Spotlight on Québec law: French language requirements for investment contracts

Ana-Ioana Ioanas (00:05): You want to offer securities to residents in the province of Québec on a private placement basis, and you're wondering, what are the French language requirements relating to contracts of adhesion, right? What do you need to know? I'm Ana-Ioana Ioanas, corporate associate in Torys’ Montréal corporate department. And I'm here with Guillaume Lavoie, partner in our department.

Guillaume, can you give us a high-level rundown of this fairly new requirement?

Guillaume Lavoie (00:30): Certainly. Thanks, Ana. So, since June of last year, the new requirement that has become in force is the requirement to translate all contracts of adhesion before they’re actually being provided to the adhering party. If you've done business in Québec of issued, concluded contracts in Québec in the past, you're probably familiar with what we call the “French language clause”, which is a waiver being done to waive the requirement to have the contract translated into French. So, what those new rules have changed about that, is that for such a waiver to be valid, the adhering party will need to have received, prior to entering into the agreement, a full copy translated in French of the contract it is entering into if it qualifies as a contract of adhesion.

Ana-Ioana Ioanas (01:22): So, what types of contracts qualify as contracts of adhesion? Contracts of adhesion are also called contracts predetermined by one party, and it's a contract where the essential stipulations are non-negotiable, and they're imposed or drawn up by one party on its behalf or upon its instructions. We really want to make the distinction between “non-negotiable” and “not negotiated” contract.

It's not necessary for the party to have exercised its right to negotiate the contract as long as the opportunity to negotiate was actually given and it was real. But there's a few exceptions, such as loan contracts, financial instruments and contracts whose object is the management of financial risks, certain international and intergovernmental agreements, and agreements with First Nations.

But the two that are particularly interesting for our purposes are the contracts of adhesion used in relations outside Québec, and the contract that is not actually a contract of adhesion. So, this will require a case-by-case analysis of facts in each case.

Guillaume Lavoie (02:22): For example, if the adhering parties or all of the parties to the contract are being represented by counsel, that doesn't necessarily preclude the contract from being a contract of adhesion. But that may be an indication that there was an ability to negotiate. In the context of if we go back to our main topic of the offering of securities, if we’re talking about large institutional investors who are purchasing securities, that may be discussing the terms of the offering, the pricing, given that the requirement is to have the ability to negotiate not necessarily all of the terms of the contract, but essential terms, there might be an indication, we might be able to conclude that this is not a contract of adhesion.

And you mentioned earlier the fact that there's no requirement to have all of the parties actually negotiating the agreement, what's important is to have the opportunity to negotiate. So, in a context where there's an offering of securities to a large number of investors, depending on the circumstances that the same opportunities are provided to all of them, the fact that some negotiate certain of the terms, for example, in an investment fund context, if some conclude a side letter even if not all of them do, that might be an indication that all of the investors had an opportunity to negotiate the terms of the agreement. So, it's really again, it's a fact-by-fact analysis, but these could be indicia whether we're looking at a contract of adhesion or not.

Ana-Ioana Ioanas (03:47): And the second exemption involves a contract, even though it's a contract of adhesion, that is used in relations outside Québec. Unfortunately, this term was not defined in the legislation nor in the commentary of the government. So, the interpretation given to it still remains to be seen. However, assuming that the issuer is not based in Québec and doesn't have any material connections to Québec, such as significant subsidiaries, a presence that could give rise to an argument that the contract is formed in Québec, such as having employees in Québec, or a large number of employees.

What matters most is really where the parties are. So, for example, the issuer's head office and its mind and management are outside of Québec. As long as there's no representative or agent that is based in Québec and is acting on behalf of the issuer with respect to that particular offering, the issuer could rely on this exemption and not have to translate any of the documents related to the offering.

Guillaume Lavoie (04:41): So, one question then that arises, given some of the ambiguity with respect to whether the contract has to be translated or not, is what are the consequences if there's an actual breach of the obligation to translate? There are fines that can be imposed under the Charter of the French language. But one of the big important consequences that needs to be taken into account is that if there is a breach of the requirement to translate, the adhering party may apply for its annulment at any point in time, without having to prove the fact that it suffered an injury if the contract should have been translated and was not.

Ana-Ioana Ioanas (05:19): Yes. And the onus will fall on the issuer to show that the adhering party suffered no injury in order to avoid the annulment of the contract. The adhering party may also ask for a reduction of their obligation, which is equivalent to the damage that they sustained if they did sustain damages.

Guillaume Lavoie (05:33): So, it's really important to make sure to have done the right analysis and to consult your lawyers on this. So, thank you all for listening and see you in our next video.

Ana-Ioana Ioanas (05:43): Thank you.