CITATION: 2169205 Ontario Inc. o/a Lefroy Freshmart v. Liquor Control Board of Ontario, 2011 ONSC 1878
COURT FILE NO.: 469/10
DATE: 20110513
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
then r.s.j., swinton and lederer JJ.
B E T W E E N:
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 and Jordan Glick, for the Respondent
Avrum D. Slodovnick, for Jong Ha Ko and Yousoon Ko
HEARD at Toronto: February 11, 2011
Swinton J.:
Overview
[1] 2169205 Ontario Inc., operating as Lefroy Freshmart, applies for judicial review of a decision of the Liquor Control Board of Ontario (“the LCBO”) to authorize 1710579 Ontario Inc. (“Daisy Mart”) to operate an agency store. It seeks an order to quash the decision, so that a new procurement process can take place.
[2] At issue in this application is the jurisdiction of this Court to grant judicial review of a decision to award authorization to operate an agency store following a competitive procurement process, as well as the fairness of the procurement process and the reasonableness of the decision. For the reasons that follow, I would dismiss the application.
The Agency Store Selection Process
[3] Under the Liquor Control Act, R.S.O. 1990, c. L.18 (“the Act”), the LCBO has the authority to establish government liquor stores and to decide where they will be located. Currently, the LCBO operates over 600 government stores in Ontario. In addition, the LCBO has established over 200 stores in smaller communities, known as “agency stores”. An agency store is intended to be located in a segregated area within a viable existing business in the community and is operated on behalf of the LCBO by the local business.
[4] The selection of an agency store operator occurs through a competitive procurement process. Once the LCBO identifies a need for service within a community and decides that the community would support an agency store, it advertises a Request for Proposal (“RFP”).
[5] The RFP is consistent with the principles of the Management Board of Cabinet Procurement Directive dated July 2009 (the “Directive”), although much of that Directive does not apply to or is not mandatory for the LCBO.
[6] In all agency store competitions, an application package consisting of the RFP, an application form, and a personal history form is sent to interested retailers. The RFP includes information about the agency store program, instructions for making an application, the criteria governing evaluation and procedures for the submissions of responses.
[7] After the deadline for submitting responses, LCBO employees make a digital video recording of the facilities of each responding business and complete a Site Survey Report to confirm the information in the RFP response. The report addresses each RFP criterion in detail for the purpose of supplying information to the Agency Store Selection Committee (the “Selection Committee”). However, the scores and comments in the report are for informational purposes only, and do not bind the Selection Committee.
[8] The Selection Committee is a three person panel made up of the Agency Store Program Manager, a Retail Operations District Manager and a representative of the LCBO’s Policies and Government Relations Department. The members evaluate each application based on scoring sheets reflecting the RFP selection criteria and recommend the applicant with the most points to the LCBO’s Board of Directors. If the Board agrees with the recommendation, it passes a resolution to approve the issuance of the authorization.
The History of the Lefroy Agency Store
[9] In 2002, Lefroy, a small community near the Town of Innisfil, was identified as a community that could support an agency store. After a competition, the LCBO authorized the Lefroy Mini Mart, owned by Sung-Si An, to operate an agency store from September 1, 2002 to August 31, 2007.
[10] In 2007, a second agency store competition was held, and the Lefroy Freshmart, then owned by 1726480 Ontario Inc. (“172”), was selected to be the new agency store operator for an initial two year term starting April 1, 2008. The LCBO had the discretion to extend the authorization for a further period of three years.
[11] In August 2009, 172 entered into an agreement to sell the Lefroy Freshmart to the applicant corporation. When the LCBO received notice of the purchase agreement, it wrote to the applicant’s lawyer, advising that the LCBO agency store authorization could not be treated as an asset of the business and its transfer could not be a condition of sale. Where the host business is sold, the practice of the LCBO is to hold a competition to choose the next agency store operator.
[12] After the purchase closed, the LCBO awarded a Temporary Store Authorization to the applicant, on a month to month basis, so that the applicant could continue to operate the agency store pending the outcome of a new agency store competition.
[13] In March 2010, the LCBO issued RFP #2010-107 Lefroy. It received four responses to the competition, including an application from the applicant, Freshmart, and one from 1710579 Ontario Inc. (“171”), operating as Lefroy Daisy Mart.
[14] The principals of 171 are Yousoon Ko and Jong Ha Ko. Although Daisy Mart ultimately obtained the agency store authorization, it was not made a party to this application for judicial review. However, the Kos appeared at the hearing of this application with counsel.
[15] On June 1, 2010, the Selection Committee reviewed the applications. Daisy Mart received a score of 106.5 out of 150 points, while Freshmart received 99.5. The key differences in their scores were the following:
• Daisy Mart received 10 out of 10 for store appearance, while Freshmart received 8 out of 10. The Committee noted that not all of Freshmart’s shelves were appropriately stocked, and there was low inventory.
• With respect to storage of empties, Daisy Mart received 5 out of 5, while Freshmart received 0. The Committee noted that Freshmart’s storage area was not segregated from the retail area of the store.
• With respect to the business background of the store manager, Daisy Mart scored 10 out of 10, while Freshmart scored 5 out of 10, because the identified store manager (Mr. Manu Patel) was stated to have two and a half years of retail experience. In contrast, the owner and manager of Daisy Mart had 3 years experience operating Daisy Mart and 18 years of experience operating other retail and service businesses.
[16] The responding businesses were notified of the results of the competition in early July 2010. The LCBO issued an agency store authorization to Daisy Mart to commence on October 1, 2010. The applicant was informed that its Temporary Authorization would expire on September 30, 2010.
[17] This application for judicial review was commenced September 21, 2010. By the time the application was brought, the principals of Daisy Mart had already invested a significant amount of money to perform renovations and purchase equipment and inventory. Daisy Mart commenced operations as an agency store on October 1, 2010.
The Issues
[18] There are a number of issues raised by this application:
Is the LCBO’s decision to award an agency store authorization by means of a competitive procurement process subject to judicial review?
If the decision is reviewable, what is the standard of review?
Was the LCBO’s procurement process fair?
Was the LCBO’s decision reasonable?
Should the application for judicial review be dismissed because of delay?
Issue No. 1: Is the LCBO’s decision to award an agency store authorization by means of a competitive procurement process subject to judicial review?
[19] Pursuant to s. 2(1) of the Judicial Review Procedure Act, R.S.O. 1990, c. J.1 (the “JRPA”), judicial review is available in certain circumstances. It reads:
On an application by way of originating notice, which may be styled “Notice of Application for Judicial Review”, the court may, despite any right of appeal, by order grant any relief that the applicant would be entitled to in any one or more of the following:
Proceedings by way of application for an order in the nature of mandamus, prohibition or certiorari.
Proceedings by way of an action for a declaration or for an injunction, or both, in relation to the exercise, refusal to exercise or proposed or purported exercise of a statutory power.
[20] “Statutory power” is defined in s. 1:
“statutory power” means a power or right conferred by or under a statute,
(a) to make any regulation, rule, by-law or order, or to give any other direction having force as subordinate legislation,
(b) to exercise a statutory power of decision,
(c) to require any person or party to do or to refrain from doing any act or thing that, but for such requirement, such person or party would not be required by law to do or to refrain from doing,
(d) to do any act or thing that would, but for such power or right, be a breach of the legal rights of any person or party …
[21] The LCBO argues that judicial review is not available, because it was not exercising a statutory power when it made the decision to award the agency store authorization. The authorization is a commercial arrangement, not the conferral of a statutory licence, as the applicant suggests. If the applicant wishes to challenge the fairness of the process used, it must do so in accordance with principles of contract, as in Coco Paving (1990) Inc. v. Ontario (Minister of Transportation) (2009), 2009 ONCA 503, 252 O.A.C. 47 (C.A.).
[22] The applicant submits that the LCBO was exercising a statutory power of decision, since it was determining whether the applicant would have the legal right or privilege to sell liquor. A “statutory power of decision” is defined in s. 1 of the JRPA:
“statutory power of decision” means a power or right conferred by or under a statute to make a decision deciding or prescribing,
(a) the legal rights, powers, privileges, immunities, duties or liabilities of any person or party, or
(b) the eligibility of any person or party to receive, or to the continuation of, a benefit or licence, whether the person or party is legally entitled thereto or not,
and includes the powers of an inferior court.
[23] Moreover, the applicant argues that the award of the agency store authorization engages a significant public interest, given the monopolistic position of the LCBO respecting liquor sales in Ontario and the controls on tendering found in the Directive from Management Board.
[24] Courts have traditionally considered the process of awarding a government contract for goods and services to be a commercial matter that is governed by private law. In particular, it has been held that the decision to award a contract is not properly a subject for judicial review where there are no statutory provisions or regulations which prescribe how the government agency is to go about entering the contract in question. For example, in St. Lawrence Cement Inc. v. Ontario (Minister of Transportation) (1991), 3 O.R. (3d) 30, the Divisional Court refused to intervene in a decision of the Ministry of Transportation to award a contract pursuant to a tendering process, holding that certiorari was not appropriate under the circumstances. The Court stated (at p. 38):
Certiorari is available to preserve order in the legal system by preventing both excesses and abuse of power and to make government operate properly in the public interest, but not to protect private rights.
The Court concluded that the contract at issue was a purely commercial contract that did not affect the public interest.
[25] Similarly, the Divisional Court concluded that judicial review was not available to challenge the selection of an electrical contractor by the Board of Governors of Exhibition Place, as this was a purely commercial decision (Re Ainsworth Electric Co. Ltd. and Board of Governors of Exhibition Place (1987), 58 O.R. (2d) 432 at 436). See, as well, Peter Kiewit Sons Co. v. Richmond (City), [1992] B.C.J. No. 1591 (S.C.).
[26] The applicant relies on the decision of the Divisional Court in Bot Construction Ltd. v. Ontario (Minister of Transportation) (2009), 99 O.R. (3d) 104, where the Court granted an application for judicial review of a decision awarding a contract for the construction of a road following a tendering process. The Court held that judicial review is available “in appropriate circumstances to address public interest concerns” and, “in particular, where government procurement decisions are authorized or constrained by statutes, rules, or regulations” (at para. 21). The Court held that the award of the contract was the exercise of a statutory power of decision, because it “affected the legal rights and privileges of the bidders for the Contract…” (at para. 23).
[27] The Court also identified a number of public law interests sufficient to require that judicial review be available, including the significant expenditure of public funds in the highway construction industry and the economic implications of the tendering process for the steel and road building industries in Ontario (at para. 24).
[28] The Court took note of the 2009 Procurement Directive of Management Board of Cabinet, as well. While it stated that the Directive did not raise public law issues in all provincial tendering (at para. 26), it did so in that case. There, the Ministry of Transportation was subject to the Directive, which was said to create and inform a duty of fairness in the procurement process (at para. 31).
[29] On appeal, the decision of the Divisional Court was overturned on the ground that the decision of the Ministry was reasonable (Bot Construction Ltd. v. Ontario (Minister of Transportation), 2009 ONCA 879). The Court of Appeal expressly left open the question whether judicial review was available with respect to the tendering process for government procurement contracts (at para. 19).
[30] We need not determine in this case whether the Divisional Court was correct in concluding that judicial review is available with respect to the government’s tendering process in some circumstances. The present case is not one where judicial review is an appropriate remedy, as there is no broad public interest that is sufficient to justify judicial review of the tendering process.
[31] Here, the LCBO was exercising a broad discretion and making a commercial decision about which of a number of applicants should be authorized to operate an agency store in Lefroy. Neither the Act nor regulations prescribe any particular procedure or criteria to govern the selection process for agency store operators. Pursuant to s. 3 of the Act, the LCBO may establish government stores (s. 3(d)), determine where they will be located (s. 3(g)), and generally do all things necessary for the management and operation of the Board in the conduct of its business (s. 3(n)). Other than this broad statutory discretion, the Act and the regulations say nothing about agency stores. Thus, the decision of the LCBO to authorize an agency store operator is a purely commercial arrangement.
[32] Unlike the Bot case, where the contract amount was $60 million, there is not a significant expenditure of public funds associated with the agency store authorization. The establishment of an agency store is financed by the successful bidder, who is required to provide the premises and the fixtures in the store and to purchase inventory at its own expense. The operator’s only compensation is a 10% discount on its purchase of liquor from the LCBO in return for the operator’s services in running the agency store. Moreover, there is no impact on third parties, as there was with respect to the steel and road building industries in Bot. The tendering process for agency stores is repeated at least every five years, and there is no preference for the incumbent.
[33] In Bot, the Divisional Court concluded that the application of the Directive also raised a public law interest. In contrast, in the present case, the legislation does not require the use of a competitive procurement process, nor does the Directive of Management Board of Cabinet require such a process. The Directive applies in its entirety to specified entities, including all ministries and all advisory, adjudicative and regulatory agencies. It applies, in part, to a group called “Other Included Entities”, which includes the LCBO. Such entities must comply with specified sections of the Directive (see Section 3, “Application and Scope”).
[34] Significantly, for purposes of this application for judicial review, the Other Included Entities are required to comply only with specific parts of Section 5, which sets out mandatory requirements for procurement. For example, they are required to comply with Section 5.6.2, headed “Goods and Non-consulting Services Procurements”. It reads:
Other Included Entities are encouraged to conduct an open competitive procurement for all goods and non-consulting services but may conduct these procurements using their own policies, processes, and procedures provided they are in accordance with the principles of this Directive. This includes the allowable exceptions for the non-competitive acquisition of goods and non-consulting services as defined in Section 5.5.4.2.
[35] While Section 6.2 sets out detailed information requirements governing the procurement documents used by Ministries, Section 6.3 encourages Other Included Entities to adopt those information requirements “as appropriate.”
[36] It is notable that the Directive does not require the LCBO to use a competitive procurement process. This is in contrast to the situation in Bot, where the Ministry of Transportation was required to follow the Directive, and the Divisional Court noted that the Directive “creates and informs the MTO’s duty of fairness in the procurement context” (at para. 31).
[37] Thus, the LCBO’s decision to use the RFP process for the selection of agency store operators was a commercial decision that was not constrained by any statutory or regulatory provision. In awarding the authorization, it was not exercising a statutory power of decision. Moreover, I see no broader public interest issues arising in this case which should lead this Court to subject the LCBO’s decision to judicial review. Rather, any complaint about the fairness of the tendering process should be determined as a matter of contract law, as in Coco Paving above.
Issue No. 2: If the decision is reviewable, what is the appropriate standard of review?
[38] If I am incorrect, and the decision to award the authorization to Daisy Mart is properly the subject of an application for judicial review, the standard of review to be applied to the merits of the decision is reasonableness (see Bot in the Court of Appeal at paras. 8 and 18). The RFP process was overseen by a Selection Committee experienced in evaluating store bids. The Selection Committee was required to evaluate the bids in light of the RFP and the Directive, with which it had familiarity. Therefore, its decision on the merits is deserving of deference from this Court. However, to the extent that the applicant challenges the decision on the basis of procedural fairness, it is the Court’s task to determine whether the requisite level of fairness was provided.
Issues No. 3 and 4: Was the LCBO’s procurement process fair, and was the decision reasonable?
[39] The applicant argues that it was treated unfairly because the RFP failed to reveal sufficient detail about the scoring of factors and sub-factors. It invokes Section 6.7 of the Directive and argues that the LCBO failed to meet its obligation to disclose all weights for rated requirements.
[40] Section 6.7 requires Ministries and Other Included Entities to evaluate bid responses consistently and in accordance with the evaluation criteria, rating and methodology set out in the procurement document. Included in the requirements is the obligation to fully disclose the evaluation process to be used in assessing a vendor’s submission. This includes disclosure of all weights, including sub-weights, for rated requirements.
[41] In my view, the LCBO complied with the provisions of the Directive with which it was required to comply. Section 6.7 is located under the heading “Evaluation Process”. It does not speak to the requirements for disclosure in the procurement documents, as those obligations are governed by Section 6.3 of the Directive. While Section 6.2(b) defines the content for Ministries’ procurement documents, Section 6.3 excludes the LCBO from the detailed information requirements applicable to Ministries.
[42] When Section 6.7 is read in the context of the Directive as a whole, it appears that the disclosure obligation in that section is to the decision-makers, who must be familiar with the entire evaluation process before coming to a decision.
[43] In any event, the applicant has not shown that it was treated unfairly. The LCBO set out in Section 6 of the RFP the criteria to be applied in the process and the weighting to be given to the criteria. In particular, it stated the maximum points for business location in the community, review of business (on site survey), product accommodation and review of business (application). While there was no indication of the weighting to be accorded the sub-factors within these categories, there were bullet points that indicated what those sub-factors were - for example, parking, hours of operation, accessibility for the physically challenged, and retail and inventory management experience of the proposed manager, among others. The applicant has not suggested that any competitor received an advantage over another competitor by having more information.
[44] The Selection Committee, in coming to its decision, reviewed the applications, the video and the site survey. It did not automatically adopt the score in the site survey, as the applicant suggested. Instead, it applied the criteria in the RFP, and it complied with the Directive as it applied to the LCBO. The LCBO also investigated the applicant’s complaints about Daisy Mart’s premises and found them without merit.
[45] Ultimately, the applicant’s application was rated below the Daisy Mart application because of concerns about the premises and the experience of the manager. While the applicant argues that it did not know of the need to add information about Mr. Singh’s experience, it made the choice to include only Mr. Patel’s experience, even though Mr. Singh was to be a manager as well. In any event, Mr. Singh did not have the required retail experience.
[46] The Committee took into consideration the applicant’s low inventory, as this was relevant to its concern that the agency store be financially stable without the income from alcohol sales. The Committee was also concerned about the adequacy of the applicant’s method for storing empty bottles.
[47] The decision of the Selection Committee to recommend that the authorization be given to Daisy Mart was reasonable, and the process was fair and consistent with the Directive and the RFP. While the applicant submitted that the Briefing Note for the Board contained new information or hidden criteria, that is not the case. It contained a summary of the Selection Committee’s recommendation and the basis for the recommendation. The decision of the Board to adopt the Committee’s recommendation to award the authorization to Daisy Mart was also reasonable in the circumstances.
Conclusion
[48] Therefore, the application for judicial review is dismissed. Given my conclusions on the other issues, it is not necessary to consider the issue of delay.
[49] If the parties cannot agree on costs, the respondent may make written submissions, through the Divisional Court office, within 14 days of the release of this decision, and the applicant may make written submissions within 10 days thereafter.
_______________________
Swinton J.
_______________________
Then R.S.J.
_______________________
Lederer J.
Released: May , 2011
CITATION: 2169205 Ontario Inc. o/a Lefroy Freshmart v. Liquor Control Board of Ontario, 2011 ONSC 1878
COURT FILE NO.: 469/10
DATE: 20110513
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
THEN R.S.J., SWINTON and LEDERER JJ.
B E T W E E N:
2169205 ONTARIO INC. o/a LEFROY FRESHMART
Applicant
- and -
LIQUOR CONTROL BOARD OF ONTARIO (LCBO)
Respondent
REASONS FOR JUDGMENT
_________________________________________
Swinton J.
Released: May , 2011