2017 QCCA 756, 2017 QCCA 756

Not Verified by SOQUIJ Renvoi relatif à la réglementation pancanadienne des valeurs mobilières 2017 QCCA 756 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTRÉAL No.: 500-09-025430-158 DATE: May 10, 2017 CORAM: THE HONOURABLE NICOLE DUVAL HESLER, C.J.Q. JEAN BOUCHARD, J.A. MANON SAVARD, J.A. MARK SCHRAGER, J.A. ROBERT M. MAINVILLE, J.A. IN THE MATTER of the Reference of the Government of Quebec in virtue of Order in Council 642-2015 concerning the constitutionality of the implementation of pan-Canadian Securities Regulation ATTORNEY GENERAL OF QUEBEC APPELLANT v.

ATTORNEY GENERAL OF CANADA RESPONDENT and ATTORNEY GENERAL OF BRITISH COLUMBIA ATTORNEY GENERAL OF MANITOBA INTERVENORS OPINION OF THE COURT [*] [ 1 ] Under Order in Council No. 642-2015, the Government of Quebec has referred two questions to this Court. [ 2 ] The first question is as follows: 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”? [ 3 ] For the joint reasons of the Chief Justice and of Justices Bouchard, Savard and Mainville, the Court answers the first question in the following manner: NO , the Constitution of Canada does not authorize it under that model. [ 4 ] The second question is as follows: 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 ? [ 5 ] For the joint reasons of the Chief Justice and of Justices Bouchard, Savard and Mainville, the Court answers the second question in the following manner: NO , the most recent version of the draft of the federal act entitled Capital Markets Stability Act is not beyond the jurisdiction of the Parliament of Canada under subsection 91(2) of the Constitution Act, 1867 , except with respect to its sections 76 to 79 concerning the

role and powers of the Council of Ministers which, if not removed, render the act unconstitutional as a whole. [ 6 ] For the reasons he sets out, Justice Schrager declines to answer the first question and answers NO to the second question. NICOLE DUVAL HESLER, C.J.Q. JEAN BOUCHARD, J.A. MANON SAVARD, J.A. MARK SCHRAGER, J.A. ROBERT M. MAINVILLE, J.A.

Mtre Francis Demers Bernard Roy (Justice-Québec) Mtre Sébastien Grammond Avocat-conseil Dentons Canada For the appellant Mtre Alexander Pless Mtre Michelle Kellam Mtre Sara Gauthier Campbell Department of Justice Canada For the respondent Mtre Nathaniel Carnegie Ministry of Justice, Constitutional & Administrative Law Group Mtre Audrey Boctor Irving Mitchell Kalichman For the intervenor Attorney General of British Columbia Mtre Michael Conner Mtre Denis G.

Guénette Manitoba Justice, Constitutional Law Section, Legal Services Branch For the intervenor Attorney General of Manitoba Dates of hearing: November 8, 9 and 10, 2016 JOINT REASONS OF THE CHIEF JUSTICE, JUSTICE BOUCHARD, JUSTICE SAVARD AND JUSTICE MAINVILLE [ 7 ] On July 15, 2015, by Order in Council No. 642-2015, adopted in accordance with s. 1 of the Court of Appeal Reference Act , [2] the government of Quebec referred two questions to this Court, one regarding the constitutional validity of a proposal to institute a new regulatory regime for Canadian capital markets, and the other regarding a proposed federal law entitled the Capital Markets Stability Act . [ 8 ] According to a memorandum of agreement signed by the federal government, five provinces and one territory (“ the MOA ”), a new regulatory regime for capital markets would be put in place, including a Capital Markets Regulatory Authority (“ the CMRA ”), a uniform act adopted by each participating province and territory (“ the Uniform Act ”) and a federal act regarding the stability of capital

markets (“ the Federal Act ”). Throughout these reasons, we refer to this arrangement as “ the Regime ”. [ 9 ] At the head of the Regime sits a Council of Ministers , composed of the ministers charged with regulating capital markets in the participating provinces and territory as well as the Minister of Finance of Canada. This Council of Ministers would supervise the CMRA, a national regulatory authority charged with administrating the Regime as a whole. [ 10 ] The Uniform Act addresses all aspects of the general regulation of capital markets.

The participating provinces and territory have undertaken to adopt this Act and to delegate its administration to the CMRA. A voting mechanism within the Council of Ministers is provided for all amendments to this Act, for the adoption of regulations, and for any fundamental changes to the Regime. [ 11 ] The Federal Act provides for the collection of data on a national scale, the management of systemic risks related to capital markets, and criminal offences. The administration of the Federal Act is delegated to the CMRA.

The Council of Ministers also plays a decisive role in the Federal Act and is responsible for, amongst other things, approving any regulations adopted pursuant to the Federal Act. [ 12 ] The first question in this Reference concerns the constitutionality of the proposed Regime as a whole. The Attorney General of Quebec submits that the novel structure which would be put in place by the Regime undermines basic principles of Canadian federalism through the abandonment of provincial parliamentary sovereignty with respect to a head of jurisdiction attributed to the provinces by the Constitution Act, 1867 .

The Attorney General of Quebec is also of the opinion that the Regime amounts to a disguised constitutional amendment. [ 13 ] The first question is drafted as follows: 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? [ 14 ] The Attorney General of Quebec further submits that the Federal Act, taken alone, is beyond the jurisdiction of the Canadian Parliament.

This submission is the subject of the second question raised before this Court, which reads as follows: 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 ? PRELIMINARY EXCEPTION [ 15 ] The Attorney General of British Columbia challenges the jurisdiction of the Court to hear the first of the two reference questions.

This question would hold no real interest for the government of Quebec because the MOA binds only the federal government and the participating provinces.

Since the government of Quebec is not a signatory to the MOA, the Attorney General of British Columbia characterizes as speculative the concerns of the Attorney General of Quebec regarding the impact of the Regime on non- participating provinces. [ 16 ] As a subsidiary argument, the Attorney General of British Columbia invites the Court to exercise its discretion not to answer the first question, given that the Uniform Act, the Federal Act and their regulations are neither finalized nor formally adopted.

The Attorney General of British Columbia submits, therefore, that any judicial ruling on the first question would amount to judicial interference in an ongoing political process. The “Real Interest” Test [ 17 ] It bears noting that the Regime includes a Federal Act of national application. It also establishes a Council of Ministers which would wield considerable powers under this law of national scope. Moreover, the Attorney General of Quebec submits that the Regime as a whole amounts to a disguised constitutional amendment.

The national impact of the proposed Regime is therefore quite clear, and its constitutional ramifications significant. In these circumstances, the real interest of the Attorney General of Quebec seems obvious to us. [ 18 ] With respect to the Uniform Act, which is an integral component of the Regime, we note that in Hunt v. T&N plc [3] the Supreme Court of Canada held that the courts of British Columbia had jurisdiction to rule on the constitutionality of a law of another province, in that case a law adopted by Quebec’s National Assembly.

There, Justice La Forest underlined that a court may rule on the constitutionality of a law of another province where the law is otherwise unlikely to be contested. [4] This is clearly the case here. [ 19 ] Furthermore, the position taken by the Attorney General of British Columbia is paradoxical, to say the least. The submission that the government of Quebec does not have sufficient interest in the question because it is not a signatory to the MOA leads ineluctably to the conclusion that in order to challenge the constitutionality of the Regime, Quebec would first have to join in.

Yet, s. 11 of the MOA invites the governments of non-participating provinces, including Quebec, to join the Regime. In this context, it is entirely appropriate for the government of Quebec to seek the opinion of this Court in order to determine the constitutional validity of a regime to which it has been invited to participate. For this reason alone, the arguments of the Attorney General of British Columbia regarding the absence of a “real interest” cannot be maintained.

Discretion to refuse to hear a reference [ 20 ] The jurisdiction of the Court over this Reference flows from s. 1 of the Court of Appeal Reference Act :

1. The Government may refer to the Court of Appeal, for hearing and consideration, any question which it deems expedient, and thereupon the court shall hear and consider the same. 1.

Le gouvernement peut soumettre à la Cour d’appel, pour audition et examen, toutes questions quelconques qu’il juge à propos, et, sur ce, la cour les entend et les examine. [ 21 ] Despite the compulsory wording of this provision, the Court has the discretion not to answer such questions. [5] The Court must refuse to hear a reference question that is purely political in nature, [6] and may refuse to answer a question where doing so would serve no useful purpose. [7] The Court may also refuse to answer a question where the parties have not provided sufficient information to allow a complete or accurate answer. [8] This case, however, does not fall into these exceptions. [ 22 ] The Attorney General of British Columbia’s primary submission is that the Regime is still embryonic, and it would be premature for this Court to rule on the first question of the Reference.

But, it is by no means unusual for a government to seek a judicial opinion, through a reference, on the validity of a bill which is not necessarily finalized and has not yet been adopted by Parliament or a provincial legislature. In this case, the Regime, as a whole, has been presented in concrete and precise terms. The MOA clearly sets out the principal components of the Regime as well as its objectives. Moreover, the Uniform Act and the Federal Act have both reached an advanced stage of development.

The Regime as a whole and the two laws which are its essential components have clearly reached a stage that allows us to consider the questions submitted in this Reference. [ 23 ] Consequently, the preliminary exception raised by the Attorney General of British Columbia is dismissed.

BACKGROUND The current regime [ 24 ] This Reference does not take place in a vacuum. [ 25 ] The power of the Canadian provinces to regulate securities within their respective borders, as a matter of property and civil rights has long been recognized and is beyond dispute. [9] [ 26 ] Federal jurisdiction over securities thus remains subsidiary.

As the Supreme Court noted in Reference re Securities Act [10] (the “ 2011 Reference ”), pursuant to Parliament’s authority to promulgate laws relating to criminal law, banks, bankruptcy, and telecommunications, as well as peace, order and good government, federal jurisdiction may extend to aspects of securities regulation which promote the integrity and stability of the Canadian financial system.

Canada may also regulate certain aspects of securities pursuant to its general trade and commerce power, notably with respect to preventing systemic risks in order to promote the stability and integrity of Canada’s financial markets and to accomplish nationwide data collection. [11] [ 27 ] It is necessary, however, to keep in mind “the essentially provincial nature of securities regulation”. [12] [ 28 ] Each of the Canadian provinces and the three territories have their own securities legislation. [13] In Quebec, for example, the Securities Act , [14] along with other provincial laws such as the Civil Code of Quebec , forms a complete regulatory code for securities within the province.

These provincial regulatory regimes are governed by individual provincial authorities such as, in Quebec, the Autorité des Marchés Financiers, established by

An Act Respecting the Autorité des Marchés Financiers . [15] [ 29 ] Moreover, for several decades, provincial securities regulators have joined together to pursue regulatory harmonization. Since 2004, all of the provincial regulatory authorities (with the exception of Ontario), have signed the Provincial/Territorial Memorandum of Understanding Regarding Securities Regulation, adopting the so-called “passport system” which creates a single window of access for securities issuers.

Under this system, decisions emanating from the issuer’s provincial regulatory authority, the “principal regulator” for that issuer, are automatically applicable to other participating regulatory authorities. [16] [ 30 ] As for Ontario, that province participates along with the others in the “Mutual Reliance Review System” established in 1999. That system allows provincial authorities to rely upon the analyses and inquiries undertaken by another authority with respect to a market participant.

What distinguishes the 1999 regime from the passport system is that the acknowledgement of findings by one authority is not automatic. [ 31 ] Although the current system has not enjoyed universal approval, it is nevertheless the result of multiple reforms proposed and undertaken over the years within a framework of efficient interprovincial cooperation. Proposed changes to the current system [ 32 ] Since the 1930s, [17] various actors have argued, without success, for the implementation of a national system of securities regulation.

A useful historical overview of these proposals can be found in the reference cases of 2011. [18]

[ 33 ] The MOA at hand seems to take inspiration from the proposals of the Porter Commission of 1964, [19] the Ontario Securities Commission proposal of 1967, [20] the study undertaken by the Comité d’étude sur les institutions financières du Québec of 1969, [21] and the proposal of the Atlantic provinces of 1994, [22] each of which envisioned the creation of a federal regulatory body to which the provinces would delegate their regulatory powers. [ 34 ] It is distinct from the proposals of the federal Department of Consumer and Corporate Affairs of 1979, [23] the Wise Persons’ Committee of 2003 [24] and the Crawford Panel of 2006, [25] which would have instead proposed comprehensive federal regulation.

The proposed Canadian Securities Act of 2009 [ 35 ] In 2009, the Hockin Group published a report that would inspire the federal Securities Act considered in the 2011 Reference (“ the 2009 Securities Act ”). This federal proposal was, amongst other things, a federal response to the global financial crisis that occurred between 2007 and 2010. [ 36 ] In the context of this Reference, the Attorney General of Canada filed four expert reports which address the nature and consequences of this crisis.

For our purposes, it is sufficient to underline the following common observations: (1) the crisis caused significant downturns in the world economy engendering losses as serious as they are well-known; (2) the causes of the crisis in Canada and in the United States were similar but not identical; in Canada it was related to a crisis of confidence in the asset-backed commercial paper market; in the United States, the crisis was set off by defaults on subprime mortgages; (3) the regulatory system in place in Canada at the time of the crisis allowed for rapid mitigation of its impacts, such as, for example, the Ontario ban on short-selling adopted by the other provincial regulatory authorities the same day it was announced; and (4) after the crisis, many governments and international organizations recognized the importance of putting into place mechanisms for macroprudential surveillance and the prevention of systemic risks. [ 37 ] In this context, the stated purpose of the 2009 Securities Act was the creation of a single Canadian securities regulator with a mandate to protect investors, foster fair, efficient and competitive capital markets, and contribute to the integrity and stability of Canada’s financial system (s. 9). [ 38 ] This act would have created a council of ministers charged with facilitating consultations and the exchange of information regarding its application (ss. 11-13), as well as a Canadian Securities Regulatory Authority (ss. 14-63).

This new body would have applied a single act regulating the industry across the nation, in order to foster the integrity and stability of Canadian capital markets on a national scale. [ 39 ] To this end, the 2009 Securities Act provided: - A means of designating “recognized entities” (self-regulatory organizations, exchanges, oversight organizations, etc.) (ss. 64-72) and “designated entities” (credit rating organizations, compensation funds, dispute resolution services, etc.) (ss. 73-75); - A registration regime for individuals acting as dealers, advisors or investment fund managers (ss. 76-79); - Rules relating to the filing of prospectuses (ss. 80-88) and disclosure (ss. 93-108); - Various obligations relating to “market conduct” (ss. 109-130); and - Provisions related to secondary markets (ss. 194-219) and derivatives (ss. 89-92). [ 40 ] The 2009 Securities Act also proposed a comprehensive scheme for administering and enforcing the act, including reviews, inquiries and orders, in addition to civil (ss. 169-219) and penal sanctions (ss. 158-167). [ 41 ] The proposed 2009 Securities Act gave rise to three references: one before this Court, [26] another before the Alberta Court of Appeal [27] and the 2011 Reference before the Supreme Court of Canada.

All three courts concluded that the 2009 Securities Act was unconstitutional. [ 42 ] In the 2011 Reference , a unanimous Supreme Court of Canada saw in the 2009 Securities Act “ a comprehensive foray by Parliament into the realm of securities regulation” [28] seeking “comprehensive national securities regulation”. [29] According to the Supreme Court of Canada, the presence of systemic risks did not justify the “complete takeover” of what was always considered an area

of provincial jurisdiction. [ 43 ] The Supreme Court of Canada did recognize, however, that systemic risks are an emerging reality capable of transcending provincial boundaries and poorly suited to local legislation. [30] Thus, it opened the door to national control measures by Parliament aimed at preventing and counteracting these risks. [31] Overview of the proposed Regime [ 44 ] The MOA at hand was signed by the governments of British Columbia, Ontario, Saskatchewan, New Brunswick, Prince Edward Island, the Yukon and Canada (“ the Participating Jurisdictions ”).

It provides for the implementation of a regulatory regime comprised of the following primary components: The Capital Markets Act (“the Uniform Act”) : [32] a law of provincial and territorial application addressing all questions related to the regulation of capital markets. Each participating province and territory undertakes to enact this Uniform Act and to delegate its administration to the CMRA. This act covers virtually all of the content of the 2009 Securities Act .

The Capital Markets Stability Act (“the Federal Act”) : [33] a federal law of national application addressing questions of data collection, systemic risk and criminal law. This act includes several provisions from the 2009 Securities Act . The administration of the Federal Act is delegated to the CMRA. The Capital Markets Regulatory Authority (“CMRA”) : a national regulatory body charged with administering the two acts. The CMRA would include a board of directors and a regulatory division. A new tribunal would also be created.

The CMRA’s enabling legislation, the Capital Markets Regulatory Authority Act , has yet to be published. The Council of Ministers : a council composed of the ministers responsible for capital markets regulation in each Participating Jurisdiction, including the Minister of Finance of Canada. The Council of Ministers will supervise the CMRA and approve any regulations made pursuant to the Uniform Act or the Federal Act. Any amendment to the Uniform Act and any fundamental change to the Regime is also subject to the approval of the Council of Ministers.

The voting mechanisms of the Council of Ministers are set out in the MOA and vary depending on the nature of the decision it must take. ANALYSIS OF THE FIRST QUESTION [ 45 ] We begin by stating again the first Reference question: 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”?

Submissions of the parties The Attorney General of Quebec [ 46 ] The Attorney General of Quebec submits that the Court should answer this question in the negative. Three primary arguments are raised for this purpose. [ 47 ] First, the Regime provided for in the MOA does not respect the constitutional limits for a valid delegation between federal and provincial authorities.

In this respect, the Attorney General of Quebec advances that several conditions are essential to conclude that a delegation is valid, namely: (1) that the two orders of government, acting alone, are incapable of instituting the proposed regulatory framework, (2) that existing provincial laws and bodies be preserved, and (3) that the power of the provinces to amend their own laws be unrestrained. [ 48 ] The Attorney General of Quebec further asserts that the proposed Regime amounts to a disguised constitutional amendment.

In the Attorney General of Quebec’s opinion, the MOA constitutes a massive transfer of provincial jurisdiction to a federal body without respecting the amending formula provided for in the Constitution. Even if this transfer concerns only certain provinces, it will nevertheless have important impacts on all the non-participating provinces. [ 49 ] Finally, the Attorney General of Quebec submits that the Regime unconstitutionally restricts the parliamentary sovereignty of the participating provinces.

The Attorney General of Canada [ 50 ] The Attorney General of Canada submits that the MOA is merely a political agreement. As such, the decision-making structure of the Council of Ministers with respect to amendments to the Uniform Act does not impact the constitutionality of the Regime since the provinces would not be formally deprived of their jurisdiction to legislate with respect to securities.

Moreover, the MOA and the voting mechanisms it contains would not be subject to judicial review. [ 51 ] The Attorney General of Canada adds that the delegation of regulatory powers to the CMRA is permissible, as the delegation is not legislative but administrative. The Attorney General of British Columbia

[52] The Attorney General of British Columbia supports the position taken by the Attorney General of Canada and adds that thedecision-making role of the Council of Ministers with respect to amendments to the Uniform Act is no more than a “manner and form”requirement, and is valid as such. The Attorney General of Manitoba [53] The Attorney General of Manitoba made no submissions with respect to the first question.

Overview [54] In our opinion, the Regime is unconstitutional in several respects. [55] The mechanism for amending the Uniform Act set out under the Regime fetters the parliamentary sovereignty of theparticipating provinces and is consequently unconstitutional.

It subjects the province’s legislative jurisdiction to the approval of anexternal entity (the Council of Ministers), which is impermissible. [56] Moreover, the Council of Ministers’ voting mechanisms with respect to the adoption of regulations pursuant to the Federal Actundermines the validity of that Act by permitting certain provinces to exercise what amounts to a veto over federal initiatives that seek toguard against systemic risks related to capital markets which would have material adverse effects on the Canadian economy as a whole.

The Regime fetters the parliamentary sovereignty of the participating provinces [57] Since Attorney General of Nova Scotia v. Attorney General of Canada,[34] it has been well-established that a direct transfer oflegislative power from one level of government to the other is unconstitutional.

This decision of the Supreme Court of Canada dealt witha bill that proposed (1) a delegation of provincial jurisdiction over employment to the federal government and (2) a delegation of federal jurisdiction over indirect taxation to the province.[35] [58] Justice Kerwin succinctly set out the reasoning of the Court:[36] The British North America Act divides legislative jurisdiction between the Parliament of Canada and the Legislatures of the Provincesand there is no way in which these bodies may agree to a different division. [Emphasis added] [59] The constitutional principle of parliamentary sovereignty holds that federal and provincial legislators must be free to legislate as they please, such as to adopt new laws, amend existing laws or to repeal such laws.[37] The principle of parliamentary sovereignty isclosely linked to that of democracy. [60] In the Reference re Secession of Quebec, the Supreme Court of Canada specified, moreover, that the Constitution as a whole, including the division of powers, binds all governments:[38] The Constitution binds all governments, both federal and provincial, including the executive branch (Operation Dismantle Inc. v.

TheQueen, (SCC), [1985] 1 S.C.R. 441, at p. 455). They may not transgress its provisions: indeed, their sole claim toexercise lawful authority rests in the powers allocated to them under the Constitution, and can come from no other source. [61] The proposed Regime delegates legislative powers to the Council of Ministers and imposes real limits on the parliamentarysovereignty of the participating provinces.

It subjects an amendment to the Uniform Act to the consent of a majority of the members ofthe Council of Ministers, as well as that of the members from each major capital markets jurisdiction as defined in the MOA, currentlyOntario and British Columbia. In fact, no amendment to the Uniform Act can be undertaken without the approval of the Council ofMinisters and every participating province must adopt amendments to the Act that are approved by the Council of Ministers. The text ofthe MOA could not be more clear :

4.2 Responsibilities of the Council of Ministers The Council of Ministers will be responsible for : […]

c) proposing amendments to the Cooperative System Legislation; […] 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 per cent of all members of the Council of Ministers; and

b) the members of the Council of Ministers from each Major Capital Markets Jurisdiction. 4.2 Responsabilités du Conseil des ministres Le Conseil des ministres sera responsable de ce qui suit : […]

c) proposer des modifications à la législation sur le régime coopératif; […] 5.5 Vote à propos d’une proposition visant à modifier la législation provinciale et territoriale Une proposition visant à modifier la loi sur les marchés des capitaux doit être approuvée par :

a) au moins 50 % des membres du Conseil des ministres;

b) les membres du Conseil des ministres de chaque

partie ayant de grands marchés de capitaux. [ 62 ] A participating province may not amend its own securities legislation without the consent of the Council of Ministers; such a province is also required to implement amendments dictated by the other members of the Council. Since the Minister of Finance of Canada is also a member of the Council, we can even contemplate a scenario in which the deciding vote regarding the amendment of the provincial Uniform Act would belong to a member of the federal executive. [ 63 ]

Section 5.7 of the MOA is even more revealing. After three years, any fundamental change to the Regime can only be accomplished with the agreement of two thirds of the members of the Council of Ministers, plus that of the ministers from each major capital markets jurisdiction, and the Minister of Finance of Canada – a formula that closely resembles the amending formula provided for in

section 38 of the Constitution Act, 1982 : [39] 5.7 Fundamental Changes A decision to approve any of the following matters during the three-year period after the date on which the CMRA commences operations will require the unanimous approval of the Council of Ministers. Thereafter, a decision to approve any of the following matters will require the approval by (

A) at least two- thirds of all members of the Council of Ministers; (

B) the members of the Council of Ministers from each Major Capital Markets Jurisdiction; and (

C) the Minister of Finance of Canada :

a) an amendment to this MOA and any subsequent agreements relating hereto;

b) the accession by any provincial or territorial jurisdiction to this MOA or the Cooperative System;

c) a fundamental change to the governance or operational structure of the CMRA; and

d) any relocation of geographic-specific elements and functions addressed in this MOA. 5.7 Modifications fondamentales Toute décision d’approuver l’une des mesures suivantes au cours de la période de trois ans suivant la date à laquelle l’ARMC commence ses activités devra être approuvée à l’unanimité par le Conseil des ministres. Par la suite, la décision d’approuver l’une de ces mesures devra être approuvée par (

A) au moins les deux tiers des membres du Conseil des ministres ainsi que (

B) par les membres du Conseil des ministres de chaque

partie ayant de grands marchés de capitaux et (

C) par le ministre des Finances du canada :

a) une modification au présent PA et toute entente subséquente relative à celui-ci;

b) l’adhésion d’une

partie au présent PA ou au régime coopératif;

c) une modification fondamentale à la structure de gouvernance ou opérationnelle de l’ARMC;

d) toute relocalisation d’éléments ou de fonctions liés à un lieu géographique précis mentionné dans le présent PA. [ 64 ] One of the foundational pillars of British constitutional law, itself reflected in the Canadian constitution, is the principle that ministerial powers (that is to say, the powers of the executive branch of government) must be compatible with the legislation in force and the common law. The corollary of that principle is that the executive branch of government cannot prescribe, impede or alter legislation that is in force.

A classic statement of that principle was given by Lord Parker of Waddington in The Zamora : [40] The idea that the King in Council, or indeed any branch of the Executive, has power to prescribe or alter the law to be administered by Courts of law in this country is out of harmony with the principles of our Constitution. It is true that, under a number of modern statutes, various branches of the Executive have power to make rules having the force of statutes, but all such rules derive their validity from the statute which creates the power, and not from the executive body by which they are made.

No one would contend that the prerogative

involves any power to prescribe or alter the law administered in Courts of Common Law or Equity. [ 65 ] The proposed Regime aims to put aside this fundamental principle by empowering the Council of Ministers to dictate amendments to the Uniform Act to reluctant participating provinces. [ 66 ] The Attorneys General of Canada and of British Columbia recognize that these are fundamental components of the Regime but, fully aware of the constitutional difficulties posed by the Council of Ministers and the voting mechanisms in the Regime, they affirm that these are mere political undertakings.

Consequently, the courts have no authority to review the MOA and the provincial legislatures would, in theory, be free to adopt contrary legislation. [ 67 ] This argument does not withstand scrutiny. [ 68 ] The position advanced by the Attorneys General of Canada and British Columbia would open the door to a new form of administrative federalism under which the division of powers provided for in the Constitution could be modified and manipulated at will by the executive branch of the federal government, working in concert with one or more provincial executive branches, and without the possibility of judicial review by Canadian courts.

This contravenes basic constitutional principles, including the rule of law. In the long term, it could lead to the dislocation of the delicate constitutional balance upon which Canada was founded and upon which it has thrived to date. [ 69 ] The admitted objective and uncontestable effect of the Regime are to allow the Council of Ministers to control the amendments to the Uniform Act, to impose such amendments on all participating provinces and to impede any amendment from occurring without its approval.

Through the MOA, the executive branch of each participating province undertakes to carry out the decisions made by the Council of Ministers respecting the Uniform Act. In light of the basic realities of Canada’s constitutional architecture – which require that the executive branch have de facto control over the legislature – the constraints outlined in the MOA are, in fact, restraints on the legislatures of the participating provinces.

As the Supreme Court noted in the Reference re Canada Assistance Plan (B.C.) , “a restraint on the Executive in the introduction of legislation is a fetter on the sovereignty of Parliament itself.” [41] [ 70 ] It should not be presumed that the Council of Ministers will be ineffective with respect to the role it plays in regard to the Uniform Act, or that the governments of the participating provinces, including their legislatures, will not bend to the will of the Council of Ministers. On the contrary, it must be presumed that Participating Jurisdictions in the Regime will realize their intended purpose.

In the Reference re Senate Reform , the Supreme Court of Canada held that consultative elections in order to name senators was unconstitutional, even though the Prime Minister could opt to ignore the voice of the electorate and name senators of his own choosing. To this end, the Supreme Court of Canada wrote: [42] [62] The Attorney General of Canada counters that this broad structural change would not occur because the Prime Minister would retain the ability to ignore the results of the consultative elections and to name whomever he or she wishes to the Senate. We cannot accept this argument.

Bills C-20 and C-7 are designed to result in the appointment to the Senate of nominees selected by the population of the provinces and territories. Bill C-7 is the more explicit of the two bills, as it provides that the Prime Minister “must” consider the names on the lists of elected candidates. It is true that, in theory, prime ministers could ignore the election results and rarely, or indeed never, recommend to the Governor General the winners of the consultative elections. However, the purpose of the bills is clear: to bring about a Senate with a popular mandate.

We cannot assume that future prime ministers will defeat this purpose by ignoring the results of costly and hard-fought consultative elections. A legal analysis of the constitutional nature and effects of proposed legislation cannot be premised on the assumption that the legislation will fail to bring about the changes it seeks to achieve . [Emphasis added; internal citations omitted] [ 71 ] This observation is relevant here, since any amendment to the Uniform Act made without respecting the Council of Ministers’ voting mechanism would go against the objectives and internal logic of the Regime.

In fact, legislative uniformity is the principal foundational purpose of the Regime . [ 72 ] Moreover, there is nothing permissive in the articulation of the voting mechanism: a proposal to amend the Uniform Act must be approved by 50% of the members of the Council and by the members representing the major capital markets jurisdictions. The same is true of any fundamental changes to the Regime. [ 73 ] The Regime is indeed an indivisible whole.

The role of the Council of Ministers and its internal voting mechanisms cannot be disembodied from the Regime, but rather constitute its essential and inseparable components. [ 74 ] Since s. 2 of the Uniform Act defines the Council of Ministers as “the Council of Ministers established in accordance with the Memorandum of Agreement”, which MOA is also identified and defined in the Act, it requires no stretch of the imagination to conclude that the legislative assemblies which adopt it will be perfectly aware of the content of the MOA, including both the voting mechanisms and the preponderant role of the Council of Ministers with respect to amending the Uniform Act.

The Federal Act contains identical

definitions and the same inference can be drawn there. [ 75 ] The necessary implication is thus a legislative incorporation by reference of the decision-making process of the Council of Ministers and of the voting mechanisms set out in s. 5 of the MOA, in both the Uniform Act and the Federal Act.

It is this legislative incorporation that gives rise to judicial review in this case, and which allows us to put aside the theoretical question of whether an intergovernmental agreement is subject to judicial review. [ 76 ] Finally, the fact that a participating jurisdiction may withdraw from the Regime upon six months’ notice, pursuant to s. 13 of the MOA, does not render constitutional the legislative delegation to the Council of Ministers. To this end, we note that in Attorney General of Nova Scotia v.

Attorney General of Canada , [43] the proposed legislative delegation there contemplated could be withdrawn at any time through an order in council. [44] This did not impede the Supreme Court of Canada from declaring that delegation unconstitutional, even if either of the participating governments could have withdrawn at will at any time.

[ 77 ] The submission made by the Attorney General of British Columbia holding that the role of the Council of Ministers with respect to legislative amendments is nothing but a requirement of “manner and form” must also be dismissed. [ 78 ] The Attorney General of British Columbia erroneously relies upon the Reference re Canada Assistance Plan (B.C.) . In that case, the federal government had entered into agreements with each provincial government to share the cost of their expenditures on social assistance and welfare.

When it was adopted, the federal law that enabled the federal government to conclude these agreements provided for the amendment of any agreement subject to the mutual consent of the federal government and the province in question. [45] However, no mechanism was articulated with respect to amending the federal law itself. This an important distinction with the Regime under review here, which grants the Council of Ministers a determinant role in modifying the essential components of the Regime and the Uniform Act itself. [ 79 ] Relevant jurisprudence must therefore be considered. [ 80 ] In West Lakes Limited v.

South Australia , [46] an Australian decision that has been favourably received in Canada, [47] the court was asked to consider an agreement between the state in question and a developer which contained a provision capable of being interpreted as giving the developer a veto over any amendment to the legislation that ratified the agreement. In rejecting this

interpretation, the Australian court also concluded that requiring the prior consent of a third party prior to a legislative amendment was not a simply procedural requirement, but rather a renunciation of legislative power: [48] A provision requiring the consent to legislation of a certain kind, of an entity not forming part of the legislative structure (including in that structure the people whom the members of the legislature represent), does not, to my mind, prescribe a manner or form of lawmaking, but rather amounts to a renunciation pro tanto of the lawmaking power.

Such a provision relates to the substance of the lawmaking power, not the manner and form of its exercise.

The point becomes clearer if one considers hypothetical (albeit extreme) examples such as provisions that legislation of a certain character might not be enacted without the consent of the governing body of a political party, or of an organization of employers or employees, or of an officer of the armed forces, or of any other individual, office holder, or body which does not form part of the representative legislative structure. [Emphasis added] [ 81 ] The parties to this Reference have not shared with us any decision that would allow us to conclude that a procedural requirement involving the consent of a group which is not a part of the legislature prior to amending legislation would be constitutional.

Thus, we also dismiss the arguments of the Attorney General of British Columbia with respect to “manner and form”. The voting mechanisms of the Council of Ministers with respect to regulations adopted pursuant to the Federal Act undermine the constitutional validity of that Act [ 82 ] The constitutional difficulties are not limited to amendments to the Uniform Act.

They also extend to the Federal Act when considered with the proposed Regime taken as a whole. [ 83 ] Indeed, the Federal Act creates a legislative framework allowing the CMRA to use regulatory channels to combat systemic risks related to capital markets.

The CMRA regulations are the key proposed federal intervention mechanism to mitigate threats to the stability of the Canadian financial system that flow from or spread through capital markets and which have potential material adverse effects on the Canadian economy. [ 84 ] Sections 19 to 23 of the Federal Act are thus at the heart of this legislation and are the very essence of the federal intervention in capital markets : 19.

The regulations may, in order to address a systemic risk related to capital markets, prescribe requirements, prohibitions and restrictions respecting systemically important benchmarks (…) 19. Pour parer à un risque systémique lié aux marchés des capitaux, les règlements peuvent prévoir des exigences, interdictions et restrictions concernant les indices de référence d’importance systémique […] 20.

(1) The regulations may prescribe a class of securities or derivatives to be systemically important if, in the Authority’s opinion, the trading in, the holding of positions in or the direct or indirect dealing with securities or derivatives within the class could pose a systemic risk related to capital markets. (…) 20.

(1) Les règlements peuvent désigner toute catégorie de valeurs mobilières ou d’instruments dérivés comme étant d’importance systémique si l’Autorité estime que le fait d’effectuer des opérations ou de détenir des positions sur des valeurs mobilières ou des instruments dérivés appartenant à la catégorie ou encore, même indirectement, d’en utiliser pourrait poser un risque systémique lié aux marchés des capitaux. […] 21.

The regulations may, in order to address a systemic risk related to capital markets, prescribe requirements, prohibition s and restrictions respecting systemically important securities and derivatives (…) 21. Pour parer à un risque systémique lié aux marchés des capitaux, les règlements peuvent prévoir des exigences, interdictions et restrictions concernant les valeurs mobilières et les instruments dérivés d’importance systémique […]

(1) The regulations may prescribe a practice to be systemically risky if, in the Authority’s opinion, the practice could pose a systemic risk related to capital markets. (…) 22.

(1) Les règlements peuvent désigner une pratique comme comportant des risques systémiques si l’Autorité estime que la pratique pourrait poser un risque systémique lié aux marchés des capitaux. […] 23. The regulations may, in order to address a systemic risk related to capital markets, prescribe requirements, prohibitions and restrictions respecting practices that are prescribed to be systemically risky (…) 23.

Pour parer à un risque systémique lié aux marchés des capitaux, les règlements peuvent prévoir des exigences, interdictions et restrictions concernant les pratiques désignées comme comportant des risques systémiques […] [ 85 ] Thus, it is the powers of the CMRA to adopt regulations pursuant to ss. 19 to 23 of the Federal Act that must be scrutinized, from a constitutional perspective, to determine if they meet the criteria that allow for federal intervention under the general trade and commerce branch of s. 91(2) of the Constitution Act, 1867 . [ 86 ] The combined effect of sections 76 to 79 of the Federal Act and of

section 5.2 of the MOA is to subject to the approval of the Council of Ministers all regulations made by the CMRA pursuant to the Federal Act.

Section 5.2 of the MOA provides 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 per cent 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 per cent 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. 5.2 Vote à propos d’un règlement pris par le conseil d’administration

a) Un règlement pris par le conseil d’administration une fois les règlements initiaux pris sera soumis au Conseil des ministres avant d’entrer en vigueur. À moins que le Conseil des ministres ne demande au conseil d’administration de réexaminer le règlement ou que le Conseil des ministres ne décide de le refuser dans un délai précisé, le règlement sera réputé avoir été approuvé par le Conseil des ministres.

b) Le Conseil des ministres doit demander au conseil d’administration de réexaminer un règlement avant de rejeter ce dernier.

c) Une telle demande de réexamen doit être approuvée par : (

i) au moins 50 % des membres du Conseil des ministres; (ii) l’une ou l’autre des ministres représentant les parties ayant de grands marchés de capitaux ou représentant le Canada.

d) La décision de rejeter un règlement que le conseil d’administration a réexaminé à la demande du Conseil des ministres et présenté à nouveau devant ce dernier avant son entrée en vigueur doit être approuvée par : (

i) au moins 50% des membres du Conseil des Ministres; (ii) la majorité des membres du Conseil des ministres représentant les parties ayant de grands marchés de capitaux ou représentant le Canada. [ 87 ] This means that a majority of ministers responsible for regulating capital markets in the participating provinces, or a majority of ministers representing major capital markets jurisdictions (currently Ontario and British Columbia) can effectively veto a federal regulation.

[ 88 ] As a result, the regulations made pursuant to sections 19 to 23 of the Federal Act to counter systemic risks to Canadian capital markets will be subject to the veto of certain participating provinces.

This calls into question the constitutional validity of the Federal Act. [ 89 ] Indeed, federal jurisdiction over securities pursuant to the general trade and commerce branch is closely linked to the fourth and fifth indicia of the General Motors test, [49] that is to say the constitutional incapacity of the provinces to work together to enact a pan- Canadian regime to address systemic risks in capital markets, and the impact of failing to include one or more provinces in the pan- Canadian regime protecting against these risks. [ 90 ] In granting veto rights over federal regulation of systemic risks, veto rights which can be exercised by participating provinces, the Regime compromises the very purpose of the Federal Act and, thus, the constitutional foundations upon which rests federal jurisdiction over systemic risks of a national scale.

By granting veto rights to certain participating provinces with respect to federal regulations, the Regime effectively negates the very necessity of pan-Canadian federal legislation to counter systemic risks on a national scale. [ 91 ] As the Supreme Court of Canada has specified, the following indicia must be considered in order to invoke federal jurisdiction under the general trade and commerce branch: [50] (1) whether the impugned law is part of a general regulatory scheme; (2) whether the scheme is under the oversight of a regulatory agency; (3) whether the legislation is concerned with trade as a whole rather than with a particular industry; (4) whether it is of such a nature that provinces, acting alone or in concert, would be constitutionally incapable of enacting it; and (5) whether the legislative scheme is such that the failure to include one or more provinces or localities in the scheme would jeopardize its successful operation in other parts of the country. [ 92 ] Federal jurisdiction over the general trade and commerce branch thus rests upon the idea that federal intervention is required where one or more provinces would be incapable of adopting a system that would allow the question to be addressed on a national scale and where the failure to include one province would jeopardize the successful operation of the system in other parts of the country.

Consequently, federal intervention is justified where national issues cannot be resolved because of the exercise of a provincial veto or the failure of a province to participate. [ 93 ] For example, regulations regarding competition satisfies these indicia because competition is not a question of purely local interest, but rather one of “crucial importance for the national economy.” [51] If Parliament was unable to legislate to this end, there would, in fact, be a gap in the division of legislative powers. [52] [ 94 ] In other words, the circumstances must be such that a constitutional gap would arise from the incapacity of Parliament to legislate in a given area. [53] Federal legislation is thus constitutional under the general trade and commerce branch only if its purposes and effects concern questions of truly national scope and importance. [ 95 ] This constitutional foundation for federal jurisdiction under the general trade and commerce branch is absolutely incompatible with the idea of a provincial veto.

Indeed, to ground its constitutional jurisdiction, Canada must demonstrate that its legislative intervention “ read as a whole, addresses concerns that transcend local, provincial interests.” [54] In other words, if a federal intervention is required to resolve an issue related to trade and commerce, how can this intervention also be subject to the veto of one or more provinces?

Such a veto would negate the very purpose of a federal intervention. [ 96 ] As the Supreme Court noted in the 2011 Reference , [55] the maintenance of capital markets that feed the Canadian economy and ensure the financial stability of the country is a question that goes well beyond a single industry and engages trade as a whole under the general trade and commerce power as defined by the General Motors test.

A federal law that would aim to establish minimal requirements applicable throughout the nation so as to ensure the stability and integrity of Canada’s financial markets could certainly concern trade as a whole. But still, Canada must establish that such a law, taken as a whole, relates to matters that transcend interests of a purely local and provincial nature. How can this be the case where one or more provinces can veto a federal intervention? Can such a federal law then be viewed as transcending interests of a “purely local or provincial nature”?

Of course not. [ 97 ] Yet this is precisely what the Federal Act proposes to do. [ 98 ] For example, subsection 20(1) of the Federal Act allows the CMRA to adopt regulations in order to designate a category of securities or derivatives as being of systemic importance if it is of the view that the trading or the holding of positions within the class could pose a systemic risk related to capital markets, that is to say could threaten the stability of the Canadian financial system and potentially have material adverse effects on the Canadian economy. [ 99 ] However, such a regulation is subject to the approval of the Council of Ministers.

A majority of the members of the Council, or a majority of the members representing the major capital markets jurisdictions, can reject such a regulation. Thus, certain provinces could exercise a veto right with respect to pan-Canadian federal interventions aimed at countering a threat to the stability of the Canadian financial system potentially having material adverse effects on the Canadian economy as a whole.

Such veto rights obviously do not transcend interests of a purely local or provincial nature. [ 100 ] We note, moreover, that (with the exception of the Minister of Finance of Canada), the members of the Council of Ministers are not federally appointed. They are members of the Council by virtue of their appointment by a participating province as ministers responsible for regulating capital markets.

Moreover, as the MOA unambiguously states (par. 5.2(c)(ii) and (d)(ii)), they sit on the Council of Ministers as representatives of their respective provinces. [ 101 ] In addition to the fact that the powers conferred upon the Council of Ministers undermine the constitutional validity of the Federal Act, we also see here an abdication, in favour of certain provinces, of federal jurisdiction and responsibilities with respect to systemic risks related to capital markets.

[ 102 ] Indeed, in the shuffle of voting rights exercised within the Council of Ministers, the participating provinces representing major capital markets jurisdictions will decide upon the adoption or rejection of pan-Canadian federal regulations aimed at countering threats to the stability of the Canadian financial system with the potential to have material adverse effects on the Canadian economy as a whole. These provinces will be able to exercise their rights within the Council of Ministers, including their right to block federal regulations governing systemic risks, in favour of their own regional interests.

Such an abdication of jurisdiction in favour of certain provinces is questionable on a constitutional level and appears to be contrary to the principle of federalism, one of the foundations of the Canadian constitutional order. Conclusion on the first question [ 103 ] For these reasons, we answer the first Reference question in the negative.

ANALYSIS OF THE SECOND QUESTION [ 104 ] As we turn to the second question, it is useful to reproduce again its text: 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 ? [ 105 ] This second question asks us to consider the constitutional validity of the Federal Act separate from the Regime as a whole. [ 106 ] Determining whether the Federal Act, taken alone, falls under the federal head of power over the general trade and commerce branch, requires us to apply the test established by the Supreme Court of Canada in General Motors . [56] The analysis is twofold.

First, the Court must determine the pith and substance of the impugned legislation. Next, the Court must determine whether the matter falls under the general trade and commerce branch under s. 91(2) of the Constitution Act, 1867 . Submissions of the parties The Attorney General of Quebec [ 107 ] The Attorney General of Quebec submits that the Federal Act is ultra vires Parliament’s jurisdiction. According to the Attorney General of Quebec, the pith and substance of the Act is the regulation of securities, as was the 2009 Securities Act declared invalid by the Supreme Court of Canada in the 2011 Reference .

From this perspective, the pith and substance of the federal initiative remains unchanged in substance if not in form. The proposed Federal Act would do no more than target a body of rules already set out in existing provincial legislation. [ 108 ] In addition, the Attorney General of Quebec submits that the Federal Act does not respect the three last indicia of the General Motors test. First, the Federal Act targets a specific industry, namely securities trade, and thus, fails the third indicia of the test.

With respect to the fourth indicia, the provinces have the ability to enact the regulations contemplated by the Federal Act, given that it merely contemplates a subset of rules already provided for in existing provincial regulations. Thus, the provinces are not only capable of adopting rules similar to those contemplated in the Federal Act, but indeed, they already have. Consequently, the provinces are therefore capable, acting alone or together, of adopting legislation equivalent to that proposed by Canada.

With respect to the fifth indicia of the test, the purposes of the Federal Act can be met even if only some of the provinces adopt similar legislation, as each province could require that its legislation be respected within its borders. Consequently, a corporation that does business across Canada must, in practical terms, act in conformity with whichever provincial regulations are most restrictive. The Attorney General of Canada [ 109 ] The Attorney General of Canada submits that the pith and substance of the Federal Act is the regulation of systemic risks related to capital markets.

The Federal Act confers three principle powers related to this objective, namely (1) to collect data on a national scale in order to detect systemic risks; (2) to designate a product, practice or benchmark as posing a systemic risk related to capital markets and then adopt regulations to stymie that risk; and (3) to issue emergency orders with respect to serious and immediate systemic risks. The effects of the Federal Act would thus be to allow the CMRA to exercise macroprudential oversight of capital markets.

According to the Attorney General of Canada, the Federal Act focuses on the stability of the economy as a whole, and does nothing to diminish the jurisdiction of the provinces to adopt microeconomic policies that are local in nature. [ 110 ] The Attorney General of Canada also submits that the General Motors test demonstrates that the Federal Act falls under the federal general trade and commerce power.

With respect to the third indicia of the General Motors test, the Federal Act does not target a single industry, since the regulatory powers are limited to situations posing systemic risks to the financial system potentially having negative impacts on the Canadian economy as a whole. As for the fourth indicia, the provinces, acting alone or together, would not be able to meet the objectives of the Federal Act because no province has the constitutional jurisdiction to effect oversight of the national economy as a whole.

With regards to the fifth indicia, inadequate regulation by even one province would undermine the objective of protecting the stability of the Canadian financial system. The Attorney General of Manitoba [ 111 ] The Attorney General of Manitoba submits that the Federal Act exceeds the legislative authority of the Parliament of Canada. First, the concept of systemic risk is too nebulous to serve as a meaningful boundary between federal and provincial jurisdictions. Second, the effect of the Federal Act is simply to impose federal rules that encroach upon existing provincial legislation.

The Attorney General of Manitoba thus proposes to limit the jurisdiction of the federal government over systemic risks to enacting uniform provisional measures respecting urgent situations which cannot be addressed other than at a national level. [ 112 ] With respect to the General Motors test, the Attorney General of Manitoba generally adopts the arguments of the Attorney General of Quebec.

The Attorney General of British Columbia [ 113 ] The Attorney General of British Columbia takes no position on the constitutionality of the Federal Act. Overview [ 114 ] Save with respect to the role and powers of the Council of Ministers, it appears that the pith and substance of the Federal Act, examined apart from the Regime, is to promote the stability of the Canadian economy through the management of systemic risks related to capital markets.

Following the holdings of the Supreme Court of Canada in the 2011 Reference , we conclude that the Parliament of Canada has the necessary jurisdiction to adopt the Federal Act, with the exception of its provisions relating to the role and powers of the Council of Ministers. The pith and substance of the Federal Act [ 115 ] The purpose of the Federal Act is to manage systemic risk. The

preamble also mentions this purpose.

Section 4 of the Federal Act reads as follows: 4. The purposes of this Act are, as part of the Canadian capital markets regulatory framework, (

a) to promote and protect the stability of Canada’s financial system through the management of systemic risk related to capital markets; and (

b) to protect capital markets, investors and others from financial crimes. 4. La présente loi a pour objet, dans le cadre du régime canadien de réglementation des marchés des capitaux :

a) de promouvoir et de protéger la stabilité du système financier canadien par la gestion des risques systémiques liés à ces marchés;

b) protéger notamment ces marchés et les investisseurs contre les crimes financiers. [ 116 ] The stated purpose of the Federal Act is, thus, to manage systemic risk on a national level and protect against financial crimes. To fully carry out the General Motors test, however, we cannot limit our analysis to the declared purpose: we must review the structure of the Act as a whole. [ 117 ]

Part 1 of the Federal Act empowers the CMRA to collect data in order to (1) monitor capital market activities, (2) detect, identify or mitigate systemic risk related to capital markets and (3) conduct policy analysis related to the Federal Act and the CMRA. This part of the Federal Act also establishes the framework allowing the CMRA to implement a system for gathering, holding and sharing this data (ss. 9-17). [ 118 ]

Part 2 of the Act allows the CMRA to designate a benchmark (ss. 18-19), a class of securities or derivatives (ss. 20-21), or a practice (ss. 22-23) as being of systemic importance. Such a designation then allows the CMRA to adopt regulations respecting the designated object. The Federal Act specifies that such a designation is only permitted where, in the view of the CMRA, the targeted practice could pose a systemic risk related to capital markets, that is to say a threat to the stability of the Canadian financial system with the potential to have a material adverse effect on the Canadian economy (ss. 3, 18(1), 20(1) and 22(1)). [ 119 ]

Part 2 also allows the CMRA to make urgent orders if it considers this to be necessary to address a serious and immediate systemic risk related to capital markets (ss. 24-25). Such an order may remain in effect for a maximum of 30 days (ss. 24(3) and (4)). [ 120 ]

Part 3 establishes the framework allowing the CMRA to conduct inquiries ( ss. 26-32) and impose pecuniary administrative sanctions ( ss. 33- 38 ), and endows the relevant tribunal with the power to make orders concerning the application of the Federal Act ( ss. 39-47). [ 121 ] Parts 4 and 5 address incarceration sentences and fines resulting from breaches of the Federal Act ( ss. 48-51) and criminal offences related to financial markets ( ss. 52-68). [ 122 ]

Part 6 consists of general provisions, including the duty to comply with decisions of the CMRA and any undertakings made to it ( ss. 69-72). This part also addresses the CMRA’s procedures for making regulations, including the role of the Council of Ministers ( ss. 72-82). We will come back to this point. This part further provides for orders exempting specified entities from the application of the Act and its regulations, and for extending time periods provided for therein ( ss. 85-86).

This part also contains specific provisions concerning the decisions of the CMRA and of the new tribunal ( ss. 87-91), as well as various other matters ( ss. 92-98). [ 123 ] Finally, Parts 7 and 8 contain the transitional provisions (s. 99) and consequential amendments ( ss. 100 to 107). [ 124 ] The structure and content of the Federal Act suggest that its pith and substance is to control systemic risks having the potential to create material adverse effects on the Canadian economy. [ 125 ] In the 2011 Reference , the Supreme Court of Canada highlighted the following general definition of systemic risks: [57] [103] Systemic risks have been defined as “risks that occasion a ‘domino effect’ whereby the risk of default by one market participant will impact the ability of others to fulfil their legal obligations, setting off a chain of negative economic consequences that pervade an

entire financial system” (M. J. Trebilcock, National Securities Regulator Report (2010), […]). By definition, such risks can be evasive of provincial boundaries and usual methods of control. […] [ 126 ]

Section 3 of the Federal Act fits nicely into this definition, adding the nuance that the systemic risks it targets are those with the potential to have a material adverse effect on the Canadian economy: 3. In this Act, systemic risk related to capital markets means a threat to the stability of Canada’s financial system that originates in, is transmitted through or impairs capital markets and that has the potential to have a material adverse effect on the Canadian economy. 3.

Dans la présente loi, risque systémique lié aux marchés des capitaux s’entend d’une menace à la stabilité du système financier canadien qui, d’une part, émane des marchés des capitaux, est propagée au sein ou par l’entremise de ceux-ci ou les entrave et, d’autre part, est susceptible d’avoir des conséquences négatives importantes sur l’économie canadienne. [ 127 ] What’s more, the Federal Act imposes upon the CMRA the obligation to consider existing legislation prior to designating a benchmark, a product or a practice as posing a systemic risk (ss. 18(1)(g), 20(1)(h), 22(1)(f)).

The goal of doing so seems to be to avoid useless overlap with provincial legislation; this offers some degree of protection against unjustified encroachments on provincial jurisdiction. [ 128 ] Taking into account the stated purposes of the Federal Act, the definition of systemic risk provided therein and the mechanisms set out to restrain the scope of the regulations made pursuant to the Act, the pith and substance of the Federal Act seems to be to promote the stability of the Canadian economy by managing systemic risks related to capital markets having the potential to have material adverse effects on the Canadian economy.

Application of the General Motors Test [ 129 ] Having established the pith and substance of the Act, we now turn to determining whether it falls within the federal general trade and commerce power in accordance with the five indicia of the General Motors test, namely: 1. Whether the impugned law is part of a general regulatory scheme; 2. Whether the scheme is under the oversight of a regulatory agency; 3. Whether the legislation is concerned with trade as a whole rather than with a particular industry; 4.

Whether it is of such a nature that provinces, acting alone or in concert, would be constitutionally incapable of enacting it; and 5.

Whether the legislative scheme is such that the failure to include one or more provinces or localities in the scheme would jeopardize its successful operation in other parts of the country. [ 130 ] The Attorney General of Quebec recognizes outright that the first two indicia are met, that is to say, the Federal Act is part of a general regulatory scheme and is subject to the oversight of a regulatory agency. [ 131 ] With respect to the third indicia, the Supreme Court of Canada clearly pronounced itself on this matter in the 2011 Reference .

In light of our conclusion with respect to the pith and substance of the Federal Act, we defer to the following comments of the Supreme Court: [58] [114] We accept that preservation of capital markets to fuel Canada’s economy and maintain Canada’s financial stability is a matter that goes beyond a particular “industry” and engages “trade as a whole” within the general trade and commerce power as contemplated by the General Motors test.

Legislation aimed at imposing minimum standards applicable throughout the country and preserving the stability and integrity of Canada’s financial markets might well relate to trade as a whole. […] [ 132 ] Regarding the fourth indicia, it is also appropriate to defer to the comments of the Supreme Court of Canada in the 2011 Reference . Indeed, in that case, the Supreme Court explains that federal legislation devoted to reducing systemic risks on a national scale could be valid: [59] [121] It follows that the fourth General Motors question must be answered, at least partially, in the negative.

The provinces, acting in concert, lack the constitutional capacity to sustain a viable national scheme aimed at genuine national goals such as management of systemic risk or Canada-wide data collection . This supports the view that a federal scheme aimed at such matters might well be qualitatively different from what the provinces, acting alone or in concert, could achieve. [Emphasis added] [ 133 ] In the 2011 Reference , the Supreme Court of Canada also noted that satisfying the fourth requirement is related to the fifth.

According to the Supreme Court, the collection of data and the prevention of systemic risks can satisfy the fifth criteria where these are truly national goals: [60] [123] The fifth and final General Motors inquiry is whether the absence of a province from the scheme would prevent its effective

operation. On lesser regulatory matters the answer might well be no.

However, when it comes to genuine national goals , related to fair, efficient and competitive markets and the integrity and stability of Canada’s financial system, including national data collection and prevention of and response to systemic risks, the answer must be yes — much for the reasons discussed under the fourth question . […] [Emphasis added] [ 134 ] In light of our conclusion with respect to the pith and substance of the Federal Act, we can only conclude that the definition of systemic risk limits federal intervention to Canadian, that is to say national, matters especially because the statutory definition of systemic risk must be interpreted in accordance with the Constitution and the holdings of the Supreme Court of Canada in the 2011 Reference . [ 135 ] We conclude, therefore, that, with the exception of the role and powers conferred to the Council of Ministers, the Federal Act falls within the federal general trade and commerce power.

The role and powers of the Council of Ministers [ 136 ] As we highlighted above, the Participating Jurisdictions, through the Council of Ministers, will vote on the adoption of any regulation taken pursuant to the Federal Act. Sections 76 to 79 of the Federal Act specifically provide for this. [ 137 ] In our analysis of the first question posed by this Reference, we concluded that the provisions empowering the Council of Ministers to approve federal regulations undermine the constitutional foundation of the Federal Act and are completely irreconcilable with the purposes of the proposed federal legislation.

The same conclusion applies to the second Reference question. [ 138 ] The provisions of the Federal Act relating to the Council of Ministers set out in sections 76 to 79 are therefore unconstitutional for the same reasons expressed in the analysis to the first Reference question. There is no need to repeat those reasons here since they may be referred to above. The effect of these provisions is to render the Federal Act unconstitutional as a whole if they are not removed.

The Federal Act could probably stand independently of this aspect of the MOA, but that is not the draft legislation that has been placed before us. [ 139 ] Furthermore, it is useful to note that the federal regulations approved by the Council of Ministers will apply equally to non- participating provinces without providing those provinces with the right to vote within the Council. This also creates a serious asymmetry that undermines the balance of the Canadian federation: certain provinces would be voting on federal regulations that apply to other provinces.

We note the asymmetry that arises from giving provincial representative bodies powers to adopt federal regulations that apply even in non-participating provinces. This asymmetry is discordant with the principle of federalism, a fundamental component of the Constitution. [61] Conclusion on the second question [ 140 ] For these reasons, we reply “no” to the second question, except with respect to sections 76 to 79 of the Federal Act respecting the role and powers of the Council of Ministers which, unless removed from the legislation, render the Federal Act unconstitutional as a whole.

CONCLUSION S [ 141 ] To the first question, 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”? we answer : NO , the Constitution of Canada does not authorize it under that model. [ 142 ] To the second question, 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 ? we answer : NO , the most recent version of the draft of the federal act entitled Capital Markets Stability Act is not beyond the jurisdiction of the Parliament of Canada under subsection 91(2) of the Constitution Act, 1867 , except with respect to its sections 76 to 79 concerning the role and powers of the Council of Ministers which, if not removed, render the act unconstitutional as a whole.

NICOLE DUVAL HESLER, C.J.Q. JEAN BOUCHARD, J.A.

MANON SAVARD, J.A. ROBERT M. MAINVILLE, J.A. REASONS OF JUSTICE SCHRAGER, J.A. INTRODUCTION [ 143 ] I respectfully disagree with the conclusions and answers to the two reference questions tabled by my colleagues.

I do however agree with their reasons that the Court can adjudicate these questions. [ 144 ] I offer these reasons in reply to the two questions submitted to this Court by the Government of Quebec: [62] 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”?

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 ?

I have attempted not to repeat matters set forth in detail by my colleagues in their reasons [63] and to limit my remarks to that which I consider essential to the different answer to the questions which I propose. [ 145 ] Quebec and Manitoba urge a negative answer to the First Question and a positive reply to the second, since it is their position that the whole legislative scheme is unconstitutional. The Government of Canada obviously contends that the model is constitutionally valid, and would answer the questions accordingly.

British Columbia supports Canada’s answer to the Second Question, while maintaining that this Court has no jurisdiction over the First Question. As stated, I defer to the reasons of my colleagues on that issue.

Summary response [ 146 ] I view the two laws submitted to us to be intra vires of the provincial legislatures and the federal Parliament respectively. In my opinion, none of the content illegally delegates legislative authority nor abdicates parliamentary sovereignty. However, there are aspects of the “Memorandum of Agreement Regarding the Cooperative Capital Markets Regulatory System” (hereinafter the “Protocol”) which may constitute illegal delegation of legislative power or an abandonment of legislative sovereignty. This Court’s opinio

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