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LEGISLATION - Interpretation - Jurisdiction - Federal - Provincial and territorial - Regulations - Constitutional issues - Federal v. provincial jurisdiction

Friday, May 26, 2017 @ 8:35 AM  

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Reference by the Government of Quebec (Quebec) concerning the constitutionality of the implementation of a pan-Canadian securities regulation regime and of the Capital Markets Stability Act (Federal Act). Quebec asked the Court to determine: (1) if the Constitution of Canada authorized the implementation of pan-Canadian securities regulation under the authority of a single regulator, and (2) if the Federal Act exceeded 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. According to a memorandum of agreement signed by the federal government, five provinces and one territory, a new regulatory regime for capital markets would be put in place and would include the creation of a Capital Markets Regulatory Authority (CMRA). The Regime would rely on the Capital Markets Act (Uniform Act), a uniform act adopted by each participating province and territory, as well as the Federal Act, regarding the stability of capital markets. Heading the Regime would be 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. The Uniform Act addressed all aspects of the general regulation of capital markets. The participating provinces and territory undertook to adopt this Act and to delegate its administration to the CMRA. A voting mechanism within the Council of Ministers was provided for all amendments to this Act, for the adoption of regulations, and for any fundamental changes to the Regime. The Federal Act provided 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 was delegated to the CMRA. The Council of Ministers also played a decisive role in the Federal Act and was responsible for approving any regulations adopted pursuant to the Federal Act. The province submitted that the novel structure which would be put in place by the Regime undermined 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. Quebec was also of the opinion that the Regime amounted to a disguised constitutional amendment. The Attorney General of Quebec further submitted that the Federal Act, taken alone, was beyond the jurisdiction of the Canadian Parliament.

HELD: The Court answered both Reference questions in the negative. The Regime was unconstitutional in several respects. The mechanism for amending the Uniform Act set out under the Regime fettered the parliamentary sovereignty of the participating provinces and was consequently unconstitutional. It subjected the province’s legislative jurisdiction to the approval of an external entity, the Council of Ministers, which was impermissible. The Council of Ministers’ voting mechanisms with respect to the adoption of regulations pursuant to the Federal Act undermined the validity of that Act by permitting certain provinces to exercise what amounted to a veto over federal initiatives that sought to guard against systemic risks related to capital markets which would have material adverse effects on the Canadian economy as a whole. Except for the role and powers of the Council of Ministers, it appeared that the pith and substance of the Federal Act, examined apart from the Regime, was to promote the stability of the Canadian economy through the management of systemic risks related to capital markets. The Parliament of Canada had 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. In light of the pith and substance of the Federal Act, the Court concluded that the definition of systemic risk limited federal intervention to pan-Canadian or national matters, especially because the statutory definition of systemic risk was to be interpreted in accordance with the Constitution.

Reference re: pan-Canadian Securities Regulation, [2017] Q.J. No. 5583, Quebec Court of Appeal, The Honourables Nicole Duval Hesler C.J.Q., Jean Bouchard J.A., Manon Savard J.A., Mark Schrager J.A. and Robert M. Mainville J.A., May 10, 2017. Digest No. TLD-May222017010