Supreme Court Judgments

Supreme Court of Canada

Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161

Date: 1982-08-09

Multiple Access Limited, by The Ontario Securities Commission Appellant;

and

John O. McCutcheon, David K. Lowry, John Craig, Fred W. Gibbs and Dickson Jarvis Respondents;

and

The Attorney General of Canada, the Attorney General of Quebec, the Attorney General for New Brunswick, the Attorney General for Alberta and the Attorney General for Saskatchewan Interveners.

File No.: 15299.

1981: November 25, 26; 1982: August 9.

Present: Laskin C.J., Martland, Ritchie, Dickson, Beetz, Estey, Mclntyre, Chouinard and Lamer JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Constitutional law—Validity of legislation—Insider trading—Federal and provincial provisions similar—Whether federal and provincial provisions intra vires—Whether doctrine of par amountcy applicable—Canada Corporations Act, R.S.C. 1970, c. C-32 (as amended by R.S.C. 1970 (1st Supp.), c. 10, s. 7), ss. 100.4, 100.5—The Securities Act, R.S.O. 1970, c.426,ss. 113,114.

Shareholders of a federally-incorporated company secured a court order pursuant to s. 114(1) of the Ontario Securities Act requiring the Ontario Securities Commission to commence an action on behalf of the company to enforce liability arising from alleged “insider trading” by the defendants, who were directors or officers of the company. The defendants pleaded that the “insider trading” provisions in the Ontario Act were: (1) ultra vires, and (2) inoperative under the paramountcy doctrine with respect to a federally-incorporated company because they duplicated provisions of the Canada Corporations Act. These points of law were set down for hearing prior to trial. The Weekly Court Judge held that the Ontario provisions were not suspended by federal paramountcy. The Divisional Court reversed. The Ontario Court of Appeal affirmed the judgment of the Divisional Court. This appeal raises three questions:

[Page 162]

(1) whether ss. 100.4  and 100.5  of the Canada Corporations Act are ultra vires Parliament; (2) whether ss. 113 and 114 of The Securities Act are ultra vires the Ontario Legislature, and (3) if both are intra vires, whether ss. 113 and 114 of the Ontario Act are suspended and inoperative by reason of the doctrine of paramountcy.

Held: The appeal should be allowed. The three questions should be answered by the negative. (Beetz, Estey, and Chouinard JJ., concurring in the result but dissenting in part, would have answered question 1 “Yes”, question 2 “No” and would have given no answer to question 3).

Per Laskin C.J. and Martland, Ritchie, Dickson, Mclntyre and Lamer JJ.: (1) Sections 100.4  and 100.5  of the Canada Corporations Act are intra vires. They are directed at protecting companies and shareholders against injurious insider practices. The proper relationship between a company and its insiders is central to company law, and is within Parliament’s Peace, Order and Good Government Power. The imposition of civil liability is s. 100.4(1)  has a rational, functional connection with company law, and does not so invade the provincial domain as to become ultra vires.

Insider trading provisions have both a company law and a securities law aspect. Where, as here, the contrast between the relative importance of the two features is not sharp, the double aspect doctrine is applicable to validate both sets of legislative provisions.

(2) Sections 113 and 114 of the Ontario Securities Act are intra vires. The provinces have the power, as a matter of property and civil rights, to regulate trade in corporate securities. Federally-incorporated companies are subject to provincial securities regulation provided the provincial statute, like this one, neither singles out federal companies for special treatment, not impairs the status or essential powers of such companies.

(3) Sections 113 and 114 of the Ontario Act are not inoperative due to the paramountcy doctrine. Where, as here, otherwise valid provincial legislation merely dupli-

[Page 163]

cates federal law without actual conflict or contradiction, paramountcy will not render the provincial legislation inoperative. Paramountcy applies only where there is actual conflict in operation, as where one enactment says “yes”, the other “no”, or compliance with one is defiance of the other.

Per Beetz, Estey and Chouinard JJ., dissenting in part: Sections 100.4  and 100.5  of the Canada Corporations Act are ultra vires the Parliament. These provisions were not dealing with traditional corporate legislation required to fill out the constitutional and functional aspects of a federal incorporation. Their true purpose was to protect the general public from suffering a loss on their investment and corporate securities due to defined improper conduct by a wide range of persons who might be in a position to affect the value of these securities in the hands of the public. These provisions fell within the scope of legislation dealing with “property and civil rights”, an exclusive provincial power. As to the second question, the provincial provisions were intra vires. These sections did not impair or sterilize a federally incorporated company’s ability to conduct its affairs.

[Percival v. Wright, [1902] 2 Ch. 421; Construction Montcalm Inc. v. Minimum Wage Commission, [1979] 1 S.C.R. 754; Solicitor General of Canada v. Royal Commission of Inquiry (Health Records in Ontario), [1981] 2 S.C.R. 494; Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96; John Deere Plow Co. v. Wharton, [1915] A.C. 330; Rathie v. Montreal Trust Co. (1952), 6 W.W.R. (N.S.) 652; Lukey v. Ruthenian Farmers’ Elevator Co., [1924] S.C.R. 56; Attorney-General for Manitoba v. Attorney-General for Canada, [1929] A.C. 260; Reference re constitutional validity of s. 110 of the Dominion Companies Act, [1934] S.C.R. 653; Esso Standard (Inter-America) Inc. v. J.W. Enterprises Inc., [1963] S.C.R. 144; Smith v. The Queen, [1960] S.C.R. 776; Lymburn v. Mayland, [1932] A.C. 318; Great West Saddlery Co. v. The King, [1921] 2 A.C. 91; Gregory & Company Inc. v. Quebec Securities Commission, [1961] S.C.R. 584; Canadian Indemnity Co. v. Attorney-General of British Columbia, [1977] 2 S.C.R. 504; Robinson v. Countrywide Factors Ltd., [1978] 1 S.C.R. 753, referred to]

APPEAL from a judgment of the Court of Appeal for Ontario (1978), 86 D.L.R. (3d) 160, 19 O.R. (2d) 516, affirming a judgment of the Divisional Court (1977), 78 D.L.R. (3d) 701, 16

[Page 164]

O.R. (2d) 593, which reversed a decision of Henry J. in Weekly Court (1975), 65 D.L.R. (3d) 577, 11 O.R. (2d) 249. Appeal allowed. The three questions should be answered by the negative. Beetz, Estey and Chouinard JJ., concurring in the result, but dissenting in part would have answered question 1 “Yes”, question 2 “No” and would have given no answer to question 3.

John J. Robinette, Q.C., for the appellant and the Attorney General for Ontario.

Bryan Finlay and N.W.C. Ross, for the respondent McCutcheon.

P.S.A. Lamek, Q.C., and M.J. Penman, for the respondents Lowry and Craig.

T.B. Smith, Q.C., and Morris Rosenberg, for the intervener the Attorney General of Canada.

Jean-K. Samson and Jean-François Jobin, for the intervener the Attorney General of Quebec.

Alan D. Reid, for the intervener the Attorney General for New Brunswick.

John D. Whyte and M.C. Crane, for the intervener the Attorney General for Saskatchewan.

William Henkell, Q.C., for the intervener the Attorney General for Alberta.

The judgment of Laskin C.J. and Martland, Ritchie, Dickson, Mclntyre and Lamer JJ. was delivered by

DICKSON J.—This appeal raises the issue of “insider trading” in securities. Insider trading is the purchase or sale of the securities of a company by a person who, by reason of his position in the company, has access to confidential information not known to other shareholders or the general public. He learns, for example, that the company is going to be the object of a take-over bid at a price per share well above the market. He buys shares. Or, to take a more common occurrence of late, he learns that the company is in dire straits. He sells shares. He thus places personal benefit or advantage in conflict with, and superior to, his relationship with, and duty to, other shareholders

[Page 165]

and to the company.

The social and economic evil thus exemplified was controlled in part by common law remedies but it has been recognized, since the Second World War that something more was needed. Under the rules of common law and equity, the outsider was almost totally unprotected, largely as a result of the decision in Percival v. Wright, [1902] 2 Ch. 421, which declared that ordinarily a director is not in a fiduciary relationship with individual shareholders. Parliament responded by enacting “insider trading” legislation. So did a number of the provinces, of which Ontario has been, without doubt, the coryphaeus.

This appeal raises the issue of the constitutionality of provincially, and federally, enacted “insider trading” legislation, and, more specifically, very similar sections in provincial and federal statutes which deal with the use of confidential information by insiders. At trial and on appeal it was common ground that both the federal and provincial statutes were intra vires, the only issue being the application of the doctrine of paramountcy.

Upon appeal to this Court, however, the preliminary and essential question of the validity of each set of statutory provisions was raised. The constitutional questions on appeal were stated by Laskin C.J. to be:

1. Are Sections 100.4 and 100.5 of the Canada Corporations Act,  R.S.C. 1970, c. C-32 , as enacted by R.S.C. 1970, c. 10 (1st Supp.) Section 7, ultra vires the Parliament of Canada in whole or in part?

2. Are Sections 113 and 114 of The Securities Act, R.S.O. 1970, c. 426, ultra vires the Legislature of Ontario in whole or in part?

3. Assuming Sections 100.4 and 100.5 of the Canada Corporations Act,  R.S.C. 1970, c. C-32 , as enacted by R.S.C. 1970, c. 10 (1st Supp.) Section 7, are intra vires the Parliament of Canada and assuming Sections 113 and 114 of The Securities Act, R.S.O. 1970,

[Page 166]

c. 426, are intra vires the Legislature of Ontario, are Sections 113 and 114 of The Securities Act, R.S.O. 1970, c. 426, suspended and rendered inoperative in respect of corporations incorporated under the laws of Canada?

Sections 100.4  and 100.5  of the Canada  Corporations Act , supra, read as follows:

100.4 (1) Every insider of a company, every person employed or retained by the company, the auditor of the company and every associate of the insider and affiliate of the insider within the meaning of subsection 125(3) who, in connection with a transaction relating to the securities of the company, makes use of any specific confidential information for his own benefit or advantage that, if generally known, might reasonably be expected to affect materially the value of the securities of the company, is liable to compensate any person for any direct loss suffered by that person as a result of the transaction, unless the information was known or ought reasonably to have been known to that person at the time of such transaction, and is also accountable to the company for any direct benefit or advantage received or receivable by such insider, employed or retained person, auditor, associate or affiliate, as the case may be, as a result of the transaction.

(2) An action to enforce any right created by subsection (1) may be commenced only within two years after the date of completion of the transaction that gave rise to the cause of action, or if the transaction was required to be reported under section 100.1, then within two years from the time of reporting in compliance with that section.

(3) For the purposes of this section, every director or officer of any other company that becomes an insider of a company shall be deemed to have been an insider of that latter company for the previous six months or for such shorter period as he was a director or officer of that other company.

100.5 (1) Upon application by any person who was at the time of a transaction referred to in subsection 100.4(1) or is at the time of the application an owner of the securities of the company, or on the application of the Minister, the chief justice or acting chief justice of the court of the province in which the head office of the company is situated, or a judge of such court designated by either of them, may, if satisfied that

[Page 167]

(a) such person has reasonable grounds for believing that the company has a cause of action under section 100.4, and

(b) either,

(i) the company has refused or failed to commence an action under section 100.4 within sixty days after receipt of a written request from such person so to do, or

(ii) the company has failed to prosecute deligently an action commenced by it under section 100.4,

make an order, upon such terms as to the judge seem fit, directing that an action be commenced or continued by the Director of the Corporations Branch in the name of and on behalf of the company to enforce the liability created by section 100.4.

(2) The company and the Director of the Corporations Branch shall be given ten days notice of the hearing of any application under subsection (1) and each has a right to appear and be heard thereon.

(3) Every order made under subsection (1) shall provide that the company shall cooperate fully in the institution and prosecution of the action and shall make available to the Director of the Corporations Branch all books, records, documents and other material or information relevant to such action and known to the company or reasonably ascertainable by the company.

(4) An appeal from an order made under subsection (1) lies to the appellate court of the province in which the head office of the company is situated.

Sections 113 and 114 of The Securities Act, supra, of Ontario read as follows:

113.—(1) Every insider of a corporation or associate or affiliate of such insider, who, in connection with a transaction relating to the capital securities of the corporation, makes use of any specific confidential information for his own benefit or advantage that, if generally known, might reasonably be expected to affect materially the value of such securities, is liable to compensate any person or company for any direct loss suffered by such person or company as a result of such transaction, unless such information was known or ought reasonably to have been known to such person or company at the time of such transaction, and is also accountable to the corporation for any direct benefit or advantage received or receivable by such insider, associate or affiliate, as the case may be, as a result of such transaction.

[Page 168]

(2) An action to enforce any right created by subsection 1 may be commenced only within two years after the date of completion of the transaction that gave rise to the cause of action.

114.—(1) Upon application by any person or company that was at the time of a transaction referred to in subsection 1 of section 113 or is at the time of the application an owner of capital securities of the corporation, a judge of the High Court designated by the Chief Justice of the High Court may, if satisfied that,

(a) such person or company has reasonable grounds for believing that the corporation has a cause of action under section 113; and

(b) either,

(i) the corporation has refused or failed to commence an action under section 113 within sixty days after receipt of a written request from such person or company so to do; or

(ii) the corporation has failed to prosecute diligently an action commenced by it under section 113,

make an order, upon such terms as to security for costs and otherwise as to the judge seems fit, requiring the Commission to commence or continue an action in the name of and on behalf of the corporation to enforce the liability created by section 113.

(2) The corporation and the Commission shall be given notice of any application under subsection 1 and has the right to appear and be heard thereon.

(3) Every order made under subsection 1 shall provide that the corporation shall co‑operate fully with the Commission in the institution and prosecution of such action and shall make available to the Commission all books, records, documents and other material or information known to the corporation or reasonably ascertainable by the corporation relevant to such action.

(4) An appeal lies to the Court of Appeal from an order made under subsection 1.

As Professor Hogg has pointed out in his work Constitutional Law of Canada (1977), at p. 102, the doctrine of paramountcy applies where there is a federal law and a provincial law which are (1) each valid and (2) inconsistent, adding that “the issue does not arise unless each law has first been held to be valid as an independent enactment. In determining the validity of each law, the existence

[Page 169]

and terms of the other law are irrelevant”.

I

The facts are of little importance. Multiple Access Limited (the Company) is a public company incorporated under the laws of Canada having its head office in Metropolitan Toronto and capital stock listed for trading by the public on the Toronto Stock Exchange. The defendant McCutcheon was President and Director, Lowrie a director and the other defendants senior managing officers of the Company. By an order of Addy J., on a motion made by two shareholders of the Company pursuant to s. 114(1) of The Securities Act, R.S.O. 1970, c. 426, it was ordered that the Ontario Securities Commission commence action, in the name of and on behalf of the Company, to enforce the liability created by the alleged “insider trading” of the defendants.

It is alleged that (i) it was known to the defendants but not the public that the Company made a formal written offer to purchase certain radio and television assets of Canadian Marconi Limited for a purchase price of $18 million dollars, (ii) the offer was accepted, (iii) the defendants made use of such confidential knowledge to their own advantage by purchasing securities in the capital stock of the Company at $1.76, and the stock rose to $7 and later to $10. The cause of action is based on the allegation that the defendants were ‘insiders’ of the Company as that term is defined in The Securities Act of Ontario, s. 109(1)(c) and, as such, were liable to the Company for losses suffered as a result of the use of confidential information in connection with transactions relating to the capital securities of the Company in accordance with ss. 113 and 114 of The Securities Act.

The defendants, in their statement of defence, maintained that ss. 113 and 114 of The Securities Act of Ontario were duplications of ss. 100.4  and 100.5  of the Canada Corporations Act  and therefore, with respect to the plaintiff, ss. 113 and 114 are suspended and inoperative due to the doctrine

[Page 170]

of paramountcy, and also ultra vires the Legislature of Ontario with respect to the plaintiff, a federally incorporated Company. The defendants moved to set down these points of law for hearing prior to trial. At the commencement of the hearing on the motion counsel for the defendants abandoned the application in respect of the claim that ss. 113 and 114 were ultra vires the Legislature of the Province of Ontario. The Chambers judge ordered that the issue, that of paramountcy, be determined prior to trial. The motion came before Mr. Justice Henry in Weekly Court. Justice Henry held that ss. 113 and 114 of The Securities Act of Ontario were not suspended and inoperative due to the doctrine of paramountcy. Argument proceeded on the basis that the federal legislation was intra vires the Parliament of Canada. The constitutional right of Canada to enact ss. 100.4 and 100.5, in respect of federally incorporated companies, had not been raised in the pleadings and was not advanced during argument before Mr. Justice Henry. He stated that when a provincial and federal statute have both occupied a field the test that gives rise to the doctrine of paramountcy is whether the two statutes can “live together and operate concurrently”. The doctrine of paramountcy does not necessarily arise because an individual is subject to prohibition and penalty under both statutes at the same time. Unless the duplication of statutory schemes in addition gives rise to incompatibility then the federal statute does not suspend the operation of the provincial statute. In the case at bar there was no incompatibility in the statutory schemes. Trading in securities is an essential subject of comprehensive provincial legislation. No doubt there will be instances where the national and provincial schemes overlap. Where this occurs the preservation of the integrity of the provincial scheme should be of prime importance, in the absence of a contrary expression by Parliament, in harmony with the general rule that a law should not be held invalid or inoperative unless that result is unavoidable.

[Page 171]

The Divisional Court reversed. Mr. Justice Morden, speaking for the Court, held that the constitutional doctrine of paramountcy operates so as to invalidate provincial legislation where it duplicates valid federal legislation in such a way that the two provisions cannot live together and operate concurrently. Where the federal and provincial provisions are virtually identical, are directed to achieving the same policy and creating the same rights and obligations, the duplication attracts the doctrine of paramountcy. The insider trading provisions of the federal and provincial legislation are directed to the same direct loss or direct benefit or advantage and create the same correlative rights and liabilities. In those circumstances it is impossible for both enactments to operate concurrently because the loss, benefit or advantage incurred or gained can only be recovered once. The case is thus distinguishable from cases in which the federal legislation leaves scope for provincial legislation to operate so that it forms a supplement to the federal (e.g. the preference provisions of the Bankruptcy Act and provincial fraudulent preference statutes.) Accordingly, the doctrine of paramountcy applies to render the legislation inoperative. Robins J., dissenting, adopted the reasoning of Henry J. in the Supreme Court of Ontario.

The Ontario Court of Appeal in a short oral judgment dismissed a further appeal to that Court, for the reasons given by Morden J. in the Divisional Court.

Leave to intervene in this appeal was granted to the Attorney General of Canada and to the Attorneys General of Ontario, Quebec, New Brunswick, Saskatchewan, and Alberta.

II

I should like to turn now to the first constitutional question namely, are ss. 100.4 and 100.5 of the Canada Corporations Act ultra vires the Parliament of Canada in whole or in part? As I have

[Page 172]

indicated, in the courts below the case was argued on the assumption that the relevant sections of the Canada Corporations Act  are intra vires. The parties at trial did not contest the validity of either enactment. “It is common ground that […] it was competent to Parliament and the Legislature to enact respectively these provisions so that each is intra vires” per Henry J. The question is now raised for the first time. It is to be regretted that we do not have the advantage of judgments on the point from the three courts of Ontario before whom these proceedings have already come. Counsel for Canada urges that, for that reason, the first question be left unanswered (Construction Montcalm Inc. v. Minimum Wage Commission, [1979] 1 S.C.R. 754 and Solicitor General of Canada v. Royal Commission of Inquiry (Health Records in Ontario), [1981] 2 S.C.R. 494, Laskin C.J., at pp. 510-11). I do not incline to this view. I think we must answer, as best we can, the question which has been stated.

Before directly addressing the question posed, two prefatory observations. First, in the legislative scheme of things we find ss. 100.4 and 100.5 in a corporations act dealing with company law matters. Part I of the Act, entitled “Companies with Share Capital”, comprises some 150 sections and 120 pages of text. Part II is entitled “Corporations without Share Capital”, Part III, “Special Act Corporations”, Part IV, “Companies Clauses”, Part V, “Incidental Powers of Corporate Bodies Created otherwise than by Letters Patent”, Part VI, “Provisions of General Application”.

The sections with which we are here concerned, ss. 100.4 and 100.5 are found in Part I of the Act. Among the headings one finds in Part I are “Formation of New Companies”, “General Powers and Duties of Companies”, “Transfer of Shares”, “Calls”, “Liability of Shareholders”, “Prospectuses and Offers to the Public”, “Directors”.

[Page 173]

Under this last heading are detailed provisions respecting the directors of a company, their numbers, qualifications, election, responsibilities, action to be taken where serious impairment of capital is discovered, duty of a director who is in any way interested in a contract or proposed contract with the company. Section 98(5) relieves a director who has made a declaration of his interest in such a contract and has not voted in respect of the contract, from being accountable to the company or any of its shareholders or creditors by reason only of such director holding that office or of the fiduciary relationship thereby established, for any profit realized by such contract. Section 100(1) provides that where a director or officer or controlling shareholder purchases or sells any of the shares of the company, such director, officer or shareholder must furnish to the secretary of the company a statement setting forth the details of such purchase or sale. Such statement is immediately available for inspection by shareholders and is disclosed to the annual meeting following. Then come the impugned ss. 100.4 and 100.5.

Parliament has not yet enacted any comprehensive scheme of securities legislation. To date the Canadian experience has been that the provinces have taken control of the marketing of securities, differing in this respect from the United States where the Securities and Exchange Commission has regulated trading and primary distribution of securities. I should not wish by anything said in this case to affect prejudicially the constitutional right of Parliament to enact a general scheme of securities legislation pursuant to its power to make laws in relation to interprovincial and export trade and commerce. This is of particular significance considering the interprovincial and indeed international character of the securities industry. The federal government, it may be noted, has already produced Proposals for a Securities Market Law for Canada (1979). Professor Anisman, writing in

[Page 174]

1981 in respect of those proposals expressed the view that:

…the factors that indicated a need for federal regulatory involvement in the securities market in 1979 are still present and, if anything, have been reinforced by events during the past two years. The Proposals are premised ultimately on the national and international character of the Canadian securities market and its importance to the economic welfare of the country. The fact that the market is national in scope has long been acknowledged and is demonstrated by the cooperative efforts of the provincial commissions with respect to the adoption of national policies and by the statutory authorization for and increasing frequency of joint hearings held by a number of provincial commissions to decide issues that transcend provincial boundaries.

(“The Proposals for a Securities Market Law for Canada: Purpose and Process”, (1981) 19 Osgoode Hall L.J. 329 at p. 352, footnotes omitted).

Until recent statutory changes, which need not here concern us, insider trading provisions were found in The Business Corporations Act of Ontario, as affecting Ontario companies, and a like set of provisions were found in The Securities Act, as affecting, broadly speaking, non‑Ontario companies, including those incorporated federally, that (i) have issued equity shares that are distributed in the course of a primary distribution to the public, in respect of which a prospectus is filed with the Ontario Securities Commission or (ii) any of whose shares are listed and posted for trading on any stock exchange in Ontario recognized by the Commission.

It is not without significance that Ontario thought it appropriate to place insider trading provisions, affecting Ontario companies, in The Business Corporations Act of that Province. It would seem axiomatic that if the province can validly enact insider trading legislation under s. 92(11) (the incorporation of companies with provincial objects) then the federal Parliament can validly enact insider trading legislation under the residual clause authorizing the incorporation of

[Page 175]

companies with other than provincial objects (Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96, at p. 117: “it follows that the incorporation of companies for objects other than provincial falls within the general powers of the parliament of Canada” per Montague Smith L.J.). In one of its aspects, insider trading legislation, dealing as it does with fundamental corporate relationships, may certainly be characterized as company law. Some commentators such as Williamson go so far as to say that:

The insider reporting requirements seem, in the light of the history of Canadian corporation and securities law, more properly part of a companies act than of a securities act.

(Supplement to Securities Regulation in Canada, at p. 358).

And Professor Ziegel has written (Studies in Canadian Company Law (1967), vol. 1, at p. 170):

Prima facie the regulation of proxies and insider trading belong exclusively to the domain of company law because they affect the relationship between the directors of a company and its shareholders and the solicitation of voting powers at meetings of the company.

The second introductory observation: there may be a temptation to regard the insider trading provisions of the Canada Corporations Act  as redundant having regard to the almost identical provisions found in the Ontario legislation applicable to federal companies as well as Ontario companies. Any such temptation should be resisted. The validity of the federal legislation must be determined without heed to the Ontario legislation. Further, a number of the provinces have not yet enacted insider trading legislation. Striking down the federal legislation would leave federal companies, having head offices in those provinces, and their shareholders, without the double protection, which Ontario shareholders now enjoy. A declaration of invalidity of the federal act would create a poten-

[Page 176]

tial gap in the present regulatory schemes that might be exploited by the unprincipled.

I turn now to the main question. Does the ‘matter’ (or pith and substance) of the insider trading provisions of the federal act fall within a “class of subject” (or head of power) allocated to Parliament? Counsel for the Company and for the Attorney General of Ontario contends that s. 100.4 applies to a very large class of individuals or companies and the apparent purpose of the section is to impose possible civil liability on members of a large class of persons who are involved in transactions relating to the securities of the company. These provisions, it is said, do not relate to the status of a federal company or to domestic or internal constitution of the company but rather create civil rights or obligations which can only be the subject matter of provincial legislation in relation to property and civil rights in a province.

With respect, I do not agree. Sections 100.4 and 100.5 put teeth into s. 100 of the Act. Viewed in isolation it can no doubt be argued that their matter is the trading in securities. Viewed in context, however, they are, in my opinion, company law. They fit properly and comfortably into Part I of the Canada  Corporations Act . The provisions deal with obligations attached to the ownership of shares in a federal company, which extend to shareholders, officers and employees of such companies, a subject matter that is not within the exclusive jurisdiction of provincial legislatures. The provisions are also directed to the relationship between management and shareholders of federal companies. Their enactment by Parliament is in the discharge of its company law power.

It has been well established ever since John Deere Plow Co. v. Wharton, [1915] A.C. 330 (P.C.) that the power of legislating with reference to the incorporation of companies with other than

[Page 177]

provincial objects belonged exclusively to the Dominion Parliament as a matter covered by the expression “the peace, order and good government of Canada”. Additionally, the power to regulate trade and commerce, at all events, enabled the Parliament of Canada to prescribe to what extent the powers of companies the objects of which extend to the entire Dominion should be exercisable and what limitations should be placed on such powers. Viscount Haldane L.C. delivering the judgment of their Lordships stated further that “…if it be established that the Dominion Parliament can create such companies, then it becomes a question of general interest throughout the Dominion in what fashion they should be permitted to trade” (at p. 340). The power of Parliament in relation to the incorporation of companies with other than provincial objects has not been narrowly defined. The authorities are clear that it goes well beyond mere incorporation. It extends to such matters as the maintenance of the company, the protection of creditors of the company and the safeguarding of the interests of the shareholders. It is all part of the internal ordering as distinguished from the commercial activities. Section 124 of The Companies Act, 1934, 1934 (Can.), c. 33 providing for the acquisition of shares of dissenting shareholders, against their will, was held to be properly part of company legislation: Rathie v. Montreal Trust Co. (1952), 6 W.W.R. (N.S.) 652. As Professor Hogg has said in his book at p. 351: “The federal power to incorporate companies […] is simply the residue of the entire possible power to incorporate companies after subtracting the provincial power” and “[…] it also authorizes all laws of a company law character, for example, the laws pertaining to corporate powers, organization, internal management and financing” (at p. 353). Insider malfeasance affects, directly and adversely, corporate powers, organization, internal management. It affects also financing because shareholders and potential shareholders must be assured the company’s affairs will be scrupulously and fairly conducted; otherwise the raising of capital, clearly an element of company law, will be inhibited (Lukey v. Ruthenian Farmers’ Elevator Co., [1924] S.C.R. 56, at p. 72; Attorney-General for Manitoba v. Attorney-General for Canada,

[Page 178]

[1929] A.C. 260, at pp. 266-67).

Duff C.J. in the Reference re constitutional validity of s. 110 of the Dominion Companies Act, [1934] S.C.R. 653, at p. 658, recognized the right of the federal Parliament to provide for the constitution of the companies it created and for the conditions under which membership could be acquired; for the management by directors or other managers; the terms and conditions upon which profits should be divided or dividends declared; the conditions under which the capital of the company could be increased or diminished; the responsibility of the members of the company in respect to the debts of the corporation; the responsibility of the directors in respect to such debts. The Reference was concerned with the constitutional competence of Parliament to enact legislation making the directors of the company liable for the payment of any dividend when the company was insolvent or which impaired the capital of the company. The liability imposed was joint and several, to the company and to the individual shareholders and creditors, for all the debts of the company then existing and for all debts thereafter contracted during their continuance in office. The Court held the enactment to be of a character that brought it within the class of topics that the legislature must be supposed to have contemplated as falling within the subject of “Incorporation of Companies” as used in the Constitution Act, 1867  (formerly the British North America Act, 1867 ).

Duff C.J., speaking for the Court, made it abundantly clear that any definition of the constitution of the company would call for answers to such questions as: what provision is being made for the protection of the assets of the company?; what safeguards are provided against the malfeasance of the managers?; what are the safeguards against the improper or colourable employment by the managers of their powers, in wasting the assets of the company?

[Page 179]

In Esso Standard (Inter-America) Inc. v. J.W. Enterprises Inc., [1963] S.C.R. 144, this Court considered the provisions of the Companies Act, R.S.C. 1952, c. 53, respecting the compulsory acquisition of minority shares in takeover bids. Judson J., speaking for the Court, said (at p. 153):

It is truly legislation in relation to the incorporation of companies with other than provincial objects and it is not legislation in relation to property and civil rights in the province or in relation to any matter coming within the classes of subject assigned exclusively to the legislature of the province. It deals with certain conditions under which a person may become a shareholder or lose his position as a shareholder in such a company and, in my opinion, this case is completely covered by the reasons of this Court in Reference re constitutional validity of s. HO of the Dominion Companies Act.

Earlier in his judgment Judson J. said (at p. 152):

There has been complete unanimity throughout that Parliament has the power to enact s. 128. The matter was summarized by Laidlaw J.A. as follows:

It is my opinion that the Parliament of Canada having legislative power to create companies whose objects extend to more than one Province possesses also the legislative power to prescribe the manner in which shares of the capital of such companies can be transferred and acquired. That matter is one of general interest throughout the Dominion.

Providing safeguards against the malfeasance of the managers is strictly within what might properly be called the constitution of the company. The proper relationship between a company and its insiders is central to the law of companies and, from the inception of companies, that relationship has been regulated by the legislation sanctioning the company’s incorporation. I agree with the submission of counsel for the Attorney General of Canada that the impugned provisions of the Canada Corporations Act  are directed at preserving the integrity of federal companies and protecting the shareholders of such companies; they aim at practices, injurious to a company or to shareholders at large of a company, by persons who because they hold positions of trust or otherwise

[Page 180]

are privy to information not available to all shareholders.

Insiders should not benefit, either at the expense of the company or at the expense of other shareholders, from their access to confidential information intended to be available only for a corporate purpose and not for the personal benefit of anyone. Information so acquired is at the expense of the enterprise. Confidential company information is a corporate asset the benefit of which is intended to benefit the company, its shareholders and creditors. See Brudney “Insiders, Outsiders and Informational Advantages under the Federal Securities Laws”, (1979) 93 Harv. L. Rev. 322, at p. 344.

It is true that the net cast by s. 100.4  of the Canada Corporations Act  is a broad one but it must be broad if it is to be effective. Section 100.4  speaks of insiders, employees, associates, and affiliates. It may catch more than just directors or managers. There is no reason in principle why this should be fatal to constitutional integrity. Practical considerations no doubt dictated that the net be broad if confidential information, vital to the financial integrity of the company, were to be adequately protected from those unprincipled insiders who were in a position to be privy to such information.

Because “[t]he language of [ss. 91 and 92] and of the various heads which they contain obviously cannot be construed as having been intended to embody the exact disjunctions of a perfect logical scheme” (John Deere Plow Co. v. Wharton, supra, at p. 338 per Viscount Haldane), a statute may fall under several heads of either s. 91 or s. 92. For example, a provincial statute will often fall under both s. 92(13), property and civil rights and s. 92(16), a purely local matter, given the broad generality of the language. There is, of course, no constitutional difficulty in this. The constitutional difficulty arises, however, when a statute may be characterized, as often happens, as coming within a federal as well as a provincial head of power. “To put the same point in another way, our com-

[Page 181]

munity life—social, economic, political, and cultural—is very complex and will not fit neatly into any scheme of categories or classes without considerable overlap and ambiguity occurring. There are inevitable difficulties arising from this that we must live with so long as we have a federal constitution” (Lederman, “The Concurrent Operation of Federal and Provincial Laws in Canada” (1963), 9 McGill L.J. 185). As Professor Ziegel has stated “[s]ecurities legislation clearly has a double character (“Constitutional Aspects of Canadian Companies” in Canadian Company Law (1967), chapter 5, at p. 167) and, “there is no simple dichotomy between legislation of a company law character and legislation affecting property and civil rights in the province. Viewed in its proper social and economic context the legislation may well have a double character” (at pp. 192-93).

I incline to the view that the impugned insider trading provisions have both a securities law and a companies law aspect and would adopt as the test for applying the double aspect doctrine to validate both sets of legislative provisions, that formulated by Professor Lederman:

But if the contrast between the relative importance of the two features is not so sharp, what then? Here we come upon the double-aspect theory of interpretation, which constitutes the second way in which the courts have dealt with inevitably overlapping categories. When the court considers that the federal and provincial features of the challenged rule are of roughly equivalent importance so that neither should be ignored respecting the division of legislative powers, the decision is made that the challenged rule could be enacted by either the federal Parliament or provincial legislature. In the language of the Privy Council, “subjects which in one aspect and for one purpose fall within sect. 92, may in another aspect and for another purpose fall within sect. 91”.

[Page 182]

(“Classification of Laws and the British North America Act” in The Courts and the Canadian Constitution (1964), 177, at p. 193).

The double aspect doctrine is applicable, as Professor Lederman says, when the contrast between the relative importance of the two features is not so sharp. When, as here, the corporate-security federal and provincial characteristics of the insider trading legislation are roughly equal in importance there would seem little reason, when considering validity, to kill one and let the other live.

Although the application of the double aspect doctrine has been most prevalent in the highway traffic field there is ample precedent for its use in the field of provincial securities regulations. Kerwin C.J. in Smith v. The Queen, [1960] S.C.R. 776 applied the doctrine to prospectuses (at p. 781):

Parliament undoubtedly had power to enact s. 343 of the Criminal Code, but a prospectus may in one aspect and for one purpose be the subject of valid provincial legislation, while, in another aspect and for another purpose, it may be the subject of valid federal legislation: Provincial Secretary of Prince Edward Island v. Egan. Since the Provincial Legislature has power to prescribe certain information to be supplied to the Commission and since the Legislature has power to provide for punishment of infractions, the enactments of the Legislature and of Parliament may co-exist.

Concurrent matters or fields have been recognized, among others, in the realms of temperance, insolvency, highways, trading stamps and aspects of Sunday observance. Concurrency in the sale of securities was recognized in Smith v. The Queen, supra.

One reservation with respect to the impugned sections of the federal act may be in the imposition of civil liability in s. 100.4(1). Does this imposition of civil liability in a federal statute so invade the provincial domain as to render the sections imposing liability ultra vires? This, in essence, was the

[Page 183]

argument of the appellants. But as Professors Anisman and Hogg point out: “Judicial decisions concerning a number of disparate matters such as federal elections, railways, federal corporations and even divorce have upheld Parliament’s jurisdiction to provide civil relief in order to effectuate its legislative policies” (“Constitutional Aspects of Federal Securities Legislation” in Proposals for a Securities Market Law for Canada (1979), vol. 3, chap. III, at p. 192). In my opinion, ss. 100.4 and 100.5 have a general corporate purpose and a “rational, functional connection” with company law. The sections in my view are intra vires the Parliament of Canada.

III

The argument against the validity of ss. 113 and 114 of the Ontario Securities Act is that they are beyond the legislative power of the Province in that they purport to apply to companies incorporated under the laws of Canada; these sections are not in pith and substance enactments regulating the securities business; in actuality they define critical corporate relationships; it is beyond the power of a province to enact laws that regulate the corporate relationships of a federally-incorporated company.

I do not think this argument is tenable. It is well established that the provinces have the power, as a matter of property and civil rights, to regulate the trade in corporate securities in the province, provided the statute does not single out federal companies for special treatment or discriminate against them in any way. There must be no impairment of status or of the essential power to raise capital for corporate purpose. But federal incorporation does not render a company immune from securities regulation of general application in a province. Since the decision of the Privy Council in Lymburn v. Mayland, [1932] A.C. 318 the provisions of provincial securities acts have been given a wide constitutional recognition. Anisman

[Page 184]

and Hogg in Proposals for a Securities Market Law of Canada, at p. 144 speak of “[j]udicial sympathy for provincial securities legislation” adding, at p. 145:

The reluctance of the courts to strike down provincial securities legislation likely stems in part from the fact that there is no federal securities law so that a declaration of the invalidity of a provincial act or any of its provisions would create a potential gap in the existing regulatory scheme that might be exploited by the unscrupulous.

Federally-incorporated companies are subject, with one important exception, to provincial regulations with respect to trading in securities. The legislative powers of the Province are restricted so that ‘the status and powers of a Dominion Company as such cannot be destroyed’ (John Deere Plow Co. v. Wharton, supra) and legislation will be invalid if a Dominion Company is ‘sterilized in all its functions and activities’ or ‘its status and essential capacities are impaired in a substantial degree, (Great West Saddlery Co. v. The King, [1921] 2 A.C. 91). Subject to that exception, a federal company empowered to carry on a particular business in a province is subject to the competent legislation of the province as to that business. If it wishes to raise capital through the sale of securities there is no reason why it should not be subject to the laws of the province applicable to all those in the province who wish to raise capital through security sales, and subject thereafter to rules requiring honest dealings in securities, so that the public be not defrauded. Sections 113 and 114 further the provincial object of assuring that persons who carry on the business of dealing in securities shall be honest and of good repute. As Mr. Justice Fauteux, as he then was, stated in Gregory & Company Inc. v. Quebec Securities Commission, [1961] S.C.R. 584 (at p. 588):

[Page 185]

The paramount object of the Act is to ensure that persons who, in the province, carry on the business of trading in securities or acting as investment counsel, shall be honest and of good repute and, in this way, to protect the public, in the province or elsewhere, from being defrauded as a result of certain activities initiated in the province by persons therein carrying on such a business.

In Smith v. The Queen Mr. Justice Martland stated (at p. 797):

The Securities Act exists to regulate the securities business. This is achieved through two main forms of control, the first of which is directed towards the persons or companies selling the securities and the second of which is directed to the securities being sold.

And later (at p. 798):

Thus control is exercised through the registration of persons and companies before they are permitted to trade in securities coupled with what is essentially the registration of the securities themselves before the securities may be traded in the course of a primary distribution to the public.

In my opinion ss. 113 and 114 of The Securities Act of Ontario constitute valid legislative provisions in relation to the subject matter of property and civil rights in the province, with respect to trading of the capital securities of a company. These sections do not sterilize the functions and activities of a federal company nor do they impair its status or essential powers (see Canadian Indemnity Co. v. Attorney-General of British Columbia, [1977] 2 S.C.R. 504).

IV

Having found ss. 100.4  and 100.5  of the Canada Corporations Act  to be intra vires the Parliament of Canada and ss. 113 and 114 of the Ontario Securities Act to be intra vires the Legislature of Ontario there remains but to respond to the third and final question. Are sections 113 and 114 of the Ontario Act suspended and rendered inoperative in respect of corporations incorporated under the

[Page 186]

laws of Canada. This is the issue Mr. Justice Henry faced at trial:

The next issue that arises before me is whether the insider trading provisions in Sections 113 and 114 of The Securities Act are suspended by the operation of the insider trading provisions in Sections 100.4  and 100.5  of the Canada Corporations Act,  R.S.C. 1970, c. C-32 .

He said:

It is common ground that the corporate Plaintiff is a federally incorporated company, that it was competent to Parliament and the Legislature to enact respectively these provisions so that each is intra vires.

There was no dispute between Counsel that the two sets of provisions are for all material purposes identical, with the exception that if proceedings are taken under the federal provisions, the agency that will have carriage of the proceedings is the director of the Corporations Branch of the federal Department of Consumer and Corporate Affairs, whereas if proceedings are undertaken under the provincial Securities Act, the Ontario Securities Commission has carriage of the proceedings. It was also not a matter of dispute that if both sets of provisions are in operation together, both would apply to the circumstances of this case.

Although the appellant argues, weakly, that there are minor differences in the legislation, Henry J. found an identity of purpose, conduct and remedy. Does mere duplication constitute “the conflict” required by the paramountcy doctrine in order to render a provincial statutory provision inoperative? This is the issue upon which Mr. Justice Henry at trial and Mr. Justice Morden in the Divisional Court parted ways. The same difference of opinion is reflected by the commentators.

Mr. Justice Henry chose a more narrow and if I may say so, more modern, test of conflict with the concomitant result of leaving to the provinces ample legislative room. He adopted the test propounded by Mr. Justice Martland in Smith v. The Queen, supra, at p. 800:

It may happen that some acts might be punishable under both provisions and in this sense that these provi-

[Page 187]

sions overlap. However, even in such cases, there is no conflict in the sense that compliance with one law involves breach of the other. It would appear, therefore that they can operate concurrently.

Parenthetically, and interestingly, the test adopted by Martland J. in Smith v. The Queen was the very test propounded by the Attorney General of Canada in Smith. If one refers to the factum of the federal Attorney General in Smith, prepared by W.R. Jackett and S. Samuels, one will find the following passage (at p. 8):

It might happen that the same facts might be punishable under both provisions. In this sense they overlap. However there is no conflict in the sense that compliance with one law involves breach of the other. That being so, it is submitted that they can live together and are not only both valid but are operative concurrently.

The express contradiction test was reaffirmed in Construction Montcalm Inc. v. Minimum Wage Commission, supra, by Mr. Justice Beetz (at p. 780):

Montcalm’s third submission cannot succeed unless the impugned provisions are in conflict with the Fair Wages and Hours of Labour Act: Ross v. Registrar of Motor Vehicles, [1975] 1 S.C.R. 5. Here again, it was incumbent upon Montcalm to establish that it could not comply with provincial law without committing a breach of the federal Act. Montcalm did not even attempt any such demonstration. It argues in its factum that the federal Act provides not only for wages but also for overtime, unfair labour practices, etc., and that, in several instances, such provisions ‘may’ differ from those of provincial law. This is not good enough. Montcalm had to prove that federal and provincial law were in actual conflict for the purposes of this case. It did not so prove.

See also Robinson v. Countrywide Factors Ltd., [1978] 1 S.C.R. 753.

On the basis of the “overwhelming weight of recent authority” Mr. Justice Henry found that the two sets of statutory provisions could “live together and operate concurrently”. Any “diseconomies” resulting from the proliferation of laws and administration were inherent in the federal system. Double liability would be avoided by

[Page 188]

“cooperation between administrators and the ordinary supervision of the courts over duplication of proceedings before them”.

Mr. Justice Henry and Professor Hogg are of one mind. Professor Hogg writes:

There is no reason why duplication should be a case of inconsistency once the negative implication or covering the field test is rejected. On the contrary, duplication is “the ultimate in harmony”. The argument that it is untidy, wasteful and confusing to have two laws when only one is needed reflects a value which in a federal system often has to be subordinated to that of provincial autonomy. Nor does the latter value disappear when provincial law merely duplicates federal law, because the suspension of a provincial law may create a gap in a provincial scheme of regulation which would have to be filled by federal law—a situation as productive of untidiness, waste and confusion as duplication.

(Hogg, Constitutional Law of Canada, supra, at p. 110)

He continued (at p. 111):

In any event, arguments against duplication of federal and provincial laws can have little weight once overlapping is admitted. After all, overlapping legislation is duplicative to the extent of the overlap; and yet it is clear that provincial law is not inoperative to the extent of its overlap with federal law. It must be remembered too that the differences between the federal and provincial laws in O’Grady and Stephens were small, and in Smith and Mann they were virtually non-existent. If paramountcy does not apply when 999 cases out of 1,000 are covered by both laws, why should paramountcy apply when all 1,000 are covered by both laws? It is submitted that duplication is not a test of inconsistency. The one case which decides that it is should be treated as overruled by the recent decisions, especially Smith and Mann.

Morden J. adopts the older and more prevalent view of the commentators that “The authorities establish one of the implications of Dominion paramountcy to be that provincial duplicative legislation is suspended and inoperative. Simple duplication by a province is not permitted” (Led-

[Page 189]

erman, “The Concurrent Operation of Federal and Provincial Laws in Canada, supra, at p. 195; see also Abel, Laskiris Canadian Constitutional Law (1975), at p. 117: “If member and federal measures are substantial duplicates, every situation covered by the one is likewise covered by the other and there is no provincial room left, given full operation of the federal law”). Morden J. finds that “Resort to one statute, from a practical point of view, precludes the other from having any application.”

The conflict between the reasons of Mr. Justice Henry and the reasons of Mr. Justice Morden lies in large measures upon the opinion of the latter that the paramountcy doctrine became applicable because a plaintiff could resort to one set of provisions only and, having done so, there would be no scope for the other to have operational effect. That is unquestionably an important consideration but it is not, in my view, conclusive. The provincial legislation merely duplicates the federal; it does not contradict it. The fact that a plaintiff may have a choice of remedies does not mean that the provisions of both levels of government cannot “live together” and operate concurrently. In the Smith case the provincial and federal provisions were virtually identical in substance, and the law authorities could prosecute the proscribed conduct as a provincial offence or as a federal offence under the Criminal Code.

I agree with the submissions of counsel for Saskatchewan that it would be ironic if a province, by adding elements of differentiation in its legislation (which do not conflict with federal provisions governing the same conduct but which, in effect, go further than the federal) could create valid operative provisions whereas in regard to the same legislative field, it could not merely duplicate the federal provisions; the cases where overlapping provincial legislation has not been rendered inoperative cannot be validly distinguished on the basis that in each of them there were elements of differ-

[Page 190]

ence between the provincial and the federal legislation; there is no true repugnancy in the case of merely duplicative provisions since it does not matter which statute is applied; the legislative purpose of Parliament will be fulfilled regardless of which statute is invoked by a remedy-seeker; application of the provincial law does not displace the legislative purpose of Parliament.

The respondents strenuously support Mr. Justice Morden’s reasons in this Court. Counsel for the respondent McCutcheon argues “Where two actions are brought under the federal and provincial legislation against the insider, either concurrently or seriatim, the Court will not permit both to proceed to judgment […] Both pieces of legislation cannot operate concurrently in that resort to one precludes resort to the other. The legislation under which one action is commenced operates to prevent the application of the other. In such case, the two statutes meet and are in conflict”. I am not of that opinion.

With Mr. Justice Henry I would say that duplication is, to borrow Professor Lederman’s phrase, “the ultimate in harmony”. The resulting “untidiness” or “diseconomy” of duplication is the price we pay for a federal system in which economy “often has to be subordinated to […] provincial autonomy” (Hogg, at p. 110). Mere duplication without actual conflict or contradiction is not sufficient to invoke the doctrine of paramountcy and render otherwise valid provincial legislation inoperative.

The following passage from Professor Lederman’s article “The Concurrent Operation of Federal and Provincial Laws in Canada”, supra, at p. 199 (fn. 39) is apposite:

As Dr. J.A. Corry has pointed out, our country is increasingly moving away from the older classical federalism of ‘water-tight compartments’ with provincial legislatures and federal parliament carefully keeping clear of one another. We seem to be moving towards a co-operative federalism. “The co-ordinate governments no longer work in splendid isolation from one another but are increasingly engaged in cooperative ventures in which each relies heavily on the other.” See J.A. Corry, “Constitutional Trends and Federalism”, in the volume

[Page 191]

of essays Evolving Canadian Federalism (Durham, N.C., U.S.A., 1958), p. 96. The multiplication of concurrent fields is one of the facets of this trend.

In principle, there would seem to be no good reasons to speak of paramountcy and preclusion except where there is actual conflict in operation as where one enactment says “yes” and the other says “no”; “the same citizens are being told to do inconsistent things”; compliance with one is defiance of the other. The courts are well able to prevent double recovery in the theoretical and unlikely event of plaintiffs trying to obtain relief under both sets of provisions. The fact that a court must authorize proceedings under the Ontario Act provides a safeguard against double recovery if the company has already proceeded under the federal Act. In addition the Court at the final stage of finding and quantifying liability could prevent double revovery if in fact compensation and an accounting had already been made by a defendant. No court would permit double recovery.

I find that ss. 113 and 114 of The Securities Act of Ontario are not suspended or rendered inoperative in respect of corporations incorporated under the laws of Canada by ss. 100.4  and 100.5  of the Canada  Corporations Act .

V

For the reasons stated above, I would answer the questions in this manner:

Question 1:               No.

Question 2:               No.

Question 3:               No.

The appeal should be allowed. The judgments of the Divisional Court and of the Ontario Court of Appeal should be set aside. The declaration made by the Honourable Mr. Justice Henry that the Honourable Mr. Justice Addy had jurisdiction to commence the action herein should be re-instated.

[Page 192]

The reasons of Beetz, Estey and Chouinard JJ. were delivered by

ESTEY J. (dissenting in part)—This appeal raises an issue as to the constitutionality of like provisions relating to insider trading of corporate securities found in the Canada Corporations Act,  R.S.C. 1970, c. C-32 , as amended, and The Securities Act, R.S.O. 1970, c. 426 as well as The Business Corporations Act, R.S.O. 1970, c. 53 and in the event of dual constitutionality the effect, if any, of the doctrine of paramountcy as between the federal and provincial legislation. The issue arises by reason of a statement of claim issued by the Ontario Securities Commission in the name of Multiple Access Limited by authority granted by the Supreme Court of Ontario under The Securities Act, supra, in which a claim is made against the respondents for an accounting and for damages arising out of an alleged breach by the respondents of the insider trading provisions of s. 113 of The Securities Act, supra. After the filing of a statement of defence, the matter was brought before Weekly Court on a motion for the determination of a point of law on the authority of an order issued by Callon J. in the Supreme Court of Ontario. The question of law is whether ss. 113 and 114 of The Securities Act of Ontario, supra, are suspended or rendered inoperative by reason of ss. 100.4  and 100.5  of the Canada Corporations Act , supra; and whether ss. 113 and 114 of The Securities Act of Ontario, supra, are ultra vires the legislature of that province with respect to a federally incorporated company such as the appellant herein; all of which matters have been raised by para. 2 of the statement of defence of the respondents.

The matter came on before Henry J. in Weekly Court who, on delivering lengthy reasons in September 1975, concluded that ss. 113 and 114 of the Ontario statute are valid Ontario legislation and are not suspended or rendered inoperative by reason of the doctrine of paramountcy by the

[Page 193]

provisions of ss. 100.4  and 100.5  of the Canada  Corporations Act , supra. In reaching this conclusion the learned judge of first instance:

a) assumed the validity of the aforementioned provisions of The Securities Act, supra, as neither party challenged those provisions; and,

b) found that the aforementioned provisions of the Canada Corporations Act , supra, were valid corporate legislation within the peace, order and good government authority of the Parliament of Canada under s. 91  of the British North America Act,  1867 (U.K.), 30 & 31 Vict., c. 3 .

Before leaving the initial disposition of this motion for the moment, it should be noted that Henry J. observed that it was “common ground […] that it was competent to Parliament and the Legislature to enact respectively these provisions so that each is intra vires”. This no doubt explained the absence of the Attorney General for Canada from these proceedings at that stage even though constitutional issues were raised. This Court was advised that the Attorney General for Canada elected not to appear until the matter had reached this Court.

The issue takes on added significance as between the parties because it is said that it is now too late to commence proceedings under the federal Act similar to those launched under the provincial statute (should the provincial provision be found ultra vires) by reason of the expiry of the federal limitation period. Henry J. disposed of the argument of repugnancy or conflict by rejecting the “duplicative” concept, and quoted with favour a comment in the writing on this subject that “duplication is the ultimate in harmony”. He then went on to determine that operational conflict alone would bring the two statutes into collision but that “if two actions are commenced, one under each statute, the court is capable of “harmonising the proceedings”. In the result the order of the

[Page 194]

Supreme Court authorizing the commencement of this action by the Securities Commission of Ontario was found to be valid.

From this decision appeal was taken to the Divisional Court of the High Court of Ontario where a majority of the court speaking through Morden J. came to the opposite conclusion by finding that the doctrine of paramountcy applied so as to suspend and render inoperative the provisions of the Ontario statute. Accordingly, the majority invoked Rule 125 of the Rules of Practice in the Supreme Court of Ontario and pronounced judgment dismissing the action. Again the arguments and the judgment proceeded on the basis that both statutes were intra vires so that the only issue between the parties was whether the Ontario statute became inoperative in the case of a federally incorporated company such as the applicant. Morden J. declined to apply ‘operational conflict’ as the test of repugnancy and specifically did not apply to these circumstances the test in Smith v. The Queen, [1960] S.C.R. 776, at p. 800 that: “…there is no conflict in the sense that compliance with one law involves breach of the other”. (per Martland J.) The Divisional Court preferred to approach the question from “a practical point of view…” which limits the recovery in the civil action here to one “loss” and thereby found inappropriate the test of paramountcy arising from the penal cases such as Smith v. The Queen, supra, involving as they do the doctrine of douple jeopardy. From this position Robins J. dissented for the reasons given by Henry J. sitting in first instance. The Court of Appeal adopted the result reached in the Divisional Court for the reasons given by Morden J.

In this Court the Attorney General for Canada intervened in support of the respondents. The Attorneys General of four provinces intervened in support of the appellant.

[Page 195]

The three questions propounded by the Chief Justice are:

1. Are Sections 100.4 and 100.5 of the Canada Corporations Act,  R.S.C. 1970, c. C-32 , as enacted by R.S.C. 1970, c. 10 (1st Supp.) Section 7, ultra vires the Parliament of Canada in whole or in part?

2. Are Sections 113 and 114 of The Securities Act, R.S.O. 1970, c. 426, ultra vires the Legislature of Ontario in whole or in part?

3. Assuming Sections 100.4 and 100.5 of the Canada Corporations Act,  R.S.C. 1970, c. C-32 , as enacted by R.S.C. 1970, c. 10 (1st Supp.) Section 7, are intra vires the Parliament of Canada and assuming Sections 113 and 114 of The Securities Act, R.S.O. 1970, c. 426, are intra vires the Legislature of Ontario, are Sections 113 and 114 of The Securities Act, R.S.O. 1970, c. 426 suspended and rendered inoperative in respect of corporations incorporated under the laws of Canada?

In this Court all counsel assumed the validity of the Ontario legislation but counsel for the respondents and the Attorney General for Canada took the position that these provisions find their constitutional root in s. 92(11) being the authority to incorporate companies (with provincial objects) and are inoperative as regards federally incorporated companies. The appellants and the other interveners, on the other hand, attack the constitutionality of ss. 100.4  and 100.5  of the Canada  Corporations Act , supra, on the ground that these provisions are not to be properly classified in law as corporate regulation but rather are a usurpation of provincial power with reference to property and civil rights.

Three issues arise for disposition on this appeal:

1. Is the federal statute valid corporate legislation or, alternatively, is it valid legislation relating to security trading under 91(2), “Trade and Commerce”; or is it legislation in relation to contracts concerning corporate securities and thereby an invasion of the provincial legislative field under some part of s. 92 other than subs. (11);

[Page 196]

2. Is the provincial legislation valid legislation only as regards provincially incorporated companies with provincial objects and extra-provincial corporations incorporated by provinces other than Ontario;

3. If both statutes are valid legislation and in the case of the provincial law its validity is not limited to other than federally incorporated companies, is the provincial legislation overriden as regards federally incorporated companies and perhaps as regards extra-provincial corporations incorporated provincially by reason of the doctrine of paramountcy?

If the federal legislation is ultra vires the Parliament of Canada of course we need go no further and hence it is convenient to commence with a consideration of the legislative base for ss. 100.4  and 100.5  of the Canada  Corporations Act , supra.

Validity of Federal Statutory Provisions

The provisions of the Canada  Corporations Act , supra, (later added in amended form to the Canada Business Corporations Act, 1974-75-76 (Can.), c. 33, as s. 125) as they appeared initially in R.S.C. 1970 (1st Supp.), c. 10, s. 7 are as follows:

100.4 (1) Every insider of a company, every person employed or retained by the company, the auditor of the company and every associate of the insider and affiliate of the insider within the meaning of subsection 125(3) who, in connection with a transaction relating to the securities of the company, makes use of any specific confidential information for his own benefit or advantage that, if generally known, might reasonably be expected to affect materially the value of the securities of the company, is liable to compensate any person for any direct loss suffered by that person as a result of the transaction, unless the information was known or sought reasonably to have been known to that person at the time of such transaction, and is also accountable to the company for any direct benefit or advantage received or receivable by such insider, employed or retained person, auditor, associate or affiliate, as the case may be, as a result of the transaction.

(2) An action to enforce any right created by subsection (1) may be commenced only within two years after the date of completion of the transaction that gave rise to the cause of action, or if the transaction was required

[Page 197]

to be reported under section 100.1, then within two years from the time of reporting in compliance with that section.

(3) For the purposes of this section, every director or officer of any other company that becomes an insider of a company shall be deemed to have been an insider of that latter company for the previous six months or for such period as he was a director or officer of that other company.

100.5 (1) Upon application by any person who was at the time of a transaction referred to in subsection 100.4(1) or is at the time of the application an owner of the securities of the company, or on the application of the Minister, the chief justice or acting chief justice of the court of the province in which the head office of the company is situated, or a judge of such court designated by either of them, may, if satisfied that

(a) such person has reasonable grounds for believing that the company has a cause of action under section 100.4, and

(b) either,

(i) the company has refused or failed to commence an action under section 100.4 within sixty days after receipt of a written request from such person so to do, or

(ii) the company has failed to prosecute diligently an action commenced by it under section 100.4,

make an order, upon such terms as to the judge seem fit, directing that an action be commenced or continued by the Director of the Corporations Branch in the name of and on behalf of the company to enforce the liability created by section 100.4.

(2) The company and the Director of the Corporations Branch shall be given ten days notice of the hearing of any application under subsection (1) and each has a right to appear and be heard thereon.

(3) Every order made under subsection (1) shall provide that the company shall cooperate fully in the institution and prosecution of the action and shall make available to the Director of the Corporations Branch all books, records, documents and other material or information relevant to such action and known to the company or reasonably ascertainable by the company.

(4) An appeal from an order made under subsection (1) lies to the appellate court of the province in which the head office of the company is situated.

[Page 198]

It is essential to an understanding of these provisions to set out some of the statutory definitions from ss. 100 and 125 of the Act:

100. (1)…

“associate”, when used to indicate a relationship with any person, means

(a) any company, wherever or however incorporated, of which that person beneficially owns, directly or indirectly, equity shares carrying more than ten per cent of the voting rights attached to all equity shares of that company for the time being outstanding,

(b) any partner of that person acting by or for the partnership of which they are both partners,

(c) any trust or estate in which that person has a substantial beneficial interest or in respect of which he serves as a trustee or in a similar capacity,

(d) any spouse, son or daughter of that person, or

(e) any relative of that person or any relative of his spouse if that relative has the same home as that person;

“insider” or “insider of a company” means (a) any director or officer of a public company,

(b) any person who beneficially owns, directly or indirectly, equity shares of a public company carrying more than ten per cent of the voting rights attached to all equity shares of the company for the time being outstanding, but in computing the percentage of voting rights attached to equity shares owned by an underwriter there shall be excluded any equity shares that have been acquired by him as underwriter in the course of distribution to the public of such shares, but such exclusion ceases to have effect on completion or cessation of the distribution to the public by him, or

(c) any person who exercises control or direction over the equity shares of a public company carrying more than ten per cent of the voting rights attached to all equity shares of the public company for the time being outstanding;

For the purpose of reporting the interest of insiders in companies as required by the statute the defini-

[Page 199]

tion of “insider” is extended by s. 100.1(5) which provides as follows:

(5) For the purposes of this section

(a) where any other company becomes an insider of a company, every director or officer of the first mentioned company shall be deemed to have been an insider of the second mentioned company for the previous six months or for such shorter period as he was a director or officer of the first mentioned company, and

(b) where a company became an insider of any other company, every director or officer of the second mentioned company shall be deemed to have been an insider of the first mentioned company for the previous six months or for such shorter period as he was a director or officer of the second mentioned company;

and such director or officer shall within ten days after the end of the month in which he becomes an insider file with the Department of Consumer and Corporate Affairs such reports for the period as to which he is deemed to be an insider as he would have been required to file under this section had he been an insider for such period.

…

125. (1) For the purposes of this Act, a company is a subsidiary of another company only if,

(a) it is controlled by

(i) that other, or

(ii) that other and one or more companies each of which is controlled by that other, or

(iii) two or more companies each of which is controlled by that other; or

(b) it is a subsidiary of a subsidiary of that other company.

…

“(3) For the purposes of this Act,

(a) one company is affiliated with another company only if one of them is the subsidiary of the other or both are subsidiaries of the same company or each of them is controlled by the same person; and

(b) when two companies are affiliated, or are deemed by this section to be affiliated, with the same company at the same time, they shall be deemed to be affiliated with each other.”

[Page 200]

These sections, except for the definition of a subsidiary, all came into the Act as amendments enacted in 1969-70. Sections 100.4 and 100.5 had no counterpart in the earlier version of the Act, which prior to 1965 was known as the Dominion Companies Act and thereafter as the Canada  Corporations Act . These provisions were inserted into an Act comprised of six parts: Part I, Companies with Share Capital; Part II, Corporations Without Share Capital; Part III, Special Act Corporations; Part IV, Companies Clauses; Part V, Incidental Powers of Corporate Bodies Created otherwise than by Letters Patent; Part VI, Provisions of General Application.

Part I in which the sections now before the Court are found is divided into divisions with headings which include: “Formation of New Companies”, “General Powers and Duties of Companies”, “Change of Provisions of Letters Patent”, “Forfeiture of Charter”, “Surrender of Charter”, “Transfer of Shares”, “Calls”, “Liability of Shareholders”, “Alteration of Share Capital”, “Reduction of Capital”, “Borrowing Powers”, “Prospectuses and Offers to the Public”, “Dividends”, “Directors Books”, “Investigations”, “Accounts and Audit”, “Arrangements and Compromises”, “Take-over Bids” and “Amalgamation”.

Under the heading “Transfer of Shares” provision is made in a group of six sections for the registration of a transfer of shares in a corporate share register and further provides that no transfer shall be valid for any purpose “save only as exhibiting the rights of the parties thereto toward each other” until so registered in the records of the company (s. 39). Further provisions are made with respect to the transfer of shares listed on a stock exchange where the right to notice shall continue in the former owner, as well as entitlement to dividends, until the transfer has been registered in the books of the company. Other provisions in this segment of Part I deal with the payment in to the company treasurer of the capital contribution required of a shareholder, the corporate restric-

[Page 201]

tions on the transfer of shares where the Letters Patent so provide as in the case of companies such as those owning newspapers which must demonstrate a proportion of Canadian ownership according to other federal legislation, and the machinery for the transmission of shares on the company’s register in the event of death. These provisions all relate to the corporate recording of shareholdings, the raising of capital by calls upon shareholders, but do not deal (as s. 39 has expressly refrained from doing) with the rights of the parties to a share transfer, as between themselves.

Under the heading of “Take-over Bids”, noted above, provision is made for the dissemination of the same type of information and in the same general way as provided in connection with proxy solicitation and the dissemination of financial information to shareholders generally elsewhere in the Act. A take-over bid for these purposes is defined as an offer to acquire shareholdings which are in addition to those held by the offeror in the aggregate 10 per cent of the outstanding equity shares of the company. This segment of Part I concludes by providing for the compulsory sale by a minority holding not more than 10 per cent of the outstanding shares of the class affected. This is similar to the clause discussed in connection with Esso Standard (Inter-America) Inc. v. J.W. Enterprises Inc., [1963] S.C.R. 144.

It was into this statutory pattern that ss. 100.4 and 100.5 were inserted along with associated provisions in the group of sections from 100.1 to 100.6. Section 100 from which definitions were set out above had previously required directors and officers of a company and any shareholders controlling more than 10 per cent of the voting shares of a company to report to the secretary of the company any transactions in the company’s securities; and all such reports were to be recorded and kept available to shareholders of the company at the company offices and at the Ministry of Con-

[Page 202]

sumer and Corporate Affairs.

Sections 100 to 100.6 are sometimes referred to as ‘insider trading’ provisions but there is no such title or division heading in the statute. There are, however, regulations promulgated by order in council under the Canada  Corporations Act , supra, entitled “Insider Trading Regulations” which include a group of regulations entitled “Insider Trading”. Vide SOR/71‑125, P.C. 1971539; March 31, 1971.

The Dominion Companies Act was first enacted in 1869 as the Canada Joint Stock Companies Letters Patent Act, 1869 (Can.), c. 13. The jurisdictional confrontation which concerns us in the present appeal has been examined by the Courts principally in John Deere Plow Co. v. Wharton, [1915] A.C. 330; Reference re s. 110 of the Dominion Companies Act, [1934] S.C.R. 653; Esso Standard (Inter-America) Inc. v. J.W. Enterprises Inc., supra; Letain v. Conwesi Exploration Co. (1960), 23 D.L.R. (2d) 444 (B.C.C.A.); Great West Saddlery Co. v. The King, [1921] 2 A.C. 91; Attorney-General for Manitoba v. Attorney-General for Canada, [1929] A.C. 260; Lymburn v. Mayland, [1932] A.C. 318; Smith v. The Queen, supra; Morgan and Jacobson v. Attorney General of Prince Edward Island, [1976] 2 S.C.R. 349.

Reviewing the law up to 1931, F.W. Wegenast, in The Law of Canadian Companies, (Toronto, 1931, pp. 38-44) drew up the following summary:

1. The fundamental provisions of the company laws of Canada, that is to say, sections 5, 14, 33, 35 and 37 of the Companies Act, and section 30 of the Interpretation Act are intra vires of the Dominion Parliament.

2. A company incorporated by the Dominion under the above provisions has not merely the capacity but the right to carry out its objects and undertakings in every province of Canada.

[Page 203]

3. The jurisdiction of the Dominion over the regulation of trade and commerce enables it to prescribe to what extent the powers of Dominion trading companies shall be exercisable and what limitations shall be put on such powers.

4. The Dominion is competent to enact company law for its companies, and a Dominion company is not subject to company law enacted by the provinces.

5. Provincial legislation requiring the licensing or registration of a Dominion company by way of determining or regulating its corporate status or as a prerequisite to the exercise of its corporate rights is ultra vires.

6. In determining the category to which any particular enactment belongs the Courts will look to its real nature and effect rather than its form.

7. Provincial statutes if validly enacted, and provincial laws generally, are as binding on Dominion companies as they are on anyone else in the province.

…

11. It is competent to a provincial legislature to enact mortmain laws applicable to companies generally.

Propositions 8, 9 and 10 do not concern the issue now before the Court.

It may be stated as a general summation of these authorities that the federal power to establish corporate entities is found in the introductory part of s. 91 (peace, order and good government) and to the extent of granting and controlling corporate powers and objects, at least, under s. 91(2) (trade and commerce) of the British North America Act, supra. Such corporate entities once set in motion by executive action under the federal company legislation may not be ‘sterilized’, rendered incompetent, or discriminated against by otherwise competent provincial legislation. Such federal corporate entities are nonetheless subject to the general regulatory power of the provinces operating under valid provincial heads of jurisdiction such as s. 92(13) (property and civil rights) and (16) (local matters). The federal power to incorporate is the obverse side of the provincial power expressly granted by s. 92(11), “The Incorporation of Companies with Provincial Objects”; but not being an enumerated head of s. 91 is

[Page 204]

unsupported by any implied powers.

The general authority given to the Canadian Parliament by the introductory enactments of s. 91 is “to make laws for the peace, order, and good government of Canada, in relation to all matters not coming within the classes of subjects by this Act assigned exclusively to the legislatures of the provinces”; and it is declared, but not so as to restrict the generality of these words, that the exclusive authority of the Canadian Parliament extends to all matters coming within the classes of subjects which are enumerated in the clause. There may, therefore, be matters not included in the enumeration, upon which the Parliament of Canada has power to legislate, because they concern the peace, order, and good government of the Dominion. But to those matters which are not specified among the enumerated subjects of legislation, the exception from s. 92, which is enacted by the concluding words of s. 91, has no application; and, in legislating with regard to such matters, the Dominion Parliament has no authority to encroach upon any class of subjects which is exclusively assigned to provincial legislatures by s. 92. These enactments appear to their Lordships to indicate that the exercise of legislative power by the Parliament of Canada, in regard to all matters not enumerated in s. 91, ought to be strictly confined to such matters as are unquestionably of Canadian interest and importance, and ought not to trench upon provincial legislation with respect to any of the classes of subjects enumerated in s. 92.

(Attorney-General for Ontario v. Attorney-General for the Dominion, [1896] A.C. 348 (P.C.) (Local Prohibition Case) per Lord Watson at p. 360.)

And again:

It is within the competence of the Dominion Parliament to provide for matters which, though otherwise within the legislative competence of the provincial legislature, are necessarily incidental to effective legislation by the Parliament of the Dominion upon a subject of legislation expressly enumerated in s. 91 [Emphasis added]

(Attorney General for Canada v. AttorneyGeneral for British Columbia, [1930] A.C. 111 (P.C.) (Fish Canneries case), per Lord Tomlin at p. 118.)

[Page 205]

In John Deere Plow Co. v. Wharton, supra, the Court was concerned with a challenge to a provision of the Companies Act of British Columbia, R.S.B.C. 1911, c. 39, which required that federally incorporated companies be registered under the provincial act as a condition of carrying on business in the province or of access to the courts of the province. The Privy Council, speaking through Viscount Haldane, concluded that the legislation was ultra vires the province and stated (at p. 344):

…the legislation in question really strikes at capacities which are the natural and logical consequences of the incorporation by the Dominion Government of companies with other than provincial objects.

The Privy Council repeated the process in Great West Saddlery Co., supra, where like legislation in other provinces was struck down as derogating from the status and consequent capacities conferred by federal law on federal incorporations. In the Great West Saddlery Co. case, the Ontario Mortmain and Charitable Uses Act, R.S.O. 1914, c. 103, was also challenged. That statute prohibited all corporations from holding real estate in Ontario without statutory licence. The Privy Council found this statute to be valid as one affecting the public generally in the province, and its inclusion of federally incorporated companies was not offensive to the Constitution. Viscount Haldane, in reviewing the principles enunciated in John Deere Plow Co. observed (at p. 100):

Their Lordships, however, observed that when a company has been incorporated by the Dominion Government with powers to trade in any Province it may not the less, consistently with the general scheme, be subject to Provincial laws of general application, such as laws imposing taxes, or relating to mortmain, or even requiring licences for certain purposes, or as to the forms of contracts; but they were careful not to say that the sanctions by which such Provincial laws might be enforced could validly be so directed by the Provincial Legislatures as indirectly to sterilize or even to effect, if the local laws were not obeyed, the destruction of the capacities and powers which the Dominion had validly conferred.

[Page 206]

When the Privy Council came to deal with the constitutional validity of securities legislation in Lymburn v. Mayland, supra, the foregoing principles were necessarily reviewed in the light of the purported application of the provincial legislation to federally incorporated companies. The statute in question was the Alberta Securities Frauds Prevention Act 1930 (Alta.), c. 8, which authorized the Attorney General or his designate to examine any person or company in relation to fraudulent acts, which under the statute were broadly defined. The Privy Council, speaking through Lord Atkin, upheld the validity of the Alberta statute, observing (at p. 324):

A Dominion company constituted with powers to carry on a particular business is subject to the competent legislation of the Province as to that business and may find its special activities completely paralysed, as by legislation against drink traffic or by the laws as to holding land. If it is formed to trade in securities there appears no reason why it should not be subject to the competent laws of the Province as to the business of all persons who trade in securities.

This Court had occasion to discuss the same constitutional issue in the Reference re constitutional validity of s. 110 of the Dominion Companies Act, supra, where Duff C.J., after reviewing the foregoing authorities, upheld the federal provision which imposed liability on directors personally where the payment of a dividend rendered the company insolvent or impaired its capital. The delicate balance between company law on the one side and the regulation of security transactions as local matters or property and civil rights on the other side is well illustrated in the present s. 114 of the Canada Business Corporations Act, supra,—formerly s. 99  of the Canada  Corporations Act , supra. Under this section directors are made personally liable for unpaid wages of the company’s employees to a maximum of six months. To date no challenge has been brought against this provision.

[Page 207]

The high ground in this frontier country where the two jurisdictions meet is described from the federal point of view in Constitutional Law of Canada (1977), P.W. Hogg, at p. 353:

The incorporation power is the power to bring a company into existence: it obviously authorizes the conferral of legal personality on an association of persons, and it also authorizes all laws of a company law character, for example, the laws pertaining to corporate powers, organization, internal management and financing.

The question is, how much beyond that basic perimeter can federal legislation range before it loses its corporate character and takes on the true identity of valid provincial legislation directed to the regulation of security transactions within the province. Counsel for the Attorney General for Canada at the outset of his presentation to this Court at once disowned any intention to found these sections on any general authority under s. 91(2) to regulate the exchange of securities between persons engaged in interprovincial trade generally and which might, out of commercial necessity, embrace wholly intraprovincial transactions in these same provisions, in short a federal reach akin to that prevailing in the United States for the legislative control of the exchange of securities. The extent of the trade and commerce application advanced on behalf of the Attorney General for Canada was that arising from the judgment in John Deere Plow Co. v. Wharton, supra, where Viscount Haldane stated at p. 340:

But they think that the power to regulate trade and commerce at all events enables the Parliament of Canada to prescribe to what extent the powers of companies the objects of which extend to the entire Dominion should be exercisable, and what limitations should be placed on such powers. For if it be established that the Dominion Parliament can create such companies, then it becomes a question of general interest throughout the Dominion in what fashion they should be permitted to trade.

The basic corporate existence, that is the objects, corporate powers, its internal government, its rules for the raising of capital, and the classes of securities which it may issue for that purpose,

[Page 208]

its relationship to its creditors, the limitation of liability of shareholders, directors and officers of the company for the actions of the company, are all matters clearly within the federal action when providing by legislation for the creation of legal entities with objects other than “provincial objects” as the expression is employed in s. 92(11) supra.

The answer to the issue raised here may be found in approaching the character of valid federal corporate legislation from another direction. I refer to Esso Standard, supra. That case dealt with s. 128 (later s. 136  of the Canada Corporations Act , supra, and now s. 199 of the Canada Business Corporations Act, supra) of the Dominion Companies Act, R.S.C. 1952, c. 53, wherein provision is made for the compulsory acquisition of outstanding minority shares (by definition not exceeding 10 per cent) by the holders of the balance of the outstanding capital stock of the company. This provision creates a term attaching to the ownership of such shares and ranks with the other rights and obligations attaching thereto. Such other rights include the rights to receive dividends, to vote generally or under certain circumstances or not at all, and to receive a rateable proportion of the net assets of the company on dissolution. Judson J., speaking for the Court, concluded (at p. 153):

It is truly legislation in relation to the incorporation of companies with other than provincial objects and it is not legislation in relation to property and civil rights in the province or in relation to any matter coming within the classes of subject assigned exclusively to the legislature of the province. It deals with certain conditions under which a person may become a shareholder or lose his position as a shareholder in such a company and, in my opinion, this case is completely covered by the reasons of this Court in Reference re constitutional validity of s. 110 of the Dominion Companies Act [supra].

See also Letain v. Conwest Exploration Co., supra, for a further illustration of the kind of

[Page 209]

regulation pertaining to federal incorporations which the courts have recognized as true corporate legislation.

Because of the constitutional significance of the separation of corporate legislation relating to companies with non-provincial objects, from legislation generally concerned with the regulation of transactions within the province relating to securities and their exchange, it is necessary to examine the precise nature of some legislative provisions as they appear in The Securities Act of Ontario, supra, including ss. 113 and 114, and formerly in The Business Corporations Act of Ontario, supra, as ss. 150 and 151.

The Securities Act of Ontario

The Securities Act, supra, made its first appearance as The Securities Frauds Prevention Act in 1928, 1928 (Ont.), c. 34. This statute was replaced by another statute with the same title in 1930, 1930 (Ont.), c. 39. The Act bore its present title for the first time in R.S.O. 1937, c. 265. It was reenacted successively in 1945, (1945 (Ont.), c. 22); in 1947 (1947 (Ont.), c. 98); and in 1966 (1966 (Ont.), c. 142). At the time of the commencement of these proceedings the statute appeared as R.S.O. 1970, c. 426. It is convenient to set out ss. 113 and 114, being almost identical in terms with those of ss. 100.4  and 100.5  of the Canada Corporations Act  already set forth.

113.—(1) Every insider of a corporation or associate or affiliate of such insider, who, in connection with a transaction relating to the capital securities of the corporation, makes use of any specific confidential information for his own benefit or advantage that, if generally known, might reasonably be expected to affect materially the value of such securities, is liable to compensate any person or company for any direct loss suffered by such person or company as a result of such transaction, unless such information was known or ought reasonably to have been known to such person or company at the time of such transaction, and is also accountable to the corporation for any direct benefit or advantage received or receivable by such insider, associate, or affiliate, as the case may be, as a result of such transaction.

(2) An action to enforce any right created by subsection 1 may be commenced only within two years after

[Page 210]

the date of completion of the transaction that gave rise to the cause of action.

114.—(1) Upon application by any person or company that was at the time of a transaction referred to in subsection 1 of section 113 or is at the time of the application an owner of capital securities of the corporation, a judge of the High Court designated by the Chief Justice of the High Court may, if satisfied that,

(a) such person or company has reasonable grounds for believing that the corporation has a cause of action under section 113; and

(b) either,

(i) the corporation has refused or failed to commence an action under section 113 within sixty days after receipt of a written request from such person or company so to do; or

(ii) the corporation has failed to prosecute diligently an action commenced by it under section 113,

make an order, upon such terms as to security for costs and otherwise as to the judge seems fit, requiring the Commission to commence or continue an action in the name of and on behalf of the corporation to enforce the liability created by section 113.

(2) The corporation and the Commission shall be given notice of any application under subsection 1 and has the right to appear and be heard theron.

(3) Every order made under subsection 1 shall provide that the corporation shall co-operate fully with the Commission in the institution and prosecution of such action and shall make available to the Commission all books, records, documents and other material or information known to the corporation or reasonably ascertainable by the corporation relevant to such action.

(4) An appeal lies to the Court of Appeal from an order made under subsection 1.

No argument was raised before this Court as to the validity of The Business Corporations Act of Ontario, supra, where similar sections appeared. The argument is made by the respondents and by the Attorney General for Canada that the presence of identical provisions to those relied upon in The Securities Act, supra, is an inferential acknowledgment by the provincial legislature that ss. 92(13) and (16) do not support these provisions, at

[Page 211]

least to the extent that they are applicable to federal companies.

Some reference to the range of regulation found in The Securities Act of Ontario, supra, is helpful. Section 1(1)22 defines “security” very generally, as including:

i. any document, instrument or writing commonly known as a security,

ii. any document constituting evidence of title to or interest in the capital, assets, property, profits, earnings or royalties of any person or company,

iii. any document constituting evidence of an interest in an association of legatees or heirs,

iv. any document constituting evidence of an option, subscription or other interest in or to a security,

v. any bond, debenture, share, stock, note, unit, unit certificate, participation certificate, certificate of share or interest, pre-organization certificate or subscription,

vi. any agreement providing that money received will be repaid or treated as a subscription to shares, stock, units or interests at the option of the recipient or of any person or company,

vii. any certificate of share or interest in a trust, estate or association,

viii. any profit-sharing agreement or certificate,

ix. any certificate of interest in an oil, natural gas or mining lease, claim or royalty voting trust certificate,

x. any oil or natural gas royalties or leases or fractional or other interest therein,

xi. any collateral trust certificate,

xii. any income or annuity contract not issued by an insurance company or an issuer within the meaning of The Investment Contracts Act,

xiii. any investment contract, other than an investment contract within the meaning of The Investment Contracts Act, and

xiv. any document constituting evidence of an interest in a scholarship or educational plan or trust,

[Page 212]

whether any of the foregoing relate to a person, proposed company or company, as the case may be.

This definition does not appear to extend, as we shall see, into the particular segment of the statute with which we are here concerned.

Provincial securities legislation has been the subject of judicial comment over the years and important discussions of this facet of provincial jurisdiction under the British North America Act, supra, are to be found in Lukey v. Ruthenian Farmers’ Elevator Co., [1924] S.C.R. 56; Lymburn v. Mayland, supra; Attorney-General for Manitoba v. Attorney-General for Canada, supra; Gregory & Company Inc. v. Quebec Securities Commission, [1961] S.C.R. 584; Pacific Coast Coin Exchange of Canada Ltd. v. Ontario Securities Commission, [1978] 2 S.C.R. 112. The main thrust of these statutes, which are to be found in the laws of every province, is, in my view, well described by Lord Atkin writing in Lymburn v. Mayland, supra, at p. 324:

There is no reason to doubt that the main object sought to be secured in this part of the Act is to secure that persons who carry on the business of dealing in securities shall be honest and of good repute, and in this way to protect the public from being defrauded.

and on p. 326 (after describing the registration requirements before corporate securities may be offered to the public) His Lordship added:

The provisions of this part of the Act may appear to be far-reaching; but if they fall, as their Lordships conceive them to fall, within the scope of legislation dealing with property and civil rights the legislature of the Province, sovereign in this respect, has the sole power and responsibility of determining what degree of protection it will afford to the public. There appears to be no reason for excluding Dominion companies from the inquiries of the Attorney-General under this section; and no inconsistency between this legislation and the powers of inquiry under the Dominion Companies Act made on application of members of a company and for a limited purpose—namely, the investigation of the affairs of the company. Their Lordships are unable to agree with the view which was adopted by the Appellate Division that in respect of the subject-matter under discussion the

[Page 213]

legislature of the Province has only a limited right to require information.

These comments are repeated in Gregory & Company Inc. v. Quebec Securities Commission, supra, at p. 590.

The securities legislation of the Province of Manitoba came before the courts in Attorney‑General for Manitoba v. Attorney-General for Canada, supra, and was held to be invalid because the Manitoba statute seriously impaired the federal company’s capacity to raise capital through the sale of shares. Lord Atkin in the Lymburn case, supra, distinguished the Manitoba case with a comment at pp. 324-25:

As to the issue of capital there is no complete prohibition, as in the Manitoba case [supra] in 1929;

The law was not always so on this subject. In Lukey v. Ruthenian Farmers’ Elevator Co., supra, a majority of the court found ultra vires a Saskatchewan statute which required any company seeking to sell securities in the province to register and to file financial and other information concerning its operations, present and planned, with provincial authorities. Duff J., as he then was, at p. 72 equated the powers of a company to enter into contracts and to invoke the jurisdiction of the courts, with the power to acquire capital by selling its shares.

The opposite result is attained in Lymburn, supra, where the Privy Council acknowledges (as did Duff J. in Lukey, supra) that dominion companies are subject always to provincial legislation of general application in relation to civil rights. The provincial statute was found to be valid though it precluded a public company (without exempting therefrom federally incorporated companies) from selling shares unless registered under the Act. An absolute prohibition of the sale of shares by a federally incorporated company would of course be something quite different (vide Attorney-General for Manitoba v. AttorneyGeneral for Canada, supra).

[Page 214]

The jurisprudence was reconciled thus by Jacob S. Ziegel in “Constitutional Aspects of Canadian Companies” in Studies in Canadian Company Law (1967), vol. l, at p. 167:

Securities legislation clearly has a double character. It is designed to protect the public against false or misleading prospectuses and the manipulations of unscrupulous persons on the one hand, and on the other hand it may also determine the extent to which Dominion companies are free to raise capital for their businesses. The latter character brings the legislation within the company law field because, as the Privy Council pointed out in A.-G. Manitoba v. A.-G. Canada [supra], the capacity of a Dominion company to raise capital through the sale of its shares is essential to its corporate status. If therefore the provincial legislation seriously impairs the company’s freedom in this respect (as determined by its incorporating Act), it is invalid. It had this effect in the case of the Manitoba legislation but not in the case of the Alberta legislation. Hence the reason for the different holdings of the Privy Council.

While much of our statute law in the field of securities regulation originated in and was influenced by United States legislation, little help is to be secured from an examination of the authorities in that country. The Securities Act of 1933, the Securities Exchange Act of 1934 and the rising influence thereafter of the Securities Exchange Commission were the beginnings of modern securities transactions controls. Its constitutional base in the interstate commerce clause launched it on a course which has not been followed in our constitutional development. There is, however, some useful discussion, albeit without constitutional significance in the United States, of the nature and purpose of corporate securities legislation. A description of this kind of legislation found in the Court of Appeal for the District of Columbia in American Sumatra Tobacco Corp. v. Securities and Exchange Commission, 110 F. 2d 117(U.S.CA. (D.C), 1940):

The general principle underlying this requirement is as apparent to the layman as to the expert, and grows out of scandals resulting from past frequent manipulation of

[Page 215]

securities by the “insider”, to the detriment of the investor. To correct these abuses, no one doubts, was in the public interest, and while nothing unfair or improper is imputed to petitioner, the question whether its case presents such positive equities as entitles it to be excepted from the general rule is, after all, the only question for decision.

…

The main purpose of the Act is to insure the maintenance of fair and honest markets in transactions in securities on national exchanges.

(Per Groner C.J. at pp. 120 and 121.)

One finds in Smolowe v. Delendo Corporation, 36 F. Supp. 790 (D.C., S.D.N.Y., 1940) a discussion of insider trading provisions similar to those before this Court on this appeal.

The specific section (Subdivision (b) of Section 16) upon which this suit is founded gives the corporation (or those suing in behalf thereof) the right to recover from “insiders” any profit which the “insiders” may make by trading operations in their corporation’s stock within a period of 6 months.

It is clear from the foregoing that the public interest is vitally affected by this statute not only in its entirety but with that particular portion which is now in controversy.

(Per Mandelbaum D.J. at p. 792.)

The similarity between the discussions in these courts and that in the Privy Council in Lymburn, supra, is remarkable.

Before turning to the precise nature of the regulations of securities found in ss. 113 and 114 it is well to pause and examine the legislative context in which these sections are found. The Ontario statute is a lengthy and comprehensive regulatory plan for the control and regulation of the trading within the province of securities of a wide nature and variety, comprising at the time these proceedings were commenced some 150 sections divided into 14 parts. The statute commences with the establishment of a requirement that all persons engaged in trading and securities must be registered under the Act. A Commission is established

[Page 216]

“for the administration of this Act”. Parts VII and VIII are devoted to “trading in the course of primary distribution to the public” and to “trading in securities generally” respectively. Part VII is of course directed primarily to the regulation of the sale of securities for the raising of corporate funds; Part VIII covers transactions in securities at the time of issuance and thereafter. Stock exchanges in the province are of course made a part of the regulatory pattern established in the statute. Part IX is concerned with the purchase and sale of securities in connection with an attempt by “takeover bid” to acquire control of a substantial block of the outstanding equity shares of a company. Provisions are found in this Part for the protection of stockholders against unfair practices by persons seeking to obtain their securities as part of such an enterprise. A somewhat related aspect of the securities business is the subject of regulation in Part X, “Proxies and Proxy Solicitation”. Again the thrust of the group of sections devoted to this subject is the ensurance that adequate information is supplied to the holders of securities by the management of the company or the solicitor for proxies so as to enable the holder of the securities to make an informed judgment before appointing an agent to exercise his or her voting rights in the company. Part XII entitled “Financial Disclosure” is directed at the audit information made available by a company to its security holders. The form and content of the financial statements of corporations who have filed a security with the Commission or whose stock is trading on a stock exchange in Ontario is precisely regulated in this Part. Part XI, with which we are concerned, is entitled “Insider Trading” and it is in this part that ss. 113 and 114 are found. Section 109(1) defines the meaning of two terms which appear in these sections:

109.—(1) In this Part,

(a) “capital security” means any share of any class of shares of a company or any bond, debenture,

[Page 217]

note or other obligation of a company, whether secured or unsecured;

…

(c) “insider” or “insider of a corporation” means,

(i) any director or senior officer of a corporation,

(ii) any person or company who beneficially owns, directly or indirectly, equity shares of a corporation carrying more than 10 per cent of the voting rights attached to all equity shares of the corporation for the time being outstanding, provided that in computing the percentage of voting rights attached to equity shares owned by an underwriter there shall be excluded any equity shares that have been acquired by him as underwriter in the course of distribution to the public of such shares, but such exclusion ceases to have effect on completion or cessation of the distribution to the public by him, or

(iii) any person or company who exercises control or direction over the equity shares of a corporation carrying more than 10 per cent of the voting rights attached to all equity shares of the corporation for the time being outstanding.

(2) For the purposes of this Part,

(a) every director or senior officer of a company that is itself an insider of a corporation shall be deemed to be an insider of such corporation; and

(b) the acquisition or disposition by an insider of a put, call or other transferable option with respect to a capital security shall be deemed a change in the beneficial ownership of the capital security to which such transferable option relates.

The scheme of these sections requires a person on becoming an insider as defined in the Act to file a report on his or her shareholdings of the company with the Commission and thereafter to report all changes in the insider’s security holdings in the company. By reason of the combination of s. 109(1)(b) and s. 101(a)(iii) of the Act Ontario corporations are exempted from ss. 113 and 114. However, sections identical to these sections were simultaneously introduced into The Corporations

[Page 218]

Act, R.S.O. 1960, c. 71, by 1966 (Ont.), c. 28, s. 3 and appear in that Act (R.S.O. 1970, c. 89) as ss. 77 and 78. With the introduction of The Business Corporations Act, supra, in 1970, identical provisions appeared in ss. 150 and 151. It was argued by the respondents and counsel for the Attorney General for Canada that the inclusion of these provisions in The Business Corporations Act, supra, and The Corporations Act of Ontario, supra, is a recognition by the legislature that these are in essence legislative measures relating to companies and their incorporation rather than bona fide regulations for the trading of securities in the province. Whether this practice was adopted for simple and efficient executive housekeeping, convenience of administration, or for some other reason, the province either has the jurisdiction to enact these provisions or it has not. The legislative pigeon-hole into which these provisions are placed by the legislature cannot somehow destroy or surrender such jurisdiction, if the province indeed has it. There can be no loss or acquisition of legislative jurisdiction by something akin to estoppel or administrative practice. There can be no doubt that the province may, in whatever statute it desires, make these provisions applicable to its incorporations. In any case one might note that these provisions are no longer found in The Business Corporations Act, supra, (repealed by 1978 (Ont.), c. 49, s. 6). Companies incorporated provincially under this legislation are now subject to the general regime of the reenacted Securities Act 1978 (Ont.), c. 47, where the insider provisions are found in ss. 131 and 132.

The key to the reconciliation of the two corporate legislations and proper security law is found in Lymburn v. Mayland, supra, where Lord Atkin stated (at pp. 324-25):

Incidentally the net has been drawn so wide as to cover the issue of shares by a public company, with the result that a company cannot issue its shares to the public unless for that purpose it employs a registered broker or

[Page 219]

salesman, or unless the company itself is registered. It is said that these provisions so far as they affect Dominion companies are ultra vires according to the principles adopted by this Board in John Deere Plow Co., v. Wharton, [supra]; Great West Saddlery Co. v. The King, [supra]; and Att.-Gen. for Manitoba v. Att.-Gen. for Canada, [supra]. In those cases there was a general prohibition to companies either to trade at all or to issue their capital unless the company was registered. The legislation was held ultra vires because the legislative powers of the Province are restricted so that “the status and powers of a Dominion Company as such cannot be destroyed” (John Deere Plow Co. case, [supra]) and legislation will be invalid if a Dominion company is “sterilized in all its functions and activities” or “its status and essential capacities are impaired in a substantial degree” (Great West Saddlery Co. case, [supra]). It appears to their Lordships impossible to bring this legislation within such a principle. A Dominion company constituted with powers to carry on a particular business is subject to the competent legislation of the Province as to that business and may find its special activities completely paralysed, as by legislation against drink traffic or by the laws as to holding land. If it is formed to trade in securities there appears no reason why it should not be subject to the competent laws of the Province as to the business of all persons who trade in securities. As to the issue of capital there is no complete prohibition, as in the Manitoba case [supra] in 1929; and no reason to suppose that any honest company would have any difficulty in finding registered persons in the Province through whom it could lawfully issue its capital. There is no material upon which their Lordships could find that the functions and activities of a company were sterilized or its status and essential capacities impaired in a substantial degree.

It would follow, in my respectful opinion, that these provsions in The Securities Act of Ontario, supra, are indeed provisions directed to the regulation of the holding and trading of securities in the Province of Ontario. They may well have incidental impact upon corporations whose securities are involved in this regulation but the central thrust of the legislation is not the constitution of the corporation but the regulation of the trading of the

[Page 220]

corporation’s securities in the province as an incident of general regulation of securities trading.

The common law has for two centuries before the advent of corporate securities trading statutes known remedies for persons injured in securities transactions and somewhat related subjects such as the abuse of corporate opportunities by company officials. The concept of fiduciary duty and the beneficiaries’ rights arising on its breach has long been applied to the issuance, sale and purchase of company shares. See for example the origin of the remedy in such judgments as that of Lord Chancellor King in Keech v. Sandford (1726), 25 E.R. 223 and in modern application in relation to corporate securities in Zwicker v. Stan-bury, [1953] 2 S.C.R. 438; Regal (Hastings) Ltd. v. Gulliver, [1942] 1 All E.R. 378 (H.L.); Board-man v. Phipps, [1967] 2 A.C. 46 (H.L.); as well as those cases where the fiduciary principle has been made applicable to transactions concerning corporate assets or opportunities arising from corporate position or attachment, Cook v. Deeks, [1916] 1 A.C. 554 (P.C.) and Canadian Aero Service Ltd. v. O’Malley, [1974] S.C.R. 592. As is observed in Gower’s Principles of Modern Company Law, 4th ed., (London, 1979) at p. 631:

Apart altogether from statutory intervention, if a director or officer of the company has made use for his own purpose of price-sensitive information acquired while a director or officer he will have breached the fiduciary duty which he owes to the company and be liable to the company accordingly. Hence the company will be able to recover any profit he has made even though it has suffered no loss. It is equally clear that if, for example in relation to a take-over bid, the directors have placed themselves in a position where they can be regarded as fiduciaries for the individual shareholders then, notwithstanding Percival v. Wright, they may be liable to these shareholders if they fail to disclose relevant information and cause the shareholders to suffer loss.

[Page 221]

The general foundation for the application of the fiduciary principle and duties arising in connection with corporate operations was reviewed in this Court by Laskin C.J. in Canadian Aero Service Ltd. v. O’Malley, supra. The duty to account for property or interests acquired as a trustee by reason of a fiduciary duty was found to exist. There the beneficiary was the company. The Chief Justice for the unanimous Court wrote (at pp. 608-09):

What I would observe is that the principle, or, indeed, principles, as stated, grew out of older cases concerned with fiduciaries other than directors or managing officers of a modern corporation, and I do not therefore regard them as providing a rigid measure whose literal terms must be met in assessing succeeding cases. In my opinion, neither the conflict test, referred to by Viscount Sankey, nor the test of accountability for profits acquired by reason only of being directors and in the course of execution of the office, reflected in the passage quoted from Lord Russell of Killowen, should be considered as the exclusive touchstones of liability. In this, as in other branches of the law, new fact situations may require a reformulation of existing principle to maintain its vigour in the new setting.

; and continued at p. 610:

What these decisions indicate is an updating of the equitable principle whose roots lie in the general standards that I have already mentioned, namely, loyalty, good faith and avoidance of a conflict of duty and self-interest.

The Court was there of course concerned with the arrogation to their own interests by officers and employees of the company of an opportunity belonging in law to the company, and for the resultant gain the corporate officials were called upon on the application of the fiduciary principles to account to the company. These same principles have been applied generally in the law across the field of commerce inside and outside the corporate field as for example in Ex Parte James (1803), 32 E.R. 385. I allude to this line of authority in the common law only to emphasize that the law has long recognized and enforced rights arising from circumstances not dissimilar to those which form

[Page 222]

the basis of ss. 113 and 114. These concepts were known to the civil law of general application long before corporate law pertaining to the formation, constitution and internal workings of the limited company became established, and indeed long before the first scheme for general incorporation by registration under statute was introduced in England in 1844.

This analogy was also recognized by American courts at the time of the introduction of insider trading provisions.

In effect it was but a new approach to the common-law attitude which had long recognized the reasonableness of enforcing a level of conduct upon fiduciaries “higher than that trodden by the crowd”.

(Per Clark J. in Smolowe v. Delendo Corporation, 136 F. 2d 231 (Second Circuit, 1943) at p. 239.)

The net cast by these sections is by no means confined to gathering in directors, officers or shareholders of federal companies. The group embraces all persons employed or retained by a company. Where the “insider” who is the object of these provisions is corporate the group of potential defendants expands to include associates and affiliates of the insider, which by definition include any company of which the insider owns directly or indirectly more than 10 per cent of the voting rights, any partner of the insider, any trust or estate in which he has a substantial beneficial interest or acts as trustee, his spouse and children whatever their ages, and any relative sharing his home. The affiliate of the insider includes (where the insider is corporate) subsidiaries or sister subsidiaries; or any company controlled by any person who may control the insider; or any common affiliate, for example, a subsidiary of a company deemed by these provisions to be an affiliate of the insider[1]. Obviously, to make the sections effective their reach must include all persons who might reasonably be expected to be in a position to improperly make use of confidential corporate

[Page 223]

information to the detriment of holders of securities of that company and to the company itself. But that is simply a recognition of the true purpose of these provisions. They are not to complete a constitution or to regulate the relationship of the company to its shareholders, or to empower its officers or organs of corporate government to function. The purpose is to protect the general public from suffering a loss on their investment and corporate securities due to defined improper conduct by a wide range of persons who may be in a position to affect the value of these securities in the hands of the public. This is made doubly clear by the provision in s. 100.4 for the compensation of loss suffered by another person by reason of the transaction in question whereas in the case of the company the recovery takes the form of an accounting by the wrongdoer for any direct benefit or advantage received by him.

Section 100.4 goes on to create a right to compensation in the person suffering “direct loss” as a result of misconduct of any of the group of persons mentioned in the statute. A right is at the same time created in the company to an accounting by the wrongdoer for any direct benefit or advantage received by the wrongdoer from the transaction in question. Section 100.5 is largely procedural in the event the company does not exercise its rights either at all or with lack of diligence. Under s. 100.5, a shareholder or the Minister of Consumer and Corporate Affairs may apply to the court for an order authorizing the commencement or continuance of an action under s. 100.4 by the Director of the Corporations Branch in the name of the company.

The result of an exercise of all rights by all who may invoke the statute on a given transaction may well be a double loss to the wrongdoer. His profit is turned over to the company and he makes good the loss suffered by the securities holder. Theoretically it may be possible for the shareholder to be restored to his pre-transaction economic position

[Page 224]

by the payment into the company treasury of the wrongdoer’s gains in the accounting action. While the respective gains and losses of the parties to the transaction may balance (although it doesn’t seem to be axiomatic), the restorative effect of the company’s successful recovery under the Act may not in the market place restore value to the affected securities in the hands of the public.

All of which, in my respectful view, buttresses the conclusion that we are not here dealing with sections of a provincial act which sterilize or impair the federally incorporated company’s ability to conduct its affairs, nor in the case of the federal statute are we dealing with traditional corporate legislation required to fill out the constitutional and functional aspects of a federal incorporation. I conclude, therefore, the ss. 100.4  and 100.5  of the Canada  Corporations Act , supra, are ultra vires the Parliament of Canada.

Because of this conclusion it is, of course, unnecessary to take up the paramountcy issue which was the subject of judgments in both courts below and which occupied some of the time of counsel before this Court.

It is to be regretted that, by reason of the manner in which this case unfolded as it progressed through the courts below, this Court has been deprived of the valued opinions of the lower courts in the Province of Ontario on the question of constitutionality of the provisions in the provincial Securities Act, supra, and the federal  Canada Corporations Act , supra. While that is to be regretted this Court in these circumstances has no alternative but to proceed with the disposition of the issue as it has evolved.

I do not wish to leave this matter without observing that this case was argued and heard on the footing that the Attorney General for Canada supported these sections in the Canada Corporations Act , supra, entirely on the basis as set out in John Deere Plow Co., supra; i.e., that the provisions in question are corporate in nature and are part of the exercise of a valid constitutional func-

[Page 225]

tion by the Parliament of Canada under the peace, order and good government clause in s. 91 and/or the trade and commerce power under s. 91(2) whereby Parliament is authorized to prescribe the powers of companies whose objects extend to the entire Dominion. Counsel for the Attorney General for Canada did not wish to found the validity of these sections upon an independent claim that, by reason of the potential extraprovincial nature of securities trading, they could be sustained by the authority of s. 91(2) alone. I venture to say that there will be more and more challenges in the future to the dominant position now occupied by the securities exchange authorities of the province in which the major stock exchange of the country is located. As the magnitude and number of multi-provincial security transactions increase the strain on the present unbalanced regulatory system will mount. It remains to be seen whether this will precipitate a change in the national appreciation of constitutional requirements and federal legislative policy. Until such a development occurs the disposition of this appeal must be found in the light of the positions herein taken by the parties. These reasons therefore reflect only the record as advanced by the proponents and opponents of the traditional arguments on the constitutional nature of corporate and securities legislation.

For these reasons I would allow the appeal with costs to the appellants.

Appeal allowed. The three questions answered by the negative. BEETZ, ESTEY and CHOUINARD JJ., concurring in the result but dissenting in part would have answered question I “Yes”, question 2 “No” and would have given no answer to question 3.

Solicitors for the appellant and the Attorney General for Ontario: McCarthy & McCarthy, Toronto.

[Page 226]

Solicitors for the respondent McCutcheon: Weir & Foulds, Toronto.

Solicitors for the respondents Lowry and Craig: Fraser & Beatty, Toronto.

Solicitor for the intervener the Attorney General of Canada: Roger Tassé, Ottawa.

Solicitors for the intervener the Attorney General of Quebec: Jean-K. Samson and Jean‑François Jobin, Sainte-Foy.

Solicitor for the intervener the Attorney General for New Brunswick: G.F. Gregory, Fredericton.

Solicitor for the intervener the Attorney General for Saskatchewan: Richard Gosse, Regina.

Solicitor for the intervener the Attorney General for Alberta: R.W. Paisley, Edmonton.