Doug Ford still holds upper hand in Beer Store talks, experts say

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Legal experts say Ontario Premier Doug Ford still holds the upper hand in talks with the brewery-owned Beer Store to allow convenience stores across the province stock beer, despite industry warnings that Queen’s Park could end up paying hundreds of millions of dollars in damages.

In recent days, industry sources have held background briefings with reporters to outline what they say is ironclad language in the 10-year “master framework agreement” signed in 2015 by the government of former Liberal premier Kathleen Wynne with the Beer Store, which operates more than 450 outlets and handles the vast majority of beer sales in the province.

The sources said the deal could force Ontario to hand over as much as $1-billion in damages if Mr. Ford further liberalizes beer sales as he promised in last year’s election campaign.

The deal does include clauses that appear to obligate the province to compensate the Beer Store and its primary owners – the foreign-owned Canadian arms of the country’s biggest brewers – if the government were to expand beer sales.

Under the contract’s terms, an arbitrator could award damages based on a range of new costs the Beer Store and its brewer owners could face if beer were made available at corner stores, including severance payments to laid-off Beer Store workers or even the higher costs of distributing beer to so many new locations.

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But legal scholars say federal and provincial legislatures can pass laws allowing them to get out of any such penalties – no matter what language is included in the original contract. However, such moves are rare – Ontario has paid damages for breaching contracts before – and could cast a chill over companies seeking to do business with the province.

Allan Hutchinson, a professor at Osgoode Hall Law School in Toronto, said that while courts have increasingly frowned on retroactive legislation as an affront to the rule of law, they have still ultimately upheld the principle of parliamentary supremacy, which allows governments to wiggle out of even the most ironclad contract after the fact.

“I think there’s tremendous pressure ... on a government not to act like that, because they will be called out,” Prof. Hutchinson said, still predicting that a court challenge to any future unilateral move by the Ford government to break the deal would stand little chance of success. “Forgetting this situation, it seems entirely reasonable that future governments should not be bound by earlier governments. That’s a principle of our democracy.”

However, some lawyers say that because of international trade deals, taxpayers could still end up compensating the Beer Store’s giant brewer owners if the talks under way on the issue fail and Ontario were to act unilaterally.

The Beer Store, officially known as Brewers Retail Inc., is primarily owned by three big industry players: Labatt, Molson and Sleeman. Labatt is owned by Anheuser-Busch InBev SA, based in Belgium; Molson is owned by Molson Coors Brewing Co., which is headquartered in both Montreal and Denver; and Sleeman is owned by Sapporo Breweries Ltd. in Sapporo, Japan.

International trade lawyer Larry Herman, a former Canadian diplomat, said those foreign parents could launch investor-protection cases under trade deals such as the North American free-trade agreement – which remains in effect pending ratification of its successor pact – or other agreements Canada has signed that allow foreign investors to sue governments. However, any damages that resulted would have to be paid by Ottawa, not the province.

The Beer Store would only confirm that it is in talks with Ontario on a “mutually agreeable amendment” to the 2015 deal to "improve customer convenience and choice.”

Ken Hughes, the former Alberta cabinet minister appointed as a special adviser to the Ford government on its plans to liberalize alcohol sales, dismissed any notion that the 2015 deal could force the government to hand over massive penalties.

He said “backroom insiders” were trying to protect their own interests by warning of large damages: “I would just characterize that as irresponsible fear-mongering. … I don’t have a lot of respect for comments that are attributed to unnamed sources that are just trying to inflame a situation in a very unhelpful way.”