What’s on tap next for The Beer Store?
Breaking the contract will likely cost millions. Meanwhile, the existing agreement stands
Picking a fight with multinational corporations might be a winning political strategy, but the cost of the Ontario government’s dust-up with The Beer Store might just drive Ontarians to drink.
When the government announced in late May it was passing legislation to rip up its Master Framework Agreement with The Beer Store and would allow the sale of beer in corner stores, Premier Doug Ford and Finance Minister Vic Fedeli brushed aside concerns the retailer could come after the province for compensation.
Industry sources, however, say the province could be on the hook for more than $1 billion.
Not only that, but there are several ways The Beer Store and its owners could seek compensation, ranging from a simple breach of contract claim to using the investor protection provisions in the North American Free Trade Agreement (NAFTA).
The most likely scenario is that The Beer Store and the province will hammer out an agreement so they can avoid a very public, costly court fight.
But the potential payout matters, as it will have a big influence on what Canadian taxpayers will end up losing to Big Beer, whether it’s a negotiated settlement or not.
Jeff Percival, a partner and commercial litigator at the Pallett Valo law firm with close to 20 years experience, estimates the final bill will cost the government — and Ontario taxpayers — an eyebrow-raising amount.
“I hesitate to put an exact figure on it, but it could certainly be in the hundreds of millions,” said Percival, who pointed out that the vast majority of commercial lawsuits — up to 98 per cent — are settled before going to trial.
Those settlements can be cash, other remedies (such as potentially The Beer Store being given exclusive rights to dis
tribute to corner stores), or a mix.
And those hundreds of millions of dollars are just the outright compensation.
On top of that will be the bills for the high-powered law firms and experts hired by The Beer Store and its owners, including AB-InBev and MolsonCoors, which control roughly 98 per cent of the retailer, along with Japan’s Sapporo, which controls most of the rest, and 30 small craft brewers, which have a tiny stake.
“It would be hundreds of thousands of dollars in fees, if not millions. And we have a ‘loser pays’ costs system. There would be valuation experts, there would be constitutional experts. You’ve got big law firms on every side,” Percival said.
A spokesperson for Fedeli wouldn’t respond directly to questions about whether the government still believes it’s not subject to any liability, or whether it’s in negotiations with The Beer Store.
“The Bringing Choice and Convenience to the People Act ensures we can get the best deal possible and consumers and taxpayers are no longer held hostage by multinational companies. As we continue working toward getting a good deal for the people of Ontario, it would be premature and irresponsible to assume the outcome of this process,” spokesperson Robert Gibson said.
In a statement after the act was passed, The Beer Store chair Charlie Angelakos — who’s also a senior executive at AB-InBev-owned Labatt — blasted the government’s actions.
“The Beer Store believes in the sanctity of legal agreements,” Angelakos said.
“Businesses must be able to rely on the enforceability of legal contracts they enter into, including and particularly with governments.
“If a negotiated amendment is not reached and the government of Ontario decides to proclaim the act into law, The Beer Store will vigorously enforce its rights to remedies, including damages, when the government breaches its legal obligations.”
While predicting the outcome of a trial is a bit of a mug’s game, Percival believes The Beer Store would be on very solid legal ground — not least because there’s still plenty of time left in the Master Framework Agreement.
If contract law is one fruitful legal avenue for The Beer Store and its owners to pursue, NAFTA is most certainly another, said Barry Appleton, a Torontobased international trade lawyer whose firm has offices and clients in Canada and the U.S.
“This is exactly the type of bullying that NAFTA was put in place to prevent. And it was mostly because we were concerned about how the Americans would be treating our companies,” said Appleton, who pointed out three main areas of NAFTA — and its USMCA successor — which could be used by The Beer Store.
“They’re protected under due process, expropriation and contractual rights,” said Appleton. “The way this was done was pretty much the worst possible way to protect Ontario from a NAFTA claim.”
While “expropriation” might bring to mind the nationalization of American-owned factories after the Cuban revolution, it’s not an unfair comparison, Appleton insisted.
“Did they have rights? Yes. Were those rights cut out by government fiat? Does it matter whether it’s Chavez, Castro or Doug Ford? No. The principle is the same,” said Appleton, who estimated taxpayers could be on the hook for even more than some industry sources have suggested.
“I’d be surprised if it weren’t bigger than a billion. What’s the fair market value of having a quasi-monopoly?” Appleton said.
While it’s an Ontario government bill that sparked the dispute, it would be the federal government that would have to pay any penalty under NAFTA rules, Appleton said.
If that happens, he’d expect the federal government, in turn, to come after Ontario to cough up the money.
Even though a section of the Master Framework Agreement (87-e, if you’re looking) precludes the use of NAFTA and other international treaties to settle disputes, Appleton said it’s so poorly drafted that while The Beer Store itself might not be able to use NAFTA, its owners — or their shareholders — most certainly could.
“You could drive a beer truck through the loophole,” Appleton said.
At this point the government has passed its bill ripping up the agreement with The Beer Store, but it has yet to proclaim it as law — something they have up to 10 years to do.
That’s led to speculation the province is still hoping for a negotiated settlement, perhaps even before a suit is filed.
Those negotiations are likely happening behind the scenes, possibly even without the lawyers.
“I’d be surprised if that’s not going on,” Percival said.
Meanwhile, the existing Master Framework Agreement is still the law of the land.
Whatever the scenario, it could be years before the outcome is known.
If this turns into a courtroom battle, it might not be resolved until after the next provincial election.
And that isn’t due to take place until 2022.
Industry sources say the province could be on the hook for more than $1 billion if it rips up the Master Framework Agreement with The Beer Store.
NAFTA might be a fruitful avenue for The Beer Store to pursue, Toronto international trade lawyer Barry Appleton says.