2011 QCCA 591, 2011 QCCA 591

Unofficial English Translation Québec (Procureure générale) c. Canada (Procureure générale) 2011 QCCA 591 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF QUEBEC No.: 200-09-006746-090 DATE: MARCH 31, 2011 CORAM: THE HONOURABLE J.J. MICHEL ROBERT, C.J. ANDRÉ FORGET, J.A. PIERRE J. DALPHOND, J.A. MARIE-FRANCE BICH, J.A. JEAN BOUCHARD, J.A. ATTORNEY GENERAL OF QUEBEC APPLICANT v. ATTORNEY GENERAL OF CANADA RESPONDENT and ATTORNEY GENERAL OF ALBERTA and BARREAU DU QUÉBEC and CANADIAN BANKERS ASSOCIATION INTERVENERS REFERENCE RE: POWER OF PARLIAMENT TO REGULATE SECURITIES [ 1 ] The Government of Quebec, by Order in Council No. 720-2010, dated August 25, 2010, pursuant to

section 1 of the Court of Appeal Reference Act , R.S.Q., c. R-23, submitted the following constitutional question to this Court: [ translation ] Are the provisions of the Proposed Canadian Securities Act , published by the Government of Canada on May 26, 2010, the essential purpose of which is to protect investors and regulate the securities industry, and the provisions to that effect in sections 295 , 296 , and 297 of the Budget Implementation Act, 2009 , S.C. 2009, c. 2, ultra vires the Parliament of Canada under the Constitution Act, 1867 ? [ 2 ] Answer (Robert C.J.): Yes.

Except for the criminal law provisions, the proposed Act is ultra vires the legislative authority of the Parliament of Canada; however, sections 295 , 296 and 297 of the Budget Implementation Act, 2009 are valid. [ 3 ] Answer (Forget, Bich and Bouchard JJ.A.): Yes. Except for the criminal law provisions, which are valid pursuant to subsection 91(27) of the Constitution Act, 1867 , the proposed Act and

section 297 of the Budget Implementation Act, 2009 are not within the legislative authority of the Parliament of Canada pursuant to subsection 97(2) of the Constitution Act, 1867 . [ 4 ] Answer (Dalphond J.A.): No. The Parliament of Canada has jurisdiction under subsection 91(2) of the Constitution Act, 1867 to enact the entire proposed Act; as regards sections 295 , 296 and 297 of the Budget Implementation Act, 2009 , they are valid. [s. J.J. Michel Robert] J.J. MICHEL ROBERT C.J. [s. André Forget]

ANDRÉ FORGET J.A. [s. Pierre J. Dalphond] PIERRE J. DALPHOND, J.A. [s. Marie-France Bich] MARIE-FRANCE BICH J.A. [s. Jean Bouchard] JEAN BOUCHARD J.A. Jean-Yves Bernard Bernard, Roy For the applicant France Bonsaint Hugo Jean Direction générale des affaires juridiques et législatives (JUSTICE-QUÉBEC) For the applicant Claude Joyal René Leblanc Alexander Pless Robert Frater Joyal, Leblanc For the respondent D. Brian Foster, Q.C. E. David D. Tavender, Q.C. Jordan Milne Fraser, Milner, Casgrain For the intervener (counsel for the Attorney General of Alberta) L.

Christine Enns (of the Ministry of Justice of Alberta, for the Attorney General of Alberta) Raymond Doray Mathieu Quenneville Lavery, De Billy For the intervener (Barreau du Québec) Mahmud Jamal Éric Préfontaine Osler, Hoskin, Harcourt For the intervener (Canadian Bankers Association) Date of hearing: January 17 to 20, 2011 REASONS OF THE CHIEF JUSTICE TABLE OF CONTENTS I. PROCEDURAL BACKGROUND .. 3 1. Reference by Attorney General of Quebec to Court of Appeal of Quebec . 3

2. Reference by Attorney General of Alberta to Alberta Court of Appeal 3 3. Reference by Attorney General of Canada to Supreme Court of Canada . 3 4. Motion to stay reference to Court of Appeal of Quebec . 4 II. QUESTION .. 4 III. POSITIONS OF THE PARTIES .. 6 1. Attorney General of Quebec . 6 2. Attorney General of Alberta . 7 3. Barreau du Québec . 7 4. Attorney General of Canada . 9 5. Canadian Bankers Association . 10 IV. ANALYSIS .. 11 1. Method . 11 2. Pith and substance analysis . 12

a) Intrinsic evidence . 15 i. The proposed Act 15 ii. Sections of the Budget Implementation Act, 2009 . 22

b) Extrinsic evidence . 23 i. History of harmonization initiatives . 23 ii. Parliamentary statements and debates . 27 iii. Expert reports . 28 iv. Existing provincial legislation . 33 v. Finding on pith and substance . 37 3. Provincial power over property and civil rights . 40

a) Historical origins . 40

b) Provincial residual clause . 45

c) Scope of power 47

d) Finding on property and civil rights power 52 4. Federal jurisdiction over trade and commerce . 53

a) Interprovincial and international trade . 55

b) General jurisdiction . 60

c) Application to this case . 63 i. General scheme of regulation and supervision by a regulatory organization . 64 ii. Trade in general 64 iii. Provincial inability . 66 iv. Requirement of unanimity . 72 v. Finding on power over trade in general 73 5. Sections from the Budget Implementation Act, 2009 . 73 V. CONCLUSION .. 74

Introduction . 1 Preliminary Comments . 1 Regulation of activities relating to securities is historically within the authority of two levels of government 7 Two major trends in conflict 24 Authority of Parliament to enact the proposed Act 27 Comments on Parts 12 and 13 . 50 The Budget Implementation Act, 2009 . 51 Final remarks . 52 Conclusion . 54 I. PROCEDURAL BACKGROUND 1.

Reference by Attorney General of Quebec to Court of Appeal of Quebec [ 5 ] On July 8, 2009, the Government of Quebec, by Order in Council No. 869-2009, [1] referred three constitutional questions to this Court for an opinion pursuant to the Court of Appeal Reference Act . [2] These questions concerned a federal government initiative to establish a federal securities regulation commission. [ 6 ] On May 26, 2010, the Government of Canada published a proposed Securities Act (hereafter “proposed Act”).

In reaction, the Government of Quebec, by Order in Council 720-2010, amended the questions referred to this Court, so that the reference contained only one question. [3] 2.

Reference by Attorney General of Alberta to Alberta Court of Appeal [ 7 ] On January 26, 2010, pursuant to the Judicature Act , [4] the Lieutenant Governor in Council of Alberta, by Order in Council No. 20-2010, referred two constitutional questions to the Alberta Court of Appeal regarding the legislative authority of the government of that province to enact a law that would oust the application of the Securities Act [5] in certain circumstances.

In reaction to the publication of the proposed Act, the Lieutenant Governor in Council amended the questions by Order in Council No. 181-2010, dated June 9, 2010, to make reference to the proposed Act. 3.

Reference by Attorney General of Canada to Supreme Court of Canada [ 8 ] On May 26, 2010, the day the proposed Act was published, the Government of Canada referred to the Supreme Court of Canada, by Order in Council P.C. 2010-667, the question of whether the proposed Act is within the legislative authority of the Parliament of Canada and gave notice to all provinces and territories in accordance with the Supreme Court Act . [6] The attorneys general of the provinces of Ontario, Quebec, Nova Scotia, New Brunswick, Manitoba, British Columbia, Saskatchewan, and Alberta were granted intervener status in that proceeding, which is scheduled to be heard on April 13 and 14, 2011. 4.

Motion to stay reference to Court of Appeal of Quebec [ 9 ] On January 22, 2010, the Attorney General of Canada (hereafter “AGC”) asked this Court to temporarily stay proceedings in this reference until June 20, 2010, a date near the week marking the end of the session of Parliament. The AGC argued that the reference was premature, interfered in the political and legislative processes, threatened the judicial independence of the Court, and would be an unreasonable burden on the Court’s resources.

A panel of this Court (Robert C.J. and Bich and Léger JJ.A.) dismissed that motion in a judgment delivered from the Bench on March 26, 2010. [7] II. QUESTION [ 10 ] The questions initially submitted by the Government of Quebec were the following:

[translation ] 1. Do the provisions proposed in the Draft Securities Act annexed to the Final Report of the Expert Panel on Securities Regulation, January 2009, the essential purpose of which is to protect investors and regulate the securities industry, and the provisions pertaining thereto at sections 295 , 296 and 297 of the Budget Implementation Act, 2009 , S.C. 2009, c. 2, exceed the legislative authority of the Parliament of Canada pursuant to the Constitution Act, 1867 ? 2.

Does the Parliament of Canada have legislative authority pursuant to the Constitution Act, 1867 to enact legislation allowing issuers and registrants to voluntarily submit to a federal securities act to the exclusion of provincial legislation, as proposed in the Final Report of the Expert Panel on Securities Regulation, January 2009? 3.

Does the Parliament of Canada have legislative authority pursuant to the Constitution Act, 1867 to enact legislation stipulating that provincial securities acts are inapplicable, as proposed in the Final Report of the Expert Panel on Securities Regulation, January 2009? [ 11 ] By a second order in council, the Government of Quebec replaced these questions with a single question, as follows: [ translation] Are the provisions of the Proposed Canadian Securities Act , published by the Government of Canada on May 26, 2010, the essential purpose of which is to protect investors and regulate the securities industry, and the provisions to that effect in sections 295 , 296 and 297 of the Budget Implementation Act, 2009 , S.C. 2009, c. 2, ultra vires the Parliament of Canada under the Constitution Act, 1867 ? [ 12 ] In my view, this Court enjoys some discretion in answering this question.

For example, it should be noted that the question characterizes the purpose of the proposed Act as being to protect investors and regulate the securities industry. This characterization is by no means binding on us. Similarly, I think it would be acceptable to conclude that some of the provisions of the proposed Act are within the jurisdiction of Parliament while others are not, even though the question concerns the proposed Act as a whole. [ 13 ] This approach is consistent with this Court’s discretion, pursuant to its appellate jurisdiction, to rephrase questions of law raised by the parties.

The Legislature intended to transpose this discretion to our reference jurisdiction, under

section 5 of the Court of Appeal Reference Act : 5. The court shall send to the Government for its information its opinion duly certified upon the questions so referred, giving its reasons in support thereof, in like manner as in the case of judgments rendered upon appeals brought before the said court . [Emphasis added.] [ 14 ] This approach is also consistent with the fundamental role of the courts under the distribution of powers, which role is to act as “ultimate umpire of the federal system” and requires, as Chief Justice Dickson noted in The Queen v.

Beauregard , that it be autonomous and completely independent of government. [8] Finally, the Reference re Secession of Quebec established that appellate courts have discretion to refuse to answer reference questions if they are not directed to legal issues, or for pragmatic reasons. [9] The importance of the courts’ autonomy and independence as umpires of federalism and the discretion of appellate courts not to answer reference questions are indicative of the need for this Court to exercise discretion in assessing a reference.

This discretion should, at the very least, allow the Court to define the questions on which its opinion is sought as it sees fit, without being strictly bound by the terms of the question submitted. III. POSITIONS OF THE PARTIES 1. Attorney General of Quebec [ 15 ] The Attorney General of Quebec (hereafter “AGQ”) proposes that the pith and substance of the proposed Act be characterized as the protection of investors in the securities market through the supervision of intermediaries and the imposition on issuers of duties to disclose.

The AGQ argues that this sphere of activity has always been recognized as being within the exclusive powers of the provinces in relation to property and civil rights and matters of a merely local nature, pursuant to subsections 92(13) and 92(16) of the Constitution Act, 1867 . [10] In the view of the AGQ, the securities trade is still, generally speaking, a series of intraprovincial transactions, despite the revolution in information technology and the globalization of stock exchanges which occurred in recent decades. [ 16 ] The AGQ also submits that the pith and substance of the proposed Act is not within the federal trade and commerce power under subsection 91(2) of the Constitution Act, 1867 .

The AGQ argues that the proposed Act does not meet three of the five indicia established by the Supreme Court in General Motors of Canada Ltd. v. City National Leasing [11] and Kirkbi AG v. Gestions Ritvik Inc . [12] [ 17 ] More specifically, the AGQ is of the opinion that the proposed Act does not concern trade as a whole, but one industry in particular. In this sense, securities regulation is more akin to the regulation of insurance, manufacturing, the oil industry, professional bodies or consumer protection than to the regulation of business corporations or competition.

Further, the AGQ argues that the proposed Act is not of such nature that the provinces, jointly or severally, would be constitutionally unable to enact it. In this regard, the AGQ submits that the current system is considered to be one of the best in the world in terms of regulation. The AGQ adds that the objective of reducing systemic risks to the financial system cannot be used to otherwise characterize the pith and substance of the proposed Act, since the pursuit of this objective is not its dominant characteristic.

Finally, the AGQ argues that the proposed Act’s application will not be compromised by the failure of one or more province or locality to opt in and notes that the proposed Act itself contemplates the possibility that certain provinces may not take

part in the scheme.

[ 18 ] Finally, we note that the AGQ considers sections 295 , 296 and 297 of the Budget Implementation Act, 2009 [13] to be invalid by their inseverability, since they are ancillary to the proposed Act and share its pith and substance. 2. Attorney General of Alberta [ 19 ] The Attorney General of Alberta (hereafter “AGA”) proposes a broader characterization of the pith and substance of the proposed Act than does the AGQ.

In the AGA’s view, the pith and substance of the proposed Act is to regulate the securities trade to protect investors, ensure a fair market, prevent systemic risks, and foster interprovincial and international cooperation among securities authorities. [ 20 ] The AGA submits that such

an act falls within the provinces’ property and civil rights power since it essentially deals with transactions of a local nature between provincially registered intermediaries.

The fact that some issuers or registrants are located outside the province would only have an incidental effect on interprovincial or international trade and would not change the pith and substance of the proposed Act. [ 21 ] The AGA argues that the strictness of the evaluation of Parliament’s ability to enact the proposed Act pursuant to its general trade and commerce power must reflect the magnitude of the possible intrusion into provincial jurisdiction.

In the present case, the AGA submits that recognizing a federal power in respect of this subject matter would open the floodgates, draining the property and civil rights power of its content and upsetting the balance of federalism by condemning other subject matters, such as insurance, consumer protection, or the regulation of professionals, to the same fate. [ 22 ] Finally, the AGA raises the three indicia set out in General Motors and Kirkbi . The AGA argues that the proposed Act does not concern trade as a whole and that case law and authors frequently make use of the expression “securities industry”.

Regarding the provincial inability indicium, the AGA submits that the provinces have clearly demonstrated that under the Constitution, they may validly regulate this industry by harmonizing their laws. The AGA argues that, on its face, the proposed Act fails the unanimous participation indicium, since it provides for a voluntary opt-in mechanism. 3. Barreau du Québec [ 23 ] The Barreau du Québec (hereafter “Barreau”) submits that it is intervening because of the issues of legal and institutional consistency raised by this reference, particularly with regard to Quebec civil law.

The Barreau argues that the proposed Act threatens the unique nature of Quebec’s economy and thus the principle of cooperative federalism. [ 24 ] The Barreau submits that the pith and substance of the proposed Act falls within the provincial property and civil rights power. It argues that case law has systematically treated the protection of the public as part of this power, as are the creation of property rights, the characteristics of such rights, and their exchange by contract.

Section 9 of the proposed Act, entitled “Purposes of Act”, is more of a ploy to provide a constitutional justification for Parliament’s legislative action than it is a reflection of the Act’s pith and substance.

The Barreau submits that the proposed Act pursues macroeconomic regulation objectives through the same means as those currently used by the provinces. [ 25 ] The Barreau adds that [ translation ] “the security of the financial system” is not a subject matter under the Constitution because it was not explicitly assigned by the Constitution Act, 1867 and lacks the required singleness to be assigned to Parliament by default.

It is alleged that recognizing such a power would allow the federal government to regulate any supplier of financial goods and services, such as credit unions and companies in the fields of insurance, credit, or real estate. [ 26 ] For reasons similar to those of the AGQ and the AGA, the Barreau submits that the proposed Act does not meet the last three indicia set out in Kirkbi for finding legislation to be within Parliament’s general trade and commerce power.

It argues that the securities industry shares a large number of similarities with the insurance industry, which is recognized as being within provincial jurisdiction.

It adds that Parliament does not have the required authority to enact the proposed Act under the double aspect doctrine or pursuant to its interprovincial and international trade power. [ 27 ] Furthermore, the Barreau submits that a negative response to the reference question would go against the principle of cooperative federalism developed by the Supreme Court, the fundamental objectives of which are to reconcile unity with diversity, promote democratic participation at the local and regional levels, and foster cooperation among governments for the common good.

The Barreau argues that the recognition of federal jurisdiction to enact the proposed Act would represent a shift toward a centralist form of federalism and go against predictability in the division of powers. It would also allow the provinces to renounce their legislative powers and delegate them to the federal government, contrary to the principles established in Attorney General of Nova Scotia v.

Attorney General of Canada . [14] [ 28 ] Finally, the Barreau submits that the sections creating criminal offences and those in the Budget Implementation Act, 2009 are ancillary to the proposed Act and must also be declared invalid. 4. Attorney General of Canada [ 29 ] The AGC submits that the determination of the pith and substance of the proposed Act rests on a very general assessment of the objectives sought and the desired effects.

In this case, the AGC defines the pith and substance as the betterment of the economic well-being of Canada as a whole through the introduction of a comprehensive regulatory regime for capital markets. The AGC submits that the proposed Act, although similar to provincial legislation, has a different pith and substance, since it is more comprehensive and does not pursue the same purpose. The AGC notes that the efficacy of the proposed measure is not a relevant factor. [ 30 ] The AGC argues that the fact that the courts have recognized the provinces’ jurisdiction in respect of various aspects of the

securities trade, as was the case in Multiple Access Ltd. v. McCutcheon [15] and Global Securities Corp. v. British Columbia (Securities Commission) , [16] does not oust the jurisdiction of the federal government.

The AGC states that the proposed Act falls within the general trade and commerce power granted to Parliament by subsection 91(2) of the Constitution Act, 1867 , and may be enacted under the double aspect doctrine. [ 31 ] The AGC analyzes the indicia set out by the Supreme Court in General Motors and repeated in Kirkbi in respect of the scope of the trade and commerce power, noting that these indicia are not exhaustive.

As a preliminary remark, the AGC notes that a presumption of constitutionality applies in this case and that meeting the standard of proof consists in establishing a rational basis for the impugned statutory power, rather than rigorously proving all the facts alleged. [ 32 ] Regarding the first indicium, the AGC submits that the proposed Act would set up a comprehensive regulatory system to discourage trade practices that are harmful to Canada’s economy.

This would bring securities in line with the other essential components of Canada’s financial system—banks, interest and insolvency—which are all primarily within federal jurisdiction. The AGC further argues that the Canadian Securities Regulatory Authority (hereafter “Authority”) meets the second indicium. [ 33 ] The AGC contends that the proposed Act, as its

Preamble indicates, is sufficiently national and general in nature to meet the third indicium, since capital markets are a key element of economic infrastructure. Securities regulation, by imposing standards on all publicly traded business corporations regardless of which industry they operate in, is more than a particular industry. [ 34 ] The AGC further submits that the provinces are constitutionally incapable of enacting securities regulation legislation and gives various examples illustrating this point.

Many transactions are interprovincial or international in scope since sellers, buyers, and intermediaries may be located in different provinces. The AGC argues that the provinces’ ancillary power to regulate securities is not without limits. The AGC adds that the territoriality principle prevents provincial securities authorities from imposing their decisions in another province, or investors from seeking redress in provinces other than the one where the securities were issued.

Furthermore, the AGC submits that a provincial authority’s jurisdiction over federally incorporated business corporations is limited, making action by a federal authority necessary. The AGC argues that the provinces do not have the required authority to enact criminal law provisions and that a province cannot represent Canada and defend Canada’s interests in international forums, such as the International Organization of Securities Commissions (hereafter “IOSCO”).

The AGC concludes its arguments regarding this indicium by submitting that the passport system has a number of shortcomings demonstrating the inherent limitations of provincial cooperation in securities regulation. [ 35 ] Finally, the AGC submits that although all provinces need to opt into the proposed system, their membership in it is not mandatory. A lack of unanimity could lead to inconsistent rules, uncoordinated enforcement, and varying levels of investor protection. According to the AGC, the proposed Act reflects a flexible cooperative federalism and is intended to be implemented gradually.

This indicium should be assessed on the basis of the objective of unanimous participation, rather the resulting efficacy if unanimity is not achieved. 5. Canadian Bankers Association [ 36 ] The Canadian Bankers Association (hereafter “CBA”), which represents 51 banks, claims intervener status as one of the most important participants in capital markets. It submits the securities regulation system in Canada is unable to carry out its role in the face of the profound changes that the market has experienced. [ 37 ] It proposes five interpretative principles to guide this Court in its deliberations.

First, it submits that the Constitution Act, 1867 must be interpreted in an evolutionary manner, taking into account current commercial realities. Further, like the AGC, the CBA submits that a presumption of constitutionality applies to the proposed Act, that the burden of proof consists in showing a rational basis, and that the Court does not have to consider the proposed Act’s efficacy.

Finally, it argues that, in accordance with the principle of flexible federalism, this Court should favour the double aspect doctrine over the interjurisdictional immunity doctrine. [ 38 ] The CBA submits that the proposed Act falls within Parliament’s general trade and commerce power and meets the five indicia established in General Motors and Kirkbi . Regarding the third indicium, it adds that although the case law uses the expression “securities industry”, the proposed Act does not regulate a single industry, but rather the raising of capital in all industries and sectors in Canada’s economy.

Turning to the fourth indicium, the CBA submits that the provinces cannot make laws in relation to interprovincial or international trade or property and civil rights outside their borders, establish a national regulatory body empowered to represent the country at the international level, integrate securities regulation into the broader regulatory framework for Canada’s financial system, or enact criminal penalties.

The CBA adds that the efficacy of the federal system would be diminished if the proposed Act were limited to the interprovincial and international aspects of the securities trade since securities transactions would have unequal protection across the country, and the management of urgent matters such as the prevention of systemic risks would be too slow. Finally, the CBA submits that the voluntary participation of the provinces does not undermine compliance with the fifth indicium.

Parliament’s intention is to create a single system, and the validity of the proposed Act is not dependent on the whether the provinces choose to opt in. IV. ANALYSIS 1. Method [ 39 ] In the recent Reference re Assisted Human Reproduction Act , the Supreme Court confirmed the two-step method for determining whether

an act is within the legislative authority of Parliament or that of the provincial legislatures. [17] First, the pith and substance of the act must be established. Second, the act must be classified in accordance with the subject matters listed in sections 91 and 92 of the Constitution Act, 1867 . The question submitted by the AGQ will be answered in the negative if the proposed Act could be validly enacted by Parliament.

[ 40 ] It is possible that a provision of a piece of legislation enacted by one level of government could have ancillary effects on a field of jurisdiction of another.

For this reason, the interjurisdictional immunity doctrine must be interpreted as allowing a fair amount of overlap. [18] Long ago, the Privy Council recognized that the enumerated classes of matters in the Constitution Act, 1867 are not watertight compartments. [19] Where the constitutional validity of a particular provision is challenged, the courts must determine whether that provision is sufficiently integrated into a validly enacted law to be constitutional. [20] As Chief Justice Dickson wrote in General Motors , this requires considering the seriousness of the encroachment, with a considerable encroachment requiring a stricter assessment of its degree of integration. [21] [ 41 ] Finally, it is possible that two near-identical pieces of legislation could be validly enacted by two levels of government, according to the double aspect doctrine.

In such cases, one same piece of legislation must pursue two different objectives connecting it with two different matters. The Supreme Court, quoting Lederman, stated in Multiple Access that this doctrine should be applied where the contrast between the relative importance of the two aspects is not so sharp. [22] To take a frequently cited example, both Parliament and the legislatures have enacted laws against impaired driving.

On the one hand, provincial provisions are aimed at reducing accidents, injuries, and deaths related to impaired driving; on the other hand, the purpose of the relevant Criminal Code provisions is to punish offenders and curtail a social evil. [ 42 ] The expression “notwithstanding anything in this Act” in

section 91 of the Constitution Act, 1867 has been interpreted as meaning that, in cases of conflict, federal law is of paramount authority [23] and that a provincial law is invalid insofar as it is incompatible with federal law. [24] Thus, we may conclude that both the federal government and provincial governments could validly enact the proposed Act, in which case the reference question would have to be answered in the negative. 2. Pith and substance analysis [ 43 ] Great care must be taken in identifying the pith and substance of

an act, since this will have a determinative effect on the ensuing classification. The parties propose very different characterizations of the pith and substance of the proposed Act. Detractors of the proposed Act give it a relatively narrow reading. In the AGQ’s view, it deals with the protection of investors in the securities market through the supervision of intermediaries and the imposition on issuers of duties to disclose.

In the AGA’s view, it deals with the regulation of the securities trade to protect investors and market fairness, prevent systemic risks, and foster interprovincial and international cooperation among securities authorities. In the Barreau’s view, the proposed Act creates a comprehensive regulatory regime for a provincial area of activity, the contracts related thereto, and all participants therein. [ 44 ] For the proposed Act’s defenders, its pith and substance is more comprehensive.

In the AGC’s view, the pith and substance here is the betterment of the economic well-being of Canada as a whole through the introduction of a comprehensive regulatory regime for capital markets.

Finally, although this is more a statement of the proposed Act’s objective than of its pith and substance, the CBA submits that the proposed Act is aimed at protecting and improving the integrity and competitiveness of capital markets, which affects the prosperity and well-being of all Canadians. [ 45 ] The synonyms used by Justice La Forest help to define the scope of the term “pith and substance”, which plays a key and determinative role in constitutional matters: There is, of course, no magic in the phrase. . . .

It can be described as the "constitutional value represented by the challenged legislation", as "an abstract of the statute's content", and as "the true meaning of the challenged legislation" or the "leading feature" or "true nature and character" of the impugned law . . . .

Whatever the phrase used, the idea remains the same: division of powers analysis commences with an identification of "the dominant or most important characteristic of the challenged law" . . . . [25] [ 46 ] To assess the pith and substance of a law, case law asks us to examine both the purpose of the enacting body and the legal effect of the law. [26] The AGC, citing Ward v. Canada (Attorney General) , [27] submits that the purpose must be of prime importance in the analysis of a law’s pith and substance. Professors Patrick J.

Monahan and André Tremblay agree that the purpose of a law must take precedence over its effects. They add, however, that the effects must still be considered and that, where the effects depart markedly from the stated objective, it must be concluded that the law was enacted for another purpose. [28] In such cases where a government seeks to do indirectly what it cannot do directly, by means of what is called “colourability”, the law will be declared unconstitutional. [29] [ 47 ] I am of the view that the purpose and effects of a law must be analyzed on an equal footing to determine a law’s pith and substance.

It is possible that some essential effects of a statute are not disclosed by the statement of its purpose or, conversely, that some of the effects sought are not achieved. The three opinions given in the recent Reference re Assisted Human Reproduction Act confirm this approach. [30] That said, the AGC and the CBA rightly argue that a law’s efficacy in meeting its objectives is not a valid consideration in the pith and substance analysis.

Rather, such a consideration is relevant to the political question of whether enacting the law was appropriate. [31] [ 48 ] The AGC also argues that the pith and substance of the proposed Act must be given a very general definition. Justices LeBel and Deschamps explicitly rejected this approach in Reference re Assisted Human Reproduction Act , noting that an overly general definition might result in connecting a law with two exclusive powers of a single level of government and legitimizing the overflow of ancillary effects.

They wrote: It is important to identify the pith and substance of the impugned provisions as precisely as possible. . . . If vague characterizations of the pith and substance of provisions were accepted, this could lead not only to the dilution of and confusion with respect to the constitutional doctrines that have been developed over the years, but also to an erosion of the scope of provincial powers as a result of the federal paramountcy doctrine. [32] [ 49 ] The AGC and the CBA submit that the constitutionality of the proposed Act is presumed.

This presumption was stated in, among other cases, Re The Farm Products Marketing Act , in which Justice Fauteux wrote the following: There is a presumptio juris as to the existence of the bona fide intention of a legislative body to confine itself to its own sphere and a

presumption of similar nature that general words in a statute are not intended to extend its operation beyond the territorial authority of the Legislature. [33] Without calling into question the good faith of the federal Minister of Finance, I find that the presumption of constitutionality should not apply in this case, since the proposed Act is not the product of a legislative body, but of the executive. Not only has it not received Royal Sanction, a fundamental distinction, but it has also not been debated and passed by members of the House of Commons and the Senate. [ 50 ] As Professor Peter W. Hogg sums it up, in its assessment of the purpose and effect of

an act, a court may refer to intrinsic material (preamble,

section stating the purpose, other sections, etc.) and extrinsic material regarding the context in which the act was drafted (reports of commissions of inquiry, white papers, scientific studies, parliamentary commission report, parliamentary debates, and so on). [34] Ward established that identifying the problem that the government decided to address may be relevant to identifying

an act’s pith and substance. [35] [ 51 ] Before proceeding with such an analysis, it is important to identify the burden of proof applicable to the considerable number of expert testimonies that were given regarding the pith and substance of the proposed Act and its classification among the enumerated subject matters. The AGC and the CBA submit that this Court should not require strict evidence of the facts alleged in support of the proposed Act’s validity, nor should it rule on issues of social or economic policy.

They add that, in accordance with the words of Chief Justice Laskin in Re Anti-Inflation Act , the extrinsic material should instead serve to establish a “rational basis” connecting the proposed Act to the head of power invoked. [36] The CBA refers us to the following words of Hogg, who proposes that this approach allows contradictory pieces of evidence to be considered without having to rule on each of them and that, once a rational basis has been established, the act is presumed to be constitutional: The rational basis test . . . erects a presumption of constitutionality that is exceedingly difficult for the challenger of legislation to overcome.

The rational basis test enables a court to uphold the validity of legislation without the necessity for strict proof of the underlying facts. It enables a court to resolve conflicting evidence without the need to make a definitive ruling on the conflict. [37] [ 52 ] The AGC and the CBA rightly state that the standards of proof used “as a matter of fact”, in the words of Chief Justice Laskin, [38] do no apply in this reference proceeding. Since we have not heard the experts, we cannot assess their credibility, rule on objections, or determine the truth of the facts alleged.

A more generous reception and a less strict assessment of the evidence are therefore appropriate. [ 53 ] My analysis will not, however, endow the proposed Act with a presumption of constitutionality. The rational basis test is appropriate for considering highly political questions, such as when assessing a national crisis in the context of Parliament’s general residual power in respect of emergencies. Such is also the case where impugned statutory provisions are connected with the principal legislative power invoked in support of a law, [39] and perhaps in other circumstances as well.

However, the indicia established by the case law on the general trade and commerce power call for an assessment of complex factual evidence, not policy choices, which a presumption of validity would make impossible. I would therefore require that the arguments made by all of the parties in this case be considered on the balance of probabilities, in accordance with the approach taken in Kitkatla Band . [40]

a) Intrinsic evidence i. The proposed Act [ 54 ] I will begin the analysis of the intrinsic material relating to the proposed Act with the elements stating the Act’s purpose. The

Preamble reads as follows:

Whereas: Capital markets affect the well-being and prosperity of all Canadians; Capital markets are increasingly national and international in scope; Capital markets are rapidly evolving and include increasingly complex financial products and methods of distribution and trading; It is important for Canada to have competitive capital markets and a strengthened, comprehensive and coordinated enforcement regime for those markets; It is in the national interest to effectively protect and promote Canadian interests internationally, including through the development of consistent regulatory policies for capital markets; The integrity and stability of Canada’s financial system would be enhanced by the presence of a single Canadian securities regulator as part of the Canadian financial regulatory framework; Parliament intends to create a single Canadian securities regulator, supported by a comprehensive statutory and regulatory regime that applies across Canada; and Parliament chooses to do so through a process under which the regime will apply as willing provinces and territories opt in; Attendu : Que les marchés des capitaux touchent le bien- être et la prospérité de tous les Canadiens; Que les marchés des capitaux prennent une ampleur nationale et internationale accrue; Que les marchés des capitaux évoluent rapidement et comportent des produits financiers et des méthodes de placement et de négociation de plus en plus complexes; Qu’il est primordial pour le Canada d’avoir des marchés des capitaux compétitifs et assujettis à un régime de contrôle d’application de la loi renforcé, complet et coordonné; Qu’il est dans l’intérêt national de protéger et de promouvoir efficacement les intérêts du Canada à l’étranger, notamment par l’élaboration d’orientations cohérentes en matière de réglementation des marchés des capitaux; Que la présence, au sein du régime réglementaire canadien du secteur financier, d’un seul organisme canadien de réglementation des valeurs mobilières rehausserait l’intégrité et la stabilité du système financier du Canada; Que le Parlement entend créer un tel organisme, encadré par un régime législatif et réglementaire complet qui s’applique dans l’ensemble du Canada; Que le Parlement choisit de le faire au moyen d’un processus au

titre duquel le régime s’appliquera au fur et à mesure que les provinces et territoires intéressés y adhéreront, [ 55 ] The purposes of the proposed Act and the guiding principles for the Authority’s activities are defined as follows:

Purposes of Act 9. The purposes of this Act are (

a) to provide protection to investors from unfair, improper or fraudulent practices; (

b) to foster fair, efficient and competitive capital markets in which the public has confidence; and (

c) to contribute, as part of the Canadian financial regulatory framework, to the integrity and stability of the financial system. Objet de la loi 9. La présente loi a pour objet de :

a) Protéger les investisseurs contre les pratiques déloyales, irrégulières ou frauduleuses;

b) Favoriser des marchés des capitaux justes, efficaces et compétitifs en lesquels le public a confiance;

c) Contribuer, dans le cadre du régime réglementaire des finances du Canada, à l’intégrité et à la stabilité du système financier.

Principles 16.

(1) In pursuing the purposes of this Act, the Authority must have regard to the following principles: (

a) the administration of this Act should be open, efficient, flexible and responsive; (

b) the interests of investors and businesses in all sectors and regions across Canada should be taken into account; and (

c) the cost of compliance with this Act should be commensurate with the regulatory outcomes sought to be achieved. Means

(2) The primary means for achieving the purposes of this Act include (

a) requirements for timely, accurate and efficient disclosure of information; (

b) prohibitions of unfair, improper or fraudulent market practices; (

c) standards for honest and responsible conduct by market participants; (

d) the monitoring and evaluation of issues or developments affecting the integrity or stability of capital markets; and (

e) cooperation and coordination among financial authorities, in Canada and elsewhere. Principes 16.

(1) Dans la réalisation de l’objet de la présente loi, l’Autorité tient compte des principes suivants :

a) l’exécution de la présente loi devrait se faire de façon ouverte, efficiente et souple;

b) les intérêts des investisseurs et entreprises des différents secteurs et régions du Canada devraient être pris en compte;

c) les coûts liés au respect de la présente loi devraient être appropriés, compte tenu de l’importance des résultats à atteindre en matière de réglementation. Moyens

(2) Les principaux moyens de réaliser l’objet de la présente loi sont notamment :

a) des exigences concernant la communication de l’information en temps opportun et avec exactitude et efficience;

b) des interdictions visant les pratiques déloyales, irrégulières ou frauduleuses du marché;

c) des normes touchant le comportement honnête et responsable des participants du marché;

d) la surveillance et l’évaluation des questions et faits nouveaux touchant l’intégrité ou la stabilité des marchés des capitaux;

e) la coopération et la coordination entre les autorités financières, au Canada et à l’étranger. [ 56 ] The proposed regime may be described as follows.

Part 1 proposes the creation of a Council of Ministers, composed of the federal Minister of Finance and a member of the executive council of each province, to facilitate the administration of the proposed Act and the exchange of information on securities regulation.

Part 2 establishes the Authority, which has two divisions and is responsible for administering the proposed Act. The Regulatory Division is led by the Chief Regulator, whose powers are described further on. The second division is the Canadian Securities Tribunal (hereafter “Tribunal”). The Tribunal is independent of the Regulatory Division [41] and has the powers of a superior court of record with respect to the attendance, swearing and examination of witnesses, and the

production and inspection of documents. [42] The Chief Adjudicator is responsible for the performance of the Tribunal’s adjudicative functions and for its direction and management. [43] [ 57 ]

Part 2 establishes the Regulatory Policy Forum, consisting of the chairperson of the Authority’s board of directors, the Chief Regulator, the Deputy Chief Regulators, the Chief Adjudicator, the Associate Chief Adjudicators, and any other directors of the Authority that are designated for that purpose by the chairperson. Its mandate is to participate in the consideration and development of the Authority’s regulations, policies, practices, and activities; also, to obtain the views of participants in the capital market on the Authority’s regulations, policies, practices, and activities.

The members of the Council of Ministers and a representative of the investor advisory panel must be invited to at least three of its meetings. [44] The investor advisory panel consists of persons with experience with issues relevant to the securities market. [45] [ 58 ] Under

Part 3, the Chief Regulator of the Regulatory Division may make an order recognizing a person as a self-regulatory organization, an exchange, a clearing agency, or an auditor oversight organization. [46] He or she may authorize a recognized self- regulatory organization to exercise the powers or perform the duties over a dealer, adviser, or investment fund manager. [47] He or she may make any decision respecting a recognized entity’s by-laws, regulatory instruments, policies, procedures, or practices, the manner in which it carries on business, its trading of securities, or its listing or posting of securities on a recognized exchange. [48] [ 59 ] Under

Part 4, the Chief Regulator may make an order designating a person as a credit rating organization, an investor compensation fund, a dispute resolution service, an information processor, a trade repository, or any other entity that provides investors or market participants with prescribed services. [49] [ 60 ]

Part 5 prohibits persons from acting as a dealer, adviser, or investment fund manager unless they are registered with the Authority. [50] The Chief Regulator may suspend registration in the case of non-compliance with the proposed Act. [51]

Part 6 prohibits persons from distributing securities unless a prospectus has been filed with the Chief Regulator. A prospectus must comply with the disclosure requirements for securities issued or proposed to be distributed. [52] In the case of non-compliance, the Chief Regulator may order that trading activities cease. [53]

Part 7 prohibits persons from trading in exchange-traded derivatives unless the exchange is recognized by the Chief Regulator [54] and the prescribed disclosure document has been accepted by the Chief Regulator. [55] [ 61 ]

Part 8 imposes on reporting issuers the requirement to provide periodic and timely disclosure of their business and affairs, including financial statements. [56] It also requires insiders of reporting issuers to file reports disclosing their beneficial ownership of securities of the issuer and their interest in any related financial instrument of a security of the issuer. [57] [ 62 ]

Part 9 regulates take-over bids and issuer bids, including the offeror’s obligation to send to all relevant security holders a circular that sets out the terms of the bid. In the case of non-compliance with the proposed Act, any interested person may apply to a court for compensation for damages suffered, rescission of the transaction, or an order to dispose of securities acquired. [58] [ 63 ]

Part 10 imposes record-keeping standards on market participants and prescribes a duty to deal fairly, honestly, and in good faith. It prohibits insider trading and unfair practice. [59] [ 64 ]

Part 11 authorizes the Chief Regulator to review the business and conduct of a recognized entity or designated entity. [60] This involves issuing orders summoning persons to appear, compelling persons to give evidence on oath, compelling persons to produce records, [61] or authorizing designated persons to enter a place for the purpose of the inquiry. [62] It authorizes the Tribunal to order that a person comply with the proposed Act, that trading and purchasing cease in respect of any security, that a director or officer of an issuer resign, that a person be prohibited from becoming a registrant, or that a market participant be enjoined from making changes to its practices, disseminating or not disseminating information, or amending disseminated information. [63] In the case of non-compliance, the Tribunal may order a person to pay to the Authority an administrative penalty of no more than $1 million for each contravention. [64] The Tribunal may also order that all trading in a security cease for a period of not longer than 15 business days if the Tribunal considers that there are unexplained and unusual fluctuations in the volume of trading in the security. [65] [ 65 ] A certified copy of a decision made by the Tribunal may be filed with a court. [66] The Chief Regulator may apply to a court for a declaration that a person has not complied with or is not complying with the proposed Act or for any order to rectify the situation. [67] [ 66 ] The proposed Act authorizes a peace officer to make an ex parte application to a judge or justice for an order that an entity disclose the names of all registrants that purchased or traded a specified security, or that a registrant disclose the names of all persons on whose behalf the registrant made such transactions, [68] as well as any required record or information. [69] [ 67 ]

Part 11 creates offences on

summary conviction and on proceedings by way of indictment for contraventions of provisions of the proposed Act, which are punishable by imprisonment for a term of not more than five years less a day or a fine of not more than $5 million. [70] It also creates a series of criminal offences with respect to misleading acts relating to a security. [71] [ 68 ]

Part 12 governs civil liability.

An issuer or a director of an issuer may be liable for damages to a person who has purchased securities offered by a prospectus that contains a misrepresentation. [72] An offeror or the director of an offeror may be liable for damages to a person to whom a take-over bid circular or issuer bid circular containing a misrepresentation has been sent. [73] An issuer or the director of an issuer may be liable for damages to a person who has purchased securities offered by a prescribed offering document that contains a misrepresentation. [74] A purchaser of a security to whom a prospectus or amendment was not sent, a person to whom a take-over bid circular, issuer bid circular, or notice of change or variation to either of them was not sent, or a purchaser of a security to whom a prescribed offering document was not sent has a right of action for damages. [75] In all such cases, the person bringing an action may also apply to have the transaction rescinded. [ 69 ]

Part 12 also provides that a person who engages in insider trading may be liable for damages to a person who purchases or trades a security of that issuer. [76] Finally, it provides that various other contracts involving the purchase or trade of securities may be rescinded in certain circumstances. [77] Defences and limitation periods are provided for the various actions that may be brought under this part.

[ 70 ]

Part 13 governs civil liability for secondary market disclosure. An issuer or the director of an issuer may be liable for damages to a person who acquires a security offered in a document or public oral statement containing a misrepresentation. [78] The same is true for the acquisition of securities following a failure to disclose a material change. [79]

Part 13 provides rules for the calculation of damages, rules of procedure, and periods of limitation for such actions. [ 71 ]

Part 14 authorizes the Authority to make regulations for carrying out the purposes and provisions of the proposed Act. [80] The Authority may make a regulation only with the consent of the Minister of Finance. [81] The Governor in Council may make an order requiring the Authority to make, amend, or repeal a regulation if it is of the opinion that there is an urgent need for such a measure and that, without it, there is a substantial risk of material harm to investors or to the integrity of capital markets. [82] It also authorizes a court to make orders relating to the taking of evidence from a witness outside Canada. [83] [ 72 ] Finally,

Part 15 provides that, upon request, the Governor in Council may designate a province as a participating province [84] and make regulations respecting the transition from the participating province’s existing regime to the Canadian regime. [85] ii. Sections of the Budget Implementation Act, 2009 [ 73 ]

Section 295 of the Budget Implementation Act, 2009 authorizes the Minister of Finance to make direct payments, in an aggregate amount not exceeding $150 million, to the provinces and territories for matters relating to the establishment of a Canadian securities regulation regime and a Canadian regulatory authority.

Section 296 authorizes the Minister to enter into any agreement respecting securities regulation with any province or territory.

Section 297 enacts the Canadian Securities Regulation Regime Transition Office Act (hereafter the “Transition Office”). [86] [ 74 ] This statute establishes the Transition Office and, within it, an advisory committee consisting of not more than 13 members recommended by the participating provinces and territories. [87] The Transition Office must develop a transition plan for a national regime with respect to administrative and organizational matters, consult with stakeholders, including Canadian capital market participants, and undertake any other activity that the Minister may direct. [88] Unless the Governor in Council sets a different date of dissolution, the Transition Office is dissolved three years after its establishment. [89]

b) Extrinsic evidence i. History of harmonization initiatives [ 75 ] The debate regarding the unification of Canadian securities regulation regimes is not new. As the ACG noted in its factum, the idea of a national securities commission was briefly raised in the 1935 Report of the Royal Commission on Price Spreads . In 1964, the Report of the Royal Commission on Banking and Finance concluded that uniform regulation was desirable and recommended the creation of a federal commission as an eleventh regulator, setting high standards that could be emulated by the provinces.

The Commission wrote the following: In time, the federal agency might open regional offices to facilitate its operations, especially if some of the provincial governments found it practical and desirable to delegate at least some of their responsibilities to the federal body. While our recommendation therefore requires the establishment of an eleventh regulatory body in the first instance, it is our hope that it will eventually lead to agreement and co-operation which will eliminate much of the existing duplication and lack of uniformity.

This might be achieved quickly, especially if high federal standards lead provincial governments to clear automatically issues which have been federally registered. This would give the provincial administrators more time to deal with local matters such as the licensing of security dealers and their salesmen and the registration of issues to be offered only within their own province. [90] [ 76 ] In 1967, the Ontario Securities Commission proposed the establishment of a single national regulatory body exercising jurisdiction on the basis of delegated authority from the provinces.

This was justified on two bases: first, the cost of securities regimes in some provinces is disproportionate to the volume of exchanges and second, the interprovincial nature of the exchanges exceeds provincial jurisdiction. [91] [ 77 ] A 1969 report by the Study Committee on Financial Institutions in Quebec noted the flaws inherent in a fragmented regulatory system.

It recommended the creation of an agency similar to that proposed by the Ontario Securities Commission, in order to [ translation ] “create a uniform adjudication process and centralize fraud detection services while respecting provincial jurisdiction to oversee institutions.” [92] [ 78 ] In 1979, the federal Department of Consumer and Corporate Affairs produced a study called Proposals for a Securities Markets Law for Canada [93] and recommended the creation of a national securities commission working in cooperation with provincial commissions, with the provincial and national commissioners delegating powers to one another. [94] [ 79 ] In 1994, the premiers of New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland proposed to the federal government a memorandum of agreement regarding the establishment of a federal securities regulator. [95] The objective set out in the

preamble was to increase the efficiency of capital markets by implementing a uniform securities regime, without altering the division of powers between levels of government. The federal statute would govern the extraprovincial aspects of the securities industry.

The Canadian Securities Commission thereby created would be responsible for administering the act and exercising any authority delegated to it by provincial legislation. [96] This proposal was echoed in the 1996 Speech from the Throne, in which the federal government stated that it was prepared to work with interested provinces toward the development of a Canadian Securities Commission. [97] [ 80 ] As the AGA has noted, the Canadian Securities Administrators (hereafter the “CSA”), a forum for the 10 provincial and 3 territorial administrators, have also contributed to cooperation and harmonization efforts.

In 1999, they established the Mutual Reliance Review System, implemented by Canadian Policy Statements 12-201 ( Mutual Reliance Review System for Exemptive Relief Applications ) and 43-201 ( Mutual Reliance Review System for Prospectuses and Annual Information Forms ). This enables provincial and

territorial administrators to rely on analyses and investigations made by another administrator in respect of a market participant.

The result of this agreement is that, while each administrator continues to make decisions about participants, the latter only have to deal with one of the administrators to have documents approved, obtain exemptions, or register as an intermediary. [98] [ 81 ] Along the same lines as the Mutual Reliance Review System, the CSA, with the exception of Ontario, signed the Provincial/Territorial Memorandum of Understanding Regarding Securities Regulation in 2004, which led to the implementation of the Multilateral Instrument 11-102 Passport System . [99] The process is intended to simplify procedures for filing documents and applying for exemptions or registration as an intermediary between the various administrators.

The decisions of a primary regulator, which is the province in which the head office of an issuer or the office of an individual is located, automatically apply to the other authorities. Ontario has retained its own procedures, but the other CSA members recognize its decisions automatically. [ 82 ] The Joint Forum of Financial Market Regulators was also founded in 1999 by the CSA, the Canadian Council of Insurance Regulators and the Canadian Association of Pension Supervisory Authorities.

Its objective is to ensure the coordination of information relating to these three financial sectors and the implementation of joint regulatory and consumer protection projects. [100] [ 83 ] In 2003, the “Wise Persons’ Committee”, established by the Minister of Finance, published a report entitled It’s Time . [101] Breaking with earlier initiatives, it recommended the creation of an exhaustive national securities regulator to be run by a single national commission.

According to the Committee, such an agency would be able to address the following difficulties with a system of intergovernmental cooperation: The passport system’s strengths are single regulator contact, local presence and relative ease of implementation. Despite these strengths, each of which is included in the recommended model, the passport system contains significant weaknesses. It does not constitute a sufficient improvement in enforcement. Policy development would continue to suffer from the need to forge a consensus among multiple regulators with differing priorities and approaches.

It would do little to enhance Canada’s international capital markets credibility. Needless duplication would continue to exist as the passport system would maintain the current multiplicity of regulators. Issuers would continue to pay fees in all jurisdictions even though only one would serve as the primary regulator. Finally, the passport system does not, by itself, improve accountability or governance. [102] [ 84 ] In 2005, a panel commissioned by the Government of Ontario issued its report.

The Crawford Panel recommended that a single regulatory regime be established by having each province adopt a single provincial statute by reference. [103] [ 85 ] In 2009, the Third-Party Expert Panel on Securities Regulation, formed by the federal government, presented its report. [104] The Hockin Report identified the following flaws in the existing regime. The likelihood of successfully obtaining redress for fraud in the form of compensation varies from province to province. [105] Ontario’s refusal to participate in the passport system accentuates this problem.

Moreover, the system is not very accessible given the large number of regulatory and self-regulatory agencies.

The existing system is slow and costly, and its decentralized nature does not provide adequate protection against systemic risk. [ 86 ] The Hockin Report recommends, among other things, that the reduction of systemic risk be a guiding principle of the regulatory system, that a single, uniform performance measurement system be developed for securities regulation in Canada, that a more principles-based approach be developed with a view to reducing regulatory uncertainty, that the securities regulator retain jurisdiction over certain discretionary decisions, that a Capital Markets Oversight Office be established that would report to the federal Minister of Finance, and that the regulation of exchange-traded derivatives be prescribed in securities legislation. [106] [ 87 ] The Hockin Report was accompanied by a draft Securities Act . [107] It noted that, in addition to implementing improvements, the draft legislation constituted a synthesis of the existing provincial securities regulation statutes, particularly the Securities Act [108] of Alberta. [109] [ 88 ] In 2009, the Transition Office was established with the coming into force of the Canadian Securities Regulation Regime Transition Office Act on July 13, 2009.

According to the transition plan submitted on July 12, 2010, the proposed Act would be enacted by December 2011, after the reference to the Supreme Court, and the Authority would launch its operations on July 1, 2012. [110] [ 89 ] This historical overview reveals a persistent desire to fight the redundancy and lack of uniformity among the Canadian regimes in order to make the system as a whole more efficient and fair. It also reveals a willingness to respect the geographic diversity of Canadian institutions and provincial jurisdiction in these matters.

In 2009, in the wake of the global financial crisis precipitated by the reckless securitization of mortgages and the non-bank asset-backed commercial paper crisis in Canada in 2007, [111] a further objective arose, that of tackling the systemic risk threatening the financial sector. ii. Parliamentary statements and debates [ 90 ] The proposed Act has not been debated in the House of Commons.

However, the following excerpt from a press release from the Minister of Finance sheds light on the objectives pursued: Reflecting the Government’s willingness to work collaboratively with provinces and territories, this is a voluntary regime, which enables provinces and territories to opt in at their choice. . . . “ Canadians, who rely on capital markets for their savings and retirement plans, deserve the protection of strong regulation that reaches all parts of our country, ” said the Honourable Jim Flaherty, Minister of Finance. “The proposed Act we have released today brings us closer to the regime that markets demand and that Canadian investors need.” As Canada’s performance during the global financial crisis demonstrated, our financial regulatory regime is a sound model for other countries.

However, Canada is the only major industrialized country that lacks a national securities regulator. Our financial system can be strengthened by the establishment of a national securities regulator to oversee Canada’s capital markets. This step will strengthen the stability, integrity and effectiveness of the Canadian financial system. . . .

The proposed Canadian Securities Act is built on provincial securities regulation and harmonizes existing legislation in the form of a single statute. It benefits from the work of the Expert Panel on Securities Regulation (the Hockin Panel) and other reform efforts, and reflects domestic and international best practices.

It proposes significant improvements in terms of governance, adjudication, financial stability, and regulatory and criminal enforcement, and provides a wide scope of authority to regulate financial instruments and participants in capital markets. [112] [Emphasis added.] [ 91 ] The following speech made by the Minister of Finance in the House of Commons when the 2009 budget was passed highlights the objectives of reducing uncertainty and increasing efficiency: For all its strengths, Canada's financial system does have one glaring weakness.

Our patchwork system of 13 securities regulators spread across the provinces and territories causes uncertainty for investors and unnecessary red tape. In Canada's economic action plan, our government is providing a solution. Following the recommendations of the expert panel, chaired by the hon. Tom Hockin, we will establish an office to manage the transition to a Canadian securities regulator. Later this year, we will table a federal securities act for Canada and the transition office will deliver an administrative plan within 12 months.

We will respect constitutional jurisdiction and participation in the Canadian securities regulator will be voluntary. For those provinces, territories and companies that choose to participate, it will sharpen our competitive edge. It will put Canadians in a better position to seize new opportunities as the global economy begins to recover. [113] [Emphasis added.] iii. Expert reports [ 92 ] The parties submitted ample expert evidence on securities industry regulation.

It should be noted that I refer to it here for the purpose of determining the objectives and effects of the proposed Act rather than whether it should be adopted or not. [ 93 ] The conclusions set out in Professor Frank Milne’s report are essentially the following: most Canadians are investors in securities markets, either by means of shares purchases or indirectly through pooled investment funds; the securities market has acquired national and international dimensions that call for international cooperation on regulatory issues; the instruments traded on the securities markets are increasingly complex; the distinction between the various traditional financial activities (banking, insurance and stock market activities) has become blurred; improved coordination between those activities is necessary; the traditional distinction between equity, debt, and credit instruments has also been blurred by securitization, and; the financial crises have illustrated deficiencies in existing securities regulations. [114] On the national market scale, he notes that, for example, in 2002, two thirds of some 7,600 reporting issuers in Canada were regulated by more than one provincial authority and 31% of issuers registered on the Toronto Stock Exchange or the TSX Venture Exchange were issuers regulated by the 10 provincial authorities; approximately 80% of the companies in the National Registration System Database are registered in more than one province or territory, and; in 2008, 193 Canadian issuers were listed on a stock exchange in the United States. [115] [ 94 ] Professor Michael J.

Trebilcock summarizes as follows the limits of the harmonization reached by the current passport system.

His opinion is that, in such a system, the provinces are unlikely to agree to delegate their regulatory functions to a principal regulator; the consensus-based decision-making process is longer and vulnerable at any moment to a province’s withdrawal; standards are less harmonized (particularly for derivatives and exempt markets); standards enforcement may vary from one province to the next and create a situation of regulatory competition leading to a race to the bottom; the fees to be paid are “likely” to be higher because of the greater number of regulators, and; the system does not deal with interprovincial enforcement problems, fails to promote transparency and accountability, impedes Canada from speaking with a single voice at international fora, and hinders coordination with other financial system participants, such as the Bank of Canada, the Office of the Superintendent of Financial Institutions, and the banks. [116] He adds that a single regulator “will in all likelihood be more flexible and expeditious in developing new policies to meet emerging challenges in capital markets” than the CSA. [117] Although he points out that the current system cannot be called a “disaster”, [118] Trebilcock is of the opinion that it fails to live up to its billing as a decentralized and flexible system. [119] [ 95 ] Dr.

Marion G. Wroebel filed a report on behalf of the CBA setting out two principal theses. [120] First, she argues that the Canadian economy has reached national and international proportions, particularly on account of the national influence of chartered banks and of the national scale of initial public offerings. In 2009, 61% of investments were made by six bank-owned dealers, and by 2010, the banks’ interest in pooled investment funds had exceeded 40%. [121] It follows that the fragmented securities regulatory system is unable to effectively achieve its objectives of access to capital and investor protection.

For example, self-regulatory agencies and exempt market brokers are subject to different rules. [122] She contends that the International Monetary Fund and the Organisation for Economic Co-operation and Development (OECD) have repeatedly stated that a national Canadian system would be more efficient, which contradicts an OECD discussion paper by ranking Canada second for its securities regulatory system. [123] Wroebel also notes that the globalization of markets increases the systemic risk they face.

This situation requires national and international uniformity, coordination, and cooperation, which the “Heads of Agencies”, composed, among others, of the four largest securities commissions, are unable to achieve. [124] In her opinion, a single system is necessary to give Canada a single coherent voice at international fora. [ 96 ] Professor Stéphane Rousseau’s opinion is that, although there is room for improvement in the provincial framework, it has not been established that regulatory centralization would yield better results.

Over the past century, the CSA has developed many practices to simplify procedures, reduce costs and facilitate participants’ access to information: the Mutual Reliance Review System, the System for Electronic Document Analysis and Retrieval (better known as “SEDAR”), the System for Electronic Disclosure by Insiders, the National Registration System Database, the National Registration System and the passport system. [125] Rousseau concluded that the current pan-Canadian framework is highly harmonized, allows for costs to be reduced, addresses local and regional particularities, permits experimentation and innovation, is able to respond to contemporary issues and meets IOSCO’s Objectives and Principles of Securities Regulation . [126]

[ 97 ] Professors Jean-Marc Suret and Cécile Carpentier are of the opinion that the Canadian securities regulatory system is structurally well adapted. In their view, the Canadian market is particularly local, since over two thirds of Canadian issuers are unable to be listed on United States exchanges because of their small capitalization. [127] The authors state that the regulatory cost in Canada is lower than in Australia or the United Kingdom when calculated by millions of dollars of capitalization, and lower than in Australia, the United Kingdom, and the United States when calculated by company.

They add that it is not an attribute of our regulatory structure that Canadian companies gain value when they become listed on a United States exchange, a phenomenon designated as the “Canada discount”. Instead, this is the result of an increase in demand for the security. A single system would result in a 50% increase in regulatory costs. [128] Suret and Carpentier acknowledge that systemic risk prevention is necessarily a concern for securities regulatory authorities.

However, they are of the opinion that the Canadian system is not particularly vulnerable to systemic risk and that the recent financial crises cannot be used to draw conclusions on the regulatory structure. [129] Last, the authors warn against the greater risk of regulatory capture in a decentralized system, particularly in light of the high concentration of banking, financial, and self-regulated sectors. [130] [ 98 ] Professor Stephen Choi’s conclusions are the following.

The Canadian system is efficient, resilient, and allows for innovation, as shown by the low cost of access to capital and Quebec’s creation of the Bureau de décision et de révision en valeurs mobilières, or securities decision and review office, (hereafter “BDRVM”) an independent administrative tribunal for the regulatory authority from which the proposed Act draws inspiration.

The current system gives Canadian interests effective international representation, as shown by the efforts of the United States Securities and Exchange Commission (hereafter “SEC”) to reach agreements with Canada and the June 2010 cooperation agreement between the SEC, the Autorité des marchés financiers du Québec, or financial market authority, (hereafter “AMF”) and the Ontario Securities Commission.

Choi adds that systemic risks must be prevented through the use of macro-economic instruments, such as the prudential frameworks developed by the Bank of Canada and the Office of the Superintendent of Financial Institutions Canada. Securities authorities also contribute to systemic risk protection by rigorously carrying out their mandate to protect market participants (information disclosure, licensing, credit ratings, etc.). Provincial authorities are in a better position than a national commission to intervene in this way on a micro-economic scale and prevent systemic risks.

What is essential is the sharing of information between provincial authorities and prudential regulators, which the CSA currently carries out. Choi is of the opinion that a national commission would have diminished access to market feedback and be at greater risk of errors, complacency and regulatory capture.

To conclude, he emphasizes that if only some provinces were to adhere to the proposed Act and the passport system were not renewed, the Canadian system would face increased costs and greater fragmentation of the underpinning law. [131] [ 99 ] Professor Jonathan Macey’s view is that the centralization of the Canadian system through some or all provinces’ joining the regime under the proposed Act would have a negative impact. He reaches the opposite conclusion: that it has not been established that a decentralized system favours the race to the bottom.

The United States example does not show a tendency by market participants to opt for systems that are less strict. The most recent financial crisis has shown that decentralized organizations ensure more efficient securities regulation than do centralized agencies. Time and again, the SEC neglected to investigate major frauds, and most of the investigations in the United States were conducted at state level. Macey adds that the conception of a national securities market is artificial. Local markets have two important characteristics that national and global markets do not.

First, even for a share sold internationally, prices are determined at the local level because that is where firm-specific information is gathered and processed. Next, because non-public information about a firm is generated locally, the greatest need for surveillance is at the local level. Global markets complement local markets because they provide access to foreign sources of capital. Conversely, the importance of national markets has not been established, and nothing warrants regulation at this level rather than at the local level.

This reality is illustrated by the European Union, where regulation is conducted by member states. [132] [ 100 ] Andrea M. Corcoran is of the opinion that the Canadian and Quebec systems comply with IOSCO’s 30 principles and three general objectives of investor protection; the establishment of fair, efficient, and transparent markets, and; systemic risk reduction. New principles particular to this last objective were adopted in 2010. [133] Since the AMF is an IOSCO member, these principles apply in Quebec.

They do not prescribe a particular regulatory structure and specifically recognize that establishing a single regulator is not necessary. [134] The principles infer that cooperation between many participants is necessary to ensure the system’s efficiency. Corcoran concludes by emphasizing that both the International Monetary Fund and the World Bank considered the Canadian regulatory system efficient. [135] [ 101 ] Professor Thomas J. Courchene is of the opinion that Canada is the most decentralized federation among all of the world’s developed countries.

He adds that Canadian programs under decentralized management, such as secu

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