Ontario Court Backs AGCO in Disqualification of 11 Cannabis Lottery Applicants
November 1, 2019
In Reynolds v. Registrar (Alcohol and Gaming Commission), the Ontario Divisional Court (Court) recently dismissed an application for judicial review of the Registrar of the Alcohol and Gaming Commission of Ontario’s (Registrar) decision to disqualify 11 applicants (Disqualified Candidates) from the cannabis retail licensing process. In doing so, the Court reaffirmed the principle that judicial review remedies are discretionary and can be withheld if they would disproportionately prejudice third parties.
In August 2019, the Alcohol and Gaming Commission of Ontario (AGCO) held a lottery process to select eligible applicants for the second round of cannabis retail licences. The rules stated that the lottery was to take place on August 20, 2019, and within 24 hours, the AGCO would contact selected candidates and provide them with a notification letter using the contact information that the candidates included in their lottery expression of interest applications. Selected candidates were then required to complete their licence applications by submitting certain documents, including original letters of credit, to the AGCO within five business days of notification. For more information about the second lottery process, please see our July 2019 Blakes Bulletin: Second Retail Lottery in Ontario: Tricks and Traps for Applicants.
The lottery was held on August 20, 2019. On August 21, 2019, the AGCO attempted to send the 11 Disqualified Candidates notification letters via email informing them that they had won the lottery process using the email addresses they provided. The emails were returned as undeliverable. On the same day, the AGCO sought to contact the Disqualified Candidates using the telephone numbers they provided, but for most of them, the number was not in service. The AGCO also sent the Disqualified Candidates courier packages with the notification letters, which were received in the days after August 21, 2019. The letters stated that the selected candidates’ applications for cannabis retail licences were due on August 28, 2019. On August 21, 2019, the names of all lottery winners were also posted on the AGCO website, announced on Twitter, and emailed to the AGCO’s cannabis email list.
When the AGCO did not receive original letters of credit from the Disqualified Candidates by August 28, 2019, the Registrar disqualified them. On August 30, 2019, the AGCO moved other candidates (Newly Selected Candidates) to the selected lists from the lottery wait lists to replace the Disqualified Candidates. The AGCO notified the Newly Selected Candidates that they were required to complete their licence applications by September 16, 2019. Many of them immediately began to sign leases for cannabis retail stores and incur other liabilities and expenses in reliance on the AGCO’s notice, often using personal savings to do so.
The Disqualified Candidates applied for judicial review of their disqualifications, alleging that the Registrar’s decisions were unreasonable and unfair. They argued that the Registrar’s decisions to disqualify them for not providing the letter of credit by August 28, 2019, were unreasonable because the AGCO’s attempts to notify them of their selection on August 21, 2019 via email and telephone were unsuccessful. They argued that, on a proper interpretation of the rules, they were notified of their selection in the days after August 21, 2019, when they received notification letters by courier, and that the application deadline should have been extended accordingly. Many of the Newly Selected Candidates participated in the application as interveners to make submissions on remedy, since the Disqualified Candidates sought to have them returned to the wait lists.
Prior to the hearing of the application, Justice Corbett stayed the cannabis retail licensing process until the hearing date.
Justice Swinton, writing on behalf of a unanimous Divisional Court, dismissed the application and lifted the stay of the licensing process.
The Court held that the Registrar’s decision disqualifying the Disqualified Candidates was reasonable and fair. The Registrar reasonably concluded that the AGCO complied with the lottery notification requirements by attempting to inform the Disqualified Candidates of their selection on August 21, 2019, using the email and telephone information that the candidates had provided. The Disqualified Candidates, like all others participating in the lottery, knew that the lottery process was proceeding under tight timelines, and it was not the AGCO’s responsibility to track them down personally when the contact information they provided was ineffective. The Disqualified Candidates bore the risk of any issues in delivering the notification letters if their chosen method of contact did not work. As such, the Court held that the Registrar reasonably concluded that the Disqualified Candidates were effectively notified on August 21, 2019, and that they had failed to comply with the lottery rules requiring them to submit an original letter of credit on August 28, 2019, five business days later.
In addition, the Court held that even if the Registrar’s disqualification decisions were unreasonable, it would not quash them and set aside the selection of the Newly Selected Candidates. The Court accepted the interveners’ submission that judicial review is a discretionary and equitable remedy, and that a court may refuse to set aside an administrative decision having regard to the balance of convenience and any disproportionate impact on third parties. The Newly Selected Candidates led evidence that they irrevocably changed their positions in reliance on the AGCO’s invitation to participate in the cannabis licensing process by, for example, using personal savings to finance leases for future cannabis retail outlets. The Disqualified Candidates led no evidence of prejudice. The Court also found that the Newly Selected Candidates were “truly innocent parties” as they had taken steps to comply with the lottery rules. The Disqualified Candidates, in contrast, had failed to provide operative contact information to the Registrar and gave no explanation as to why their email addresses and phone numbers did not work.
Following the Divisional Court’s decision, the Disqualified Candidates sought a stay of the Divisional Court’s order pending their motion for leave to appeal the decision to the Court of Appeal. On October 3, 2019, Justice Nordheimer denied their request for a stay.
Blakes lawyers Robin Linley and Christopher DiMatteo acted for five of the eight Newly Selected Candidates that received intervener status in this matter.
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