Canada: Constitutionality Of Anti-Spam Legislation

Last Updated: July 16 2012
Article by Ravi Shukla

While Canada's new anti-spam legislation1 received Royal Assent in December 15, 2010, the law is expected to come into full force in 2013 with the promulgation of a Governor in Council order. When it does, businesses operating in Canada will be governed by what many regard as one of the toughest anti-spam laws in the world.

The new law is intended to tightly regulate spammers and mailing list companies and, in doing so, regulate the way businesses market to prospective customers via email and online. In short, CASL will, in most cases, require a business to obtain consent from the recipient before it sends out commercial electronic messages ("CEMs"). This could include messages sent via social media, text messaging, instant messaging, sound or video as well as emails.

The proposed law has been widely criticised, and recent events have amplified an additional concern about the law's constitutionality.3 Concerns about the constitutionality of CASL have initially focused on two issues:

  1. the multiple approaches the federal government took in buttressing its position that the federal Personal Information Protection and Electronic Documents Act ("PIPEDA") was validly promulgated under the federal trade and commerce power; and
  2. that those approaches were notably not utilized to support the promulgation of CASL.

The constitutional concerns recently heightened when the Supreme Court of Canada ("SCC") held that the proposed federal Securities Act was not supportable under s. 91(2) of the Constitution.

Framework for Evaluating s. 91(2) against s. 92(13) – General Motors

In the case of General Motors of Canada Limited v. City National Leasing,5 one of the two constitutional questions the SCC was required to consider was whether the Combines Investigation Act, either in whole or in part, was ultra vires the federal Parliament under s. 91(2) of the Constitution, in particular the "second branch" of its power over "general" trade and commerce.

Leaving aside issues regarding the portion of the analysis having to do with assessing the constitutionality of a particular impugned provision, in reviewing legislation for compliance with the second branch of s. 91(2), the SCC advanced the following five tests of validity: 

  1. Whether the impugned legislation is part of a general regulatory scheme;  
  2. Whether the scheme will be monitored by the continuing oversight of a regulatory agency;  
  3. Whether the legislation is concerned with trade as a whole, rather than with a particular industry;  
  4. Whether the legislation is of a nature that the provinces jointly or severally would be constitutionally incapable of enacting; and  
  5. Whether the failure to include one or more provinces or localities in a legislative scheme would jeopardize the successful operation of the scheme in other parts of the country.

In General Motors, the SCC concluded that the foregoing hallmarks incidental to the second branch of the trade and commerce power were met and that, accordingly, the Combines Investigation Act was valid federal legislation.

PERSONAL INFORMATION PROTECTION AND ELECTRONIC DOCUMENTS ACT (PIPEDA)

The stated purpose of PIPEDA6 is to establish national rules governing the collection, use and disclosure of personal information regarding identifiable individuals. However, at the time the federal government implemented PIPEDA, there were questions raised about its ability to legislate in this field, given the perceived limitations on the scope of the federal jurisdiction under section 91(2) of the Constitution in light of the provincial powers granted under section 92(13).

The federal government attempted to solve this federalism problem by, among other things, including subsection 26(2)(b) in PIPEDA. This section permits the federal Governor in Council to determine that legislation in a province is "substantially similar" to PIPEDA and to then exempt from PIPEDA those organizations and activities that are subject to that substantially similar provincial legislation.

Nevertheless, the concerns about constitutionality ultimately resulted in a formal court challenge initiated by the government of Québec. The challenge, based in Order-in-Council 1368-2003-12-30, asked the following question:

Does Part 1 of [PIPEDA] exceed the legislative competence that the Constitution Act, 1867 confers to the Parliament of Canada?

While this reference case would allow and direct the courts to address the federalism question, it has been in suspension since 2006. Presumably, from Québec's perspective, much of the urgency was eased when the federal government declared that Québec's "Act respecting the protection of personal information in the private sector"7 met the test of substantial similarity.

Private individuals or organizations could also launch a challenge to PIPEDA constitutionality. The federal government's decision to provide8 for only a modest exposure to liability for damages, however, has presumably reduced the likelihood of such a challenger stepping forward. Nevertheless, in response to a finding by the federal Privacy Commissioner relating to video surveillance that attempted to compel access to information covered by the litigation privilege doctrine, State Farm Mutual Automobile Insurance Company ("State Farm") did raise, as an alternate ground in its litigation before the Federal Court , the argument that PIPEDA is not sufficiently concerned with "trade" as a whole, to be protected under s. 91(2) of the Constitution, but rather was concerned with the regulation of "information." In State Farm's view, this focus on a specific commodity or "property," meant that regulation by the provinces under s. 92(13) of the Constitution was required. In support of its position, State Farm also noted that provinces had the capacity to legislate in the areas of privacy and personal information and pointed to the various provincial statutes in this field. In State Farm's view, even if Part 2 of PIPEDA dealing with electronic documents was valid federal legislation, Part 1 (regarding the protection of personal information) went far beyond what could be considered a legitimate regulation of electronic commerce under the federal trade and commerce power. The Federal Court upheld State Farm's complaint; however and, in so doing, it declined to address the constitutional question.

SECURITIES REFERENCE

In evaluating the constitutionality of the proposed Federal Securities Act under the second branch of s. 91(2),10 the SCC applied the test from General Motors.

First, the SCC reviewed the "pith and substance" of the Federal Securities Act and determined that the intention of the legislation was to regulate trade and commerce. Specifically, the intention of the Federal Securities Act was to regulate, exclusively, all aspects of the trading of securities anywhere in Canada, including the trades and occupations relating to this industry. If compliant with the Constitution, the Federal Securities Act would duplicate and displace provincial securities legislation.

Next, the SCC reviewed the five validity tests as articulated in General Motors.

  1. Whether the impugned legislation is part of a general regulatory scheme; 
  2. Whether the scheme will be monitored by the continuing oversight of a regulatory agency; 
  3. Whether the legislation is concerned with trade as a whole, rather than with a particular industry; 
  4. Whether the legislation is of a nature that the provinces jointly or severally would be constitutionally incapable of enacting; 
  5. Whether the failure to include one or more provinces or localities in a legislative scheme would jeopardize the successful operation of the scheme in other parts of the country.

The SCC then reviewed "whether the [Federal Securities] 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."11  The court concluded that the primary effect of the Federal Securities Act was to regulate contracts and property within each of Canada's provinces and territories, in addition to taking control of the Canadian securities market. While the SCC found that a federal approach based on something beyond what the court called the "intra-provincial regulation of property and civil rights"12 would fall within the s. 91(2) power – perhaps suggesting a road map to the federal Parliament of what might pass constitutional muster – the Federal Securities Act as a whole could not be found constitutional by virtue of these acceptable provisions alone. Effectively, the SCC determined that the acceptable parts of the Federal Securities Act could not outweigh the unacceptable parts. The regulation of all trading in securities and the conduct of everyone in this industry in the federal sphere could not, in the SCC's view, "be described as a matter that is truly national in importance and scope"13 and different than provincial concerns. While "the preservation of capital markets and the maintenance of Canada's financial stability are [important]...they do not justify a wholesale takeover of the regulation of the securities industry which is the ultimate consequence of the [Federal Securities Act]."14

The SCC noted that the main purpose of the legislation was to protect investors and ensure fairness of Canada's financial markets, through regulation of financial market participants. However, in the Court's view, because the power to regulate for that purpose fell most clearly within the power of the provinces to regulate property and civil rights, the proposed federal Securities Act was judged outside the power of the federal government.15

ANTI-SPAM LEGISLATION

CASL is broadly drafted and provides for the levying of significant administrative monetary penalties (AMPs) - a maximum penalty of $1,000,000 for a violation in the case of an individual and $10,000,000 in the case of any other person. Furthermore, the narrow issue of spam could arguably be addressed via a modest adjustment to the tort of trespass to chattels, which lends further credibility to the argument that legitimate jurisdiction to regulate the dissemination of spam is to be found under the provincial s. 92(13) power. In addition, various electronic commerce statutes16 have been promulgated in various provinces and territories, suggesting that the field of electronic commerce generally is one that is largely provincial – leaving aside the federal government's proper role in regulating matters such as electronic bills of exchange, as well as over certain types of institutions such as banks17.

Looking at the decision in the Securities Reference, two factors which seemed to have affected the outcome are: (1) the extensive and longstanding "legacy" regulatory regime, which included harmonization efforts among the provinces; and (2) the fact that, in the court's view, other than reducing inefficiencies and costs and presenting a "national face" to international stakeholders, the federal government was not bringing much new into the mix. Effectively, the court seemed to perceive that the Securities Reference was largely about keeping a similar regime as the current provincially regulated one, but with an office governed federally, under federal legislation. 

It is also clear that in constitutional cases, politics matter. In the Securities Reference case the court was essentially being asked to use a "living tree" approach to constitutional analysis to justify a wholesale transfer of jurisdiction of a power that had previously been thought to be provincial. Clearly the SCC was unwilling to effect that transfer with the support of only one province, Ontario – the province that arguably stood to gain the most from any such transfer. While the SCC voiced its support for "co-operative and flexible federalism,"it emphasized that this sort of approach can only work within the framework of the Constitution's division of powers.18

Accordingly, there are good reasons to believe that the outcome in the Securities Reference case will not necessarily be repeated when the federal government takes an aggressive approach to legislating under its s. 91(2) power. In the case of CASL, while the constitutionality of the regime is somewhat questionable, the various provincial governments do not seem interested in opposing its promulgation, perhaps out of for fear of appearing to be aiding spammers.

The large AMPs provided for under CASL, however, make it very likely that anyone facing the possibility of a large fine will elect to launch a constitutional challenge to CASL. If such a challenge is launched, the question of compliance with the test as set out in General Motors may well be addressed in the following manner:

  1. The "pith and substance" of CASL is to regulate certain telecommunications in Canada in order to remove unwanted commercial messages from the electronic communications stream. A court would likely consider that this intention is within the powers of the federal Parliament under s. 91(2) of the Constitution.
  2. The five tests would be evaluated as follows:

    1. Is the impugned legislation is part of a general regulatory scheme? A court should not have much difficulty reaching a conclusion in favour of the federal government's approach. 
    2. Is the scheme to be monitored by the continuing oversight of a regulatory agency? Three federal government agencies are made responsible for the enforcement of CASL. One of them is the Canadian Radio-television and Telecommunications Commission which already has oversight over aspects of telecommunications. Once again, the Federal government should be able to meet the requirements of this portion of the test. 
    3. Whether the legislation is concerned with trade as a whole. Again, given the large number and different types of businesses in the online advertising "ecosystem" it is hard to see a court finding against the federal government on this part of the test and holding that that the legislation is concerned primarily with regulation of a particular industry. 
    4. It is unclear if a court would determine that the legislation is of a nature that the provinces together or separately would be constitutionally incapable of enacting. No province has attempted to regulate spam-like messages in a targeted way. Should one attempt to do so by building upon the existing provincial scope to enact private sector privacy legislation, that province would face the practical hurdle that the federal Parliament has authority to pass laws relating to both telecommunications and inter-provincial trade. On the other hand, the federal government's failure to provide for a PIPEDA-like "out" for a province wishing to regulate communications within the province via substantially similar provincial legislation may prove problematic to the federal governments' claim of meeting this hallmark. 
    5. The federal government likely would successfully argue that the failure to include one or more provinces or localities in a legislative scheme would jeopardize the successful operation of the scheme in other parts of the country. If all provinces except for one were to pass CASL-like legislation, commercial electronic messages would probably be distributed from entities in the holdout province, to people and organizations located in the banning provinces. While any Canada-based anti-spam legal regime may ultimately prove ineffectual against spammers who are located offshore, this does not negate the point that, for such a regime to stand a chance of being effective, it must be in place throughout the country. That being said, as is the case with (iv) above, the federal government's failure to provide a spur to the enactment of substantially similar provincial legislation may also prove problematic to the success of a claim by the federal government that it had satisfied this hallmark of validity.

CONCLUSION

Canadian federalism jurisprudence suggests that the federal government is not on completely firm ground in enacting the CASL regime, a situation made all the more clear by the recent decision of the SCC in the Securities Reference case. Unlike PIPEDA, CASL creates the potential for significant AMPs being levied and an express PIPEDA-like concession to federalism permitting substantially similar intra-provincial legislation to prevail is absent from CASL.

An organization faced with the risk of being penalized with a hefty AMP is very likely to challenge the legislation on constitutional grounds. While the outcome in the Securities Reference case may be successfully firewalled off by the federal government, it is by no means clear that a constitutional challenge to CASL is bound to fail.

The assistance of Sara Lefton, student-at-law, in preparing this article is gratefully acknowledged.

Footnotes

An Act to promote the efficiency and adaptability of the Canadian economy by regulating certain activities that discourage reliance on electronic means of carrying out commercial activities, and to amend the Canadian Radio-television and Telecommunications Commission Act, the Competition Act, the Personal Information Protection and Electronic Documents Act and the Telecommunications Act, S.C. 2010, c. 23, "CASL").

2  Electronic Protection Regulations, C. Gaz. 2011. I. Vol. 145, No. 27 ("CRTC Regulations") and Electronic Protection Regulations, C. Gaz. 2011. I. Vol. 145, No. 28 ("Industry Canada Regulations").

3  Many believe that CASL may not be valid under the Constitution Act, 1982 as "The Regulation of Trade and Commerce" (s. 91(2)) is a federal power under the Constitution, and "Property and Civil Rights in the Province" (s. 92(13)) is a provincial power.

4  S.C. 2000, c. 5.

General Motors of Canada Limited v. City National Leasing, [1989] 1 S.C.R. 641 ("General Motors"). 

6  PIPEDA, supra note 5 at s. 3.

7  R.S.Q. c. P-39.1.

8  PIPEDA, supra note 5 at s. 16 permits a court to "order an organization to correct its practices" to comply with the personal information protection sections of PIPEDA, "order an organization to publish a notice of any action taken or proposed to be taken to correct its practices", and "award damages to the complainant, including damages for any humiliation that the complainant has suffered."

State Farm Mutual Automobile Insurance Company v. Privacy Commissioner of Canada 2010 FC 736.

10 Reference Re Securities Act, 2011 S.C.C. 66 (S.C.C.) (the "Securities Reference").

11 Ibid at 124.

12 Ibid at 125.

13 Ibid.

14 Ibid at 128.

15 Ibid at 128-130.

16 Such as, in Ontario, the Electronic Commerce Act, 2000, S.O. 2000, c. 17.

17 See Part XVIII, "Documents in Electronic or Other Form" of the Bank Act (S.C. 1991, c. 46).

18 Securities Reference, supra note 11 at 62.

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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