It is common for two parties, particularly in the commercial
context, to enter into a contract at one time, but agree to have
the contract come into effect at an earlier time. This practice is
colloquially known as backdating. Courts respect the parties'
decision to backdate since giving effect to backdating provisions
respects the parties' intentions as well as their freedom of
The Supreme Court of Canada addressed the issue of backdating in
McClelland & Stewart Ltd v. Mutual Life Assurance Co. of
Canada2 where the Court interpreted a life
insurance policy to discern whether an exclusion clause started to
run as of January 23rd, 1968 (the backdated date chosen
by the agent for the calculation of premiums) or February
28th, 1968 (the date the contract was delivered to the
insured). The Court considered the construction of the whole policy
and held that the exclusion clause took effect on the backdated
date chosen by the parties.
Backdating Must Not Be for the Purpose of Misleading Third
Although backdating is generally permissible under the common
law, a court will not give effect to backdating where the parties
backdated the contract to mislead a third party. For example, in
Re Rovet,3 a company's employees were
interested in unionizing. The company attempted to impede the
unionization by hiring additional employees that were against the
union. However, to the company's disappointment, these
employees were not hired until after the
company's current employees filed their application to
unionize, making the new employees unable to participate. To cure
this deficiency, the company, and their solicitor, backdated the
contracts of the newly hired employees to a date
before the application to unionize. The Law
Society of Upper Canada Ontario Discipline Committee determined
that backdating the employment contracts was for the purpose of
misleading a third party, and suspended the solicitor for a period
of twelve months.
Additionally, where the backdating of an agreement affects the
taxes that are imposed (or not imposed) on one of the contracting
parties, courts will generally only respect the backdating
provisions as between the contracting parties. A court will
generally not enforce the backdating provisions as between a
taxpayer and the applicable tax enforcement agency (such as the
Canada Revenue Agency).
Backdating Must Not Contravene Applicable Rules or
In addition to misleading a third party, backdating may also be
impermissible where it contravenes applicable rules or legislation.
For example, in Research in Motion Ltd.4 the
Ontario Securities Commission found that RIM engaged in improper
backdating practices when certain high ranked individuals backdated
options to a price that was "in the money". This practice
contravened both the TSX Rules as well as RIM's stock option
plan that required options "to be granted at an exercise price
not less than the closing price of RIM's common shares on the
TSX on the last trading day preceding the date on which the Options
are approved for grant".5
The Bottom Line
In summary, backdating is generally permissible where it is done
to alter the obligations of the contracting parties only. However,
it is impermissible where the parties backdate either to
unconscionably interfere with the rights of third parties
(including the government's right to tax such parties) or where
it contravenes applicable rules or legislation.
1Chablis Textiles Inc. (Trustee of) v
London Life Insurance Co, SCJ No 12, 
1 SCR 160 at para 25.
2  SCJ No 60,  2 SCR 6
3 1992 2431 (ON LSDC).
4 2009 LNONOSC 351
5 Ibidat para 26
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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