3510395 Canada Inc. v. Canada: The First Constitutional Challenge to the Canada’s Anti-Spam Legislation – #42

Factual Background

In 1998, the appellant began its operations in Quebec. It offered approximately 300 professional training courses in areas such as effective use of social media and budget planning. E-mail marketing was the appellant’s primary means of business development.

In 2014, An Act to promote the efficiency and adaptability of the Canadian economy by regulating certain activities that discourage reliance on electronic means of carrying out commercial activities, and to amend the Canadian Radio-television and Telecommunications Commission Act, the Competition Act, the Personal Information Protection and Electronic Documents Act and the Telecommunications Act (“CASL”) came into force in Canada. The CASL provides regulations for the sending of commercial electronic messages (“CEM”)[1] of the electronic commerce.

Between July and September 2014, the appellant sent out 317 commercial electronic messages (“CEM”) to various recipients to promote its educational and training services. Most of the recipients are young individuals working in Quebec.

On March 5, 2015, following the investigation, the Appellant was issued a Notice of Violation (NOV) pursuant to section 22 of CASL. The NOV alleged that the appellant had not obtained recipients’ consent prior to sending the promotion emails in question, contrary to paragraph 6(1)(a) of CASL. Besides, the commercial electronic messages (“CEM”) did not contain a functioning “unsubscribe” link, contrary to paragraph 6(2)(c) of CASL. Consequently, the NOV imposed a $1,100,000 administrative monetary penalty (“AMP”) on the appellant.

Procedural History

On May 15, 2015, the appellant made representations to the Canadian Radio-Television and Telecommunications Commission (the CRTC) pursuant to section 24 of CASL, denying its violation of CASL, complaining of bias in the investigation into its activities. Furthermore, the Appellant asserted that the CASL is unconstitutional.

On August 9, 2016, the appellant filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act, R.S.C. 1985 c. B-3.

On October 19, 2017, the CRTC dismissed the appellant’s constitutional challenge to the CASL. In fact, the CRTC bifurcated its decision into two parts. The first decision stated that the CASL is intra vires Parliament’s trade and commerce power under section 91(2) of the Constitution Act, 1867 and that its infringement of freedom of expression is justified under section 1 of the Canadian Charter of Rights and Freedoms. The second decision found that the appellant had committed four violations of CASL. Thus, the CRTC imposed a $200,000 administrative monetary penalty (“AMP”) to the Appellant after comparing the appellant’s conduct against the factors in subsection 20(3) of CASL. Furthermore, the CRTC found that its review of NOV was unaffected by the appellant’s bankruptcy proceeding.

On November 28, 2016, the appellant listed the CRTC as an unsecured creditor in its bankruptcy proceeding.

The Appellant appealed the CRTC’s decisions pursuant to subsection 27(1) of CASL, which permits appeal to the Federal Court of Appeal of the CRTC decisions made under CASL.

Main Issues to Analyse

1. Is the CASL ultra vires Parliament?

2. Is the CASL’s violation of section 2(b) of the Charter justified under section 1?

Appellant’s Positions on the Constitutional Challenge to the CASL

1. The appellant argues that the CRTC erred in finding CASL intra vires Parliament’s trade and commerce power. The CASL captures all messages that might have a minor commercial purpose, regulate purely local messaging and interfere with contractual terms. However, the impugned provisions of CASL fall squarely within provincial jurisdiction over municipalities, local matters and property and civil rights.

2. Even if the impugned provisions come under Parliament’s general trade and commerce power, the Appellant argues that CASL violates Section 2(b) of the Charter and is not saved under Section 1 of the Charter. The appellant argues that the CASL is too vague to constitute “limit prescribed by law” which causes confusion and makes compliance difficult. The appellant argues that the impugned provisions presumptively ban all messages with any arguable commercial content, which cannot protect the economy as they actually impede e-commerce. This is not rationally connected to the CASL’s legislative objective.

3. Even if the rational and logical link between the infringing measures and the legislative objectives was sufficient to pass the rational connection stage, the appellant asserts that the CASL fails the minimal impairment stage. Among others, the appellant suggests that, instead of having an open-ended definition of CEM and a closed set of exemptions, the CASL could have employed a closed definition of CEM and open-ended exemptions, similar to the approach taken in Australia (See para. 59 of the Decision).

Court’s Analysis

1. Standard of Review: The Supreme Court’s decision on Vavilov stated that “where the legislature has provided for an appeal from an administrative decision to a court, a court hearing such an appeal is to apply appellate standards of review to the decision.” (para. 37 of Vavilov, 2019 SCC 65). The questions of law are reviewed on the standard of correctness. Thus, the Court’s review of the CRTC’s Constitutional Decision, concerning CASL’s validity and Charter compliance, will proceed on the standard of correctness.

2. To determine whether the impugned provisions of the CASL falls within Parliament’s legislative competence or not, a division of powers analysis is required. The Court conducted a pith and substance analysis of the CASL’s purpose and effects and then employed the General Motors test to classify the heads of power assigned to either Parliament or the provinces (See also Reference re Securities Act, [2011] 3 SCR 837).

3. The Supreme Court has made clear, where only certain provisions of an act are challenged, “the first stage of the analysis requires a characterization of the impugned provision in isolation from the rest of the statute.” (para. 23 of Kirkbi AG v. Ritvik Holdings Inc., 2005 SCC 65)

4. What is the purpose of the CEM scheme of the CASL? Does it actually reach the purpose

4.1 The purpose clause for CASL as a whole, found at section 3 of the CASL is useful in discerning the purpose of the impugned scheme. Section 3 of the CASL states                        that the CASL’s purpose is “to promote the efficiency and adaptability of the Canadian economy by regulating commercial conduct that discourages reliance on electronic means of carrying out commercial activities”.

4.2 The commercial activities that CASL regulates are threefold: the alteration of transmission data in electronic messages, the unauthorized installation of computer programs and, most pertinently, the sending of unsolicited CEMs. The parliamentary debates consistently support the conclusion that the purpose of CASL’s CEM scheme is to regulate unsolicited CEMs in order to combat spam and associated online threats in the interests of privacy and security in order to promote a healthy e-economy.

4.3 The direct legal effect of the impugned provisions of CASL is the establishment of a federal regulatory scheme for unsolicited CEMs applicable to all provinces. The fact that a matter may for one purpose and in one aspect fall within jurisdiction does not mean that it cannot, for another purpose and in another aspect fall within provincial competence (See para. 102 to 103 of the Decision). It is clear that CASL’s CEM scheme does not regulate the contracts of any particular business or trade.

4.4 The practical consequence of the impugned CEM scheme is to regulate the transmission of some commercial information that takes place entirely within a province. The Court states that the regulation of “purely local” messaging is merely an incidental or secondary effect of the impugned scheme. It is in practice impossible for a legislature to exercise its jurisdiction over a matter effectively without incidentally affecting matters within the jurisdiction of another level of government.

5. Classification: General Motors Test

5.1 The five indicia of valid general trade and commerce legislation were set out by the Supreme Court in General Motors. They are as follows: (i) the impugned legislation must be part of a regulatory scheme; (ii) the scheme must be monitored by the continuing oversight of a regulatory agency; (iii) the legislation must be concerned with trade as a whole rather than with a particular industry; (iv) the legislation should be of a nature that provinces jointly or severally would be constitutionally incapable of enacting; and (v) 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 (See para. 113 of the Decision). However, the list of criteria is non-exhaustive, and failure to meet all five is not necessarily fatal to federal legislation (Kirkbi at para. 17).

5.2 After a sufficient analysis, the Court finds the CASL’s CEM scheme is a valid exercise of Parliament’s power over general trade and commerce affecting Canada as a whole pursuant to the subsection 91(2) of the Constitution Act.

6. Is the CASL’s Infringement of Section 2(b) of the Charter justified under Section 1 of the Charter?

6.1 Section 1 of the Charter requires that a limit on a Charter right be prescribed by law. Next, the limit must respect the principle of proportionality. The three prongs of the proportionality analysis are (1) a rational connection between the restricting measures and the measures’ objective (para 164 of the Decision); (2) that the impugned measures impair the right or freedom as little as possible (para. 171 of the Decision); and (3) overall proportionality between the benefits of the impugned measures and the deleterious effects to which they give rise (See para. 188 of the Decision).

6.2 After analyzing all the factors, the Court finds that the benefits of the impugned provisions of the CASL outweigh its effects on freedom of expression.

Main Takeaways

It is worth to emphasize that the CASL establishes three consent-related preconditions for the sending of CEMs: A. express or implied consent of the recipient; B. inclusion of an unsubscribe mechanism to allow recipients to withdraw consent; C. inclusion of senders’ identification and contact information so these individuals can be contacted directly and informed of recipients’ withdrawal of consent, when necessary.

[1] Commercial Electronic Messages refer to the electronic messages that encourage participation in a commercial activity, provides a list of examples of targeted conduct.

(Reminder: The purpose of this article is to provide general legal information. It does not contain a full analysis of the law nor does it constitute a legal advice on the points of law discussed. To minimize the legal risk for your business, you must take specific legal advice from a lawyer on any particular matter which concerns you. Thanks for your attention.)