INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, June 4, 1998

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I will call the meeting to order, pursuant to Standing Order 108(2), concerning a study on information technology: preparedness for year 2000.

We are very pleased to have before us today the Canadian Bar Association, which has a number of members representing it: Mr. Fortier, Mr. Hunter, Mr. Racicot and Mr. Corley.

My understanding is that Mr. Fortier will speak first, then Mr. Hunter, then Mr. Racicot and then Mr. Corley.

We will begin with Mr. Fortier, please.

Mr. Michael Fortier (Chair, Working Group on the Year 2000, Canadian Bar Association): Thank you, Madam Chair.

[Translation]

Thank you for your invitation.

[English]

We are pleased to accept your invitation to appear before the committee to discuss the legal issues arising from computer risks related to the year 2000.

I will start by introducing our delegation. Laird Hunter is from Edmonton. He was the project director for the CBA working group. Then we have Richard Corley of Davies Ward & Beck in Toronto, and Michel Racicot of McCarthy Tétrault in Montreal.

I would like to say a few words about the CBA. It is a national voluntary association, representing over 35,000 jurists, including lawyers, notaries, law teachers and law students across Canada. The primary objectives of the CBA include improvement in the law and the administration of justice. It is in this context that we make our remarks to the standing committee today.

Permit me to give you a short overview of our presentation. Mr. Hunter will outline the basis for potential liability, including areas where the issues are still uncertain. Mr. Corley will describe what lawyers are doing to help their clients and members of the public to prepare for Y2K. Finally, Michel Racicot will address some of the issues raised in your committee's interim report.

Before I turn the floor over to my colleagues, I would like to briefly summarize the CBA's involvement with the Y2K problem.

André Gervais, president of the CBA, is an ex-officio member of Industry Canada's task force 2000. The CBA was invited by the task force to prepare a report addressing the legal issues. In response, the CBA established the working group on the year 2000. The working group included lawyers from across Canada, as you can see this morning.

In preparing the report the CBA group has been aware that there is a wide variety of constituencies concerned with this issue, many of which have somewhat differing interests. Thus, it is not an area where it is possible to have a single position from a legal perspective. Therefore, the report offers an outline of legal issues. It does not offer legal advice.

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I would like to describe very briefly the broad groups of legal issues that the CBA working group identified.

The first group consists of the legal issues involved in management responsibilities. It involves determining whether a company has a year 2000 problem, what the extent of the problem is and how the company can deal with it.

Then we talk about the legal obligations of directors and officers under the current laws to prepare for the year 2000 as a matter of prudent, careful and skilful management.

We also look at such issues as who has the right or perhaps the obligation to alter the software a company is using and what kinds of commitments a company will want from a consultant or a service company offering to assess the extent of its Y2K problem.

The second group of legal issues relates to fixing the problem. Contracting with a consultant or a service provider to fix the problem is obviously an area of legal complexity, but there are also many legal issues associated with running the company on a day-to-day basis while this is going on, including employment issues, dealing with suppliers and customers, and protecting the confidentiality of company data while information systems are being upgraded.

Finally, the third category relates to liability and disputes. The way a company does or does not deal with its year 2000 problems may expose it to liability, possibly giving rise to disputes and claims down the road. Clearly, companies have to be aware of these issues as they prepare for the millennium.

[Translation]

I will be pleased now to ask my colleague Laird Hunter from Edmonton to speak.

[English]

Mr. Laird Hunter (Project Director, CBA Working Group on the Year 2000, Canadian Bar Association): In the testimony that this committee has received, one of the constant themes we have seen in reviewing the material echoes back to something Mr. Jean Monty said in his testimony to you: “Our message is that without a formal”—and I underline formal—“action plan to address this problem, [businesses] might never realize what hit them until it is too late.”

The point we want to bring as lawyers, from a legal perspective, is that the formality that is required to discover the problem from an information technology perspective is paralleled by the need to have a formal legal response. Our report is, in effect, a framework addressed to lawyers and to business of the catalogue of potential legal issues that might arise in the context of year 2000 problems.

Again, as Mr. Monty's task force report says, the issues are radically different depending upon the size and type of corporation. In the words of that task force, “We don't believe it's possible for somebody to understand the complexity of all of these issues at different levels—”. While it may not be possible to understand the complexity, it is possible to forecast the types of issues that may well be dealt with. There are, in essence, only three categories of issues that might arise.

The first may arise under contract. Will the software vendor be able to deliver a product that does the job? If there is a failure to deliver, is the contract that underlies the relationship breached? Those are standard commercial considerations applied in the context of year 2000 compliance.

The next area is what in English we call tort, and the subset of that is negligence. In the civil system it is called delict: the notion that there is a duty to provide some service or good and a failure to observe that duty. There will be a range of tortious or negligent circumstances that could arise under year 2000 situations.

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Finally, we have a whole panoply of statutes with which members of this committee and the House are well familiar.

There is securities legislation at the provincial level and there are employment standards. Any test of record-keeping or obligation that is imposed on corporations or individuals may give rise to a potential claim.

One that is of particular interest to your committee related to one of the recommendations you made, which is the liability of directors and officers. In our view, this is one of the most important issues, and the current provisions under both federal and provincial corporate statutes adequately address the range of obligations that may arise. My colleague Mr. Racicot will be speaking particularly to section 122 of the Business Corporations Act.

The point we want to bring to our members, the lawyers across the country, is the one I started with, which is that paralleling the formal requirements to manage the business problem is the need to have a formal set of tools and responses to deal with the legal issues.

I will now turn it over to my colleague Mr. Racicot to deal with some of the more precise points.

Mr. Michel Racicot (Member, Working Group on the Year 2000, Canadian Bar Association): Thank you, Madam Chairman.

[Translation]

What we need in order to be able to address the year 2000 problem is leadership and a public education campaign to make people more aware of the situation. In this regard, the work of the committee chaired by Mr. Monty and your committee's work is and will continue to be useful.

However, the time has come for action now that awareness has been raised. As has been indicated, there is a need for a formal action plan on technical issues, but the need exists also for a formal action plan on legal issues. That is the thrust of our recommendations, and our inventory is intended to be used as a road map, a checklist that will help businesses carry out the action plan in the report by Mr. Monty's committee. It can be used to help people when they are identifying the various problems, working to resolve them and even preparing their contingency plan in case of litigation.

[English]

What we are saying is that we think from a legal point of view what is required is due diligence and what we are trying to provide is a framework, a road map, to do that due diligence, and we think that lawyers are trained for that purpose. The due diligence that is required with respect to legal issues dealing with the year 2000 is no different from the kind of due diligence that is required, for example, when we acquire an enterprise or when we make a public issue.

Therefore, we think that our report is, in fact, complementary to your activities and to your own report and also complementary to the report of task force 2000.

I would like to address two specific recommendations that are contained in your report, and they are recommendation 2 and recommendation 6.

I think that recommendation 2 is to introduce legislative amendments to add the explicit responsibility of ensuring year 2000 compliance to the list of directors' duties for federally incorporated businesses.

As you stated at page 46 of your sixth report:

The Committee heard on a number of occasions of the importance of due diligence and of the need for accountability. In fact, the accountability required from the CEOs and company directors within the private sector was cited as a motivator to ensure that action is taken to overcome the Year 2000 challenge since they could face legal action if they or their companies have failed to show due diligence.

We fully espouse the statement that you made in your report.

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Having said that, however, we think that recommending specific changes to the Canadian Business Corporations Act is not necessary and is not in line with the statutory framework of the Canadian Business Corporations Act.

Subsection 122(1) of the act, in fact, imposes a duty on every director and officer of a corporation in exercising his powers and in discharging his duties to act honestly and in good faith with a view to the best interests of the corporation and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

We think this overall framework of the act is sufficiently broad to encompass the liability of directors and officers who have to deal with the Y2K problem.

If you were to introduce a legislative change to address this issue particularly, we think the legislative change might not be able to take into account particular situations. There may be particular factual or technical situations where, in a certain set of facts, directors and officers would be liable, but in other cases they would not be—for example, when they have relied on expert advice from outside people, etc. The jurisprudence, the case law, on subsection 122(1) already addresses that.

Secondly, we think that if you were to introduce such a change, it would not take into account these different circumstances, but there is also a danger. There is a rule of interpretation that, even going back to the Romans, was expressed by way of a Latin maxim, Expresso unius est exclusio alterius, which means if you include something, that means you intended to exclude other things. If you include the Y2K liability as a specific set of liabilities for directors and officers, would you therefore be excluding the liability for other types of problems? This would introduce a fundamental change in the framework of the Canadian Business Corporations Act.

Thirdly, introducing such a change would be of limited impact. It would only address those directors and officers who are directors and officers of federally incorporated companies. What would happen at the provincial level? Does that mean that because you did it at the federal level the directors and officers of provincially incorporated companies would not have that liability because their statutes might be silent on that?

Fourthly, we think there is a timing problem. In view of the time it takes to amend statutes, we think the legislative solution might come too late.

Our recommendation, and we say this with all due respect, is to leave the Canadian Business Corporations Act as it is because, in our firm belief, it is amply able to deal with the problem. In fact, in your report you quote Jean Monty as follows:

The issues are radically different depending on the size and type of corporation. We don't believe it's possible for somebody to understand the complexity of all of these issues at different levels of complexity and to become accountable in a regulatory format or, even more to the point, to have legislation to make that the case.

We think there are words of wisdom in there, which we submit for your consideration. We would suggest that no amendments be introduced to the Canada Business Corporations Act to take into account the duties and liabilities of directors and officers.

I will now turn to your recommendation 6. You state that legislative amendments be introduced to eliminate legal liability for firms which, as good Samaritans, make year 2000 solutions available free of charge.

I must say that my practice is heavily involved in computer law problems and especially on issues concerning the year 2000. I have been advising some of Canada's biggest computer consulting firms. I have been advising companies that produce software. I have also been advising users of computer systems, such as banks, insurance brokers and stock exchanges. In my experience I have not seen people making year 2000 solutions available free of charge. Therefore, I am questioning the premise under which recommendation 6 is made.

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Secondly, as I have stated before, I think the problem is too complex to merit an overall, universally applicable solution. If you were to introduce legislative amendments to eliminate legal liability, there would be so many exceptions that it might be unworkable, let alone the fact that it is very difficult to draft what would be a common definition of what year 2000 compliance is.

I was involved recently in a transaction where we had three different definitions of year 2000 compliance and there were arguments. I can give you examples in the question period as to examples of different levels of year 2000 compliance.

The Government of France has looked at the issue and has tried to determine whether there would be a magic date before which, if you had done something, you would not be liable. If you produced a product before that date you would not be liable, and if you produced a product after that you would be liable. There was never any agreement as to what that magic date would be. I would suggest that in this case trying to eliminate legal liability is also a problem.

From a social aspect, it would seem to me that if you eliminate liability you make people less accountable, not more accountable. If we are trying to induce responsible behaviour, removing liability may not be the solution.

Here again, as with the recommendation for directors and officers, we have an issue of timing, in that the statutory amendments might not be introduced in sufficient time to be helpful.

Finally, and maybe most importantly, there may be a constitutional law problem in trying to address it. We think that the issue of legal liability is, in general, an issue of property and civil rights, an issue in fact that falls under exclusive provincial jurisdiction.

The only way we think the federal government could address it is by invoking its powers under the peace, order and good government aspects of the Constitution. Therefore, it would have to declare somewhat of a national emergency. We do not think this would be workable in our constitutional framework.

However, having said that, I think there may be some solutions. If we think that the issue of the good Samaritan is an issue that needs to be addressed at the micro level, taking into account the different circumstances, nothing forbids two companies, a supplier and a user, from getting together to address the issue, doing it confidentially, exchanging information and maybe exchanging a release from liability.

In fact, what we are proposing to you is that there may be a way to have a contractual good Samaritan clause or good Samaritan contract, rather than a statutory one, and that this would best be left to the people who are dealing with the problem.

I would like to end on a positive note. I think the solution is not to create new laws. The solution is to adapt existing laws to new legal situations.

I had the pleasure of directing the Industry Canada study on the issue of liability for contents circulating on the Internet, and we published our report.

The cyberspace is not a no-law land. I think we are reaching the same conclusions here as we reached in the cyberspace report. It is not a question of changing laws, but a question of adapting the law to new circumstances. We think the law is a living instrument that has the potential of being able to adapt itself. The legal system is also able to adapt itself.

Finally, on a positive note, we think that the year 2000 presents opportunities for our Canadian businesses that are year 2000 compliant to sell their products on the market, and to the extent that we encourage them to do that, there may be great positive economic benefits to Canadians and to Canada as a whole.

I have been made aware that recently one company introduced decision-making software to deal with the year 2000 problem and it even has a module that addresses the liability of directors and officers. This is an innovative approach in trying to address the problem.

That will conclude my remarks, Madam Chair.

The Chair: Thanks, Mr. Racicot.

Mr. Corley.

Mr. Richard F.D. Corley (Member, Working Group on the Year 2000, Canadian Bar Association): Thank you, Madam Chair, and committee members.

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I would like to briefly summarize the steps that members of the bar are taking to address and to solve the year 2000 problem. In this regard lawyers are working extensively to educate their customers and suppliers and other members of the public about the year 2000 problem. To help their clients address and solve this problem, this work is taking place on a number of fronts.

At this point a very important avenue is the educational avenue. In this regard lawyers are preparing and publishing papers and reports, such as that released by the CBA today. The CBA report, as you are aware, has been prepared to assist and to empower members of the bar across the country to help customers and suppliers address and solve year 2000 problems in time.

They are also preparing and sending out informational memoranda to clients and to other interested parties, speaking and hosting conferences concerning the problem, and raising this issue in a wide range of circumstances with their clients.

Secondly, they are taking a number of steps to assist companies and other entities to achieve year 2000 compliance. At the first level, at the corporate governance level, this work involves advising directors and officers concerning year 2000 matters.

My experience has been similar to that of Michel's. We have had a wide range and a wide variety of clients, ranging from suppliers to customers to intermediaries, all of whom have sought advice and are striving diligently to address this problem and to solve the problem. There is a very important role to be played there.

Other work involves preparing and implementing formal plans. Again I recognize the work the Jean Monty task force has done to operationalize and implement them. There are often very important legal issues identified and discussed in the CBA reports, which lawyers assist with. Also there is the technical work of preparing due diligence checklists, representations and warranties concerning year 2000 compliance.

There are also issues involved in advising public companies on securities law disclosure. This is part of the process of creating transparency so that the markets can operate and companies can respond appropriately to the year 2000 risks as they are disclosed. There is also work being done to assist customers in preparing letters and other correspondence, which they send out to their suppliers, requesting that those suppliers confirm that they are indeed year 2000 compliant.

On a more active level, lawyers are assisting their clients to achieve year 2000 compliance in a number of areas. First, in any transaction where a company is being acquired, it is vitally important that year 2000 compliance be addressed and dealt with in a diligent manner.

Similarly, in making contracts and entering into arrangements for the remediation of year 2000 problems, there are, as the CBA report indicates, a number of legal issues there, intellectual property and otherwise, that are appropriately dealt with.

Finally, lawyers have a role in ensuring that year 2000 representations and warranties and the steps that companies take be appropriately documented and appropriately supported.

On the dispute resolution front, at this point it is of vital importance that companies work together to set up mechanisms such as joint management teams and employ mediation, arbitration and other forms of ADR in order to address and to solve year-2000-related disputes before the problem becomes a crisis.

There is also a requirement to advise clients with respect to different forms of year 2000 liability. Contingency plans are being prepared and this flows into further advice concerning mitigation of damages, the steps a company should be taking to make sure that after year 2000 they have done everything possible to put themselves in the best possible position.

The bar association, in addition to this report, is also preparing a checklist to assist lawyers in their own operations, to look at their own information technology systems, to assess them and to help them to ensure that those systems are in fact compliant.

The Chair: Thank you very much, Mr. Corley.

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I want to thank you all for your opening comments.

I have two brief comments before we go to questions.

One, I want to apologize in advance because I will be leaving early and Mr. Bellemare will be assuming the chair at that point.

Second, I just wanted to answer Mr. Racicot's question about the premise for our recommendations 2 and 6.

Just so you are aware, with respect to recommendation 2, we were following what has happened in England with the change in its law concerning the liability of directors. We wanted to get the attention of lawyers, if nothing else, because we all know that the House will be recessing soon and we weren't sure there would be any legislative change before the end of June. However, we do think directors need to know that they are, and could be, liable. We hope that message has been loud and clear.

With regard to recommendation 6, I am not sure if we were clear in our explanation, but we were basically talking about the fact that nothing should forbid two companies from exchanging information between themselves. We did not think it was necessary to get lawyers involved and we wanted to ensure that companies could do that, with the good Samaritan law, without having to go to any legal expense or cost, or involving any kind of time at this late date.

Those are the reasons for recommendations 2 and 6, and I am sure they will lead to more discussion today.

With that, we will begin with Mr. Lowther.

Mr. Eric Lowther (Calgary Centre, Ref.): Thank you, Madam Chair.

Thank you for your presentation, gentlemen. I listened closely to what you had to say and tried to sift out some nuggets, and I think I heard that the best way for a corporation to protect itself against liability related to year 2000 issues is to be able to demonstrate due diligence. If a company finds itself in a courtroom, it can roll out a litany of things it did to show due diligence.

I also heard you refer to checklists or that type of thing being done in a legal framework. You are advising your clients of the type of checklist they should go through. If they go through it, their due diligence test will be positive and they will survive without any significant damage, I suppose.

Is that an accurate description of what we heard?

Mr. Laird Hunter: Yes, in part. What we are saying is that the exercise of becoming aware of the year 2000 problem has a management/business aspect and it has a legal aspect. Just as you have heard testimony throughout your hearings of the various stages of becoming aware of the problem within a corporation, within a business, contracting to remediate and dealing with contingency plans, there is a parallel process that tracks almost in lock step with that process the need to examine the full range of legal issues. That, in a sense, is a form of due diligence.

By doing that, firms within the existing legal framework will, to the extent they are able, protect themselves.

Mr. Eric Lowther: Has the CBA provided these checklists or these tests they need to go through to make sure they have done due diligence? Have we received them?

Mr. Michel Racicot: First of all, this report is going to be made available to all CBA members. Beyond that, it will be available to any member of the public who wants to order it from the CBA. It will also be published, in both languages, on the CBA's website.

What we are trying to do is, one, educate our colleagues by showing them that the problem is one that is multidisciplinary in nature, that there are multiple disciplines in law involved. We want to make sure they address all aspects of the problem. At the same time, we could prepare a checklist that could be used by businesses.

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Now, that doesn't mean to say that if they go through the checklist and they do all these things that we recommend, they will then come out with a seal of approval and they will be able to say they are not liable or they don't have any chance of being held liable because they followed these steps. This is a framework to help mitigate liability and to help mitigate damages, but we cannot provide assurances. We are trying to provide a tool, but it depends on how the tool is used and how people do their due diligence.

Mr. Eric Lowther: This report, effectively, is the checklist you are suggesting?

Mr. Michel Racicot: Call it a checklist, a road map or anything like that. We tried to make it as comprehensive as possible, drawing from the various disciplines of law.

Mr. Eric Lowther: If I am representing a corporate entity in Canada today that is concerned about liability related to the year 2000 and I want to examine the legal issues, I would take this and test the company profile against all these considerations. I would probably need some sort of legal opinion to give me guidance as to how well I am meeting the checklist, but at the end of that review process I am feeling good about it, or at least 99% of it. I can rest assure that I have covered the due diligence base and I will probably be okay if a problem arises.

Mr. Michel Racicot: There is one thing we haven't done. We have set out certain examples, but we haven't addressed industry-specific statutes, which may impose a further layer of liability on these industries.

It may be that certain industries have certain statutory tests that are not necessarily addressed in this report. It would have been beyond the timeframe and the effort that we could put into this report to address industry-specific issues.

Mr. Eric Lowther: We have gone through the checklist approach. You are not recommending any changes to the legislation with respect to directorships or that type of thing, or any new liabilities. You feel it is covered within the current legislation.

As lawyers, experts of law, are there legislative amendments you feel are needed at this point in time that would help Canada, Canadians, address the challenges of the year 2000 from a legal perspective?

Mr. Michel Racicot: From our perspective we don't think there is anything needed at this point in terms of statutory amendments. However, there may be things that could be done at the regulatory level.

One example that comes to mind is the very serious issue of the shortage of technical personnel. It may be that some of the immigration aspects of this problem need to be addressed. We could, for example, relax for a certain period of time immigration requirements to allow people from abroad to work in Canada. We need those experts.

But that would not require a statutory amendment. I am not an expert in immigration law. It may require amendments to be made to regulations to, as we say in French, assouplir the requirements for holders of entrance permits. That is the only thing that comes to mind.

Mr. Michael Fortier: I would just add that the stock exchanges in Canada have already imposed, as you know, an obligation on companies that were tabling annual reports after April 1 to indicate in those reports where they stood on Y2K, how compliant they were and what their plans were. That is one example that I think was very practical and very timely. In the marketplace people will know where these companies stand.

Obviously these are listed companies. We are not talking about a large majority of Canadian companies. But this is one example where there was intervention by a regulatory body that was very useful.

The Chair: Mr. Lowther, I would draw to your attention pages 31 and 32 of the report, which list other statutes that some companies may be bound by and may have difficulties with in connection with the year 2000 problem, as identified by the CBA.

Mr. Racicot, you may want to take note that our recommendation 19 extends the current citizenship and immigration software professional pilot project. The problem we are having with immigration is that every country is looking for these people and they are not easy to find. We have relaxed immigration requirements for this very issue.

We will now turn to Mr. Bellemare.

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[Translation]

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Mr. Racicot, you spoke of your report Countdown to 2000 as a guide to be used by lawyers' offices. On page 16, you suggest that lawyers talk about insurance with their clients. I have difficulty understanding that recommendation.

[English]

if the insurance companies make a disclaimer.

In the Globe and Mail of Wednesday, May 6, 1998, at page B-9, Royal & SunAlliance, for example, has a huge ad covering two-thirds of a page, saying that most of the business losses caused by year 2000 failures are not covered by insurance policies.

What is your reaction to that?

[Translation]

Mr. Michel Racicot: Mr. Bellemare, we are suggesting that they check their insurance policies to find out if this risk is covered. In some cases, the risk may be covered. In other cases, since the exclusion is not specific, it may well be that the insurance policy also covers this. In other cases, such as errors and omissions insurance and professional liability insurance, protection can be purchased against the year 2000 risk. That could apply to a company that custom designs software. So it is very important to check that.

There is another thing. Since the policies are issued yearly, there will probably be at least two renewals before the year 2000. I don't know if you are like me, but when I receive my insurance policy, I look at the premium amount and I put the policy in my drawer. I suspect that many businesses do the same thing. We are telling people to check their policy renewal to see whether the insurers have added clauses that specifically exclude this risk and to read the fine print when renewing their insurance policy. It is very important to check to see whether this risk is covered.

Mr. Eugène Bellemare: Yes, but the Globe and Mail ran nearly a full page telling people that they are not insured.

Mr. Michel Racicot: They are being told that their present policy does not cover this risk, but if you read further on, you will see that Royal and SunAlliance are offering a product that will cover the risk, if I remember correctly. I have seen that ad. I do not have it with me but I think that their message is that the company is offering a product to insure this risk.

Mr. Eugène Bellemare: No, they are not talking about a product.

Mr. Michel Racicot: I know that some insurers have offered new products.

Mr. Michael Fortier: There is another point as well, if I may jump in. People need to know if the policy will allow them to make a claim if the problem arises after the year 2000.

Mr. Eugène Bellemare: Yes.

Mr. Michael Fortier: It is not enough to know simply if the risk is covered; you must also know whether you will have access to the policy benefits if the loss arises or is discovered after the year 2000.

Mr. Michel Racicot: A number of these policies are what are called claim-based insurance policies that include an obligation of disclosure to the insurer as soon as a risk is known. The legal problem that arises involves when we have the obligation to disclose the risk of the potential claim to the insurer to make sure that, if the risk is covered by the policy, we will in fact be covered when the loss arises.

Mr. Eugène Bellemare: You have three definitions for year 2000 compliance. What are those three definitions?

Mr. Michel Racicot: I was explaining to you that there were three different contracts for a given transaction and that three different law firms came to different definitions for year 2000 compliance. In spite of their nuances, the contracts perhaps came down to the same thing, but if a judge had to interpret them in a comparative way, he might say that the same definitions were not used because the same meaning was not intended.

I can give you a concrete example. If you have procurement management software in a plant that uses four digits to indicate the date, the software will recognize the date if you put in the year 2000.

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The software also enables you to use only the last two digits, and you decide to put 00. The software does not interpret the date as being 2000, but rather 1900. Can this software be considered compliant? The company can say that that is the case, because it recommends that its clients use four digits. The field provided allows for four digits, and the client decided to not use them. Others may argue that, since the software accepted a two-digit date, it should have contained the necessary logic to assume that, when the year 00 is given as a procurement date, the intention was not to do retroactive procurement but rather to indicate the year 2000.

Some generations of software accept either two or four digits. Depending on the logic of the new version, when 00 or any subsequent digit is used, up to about 35, the software assumes that the years 2000 to 2035 were intended.

So there are various nuances. Some people say that such software is not year 2000 compliant and others say that it is. It is very difficult to come to a universal definition.

Mr. Eugène Bellemare: If you say that the problem does not come from the program, I imagine that businesses will want to correct their programs, but these use integrated chips, which are probably made in Asia. In that case, who is responsible if it is impossible to check whether the chip is Y2K compliant, given that it was produced outside Canada, for example in Asia, where it might be difficult to take people to court? Who is responsible?

[English]

Mr. Richard Corley: The question we really need to discuss and examine is with respect to the different types of liability, and we have to look under each of those types.

If you have a contract, then you want to make sure, if you are a purchaser under that contract, that you have taken appropriate steps to ensure that the chip that is being made in Asia is, in fact, year 2000 compliant.

Taking appropriate steps may have different meanings, depending on the use that is being made of the chip and the technology. It may at one level require that you seek appropriate representations, confirmation and/or third-party certification that the chip is indeed year 2000 compliant. In other circumstances, as a purchaser you may wish to independently confirm the compliance of that circuit and test it yourself. As a business person, if you are dealing with a supplier of critical elements and there is some doubt about year 2000 compliance of those elements, the recommendations in the Jean Monty task force report address that situation.

The advice given in the CBA report is to look at the potential areas of liability to make sure you have taken appropriate steps to protect yourself by getting alternative suppliers, by testing and by getting representations and warranties to back you up.

Those are the steps that you take. That is part of what has been generally referred to as the due diligence process. You go through that and in each case you need to understand and assess what is reasonable in those circumstances, and it will differ from case to case.

The Chair: Thank you very much, Mr. Bellemare.

I want to ask one quick question before I leave and then I will turn it over to Madame Lalonde for her questions.

Are you aware that in the United States—and maybe some have already started in Canada—in Detroit and Michigan, lawsuits have already begun? Is it the same in Canada?

They have a number of cash registers that are not year 2000 compliant. A major investment was made and the lawsuits have already begun.

Mr. Michel Racicot: I am personally aware of five cases. The cash register case was the first one launched. There was mediation in that case and a proposed settlement of $250,000. There are four class action suits that have been started in the U.S.

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In the U.S. you have to make a distinction. Companies can start class actions. There can be plaintiffs in class actions under U.S. law.

In Canadian law, first of all, we have class action legislation only in Ontario, Quebec and B.C., and only individuals can be plaintiffs in a class action.

You are touching an aspect of international law that may be very interesting. Will companies in Canada that have suffered damages and that are bound by a contract that is governed by the law of an American state have standing as co-plaintiffs in a class action in the U.S.? That's a good question. Of course this is a question answered under U.S. law. I don't think we are competent to determine that. But these are the kinds of issues that need to be addressed and that probably will have to be addressed.

Mr. Laird Hunter: In following up from that to repeat our point about formal examination of the issues parallel to the business issues, many companies now are examining that issue and submitting themselves to the international arbitration tribunal to anticipate that this kind of a problem may indeed arise and provide themselves a mechanism if they have to resolve it at a later date.

The Chair: I think it will be very interesting. You should know we have had discussions at committee where we have all said we don't want the lawyers to get really rich off this issue. We want everyone to stay in business. I apologize, but when there are only two of us on a committee—

Mr. Michael Fortier: Would it now be fair to say that you don't want lawyers to be rich, period? What do you mean on this issue?

The Chair: I'll now turn it over to Madame Lalonde.

[Translation]

Ms. Francine Lalonde (Mercier, BQ): Thank you very much for your presentation. Frankly, I would really like to have heard it earlier. Maybe you were not prepared for June 4, 1998.

In any case, you raise a problem that I feel is extremely important, since you are adding to the technical, technological and organizational aspects not only of companies but also of the public agencies that are responsible. That is an aspect that I had certainly underestimated. The point you raised is a barrier rather than an incentive to action. It seems to me that businesses, instead of moving on the problem right away, will have to address important legal questions. That is my first question.

You are always talking about companies. Obviously, your point of view is that of an advocate for business. But the issues should also be looked at from the consumers' point of view. Consumers have fewer resources than companies.

In Quebec, I have personally urged consumers' organizations to get involved in this issue, but they have a lot on their plate and very limited means. However, when all is said and done, it will often be consumers who get stuck with defective products, as consumers, citizens, patients or clients. In your study, you are helping companies protect themselves against that, but we will need to concentrate on the other side of the coin also. Therefore, does the Bar Association help consumers? I know that that is under provincial jurisdiction, and that is perhaps the answer that you will give me, but the provincial bar associations must have been in touch with you. Have you talked about this? This whole issue is of great concern to me.

Third, let us talk about small businesses. In many cases, small businesses are going to have difficulty making the necessary investment. A recommendation has been made regarding accelerated amortization, but in many cases these companies will have a hard time borrowing, at least if this amortization is not implemented. Once the amortization is in place, things will no doubt go better, but if the companies have to assume the substantial legal costs of assessing their liability, that will be an obstacle. I am expressing my concerns to you in no particular order.

• 1220

Mr. Michael Fortier: Thank you, Ms. Lalonde. We will answer as a group and divide up your questions, if you have no objection.

To begin with the report, lawyers work with their clients in their transactions. Whether these involve Y2K compliance, acquisitions, incorporation or real estate deals, lawyers work with their clients. The year 2000 is an enormous challenge. You know this because you have been working with the committee on this issue for a very long time.

The legal world is not suggesting any barriers this morning, but rather ways of working with businesses and people who are in Canadian industry to help them get through this process. There are nearly 140 points of law described in the report. They will not all apply to everyone. It would be wrong to think that the report opens some marvellous escape hatch. It is completely the other way around.

I always tell our clients that an ounce of prevention is worth a pound of cure, and that is quite true. We are offering a way of being proactive. So you must not feel discouraged. In fact, we feel that this is a way of helping businesses prepare themselves better.

Mr. Michel Racicot: I will answer your second question, concerning whether we only defend the interests of business and not those of consumers. We have talked about companies here, but we could have just as easily talked about governments and individuals. Businesses are suppliers of goods and services, on the one hand, and consumers, on the other.

The technological problem that we are dealing with is precisely the fact that everything is integrated now. People think that their Y2K problem is resolved because their product is Y2K compliant, but they have fixed only one aspect of the problem. If my supplier, who helps me build my product, is not compliant, I will not receive my parts. For example, we were talking about chips earlier. Maybe the chip I need to put into my product is not compliant.

Although we have talked about businesses, we could just as easily have talked about consumers. Consumers are dealing with the same problem as businesses because they also will be faced with defective products, as patients or in other roles. I think that it is exactly the same problem. Consumers may be able to use class action suits to deal with the problem. They can help convince businesses to resolve the problem by threatening them with class action suits.

If consumers find that their toaster or coffee maker is not working automatically in the year 2000, that may not constitute serious harm that would justify an individual law suit, but a class action suit is something else again.

The same logic applies to everyone. The tool that is being proposed by the bar association applies to small- and medium-size businesses and consumers as well as to large corporations.

On that point, I will ask my colleague Laird Hunter to elaborate on the problems faced by small businesses.

[English]

Mr. Laird Hunter: Your concern about the capital requirements for addressing the problem is a very real one. In my practice I have clients I have had for 25 years. They are members of my community. I worry about their capacity. That problem exists irrespective of the legal problem. Increasingly, competitive businesses use prudent risk management as a tool to frame their enterprises to be successful. The checklist, as we have described it, the framework, is really just one aspect of prudent business management.

Reflecting on the comment Mr. Racicot made, part of this will be very much a problem of magnitude. The unfortunate circumstance may be that there will be some companies that find themselves possessed of the technology that's some years old, purchased offshore. In Mr. Bellemare's concern, there's nobody to blame. The lawyers can't solve that problem. That is a problem that will exist.

• 1225

What we hope to inspire in the leadership, in the context of Mr. Monty's response that we hope to bring forward, is the sooner you ask yourself the question, the sooner you examine the range of problems that might present themselves to you, the less the cost will be to you.

Mr. Richard Corley: I would like to also address that last point. You had raised the question of the impact of legal fees as one of the considerations. In that regard I think it's very important to note that information such as this report is being made publicly available at no charge over the Internet and there are other resources such as the Jean Monty report. So companies have access to this information. They can use self-help, they can identify the problems, and they can do much of that, in many cases all of that, without requirement for going outside.

There is a lot of this information. Our firm has sent out thousands of memoranda to people on mailing lists to inform them and get them thinking about these issues. That information is available and new very widely disseminated and will help to address the questions.

The Vice-Chairman (Mr. Eugène Bellemare): Thank you, Mr. Corley.

[Translation]

Ms. Lalonde, your time is up. You have had twice as much time as usual and you will have another opportunity.

[English]

I should advise you that MPs are very possessive of their time. They have 5 minutes and this has taken 10 minutes. Madame Lalonde has given you sort of a bad example by having a very long preamble, so you went on to match that.

[Translation]

Ms. Francine Lalonde: Mr. Bellemare, you have forgotten how long your preambles are.

[English]

The Vice-Chairman (Mr. Eugène Bellemare): Touché. You are extremely interesting but you could make it a little more succinct.

Next is Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you very much, Mr. Chairman.

I have three areas I want to cover. First, there are companies today selling equipment that is not year 2000 compliant. I didn't have a chance to go through your complete summary here, but we have been warning consumers, all of us have putting things into householders, to make sure they ask and get something documented.

I didn't see anything here. Has there been any warning on that or is this buyer beware?

Mr. Michael Fortier: It's buyer beware.

Mr. Walt Lastewka: So the onus goes back to find the companies doing that and recognize that. Is that what you are saying from the legal side?

Mr. Michael Fortier: Yes.

Mr. Walt Lastewka: Mr. Corley, you talked about the blue book being available and on the Internet and about the checklist and so forth. Has that been sent out to the legal community already?

Mr. Richard Corley: We are sending out very shortly the CBA checklist report to the legal community. It is now on the Internet site, I understand, of the CBA. It will be identified and publicized through various publications of the CBA and it will be available through those different channels. I also understand it will be available through task force year 2000. It will have many thousands of copies to distribute.

Mr. Walt Lastewka: I purposely checked during the first week in May a number of legal firms in my area, whether they received anything from you. The answer was no. So I shared all the CFIB information with them. Coincidentally, I talked with one and told them their fax machines might not work—not knowing theirs didn't work—for the year 2000.

So that information is going out now.

Mr. Richard Corley: That's correct.

The Vice-Chairman (Mr. Eugène Bellemare): Mr. Lastewka, I would like to interject here. Your time will be accounted for.

You state you have a checklist going to law firms.

Mr. Richard Corley: There will be an additional checklist.

The Vice-Chairman (Mr. Eugène Bellemare): Can we get a copy of that checklist?

Mr. Richard Corley: Yes, when that is available.

The Vice-Chairman (Mr. Eugène Bellemare): Have you more than one set available?

• 1230

Mr. Laird Hunter: Just so we are clear, this is a checklist and it addresses it at the firm and enterprise level. We are also preparing one for lawyers.

The Vice-Chairman (Mr. Eugène Bellemare): Could we get that?

Mr. Laird Hunter: By all means.

Mr. Walt Lastewka: For their specific operations?

Mr. Laird Hunter: That is correct.

Mr. Walt Lastewka: All my people have copies of the Jean Monty checklist. They will probably welcome it.

Michael, you talked about leadership and so I'm going to assume that every lawyer in this country has informed their respective directors of their responsibilities. Is that safe?

Mr. Michel Racicot: No. That's a big assumption.

Mr. Walt Lastewka: I believe very strongly that the CBA provides a very important leadership role on this.

Mr. Michel Racicot: We are trying to alert the legal profession of the many facets of the legal problems so it can advise its own clients.

Some law firms may be more proactive than others. Some may be more reactive than others. Some lawyers will call up their clients and say this is a problem. Some others will wait to be consulted by clients.

In our own practice we have tried to be proactive. We have set up conferences on the issue. We have sent documentation. We will be sending copies of this checklist and we won't keep that to ourselves. We as a firm will be sending that to our own clients as well to make them aware. Also I think the directors and officers are reading the newspapers. They have an obligation to inform themselves and I don't think anybody in their right mind can say they did not know about the year 2000 problem.

Mr. Walt Lastewka: I want to make sure of that. We have talked to associations and we have had presentations from the pharmaceuticals, every kind of association. What I'm finding when I go back and check with that association's members is that they haven't received documents and so forth, and of course now they are, as a result of our committee work.

My thought was very strong that you as the Canadian Bar Association play a very strong leadership role making sure that directors, without a fault, have been notified of their responsibilities. That's the message we were trying for in our report.

Second, isn't there something you could put together as the Canadian Bar Association to help lawyers do exactly that with all their clients, business and entrepreneurs? How can we work together as members of Parliament and the Canadian Bar Association to make that happen?

Mr. Michael Fortier: There are 35,000 members of the Canadian Bar Association. They are not all aware of this. I will not tell you that this morning. They will become aware, as we table our report today, of the existence of the report. We have various newsletters going out from various substantive law sections. I won't bore you with the details.

Your question is a good one because at the table here today we have Richard and Michel, who come from large firms in Montreal and Toronto. In their clientele there are what can be considered large, sophisticated public companies. They are aware.

I think we need also to bring up the level of awareness of companies and enterprises in the non-urban areas. Our lawyers are there. We have one-man or one-woman band shows all over Canada. This document, this checklist, will help them significantly, and their practice, and inform their clients of what's coming up.

Mr. Walt Lastewka: Richard was dead on when he said let's resolve the disputes before the crisis. This is where the bar association can make that happen. Members around this table would like to work in concert somehow to make sure that happens, because eventually every firm, business, entrepreneur, small or large, has either a lawyer or an accountant somewhere in the scene. If we cover those areas we will have at least done our responsibility to that end.

• 1235

I would like to see the Canadian Bar Association think that through, how we could do something together. Every member of Parliament here sends out householders, 10 percenters. I have my legal community. I send it information, lock, stock and barrel. Why can't we together get that information, which I think Richard talked about, education and educating customers and suppliers? There are people out there. How can we do that?

Mr. Richard Corley: That is a very good point. Just to correct something that was said earlier, probably two months ago the Canadian Bar Association, on the cover of its publication to its members, did specifically refer to and alert members to the year 2000 issues and the fact that this report was coming out. So there has been an ongoing flow of information and this will continue and accelerate.

There are a number of vehicles the bar association is referring to in its report here, including things like joint management, alternative dispute resolution and other things that provide ways of resolving disputes at the lowest possible and the most expeditious point between parties. That is something this report very much refers to, endorses and supports. The bar association will be continuing to advance that.

Mr. Jim Jones (Markham, PC): I would like to continue on with a point that Mr. Lastewka brought up.

The other day I heard on the radio that in the U.S. Quicken was fined for selling products that are not year 2000 compliant. Are you aware of any laws in the U.S. in effect right now saying you can only sell products that are year 2000 compliant?

Mr. Michel Racicot: I'm not aware of any laws. In fact, the company has not been fined. The company, whose name is Intuit Inc., produces a product called Quicken. It has been sued on the basis that it is forcing people to buy the next version of its product, which is year 200 compliant. On that basis, a law firm in New York has started a class action. That law firm is already on its third class action of Y2K problem. It sees this as a niche business.

Its take on all these cases, and they are all the same, is that people are being forced to upgrade and the only reason is that the product was not year 2000 compliant. But I don't think there has been any fine. I don't think there's any law that prohibits companies from selling non-year 2000 compliant products. They may expose themselves to liability by providing non-year 2000 compliant products. I think you know that as a former IBMer, Mr. Jones.

Mr. Jim Jones: What are the ramifications of putting a law into effect, say the end of June because we are running out of runway, that no product, software, or hardware applications can be sold in the marketplace that are not year 2000 compliant and put the onus on the seller instead of on the buyer? I don't understand why we can't do that.

Mr. Michael Fortier: Products can have a host of defects and that's one of them. I think when you specifically legislate in the area of Y2K you are opening yourself to other problems with respect to other defects of the product. When you buy a product off a shelf you have, depending on provincial laws and where it's bought, some basic protection as a consumer. I don't think adding legislation is necessarily going to solve the problem. I think you will open a can of worms and you won't be pleased with the end result.

Mr. Jim Jones: That's the only way to protect the smaller organization. In every recommendation you are making you are saying people should check their contracts, they should check this, they should put it in writing, all that type of stuff. Why can't we also have a law where you assume when you buy something—or it should be on the product itself—that it is year 2000 compliant instead of having the little guys not even thinking of looking for this?

Mr. Michael Fortier: Why don't we just pass legislation saying you can't produce and sell defective goods?

Mr. Jim Jones: No. We are talking about one particular problem. It's a date problem. In 1995, I believe, hardware manufacturers of PCs dumped all kinds of non-year 2000 compliant PCs in Canada. How do we know there won't be grey market type people who will dump all kinds of products and the innocent little guy is going to get hurt?

• 1240

Mr. Michel Racicot: I think the law is already there. There is consumer protection legislation already in place in all provinces. The common law protects the consumer and also the buyers in all provinces. There is the Civil Code in Quebec. The law is already there. If a company puts a defective product on the market, the law is already there, and in most cases the onus of proving they did not know of a latent defect or of dangerous goods is on the seller to disprove. Once you have proven you have suffered the consequences of a defective product, once you have suffered damages, the onus falls back on the seller to say they did not know it because of the state of knowledge of science or technology.

I think the law is already there. If you do that, the danger of course is that the statute would be so framed that you may open defences that may not be available right now. I think there is more danger to do that than to leave the law as it is, let alone that in most cases this would fall under provincial jurisdiction and therefore you may have different statutes for different provinces.

Mr. Jim Jones: Is the year 2000 problem considered a defective product—any product that goes out is a defective product?

Mr. Michel Racicot: It depends on when it goes out. It depends on the various circumstances.

Mr. Jim Jones: How far back do we go? We have known this since 1970.

Mr. Michel Racicot: There's no magic date. It might depend if you designed a product knowing full well it was intended to be used in the year 2000.

Mr. Jim Jones: Can't we have a law saying June 30, 1998—from here on, anything that doesn't comply is a defective product?

Mr. Michel Racicot: The National Assembly in France thought about that and it very soon backtracked because there was no single date people could agree on.

Mr. Jim Jones: Let's just agree that from here on, June 30, 1998, any product, software, hardware, or application put out is considered defective if it doesn't comply to the year 2000 problem.

Mr. Michael Fortier: How will you enforce it?

Mr. Jim Jones: I don't know. I want you guys to come back with a recommendation on how we would do these things.

Mr. Michael Fortier: That's a nice sound byte, but what do you do?

Mr. Jim Jones: I'm not trying to be a sound byte. A lot of people could go out of business because they are buying a product they think is okay.

Mr. Richard Corley: Within the area of federal legislation, the Competition Act, in section 62 relating to misleading advertising, provides a very effective remedy both on the criminal side in terms of an offence to make a misrepresentation to the public that's false or misleading in a material respect, and also on a corresponding civil right of action. If a company is today misrepresenting a product as being year 2000 compliant when it is not, there is a remedy available under federal legislation.

Mr. Jim Jones: What you said is misrepresenting a product that is year 2000 compliant. If they're not representing anything, but the person who buys it thinks it is—

The Vice-Chairman (Mr. Eugène Bellemare): Thank you, Mr. Jones. We will now pass to Mr. Schmidt.

Mr. Werner Schmidt (Kelowna, Ref.): Thank you, Mr. Chairman.

Thank you, gentlemen, for being here. I have one simple, short question and maybe the answer is yes, it exists, or maybe it doesn't, I don't know.

Some medical devices that are manufactured are year 2000 compliant and others are not. A health institution like a hospital needs to know. It writes to a manufacturer and the manufacturer refuses to authorize or to state clearly whether they have embedded chips that are or are not year 2000 compatible. Who is liable?

Mr. Michel Racicot: That may depend on the circumstances. You may have different heads of liability there.

You may have to read the contract and determine whether the contract represented that it was or was not, or whether there was an implicit representation. It may also go back to when the purchase was made. There may also be other heads of liability under tort law. If the failure to respond is trying to conceal a problem, it may be that the supplier is liable not under contract law but under tort law, because there may be a duty to warn of dangerous goods.

• 1245

I am personally aware of the secretary of a lawyer, who is a computer lawyer in Salt Lake City, who died of an overdose of medication caused by a programming error in a medical device. These things can happen, irrespective of the year 2000. Hopefully they won't. I am not trying to scare anyone, but it is a reality.

What I am trying to say is that I don't think we can give a hard and fast answer that says, yes, this company is liable. But it may very well be that in refusing to answer, because they know there is a problem, they are in fact liable, this time under tort law.

Mr. Laird Hunter: Just to follow up on that, throughout the testimony, which you have heard since October of last year, the phrase that has been repeated throughout the testimony is “the silver bullet”. People have always said that there is no silver bullet. We want to repeat that. There is no silver legal bullet.

We can't give you a single piece of legislation that will absolve risk and solve problems. All we can give you is what we are trying to give, which is to demonstrate the need to be prudent on the legal side, just as there is a need to be prudent on the business side.

The Vice-Chairman (Mr. Eugène Bellemare): Thank you, Mr. Schmidt.

Madame Lalonde.

[Translation]

Ms. Francine Lalonde: There must be bar associations in each province. Have they worked on this issue?

Mr. Michel Racicot: I do not believe that the Quebec Bar Association has. As for the bar associations of the other provinces, they have not done so either, as far as I know. The Canadian Bar Association has taken a leadership role on this issue, but a number of members of provincial bar associations are also members of the Canadian Bar Association. The information will be communicated, and the main topic of the next issue of the Canadian Bar Association Journal will be the year 2000 report. We hope to alert people as much as possible in this way.

Ms. Francine Lalonde: That means that we will be seeing more of you.

Mr. Michel Racicot: I should say that there is a special publication of the Canadian Bar Association for the Quebec division.

Ms. Francine Lalonde: Because of the civil law.

Mr. Michel Racicot: I was interviewed on that last week.

Ms. Francine Lalonde: I know, for example, that the Order of Chartered Accountants of Quebec has been very active with the Department of Industry and Commerce and the Canadian Manufacturers Association, but you were not there, I believe. That is to say that the Bar Association was not there. It seems to me that this should be corrected quickly. Maybe there should also be links with the Strategis site. I do not know if you have thought about that, but maybe you will need to consider it.

Mr. Michel Racicot: That is a very good suggestion. There could be a hyperlink at the Strategis site to the Canadian Bar Association site for this report. That is an excellent suggestion.

[English]

Mr. Laird Hunter: Just as a point of information, Madame Lalonde, several of the provincial law societies, under their risk management programs, have issued bulletins raising Y2K concerns.

[Translation]

Ms. Francine Lalonde: All right.

The Vice-Chairman (Mr. Eugène Bellemare): Thank you, Ms. Lalonde.

[English]

The term “due diligence” comes up at every meeting. The proof of due diligence and the definition of due diligence, would that depend on the size of the firm we are addressing?

For example, a firm of 50 or more employees I would consider to be large, but the local computer store may only have four or five employees. Mitel or Nortel, of course, would certainly be liable if they were not diligent. But what about the little organizations?

Mr. Richard Corley: Diligence is a flexible legal standard. It reflects in substance that which is reasonable in all of the circumstances—for example, weighing the costs and the benefits, the risks and the rewards. We balance those and try to identify and focus on the areas of greatest importance and then we deal with them.

There is no yardstick one can pull out, legally speaking, that says that this is due diligence in all circumstances. It is contextual, and generally in a larger enterprise there will be more potential areas of risk. There will be a broader range of obligations to different parties under contract, tort law and statute law, and there will be a requirement for a greater level of work in order to satisfy the appropriate standard than with a smaller enterprise.

• 1250

The Vice-Chairman (Mr. Eugène Bellemare): We've had the Ontario Medical Association and others come in. There was a statement made that due to lack of funds provincially for hospitals, they may not be able to bring their mechanisms or medical machines up to year 2000 compliance.

Who would be responsible in a case like this? Is it the province, is it the hospital, is it the supplier or is it the doctor or the board of administration in charge of the hospital?

Mr. Michel Racicot: That's a very good question. On a point of information, I am personally aware that in Quebec at least the Régie régionale de la santé is suggesting and adopting resolutions to authorize the various hospitals to seek confirmations and certifications from the suppliers. I know the Régie régionale has retained experts in computer consulting firms to advise and help it in that process. I can't speak for the Ontario situation, but I know that in Quebec this is actually occurring.

In terms of the liability, lack of funds may not necessarily in itself give rise to liability. On the other hand, if it could be proven the hospital was aware that medical equipment was not year 2000 compliant and still chose to use that medical equipment, it may very well be that the hospital would involve its own liability. I don't think that necessarily the fact that you don't have the funds would authorize you to use something you know is dangerous to somebody's life. I don't think that would be necessarily a good defence. Would the heirs of the patient have a cause of action against the provincial government for not providing funding to the hospital? I think that's stretching it a lot.

The Vice-Chairman (Mr. Eugène Bellemare): In the case of federally incorporated businesses, who would be responsible? Would it be the chief executive officer, the board of administrators, the company or the person responsible for the IT?

Mr. Laird Hunter: Again, it depends on the facts of every different case. We're sorry to respond like lawyers, but we are.

The Vice-Chairman (Mr. Eugène Bellemare): Your answer, then, is it could be in those cases.

Mr. Laird Hunter: It could be, but it's unlikely. Director liability in those circumstances would be shielded by the fact it would be a limited liability corporation. As Michel said, if it was a situation where directors knowingly took part in a course of conduct that gave rise to damage, they may well give rise to liability.

One of the things to remember that's helpful in the explanation of this is that in many ways the Y2K problem for law is similar to the environmental situation. It came upon us very quickly and it presented a range of circumstances we hadn't contemplated. The kinds of fact situation you were mentioning about the municipality's not having the money, those are being addressed. Interestingly enough, they are very limited circumstances. The mechanism of adjudicating is there and the legal system will accommodate it.

[Translation]

Mr. Michel Racicot: Would you allow me to add something, Mr. Bellemare?

The Vice-Chairman (Mr. Eugène Bellemare): Yes, Mr. Racicot.

Mr. Michel Racicot: It depends on the cause of action. If, for example, the cause of action is that a defective product was put on the market, it is generally the company that will be liable. But if the cause of action is that a shareholder invested in the company, believing that its products were Y2K compliant, when the directors knew that the products were not compliant and did not disclose this in the information circular or in the annual report, then the directors may be held liable. It always depends on the cause of action and on the harm that resulted.

• 1255

[English]

The Vice-Chairman (Mr. Eugène Bellemare): Do members still have questions?

[Translation]

Ms. Francine Lalonde: We certainly would, but—

The Vice-Chairman (Mr. Eugène Bellemare): Ms. Lalonde, thank you very much.

I would like to thank Mr. Racicot and Mr. Fortier.

[English]

Mr. Hunter, Mr. Corley, I thank you for being witnesses today.

[Translation]

The meeting is adjourned.