Nigel Campbell and Doug McLeod

In the battle over the future of securities regulation in Canada, the first round has been decided in favour of the provincial opponents of a national regulator. In a decision filed on March 8, 2011, the Alberta Court of Appeal (the Court) found that the federal government does not have the constitutional authority to regulate securities, and that the currently proposed federal securities legislation would accordingly be unconstitutional. The Court had been asked to opine on the federal government’s authority over securities by way of a reference brought by the Province of Alberta.

Advocates for a national Canadian securities regulator have long argued that Canada’s current status quo – which involves separate securities legislation and regulation for each province – is unnecessarily duplicative, is inefficient, and places Canada at a competitive disadvantage in a global capital marketplace. A number of Wise Persons’ commissions and other reports have studied the issue over the past several decades and have tended to support these arguments.

In response to the longstanding calls for action on a national Canadian securities regulator, on May 26, 2010, the Government of Canada published a proposed draft of a federal Canadian Securities Act (the Act), which it proposed to enact under its constitutional authority over “trade and commerce”. A background to the draft Actcan be found in the June 2010 Blakes Bulletin:Canadian Government Releases Proposed Canadian Securities Act.

Alberta and Quebec subsequently declared their opposition to the federal initiative, and each province directed a reference to their respective provincial appellate courts regarding the constitutionality of the proposed Act. Both references were argued in January 2011, and the Alberta decision was the first of the two to be published. Quebec’s decision is expected in the coming weeks. For its part, the federal government has directed a reference to the Supreme Court, which is scheduled to be heard in April.

Anyone looking to the Alberta decision for an assessment of the practical merits of federal-level securities regulation will be disappointed. Indeed, in its decision, the Court declines to make any finding on the merits of the proposed regulator on the basis of its conclusion that, notwithstanding the principle that the Constitution can be interpreted in a contextual manner and as an evolving document, in the case of securities regulation, “It is neither appropriate nor necessary for this Court to try and determine whether it is “better” for Canada to have a national, as compared to a provincial, system of securities regulation”.

Having concluded that it would be improper to consider the practical merits of the issue before it, the Court proceeds to also dismiss a line of constitutional law precedents tending to allow a relatively broad and flexible assessment of the scope of the federal “trade and commerce” power. In the Court’s view, securities regulation falls within the exclusive provincial jurisdiction under the provinces’ power over “property and civil rights”, and the federal government has no power allowing it to enter the field.

Having dismissed consideration of both the practical arguments in favour of a national regulator and the most favourable constitutional precedents for the federal side, the Court proceeds to reach its conclusion that the proposed Act is unconstitutional.

In the coming weeks, the Quebec Court of Appeal is expected to release its decision on the parallel reference directed to it by the Province of Quebec. Blakes will publish an update to this bulletin when the Quebec decision is published.

Ultimately, both the Alberta and Quebec decisions will be precursors to the true showdown, which will take place at the Supreme Court via the reference scheduled for mid-April. The decision that is eventually rendered by the Supreme Court will trump both the provincial decisions, and will definitively determine the future of national securities regulation in Canada. Advocates of a national securities regulator will have to hope that the Supreme Court takes a broader view of both the relevance of practical considerations, and the flexibility granted it in interpreting the federal powers in the Constitution, than that adopted by the Alberta Court of Appeal.

For further information, please contact:

Montréal Robert Torralbo 514-982-4014
Toronto Nigel Campbell 416-863-2429
Doug McLeod 416-863-2705
Calgary Ken Mills 403-260-9648
David Tupper 403-260-9722
Vancouver Jim Sullivan 604-631-3358

or a member of our Litigation & Dispute Resolution Group.

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Tags: Litigation & Dispute Resolution, Capital Markets

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