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ESG Loan Financing, Inflation’s Impact on Long Term Supply Agreements & More: Timely Topics – April 2023

Timely Topics with McCarthy Tétrault curates the latest market trends on a monthly basis to help you stay informed of developments that can affect your business. This content is current as of April 1st , but please connect with us if you have any questions on any of the topics below.

Here are this month’s trending topics:

1) ESG Loan Financing – Key Observations and Trends to Watch for in 2023

Throughout 2022, the environmental, social, and governance (ESG) linked loan financing markets in the United Kingdom and the European Union continued to vigorously expand and evolve. The UK and European-centered Loan Market Association remain closely involved in advancing market conceptions of ESG bank lending, and is shouldering the strategic charge of producing – in due course and in conjunction with lenders – market-standard ESG loan documentation, to be accompanied by related guidance and training.

Check out our recent blog posts, written by McCarthy Tetrault’s ESG and Sustainability team, one which discusses key observations and trends regarding ESG lending in the UK and EU, and one which summarizes the impact of OSFI’s final guideline on Climate Risk Management and Disclosure on banks and insurers.

While ESG was a driver in 2022 and Q1 2023 for developments in the financing markets on both sides of the Atlantic, if this trend in Europe and the UK is any indication, Canadian lenders and borrowers may wish to observe these trends and OSFI’s guidance as a sign of things to come, and to consider the associated risks and opportunities. 

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If you’d like to discuss these or other ESG trends, please connect with a member of our multidisciplinary ESG and Sustainability team.

2) Long-Term Supply Agreements and High Inflation — What Businesses Need To Know

Amid high inflation, a long-term supply agreement (LTSA) with outdated prices can be burdensome. Under Canadian law, exiting LTSAs is difficult but not impossible.

As we explain in our recent blog post, certain types of contractual provisions and certain doctrines of contract law may offer a means of escape, but courts should not be relied upon to reallocate risk between LTSA parties in the face of unforeseen economic circumstances that make performance of the contract economically unsustainable.

Parties must first consider the provisions of their LTSAs. Existence of a price adjustment clause or price renegotiation clause, depending on the underlying trigger event for such clauses, may allow for LTSA prices to be adjusted for inflation. A termination clause may also allow a party to economically exit an LTSA, so long as any damages payable to the non-terminating party are of a smaller magnitude than the loss to the terminating party of staying in the LTSA at an uneconomic price. Force majeure clauses are unlikely to relieve a party of its LTSA obligations, as such clauses require the performance of a contract to be impossible instead of just being more expensive.

Next, parties must consider whether the courts can intervene in an LTSA by implying a term into the contract. Typically, courts will view an LTSA as a careful allocation of long-term risks between the contractual parties in line with their intentions. An unforeseen change in circumstances, including abnormal rises or falls in prices, is not typically sufficient for courts to interfere with the parties’ risk allocation. Where unexpected circumstances arise that create a fundamentally different situation and puts the parties in a position where they never agreed to be bound, the courts may be available to provide relief. Inflation, however, is unlikely to meet such a high threshold.

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If you’d like to discuss strategies to optimize your organization’s supply chain management approach, please connect with a member of our team.

3) Data Breach Class Actions: New Development has Repercussions across Canada

In the  recent decision of Setoguchi v Uber BV, 2023 ABCA 45, outlined in our recent blog post, the Alberta Court of Appeal confirmed the important gatekeeping role of motions judges in ensuring that the certification hearing is a meaningful screening device.

In the decision, the Court of Appeal unanimously upheld the dismissal of the certification application in a proposed data breach class action against Uber. The Court dismissed the appeal on two bases. First, the Court found the Appellant’s pleading failed to disclose a cause of action in negligence, since the plaintiff had not pleaded any specific compensable harm arising out of mis-use of the hacked data. Second, the Court found no appealable error in the Certification Judge’s

conclusion that a class proceeding was not the preferable procedure in a case in which the plaintiff was pursuing only nominal damages for a group of persons unharmed by the breach. 

This affirmation of the “gatekeeper” role of certification judges is a positive sign for companies across Canada facing the threat of class actions following a data breach. For foreign companies that do business in Canada, the recent emphasis by Canadian Courts on strengthening the role of certification judges can provide shelter against the flurry of class proceedings that is often seen in other jurisdictions, such as in the United States.  

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For further information on what this decision may mean for your business, please contact a member of our Litigation and Dispute Resolution team.

This newsletter is designed to provide general information only. This newsletter does not provide legal advice on specific issues. You are encouraged to consult with legal counsel should you require assistance in addressing a particular issue or concern.

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