Commercial Law Strategy Activities Report 2002


Since the 2001 annual meeting, three new projects were initiated under the Commercial Law Strategy. These relate to franchise legislation, section 347 of the Criminal Code and Bank Act security.

(A) Franchise Legislation

One of the principles which has informed the decisions of the Strategy's Steering Committee as it reviews its priorities is that new projects should only be undertaken where there is a demonstrable need and stakeholder support. It is in keeping with this approach that the Steering Committee recommended to the Conference that it initiate a project to develop a uniform franchise act for Canada.

Legislation specifically regulating franchises is currently in force in two provinces - Alberta and Ontario. However other provinces have indicated an interest in introducing legislation on this subject, partly at the behest of franchisees within their respective jurisdictions. The Conference believes that a uniform regulatory regime across all of Canada, bridging the interests of franchisors, franchisees and others involved in franchising, is a goal supported by all stakeholders.

Franchising has experienced phenomenal growth throughout the world and in Canada in recent years, and is of substantial significance to the Canadian economy. It is estimated that franchise businesses account for close to $100 billion dollars in sales across Canada, representing 40¢ out of every retail dollar spent. There are estimated to be over 1,000 franchise systems in Canada, with investments for franchises ranging from several thousand dollars for simple home service franchises to millions of dollars for franchises like fully equipped hotels.

The franchise law working group recently established by the Steering Committee is co-chaired by two leading Canadian franchise lawyers. John Sotos, of Sotos Associates, specializes in franchising, licensing and distribution law and served on the Ontario Government's Franchise Sector Working Team considering franchise legislation for that province. Frank Zaid, a senior partner at Osler, Hoskin & Harcourt LLP, has served as counsel to many of Canada's and the world's leading franchisors, and is Past General Counsel to the Canadian Franchise Association and Past Chair of the Council of Franchise Suppliers of the International Franchise Association

The Committee intends to engage in a wide consultative process in order to receive input and suggestions from all interested parties. A press release announcing the new franchise project was distributed to the members of the Strategy's mailing list and to a separate list of franchise stakeholders. We have also been setting up, with the assistance of the Conference's web master, a dedicated list serve for regular communications with stakeholders. In this fashion the working group hopes to ensure broad participation in the development of the uniform act which will be the end product of this exercise.

The members of the working group, in addition to the two co-chairs, are the following: Richard Cunningham (President, Canadian Franchise Association), Jean H. Gagnon (Pouliot Mercure - Montreal), Professor James E. Lockyer (Université de Moncton), Bruce Macallum (Government of British Columbia), Leonard Polsky (Gowling Lafleur Henderson, LLP - Vancouver), Danny Zalmanowitz (Witten LLP - Edmonton) and Hélène Yaremko-Jarvis (National Coordinator, Commercial Law Strategy).

(B) Section 347 of the Criminal Code

The Steering Committee of the Commercial Law Strategy has initiated a new project to consider section 347 of the Criminal Code. Section 347 was added to the Code in the early 1980's to deal with undesirable practices of loan sharks. However many of the decided cases considering this section have been civil actions involving borrowers asserting the common law doctrine of illegality in an attempt to avoid interest payments or to render an otherwise legitimate agreement void.

The provision has therefore attracted significant criticism from commercial lawyers, judges and academics - many of whom have called for its repeal.

It was noted by the Steering Committee that section 347 has been the subject of studies by the Consumer Measures Committee ("CMC") in the consumer context for the past two years. After discussions with representatives of the CMC, it was agreed that before recommendations for amendments could be made to the federal Department of Justice, it would ultimately be necessary to also review the section from the business perspective. The new project was therefore launched by the Steering Committee to complement the work being done by the CMC. The two groups agreed to keep each other informed of progress on their respective studies to permit an eventual coordination of their recommendations.

Professor Mary Anne Waldron (University of Victoria), a recognized expert on interest rate issues, was retained to prepare a preliminary report for the Strategy. As part of Professor Waldron's study, I circulated a survey which she had prepared to the chairs of the Canadian Bar Association provincial business law sections and to the Strategy's endorsers requesting preliminary feedback on the subject. This generated over 60 responses which overwhelmingly supported the need to circumscribe the scope of application of section 347 in the business context.

Professor Waldron will present her report on this subject to the Conference on Tuesday afternoon.

(C) Section 427 of the Bank Act

This project was briefly alluded to above under the heading "Personal Property Security Legislation ("PPSA")" as it relates to problems arising when the holder of a provincial security interest or hypothec comes into competition with a federal Bank Act security in the same collateral. Neither the Bank Act nor the provincial legislation provides a complete set of rules that can be used to determine which of the competing parties should have the highest ranking claim. This has produced great uncertainty in the law, in an area where certainty and predictability are highly valued.

A project has been initiated on this subject by the Steering Committee of the Commercial Law Strategy in conjunction with the Law Commission of Canada. A consultation paper prepared on this subject by Professor Rod Wood of the University of Alberta will be distributed to stakeholders for comment. Professor Wood's paper reviews the current state of the law in Canada and sets out the advantages and disadvantages of a number of options to resolve the uncertainties in the law.

Professor Wood will review his consultation paper for the Conference during tomorrow's meetings.

(D) Sale of Goods

Last year I reported that the Steering Committee wished to pursue two projects relating to sale of goods. The first would involve a major review of current legislation which, in many jurisdictions, is essentially the English statute of 1893. The second was to be a fast-track project which would focus on sale of goods laws as they apply to electronic transactions. The goal of this latter project would be to determine the inadequacies, if any, of current sales laws in the context of electronic transactions, including the extent to which current legislation provides (or does not provide) a minimum level of protection for electronic transactions. It was believed that this discrete topic could be addressed fairly quickly and was in need of urgent work due to the fact that sale of goods legislation does not contemplate these types of sales.

Initially Professor Ziegel had indicated his interest in taking on leadership of the fast-track project. However, he later informed the chair of the Steering Committee that time constraints would not permit him to take on this work. Professor Claude Samson of Laval University and Professor Karl Dore of the University of New Brunswick who had both expressed an interest in being involved in the project as experts in the law on the sale of goods were then approached. Ultimately Professor Samson advised that he would not be able to devote the time required to the project and Professor Dore indicated that he believed the initial work should involve a review of practical problems being experienced by private practitioners to be followed by a report with recommendations for change to be prepared by a group consisting of both private practitioners and academics.

As we were unable to identify private practitioners interested in taking on this project and there appeared to be little interest among stakeholders in supporting it, the Steering Committee decided that it should be deferred until a later date. Notwithstanding this decision, the Steering Committee believes that developing modern sales legislation which reflects current business practices should continue to be a goal of the Strategy.

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