Canada: Succeeding in Québec: Business Law Developments Multinationals Should Know About

The business and legal landscape in Québec continues to evolve – and offers growing opportunities for foreign-based companies doing business in Canada’s second-largest province. In this update, we outline recent key developments in financial services reform, litigation, tax incentives and other areas.

The most successful among the many U.S.-based companies doing business in Canada’s second-largest province have learned the importance of addressing major legal and cultural differences, as well as the better-known language considerations. That savvy has been rewarded in recent years as the Québec economy gained energy and momentum while so many others stalled.

Still, a number of recent developments in the province illustrate to what extent Québec continues to carve out its own approach in subtle but significant ways. Here, we provide a run-down of important developments for legal advisors working with companies headquartered in other jurisdictions, especially the U.S., Canada’s largest trade and investment partner.

Financial Services Reforms

Although Québec has traditionally remained one of the most vocal opponents to the idea of a single, national securities regulator to replace the system of 13 provincial/territorial securities commissions, the Québec Securities Commission has made some significant moves to harmonize its regulation of securities offerings, as well as the activities of dealers in Québec, with rules in Ontario and the rest of Canada.

In addition, effective February 1, 2004, the"Autorité des marchés financiers," a new umbrella agency modeled after the United Kingdom’s Financial Services Authority created in 2001, consolidated the operations previously conducted by five separate regulatory authorities, including the Québec Securities Commission. This new agency assumes responsibility for regulating the province’s entire financial sector and regulates vendors of almost every financial service and product.

Developments in Class Actions

Québec has the distinction of being the venue for Canada’s first securities "strike suit" class action – a development that could make the province the forum of choice for securities class actions in this country. In Yves Beaudoin et al. v. Avantage Link Inc. et al., the Québec Superior Court agreed to certify a worldwide class to sue a publicly traded corporation, its president and certain brokerage houses for allegedly releasing false or misleading press releases and for alleged insider trading, which the plaintiffs claim led to an artificially high share price.

It now appears to many legal observers that Québec courts may allow class actions that would be refused in other jurisdictions. Combined with plaintiff-friendly changes recently made to the province’s class action legislation (which has rendered certification of class actions more difficult to contest), the Beaudoin case may result in Québec courts becoming a launching pad for U.S.-style strike suits.

Tax Developments

The first budget tabled by the new Liberal (and generally more business-friendly) government last June did not change the general tax rates applicable to businesses. But the budget suspended, reduced or eliminated various tax incentives that had been designed to foster scientific research and experimental development and other forms of innovation in certain sectors, in particular those associated with the biotechnology and information technology sectors. However, the vitality of the R&D industry in Québec does not appear to have been materially affected by the reduced tax support.

Healthy Merger Market

Partially due to the fact that Québec’s economy has remained relatively robust, its M&A market has seen a string of large transactions. These include the December 2003 sale by Bombardier Inc. of its recreational products business and, earlier, Canada’s largest-ever leveraged buyout of the telephone directories business of Montréal-based BCE Inc. by Kohlberg Kravis Roberts & Company and one of Canada’s largest pension funds. Québec’s sizeable technology business base has also weathered the global malaise in that sector fairly well, helped by generous tax incentives and major transactions such as the acquisition of C-MAC by Solectron. (Osler, Hoskin & Harcourt LLP was involved in all of these transactions.)

The Last Word on Language

French language laws are an important part of the Québec landscape but one that most companies here are readily able to address.

The Charter of the French Language aims to protect the status of French in Québec but does not prohibit the use of other languages. In general terms, for commercial purposes, it guarantees that the use of French will be at least equivalent to the use of any other language for the purposes of such things as advertising, product inscriptions and instruction manuals.

Other general requirements to note: companies that do business in Québec must provide service in French to customers who demand it and must provide employees who demand it with a French work environment. Businesses of a certain size must conduct some in-province activities, such as communications with Québec-based employees, in French.

Ward Sellers is a partner in the firm’s Business Law Department in Montréal, Québec, where his practice is principally in corporate and securities law, with a particular emphasis on domestic and cross-border corporate finance, and on mergers and acquisitions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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