Regulatory Authority in Canada

Here is an extract from the “Single Market Myth” paper I co-authored with Professor Mancini, speaking to the constitutional basis of regulatory authority in Canada

Legislative authority over trade and commerce in Canada is highly decentralized, posing significant challenges for regulatory – or deregulatory – legislation that is national in character. This section explains why that is the case, setting up the later discussion of interprovincial free trade and the measures governments take to facilitate it. It begins with an overview of legislative power over trade, focusing on the relevant provisions of the Constitution Act, 1867, and on Parliament’s power to make laws in relation to two key components of trade and commerce: interprovincial trade and general Canada-wide trade. The courts have found that neither of these aspects can serve as the basis for the development of national regulatory or deregulatory standards in legislation that applies everywhere in Canada. The section also explains how and why significant non-tariff barriers to trade persist between provinces, despite the commitment of the drafters of the Constitution Act, 1867 to free trade. These barriers make frictionless trade a significant public policy challenge in the federation.

Interpreting the Constitution Act, 1867

In Canada, legislative authority is divided between Parliament and the provincial legislative assemblies. The division is set out in ss. 91 and 92 of the Constitution Act, 1867, which create various “heads” of legislative power.

At first glance, these provisions might appear to give Parliament broad powers to regulate the national economy. Most importantly, s. 91(2) refers to “The Regulation of Trade and Commerce.” On its face, this head of power is extremely broad:

The words “regulation of trade and commerce,” in their unlimited sense are sufficiently wide, if uncontrolled by the context and other parts of the Act, to include every regulation of trade ranging from political arrangements in regard to trade with foreign governments, requiring the sanction of parliament, down to minute rules for regulating particular trades (Citizens’ Insurance Company of Canada v. Parsons (1881), 4 S.C.R. 215 112 (SCC 1881); (McDonald 1969, 189)

However, the individual heads of power in ss. 91 and 92 cannot be read in isolation. They must be read as forming part of a cohesive scheme. For the trade and commerce power, this has two implications.

First, it is circumscribed by the other heads of power contained in s. 91:

If the words [trade and commerce] had been intended to have the full scope of which in their literal meaning they are susceptible, the specific mention of several of the other classes of subjects enumerated in sect. 91 would have been unnecessary; as, 15, banking; 17, weights and measures; 18, bills of exchange and promissory notes; 19, interest; and even 21, bankruptcy and insolvency. (Citizens’ Insurance Company of Canada v. Parsons (1881), 4 S.C.R. 215 at 112 (S.C.C. 1881))

The point here is that if “trade and commerce” were read literally, it would already include matters such as legislation in relation to banking and rates of interest. The fact that the drafters of the Constitution Act included specific provisions about banking, rates of interest, and so on is, therefore, an indication that they intended “trade and commerce” to be read more narrowly than its literal meaning suggests.

Second, the trade and commerce power has to be read cohesively with the heads of provincial power set out in s. 92. Most importantly, s. 92(13) empowers provincial legislative assemblies to make laws about “Property and Civil Rights in the Province.” Too broad a reading of “trade and commerce” would end up “substantially impairing the autonomy of the provinces in respect of matters of purely provincial concern” (Reference re Alberta Statutes, [1938] S.C.R. 100 at 121 (S.C.C. 1938); Lawson v. Interior Tree Fruit and Vegetable Committee, [1931] S.C.R. 357 at 366 (S.C.C. 1931)). Put another way, s. 92(13) requires a “subtraction” from the trade and commerce power (Reference re Farm Products Marketing Act, [1957] S.C.R. 198 at 202 (S.C.C. 1957)), not because the Constitution Act, 1867 expressly requires it, but by necessary implication (Reference re Farm Products Marketing Act, [1957] S.C.R. 198 at 212 (S.C.C. 1957)).

As Malcolm Lavoie has argued, and as we suggest below, this allocation of power contemplated by s.91(2) makes economic sense (Lavoie 2023). In other words, the text of the Constitution reflects underlying principles of political economy: national economic power was designed to overcome coordination and holdout problems among the provinces (Lavoie 2023). These problems could stymie the potential for one national economy. As we shall see, our proposal will ultimately build on this insight, with the federal Parliament creating a coordinating mechanism to harmonize and eliminate regulatory barriers.

Now, the precise scope of s. 92(13) can be debated. In an early case, the Privy Council concluded that it must include at least the authority to regulate “the contracts of a particular business or trade” (Citizens’ Insurance Company of Canada v. Parsons (1881), 7 App. Cas. 96 at 112 (S.C.C. 1881)). Professor Lavoie has suggested that it extends to the regulation of matters of private law, such as contracts, torts, property, and relations between persons (Lavoie 2023). Perhaps the proper scope of “property and civil rights” is somewhere in between these two poles. Regardless, the point is that the heads of power in ss. 91 and 92 must be read as a cohesive scheme and this requires a “balance” to be struck, especially in interpreting Parliament’s authority over trade and commerce (Reference re Securities Act, [2011] 3 S.C.R. 837 at 68–85 (S.C.C. 2011)).

There are two aspects to the trade and commerce power: the regulation of interprovincial and international trade, and a so-called “general” power:

Construing therefore the words “regulation of trade and commerce” by the various aids to their interpretation above suggested, they would include political arrangements in regard to trade requiring the sanction of parliament, regulation in matters of inter-provincial concern, and it may be that they would include general regulation of trade affecting the whole dominion. (Citizens’ Insurance Company of Canada v. Parsons (1881), 4 S.C.R. 215 at 113 (S.C.C. 1881); General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641 (S.C.C. 1989))

We will deal with each of these in turn.

Interprovincial Trade

In terms of regulation of interprovincial trade, it is helpful to start with Canada (Attorney-General) v. Alberta (Attorney-General) ([1916] 26 D.L.R. 288 (U.K.J.C.P.C. 1916)). Here, the Privy Council concluded that a federal Insurance Act, which purported to require companies selling insurance to be licensed by the federal government, was unconstitutional:

the authority to legislate for the regulation of trade and commerce does not extend to the regulation by a licensing system of a particular trade in which Canadians would otherwise be free to engage in the provinces. (Canada (Attorney-General) v. Alberta (Attorney-General), [1916] 26 D.L.R. 288 at 292 (U.K.J.C.P.C. 1916))

The problem here, in the Privy Council’s view, was that the federal legislation would preclude a provincially incorporated company from selling insurance in that province.

In subsequent decisions, schemes for the regulation of grain elevators and products produced for export from the province were also invalidated on similar grounds (The King v. Eastern Terminal Elevator Co., [1925] S.C.R. 434 (S.C.C. 1925); British Columbia (Attorney General) v. Canada (Attorney General), [1937] 1 D.L.R. 691 (U.K.J.C.P.C. 1937)). In that era, the Privy Council even articulated the “ancillary theory” of the trade and commerce power, which would have narrowed this head of power to a vanishing point (Hogg 2020).

After the abolition of appeals to the Privy Council, the Supreme Court of Canada expanded the scope of the power to regulate interprovincial trade somewhat, upholding in Caloil Inc. v. Attorney General of Canada a scheme prohibiting the sale of imported oil west of Ottawa even though it applied to intraprovincial transactions:

the policy intended to be implemented by the impugned enactment is a control of the imports of a given commodity to foster the development and utilization of Canadian oil resources. The restriction on the distribution of the imported product to a defined area is intended to reserve the market in other areas for the benefit of products from other provinces of Canada. Therefore, the true character of the enactment appears to be an incident in the administration of an extraprovincial marketing scheme… Under the circumstances, the interference with local trade restricted as it is to an imported commodity, is an integral part of the control of imports in the furtherance of an extraprovincial trade policy and cannot be termed “an unwarranted invasion of provincial jurisdiction.” (Caloil Inc. v. Attorney General of Canada, [1971] S.C.R. 543 at 551 (S.C.C. 1971); Murphy v. C.P.R., [1958] S.C.R. 626 (S.C.C. 1958); R. v. Klassen (1959), 20 D.L.R. (2d) 406 (M.B.C.A. 1959))

But it must be noted that intraprovincial transactions could only be regulated by federal legislation where this was necessarily incidental – an “integral part” – to the regulation of interprovincial or international trade. Otherwise, “the Parliament of Canada may not, in the guise of regulating trade and commerce, reach into the fields allocated to the provinces by s. 92(13) and (16) and regulate trading transactions occurring entirely within the provinces” (Dominion Stores Ltd. v. R., [1980] 1 S.C.R. 844 at 855 (S.C.C. 1980)).

The fate of federal legislation establishing product standards is instructive. In Dominion Stores Ltd. v. R. ([1980] 1 S.C.R. 844 (S.C.C. 1980)), the Supreme Court invalidated the Canada Agricultural Standards Act. This legislation sought to establish uniform national standards for agricultural products. To take apples as an example, the idea was that a “Canada Extra Fancy” apple would be such throughout the country. It was an offence to use the federally established standard without complying with the standard. This scheme was layered on top of provincial regulation, which used similar standards. By a 5–4 majority, the Supreme Court held that the statute was not authorized under Parliament’s power to regulate interprovincial trade as “the thrust of the federal statute is the regulation of local as well as interprovincial and international marketing, as for example, by the detailed regulation of packaging” (Dominion Stores Ltd. v. R., [1980] 1 S.C.R. 844 at 861 (S.C.C. 1980)):

Stripping off the complexities of the constitutional argument and reducing the transaction to its real proportions, the appellant here offered apples for sale pursuant to an admittedly valid provincial statute. The dealer did not select and adopt a grade name prescribed by a federal statute, but rather complied with applicable, valid provincial legislation. The precise issue facing the Court in this proceeding is whether or not, in these circumstances, a charge may be laid under the federal statute. It may be, of course, that the provincial inspectors took a different view of the apples in question than did the federal inspectors, which may explain why no action was taken under the provincial statute. However, the offence, if any, must, in my view, be against the provincial legislation and not the artificially extended federal statute. Here the sequence of passage of marketing schemes was first the provincial statute, followed by a like federal statute purporting to reach down to intraprovincial trade. If, however, the Attorney General for Canada be correct, the latter is valid and the offence allegedly committed by the appellant is against the federal statute and not the provincial statute without which the federal statute would have no legal application as regards local trade. The parasite and not the host thereby becomes the bigger and more important animal. (Dominion Stores Ltd. v. R., [1980] 1 S.C.R. 844 at 859 (S.C.C. 1980); Labatt Breweries of Canada Ltd. v. Attorney General of Canada, [1980] 1 S.C.R. 914 (S.C.C. 1980))

This is an especially notable decision as uniform standards are one of the most powerful resources available in a federation to ensure seamless trade across borders. The European Union boasts more than 3,600 such standards across an extraordinary range of product categories, facilitating frictionless exchange from one end of the Union to the other (Public Resource Org Inc. v. Right to Know CLG [2024] C.J.E.U. C-588/21 P at 71-71 (C.J.E.U. 2024)). Parliament, however, has no comparable authority, and this clearly affects the potential for frictionless exchange in Canada.

General Regulation of Canada-Wide Trade

In terms of the general power to regulate trade and commerce, the leading case remains General Motors of Canada Ltd. v. City National Leasing ([1989] 1 S.C.R. 641 (S.C.C. 1989)). Noting that a “careful case by case analysis” is required in all cases where this power is invoked, Judge Dickson set out a list of five non-exhaustive indicia of validity for a federal statute seeking to effectuate general regulation of trade affecting the whole country:

First, the impugned legislation must be part of a general regulatory scheme. Second, the scheme must be monitored by the continuing oversight of a regulatory agency. Third, the legislation must be concerned with trade as a whole rather than with a particular industry… [Fourth] the legislation should be of a nature that the provinces jointly or severally would be constitutionally incapable of enacting… [Fifth] the failure to include one or more provinces or localities in a legislative scheme would jeopardize the successful operation of the scheme in other parts of the country. (General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641 at 661-662 (S.C.C. 1989))

This sufficed, in the General Motors case, to uphold competition legislation.

But when the federal government proposed comprehensive legislation to regulate the securities industry, the Supreme Court held that the general power to regulate trade could only be exercised where there is a “constitutional gap” (Reference re Securities Act, [2011] 3 S.C.R. 837 at 83 (S.C.C. 2011)). The Supreme Court accepted that regulating trade in securities “might well relate to trade as a whole” but cautioned that “the proposed Act reaches beyond such matters and descends into the detailed regulation of all aspects of trading in securities, a matter that has long been viewed as provincial” (Reference re Securities Act, [2011] 3 S.C.R. 837 at 114 (S.C.C. 2011)). Fundamentally, Parliament sought to “regulate all aspects of contracts for securities within the provinces, including all aspects of public protection and professional competence within the provinces” (Reference re Securities Act, [2011] 3 S.C.R. 837 at 122 (S.C.C. 2011)). This was a bridge too far:

The provisions of the proposed Act, viewed as a whole, compel a negative response. The Act chiefly regulates contracts and property matters within each of the provinces and territories, overlain by some measures directed at the control of the Canadian securities market as a whole that may transcend intraprovincial regulation of property and civil rights. A federal scheme adopted from the latter, distinctly federal, perspective would fall within the circumscribed scope of the general trade and commerce power. But the provisions of the Act that relate to these concerns, although perhaps valid on their own, cannot lend constitutional validity to the full extent of the proposed Act. Based on the record before us, the day-to-day regulation of all aspects of trading in securities and the conduct of those engaged in this field of activity that the Act would sweep into the federal sphere simply cannot be described as a matter that is truly national in importance and scope making it qualitatively different from provincial concerns. (Reference re Securities Act, [2011] 3 S.C.R. 837 at 125 (S.C.C. 2011))

In the absence of some sort of “constitutional gap” – a term left undefined – there is no role for national regulation even of an industry that is Canada-wide in scope and has significant interprovincial aspects (McLean v. British Columbia (Securities Commission), [2013] 3 S.C.R. 895 (S.C.C. 2013); Sharp v. Autorité des marchés financiers, [2023] 487 D.L.R. (4^th) 467 (S.C.C. 2023)).

This content has been updated on March 7, 2026 at 15:23.