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  • Single-Use Plastics Prohibition Regulations: Impact on Businesses

    On June 20, 2022, the federal government registered regulations that, as the name implies, prohibit (or restrict, in some cases) the manufacture, import and sale of certain single-use plastics that pose a threat to the environment. The Regulations will come into force on December 20, 2022, with the exception of certain provisions taking effect in the following months.1 Manufacturing, importing and selling certain single-use plastic products made entirely or partially of plastic, such as foodservice ware, checkout bags and straws, will be soon be prohibited. This regulation is expected to affect more than 250,000 Canadian businesses that sell or provide single-use plastic products, primarily in the retail, food service, hospitality and healthcare industries. The following is a comprehensive list of items that will be prohibited: Single-use plastic ring carriers designed to hold and carry beverage containers together2; Single-use plastic stir sticks designed to stir or mix beverages or to prevent liquid from spilling from the lid of its container3; Single-use plastic foodservice ware (a) designed in the form of a clamshell container, lidded container, box, cup, plate or bowl, (b) designed to serve or transport ready-to-eat food or beverages without further preparation, and (c) made from certain materials4; Single-use plastic checkout bags designed to carry purchased goods from a business and (a) whose plastic is not a fabric, or (b) whose plastic is a fabric that will break or tear, as the case may be, (i) if it is used to carry 10 kg over a distance of 53 m 100 times; (ii) if it is washed in accordance with the washing procedures specified for a single domestic wash in the International Organization for Standardization standard ISO 6330, as amended from time to time5; Single-use plastic cutlery that is formed in the shape of a fork, knife, spoon, spork or chopstick that either (a) contains polystyrene or polyethylene, or (b) changes its physical properties after being run through an electrically operated household dishwasher 100 times6; Single-use plastic straws that either (a) contain polystyrene or polyethylene, or (b) change their physical properties after being run through an electrically operated household dishwasher 100 times7. The main exceptions Single-use flexible plastic straws Single-use flexible plastic straws, i.e. those with a corrugated section that allows the straw to bend and maintain its position at various angles,8 may be manufactured and imported9. These flexible straws may also be sold in any of the following circumstances:  The sale does not take place in a commercial, industrial, or institutional setting10. This exception means that individuals can sell these flexible straws. The sale is between businesses in packages of at least 20 straws.11 The sale is made by a retail store of a package of 20 or more straws to a customer who requests it without the package being displayed in a manner that permits the customer to view the package without the help of a store employee12; The sale of straws is between a retail store and a customer, if the straw is packaged together with a beverage container and the packaging was done at a location other than the retail store13; The sale is between a care facility, such as a hospital or long-term care facility, and its patients or residents14. The export of single-use plastic items - All the manufactured single-use plastic items listed above may be manufactured, imported or sold for export15. That said, any person who manufactures or imports such items for export will be required to keep a record of certain information and documents as appropriate for each type of plastic manufactured item16. Records of the information and documents will have to be kept for at least five years in Canada17. Conclusion: an opportunity to rethink common practices In the short term, businesses will need to start thinking about how they will replace the plastic manufactured items they use. To help businesses select alternatives to single-use plastic items, the federal government has released its Guidance for selecting alternatives to the single-use plastics in the proposed Single-Use Plastics Prohibition Regulations.18 According to this document, the aim should be to reduce plastics.  Businesses may begin by considering whether a single-use plastic should be replaced or no longer provided. Only products that perform essential functions should be replaced with non-plastic equivalents. Stir sticks and straws can be eliminated most of the time. Another way to reduce waste is to opt for reusable products and packaging. Businesses are invited to rethink their products and services to provide reusable options. Reusable container programs (i.e. offering customers the option of using their own reusable containers) are a reuse option that businesses may want to consider, in particular to reduce the amount of plastic food containers. Only where reusable products are not feasible should businesses substitute a single-use plastic product with a recyclable single-use alternative. Businesses in this situation are encouraged to contact local recycling facilities to ensure that they can successfully recycle products at their end of life. Ultimately, charging consumers for certain single-use substitutes (e.g. single-use wooden or moulded fibre cutlery) may also discourage their use. Ibid, s. 1 Ibid, s. 3 Ibid, s. 6 Polystyrene foam, polyvinyl chloride, plastic containing black pigment produced through the partial or incomplete combustion of hydrocarbons or oxo-degradable plastic; Ibid. This standard is entitled Textiles – Domestic washing and drying procedures for textile testing; Ibid. Ibid. Ibid, ss. 4 and 5. Ibid, s. 1. Ibid, s. 4. Ibid, para. 5(2). Ibid, para. 5(3). Ibid, para. 5(4); According to Guidance for selecting alternatives to the single-use plastics in the proposed Single-Use Plastics Prohibition Regulations, the goal is to ensure that people with disabilities who need flexible single-use plastic straws continue to have access to them at home and can carry them to restaurants and other premises. Ibid, para. 5(5). Ibid, para. 5(6). Ibid, para. 2(2). Ibid., s. 8 Ibid, para. 9(1). https://www.canada.ca/en/environment-climate-change/services/managing-reducing-waste/consultations/proposed-single-use-plastics-prohibition-regulations-consultation-document.html

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  • Once Upon a Time in the West: Redwater, its Trustee, and the Environmental Arm of the Law

    In a decision handed down on January 31, 2019, the Supreme Court ordered that a bankrupt oil and gas company fulfil its obligation to reclaim abandoned oil wells before paying any creditors. This decision has since sparked conflicting reactions across the country: first, because it gives clear precedence to environmental protection in the event of bankruptcy, and second, because of the influence it will likely have over business decisions in industries where environmental risks are involved. Moreover, the concrete impact this decision will have in Quebec, where environmental laws have recently undergone major reforms, remains to be seen. Background Redwater Energy Corp. is a publicly traded Alberta oil and gas company that obtained financing for part of its operations from Alberta Treasury Branches (“ATB”) in 2013. The latter held a security interest over Redwater’s assets. In 2014, Redwater experienced financial difficulties which resulted in its inability to fulfil its obligations to ATB, its primary secured creditor. In 2015, Redwater was placed under receivership. At that time, Redwater’s assets consisted of 127 oil and gas properties—wells, pipelines and facilities—and their corresponding licences obtained in 2009. Said licences were granted by the Alberta Energy Regulator (“AER”), subject to an obligation to reclaim wells and facilities as prescribed to make them environmentally safe. However, at the time Grant Thornton was appointed as its receiver, 72 of Redwater’s licensed wells and facilities were depleted and burdened with environmental liabilities in terms of abandonment and land reclamation, such that Redwater’s liabilities exceeded the value of the wells and facilities that were still producing. Upon being advised that Redwater was placed under receivership, the AER notified Grant Thornton that despite the receivership, it was under the legal obligation to fulfil abandonment and reclamation obligations for all licensed assets prior to distributing funds or finalizing any proposal to creditors. Grant Thornton replied that it was not taking possession and control of Redwater’s valueless facilities and that it therefore had no obligation to fulfil the environmental obligations associated with these renounced assets (the “Environmental Obligations”).  In the summer of 2015, in response to Grant Thornton's reply, the AER issued abandonment orders under two Alberta laws directing Redwater to suspend the operation of the renounced assets, abandon them in accordance with the AER's rules and regulations, and obtain the reclamation certificates required by law. In the fall of 2015, a bankruptcy order was issued for Redwater and Grant Thornton was appointed as trustee. The AER filed an application to order Grant Thornton to comply with its Environmental Obligations before making any distribution to Redwater’s creditors, but the application judge and the majority of the Alberta Court of Appeal agreed with Grant Thornton and refused to issue the orders sought. In their view, agreeing with the AER would be tantamount to ignoring the orderly and equitable distribution scheme set out in the Bankruptcy and Insolvency Act (“BIA”). The AER appealed the judgment to the Supreme Court. On January 31, 2019, in a 5-2 majority decision, the Supreme Court allowed the AER’s appeal. 1-  The trustee’s personal liability The first question the Court reviewed was whether section 14.06(4) of the BIA allows a trustee to escape the obligations imposed by Alberta law with respect to the reclamation of oil and gas facilities. Essentially, this question raises the fundamental issue of whether the BIA is in operational conflict with provincial laws. Section 14.06(4) of the BIA provides that the trustee is not personally liable for any failure to comply with any order to remedy any environmental condition or damage affecting a bankrupt property if the trustee abandons or renounces any right to the property in question. The majority of the Court interpreted this provision in a restrictive manner and concluded that, even if the trustee is not held personally liable, the bankrupt estate's assets remain subject to the order to remedy any environmental damage. Thus, the value of the bankrupt's assets must be used to fulfil its Environmental Obligations. 2-  The notion of “provable claim” Grant Thornton further argued that, even if the bankrupt’s assets were to be used to fulfil Environmental Obligations, these should be paid as “provable claims” of an ordinary creditor, in other words, neither a secured nor a preferred creditor. Thus, the question of whether the AER could demand that Redwater’s Environmental Obligations be fulfilled before the value of the assets could be distributed to its creditors involves the concept of “claims provable in the bankruptcy” as defined by the BIA. One of the objectives of the BIA is to ensure the equitable distribution of the bankrupt’s property among creditors who have a “provable claim.” Said distribution is done according to a very precise order, established by law. However, if a claim is not “provable” within the meaning of the BIA, it nonetheless continues to be binding on the bankrupt and must be paid regardless of the distribution scheme provided for under the BIA. According to the Supreme Court in the 2012 AbitibiBowater1decision, a “provable claim” exists if three requirements are met: There must be a debt, liability or an obligation to a “creditor”; The debt, liability or obligation must be incurred before the debtor becomes bankrupt; and It must be possible to attach a monetary value to the debt, liability or obligation. If any one of these requirements is not met, there is no “provable claim.” Applying this analytical framework to the situation at hand, the majority of the Court determined that the AER is not a “creditor” within the meaning of the first requirement. According to the Court, the people of Alberta would ultimately benefit if Redwater and other companies like it met their Environmental Obligations: the province itself would not be gaining a financial advantage. Thus, the AER, when seeking to enforce Redwater’s public duties, is not a creditor within the meaning of the law. This was sufficient to conclude that its claim was not a “provable claim” subject to the distribution scheme provided for under the BIA2. The result, according to the Supreme Court, is that compliance with Environmental Obligations prevails over the payment of any provable claims of secured, preferred and unsecured creditors in the form of a first charge3. This conclusion does not conflict with the priority scheme under the BIA, nor does it contradict the goal of maximizing the realizable value of the assets, because all of Redwater’s valuable assets were subject to Environmental Obligations in any case. Such a decision raises several questions. First, as Justice Côté points out in her dissenting reasons, it may sometimes be difficult to know when the regulator is not acting in the public interest, suggesting that such a regulator can never be a creditor within the meaning of the law. Second, the adopted interpretation is likely to have consequences, in particular on the financing industry for companies exploiting natural resources. Faced with the existence of first charges that could remain unknown for a long time, lenders that finance the activities of such companies may have to reconsider the conditions under which they agree to finance them because of the increased risk of having the value of their investment or guarantees reduced. 3-  What about the effects of this judgment in Quebec? It is particularly difficult to say with certainty what the effects of this decision will be in Quebec given the current legislative context in the areas of activity in question. Quebec legislation has undergone major reforms recently (in mid-2017 for the environment and at the end of 2018 for petroleum ressources) both in terms of environmental protection and the management of natural resources. The structure of the law, the conditions for obtaining operating licences and drilling authorizations and the powers of public authorities (in particular those of the ministers) have been changed to such an extent that we believe caution should be exercised before drawing hasty conclusions. In the case analyzed by the Supreme Court, the legislation in question, which made site remediation an obligation under the licenses issued, defined remediation to include decontamination. While this conclusion can apparently be drawn from the legislative structure applicable to mining operations, it is less obvious to do so with respect to petroleum resources development in Quebec. Moreover, although Quebec has legislative provisions to ensure that soil decontamination work is carried out in certain situations under division IV of the Environment Quality Act, the obligations to produce a characterization study, prepare a rehabilitation plan and carry out decontamination work do not apply in all cases. Although solely the production of a characterization study and a rehabilitation plan are required in some cases (cessation of activities), decontamination is only mandatory for the resumption of other activities, unless ordered by the Minister. Therefore, in cases where land decontamination is not a mandatory condition under the law, we must consider whether or not decontamination work otherwise performed may or may not qualify as “provable claims” within the meaning of the Bankruptcy and Insolvency Act. Thus, we should be careful before affirming that the Supreme Court’s decision in this case will automatically apply to Quebec in all situations. Analyzing situations on a case-by-case basis (as the Supreme Court said, incidentally) is the way forward, and understanding the Supreme Court's decision in the Redwater case properly will certainly be key. 4-  Conclusion The Redwater decision raises diametrically opposed reactions depending on the audience. Some welcome the Supreme Court's effort to support provincial authorities responsible for overseeing environmental matters by adopting an interpretation of federal and provincial legislation that is broad, flexible and imbued with cooperative federalism. The Court's message that bankruptcy is not a licence to ignore environmental rules and that trustees are bound by valid provincial laws is also appreciated. Others, however, object to the business consequences that could result from this decision for companies operating in areas of activity that involve environmental risks, because access to financing may be more difficult. Where the full value of the assets is likely to be used to ensure compliance with environmental obligations, insolvency professionals who rely on the value of the assets to cover their own professional feess may be discouraged from accepting mandates when environmental issues are involved. Some are also concerned that companies in difficulty will abandon their assets to governments rather than attempting to restructure, thereby increasing the social burden of these problematic assets - a result that the majority decision seemed to want to avoid. In Quebec, as we pointed out above, the powers exercised and orders issued will require careful review to determine their immediate or potential regulatory or monetary nature. In the first case, Redwater suggests that a trustee would be forced to comply in accordance with the value of the assets, while, in the second case, the provincial authority's claim would be considered subordinate to the rights of secured and preferred creditors in the distribution scheme provided for in the BIA.   Newfoundland and Labrador v. AbitibiBowater Inc. [2012] 3 SCR 443, 2012 SCC 67 (CanLII) However, the Court analyzed the third requirement set out in Abitibi and concluded that it is not possible to attach a monetary value to the debt in question, as it was not sufficiently certain that the organization would perform the work or claim its reimbursement. The dissenting judges concluded the contrary on this point. Which the Court equates with the one under section 14.06(7) of the BIA that the organization could not avail itself of in this case.

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  • New environmental authorization scheme: how does this affect mining companies?

    A new environmental authorization scheme, which is intended to be a simplified version, was implemented under the Environmental Quality Act (“EQA”) and has been in effect since March 23, 2018. How does this new scheme affect mining companies? Is the authorization scheme truly simplified? What about the right to continue unauthorized operations that could benefit certain mining companies (also called an acquired right)? Under the new EQA authorization scheme, mining activities will be subject to different schemes depending on the risk they present. While the majority of activities are subject to ministerial authorization1, others may: benefit from exemptions be subject to the new scheme of declaring compliance be subject to the environmental impact assessment and review procedure if they present an elevated risk. The implementation of the EQA’s new environmental authorization scheme involves a review of the regulations adopted pursuant to this act. This bulletin refers to the Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters (“Draft Regulation”). This Draft Regulation has been published, but it is not currently in its final form and may be modified before it comes into force.2 Consequently, a regulatory watch is required.3 What authorizations are mining companies subject to? Depending on the nature of the activity, the applicable scheme ranges from exemption to environmental impact assessment and review procedure. 4 The general environmental authorization scheme Subject mining activities Article 22 of the EQA lists several activities whose implementation requires prior authorization from the Minister.  Mining activities are not part of this list. However, the 10th item of the list is “any other activity determined by government regulation.” At present, the Draft Regulation states that “any mining activity shall be subject to authorization.”5  This leaves little room for interpretation. Thus, with the exception of the specific cases currently provided for in the Draft Regulation, any mining activity requires an authorization from the Minister. Content of the authorization request It should be noted that in addition to the documents listed in the EQA, an authorization request for mining activity may have to be accompanied by the additional information and documents listed in the Draft Regulation.6 In addition, from now on, any documents submitted in support of an authorization request are considered as being public. It is up to the person submitting the request to specify whether certain documents include a confidential industrial or commercial secret. The decision as to the public nature rests with the Minister who notifies the applicant for authorization. This decision is legally binding upon the expiration of a period of 15 days following the transmission of the notice. Once this period has elapsed, the documents are made public, hence the importance of calling on the courts quickly if it is necessary to contest the Minister’s decision.7 Right to pursue an activity without environmental authorization In its former version, the general environmental authorization scheme in Article 22 of the EQA prohibited “undertaking the operation of any industry, the performance of an activity or use of an industrial process [...]” without having obtained a prior certificate of authorization. Because of the word “undertaking,” the case law recognized the possibility of pursuing an activity without authorization when it had been undertaken before the entry into force of the EQA on December 21, 1972. In its new version, Article 22 of the EQA no longer speaks of the need to obtain an authorization to undertake but rather to carry out an activity. This demonstrates the legislator’s willingness to no longer allow an activity to continue without environmental authorization. However, certain transitional provisions specifically provide that an activity may be pursued without authorization, providing that it must then rely on the wording of the government regulation on the issue to make sure8. At present, the text of the Draft Regulation does not support the conclusion that mining companies could benefit from a right to pursue an activity without authorization. Exemption scheme Certain mining activities considered to be of little risk to the environment are completely excluded from the obligation to obtain prior environmental authorization. The Draft Regulation currently provides that the following are exempt: milestone marking, geophysical, geological, or geochemical surveys, drilling work (unless performed in wetlands and water environments9) stripping and excavation work under certain conditions (unless they are carried out in wetlands and water environments or within 30 meters of such environments). The statement of compliance scheme The statement of compliance scheme allows for proceeding by transmitting to the Minister all of the documents required by the EQA and the applicable regulatory provisions by stating compliance to them.  In this case, if thirty days after the transmission of the documents, no follow-up has been made with the Declarant, he or she may begin the activity concerned. The Draft Regulation provides that drilling work carried out in the wetlands and water environments as a part of a project searching for mineral substances would be, under certain conditions, eligible for the statement of compliance.10 It should be noted that special provisions may be applied depending on the environment in which the work is carried out. Certain conditions are specific to work carried out in a pond, marsh, swamp or peatland10, and others are specific to work carried out on a lake or shore or in a lake or river12. The compliance statement scheme requires the production of extensive and professionally signed studies. If the processing time is shortened, the declarant’s task remains complicated. The environmental impact assessment and review procedure scheme Certain mining activities are subject to the environmental impact assessment and review procedure pursuant to the Regulation on the assessment and review of the environmental impact of certain projects13currently in force.  The purpose of this bulletin is not to discuss the procedure followed under this more complicated scheme that involves the intervention of the Bureau d’audiences publiques sur l’environnement [Bureau of Public Hearings on the Environment] (“BAPE”).14 The following mining activities are subject to this review procedure: The establishment of a uranium or rare earth mine; The establishment of a mine with a maximum daily metal-bearing ore mining capacity of 2000 metric tons or more; The establishment of a mine with a maximum daily ore (other than metal-bearing) mining capacity of 500 metric tons or more; Any increase in the daily maximum mining capacity of a mine thus making it reach or exceed the thresholds identified above;15 The establishment of a mine within an urban area identified in the construction and development plan of a RCM or in an Indian reservation or within 1000 meters of such an area or reservation; Any expansion of 50% or more of the operating area of a mine in certain specific cases identified in the regulation; After the BAPE’s work, the Minister makes a recommendation to the government as to the authorization requested.  Ultimately, it is the government that decides whether or not to issue the authorization. 16 Changes to the environmental authorization scheme are major. Mining companies have every interest in taking a closer look at it and monitoring the entry into force of the regulations that allow the implementation of this scheme in order to continue their operations in Québec legally.   Article 22 EQA.    The Minister of Sustainable Development, the Environment, and the Fight against Climate Change, Ms. Isabelle Melançon, mandated Ms. Suzanne Giguère and Mr. Jean Pronovost to give their opinion on the regulatory approach adopted by the Ministry. Here is the link to the SDEFCC press release: http://www.mddelcc.gouv.qc.ca/Infuseur/communique.asp?no=3996 On July 19, a press release was issued by the SDEFCC announcing the intention of the Minister, Isabelle Melançon, to postpone the coming into force of the draft regulations considering the findings of Suzanne Giguère and Jean Pronovost. Here is a link to the SDEFCC press release: http://www.mddelcc.gouv.qc.ca/infuseur/communique.asp?no=4049 It should be noted that at the time of writing, most of the government regulations implementing the new environmental authorization scheme have been the subject of proposals published in the Official Gazette of Québec. These regulations, however, are not yet known in their final versions. The Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters, Appendix 1 (other activities subject to prior authorization), Section 2, Article 4. Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters, Article 38. The Regulation on certain transitional measures for the application of the Act to amend the Environment Quality Act to modernize the environmental authorization scheme and to amend other legislative provisions, in particular to reform the governance of the Green Fund currently provides, in a transitional manner, the documents that must be attached to a request for authorization. It should be noted that activities already in progress on March 23, 2018 and for which no environmental authorization was required pursuant to the EQA and that would now be subject to environmental authorization according to Article 22 of the EQA, could be continued without further formalities subject to any special provisions that may be provided for by a government regulation (Art. 290 of the Act to amend the Environment Quality Act to modernize the environmental authorization scheme and to amend other legislative provisions, in particular to reform the governance of the Green Fund (Bill 102, 2017, Chapter 4). It should be noted that the EQA includes a broad definition of wetlands and water environments. These environments include lakes, rivers, shorelines and flood plains of lakes and rivers, ponds, marshes, swamps and peatlands (Article 46.0.2 EQA). The Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters, Appendix 2 (activities subject to a statement of compliance), Section 8, Article 19 et seq. Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters, Appendix 2, Section 8, Article 21 Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters, Appendix 2, Section 8, Article 22 Decree 287-2018, March 21, 2018 Articles 31.1 et seq. EQA It should be noted that this does not apply to a mine existing as of March 23, 2018. Other standards apply to these mines for which any plan to increase the daily mining capacity by 50% or more is subject to the impact review procedure if this increase exceeds the applicable mining thresholds depending on the nature of the mined material. Article 31.5 EQA  

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  • Legislative amendments regarding conservation of wetlands and bodies of water: troubled waters for developers?

    Bill 132 respecting the conservation of wetlands and bodies of water, passed unanimously by the National Assembly on June 16th of this year, is in keeping with the context of a significant modernization of environmental laws in Québec. Most of its provisions come into force immediately. Described by the Ministry of Sustainable Development, Environment and the Fight against Climate Change as providing gains for all,1 the amendments considerably refine the responsibilities of developers with respect to the presence of wetlands and bodies of water when carrying out their projects. A few amendments this Act makes to the Environment Quality Act2 (“EQA”) are worthy of attention. First, the Act introduces a duty of developers to determine whether a project is located in a wetland or body of water, which expression shall henceforth be defined by the EQA. It is to be expected that the interpretation of terms such as “marshes”, “swamps”, “ponds” and “peatland” will be further defined by caselaw, so that developers don’t stay stuck in the mud! As regards the environmental authorizations required for a proposed activity in a wetland or body of water, these shall be modulated based on the environmental risk posed to the affected area according to four risk levels, ranging from negligible to high. The regulations defining these environmental restrictions should come into force over the course of the coming year, thus refining the framework established by the Act. The Act implements a method for calculating the contribution which may be required as financial compensation for the loss of wetlands and bodies of water. In an effort to provide guidelines to a calculation that will necessarily be effected on a case by case basis, a mathematical formula has been adopted, which includes notably a multiplier based on a “rarity factor” of these wetlands and bodies of water depending on certain identified zones. While developers may consequently find themselves liable to pay financial compensation in amounts largely exceeding the value of the land encompassing the affected wetlands and bodies of water, the prior identification of zones also affords developers an opportunity to plan beforehand, which was not the case previously. Finally, the amendments to the EQA provide for the identification and conservation of certain remarkable or rare wetlands and bodies of water, which shall be protected by way of a special legal status and in which no activity likely to adversely affect their integrity will be allowed. As maps of these wetlands and bodies of water have yet to be drawn up, their identification may come assurprises to some landowners. Caution and proper planning are most advisable! Québec (MDDELCC), “Une nouvelle loi qui fait du Québec ‘un premier de classe’ en matière de conservation des milieux humides et hydriques [A New Act Makes Québec the ‘Head of the Class’ in the Conservation of Wetlands and Bodies of Water]”(June 16, 2017), (French only). CQLR, c. Q-2 (“EQA”).

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  • Artificial Intelligence and the 2017 Canadian Budget: is your business ready?

    The March 22, 2017 Budget of the Government of Canada, through its “Innovation and Skills Plan” (http://www.budget.gc.ca/2017/docs/plan/budget-2017-en.pdf) mentions that Canadian academic and research leadership in artificial intelligence will be translated into a more innovative economy and increased economic growth. The 2017 Budget proposes to provide renewed and enhanced funding of $35 million over five years, beginning in 2017–2018 to the Canadian Institute for Advanced Research (CIFAR) which connects Canadian researchers with collaborative research networks led by eminent Canadian and international researchers on topics including artificial intelligence and deep learning. These measures are in addition to a number of interesting tax measures that support the artificial intelligence sector at both the federal and provincial levels. In Canada and in Québec, the Scientific Research and Experimental Development (SR&ED) Program provides a twofold benefit: SR&ED expenses are deductible from income for tax purposes and a SR&ED investment tax credit (ITC) for SR&ED is available to reduce income tax. In some cases, the remaining ITC can be refunded. In Québec, a refundable tax credit is also available for the development of e-business, where a corporation mainly operates in the field of computer system design or that of software edition and its activities are carried out in an establishment located in Québec. This 2017 Budget aims to improve the competitive and strategic advantage of Canada in the field of artificial intelligence, and, therefore, that of Montréal, a city already enjoying an international reputation in this field. It recognises that artificial intelligence, despite the debates over ethical issues that currently stir up passions within the international community, could help generate strong economic growth, by improving the way in which we produce goods, deliver services and tackle all kinds of social challenges. The Budget also adds that artificial intelligence “opens up possibilities across many sectors, from agriculture to financial services, creating opportunities for companies of all sizes, whether technology start-ups or Canada’s largest financial institutions”. This influence of Canada on the international scene cannot be achieved without government supporting research programs and our universities contributing their expertise. This Budget is therefore a step in the right direction to ensure that all the activities related to artificial intelligence, from R&D to marketing, as well as design and distributions, remain here in Canada. The 2017 budget provides $125 million to launch a Pan-Canadian Artificial Intelligence Strategy for research and talent to promote collaboration between Canada’s main centres of expertise and reinforce Canada’s position as a leading destination for companies seeking to invest in artificial intelligence and innovation. Lavery Legal Lab on Artificial Intelligence (L3AI) We anticipate that within a few years, all companies, businesses and organizations, in every sector and industry, will use some form of artificial intelligence in their day-to-day operations to improve productivity or efficiency, ensure better quality control, conquer new markets and customers, implement new marketing strategies, as well as improve processes, automation and marketing or the profitability of operations. For this reason, Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal peculiarities, particularly the various branches and applications of artificial intelligence which will rapidly appear in companies and industries. The development of artificial intelligence, through a broad spectrum of branches and applications, will also have an impact on many legal sectors and practices, from intellectual property to protection of personal information, including corporate and business integrity and all fields of business law. In our following publications, the members of our Lavery Legal Lab on Artificial Intelligence (L3AI) will more specifically analyze certain applications of artificial intelligence in various sectors and industries.

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  • Real estate developer granted injunction in dispute over flooding caused by new highway interchange

    In June 2015, the Superior Court of Québec sided with a real estate developer who applied for an order requiring the Quebec Ministry of Transport (MOT) to fix a highway interchange whose construction in 2007 caused the developer’s land to be flooded 1. This article summarizes the court’s principal findings. The ruling has been appealed by the Quebec Ministry of Sustainable development, Environment and the Fight against climate change (MSDEF). THE FACTS Héritage Terrebonne owns a huge tract of land north of Highway 640, not far from the place where it intersects Highway 40. The area has seen quite a bit of development since the 1960’s, which increases its appeal from a real estate perspective. However, new infrastructure has also had the effect of changing surface water runoff patterns in the area, with the result that part of Héritage Terrebonne’s property which was formerly “dry” has turned into a wetland. After construction of the interchange in 2007, almost all of the property was covered with water. THE LAW The Civil Code of Québec creates a water runoff easement and related obligations, as follows: 979. Lower land is subject to receiving water flowing onto it naturally from higher land. The owner of lower land has no right to erect works to prevent the natural flow. The owner of higher land has no right to aggravate the condition of lower land, and is not presumed to do so if he carries out work to facilitate the natural runoff or, where his land is devoted to agriculture, he carries out drainage work. In addition, for the purpose of protecting wetlands, section 22 of the Environment Quality Act (Quebec) (EQA) provides that:  […] no one may erect or alter any structure, carry out any works or projects, undertake to operate any industry, carry on any activity or use any industrial process or increase the production of any goods or services in a constant or intermittent watercourse, a lake, pond, marsh, swamp or bog, unless he first obtains a certificate of authorization from the Minister.   The identification of a site as being a wetland is a problem for real estate developers, notably because the law gives the MSDEF the ability to require (non-compensable) compensation measures, such as the creation or restoration of a wetland near the one affected by the project, from anyone who applies for an authorization in order to carry out a project that will affect or destroy a wetland2. THE DISPUTE The dispute between the parties rested on questions of fact and questions of law: what is the natural state of Héritage Terrebonne’s land? What is the relevant time period? Héritage Terrebonne advanced the following answer: the natural state of the land is the state it was in before human intervention, that is to say, before development began in the 1960’s. For MOT and MSDEF, the answer is that there was already a wetland on the site before the interchange was built, or else why would MET have applied to MSDEF for an authorization under EQA section 22 to build the interchange? The trial judge began by ruling that the EQA takes precedence over the Civil Code, meaning that if the Héritage Terrebonne property turns out to be a wetland for legal purposes, the discussion stops there, without the developer having the right to claim compen¬sation for indirect expropriation. The Court then went to great lengths comparing the expert reports filed by the parties, in the end deciding to go with the findings advanced by Héritage, which the judge found more thorough and objective. Consequently, she refused to read “wooded bog” into the concept of “bog” (not defined in the EQA) on the grounds that this extension of the meaning of the word “is not supported by a majority of experts” [our translation]. She added that yes, there was a wetland covering several hectares on the site where the interchange was built, but the flooding of more than one hundred hectares caused by the interchange itself had not yet had the effect of turning the flooded land into a wetland, this being a gradual process (changes in the vegetation, etc.). Having dealt with the question of the existence and size of an EQA protected wetland on the Héritage property, the Court quickly settled the temporal question in connection with the easement for surface water runoff: at law, the “natural state” of the land is the state it was in right before the construction of the work giving rise to the litigation. Furthermore, the prescription period is ten years. Therefore, Héritage could not complain about earlier development, but it was well founded in asking for changes to the interchange, which the Court ordered, giving the MOT six months to secure the required authorizations and make any necessary adjustments to the interchange in order to allow for surface water to run off naturally. COMMENTS If there is a lesson to take away from this case, it is the importance of acting with diligence and hiring good experts when one notices that a neighbor has done something that risks turning one’s property into a wetland protected under the EQA.As regards expert reports, in the Héritage Terrebonne case, the trial judge’s appreciation of the written and oral evidence played a key role. The judge took pains to explain in detail what made the written reports and testimony of the plaintiff’s experts more convincing than those of the defense, be it because plaintiff’s experts showed up in court and were avail¬able to answer questions, or because the reports prepared for the defendants seemed aimed at justifying the defendants’ actions. The Court ordered the MOT to pay plaintiff’s costs, including preparation of expert reports and the cost of preparing and delivering expert testimony.It will be interesting to see what arguments the MSDEF will advance on appeal, keeping in mind that the Court of Appeal will show deference as regards the trial judge’s findings of fact. 1 3563308 Canada inc. v. Quebec (Attorney General) (Ministry of Transport), 2015 QCCS 2477 (CanLII).2 An Act Respecting Compensation Measures for the Carrying out of Projects Affecting Wetlands or Bodies of Water, CQLR c M-11.4.

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  • Directors’ Liability

    CONTENTS Directors’ liability for payroll withholding taxes Due diligence: An evolving standard To what risks of liability or being found guilty are directors exposed? Environmental liability of directors and officers Directors’ liability for payroll withholding taxes Luc Pariseau and Audrey Gibeault Directors of a corporation may be held personally liable in cases where the corporation fails to withhold and remit federal or provincial payroll taxes on salary, wages and certain benefits. Directors may also be liable for amounts which ought to have been withheld on payments to a non-resident that are subject to withholdings under Part XIII of the Income Tax Act1 (herein referred to as the «Act»). This article reviews in more detail the potential exposure that directors face, and also briefly describes some of the possible remedies that are available in such cases. With respect to federal income taxes, the failure of a corporation to deduct, withhold or remit source deductions under the Act, the Employment Insurance Act2 or the Canada Pension Plan Act3 subjects its directors to personal liability for the unpaid and unremitted amounts. A similar principle applies in the province of Quebec for an amount that an employer was required to deduct, withhold or remit under the Tax Administration Act4 (hereinafter referred to as the “Administration Act”), the Act respecting the Québec Pension Plan,5 the Act respecting parental insurance,6the Act respecting labour standards,7the Act to promote workforce skills development and recognition,8 and the Act respecting the Régie de l’assurance maladie du Québec.9 The purpose of these rules is to make the directors liable for the payment of the employer’s contributions. Section 24.0.1 of the Administration Act and section 227.1 of the Act apply to directors holding office on the date on which the amounts were to be remitted, the date they were to be deducted, withheld or collected, and the date on which an amount was to be paid. In certain circumstances, a person not officially appointed as a director could be considered to be a “de facto” director and become liable if such person performs some of the functions that a director would normally perform. Before a director becomes liable under these provisions, the tax authorities have to demonstrate that they cannot recover the amounts directly from the particular corporate taxpayer. Additionally, the tax authorities must register a certificate for the amount of the corporation’s liability and establish that the amount remains unsatisfied. The director will need to establish that he exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.10 The case law on this point11 has shown that the issue is generally whether, at the relevant time, the director knew or ought to have known of the problem, and whether he took the action within his power under the circumstances to correct the situation. In addition, the tax authorities cannot assess a director for source deductions owing after the expiry of two years from the date on which the director ceased to be a director of the corporation.12 Directors may require the corporation to purchase insurance on their behalf to protect them and former directors against liabilities incurred due to their status as directors, provided that they have fulfilled their fiduciary duties. Directors may, in particular, seek the advice of tax specialists to ensure that they comply with their obligations relating to payroll withholding taxes. _________________________________________ 1  R.S.C. 1985, c. 1 (5th Supp). 2  SC 1996, c. 23. 3  RSC 1985, c. C-8. 4  R.S.Q. c. A-6.002. 5  R.S.Q., c. R-9. 6  R.S.Q., c. A-29.011. 7  R.S.Q., c. N-1.1. 8  8 R.S.Q., c. D-8.3. 9  R.S.Q., c. R-5. 10  227.1(3) of the Act and 24.0.1 of the Administration Act. 11  Soper v. Canada, [1998] 1 C.F. 124 and Peoples Department Stores Inc. (Trustee of) v. Wise, [2004] C.S.C. 68. 12  227.1(4) of the Act and 24.0.2 of the Administration Act.     Due diligence: An evolving standard Jean-Philippe Latreille and Emmanuel Sala Nobody is held to the impossible. This maxim is reflected in statutes that hold directors of a corporation liable, on a solidary or joint and several basis, for its failure to comply with certain tax obligations. Indeed, directors will generally be relieved from such liability if they can demonstrate that they acted with a degree of care, diligence and skill that is reasonable under the circumstances. This is commonly known as the “due diligence defence.” Naturally, the circumstances are specific to each case, and there are no hard and fast rules for determining whether a director can rely on the due diligence defence. We must therefore turn to the courts’ interpretation of this standard, which has fluctuated somewhat in recent years. For many years, an “objective-subjective” test prevailed. This meant that directors had to show they had exercised the skill that can be expected from a person with the same level of knowledge or experience. The fact that the director’s personal abilities were taken into account made it possible to apply the standard of due diligence with some flexibility. However, following the Supreme Court of Canada’s 2004 decision in Peoples,1courts have determined that the test for the due diligence defence should be objective, but must also include a consideration of the specific circumstances faced by the corporation and its directors. Although all directors have the same duty of diligence, it should be noted that the analysis of a director’s liability must take into account the very different contexts in which “outside” and “inside” directors operate. Inside directors play an active role in the corporation’s management and can influence the conduct of its business affairs. They are in a better position to become aware of a corporation’s financial difficulties soon after they arise, and to take such corrective measures as are possible. The reality for outside directors is very different: most often, they are completely dependent on the information they receive from the corporation’s management and on the opinions expressed by experts (such as the corporation’s auditors) though this does not give them licence to disregard outward signs of financial difficulty. Consequently, the distinction between outside and inside directors is a contextual factor to take into consideration as part of the “objective” analysis associated with the due diligence standard ordained by the Supreme Court. This means that instead of considering the skills, aptitudes or personal characteristics of a given director — an approach that would fit more closely with the “objective-subjective” analysis that used to prevail — one must consider the circumstances associated with the director’s role and position with the corporation. Furthermore, the obligation which tax statutes impose on directors is an obligation of means, not an obligation of result. Thus, a director will not be held liable if he or she implemented measures that a reasonably prudent person would have taken, even if those measures did not yield the desired results. In this sense, directors cannot be regarded as unconditional guarantors of a corporation’s tax liabilities. For example, a director will not be held liable for the failures of an employee of the corporation if that employee had the necessary training and was appropriately supervised. In conclusion, the decision to become a director of a corporation should not be taken lightly. Before accepting such an office, one should ensure that the corporation has sound governance practices in place and that these practices will be followed throughout one’s mandate. Directors should not hesitate to consult with their legal advisors in order to ensure that they act in accordance with their obligations and thereby limit their exposure to liability. _________________________________________ 1  Peoples Department Stores Inc. (Trustee of) v. Wise, [2004] xv3 SCR 461.     To what risks of liability or being found guilty are directors exposed? André Laurin Directors are subject to the legal liability regime provided in the incorporating statute of the legal person and possibly to that of its registered office and, in some respects, to the regimes in place in jurisdictions where the legal person carries out its activities. It is therefore important to have a good knowledge of the laws that apply to the legal person and directors. In the context of Quebec law, directors face two major types of potential liability, namely: contractual liability to the legal person of which they are directors or, by way of derivative action, to the persons who may step into the shoes of the legal person in certain circumstances (shareholders or creditors of the legal person); and extracontractual liability (delictual, quasi-delictual and penal) to third parties, but also to the legal person. Contractual Liability Civil contractual liability stems from the nature of the link between the legal person and its directors. Under Quebec law, directors are mandataries of the legal person. They may incur liability to the legal person if they do not discharge their duties (care and loyalty) to the legal person or if they exceed the limits of their mandate. Extracontractual Liability Extracontractual liability may be civil or penal in nature. A person seeking a civil liability judgement is required to prove that the director, in the course of discharging its duties, committed a fault which caused damages to such person. However, the person may in some circumstances rely on legal liability presumptions against the director. The court will assess the elements put before it according to the rule of preponderance of evidence. For instance, a director who would knowingly support the decision of the board to authorize the marketing of a product which he knows is hazardous or non-compliant with the regulatory standards of the industry and may cause damages to third parties may be ordered to pay damages to the victims who suffer such damages. In the same way, a director who votes in favour of a recommendation to the shareholders to approve a merger or accept a takeover bid which he knows or should have known that it is not fair or not in the interest of the legal person and its shareholders may be held liable to the shareholders. Failure by a director to exercise its duty of care or duty of loyalty to the legal person may in certain circumstances be considered by the courts as being a civil fault in the context of proceedings against the director by the legal person itself or third parties. Specific statutes identify certain behaviours as constituting penal or criminal offences. Some statutes also create presumptions of guilt. The evidence will be assessed on the basis of the “beyond a reasonable doubt” criterion. Furthermore, the Criminal Code (Canada)1, mainly in section 21, opens the door to the concept of complicity to or participation in a criminal or penal offence. A director who is found guilty may, according to the case and the nature of the criminal offence, be ordered to pay a fine, be imposed a limitation of his rights and even imprisonment. In most cases, a defence of due diligence may be made, even against a presumption, if the director has been in fact diligent. Furthermore, it is to be noted that the more the determination of the fault is objective, the less accessible becomes the defence of due diligence. For a more detailed analysis of the duties of directors and the nature of their potential liability, please refer to the document entitled “The Corporate Director: Questions and Answers”.2 Other remedies The oppression remedy and the application for an injunction complete the arsenal of means or remedies which may be brought against directors. _________________________________________ 1  Criminal Code (Canada) R.S.C. (1985), c. C-46. 2  “The Corporate Director: Questions and Answers”. lavery.ca/sme/corporate-governance.html     Environmental liability of directors and officers Katia Opalka Several federal and provincial statutes in force in Quebec make corporate directors and officers personally liable for offences of an environmental nature committed by the corporation. Corporations can face site assessment and clean-up orders. Subject to certain conditions, directors and officers of a corporation can be named to such orders. The environment ministry can also refuse to issue or renew environmental authorizations on the grounds that a director or officer of the corporation, of a related corporation, or of a lender of the corporation was found guilty of an offence or convicted on certain types of tax charges in the preceding five years. This article reviews sources of personal liability for directors and officers and then identifies measures that can be taken to manage these risks so that they don’t become an obstacle to recruiting and retaining talented people. Quebec’s Environment Quality Act (EQA or the Act) creates a presumption: when a corporation is convicted of an offence under the Act, its directors and officers are presumed to be guilty of that offence unless they can show that they exercised due diligence and took all necessary precautions to prevent commission of the offence. In the case of a partnership, all the partners, except for special partners, are deemed to be directors of the partnership, unless they can show that one or more of them, or a third person, manages the affairs of the partnership. Where a director or officer commits an offence, the minimum and maximum amounts of the fines prescribed in the Act for individuals (min. $1,000/max. $1,000,000) are doubled. When a corporation defaults on payment of an amount owed to the Minister under the EQA or its regulations, the corporation’s directors and officers are jointly and severally liable with the corporation for the payment of that amount, unless they can show that they exercised due care and diligence to prevent the breach which led to the claim. With respect to site assessment and clean-up orders, directors and officers may be the subject of such an order if they have had custody or control of the site, unless they can show that either: they were unaware of and had no reason to suspect the presence of contaminants in the land, having regard to the circumstances, practices and duty of care; once they became aware of the presence of contaminants in the land, they acted in conformity with the law, as to the custody of the land, in particular as regards the duty of care and diligence; or the presence of contaminants in the land is a result of outside migration from a source attributable to a third person. To guard against the risk of environmental liability, corporate directors and officers should make sure that the corporation has an environmental management system that works. They should also consider whether it would be worthwhile to take out pollution insurance, to address risks that are not normally covered in directors’ and officers’ liability insurance policies.

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  • Site contamination: Claims for latent defects - Notice and prescription

    On what grounds may a landowner who discovers soil contamination caused by an old heating oil tank sue the former owner of the property? In this bulletin we examine whether the warranty against latent defects found at Article 1726 of the Civil Code of Québec can be invoked to have the sale annulled or to obtain a reimbursement of part of the purchase price. The recent decision of the Superior Court in De La O v. Sasson1 is instructive in two respects. First, we are reminded that a purchaser who discovers a latent defect must notify the vendor within a reasonable amount of time. In order to have a claim dismissed on the basis of late notice, however, it must be established that some sort of damage was thereby caused to the defendant. The judgment also serves as a reminder that even in the case of site contamination, where it is not always easy to pinpoint the exact moment when the purchaser became aware of the defect, failure to take action may result in the claim being prescribed. To be successful, the person claiming that a property has a latent defect must convince the court that the conditions giving rise to the action are met. Although not required to prove that the vendor was at fault or that the existence of the defect breaches a clause in the deed of sale, the plaintiff must nonetheless establish that: the property has a defect the defect is serious the defect was unknown to the plaintiff at the time of sale and was not apparent; and the defect predates the sale If proof of the latent defect is successfully established within the meaning of the Civil Code, the purchaser must also convince the judge that the vendor was given notice of the defect within a reasonable time and that the action was filed within three years. In both cases, the purchaser’s discovery of the defect starts the meter running. In De La O, the sale took place in 2006 and the contamination was discovered soon after (a strong smell of oil filled a storage room after it was emptied for cleaning) and the action was brought in 2012, after the purchaser had had soil samples tested. On the issue of when the contamination was discovered, Justice Daniel W. Payette assessed the evidence, including the purchaser’s testimony, and held: [Translation][30] The Court finds that the Purchaser noticed a persistent smell of heating oil beginning in 2006, that the odour constituted an initial tangible manifestation of the soil contamination under the building, that the Purchaser was aware of and concerned about the possibility that the land was contaminated but that, for reasons known only to him, he did not notify the vendors, did not take legal action and did not take any steps to resolve the problem. The plaintiffs may have believed that only laboratory testing could prove a latent defect involving soil contamination. This might explain why they waited for the expert’s report before notifying the vendors of the defect and then suing them. According to the Court, although lab results may be needed to prove the defect, legal proceedings must be instituted within three years of the time the owner first becomes aware of the contamination. In Lavoie v. Comtois,2 Justice André Rochon, as he then was, described this moment as occurring when signs noticeable to a layperson would have caused a duly diligent person to become concerned. In this case, it was when the plaintiffs first noticed the smell of oil that they became aware of the latent defect; that was enough to start the clock on the three-year prescription period. The defendants also claimed that the fact that they were not notified of the defect for six years from the discovery of the contamination should be grounds for dismissing the action. In setting aside that argument, the Court recalled that notice should not be confused with a formal demand: although a legal action cannot be instituted without a formal demand, a late notification is only a bar to an action for latent defects if the defendant has suffered damage as a result. It is up to the judge hearing the case to assess the consequences of the late notice based on the evidence. _________________________________________ 1 2015 QCCS 713 (CanLII). 2 J.E. 2000-40.

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  • Legal newsletter for business entrepreneurs and executives, Number 24

    SUMMARY The sale of a business Getting ready to sell your business : Environmental issues   The sale of a business Valérie Boucher and Catherine Méthot During its existence, a business can be subject to one or more sales, both through the sale of its shares or its assets. Although each sale of a business is unique, a certain procedure is generally followed, the main steps being the confidentiality agreement, the letter of intent, the due diligence review and the purchase agreement. CONFIDENTIALITY AGREEMENT During their discussions and negotiations, the parties shall ensure, before exchanging information, documents and other materials which are generally not publicly known (“Confidential Information”), that such information will be kept confidential and that it will only be used to assess the advisability of entering into a transaction. Keeping information confidential implies not disclosing Confidential Information to third parties, voluntarily or through negligence, not using it for one’s benefit or that of a third party, taking the necessary measures to keep it confidential, returning or destroying it at the request of the disclosing party, not making or keeping a copy and promptly notifying the disclosing party if a court or government authority requires that the party receiving Confidential Information disclose it. LETTER OF INTENT The signing of a letter of intent (which the parties may call an agreement in principle, memorandum of understanding or a letter of offer) or the presentation of an offer to purchase may serve, among other things, to ensure that the other party is serious, to summarize the parties’ understanding at a certain stage of the discussions, to secure the negotiating exclusivity, to obtain the required financing, to complete the transaction, or as a framework for the negotiations, to provide for a timeline and to describe what each party has to do. The document signed by the parties may range from the expression of an interest, without any obligation to finalize the transaction covered by the letter of intent, to a firm commitment binding the parties. Note that certain terms found in a letter of intent will always be binding, such as the confidentiality and exclusivity clauses, the expiry date and the governing law clause. DUE DILIGENCE REVIEW A proper due diligence review is key to the successful sale of a business. Through such due diligence review, a potential purchaser can get an accurate picture of the target business, assess the risks of the transaction, evaluate the possible synergies between the businesses, establish an integration plan following the transaction closing, prepare a list of the deficiencies to be corrected prior to closing, prepare an offer to purchase which adequately reflects the situation, go ahead with a purchase agreement or otherwise withdraw from the negotiations. The vendor will want to ensure to present its business in a positive way while disclosing all risk factors in order to limit any potential liability. A preliminary verification carried out by the vendor will allow it to achieve these goals more easily while maintaining its credibility vis- à-vis a potential purchaser. Overall, the due diligence allows the parties and their advisors to negotiate and draft a purchase agreement containing the appropriate disclosures from the vendor and providing for adequate risk-sharing between the parties. Overall, the due diligence allows the parties and their advisors to negotiate and draft a purchase agreement containing the appropriate disclosures from the vendor and providing for adequate risk-sharing between the parties. Beside the legal aspect of the due diligence review, a thorough due diligence review also includes accounting, transactional, technical and technological aspects which require input from a multidisciplinary team. The documents normally reviewed by the purchaser’s legal counsel are those relating to the corporate status of the vendor or the target business, its contracts, the property owned or rented by the business (both movables and immovables), insurance, employees and their employment conditions, intellectual property, ongoing or potential litigation, financing obtained and the permits, licences or authorizations needed to run the business. The due diligence review to be performed may vary depending on the structure of the proposed transaction. For example, through a sale of shares, the prospective purchaser will want to conduct a complete review of the minute books of the target business whereas this is not necessary for a purchase of assets. Lastly, other than the verification of the documents provided by the vendor, the potential purchaser may perform some independent verifications with government agencies and in various public records (Commission des normes du travail, Commission de la santé et de la sécurité du travail, Commission de l’équité salariale, the Canada Revenue Agency and the Agence du revenu du Québec, the ministère du Développement durable, de l’Environnement et de la Lutte contre les changements climatiques, municipalities, court files, the land registry, the Register of Personal and Moveable Real Rights, etc.). PURCHASE AGREEMENT A purchase agreement is the contract wherein the vendor assigns to the purchaser and the purchaser acquires from the vendor ownership of the business, whether through the acquisition of shares or the acquisition of assets. The purchase agreement must describe the purpose of the transaction. For a sale of shares, the number and class of shares sold, the name of each vendor if there is more than one and an exact description of the shares sold by each of them. Where assets are purchased, the agreement may either indicate the general intention of the parties to proceed with the sale and purchase of all business’ assets and specifically indicate what property is excluded from the transaction or, conversely, lists all the property sold in the agreement or schedules. An agreement for the purchase of assets must also clearly indicate what obligations and liabilities of the target business remain with the vendor and those assumed by the purchaser. The key element of this agreement is the list of representations and warranties given by the vendor and the relating indemnification undertakings (including the limits to those undertakings!). ANCILLARY AGREEMENTS Other than the purchase agreement, certain ancillary agreements may be entered into with respect to a business transfer, such as a service or employment agreement, a non-competition and non-solicitation agreement or a shareholders’ agreement. When a purchaser wants some individuals holding key positions in the vendor’s business to remain in those positions for any length of time, he may choose to enter into a service agreement or an employment contract with them. The type of agreement chosen depends on the type of service provided and the level of involvement in the business expected from the individual after the transaction closes. Also, a prudent and diligent purchaser will generally require that the vendor and certain key employees of his business sign non-competition and non-solicitation undertakings. A non-competition undertaking is a promise not to carry on the activities described in the agreement. It must be for a specific length of time and apply to a defined area. A non-solicitation undertaking prevents the vendor from hiring the employees of the business sold and soliciting its clients to the detriment of the purchaser. Lastly, the parties may wish to enter into a shareholders’ agreement in the context of the purchase of a business, especially between the different shareholders of the purchaser or among the different purchasers, or between the vendor and the purchaser when the vendor does not sell the totality of his shares. As we have seen, the sale of a business requires a lot of preparation, verification, time and involvement from the parties. It is therefore essential for both the vendor and the purchaser to be surrounded by a team capable of seeing the transaction through. This team may include, in addition to legal counsel responsible for the legal aspects of the transaction, members of management, some in-house counsels (human resources, information technology, individuals in charge of integration, etc.), a financial advisor or an outside accountant.     Getting ready to sell your business : Environmental issues Katia Opalka Any real estate agent will tell you that there are some basic rules for selling a house. The same goes for a business. This article reviews the environmental issues you need to address before a potential purchaser comes knocking. WHEN SHOULD I START GETTING READY? When it comes to the environment, the golden rule is to always “be prepared”. Your business should have an environmental management system that works well. This means that you have assessed the level of environmental risk associated with the business and have measures in place that ensure the risk is kept in check. A purchaser who asks how your business manages environmental risk will have his answer right away: so and so is in charge of the environment; he or she reports to the board on needs in terms of staffing, training, materials, research and development, capital expenditures, insurance, etc. Here’s his or her budget. Here are the pending files (non-compliance issues, neighbour complaints, voluntary environmental undertakings, etc.). (Tip: have an up-to-date certificate of location). WHAT WILL A PURCHASER EXPECT IN TERMS OF ENVIRONMENTAL ISSUES? A purchaser will want to know that management is aware of its legal duties involving the environment and that it is complying with them. Normally, the purchaser will also want to know whether the land owned by the business may be contaminated. If this is a possibility, the purchaser may want to have soil and groundwater tested and any contamination cleaned up as a condition of sale. This is because such a condition is likely attached to the purchaser’s financing (lenders are not keen to take security on contaminated land). Note that, far from reassuring the purchaser, the absence of information about environmental issues can make people worry. Take a factory owner who holds no environmental permits, has put no one in charge of environmental matters, and who answers “not applicable” to all the purchaser’s questions about environmental compliance: not reassuring! It’s important to be able to show that you’ve looked into the matter and that if in fact you don’t need any environmental permits, you can explain why. I’M AWARE OF A SITUATION THAT’S PROBABLY NON-COMPLIANT. WHAT SHOULD I DO? When acquiring a business, a purchaser will normally be attracted by sales figures, innovative products or talent. As regards environmental issues, generally speaking, purchasers do not demand perfection. From a legal perspective, it’s important to be honest and disclose any problems you’re aware of, even if you’re unsure of the nature or scope of the problem. That said, ideally, outstanding problems should be addressed before the “open house”. DOES MY BUSINESS HAVE ENVIRONMENTAL OBLIGATIONS TOWARD THIRD PARTIES? If I plan to sell the shares of my business, the purchaser will be bound by my contractual undertakings. The purchaser will naturally want to know in advance what they are, what they represent in financial terms and what the associated risks are. An example is a business that has signed on to a sustainable development initiative launched by an industry association. The initiative may involve making commitments such as consulting the community on development projects, reducing greenhouse gas emissions, and so forth. The purchaser will want to know whether the seller has committed to going beyond what the law requires, how far beyond, and whether this gives rise to any increased costs or legal or financial risks. MY BUSINESS DOESN’T POLLUTE. WHY WORRY ABOUT ENVIRONMENTAL RISK? It’s true that some sectors (heavy industry, exploration for and extraction of natural resources, waste management, infrastructure, etc.) have a larger environmental dimension than others. However, the following questions are relevant for any business: could the place or places where I carry on business be contaminated (groundwater, drinking water, soil, indoor air, etc.)? Do we have a system to manage hazardous products (cleaning products, gases, etc.) and waste? Are there environmental risks that could disrupt my supply chain or affect my brand? Are there environmental standards on the horizon in my export markets that will force me to change my inputs or processes? This may come as a surprise, but the purchaser sometimes asks the vendor to make a representation (a contractual promise) that there are none. I HAVE ENVIRONMENTAL PERMITS. DOES THE PURCHASER HAVE TO GET HIS OWN? It depends on the permit. Each permit is subject to specific legal rules. Generally speaking, when assets are sold, the permit has to be transferred to the buyer whereas in a sale of shares, the purchaser steps into the vendor’s shoes. Note that permits need to be up to date before they are transferred, and outstanding compliance issues need to be resolved (hence the importance of being prepared!). Also, keep in mind that updating permits, fixing compliance issues, and obtaining and transferring permits can take many months. WHEN I BOUGHT THE LAND, I WAS GIVEN A PILE OF ENVIRONMENTAL REPORTS BUT I HAVEN’T READ THEM. You can always hand them over to the purchaser, telling him exactly that: you were given these reports but you haven’t read them. That way, no one can say that you hid something from the purchaser. That said, the purchaser may read the reports and then decide not to go ahead with the deal or ask for a price reduction. A better approach is to consult a lawyer who practices in this area and can advise you on what the reports mean, in practical and legal terms. This will allow you to decide on the best approach for dealing with the issues raised in the reports before the purchaser asks questions. WE’VE RECEIVED COMPLAINTS FROM TIME TO TIME BUT THEY’RE UNFOUNDED. The purchaser will want to know whether claims have been made against the business. Often, the word “complaint” is included in the definition of “claim” in the buy-sell agreement. You will be asked to declare any claim the business has received. When disclosing the complaint, it’s best to stick to the facts (date and circumstances). If the purchaser wants to know more, he’ll ask. You should answer the questions but avoid making assumptions. If you don’t know the answer to a question, you have every right to say so. WE HAD SOMEONE LOOKING AFTER HEALTH/SAFETY/ENVIRONMENT (HSE) BUT SHE LEFT TWO YEARS AGO AND WE HAVEN’T REPLACED HER. The good news is that you had someone. At the same time, you will have to find a good explanation as to why the person hasn’t been replaced two years later. You will also have to find someone to answer the purchaser’s questions about HSE matters, or even reach out to your former employee (if he or she left on good terms). WE HAVE TWO PLANTS NOW, ONE OF WHICH IS IN ONTARIO, AND A DISTRIBUTION CENTRE IN PLATTSBURGH... A purchaser will be happy to learn that you’ve prepared a file for him that will quickly give him an idea of all the facilities the business owns (and has owned, in the case of a share purchase) or rents. The more facilities (and jurisdictions) are involved, the more important it is to gather and sort the information in order to make the purchaser’s diligence easier. This approach will show the purchaser that you are serious and prepared, which will reflect well on the business.

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  • Vapour intrusion

    In the United States, new rules will soon be taking effect making consideration of vapour intrusion risk a mandatory step in the Phase I environmental site assessment (ESA) process. Companies should review their real estate portfolios and consider whether properties may be at risk. In Canada, mortgage financing and asset sales are expected to be affected by the new diligence standard (that includes checking for vapour intrusion risks) in the near future. WHAT IT IS As the name suggests, vapour intrusion means that soil or groundwater which is contaminated releases vapours which “intrude” onto an adjacent property or into a building. A Phase I ESA is an investigation intended to determine whether current or past use of a property or neighbouring properties may have resulted in soil or groundwater contamination. The investigator reviews property records and government registries and conducts a site inspection. If he believes that there is a risk of contamination, he mentions it in his report. Sampling of soil and groundwater for laboratory analysis may then follow, as part of a “Phase II” ESA. WHAT YOU NEED TO KNOW When someone enters a basement surrounded by hydrocarbon contaminated soil — a mess created by an abandoned underground heating oil tank, for example — that person can usually smell the hydrocarbon vapours. These vapours are detected by “olfactory” means and their presence is noted by the investigator in the context of a Phase I ESA. But there are also odourless contaminants, whose presence outside the building and in indoor air can only be confirmed by testing with specialized equipment. Investigators will henceforth be required to report on whether there is a risk that such contaminants may be present. In the affirmative, they will recommend that indoor air be tested. This can be complicated, because sometimes the vapours that get detected are released by objects in the building and not the soil or groundwater outside. Obviously, just because someone cannot smell a substance doesn’t mean that it is not there. An example is trichloroethylene, which is found in solvents. Solvents are associated with dry cleaning operations, which used them as stain removers, and they are still a staple in industrial settings, wherever someone needs to clean floors, walls, equipment, trucks, and other things that are covered in grease. They are a major factor at contaminated sites worldwide and in many cases, the contamination has yet to be discovered. Solvent-related site contamination is harder to clean up than hydrocarbon contamination. Decontamination often takes a long time and can be very expensive. In addition, there are concerns about potential effects associated with human exposure (through air, drinking water, etc.) to contaminants which have made their way inside buildings. In the U.S., some states charge a tax on dry cleaning to help finance clean-up at sites affected by past practices in this industry. WHY IT’S IMPORTANT In the U.S., buyers have to commission a Phase I ESA before purchasing commercial real estate in order to meet the “all appropriate inquiries” due diligence test. By including vapour intrusion in the list of issues buyers need to look into up front, the United States Environmental Protection Agency is forcing them to assess the risk at the pre-purchase due diligence stage instead of suing later on. This will impact deal-making. The requirement to check for vapour intrusion risk, which is making its way to Canada, should raise eyebrows in the following areas: environment, insurance, civil and commercial litigation, finance, M&A, and securities. It may translate into heightened liability in the areas of penal law (environment, health and safety) and civil law (contractual and delictual liability, fault-based and no-fault). Furthermore, if contamination is confirmed, it will impact the value of a property and sometimes even that of a company, leaving directors and officers potentially exposed to site clean-up orders and other types of claims. The Canadian Council of Ministers of the Environment has just released a “Protocol for the Derivation of Soil Vapour Quality Guidelines for Protection of Human Exposures via Inhalation of Vapours”. Some provinces have issued guidance documents on this subject. It is to be expected that the new rules for Phase I ESAs in the United States will soon be incorporated into CSA’s standard Z768-01 in Canada, with the result that down the road, an uptick in the discovery of hard to clean up site contamination is to be expected, leading to problems with property sales and transaction financing, an increase in environmental liabilities for accounting purposes, and heightened legal/financial risks for corporations and individuals. Caution is in order.

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  • Hiding environmental reports: a risky business!

    A recent decision of the Ontario Court of Appeal clearly illustrates the kinds of problems caused by site contamination at a shopping centre. The case should be of interest to anyone who works on commercial transactions. If there is something to be learned from this story, it is that you need to understand risk before accepting it. THE FACTS Below I relate the facts of the case in detail because they are key to understanding the conclusions to be drawn from what happened. “Sumra” and “Yang” are principals of numbered companies. Yang and his company are the plaintiffs. The defendants are Yang’s former lawyer as well as Sumra and Sumra’s company. The names of the principals are used for ease of reference. PROPERTY ACQUIRED WITHOUT AN ENVIRONMENTAL SITE ASSESSMENT (ESA) Sumra purchased a shopping centre in Ottawa in 1997. The mortgage lender did not request an environmental report. During the same period Yang, who has a Ph.D. in chemistry and had just arrived from Australia, went into business and purchased and sold several properties and businesses in the Ottawa area. PHASE I ESA FOR MORTGAGE RENEWAL In 2003, Sumra had to renew his mortgage. The lender requested a Phase I ESA. Sumra hired AMEC to perform a visual inspection of the site and review available documents regarding earlier uses of the land. AMEC’s report indicated that the premises had once housed a dry-cleaning business. Dry-cleaning is a well-known source of groundwater contamination that is caused by leaks and spills of chemical products that took place during a period when people were less concerned about the dangers of such products for the environment and human health. In this case, however, there were unconfirmed reports that the business had used a closed circuit cleaning system and so the report concluded that AMEC had identified no environmental risks that would justify doing an intrusive assessment, that is to say, taking soil and groundwater samples for laboratory testing. The bank accepted AMEC’s Phase I report and approved the loan. Sumra’s lawyer kept a copy of the report on file. In 2005, Sumra put the property up for sale. FIRST POTENTIAL PURCHASER AND DISCOVERY OF CONTAMINATION A potential purchaser hired the Paterson Group to conduct a Phase I ESA at the site. At the outcome of the Phase I, Paterson recommended drilling a borehole at the spot where the dry cleaning business had operated in order to check soil and groundwater conditions. The soil met applicable standards but the groundwater sample exceeded the applicable standard for perchloroethylene (PERC), a product used in dry-cleaning operations. Paterson recommended advancing several additional boreholes in order to circumscribe the affected area. The potential purchaser backed out. SECOND POTENTIAL PURCHASER AND ADDITIONAL DRILLING A second potential purchaser came forward. Sumra paid the first potential purchaser half the cost of Paterson’s first report so that he would allow Sumra to use the report. The report was disclosed to the second potential purchaser. Sumra then followed Paterson’s recommendation and hired the firm to do the additional assessment. PERC concentrations in groundwater exceeded applicable standards in three of the five additional boreholes. Paterson concluded that the contamination was a significant source of liability but that it did not pose a risk for the health of the building’s occupants or the environment. Asked for an estimate of clean-up costs, Paterson said it was not possible to provide an accurate estimate based on the information available, but that a figure in the range of $100,000 to $150,000 could be used for discussion purposes. The second potential purchaser backed out. The real estate agent then told Sumra that the environmental reports would have to be provided to any other potential purchaser and that no bank would finance the acquisition of the shopping centre as long as the environmental problem was not addressed. The “For Sale” sign was removed and the agent stopped presenting potential purchasers to Sumra. YANG PURCHASES THE PROPERTY AND DECIDES TO IGNORE THE ENVIRONMENTAL CONCERNS It was at this point that Yang became interested in the property. Yang, an experienced businessman, called upon the services of an Ottawa lawyer who had been self-employed for many years and who had experience advising Yang in real estate and other transactions. Yang had already bought property which he knew to be contaminated. He had then resorted to private financing in order to get around the environmental requirements of banks. Yang requested and obtained a reduction in the sale price of roughly $200,000. He ignored the advice of his lawyer, who recommended that he commission his own environmental studies (and had him sign a waiver in this regard). The conditions to closing were lifted and the deal was done. A NEIGHBOUR SUES YANG According to Yang, it was not until 2009, when a neighbour filed a nuisance action against him because contamination from the shopping centre had migrated onto the neighbour’s property, that Yang became aware of environmental issues at the property. He hired Paterson to propose remediation options. Depending on how much time was available, the options ranged from natural attenuation (a multi-year solution involving no costs) to excavation of the contaminated soil (instant solution costing $1.7 million). YANG CLAIMS THAT HE WOULD HAVE NEVER PURCHASED THE PROPERTY AND SUES HIS LAWYER ALONG WITH SUMRA AND SUMRA’S COMPANY With these facts in mind, it is readily apparent that the main issue for the trial judge - when Yang brought an action for damages against Sumra and his own lawyer - was to determine whether or not the plaintiff was telling the truth when he said he only became aware of the environmental issues at the site in 2009. BACK TO THE STARTING GATE The following is the wording of the environmental condition found in the offer to purchase (subsequently Schedule A in the Agreement of Purchase and Sale): This Offer is conditional upon the Buyer determining, at the Buyer’s own expense that: all environmental laws and regulations have been complied with, no hazardous conditions or substances exist on the land, no limitations or restrictions affecting the continued use of the property exist, other than those specifically provided for herein, no pending litigation respecting Environmental matters, no outstanding Ministry of Environment Orders, investigation, charges or prosecutions respecting Environmental matters exist, there has been no prior use as a waste disposal site, and all applicable licenses are in force. The Seller agrees to provide to the Buyer upon request, all documents, records and reports relating to environmental matters in possession of the Seller. The Seller further authorizes listing agent, to release to the Buyer, the Buyer’s Agent or Solicitor, any and all information that maybe on record in the Ministry office with respect to the sold property. Unless the Buyer gives notice in writing delivered to the Seller not later than 8:00 p.m. on the 26th day of November, 2005, that the preceding condition has been fulfilled, this Offer shall become null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller within the time period stated herein. Looking at this paragraph, it should be noted that the very long first sentence contains a list of environmental representations normally made by the seller. Here, the clause is worded in such a way as to transfer the risk to the purchaser. It is the purchaser who must ensure that environmental laws and regulations are complied with; the seller guarantees nothing. It should also be noted that a clause of this type is usually worded so that the seller agrees to provide the potential purchaser with all environmental documentation in its possession or under its control. Here, the documents are provided “upon request”. As a result, the seller is not hiding anything from the purchaser, but it is up to the purchaser to make the first move. In our view, this is a situation where the parties sought to pretend that the usual environmental due diligence review had taken place, without however putting anything in writing that established the purchaser’s knowledge of the environmental situation at the site. This approach backfired when a third party sued Yang because the contamination had migrated offsite. Let’s look at the situation more closely and then review the lessons to be learned from this case. Pursuant to the first sentence in the environmental condition, Yang had to determine that all environmental laws and regulations had been complied with. As a practical businessman who was likely pressed for time, Yang probably gave considerable weight to Paterson’s conclusion that the PERC posed no risk to the environment or human health. From a legal point of view, even though groundwater contamination exceeded the generic criteria, in the absence of a clear statutory obligation to inform the Ministry of Environment and/or to decontaminate the site in the event of the discovery of historic contamination, a businessman could conclude that the laws and regulations were being “complied with” in the sense that while the groundwater did not meet applicable standards, seller’s behaviour did not violate the law. As a result, the parties’ main objective became making sure that the information provided by Paterson did not fall into the hands of a mortgage lender. In court, Yang claimed that he never asked Sumra to provide him with the environmental reports that Sumra had in his possession, that he relied on his lawyer to take care of that part of the due diligence review and that his lawyer never talked to him about environmental reports. Yang also claimed that if he had been informed of Paterson’s conclusions, he would have never purchased the property. As for Yang’s lawyer, she claimed that Yang never gave her the mandate to conduct due diligence of any kind (environmental or other). This explains why she did not ask the seller to provide her with access to the seller’s environmental files. However, the appraiser hired by Yang to assist with getting financing from CIBC did obtain a copy of AMEC’s report, which the appraiser presented to the bank. The bank extended financing based on the report. In court, the appraiser could not remember who provided him with AMEC’s report. Having heard all the witnesses, the court concluded that Yang obtained all three environmental reports from Sumra and that he had them in his possession when he gave only one report to the appraiser who, in turn, forwarded it to the bank. The court dismissed Yang’s claim for damages against his lawyer and Sumra. LESSONS TO BE LEARNED Quebec law mandates site assessment and clean-up upon cessation of activities or change of use at properties where potentially polluting activities – listed by regulation - have been carried on. Dry-cleaning does not appear in the list of activities that are covered by a regulation adopted pursuant to the Environment Quality Act. Consequently, if the site of a former dry-cleaning operation is assessed, it is usually at the request of a bank. Returning to the case of Sumra and Yang, some comments are in order. The CIBC was duped. It would be nice to know how often mortgage lenders are provided with misleading information regarding the condition of properties on which they take security. Yet it’s also true that the discovery of “legacy” site contamination is bad for the economy, sometimes forcing companies and individuals to choose between obtaining financing from private lenders at exorbitant rates and going bankrupt. Generally speaking, only healthy businesses have the means to finance site clean-up. Yang was far too cavalier in his business dealings. He negotiated a price reduction but had no intention of using the money he saved to deal with the environmental problem. Sumra should have required, by contract, that an amount equal to the reduction in the sale price be used for that purpose. The parties to this deal probably believed that they had thought of everything. Yet they forgot to agree on what would happen in the event of a claim from a third party. A neighbour, for example. Finally, and as glaringly demonstrated by the facts, no one in this case retained an attorney with the right skillset. Yang’s lawyer strongly recommended that he commission his own environmental reports and she was right to do so. She should also have referred Yang to an environmental lawyer, to make sure he fully understood the risks associated with becoming the owner of contaminated land and the means available to manage them. One may be tempted to equate environmental risk management with choosing the right engineers. It’s a good instinct, but it only gets you halfway there. It can actually be very risky to ask an environmental consulting firm to generate data and issue reports on the status of a particular property without understanding the associated legal risks. The decision to protect oneself by contract or by site clean-up depends on a series of factors that vary from one case to the next. Finding the right solution (in terms of timing, risk, costs, etc.) requires the cooperation of specialists in both law and environmental sciences.

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  • Supreme Court of Canada Ruling in Tsilhqot’in: Aboriginal Title and the Common Law

    On June 26, 2014, the Supreme Court of Canada rendered a decision confirming aboriginal title to approximately five percent of the Tsilhqot’in First Nation’s traditional territory in British Columbia. This decision is very significant because it marks the first time a ruling defines aboriginal title “on the ground”. ABORIGINAL RIGHTSThe Constitution Act, 1982 provides that existing aboriginal and treaty rights of the aboriginal peoples of Canada are recognized and affirmed. Among those rights are the right to engage in traditional activities such as hunting and fishing, the right to self-government, and aboriginal title. Tsilhqot’in deals with the existence of aboriginal title, its incidents, and the rights it confers.RECOGNITION OF ABORIGINAL TITLEThe Supreme Court of Canada confirmed that aboriginal title enjoyed by a First Nation over a given territory through its sufficient, continuous and exclusive occupation thereof prior to the assertion of sovereignty by the British Crown is preserved and must be recognized.In order to establish the existence of aboriginal title, the First Nation must show that it enjoyed sufficient, continuous and exclusive occupation of the claimed lands prior to the assertion of sovereignty. As the Court noted: “Sufficiency, continuity and exclusivity are not ends in themselves, but inquiries that shed light on whether Aboriginal title is established.”SUFFICIENCY OF OCCUPATION. “[R]egular use of territories for hunting, fishing, trapping and foraging is “sufficient” use to ground Aboriginal title, provided that such use, on the facts of a particular case, evinces an intention on the part of the Aboriginal group to hold or possess the land in a manner comparable to what would be required to establish title at common law. InTsilhqot’in, the Supreme Court of Canada confirmed that nomadic and semi-nomadic groups could establish title to land, provided they demonstrate sufficient physical possession, which is a question of fact.CONTINUITY OF OCCUPATION. Proof of continuous occupation of the territory claimed may be based on proof of continuity between present and pre-sovereignty occupation, showing that the present occupation is rooted in pre-sovereignty times.EXCLUSIVITY OF OCCUPATION. Exclusive occupation should be understood in the sense of intention and capacity to control the land. This is a question of fact which depends on various factors such as the characteristics of the claimant group, the nature of other groups in the area, and the characteristics of the land in question.With respect to the manner of applying these criteria, Chief Justice Beverly McLachlin, speaking for the majority, stated:In my view, the concepts of sufficiency, continuity and exclusivity provide useful lenses through which to view the question of Aboriginal title. This said, the court must be careful not to lose or distort the Aboriginal perspective by forcing ancestral practices into the square boxes of common law concepts, thus frustrating the goal of faithfully translating pre-sovereignty Aboriginal interests into equivalent modern legal rights. Sufficiency, continuity and exclusivity are not ends in themselves, but inquiries that shed light on whether Aboriginal title is established.CONTENT OF ABORIGINAL TITLEAboriginal title confers upon its holder the right to enjoy, use and control the land and to enjoy the benefits deriving therefrom. It is a collective title and consequently cannot be transferred except to the Crown. Furthermore, the land may not be used for a purpose that would deprive future generations of its enjoyment.However, we note that the Court stated as follows in the Delgamuukw case: “If aboriginal peoples wish to use their lands in a way that aboriginal title does not permit, then they must surrender those lands and convert them into non-title lands to do so.”EFFECT OF ABORIGINAL TITLEThe Supreme Court of Canada confirmed that, subject to what follows, provincial laws of general application apply to lands held under aboriginal title.The effect of aboriginal title varies depending on whether the title is being claimed or has been recognized. Where title is claimed, the rules in Haïda nation continue to apply: when a First Nation claims title over a given territory, before authorizing a given project or activity, the Crown (federal or provincial government, as the case may be) must consult the First Nation and, depending on the circumstances, accommodate its concerns. The intensity of the duty to consult varies as a function of two criteria, namely the strength of the Nation’s claim on one hand and the extent of the proposed infringement on the other.If the First Nation has a recognized aboriginal title over an area — as is now the case for the Tsilhqot’in First Nation — then consent of the First Nation is required before activities may proceed in the area. The exception to this rule is when the infringement is justified by a compelling and substantial public purpose, but even then, the infringement must be consistent with the Crown’s fiduciary duty towards the First Nation. This caveat is similar to the notion of expropriation in the public interest, except that here, the public interest must be weighed against the interest of the First Nation.In the Supreme Court’s decision in Delgamuukw, Chief Justice Antonio Lamer, writing for the majority of the Court, described as follows what could constitute a compelling and substantial public purpose:In my opinion, the development of agriculture, forestry, mining, and hydroelectric power, the general economic development of the interior of British Columbia, protection of the environment or endangered species, the building of infrastructure and the settlement of foreign populations to support those aims, are the kinds of objectives that are consistent with this purpose and, in principle, can justify the infringement of aboriginal title. Whether a particular measure or government act can be explained by reference to one of those objectives, however, is ultimately a question of fact that will have to be examined on a case-by-case basis.The Court in Tsilhqot’in reproduced the above passage without comment. It then declared:If a compelling and substantial public purpose is established, the government must go on to show that the proposed incursion on the Aboriginal right is consistent with the Crown’s fiduciary duty towards Aboriginal people. [...] The beneficial interest in the land held by the Aboriginal group vests communally in the title-holding group. This means that incursions on Aboriginal title cannot be justified if they would substantially deprive future generations of the benefit of the land.In the Tsilhqot’in case, the province had authorized a third party to engage in logging on lands claimed by the Tsilhqot’in First Nation without consulting the First Nation, that is to say, in violation of the rules that apply on lands subject to land claims. Now that title was recognized, the Supreme Court of Canada analyzed whether the infringement of aboriginal title without the consent of the First Nation was justified. It sided with the lower courts in finding that the reasons invoked by the province for authorizing the logging (economic benefits of the harvest and measures needed to stem mountain pine beetle infestation) were not supported by the evidence.COMPENSATION FOR INFRINGEMENT OF ABORIGINAL TITLEThe question of compensation, not decided in Delgamuukw, is dealt with as follows in Tsilhqot’in: “The usual remedies that lie for breach of interests in land are available, adapted as necessary to reflect the special nature of Aboriginal title and the fiduciary obligation owed by the Crown to the holders of Aboriginal title.”CONCLUSIONThe Tsilhqot’in decision of the Supreme Court of Canada confirms that aboriginal title, recognized by the common law, does exist in Canada and it identifies a region of British Columbia where this holds true. The First Nation title holder has the right to decide how the land will be used, unless a compelling and substantial public purpose that is compatible with the Crown’s fiduciary duty toward the First Nation justifies infringing on title without the consent of the holder. In these cases, the usual remedies are available, adapted as necessary. What Tsilhqot’in has not changed is the policy, so to speak, of the Supreme Court as regards the role of the judiciary in relation to the process of reconciliation between Aboriginal peoples and Canadian society. This process must be a good faith negotiation by both parties.

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  • January 1, 2015: no more filling chillers with CFCs

    INTRODUCTIONQuebec regulations create numerous obligations in connection with equipment that poses a risk to the environment. Replacing PCB-containing transformers, for example, or having high-risk oil and gas equipment inspected. Regulatees may be required to file reports, maintain registers or hold permits.From a regulatory perspective, the management of ozone depleting substances is a big file. This article describes Quebec rules on refilling and continued use of chillers that run on CFCs (chlorofluorocarbons).THE PROHIBITIONPursuant to the Regulation respecting halocarbons adopted in 2004 under Quebec’s Environment Quality Act, CFC-operated chillers that were in use on December 23, 2004 had to be replaced or retrofitted to operate with another substance from the time of their first maintenance or major repair occurring after that date.Despite the foregoing, the regulations provide that between January 1, 2005 and December 31, 2014, the grandfathered chillers could be refilled with CFCs for a maximum period of 12 months, provided the owner filed a report with the Quebec government and ceased to run the equipement on CFS within 12 months of the first of these authorized refills.Begining on January 1, 2015, units which will still not have been converted or replaced may no longer may be refilled with CFCs.It is to be noted that under the regulation, the term “chiller” means a refrigeration or air conditioning unit that uses the refrigerant characteristics of a halocarbon to lower the temperature of a secondary cooling liquid circulating in the pipes. A freezing unit is considered to be a refrigeration unit while a heat pump or a dehumidifier is considered to be an air conditioning unit. Also, note that the provisions described in this article do not apply to halocarbons used to operate a household refrigeration or air conditioning unit.PENALTIESEvery person who contravenes the prohibition on CFC refills is liable to an administrative monetary penalty or a penal sanction. Administrative penalty amounts are $1,500 for individuals and $7,500 for legal persons. If the ministry opts to proceed by way of prosecution, fines for individuals range from $8,000 to $500,000. This can be coupled with or replaced by a prison term that can last up to 18 months. For legal persons, fines range from $24,000 to $3,000,000.The penalties described above also apply to every person who operates a chiller with a CFC more than a year after the last authorized refill.CAUTION IS IN ORDERQuebec’s public register for monetary administrative penalties has no entries for the Regulation respecting halocarbons, nor do there appear to have been any provincial prosecutions under this regulation. However, in 2011, a Quebec-based business faced charges under a federal regulation for having illegally imported more than 5,000 tanks filled with halocarbons from China valued at over one million dollars.One may question the liability of the owner of a unit which a specialized contractor has filled with CFCs unbeknownst to him. To be on the safe side, it is important for owners or users of commercial or industrial refrigeration or air conditioning units in Quebec to inquire about the contents of their units and ensure that any contractor retained to inspect, maintain, fill, retrofit or dismantle these units does so in compliance with the law. In any event, the regulation requires owners of refrigeration units to ensure that all components containing halocarbons or designed to contain halocarbons are leak tested once a year.

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