The Supreme Court ends debate over the standard of review for regulations: Auer v. Auer, 2024 SCC 36 and TransAlta Generation Partnership v. Alberta, 2024 SCC 37

On Nov. 8, 2024, the Supreme Court released its highly anticipated decisions in two companion appeals: Auer v. Auer, 2024 SCC 36 [Auer], and TransAlta Generation Partnership v. Alberta, 2024 SCC 37 [TransAlta]. These decisions resolve the question of what standard of review is to be applied in cases where an applicant seeks to judicially review subordinate legislation.

The Auer and TransAlta decisions confirm that the judicial review of subordinate legislation proceeds under the reasonableness framework set out in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 [Vavilov]. At the same time, Auer and TransAlta reaffirm a number of key principles that the Supreme Court previously recognized in Katz Group Canada Inc. v. Ontario (Health and Long‑Term Care), 2013 SCC 64 [Katz], including the presumption that regulations are valid.^[1] Within this presumption, however, Auer and TransAlta expressly remove Katz's requirement that subordinate legislation will be found intra vires unless it is "irrelevant," "extraneous," or "completely unrelated" to its statutory purpose.

As we explain below, the removal of this threshold has significant implications for those challenging regulations and those who make them.

Background on the companion appeals

On April 25, 2024, the Supreme Court heard appeals from the decisions of the Alberta Court of Appeal in Auer v. Auer, 2022 ABCA 375 [Auer ABCA], and TransAlta Generation Partnership v. Alberta (Minister of Municipal Affairs), 2022 ABCA 381 [Transalta ABCA].^[2] The former decision involved an application for judicial review of Governor in Council regulations on support payments, and the latter involved an application for judicial review of ministerial regulations about property taxation assessment.

In both decisions, the Alberta Court of Appeal applied the legal principles set out in Katz. The Court of Appeal found that these principles had not been overturned nor modified by Vavilov, and that the Vavilov reasonableness standard was fundamentally unsuited to the review of regulations.

The Katz principles

In Katz, Justice Abella, writing for a unanimous Supreme Court, outlined the following five principles for assessing the vires of subordinate legislation:

• "A successful challenge to the vires of regulations requires that they be shown to be inconsistent with the objective of the enabling statute or the scope of the statutory mandate";^[3]
• "Regulations benefit from a presumption of validity… This presumption has two aspects: it places the burden on challengers to demonstrate the invalidity of regulations… and it favours an interpretive approach that reconciles the regulation with its enabling statute so that, where possible, the regulation is construed in a manner which renders it intra vires";^[4]
• "Both the challenged regulation and the enabling statute should be interpreted using a 'broad and purposive approach… consistent with the Court's approach to statutory interpretation generally'";^[5]
• "This inquiry does not involve assessing the policy merits of the regulations to determine whether they are 'necessary, wise, or effective in practice… It is not an inquiry into the underlying 'political, economic, social or partisan considerations'" or an assessment of whether the regulations "will actually succeed at achieving the statutory objectives";^[6]
• The regulations "must be 'irrelevant,' 'extraneous' or 'completely unrelated' to the statutory purpose to be found ultra vires on the basis of inconsistency with statutory purpose."^[7]

After setting out these principles, the Court notably added that although it was possible to strike down regulations as ultra vires on this basis, "it would take an egregious case to warrant such action."^[8]

Uncertainty post-Vavilov

After Vavilov, questions arose as to whether the Katz principles should continue to apply. The Katz standard was criticized for being "hyperdeferential" and inconsistent with the flexible, contextual reasonableness inquiry set out in Vavilov.^[9] As Justice Stratas explains in Portnov v. Canada (Attorney General), 2021 FCA 171 [Portnov], although the majority of Katz principles were "well-accepted, judge-made principles," the very narrow ways that the presumption of validity could be rebutted, and particularly the 'irrelevant', 'extraneous' or 'completely unrelated' threshold, were "more controversial" after Vavilov.^[10]

Indeed, since 2021, decisions of the Federal Court of Appeal have applied the Vavilov reasonableness framework instead of Katz. Justice Stratas, in particular, reasoned that Vavilov should apply because "regulations, like administrative decisions and orders, are nothing more than binding legal instruments that administrative officials decide to make."^[11]

The Alberta Court of Appeal, by contrast, continued to apply the Katz principles, including in Auer ABCA and Transalta ABCA. In Auer ABCA, the Alberta Court of Appeal held that Katz applied to Governor in Council regulations that are subject to parliamentary debate, but Vavilov applied to other types of regulations and delegated legislation. In Transalta ABCA, the Alberta Court of Appeal extended the logic of Auer and applied Katz to regulations adopted by a provincial Minister.^[12]

Key takeaways from the Supreme Court decisions in Auer and TransAlta

1. Reasonableness is the default standard when reviewing the validity of subordinate legislation

   In Auer and TransAlta, a unanimous Supreme Court put an end to this post-Vavilov uncertainty by confirming that Vavilov's robust reasonableness standard is the "default standard" when reviewing whether subordinate legislation is ultra vires.^[13]

   In Auer, the Court explains that this is the case for two reasons. First, the Court explains that the Supreme Court in Vavilov provided a "comprehensive framework for determining the standard of review that applies to any substantive review of an administrative decision," including questions of the vires or jurisdiction of subordinate legislation.^[14] Second, and relatedly, since Vavilov, the Supreme Court had accepted that the rule of law did not require that questions of vires, in themselves, be reviewed for correctness." Citing Vavilov, the Court affirmed that, "robust reasonableness review was sufficient to ensure that statutory delegates act within the scope of their lawful authority."^[15]

   Importantly, and consistent with Vavilov, the Court recognized that the presumption of reasonableness review for the vires of delegated legislation may be rebutted in exceptional cases where the rule of law requires correctness review (such as a vires challenge based on the division of powers).^[16]

   The Court found that reviewing the validity of subordinate legislation is fundamentally an exercise of statutory interpretation to ensure that the delegate has acted within the scope of their lawful authority under the enabling statute. ^[17] As a result, "the governing statutory scheme, other applicable statutory or common law and the principles of statutory interpretation" are key constraints that bear upon reasonableness review in reviewing whether subordinate legislation is ultra vires.^[18] As discussed more fully below, the Supreme Court confirms that these legal constraints continue to include key principles from Katz.

   In conducting a vires review, the Court also stressed that a court does not undertake a de novo analysis to determine the correct interpretation of the enabling statute and then ask whether, on that interpretation, the delegate had the authority to enact the subordinate legislation. Rather, consistent with Vavilov, the court ensures that the delegate's exercise of authority falls within a reasonable interpretation of the enabling statute, having regard to the relevant constraints.^[19]

2. Most of the Katz principles still apply, but the "irrelevant," "extraneous" or "completely unrelated" threshold is no longer relevant

The Court confirmed that the first four of the five Katz principles, set out above, remain good law and should inform reasonableness review when reviewing the validity of subordinate legislation.

Importantly, although the Court reaffirms that subordinate legislation continues to benefit from a presumption of validity,^[20] the Court's decision in Auer articulates key changes to the narrow ways that that presumption can be rebutted. Specifically, the Court held that the "irrelevant," "extraneous" or "completely unrelated" threshold set out as part of that presumption in Katz is no longer good law and should not inform reasonableness review under the Vavilov framework. According to the Court, this threshold "connotes a very high degree of deference… that is inconsistent with robust reasonableness review." In this regard, "maintaining it would undermine Vavilov's promise of simplicity, predictability, and coherence."^[21]

Instead, where the reasonableness standard applies, to overcome the presumption of validity, "challengers [bear the burden to] demonstrate that the subordinate legislation does not fall within a reasonable interpretation of the delegate's statutory authority. If the correctness standard applies, challengers can overcome the presumption of validity by demonstrating that the subordinate legislation does not fall within the correct interpretation of the delegate's statutory authority."^[22]

Implications

We can expect to see more judicial review applications challenging the validity of subordinate legislation thanks to the Supreme Court's clarification in Auer and further application in TransAlta. The "irrelevant," "extraneous" or "completely unrelated" threshold in Katz made successful judicial review of subordinate legislation extremely difficult. The Supreme Court's unanimous rejection of this hyper-deferential" threshold removes a significant barrier to the judicial review of subordinate legislation.

As a result, Auer and Transalta affect the regulated and regulators alike. Applicants may be more inclined to challenge the vires of regulations. On the other hand, those statutorily empowered to make delegated legislation would be well-advised to scrutinize any such rules to ensure that they are sufficiently tethered to their authorizing provisions to survive judicial review after Auer and Transalta.

While the Supreme Court has provided clear guidance on the standards to be applied to ensure delegates act within the scope of their lawful authority, courts will likely remain relatively deferential, given the contextual nature of the Vavilov reasonableness inquiry (reasonableness, as the Court tells us "takes its colour from the context"^[23]) and the key principles from Katz which continue to apply. The presumption of validity remains a significant hurdle that litigants seeking to judicially review subordinate legislation have the onus to rebut.

While the Court in Auer has affirmed Katz's holding that a vires review does not involve assessing the policy merits of the subordinate legislation, it also notes that the potential or actual consequences of the subordinate legislation can be relevant to the determination of whether the statutory delegate was reasonably authorized to enact subordinate legislation that would have such consequences.^[24] Distinguishing between the two may prove challenging or elusive in practice when considering the admissibility of evidence or appropriateness of certain arguments on judicial review.