Patricia VircGovernment has power to walk away from long-term contracts

January 2, 2020by Patricia Virc

Businesses signing long-term contracts with governments do so at their own peril, says Toronto civil litigator Patricia Virc.

Using the ongoing tussle between the Ontario government and The Beer Store as an example, Virc, a lawyer with Steinberg Title Hope & Israel LLP, says the Conservatives are within their power to walk away from the deal. And it is possible to achieve without incurring any penalties.

“Governments can make a law that cancels an otherwise legally binding agreement. The reason that is permitted is because otherwise, a current government could control policy beyond the terms of its democratic mandate,” she tells AdvocateDaily.com.

“It has to be a statutory enactment — they can’t just give an administrative order that they’re breaching the contract. They have to pass a statute that says ‘we’re not complying with this contract and furthermore we’re not paying any damages.’”

In May, Premier Doug Ford’s Conservative government tabled legislation to terminate a contract with The Beer Store that the previous Liberal government had signed, Global News reports. The 10-year deal, which permitted expansion of beer and wine sales to grocery stores, was set to run until 2025.

However, Ford has indicated he intends to also allow beer and wine to be sold in corner stores, and he must break the “sweetheart” agreement to do so, Global reports.

The Beer Store says it will fight the bill, insisting “The government cannot extinguish our right to damages as outlined in the Master Framework Agreement,” according to the news agency.

“It is critical to understand that The Beer Store has, in good faith, based on a legally-negotiated 10-year operating agreement with the Province of Ontario, invested more than $100 million to modernize its stores and to continue to upgrade the consumer experience,” The Beer Store President Ted Moroz said in a statement reported by Global.

“[The Beer Store] will fight this legislation vigorously through the courts and we remain committed to protecting the 7,000 Ontarians who work at The Beer Store and rely on these jobs to support their families.”

But Virc, who is not involved in the matter and comments generally, says anyone entering into a deal with the party in power “takes a risk that the next government can cancel the contract.”

“Of course, just because governments have the power to do this doesn’t mean that they will, and for many good policy reasons,” she explains. “They have to be very careful in the exercise of this power because it would erode anyone’s confidence in doing business with the government, and that would impair the economic functioning of the government.”

Virc says although The Beer Store agreement contained language that prohibited the government from using legislation to cancel the deal, it is unlikely to matter.

“I’m sure The Beer Store knew what could happen when they did the Master Framework Agreement because they tried to include provisions that said the government couldn’t do this when they know they can, and I think putting that in the contract, even though it’s meaningless, was intended to make a subsequent government look bad in cancelling the deal,” she says. “Most people in Ontario wouldn’t understand why they have to honour their contracts, but the government doesn’t.”

If the legislation passes, The Beer Store’s only recourse would be to claim that the bill is unconstitutional. However, Virc says, “The Charter doesn’t guarantee property and contract rights.

“We have a division of powers in Canada. Some things are within federal jurisdiction, and some things are within provincial jurisdiction,” she says. “If there was something about the statute that cancelled the contract that was beyond the government’s constitutional jurisdiction, then the contracting party could challenge it.

“In fact, The Beer Store has sent a letter to the government saying they’re going to challenge the legislation, and they’ve alleged the bill is unconstitutional, but they haven’t said how it would exceed provincial jurisdiction, so they could be just blowing smoke. I think The Beer Store realizes it’s a long shot.”

Virc says it could well be that the Ford government is just looking to renegotiate the deal.

She says while it might look unseemly for any government to invoke legislation to break a contract, that’s not necessarily the case.

“It may appear really deadbeat for governments to be able to do this, but we live in a democracy, and it’s important that we not allow governments to extend their policies into the mandates of other governments,” Virc says.

Patricia Virc

Steinberg Title Hope & Israel LLPSteinberg Title Hope & Israel LLP

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