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Clarifications regarding insurance products offered on the Internet
In early 2022, the Autorité des marchés financiers (the "AMF") conducted specific consultations on financial products offered on the Internet. Further to these consultations, the AMF published explanations on the Regulation respecting Alternative Distribution Methods (the "RADM") in late December 2022.1 Here are some key points that the AMF has clarified: Definitions The AMF has elaborated on the meaning of certain terms and expressions included in the RADM, thereby clarifying the obligations incumbent on firms as concerns insurance products offered on the Internet: "Providing" or "presenting" information: This implies delivering, giving or handing over information to a client without them having to take any action. A client should not have to search for the information to find it. As such, making the information accessible or referring to a policy is not enough.2 "Making visible at all times": The information should be visible to the client at all times, regardless of the page the client is on. A representative's contact information is the only information that must be visible on the digital transactional space at all times. Websites that are accessible to people who are blind or use a voice assistant must also have means to present this information.3 "Making a representative available": The AMF only requires that representatives be available during regular business hours.4 "Making information readily accessible": A client must have the option of taking cognizance of the information and be able to easily find it. The information must be accessible in one or two clicks. Including a hyperlink or an icon, for example, are ways of making information accessible.5 Under this obligation, a hyperlink may be used to redirect a client to a website or document external to the digital space.6 External documents that are accessible through hyperlinks, such as sample insurance policies, must be up to date. Summary of the complaint processing policy The AMF specifies that the summary of the complaint processing policy referred to in the RADM must be that of the firm running the transactional website, not of a third party. Thus, a property and casualty insurance brokerage cannot refer to an insurer's policy summary.7 Identification of the firm A firm may display partner logos on its digital space only if doing so does not cause confusion. A client must know which firm runs the space and must be able to distinguish it from partners that do not offer the products or services.8 Product coverage, exclusions and limitations Further to its supervisory activities, the AMF has confirmed that product coverage appears to be well presented in digital spaces. However, exclusions and sometimes limitations are not as well presented. Given that exclusions and limitations constitute information that is necessary for a client to make an informed decision, the AMF urges firms to pay attention to these and to select them based on a proper analysis.9 Suspension of transactions The AMF has clarified how to apply the criteria under section 14 of the RADM, more specifically paragraph 3 of this section, which provides that a firm must suspend a transaction initiated through a digital space when no representative can immediately intervene with a client who asks to deal with a representative and there is a risk that the client will not be able to make an informed decision. The AMF specifies that it is up to the firm to assess and manage its risk. In order to determine whether such a risk exists, the AMF has proposed the following solutions: The firm may caution the client as follows: "Do you wish to continue the process even though no representative is available at this time?" The firm could post its representatives' availability. If a client decides to enter into a contract through a digital space, the firm could ensure that a representative contacts them within 24 hours. A transaction does not have to be suspended immediately; it can be done at the end of the transaction, before the contract is concluded. Moreover, stopping or temporarily suspending a transaction may also be necessary if a contradiction or irregularity in the information the client provides could lead to an error.10 The digital space must be set up to detect such a contradiction automatically. The AMF considers it preferable to discontinue a transaction if contradictions are detected. It can also be temporarily suspended while the client is informed of the consequences of making false statements and the importance of knowing their entire situation, for example, and to allow them to make corrections, if necessary.11 To better understand the obligations of the RADM, we invite you to consult our bulletin Bill 141: Checklist on insurance products offered via the internet and distribution without a representative. These are only available in French at this time; Regulation respecting Alternative Distribution Methods, CQLR, c. D-9.2, r. 16.1. Autorité des marchés financiers, Explications à l'égard du règlement – Le RMAD expliqué article par article (hereinafter the "Explanations"), ss. 7, 9, 11, 12 and 12.2. The terms "explaining information" or "providing information" under section 12.1 of the RADM should be interpreted in the same manner. Explanations, s. 8. Explanations, s. 8. Explanations, ss. 8 and 10. Explanations, ss. 8 and 10. A representative's contact information does not have to appear on external documents and websites at all times. It is important to note that under section 9 of the RADM, a document that is to be "provided" or "presented" to a client cannot be located on an external website. Explanations, s. 8. Explanations, s. 8, para. 1. Explanations, s. 9. For example, a client declaring they have no children yet selecting insurance for their children constitutes a contradiction. Explanations, s. 14.
Amendments to the Charter of the French Language: Impacts on the Insurance Sector
Bill 96 – An Act respecting French, the official and common language of Québec (the "Act") - was adopted on May 12, 2022 and assented to on June 1, 2022, its effective date. Certain provisions are already in force; for other provisions, a transitional period ranging from several months to three years will apply. This document provides an overview of the modifications included in the reform of the Charter of the French Language (the "Charter") that will have an impact on various aspects relevant to insurance sector stakeholders doing business in Québec. Forming the centrepiece of the announced changes, the reform of the Charter includes strengthened oversight mechanisms governing the use of French as the language of commerce and business, as well as linguistic rights in the areas of employment and communications with agents of the State. Overseeing the language of commerce and business The reform of Section 55 of the Charter stipulates that contracts of adhesion and related documents must be drawn up in French. However, effective June 1, 2023, a French-language version of these contracts and documents must be provided to participants First Alinea of this amended section reads as follows: 55. Contracts pre-determined by one party and the related documents, must be drawn up in French. The parties to such a contract may be bound only by its version in a language other than French if, after its French version has been remitted to the adhering party, such is their express wish. The documents related to the contract may then be drawn up exclusively in that other language.1 Therefore, contractual clauses in which the parties simply indicate that they agree to be bound by a contract drawn up in a language other than French are no longer sufficient. The Civil Code of Québec stipulates that "A contract of adhesion is a contract in which the essential stipulations were imposed or drawn up by one of the parties, on his behalf or upon his instructions, and were not negotiable."2 To qualify a contract, the importance of the negotiated terms and conditions and their connection with the contract must be analyzed. It is generally recognized that if the essential stipulations are not negotiable, the contract is a contract of adhesion, even though some less important terms and conditions may have been negotiated by the parties. This amendment codifies the interpretation adopted by the Office québecois de la langue française ("OQLF") and the courts,3 particularly given that negotiated contracts were not covered by this provision. To remove any doubt concerning this interpretation, Bill 96 was amended so as not to extend the scope of this requirement to include contracts containing "printed standard clauses". The insurance contract Since their essential stipulations are typically drawn up by the insurer, insurance contracts and their endorsements are contracts of adhesion, as a general rule. Therefore, the French-language version of all related documents — notices, letters, insurance product summaries — must be provided to clients before they can decide whether they will be bound by a version drawn up in another language. During the parliamentary debates, Minister Jolin-Barette commented that Section 55 of the Charter only referred to consumers and that contracts between two companies could be drawn up in the language of their choice if that was the express wish of both parties. The term "consumer", however, is not defined in the Charter. Ambiguity remains as to whether the Minister's comment only referred to contracts containing standard clauses or whether contracts of adhesion were included. We will have to wait for the publication of the interpretation bulletins and the annotated edition of the act to determine whether Section 55 of the Charter applies to commercial insurance policies. In the meantime, we are of the opinion that if Québec lawmakers had wanted to exclude commercial contracts of adhesion, they would have expressly done so by means of an amendment. Insurance contracts in effect before June 1, 2023 will not have to be translated, nor will insurance contracts renewed without modifications since under those circumstances, the contract would not be regarded as a new contract.4 However, if an existing insurance contract is renewed with significant modifications, it will be regarded as a new contract and the French-language version thereof must be provided to clients so they may validly express their wish to be bound by a contract drawn up in a language other than French. Given that in most cases, insurance contracts are sent out to policyholders by regular mail or email, effective June 1, 2023, insurers, agents or brokers, as applicable, will have to send both the French-language and English-language versions of the contract in the same mailing or simply send the French-language version thereof. It is important to note that the Act provides for an exception to the requirement to provide the French-language version if: The insurance policy has no equivalent in French in Québec; and The insurance policy is originates from outside Québec or is not widely available in Québec.5 [unofficial translation] In all likelihood, this exception will only apply to highly specialized insurance products and will be interpreted restrictively given the Act's primary objective. Unlike insurance contracts and related documents, invoices, receipts, discharge notices and other similar documents may be sent out in English if the French-language version remains available on terms that are at least as favourable.6 Services and marketing in French The Act introduces the Charter's new Section 50.2, which states that businesses must respect consumers' fundamental linguistic right to be informed and served in French. The same section reiterates this requirement with respect to "a public other than consumers" to whom are offered goods and services and who must henceforth be informed and served in French by businesses. Unlike consumers, however, clients who are businesses do not enjoy a fundamental linguistic right protected by the Charter. As regards marketing, the addition of the words "regardless of the medium used" to Section 52 of the Charter confirms that marketing documents in "hard copy" format must be in French, as must websites. If a version is available to the public in a language other than French, the French-language version must be available on terms that are at least as favourable. This provision took effect on June 1, 2022. Chat-type platforms or those facilitating direct communications with the insurer should make it possible for members of the public to communicate with the insurer's representatives in French at all times. Communications with insurance agents and brokers Effective June 1, 2022, insurers are required to communicate in French with insurance agents and brokers who express the desire to do so.7 In addition, all information documents sent to insurance agents and brokers regarding underwriting or claims must be in French if they so wish. As regards contractual agreements between insurers, insurance agents and brokers, the need to provide a French-language version depends on the nature of the contract, i.e. whether it can be qualified as a contract of adhesion. French in the workplace Effective June 1, 2022, all companies doing business in Québec must comply with the following requirements in the area of employment rights: Respect employees' right to work in French8; Use French in all written communications sent to employees; Ensure that all offers of employment, promotion or transfer; individual employment contracts; employment application forms; and documents concerning employment conditions and training sent to employees are drawn up in French;9 Take all reasonable means to avoid requiring employees to have knowledge or a specific level of knowledge of a language other than French for employees to obtain employment or to maintain their position, including in particular: Assess the actual needs associated with the duties to be performed; Make sure that the language knowledge already required from other staff members was insufficient for the performance of those duties; Restrict as much as possible the number of positions involving duties whose performance requires knowledge of or a specific level of acknowledge of a language other than French.10 It should be noted that individuals whose employment contracts are currently drawn up in English have until June 1, 2023, to ask their employer to translate their contract. Effective June 1, 2025, businesses with 25 employees or more in Québec must meet additional francization requirements for their Québec employees to obtain a francization certificate, including: Registering with the OQLF; Submitting an analysis of the status of the French language within the business; Putting in place a francization program within three months following an OQLF request to that effect. The above requirements were already in effect for businesses with more than 50 employees in Québec. French as the language of the civil administration The Act includes various modifications with respect to French as the language of the civil administration. The Québec government will be required to make exemplary and exclusive use of French, with certain exceptions. Effective June 1, 2023, all agents of the State and provincial government bodies will be required to communicate in French with all persons, including business representatives. All documents exchanged with the civil authorities, as well as all contracts and permits, must be drawn up in French. Insurance sector stakeholders outside Québec should expect to receive more communications in French from the Autorité des marchés financiers ("AMF") given that the AMF is a body of the "civil administration". Penalties It should be noted that new powers will be granted to the OQLF enabling it to conduct investigations and impose administrative and disciplinary penalties. As regards infractions of the Charter's provisions, the Act provides for fines ranging from $3,000 to $30,000 for businesses and from $700 to $7,000 for individuals. These fines are doubled for a second offence and tripled for further offences. In addition, if an infraction continues for more than one day, each day constitutes a separate infraction. If an infraction is committed by a corporate director or officer, the Act provides for fines ranging from $1,400 to $14,000. Questions of interpretation Various provisions have raised questions of interpretation that are still difficult to resolve at the time of writing. Interpretation bulletins and an annotated edition of the act will be published by the provincial government with a view to guiding businesses in the application of the Act; they will also help to clarify certain provisions that remain ambiguous for the time being. For further information on changes concerning trademarks, please consult a recent publication by our colleagues specializing in intellectual property. Sec. 55, Para. 1 of the Charter. Civil Code of Québec, CQLR ch. CCQ-1991, Sec. 1379, Para. 1. Westboro Mortgage Investment vs. 9080-9013 Québec inc., 2018 Superior Court of Québec 1. Leave to appeal dismissed 2019 Court of Appeal of Québec 1599. Didier LLUELLES, Droit des assurances terrestres, 6th ed., Montréal, Éditions Thémis, 2017, Para. 186. Sec. 21.5 and Sec. 55 of the Charter. Sec. 57 of the Charter. Sec. 50.2 of the Charter. Sec. 5 and Sec. 50.2 of the Charter. Sec. 41 of the Charter. Sec. 46 of the Charter.
Bill 150 and the distribution of financial products and services
On October 31, 2017, Québec's Finance Minister, Carlos J. Leitão, introduced Bill 150, An Act respecting mainly the implementation of certain provisions of the Budget Speeches of 17 March 2016 and 28 March 2017 ("Bill 150"). In this newsletter we will discuss the changes made to the Civil Code of Québec ("CCQ"), the Act respecting insurance, c. A-32 and the Act respecting the distribution of financial products and services, c. D-9.2 ("Distribution Act") affecting the offer and distribution of insurance products. According to the Minister's speech upon introduction of Bill 150, the main amendment that would affect products themselves would be to permit group damage insurance contracts. Other proposed amendments affect the offer and distribution of group insurance products. Civil Code of Québec The proposed changes to the CCQ relating to damage insurance are significant since they formally introduce the concept of group damage insurance. Until now, the CCQ provided that insurance of persons was either individual or group. The lack of a similar provision for damage insurance, along with the lack of a clear provision allowing this type of insurance, led to the conclusion that group damage insurance was not permitted in Québec. Bill 150 codifies this concept, making the following changes: Non-marine insurance may henceforth be either individual insurance or group insurance; The concept of a group damage insurance policy is introduced in article 2395 CCQ; The CCQ no longer indicates that insurance of persons is individual insurance or group insurance, which removes any ambiguity about whether group damage insurance is permitted. Act respecting the distribution of financial products and services With the repeal and amendment of several sections of the Distribution Act and the removal of the concept of adhesion, which is specific to group insurance, distribution without a representative, through a distributor, would now cover individual insurance products. In fact, Bill 150 maintains the possibility of an insurer to offer an insurance product through a distributor, namely a person who, in pursuing activities in a field other than insurance, offers, as an accessory, for an insurer, an insurance product which relates solely to goods sold by the person.1 Products deemed to be insurance products which relate solely to goods but which are not affected by Bill 150 are: travel insurance, vehicle rental insurance where the rental period is less than four months, credit card and debit card insurance, and vehicle replacement insurance as defined in the Distribution Act.2 The section of the Distribution Act3 that provides that debtor life, health and employment insurance and investor life, health and employment insurance are deemed to be an insurance product which relates solely to goods and to which clients adhere is repealed. Such changes suggest that participation in group insurance products offered by insurers, whether in damage insurance or insurance of persons, is no longer covered by the rule respecting distribution other than through a representative.4 The changes made by Bill 150 relating to the definition of representative in insurance of persons5 also indicate that participation in a group insurance contract would no longer be reserved for representatives in insurance of persons, meaning that group insurance contracts could henceforth be offered directly. Act respecting insurance Along with the changes made to the Distribution Act, the Act respecting insurance is amended to provide that an insurer who enters into a group insurance contract must deliver to the client a document intended for participants, in respect of the sound and prudent management practices and commercial practices insurers must adhere to.6 The information set forth in this document is intended to disclose to participants, in a timely manner, information relevant for making an enlightened decision and for the performance of the contract. The information from this document is somehow similar to what must be included in the distribution guide for insurance products distributed without a representative: 1) the scope of the coverage considered and any exclusions; 2) the time limits, in conformity with the Civil Code, within which the insurer must be notified of a loss and the time limits within which the insurer is required to pay the insured sums or the indemnity provided for; 3) the information necessary for filing a complaint with the insurer referred to in section 285.29 of the Act respecting insurance, which provides for the policy in respect of the examination of complaints and resolution of disputes every insurer must establish in order to provide equitable resolution of complaints. Since the documentation prescribed by article 2401 CCQ remains the same, insurers must also give the client the insurance certificates which the client must distribute to participants, and issues the group insurance policy to the client, who must make it available to participants and beneficiaries wishing to examine or make copies of it. Finally, the proposed changes also introduce an increased level of liability for an insurer entering into a group insurance contract with a client that is affiliated with the insurer or that belongs to the insurer's group, such as a federation and the mutual insurance associations that are members of it.7 Not only must the insurer deliver an explanatory document to participants, it must also ensure that the client delivers it to participants. The insurer is liable for the acts performed by or on behalf of the client toward enrolling participants under the group insurance contract.8 The amendments proposed by Bill 150 are in addition to those set out in Bill 141,9 which reforms, extensively, Québec's financial sector. Lavery's experts can help you position yourself competitively and seize new strategic opportunities resulting from these fundamental changes in the financial sector. Section 408 of the Distribution Act. Section 424(5) of the Distribution Act. Section 426 of the Distribution Act. Title VIII of the Distribution Act. Section 238 of Bill 150 and section 3 of the Distribution Act. Sections 222.1 and 222.2 of the Act respecting insurance, c. A-32. Section 1.5 of the Act respecting insurance, c. A-32. See section 235 of Bill 150. See Lavery's October 5, 2017 newsletter entitled "Comprehensive reform of the rules governing the regulation and operations in the Québec financial sector".
Bill 150 and damage insurance brokerage
On October 31, 2017, Québec's Finance Minister, Carlos J. Leitão, introduced Bill 150, An Act respecting mainly the implementation of certain provisions of the Budget Speeches of 17 March 2016 and 28 March 2017 ("Bill 150"). In this article, we will discuss the changes made to the Act respecting the distribution of financial products and services (the "Act") relating to damage insurance brokerage. The following is a summary of the main changes to the Act involving damage insurance brokerage based on Minister Leitão's speech introducing Bill 150. New rules for products' offering, firm registration and disclosure Damage insurance brokers will be required to offer clients products from at least four insurers that do not belong to the same financial group, namely insurers who are not affiliated with the firm. It will be interesting to hear comments from damage insurance brokers about the implementation of this new rule, which benefits consumers and will increase transparency. Note that a broker who is unable to offer clients insurance products from at least four insurers may nonetheless continue offering insurance products but must make every effort to comply with this rule and keep on file any information proving these efforts were made. The Autorité des marchés financiers (the "AMF") may verify compliance with this provision during an inspection and require that a firm and its representatives change their registration to that of an agency if the broker's "efforts" are considered insufficient. This exception to the new obligation to offer products from at least four insurers seems to require that brokers be able to prove to the AMF that they have made the required efforts to offer a client an insurance proposal from at least four insurers. Registration of a damage insurance firm will be made based on its representatives' registration categories: a firm will be a damage insurance agency if it acts through damage insurance agents; a firm will be a damage insurance brokerage firm if its acts through damage insurance brokers. A damage insurance agent offers damage insurance products to the public on behalf of a firm that is an insurer or is bound by an exclusive contract with a single insurer. A damage insurance broker offers a range of damage insurance products directly to the public from several insurers and, under Bill 150, from at least four insurers, by client proposal. Firms will be subject to new disclosure requirements on their website and in their communications with clients: a damage insurance agency will be required to disclose the name of the insurers with which it is bound by an exclusive contract and which products are included in such contract; and a damage insurance brokerage firm will be required to disclose the name of the insurers for which it offers insurance products. Ownership of damage insurance brokerage firms The 20% rule is maintained but in a different form. Consultations pertaining to the 20% rule were held in the spring of 2017.1 During these consultations, the industry was asked to comment on the need to maintain this rule and on possible alternatives for managing conflicts of interest between damage insurance brokerage firms and insurers. According to the changes proposed in Bill 150, registration as a damage insurance brokerage firm is prohibited if a financial institution, financial group or legal person affiliated with them has a significant interest in the firm's decisions or equity. "Significant interest" means: with respect to a firm's decisions, the power to exercise 20% or more of the voting rights attached to the shares issued by the firm; and with respect to a firm's equity, holding shares issued by the firm that represent 20% or more of its equity capital. Section 148 of the Act, which prohibited a financial institution, financial group or a legal person affiliated with them from holding more than 20% of the voting rights or shares of a damage insurance firm acting through a damage insurance broker, is repealed. The legislator specifies that the 20% rule under Bill 150 does not prohibit any financing agreement or any service contract between a financial institution and a firm. Recall that in 2007, the AMF published a staff notice2 concerning the ownership of damage insurance brokerage firms which said that, to ensure that firms remained independent, a financial institution could not sign a financing agreement with a firm unless the terms of such agreement were those that would be agreed to by a lender at arm's length. The changes proposed by Bill 150 are in addition to those set out in Bill 1413, which proposes an extensive reform of the laws governing Québec's financial sector. Our financial products and services team can help you take a strategic position to benefit from new business opportunities that will result from the new rules and answer any questions you may have about these changes. See Need to know newsletter of April 18, 2017 entitled "Consultation on the 20% Rule". Avis du personnel relatif à la propriété des cabinets en assurance de dommages [staff notice regarding the ownership of damage insurance firms] (in French only), AMF Bulletin: 2007-02-16, Vol. 4 No. 07. See Lavery's October 5, 2017 bulletin entitled "Comprehensive reform of the rules governing the regulation and operations in the Québec financial sector".
Comprehensive reform of the rules governing the regulation
and operations in the Québec financial sector
On October 5, 2017, Québec's Minister of Finance, Carlos J. Leitão, has tabled Bill 141 in Québec's National Assembly. The Bill, which is 470 pages long and includes some 750 sections, is entitled An Act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions. It proposes a major overhaul of the rules governing the operation of deposit-taking institutions and insurance companies, as well as the distribution of financial products and services ("FPS") in the province. The Bill proposes amendments to the following laws: Act respecting insurance (repealed) Professional Code Act respecting trust companies and savings companies (replaced) Act respecting financial services cooperatives Act respecting the Mouvement Desjardins (repealed) Deposit Insurance Act (renamed Deposit Institutions and Deposit Protection Act) Derivatives Act Money-Services Businesses Act Automobile Insurance Act Act respecting the Autorité des marchés financiers (renamed Act respecting the regulation of the financial sector) Act respecting the distribution of financial products and services Real Estate Brokerage Act Insurers Act (enacted) Securities Act Based on the Minister's speech unveiling the Bill, the following is a summary of the 13 main categories of measures provided for in that draft legislation: Insurance — The Insurers Act is proposed as a replacement for the Act respecting insurance. It contains provisions governing the supervision and control of insurance business and of the activities of authorized (former permit holding) Québec insurers, as well asprovisions governing the constitution, operation and dissolution of Québec-incorporated insurers. The new Insurers Act also updates the rules applicable to the insurance activities of self-regulatory organizations ("SROs"), including professional orders. Financial services cooperatives — The Bill amends the Act respecting financial services cooperatives (essentially, credit unions which are members of the Groupe Coopératif Desjardins) to specify, among other things, rules relating to the organization and functioning of such cooperatives. The Bill adds a chapter concerning the Groupe coopératif Desjardins in replacement of the Act respecting the Mouvement Desjardins, which will be repealed. Deposit insurance — The Bill amends the Deposit Insurance Act and puts in place a new framework to supervise and control the deposit-taking business and authorized deposit-taking institutions in Québec. It includes provisions allowing for the resolution of problems arising from the failure of such an institution when affiliated to a cooperative group. The title of that Act is also changed to reflect the amendments made to it. Trust companies — The Act respecting trust companies and savings companies is replaced by a new legislation bearing the same title, but which redefines the regulatory framework governing those kinds of companies and their business. This framework is consistent with the new legislation to be applied to insurance companies and deposit-taking institutions. Real estate brokerage — The Act respecting real estate brokerage is to be amended to, among other things, define the concept of real estate brokerage contract, and to transfer to the Autorité des marches financiers ("AMF") the supervision and control of mortgage brokers in the province. Financial products and services — The Bill amends The Act respecting the distribution of financial products and services to transfer to the AMF and the Financial Markets Administrative Tribunal ("FMAT") the SRO responsibilities currently entrusted to the Chambre de la sécurité financière and the Chambre de l'assurance de dommages. It also proposes a set of amendments aimed at facilitating the online offering and distribution of FPS. Act respecting the AMF — The Bill amends the Act respecting the Autorité des marchés financiers by introducing provisions to protect whistleblowers who denounce regulatory breaches of third parties to the AMF, to establish a committee tasked with taking submissions from consumers of FPS, and to structure the FMAT in a way similar to other provincial administrative tribunals, such as the Administrative Tribunal of Québec. The Act respecting the AMF is to be renamed an Act respecting the regulation of the financial sector. Funeral expenses insurance — The Bill amends the Civil Code of Québec to permit funeral expense insurance contracts to be entered into. It also modifies the Act respecting prearranged funeral services and sepultures, to provide for a more proper regulation of such contracts. Automobile insurance — The Bill amends the Automobile Insurance Act to specify how information relating to the acquisition or renewal of automobile insurance is to be filed. Money services — The Bill amends the Money-Services Businesses Act to provide for periodic checks (every three years) to be conducted on money-services businesses by the competent local police. Derivatives — The Bill adds derivatives trading platforms to the entities regulated under the Derivatives Act. Securities — The Bill amends the Securities Act to, among other things, replace the definition of "non-redeemable investment fund", prescribe restrictions on sharing commissions for certain dealers, and provide for the suspension of prescription when an application for authorization of an action for damages is filed under that Act. Legislation administered by the AMF — Finally, the Bill amends the laws administered by the AMF (listed in Schedule I to the Act respecting the Autorité des marchés financiers) to prescribe the duration of freeze orders obtainable under those laws and to prescribe the terms of administration and distribution of amounts remitted to the AMF pursuant to a disgorgement order issued thereunder. Bill 141 thus proposes wide-ranging reforms. It embodies measures which: amount to a major overhaul of certain financial laws (Desjardins' financial services cooperatives, trust companies, deposit insurance); aim at providing a legal basis for operations that are either currently unregulated or unauthorized by law (e.g., the offering or distribution of FPS online); incorporate certain supranational standards into Québec's regulatory framework (e.g., resolution / orderly winding up of unstable systemically important financial institutions); redeploy the exercise of regulatory, supervisory and enforcement / disciplinary functions in the financial sector; and enact numerous new specific rules, particularly in the field of insurance (reciprocal insurance unions; exemption from authorization (permits) respecting suppliers of insurance-like extended warranty products; commercial practices; etc.). The scope is far-reaching for our clients operating in the Québec financial sector, and those who wish to efficiently seize the opportunities offered by the new rules that will govern the Québec's financial marketplace. They would now want: to learn more about the measures of the Bill and the way they may affect them, to position themselves competitively or adjust their ongoing projects in preparation for what is to come; to consult to knowledgeably define new strategies and be able to effectively implement them, in compliance with the new rules; to participate, separately or jointly with others stakeholders, to the consultations that the Minister of Finance has announced would be held on the Bill by a parliamentary committee, to present their views and propose enhancements to its provisions.
Managing potential conflicts of interest in investment funds
The high level of information asymmetry between investment fund managers and their investors1 can give rise to significant conflicts of interest which must be adequately managed. This article discusses the main conflicts of interest encountered in standard private equity, venture capital and hedge fund structures and how to mitigate or prevent them. The idea that conflicts of interest must be adequately managed is not a novel one. However, since 2015, this concern has come to the forefront of regulatory reviews by the United States Securities and Exchange Commission (the "SEC")2 and has been an important focus in many investors' operational due diligence in Canada and the U.S.3 The concerns arise mainly from inherent deficiencies in private equity, venture capital and hedge fund structures which entail an asymmetry of information between managers and investors and involve inherent conflicts of interest, including those resulting from the compensation of the managers in most of these funds as more fully described below. Common conflict of interest situations Fee structure Compensation arrangements in investment funds can lead to numerous inherent conflicts of interest. While most private equity, venture capital and hedge funds provide for a carried interest or performance fee, it remains that a significant portion of managers' compensation comes from management fees charged to the fund. Those management fees are intended to compensate the manager for internal overhead costs incurred in its day-to-day operations and are not meant to be a source of profit. However, when a manager plays an active role in managing the assets of the funds (as is often the case with private equity and venture capital funds), those management fees typically do not cover all the overhead incurred in connection with the active management of those assets (for example, as a result of the need to hire additional staff to monitor a portfolio company). In this type of situation, the manager will often seek alternative forms of compensation by charging additional fees or expenses to the investment funds or the portfolio companies in which the funds invest. These fees can be in the form of an asset management fee or a negotiation fee charged in connection with securing a portfolio investment or for the day-to-day management of a portfolio investment. It can also be in the form of compensation paid directly to the principals of the manager acting as officers or directors of such portfolio companies. Although these types of compensation are not problematic in and of themselves, they create an inherent conflict of interest since the additional fees are an expense assumed directly or indirectly by the fund and at the same time constitute a source of revenue for the manager or its principals. As a result, and since any such fees or expenses decrease the overall asset value of the funds, it is imperative that these fees and situations be adequately disclosed to investors (the disclosure must describe not only the type or nature of the fee but also how it will be calculatedand has been an important focus in many investors' operational due diligence in Canada and the U.S.4). The timing of such disclosure is important; investors must be aware at the time of their commitment to the fund, that this type of fee could be charged to the fund or its portfolio investments by the manager or its affiliates or principals and has been an important focus in many investors' operational due diligence in Canada and the U.S.5. Disclosure made during the life of the fund (for example, when the fee is actually paid) would not be considered sufficient or adequate. An example of the foregoing is the situation that resulted in Blackstone Management Partners ("Blackstone") being forced to pay a civil monetary penalty in 2015 for failing to disclose that it was entitled to accelerate the payment of future monitoring fees charged to the portfolio companies of its funds upon termination of the monitoring agreements it had signed with those portfolio companies6. Blackstone effectively terminated the monitoring agreements upon the private sale or initial public offering of the portfolio companies and then accelerated the payment of the future monitoring fees in accordance with the terms of the agreements. It must be highlighted that Blackstone had disclosed to investors at the time of their investment that it could receive monitoring fees from portfolio companies held by the funds it advised and disclosed the amount of the accelerated monitoring fees during the life of the funds. However, the SEC held that Blackstone had breached the U.S. Investment Advisers Act of 1940 by failing to disclose to the funds' limited partners prior to their capital commitment that it could accelerate future monitoring fees once the monitoring agreements ended. This decision highlights the importance of not only disclosing the potential fees and expenses to be borne by investors and the funds, but also any circumstances which might lead to an increase or decrease in their amount. The Blackstone case clearly shows the importance of having sufficiently detailed disclosure in the private placement or offering memorandum ("PPM") (or other disclosure document) provided to investors when they subscribe to the fund7. Such disclosure should include, for example, a statement that the principals of a venture capital fund could receive shares or fees to sit on the board of directors of start-ups in which the fund invests. Hedge fund managers should carefully disclose any side arrangement with a portfolio or sub-portfolio adviser, broker-dealer8 or custodian (including, in particular, referral or soft dollar arrangements). Managers that use a master-feeder investment fund structure should ensure that the disclosure clearly indicates how the fees and expenses incurred for the benefit of different funds in the structure will be allocated among these funds. These are only a few examples of the types of disclosure that should be provided to investors as part of their pre-investment due diligence. In addition to such disclosure made at the time of subscription, managers should also ensure that the quarterly and annual reports provided to investors are transparent regarding the compensation compensation directly or indirectly received by the manager, its affiliates and principals. The Institutional Limited Partners Association (the "ILPA") provides a template of the disclosure to be included in quarterly reports as part of its "Reporting Best Practices"9, which managers can use to ensure an adequate level of reporting. Investment funds subject to Regulation 81-106 respecting Investment Fund Continuous Disclosure10 ("NI 81-106")11 should also refer to the rules in that Regulation and in particular section 2.5 of Form 81-106F1, Contents of Annual and Interim Management Report of Fund Performance (MRFP), which states that any commission, spread or other fee paid by the investment fund to any related party12 in connection with a portfolio transaction must be discussed under the heading "Related Party Transactions". Regardless the level of disclosure provided in the PPM or in quarterly reporting, managers should also always ensure that the funds' organizational documents explicitly authorize them to charge the fees (or other forms of compensation) that are being charged directly or indirectly to the funds. Furthermore, notwithstanding the existing disclosure requirements, the Canadian Securities Administrators also provide that registered managers should consider whether any particular benefits, compensation or remuneration practices are inconsistent with their obligations to clients13. Transactions involving multiple funds managed by a single manager Another typical conflict of interest is the transfer, as part of the liquidation process of a private equity or venture capital fund, of the interest the fund held in certain portfolio companies to a follow-on fund. Such transfers occur when the manager was unable to find a successful exit for a portfolio company but considers that the investment is performing sufficiently well to justify transferring it to a follow-on fund. These situations lead to an inherent conflict of interests since the fund manager will effectively be negotiating on both sides of the table with respect to the sale of such investment between the funds as it manages both the selling fund that controls the portfolio company and the follow-on fund purchasing the investment in the portfolio company. The manager can be incentivized to benefit the selling fund to maximize its carried interest or, depending on how the selling fund has been performing, might be tempted instead to use the portfolio company as an attractive seed asset for its follow-on fund. Since the manager is negotiating with itself, investors could be concerned that the transaction will not occur at a fair market value. This can adversely impact either the investors of the selling fund or those of the follow-on fund as some limited partners of a previous fund will often invest in the follow-on fund, but typically not all of them. The favored way to manage such conflicts of interest is by stating in the funds' organizational documents that if a transaction occurs among funds managed by the fund manager, the manager will seek a formal valuation of the portfolio companies being transferred from an independent third party appraiser or will submit the pricing terms and conditions of the transaction for approval to the investors or to the fund's advisory committee. The organizational documents could also provide that the investors or the fund's advisory committee can be entitled to require an independent third party valuation if they so wish. Funds with overlapping investment periods and investment policies create another situation in which a manager can be incentivized to favour one or more funds it manages over others. A manager finding itself in this situation will have to choose which funds will invest in a specific opportunity and in what proportion. Again, the manager could be tempted to favour certain funds over others depending on how they have been performing or according to their compensation structure. The rules set forth in the organizational documents of private equity and venture capital funds typically prohibit their managers from managing simultaneous competing14. funds in order to avoid such conflicts of interest, often with an exception allowing the manager to create a follow-on fund (with a similar or overlapping investment policy) once a certain percentage of the undrawn capital commitments of the previous fund have been invested (or reserved for follow-on investments and expenses). The best way for investors to protect themselves against the inherent conflict of interest arising from such a situation is to provide in the fund's organizational documents or in side letters that the manager is required to cause both funds to make parallel investments during any such period based on the amount of each fund's respective undrawn capital commitment. Contrary to private equity and venture capital fund managers, hedge fund managers typically are not prevented from managing competing funds and often simultaneously manage various funds with investment policies that overlap in certain situations (and may also manage other clients' accounts under a discretionary mandate). These managers should adopt a clear policy to determine how they will allocate investment opportunities among their funds. The policy should be sufficiently detailed to allow an investor to determine whether the terms of the policy have been met with respect to a given investment. Preferably, the policy should not simply state that the manager will allocate trades in a fair and equitable manner in light of the investment objectives and strategies of the funds and other factors. The content of the policy should be adequately described to investors in the PPM given to them when they subscribe. The PPM should also clearly describe that such a conflict of interest could arise and how the manager will deal with it. Conclusion While the above describes some of the more commonly encountered conflicts of interests, the diversity of such situations should not be underestimated. For example, different "related-party" transactions "Not all conflicts of interests are problematic and need to be addressed." can occur during the life of a fund. Both the manager and investors have an incentive to ensure that the organizational and disclosure documents of the funds clearly define what types of transactions they will consider to be "related-party transactions" and how these transactions will be handled and reviewed by the managers and/or the advisory committee15. Adequate and detailed disclosure will make clear to the manager which situations fall within the scope of "relatedparty transactions" and are thus subject to the conflict of interest rules established by the manager. In its reporting template, the ILPA proposes a definition of "related party"16 which can be used by managers and investors as a guideline to determine which situations should be covered. On the other hand, investors must understand that not all conflicts of interests are problematic and need to be addressed. There is a certain level of misalignment between the manager's and the investors' respective interests in a fund17 and not all of it can be managed in a cost-efficient manner; meaning that it is preferable for investors to accept that managerial actions may conflict with their best interests rather than seeking a perfect alignment of the manager's interests with their own or trying to give to the advisory committee a power of oversight over any type of misalignment. Hence, all parties involved should take a balanced approach in negotiating the conflict of interest provisions of a fund's limited partnership agreement or a side letter between the manager and an investor and pinpoint specific situations in which the advisory committee should be consulted or approve a related-party transaction. See SAHLMAN, William A. (1990). The Structure and Governance of Venture-Capital Organizations. Journal of Financial Economics, Vol 27, pp. 473-521 regarding the issue of information asymmetry in investment funds. Securities and Exchange Commission speech – Julie M. Riewe, Co-Chief, Asset Management Unit, Division of Enforcement, "Conflicts, conflicts everywhere", February 26, 2015. This article cites certain regulations and policy statements of the Canadian Securities Administrators(« CSA ») and certain cases litigated by the SEC in the United States. Although many Canadian private equity or venture capital funds and their managers are not subject to regulatory oversight by the CSA and are therefore not governed by these regulations or case law, the guidelines developed by the CSA and the extensive jurisprudence developed by the SEC could potentially support a lawsuit brought by investors in Canada against unregistered managers for breach of fiduciary duty based on the Civil Code of Québec, , in Québec, the organizational documents of the funds, or the securities legislation of certain provinces providing for a statutory right of rescission or damages for misrepresentations in PPMs. The standards discussed in this article should therefore be relevant and should also be used as guidance for Canadian managers not registered with a Canadian securities regulator. In the case of a fee based on an amount of assets under management, for example, the disclosure should clarify how those assets are valuated See Section 13.4 of the Policy Statement to Regulation 31-103 respecting Registration Requirements, Exemptions and Ongoing Registrant Obligations ("Policy Statement 31-103") which states: "Registered firms and their representatives should disclose conflicts of interest to their clients before or at the time they recommend the transaction or provide the service that gives rise to the conflict." SEC, Litigation, Release No. 4219, 2015. Policy Statement 31-103 states that the disclosure must "be prominent, specific, clear and meaningful to the client, and explain the conflict of interest and how it could affect the service the client is being offered". See in particular the requirements set forth in Regulation 23-102 respecting Use of Client Brokerage Commissions and the related policy statement. Reminder: A registered manager has a "best execution" obligation, i.e. it must find the most advantageous trading execution terms reasonably available under the circumstances when selecting a broker-dealer for trades effected on behalf of the fund, as prescribed by Regulation 23-101 respecting Trading Rules. ILPA Best Pracices. See more particularly footnotes 4 and 5 of the sample report attached to the Quarterly Reporting Standards, Version 1.1 of the ILPA (originally released in October 2011 and revised in September 2016). Regulation 81-106 respecting Investment Fund Continuous Disclosure in Québec. NI 81-106 applies to investment funds (as defined in the Securities Act (Québec)) that are reporting issuers. For more information on the definition of "investment funds" in the Securities Act (Québec), see our article entitled "Registration Requirements of Venture Capital and Private Equity Fund Managers in Canada: A Favourable Regulatory Framework" published in May 2014 in the Lavery Capital newsletter. NI 81-106 refers to the Canadian Institute of Chartered Accountants Handbook with respect to the notion of "related party". See Section 13.4 of Policy Statement 31-103 under the "Compensation Practices" section. See also the "Compensation-related conflicts of interest" section in the Investment Industry Regulatory Organization of Canada (IIROC) Notice 12-0108. In this article, the term "competing funds" simply refers to funds that are authorized to invest in the same opportunities and can therefore be considered to be competing with each other with respect to certain types of investment opportunities. The requirement to submit a related party transaction to the advisory committee is typically found in investment funds raising capital from institutional investors, not in retail-type funds See the "Related Party Definition" tab of the ILPA Reporting Template (Version 1.1 published in January 2016). For example, the carried interest compensation structure typically found in many funds can give the manager an incentive to make riskier or more speculative investments than what would normally be in the best interests of the fund's investors in order to generate greater compensation.
Press release from the ministère des Finances of Québec
Consultation on the 20% Rule
On April 18, 2017, the ministère des Finances of Québec announced a public consultation on the rules enacted in An Act respecting the distribution of financial products and services to limit the ownership of damage insurance firms by financial institutions. This consultation's objective is to receive comments and input from consumers and the industry on the relevance of the body of rules prohibiting financial institutions from holding more than 20% of the shares of a firm registered for the damage insurance sector that acts through a damage insurance broker (the "20% Rule"). Notably, the ministère des Finances is seeking responses to the following questions: Does the 20% Rule respecting the ownership of damage insurance firms guarantee a broker's objectivity and adequately contribute to prevent conflicts of interest? Can conflicts of interest be regulated without imposing restrictions on the ownership of damage insurance firms? In that regard, what would justify a difference of treatment between personal insurance and damage insurance? If the 20% Rule was to be abrogated, should rules governing the disclosure of business relationships and representatives' titles be revamped to make sure consumers are well informed? The public consultation period ends on June 23, 2017. The ownership of damage insurance firms has been a highly debated topic in the Québec financial services industry for many years. When first adopted in 1988, the 20% Rule aimed to protect the independence of brokers, to prevent conflicts of interest and ensure the objectivity of their service offering. Ten years later, in the wake of the "Rapport quinquennal sur la mise en œuvre de la Loi sur les intermédiaires de marchés", new rules were enacted on the disclosure of business relationships and to prohibit the holding of more than 49% of the exchange-traded shares of firms registered in the damage insurance category by financial institutions. Changes in business models in the insurance sector, the consumers' expectations respecting insurance products distribution methods, the industry members' ability to adapt to market demands and the absence of a rule similar to the 20% Rule in the other Canadian provinces have led the ministère des Finances to reassess the relevance of the 20% Rule.
CRS: Be ready for July 1st, 2017
CRS entry into force: July 1st, 2017 The Common Reporting Standard ("CRS") will impose new obligations on financial institutions, including investment funds, as of July 1st, 2017. These rules are an addition to the existing Foreign Account Tax Compliance Act ("FATCA"), which applies to Canadian investment funds. The entry into force of the CRS means that, as of 2018, at the time of reporting, any investment fund that does not comply with its due diligence and reporting obligations regarding a reportable account it maintains might be subject to penalties. New guides from the Canada Revenue Agency Guidance on the CRS Guidance on the FATCA Self-certification forms - for entities: English and French - for individuals: English and French The Canada Revenue Agency ("CRA") recently published new guidance that aims to assist financial institutions in complying with the obligations under the FATCA and the CRS. Here is an overview of the new measures that will be put in place and of recent publications by the CRA. CRS Canada signed the Multilateral Competent Authority Agreement ("MCAA") on automatic exchange of information on June 2nd, 2015. Through this agreement, Canada committed to implement the CRS. The purpose of the CRS is to make tax avoidance more complex for taxpayers. It advocates for international cooperation through the establishment of a system for the automatic transmission of tax information among the countries which adhere to it. In Canada, the implementation of this standard will be accomplished by way of an amendment to the Income Tax Act.1 This amendment will come into force on July 1st, 2017. In general terms, the CRS requires financial institutions to disclose certain information to the CRA regarding account holders or beneficial owners who are residents of foreign countries. The CRA will in turn transmit this information to the countries concerned and ensure that the taxes owed to these countries are paid. The CRS defines the due diligence procedures that must be put in place, the financial institutions that have to report, the different types of accounts to report, the taxpayers concerned, and the financial account information to be exchanged. The CRS draws significantly from the FATCA.2 Due diligence The due diligence procedure requires financial institutions, including investment funds, to identify reportable accounts by collecting information about account holders. The main objective of this procedure is to determine the tax residency of the account holders and their beneficial owners. Financial institutions are required to collect indicia linked to account holders and request account holders to self-certify their residence status. Any entity or individual who wishes to open an account after June 30th, 2017, and even before, will have to give this information to the investment fund in order to proceed with the opening of the account and the investment. Reporting Every financial institution, including every investment fund, will have to report to the CRA the required information on reportable accounts collected during the due diligence procedure. The reporting is done electronically. General information such as the name, address, foreign taxpayer identification number, jurisdiction, and birth date of the holder will be reported to the CRA if the account is classified as a reportable one. Institutions will also have to communicate the account balance, at the end of the year, and the payments made during the year. This information will be sent directly by the CRA to the tax authorities in the country of residence of the account holder or of the beneficial owners. New publications from the CRA On March 22nd, 2017, along with the presentation of the 2017 federal budget, the CRA released two new guidance documents, one on the CRS and one on the FATCA, intended for financial institutions. In addition to the guidance documents, the CRA also introduced new online self-certification form templates that can be used by financial institutions in order to ensure that they have obtained all the necessary information to comply with the standards. The use of these forms is not mandatory, but it is recommended by the CRA. Institutions that make the decision to continue using their own forms or the American W8 forms will need to ensure that they meet all their obligations and that their forms allow the collection of all necessary information and attestations from account holders. Income Tax Act, R.S.C. (1985), c. 1 (5th Supp.), section XIX. www.lavery.ca/en/publications, see our newsletter Lavery Capital, No. 4, April 2015.
Artificial Intelligence and the 2017 Canadian Budget: is your business ready?
The March 22, 2017 Budget of the Government of Canada, through its "Innovation and Skills Plan" (http://www.budget.gc.ca/2017/docs/plan/budget-2017-en.pdf) mentions that Canadian academic and research leadership in artificial intelligence will be translated into a more innovative economy and increased economic growth. The 2017 Budget proposes to provide renewed and enhanced funding of $35 million over five years, beginning in 2017–2018 to the Canadian Institute for Advanced Research (CIFAR) which connects Canadian researchers with collaborative research networks led by eminent Canadian and international researchers on topics including artificial intelligence and deep learning. These measures are in addition to a number of interesting tax measures that support the artificial intelligence sector at both the federal and provincial levels. In Canada and in Québec, the Scientific Research and Experimental Development (SR&ED) Program provides a twofold benefit: SR&ED expenses are deductible from income for tax purposes and a SR&ED investment tax credit (ITC) for SR&ED is available to reduce income tax. In some cases, the remaining ITC can be refunded. In Québec, a refundable tax credit is also available for the development of e-business, where a corporation mainly operates in the field of computer system design or that of software edition and its activities are carried out in an establishment located in Québec. This 2017 Budget aims to improve the competitive and strategic advantage of Canada in the field of artificial intelligence, and, therefore, that of Montréal, a city already enjoying an international reputation in this field. It recognises that artificial intelligence, despite the debates over ethical issues that currently stir up passions within the international community, could help generate strong economic growth, by improving the way in which we produce goods, deliver services and tackle all kinds of social challenges. The Budget also adds that artificial intelligence "opens up possibilities across many sectors, from agriculture to financial services, creating opportunities for companies of all sizes, whether technology start-ups or Canada's largest financial institutions". This influence of Canada on the international scene cannot be achieved without government supporting research programs and our universities contributing their expertise. This Budget is therefore a step in the right direction to ensure that all the activities related to artificial intelligence, from R&D to marketing, as well as design and distributions, remain here in Canada. The 2017 budget provides $125 million to launch a Pan-Canadian Artificial Intelligence Strategy for research and talent to promote collaboration between Canada's main centres of expertise and reinforce Canada's position as a leading destination for companies seeking to invest in artificial intelligence and innovation. Lavery Legal Lab on Artificial Intelligence (L3AI) We anticipate that within a few years, all companies, businesses and organizations, in every sector and industry, will use some form of artificial intelligence in their day-to-day operations to improve productivity or efficiency, ensure better quality control, conquer new markets and customers, implement new marketing strategies, as well as improve processes, automation and marketing or the profitability of operations. For this reason, Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal peculiarities, particularly the various branches and applications of artificial intelligence which will rapidly appear in companies and industries. The development of artificial intelligence, through a broad spectrum of branches and applications, will also have an impact on many legal sectors and practices, from intellectual property to protection of personal information, including corporate and business integrity and all fields of business law. In our following publications, the members of our Lavery Legal Lab on Artificial Intelligence (L3AI) will more specifically analyze certain applications of artificial intelligence in various sectors and industries.
The Supreme Court of Canada reinforces the protection of litigation privilege by elevating it to class privilege status
Ten years after Blank v. Canada (Minister of Justice),1 the leading case regarding litigation privilege, the Supreme Court of Canada has seized the opportunity to reaffirm and expand on the principles set out in that important decision. Indeed, in its most recent case, Lizotte v. Aviva Insurance Company of Canada,2 rendered on November 25, 2016, Canada's highest court clarified the limits and reinforced the scope of litigation privilege. It also closely considered what legislators would have to do to derogate from the application of this common law privilege which also applies under Québec civil law. The context This case originated in the context of an investigation by the assistant syndic of the Chambre de l'assurance de dommages of a claims adjuster subject to her powers of investigation in matters of professional conduct. Relying on section 337 of the Act respecting the distribution of financial products and services (the "Act"), which provides for the duty of an insurer to forward "any document or information" on the activities of a representative under investigation, the assistant syndic asked the Aviva insurance company to provide her with a full copy of the claim file held by the adjuster. Aviva opposed the request on the ground that some of the documents were protected by litigation privilege. Although the privilege issue later became moot since a settlement was reached in the litigation involving Aviva and its insured, the syndic nonetheless decided to file a motion for a declaratory judgment before the Court on the issue of whether the general wording of section 337 of the Act is enough to set aside litigation privilege. The characteristics of litigation privilege As stated in the Blank case, rendered by the Supreme Court in 2006, the purpose of litigation privilege is to ensure the efficacy of the adversarial process, by leaving the parties "to prepare their contending positions in private, without adversarial interference and without fear of premature disclosure".3 Litigation privilege therefore creates an immunity from disclosure with respect to documents and communications whose "main purpose" is the preparation for litigation. Due to its origins, this privilege has often been conflated with solicitorclient privilege. However, the Blank case made a very clear conceptual distinction between these two notions. In Blank, the Supreme Court noted that "[t]hey often co-exist and one is sometimes mistakenly called by the other's name, but they are not coterminous in space, time or meaning".4 The Court also states that litigation privilege, "unlike the solicitor-client privilege, is neither absolute in scope nor permanent in duration".5 The distinctions between these two concepts as identified in the Blank case are repeated in the Lizotte case: The purpose of solicitor-client privilege is to protect a relationship, while that of litigation privilege is to ensure the efficacy of the adversarial process; Solicitor-client privilege is permanent, whereas litigation privilege is temporary and lapses when the litigation ends; Litigation privilege applies to unrepresented parties, even where there is no need to protect access to legal services; Litigation privilege applies to non-confidential documents. In fact, contrary to solicitor-client privilege, confidentiality is not an essential condition of litigation privilege; Litigation privilege is not directed at communications between solicitors and clients as such. Despite the clear distinctions between these two types of privilege, the Lizotte case does point out their common characteristics, particularly the fact that they serve a common cause: the secure and effective administration of justice.6 The Court is then asked to address the issue of whether litigation privilege can be raised against third parties, particularly investigators. According to the Court, it would not be appropriate to exclude third parties from the application of this privilege or to expose this privilege to the uncertainties of disciplinary and legal proceedings which could result in the disclosure of documents that would otherwise be protected, even assuming that there is no risk that a syndic's inquiry will result in the disclosure of privileged documents. Indeed, the mere possibility of a party's work being used by the syndic in preparing for litigation could discourage that party from writing down what he or she has done.7 As a result, unless a third party can satisfy the conditions of a recognized exception to litigation privilege, such privilege can be raised against him or her. Finally, it is interesting to note that in the Blank case, the Court recognized that while solicitor-client privilege has benefited from a liberal interpretation, commensurate with its importance, the situation has been notably different for litigation privilege, the scope of which had to be adapted to the modern trend in the legislation and case law towards mutual and reciprocal disclosure, the hallmark of the judicial process.8 The recognition of a new class privilege However, this last remark, which could correctly be referred to as an obiter dictum, did not prevent the Supreme Court from pushing further the recognized protection of litigation privilege in the Lizotte case by elevating it to "class privilege" status, that is, a privilege with a nondisclosure presumption each time its conditions of application are met. This is to be contrasted with a privilege recognized on a case-by-case basis, whose application depends upon a specific analysis based on a four-pronged test, including a balancing of the interests involved. The Court states as follows: "[36] Thus, although litigation privilege differs from solicitor-client privilege in that its purpose is to facilitate a process — the adversary process (Blank, at para. 28, quoting Sharpe, at paras. 164-65) — and not to protect a relationship, it is nevertheless a class privilege. It is recognized by the common law courts, and it gives rise to a presumption of inadmissibility for a class of communications, namely those whose dominant purpose is preparation for litigation (Blank, at para. 60). [37] This means that any document that meets the conditions for the application of litigation privilege will be protected by an immunity from disclosure unless the case is one to which one of the exceptions to that privilege applies. As a result, the onus is not on a party asserting litigation privilege to prove on a case-by-case basis that the privilege should apply in light of the facts of the case and the "public interests" that are at issue (National Post, at para. 58)." To grasp the importance of the Lizotte case, one must understand that the law has recognized precious few of these so-called "class" privileges. Except for solicitor-client privilege, which is "the most notable example of a class privilege,"9the only other class privileges which we have encountered in the case law are police informer privilege,10 spousal privilege11 and litigation privilege.12 In the case of R. v. National Post, the Supreme Court even refused to recognize class status for the privilege of journalists' confidential sources, noting that "[i]t is likely that in future such "class" privileges will be created, if at all, only by legislative action." Exceptions to litigation privilege As with other class privileges, litigation privilege is subject to clearly defined exceptions, rather than a balancing of interests on a case-by-case basis. The Court has therefore decided that the recognized exceptions to solicitor-client privilege are also applicable to litigation privilege,13 that is, those exceptions related to public safety, the innocence of an accused, and communications of a criminal nature. There is also the exception to litigation privilege already recognized in the Blank case regarding the disclosure of "evidence of the claimant party's abuse of process or similar blameworthy conduct." Legislative exceptions to litigation privilege Although it is undeniable that litigation privilege does not benefit from the same status as solicitor-client privilege — a principle of fundamental justice and a "civil right of supreme importance in the Canadian justice system"14 — it nonetheless remains the case that it has been referred to as being "fundamental to the proper functioning of our legal system"15 since it is at the heart of our accusatory and contradictory system and because it promotes the search for truth by allowing the parties to adequately prepare for litigation. For this reason, the Court reminded us of the requirement whereby the modification or revocation of common law rules, which are of fundamental importance, requires that the legislator use clear and explicit language. As a result, a party cannot be deprived of the right to claim litigation privilege in the absence of a clear and explicit legislative text. In that respect, section 337 of the Act, on which the assistant syndic was relying, was not deemed to be sufficient to set aside the application of that privilege. Therefore, the Québec legislator, as well as the legislators of the other provinces and the federal legislator, will have to take note of this important decision and will likely be called upon to amend the wording of the general provisions regarding the production of documents where they do not specify that they apply to documents in respect of which litigation privilege, or any other privilege of a similar nature, may be relied upon. [2006] 2 S.C.R. 319 ("Blank"). 2016 SCC 52 ("Lizotte"). Blank, para 27. Id., para 1. Id., para 37. Lizotte, para 24. Id., para 52. Blank, para 60, 61. R. v. McClure, [2001] 1 S.C.R. 445, para 28. R. v. Basi, [2009] 3 S.C.R. 389, para 22. Canada Evidence Act, RSC 1985, c C-5, sec. 4(3); R. c. McClure, cited above, para 28. Sable Offshore Energy Inc. v. Ameron International Corp., [2013] 2 S.C.R. 623, para 12. Smith v. Jones, [1999] 1 S.C.R. 455, para 44. Canada (Attorney General) v. Chambre des notaires du Québec, 2016 SCC 20, para 5. Canada (Privacy Commissioner) v. Blood Tribe Department of Health, [2008] 2 S.C.R. 574.
Honesty of financial advisors and discretion of the Autorité des marchés financiers: the Québec Court of Appeal rules
In a decision issued last May 20,1 the Québec Court of Appeal affirmed a judgment2 of the Superior Court of Québec rendered on October 28, 2013, which dismissed the action in damages for more than $7 million brought by a former representative in insurance of persons and in group savings plan brokerage, Mr. Alan Murphy, against the Autorité des marchés financiers ("AMF"). Facts Mr. Murphy was convicted in 2007 by the Disciplinary Committee of the Chambre de la sécurité financière of 32 charges,3his registration was permanently cancelled, as well as being temporarily cancelled for three years and one year, in respect of his areas of practice, and he was fined a total of $20,000. He then obtained a stay of both the permanent cancellation and the payment of the fines.4 Upon review by the Court of Québec, his sentence was reduced to a temporary cancellation for one year as well as the payment of a $12,000 fine.5 Despite the revocation of his certificate and the numerous notices from the AMF, Mr. Murphy continued acting as a representative, thereby significantly worsening his disciplinary record. Upon the expiry of the period during which his registration was temporarily cancelled, the AMF refused to renew Mr. Murphy's certificate of practice. Claiming that in doing so the AMF had acted excessively, unreasonably and contrary to the requirements of good faith by multiplying the administrative obstacles, inspections and investigations against him, he sued the AMF in the Superior Court, contending that their actions demonstrated the bad faith required to substantiate a claim for $7 million in damages. Among other things, Mr. Murphy cited the judgment of the Court of Québec which had changed the sanction imposed on him and criticized the AMF. In response, the AMF argued that its refusal to issue a new certificate to Mr. Murphy was justified because he lacked the necessary degree of honesty to practise as a representative in insurance of persons and in group savings plan brokerage. Essentially, the issue raised was whether the AMF was protected by the relative immunity conferred on it for acts performed in good faith in the exercise of its functions, as provided in section 32 of the Act respecting the Autorité des marchés financiers.6 Judgment of the Court of Appeal Firstly, the Court stated that the clause protecting the AMF is comparable to the clause that protects the Quebec professional orders. It then cited the leading decision of the Supreme Court of Canada on relative immunity clauses, the Finney case,7 which states that bad faith includes, among other things, intentional fault, which can constitute an abuse of power. This concept also includes serious carelessness or recklessness which "implies a fundamental breakdown of the orderly exercise of authority, to the point that absence of good faith can be deduced and bad faith presumed."8 Next, to determine whether Mr. Murphy had the necessary honesty to carry on his practice as an advisor in group insurance, the Court considered the numerous decisions which the AMF had rendered against him. It should be noted that Mr. Murphy took all the measures available to him to contest9 the decisions rendered against him, while choosing nonetheless to continue practising his profession, despite the fact he no longer had the certificate authorizing him to practice. As a result, several penal complaints10 were also lodged against him. The Court of Appeal found that the discretionary power conferred on the AMF under section 220 of the Act respecting the distribution of financial products and services11 ("ADFPS") to assess the degree of honesty of persons applying for authorization to practise as a financial advisor, and to issue certificates based thereon, is within the exclusive jurisdiction of the AMF. The fact that Mr. Murphy had illegally engaged in activities reserved for representatives was a sufficient ground which allowed the AMF to conclude that he lacked a sufficient degree of honesty pursuant to sections 219 and 220 of the ADFPS. The Court found that the AMF had adequately assessed Mr. Murphy's lack of honesty in refusing to issue his certificate. Accordingly, the Court of Appeal held that the AMF benefited from the immunity conferred by section 32 of the Act respecting the Autorité des marchés financiers against the action instituted by Mr. Murphy. It therefore upheld the judgment of the Superior Court dismissing his action. Murphy c. Autorité des marchés financiers, 2016 QCCA 878. Murphy c. Autorité des marchés financiers, 2013 QCCS 5764. Rioux c. Murphy, June 12, 2007, No. CD00-0404. Murphy c. Chambre de la sécurité financière, 2007 QCCQ 7950. Murphy c. Chambre de la sécurité financière, 2008 QCCQ 5427; Murphy c. Autorité des marchés financiers, 2010 QCCA 1078; application for leave to appeal to the Supreme Court of Canada dismissed (S.C. Can., 2011-01-27) 33860. Act respecting the Autorité des marchés financiers, CQLR, c. A-33.2. Finney v. Barreau du Québec, [2004] 2 S.C.R. 17. Ibid., para. 40. 2008-PDIS-0086 (July 25, 2008); 2008-DIST-0090 (September 19, 2008); 2009-PDIS- 0190 (July 23, 2009); Murphy c. Albert, 2009 QCCS 6366; Murphy c. Albert, 2011 QCCA 1147; 2011-PDIS-0249 (October 7, 2011); number unknown (January 10, 2012). Autorité des marchés financiers c. Murphy, 2010 QCCQ 11692; Murphy c. Autorité des marchés financiers, 2011 QCCS 3510; Murphy c. Autorité des marchés financiers, 2011 QCCA 1688; Autorité des marchés financiers c. Murphy, 2016 QCCQ 2992. CQLR, c. D-9.2.
The Court of Appeal: The liability of the life insurance broker is not limited to the framework of the contractual relationship
The facts of the Roy v. Lefebvre case On June 25, 2014, the Superior Court1 allowed the action of an insured against a life insurance broker and his firm. The context of the subscription of the insurance policy is somewhat unusual and deserves explanations. In 1992, the purchaser of an immovable property undertook to pay part of the purchase price through the subscription of an insurance policy (the "Policy") on the life of the seller for the benefit of the estate of the seller. The purchaser undertook to pay the premiums by subscribing to an annuity contract with the insurer, which included the payment of the premiums for the first year. The insurance broker represented to his client and to the seller that the annuity contract would pay for all the premiums since they would be paid for the subsequent years from the accumulation fund of the policy, on the basis of an estimated annual return of 7.8%. On August 19, 2008, the purchaser notified the seller that the funds accumulated were insufficient to pay the premiums. On June 3, 2009, the purchaser notified the seller that if the insurance premiums were not paid for the next three years, the Policy would lapse. Although formally put on notice by the seller, the purchaser of the immovable and the insurance broker neglected to take the necessary means to ensure that the premiums would be paid. On August 19, 2011, the seller instituted proceedings against the purchaser, the insurance broker and the brokerage firm. The purchaser instituted warranty proceedings against the broker and the firm. Starting on June 25, 2013, the seller had no alternative but to personally assume the payment of the premiums to maintain the Policy in force. The decision of the trial court The Superior Court noted that the insurance product proposed by the broker did not meet the needs of his client. Indeed, the broker had sold a "prepaid" Policy, not a "fully paid up" Policy on which no further premiums were payable. The prepaid Policy entailed risks since the payment process for the premiums from the annual estimated return of the accumulation fund of the Policy was not adequately explained to the client. The broker was held liable to his client, the purchaser of the immovable, because he had erroneously represented that only the premiums of the first year had to be paid at the time of the subscription of the policy and that all the subsequent premiums would be paid for with the returns from the annuity contract. The broker, thus, failed to discharge his duty to inform and to advise his client. As for the extracontractual liability (tort) of the insurance broker toward the seller of the immovable property, the trial judge relied on the principles of the Supreme Court decision Bank of Montreal v. Bail Ltée2 to conclude that the broker had failed in his obligation to act in good faith and adequately inform a third party. In fact, the broker clearly understood the objectives sought by the third party. The broker was fully aware of the business agreement entered into between the third party and his client, but nonetheless failed to discharge his duty to inform and, in so doing, committed an extracontractual fault for which he ought to be held liable. The purchaser of the immovable, the broker and his firm were condemned to pay to the plaintiff an amount of $1,200,010 representing the value of the insurance coverage on his life. The broker and his firm were also condemned to indemnify the purchaser for any amount due in the principal action. The judgment of the Court of Appeal: The extracontractual liability of the life insurance broker The Court of Appeal upheld the trial decision on the issue of the extracontractual liability of the broker and his firm toward the third party. The Court of Appeal seems to send a clear message to life insurance brokers whereby they are bound by a duty to inform and a duty of good faith beyond the framework of the contractual relationship and must necessarily consider the interests and rights of a third party when selling an insurance product. Robinson c. Lefebvre, 2014 QCCS 3045 (CanLII). Montréal v. Bail Limitée, [1992] 2 S.C.R. 554.
IIROC White Paper — Proposed changes to the current structure for distributing mutual funds in Canada
On November 25, 2015, the Investment Industry Regulatory Organization of Canada (IIROC) published a White Paper for consultation. It is seeking comment on two proposals which, if approved and implemented, would change the current structure for distributing mutual funds in Canada. A "restricted practice" policy and a policy involving directed commissions are being proposed. RESTRICTED PRACTICE POLICY The proposal would allow an IIROC dealer member to use representatives who would not advise and would only offer mutual funds and exchange-traded funds (restricted dealing representatives). To do so, they would not have to be trained and qualified to advise or trade the other categories of securities normally offered by the dealer. An IIROC dealer member who wishes to hire restricted dealing representatives currently must ask IIROC for an exemption from the proficiency upgrade requirement for a mutual fund representative who will work for it. The considerations described in the White Paper stem from such an exemption request. According to a survey of around forty brokerage firms, the conclusions of which are described in the White Paper, this proposal raises the issue once again of a possible merger between the Mutual Fund Dealers Association of Canada (MFDA) and IIROC. It would also harmonize the respective missions of these self-regulatory organizations (SROs) regarding the regulation of mutual fund representatives, at least those who are registered as restricted dealing representatives by IIROC. DIRECTED COMMISSION POLICY The proposed directed commission policy would allow an IIROC dealer member to pay commissions directly to an unregistered personal corporation controlled by a representative. This proposal is being put forward to support the restricted practice proposal since the survey mentioned above showed that "for many registered firms and individuals, eliminating the proficiency upgrade requirement on the IIROC platform is of limited interest unless directed commissions are also allowed". The MFDA already allows commissions to be directed to unregistered corporations provided a written agreement is signed by the mutual fund dealer, the representative and the representative's personal corporation stating that the dealer and the representative must comply with MFDA requirements and the representative and the personal corporation must both provide the mutual fund dealer full access to their books and records. ISSUES SPECIFIC TO QUEBEC In Quebec, the Chambre de la sécurité financière has exclusive responsibility for self-regulating mutual fund representatives under An Act respecting the distribution of financial products and services (Distribution Act). This means that a new IIROC category of restricted dealing representatives would require legislative changes in Quebec to allow a mutual fund representative to only be a member of IIROC through a dealer member of that organi- zation. Such changes to the Distribution Act are unlikely in the foreseeable future, at least until the Department of Finance has completed its review of the enforcement of the Distribution Act. We would also add to this list of conditions the approval of changes to the orders recognizing IIROC as a securities self- regulatory organization and the possible re-examination of exemptions from certain requirements of Regulation 31-103 which are granted to IIROC and MFDA dealer members. Such a re- examination would be required since such orders and exemptions are not issued based on an overlapping of the regulation of mutual fund representatives attached to these respective categories of dealers. MFDA CONSULTATION Further to the publication of the White Paper, the MFDA recently released the results of a consultation held with 79% of its members on the potential impacts of the application of IIROC's proposed policies. If the restricted practice policy is adopted, most MFDA member firms believe that they would either go out of business or be forced to merge with firms registered with IIROC. Such a step would only benefit MFDA member corporations that are also affiliated with an IIROC member corporation, which would allow them to reduce their operational costs, increase efficiency and be more competitive. MFDA members generally agree that the current SRO structure adequately protects investors and that the inevitable restructuring of this system that would result from the adoption of the restricted practice policy should be aimed at protecting investors, not reducing costs. MFDA members are therefore leaning in favour of the status quo with respect to the new policies discussed in the IIROC White Paper. The White Paper consultation will end on March 31, 2016.

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"Ann at the Icing Centre made our dream day become a fairy tale. The service, quality and care were outstanding and the cake had the real "wow" factor, everybody ourselves included were very impressed."
Cake prices for sponge cake start from £45 for 1 tier, £85 for two tiers, or fruit cakes from £55.
Let me turn your hobbies, interests, favourite TV or cartoon characters even you beloved pets into a unique cake design. Choose your own flavour cake too - chocolate sponge, lemon cake and carrot cake are also popular.
One tier cakes from £100, 3 tiers from £325. Sugarpaste models of the happy couple are £120.
From 1 tier to 7 tiers we can create the cake of your dreams. Using sugarpaste or royal icing your cake can be traditional, novelty, vintage, funky or fairytale. Hand made sugar flowers can complete your cake design, and we can replicate your wedding colours and flowers too.
Ann originally trained as a baker then developed her cake decorating skills and opened The Icing Centre over 20 years ago. Her cake decorating style is continually evolving and she finds inspiration from many sources.
She particularly loves working with piped designs, bright bold colours and making sugarpaste figures that look like the person or couple the cake is for.
Ann also has a range of instructional books and DVDs showing her cake-decorating techniques. You can watch her tutorials and buy cake decorating books, dvds and tools at annpickardsugarcraft.com.
Her WEDDING CAKE DVD is perfect if you are planning on making your own wedding cake - watch an excerpt here.
Ann is an original member of the South West Wedding Guild.
"Thank you so much for our amazing wedding cake. The work you did, attention to detail and how you personalized it for us to match our wedding invitations - it was far beyond our expectations, you have a gift! We had so many comments on how much fun the cake was, really showed our personality so well... Thanks again.. Dan and Dana."
Cakes MAY contain ingredients that can cause an allergic reaction.
DAIRY FREE, GLUTEN FREE and NUT FREE CAKES are available to order, (we can also decorate your own fruit cakes if you wish).
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