Round II to the Provinces: Quebec Court of Appeal Rejects Canadian Securities Act as Unconstitutional

On March 31, 2011, the Quebec Court of Appeal released a 4-1 decision finding that the proposed Canadian Securities Act (the "CSA") is unconstitutional.1 The majority decision echoes the recent decision of the Alberta Court of Appeal, which also found the CSA to be beyond federal jurisdiction.2 However, Justice Dalphond of the Quebec Court of Appeal dissented, finding that the CSA is constitutional. Neither of these decisions is the final word on the matter: the Supreme Court of Canada is scheduled to hear arguments on the CSA on April 13th and 14th, 2011, and will ultimately determine its constitutionality. It remains to be seen whether it will adopt the position of the Alberta Court of Appeal and the majority of the Quebec Court of Appeal in finding the CSA unconstitutional, or whether it will agree with the views of Justice Dalphond and conclude that the CSA is within federal authority.

Background

In May 2010, the Government of Canada released the proposed CSA, which provides for the harmonization of the existing provincial and territorial legislation into a single federal statute and creates a national securities regulator. At the same time as releasing the CSA, the federal government referred the question of its constitutionality to the Supreme Court. Shortly after, both the Alberta and Quebec governments submitted similar reference questions to their respective appeal courts, and both courts have found the CSA to be unconstitutional. Three separate judgments were issued by the Quebec Court of Appeal: one from Chief Justice Robert, one from Justices Forget, Bich and Bouchard, and the dissent from Justice Dalphond.

The Constitution Act, 1867, divides certain powers between the provincial and federal governments. The legal issue in all of the references is whether the CSA falls under a provincial or a federal head of power. The provinces have traditionally had jurisdiction over the regulation of the securities industry under their "property and civil rights" head of power. But the federal government argued that it had jurisdiction based on its "trade and commerce" head of power.

The Majority Decision

The majority of the Quebec Court of Appeal first characterized the "pith and substance" of the CSA: Chief Justice Robert defined it as the regulation of trading in securities, and the remaining three Justices found it to be the regulation of the participants in securities markets and the regulation of information in those markets.3 The...