Alberta’s liquor-sale system ruled unconstitutional

The Alberta Court of Appeal confirmed the lower court ruling that the province violated the constitution by restricting interprovincial trade through a selective, price mark-up scheme and grant system intended to boost local beer producers.  

Retail alcohol sales in Alberta have been private since 1993. Since then, the province has been wholesaler; buying from producers and selling to retailers at a higher price, the profits from which are added to the province’s general revenues.

The mark-up is central to the constitutional battle between Alberta’s alcohol authorities and out-of-province beer producers, which recently concluded at the Court of Appeal in Steam Whistle Brewing Inc v Alberta Gaming and Liquor Commission, 2019 ABCA 468.

Historically, the Alberta Gaming, Liquor and Cannabis Commission has applied a higher mark-up to large companies than smaller, local brewers. In 2015, a new mark-up regime favoured beer from Saskatchewan, Alberta and B.C., applying a higher mark-up to booze coming from elsewhere. The next year a new regime was implemented, whereby all brewers paid the same rate but some Alberta craft brewers were given grants, offsetting the equalization and maintaining their advantage. Saskatchewan brewer Great Western sued the commission claiming the mark-up and grant were an ultra vires indirect tax and unconstitutional. Steam Whistle – an Ontario company – challenged the 2015 regime.

Section 121 of the Constitution Act, 1867 states: “All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.”

In June 2018, Justice Gillian Marriott of Alberta’s Court of Queen’s Bench found the 2015 mark-up and 2016 mark-up plus grant program were unconstitutional, invalid and awarded restitution – $163,964 for Steam Whistle and $1,938,660 for Great Western. Alberta appealed the finding of unconstitutionality and the restitution. Justices Peter Martin, Sheila Greckol and Jo'Anne Strekaf of the Alberta Court of Appeal, agreed with the trial judge on unconstitutionality but narrowed the scope of invalidity of the mark-ups to only include the grant program and how the mark-up applied to small brewers.

Alberta argued that the mark-up was “a price term in a contract, not a provision in legislation” and s. 121 only applies to interprovincial trade barriers imposed by legislation. Alberta also submitted the province – like a natural person – is entitled to enter into contracts and the Constitution does not bind the exercise of “natural person” powers. In buying alcohol and setting a marked-up price for retailers, they were exercising natural-person powers of ownership and contracting.

The Court of Appeal rejected that s. 121 applied exclusively to legislation, responding the text doesn’t “single out statues and exclude other governmental acts.” While the Court of Appeal accepted that the provinces hold natural-person powers, it added those powers are typically exercised in voluntary arrangements – not unilateral term-setting with a party who lacks an alternative option. Alberta alcohol retailers have to buy from the commission. In charging the mark-ups, the commission is “acting in a hybrid capacity” as private owner and executor of statutory duties under the Gaming, Liquor and Cannabis Act, the decision states.

The courts also looked at R v. Comeau, from 2018, to test whether the mark-ups flouted the constitution. In Comeau, s. 121 is seen as prohibiting “tariff-like measures” but not “laws and regulatory schemes directed to other goals that have incidental effects on the passage of goods across provincial borders.” Comeau states that those challenging a law under s. 121 must show the law “in essence and purpose” restricts interprovincial trade.

While the court found the essence and purpose was straightforward for the 2015 mark-up, that of 2016 was more controversial. The essence was established by joining the mark-up and the grant program as one policy, which Alberta argued was an error of the trial court. Alberta said the policies came from separate ministries and statutes and that the mark-up and grant scheme had “distinctive effects,” neither placing additional costs on beer imports. The mark-up is applied equally and the grant is a separate issue, the purpose of which is to support local industry, not restrict beer from beyond Alberta.

The Court of Appeal responded that Alberta’s argument ignores the evidence that the 2016 mark-up and grant were done in concert, the grant calculated to place Alberta craft brewers in the exact same financial position relative to out-of-province competitors as under the 2015 mark-up.

The essence being established, the Court of Appeal addressed purpose. Alberta argued the primary purpose of the 2016 mark-up was to raise revenue and the primary purpose of the grant program was to promote local brewers, not to disadvantage non-Alberta ones. The Court of Appeal rejected this reasoning as “unsustainable” when grant and mark-up were viewed together. Promoting local brewers with grants that offset the markup, “necessarily detracts from the competitiveness of non-Alberta craft brewers,” the Court of Appeal said.

Ben Grant is a commercial and public law litigator with Conway Baxter Wilson LLP in Ottawa and acted for The Canadian Taxpayers Federation, an intervenor in the case. Grant says his client’s position was that Canadian taxpayers should be reimbursed when government collects money unconstitutionally.

“Unfortunately, the Alberta Court of Appeal did not accept this general principle,” he says.

Steam Whistle and Great Western cross-appealed that the mark-ups were a tax, and against s. 53 of the Constitution Act, 1867. The decision states that under Kingstreet Investments Ltd v New Brunswick (Finance), there is a “public law cause of action for restitution of money paid under invalid taxes.” The Court of Appeal dismissed the cross-appeals, finding the mark-ups were not a tax.

“The decision makes it harder for Canadians to recover money that their governments have unlawfully collected. It remains to be seen if other Canadian provinces or the Supreme Court will take a similar approach as Alberta,” says Grant.