On December 22, 2011, the Supreme Court of Canada released its landmark advisory opinion in the Reference Re Securities Act, 2011 SCC 66. In a decisive ruling, the Court unanimously held that the proposed federal Securities Act, an omnibus statute purporting to regulate all aspects of trading in securities, was "not valid". With these two critical words, the Court seriously impaired the federal government's regulatory ambitions and strongly reinforced the prevailing constitutional order.
A brief survey of the historical context is helpful to understanding the scope and significance of this reference case. Since the time of Confederation, the provinces have regulated securities by regulating contracts and property matters within their boundaries and those engaged in the securities industry. Consistent with this regulatory approach, trading in securities has been regarded as a local concern subject to provincial jurisdiction over property and civil rights [section 92(13) of the Constitution Act, 1867]. This basic reality has not changed, nor has it been seriously challenged. However, in proposing the Act, the federal government contended that another aspect of trading in securities (global capital markets) has recently emerged so as to lend concurrent regulatory power under its general trade and commerce power [section 91(2) of the Constitution Act, 1867]. The battle lines were hence drawn, a contest between the two broadest economic powers in the federation.
The Court was guided in its constitutional analysis by the five indicia of federal competence set out by former Chief Justice Dickson in the earlier case of General Motors of Canada v. City National Leasing,  1 S.C.R 641 (S.C.C.). These indicia, which are not exhaustive, serve to test whether a matter is of "genuine national importance and scope". In other words, they seek to preserve balance by confining federal jurisdiction to matters which go to "trade as a whole" and are of "crucial importance for the national economy" (as opposed to matters of a "purely local concern").
The final three indicia were decisive in assessing the vires of the proposed federal Securities Act.
(3) Whether the legislation is concerned with trade as a whole rather than with a particular industry.
The Court found that the "main thrust" of the proposed federal Securities Act - the day-to-day regulation of securities – is industry-specific and intra-provincial in nature. While the totality of securities transactions and the macroeconomic interests they feed, such as systemic risk, may transcend a particular "industry" and fall into the category of "trade as a whole", there was insufficient evidence to hold that the Act was primarily aimed at any of these general matters. On the contrary, the Act could not be characterized any differently than the existing provincial legislation it duplicated. The Court held that the Act "overreaches" the proper scope of the general trade and commerce power, descending well into industry-specific regulation.
(4) Whether the legislation is of such a nature that the provinces, acting alone or in concert, would be constitutionally incapable of enacting it.
Although the provinces were found to lack the constitutional capacity to address purely national goals which are "evasive of provincial boundaries and usual methods of control" (such as systemic risk), their incapacity did not extend to all matters of trading in securities. As demonstrated by the extensive record filed by the Attorneys General of Alberta and Québec, the provinces are eminently capable of addressing the day-to-day core of the subject matter. As such, the federal government was guilty of legislative "overreach" in pursuing its legislative interests.
(5) Whether the legislative scheme is such that the failure to include one or more provinces or localities in the scheme would jeopardize its successful operation in other parts of the country.
It could not be said that the success of the proposed federal Securities Act depended on universal provincial participation. The Act merely duplicated existing provincial legislation. Moreover, the Act contained an "opt-in" clause allowing the provinces to voluntarily cede their jurisdiction in favour of a federal regulator, hardly an indicator of participatory necessity.
Accordingly, there was no basis in fact or law to uphold the proposed federal Securities Act. The federal initiative was thus invalidated and provincial jurisdiction over trading in securities was henceforth preserved.
Beyond the immediate issue of securities regulation, this reference case will also be cited as a beacon of provincial economic rights. At its core, the Court's decision upholds and reinforces the dichotomy of economic power that has persisted since the seminal decision of the Judicial Committee of the Privy Council in The Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96 (P.C.). Had the Court concluded differently and upheld the proposed federal Securities Act, the pendulum would have risked shifting in favour of economic unitarianism and exposed other areas of established provincial responsibility, consumer protection and insurance to name a few, to future federal incursion.
The Court's advisory opinion concludes with an appeal for "cooperation" among all interested participants. Some jurists have interpreted this statement as recognition that jurisdictional lines may, in fact, intersect in this area. However, this interpretation is open to question. It is more likely that the Court is cautioning that a national regulator (with federal involvement in the field) can only be accomplished through political persuasion and cooperation, not by an unprecedented intrusion into areas of provincial jurisdiction.
FMC Law played a leading role on the provincial side in this matter. E. David D. Tavender, QC, D. Brian Foster, QC and Jordan C. Milne of FMC Law's Calgary Office, together with L. Christine Enns, QC of Alberta Justice, acted as counsel for the Attorney General of Alberta before the Supreme Court of Canada and in earlier references before the Alberta and Québec Courts of Appeal. In addition, lawyers from the Montreal Office provided expert advice and representation to l'Autorité des marchés financiers (AMF) and the Institute for Governance of Private and Public Organizations.
For more information, visit FMC's Canadian Constitutional Law Blog at www.canadianconstitutionallaw.com
About Fraser Milner Casgrain LLP (FMC)
FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit: www.fmc-law.com
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.