Small Brewers Successfully Challenge Alberta’s Beer Markup Regime

On June 19, 2018, the Alberta Court of Queen’s Bench declared part of Alberta’s provincial beer markup regime to be in contravention of section 121 of the Constitution Act, 1867 (Constitution) in Steam Whistle Brewing Inc. v. Alberta Gaming and Liquor Commission. This decision has important implications for inter-provincial trade generally and for provinces enacting measures aimed at protecting local interests.

The decision represents one of the first significant developments for Canadian inter-provincial trade since the Supreme Court of Canada’s (SCC) decision in R v. Comeau (Comeau). For background information on the Comeau case and its implications for inter-provincial trade, please see our previous Blakes Bulletins: The Great Canadian Beer Run: New Brunswick Court Strikes Down Restrictions on Free Trade as Unconstitutional and How the Comeau Decision May Affect Inter-Provincial Distribution of Cannabis.

BACKGROUND

In Alberta, the Alberta Gaming and Liquor Commission (AGLC) regulates and administers the privatized liquor market by selling all of the province’s beer to private retailers at a markup. The Government of Alberta sets the AGLC’s markup based on different classes of liquor. Before 2015, the same markup was available to all Canadian brewers below a certain volume threshold (Small Brewers).

In 2015, however, the Government of Alberta implemented a new beer markup regime that favoured Small Brewers from British Columbia, Alberta, and Saskatchewan (2015 Markup). In response, Steam Whistle, an Ontario brewer, challenged the constitutionality of the 2015 Markup.

On August 5, 2016, the Government of Alberta further altered the provincial beer markup regime, which once again applied the same markup for all brewers across Canada (2016 Markup). At the same time, however, the government also created a Small Brewer-focused grant program (Grant Program), whereby Alberta Small Brewers were favoured through the receipt of a payment equivalent to the difference between the 2015 and 2016 Markups. In response, Great Western, a Saskatchewan brewer, also challenged the constitutionality of the 2016 Markup.

COURT’S DECISION

Steam Whistle and Great Western challenged Alberta’s beer markup regime on the grounds that the 2015 and 2016 Markups were a tax and barrier to inter-provincial trade, which violates sections 53 and 121 of the Constitution, respectively.

Justice G. Marriott agreed, in part, with the arguments of Steam Whistle and Great Western. She declared that certain aspects of both the 2015 and 2016 Markups contravened section 121 of the Constitution, but suspended her declaration for six months. Steam Whistle was awarded C$163,964.98 in restitution, while Great Western was awarded C$1,938,660.06. These awards represented the additional amounts that Steam Whistle and Great Western had paid under the 2015 and 2016 Markups.

Justice Marriott also extended a previously granted injunction against the Province of Alberta for another six months. This injunction allowed Steam Whistle to continue to pay markups in accordance with the pre-2015 Markup, and for Great Western to continue to pay markups in accordance with the 2015 Markup.

A BARRIER TO INTERPROVINCIAL TRADE

Section 121 of the Constitution prevents any province from enacting both implicit and explicit tariffs that constitute a barrier to inter-provincial trade. Accordingly, both Steam Whistle and Great Western argued that certain aspects of the 2015 and 2016 Markups effectively created an implicit tariff, which includes policies that accomplish the same revenue-generating objectives as a tariff without explicitly being a tariff.

Relying on the reasoning from the SCC’s Comeau decision, Justice Marriott agreed with Steam Whistle and Great Western’s arguments in respect of section 121 of the Constitution. Applying the SCC’s two-part section 121 analysis, Justice Marriott found that certain aspects of both the 2015 and 2016 Markups created a “trade barrier that ‘in essence and purpose’ relates to a provincial border.”

Specifically, Justice Marriott found that, based on the Government of Alberta’s own policy documents, the purpose of the 2015 Markup was to raise an additional C$85-million in revenue from beer markups and also to provide an advantage to Small Brewers located in British Columbia, Alberta or Saskatchewan. This dual purpose, and not the concept of a markup in and of itself, created a clear trade barrier for brewers not located in those provinces.

Likewise, Justice Marriott found that the purpose of the 2016 Markup was to minimize trade concerns from other provinces while allowing the Grant Program to give Alberta’s Small Brewers a competitive advantage in the Alberta market similar to the 2015 Markup. Although the Government of Alberta argued that the purpose of the 2016 Markup should be considered in a vacuum and separate from the Grant Program, Justice Marriott was clear that such an approach was impossible given the fact that the two initiatives were created together for a related purpose.

It is important to note that the Grant Program, which saw the Department of Agriculture and Forestry issue rebates to Alberta Small Brewers, was not itself unconstitutional. As Justice Marriott noted, “grant programs supporting local small business generally do not violate [section] 121.” As a result, there may not have been an issue if, for example, the Grant Program had offered true economic development grants tied to things like capital investment and employment. However, because the Grant Program was created in conjunction with the 2016 Markup and based on the volume of beer produced and sold in Alberta, which was intended to put Alberta Small Brewers in the same position as they were under the 2015 Markup, the 2016 Markup and Grant Program, taken together, created a trade barrier for brewers not located in Alberta.

Alberta intends to appeal the decision.

COMMENTARY

Justice Marriott’s decision represents a significant development on the issue of inter-provincial free trade, particularly following the SCC’s decision in Comeau. Justice Marriott’s ruling demonstrates that the SCC’s reasoning can cut both ways.

Post-Comeau, courts are unlikely to analyze the true purpose of provincial legislation in a constitutional vacuum and, as a result, Justice Marriott’s decision may have implications for other provinces that propose restrictive measures on the inter-provincial transport of goods. This is particularly significant given the recent high-profile steps by the Government of British Columbia to restrict the flow of diluent bitumen into that province, as described in our February 2018 Blakes Bulletin: B.C.’s Bitumen Blockade: Selected Legal Options Available to Producers and Shippers.

For further information, please contact:

Dalton W. McGrath, Q.C.           403-260-9654
Michael O’Brien                         403-260-9753

or any other member of our Litigation & Dispute Resolution group.

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We would be pleased to provide additional details or advice about specific situations if desired.

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