To read Part 1 of this article please click here
Manufacture and Sale of Goods
Regulations and Product Standards
In addition to the Competition Act, federal statutes such as the Food and Drugs Act, the Hazardous Products Act, the Consumer Packaging and Labelling Act and the Textile Labelling Act (and regulations made under them) can directly affect business operations in Canada, since goods that fail to comply with the statutory and regulatory requirements cannot lawfully be sold.
For example, regulations made under the Hazardous Products Act cover items as diverse as cellulose insulation, mattresses, booster cushions, tents, pacifiers and children’s sleepwear, and describe product standards that must be met before such products can lawfully be sold in Canada. Regulations under the Food and Drugs Act, the Consumer Packaging and Labelling Act and the Textile Labelling Act contain detailed provisions concerning a wide range of goods and products.
Failure to comply with statutory or regulatory requirements can result in criminal prosecution, civil liability or both.
The Standards Council of Canada (SCC) is a federal Crown Corporation with a mandate to promote efficient and effective development and application of standards. It carries out a variety of functions designed to ensure the effective and co-ordinated operation of standardization in Canada. The SCC oversees Canada’s National Standards System, a network of over 350 organizations and 15,000 volunteers involved in the development, promotion and implementation of standards. It does not itself develop standards or verify the conformity of products or services to standards, but rather accredits organizations that do so. Two such organizations are the Canadian General Standards Board (CGSB), a federal government organization, and the Canadian Standards Association (CSA), an independent, non-profit organization.
The CGSB is one of the largest standards development and conformity assessment organizations in Canada, and a charter participant in the National Standards System. It provides standards development and conformity assessment services, including programs for certification of products and services, registration of quality and environmental management systems, and related systems.
The CSA develops standards and tests products to certify that the products meet the CSA’s published standards. CSA certification is mandatory under government regulation for some products (e.g. toys that are operated electrically) and voluntary for others. The CSA certification mark ensures that a product meets a basic level of conformity to the product features deemed essential by the published standard. Once a standard is published by the CSA, product manufacturers may elect to have their products tested by either the CSA or another approved certification laboratory, in order to obtain CSA certification. After certification, there are regular, unannounced, on-site visits by CSA representatives to manufacturing locations to ensure that the products continue to meet CSA standards. Where CSA certification is mandatory, manufacturers may be required by inspectors appointed under the Hazardous Products Act to pull or recall non-conforming products.
Federal and provincial governments have enacted specific legislation that prohibits deceptive or unfair business practices (including misleading advertising), imposes sanctions on businesses engaging in such conduct, and provides additional protection for Canadian consumers. Class actions, which are becoming increasingly popular as a consumer protection tool in Canada, are often based on alleged breaches of the Competition Act or provincial consumer protection statutes.
The Competition Act contains important provisions concerning advertising of products and promotion of business interests, to ensure that consumers are not misled. Making a representation to members of the public that is false or misleading in a material respect, and that is made knowingly or recklessly, is punishable by substantial fines and even jail terms. False or misleading statements can also lead to liability to consumers for monetary damages.
Provincial statutes such as Ontario’s Consumer Protection Act, 2002 are also aimed at providing protection for consumers in their dealings with corporations and businesses. The statutes provide consumers who are harmed by deceptive or unconscionable business practices with a variety of statutory remedies, which can include damages, punitive damages and rescission of agreements. Specific, consumer-friendly contract terms may be mandated. Other contract terms — such as waivers of implied statutory warranties, or terms requiring any disputes to be submitted to binding arbitration or purporting to ban a consumer initiating or participating in a class action — may be unenforceable against consumers.
Any business involved in the design, manufacture, distribution or sale of products is a potential defendant in a product liability claim. Claims may be based on breach of a contract or allege negligence. Sometimes they do both. Product liability claims are also popular subjects for class action litigation in Canada.
Provincial statutes such as the Ontario Sale of Goods Act provide that warranties of fitness for purpose and of merchantable quality are implied in contracts between buyers and sellers for the sale of goods. Parties can contract out of the implied terms, except in the case of consumer or retail sales. A buyer of a product purchased from someone other than the product’s manufacturer cannot rely on the implied warranties under the Sale of Goods Act in a claim against the manufacturer. However, the buyer may be able to assert a contract claim against the manufacturer for breach of warranty if a collateral warranty was provided by the manufacturer and that warranty is found to be a representation inducing the sale.
Contract claims are strict liability claims. Absence of negligence is not a defence.
Often no contractual relationship will exist between a product manufacturer and the ultimate purchaser or user, and as a result, many product liability claims are tort-based claims alleging negligence. Claimants must prove that there was a duty of care owed to them, that the product was defective, that there was a failure to meet the applicable standard of care and that the claimants suffered damage caused by the defendant’s negligence. The mere presence of a defect in a product can justify an inference of negligence in the manufacturing process. Where a product is not necessarily defective but is or can be dangerous, a product liability claim may be based on a failure to provide adequate warnings concerning the use of the product and/or a failure to warn of risks associated with use of the product. The duty to warn is a continuing duty and can be triggered by information that becomes known after the product is in use.
In defining the standard of care, Canadian courts will assess the reasonableness of the defendant’s conduct with regard to industry standards, although if the industry standard is inadequate a defendant may be found negligent for conforming to it. Conformity with regulatory standards, such as those developed by the CSA, can also be highly relevant to the assessment of reasonable conduct in a particular case, yet meeting those standards alone will not necessarily absolve a manufacturer of liability.
Generally, a manufacturer’s duty is to take reasonable care to avoid causing either personal injury or damage to property. However, where a product has not in fact caused any physical injury or damage to property, a person may still recover damages for economic losses (e.g. to repair a defective product) where the failure to take reasonable care resulted in defects that pose a real and substantial danger of actual physical injury or property damage.
Real Property Land Registration Systems
Each Canadian province has its own systems for registering interests in real property. In Ontario, for example, there are two land registration systems, registry and land titles. The registry system is the older of the two, merely providing for the public recording of instruments affecting land — it does not guarantee the status of title. Most Ontario properties, however, belong to the land titles system, which is operated by the Province of Ontario pursuant to the Land Titles Act. Title to land within this system is guaranteed by the province. Where the land titles system applies, each document submitted for registration is certified by the province.
In other provinces, registration systems vary. Québec has its own unique system for registering interests in land, which in its effect is most similar to a registration system rather than a land titles system.
In most of Canada, real property instruments can be registered and obtained electronically. In addition, in many provinces, including Ontario, registration occurs in real time. In other words, upon registering an instrument against specific land, the instrument will immediately thereafter appear on the title relating to such land.
All Canadian provinces regulate property development to some degree, and often this regulation occurs at the municipal level. Official plans, zoning bylaws, development permits, subdivision bylaws and servicing bylaws are the primary means by which municipalities control land use and development.
At the provincial level, the subdivision of land is restricted by statute in a number of Canadian provinces. In Ontario, the Planning Act is the main instrument of subdivision control. In British Columbia and many other provinces, the Land Titles Act is the main instrument of subdivision control. In addition, most provinces have legislation granting power to municipalities to regulate the subdivision and servicing of lands. In most cases, instruments such as transfers, subdivision plans or separation of title, which result in the issuance of separate titles, instruments such as leases, mortgages or discharges, which deal with part of a parcel, require subdivision approval.
Subject to certain exceptions, the Planning Act in Ontario prohibits any transfer or mortgage of land or any other agreement granting rights in land for a period of 21 years or more (this would include leases and easements) unless the land is already described in accordance with a plan of subdivision or the transaction has previously received the consent of the appropriate governmental body. If the proposed transaction does not fall within one of the exceptions outlined in the Planning Act, then it may be necessary to obtain a severance consent for the transaction to proceed. The process to obtain a consent typically takes at least 60 to 90 days to complete.
Title Opinions and Title Insurance
Rights in land are not required to be registered. That said, registration in the appropriate land registry office is generally required to protect an owner’s priority over subsequent registered interests and to protect an owner against loss from a bona fide third party. In addition to registering a deed in the appropriate land registry office, a lawyer’s opinion on title is typically issued to the purchaser of real property on closing.
However, the use of commercial title insurance as an alternative to the traditional lawyer’s opinion on title continues to gain popularity, particularly for lenders (since the available protections are broader for lenders). Unlike a traditional lawyer’s opinion on title, title insurance is used to provide protection against hidden risks such as fraud, forgery and errors in information provided by third parties (e.g. a government ministry). Fraud, in particular, represents a significant loss when it does occur and this is a risk generally better assumed by a title insurer. Also unlike a traditional lawyer’s opinion on title, title insurance is a strict liability contract — the policy holder is not required to prove that the title insurer has been negligent in order to receive compensation for a covered loss (up to the amount insured, which is typically the purchase price for an owner’s policy and the mortgage amount for a lender’s policy).
There are two types of commercial title insurance policies that may be issued: (i) an owner’s policy, which protects the purchaser against loss or damage arising from disputes regarding property ownership; and (ii) a loan policy, which protects the lender against loss or damage arising from the invalidity or unenforceability of the lien of the insured mortgage. There is no regulation of title insurance rates in Canada. Policy premiums are negotiated, and when a premium is paid to the title insurer, such premium constitutes consideration for both the policy and any endorsements (the total price of which is typically lower than the combined price for premiums and endorsements in the United States).
While the benefits of an owner’s policy remain in effect only as long as the insured owner possesses title to the property, the benefits of a lender’s policy automatically run to the insured lender’s successors and/or assigns, thereby facilitating the sale of mortgages in the secondary market. A key factor in the increasing demand for commercial title insurance has been the growth of the commercial mortgage backed securities (CMBS) market in Canada and the fact that financial institutions routinely require title insurance for mortgages that will be included in CMBS products, ranging from large single property transactions to deals involving large and diverse pools of commercial mortgages.
Canada has a legislative framework at both the provincial and federal level that governs the duties of land owners with respect to the storage, discharge and disposal of contaminants and other hazardous materials connected with the property. The liability for improper environmental practices runs with the land and can be inherited by future owners of the property. In certain circumstances, any ‘guardian’ of a property, such as a tenant, may face liability for contamination. Additionally, it is incumbent upon a potential purchaser to inspect a property and assess environmental risks, as government officials in Canada cannot certify that properties are free of environmental risk. Commercial lenders in Canada will customarily require the completion of an environmental audit of a property before the advance of funds.
Some Taxes on the Transfer of Real Property in Canada
Land Transfer Tax
In all Canadian provinces, land transfer taxes (or in Alberta, "registration fees") are generally imposed on purchasers when they acquire an interest in land (typically including a lease in excess of 40 or 50 years) by registered conveyance and, in some cases, by unregistered disposition. Provincial rates vary widely. In Ontario, for example, land transfer tax is calculated on the "value of the consideration" paid for the interest transferred, whereas in Alberta the fees assessed against a purchaser are based on the value of the land being acquired by the purchaser, and in British Columbia and Québec, the tax is calculated on the "fair market value" of the interest transferred.
Federal Goods and Services Tax
In Canada, GST is generally payable upon a supply of real property (this includes a sale of property).
Provincial Sales Tax
If the purchase of real property is accompanied by the purchase of certain goods, such as furniture or appliances, then PST is payable by the purchaser at a rate determined by each province, ranging from five per cent to 10 per cent depending upon the province.
Real estate financing for commercial, industrial, retail, multi-family residential and mixed-use properties, as well as condominiums, hotels, casinos and other types of real estate can be structured in a variety of ways.
Banks, pension funds, credit unions, trust companies and other entities all arrange such financing on credit terms that vary on the basis of the transaction itself and the risks involved. Various rate and term combinations are offered, with the rates often indexed to a "prime rate" set by the lending institution on a periodic basis and based on the rate announced by Canada’s central bank, the Bank of Canada, weekly. Other forms of borrowing and interest rate pricing (such as LIBOR loans and bankers’ acceptances) are also offered.
Various instruments are used to take primary security over real property in Canada, such as a mortgage or charge, a debenture containing a fixed charge on real property, and trust deeds securing mortgage bonds (where more than one lender is involved). Secondary security usually includes assignments of rents and leases, guarantees and general security agreements.
Common Forms of Ownership/Interest
Canadian real estate transactions typically involve the following common forms of ownership/interest in real property: freehold, condominium, mortgage/charge, easements and leasing. In Québec, where the real property regime is based on civil law concepts, these forms of ownership/interest in real property all have their equivalents but other types of interests, based mainly on surface or building rights, also exist.
Developments on reserve lands are subject to a unique set of legal regimes governing ownership interests and security arrangements. Canada’s First Nations are becoming increasingly more active in pursuing economic development initiatives, and as inventories of good development sites diminish, developers are also pursuing these projects. Sophisticated and complex legal regimes must be navigated to successfully bring these projects to fruition, requiring the advice of expert legal counsel familiar with the intricacies of the issues facing developers of aboriginal lands.
Common Investment Vehicles for Real Property in Canada
There are various avenues for investment in real property in Canada, including corporations, partnerships, trust and co-ownership. Each of these vehicles has its own nuances, and investors in the Canadian real property market can structure their investments in order to take maximum advantage, for tax purposes or otherwise, of the available alternatives.
The real estate investment trust (REIT) structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.
Limited partnerships, REITS, trusts and even some corporations will often structure their business affairs so that a separate entity, usually a single purpose corporation, holds registered title to real property as ‘bare trustee,’ ‘agent,’ or ‘nominee’ for the beneficial owner. For both tax and accounting purposes, the property belongs to the beneficial owner, appears on its balance sheet and is not the property of the nominee. Although nominee arrangements may be used for several reasons, they are frequently established to facilitate dealing with property in the land registration system where there is a complex, underlying ownership structure to permit the beneficial ownership of the property to be kept confidential or to facilitate corporate reorganizations while land transfer tax is deferred.
Canadian pension funds have been steadily increasing their presence in the Canadian real property market over the last few years through acquisitions of various portfolios, including Class A office buildings and shopping centres. Pension fund capital has, in fact, recently overtaken public real estate capital as the primary impetus of large real estate transactions in Canada. Pension funds that invest in real estate need to comply with strict national and provincial rules to retain their tax-exempt status.
The federal laws on patents, copyright and trade-marks provide the principal protection for intellectual property in Canada. Canada is a member of the WTO treaty on Trade Related Aspects of Intellectual Property (TRIPS) and has agreed to the minimum standards provided there.
Canada is a member of the Paris Convention (Stockholm text) and the Patent Cooperation Treaty (PCT).
The Patent Act provides that any new, useful and unobvious invention that falls within the statutorily defined categories, namely, art, process, machine, manufacture or composition of matter (or any improvement of any of these) is patentable. Higher life forms per se are not patentable, but vectors, plasmins and other vehicles containing genetic material are. Algorithms per se are not patentable, but computer programs that implement a tangible useful solution are.
A patent grants its owner the exclusive right in Canada to make, sell or use the invention for a fixed term. In general, the first inventor to file for patent protection will be entitled to a patent. There is no requirement that the invention be made in Canada. The application in Canada must generally be filed before the invention is made available to the public. A grace period of one year is permitted for disclosures originating from the inventor, but an application by another with an earlier filing date will effectively prevent the grant of a patent and therefore it is important to file as early as possible in Canada and not to rely on the grace period. The making of an invention available to the public includes publication, for example, by publication of an earlier patent application, or by distribution of a product embodying the invention. Pending patent applications will be published by the Canadian Intellectual Property Office 18 months after the earliest filing date claimed by the applicant. The patent will last for a maximum of 20 years from the date of filing in Canada provided all annual fees are paid in a timely manner.
Canada has signed but not implemented the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT).
Canada is a party to the Berne Convention and the Universal Copyright Convention. Depending on the nature of the work, the owner of copyright in a work has the sole right to reproduce, perform, publish or communicate the work. The Copyright Act provides that copyright arises automatically in all original literary, artistic, dramatic or musical works. The Copyright Act provides that registration is permissive rather than mandatory. However, registration does raise certain presumptions in favour of the registered owner. In general, copyright lasts for the life of the author plus 50 years. Since 1993, computer programs are expressly protected as literary works.
Canada is not a member of the Madrid Convention or the Madrid Protocol.
The Trade-marks Act provides for the protection of interests in words, symbols, designs, slogans or a combination of these to identify the source of wares or services. Rights in a trade-mark are created through use in Canada (or in the case of foreign owners by use and registration in their home country). It is possible to reserve rights by filing based on an intent to use a trade-mark in Canada. Registration is permissive and not mandatory. Registration does, however, give the registrant the exclusive right to use the mark throughout Canada and facilitates enforcement. Without a registration, an owner’s rights are limited to the area where the mark has been used. If the trade-mark owner intends to license the mark for use by others, even by a subsidiary company, proper control over its use by the licensee is essential for proper protection. A trade-mark endures for as long as the owner uses it to identify his or her wares or services. A registration survives for 15 years and is renewable.
Other Intellectual Property
Patents, copyrights and trade-marks represent some of the most common types of intellectual property. However, in today’s economy intellectual property protection takes many additional forms. The common law protects against the misappropriation of trade secrets, personality rights and passing off among other things and also protects privacy. A broad range of particular rights and obligations also arise under more specific statutes such as the Industrial Design Act, the Integrated Circuit Topography Act, the Personal Information Protection and Electronic Documents Act, the Plant Breeders’ Rights Act, the Public Servants Inventions Act and the Status of the Artist Act.
Information Technology and Ownership
The Internet’s domain name system, and the Internet-based practice of meta-tagging, present the intellectual property system and especially trade-mark law with some interesting challenges. The conflict between the registered trade-mark system and a domain names registry is based in the domain name registrations following a ‘first come, first served’ policy, without an initial, independent review of whether the name being registered is another person’s registered trademark. At the same time, a domain name in some respects is more powerful than a trade-mark, as there can only be one company name registered for each top-level domain.
In Canada, some trade-mark owners have successfully used the doctrine of passing off in combating so-called ‘cyber-squatters,’ while in other cases they have argued trade-mark infringement under the Trade-Marks Act. It might also be possible to argue ‘depreciation of goodwill’ under Section 22 of the Trade-Marks Act as well as misappropriation of personality rights, to gain control of a domain name.
The Canadian Internet Registry Authority (CIRA) Domain Name Dispute Resolution Policy (CDRP) is an online domain name dispute resolution process for the ".ca" domain name community calling for a three-member arbitration panel appointed randomly from lists submitted by each disputing party. Another key feature is that the CDRP permits a panel to award costs of up to $5,000 against a complainant found guilty of reverse domain name hijacking.
Export Control of Technology
In Canada, the control of exports in technology falls within the mandate of the federal government. Export of certain computers, technology and other products may be controlled by means of two different statutes, the Export and Import Permits Act (EIPA) and the United Nations Act. Under the latter, Canada can restrict the export of goods, as well as the movement of people and money, and the provisions of services, to any country against which the United Nations has imposed economic sanctions. The Export Control List (ECL) kept under the EIPA restricts certain high-tech goods, but is not product-specific; rather, it contains a set of technical specifications that are technology-neutral for the most part and that are functional in their description. The ECL also regulates the export of certain software (software generally available to the public is not usually restricted), along with higher strength encryption technologies.
Consumer Protection — Internet Agreements
Over the past several years, various legislative initiatives have made doing business online more legally certain. In Ontario, for example, the Consumer Protection Act, 2002 (CPA) overhauled various existing consumer protection legal regimes and brought them under one roof for consistency and ease of administration. Some important extensions of the law favour consumers. A new implied warranty, for example, was created, namely that services supplied under a consumer agreement must be of "a reasonably acceptable quality" (and the implied warranties in the Sales of Goods Act are now extended to goods that are leased or traded). Another important change is a provision that prohibits contracting out of the class action proceedings regime. This is designed to counteract the practice of some suppliers providing arbitration as the contractually stipulated dispute resolution mechanism, precisely to avoid a class action scenario. Further, the CPA requires the supplier to provide the consumer with a fairly extensive list of information before concluding an Internet agreement. The CPA also requires that this information be disclosed to the prospective consumer in a manner that is "clear, comprehensible and prominent" and "accessible." Further, a confirmation screen that summarizes the consumer’s purchase details just before the conclusion of the online purchase is mandatory, along with the requirement that the supplier must provide a copy of the Internet agreement to the consumer within 15 days after the consumer enters into it.
In order to provide clarity to evidentiary issues arising because of computer-generated documents, most jurisdictions in Canada have amended their evidence law statutes to resolve the issue of what constitutes the ‘original’ record in the context of the creation, storage and communication of electronic information, along with providing that the best evidence rule is satisfied in respect of electronic records by proof of the integrity of the electronic records system by which the data was recorded or preserved. These provisions allow the integrity of the record-keeping system to be implied from the operation of the underlying computer-related devices. In short, the amendments support the admissibility of electronic evidence, while still permitting a party to challenge the reliability of the computer system or network that produced the evidence.
In the current era of electronic word processing coupled with e-mail, strict and literal compliance with litigation discovery rules (such as Rule 30 of the Rules of Civil Procedure (Ontario)) would prove very expensive and largely of limited value to participating litigants. Therefore, judges in Canada are increasingly receptive to having parties to a litigation follow e-discovery guidelines. These require, for example, that parties contemplating or threatened with litigation must consider e-evidence issues and, among other things, circumscribe the scope of e-discovery in order to comply with Rule 30.
The Canadian provinces have adopted electronic commerce statutes that address a variety of issues that arise in doing business electronically, such as the validity of using electronic messages to meet the writing requirements for legal documents. Ontario’s Electronic Commerce Act, for example, provides that legal requirements that a document be in writing are satisfied by a document that is in electronic form — such as e-mail — if it is accessible so as to be usable for subsequent reference. In Québec, the legal value of a document, particularly its capacity to produce legal effects and its admissibility as evidence, is neither increased nor decreased because of the medium or technology chosen. Nevertheless, under the Québec regime, it is critical to be able to establish that the ‘integrity’ of a technological document has been maintained throughout its life cycle. In this regard, certain legal presumptions apply.
The provincial electronic commerce statutes also stipulate that any legal requirement that a document be signed can be satisfied by an electronic signature. The definition of "electronic signature" is very broad, and encompasses any electronic information that a person creates or adopts in order to sign a document and that is in, attached to or associated with the document. The federal Personal Information Protection and Electronic Documents Act (PIPEDA) is somewhat narrower, and focuses only on "secure electronic signatures," which is currently taken by the government to mean, essentially, an authentication process based on public key type encryption.
In addition to writing and signature rules, the provincial electronic commerce statutes provide that an offer, an acceptance or any other matter material to the formation or operation of a contract may be expressed by electronic information or by an act intended to result in electronic communication, such as touching or clicking an appropriate icon or other place on a computer screen, or even by speaking. These rules are useful because they confirm that contracts made over the Internet will not be unenforceable simply because they were concluded electronically. There is jurisprudence in Canada supporting the enforceability of ‘express click consent’ agreements. Where a user is not required to click ‘I agree’ expressly, but rather where the terms say, for example, that using the website denotes consent to the terms, there is less certainty as to enforceability.
Cyber-libel is a publication on the Internet without lawful excuse that is calculated to injure the reputation of another. Recent Canadian court decisions have awarded significant damages to plaintiffs who were libelled by defendants sending defamatory e-mails and making other similar online postings about plaintiffs. The case law is developing to minimize potential liability of responsible hosts of online discussion forums.
In the criminal, quasi-criminal and regulatory arenas, Canadian courts and regulators seem to have little hesitation assuming jurisdiction over foreign-originated Internet-related conduct they view as harmful to the public good so long as there is a real and substantial connection to the court’s or regulator’s own jurisdiction.
The Canadian government generally has made useful strides in combating computer crime by continuously amending the Criminal Code over the past 20 years to keep pace with persons who perpetrate computer-related crime. However, the Internet and other computer-based technologies and business practices raise a number of novel questions under these and the older provisions of the Criminal Code, which highlights (among other challenges) the difficulty in enforcing a national criminal law in an increasingly global technology environment. As technology evolves, the applicability of the Criminal Code to certain harmful behaviour remains in question, requiring Parliament to be continuously vigilant in dealing with new computer-related threats and risks, and to protect people, property and governments in the Information Age.
Nevertheless, in the area of spam, which includes unsolicited commercial e-mails sent over the Internet, the federal government’s response has been that, for the time being, it will not enact new legislation or regulations to address this going concern.
Language rules in most of Canada govern public life and institutions, not business. Canada’s Constitution grants English and French equal status in Canada’s Parliament and federal courts. Every law must be published in both English and French in some provinces, including Québec. The 1969 Official Languages Act, given additional muster by the 1982 Canadian Charter of Rights and Freedoms, requires that all federal institutions provide services in either language wherever there is demand for it, or wherever the travelling public is served. Public education is available in either official language where numbers warrant.
Outside Québec, the main exception to this focus on the public sector is consumer packaging. Regulations under the Consumer Packaging & Labelling Act identify specific information with which prepackaged consumer products sold in Canada must be labelled. That information must be set out in both English and French. Exceptions include religious, specialty-market and test products, and language-sensitive products like books and greeting cards.
Although Canada is bilingual at the federal level, other governments in Canada may apply their own language policies to matters within their jurisdiction. New Brunswick and the three northern territories are officially bilingual. Several provinces have adopted legislation to ensure that public services are available in French where warranted. But only Québec’s language legislation regulates how businesses operate.
Québec’s Charter of the French Language affirms French as that province’s official language. The Charter grants French-language business rights to everyone in Québec, both as workers and as consumers. Anyone who does business in Québec — anyone with an address in Québec, and anyone who distributes, retails or otherwise makes a product available in Québec — is therefore subject to rules about both how they interact with the public, and how they operate internally inside the province.
In the Workplace
Written communications with staff in Québec must be in French, including offers of employment and promotion and collective agreements. No one may be dismissed, laid off, demoted, or transferred for not knowing a language other than French — but knowledge of English or another language may be made a condition of hiring if the nature of the position requires it.
Businesses that employ at least 50 people within Québec for at least six months must obtain a francization certificate by demonstrating the generalized use of French at all levels of the business. Businesses with at least 100 employees must establish an internal francization committee to report on progress.
In the Marketplace
Rules about how businesses communicate in Québec’s marketplace differ according to whether the communication is in a public place. Billboards and signs visible from a public highway or on a public transport vehicle must be exclusively in French. Public signs, posters and commercial advertising located elsewhere may include other languages, but the French text must predominate. Non-French business names must be accompanied by a French version appearing no less prominently, unless the non-French name has been trade-marked and a French version has not. Anyone carrying on business at a Québec location, however, must register a French-language business name.
Communication such as leaflets, catalogues, brochures, order forms, invoices, receipts, user manuals, warranties and product packaging must include French text that is no less prominent than any non-French text displayed. Because such communication is not displayed in a public place, however, the French text need not predominate.
The latter rule applies not only to communications and product labelling, but also directly to certain products that use words. Subject to certain cultural exceptions, for example, toys and games must be available in French alongside any other language version. Software products, on the other hand, must be made available to Québec consumers in French only where a French-language version of that software exists and has been made commercially available somewhere in the world. If it has, then non-French versions may not be sold in Québec by any business that does not simultaneously make the French version available in Québec, too. If no such version has been marketed, however, there is no obligation to create a new French-language version; the non-French version may be provided on its own.
The federal government is responsible for immigration, although some provinces have entered into agreements with the federal government enabling them to assume certain policy and procedural objectives. These agreements are called Provincial Nominee Programs. The federal statute governing Canadian immigration law is the Immigration and Refugee Protection Act (IRPA).
Any non-Canadian entering the country and planning to remain as a permanent resident must first apply for, and be granted a permanent resident visa.
There are a number of different categories under which a person may apply for permanent residence, including skilled workers, investors, entrepreneurs and family class sponsorship. An entrepreneur applicant must demonstrate the intention and ability to establish or acquire a substantial interest in a viable business that will create or maintain job opportunities for Canadians, and must participate actively in the management of the business. The investor category requires that a person with a minimum net worth be willing to invest a set amount either with the federal government or with any of a number of provincial investor programs.
Québec has an agreement with the federal government on immigration matters. The Québec agreement provides for a separate selection process for permanent residents and some additional procedures for temporary entry that are administered by the government of Québec.
Generally, any business related activity carried on in Canada on a temporary basis by a person who is neither a Canadian citizen nor a Canadian permanent resident, for which remuneration is received or would reasonably be expected to be received, requires a work permit. There are, however, a number of work permit exempt categories which allow a foreign national, if eligible, to carry on prescribed business activities in Canada without the need of a work permit. Work permit exempt categories include the NAFTA Business Visitor and the intra-company trainer.
Under certain circumstances multinational or other foreign companies carrying on business in Canada may transfer executive or senior managerial employees or workers with specialized knowledge to work in Canada on a temporary basis subject to the person who is to be transferred obtaining a work permit. A person might be eligible for a work permit as an intra-company transfer pursuant to three separate and distinct international agreements, namely NAFTA, the Canada Chile Free Trade Agreement (CCFTA) and the General Agreement on Trade and Services (GATS). These three international agreements liberalized the rules respecting the temporary entry of business visitors, certain professionals and intra-company transferees who are citizens or permanent residents of the numerous countries that are GATS signatories or citizens of the United States or Mexico, in the case of NAFTA, or citizens of Chile, in the case of CCFTA. In addition to certain prescribed work permit categories under these agreements, there are also a number of other exempt categories available under the Regulations of IRPA, including one for intra-company transfers.
If an employee is not eligible for any of the exempt categories, he or she can still obtain a work permit if the Canadian employer can first obtain a Positive Labour Market Opinion from Service Canada, a federal government agency. In order to do so, the Canadian employer must demonstrate that the granting of a work permit to the employee will result in the transfer of skills or technology to Canadians or will result in other types of positive benefits, such as job creation. Usually the employer must also show that there are no Canadians available to do the job.
With respect to temporary entry, nationals of certain countries may also be required to obtain a temporary resident visa (formerly, a visitor visa) to enter Canada, and may be required to undergo a medical examination before arriving for entry to Canada.
The rules and regulations governing both permanent and temporary entry to Canada are complex and ever changing. It is prudent for any company to become familiar with Canadian immigration law prior to establishing a commercial presence in Canada.
Trade and Investment
Canada is a member of the WTO and a party to NAFTA and numerous other regional trade and investment agreements. As such, Canada has rights and obligations in a wide range of areas addressed under these treaties.
Because of the broad scope of these trade and investment agreements, and their binding dispute settlement mechanisms, foreign investors establishing a business in Canada should be cognizant of Canada’s obligations and the remedies available to them, particularly where they are facing discriminatory or otherwise harmful government measures.
In addition to being a signatory to NAFTA and the agreements of the WTO, Canada has also negotiated free trade agreements with Chile, Costa Rica and Israel, and investment protection agreements or bilateral investment treaties with over 20 countries.
The World Trade Organization
As a member of the WTO, Canada is subject to a broad range of obligations that impact all sectors of the Canadian economy. These obligations govern Canadian measures concerning market access for foreign goods and services, foreign investment, the procurement of goods and services by government, the protection of intellectual property rights, the implementation of sanitary and phytosanitary measures and technical standards (including environmental measures), customs procedures, the use of trade remedies such as anti-dumping and countervail, and the subsidization of industry.
These WTO obligations apply to Canadian government policies, administrative and legislative measures, and even judicial action. They apply not only to the federal government, but also in many cases at provincial and other sub-federal levels.
Canada is an active participant in the WTO’s dispute settlement procedures, both as complainant and respondent. Canada is an active participant in the WTO’s dispute settlement mechanism. As of January 2007, Canada has brought 28 cases against other WTO member countries who have taken measures alleged to violate their trade obligations. Canada has, in turn, been the target of 15 WTO complaints by other countries and, as a result, has had to terminate or amend offending measures in numerous sectors, including automotive products, magazine publishing, pharmaceuticals, dairy products and regional aircraft.
The North American Free Trade Agreement
NAFTA came into effect on January 1, 1994, and provided for the elimination of trade barriers among Canada, the United States and Mexico. As between Canada and the United States, the process of tariff elimination initiated pursuant to the Canada-United States Free Trade Agreement that came into effect on January 1, 1989, was continued under NAFTA. On January 1, 1998, custom duties were completely eliminated with respect to U.S.-origin products imported into Canada, with the exception of certain supply-managed goods, including dairy and poultry products. Effective January 1, 2003, virtually all customs tariffs have been eliminated on trade in originating goods between Canada and Mexico.
While NAFTA eliminates tariff barriers among Canada, Mexico and the United States, each country continues to maintain its own tariff system insofar as non-NAFTA countries are concerned. In this respect, NAFTA differs from a customs union arrangement of the kind that exists in the European Union whereby the participating countries maintain a common external tariff with the world.
A system of rules of origin has been implemented to define those goods that are entitled to preferential duty treatment under NAFTA. Goods that are wholly produced or obtained in Canada, Mexico or the United States or all three will qualify for preferential tariff treatment, as will goods incorporating non-NAFTA components that undergo a prescribed change in tariff classification, and which in some cases satisfy prescribed value-added tests. Provided the NAFTA rules of origin are satisfied, investors from non-NAFTA countries may establish manufacturing plants in Canada through which non-NAFTA products and components may be further processed and exported duty-free to the United States or Mexico.
NAFTA Chapter 11 imposes obligations on Canada concerning its treatment of investors of other NAFTA countries. It also contains an investor-state dispute settlement mechanism, which permits a private investor of one NAFTA country to sue the government of another NAFTA country for loss or damage arising out of that government’s breach of its investment obligations.
While NAFTA contains many obligations similar to those found in WTO agreements, it is sometimes referred to as ‘WTO-plus’ because of enhanced commitments in certain areas, including foreign investment, energy goods (such as oil and gas), financial services, telecommunications and rules of origin. NAFTA also establishes special arrangements for automotive trade, trade in textile and apparel goods, and agriculture.
Bilateral Investment Treaties
Canada has concluded bilateral investment treaties (BITs) with more than 20 developing countries and former communist-bloc nations. Like NAFTA Chapter 11, these BITs govern a range of foreign investment issues including the treatment of foreign investors and their investments, performance requirements, expropriation and compensation, and government-to-government dispute settlement mechanisms.
Perhaps the most important feature of these BITs for investors is that they also contain private investor-state dispute settlement mechanisms which enable foreign investors to sue host governments, including Canada, for damages arising out of breaches of their investment treaty obligations. Foreign investors intending to establish a business in Canada are advised to determine whether their home state has such a treaty with Canada, as their rights as an investor may be somewhat enhanced.
Agreement on Internal Trade
The federal government of Canada has also negotiated the Agreement on Internal Trade (AIT) with each of the governments of Canada’s provinces and territories. The AIT contains obligations pertaining to measures restricting or preventing the movement of goods, services and investment across provincial boundaries; measures relating to investors of a province; the government procurement of goods and services; consumer-related measures and standards; labour mobility; agricultural and food goods; alcoholic beverages; natural resources processing; communications; transportation; and environmental protection measures. The AIT also provides for government-to-government and person-to-government dispute resolution.
Duties and Taxes on the Importation of Goods
Importers are required to declare the imported goods upon entry into Canada and pay customs duties and excise taxes, if applicable, to Canada’s customs authority, the Canada Border Services Agency (CBSA). Goods are subject to varying rates of duties depending upon the type of commodity and its country of origin. As a member of NAFTA, Canada accords preferential tariff treatment to goods of U.S. and Mexican origin; in most cases, these goods may be imported duty-free.
The amount of customs duties payable is a function of the rate of duty (determined by the tariff classification and the origin of the goods, and as set out in Canada’s Customs Tariff) and the value for duty. Canada has adopted the World Customs Organization’s Harmonized System of tariff classification, as have all of Canada’s major trading partners.
In accordance with Canada’s obligations under the WTO’s agreement regarding customs valuation, the value for duty of goods imported into Canada is, if possible, to be based on the price paid or payable for the imported goods, subject to certain statutory adjustments. This primary basis of valuation is called the ‘transaction value method.’ An example of an adjustment that would increase the value for duty of the goods is a royalty payment, if the royalty is required to be paid by the purchaser of the imported goods as a condition of the sale of the goods for export to Canada. An example of an adjustment that would allow for a deduction from the price paid or payable is the transportation cost incurred in shipping the goods to Canada from the place of direct shipment, if such costs are included in the price paid or payable by the importer.
In the event that, for one reason or another (for example, where there has been no sale of the goods), the transaction value of the goods cannot be used as a basis for the declared customs value, Canadian legislation provides for alternative methods for valuation which must be applied sequentially.
In addition to customs duties, GST in the amount of six per cent is also payable upon the importation of goods. This GST rate is applied to the duty paid value of the goods. Provided that they have acquired the goods for use in commercial activity, importers that are registered under the Excise Tax Act will be able to recover GST paid upon importation by claiming an input tax credit. See Sales Tax — Federal Goods and Services Tax.
Other Requirements for Imported Goods
Certain imported goods are required to be marked with their country of origin. These generally fall within six product categories: goods for personal or household use, hardware, novelties and sporting goods, paper products, wearing apparel, and horticultural products. Certain types of goods, or goods imported under specific conditions, are exempt from the country of origin marking requirement.
Prepackaged products (i.e. product that is packaged in a container in such a manner that it is ordinarily sold to or used or purchased by a consumer without being re-packaged) imported into Canada are also subject to requirements under Canada’s Consumers Packaging and Labelling Act. Consumer textile articles are subject to the requirements of the Textile Labelling Act.
There are also significant legislative requirements relating to the importation of foods, agricultural commodities, aquatic commodities and agricultural inputs, all of which are subject to the inspection procedures of the Canadian Food Inspection Agency.
Counterfeit trade-mark or pirated copyright goods may be detained upon importation into Canada. In accordance with Canada’s Copyright Act and Trade-marks Act, the owner of a registered trade-mark, the owner or exclusive licensee of a copyright, or the owner of a performer’s performance may apply to the court for an order directing the CBSA to take reasonable measures to detect and detain alleged infringing goods that are being imported into Canada. When the CBSA detects such imported goods, they will be detained and the importer will be notified.
Certain goods are prohibited from being imported into Canada. These include materials deemed to be obscene under Canada’s Criminal Code, base or counterfeit coins, certain used or second-hand aircraft, goods produced wholly or in part by prison labour, used mattresses, any goods in association with which there is used any description that is false in a material respect as to their geographical origin, certain used motor vehicles, certain parts of wild birds, certain hazardous products, white phosphorous matches, certain animals and birds, materials that constitute hate propaganda, and certain prohibited weapons and firearms.
Canada maintains a trade remedy regime which provides for the application of additional duties and/or quotas to imported products where such products have injured or threaten to injure the production of like goods in Canada.
Canada’s Special Import Measures Act provides for the levying of additional duties on ‘dumped’ products (i.e. products imported into Canada at prices lower than the comparable selling price in the exporting country) if they have caused or threaten to cause injury to Canadian industry. Duties may also be levied in instances of countervailable subsidies being provided by the government in the country of export, and if such subsidized products injure or threaten to injure Canadian industry.
Further, Canada may apply safeguard surtaxes or quantitative restrictions on imports where it is determined that Canadian producers are being seriously injured or threatened by increased imports of goods into Canada. These measures may be applied regardless of whether the goods have been dumped or subsidized.
Canada also maintains a special safeguard mechanism for imports from China. This mechanism, in force until December 11, 2013, allows Canadian manufacturers to seek the application of surtaxes and/or quantitative restrictions where goods originating in China are being imported into Canada in such increased quantities or under such conditions as to cause or threaten to cause "market disruption." Such protection may also be granted by the Canadian government where measures applied to imports of Chinese goods into the markets of other WTO members cause or threaten to cause a significant diversion of trade into the Canadian market.
Import and Export Controls
Canada, for reasons of both domestic policy and international obligation, maintains controls on imports and exports of certain goods and technology and, in the case of exports, their destination country. Canada’s Export and Import Permits Act controls these goods through the establishment of three lists: the Import Control List (ICL), the Export Control List (ECL) and the Area Control List (ACL).
Goods identified on the ICL require an import permit, subject to exemptions (including for goods from certain countries of origin). These include steel products, weapons and munitions, and agricultural and food products (including turkey, beef and veal products, wheat and barley products, dairy products and eggs).
The ECL identifies those goods that cannot be exported from Canada without obtaining an export permit, subject to exemptions for certain destination countries. These goods are categorized into eight groups: dual-use goods, munitions, goods the export of which Canada has agreed to control under various nuclear non-proliferation agreements, nuclear-related dual use goods, miscellaneous goods (including certain medical products, forest products, agricultural and food products, U.S.-origin goods, prohibited weapons, nuclear-related goods and certain strategic goods), missile equipment and technology, chemical and biological weapons, and chemicals for the production of illicit drugs.
Export permits must also be obtained for the exportation of any goods, regardless of nature, to countries listed on the ACL. At the present time, Myanmar (formerly Burma) and Belarus are the only countries listed on the ACL.
A number of nations are subject to Canadian trade embargoes of varying scope. Special trade embargo legislation currently exists for the following countries: North Korea, Côte d’Ivorie, the Democratic Republic of the Congo, Iraq, Liberia, Rwanda, Sierra Leone and the Sudan. Canada also maintains very significant prohibitions on dealings with terrorist organizations and individuals associated with such groups.
Unlike the United States, Canada does not maintain a trade embargo against Cuba. Indeed, under Canadian law, it is a criminal offence for Canadian businesses to comply with the U.S. trade embargo of Cuba.
Government Procurement of Goods and Services
NAFTA Chapter 10, the WTO Agreement on Government Procurement, and Chapter 5 of the AIT set out numerous requirements that parties to those agreements, including Canada, must satisfy in their procurement of goods and services. They include provisions that address technical specifications, the qualification of suppliers, the design and issuance of requests for proposals, selective tendering procedures, tender documentation, negotiations that may occur during the tender, the process of submitting, receiving and opening tenders and awarding contracts, limited tendering procedures and bid challenges. These obligations apply not only to federal government departments and entities, but also to various government enterprises and Crown corporations, and in certain circumstances to provincial government entities, including municipalities, municipal organizations, school boards and publicly funded academic, health and social service entities.
Pursuant to its NAFTA, WTO and AIT obligations, Canada’s bid challenge authority is the Canadian International Trade Tribunal. Where the Tribunal finds that a procurement complaint is valid, it may recommend that a new solicitation be issued, the bids are re-evaluated, the existing contract is terminated, the contract is awarded to the complainant or the complainant is compensated for its loss of the contract. The Tribunal may also award costs incurred by the complainant in preparing a response to the solicitation.
Canada’s Corruption of Foreign Public Officials Act makes it a criminal offence for any person to bribe a foreign public official. It contains provisions prohibiting the laundering of property or proceeds derived from bribery, and the possession of property or proceeds derived from bribery or laundering.
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.
To read Part 3 of this article please click on the Next Page link below