Licence Tribunal
Appeal d'appel en Tribunal matière de permis
DATE: 2016-10-28
FILE: 10175/LLA
CASE NAME: 10175 v. Registrar of Alcohol and Gaming
Appeal from the Notice of Proposal of the Registrar of Alcohol and Gaming under the Liquor Licence Act, R.S.O. 1990, c. L.19 - to Refuse to Renew a Licence
6227481 Canada Inc. o/a Dover Enterprises Appellant
-and-
Registrar of Alcohol and Gaming Respondent
REASONS FOR DECISION AND ORDER
ADJUDICATOR: Mary Ann Spencer, Member
APPEARANCES:
For the Appellant: Ray Hunter, Agent
For the Respondent: Joyce Taylor, Counsel
Heard in Toronto: October 11, 2016
REASONS FOR DECISION AND ORDER
BACKGROUND
The Registrar of Alcohol and Gaming (the “Registrar”) under the Liquor Licence Act (the “Act”) issued a Notice of Proposal, number 21276, dated March 31, 2016, to refuse to renew two manufacturers’ licences issued to 6227481 Canada Inc. o/a Dover Enterprises (the “Appellant”). On August 24, 2016, the Registrar issued an amended Notice of Proposal, number 21424, to refuse to renew the licences.
The Registrar proposes to refuse to renew the Appellant’s manufacturers’ licences under section 15(4) of the Act on the basis that contrary to clause 6(2)(d), the past or present conduct of the Appellant affords reasonable grounds for belief that the business will not be carried on in accordance with the law and with integrity and honesty.
EVIDENCE
Rebecca Castillo, Manager of Liquor Eligibility at the Alcohol and Gaming Commission of Ontario (“AGCO”), testified on behalf of the Registrar. Ray Hunter, a 20% shareholder and the President of the Appellant, testified on the Appellant’s behalf.
Ms. Castillo testified that in March, 2016, the Registrar became aware of a transfer of more than 10% of the shares of the Appellant during a hearing on another matter before this Tribunal. The Appellant had not notified the Registrar of the share transfer.
Under the Act and regulations, if a person acquires shares in a corporate licence holder and as a result controls 10% or more of outstanding shares, no business may be carried on under the licence, unless the licence is transferred by the Registrar. Because of the share transfer, the Registrar subsequently ordered the Appellant not to operate and, on March 31, 2016, issued a Notice of Proposal to Refuse to Renew the Licence.
In May, 2016, the Registrar received an application for transfer of the licences which was accompanied by stock purchase agreements and stock certificates indicating that on November 6, 2015, Helena Hunter purchased the 750 shares of the Appellant, held by Thomas Kells and the 750 shares of the Appellant held by Ian and Eleanor Smiley, thereby acquiring a 15% ownership interest in the Appellant (Exhibit 3). On August 19, 2016, the Registrar refused the application to transfer the two manufacturers’ licences. Consequently, no one is authorized to operate under the two manufacturers’ licences. The Act does not provide for an appeal to the Tribunal of the Registrar’s decision to refuse to transfer a manufacturer’s licence. Ms. Castillo testified that she is not aware of any application for judicial review of that decision.
Mr. Hunter testified that Ms. Hunter’s share acquisition was paid for by the Appellant, that the shares were not intended to be transferred to Ms. Hunter and that the share transfer was meant to be a corporate buy-back. He indicated that shareholder Thomas Kells, who was responsible for the Appellant’s legal work, handled the paperwork. Because Ms. Hunter signed the cheque, Mr. Kells incorrectly transferred the shares to her name. Mr. Hunter testified that he was unaware of the requirement to submit an application for transfer of the licence. However, an application was submitted after the Appellant received the order to cease operations and became aware of the requirement. Mr. Hunter noted that the Appellant is not operating and is on the verge of bankruptcy. He stated that he does not have the resources to apply for judicial review of the Registrar’s decision to refuse the transfer of the licence.
On cross-examination, Mr. Hunter acknowledged that at the time of the share transfer, he was aware that both Mr. Kells and Mr. Smiley were going to testify at a hearing scheduled to take place before this Tribunal in January, 2016, with respect to alleged breach of licence conditions by the Appellant. He indicated that at that time, the Appellant was represented by counsel. Similarly, he agreed that at the time the application for transfer was submitted to the AGCO, a letter from another counsel was sent to the AGCO with respect to that application.
Ms. Castillo was recalled to testify and indicated that until Mr. Hunter testified at this hearing, the Registrar had never been advised that the share transfer to Ms. Hunter was in error and was in fact meant to be a corporate buy-back.
THE LAW
The relevant sections of the Act are:
Entitlement to be issued a Licence:
- (2) Subject to subsection (4) or (4.1), an applicant is entitled to be issued a licence to sell liquor except if,
(d) the past or present conduct of the persons referred to in subsection (3) affords reasonable grounds for belief that the applicant will not carry on business in accordance with the law and with integrity and honesty;
Refusal to renew a Manufacturer’s Licence:
- (4) The Registrar may issue a proposal to revoke or suspend a manufacturer’s licence or refuse to renew such a licence under any ground under clause 6(2) (a), (d), (e), (f) or (g), or if the licensee has failed to pay any fees, charges or levies or the licensee has contravened this Act, the regulations or a condition of the licence.
Change of ownership of business:
- Except as permitted by the regulations, if there is a prescribed change of ownership of a business carried on under a licence or a change of licensee, no person shall carry on the business under the authority of the licence unless the licence is transferred by the Registrar in accordance with this Act and the regulations.
Manufacturer’s licence to sell to L.C.B.O. :
- (5) The Registrar’s decision to issue or transfer or to refuse to issue or transfer a manufacturer’s licence is final.
The regulation, Manufacturers' Licences, R.R.O. 1990, Reg. 720 (“Regulation 720”) sets out the prescribed changes of ownership of a business:
(1) The following are prescribed changes for the purposes of section 16 of the Act:
An individual becomes or ceases to be an officer or director of a licence holder that is a corporation or a corporation that effectively controls the business.
A person becomes or ceases to be a partner of a licence holder that is a partnership.
A person or partnership acquires a beneficial interest in the business of the licence holder, including holding or controlling shares of a licence holder that is a corporation or in a corporation that effectively controls the business.
A person or partnership other than the licence holder becomes entitled to any of the profits from the sale of liquor or liable for any obligations incurred from the sale of liquor at the premises to which the licence applies.
(2) For the purposes of paragraph 3 of subsection (1), if a person or partnership acquires shares in a licence holder that is a corporation or in a corporation that effectively controls the business of the licence holder, an acquisition that results in the person or partnership holding or controlling 10 per cent or more of the outstanding shares, or of a class of shares, of the corporation is a prescribed change.
ANALYSIS
The Registrar may refuse to renew a manufacturer’s licence only for the grounds set out in s. 15(4) of the Act, which include the ground in s. 6(2)(d) of the Act. The onus is on the Registrar to prove that there are reasonable grounds for belief that the Appellant will not act in accordance with the law and with integrity and honesty. The Tribunal must make an independent assessment of whether section 6 applies.
The evidence is that 15% of the shares of the Appellant were transferred to Helena Hunter on November 6, 2015. Mr. Hunter does not deny that this transfer constitutes a prescribed change in accordance with section 13(2) of Regulation 720 or that, contrary to section 16 of the Act, the Appellant continued to carry on business under its two manufacturers’ licences from the date of the share transfer until March, 2016 when the Registrar issued an order to the Appellant to cease its operations. An application for transfer of the Appellant’s licences was submitted to the AGCO in May, 2016 which the Registrar refused on August 19, 2016.
Ms. Taylor submitted that the application for renewal of the licence should be refused. Contrary to the requirements of the Act, the Appellant carried on business under the licences after the share transfer took place. She noted that because the Appellant’s application for transfer of the licence has been refused, that no one can carry on business under the licence. Further, no application for judicial review of the Registrar’s decision to refuse to transfer the licence has been filed. This is a matter of taking the licences off the books when no one can use them. The Tribunal notes that a consequence of refusing to renew the licence would be to end the other appeal the Appellant currently has before the Tribunal.
Mr. Hunter’s position is that he was unaware of the requirement set out in section 16 of the Act for transfer of the Appellant’s licence. When he became aware, an application for transfer was submitted to the AGCO in May, 2016. His testimony is also that the share transfer to Helena Hunter was an error and that the intent was for the shares to have been transferred back to the corporation.
The Tribunal notes that had the shares been transferred back to the corporation, the provisions of section 13(2) of Regulation 720 would not have applied. However, this explanation was not provided to the Registrar by the Appellant before this hearing, even though the Appellant was previously represented by counsel in this matter. The Tribunal therefore, does not accept Mr. Hunter’s explanation that the share transfer to Ms. Hunter was done in error.
In assessing whether or not there is reason to believe that the Appellant will not act in accordance with the law and with honesty and integrity, the entirety of the Appellant’s past conduct must be considered. There is no evidence of any past breach by the Appellant of the Act or its regulations, notwithstanding the fact that the Tribunal was informed that the Appellant has another appeal currently before it, which relates to allegations of breach of licence conditions. The Registrar did not provide the Tribunal with any detail with respect to those allegations. The only evidence before the Tribunal of the Appellant’s contravention of the Act or the regulations is the fact that it operated for approximately five months after the share transfer took place contrary to section 16 of the Act. However, there is evidence that the Appellant attempted to rectify this by applying for a licence transfer.
There is no evidence before the Tribunal with respect to the Registrar’s reasons for refusing the transfer of the Appellant’s licence. The Tribunal finds that the fact that the Appellant did not apply at the required time for transfer of the licence is insufficient to provide reasonable grounds to believe that the Appellant will not act in accordance with the law and with honesty and integrity. The Tribunal notes that this decision does not affect the Registrar’s decision to refuse to transfer the licences and does not enable the Appellant to conduct business under them.
DECISION
Pursuant to the authority vested in the Tribunal under the Act, the Tribunal directs the Registrar not to carry out the Amended Notice of Proposal to Refuse to Renew a Licence dated August 24, 2016.
LICENCE APPEAL TRIBUNAL
Mary Ann Spencer, Member
Released: October 28, 2016