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  • Ten things you should know about the amendments to Quebec’s Charter of the French language

    Quebec recently enacted Bill 96, entitled An Act respecting French, the official and common language of Québec, which aims to overhaul the Charter of the French language. Here are 10 key changes in this law that will impose significant obligations on businesses: As of June 1, 2025, businesses employing more than 25 people (currently the threshold is 50 people) for at least six months will be required to comply with various “francization”1 obligations. Businesses with between 25 and 99 employees may also be ordered by the Office québécois de la langue française (the OQLF)2 to form a francization committee. In addition, at the request of the OQLF, businesses may have to provide a francization program for review within three months. As of June 1, 2025, only trademarks registered in a language other than French (and for which no French version has been filed or registered) will be accepted as an exception to the general principle that trademarks must be translated into French. Unregistered trademarks that are not in French must be accompanied by their French equivalent. The rule is the same for products as well as their labelling and packaging; any writing must be in French. The French text may be accompanied by a translation or translations, but no text in another language may be given greater prominence than the text in French or be made available on more favourable terms. However, as of June 1, 2025, generic or descriptive terms included in a trademark registered in a language other than French (for which no French version has been registered) must be translated into French. In addition, as of June 1, 2025, on public signs and posters visible from outside the premises, (i) French must be markedly predominant (rather than being sufficiently present) and (ii) the display of trademarks that are not in French (for which no French version has been registered) will be limited to registered trademarks. As of June 1, 2022, businesses that offer goods or services to consumers must respect their right to be informed and served in French. In the event of breaches of this obligation, consumers have the right to file a complaint with the OQLF or to request an injunction unless the business has fewer than five employees. In addition, any legal person or company that provides services to the civil administration3 will be required to provide these services in French, including when the services are intended for the public. As of June 1, 2022, subject to certain criteria provided for in the bill, employers are required to draw up the following written documents in French: individual employment contracts4 and communications addressed to a worker or to an association of workers, including communications following the end of the employment relationship with an employee. In addition, other documents such as job application forms, documents relating to working conditions and training documents must be made available in French.5 As of June 1, 2022, employers who wish to require employees to have a certain level of proficiency in a language other than French in order to obtain a position must demonstrate that this requirement is necessary for the performance of the duties related to the position, that it is impossible to proceed using internal resources and that they have made efforts to limit the number of positions in their company requiring knowledge of a language other than French as much as possible. As of June 1, 2023, parties wishing to enter into a consumer contract in a language other than French, or, subject to various exceptions,6 a contract of adhesion that is not a consumer contract, must have received a French version of the contract before agreeing to it. Otherwise, a party can demand that the contract be cancelled without it being necessary to prove harm. As of June 1, 2023, the civil administration will be prohibited from entering into a contract with or granting a subsidy to a business that employs 25 or more people and that does not comply with the following obligations on the use of the French language: obtaining a certificate of registration, sending the OQLF an analysis of the language situation in the business within the time prescribed, or obtaining an attestation of implementation of a francization program or a francization certificate, depending on the case. As of June 1, 2023, all contracts and agreements entered into by the civil administration, as well as all written documents sent to an agency of the civil administration by a legal person or by a business to obtain a permit, an authorization or a subsidy or other form of financial assistance must be drawn up exclusively in French. As of September 1, 2022, a certified French translation must be attached to motions and other pleadings drawn up in English that emanate from a business or legal person that is a party to a pleading in Quebec. The legal person will bear the translation costs. The application of the provisions imposing this obligation has, however, been suspended for the time being by the Superior Court.7 As of September 1, 2022, registrations in the Register of Personal and Movable Real Rights and in the Land Registry Office, in particular registrations of securities, deeds of sale, leases and various other rights, must be made in French. Note that declarations of co-ownership must be filed at the Land Registry Office in French as of June 1, 2022. The lawyers at Lavery know Quebec’s language laws and can help you understand the impact of Bill 96 on your business, as well as inform you of the steps to take to meet these new obligations. Please do not hesitate to contact one of the Lavery team members named in this article for assistance. “Francization” refers to a process established by the Charter of the French language to ensure the generalized use of French in businesses. The OQLF is the regulatory body responsible for enforcing the Charter of the French language. The civil administration in this law includes any public body in the broad sense of the term. An employee who signed an individual employment contract before June 1, 2022, will have until June 1, 2023, to ask their employer to provide them with a French translation if the employee so wishes. If the individual employment contract is a fixed-term employment contract that ends before June 1, 2024, the employer is not obliged to have it translated into French at the request of the employee. Employers have until June 1, 2023, to have job application forms, documents related to work conditions and training documents translated into French if these are not already available to employees in French. Among these exceptions are employment contracts, loan contracts and contracts used in “relations with persons outside Quebec.” There seems to be a contradiction in the law with regard to individual employment contracts which are contracts of adhesion and for which the obligation to provide a French translation nevertheless seems to apply. Mitchell c. Procureur général du Québec, 2022 QCCS 2983.

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  • Amendments to the Charter of the French Language: Impacts on the Insurance Sector

    Bill 96 – An Act respecting French, the official and common language of Québec (the “Act”) - was adopted on May 12, 2022 and assented to on June 1, 2022, its effective date. Certain provisions are already in force; for other provisions, a transitional period ranging from several months to three years will apply. This document provides an overview of the modifications included in the reform of the Charter of the French Language (the “Charter”) that will have an impact on various aspects relevant to insurance sector stakeholders doing business in Québec. Forming the centrepiece of the announced changes, the reform of the Charter includes strengthened oversight mechanisms governing the use of French as the language of commerce and business, as well as linguistic rights in the areas of employment and communications with agents of the State. Overseeing the language of commerce and business The reform of Section 55 of the Charter stipulates that contracts of adhesion and related documents must be drawn up in French. However, effective June 1, 2023, a French-language version of these contracts and documents must be provided to participants First Alinea of this amended section reads as follows: 55. Contracts pre-determined by one party and the related documents, must be drawn up in French. The parties to such a contract may be bound only by its version in a language other than French if, after its French version has been remitted to the adhering party, such is their express wish. The documents related to the contract may then be drawn up exclusively in that other language.1 Therefore, contractual clauses in which the parties simply indicate that they agree to be bound by a contract drawn up in a language other than French are no longer sufficient. The Civil Code of Québec stipulates that “A contract of adhesion is a contract in which the essential stipulations were imposed or drawn up by one of the parties, on his behalf or upon his instructions, and were not negotiable.”2 To qualify a contract, the importance of the negotiated terms and conditions and their connection with the contract must be analyzed. It is generally recognized that if the essential stipulations are not negotiable, the contract is a contract of adhesion, even though some less important terms and conditions may have been negotiated by the parties. This amendment codifies the interpretation adopted by the Office québecois de la langue française (“OQLF”) and the courts,3 particularly given that negotiated contracts were not covered by this provision. To remove any doubt concerning this interpretation, Bill 96 was amended so as not to extend the scope of this requirement to include contracts containing “printed standard clauses”. The insurance contract Since their essential stipulations are typically drawn up by the insurer, insurance contracts and their endorsements are contracts of adhesion, as a general rule. Therefore, the French-language version of all related documents — notices, letters, insurance product summaries — must be provided to clients before they can decide whether they will be bound by a version drawn up in another language. During the parliamentary debates, Minister Jolin-Barette commented that Section 55 of the Charter only referred to consumers and that contracts between two companies could be drawn up in the language of their choice if that was the express wish of both parties. The term “consumer”, however, is not defined in the Charter. Ambiguity remains as to whether the Minister’s comment only referred to contracts containing standard clauses or whether contracts of adhesion were included. We will have to wait for the publication of the interpretation bulletins and the annotated edition of the act to determine whether Section 55 of the Charter applies to commercial insurance policies. In the meantime, we are of the opinion that if Québec lawmakers had wanted to exclude commercial contracts of adhesion, they would have expressly done so by means of an amendment. Insurance contracts in effect before June 1, 2023 will not have to be translated, nor will insurance contracts renewed without modifications since under those circumstances, the contract would not be regarded as a new contract.4 However, if an existing insurance contract is renewed with significant modifications, it will be regarded as a new contract and the French-language version thereof must be provided to clients so they may validly express their wish to be bound by a contract drawn up in a language other than French. Given that in most cases, insurance contracts are sent out to policyholders by regular mail or email, effective June 1, 2023, insurers, agents or brokers, as applicable, will have to send both the French-language and English-language versions of the contract in the same mailing or simply send the French-language version thereof. It is important to note that the Act provides for an exception to the requirement to provide the French-language version if: The insurance policy has no equivalent in French in Québec; and The insurance policy is originates from outside Québec or is not widely available in Québec.5 [unofficial translation] In all likelihood, this exception will only apply to highly specialized insurance products and will be interpreted restrictively given the Act’s primary objective. Unlike insurance contracts and related documents, invoices, receipts, discharge notices and other similar documents may be sent out in English if the French-language version remains available on terms that are at least as favourable.6 Services and marketing in French The Act introduces the Charter’s new Section 50.2, which states that businesses must respect consumers’ fundamental linguistic right to be informed and served in French. The same section reiterates this requirement with respect to “a public other than consumers” to whom are offered goods and services and who must henceforth be informed and served in French by businesses. Unlike consumers, however, clients who are businesses do not enjoy a fundamental linguistic right protected by the Charter. As regards marketing, the addition of the words “regardless of the medium used” to Section 52 of the Charter confirms that marketing documents in “hard copy” format must be in French, as must websites. If a version is available to the public in a language other than French, the French-language version must be available on terms that are at least as favourable. This provision took effect on June 1, 2022. Chat-type platforms or those facilitating direct communications with the insurer should make it possible for members of the public to communicate with the insurer’s representatives in French at all times. Communications with insurance agents and brokers Effective June 1, 2022, insurers are required to communicate in French with insurance agents and brokers who express the desire to do so.7 In addition, all information documents sent to insurance agents and brokers regarding underwriting or claims must be in French if they so wish. As regards contractual agreements between insurers,  insurance agents  and brokers, the need to provide a French-language version depends on the nature of the contract, i.e. whether it can be qualified as a contract of adhesion. French in the workplace Effective June 1, 2022, all companies doing business in Québec must comply with the following requirements in the area of employment rights: Respect employees’ right to work in French8; Use French in all written communications sent to employees; Ensure that all offers of employment, promotion or transfer; individual employment contracts; employment application forms; and documents concerning employment conditions and training sent to employees are drawn up in French;9 Take all reasonable means to avoid requiring employees to have knowledge  or a specific level of knowledge of a language other than French for employees to obtain employment or to maintain their position, including in particular:   Assess the actual needs associated with the duties to be performed; Make sure that the language knowledge already required from other staff members was insufficient for the performance of those duties; Restrict as much as possible the number of positions involving duties whose performance requires knowledge of or a specific level of acknowledge of a language other than French.10 It should be noted that individuals whose employment contracts are currently drawn up in English have until June 1, 2023, to ask their employer to translate their contract. Effective June 1, 2025, businesses with 25 employees or more in Québec must meet additional francization requirements for their Québec employees to obtain a francization certificate, including: Registering with the OQLF; Submitting an analysis of the status of the French language within the business; Putting in place a francization program within three months following an OQLF request to that effect. The above requirements were already in effect for businesses with more than 50 employees in Québec. French as the language of the civil administration The Act includes various modifications with respect to French as the language of the civil administration. The Québec government will be required to make exemplary and exclusive use of French, with certain exceptions. Effective June 1, 2023, all agents of the State and provincial government bodies will be required to communicate in French with all persons, including business representatives. All documents exchanged with the civil authorities, as well as all contracts and permits, must be drawn up in French. Insurance sector stakeholders outside Québec should expect to receive more communications in French from the Autorité des marchés financiers (“AMF”) given that the AMF is a body of the “civil administration”. Penalties It should be noted that new powers will be granted to the OQLF enabling it to conduct investigations and impose administrative and disciplinary penalties. As regards infractions of the Charter’s provisions, the Act provides for fines ranging from $3,000 to $30,000 for businesses and from $700 to $7,000 for individuals. These fines are doubled for a second offence and tripled for further offences. In addition, if an infraction continues for more than one day, each day constitutes a separate infraction. If an infraction is committed by a corporate director or officer, the Act provides for fines ranging from $1,400 to $14,000. Questions of interpretation Various provisions have raised questions of interpretation that are still difficult to resolve at the time of writing. Interpretation bulletins and an annotated edition of the act will be published by the provincial government with a view to guiding businesses in the application of the Act; they will also help to clarify certain provisions that remain ambiguous for the time being. For further information on changes concerning trademarks, please consult a recent publication by our colleagues specializing in intellectual property. Sec. 55, Para. 1 of the Charter. Civil Code of Québec, CQLR ch. CCQ-1991, Sec. 1379, Para. 1. Westboro Mortgage Investment vs. 9080-9013 Québec inc., 2018 Superior Court of Québec 1. Leave to appeal dismissed 2019 Court of Appeal of Québec 1599. Didier LLUELLES, Droit des assurances terrestres, 6th ed., Montréal, Éditions Thémis, 2017, Para. 186. Sec. 21.5 and Sec. 55 of the Charter. Sec. 57 of the Charter. Sec. 50.2 of the Charter. Sec. 5 and Sec. 50.2 of the Charter. Sec. 41 of the Charter. Sec. 46 of the Charter.

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  • Complaint processing: New framework to come for financial institutions and financial intermediaries

    Last September, the AMF published its draft Regulation respecting complaint processing and dispute resolution in the financial sector (the “Draft Regulation”). The consultation period for it ended on December 8, 2021. The AMF is currently reviewing the many comments it received. The Draft Regulation1 aims to harmonize and improve complaint processing in the financial sector by providing for new mechanisms to ensure prompt and efficient complaint processing, among other things. In the insurance industry, only firms and insurers are currently required to adopt and apply a complaint processing and dispute resolution policy. The Draft Regulation will make these obligations apply to independent partnerships and representatives. It also introduces new requirements and restrictions as well as monetary penalties for not including mandatory content in communications to a complainant, for example. Here are some of the Draft Regulation’s new provisions: Broadening of the definition of “complaint” to: Any dissatisfaction or reproach; That cannot be remedied immediately and for which a final response is expected; In respect of a service or product offered by a financial institution or financial intermediary; That is communicated by a person who is a member of the clientele of the institution or intermediary. The Draft Regulation does not contain a requirement that a complaint must be made in writing.2 It does make it mandatory for financial institutions and financial intermediaries to implement a complaint drafting assistance service.3 It also requires that a note be left in each record to indicate whether a complainant requested this service. Prohibition on the use of the term “ombudsman” in any representation or communication intended for the public to refer to the complaint process or to the persons assigned to its implementation.4 Specific requirements as concerns the mandatory content of a complaint processing policy, an acknowledgment of receipt and final response to a complainant, a complaint record and a complaints register.   For each complaint received, the complaint record must include the following information: The complaint Whether the complainant requested the complaint drafting assistance service The complainant’s initial communication A copy of the acknowledgment of receipt sent to the complainant Any document or information used in analyzing the complaint, including any communication with the complainant A copy of the final response provided to the complainant New time limits: Within 10 days of receiving a complaint, the insurer must notify the complainant in writing that they must also file the complaint with any other financial institution, financial intermediary or credit assessment agent involved, and the insurer must provide the complainant with their contact information.5 The complainant must be given 20 days to assess and respond to an offer to resolve the complaint, with sufficient time for the complainant to seek advice for the purpose of making an informed decision.6 If the complainant accepts the offer, the insurer has 30 days to respond.7 Financial institutions and financial intermediaries have a strict 60-day time limit to provide the complainant with a final response.8 There is a new 15-day time limit to send the complaint record to the AMF.9 There is a streamlined process for complaints that are resolved within 10 days of being recorded in the complaints register: The final response serves as an acknowledgment of receipt and must contain the following information: The complaint record identification code The date on which the complaint was received by the insurer or insurance representative The name and contact information of the employee responsible for processing the complaint referred to in section 7 of the Draft Regulation or in the Sound Commercial Practices Guideline A summary of the complaint received The conclusion of the analysis, including reasons, and the outcome of the complaint A reference to the complainant’s right to have the complaint record examined by the AMF The signature of the complaints officer A statement to the effect that the complainant has accepted the offer to resolve the complaint New monetary administrative penalties The Draft Regulation also provides for monetary administrative penalties ranging from $1,000 to $5,000 for failure to comply with certain requirements and prohibitions of the Draft Regulation. For example, the following will be subject to a monetary administrative penalty of $5,000: Attaching a condition to an offer to prevent the complainant from fully exercising their rights. Using the term “ombudsman” or any other similar title in any representation or communication intended for the public to refer to the complaint process or the persons assigned to its implementation to suggest that such persons are not acting on behalf of the financial institution or financial intermediary. In the latter case, a monetary administrative penalty may be imposed even where no complaint is involved, because the prohibition covers “any representation or communication intended for the public.” Insurers and financial intermediaries should review their communications as soon as possible, and especially the summary of their complaint processing policy appearing on their website. It concerns all entities regulated by the AMF, but the bulletin more specifically addresses financial institutions and financial intermediaries in the insurance industry. As currently indicated on the AMF’s website. Draft Regulation, s. 11. Id., s. 26, para. 2. Id., s. 15. Id., s. 13. Id. Id., s. 12, para. 4. Id., s. 25.

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  • Can an Idea, Style or Method Be Protected Under the Copyright Act?

    Ahead of the 2021 holiday season, as children dream about the toys that Santa Claus will bring them, let’s take a look back at a landmark decision that reviews what is copyrightable under the Copyright Act. As visual artist Claude Bouchard (“Bouchard”) learned from the outcome of her legal action against Ikea Canada (“Ikea”),1 the Copyright Act2 does not protect the ideas, styles or methods developed and used by artists to create their works, even if their work is exhibited in museums and marketed internationally. From 1994 to 2005, Bouchard sold in a Montreal’s Unicef store soft toys that she designed based on children’s drawings. In September 2014, Ikea held a drawing competition for children and made 10 soft toys from the winning entries, marketed as part of the “Sogoskatt” collection. A portion of the profits were donated to UNICEF. Originally, Bouchard was seeking a monetary award against UNICEF and Ikea for copying her toys, alleging that they had used, in particular, her idea, her original style and her methods. In 2018, the Superior Court ruled on the case for the first time, dismissing the legal action against UNICEF based on the privileges and immunities of the United Nations.3 UNICEF’s immunity from suits is in this case absolute since Bouchard’s legal action is directly related to the organization’s mission.4 In January 2021, Justice Patrick Buchholz of the Superior Court put an end to the dispute between Bouchard and Ikea, dismissing the legal action for infringement of Bouchard’s works based on the Copyright Act as being ill-founded, destined to fail and unreasonable, thus opening the door to its dismissal for abuse of process.5 Why was Bouchard’s infringement action ill-founded? The Court first examined the arguments put forward by Ikea to the effect that two essential elements giving rise to the infringement action6 could not be demonstrated by Bouchard: There is no evidence that Ikea had access to Bouchard’s work.7 There is no evidence that Ikea reproduced a substantial part of the plaintiff’s work. Therefore, Ikea argues that there was no infringement of the copyright of Bouchard, who was seeking a monopoly on an idea, style or method, which is not protected under the Copyright Act8 Lack of access to Bouchard’s works The Court did not accept Ikea’s first argument that there was a lack of access to Bouchard’s works. It ascertained that the proceedings were at a too preliminary stage to make a determination.9 The Honourable Justice Buchholz pointed out that section 51 of the Code of Civil Procedure is not [our translation] “a free pass to bypass the judicial process and prematurely set aside otherwise allowable claims” when the evidence is still incomplete.10 The Court also noted the seriousness of the links between Ikea and UNICEF, which may have made access to Bouchard’s works possible and likely.11 In this context, only a hearing on the merits could have clarified the question of access to Bouchard’s works by making it possible to test, more precisely, the credibility of the witnesses at trial.12 Lack of reproduction of a substantial part of the work Bouchard alleged that the toys designed by Ikea incorporate eight essential features of her soft toy concept, namely [our translation]: Round eyes cut from non-fraying fabrics and sewn around the edges; Thinly cut linear mouths sewn into non-fraying fabrics; iii. Polyester fibre stuffing; iv. The toy is proportionate to the size of children’s hands; v. Soft toy faithful to the child’s drawing; vi. Child’s name and age on the tag; vii. Everything is solid (head, body, legs, and tail), in the same plane and stuffed; viii.  Use of textiles, plush, and the original colours of the drawings.”13 However, the Court accepted Ikea’s second argument that Ikea’s soft toys did not reproduce a substantial part of Bouchard’s work. Since Bouchard’s works and Ikea’s works did not share a resemblance, this means that a substantial part of the works was not reproduced.14 How to determine if a “substantial part” of a work has been reproduced? Under the Copyright Act, copyright, “in relation to a work, means the sole right to produce or reproduce the work or any substantial part thereof”.15 The Supreme Court defined “substantial part” of the work in the Cinar decision,16 stating that it is a flexible notion to be interpreted based on the facts. The assessment is holistic and qualitative in nature. The criteria to be used by the courts to determine whether there has been a reproduction of a “substantial part” of a work are as follows: The originality of the work, which must be protected under the Copyright Act;17 The part “represents a substantial portion of the author’s skill and judgment”;18 The nature of the two works as a whole, without looking at isolated passages;19 “[T]he cumulative effect of the features copied from the work”.20 Although there are some similarities between the Bouchard and Ikea soft toys, the soft toys are completely different and do not look the same because they are designed from the drawings of different children. Bouchard even admitted that [our translation] “a toy made from a unique child’s drawing is in itself a unique toy”.21 Can the Copyright Act protect an idea, a concept or a body of work? Bouchard instead claimed that Ikea illegally reproduced her idea, concept, style or methods.22 She ultimately argued that Ikea did not copy a specific work, but instead copied her “work” in a broader sense.23 Bouchard’s arguments highlight issues that often come up in the court system and demonstrate a misunderstanding of what is protected by copyright. Copyright of an idea, concept, style or method In 2004, the Supreme Court pointed out that copyright protects the expression of ideas in a work and not the ideas themselves.24 Justice Buchholz rightly pointed out that an artist can be inspired by another artist without infringing the rights protected by the Copyright Act. He noted, for example, that if styles were protected, Monet could not have painted in the Impressionist style.25 The Court also noted that the soft toys made by Bouchard correspond to a generic style dictated by safety standards for the manufacture and sale of toys.26 Thus, the Copyright Act does not offer any protection for ideas, concepts, styles or manufacturing methods and techniques. Copyright of an artistic legacy, corpus, or collection The Court specified that the Copyright Act does not protect a body of work or an artistic legacy, but rather each individual work.27 Bouchard c. Ikea Canada, 2021 QCCS 1376. R.S.C. 1985, c. C-42. Bouchard c. Ikea Canada, 2018 QCCS 2690. Idem, para. 24–25. Section 51, Code of Civil Procedure, CQLR c. C-25.01. Section 2, “infringing”, Copyright Act. Bouchard c. Ikea Canada, supra, note 1, para. 16–17. Idem, para. 15. Idem, para. 34. Idem, para. 28. Idem, para. 37–39. Idem, para. 40. Idem, para. 49. Idem, para. 55. Section 3, Copyright Act. Cinar Corporation v. Robinson, 2013 SCC 73, para. 26, 35–36. Idem, para. 26. Idem. Idem, para. 35. Idem, para. 36. Bouchard c. Ikea Canada, supra, note 1, para. 53. Idem, para. 56. Idem, para. 69. CCH Canadian Ltd. v. Law Society of Upper Canada, 2004 SCC 13, para. 8. Idem, para. 67. Toys Regulations, SOR/2011-17, adopted under the Canada Consumer Product Safety Act, S.C. 2010, c. 21, s. 29, 31–32. Bouchard c. Ikea Canada, supra, note 1, para. 69–71.

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  • Crypto asset works of art and non-fungible token (NFT) investments: Be careful!

    On March 11, 2021, Christie’s auction house made a landmark sale by auctioning off an entirely digital artwork by the artist Beeple, a $69 million transaction in Ether, a cryptocurrency.1 In doing so, the famous auction house put non-fungible tokens (“NFT”), the product of a decentralized blockchain, in the spotlight. While many extol the benefits of such crypto asset technology, there are also significant risks associated with it,2 requiring greater vigilance when dealing with any investment or transaction involving NFTs. What is an NFT? The distinction between fungible and non-fungible assets is not new. Prior to the invention of blockchain, the distinction was used to differentiate assets based on their availability, fungible assets being highly available and non-fungible assets, scarce. Thus, a fungible asset can easily be replaced by an equivalent asset with the same market value. The best example is money, whether it be coins, notes, deposit money or digital money, such as Bitcoin. On the contrary, a non-fungible asset is unique and irreplaceable. As such, works of art are non-fungible assets in that they are either unique or very few copies of them exist. Their value is a result of their authenticity and provenance, among other things. NFTs are crypto assets associated with blockchain technology that replicate the phenomenon of scarcity. Each NFT is associated with a unique identifier to ensure traceability. In addition to the art market, online, NFTs have been associated with the collection of virtual items, such as sports cards and other memorabilia and collectibles, including the first tweet ever written.3 NFTs can also be associated with tangible goods, in which case they can be used to track exchanges and transactions related to such goods. In 2019, Ernst & Young developed a system of unique digital identifiers for a client to track and manage its collection of fine wines.4 Many projects rely on cryptocurrencies, such as Ether, to create NFTs. This type of cryptocurrency is programmable and allows for metadata to be embedded through a code that becomes the key to tracking assets, such as works of art or other valuables. What are the risks associated with NFTs? Although many praise the benefits of NFTs, in particular the increased traceability of the origin of goods exchanged through digital transactions, it has become clear that the speculative bubble of the past few weeks has, contrary to expectations, resulted in new opportunities for fraud and abuse of the rights associated with works exchanged online. An unregulated market? While there is currently no legislative framework that specifically regulates crypto asset transactions, NFT buyers and sellers are still subject to the laws and regulations currently governing the distribution of financial products and services5, the securities laws6, the Money-Services Business Act7 and the tax laws8. Is an NFT a security? In January 2020, the Canadian Securities Administrators (CSA) identified crypto asset “commodities” as assets that may be subject to securities laws and regulations. Thus, platforms that manage and host NFTs on behalf of their users engage in activities that are governed by the laws that apply to securities trading, as long as they retain possession or control of NFTs. On the contrary, a platform will not be subject to regulatory oversight if: “the underlying crypto asset itself is not a security or derivative; and the contract or instrument for the purchase, sale or delivery of a crypto asset results in an obligation to make immediate delivery of the crypto asset, and is settled by the immediate delivery of the crypto asset to the Platform’s user according to the Platform’s typical commercial practice.”9 Fraud10 NFTs don’t protect collectors and investors from fraud and theft. Among the documented risks, there are fake websites robbing investors of their cryptocurrencies, thefts and/or disappearances of NFTs hosted on platforms, and copyright and trademark infringement. Theft and disappearance of NFT assets As some Nifty Gateway users unfortunately learned the hard way in late March, crypto asset platforms are not inherently immune to the hacking and theft of personal data associated with accounts, including credit card information. With the hacking of many Nifty Gateway accounts, some users have been robbed of their entire NFT collection.11 NFTs are designed to prevent a transaction that has been concluded between two parties from being reversed. Once the transfer of the NFT to another account has been initiated, the user, or a third party such as a bank, cannot reverse the transaction. Cybercrime targeting crypto assets is not in its infancy—similar schemes have been seen in thefts of the cryptocurrency Ether. Copyright infringement and theft of artwork images The use of NFTs makes it possible to identify three types of problems that could lead to property right and copyright infringement: It is possible to create more than one NFT for the same work of art or collectible, thus generating separate chains of ownership. NFTs can be created for works that already exist and are not owned by the person marketing them. There are no mechanisms to verify copyrights and property rights associated with transacted NFTs. This creates false chains of ownership. The authenticity of the original depends too heavily on URLs that are vulnerable and could eventually disappear.12 For the time being, these problems have yet to be addressed by both the various platforms and the other parties involved in NFT transactions, including art galleries. Thus, the risks are borne solely by the buyer. This situation calls for increased accountability for platforms and others involved in transactions. The authenticity of the NFTs traded must be verified, as should the identity of the parties involved in a transaction. Money laundering and proceeds of crime In September 2020, the Financial Action Task Force (FATF)13 published a report regarding the main risks associated with virtual assets and with platforms offering services relating to such virtual assets. In particular, FATF pointed out that money laundering and other types of illicit activity financing are facilitated by virtual assets, which are more conducive to rapid cross-border transactions in decentralized markets that are not regulated by national authorities;14 that is, the online marketplaces where cryptocurrencies and decentralized assets are traded on blockchains. Among other things, FATF pointed to the anonymity of the parties to transactions as a factor that increases risk. Considering all the risks associated with NFTs, we recommend taking the utmost precaution before investing in this category of crypto assets. In fact, on April 23, 2021, the Autorité des marchés financiers reiterated its warning about the “inordinately high risks” associated with investments involving cryptocurrencies and crypto assets.15 The best practices to implement prior to any transactions are: obtaining evidence identifying the party you are transacting with, if possible, safeguarding your crypto assets yourself, and checking with regulatory bodies to ensure that the platform on which the exchange will take place is compliant with applicable laws and regulations regarding the issuance of securities and derivatives. https://onlineonly.christies.com/s/beeple-first-5000-days/lots/2020 On April 23, 2021, the Autorité des marchés financiers reiterated its warnings about issuing tokens and investing in crypto assets. https://lautorite.qc.ca/en/general-public/media-centre/news/fiche-dactualites/amf-warns-about-the-risks-associated-with-crypto-assets https://www.reuters.com/article/us-twitter-dorsey-nft-idUSKBN2BE2KJ https://www.ey.com/en_gl/news/2019/08/ey-helps-wiv-technology-accelerate-fine-wine-investing-with-blockchain Act respecting the regulation of the financial sector, CQLR, c. E-6.1; Act respecting the distribution of financial products and services, CQLR, c. D-9.2. Securities Act, CQLR., c. V-1.1; see also the regulatory sandbox produced by the CSA: https://www.securities-administrators.ca/industry_resources.aspx?ID=1715&LangType=1033 CQLR, c. E-12.000001 https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html; https://www.revenuquebec.ca/en/fair-for-all/helping-you-meet-your-obligations/virtual-currency/reporting-virtual-currency-income/ https://lautorite.qc.ca/fileadmin/lautorite/reglementation/valeurs-mobilieres/0-avis-acvm-staff/2020/2020janv16-21-327-avis-acvm-en.pdf https://www.telegraph.co.uk/technology/2021/03/15/crypto-art-market-infiltrated-fakes-thieves-scammers/ https://www.coindesk.com/nifty-gateway-nft-hack-lessons; https://news.artnet.com/opinion/nifty-gateway-nft-hack-gray-market-1953549 https://blog.malwarebytes.com/explained/2021/03/nfts-explained-daylight-robbery-on-the-blockchain/ FATF is an independent international body that assesses the risks associated with money laundering and the financing of both terrorist activities and the proliferation of weapons of mass destruction. https://www.fatf-gafi.org/media/fatf/documents/recommendations/Virtual-Assets-Red-Flag-Indicators.pdf, p. 1. https://lautorite.qc.ca/en/general-public/media-centre/news/fiche-dactualites/amf-warns-about-the-risks-associated-with-crypto-assets

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  • Bill 141: Checklist on insurance products offered via the internet and distribution without a representative

    Download your checklist A major reform of the financial sector and, more specifically, of the standards surrounding the practice of professionals governed by the Autorité des marchés financiers (the “AMF”) is now applicable under the Act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions1, formerly known as Bill 141. One of the main goals of this reform is to offer greater protection to consumers by providing a framework for online insurance product offers and for distribution without a representative. This framework is provided for in the Regulation respecting Alternative Distribution Methods (the “RADM”)2. Considering that 60 laws are amended by Bill 141, many of which apply to insurance firms3 and insurers4, it is important to be well informed of your key obligations in order to navigate through this transition. Here is what you need to know: The obligations of insurance firms for insurance products offered via the internet5 If you offer insurance products online, as of June 13, 2019, you must comply with the following: Information to be provided to the AMF Before offering a product online: The information about your “digital space” The information about the products you offer The insurers whose products are offered Annually: The number of insurance policies issued The amount of premiums written through your digital space The number of cases where clients cancelled their insurance contracts Information to be provided to the client: At all times: Make the means to interact with a representative of the firm visible The information must be presented in a clear, readable, specific and non misleading way Make readily accessible through your digital space: The name, contact details, sectors and AMF registration number of the firm The information on where the client can file a complaint and the summary of the complaint processing policy A specimen of the policy for each product offered and any available endorsement, if applicable6 Before a contract is entered into: The name and contact information of the insurer offering the product The product coverage, exclusions and limitations The warnings about the consequences of misrepresentation or concealment The premiums, and other fees and expenses, including applicable taxes The period of validity of the quote Immediately before a contract is entered into: The information collected from the client and the options and conditions the client has chosen As soon as a contract is entered into: Confirmation that the contract has been entered into and the temporary insurance, if applicable The right of rescission and the procedures for exercising it The way in which the policy will be provided to the client Obligations specific to the operation of the digital space: Ensure the proper operation and reliability of your digital space at all times Require an action from the client each time confirmation or consent is needed Detect and automatically suspend or terminate an action initiated on the digital space if the information provided may lead to an inappropriate result or the client does not meet the product eligibility criteria Enable the client to correct a mistake at any time prior to entering into a contract Where the firm offers an insurance of persons contract that is likely to replace another contract and is unable to proceed with the replacement through its digital space, the firm must interrupt such offer, and provide the information as it would have been done in the presence of a representative7 Suspend the action initiated through the digital space when no representative can interact immediately with a client who asks to interact with a representative Ensure that the information provided by the client is kept in a manner that ensures its confidentiality and security Prohibitions It is forbidden, through your digital space: To present advertising unrelated to the product offered To automatically make a choice for the client regarding the products offered To exclude or limit your liability to the client relating to the proper operation or reliability of your digital space or the accuracy of the information presented thereon Obligations of insurers for insurance products offered through a distributor8 A distributor is a person who, in pursuing activities in a field other than insurance, offers, as an accessory, for an insurer, an insurance product which relates solely to goods sold by the person or secures a client’s adhesion in respect of such an insurance product.9 Information to be provided to the AMF Before offering an insurance product through a distributor: A list of distributors10 A list of the contracts offered by a distributor, including a description of the insurance coverage provided by those contracts11 The hyperlink to access the distributor’s offer through the Internet The contact information of the insurer’s assistance service Annually, for each product offered through a distributor: The number of insurance policies and certificates issued and the amount of premiums written The number of claims and the amount of indemnities paid The number of rescissions and cancellations The remuneration paid to all distributors and third parties to which the insurer has entrusted the performance of the obligations of an insurer with respect to the distribution of a product through a distributor Documents and information to be provided to the client The notice of free choice The notice of specific consent The notice of rescission of an insurance contract The fact sheet The product summary12 As soon as a contract is entered into: A summary of the information collected from the client The policy, the insurance certificate or the temporary insurance Prohibitions With respect to replacement insurance for insured vehicles or insured parts and with respect to the life, health and employment insurance of a debtor or investor, no insurer may13: Enable the distributor to keep its remuneration within a time period not commensurate with the term of the product, which time period may not, however, be less than 180 days Pay to the distributor a bonus or a share in the profits based on contract experience Set different commission rates applicable to a distributor for products with similar insurance coverage Other changes effective June 13, 2020 For Internet offers you must: Make a specimen of the policy for each product offered and any available endorsement available on your digital space Adopt a procedure for the design, use and maintenance of your digital space and ensure its implementation For each insurance product offered by a distributor, the insurer must make available on its website: A specimen of the insurance policy or insurance certificate and any available endorsements The product summary14 For the offer of insurance products by a distributor, the insurer will have to: Adopt and implement procedures that enable the supervision and training of its distributors Provide training to its distributors covering the topics listed in the RADM Penalties Certain breaches of your obligations may have administrative and criminal consequences that may be imposed at the initiative of the AMF. The AMF has broad powers to carry out preventive inspections and inquiries to demonstrate that infractions have been committed. Consistent with the consumer protection objectives of Bill 141, the ARRFS now provides for greater protection for those who report an offence and much stiffer fines for those who obstruct inspections and inquiries. It should also be noted that certain contraventions of the ARDFPS or the RADM can lead to the cancellation or revocation of the firm’s registration. Administrative monetary penalties of up to $2,000,000 may also be imposed by the Financial Markets Administrative Tribunal. It is therefore essential that you be aware of and comply with your new obligations under the Act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions.   S.Q. 2018, c. 23. CQLR, c. D-9.2, r. 16.1. The term "firm" is used for brevity, but the information in this bulletin also applies to independent partnerships. Most of these amendments can be found in the Insurers Act, CQLR, c. A-32.1 (the “IA”); this act replaces the Act respecting insurance, CQLR, c. I-21. A-32, the Act respecting the distribution of financial products and services, CQLR, c. D-9.2 (the “ARDFPS”), and the Act respecting the regulation of the financial sector, CQLR, c. E-6.1 (the “ARRFS”: the Act respecting the Autorité des marchés financiers, which has been renamed) Chapter II of the RADM mainly provides the framework applicable to insurance firms and insurers offering products online via a transactional website. This requirement is subject to a transitional period of one year ending June 12, 2020. In accordance with section 22 of the Regulation respecting the pursuit of activities as a representative (chapter D-9.2, r. 10.) Chapter III, of the RADM provides the framework applicable to insurers that offer their products through a distributor. ARDFPS, s. 408. The insurer must, without delay, inform the Authority of any change to this list. The insurer must, without delay, inform the Authority of any change to this list. The distribution guide filed with the AMF before June 13, 2019 can be used until June 12, 2020 and until then, delivery of the guide will be equivalent to the delivery of the summary and the fact sheet. In accordance with sections 424 and 426 of the ARDFPS, these insurance products are deemed to be insurance products which relate solely to goods. The distribution guide that can be used until June 12, 2020 must be currently accessible on the Insurer’s website.

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  • Heffel Gallery Limited : The National Importance of Foreign Art in Canada

    On April 16, 2019, the Federal Court of Appeal issued a judgment resolving a deadlock that had been plaguing the Canadian art community since June 12, 2018. Since June 2018, the Canadian Cultural Property Export Review Board (the “Board”) has had to take into consideration the Federal Court’s findings in Heffel Gallery Limited v. Canada (Attorney General).1 As a result of this judgment, the eligibility of foreign artwork was facilitated with respect to the issuance of permits to export cultural property2 but compromised with respect to the issuance of income tax certificates.3 It was thus easier to obtain a permit to export artwork abroad and more difficult for donors to Canadian museums to benefit from income tax deductions In contrast to the way the Board had been operating, this trial judgment interpreted the “national importance” criterion very restrictively. As a result, the applicability of the Cultural Property Export and Import Act4 (the “Act”) was limited to works with a direct connection to Canada. Outstanding objects that were not produced in Canada or by a Canadian artist could no longer benefit from the protections afforded by the Act when exported5 or qualify for income tax certificates. In a unanimous decision, the Federal Court of Appeal6 overturned the trial judgment by finding that a work by an international artist can meet the level of national importance required under the Act. In this regard, the Federal Court of Appeal found that the “national importance” criterion allows for a determination of the effect that exporting the object would have on the country.7 As a result, a work or its creator does not need to have a direct link to Canada to be eligible for tax deductions and the application of the export control mechanism. The Trial Judgment The piece “Iris bleus, jardin du Petit Gennevilliers”8 (“Iris bleus”) by impressionist painter Gustave Caillebotte is at the heart of this dispute. In November 2016, the Heffel Gallery held an auction in which a London-based commercial gallery acquired the painting. In order to deliver Iris bleus to its buyer, the Heffel Gallery had to apply to the Board9 for an export permit. The expert examiner in the case refused the application, and, subsequently, the Board’s review panel did the same.10 Following these refusals, an application was made to the Federal Court for judicial review, in which it had to rule on the meaning of the national importance criterion as it appears in the Canadian Cultural Property Export Control List11 (the “Control List”). Following to their analysis, the Court deemed the Board’s interpretation of the national importance criterion to be too broad.12 Although it recognized the plurality of Canadian culture, the Federal Court found that the objects covered by the “national importance” criterion must have a direct connection to Canada.13 Pursuant to this interpretation, the Court adopted a position expressly favouring the property rights of owners of cultural property as well as economic liberalism in the art market.14 The trial judgment had unfortunate consequences, most notably, the fact that numerous institutions had to suspend or even cancel new acquisitions15 because certain generous donors could no longer receive tax certificates.16 The Federal Court of Appeal Judgment In its reasons for judgment, the Federal Court of Appeal first reiterates the broad outlines of the applicable legislative framework and its primary objective. In 1977, Parliament enacted the Cultural Property Import and Export Act17 in order to protect Canada’s national heritage. In adopting said law, Parliament was complying with its international commitments to UNESCO to combat the trafficking of cultural objects.18 The control list system established by Parliament (the “Control List”) sets out a number of conditions that must be met in order for an object’s export to be controlled under the Act.19 If the object is not included in the Control List, an export permit may be issued. If it is, an expert examiner determines whether the object "(a) is of outstanding significance by reason of its close association with Canadian history or national life, its aesthetic qualities or its value in the study of the arts or sciences; and (b) is of such a degree of national importance that its loss to Canada would significantly diminish the national heritage”.20 According to the Federal Court of Appeal, the trial judge erred in refusing to defer to the Board’s decision. In other words, when interpreting its own incorporating legislation, the Board is “better situated to understand the policy concerns and context needed to resolve any ambiguities in the statute.”21 » This error is significant because Parliament had granted broad powers to the Board when assessing an object according to the “national importance” criterion. More specifically, these powers recognize the expertise of the members appointed to the Board based on their specialization in the fields of cultural property, cultural heritage and cultural institutions.22 Conclusion Canada’s cultural institutions were undoubtedly relieved by this jurisprudential outcome. By recognizing that a work can be of national importance without necessarily being Canadian, this decision crystallizes the experts’ interpretation of the Act and the resulting practices that were predominant in the cultural community prior to the trial judgment. Donors who own exceptional works by foreign artists can once again donate them to Canadian institutions’ collections and benefit from tax incentives in return. The Federal Court of Appeal concludes by reiterating the purpose of the existing legislative framework, namely to “prevent many Canadian institutions from being ‘culturally ghettoised’ in allowing them to acquire works of art with a view of preserving cultural heritage for future generations.”23   2018 CF 605. Cultural Property Export and Import Act, R.S.C. 1985, c. C-51, ss. 7-16 Id., ss. 32 and 33. The income tax certificate is the mechanism of the Cultural Property Export and Import Act (the “Loi”) that allows those who donate works to Canadian institutions to benefit from the tax deductions provided for in the Income Tax Act. Supra note 2. Under the terms of the Cultural Property Export and Import Act, institutions may exercise a priority right of purchase that delays the export of any work considered exceptional and of national importance for up to six months. Canada (Attorney General) v. Heffel Gallery Limited, 2019 FCA 82 Id., para. 37. 1982, oil on canvas, 21 ¾ x 18 ¼ inches. Cultural Property Export and Import Act, supra note 2, ss. 8(3) and 40. Heffel Gallery Limited v. Canada (Attorney General), supra note 1, para. 8. C.R.C., c. 448. Heffel Gallery Limited v. Canada (Attorney General), supra note 1, para. 12. Id., para. 20-21. Id., para. 26-27. On this subject, see Catherine LALONDE, “Des dons qui échappent aux musées,” Le Devoir, December 19, 2018. Cultural Property Export and Import Act, supra note 2, ss. 32 and 33. Supra note 2. In order to comply with their commitment under the Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property, 14 November 1970, 823 UNTS 231 (entered into force April 24, 1972), signatory countries were required to adopt legislation ensuring cross-border control of cultural property. The object must be included in one of the well-defined categories of the Control List, be at least 50 years old and, in the case of a natural person’s work, its creator must be deceased. In addition, where the object is not of Canadian origin, it must have been in Canada for at least 35 years. Cultural Property Export and Import Act, supra note 2, s. 11(1), emphasis added. Canada (Canadian Human Rights Commission) v. Canada (Attorney General), 2018 SCC 31, cited in Attorney General of Canada v. Heffel Gallery Limited, supra note 6, para. 52. Canada (Attorney General) v. Heffel Gallery Limited, supra note 6, para. 33. Id., para. 57

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