Canada: Craft Beer Industry Incentives Deemed Unconstitutional

On June 19, 2018, the Court of Queen's Bench issued its decision in Steam Whistle Brewing Inc. v Alberta Gaming and Liquor Commission, 2018 ABQB 476 [Steam Whistle]. Justice Gillian Marriott held that the Alberta Gaming and Liquor Commission's (AGLC) tariff and grant policy for Alberta craft breweries was an unconstitutional restraint on interprovincial trade.

This is one of several interprovincial trade issues making headlines in recent months, and may foreshadow how the Court will decide other interprovincial trade issues.

Summary of Decision

The Court agreed with Steam Whistle Brewing Inc., a craft brewer based in Ontario, and Great Western Brewing Company, a Saskatchewan brewer, (collectively, the "Plaintiffs") that the AGLC mark-up scheme was unconstitutional.

The AGLC collects a mark-up from liquor producers to fund supply chain development and other initiatives within the agency. Prior to 2015, the mark-up was based on the size of a brewer, with large, multinational brewers paying a higher markup than smaller craft brewers. In 2015, the AGLC lowered the mark-up for Alberta, British Columbia and Saskatchewan producers only. In 2016, the mark-up changed again to equalize the mark-up charged to all craft brewers, but included a grant to Alberta craft brewers, which reduced their mark-up to 2015 levels.

Justice Marriott considered two arguments rooted in the Constitution Act:

First, the Plaintiffs argued that the mark-up constituted a tax, which an administrative body could not impose, under section 53 of the Constitution Act. Justice Marriott concluded that the mark-up met all the criteria of a tax, but that its substance was a proprietary charge, in essence a fee paid by liquor producers to access the AGLC's supply chain and wholesale operation.

Second, the Plaintiffs argued that the mark-up constituted a barrier to internal trade, in contravention of section 121 of the Constitution Act. Justice Marriott applied the Supreme Court's reasoning from the recent decision of R v Comeau, 2018 SCC 15 [Comeau], the leading (and one of very few) decision on section 121. Comeau held that the party challenging the law must demonstrate that its "essence and purpose" is to restrict trade. Merely an incidental impact will not be sufficient. The Court concluded that both the 2015 mark-up scheme for Alberta, British Columbia, and Saskatchewan, and the 2016 mark-up/grant scheme intended to prefer Alberta craft brewers and restrict trade. The Court held that the grant program, when placed in the larger context of the scheme as a whole, was indeed a restraint on trade, emphasizing the need to examine the scheme as a whole. Justice Marriott granted a declaratory judgment, but enforcement was postponed until the government could implement an alternative program.

Takeaways

Though craft beer enthusiasts may see more variety in out of province craft beers in the coming months and years, this decision may have a significant impact on the ongoing trade disputes, particularly between Alberta and British Columbia. It can be anticipated that this decision will be appealed to the Alberta Court of Appeal and that other superior courts may find themselves faced with similar issues, though perhaps in different industry sectors. The key to these cases will be a judicial determination as to whether the essence and purpose of a particular law or regulatory scheme is to restrict trade, or some other legitimate purpose is dominant.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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