Canadian Business Law Third Edition Tamra Alexander & Pat Papadeas Warning this publication is protected by copyright all rights reserved. it is illegal to modify, copy, distribute, republish, or commercially exploit this publication or any other material in this ebook with- out the prior consent of Emond Montgomery Publications. no in- tellectual property or other rights in and to this publication are transferred to you. Copyright © 2018 Emond Montgomery Publications, Toronto, On. Canadian Business Law THIRD EDITION Tamra Alexander Pat Papadeas Kathryn Filsinger Laurence Olivo Nora Rock Camilla Wheeler Copyright © 2018 Emond Montgomery Publications Limited. NOTICE & DISCLAIMER: All rights reserved. No part of this publication may be reproduced in any form by any means without the written consent of Emond Montgomery Publications. Emond Montgomery Publications and all persons involved in the creation of this publication disclaim any warranty as to the accuracy of this publication and shall not be responsible for any action taken in reliance on the publication, or for any errors or omissions contained in the publication. Nothing in this publication constitutes legal or other professional advice. If such advice is required, the services of the appropriate professional should be obtained. We have attempted to request permission from, and to acknowledge in the text, all sources of material originally published elsewhere. If we have inadvertently overlooked an acknowledgment or failed to secure a permission, we offer our sincere apologies and undertake to rectify the omission in the next edition. Emond Montgomery Publications Limited 60 Shaftesbury Avenue Toronto ON M4T 1A3 http://www.emond.ca/highered Printed in Canada. We acknowledge the financial support of the Government of Canada. Emond Montgomery Publications has no responsibility for the persistence or accuracy of URLs for external or third-party Internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate. Vice president, publishing: Anthony Rezek Publisher: Mike Thompson Director, development and production: Kelly Dickson Developmental editor: Sarah Fulton Production supervisor: Laura Bast Copy editor: Alison Jacques Typesetter: SPi Global Text designer: Tara Agnerian Permissions editor: Monika Schurmann Proofreader: Craig Bateman Indexer: Karen Hunter Cover image: Rawpixel.com/Shutterstock Library and Archives Canada Cataloguing in Publication Alexander, Tamra, 1967-, author Canadian business law / Tamra Alexander [and five others]. Third edition. Includes index. Revision of Canadian business law. 2nd ed. Toronto : Emond Montgomery Publications, 2012. ISBN 978-1-77255-281-2 (softcover) 1. Commercial law--Canada--Textbooks. 2. Textbooks. I. Title. KE919.A75 2018 346.7107 C2017-908073-3 KF889.A75 2018 iii Brief Contents Contents v Preface xi About the Authors xv Chapter 1 Foundations of Business Law in Canada 1 Chapter 2 Resolving Disputes and Navigating Canada’s Court System 31 Chapter 3 Tort Law 65 Chapter 4 Understanding Contracts 103 Chapter 5 Working with Contracts 143 Chapter 6 Facilitating Business, Protecting Consumers, and Safeguarding the Marketplace 167 Chapter 7 Forms of Carrying On Business 209 Chapter 8 Banking, Financing, and Debtor-Creditor Law 263 Chapter 9 Workplace Law 297 Chapter 10 Property Law 363 Chapter 11 Intellectual Property and Business Law in the Digital Age 391 Glossary 423 Index 433 Credits 443 v How Are Business Disputes Resolved? 35 Canada’s Court System 36 The Hierarchy of Courts in Ontario 36 Reducing Cost and Delay 40 The Role of Canadian Courts 40 Dispute Resolution 40 Interpretation of Legislation 40 Constitutional Interpretation and Protection of Rights and Freedoms 41 Review of Government Agencies 42 Litigation 42 The Pre-Litigation Process 42 The Litigation Process in Superior Court (Trial Division) 44 The Litigation Process in the Small Claims Court 45 Civil Court Remedies: Damages 47 Mitigation of Damages 48 Other Remedies 49 Legal Costs 49 Post-Trial Enforcement 50 Alternatives to Litigation 51 Interests and Rights 51 Negotiation 52 Mediation 54 Facilitative Mediation 55 Rights-Based Mediation 55 Transformative Mediation 56 Arbitration 58 3 Tort Law 65 What Is a Tort? 66 The Importance of Tort Law for Business People 67 Vicarious Liability 67 Negligence Act 69 Elements of a Tort 69 Contents Brief Contents iii Preface xi About the Authors xv 1 Foundations of Business Law in Canada 1 Business and the Law 2 Managing Legal Risk 2 Preparing to Learn About Canadian Business Law 3 The Canadian Legal System: A Framework for an Orderly Society 6 Canada’s Two Legal Systems 6 The Canadian Constitution and Other Sources of Law in Canada 7 The Constitution Act, 1867 (formerly the British North America Act, 1867) 7 The Constitution Act, 1982 and the Canadian Charter of Rights and Freedoms 14 Categories of Law 15 Substantive Law Versus Procedural Law 16 Public Law Versus Private Law 16 Legal Aspects of Business Activity 23 The Answer to Every Legal Question 24 Business Law and Business Ethics 25 2 Resolving Disputes and Navigating Canada’s Court System 31 Understanding When Legal Assistance Is Required 32 Providers of Legal Services: Lawyers and Paralegals 32 Lawyers 33 Paralegals in Ontario 33 Customizing Legal Services 34 Retaining a Lawyer’s Services 34 vi CONTENTS Disclaimer (or Limitation of Liability) 126 Entire Agreement 128 Exclusion 129 Force Majeure 130 Governing Law 131 Venue 131 Arbitration 134 Indemnity 135 5 Working with Contracts 143 Formation of a Contract 144 Intention to Create a Legal Relationship 144 Offer and Acceptance 144 Consideration 149 Legality 150 Consequences of a Breach of Contract 151 What Constitutes a Breach of Contract? 151 Breach of Condition or Breach of Warranty? 152 Liability of Directors, Officers, and Employees for a Breach of Contract 153 Damages 154 Duty to Mitigate Damages 155 Punitive Damages 157 Alternative Methods for Performance 157 Unenforceable Agreements 158 Misrepresentation of Material Fact 159 Economic Duress, Undue Influence, and the Unconscionable Agreement 159 Minors 161 Capacity 161 What Can You Do About a Breach of Contract? 162 Ignore the Breach 162 Negotiate a Compromise 162 Use Alternative Dispute Resolution 163 Litigate 163 6 Facilitating Business, Protecting Consumers, and Safeguarding the Marketplace 167 Moving Beyond the Common Law: The Need to Protect Important Societal Interests 168 Why Is Knowledge of These Laws Important to Your Business? 169 Facilitating Business 170 Sale of Goods Act 170 Electronic Commerce Act, 2000 180 Categories of Torts 70 Intentional Torts 71 Intentional Torts Involving Verbal or Physical Aggression 71 Intentional Business Torts 74 Unintentional Torts 78 Definition and Scope of Negligence 78 Elements of Negligence 78 Negligence Torts Common in Business 83 Strict Liability Torts and the Rule in Rylands v Fletcher 88 Intentional or Unintentional Torts 89 Common Business Torts Involving Property 89 Defending Against Tort Actions 92 Failure to Prove the Tort 92 Contributory Negligence 93 Voluntary Assumption of Risk 94 Statutory Compensation Schemes 98 Remedies for Torts 98 4 Understanding Contracts 103 What Is a Contract? 104 Contracts in the Business Context 105 The Importance of Contract Law for Business Success 106 The Importance of Written Contracts 107 Writing a Contract 109 Rules of Construction 109 What Is in a Contract? 110 Standard Form Contracts 110 Missing and Implied Terms 111 Reading the Fine Print: Typical Terms in Business Contracts 113 Identification of Parties 113 Description of Product or Service 114 Quantity 115 Quality 115 Pricing 116 Payment 117 Deadline 119 Liquidated Damages 120 Automatic Renewal 121 Cancellation 122 Condition Precedent 124 Condition Subsequent 124 Deposit 125 CONTENTS vii Directors’ and Officers’ Liability 236 Remedies for Shareholders and Others 238 Sale of a Corporation 240 Dissolution 240 Conducting Business 240 Tax Implications 241 Profits 241 Shareholders’ Agreements 241 Private Versus Public Corporations 243 Creation 243 Advantages and Disadvantages 244 Co-operatives 247 Agency 248 Characteristics of Agency 249 Creating an Agency Relationship 249 Agency and Soon-To-Be-Incorporated Businesses 251 Agency and the Employment Relationship 251 Agency and Partnership 252 Relationships Among Businesses 252 Agency as a Business Relationship 253 Joint Ventures 253 Franchises 254 Licences 257 8 Banking, Financing, and Debtor-Creditor Law 263 What Is Banking, Financing, and Debtor-Creditor Law? 264 The Importance of Banking, Financing, and Debtor-Creditor Law for Business People 266 Banking 266 Negotiable Instruments 266 Credit Cards 269 Electronic Banking 270 Account Agreements 271 Resolving Problems with Your Business’s Bank 273 Financing a Business 274 Debt Financing 275 Equity Financing 279 The Pros and Cons of Equity Versus Debt Financing 280 Debt Collection and Insolvency 281 Creditor Protection 282 Creditors’ Remedies 286 Bankruptcy and Insolvency 288 Protecting Consumers 183 Consumer Protection Act, 2002 183 Collection and Debt Settlement Services Act 189 Consumer Safety 190 Consumer Information 192 Safeguarding the Marketplace 198 Application of the Competition Act 198 Criminal Offences under the Competition Act 199 Reviewable Practices Under the Competition Act (Part VIII) 201 Competition Act Enforcement Options 202 Whistle-Blower Protections and Immunity from Prosecution 203 7 Forms of Carrying On Business 209 What Are Forms of Carrying On Business? 210 The Importance of Choosing a Business Form 211 Sole Proprietorships 212 Creation 212 Legal Characteristics 213 Conducting Business 213 Advantages and Disadvantages 213 Introduction to Partnerships 216 General Partnership 216 Creation 217 Legal Characteristics 217 Conducting Business 218 Advantages and Disadvantages 219 Limited Partnership 221 Creation 221 Legal Characteristics 222 Conducting Business 222 Advantages and Disadvantages 222 Limited Liability Partnership 224 Creation 224 Legal Characteristics 224 Conducting Business 224 Advantages and Disadvantages 225 Partnership Agreements 226 Corporations 227 The Players 227 Creation 230 Legal Characteristics and Liability Issues 234 Application of Charter Protections and Criminal Law to Corporations 235 viii Contents Real Property 373 Interests in Land 373 Agreements of Purchase and sale 374 transfer of ownership 377 Mortgages 377 Commercial Leases 379 Licences 384 Insurance 384 types of Insurance 385 Insurable Interests 386 Coverage 386 11 Intellectual Property and Business Law in the Digital Age 391 Intellectual Property 392 Assignment and Licences 393 Copyright Law 393 scope of Copyright Protection 395 ownership and Assignment of Copyright 398 Moral Rights 399 Patent Law 399 scope of Patent Protection 400 Application for a Patent 403 ownership of Patent Rights 403 Infringement of Patent Rights 404 trademark Law 404 types of trademarks 404 scope of trademark Protection 405 Common Law trademarks 405 Registered trademarks: trade-marks Act 406 trademark Infringement: Causing Confusion 407 Loss of Protection: trademarks that Become Generic 408 trademark Versus trade name 409 trademarks and Domain names 410 Industrial Design Law 411 scope of Industrial Design Protection 411 Registration 411 Infringement 412 trade secrets and Confidential Business Information 412 scope of Protection 413 Duty of Confidentiality 413 Breach of Confidence 415 9 Workplace Law 297 What Is Workplace Law? 298 the Importance of Workplace Law for Businesses 299 threshold Issue: Independent Contractor or employee? 299 the Common Law 301 Hiring 301 ending the employment Relationship 309 statute Law 319 Human Rights in the Workplace 320 Prohibited Grounds of Discrimination 320 employment standards 334 General standards 334 specific standards 335 enforcement 340 Health and safety 340 occupational Health and safety Act 341 Workplace safety and Insurance Act, 1997 345 equity in the Workplace 347 equal Pay for equal Work 347 equal Pay for Work of equal Value 347 employment equity: Fair and Representative employment Practices 348 Privacy in the Workplace 349 PIPeDA and the Protection of Personal Information 349 the Unionized Workplace 351 Union organizing 352 negotiating a Collective Agreement 353 Administration of the Collective Agreement 353 Responsible Business strategies to Avoid Unionization of Your Workforce 354 10 Property Law 363 What Is Property Law? 364 types of Property 364 the Importance of Property Law for Business People 366 Distinguishing ownership from Possession 366 Personal Property 367 Bailment 367 CONTENTS ix Privacy: Safeguarding Personal Information 416 PIPEDA and the Collection, Use, and Disclosure of Personal Information 416 Electronic Communications: Complying with the Law 418 Canada’s Anti-Spam Legislation 418 Glossary 423 Index 433 Credits 443 xi There are several Canadian business law texts available, each with its merits. So when planning began for this third edition of Canadian Business Law , the authors and publisher had to seriously consider what would make this text an appealing option for instructors. After gathering extensive feedback from professors and listening carefully to their concerns, it was clear that for many, the right business law text had not yet been written. They are looking for a student-friendly text with a risk-management emphasis that covers core subjects well and has a clear focus on business applications. Perhaps most importantly, they are looking for a resource that provides introductory level students with what they most need: thorough, practical coverage of the core content that these courses require—particularly at the college level—while avoiding excessive detail or unnecessary legal complexity that can bog students down. We believe that this third edition has achieved that goal, by building on the strengths of the second edition, refining and streamlining that content while adding relevant updates and pedagogy. There are several important features, retained from the second edition, that make Canadian Business Law an indispensable resource both in the classroom and beyond. It allows students to: • quickly review the material covered in each chapter, and prepare for tests and exams, using helpful chapter summaries and exercises. • reinforce critical business lessons through “Case in Point” features. • apply what they have learned to real-world business scenarios using the “Apply Your Knowledge” material at the end of each chapter. Key Features and Structure of the Third Edition While the core content of the second edition remains largely intact, this third edition features some important revisions and new features, most notably: • a new, recurring case-study, focussing upon a small, fictional start-up (Val-Nam Generation Limited), that evolves over the 11 chapters of the book, addressing different aspects of business law as the company grows and faces new challenges. • a new chapter examining many central business considerations that have emerged in the 21st century: Intellectual Property and Business Law in the Digital Age. Preface xii PREFACE • a new presentation of contract law material; the lengthy chapter in the second edition has now been divided into two shorter, more focused chapters. • an increased emphasis on a risk management perspective • streamlined coverage of certain legal matters, with excessive details removed. • more visual appeal, photos, and graphics. The book’s structure has also been revamped from 9 to 11 chapters, meaning that it now maps better to a typical one-semester course, while remaining relatively concise. The order of material has also been fine-tuned, to create a smoother and more logical flow: Chapter 1, renamed Foundations of Business Law in Canada, retains a focus on laws, lawmakers, and the sources of law, providing a valuable introduction to Canada’s legal system and the key legal aspects of business, as well as introducing the concept of legal risk management. Chapter 2, Resolving Disputes and Navigating Canada’s Court System, describes the court system and legal processes, and explores the value of various forms of alternative dispute resolution to businesses. Chapter 3, Tort Law, explains the legal risks associated with negligence and other types of harms that can result from business activity, and addresses various ways to protect one’s business. Chapter 4, Understanding Contracts, provides a basic understanding of the elements of a legal contract, noting pitfalls to avoid and potential legal risks. Chapter 5, Working with Contracts, builds on the previous chapter while addressing the most common types of issues that arise from business agreements, and discusses how to handle various legal scenarios and mitigate risks. Chapter 6, Facilitating Business, Protecting Consumers, and Safeguarding the Marketplace, expands on the scope of coverage in the second edition. It not only discusses how businesses comply with consumer protection legislation such as the Sale of Goods Act , the Consumer Protection Act , and the Competition Act , but also explains the role of key federal and provincial statutes. Chapter 7, Forms of Carrying On Business, explains the advantages and disadvan- tages of the different types of business organizations, such as sole proprietorship, partnership, and corporation. Chapter 8, Banking, Financing, and Debtor–Creditor Law, explains the legal aspects of financing a business and debt collection. Chapter 9, Workplace Law, introduces the many laws governing the employment relationship, including union and non-union workplaces, and with particular attention given to issues such as equity, privacy, and wrongful dismissal. Chapter 10, Property Law, focuses on personal property and real property, examining a company’s various rights and obligations in both owning and being in possession of property, and describing how businesses can protect their legal interests. Chapter 11, Intellectual Property and Business Law in the Digital Age, picks up where the previous chapter left off, presenting the legal issues and business consider- ations of contemporary businesses, including protecting trademarks, copyrights and PREFACE xiii patents, avoiding infringements, safeguarding confidential business information, and complying with new regulations dealing with customer information and privacy. Acknowledgments We authors, along with the publisher, wish to thank the following people who provided their constructive feedback and suggestions during the development stages of this revised text and its supplemental teaching materials: Peter Bowal, University of Calgary; Mike Bozzo, Mohawk College; Audel Cunningham, Humber College; Richard Gasparini, Seneca College; Christine Gigler, Sheridan College; David Hughes, Thompson Rivers University; Peter Inkpen, College of the North Atlantic; Kristine Jeffels, Bow Valley College; Ilias Kiritsis, Barrister and Solicitor; Tammy Kiss, College of the Rockies; Greg Libitz, St. Lawrence College/Queen’s University; Susan Lieberman, Humber College; Eric Pelot, Algonquin College; Dan Shear, University of Toronto; Elaine Smith, Humber College; Bruce Stewart, IBT College; and Deirdre Way, Loyalist College. The text is greatly enhanced by the contributions of Nora Rock, Camilla Wheeler, Laurence Olivo, and Kathryn Filsinger. Their collective expertise is a strength maintained from the second edition. We wish to thank them for their continued collaboration. We would also like to express our appreciation to the team at Emond Publishing that continually encouraged us and kept us on task—thanks to Mike Thompson, Kelly Dickson, Sarah Fulton May, Alison Jacques, and Laura Bast. Thanks also to Margaret Buchan and Dionne Coley for their contributions to earlier editions. Finally, thank you to our students who inspire us to continue to develop better resources, our colleagues who share new ideas and approaches, and our families who support us through it all. Tamra Alexander, Algonquin College Pat Papadeas, St. Clair College For Instructors A full package of supplemental teaching materials is available to any instructor who has adopted this text for his or her course. These include an expanded test bank; PowerPoint presentations; instructor’s guide with answers to end-of-chapter questions and exercises; and an expanded offering of “Apply Your Knowledge” business scenario questions, in addition to those in each chapter, that appear only in the teaching supplements, thereby allowing instructors to present and challenge their students with fresh, unseen scenarios. For more information and additional teaching resources, including live links to the “Dig Deeper” material that is highlighted in the margins of selected passages in the text, please visit the accompanying website for this book at www.emond.ca/cbl3 or contact your Emond Publishing representative. xv Tamra Alexander coordinates the Paralegal program and teaches in the Paralegal and Law Clerk programs at Algonquin College. Prior to joining the faculty at Algonquin, she taught law at the University of New Brunswick and the University of Ottawa, and was a competition law and international trade law lawyer with Stikeman Elliott. She has a BA (Hons) from the University of Toronto in International Relations and Economics and an LLB, also from the University of Toronto, as well as a Master of Law from McGill University. She has represented clients before appellate courts, federal tribunals, and binational panels constituted under NAFTA. Pat Papadeas has an LLB from the University of Windsor (1990) and was in private practice prior to joining the faculty at St. Clair College in 2002. She is the course developer and instructor of Business Law, Employment Law, and Law and Ethics in the Information Age, and is a Coordinator of International Business Studies. She developed the curriculum for the Paralegal Program, and developed an applied learning model that was awarded the Law Foundation of Ontario’s Community Leadership in Justice Fellowship. She has been a member of Academic Council, Chair of the Academic Integrity Committee, and St. Clair College’s Board of Governors. Pat has led numerous faculty-training workshops and has been an academic advisor to many student clubs, including varsity athletics, for which she received the Jack Costello Exceptional Service Award. Contributors Kathryn J. Filsinger (Chapter 9) is a professor in Humber College’s Human Resources Management Degree Program. She teaches employment law in the HR degree and postgraduate HRM programs, as well as labour relations and human resources management. Previously she has taught employment law at both Ryerson and York Universities. Kathryn holds a BA (magna cum laude) from Queen’s University, an LLB from the University of Toronto, and an LLM from Osgoode Hall Law School. Laurence M. Olivo , BA, MA, JD (Chapters 2 and 8), is a lawyer and was a professor in the Faculty of Business, Seneca College, for over 30 years, with experience in post-secondary teaching in a variety of college programs, and in the Law Society of Ontario’s Bar Admission program. His legal practice experience included civil litigation and family law, as well as policy development work with the Ontario Ministry of the Attorney General. He is the author of more than 15 texts in various areas of law and has developed specialized online courses for use by post-secondary institutions. He currently sits as a Small Claims Court Judge in Richmond Hill. About the Authors xvi ABOUT THE AUTHORS Nora Rock (Chapter 3) is an Ontario JD (lawyer) working as the corporate and policy writer for LawPRO, the Lawyers’ Professional Indemnity Company. Nora is author/co-author of several texts for high school, community college and university, as well as two novels for young adults. Camilla Wheeler (Chapters 4 and 5) is a faculty member at Toronto’s George Brown College in its Office of Academic Excellence. Following a successful career as a litigation lawyer she transitioned into post-secondary education, initially teaching law courses and then moving into curriculum support and quality assurance roles. Currently, she leads comprehensive reviews of a range of George Brown vocational programs, resulting in evidence-based recommendations designed to ensure government standards and the changing needs of students, industry, and community partners are met. Camilla has a Bachelor of Laws degree from the University of Toronto and a Master of Education (IT) degree from Memorial University.