On April 17, 2019, the Court of Appeal for Ontario released its decision in Hughes v Liquor Control Board of Ontario, upholding the dismissal of a proposed class action against the Liquor Control Board of Ontario ("LCBO"), Brewers Retail Inc. ("The Beer Store") and The Beer Store's large beer company owners t This case illustrates (i) the use of summary judgment as a means to dispose of class actions, and (ii) the willingness of Ontario Courts to apply the regulated conduct doctrine to shield conduct that would be considered unlawful were it not authorized by provincial legislation.

Background

The appellants alleged violations of the Competition Act and the Ontario Liquor Control Act, civil conspiracy and the novel tort of misconduct by a civil authority. The appellants claimed that the LCBO and The Beer Store conspired to divide the Ontario beer sales market between them and that a publicly-disclosed June 2000 Framework Agreement between the LCBO and The Beer Store evidenced that conspiracy. The Framework Agreement provided that the LCBO could not sell beer in packages greater than six-packs and could not sell beer products that were exclusively sold by The Beer Store. The plaintiffs alleged that entering into the Framework Agreement constituted a violation of the criminal conspiracy provision in section 45 of the Competition Act.

After the appellants commenced their action, the Ontario government passed the Building Ontario Up Act (Budget Measures), which amended the Liquor Control Act to expressly provide, with retroactive effect, that the LCBO was deemed to have been directed, and The Beer Store was deemed to have been authorized, to enter into the Framework Agreement in 2000.

Summary Judgment

The defendants moved for summary judgment dismissing the action.  The plaintiffs brought a cross-motion for summary judgment and sought to have the dismissal of the defences act as an issue estoppel for the purpose of subsequent certification.

The motions judge found that the defendants' conduct was already lawful under the Liquor Control Act, and in any event was certainly lawful after the enactment of the Building Ontario Up Act (Budget Measures) approved it retroactively. Accordingly, he dismissed the action.

The Regulated Conduct Defence

On appeal, the defendants relied upon the regulated conduct defence, which is a principle of statutory interpretation that determines the scope or reach of a criminal offence, including contraventions of the Competition Act. Generally, it protects a "regulated defendant" from criminal liability if the applicable provincial regulatory scheme requires, directs or authorizes the defendant to engage in the impugned conduct.

The Court of Appeal found that the defence applied, holding that: (i) culpability under federal legislation can be "negated by the authority extended by a valid provincial regulatory statute"; (ii) the regulatory conduct defence can be based upon either express or implied legislative authority; and (iii) the defence acts as a shield where the impugned conduct involves an arrangement between the regulator (i.e. the LCBO) and the regulatee (i.e. The Beer Store).

In the result, the Court found that the Liquor Control Act, as it was worded in 2000, provided the LCBO wide latitude to control the sale of all liquor in the province. The Court further found that there was no evidence that legislators intended to allow meaningful competition between the LCBO and The Beer Store.  In addition, it was held that retroactive legislation can underpin a regulated conduct defence.  The 2015 retroactive amendments to the Liquor Control Act, though not necessary to establish the applicability of the defence in this case, reinforced the conclusion that the defendants' conduct was authorized by statute. The Court noted that the legislature had the authority to "enter the domain" of the courts and offer binding interpretations of its own legislation by enacting declaratory (retroactive) legislation to that effect.

Costs Upheld

As an interesting aside (from the perspective of defendant counsel), the Court of Appeal also denied the appellants and the Law Foundation of Ontario (which funded the action) leave to appeal the costs award of the motions judge. At first instance, the motions judge ordered the appellants to pay an aggregate of approximately $2.3 million in costs to the Respondents. The motions judge found that the appellants were not entitled to "judicial disaster relief". On appeal, the Court refused to re-weigh the parties' costs arguments, but noted that the Respondents acted reasonably in devoting significant resources to defend the action, given that the appellants sued for nearly $2 billion.

Implications

The Court of Appeal's decision in Hughes provides helpful guidance on the availability of the regulated conduct defence, including in civil proceedings under the Competition Act. In addition, the case is an example of the successful use of summary judgment to defeat a proposed class action before certification.

The decision also confirms that a class action seeking substantial damages may result in a commensurate adverse costs award if unsuccessful.

Author

Bevan Brooksbank 
BBrooksbank@blg.com
416.367.6604

Expertise

Class Actions
Appellate Advocacy
Litigation and Arbitration
Competition, Antitrust and Foreign Investment