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September 27, 2010

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PAGE 8 An online resource 1.800.263.3269 Focus On BUSINESS/COMPETITION LAW National regulator battling choppy waters Multiple references may finally resolve jurisdictional battle over securities BY JULIUS MELNITZER For Law Times C onstitutional debates frequently have their origins in nasty poli- tics. But that's often where the courts come in with the sure-handed neutrality most Canadians have come to believe in. To be sure, the judgments, particu- larly from the Supreme Court of Can- ada, didn't always go beyond giving direction for charting a clear course. Th e diffi culty of the issues, the lack of unanimity in some judgments, and the convoluted legalese in others meant the righted ship simply headed straight back into the rough headwinds of the politi- cal process until a resolution emerged or the politicians returned to the courts to invite a little more jurisprudential in- trusion into the democratic process. If only the current brouhaha over a national securities regulator was so straightforward. Instead, the gerryman- dering evidenced by the prospect of not one or two but three references to the courts threatens to turn the whole aff air into the likes of a high-stakes private lawsuit resolved by a closed-door settle- ment that will likely contain promises and assurances never fully disclosed to or understood by the public. It's not that such a solution would necessarily be better or worse. Th ere's something to be said for a compromise as opposed to the uncertain result of all- out litigation that will leave triumphant victors imposing their will and bitter los- ers who are only grudgingly compliant. Indeed, the closest the country has ever come to a national securities regu- lator was in 1995 in the wake of ardu- ous negotiation. "I had helped to force the issue by ar- guing that the excess fees over costs that the provincial commissions were gener- ating amounted to an unconstitutional form of taxation," says Ed Waitzer of Stikeman Elliott LLP who, as chairman of the Ontario Securities Commission at the time, was intimately involved in the negotiations. "Eventually, all the provinces other than Quebec approved a national securities regime in return for the feds' agreement to compensate them for revenues lost from giving up their own regulators. But at the last moment, Ontario and the feds couldn't agree on the level of compensation." A source familiar with the negotia- tions says the deal fell apart because of personal animosity between the federal minister of fi nance, Paul Martin, and his Ontario counterpart, Ernie Eves. "Th e two didn't like each other, and Eves was asking for too much and in a way that was not particularly eff ective," the source says. On the other hand, there's some- thing neat, clean, and inherently attrac- tive about a transparent process ideally resolved in a neutral forum. But with three court references out there, what are the chances of that outcome? To begin with, there's the proposed federal reference to the Supreme Court, which will examine the constitutional- ity of the government's proposed Cana- dian securities act. Th e draft legislation would allow provinces to opt out of the scheme. Th e same legislation would, however, allow issuers and registrants from opt-out provinces to voluntarily subject themselves to the federal regime to the exclusion of provincial regulation. In other words, it would make provin- cial securities acts, in whole or in part, inapplicable to federal registrants. Th en there are the references brought by Quebec and Alberta to their own courts of appeal. Bearing in mind that the judgments of both lower courts can be appealed to the top court, some are asking what the point of the provincial references is. Many experts believe a federal securi- ties regime, either in opt-in or unilateral form, would be constitutional. Th e feder- al power to regulate trade and commerce Ed Waitzer was involved in earlier talks that came close to establishing a nation- al regulator in 1995. most frequently comes up as justifi cation. Indeed, no less an authority than Brian Dickson, former chief justice of the top court, gave his blessing to a federal regulator in his 1982 majority judgment in Multiple Access Ltd. v. Mc- Cutcheon, which upheld the validity of provincial securities legislation. "I should not wish by anything said in this case to aff ect prejudicially the constitutional right of Parliament to enact a general scheme of securities leg- islation pursuant to its power to make law in relation to interprovincial and export trade and commerce," Dickson stated. "Th is is of particular signifi cance considering the interprovincial and in- deed the international character of the securities industry." To be sure, the statement wasn't essential to the majority's decision. "Th ere's no doubt that it was a throwaway line," says professor Sujit Choudhry, who teaches constitutional law at the University of Toronto. "But there's also no doubt that the court made the comment knowing there was a lot at stake." Th e federal government's wise per- sons committee, whose recommenda- tions prompted the bid for a national regulator, solicited opinions from Yves Fortier of Ogilvy Renault LLP, John Laskin of Torys LLP, and the late Allan McEachern, former B.C. chief justice. All of them concluded the opt-in scheme was valid under the general branch of the federal trade and commerce power that in their view clearly authorized a comprehensive securities regime. But their opinions diff ered on whether Parliament could enact an "ex- press paramountcy" clause. Fortier and Laskin felt Parliament could enact such a clause that would negate provincial legislation. McEachern opined that it was "extremely unlikely" that such a clause, even if validly enacted, could render provincial securities legislation inoperable "for all purposes." Professor Poonam Puri, who teaches securities law at York University's Os- goode Hall Law School, says the current state of capital markets provides ample evidence of the need for a comprehen- sive securities regime, which exists in all major developed countries other than Canada. "Th e feds' case is very strong be- cause capital markets have globalized in signifi cant ways over the last several decades," she says. "Issuers, investors, and capital are all quite fl uid, making a national body that is responsible for enforcement very important because the nature of the misconduct that oc- curs commonly spans provincial and national borders." Choudhry agrees. "As international activity in capital markets becomes ever more pervasive, the view that securities regulation is solely a provincial matter See Federal, page 10 sepTember 27, 2010 • Law Times LegalNewswire Get smart. From the publisher of Canadian Lawyer and Law Times Regular reading of Canada's No.1 weekly legal e-newsletter can result in a better understanding of the law and your future career. IT'S FREE! Sign up online. 1-4 pg Newswire - LT.indd 1 9/23/10 4:36:33 PM

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