Towards Commercial Law Framework for Canada 1998


APPENDIX A - THE DETAILED ANALYSIS

Commercial Law that Orders Affairs between Private Parties

1. Sale of Goods

The current law on the sale of goods in the common law provinces is based heavily on the English statute of 1893. The law does not conform to what businesses actually do. It does not fit in well with more modern commercial law like the PPSA, or with the international regime on the sale of goods which other jurisdictions have implemented. Significant discussion should also be had around the extension of this legislation to include services .

The new Civil Code of Quebec applies to sales contracts and as much as possible the general rules of the law of obligations were harmonized with those of the other Books (of the Civil Code), particularly with respect to security interests. In order to assure protection for the buyer, inspiration for the rules came from the Vienna Convention on International Sales Agreements of 1980.

A Uniform Sale of Goods Act was adopted in 1981, and has subsequently been refined, but is in need of modernization before it could be implemented.

In the Uniform Commercial Code, Article 2 contains the American Sale of Goods regime.

Implementation

New Brunswick is the only province to have implemented the 1981 Uniform Act.

2.  United Nations Convention on Contracts for the International Sale of Goods
(Vienna Sales Convention)

The Sales Convention establishes uniform rules for the international sale of goods which will apply in the absence of agreement to the contrary by the parties to the sales contract. While the Convention applies to contracts for the sale of goods, it excludes the sale of goods for personal use, sale by auction, judicial sales, and the sale of stocks, ships, aircraft or electricity. The provisions of the Convention deal with the formation of the contract and the rights and obligations of the seller and buyer. The Convention does not govern the validity of the contract or its terms, nor does it deal with the seller = s liability outside the contract.

Implementation

The Convention came into force for Canada on May 1, 1992, and applies uniformly across all of Canada since February 1, 1993. As of May 1998, 51 states are party to the Convention.

3. Secured Transactions

Legislation in this area governs the obtaining of consensual security interests in personal property, establishes a system for registering notices of such security interests, governs the priority of many of the competing interests in such property and establishes enforcement rules. The law is nearly uniform in most of common law Canada under what is known as the Western PPSA. It is important to complete the harmonization and to maintain the harmony in this field, especially in light of significant changes soon to be made to Article 9 of the Uniform Commercial Code in the United States.

State of the Project

Substantial uniformity in most of common law Canada in the form of the western model at PPSA is nearly complete although there are some areas of difference.

In Alberta, British Columbia, New Brunswick, Nova Scotia, Prince Edward Island, Saskatchewan and the Yukon legislation following the western model has been enacted in the 1990's and is in force.

Similar legislation has been enacted in Manitoba and the North West Territories but has not yet been proclaimed.

Newfoundland is expected to pass the new PPSA legislation in 1999.

The Ontario PPSA is similar in effect to the western model but varies from the western model in some significant respects. The province is considering changes in some areas to harmonize more completely with the other provinces.

Security interest laws were reformed in 1994 in Quebec. All forms of encumbrances were grouped under the single concept of hypothec. The law relating to hypothec was made uniform such that a hypothec may encumber moveables (personal property) or immovables (real estate). A hypothec for personal property constitutes one of the major innovations of this Book (of the Civil Code). The provisions were inspired, in some areas, from Canadian common law provinces' legislation (see Articles 2644 to 2802 C.C.Q.).

4. Federal Secured Transactions

At the present time, there is considerable debate over whether the federal government should enact secured transactions legislation such as a federal PPSA to deal with the property that is within federal jurisdiction or take steps to make it clear that provincial secured transactions regimes are responsible for regulating security in what is thought of as federal property . The current scheme is arguably flawed in having, as its focal point, each individual type of federal property.

What property might fit within a federal regime? It might include:


(i) certain property under security regimes which are contained in legislation dealing with matters under federal jurisdiction (namely, vessels, aircraft and rolling stock);

(ii) certain property which is subject to federal jurisdiction where the relevant legislation may (or may not) contain a security regime (namely, intellectual property); and

(iii) under the Bank Act (Canada) in favour of a secured party which itself is subject to federal jurisdiction (namely, a bank).

With respect to intellectual property, there is debate over the method of registering security in intellectual property between the regimes under the various federal intellectual property statutes and provincial PPSA's. There is also an issue over what interests in intellectual property can be secured. This area of law needs clarification.

In addition, there are some serious gaps in legislation dealing with mobile equipment, particularly aircraft. The Draft UNIDROIT Convention on International Interests in Mobile Equipment and Related Draft Aircraft Equipment Protocol addresses many of these questions and needs to be the basis of federal legislation. This preliminary draft Convention provides a framework for the creation and effects of international interests in mobile equipment (i.e., airframes, aircraft engines, helicopters, registered ships, oil rigs, containers, railway rolling stock, space property and other objects that could be identified in the future). Each of these types of mobile equipment will be the subject of a specific protocol under the Convention.

The preliminary draft protocol will adapt to aircraft equipment the mechanism set out in the Convention. Among other things, it will establish a central registry to register interests in aircraft equipment.

There should be a debate over the future of Bank Act security. This debate has raged for many years and a productive settlement of that debate should occur.

Finally, there should be a debate over the possibility of a single, national personal property security regime or the means for electronically uniting the several existing registries.

5. Commercial Liens

Although Ontario has enacted modern lien legislation, that legislation is not in harmony. The current law in most of the other provinces provides unpredictable and often unregisterable lien claims for businesses such as repairers, storers, garage owners, innkeepers, warehousers and woodsmen. In Quebec, when the Civil Code was reformed, the notion of liens was replaced with that of priorities. The number of liens that become priorities was also considerably reduced (see Articles 2650 to 2659 of the Civil Code of Quebec).

The Uniform Liens Act, adopted in 1996, creates a unified set of rules about the nature and extent of certain non-consensual liens, the priority of liens against third parties and the procedure for enforcement.

Implementation

No provinces have implemented this Act yet.

6. Warehouse Receipts, Bills of Lading and Other Documents of Title Act

A Uniform Documents of Title Act was approved in principle by the Uniform Law Conference in 1995 based on similar work in Article 7 of the Uniform Commercial Code, but a final draft has not yet been prepared. This Act would codify the law relating to all forms of documents of title that have an established commercial usage. It covers bills of lading, warehouse receipts and other negotiable and non-negotiable documents of title. Documents of title are used primarily in interprovincial and international trade. The law on documents of title should be harmonized to the PPSA, to ensure that the effectiveness of the PPSA is not hampered. Significant changes to the approved draft may be required given the significant technological developments in this area.

State of the Project
Considerable work would be required to make this project useful. Given the state of technological change, it is likely not sufficient to simply adopt Article 7 of the UCC. Electronic commerce implications would have to be fully considered.

7. Transfer of Indirectly Held Securities

The ULCC is one of the partners working on a project to update the law with respect to rights in securities that are held through an intermediary such as a broker. Current law does not reflect the reality that the owner of a share almost

never holds the paper certificate. Securities transfers occur in a global securities market. Intermediaries for indirectly held securities operate across the country. As a result, harmonization and modernization is essential. This work is based on revised Article 8 of the Uniform Commercial Code.

State of the Project

Considerable progress has been made on this project under the leadership of Eric Spink of the Alberta Securities Commission.

The Production Committee includes representation from the Canadian Depository for Securities Ltd., Canadian Bankers ' Association, Group of Thirty, Ontario Securities Commission and a law school professor as well as representation from certain law firms.

8. Electronic Commerce

This project would review the impact of information technologies on Canadian law. A number of specific topics can be undertaken in this area. For example, as a first step to removing barriers to electronic commerce it is proposed that the United Nations Commission on International Trade Law 's Model Law on Electronic Commerce be adopted. Another high priority issue is to review the implications for government on filing requirements and reproduction of files where information is produced or stored electronically.

State of the Project

The area of electronic commerce requires work and significant initiatives are currently underway.

The federal Justice Department and Industry Canada are committing significant resources to this subject, and the ULCC has an active project devoted to this subject as well.

The United Nations Commission on International Trade Law has developed a Model Law on Electronic Commerce.

In Quebec, the Civil Code contains a provision regarding signatures (Article 2827 C.C.Q.) that, according to the minister's statements, is sufficiently broad to include a specific numeric code that would allow for the personal identification of someone using a computerized code. The Civil Code also includes provisions respecting proof of computerized registrations. (Article 2837 C.C.Q. and following)

9. Leases

Leases of personal property have existed for a long time. However, in recent decades, this type of transaction has increased exponentially. Today, leasing transactions are a significant segment of commercial activity in Canada involving billions of dollars annually and ranging in scope from consumers' leases of automobiles to leases of commercial aircraft and industrial machinery. It is evident that equipment leasing is big business in Canada and, indeed, in many other countries.

Under our present law, transactions of this type are governed partly by common law principles relating to personal property and partly by principles relating to real estate leases. The legal rules and concepts derived from these sources do not adequately address many matters pertinent to lease transactions. In particular, there are uncertainties in four important areas: first, the classification of leases and, specifically, distinguishing between a true lease and a disguised secured sale; secondly, the nature of the warranties that might be implied in a lease contract in favour of the lessee; thirdly, the obligations of a lessor in a financing lease in which the lessor is neither the manufacturer nor the supplier of the item being leased; and fourthly, the remedies of a lessor where the lessee has breached its obligation under the lease.

In the United States, Article 2A of the Uniform Commercial Code pertains to Leases. It was added to the Code about ten years ago. The American experience under Article 2A merits careful study and, while views may differ as to whether the vagaries of the current law of leasing in common law jurisdictions in Canada necessitates an extensive codification of the law, there would seem to be little doubt that some reforms and clarification are in order.

10. Licensing of Intellectual Property

There are many kinds of licences. An increasingly important part of our commercial fabric is licences involving data, text and similar materials and transactions involving software, on-line and Internet commerce. As the modern economy is changing, the service sector is becoming increasingly dominant. The software industry - which provides the basic fuel for the information age - did not even exist until recent decades. The information industry now exceeds most manufacturing sectors in size.

Information transactions and, in particular, transactions involving licensing of information, differ substantially from transactions involving the sale or lease of goods. The differences are manifested in both the conditional nature of the transaction and in the fact that value lies not in the goods but in the information and rights severable from the goods. A body of law tailored to transactions intended to pass title to goods is not readily adapted to transactions whose purpose is instead to convey rights in intangible property and information.

In recent years, various groups in the United States have examined the consequences of the mismatch of concepts between contract law aimed at defining relationships in the sale or lease of goods and relationships in which information is the centre of the transaction and the contractual format most often is a licence rather than a sale or lease. They have concluded that transactions involving licensing of information differ substantively from transactions involving the sale or lease of goods. These differences, coupled with the commercial significance of the information industry, has prompted a current project in the United States to draft Article 2B to the Uniform Commercial Code concerning Licences. This project is ongoing and should be monitored closely in Canada.

11. Negotiable Instruments (Bills of Exchange)

Important aspects of the Bills of Exchange Act (Canada) are badly outdated and need to be revised. In the view of the Working Group, it will be logical to include a revised Negotiable Instruments Act in the framework even though it will continue to be federally enacted.

12. Cost of Credit Disclosure

This project will unify the rules for calculating and disclosing the cost of consumer loans. This project has been undertaken by the Consumer Measures Committee under the Agreement on Internal Trade working in conjunction with the ULCC. Final changes are currently being made to the Uniform Cost of Credit Disclosure Act, based on the drafting template prepared by the Consumer Measures Committee.

State of the Project

A uniform Act, based on the drafting template prepared by the Consumer Measures Committee under the Agreement on Internal Trade, will be approved by the Uniform Law Conference in 1998.

Alberta has introduced the framework of the drafting template as Part 9 of Bill 20, The Fair Trading Act.

The uniform Act will be available for use by all provinces. The CMC has yet to harmonize some key elements for regulations.

II. ENFORCEMENT LAW

1. Civil Enforcement

In many jurisdictions, civil enforcement procedures have not been recently reformed and are spread through a number of statutes and the common law.

Substantial work has been done by the Alberta Law Reform Institute on overhauling the remedies for enforcement of money judgments. The Alberta report was based on several general principles:

(a) Universal Exigibility: All of a debtor' s property should be subject to enforcement, excepting only such property as is deliberately excepted.

(b) Just Exemptions: Such property as the debtor reasonably requires for the maintenance of his family should be deliberately exempt.

(c) Sharing among Creditors: The proceeds of enforcement processes should be shared among enforcement creditors.

(d) Creditor Initiative: The enforcement system should continue to be creditor driven.

(e) One Statute: The entire enforcement system should be governed by one consistent, coherent and logically ordered statute.

(f) Judicial Supervision: The enforcement system should operate with a minimum of judicial supervision, but there should be ready access to the court when directions are required.


Implementation

Alberta, New Brunswick and Newfoundland have recently modernized their civil enforcement regime. They have used the Alberta Law Reform Institute recommendations to a significant extent.

The Canadian Conference of Personal Property Law generally discussed reform of civil enforcement at its June meeting.

The ULCC will be considering a project proposal on civil enforcement in August.

2. Enforcement of Canadian Judgments and Decrees Act and Court Jurisdiction and Proceedings Transfer Act

A Uniform Enforcement of Canadian Judgments Act was adopted in 1992 by the ULCC. A Uniform Enforcement of Canadian Decrees Act was adopted by the Conference in 1997. The former deals with money judgments and the latter deals with non-money judgments. In 1997, a decision was made to roll the two Acts together in a Uniform Enforcement of Canadian Judgments and Decrees Act, which deals with both money and non-money judgments. A Uniform Court Jurisdiction and Proceedings Transfer Act was adopted in 1994. The entire package implements a harmonized system for granting and enforcing judgments throughout Canada. The jurisdiction Act provides for Canadian courts to follow a uniform set of rules in determining whether they have jurisdiction to hear a case. Then, under the enforcement Act, a judgment granted anywhere in Canada will be enforced in the same manner as if it was granted by that court.

State of the Project

The Enforcement of Canadian Judgments Act and The Court Jurisdiction and Proceedings Transfer Act have been passed in Saskatchewan, but are awaiting implementation by a group of provinces.

The Enforcement of Canadian Judgments Act has also been passed by British Columbia and Prince Edward Island.

Newfoundland and New Brunswick are also working on the passage of the enforcement legislation.

In Quebec, the jurisdiction of Québec 's tribunals in international litigation and the rules of attornment and execution of both Canadian and foreign judgments were modernized when the Civil Code was reformed. The provisions are similar to those included in the uniform Acts.


3. Enforcement of Foreign Judgments

The ULCC is reviewing the issue of enforcement within Canada of both monetary and non-monetary judgments granted outside Canada. Full faith and credit may not always be acceptable because of the variety of legal systems around the world. Therefore Canadian courts will have additional discretion to determine whether enforcement is appropriate.

State of the Project

Two reports were presented to the Uniform Law Conference in August 1996: Enforcement of Foreign Judgments in Common Law Jurisdictions and Enforcement of Foreign Judgments in Quebec. A Progress Report was presented in August 1997.

The working group is currently preparing a draft Act for consideration by the Conference in August 1998.

4. Enforcement of Judgments Convention Act

A Uniform Enforcement of Judgments Convention Act was adopted in 1997. It provides, initially, for the adoption by provinces and territories of The Convention Between Canada and France on the Recognition and Enforcement of Judgments in Civil and Commercial Matters and on Mutual Legal Assistance in Maintenance. It will allow for future enforcement conventions to be adopted by regulation.

Implementation

This Act has been enacted by Saskatchewan.

Since 1978, Québec is tied to a bilateral Accord with France. The Accord was put into place through legislation (R.L.Q., c. E-19).


5. Arbitration Act

This Act modernizes the law of commercial arbitration. A Uniform Arbitration Act was adopted in 1990. It provides a framework for conducting an arbitration, while leaving the parties latitude to design rules that suit themselves. It gives the courts less discretion to intervene in the conduct or result of arbitration. It also allows for simple enforcement of arbitral awards.

Implementation

The Uniform Act has been adopted in Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Prince Edward Island.

Parallel legislation is in force in Canada and Quebec.

Similar legislation is in force in British Columbia.

6. International Commercial Arbitration Act

A Uniform International Commercial Arbitration Act was adopted in 1986. It adopts the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and Model Law on International Commercial Arbitration.

Implementation

This Act has been implemented in every jurisdiction in Canada.

7. Settlement of International Investment Disputes Act

A uniform Act was adopted in 1997 to provide for the implementation of the Convention on the Settlement of Investment Disputes between States and Nationals of other States. This convention was sponsored by the World Bank to facilitate and increase the flow of international investment. It applies in 126 countries, including all members of the G-7 and the OECD, except Canada, Mexico and Poland. It establishes rules which parties may use to resolve investment disputes between States and nationals of other States by means of conciliation or arbitration.

Implementation

This legislation has not been adopted by any jurisdiction in Canada at the present time.

Next Annual Meeting

2018 Conference (Centennial)

Delta Hotel

Québec City, QC

August 12 - 16, 2018