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Liquor control - Liquor control and licensing boards - Powers - Constitutional issues

Thursday, February 16, 2017 @ 7:00 PM  


Appeal by the Toronto Distillery Company (TDC) from a decision dismissing the TDC’s application for a declaration that the Liquor Control Board of Ontario’s (LCBO) spirits price mark-up was an unconstitutional tax. The TDC was a small distillery. The Alcohol and Gaming Commission of Ontario granted the TDC 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 LCBO. The LCBO’s contract was non-negotiable and required TDC to first sell its spirits to the LCBO before putting the spirits up for sale in the distillery store. The TDC 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 percent, insured that prices at the TDC store were the same as prices at LCBO stores. The contract provided TDC would receive a 13 percent commission for acting as the LCBO’s agent in selling the spirits. TDC’s application for a declaration that the LCBO’s mark-up was an unconstitutional tax was dismissed. The application judge found that the levy escaped classification as a tax because it was a proprietary charge.

HELD: Appeal dismissed. The current Court agreed with the application judge’s analysis and his conclusion that the mark-up was a proprietary charge and not a tax. The application judge appropriately found the LCBO was the owner and commercial supplier of the spirits. The current Court also agreed with the application judge’s alternate conclusion that the mark-up was not a tax because TDC agreed to it in its contract. Under the contract, the LCBO owned the spirits in TDC’s store. As owner of the goods, the LCBO had the right to determine the prices for which they were sold, including the mark-up. It followed that the mark-up was not an exercise of the government’s public authority but of its private law rights. The current Court agreed with the application judge’s observation that TDC entered into a contract with the LCBO for a commercial advantage and it was clear that it was not compelled to sell its products through its own store. The TDC could sell its spirits through stores operated by the LCBO or, alternatively, to markets outside Canada.