Constitutionality Of The Extra-Provincial Application Of Securities Law

1. Extra-provincial Impact of Provincial Securities Laws

   Provincial securities legislation typically prohibits the advertisement or promotion of investment in certain security instruments, unless the investment opportunity has been properly registered with the province's securities commission or qualifies for an exemption under the province's securities legislation. This prohibition applies, regardless of whether the investment contract is intended to be completed within or beyond the borders of the province. But is such a prohibition consistent with the Constitution of Canada?

   An analysis of recent decisions of the Supreme Court of Canada suggests that the answer is no. The Constitution prohibits the application of provincial law outside the boundaries of a province.

2. Supreme Court of Canada Precedents

   Over the last five decades, the Supreme Court of Canada has had a number of opportunities to consider section 91(2) of the Constitution Act, 1867 and the authority it confers with respect to interprovincial trade.1 Taken together, the Court's decisions make it clear that the federal government alone has jurisdiction under the Constitution over the regulation of interprovincial trade in securities. For example, if the British Columbia government attempts to regulate the sale of securities in Alberta, such regulation will be outside the province's jurisdiction under the Constitution.

   One of the first cases to reflect this application of the Constitution Act, 1867 was Carnation Company Limited v Quebec Agricultural Marketing Board, et at. 2 This case involved the Quebec Agricultural Marketing Board and its regulation of the price of the marketing and the sale of milk to be purchased by farms in Quebec. The Court ruled that the mandate of the Board was valid. In its ruling, the Court found that the orders of the Board were not directed at the regulation of interprovincial trade and "did not purport directly to control or to restrict such trade." 3 This left open the possibility that a provincial regulatory regime could succeed where it only has an incidental effect on interprovincial trade.

   In Attorney-General for Manitoba v Manitoba Egg and Poultry Association et al. 4 the Court found that a proposed regulation and order governing the sale in Manitoba of all eggs, wherever produced, was invalid, as it contravened section 91(2) of the Constitution Act, 1867. The Court decided that where a provincial order limits "the free flow of trade between provinces," 5 that scheme will amount to the regulation of interprovincial trade. This decision was followed a few years later in Central Canada Potash Co Ltd et al v Government of Saskatchewan. In Central Canada Potash, the Court concluded...