Yesterday the Alberta Court of Appeal issued its long awaited decision (at least by guys like me) on the appeal of Steam Whistle’s and Great Western Brewing’s lawsuit over the former beer mark-up policies. In short, the justices uphold the initial decision that the 2015 and 2016 mark up policies contravene s. 121 of the constitution (guaranteeing free trade across provinces), but overturns the trial judge’s decision around remedy for the plaintiffs. Read here and here for a history of the case.
The original court decision awarded Steam Whistle a little over $160,000 and Great Western $1.9 million in restitution. The Appeal Court set these penalties aside, meaning the two breweries have nominally won their case but have nothing monetarily to show for it.
Many of you may be saying this is old news as the mark-ups have been changed. Fair enough, but there are still some very significant findings in the decision that beer people must consider. So here is a brief analysis of the decision and its potential impact. I will briefly note that during my hiatus from beer writing, my work for the government included working on aspects of beer policy, including mark-up rates. None of this analysis includes any information gleaned during that time.
First, the decision upholds the notion that mark ups are not a tax, but a regulatory charge. This may seem like legal hair splitting but had the court declared mark-ups a tax, it would have overturned not just the notion of beer mark-ups but the validity of a dozens of fees and charges applied by government. In short, liquor boards are permitted to charge mark-ups to producers.
Second, the 2015 mark up and the 2016 grant program, both of which offered a benefit to Alberta breweries over those located elsewhere have been deemed unconstitutional. It is relevant to note the justices come to that decision by opting to look at the Alberta policies in isolation. At both trial and before the Court of Appeal the government presented evidence of trade barriers of various forms imposed by other provinces, including tasting panels, restricted application processes, preferential shelf placement and so on. The court did not deny these barriers but decided they were not relevant in determining the constitutionality of Alberta’s actions.
What this means, significantly, is that the validity of those barriers remains to be tested by the courts. Should an enterprising Alberta brewery launch a lawsuit against, say, Ontario, there remains a chance they may win.
Third, the justices overturned the remedies to Steam Whistle and Great Western. I must say I always found how the trial judge came to those amounts to be perplexing. They basically took numbers provided by the plaintiffs out of context and applied them as the penalty. The fact is the breweries calculated their numbers differently and did not intend the figures to be their “ask”. It was an odd decision rightfully overturned.
Overall what the decision means is that Steam Whistle and Great Western have won something of a pyrrhic victory. They got a statement that two, now-rescinded, policies were unconstitutional. But they received no remedy. Further, those policies proved to be rather successful in building the Alberta craft beer industry. Both breweries lost market share during that time. This court decision will not help them regain that market share. It is gone for good.
I end up really wondering why the two breweries bothered with this high profile court action in the end? It didn’t stop the policies from having their intended effect. And it soured both companies’ brands in the Alberta market – at least among those who care and pay attention. Both spent possibly hundreds of thousands of dollars on lawyers and what do they have to show for it?
Finally, what is next? Obviously the breweries could appeal to the Supreme Court, but this action seems unlikely. There is little to be gained for the breweries and, given the Comeau decision, the case hardly breaks new ground. Two other lawsuits – one a class action fronted by Artisan Ales and another by a conglomeration of B.C. breweries – are still pending. Both had been put on hold pending this court decision. I cannot know what their lawyers are thinking, but it is unclear how their cases will end up with a different result than this case.
I imagine all parties involved may just want to put this chapter behind them and try to figure out how to sell beer in the new Alberta environment, one with a stronger and more vibrant local industry.
And since I am tying off loose threads here, over the summer the file was closed on Artisan Ales trade complaint through the Agreement on Internal Trade (AIT). A compliance panel called at the behest of Artisan Ales found the Alberta government to be fully in compliance with their order and dismissed Artisan Ale’s case.
It was a fun few years for a beer policy geek in Alberta. With the Court of Appeal decision, I imagine the fun has come to an end for now. At least until someone challenges those stupid tasting panels in other provinces.
December 3, 2019 at 11:21 AM
Here is a link to the Artisan Ale Decision and Reasoning.
https://theccf.ca/wp-content/uploads/2018/06/GOA-vs.-Artisan-Ale-Decision-and-Reasoning-05-11-2018-Final.pdf
December 3, 2019 at 1:57 PM
Thanks for the link, Vern. However, that is not the decision I was referring to in the post. There was a subsequent Compliance Panel that ruled the province was in full compliance of their earlier order.
That report is referred to here:
https://www.cfta-alec.ca/panel-submits-compliance-report-regarding-the-decision-in-the-dispute-of-artisan-ales-consulting-inc-and-the-government-of-alberta/
December 11, 2019 at 3:18 PM
Here is the play by play from the TheLawyersDaily.ca from yesterday.
https://www.thelawyersdaily.ca/articles/17174
Beer decision shows it isn’t ‘anything goes’ on regulating interprovincial trade: legal scholar
Tuesday, December 10, 2019 @ 1:10 PM | By Ian Burns
The Alberta Court of Appeal has ruled against the provincial government in its attempts to overturn a lower court ruling declaring measures to protect Alberta craft brewers unconstitutional, but added it did not have to pay restitution to the beer companies bringing the case because the previous ruling did not interpret a test on recovering money correctly.
The appeal in Steam Whistle Brewing Inc. v. Alberta Gaming and Liquor Commission 2019 ABCA 468 flows from several decisions by the Alberta government to put in place measures aimed at protecting the provincial craft beer industry. In October 2015, the Alberta Gaming and Liquor Commission (AGLC) brought in a mark-up regime which gave favourable treatment to craft brewers in Alberta, B.C. and Saskatchewan. After this was challenged by Ontario-based Steam Whistle Brewing, the AGLC in 2016 established a new system wherein everyone paid the mark-up, but Alberta-only brewers received a special grant.
At trial, Justice Gillian Marriott of the Alberta Court of Queen’s Bench ruled both mark-ups violated s. 121 of the Constitution Act, 1867, which says “all articles of the growth, produce or manufacture of any one of the provinces … shall be admitted free into each of the other provinces.” But she also rejected the argument that the mark-ups were taxes, characterizing them instead as proprietary charges (Steam Whistle Brewing Inc. v. Alberta (Gaming and Liquor Commission) 2018 ABQB 476).
That decision was the subject of two appeals: one by the Alberta government arguing the mark-ups were not unconstitutional and challenging the restitution awarded to Steam Whistle and Great Western Brewing, and a cross-appeal by the brewers taking the position the mark-ups were taxes. Justice Sheila Greckol, who authored the unanimous decision of the Alberta Court of Appeal released Dec. 2, held the 2015 and 2016 mark-ups, together with the grant program, violated s. 121 because their primary purpose was to protect Alberta’s local craft beer industry by restricting trade in extra-provincial craft beer, but the lower court was correct in characterizing them as proprietary charges.
“This judgment should not be understood as holding that a grant program instituted for the primary purpose of promoting the local beer industry violates s. 121. Promoting local industry may be a constitutionally permissible purpose in some circumstances but not when it is implemented by tariff-like measures on goods produced outside the province,” she wrote. “However, the mark-up schemes in this case, which impose additional costs on beer produced outside the province for the primary purpose of promoting the local beer industry, do violate s. 121.”
Justice Greckol, who was joined by Justices Peter Martin and Jo’Anne Strekaf in her decision, took note of the Supreme Court’s ruling in R. v. Comeau 2018 SCC 15, which held s. 121 prohibits government from levying tariffs or tariff-like measures (measures that in essence and purpose burden the passage of goods across a provincial border), but does not prohibit governments from adopting laws and regulatory schemes directed to other goals that have incidental effects on the passage of goods across provincial borders.
“Laws (or other governmental actions) that have only incidental effects on trade, as part of broader regulatory schemes not aimed at impeding trade, do not have the purpose of restricting interprovincial trade and hence do not violate s. 121,” she wrote. “Such laws (or government acts) must be rationally connected to the broader objective of the scheme. A law (or government act) whose effect and primary purpose is to restrict interprovincial trade cannot be saved by being part of a wider regulatory scheme. Nor can a law (or government act) whose effect is to restrict trade, and which is part a broader scheme aimed at impeding interprovincial trade.”
But Justice Greckol narrowed the declarations of invalidity which had been issued by the lower court. She limited the declaration on the 2015 mark-up to the small-brewer related measures, noting the AGLC’s $1.25 per litre standard beer mark-up applied universally. She also ruled the 2016 grant program was invalid, but not that year’s mark-up.
Andrew E. Stead, McMillan LLP
“While the 2016 mark-up and the grant program may have contemplated one another, the reality is that the 2016 mark-up is not constitutionally objectionable when applied without the grant program,” she said. “The 2016 mark-up applies equally to all craft brewers regardless of provincial origin, and the evidence shows that the government would have used mark-ups as a means of creating revenue even absent the offending grant program through issuing directions to the Commission.”
In her decision, Justice Marriott awarded restitution to both Steam Whistle and Great Western under the test established in Kingstreet Investments Ltd. v. New Brunswick (Finance) 2007 SCC 1, saying it was warranted when money is paid under any charge or levy that is unconstitutional. However, Justice Greckol held Kingstreet is available only to recover monies paid under invalid taxes.
“The trial judge erred in law by holding that the public law cause of action in Kingstreet applies whenever government collects money in violation of the Constitution (or ultra vires for some other reason),” she wrote. “Kingstreet creates a limited right to restitution of invalid taxes. In this case [the mark-ups] were proprietary charges, not taxes, so it follows that Steam Whistle and Great Western are not entitled to restitution.”
Andrew E. Stead of McMillan LLP, who represented Steam Whistle, said, although he disagreed with the court’s findings on the taxation issue, having the mark-ups struck as unconstitutional was the most important item for him.
“Certainly, we would have preferred to have the restitution, but that being said, in terms of the overall economic impact, the bigger issue for us of course was the amount of mark-up we were paying,” he said.
Robert Normey of Alberta’s Ministry of Justice and Solicitor General, who represented the ALGC, said “as a general statement” the government is relatively pleased with the result.
“There are no monies owed essentially, and the judge at trial gave very wide declarations of invalidity that have been narrowed on appeal,” he said. “Our argument all along has been a mark-up on products couldn’t be a tax, because we acquire the good and then do the mark-up. Given that it’s our property, it’s marked up and then sold to somebody else, that must be a valid proprietary charge.”
Eric Adams, University of Alberta
Eric Adams, a professor of constitutional law at the University of Alberta, said alcohol regulation is traditionally an area where provinces have attempted to exert tremendous control, but have more recently recognized the fact there are market opportunities for microbreweries they are keen to promote.
“And so, these twin parallel objectives of both controlling alcohol consumption while also promoting a local alcohol production industry obviously results in policies which can inhibit and restrict trade across borders, and that is precisely what the Alberta courts found here,” he said. “Alberta is perhaps justifiably motivated here in the sense that it is not a level playing field in terms of marketing alcohol produced in other jurisdictions across Canada, but the reality was the function of this mark-up and the rebate system that followed from is just a classic set of measures which are going to make outside products more expensive — and for a long time courts have tried to steer governments away from those measures.”
Adams said the lesson to be learned from this decision is “it certainly isn’t anything goes in terms of how [governments] promote and regulate trade across provincial borders.”
“It wasn’t very difficult for the courts here to piece together the policy train that resulted in outside beer costing more than Alberta beer, because of the function of the mark-up and rebate scheme,” he said. “And so provincial treasuries are going to need to go back to Comeau to find the ways in which the court still allows for a reasonably robust provincial jurisdiction to regulate and promote products while still being mindful of, if that method simply can be reduced to price impacts on goods produced outside the province, they are going to be more difficult to sustain in the face of traditional scrutiny.”
Normey noted Alberta is the only province in Canada with an “open list” system, which means that it places no limits on the number of products that can be sold.
“So yes, we ended up violating s. 121 in the eyes of the court, but the evidence we adduced in this case shows that there are clearly preferences and advantages of a quite significant nature that are extended in each of the other nine provinces,” he said. “I can’t here today make any kind of prediction for you, but if those very substantial protective measures are scrutinized under s. 121, it seems to me this case is something that can and should be studied.”
Stead said, if the case were to be appealed, it would be “interesting to get the Supreme Court’s guidance on what it means to be operating in a commercial way.” The Court of Appeal ruled the AGLC does not supply beer “in a commercial way” because its role in liquor distribution falls beneath the threshold necessary to constitute a commercial operation.
“The appeal decision said there was no evidence before the court of the AGLC not functioning in a commercial way, but I’m not sure what more there could be,” he said. “We have a test that doesn’t have specific criteria, so the argument we made was that operating in a commercial way means an entity has some control over whether it suffers profit or loss, and the AGLC doesn’t do that. It makes money on the markup, but that’s no different from the way the federal government makes money on the GST.”
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