Global Securities Corp. v. British Columbia (Securities Commission), [2000] 1 S.C.R. 494
British Columbia Securities Commission Appellant
v.
Global Securities Corporation Respondent
and
The Attorney General of Canada, the Attorney
General for Ontario, the Attorney General of
Quebec, the Attorney General of Nova Scotia,
the Attorney General of Manitoba, the Attorney
General of British Columbia, the Attorney
General for Alberta, the Ontario Securities Commission,
the Commission des valeurs mobilières du Québec
and the Alberta Securities Commission Interveners
Indexed as: Global Securities Corp. v. British Columbia (Securities Commission)
Neutral citation: 2000 SCC 21.
File No.: 26887.
Hearing and judgment: January 25, 2000.
Reasons delivered: April 13, 2000.
Present: McLachlin C.J. and L’Heureux‑Dubé, Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for british columbia
Constitutional law -- Division of powers -- Securities -- Provincial securities legislation allowing securities commission to require registered brokers in province to produce records “to assist in the administration of the securities laws of another jurisdiction” -- Whether legislation intra vires province -- Constitution Act, 1867, s. 92(13) -- Securities Act, R.S.B.C. 1996, c. 418, s. 141(1)(b).
In 1988 the appellant entered in a Memorandum of Understanding with the United States Securities and Exchange Commission (“SEC”) whereby the signatories agreed to provide the “fullest mutual assistance”, including obtaining documents and taking evidence from persons when requested by another signatory. That same year British Columbia amended its Securities Act. Included in the new provisions was what is now s. 141(1)(b), which authorizes the appellant’s executive director to order a registrant to produce records “to assist in the administration of the securities laws of another jurisdiction”. In 1996 the appellant made an order under s. 141(1)(b) against the respondent pursuant to a request from the SEC, which was investigating possible violations of U.S. law by the respondent and/or its employees. The respondent provided part of the information requested, but refused to provide anything else. Accordingly, the appellant served the respondent with a notice of hearing under s. 161(1) of the Securities Act to determine if it was in the public interest to order the respondent to comply with the order for production. The respondent in turn filed a petition in the British Columbia Supreme Court seeking a declaration that s. 141(1)(b) was ultra vires the province. The petition was dismissed. The Court of Appeal, in a majority decision, reversed that judgment.
Held: The appeal should be allowed. Section 141(1)(b) of the Securities Act is intra vires the province.
Legislation is constitutional if it is in pith and substance within the constitutional powers of the enacting legislature. The pith and substance of a law is the dominant or most important characteristic of the law. The effects of the legislation may be relevant to its validity in so far as they reveal its pith and substance. However, merely incidental effects will not disturb the constitutionality of an otherwise intra vires law. In characterizing the legislation, the court is free to consider relevant, reliable, extrinsic evidence. As a result, the affidavit evidence submitted by the parties to describe the true object and purpose of s. 141(1)(b) of the Securities Act was correctly accepted by the trial court.
The dominant purpose of s. 141(1)(b) is the enforcement of the province’s securities law. The law furthers this goal in two ways. First, to regulate effectively the domestic (or intraprovincial) securities market, the appellant will often require access to records located outside the province, access that can most effectively be given by the securities regulator in that jurisdiction. If the appellant is to expect this co-operation from bodies like the SEC it must reciprocate, as s. 141(1)(b) enables it to do. Second, s. 141(1)(b) will likely help uncover misconduct abroad by domestic registrants and thus helps the appellant determine the fitness of domestic registrants to trade in the province. While s. 141(1)(b) does involve relations with a foreign authority, it does not attempt to extend the reach of provincial legislation outside its borders. The pith and substance of s. 141(1)(b) falls within the scope of s. 92(13) of the Constitution Act, 1867, “Property and Civil Rights in the Province”. Section 141(1)(b)’s dominant purpose, the effective regulation of domestic securities, has long been recognized to fall within provincial authority. Moreover, the provinces’ authority over securities regulation is not limited to purely intraprovincial matters. Assisting in the investigation of possible violations of foreign securities laws falls within the appellant’s power under s. 92(13) to regulate the province’s securities market.
Even if s. 141(1)(b) were not in pith and substance provincial, it would clearly be justified under the ancillary doctrine. The provision is a part of a valid legislative scheme, namely the Securities Act. Moreover, even assuming that the most rigorous version of the ancillary doctrine applies, s. 141(1)(b) is “necessarily incidental” to the Securities Act.
Cases Cited
Referred to: Attorney General for Ontario v. Scott, [1956] S.C.R. 137; Re McCarthy and Menin and United States Securities and Exchange Commission (1963), 38 D.L.R. (2d) 660; Edwards v. Attorney-General for Canada, [1930] A.C. 124; General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641; R. v. Hydro-Québec, [1997] 3 S.C.R. 213; R. v. Morgentaler, [1993] 3 S.C.R. 463; Whitbread v. Walley, [1990] 3 S.C.R. 1273; Union Colliery Co. of British Columbia v. Bryden, [1899] A.C. 580; Saumur v. City of Quebec, [1953] 2 S.C.R. 299; Attorney-General for Alberta v. Attorney-General for Canada, [1939] A.C. 117; Reference re Upper Churchill Water Rights Reversion Act, [1984] 1 S.C.R. 297; Ladore v. Bennett, [1939] A.C. 468; Smith v. The Queen, [1960] S.C.R. 776; Lymburn v. Mayland, [1932] 2 D.L.R. 6; Gregory & Co. v. Quebec Securities Commission, [1961] S.C.R. 584; McGuire v. McGuire, [1953] O.R. 328; Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161; R. v. W. McKenzie Securities Ltd. (1966), 56 D.L.R. (2d) 56; Re Legault and Law Society of Upper Canada (1975), 58 D.L.R. (3d) 641; Re Underwood McLellan & Associates Ltd. (1979), 103 D.L.R. (3d) 268.
Statutes and Regulations Cited
Constitution Act, 1867, s. 92(13), (14).
Mutual Legal Assistance in Criminal Matters Act, R.S.C., 1985, c. 30 (4th Supp.).
Securities Act, R.S.B.C. 1996, c. 418, ss. 141(1), (2)(b), (3), 161(1).
Authors Cited
Anisman, Philip, and Peter W. Hogg. “Constitutional Aspects of Federal Securities Legislation”. In Philip Anisman et al., Proposals for a Securities Market Law for Canada, vol. 3. Ottawa: Consumer and Corporate Affairs Canada, 1979, 135.
Edinger, Elizabeth R. “Territorial Limitations on Provincial Powers” (1982), 14 Ottawa L. Rev. 57.
Edinger, Elizabeth R. “The Constitutional Validity of Provincial Mutual Assistance Legislation: Global Securities v. British Columbia (Securities Commission)” (1999), 33 U.B.C. L. Rev. 169.
Erwin, Philip O. “The International Securities Enforcement Cooperation Act of 1990: Increasing International Cooperation in Extraterritorial Discovery?” (1992), 15 Boston College Int’l & Comp. L. Rev. 471.
Greene, Caroline A. A. “International Securities Law Enforcement: Recent Advances in Assistance and Cooperation” (1994), 27 Vand. J. Transnat’l L. 635.
Hogg, Peter W. Constitutional Law of Canada, vol. 1, loose-leaf ed. Scarborough, Ont.: Carswell, 1992 (updated 1999 release 1).
International Organization of Securities Commissions. Securities Activity on the Internet. Report of the Technical Committee of the International Organization of Securities Commissions, September 1998.
Johnston, David, and Kathleen Doyle Rockwell. Canadian Securities Regulation, 2nd ed. Markham, Ont.: Butterworths, 1998.
Kehoe, James A. “Exporting Insider Trading Laws: The Enforcement of U.S. Insider Trading Laws Internationally” (1995), 9 Emory Int’l L. Rev. 345.
APPEAL from a judgment of the British Columbia Court of Appeal (1998), 56 B.C.L.R. (3d) 237, 162 D.L.R. (4th) 601, 110 B.C.A.C. 1, 178 W.A.C. 1, [1999] 4 W.W.R. 392, [1998] B.C.J. No. 1597 (QL), reversing a decision of Macdonald J. (1997), 13 C.C.L.S. 256, [1997] B.C.J. No. 1573 (QL), dismissing the respondent’s petition for a declaration that s. 141(1)(b) of the Securities Act, R.S.B.C. 1996, c. 418, was ultra vires the province. Appeal allowed.
James A. Angus and Stephen M. Zolnay, for the appellant.
Murray Clemens, Q.C., Julia E. Lawn and Douglas R. Garrod, for the respondent.
Roslyn J. Levine, Q.C., for the intervener the Attorney General of Canada.
Michel Y. Hélie, for the intervener the Attorney General for Ontario.
Alain Gingras, for the intervener the Attorney General of Quebec.
Written submissions only by Louise Walsh Poirier, for the intervener the Attorney General of Nova Scotia.
Eugene Szach, for the intervener the Attorney General of Manitoba.
Harvey Groberman, Q.C., for the intervener the Attorney General of British Columbia.
Roderick Wiltshire, for the intervener the Attorney General for Alberta.
Neil R. Finkelstein and Russell Cohen, for the intervener the Ontario Securities Commission.
Gérald R. Tremblay, Q.C., and Richard Proulx, for the intervener the Commission des valeurs mobilières du Québec.
Anne J. Brown and Lisa Rudan, for the intervener the Alberta Securities Commission.
The judgment of the Court was delivered by
IACOBUCCI J.--
I. Introduction and Overview
1 This appeal deals with the issue of whether a provincial securities commission may legally gather information for securities regulators in other jurisdictions. Specifically, the respondent Global Securities Corporation, a British Columbia brokerage firm, challenges the authority of the British Columbia Securities Commission (“Commission”) to require Global to produce documents to be handed over to the United States Securities and Exchange Commission (“SEC”). We have already allowed the Commission’s appeal from the Bench, and indicated that reasons for judgment would follow. These are those reasons.
2 The provision challenged in this appeal, s. 141(1)(b) of the British Columbia Securities Act, R.S.B.C. 1996, c. 418, allows the Commission to require registered brokers in the province (“registrants”) to produce records in their control “to assist in the administration of the securities laws of another jurisdiction”. The respondent claims that this provision does not fall within the powers granted to the provinces by the Constitution Act, 1867.
3 With respect, I disagree, and by way of summary advance the following propositions. The fundamental error in the respondent’s position is that it fails to recognize that the dominant purpose, or “pith and substance”, of the provision in question is the enforcement of British Columbia’s securities law. This purpose clearly falls within provincial authority under s. 92(13) of the Constitution Act, 1867, over “Property and Civil Rights in the Province”. The law furthers this goal in two ways. First, to regulate effectively the domestic (a term which, in these reasons, I use as a synonym for “intraprovincial”) securities market, the Commission will often require access to records located outside the province, access that can most effectively be given by the securities regulator in that jurisdiction. If the Commission is to expect this co-operation from bodies like the SEC it must reciprocate, as s. 141(1)(b) enables it to do.
4 Second, s. 141(1)(b) will likely help uncover misconduct abroad by domestic registrants. The Commission is concerned with the honesty and good repute of domestic registrants. If a British Columbia registrant is violating the securities laws of another jurisdiction, this is undoubtedly relevant to the fitness of that registrant to continue trading in the province. Giving relevant information to the SEC thus helps the Commission determine the fitness of domestic registrants to trade in the province.
5 Given these two dominant purposes, the fact that the provision assists the enforcement of foreign laws is not determinative, and cannot impugn the law’s validity under the Constitution Act, 1867.
II. Facts
6 In 1988, the securities commissions of British Columbia, Ontario and Quebec entered into a Memorandum of Understanding (“MOU”) with the SEC. Each signatory agreed to provide the “fullest mutual assistance” to each other, including “obtaining documents” and “taking evidence” from persons when requested by another signatory. That same year, pursuant to the MOU, British Columbia amended its Securities Act. Included in the new provisions was what is now s. 141(1)(b), which authorizes the Executive Director of the Commission to order a registrant to produce records “to assist in the administration of the securities laws of another jurisdiction”.
7 On July 3, 1996, the Commission made an order under s. 141(1)(b) against the respondent pursuant to a request from the SEC, which was investigating possible violations of U.S. law by the respondent and/or its employees. This investigation focused on one Tracy-Anne Godoy, who was at the time employed by the respondent. The order requested all records relating to Ms. Godoy, as well as all records generally relating to the registrant’s trading activities in the United States.
8 The respondent provided the information relating to Ms. Godoy, but refused to produce anything else. Accordingly, on March 3, 1997 the Commission served the respondent with a notice of hearing under s. 161(1) of the Securities Act to determine if it was in the public interest to order the respondent to comply with the order for production. The respondent, in turn, filed a petition in the Supreme Court of British Columbia seeking, among other things, a declaration that s. 141(1)(b) was ultra vires the province.
9 Macdonald J. dismissed the respondent’s petition and ordered the hearing before the Commission to proceed, at which hearing the Commission again ordered the respondent to produce the documents requested on July 3, 1996. The respondent successfully appealed Macdonald J.’s decision to the Court of Appeal.
III. Judicial Decisions
A. British Columbia Supreme Court (1997), 13 C.C.L.S. 256
10 Macdonald J. was satisfied that cross-border and interjurisdictional co-operation was essential to the Commission’s investigatory functions. The impugned section was necessary to enable the Commission to obtain information from other jurisdictions. He therefore rejected the respondent’s argument that the pith and substance of s. 141(1)(b) was the regulation of securities outside the province. Instead, he found it to be necessarily incidental to the regulation of the securities industry in British Columbia, and held that it was intra vires.
B. British Columbia Court of Appeal (1998), 56 B.C.L.R. (3d) 237
1. Newbury J.A., Hinds J.A. concurring
11 Upon reviewing the case law, Newbury J.A. concluded that the provinces clearly have the constitutional authority to enact legislation regulating the securities industry. The issue was to determine whether s. 141(1)(b) was aimed at a purpose that, in pith and substance, fell under a provincial head of jurisdiction under s. 92 of the Constitution Act, 1867.
12 Newbury J.A. recognized that securities regulation is interjurisdictional by nature, and that cross-border co-operation is “both necessary and desirable” (p. 247). Nonetheless, she concluded that the province could only authorize such cooperation if it fell within the ambit of s. 92(13), “Property and Civil Rights in the Province”. In this case, s. 141(1)(b) does not relate to any misconduct occurring within the province, but instead is concerned only with possible violations of foreign law.
13 Newbury J.A. distinguished Attorney General for Ontario v. Scott, [1956] S.C.R. 137, which upheld the validity of a provincial statute giving the courts discretion to enforce spousal support orders made in England. In her opinion, the law upheld in Scott merely enforced existing property rights. Moreover, it was the Ontario court that made the order. Here, by contrast, it is the SEC that effectively makes the order. While the motive of facilitating interjurisdictional co-operation may be laudable, it “cannot save legislation that in pith and substance lies outside provincial authority” (p. 250).
14 Newbury J.A. then turned to provisions in the federal and provincial Evidence Acts authorizing superior courts to take evidence relating to proceedings in a foreign country. She expressed doubt as to their constitutional validity, and therefore did not believe that they supported the constitutionality of s. 141(1)(b). Finally, she noted that the SEC was not even a “court or tribunal of competent jurisdiction” that would authorize a request under the Evidence Act, even if it were constitutional: Re McCarthy and Menin and United States Securities and Exchange Commission (1963), 38 D.L.R. (2d) 660 (Ont. C.A.).
15 In conclusion, Newbury J.A. noted that the principle of comity did not apply because the legislation did not relate to provincial legislative powers. It did not fall under “Property and Civil Rights in the Province”, nor under any other head of provincial authority. She therefore allowed the appeal and declared s. 141(1)(b) ultra vires.
2. Southin J.A., dissenting
16 Southin J.A. held that s. 141(1)(b) fell within the province’s authority under s. 92(14), “Administration of Justice in the Province”, and was therefore intra vires. In her opinion, s. 92(14) should be given a “large and liberal interpretation”: Edwards v. Attorney-General for Canada, [1930] A.C. 124 (P.C.), at p. 136. Moreover, prior decisions of this Court and the Privy Council have already extended the interpretation of s. 92(14) to cover the detection and investigation of crime. Given the reciprocal nature of securities law enforcement, s. 141(1)(b) assists in the administration of the province’s own justice system. She therefore would have dismissed the appeal.
IV. Relevant Constitutional and Statutory Provisions
92. In each Province the Legislature may exclusively make Laws in relation to Matters coming within the Classes of Subjects next herein-after enumerated; that is to say, –
. . .
13. Property and Civil Rights in the Province.
14. The Administration of Justice in the Province, including the Constitution, Maintenance, and Organization of Provincial Courts, both of Civil and of Criminal Jurisdiction, and including Procedure in Civil Matters in those Courts.
Securities Act, R.S.B.C. 1996, c. 418
141 (1) The executive director may make an order under subsection (2)
(a) for the administration of this Act,
(b) to assist in the administration of the securities laws of another jurisdiction,
(c) in respect of matters relating to trading in securities in British Columbia, or
(d) in respect of matters in British Columbia relating to trading in securities in another jurisdiction.
(2) By an order applicable generally or to one or more persons or entities named or otherwise described in the order, the executive director may require any of the following persons to provide information or to produce records or classes of records specified or otherwise described in the order within the time or at the intervals specified in the order:
. . .
(b) a registrant;
. . .
(3) The executive director may require verification by affidavit of information provided or records or classes of records produced pursuant to an order under subsection (2).
V. Issues
18 On May 20, 1999, Lamer C.J. stated the following constitutional question:
Is s. 141(1)(b) of the Securities Act, R.S.B.C. 1996, c. 418, intra vires the province of British Columbia as being legislation pertaining to property and civil rights in the province or pertaining to the administration of justice in the province under ss. 92(13) and 92(14), respectively, of the Constitution Act, 1867?
VI. Analysis
A. Introduction
19 Federalism cases, like many other areas of legal interpretation, greatly involve the proper characterization of the law under attack. In General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641 (hereinafter “GM Canada”), at pp. 666-69, Dickson C.J. offered a useful three-step structure for analyzing a claim that a law is ultra vires. While GM Canada itself was concerned with federal legislation, Dickson C.J. made it very clear, at p. 670, that the same analysis applied to determining the constitutionality of provincial legislation. With respect to the first step, Dickson C.J. said the following (at pp. 666-67):
The first step should be to consider whether and to what extent the impugned provision can be characterized as intruding into provincial powers. If it cannot be characterized as intruding at all, i.e., if in its pith and substance the provision is federal law, and if the act to which it is attached is constitutionally valid (or if the provision is severable or if it is attached to a severable and constitutionally valid part of the act) then the investigation need go no further.
If, on the other hand, the legislation is not in pith and substance within the constitutional powers of the enacting legislature, then the court must ask if the impugned provision is nonetheless a part of a valid legislative scheme. If it is, at the third stage the impugned provision should be upheld if it is sufficiently integrated into the valid legislative scheme.
20 In the present appeal, I conclude that the impugned provision, s. 141(1)(b) of the British Columbia Securities Act, falls within the constitutional powers of the province under the first stage of GM Canada. I therefore find it unnecessary to examine the last two steps of the GM Canada test.
B. Is Section 141(1)(b) in Pith and Substance Provincial Legislation?
21 To answer this question, I use the familiar two-stage test, which was described as follows in R. v. Hydro-Québec, [1997] 3 S.C.R. 213, at para. 23, per Lamer C.J. and Iacobucci J. (dissenting but not on this point):
The law in question must first be characterized in relation to its “pith and substance”, that is, its dominant or most important characteristic. One must then see if the law, seen in this light, can be successfully assigned to one of the government’s heads of legislative power.
See also P. W. Hogg, Constitutional Law of Canada (loose-leaf ed.), vol. 1, at p. 15-6. While there is obviously a great deal of overlap between these two steps, and it is thus perhaps impossible to keep them completely distinct, they provide a useful analytical structure.
1. The Pith and Substance of Section 141(1)(b)
22 As Professor Hogg, supra, at p. 15-12, has noted, the pith and substance of a law is “best described as the dominant or most important characteristic of the law”. A court must “make a judgment as to which is the most important feature of the law and . . . characterize the law by that feature: that dominant feature is the ‘pith and substance’ or ‘matter’ of the law; the other feature is merely incidental, irrelevant for constitutional purposes” (p. 15-8). Similarly, Sopinka J. has described the pith and substance as the “leading feature or true character”: R. v. Morgentaler, [1993] 3 S.C.R. 463, at p. 481; see also Hydro-Québec, supra, at para. 113 (per La Forest J.); Whitbread v. Walley, [1990] 3 S.C.R. 1273, at p. 1286; Union Colliery Co. of British Columbia v. Bryden, [1899] A.C. 580 (P.C.), at p. 587.
23 The effects of the legislation may also be relevant to the validity of the legislation in so far as they reveal its pith and substance. For example, in Saumur v. City of Quebec, [1953] 2 S.C.R. 299, the Court struck down a municipal by-law that prohibited leafleting because it had been applied so as to suppress the religious views of Jehovah’s Witnesses. Similarly, in Attorney-General for Alberta v. Attorney-General for Canada, [1939] A.C. 117, the Privy Council struck down a law imposing a tax on banks because the effects of the tax were so severe that the true purpose of the law could only be in relation to banking, not taxation. However, merely incidental effects will not disturb the constitutionality of an otherwise intra vires law.
24 McIntyre J. aptly summarized the correct approach in Reference re Upper Churchill Water Rights Reversion Act, [1984] 1 S.C.R. 297, at p. 332:
Where the pith and substance of the provincial enactment is in relation to matters which fall within the field of provincial legislative competence, incidental or consequential effects on extra-provincial rights will not render the enactment ultra vires. Where, however, the pith and substance of the provincial enactment is the derogation from or elimination of extra-provincial rights then, even if it is cloaked in the proper constitutional form, it will be ultra vires.
For example, in Ladore v. Bennett, [1939] A.C. 468, the Privy Council upheld Ontario’s reorganization of four failing municipalities into the City of Windsor, even though the plan reduced the interest rates on bonds held by extra-provincial creditors. Since the law’s pith and substance fell within the province’s authority over municipalities, its incidental extra-provincial effects were irrelevant.
25 In characterizing the legislation, it is well-settled that the court is free to consider relevant, reliable, extrinsic evidence. McIntyre J., in Upper Churchill, supra, at p. 318, outlined the proper uses of extrinsic evidence:
I agree with the Court of Appeal in the present case that extrinsic evidence is admissible to show the background against which the legislation was enacted. . . . I am also of the view that in constitutional cases, particularly where there are allegations of colourability, extrinsic evidence may be considered to ascertain not only the operation and effect of the impugned legislation but its true object and purpose as well.
See also Hydro-Québec, supra, at para. 148. As a result, the affidavit evidence submitted by the parties to describe the “true object and purpose” of s. 141(1)(b), to which I will refer in more detail below, was correctly accepted by the trial court and was not challenged before us.
26 As I have already noted, there are two dominant purposes underlying s. 141(1)(b). I will address each in turn, and then discuss whether there are any other effects of the law that should affect its characterization.
(a) Ensuring Cooperation from Other Jurisdictions
27 There can be no disputing the indispensable nature of interjurisdictional co-operation among securities regulators today. Paul Bourque, the Executive Director of the Commission, described this problem as follows:
Effective securities law enforcement demands that there be inter-jurisdictional cooperation and reciprocal assistance between regulatory agencies. In order to facilitate such cooperation, regulatory agencies in various jurisdictions, including British Columbia and the United States Securities and Exchange Commission (the “SEC”), routinely provide relevant evidence in their possession to their foreign counterparts, and many such agencies have obtained statutory authority to compel evidence from persons in their jurisdiction for the purpose of assisting foreign investigations.
Paul Leder, the Deputy Director of the Office of International Affairs at the SEC, gave a similar description:
Integral to the SEC’s MOUs with foreign securities authorities is the concept of reciprocity. The SEC’s ability to assist a particular foreign regulator may depend in part upon the extent to which that foreign authority, such as the [Commission], can be expected to provide similar assistance to the SEC.
See also Elizabeth R. Edinger, “The Constitutional Validity of Provincial Mutual Assistance Legislation: Global Securities v. British Columbia (Securities Commission)” (1999), 33 U.B.C. L. Rev. 169, at p. 176.
28 The securities market has been an international one for years: see P. Anisman and P. W. Hogg, “Constitutional Aspects of Federal Securities Legislation”, in Proposals for a Securities Market Law for Canada (1979), vol. 3, 135, at p. 217. However, the Internet has greatly increased the ability of securities traders to extend across borders:
[T]he very qualities that make the Internet a valuable tool for investors and the securities industry may render it a convenient tool to perpetrate securities fraud and other violations. The Internet also provides for instantaneous cross-border communication and interactivity, which challenge traditional notions of jurisdiction and territoriality.
(International Organization of Securities Commissions, Securities Activity on the Internet (September 1998), at p. 3.)
In order to regulate effectively this electronic trading, regulators must equally be able to respond, and surmount borders where legally possible.
29 Without directly questioning the general need for securities regulators to share information, the respondent claims this goal can be achieved in other ways, in particular through the federal Mutual Legal Assistance in Criminal Matters Act, R.S.C., 1985, c. 30 (4th Supp.). However, this treaty-based method of sharing information is insufficient in the securities context for two reasons. First, it applies only to criminal investigations, and thus would be of no assistance for preliminary, informal investigations of the kind common among securities regulators. Second, MOUs “are specifically tailored to the needs of each securities regulatory agency. Therefore, they tend to be more efficient and effective than treaties”: P. O. Erwin, “The International Securities Enforcement Cooperation Act of 1990: Increasing International Cooperation in Extraterritorial Discovery?” (1992), 15 Boston College Int’l & Comp. L. Rev. 471, at p. 485; see also C. A. A. Greene, “International Securities Law Enforcement: Recent Advances in Assistance and Cooperation” (1994), 27 Vand. J. Transnat’l L. 635, at pp. 649-50; J. A. Kehoe, “Exporting Insider Trading Laws: The Enforcement of U.S. Insider Trading Laws Internationally” (1995), 9 Emory Int’l L. Rev. 345, at p. 360. By contrast, the Mutual Legal Assistance in Criminal Matters Act provides for a relatively formal, cumbersome set of procedures that lack the efficiency of inter-agency administrative cooperation pursuant to MOUs.
30 The respondent also argues that assistance from foreign regulators like the SEC would be forthcoming even if the Commission cannot reciprocate. It notes that a Letter Agreement with the SEC recognized that “the parties to the MOU may not in all circumstances possess the legal authority to provide the assistance contemplated”. However, this argument overlooks the MOU signatories’ promise to “use all reasonable efforts to obtain the necessary authorization to provide the assistance described”. The Letter Agreement contains a similar promise to obtain legislative authorization for reciprocal assistance.
31 In light of this evidence, I accept Mr. Leder’s statement that the Commission does indeed have to provide information to the SEC if it is to be assured of such assistance in return:
In fact, in deciding whether to grant a request for assistance, the SEC is statutorily required to consider whether the requesting authority has agreed to provide reciprocal assistance to the SEC in securities matters, as well as whether granting the request would prejudice the public interest of the U.S. Exchange Act § 21(a)(2).
Were the [Commission] not able to provide the SEC with information such as that requested in this matter, this fact would need to be considered by the SEC in determining the extent to which it could respond to future MOU requests from the [Commission].
32 Perhaps more fundamentally, I should note that the Commission need not prove that s. 141(1)(b) is necessary to ensure assistance from the SEC. It need only show that the provision’s purpose is a legitimate one. Given the uncertain status of SEC assistance in the absence of reciprocity by the Commission, I have no doubt that such a valid purpose exists. I therefore agree with the Commission that one of the dominant purposes of s. 141(1)(b) is obtaining reciprocal cooperation from other securities regulators, thus enabling the Commission to carry out its domestic mandate effectively.
(b) Discovering Wrongdoings by British Columbia Registrants in Other Jurisdictions
33 It is well accepted that securities regulation is concerned not only with the securities themselves, but also with the people who sell them. Kerwin C.J. recognized this point in Smith v. The Queen, [1960] S.C.R. 776, which upheld a provincial law regulating prospectuses, at p. 781:
[T]he main purpose of the provincial enactment is to ensure 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 latter may be traded. . . .
Similarly, in Lymburn v. Mayland, [1932] 2 D.L.R. 6, the Privy Council upheld Alberta’s Security Frauds Prevention Act, the purpose of which it described as follows, at p. 9:
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. [Emphasis added.]
See also Gregory & Co. v. Quebec Securities Commission, [1961] S.C.R. 584, at p. 588; Anisman and Hogg, supra, at p. 154; D. Johnston and K. D. Rockwell, Canadian Securities Regulation (2nd ed. 1998), at p. 4.
34 Given the Commission’s legitimate concern with ensuring that domestic registrants are “honest and of good repute”, another obvious purpose of s. 141(1)(b) is uncovering violations of foreign law by domestic registrants. The intervener the Attorney General for Quebec aptly summarized the point in its factum as follows (at p. 7):
[translation] . . . the Securities Commission could take into account violations such persons have committed in carrying on that business outside the province, in order to protect the clients of such persons within the province and with respect to transactions taking place there.
35 The respondent disagrees, arguing that this purpose explains s. 141(1)(d), not s. 141(1)(b). The former provision authorizes an order for production of documents “in respect of matters in British Columbia relating to trading in securities in another jurisdiction”. If British Columbia is interested in foreign violations, the respondent submits, it should conduct its own investigation pursuant to s. 141(1)(d).
36 With respect, I cannot agree. If British Columbia can legitimately conduct its own investigation of foreign violations, certainly it can choose to have that task carried out by a foreign regulator, which is presumably better positioned to conduct such an investigation. The simple fact that the Commission is itself empowered to investigate under s. 141(1)(d) does not change the purpose of s. 141(1)(b). I therefore conclude that another primary goal of the latter provision is uncovering foreign violations of securities laws by domestic registrants.
(c) The Extra-provincial Aspects of the Law Are Incidental
37 The respondent puts a great deal of emphasis on the fact that the impugned provision enables the Commission to turn evidence over to a foreign regulatory body. As such, it argues that the purpose must be to assist the enforcement of foreign law. With respect, this argument confuses the purpose of a law with the means chosen to achieve that purpose. As discussed above, the purpose of s. 141(1)(b) is the enforcement of domestic securities law, both by obtaining reciprocal assistance from foreign regulators, and by discovering foreign securities law violations by domestic registrants. Authorizing an order for production of information to assist a foreign regulator under s. 141(1)(b) is merely the means by which the Commission achieves these goals. Indeed, given the overwhelming evidence supporting the appellant’s position, I cannot agree with the respondent that British Columbia has passed a law whose dominant purpose is to assist a foreign body. Accordingly, in these circumstances, I would not ascribe such a purpose to s. 141(1)(b).
38 Moreover, I do not believe the effects of s. 141(1)(b) alter my analysis of its pith and substance. While it does involve relations with a foreign authority, s. 141(1)(b) does not attempt to extend the reach of provincial legislation outside its borders: see McGuire v. McGuire, [1953] O.R. 328 (C.A.), at p. 334. As several provincial interveners pointed out in their submissions, administrative arrangements between provinces and foreign authorities are quite common. Without commenting on the constitutionality of any of these arrangements, I would note simply that where, as here, there is a clearly dominant intraprovincial purpose, the mere fact that the province is co-operating with a foreign authority in the pursuit of that purpose will not change the law’s pith and substance: see E. Edinger, “Territorial Limitations on Provincial Powers” (1982), 14 Ottawa L. Rev. 57, at p. 94. In short, the extra-provincial effects of s. 141(1)(b) are clearly incidental to the dominant purposes described above.
2. Assigning the Legislation to a Head of Provincial Jurisdiction
39 Having characterized the law, I now turn to determining whether the law can be assigned to an enumerated head of provincial authority. In argument, the respondent and several interveners suggested two possible sources: “Property and Civil Rights”, and “Administration of Justice”. Because of my conclusion that the legislation fits within “Property and Civil Rights”, I do not find it necessary to address the “Administration of Justice” issue.
(a) Section 92(13): Property and Civil Rights in the Province
40 I conclude that the “pith and substance” of s. 141(1)(b), as described above, falls within the scope of s. 92(13) of the Constitution Act, 1867, “Property and Civil Rights in the Province”. Section 141(1)(b)’s dominant purpose is the effective regulation of domestic securities, a task that has long been recognized to fall within provincial authority: see Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161, at pp. 183-85; Smith, supra; Lymburn, supra.
41 Moreover, it is well established that the provinces’ authority over securities regulation is not limited to purely intraprovincial matters. In Gregory, supra, the Quebec-based broker in question was prosecuted solely for transactions outside the province. This Court nonetheless held that Quebec had a legitimate interest in those transactions. Conversely, in R. v. W. McKenzie Securities Ltd. (1966), 56 D.L.R. (2d) 56, the Manitoba Court of Appeal held that a province can regulate a broker located outside the province if that broker transacts with clients within the province.
42 Two different courts of appeal have also acknowledged that provincial regulatory bodies may have jurisdiction to investigate violations of foreign law. In Re Legault and Law Society of Upper Canada (1975), 58 D.L.R. (3d) 641, the Ontario Court of Appeal upheld the Law Society’s authority to entertain a complaint about the conduct of an Ontario lawyer in another jurisdiction. As the court noted at p. 643, “the jurisdiction of the Law Society over its member is a personal one, which extends to the member’s conduct without territorial limitation”. In Re Underwood McLellan & Associates Ltd. (1979), 103 D.L.R. (3d) 268 (Sask. C.A.), the court similarly upheld the power of the Association of Professional Engineers to examine conduct outside the province in making its licensing decisions.
43 Both these cases recognize that provincial regulatory bodies governing professions with a strong interjurisdictional aspect must be able to take into account events occurring abroad. This rationale may not necessarily hold in all circumstances, and each case must be decided on its own facts. However, given the Commission’s clear authority over domestic securities regulation, and the clearly interjurisdictional nature of securities regulation in general, I find that it must apply in the present appeal. Assisting in the investigation of possible violations of foreign securities laws falls under the Commission’s power under s. 92(13) to regulate British Columbia’s securities market.
44 I therefore conclude that the pith and substance of s. 141(1)(b) falls within British Columbia’s authority to regulate securities. Obtaining reciprocal cooperation and uncovering violations abroad are both aspects of the Commission’s mandate, which fits easily within s. 92(13).
C. The Ancillary Doctrine
45 Having concluded that s. 141(1)(b) is, in pith and substance, valid provincial legislation, there is no need to discuss the last two steps of the analysis set out by Dickson C.J. in GM Canada, supra, frequently referred to collectively as the “ancillary” doctrine: see Hogg, supra, at p. 15-35. Indeed, given that this appeal does not involve an allegation that one level of government is trenching on another’s sphere of competence, as GM Canada did, it is not even clear that this doctrine is applicable. Nevertheless, I would note that even if s. 141(1)(b) were not in pith and substance provincial, it would clearly be justified under the ancillary doctrine. Section 141(1)(b) is a part of a valid legislative scheme, namely, the Securities Act. Moreover, even assuming that the most rigorous version of the ancillary doctrine applies, I believe that s. 141(1)(b) is “necessarily incidental” to the Securities Act and would therefore also uphold it under the ancillary doctrine.
46 The Attorney General of Canada intervened in this appeal to argue that:
[I]f the provision in question is held to be within provincial jurisdiction, this decision would not preclude overlapping federal jurisdiction over securities matters in respect of international and interprovincial transactions and co-operation, or any other relevant head of federal jurisdiction.
Since the central question presented by this appeal is the power of the province to enact s. 141(1)(b), I decline to comment on the constitutionality of hypothetical overlapping federal legislation. I would note, however, that this Court has already upheld aspects of federal securities regulation, in another context, in Multiple Access, supra, under the “double aspect” theory. The Court’s decision in the present appeal should not be taken in any way to question the holding of that case.
VII. Conclusion and Disposition
47 In summary, I find that s. 141(1)(b) of the British Columbia Securities Act is, in pith and substance, aimed at furthering the effective enforcement of domestic securities laws and as such falls within the province’s powers under s. 92(13) of the Constitution Act, 1867. The appeal is allowed with costs throughout, the judgment of the Court of Appeal for British Columbia is set aside, and the judgment of Macdonald J. is restored.
Appeal allowed with costs.
Solicitors for the appellant: James A. Angus and Stephen M. Zolnay, Vancouver.
Solicitors for the respondent: Nathanson, Schachter & Thompson, Vancouver.
Solicitor for the intervener the Attorney General of Canada: The Department of Justice, Toronto.
Solicitor for the intervener the Attorney General for Ontario: The Ministry of the Attorney General, Toronto.
Solicitor for the intervener the Attorney General of Quebec: The Department of Justice, Sainte-Foy.
Solicitor for the intervener the Attorney General of Nova Scotia: The Department of Justice, Halifax.
Solicitor for the intervener the Attorney General of Manitoba: The Department of Justice, Winnipeg.
Solicitor for the intervener the Attorney General of British Columbia: The Ministry of the Attorney General, Victoria.
Solicitor for the intervener the Attorney General for Alberta: The Department of Justice, Edmonton.
Solicitors for the intervener the Ontario Securities Commission: Davies, Ward & Beck, Toronto.
Solicitors for the intervener the Commission des valeurs mobilières du Québec: McCarthy Tétrault, Montréal.
Solicitor for the intervener the Alberta Securities Commission: Anne J. Brown, Calgary.