Courts tend to give deference to regulators when they enact subordinate legislation such as regulations, by-laws, or rules. So long as the provision furthers the goals of the enabling legislation, courts loath to strike it down as being unreasonable or enacted for an improper purpose. A recent BC case discussed this deference where a registrant claimed that the rule targeted their business model.
In FS Insurance Brokers, Inc. v Insurance Council of British Columbia, 2024 BCSC 1218 (CanLII), the regulator for insurers enacted a rule preventing insurers from providing products to strata buildings (e.g., condominiums) where the insurer had common ownership with the strata’s property management provider. The applicant’s business model was to provide support services for its affiliated property management company which might give its insurance business to a third-party insurer and that third-party insurer would then pay a commission to the applicant. The applicant sought an advance ruling as to whether this business model was contrary to the new rule. The regulator denied the request. The applicant sought a court order seeking to have the new rule declared invalid.
Without getting into the interpretation issue, the Court held that the new rule was valid. The regulator’s briefing notes and public consultation documents demonstrated that the rule addressed conflict of interest concerns and those concerns were within the “purposes and objects of the parent legislation read as a whole.” This was true even if the rule prevented the property management company from receiving an indirect benefit (through its common ownership structure with the direct recipient of the commission). This intent was reasonably related to the object and purpose of the legislative scheme. It was not the Court’s role to assess the policy merits of the rule or whether it was the most efficacious way to protect the public interest.
The Court noted that the applicant may be justified in feeling it was being targeted by the rule since it is the only entity that may have to cease operations as a result of the rule (depending on the regulator’s interpretation). However, the rule was one of general application and the evidence suggested the rule was not targeted at the applicant. The regulator’s documents consistently addressed the broader policy issue. Also, the applicant’s business model seemed to be gaining popularity and the regulator had previously raised this same concern with another potential registrant.
If the rule had been targeted at the applicant, there may have been some procedural fairness requirements but given that the rule was not targeted, there were no procedural fairness expectations. In any event, the regulator had done extensive consultation, which included providing the applicant with an opportunity to make written submissions, and that satisfied any procedural requirements.
Despite the validity of the rule, the Court obtained commitment from the regulator to proceed with an analysis and provide an advance ruling to the applicant on the applicability of the rule to its model.
This decision will help regulators identify when their proposed rules may be deemed to target specific registrants. It also reinforces the value of well constructed briefing notes and consultation documents when enacting rules or even non-binding policies.