society. The law guides conduct in society o by protecting persons and their property; o facilitating personal and commercial interactions; and o providing mechanisms for dispute resolution. 7 Protecting Persons and Their Property The law offers protection in two related ways: o It sets rules to safeguard interests. o It sets penalties and other consequences for breach of those rules to ensure accountability and encourage future compliance. Examples of laws that protect: o privacy laws o criminal laws breach of contract: Failure to comply with a contractual promise. o Failure to comply with a contract can lead to being sued for damages. 8 Technology and the Law 1.1 (1) Breach of Privacy by Tim Hortons Privacy legislation requires private-sector organizations to seek consent to collect, use, or disclose personal information by fair and lawful means, and only for purposes that are stated and reasonable. Tim Hortons created an app to advertise special deals close to the customer’s location as revealed by the app. The app collected data feed of the daily travels of its mobile phone customers, including at their places of work and residence. 9 Technology and the Law 1.1 (2) Breach of Privacy by Tim Hortons Privacy commissioner: o Tim Hortons violated users’ privacy. o The consent was not valid because it did not disclose that it was collecting location data every few minutes, whenever the customer’s mobile device was on. o The collection was not appropriate, reasonable, or legitimate. Class actions against Tim Hortons in relation to its app have recently been settled, with no admission of liability. 10 Ethical Considerations 1.1 (1) Maple Lodge Farms’ Conviction Maple Lodge had 25 450 chickens died inhumanely by undue exposure to weather or inadequate ventilation during transport. It was sentenced by an Ontario court for violating the Health of Animals Act. The court fined Maple Lodge Farms $80 000, required the business to spend at least $1M to improve its vehicles and facilities, and placed the corporation on probation for three years. Maple Lodge issued an online apology. 11 Ethical Considerations 1.1 (2) Maple Lodge Farms’ Conviction Canadian Coalition for Farm Animals (CCFA): o CCFA spoke out against Maple Lodge for considering economics over proper animal welfare and for not following Canada’s voluntary codes of practice or the company’s standard operating procedures. o It published a video taken by a hidden camera allegedly showing horrific mistreatment. While on probation, thousands of hens were left in an unheated barn over a 12-hour period on a cold day in January. 12 Facilitating Interactions (1) The law facilitates interactions, such as the following: o disposal of property upon death o marriage o adoption The law facilitates commercial activity by providing rules governing the marketplace. o The law provides certainty and security. o The law allows businesses to plan for the future. o The law addresses failed relationships. o The law forbids certain activities. 13 Facilitating Interactions (2) contract law: Rules that make agreements binding and, therefore, facilitate the planning and enforcement of expectations. litigation: The process involved when one person sues another. 14 Providing Methods for Dispute Resolution (1) Maintaining the relationship and avoiding disputes should be the priority, rather than litigating disputes. Ask: o Are legal proceedings absolutely necessary, at least right now? o Is there a way to resolve the problem from a larger, relationship-preserving perspective, rather than from a strictly legal viewpoint? The logical first step is to reach a voluntary resolution, and possibly a formalized settlement agreement. Only once this fails, should the parties resort to the legal system and methods such as mediation and arbitration. 15 Providing Methods for Dispute Resolution (2) mediation: A process through which the parties to a dispute endeavour to reach a resolution with the assistance of a neutral person. arbitration: A process through which a neutral party makes a decision (usually binding) that resolves a dispute. If non-litigation methods fail, it may be necessary to seek a court ruling. liability: Legal responsibility for the event or loss that has occurred. 16 Why and How the Law Works The Canadian legal system demands that both the process for determining liability and the rules or laws that are applied in that process are impartial, fair, and free from bias. Judges must apply the law as impartially as possible to the situation. The law seeks to resolve disputes fairly: o For example, bankruptcy law attempts to ensure all those affected are treated fairly. o Anti-discrimination law confronts bigotry and ensures just treatment. o Tort law ensures that those who wrongfully injure others are held financially accountable. 17 Knowledge of the Law as a Business Asset Ignoring the law can cause anxiety, grief, and financial loss. Informing oneself of the consequences of failing to abide by the law can lead to more positive and profitable experiences. One way to avoid legal difficulties is to implement a legal risk management plan. legal risk management plan: A comprehensive action plan for dealing with the legal risks involved in operating a business. 18 Law and Business Ethics (1) business ethics: Moral principles and values that seek to determine right and wrong in the business world. It is not enough to simply comply with the law—ethics may demand more. Skirting ethical norms can lead to lost revenue, bad publicity, public demonstrations, and condemnation. 19 Law and Business Ethics (2) It is useful to consider how ethics impacts on business decisions from a number of vantage points: o Business to consumer: How far should a company go in extolling the virtues of its product? When does sales talk become deception? o Business to society: To what lengths should a company go to enhance shareholder return? To reduce costs, should a business employ child labour in those countries where it is legal to do so? What if the child’s income is essential to the family’s survival? o Business to employee: Should a business monitor employee emails and internet use on company computers? o Business to business: Short of lying or fraud, is it ethical to bluff during business negotiations? When does bluffing become a form of corruption? 20 International Perspective 1.1 (1) SNC-Lavalin in Libya Bribery, in an international context, is prohibited by the Corruption of Foreign Public Officials Act and by the Criminal Code of Canada (which also prohibits other forms of corruption). Bribery imposes economic and social cost on Canadians. Bribery diverts resources, undermines democracy and the rule of law, and distorts markets. Consequences for bribery include multi-year bans on doing business with the federal government. 21 International Perspective 1.1 (2) SNC-Lavalin in Libya The Criminal Code of Canada now permits Remediation Agreements (RAs), which extract accountability from a company engaged in criminal conduct, while reducing harm. SNC-Lavalin sought and failed to secure an RA in relation to bribery offences in Libya. o The company had paid $27M in bribes to Saadi Gadhafi to secure construction contracts. In 2019, a division of SNC-Lavalin plead guilty to fraud, was fined $280M and received three years’ probation. 22 The Canadian Legal System Canadian Business and the Law, EIGHTH EDITION Objectives (1) After studying this chapter, you should have an understanding of the impact of the Canadian legal system on business the role of constitutional law in protecting commercial rights and freedoms the government’s law-making powers under sections 91 and 92 of the Constitution Act, 1867 the executive’s formal and political functions in regulating business 24 Objectives (2) After studying this chapter, you should have an understanding of the judiciary’s role in assessing the constitutionality of legislation the classifications of law how administrative law affects business the importance of Indigenous legal traditions as well as Aboriginal and Treaty rights 25 The Canadian Legal System (1) The Canadian legal system is the machinery that comprises and regulates government. It is divided into three branches. o Legislative branch: creates law in the form of statutes and regulations. o Executive branch: formulates and implements government policy and law. o Judicial branch: adjudicates on disputes. government policy: The central ideas or principles that guide government in its work, including the kinds of laws it passes. 26 Constitutional Law constitutional law: The supreme law of Canada that constrains and controls how the branches of government exercise power. o Its underlying values are tied to the political philosophy known as liberalism. o liberalism: A political philosophy that emphasizes individual freedom as its key organizing value. 27 The Canadian Constitution (1) The Canadian Constitution is contained in several different documents and is both legislative and political, written and unwritten. All Canadian laws must comply with the Canadian Constitution. The Constitution is difficult to change—a special amending formula must be met. It has deep British roots, but also important are Indigenous legal systems and French legal practices. 28 The Canadian Constitution (2) The Canadian Constitution includes the following: o Written documents of the Constitution, including: ▪ Constitution Act, 1867 ▪ Charter of Rights and Freedoms o Relevant decisions by judges concerning constitutional law. o constitutional conventions: Important rules that are not enforceable by a court of law but that practically determine how a given power is exercised by government. 29 The Canadian Constitution (3) The Canadian Constitution attends to many matters, including the following: o the admission of new provinces and territories o provisions for amending the Constitution o autonomy from the United Kingdom Parliament o provision for the three branches of government (legislative, executive, andjudicial) 30 The Legislative Branch (1) 31 The Legislative Branch (2) legislative branch: The branch of government that creates statute law (e.g., The Criminal Code). Three levels of government make legislation in Canada. o Federal government: includes Parliament (House of Commons, Senate). ▪ Law-making jurisdiction is from s 91, Constitution Act, 1867. ▪ Controls territorial governments, which have limited self-government. o Provincial government: legislature, which receives law-making jurisdiction from s 92, Constitution Act, 1867. o Municipal Government: law-making power is provided by the provincial legislature. 32 Statute Law and Jurisdiction (1) The Constitution Act, 1867, dictates whether or not each level of government can make a given law. jurisdiction: The power that a given level of government has to enact laws. 33 Statute Law and Jurisdiction (2) exclusive jurisdiction: Jurisdiction that one level of government holds entirely on its own and not on a shared basis with another level. o For example, criminal law is a matter of exclusively federal jurisdiction. If Alberta were to enact a criminal law, it would unconstitutional and would not be enforced by the courts. concurrent jurisdiction: Jurisdiction that is shared between levels of government. o Public health and the environment are examples of concurrent jurisdiction. o The provincial government cannot enact legislation that would create a conflict with federal legislation. o paramountcy: A doctrine that provides that federal laws prevail when there are conflicting or inconsistent federal and provincial laws. 34 Business and Legislation 2.1: Constitution Act, 1867 (1) Constitution Act, 1867 Formerly known as the British North America Act or the BNA Act. Canada is a federal state, meaning power is split between levels of government. Contains sections 91 and 92 which divide law-making power between the federal and provincial governments. Indigenous or First Nation band councils possess certain bylaw-making powers. 35 Business and Legislation 2.1: Constitution Act, 1867 (2) Section 91 Federal Powers Section 92 Provincial Powers international and interprovincial trade hospitals postal service property and civil rights (such as criminal law regulation of contracts) navigation and shipping administration of justice (the court currency system) national defence local matters (such as highway banking regulation) seacoast and inland fisheries incorporation of provincial companies all areas not given to the provinces municipalities (which are delegated powers such as zoning, local tax) 36 Environmental Perspective 2.1 (1) Concurrent Jurisdiction Over the Environment Regulation and protection of the environment is complex because the environment is regulated by federal, provincial, and municipal laws (if delegated by the province). This makes it particularly important for businesses to know what legislation applies to the situation. Federal jurisdiction over the environment centres on o protection of oceans and inland waterways o fisheries protection o the import and export of hazardous products o the interprovincial/international transportation of dangerous goods 37 Environmental Perspective 2.1 (2) Concurrent Jurisdiction Over the Environment Federal government has introduced Bill S-5, Strengthening Environmental Protection for a Healthier Canada Act in order to strengthen CEPA. bill: Proposed legislation going through the process of becoming law. Each province and territory has extensive environmental protection legislative regimes. o Directors and officers face personal liability for noncompliance with environmental protection legislation. Canada’s constitutional framework for the environment includes a duty on the federal and provincial Crowns to consult and accommodate Aboriginal peoples in certain instances. 38 Regulation of Business Business is affected by all levels of government, but it is most impacted by the provincial and municipal governments. The regulation of business is generally a provincial matter because the provinces have jurisdiction over property and civil rights. Municipalities have jurisdiction to legislate in a variety of matters, from levying taxes, to regulating local zoning, parking, and subdivision, to requiring the licensing of businesses and dogs. International/interprovincial transport and communication are areas of federal jurisdiction. o Businesses in these areas are subject to federal law concerning licensing, labour, and occupational health and safety. 39 The Executive Branch of Government formal executive: The branch of government responsible for the ceremonial features of government. o This includes the King (head of state) and representatives, the governor general, and lieutenant governors. political executive: The branch of government responsible for day-to-day operations, including formulating and executing government policy, as well as administering all departments of government. o Chief executive is the prime minister, and includes cabinet, civil servants, agencies, commissions, and tribunals that perform government functions. o The level of government is typically lobbied by business. cabinet: A body composed of all ministers heading government departments, as well as the prime minister or premier. It passes regulations. 40 Business and Legislation 2.2 Tobacco Regulation by the Federal Government Regulations are a form of legislation known as subordinate legislation and can be passed only if that power is accorded by a statute. In 2019, cabinet enacted regulations pursuant to the Tobacco and Vaping Products Act to standardize the look of tobacco products, including requiring packaging background to be in a colour called Pantone 448, regarded by some to be the world’s ugliest colour. 41 The Judicial Branch The judiciary is a branch of government, but which is independent from the legislative and executive branches of government. judiciary: A collective reference to judges. judges: Those appointed by federal or provincial governments to adjudicate on a variety of disputes, as well as to preside over criminal proceedings. 42 The System of Courts (1) 43 The System of Courts (2) Inferior Courts Superior Courts judges appointed by the provincial judges appointed by the federal government government limited financial jurisdiction unlimited financial jurisdiction organized by type of case entry level for more serious criminal parties often appear without a lawyer matters includes a small claims court for disputes more formal and technical, usually with involving small amounts of money legal representation 2-44 The System of Courts (3) Provincial courts of appeal hear appeals from inferior and superior courts. The Supreme Court of Canada hears appeals from provincial courts of appeal, but “leave” or permission is required and must be of national concern or significance. Supreme Court of Canada: The final court for appeals in the country. Federal Court of Canada: The court that deals with some types of litigation involving the federal government. 2-45 The Canadian Charter of Rights and Freedoms (1) It was created in 1982, as part of the Constitution Act, 1982. It is a judicially enforceable guarantee that the government will act with the values associated with a liberal democratic state. The Charter includes the following: o right to freedom of expression and religion o right to a fair and speedy trial o equality rights o right to vote o fundamental freedoms (fundamental to business) o equality rights (fundamental to business) 46 The Canadian Charter of Rights and Freedoms (2) The Charter includes the fundamental freedoms (s 2): o Everyone has the following fundamental freedoms: ▪ freedom of conscience and religion ▪ freedom of thought, belief, opinion and expression, including freedom of the press and other media of communication ▪ freedom of peaceful assembly ▪ freedom of association 47 The Canadian Charter of Rights and Freedoms (3) The Charter includes equality rights (s 15 (1)): o Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age, or mental or physical disability. 48 The Canadian Charter of Rights and Freedoms (4) The Charter provides protection from improper or oppressive government conduct. Section 32 prohibits the government from violating the Charter. A violation of the Charter does not automatically render legislation unconstitutional. o Charter rights are not absolute. o Section 1 allows the government to restrict Charter rights but only if it can justify why it is infringing the right and is doing so in a reasonable way. o If the government cannot justify the infringement, the law will be struck down by the courts, using powers granted to the courts in sections 24 and 52. Section 33 allows the government to enact legislation that breaches many, but not all, Charter rights. o This power is rarely used due to political consequences. 49 Business and Legislation 2.3 Store Owner Challenges Nova Scotia’s Vape Restriction Law Nova Scotia enacted vape restriction laws in 2020, including banning the sale of flavoured vape juices, and also raised taxes. At this writing, a vape shop has filed a court notice to have the legislation struck down, arguing it violates section 7 of the Canadian Charter of Rights and Freedoms, which protects “life, liberty, and security of the person.” o This claim argues such restrictions hurt the efforts of adults who want to quit cigarette smoking by vaping but find unflavoured product less attractive and more expensive. 50 Sources of Law (1) There are two main sources of law in Canada: o statute law (discussed previously) o judge-made law or the “common law”: The body or collection of judge-made law as recorded in judgments. judgment: A formal ruling in the matter as well as reasons for that outcome. Judges rely on decisions made by other judges in similar cases (precedents) to explain and justify their decisions. precedent: An earlier case used to resolve a current case because of its similarity. o Lower courts must follow decisions of higher courts within the same jurisdiction. o The higher the court, the higher the precedent’s weight. o Supreme Court of Canada can make decisions without being bound by precedent. 51 Sources of Law (2) The main goal of precedent is to advance certainty and predictably in the law, although it is often difficult to fully predict an outcome with certainty because reasonable people may come to different conclusions. Judges may apply two types of law: common law rules or the rules of equity. equity: Rules that focus on what would be fair given the specific circumstances of the case, as opposed to what the strict rules of common law might dictate. Equity provides unique remedies—rectification, quantum meruit, rescission, specific performance, and injunction. Unique principles apply to equity, such as the “clean hands” rule—the idea that the court should not assist a plaintiff who has themselves behaved improperly. 52 Classifications of Law (1) Domestic Law International Law internal law of a given country governs relations between states and includes both statute and common law other entities with international legal deals primarily with individuals and status such as corporations and, to a lesser extent, the o the United Nations state o the World Trade Organization includes treaty law deals mostly with states and international organizations 53 Classifications of Law (2) Substantive Law Procedural Law law that defines rights, duties, and the law governing the procedure to liabilities enforce rights, duties, and liabilities Example: freedom of expression Example: the right to appeal to a higher court 54 Classifications of Law (3) Public Law Private Law Relate to or regulate the relationship Relate to or regulate the relationship between persons and government at all between persons and government at all levels. levels. Constrains governmental power Includes: according to rules of fairness o Contract law Includes: o Tort law o Criminal law o Property law o Tax law o Company law o Constitutional law o Administrative law 55 Classifications of Law (4) Common Law Civil Law It is also known as judge-made law. Québec’s system of private law is It is used in all provinces and territories government by a civil code. except Québec. It is a system of law in which judges look It bases private law on judicial decisions to the Civil Code for general principles to that must be applied. be applied to the case at hand. They are not bound by how other judges have interpreted the Code. 56 Divisions/Classifications of Law 57 Administrative Law and Business This is the primary area in which government and business interact. Administrative law: Rules created by boards, agencies, commissions, tribunals, and individuals who exercise a government function. Functions of administrative bodies and officials are varied, and can be o administrative only, such as processing claims for benefits o judicial, such as settling employer–employee disputes o legislative, such as CRTC regulations on radio and television 58 Indigenous Peoples and Constitutional Law (1) Indigenous Peoples had longstanding legal traditions prior to the arrival of Europeans in what is now Canada. Canada was already “occupied and governed” by Indigenous Peoples, and, as a direct result, these rights exist in a free-standing and independent way regardless of British and French assertions of sovereignty or control over Canada. The rights of Indigenous Peoples are protected by section 35 of the Constitution Act, 1982, which provides as follows: (1) The existing aboriginal and treaty rights of the aboriginal peoples of Canada are hereby recognized and affirmed. (2) In this Act, “aboriginal peoples of Canada” includes the Indian, Inuit and Métis peoples of Canada. 59 Indigenous Peoples and Constitutional Law (2) Treaty rights: Rights arising in relation to official agreements between the Crown and Indigenous Peoples. o Treaty rights include rights derived from treaties dating back to the early 18th century as well as 11 numbered Treaties following Canadian Confederation in 1867, as well as 26 modern-day treaties. Aboriginal rights: Rights that exist when treaties have not been negotiated and include rights relating to the occupation of land as well as rights which arise “from a distinctive practice, custom or tradition that may or may not be connected” to land. o Example: In R v Sparrow, the court held that the Musqueam of British Columbia have always possessed an Aboriginal right to fish for food, social, and ceremonial purposes along an area of the Fraser River. 60 Indigenous Peoples and Constitutional Law (3) The Indian Act recognizes First Nations band councils as having the power to pass bylaws governing the reserve community in such areas as health, law and order, and the residence of band members. Modern treaties assert broader legislative power, including in relation to taxation, resource use, and education, for example, the recent creation by the Mohawk Council of Akwesasne of its own Indigenous legal system. 61 Indigenous Peoples and Constitutional Law (4) Because of its historic relationship with Indigenous Peoples and the requirements of section 35, the Crown owes legally binding obligations to Indigenous Peoples: o Example: The duty to consult and accommodate Indigenous Peoples in a number of circumstances including when projects relating to extractive and infrastructure industries are proposed for lands used by Indigenous peoples for hunting, fishing, and cultural purposes and will potentially adversely affect their rights. Crown: The state or government. 62 Indigenous Peoples and Constitutional Law (5) In 2021, federal government enacted legislation adopting the United Nations Declaration on the Rights of Indigenous Peoples [UNDRIP], which “affirms the rights of Indigenous peoples to self- determination and self-government.” 63 Managing Legal Risks Canadian Business and the Law, EIGHTH EDITION Objectives After studying this chapter, you should have an understanding of methods of managing the legal environment of business the development of a legal risk management plan the importance of anticipating and reacting to developments in the legal environment how to access and manage legal services 65 Assessing the Legal Environment enterprise risk management: The process of identifying and managing all business risks. legal risk: A business risk with legal implications. 66 Legal Risk Management Plan (1) Large businesses may have a department headed by a senior manager with a title such as risk officer to organize and oversee this process. In smaller organizations, this may be performed by the chief executive or delegate, or a consultant or insurance agent. Lawyers may also be involved in the process. 67 Legal Risk Management Plan (2) Risk management: o Risk management involves the co-operation of managers and employees at every level. o It may use a variety of methods and approaches, such as surveying or interviewing managers and employees, forming workplace committees, or convening a panel of experts. 68 Legal Risk Management Plan (3) Creating a legal risk management plan is a four-step process: o Step 1. Identify the legal risks. o Step 2. Evaluate the risks. o Step 3. Devise a risk management plan. o Step 4. Implement the plan. 69 Applying the Four-Step Process (1) Step 1: Identify the Legal Risks This is the most critical step. Aim to be reasonably certain that no major risks have been overlooked. The approach used depends on the business, but these steps may be taken: o Assess the organization’s functional areas. o Review the organization’s business decisions. o Examine the organization’s business relationships. o Analyze the organization’s operations and transactions. 70 Applying the Four-Step Process (2) Examples of legal risks: damage to the environment injury to workers mechanical breakdown production of defective products changes to legislation inability to meet financial obligations failure of computer systems 71 Technology and the Law 3.1 The Risks and Costs of a Cyberattack Half of small and medium Canadian businesses experienced a data breach in 2021, as compared to 12 per cent in 2020, and data breaches at large businesses rose from 43 to 49 percent. Of Canadian organizations surveyed, 17 percent experienced a ransomware attack in 2021, and 69 percent of those paid ransom. There were 235 known ransomware attacks against Canadian victims in 2021. The estimated average cost of investigating and remediating a cyberattack including a ransomware attack is $6.35 million 72 Applying the Four-Step Process (3) Step 2: Evaluate the Risks Two factors must be assessed: o probability of loss o severity of loss Not all risks are alike, nor should they be treated alike. The high probability that a particular event will occur can be offset by a relatively low level of loss should the event actually occur. Events that are unlikely to occur deserve close attention if the potential loss is high. 73 Case 3.1 (1) Nevsun Resources Ltd v Araya, 2020 SCC 5 Nevsun owned a 60 percent interest in the Bisha Mine in Eritrea. Three Eritrean workers claimed they were conscripted to work at the mine as part of Eritrea government’s National Service Program and forced to work for 12 hours a day, six days a week, in temperatures close to 50 degrees Celsius and without protection. They also alleged they were subjected to degradation and physical punishment. The workers sued Nevsun for breach of customary international law prohibitions against forced labour, slavery, cruel, inhuman, or degrading treatment, and crimes against humanity, as well as breaches of several domestic torts. 74 Case 3.1 (2) Nevsun Resources Ltd v Araya, 2020 SCC 5 Nevsun applied for dismissal, arguing “acts of state” doctrine precludes Canadian courts from assessing the sovereign acts of a foreign government. Court: o The lawsuit (which was ultimately settled) could proceed in the BC courts. o Acts of state doctrine is not part of Canadian common law, and Canadian courts may assess the conduct of a foreign state. o Canadian courts will not enforce foreign law where it would be contrary to public policy. o Customary international law is part of Canadian law and prohibits forced labour, slavery, degrading treatment, and crimes against humanity. 75 Applying the Four-Step Process (4) Step 3: Devise a Risk Management Plan Approaches include the following: o Avoid or eliminate the risk. o Reduce the risk. o Transfer the risk. o Retain the risk. 76 Applying the Four-Step Process (5) Step 3: Devise a Risk Management Plan risk avoidance: Ceasing a business activity because the legal risk is too great. o This is appropriate when the risk is too great or the undesirable result is greater than the advantages. risk reduction: Implementing practices in a business to lower the probability of loss and its severity. risk transference: Shifting the risk to someone else through a contract. o Example: purchase insurance risk retention: Absorbing the loss if the legal risk materializes. 77 Applying the Four-Step Process (6) Step 3: Devise a Risk Management Plan Risk retention is most effective for small risks that do not pose significant financial loss. o It is also utilized when insuring will be costly or coverage is not available. Risk retention strategies might include the following: o Self-insurance—the organization can establish a funded reserve. o Insurance policy deductibles—the organization can retain risks to a certain dollar amount. o Non-insurance—the organization can charge losses as an expense item. 78 Ethical Considerations 3.1 Boycott of Facebook: #StopHateForProfit In 2020, US civil rights and advocacy groups organized a month-long boycott of advertising on Facebook, claiming it was not doing enough to keep false, racist, and dangerous content off the platform. Many large corporations participated in the boycott. The boycott did not have much impact on Facebook’s bottom line, as the majority of ad revenue comes from small businesses, most of which did not take part in the boycott. One positive byproduct was meaningful changes at other social media platforms. 79 Applying the Four-Step Process (7) Step 4: Implement the Plan This step involves the following: o Carrying out the plan. o Monitoring and revising the plan. Responsibility for implementing the plan must be clearly assigned. The plan must be continually monitored and revised as necessary and have a regular review process. 80 Business Application of the Law 3.1 (1) COVID-19 and Legal Risks The impact of COVID-19 on business has been far-reaching: o interruption of business activities because of employee absenteeism o loss of revenue o disruption in supply chains, shortage of inputs and supplies, and in some cases government-mandated closures 81 Business Application of the Law 3.1 (2) COVID-19 and Legal Risks The pandemic generated a wide range of new legal disputes, and some still unresolved: o Can failure to comply with masking requirements on a flight be a breach of contract with the carrier? o Is the pandemic an excuse for not performing contractual obligations? o What is the impact of COVID-19 on a retailer’s obligation to pay rent? o May an employer introduce a workplace policy requiring a COVID-19 vaccine? o Is a business justified in terminating an employee who refuses to get a COVID-19 vaccine or because of the economic effects of the pandemic? o Does business interruption insurance cover losses that arise from the pandemic? 82 Business Application of the Law 3.2 (1) The Management of a Crisis A crisis can come in many forms. Sometimes it is a minor or expected event that spirals out of control, or sometimes it is an unforeseen and unexpected event that an organization is ill-prepared to handle. Examples: o Tylenol tampering in 1982 o British Petroleum’s oil spill in the Gulf of Mexico o Maple Leaf Foods’ listeria outbreak o Toyota recall because of unintended vehicle acceleration 83 Business Application of the Law 3.2 (2) The Management of a Crisis Lessons from these events: o React quickly and in a positive fashion. o Use a prominent spokesperson; apologize. o Explain how the problem occurred. o Use appropriate media, and convey the organization’s concern for the victims. o Be open and consistent in acknowledging the problem and role of the company. 84 Managing Legal Services (1) Lawyers can assist in identifying and assessing legal risks, suggesting options for the risk management plan, and managing a crisis. Knowing when to seek legal advice is central to successful management of legal services. Consulting lawyers too soon and too often is expensive and cumbersome. Consulting them infrequently to save money may be more expensive in the long run. 85 Managing Legal Services (2) Sources available for identifying lawyers include friends, relatives, business associates, local bar association, and The Canadian Law List. Consider evaluating candidates in person; discuss fees and billing. Continually monitor and evaluate the relationship to ensure that the business is receiving the assistance it needs at a cost it can afford. 86 Business Application of the Law 3.3 The Role of Lawyers in Legal Risk Management Lawyers can play and important role and may be in-house or outside counsel. Outside counsel often plays a reactive role rather than preventative, but this is changing as some organizations are using them in the preventative role. In-house legal counsel are increasingly seen as an integral part of the management team, assisting with strategic decision making. 87 Dispute Resolution Canadian Business and the Law, EIGHTH EDITION Learning Objectives After studying this chapter, you should have an understanding of how business activities may lead to legal disputes the options for resolving a legal dispute the alternative dispute resolution methods the litigation process 89 Dispute Resolution Businesses cannot avoid legal risks at all costs. Instead, legal risks need to be managed, with the goals of o avoiding time-consuming and costly litigation; and o preserving desirable long-term commercial relationships. 90 How Business Activities Can Lead to Disputes Equipment breakdown Pollution incident Dissatisfied customers Motor vehicle accidents Damaged goods Hacking attempts Problem employees Bylaw changes Relations with Indigenous Delinquent customers communities 91 BUSINESS APPLICATION OF THE LAW 4.1 (1) The Duty to Consult and Accommodate Aboriginal Peoples The Supreme Court has confirmed that federal and provincial Crowns have a duty to consult Aboriginal Peoples and, where appropriate, accommodate their interests if a Crown decision may affect Aboriginal Treaty rights. The duty to consult is triggered when the Crown has knowledge of right or title, and considers an action that could adversely affect it. 92 BUSINESS APPLICATION OF THE LAW 4.1 (2) The Duty to Consult and Accommodate Aboriginal Peoples The existence of a land claim does not in itself trigger a duty to consult, unless there is a specific historical attachment or present-day interest in the land that could be adversely affected by the Crown’s actions. Past wrongs do not trigger the duty to consult. The scope of duty to consult relates to the nature of the right and strength of the case—seen on a spectrum. 93 BUSINESS APPLICATION OF THE LAW 4.1 (3) The Duty to Consult and Accommodate Aboriginal Peoples It can be a simple duty of notice, through to the Crown requiring consent. The Crown must be integrally involved in the duty to consult, although in practice industry will be integral in the consultation and accommodation efforts by developing impact benefit agreements with the community. If the Crown fails meaningful consultations, the court can issue an injunction. 94 BUSINESS APPLICATION OF THE LAW 4.1 (4) The Duty to Consult and Accommodate Aboriginal Peoples Lack of consultation and communication will cost all sides: businesses suffer from delays, suspensions, or cancellations; the Indigenous community will suffer from the destruction or alteration of land or water it relies on, the loss of ability to engage in regular practices, and the reduction or loss of economic benefits. 95 Is Litigation the Only Option for Resolving Legal Disputes? Managing disputes should not mean going to court. Businesses must consider additional ways of resolving disputes, without litigation. Alternative dispute resolution (ADR): A range of options for resolving disputes as an alternative to litigation. o Most common methods of ADR: negotiation mediation arbitration 96 Advantages of Alternate Dispute Resolution Alternate dispute resolution: o can avoid unwanted publicity; o may preserve confidentiality; o may preserve relationship; o can be less costly; and o can be less time-consuming. Each side can agree on an outcome that it “can live with”, whereas in litigation, only one side can “win”. 97 Alternative Dispute Resolution: Negotiation (1) Negotiation: A process of deliberation and discussion intended to reach a mutually acceptable resolution to a dispute. o This is the most common ADR method. o It is quick, cost-effective, and customizable to the parties’ needs. o It can be used to resolve virtually any type of dispute. o Negotiation is less confrontational than litigation and may preserve relationships. o Lawyers can be of assistance. 98 Alternative Dispute Resolution: Negotiation (2) Contracts can include clauses requiring negotiation before litigation is commenced. Negotiation is not applicable in all instances, such as when insurance covers the risk. o The insurer will conduct settlement negotiations. o If the business gets involved, it could jeopardize the insurer’s negotiations. 99 Alternative Dispute Resolution: Negotiation (3) Steps in ADR: o Determine the nature and extent of the dispute. o Contact individuals on both sides to clarify the situation. There are no rules as to how the negotiation must happen. Goal is to reach a resolution that is agreeable to all parties. Successful negotiation may lead to a release. 100 Alternative Dispute Resolution: Negotiation (4) If negotiations reach an impasse, the parties will have to determine if it is worthwhile to continue or abandon the legal conflict, considering factors such as the following: o Is it worthwhile financially and how long it will take? o Will the business risk harming its reputation or a valuable relationship? o Are there worthwhile principles at stake? o What is the chance of winning and collecting a judgment? 101 Alternative Dispute Resolution: Negotiation (5) If the parties wish to continue with the dispute, mediation or arbitration can still be used after unsuccessful negotiations as an alternative to litigation. 102 BUSINESS AND LEGISLATION 4.1 (1) Saying Sorry Apologies can facilitate reconciliation and legal dispute resolution. In a legal context, apology can be seen as dangerous—an admission of liability. Some jurisdictions have passed apology legislation to cover statements of wrongdoing and of regret or sympathy. 103 BUSINESS AND LEGISLATION 4.1 (2) Saying Sorry In British Columbia, an apology o is not an admission of guilt; o is not relevant when a judge makes a determination of liability; o cannot be used as evidence establishing liability; and o cannot be used to void an insurance policy. Businesses must still be careful in issuing apologies even where there is apology legislation, as the legislation may not provide the protection expected. 104 ADR Options: Mediation (1) Mediation: An ADR process whereby a neutral person, called a mediator, assists the parties in reaching a settlement of their dispute. o Mediation can be used for most disputes. o Parties choose the mediator. 105 ADR Options: Mediation (2) Mediation is less expensive and quicker than formal methods. It can be private and confidential. It may help preserve the relationship between parties. Resolution can be tailored to the needs of the parties. 106 ADR Options: Mediation (3) Mediation used to be for family and divorce disputes, but it is now commonly used in commercial disputes as well. It is best used when both sides are interested in compromising. In some jurisdictions, mediation is mandated before a trial will be scheduled. There are no mandatory qualifications for mediators; they are usually lawyers or retired judges. 107 ADR Options: Mediation (4) Mediation is often face to face, but can be a video conference or online. Mediators DO NOT make decisions. o They facilitate discussions that lead to the parties resolving the dispute voluntarily. Mediation has a very high success rate, but each side must be ready to compromise. Mediation ends with a settlement agreement setting out the terms of the agreement. o It brings closure and prevents future litigation. 108 ADR Options: Arbitration (1) Arbitration: A method for resolving a dispute whereby a third person (or persons), called an arbitrator, appointed by the parties, makes a decision. o It usually involves a hearing where the parties or representatives make submissions; resolution is outside of the control of the parties (similar to litigation). o Parties control the procedures and rules and formality such as how, when, and where the hearing will be conducted and how evidence is presented. o Arbitration can be less expensive and faster than litigation. 109 ADR Options: Arbitration (2) Arbitration works very well for commercial and business disputes. o Parties select an arbitrator with relevant experience. o Parties can keep information private. Arbitration can be agreed upon by the parties at any time. 110 ADR Options: Arbitration (3) Arbitration is often chosen for contract disputes. o Large commercial contracts usually have an arbitration clause. o It is commonly used in international transactions. o Consumer contracts are also starting to see arbitration clauses, although Alberta, Quebe,c and Ontario have banned their use in most consumer contracts. 111 ADR Options: Arbitration (4) At the end of the arbitration, the arbitrator renders a decision. The finality of the decision depends on what the parties have agreed to beforehand (right to appeal or no right to appeal). The arbitration award is binding, similar to the judgment of the court. Binding: Final and enforceable in the courts. 112 BUSINESS APPLICATION OF THE LAW 4.2 (1) Arbitration Clauses in Consumer Contracts Dell computer advertised the wrong price: o $89 vs. $379, and $118 vs. $549 Customers were unable to make the purchase. A class action lawsuit attempted to force Dell to sell to them. Dell argued they could not sue due to an arbitration clause in the online purchase contract. 113 BUSINESS APPLICATION OF THE LAW 4.2 (2) Arbitration Clauses in Consumer Contracts The Supreme Court of Canada upheld the arbitration clause. o This left the consumers with no access to litigation, although a more recent Supreme Court of Canada case suggests mandatory arbitration clauses may be abusive in some situations. Alberta, Quebec, and Ontario have now prohibited such clauses in most consumer contracts. 114 INTERNATIONAL PERSPECTIVE 4.1 (3) Arbitration Is the Norm in International Transactions International disputes are costly, time-consuming, and complex. o In lawsuits, difficulties arise as to which country’s law applies, which country’s courts will hear the case, and whether that court’s decision is enforceable internationally. o As a result, arbitration is the favoured form of settlement in international contracts. Almost all large international contracts have arbitration clauses. o Many countries have adopted standardized rules and UN trade law regulations as well as reciprocal agreements to enforce arbitration awards. 115 The Litigation Process (1) Litigation arises when one party brings a legal action against another. It should be a last resort when other methods have failed for the following reasons: o slow, expensive, unpredictable o diverts operations from business activities o causes stress o no guarantee of success o can harm relationships and bring unwelcome publicity 116 The Litigation Process (2) Plaintiff: The party that initiates a lawsuit against another party. Defendant: The party being sued. Limitation period: The time period specified by legislation for commencing legal action after which the right to sue is lost. 117 The Litigation Process (3) Limitations periods vary by province, and it is critical to seek legal advice early in the dispute. o Calculating limitation periods can be complex. o Many provinces have a two-year general limitation period, but this can vary; legal advice is critical. 118 The Litigation Process (4) Litigation often involves a single plaintiff against a single defendant. It is governed by legal rules in common law and statute law. Procedural rules govern how the claim is carried through the system. Each province has its own rules for civil litigation. 119 The Litigation Process (5) Commercial litigation: Involves businesses suing or being sued. o It is also called private (or civil) litigation. o Litigants must pay for bringing the matter through the judicial system and may receive cost awards from the losing party if they are successful (or pay costs if they are unsuccessful). o Government is only involved in the administrative structure, court facilities, judges, etc. o Provinces create systems and rules for civil litigation, usually a quicker process for a smaller claim, and a more formal process for a larger claim. 120 BUSINESS AND LEGISLATION 4.2 Class Action Lawsuits Class action: A lawsuit launched by one person who represents a class of persons having similar claims against the same defendant. o It improves access to justice by enabling claimants to combine resources in a single action, and to efficiently address cases of alleged mass wrong. o Class actions were difficult to use in Canada, but availability was broadened in 1992, which significantly increased actions across the country. 121 Examples of Class Action Lawsuits (1) against Facebook (unauthorized use of Facebook users’ names and images in “Sponsored Stories”) against WestJet (female flight attendants alleged that the airline breached its contract with them by failing to design and implement a workplace program to prevent harassment and seek the costs allegedly saved by WestJet in not developing an adequate program) 122 Examples of Class Action Lawsuits (2) against CIBC (alleging CIBC had failed to disclose and misrepresented their risk of losses in subprime investments of various forms; the settlement was for $125 million, including $37.5 million to class lawyers) 123 Examples of Class Action Lawsuits (3) against Loblaw (plaintiffs allege a price-fixing conspiracy among Loblaw and other retail chains including Sobeys, Walmart Canada, and Giant Tiger, in the packaged bread market for over 16 years. They claim that the conspiracy “allowed producers and retailers, along with their parent companies and majority shareholders, to manipulate a $40 billion market and to accrue somewhere in the range of $5 billion in ill-gotten gains”.) 124 Stages of a Lawsuit In superior courts, a lawsuit can comprise four stages: 1. Pleadings 2. Discovery 3. Trial and decision 4. Enforcement 125 Stages of a Lawsuit: Pleadings (1) Pleadings: The formal documents concerning the basis for a lawsuit. Claim: The formal document that initiates litigation by setting out the plaintiff’s allegations against the defendant. o The document is “filed” with the appropriate court office, then formally delivered to the defendant (the “service”). o The claim outlines the key points the plaintiff needs to prove at trial. 126 Stages of a Lawsuit: Pleadings (2) The defendant is given a limited amount of time to respond (e.g., 20 days in Ontario). Failure to respond means the defendant has admitted the claim. The defendant can concede the case, and the plaintiff moves to the enforcement stage. If disputing, the defendant will prepare a defence (the defendant’s formal response to the plaintiff’s allegations). Counterclaim: A claim by the defendant against the plaintiff. 127 Stages of a Lawsuit: Discovery (1) Discovery: The process of disclosing evidence to support the claims in a lawsuit. o Both parties reveal facts supporting their allegations. o Each side provides the other with the documents and electronic records relating to their claim and has an opportunity to obtain oral testimony from the other side. 128 Stages of a Lawsuit: Discovery (2) The purpose of discovery is to test the strengths and weaknesses of both sides and encourage settlement as the parties learn about the relative strengths and weaknesses of each other’s case. In some provinces, the parties must participate in a mediation before they are allowed to proceed to a trial. 129 Stages of a Lawsuit: Trial and Decision (1) If no settlement is reached during the discovery stage, the plaintiff may apply for a summary judgment, or a trial will take place. Summary judgment: A procedure allowing a party to obtain a judgment on written evidence on all or part of a claim without having to proceed to trial. It may be used if there are few factual disputes that require a trial. 130 Stages of a Lawsuit: Trial and Decision (2) Trial: A formal hearing before a judge that results in a binding decision. o A single judge will preside over the trial; jury trials are uncommon for commercial matters. Burden of proof: The obligation is on the plaintiff to introduce evidence to prove their case ‘on the balance of probabilities’ or in other words, that there is a better than 50 percent chance their claim is valid. o The defendant challenges claims and witnesses and introduces its own account of events. 131 Stages of a Lawsuit: Trial and Decision (3) The plaintiff and defendant make submissions about legal rules and precedents that support their case. o The judge makes a decision, which is usually a monetary award, but other remedies may be available, such as an order to cease doing something, for example. Decision: The judgment of the court that specifies which party is successful and why. The judge determines who pays the costs (legal expenses that a judge orders the loser to pay the winner). 132 CASE 4.1 (1) Bukshtynov v McMaster University, 2019 ONCA 1027 (2) Legal Context: In Canada, the loser normally pays the winner’s costs at the end of the trial, but this rule can be affected by an offer to settle. Factual Background: B sued after being knocked down while running on a track on the McMaster campus. B had been asked to move to a different lane but did not do so and was struck by a running club member who was unable to stop to avoid him. Before the trial, B received an offer of $180K but declined, and at trial was only awarded $102K. 133 CASE 4.1 (2) Bukshtynov v McMaster University, 2019 ONCA 1027 (2) The Ontario Rules of Civil Procedure provide that where a defendant makes an offer at least seven days before trial, which is not accepted by the plaintiff and the judgment is as favourable or less favourable than the offer, the defendant is entitled to partial indemnity costs unless the court orders otherwise. Resolution: Because he did not accept the settlement and was unable to better it at trial, the plaintiff was ordered to pay the costs of the some of the defendants for a net loss to the plaintiff (despite winning the lawsuit). 134 Stages of a Lawsuit: Enforcement (1) The final stage of the litigation process is enforcement of the judgment awarded to the winning party. The winner must enforce the judgment (with the court’s assistance), and if the loser does not pay, the winner will have to seize and sell assets belonging to the loser. 135 Stages of a Lawsuit: Enforcement (2) Every jurisdiction limits the extent to which the winning party can take assets when the losing party is a human being rather than a corporation, to ensure that the individual is not left destitute. Judgment debtor: The party ordered by the court to pay a specified amount to the winner of a lawsuit. 136 Appeals (1) Appeal: The process of arguing to a higher court that a court decision is wrong. o This is an optional step if a party does not want to accept a trial decision. o There is usually a short period of time to appeal (e.g., 30 days). o This does not re-do the original case; no new evidence is usually presented. The appealing party must show that judge made a serious error. Appeals at higher levels are normally conducted by a panel of at least three judges. 137 Appeals (2) Appellant: The party who begins or files an appeal. Respondent: The party against whom an appeal is filed. Further appeal can be made to the Supreme Court of Canada (SCC). The appellant must show the matter is of “public importance” or involves an “important issue of law” and obtain “leave” (permission) from the SCC to proceed. Leave is unlikely to be granted. 138 TECHNOLOGY AND THE LAW 4.1 (1) COVID-19 and Dispute Resolution The COVID-19 pandemic has had a profound effect on dispute resolution, including both litigation and alternative dispute resolution. For example: o Discovery and trials were conducted virtually. o Court documents were increasingly filed electronically. o Some courts utilized electronic document sharing platforms to help participants manage electronic documents 139 TECHNOLOGY AND THE LAW 4.1 (2) COVID-19 and Dispute Resolution Backlogs also caused litigants to turn to online dispute resolution (ODR), a form of ADR that utilizes internet technology such as email and videoconferencing to facilitate the resolution of disputes. It is difficult to say whether these changes will continue post-COVID-19, but some courts have endorsed a hybrid model that includes virtual procedures going forward. 140 An Introduction to Contracts Canadian Business and the Law, EIGHTH EDITION Objectives After studying this chapter, you should have an understanding of the general concept of a contract the business context of contract formation the business context of contractual performance 142 Introduction to Contract Law (1) What Is a Contract? contract: An agreement between two or more parties that is enforceable in a court of law. By definition, a contract is enforceable in a court of law. 143 Introduction to Contract Law (2) What Is a Contract? Contracts require six elements: o An agreement: It is composed of an offer to enter a contract and acceptance of that offer. o Complete: The agreement is complete, that is, certain. o Deliberate: Both parties must want to enter into a contractual relationship. o Voluntary: The agreement must be freely chosen and not involve coercion. o Between two or more competent persons: Only competent parties may enter into a contract, and only parties can sue or be sued. o Mutual consideration: Each party must give something of value in exchange for something of value from the other party. 144 Introduction to Contract Law (3) Must Contracts Be in Writing? As a general rule, oral contracts are enforceable contracts. There are some exceptions to this general rule, and some contracts must be in writing in order to be enforceable. o One example is a contract involving an interest in land. It is almost always preferrable to get the contract in writing. 145 Introduction to Contract Law (4) Advantages of Contracts Contracts permit both parties to rely on the terms they have negotiated and plan their business affairs accordingly. They create binding promises that can be enforced in court. If a dispute arises between the two parties, there are various options for dispute resolution. They ensure that each party receives what they bargained for. 146 Introduction to Contract Law (5) Contracts and Commercial Activity Contracts are the legal cornerstone of any commercial operation. Using contracts, a business can sell a product or service, hire employees, rent office space, borrow money, purchase supplies, and enter into any other kind of binding agreement it chooses. Contract law allows participants to create their own rights and duties. Contracts come in a wide variety—from a simple purchase of pens at a stationary store to a long-term supply contract. 147 Business Application of the Law 5.1 Concert Hall Cancels Alleged Contract with Maximum Fighting Inc A music centre leased its premises to a mixed martial arts group for an event. The music centre cancelled the arrangement, saying that the booking was done in error and that the venue was a facility designed for concerts and was not a “suitable venue.” The mixed martial arts group filed a lawsuit for breach of contract and sought compensation for loss of profit, loss of sponsorship funds, and out-of-pocket expenses—such as printing and advertising—as well as for embarrassment and damage to reputation. 148 Creating the Contract (1) Communication It is important for the business person to know when simple business communications crystallize into legal obligations. Contract law concerns itself with what the negotiators say and do, not with what they think or imagine. Contract law is governed by whether a reasonable person, observing the communication that has occurred between the negotiators, would conclude that an offer and acceptance had occurred. objective standard test: A test based on how “a reasonable person” would view the matter. 149 Creating the Contract (2) Bargaining Power The business reality is that negotiating parties rarely have equal bargaining power. equal bargaining power: The legal assumption that parties to a contract are able to look out for their own interests. Courts do not normally assess the fairness or reasonableness of the contractual terms that the business parties have chosen. Courts assume that the parties had their eyes open, considered all the relevant factors, evaluated the risks, and were prepared to accept both the costs and the benefits of the contract. 150 Creating the Contract (3) Bargaining Power Though one party may have made a bad deal, this is not justification for securing the court’s assistance and intervention. People are expected to take care of themselves. 151 Case 5.1 (1) Churchill Falls (Labrador) Corporation Ltd v Hydro-Québec, 2018 SCC 45 In 1969, Churchill Falls (Labrador) Corporation Ltd (CFLCo) entered into a 65-year contract with Hydro-Québec. Hydro-Québec undertook to purchase most of the electricity produced by the plant, whether it needed it or not, and to protect CFLCo from any cost overruns incurred in the construction. Hydro-Québec also obtained the right to purchase electricity at fixed prices for the entire term of the contract. This protected it from inflation and assured it that it would benefit from low prices in the event of an increase in market prices for electricity. 152 Case 5.1 (2) Churchill Falls (Labrador) Corporation Ltd v Hydro-Québec, 2018 SCC 45 The contract proved to be heavily disadvantageous to CFLCo. Hydro-Québec has made approximately $28 billion in profits from contract—compared to just $2 billion for CFLCo. Resolution: Supreme Court of Canada decided in favour of Hydro-Québec, concluding that the contract was enforceable as written. There was no obligation on Hydro-Québec to renegotiate the contract. Both parties were experienced negotiators who “bound themselves knowing full well what they were doing, and their conduct shows that they intended one of them to bear the risk of fluctuations in electricity prices.” 153 Performing or Enforcing the Contract (1) Business Relationships Business people rarely breach contracts. If there is a breach of contract, whether the other side sues for breach of contract is not just a legal decision; it is also a business decision. Suing may not be the best business option even when the legal action itself stands a reasonable prospect of success. Expense and uncertainty of litigation are also reasons to avoid a full-blown legal conflict. 154 Business Application of the Law 5.2 Getting It in Writing In 1004964 Ontario Inc v Aviya Technologies Inc, 2013 ONSC 51, the plaintiff contracted with the defendant without ever putting a written contract in place because the parties had an established and positive ongoing business relationship. A conflict over the scope of work arose and the matter ended up in court. Conclusion: Even when businesses have worked together in the past and built up mutual trust, a written contract between them helps to avoid misunderstandings, legal conflicts, associated litigation expenses, and the destruction of business relationships. 155 Performing or Enforcing the Contract (2) Reputation Management A business that makes a practice of breaching contracts and paying damages in lieu of performance is likely to acquire a negative reputation in the industry o The long-term viability of a business may be compromised. Similarly, a business that insists on strict observance of its legal rights may damage its reputation. Sometimes compromise is necessary to protect reputation and avoid public relations disasters. 156 Forming Contractual Relationships Canadian Business and the Law, EIGHTH EDITION Objectives After studying this chapter, you should have an understanding of how negotiations lead to a contractual relationship how negotiations can be terminated the legal ingredients of a contract how contracts can be amended or changed 158 Basic Elements of a Contract These elements must be present in order to have an enforceable agreement (i.e., a contract): an agreement (i.e., composed of offer and acceptance) complete (i.e., certain) deliberate (i.e., intention to create legal relations is present) supported by mutual consideration 159 An Agreement Before a contract can be in place, the parties must be in agreement. The parties must reach a consensus as to their rights and obligations. This agreement takes the form of offer and acceptance. offer: A promise to enter a contract, on specified terms, as soon as it is accepted. offeror: The person who makes an offer. offeree: The person to whom an offer is made. 160 Offer All essential terms must be set out in the offer or the contract will fail for uncertainty. o Some matters can be left to be determined. ▪ Example: The final price might be contingent on the market price, as determined by a given formula (e.g., cost plus 15 percent). o However, a court will not speculate as to what the parties would have agreed to had they completed their negotiations. 161 Offer Versus Invitation to Treat invitation to treat: An expression of willingness to do business. It has no legal consequences and is not considered an offer. o It is treated in law as merely an expression of willingness to do business. Most advertisements and displays of goods in stores are invitations to treat. 162 Standard Form Contract standard form contract: A “take it or leave it” contract, where the customer agrees to a standard set of terms that favours the other side. The contract is formed without any negotiations between the parties. o Example: renting a car It helps reduce transaction costs and increase business volume, potentially lowering price. The law expects people to take care of themselves. It is critical to read and understand the contract before signing it. 163 Case 6.1 (1) Leonard v Pepsico Inc, 88 F Supp 2d 116 (SDNY 1999) Television commercials are generally regarded as invitations to treat, but an ad may inadvertently make an offer. In 1996, Pepsi launched a promotion whereby consumers could acquire Pepsi-branded swag listed in a catalogue. Items could be acquired using “Pepsi Points” or through cash equivalent by buying Pepsi Points. A Pepsi ad showed a Harrier jet (approx. value $23M), which Leonard regarded as an offer and raised $700 000 to purchase 7 million Pepsi Points. 164 Case 6.1 (2) Leonard v Pepsico Inc, 88 F Supp 2d 116 (SDNY 1999) Pepsi refused to deliver the jet. Leonard sued for breach of contract. Court: o The ad was not an offer (this would be consistent with Canadian law as well). o Court: “no objective person could reasonably have concluded that the commercial actually offered consumers a Harrier jet.” 165 Termination of an Offer An offer can be terminated by any of the following events: o revocation o lapse o rejection o counteroffer o death or insanity 166 Revocation revocation: The withdrawal of an offer. Revocation can take place any time before acceptance by notifying the offeree. A “firm offer” is a promise to leave the offer open for a set period of time. o Such a promise is not enforceable because it lacks consideration. A promise to leave an offer open for a set period of time is only binding if the other party has purchased it or otherwise has given the offeror something in return for the commitment (“an option”). option agreement: An agreement where, in exchange for payment, an offeror is obligated to keep an offer open for a specified time. 167 Case 6.2 (1) Bigg v Boyd Gibbins Ltd, 2 All ER 183 (CA) The parties negotiated extensively for the sale of Shortgrove Hall. They disagreed as to whether a contract had been formed. The first legally important letter from the plaintiff stated: “Thank you for your letter received last week.... As you are aware that I paid £25 000 for this property, your offer of £20 000 would appear to be at least a little optimistic. For a quick sale I would accept £26 000, so that my expense may be covered.” In response, the defendant wrote: “I have just recently returned from my winter holiday and, turning this matter over in my mind now, would advise you that I accept your offer.” 168 Case 6.2 (2) Bigg v Boyd Gibbins Ltd, 2 All ER 183 (CA) The plaintiff replied: “ I thank you for your letter... accepting my price of £26 000 for the sale of Shortgrove Hall. I am putting the matter in the hands of my solicitors.... My wife and I are both pleased that you are purchasing the property.” The defendant took the position that they had merely agreed on price and that no contract was formed. Court: The language used in their correspondence was intended to and did achieve the formation of a contract. 169 Landmark Case 6.1 (1) Dickinson v Dodds, 2 Ch D 463 (CA) On Wednesday, June 10, Dodds delivered to Dickinson a written offer to sell his property to Dickinson for £800. The offer stated that it would be open for acceptance until 9:00 a.m. on Friday, June 12. On Thursday, Dickinson heard that Dodds had been offering or was agreeing to sell the property to Mr. Allan. That evening, Dickinson delivered an acceptance to the place where Dodds was staying, and at 7:00 a.m. on Friday morning—a full two hours before the deadline—he personally delivered an acceptance to Dodds. Dodds declined the acceptance, stating: “You are too late. I have sold the property.” 170 Landmark Case 6.1 (2) Dickinson v Dodds, 2 Ch D 463 (CA) Dickinson sued Dodds, alleging there was a contract between them. Issue: Was Dodds entitled to revoke his offer prior to the deadline he had set? Court: Dodds’s withdrawal was legally valid as Dickenson had not paid consideration for his promise to keep the offer open until Friday morning. o The court also found that Dodds’s offer had been effectively revoked prior to acceptance because Dickinson learned in advance that Dodds was selling the property to someone else. 171 Revocation in the Context of Tendering a Contract The call for tenders is an offer of a preliminary contract (“Contract A”). The tenderer and the owner are obligated to follow the rules governing the tender selection process. The tenderer cannot withdraw its tender before the specified time has elapsed. Everyone who submits a tender is accepting the offer of a contract to govern the relationship between the parties. 172 Lapse lapse: The expiration of an offer after a specified or reasonable period. An offer may expire on a specified date. o The offer ends and can no longer be accepted. If no expiry date is specified, then it remains open for a reasonable time. o What constitutes a reasonable time depends on the circumstances of the case. 173 Rejection rejection: The refusal to accept an offer. An offer is automatically terminated if rejected by the offeree. The offer can only be accepted if revived by the offeror with a new or revised offer. 174 Counteroffer counteroffer: The rejection of one offer and proposal of a new one. A counteroffer is a form of rejection that automatically terminates the original offer, because the offeree is turning down the offer and proposing a new one in its place. A counteroffer refers to any change to a term or an offer—price, quantity, time of delivery, method of payment, etc. 175 Death or Insanity Offers generally die if the offeror or offeree dies. However, if the affected party is not the one personally performing it, it could be accepted as an offer by the courts. As a general rule, someone who is sane at the time of the offer but becomes insane before acceptance would not be bound. 176 Acceptance (1) acceptance: An unqualified willingness to enter into a contract on the terms in the offer. This occurs when an offer made by one party is unconditionally and unequivocally accepted by the other party. A contract comes into existence at the moment of acceptance. 177 Acceptance (2) Acceptance must normally be communicated to the other party to be effective. The offer is effective only when it has been communicated to the offeree. The acceptance must be communicated to the offeror so that the offeror is aware of the unqualified acceptance. 178 Acceptance (3) If a method of acceptance is specified, then this method is mandatory. If it is not specified, then the message of acceptance can be conveyed in any manner that is reasonable in the circumstances. Acceptance can be indicated by conduct. 179 Acceptance (4) An exception to the rule that acceptance must be communicated to be effective is the “postbox rule.” If it is clear that the offeror intends the postbox rule to apply to their offer, then acceptance is effective at the time of mailing the acceptance, rather than the time of delivery. Whether the court will apply the postbox rule, depends on the facts of the case. o Since application of the postbox rule means that an offeror could end up being in a contract without even knowing it, It is important to ensure that the terms of acceptance avoid this. When communication is instantaneous or closely so (including telephone or fax), courts have applied the ordinary rule—that acceptance is effective only when communicated. 180 Case 6.3 (1) Lowe (DJ) (1980) Ltd v Upper Clements Family Theme Park Ltd, 1990 CanLII 4194 (NSSC) Lowe company, (the crane’s owner) insisted that the crane be leased for a minimum period of two months, whereas Bougie did not want to commit to that length of a term, preferring to pr- rate. Bougie had a letter sent by Buxton indicating terms that suggested Lowe had agreed to a prorated scheme, to which he had not actually agreed. Lowe delivered the crane, apparently believing that he could come to an agreement on price, and within two days of delivering the crane, approached Bougie with a draft agreement setting out a monthly rate for a two-month term, which Bougie/Buxton refused to sign. 181 Case 6.3 (2) Lowe (DJ) (1980) Ltd v Upper Clements Family Theme Park Ltd, 1990 CanLII 4194 (NS SC) The crane was on-site for four days and then immediately returned along with payment of $1250. Lowe sued for the balance, claiming that his company was owed a total of $20 000. Is there a contract between the parties? If so, did Buxton’s terms on price prevail or did Lowe’s? Court: There was a contract in place. o The Buxton letter was a counteroffer which was accepted by Lowe. 182 Landmark Case 6.2 (1) Carlill v Carbolic Smoke Ball Co, 1 QB 256 (Eng CA) The Carbolic Smoke Ball Company advertised in a London newspaper at the turn of the 19th century that it would pay 100 pounds to any person contracting influenza while using its product as instructed. Mrs. Carlill used the smoke ball as directed for two weeks but caught influenza anyway. When the company refused to pay her the advertised reward, she commenced an action for breach of contract. 183 Landmark Case 6.2 (2) Carlill v Carbolic Smoke Ball Co, 1 QB 256 (Eng CA) Was there a contract even though Carlill had not communicated her acceptance? Court: o While communication of acceptance is generally required, this is not always the case. o Carbolic Smoke Ball Company had chosen to dispense with the necessity of notice; it could not complain about Mrs. Carlill’s failure to communicate acceptance now. o Carlill had accepted the company’s offer of a reward by using the smoke ball as requested and then contracting influenza. 184 Technology and the Law 6.1 (1) Electronic Contracting Ecommerce (electronic commerce) refers to conducting business over the internet. Canada uses the Uniform Electronic Commerce Act (UECA) as the basis for ecommerce legislation. The UECA removes barriers to electronic commerce. It is the basis for provincial and federal electronic commerce legislation. It provides that acceptance of an offer can be made electronically. 185 Technology and the Law 6.1 (2) Electronic Contracting Unless clear language indicates to the contrary, an advertisement can constitute an offer if it is clear, definite, and explicit and leaves nothing open to negotiation. Contract