Effective April 4, 2002 and March 30, 2002, respectively, the British Columbia and Alberta Securities Commissions adopted Multilateral Instrument 45-103 ("MI 45-103") which significantly changes the private placement regime in British Columbia and Alberta . In similar fashion to Ontario Securities Commission Rule 45-501, the changes include an exemption from the registration and prospectus requirements of the Securities Acts of British Columbia and Alberta in respect of trades of securities to "Accredited Investors" who acquire the securities as principal. Accredited Investors for these purposes include, among other persons or entities, registered charities, as well as corporations that had net assets of at least $5,000,000 as reflected in their most recently prepared financial statements.

Since most institutions of higher learning in British Columbia and Alberta will meet one or both of these criteria, it will now be much easier for them to participate in innovative joint ventures and other transactions with corporations and other issuers involving an equity participation component for the institution. Moreover, since "Accredited Investors" have been added to the limited categories of persons who may acquire securities of a "private issuer," any institution of higher learning which qualifies as an "Accredited Investor" will be able to participate in early stage financings of companies without jeopardizing the ability of such companies to continue to rely on the private issuer exemption.

Any issuer who relies on the accredited investor exemption must file a report of exempt distribution within ten days following the distribution. The report of exempt distribution must be filed on Form 45-902F in Britishand on Form 20 in Alberta. Such filing obligations do not apply to a private issuer.

If you have questions about the new capital raising regime, feel free to contact any member of Clark Wilson LLP’s Corporate Finance/Securities group.

The leaky building syndrome has resulted in an epidemic of problems for all the major players in the construction industry: owners, developers, contractors, architects, engineers, subcontractors, building envelope specialists, municipalities, manufacturers and suppliers of materials. It seems that no one is immune from the plague of the leaky building.

Water infiltration of both low-rise wood-frame and high-rise concrete structures has caused this plague. However, there are numerous underlying problems, and the development of mould and mould contamination in both low-rise wood-frame and high-rise concrete structures are some of the significant underlying problems.

Mould contamination is not only a disruptive and expensive problem to remediate; it can also be the subject of litigation, with settlement costs in some cases reaching millions.

Generally, Canada is less litigious than our southern neighbours, where some of the more substantial mould contamination cases have been tried. However, there are several cases pending in Canada and inevitably a judgment here will quickly focus our attention on the topic. Also, mould related insurance claims could very well increase as public awareness is increased by reports of multimillion dollar lawsuits against insurance companies and increased media attention to the possible risks and dangers of mould.

In a recent article published by The Defence Research Institute, Michael A. Hamilton, a lawyer with the law firm Cozen and O'Connor, in Philadelphia, Pennsylvania commented that:

At this stage it seems that the State of Texas has been the hardest hit by mould related insurance claims and litigation. In a recent case in Texas, a jury awarded homeowners $32 million after finding that a subsidiary of Farmers Insurance Group mishandled the family's homeowner's claim for mould related damage. This case involved a 22-room, 11,500 square foot house in which the homeowners experienced a plumbing leak in a bathroom in 1998. The leak was not properly fixed and several months later hardwood floors in the house started buckling and the homeowners filed a claim with their insurance company.

The Court heard evidence that the insurer was warned that dangerous moulds could grow in the subfloor and that the flooring needed to be pulled out to avoid such a problem. The insurer did not follow the advice and disregarded the warning. Some months later the family members became ill. Subsequent testing revealed that the house was contaminated with a hazardous mould, which eventually rendered the house uninhabitable. The failure of the insurer to act promptly and properly resulted in a punitive award of $12 million.

In Canada, toxic mould cases are relatively new, but class actions and individual lawsuits are likely to become more common with the closure of the Alberta Court of Appeal building in Calgary and other public buildings throughout the country. Also, in British Columbia, mould contamination has been raised in some of the leaky condo cases and, in New Brunswick a federal civil servant commenced an action against the Ministry of Natural Resources for toxic mould exposure at the Maritime Forestry Complex.

There is very little case law dealing with mould contamination available in Canada. The first significant decision dealing with mould was in 1989 when a tribunal of the Quebec government Bureau de Revision de la Commission de la Sante et de la Securite du Travail found that the significant growth of the toxigenic mould Stachybotrys Chartarum in the workplace was a violation of Quebec health and safety legislation. The tribunal heard testimony that the presence of mycotoxins in the spores of this fungus was irrelevant to health, but they were not persuaded.

Similarly, Minnesota's Courts have ruled against insurance companies attempting to exclude coverage for mould, mycotoxin and allergen contamination under the "pollution exclusion" of their insurance policies.

In 1995 the Reliance Insurance Company was ordered to pay the owners of Polk County Courthouse $40 million to remedy toxic mould growing in a building. Personal injury claims were settled for approximately $10 million. The Polk County Florida courthouse had a number of construction and design defects, such that massive amounts of toxigenic moulds, particularly Aspergillus Versicolor grew in the building.

The Martin County Florida courthouse had similar problems. Design problems with the building envelope and the HVAC system resulted in massive contamination by Aspergillus Versicolor, Penicillium species and some Stachybotrys Chartarum. Studies of the worker population revealed the presence of emphysema-like symptoms coupled with increasingly lower single-breath carbon monoxide diffusing capacity. Measurements of fungal toxins and extracts of mould-contaminated materials were shown to be toxic. The medical investigation indicated the presence of a toxin-induced disease as opposed to an allergic disease. This was contested and the defendant claimed theories including the effects of the building being several miles from a sewage treatment facility. The jury awarded the costs of renovating the building, which exceeded the cost of the original structure.

In an even more spectacular judgment a $400 million class action suit was settled between The New Museum of Contemporary Art in New York and its employees. Stachybotrys Chartarum was found growing on cardboard, paper and building materials in a subbasement. Several of the workers were highly exposed and have apparently suffered exposure-dependent immune dysfunction.

The presence of mould in a building may constitute a health hazard to the occupants because mould may cause adverse health effects, ranging from infections, hypersensitivity pneumonitis, allergies, toxic syndromes and perhaps even death.

Accordingly, developers, contractors, owners and other persons connected with mould contaminated buildings should be mindful of their potential legal liabilities for the health and safety of the occupants of the buildings. They should also be concerned with possible property damages suffered by the occupants. In addition to being a potential health threat, moulds also facilitate the biological decaying in wood and pose a significant threat to the structural integrity of wood-framed buildings.

If mould litigation proceeds, it will most likely be expensive. Plaintiffs and defendants will require the assistance of experts like engineers, physicians, indoor air quality experts, occupational health specialists and microbiologists.

While mould related litigation does not get as much attention in Canada as it does south of the border, it is developing and will likely continue to develop based on experience in the United States.

Very important in Canada, is the $2 billion class action lawsuit commenced against the Dufferin Peel Catholic School Board in Ontario. It is alleged in that action that children have been adversely affected by mould exposure in school buildings, particularly portable classrooms and other temporary facilities. Another action commenced in Ontario involved a tenant in an apartment building, which was alleged, to have been contaminated with mould, causing health problems. Class action certification was denied in both of these proceedings.

It should also be remembered that the construction or renovation process exacerbates toxic mould risks, where moulds released by construction workers can infect immuno-suppressed patients. Claims arising from alleged deficiencies in the remediation of buildings may likely become the future focus of lawsuits relating to mould. In the event that restoration work is not carried out properly, contractors will be exposing themselves to legal proceedings from persons seeking compensation for property damaged by mould and damages for personal injury.

As restoration contractors may be in the front lines of liability, prudent contractors will want to have a sufficient level of knowledge of mould related issues to ensure that they remedy the situation and not exacerbate it. Liability in any negligence case requires that the conduct of the contractor be measured against some reasonable standard. Contractors should therefore investigate and be familiar with any guidelines or standards, which may exist for mould remediation. Those who work in the industry will want to ensure that they are properly trained and qualified to undertake the work and that they stay up to date with what is happening as guidelines are developed and improved and as more becomes known about the problem.

Owners and engineers will want to make certain that any restoration contractor who is engaged is qualified, by its training and experience, to do the remediation work. Insurers and adjusters should also become familiar with the developing industry guidelines. At present only a few guidelines exist, but these are becoming more comprehensive.

It is clear that in the light of, not only a potential health hazard to occupants of buildings, but also the very real threat of a substantial lawsuit, building owners and managers need to do all they can to mitigate their risks. The best defence against any form of health and safety litigation is due diligence.

It is foreseeable that the Canadian legislators may also be called upon to require heightened due diligence on the part of landowners and developers. In California, the proposed Toxic Mould Protection Act will require disclosure and remediation of toxic moulds by anyone who sells or rents property, and any public entity that owns, leases or operates a building. Regulatory control of moulds has begun to a limited degree in Canada, with Health Canada issuing a Material Safety Data Sheet for Aspergillus as an infectious agent.

The current understanding of toxic moulds and associated health risks is in its early stages in North America. As litigation on both sides of the border progresses, it will be up to the Courts and legislators to assess the long-term effects and prescribe remedies for those affected.

Throughout the Western World, the new religion of public-private partnerships, or P3's, has been transforming the provision of goods and services traditionally provided by governments and public agencies. The provision of these goods or services by the private sector is perceived to accomplish a number of objectives. For instance, involvement of a private partner may permit a new capital project which government might not otherwise have the resources to fund. Because a private business is subject to fewer constraints and is more flexible, it may be able to provide services more efficiently and economically than the public sector. The sale of public businesses may raise capital for other purposes or create enterprises which charge for services otherwise funded by taxes, thus reducing fiscal pressures and public debt. And private involvement may spread the operational and financial risk associated with providing certain goods or services.

The evolution of P3's is quite evolved in some jurisdictions, such as Great Britain. While B.C. certainly has something to learn from other jurisdictions, with the establishment of Partnerships B.C. and the completion of the core review process, it can be expected that B.C. will soon be a leader when it comes to P3's. Not surprisingly, this has led to innumerable conferences and extensive marketing activity on the part of consultants and other "experts". There has been a great deal of interest on the part of businesses which have enjoyed success in other jurisdictions, as well as on the part of local businesses which want to jump on the bandwagon.

The concept of a P3 is not really new; over the years a broad range of government services have required the participation and involvement of the private sector in one way or another. What is different is the general recognition that there are so many public assets and services where market driven private enterprises could be more efficient and provide better service. This will likely lead to the privatization of businesses owned or operated by the public sector (such as Crown corporations and utilities); to the granting of franchises and licences to operate publicly owned facilities, such as highways or ferries; and to the transfer of specific aspects of public operations to private operators, such as privatization of non-clinical hospital services and operations, and maintenance, repair, landscaping, janitorial and similar services in virtually any area involving the public.

In the context of higher learning, there is (and always has been) ample scope for the involvement of the private sector. Non-academic functions and facilities, such as cafeterias, landscaping, building maintenance, athletic facilities and parkades, may be undertaken by private businesses. Buildings may not only be constructed by private contractors, but they may be owned outright or leased by a private party on a long term basis in order to be relet to and operated on behalf of the institution for its academic or administrative purposes. Industry or professional consultants may play a role in providing instruction in conjunction with programs which give them access to students or institutional facilities and research. Surplus land or other assets of an academic institution may be leased to private sector businesses for short or long term uses which are not of an academic nature. Academic institutions may join with industry in joint research projects and the commercialization of technologies and know-how developed by the institutions and these institutions may acquire an interest in nascent businesses. Private lenders may provide capital which has been traditionally provided by government, whether by way of long term bonds, conventional mortgage loans, leases of equipment or other, more creative extensions of credit. While it seems unlikely that an existing university, college or institute will be privatized, it is not inconceivable. And the growing number of private language and business academies, the presence of University of Phoenix and the establishment of Sea to Sky University all show that there is plenty of scope for private education in the field of higher learning. In fact, the world of higher learning is as likely to see as many P3's as any other public sector. The only real limits are the ingenuity of the institutions and private sector proponents and the political will to explore new alternatives to conventional models of service delivery.

As with any area involving the public sector, P3's in the world of higher learning can be very complex, requiring a deep understanding of the motivations, interests and political realities of the participants and their stakeholders; of the risks associated with the proposed venture and the legal framework within which the pertinent institutions operate. Public academic institutions are governed by a broad range of legislation which mandates not only different internal governance structures for different categories of institutions, but also different standards of supervision and approval by the Ministry of Advanced Education and the Ministry of Finance. Many commercial arrangements require not only ministerial approvals but also orders in council. As well, institutions of higher learning and their foundations are subject to varying tax treatments when it comes to income tax, GST, sales tax and property transfer tax, all of which may have significant implications when it comes to the structuring of a P3. It is critical that the advisors of any institution considering involvement in any P3 arrangement have an understanding of the issues and opportunities which are unique to institutions of higher learning.

Brock Johnston

Interested in public-private partnerships?

For more information on our experience with P3’s, visit our website at http://www.cwilson.com/p3/.

Clark Wilson LLP is proud to announce that Tony Fogarassy has joined the firm as a member of our Higher Learning practice group.

Tony has extensive experience in higher learning law. He was in-house legal counsel for The University of British Columbia for six years and general counsel for the Technical University of British Columbia for three years where he was involved in the creation and development of a new public, technical university.

Tony has extensive experience in post-secondary governance matters. Tony has been responsible for planning, drafting and ensuring compliance of a variety of post-secondary policies and procedures including intellectual property, research ethics, human rights, conflict of interest and information and privacy (Freedom of Information and Protection of Privacy Act).

Tony’s experience includes advising institutions on intellectual property (patent, copyright and trade-mark/branding) and technology commercialization matters in the information technology, life and material sciences sectors. Tony also has extensive experience in Internet and e-commerce law.

Tony also has a specialty in Canadian and international copyright law and has prepared submissions to the Canadian government on digital copyright reform. He has also advised on all aspects of e-learning and online education.

Tony earned his B.Sc. (First Class Honours and head of graduating class), M.Sc. and LL.B. degrees from the University of British Columbia and his LL.M. degree from the London School of Economics and Political Science. He has taught a variety of courses at the UBC Faculty of Law, including copyright law and Internet law, where he is an Adjunct Professor of Law.

NACUA, the National Association of College and University Attorneys, is an organization that was founded in 1960 in the United States by those who were providing regular legal services to colleges and universities. Currently 1400 campuses represented by over 2900 lawyers from all over North America comprise NACUA's membership. NACUA's purpose is to serve as an organization representing legal counsel to colleges and universities and also provide an educational forum for lawyers and administrators in connection with legal issues specific to institutes of higher learning.

Clark Wilson is pleased to be a member of NACUA and several lawyers at the firm have participated in recent NACUA conferences. David Buchanan, Q.C. attended NACUA's Faculty Employment Law Issues in the 21st Century held in New Orleans in March of 2002, where he participated in seminars and workshops on University related employment law issues, including academic freedom, tenure, faculty discipline and dismissal, and faculty entrepreneurial activity.

NACUA's 42nd Annual Conference was held in late June in Boston and Lyall Knott, Q.C., along with Steve Matthews, our Internet Administrator, were invited to form part of a panel discussion entitled "Building your General Counsel Webpage". We will be sure to report on their experience at the annual conference in Boston as part of our next issue of Campus Counsel.

If you are interested in finding more information about NACUA, please contact Peter Tolensky at 604.643.3164 or by email at pmt@cwilson.com.