Canada: Supreme Court Of Canada Finds Proposal To Nationalize Securities Legislation Outside The Authority Of The Federal Government

On December 22, the Supreme Court of Canada released its much-anticipated opinion, rejecting the federal government's proposal to implement a national securities regulatory scheme under the oversight of a national securities regulator. The express question posed to the Court was whether the proposed Securities Act (the "proposed Act") fell within Parliament's general authority to regulate trade and commerce under section 91(2) of the Constitution Act, 1867. The Supreme Court answered in the negative, concluding that taken as a whole, the proposed Act was chiefly directed at regulating matters falling within provincial authority over property and civil rights.

In considering the division of powers between Parliament and the provinces, the Supreme Court noted the emergence of a flexible view of federalism "that accommodates overlapping jurisdiction and encourages intergovernmental cooperation," highlighting that while important, cooperation and flexibility cannot override or modify the separation of powers. The Supreme Court then applied a "pith and substance" analysis against this backdrop of "cooperative federalism," looking at the purpose and effects of the proposed law to determine whether its "main thrust" was within Parliament's jurisdiction over trade and commerce.

The Court turned first to the breadth of the federal trade and commerce power.  While broad on its face, the Court noted that it has been confined to matters that are "genuinely national" in scope and "qualitatively distinct" from those falling under provincial authority, with its essence being its national focus. According to the Court, this circumscribed scope of the general trade and commerce power is linked to another facet of federalism, being "the recognition of the diversity and autonomy of provincial governments in developing their societies within their respective spheres of jurisdiction." Being the only federal power invoked in the reference, the Court's analysis was confined to the general trade and commerce power. The Court's opinion was also limited in that it did not address the question of an optimal model for securities regulation, that being a question of policy and not one for the courts to decide.   

Turning next to the "main thrust" of the proposed Act, viewed as a whole, the Court found the Federal government's attempt to comprehensively encompass securities regulation as beyond its general authority under the trade and commerce branch. Keeping with Canadian jurisprudence that has generally viewed securities regulation to be a matter of property and civil rights under provincial jurisdiction, the Court did not agree that the national concerns raised by the proposed Act justified overreaching the proper scope of the trade and commerce power, and the wholesale displacement of provincial regulation that would result. While acknowledging that historic regulation by the provinces would not necessarily preclude a federal claim to jurisdiction, the Court was not able to conclude that securities markets had undergone a sufficient transformation so as to fall under a different head of power based on the legislative facts presented in the reference.   

The Supreme Court did, however, provide some advice for the federal government should it choose to move forward with a national securities regulatory scheme, pointing to examples of other governments that have grappled with the issue of overlapping jurisdiction regarding securities regulation. While it refrained from exploring the particulars of what an appropriate arrangement might look like for Canada, the Court cited jurisdictions such as the United States, Germany and Australia and commented on the "growing practice of resolving the complex governance problems that arise in federations... by seeking cooperative solutions that meet the needs of the country as a whole as well as its constituent parts." Various prior Canadian attempts at achieving national securities regulation, the Court noted, also generally envisaged cooperation between the provinces and the federal government. Such an approach, the Court states, "is supported by constitutional principles and by the practice adopted by the federal and provincial governments in other fields of activities. The backbone of these schemes is the respect that each level of government has for each other's own sphere of jurisdiction. Cooperation is the animating force. The federalism principle upon which Canada's constitutional framework rests demands nothing less."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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