The Alberta Court of Appeal has held that the proposed federal Securities Act (the “Act”) does not pass constitutional scrutiny. In a decision released on Tuesday, March 8, 2011, Justice Slatter, writing for a unanimous court, stated that the legislation “would, if enacted, be unconstitutional."

Both Alberta and Quebec will be arguing their positions in front of the Supreme Court of Canada next month, where the constitutionality of the Act will be ultimately decided. Alberta’s victory at the Court of Appeal may lead to the Supreme Court striking down the Act as unconstitutional.

The proposed federal legislation has been the subject of controversy since it was unveiled last May. If the legislation comes into force, it could bring all of Canada’s 13 provincial securities regulators under one national regulator. Proponents of a federal regulator are hopeful that it will result in a more efficient and streamlined system with tougher sanctions for white collar criminals. For a more detailed review of the constitutional issue click here.

The governments of Alberta and Quebec staunchly oppose the Act, stating that national regulation would be insensitive to the unique needs of each province’s market conditions and priorities. Both provinces brought the constitutional challenges to voice their opposition to provincial appeal courts. The Quebec Court of Appeal has yet to issue its decision.

The crux of Justice Slatter’s ruling is that securities regulation is a matter of property and civil rights, which is provincial jurisdiction. The federal government argued that the securities industry has become more widespread and complex, and should now be viewed as a matter of trade and commerce, which is federal territory. The Court agreed that the industry may have changed, but this is not relevant to the issue of who has constitutional jurisdiction and therefore this does not change the pith and substance of the overall regime. Justice Slatter stated that “at the end of the day the regime still regulates individual contractual and property rights, as sophisticated, complex and fast as they may now be.”

In accordance with these and other reasons, it was held that the Act is prima facie unconstitutional. If the Supreme Court agrees with Slatter’s reasoning, Canadian securities regulation will remain a provincial matter.