TEST BANK for Managing the Law The Legal Aspects of Doing Business 6th Edition Canadian by McInnes,K by digitaldownload87

Chapter 21

Basic Forms of Business Organizations

Chapter 22

Legal Rules for Corporate Governance

Chapter 23

Secured Transactions

Chapter 24

Dealing with Bankruptcy and Insolvency

Chapter 25

Government Regulation of Business

Chapter 26

Individual Employment

Chapter 27

Organized Labour

CHAPTER 1 THE LEGAL SYSTEM AND RISK MANAGEMENT

CONTENTS TEACHING APPROACH 1. An Interactive Approach 2. Law as a Process 3. The Canadian Charter of Rights and Freedoms ADDITIONAL TEACHING SUGGESTIONS 1. Natural Law and Positivism 2. Corporate Crime: Section 217.1 of the Criminal Code 3. Division of Powers 4. Concurrent Jurisdiction 5. Patriation of the Constitution 6. Constitutional Amendments — Regional Veto Act 7. Charter of Rights and Freedoms 8. Before the Charter — The Bill of Rights 9. The Scope of the Charter 10. The Charter and Its Critics 11. Statutory Interpretation Business Law in Action: Statutory Interpretation 12. Law and Equity — Not Parallel Systems Not Broad Discretion 13. Trusts DISCUSSION BOXES 1. Business Decision 1.1—Risk Management 2. Ethical Perspective 1.1—Rules and Laws 3. You Be the Judge 1.1—Charter Remedies 4. Business Decision 1.2—Law, Equity and the Trust REVIEW QUESTIONS CASES & PROBLEMS CASE BRIEFS TEACHING APPROACH An Interactive Approach The teaching philosophy adopted for this introductory chapter is critically important because it will set the tone for the entire course. While it is perhaps inevitable that

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students may not be fully prepared during the initial session, they nevertheless must be drawn into the material. This chapter was designed with that need in mind. Some topics almost inevitably must be approached in a lecture format. It is, for instance, rather difficult to generate animated discussion regarding the legislative process through which a bill is transformed into a statute. Those materials should be treated accordingly. Students should appreciate the means by which laws come into existence, as well as the opportunities that business people have to influence that process. Little would be gained, however, from excessive detail or extended debate.

The great bulk of the chapter, in contrast, has been structured to foster discussion and to allow students to develop skills that they will require throughout the course (and into their professions). That is true from the opening pages of the text. Rather than tell students why, as business students, they should study law, let them discover the reasons for themselves. Ask them to imagine themselves in business. Take suggestions until a simple model emerges. Then continue on with the exercise using that simple model. Ask why some businesses succeed, while others fail. Push the students toward the realization that the answer depends a great deal on risk management, both negatively and positively. A successful business person is able to make decisions that avoid harmful events and that exploit profitable opportunities. That proposition will logically lead to the next series of questions. How do business people effectively manage risks? What do they need to know? For present purposes, the important answer is “law.” Allow the students to explore some of the various ways in which a knowledge of the law can help a business. Once again, make sure that they consider negative and positive possibilities. It is important to highlight both sides of that coin. Risk management most obviously includes the avoidance of liability, but it also includes, for instance, the ability to use a contract to hold another party to a promise. Students must realize early on that, from a business perspective, the law is not simply a series of prohibitions, but rather a rich and varied collection of resources that can be used for the effective management of risk. That is why they must be familiar with it.

Although the chapter goes on to examine a number of other introductory topics, it is important to maintain the momentum generated by the opening exercise. The natural temptation to rely exclusively on straight lectures must be resisted. There is, understandably, an inclination among most students to remain passive during the initial sessions. There is also a tendency among students to regard opening lectures as somehow relatively unimportant. Both of those factors must be overcome. With that in mind, Chapter 1 includes a number of Discussion Boxes that are inherently interesting and immediately accessible. • Business Decision 1.1 centres upon the issue of reference letters, a subject of great significance for every young professional.

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Ethical Perspective 1.1 deals with a failure to rescue a drowning person. If desired, it can be made more poignant by changing the facts to include a drowning child. Absent a special relationship (eg parent or teacher), I am legally free to watch an infant drown, just as I am legally free to watch an adult die.

Law as a Process The various discussion boxes are valuable from a purely pedagogic perspective: they help to keep students engaged and interested. At least implicitly, however, they also serve two other useful functions. First, by working through the exercises, students will begin to develop essential skills. Risk management requires action. Students therefore should become accustomed to actively discovering information and formulating solutions, rather than merely passively receiving lecture notes. Second, the process of working through business law issues should make students realize that law is a malleable process, rather than a static list of dos and don’ts. Although that proposition may initially seem trite, it underlies a significant challenge in teaching business law. Students very often arrive in class with an assumption that the law consists of a long list of rules, and that legal education consists of memorizing as many of them as possible. Somewhere out there, it is thought, there is a really big book with all of the answers. That, of course, is not true. Law is constantly evolving to reflect changes in society. (In the business context, for example, a rule of contract that was developed in the nineteenth century may no longer be appropriate. Chapter 19, which deals with Electronic Commerce, contains a number of illustrations.) Furthermore, those changes are introduced by human agents, typically judges and legislators, who struggle to strike a delicate balance between competing interests. (The text’s discussion of the Charter clearly points in that direction. A statute that prohibits the sale of violent pornography violates freedom of choice, but it is nevertheless justifiable given the current state of Canadian society.) The material should be presented in a way that highlights the malleability of rules and that stresses the human face of the law. Students should realize that a rule that they learn today may be discarded tomorrow if judges or legislators adopt a new position on a particular issue. Consequently, quite often, what is important is not the memorization of rules, but rather an understanding of the process. The Discussion Boxes can also be used to debunk another common misperception. Many students tend to equate law and “justice” (usually with the assumption that “justice” coincides with their intuitive notions of right and wrong). The discussion engendered by Ethical Perspective 1.1 can be used to dispel that myth. Students should realize that while there is considerable overlap between law and morality, those two categories are not always consistent. Indeed, in an increasingly multicultural society, moral consensus is becoming even more difficult to obtain. Consequently, the law very often must be content to strike a balance between competing interests in a way that will inevitably offend some moral perspectives. The Canadian Charter of Rights and Freedoms Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-3

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A substantial portion of the chapter is devoted to the Charter. As many of the examples illustrate, business people are often directly affected by Charter decisions. Beyond that, however, students must be made to appreciate that Canadian law — indeed Canadian society — simply cannot be understood apart from the Charter. Every Canadian, including every business person, is deeply affected by its provisions. The Charter provides the backdrop against which everything else plays out. ADDITIONAL TEACHING SUGGESTIONS Natural Law and Positivism While it would be inappropriate to embark on an extended philosophical debate, the issues surrounding Ethical Perspective 1.1 inevitably will lead students to question that nature of law. Historically, the issue tended to divide thinkers into two camps: those who subscribed to natural law theory and those who subscribed to positivism. To some extent, that remains true today, notwithstanding the growth of more modern perspectives (eg law and economics, feminism, critical legal studies). Classical natural law theory was based on the belief that there exists a natural order within the universe, and that humans have a natural role within that universe. Morality and immorality consequently were defined in terms of activities that tended either toward or against the fulfillment of that role. To take a common example, it was thought that humans exist to fulfill certain ends: survival, perpetuation of the family, and so on. Sexual intercourse intended for the purpose of procreation was considered moral because it tended toward the fulfillment of those ends. In contrast, sexual activity that was not intended for procreative purposes (eg sodomy) was considered immoral. Laws were formulated accordingly. Vaginal intercourse between man and wife was permitted, while homosexuality was prohibited. Because of the need to identify a set of purposes, natural law theory tends to be closely tied to religious beliefs. There is, however, no necessary connection between the two. So long as there is some touchstone that sets the standard for assessment, it is possible to have a secular conception of natural law. An atheistic environmentalist, for instance, might believe that the validity of human laws can be adjudged by their tendency to either promote or frustrate conservation of the planet in its natural state. Students could be asked to critique natural law theory. They might be expected to suggest arguments along the following lines. • Natural law cannot account for the whole of the legal system. There are many laws that, in themselves, are morally neutral. It is, for instance, hard to see how a legal requirement to fill out a form in triplicate either advances or inhibits any particular view of the universe. In response, it might be suggested that natural law merely requires a law to be morally permissible, not morally mandated. • Natural law also cannot account for the undeniable existence of morally repugnant laws. That is inevitable given the extent to which Canadian law must mediate Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-4

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between the increasingly divergent views of a multicultural society. No perspective can command the invariable support of the courts and legislatures. Classroom examples, however, should be chosen with great care. A suggestion that abortion is immoral, for instance, should be clearly ascribed to a particular point of view, rather than presented as a “correct” position. Likewise the suggestion that the government’s failure to implement effective pay equity provisions is morally offensive. Perhaps the most damning criticism of natural law lies in the great difficulty of identifying and articulating natural ends, and in the even greater difficulty of applying those standards in specific ways. The standards may tend to be so abstract as to be practically useless. What does it really mean, for example, to say “do good and avoid evil”? Furthermore, in a pluralistic society, the mere act of identifying the relevant ends will tend to smack of subjectivity. Given the Constitution’s entrenchment of multiculturalism, why should one group, however large in number, be entitled to force its views upon others?

Natural law theory is typically contrasted with positivism. That term is not based on the belief that law must be “positive,” in the sense of being affirmative or good. “Positivism,” rather, refers to a law that has been “posited,” in the sense of being articulated or laid down. Positivism is based on a theory of pedigree. So long as a rule was established by a person with the authority to do so, it is valid, regardless of other characteristics (eg its apparent morality). John Austin (1790–1859) therefore defined “law” as a command issued by a sovereign. A sovereign, in turn, was defined as a person who is habitually obeyed by the bulk of the community, and who does not habitually obey anyone else. A command issued by Parliament is law, but one issued by a gun-wielding thief is not. Both commands are apt to be met, but only Parliament can satisfy the definition of a sovereign. Herbert Hart’s theory of positivism may appeal to students who are curious as to the differences between different types of rules. Hart (1907–1992) tried to identify laws by distinguishing the various factors that influence human behaviour. • Within all the factors that influence human behaviour, it is possible to distinguish between social habits and social rules. Saying “good morning” is a social habit. There is no sanction if it is not met. • Within the broad class of social rules, it is possible to distinguish between conventions and obligations. Table manners are a convention. There is a sanction if they are not performed, but the sanction is informal and not particularly rigorous. Obligations are more regularly and rigorously sanctioned. • Within the broad class of obligations, it is possible to distinguish between moral obligations and laws. The duty to effect an easy rescue is generally a moral obligation. Moral obligations may receive severe sanctions, such as shame and guilt, if they are not met. Those sanctions, however, are informal in the sense that they are not mediated through a central body. Laws involve sanctions that are usually more severe and that are centrally mediated. • Within the broad class of laws, it is possible to distinguish between primary laws and secondary laws. Primary laws affect physical matters, they impose legal rights Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-5

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and obligations, and they may receive severe sanctions mediated through a central agency (ie the government). An example would be the prohibition against murder. Secondary laws explain and affect primary laws. They include rules of recognition (who has the authority to make laws?), change (how are laws changed?), adjudication (who is entitled to resolve legal disputes?), and sanctions (what penalties are imposed if the requirements of a law are not satisfied?). Hart’s Behaviour Influencing Factors | ___________________________________ | | social habits social rules (eg saying hello) | ___________________________________ | | conventions obligations (eg table manners) | ___________________________________ | | moral obligations laws (eg duty to rescue) | ___________________________________ | | primary laws secondary laws (eg prohibition against murder) (eg rules of recognition) Students could be asked to critique positivism. They might be expected to suggest arguments along the following lines. • Many people find positivism amoral because it validates laws solely on the basis of pedigree. As long as a rule was made by a person with authority, it is a law, however morally repugnant it may seem. Arguably, then, Nazi law was valid law, notwithstanding the atrocities committed in its name. • Students might also recognize that the theory underlying positivism eventually runs out and requires a leap of faith. The problem lies with Hart’s conception of rules of recognition. In Canada, for instance, we generally accept that an act is illegal if it is prohibited by the Criminal Code. But why are the provisions of the Criminal Code considered valid? Because they are contained in a statute that was created by Parliament. But why does Parliament have the authority to enact a statute? Because section 91 of the Constitution says so. But why does the Constitution have the ability to determine who gets to make rules? At that point, the answer must simply fall back on the observable social fact that Canadians accept the validity of the Constitution. Although positivists, on the whole, have the upper hand today, there remain important strands of natural law thinking in the Canadian legal system. An important illustration Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-6

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concerns jury nullification. A jury represents democracy writ small. Every few years, Canadians go to the ballot box, and once there, exercise judgment as they see fit. They are not required to arrive at a “correct” conclusion, but rather decide independently, in the particular circumstances, how the country shall be governed. Likewise, within certain parameters, jurors are entitled to exercise a discretion and to arrive at conclusions that are irreconcilable with posited rules. Interestingly, however, they cannot be told, by either the judge or the lawyers, that they enjoy that inherent power. Examples of jury nullification tend to be quite interesting. • The events surrounding Dr Henry Morgentaler in the 1970s and 1980s are illustrative. Although his conduct appeared to many to contravene the Criminal Code’s provisions prohibiting abortions, jurors in several provinces consistently exercised their independent judgment and refused to convict. • The issue of jury nullification arose again in the case of Robert Latimer, who was convicted by a jury of “mercy killing” in the death of his profoundly disabled daughter. His lawyer appealed the conviction to the Supreme Court of Canada on the ground that the trial judge refused to answer the jury’s question as to the sentence that would be applied in the event of conviction. The theory was that the jury would exercise its inherent right to ignore the law and acquit Latimer if it had known that a conviction for second degree murder carries a mandatory ten-year sentence. The Court did not accept that argument. • Jury nullification has played an important role in race relations in the United States. White juries in the north habitually refused to enforce fugitive slave laws that carried a death sentence. In a later era, white juries in the south habitually acquitted those accused of lynching, even in the face of clear evidence. More recently, many observers point to OJ Simpson’s acquittal for murder. The jurors, perhaps offended by police tactics, perhaps motivated by racial considerations, refused to convict. His lawyer, Alan Dershowitz, has entertained the possibility that the verdict was an instance of jury nullification: Reasonable Doubts: The OJ Simpson Case and Criminal Justice (1996). As part of their exploration of the nature of law, students could be asked to reflect on the concept of jury nullification. Is it appropriate for a small group of randomly selected individuals to exercise the power to effectively re-write the law, at least in the circumstances of a particular case? Will such power always be exercised “properly”? Is it even possible, in the absence of an accepted standard for assessment, to determine what is proper and what is improper? Corporate Crime: Section 217.1 of the Criminal Code In 1992, 26 miners were killed by an underground explosion at a Westray Mine in Nova Scotia. The accident occurred despite repeated complaints by miners, union officials, and government inspectors regarding the hazardous working conditions. It subsequently appeared clear that the company had failed to exercise sufficient care in providing for workplace safety. Nevertheless, given the state of criminal law at the time of the accident,

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as well as the vagaries of the evidentiary process, attempts to prosecute the company and various managers failed.1 In the aftermath of the incident, Parliament amended the Criminal Code in 2004 to include a new section 217.1. Every one who undertakes, or has the authority, to direct how another person does work or performs a task is under a legal duty to take reasonable steps to prevent bodily harm to that person, or any other person, arising from that work or task. Section (1) creates a new legal duty for workplace health and safety, (2) requires any person who directs work to take “reasonable steps” to ensure the safety of workers and the public, (3) creates a new regime of corporate criminal liability by holding a corporation responsible for the conduct of anyone within the organization that directs work, and (4) allows for the imposition of serious penalties in the event of injury or death.2 Although there is little caselaw on the new provision, section 217.1 was successfully used to prosecute a company responsible for an employee’s death in R v Transpavé Inc.3 The court imposed a fine of $110 000. That case is discussed in Case Brief 1.1. Division of Powers As suggested in the text, the division of powers not only is an essential element of Canadian federalism, it is also occasionally an important source of risk management. Sections 91 and 92 of the Constitution stipulate the areas in which the federal and provincial (or territorial) governments respectively can legislate. If a business finds that it is treated unfavourably by a particular statute, it may be able to have that law struck out if it is ultra vires, in the sense that it was outside the scope of authority of the enacting body. A sampling of provisions from sections 91 and 92 is presented in the text. Students might also be directed to the full list, which appears below. (The residual power, which gives Parliament authority over everything not specifically allocated to the provinces, appears in the opening words of section 91.) 91 It shall be lawful for the Queen, by and with the Advice and Consent of the Senate and House of Commons, to make Laws for the Peace, Order, and good Government of Canada, in relation to all Matters not coming within the Classes of Subjects by this Act assigned exclusively to the Legislatures of the Provinces; and for greater Certainty, but not so as to restrict the Generality of the foregoing Terms of this Section, it is hereby declared that (notwithstanding anything in this Act) the exclusive 1 A useful summary of the Westray disaster, including references to additional sources, is available from Wikipedia <http://en.wikipedia.org/wiki/Westray_Mine>. 2 The Canadian Centre for Occupational Health and Safety provides a website discussing various features of the new law <http://www.ccohs.ca/oshanswers/legisl/billc45.html>. 3 2008 QCCQ 1598. Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-8

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Legislative Authority of the Parliament of Canada extends to all Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say, • The Public Debt and Property. • The Regulation of Trade and Commerce. • Unemployment insurance. • The raising of Money by any Mode or System of Taxation. • The borrowing of Money on the Public Credit. • Postal Service. • The Census and Statistics. • Militia, Military and Naval Service, and Defence. • The fixing of and providing for the Salaries and Allowances of Civil and other Officers of the Government of Canada. • Beacons, Buoys, Lighthouses, and Sable Island. • Navigation and Shipping. • Quarantine and the Establishment and Maintenance of Marine Hospitals. • Sea Coast and Inland Fisheries. • Ferries between a Province and any British or Foreign Country or between Two Provinces. • Currency and Coinage. • Banking, Incorporation of Banks, and the Issue of Paper Money. • Savings Banks. • Weights and Measures. • Bills of Exchange and Promissory Notes. • Interest. • Legal Tender. • Bankruptcy and Insolvency. • Patents of Invention and Discovery. • Copyrights. • Indians, and Lands reserved for the Indians. • Naturalization and Aliens. • Marriage and Divorce. • The Criminal Law, except the Constitution of Courts of Criminal Jurisdiction, but including the Procedure in Criminal Matters. • The Establishment, Maintenance, and Management of Penitentiaries. • Such Classes of Subjects as are expressly excepted in the Enumeration of the Classes of Subjects by this Act assigned exclusively to the Legislatures of the Provinces. And any Matter coming within any of the Classes of Subjects enumerated in this Section shall not be deemed to come within the Class of Matters of a local or private Nature comprised in the Enumeration of the Classes of

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Subjects by this Act assigned exclusively to the Legislatures of the Provinces. 92 In each Province the Legislature may exclusively make Laws in relation to Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say, • Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes. • The borrowing of Money on the sole Credit of the Province. • The Establishment and Tenure of Provincial Offices and the Appointment and Payment of Provincial Officers. • The Management and Sale of the Public Lands belonging to the Province and of the Timber and Wood thereon. • The Establishment, Maintenance, and Management of Public and Reformatory Prisons in and for the Province. • The Establishment, Maintenance, and Management of Hospitals, Asylums, Charities, and Eleemosynary Institutions in and for the Province, other than Marine Hospitals. • Municipal Institutions in the Province. • Shop, Saloon, Tavern, Auctioneer, and other Licences in order to the raising of a Revenue for Provincial, Local, or Municipal Purposes. • Local Works and Undertakings other than such as are of the following Classes: (a) Lines of Steam or other Ships, Railways, Canals, Telegraphs, and other Works and Undertakings connecting the Province with any other or others of the Provinces, or extending beyond the Limits of the Province: (b) Lines of Steam Ships between the Province and any British or Foreign Country: (c) Such Works as, although wholly situate within the Province, are before or after their Execution declared by the Parliament of Canada to be for the general Advantage of Canada or for the Advantage of Two or more of the Provinces. • The Incorporation of Companies with Provincial Objects. • The Solemnization of Marriage in the Province. • Property and Civil Rights in the Province. • The Administration of Justice in the Province, including the Constitution, Maintenance, and Organization of Provincial Courts, both of Civil and of Criminal Jurisdiction, and including Procedure in Civil Matters in those Courts. Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-10

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The Imposition of Punishment by Fine, Penalty, or Imprisonment for enforcing any Law of the Province made in relation to any Matter coming within any of the Classes of Subjects enumerated in this Section. Generally all Matters of a merely local or private Nature in the Province.

<http://laws.justice.gc.ca/eng/Const/page-4.html#h-17> <http://www.lop.parl.gc.ca/About/Parliament/Education/ourcountryourparliament/html_b ooklet/division-powers-e.html> Concurrent Jurisdiction As explained in Chapter 25, it is also possible, in some situations, for the two levels of government to enjoy concurrent jurisdiction. For instance, section 95 of the Constitution gives jurisdiction over agricultural matters to both the federal government and the provincial governments. Patriation of the Constitution The text refers to the difficulty of amending the Constitution and to the creation of the Canadian Charter of Rights and Freedoms. As background to both of those topics, it may be useful to raise the issue of patriation. Between 1867 and 1982, Canada was in an unusual position. It became an independent country in 1867 when the British North America Act was proclaimed by the British government at Westminster. It did not, however, have the power to amend or alter its Constitution. That power was formally retained by Westminster. The situation was later summarized by the Supreme Court of Canada, which referred to the “anomaly that although Canada has international recognition as an independent, autonomous and selfgoverning state ... yet it suffers from an internal deficiency in the absence of legal power to alter or amend the essential distributive arrangements under which legal authority is exercised in the country, whether at the federal or provincial level.”4 Much of Canadian history has been concerned with the attempt to eliminate that anomaly. Interestingly, the main sticking point was the inability of the provinces and the federal government to agree on an amending formula. Westminster was unwilling to relinquish control until Canadians found some way, amongst themselves, to facilitate future constitutional developments.

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In 1931, the Statute of Westminster gave Canada full legal independence. The British Parliament no longer could vote on laws that applied in Canada. Still, the main problem remained. In 1949, the British amended the Canadian Constitution to allow the federal government in Canada to regulate some parts of the Constitution. And in the same year, the federal Parliament abolished appeals to the Privy Council. The Supreme Court of Canada then became the court of last resort in this country. (Students might be told that the Privy Council continues to hear appeals from many of its former colonies. Indeed, appeals from New Zealand continued until 2003!) The situation finally came to a head in 1980, after the Parti Quebecois suffered a clear defeat in a referendum on Quebec sovereignty (about 60 percent of Quebecers voted “no”). Prime Minister Trudeau used the occasion to spark a new round of Constitutional discussions. In 1981, the Supreme Court of Canada held that the federal government had the power to act unilaterally, but indicated that it would be clearly preferable for the provinces to be on-side.5 While the Prime Minister announced that he was prepared to proceed alone, he eventually secured the consent of the provinces (excluding Quebec) to the general amending formula that is discussed in the text. On April 17, 1982, the Queen proclaimed the Constitution Act 1982. The document also included the Charter, which was another part of the Prime Minister’s vision for Canada. Constitutional Amendments — Regional Veto Act As explained in the text, the Constitution is difficult to amend. The general amending formula requires the consent of Parliament plus the legislatures of at least two-thirds of the provinces that represent at least 50 percent of the country’s population. However, the standard has now been set even higher by the Regional Veto Act.6 The Act says (in its entirety): 1. (1) No Minister of the Crown shall propose a motion for a resolution to authorize an amendment to the Constitution of Canada, other than an amendment in respect of which the legislative assembly of a province may exercise a veto under section 41 or 43 of the Constitution Act, 1982 or may express its dissent under subsection 38(3) of that Act, unless the amendment has first been consented to by a majority of the provinces that includes: (a) Ontario; (b) Quebec; (c) British Columbia; 5 Reference Re Amendment of Constitution of Canada (1981) 125 DLR (3d) 1 (SCC). 6 An Act Respecting Constitutional Amendments, S.C. 1996, c. 1. Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-12

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(d) two or more of the Atlantic provinces that have, according to the then latest general census, combined populations of at least fifty per cent of the population of all the Atlantic provinces; and (e) two or more of the Prairie provinces that have, according to the then latest general census, combined populations of at least fifty per cent of the population of all the Prairie provinces. (2) In this section, “Atlantic provinces” means the provinces of Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland; “Prairie provinces” means the provinces of Manitoba, Saskatchewan and Alberta. The Act was introduced by the federal government following the Quebec referendum as part of Prime Minister Chretien’s promise to Quebec that future constitutional amendments would not occur without that province’s consent. In effect, it gives a veto to Ontario, Quebec, British Columbia and Alberta (because among the prairie provinces, Alberta has more than fifty percent of the population). The Act is, however, simply a federal statute. Consequently, unlike the Constitution’s amending provisions, it could be easily repealed. Charter of Rights and Freedoms Knowledge of the Charter is an essential part of risk management. The text discusses a number of examples. For instance, Sunday closing laws were successfully challenged on the ground that they violate the right to freedom of religion that is guaranteed by section 2(a). The text also quotes several key provisions. Students could be directed to the full document: <http://laws.justice.gc.ca/eng/Const/page-15.html>. Before the Charter — The Bill of Rights As an introduction to the Charter, students might be directed to the Bill of Rights that was introduced in 1960. Although the Bill of Rights covered much the same ground as the Charter, it suffered from three significant drawbacks.  Since the Charter is part of the Constitution, it is the highest law in the land. As the text explains, any law that is inconsistent with it is of “no force or effect.” The Bill of Rights, in contrast, was simply a statute.  Furthermore, since the Bill of Rights was a federal statute, it did not apply to the actions of the provincial legislatures or provincial authorities.  For both of those reasons, the courts tended to give the Bill of Rights a rather cramped interpretation. They certainly did not adopt the same broad purposive approach that they apply to the Charter. Most judges were reluctant to exercise the power under the Bill of Rights to invalidate otherwise validly enacted laws.

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Consequently, while it held great promise when introduce din 1960, it has had surprisingly little effect on Canadian life. Despite those defects, however, the Bill of Rights remains important in some respects. Notwithstanding the introduction of the Charter, the Bill of Rights remains in force. Moreover, while both documents cover much the same ground, the Bill of Rights contains some rights that are not founding the Charter. Perhaps most significantly, section 1(a) of the Bill of Rights declared “the right of the individual to life, liberty, security of the person and enjoyment of property, and the right not to be deprived thereof except by due process of law.” As explained in the text, the drafters of the Charter refused to include property rights in that document. The Scope of the Charter Section 32(1) of the Charter states: This Charter applies (a) to the Parliament and government of Canada in respect of all matters within the authority of Parliament including all matters relating to the Yukon Territory and Northwest Territories; and (b) to the legislature and government of each province in respect of all matters within the authority of the legislature of each province. When the Charter was introduced in 1982, there was considerable debate as to its scope of applicability. Some commentators argued that the document applied to all laws, such that both statutory and common law (in the sense of being judge-made) rules were caught, whether they arose in public or private matters. On that view, section 32 merely confirmed, somewhat superfluously, that the Charter applied to government action. A contrary view, however, more closely followed the text of section 32 by arguing that the Charter applied only to government action and not to private matters. On that view, the purpose of the document was to regulate the relationships between citizens and state, and was not to apply in purely private matters. As explained below in the Case Brief of RWDSU Local 580 v Dolphin Delivery Ltd, the Supreme Court of Canada generally adopted the latter interpretation. However, it also ambiguously indicated, with respect to private law rules, that “the judiciary ought to apply and develop the principles of the common law in a manner consistent with the fundamental values enshrined in the Constitution.” It therefore is critically important to define the concept of “government action.” • The Charter obviously applies to Parliament, provincial and territorial legislatures, and municipalities. It therefore governs statutes, regulations, by-laws, and the like.

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It also applies to the actions of government officials, including the police and Crown corporations. However, while the judiciary is sometimes classified as a branch of “government” (very broadly speaking), the Supreme Court of Canada in Dolphin Delivery rejected the suggestion that all judicial action is caught by the Charter. Since all laws must, in the final analysis, be interpreted and applied by judges, that view would intolerably subject all law to Charter scrutiny. The Charter often applies to people, such as government-appointed adjudicators, who derive their power from legislation. In addition, it applies to bodies, such as law societies and colleges of surgeons, that exercise a regulatory power that has been delegated by government. A more difficult issue arises with respect to institutions that are “public” in a broad sense. The courts have said that the critical factor is the extent to which an institution is controlled by the government. Consequently, the Charter applies to community colleges, but not to universities. While both types of institution receive government funding, the government has relatively greater say in the dayto-day operations of the former. Universities, in contrast, generally are marked by a greater degree of independence. The Charter does not apply to private corporations, despite their statutory foundations. Like universities, private corporations are dependent upon government legislation for their existence. Once in existence, however, they then take on an independent life of their own, substantially separate from government control.

The Charter therefore, does not apply against private corporations. As explained in the text, it may apply in favour of such bodies, depending upon the circumstances. Some Charter provisions are necessarily limited to individuals, either because of the manner in which they are phrased (eg some provisions, such as section 2, apply to “everyone,” which is broad enough to encompass artificial entities, while others, such as section 15(1), apply only to “individuals,” which is limited to natural persons), or because of their content (eg a private corporation has need for freedom of expression under section 2(b), but cannot have religious belief for the purposes of section 2(a)). Nevertheless, as explained below in the Case Brief of R v Big M Drug Mart Ltd, even if a corporation cannot directly claim the benefit of a provision, it may be able to rely upon such a provision in order to challenge a law under which it has been criminally charged. While a corporation has no religious beliefs to protect, it cannot be convicted under a statute that is invalid because it is contrary to section 2(a) of the Charter. A law that is invalid is invalid for all purposes. The Charter and Its Critics For many students, the Charter will fall into a category with motherhood and apple pie as things that are undeniably good. On first impression, at least, it may seem difficult to find fault with concepts like freedom of expression and religion (section 2), life, liberty and the security of the person (section 7), and equality (section 15). The Charter nevertheless

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has been the subject of criticism from diverse perspectives. Students could be led through a discussion of some of the more significant arguments. Some students will appreciate, perhaps from frequent comments in the media, that many Canadians are concerned about the seemingly undemocratic nature of the Charter. As explained in the text, courts traditionally had little authority to strike down laws. For the most part, a statute could be invalidated only if it was ultra vires. Returning to the language used above in connection with positivism, validity was simply a function of pedigree. The Charter, however, allows judges to strike down laws on substantive grounds as well. That fact raises many of the same concerns that were previously expressed in connection with natural law theory. While judges are, of course, required to follow the wording of the Charter, many provisions are loosely worded and open-ended. They create generous scope for judicial interpretation. And in performing that interpretive exercise, judges will often be required to draw upon personal notions of justice that will not be shared by all Canadians. Moreover, it has been argued that Canada has moved away from a system of parliamentary supremacy, in which democratically elected officials have the final say, on behalf of their constituents, in determining how the country will be governed. In some respects, at least, the Charter places unelected, and hence ultimately unaccountable, judges at the top of the legal hierarchy. And since Canadian citizens have no (direct) role to play in the appointment and removal of judges, they have lost control of the system. See FL Morton & R Knopff The Charter Revolution and the Court Party (2000). A counter-argument, which has received support in the Supreme Court of Canada (eg R v Mills (1999) 180 DLR (4th) 1), insists that the legislatures, and hence the people, do remain ultimately in charge. Charter litigation merely creates a “dialogue” between the courts and the legislatures. Even if a statute is struck down, Parliament usually enjoys several options. Although politically infeasible in most circumstances, it may be entitled to invoke the “notwithstanding clause” found in section 33. More significantly, judges often indicate precisely why a law was struck, along with at implicit guidance as to how the defect may be cured. A legislator therefore may respond to the invalidation of a law by adopting less intrusive means of achieving the same objectives. The Charter itself facilitates such responses.  Section 1 expressly states that the rights and freedoms are guaranteed subject to “such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.” In other words, the legislature can violate Charter rights, as long as it does so in a reasonable manner.  Many rights and freedoms are couched in language that similarly allows for some legislative latitude. Section 8 provides protection against “unreasonable” search and seizure. Section 9 guarantees the right to not be “arbitrarily” detained or imprisoned. Section 12 prohibits “cruel and unusual” punishment. See P Hogg & A Bushell. “The Charter Dialogue Between Courts and Legislatures (Or Perhaps The Charter Of Rights Isn’t Such A Bad Thing After All)” (1997) 35 Osgoode Hall LJ 75.

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The most common criticisms of the Charter come from the “right” of the political spectrum, by those who are concerned about judicial activism and the purportedly undemocratic nature of the document. There are, however, critics on the left as well. Karl Marx once said that “religion is the opiate of the masses.” The same might be said of the Charter. It allegedly creates the appearance of justice, while doing very little to effectively address the fundamental problems that underlie Canadian society. Dissent is silenced by the hollow promise of change, and the masses are placated by a placebo. The Charter, however, is incapable of effecting real change so long as it continues to be applied by a judicial class that is drawn very largely from the ranks of commercial lawyers. Bay Street, the argument goes, will never be able to understand the view from the bottom. Furthermore, the practical role of the Charter is to foster isolation and conflict. Because it must, as a last resort, be applied through an adversarial process, it inhibits the emergence of consensual decision-making. And finally, notwithstanding the availability of government funded counsel in some situations, the reality of Charter litigation is hugely expensive, and hence inaccessible to many disadvantaged people. Statutory Interpretation There is a tendency to assume that if there is legislation on point, the law must be clear. It is simply a matter of reading the statute7 and applying its rules. In fact, however, the situation tends to be more complicated. As suggested in the discussion of constitutional interpretation, words have to be interpreted before they can be applied. Although the basic ideas are the same, there are some important differences between constitutional interpretation and statutory interpretation. First, while the Constitution provides the foundations for society, statutes deal with more specific issues. Second, while the Constitution is very difficult to change, statutes are relatively easy to enact, amend or repeal. Consequently, while the Supreme Court of Canada has said that the Constitution must be interpreted in a purposive manner, statutes may be treated differently. A large number of “rules” exist to help judges interpret statutes. In reality, however, those “rules” are really more like guidelines. And furthermore, those guidelines are not always entirely helpful.8 Many are vague, and some tend to contradict each other. As a result, statutory interpretation is more of an art than a science. The “proper” interpretation of a statute often depends upon whether, on a personal level, you favour a purposive approach 7 For the sake of convenience, we will talk in this section about statutes. Of course, the issue of interpretation applies to subordinate legislation and by-laws as well. 8 In Bell ExpressVu Ltd Partnership v Rex (2002) 212 DLR (4th) 1 at 19 (SCC), Iacobucci J said that the “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.” That very broad approach allows the courts considerable flexibility. Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-17

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or a textual approach. (Few people go to either extreme, but most of us do tend to lean one way or the other.) We can describe those two possibilities in general terms.  Purposive Approach: As we saw in our discussion of constitutional interpretation, the purposive approach focuses on the legislature’s intention. The goal is to determine the statute’s purpose and to then read the Act in the way that best achieves that purpose. It is therefore necessary to look outside of the document by considering the social and historical context.  Textual Approach: The textual approach, in contrast, focuses on the words themselves. Each word is given its plain meaning and the statute is simply the sum of its parts. There is little need to look outside of the document The following exercise explores the differences between the purposive approach and the textual approach. Business Law in Action Statutory Interpretation You employ twenty people as part of your mushroom-growing business. The provincial government recently enacted a statute that establishes a minimum wage for “any person employed on a farm whose employment is directly related to the primary production of eggs, milk, grain, seeds, fruit, tobacco or vegetables.” That minimum wage is well above what you currently pay. Your employees say that mushrooms are a type of vegetable (at least for the purposes of the legislation) and that they are consequently entitled to a raise. Questions 1. Are you required to pay the minimum wage? Are mushrooms a type of vegetable? 2. What conclusion will the court reach under a textual approach? How will the judge determine the meaning of the word “vegetable”? Would a botanist define a mushroom as a vegetable? Would a general dictionary do so? Does it matter that most people expect to find mushrooms in the vegetable section of a grocery store? If the judge decides that mushrooms are not vegetables, is there any reason why a person who picks mushrooms is less in need of a minimum wage than a person who picks carrots? 3. What answer will the court reach under a purposive approach? How will the judge determine the purpose of the statute? Is it appropriate to look at what the legislators said? Or should the judge focus on what a reasonable person would regard as the statute’s purpose? Should the judge be influenced by issues of fairness? 4. Leaving aside your desire to avoid the minimum wage, what are the advantages and disadvantages of the textual approach and the purposive approach? Is one approach more just, or more predictable, or more democratic than the other? Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-18

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Answer The case is based on Ontario Mushroom Co v Learie.9 The facts have, however, been slightly changed. In that case, the legislation established a minimum wage, but exempted “any person employed on a farm whose employment is directly related to the primary production of eggs, milk, grain, seeds, fruit, tobacco or vegetables.” As presented in the text, the question is more positively phrased in terms of whether mushroom workers, like other farm workers, are entitled to the minimum wage. 1. Technically speaking, mushrooms are not vegetables — they are fungi. The court nevertheless held, by a majority of two to one, that mushrooms are a type of vegetable for the purposes of the Act. Students will, however, reach their own conclusions based on their approach to statutory interpretation. 2. The dissenting judge, Southey J, adopted a textual approach. He based his decision largely on dictionary interpretations. Even on that approach, however, there is room for debate.  The dictionary that he consulted provided several meanings of “vegetable.” One definition said that a vegetable is something that is “of, or having the nature of, plants in general (the vegetable kingdom).” Accordingly, as in the children’s game “animal — vegetable — mineral,” everything that is not an animal or a mineral must be a vegetable. Southey J rejected that approach, however, as being too broad.  Southey J instead adopted a definition that classified a vegetable as “(a) Any herbaceous plant that is eaten whole or in part, raw or cooked, generally with an entree or in a salad but not as a dessert, (b) the edible part of such a plant, as the root (eg a carrot), tuber, (a potato), seed (a pea), fruit (a tomato), stem (celery), leaf (lettuce), etc.” He then relied upon a similarly technical dictionary definition of “herbaceous.” And since a mushroom does not, in contrast to his definition of “herbaceous,” have leaves or chlorophyll, and since it does not utilize food from the soil with sunlight to manufacture tissue, he concluded that it cannot be a vegetable. Significantly, by accepting dictionary definitions, Southey J rejected uncontradicted evidence to the effect that government officials, as well as organizations working in the field, routinely categorize mushrooms as “vegetables.” The first problem with the textual approach consequently is that, while it purports to operate objectively on the basis of plain meanings, it actually requires the judge to select from amongst a range of meanings.

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The second problem is that the textual approach operates without regard to the social and legal context. One the basis of a technical definition of “vegetable,” Southey J drew a distinction between people who pick mushrooms and people who pick, say, carrots. In the absence of evidence to the contrary, however, it would seem that the social concern in the same in either event. Certain groups of workers are vulnerable to exploitation and therefore in need of protective legislation. 3. The majority, led by Reid J, adopted a more purposive approach. It did rely upon the fact that people working in the area, like the public generally, habitually regard mushrooms as vegetables. More importantly, however, Reid J took the social context into consideration. His definition of “vegetable” reflected his belief that there was no apparent reason for favouring some types of farm workers over others. There are, however, problems with the purposive approach as well. While the issue may seem fairly simple in this case, it is often difficult to determine a statute’s purpose. In terms of the proper approach, there is a debate as to whether the relevant intention is the one that the legislators had in mind at the time of enactment or the one that reasonable people would hold after reading the statute and considering the context. Within that same debate, there is a question as to how the relevant purpose should be identified if different legislators (or different reasonable people) held different views. There is also a debate as to whether the interpreter should even try to ascertain the intention of any particular group of people or whether it is more appropriate to ask, objectively, about the actual function of the statute. And if the latter approach is adopted, there is a question as to how that objective purpose or function can be ascertained. Problems may also arise from the fact that the social and legal context within which a statute operates may change over time. For example, while Sunday closing laws were originally introduced for religious reasons, they arguably came to serve an important secular purpose by increasing the likelihood of families spending time together. 4. As we have already seen, the textual and purposive approaches both have merits and demerits. Both work well in some circumstances, but both are also open to abuse. It is hard to say that one is generally “more just” than the other. Narrowly applied, the textual approach certainly can lead to injustice if words are given an artificially cramped meaning. But by the same token, the purposive approach can also lead to injustice. Justice is usually a zero-sum game. One person’s gain is another person’s loss. On the facts of this case, for instance, the majority opinion would benefit the workers, but impose a substantial burden on the employer.

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The textual approach is often thought to be more predictable, and on the whole, that may be true to some extent. The text is tied to the words, and the words are tied to their “plain meanings.” As this case illustrates, however, even the textual approach requires the judge to exercise a discretion. There are many definitions of “vegetable.” The one that is chosen will (perhaps inevitably) reflect underlying values. The extent to which one approach is more democratic than the other depends upon the circumstances. This case is again illustrative. An interpretation is “democratic” if it reflects the will of the people, as expressed through their elected officials. Often, however, it may be debatable as to whether the legislative intention is better served by a textual approach or by a purposive approach. Legislators sometimes use words very precisely; others times they couch their thoughts in ambiguous language. Democratic values would be best served if (as seems difficult) judges were capable of consistently determining which model applied on the facts before them. Law and Equity The relationship between law and equity is not well understood, not even by lawyers and judges. It is common among in this country to view equity as a parallel system of justice in which individual disputes are resolved on the basis of a broad judicial discretion. That statement contains two propositions: one suggesting the existence of parallel systems of dispute resolution and the other suggesting the existence of a broad judicial discretion. Neither is correct. Not Parallel Systems The idea of a parallel system, in which law and equity equally cover the legal landscape, albeit in different terms, is incorrect. The Chancellor initially became involved in legal disputes only where the law was inadequate, and it remains true today that equity intervenes only when needed. That explains why, for instance, you almost certainly have legal title, but not equitable title, to your watch. You do not hold equitable title simply because none is needed. Professor Maitland famously described the relationship between law and equity in the following way. We ought not to think of common law and equity as of two rival systems. Equity was not a self-sufficient system, at every point it presupposed the existence of common law. Common law was a self-sufficient system. I mean this: that if the legislature had passed a short act saying “Equity is hereby abolished,” we might have got on fairly well; in some respects our law would have been barbarous, unjust, absurd, but still the great elementary rights, the right to immunity from violence, the right to one’s good name, the rights of ownership and of possession would have been enforced. On the other hand had the legislature said, “Common

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law is hereby abolished,” this decree if obeyed would have meant anarchy. At every point equity presupposed the existence of the common law.10 Not Broad Discretion Canadian courts routinely administer equity in the belief that that jurisdiction confers a broad, generalized judicial discretion to achieve “justice.” Courts in other jurisdictions, most notably New South Wales in Australia (which retained a separate Chancery Bar until the 1970s), take a dim view of that approach. Commenting on the Canadian adventures in fiduciary law, for instance, an Australian judge once accused his Canadian colleagues of a tendency to widen the equitable concept ... to a point where it is devoid of all reasoning. [O]ne has the uneasy feeling that the courts of that country ... simply assert that [an actor] has committed a breach of fiduciary duty.11 On appeal in the same case, the High Court of Australia agreed, in terms that disregard the courtesy normally respected between fellow judges. The Canadian approach to fiduciary obligations was said to be marked by assertion rather than analysis [which while capable of] effectuating a preference for a particular result ... does not involve the development or elucidation of any particular doctrine.12 The leading Australian text is even less kind in asking, with respect to the precedential value of Canadian judgments, “why should Australian courts bring third rate foreign cases into account when they have plenty of second rate cases of their own to consider?”13 As in Australia, judges in this country would do well to occasionally revisit the history of the subject. True enough, the Chancellor initially began by resolving disputes according to his own conscience. The flaw in that approach is obvious, however, and as early as 1689, John Selden decried the vagaries of discretionary justice by invoking the famous image of the Chancellor’s foot. Equity is a roguish thing. For Law we have a measure, know what to trust to; Equity is according to the conscience of him that is Chancellor, and as that is larger or narrower, so is Equity. T’is as if they should make the standard for the measure we call a ‘foot’ a Chancellor’s foot; what an uncertain measure would this be! One Chancellor has a long foot, another a short foot, a third an indifferent foot.14 In reaction to that criticism, the pendulum then swung far—too far—in the opposite direction. Even before the Judicature Acts effected a “fusion” of the administration of the two jurisdictions, equity had become at least as rigid and hidebound as law. In describing the unfortunate litigants in the fictional case of Jarndyce v Jarndyce, Charles Dickens mocked equity’s image as a source of sensitive justice. 10 FW Maitland Equity: A Course of Lectures (Cambridge, CUP, 1939) at 19. 11 Breen v Williams (1994) 35 NSWLR 522 at 570 (NSW CA). 12 Breen v Williams (1996) 186 CLR 71 at 95 (HCA). 13 RP Meagher, JD Heydon & MJ Leeming (eds), Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies 4th ed (Sydney, Butterworths, 2002) at 217-218. 14 J Selden Table Talk (1689). Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-22

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This is the Court of Chancery ... which gives to monied might the means abundantly of wearying out the right, which so exhausts finances, patience, courage, hope, so overthrows the brain and breaks the heart, that there is not an honourable man among its practitioners who would not give—who does not often give—the warning, “Suffer any wrong that can be done you rather than come here!”15 In much of the common law world today, law and equity are largely undistinguishable in everything other than pedigree. Contrary to popular stereotype, some concepts in law are notoriously vague and open-ended (eg the tort of negligence), while some equitable doctrines are remarkably rigid and unforgiving (eg fiduciary law). For the most part, however, rules and principles—in both law and equity—are as narrow or broad as need be, without regard to history. The movement increasingly is toward eradicating differences between the two jurisdictions.16 Though often adopting much the same view, Canadian courts unfortunately continue occasionally to view equitable doctrines as somehow specially loose and malleable. Trusts The trust is often said to be equity’s greatest creation. As explained in the text, a trust exists anytime that one person—called the trustee—holds property17 for the benefit of another person—called the beneficiary. There are three types of trusts. Express Trusts As discussed in the text, the most common type of trust is the express trust. It may be created anytime that a person—called the settlor—wants to place property into trust. A court will ask if the three certainties have been satisfied. The certainty of intention requires proof that the settlor actually intended for property to be held on trust as opposed to, say, a simple gift or a bailment. 18 The certainty of subject matter requires the relevant property to be identified. A trust may be imposed on any type of property: real property or 15 Bleak House (1853). 16 A Burrows “We Do This At Common Law But That In Equity” (2002) 22 OJLS 1. 17 In most instances, the trustee holds legal title and the beneficiary has equitable title. It is possible, however, for both parties to hold equitable title. That is true, for instance of a sub-trust. Assume that an express trust is up and running. As the equitable owner of the property, the beneficiary (B1) may wish to place his or her interest into another trust for some other beneficiary (B2). Under that second trust, the new trustee (T2) receives what the original beneficiary (B1) has to give—ie equitable title. That equitable title is then held on trust for the beneficiary under the new trust (B2). In such circumstances, it is convenient to say that while the trustee (T2) has the equitable or administrative title, the new beneficiary (B2) has the equitable or beneficial title. 18 As discussed in Chapter 17, a bailment occurs when one person—called the bailee— possesses property that is owned by another person—called the bailor. In contrast to a trust, which exists in equity, a bailment is a purely legal relationship. Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-23

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personal property, tangible property or intangible property. If there is more than one beneficiary, it must also be clear which part of the property goes to each beneficiary. And finally, a trust requires certainty of objects, which means that it must be possible to ascertain the beneficiaries. As a matter of convenience and safety, it is very common for a settlor to name more than one trustee. It also is possible for the settlor and the trustee to be the same person. Instead of transferring property to someone else to hold as trustee, I may simply declare that I am trustee of property that I already own. It also is very common for the trust property to be divided amongst several beneficiaries. An express trust may be fixed or discretionary. Under a fixed trust, the settlor provides precise details as to when and how the trustee shall distribute the property. A trustee, for example, may be told to pay half of a trust fund to the beneficiary immediately and the other half when the beneficiary becomes an adult. Under a discretionary trust, the trustee is required to make a decision as to when and how the property will be distributed. For example, the settlor may direct the trustee to decide how a trust fund will be divided amongst four beneficiaries. Resulting Trust A resulting trust arises by operation of law, rather than in response to the settlor’s intention. The label often seems a bit confusing, but the essence of the trust is easily grasped once it is understood that the word “resulting” comes from the Latin “resalire,” which means to “jump back.” A resulting trust therefore is a trust that always causes property to jump back from whence it came. Property is transferred from the plaintiff to the defendant. In certain circumstances, equity imposes a resulting trust that causes the benefit to jump back. Although the defendant received legal title to the property, the equitable or beneficial title jumps back to the plaintiff. The defendant therefore holds the property on trust for the plaintiff. In the normal course of events, that trust is then executed when the defendant transfers the thing back to the plaintiff. Once that happens, the plaintiff again has the legal title, and the trust, which no longer has any work to do, simply dies away. A resulting trust traditionally arose in two situations.  Failed Express Trust A resulting trust almost always19 arises if an express trust has failed to take effect. A settlor transfers property to a trustee to hold for a beneficiary under an express trust. That trust then fails because, for example, the objects are not sufficiently certain (ie the settlor did not clearly describe who was to be the beneficiary). The property cannot go forward to the beneficiary and it cannot simply stay with the trustee because the settlor never intended for the trustee to personally benefit. Equity therefore recognizes a resulting trust that 19 A resulting trust will not arise if, for example, the settlor intended for the trustee to personally benefit if the intended express trust failed to take effect. Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-24

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causes the property to jump back. The trustee has legal title, but the equitable or beneficial title is awarded to the settlor.  Gratuitous Transfer Equity is suspicious of gratuitous transfers. If the plaintiff transfers property to the defendant without receiving back anything in exchange, the law may conclude that there has been a gift, but equity usually presumes 20 that the plaintiff did not truly intend to confer a benefit upon the defendant. And since a transfer of property requires both physical delivery and an intention to pass title, equity imposes a resulting trust. Consequently, although the defendant has received legal title, the property equitably or beneficially belongs to the plaintiff. That presumption will be rebutted only if the court is convinced that the plaintiff really did intend to give something for nothing. o Purchase Money Resulting Trust A resulting trust presumably arises if the plaintiff gratuitously transfer property to the defendant. The same is true if, instead of undertaking a direct transfer, the plaintiff pays a third party to transfer property to the defendant. For example, instead of buying a ring and giving it to you, I may pay a jewelry store to deliver a ring to you. The outcome is the same. In the second situation, a purchase money resulting trust presumably arises, with the result that you hold the ring on trust for me. Constructive Trust A constructive trust is a trust—other than a resulting trust—that is constructed or created by operation of law. In various circumstances, equity believes that the person who owns the property ought to hold the thing for the benefit of someone else.  Wrongs A constructive trust may be imposed upon property that the defendant acquires as a result of committing a wrong against the plaintiff. Assume, for example, that a small mining company (the plaintiff) hopes to create a joint venture with a large mining company (the defendant). As part of their precontractual negotiations, the plaintiff discloses secret information regarding the location of an enormous gold mine. Instead of entering into a joint venture, however, the defendant simply buys the relevant land for itself. If the plaintiff successfully sues for breach of confidence, it has the option of claiming either compensation for its loss or disgorgement of the defendant’s gain. And if it elects the latter, it may persuade the court to award proprietary, rather than personal, 20 Most gratuitous transfers raise a presumption of resulting trust. In contrast, equity sometimes assumes, under a presumption of advancement, that a transfer truly was intended to be a gift. Traditionally, that occurred if a man (but not a woman) gratuitously transferred property to a child or to a spouse. Today, however, a presumption of advancement clearly applies only if a parent (a father or a mother) gratuitously transfers property to an infant child: Pecore v Pecore (2007) 279 DLR (4th) 513 (SCC). The same rule almost certainly now applies whether a husband transfers property to a wife or a wife transfers property to a husband. The Supreme Court of Canada, however, have not yet decided whether that rule involves a presumption of advancement or a presumption of resulting trust. Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-25

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disgorgement—ie it may convince the court to order the defendant to hand over the property, rather than merely impose a debt upon the defendant. 21 Proprietary disgorgement in that instance takes the form of a constructive trust. The defendant has legal title, but because it acquired that property wrongfully, it must hold the property for the plaintiff’s benefit.22  Unjust Enrichment The action for unjust enrichment consists of three elements: (1) the defendant is enriched, (2) the plaintiff suffers the corresponding deprivation, and (3) there is an absence of juristic reason for the defendant’s enrichment.23 The remedy is always restitution—ie the defendant must give back the benefit to the plaintiff. Restitution usually is warded personally, so that the defendant is required to restore the value of the benefit rather than the benefit itself. Occasionally, however, restitution may be awarded proprietarily, in the form of a constructive trust, if the court believes that the plaintiff should be entitled to recover the benefit itself. Assume that the plaintiff bank is indebted to the defendant bank for $2 000 000. It pays the debt. By mistake, it pays a second time. A short time later, the defendant becomes insolvent. The defendant is liable for restitution, but if the remedy is simply personal, the plaintiff will line up with the other creditors and will take perhaps cents on the dollar. A court, however, may decide to award proprietary restitution by subjecting the second payment to a constructive trust. And since the defendant’s debts cannot be paid with property that beneficially belongs to the plaintiff, the plaintiff can take all of the second payment of $2 000 000, even if that leaves nothing for the defendant’s other general creditors.24 Unfortunately, the Supreme Court of Canada has not yet explained when and why such relief shall be available.  Perfected Intentions and Protected Reliance In a variety of situations, equity will impose a constructive trust even though the facts do not reveal a wrong or an unjust enrichment. In such circumstances, it imposes the trust in order to perfect 21 In deciding whether proprietary disgorgement is available, a court will be guided by the test that was formulated in Soulos v Korkontzilas (1997) 146 DLR (4th) 214 at 230 (SCC): “(1) The defendant must have been under an equitable obligation, that is, an obligation of the type that courts of equity have enforced, in relation to the activities giving rise to the assets in his hands;

(2) The assets in the hands of the defendant must be shown to have resulted from deemed or actual agency activities of the defendant in breach of his equitable obligation to the plaintiff; (3) The plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to ensure that others like the defendant remain faithful to their duties and; (4) There must be no factors which would render imposition of a constructive trust unjust in all the circumstances of the case; e.g., the interests of intervening creditors must be protected.” 22 Lac Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14 (SCC). 23 Garland v Consumers’ Gas Co (2004) 237 DLR (4th) 385 (SCC). 24 Chase Manhattan v Israel British Bank (London) Ltd [1981] 1 Ch 105 (QB). Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-26

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the parties’ intentions and to protect their reliance interests. That is true, for example, under a secret trust.25 Assume that a man is drafting up his will. He wants to leave some property to his long-time mistress or to a child born outside of his marriage or to a controversial organization, but he does not want his family and friends to know about it. He therefore drafts his will to leave property to his close friend, but only after he has secured the friend’s promise to hold the property on trust for the real beneficiary. When the man dies, his friend inherits the property. Because the trust is not written into the will, it is not enforceable as an express trust. Nevertheless, equity will require the friend to hold the property on constructive trust as promised. Both the testator and his friend intended to create that trust. Furthermore, the testator detrimentally relied upon the friend’s promise. The constructive trust therefore perfects the testator’s wish.

DISCUSSION BOXES Business Decision 1.1 Risk Management 1. This question introduces students to the concept of risk management. Because it appears so early in the text, it requires relatively little by way of a substantive response. Moreover, on the facts, there is no single right answer. An individual student’s conclusion will reflect, to some degree, his or her personality traits. Students nevertheless should appreciate that effective risk management requires a process of: (i) identification, (ii) evaluation, and (iii) response. Depending upon how it is worded, a reference letter may create a risk of liability and litigation. Students should be expected to notionally evaluate the likelihood and severity of those risks. Having done so, students might then decide to: (i) not write any letter at all, (ii) write an innocuous letter that does not refer, explicitly or implicitly, to the allegations of theft, or (iii) write a letter that accuses the former employee of theft or at least strongly hints at dishonesty. In any event, students must realize that there are potential costs. Even the first option raises the risk that the exemployee will steal from her new employer, thereby potentially creating a rift between the two companies. The new employer may feel aggrieved that it was not warned of the woman’s criminal history. Students might understandably doubt their own ability to perform that exercise, even after they have completed the course. Looking forward in the text, such doubts might be tied to the need to occasionally seek legal advice. As a matter of risk management, a business sometimes should consult a lawyer as a way of preventing, rather than resolving, a legal problem. 25 The trust is fully secret if the will simply leaves property to the trustee and says nothing at all about the trust. A semi-secret trust, in contrast, occurs if the will says that the property is being given on trust, but does not provide the details (eg the identity of the beneficiary). Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-27

Chapter 1 – Risk Management and Sources of Law

Ethical Perspective 1.1 Rules and Laws 1. Most students will presumably say that they would have rescued the canoeist, even if they were under a moral, but not a legal, obligation to do so. There is, however, no single right answer. An individual student’s response will reflect his or her personality. It will also reflect the considerations that are raised in the second question. 2. Most students presumably will say that they would be sufficiently motivated by morality alone. But if so, they might be asked to define “morality.” Does that term refer to acts and omissions that are inherently good or bad, or does it merely describe the sense of satisfaction or guilt that would attend upon certain courses of conduct? If it is the former, by what standard are acts and omissions judged? Who is entitled to make up the rules? How are those rules expressed? Do they depend upon the presumed wishes of a God or are they sufficiently articulated through society? Can a company, which does not have a mind of its own, act immorally? When should the acts or omissions of a company’s representative be attributed to the company itself? (Those last two questions foreshadow the discussion of corporate responsibility that appears in Chapter 21.) Leaving aside morality, some students might be motivated to rescue the canoeist by the fear of informal social sanctions. A failure to rescue may result in adverse publicity and therefore may hurt the bystander’s business. Students might be asked to consider the extent to which bad publicity actually does hurt business. Is the public sufficiently aware of isolated immoral acts? If so, are spending habits affected by such knowledge? How quickly do the effects of bad publicity fade in time? Are there steps that a business can take to minimize even the immediate effects of bad publicity (eg by hiring a “spin doctor”)? Students might also be encouraged to discuss the extent to which legal obligations should reflect moral obligations. They might be asked if some obligations should be sanctioned only by informal social pressures (eg loss of business or bad publicity). They might also be asked if such sanctions are too uncertain and ineffective to express societal disapproval and deter undesirable behaviour. You Be the Judge 1.1 Charter Remedies 1. The “correct” answer, or at least the one that was given by the courts in Phillips v Nova Scotia (Social Assistance Appeal Board), was that the offending provisions should be struck down altogether. Consequently, not only was Charles Phillips denied benefits, but so too mothers who cared for children born out of wedlock. The court based that conclusion on the (narrow and probably erroneous) belief that it would be inappropriate to order the legislature to expend money in a certain way. 2. The prevailing view among academics, and probably the answer that will receive the most support from students, is that the constitutional defect should be cured by reading in. Eligible recipients should be defined in terms of single parents who care for children Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-28

Chapter 1 – Risk Management and Sources of Law

born out of wedlock. In other words, “mother” should be interpreted as “parent” and “parent” should be defined as “mother or father.” In support of that view, it might be said that the extension of benefits to male parents would have little effect on public resources. Statistically speaking, most single parents are women. Men do not usually have individual care of children — still fewer have individual care for children born out of wedlock. The decision in Phillips came relatively early in the history of Charter litigation and the same facts would likely be decided differently today. Over time, the courts have become somewhat less reluctant to impose positive obligations upon the legislatures. The remedy of severance will not work because there is nothing to sever. And reading down is inappropriate because the problem lies in the fact that the statute is underinclusive, rather than over-inclusive. Some students might suggest a remedy of damages, but that approach is better suited to situations in which a particular person suffers a loss as a result of a Charter “tort” (as in Jane Doe’s case). Furthermore, while damages would help Charles Phillips, it would not provide any relief to other single fathers who care for children born out of wedlock. Each father would have to commence a separate action. Business Decision 1.2 Law, Equity and The Trust 1. This is a very difficult question. It requires students to extrapolate the nature of the trust from the information that has been given. There are two general disadvantages to using a trust.  The first disadvantage turns on the difference between owning something and being owed something. Suppose that the agent had paid the money received from the customers into a certain account. o If the agent is in good financial condition, it may be better for the airline to have a simple agency relationship (without a trust). In that situation, the agent is merely required to pay a certain amount of money to the airline. The airline is not tied to the bank account. It is entitled to say to the agent, “Come up with the money — somehow.”  Consequently, if the money in the account was to disappear, the airline could still insist upon payment if there was not a trust. It would look at the lost bank account and say to the agent, “That’s your problem. I still want to be paid the proper amount. Find the right amount of money somewhere else.”  If, in contrast, the money in the bank account had been held on trust, and the loss occurred without the agent’s fault (eg because the bank unexpectedly collapsed), then the airline would suffer the loss. The agent would point to the lost bank account and say, “I’m sorry, but that was your money. And now it’s gone. I don’t have to give you my money just because you suffered a loss.” o A trust is, however, useful if there is a chance that the agent will fall into financial difficulties. If there is a trust, the agent does not owe a general

Chapter 1 – Risk Management and Sources of Law

debt to the airline. Instead, it holds a particular fund on behalf of the airline.  Consequently, if the agent was to become bankrupt, the airline could look at the trust fund in the account and say to the agent’s other creditors, “That is my money and I’m taking it all. You’ll just have to hope that the agent has some other pot of money that you can share.”  The second disadvantage arises from the operation of the trust. The airline must be able to point to its money in the agent’s hands. That means that the agent must keep the airline’s money sufficiently separated from its own. If there is a mixing of funds, then (depending upon some rather complicated tracing rules) the trust may be lost because the trust assets can no longer be identified. It is, of course, administratively cumbersome, and occasionally expensive, to establish and operate a system that holds trust assets in a special account. It is easier for the agent to simply deposit all of the money that it receives (from various sources) into a single account. REVIEW QUESTIONS 1. Risk management is the process of identifying, evaluating, and responding to the possibility of harmful events. It is important in the business world because the success or failure of a business generally depends upon the ability to minimize losses and maximize gains. Profitable opportunities need to be exploited and potentially harmful events need to be avoided or contained. Those exercises in turn presume some degree of legal education. The law impacts on virtually every decision, act, and omission that may occur within a business context. The ability to exploit opportunities and avoid costs therefore depends upon an ability to respond appropriately to the legal implications of a particular course of conduct. 2. The three steps of risk management are identification, evaluation, and response. They can be illustrated on the basis of an example in which a business person is presented with an opportunity to place a new product on the market. • The business must first identify the associated risks of legal liability. For instance, as discussed in Chapter 6, the sale of the product may generate a claim in negligence if it injures someone. Alternatively, as discussed in Chapter 18, it may generate a claim in intellectual property if it was manufactured in violation of someone’s patent rights. • Having identified the risks, the business must then evaluate them. It must estimate the likelihood that a risk will become manifest, as well as the likely costs that will be incurred in that event. For instance, even if the product does injure several consumers, some may not be inclined to sue. And even if some do sue, it might be possible to settle claims out of court or successfully defend them in court. It might also be protected by liability insurance, as discussed in Chapter 3. • Having identified and evaluated the risks, the business must then formulate a response. It must decide, among other things, whether or not it will place the new Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-30

Chapter 1 – Risk Management and Sources of Law

product on the market. It may, for instance, choose to release the product, but protect itself with liability insurance.

3. A person may carry on business in a variety of ways (as further discussed in Chapter 20). If one simply buys and sells goods or services in a personal capacity, then that person enjoys all of the profits, but he or she also is personally liable for all of the losses and liabilities that arise. It may not be long before the debts are large enough to be personally ruinous. As a result, it often is prudent to conduct business through a corporation. In that event, most debts and liabilities are incurred by the corporation, rather than by the people involved in it—eg directors, officers, shareholders. Creditors can compel the company to pay up, but the person behind the company usually cannot be touched. (There are some exceptions to that rule. Directors, for instance, may be personally liable for torts that they commit.) 4. Legal expertise is an essential component of risk management. Businesses often need the help of lawyers. In most cases, lawyers are hired from time to time as the need arises. Some larger organizations, however, have in-house counsel. As the name suggests, inhouse counsel consists of a lawyer who works full-time within the organization. A disadvantage of that arrangement is expense. It is usually costlier (at least in an immediate sense) to have a lawyer on the permanent payroll, than to merely hire one as the need arises. There are, however, substantial advantages. Most significantly, since the in-house counsel is a member of the organization, it is often better able to recognize solutions and, in some cases, to prevent problems from occurring in the first place.

5. The statement is not true. Though related, the two phrases mean different things. A “white collar crime” is a criminal offence that is committed by a business person. For example, a white collar crime occurs if the manager of a business steals from the company’s petty cash box. A “corporate crime” occurs when a corporation itself is convicted of committing a crime. Of course, a corporation cannot act by itself—it is a legal fiction that depends upon the actions of its human agents. Nevertheless, a corporation may be convicted of a corporate crime if, for instance, a company that operates a used car dealership has a policy of rolling back odometers. As the examples suggest, a white collar crime usually is committed by a person within a corporation who intends to thereby benefit himself or herself. In contrast, a corporate crime usually is committed with the intention of benefitting the company itself. 6. Public law is concerned with governments and the ways in which they deal with their citizens. It includes the topics of constitutional law, administrative law, criminal law, and tax law. Private law is concerned with the rules that apply in private matters. It includes the topics of contract law, tort law, and property law. Although there is a tendency to assume that the government is only ever involved in public law, it may also be a party in a private law matter. First, it is also possible for a Copyright © 2023 Pearson Canada Inc., Toronto, Canada 1-31