Not Just a “Beer Case” : The Supreme Court Confirms the Constitutionality of Certain Provincial Non-Tariff Trade Barriers

Charged with illegally importing beer from Quebec into New Brunswick, a Canadian citizen is at the core of a five-year court case that came to an end last week. This matter could have had a fundamental impact on interprovincial trade in Canada.

However, it will not have the expected impact.

After hearing representations from the attorneys general of nine provinces, two territories and the federal government, as well as from 12 interveners, the Supreme Court of Canada confirmed that the impediment to trade created by a provincial legislative provision is not contrary to the Canadian Constitution, to the extent that the impediment is only the incidental effect of a legislative scheme whose “primary purpose” is not to impede interprovincial trade.

This decision of the Supreme Court was highly anticipated. On the one hand, the provinces, as well as a host of economic stakeholders benefiting from provincial legislative regimes, were hoping that the Court would confirm the interpretation of the Constitution arrived at in its previous decisions on the same subject. On the other hand, many private-sector stakeholders wanted the Court to declare any impediment to interprovincial trade unconstitutional. They were no doubt sorely disappointed with this unanimous decision held by the highest court.

1. Introduction

In its decision in R. v. Comeau¹, the Supreme Court of Canada overturned a decision rendered by a judge of the New Brunswick Provincial Court and concluded that subsection 134 (b) of New Brunswick’s Liquor Control Act² (the “Act”) does not contravene section 121 of the Constitution Act, 1867 (the “Constitution Act”).

The facts that gave rise to this judicial saga are fairly straightforward. In October 2012 Mr. Comeau, a New Brunswick resident, travelled to Quebec and purchased alcoholic beverages. Returning to New Brunswick, he was stopped by the RCMP and charged under s. 134 (b) of the Act with being in possession of quantities of alcohol in excess of the limit that can be purchased from any source other than the New Brunswick Liquor Corporation (the “Corporation”).

Mr. Comeau contested this charge, alleging that s. 134 (b) was invalid, as it conflicted with section 121 of the Constitution Act (“Section 121”). He argued that the Fathers of Confederation intended to create and maintain a pan-Canadian free market, such that any legislative or regulatory impediment to interprovincial trade is constitutionally invalid. Section 121 provides as follows:

“Canadian Manufactures, etc.
121. 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.”  
(emphasis added)

The Provincial Court judge concluded that the words “admitted free” crystallized the intention of the Fathers of Confederation to create a free pan-Canadian market by prohibiting any impediment of any kind to the free flow of goods across the country, notwithstanding several precedents, including the leading case of Gold Seal³ decided by the Supreme Court of Canada in 1921, which rejected the interpretation advocated by Mr. Comeau.

The Provincial Court ruled in favour of Mr. Comeau, essentially on the basis of the evidence of an expert historian regarding the intention of the Fathers of Confederation⁴. The judge relied on that evidence to depart from the precedents that were otherwise binding on him, explaining that this historical evidence shed new light on the issue before him.

The Attorney General of New Brunswick appealed the trial judge’s decision, but the New Brunswick Court of Appeal declined to hear the case. The Attorney General then appealed the decision to the Supreme Court of Canada.

2. The reasons of the Supreme Court of Canada

The Court had to determine if section 134 (b), which in conjunction with sections 43 (cc) and 148 (2) of the Act creates an offence, is invalid for infringing Section 121 by limiting or restricting interprovincial trade.

The Court clearly recognized the importance of the issue before it because of the practical repercussions of the interpretation relied upon by Comeau:

“3. … If to be “admitted free” is understood as a constitutional guarantee of free trade, the potential reach of s. 121 is vast. Agricultural supply management schemes, public health-driven prohibitions, environmental controls, and innumerable comparable regulatory measures that incidentally impede the passage of goods crossing provincial borders may be invalid.”

2.1 The trial judge committed an error of law by departing from the principle of stare decisis without meeting the conditions for doing so.

The Supreme Court found that the trial judge committed an error of law by departing from established precedent.

The Court stressed the importance of the stare decisis principle, which requires courts to apply the decisions of higher courts, subject to extraordinary exceptions:

“26. Common law courts are bound by authoritative precedent. This principle — stare decisis — is fundamental for guaranteeing certainty in the law. Subject to extraordinary exceptions, a lower court must apply the decisions of higher courts to the facts before it. This is called vertical stare decisis. Without this foundation, the law would be ever in flux — subject to shifting judicial whims or the introduction of new esoteric evidence by litigants dissatisfied by the status quo.”

In order to depart from precedent, the trial court had to conclude that the historical evidence submitted to it demonstrated a significant evolution in the foundational legislative and social facts that affect society at large and profoundly alter the framework of a debate on the scope of a provision such as Section 121.

The Court pointed out that in Gold Seal, it was determined that Section 121 prohibited the erection of direct tariff barriers on the free flow of goods between provinces:

“I think that, like the enactment I have just quoted, the object of section 121 was not to decree that all articles of the growth, produce or manufacture of any of the provinces should be admitted into the others, but merely to secure that they should be admitted “free”, that is to say without any tax or duty imposed as a condition of their admission. The essential word here is “free” and what is prohibited is the levying of custom duties or other charges of a like nature in matters of interprovincial trade”⁵.

While the trial judge acknowledged the precedent set by Gold Seal, he concluded that it had been erroneously decided, as the Supreme Court at that time did not have the benefit of the necessary historical evidence to determine the true scope of Section 121. He therefore declined to follow it.

However, the Court specified that there was no evidentiary or legal justification for departing from the Supreme Court’s interpretation of Section 121 in Gold Seal and in its decision in Murphy⁶. It emphasized that in the Carter⁷ and Rodriguez⁸ decisions, the historical evidence did not establish that the underlying social context that framed the original debate had been profoundly altered. The historical evidence submitted in the instant case merely suggests that there could be an alternate interpretation of the scope of Section 121.

“37. Because the historical evidence accepted by the trial judge is not evidence of changing legislative and social facts or some other fundamental change, it cannot justify departing from vertical stare decisis. Differing interpretations of history do not fundamentally shift the parameters of the legal debate in this case. While one’s particular collection of historical facts or one’s view of that historical evidence may push in favour of a statutory interpretation different from that in a prior decision, the mere existence of that evidence does not permit the judge to depart from binding precedent.”
(emphasis added)

Thus, the trial judge was bound by the precedents of the Court: he accordingly did not have the authority to endorse the interpretation suggested by the respondent.

In addition, the Court found fault with the trial judge for having ceded his primary decision-making task to an expert. The Court indicated that the application of contextual factors, including the drafters’ intent, to the interpretation of a statutory provision is not something that is outside the experience and knowledge of a judge. Moreover, the judge’s reliance on expert evidence to rebut stare decisis is tantamount to substituting one expert’s opinion for that expressed by appellate courts in binding judgments.

In short the Court concluded that the judge erred by basing himself on the opinion of an expert in departing from judicial precedent on the interpretation of Section 121. The evidence submitted did not justify changing the “recipe”, according to the Court.

2.2 Section 121 is not a constitutional guarantee of free trade

While the foregoing reasons were determinative, the Court nevertheless went on to clarify the scope of Section 121.

It first of all looked at the interpretation of the words “admitted free” in Section 121. Based on the historical context that led to the adoption of the provision, the Court concluded that Section 121 prohibited the imposition of tariffs on goods moving between provinces. However, the historical evidence did not support the proposition that the provinces thereby lost their power to legislate for the benefit of their constituents if that might have impacts on international trade.

The Court then pointed out that the principle of federalism means that a law essentially aimed at restricting or limiting the free flow of goods across the country would be unconstitutional, but a law passed for a jurisdictionally valid purpose that only incidentally affects trade would not be.

Ultimately then, Section 121 prohibits any law whose essential purpose is to restrict or limit the free flow of goods throughout the country, but a law that is part of a broad regulatory scheme not aimed at impeding trade and having only incidental effects on it does not infringe Section 121. Consequently, Section 121 does not prevent the implementation of provincial legislative schemes that incidentally impede the flow of goods from one province to another.

2.3 Section 134 is constitutional

In light of the long-standing interpretative approach first used in Gold Seal, the Court concluded that the limit on the free flow of alcoholic beverages imposed by section 134 (b) of the Act is constitutionally valid.

The Court pointed out that the effect of the prohibition on the importation of alcoholic beverages from other provinces suffices to establish that the prohibition essentially functions like a tariff.

That being said, the Court specified that the primary purpose sought to be achieved by the provision is not restraint to trade, but to restrict access to any such beverage obtained from a source other than the Corporation. The objective of the legislative scheme is thus not to restrict trade across a provincial boundary, but to enable public supervision of the production, movement, sale and use of alcohol within New Brunswick.

Although the regime generates revenue for the province, that is not its primary purpose. Subsection 134 (b) is not divorced from the objective of the larger scheme, but serves New Brunswick’s choice to control the supply and use of liquor within the province.

The impact on interprovincial trade is thus only an incidental consequence, and subsection 134 (b) therefore does not infringe on Section 121.

3. Conclusion

On October 6, 2012, Mr. Comeau could not have suspected that a relatively inconsequential $240 fine would give rise to a constitutional debate with potentially vast repercussions on countless legislative and regulatory schemes in force across the country. The Supreme Court decided however to maintain the status quo by overturning the trial decision on the basis of stare decisis.

This matter could have opened a Pandora’s box, but Canada’s highest court elected to confirm the interpretation of s. 121 that has been followed by the courts for 100 years.

However, the market for alcoholic beverages could nevertheless see major changes in 2018, the Comeau decision notwithstanding, as a committee on alcohol struck by the provincial governments pursuant to the 2017 Canadian Free Trade Agreement is to release its recommendations in the coming months.