Teresa Scassa - Blog

Tuesday, 17 January 2012 12:24

Fresh Questions about the Constitutionality of PIPEDA?

Written by  Teresa Scassa
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A recent decision of the Supreme Court of Canada on the constitutionality of the proposed federal Securities Act raises interesting questions regarding the constitutionality of the Personal Information Protection and Electronic Documents Act (PIPEDA). PIPEDA was enacted by the federal government in 2000, and sets rules for private sector data protection that apply to all organizations engaged in commercial activity across the country. The authority of the federal government to enact such a law has generally been believed to be the general trade and commerce power under s. 91(2) of the Constitution Act, 1867. It is precisely the scope of this power that is considered by the Supreme Court of Canada in Re Securities Act, 2011 SCC 66.

The constitutionality of PIPEDA has been like a low-level background noise in the history of the statute. A reference case challenging its constitutionality was initiated and then shelved by the Quebec government in the early 2000’s. The issue rippled briefly to the surface in the recent decision in State Farm v. Privacy Commissioner of Canada, but the court avoided dealing with the question there. It remains to be seen whether the decision in Re Securities Act will be used to bolster challenges to PIPEDA at some point in the future.

The proposed Securities Act evolved from a history of proposals and recommendations for the development of a national securities regulator that dated back to 1935. All parties accepted that in general terms, the regulation of securities within provincial borders falls under provincial legislative competence over property and civil rights under s. 92(13) of the Constitution Act, 1867 and matters of a merely local or private nature under s. 92(16). This is borne out by the long-standing practice of provincial regulation of the securities trade in Canada.

The call for a national regulatory body that led to the proposed Securities Act (which was supported by the province of Ontario, but opposed by other provinces) arose out of concerns that there were certain national dimensions to the trade in securities that could only effectively be dealt with by national legislation. The provinces which opposed the proposed Securities Act disagreed, arguing that the Act was a thinly disguised attempt by the federal government to take over a matter that fell within provincial legislative competence. Those provinces which saw a role for a national securities regulator, nonetheless argued that any statute that established such a scheme would have to respect the division of powers and would have to evolve through federal-provincial co-operation, rather than by the unilateral imposition of a federal legislative scheme.

The Supreme Court observed that although the Constitution gives legislative competence over specific subject matter to one level of government or another, some issues may have dimensions that touch on matters that are within both federal and provincial jurisdiction. The “double aspect doctrine” allows each level of government to take jurisdiction over that aspect of the issue that falls within its legislative competence. The Court referred to this as an area where there is concurrent application of both federal and provincial laws, but not concurrent jurisdiction over the subject matter. Where such overlaps occur, the modern trend is towards “accommodating cooperative intergovernmental efforts.” The Court noted “an underlying constitutional principle that demands respect for the constitutional division of powers and the maintenance of a constitutional balance between federal and provincial powers.” (at para. 61)

The federal government argued that the proposed Securities Act fell within its power over trade and commerce under s. 91(2) of the Constitution Act, 1867. While normally this jurisdiction is limited to interprovincial and international commerce, courts have recognized a “general trade and commerce power” that is available in limited circumstances. The availability of this power is limited because, as the Court observed, it is “so broad that it has the potential to permit federal duplication (and, in cases of conflict, evisceration) of the provincial powers over large aspects of property and civil rights and local matters.” (at para 70) Thus, if not carefully constrained by the courts, this power might “upset the constitutional balance envisaged by ss. 91 and 92 and undermine the federalism principle.” (at para 70) According to the Court, laws enacted pursuant to the general trade and commerce power must be “qualitatively different from anything that could practically or constitutionally be enacted by the individual provinces either separately or in combination.”(at para 79) The power has been used to support federal constitutional jurisdiction over trademark law and competition law.

The Court distilled the following principle to govern the application of the general trade and commerce power: “Provided the law is part of a general regulatory scheme aimed at trade and commerce under oversight of a regulatory agency, it will fall under the general federal trade and commerce power if the matter regulated is genuinely national in importance and scope.” (at para 83) According to the Court”“To be genuinely national in importance and scope, it is not enough that the matter be replicated in all jurisdictions throughout the country. It must [....] be something that the provinces, acting either individually or in concert, could not effectively achieve.” (at para 83) For example, competition law, which is regulated by the federal government is not limited to a single industry or a single region of Canada. The effects of anti-competitive behaviour transcend provincial boundaries. Uneven regulation across the provinces, or even the failure of one province to regulate “would render the market vulnerable”. (at para 87)

The test for the general trade and commerce power applied by the Court was developed in General Motors of Canada v. City National Leasing, [1989] 1 S.C.R. 641. Once the pith and substance of the legislation is determined, the court must evaluate the following critieria:

 

(1) whether the impugned law is part of a general regulatory scheme; (2) whether the scheme is under the oversight of a regulatory agency; (3) whether the legislation is concerned with trade as a whole rather than with a particular industry; (4) whether it is of such a nature that provinces, acting alone or in concert, would be constitutionally incapable of enacting it; and (5) whether the legislative scheme is such that the failure to include one or more provinces or localities in the scheme would jeopardize its successful operation in other parts of the country. (General Motors, at pp. 661-662)

 

The Court characterized the proposed Securities Act as being in pith and substance “to implement a comprehensive Canadian regime for the regulation of securities with a view to investor protection, the promotion of fair, efficient and competitive capital markets and ensuring the integrity and stability of the financial system.” (at para 106) In doing so, the Act would “duplicate and displace the existing provincial and territorial securities regimes, replacing them with a new federal regulatory scheme.” (at para 106)

The Court found that the first two General Motors criteria were easily met. The law established a general regulatory scheme for securities and placed it under the oversight of a regulatory body. As to the third factor, the Court found that the Act was chiefly directed to “the day-to-day regulation of securities within the provinces.” (at para 116) Although some aspects of the Act might be directed towards broader national goals, the Court found that these elements “do not, on the record before us, justify a complete takeover of provincial regulation.” (at para 117) The Court rejected arguments that the “securities market has been so transformed as to make the day-to-day regulation of all aspects of trading in securities a matter of national concern.” (at para 117)

The fourth General Motors factor requires a consideration of whether the provinces could, acting in concert, enact a similar scheme. The Court noted that the provinces could certainly choose to work together to harmonize their statutes, and they also could choose, in concert, to delegate oversight functions to a single pan-Canadian regulator. Yet nothing required them to do so. Because of this, the fourth consideration weighed partly in favour of federal jurisdiction. Nevertheless, the Court noted that the proposed Act did not focus on only those elements which were beyond the reach of the provinces; rather it “reaches down into the detailed regulation of all aspects of securities”. (at para 122) The Court contrasted this with the constitutionally legitimate Competition Act, which does not regulate all commercial contracts, but rather only those which are anti-competitive. It found that the proposed securities legislation “overreaches the legislative interest of the federal government.” (at para 122)

The fifth consideration is whether the decision by a province not to participate in a collaborative scheme would prevent its effective operation. The Court noted that the Act contained an opt-in scheme for provincial participation. The possibility that the scheme could operate even with incomplete uptake by the provinces undermined any argument that it was necessary to avoid a situation where one or more provinces chose not to act.

The court ultimately concluded that the proposed Act could not be justified as falling within the general trade and commerce power. Essentially, the legislation strayed beyond matters of truly national concern and sought to regulate subject matter that has long been recognized as falling within provincial jurisdiction. The court concluded:

 

The need to prevent and respond to systemic risk may support federal legislation pertaining to the national problem raised by this phenomenon, but it does not alter the basic nature of securities regulation which, as shown, remains primarily focused on local concerns of protecting investors and ensuring the fairness of the markets through regulation of participants. Viewing the Act as a whole, as we must, these local concerns remain the main thrust of the legislation — its pith and substance. (at para 128)

The Court suggested that cooperation between federal and provincial governments could lead to a scheme that respects provincial jurisdiction while at the same time addressing matters of national concern.

The decision will clearly be relevant to any consideration of the constitutionality of PIPEDA. The protection of privacy and data protection in areas of provincial competence have long been considered matters falling within provincial jurisdiction under either s. 92(13) or 92(16) of the Constitution Act, 1867. Indeed, Quebec’s own private sector data protection legislation pre-dates PIPEDA, and there has never been any doubt that that statute was squarely within the province’s legislative authority. The fact that the Quebec statute has been declared “substantially similar” to PIPEDA does little to reinforce the constitutionality of the federal scheme, since it supports the view that the law goes beyond what is required to address matters of national importance and strays into those matters that the provinces, acting independently, could address. While the federal government clearly has the power to enact data protection laws that apply to federal works and undertakings, or that apply to interprovincial or international commercial activity, it is more difficult to justify the extension of the legislation to purely intraprovincial commercial activity. The constitutionality of PIPEDA in light of the decision in the Reference re Securities Act deserves (and will likely receive) much consideration.

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