The Supreme Court of Canada has unanimously decided that the implementation of the proposed Cooperative Capital Markets Regulatory System (CCMR) under its memorandum of agreement is constitutional and that the proposed federal Capital Markets Stability Act is constitutional. With the constitutionality of the CCMR being confirmed, FAIR Canada repeats its investor-related concerns about the proposed CCMR and renews its call for stronger investor protection measures to be included in the governance structure and substance of the CCMR.
The Supreme Court’s consideration of the constitutionality of the CCMR arose as a result of an appeal by the federal and British Columbia governments from a decision of the Quebec Court of Appeal on two specific reference questions submitted to the Court of Appeal by the Quebec government. The CCMR is the voluntary common capital markets regulatory initiative being pursued by the governments of British Columbia, Ontario, Saskatchewan, New Brunswick, Prince Edward Island, Yukon and Canada.
The Decision at the Quebec Court of Appeal
On the first reference question – 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 memorandum of agreement regarding the Cooperative Capital Markets Regulatory System? – a majority of the Quebec Court of Appeal answered in the negative, for two reasons. First, the majority held that the involvement of the Council of Ministers in the proposal of amendments to the uniform provincial securities act fettered the law-making provisions of the provincial legislatures and therefore contravened the principle of parliamentary sovereignty. Second, the majority found that the requirement that the proposed regulations under the federal Capital Markets Stability Act be approved by the Council of Ministers coupled with the mechanism by which the Council of Ministers approves or rejects such proposed regulations had the effect of giving certain provinces a veto over federal intervention in capital markets and was incompatible with the constitutional foundation for federal jurisdiction under the general trade and commerce power. The dissenting judge in the Court of Appeal declined to answer the first question because, in his view, it was not for courts to pronounce on the constitutionality of intergovernmental agreements.
On the second reference question – Does the federal Capital Markets Stability Act exceed the authority of Parliament over the general branch of the trade and commerce power? – the majority of the Quebec Court of Appeal concluded that Parliament had the constitutional authority to enact the federal Capital Markets Stability Act with the exception of provisions relating to the role and powers of the Council of Ministers in the making of federal regulations. The dissenting judge in the Court of Appeal also held that the Capital Markets Stability Act was constitutionally valid but did not take exception to the provisions relating to the role and powers of the Council of Ministers in the making of federal regulations.
Supreme Court of Canada’s Decision and Reasons
In its unanimous decision, the Supreme Court allowed the appeal on the first reference question, answering with a “Yes”, and held that the involvement of the Council of Ministers in the proposal of amendments to the provincial securities act did not fetter the law-making provisions of the provincial legislatures noting that the memorandum of agreement does not require provincial legislatures to implement amendments and does not preclude them from making other amendments to their securities laws. The Supreme Court confirmed the principle of parliamentary sovereignty means that the government, through an executive agreement, is incapable of interfering with a legislature’s power to enact, amend or repeal legislation – an executive agreement that purports to bind the parties’ respective legislatures cannot, therefore, have any effect. The Supreme Court also ruled that Parliament or a provincial legislature may delegate the regulatory authority to make subordinate laws (like binding rules and regulations) in respect of matters over which it has jurisdiction to another person or body. On the second reference question, the Supreme Court allowed the appeal, answering the second reference question in the negative, and agreed with the dissenting Quebec Court of Appeal judge that the Capital Markets Stability Act falls within Parliament’s general trade and commerce power and that there was nothing problematic about the Act’s delegation of the power to make regulations to the Council of Ministers.
With this constitutional green light for the CCMR, FAIR Canada will continue to seek stronger investor protection measures in the CCMR as we watch for an update of the CCMR implementation and launch timeline, announcements of new participating jurisdictions (e.g. Nova Scotia) and gauge the degree of current federal and provincial political support for this initiative which is now more than five years in gestation.