Round I To The Provinces: Alberta Court Of Appeal Rejects Canadian Securities Act As Unconstitutional

Earlier this month, the Alberta Court of Appeal rejected the federal government's proposed national securities legislation as unconstitutional.1 The Quebec Court of Appeal's decision on the same issue is expected shortly. Though the Alberta decision is strongly worded, the final decision rests with the Supreme Court of Canada, which will hear arguments on April 13 and 14, 2011. It remains to be seen whether the Alberta decision foreshadows the Supreme Court's reasons, or becomes the voice of dissent on this issue.

In May 2010, the Government of Canada released the proposed Canadian Securities Act (CSA), which provides for the harmonization of the existing provincial and territorial legislation into a single federal statute and creates a national securities regulator. The CSA is similar to provincial securities legislation, but still contains significant changes from the current regime. 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.

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 concurrent jurisdiction based on the general branch of the federal "trade and commerce" power. If there is concurrent jurisdiction, the federal legislation prevails over the provincial legislation under the paramountcy doctrine.

The Court of Appeal first considered the "pith and substance" of the CSA, which the parties ultimately agreed to be "the regulation of the participants in the public capital markets in Canada, and transactions relating to the raising of capital." However, the federal government argued for a characterization of the pith and substance as comprehensive national securities regulation (and necessarily beyond the authority of the provinces). The Court rejected this argument: "merely because something is of general interest throughout Canada is not enough to create federal jurisdiction."

The federal government also argued that the securities industry has changed in the last decade...