C. Defining Banking

AuthorM.H. Ogilvie
ProfessionLSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University
Pages10-19

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To define banking is to face immediately the challenge of characterizing the essential nature of the changing bundle of activities carried on by banks over time. Banking is both so complex and dynamic that there may well be no essential core for a court to identify and ascribe to section 91(15). Judicial attempts to define the nature and scope of constitutional jurisdiction appear to be ultimately impossible.

Since the clearest approach would be to permit Parliament to define the content of section 91(15) through legislation, the courts have the option of either accepting that definition or attempting to qualify, annul, or constrain it. Notwithstanding the complex and comprehensive legislation in relation to banking, Parliament has left room for the courts to operate when specific issues of jurisdiction and definition arise, so that the content of both jurisdiction over banking and the legal definition of banking remain matters of ongoing dialogue between Parliament and the courts. From the earliest to the latest cases, the courts have considered both concurrently, yet the outcome remains, as it was in 1867, that Parliament has jurisdiction over banking, whatever that is.

The earliest case, Tennant v. Union Bank of Canada18is still the leading case. In Tennant, the issue was whether a bank that had taken warehouse receipts as security pursuant to the federal Bank Act had an enforceable security. The plaintiff argued that provincial legislation applied pursuant to section 92(13) "Property and Civil Rights in the Province," and that Parliament had no jurisdiction in security matters. The Privy Council agreed that provincial powers extended to legislation about warehouse receipts under section 92(13), but once Parliament chose to legislate on the matter in relation to banking, Parliament had "paramount authority,"19although it would be practically impossible to so legislate without affecting provincial jurisdiction.20

The Board upheld the validity of the warehouse receipts and the federal Bank Act and concluded:

The legislative authority conferred by [section 91(15)] is not confined to the mere constitution of corporate bodies with the privilege of carrying on the business of bankers. ... It also comprehends "banking," an expression which is wide enough to embrace every transaction coming within the legitimate business of a banker.21

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Tennant is, undoubtedly, ambiguous. Yet several firm conclusions may be drawn: (i) Parliament has exclusive jurisdiction over banking under section 91(15); (ii) Parliament’s jurisdiction is paramount when overlap occurs with section 92(13); (iii) Parliament enjoys exclusive authority over the incorporation of banks; and (iv) "banking" is an expansive concept. Other matters remain less certain, including: (i) the distinction between banking and other forms of financial intermediation or institutions; (ii) the content of legitimate banking business; and (iii) the question of which branch of government has authority to decide what is legitimate banking business, either Parliament through legislation or the courts through giving content to "banking" in section 91(15). If it is the latter, then the banking community may well have the final power to determine "banking" simply through expansion into enterprises not expressly prohibited by Parliament and subsequent ratification by the courts.

Subsequent case law has explored the scope and meaning of Parliament’s jurisdiction over banking in two groups of cases: (i) cases about the incorporation of other financial institutions both provincially and federally and (ii) cases about provincial legislation that appears to infringe on the federal banking power. The former group explores the scope of banking from an institutional perspective, while the latter group does so from an activities perspective: what "banks" are and what "banks" do.

1) Defining Banking from an Institutional Perspective

As in other Western countries, a variety of financial institutions operate in Canada, not all of which are called banks or considered to be such, and this has been the case since the early nineteenth century. Parliament has never attempted to assert control over these through a comprehensive definition of "banking" in section 91(15). Instead, it has operated within the four-pillars framework (banks, insurance companies, trust companies, and brokerages) and the dual federal and provincial jurisdictions expressed in section 91(15) and sections 92(11) and 92(16), respectively. Parliament has enacted legislation pursuant to section 91(2) regarding its residual power to regulate other financial institutions such as trust and loan companies or insurance companies that operate across provincial boundaries, and the courts have consistently upheld the constitutional validity of provincial legislation in relation to provincial "near banks" pursuant to sections 92(11), (13), and (16).22

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Several cases have upheld provincial jurisdiction to incorporate and regulate trust companies operating within provincial boundaries. In Re Dominion Trust Company and U.S. Fidelity Claim,23a trust company incorporated pursuant to a B.C. companies act and authorized to receive money on deposit failed after transfer to federal jurisdiction by a private act of Parliament. The B.C. Supreme Court decided the incorporation was not ultra vires the province, that is, it was not a "bank." The trust company’s practice of receiving funds in trust for investment and permitting payment orders in relation to these funds was unobjectionable. Since the company had not called itself a "bank" or referred to its activities as "banking," it had not violated federal jurisdiction and could operate legally.

Stronger support for the constitutional validity of provincially incorporated trust companies offering similar financial services to those offered by banks is found in Re Bergethaler Waisenamt,24which was concerned with a Manitoba trust company that had powers under provincial legislation to act as trustee for persons of unsound mind. In a winding-up, a dispute between trustee creditors and deposit creditors in relation to the assets led to the argument that the deposit creditors’ claim was based on an ultra vires activity, "banking," and therefore should fail. To decide whether the company was engaged in "banking," the court adopted a common law approach by considering what is meant by "banking" in section 91(15). The court concluded that because the trust company did not honour cheques, although it offered many other "banking" services, it was not a bank because an essential characteristic of banking is the banker’s obligation to honour cheques. Both trustee and depositor creditors’ claims ranked equally. A provincially incorporated trust company may provide the same financial services as banks without being engaged in banking under section 91(15).

The strongest support for the concurrent role of trust companies in the financial services sector came from the Supreme Court of Canada in Canadian Pioneer Management Ltd. v. Saskatchewan Labour Relations Board.25

A federally incorporated trust company, Pioneer Trust, argued that a provincial labour relations board lacked jurisdiction to certify an employee union or to regulate its employment relations, on the ground that its activities fell completely within federal jurisdiction, including the various "banking" services that it provided, which, effectively, made

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it a bank. After an extensive discussion of what banking is under section 91(15), the Supreme Court of Canada decided that it was not a bank.

In an unanimous decision,26the Court proceeded along traditional common law lines of attempting to characterize the essential nature of banking. Beetz J. followed three approaches: (i) characterization of the nature of the bank and customer relationship; (ii) identification of the functions of banking; and (iii) discernment of formal or institutional means of identifying banks.27

Neither the first nor...

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