Court of Appeal of Quebec

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

May 10, 2017

500-09-025430-158

Duval Hesler, Bouchard, Savard, Schrager, Mainville

By Order in Council No. 642-2015, the government of Quebec referred two questions to this Court concerning a regime proposed by a memorandum of agreement signed by the federal government, five provinces and one territory. The MOA envisages a new regulatory regime for capital markets, including a national Regulatory Authority, a uniform act adopted by each participating province and territory and a federal act regarding the stability of capital markets. 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. 

The first question was 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”?

The majority answered “No”. In their view, the mechanism for amending the Uniform Act set out under the Regime fetters the parliamentary sovereignty of the participating provinces and is consequently unconstitutional. It subjects the province’s power to legislate in this matter to the approval of an external entity (the Council of Ministers), which is not permitted. Moreover, the Council of Ministers’ voting mechanisms with respect to the adoption of regulations pursuant to the Federal Act undermines the validity of that Act by permitting certain provinces to exercise what amounts to a veto over federal initiatives that seek to guard against systemic risks related to capital markets which would have material adverse effects on the Canadian economy as a whole.

Justice Schrager declined to answer the first question as drafted. In his view, only such provisions of the Protocol explicitly incorporated by reference into law may be scrutinized by this Court, thus excluding the provisions impugned here. 

The second question asked:

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 trade and commerce power under subsection 91(2) of the Constitution Act, 1867?

In responding to this question, the majority found that the pith and substance of the Federal Act 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 re Securities Act, they concluded 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. These provisions were found to undermine the constitutional foundation of the Federal Act and to be irreconcilable with the purposes of the proposed federal legislation. The effect of these provisions is to render the Federal Act unconstitutional as a whole if they are not removed.

Justice Schrager responded “No” to this question, parting ways with the majority with respect to the role and power of the Council of Ministers.

*Summary by SOQUIJ
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