Interprovincial TradeImplications of R. v. Comeau
The Supreme Court of Canada heard the ground-breaking interprovincial free-trade case R. v. Comeau in December. Comeau is the most important case for the liquor industry in modern Canadian history. It will determine the extent to which Canada is a common market for liquor and the limits on provincial regulation of interprovincial sale and distribution of liquor. The Court’s decision, which could be a year away, has the potential of enabling a broader interprovincial market for liquor that savvy and well-positioned manufacturers and retailers could capitalize upon.
Mr. Comeau is a retired steel worker living in New Brunswick. Like many residents of New Brunswick, Comeau crossed the provincial border into Quebec to purchase beer and spirits from the SAQ. Upon his return to New Brunswick he was arrested by the RCMP under the provincial Liquor Control Act for possessing liquor not purchased from the New Brunswick Liquor Corporation–the in-province monopoly. He was fined $292.50.
Comeau defended himself by relying on s. 121 of the Constitution Act, 1867, which states:
“All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.”
Comeau argued that the New Brunswick Liquor Control Act provision under which he was charged (s. 134) was unconstitutional as it violated the constitutional requirement to ‘admit free’ the goods of another province. Section 134 prohibits anyone in New Brunswick from possessing or purchasing liquor from anywhere other than the New Brunswick liquor monopoly.
The trial judge agreed with Comeau and declared s. 134 of the New Brunswick Liquor Control Act to be unconstitutional and of no force and effect.
Many provinces already have discriminatory laws favouring in-province liquor manufacturers.
S. 121 was originally interpreted by the Supreme Court of Canada in the 1920s case called Gold Seal. In that case, the Supreme Court limited the application of s. 121 to tariff barriers only. Since then that decision has never been explicitly overruled by a majority of the Supreme Court of Canada. However, in subsequent cases, the Supreme Court has indicated a different interpretation of s. 121 that includes non-tariff barriers to trade.
The trial judge concluded that Gold Seal was wrongly decided on the basis of historical evidence and a new reading of the language of s. 121. His decision is now under appeal at the Supreme Court of Canada.
What the Supreme Court of Canada Will Be Considering
The Supreme Court of Canada will consider two major questions. The first is whether s. 121 includes protection against non-tariff trade barriers and, if so, to what extent. The second is whether s. 134 of New Brunswick’s Liquor Control Act is unconstitutional. Section 134 is similar to legislative provisions across Canada that enable provincial monopolies, so much is at stake.
The answer to the first question will influence the answer to the second. At this stage, it seems likely that the Court will provide a more liberal interpretation of s. 121 than what was given in Gold Seal. What is less clear is how the Court will balance government interests against the principle of free trade. This means that it is unclear whether the Court will find s. 134 of the New Brunswick Act to be unconstitutional.
Implications of the Supreme Court of Canada Decision
The court’s decision in R. v. Comeau will have resounding impact in Canada if the Court chooses to liberalize the interpretation of s. 121. If it chooses to do so, the Court will have to draft a legal test for s. 121 that will apply to legislation across Canada. Such a test is likely to incorporate a principle of non-discrimination such that provinces would not be permitted to discriminate against the goods of another province in favour of goods produced within the discriminating province.
If the Court adopted a test of this nature, the various preferential treatment of wine, beer, and spirits across Canada would be vulnerable to court challenge and many discriminatory practices would likely either be removed or be declared unconstitutional by a future court. This will have the effect of increasing the harmonization of laws across the country in relation to Canadian-made liquor. It will also almost certainly have the effect of permitting direct-to-consumer shipping for manufacturers of Canadian-made liquor across several provinces as many provinces already have discriminatory laws favouring in-province liquor manufacturers by permitting them to ship directly to consumers and to licensees (see BC, Ontario, and Quebec, for example).
The Court in Comeau will not decide whether retailers are constitutionally permitted to ship Canadian-made liquor to consumers in other provinces. That question will have to be the subject of a future case that will apply the legal test created in Comeau to retailers.
A similar situation has taken place in the United States. Their Supreme Court decided in 2005 in a case called Granholm v. Heald that states could not discriminate between in-state producers of liquor and out-of-state producers of liquor. Since then, direct-to-consumer shipping from manufacturers has proliferated across almost every state. However, the Court left undecided the question of whether retailers were also permitted to ship directly to consumers in other states. A series of federal circuit court decisions has generally, but not exclusively, favoured states’ rights to prohibit out-of-state retailers from shipping into the state. However, this question is ultimately still undecided and will likely end up at the Supreme Court of the United States in the next few years.
International trade challenges under GATT are likely to intensify if direct to consumer shipping is permitted.
In Canada, it is likely that, after Comeau, provinces will attempt to restrict sales by retailers and will attempt to enforce these restrictions through the interprovincial carriers such as Canada Post and FedEx. What is not clear at this time is whether such restrictions will be constitutional and which restrictions will be permitted and which will not be permitted.
In addition, international trade challenges under GATT are likely to intensify if direct to consumer shipping is permitted for Canadian liquor manufacturers. Out-of-country manufacturers are not permitted to ship directly to consumers and so future trade challenges could raise this issue and potentially require further reform of Canada’s liquor monopolies.
In summary, there is a sea of change coming to the regulation of liquor in Canada and, though it will require future litigation and negotiation with governments, it looks to be a positive one for the industry.
Shea Coulson is the founder and principal of Coulson Litigation, a law firm in Vancouver. Shea acts regularly for the hospitality industry in commercial, regulatory, and constitutional matters. He is council for a group of small BC wineries at the Supreme Court of Canada in R. v. Comeau.