Part 19.1 Apportioning Award of Damages (clause 115)

These amendments would provide that every defendant and third party found responsible for a financial loss arising out of an error, omission or misstatement in financial information that is required under the Act or the regulations would be liable to the plaintiff only for the portion of the damages corresponding to the defendant's and third party's degree of responsibility. Allocation of responsibility among the parties is provided for in the event one or more defendants/third parties are insolvent or unavailable. The joint and several liability regime would continue to apply to the Crown, charitable organizations, unsecured trade creditors and individual plaintiffs whose investment in the corporation is worth less than a prescribed amount.

Briefing Book
An Act to amend the Canada Business Corporations Act and the Canada Cooperatives Act

Bill Clause No. 115
CBCA Section No. 237.1 Definitions
Topic: Apportioning Award of Damages

Sources of Proposed Law
Reports of the Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998

Changes From Present Law 
New regime

Purpose of Change 
The definition of "financial interest" in a corporation would include a "security" as defined in s. 2 of the CBCA in addition to other instruments traditionally regarded as financial interests. The definition is not exclusive.

Definition of "financial loss" - The modified liability regime is applicable only to claims for economic (i.e., financial) loss arising out of an error, omission or misstatement in respect of financial information that is required under the Act or the Regulations. Neither personal injury claims nor claims involving professionals and other professional services will be affected.

Definition of "third party" - The definition is necessary in the English version in order to clarify that the modified proportionate liability regime applies even if there is only one defendant, provided that other parties are subsequently joined to the action. The regime should be applicable to defendants and any subsequent party that is joined in proceedings before a court. It is not necessary to include a comparable definition of the term "mise en cause" in the French version because the term "mise en cause" is broad enough to cover defendants and third parties.

Similar Provincial Laws 
Securities Act (Ontario)

Current Wording 
N/A

Proposed Wording
237.1 The definitions in this section apply in this Part:

"financial interest", with respect to a corporation, includes

( a ) a security;

( b ) a title to or an interest in capital, assets, property, profits, earnings or royalties;

( c ) an option or other interest in, or a subscription to, a security;

( d ) an agreement under which the interest of the purchaser is valued for purposes of conversion or surrender by reference to the value of a proportionate interest in a specified portfolio of assets;

( e ) an agreement providing that money received will be repaid or treated as a subscription for shares, units or interests at the option of any person or the corporation;

( f ) a profit-sharing agreement or certificate;

( g ) a lease, claim or royalty in oil, natural gas or mining, or an interest in the lease, claim or royalty;

( h ) an income or annuity contract that is not issued by an insurance company governed by an Act of Parliament or a law of a province;

( I ) an investment contract; and

( j ) anything that is prescribed to be a financial interest.

"financial loss" means a financial loss arising out of an error, omission or misstatement in financial information concerning a corporation that is required under this Act or the regulations.

"third party" includes any subsequent party that is joined in proceedings before a court.

Bill Clause No. 115
CBCA Section No. 237.2(1)
Topic: Apportioning Award of Damages

Sources of Proposed Law 
Reports of Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998

Changes From Present Law 
To provide for a regime of modified proportionate liability applicable to all claims for economic (financial) loss arising by reason of any error, omission or misstatement in financial information required under the CBCA. The regime applies after a court has found more than one defendant responsible for a financial loss (see s. 237.1 - definition of "financial loss").

Purpose of Change 
Currently, each defendant is jointly and severally liable for damages arising from any error, omission or misstatement in financial information issued by a CBCA corporation. Pursuant to the proposed amendments, each defendant and third party would be liable only for the portion of a plaintiff's loss that corresponds to the degree of responsibility of that defendant and/or third party, subject to certain exceptions (see ss. 237.4 and 237.5). For example, if a defendant and/or third party is 10 percent liable for a loss of $100,000, they would be liable for $10,000. The court would establish the amount of the loss and the degree of responsibility.

Similar Provincial Laws 
none

Current Wording 
N/A

Proposed Wording 
237.2 (1) This Part applies to the apportionment of damages awarded to a plaintiff for financial loss after a court has found more than one defendant or third party responsible for the financial loss.

Bill Clause No. 115
CBCA Section No. 237.2(2)
Topic: Apportioning Award of Damages

Sources of Proposed Law 
Reports of Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September, 1998

Changes From Present Law 
New regime

Purpose of Change 
To ensure that certain classes of claimants, namely, the government, charitable organizations and unsecured trade creditors are unaffected by the implementation of the proposed modified proportionate liability regime, with the result that such claimants would continue to be governed by the rules respecting joint and several liability.

The effect of the exclusion applicable to government is that joint and several liability will continue to apply to all claims brought by the government as plaintiff, except where the plaintiff is a Crown agent or Crown corporation where a substantial part of its activities involves making investments in securities or other financial instruments. This approach is designed to ensure that the regime will not have the effect of shifting the risk to the Canadian taxpayer (i.e., as a result of moving from a joint and several liability regime to a modified proportionate liability regime in which a plaintiff will generally not recover all its losses), except where the government entity is operating as an investor. Such entities will be subject to the modified proportionate liability regime and therefore will be on a "level playing field" with all other sophisticated market players.

Unsecured trade creditors and charitable organizations are excluded from the regime because these plaintiffs would normally not be expected to scrutinize the affairs of CBCA corporations in the same manner as large investors, and therefore merit the stronger protection provided by a joint and several liability regime.

Similar Provincial Laws 
none

Current Wording 
N/A

Proposed Wording 
237.2 (2) This Part does not apply to an award of damages to any of the following plaintiffs:

a ) Her Majesty in right of Canada or of a province;

( b ) an agent of Her Majesty in right of Canada or of a province or a federal or provincial Crown corporation or government agency, unless a substantial part of its activities involves trading, including making investments in, securities or other financial instruments;

( c ) a charitable organization, private foundation or public foundation within the meaning of subsection 149.1(1) of the Income Tax Act ; or

( d ) an unsecured creditor in respect of goods or services that the creditor provided to a corporation.

Bill Clause No. 115
CBCA Section No. 237.3(1) - (4)
Topic: Apportioning Award of Damages

Sources of Proposed Law 
Reports of the Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998;
US Securities and Exchange Act of 1934, s. 21(D)g).

Changes From Present Law 
New regime

Purpose of Change 
Each defendant or third party would be liable for the portion of a plaintiff's loss that corresponds to the degree of responsibility of that defendant, subject to reallocation of any uncollectible amount.

This provision attempts to reallocate the amount owed by an insolvent or unavailable defendant or third party amongst all of the remaining parties. It divides the risk of insolvency between the plaintiffs and the defendants/third parties and enables plaintiffs to recover more than they would without the reallocation. Because the amount reallocated to a defendant/third party is based upon their respective percentage of fault, marginal defendants/third parties are protected from liability for the total loss.

In order for the reallocation to occur, the plaintiff would have to bring a motion to the courts, within 1 year of the judgment becoming enforceable, requesting that this reallocation be effected by the court. Example :

Defendant X is liable for 50 percent of the damage, defendant Y is responsible for 30 percent, and defendant Z is responsible for 20 percent.

If Y is insolvent, X will be responsible for his/her 50 percent plus 50 percent of Y's 30 percent, for a total of 65 percent of the total liability. Defendant Z would be responsible for his/her 20 percent plus 20 percent of Y's 30 percent, for a total of 26 percent of the total liability. The remaining amount of defendant Y's liability (9 percent of the total) will be borne by the plaintiff.

A key feature of the reallocation regime is a 50 percent cap on reallocated liability. Under the cap, the reallocation which takes place as a result of the existence of an insolvent or unavailable defendant/third party is limited to 50 percent of the solvent or available party's original proportionate liability. In the above case, this cap did not affect either party. It is triggered only when there are multiple defendants or third parties, a large defendant is insolvent and other defendants/third parties are responsible for only a small portion of the fault. The intent of the cap is to make sure that a defendant/third party that is only 5 percent responsible for the fault is not held liable for the entire negligence of another person who is 95 percent responsible for the fault and who happens to go bankrupt.

Similar Provincial Laws  none

Current Wording 
N/A

Proposed Wording 
237.3 (1) Subject to this section and sections 237.4 to 237.6, every defendant or third party who has been found responsible for a financial loss is liable to the plaintiff only for the portion of the damages that corresponds to their degree of responsibility for the loss.

(2) If any part of the damages awarded against a responsible defendant or third party is uncollectable, the court may, on the application of the plaintiff, reallocate that amount to the other responsible defendants or third parties, if the application is made within one year after the date that the judgment was made enforceable.

(3) The amount that may be reallocated to each of the other responsible defendants or third parties under subsection (2) is calculated by multiplying the uncollectable amount by the percentage that corresponds to the degree of responsibility of that defendant or third party for the total financial loss.

(4) The maximum amount determined under subsection (3), in respect of any responsible defendant or third party, may not be more than fifty per cent of the amount originally awarded against that responsible defendant or third party.

Bill Clause No. 115
CBCA Section No. 237.4
Topic: Apportioning Award of Damages

Sources of Proposed Law 
Reports of the Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998;
U.S. Securities and Exchange Act of 1934, s. 21(D)g).

Changes From Present Law
New regime

Purpose of Change 
This provision preserves the status quo in cases of fraud or dishonesty. Plaintiffs who are victims of fraud or dishonesty will continue to be compensated fully for their loss.

Similar Provincial Laws 
none

Current Wording 
N/A

Proposed Wording 
237.4 (1) The plaintiff may recover the whole amount of the damages awarded by the court from any defendant or third party who has been held responsible for a financial loss if it was established that the defendant or third party acted fraudulently or dishonestly.

(2) The defendant or third party referred to in subsection (1) is entitled to claim contribution from any other defendant or third party who is held responsible for the loss.

Bill Clause No .115
CBCA Section No. 237.5
Topic: Apportioning Award of Damages

Sources of Proposed Law 
Reports of the Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998

Changes From Present Law 
New regime

Purpose of Change 
This section provides that joint and several liability is applicable to individual plaintiffs and personal bodies corporate (see s. 237.5(2)) who have a financial interest in the corporation of less than the prescribed amount. Personal bodies corporate are included in order to provide personal investment vehicles with the same benefit as individuals.

This approach is aimed at providing full compensation to plaintiffs who are least able to absorb the loss. While large creditors or investors normally take the possibility of loss into consideration before making an investment decision and should therefore assume the risk associated with the insolvency of one or more of the defendants/third parties, small investors may not necessarily be aware of the risks.

Similar Provincial Laws 
none

Current Wording 
N/A

Proposed Wording 
237.5 (1) Defendants and third parties referred to in subsection 237.2(1) are jointly and severally, or solidarily, liable for the damages awarded to a plaintiff who is an individual or a personal body corporate and who

( a ) had a financial interest in a corporation on the day that an error, omission or misstatement in financial information concerning the corporation occurred, or acquired a financial interest in the period between the day that the error, omission or misstatement occurred and the day, as determined by the court, that it was generally disclosed; and

( b ) has established that the value of the plaintiff's total financial interest in the corporation was not more than the prescribed amount at the close of business on the day that the error, omission or misstatement occurred or at the close of business on any day that the plaintiff acquired a financial interest in the period referred to in paragraph ( a ).

(2) In subsection (1), "personal body corporate" means a body corporate that is not actively engaged in any financial, commercial or industrial business and that is controlled by an individual or a group of individuals, each member of which is connected by blood relationship, adoption or marriage or by cohabiting with another member in a conjugal relationship.

(3) Subsection (1) does not apply when the plaintiff brings the action as a member of a partnership or other association or as a trustee in bankruptcy, liquidator or receiver of a body corporate.

Bill Clause No. 115
CBCA Section No. 237.6
Topic: Apportioning Award of Damages

Sources of Proposed Law 
Reports of the Standing Committee on Banking Trade and Commerce on Modified Proportionate Liability, dated March and September 1998

Changes From Present Law 
New regime

Purpose of Change 
The application of the threshold could in some cases bring unnecessary hardship to individuals who fall on the "wrong side of the line" by denying joint and several liability protection to those who need it. The courts would, therefore, be permitted to apply the rule of joint and several liability where it is just and reasonable to so.

Section 237.6(2) permits the Governor in Council to establish factors that the court must take into account in making its determination. Such factors would be required to be published in Part I of the Canada Gazette .

Similar Provincial Laws 
none

Current Wording 
N/A

Proposed Wording 
237.6 (1) If the value of the plaintiff's total financial interest referred to in subsection 237.5(1) is greater than the prescribed amount, a court may nevertheless determine that the defendants and third parties are jointly and severally, or solidarily, liable if the court considers that it is just and reasonable to do so.

(2) The Governor in Council may establish factors that the court shall take into account in deciding whether to hold the defendants and third parties jointly and severally, or solidarily liable.

(3) The Statutory Instruments Act does not apply to the factors referred to in subsection (2), but the factors shall be published in Part I of the Canada Gazette

Bill Clause No. 115
CBCA Section No. 237.7, 237.8 and 237.9
Topic: Apportioning Award of Damages

Sources of Proposed Law 
Reports of Standing Senate Committee on Banking, Trade and Commerce on Modified Proportionate Liability, dated March and September 1998

Changes From Present Law
New regime

Purpose of Change 
It is necessary to establish the value of the financial interest in order to determine whether it falls above or below the threshold prescribed pursuant to paragraph 237.5(1) and section 237.7 provides a mechanism for doing so.

Subsection 237.7(2) provides the court with the discretion to adjust the value of the security that has been determined under subsection (1) when the court considers it reasonable to do so. The rationale for this provision is to cover off those situations where the closing price, the highest and lowest prices, or relevant bid prices, as the case may be, do not reflect the true value of the security. For example, this could occur where a security is thinly traded.

Section 237.8(1) provides that for financial interests subject to resale restrictions or in respect of which there is no organized market, the court will determine the value. The Governor in Council will establish factors that the court may take into account.

Pursuant to section 237.9, the plaintiff may, at any time before or during the course of the proceedings, bring a motion to determine the value of the plaintiff's financial interest. This provision was included in order to avoid a situation where the plaintiff goes through the entire proceeding only to find out that it will be subject to modified proportionate liability.

Similar Provincial Laws 
Securities Act , (Ontario)
Securities Act , (Ontario) General Regulation

Current Wording 
N/A

Proposed Wording 
237.7 (1) When, in order to establish the value of the total financial interest referred to in subsection 237.5(1), it is necessary to determine the value of a security that is traded on an organized market, the value of the security is, on the day specified in subsection (3),

( a ) the closing price of that class of security;

( b ) if no closing price is given, the average of the highest and lowest prices of that class of security; or

( c ) if the security was not traded, the average of the bid and ask prices of that class of security.

Court may adjust value

(2) The court may adjust the value of a security that has been determined under subsection (1) when the court considers it reasonable to do so.

(3) The value of the security is to be determined as of the day that the error, omission or misstatement occurred. If the security was acquired in the period between that day and the day, as determined by the court, that the error, omission or misstatement was generally disclosed, the value is to be determined as of the day that it was acquired.

(4) In this section, "organized market" means a recognized exchange for a class of securities or a market that regularly publishes the price of that class of securities in a publication that is generally available to the public.

237.8 (1) The court shall determine the value of all or any part of a financial interest that is subject to resale restrictions or for which there is no organized market.

(2) The Governor in Council may establish factors that the court may take into account in determining value under subsection (1).

(3) The Statutory Instruments Act does not apply to the factors referred to in subsection (2), but the factors shall be published in Part I of the Canada Gazette .

237.9 The plaintiff may, by application made at any time before or during the course of the proceedings, request the court to determine the value of the plaintiff's financial interest for the purpose of subsection 237.5(1).