At eleven o'clock the house adjourned, without question put, pursuant to standing order.

POST OFFICE-DENIAL OF THE USE OF MAILS Text of Correspondence between Mr. McTague and the Minister of Justice WHITE, BRISTOL, GORDON, BECK & PHIPPS BARRISTERS & SOLICITORS

Hon. Charles P. McTague, K.C., 220 Bay Street, Toronto 1, Canada, April 17th, 1950. The Honourable Stuart Garson, Minister of Justice, . Department of Justice, * Ottawa, Ontario. Re: Broker Dealers Association. As counsel for the Broker Dealers Association of Ontario and acting only in that capacity and not for any individuals concerned, I wish to put before you certain submissions with respect to the action of the Post Office Department stopping the mails to people in, or remotely associated with, the security business here in Toronto. In the first place, my submission is that under the rule of law, to which we lawyers continually pay lip service, the procedure followed in the Post Office Department is totally without justification. The powers of the Post Office generally in so far as they appear to be relevant to the matter alleged to be involved here are, I think, to be found in the Post Office Act, Sec. 7 (d) permitting the making of regulations, "for marking on the covering of letters, circulars or other mailable matter suspected to concern illegal lotteries, so-called gift concerts, or other illegal enterprises of like character, offering prizes,, or concerning schemes devised or intended to deceive or defraud the public, for the purpose of obtaining money under false pretences, whether such letters, circulars or other mailable matter are addressed to or received by mail from places within or without Canada, a warning that they are suspected to be of a fraudulent character and for returning such letters, circulars or other mailable matter to the senders". The relevant regulations pursuant to Sec. 7 (d) appear to be 204 and 206, reading as follows: 204-"If it be established to the satisfaction of the Postmaster General that any person is engaged or represents himself as engaged in the business of publishing any obscene or immoral books, pamphlets, pictures, prints, engravings, lithographs, photographs or other publication, matter or thing of an indecent, immoral, seditious, disloyal, scurrilous or libellous character or in the business of an illegal lottery, so called gift concerts, or other similar enterprise offering prizes or concerning schemes devised or intended to deceive or defraud the public for the purpose of obtaining money under false pretences, or in the business of selling or in any wise disposing of counterfeit money or what is commonly called "Green Goods," or of drugs, medicines, instruments, books, papers, pamphlets, recipes, prescriptions, or other things with the object or with the pretended object of preventing conception or procuring abortion, and if such person shall, in the opinion of the Postmaster General, endeavour to use the Post Office for the promotion of such business, or if it be established to the satisfaction of the Postmaster General that any persons are using, or endeavouring to use the Post Office for any fraudulent or illegal purpose, then, in any such case, it is hereby declared that no letters, packet, parcel, newspaper, book or other thing sent or sought to be sent through the Post Office by or on behalf of or to or on behalf of such person, shall be deemed mailable matter." 206-"The Postmaster General has power, under the statute, to mark or cause to be marked upon the covers of letters, circulars, or other mail matter suspected to concern schemes devised or intended to deceive or defraud the public for the purpose of obtaining money under false pretences, whether such letters, circulars or other mail matter are addressed to or received by mail from places within or without Canada, 'suspected to be of a fraudulent character,' and to return such letters, circulars or other mail matter to the senders." I think you will agree that it is trite law that the regulations cannot be extended beyond the authority given in the statute to make them. For the purpose of my submission to you I am not arguing that these regulations go beyond the statutory authority for them, but I do submit as strongly as I can that the Deputy Postmaster General has gone far beyond what is provided for in the regulations or the statute in the most arbitrary way. Without any warning whatever, and on the strength of representations made by the United States Post Office Department at the behest of the United States Securities and Exchange Commission and entirely ex parte, without the person suspected having any opportunity to be heard, the mails have not only been arbitrarily cut off, but have been required to be forwarded to Ottawa where they are held for an indefinite period without any commitment or statement of intention to prefer any charges in the courts. Not only that, but in separate hearings of aggrieved persons before the Deputy Postmaster General, their mail has been released upon the exaction of undertakings that they will not further deal in specified securities, or that they will agree to modify the language and terms of circulars sent in the future. The whole procedure is in substance a conviction by the Deputy Postmaster General without a hearing, punishment by cutting off the mails and the exaction of undertakings as a condition on which the penalty will be suspended. If there is anything in the Post Office Act justifying such procedure, I am unable to locate it. In addition to that, I cannot conceive of any government putting forward legislation to justify such action by way of amendment to the Post Office Act, and I cannot conceive of any parliament enacting such legislation if it were put forward. Mr. Turnbull seems to take undue comfort, in my opinion, in the Literary Publications Case, I think it is, in British Columbia, (58 C.C.C. 385), in giving him the right to do anything and considering that whatever he does is not reviewable by the courts. He does not seem to realize that the court in that case simply held that there was a right to exercise a discretion under the statute and the discretion having been duly and properly exercised, the courts would not review it. That case concerned an action for damages following an acquittal after a prosecution under the Criminal Code. It appears to me to be no authority for the proposition that the Post Office Department can legislate through the process of administration and in fact set up what amounts to a Star Chamber.

I recall hearing a careful speech made by yourself on the rule of law with many references to the admonitions of Coke to King James. In this affair it is McTague humbly putting forward the same type of admonition to Turnbull through your good self as an understanding intermediary, I hope. There just cannot be two standards of fraud, one laid down by the courts and a different and private one by the Post Office Department. The Post Office Department has not, as yet, attained judicial status. It appears by its recent actions merely to assert that very untenable position. As you know, I have had a rather wide experience in the security business. It is my opinion, and I have comparatively recently put my opinion in writing for the benefit of the United States Securities and Exchange Commission, that no provincial legislature has power to control or regulate international or interprovincial trade in securities. While I know of no case directly dealing with securities on the proposition, it has been laid down in reference to other commodities more than once that there is no such power in the province. I make brief reference to the Natural Products Marketing Board case in British Columbia. The only jurisdiction which can validly enact legislation to control and regulate the sale of securities internationally and interprovincially is the Canadian parliament. If the policy of enacting such legislation is determined upon the government can readily put forward a statute and take its responsibility in that regard. If it does not care to accept such responsibility, surely it should not permit or even tolerate the setting up of a securities commission de facto, but certainly not de jure under the present act within the Post Office Department. Yet that is exactly what is being done at the present time. At this time there is no law in Canada prohibiting the sale of securities in the United States by circular or otherwise. If the circular is considered to be fraudulent under the laws of Canada let prosecution be brought in the criminal courts, but let us still maintain the fundamental principle of the rule of law and once again abolish Star Chamber methods from which already too many innocent people have suffered greatly. To stop the mails and ruin people in business on the evidence of circulars, telephone conversations and other gossip, which have taken place many months ago, seems to me a most extraordinary procedure. I am forwarding a copy of this letter to the Right Honourable the Prime Minister and of course also to Mr. Turnbull. Sincerely yours, C. P. McTague. Ottawa, Canada, May 2, 1950 The Honourable Charles P. McTague, K.C., 220 Bay street, Toronto 1, Ontario. Dear Mr. McTague: I have your letter of April 17 with reference to the action of the post office in stopping the mails of certain brokers. You are acting as counsel for the Broker Dealers Association and not on behalf of any of the persons against whom the "Stop" order was directed. I have inquired as to what took place. The order, which was made with the approval of the Postmaster General and therefore may be regarded as made by him, was to the effect that all mails addressed to or coming from the above (persons named) are to be intercepted and sent specially by first mail to the administration branch, Ottawa. It was stated that this action was being taken as a result of evidence received indicating that the mails were being used for the purpose of obtaining money under false pretences. I am informed that contrary to what you state in your letter the order was not made at the behest of the United States Securities and Exchange Commission. The action was taken under the authority of paragraph (d) of section 7 of the Post Office Act which authorizes the Postmaster General to make regulations for marking on the covering of letters, circulars or other mailable matter suspected to concern . . . schemes devised or intended to deceive or defraud the public, for the purpose of obtaining money under false pretences, a warning that they are suspected to be of a fraudulent character and for returning such mailable matter to the senders. The mailable matter is marked, "Non-Transmissible" instead of with a warning that it was suspected to be of a fraudulent character. This marking was regarded as less injurious. The matter is returned to the sender. My information is that each of the brokers named in the order was engaged in the sale of the securities of a single company. The "stop" order was made only after a careful examination was made by experienced officials of the literature which these brokers were circulating, making claims which were so extravagant and untrue as to raise a reasonable suspicion in the mind of the Postmaster General that they related to schemes intended to deceive or or defraud the public, for the purposes of obtaining money under false pretences. I cannot discover any illegality in this procedure. The statute calls on the Postmaster General to refuse the use of the mails to persons whom he reasonably suspects of using the post office facilities to defraud the public. The only question is whether the Postmaster General had reasonable grounds for his suspicion. From the facts when they are disclosed I think you will have to agree that the Postmaster General did have good grounds for his suspicion. Perhaps it should be remarked in this connection that none of the brokers has seen fit to take action against the Postmaster General alleging wrongful action on his part, a remedy which the court of appeal of British Columbia held, in the case of Literary Recreations Limited v. Sauve, 58 C.C.C. p. 358, to be open to a person against whom such an order has been made. The next point made by you is that the Post Office cannot "legislate through the process of administration and in fact set up what amounts to a star chamber." I am afraid I do not follow this contention since it appears to me that the Postmaster General was doing precisely what the statute authorized and required him to do. You point out that the province has no power to control or regulate international trade in securities. That is certainly true where the Post Office is the medium used for carrying on the international trade in securities. But I suggest that it follows from your statement that in this case the Postmaster General is the proper official and the only official who is legally qualified to exercise such control under section 7 subsection (d) of the Post Office Act. You contend that parliament has not set up a "securities commission de facto" within the Post Office Department. I entirely agree with this contention. The Postmaster General's job is not to operate a securities commission. The Postmaster General's duty is to see that the post office facilities are not used to defraud the public. While his efforts to this end may result in protecting investors against the purchase of fraudulent securities, this result is purely consequential and is not, primarily, his responsibility. Under the law, his statutory duty and responsibility is to maintain the efficiency and reputation of the postal services which he directs. It is for this purpose that he is empowered to stop mail which he suspects is being posted for fraudulent purposes. As to the question whether criminal proceedings should be instituted, it is not the Postmaster General's duty to prosecute persons guilty of criminal offences. I do not need to remind you that it is the attorney general of the province who enforces the criminal law. The Postmaster General's duty is to take appropriate actions where he has reasonable grounds for suspecting that the mails are being used for fraudulent purposes. In conclusion, I think I should say that where the state operates a public utility such as the post office, a railway or a radio station there is not thereby conferred upon each citizen an absolute right to utilize the utility, but a conditional right only, the condition being that there should be no abuse. The utility must be operated strictly for the public benefit. The government officials operating the same should have at least as wide powers to protect the public against abuse as the private owners of a public utility would have to protect their patrons. In the case of the post office, parliament has seen fit, in order to protect the service against abuse, to authorize the Postmaster General to refuse the use of mails if he has reasonable grounds for suspecting that a person is making an improper and fraudulent use of them. I am informed that this provision is one of long standing having been introduced in the act by Sir John A. Macdonald in 1889; that it has been beneficially invoked hundreds of times throughout the intervening years; and that similar provisions will be found in the post office statutes of other free countries. Notwithstanding these facts, the government is quite open-minded with regard to this section and the powers created under it. For many months before this order was made, the government had been engaged in preparing the first general revision and consolidation of the Post Office Act since 1922. In this connection, it has been giving special attention to sections such as section 7 (d) which vest rather wide powers in the Postmaster General. We are inclined to think from the consideration which we have given this matter so far that the experience of our own post office and the post offices of other free countries over the years indicates that the power under section 7 (d) should be retained. We are also inclined to think, however, that it might perhaps be advisable that a summary appeal should be provided from the order of the Postmaster General to the courts; and that upon the hearing of this appeal the appellant should have the right to adduce any relevant evidence in addition to that upon which the Postmaster General based his order. The appellate tribunal should have power either to confirm or discharge the order of the Postmaster General. Pending the hearing and disposition of such appeal, however, the Postmaster General's order should remain in effect and should also, of course, remain in effect if confirmed by the court appealed to. We can well understand that the organization which you represent will have well-informed views upon this subject matter and if it wishes to present a brief on any of the matters under the Post Office Act in which it has an interest, I can assure you that the government will be glad indeed to give its representations the most careful and thorough consideration. Yours truly, Stuart S. Garson.

Wednesday, May 10, 1950