Attorney General of Canada Appellant v. Attorney General of Quebec, 2018 SCC 48

SUPREME COURT OF CANADA Citation: Reference re Pan-Canadian Securities Regulation, 2018 SCC 48, [2018] 3 S.C.R. 189 Appeal Heard: March 22, 2018 Judgment rendered: November 9, 2018 Docket: 37613 Between: Attorney General of Canada Appellant and Attorney General of Quebec Respondent and Attorney General of Ontario, Attorney General of Nova Scotia, Attorney General of New Brunswick, Attorney General of Manitoba, Attorney General of Prince Edward Island, Attorney General of Saskatchewan, Attorney General of Alberta, Barreau du Québec and Institute for Governance of Private and Public Organizations Interveners And Between: Attorney General of Quebec Appellant and Attorney General of Canada and Attorney General of British Columbia Respondents and

Attorney General of Ontario, Attorney General of Nova Scotia, Attorney General of New Brunswick, Attorney General of Manitoba, Attorney General of Prince Edward Island, Attorney General of Saskatchewan, Attorney General of Alberta, Barreau du Québec and Institute for Governance of Private and Public Organizations Interveners And Between: Attorney General of British Columbia Appellant and Attorney General of Quebec Respondent and Attorney General of Ontario, Attorney General of Nova Scotia, Attorney General of New Brunswick, Attorney General of Prince Edward Island, Attorney General of Saskatchewan, Attorney General of Alberta, Barreau du Québec and Institute for Governance of Private and Public Organizations Interveners Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Gascon, Côté, Brown, Rowe and Martin JJ.

Reasons for Judgment: (paras. 1 to 132) The Court Reference re Pan-Canadian Securities Regulation, 2018 SCC 48, [2018] 3 S.C.R. 189 IN THE MATTER OF a Reference by the Government of Quebec to the Court of Appeal of Quebec for hearing and consideration of the questions set out in Order in Council 642-2015 concerning the constitutionality of the implementation of pan-

Canadian securities regulation Attorney General of Canada Appellant v. Attorney General of Quebec Respondent and Attorney General of Ontario, Attorney General of Nova Scotia, Attorney General of New Brunswick, Attorney General of Manitoba, Attorney General of Prince Edward Island, Attorney General of Saskatchewan, Attorney General of Alberta, Barreau du Québec and Institute for Governance of Private and Public Organizations Interveners -and- Attorney General of Quebec Appellant v.

Attorney General of Canada and Attorney General of British Columbia Respondents and Attorney General of Ontario, Attorney General of Nova Scotia, Attorney General of New Brunswick, Attorney General of Manitoba, Attorney General of Prince Edward Island, Attorney General of Saskatchewan, Attorney General of Alberta, Barreau du Québec and Institute for Governance of Private and Public Organizations Interveners -and- Attorney General of British Columbia Appellant v.

Attorney General of Quebec Respondent and Attorney General of Ontario, Attorney General of Nova Scotia, Attorney General of New Brunswick, Attorney General of Prince Edward Island,

Attorney General of Saskatchewan, Attorney General of Alberta, Barreau du Québec and Institute for Governance of Private and Public Organizations Interveners Indexed as: Reference re Pan-Canadian Securities Regulation 2018 SCC 48 File No.: 37613. 2018: March 22; 2018: November 9.

Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Gascon, Côté, Brown, Rowe and Martin JJ. on appeal from the court of appeal for quebec Constitutional law — Division of powers — Trade and commerce — Securities — Proposal by federal government and some provincial and territorial governments to implement national cooperative capital markets regulatory system including model provincial and territorial statute, federal statute and national securities regulator overseen by federal and provincial ministers — Whether Constitution authorizes implementation of cooperative system — Whether draft federal statute exceeds authority of Parliament over general branch of trade and commerce power — Constitution Act, 1867, s. 91(2) .

The federal government and the governments of Ontario, British Columbia, Saskatchewan, New Brunswick, Prince Edward Island and Yukon have proposed to implement a national cooperative system for the regulation of capital markets in Canada (“Cooperative System”). The framework of the Cooperative System is set out in an agreement between the federal government and the participating provincial and territorial governments (“Memorandum”).

The main components of the Cooperative System include a model provincial and territorial statute (“Model Provincial Act”) that deals primarily with the day-to-day aspects of the securities trade, a proposed federal statute (“Draft Federal Act”) that is aimed at preventing and managing systemic risk and which establishes criminal offences relating to financial markets, and a national securities regulator (“Authority”) charged with administering this coordinated regime.

The Authority and its board of directors are to operate under the supervision of a Council of Ministers, which will comprise the ministers responsible for capital markets regulation in each participating province and the federal Minister of Finance. Neither the Model Provincial Act nor the Draft Federal Act have the force of law unless and until they are properly enacted into legislation by the provincial legislatures and Parliament, respectively; the Memorandum provides that both remain “subject to legislative approval”.

The Memorandum also contemplates that the Council of Ministers will have a role to play in making amendments to these proposed legislative enactments. With respect to the Model Provincial Act, s. 5.5 of the Memorandum provides that any proposals to amend the Model Provincial Act are subject to a vote and must be approved by at least 50 percent of the members of the Council of Ministers, as well as by the members representing the “Major Capital Markets Jurisdictions” — which at present, are Ontario and British Columbia.

Another important aspect of the Cooperative System is the Authority’s power to make regulations. Both the Model Provincial Act and the Draft Federal Act provide that any regulations proposed by the Authority must be approved by the Council of Ministers before coming into force.

Section 5.2 of the Memorandum lays out the voting requirements that apply to the approval of proposed regulations. The Government of Quebec referred the following two questions pertaining to the Cooperative System to the Quebec Court of Appeal: 1. Does the Constitution of Canada authorize the implementation of pan-Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the “Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System”? 2.

Does the most recent version of the draft of the federal “Capital Markets Stability Act” exceed the authority of the Parliament of Canada over the general branch of the trade and commerce power under subsection 91(2) of the Constitution Act, 1867 ? A majority of the Court of Appeal answered both questions in the negative.

In response to the first question, the majority concluded that the Cooperative System was unconstitutional, because the process for amending the Model Provincial Act — and in particular, the requirement that any amendments thereto be approved by the Council of Ministers in accordance with s. 5.5 of the Memorandum — has the effect of fettering the sovereignty of the participating provinces’ and territories respective legislatures.

The majority also opined that the process for making federal regulations, as set out in the Draft Federal Act and the Memorandum, is inconsistent with the principle of federalism because it allows certain provinces to effectively veto the adoption of a federal regulation. As to the second question, the majority concluded that the Draft Federal Act is not ultra vires Parliament under the general trade and commerce power, except with respect to the provisions (ss. 76 to 79) that set out the role of the Council of Ministers in the making of federal regulations.

Again expressing the view that these provisions, when read alongside the Memorandum, have the effect of conferring on certain provinces a veto over federal regulations, the Majority concluded that they would render the entire Draft Federal Act unconstitutional if not removed. The Attorney General of Canada appealed the Quebec Court of Appeal’s opinion on both questions; the Attorney General of

British Columbia appealed on the first question; and the Attorney General of Quebec appealed on the second question. Held: The appeals brought by the Attorney General of Canada and the Attorney General of British Columbia should beallowed. The appeal brought by the Attorney General of Quebec should be dismissed. Question 1 should be answered in the affirmative.Question 2 should be answered in the negative. Question #1: The Constitution authorizes the implementation of pan-Canadian securities regulation under the authority of asingle regulator in accordance with the terms set out in the Memorandum.

First, the Cooperative System, as set out in the Memorandum, does not purport to — and in any event, cannot — improperlyfetter the legislatures’ sovereignty. Sections 4.2 and 5.5 of the Memorandum make clear that the Council of Ministers’ role is limited toproposals for amendments to the Model Provincial Act. The Model Provincial Act is expressly subject to legislative approval, and thuslacks the force of law within a province unless and until it is enacted by that province’s legislature.

These provisions of theMemorandum do not contemplate that the Council of Ministers will have any formal involvement in the amendment of securities lawsthat have already been enacted by provincial legislatures. Nowhere does the Memorandum imply that the legislatures of the participatingprovinces are required to implement the amendments made to the Model Provincial Act that have been approved by the Council ofMinisters, or that they are precluded from making any other amendments to their securities laws.

The terms of the Memorandum do noteven require that the provisions of the Model Provincial Act themselves be enacted into law by the legislatures of the participatingprovinces. Accordingly, the legislatures remain free to reject the proposed statutes, and any amendments made to them, if they so choose.

Even if the terms of the Memorandum actually purported to fetter the provincial legislatures’ right to enact, amend andrepeal their securities legislation, it would be ineffective in this regard in view of the principle of parliamentary sovereignty.Parliamentary sovereignty, a foundational principle of the Westminster model of government, means that the legislative branch ofgovernment has supremacy over the executive and the judiciary: both must act in accordance with statutory enactments and neither canusurp or interfere with the legislature’s law-making function.

An important corollary to parliamentary sovereignty is the rule that theexecutive is incapable of interfering with the legislature’s power to enact, amend and repeal legislation. An executive agreement thatpurports to bind the parties’ respective legislatures cannot, therefore, have that effect.

In the case at hand, executive signatories wouldthus not actually be capable of either requiring that the legislatures of their respective jurisdictions implement any amendments dictatedby the Council of Ministers, or of precluding those legislatures from amending their own securities laws without the approval of theCouncil of Ministers. When an action of the executive branch appears to clash with the legislature’s law-making powers, parliamentarysovereignty can be invoked for the purpose of determining the legal effect of the impugned executive action, but not its underlyingvalidity.

Any executive agreement that purports to fetter the legislature is not inherently unconstitutional but will simply not have thedesired effect. Second, the Cooperative System does not entail an impermissible delegation of law-making authority.

Parliamentarysovereignty also means that the legislature has the authority to enact laws on its own, as well as the authority to delegate to some otherperson or body certain administrative or regulatory powers, including the power to make binding but subordinate rules and regulations.One important restriction on delegation, however, is that Parliament or a provincial legislature is barred from transferring its primarylegislative authority with respect to a particular matter, over which it has exclusive constitutional jurisdiction, to a legislature of the otherlevel of government.

In this case, neither the Memorandum nor the Model Provincial Act empowers the Council of Ministers tounilaterally amend the provinces’ securities legislation and no part of the Cooperative System imposes any legal limit on theparticipating provinces’ legislative authority to enact, amend or repeal their respective securities laws as they see fit. The Council ofMinister’s role in approving amendments to the Model Provincial Act — a model statute that has no force of law until a provincialenactment gives it such force — is therefore plainly distinguishable from the delegation of primary legislative authority.

Because theCooperative System does not allow the Council of Ministers to bypass the provincial legislatures at all, the proper implementation of theCooperative System, in accordance with the terms of the Memorandum, will not result in any transfer or abdication of a participatingprovince’s primary legislative authority. The Council of Ministers is and remains subordinate to the sovereign will of the legislature. Question #2: The proposed Draft Federal Act is intra vires; it falls within the general branch of Parliament’s trade andcommerce power pursuant to s. 91(2) of the Constitution Act, 1867.

The two-stage analytical framework for the review of legislation on federalism grounds is well established. At the first stage(the “characterization stage”), the court considers the law’s purpose and its effect with a view to identifying the true subject matter — thepith and substance — of the law in question. Once the court has completed this exercise, it then moves on to the second stage (the“classification stage”) and determines whether the subject matter of the challenged legislation falls within the head of power being reliedon to support the legislation’s validity.

Where it does, the legislation will be upheld on the basis that it is intra vires. On the question of characterization, the pith and substance of the Draft Federal Act is to control systemic risk having thepotential to create material adverse effects on the Canadian economy. The Draft Federal Act’s

preamble, its stated purposes (at s. 4) andthe Authority’s statutory mandate (at s. 6) together suggest that the federal government’s role in regulating capital markets is limited tothe detection, prevention and management of risk to the stability of the Canadian economy, as well as to the protection against financialcrimes. The concept of systemic risk is specifically invoked throughout the Draft Federal Act as a means of limiting the scope of federalregulatory powers.

Systemic risk can be understood as having three constituent elements: the risk must represent a threat to the stabilityof the country’s financial system as a whole; it must be connected to the capital markets; and it must have the potential to have a materialadverse effect on the Canadian economy. Moreover, the Draft Federal Act does not contain provisions that go to the day-to-dayregulation of all aspects of securities trading. Properly understood, therefore, the intention is not that the Draft Federal Act will displaceprovincial and territorial securities legislation.

It was instead designed to complement these statutes by addressing economic objectivesthat are considered to be national in character. With respect to the classification of the Draft Federal Act, the ultimate question in this case is whether the Act, viewed in itsentirety, addresses a matter of genuine national importance and scope going to trade as a whole, in a way that is distinct and differentfrom provincial concerns. The application of the framework set out in General Motors of Canada Ltd. v.

City National Leasing, (SCC), [1989] 1 S.C.R. 641, leads to the conclusion that the Draft Federal Act does address a matter of genuine national

importance and scope relating to trade as a whole, and it therefore falls within Parliament’s general trade and commerce power unders. 91(2) of the Constitution Act, 1867. The preservation of the integrity and stability of the Canadian economy quite clearly has a nationaldimension, and one which lies beyond provincial competence. Moreover, the fact that the federal government’s foray into securitiesregulation under the Draft Federal Act is limited to achieving these objectives supports the validity of this proposed statute.

Lastly, the manner in which the Draft Federal Act delegates the power to make regulations accords with Parliament’sconstitutional powers, meaning that ss. 76 to 79 of the Draft Federal Act have no impact on its constitutionality. There is nothingproblematic about the way in which the Draft Federal Act delegates the power to make regulations to the Authority under the supervisionof the Council of Ministers. The legislature has the broad authority to delegate administrative powers, including the power to makelegally binding rules and regulations, to a subordinate body.

In exercising its sovereign legislative powers, Parliament has the authority toconfer on a statutory body — in this case, the Council of Ministers — the power to approve or reject proposed subordinate regulations,even if some members of that body are representatives of certain provinces. The delegation of administrative powers in a mannersolicitous of (or even dependent upon) provincial input is in no way incompatible with the principle of federalism, provided that thedelegating legislature has the constitutional authority to legislate in respect of the applicable subject matter in the first place.

Cases Cited Applied: Reference re Securities Act, 2011 SCC 66, [2011] 3 S.C.R. 837; General Motors of Canada Ltd. v. City NationalLeasing, (SCC), [1989] 1 S.C.R. 641; referred to: R. v. Comeau, 2018 SCC 15, [2018] 1 S.C.R. 342; RogersCommunications Inc. v. Chateauguay (City), 2016 SCC 23, [2016] 1 S.C.R. 467; Alberta (Attorney General) v. Moloney, 2015 SCC 51,[2015] 3 S.C.R. 327; Quebec (Attorney General) v. Canada (Attorney General), 2015 SCC 14, [2015] 1 S.C.R. 693; Canada (AttorneyGeneral) v. PHS Community Services Society, 2011 SCC 44, [2011] 3 S.C.R. 134; Canadian Western Bank v.

Alberta, 2007 SCC 22,[2007] 2 S.C.R. 3; Fédération des producteurs de volailles du Québec v. Pelland, 2005 SCC 20, [2005] 1 S.C.R. 292; NorthropGrumman Overseas Services Corp. v. Canada (Attorney General), 2009 SCC 50, [2009] 3 S.C.R. 309; Reference Re Canada AssistancePlan (B.C.), (SCC), [1991] 2 S.C.R. 525; Canadian Taxpayers Federation v. Ontario (Minister of Finance) (2004), (ON SC), 73 O.R. (3d) 621; Jackson v. Her Majesty’s Attorney General, [2005] UKHL 56, [2006] 1 A.C. 262;Hodge v. The Queen (1883), 9 App.

Cas. 117; Reference re Secession of Quebec, (SCC), [1998] 2 S.C.R. 217;Reference re Anti-Inflation Act, (SCC), [1976] 2 S.C.R. 373; West Lakes Ltd. v. South Australia (1980), 25 S.A.S.R. 389;Wells v. Newfoundland, (SCC), [1999] 3 S.C.R. 199; Attorney-General for Canada v. Attorney-General for Ontario, (UK JCPC), [1937] A.C. 326; Thomson v. Thomson, (SCC), [1994] 3 S.C.R. 551; Canada (AuditorGeneral) v. Canada (Minister of Energy, Mines and Resources), (SCC), [1989] 2 S.C.R. 49; Attorney General of NovaScotia v.

Attorney General of Canada, (SCC), [1951] S.C.R. 31; Reference re Firearms Act (Can.), 2000 SCC 31,[2000] 1 S.C.R. 783; Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96; Attorney General of Canada v. CanadianNational Transportation, Ltd., (SCC), [1983] 2 S.C.R. 206; MacDonald v. Vapor Canada Ltd., (SCC),[1977] 2 S.C.R. 134; Kirkbi AG v. Ritvik Holdings Inc., 2005 SCC 65, [2005] 3 S.C.R. 302; Multiple Access Ltd. v. McCutcheon, (SCC), [1982] 2 S.C.R. 161; Rio Hotel Ltd. v. New Brunswick (Liquor Licensing Board), (SCC), [1987] 2S.C.R. 59; Law Society of British Columbia v.

Mangat, 2001 SCC 67, [2001] 3 S.C.R.113; R. v. Furtney, (SCC), [1991]3 S.C.R. 89; P.E.I. Potato Marketing Board v. H. B. Willis Inc., (SCC), [1952] 2 S.C.R. 392; Coughlin v. OntarioHighway Transport Board, (SCC), [1968] S.C.R. 569; Reference re Agricultural Products Marketing Association, (SCC), [1978] 2 S.C.R. 1198. Statutes and Regulations Cited Canadian Charter of Rights and Freedoms, ss. 1 to 34. Constitution Act, 1867,

Part VI, ss. 91, 92. Constitution Act, 1982, ss. 35, 52(1). Memorandum of Agreement regarding the Cooperative Markets Regulatory System (2016), ss. 1, 2.2, 3(a)(i), (ii), (iii), (iv), 4.2, 5.2, 5.5,5.6, 5.7, 8.1, 8.3, 9.2, 9.3, 10.1, 11(a), (b), 13. Proposed Canadian Securities Act, Order in Council P.C. 2010-667, s. 9(a), (b), (c). Proposed Capital Markets Act, Revised Consultation Draft, August 2015, ss. 202, 206. Proposed Capital Stability Markets Act (Canada), Draft for Consultation, January 2016,

preamble, Parts 1, 2, 3, 4, 5, 6, 7, 8, ss. 3, 4, 6, 9,10(1), 15(1), 18, 19, 20, 21, 22, 23, 24, 28 to 32, 39, 73, 76 to 79. Authors Cited Dicey, Albert Venn. Introduction to the Study of the Law of the Constitution, 10th ed. London: Macmillan, 1959. Harris, A. Douglas. White Paper — A Symposium on Canadian Securities Regulation: Harmonization or Neutralization?, edited byJames Baillie. Toronto: University of Toronto Capital Markets Institute, 2002. Hogg, Peter W. Constitutional Law of Canada, 5th ed. Supp. Scarborough, Ont.: Thomson/Carswell, 2007 (updated 2017, release 1).

Johnston, David, Kathleen Doyle Rockwell and Cristie Ford. Canadian Securities Regulation, 5th ed. Markham, Ont.: LexisNexis, 2014. Lavoie, Malcolm. “Understanding Trade as a Whole in the Securities Reference” (2013), 46 U.B.C. L. Rev. 157. McLachlin, Beverley, P.C. Administrative Tribunals and the Courts: An Evolutionary Relationship, May 27, 2013 (online:https://www.scc-csc.ca/judges-juges/spe-dis/bm-2013-05-27-eng.aspx, archived version: https://www.scc-csc.ca/cso-dce/2018SCC-

CSC48_1_eng.pdf ). Monahan, Patrick J., Byron Shaw and Padraic Ryan. Constitutional Law , 5th ed. Toronto: Irwin Law, 2017. Tuck, Raphael. “Delegation — A Way Over the Constitutional Hurdle” (1945), 23 Can. Bar Rev. 79. APPEALS from a judgment of the Quebec Court of Appeal (Duval Hesler C.J.Q. and Bouchard, Savard, Schrager and Mainville JJ.A.), 2017 QCCA 756 , [2017] AZ-51390705, [2017] Q.J. No. 5583 (QL), 2017 CarswellQue 4199 (WL Can.), in the matter of a reference concerning the constitutionality of the implementation of pan-Canadian securities regulation.

The appeals of the Attorney General of Canada and of the Attorney General of British Columbia are allowed. The appeal of the Attorney General of Quebec is dismissed. Robert J. Frater , Q.C. , and Alexander Pless , for the Attorney General of Canada. Francis Demers and Jean-François Beaupré , for the Attorney General of Quebec. J. Gareth Morley and Alandra Harlingten , for the Attorney General of British Columbia. Robin K. Basu and Emily Bala , for the intervener the Attorney General of Ontario. Isabel Lavoie Daigle , for the intervener the Attorney General of New Brunswick.

No one appeared for the intervener the Attorney General of Nova Scotia. Michael A. Conner , for the intervener the Attorney General of Manitoba. Jonathan M. Coady and Justin L. Milne , for the intervener the Attorney General of Prince Edward Island. Alan F. Jacobson , for the intervener the Attorney General of Saskatchewan. L. Christine Enns , Q.C. , for the intervener the Attorney General of Alberta. Raymond Doray and Guillaume Laberge , for the intervener Barreau du Québec. François LeBel and Annie Gallant , for the intervener the Institute for Governance of Private and Public Organizations.

TABLE OF CONTENTS Paragraph I. Introduction 1 II. Background 8 A. Reference re Securities Act (2011) 10 B. Securities Regulation and Cooperative Federalism 16 C. The Cooperative System 21 III. Opinion of the Quebec Court of Appeal — 2017 QCCA 756 29 IV. Position of the Parties 38 V. Analysis 44 A. Question #1: Does the Constitution of Canada authorize the implementation of pan- Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the “Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System”? 44

(1) Parliamentary Sovereignty and the Fettering of Provincial Legislative Authority 48 (

a) Terms of the Memorandum 49 (

b) Parliamentary Sovereignty 53 (

c) Political and Legal Effects 68

(2) Delegation of Law-Making Powers 72

(3) Conclusion With Respect to the First Reference Question 81 B. Question #2: Does the most recent version of the draft of the federal “Capital Markets Stability Act” exceed the authority of the Parliament of Canada over the general branch of the trade and commerce power under subsection 91(2) of the Constitution Act, 1867 ? 82

(1) Constitutional Validity of the Draft Federal Act 86 (

a) Characterization of the Draft Federal Act 87 (

b) Classification of the Draft Federal Act 98

(2) Regulations Under the Draft Federal Act: Sections 76 to 79 117 VI. Conclusion 129 The following is the judgment delivered by The Court — I. Introduction

[ 1 ] A number of attempts to develop and implement a national system for the regulation of Canadian capital markets in a manner that is compatible with the country’s federal structure have been made since the 1930s.

At issue in these appeals is the constitutionality of a recent proposal by the federal government and the governments of Ontario, British Columbia, Saskatchewan, New Brunswick, Prince Edward Island and Yukon to implement a national cooperative capital markets regulatory system (“Cooperative System”). [ 2 ] The structure of the Cooperative System builds on the guidance provided by this Court in Reference re Securities Act , 2011 SCC 66 , [2011] 3 S.C.R. 837.

Its main components include a model provincial and territorial statute known as the Capital Markets Act (“Model Provincial Act”) that deals primarily with the day-to-day aspects of the securities trade, a federal statute known as the Capital Markets Stability Act (“Draft Federal Act”) that is aimed at preventing and managing systemic risk and which establishes criminal offences relating to financial markets, and a national securities regulator that is to be overseen by the federal Minister of Finance and the ministers responsible for capital markets regulation in the participating provinces [1] (“Authority”). [ 3 ] On July 15, 2015, the Government of Quebec referred two questions pertaining to the Cooperative System to the Quebec Court of Appeal: 1.

Does the Constitution of Canada authorize the implementation of pan-Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the “Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System”? 2.

Does the most recent version of the draft of the federal “Capital Markets Stability Act” exceed the authority of the Parliament of Canada over the general branch of the trade and commerce power under subsection 91(2) of the Constitution Act, 1867 ? [ 4 ] A majority of the Quebec Court of Appeal (the “Majority”) answered both questions in the negative. In response to the first question, the Majority concluded that the Cooperative System was unconstitutional for two reasons: (

a) because the process for amending the Model Provincial Act effectively fetters the sovereignty of the respective participating provinces’ legislatures and (

b) because the process for making federal regulations is inconsistent with the principle of federalism. As to the second question, the Majority held that the Draft Federal Act is within Parliament’s jurisdiction over the general branch of the trade and commerce power under s. 91(2) of the Constitution Act, 1867 , but took issue with the provisions of the Draft Federal Act (ss. 76 to 79) that pertain to the making of federal regulations.

In the Majority’s opinion, the provisions in question, if not removed, render the entire Draft Federal Act unconstitutional. [ 5 ] The dissenting judge would have declined to answer the first question. In his view, it is not for courts to rule on the constitutional validity of intergovernmental agreements that are of a political nature and lack the force of law. Had the first question been limited to the two draft statutes, however, he would have answered in the affirmative; he saw no issues pertaining either to the delegation of law-making authority or to the principle of parliamentary sovereignty.

Turning to the second question, the dissenting judge agreed with the Majority that the Draft Federal Act fell within the general branch of Parliament’s trade and commerce power, but found nothing problematic about the manner by which federal regulations were to be made under ss. 76 to 79 of the Draft Federal Act. [ 6 ] The Attorney General of Canada appeals the Quebec Court of Appeal’s opinion on both questions.

The Attorney General of British Columbia appeals only the opinion on the first question, while the Attorney General of Quebec appeals only the opinion on the second question. [ 7 ] For the reasons that follow, the Attorney General of Canada’s appeal is allowed, the Attorney General of British Columbia’s appeal is allowed, and the Attorney General of Quebec’s appeal is dismissed. With respect to the first question posed by the reference, we find that the Cooperative System does not improperly fetter the legislatures’ sovereignty, nor does it entail an impermissible delegation of law-making authority.

We therefore answer that question in the affirmative. As to the second question, we answer it in the negative: our view is that the subject matter of the Draft Federal Act falls within the general branch of Parliament’s trade and commerce power pursuant to s. 91(2) of the Constitution Act, 1867 . II. Background [ 8 ] Canada is one of the only industrialized countries in the world that does not have a national securities regulator. This is largely attributable to the constitutional division of provincial and federal powers as set out in

Part VI of the Constitution Act, 1867 . As a result of their jurisdiction over property and civil rights (s. 92(13)) and matters of a merely local nature (s. 92(16)), the provincial legislatures — and not Parliament — have the authority to legislate in respect of the securities trade within their respective borders.

The result is a nationwide patchwork of provincial regulatory schemes and the absence of a truly national approach to regulating capital markets. [ 9 ] In spite of this constitutional impediment, however, various attempts to centralize or standardize the regulation of securities in Canada have been made for over 80 years (see: D. Johnston, K. Doyle Rockwell and C. Ford, Canadian Securities Regulation (5th ed. 2014), at pp. 634-62). Although proposals aimed at establishing a national securities regulator have not succeeded, certain interprovincial initiatives aimed at coordinating regulatory functions have.

These include the adoption by some provincial securities commissions of various national and multilateral instruments (which are standardized rules and regulations respecting specific aspects of the securities trade), as well as the implementation of the “passport regime”, which allows market participants to have access to the capital markets of other participating jurisdictions while dealing with a single principal regulator and complying with harmonized legislative provisions (Johnston et al., at pp. 91-94).

Detailed discussions about the impetus behind and response to the various proposals and initiatives that have been put forward over the past several decades can be found elsewhere (see: Reference re Securities Act , at paras. 11-28 ; A. D. Harris, White Paper — A Symposium on Canadian Securities Regulation: Harmonization or Neutralization? (2002); Johnston et al., at pp. 634-62).

A. Reference re Securities Act (2011) [10] In 2009, the federal government responded to recommendations from a body known as the Expert Panel on SecuritiesRegulation by preparing draft federal legislation, the Proposed Canadian Securities Act, Order in Council P.C. 2010-667, which wouldestablish a national scheme for the regulation of capital markets under the oversight of a national securities regulator.

The statedpurposes of the Proposed Canadian Securities Act were “to provide protection to investors” (s. 9(a)), “foster fair, efficient andcompetitive capital markets” (s. 9(b)) and “contribute . . . to the integrity and stability of [Canada’s] financial system” (s. 9(c)). [11] The Proposed Canadian Securities Act was designed to regulate all aspects of capital markets, and it therefore dealt inlarge part with the day-to-day aspects of the trade in securities (like registration requirements, prospectus filings and disclosureobligations).

Although much of this scheme overlapped with provincial securities laws, it also contained provisions for the regulation ofsystemic risk in capital markets — risk that represents a threat to the stability of the country’s economy. It is important to note, as well,that this proposed national regulatory scheme was not intended to immediately displace provincial securities legislation once the federallegislation was enacted by Parliament.

Rather, the scheme was designed to function on an “opt-in” basis, each province retaining theright to choose whether to participate in the scheme or instead to keep its existing regulatory framework in place. [12] The constitutionality of the Proposed Canadian Securities Act was at issue before this Court in Reference reSecurities Act.

Specifically, the federal government sought from this Court an advisory opinion as to whether the enactment of theProposed Canadian Securities Act, which this Court described as “a comprehensive foray by Parliament into the realm of securitiesregulation” (para. 2), would constitute a valid exercise of Parliament’s power over trade and commerce pursuant to s. 91(2) of theConstitution Act, 1867. [13] This Court unanimously held that it would not, and rejected the federal government’s argument that the securitiesmarket had “evolved from a provincial matter to a national matter affecting the country as a whole” (para. 4).

Having determined thatthe main thrust of the Proposed Canadian Securities Act was to regulate on an exclusive basis all aspects of the trade in securities inCanada, this Court went on to conclude that the constitutionality of the draft statute could not be supported by Parliament’s general tradeand commerce power. [14] This Court analyzed the s. 91(2) issue in accordance with the five indicia set out in General Motors of Canada Ltd. v.City National Leasing, (SCC), [1989] 1 S.C.R. 641, and based its conclusion on the final three indicia: (

a) the detailedregulation of capital markets is not a matter that engages trade as a whole, but instead relates to the securities trade in particular; (

b) theprovinces have the constitutional capacity to legislate in respect of most matters covered by the Proposed Canadian Securities Act andcan delegate regulatory powers to a single national securities regulator if they so choose; and (

c) the successful operation of thisregulatory scheme would not be jeopardized should any one province decline to participate, especially given that this proposed schemewould function on an “opt-in” basis.

In the end, this Court held that “the day-to-day regulation of all aspects of trading in securities andthe conduct of those engaged in this field of activity . . . simply cannot be described as a matter that is truly national in importance andscope making it qualitatively different from provincial concerns” (Reference re Securities Act, at para. 125). [15] Although this Court found that legislation purporting to regulate all aspects of the trade in securities was outsideParliament’s sphere of legislative authority, it acknowledged that certain aspects of securities regulation may nevertheless fall within thefederal sphere of jurisdiction, including the prevention and management of systemic risk in Canadian capital markets.

Indeed, it is clearfrom this Court’s reasons that the preservation of capital markets and the maintenance of Canada’s economic stability are matters thatare beyond provincial concern, and therefore fall within Parliament’s jurisdiction over trade and commerce. B.

Securities Regulation and Cooperative Federalism [16] While it is true that this Court found the Proposed Canadian Securities Act to be unconstitutional, it neverthelessrecognized that a scheme based on a cooperative approach to the regulation of securities in Canada — one under which the provinceswould address issues falling within their powers over property and civil rights and matters of a local nature while also leaving room forParliament to address genuinely national concerns — might be constitutional (Reference re Securities Act, at paras. 130-33; see also para.9).

Given that the Attorneys General of Canada and British Columbia, as well as several of the interveners, submit that the CooperativeSystem follows this cooperative approach, a word about cooperative federalism is in order here. [17] Cooperative federalism is an interpretative aid that is used when “interpreting constitutional texts to consider howdifferent

interpretations impact the balance between federal and provincial interests” (R. v. Comeau, 2018 SCC 15, [2018] 1 S.C.R. 342,para. 78). Where possible, courts should favour a harmonious reading of statutes enacted by the federal and provincial governmentswhich allows for them to operate concurrently (Rogers Communications Inc. v. Chateauguay (City), 2016 SCC 23, [2016] 1 S.C.R. 467,at para. 38). This principle is based on the presumption that “Parliament intends its laws to co-exist with provincial laws” (Alberta(Attorney General) v.

Moloney, 2015 SCC 51, [2015] 3 S.C.R. 327, at para. 27). [18] Cooperative federalism is often applied “to facilitate interlocking federal and provincial legislative schemes and toavoid unnecessary constraints on provincial legislative action” (Quebec (Attorney General) v. Canada (Attorney General), 2015 SCC 14,[2015] 1 S.C.R. 693, at paras. 17-19).

Broadly speaking, it “accommodates overlapping jurisdiction and encourages intergovernmentalcooperation”, and therefore discourages courts from interfering with cooperative regulatory schemes so long as they are not incompatiblewith the boundaries dictated by the Constitution Act, 1867 (Reference re Securities Act, at para. 57, citing OPSEU v. Ontario (AttorneyGeneral), (SCC), [1987] 2 S.C.R. 2, at p. 18; Canada (Attorney General) v. PHS Community Services Society, 2011SCC 44, [2011] 3 S.C.R. 134, at para. 63; Reference re Securities Act, at paras. 61-62).

We stress that cooperative federalism may beused neither to “override nor [to] modify the division of powers itself” (Rogers Communications Inc. v. Chateauguay (City), at para. 39),nor to impose “limits on the otherwise valid exercise of legislative competence” (Quebec (Attorney General) v. Canada (AttorneyGeneral), at para. 19; Reference re Securities Act, at paras. 61-62). It cannot, therefore, be used to make ultra vires legislation intravires.

By fostering cooperation between Parliament and the legislatures within the existing constitutional boundaries, however,cooperative federalism works to support, rather than supplant, the division of legislative powers (see: Canadian Western Bank v. Alberta,2007 SCC 22, [2007] 2 S.C.R. 3, at para. 22).

[ 19 ] This modern view of federalism sees

Part VI of the Constitution Act, 1867 as a set of boundaries within which provinces and the federal government are free to give full effect to “Canadian federalism’s constitutional creativity and cooperative flexibility” ( Fédération des producteurs de volailles du Québec v. Pelland , 2005 SCC 20 , [2005] 1 S.C.R. 292, at para. 15 ).

In short, cooperative federalism allows “different levels of government [to] work together on the ground to leverage their unique constitutional powers in tandem to establish a regulatory regime that may be ultra vires the jurisdiction of one legislature on its own” ( Comeau , at para. 87 ). [ 20 ] Among the issues in the present case is whether the Cooperative System is consistent with this cooperative approach to the constitutional division of federal and provincial powers. C.

The Cooperative System [ 21 ] The framework of the Cooperative System is set out in an agreement between the federal government and the governments of Ontario, British Columbia, Saskatchewan, New Brunswick, Prince Edward Island and Yukon (together the “Participating Jurisdictions”) which is known as the “Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory Scheme” (“Memorandum”). This system has four primary components, which are as follows:

(1) Uniform Provincial and Territorial Legislation : The Cooperative System’s first component involves the standardization of provincial and territorial legislation respecting the day-to-day aspects of the securities trade. To this end, the Memorandum provides that each participating province is to enact a statute that mirrors the Model Provincial Act.

The Model Provincial Act purports to address all matters respecting capital markets that fall within provincial or territorial jurisdiction (Memorandum, s. 3(a)(i)), including the registration of dealers and certain other market participants, prospectus requirements, disclosure and proxies, takeover and issuer bids, derivatives trading, and civil liability. Importantly, the Model Provincial Act does not have legal force within any participating province unless the province’s legislature enacts it into law.

(2) Complementary Federal Legislation : The uniform provincial and territorial securities legislation is to be complemented by a federal statute, that is, the Draft Federal Act. The Draft Federal Act is more limited in scope, as it addresses only criminal matters, matters relating to systemic risk in Canada’s capital markets, and national data collection (Memorandum, s. 3(a)(ii)). The federal government undertakes to seek the enactment by Parliament of legislation that mirrors this draft statute (s. 8.3).

(3) A National Regulator : The Memorandum contemplates a delegation by the federal government (pursuant to s. 73 of the Draft Federal Act) and the participating provinces (pursuant to s. 202 of the Model Provincial Act) of certain regulatory powers to a single operationally independent capital markets regulatory authority (the Authority).

The intention is that the Authority will become the sole entity responsible for administering both the federal and provincial cooperative system legislation, and will fulfill all relevant regulatory, enforcement and adjudicative functions relating to the trade in securities under these statutes as enacted (Memorandum, s. 3(a)(iii)). As of now, a draft of the Authority’s enabling legislation has not yet been published.

(4) The Council of Ministers : Finally, the Authority and its Board of Directors are to operate under the supervision of a Council of Ministers, which will comprise the ministers responsible for capital markets regulation in each participating province and the federal Minister of Finance (Memorandum, s. 3(a)(iv)). [ 22 ] Each of these components is integral to the Cooperative System’s ultimate objective: to establish a unified and cooperative system for the regulation of capital markets in Canada in a manner that accords with the constitutional division of powers .

This objective is expressed in s. 2.2 of the Memorandum, which reads as follows: In entering into this [Memorandum] and participating in the Cooperative System, each of the Participating Jurisdictions is addressing matters within its constitutional jurisdiction and is neither surrendering nor impairing any of its jurisdiction, with respect to which it remains sovereign. [ 23 ] The parties to the agreement are the executive branches of the governments of the Participating Jurisdictions.

By signing the Memorandum, each undertakes to establish the Cooperative System on the basis set out in the Memorandum (s. 10.1(a)). [ 24 ] The Memorandum makes clear that the two proposed statutes — the Draft Federal Act and the Model Provincial Act — remain subject to legislative approval (s. 3(a)(

i) and (ii)). What this means is that neither has any legal effect unless and until the applicable legislatures enact them into law. It is for this reason that the executive signatories of the Participating Jurisdictions have agreed, in s. 10.1(

b) of the Memorandum, “to use their best efforts to cause their respective legislatures to enact or approve” legislation that is substantially the same as the proposed statutes (see also ss. 8.1 and 8.3). [ 25 ] The Council of Ministers plays an important role in the overall operation of the Cooperative System. Its duties, which are listed in s. 4.2 of the Memorandum, include proposing amendments to the Draft Federal Act and the Model Provincial Act.

Section 5.6 of the Memorandum provides that proposed amendments to the Draft Federal Act require consultation between the federal Minister of Finance and the other members of the Council of Ministers. Proposals to amend the Model Provincial Act, by contrast, are subject to a vote and must be approved by (

a) at least 50 percent of all members of the Council of Ministers, and (

b) the members of the Council of Ministers from each “Major Capital Markets Jurisdiction” — which, at present, are Ontario and British Columbia (s. 5.5). It must be observed, however, that those voting requirements apply only to proposals to amend the Model Provincial Act, which provides content to the commitments of the executive signatories, but which remains subject to legislative approval . We also note that s. 5.7 of

the Memorandum — which requires enhanced majority approval from the Council of Ministers for certain listed fundamental changes — does not apply to proposals to amend the Model Provincial Act. Put simply, s. 5.5 does not purport to apply to the amendment of legislation after it has been enacted into law in a participating province. As we will explain below, the power to enact, amend and repeal legislation lies exclusively in the hands of the legislatures, and cannot be subject to the approval of the Council of Ministers. [ 26 ] The Memorandum contemplates the possibility that other provinces and territories will join the Cooperative System at a later date: s. 11(

a) requires that Participating Jurisdictions “use their best efforts and work together to secure the agreement of the government of each non-Participating Jurisdiction of Canada to participate in the Cooperative System on the basis of the terms of [the Memorandum]”. Accession by a non-Participating Jurisdiction remains subject to the approval of the Council of Ministers (ss. 5.7(

b) and 11(b)). The Memorandum also sets out a mechanism by which Participating Jurisdictions can withdraw from the Cooperative System.

Section 13 reads as follows: A Participating Jurisdiction may withdraw from the Cooperative System by providing at least six months’ written notice to the other Participating Jurisdictions. A Minister of a Participating Jurisdiction that has provided written notice to any other Participating Jurisdiction of its intention to withdraw from the Cooperative System will no longer be entitled to vote as a member of the Council of Ministers.

The [Authority] shall use all reasonable efforts to facilitate an expeditious withdrawal and the transfer and/or assignment of employees, assets and contracts relating to capital markets regulation in a withdrawing Participating Jurisdiction as of the effective withdrawal date. [ 27 ] Another important aspect of the Cooperative System is the Authority’s power to make regulations pursuant to both the Draft Federal Act and the Model Provincial Act.

Both statutes provide that any regulations proposed by the Authority must be approved by the Council of Ministers before they come into force (Model Provincial Act, s. 206; Draft Federal Act, s. 76).

Section 5.2 of the Memorandum, which sets out the mechanism by which the Council of Ministers approves or rejects regulations submitted by the Authority’s Board of Directors, reads as follows: 5.2 Voting on a Regulation made by the Board of Directors (

a) A regulation made by the Board of Directors subsequent to the Initial Regulations will be put before the Council of Ministers before it comes into force. Unless the Council of Ministers has asked that the Board of Directors reconsider the regulation or the Council of Ministers has decided to reject the regulation within a specified period, the regulation will be considered to have been approved by the Council of Ministers. (

b) The Council of Ministers must request that the Board of Directors reconsider a regulation before the Council of Ministers makes a decision to reject the regulation. (

c) A request by the Council of Ministers to the Board of Directors to reconsider a regulation must be approved by: (

i) at least 50 [percent] of all members of the Council of Ministers; and (ii) any one of the members of the Council of Ministers from the Major Capital Markets Jurisdictions and from Canada taken together. (

d) A decision to reject a regulation that has been reconsidered by the Board of Directors at the request of the Council of Ministers and once again put before the Council of Ministers before it comes into force must be approved by: (

i) at least 50 [percent] of all members of the Council of Ministers; and (ii) a majority of the members of the Council of Ministers from the Major Capital Markets Jurisdictions and from Canada taken together. [ 28 ] The Council of Ministers is thus required to request that the Board of Directors reconsider a proposed regulation before it can reject the regulation outright.

Moreover, any decision to request the reconsideration of a proposed regulation must be approved by at least half of the members of the Council of Ministers and by any one member from the Major Capital Markets Jurisdictions and the federal government. A decision to reject a regulation that has been reconsidered by the Board of Directors must be approved by at least half of the former and by a majority of the latter. A proposed regulation that the Council of Ministers has not rejected or requested that it be reconsidered will be deemed to have been approved (Memorandum, s. 5.2(a)). III.

Opinion of the Quebec Court of Appeal — 2017 QCCA 756 [ 29 ] As mentioned above, the following two questions were referred to the Quebec Court of Appeal: 1. Does the Constitution of Canada authorize the implementation of pan-Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the “Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System”? 2.

Does the most recent version of the draft of the federal “Capital Markets Stability Act” exceed the authority of the Parliament of Canada over the general branch of the trade and commerce power under subsection 91(2) of the Constitution Act, 1867 ?

The reference was heard by a panel of five judges. [ 30 ] With respect to the first question, the Majority — composed of Duval Hesler C.J.Q. and Bouchard, Savard and Mainville JJ.A. — found the Cooperative System to be unconstitutional, for two main reasons. [ 31 ] First, the Majority held that the mechanism for amending the Model Provincial Act, as set out in the Memorandum, effectively subjects the legislative jurisdiction of the participating provinces to the approval of an external entity: the Council of Ministers.

In the Majority’s view, the terms of the Memorandum had to be understood as prohibiting all participating provinces from amending their securities legislation without the consent of the Council of Ministers, while also requiring the legislative implementation of all amendments dictated by the Council of Ministers.

This, it held, conflicts with the principle of parliamentary sovereignty, which protects a legislature’s freedom to enact, amend and repeal legislation as it sees fit. [ 32 ] Second, the Majority held that the involvement of the Council of Ministers in the making of regulations pursuant to the Draft Federal Act undermines the validity of that Act “by permitting certain provinces to exercise what amounts to a veto over federal initiatives that seek to guard against systemic risks related to capital markets which would have material adverse effects on the Canadian economy as a whole” (para. 56).

On this point, the Majority expressed the opinion that a provincial veto is incompatible with the general branch of the trade and commerce power and accordingly calls the constitutional validity of the Draft Federal Act into question, as it “negates the very necessity of pan-Canadian federal legislation to counter systemic risks on a national scale” (para. 90; see also para. 95).

The Majority added that the involvement of the Council of Ministers in the making of regulations under the Draft Federal Act amounts to an abdication of federal jurisdiction. [ 33 ] Schrager J.A. (the “Dissenting Judge”) took the position that the analysis of the scheme’s constitutional validity should be limited to the two draft statutes — the Model Provincial Act and the Draft Federal Act — and should not encompass the terms of the Memorandum, given that the Memorandum is an intergovernmental agreement that lacks the force of law.

He would have answered this first question posed by the reference, amended accordingly, in the affirmative. In his view, both of the statutes are constitutional, as they entail neither the delegation of legislative authority nor the abdication of parliamentary sovereignty.

Although he found that s. 5.5 of the Memorandum does have the effect of limiting a provincial legislature’s authority to amend its legislation, he observed that such a limitation is not incorporated into either the Draft Federal Act or the Model Provincial Act. [ 34 ] To the extent that he was bound to consider the first question with reference to the terms of the Memorandum, the Dissenting Judge would have declined to do so because, in his view, it is not for the courts to pronounce on the constitutional validity of intergovernmental agreements.

He also found it problematic that the Court of Appeal did not have before it a draft of the Authority’s enabling legislation. [ 35 ] In response to the second question, the Majority concluded that the Draft Federal Act is not ultra vires Parliament under s. 91(2) of the Constitution Act, 1867 , except with respect to ss. 76 to 79, which set out the role of the Council of Ministers in the making of regulations.

Given the stated purposes of the Draft Federal Act, the definition of “systemic risk” provided therein, and the limitations imposed on the scope of the Authority’s delegated regulatory powers, the Majority found that the pith and substance of the Draft Federal Act is to promote the stability of the Canadian economy by managing systemic risk in capital markets — risk which could have material adverse effects on the economy as a whole.

Following this Court’s guidance in Reference re Securities Act , the Majority had little trouble concluding that this is a subject matter that falls within Parliament’s jurisdiction over trade and commerce. [ 36 ] However, the Majority took issue with ss. 76 to 79 of the Draft Federal Act, which require that all regulations made by the Authority pursuant to the Draft Federal Act be approved by the Council of Ministers.

In the Majority’s view, these provisions have the effect of conferring on certain provinces a veto over federal regulations, and therefore “negates the very necessity of pan- Canadian federal legislation to counter systemic risks on a national scale” (para. 90). The Majority concluded on this basis that ss. 76 to 79 would render the Draft Federal Act unconstitutional as a whole if they are not removed from it. [ 37 ] The Dissenting Judge would have found the Draft Federal Act in its entirety to represent a valid exercise of Parliament’s general trade and commerce power.

Although he agreed that the subject matter of the draft legislation falls within Parliament’s jurisdiction under s. 91(2) of the Constitution Act, 1867 , he did not find that ss. 76 to 79 render the Draft Federal Act unconstitutional. He noted that Parliament has the power to delegate regulatory authority as it sees fit and to structure the body to which it delegates authority in any manner that is deemed appropriate to the task.

In the Dissenting Judge’s view, therefore, the fact that such a body may be populated by ministers of provincial governments does not invalidate the delegation of any such regulatory authority or undermine the inherently federal nature of the statute. IV. Positions of the Parties [ 38 ] With respect to the first question posed by the reference, the Attorneys General of Canada and British Columbia, supported by those of Ontario, Prince Edward Island, Saskatchewan and New Brunswick, submit that the proposed Cooperative System is constitutional.

They argue that the Majority erred in interpreting the Memorandum, taking the position that it neither purports to nor has the effect of binding the legislatures of the participating provinces, and does not require them to abdicate their legislative authority either. In particular, the Attorneys General of Canada and British Columbia dispute the Majority’s understanding of the principle of parliamentary sovereignty: in their submission, the executive is simply incapable of binding the legislature by way of cooperative agreements.

Their opinion is that the Majority’s conception of parliamentary sovereignty would, if accepted, limit the ability of provinces and the federal government to cooperate in the pursuit of common objectives, and would ultimately frustrate the application of cooperative federalism. [ 39 ] The Attorneys General of Canada and British Columbia (as well as the interveners that support their position) agree with the Court of Appeal that the Draft Federal Act is intra vires Parliament, but disagree with the Majority’s conclusion that the Council of Ministers’ involvement in reviewing federal regulations renders the Draft Federal Act unconstitutional.

They submit that the existence of a “provincial veto” is factually inaccurate, and add that the manner in which a statute delegates regulatory powers cannot affect that statute’s constitutionality, since the legislature remains free to delegate such regulatory powers as it sees fit.

[ 40 ] The Attorneys General of Quebec and Alberta, together with the Barreau du Québec and the Institute for Governance of Private and Public Organizations — agree with the Majority that the Cooperative System is unconstitutional. They submit that the proposed scheme requires participating provinces to surrender their legislative jurisdiction by undertaking to enact the Model Provincial Act and to refrain from unilaterally amending that legislation, the result being a violation of the principle of parliamentary sovereignty.

They also argue that this transfer of legislative authority to the Council of Ministers effectively creates a legislative body that is not contemplated by the Constitution. This, they contend, represents a colourable attempt to amend the Constitution and is incompatible with the rule respecting legislative delegation. [ 41 ] Turning to the second question, the Attorneys General of Canada, Ontario and New Brunswick submit that the Draft Federal Act falls within Parliament’s general trade and commerce power.

In their view, the proposed Act relates, in pith and substance, to the promotion and protection of the stability of the country’s financial system by managing systemic risk in capital markets.

This, they argue, falls squarely within the general branch of the trade and commerce power, in accordance with this Court’s decision in Reference re Securities Act . [ 42 ] The Attorney General of Quebec, together with the Attorney General of Alberta, the Barreau du Québec and the Institute for Governance of Private and Public Organizations, submits that the Draft Federal Act is beyond Parliament’s general trade and commerce power. As the management of systemic risk is a purpose that animates the regulation of securities generally, it is not helpful in drawing a line between provincial and federal jurisdiction.

Moreover, and even assuming the Draft Federal Act’s pith and substance can be characterized as the management of systemic risk, the Attorney General of Quebec takes the view that the constitutionality of this proposed legislation still cannot be supported under the general trade and commerce power on the basis of the General Motors indicia: the Draft Federal Act is concerned solely with the securities industry, there is no evidence that the provinces are incapable of enacting and enforcing similar measures, and given the realities of the trade in securities, one province’s failure to regulate will not jeopardize the regulation of securities in other jurisdictions. [ 43 ] The Attorney General of Manitoba agrees with the Attorney General of Quebec that the Draft Federal Act is ultra vires , but takes a slightly different approach.

Manitoba accepts that Parliament has the authority to legislate for the purpose of managing systemic risk, as this Court held in Reference re Securities Act . Given that the provinces also have the authority to legislate for this purpose, and in light of the inherently amorphous nature of the concept of “systemic risk”, Manitoba instead argues that federal authority over systemic risk must be confined to urgent circumstances that demonstrably require uniform national action.

Manitoba submits that the Draft Federal Act fails to meet this standard and would simply duplicate provincial regulation of the same risks for the same purposes without employing a qualitatively different approach. V. Analysis A.

Question #1: Does the Constitution of Canada authorize the implementation of pan-Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the “Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System”? [ 44 ] This first question requires this Court to consider whether the Cooperative System, as set out in the Memorandum, is constitutional. As noted above, the Majority answered this question in the negative, for two reasons.

First, it held that the involvement of the Council of Ministers in the proposal of amendments to the Model Provincial Act (as set out in ss. 4.2 and 5.5 of the Memorandum) fetters the law-making powers of the provincial legislatures, and therefore contravenes the principle of parliamentary sovereignty (paras. 57-81).

Second, it found the requirement that proposed regulations under the Draft Federal Act be approved by the Council of Ministers (Draft Federal Act, ss. 76 to 79), coupled with the mechanism by which the Council of Ministers approves or rejects such proposed regulations (Memorandum, s. 5.2), has the effect of giving certain provinces a “veto” over federal intervention in capital markets (para. 87).

This, in the Majority’s view, is incompatible with the constitutional foundation for federal jurisdiction under the general trade and commerce power (para. 95). [ 45 ] The arguments advanced by the Attorney General of Quebec in this Court are consistent with the Majority’s conclusions. Quebec contends that the effect of s. 5.5 of the Memorandum is to bind the legislatures of the respective participating provinces by (

a) prohibiting them from amending their securities legislation without the consent of the Council of Ministers, and by (

b) requiring that they enact all amendments to the Model Provincial Act that are approved by the Council of Ministers. In Quebec’s submission, this amounts to an impermissible fettering of the legislatures’ sovereign authority. [ 46 ] The Attorney General of Quebec also submits that this aspect of the Cooperative System is contrary to the prohibition against legislative delegation, as it effectively requires each of the participating provinces to “surrender their jurisdiction over securities in order to hand it over to a composite body which none of them controls” (R.F., at para. 77).

As a final point, Quebec adds that the effect of the Memorandum is to create a legislative body that is not contemplated in the Constitution. [ 47 ] For the reasons that follow, we respectfully disagree with the Majority’s conclusion and are unable to accept the position advanced by Quebec.

(1) Parliamentary Sovereignty and the Fettering of Provincial Legislative Authority [ 48 ] The proposition that the Council of Ministers’ involvement in amending the Model Provincial Act is inconsistent with the principle of parliamentary sovereignty rests on two erroneous premises: first, that the Memorandum purports to bind the legislatures of the participating provinces and second, that it is actually capable of doing so. As we will explain, the terms of the Memorandum do not and cannot fetter the legislatures’ primary law-making authority. (

a) Terms of the Memorandum [ 49 ]

Section 4.2 of the Memorandum provides that the Council of Ministers will be responsible for, among other things, proposing amendments to the Model Provincial Act, the Draft Federal Act, and the Authority’s charter documentation. The voting rules applicable to approval by the Council of Ministers of a proposal to amend the Model Provincial Act are set out in s. 5.5, which reads as

follows: 5.5 Voting on a Proposal to Amend Provincial and Territorial Legislation A proposal to amend the Capital Markets Act must be approved by: (

a) at least 50 [percent] of all members of the Council of Ministers; and (

b) the members of the Council of Ministers from each Major Capital Markets Jurisdiction. [50] It is clear from these sections that the Council of Ministers’ role is limited to proposals for amendments to the ModelProvincial Act — a model statute which, by definition, remains “subject to legislative approval” (s. 3(a)(i)). Sections 4.2 and 5.5 referexclusively to the proposed legislation on which this Cooperative System is based, and do not contemplate that the Council of Ministerswill have any formal involvement in the amendment of legislation that has already been enacted by provincial legislatures.

This is key:nowhere does the Memorandum imply that the legislatures of the participating provinces are required to implement the amendmentsmade to the Model Provincial Act that have been approved by the Council of Ministers, or that they are precluded from making anyother amendments to their securities laws.

Indeed, the terms of the Memorandum do not even require that the provisions of the ModelProvincial Act themselves be enacted into law by the legislatures of the participating provinces: the fact that the executive signatories arebound to “use their best efforts to cause their respective legislatures to enact or approve the Cooperative System Legislation” (s. 10.1; seealso s. 8.1) shows that these legislatures remain free to reject the proposed statutes (as amended) if they so choose. [51] We also note that neither of ss. 4.2 and 5.5 was incorporated into the Model Provincial Act.

In our view, this furtherundermines the submission that the Council of Ministers has a formal role to play in the legislative process. And the fact that the ModelProvincial Act’s definition of “Council of Ministers” refers to the Memorandum cannot be understood as incorporating the voting rulesof s. 5.5 into the statutory scheme (see: C.A. reasons, at para. 75). Incorporation by reference requires clear language (NorthropGrumman Overseas Services Corp. v. Canada (Attorney General), 2009 SCC 50, [2009] 3 S.C.R. 309, at paras. 11-12; citing withapproval UL Canada Inc. v.

Québec (Procureur général), (QC CS), [1999] R.J.Q. 1720 (Sup. Ct.), at p. 1741, citingN. Bankes, “Co-operative Federalism: Third Parties and Intergovernmental Agreements and Arrangements in Canada and Australia”(1991), 29 Alta. L. Rev. 792, at p. 832). Similarly, a legislature intending to bind itself to rules respecting the manner and form by whichthe statute is to be amended must do so in clear terms (see: Reference Re Canada Assistance Plan (B.C.), (SCC), [1991]2 S.C.R. 525, at pp. 561-64; Canadian Taxpayers Federation v.

Ontario (Minister of Finance) (2004), (ON SC), 73O.R. (3d) 621 (S.C.J.), at para. 49). [52] We therefore reject the proposition that the Cooperative System, as set out in the Memorandum, purports to fetter thelaw-making powers of the participating provinces’ legislatures. (

b) Parliamentary Sovereignty [53] At a broader level, the Majority’s reasoning reflects a misunderstanding of the principle of parliamentarysovereignty. In short, the executive is incapable of interfering with the legislature’s power to enact, amend and repeal legislation. Anexecutive agreement that purports to bind the parties’ respective legislatures cannot, therefore, have any such effect. [54] Parliamentary sovereignty is a foundational principle of the Westminster model of government, and it is based on arecognition that the legislature’s power to make laws exists without any legal limits or constraints (P.

J. Monahan, B. Shaw and P. Ryan,Constitutional Law (5th ed. 2017), at p. 85). In its traditional form, parliamentary sovereignty means that the legislature has theexclusive authority to enact, amend, and repeal any law as it sees fit, and that there is no matter in respect of which it may not makelaws. As explained by A. V.

Dicey: The principle of Parliamentary sovereignty means neither more nor less than this, namely that Parliament thus defined has, under theEnglish constitution, the right to make or unmake any law whatever; and, further, that no person or body is recognised by the law ofEngland as having a right to override or set aside the legislation of Parliament. (A. V.

Dicey, Introduction to the Study of the Law of the Constitution (10th ed. 1959), at pp. 39-40) [55] The sovereignty of the legislature is central to the United Kingdom’s uncodified constitutional structure (Jackson v.Her Majesty’s Attorney General, [2005] UKHL 56, [2006] 1 A.C. 262, at para. 9 (per Lord Bingham)). Because there are no constituentinstruments that either restrict the U.K. Parliament’s jurisdiction over certain subject matters or enshrine certain civil rights and liberties,“[a]ny law, upon any subject matter, is within Parliament’s competence” (P. W. Hogg, Constitutional Law of Canada (5th ed.

Supp.), atp. 12-1). Parliamentary sovereignty therefore means that the legislative branch of government has supremacy over the executive and thejudiciary: both must act in accordance with statutory enactments, and neither can usurp or interfere with the legislature’s law-makingfunction. [56] While the principle of parliamentary sovereignty is an equally important feature of Canadian law, various aspects ofour written Constitution have qualified the basic Diceyan rule that Parliament has the power “to make or unmake any law whatever”.

One such qualification lies in the federal structure of the Canadian state, which restricts the subject matters over which each legislaturehas jurisdiction. The distribution of legislative power between Parliament and the provincial legislatures is set out in

Part VI of the

Constitution Act, 1867. Since neither level of government has the power to legislate in respect of matters that fall within the exclusivecompetence of the other, the sovereignty of Parliament and of the provincial legislatures has been limited in Canada sinceConfederation. This was explained by the Judicial Committee of the Privy Council in Hodge v. The Queen (1883), 9 App.

Cas. 117(P.C.), as follows: When the British North America Act [now known as the Constitution Act, 1867] enacted that there should be a legislature for Ontario,and that its legislative assembly should have exclusive authority to make laws for the Province and for provincial purposes in relation tomatters enumerated in sect. 92, it conferred . . . authority as plenary and as ample within the limits prescribed by sect. 92 as the ImperialParliament in the plenitude of its power possessed and could bestow.

Within these limits of subjects and area the local legislature issupreme, and has the same authority as the Imperial Parliament, or the Parliament of the Dominion, would have had under likecircumstances . . . . [Emphasis added; p. 132.] Given this constitutional division of powers, therefore, neither Parliament nor the provincial legislatures have the authority to enact lawsthat touch on all subject matters.

Rather, the effect of parliamentary sovereignty in the context of Canadian federalism is that Parliamentand the provincial legislatures are supreme with respect only to matters that fall within their respective spheres of jurisdiction. [57] Further limits were placed upon parliamentary sovereignty in Canada following the enactment of the Constitution Act,1982, a constitutional document which (among other things) protects the various civil rights and freedoms enshrined in the CanadianCharter of Rights and Freedoms (ss. 1 to 34), recognizes and affirms existing Aboriginal and treaty rights (s. 35), and provides that anylaws which are inconsistent with the provisions of the Constitution are, “to the extent of the inconsistency, of no force or effect” (s.52(1)).

Not only does this constitutional instrument impose substantive limits on the content of statutory enactments, but it also codifiesthe authority of superior courts to review legislation for constitutional compliance (an authority that had previously been only assumed toexist).

Professor Monahan et al. had the following to say about the effect of the Constitution Act, 1982 on the principles of parliamentarysupremacy and of the rule of law: All laws, regardless of the subject matter, are subject to review on the basis that they offend fundamental rights of individuals or groupsunder the Charter, or Indigenous rights under [s. 35]. . . .

In this sense, the principle of constitutionalism and the rule of law — whichrequires that all actions of the state must be authorized by law and consistent with constitutional requirements — has now significantlynarrowed the principle of parliamentary supremacy in Canada. [p. 86] [58] In Reference re Secession of Quebec, (SCC), [1998] 2 S.C.R. 217, this Court observed that, “withthe adoption of the Charter, the Canadian system of government was transformed to a significant extent from a system of parliamentarysupremacy to one of constitutional supremacy” (para. 72).

This is of course true, insofar as the Constitution places limits on the law-making powers of Parliament and the provincial legislatures. However, the principle of parliamentary sovereignty remains foundationalto the structure of the Canadian state: aside from these constitutional limits, the legislative branch of government remains supreme overboth the judiciary and the executive. [59] An important corollary to parliamentary sovereignty is the rule that the executive cannot unilaterally fetter thelegislature’s law-making power.

This rule was illustrated in Reference re Anti-Inflation Act, (SCC), [1976] 2 S.C.R.373, in which this Court was called upon to decide, among other things, whether an intergovernmental agreement between thegovernments of Canada and Ontario that purported to render certain portions of the federal Anti-Inflation Act, S.C. 1974-75-76, c. 75,applicable to that province’s public sector could in fact achieve this end.

Writing for a Court that was unanimous on this point, LaskinC.J. answered this question in the negative, reasoning as follows: If the agreement alone has the effect contended for, it imposes the Guidelines and accompanying sanctions on the provincial publicsector, thereby altering the existing law of Ontario and precluding changes in that law that are inconsistent with the Guidelines: see s.4(1) of the Anti-Inflation Act. I am unable to appreciate how the provincial Executive, suo motu, can accomplish such a change.

I agree,of course, that the Executive or a Minister authorized by it may be the proper signatory to an agreement to which the Government ofOntario is a party.

That, however, is merely a formality of execution; and even if the agreement is binding upon the Government ofOntario as such, on the analogy of treaties which may bind the contracting parties but yet be without domestic force, that would notmake the agreement part of the law of Ontario binding upon persons purportedly affected by it. [Emphasis added; pp. 432-33.] [60] The rule that the executive cannot bind the legislature is perhaps more clearly exemplified by the decision of SupremeCourt of South Australia in West Lakes Ltd. v.

South Australia (1980), 25 S.A.S.R. 389 — a decision that was cited by the Majority ofthe Quebec Court of Appeal in its reasons. At issue in West Lakes was a provision in an agreement between the State of South Australiaand a land developer, which could be interpreted as giving the developer a veto over any amendment to the statute that enacted theagreement into law.

When a bill to amend that statute was later introduced into the Parliament of South Australia, the developer sought adeclaration that the covenants contained in the agreement were binding upon the State and an injunction restraining the State from takingany step or being party to any step to further the bill. The Supreme Court of South Australia unanimously held that the developer wasnot entitled to such relief, relying in part on the principle of parliamentary sovereignty.

Of particular note for the purpose of theseappeals, King C.J. stated that ministers of the State, as members of parliament, were “free to propose, to consider, to discuss, and to votefor any bill unconstrained by a contract entered into on behalf of the State” (pp. 390-91). [61] Returning to the case at hand, the Majority of the Quebec Court of Appeal took issue with ss. 4.2 and 5.5 of theMemorandum, concluding that the combined effect of these sections is to fetter the sovereignty of the legislatures of the participatingprovinces (at para. 62).

Not only does this represent a misunderstanding of the terms of the Memorandum themselves, but it also rests onthe flawed premise that the executive signatories are actually capable of binding the legislatures of their respective jurisdictions toimplement any amendments dictated b

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