Parliamentary Sovereignty and Intergovernmental Agreements: Reference re Pan‑Canadian Securities Regulation, 2018 SCC 48

Last Friday the Supreme Court of Canada cleared the way (at last) for a national securities regulator. In Reference re Pan‑Canadian Securities Regulation, 2018 SCC 48, on appeal from a reference to the Quebec Court of Appeal by the provincial government, the Court advised that the legislative and regulatory system envisaged by the Cooperative Capital Markets Regulatory System would be lawful. The decision contains interesting reflections on the nature of parliamentary sovereignty in a jurisdiction with a written constitution.

In an earlier reference (Reference re Securities Act, [2011] 3 SCR 837), the Court had concluded that a previous plan for a national securities regulator was not within the competence of the federal Parliament, as its tentacles reached too far into provincial competence over the day-to-day running of provincial markets. The Court had also indicated, however, that a cooperative effort to regulate systemic risk would likely pass constitutional muster. So it proved: that the competence of the System is limited to systemic risk in the financial sector ensured it did not meet the fate of its predecessor, because it fell squarely under the federal power in respect of trade and commerce.

On the last point, the Quebec Court of Appeal had not taken a different view. The concern of the majority there had been with the likely operation of the System. In particular, they feared that although nominally cooperative, the System would quickly turn coercive, with participating provinces constrained to sacrifice their legislative competence in the pursuit of uniform national policies.

There are four strands to the System (at para. 21): uniform provincial and territorial legislation (in the form of a Model Provincial Act to be adopted by all participating provinces); federal legislation; a national regulator (to which powers would be delegated under the provincial and territorial and federal legislation); and a council of ministers made up of the federal Minister for Finance and her provincial counterparts (whose powers and responsibilities are set out in a “memorandum of cooperation”). As one would expect, the provincial and territorial legislation would relate to matters within provincial jurisdiction (such as the registration of financial services operators) and the federal to federal matters (such as criminal sanctions).

Three aspects of the System are worth noting. First, amendments are only to be made to the Model Provincial Act if supported by 50% of all the council of ministers and the ministers of the major provinces (at present Ontario and British Columbia, but presumably Alberta and Quebec too, in time). Second, any participating province can withdraw with six months’ notice. Third, regulations proposed by the regulator must be approved by the council of ministers.

Quebec’s complaints about the potentially coercive nature of the System foundered on the rock of parliamentary sovereignty. Although Canada’s written constitution imposes federalism and rights constraints on legislative competence, it remains nonetheless the case that the federal Parliament and its provincial counterparts are sovereign and supreme on “matters that fall within their respective spheres of jurisdiction” (at para. 56), as long as they do not infringe upon the rights set out in the Charter of Rights and Freedoms. The Quebec Court of Appeal’s analysis thus rested on the “flawed premise” that the council of ministers would be capable of fettering the sovereignty of provincial legislatures over matters within their jurisdiction (at para. 61). While the commitments entered into were “likely to weigh heavily in the exercise of each jurisdiction’s sovereign will” (at para. 71), the doctrine of parliamentary sovereignty “preserves the provincial legislatures’ right to enact, amend and repeal their securities legislation independently” of the council of ministers (at para. 67, emphasis original):

When an action of the executive branch appears to clash with the legislature’s law-making powers, parliamentary sovereignty can be invoked for the purpose of determining the legal effect of the impugned executive action, but not its underlying validity.  For example, the executive of one province may act within the confines of its constitutional authority when entering into an intergovernmental agreement with that of another province.  If a term in such an agreement purports to bind the province’s legislature, the result is not that the agreement itself is constitutionally invalid; the principle of parliamentary sovereignty simply means that the legislature’s hands cannot be tied, and therefore that the impugned term is ineffective.  In other words, because the legislature’s law-making powers are supreme over the executive, the latter cannot bind the former.  The result is that any executive agreement that purports to fetter the legislature is not inherently unconstitutional, but will quite simply not have the desired effect (at para. 62, emphasis original).

Parliamentary sovereignty was relevant in another sense. The Quebec Court of Appeal was concerned that the mechanisms for approval of regulations by the council of ministers gave rise to an effective provincial veto. Again, however, the Court relied on the sovereignty of Parliament to dismiss the concern. Even if a group of provinces could block proposed regulations, “since the delegated authority can always be revoked by the sovereign legislature and its scope remains limited by and subject to the terms of the governing statute”, there was no breach of parliamentary sovereignty (at para. 123). Here:

In exercising its sovereign legislative powers, Parliament has the authority to confer on a statutory body — in this case, the Council of Ministers — the power to approve or reject proposed subordinate regulations, even if some members of that body are representatives of certain provinces. The delegation of administrative powers in a manner solicitous of (or even dependent upon) provincial input is in no way incompatible with the principle of federalism, provided that the delegating legislature has the constitutional authority to legislate in respect of the applicable subject matter (at para. 126).

All this prompts three thoughts.

First, the Reference is a useful reminder that, even within the constraints of a written constitution, parliamentary sovereignty lives on in Canada. Indeed, the conclusions in the Reference represent a sensible application of the doctrine of parliamentary sovereignty. Provincial ministers regularly meet and, amongst other things, develop common plans of action which may result in cooperative legislative or administrative action. It cannot seriously be said that such bilateral or multilateral engagements represent an abdication of the provinces’ legislative powers, not least because, as the Court’s analysis makes clear, any action on foot of the engagements would have to win the approval of a majority in the legislature.

Second, the systemic consequences of the decision are likely to be salutary. If there was a risk that the development of cooperative schemes of action would run afoul of the doctrine of parliamentary sovereignty, ministers would have an incentive to develop such schemes in private. Here, the System is a commendably public attempt to work out a sustainable scheme of securities regulation. Had this Reference gone the other way, cooperation might have been pushed underground. Inasmuch as the Reference incentivises publication and debate of intergovernmental agreements to pursue common plans of action, its systemic consequences are to be welcomed.

Third, however, I cannot help but note that the view of the scope of parliamentary sovereignty in the Reference is at least in tension with the views taken by some members of the Court of the nature of the legislative process in a case decided just a few weeks ago: Mikisew Cree First Nation v. Canada (Governor General in Council), 2018 SCC 40. For Brown J., for instance, “the entire law-making process — from initial policy development to and including royal assent — is an exercise of legislative power…” (at para. 117. See also the plurality, per Karakatsanis J., at para. 32).

If this is the case, however, does the System not represent an interference in the “exercise of legislative power”? Would it not have the potential to influence or even to sterilize many stages of the legislative process? Quebec’s argument was precisley that some “initial policy development” would be impossible within the confines of the System.

As the ellipsis in the quotation suggests, the issue in Mikisew Cree was different — the concern was with judicial interference, not interference by other provinces — so there is only a tension, not a contradiction between Mikisew Cree and the Reference. Nonetheless, it supports the proposition that the view taken in Mikisew Cree of the nature of the legislative process in was too broad; the Reference represents a more realistic view of the law-making process and the constraints that may lawfully be placed upon it.

This content has been updated on November 13, 2018 at 15:23.