Court of Appeal dismisses appeal in beer price class action citing regulated conduct defence
On April 17, 2019, the Court of Appeal for Ontario released its decision in Hughes v Liquor Control Board of Ontario, 2019 ONCA 305, dismissing the appeals of the appellants whose proposed class action, brought against the Liquor Control Board of Ontario (“LCBO”), Brewers Retail Inc. (“The Beer Store”) and other large beer companies (collectively, the “Respondents”), was dismissed on summary judgment. This case provides a good indication that courts are willing to apply the regulated conduct doctrine in a practical manner to shield conduct that would otherwise be considered unlawful where such conduct is validly authorized by provincial legislation.
The appellants, an individual beer consumer and the licensed restaurant he operates, sought to bring a class action against the Respondents alleging violations of the Federal Competition Act and the Ontario Liquor Control Act, civil conspiracy and the still-novel tort of misconduct by a civil authority. The appellants claimed, among other things, that the Respondents conspired to divide the Ontario beer sales market as between them and that a newly publicly-disclosed June 2000 Framework Agreement between the LCBO and The Beer Store evidenced that conspiracy. This 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 appellants alleged that the Respondents’ conduct in entering into the Framework Agreement constituted an actionable violation of section 45(1) 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 and The Beer Store were deemed to have been directed and authorized to implement the Framework Agreement in 2000.
The Respondents successfully moved to dismiss the proposed class action on summary judgment. The motions judge found that the Respondents’ conduct was lawful prior to the enactment of the Building Ontario Up Act (Budget Measures), and was certainly lawful after the enactment of the retroactive legislation expressly approving it. The Appellants appealed.
The regulated conduct defence as a complete defence
The Appellants argued that the Framework Agreement violated section 45(1) of the Competition Act, both as that provision was worded in 2000 (when the Framework Agreement was entered into) and as currently worded. In 2000, section 45(1) made it an offence to enter any agreement to “lessen, unduly, competition in the… sale… of a product”. At present, section 45(1) prohibits any agreement to “allocate…markets for the… supply of [a] product”. The Appellants also relied on section 36(1) of the Competition Act, which allows any person who suffers a loss as a result of a violation of section 45(1) to sue for damages.
In response, the Respondents relied on the “regulated conduct defence” (the “RCD”). The RCD is a principle of statutory interpretation that determines the scope or reach of a criminal offence, including contraventions of the Competition Act. Generally, the RCD protects a “regulated defendant” from criminal liability if the applicable regulatory scheme requires, directs or authorizes the defendant to engage in the impugned conduct, and the law providing for the criminal liability (i.e. the Competition Act) leaves room for the regulated activity to occur without being criminalized.
The Court of Appeal found that the RCD was made out by the Respondents. In doing so, the Court helpfully enunciated key principles underlying this defence:
- Culpability under federal legislation can be “negated by the authority extended by a valid provincial regulatory statute”;
- Legislative authority grounding an RCD can be express or implied;
- In certain cases, the RCD can act as a shield for both a regulator (i.e. the LCBO) and a regulatee (i.e. The Beer Store);
- The language in section 45(7) of the current Competition Act (which came into effect in March 2010) serves to preserve the applicability of the common law RCD as previously articulated in the case law to conduct that could fall under the amended section 45 of the Act; Accordingly, section 45(1), both as worded in 2000 and as worded at present, left and still leaves sufficient leeway for certain regulated activities that might otherwise be classified as anti-competitive to occur without being criminalized or grounding civil liability under section 36(1).
In the result, the Court found that section 3(1) of 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. The RCD was held to be made out.
Retroactive legislation can underpin a regulated conduct defence
The Court also rejected the appellants’ argument that the RCD could not be based on retroactive legislation. Instead, it held that the retroactive amendments to the Liquor Control Act brought about by the 2015 Building Ontario Up Act (Budget Measures), though not necessary to establish the applicability of the RCD in this case, only made clearer that the Respondents’ conduct was authorized by statute. The Building Ontario Up Act (Budget Measures) amended section 10(3) of the Liquor Control Act so that it now provides that:
The [LCBO] is deemed to have been directed, and [The Beer Store] is deemed to have been authorized, to enter into the June 2000 framework in relation to the Crown’s or a Crown agent’s regulation and control of the sale of beer in Ontario.
In making this finding, 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 legislation to that effect, and that such a declaration could apply retroactively.
No leave to appeal costs
At the conclusion of its decision, the Court of Appeal denied the appellants’ and the Law Foundation of Ontario (which funded the appellants’ action) leave to appeal the costs award of the motions judge. As we discussed here, 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”. The Court refused to re-weigh the parties’ costs arguments, but noted that the Respondents acted reasonably in devoting significant resources to defend the appellants’ action, given that the appellants sued for nearly $2 billion.
While consistent with prior cases that have addressed the RCD, the Court of Appeal’s decision in Hughes provides helpful confirmation on the availability of the RCD, including in civil proceedings under the Competition Act. The decision also confirms the strong message sent in the lower court decision that a class action seeking substantial damages may result in commensurate costs.