Published by the Business Law Group
McCarthy Tétrault FRANÇAIS VOL.5,
Business Law Quarterly

Welcome to Volume 5, Issue 4 of McCarthy Tétrault Co-Counsel: Business Law Quarterly (September — November 2010). This publication has been created to give our clients a picture of what is going on in business law and, most importantly, what it means to them. All the authors listed, as well as all their colleagues at McCarthy Tétrault, are happy to answer your questions and discuss the issues raised in the articles. If you have any general questions or comments about this issue of the Business Law Quarterly, please contact the Managing Editors, Benjamin Silver and Robert Stephenson.


BCSC Proposes Amendments to NI 45-106 to Require Additional Disclosure From Issuers Raising Capital Under Prospectus Exemptions
The British Columbia Securities Commission (BCSC) published for comments amendments to National Instrument 45-106 – Prospectus and Registration Exemptions that would introduce a new Form 45-106F6 British Columbia Report of Exempt Distribution to replace the current Form 45-106F1 Report of Exempt Distribution. The new form would require enhanced disclosure from issuers that complete a distribution exempted from the prospectus requirements under applicable securities legislation, often referred to as private placement.

Assessing Capital Structure Before an Initial Public Offering: Factors Considered by the Canadian Securities Administrators
The Canadian Securities Administrators (CSA) published Staff Notice 41-305 - Share Structure Issues – Initial Public Offerings on September 24, 2010, in order to provide indications to IPO candidates and their advisors as to the factors the securities regulatory authorities will consider when assessing the proposed share structure of an IPO candidate.

CEOs at Risk for Public Company Press Releases
A recent decision of the Ontario Securities Commission (OSC) concerning the responsibility of a CEO for his company’s 2003 press release, which contained information concerning an accident and its effect on third-quarter earnings results, has received considerable press comment.

Implementation of Point of Sale Disclosure for Mutual Funds
On October 8, 2010, the Canadian Securities Administrators ("CSA") published the Implementation of Stage 1 of Point of Sale Disclosure for Mutual Funds. This notice of amendments contains changes to National Instrument 81-101 Mutual Fund Prospectus Disclosure, Form 81-101F1 Contents of Simplified Prospectus, Form 81-101F2 Contents of Annual Information Form, and Companion Policy 81-101CP Mutual Fund Prospectus Disclosure. New Form 81-101F3 Contents of Fund Facts Document is part of the amended Instrument. The Instrument only applies to mutual funds subject to National Instrument 81-101 Mutual Fund Prospectus Disclosure.

CSA Introduces International Investment Fund Manager Exemption
Canadian Securities Administrators (CSA) Notice 31-320, published October 15, 2010, proposes amendments to National Instrument 31-103 Registration Requirements & Exemptions (NI 31-103) and its companion policy that introduce an international investment fund manager registration exemption. The Notice also proposes an exemption from registration for domestic fund managers (for non-principal regulators) and foreign fund managers meeting certain conditions, as well as other minor changes to NI 31-103. Comments are requested by January 13, 2011. Market participants are reminded that investment fund manager registration requirements are scheduled to apply to foreign fund managers and domestic fund managers (in addition to the jurisdiction in which their head office is located) by the end of September 2011.

Public Company Disclosure & Corporate Governance

Reaction to CSA’s Proposed Amendments to the Beneficial Owner Communication Process
In April 2010, the Canadian Securities Administrators (CSA) published a notice and request for comments on proposed amendments to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101) and other related instruments and policies designed to improve the beneficial owner communication process. A discussion of the notice and request for comments may be found in our article CSA Proposes Amendments to Streamline Communication with Beneficial Owners

SEC Reviews the Role and Regulation of Proxy Advisory Firms
The U.S. Securities and Exchange Commission (SEC) recently issued a concept release on the US proxy voting system in the United States that discusses, among other topics, the role and regulation of proxy advisory firms and proposed regulatory reforms related to them.

CSA Staff Certification Compliance Update
On October 15, 2010, the Canadian Securities Administrators (CSA) published in Staff Notice 52-327 its review of the annual management’s discussion and analysis, as well as the annual certificates filed by a sample group of reporting issuers in 2009 to assess compliance with National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (the Certification Rule). Overall, the CSA states that the results indicated moderate improvement in compliance compared to its 2008 review, but that progress can still be made.

Public Companies Should Consider Amending Stock Option Plans Prior to 2011 to Reflect Income Tax Withholding Requirements
The 2010 Federal Budget includes provisions affecting employee stock option plans. One such budget provision "clarifies" that after 2010, employers will be required to make source deductions in respect of employee stock option benefits to ensure that an amount on account of tax on the value of the taxable benefit associated with the issuance of securities is remitted to the government by the employer. Amendments to the Income Tax Act will provide that, for the purposes of the withholding requirement, the employment benefit realized by an employee on the exercise of a stock option must be determined as if it were paid as a cash bonus. This amendment will apply to benefits arising on the issuance of securities after 2010, which delay was said to provide time for businesses to "adjust their compensation arrangements and payroll systems."

Gender and Ethnic Diversity in the Boardroom and in Business
In our last issue of the Business Law Quarterly, we summarized the findings of a Canadian Institute of Chartered Accountants (CICA) report dealing with diversity among boards of directors and emphasized the strategic importance for all organizations to build diversity into their organizations. In this issue, we draw your attention to a recent speech by U.S. Securities and Exchange Commissioner Luis Aguilar, who spoke frankly about the lack of diversity in the corporate boardroom and within government agencies.

Mergers & Acquisitions

Court Dismisses Opposing Minority Shareholders’ Appeal on Magna’s Plan of Arrangement
On August 30, 2010, the Ontario Divisional Court upheld a lower court ruling approving a plan of arrangement involving Magna International Inc. and its shareholders. The decision provides useful guidance as to the legal principles applicable when seeking court approval of a plan of arrangement used to collapse a dual-class share structure, and, in particular, the significance that the courts will be prepared to accord to the outcome of a shareholder vote in appropriate circumstances.

Background to the UK Takeover Code
The United Kingdom City Code on Takeovers and Mergers (the Code) is a statutory set of rules that shapes the form, structure and timetable of all takeover offers and other merger transactions it regulates. The Code rules are administered by the Panel on Takeovers and Mergers (the Panel), a body of representatives of financial institutions and professional bodies.

Corporate Law

The Business Corporations Act (Québec) will come into force on February 14, 2011
The Minister of Finance and Minister of Revenue, Raymond Bachand, announced on November 3, 2010 that the Business Corporations Act will come into force on February 14, 2011.

Changes in the Not-for-Profit/Charitable World
We previously reported on the new Canada Not-For-Profit Corporations Act (CMPCA). This is an update with respect to this new act, which received Royal Assent on June 23, 2009 but is not yet proclaimed in force. The Province of Ontario is also reforming its not-for-profit legislation. On May 12, 2010, Ontario introduced Bill 65, the Not-for-Profit Corporations Act. Once this bill becomes law, it will replace Part III of the Corporations Act that currently governs Ontario not-for-profit corporations.

Who Owns a Québec Partnership?
In Ferme CGR Enr., s.e.n.c. (Syndic de) 2010 QCCA 719, the Québec Court of Appeal decided that it is not necessary to put the partners of a Québec general partnership into bankruptcy when the partnership itself is put into bankruptcy. In doing so, the court initially relied upon authorities interpreting the relevant provisions of the Bankruptcy and Insolvency Act. In addition, the court supported its decision with an analysis of the legal nature of Québec general partnerships and, as a result, modified the ownership structure of partnerships in Québec.

Competition Law Update

Investment Canada Act: Minister of Industry Announces BHP Acquisition of Potash Corp Not of Net Benefit
On November 3, 2010, Industry Minister Tony Clement announced that the proposed $38-billion acquisition of Potash Corporation by BHP Billiton was not likely to be of net benefit to Canada under the Investment Canada Act.

Environmental Law Update

Syncrude — $3 Million Creative Sentence
As we reported earlier, on June 25, 2010 Syncrude Canada Ltd. was found guilty on two charges arising out of the death of approximately 1,600 ducks in its settling pond in Northern Alberta. The charges were brought pursuant to Alberta’s Environmental Protection and Enhancement Act (EPEA) and Canada’s Migratory Birds Convention Act (MBCA). Both the EPEA and the MBCA provide statutory "due diligence" defences. Syncrude raised a number of additional defences including an act of God, abuse of process and officially induced error.

Immigration Law Update

Sanctions, Restrictions and Corporate Immigration — Upcoming Changes to the Temporary Foreign Worker Program
Changes to the Temporary Foreign Worker Program, including hard caps on the length of time temporary foreign workers can stay in Canada and new sanctions against employers who fail to comply with their commitments to temporary foreign workers, are slated to take effect on April 1, 2011. Companies would be well advised to prepare for the changes now, starting with conducting an immigration audit of their existing workforce in Canada.

Litigation Law Update

European Court of Justice rules that no privilege attaches to communications with in-house counsel in European Commission’s competition investigations
On September 14, 2010, the European Court of Justice, Europe’s highest court, ruled that communications between a company and its in-house lawyers are not covered by legal professional privilege (i.e., solicitor-client privilege in Canada) when the company comes under investigation by the European Union competition authorities.

Pension Law Update

The State of Ontario Pension Reform
On October 29, 2010, Bill 120, the Securing Pension Benefits Now and for the Future Act, 2010, the second phase of pension reform, was released. The first phase, Bill 236, the Pension Benefits Amendment Act, 2010, had received Royal Assent on May 18, 2010. These bills are legislative responses to the November 2008 Report of the Expert Commission on Commissions. Regulations for both, which should provide many of the missing details, are still outstanding.

Technology Law Update

Governments of British Columbia and Québec Announce Changes to Generic Drug Pricing
In our June 2010 Legal Update we reported that the Ontario Ministry of Health and Long-Term Care had announced amendments to its drug reimbursement and drug interchangeability regulations that impacted, among other things, prices for generic drugs in the province. The Governments of both British Columbia and Québec have also recently announced reforms that will impact generic drug pricing in those provinces.

With "One-Click," Business Methods Are Patentable in Canada
In a decision of the Federal Court of Canada released on October 14, 2010,, Inc. v. Canada (AG), the court allowed an appeal from a ruling by the Commissioner of Patents that had originally denied a patent application by Inc. for its pervasively successful one-click online ordering technology. The Commissioner had held that the subject matter of Amazon’s application did not qualify as patent-eligible subject matter under the Patent Act. In overturning this finding, the court instead held that the Commissioner had applied wrong legal tests in rejecting Amazon’s patent application, and articulated a new test that does not preclude computer-implemented innovations and business methods from being patented in Canada if they are directed to subject matter that meets the general test of what may constitute an "invention" under Section 2 of the Patent Act.

Federal Court Rules on Scope of "Commercial Activity" under PIPEDA
For companies subject to Canada’s private-sector privacy legislation, the recent Federal Court of Canada decision in State Farm Mutual Automobile Insurance Company v. Canada (Privacy Commissioner) may come as both a relief and a disappointment. The court’s decision sheds some light on the types of "commercial activities" governed by the Personal Information Protection and Electronic Documents Act (PIPEDA), but it failed to settle the issue of PIPEDA’s constitutional validity as it relates to the intra-provincial activities of provincially regulated companies.

Trade Law Update

Canada Issues New Guidance on Encryption Controls
The Export Controls Division of Foreign Affairs and International Trade Canada recently released new information on its policies regarding the application for and granting of permits for the export or transfer of information security goods, software and technology. Canada imposes controls on transfers of these items to all countries other than the United States.