Canadian Western Bank: Recasting the Role of Interjurisdictional Immunity

It is trite to say that the banking industry and the insurance industry have been staples of the Canadian economy for over a century. One would assume that by now Canadian law would be clear on where the regulation of these industries falls in the constitutional division of powers. Banking, after all, has been expressly and exclusively assigned to the federal government since 1867 (see s. 91(15) of the Constitution Act, 1867) and insurance has been recognized as falling within the provincial governments’ authority over property and civil rights since the Judicial Committee of the Privy Council’s 1881 ruling in Citizens Insurance v. Parsons (1881), 7 AC 96. So why, just last week, did the Supreme Court of Canada (“SCC”) enter into a division of powers discussion regarding the legislative authority over these industries in Canadian Western Bank v Alberta, 2007 SCC 22 [Canadian Western Bank]?

The central question in the case was whether banks, empowered by 1991 amendments to the federal Bank Act, SC, c 46, to promote certain types of insurance products, were subject to a provincial licensing scheme regulating the promotion of insurance products. The Alberta Court of Queen’s Bench, the Alberta Court of Appeal and the Supreme Court of Canada unanimously came to the same conclusion on the merits of the case. In short, all courts found that banks are subject to the provincial insurance regulations because the promotion of insurance products is not central to the activity of banking–a fact which remains unchanged by the federal legislation which enables banks to pursue this activity. Each court justified this finding with particular reference to the scope of the relevant legislation and to the purpose for which bank customers would ordinarily purchase insurance products, but the conclusion is also intuitive. A common understanding of the concept of ‘banking’ simply does not include the promotion or sale of insurance products. If a bank chooses to promote insurance products, this does not make insurance part of banking, but rather engages the bank in the business of insurance. It is appropriate, if not completely obvious, that banks should be subject to provincial insurance regulations where banks are promoting insurance.

Nonetheless, the facts of this case provided the Supreme Court with an opportunity to clarify the parameters of the judicially created constitutional doctrine of interjurisdictional immunity. Writing for a majority of the Court, Justices Binnie and LeBel essentially relegated interjurisdictional immunity to the basement of division of powers principles. The justices stated that it is generally preferable to resolve a case on the basis of paramountcy than on the grounds of interjurisdictional immunity and that the latter doctrine “should in general be reserved for situations already covered by precedent” (para 77). The majority opted for a strict test of interjurisdictional immunity, holding that the doctrine applies only where a provincial law impacts on the ‘basic, minimum and unassailable core’ of federal legislative authority and where the impact is to effectively impair the federal undertaking. The main justification offered by the majority for this restricted approach is that a broad interpretation of interjurisdictional immunity is inconsistent with “contemporary views of Canadian federalism, which recognize that overlapping powers are unavoidable” (para 42).

While concurring in the result, Justice Bastarache disagreed with the majority’s treatment of interjurisdictional immunity as generally being a principle of last resort. Instead, noting that this doctrine deals with the applicability of a provincial law to a federal undertaking, Justice Bastarache stated that the division of powers analysis should always follow a three step path. First, a pith and substance analysis should be conducted to determine if the legislation is validly enacted. If the law is intra vires, the second step is to determine whether the doctrine of interjurisdictional immunity restricts the application of the legislation. Finally, if the legislation’s application is not restricted, the doctrine of paramountcy should be considered to identify limits on the operation of the legislation. The paramountcy analysis should follow the interjurisdictional immunity analysis because “it is impossible to find a federal law paramount over a provincial law, or to conclude that the provincial law is inoperable, if the provincial law is not even applicable to the federal matter at issue. This is a matter of practicality as much as it is one of logic” (para 113). Justice Bastarache also addressed the “serious concern that the doctrine unnecessarily and unfairly creates a much wider scope for centralization of federal power at the expense of the principles of federalism and regionalism” (para 111) by holding that interjurisdictional immunity should only be applied where the impugned provincial law has a sufficiently severe impact on the core of a federal head of power. For reasons more fully explained in British Columbia (Attorney General) v Lafarge Canada Inc., 2007 SCC 23 [Lafarge], (decided on the same day as Canadian Western Bank), Justice Bastarache again took a less restrictive position than the majority and held that interjurisdictional immunity applies where provincial legislation impacts on the core of a federal undertaking such that the federal legislative authority is “‘attacked, ‘hindered’ or ‘restrained’” (para 123) but not necessarily impaired.

Prior to this case (and the companion ruling in Lafarge), the doctrine of interjurisdictional immunity was definitely in need of clarification. A long list of Supreme Court rulings had left considerable uncertainty as to the standard to apply in determining whether a provincial law intolerably impacts on a federal undertaking. The majority’s ruling is laudable for identifying a clear standard of impairment. In its zeal to ensure that this doctrine is not used to disrupt the basic balance of modern federalism, however, the majority arguably went too far in casting interjurisdictional immunity to the bottom of the judicial toolbox. It is difficult to argue with Justice Bastarache’s logic that any question of legislative applicability (i.e. interjurisdictional immunity) must be determined in advance of a question of legislative operation (i.e. paramountcy). The majority’s unwillingness to see this logic is puzzling, particularly since any concern about the overuse of interjurisdictional immunity is surely addressed by the majority’s endorsement of a strict test for applying this doctrine. It is unfortunate that, at this late date in division of powers jurisprudence, the SCC could not manage unanimity on this very basic point.

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