



COURT OF APPEAL FOR ONTARIO

CITATION: Toronto Distillery Co. 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)

Charles Benoit, agent for the appellant

Scott C. Hutchinson, 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 Manufacturers 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 LCBOs 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 LCBOs 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 LCBOs agent in selling the spirits.

[3]

On July 23, 2015, the appellant brought an application for a declaration
    that the LCBOs 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
,

[1931] S.C.R. 357
and

Eurig
    Estate (Re)
,

[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), 38 O.R. (3d)
    224 (C.A.), at p. 251;
Labourers International Union of North
    America v. Ontario Construction Secretariat
(1996),31
    O.R. (3d) 261 (Div. Ct.), at para. 16;
Air Canada v. Ontario (Liquor
    Control Board)
,

[1997] 2 S.C.R. 581;
and
620 Connaught Ltd v. Canada (Attorney General)
,

[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 judges analysis and his conclusion that the mark-up
    is a proprietary charge and not a tax.

[8]

Furthermore, we agree with the application judges 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 appellants 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 governments 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.
, [1978] 2 S.C.R. 545 (
CIGOL
), where a petroleum royalty
    surcharge was held to be a tax. We agree with the application judges
    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.


