CITATION: Powerhouse v. Registrar of Alcohol and Gaming, 2016 ONSC 2549
DIVISIONAL COURT FILE NO.: 360/15 DATE: 20160505
ONTARIO SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
C. HORKINS, J. A. THORBURN AND L. A. PATTILLO JJ
BETWEEN:
POWERHOUSE CORPORATION
Applicant
– and –
REGISTRAR OF ALCOHOL AND GAMING
Respondent
Richard Kulis, for the Applicant
Phillip Morris and Joyce Taylor, for the Respondent
HEARD at Toronto: January 28, 2016
L. A. Pattillo J.:
Introduction
[1] The applicant, Powerhouse Corporation (“Powerhouse”) seeks judicial review of the decision of the respondent, the Registrar of Alcohol and Gaming (the “Registrar”) dated July 3, 2015, refusing to process Powerhouse’s application for a new liquor licence for 11 Polson Street, Toronto, Ontario (the “Polson Pier”).
[2] The Registrar refused to process Powerhouse’s application based on the fact that the existing licensee for Polson Pier was substantially related to Powerhouse. The Registrar found that the purpose and effect of Powerhouse’s application was to evade the public interest protections under the Liquor Licence Act, R.S.O. 1990, c. L-19 (the Act”). The Registrar advised Powerhouse that it should have requested a transfer of the licence with the existing conditions.
[3] For the reasons that follow, Powerhouse’s application is allowed and the matter is remitted back to the Registrar to deal with Powerhouse’s licence application in accordance with the provisions of the Act. In my view, the Registrar had no authority under the Act or its regulations to refuse to process Powerhouse’s application.
The Facts
[4] Polson Pier is a very large former industrial area adjacent to the waterfront and near the Toronto Island community. It has a long history of problems under previous ownership, when the holder of a liquor licence operated a business at Polson Pier called The Docks.
[5] On October 24, 2007, Polson Pier Entertainment Inc. (“PPEI”) applied for a new liquor licence for Polson Pier. The application proposed a total occupant load of 6,900 people, 4100 indoors and 2800 outdoors.
[6] The application received a number of objections including from the City of Toronto (the “City”) and the Toronto Island Noise Committee (“TINC”). The objections were eventually resolved with PPEI following a three-day hearing before the then Board of the Alcohol and Gaming Commission. On August 15, 2008, with the consent of PPEI, the Registrar issued a liquor licence for Polson Pier which had attached a number of conditions reflecting the resolution at the hearing (the “Licence”). The conditions dealt with, among other things, noise levels and hours of operation. The Licence was for a total occupant load of 6,273 people, 3763 indoors and 2510 outdoors.
[7] On December 29, 2011, PPEI applied for a partial transfer of the licence because of a change in its ownership structure. At the time, the controlling shareholder and President of PPEI was Tony Grossi (“Grossi”).
[8] Section 16 of the Act provides that if there is a prescribed change of ownership of a business carried on under a licence, the business cannot operate under the licence unless it is transferred.
[9] On January 24, 2013, before PPEI’s transfer application was finalized, Maya Corp (“Maya”) applied to the Registrar for a transfer of the Licence and a contracting-out authorization to enable it to sell liquor at Polson Pier until the transfer was approved. Maya was owned 42.5% by Charles Khabouth (“Khabouth”); 25% by a group controlled by PPEI; 25% by Daniel Soberano (“Soberano”); and 7.5% by Ralph Soberano. Khabouth was president and a director; Soberano was Secretary Treasurer and Grossi was CEO and a director.
[10] Section 17 of the Act permits an application for transfer of a licence. A contracting out authorization is required to enable Maya to sell liquor under the Licence prior to approval of the transfer.
[11] On January 24, 2013, the Registrar issued a contracting out authorization to PPEI allowing Maya to sell liquor at Polson Pier.
[12] On May 16, 2014, while PPEI was still the licensee, it applied to the Licence Appeal Tribunal (“the Tribunal”) to remove the conditions on the Licence pursuant to s. 14(2) of the Act.
[13] Section 14(2) provides that the Registrar may remove certain conditions “if there is a change in circumstances” from the time the conditions were imposed. The City and TINC opposed the application.
[14] On June 4, 2014, the Registrar transferred the Licence to Maya with the existing conditions.
[15] On June 9, 2014, on the direction of the Tribunal, the Registrar issued a Notice of Proposal to Refuse to Remove Conditions. PPEI appealed the Notice to the Tribunal (although Maya was by then the Licence holder).
[16] Several objectors including the City and the TINC were granted standing by the Tribunal. As part of the Tribunal’s pre-hearing process, the parties engaged in numerous pre-hearings and extensive disclosure. The Tribunal scheduled a seven-day hearing to commence on March 5, 2015.
[17] On February 1, 2015, Michael Kimel entered into an agreement with Maya to become part owner of the business at Polson Pier. Rather than acquiring shares in Maya, the existing licence holder, Mr. Kimel states that they agreed to create Powerhouse.
[18] Mr. Kimel’s agreement to become a part owner of Powerhouse was subject to “the understanding” that the facilities at Polson Pier would be renovated and the capacity expanded. Mr. Kimel was aware of the pending application to remove conditions from the existing licence and the concerns of the objectors. It was understood with Maya that “there would be issues that needed to be resolved” with the objectors. Maya did not disclose its agreement with Mr. Kimel to the Registrar or the Tribunal.
[19] On March 3, 2015, two days before the hearing dealing with the removal of conditions was to commence, without any notice or warning, Maya withdrew its appeal and application to remove conditions before the Tribunal, without any explanation. Maya continues to hold the Licence for Polson Pier.
[20] On May 28, 2015, Powerhouse filed a new liquor licence application for Polson Pier that proposed a total capacity of 15,519 people, more than double the total existing capacity and almost triple the existing outdoor capacity that is allowed under the Licence.
[21] When the Registrar’s staff became aware of Powerhouse’s application, they spoke to Powerhouse’s legal counsel and advised him that the proper procedure was to file a transfer application for the Licence and resurrect Maya’s application to remove conditions. Powerhouse’s counsel took the position that the Registrar had no discretion to require Powerhouse to file a transfer application as opposed to an application for a licence.
The Registrar’s Decision
[22] On July 3, 2015, the Registrar’s counsel advised Powerhouse in a letter that it would not process Powerhouse’s application as a new application but instead would process it as a transfer of the Licence. The Registrar offered to assist PPEI, Maya or Powerhouse if they wanted to resurrect the application to remove conditions and to seek an early hearing date.
[23] In support of the decision to refuse Powerhouse’s application, the Registrar’s letter referred to the fact that Powerhouse and Maya “are substantially related at numerous levels”; that Maya withdrew its application to remove conditions; and that, contrary to the Act, Powerhouse was seeking a new licence while Maya continues to operate under the Licence. The letter further stated that Powerhouse’s application for a new licence rather than a transfer of Maya’s licence is “an attempt to avoid the ambit of section 14 of the Act while the business continues to operate under substantially the same ownership.”
Position of the Parties
[24] Powerhouse submits that the Registrar has no authority under the Act to refuse to process its application for a license for Polson Pier. In the alternative, and if the Registrar had the statutory authority to refuse to process its application, Powerhouse submits that there was a denial of natural justice because it was not given an opportunity to make submissions before the Registrar made its decision.
[25] The Registrar submits that it is responsible for administering the Act in the public interest. Pursuant to that responsibility, it has the power to determine whether an applicant has filed the right application and followed the right process under the Act. As the Act requires Powerhouse to file a transfer application, which it refused to do, the Registrar reasonably and fairly exercised its power to refuse Powerhouse’s application for a licence for Polson Pier.
The Issues
[26] The Application raises two issues:
Does the Registrar have the authority under the Act to refuse to process Powerhouse’s application for a licence for Polson Pier?
If the answer to issue one is yes, did the Registrar breach its duty of procedural fairness to Powerhouse?
Standard of review
[27] The parties agree that the standard of review of the Registrar’s decision to refuse to process Powerhouse’s application for a licence is reasonableness. Reasonableness is a deferential standard which “imports respect for the decision-making process of adjudicative bodies with regard to both facts and law”: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190 at para. 48.
[28] In Dunsmuir, Bastarache and LeBel JJ. expressed the standard in this way, at para. 47:
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.
[29] The reasonableness standard recognizes that there may be more than one reasonable interpretation of legislation or more than one reasonable decision with respect to the question before the decision maker. In McLean v. British Columbia (Securities Commission), 2013 SCC 67 (SCC) the Court stated at para. 33:
… the resolution of unclear language in an administrative decision maker’s home statute is usually best left to the decision maker. That is so because the choice between multiple reasonable interpretations will often involve policy considerations that we presume the legislature desired the administrative decision maker – not the courts – to make. Indeed, the exercise of that interpretive discretion is part of an administrative decision maker’s “expertise”.
[30] An issue of procedural fairness does not engage a standard of review analysis. Instead, the court must determine whether the requisite level of procedural fairness has been accorded, taking into account the factors in Baker v. Canada (Minister of Citizenship and Immigration), 1999 699 (SCC), [1999] 2 S.C.R. 817.
Analysis
1. Statutory Authority to Refuse the Application
The Act
[31] The Act governs the issuance of licenses to, among other things, sell liquor in Ontario. In addition, Regulation 719, R.R.O. 1990 deals with licenses to sell liquor (the “Regulation”).
[32] Section 6(1) of the Act provides that a person may apply to the Registrar for a licence to sell liquor.
[33] Section 6(2) provides that, subject to ss. (4) or (4.1) (which are not relevant for this discussion) an applicant is entitled to be issued a licence to sell liquor except if any of the eight circumstances set out in subsection (2) apply. The subsections deal with, among other things, lack of financial responsibility; past or present conduct which affords reasonable grounds the applicant will not carry on the business in accordance with the law and with integrity and honesty; providing a false statement or information in an application; carrying on activities that are or will be in contravention of the Act or regulations or a City by-law; the proposed premises, accommodation, equipment and facilities are not in compliance with the Act or regulations; and the applicant will not exercise sufficient control, directly or indirectly, over the business.
[34] Section 6(2)(h), the last excepted circumstance, provides:
(h) the licence is not in the public interest having regard to the needs and wishes of the residents of the municipality in which the premises are located.
[35] Subject to a few listed exceptions, s. 7(1) requires the Registrar to give notice of an application for a licence to sell liquor to the residents of the municipality in which the premises are located.
[36] Section 8 requires the Registrar to consider an application for a licence to sell liquor. In that regard, the Registrar has broad powers to make inquiries and conduct investigations into the “character, financial history and competence of the applicant” and if the applicant is a corporation, into the directors, officers, shareholders or partners of the applicant (s. 6.1).
[37] Section 8(4) provides that if the Registrar has received written objections from residents, the Registrar shall consider the objections and “may” then take one of the following steps:
(a) call a public meeting;
(b) issue a proposal to review the application;
(b.1) issue a proposal to refuse the application;
(c) approve the application if the Registrar is of the opinion that the objections are frivolous or vexatious; or
(d) approve the application if the applicant is not otherwise disentitled under this Act.
[38] Section 12 provides that the Registrar shall issue a licence if the applicant complies with the Act and the Registrar approves the applicant’s application or the Tribunal directs the Registrar to issue the licence.
[39] If the Registrar issues a proposal to review an application or to refuse an application for a licence, it must provide written reasons (s. 21(1)). The applicant has a right to require a hearing by the Tribunal (s. 21(4)). If a hearing is not requested within 15 days of receipt of the Registrar’s decision, the Registrar may refuse to issue the application (s. 21(5)).
[40] Sections 23 to 25 deal with hearings before the Tribunal. The Tribunal may direct the Registrar, following a hearing, to either carry out the proposal in whole or in part, carry out the proposal with any changes the Tribunal considers appropriate or approve the application (s. 23(11)).
[41] Section 16 provides that if there is a prescribed change of ownership of the business carrying on under a licence, the business cannot be carried on unless the licence is transferred. Section 94 of the Regulation sets out what is a prescribed change and includes changes in the officers and directors of a licence holder, changes of ownership and if someone, other than the licence holder, becomes entitled to the profits from the sale of liquor at the premises to which the licence applies.
[42] As noted, s. 17 deals with the transfer of a licence. The application is to the Registrar. The applicant is entitled to a transfer unless it is not entitled to a licence under s. 6(2), (4) and (4.1) of the Act (s. 17(2)). The Registrar must consider the application and can approve it if the applicant is not disentitled or issue a proposal to refuse to transfer the licence (s. 17 (4)). In the latter case, the applicant is entitled to a hearing before the Tribunal (s. 21).
[43] Finally, and as noted, s. 14(2) provides that the Tribunal may, on application of the licensee, remove a condition, other than certain specified conditions, “if there is a change in circumstances.”
Discussion
[44] Considering the above provisions and the provisions of the Act as a whole, and given the plain wording of the Act, while the Registrar has authority in certain circumstances to issue a liquor licence, it has no authority to refuse to issue a licence outright. Rather, in every case where the Registrar determines that a licence should not be issued for any of the reasons under s. 6(2) of the Act, the Registrar is required to issue a proposal to refuse the application with written reasons. The Registrar can only refuse an application if, following service of the proposal to refuse the application, the applicant does not require a hearing before the Tribunal or, after a hearing, the Tribunal directs the Registrar to refuse the application.
[45] In this case, the Registrar received Powerhouse’s application and gave notice to the residents in the municipality as required by s. 7 of the Act. It is immaterial that the notice was sent inadvertently. It was sent.
[46] More importantly, in response to the notice, the City, TINC and others filed objections. The Registrar is required to consider the objections filed (s. 8). The Registrar may then take one of the four steps set out in s. 8(4). None of those steps permitted the Registrar to refuse Powerhouse’s application. At best, the Registrar is authorized to issue a proposal to refuse the application with reasons. Powerhouse then has the option of appealing the Registrar’s decision to the Tribunal within 15 days or accepting the Registrar’s decision, in which case the application is refused.
The Registrar’s Position
[47] In support of its decision to refuse to process Powerhouse’s application for a licence, the Registrar submits that Powerhouse is not entitled to a licence under the Act. Rather the Act requires that Powerhouse file a transfer application in accordance with s. 16 of the Act. In addition, the Registrar submits that it has the authority to refuse the application based on the public interest protections in the Act. Finally, the Registrar submits that it has reasonably and fairly exercised its powers to determine whether the applicant has filed the right application and followed the right process.
- Requirement to File a Transfer Application
[48] As noted, s. 16 of the Act requires that a transfer of a licence is required where there is a “prescribed change of ownership”. Section 94 of the Regulations sets out the “prescribed” changes. In this case, the Registrar relies on s. 94 (1) 4 which provides:
- 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.
[49] The Registrar submits that the formation of Powerhouse with Maya and PPEI being involved in the ownership results in a “prescribed change” within the meaning of s. 16 of the Act and s. 94(1) 4 of the Regulation. I disagree. There is no evidence that Powerhouse has any right to any of the profits from the sale of liquor under the Licence.
[50] Apart from the evidence of the corporate structure of Powerhouse and its shareholders which was filed with its application, the evidence of the relationship between Powerhouse and Maya comes from the affidavit of Michael Kimel filed in support of this application. Mr. Kimel states that on February 1, 2015, he entered into an agreement with Maya to become a part owner with his family members through various family companies of the business at Polson Pier through a new company, Powerhouse. The agreement was not produced and there is no evidence that Powerhouse or any of the Kimel parties are entitled to any share of Maya’s existing business at Polson Pier.
- Public Interest
[51] The Registrar further submits that Powerhouse’s application is not in the public interest. Given the involvement of Maya and PPEI in Powerhouse, it submits that what is really happening here is that, by applying for a licence for increased capacity, Powerhouse (and indirectly Maya and PPEI) are avoiding the onus that would otherwise be on Maya, the existing licensee, to establish a change in circumstances to remove the License’s conditions (s. 14 of the Act). As a result, Powerhouse’s application shifts the onus to the public objectors to establish that the requested license (without the existing License conditions) is not in the public interest.
[52] In addition to unfairly shifting the burden of proof, the Registrar submits Powerhouse’s application would also shield it from the two-year prohibition in s. 6(7) of the Act. That section provides:
No person who is refused a licence to sell liquor or who is refused a renewal of a licence to sell liquor or whose licence to sell liquor is revoked for any ground set out in clauses (2) (a) to (f.1) may apply to the Registrar for a licence to sell liquor until two years have passed since the refusal or revocation.
[53] The Registrar submits the two year prohibition following refused or revoked applications limits the exposure that residents in the affected municipality will have to further applications by the person. In the circumstances of this application, the s. 6(7) prohibition would have no impact on Powerhouse because Maya continues to hold the License and can operate the business at Polson Pier. If the Powerhouse application was processed and failed, it would not affect the validity of the License. Further there is no prohibition on Maya reviving its request to remove the conditions on its licence.
[54] While I do not disagree with the Registrar’s assessment that Powerhouse, Maya and PPEI’s actions in proceeding as they have are contrary to the public interest, I do not agree that the Registrar’s decision to refuse Powerhouse’s application was reasonable as that standard has been defined. The authority for the Registrar to refuse Powerhouse’s application must come from the Act. The authority to refuse an application in the public interest is set out in s. 6(2)(h) of the Act. The wording of the Act is clear. In order to refuse an application based on s. 6(2)(h), the Registrar must issue a proposal to refuse the application (s. 8(4)(b.1)). By not doing so and simply refusing the application outright, the Registrar exceeded its authority under the Act.
- Administrative Powers
[55] The Registrar submits that it has the authority under the Act to ensure that a proper application is filed and the right process for approval is filed.
[56] I agree that the Registrar, as the official in charge of administering the Act, has general administrative authority to ensure that proper applications are filed and that the proper process is followed. In this case, it exercised that authority by contacting Powerhouse’s counsel and providing its views of the process Powerhouse’s application should follow. Once Powerhouse disagreed, however, and insisted that its application be considered by the Registrar, the Act requires that the Registrar do so. The Act gives the Registrar no general administrative authority to refuse an application.
2. Procedural Fairness of the Registrar’s Decision
[57] In light of my decision that the Registrar has no authority under the Act or the Regulation to refuse Powerhouse’s application, it is not necessary for me to deal with Powerhouse’s submission that the Registrar breached its duty of procedural fairness to it by not allowing it to make submissions.
Conclusion
[58] For the above reasons, Powerhouse’s application for judicial review is allowed. The matter is remitted back to the Registrar to consider Powerhouse’s application for a licence in accordance with the Act.
[59] The parties have agreed on costs. The Registrar shall pay Powerhouse its costs fixed at $8386 all inclusive.
L. A. Pattillo J.
C. Horkins J.
J. A. Thorburn J.
Released: May 5, 2016
CITATION: Powerhouse v. Registrar of Alcohol and Gaming, 2016 ONSC 2549
DIVISIONAL COURT FILE NO.: 360/15 DATE: 20160505
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
C. HORKINS, J. A. THORBURN AND L. A. PATTILLO JJ
BETWEEN:
POWERHOUSE CORPORATION
Applicant
– and –
REGISTRAR OF ALCOHOL AND GAMING
Respondent
REASONS FOR JUDGMENT
L. A. PATTILLO J.
Released: May 5, 2016