Law Times

Law Times • January 18, 2010 Questioning PM's grasp on political reality grasp on political reality. On political talk shows, panel- P lists have been busy musing about Harper's ever-changing reasons for closing down Parliament un- til March 3. The real motivation, of course, was to put an end to a parliamentary committee investi- gating the Afghan detainee issue. Harper did all he could to stop the probe, first by stymieing a Military Police Complaints Com- mission inquiry, then by going to court to keep torture documents secret, and finally by ordering his MPs to boycott the committee. The investigation was getting too close to Defence Minister Pe- ter MacKay, who would eventual- ly have to answer questions about what he knew about torture doc- uments from Afghanistan, what he did about them, and who else might have been aware of them. The next obvious target would be the Prime Minister's Office. When did the docu- ments reach officials there, and who saw them? Ouch. Harper really had no choice. If you prorogue Parliament, you close down the committee, which then stops the investigation. By March, with a new throne speech and a new budget, everybody will have forgotten about it. But the trouble was that Harp- er began giving all sorts of reasons for the sudden two-month winter vacation. First, he said the public didn't care. That didn't work as there was an outcry from one end of the country to the other along with denunciations in major newspapers that included a front- page editorial in The Globe and Mail. Even The National Post was against him. So he switched tactics, saying he needed to "recalibrate" himself before the budget. That spawned a cartoon of Harper as a lazy stu- dent rejuvenating himself at the back of the class. Then he said his government couldn't prepare a throne speech and a budget and still be in the House of Commons at the same time. Every other prime minister has been able to do that in the 143 years since Confederation. Why not this time? Is he not up to the job? The Economist, a respected British publication with 20 mil- lion readers, wrote that perhaps Harper couldn't "walk and chew gum at the same time." Those were cruel and totally unneces- sary words. Of course Harper can both walk and chew gum. Harper then said the move was about taking time off to at- tend the Olympic Games. That sounded like fun for him and his wife but hardly a winning excuse for the rest of us who will watch the Games on television. Conservative backbenchers didn't help. They said they looked forward to the Games, too. "When I heard it, I thought it was a good idea," said Perth- olitical observers have be- gun to question Prime Minister Stephen Harper's The Hill By Richard Cleroux Wellington Conservative MP Gary Schellenberger. "If we are sitting, how do MPs get to those events?" "We've got the Olympics com- ing up, which is very significant," said Peterborough MP Dean Del Mastro. "It makes good sense to be focused on that." Meanwhile, the national revolt against proroguing went viral on Facebook with 179,000 names at last count. Several more sites have popped up, too. Harper kept changing reasons and offering excuses like a drown- ing man clutching at flotsam pass- ing by in a flood. His old mentor, univer- sity professor Tom Flanagan, summed the issue up on TV by explaining that Harper's excus- es "lack credibility." They just weren't going over very well. In public opinion polls, Harper has been sinking like an old row- boat. The more reasons he offers, the deeper he sinks. Last week, he said in a TV in- terview that if Parliament went back into session, the Opposition parties would be asking all sorts of questions in the Commons and would threaten to vote the government out of office, which would be bad for the "economic stability" of the country. In effect, he was saying that Parliament is bad for the econ- omy, an idea quickly equated by some as saying the same thing about parliamentary democracy itself. At least he didn't say he couldn't make the trains run on time. But what was almost as bad was his idea of shutting down Parliament every year so he would be free to govern without the threats to "economic stabil- ity." It all amounted to strange words and strange behaviour. This is, after all, someone who went to university and is supposed to know how democracy works. They teach that to kids there. It was frightening. Maybe he didn't know what he was saying, where it could lead or how people elsewhere could interpret it. As one political observer sum- marized the issue: "We've come a long way from closing down a parliamentary committee to end an investigation into possible tor- ture of Canadian prisoners in Af- ghanistan." Perhaps it's best for Harper to go on an extended winter vaca- tion, enjoy his Olympic Games with family, and come back fully refreshed in the spring. Someone else could handle the government in the meantime. LT Richard Cleroux is a freelance re- porter and columnist on Parliament Hill. His e-mail address is richard cleroux@rogers.com. COMMENT Considering the legal implications of trust conversions BY MICHAEL DECOSIMO AND CHRISTOPHER PARKES For Law Times move many of the advantages of such business structures. These changes and the conversion rules set out by the federal government are causing many companies to consider their options, including the possibility of convert- ing from an income trust to a corporation. With 2011 approach- ing, then, the pace of income-trust conversions to corporations will con- tinue to intensify. A num- ber of income trusts have either completed con- versions into corporations or announced plans to do so, while other boards of trustees continue to evaluate their options going forward in light of the upcoming tax-treatment changes they face. When contemplating the possibility of a C trust conversion, there are many considerations to assess. In addition to the business judgment required in making the decision, trustees should be aware of the differences between the duties of a trustee as a fiduciary of an income trust and the duties of a director serving the best interests of a corporation. The decision is important for trustees given their heightened duties compared to those of a director. Trusts, unlike corporations, aren't legal enti- ties. A trust is the relationship formed in respect of trustees, the trust property over which they have authority, and the beneficiaries of the trust. The law of trusts holds trustees to a high stan- dard of care and considers them fiduciaries to the beneficiaries of the trust. In the case of trusts, the unitholders are the beneficiaries. Trustees are re- quired to conduct their duties prudently and in the best interests of the unitholders. Directors of underlying operating companies of trusts aren't directly responsible to unitholders as the trust- ees hold and manage the beneficial ownership of such entities in trust for them. Directors, by contrast, govern corpora- tions, which are distinct legal entities. The duties of directors are to the corporation as dictated by statute, including the applicable provincial business corporate statutes or the Canada Business Corporations Act and the common law. Directors owe a fiduciary duty to the corporation and must exercise it with the care that a reasonably prudent person would take under similar circumstances. As a result, directors have the power to make deci- sions that aren't always to the immediate ben- efit of shareholders and are protected by the business judgment rule as long as they follow proper processes. The BCE decision by the Su- preme Court of Canada affirms that directors' duties are to the corporation alone and that Editorial Correspondence DEBATE OVER ROBES In my years with Justice, its lawyers were proud of working overtime to be the best they could be. Also, a gown is a very personal item that we were proud to buy for our own use. If the kitchen is too hot, get out of it! Comment posted on lawtimesnews.com by N.D. Mullins about "Feds battle lawyers over robes." MOUNTIES GET THEIR UNIFORMS I respectfully disagree with N.D. Mullins. I don't work at the Justice Department, but it seems to me that the court gown is a uniform required by www.lawtimesnews.com hanges to the tax treatment of in- come trusts in Canada scheduled to take effect on Jan. 1, 2011, will re- Speaker's Corner the courts should interfere with their decisions in limited circumstances. Trustees' duties fall under the common law, written declarations of trust, and securities laws. Declarations of trust often establish rules of gov- ernance similar to or the same as those imposed on corporations by the applicable statutes but can vary in order to afford greater autonomy to trustees. Securities laws also impose many of the same rules and standards on trustees as they do on corporate directors. Generally, trustees are expected to act hon- estly and in good faith by making decisions in the best interests of the unitholders and without acting or appearing to act for their own gain. Courts in Canada have chosen to show deference to their decisions as long as they make them in good faith and through proper processes. This standard is similar to the busi- ness-judgment rule applied by the courts when evaluating the decisions of corporate directors. Statutes limit directors' powers by establish- ing shareholders' rights. For example, the Cana- da Business Corporations Act gives shareholders the right to vote on matters affecting the com- pany and requires that in order to implement any "fundamental changes," they must approve them through a special resolution supported by at least two-thirds of the votes cast. Shareholders have additional rights allow- ing them to affect the governance of a corpo- ration not afforded to unitholders. These in- clude the ability to requisition a meeting with as little as five per cent of shareholder support and the right to make proposals. Shareholders also have greater access to remedial options. Derivative actions, the oppression remedy, and appraisal rights relating to fundamental changes are all statutory options available to shareholders but not to unitholders of trusts. As a result, trustees have a heightened level of responsibility over directors when making the decision to convert their income trust. When an income trust converts to a corpora- tion, the change requires involvement by both the trustees and the directors of any related or underlying operating companies involved in the arrangement. The boards of trustees and directors involved can include the same people. Trustees may also become directors of newly created corporations. Therefore, it's important to take into account the differences between the duties of trustees and directors when considering a conversion. LT Michael DeCosimo is a partner in the Toronto office of Borden Ladner Gervais LLP. He practises corporate law with an emphasis on secu- rities, corporate finance, mergers and acquisitions, and corporate governance. Christopher Parkes was an articling student in the firm's Toronto office. court rules. The government seems to have no trouble supplying the RCMP's clothing, boots, and accessories, so why not Crown prosecutors' robes as well? Comment posted on lawtimesnews.com by Keith A. FEDERAL CROWNS EARN LESS N.D. Mullins, I am assuming that when you worked for Justice, you were not earning 40-per- cent less than the prosecutors with the province. Comment posted on lawtimesnews.com by Bill. DREAMING OF GOVERNMENT PERKS Right on, N.D.! The whiners at Justice have many perks of which the majority of the private bar may only dream. To add free robes, a new shirt every year, and overtime after 7 1/2 hours is just a tad out of touch. Comment on lawtimesnew.com by Rick Sage. PAGE 7

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