The Alberta Court of Appeal has ruled against the federal government's proposal to create a national securities regulator, saying the legislation is unconstitutional and the federal government should negotiate a new regulatory regime rather than impose it on the provinces.
"The proposed federal securities legislation would enter an area of regulation long occupied by the provinces, and long considered to be clearly within provincial jurisdiction," the Alberta court said in a decision released Tuesday.
"It is inconsistent with numerous prior decisions of the highest court delineating the division of power over specific industries. The proposed legislation would, if enacted, be unconstitutional."
While the ruling is a blow to the federal government's plans to create a single regulator to replace the system of 13 provincial and territorial securities commissions, supporters of the plan say the decision will not necessarily sway the Supreme Court of Canada when it considers the matter in April.
The Alberta and Quebec governments, both strong opponents of the plan, referred the proposed legislation to their provincial courts of appeal for a ruling on its constitutionality, but the federal government also referred the act to the Supreme Court for a final decision on the matter. The Supreme Court will ultimately prevail as Canada's top court.
"The Supreme Court will make up its own mind, and this doesn't bind them," said Toronto securities lawyer Philip Anisman, who headed in a committee in the late 1970s that recommended creating a national securities regulator in Canada. "They frequently reverse courts of appeal."
But the Alberta government said the decision offers strong support for its position before the Supreme Court.
"It certainly bolsters our case going forward to the Supreme Court, because the Supreme Court will have to refer to the Alberta Court of Appeal ruling," Finance Department spokesman Bart Johnson said.
Many provinces have raised objections to the federal legislation, arguing it will set a dangerous precedent if the federal government can unilaterally claim responsibility for an area of jurisdiction that has historically fallen under provincial control. Ontario is the only province that will argue in favour of the legislation before the Supreme Court.
The Alberta Court of Appeal sided with the opponents, saying securities regulation is squarely an area of provincial jurisdiction, and the federal government cannot claim authority over the sector simply because it would prefer to have centralized regulation.
"The division of power represents an understanding reached on the nature of Canadian federalism that should not lightly be disrupted by any one level of government or the courts," the Alberta court ruled in a decision written by Mr. Justice Frans Slatter and supported by four other members of the court.
"If the Government of Canada wants a paradigm shift in the power to regulate the securities industry, the way to accomplish that is through negotiation with the provinces, not by asking the courts to reallocate powers under the Constitution Act through a radical expansion of the trade and commerce power."
The court rejected federal arguments that the securities industry has changed so dramatically in recent decades that it no longer fits the historic definition of a sector that should fall under provincial responsibility.
"Just because the federal government believes it would be advantageous to concentrate economic power nationally does not alter the terms of the Constitution Act," it said.
Quebec Finance Minister Raymond Bachand welcomed the Alberta court decision. Ottawa should at the very least put on ice its plans for a national securities watchdog until the Supreme Court of Canada has ruled on the issue, Mr. Bachand said in a news release Tuesday evening.
He conceded that the Supreme Court has final say on the matter but he added that the Alberta Court of Appeal's judgment is "very encouraging."
It shows that Quebec and Alberta were right to oppose the federal project at the outset, he said.
Annette Robertson, a spokesperson for federal Finance Minister Jim Flaherty, issued a brief statement in response to the Alberta ruling.
"We have referred the matter to the Supreme Court. We will respect its decision on this matter," she wrote in an e-mail.
Stephen Griggs, executive director of the Toronto-based Canadian Coalition for Good Governance, said Tuesday's decision is not unexpected, given Alberta's long-standing opposition to a national regulator. The CCGG, which has received approval to intervene at the Supreme Court hearing in support of the legislation, still believes there is a "very strong case" to put to the top court.
"The [Alberta]court, perhaps not surprisingly, said the economy of 1867 is what framed the constitution and the federal government cannot change it," Mr. Griggs said. "Our view at the coalition is that the constitution should be a living and breathing document that reflects the reality at a particular time."
With files from reporters Bill Curry in Ottawa and Bertrand Marotte in Montreal