Court of Appeal for Ontario

CITATION: Toronto Distillery Company Ltd. v. Ontario (Alcohol and Gaming Commission), 2016 ONCA 960

DATE: 20161220

DOCKET: C62043

Cronk, Juriansz and Roberts JJ.A.

BETWEEN

Toronto Distillery Company Ltd.

Applicant (Appellant)

and

The Alcohol and Gaming Commission of Ontario, The Liquor Control Board of Ontario, and Her Majesty the Queen in Right of Ontario

Respondents (Respondents)

Counsel:

Charles Benoit, agent for the appellant

Scott C. Hutchison, for the Alcohol and Gaming Commission of Ontario

Michael Dunn and Padraic Ryan, for the Attorney General of Ontario

M. Jill Dougherty and Lara Kinkartz, for the Liquor Control Board of Ontario

Heard: December 15, 2016

On appeal from the judgment of Justice Suhail A.Q. Akhtar of the Superior Court of Justice, dated April 1, 2016.

ENDORSEMENT

[1] The appellant is a small distillery. The Alcohol and Gaming Commission of Ontario (“AGCO”) granted it a Manufacturer’s Licence and Retail Store Authorization to sell its spirits to the public on-site on condition that it enter into a contract with the Liquor Control Board of Ontario (“LCBO”).

[2] The LCBO’s contract was non-negotiable and required the appellant to first sell its spirits to the LCBO before putting the spirits up for sale in the distillery store. The distillery would then sell the spirits to the public as the LCBO’s agent. The contract also granted the LCBO the power to set mark-up and commission rates on the spirits sold. The total mark-up, 139.7%, insured that prices at the distillery store were the same as prices at LCBO stores. The contract provided the appellant would receive a 13% commission for acting as the LCBO’s agent in selling the spirits.

[3] On July 23, 2015, the appellant brought an application for a declaration that the LCBO’s mark-up was an unconstitutional tax. It argued it was an unconstitutional tax because under ss. 53 and 90 of the Constitution Act, 1867, taxes must be imposed by Parliament or the provincial legislature. Regulatory bodies cannot be empowered to impose taxes.

[4] The application judge dismissed the application. He found that the mark-up fit within the criteria set out in Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, 1930 CanLII 91 (SCC), [1931] S.C.R. 357 and Eurig Estate (Re), 1998 CanLII 801 (SCC), [1998] 2 S.C.R. 565. But he went on to find the levy escaped classification as a tax because it was a proprietary charge. In making this finding, he relied on Ontario Cancer Treatment and Research Foundation v. Ottawa (City) (1998), 1998 CanLII 1255 (ON CA), 38 O.R. (3d) 224 (C.A.), at p. 251; Labourers’ International Union of North America v. Ontario Construction Secretariat (1996),1996 CanLII 11770 (ON SC), 31 O.R. (3d) 261 (Div. Ct.), at para. 16; Air Canada v. Ontario (Liquor Control Board), 1997 CanLII 361 (SCC), [1997] 2 S.C.R. 581; and 620 Connaught Ltd v. Canada (Attorney General), 2008 SCC 7, [2008] 1 S.C.R. 131.

[5] The appellant seeks to avoid this result by urging a particular interpretation of the distinction between proprietary charges and taxes that Rothstein J. made in 620 Connaught Ltd. Rothstein J. said at para. 49:

I agree that proprietary charges for goods and services supplied in a commercial context are distinct from either regulatory charges or taxes and may be determined by market forces.

[6] The appellant observes that the amount of managerial discretion in commercial contexts falls along a spectrum and advocated interpreting “commercial context” in Rothstein J.’s distinction to require the exercise of active management discretion on a transaction by transaction basis. Such an interpretation is required, he submits, to give meaning to the protection that s. 53 of the Constitution Act affords the public from indirect taxation.

[7] We are not persuaded that Rothstein J. intended that “commercial context” be given such a restricted meaning. The application judge found the LCBO was the owner and commercial supplier of the spirits in question. We agree with the application judge’s analysis and his conclusion that the mark-up is a proprietary charge and not a tax.

[8] Furthermore, we agree with the application judge’s alternate conclusion that the mark-up is not a tax because the appellant agreed to it in its contract. It is well-established that obligations under a contract arise from the voluntary agreement of the parties, while the obligation to pay a tax does not. Under the contract, the LCBO owns the spirits in the appellant’s store. As owner of the goods, the LCBO must have the right to determine the prices for which they are sold, including the mark-up. It follows that the mark-up is not an exercise of the government’s public authority but of its private law rights.

[9] The appellant submits the application judge erred in finding it is not under a “practical compulsion” to obtain authorization to operate a retail store. We do acknowledge that, within the regulatory framework, this is the only way it can sell its products directly to the public, albeit through a third party. However, that requirement falls short of the restrictions discussed in Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan et al., 1977 CanLII 210 (SCC), [1978] 2 S.C.R. 545 (“CIGOL”), where a petroleum royalty surcharge was held to be a tax. We agree with the application judge’s observation that the applicant entered into a contract with the LCBO for a commercial advantage and it was “clear that the applicant was not compelled to sell its products through its own store. Like others, it could sell its spirits through stores operated by the LCBO or, alternatively, to markets outside Canada.”

[10] The appeal is dismissed. The respondents’ costs are fixed in the amount of $5,000, inclusive of disbursements and HST, to be paid to each of the three respondents.

“E.A. Cronk J.A.”

“R.G. Juriansz J.A.”

“L.B. Roberts J.A.”