Canada: As Lockdown Measures Increase Across Ontario, Business And Other Entities Seek To Challenge Government-Mandated Protocols In Court

As the COVID-19 pandemic continues to spiral out of control in Ontario, businesses across the province are feeling the effects of government-mandated shutdowns aimed at protecting public health.

The Ontario government enacted Ont. Reg.  82/20 and Ont. Reg.  363/2, under the Reopening Ontario (A Flexible Response to COVID-19) Act, 2020, imposing severe restrictions on businesses in different regions in order to curb the spread of COVID-19.

Effective November 23, 2020, different regions, including Toronto and Peel were placed in lockdown, meaning only certain business that are deemed essential under the regulation can remain open, such as supermarkets, safety supply stores and hardware stores. All other businesses such as restaurants, entertainment and general retail which do not fall into these categories have been forced to cease normal operation and can open only for delivery or pick up service.

Naturally, it was only a matter of time before businesses began challenging lockdown protocols in court.

This week in Canadian Appliance Source LP v. Ontario, a large appliance retailer sought a court order to allow it to keep operating as usual during the current lockdown on the basis that it should be deemed an essential service in accordance with the regulation.

In that case, Canadian Appliance Source LP ("Canadian Appliance") brought an application to the court seeking an injunction to require the government to allow its showrooms to remain open in the Toronto and Peel regions, which are both under government-mandated lockdown.

Canadian Appliance is one of Canada's largest home appliance retailers. It operates 29 showrooms in six Canadian provinces, including five showrooms in Toronto and Peel. Its customers include individuals, restauranteurs and builders. Their showrooms have COVID-19 protocols in place, including barriers, distancing guidelines, hand sanitizer, masked employees, etc...

Canadian Appliance sells a very wide range of appliances, but does not sell building materials, tools or related supplies and it advertises itself exclusively as an appliance retailer.

Although its business has an online component, about 80% of its sales are done through walk-ins at its showroom and foot traffic is typically busiest during the holiday season. In November and December of this year, Canadian Appliance projects $18 million in Ontario sales and $27 million in sales Canada-wide.

Between November 23 and December 2, 2020, Canadian Appliance remained open in the Toronto and Peel regions during the lockdown and defied by-law officers ordering them to shut down. Canadian Appliance refused to close on the basis that it characterized itself as "hardware store" and was therefore exempt from mandatory closure under the terms of the applicable regulation.

On December 3, 2020, Toronto by-law enforcement officials charged Canadian Appliance and one of its Toronto store managers personally for continuing to operate despite the current lockdown regulations.

On December 2, 2020, Canadian Appliance commenced an application in Superior Court seeking declaratory relief and a permanent injunction requiring the government to allow it to remain open on the basis that it operates "hardware stores", which are exempt from mandatory closure under the express terms of the applicable regulation.

On December 3, 2020, the parties went before Justice Myers of the Superior Court, where Canadian Appliance sought an interim order allowing it to stay open until the application was heard.

In determining this issue, Justice Myers applied the applicable three-part test to determine an interlocutory injunction. Namely, whether there is a serious issue to be tried, whether Canadian Appliance would suffer "irreparable harm" if it is not allowed to stay open and which side the "balance of convenience" favours.

It was held that there is a serious issue to be tried regarding the interpretation of whether a retailer of appliances is a "hardware store" within the meaning of the current regulations. Regarding the second aspect of the test, it was noted that if Canadian Appliance was unable to remain open, it would lose about $500,000 in revenue and there was no mechanism in place to recover losses from the government as a result of being wrongfully shutdown. As such, it was held that the losses would amount to irreparable harm.

However, in terms of the third factor, it was held that the balance of convenience weighed in favour of the government. Specifically, Justice Myers noted that, although he was sensitive "to the potential losses being suffered by the applicant (and others including small businesses who can ill-afford yet further losses in this horrible year)", he was still of the view that public interest (namely, the risk posed by the COVID-19 pandemic) must take precedence, despite the fact that Canadian Appliance would suffer non-compensable losses.

As such, Canadian Appliance was not allowed to remain open pending the hearing of the application proceeding.

Fortunately, the formal application was heard before Justice Perell five days later on December 8, 2020 and the decision was released on December 10.

In delivering his decision, Justice Perell emphasized that Canadian Appliance was not protesting the regulation or challenging its validity or constitutionality. Rather, Canadian Appliance was taking the position that the Municipal Law Enforcement Officers were improperly interpreting and applying the regulations which it was complying with.

In this regard, Canadian Appliance argued that it was an essential service insofar it fell within the category of businesses like hardware stores and business that supply other essential service businesses.

The Ontario government, on the other hand, submitted that Canadian Appliance was not interpreting the regulation correctly and that it did not fall within the category of essential businesses which are permitted to remain open.

Accordingly, in deciding the application, Justice Perell looked to principles of statutory interpretation. In this regard, His Honour noted that if the words of the statute are "clear and unambiguous, then the court must interpret the words literally and in accordance with their plain meaning even if the consequences are absurd or unjust". However, the court has the power to interpret the meaning of the words of a statute when there is legitimate ambiguity as to their meaning, "which is to say that after a consideration of the entire context, the words of the statute must be reasonably capable of more than one meaning".

In this case, it was held that there was no ambiguity as to what the legislature intended to mean in specifying that a "hardware store" can remain open in lockdown zone. Specifically, the words "hardware store" are to be read in their ordinary sense and no special meaning was assigned to them. In this regard, Justice Perell specifically noted that "[i]f you asked a child to go to a hardware store, he or she would not go to a Canadian Appliance store. A person would not identify, label, or name Canadian Appliance a hardware store, and, truth be told, Canadian Appliance has not and would not describe itself as a hardware store, if it was not compelled by its urge to provide retail sales of appliances to the public, notwithstanding that its showrooms are in a lockdown area".

Canadian Appliance argued that it should be deemed to be a hardware store by virtue of the fact that hardware stores sell appliances, which are also hardware. Justice Perell rejected this argument on the basis that even though Canadian Appliance sells a type of hardware (like appliances), it does not primarily sell products which are found in a conventional hardware store, such as tools and building supplies.

His Honour also held that this argument would create a commercial absurdity, insofar as it could lead to the conclusion that any business which sells a type of hardware (such as department stores, dollar stores and computer stores) should also be deemed to be "hardware stores" under the regulation. In this regard, it was noted that "[t]he Legislature would not have intended this absurd result, which would make an overwhelming number of businesses essential services open for retail trade notwithstanding the risk that their opening presents to reducing the spread of the virus".

Additionally, Canadian Appliance argued that is an essential service business because the goods it supplies are essential; and, as such, it should be allowed to remain open under the regulation, which was designed for such businesses to keep serving the public, provided that they followed the public health protocols.

This argument was rejected on the basis that it was not an interpretive argument about what the legislature actually meant in introducing the regulation, but rather it begs the interpretative question about what the legislature intended. As such, in making this argument, Canadian Appliance was deemed to be challenging the regulation and not seeking an interpretation of its application.

In the end, it was held that, given the lack of ambiguity in the regulation, there was no need to give the words a narrow or expanded meaning and the literal meaning of the words must be adhered to in order to serve the purpose of the regulation; which, His Honour noted, was aimed at addressing the need for essential services during a public health crisis.

As such, Canadian Appliance cannot continue to operate its retail showrooms and has joined the ranks of many other businesses in Ontario which are forced to temporarily shut down in-person retail operations in regions which are under lockdown.

This decision is not the only legal challenge to the current provincial regulations aimed at curbing the spread of COVID-19.

The same day that the Canadian Appliance application was heard, a Toronto-based religious institution called the Toronto International Celebration Church ("TICC") filed an application in the Ontario Superior Court of Justice to challenge the Ontario regulation that limits in-person services to 10 people. The TICC argues that the regulation is unconstitutional insofar as it violates religious freedoms and does not represent a tailored response to the pandemic.

The Canadian Civil Liberties Association has stated it intends to seek intervenor status in this proceeding to side with the TICC, stating that "[t]he limitation on this Charter right has the proportionality of a sledge-hammer."

Additionally, on December 10, 2020, Hudson's Bay Co. ULC ("HBC"), one of Canada's largest retailers filed an application for judicial review of the Ontario government's retail business restrictions in Toronto and Peel.

In its application, HBC is seeking assistance from the court to formally review a number of major restrictions throughout the province, including measures that prohibit in-person shopping at stores and malls.

The decisions in the TICC and HBC matters are still pending. It will be interesting to see if these entities will prevail in challenging the current regulations.

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