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Digital wallets require ‘careful review’ of limitations of liability: Borden Ladner Gervais


January 14, 2016   by Canadian Underwriter


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Contactless payment methods, a common-law duty to “act honestly in the performance of contractual obligations” and the proposed Trans Pacific Partnership international trade agreement are among the top 10 legal risks for businesses this year, law firm Borden Ladner Gervais LLP suggested in a recent report.

Contactless payment methods require effective security technology law firm Borden Ladner Gervais suggested in its Top 10 Legal Risks for Business in 2016 report

“The advent of mobile and digital wallets coupled with contactless payment methods and the ever-increasing growth in on-line payments have made e-payments become ubiquitous and have increased the need to develop effective authentication protocols, technology, policies and procedures to mitigate and reduce the risk of fraud,” BLG stated in Top 10 Legal Risks for Business in 2016, released Jan. 11. “As technology develops and consumer transactions and instructions are increasingly provided remotely or through contactless methods, effective authentication and security technology will continue to become increasingly critical. The use of digital wallets requires careful review of financial services account agreements; in particular limitations of liability and other provisions relating to allocation of risk ought to be reviewed.”

In addition to fraud in electronic payment, BLG said the Trans Pacific Partnership and the Comprehensive Economic and Trade Agreement (CETA) with the European Union (comprised of 28 countries) will “affect the competitive landscape for agricultural, manufacturing and service industries throughout Canada. CETA was concluded in 2014 but is not yet in force. Negotiations on TPP concluded Oct. 5, two weeks before the federal election that gave the Liberal party a majority government, replacing the Conservatives. In a press release Oct. 5, the Liberals promised that if elected to power they would “hold a full and open public debate in Parliament to ensure Canadians are consulted” on TPP.

TPP and CETA would eliminate “almost all customs duties” for goods imported from the covered countries, BLG noted in Top 10 Legal Risks for Business in 2016. The other parties to TPP are Peru, Vietnam, Brunei, Chile, Malaysia, Mexico, the United States, Australia, New Zealand, Japan and Singapore.

Related: Credit card payment processors, national retail chains the most ‘hazardous’ cyber insurance clients

Another legal risk is a new duty recognized by the Supreme Court of Canada. In a decision released Nov. 13, 2014 Canada’s highest court ruled in favour of Harish Bhasin, who had sued Larry Hrynew and Heritage Education Funds Inc., formerly known as Canadian American Financial Corp. (Canada) Limited (Can-Am). Bhasin had a contract to sell educational savings plans on behalf of Can-Am. The contact would automatically renew at the end of the three-year term, unless one of the parties gave six months’ written notice to the contrary. Bhasin received a non-rewewal notice in May, 2001.

At trial, the Alberta Court of Queen’s Bench found that “Can-Am acted dishonestly with Mr. Bhasin throughout the events leading up to the non-renewal.” That decision was overturned in 2013, when the Alberta Court of Appeal “held that the lower court erred by implying a term of good faith in the context of an unambiguous contract,” wrote Mr. Justice Thomas Cromwell of the Supreme Court of Canada.

“It is time to take two incremental steps in order to make the common law less unsettled and piecemeal, more coherent and more just,” Justice Cromwell wrote in Bhasin. “The first step is to acknowledge that good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance. The second is to recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations.”

Related: CASL-Ready

The Bhasin decision brings in a “new area of litigation,” BLG suggested in Top 10 Legal Risks for Business in 2016.

“Businesses must actively consider whether they are discharging the new duty when performing under a contract,” BLG wrote. “If a given course of action may be construed as actively dishonest, misleading, or not forthright, businesses should avoid pursuing such course of action unless they are prepared to accept the risks and consequences of litigation.”

Another area of litigation is privacy class-action lawsuits, BLG warned.

“There is a new trend in Canada towards privacy class actions being launched following a cybersecurity breach or an improper disclosure of personal information,” BLG stated. “Indeed, privacy class actions triggered by data breaches are growing in popularity in Canada, with between 20 and 30 privacy class actions currently pending or already certified. These lawsuits follow either a cybersecurity or another similar data security breach, or the launch of a new privacy-sensitive product or innovative marketing program.”

The pursuit of non-privileged information on taxpayers is another legal risk that made BLG’s Top 10.

Related: OIAA speaker explains how Ontario civil law on privacy affects cyber liability exposure 

“Canadian tax authorities continue to aggressively pursue taxpayer information, using the extensive powers granted to them under tax legislation,” BLG noted.

Other risks included regulatory compliance, climate change and Canada’s anti-spam legislation (CASL), which prohibits sending commercial electronic messages unless recipient has given consent.

The other legal risk is the proposed Cooperative Capital Market Regulatory System – which the Ontario Ministry of Finance says would “constitute the single set of provincial/territorial laws” on capital markets.

“Should the CCMRS become operational in 2016, the changes brought by the CCMRS will start to impact businesses, as they struggle to understand how the new ‘harmonized’ system will affect them and, in particular, will likely result in regulatory delay, as the various securities regulators find their footing in establishing a new working relationship with each other,” BLG stated.