Canadian Western Bank v. Alberta

Canadian Western Bank v. Alberta
Collection
Supreme Court Judgments
Date
2007-05-31
Neutral citation
2007 SCC 22
Report
[2007] 2 SCR 3
Case number
30823
Judges
McLachlin, Beverley; Bastarache, Michel; Binnie, William Ian Corneil; LeBel, Louis; Fish, Morris J.; Abella, Rosalie Silberman; Charron, Louise
On appeal from
Alberta
Subjects
Constitutional law
Notes
SCC Case Information: 30823
Decision Content
SUPREME COURT OF CANADA
Citation: Canadian Western Bank v. Alberta, [2007] 2 S.C.R. 3, 2007 SCC 22
Date: 20070531
Docket: 30823
Between:
Canadian Western Bank, Bank of Montreal, Canadian Imperial Bank
of Commerce, HSBC Bank Canada, National Bank of Canada,
Royal Bank of Canada, Bank of Nova Scotia and Toronto‑Dominion Bank
Appellants
and
Her Majesty The Queen in Right of Alberta
Respondent
‑ and ‑
Attorney General of Canada, Attorney General of Ontario,
Attorney General of Quebec, Attorney General of New Brunswick,
Attorney General of British Columbia, Attorney General for Saskatchewan,
Alberta Insurance Council, Financial Advisors Association of Canada,
AIG Life Insurance Company of Canada, Canada Life Assurance Company,
La Capitale Civil Service Insurer Inc., La Capitale Insurance
and Financial Services Inc., CUMIS Life Insurance Company,
Desjardins Financial Security Life Assurance Company, Empire
Life Insurance Company, Equitable Life Insurance Company of
Canada, Great‑West Life Assurance Company, Industrial Alliance
Insurance and Financial Services Inc., Industrial‑Alliance Pacific
Life Insurance Company, London Life Insurance Company,
Manufacturers Life Insurance Company, Standard Life
Assurance Company of Canada, Sun Life Assurance Company
of Canada and Transamerica Life Canada
Interveners
Coram: McLachlin C.J. and Bastarache, Binnie, LeBel, Fish, Abella and Charron JJ.
Joint Reasons for Judgment:
(paras. 1 to 110)
Concurring Reasons:
(paras. 111 to 129)
Binnie and LeBel JJ. (McLachlin C.J. and Fish, Abella and Charron JJ. concurring)
Bastarache J.
______________________________
Canadian Western Bank v. Alberta, [2007] 2 S.C.R. 3, 2007 SCC 22
Canadian Western Bank, Bank of Montreal, Canadian
Imperial Bank of Commerce, HSBC Bank Canada,
National Bank of Canada, Royal Bank of Canada,
Bank of Nova Scotia and Toronto‑Dominion Bank Appellants
v.
Her Majesty The Queen in Right of Alberta Respondent
and
Attorney General of Canada, Attorney General of Ontario,
Attorney General of Quebec, Attorney General of
New Brunswick, Attorney General of British Columbia,
Attorney General for Saskatchewan, Alberta Insurance Council,
Financial Advisors Association of Canada, AIG Life Insurance
Company of Canada, Canada Life Assurance Company,
La Capitale Civil Service Insurer Inc., La Capitale Insurance
and Financial Services Inc., CUMIS Life Insurance Company,
Desjardins Financial Security Life Assurance Company, Empire
Life Insurance Company, Equitable Life Insurance Company of
Canada, Great‑West Life Assurance Company, Industrial Alliance
Insurance and Financial Services Inc., Industrial‑Alliance Pacific
Life Insurance Company, London Life Insurance Company,
Manufacturers Life Insurance Company, Standard Life
Assurance Company of Canada, Sun Life Assurance Company
of Canada and Transamerica Life Canada Interveners
Indexed as: Canadian Western Bank v. Alberta
Neutral citation: 2007 SCC 22.
File No.: 30823.
2006: April 11; 2007: May 31.
Present: McLachlin C.J. and Bastarache, Binnie, LeBel, Fish, Abella and Charron JJ.
on appeal from the court of appeal for alberta
Constitutional law — Division of powers — Banking — Interjurisdictional immunity — Federal Bank Act authorizing banks to engage in promotion of certain types of insurance — Alberta’s insurance legislation purporting to make federally chartered banks subject to provincial licensing scheme governing promotion of insurance products — Whether provincial legislation constitutionally inapplicable to banks’ promotion of insurance by virtue of doctrine of interjurisdictional immunity — Constitution Act, 1867, ss. 91(15) , 92(13) .
Constitutional law — Division of powers — Banking — Federal paramountcy — Federal Bank Act authorizing banks to engage in promotion of certain types of insurance — Alberta’s insurance legislation purporting to make federally chartered banks subject to provincial licensing scheme governing promotion of insurance products — Whether provincial legislation constitutionally inoperative in relation to banks’ promotion of insurance by virtue of doctrine of federal paramountcy — Constitution Act, 1867, ss. 91(15) , 92(13) .
Constitutional law — Division of powers — Doctrine of interjurisdictional immunity — Scope.
In 2000, Alberta enacted changes to its Insurance Act purporting to make federally chartered banks subject to the provincial licensing scheme governing the promotion of insurance products. Upon the coming into force of that Act, the appellant banks brought an application for a declaration that their promotion of certain insurance products authorized by the Bank Act was banking within the meaning of s. 91(15) of the Constitution Act, 1867 and that the Insurance Act and its associated regulations were constitutionally inapplicable to the banks’ promotion of insurance by virtue of the doctrine of interjurisdictional immunity or, alternatively, inoperative by virtue of the doctrine of federal paramountcy. The trial judge dismissed the application. He found that the challenged provisions of the Insurance Act were valid provincial legislation related to the province’s property and civil rights power under s. 92(13) of the Constitution Act, 1867 . He also found that the doctrine of interjurisdictional immunity was inapplicable because the promotion of authorized insurance was not at the core of banking, and that the doctrine of federal paramountcy was inapplicable because there was no operational conflict between the federal and provincial legislation. The Court of Appeal upheld the decision.
Held: The appeal should be dismissed.
Per McLachlin C.J. and Binnie, LeBel, Fish, Abella and Charron JJ.: The Insurance Act and its associated regulations apply to the banks’ promotion of insurance. The fact that Parliament allows a bank to enter into a provincially regulated line of business such as insurance cannot, by federal statute, unilaterally broaden the scope of an exclusive federal legislative power granted by the Constitution Act, 1867 . When promoting insurance, the banks are participating in the business of insurance and only secondarily furthering the security of their loan portfolios. The banks’ claim to interjurisdictional immunity must therefore be rejected, and they have to comply with both federal and provincial laws because the paramountcy doctrine is not engaged in this case. [4]
The resolution of a case involving the constitutionality of legislation in relation to the division of powers must begin with an analysis of the pith and substance of the impugned legislation. This analysis consists of an inquiry into the true nature of the law in question for the purpose of identifying the matter to which it essentially relates. If the pith and substance of the impugned legislation can be related to a matter that falls within the jurisdiction of the legislature that enacted it, the courts will declare it intra vires. If, however, the legislation can more properly be said to relate to a matter that is outside the jurisdiction of that legislature, it will be held to be invalid owing to this violation of the division of powers. The corollary to this analysis is that legislation whose pith and substance falls within the jurisdiction of the legislature that enacted it may, at least to a certain extent, affect matters beyond the legislature’s jurisdiction without necessarily being unconstitutional. At this stage of the analysis, the dominant purpose of the legislation is still decisive. Merely incidental effects will not disturb the constitutionality of an otherwise intra vires law. The pith and substance doctrine is founded on the recognition that it is in practice impossible for a legislature to exercise its jurisdiction over a matter effectively without incidentally affecting matters within the jurisdiction of another level of government. Also, some matters are by their very nature impossible to categorize under a single head of power: they may have both provincial and federal aspects. The double aspect doctrine, which applies in the course of a pith and substance analysis, ensures that the policies of the elected legislators of both levels of government are respected. The double aspect doctrine recognizes that both Parliament and the provincial legislatures can adopt valid legislation on a single subject depending on the perspective from which the legislation is considered, that is, depending on the various aspects of the matter in question. In certain circumstances, however, the powers of one level of government must be protected against intrusions, even incidental ones, by the other level. For this purpose, the courts have developed the doctrines of interjurisdictional immunity and federal paramountcy. [25‑32]
The doctrine of interjurisdictional immunity recognizes that our Constitution is based on an allocation of exclusive powers to both levels of government, not concurrent powers, although these powers are bound to interact in the realities of the life of our Constitution. It is a doctrine of limited application which should be restricted to its proper limit. A broad use of the doctrine would be inconsistent with the flexible federalism that the constitutional doctrines of pith and substance, double aspect and federal paramountcy are designed to promote. It is these doctrines that have proved to be most consistent with contemporary views of Canadian federalism, which recognize that overlapping powers are unavoidable. Interjurisdictional immunity should in general be reserved for situations already covered by precedent. This means, in practice, that it will be largely reserved for those heads of power that deal with federal things, persons or undertakings, or where in the past its application has been considered absolutely indispensable or necessary to enable Parliament or a provincial legislature to achieve the purpose for which exclusive legislative jurisdiction was conferred, as discerned from the constitutional division of powers as a whole, or what is absolutely indispensable or necessary to enable an undertaking to carry out its mandate in what makes it specifically of federal (or provincial) jurisdiction. While in theory a consideration of interjurisdictional immunity is apt for consideration after the pith and substance analysis, in practice the absence of prior case law favouring its application to the subject matter at hand will generally justify a court proceeding directly to the consideration of federal paramountcy. [32‑33] [42] [77‑78]
Even in situations where the doctrine of interjurisdictional immunity is properly available, the level of the intrusion on the core of the power of the other level of government must be considered. To trigger the application of the immunity, it is not enough for the provincial legislation simply to affect that which makes a federal subject or object of rights specifically of federal jurisdiction. The difference between “affects” and “impairs” is that the former does not imply any adverse consequence whereas the latter does. In the absence of impairment, interjurisdictional immunity does not apply. It is when the adverse impact of a law adopted by one level of government increases in severity from affecting to impairing that the core competence of the other level of government or the vital or essential part of an undertaking it duly constitutes is placed in jeopardy, and not before. [48‑49]
According to the doctrine of federal paramountcy, when the operational effects of provincial legislation are incompatible with federal legislation, the federal legislation must prevail and the provincial legislation is rendered inoperative to the extent of the incompatibility. The doctrine applies not only to cases in which the provincial legislature has legislated pursuant to its ancillary power to trench on an area of federal jurisdiction, but also to situations in which the provincial legislature acts within its primary powers, and Parliament pursuant to its ancillary powers. In order to trigger the application of the doctrine, the onus is on the party relying on the doctrine of federal paramountcy to demonstrate that the federal and provincial laws are in fact incompatible by establishing either that it is impossible to comply with both laws or that to apply the provincial law would frustrate the purpose of the federal law. [69‑70] [75]
In the instant case, the pith and substance of the Alberta Insurance Act relates to property and civil rights in the province under s. 92(13) of the Constitution Act, 1867 , and is a valid provincial law. The mere fact that the banks now participate in the promotion of insurance does not change the essential nature of the insurance activity, which remains a matter generally falling within provincial jurisdiction. [80‑81]
The banks did not demonstrate that credit‑related insurance is part of the basic, minimum and unassailable content of the banking power. While banking certainly includes the securing of loans by appropriate collateral, a bank in promoting optional insurance is not engaged in an activity vital or essential to banking. There is a difference between requiring collateral (a banking activity) and promoting the acquisition of a certain type of product that could then be used as collateral. The rigid demarcation sought by the banks between federal and provincial regulations would not only risk a legal vacuum, but also deny to lawmakers at both levels of government the flexibility to carry out their respective responsibilities. Furthermore, while s. 416(1) of the Bank Act allows bank corporations to engage in some insurance activities, it recognizes insurance as a business separate from banking. The banks themselves do not consider the insurance to be vital to their credit granting since apart from s. 418 mortgages, the loan agreement is not, in practice, made contingent on obtaining insurance. The bank cannot therefore be protected from operation of the Insurance Act by virtue of the doctrine of interjurisdictional immunity. [85‑86] [89‑92]
The doctrine of federal paramountcy is also inapplicable because neither operational incompatibility nor the frustration of a federal purpose have been made out. Since 2000, the banks have been promoting insurance in Alberta while complying with both the federal Bank Act and the provincial Insurance Act. This is not a case where the provincial law prohibits what the federal law permits. The federal legislation is permissive not exhaustive, and compliance by the banks with the provincial law complements, not frustrates, the federal purpose. [4] [98‑100] [103]
Per Bastarache J.: All constitutional legal challenges to legislation should follow the same approach. First, the pith and substance of the provincial law and the federal law should be examined to ensure that they are both validly enacted laws and to determine the nature of the overlap, if any, between them. Second, the applicability of the provincial law to the federal undertaking or matter in question must be resolved with reference to the doctrine of interjurisdictional immunity. Third, only if both the provincial law and the federal law have been found to be valid pieces of legislation, and only if the provincial law is found to be applicable to the federal matter in question, then both statutes must be compared to determine whether the overlap between them constitutes a conflict sufficient to trigger the application of the doctrine of federal paramountcy. [112]
The Insurance Act is clearly a law in pith and substance about the regulation of the insurance industry within the province, and the particular provisions at issue are concerned with the licensing and regulation of insurance providers, promoters and agents. The provincial law applies to all persons providing or promoting insurance services, including banks. It is therefore valid legislation of general application enacted under the provincial legislative authority over property and civil rights in the province under s. 92(13) of the Constitution Act, 1867 . As for the validity of the 1991 amendments to the Bank Act , they were not challenged by the parties. [116‑117]
The federal head of power in issue here is “banking” under s. 91(15) of the Constitution Act, 1867 . While deposit taking, credit granting in the form of loans and the taking of security for those loans are core elements of banking, clearly, the promotion of authorized insurance does not fall within that core because it is not essential to the function of banking. Insurance can never be security; it is rather the collateral created in relation to the granting of a bank loan. The insurance promoted is optional and can be cancelled at any time. In enacting the amendments to the Bank Act , Parliament intended banks to promote insurance, not as an expansion of the core of the banking power, but rather as a limited exception to the general prohibition against the promotion of certain lines of insurance. Parliament thereby drew a clear distinction between the business of banking and the business of insurance. Since the promotion of insurance does not come within the core of banking, the Insurance Act is not affecting that core in any important way. Therefore, no immunity arises in the circumstances. [118‑123]
The doctrine of paramountcy does not apply in this case as there is no conflict between the provincial law and the federal law. The interaction between the two statutory schemes is one of harmony and complementarity, rather than frustration of Parliament’s legislative purpose. The aim of the amendments to the Bank Act and the associated regulations was to permit the banks to engage in the promotion of authorized insurance products and to spell out the types of products which could be validly promoted, not to set out the precise manner in which the promotion of insurance would be governed and regulated. Conversely, the aim of the provincial legislation was to provide a regulatory scheme for the promotion of insurance, but not to exercise any control over the kinds of insurance that banks may promote, or the extent to which they may do so, thereby maintaining the integrity of Parliament’s legislative purpose. [124] [128]
Cases Cited
By Binnie and LeBel JJ.
Followed: British Columbia (Attorney General) v. Lafarge Canada Inc., [2007] 2 S.C.R. 86, 2007 SCC 23; referred to: Tennant v. Union Bank of Canada, [1894] A.C. 31; Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96; Canadian Indemnity Co. v. Attorney‑General of British Columbia, [1977] 2 S.C.R. 504; Canadian Pioneer Management Ltd. v. Labour Relations Board of Saskatchewan, [1980] 1 S.C.R. 433; Reference re Secession of Quebec, [1998] 2 S.C.R. 217; Edwards v. Attorney‑General for Canada, [1930] A.C. 124; Reference re Employment Insurance Act (Can.), ss. 22 and 23, [2005] 2 S.C.R. 669, 2005 SCC 56; Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453; Reference re Anti‑Inflation Act, [1976] 2 S.C.R. 373; Reference re Firearms Act (Can.), [2000] 1 S.C.R. 783, 2000 SCC 31; Kitkatla Band v. British Columbia (Minister of Small Business, Tourism and Culture), [2002] 2 S.C.R. 146, 2002 SCC 31; Saumur v. City of Quebec, [1953] 2 S.C.R. 299; Attorney‑General for Ontario v. Reciprocal Insurers, [1924] A.C. 328; Attorney‑General for Alberta v. Attorney‑General for Canada, [1939] A.C. 117; Global Securities Corp. v. British Columbia (Securities Commission), [2000] 1 S.C.R. 494, 2000 SCC 21; British Columbia v. Imperial Tobacco Canada Ltd., [2005] 2 S.C.R. 473, 2005 SCC 49; General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641; Bank of Toronto v. Lambe (1887), 12 App. Cas. 575; Hodge v. The Queen (1883), 9 App. Cas. 117; Bell Canada v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 749; O’Grady v. Sparling, [1960] S.C.R. 804; Union Colliery Co. of British Columbia v. Bryden, [1899] A.C. 580; Attorney‑General for Canada v. Attorney‑General for Ontario, [1937] A.C. 326; Natural Parents v. Superintendent of Child Welfare, [1976] 2 S.C.R. 751; Attorney General of Canada v. Law Society of British Columbia, [1982] 2 S.C.R. 307; Dominion Stores Ltd. v. The Queen, [1980] 1 S.C.R. 844; Labatt Breweries of Canada Ltd. v. Attorney General of Canada, [1980] 1 S.C.R. 914; OPSEU v. Ontario (Attorney General), [1987] 2 S.C.R. 2; John Deere Plow Co. v. Wharton, [1915] A.C. 330; Great West Saddlery Co. v. The King, [1921] 2 A.C. 91; Attorney‑General for Ontario v. Winner, [1954] 4 D.L.R. 657; Toronto Corporation v. Bell Telephone Co. of Canada, [1905] A.C. 52; Derrickson v. Derrickson, [1986] 1 S.C.R. 285; Commission de transport de la Communauté urbaine de Québec v. Canada (National Battlefields Commission), [1990] 2 S.C.R. 838; Ordon Estate v. Grail, [1998] 3 S.C.R. 437; McKay v. The Queen, [1965] S.C.R. 798; Scowby v. Glendinning, [1986] 2 S.C.R. 226; Law Society of British Columbia v. Mangat, [2001] 3 S.C.R. 113, 2001 SCC 67; 114957 Canada Ltée (Spraytech, Société d’arrosage) v. Hudson (Town), [2001] 2 S.C.R. 241, 2001 SCC 40; Dick v. The Queen, [1985] 2 S.C.R. 309; Irwin Toy Ltd. v. Quebec (Attorney General), [1989] 1 S.C.R. 927; Reference re Industrial Relations and Disputes Investigation Act, [1955] S.C.R. 529; Commission du salaire minimum v. Bell Telephone Co. of Canada, [1966] S.C.R. 767; Canadian National Railway Co. v. Courtois, [1988] 1 S.C.R. 868; Alltrans Express Ltd. v. British Columbia (Workers’ Compensation Board), [1988] 1 S.C.R. 897; Canadian Pacific Railway Co. v. Corporation of the Parish of Notre Dame de Bonsecours, [1899] A.C. 367; Ontario v. Canadian Pacific Ltd., [1995] 2 S.C.R. 1028, aff’g (1993), 13 O.R. (3d) 389; Greater Toronto Airports Authority v. Mississauga (City) (2000), 50 O.R. (3d) 641, leave to appeal refused, [2001] 1 S.C.R. ix; Johannesson v. Rural Municipality of West St. Paul, [1952] 1 S.C.R. 292; Re Orangeville Airport Ltd. and Town of Caledon (1976), 66 D.L.R. (3d) 610; Venchiarutti v. Longhurst (1992), 8 O.R. (3d) 422; Registrar of Motor Vehicles v. Canadian American Transfer Ltd., [1972] S.C.R. 811; R. v. Toronto Magistrates, Ex Parte Tank Truck Transport Ltd., [1960] O.R. 497; R. v. Greening (1992), 43 M.V.R. (2d) 53; R. v. TNT Canada Inc. (1986), 37 D.L.R. (4th) 297; Construction Montcalm Inc. v. Minimum Wage Commission, [1979] 1 S.C.R. 754; Air Canada v. Ontario (Liquor Control Board), [1997] 2 S.C.R. 581; Re Public Utilities Commission and Victoria Cablevision Ltd. (1965), 51 D.L.R. (2d) 716; Attorney‑General of Quebec v. Kellogg’s Co. of Canada, [1978] 2 S.C.R. 211; Paul v. British Columbia (Forest Appeals Commission), [2003] 2 S.C.R. 585, 2003 SCC 55; Paul v. Paul, [1986] 1 S.C.R. 306; Four B Manufacturing Ltd. v. United Garment Workers of America, [1980] 1 S.C.R. 1031; Reference re Minimum Wage Act of Saskatchewan, [1948] S.C.R. 248; Letter Carriers’ Union of Canada v. Canadian Union of Postal Workers, [1975] 1 S.C.R. 178; Attorney General of Quebec v. Attorney General of Canada, [1979] 1 S.C.R. 218; Attorney General of Alberta v. Putnam, [1981] 2 S.C.R. 267; Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161; Bank of Montreal v. Hall, [1990] 1 S.C.R. 121; Rothmans, Benson & Hedges Inc. v. Saskatchewan, [2005] 1 S.C.R. 188, 2005 SCC 13; Gregory Co. v. Imperial Bank of Canada, [1960] C.S. 204; Commissioners of the State Savings Bank of Victoria v. Permewan, Wright & Co. (1914), 19 C.L.R. 457; Attorney‑General for Alberta v. Attorney‑General for Canada, [1947] A.C. 503; Turgeon v. Dominion Bank, [1930] S.C.R. 67; Bank of Nova Scotia v. British Columbia (Superintendent of Financial Institutions) (2003), 11 B.C.L.R. (4th) 206, leave to appeal refused, [2003] 3 S.C.R. viii; Reference re Upper Churchill Water Rights Reversion Act, [1984] 1 S.C.R. 297.
By Bastarache J.
Referred to: British Columbia (Attorney General) v. Lafarge Canada Inc., [2007] 2 S.C.R. 86, 2007 SCC 23; Kitkatla Band v. British Columbia (Minister of Small Business, Tourism and Culture), [2002] 2 S.C.R. 146, 2002 SCC 31; Irwin Toy Ltd. v. Quebec (Attorney General), [1989] 1 S.C.R. 927; Bank of Montreal v. Hall, [1990] 1 S.C.R. 121; Tennant v. Union Bank of Canada, [1894] A.C. 31; Attorney‑General for Alberta v. Attorney‑General for Canada, [1947] A.C. 503; Bank of Nova Scotia v. British Columbia (Superintendent of Financial Institutions) (2003), 11 B.C.L.R. (4th) 206; Rothmans, Benson & Hedges Inc. v. Saskatchewan, [2005] 1 S.C.R. 188, 2005 SCC 13; Law Society of British Columbia v. Mangat, [2001] 3 S.C.R. 113, 2001 SCC 67; 114957 Canada Ltée (Spraytech, Société d’arrosage) v. Hudson (Town), [2001] 2 S.C.R. 241, 2001 SCC 40.
Statutes and Regulations Cited
Bank Act, S.C. 1991, c. 46, ss. 409 , 416 , 418 .
Constitution Act, 1867, ss. 91 , 91(15) , 92 , 92(13) , (16) .
Insurance Act, R.S.A. 2000, c. I‑3, ss. 1(n), (bb), 454, 468(1), 480, 482, 486, 500, 764.
Insurance Agents and Adjusters Regulation, A.R. 122/2001, ss. 12(1), 14, 15, 16, 17, 18.
Insurance Business (Banks and Bank Holding Companies) Regulations, SOR/92‑330, ss. 2 “authorized type of insurance”, “personal accident insurance”, 7(2).
Personal Property Security Act, R.S.A. 2000, c. P‑7.
Authors Cited
Brun, Henri, et Guy Tremblay. Droit constitutionnel, 4e éd. Cowansville, Qué.: Yvon Blais, 2002.
Canada. Department of Finance. Report of the Task Force on the Future of the Canadian Financial Services Sector. Change Challenge Opportunity. Ottawa: Department of Finance, 1998.
Canada. Department of Finance. Task Force on the Future of the Canadian Financial Services Sector. Change Challenge Opportunity. Background Paper #2. Organizational Flexibility for Financial Institutions: A Framework to Enhance Competition. Ottawa: Department of Finance, 1998.
Canada. Department of Finance. The Regulation of Canadian Financial Institutions: Proposals for Discussion. Ottawa: Minister of Supply and Services Canada, 1985.
Canada. House of Commons. Standing Committee on Finance. The Future Starts Now: A Study on the Financial Services Sector in Canada. Ottawa: House of Commons, 1998.
Canada. Senate. Sixteenth Report of the Standing Senate Committee on Banking, Trade and Commerce. Towards a More Competitive Financial Environment. Ottawa: The Senate, 1986.
Canadian Bankers Association. Your Guide to Financial Services: An overview of Canadian financial products and services. Toronto: Canadian Bankers Association, 1999.
Gélinas, Fabien. “La doctrine des immunités interjuridictionnelles dans le partage des compétences: éléments de systématisation”, dans Mélanges Jean Beetz. Montréal: Thémis, 1995, 471.
Hogg, Peter W. Constitutional Law of Canada, vol. 1, loose‑leaf ed. Scarborough, Ont.: Carswell, 1997 (updated 2006, release 1).
Laskin, Bora. Canadian Constitutional Law: Cases, Text and Notes on Distribution of Legislative Power, 3rd ed. Toronto: Carswell, 1969.
Leclair, Jean. “The Supreme Court of Canada’s Understanding of Federalism: Efficiency at the Expense of Diversity” (2003), 28 Queen’s L.J. 411.
Magnet, Joseph Eliot. Constitutional Law of Canada: Cases, Notes and Materials, vol. 1, 8th ed. Edmonton: Juriliber, 2001.
McDonald, Patrick N. “The B.N.A. Act and the Near Banks: A Case Study in Federalism” (1972), 10 Alta. L. Rev. 155.
Shorter Oxford English Dictionary on Historical Principles, 5th ed. Oxford: Oxford University Press, 2002, “essential”, “vital”.
Weiler, Paul C. “The Supreme Court and the Law of Canadian Federalism” (1973), 23 U.T.L.J. 307.
APPEAL from a judgment of the Alberta Court of Appeal (McFadyen, Hunt and Berger JJ.A.) (2005), 39 Alta. L.R. (4th) 1, 361 A.R. 112, 249 D.L.R. (4th) 523, [2005] 6 W.W.R. 226, 18 C.C.L.I. (4th) 161, [2005] A.J. No. 21 (QL), 2005 ABCA 12, affirming a decision of Slatter J. (2003), 21 Alta. L.R. (4th) 22, 343 A.R. 89, [2004] 5 W.W.R. 108, 4 C.C.L.I. (4th) 59, [2003] A.J. No. 1166 (QL), 2003 ABQB 795. Appeal dismissed.
Neil Finkelstein, Jeffrey W. Galway and Catherine Beagan Flood, for the appellants.
Robert J. Normey, L. Christine Enns and Nick Parker, for the respondent.
Peter M. Southey, for the intervener the Attorney General of Canada.
Robin K. Basu and Bay Ryley, for the intervener the Attorney General of Ontario.
Alain Gingras, for the intervener the Attorney General of Quebec.
John G. Furey, for the intervener the Attorney General of New Brunswick.
Sarah Macdonald, for the intervener the Attorney General of British Columbia.
Thomson Irvine and James Hall, for the intervener the Attorney General for Saskatchewan.
Katharine L. Hurlburt and Dale Gibson, for the intervener the Alberta Insurance Council.
David Stratas and Sara Gelgor, for the intervener the Financial Advisors Association of Canada.
Terrence J. O’Sullivan and M. Paul Michell, for the interveners AIG Life Insurance Company of Canada et al.
The judgment of McLachlin C.J. and Binnie, LeBel, Fish, Abella and Charron JJ. was delivered by
Binnie and LeBel JJ. _
I. Introduction
1 The framers of the Constitution Act, 1867 must have thought that the content of the federal power over “Banking, Incorporation of Banks, and the Issue of Paper Money” (s. 91(15) ) was tolerably clear. Banking, according to one early authority, is more or less what “com[es] within the legitimate business of a banker” (Tennant v. Union Bank of Canada, [1894] A.C. 31 (P.C.), at p. 46). Bankers today are not limited in their activities to the activities their predecessors pursued in the nineteenth century. In recent years, they have persuaded Parliament to open the door to lines of business formerly closed to them, such as the promotion (though not underwriting) of certain lines of insurance. Indeed, more generally, there has been a blurring of the traditional “four pillars” of the Canadian financial services industry, which formerly were neatly divided into banks, trust companies, insurance companies, and security dealers, the first under federal regulation and the last three regulated by the provinces.
2 The question that arises on this appeal is the extent to which banks, as federally regulated financial institutions, must comply with provincial laws regulating the promotion and sale of insurance. Specifically, we are required to consider whether and to what extent the market conduct rules enacted for consumer protection in Alberta’s Insurance Act, R.S.A. 2000, c. I-3, govern the promotion of credit-related insurance by banks as now permitted under the Bank Act, S.C. 1991, c. 46 , as amended.
3 The appellant banks say that the provincial insurance regulations strike at the core of what banking is all about, namely enhancing the security of loan portfolios. As the appellants’ counsel puts it, “the primary character of this insurance, tied as it is to the provision of loans by banks of their own loans, is security collateral for bank loans” (transcript, at p. 23) and such promotion therefore “lies at the core of what the bank does, lend money and take security” (transcript, at p. 11). Further, “the lending of money and the promotion of security are intimately tied together and together go to the core of banking” (transcript, at p. 13). The regulations cannot, the appellants say, be allowed to affect such a vital part of their banking undertaking. Alternatively, the appellants argue, the provincial regulations are in operational conflict with the Bank Act and its regulations, and the application of the provincial law would frustrate Parliament’s purpose.
4 We agree with the conclusion of the courts in Alberta that the appellants’ claim to interjurisdictional immunity should be rejected. The fact that Parliament allows a bank to enter into a provincially regulated line of business such as insurance cannot, by federal statute, unilaterally broaden the scope of the exclusive legislative power granted by the Constitution Act, 1867 . When promoting insurance, the banks are participating in the business of insurance and only secondarily furthering the security of their loan portfolios, as the evidentiary record clearly established. This means, it is true, that banks will have to comply with both federal and provincial laws, but when federally regulated entities take part in provincially regulated activities there will inevitably result a measure of jurisdictional overlap. Nevertheless, the paramountcy doctrine is not engaged. Absent conflict with a valid federal law, valid provincial legislation will apply. Here there is no operational conflict. Compliance by the banks with provincial insurance laws will complement, not frustrate, the federal purpose. On both branches of the appellants’ argument, the appeal should be dismissed.
II. Facts
5 Revisions to the Bank Act in 1991 permitted banks to engage in the promotion of certain types of insurance, an activity from which, historically, they had been excluded. The Canadian Bankers Association chronicled this evolution in a consumer information booklet entitled Your Guide to Financial Services: An overview of Canadian financial products and services (1999), as follows:
Up until the mid-20th century, the bank’s main function was to act as society’s “financial intermediary,” pooling the funds of savers through deposit-taking and making them available to borrowers. While their core services are still deposits and loans, banks have expanded to offer hundreds of different products and services to a diverse clientele. Offerings include basic savings and chequing accounts, RRSPs, money orders, foreign exchange, letters of credit, mortgages, financial planning, insurance products such as creditor life insurance and investment products. [Emphasis added; p. 5.]
6 Specifically, the Bank Act and its Insurance Business (Banks and Bank Holding Companies) Regulations, SOR/92-330 (“IBRs”), now authorize banks to promote at their branches eight kinds of insurance (“authorized insurance”) as follows:
(a) credit or charge card‑related insurance: this insurance covers damage to goods acquired with a credit card, including rented vehicles;
(b) creditors’ disability insurance: the insurer will pay all or part of a bank loan if a borrower becomes disabled. The beneficiary of the policy is the bank. The amount of the insurance usually corresponds to the amount of the payments that fall due during the period of disability;
(c) creditors’ life insurance: this is a group insurance policy which pays off the loan when the borrower dies. The beneficiary is the bank, and the amount of the insurance is the amount of the loan outstanding from time to time, subject to any limits in the policy;
(d) creditors’ loss of employment insurance: the insurer pays all or part of the debt owed to the bank if the borrower becomes unemployed. The beneficiary is the bank, and the amount of the insurance would generally be the amount of payments falling due while the borrower is unemployed;
(e) creditors’ vehicle inventory insurance: the insurer covers damage to vehicles held as inventory by customers of the bank (usually dealerships) where the vehicles have been financed by the bank and pledged as collateral for repayment of the bank loan;
(f) export credit insurance: the insurer protects an exporter against non‑payment by the purchaser of the goods. Where the bank has provided financing to the exporter’s business, the insurance will generally be assigned to the bank as collateral for the loan;
(g) mortgage insurance: this insures the bank against default by one of its mortgagors. The beneficiary of the policy is the bank, the amount payable under the policy is the balance outstanding on the mortgage (usually the net after proceeds of foreclosure), and the insured risk is default by the mortgagor;
(h) travel insurance: the insurer will pay losses arising from the cancellation of trips, the loss of personal property while on a trip, the loss of baggage, as well as medical expenses incurred on a trip;
7 The evidence showed that a large percentage of the banks’ customers purchase credit-related insurance. Therefore, even though the purchase is optional, the fact is that promotion of insurance as collateral may to some extent increase the security of the banks’ overall loan portfolio. The trial judge considered this effect to be small. He found that banks generally insist on adequate collateral before the loan is made, and the decision to grant credit is not afterwards reconsidered if the borrower declines the offer of optional insurance. From the bank’s perspective, its position is already fully protected. The availability of yet more collateral in the form of after-acquired insurance may therefore simply pile Mount Pelion on Olympus.
8 The trial judge noted that of these eight types of insurance “products” only mortgage insurance and export credit insurance actually insure against the risk of default in the payment of a loan. In contrast, credit-card related insurance and travel insurance, including personal accident insurance, have no significant connection to the amount of a loan owed to a bank and are payable irrespective of any default. While he recognized that insurance against the risk of a customer’s disability or of loss of life or of employment enhances the safety of the bank’s loan portfolio, the risk insured against is not default on the payment of the loan but the insured’s disability or loss of life or of employment. The insurance, which is entirely optional for the borrower, is promoted on the basis of providing the borrower (not the bank) with peace of mind. The insurer will generally be required to pay the proceeds of the insurance directly to the bank in the event the risk materializes, even if the loan remains in good standing and there is no question about the insured’s ability to pay. As the trial judge noted, “[r]emoving the necessity for the bank to pursue widows and orphans can undoubtedly improve the bank-customer relationship, although it is difficult to determine how big a factor this would be” ((2003), 343 A.R. 89, 2003 ABQB 795, at para. 41).
9 The trial judge added that the way in which banks promote insurance varies somewhat from product to product. Credit card and travel insurance coverage are generally sold as a feature of credit cards. Mortgage insurance is promoted in concert with the granting of mortgages (although it is mandatory under s. 418 of the Bank Act in the case of a high-ratio mortgage worth more than 75 percent of the value of the mortgaged residence). The insurance relating to a calamity in the life of a debtor (disability, unemployment and death) is sometimes promoted at the time the loan is taken out but is also promoted quite independently by direct mail or through telemarketers. If the borrower answers certain health questions in the negative, the insurance is automatically approved through a group policy.
10 In 2000, Alberta enacted changes to its Insurance Act purporting to make federally chartered banks subject to the provincial licensing scheme governing the promotion of insurance products. Under s. 454, a bank wanting to promote insurance must obtain a “restricted insurance agent’s certificate of authority”. The banks thereby became subject to market standards regulation including, for example, s. 486 that requires training procedures to be in place, s. 500 that targets misrepresentations about the levels of premiums, and ss. 480 and 764 that provide sanctions for non-compliance and improper market conduct. In addition, the statute empowers the provincial Minister of Finance to make regulations respecting the ethical, operational and trade practices of agents. It is consume