Reference re Pan‑Canadian Securities Regulation

Reference re Pan‑Canadian Securities Regulation
Collection
Supreme Court Judgments
Date
2018-11-09
Neutral citation
2018 SCC 48
Report
[2018] 3 SCR 189
Case number
37613
Judges
Wagner, Richard; Abella, Rosalie Silberman; Moldaver, Michael J.; Karakatsanis, Andromache; Gascon, Clément; Côté, Suzanne; Brown, Russell; Rowe, Malcolm; Martin, Sheilah
On appeal from
Quebec
Notes
Case in Brief
SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: Reference re Pan‑Canadian Securities Regulation, 2018 SCC 48, [2018] 3 S.C.R. 189
Appeal Heard: March 22, 2018 Judgment rendered: November 9, 2018 Docket: 37613
Between:
Attorney General of Canada
Appellant
and
Attorney General of Quebec
Respondent
and
Attorney General of Ontario, Attorney General of Nova Scotia, Attorney General of New Brunswick, Attorney General of Manitoba, Attorney General of Prince Edward Island, Attorney General of Saskatchewan, Attorney General of Alberta, Barreau du Québec and Institute for Governance of Private and Public Organizations
Interveners
And Between:
Attorney General of Quebec
Appellant
and
Attorney General of Canada and Attorney General of British Columbia
Respondents
and
Attorney General of Ontario, Attorney General of Nova Scotia, Attorney General of New Brunswick, Attorney General of Manitoba, Attorney General of Prince Edward Island, Attorney General of Saskatchewan, Attorney General of Alberta, Barreau du Québec and Institute for Governance of Private and Public Organizations
Interveners
And Between:
Attorney General of British Columbia
Appellant
and
Attorney General of Quebec
Respondent
and
Attorney General of Ontario, Attorney General of Nova Scotia, Attorney General of New Brunswick, Attorney General of Prince Edward Island, Attorney General of Saskatchewan, Attorney General of Alberta, Barreau du Québec and Institute for Governance of Private and Public Organizations
Interveners
Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Gascon, Côté, Brown, Rowe and Martin JJ.
Reasons for Judgment: (paras. 1 to 132)
The Court
Reference re Pan‑Canadian Securities Regulation, 2018 SCC 48, [2018] 3 S.C.R. 189
IN THE MATTER OF a Reference by the Government of Quebec to the Court of Appeal of Quebec for hearing and consideration of the questions set out in Order in Council 642-2015 concerning the constitutionality of the implementation of pan-Canadian securities regulation
Attorney General of Canada Appellant
v.
Attorney General of Quebec Respondent
and
Attorney General of Ontario,
Attorney General of Nova Scotia,
Attorney General of New Brunswick,
Attorney General of Manitoba,
Attorney General of Prince Edward Island,
Attorney General of Saskatchewan,
Attorney General of Alberta,
Barreau du Québec and
Institute for Governance of Private and Public Organizations Interveners
-and-
Attorney General of Quebec Appellant
v.
Attorney General of Canada and
Attorney General of British Columbia Respondents
and
Attorney General of Ontario,
Attorney General of Nova Scotia,
Attorney General of New Brunswick,
Attorney General of Manitoba,
Attorney General of Prince Edward Island,
Attorney General of Saskatchewan,
Attorney General of Alberta,
Barreau du Québec and
Institute for Governance of Private and Public Organizations Interveners
-and-
Attorney General of British Columbia Appellant
v.
Attorney General of Quebec Respondent
and
Attorney General of Ontario,
Attorney General of Nova Scotia,
Attorney General of New Brunswick,
Attorney General of Prince Edward Island,
Attorney General of Saskatchewan,
Attorney General of Alberta,
Barreau du Québec and
Institute for Governance of Private and Public Organizations Interveners
Indexed as: Reference re Pan‑Canadian Securities Regulation
2018 SCC 48
File No.: 37613.
2018: March 22; 2018: November 9.
Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Gascon, Côté, Brown, Rowe and Martin JJ.
on appeal from the court of appeal for quebec
Constitutional law — Division of powers — Trade and commerce — Securities — Proposal by federal government and some provincial and territorial governments to implement national cooperative capital markets regulatory system including model provincial and territorial statute, federal statute and national securities regulator overseen by federal and provincial ministers — Whether Constitution authorizes implementation of cooperative system — Whether draft federal statute exceeds authority of Parliament over general branch of trade and commerce power — Constitution Act, 1867, s. 91(2) .
The federal government and the governments of Ontario, British Columbia, Saskatchewan, New Brunswick, Prince Edward Island and Yukon have proposed to implement a national cooperative system for the regulation of capital markets in Canada (“Cooperative System”). The framework of the Cooperative System is set out in an agreement between the federal government and the participating provincial and territorial governments (“Memorandum”).
The main components of the Cooperative System include a model provincial and territorial statute (“Model Provincial Act”) that deals primarily with the day-to-day aspects of the securities trade, a proposed federal statute (“Draft Federal Act”) that is aimed at preventing and managing systemic risk and which establishes criminal offences relating to financial markets, and a national securities regulator (“Authority”) charged with administering this coordinated regime. The Authority and its board of directors are to operate under the supervision of a Council of Ministers, which will comprise the ministers responsible for capital markets regulation in each participating province and the federal Minister of Finance.
Neither the Model Provincial Act nor the Draft Federal Act have the force of law unless and until they are properly enacted into legislation by the provincial legislatures and Parliament, respectively; the Memorandum provides that both remain “subject to legislative approval”. The Memorandum also contemplates that the Council of Ministers will have a role to play in making amendments to these proposed legislative enactments. With respect to the Model Provincial Act, s. 5.5 of the Memorandum provides that any proposals to amend the Model Provincial Act are subject to a vote and must be approved by at least 50 percent of the members of the Council of Ministers, as well as by the members representing the “Major Capital Markets Jurisdictions” — which at present, are Ontario and British Columbia.
Another important aspect of the Cooperative System is the Authority’s power to make regulations. Both the Model Provincial Act and the Draft Federal Act provide that any regulations proposed by the Authority must be approved by the Council of Ministers before coming into force. Section 5.2 of the Memorandum lays out the voting requirements that apply to the approval of proposed regulations.
The Government of Quebec referred the following two questions pertaining to the Cooperative System to the Quebec Court of Appeal:
1. Does the Constitution of Canada authorize the implementation of pan-Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the “Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System”?
2. Does the most recent version of the draft of the federal “Capital Markets Stability Act” exceed the authority of the Parliament of Canada over the general branch of the trade and commerce power under subsection 91(2) of the Constitution Act, 1867 ?
A majority of the Court of Appeal answered both questions in the negative. In response to the first question, the majority concluded that the Cooperative System was unconstitutional, because the process for amending the Model Provincial Act — and in particular, the requirement that any amendments thereto be approved by the Council of Ministers in accordance with s. 5.5 of the Memorandum — has the effect of fettering the sovereignty of the participating provinces’ and territories respective legislatures. The majority also opined that the process for making federal regulations, as set out in the Draft Federal Act and the Memorandum, is inconsistent with the principle of federalism because it allows certain provinces to effectively veto the adoption of a federal regulation. As to the second question, the majority concluded that the Draft Federal Act is not ultra vires Parliament under the general trade and commerce power, except with respect to the provisions (ss. 76 to 79) that set out the role of the Council of Ministers in the making of federal regulations. Again expressing the view that these provisions, when read alongside the Memorandum, have the effect of conferring on certain provinces a veto over federal regulations, the Majority concluded that they would render the entire Draft Federal Act unconstitutional if not removed.
The Attorney General of Canada appealed the Quebec Court of Appeal’s opinion on both questions; the Attorney General of British Columbia appealed on the first question; and the Attorney General of Quebec appealed on the second question.
Held: The appeals brought by the Attorney General of Canada and the Attorney General of British Columbia should be allowed. The appeal brought by the Attorney General of Quebec should be dismissed. Question 1 should be answered in the affirmative. Question 2 should be answered in the negative.
Question #1: The Constitution authorizes the implementation of pan-Canadian securities regulation under the authority of a single regulator in accordance with the terms set out in the Memorandum.
First, the Cooperative System, as set out in the Memorandum, does not purport to — and in any event, cannot — improperly fetter the legislatures’ sovereignty. Sections 4.2 and 5.5 of the Memorandum make clear that the Council of Ministers’ role is limited to proposals for amendments to the Model Provincial Act. The Model Provincial Act is expressly subject to legislative approval, and thus lacks the force of law within a province unless and until it is enacted by that province’s legislature. These provisions of the Memorandum do not contemplate that the Council of Ministers will have any formal involvement in the amendment of securities laws that have already been enacted by provincial legislatures. Nowhere does the Memorandum imply that the legislatures of the participating provinces are required to implement the amendments made to the Model Provincial Act that have been approved by the Council of Ministers, or that they are precluded from making any other amendments to their securities laws. The terms of the Memorandum do not even require that the provisions of the Model Provincial Act themselves be enacted into law by the legislatures of the participating provinces. Accordingly, the legislatures remain free to reject the proposed statutes, and any amendments made to them, if they so choose.
Even if the terms of the Memorandum actually purported to fetter the provincial legislatures’ right to enact, amend and repeal their securities legislation, it would be ineffective in this regard in view of the principle of parliamentary sovereignty. Parliamentary sovereignty, a foundational principle of the Westminster model of government, means that the legislative branch of government has supremacy over the executive and the judiciary: both must act in accordance with statutory enactments and neither can usurp or interfere with the legislature’s law-making function. An important corollary to parliamentary sovereignty is the rule that the executive is incapable of interfering with the legislature’s power to enact, amend and repeal legislation. An executive agreement that purports to bind the parties’ respective legislatures cannot, therefore, have that effect. In the case at hand, executive signatories would thus not actually be capable of either requiring that the legislatures of their respective jurisdictions implement any amendments dictated by the Council of Ministers, or of precluding those legislatures from amending their own securities laws without the approval of the Council of Ministers. When an action of the executive branch appears to clash with the legislature’s law-making powers, parliamentary sovereignty can be invoked for the purpose of determining the legal effect of the impugned executive action, but not its underlying validity. Any executive agreement that purports to fetter the legislature is not inherently unconstitutional but will simply not have the desired effect.
Second, the Cooperative System does not entail an impermissible delegation of law-making authority. Parliamentary sovereignty also means that the legislature has the authority to enact laws on its own, as well as the authority to delegate to some other person or body certain administrative or regulatory powers, including the power to make binding but subordinate rules and regulations. One important restriction on delegation, however, is that Parliament or a provincial legislature is barred from transferring its primary legislative authority with respect to a particular matter, over which it has exclusive constitutional jurisdiction, to a legislature of the other level of government. In this case, neither the Memorandum nor the Model Provincial Act empowers the Council of Ministers to unilaterally amend the provinces’ securities legislation and no part of the Cooperative System imposes any legal limit on the participating provinces’ legislative authority to enact, amend or repeal their respective securities laws as they see fit. The Council of Minister’s role in approving amendments to the Model Provincial Act — a model statute that has no force of law until a provincial enactment gives it such force — is therefore plainly distinguishable from the delegation of primary legislative authority. Because the Cooperative System does not allow the Council of Ministers to bypass the provincial legislatures at all, the proper implementation of the Cooperative System, in accordance with the terms of the Memorandum, will not result in any transfer or abdication of a participating province’s primary legislative authority. The Council of Ministers is and remains subordinate to the sovereign will of the legislature.
Question #2: The proposed Draft Federal Act is intra vires; it falls within the general branch of Parliament’s trade and commerce power pursuant to s. 91(2) of the Constitution Act, 1867 .
The two-stage analytical framework for the review of legislation on federalism grounds is well established. At the first stage (the “characterization stage”), the court considers the law’s purpose and its effect with a view to identifying the true subject matter — the pith and substance — of the law in question. Once the court has completed this exercise, it then moves on to the second stage (the “classification stage”) and determines whether the subject matter of the challenged legislation falls within the head of power being relied on to support the legislation’s validity. Where it does, the legislation will be upheld on the basis that it is intra vires.
On the question of characterization, the pith and substance of the Draft Federal Act is to control systemic risk having the potential to create material adverse effects on the Canadian economy. The Draft Federal Act’s preamble, its stated purposes (at s. 4) and the Authority’s statutory mandate (at s. 6) together suggest that the federal government’s role in regulating capital markets is limited to the detection, prevention and management of risk to the stability of the Canadian economy, as well as to the protection against financial crimes. The concept of systemic risk is specifically invoked throughout the Draft Federal Act as a means of limiting the scope of federal regulatory powers. Systemic risk can be understood as having three constituent elements: the risk must represent a threat to the stability of the country’s financial system as a whole; it must be connected to the capital markets; and it must have the potential to have a material adverse effect on the Canadian economy. Moreover, the Draft Federal Act does not contain provisions that go to the day-to-day regulation of all aspects of securities trading. Properly understood, therefore, the intention is not that the Draft Federal Act will displace provincial and territorial securities legislation. It was instead designed to complement these statutes by addressing economic objectives that are considered to be national in character.
With respect to the classification of the Draft Federal Act, the ultimate question in this case is 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. The application of the framework set out in General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641, leads to the conclusion that the Draft Federal Act does address a matter of genuine national importance and scope relating to trade as a whole, and it therefore falls within Parliament’s general trade and commerce power under s. 91(2) of the Constitution Act, 1867 . The preservation of the integrity and stability of the Canadian economy quite clearly has a national dimension, and one which lies beyond provincial competence. Moreover, the fact that the federal government’s foray into securities regulation under the Draft Federal Act is limited to achieving these objectives supports the validity of this proposed statute.
Lastly, the manner in which the Draft Federal Act delegates the power to make regulations accords with Parliament’s constitutional powers, meaning that ss. 76 to 79 of the Draft Federal Act have no impact on its constitutionality. There is nothing problematic about the way in which the Draft Federal Act delegates the power to make regulations to the Authority under the supervision of the Council of Ministers. The legislature has the broad authority to delegate administrative powers, including the power to make legally binding rules and regulations, to a subordinate body. In exercising its sovereign legislative powers, Parliament has the authority to confer on a statutory body — in this case, the Council of Ministers — the power to approve or reject proposed subordinate regulations, even if some members of that body are representatives of certain provinces. The delegation of administrative powers in a manner solicitous of (or even dependent upon) provincial input is in no way incompatible with the principle of federalism, provided that the delegating legislature has the constitutional authority to legislate in respect of the applicable subject matter in the first place.
Cases Cited
Applied: Reference re Securities Act, 2011 SCC 66, [2011] 3 S.C.R. 837; General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641; referred to: R. v. Comeau, 2018 SCC 15, [2018] 1 S.C.R. 342; Rogers Communications Inc. v. Chateauguay (City), 2016 SCC 23, [2016] 1 S.C.R. 467; Alberta (Attorney General) v. Moloney, 2015 SCC 51, [2015] 3 S.C.R. 327; Quebec (Attorney General) v. Canada (Attorney General), 2015 SCC 14, [2015] 1 S.C.R. 693; Canada (Attorney General) v. PHS Community Services Society, 2011 SCC 44, [2011] 3 S.C.R. 134; Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3; Fédération des producteurs de volailles du Québec v. Pelland, 2005 SCC 20, [2005] 1 S.C.R. 292; Northrop Grumman Overseas Services Corp. v. Canada (Attorney General), 2009 SCC 50, [2009] 3 S.C.R. 309; Reference Re Canada Assistance Plan (B.C.), [1991] 2 S.C.R. 525; Canadian Taxpayers Federation v. Ontario (Minister of Finance) (2004), 73 O.R. (3d) 621; Jackson v. Her Majesty’s Attorney General, [2005] UKHL 56, [2006] 1 A.C. 262; Hodge v. The Queen (1883), 9 App. Cas. 117; Reference re Secession of Quebec, [1998] 2 S.C.R. 217; Reference re Anti‑Inflation Act, [1976] 2 S.C.R. 373; West Lakes Ltd. v. South Australia (1980), 25 S.A.S.R. 389; Wells v. Newfoundland, [1999] 3 S.C.R. 199; Attorney-General for Canada v. Attorney‑General for Ontario, [1937] A.C. 326; Thomson v. Thomson, [1994] 3 S.C.R. 551; Canada (Auditor General) v. Canada (Minister of Energy, Mines and Resources), [1989] 2 S.C.R. 49; Attorney General of Nova Scotia v. Attorney General of Canada, [1951] S.C.R. 31; Reference re Firearms Act (Can.), 2000 SCC 31, [2000] 1 S.C.R. 783; Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96; 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; Kirkbi AG v. Ritvik Holdings Inc., 2005 SCC 65, [2005] 3 S.C.R. 302; Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161; Rio Hotel Ltd. v. New Brunswick (Liquor Licensing Board), [1987] 2 S.C.R. 59; Law Society of British Columbia v. Mangat, 2001 SCC 67, [2001] 3 S.C.R.113; R. v. Furtney, [1991] 3 S.C.R. 89; P.E.I. Potato Marketing Board v. H. B. Willis Inc., [1952] 2 S.C.R. 392; Coughlin v. Ontario Highway Transport Board, [1968] S.C.R. 569; Reference re Agricultural Products Marketing Association, [1978] 2 S.C.R. 1198.
Statutes and Regulations Cited
Canadian Charter of Rights and Freedoms, ss. 1 to 34 .
Constitution Act, 1867 , Part VI, ss. 91, 92.
Constitution Act, 1982, ss. 35 , 52(1) .
Memorandum of Agreement regarding the Cooperative Markets Regulatory System (2016), ss. 1 , 2.2 , 3 (a)(i), (ii), (iii), (iv), 4.2, 5.2, 5.5, 5.6, 5.7, 8.1, 8.3, 9.2, 9.3, 10.1, 11(a), (b), 13.
Proposed Canadian Securities Act, Order in Council P.C. 2010‑667, s. 9(a), (b), (c).
Proposed Capital Markets Act, Revised Consultation Draft, August 2015, ss. 202, 206.
Proposed Capital Stability Markets Act (Canada), Draft for Consultation, January 2016, preamble, Parts 1, 2, 3, 4, 5, 6, 7, 8, ss. 3, 4, 6, 9, 10(1), 15(1), 18, 19, 20, 21, 22, 23, 24, 28 to 32, 39, 73, 76 to 79.
Authors Cited
Dicey, Albert Venn. Introduction to the Study of the Law of the Constitution, 10th ed. London: Macmillan, 1959.
Harris, A. Douglas. White Paper — A Symposium on Canadian Securities Regulation: Harmonization or Neutralization?, edited by James Baillie. Toronto: University of Toronto Capital Markets Institute, 2002.
Hogg, Peter W. Constitutional Law of Canada, 5th ed. Supp. Scarborough, Ont.: Thomson/Carswell, 2007 (updated 2017, release 1).
Johnston, David, Kathleen Doyle Rockwell and Cristie Ford. Canadian Securities Regulation, 5th ed. Markham, Ont.: LexisNexis, 2014.
Lavoie, Malcolm. “Understanding Trade as a Whole in the Securities Reference” (2013), 46 U.B.C. L. Rev. 157.
McLachlin, Beverley, P.C. Administrative Tribunals and the Courts: An Evolutionary Relationship, May 27, 2013 (online: https://www.scc-csc.ca/judges-juges/spe-dis/bm-2013-05-27-eng.aspx, archived version: https://www.scc-csc.ca/cso-dce/2018SCC-CSC48_1_eng.pdf).
Monahan, Patrick J., Byron Shaw and Padraic Ryan. Constitutional Law, 5th ed. Toronto: Irwin Law, 2017.
Tuck, Raphael. “Delegation — A Way Over the Constitutional Hurdle” (1945), 23 Can. Bar Rev. 79.
APPEALS from a judgment of the Quebec Court of Appeal (Duval Hesler C.J.Q. and Bouchard, Savard, Schrager and Mainville JJ.A.), 2017 QCCA 756, [2017] AZ‑51390705, [2017] Q.J. No. 5583 (QL), 2017 CarswellQue 4199 (WL Can.), in the matter of a reference concerning the constitutionality of the implementation of pan‑Canadian securities regulation. The appeals of the Attorney General of Canada and of the Attorney General of British Columbia are allowed. The appeal of the Attorney General of Quebec is dismissed.
Robert J. Frater, Q.C., and Alexander Pless, for the Attorney General of Canada.
Francis Demers and Jean‑François Beaupré, for the Attorney General of Quebec.
J. Gareth Morley and Alandra Harlingten, for the Attorney General of British Columbia.
Robin K. Basu and Emily Bala, for the intervener the Attorney General of Ontario.
Isabel Lavoie Daigle, for the intervener the Attorney General of New Brunswick.
No one appeared for the intervener the Attorney General of Nova Scotia.
Michael A. Conner, for the intervener the Attorney General of Manitoba.
Jonathan M. Coady and Justin L. Milne, for the intervener the Attorney General of Prince Edward Island.
Alan F. Jacobson, for the intervener the Attorney General of Saskatchewan.
L. Christine Enns, Q.C., for the intervener the Attorney General of Alberta.
Raymond Doray and Guillaume Laberge, for the intervener Barreau du Québec.
François LeBel and Annie Gallant, for the intervener the Institute for Governance of Private and Public Organizations.
TABLE OF CONTENTS
Paragraph
I. Introduction
1
II. Background
8
A. Reference re Securities Act (2011)
10
B. Securities Regulation and Cooperative Federalism
16
C. The Cooperative System
21
III. Opinion of the Quebec Court of Appeal — 2017 QCCA 756
29
IV. Position of the Parties
38
V. Analysis
44
A. Question #1: Does the Constitution of Canada authorize the implementation of pan-Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the “Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System”?
44
(1) Parliamentary Sovereignty and the Fettering of Provincial Legislative Authority
48
(a) Terms of the Memorandum
49
(b) Parliamentary Sovereignty
53
(c) Political and Legal Effects
68
(2) Delegation of Law-Making Powers
72
(3) Conclusion With Respect to the First Reference Question
81
B. Question #2: Does the most recent version of the draft of the federal “Capital Markets Stability Act” exceed the authority of the Parliament of Canada over the general branch of the trade and commerce power under subsection 91(2) of the Constitution Act, 1867 ?
82
(1) Constitutional Validity of the Draft Federal Act
86
(a) Characterization of the Draft Federal Act
87
(b) Classification of the Draft Federal Act
98
(2) Regulations Under the Draft Federal Act: Sections 76 to 79
117
VI. Conclusion
129
The following is the judgment delivered by
The Court —
I. Introduction
[1] A number of attempts to develop and implement a national system for the regulation of Canadian capital markets in a manner that is compatible with the country’s federal structure have been made since the 1930s. At issue in these appeals is the constitutionality of a recent proposal by the federal government and the governments of Ontario, British Columbia, Saskatchewan, New Brunswick, Prince Edward Island and Yukon to implement a national cooperative capital markets regulatory system (“Cooperative System”).
[2] The structure of the Cooperative System builds on the guidance provided by this Court in Reference re Securities Act, 2011 SCC 66, [2011] 3 S.C.R. 837. Its main components include a model provincial and territorial statute known as the Capital Markets Act (“Model Provincial Act”) that deals primarily with the day-to-day aspects of the securities trade, a federal statute known as the Capital Markets Stability Act (“Draft Federal Act”) that is aimed at preventing and managing systemic risk and which establishes criminal offences relating to financial markets, and a national securities regulator that is to be overseen by the federal Minister of Finance and the ministers responsible for capital markets regulation in the participating provinces[1] (“Authority”).
[3] On July 15, 2015, the Government of Quebec referred two questions pertaining to the Cooperative System to the Quebec Court of Appeal:
1. Does the Constitution of Canada authorize the implementation of pan-Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the “Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System”?
2. Does the most recent version of the draft of the federal “Capital Markets Stability Act” exceed the authority of the Parliament of Canada over the general branch of the trade and commerce power under subsection 91(2) of the Constitution Act, 1867 ?
[4] A majority of the Quebec Court of Appeal (the “Majority”) answered both questions in the negative. In response to the first question, the Majority concluded that the Cooperative System was unconstitutional for two reasons: (a) because the process for amending the Model Provincial Act effectively fetters the sovereignty of the respective participating provinces’ legislatures and (b) because the process for making federal regulations is inconsistent with the principle of federalism. As to the second question, the Majority held that the Draft Federal Act is within Parliament’s jurisdiction over the general branch of the trade and commerce power under s. 91(2) of the Constitution Act, 1867 , but took issue with the provisions of the Draft Federal Act (ss. 76 to 79) that pertain to the making of federal regulations. In the Majority’s opinion, the provisions in question, if not removed, render the entire Draft Federal Act unconstitutional.
[5] The dissenting judge would have declined to answer the first question. In his view, it is not for courts to rule on the constitutional validity of intergovernmental agreements that are of a political nature and lack the force of law. Had the first question been limited to the two draft statutes, however, he would have answered in the affirmative; he saw no issues pertaining either to the delegation of law-making authority or to the principle of parliamentary sovereignty. Turning to the second question, the dissenting judge agreed with the Majority that the Draft Federal Act fell within the general branch of Parliament’s trade and commerce power, but found nothing problematic about the manner by which federal regulations were to be made under ss. 76 to 79 of the Draft Federal Act.
[6] The Attorney General of Canada appeals the Quebec Court of Appeal’s opinion on both questions. The Attorney General of British Columbia appeals only the opinion on the first question, while the Attorney General of Quebec appeals only the opinion on the second question.
[7] For the reasons that follow, the Attorney General of Canada’s appeal is allowed, the Attorney General of British Columbia’s appeal is allowed, and the Attorney General of Quebec’s appeal is dismissed. With respect to the first question posed by the reference, we find that the Cooperative System does not improperly fetter the legislatures’ sovereignty, nor does it entail an impermissible delegation of law-making authority. We therefore answer that question in the affirmative. As to the second question, we answer it in the negative: our view is that the subject matter of the Draft Federal Act falls within the general branch of Parliament’s trade and commerce power pursuant to s. 91(2) of the Constitution Act, 1867 .
II. Background
[8] Canada is one of the only industrialized countries in the world that does not have a national securities regulator. This is largely attributable to the constitutional division of provincial and federal powers as set out in Part VI of the Constitution Act, 1867 . As a result of their jurisdiction over property and civil rights (s. 92(13) ) and matters of a merely local nature (s. 92(16) ), the provincial legislatures — and not Parliament — have the authority to legislate in respect of the securities trade within their respective borders. The result is a nationwide patchwork of provincial regulatory schemes and the absence of a truly national approach to regulating capital markets.
[9] In spite of this constitutional impediment, however, various attempts to centralize or standardize the regulation of securities in Canada have been made for over 80 years (see: D. Johnston, K. Doyle Rockwell and C. Ford, Canadian Securities Regulation (5th ed. 2014), at pp. 634-62). Although proposals aimed at establishing a national securities regulator have not succeeded, certain interprovincial initiatives aimed at coordinating regulatory functions have. These include the adoption by some provincial securities commissions of various national and multilateral instruments (which are standardized rules and regulations respecting specific aspects of the securities trade), as well as the implementation of the “passport regime”, which allows market participants to have access to the capital markets of other participating jurisdictions while dealing with a single principal regulator and complying with harmonized legislative provisions (Johnston et al., at pp. 91-94). Detailed discussions about the impetus behind and response to the various proposals and initiatives that have been put forward over the past several decades can be found elsewhere (see: Reference re Securities Act, at paras. 11-28; A. D. Harris, White Paper — A Symposium on Canadian Securities Regulation: Harmonization or Neutralization? (2002); Johnston et al., at pp. 634-62).
A. Reference re Securities Act (2011)
[10] In 2009, the federal government responded to recommendations from a body known as the Expert Panel on Securities Regulation by preparing draft federal legislation, the Proposed Canadian Securities Act, Order in Council P.C. 2010-667, which would establish a national scheme for the regulation of capital markets under the oversight of a national securities regulator. The stated purposes of the Proposed Canadian Securities Act were “to provide protection to investors” (s. 9(a)), “foster fair, efficient and competitive capital markets” (s. 9(b)) and “contribute . . . to the integrity and stability of [Canada’s] financial system” (s. 9(c)).
[11] The Proposed Canadian Securities Act was designed to regulate all aspects of capital markets, and it therefore dealt in large part with the day-to-day aspects of the trade in securities (like registration requirements, prospectus filings and disclosure obligations). Although much of this scheme overlapped with provincial securities laws, it also contained provisions for the regulation of systemic risk in capital markets — risk that represents a threat to the stability of the country’s economy. It is important to note, as well, that this proposed national regulatory scheme was not intended to immediately displace provincial securities legislation once the federal legislation was enacted by Parliament. Rather, the scheme was designed to function on an “opt-in” basis, each province retaining the right to choose whether to participate in the scheme or instead to keep its existing regulatory framework in place.
[12] The constitutionality of the Proposed Canadian Securities Act was at issue before this Court in Reference re Securities Act. Specifically, the federal government sought from this Court an advisory opinion as to whether the enactment of the Proposed Canadian Securities Act, which this Court described as “a comprehensive foray by Parliament into the realm of securities regulation” (para. 2), would constitute a valid exercise of Parliament’s power over trade and commerce pursuant to s. 91(2) of the Constitution Act, 1867 .
[13] This Court unanimously held that it would not, and rejected the federal government’s argument that the securities market had “evolved from a provincial matter to a national matter affecting the country as a whole” (para. 4). Having determined that the main thrust of the Proposed Canadian Securities Act was to regulate on an exclusive basis all aspects of the trade in securities in Canada, this Court went on to conclude that the constitutionality of the draft statute could not be supported by Parliament’s general trade and commerce power.
[14] This Court analyzed the s. 91(2) issue in accordance with the five indicia set out in General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641, and based its conclusion on the final three indicia: (a) the detailed regulation of capital markets is not a matter that engages trade as a whole, but instead relates to the securities trade in particular; (b) the provinces have the constitutional capacity to legislate in respect of most matters covered by the Proposed Canadian Securities Act and can delegate regulatory powers to a single national securities regulator if they so choose; and (c) the successful operation of this regulatory scheme would not be jeopardized should any one province decline to participate, especially given that this proposed scheme would function on an “opt-in” basis. In the end, this Court held that “the day-to-day regulation of all aspects of trading in securities and the conduct of those engaged in this field of activity . . . simply cannot be described as a matter that is truly national in importance and scope making it qualitatively different from provincial concerns” (Reference re Securities Act, at para. 125).
[15] Although this Court found that legislation purporting to regulate all aspects of the trade in securities was outside Parliament’s sphere of legislative authority, it acknowledged that certain aspects of securities regulation may nevertheless fall within the federal sphere of jurisdiction, including the prevention and management of systemic risk in Canadian capital markets. Indeed, it is clear from this Court’s reasons that the preservation of capital markets and the maintenance of Canada’s economic stability are matters that are beyond provincial concern, and therefore fall within Parliament’s jurisdiction over trade and commerce.
B. Securities Regulation and Cooperative Federalism
[16] While it is true that this Court found the Proposed Canadian Securities Act to be unconstitutional, it nevertheless recognized that a scheme based on a cooperative approach to the regulation of securities in Canada — one under which the provinces would address issues falling within their powers over property and civil rights and matters of a local nature while also leaving room for Parliament to address genuinely national concerns — might be constitutional (Reference re Securities Act, at paras. 130-33; see also para. 9). Given that the Attorneys General of Canada and British Columbia, as well as several of the interveners, submit that the Cooperative System follows this cooperative approach, a word about cooperative federalism is in order here.
[17] Cooperative federalism is an interpretative aid that is used when “interpreting constitutional texts to consider how different interpretations impact the balance between federal and provincial interests” (R. v. Comeau, 2018 SCC 15, [2018] 1 S.C.R. 342, para. 78). Where possible, courts should favour a harmonious reading of statutes enacted by the federal and provincial governments which allows for them to operate concurrently (Rogers Communications Inc. v. Chateauguay (City), 2016 SCC 23, [2016] 1 S.C.R. 467, at para. 38). This principle is based on the presumption that “Parliament intends its laws to co-exist with provincial laws” (Alberta (Attorney General) v. Moloney, 2015 SCC 51, [2015] 3 S.C.R. 327, at para. 27).
[18] Cooperative federalism is often applied “to facilitate interlocking federal and provincial legislative schemes and to avoid unnecessary constraints on provincial legislative action” (Quebec (Attorney General) v. Canada (Attorney General), 2015 SCC 14, [2015] 1 S.C.R. 693, at paras. 17-19). Broadly speaking, it “accommodates overlapping jurisdiction and encourages intergovernmental cooperation”, and therefore discourages courts from interfering with cooperative regulatory schemes so long as they are not incompatible with the boundaries dictated by the Constitution Act, 1867 (Reference re Securities Act, at para. 57, citing OPSEU v. Ontario (Attorney General), [1987] 2 S.C.R. 2, at p. 18; Canada (Attorney General) v. PHS Community Services Society, 2011 SCC 44, [2011] 3 S.C.R. 134, at para. 63; Reference re Securities Act, at paras. 61-62). We stress that cooperative federalism may be used neither to “override nor [to] modify the division of powers itself” (Rogers Communication