2.3: Laws and Legal Mechanisms

Business Law, Ethics, and Regulation

Business law is an expansive area comprising various legal disciplines. To ensure that business is developed and operated with the greatest chance of success, it is essential to be familiar with the laws, regulations, and ethical aspects of the context in which business activities occur.

The law can’t recognize and correct every wrong that occurs in society. At a minimum, laws are developed and applied to curb the most egregious wrongs. There is an association between what we generally think of as ethical behaviour and what laws prescribe. For example, contract law upholds the general expectation that promises should be kept. Most people view breaking a promise as unethical. The law provides remedies for broken promises (in breach of contract cases) but not for all, as there may be valid reasons underlying an unmet obligation (for example, a force majeure situation).

A common challenge for students new to the law is disentangling what the law says against ethical prescriptions and practices. While laws are typically based on societal ethics and customs, ethical expectations or obligations may not align perfectly with existing laws. It is essential to recognize that ethics and the law are not the same, and there may be times when simply following what the law stipulates may not be the ethical and responsible course of action.

Understanding legal rights and regulations, including social and environmental obligations, should be a primary concern for any business initiative. Failure to understand legal rights may result in customers or competitors taking advantage of a business. The inability to understand regulatory and related obligations could expose a company to risks and other negative impacts.

Source and Types of Law

Canada has two fundamental forms of law: Common Law and Civil Law. The civil code of Quebec Law is followed in the Province of Quebec, while the other provinces and territories in Canada follow common law. Judges in the common law system help shape the law through their rulings and interpretations, a practice known as applying precedence. The idea that a finding from an earlier case should be binding on future cases is captured by the Latin term stare decisis, which means “let the decision stand.” This body of past decisions is known as case law, which judges use to inform their rulings. Judges rely on precedent (previous court rulings on similar cases) when determining the verdict in their cases.

In the scope of procurement, common law, referred to as “Contract A/Contract B,” applies to the bidding contract in procurement tenders. In Canada, public procurement law is broken into four categories: common law (civil law in Quebec), international and domestic trade agreements, statutes and regulations, and administrative policies and procedures.

Substance versus Procedure

Substantive law is the category of law that pertains to the rights and obligations of individuals. In contrast, procedural law focuses on the rules of procedure, which are the court’s rules and other administrative forums or tribunals. Substantive rules prescribe how to act according to rights and obligations under the law.

Substantive law is a body of legal rules that define and govern individual rights and obligations and are enforceable by the courts. It includes laws that establish the rights and obligations of citizens, such as property law, contract law, and family law. Substantive law also includes criminal law, which defines and prescribes punishments for criminal offences.

Procedural law is the set of rules that govern the enforcement of the rights and obligations established by substantive law. It is the body of law that outlines the procedures for filing a lawsuit, such as filing a complaint and serving notice on the defendant. It also governs the rules for discovery, hearings, and appeals.

Procedural laws delineate the rules of process that must be followed and applied where a substantive law issue arises. Courts follow procedural rules when determining substantive law matters. Procedural law is important to ensure that the rights and obligations established by substantive law are enforced fairly and efficiently.

Public versus Private Law

Laws generally fall under two classifications: public law or private law.

Public law refers to the relationship between the state and the people within it and includes constitutional laws, criminal laws, and administrative laws.

• Criminal law concerns crimes and their punishments.
• Constitutional law defines the relationship between governments (federal and provincial governments primarily) and the limits of governmental power over individuals.
• Administrative law concerns the actions and operations of the government.

Other examples of public law include environmental law and tax law.

Private law governs the relationship between individuals rather than between people and the State. Business contracts are typically developed by individuals involved in a private law agreement by virtue of their business relationship. The terms of the contract apply to the parties of the contract but not to others. If the parties have a contract dispute, the terms of the contract and the remedy for breach will apply only to the parties of the contract.

In addition to contracts, other examples of private law include tort and property laws.

Cause of Action

Regardless of how wrong someone’s actions may seem, the only wrongs you can submit in a court are those tied to one or more causes of action. A cause of action is a legal claim that can be brought before a court of law to seek a remedy for a wrong or injury that has been suffered. It consists of a set of facts which, if proven in court, will entitle the plaintiff to a remedy or damages from the defendant. Common causes of action in Canada include breach of contract, negligence, trespass, and defamation.

Courts in Canada

Courts in Canada are designed to resolve disputes between parties. Courts are tasked with examining and interpreting laws and ensuring alignment with the Constitution. The courts also set standards, define issues in question, and develop ongoing common law, which can impact many areas of Canadian society.

The court system in Canada is divided into two levels: federal and provincial/territorial. At the federal level, the Supreme Court of Canada is the highest in the country and hears appeals from other federal and provincial/territorial courts. Below the Supreme Court is the Federal Court system, which includes the Federal Court of Appeal and the Federal Court. At the provincial/territorial level, the highest court is the Court of Appeal. Below are the superior trial courts, which hear more serious cases, and the provincial/territorial courts, which hear less serious cases. In addition, there are specialized courts, such as family courts, youth courts, and small claims courts, which deal with specific types of cases.

Tribunals are independent bodies that provide dispute-resolution services in various areas and are usually established by legislation. They are a form of administrative justice, providing a less formal and less costly alternative to the court system. Tribunals are responsible for resolving disputes between individuals and organizations and between individuals and government. They also make decisions on appeals, reviews and hearings on matters such as employment insurance, workplace safety, human rights, tenant protection, and labour relations.

Legal Systems of the World

Legal systems in other jurisdictions may be very different from the Canadian system, so any business or business person needs to be aware of other forms of law, especially if there is an intention to operate in a different country or region.

• Common law: This legal system is based on prior court decisions and is used in countries such as the United States, Canada, the United Kingdom, and Australia.
• Civil law: This legal system is based on written codes and is used in countries such as Germany, France, and Japan.
• Religious law: This legal system is based on religious beliefs and is used in countries such as Saudi Arabia and Iran.
• Traditional or customary law: This legal system is based on customs and tradition and is used in many African countries.
• Mixed legal systems: This type of legal system combines elements of different legal systems, such as common law and civil law, and is used in countries such as Scotland and South Africa.

Legal systems in other countries often have different laws and regulations that may affect how the business operates. Laws can determine how goods and services are purchased, what taxes are applicable, how contracts are formed and enforced, and how intellectual property is protected. Understanding and complying with the laws of other countries is essential for businesses that operate in international markets. Failing to comply with foreign laws can have significant financial and legal consequences.

Attribution

“2.3 Laws and Legal Mechanisms” is adapted from “Chapter 1: Overview of Canadian Law” from Business Law and Ethics Canadian Edition copyright © 2023 by Craig Ervine, licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

The multiple choice questions in the Checkpoint boxes were created using the output from the Arizona State University Question Generator tool and are shared under the Creative Commons – CC0 1.0 Universal License.