Articles
Alberta’s Highest Court has Ruled that Federal Securities Regulation is Unconstitutional
Published: 03/10/2011
By Ellen Bessner, Robert Kligman, Daniel Waldman The basic argument of the federal government in favour of the proposed national Securities Act (“the Act”) was that the current provincial securities regulatory regime is obsolete, inefficient, fragmented and too expensive to keep up with changing capital markets. The Government of Alberta disagreed, stating that each province has its own unique set of needs, market conditions and priorities, and a national regulator would be insensitive to these issues. The Court made it clear that is not up to the judiciary to decide which form of regulation is better. Justice Slatter stated that the analysis was strictly limited to the constitutionality of the Act.
Justice Slatter also noted that the Act may never be in force across the country because it requires provincial consent. Under s. 250, it will only become effective in a particular province if that province agrees to suspend its own jurisdiction over securities matters.
The crux of Justice Slatter’s ruling was that the “pith and substance” of the regulatory regime that the Act would apply to is property and civil rights, which is a matter of provincial jurisdiction. The federal government argued that the securities industry has changed over the past decade, and has become more widespread and complex, to the point that it can be regulated under the federal jurisdiction over trade and commerce. The federal government also argued that the securities industry has characteristics which could otherwise fall under federal purview. This regulation includes the quasi-criminal nature of investigation and enforcement powers. The court agreed that the industry may have changed, and certain aspects have a federal character, but this does not change the pith and substance of the overall regime. Justice Slatter stated:
“At the end of the day the regime still regulates individual contractual and
property rights, as sophisticated, complex and fast as they may now be.”
The Court recognized that while the Act does overlap with certain offences under the Criminal Code, which is federal territory, this does not justify classifying securities regulation as a federal matter. The main reason for this, Justice Slatter stated, is that the Act did not originate in response to criminal behaviour in Canada, but rather it is a response to economic and competitive issues. The Government of Alberta conceded that certain portions of the Act may relate to a valid exercise of the federal criminal power when taken in isolation. However, using these isolated portions to justify the overall regulatory regime would amount to “constitutional bootstrapping.”
The main basis on which the federal government supported the constitutionality of the Act was the trade and commerce power, which is federal jurisdiction. The Court stated that by relying on this power, the federal government was seeking a more centralized regime for securities regulation, which would result in a “major shift” of provincial jurisdiction. Similar attempts to do this in the past with other industries, such as insurance, had always failed. The court ultimately stressed the point that securities regulation has always fallen under the provincial mandate and “no authority has been cited which sanctions such a wholesale transfer of constitutional jurisdiction.”
The federal government also argued that the “double aspect doctrine”, which provides for the overlapping of federal and provincial legislation could be applied. Under this doctrine, similar provincial and federal legislation can both be constitutional if they fall within their respective heads of power. The Court rejected this argument. To rely on this doctrine, it must be established that both the federal and provincial statutes are valid. This was not the case, in light of the conclusion that the Act is not valid under the federal trade and commerce power. Further, the doctrine is usually applied where federal and provincial statues are “enacted for different purposes and in different legislative contexts which give them distinct constitutional characterizations.” In this case, the Act has no distinct purpose that is different from the provincial securities acts, which precludes the application of the doctrine.
For these reasons, the court held that the Act, if enacted, would be unconstitutional.
If you would like to discuss this case, please feel free to call Ellen Bessner, Daniel Waldman, Robert Kligman or any other member of the Securities Litigation Group.
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