SUPREME
COURT OF CANADA
IN THE MATTER OF
a Reference by the Governor in Council
concerning the proposed Canadian Securities Act, as set out in
Order
in Council P.C. 2010-667, dated May 26, 2010
Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella,
Charron, Rothstein and Cromwell JJ.
Reasons:
(paras. 1 to 134)
|
The Court
|
Reference re Securities Act, 2011 SCC 66, [2011] 3 S.C.R. 837
IN THE
MATTER OF a Reference by the Governor in Council pursuant to section 53 of the Supreme
Court Act, R.S.C. 1985, c. S-26 , as set out in
Order in Council P.C. 2010‑667, dated May 26, 2010, concerning
the Proposed Canadian Securities
Act
Indexed as: Reference re Securities Act
2011 SCC 66
File No.: 33718.
2011: April 13, 14;
2011: December 22.
Present: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish,
Abella, Charron, Rothstein and Cromwell JJ.
reference
by governor in council
Constitutional law —
Division of powers — Trade and commerce — Securities —
Whether proposed legislation valid under general branch of federal power to
regulate trade and commerce — Constitution Act, 1867, s. 91(2) .
Pursuant
to s. 53 of the Supreme Court Act , the Governor in Council has
sought an advisory opinion from the Court as to whether the proposed Securities
Act set out in Order in Council P.C. 2010‑667 falls within the
legislative authority of the Parliament of Canada.
The
preamble of the proposed Act states that its purpose is to create a single
Canadian securities regulator. More broadly, s. 9 states that the
purposes of the Act are to provide investor protection, to foster fair,
efficient and competitive capital markets and to contribute to the integrity
and stability of Canada’s financial system. The Act includes registration
requirements for securities dealers, prospectus filing requirements, disclosure
requirements, specific duties for market participants, a framework for the
regulation of derivatives, civil remedies and regulatory and criminal offences
pertaining to securities. The Act does not unilaterally impose a unified
system, but permits provinces and territories to opt in, with the hope of
creating an effective unified national securities regulation system.
Canada,
joined by Ontario and several interveners, argues that the Act, viewed in its
entirety, falls within the general branch of Parliament’s power to regulate
trade and commerce under s. 91(2) of the Constitution Act, 1867 . Alberta,
Quebec, Manitoba, New Brunswick and other interveners argue that the scheme
falls under the provincial power over property and civil
rights under s. 92(13) of the Constitution Act, 1867 and trenches
on provincial legislative jurisdiction over matters of a merely local or
private nature (s. 92(16) ), namely the regulation of contracts,
property and professions.
Held:
The Securities Act as presently drafted is not valid under the general
branch of the federal power to regulate trade and commerce under s. 91(2)
of the Constitution Act, 1867 .
To
determine the constitutional validity of legislation from a division of powers
perspective, the pith and substance analysis requires the courts to look at the
purpose and effects of the law. The inquiry then turns to whether the
legislation falls under the head of power said to support it. If the pith and
substance of the legislation is classified as falling under a head of power
assigned to the adopting level of government, the legislation is valid. When a
matter possesses both federal and provincial aspects, the double aspect
doctrine may allow for the concurrent application of both federal and
provincial legislation.
Parliament’s
power over the regulation of trade and commerce under s. 91(2) of the Constitution
Act, 1867 has two branches — the power over interprovincial commerce and
the general trade and commerce power. Only the general trade and commerce
power is invoked by Canada in this reference. This power, while on its face
broad, is necessarily circumscribed. It cannot be used in a way that denies
the provincial legislatures the power to regulate local matters and industries
within their boundaries. Nor can the power of the provinces to regulate
property and civil rights within the provinces deprive the federal Parliament
of its powers under s. 91(2) to legislate on matters of genuine national
importance and scope — matters that transcend the local and concern Canada as a
whole.
As
held in General Motors of Canada Ltd. v. City National Leasing, [1989] 1
S.C.R. 641, to fall under the general branch of s. 91(2) , legislation must
engage the national interest in a manner that is qualitatively different from
provincial concerns. Whether a law is validly adopted under the general trade
and commerce power may be ascertained by asking (1) whether the law is
part of a general regulatory scheme; (2) whether the scheme is under the
oversight of a regulatory agency; (3) whether the legislation is concerned
with trade as a whole rather than with a particular industry; (4) whether
it is of such a nature that provinces, acting alone or in concert, would be
constitutionally incapable of enacting it; and (5) whether the legislative
scheme is such that the failure to include one or more provinces or localities
in the scheme would jeopardize its successful operation in other parts of the
country. These indicia of validity are not exhaustive, nor is it necessary
that they be present in every case.
Here,
the main thrust of the Act is to regulate, on an exclusive basis, all aspects
of securities trading in Canada, including the trades and occupations related
to securities in each of the provinces. The purpose of the Act is to implement
a comprehensive Canadian regime to regulate securities with a view to protect investors,
to promote fair, efficient and competitive capital markets and to ensure the
integrity and stability of the financial system. Its effects would be to
duplicate and displace the existing provincial and territorial securities
regimes.
Applying
the settled case law, the Act, viewed in its entirety, cannot be classified as
falling within the general trade and commerce power. Its main thrust does not
address a matter of genuine national importance and scope going to trade as a
whole in a way that is distinct and different from provincial concerns. Canada
has not established that the area of securities has been so transformed that it
now falls to be regulated under the federal head of power. The preservation of
capital markets to fuel Canada’s economy and maintain Canada’s financial
stability is a matter that goes beyond a specific industry and engages trade as
a whole. However, the Act is chiefly concerned with the day‑to‑day
regulation of all aspects of contracts for securities within the provinces,
including all aspects of public protection and professional competences. These
matters remain essentially provincial concerns falling within property and
civil rights in the provinces and are not related to trade as a whole.
Specific aspects of the Act aimed at addressing matters of genuine national
importance and scope going to trade as a whole in a way that is distinct from
provincial concerns, including management of systemic risk and national data
collection, appear to be related to the general trade and commerce power. With
respect to these aspects of the Act, the provinces, acting alone or in concert,
lack the constitutional capacity to sustain a viable national scheme. Viewed
as a whole, however, the Act is not chiefly aimed at genuine federal concerns.
It is principally directed at the day‑to‑day regulation of all
aspects of securities and, in this respect, it would not founder if a
particular province failed to participate in the federal scheme.
In
sum, the proposed Act overreaches genuine national concerns. While the
economic importance and pervasive character of the securities market may, in
principle, support federal intervention that is qualitatively different from
what the provinces can do, they do not justify a wholesale takeover of the
regulation of the securities industry which is the ultimate consequence of the
proposed federal legislation. A cooperative approach that permits a scheme
recognizing the essentially provincial nature of securities regulation while
allowing Parliament to deal with genuinely national concerns remains available
and is supported by Canadian constitutional principles and by the practice
adopted by the federal and provincial governments in other fields of
activities.
Cases Cited
Applied: General
Motors of Canada Ltd. v. City National Leasing,
[1989] 1 S.C.R. 641; referred to: Reference re Securities
Act (Canada), 2011 ABCA 77, 41 Alta. L.R. (5th) 145; Québec (Procureure
générale) v. Canada (Procureure générale), 2011 QCCA 591 (CanLII); Lymburn
v. Mayland, [1932] A.C. 318; Multiple Access Ltd. v. McCutcheon,
[1982] 2 S.C.R. 161; Global Securities Corp. v. British Columbia
(Securities Commission), 2000 SCC 21, [2000] 1 S.C.R. 494; R. v. W.
McKenzie Securities Ltd. (1966), 56 D.L.R. (2d) 56, leave to appeal refused,
[1966] S.C.R. ix (sub nom. West & Dubros v. The Queen); Gregory
& Co. v. Quebec Securities Commission, [1961] S.C.R. 584; Québec
(Sa Majesté du Chef) v. Ontario Securities Commission (1992), 10 O.R. (3d)
577, leave to appeal refused, [1993] 2 S.C.R. x (sub nom. R.
du chef du Québec v. Ontario Securities Commission); Bennett v. British
Columbia (Securities Commission) (1992), 94 D.L.R. (4th) 339; Bell
Canada v. Quebec (Commission de la santé et de la sécurité du travail),
[1988] 1 S.C.R. 749; Smith v. The Queen, [1960] S.C.R. 776; Citizens Insurance Co. of Canada v. Parsons
(1881), 7 App. Cas. 96; Re Wakim; Ex parte McNally, [1999] HCA
27, 198 C.L.R. 511; R. v. Hughes, [2000] HCA 22, 202 C.L.R. 535; Reference
re Secession of Quebec, [1998] 2 S.C.R. 217; Reference
re Remuneration of Judges of the Provincial Court of Prince Edward Island, [1997] 3 S.C.R. 3; Northern Telecom Canada Ltd. v.
Communication Workers of Canada, [1983] 1 S.C.R. 733; Attorney‑General
for Canada v. Attorney‑General for Ontario, [1937] A.C. 326; Hodge
v. The Queen (1883), 9 App. Cas. 117; Edwards v. Attorney‑General
for Canada, [1930] A.C. 124; Reference re Employment Insurance Act
(Can.), ss. 22 and 23, 2005 SCC 56, [2005] 2 S.C.R. 669; OPSEU v.
Ontario (Attorney General), [1987] 2 S.C.R. 2; P.E.I. Potato
Marketing Board v. H. B. Willis Inc., [1952] 2 S.C.R. 392; Lord’s Day
Alliance of Canada v. Attorney General of British Columbia, [1959] S.C.R.
497; Coughlin v. Ontario Highway Transport Board, [1968] S.C.R. 569; Fédération
des producteurs de volailles du Québec v. Pelland, 2005 SCC 20, [2005] 1
S.C.R. 292; Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3; RJR‑MacDonald Inc. v.
Canada (Attorney General), [1995] 3 S.C.R. 199; Quebec (Attorney
General) v. Lacombe, 2010 SCC 38, [2010] 2 S.C.R. 453; Kitkatla
Band v. British Columbia (Minister of Small Business, Tourism and Culture),
2002 SCC 31, [2002] 2 S.C.R. 146; Reference re Firearms Act
(Can.), 2000 SCC 31, [2000] 1 S.C.R. 783; Re the
Initiative and Referendum Act, [1919] A.C. 935; Lawson v. Interior Tree
Fruit and Vegetable Committee of Direction, [1931] S.C.R. 357; Attorney
General of Canada v. Canadian National Transportation, Ltd., [1983]
2 S.C.R. 206; MacDonald v. Vapor Canada Ltd., [1977] 2 S.C.R.
134; John Deere Plow Co. v. Wharton, [1915] A.C. 330; Kirkbi AG v.
Ritvik Holdings Inc., 2005 SCC 65, [2005] 3 S.C.R. 302; Ontario Hydro v.
Ontario (Labour Relations Board), [1993] 3 S.C.R. 327; Duplain v.
Cameron, [1961] S.C.R. 693.
Statutes and Regulations Cited
Bank Act, S.C. 1991, c. 46 .
Bankruptcy and Insolvency Act, R.S.C.
1985, c. B‑3 , Part XII.
Basic Law (F.R.G.), art. 72(1), (2).
Budget Implementation Act, 2009, S.C.
2009, c. 2 .
Canada Business Corporations Act, R.S.C.
1985, c. C‑44 .
Constitution Act, 1867, ss. 91 ,
91(2) , (15) , (17) , (18) , (21) , (27) , 92 , 92(10) (a), (13) , (16) , 95 .
Criminal
Code, R.S.C. 1985, c. C‑46, ss. 380(2) , 382 , 382.1 , 383 ,
384 , 400 .
Investment Canada Act, R.S.C. 1985,
c. 28 (1st Supp .).
National Securities Markets
Improvement Act of 1996, Pub. L. 104‑290, § 102, 110 Stat. 3416,
3417 [amending Securities Act of 1933, s. 18 (now 15 U.S.C.
§ 77r)].
Payment Clearing and Settlement Act,
S.C. 1996, c. 6, Sch .
Proposed
Canadian Securities Act, Order in Council P.C. 2010‑667, preamble,
ss. 9, Parts 1 to 3, 64, 66, Part 4, 73, 74, Part 5, 76, Parts 6 and 7,
89, 90, Parts 8 to 10, 109 to 113, 114, 116, 117(1), (2), 126(1), Part 11, 224,
228(4)(c).
Securities
Act of 1933, s. 18 [now 15 U.S.C. § 77r].
Supreme Court Act, R.S.C. 1985,
c. S‑26, s. 53 .
Telecommunications Act, S.C. 1993,
c. 38 .
United States Constitution, arts. I, § 8, cl. 3, VI,
cl. 2.
Authors Cited
Canada.
Consumer and Corporate Affairs. Proposals for a Securities Market Law for
Canada, vol. 2 — Commentary. Ottawa:
Minister of Supply and Services Canada, 1979.
Canada. Memorandum of Understanding Regarding the Regulation of
Securities in Canada (draft), reproduced at (1994), 17 OSCB 4401.
Canada. Royal Commission on Banking and Finance. Report of the
Royal Commission on Banking and Finance. Ottawa: Queen’s Printer, 1964.
Canada. Royal Commission on Price Spreads. Report of the Royal
Commission on Price Spreads. Ottawa: King’s Printer, 1935.
Canada. Royal Commission on the Economic Union and Development
Prospects for Canada. Report, vol. 3. Ottawa: Minister of Supply
and Services Canada, 1985.
Crawford Panel on a Single Canadian Securities Regulator. Blueprint
For A Canadian Securities Commission — Final Paper. Ottawa: Government of
Ontario, 2006.
Expert Panel on Securities Regulation. Creating an Advantage in
Global Capital Markets — Final Report and Recommendations. Ottawa:
Department of Finance, 2009.
Gillen,
Mark R. Securities Regulation in Canada, 3rd ed. Toronto:
Thomson/Carswell, 2007.
Hogg,
Peter W. Constitutional Law of Canada, 5th ed. Supp.,
vol. 1. Scarborough, Ont.: Thomson/Carswell, 2007 (updated 2010,
release 1).
Howard, John L. “Securities Regulation: Structure and
Process”, in Proposals for a Securities Market Law for Canada,
vol. 3 — Background Papers. Ottawa: Minister of Supply and Services
Canada, 1979, 1607.
Ontario
Securities Commission. “CANSEC: Legal and Administrative Concepts” (November
1967), OSCB 61.
Wise Persons’ Committee — Committee to Review the Structure of
Securities Regulation in Canada. It’s Time. Ottawa: Department of
Finance, 2003.
REFERENCE by the Governor in Council,
pursuant to s. 53 of the Supreme Court Act , concerning the
constitutional validity of the proposed Securities Act.
The question referred to was answered as follows: The Securities Act as
presently drafted is not valid under the general branch of the federal power to
regulate trade and commerce under s. 91(2) of the Constitution Act,
1867 .
Robert J. Frater, Peter W. Hogg, Q.C., Claude Joyal and Alexander
Pless, for the Attorney General of Canada.
Janet E. Minor,
Jennifer A. August and S. Zachary Green, for the
intervener the Attorney General of Ontario.
Jean‑Yves Bernard, France Bonsaint and Hugo Jean, for the intervener
the Attorney General of Quebec.
Gaétan Migneault,
for the intervener the Attorney General of New Brunswick.
Eugene B. Szach
and Nathaniel Carnegie, for the intervener the Attorney General of
Manitoba.
George H. Copley, Q.C., Nancy E. Brown and Donald Sutherland,
for the intervener the Attorney General of British Columbia.
Graeme G. Mitchell, Q.C., for the intervener the Attorney General for
Saskatchewan.
E. David D. Tavender, Q.C., D. Brian Foster, Q.C., L. Christine
Enns and Jordan C. Milne, for the intervener the Attorney
General of Alberta.
Andrew K. Lokan,
Massimo C. Starnino and Michael Fenrick, for the intervener
the Canadian Foundation for Advancement of Investor Rights.
Luis Sarabia, Matthew
Milne-Smith and David Stolow, for the intervener the Canadian
Coalition for Good Governance.
John B. Laskin
and Darryl C. Patterson, for the intervener the Investment Industry
Association of Canada.
Mahmud Jamal, Éric
Préfontaine and Raphael T. Eghan, for the intervener the
Canadian Bankers Association.
Kelley M. McKinnon and Brent J. Arnold, for the intervener the Ontario
Teachers’ Pension Plan Board.
Guy Paquette and Vanessa O’Connell-Chrétien, for the intervener Mouvement
d’éducation et de défense des actionnaires.
Raymond Doray and Mathieu
Quenneville, for the intervener Barreau du Québec.
Sébastien
Grammond and Luc Giroux, for the intervener the Institute for
Governance of Private and Public Organizations.
The
following is the opinion delivered by
The Court —
I. Overview
of the Court’s Opinion
[1]
This reference under s. 53 of the Supreme
Court Act, R.S.C. 1985, c. S‑26 , requires the Court to determine
whether the proposed Securities Act set out in Order in Council P.C.
2010-667 falls within the legislative authority of the Parliament of Canada.
[2]
The proposed Securities Act represents a
comprehensive foray by Parliament into the realm of securities regulation. If
validly adopted, it will create a single scheme governing the trade of
securities throughout Canada subject to the oversight of a single national
securities regulator.
[3]
The government of Canada (“Canada”), supported
by the Attorney General of Ontario (“Ontario”) and other interveners, argues
that the entirety of the Act can be sustained as a proper exercise of the
general branch of Parliament’s legislative power to regulate trade and
commerce, grounded in s. 91(2) of the Constitution Act, 1867 . The
Attorney General of Alberta, the Attorney General of Quebec and other
provincial attorneys general and interveners oppose the Act, arguing that
securities regulation is a matter falling within s. 92(13) of the Constitution
Act, 1867 , which gives the provinces legislative jurisdiction over property
and civil rights within their borders. Certain opponents of the Act also submit
that securities regulation relates to provincial jurisdiction over matters of a
merely local or private nature, under s. 92(16) of the Constitution Act,
1867 .
[4]
Canada does not challenge the proposition that
certain aspects of securities regulation fall within provincial authority in
relation to property and civil rights in the provinces. Nor does Canada argue
that any provisions of the Act fall within federal legislative authority
because they are necessarily incidental to the exercise of federal powers.
Canada’s contention is simply that the securities market has evolved from a
provincial matter to a national matter affecting the country as a whole and
that, as a consequence, the federal general trade and commerce power gives
Parliament legislative authority over all aspects of securities regulation.
This authority, Canada argues, is concurrent with that of the provincial
legislatures over all aspects of securities presently regulated by the
provinces.
[5]
The propriety of such a constitutional
realignment cannot simply be assumed. The shift in regulatory authority that
the proposed Act seeks to achieve requires justification. Canada asserts that
this justification is found under the “general” branch of the trade and
commerce power. However, it has failed to show that this power, interpreted as
required by the case law, supports the proposed Act.
[6]
Canada has shown that aspects of the securities
market are national in scope and affect the country as a whole. However,
considered in its entirety, the proposed Act is chiefly directed at protecting
investors and ensuring the fairness of capital markets through the day-to-day
regulation of issuers and other participants in the securities market. These
matters have long been considered local concerns subject to provincial
legislative competence over property and civil rights within the province.
Canada has not shown that the securities market has so changed that the
regulation of all aspects of securities now falls within the general branch of
Parliament’s power over trade and commerce under s. 91(2) . Applying the
settled test, we conclude that the proposed Act does not fall within the
general trade and commerce power.
[7]
It is a fundamental principle of federalism that
both federal and provincial powers must be respected, and one power may not be
used in a manner that effectively eviscerates another. Rather, federalism
demands that a balance be struck, a balance that allows both the federal
Parliament and the provincial legislatures to act effectively in their
respective spheres. Accepting Canada’s interpretation of the general trade and
commerce power would disrupt rather than maintain that balance. Parliament
cannot regulate the whole of the securities system simply because aspects of it
have a national dimension.
[8]
We therefore answer the reference question in
the negative.
[9]
It is open to the federal government and the
provinces to exercise their respective powers over securities harmoniously, in
the spirit of cooperative federalism. The experience of other federations in
the field of securities regulation, while a function of their own
constitutional requirements, suggests that a cooperative approach might
usefully be explored, should our legislators so choose, to ensure that each
level of government properly discharges its responsibility to the public in a
coordinated fashion.
[10]
At this juncture, it is important to stress that
this advisory opinion does not address the question of what constitutes the
optimal model for regulating the securities market. While the parties
presented evidence and arguments on the relative merits of federal and
provincial regulation of securities, the policy question of whether a single
national securities scheme is preferable to multiple provincial regimes is not
one for the courts to decide. Accordingly, our answer to the reference
question is dictated solely by the text of the Constitution, fundamental
constitutional principles and the relevant case law.
II. The Proposed
Act and the Parties’ Positions
A. National
Securities Proposals in Canada
[11]
Recommendations for national securities
regulation in Canada are not new. Over the years, many proposals have been put
forward, but none implemented. The various proposals, in different ways,
attempted to come to grips with the problem underlying this reference — how to
achieve national securities regulation within the constitutional division of
powers between Parliament and the provincial legislatures. Not surprisingly,
the proposals generally envisaged cooperation between the provinces and the
federal government as the route to achieving national standards and
regulation.
[12]
The first proposal dates to 1935, when the Royal
Commission on Price Spreads recommended the formation of an investment
securities board to oversee the issuance of securities by companies
incorporated under federal legislation (Report of the Royal Commission on
Price Spreads, at pp. 41-42).
[13]
In the 1960s, various recommendations and
proposals were mooted. The 1964 Royal Commission on Banking and Finance (the
“Porter Commission”) accepted the desirability of uniform legislation and
administration of the Canadian securities industry and recommended the creation
of an additional regulatory body, based on cooperation between the federal and
provincial governments (Report of the Royal Commission on Banking and
Finance). The body, to be headed by a federal regulator, would have set
uniform standards for securities distributed interprovincially and
internationally, while permitting existing provincial regulators to continue to
govern “local matters such as the licensing of security dealers and their
salesmen and the registration of issues to be offered only within their own
province” (p. 348).
[14]
The Porter Commission hoped that the
establishment of a federal agency would lead to greater agreement and
cooperation, eliminating the duplication that the Commission saw as hampering
effective securities regulation. In particular, the Commission hoped that the
introduction of uniform federal standards would foster the adoption of similar
standards in the provinces and free the provinces to focus on purely local
matters by automatically clearing federally regulated issues.In its view, a single federal agency would
improve cooperation with the United States Securities and Exchange Commission
and “would be responsible for and interested in the growth, development and
efficiency of the whole Canadian securities industry” (p. 348).
[15]
In 1967, just three years after the release of
the Porter Commission’s report, the Ontario Securities Commission (“OSC”)
circulated a very different proposal for a single, highly decentralized,
national securities regulator. CANSEC — the “Canada Securities Commission” —
was to be a three-tiered structure (a council of ministers, CANSEC and
administrative staff) designed to achieve uniformity in Canadian securities
regulation through cooperation by the federal and provincial governments,
rather than by forcing each province to surrender its regulatory activity in
the field to a federal body. CANSEC would operate on an opt-in basis: no
province would be required to join or remain in CANSEC. Moreover,
participation by provinces would not involve a permanent surrender of power: “A
government which has passed an amendment in order to bring themselves into the
scheme can repeal that amendment” (“CANSEC: Legal and Administrative Concepts”
(November 1967), OSCB 61, at p. 66). Provinces would have been able to join
CANSEC, then withdraw and regulate independently as before.
[16]
The OSC anticipated that CANSEC would be brought
into existence through the passage of an organizational statute by the federal
government and the subsequent commitment by participating jurisdictions to have
the new commission administer their own securities acts. In bringing CANSEC
into existence, the OSC did not consider it necessary that the provincial laws
themselves be substantively uniform; rather, similar schemes of administration
and “some modest degree of uniformity” in securities legislation would suffice
(p. 66). The provinces would retain jurisdiction over “nearly all substantive
issues”, delegating to the commission authority only to deal with federal
corporate, international and criminal matters not clearly within provincial
jurisdiction (J. L. Howard, “Securities Regulation: Structure and Process”, in
Proposals for a Securities Market Law for Canada (1979), vol. 3,
1607, at p. 1693).
[17]
The discussion over securities regulation
continued in the 1970s and 1980s. In 1979, the federal Department of Consumer
and Corporate Affairs produced a three-volume study entitled Proposals for a
Securities Market Law for Canada, which contemplated a national
securities commission working in cooperation with the provinces. The
study recommended the creation of a federal securities commission and the
enactment of federal securities legislation and envisioned a “nationally
coordinated system of regulation that involves cooperation between a federal
commission with federal jurisdiction and provincial and foreign commissions”
(vol. 2, at p. 5). It contemplated administration either by a federal
commission, by a cooperative body developed through negotiations among the
federal and provincial governments, or a body lying on the spectrum between
that and a single federal agency.
[18]
In 1985, the Royal Commission on the Economic
Union and Development Prospects for Canada concluded that there was no reason
to tamper with the existing system of provincial regulation of stock markets,
but noted that “[t]echnological change, the increasing international
integration of capital markets, and the desire of provinces, especially Quebec,
to regulate markets in pursuit of provincial development goals are all likely
to place greater strains on the existing system in the near future” (Report,
vol. 3, at p. 167).
[19]
In 1994, the premiers of the Atlantic provinces asked the federal
government to establish a national securities regulator. The proposal
ultimately took the form of a draft memorandum of
understanding (“MOU”) between the federal government and participating
provinces, which was circulated among the provinces ((1994), 17 OSCB 4401). The
MOU proposed the creation of a “Canadian Securities Commission” and envisioned
a “uniform securities regulatory structure which [would] apply comprehensively
within and across all participating provinces” (preamble).
[20]
Like the proposal to establish CANSEC, the MOU was premised on
opting in by the provinces and explicitly stated that no government would give
up any jurisdiction by joining. Participating provinces were to have the
ability to adopt regulations exempting certain
securities from provisions of the federal legislation. The jurisdiction of
provincial securities regulatory authorities in provinces which elected not to
participate in the uniform securities regulatory structure would not be
affected. Canada, however, committed to “developing consultation and
coordination mechanisms between the Canadian Securities Commission and the
securities commission or equivalent office of any province which is not a Party
to [the] agreement to maintain the benefits of harmonization of securities
regulation in Canada and to promote further such harmonization in the future”
(MOU, at cl. 29).
[21]
In the past decade, calls for a national
securities regulator have intensified.
[22]
The Wise Persons’ Committee (“WPC”)
of 2003 recommended the adoption of a comprehensive scheme of capital markets
regulation for Canada, to be accomplished by the passage of comprehensive
federal securities legislation, followed by provincial legislation
incorporating the federal law by reference and delegating administrative powers
to a newly established “Canadian Securities Commission”.
[23]
The WPC rejected the “dual structure” of
securities market regulation recommended by the OSC proposal to establish
CANSEC, the 1979 study by the Department of Consumer
and Corporate Affairs and the 1994 MOU. In its view, “a dual structure, in
which securities matters limited to a single province would be regulated
provincially, while interprovincial and international matters would be
regulated by a national body”, was not appropriate “[g]iven the nationally
integrated nature of Canada’s capital markets and the history of provincial
regulation of securities matters with incidental effect on matters outside the
regulating province” (It’s Time (2003), at p. 59). In the WPC’s view, “efficient capital markets require that the federal legislation
extend to all matters related to securities regulation” (p. 60).
[24]
The WPC therefore recommended the enactment of a
single, comprehensive code for the regulation of Canadian capital markets by
the federal government. The single set of rules would cover “all securities
regulatory matters in Canada” (p. 59). Provincial participation would be
achieved through an obligation on the federal government to consult with the
provinces before amending the legislation.
[25]
The 2006 Crawford Panel on a Single
Canadian Securities Regulator, established by the government of Ontario,
endorsed the adoption of Canadian securities legislation (Blueprint For A
Canadian Securities Commission — Final Paper). The Panel proposed
that uniform regulation would be achieved by all jurisdictions incorporating,
by reference, legislation enacted by one province as the Canadian Securities
Act and establishing a “Canadian Securities Commission”. A common body of
securities law would then apply across the country. However, like the WPC, the
Crawford Panel viewed the participation of all provinces and territories and
the federal government as “ideal” but not necessary for the Commission to be
established. The key was “that there be an initial core group of Participating
Jurisdictions that agrees to enact, or to enact through incorporation by
reference, common legislation that establishes the [Commission] and delegates
to it authority over capital markets regulation” (p. 16).
[26]
Three years after the Crawford Panel presented
its “blueprint”, the Expert Panel on Securities Regulation (the “Hockin Panel”)
released a report that informed the Securities Act proposed by Canada in
this reference (Creating an Advantage in Global Capital Markets — Final
Report and Recommendations (2009) (the “Hockin Report”)). Like the Crawford
Panel, the Hockin Panel recommended the establishment of a “Canadian Securities
Commission” to oversee a single “Securities Act” for Canada.
[27]
The Hockin Panel envisioned the establishment of
a “comprehensive national regime” of securities regulation (p. 60), to be
brought into force in participating jurisdictions through the repeal of local
legislation. However, the Panel acknowledged that not all provinces (at least
initially) might be willing to participate. It therefore recommended that in
the absence of unanimity on the part of the provinces, the Act should provide
for voluntary provincial participation, limiting its application to
participating jurisdictions during the transition to a comprehensive national
regime (p. 60). The Panel foresaw that, faced with such circumstances, the
federal government might consider a “market participant opt-in feature” (p.
61), and proposed that the Commission consider negotiating memoranda of
understanding with non-participating jurisdictions to coordinate securities
regulation.
[28]
In response to the Hockin Report, the federal
government established the Canadian Securities Regulation Regime Transition
Office in the Budget Implementation Act, 2009, S.C. 2009, c. 2 ,
and prepared a draft Act implementing the Report’s proposals. On May 26, 2010,
the Governor General in Council referred this draft legislation to the Court
for an advisory opinion as to its constitutional validity.
B. The
Proposed Act
[29]
The preamble of the proposed Act states that its
immediate purpose is to create a single Canadian securities regulator. More
broadly, s. 9 states that the underlying purposes of the Act are to provide
investor protection, to foster fair, efficient and competitive capital markets
and to contribute to the integrity and stability of Canada’s financial system.
[30]
The Act includes registration requirements for
securities dealers, prospectus filing requirements, disclosure requirements,
specific duties for market participants, a framework for the regulation of
derivatives, civil remedies and regulatory and criminal offences pertaining to
securities. It provides for the comprehensive regulation of securities in
Canada, under the oversight of a single national regulator. It also provides
for a single set of laws and rules designed to permit uniform regulation and
enforcement on a national basis, thus fostering the integrity and stability of
Canada’s capital markets at a national level. While various parties emphasize
different facets of the scheme, advancing interesting arguments on the
implication of words such as “national”, “capital markets”, “securities
industry” and “securities trading”, it seems uncontrovertible that what the Act
seeks is comprehensive national securities regulation, with the aim of
fostering fair and efficient capital markets and contributing to the stability of
Canada’s financial system.
[31]
The Act, as proposed, does not seek to
unilaterally impose a unified system of securities regulation for the whole of
Canada. Rather, it permits provinces to opt in, if and when they choose to do
so. The hope is that, eventually, all or most provinces will opt in, creating
an effective unified national securities regulation system for Canada. If this
were to occur, it would represent a dramatic realignment in the manner in which
securities have been regulated in this country.
C. The Parties’ Positions
[32]
Canada, joined by Ontario and several
interveners, argues that the proposed Act, viewed in its entirety, is a
constitutional exercise of Parliament’s general power to regulate trade and
commerce under s. 91(2) of the Constitution Act, 1867 . It does not
invoke other federal heads of power, such as legislative authority in
relation to interprovincial and international trade and commerce (a separate
branch of Parliament’s s. 91(2) authority), the incorporation of federal
companies or the criminal law power (s. 91(27) — except with respect to some
offence provisions the constitutionality of which is not contested). Nor does
Canada contend that provisions of the Act that might be viewed as falling
within provincial legislative powers are valid because they are ancillary to
the exercise of federal powers.
[33]
Canada and those who support its position
acknowledge the oft-affirmed power of the provinces to regulate securities
within their borders. However, they argue that securities markets have
undergone significant transformation in recent decades, evolving from local
markets to markets that are increasingly national, indeed international. This
has given rise to systemic risks and other concerns that can only be dealt with
on the national level. The evolving national character of securities markets,
Canada says, brings those markets within the general trade and commerce power,
as defined by existing jurisprudence. In short, Canada contends that
securities have evolved in a way that now brings all aspects of securities
regulation under the general branch of the trade and commerce power, including
those aspects which would also fall under provincial competence in relation to
property and civil rights within the province.
[34]
The attorneys general of Alberta, Quebec, Manitoba and New Brunswick and other interveners oppose the Act. They argue
that the scheme the Act sets up falls under the provincial
power over property and civil rights under s. 92(13) of the Constitution
Act, 1867 and trenches on provincial legislative jurisdiction over matters
of a merely local or private nature (s. 92(16) ), namely the regulation
of contracts, property and professions. They reject the contention that
securities markets have evolved to become a matter of genuine national concern
under the general federal trade and commerce power. Rather, they contend, the
Act is a thinly disguised attempt to regulate a particular industry — the
securities industry.
[35]
The Attorney General of British Columbia and the
Attorney General for Saskatchewan oppose the Act, but adopt a more nuanced
approach to Parliament’s ability to regulate securities. Neither province
opposes the idea of a national securities regulator, so long as it is achieved
in a manner that respects the division of powers. However, these provinces
contend that Parliament’s participation in securities regulation is best
achieved through an exercise in federal-provincial cooperation, similar to the
cooperation existing in the agricultural products marketing context.
III. The
Provincial References
[36]
In provincial references, both the Alberta Court
of Appeal (2011 ABCA 77, 41 Alta. L.R. (5th) 145) and the Quebec Court of
Appeal (2011 QCCA 591 (CanLII)) concluded that the proposed Act is unconstitutional.
[37]
The Alberta Court of Appeal (per Slatter
J.A., Côté, Conrad, Ritter and O’Brien JJ.A., concurring) emphasized at para. 6
that the proposed Act “mirrors” provincial securities regimes by licensing and
regulating the conduct of participants in the same fashion as the existing
provincial legislation. While recognizing that securities products have
changed over time, it held that securities regulation remains a matter of
property and civil rights under s. 92(13) of the Constitution Act, 1867 .
As a result, the Act did not fall within Parliament’s general trade and
commerce power, as defined by the jurisprudence.
[38]
A majority of the Quebec Court of Appeal, in two
sets of reasons (per Robert C.J. and per Forget, Bich and
Bouchard JJ.A.), also concluded that the proposed Act is unconstitutional. The
majority held that the federal proposal would create a comprehensive regulatory
scheme that pursued the same objectives through the same means as existing
provincial securities laws and fell under provincial jurisdiction over property
and civil rights. Like the Alberta Court of Appeal, they held that the
jurisprudence on the general trade and commerce power did not support the
conclusion that the Act was a valid exercise of federal power.
[39]
Dalphond J.A., dissenting, argued that the
Canadian securities market, as a single, integrated, pan-Canadian market, fell
within the general branch of Parliament’s trade and commerce power.
IV.
The Regulation of Securities
A. Overview
[40]
The term “securities” designates a class of
assets that conventionally includes shares in corporations, interests in
partnerships, debt instruments such as bonds and financial derivatives (F.
Milne, The Impact of Innovation and Evolution on the Regulation of Capital
Markets (2010), Reference Record, vol. I, 175, at para. 2.1; M. R. Gillen, Securities
Regulation in Canada (3rd ed. 2007), at p. 1). The securities market
channels savings in two basic ways: it allows demanders of investment capital
(“issuers”) to receive investment capital from suppliers of capital
(“investors”) in exchange for a security; and it allows investors to trade
securities with one another. The first type of transaction occurs through the
“primary” market, where issuers trade directly or indirectly with investors,
while the second type of transaction is referred to as “secondary” market
trading (Gillen, at pp. 32-33; Milne, at paras. 2.2-2.4).
[41]
Every province and territory has its own
securities laws and regulatory agency. These agencies exercise a variety of
responsibilities, including prospectus review and clearance; oversight of disclosure
requirements; takeover bids and insider trading; registration and regulation of
market intermediaries; enforcement of compliance with the regime; recognition
and supervision of exchanges and other self-regulated organizations; and public
education.
[42]
Since the beginning of the 21st century, efforts
to increase interprovincial cooperation and to harmonize provincial and
territorial securities laws have intensified. For example, the
supervision and regulation of securities firms are presently carried out by the
Investment Industry Regulatory Organization of Canada (“IIROC”) working under
the authority of the Canadian Securities Administrators, a creature of the
various provincial and territorial securities commissions. The provincially
organized Canadian Investor Protection Fund insures investors’ funds in the
event of the bankruptcy of an investment firm (in an analogous fashion to the
federal Canada Deposit Insurance Corporation for bank depositors). IIROC
standards are national and directed at ensuring that investment firms are both
liquid and solvent. Since 2008, all provincial and
territorial jurisdictions except Ontario participate in a “passport regime”
based on harmonized rules that allow issuers and market intermediaries to
engage in activities in multiple jurisdictions while dealing with a single
principal regulator. Nevertheless, distinctions remain between provincial
securities regimes.
B. Legislative Competence Over Securities: A Shared Field
[43]
Provinces have jurisdiction to regulate
securities within their boundaries (intraprovincial jurisdiction) as a matter
of property and civil rights, pursuant to s. 92(13) of the Constitution Act,
1867 . As Lord Atkin stated in Lymburn v. Mayland, [1932] A.C. 318
(P.C.), “If [a company] is formed to trade in securities there appears no
reason why it should not be subject to the competent laws of the Province as to
the business of all persons who trade in securities” (p. 324).
[44]
More recently, this Court, in Multiple Access
Ltd. v. McCutcheon, [1982] 2 S.C.R. 161, per Dickson J. (as he then
was), confirmed:
It is well established that the
provinces have the power, as a matter of property and civil rights, to regulate
the trade in corporate securities in the province, provided the statute does
not single out federal companies for special treatment or discriminate against
them in any way. . . . Since the decision of the Privy Council in Lymburn v.
Mayland, [1932] A.C. 318 the provisions of provincial securities
acts have been given a wide constitutional recognition. [p. 183]
(See also Global
Securities Corp. v. British Columbia (Securities Commission), 2000 SCC 21,
[2000] 1 S.C.R. 494, at para. 40.)
[45]
The provincial power over securities extends to
impacts on market intermediaries or investors outside a particular province (Global
Securities, at para. 41; R. v. W. McKenzie Securities Ltd. (1966),
56 D.L.R. (2d) 56 (Man. C.A.), leave to appeal refused, [1966] S.C.R. ix (sub
nom. West & Dubros v. The Queen); Gregory & Co. v. Quebec
Securities Commission, [1961] S.C.R. 584). The case law also
recognizes provincial jurisdiction where the province’s capital markets are
engaged (Québec (Sa Majesté du Chef) v. Ontario Securities Commission
(1992), 10 O.R. (3d) 577 (C.A.), leave to appeal refused, [1993] 2 S.C.R. x (sub
nom. R. du chef du Québec v. Ontario Securities Commission); Bennett v.
British Columbia (Securities Commission) (1992), 94 D.L.R. (4th) 339
(B.C.C.A.)).
[46]
The Constitution gives Parliament powers that
enable it to pass laws that affect aspects of securities regulation and, more
broadly, to promote the integrity and stability of the Canadian financial
system. These include Parliament’s power to enact laws relating to criminal
law (s. 91(27) ), banks (s. 91(15) ), bankruptcy (s. 91(21) ), telecommunications
(ss. 91 and 92(10) (a)), and peace, order and good government (s. 91 ) (Multiple
Access; Bell Canada v. Quebec (Commission de la santé et de la sécurité
du travail), [1988] 1 S.C.R. 749, at pp. 765-66; Smith v. The Queen,
[1960] S.C.R. 776, at p. 781). Parliament has exercised its powers by enacting,
for example, the following statutes and provisions: the Canada Business
Corporations Act, R.S.C. 1985, c. C-44 ; the Criminal Code, R.S.C.
1985, c. C-46, ss. 380(2) , 382 , 382.1 , 383 , 384 and 400 ; the Bank
Act, S.C. 1991, c. 46 ; the Investment Canada Act, R.S.C. 1985, c. 28
(1st Supp .); the Payment Clearing and Settlement Act, S.C. 1996, c. 6,
Sch .; the Telecommunications Act, S.C. 1993, c. 38 ; the Bankruptcy
and Insolvency Act, R.S.C. 1985, c. B-3 , Part XII. Finally, s. 91(2)
of the Constitution Act, 1867 gives Parliament power over the regulation
of trade and commerce. This power has two branches: the power over
interprovincial and international commerce (Citizens Insurance Co. of Canada
v. Parsons (1881), 7 App. Cas. 96 (P.C.) (“Parsons”)) and the
general trade and commerce power that authorizes laws where the national
interest is engaged in a manner that is qualitatively different from provincial
concerns, as discussed more fully later in these reasons.
[47]
Canada bases its argument that the proposed Act
is constitutional entirely on the s. 91(2) general trade and commerce power. It
does not rely on the s. 91(2) power over interprovincial trade which gives
Parliament the power to legislate on interprovincial and international aspects
of securities. Nor does it invoke other heads of powers under the
Constitution. The only question before us therefore is whether the Act can be
supported under the general trade and commerce power.
C. Securities
Regulation in Other Federal States
[48]
Canada is not the only federation where the
issue of the balance between local and national regulation of securities has
arisen. While the solution arrived at in each country is a product of its own constitutional
arrangements and imperatives, experience in other federal states suggests that
power sharing between the central and local levels of government in this area
can succeed.
[49]
The German Constitution provides that the Länder
may enact securities laws, but that the Federation may exercise its legislative
power, “if and to the extent that . . . the maintenance of legal or economic
unity renders federal regulation necessary in the national interest” (Basic
Law, art. 72(1) and (2)). This division of responsibility has led to a
three-tiered supervisory system. The federally empowered regulatory agency
dominates the first tier of regulation. The Länder have a consultative
role in the selection of the agency president, maintain control offices for
securities trading and establish stock exchange regulatory agencies which
exercise control over the registration or dissolution of a stock exchange
located within their territory. Each stock exchange has a Trading Surveillance
Office, whose task is to independently monitor the trading and settlement of
trades at the exchange.
[50]
In Australia, a period of discussion between the
Commonwealth and the states culminated, in the early 1990s, in a cooperative
scheme for corporate and securities law characterized by cross-vesting of
jurisdiction. This national scheme faced constitutional setbacks following
judgments of the High Court (Re Wakim; Ex parte
McNally, [1999] HCA 27, 198
C.L.R. 511; R. v. Hughes, [2000] HCA 22, 202 C.L.R. 535). In the wake of the constitutional uncertainty that followed, all
states agreed to refer sufficient powers to the Commonwealth to enact corporate
and securities law, a process authorized by the
Australian Constitution. Since 2001,
the national scheme of securities regulation that presently exists in Australia
is premised on powers referred by the states to the Commonwealth.
[51]
The Commerce Clause in the United States
Constitution gives the federal government the power to “regulate commerce . . .
among the several states” (art. I, § 8, cl. 3). Owing to this language, while states may regulate all
aspects of securities trading within their jurisdiction,
the federal government may choose to regulate virtually all aspects of interstate
securities trading. In the event of conflict, U.S. constitutional law has long
recognized that state laws are of no effect and are
“pre-empted” by federal law, owing to the Supremacy Clause in art. VI, cl. 2,
of the Constitution.
[52]
In 1996, the U.S. Congress passed the National
Securities Markets Improvement Act of 1996, Pub. L. 104-290, § 102,
110 Stat. 3416, 3417, which amended s. 18 of the Securities Act of 1933
(now 15 U.S.C. § 77r), and effectively pre-empted state securities law as
it applied to the great majority of United States issuers. However, this
pre-emption did not exclude state participation in securities regulation.
Securities are typically subject to “local regulation in the state where the
issuer is headquartered, the state from which any offering materials are
dispatched or where any oral offers are made, the state where the offerees have
their domicile, and the state to which offering materials are sent” (J. Macey, An
Analysis of the Canadian Federal Government’s Initiative to Create a National
Securities Regulator (2010), Reference Record, vol. XII, 37, at pp. 87-88).
Local regulation manifests itself most prominently in the areas of local
enforcement and policy.
V. Constitutional
Principles
[53]
Before answering the question at hand — whether
the Act falls within the federal general trade and commerce power under s.
91(2) — it is necessary to canvass the main constitutional principles engaged
in this case.
A. The
Federalism Principle: An Historic View
[54]
Sections 91 and 92 of the Constitution Act,
1867 divide legislative powers between Parliament and the provincial
legislatures. This division remains the “primary textual expression of the
principle of federalism in our Constitution, agreed upon at Confederation” (Reference
re Secession of Quebec, [1998] 2 S.C.R. 217 (“Secession Reference”),
at para. 47).
[55]
Inherent in a federal system is the need for an
impartial arbiter of jurisdictional disputes over the boundaries of federal and
provincial powers (Reference re Remuneration of Judges of the Provincial Court
of Prince Edward Island, [1997] 3 S.C.R. 3, at para. 124). That impartial
arbiter is the judiciary, charged with “control[ling] the limits of the
respective sovereignties” (Northern Telecom Canada Ltd. v. Communication
Workers of Canada, [1983] 1 S.C.R. 733, at p. 741). Courts are guided in
this task by foundational constitutional principles, which assist in the
delineation of spheres of jurisdiction. Among these, the principle of
federalism “has exercised a role of considerable importance in the interpretation
of the written provisions of our Constitution” (Secession Reference, at
para. 57).
[56]
The Judicial Committee of the Privy Council,
which was the final arbiter of Canada’s Constitution until 1949, tended to
favour an exclusive powers approach. Thus, Lord Atkin in 1937 famously
described the respective powers of Parliament and the provincial legislatures
as “watertight compartments” (Attorney-General for Canada v.
Attorney-General for Ontario, [1937] A.C. 326, at p. 354). However, the
Judicial Committee recognized that particular matters might have both federal
and provincial aspects and overlap (Hodge v. The Queen (1883), 9 App.
Cas. 117). Privy Council jurisprudence also recognized that the Constitution
must be viewed as a “living tree capable of growth and expansion within its
natural limits” (Edwards v. Attorney-General for Canada, [1930] A.C.
124, at p. 136, per Lord Sankey). This metaphor has endured as the
preferred approach in constitutional interpretation, ensuring “that
Confederation can be adapted to new social realities” (Reference re
Employment Insurance Act (Can.), ss. 22 and 23, 2005 SCC 56, [2005] 2
S.C.R. 669, at para. 9, per Deschamps J.).
[57]
The Supreme Court of Canada, as final arbiter of
constitutional disputes since 1949, moved toward a more flexible view of
federalism that accommodates overlapping jurisdiction and encourages
intergovernmental cooperation — an approach that can be described as the
“dominant tide” of modern federalism (OPSEU v. Ontario (Attorney
General), [1987] 2 S.C.R. 2, at p. 18). See also P.E.I. Potato
Marketing Board v. H. B. Willis Inc., [1952] 2 S.C.R. 392; Lord’s Day
Alliance of Canada v. Attorney General of British Columbia, [1959] S.C.R.
497; Coughlin v. Ontario Highway Transport Board, [1968] S.C.R. 569.
[58]
If there was any doubt that this Court had rejected
rigid formalism in favour of accommodating cooperative intergovernmental
efforts, it has been dispelled by several decisions of this Court over the past
decade. For instance, in Fédération des producteurs de volailles du
Québec v. Pelland, 2005 SCC 20, [2005] 1 S.C.R. 292, the Court considered a
comprehensive and “seamless” scheme for chicken production and marketing
created by agreement between the federal and provincial governments. Abella J.,
writing for the Court, upheld the provincial legislative component of the
federal-provincial scheme, which could operate to limit the production of
chicken destined for the interprovincial market, and observed:
In my view, the 1978
Federal-Provincial Agreement, like the scheme in the Egg Reference [Reference
re Agricultural Products Marketing Act, [1978] 2 S.C.R. 1198], both
reflects and reifies Canadian federalism’s constitutional creativity and
cooperative flexibility. [para. 15]
[59]
Dickson C.J., in concurring reasons in OPSEU,
summarized the situation aptly:
The history of Canadian constitutional
law has been to allow for a fair amount of interplay and indeed overlap between
federal and provincial powers. It is true that doctrines like
interjurisdictional and Crown immunity and concepts like “watertight
compartments” qualify the extent of that interplay. But it must be recognized
that these doctrines and concepts have not been the dominant tide of
constitutional doctrines; rather they have been an undertow against the strong
pull of pith and substance, the aspect doctrine and, in recent years, a very
restrained approach to concurrency and paramountcy issues. [p. 18]
[60]
As Dickson C.J. pointed out, a restrained
approach to doctrines like federal paramountcy is warranted. This point was
reiterated by Binnie and LeBel JJ. in Canadian Western Bank v. Alberta,
2007 SCC 22, [2007] 2 S.C.R. 3, where the Court said:
The [constitutional] doctrines
[developed by the courts] must also be designed to reconcile the legitimate
diversity of regional experimentation with the need for national unity [and]
they must include a recognition that the task of maintaining the balance of
powers in practice falls primarily to governments, and constitutional doctrine
must facilitate, not undermine what this Court has called “co‑operative
federalism” (Husky Oil Operations Ltd. v. Minister of National Revenue,
[1995] 3 S.C.R. 453, at para. 162; Reference re Employment Insurance
Act (Can.), ss. 22 and 23, [2005] 2 S.C.R. 669, 2005 SCC 56, at para. 10).
[para. 24]
[61]
While flexibility and cooperation are important
to federalism, they cannot override or modify the separation of powers. The Secession
Reference affirmed federalism as an underlying constitutional principle
that demands respect for the constitutional division of powers and the
maintenance of a constitutional balance between federal and provincial powers.
[62]
In summary, notwithstanding the Court’s
promotion of cooperative and flexible federalism, the constitutional boundaries
that underlie the division of powers must be respected. The “dominant tide” of
flexible federalism, however strong its pull may be, cannot sweep designated
powers out to sea, nor erode the constitutional balance inherent in the
Canadian federal state.
B. Pith and Substance and Double Aspect
[63]
The “pith and substance” analysis is used by
Canadian courts to determine the constitutional validity of legislation from a
division of powers perspective. The analysis looks at the purpose and effects
of the law to identify its “main thrust” as a first step in determining whether
a law falls within a particular head of power (in this case the s. 91(2)
general trade and commerce power) (RJR-MacDonald Inc. v. Canada (Attorney
General), [1995] 3 S.C.R. 199, at para. 29; Quebec (Attorney General) v.
Lacombe, 2010 SCC 38, [2010] 2 S.C.R. 453, at para. 20; Kitkatla Band v. British Columbia (Minister of Small
Business, Tourism and Culture), 2002
SCC 31, [2002] 2 S.C.R. 146, at para. 53). Incidental effects may be
discounted; the search is for the main thrust of the law (Canadian Western Bank, at para. 28).
[64]
Intrinsic evidence, such as purpose clauses and
the general structure of the statute, may reveal the purpose of a law.
Extrinsic evidence, such as Hansard or other accounts of the legislative
process, may also assist in determining a law’s purpose. The effects of
a law include the legal effect of the text as well as practical consequences of
the application of the statute (Lacombe, at para. 20; Kitkatla,
at para. 54).
[65]
After analyzing the legislation’s purpose and
its effects to determine its main thrust, the inquiry turns to whether the
legislation so characterized falls under the head of power said to support it —
the classification stage (Reference re Firearms Act (Can.), 2000 SCC 31,
[2000] 1 S.C.R. 783, at para. 15). This may require interpretation of the
scope of the power. If the main thrust of the legislation is properly
classified as falling under a head of power assigned to the adopting level of
government, the legislation is intra vires and valid.
[66]
Canadian constitutional law has long recognized
that the same subject or “matter” may possess both federal and provincial
aspects. This means that a federal law may govern a matter from one
perspective and a provincial law from another. The federal law pursues an
objective that in pith and substance falls within Parliament’s jurisdiction,
while the provincial law pursues a different objective that falls within
provincial jurisdiction (Canadian Western Bank, at para. 30). This
concept, known as the double aspect doctrine, allows for the concurrent
application of both federal and provincial legislation, but it does not
create concurrent jurisdiction over a matter (in the way, for example,
s. 95 of the Constitution Act, 1867 does for agriculture and
immigration).
[67]
Canada argues that the main thrust of the
proposed Act brings it within the general branch of Parliament’s jurisdiction
over trade and commerce. It is to this head of power that we now turn.
VI. Section 91(2):
The Federal Trade and Commerce Power
[68]
Canada contends that securities have evolved in
a way that brings the entire field of securities regulation under the general
branch of the s. 91(2) trade and commerce power, even if some aspects also fall
under provincial competence in relation to property and civil rights in the
province. To support this contention, Canada seeks to establish that the main
thrust of the Act falls under the s. 91(2) general trade and commerce power.
As noted earlier, Canada grounds its submission in support of the Act’s
constitutionality entirely on this power.
[69]
As discussed in the preceding section, as a
general rule, determining the validity of a statute proceeds in two steps: (1)
identifying the main thrust of the legislation having regard to its purpose and
effects; and (2) asking whether the main thrust falls under the head of power
said to support it. In this case, the validity of the Act ultimately comes
down to the breadth of the general branch of the federal trade and commerce
power under s. 91(2) of the Constitution Act, 1867 . We therefore turn
next to the jurisprudence on s. 91(2) .
[70]
On its face, the general trade and commerce
power (as distinguished from the more specific federal power to regulate
interprovincial and international trade and commerce) is broad — so broad that
it has the potential to permit federal duplication (and, in cases of conflict,
evisceration) of the provincial powers over large aspects of property and civil
rights and local matters. This would upset the constitutional balance envisaged
by ss. 91 and 92 and undermine the federalism principle. To avoid this result,
the trade and commerce power has been confined to matters that are genuinely
national in scope and qualitatively distinct from those falling under
provincial heads of power relating to local matters and property and civil
rights. The essence of the general trade and commerce power is its national
focus.
[71]
In the delineation of the scope of the general
trade and commerce power, courts have been guided by fundamental underlying
constitutional principles. The Canadian federation rests on the organizing
principle that the orders of government are coordinate and not subordinate one
to the other. As a consequence, a federal head of power cannot be given a scope
that would eviscerate a provincial legislative competence. This is one of the
principles that underlies the Constitution (Secession Reference, at
para. 58, citing Re the Initiative and Referendum Act, [1919] A.C. 935
(P.C.), at p. 942).
[72]
The jurisprudence on the general trade and
commerce power reflects this fundamental principle. An overly expansive
interpretation of the federal trade and commerce power under s. 91(2) not only
would subsume many more specific federal heads of power (e.g., federal power
over banking (s. 91(15) ), weights and measures (s. 91(17) ), bills of
exchange and promissory notes (s. 91(18) )), but, more importantly, would have
the potential to duplicate and perhaps displace, through the paramountcy
doctrine, the clear provincial powers over local matters and property and civil
rights which embrace trade and commerce in the province. Duff J. (as he then
was) expressed this concern in the following manner in Lawson v. Interior
Tree Fruit and Vegetable Committee of Direction, [1931] S.C.R. 357:
The scope
which might be ascribed to head 2, s. 91 (if the natural meaning of the words,
divorced from their context, were alone to be considered), has necessarily been
limited, in order to preserve from serious curtailment, if not from virtual
extinction, the degree of autonomy which . . . the provinces were intended to
possess. [p. 366]
[73]
The circumscribed scope of the general trade and
commerce power can also be linked to another facet of federalism — the
recognition of the diversity and autonomy of provincial governments in
developing their societies within their respective spheres of jurisdiction. As
stated in the Secession Reference, “[t]he federal structure of our
country also facilitates democratic participation by distributing power to the
government thought to be most suited to achieving the particular societal
objective having regard to this diversity” (para. 58).
[74]
Thus, the starting point is that the general
trade and commerce power under s. 91(2) does not encompass all trade and
commerce; the power is necessarily circumscribed. At the same time, failure to
give meaningful scope to the general trade and commerce power would violate the
notion of balance between the federal and provincial orders of government
inherent in the division of powers and impermissibly amend the Constitution.
[75]
It is unnecessary to trace all the cases that
have considered s. 91(2) since 1867. The first and still a leading statement
of the scope of the trade and commerce power is found in Parsons. In
that case, the Judicial Committee of the Privy Council established that a
literal interpretation of the words “[t]he Regulation of Trade and Commerce” in
s. 91(2) was inappropriate given the balance of powers established in the Constitution
Act, 1867 . Parsons also established the twin branches of the s.
91(2) power: (1) interprovincial and international trade and commerce; and (2)
general trade and commerce (“general regulation of trade affecting the whole
dominion” (p. 113)). The Judicial Committee further held that s. 91(2)
does not include the power to regulate the contracts of a particular business
or trade (p. 113).
[76]
In the late 1970s and early 1980s, this Court
revisited the general trade and commerce power. The “modern” trade and
commerce cases have affirmed Parsons and taken up the task of developing
indicia for matters that would properly fall within the general branch of s.
91(2) — an effort that culminated with the five indicia proposed in General
Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641. The
test set forth in General Motors, to which we will shortly return, finds
it origin in Attorney General of Canada v. Canadian National Transportation,
Ltd., [1983] 2 S.C.R. 206. In that case, Dickson J. (as he then
was) emphasized the balance that Parsons sought to maintain, and built
on indicia relied on by Laskin C.J. in MacDonald v. Vapor Canada Ltd.,
[1977] 2 S.C.R. 134.
[77]
The issue in Canadian National Transportation
was whether the Attorney General of Canada, as distinguished from provincial
attorneys general, could prosecute offences under the criminal law provisions
of the Combines Investigation Act, R.S.C. 1970, c. C-23. The Court held
that the Attorney General of Canada could do so, the majority relying on the
federal criminal law power. Dickson J., while agreeing that the criminal law
power could in principle validate the legislation, relied on s. 91(2) to
support the federal power to prosecute combines offences.
[78]
Emphasizing the need to maintain constitutional
balance, Dickson J. suggested that s. 91(2) applied to matters of “general
interest throughout the Dominion” (p. 261, citing John Deere Plow Co. v.
Wharton, [1915] A.C. 330 (P.C.), at p. 340). The general interest
test, he said, should be read with a view to the fact that an “overly literal
conception of ‘general interest’ will endanger the very idea of the local” (p.
266). At the same time, Dickson J. warned, “there are equal dangers in
swinging the telescope the other way around. The forest is no less a forest
for being made up of individual trees” (p. 266).
[79]
In the end, Dickson J. opined that to fall under
s. 91(2) , legislation must be “qualitatively different from anything
that could practically or constitutionally be enacted by the individual
provinces either separately or in combination” (p. 267 (emphasis added)). The
focus of the legislation must be general, although its effects may have local impact.
He contrasted laws directed at “general regulation of the national economy”
with laws “merely aimed at centralized control over a large number of local
economic entities”, indicating that only the former fit within the purview of
s. 91(2) (p. 267).
[80]
In General Motors, the issue was the
constitutionality of a civil right of action conferred by a provision of the
federal Combines Investigation Act. Dickson C.J. delivered the opinion
of the Court, upholding the right to a civil action and the statute generally
under s. 91(2) . Adopting his analysis in Canadian National Transportation,
he emphasized the need to strike a balance between ss. 91(2) and 92(13) .
He went on to suggest five indicia of federal competence: (1) whether the
impugned law is part of a general regulatory scheme; (2) whether the scheme is
under the oversight of a regulatory agency; (3) whether the legislation is
concerned with trade as a whole rather than with a particular industry; (4)
whether it is of such a nature that provinces, acting alone or in concert,
would be constitutionally incapable of enacting it; and (5) whether the
legislative scheme is such that the failure to include one or more provinces or
localities in the scheme would jeopardize its successful operation in other parts
of the country (pp. 661-62).
[81]
Dickson C.J. explained that where the general
trade and commerce power is advanced as a ground of constitutional validity, a
“careful case by case analysis remains appropriate” (General Motors, at
p. 663). He further cautioned that the indicia of validity are not exhaustive,
nor is it necessary that they be present in every case (pp. 662-63). He noted
that the final three share a common theme — namely “that the scheme of
regulation [must be] national in scope and that local regulation would be
inadequate” (p. 678). He held that the regulation of competition met
the test because it was not an issue of purely local concern but “one of
crucial importance for the national economy” (p. 678). If the federal
government were not able to legislate, there would be a gap, in practical
effect, in the distribution of legislative powers.
[82]
This Court confirmed this approach in Kirkbi
AG v. Ritvik Holdings Inc., 2005 SCC 65, [2005] 3 S.C.R. 302, holding, per
LeBel J., that the federal Trade-marks Act, R.S.C. 1985, c. T-13 , was
concerned with trade as a whole rather than trade within a particular industry,
since trademarks “apply across and between industries in different provinces”
(para. 29).
[83]
When Canadian National Transportation,
General Motors and Kirkbi AG are read together, a common theme
emerges. Provided the law is part of a general regulatory scheme aimed at
trade and commerce under oversight of a regulatory agency, it will fall under
the general federal trade and commerce power if the matter regulated is
genuinely national in importance and scope. To be genuinely national in
importance and scope, it is not enough that the matter be replicated in all
jurisdictions throughout the country. It must, to use the phrase in General
Motors, be something that the provinces, acting either individually or in
concert, could not effectively achieve. To put it another way, the situation
must be such that if the federal government were not able to legislate, there
would be a constitutional gap. Such a gap is constitutional anathema in a
federation.
[84]
The General Motors indicia continue to
offer an appropriate analytical framework for addressing the question of
whether a law is validly adopted under the general trade and commerce power.
These indicia are not cast in stone and are interrelated and overlapping. The
first two indicia may be viewed as directed at identifying the required formal
structure: a federal regulatory scheme under the oversight of a regulator.
The final three indicia go to whether federal regulation is constitutionally
appropriate. They direct our attention to whether the matter is one of genuine
national importance and scope that goes to trade as a whole in a way that is
distinct from provincial concerns, thus invoking Parliament’s unique
ability to effectively deal with economic issues of this category.
[85]
The result is a balanced approach that preserves
a meaningful role for federal regulation under s. 91(2) , without endangering
“the very idea of the local” in provincial commercial regulation. The General
Motors test asks whether the subject of a federal
law presents a distinct federal aspect falling within the general branch of the
trade and commerce power. Under the double aspect doctrine, federal
legislation adopted from this distinct perspective will be constitutional even
if the matter, considered from another perspective, also falls within a
provincial head of power. In the end, the General Motors
test is aimed at preserving the balance that lies at the heart of the principle
of federalism, which demands that a federal head of power not be given such
scope that it would eviscerate a provincial legislative competence.
[86]
Before turning to whether the Act falls within
s. 91(2) , it may be useful to illustrate what it means to be a matter of
genuine national importance and scope within the General Motors test, by
looking at a matter that has been held to fall within the federal trade and
commerce power — competition law.
[87]
Competition, as Dickson C.J. observed in General
Motors, “is not an issue of purely local concern but one of crucial
importance for the national economy” (p. 678). It is a “genre of
legislation that could not practically or constitutionally be enacted by a
provincial government” (p. 683, citing Canadian National Transportation,
at p. 278 (italics in original)). Competition law is not confined to a set
group of participants in an organized trade, nor is it limited to a specific
location in Canada. Rather, it is a diffuse matter that permeates the economy
as a whole, as “[t]he deleterious effects of anti-competitive practices
transcend provincial boundaries” (p. 678). Anti-competitive behaviour subjected
to weak standards in one province could distort the fairness of the entire
Canadian market. This national dimension, as the Court observed, must be
regulated federally, or not at all (p. 683, citing Canadian National
Transportation, at p. 278). Failure by one province to legislate or the
absence of a uniform set of rules applicable throughout the country would render
the market vulnerable.
[88]
The federal power to regulate competition in
Canada does not deprive the provinces of the ability to deal with competition
in the exercise of their legislative powers in fields such as consumer
protection, labour relations and marketing (General Motors, at
p. 682). Competition law is in pith and substance federal because in
purpose and effect its concerns are of national importance and scope. While it
deals with contracts and conduct within the province, it touches only their
federal aspect and does so in a manner and from a perspective that is distinct
from provincial regulation. Thus, its main thrust remains federal.
[89]
In sum, competition law illustrates how the
indicia set out in General Motors function to identify a matter that properly
falls under s. 91(2) . The general trade and commerce power cannot be used in a
way that denies the provincial legislatures the power to regulate local matters
and industries within their boundaries. Nor, by the same token, can the power
of the provinces to regulate property and civil rights within the province
deprive the federal Parliament of its powers under s. 91(2) to legislate on
matters of genuine national importance and scope — matters that transcend the
local and concern Canada as a whole.
[90]
We would add that, in applying the General
Motors test, one should not confuse what is optimum as a matter of policy
and what is constitutionally permissible. The fifth General Motors criterion,
it is true, asks whether failure of one or more provinces to participate in the
regulatory scheme would “jeopardize the successful operation of the scheme in
other parts of the country” (p. 662). However, the reference to “successful
operation” should not be read as introducing an inquiry into what would be the
best resolution in terms of policy. Efficaciousness is not a relevant
consideration in a division of powers analysis (see Reference re Firearms
Act (Can.), at para. 18). Similarly, references in past cases to promoting
fair and effective commerce should be understood as referring to constitutional
powers that, because they are essential in the national interest, transcend
provincial interests and are truly national in importance and scope. Canada
must identify a federal aspect distinct from that on which the provincial
legislation is grounded. The courts do not have the power to declare
legislation constitutional simply because they conclude that it may be the best
option from the point of view of policy. The test is not which jurisdiction —
federal or provincial — is thought to be best placed to legislate regarding the
matter in question. The inquiry into constitutional powers under ss. 91 and 92
of the Constitution Act, 1867 focuses on legislative competence, not
policy.
VII. Application:
Does the Proposed Act Fall Within Section 91(2)?
[91]
Where particular provisions of a statute are
challenged, the proper approach is to focus on the constitutionality of those
provisions, read in the context of the statute as a whole (General Motors,
Kitkatla and Kirkbi AG). Here,
the issue, as framed by the reference question, is the constitutionality of a
single, integrated regulatory scheme. It stands or falls as a whole. The
question is whether the sum of its particular provisions, read together, falls
within the general trade and commerce power, on the test set out above.
[92]
To answer this question, we must identify the
main thrust of the proposed legislation having regard to its purpose and
effects, and then ask whether the scheme, thus characterized, meets the indicia
set out in General Motors.
A. The
Purpose and Effects of the Act
[93]
The first step in the pith and substance
analysis is to ascertain the purpose and effects of the Act, viewed as a
single, comprehensive scheme.
[94]
The task at this stage is not to determine
conclusively whether the legislation is provincial or federal in nature — that
is the ultimate question of the division of powers analysis — but only to
ascertain its main thrust. In some cases, determining the main thrust of a law
will be pivotal in terms of its ultimate constitutional validity. In others,
validity may depend on close analysis of the constitutional power that is said
to support it. As we will see, this case is of the latter sort. While we must
ascertain what the Act seeks to do and does, saying at the outset that it is in
pith and substance “national” or “federal” simply begs the final question.
[95]
Turning first to purpose, the Act’s preamble
states that Canada intends to create a single Canadian securities regulator. This
is consistent with previous proposals for such a body. As discussed earlier,
the idea of a single Canadian securities regulator has been percolating for
more than 50 years. The Act represents the culmination of sustained
efforts towards unification of the provincial securities regulatory regimes.
Section 9 of the proposed Act reveals the legislation’s broader, underlying
purposes: to provide investor protection, to foster fair, efficient and
competitive capital markets and to contribute to the integrity and stability of
Canada’s financial system.
[96]
The immediate object of the Act — to create a
national securities regulator — does not shed much light on whether the subject
matter of the Act is federal or provincial. It is equally consistent with the
federal government’s contention and with the contention of the opposing
provinces that the Act is simply a provincial securities act writ large.
[97]
The broader purposes set forth in s. 9 send a
mixed message. One goal is investor protection, which, without more, has
historically been a provincial responsibility under s. 92(13) . Another goal is
to foster fair, efficient and competitive capital markets. Opponents of the
Act argue that these are properly provincial responsibilities. The federal
government, on the other hand, argues that fostering fair, efficient and
competitive capital markets, viewed from a pan-Canadian perspective, also falls
under the general trade and commerce power. The third stated goal — to
contribute to the integrity and stability of Canada’s financial system — also
has a federal aspect.
[98]
This brings us to the effects of the proposed
federal scheme. We must look not only at the direct effects of the
legislation, but also at the follow-through effects the legislation may be
expected to produce (Kitkatla).
[99]
The direct effect of the proposed Act is to
establish a federal securities regulation scheme. If implemented as
contemplated, all provinces and territories will eventually join the scheme.
This will produce follow-through effects. Once a sufficient number of
jurisdictions opt in, the current provincial and territorial securities
regulation schemes will be effectively displaced. Indeed, in order to be
included in the comprehensive regulatory scheme created by the Act, provinces
and territories must suspend their own securities laws. The follow-through
effects of the proposed Act will therefore be to subsume the existing
provincial and territorial legislative schemes governing securities under the
federal regulation scheme.
[100]
A detailed look at the provisions of the Act
confirms that once in place, it will regulate many matters which Canada
concedes also fall within the provincial power over property and civil rights
under s. 92(13) . Parts 1 and 2 establish regulatory oversight mechanisms.
These are followed by a number of provisions broadly pertaining to the
registration of persons. To this end, Part 3 of the Act gives the Chief
Regulator the power to recognize a person as a self-regulatory organization, an
exchange, a clearing agency and an auditor oversight organization (s. 64).
These bodies must in turn regulate standards of practice and business conduct
of participants in the securities industry (s. 66). Part 4, in similar vein,
provides the Chief Regulator with the authority to designate a person as a
credit rating organization, an investor compensation fund, a dispute resolution
service, an information processor, a trade repository or another entity that
provides a market participant with prescribed services (s. 73). Designation
engages information sharing duties (s. 74). Part 5 requires registration of
dealers, advisers and investment fund managers (s. 76). Parts 6, 7, 8 and 9
deal with the registration of securities, public information on securities and
the monitoring of securities and issuers. Other provisions of the Act set
standards for trading. For instance, Part 10 prohibits misrepresentations (s.
114), market manipulation (s. 116), insider trading (s. 117(1)), tipping (s.
117(2)) and other unfair practices. It also contains certain standards of
conduct and obligations to avoid conflicts of interest that pertain to
registered persons (see, e.g., ss. 109 to 113). Finally, Part 11 locks these
routine regulatory provisions in place by establishing a scheme for the administration
and enforcement of the Act.
[101]
The effect of these provisions is in essence to
duplicate legislative schemes enacted by provincial legislators exercising
their jurisdiction over property and civil rights under s. 92(13) of the Constitution
Act, 1867 .
[102]
Against this, Canada argues that what appears,
on superficial inspection, to be duplication of provincial legislation is in
fact directed at distinct federal concerns — preserving fair, efficient and
competitive capital markets throughout Canada and ensuring the integrity and
stability of Canada’s financial system. Duplication of provincial provisions,
Canada correctly points out, does not mean that there is no federal aspect that
can support the Act. Moreover, Canada argues that the Act is not merely
duplicative. It includes provisions that go beyond provincial powers. For
example, it contains provisions for the control of systemic risk and for data
collection on a nationwide basis, something Canada argues cannot be
accomplished at the provincial level.
[103]
Systemic risks have been defined as “risks that
occasion a ‘domino effect’ whereby the risk of default by one market
participant will impact the ability of others to fulfil their legal
obligations, setting off a chain of negative economic consequences that pervade
an entire financial system” (M. J. Trebilcock, National Securities Regulator
Report (2010), Reference Record, vol. I, 222, at para. 26). By definition,
such risks can be evasive of provincial boundaries and usual methods of
control. The proposed legislation is aimed in part at responding to systemic
risks threatening the Canadian market viewed as a whole. Without attempting an
exhaustive enumeration, the following provisions of the proposed Act would
appear to address or authorize the adoption of regulations directed at systemic
risk: ss. 89 and 90 relating to derivatives, s. 126(1) on short-selling, s. 73
on credit rating, s. 228(4)(c) relating to urgent regulations and ss.
109 and 224 on data collection and sharing.
[104]
The expert evidence adduced by Canada provides
support for the view that systemic risk is an emerging reality, ill-suited to
local legislation. Prevention of systemic risk may trigger the need for a
national regulator empowered to issue orders that are valid throughout Canada
and impose common standards, under which provincial governments can work to
ensure that their market will not transmit any disturbance across Canada or
elsewhere.
[105]
The emphasis in the proposed Act on nationwide
data collection may similarly be seen as aimed at anticipating and identifying
risks that may transcend the boundaries of a specific province. By analogy
with Statistics Canada, it might be argued that broad national data-collecting
powers may serve the national interest in a way that finds no counterpart on
the provincial plane.
[106]
Against this background, we return to the
question at hand: What is the main thrust of the proposed Securities Act?
The purpose of the proposed Act, we have seen, is to implement a comprehensive
Canadian regime for the regulation of securities with a view to investor
protection, the promotion of fair, efficient and competitive capital markets
and ensuring the integrity and stability of the financial system. The effects
of the proposed Act would be to duplicate and displace the existing provincial
and territorial securities regimes, replacing them with a new federal
regulatory scheme. Thus, the main thrust of the Act is to regulate, on an
exclusive basis, all aspects of securities trading in Canada, including the trades
and occupations related to securities in each of the provinces.
[107]
These conclusions do not, however, permit us to
connect the Act to a particular head of power, federal or provincial. To do
that, we must ask whether, applying the General Motors factors, the
legislation, viewed as a whole, addresses a matter that is truly national in
importance and scope and that transcends provincial competence.
B. Classification:
Does the Act Fall Within the General Trade and Commerce Power?
[108]
To recap, the General Motors test frames
the inquiry into whether a legislative scheme falls within the general trade
and commerce power in terms of the following non-exclusive indicia: (1) Is the
law part of a general regulatory scheme?; (2) Is the scheme under the oversight
of a regulatory agency? (3) Is the law concerned with trade as a whole rather than
with a particular industry? (4) Is the scheme of such a nature that the
provinces, acting alone or in concert, would be constitutionally incapable of
enacting it? (5) Would failure to include one or more provinces or localities
in the scheme jeopardize its successful operation in other parts of the
country?
[109]
The General Motors indicia invite the
Court to examine the legislative scheme through the lens of five interrelated
inquiries to determine whether, viewed in its entirety, it addresses a matter
of genuine national importance and scope that goes to trade as a whole in a way
that is distinct from provincial concerns. The inquiry focuses on the nature of
the proposed scheme and its purpose and effects, intended and actual. It is
contextual, grounded in the record and the legislative facts. With this in
mind, we turn to the General Motors indicia.
[110]
The first two General Motors indicia need
not detain us. Clearly they are met. The Act would institute a national
regulatory regime for securities across Canada. The new national regulatory
scheme for securities would feature a Council of Ministers; the Canadian
Securities Regulatory Authority (composed of a Regulatory Division headed by
the Chief Regulator and an independent Canadian Securities Tribunal headed by a
Chief Adjudicator); a Regulatory Policy Forum; and an investor advisory panel.
Indeed, all parties agree that the Act would create a federal regulatory scheme
under the oversight of a regulator.
[111]
This leaves the third, fourth and fifth General
Motors inquiries. These questions take us to the concern that lies at the
heart of this case — whether Canada has shown that the proposed Act, viewed as
a whole, addresses a matter of national importance and scope, distinct from
provincial concerns. Is the proposed Act concerned with trade as a whole
rather than with a particular industry? Do the provinces possess the
constitutional capacity, acting alone or in concert, to achieve the objectives
of the scheme? Finally, would the failure to include one or more provinces
frustrate the success of the scheme? If the answers to these questions support
the conclusion that the proposed Act falls within the general branch of the
trade and commerce power, the double aspect doctrine applies, the balance
between the federal and provincial powers required by the federalism principle
is satisfied and the proposed law may be validly enacted by Parliament. We now
turn to the final three General Motors inquiries.
[112]
The third question is whether the proposed Act
is directed at trade as a whole rather than at a particular industry. This
requires us to look at both the purpose and the effects of the Act. Opponents
of the Act argue that it is aimed at a particular industry — the securities
industry. From their perspective, economic activity consisting of the trading
in securities represents a specific industry. They are correct to state that,
on their face, the provisions of the proposed Act aimed at government
registration and the day-to-day conduct of brokers or investment advisers are
not obviously related to trade as a whole.
[113]
Canada argues, however, that the proposed Act
goes beyond these matters. It sees the Act as fostering a fair, efficient and
competitive national capital market and contributing to the integrity and
stability of Canada’s financial system. Moreover, Canada points out that the
securities market is a mechanism for channelling capital from suppliers to consumers
and that the capital transferred is applied throughout the Canadian economy in
innumerable areas of activity. The securities market thus has a pervasive and
significant impact throughout the national economy. It is a pillar of the
economy of immense importance to the country as a whole. Regulating this
market, Canada argues, relates to trade as a whole and is not an
industry-specific matter.
[114]
We accept that preservation of capital markets
to fuel Canada’s economy and maintain Canada’s financial stability is a matter
that goes beyond a particular “industry” and engages “trade as a whole” within
the general trade and commerce power as contemplated by the General Motors
test. Legislation aimed at imposing minimum standards applicable throughout
the country and preserving the stability and integrity of Canada’s financial
markets might well relate to trade as a whole. However, the proposed Act
reaches beyond such matters and descends into the detailed regulation of all
aspects of trading in securities, a matter that has long been viewed as
provincial. In justifying the reach of the Act, Canada argues that while
securities trading may once have been mainly a local matter, it has evolved to
become a matter of transcendent national concern that brings it within the s.
91(2) general trade and commerce power.
[115]
No doubt, much of Canada’s capital market is
interprovincial and indeed international. Trade in securities is not confined
to 13 provincial and territorial enclaves. Equally, however, capital markets
also exist within provinces that meet the needs of local businesses and
investors. While it is obvious that the securities market is of great
importance to modern economic activity, we cannot ignore that the provinces
have been deeply engaged in the regulation of this market over the course of
many years. To make its case, Canada must present the Court with a factual
matrix that supports its assertion of a constitutionally significant
transformation such that regulating every aspect of securities trading is no
longer an industry-specific matter, but now relates, in its entirety, to trade
as a whole.
[116]
A long-standing exercise of power does not
confer constitutional authority to legislate, nor does the historic presence of
the provinces in securities regulation preclude a federal claim to regulatory
jurisdiction (see Ontario Hydro v. Ontario (Labour Relations Board),
[1993] 3 S.C.R. 327, at p. 357, per Lamer C.J.). Nevertheless, the fact
remains that Canada must establish that the Act, read as a whole, addresses
concerns that transcend local, provincial interests. Canada’s argument is that
this area of economic activity has been so transformed that it now falls to be
regulated under a different head of power. This argument requires not mere
conjecture, but evidentiary support. The legislative facts adduced by Canada
in this reference do not establish the asserted transformation. On the
contrary, the fact that the structure and terms of the proposed Act largely
replicate the existing provincial schemes belies the suggestion that the
securities market has been wholly transformed over the years. On the basis of
the record presented to us, we conclude, as discussed below, that the
day-to-day regulation of securities within the provinces, which represents the
main thrust of the Act, remains essentially a matter of property and civil
rights within the provinces and therefore subject to provincial power.
[117]
Aspects of the Act, for example those aimed at
management of systemic risk and at national data collection, appear to be
directly related to the larger national goals which the Act proclaims are its raison
d’être. However, important as these elements are, they do not, on the
record before us, justify a complete takeover of provincial regulation.
Individuals engaged in the securities business are still, for the most part,
exercising a trade or occupation within the province. On the record before us,
we are unable to accept Canada’s assertion that the securities market has been
so transformed as to make the day-to-day regulation of all aspects of trading
in securities a matter of national concern. For example, the record does not
support a necessary link between the national interest in fair, efficient and
competitive capital markets and the registration requirements applicable to a
securities dealer in Saskatchewan or Quebec. Viewing the Act as a whole, we
conclude that it overreaches the proper scope of the general branch of the
trade and commerce power descending well into industry-specific regulation. The
wholesale displacement of provincial regulation it would effect is not
justified by the national concerns that Canada raises.
[118]
The fourth General Motors consideration
addresses the constitutional capacity of the provinces and territories to enact
a similar scheme acting in concert. The provinces opposing the Act argue that
if there is a national interest in both fair, efficient and competitive capital
markets and the need to provide an effective national response to systemic
risk, they can meet it by legislating in concert. No doubt the provinces
possess constitutional capacity to enact uniform legislation on most of the
administrative matters covered by the federal Act, like registration
requirements and the regulation of participants’ conduct. By way of
administrative delegation, they could delegate provincial regulatory powers to
a single pan-Canadian regulator.
[119]
The difficulty with the provinces’ argument,
however, is that, as a matter of constitutional principle, neither Parliament
nor the legislatures can, by ordinary legislation, fetter themselves against
some future legislative action (P. W. Hogg, Constitutional Law of Canada (5th
ed. Supp.), vol. 1, at pp. 12-8 ff.). Inherently sovereign, the provinces will
always retain the ability to resile from an interprovincial scheme and withdraw
an initial delegation to a single regulator. This may not be problematic in
many areas. Indeed, it is in the nature of a federation that different
provinces adopt their own unique approaches consistent with their unique
priorities when addressing social or economic issues.
[120]
The provinces’ inherent prerogative to resile
from an interprovincial scheme aimed for example at managing systemic risk
limits their constitutional capacity to achieve the truly national goals of the
proposed federal Act. The point is not that the provinces are constitutionally
or practically unable to adopt legislation aimed at systemic risk within
the provinces. Indeed, some provincial securities schemes contain provisions
analogous to the ones aimed at systemic risk found in the proposed Act. The
point is simply that because provinces could always withdraw from an
interprovincial scheme there is no assurance that they could effectively
address issues of national systemic risk and competitive national capital
markets on a sustained basis.
[121]
It follows that the fourth General Motors question
must be answered, at least partially, in the negative. The provinces, acting
in concert, lack the constitutional capacity to sustain a viable national scheme
aimed at genuine national goals such as management of systemic risk or
Canada-wide data collection. This supports the view that a federal scheme
aimed at such matters might well be qualitatively different from what the
provinces, acting alone or in concert, could achieve.
[122]
However, this only takes Canada so far. Canada’s
problem is that the proposed Act reflects an attempt that goes well beyond
these matters of undoubted national interest and concern and reaches down into
the detailed regulation of all aspects of securities. In this respect, the
proposed Act is unlike federal competition legislation, which has been held to
fall under s. 91(2) of the Constitution Act, 1867 . It would
regulate all aspects of contracts for securities within the provinces,
including all aspects of public protection and professional competence
within the provinces. Competition law, by contrast, regulates only anti-competitive
contracts and conduct — a particular aspect of economic activity that falls
squarely within the federal domain. In short, the proposed federal Act
overreaches the legislative interest of the federal government.
[123]
The fifth and final General Motors inquiry
is whether the absence of a province from the scheme would prevent its
effective operation. On lesser regulatory matters the answer might well be
no. However, when it comes to genuine national goals, related to fair,
efficient and competitive markets and the integrity and stability of Canada’s
financial system, including national data collection and prevention of and response
to systemic risks, the answer must be yes — much for the reasons discussed
under the fourth question. On these matters a federal regime would be
qualitatively different from a voluntary interprovincial scheme. Viewed as a
whole, however, because the main thrust of the proposed Act is concerned with
the day-to-day regulation of securities, the proposed Act would not founder if
a particular province declined to participate in the federal scheme.
Incidentally, we note that the opt-in feature of the scheme, on its face,
contemplates the possibility that not all provinces will participate. This
weighs against Canada’s argument that the success of its proposed legislation
requires the participation of all the provinces.
[124]
Against the backdrop of these considerations, we
come to the ultimate question — whether the Act, viewed in its entirety,
addresses a matter of genuine national importance and scope going to trade as a
whole in a way that is distinct and different from provincial concerns.
[125]
The provisions of the proposed Act, viewed as a
whole, compel a negative response. The Act chiefly regulates contracts
and property matters within each of the provinces and territories, overlain by
some measures directed at the control of the Canadian securities market as a
whole that may transcend intraprovincial regulation of property and civil
rights. A federal scheme adopted from the latter, distinctly federal,
perspective would fall within the circumscribed scope of the general trade and
commerce power. But the provisions of the Act that relate to these
concerns, although perhaps valid on their own, cannot lend constitutional
validity to the full extent of the proposed Act. Based on the record before
us, the day-to-day regulation of all aspects of trading in securities and the
conduct of those engaged in this field of activity that the Act would sweep
into the federal sphere simply cannot be described as a matter that is truly
national in importance and scope making it qualitatively different from
provincial concerns.
[126]
The conclusion that the Act’s attempt to take
over regulation of the entirety of the securities trade in Canada exceeds the
general branch of the trade and commerce power is also supported by the tenor
of the case law. While the jurisprudence acknowledges that securities
regulation may possess federal aspects, it has generally viewed basic
securities regulation within the provinces as a local matter of property and
civil rights (Lymburn; Multiple Access; Duplain v. Cameron,
[1961] S.C.R. 693; Smith v. The Queen; Ontario Securities
Commission; Global Securities).
[127]
A review of the expert evidence does not lead to
a different conclusion. We do not find it necessary or helpful to set out a
detailed analysis of the many reports filed on both sides of the issue. For
reasons already discussed, arguments in the reports as to whether securities
should be regulated federally or provincially as a matter of policy are
irrelevant to the constitutional validity of the legislation. A reasonable
reading of the reports suggests that routine securities regulation is mainly
concerned with the regulation of securities as an industry. It also confirms
the local nature of much of Canada’s securities industry. J.-M. Suret and C.
Carpentier, for example, point to different focuses and specializations from
province to province (Securities Regulation in Canada: Re-examination of
Arguments in Support of a Single Securities Commission (2010), Reference
Record, vol. IX, 8). Mining listings compose approximately two thirds of the
securities market in British Columbia. About half of Ontario’s securities
market is attributable to large financial services companies. Alberta is the
dominant national market for oil and gas and roughly a quarter of technology
listings emanate from Quebec.
[128]
To summarize, we accept that the economic
importance and pervasive character of the securities market may, in principle,
support federal intervention that is qualitatively different from what the
provinces can do. However, as important as the preservation of capital markets
and the maintenance of Canada’s financial stability are, they do not justify a
wholesale takeover of the regulation of the securities industry which is the
ultimate consequence of the proposed federal legislation. The need to prevent
and respond to systemic risk may support federal legislation pertaining to the
national problem raised by this phenomenon, but it does not alter the basic
nature of securities regulation which, as shown, remains primarily focused on
local concerns of protecting investors and ensuring the fairness of the markets
through regulation of participants. Viewing the Act as a whole, as we must,
these local concerns remain the main thrust of the legislation — its pith and
substance.
[129]
This is not a case of a valid federal scheme
that incidentally intrudes on provincial powers. It is not the incidental
effects of the scheme that are constitutionally suspect; it is rather the main
thrust of the legislation that goes beyond the federal power. The federal
government properly did not invoke the ancillary powers doctrine. To apply that
doctrine, the proposed statute considered as a whole must be valid — which it
is not. We further note that we have not been asked for our opinion on the
extent of Parliament’s legislative authority over securities regulation under
other heads of federal power or indeed the interprovincial or international
trade branch of s. 91(2) .
[130]
While the proposed Act must be found ultra
vires Parliament’s general trade and commerce power, a cooperative approach
that permits a scheme that recognizes the essentially provincial nature of
securities regulation while allowing Parliament to deal with genuinely national
concerns remains available.
[131]
The various proposals advanced over the years to
develop a new model for regulating securities in Canada suggest that this
matter possesses both central and local aspects. The same insight can be
gleaned from the experience of other federations, even if each country has its
own constitutional history and imperatives. The common ground that emerges is
that each level of government has jurisdiction over some aspects of the
regulation of securities and each can work in collaboration with the other to
carry out its responsibilities.
[132]
It is not for the Court to suggest to the
governments of Canada and the provinces the way forward by, in effect,
conferring in advance an opinion on the constitutionality on this or that
alternative scheme. Yet we may appropriately note the growing practice of
resolving the complex governance problems that arise in federations, not by the
bare logic of either/or, but by seeking cooperative solutions that meet the
needs of the country as a whole as well as its constituent parts.
[133]
Such an approach is supported by the Canadian
constitutional principles and by the practice adopted by the federal and
provincial governments in other fields of activities. The backbone of these
schemes is the respect that each level of government has for each other’s own
sphere of jurisdiction. Cooperation is the animating force. The federalism
principle upon which Canada’s constitutional framework rests demands nothing
less.
VIII. Conclusion
[134]
The Securities Act as presently drafted
is not valid under the general branch of the federal power to regulate trade
and commerce under s. 91(2) of the Constitution Act, 1867 .
Judgment
accordingly.
Solicitor for the Attorney General of Canada: Attorney
General of Canada, Ottawa.
Solicitor
for the intervener the Attorney General of Ontario: Attorney General
of Ontario, Toronto.
Solicitors
for the intervener the Attorney General of Quebec: Bernard, Roy
& Associés, Montréal.
Solicitor
for the intervener the Attorney General of New Brunswick: Attorney
General of New Brunswick, Fredericton.
Solicitor
for the intervener the Attorney General of Manitoba: Attorney
General of Manitoba, Winnipeg.
Solicitor
for the intervener the Attorney General of British
Columbia: Attorney General of British Columbia, Victoria.
Solicitor
for the intervener the Attorney General for Saskatchewan: Attorney
General for Saskatchewan, Regina.
Solicitors
for the intervener the Attorney General of Alberta: Fraser Milner
Casgrain, Calgary; Attorney General of Alberta, Edmonton.
Solicitors
for the intervener the Canadian Foundation for Advancement of Investor
Rights: Paliare, Roland, Rosenberg, Rothstein, Toronto.
Solicitors
for the intervener the Canadian Coalition for Good
Governance: Davies Ward Phillips & Vineberg, Toronto.
Solicitors
for the intervener the Investment Industry Association of
Canada: Torys, Toronto.
Solicitors
for the intervener the Canadian Bankers Association: Osler, Hoskin
& Harcourt, Toronto.
Solicitors
for the intervener the Ontario Teachers’ Pension Plan Board: Gowling
Lafleur Henderson, Toronto.
Solicitors for the intervener Mouvement d’éducation et de défense
des actionnaires: Paquette Gadler Inc., Montréal.
Solicitors for the intervener Barreau du Québec: Lavery,
de Billy, Montréal.
Solicitors for
the intervener the Institute for Governance of Private and Public
Organizations: Fraser Milner Casgrain, Montréal.