a canadiana canadian securities regulator for the 21for the 21st

A CanadianA Canadian Securities Regulator for the 21st Centuryfor the 21st Century

Supreme Court Reference Re: Canadian Securities ActAugust 15, 2011

In the Supreme Court of Canada:

● File No. 33718● In the Matter of Section 53 of the Supreme Court Act,

R S C 1985 c S 26R.S.C. 1985, c.S-26● In the Matter of a Reference by the Governor in Council

concerning the proposed Canadian Securities Act, as set g p pout in Order in Council P.C. 2010, dated May 26, 2010

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The Question:

● “Is the annexed Proposed Canadian Securities Actwithin the legislative authority of the Parliament of Canada?”Canada?

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The Judges:

● Right Honourable Madam Chief Justice Beverly McLachlin

● Rosalie Abella● Rosalie Abella● William Ian Binnie● Louise CharronLouise Charron● Thomas Cromwell● Maris Deschamps● Morris Fish● Louis LeBel

The Right Honourable

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● Marshall Rothstein The Right HonourableBeverley McLachlin, P.C., Chief Justice of Canada

The Answer (Canada):

● The answer to the reference question is “yes”. The Act as a whole is within Parliament’swhole is within Parliament s authority under the general branch of the Trade and Commerce cla se in s 91(2) ofCommerce clause in s.91(2) of the Constitution Act, 1867. Part II, Division 6 (ss. 158-165) of the Act is also within Parliament’s authority pursuant to the Criminal Law power in s.92(27).

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Law power in s.92(27). The Honourable Mr. Justice William Ian CorneilBinnie

The Answer (Quebec, Alberta, BC, Sask):

● Québec submits that the issue is whether Parliament can replace existing provincial legislation by enacting legislation that adopts the same goals and practically similar means as the provinces.

● Alberta submits that the answer to the reference question is “No”, except for the criminal law provisions.

● British Columbia: “No”. It supports the concept of a single federal securities regulator so long as the federal legislation establishing that single regulator respects the division of powers under ss.91 and 92 of the Constitution Act, 1867.

● Saskatchewan is concerned about an unprecedented extension to the s.91(2) trade and commerce power that would erode provincial jurisdiction and alter the balance between governments.

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The Answer (Manitoba, New Brunswick):

● Manitoba submits that the proposed Act is a matter of property and civil rights under s. 92(13) of the Constitution Act 1867 and therefore its enactment byConstitution Act, 1867, and therefore its enactment by Parliament would be ultra vires. It is not a valid exercise of the general branch of the trade and commerce power i 91(2)in s. 91(2)

● New Brunswick submits that the answer is “No”. Securities regulation continues to fall under property and g p p ycivil rights in the province under s.92(10), (11), (13) and (16).

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What is Not the Question? (Canada):

● No discussion of whether the Act is sound policy - the exclusive preserve of Parliament.

● No performance assessment of the existing 13 regulators.

● The issue is not whether Parliament should create a single national securities regulator, but whether it is constitutionally able to do so.Q b C fA Di t It i t t j d t d i● Quebec CofA Dissent: It is not up to us as judges to advise on what would be in the best interest of the country, nor to decide if having a single federal agency would be more efficient than the existing thirteen provincial and territorial authorities. Our role is limited to determining if Parliament has the right to adopt the proposed Canadian Securities Act pursuant to the powers

The Honourable Mr. Justice Louis LeBel

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proposed Canadian Securities Act pursuant to the powers conferred to it by the Constitution.

Presumption of Constitutionality Applies (Canada)

● Challengers must demonstrate the legislation is ultra viresis ultra vires.

● The Court’s inquiry is to determine simply whether there is a rational basis for the legislation.

● Cdn Banks Assoc adds: the evidentiary t d d i th t P li t d l hstandard is that Parliament need only show a

“rational basis” for the Act under heads of federal legislative power, so the Court must adjudicate the law’s underlying “social and economic policy”, it being a deferential The Honourable Mr

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p y , gstandard.

The Honourable Mr. Justice Morris J. Fish

Presumption (Saskatchewan):

● Saskatchewan argues that the greater the intrusion on provincial powers, the heavier the burden for the federal government to justify this intrusion through the applicationgovernment to justify this intrusion through the application of the 5 criteria, so all 5 criteria must be satisfied for 3 reasons: (1) this is the first time the Court has been

k d t l t t t t i i tasked to measure a complete statutory regime against the GM criteria; (2) the intrusion into provincial legislative jurisdiction is substantial; and (3) the low evidentiary threshold of “simple rationality” is not adequate on this issue.

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Two Stage Test:

● Canada says the single question invites application of a two stage test articulated in the Firearms Referencearticulated in the Firearms Reference(Reference Re Firearms Act (Can.), [2000] 1 S.C.R. 783) which requires the Co rt to determinethe Court to determine: ● (a) the pith and substance of the law;

and ● (b) whether the law comes within one

or more of the heads of power enumerated within the Constitution

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enumerated within the Constitution Act, 1867, s.91.

The Honourable Mr. Justice Thomas Albert Cromwell

Pith and Substance (Canada):

● The Securities Act is comprehensive● The Securities Act is comprehensive national securities regulation. Courts are required to look at the purpose of the law, in the sense of what Parliament intended tothe sense of what Parliament intended to accomplish, and the practical and legal effects of the law.

● The Government’s Goal is to Create a● The Government s Goal is to Create a Single National Securities Regulator● Purpose is determined at a high level of generality

with factors such as express “purpose clauses”, the t t f th t t b k d dstructure of the enactment , background and

circumstances surrounding enactment.

● Effects have significance only where they may demonstrate some alternative or ulterior purpose to

The Honourable Justice Marshall Rothstein

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demonstrate some alternative or ulterior purpose to the legislation.

Pith and Substance (Quebec):

● The Court should not give weight to factual assertions made in the preamble where there is no evidentiary support.

● The proposed Act does not have a different aspect from provincial regulation, even if it is described as being “comprehensive” and contains elements not found in provincial legislation.

● The pith and substance is the regulation of the securities industry to protect investors with respect to contractual dealings of private and local nature.

● The objective of pursuing systemic risk does not alter the pith and substance. Systemic risk can be regulated federally and provincially, just like healthcare or the environment.

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Pith and Substance (Cdn Banks Assoc):

● The Cdn Banks Assoc. argues that while one may speak loosely or colloquially of the “securities industry”, what the Act regulates is trade as a whole because the raising ofAct regulates is trade as a whole, because the raising of capital and secondary market trading across all industries and sectors of the Canadian economy and securities

k t f i t l t f th i f t t f thmarkets form an integral part of the infrastructure of the Canadian economy.

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Pith and Substance (Alberta):

● Authorities require an inquiry into the true nature of the law in question for the purpose of identifying the ‘matter’ to which it essentially relates, what is the most important characteristic of the law or what is the essential character of the law.

● The Act’s true purpose as opposed to its mere stated or apparent purpose, is virtually identical to existing provincial securities

( fregulation legislation (with the exception of the criminal law substantive provisions).

● The balance of federalism requires the recognition of diversity and a d f i i l hi h i b d f i idegree of provincial autonomy which is to be protected from intrusion and encroachment. If the impugned provision is highly intrusive on provincial powers, then a stricter test is appropriate.

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Pith and Substance (Manitoba):

● Identifying the pith and substance of the proposed Act as “the regulation of capital markets”, or some variant thereof, is too imprecise and not historically accurate for legislation of this nature. It is not factually accurate, because securities legislation does not cover the range of capital activity in a modern economy.

● Because of the existence of the private capital market that services most small enterprises, it must necessarily be confined to the “public” pursuit of capital through the process of issuing securitiesthe process of issuing securities.

● The public nature engages the consumer protection component of the proposed Act –a component that encompasses both current investors and the wider “investing

bli ” l th h ill i t i iti i th f t if th h fidpublic”, namely those who will invest in securities in the future if they have confidence that the securities market is operating fairly. The notion of “capital markets” is inextricably intertwined with the protection of investors, covered by provincial regulation.

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Trade and Commerce (Canada):

● Comprehensive National Securities Regulation is within the General Branch of the Trade and Commerce Clause:

● Does the matter come within enumerated head of power in the Constitution Act, 1867? Answer: Yes, because comprehensive national securities regulation comes within the s.91(2) trade and commerce power, and some sections (see s.158-166) are supportable under criminal law power.

● The s.91(2) general branch applies where the subject matter “affects the whole of the Dominion”, that is “trade as a whole”. This leads to the 5 questions from GM.

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Trade and Commerce (Canada):

Parliament does have jurisdiction:● The proposed Act is a law that is, in

pith and substance, designed topith and substance, designed to establish a comprehensive regime of securities regulation administered by a single national regulator.

● Such a regime is a valid exercise of the general branch of the trade and commerce power in s.91(2) of the Constitution Act, 1867

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The Honourable Madam Justice Marie Deschamps

Trade and Commerce (Quebec):

● A long line of cases have held the pith and substance of securities regulation falls within property and civil rights and matters of purely local nature.

● Securities transactions = series of intra-provincial transactions. ● The fact that information given to investors or the conduct of

intermediaries may take place in different provinces does not change the local characteristic of the activity being regulated.

● A link with the province where the measure is adopted is sufficient. (like regulation of professionals)

● International markets do not change the nature of the activity being regulated.

● The two heads of power (Trade/Commerce vs. Property & Civil

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p ( p yRights) are mutually exclusive.

Trade and Commerce (Quebec):

● The Trade and Commerce power must be interpreted restrictively or else it would render other heads of power redundant and would render provincial power overredundant and would render provincial power over property and civil rights devoid of meaning.

● Parliament may not regulate a particular business (despite national scale) or the contracts within a particular business regardless of economic importance.

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Trade and Commerce (Alberta):

● Trading in securities is a matter of contractual, property and civil rights of persons engaged in trading in securities, falling squarely under Section 92|(13) “property and civil rights” provision of the Constitution Act, 1867. It is not “trade as a whole” or “trade to trade”not trade as a whole or trade to trade .

● When a purported use of the general trade and commerce power intrudes into provincial jurisdiction, a reverse onus lies on Canada. The intrusion must be “weighed in light of the possible justification for the section”. A stricter test g g p jis appropriate.

● The trade and commerce power must be restricted to matters truly of “crucial importance for the national economy” (quoting General Motors) and “ lit ti l diff t f thi th t ld ti ll tit ti ll“qualitatively different from anything that could practically or constitutionally be enacted by the individual provinces either separately or in combination”.

● A high threshold test is important to maintain the balance of federalism and to avoid intrusions into the degree of local autonomy for the provinces

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to avoid intrusions into the degree of local autonomy for the provinces contemplated by the Constitution.

Trade and Commerce (BC):

● Regulation of the sale of securities and regulation of persons and entities involved in the trading of securities is within the exclusive jurisdiction of the province under s.92.

● The Court and other courts in Canada have consistently recognized the paramount object to the British Columbia Securities Act is protection of the investing public,object to the British Columbia Securities Act is protection of the investing public, thereby protecting the integrity of capital markets in the province and encouraging investment.

● With this central focus, provincial Securities Acts are properly characterized as consumer protection legislationconsumer protection legislation.

● The proposed Act virtually replicates, so it impairs the core competence of the province to regulate the sale of securities and regulated persons, which impairment is protected by the “doctrine of inter-jurisdictional immunity”.U tit ti l “ fl ” f th i f f d l l i l ti d th● Unconstitutional “overflow” of the exercise of federal legislative power under the proposed Act cannot be “rescued” as an exercise of the general trade and commerce power. To maintain the federal nature of the division of powers, judicial restraint must be exercised.

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Trade and Commerce (Ontario, Quebec Court Majority):

● Ontario adds that, with respect to the federal trade and commerce power, the General Motors test is designed to strike an appropriate balance between provincial powersstrike an appropriate balance between provincial powers over property and civil rights and the need for effective federal regulation of matters that are crucial to the

ti l d th f i th d l tnational economy and therefore require the development and implementation of national public policy.

● Quebec Court Majority: The proposed Act does not fall Q j y p punder the Parliament of Canada's jurisdiction under the general branch of the trade and commerce power, because it fails to satisfy three of the five indicia

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because it fails to satisfy three of the five indicia established by the Supreme Court of Canada.

Trade and Commerce (Quebec Court Dissent):

● In order to determine if Parliament could validly exercise rely on s.91(2), courts consider the GM five indicia.

● With respect to my colleagues, to assert that the Proposed Act is not concerned with trade as a whole ….. is to sterilise the general trade and commerce power under section 91(2) and to revert to an old line of cases that was reversed long ago.

The HonourablePierre J. Dalphond

● To sum up, all the relevant indicia of a valid exercise of Parliament's general trade and commerce power

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are present.

5 Indicators: The GM Tests

● The Constitution Act, 1867has been interpreted in cases such as Generalcases such as General Motors [1989] which do not establish a formal test for constit tional aliditconstitutional validity;

● rather they ask the Court to assess the legislation gagainst five indicators that bear on classification.The Honourable Madam

Justice Rosalie Silberman

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Abella

Five Indicators:

● #1: Is the impugned legislation part of a regulatory scheme?

● #2: Is the scheme monitored by the continuing oversight of a regulatory authority?regulatory authority?

● #3: Is the legislation concerned with trade as a whole rather than a particular industry?

● #4: Is the legislation of a nature that the provinces jointly or severally would be constitutionally incapable of enacting?

● #5: Would the failure to include one or more provinces or localities in the scheme jeopardize the successful operation of the scheme in other parts of the country?

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Indicator #1: Is the impugned legislation part of a regulatory scheme?

● Answer – Yes. The Actestablishes a regulatory scheme which is morescheme which is more comprehensive than current provincial and territorial schemesterritorial schemes.

● It is a regulatory scheme that pursues two traditional objects of securities regulation (i) the protection of investors and (ii) the

ti f f i ffi i t d titipromotion of fair, efficient and competitive capital markets. It also includes a purpose clause to contribute, as part of the Canadian financial regulatory framework, to the integrity and stability of the financial system.The Honourable Madam

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y yThe Honourable Madam Justice Louise Charron

Indicator #2: Is the scheme monitored by the continuing oversight of a regulatory authority?

● Answer: Yes. The scheme is monitored by the continuing oversight of a regulatoryoversight of a regulatory agency, namely the Canadian Securities Regulatory A thorit (CSRA)Authority (CSRA).

The Honourable Justice Marshall Rothstein

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Indicator #3: Is the legislation concerned with trade as a whole rather than particular industry?

● Answer: Yes. The legislation is concerned with trade as a whole rather than a particularwhole rather than a particular industry in an area in which the subject matter of the reg lation is o er helminglregulation is overwhelmingly interprovincial and international, and of critical importance to all Canadians.

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The Honourable Mr. Justice Thomas Albert Cromwell

Indicator #3 Trade (Canada):

● It regulates not only the persons and businesses involved in securities-related activities, but also mandates broad-based economic policy-making and enforcement throughout the country.

● The legislation applies not only to the “securities industry” (dealers, advisers, intermediaries) but also to public companies and investors in every sector of the economy.

● It regulates the primary market (the issue of new securities) and trading in the secondary market.

● The legislation will also regulate important corporate practices including disclosure and governance to preserve investor confidence.

● Like federal competition law, which forbids unfair competitive practices across all industries, it is concerned with trade as a whole

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and not a particular industry.

Indicator #3 Trade (Alberta):

● The phrase “a particular industry” should not be given a narrow meaning and regulated activities associated with trading in securities falls within the scope of a particular industry. C it l M k t C d d t tt t t d fi “ it l k t ” d● Capital Markets: Canada does not attempt to define “capital markets” and then goes on to give definitions that deal with ‘trades’ in ‘securities’. The evidence is that capital markets is a term that can be used to describe the aggregation of all types of individual trades in securities that take place in a gg g yp pparticular market. What is regulated is the contractual, property and civil rights of the persons involved in the trading in securities within local jurisdictions. Capital markets per se are not regulated. S t i Ri k P i ibilit f t ti i t t i i k● Systemic Risk: Primary responsibility for protecting against systemic risk lies with federal institutions, not securities regulators.

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Indicator #3 Trade (Ontario):

● Capital markets are foundational for the national economy.

● Like the anti competitive trade practices by a federal● Like the anti-competitive trade practices by a federal agency which were upheld in General Motors, securities law regulates practices across all industries that are important to the economic welfare of the country as a whole and ensures confidence in Canada’s capital markets, which is not an issue of purely local concern., p y

● Unlike insurance, for example, securities laws deal with a wide range of market participants and are national and i t ti l i

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international in scope.

Indicator #3 Trade (Cdn Bankers Assoc):

● Cdn Bankers Assoc - supports Canada and the proposition that the Act is addressed at a national economic concern: to assure the integrity and competitiveness of Canada’s capital markets and to create a comprehensive and coordinated national enforcement regime. They argue (i) because the Constitution is a living tree subject to progressive interpretation, it must accommodate modern business realities, including the globalization of capital markets and the advent of systemic risk; (ii) h A t b fi f h i f i i li d if(ii) the Act benefits from the presumption of constitutionality and if faced with two plausible interpretations, the Court should choose the interpretation that supports validity; (iii) th C t t t dj di t th l ’ i d f ffi

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(iii) the Court must not adjudicate the law’s wisdom of efficacy;

Indicator #3 Trade (FAIR):

● The fact that securities regulation has been largely local to date does not preclude the federal government from enacting laws to regulate the national economy when what were once local economic concerns develop into national and international onesnational and international ones.

● For retail investors, the most important aspect of the proposed Act is that it will replace the current consensus-based model with a legislated nationalwill replace the current consensus based model with a legislated national regulator, which (1) is accountable to the Governor-in-Council and, by extension, all Canadians; (2) is capable of imposing regulatory initiatives that are in the interest of Canadian investors; and (3) is able to pool enforcement

d l ti i th f f t d fresources, develop expertise in the area of enforcement and enforce harmonized laws across the country to protect investors, as well as the integrity of Canada's capital markets.

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Indicator #3 Trade (IIAC, Teachers):

● They argued the proposed Securities Act addresses a genuinely national economic concern, regulates trade as a whole from the investment dealers perspective.

● Primary and secondary equity markets, as well as the secondary fixed income market, are national and international in scope; and the current regulatory system is fragmented costly and inadequate in developingregulatory system is fragmented, costly and inadequate in developing policies and rules to respond to complex and rapid developments in the capital markets.

● Ontario Teachers’ Pension Plan Board (Teachers) argues the current provincial system hinders Canada and the economy as a whole. The problems in borderless capital markets are not containable within provincial boundaries

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boundaries.

Indicator #3 Trade (Per Quebec Court Majority):

● The most important characteristic, the leading feature, or the true meaning of the Proposed Act is the regulation of trading in securitiestrading in securities.

● The proposed Act does not concern trade as a whole, but transactions limited to a particular industry.

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Indicator #4: Is the legislation of a nature that the provinces jointly or severally would be constitutionally incapable of enacting?

● Answer – Yes, because limitations on provincial powers preclude provincespowers preclude provinces from establishing a comprehensive regime of sec rities reg lationsecurities regulation.

The Right Honourable

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The Right HonourableBeverley McLachlin, P.C., Chief Justice of Canada

Indicator #4 Capacity (Canada):

● Limits on Provincial Law:● (1) inability to regulate interprovincial and international trade, ● (2) laws cannot apply extraprovincially● (2) laws cannot apply extraprovincially, ● (3) cannot regulate the issue of securities by federally-

incorporated companies, ● (4) they cannot legislate a comprehensive enforcement regime

in relation to criminal law, and ● (5) they cannot represent Canada’s interest or speak for● (5) they cannot represent Canada s interest or speak for

Canada at the international level.

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● “Passport System” demonstrates that even joint action cannot constitutionally replicate a comprehensive national regime of securities regulation monitored by a single national agency.

● The capital market is fundamentally interprovincial and international. The national regulator will bring national resources to bear on enforcement without regard to provincial boundaries.

● The national regulator will cooperate with other federal agencies to play its role in reducing systemic risk to Canada’s financial system.

● The national regulator will speak for and make commitments for Canada at the international level.

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● Provincial regulation is no more than the sum of the individual provinces’ interests.

● No one is accountable for the external effects of one● No one is accountable for the external effects of one province’s regulatory choices on the residents of all the other provinces.

● The Government of Canada must have the capacity to protect the national economy by ensuring the fairness, effectiveness and competitiveness of capital markets andeffectiveness and competitiveness of capital markets and be able to act to avoid the collapse of the financial system during times of crisis.

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Indicator #4 Capacity (Quebec):

● Legislation should be qualitatively different from what the provinces alone or together can practically or constitutionally achieve.

● Proposed Act is practically the same as provincial legislation and empirical id t l d t t th t i bl f ff ti levidence strongly demonstrates that provinces are capable of effectively

regulating securities (Passport, cooperation, etc.) ● The fact that provinces are cooperating is an integral part of our federal

system and not a sign of a problem requiring a national solutionsystem and not a sign of a problem requiring a national solution. ● Harmonization is not a basis for 91(2). ● Federal power over banking, criminal and federal corporate law could not

form the bases for taking over securities. g● Debate under the umbrella of CSA has many advantages (See Sarbanes-

Oxley). ● The problem with enforcement is in the lap of the federal government

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(problems with IMET, etc.)

Indicator #4 Capacity (Alberta):

● Alberta concludes the provinces have demonstrated their capacity to carry out regulatory responsibilities set out in the proposed Actthe proposed Act.

● Alberta does not accept the allegations made in Canada’s factum that there are some deficiencies under the existing provincial securities regulatory system and that the proposed Act addresses those by extending beyond existing legislation. y g g

● Those allegations do not support a finding the provinces are practically or constitutionally incapable of addressing th

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them.

Indicator #4 Capacity (Manitoba):

● The provinces do act collectively to create a functioning system that is nation in scope, the proponents of federal legislation cannot meet the provincial incapability test.

● The premise of securities law is that intermediaries eliminate even notional exchanges of economic or property rights between individual investor. Buyers and sellers only have relationships with intermediaries and rights or redress against the intermediaries (privityof contract). Provincial legislation is capable of regulating the conduct f i d k i di i h i dof issuers and market intermediaries, wherever situated.

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Indicator #4 Capacity (Ontario):

● The Passport system is an insufficient regulatory response, which Ontario does not participate in, because (1) it only addresses limited areas (it excludes(1) it only addresses limited areas (it excludes enforcement-related concerns), (2) it perpetuates a high degree of variation among jurisdictions, and (3) it does

t id C d ith t i t ti l inot provide Canada with a strong international voice.● Parliament may enact provisions regulating capital

markets across Canada, but provinces cannot directly , p ylegislate in relation to interprovincial and international trade.P i t l th t t k ti

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● Provinces cannot compel one another to take action.

Indicator #4 Capacity (CCGG, IIAC):

● CCGG focused on enforcement – noting that the provincial focus is provincial as the paramount or overriding purpose of the Alberta securities laws, is protecting investors within the Province of Alberta and the same is necessarily true for every other province, with the result that enforcement is disjointed and “jurisdiction –hopping” occurs.

f S● Provinces cannot achieve the aims of the proposed Securities Act . Any province can withdraw from the current voluntary participation in the CSA, which as a result suffers from problems and slowness in reaching policy consensus and lack of accountabilityreaching policy consensus and lack of accountability.

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Indicator #4 Capacity (Quebec Court):

● Majority: It has not been established that the provinces are● Majority: It has not been established that the provinces are constitutionally incapable of adopting a similar regime, especially in view of the existence of the current passport system.

● Dissent: The possibility for Parliament to adopt a general legislation● Dissent: The possibility for Parliament to adopt a general legislation dealing with securities was never excluded. The Supreme Court of Canada left the door open to this as a possibility in Multiple Access Ltd.Ltd.

● Ask whether the Proposed Act can achieve things that the provinces, jointly or severally, cannot constitutionally accomplish. Here this is the case: decisions would be applicable across the country; agencythe case: decisions would be applicable across the country; agency would not be limited in its choice of appropriate punitive measures; in the case of an economic crisis, a quick and uniform response would be possible, including one jointly (Dept. of Finance, Bank of Canada, the

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p g j ySuperintendent of Financial Institutions and foreign organizations, binding upon all Canadian participants).

Indicator #5: Would the failure to include one or more provinces or localities in the scheme jeopardize the successful operation of the scheme in other parts of the country?

● Answer – Yes. The scheme has to be, and is intended to be, national in scope to ensure itsnational in scope to ensure its fully successful operation, while adopting a progressive implementation scheme toimplementation scheme to achieve that goal.

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The Honourable Mr. Justice William Ian CorneilBinnie

Indicator #5 Implementation (Canada):

● The Act seeks to achieve its goal of a single national securities regulator through progressive implementation, on a voluntary basis.

● Attempting to attain a single national regulator through cooperation● Attempting to attain a single national regulator through cooperation rather than coercion should not affect the constitutional validity of the regime.

● This indicator’s satisfaction is not determinative of the scheme’s validity.

● Voluntary implementation is well suited to an era of cooperative● Voluntary implementation, is well-suited to an era of cooperative, flexible federalism.

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Indicator #5 Implementation (Quebec):

● Securities regulation is not like competition where the lack of regulation in one province would make the system ineffective. Provincial particularities will not negatively affect investors outside of that province.

● Indicator #5 serves to determine whether federal legislation would fill in a gap in the powers of the provinces, rather than to take over

fprovincial powers. There are no legislative gaps to fill here. ● Québec argues that the voluntary opt-in by a province would be an

unconstitutional delegation of legislative powers. One legislative b d h i h h l i lbody may not authorize the another to legislate.

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Indicator #5 Implementation (Alberta):

● The Act explicitly recognizes that many jurisdictions may not become participants. By necessary implication, the Act does not address a “genuinely national economicAct does not address a genuinely national economic concern”.

● Voluntary participation does not provide constitutional competency to Parliament

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Indicator #5 Implementation (Ontario):

● The intent is to create a comprehensive single regime and not a 14th regulator.

● The voluntary participation model fits well within the● The voluntary participation model fits well within the constitutional doctrine accepted by the Court in the part in terms of intergovernmental dialogue and agreement in division of power matters.

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Indicator #5 Implementation (Quebec Court):

● Majority: The 5th indicia requires examining whether the omission to include one or more provinces would compromise the successful application of the regime in other provinces. The proposed Actprovides an opting-in procedure, which entails the very real possibility that the proposed scheme would apply only to certain provinces. Consequently, the text of the proposed Act itself contradicts this indiciacontradicts this indicia.

● Dissent: The 5th indicia asks if the sustainability of the proposed system requires an act that must be applied uniformly across the country like the case with competition and trademarks In othercountry, like the case with competition and trademarks. In other words, since the capital market is now pan-Canadian and integrated, if we want to regulate it in a viable legal way, do we need a single statute? The response is clearly yes as is demonstrated by the

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statute? The response is clearly yes, as is demonstrated by the provinces' recent efforts at uniformity and coordination.

“Double Aspect Doctrine” (Canada):

● The constitutionality of the proposed legislation is in no way diminished by the concurrency of its subject matter. Securities regulation has a “trade and commerce” aspect to it just as it hastrade and commerce aspect to it, just as it has a “property and civil rights” aspect to it. Securities regulation is no different in this respect from other important matters that are not specifically referred to in the constitution like “the environment”, “consumer protection”, and “health”. The cases that have upheld provincial jurisdiction over securities regulation in no wayjurisdiction over securities regulation in no way justify the conclusion that provincial jurisdiction is exclusive in an area of such critical importance to the economy as a whole.

The Honourable Madam

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The Honourable Madam Justice Louise Charron

“Double Aspect Doctrine” (Quebec Court of Appeal Dissent)

● The powers granted to this country's two levels of government are not necessarily mutually exclusive. Overlaps occur regularly in numerous areas Provincial and federalin numerous areas. … Provincial and federal statutes can have the same objectives, and carry these out through similar means. In no case does this duplication affect the validity of the legislation involved, and persons and enterprises must comply with both. What matters is the pith and substance of each of these laws and their connection to a powerthese laws and their connection to a power granted under the Constitution to the legislature that adopted them.The Honourable Pierre J.

Dalphond

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“Double Aspect Doctrine” (Quebec, Manitoba):

● Quebec argues the double aspect doctrine does not create a new sphere of competence and is applicable only when two different laws have been enacted foronly when two different laws have been enacted for different purposes and within different legislative contexts.

● Manitoba rejects the doctrine because there is no independent federal “aspect”. Trade and commerce should be “read down” to ensure it does not overwhelm property and civil rights.

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“Double Aspect Doctrine” (Alberta):

● (i) the proposed Act has no different subject matter and no different purposes and aspects compared to existing provincial securities regulatory legislation;

● (ii) the doctrine can only be applied when legislation is enacted for different purposes and in different legislative contexts which give distinct constitutional characterizations;

● (iii) the doctrine should only be applied in clear cases where the multiplicity of aspect is real and not merely nominal; and

● (iv) incorporating some criminal law provisions, to which the doctrine would apply, does not validate the remaining provisions of the proposed Act.

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“Double Aspect Doctrine” (CBA, Teachers):

● The Cdn Bankers Assoc argues the double aspect doctrine is critical in this case and the Court should avoid blocking the application of measures which are enactedblocking the application of measures which are enacted in furtherance of the public interest.

● Teachers argues the double aspect doctrine requires examining federal jurisdiction without heed to provincial jurisdiction. The record of provincial regulation demonstrates provinces cannot regulate capital markets p g pnationally without serious gaps, evidenced by the need for reciprocal orders in enforcement.

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“Double Aspect Doctrine” + (Barreau, IGOPP, MEDAC):

● The Quebec Barreau submits the double aspect doctrine does not allow parliament to enact the proposed law, because it does not permit the creation of shared areas of power.

● Barreau - Matters of governance are examined through the principle of subsidiarity.Barreau Matters of governance are examined through the principle of subsidiarity. This is the proposition that law-making and implementation are often best achieved at a level of government that is not only effective, but also closest to the citizens affected and thus most responsive to their needs, to local distinctiveness, and to population diversity. A national securities regulator would not be able to accommodate local d e s y a o a secu es egu a o ou d o be ab e o acco oda e ocaneeds, so securities regulations should come within provincial powers.

● IGOPP – Subsidiary is used in European Union law, to counterbalance centralist tendencies (and harmonization). Subsidiarity holds that the scope of general powers such as trade and commerce ought to be limited Parliament can only intervene tosuch as trade and commerce ought to be limited. Parliament can only intervene to adopt legislation that provinces are incapable (legally) of adopting effectively (not efficiently).

● MEDAC - The proposed Act would infringe on the civil rights of investors, including guarantees to protect French language and culture It would alter federalism which

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guarantees to protect French language and culture. It would alter federalism, which should allow for diversity to be reconciled with unity.

Summary:

Issue: Canada OppositionSec. Reg is - National & International. - Local individual contracts.

Inquiry: -Rational Basis. - Intrusion on prov. Power means q y-5 tests are guidelines.

pheavier burden.- Must Pass all 5 tests.

Pith & Substance:

- Comprehensive national sec reg in purpose intent & legal effect

- Reg of “securities industry” to protect investors re contractualSubstance: purpose, intent & legal effect. protect investors re contractual dealing .

Trade & Commerce

- s.91(2) applies where subject matter “affects the whole of the D i i ” “t d h l ”

- Trade vs. Prop & Civil Rights = mutually exclusive.P l ’t l t ti lDominion” = “trade as a whole”. -Parl can’t regulate particular

industry, types of commerce.Double Aspect -Canada is looking at management

of the national economy. Mutually exclusive.No precedent for 2 comprehensive

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y-- Fed regulation is in nat. interest.-Feds can reg. federally; provinceslocally.

schemes.Read down. Once in place, amendment could make it a take-over.

Summary:

Issue: Canada Opposition#3 Trade as a Whole

-Subject matter (securities reg / capital mkts) is overwelmingly national and inter’l and important to all Cdns

-No, it does not regulate “capital mkts”.Regulated transactions in ainter l and important to all Cdns.

-Mandated broad-based policy-making and enforcement.-Fed power to regulated a specific sector of economy

-Regulated transactions in a particular industry.

- Local accountability with co-operationsector of economy.

-Federal accountability.operation.

#4 Capacity -There are limits on prov. powers and accountability issues.

- Provinces have shown they are capable of regulating

-National interest cannot be served by uniform prov. leg. and prov. cooperation.

effectively.

#5 Failure to Participate

-Scheme is intended to be national in scope.

-Having provinces no participate = test failure.

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Participate scope.-Implementation process through co-operation.

participate test failure.-There is no legislative gap here.

Who will win? How will they vote?

The Honourable Mr JusticeThe Honourable Madam

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The Honourable Mr. Justice William Ian Corneil Binnie

The Honourable Madam Justice Rosalie SilbermanAbella

The Honourable Madam Justice Louise Charron

Quebec Court of Appeal

● The Québec Court of Appeal decision was issued on March 31, 2011.

● Question: Do the provisions of the Proposed● Question: Do the provisions of the Proposed Canadian Securities Act and sections 295, 296 and 297 of the Budget Implementation Act 2009exceed the legislative authority of the Parliament of Canada?of Canada?

● Answer: A majority of the Court answers that the Proposal, except its criminal provisions, is ultra i f th h i ft i dvires for the reasons hereinafter summarized, as

well as s. 297 of the Budget Implementation Act 2009. Dalphond dissented.

J.J. Michel RobertChief Justice of Québec

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● Securities is not a subject matter dealt with by the Constitution Act, 1867. The fathers of Confederation were not concerned with stock exchanges and securities because the securities industry was in its infancy at the time in Canada. Since 1867, the regulation of activities associated with securities has occurred gradually through federal and provincial legislationsecurities has occurred gradually through federal and provincial legislation. In most cases, these laws have as their purpose the protection of shareholders/investors. It would therefore be incorrect to claim that since Confederation the protection of investors has been the exclusive domain of the provinces.

● Until now, Parliament has intervened mainly through the enactment of provisions dealing with criminal and corporate law (Canada Business Corporations Act, Bank Act).

● Provincial legislation has recently harmonized. Provinces are well aware that the capital market has become a single integrated pan Canadianthat the capital market has become a single, integrated, pan-Canadian market, and thus radically different from the market which existed in 1867 or even 15 years ago.

● It clearly follows from the evolution of provincial legislation dealing with securities that the provinces have undertaken to take over a maximum

The HonourablePierre J. Dalphond

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securities that the provinces have undertaken to take over a maximum number of aspects of the capital market, and not only trading and dealing in securities in their respective provinces.


Dissent (continued) ● The pith and substance of the Proposed Act is the

regulation of all the participants in a capital market thatregulation of all the participants in a capital market that has become a single, integrated, pan-Canadian market, characterized by mainly inter-provincial and international transactions. The purposes of the Proposed Act include economic policy favourable to the maintenance of a strong and healthy capital market in Canada.g y p

● In conclusion, I am of the opinion that Parliament can validly adopt the Proposed Act pursuant to its general t d d d ti 91(2) f th

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trade and commerce power under section 91(2) of the Constitution Act, 1867.

Alberta Court of Appeal – March 8, 2011

● Questions:● 1. Does the Parliament of Canada have the

legislative authority under the Constitution Actlegislative authority under the Constitution Act, 1867: (a) …… (b) to pass legislation that is co-extensive in substance with the Alberta Securities Act and similar to the draft Securities Act ……

● 2. Does the Parliament of Canada have jurisdiction under the Constitution Act, 1867 to pass legislation that would exclude the application of the Alberta Securities Act: (a) to market participants who elect to be regulated under the federal regime only, as recommended in the Final Report and Recommendations of the Expert Panel on Securities Regulation, (b) to market

ti i t h h b t ti l ti t j i di ti th thparticipants who have a substantial connection to a jurisdiction other than Alberta, as recommended in the Final Report and Recommendations of the Expert Panel on Securities Regulation, or (c) by an express paramountcy clause or similar unilateral action, as recommended in the Final Report and Recommendations of the Expert Panel on Securities Regulation?

The Honourable Mr. Justice J.E.L. Côté

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Alberta Court of Appeal

● Conclusion: The proposed federal securities legislation represents the intrusion of the federal government into an area long occupied by the provincial governments. Regulation of the professions, regulation of specific industries regulation of particular types of contracts and regulation of formsindustries, regulation of particular types of contracts, and regulation of forms of property have always been considered to fall under provincial powers. ….One of the fundamental principles of the Canadian federation was to preserve local powers and local diversity, to enable the promotion of local interests….. The division of power represents an understanding reached on the nature of Canadian federalism that should not lightly be disrupted by any one level of government or the courts. If the Government of Canada wants a paradigm shift in the power to regulate the securities industry the way toparadigm shift in the power to regulate the securities industry, the way to accomplish that is through negotiation with the provinces, not by asking the courts to reallocate the powers under the Constitution Act, 1867 through a radical expansion of the trade and commerce power.

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