Archive for May, 2009

Sorry Seems to be the Hardest Word

Thursday, May 28th, 2009

Last October I did a post about the Ontario government’s intention to introduce legislation that would permit apologies to be made that did not affect any potential subsequent litigation.  Well, a few weeks ago (but just reported in the Ontario Gazette last week) the Apology Act, 2009 was proclaimed into force.  A few comments on the new legislation which is only has four sections.

Generally speaking, the Act provides as it was expected.  If you apologize, the apology will not be used as part of the other person’s case against your or as an admission of liability or fault on your part.  There are, however, two exceptions.  The first is that apologies can still be used against you for matters involving the Provincial Offences Act – that is, more minor crimes or regulatory violations.  So, if you get pulled over by the police and say “I’m terribly sorry Officer, I apologize for speeding over the limit” and then you later deny that you were speeding, the apology can be used against you as an admission that you were, in fact, speeding.

The second, and I would suggest more important, exception is that the Apology Act, 2009 will not affect Section 13 of the Limitations Act, 2002.  You’re probably thinking right now “That’s great – wait, what the heck does that mean?”  Well, the general rule is that I have 2 years to sue you whenever you do something wrong to me, break an agreement with me, etc.  An exception is made, however, for primarily debts.  Let’s suppose that you borrow $100 from me an agree to pay on January 1, 2010.  If you do not pay on January 1, 2010, then I would normally have until December 31, 2011 to sue you for the money and if I don’t sue until, say, January 2, 2012, I’m too late to sue you.  HOWEVER, if I acknowledge the debt during that 2 year period, then the time starts to run fresh from the date I acknowledged the debt.

How does one acknowledge the debt?  The easiest way it to make a part payment on the debt.  Another way is to put in writing that you agree that you still owe me the $100, for example.  But let’s suppose that I say on January 10, 2011 “You still owe me the money” to which you respond “I’m sorry I haven’t paid you.”  That apology can still be used as an acknowledgement of the outstanding debt with the result that you could be found to have re-started the time running so that I now have two years from that day, or until January 9, 2013, to sue you.

So, if you are being sued for a debt, someone is trying to repossess or recover personal property (ie. usually anything besides a house or land) or someone is trying to enforce their security against personal property, keep your mouth shut and don’t make any apologies.  Otherwise, you can apologize if someone is trying to sue you without the apology coming back to harm you.  That said, as a matter of course, try to keep quiet until you’ve had a chance to consult your lawyer.

CALC

Tweets and Twouble

Monday, May 25th, 2009

I read an interesting article this afternoon in the May 2009 issue of the New York State Bar Association Journal.  It is entitled “Look Who’s Talking: Legal Implications of Twitter Social Networking Technology” by a chap named Steven C. Bennett.  The full article can be found here and is an interesting read – and, thankfully, fairly brief for those of us with limited free time.

For those of you who don’t know, Twitter is all the rage right now and is Facebook meets blogs, but constrained to 140 words per “Tweet”.  The basic premise is that each “tweet” answers the question “What are you doing?” and it becomes a type of running diary.  For example, I remember that during the NBA All-Star game the Raptors marquee player, Chris Bosh, was injured and sat on the sidelines tweeting about how he wished he was playing in the game.  Needless to say, tweets are not often the most profound of pronouncements.

The question, though, is whether people – and in particular businesses – should be concerned about Twitter and tweets.  The short answer: probably.  The first problem lies with the format.  At a maximum of 140 characters for the message, the message often has to be brief.  The more brief a statement, the higher the possibility of misunderstanding – and thus disputes over what was really meant in the statement.  I’ll tie this in to a very interesting show I saw the other day that talked about the differences between male and female managers.  The psychiatrist used the example of the word “Okay.”  The study found that males use “Okay” to signify agreement with what was stated, while females use “Okay” to simply state that they have followed what was said – without agreeing or disagreeing with what was stated.  For female managers, they have to go further and say something like “Okay, I agree” to equal a simple “Okay” for a male manager.  Now, let’s take that situation and put it into a context where brevity is at a premium.  If your employee is making a quick proposal to a female manager at the customer and the response is “Okay”, do you have a deal?  Maybe, maybe not – and if maybe not, then you’ve likely now got a problem if your employee thinks that you have a deal and acts on that belief.

Moreover, without context, statements can be later found by a court to be defamatory or harassing (even when they weren’t intended that way but without the context this cannot be shown).  In addition, the less formal the method of communication, the more likely the participants are to be lackadaisical in their approach to company issues.  For example, employees sending tweets may not be as cautious in ensuring that company secrets are kept – or kept as securely as they would otherwise.

A problem with e-mail right now is “e-discovery” and litigators requesting access to a business’ e-mail servers to review all e-mails dealing with litigation.  As the author notes, there could come a time when litigators will be requesting access to tweets as well – and not many companies right now ensure that tweets are kept with their other electronic data such as e-mails.

Obviously this is early times for use of Twitter by company employees, but businesses should still give at least some thought for the moment over whether they face any potential exposure.

CALC

Law in Paris

Sunday, May 24th, 2009

I recently had to go to Paris for a few days on a personal matter.  I didn’t have time to take a lot of pictures, and I wouldn’t inflict them on you anyways.  But I thought I would share two pictures.

The first is of the offices of the French Ministry of Justice. 

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I am told that across the Place Vendome, where the offices are located, is the place where the composer Fredric Chopin spent his last days.  In the middle of Place Vendome is a slim monument / tower that is about 60 feet high and has a statute of Napoleon on the top.  It commemorates his victory at Austerlitz and the monument was made using the melted remains of the canons used in that battle.  In contrast, my friends who are working in the Department of Justice in Ottawa and Toronto get to look across at another bland office building.  I’m sure they’re jealous but won’t admit it.

The second picture is of the Palais de Justice (courthouse) in Paris.  Inside there are the trial courts, the Court of Appeal and the Cour de Cassation – the French equivalent of the Supreme Court. 

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The courthouse is on an island in the middle of the Seine river (L’Isle de la Cite) and is huge.  On the whole, I wouldn’t say that the exterior is more ornate than, say, the Supreme Court of Canada or the U.S. Supreme Court, but it is an impressive structure.  What is far more impressive is the interior but, unfortunately, my cell phone’s camera didn’t have a flash so none of those pictures really turned out and could not do justice to the beautiful ceilings and paintings on the walls.

Ultimately, it appears that the law is the same wherever you go (assuming you’re not in a corrupt country).  On one of my prior trips I had been in a nice restaurant for lunch and, as it turned out, I was seated beside a lawyer and his client.  I tried my best not to listen to the conversation, but I did enjoy it when the lawyer said to the client something along the lines of “we’ll do our best, but ultimately, sometimes the judge just does what he wants to do despite our best arguments to the opposite effect.”  Plus ca change …

CALC

Credit Card Rates Unaffected

Sunday, May 24th, 2009

As a quick update to my May 19 post, the federal government has introduced its proposed regulations for the credit card industry, but one of the items that was not affected was the rate at which the credit card companies can charge interest.

You can see more here.

So, for the time being we don’t have to worry about any effects on credit card companies that could, in turn, effect the interest rates charged by small businesses to their customers.

CALC

Everybody’s Incorporating

Sunday, May 24th, 2009

An interesting occurrence has been happening lately.  I have received at least one phone call or e-mail per day for the last few weeks for people seeking to incorporate new companies.  Given the current economic climate, this would appear to be counter-intuitive – when times are bad, people want to keep their jobs, not go out and start new businesses.  The answer to this apparent quandary is if we suppose that a person was “downsized”, “rightsized”, “capsized”, whatever, and is given a severance package of, say, six months.  After three or four months of searching for a new job, the person discovers that there aren’t any other jobs out there and if he/she wants to make money to keep going in a few months, they’d better create their own job.  Hence all the calls and e-mails now.

The primary question I am being asked lately is: how much is this going to cost me? The answer is that the general cost is: (a) legal fees of $900; plus (b) GST of $45; plus (c) filing fee for articles of incorporation – between $300 and $360 – depending on whether you do an Ontario or a federal incorporation; plus (d) approximate cost for a minute book of $200 (including one set of share certificates); plus (e) the cost of obtaining a NUANS search of $30 – which is not required if you go with a numbered name (for example, 1234567 Canada Inc.).  Total cost: $1,545 including all taxes (assuming the highest incorporation fee and a NUANS search).  Also, this assumes a relatively straightforward incorporation.  If you start getting into multiple classes of shares with different share attributes, etc., etc., the cost for the legal fees goes up – the more complicated, the more expensive.  Now, the first thing you’re going to do is to have your jaw drop and think “Holy Smokes! (or something like that) I can go down to the paralegal who is advertising incorporation for only $400.”  Let’s make sure, though, that you are comparing apples to apples and not apples to oranges. 

The first thing that you see is that the advertisement says “$400 for incorporation” and usually has an asterisk that if you look down at the bottom of the add will then say “plus applicable filing fees and taxes”.  So, you’re looking at $400, plus the $300 to $360 for the filing fee, plus the GST.  This means that, right away, $400 is really $400 plus $20 for GST plus $360 (again, assuming the highest cost for the filing fee), or $780. 

The second thing is to realize that you are paying for an incorporation – nothing more, nothing less.  The end result is that you will get a copy of the Articles of Incorporation and that’s it.  There will be no by-laws, no resolutions to create shares and issue them to shareholders, no election of directors, no appointment of officers, no appointment of accountants or auditors, no setting up bank accounts – all of which is known as “organizing” the company.  If the company is not organized, this can have huge impacts (and huge costs) down the road if the company ever gets audited by the tax man, or you wish to sell the company or do estate planning, etc.  Ultimately, the $1,545 you pay today is less than the amount you’ll have to pay later to fix things up retroactively – assuming that this can even be done in the circumstances.

CALC

What Rate’s Too High for Credit Cards?

Tuesday, May 19th, 2009

A decision last week of the New York Appellate Division, Second Department, in the O’Donovan case has caught my eye.  In that case, the plaintiff loaned $30,000 to the defendants to let them buy a home.  The effective interest rate of the loan was 31% which almost exceeded the permitted maximum rate of 16% (according to the General Obligation Law and the Banking Law) by double.   When the defendants did not pay, the plaintiff sued and sought summary judgment and the defendants similarly sought summary judgment on the basis that the interest rate was usurious and therefore the loan was unlawful and unenforceable.

The Appellate Division agreed with the defendants and dismissed the plaintiff’s claim.  In Canada the courts will now “read down” the interest rate in most cases to the point where the interest charged will be consistent with the maximum permitted by law – which at the present time is 60% in accordance with Section 347 of the Criminal Code.

What is interesting for the O’Donovan case is not the case itself but its timing.  At present, the Canadian government is subjecting credit card companies to closer scrutiny.  The federal Minister of Finance has announced that he is looking to regulate the credit card companies differently and has neither stated, nor ruled out, the possibility of putting caps on interest rates that can be charged.

The moves by the federal government in the near future will be interesting to watch – and should be watched closely by small businesses.  If the government seeks to only affect credit card companies, this could have an effect on small businesses at least indirectly – such as through reductions in the percentages or fees that credit card companies can charge for processing transactions.  However, if the government should decide to reduce the maximum permitted interest rate (perhaps to something in line with that of New York State at 16%), then this could be very significant to small businesses that decide to lend credit to their customers – especially since the definition of “interest” will also include any “late fees”, “administrative charges”, penalties, etc.  With the maximum interest rate at 60%, there is far more “wiggle room” for small businesses to avoid running afoul of this rate even if late fees, etc. are considered part of the interest rate.  If the maximum is reduced down to, say, 16%, there is far less margin for error and small businesses will have to pay a little more attention to the credit rates they are charging customers.

CALC

Supremacy of Arbitration Clauses

Monday, May 4th, 2009

I read a case last year with both personal and professional interest.  In Jean Estate, a dispute arose involving the appropriateness of a lawyer’s bill.  The key issue was whether the retainer agreement that required arbitration rather than litigation in the courts was binding.  The lawyers were former Smith Lyons lawyers now on their own.  They were represented by another former Smith Lyons lawyer who is at his own small firm.  The former clients were represented by Gowlings – of whom the lead counsel was a former Smith Lyons lawyer.  At one time or another I had worked with all of the participants except for the former clients so reading the case felt like “homecoming” or something similar.

In any event, the retainer agreement provided that all disputes had to go before an arbitrator.  The former clients argued that to do this would be to negate certain protections set out in the Solicitors Act such as the right to bring an application for an assessment before a Superior Court judge and the provisions of that Act that set out a code for determining the propriety of contingency fee arrangements.  The Superior Court agreed with the clients and ordered that there was no obligation to take the matter before arbitration as the Court had appropriate jurisdiction to deal with the issue.  On appeal to the Ontario Court of Appeal, the Court decided last week that the application judge was not incorrect, but that this wasn’t the end of the matter.  While the courts couldassume jurisdiction in certain circumstances (the general rule still being that the courts will defer to arbitrations if the parties have agreed to arbitration rather than litigation), the question in this case was whether it should exercise that jurisdiction.  Ultimately, the Court of Appeal held that there was no good reason to prevent an arbitration provided that the arbitrator followed the rules set out in the Solicitors Act and the code established there for dealing with contingency fee disputes.

The case is important for small businesses in two senses.  The first is the continued affirmation by the courts of the preference for arbitration.  So, if you are a party to a contract that has an arbitration clause, it will be quite difficult to get out of arbitrating disputes and, instead, having them resolved in the courts.  The second reason the case is important is because the Court of Appeal has indicated that where there are various protections set out in the law, the arbitration will have to proceed within the requirements of those protections.  Previously, while arbitrations were not seen as “anything goes”, there was certainly a fair amount of freedom for the parties to decide how to structure their arbitrations – not only in a procedural sense but also in the sense of what law would apply.  In this regard, the case has set out that the parties will not always be able to ignore or avoid the requirements of legislation, for example, if there is a public policy reason for ensuring that the protections afforded by the law ought to be observed in the arbitration.

CALC