2169205 Ontario Inc. v. LCBO, 2010 ONSC 5382
CITATION: 2169205 Ontario Inc. v. LCBO, 2010 ONSC 5382
DIVISIONAL COURT FILE NO.: 469/10
DATE: 20100928
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
MOLLOY J.
BETWEEN:
2169205 ONTARIO INC., o/a LEFROY FRESHMART
Applicant
– and –
LIQUOR CONTROL BOARD OF ONTARIO (LCBO)
Respondent
Morris Manning, Q.C., for the Applicant
M. Jill Dougherty, for the Respondent
Jong Ha Ko, Unrepresented
HEARD at Toronto: September 28, 2010
MOLLOY J. (orally)
[1] Essentially, the Applicant (“Freshmart”) seeks what amounts to an injunction restraining the LCBO from fulfilling its contractual obligations with a competitor of Freshmart, known as “Daisy Mart”. That contract would authorize Daisy Mart to sell liquor at its premises in Lefroy, Ontario as an agency store supervised by the LCBO.
[2] The contract was awarded to Daisy Mart on July 9, 2010 and is to commence on October 1, 2010. It was awarded to Daisy Mart after a competitive procurement process in which a number of parties, including Freshmart, made proposals following requests for proposal issued by LCBO.
[3] Prior to this contract being awarded on July 9, Freshmart had a temporary authorization from the LCBO to operate an agency store at its location. The previous store owners from whom the principals of Freshmart purchased the store had an authorization to operate an agency store but that was terminated at the time of the sale. When the principal of Freshmart purchased this business, it was made clear to them by the LCBO that thereafter they would have only a temporary authorization and that would be in place only until such time as the LCBO was able to conduct a competitive process and award the contract to whoever was the successful bidder. The RFP process followed after that and Daisy Mart was the successful competitor.
[4] Freshmart now brings a judicial review application seeking to set aside the decision of the LCBO on various grounds primarily related to fairness. The motion returnable before me today essentially seeks to restrain the LCBO from terminating its authorization to Freshmart.
[5] After the contract was awarded to Daisy Mart on July 8, 2009, Freshmart and its counsel protested that they considered this to be unfair. They were supported in this by some members of the community, there was a letter writing campaign, some petitions were written, there were articles in the newspaper and so on. There were discussions back and forth between lawyers representing Freshmart and the LCBO. However, the first time there was a discussion of this court proceeding would appear to be in approximately the middle of September.
[6] The first service of any materials on the LCBO was when the Notice of Application was served on September 21 and various other parts of this motion were then served later in that week.
[7] There was no service whatsoever of any of this material on Daisy Mart until I intervened and requested the Court’s staff to contact counsel for the applicant and advise counsel that I was of the view that the interests of Daisy Mart may be affected and that I would prefer that they give some sort of notice, even if it’s short notice to the principals of Daisy Mart. It was because of that intervention that the principals of Daisy Mart were given actual service of the documents yesterday.
[8] Mr. and Mrs. Ko are the owners of Daisy Mart. They attended personally in Court today as a result of having been served with the material yesterday. They are not represented by counsel and English is not their first language. That said, when I gave them the opportunity to address the Court, each of them spoke very eloquently and in a highly articulate manner about what the impact would be on them if the relief sought by Freshmart were to be given.
[9] In my view, it is absolutely clear that this motion has a direct and substantial impact on Daisy Mart’s interest. They were an obvious party that would be affected by the relief sought and I have not been provided with any adequate explanation for the failure to serve Daisy Mart in the first instance. Essentially, this is an ex parte application for an injunction as against Daisy Mart. I see no urgency that would justify that kind of ex parte application as against the affected parties, particularly given the fact that this is a situation that was known to Freshmart since July. The fact that the interests of Daisy Mart are affected so directly, and that they have had no notice is, in my view, grounds in and of itself to deny the relief sought.
[10] However, I have considered the whole issue even without the input of Daisy Mart. Some information as to their position had been put forward in the factum which was filed yesterday by the LCBO and in the affidavit of Mr. Manners filed by the LCBO last Friday.
[11] There is no dispute about the test to be applied, this is to be treated as if it is an interlocutory injunction and the Supreme Court of Canada decision in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311, D.L.R. (4th) 385, governs: The onus is on the party seeking the extraordinary relief to establish three factors:
(i) that there is a serious issue to be tried;
(ii) that there will be irreparable harm to the applicant if the injunction is not granted; and,
(iii) that the balance of convenience favours the granting of the injunction.
[12] I will deal first with the “serious issue to be tried” test. The Supreme Court of Canada and other cases that have followed RJR-MacDonald since then have recognized that a Court dealing with an interlocutory matter, particularly on short notice, is not in a position to really deal in any definitive way with the merits of the case. I don’t have a full record before me, it is not the record that will ultimately be before the panel that hears this case and I am not here to try this case on its merits. The threshold is a low one. It is merely that there is a serious issue to be tried in that the matter is not vexatious or frivolous. That said, there are some real problems with the merits of Freshmart’s application that is before the Court.
[13] I will however, say that the low threshold of serious issue to be tried is met. I say that largely because of the decision of the Court of Appeal and Divisional Court in the Bot case: Bot Construction Ltd. v. Ontario (Transportation), 2009 ONCA 879. In my view, the Court of Appeal has not overruled the Divisional Court ruling in Bot, that even a commercial procurement process can be reviewed as a statutory power of decision if there are sufficient public interest issues raised. Indeed, the Court of Appeal expressly declined to deal with this point, basing its decision on other grounds. I am not saying this is the kind of case in which judicial review is available, nor even that the decision in Bot will necessarily be followed in other cases in the future. However, given that decision, I think there is a serious issue to be tried with respect to issues of fairness and natural justice in connection with the procurement process.
[14] Given that I find a serious issue to be tried on one basis upon which the application is founded, there is no reason to even deal with the merits of other arguments advanced by the applicant. It is not necessary to my decision and I decline to do so.
[15] I turn then to the issue of irreparable harm. The only evidence of irreparable harm provided by the applicants is that if they are left without the revenue from liquor sales, they will face financial ruin. They say they have invested substantial amounts in the purchase of this store believing that they will have the LCBO authorization and they claim to be dependent upon the income from the sale of liquor in order to be financially viable. The general statement is made that they will face financial ruin and perhaps bankruptcy if this authorization is cancelled as of October 1.
[16] There are a number of problems with that position. First of all, no particulars are provided that would support that proposition. It is simply a bald allegation. No financial reports or statements were produced.
[17] Second, it appears to be inconsistent with the material provided by Freshmart as part of its bid in the recent competition that concluded in July, 2009. In that process, Freshmart provided financial statements to the LCBO indicating its business was financially viable. Indeed, it is a requirement of the LCBO that businesses must be independently financially viable in order to be eligible for consideration as an agency store. The LCBO is not interested in having its products sold through an agency store that is completely dependent on liquor revenues in order to be financially sustainable.
[18] Third, even accepting there will be financial harm as a result of the loss of the authorization for the period of time in question (which would be from October 1, 2010 until January 13, 2011 when the Court hears this matter), in my view this is still not the kind of harm that is contemplated by the irreparable harm test in RJR-MacDonald. The Courts have been clear that irreparable harm is the kind of harm that is not compensable by damages. It is not the magnitude of the harm, but rather the nature of the harm, that is at issue. In this case, the only harm that has been alleged by the applicant is financial harm. That is readily calculable because full records are required to be kept by agency stores. It is fully compensable in damages in the event that the application is ultimately successful.
[19] It was argued by the applicant that in addition to the loss of income from the liquor revenue there would be a loss of market share which would not be capable of calculation.
[20] There are many cases that go both ways on this issue of market share and loss of competitive advantage. Essentially, those cases in which irreparable harm has been found due to a loss of market share have been situations where the market will be lost forever, in that even if the applicant is ultimately successful, the market would not return. That is what is not capable of calculation.
[21] The liquor authorization situation is a unique one because there is only one store selling liquor in the community. If that authorization is moved to another place, the customers that previously went to the first location, will go to the second. If it is then moved from the second location back to the first, the customers will be required to follow it back.
[22] This is not the kind of situation where a three month period during which the liquor authorization is not with Freshmart would result in a permanent loss of market share in the event that the authorization is then transferred back as a result of the Court decision.
[23] Accordingly, in my view, even assuming that there had been some harm to the applicants, it is not the kind of harm that would not be compensable in damages and the second branch of the RJR-MacDonald test is not met.
[24] Finally, I turn to the third branch of the test which is balance of convenience. What is proposed now by the applicant is that there be two stores in Lefroy selling alcohol. They are located about 400 metres apart. I do not see that the balance of convenience favours the applicant in this situation.
[25] Mr. and Mrs. Ko, who own Daisy Mart, have advised the Court that they have undertaken substantial renovations as a result of being awarded this contract. They have borrowed money on the assurance that they would have an exclusive authorization to sell alcohol in Lefroy. They have been disturbed by the public perception that they won this authorization contract as a result of an unfair campaign. There has been considerable public agitation in the community about the authorization for the Freshmart store and whether the process was fair. Mr. and Mrs. Ko have indicated that they have advised their family members who have lent them money as well as others in the community that they assuredly have been granted the exclusive authorization and indeed they have. They have also stated that they have suffered considerable emotional stress as a result of this.
[26] I recognize none of this is under oath. They have not filed an affidavit and this is simply them standing up in the courtroom and explaining what the impact has been on them. However, as I said at the very outset, they did not have notice of this proceeding and the fact that they don’t have affidavit material and haven’t been cross-examined is entirely due to the fact that they have not been served in an appropriate manner.
[27] I accept that not having the licence or authorization transferred over to Mr. and Mrs. Ko at the Daisy Mart would be horribly disruptive to them and to their business. I also accept that they were legitimately planning to have this income and business starting on October 1 and have made substantial plans to conduct their business in this manner which will be seriously disruptive if everything is now changed.
[28] It is not a solution to simply have two stores operating, because the one store already has a customer base used to going there and simply opening a second location 400 metres down the road is not going to alleviate the problems that will be caused to Daisy Mart if the contract doesn’t proceed as planned. They have purchased inventory, they have put in fixtures, they have added a handicapped access automatic door, all to be in compliance with requirements of the LCBO if they operate starting October 1.
[29] There is a lot of inconvenience and expense to Daisy Mart. I recognize that there are very similar factors at play for the same family that operates the Freshmart. That said, I believe they can be compensated in damages for any inconvenience and expense that they suffer between now and January 13, 2011. The onus is on the applicant to show that the balance of convenience favours it. There is inconvenience to both sides. Even weighing that in the balance I would say it is a bit worse for Daisy Mart but even if they were equal I would say that Freshmart has failed to satisfy its onus.
[30] Accordingly, the third branch of the RJR-MacDonald test is also not met.
[31] For all of those reasons, I am declining to grant a stay pending the hearing.
[32] The motion for a stay is dismissed for the oral reasons delivered today. The hearing of this judicial review application is fixed for January 13, 2011. The Application Record is to be filed by October 13, 2010. The Responding Record of the LCBO to be filed by October 27, 2010. The responding material by Daisy Mart, if they see fit, by November 10, 2010, or such further date as may be ordered by this Court. Any examinations and cross-examinations on affidavits is to be completed by December 10, 2010. The party requiring a transcript of such cross-examination shall pay for an expedite if necessary, subject to later Order by the Panel as to costs. The applicant’s factum is to be filed by December 22, 2010 and responding factums by January 6, 2011. Between October 1, 2010 and the return date of this application, the LCBO is to maintain complete records of all inventory purchased and sold by Daisy Mart. Costs are left to the Panel hearing the application.
MOLLOY J.
Date of Reasons for Judgment: September 28, 2010
Date of Release: October 12, 2010
CITATION: 2169205 Ontario Inc. v. LCBO, 2010 ONSC 5382
DIVISIONAL COURT FILE NO.: 469/10
DATE: 20100928
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
MOLLOY J.
BETWEEN:
2169205 ONTARIO INC., o/a LEFROY FRESHMART
Applicant
– and –
LIQUOR CONTROL BOARD OF ONTARIO (LCBO)
Respondent
ORAL REASONS FOR JUDGMENT
MOLLOY J.
Date of Reasons for Judgment: September 28, 2010
Date of Release: October 12, 2010