The Court took a classical approach. Delegated legislation is reviewable only for vires and not for substance. The applicants had argued amongst other things that the delegated legislation failed to achieve the purpose of reducing the cost of generic prescription drugs. The Court was not impressed:
The effect is that the substance of regulations cannot be reviewed. Their rationality is largely irrelevant; only their legality matters; and the merits of anything intra vires is effectively unreviewable. It is not an inquiry into the underlying “political, economic, social or partisan considerations”. Nor does the vires of regulations hinge on whether, in the court’s view, they will actually succeed at achieving the statutory objectives. They must be “irrelevant”, “extraneous” or “completely unrelated” to the statutory purpose to be found to be ultra vires on the basis of inconsistency with statutory purpose. In effect, although it is possible to strike down regulations as ultra vires on this basis, as Dickson J. observed, “it would take an egregious case to warrant such action” (Thorne’s Hardware, at p. 111). (a great many citations omitted)
There is no doubt that there is strong authority for the Court's approach, though most of it is decades old. Nonetheless, I find it problematic. I have a nagging concern about shielding areas of government action from review for reasonableness. Why should the government not have to justify the adoption of regulations once an applicant has demonstrated that the regulations have odd effects? After all, the government has to justify individual decisions that have odd effects. Less should be required in respect of delegated legislation if there has been parliamentary scrutiny. But something should still be required.
The bottom line of today's decision, regardless of the technicalities that I am about to address, is that provinces have a lot of leeway in dealing via regulations with what they view as pressing social problems. In particular, they can respond to individuals climbing through loopholes by closing the loopholes. If more loopholes appear, or there are perverse effects which have to be remedied later, these are not reasons to declare regulatory action unlawful.
Now for some more detailed explanation of my concern about the Court's analytical framework. These are "hot" reactions so I welcome comments.
1. Compare the conclusion in Katz with the following statement in Catalyst Paper Corp. v. North Cowichan (District),  1 SCR 5:
Unlike Parliament and provincial legislatures which possess inherent legislative power, regulatory bodies can exercise only those legislative powers that were delegated to them by the legislature. Their discretion is not unfettered. The rule of law insists on judicial review to ensure that delegated legislation complies with the rationale and purview of the statutory scheme under which it is adopted. The delegating legislator is presumed to intend that the authority be exercised in a reasonable manner. Numerous cases have accepted that courts can review the substance of bylaws to ensure the lawful exercise of the power conferred on municipal councils and other regulatory bodies...(my emphasis)The Court does not say that delegated legislation is subject to substantive review; it is possible that a minister responsible for delegated legislation is not one of the "other regulatory bodies" that McLachlin C.J. so tantalizingly referred to. Yet as a matter of principle it seems to me that all delegated authority should be exercised in a reasonable manner.
2. This does not mean that review of regulations would be particularly intrusive. In Catalyst Paper, the Court imposed a very deferential standard: was the by-law one that no reasonable municipality could have adopted? A similar standard applied here would presumably have led to the same result.
3. I thought Catalyst Paper had put a stake through the heart of the Thorne's Hardware case. It looks like McLachlin C.J. missed the mark! Here is what she said in Catalyst Paper:
But as far as delegated legislation goes, the distinction between policy and legality is back. Thorne's Hardware has risen from the dead. Against this general background, I come to the issue before us — the substantive judicial review of municipal taxation bylaws. In Thorne’s Hardware Ltd. v. The Queen, 1983 CanLII 20 (SCC),  1 S.C.R. 106, at p. 115, the Court, referring to delegated legislation, drew a distinction between policy and legality, with the former being unreviewable by the courts:The Governor in Council quite obviously believed that he had reasonable grounds for passing Order in Council P.C. 1977-2115 extending the boundaries of Saint John Harbour and we cannot enquire into the validity of those beliefs in order to determine the validity of the Order in Council.(See also pp. 111-13.) However, this attempt to maintain a clear distinction between policy and legality has not prevailed. In passing delegated legislation, a municipality must make policy choices that fall reasonably within the scope of the authority the legislature has granted it. Indeed, the parties now agree that the tax bylaw at issue is not exempt from substantive review in this sense. (emphasis added)
4. Of course, Catalyst Paper dealt with municipal by-laws (and, indeed, not with the originating authority under which the by-laws were passed). The recent UK Supreme Court decision in Bank Mellat (No. 2) (not referred to in today's decision) dealt with the substance of a statutory instrument rather than regulations. I accept that an additional stake was necessary to kill off Thorne's Hardware as it applies to delegated legislation. Was the Court wise to leave both the stake and Thorne's Hardware on the shelf?
5. It is certainly appropriate to draw distinctions between regulations passed under statutory authority and various other types of decision-making process. The question is whether they all come under the one umbrella (e.g. the Dunsmuir framework, adapted slightly for different contexts) or whether a fragmented approach should be adopted.
6. I think a single umbrella is all that is necessary. Fragmentation between regulations (vires review only), statutory instruments (vires only?), governor-in-council decisions (???), municipal by-laws (substantive review), administrative policies (substantive review?) and individual decisions (substantive review) is unhelpful, in my view, partly because (a) the result for the individual on the receiving end is usually the same regardless of the form the decision takes; and (b) administrative decision-makers are given incentives to use particular forms of decision for reasons unrelated to whether the use of a particular form would serve the purpose of good administration. If Ontario had attempted to achieve its goals by way of an administrative decision rather than by way of a regulation, its action would have been subjected to a greater degree of scrutiny. Substantive review under one big umbrella simplifies matters greatly for all concerned.
7. The Supreme Court of Canada has forged a unique course in judicial review of administrative action. No great problems would have arisen, in my view, had it continued on that course and included regulations along with municipal by-laws, decisions of administrative tribunals and other decision-makers.
Perhaps this is all an exercise in counting angels on the head of a pin. I am probably out on a limb in arguing for reasonableness review of delegated legislation. The Court's decision today does no violence to principle or practice. It could have done more and it could have explained more. Then again, it is sometimes criticized for not speaking with one voice on administrative law. The unanimous decision today follows unanimous decisions in Doré and Agraira, two important cases.
I wonder if the Chief Justice has started to order decaf coffee for the post-hearing conferences in administrative law cases...