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BattleCAN-Business Association

Business Association BattleCAN
Graded on an application of the law
o Awareness of the issues and legal principles
o Application of legal principles to the problem
o Formulation of legal arguments
Road Map
o Identify the issue(s) and sub-issues
o Explain the law/legal principles governing each issue/sub-issue
 Cite the applicable provision and point out the relevant caselaw explaining the test
o Apply the law to the facts
 Develop legal arguments from the law/legal principles
 If necessary, contrary legal arguments should be formulated
 Not arguments of both parties
o Resolve the issue
 Arrive at a considered conclusion
1. Is there a Partnership – PA, s.1(g)? [pg. 5]
 Were they “Carrying on Business” (Khan)?
 Did they embark on the activity in question?
 Took positive preparatory steps?
 Were they acting “in Common”?
 Did they go into business together?
 Look at Factors in CAN pg. 6
 Did they have “a view to profit”
 Was the objective evidence (what the parties did) consistent with the subjective intention to carry on
a business with a view to profit (Backman)?
 it is sufficient to show that there was an ancillary profit-making purpose – does not need to be
predominant intention (Backman)
 Does not require a net gain (Spire Freezers)
 Does it fall within “What doesn’t make a partnership” – PA, s.4?
 Joint tenancy
 Contract for enumeration
 Debt payments
 A person surviving a partner
 Gross revenue
 Sharing profit
 There is a presumption that the receipt by a person of a share of the profits of a business is a prima facie
Note: A list of relationships that may indicate a partnership is located on page 6 of the CAN
2. What type of partnership is it and did they meet any special requirements?
 Ordinary Partnership
 Have a right to management – PA, s.56
 Are liable jointly for the debts and obligations of the partnership – PA, s.11(2)
 Are liable jointly and severally (PA, s.15) for loss or injury cause by the partnership (PA, s.13) and
misapplication of money (PA, s15 with s.13 & s.14)
 Is the partnership trading, manufacturing, contracting, mining?
S. Williams
Business Association BattleCAN
 Declaration may be required – PA, s.106
 Limited Partnership
 Consists of:
 One or more person who are general partners, and
o Same powers as an ordinary partner (i.e. management) – PA, s.56
o List of Rights and Liabilities on Page 8 of the CAN
 One or more persons who are limited partners – PA, s.51(2)
o Allowed to have any number of LP – PA, s.51(3)
o List of Rights and Liabilities on Page 8/9 of the CAN
 Limited Liability Partnership
 Designed for “eligible professions” – PA, s.81/82
 Requires registration  ordinary partnership prior to applying – PA, s.82
3. Identify relevant issues (Statute  Caselaw  apply the facts
 Limited Partnership – Did they complete the formation?
 Filing a certificate – PA, s.52(1)
 Certificate must be signed by all partners – PA, s.52(3)
 Content of certificate – PA, s.52(3)
 Limited Partnership – Did a General Partner Die?
 Common law dissolves partnership if a GP dies, PA allows a certificate to include a clause that the
partnership would not dissolve on death – PA, s.67
 Were any of the limited partners also a GP  they can take over – PA, s.53(1)
 Limited Partnership – Does an LP Partner name appear in the firm name?
 If yes, this is a breach  consequences outlines in PA, s.54(2)
 Limited Partnership – did they register as an LLP? If yes, it’s a breach of PA, s.82(3)
 Limited Liability Partnership – Was there an error in the content of the registration?
 Requires – PA, s.82(4)
 Name of partnership
 Eligible profession
 Name and Address of the partner designated as the rep of the LLP
 Address of the registered office of the LLP
 A statement from a person authorized by the governing body of the profession certifying
o Partners have insurance
o Partners meet all other requirements
 Limited Liability Partnership - did the LLP fail to provide notice to its clients? If yes, it is a breach of PA,
 Did the Partnership Sign an Agreement? If No, Default rules of the Act apply
 See page 10 of the CAN for list of Default Rules
 Did the Partnership breach their fiduciary duty to each other?
 Relationship of utmost good faith and loyalty (Micknight, Rochwerg, Green)
 Partners must avoid conflict of interests
 Fiduciary duty is strict
 Partnership property applied exclusively for purposes of Partnership – PA, s.32
 Accountability of partnership regarding all things affecting the partnership – PA, s.32
 Account by partner competing with firm – PA, s.34
S. Williams
Business Association BattleCAN
 See Page 11 of the CAN for full list of codified and common law duties
 Did the Partnership have an issue with a 3rd party?
 See page 12 of the CAN for full list of obligations and liabilities to 3rd party
 CANNOT contract out of these provisions
 NOTE: an LLP partner is not individually liable of another partner or employee, agent, etc. unless they
had knowledge, PA s.12(2)
 Was there a dissolution of the Partnership?
 See page 13 and 14 of CAN for list of what constitutes dissolution
 If not, did one partner continue carrying on business
4. Move on to the Next Issue
1. Is there a Franchise?
 Is there a Franchise Agreement?
Note: Agreement cannot contract out of Act purpose is to protect the franchisee
 Was there disclosure?
 Did it occur at least 14 days prior to signing – FA, s.4(1-2)
 Did it include the required documents – FA, s.4(3)
 Requires disclosure of all material facts related to matters set out in Schedule 1-Reg 2(1) (Essa)
 See page 15 and 16 of CAN for full list
 Exemptions for s.4 found in s.5
2. Is there a breach of Fair Dealing by either party?
 Good Faith (Essa)
 Acting in accordance with reasonable standards (Katotikidis)
3. What Remedies are available (identify the law  Caselaw  apply to the facts)
 Can the Franchisor Rescind?
 Did the Franchisor fail to provide the disclosure document?
 If defective it is the equivalent of failing to provide (Essa)
 Did the Franchisee give notice – FA, s.13
 (a) No later than 60 days after receiving disclosure document?
 (b) No later than 2 years after the fanchisee is granted the franchise
4. Do the Franchisor have a defence to misrepresentation?
 Franchisor proves that the Franchisee purchased the franchise with knowledge of the misrepresentation
– FA, s.10
 Protection for other person under FA, s.10
i. See page 19 of CAN for full test
5. What Remedy would you recommend.
6. Conclude and Move on to the Next Issue
S. Williams
Business Association BattleCAN
1. Is there a Corporation?
 Are there any issues with the name
 Prohibited Names – ABCA, s.12 [see pg. 21-22 of Can for rules]
 Too similar & vague (Merchant)?
 Reasonable chance confusion could arise (Paws Pet Food)?
 Was there a certificate of incorporation issued?
 Corporation comes into existence on the date shown in the certificate of incorporation – ABCA, s.9(1)
 Not a separate legal personality until incorporated
 This is conclusive proof that the provisions of the act have complied with ABCA, s.9(2)
Note: A corporation is:
- a separate legal personality from its shareholders (Salomon)
- has perpetual existences
- has same powers as a natural person – ABCA, 16(1)
2. Identify Relevant Issues (Apply Statute  Caselaw  apply the facts)
 Is there a pre-incorporation contract?
 Was the contract oral?
 If Yes, Common Law rules Apply (Huang)
o Corporation NOT liable for pre-inc. contract even if it purports to adopt after incorporation
o An Agent may be personally liable (Kelner) depending on intention of the parties (Black)
o verbal opposition to personal liability is enough – intention didn’t exist (Huang)
 Was the contract written?
 If yes, statute applies.
o Did the Corporation come into existence within a reasonable time – ABCA, s.15(2)(a)(i)?
o Was the Contract adopted within a reasonable time – ABCA, s.15(2)(a)(ii)?
- Corporation can adopt by any act or conduct signifying its intention to be bound –
ABCA, s. 15(3), includes:
 Solicitor’s Letter (Sherwood Design)
 Commencing action (1394918 Ontario)
 May need to be the act of the corporation itself through an officer, director,
employee or agent (Sherwood [dissent], Huang)
- If adopted, the corporation is bound by the contract and agent ceases to be personally
liable – ABCA, s.15(3) and entitled to the benefits as if it had been a party to the
contract (1394918 Ontario)
o Was there an express term exempting personal liability – ABCA, s.15(5)?
o Person who enters into the contract is liable to the other party for damages resulting from a
breach of warranty if the above are not met – ABCA, s.15(2)(b)
 Should the Corporate veil be lifted?
 Extensive Control Approach
 Is the shareholder the head and brain of the corporation (Smith)?
o See page 24 of CAN for criteria
o Controlling shareholder direct aa wrongful act to be done – i.e. financial commitment/no
assets (642947 Ontario)
S. Williams
Business Association BattleCAN
o Mere sham or shell or agent for controlling shareholder to avoid liability (Gilford Motor)
 Purpose of incorporation/use Approach (AB Gas Ethylene)
 Was the corp. incorporated or used for improper/illegal purpose (Big Bend)?
o Used to commit fraud (Big Bend)
 Statutory Exceptions
 Directors are jointly and severally liable for employee wages – ABCA s.119(1)
 UNLESS – ABCA s.119(2 - 4)
(1) director subjectively believes on objective grounds corporation can pay the debts as they
fall due, or
(2) the debts payable are services performed while the property of the corp. is under
control of a receiver, manager, or liquidator
 Shareholders are liable for wages if they strip management/director of powers and obligations
with a USA (unanimous shareholder agreement)
 Do the directors or officers have a Fiduciary Duty and to whom? [pg. 32]
 ABCA, s.122(1)(a) creates a duty on directors and officers to act honestly and in good faith with a
view to the best interests of the corporation
 Duty is owed exclusively to the corporation (Peoples)
 Best interest of corporations includes interests of: shareholders, employees, suppliers,
creditors, consumers, governments and environments (BCE)
 Directors do not owe a fiduciary obligation to creditors (Peoples)
 General characteristics of a fiduciary duty
o Directors have management powers and discretion
o Can exercise power and discretion in a manner that affects the corporation
o Corporation is vulnerable to the directors
 The directors duty does not change when a corporation is in the nebulous vicinity of insolvency
 Is there a breach of fiduciary duty? [pg. 32]
 Was there a conflicts of interest?
 Cannot compete with a company while they are a director
 Duty to avoid actual conflict and potential conflict (Sports Villas)
 An inquiry into whether a director is competing with a company must take into account the full
context and circumstances (Sports Villa)
 Did the Director take or appropriate a corporate business opportunity for their own personal
purpose (self-dealing transaction)?
 Directors cannot engage in self-dealing transactions
 Did the Director or Officer have a duty to disclose their interest – ABCA, s.120(1)?
o Note: Disclosure does not relieve director of fiduciary duty (UPM)
o Directors and Officers have a duty to disclose interest if they are:
- Party to a material contract or transaction,
- Director or officer of a party to the contract or transaction, or
- They have a material interest in a party to the contract or transaction.
 “Material Interest” is not defined in ABCA, includes
o Financial interest  more than insignificant (Dimo)
o Non-Financial interest  whether the Director was to benefit more than de
minimus (Zysko)
S. Williams
Business Association BattleCAN
o Any personal relationship (Zysko)  any relationship that might be thought
to be an inhibiting factor (Prof. Welling)
- D&O are obliged to disclose any interest they have in a material contract or transaction
- They Cannot enter into engagements in which their person interest is conflicting with
the interests of the corporation (Aberdeen Railway)
 Did disclosure meet the requirements?
o Was it (1) in writing or (2) entered into the minutes of the directors meetings – ABCA,
o Was disclosure made in a timely manner – ABCA, s.120(2)(3)&(4)?
- Must disclose when they become aware (have knowledge) of the transaction
 Contract is met IF – ABCA, s.120(8):
o Disclosure was made in accordance with ABCA, s.120
- Not invalidated when non-compliance of disclosure: if director acted honestly and in
good faith – ABCA, s.120(8.1), and the transaction was approved or confirmed by
special resolution at a shareholder meeting (Northwest Transportation) however,
 Disclosure must be met prior to approval, and
 Contract must be reasonable and fair – ABCA, s.120(8.1)(b)&(c)
o Board of directors or shareholders approve contract after disclosure, and
o Contract or transaction was fair and reasonable to the corporation
o Director who disclosed did cannot vote – ABCA, s.120(6)
- EXCEPT: Directors other company is lending money to this corporation, or
- Contract is related primarily to the director’s remuneration
 Taking Corporate Opportunities
 Directors and officers are not allowed to take or appropriate a business opportunity for their
personal business which belongs to the corporation (Cook)
 Business opportunities belong to the corporation even if there is some impediment to the
corporation obtaining the opportunity (Regal)
 EXCEPT When the corporation interest in a claim has ceased and the corporations are acting in
good faith as members of the public then they can pursue the claim (Peso)
 Former directors cannot take corporate opportunities where
(1) the resignation was prompted by a wish to acquire the opportunity, or
(2) it was their position with the company rather than a new initiative that led to the
opportunity (Canadian Aero)
o Factors for determining whether the taking of the opportunity was a breach
- See page 35 of your CAN for a list
 Maintain confidentiality gained from the position (Peoples)
 Failing to serve the corporation selflessly, honestly, and loyalty (Peoples)
 Do they have a Duty of Care? [pg. 36]
 Did the Directors or Officers exercise their powers and discharge their duties with care, diligence and
skill that reasonable prudent person would in comparable circumstances – ABCA, s.122(1)(b)?
 The directors duty applies to creditors and other stakeholders (Peoples)
 No exculpation  cannot contract out of the statutory duty – ABCA, s.122(3)
o Subject to a USA that strip directors of powers and transfers to shareholders – ABCA,
S. Williams
Business Association BattleCAN
 Special consideration: a director may give special, but not exclusive, consideration to the
interests of those who elected or appointed the directors  reminder: one class of shares can
elect directors if in the articles of incorporation [see multiple classes of shares – ABCA, s.26(4)
page 27 of CAN]
 Did the Breach meet the Standard of Care? [pg. 36]
 Did they act prudently and on an informed basis (Peoples &ABCA, s.122(1)(b))?
 If directors did not engage in any kind of analysis this duty is not met (UPM)
 Imposes a minimum standard of competence (an objective standard)
 Directors must be diligent (see page 36 of the CAN for a list of how to meet diligence)
 Common Law Duty of Care [different than statutory duty]:
 Subjective standard (knowledge  each director judged differently)
 Required only to exercise the care that may be expected from a person with their knowledge
and experience – No competency requirement (Brazilian Rubber)
3. Are there any defences available? [pg. 37]
 USA Defence [Applies to Fiduciary Duty and Standard of Care]
 Directors are relieved of duties/liabilities if powers have been transferred to shareholders through a
USA – ABCA, s.146(7)
 Reasonable Diligence and Good Faith Defence [Applies to Fiduciary Duty and Standard of Care]
 Directors comply with their duties under s.122 if they rely reasonably and in good faith on financial
statements presented by an officer or auditor, or a report by a lawyer, accountant, engineer, etc. –
ABCA, s.123(3)
 Business Judgment Rule (BJR) [Applies ONLY Standard of Care]
 Not in breach if they act prudently and on a reasonably informed basis (Peoples)
 Not measured against hindsight (CW shareholding)  look at decisions @ time it was made
 Objective standard
 Must be an informed decision – does not matter if it turned out to be wrong (UPM)
Note: Shields reasonable business decisions from court decisions  do not want to subject directors
decisions to microscopic examination (UPM, CW)
 Indemnification of Directors [pg. 38]
 Protects Directors against all costs, charges, and expenses reasonably incurred in respect of legal
proceedings – ABCA, s.124(1)
 Did the Directors or corporation apply to the court for an order approving the indemnity ABCA,
 Are the entitled to indemnify? Must have:
o Acted honestly and in food faith with a view to the best interest of the corporation, and
o had reasonable grounds for believing their conduct was lawful – ABCA, s.124(1)
o Directors have the right to indemnify in certain circumstance – ABCA, 124(3)
 Not entitled if:
o Committed a tort outside their formal roles  they become personally liable (Scotia
o Or a tort in their course of duties (ADGA Systems)
4. What Remedies are available (identify the law  Caselaw  apply to the facts)?
 Consequences of Failure to Disclose on a director/officer  Breach of Fiduciary Duty [pg. 33]
S. Williams
Business Association BattleCAN
 Court may – ABCA, s.120(9)
 Set aside contract on terms it sees fit (Exide),
 Require the director or officer to account to the corporation any profit or gain realized on the
contract (Exide), or BOTH.
 Derivative Action [pg. 38]
(1) Is the person a complainant – ABCA, s.239(1)(b)?
 Statutory Complainant?
 a registered holder or beneficial owner of a security [former or current],
 director or officer[former or current],
 Creditor
 Discretionary Complainant?
 Is there evidence the directors committed a fraud on the corporation,
 corporation is liable to the applicant,
 the applicant is a proper person (First Edmonton)
(2) Do they have leave of the court – ABCA, 240(1)
 Did the complainant provide proper notice – s.240(2)(a)?
 Was is reasonable notice [objective test] ABCA, 240(2)&(3)
o Failure to specify each cause of action does not invalidate the notice as a
whole (Bellman)
o Notice to directors is not required when all directors are named a defendant
– ABCA, s.240(3)
o Notice does not need specify all of the legal bases for the claim
 Acting in Good faith – s.240(2)(b)?
 Does the complainant believe in the merit of there case (O’Fearghail)?
 Have they shown that there is an arguable case (Bellman)?
 Has the complainant shown that the action is in the best interests of the corporation –
 Have they shown there is an arguable case (Bellman)
 Oppression [pg. 40]
(1) Is the person a complainant – CBCA, s.239(1)?
 Statutory Complainant?
 a registered holder or beneficial owner of a security [former or current],
 director or officer[former or current],
 Creditor
 Discretionary Complainant?
 Is there evidence the directors committed a fraud on the corporation,
 corporation is liable to the applicant,
 the applicant is a proper person (First Edmonton)
(2) Is there oppression (BCE)?
 Identify the reasonable expectations of the breach (objective and contextual)
 Was it breached?
 Did it amount to oppression, unfair prejudice, or unfair disregard – s.242(2)?
 Only need to prove one – definitions in BCE
5. What Remedy would you recommend.
S. Williams
Business Association BattleCAN
 Remedies for Derivative Action
 Any order it thinks fit (discretionary party), including – ABCA, s.241?
 Authorizing complainant (or any other person) to control the conduct of the action
 Giving directions for the conduct of the action
 Directing that any amount adjudged payable by a defendant in the action shall be paid
 Directing corporation or subsidiary to pay legal fees incurred by complainant
 Remedies for Oppression
 Can only order rectification
 Court may make any order to rectify the matters complained of – ABCA, s.242(2-3)
 Cannot be a punitive remedy (Neneff)
 See CAN for list of potential orders – ABCA, s.243(3)(q)
6. Conclude and Move on to the Next Issue
S. Williams