Canadian Wine Law Challenged
Attorneys call ban on interprovincial shipments unconstitutional
Vancouver, B.C.--A showdown is brewing about restrictions on interprovincial wine shipments in Canada, which a Toronto lawyer argues may be unconstitutional and fraudulent. Regulations that only permit wine shipments between Canadian provinces to provincial liquor boards have severely hampered direct-to-consumer wine sales and limited wineries' markets. Two attorneys hope to force a challenge to the law via a test case.
Ian Blue of the Toronto firm Cassels Brock and Blackwell LLP, told fellow lawyers and wine industry representatives at a two-day conference in Vancouver on Nov. 13 that the relevant section of the federal Importation of Intoxicating Liquors Act (IILA), enacted in 1928, contravenes section 121 of the 1867 British North America Act, Canada's constitution.
The constitution provides for the free movement of products between provinces, Blue said, but the 1928 legislation requiring that all liquor brought into a province be sold to the province's liquor board prevents this. "IILA cannot stand in light of (section) 121," he stated. "I'm a great believer in interpreting laws in a way that they achieve their purpose. I think the IILA is an illegal law, because section 121 has been misapplied. I believe that law is a fraud on the Canadian people."
Blue published a paper earlier this year in the professional journal Advocates Quarterly that examined the legal basis for restrictions on interprovincial trade in liquor.
IILA guarantees to Canada's provincial and territorial liquor boards an effective monopoly on sales and distribution of beverage alcohol. It requires that the boards buy all the liquor brought into their jurisdictions, even though statutes merely give the boards a mandate to control liquor distribution, and not a retail monopoly.
Blue contends that the subsection of the IILA requiring the sale of all liquor entering a province to that province's liquor control board is contrary to established interpretations of section 121. "The requirement to sell to the liquor board of the receiving province prevents the free flow of Canadian liquor within Canada," Blue argued in the paper. "No one can seriously argue that the s.3 restrictions of the IILA do not fetter free interprovincial sales of Canadian wine and liquor."
Blue believes the IILA was deemed appropriate at the time because of a 1920 judgment upholding a ban on shipments of liquor into Alberta, Saskatchewan and Manitoba, then dry provinces according to the Canada Temperance Amending Act (1919). The firm Gold Seal Ltd. attempted shipments to the provinces, and the Supreme Court of Canada decided that "free" didn't mean "unfettered" but rather "not subject to duties or taxes," a matter left to the provinces.
This interpretation was upheld when the IILA was drafted in 1928, shaping Canada's current liquor control regime. Research since the paper was published further discredits the 1920 decision against Gold Seal, Blue told the conference.
"What in effect happened was two judges of the Supreme Court of Canada conspired with a party that had an interest in the case to screw the applicant," he explained. "If that comes out--and it will come out in a paper I'm writing--it means that the Gold Seal interpretation of 121 is totally unreliable."
He believes his argument--and a further paper to be published in Advocates' Quarterly in the new year--sets the stage for a shake-up of Canada's liquor laws, a move that will likely garner widespread support from wineries and consumers alike. The past two years have seen the country's major liquor control authorities remind various wineries in B.C. that they can't ship outside the province, provoking industry calls for the reform of Canada's antiquated liquor laws.
Toronto lawyer Arnold Schwisberg said rumblings of reform at the various provincial liquor boards in the months since Blue's paper appeared in April 2009 are ironic, at best. While the various authorities have been scrambling to find a way to regulate interprovincial trade of beverage alcohol as a result of the principles discussed in Blue's paper, Schwisberg said it doesn't address the alleged unconstitutionality of the law.
"They want to avoid a challenge by allowing the regulated parties to do what these regulators aren't supposed to be doing in the first place. The irony of it is palpable," he told the conference.
Schwisberg and Blue are drafting a strategy to challenge IILA, likely by arranging for a shipment of wine to occur between provinces, then informing the appropriate liquor control authorities of the circumstance with a view to provoking a response.
Schwisberg said a test case is important because it will help to clarify points of Canada's liquor laws that are, in many cases, unwritten. "Part of litigating these regulators is forcing them to take a position, and that is essentially what Ian and I devised going into this," he said. "(We need) to force the liquor boards to take a position by effectively shipping liquor across borders and telling them what we're doing. If they don't do anything about it, then the IILA is practically dead."
"My betting is they're going to find that (free) means free of any legal or financial impediment. And they'll find that the IILA cannot stand in light of 121," Blue added. "It just takes one of you restaurateurs, or wine agents or wine vendors or wineries or associations to say, 'Enough! Let's challenge IILA.' and you'll have them on the run."
Saeedeh Motalebpour, president of Vancouver-based Enotecca Winery and Resorts Inc., which owns the small Okanagan wineries Le Vieux Pin and La Stella, encouraged the legal challenge. "It's very frustrating for a small B.C. winery that does not sell to liquor stores to not be able to ship to the rest of Canada. That is not acceptable," she said. "Canada is one country."
She pointed out that now, her wineries are legally able to tap a market of just 4 million people as compared to the total Canadian market that exceeds 30 million. "That's a huge difference," she said.
But Scott Fraser of Ontario's Andrew Peller Ltd. and Eugene Kwan, a lawyer and part-owner of Domaine de Chaberton Estates in Langley, British Columbia, urged caution and due consideration of the full implications of fallout from the fall of the IILA. "That frees up interprovincial trade, but that also frees up international trade," Kwan said. "I think you've got to think that through."
Blue countered Kwan's concerns, noting that domestic wineries face international competition right now, but the elimination of interprovincial restrictions would merely broaden domestic producers' access to domestic markets. He added that provincial liquor boards would continue to control the sale of liquor, levy taxes and the like, even if a challenge of IILA succeeded, because these functions are a matter of provincial jurisdiction.
"The province could still license liquor stores, regulate the sale and distribution of liquor and impose direct taxes authorized by the legislature on liquor sold, just as it does now," he wrote earlier this year. "What it could not do is require that wine from another province be sold to the provincial liquor board."