Air Canada v. Ontario (Liquor Control Board)

Air Canada v. Ontario (Liquor Control Board)
Collection
Supreme Court Judgments
Date
1997-06-26
Report
[1997] 2 SCR 581
Case number
24851
Judges
La Forest, Gérard V.; L'Heureux-Dubé, Claire; Sopinka, John; Gonthier, Charles Doherty; Cory, Peter deCarteret; McLachlin, Beverley; Iacobucci, Frank
On appeal from
Ontario
Subjects
Air law
Notes
SCC Case Information: 24851
Decision Content
Air Canada v. Ontario (Liquor Control Board), [1997] 2 S.C.R. 581
Air Canada Appellant
v.
The Liquor Control Board of Ontario,
the Attorney General of Canada,
the Liquor Licence Board of Ontario and
the Attorney General for Ontario Respondents
and
The Attorney General of Quebec,
the Attorney General of Nova Scotia,
the Attorney General of Manitoba,
the Attorney General for Alberta and
the Société des alcools du Québec Interveners
and between
Canadian Airlines International Ltd. Appellant
v.
The Liquor Control Board of Ontario,
the Attorney General of Canada,
the Liquor Licence Board of Ontario and
the Attorney General for Ontario Respondents
and
The Attorney General of Quebec,
the Attorney General of Nova Scotia,
the Attorney General of Manitoba,
the Attorney General for Alberta and
the Société des alcools du Québec Interveners
Indexed as: Air Canada v. Ontario (Liquor Control Board)
File No.: 24851.
1997: February 17; 1997: June 26.
Present: La Forest, L’Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin and Iacobucci JJ.
on appeal from the court of appeal for ontario
Air law ‑‑ Provincial liquor control ‑‑ Markups ‑‑ Gallonage fees ‑‑ Provincial liquor control authorities charging airlines markups and gallonage fees on alcohol imported into Canada for use on domestic flights ‑‑ Whether liquor “intoxicating liquor” within meaning of Importation of Intoxicating Liquors Act ‑‑ Whether liquor imported “into any province” within meaning of Act ‑‑ Whether provincial liquor monopoly constitutionally inapplicable to airlines ‑‑ Whether airlines entitled to recover gallonage fees and markups paid ‑‑ Whether punitive damages or compound interest warranted ‑‑ Importation of Intoxicating Liquors Act, R.S.C., 1985, c. I‑3, ss. 2 , 3 .
The respondent Liquor Control Board of Ontario (“LCBO”) enjoys a monopoly over the sale, transportation, delivery and storage of liquor in Ontario pursuant to several statutes including the Importation of Intoxicating Liquors Act (“IILA ”), which prohibits the importation into a province of liquor that has not been purchased on behalf of and consigned to the government of the province. The appellant airlines provide liquor to their passengers, some of which is purchased abroad, stored in customs bonded warehouses at Pearson international airport and eventually placed aboard aircraft there. The LCBO charges a “markup” on liquor that is transferred out of the bonded area of the customs warehouses at Pearson for use on domestic flights. It does this on the strength of the IILA , which, in its view, makes it the owner of all alcohol imported into Ontario, and hence entitles it to extract a profit as the price of conveying the liquor back into the airlines’ possession. Until recently, the appellant airlines held Ontario liquor licences, believing that provincial law required them to do so, and paid gallonage fees to the LCBO pursuant to those licences. In 1983, a consultant working for Wardair concluded that airlines were not required to hold licences, and an agreement was reached with the LCBO whereby Wardair stopped paying markups and gallonage fees. Canadian Airlines learned of the arrangement in 1989, when it merged with Wardair, but the LCBO refused to concede that it had ever released Wardair from the obligation to pay markups. In the result, Canadian agreed to continue paying markups, but only under protest. In 1990, the LCBO informed the appellant airlines that it would not approve the storage of liquor in customs bonded warehouses at Pearson unless the airlines acknowledged in written applications that the liquor they brought into Ontario was subject to the IILA . A condition of the approval was that the airlines should purchase their liquor as agents of the LCBO and should pay the appropriate markups. Air Canada signed the application. Canadian signed under protest.
The airlines asked the Ontario Court of Justice to determine the applicability of the various liquor statutes to them. In addition, they sought to recover in restitution monies that they had paid to the LCBO and the Liquor Licence Board of Ontario under the liquor statutes. The trial judge found that the province was liable to the airlines for the amount of gallonage fees and markups paid since January 1, 1984. He decided that, on the facts before him, neither punitive damages nor compound interest was warranted. The Court of Appeal allowed the provincial authorities’ appeal in part. It concluded that the airlines were entitled to recover the gallonage fees they had paid after January 1, 1984, but found that the LCBO had lawfully collected the markups.
Held: The appeal should be allowed in part.
The LCBO was entitled to charge a markup on the liquor that the airlines purchased abroad and kept in bond at Pearson because that liquor was subject to the IILA . Section 2 of the Act defines “intoxicating liquor” as liquor “that it is unlawful to sell or have in possession without a permit or other authority” of the provincial government. While the airlines did not require a licence to keep their liquor in Ontario, if they had wished to sell that liquor in Ontario they could have done so only under authority of a licence. “Intoxicating liquor” is not liquor that actually will come within the ambit of a provincial licensing scheme, but liquor that would come within the ambit of such a scheme if it were to be sold or possessed within the province. Because the liquors that the airlines brought into Pearson are liquors that could not ordinarily be sold in Ontario without a licence, they are intoxicating liquors within the meaning of the IILA . They are also imported into Ontario for purposes of the IILA ; the words “into any province” in s. 3(1) refer to physical presence within the boundaries of a province.
The provincial liquor monopoly is not constitutionally inapplicable to the appellant airlines. The provision of liquor is not an integral part of their federal aeronautical undertaking.
The provincial authorities concede that they should make restitution of the gallonage fees paid by the airlines after January 1, 1984. They should also be liable for the fees paid before that date. The trial judge and the Court of Appeal justified their choice of the date on the ground that it was then that the provincial authorities realized that they could not require the airlines to hold liquor licences, but Canadian law has never required a showing of bad faith as a precondition to the recovery of monies collected by a governmental agency under an inapplicable law.
Both punitive damages and compound interest might have been appropriately ordered on the facts of this case. The conduct of the provincial authorities was improper to say the least, since government agents continued to collect fees from the appellants under a regime that they knew was inapplicable to airlines. The awarding of punitive damages and compound interest is, however, discretionary. Because it cannot be said that the trial judge misdirected himself on any applicable principle of law or that his exercise of discretion was so clearly wrong as to amount to an injustice, his refusal to award punitive damages or compound interest should be allowed to stand.
Cases Cited
Referred to: Air Canada v. British Columbia, [1989] 1 S.C.R. 1161; Subilomar Properties (Dundas) Ltd. v. Cloverdale Shopping Centre Ltd., [1973] S.C.R. 596; Attorney‑General of Manitoba v. Manitoba Licence Holders’ Association, [1902] A.C. 73; Attorney‑General for Ontario v. Attorney‑General for the Dominion, [1896] A.C. 348; R. v. Gautreau (1978), 88 D.L.R. (3d) 718; The Queen in Right of Manitoba v. Air Canada, [1980] 2 S.C.R. 303; Bell Canada v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 749; Irwin Toy Ltd. v. Quebec (Attorney General), [1989] 1 S.C.R. 927; Johannesson v. Rural Municipality of West St. Paul, [1952] S.C.R. 292; Murray Hill Limousine Service Ltd. v. Batson, [1965] Que. Q.B. 778; Canadian Pacific Railway Co. v. Attorney‑General for British Columbia, [1950] A.C. 122; Construction Montcalm Inc. v. Minimum Wage Commission, [1979] 1 S.C.R. 754; Eadie v. Township of Brantford, [1967] S.C.R. 573; LaPointe v. Canada (Minister of Fisheries & Oceans) (1992), 4 Admin. L.R. (2d) 298; Brock v. Cole (1983), 40 O.R. (2d) 97; Wallersteiner v. Moir (No. 2), [1975] 1 All E.R. 849; Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085; Elsom v. Elsom, [1989] 1 S.C.R. 1367.
Statutes and Regulations Cited
Constitution Act, 1867, s. 92(16) .
Courts of Justice Act, R.S.O. 1990, c. C.43, s. 130.
Customs Bonded Warehouses Regulations, SOR/86‑1063, s. 13.
Importation of Intoxicating Liquors Act, R.S.C., 1985, c. I‑3, ss. 2 “intoxicating liquor”, “province”, 3.
Liquor Control Act, R.S.O. 1990, c. L.18, ss. 1, 2, 3, 5, 8.
Liquor Licence Act, R.S.O. 1990, c. L.19, ss. 1 “liquor”, 2, 5, 6, 11, 12, 22, 27, 42, 62.
R.R.O. 1990, Regs. 717, 718, 719, 720.
Authors Cited
Côté, Pierre‑André. The Interpretation of Legislation in Canada, 2nd ed. Cowansville: Yvon Blais, 1991.
Hogg, Peter W. Constitutional Law of Canada, vol. 1, 3rd ed. Scarborough, Ont.: Carswell, 1992 (loose‑leaf).
House of Commons Debates, vol. II, 2nd sess., 16th Parl., at p. 2482.
APPEAL from a judgment of the Ontario Court of Appeal (1995), 24 O.R. (3d) 403, 126 D.L.R. (4th) 301, 82 O.A.C. 81 and 26 O.R. (3d) 158, 127 D.L.R. (4th) 767, 86 O.A.C. 70, allowing in part an appeal from a decision of the Ontario Court (General Division) (1994), 2 G.T.C. 7186, allowing the airlines’ actions. Appeal allowed in part.
Neil Finkelstein, Q.C., and Jeffrey Galway, for the appellants.
Tom Marshall, Q.C., Peter Landmann and Michel Lapierre, for the respondents the Liquor Control Board of Ontario, the Liquor Licence Board of Ontario and the Attorney General for Ontario.
Roslyn J. Levine, Q.C., and Charles D. Johnston, for the respondent the Attorney General of Canada.
Monique Rousseau, for the intervener the Attorney General of Quebec.
Written submissions only by Alison W. Scott and Brian Seaman, for the intervener the Attorney General of Nova Scotia.
Shawn Greenberg, for the intervener the Attorney General of Manitoba.
Margaret Unsworth and J. A. Bowron, for the intervener the Attorney General for Alberta.
Gérald Tremblay and Madeleine Renaud, for the intervener the Société des alcools du Québec.
The judgment of the Court was delivered by
1 Iacobucci J. -- This appeal raises several questions of which the most important is whether provincial liquor control authorities may charge the appellant airlines a markup on alcohol imported into Canada, stored in bond at customs warehouses, and then loaded onto aircraft for consumption in Canadian airspace. I conclude that, pursuant to federal and provincial legislation, the liquor control authorities may charge the airlines such a markup. A subsidiary issue is whether the respondent the Liquor Control Board of Ontario (“LCBO”) should have to make restitution to the appellants of the entire amount of certain fees that were wrongly collected from them, or whether for equitable reasons the amount of restitution should be something less than whole. I conclude that restitution should be made of the full amount.
2 In addition, the appellants pose several minor questions about the delegation of federal authority to the provinces. But in the light of my resolution of the principal issue, I do not need to answer these questions. Other arguments, about the awarding of compound interest and of punitive damages, present no problem: the trial judge acted within his discretion in refusing to award them. Finally, a question arises about whether a province may charge a markup on liquor purchased within its boundaries for consumption elsewhere. The answer to that question is the same as the answer to the first question: it is entirely within a province’s competence to charge a markup on liquor purchased within its boundaries.
1. Facts
3 The LCBO enjoys a monopoly over the sale, transportation, delivery, and storage of liquor in Ontario. Three statutes operate together to create and secure this monopoly: the Liquor Control Act, R.S.O. 1990, c. L.18, the Liquor Licence Act, R.S.O. 1990, c. L.19, and the Importation of Intoxicating Liquors Act, R.S.C., 1985, c. I-3 (“IILA ”). The Liquor Control Act creates the LCBO and gives it authority over dealings with liquor within the province. The Liquor Licence Act creates the Liquor Licence Board of Ontario (“LLBO”) and gives it the power to licence the keeping of liquor for sale and the selling of liquor. The IILA prohibits the importation into a province of liquor that has not been purchased on behalf of and consigned to the government of the province.
4 The appellants, Air Canada and Canadian Airlines International, provide liquor to their passengers. Some of this liquor is placed aboard their aircraft at Pearson International Airport in Ontario. The airlines purchase most of their liquor abroad, though they purchase some in Ontario.
5 Bonded carriers deliver to Pearson liquor that the appellants have purchased abroad for eventual in-flight consumption. At Pearson, the liquor is placed in customs bonded warehouses, where it can remain for up to five years. Federal regulations require the airlines to receive the permission of the LCBO before they may place liquor into these warehouses or remove it from them. The Government of Canada provides for the operation of customs bonded warehouses so that those who have purchased goods abroad may defer the payment of duties and excise taxes until they require the goods.
6 The customs bonded warehouses are divided into three areas: the bonded area, the international area, and the domestic area. Initially all liquor is placed in the bonded area. When it is required for use on an international flight, liquor is moved under seal to the international area. Likewise, when it is required for use on a domestic flight, liquor is moved under seal to the domestic area. Upon entering the domestic area, liquor becomes subject to federal duties and excise taxes. No federal duties or excise taxes are payable on liquor that enters the international area.
7 The practice of the LCBO has been to charge a “markup” on liquor that is transferred to the domestic area but not on liquor that is transferred to the international area. A markup is a margin of profit that the LCBO adds to the value of the alcohol that it sells. In the case of the alcohol held in bond at Pearson, the LCBO takes its markup not on the basis of any actual sale to the airlines, but on the strength of the IILA , which, in its view, makes it the owner of all alcohol imported into Ontario, and hence entitles it to extract a profit as the price of conveying the liquor back into the airlines’ possession.
8 Until recently, the appellants held Ontario liquor licences. They believed that provincial law required them to do so. In Ontario, licence holders must pay a charge, called a “gallonage fee”, based on the volume of alcohol they purchase. Accordingly, for many years, the LCBO (on behalf of the LLBO) collected gallonage fees from the airlines.
9 In 1983, a consultant working for an airline called Wardair discovered what he thought was a flaw in Ontario’s liquor laws. He concluded that airlines were not required to hold licences under the Liquor Licence Act. Wardair confronted the LLBO with this conclusion. The LLBO consulted the Ministry of the Attorney General and received from it the opinion that Ontario probably did not have the authority to require airlines to hold licences for the keeping of liquor intended to be consumed in flight.
10 There followed a flurry of correspondence. Wardair sought a refund of fees that it claimed it had paid mistakenly to the LCBO. Representatives of the LCBO declined to pay a refund, on the ground that any liquor that Wardair had brought into Ontario had been consigned to the Board by operation of the IILA . It is clear that by this time lawyers in the Ministry of the Attorney General had concluded that airlines were not required to be licenced but were subject to the federal statute.
11 Apparently worried that it could be liable for a considerable sum if the larger airlines were to become aware of the “loophole” in the Ontario legislation, the LCBO reached an agreement with Wardair. Wardair surrendered its liquor licence and, from January 1, 1984, stopped paying markups and gallonage fees. It seems that a lawyer employed by the LCBO agreed that Wardair would not have to pay markups so long as it kept the arrangement secret. Subsequently, the LCBO attempted only once, in March of 1984, to collect markups from Wardair. Wardair did not pay and the LCBO did not pursue the matter.
12 In 1989, Wardair merged with Canadian Airlines International. At that time, Canadian learned that Wardair did not hold a liquor licence in Ontario and had not paid markups or gallonage fees since January 1, 1984. For obvious reasons, Canadian was interested in securing the same treatment for its own operations in Ontario. The LCBO for its part refused to concede that it had ever released Wardair from the obligation to pay markups. In the result, Canadian agreed to continue paying markups, but only under protest.
13 In 1990, the LCBO informed the airlines that it would not approve the storage of liquor in customs bonded warehouses at Pearson unless the airlines acknowledged in written applications that the liquor they brought into Ontario was subject to the IILA . Air Canada signed the application. Canadian signed under protest.
2. Relevant Statutory Provisions
14 The Liquor Control Act confers on the LCBO a monopoly over the sale, transportation, delivery, and storage of liquor within the province:
3. The purposes of the [Liquor Control] Board [of Ontario] are, and it has power,
(a) to buy, import and have in its possession for sale, and to sell, liquor and other products containing alcohol and non-alcoholic beverages;
(b) to control the sale, transportation and delivery of liquor;
(c) to make provision for the maintenance of warehouses for liquor and to control the keeping in and delivery from any such warehouses;
15 Section 1 of the Liquor Licence Act defines “liquor” as follows:
1. In this Act,
. . .
“liquor” means spirits, wine and beer or any combination thereof and includes any alcohol in a form appropriate for human consumption as a beverage, alone or in combination with any other matter;
Section 5 of the same Act forbids the sale of liquor in Ontario except under the authority of a licence and s. 27 forbids the purchase of alcohol except from the Government of Ontario or from a licensed seller:
5. -- (1) No person shall keep for sale, offer for sale or sell liquor except under the authority of a licence or permit to sell liquor or under the authority of a manufacturer’s licence.
27. No person shall purchase liquor except from a government store or from a person authorized by licence or permit to sell liquor.
16 The IILA lends federal power to the provinces to cement their liquor monopolies. Section 2 defines “intoxicating liquor” and “province”:
2. In this Act,
“intoxicating liquor” means any liquor that is, by the law of the province for the time being in force, deemed to be intoxicating liquor and that it is unlawful to sell or have in possession without a permit or other authority of the government of the province or any board, commission, officer or other governmental agency authorized to issue the permit or grant the authority;
“province” means any province in which there is in force an Act giving the government of the province or any board, commission, officer or other governmental agency control over the sale of intoxicating liquor therein.
Section 3 IILA consigns all alcohol imported into a province to that province’s liquor control authority. Subsection (2) takes certain transactions outside this scheme:
3. (1) Notwithstanding any other Act or law, no person shall import, send, take or transport, or cause to be imported, sent, taken or transported, into any province from or out of any place within or outside Canada any intoxicating liquor, except such as has been purchased by or on behalf of, and that is consigned to Her Majesty or the executive government of, the province into which it is being imported, sent, taken or transported, or any board, commission, officer or other governmental agency that, by the law of the province, is vested with the right of selling intoxicating liquor.
(2) The provisions of subsection (1) do not apply to
(a) the carriage or transportation of intoxicating liquor into and through a province by means only of a common carrier by water or by railway, including any necessary transfer by truck from railway car to ship or vice versa, if, during the time the intoxicating liquor is being so carried or transported, the package or vessel containing the intoxicating liquor is not opened or broken or any of the intoxicating liquor drunk or used therefrom;
17 Section 13 of the Customs Bonded Warehouses Regulations, SOR/86-1063, provides for the receipt of alcohol into and the transfer of alcohol from customs bonded warehouses:
13. No intoxicating liquor shall be received in or transferred from a bonded warehouse in a province unless the licensee has obtained written approval to receive or transfer the intoxicating liquor from the board, commission or agency authorized by the laws of that province to sell or authorize the sale of intoxicating liquor in that province.
3. Judgments in Appeal
A. Ontario Court (General Division) (1994), 2 G.T.C. 7186
18 The airlines asked the Ontario Court of Justice to determine the applicability of the various liquor statutes to them. In addition, they sought to recover in restitution monies that they had paid to the LCBO and LLBO on the mistaken understanding that they were required to do so.
19 Saunders J. found that the airlines were not required to hold licences to acquire and handle liquor for in-flight consumption. He pointed out that s. 5 of the Liquor Licence Act mandates licences only for those who are keeping liquor for sale, offering it for sale, or selling it. Saunders J. reasoned that this could not mean more than that licences are required to keep liquor for sale in Ontario, because without the geographical qualification s. 5 would be ultra vires the province. Ontario, he thought, could not require licences for the keeping of liquor for sale outside Ontario, because to do so would be to “affect and interfere with the export of liquor from Ontario” (p. 7191); and the export of liquor across a provincial boundary is a matter of exclusive federal competence.
20 It followed, in Saunders J.’s judgment, that the LCBO was not entitled to collect gallonage fees from the airlines.
21 Having found that the airlines were not required to hold licences in respect of their liquor-provisioning operations, Saunders J. concluded that liquor purchased abroad by the airlines and brought into bond at Pearson was not subject to the IILA . He based his conclusion on the definition of “intoxicating liquor” that appears in the federal statute. “Intoxicating liquor”, for purposes of the IILA , is liquor that provincial law deems to be intoxicating and “that it is unlawful to sell or have in possession” without a licence. Because the airlines did not require a licence to possess the liquor they kept in bond at Pearson, that liquor was not “intoxicating” within the meaning of the IILA and therefore was not subject to its provisions. From this it followed that the LCBO was not entitled to charge a markup on the liquor that the airlines kept in bond at Pearson.
22 Saunders J. expressly rejected the airlines’ argument, advanced in the alternative, that liquor held in bond at Pearson was not “in” Ontario. He could not accept the U.S. position, that items stored in a customs bonded warehouse are juridically not in the jurisdiction in which the warehouse is located.
23 Saunders J. also rejected the airlines’ argument that they, as federal undertakings, are not subject to provincial liquor monopolies. He was willing to assume for the sake of argument that the provision of liquor is an integral part of the airlines’ undertaking, but he found nevertheless that the airlines are subject to valid provincial laws.
24 Turning to the question of restitution, Saunders J. found that the province was liable to the airlines for the amount of gallonage fees and markups paid since January 1, 1984. However, he restricted the period of recovery on the basis of equitable considerations. In his view, the fact that until the end of 1983 all the parties had believed that the gallonage fees and markups were validly imposed was sufficient reason not to order restitution of monies collected prior to that date.
25 Saunders J. decided that, on the facts before him, neither punitive damages nor compound interest was warranted.
B. Ontario Court of Appeal (1995), 24 O.R. (3d) 403
26 The LCBO and allied parties appealed from Saunders J.’s judgment. The Court of Appeal allowed the appeal in part.
27 Because the LCBO and LLBO conceded that airlines did not require licences to acquire and handle liquor for in-flight consumption, Robins J.A. accepted that no licences were required. However, he did not accept Saunders J.’s reasoning on this point. In the Court of Appeal’s view, the only reason that licences were not required is that Ontario had no applicable class of liquor licence. The licences that the airlines held before this dispute arose were of a class known as “liquor sales licences”. Such licences authorize “the sale and service of liquor for consumption on the premises to which the licence applies”. Because airborne premises are not within Ontario, ordinary liquor sales licences cannot apply to them. What would be needed to bring the airlines within the scheme of the Liquor Licence Act would be a class of licence that authorizes the keeping of liquor in Ontario. But as matters stood during the relevant period, Ontario law recognized no licence of that kind.
28 The Court of Appeal expressly declined to endorse Saunders J.’s conclusion that the requirement of a licence to keep liquor in Ontario for sale outside the province would be an unconstitutional interference with a federal power.
29 Neither did the Court of Appeal accept Saunders J.’s finding that liquor kept in bond is not “intoxicating liquor” within the meaning of the IILA . Relying on an extensive legislative history, Robins J.A. concluded that the qualifying words “that it is unlawful to sell or have in possession without a permit” were included in the definition of “intoxicating liquor” to distinguish between provinces in which liquor was prohibited and provinces in which liquor was merely controlled. He pointed out that if the definition contained no reference to licences, then the IILA might have been interpreted to permit the importation of liquor into “dry” provinces. Robins J.A. admitted that the language is now surplus, because all provinces permit the consumption of alcohol; but the evolution of the words into a vestige did not change their original meaning. The words in question distinguish among provinces, not kinds of liquor.
30 Robins J.A. observed further that the interpretation accepted by Saunders J. would render s. 3(2) (a) IILA superfluous. Section 3(2) (a) allows that a common carrier may take liquor through a province without having to consign it to any provincial authority. Because common carriers typically do not require licences to carry alcohol, on Saunders J.’s understanding of the definition of “intoxicating liquor” such carriers would not be caught by the IILA in any event. That Parliament thought it necessary to declare that common carriers are not subject to the IILA suggests that it did not understand the definition of “intoxicating liquor” in the same way as Saunders J. did.
31 For the same reasons that Saunders J. gave, the Court of Appeal rejected the airlines’ submission that liquors held in bond at Pearson were not “in” Ontario. To Robins J.A.’s mind, “[t]he applicable legislation does not treat a bonded warehouse as a sort of foreign embassy” (p. 420).
32 The Court of Appeal also agreed with Saunders J. in rejecting the airlines’ claim that as federal undertakings they are not subject to provincial liquor laws, though it did so for reasons slightly different from those given at first instance. Whereas the trial judge was willing to accept for the sake of argument that the provision of liquor is an integral part of the airlines’ undertaking, the Court of Appeal was not so credulous. Robins J.A. observed that Ontario’s liquor laws do not “undermine or impair a vital part of the management or operation of the airlines’ undertaking” (p. 424).
33 Before proceeding to the question of restitution, the Court of Appeal rejected the LLBO’s argument that the airlines were liable to pay gallonage fees merely by virtue of the fact that they held licences, whether they were required to hold licences or not. Robins J.A. pointed out that the regulation authorizing the collection of gallonage fees authorizes the collection of fees only with respect to liquor “purchased for sale or consumption under the licence”. Because the airlines did not purchase any liquor for sale and consumption under the licence, they were not liable to pay gallonage fees.
34 Taking his cue from the reasons of La Forest J. in Air Canada v. British Columbia, [1989] 1 S.C.R. 1161, Robins J.A. concluded that the airlines were entitled to recover the gallonage fees that they had paid. Because the LCBO had lawfully collected the markups, no question of restitution arose with respect to them.
35 In the Court of Appeal’s view, the erroneous payments of gallonage fees were the result of a misapplication of the law. Restitution of them would not be a windfall to the airlines because, as Saunders J. found, the airlines did not pass the increased cost of liquor on to passengers in the form of increased ticket prices.
36 However, the Court of Appeal decided that the airlines were entitled to restitution only of the erroneous payments made after January 1, 1984. Before that date, the LCBO and LLBO were no more aware of the error of law than were the airlines. And indeed, the responsibility for looking into the validity of the payments lay with the airlines and not with the LCBO or LLBO. It was only after Wardair had drawn the matter to their attention that the provincial liquor authorities became responsible for the erroneous payments.
37 The Court of Appeal also set aside Saunders J.’s declaration that the airlines are not subject to the provincial retail sales tax, and rejected the airlines’ claims that punitive damages should be awarded and that interest on the amount awarded should be compounded.
4. Issues
38 Several issues arise in this appeal. The first is whether the IILA applies to liquor that the airlines purchased abroad and kept in bond in warehouses at Pearson International Airport. A subsidiary issue is whether provincial authorities should be permitted to make the giving of their permission under s. 13 of the Customs Bonded Warehouses Regulations conditional upon the payment of markups. The second issue is a constitutional one, which this Court stated in the following terms:
Are the Liquor Control Act, R.S.O. 1990, c. L.18, ss. 1, 2, 3, 5 and 8, the Liquor Licence Act, R.S.O. 1990, c. L.19, ss. 1, 2, 5, 6, 11, 12, 22, 27, 42 and 62 and Ontario Regulations, R.R.O. 1990, Regs. 717, 718, 719 and 720, ultra vires or constitutionally inapplicable to the appellant airlines’ liquor provisioning system?
The third issue is whether the airlines should be entitled to recover only monies paid to provincial authorities after January 1, 1984, or whether monies paid before that date should be recoverable as well. The fourth issue is whether the trial judge erred in deciding that punitive damages and compound interest should not be awarded. The fifth issue is whether s. 27 of the Liquor Licence Act bars the appellants from purchasing alcohol directly from Ontario liquor manufacturers.
5. Analysis
A. Whether the IILA Applies to the Liquor Held in Bond
(1) The Definition of “Intoxicating Liquor”
39 The appellants offer several reasons why the IILA should not apply to liquor that they purchase abroad and keep in bond at Pearson. The first reason is the one that Saunders J. accepted and that the Court of Appeal rejected: that, for purposes of the IILA , intoxicating liquors are only those that cannot be kept in a province without a permit. Because the respondents concede that airlines may keep their liquor in Ontario without a licence, goes the argument, it follows that that liquor is not intoxicating liquor within the meaning of the IILA .
40 The answer to this argument lies in the language of the statutory definition. The IILA provides, in s. 2, that
“intoxicating liquor” means any liquor that is, by the law of the province for the time being in force, deemed to be intoxicating liquor and that it is unlawful to sell or have in possession without a permit or other authority of the government of the province or any board, commission, officer or other governmental agency authorized to issue the permit or grant the authority; [Emphasis added.]
41 Reading this definition, I am not certain that the appellants’ argument even gets off the ground. Though it is true that the appellants required no licence to keep their liquor in Ontario, it is equally true that if they had wished to sell that liquor in Ontario they could have done so only under authority of a licence. Literally, then, the liquor that the appellants kept in bond at Pearson is liquor that “it is unlawful to sell . . . without a permit or other authority”. Because the language about sale and possession is disjunctive, it is irrelevant that the appellants were able to possess the liquor without a licence. That they would have needed a licence to sell it is enough.
42 It is also irrelevant that the appellants did not in fact intend to sell their liquor in Ontario. The operation of the IILA is triggered not by an actual sale of liquor but by the simple hypothesis or possibility of sale. In determining whether the IILA is applicable, the relevant question is whether a permit would be required in the event of sale or possession, not whether a permit actually will be needed.
43 If it were otherwise then the IILA would become applicable not at the moment of importation, as it is clear from s. 3(2) that it was intended to do, but at the moment of sale; and by that time the liquor would already be well within provincial jurisdiction and so beyond the area of exclusive federal jurisdiction within which the IILA was intended to operate. The IILA would then be needless: it would be a federal attempt to secure for the provinces a jurisdiction that they already have.
44 More generally, if the IILA were understood to apply only to liquor in respect of which a permit actually will be required, then the Act would serve no purpose. As all the parties concede, and as the historical record makes clear, Parliament enacted the IILA to assist the provinces in their efforts to control the traffic in liquor. See House of Commons Debates, vol. II, 2nd sess., 16th Parl., April 27, 1928, at p. 2482. Therefore, the IILA must confer a power on the provinces that, without the intervention of the federal government, they would not have. Otherwise the IILA would not make any distinctively federal contribution to the securing of the provincial liquor monopolies.
45 Almost by definition the provinces have power over any alcohol for the possession of which they can require a permit. If they did not have such power, they would not be able to require permits. Therefore, if the IILA applied only to those particular quantities of alcohol in respect of which a permit actually is or will be required, then it would concern matters that are already entirely within the jurisdiction of the provinces. The IILA would then be a very strange creature indeed: an act that purports to be in aid of provincial legislation but that in fact renders no aid.
46 To avoid this consequence, it is necessary to understand the definition of “intoxicating liquor” in the IILA as specifying those kinds of liquor that can be sold or possessed inside the province only with a licence. The element of hypothesis or possibility in the definition is critical.
47 Supporting this conclusion is the historical argument on which the Court of Appeal relied. At the heart of that argument is the thought that Parliament, when it enacted the IILA in 1928, included the language about permits in order to distinguish between “temperance provinces” and “liquor control provinces” and so to avert the possibility that the IILA might authorize the importation of alcohol into one of the former. Because the dry provinces, when there were dry provinces, did not provide for the sale or possession of liquor even under a permit, the mere mention of permits in the definition of “intoxicating liquor” was sufficient to ensure that the IILA would not have any untoward impact on prohibition.
48 Consistently with this understanding of its purpose, the reference to permits in the IILA should be taken as meaning nothing more than that those liquors are intoxicating that can be sold or possessed only under authority of the province. More than that is not necessary to serve the purpose of distinguishing dry provinces from non-dry ones; and, as I have said, more than that would not be consistent with the nature of the legislation and its wording.
49 It follows, I think, that “intoxicating liquor” is not liquor that actually will come within the ambit of a provincial licencing scheme, but liquor that would come within the ambit of such a scheme if it were to be sold or possessed within the province. Because the liquors that the airlines brought into Pearson are liquors that could not ordinarily be sold in Ontario without a licence, they are intoxicating liquors within the meaning of the IILA .
(2) Whether Liquor Held in Bond is Imported “into any province”
50 The appellants argue that even if the liquor they purchased abroad and stored in bond at Pearson was intoxicating liquor, nevertheless it was not subject to the IILA because it was never brought “into any province” within the meaning of s. 3 of that Act. The appellants argue that there is a distinction between physical presence in a province and juridical presence in a province. They say that it is only the latter kind of presence that the IILA regulates, and they urge that their liquor never was juridically present in Ontario.
51 Juridical presence, according to the appellants, is that kind of presence that engages the purposes of a provincial liquor monopoly. Alcohol that is purchased abroad and kept within the physical boundaries of a province awaiting eventual in-flight consumption is not juridically present in the province, say the appellants, because its presence does not engage any of the purposes of a provincial liquor monopoly. The presence of such alcohol poses none of the dangers to public order that alcohol sometimes poses. Any mischief that its intoxicating qualities might produce will be produced outside the province. And, as the appellants would have it, the purchase of alcohol abroad does not conflict with the revenue-raising purpose of provincial liquor monopolies, because a province can have no claim to a financial stake in bu