CITATION: Ontario Harness Horse Association v. Ontario Racing Commission, et al., 2012 ONSC 821

DIVISIONAL COURT FILE NO.: DC-11-00000247 00JR

DATE: 20120402

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

DAMBROT, HOY AND LAUWERS JJ.

B E T W E E N:

ontario harness horse association

Applicant

• and -

ontario racing commission, great canadian gaming corporation, georgian downs limited, flamboro downs limited, winrac development inc. and windsor raceway inc.

Respondents

Andrew Finkelstein, for the Applicant

Brendan Van Niejenhuis, Frederick Schumann and Christopher Kruba, for the Respondents

HEARD: October 11, 2011

REASONS FOR DECISION

LAUWERS J.

[1] The Ontario Harness Horse Association (“OHHA”) has approximately 4,000 members who are involved in harness horse racing at standardbred racetracks across Ontario, including owners, trainers, drivers and grooms (collectively, “horsepeople”). The racetracks are regulated by the Ontario Racing Commission (the “Commission”) under the Ontario Racing Commission Act, 2000, S.O. 2000, c. 20 (the “Act”).

[2] The Commission upheld a decision of its Executive Director to reduce the number of race dates and redistribute purse money from commonly-owned racetracks in Woodstock and Dresden to Windsor, and from Georgian to Flamboro. OHHA seeks judicial review of the Commission’s decision on the basis that by authorizing and approving the Executive Director’s power to decide as he did, the Commission exceeded the jurisdiction conferred on it by the Act. The parties agree that the issue of the Commission’s authority to redistribute purse monies among racetracks is one of “true jurisdiction” or vires and is thus reviewable on a correctness standard. As discussed below, I am not prepared to accept this position without qualification.

[3] For the reasons that follow, I would dismiss the application for judicial review.

Overview

[4] “Purse monies” are the monies available to be paid to the owners, trainers and drivers/jockeys of horses that race at a racetrack. Historically, the purse was funded by revenues generated by federally-regulated pari-mutuel wagering on horse races. In 1998, the Ontario government introduced slot machines at racetracks that were operated under licence from the Ontario Lottery and Gaming Corporation (the “OLG”). Profits from the slot machines operated at a racetrack became a second, major contributor to the purse.

[5] In recent years, fan support for live horse racing and revenues from pari-mutuel wagering have declined. Most purse money at a track now comes from the slot machines. Racetracks with the largest slot machine operations have the largest purses, and the size of the purse at a particular racetrack does not necessarily correspond with the quality of the horse races held, or the amount of pari-mutuel wagering at the track. The result is described by the Commission, at para. 114 of the decision:

For example, currently Woodstock with few racing dates and 365-day slot revenues pouring into the purse account has a robust purse schedule. In result, horses that should in terms of class, be racing at Woodbine, will show up at Woodstock (with almost the same purse). The result, a “walk around” for the horse racing well below its class. A large purse leaves town. The bettors confronted with a 1 – 9 favourite pass on the race. The outcome is a dreary non-event occasioning no interest and the situation replays next week with still no wagering. Probably some horses will not enter against that competition. Result - smaller fields, less betting and bad racing.

Purse pooling and standard province-wide condition sheets will direct that horse to race in its proper class. The result - competitive racing with full fields and accordingly, a more attractive wagering model.

[6] In an attempt to re-invigorate horse racing, the Commission adopted the “Framework” to which the OHHA objects. The Framework provides for the movement of purse funds from racetracks with profitable slot machine operations and relatively inactive pari-mutuel wagering to racetracks with more active wagering. In the Commission’s view, this will result in the recipient racetracks attracting more and better horses, which will in turn increase fan support and pari-mutuel wagering. The Commission has also adopted conditions to ensure that horses race in the class in which they belong.

[7] The OHHA submits that the Commission does not have the authority to redistribute purse money among racetracks.

The factual context

[8] There is no serious dispute about the material facts. In shorthand form, the Commission’s decision notes that, “[s]tandardbred racing in Ontario is at a crossroads. The future direction of the industry will follow the result of the race dates issue which is now before this Panel.” The decision then sets out the pertinent facts briefly and colourfully at para. 7:

• Through the booming racing popularity in the fifties and sixties, race dates became much sought after.

• Through the seventies and eighties, although racing appeal had gone somewhat off the boil, race dates were still the subject of some competition.

• With the arrival of the slots era in the nineties, tracks enjoyed a second and more prolific source of gaming funds.

• The slot funds contributed substantially to increased purses and racing had a two/three-year resurgence.

• This was followed by an unrelenting progressive decline in fan support and mutuel handle.

• Race dates having lost their luster became to some tracks a burden. Absent a viable fan base, there was reduced enthusiasm for providing races.

• Tracks by way of cost constraint sought to reduce the number of live racing dates.

• Thereby, the battle lines were drawn; tracks contending for reduction of money-losing dates, horse people opposing any reduction on the grounds of loss of opportunity to work. Annually, the ORC dealt with that confrontational impasse, all the while recognizing the relative merit in each position. The stalemate acquired an unmanageable dimension with tracks requesting reduction of 150 live racing dates in 2009. This led to the race date moratorium whereby tracks were required to race the same number of days in 2010 as in 2009. That hiatus was intended to provide opportunity for industry soul-searching.

[9] Consequently, in 2009/2010, there was a moratorium on decreasing the number of races that racetracks would be required to hold. For 2011, the Commission established a Framework containing a number of general principles to be used to set the race dates and redistribute purse money to compensate horsepeople, as part of a larger effort to ensure that horse racing remains a competitive sport attractive to fans and gamblers. The OHHA does not appear to have opposed the Framework, and was consulted prior to its adoption by the Commission.

[10] The Framework is based on the following principles, according to the Commission:

1. Enhance live racing and provide benefit to the agricultural sector in Ontario.

2. Provide a fair return on investment over the short term while protecting value for owners and communities over the long term.

3. Provide customer-focused competitive racing by recognizing both supply and demand.

4. Take a self-sustaining approach, using funds raised through public policy to enhance this self-sustaining economic model for horse racing.

5. Encourage and provide incentives for live racing.

6. Be simple and objective. [decision, at para. 44]

[11] The Framework is built on “two pillars”, described by the Commission:

• Movement of purse funds to active wagering markets thereby attracting more and better horses.

• Uniform province-wide race conditions to place the horses in the class to which they belong. The best horses should race against each other. To have them drop down to a regional track to easily win a comparable purse over lower class horses has several downsides. Others are deprived of reasonable opportunity to race for that first place purse. It will be a disincentive to other horses to fill the card racing for second money. It inhibits mutuel activity by the favourite going off the board at one to nine or thereabouts. Full fields of competitive racing promote wagering. [decision, para. 47]

[12] The Executive Director’s order was based on the Framework. The Commission affirmed the Executive Director’s authority to make the purse redistributions and dismissed the appeals on the basis that “[p]urse pooling and province-wide uniform condition sheets are key and interlocking factors in the Framework.” [decision, at para. 114]

The Regulatory Context

[13] The regulatory context has four elements, described in more detail below:

1. The Racing Commission Act, 2000;

2. Racetrack Agreements;

3. Site Holder Agreements; and

4. The Regulations of the Canadian Pari-Mutuel Agency (the “CPMA”).

The Racing Commission Act, 2000

[14] The Act gives the Commission authority to regulate horse racing:

Objects

5. The objects of the Commission are to govern, direct, control and regulate horse racing in Ontario in any or all of its forms.

Duty

6. The Commission shall exercise its powers and perform its duties in the public interest and in accordance with the principles of honesty, integrity, and social responsibility.

Powers

7. The Commission has power,

(a) to govern, direct, control and regulate horse racing in Ontario in any or all forms;

(b) to govern, control and regulate the operation of race tracks in Ontario at which any form of horse racing is carried on;

(c) to license persons to operate race tracks, at which horse racing in any of its forms is carried on, and to impose the terms on a licence that the Commission considers expedient;

11. (1) The Commission may make rules for the conduct of horse racing in any of its forms, and if they do not conflict with the regulations, may make rules specifying,…

12. (1) No person shall operate a race track at which horse racing in any of its forms is carried on unless the person holds a licence for that purpose.

[15] The Commission’s primary regulatory tool is its licensing power. Horsepeople and race tracks must be licensed by the Commission. The Commission regulates purse accounts and purse monies through the Rules of Racing, including the Rules of Standardbred Racing.

[16] Rules 7.16.01 and 7.16.02 regulates payments into the purse account:

7.16.01 Associations shall hold all monies from any source for purposes of purses in trust in one or more accounts designated as Purse Accounts for disbursement as set out in 7.16.05.

7.16.02 Associations shall deposit all monies received for purposes of purses into the Purse Account(s) which include:

(a) from the Ontario Lottery and Gaming Corporation in accordance with the agreement between the Association and the Ontario Lottery and Gaming Corporation within 5 days of receipt;

(b) from nomination, sustaining, starting or similar fees for added money events within 5 days of receipt;

(c) from pari-mutuel wagers (including the share of commissions on live, inter-track, export, simulcast and any other forms of betting authorized by permit by Canadian Pari-Mutuel Agency) within 10 business days of receipt or settlement;

(d) from any other source, including reimbursement of a purse that is required to be repaid, within 10 business days of receipt or settlement.

[17] Rule 7.16.05 regulates the disbursement of monies from the purse account (the amendments made on February 24, 2011 are noted):

7.16.05 An Association shall disburse the monies from the Purse Account(s) only as follows:

(a) to pay purses in accordance with the Rules of Racing; or,

(b) with respect to any monies received from the Ontario Lottery and Gaming Corporation, in accordance with the provisions of an agreement between the Ontario Lottery and Gaming Corporation and the Association, or as specified by the Director; or

(c) to reimburse owners for races that are cancelled or races that are declared ‘no contest’ by the Director or his delegate; or

(d) for other purposes which are approved by the Director that are for the benefit of racing or will provide benefits to all or a sizeable proportion of horsepeople~~ who participate at meetings of the Association~~.

The Association, in a manner satisfactory to the Director, shall at the time of disbursement disclose or cause to be disclosed to owners, trainers and others who receive purse money, the purposes under (d) above and the amount of any monies disbursed for such purposes.

[18] The Commission points to other rules regulating purse distributions and purse accounts:

• Mandatory redistribution of purses following a positive test for a prohibited drug (R. 9.13);

• Redistribution of purses following an invalid claim of that horse (R. 15.22);

• Non-deductibility of clerical expenses from purse monies in Added Money Events (R. 16.15);

• Default rules for purse distribution in the absence of contrary conditions (i.e., purses to be distributed 50%/25%/12%/8%/5% in order of finish) (R. 18.01, 18.02);

• Conditions under which drivers’ and trainers’ fees may be deducted from purses paid to owners (R. 18.11);

• Prohibition of equal distribution of purse monies to all participants in a given race (R. 18.12); and

• The freezing of purse monies pending an official protest (R. 23.06).

[19] The Rules govern audit and reporting requirements for purse accounts, and create an offence for failing to comply with the Commission’s requirements for purse monies.

The Racetrack Agreements

[20] The relationship between horsepeople and a local track is defined in what are called “Racetrack Agreements”.

[21] Under the Racetrack Agreements, with respect to purse monies, a racetrack must:

(i) deposit the funds into the purse account; and

(ii) distribute those funds (subject to certain exceptions) for purses at that particular racetrack.

[22] OHHA notes that a Racetrack Agreement may authorize payments out of the purse account for numerous purposes:

For example, in the Racetrack Agreement with Georgian Downs, the parties carved out (i) deductions and contributions for industry programs; (ii) an amount payable to OHHA for fees; and (iii) an amount for the Georgian Downs Harness Horsepeople’s Benevolent Fund. Similarly, in the Racetrack Agreements with Winrac, the parties carved out (i) fire insurance; (ii) an administration fee payable to OHHA; (iii) an amount for the Dresden Raceway horsemen benevolent fund/Woodstock Raceway horsemen benevolent fund; and (iv) an amount for the Player Rewards Program.

[23] The provisions of the Racetrack Agreements that would not be consistent with the Framework are set out below:

(a) Section 1.02 of the Racetrack Agreement with Georgian Downs Limited provides:

Subject to deductions and contributions for industry programs and subject to Section 1.05 below, it is the intent of the Association and the Company that the components of the Aggregate Purse Pool will be distributed for purses at Georgian Downs.

(b) Section 2.01 of the Racetrack Agreement with Winrac (Dresden) provides:

All purse revenue accrued from the operation of subparagraphs (a) through (c) of Article 2 and through Article 3 shall be referred to as the “aggregate purse pool” and shall be distributed as purses at Dresden Raceway.

(c) Section 2.01 of the Racetrack Agreement with Winrac (Woodstock) provides:

All purse revenue accrued from the operations of subparagraphs (a) through (c) of Article 2 and through Article 3 shall be referred to as the ‘aggregate purse pool’ and shall be distributed as purses at Woodstock Raceway. (Emphasis added.)

[24] Although the Commission states in its decision that the redistribution of purse monies among racetracks does not disturb the terms of the Racetrack Agreements because the racetrack complies with its obligation to deposit the funds into the purse account, the implementation of the Executive Director’s decision would be inconsistent with the second part of the obligation – to distribute those purse monies for purses at that particular racetrack.

The Site Holder Agreements

[25] In 1998, the Ontario government introduced a program of operating slot machine facilities at racetracks. It entered into a letter of intent in June 1998 with the Ontario Horse Racing Industry Association (including OHHA) to set the terms and conditions on which slot machines were to be introduced to racetracks. The letter of intent provides that individual racetracks were to enter into Site Holder Agreements with OLG and that industry revenue from the site holder commissions would be shared between the racetrack and its respective horsepeople on a 50/50 basis.

[26] Under the slots program, OLG operates slot machine facilities at most Ontario racetracks. The racetrack operator receives 10% of the net slot revenues and another 10% is deposited into the purse account maintained by that racetrack operator to be shared among horsepeople. The Site Holder Agreements impress 10% of the net profits from the slot machines with a trust in favour of the horsepeople who race their horses at that particular racetrack, not to be used for any purpose other than enhancing purses on live horse races conducted by the racetrack owner at the particular racetrack.

[27] As recited in the Site Holder Agreements, slot machines at the racetracks were “intended to promote live horse racing in the Province and subsequently benefit the agricultural sector in Ontario” and the Site Holder agrees to ensure that the racetrack “is operated so as to maximize interest in horse racing events at the Racetrack.”

[28] There are Site Holder Agreements in place for Georgian Downs, Dresden Raceway and Woodstock Raceway. The Agreements contain express provisions with respect to the sharing of slot revenues with horsepeople and distribution of purse monies. Section 5.2 of the Georgian Downs Site Holder Agreement provides that the horsepeople’s share of the slot revenues are impressed with a trust in favour of the horsepeople and expressly requires that those funds not be used for any purpose other than enhancing live purses on horse races conducted at Georgian Downs racetrack. This is the standard wording that also appears in the other Agreements. Compliance with the Executive Director’s decision would not be consistent with the contractual provisions in the Site Holder Agreements. The Commission concedes that this provision was “clearly put in place to protect the respective horseperson’s entitlement.”

The Regulations of the CPMA

[29] The Criminal Code, R.S.C., 1985, c. C-46 creates a system of legalized pari-mutuel betting for horse races regulated by the CPMA, an agency within the federal Department of Agriculture and Agri-Food. It forms an exception to the general criminal prohibition on gaming.

[30] Regulations enacted under the Criminal Code require that racetracks, in order to obtain the requisite licence to operate a betting system, have in place agreements with the “horsemen under contract to it … that governs the scheduling of the races for, and the sharing of revenues from, the betting ... and provide evidence of the agreement.” The Racetrack Agreements were entered into in furtherance of this requirement. The regulations also set the maximum percentage of wagering revenues that may be retained by the racetrack owner, presumably to ensure that a fair amount of the total money wagered will be available to bettors in the form of winnings.

The Positions of the Parties

[31] The OHHA makes three arguments in support of its position that the Commission does not have jurisdiction to redistribute purses among racetracks:

1. The CPMA, as a federal agency, has exclusive jurisdiction to regulate the distribution of revenue from pari-mutuel betting on horse racing at racetracks across Canada. The Commission does not have jurisdiction to redistribute revenue from pari-mutuel betting.

2. The affected racetracks have entered into Racetrack Agreements with the OHHA to distribute purse monies accrued from their operations as purses at their own racetracks. The Commission does not have jurisdiction to interfere with OHHA’s contractual rights under the Racetrack Agreements.

3. The Site Holder Agreements between OLG and the affected racetracks impress 10% of the net revenues from the slot machines with a trust in favour of the horsepeople who race their horses at the particular racetrack, not to be used for any purpose other than enhancing purses on live horse races conducted by the racetrack owner at the particular racetrack. The Commission does not have jurisdiction to interfere with rights of the parties to the Site Agreements or vary the trusts created thereby.

[32] The Commission argues that it has always regulated purse monies, being effectively the entire financial basis of horse racing, and doing so is within its jurisdiction. While wagering revenues attract the regulation of the CPMA, purse monies are different from wagering revenues and the regulatory regimes do not conflict. Finally, the fact that the Framework may affect contractual rights under the Site Holder Agreements and the Racetrack Agreements is necessarily incidental to the Commission’s exercise of its regulatory authority.

The Issues

[33] There are three issues in this application for judicial review:

1. Does the Commission’s exercise of regulatory authority over purse monies permit it to create and enforce the Framework?

2. Does the Commission’s exercise of authority over purse monies under the Framework conflict with CPMA’s regulations?

3. Does the Commission’s exercise of regulatory authority over purse monies permit it to interfere with contractual rights under existing agreements between third parties, specifically the Site Holder Agreements between OLG and a racetrack, and the Racetrack Agreements entered into between racetracks and horsepeople?

I address each issue in turn, but note that the first issue overlaps with the other two.

Issue one: the Commission’s Regulatory Authority to Establish and Enforce the Framework

[34] While this issue was not squarely raised by the parties, it is implicit, as noted by the Commission’s observations at paras. 92 and 100 of the decision:

OHHA’s Race Date Appeal is essentially an attempted repudiation of the Framework.

OHHA does not seek in express terms to reverse the Framework. Although not so stated, that is the pith and substance of OHHA’s claim. The essence and the nature of the relief sought is to cast aside the Framework principles and application and revert to the former status quo.

[35] I begin with a few general observations about the role of the court in judicial review. Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, obliges a reviewing court to keep in mind two basic things. The first is that the legislature has chosen to confer decision making power in a particular area on a tribunal, person or other body, and that legislative choice must be respected. The second is that the right decision is often not glaringly obvious, and the tribunal’s expertise and “field sensitivity” in making its decisions must also be respected. The principle is set out in Dunsmuir at para. 47:

…certain questions that come before administrative tribunals do not lend themselves to one specific, particular result. Instead, they may give rise to a number of possible, reasonable conclusions. Tribunals have a margin of appreciation within the range of acceptable and rational solutions. A court conducting a review for reasonableness inquires into the qualities that make a decision reasonable, referring both to the process of articulating the reasons and to outcomes. In judicial review, reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process. But it is also concerned with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law.

See also Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, [2011] S.C.J. No. 62, at para. 13.

[36] This reasoning supports a deferential approach on the court’s part in evaluating regulatory design.

The Scope of Regulation

[37] In Whelan v. Ontario (Racing Commission), [2011] O.J. No. 1748 (C.A.), rev’g 2010 ONSC 3118 (Div. Ct.), Goudge J.A. observed at para. 4 that horse racing “is a highly regulated business,” noting that it is regulated in part by the Commission and in part by the CPMA. At para. 5 he elaborated that,

[f]irst, horse racing at WEG's racetracks is regulated by the ORC, as it is in all racetracks in Ontario. The Racing Commission Act 2000, S.O. 2000, c. 20 gives the ORC a broad mandate to regulate horse racing in Ontario. This mandate gives the ORC the power, in the public interest, to take action which may incidentally affect the property rights of racetrack owners such as WEG: see Ontario Harness Horse Association v. Ontario Racing Commission (2002), 62 O.R. (3d) 44 (C.A.), known as the Sudbury Downs case. For example, when a racetrack owner excludes a licensed horse owner from its premises and therefore from racing there, this action comes within the regulatory jurisdiction of the ORC, even though it affects the owner's property rights. As this court said in Sudbury Downs at para. 47, “It is much more a horse racing issue than a property issue.”

[38] In Sudbury Downs, a racetrack owner refused to allow certain members of the OHHA to race their horses at its racetrack. The Commission declined to hold a hearing with respect to the exclusion on the basis that the racetrack was the private property of Sudbury Downs and it was entitled to exclude whom it wished. The Court of Appeal quashed its decision and ordered it to hold a hearing with respect to the OHHA’s complaint.

[39] Morden J.A. made note at para. 37 of “the wide scope of administrative powers granted to… the Commission,” citing Re Morrissey, Armstrong and Ontario Racing Commission (1958), 12 D.L.R. (2d) 772 at p. 773 (C.A.), aff’d 1959 23 (SCC), [1960] S.C.R. 104.

[40] Morden J.A. noted at para. 48 that the Act mandates that the Commission exercise its powers “in the public interest,” and, through the licensing process, imposes the duty on licensee racetracks to act “in the public interest”. He held that, in that context, the public interest required that “not only the interest of Sudbury Downs be taken into account but also the interests of other participants in the industry – horse owners, drivers, etc. and race track patrons – in short, the good of horse racing generally.” The effect of the Commission’s decision on the competitive level of horse racing at Sudbury Downs was one of several relevant considerations.

The Standard of Review

[41] The parties took the common position that the challenge to the Commission’s authority to create and enforce the Framework is a question of “true jurisdiction” or vires and was therefore reviewable on a correctness standard. In my view the issue is more nuanced than this.

[42] The law in this area was recently addressed by the Supreme Court in Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, [2011] S.C.J. No. 61. The statute in that case provided that the Information and Privacy Commissioner “must” complete an inquiry within 90 days of the receipt of the complaint. The Commissioner did not extend the time for completion within the 90 day period, as permitted, but did so 22 months after the complaint was received. The inquiry was not completed for 29 months and the chambers judge quashed the adjudicator’s decision. The issue was the standard of review of the Commissioner’s decision to extend the time.

[43] The Court held that the standard of review was reasonableness. Rothstein J., for the majority, noted at para. 39:

True questions of jurisdiction are narrow and will be exceptional. When considering a decision of an administrative tribunal interpreting or applying its home statute, it should be presumed that the appropriate standard of review is reasonableness. As long as the true question of jurisdiction category remains, the party seeking to invoke it must be required to demonstrate why the court should not review a tribunal’s interpretation of its home statute on the deferential standard of reasonableness.

[44] He added at para. 42:

As I have explained, I am unable to provide a definition of what might constitute a true question of jurisdiction. The difficulty with maintaining the category of true questions of jurisdiction is that without a clear definition or content to the category, courts will continue, unnecessarily, to be in doubt on this question. However, at this stage, I do not rule out, in our adversarial system, counsel raising an argument that might satisfy a court that a true question of jurisdiction exists and applies in a particular case. The practical approach is to direct the courts and counsel that at this time, true questions of jurisdiction will be exceptional and, should the occasion arise, to address in a future case whether such category is indeed helpful or necessary.

[45] Rothstein J. concluded at para. 43 that correctness review would still apply to “decisions of tribunals interpreting their home statute where the issue is a constitutional question, a question of law that is of central importance to the legal system as a whole and that is outside the adjudicator's expertise, or a question regarding the jurisdictional lines between competing specialized tribunals.”

[46] Taking guidance from the Alberta Privacy Commissioner decision, I conclude that the OHHA challenge relating to CPMA’s authority is both constitutional and about jurisdictional lines between specialized tribunals, and is therefore reviewable on a correctness standard, while OHHA’s challenge of the Commission’s authority in respect of existing contracts is reviewable on a reasonableness standard.

Issue two: Does the Commission’s exercise of authority over purse monies under the Framework conflict with CPMA’s regulations?

[47] As noted, revenues from betting and revenues from the slot machines allocated to the horsepeople are co-mingled in a single purse account at each racetrack.

[48] The OHHA argues that the Commission’s decision effectively redistributes purse monies, which includes revenues from betting, and thereby interferes with the CPMA’s exclusive jurisdiction over the sharing of revenues from betting.

[49] The OHHA argues that in Whelan both the Divisional Court and Court of Appeal made it clear that the Commission does not have jurisdiction to impose an agreement with respect to the sharing of wagering revenue between the racetrack and the horsepeople, which is precisely what it says the Commission is seeking to do in this case.

[50] In Whelan, the racetrack owner refused to allow a horse owner to race his horses at its track unless he signed an access agreement setting the terms of entry onto the racetrack and accepting a formula for the sharing of wagering revenue. The horse owner’s real objection was to the racetrack’s right under the proposed agreement to revoke access at any time, and not on the proposed revenue sharing formula. The Commission dismissed the horse owner’s application for a declaration that he could not be required to sign such an agreement. The horse owner argued that the Commission’s decision required him to accept the racetrack’s revenue sharing formula, but that the CPMA, not the Commission, had jurisdiction over the sharing of wagering revenues. Both the Divisional Court and the Court of Appeal held that the Commission’s decision did not require him to accept the racetrack’s revenue sharing formula. By simply declining to intervene when the racetrack required him to accept the formula, the Commission did not thereby impose the revenue sharing formula.

[51] Molloy J., in addressing this issue for the Divisional Court, wrote at para. 45 that,

[i]t is clear from the jurisprudence that the ORC [the Commission] has no jurisdiction to compel agreement to any terms with respect to the distribution of wagering revenues between track owners and other interested parties. The jurisdiction to deal with issues of wagering and purse distribution is reposed by statute with the CPMA.

[52] Molloy J. added, at para. 46, that if the Commission had compelled such an agreement, it would have exceeded its jurisdiction.

[53] The Commission concedes that Horsemen’s Benevolent and Protective Assn. v. Ontario Racing Commission, [1997] O.J. No. 5153 at para. 15 (C.A.) established that the sharing of revenues from betting is a matter governed by the CPMA.

[54] The Commission argues, however, that the CPMA’s jurisdiction over the sharing of revenues from betting does not preclude the Commission from regulating what is to be done with the horsepeople’s share of such revenues once they are deposited into the purse account. To hold otherwise would, the Commission submits, result in a regulatory lacuna, leaving horsepeople without regulatory protection to ensure the appropriate use of purse funds.

[55] The Commission further submits that to the extent that its regulation of purse monies affects revenues from betting, the federally-created CPMA should not be seen as having exclusive jurisdiction. Courts have recognized that the regulation of gaming has a provincial aspect: R. v. Furtney, [1991] 3 S.C.R. 89; Siemens v. Manitoba (Attorney General), 2003 SCC 3, [2003] 1 S.C.R. 6, at para. 22.

Discussion

[56] Betting is illegal under section 201 and 202 of the Criminal Code. The exception for horseracing is found in section 204 of the Criminal Code; betting is permitted provided that there is compliance with the Pari-Mutuel Betting Supervision Regulations, SOR/91-365, as amended. The CPMA regulates pari-mutuel wagering.

[57] The regulations are detailed and cover a host of matters including the nature of the facility that the operating association must provide, access, specific operations, and equine drug control. In general terms, the provisions seek to keep betting free of corruption.

[58] The regulatory structure contemplated by the regulations recognizes that a “Commission” will be involved, being “an organization incorporated under the laws of a province that supervises and regulates races in the province,” (section 2). The regulations also define “horseperson” to mean “any person, group or organization that has an interest in the sharing of purses drawn from an association’s percentage and the scheduling of races by the association but does not include an officer or employee of an association,” (section 2).

[59] Of particular relevance to this case are the provisions of the regulations related to agreements between racetracks and horsepeople, being theatre betting under section 85, inter-track betting or separate pool betting under section 90(1), and foreign race inter-track betting or foreign race separate pool betting under section 94. These all require an “agreement…that governs the scheduling of races for, and the sharing of revenues from” the specific racing activity.

[60] The regulations set the maximum percentage to be retained by the association in section 102:

102. (1) For the purposes of subsection 204(6) of the Act, the maximum percentage that an association may deduct and retain in respect of any pool is 35 per cent of the total amount of money bet through the agency of its pari-mutuel system in respect of that pool.

[61] The regulations do not prescribe the percentage of revenues that must be allocated to horsemen beyond a maximum that the operator may retain, or indicate that the terms of the sharing of revenues are subject to the approval of the CPMA. They simply require that an agreement for revenue sharing be in place. I note that in Whelan, Goudge J.A. reviewed a few of the satisfactory arrangements at para. 7:

Until December 2008, WEG had a contract with the Ontario Harness Horse Association about how wagering revenues were to be shared. This contract satisfied the CPMA requirement, but it expired at the end of 2008. Starting in January 2009, to satisfy the CPMA, WEG entered into individual Access Agreements with each horseperson using its racetracks. In addition to setting out the terms for the right to enter WEG's premises, the Access Agreements provided a formula for sharing wagering revenue. Based on that aspect of the Access Agreements, the CPMA issued WEG a wagering license for 2009.

[62] The regulations do not prescribe the form of the racetrack agreement or regulate the mechanism by which revenue from betting is disbursed to horsepeople. The regulations are silent as to when and how the horsepeople’s share of revenues from betting is to be disbursed. I accept as accurate the assertion by the Commission that “[t]he CPMA regulates Pari-Mutuel wagering and limits the circumstances under which that revenue may be collected and retained. It does not … regulate the details of purse distribution within the provinces.”

[63] The constitutional relationship is defined with precision by the Supreme Court of Canada in Siemens, at para. 22, relying on Furtney:

The pith and substance of the VLT Act [The Gaming Control Local Option (VLT) Act, S.M. 1999, c. 44 relating to video lottery terminals] falls within a provincial head of legislative authority. As Stevenson J. wrote for this Court in Furtney, supra, at p. 103, gaming is a matter that falls within the "double aspect" doctrine. Accordingly, gaming can be subject to legislation by both the federal and provincial governments:

In my view, the regulation of gaming activities has a clear provincial aspect under section 92 of the Constitution Act, 1867 subject to Parliamentary paramountcy in the case of a clash between federal and provincial legislation... Altogether apart from features of gaming which attract criminal prohibition, lottery activities are subject to the legislative authority of the province under various heads of s. 92, including, I suggest, property and civil rights (13), licensing (9), and maintenance of charitable institutions (7) (specifically recognized by the Code provisions). Provincial licensing and regulation of gaming activities is not per se legislation in relation to criminal law.

Without foreclosing discussion on other potential heads of jurisdiction, it is sufficient for this appeal to find that the VLT Act was, prima facie, validly enacted under ss. 92(13) and 92(16). Section 16(1) deals specifically with the siteholder agreements, which are contractual in nature and thereby fall under property and civil rights. On a broader level, the municipal plebiscites empower each community to determine whether VLTs will be permitted, thereby invoking matters of a local nature.

[64] In my view, these words apply with necessary modifications to the Racetrack Agreements and the Site Holder Agreements.

[65] I consider Molloy J.’s observations in Whelan about the respective areas of authority of the Commission and the CPMA to be obiter. Further, the issue about the Commission’s authority over the disbursement of purse monies does not appear to have been argued.

[66] I find that the operation of the Framework does not conflict with the authority of the CPMA or the provisions of the Pari-Mutuel Betting Supervision Regulations. The regulatory field is complementarily shared between the Commission and the CPMA. The federal interest is exhausted when the revenues from betting are deposited into the purse accounts pursuant to the Racetrack Agreements. Or, putting it differently, the revenues from betting lose their status as such for the purpose of the Pari-Mutuel Betting Supervision Regulations once they are deposited into the purse account. The purse account itself is subject to the full regulatory power of the Commission under the Act.

Issue three: Contractual Rights and the Commission’s Regulatory Authority

[67] The issue raised by OHHA is this: Does the Commission’s exercise of regulatory authority over purse monies permit it to interfere with contractual rights under existing agreements between third parties, specifically the Site Holder Agreements between OLG and a racetrack, and the Racetrack Agreements entered into between racetracks and horsepeople?

[68] As noted, the operation of the Framework would not be consistent with some of the provisions in the Racetrack Agreements and in the Site Holder Agreements. This is particularly so for the Site Holder Agreements in view of the Director’s authority under rule 7.16.05 (b), which requires disbursement of the purse account monies received from OLG to be made in accordance with the provisions of an agreement between the OLG and OHHA, “or as specified by the Director”.

[69] OHHA submits that conferral of this authority would allow the Director to impermissibly interfere with contractual and trust arrangements. OHHA argues that Sudbury Downs, properly interpreted, does not permit the Commission to modify contractual rights, or, in the alternative, if it does, the decision does not permit it to do so in these circumstances. It relies on Ontario (Racing Commission) v. Jockey Club Ltd., [1967] O.J. No. 217 (C.A.), the Horsemen’s Benevolent case, Flamboro Downs (Re), [1996] O.R.C.D. No. 5, at para. 16, and Whelan.

[70] The Commission argues that Sudbury Downs has established that its power to “govern” and “regulate” horse racing permits it to modify contractual rights. The Commission argues that the cases relied on by OHHA must be distinguished in view of the Court of Appeal’s decision in Sudbury Downs.

Discussion

[71] In this section of the decision I first assess the cases relied on by OHHA. I then turn to the Court of Appeal’s decision in Sudbury Downs

The Cases Cited by OHHA

[72] In my view, the cases relied on by OHHA are not dispositive of the issues in this case.

[73] In Jockey Club Ltd., the Court of Appeal found that the Commission had exceeded its jurisdiction in passing a resolution requiring confirmation that allocation of purses had been agreed upon before it would assign race dates to track operators. Doing so effectively required the racetrack to enter into a collective agreement with the horse owners. The court observed that the Act did not specifically grant power to the Commission to issue licences to racetracks.

[74] The authority of Jockey Club Ltd., decided nearly 45 years ago, must be qualified for three reasons. First, the Act now specifically grants power to the Commission to license track operators. Second, the regulatory regime under the Act is much more robust than in was in 1967. Third, the principles of administrative law have developed considerably and are now much more supportive of regulatory bodies working in the public interest: Dunsmuir, Newfoundland and Labrador Nurses’ Union. Judicial review is much more inhibited by principle now than it was in 1967.

[75] In Flamboro Downs, the OHHA alleged that a track owner had breached its agreement by unilaterally reducing the purse structure and sought a declaration to that effect from the Commission. The Commission declined to intervene, holding that it had no jurisdiction to affect the contractual rights of parties, or to interpret or enforce contracts. The Commission correctly observes that its decision in Flamboro Downs has no binding effect on this court.

[76] I find that neither the Divisional Court nor the Court of Appeal in Whelan considered the question of the jurisdiction of the Commission to effectively impose revenue-sharing agreements. They simply concluded that the Commission had not done any such thing. The authority of the Commission over the disbursement of purse monies does not appear to have been in issue in the case.

The Implications of Sudbury Downs

[77] I reviewed earlier several key paragraphs from Morden J.A.’s decision in Sudbury Downs about the Commission’s broad regulatory authority. But his more detailed findings are especially germane to the issue of the Commission’s authority over contracts.

[78] Morden J.A. observed at para. 43 that the Commission’s power to “govern” and to “regulate,” “necessarily involve the power to alter the existing legal landscape in some ways – providing for some modification of legal rights, including property rights.” He went on at para. 47 to consider the intersection of the Commission’s powers and Sudbury Downs’ property rights:

While it is true that taking some action which may allow members of the OHHA to race at Sudbury Downs necessarily involves some interference with its property rights, the essence of the dispute is not over property rights but over the exclusion of certain licensed persons from the sport of horse racing. It is much more a horse racing issue than a property issue. Its bearing on Sudbury Downs’ property rights is more incidental than direct.

[79] Morden J.A. commented at para. 49 that horse racing is a heavily regulated industry and that the Commission had already made several rules restricting the private property rights of race owners, such as rules entitling designated representatives of the Commission to have access to all parts of the racetrack. He observed at para. 50 that the Commission’s administrative powers in relation to horse racing should not be narrower than its rule-making powers insofar as its competence to affect real property rights is concerned.

[80] Morden J.A. concluded at para. 51 that under the Act, “the Commission has the power, in the public interest, to take action which may, incidentally, affect Sudbury Downs’ property rights.” He found at para. 53 that this was “necessarily implied.”

[81] I accept OHHA’s argument that the proposed redistribution of the purses under the Framework would require disbursements from the purse that would be inconsistent with the existing Racetrack Agreements and the Site Holder Agreements.

[82] Sudbury Downs expressly stands for the proposition that the Commission’s powers to govern and regulate may necessarily involve some modification of existing legal rights. In my view, there is no reason to find property rights to be subject to modification by the Commission, but not contractual rights. To repeat the words of Morden J.A. in Sudbury Downs, regulatory powers “necessarily involve the power to alter the existing legal landscape in some ways – providing for some modification of legal rights, including property rights.” He plainly did not intend to limit his observation to property rights to the exclusion of other legal rights including contractual rights.

[83] There is supportive case law to the effect that the public interest may permit the Commission to override contractual provisions: Whelan (C.A.) at para. 18; Schickedanz v. Ontario (Racing Commission), 2011 ONSC 4271 (Div. Ct.), at paras. 9-11; Friedman v. Ontario (Racing Commission), [2008] O.J. No. 1706 (Div. Ct.), at para. 16, where the Court noted specifically that the Commission considered in that case whether it should exercise its ‘discretion’ to interfere with private contracts; and Woodbine Entertainment Group v. Hamather, [2009] O.J. No. 431 (Div. Ct.), at paras. 26-27.

[84] To paraphrase Morden J.A. in Sudbury Downs, the enforceability of the Framework is much more a horse racing issue than an issue of contract law.

[85] I therefore reject the implicit submission of OHHA that in the exercise of its regulatory authority the Commission is straitjacketed by existing contractual relationships. Such straitjacketing would be quite inconsistent with the normal sequence of regulation where the regulator acts and the regulated comply by adjusting contractual arrangements as may be necessary to comply with valid regulation.

[86] The affected contracts fall into two categories. There are contracts among licence holders such as racetracks and horsepeople. In my view, the Commission can reasonably expect licence holders to make the adjustments necessary. The Commission has various tools to compel licensees to comply with its requirements, as Morden J.A. observed in Sudbury Downs at para. 58, if they do not comply voluntarily. The primary mechanism would be by inserting complementary conditions in licences.

[87] Then there are contracts between licence holders and third parties such as OLG. The OLG has no obvious interest in the fight, since its revenue is unaffected by the eventual destination of the redirected purse monies. The fact that OLG is not present suggests that the OLG, as an agent of the Crown, would not balk at the changes in the Site Holder Agreements that would be reasonably necessary to accomplish the Commission’s regulatory goals.

[88] I take a similar approach to the derivative trust obligations created by the Site Holder Agreements. These are effectively derived from the contracts. The beneficiaries of the trusts are licensees subject to regulation by the Commission. Nothing would prevent the OLG and the racetracks who are parties to the Site Holder Agreements from amending them to create new trusts with respect to slot machine profits, broadening the beneficiary class and providing for distribution of trust funds among the racetracks by the Commission.

Conclusions

[89] This is a highly regulated industry with many participants such as racetrack operators, horsepeople, and two sophisticated regulators. A new and comprehensive regulatory framework could be expected to involve a rollout with the regulatory tools, the licence conditions and the contracts aligned. At page 3 para. 8 of the decision the Commission quoted an earlier decision in which it stated: “The Framework will be refined by the Administration and the industry through the 2011 race date allocation period. With continuing industry input, long term implementation will evolve.”

[90] There may have been some slight misalignment in that the Framework was adopted on September 9, 2010, became effective January 1, 2011 and was used to allocate 2011 race dates, while the Rules were not amended until February 24, 2011. In respect of interim purse allocations the Commission relied on the old version of Rule 7.16.05(d), as noted in the decision at paras. 110-112, which permitted the Director to require an Association to disburse purse monies “for other purposes which are approved by the Director;” on February 24, 2011 the Commission amended both Rule 7.16.05 (b) related to slot revenue to give the Director express authority over it and Rule 7.16.05(d) to bring it into line with the Framework.

[91] In light of the intensely collaborative process that led to the Framework with the participation of the industry including OHHA, the Commission seems to have expected uneventful voluntary compliance. The issue for the court is whether the Commission’s method for implementing the Framework including the Executive Director’s decision took the Commission beyond its authority under the Act. I have found that it did not.

[92] To summarize, I have found that the Ontario Racing Commission has the authority under the Racing Commission Act, 2000, to create and implement the Framework. I have rejected the OHHA’s constitutional objection. I have found that the Commission’s regulatory powers under the Act permit it to take the steps that it has taken to implement the Framework despite the incidental effects on existing contracts. I find that the Commission’s affirmation of the Executive Director’s decision is both correct, assuming that correctness is the standard of review, and reasonable, and therefore dismiss the application for judicial review.

Costs

[93] The parties agreed that the successful party would be entitled to costs on a partial indemnity scale in the amount of $15,000, inclusive of disbursements and HST. The OHHA shall accordingly pay costs in such amount to the Commission.

LAUWERS J.

DAMBROT J.

HOY J.

Released: April 2, 2012

CITATION: Ontario Harness Horse Association v. Ontario Racing Commission, et al., 2012 ONSC 821

DIVISIONAL COURT FILE NO.: DC-11-00000247 00JR

DATE: 20120402

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

DAMBROT, HOY and LAUWERS JJ.

B E T W E E N:

ontario harness horse association

Applicant

• and -

ontario racing commission, great canadian gaming corporation, georgian downs limited,

flamboro downs limited,

winrac development inc. and windsor raceway inc.

Respondents

REASONS FOR DECISION

LAUWERS J.

Date of Release: April 2, 2012