Multiple Access Ltd. v. McCutcheon

Multiple Access Ltd. v. McCutcheon
Collection
Supreme Court Judgments
Date
1982-08-09
Report
[1982] 2 SCR 161
Case number
15299
Judges
Laskin, Bora; Martland, Ronald; Ritchie, Roland Almon; Dickson, Robert George Brian; Beetz, Jean; Estey, Willard Zebedee; McIntyre, William Rogers; Chouinard, Julien; Lamer, Antonio
On appeal from
Ontario
Subjects
Constitutional law
Decision Content
Supreme Court of Canada
Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161
Date: 1982-08-09
Multiple Access Limited, by The Ontario Securities Commission Appellant;
and
John O. McCutcheon, David K. Lowry, John Craig, Fred W. Gibbs and Dickson Jarvis Respondents;
and
The Attorney General of Canada, the Attorney General of Quebec, the Attorney General for New Brunswick, the Attorney General for Alberta and the Attorney General for Saskatchewan Interveners.
File No.: 15299.
1981: November 25, 26; 1982: August 9.
Present: Laskin C.J., Martland, Ritchie, Dickson, Beetz, Estey, Mclntyre, Chouinard and Lamer JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Constitutional law—Validity of legislation—Insider trading—Federal and provincial provisions similar—Whether federal and provincial provisions intra vires—Whether doctrine of par amountcy applicable—Canada Corporations Act, R.S.C. 1970, c. C-32 (as amended by R.S.C. 1970 (1st Supp.), c. 10, s. 7), ss. 100.4 , 100.5 —The Securities Act, R.S.O. 1970, c.426,ss. 113,114.
Shareholders of a federally-incorporated company secured a court order pursuant to s. 114(1) of the Ontario Securities Act requiring the Ontario Securities Commission to commence an action on behalf of the company to enforce liability arising from alleged “insider trading” by the defendants, who were directors or officers of the company. The defendants pleaded that the “insider trading” provisions in the Ontario Act were: (1) ultra vires, and (2) inoperative under the paramountcy doctrine with respect to a federally-incorporated company because they duplicated provisions of the Canada Corporations Act . These points of law were set down for hearing prior to trial. The Weekly Court Judge held that the Ontario provisions were not suspended by federal paramountcy. The Divisional Court reversed. The Ontario Court of Appeal affirmed the judgment of the Divisional Court. This appeal raises three questions: (1) whether ss. 100.4 and 100.5 of the Canada Corporations Act are ultra vires Parliament; (2) whether ss. 113 and 114 of The Securities Act are ultra vires the Ontario Legislature, and (3) if both are intra vires, whether ss. 113 and 114 of the Ontario Act are suspended and inoperative by reason of the doctrine of paramountcy.
Held: The appeal should be allowed. The three questions should be answered by the negative. (Beetz, Estey, and Chouinard JJ., concurring in the result but dissenting in part, would have answered question 1 “Yes”, question 2 “No” and would have given no answer to question 3).
Per Laskin C.J. and Martland, Ritchie, Dickson, Mclntyre and Lamer JJ.: (1) Sections 100.4 and 100.5 of the Canada Corporations Act are intra vires. They are directed at protecting companies and shareholders against injurious insider practices. The proper relationship between a company and its insiders is central to company law, and is within Parliament’s Peace, Order and Good Government Power. The imposition of civil liability is s. 100.4(1) has a rational, functional connection with company law, and does not so invade the provincial domain as to become ultra vires.
Insider trading provisions have both a company law and a securities law aspect. Where, as here, the contrast between the relative importance of the two features is not sharp, the double aspect doctrine is applicable to validate both sets of legislative provisions.
(2) Sections 113 and 114 of the Ontario Securities Act are intra vires. The provinces have the power, as a matter of property and civil rights, to regulate trade in corporate securities. Federally-incorporated companies are subject to provincial securities regulation provided the provincial statute, like this one, neither singles out federal companies for special treatment, not impairs the status or essential powers of such companies.
(3) Sections 113 and 114 of the Ontario Act are not inoperative due to the paramountcy doctrine. Where, as here, otherwise valid provincial legislation merely dupli- cates federal law without actual conflict or contradiction, paramountcy will not render the provincial legislation inoperative. Paramountcy applies only where there is actual conflict in operation, as where one enactment says “yes”, the other “no”, or compliance with one is defiance of the other.
Per Beetz, Estey and Chouinard JJ., dissenting in part: Sections 100.4 and 100.5 of the Canada Corporations Act are ultra vires the Parliament. These provisions were not dealing with traditional corporate legislation required to fill out the constitutional and functional aspects of a federal incorporation. Their true purpose was to protect the general public from suffering a loss on their investment and corporate securities due to defined improper conduct by a wide range of persons who might be in a position to affect the value of these securities in the hands of the public. These provisions fell within the scope of legislation dealing with “property and civil rights”, an exclusive provincial power. As to the second question, the provincial provisions were intra vires. These sections did not impair or sterilize a federally incorporated company’s ability to conduct its affairs.
[Percival v. Wright, [1902] 2 Ch. 421; Construction Montcalm Inc. v. Minimum Wage Commission, [1979] 1 S.C.R. 754; Solicitor General of Canada v. Royal Commission of Inquiry (Health Records in Ontario), [1981] 2 S.C.R. 494; Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96; John Deere Plow Co. v. Wharton, [1915] A.C. 330; Rathie v. Montreal Trust Co. (1952), 6 W.W.R. (N.S.) 652; Lukey v. Ruthenian Farmers’ Elevator Co., [1924] S.C.R. 56; Attorney-General for Manitoba v. Attorney-General for Canada, [1929] A.C. 260; Reference re constitutional validity of s. 110 of the Dominion Companies Act, [1934] S.C.R. 653; Esso Standard (Inter-America) Inc. v. J.W. Enterprises Inc., [1963] S.C.R. 144; Smith v. The Queen, [1960] S.C.R. 776; Lymburn v. Mayland, [1932] A.C. 318; Great West Saddlery Co. v. The King, [1921] 2 A.C. 91; Gregory & Company Inc. v. Quebec Securities Commission, [1961] S.C.R. 584; Canadian Indemnity Co. v. Attorney-General of British Columbia, [1977] 2 S.C.R. 504; Robinson v. Countrywide Factors Ltd., [1978] 1 S.C.R. 753, referred to]
APPEAL from a judgment of the Court of Appeal for Ontario (1978), 86 D.L.R. (3d) 160, 19 O.R. (2d) 516, affirming a judgment of the Divisional Court (1977), 78 D.L.R. (3d) 701, 16 O.R. (2d) 593, which reversed a decision of Henry J. in Weekly Court (1975), 65 D.L.R. (3d) 577, 11 O.R. (2d) 249. Appeal allowed. The three questions should be answered by the negative. Beetz, Estey and Chouinard JJ., concurring in the result, but dissenting in part would have answered question 1 “Yes”, question 2 “No” and would have given no answer to question 3.
John J. Robinette, Q.C., for the appellant and the Attorney General for Ontario.
Bryan Finlay and N.W.C. Ross, for the respondent McCutcheon.
P.S.A. Lamek, Q.C., and M.J. Penman, for the respondents Lowry and Craig.
T.B. Smith, Q.C., and Morris Rosenberg, for the intervener the Attorney General of Canada.
Jean-K. Samson and Jean-François Jobin, for the intervener the Attorney General of Quebec.
Alan D. Reid, for the intervener the Attorney General for New Brunswick.
John D. Whyte and M.C. Crane, for the intervener the Attorney General for Saskatchewan.
William Henkell, Q.C., for the intervener the Attorney General for Alberta.
The judgment of Laskin C.J. and Martland, Ritchie, Dickson, Mclntyre and Lamer JJ. was delivered by
DICKSON J.—This appeal raises the issue of “insider trading” in securities. Insider trading is the purchase or sale of the securities of a company by a person who, by reason of his position in the company, has access to confidential information not known to other shareholders or the general public. He learns, for example, that the company is going to be the object of a take-over bid at a price per share well above the market. He buys shares. Or, to take a more common occurrence of late, he learns that the company is in dire straits. He sells shares. He thus places personal benefit or advantage in conflict with, and superior to, his relationship with, and duty to, other shareholders and to the company.
The social and economic evil thus exemplified was controlled in part by common law remedies but it has been recognized, since the Second World War that something more was needed. Under the rules of common law and equity, the outsider was almost totally unprotected, largely as a result of the decision in Percival v. Wright, [1902] 2 Ch. 421, which declared that ordinarily a director is not in a fiduciary relationship with individual shareholders. Parliament responded by enacting “insider trading” legislation. So did a number of the provinces, of which Ontario has been, without doubt, the coryphaeus.
This appeal raises the issue of the constitutionality of provincially, and federally, enacted “insider trading” legislation, and, more specifically, very similar sections in provincial and federal statutes which deal with the use of confidential information by insiders. At trial and on appeal it was common ground that both the federal and provincial statutes were intra vires, the only issue being the application of the doctrine of paramountcy.
Upon appeal to this Court, however, the preliminary and essential question of the validity of each set of statutory provisions was raised. The constitutional questions on appeal were stated by Laskin C.J. to be:
1. Are Sections 100.4 and 100.5 of the Canada Corporations Act, R.S.C. 1970, c. C-32 , as enacted by R.S.C. 1970, c. 10 (1st Supp.) Section 7, ultra vires the Parliament of Canada in whole or in part?
2. Are Sections 113 and 114 of The Securities Act, R.S.O. 1970, c. 426, ultra vires the Legislature of Ontario in whole or in part?
3. Assuming Sections 100.4 and 100.5 of the Canada Corporations Act, R.S.C. 1970, c. C-32 , as enacted by R.S.C. 1970, c. 10 (1st Supp.) Section 7, are intra vires the Parliament of Canada and assuming Sections 113 and 114 of The Securities Act, R.S.O. 1970, c. 426, are intra vires the Legislature of Ontario, are Sections 113 and 114 of The Securities Act, R.S.O. 1970, c. 426, suspended and rendered inoperative in respect of corporations incorporated under the laws of Canada?
Sections 100.4 and 100.5 of the Canada Corporations Act , supra, read as follows:
100.4 (1) Every insider of a company, every person employed or retained by the company, the auditor of the company and every associate of the insider and affiliate of the insider within the meaning of subsection 125(3) who, in connection with a transaction relating to the securities of the company, makes use of any specific confidential information for his own benefit or advantage that, if generally known, might reasonably be expected to affect materially the value of the securities of the company, is liable to compensate any person for any direct loss suffered by that person as a result of the transaction, unless the information was known or ought reasonably to have been known to that person at the time of such transaction, and is also accountable to the company for any direct benefit or advantage received or receivable by such insider, employed or retained person, auditor, associate or affiliate, as the case may be, as a result of the transaction.
(2) An action to enforce any right created by subsection (1) may be commenced only within two years after the date of completion of the transaction that gave rise to the cause of action, or if the transaction was required to be reported under section 100.1, then within two years from the time of reporting in compliance with that section.
(3) For the purposes of this section, every director or officer of any other company that becomes an insider of a company shall be deemed to have been an insider of that latter company for the previous six months or for such shorter period as he was a director or officer of that other company.
100.5 (1) Upon application by any person who was at the time of a transaction referred to in subsection 100.4(1) or is at the time of the application an owner of the securities of the company, or on the application of the Minister, the chief justice or acting chief justice of the court of the province in which the head office of the company is situated, or a judge of such court designated by either of them, may, if satisfied that (a) such person has reasonable grounds for believing that the company has a cause of action under section 100.4 , and
(b) either,
(i) the company has refused or failed to commence an action under section 100.4 within sixty days after receipt of a written request from such person so to do, or
(ii) the company has failed to prosecute deligently an action commenced by it under section 100.4 ,
make an order, upon such terms as to the judge seem fit, directing that an action be commenced or continued by the Director of the Corporations Branch in the name of and on behalf of the company to enforce the liability created by section 100.4 .
(2) The company and the Director of the Corporations Branch shall be given ten days notice of the hearing of any application under subsection (1) and each has a right to appear and be heard thereon.
(3) Every order made under subsection (1) shall provide that the company shall cooperate fully in the institution and prosecution of the action and shall make available to the Director of the Corporations Branch all books, records, documents and other material or information relevant to such action and known to the company or reasonably ascertainable by the company.
(4) An appeal from an order made under subsection (1) lies to the appellate court of the province in which the head office of the company is situated.
Sections 113 and 114 of The Securities Act, supra, of Ontario read as follows:
113.—(1) Every insider of a corporation or associate or affiliate of such insider, who, in connection with a transaction relating to the capital securities of the corporation, makes use of any specific confidential information for his own benefit or advantage that, if generally known, might reasonably be expected to affect materially the value of such securities, is liable to compensate any person or company for any direct loss suffered by such person or company as a result of such transaction, unless such information was known or ought reasonably to have been known to such person or company at the time of such transaction, and is also accountable to the corporation for any direct benefit or advantage received or receivable by such insider, associate or affiliate, as the case may be, as a result of such transaction. (2) An action to enforce any right created by subsection 1 may be commenced only within two years after the date of completion of the transaction that gave rise to the cause of action.
114.—(1) Upon application by any person or company that was at the time of a transaction referred to in subsection 1 of section 113 or is at the time of the application an owner of capital securities of the corporation, a judge of the High Court designated by the Chief Justice of the High Court may, if satisfied that,
(a) such person or company has reasonable grounds for believing that the corporation has a cause of action under section 113; and
(b) either,
(i) the corporation has refused or failed to commence an action under section 113 within sixty days after receipt of a written request from such person or company so to do; or
(ii) the corporation has failed to prosecute diligently an action commenced by it under section 113,
make an order, upon such terms as to security for costs and otherwise as to the judge seems fit, requiring the Commission to commence or continue an action in the name of and on behalf of the corporation to enforce the liability created by section 113.
(2) The corporation and the Commission shall be given notice of any application under subsection 1 and has the right to appear and be heard thereon.
(3) Every order made under subsection 1 shall provide that the corporation shall co‑operate fully with the Commission in the institution and prosecution of such action and shall make available to the Commission all books, records, documents and other material or information known to the corporation or reasonably ascertainable by the corporation relevant to such action.
(4) An appeal lies to the Court of Appeal from an order made under subsection 1.
As Professor Hogg has pointed out in his work Constitutional Law of Canada (1977), at p. 102, the doctrine of paramountcy applies where there is a federal law and a provincial law which are (1) each valid and (2) inconsistent, adding that “the issue does not arise unless each law has first been held to be valid as an independent enactment. In determining the validity of each law, the existence and terms of the other law are irrelevant”.
I
The facts are of little importance. Multiple Access Limited (the Company) is a public company incorporated under the laws of Canada having its head office in Metropolitan Toronto and capital stock listed for trading by the public on the Toronto Stock Exchange. The defendant McCutcheon was President and Director, Lowrie a director and the other defendants senior managing officers of the Company. By an order of Addy J., on a motion made by two shareholders of the Company pursuant to s. 114(1) of The Securities Act, R.S.O. 1970, c. 426, it was ordered that the Ontario Securities Commission commence action, in the name of and on behalf of the Company, to enforce the liability created by the alleged “insider trading” of the defendants.
It is alleged that (i) it was known to the defendants but not the public that the Company made a formal written offer to purchase certain radio and television assets of Canadian Marconi Limited for a purchase price of $18 million dollars, (ii) the offer was accepted, (iii) the defendants made use of such confidential knowledge to their own advantage by purchasing securities in the capital stock of the Company at $1.76, and the stock rose to $7 and later to $10. The cause of action is based on the allegation that the defendants were ‘insiders’ of the Company as that term is defined in The Securities Act of Ontario, s. 109(1)(c) and, as such, were liable to the Company for losses suffered as a result of the use of confidential information in connection with transactions relating to the capital securities of the Company in accordance with ss. 113 and 114 of The Securities Act.
The defendants, in their statement of defence, maintained that ss. 113 and 114 of The Securities Act of Ontario were duplications of ss. 100.4 and 100.5 of the Canada Corporations Act and therefore, with respect to the plaintiff, ss. 113 and 114 are suspended and inoperative due to the doctrine of paramountcy, and also ultra vires the Legislature of Ontario with respect to the plaintiff, a federally incorporated Company. The defendants moved to set down these points of law for hearing prior to trial. At the commencement of the hearing on the motion counsel for the defendants abandoned the application in respect of the claim that ss. 113 and 114 were ultra vires the Legislature of the Province of Ontario. The Chambers judge ordered that the issue, that of paramountcy, be determined prior to trial. The motion came before Mr. Justice Henry in Weekly Court. Justice Henry held that ss. 113 and 114 of The Securities Act of Ontario were not suspended and inoperative due to the doctrine of paramountcy. Argument proceeded on the basis that the federal legislation was intra vires the Parliament of Canada. The constitutional right of Canada to enact ss. 100.4 and 100.5 , in respect of federally incorporated companies, had not been raised in the pleadings and was not advanced during argument before Mr. Justice Henry. He stated that when a provincial and federal statute have both occupied a field the test that gives rise to the doctrine of paramountcy is whether the two statutes can “live together and operate concurrently”. The doctrine of paramountcy does not necessarily arise because an individual is subject to prohibition and penalty under both statutes at the same time. Unless the duplication of statutory schemes in addition gives rise to incompatibility then the federal statute does not suspend the operation of the provincial statute. In the case at bar there was no incompatibility in the statutory schemes. Trading in securities is an essential subject of comprehensive provincial legislation. No doubt there will be instances where the national and provincial schemes overlap. Where this occurs the preservation of the integrity of the provincial scheme should be of prime importance, in the absence of a contrary expression by Parliament, in harmony with the general rule that a law should not be held invalid or inoperative unless that result is unavoidable. The Divisional Court reversed. Mr. Justice Morden, speaking for the Court, held that the constitutional doctrine of paramountcy operates so as to invalidate provincial legislation where it duplicates valid federal legislation in such a way that the two provisions cannot live together and operate concurrently. Where the federal and provincial provisions are virtually identical, are directed to achieving the same policy and creating the same rights and obligations, the duplication attracts the doctrine of paramountcy. The insider trading provisions of the federal and provincial legislation are directed to the same direct loss or direct benefit or advantage and create the same correlative rights and liabilities. In those circumstances it is impossible for both enactments to operate concurrently because the loss, benefit or advantage incurred or gained can only be recovered once. The case is thus distinguishable from cases in which the federal legislation leaves scope for provincial legislation to operate so that it forms a supplement to the federal (e.g. the preference provisions of the Bankruptcy Act and provincial fraudulent preference statutes.) Accordingly, the doctrine of paramountcy applies to render the legislation inoperative. Robins J., dissenting, adopted the reasoning of Henry J. in the Supreme Court of Ontario.
The Ontario Court of Appeal in a short oral judgment dismissed a further appeal to that Court, for the reasons given by Morden J. in the Divisional Court.
Leave to intervene in this appeal was granted to the Attorney General of Canada and to the Attorneys General of Ontario, Quebec, New Brunswick, Saskatchewan, and Alberta.
II
I should like to turn now to the first constitutional question namely, are ss. 100.4 and 100.5 of the Canada Corporations Act ultra vires the Parliament of Canada in whole or in part? As I have indicated, in the courts below the case was argued on the assumption that the relevant sections of the Canada Corporations Act are intra vires. The parties at trial did not contest the validity of either enactment. “It is common ground that […] it was competent to Parliament and the Legislature to enact respectively these provisions so that each is intra vires” per Henry J. The question is now raised for the first time. It is to be regretted that we do not have the advantage of judgments on the point from the three courts of Ontario before whom these proceedings have already come. Counsel for Canada urges that, for that reason, the first question be left unanswered (Construction Montcalm Inc. v. Minimum Wage Commission, [1979] 1 S.C.R. 754 and Solicitor General of Canada v. Royal Commission of Inquiry (Health Records in Ontario), [1981] 2 S.C.R. 494, Laskin C.J., at pp. 510-11). I do not incline to this view. I think we must answer, as best we can, the question which has been stated.
Before directly addressing the question posed, two prefatory observations. First, in the legislative scheme of things we find ss. 100.4 and 100.5 in a corporations act dealing with company law matters. Part I of the Act, entitled “Companies with Share Capital”, comprises some 150 sections and 120 pages of text. Part II is entitled “Corporations without Share Capital”, Part III, “Special Act Corporations”, Part IV, “Companies Clauses”, Part V, “Incidental Powers of Corporate Bodies Created otherwise than by Letters Patent”, Part VI, “Provisions of General Application”.
The sections with which we are here concerned, ss. 100.4 and 100.5 are found in Part I of the Act. Among the headings one finds in Part I are “Formation of New Companies”, “General Powers and Duties of Companies”, “Transfer of Shares”, “Calls”, “Liability of Shareholders”, “Prospectuses and Offers to the Public”, “Directors”. Under this last heading are detailed provisions respecting the directors of a company, their numbers, qualifications, election, responsibilities, action to be taken where serious impairment of capital is discovered, duty of a director who is in any way interested in a contract or proposed contract with the company. Section 98(5) relieves a director who has made a declaration of his interest in such a contract and has not voted in respect of the contract, from being accountable to the company or any of its shareholders or creditors by reason only of such director holding that office or of the fiduciary relationship thereby established, for any profit realized by such contract. Section 100(1) provides that where a director or officer or controlling shareholder purchases or sells any of the shares of the company, such director, officer or shareholder must furnish to the secretary of the company a statement setting forth the details of such purchase or sale. Such statement is immediately available for inspection by shareholders and is disclosed to the annual meeting following. Then come the impugned ss. 100.4 and 100.5.
Parliament has not yet enacted any comprehensive scheme of securities legislation. To date the Canadian experience has been that the provinces have taken control of the marketing of securities, differing in this respect from the United States where the Securities and Exchange Commission has regulated trading and primary distribution of securities. I should not wish by anything said in this case to affect prejudicially the constitutional right of Parliament to enact a general scheme of securities legislation pursuant to its power to make laws in relation to interprovincial and export trade and commerce. This is of particular significance considering the interprovincial and indeed international character of the securities industry. The federal government, it may be noted, has already produced Proposals for a Securities Market Law for Canada (1979). Professor Anisman, writing in 1981 in respect of those proposals expressed the view that:
…the factors that indicated a need for federal regulatory involvement in the securities market in 1979 are still present and, if anything, have been reinforced by events during the past two years. The Proposals are premised ultimately on the national and international character of the Canadian securities market and its importance to the economic welfare of the country. The fact that the market is national in scope has long been acknowledged and is demonstrated by the cooperative efforts of the provincial commissions with respect to the adoption of national policies and by the statutory authorization for and increasing frequency of joint hearings held by a number of provincial commissions to decide issues that transcend provincial boundaries.
(“The Proposals for a Securities Market Law for Canada: Purpose and Process”, (1981) 19 Osgoode Hall L.J. 329 at p. 352, footnotes omitted).
Until recent statutory changes, which need not here concern us, insider trading provisions were found in The Business Corporations Act of Ontario, as affecting Ontario companies, and a like set of provisions were found in The Securities Act, as affecting, broadly speaking, non‑Ontario companies, including those incorporated federally, that (i) have issued equity shares that are distributed in the course of a primary distribution to the public, in respect of which a prospectus is filed with the Ontario Securities Commission or (ii) any of whose shares are listed and posted for trading on any stock exchange in Ontario recognized by the Commission.
It is not without significance that Ontario thought it appropriate to place insider trading provisions, affecting Ontario companies, in The Business Corporations Act of that Province. It would seem axiomatic that if the province can validly enact insider trading legislation under s. 92(11) (the incorporation of companies with provincial objects) then the federal Parliament can validly enact insider trading legislation under the residual clause authorizing the incorporation of companies with other than provincial objects (Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96, at p. 117: “it follows that the incorporation of companies for objects other than provincial falls within the general powers of the parliament of Canada” per Montague Smith L.J.). In one of its aspects, insider trading legislation, dealing as it does with fundamental corporate relationships, may certainly be characterized as company law. Some commentators such as Williamson go so far as to say that:
The insider reporting requirements seem, in the light of the history of Canadian corporation and securities law, more properly part of a companies act than of a securities act.
(Supplement to Securities Regulation in Canada, at p. 358).
And Professor Ziegel has written (Studies in Canadian Company Law (1967), vol. 1, at p. 170):
Prima facie the regulation of proxies and insider trading belong exclusively to the domain of company law because they affect the relationship between the directors of a company and its shareholders and the solicitation of voting powers at meetings of the company.
The second introductory observation: there may be a temptation to regard the insider trading provisions of the Canada Corporations Act as redundant having regard to the almost identical provisions found in the Ontario legislation applicable to federal companies as well as Ontario companies. Any such temptation should be resisted. The validity of the federal legislation must be determined without heed to the Ontario legislation. Further, a number of the provinces have not yet enacted insider trading legislation. Striking down the federal legislation would leave federal companies, having head offices in those provinces, and their shareholders, without the double protection, which Ontario shareholders now enjoy. A declaration of invalidity of the federal act would create a poten- tial gap in the present regulatory schemes that might be exploited by the unprincipled.
I turn now to the main question. Does the ‘matter’ (or pith and substance) of the insider trading provisions of the federal act fall within a “class of subject” (or head of power) allocated to Parliament? Counsel for the Company and for the Attorney General of Ontario contends that s. 100.4 applies to a very large class of individuals or companies and the apparent purpose of the section is to impose possible civil liability on members of a large class of persons who are involved in transactions relating to the securities of the company. These provisions, it is said, do not relate to the status of a federal company or to domestic or internal constitution of the company but rather create civil rights or obligations which can only be the subject matter of provincial legislation in relation to property and civil rights in a province.
With respect, I do not agree. Sections 100.4 and 100.5 put teeth into s. 100 of the Act. Viewed in isolation it can no doubt be argued that their matter is the trading in securities. Viewed in context, however, they are, in my opinion, company law. They fit properly and comfortably into Part I of the Canada Corporations Act . The provisions deal with obligations attached to the ownership of shares in a federal company, which extend to shareholders, officers and employees of such companies, a subject matter that is not within the exclusive jurisdiction of provincial legislatures. The provisions are also directed to the relationship between management and shareholders of federal companies. Their enactment by Parliament is in the discharge of its company law power.
It has been well established ever since John Deere Plow Co. v. Wharton, [1915] A.C. 330 (P.C.) that the power of legislating with reference to the incorporation of companies with other than provincial objects belonged exclusively to the Dominion Parliament as a matter covered by the expression “the peace, order and good government of Canada”. Additionally, the power to regulate trade and commerce, at all events, enabled the Parliament of Canada to prescribe to what extent the powers of companies the objects of which extend to the entire Dominion should be exercisable and what limitations should be placed on such powers. Viscount Haldane L.C. delivering the judgment of their Lordships stated further that “…if it be established that the Dominion Parliament can create such companies, then it becomes a question of general interest throughout the Dominion in what fashion they should be permitted to trade” (at p. 340). The power of Parliament in relation to the incorporation of companies with other than provincial objects has not been narrowly defined. The authorities are clear that it goes well beyond mere incorporation. It extends to such matters as the maintenance of the company, the protection of creditors of the company and the safeguarding of the interests of the shareholders. It is all part of the internal ordering as distinguished from the commercial activities. Section 124 of The Companies Act, 1934, 1934 (Can.), c. 33 providing for the acquisition of shares of dissenting shareholders, against their will, was held to be properly part of company legislation: Rathie v. Montreal Trust Co. (1952), 6 W.W.R. (N.S.) 652. As Professor Hogg has said in his book at p. 351: “The federal power to incorporate companies […] is simply the residue of the entire possible power to incorporate companies after subtracting the provincial power” and “[…] it also authorizes all laws of a company law character, for example, the laws pertaining to corporate powers, organization, internal management and financing” (at p. 353). Insider malfeasance affects, directly and adversely, corporate powers, organization, internal management. It affects also financing because shareholders and potential shareholders must be assured the company’s affairs will be scrupulously and fairly conducted; otherwise the raising of capital, clearly an element of company law, will be inhibited (Lukey v. Ruthenian Farmers’ Elevator Co., [1924] S.C.R. 56, at p. 72; Attorney-General for Manitoba v. Attorney-General for Canada, [1929] A.C. 260, at pp. 266-67).
Duff C.J. in the Reference re constitutional validity of s. 110 of the Dominion Companies Act, [1934] S.C.R. 653, at p. 658, recognized the right of the federal Parliament to provide for the constitution of the companies it created and for the conditions under which membership could be acquired; for the management by directors or other managers; the terms and conditions upon which profits should be divided or dividends declared; the conditions under which the capital of the company could be increased or diminished; the responsibility of the members of the company in respect to the debts of the corporation; the responsibility of the directors in respect to such debts. The Reference was concerned with the constitutional competence of Parliament to enact legislation making the directors of the company liable for the payment of any dividend when the company was insolvent or which impaired the capital of the company. The liability imposed was joint and several, to the company and to the individual shareholders and creditors, for all the debts of the company then existing and for all debts thereafter contracted during their continuance in office. The Court held the enactment to be of a character that brought it within the class of topics that the legislature must be supposed to have contemplated as falling within the subject of “Incorporation of Companies” as used in the Constitution Act, 1867 (formerly the British North America Act, 1867).
Duff C.J., speaking for the Court, made it abundantly clear that any definition of the constitution of the company would call for answers to such questions as: what provision is being made for the protection of the assets of the company?; what safeguards are provided against the malfeasance of the managers?; what are the safeguards against the improper or colourable employment by the managers of their powers, in wasting the assets of the company? In Esso Standard (Inter-America) Inc. v. J.W. Enterprises Inc., [1963] S.C.R. 144, this Court considered the provisions of the Companies Act, R.S.C. 1952, c. 53, respecting the compulsory acquisition of minority shares in takeover bids. Judson J., speaking for the Court, said (at p. 153):
It is truly legislation in relation to the incorporation of companies with other than provincial objects and it is not legislation in relation to property and civil rights in the province or in relation to any matter coming within the classes of subject assigned exclusively to the legislature of the province. It deals with certain conditions under which a person may become a shareholder or lose his position as a shareholder in such a company and, in my opinion, this case is completely covered by the reasons of this Court in Reference re constitutional validity of s. HO of the Dominion Companies Act.
Earlier in his judgment Judson J. said (at p. 152):
There has been complete unanimity throughout that Parliament has the power to enact s. 128. The matter was summarized by Laidlaw J.A. as follows:
It is my opinion that the Parliament of Canada having legislative power to create companies whose objects extend to more than one Province possesses also the legislative power to prescribe the manner in which shares of the capital of such companies can be transferred and acquired. That matter is one of general interest throughout the Dominion.
Providing safeguards against the malfeasance of the managers is strictly within what might properly be called the constitution of the company. The proper relationship between a company and its insiders is central to the law of companies and, from the inception of companies, that relationship has been regulated by the legislation sanctioning the company’s incorporation. I agree with the submission of counsel for the Attorney General of Canada that the impugned provisions of the Canada Corporations Act are directed at preserving the integrity of federal companies and protecting the shareholders of such companies; they aim at practices, injurious to a company or to shareholders at large of a company, by persons who because they hold positions of trust or otherwise are privy to information not available to all shareholders.
Insiders should not benefit, either at the expense of the company or at the expense of other shareholders, from their access to confidential information intended to be available only for a corporate purpose and not for the personal benefit of anyone. Information so acquired is at the expense of the enterprise. Confidential company information is a corporate asset the benefit of which is intended to benefit the company, its shareholde