Fresh As Amended S

Court File No.: CV-14-518059-00CP

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

DAVID HUGHES and 631992 ONTARIO INC.

Plaintiffs

-and-

LIQUOR CONTROL BOARD OF ONTARIO, BREWERS RETAIL INC. (carrying on business as "THE BEER STORE"), LABATT BREWERIES OF CANADA LP, LABATT BREWING COMPANY LIMITED, MOLSON COORS CANADA INC., MOLSON CANADA 2005 AND SLEEMAN BREWERIES LTD:

Defendants

Proceeding under the Class Proceedings Act, 1992

FRESH AS AMENDED STATEMENT OF CLAIM NOTICE OF ACTION ISSUED ON DECEMBER 12, 2014 2

CLAIM

1. The plaintiffs claim on their own behalf and on behalf of other members of the

Proposed Class (as defined in paragraph 13 below):

(a) A declaration that the defendants conspired and agreed with each other to

allocate sales, territories, customers or markets for the supply of beer sold in

Ontario during the Class Period (as defined in paragraph 13 below);

(b) A declaration that either as part of the same alleged conspiracy or part of a

separate conspiracy made possible by virtue of the alleged conspiracy, the

defendants, Labatt Breweries of Canada LP, Labatt Brewing Company

Limited (collectively, "Labatt"), Molson Coors Canada Inc., Molson

Canada 2005 (collectively, "Molson") and Sleeman Breweries Ltd.

("Sleeman"), conspired and agreed to flx, increase and/or maintain prices

charged to "licensees" (including restaurants and bars) for beer, and also the

fees charged by Brewers Retail Inc. to other breweries to sell their beer;

(i) for loss and damage suffered as a result of conduct contrary to Part

VI of the Competition Act, RSC 1985, c C-34 ("Competition Acf');

(ii) for civil conspiracy;

(iii) unjust enrichment; and

(iv) for waiver of tort;

(d) Punitive, exemplary and aggravated damages in the amount of$5,000,000; 3

(e) In the alternative, an award of compensatory damages against LCBO to put

the members of the Proposed Class in the position they would have been in,

had LCBO not entered into, and conducted its business pursuant to, the

Market Allocation Agreement, as defmed herein and engaged in such other

wrongful conduct as alleged herein;

(f) A declaration that sections 2 and 2.1(1) of Ontario Regulation 717, RRO

1190 are of no force and effect, by reason of inconsistency with Importation

ofIntoxicating Liquors Act, RSC 1985, c I-3;

(g) A declaration that, pursuant to section 3(1 )(i) of the Liquor Control Act,

RSO 1990, c L 18 ("LCA"), the defendants Molson, Sleeman and Labatt

were not permitted by law to set, and cause BRIto charge, "licensee" prices

for beer that are in excess of retail prices for beer;

(h) A declaration that, pursuant to section 3(1)(i) of the LCA, the defendant

BRI was not permitted by law to charge "licensee" prices for beer that are in

excess of retail prices for beer;

(i) A declaration that, as a result of the illegal setting of"licensee" prices by the

defendants Molson, Sleeman and Labatt, and the illegal charging of such

prices by BRI, the plaintiffs and other members of the Proposed Class who

are "licensees" or who purchased beer from a "licensee" are entitled to the

disgorgement from Molson, Sleeman, Labatt or BRI of the amount by

which "licensee" prices set by defendants Molson, Sleeman and Labatt and

charged by BRI exceeded the retail prices for the same classes, varieties and

brands ofbeer. In the alternative, a declaration that as a result of the illegal 4

"rebates" provided by the defendants Molson, Sleeman and Labatt to some

of their "licensee" customers, the plaintiffs and other members of the

Proposed Class who are "licensees" or who purchased beer from a

"licensee" are entitled to the disgorgement from Molson, Sleeman, Labatt

or BRI of the amount by which the "licensee" prices set by Molson,

Sleeman and Labatt and charged by BRI for each class, variety and brand of

beer sold by these defendants exceeded the lowest "licensee" prices

(including the illegal "rebates") charged to any "licensee" customer for the

same classes, varieties and brands of beer during the Class Period;

G) A declaration that section 11 of the Minimum Pricing ofLiquor and Other

Matters Regulation, 0 Reg 116/10, is of no force and effect and is invalid

by reason of conflict with section 3(1)(i) of the LCA and that, whether the

regulation is valid or not, it does not permit brewers to charge "licensee"

prices for beer and does not constitute a defence under section 45(7) of the

Competition Act or a juristic reason for the brewers' enrichment;

(k) In the alternative, a declaration that section 3(1) of the Importation of

Intoxicating Liquors Act, RSC 1985, c I-3 is of no force and effect, by

reason of inconsistency with section 121 of the British North America Act,

1867, ss 1867, c 3;

(1) Pre-judgment interest in accordance with section 128 of the Courts of

Justice Act, RSO 1990, c C.43 ("Courts ofJustice Act"), as amended;

(m) Post-judgment interest in accordance with section 129 of the Courts of

Justice Act; 5

(n) Investigative costs and costs of this proceeding on a full-indemnity basis

pursuant to section 36 of the Competition Act; and

(o) Such further and other relief as this Honourable Court deems just. 6

Summary of Claim

2. This action relates to alleged wrongful conduct in the beer industry. The action relates to three overarching claims: (i) a statutory and tort claim in conspiracy; (ii) a claim for unjust enrichment based on the imposition of unlawful "licensee" prices; and (iii) a claim for monetary damages for misconduct by a public authority.

The Conspiracy Claim

3. This action arises from a conspiracy to allocate sales, territories, customers or markets for the supply of beer in Ontario (the "Market Allocation Conspiracy"). Brewers

Retail Inc. ("BRI") is a chain of retail outlets owned by the defendants Labatt Brewing

Company Limited, Molson Canada 2005 and Sleeman Breweries Ltd. The defendant

LCBO, a Crown agent, and BRI entered into an agreement, dated June 1, 2000, which allocated the Ontario retail beer market between LCBO and BRI (the "Market Allocation

Agreement"). The BRI retail outlets operate under the name "The Beer Store". As part of the Market Allocation Agreement, BRI was, in effect, given a monopoly on certain segments of the beer market, including sales to "licensees" (restaurants, bars and other establishments licensed to serve alcohol to patrons). The unlawful conduct occurred from at least as early as June 1, 2000 and continues to this day. The unlawful conduct was targeted at both consumers and commercial purchasers (including restaurants and bars), raising prices paid by all members of the Proposed Class.

4. Further, as a part of the Market Allocation Conspiracy: (i) Molson, Labatt and

Sleeman were able to impose supra-competitive prices upon "licensee" customers who as a result of the Market Allocation Agreement were required to purchase any brands of beer sold at BRI from BRI. These brands included most, if not all, of the most popular and 7 widely-consumed beers in Ontario. Although sales were made through BRI, prices were set by the breweries; and (ii) BRI was able to impose supra-competitive "listing" and

"handling" fees and charges upon competitor brewers who wished to sell their products at

BRI. These effects were a direct result of the allocation of the beer market, such that the defendants have joint and several liability for damages arising from both the market allocation and the charging of supra-competitive "licensee" prices, "listing" and

"handling" fees.

5. In the alternative, defendants Molson, Sleeman and Labatt, in reliance on the

Market Allocation Agreement with the LCBO, conspired to, and did: (i) impose supra-competitive prices upon "licensee" customers who as a result of the Market

Allocation Agreement were required to purchase any brands of beer sold at BRI from BRI; and (ii) cause BRI to impose supra-competitive "listing" and "handling" fees and charges upon competitor brewers who wished to sell their products at BRI (the "Prices and Fees

Conspiracy").

6. The defendants, Molson, Sleeman and Labatt, used their ownership of BRI as a vehicle to give effect to the Market Allocation Conspiracy and the Prices and Fees

Conspiracy and are liable for the conduct of BRI in giving effect to the Market Allocation

Conspiracy and the Prices and Fees Conspiracy. The conduct ofBRI was dominated and controlled by the defendants, Molson, Sleeman and Labatt, in the sense that BRI did not operate independently for the purposes of the entering into the Market Allocation

Conspiracy and the Prices and Fees Conspiracy and imposing supra-competitive "listing" and "handling" fees and charges. 8

The Unlawful "Licensee" Prices Claim

7. Section 3(l)(h) of the LCA authorizes LCBO to determine the classes, varieties and brands of liquor to be kept for sale at government stores, including BRI. Section 3(1 )(i) authorizes LCBO to fix the prices at which the various classes, varieties and brands of liquor are to be sold, and provides that such prices must be the same at all government stores. The Minimum Pricing of Liquor and Other Pricing Matters regulation, 0 Reg

116110, promulgated in 2010, provides that a manufacturer of beer may apply to LCBO for a change in the price at which its beer is sold by BRI and, provided the price is above the statutory minimum, LCBO is to approve it.

8. Contrary to section 3(1)(i) of the LCA, Molson, Sleeman and Labatt set prices to

"licensees" that were substantially higher than retail prices for the same classes, varieties and brands ofbeer. Molson, Sleeman and Labatt caused BRIto charge unlawful "licensee" prices to its "licensee" customers. BRI charged unlawful "licensee" prices to its "licensee" customers. A "class" of beer refers to alcohol concentration, while a "variety" refers to the type of beer (e.g., wheat beer, light beer, etc.). Classes, varieties and brands of beer are characteristics of the beer, rather than the purchaser. Section 3(1)(i) does not permit price differentiation on the basis of the type of purchaser.

9. The plaintiffs seek the disgorgement from Molson, Sleeman, Labatt or BRI of the amount by which "licensee" prices set by the defendants Molson, Sleeman and Labatt, and charged by BRI, exceeded retail prices for the same classes, varieties and brands of beer during the Class Period. 9

The Misconduct by a Public Authority Claim

10. The LCBO engaged in misconduct by entering into the Market Allocation

Agreement and improperly fixing or approving "licensee" prices submitted to it by

Molson, Labatt and Sleeman, contrary to section 3(1)(i) of the LCA. LCBO's action was commercially unreasonable regulatory action taken for improper purposes and without regard to the interests of Proposed Class. The misconduct warrants an award of compensatory damages against LCBO.

The Parties

The Plaintiffs

11. The plaintiff David Hughes ("Hughes") is an individual residing in Burlington,

Ontario. During the Conspiracy Period, Hughes purchased beer at various stores owned and operated by BRI and LCBO in Ontario, and various restaurants, bars and other licensed establishments in Ontario.

12. The plaintiff 631992 Ontario Inc. is a restaurant in Burlington, Ontario, carrying on business under the name "The Poacher." During the Conspiracy Period, 631992 Ontario

Inc. purchased beer from BRI for sale to its customers.

13. The plaintiffs seek to represent the following class (the "Proposed Class"):

All persons in Canada who purchased beer in Ontario during the Class Period. Excluded from the class are the defendants, their subsidiaries, and affiliates.

Class Period means between June 1, 2000 and the date on which this action is certified as a class proceeding. 10

The Defendants

14. The defendant LCBO is a Crown agent which derives its authority from the LCA.

The LCA empowers the LCBO to, inter alia, buy, imp01t and have in its possession for sale and to sell, liquor and other products containing alcohol. It also empowers the LCBO to establish government stores for the sale ofliquor to the public and to fix the prices at which the various classes, varieties and brands of liquor are to be sold, provided that such prices arc the same at all government stores. Government stores are defined to include the stores operated by BRI.

15. The defendant BRI is a privately-owned chain of retail outlets which sells beer in

Ontario under the trade name '·The Beer Store'·. Pursuant to the LCA, BRl is the only entity which the LCBO can authorize to operate stores for the sale of beer to the public. 1

16. During the Class Period, the LCBO and the BRI were parties to the Market

Allocation Agreement dated June 1, 2000, pursuant to which beer market segments were allocated between the LCBO and the BRI, as discussed in more detail below.

17. The defendant Labatt Breweries of Canada LP is a Canadian corporation with its principal place of business in Toronto, Ontario. Labatt Breweries of Canada LP is a subsidiary of Anheuser-Busch InBev, a corporation headquartered in Leuven, Belgium.

During the Class Period, Labatt Breweries of Canada LP marketed, sold and/or distributed beer to customers in Ontario, either directly or indirectly through the control of its predecessors, affiliates and/or subsidiaries.

1 Pursuant to the LCA, other manufacturers of beer, including "crafl" breweries cannot set up retail stores and can only sell their products at their brewing facilities, or through the LCBO, BRl or ·•agency stores" - independent local retailers (usually in communities where alcohol consumers do not have reasonable access to an LC'BO store) who sell beverage alcohol in conjunction with other goods. 11

18. The defendant Labatt Brewing Company Limited is a subsidiary or affiliate of

Labatt Breweries of Canada LP. Labatt Brewing Company Limited is a shareholder in

BRI. During the Class Period, Labatt Brewing Company Limited marketed, sold and/or distributed beer to customers in Ontario, either directly or indirectly through the control of its predecessors, affiliates and/or subsidiaries.

19. The business of each of Labatt Breweries of Canada LP and Labatt Brewing

Company Limited is inextricably interwoven with that of the other and each is the agent of the other for the marketing, pricing, sales and distribution of beer in Ontario and for the purposes of the conspiracy and other wrongful conduct alleged herein.

20. The defendant Molson Coors Canada Inc. is a Canadian corporation, with its principal place of business irn Toronto, Ontario. Molson Coors Canada Inc. is a subsidiary of Molson Coors Brewing Company, a company incorporated in the United States and headqum1ered in Denver, Colorado, and in Montreal, Quebec. During the Class Period,

Molson Coors Canada lnc. marketed, sold and/or distributed beer to customers in Ontario, either directly or indirectly tlu-ough the control of its predecessors, affiliates and/or subsidiaries.

21. The defendant Molson Canada 2005 is a subsidiary or an affiliate of Molson Coors

Canada Inc. Molson Canada 2005 is a shareholder in BRJ. During the Class Period,

Molson Canada 2005 marketed, sold and/or distributed beer to customers in Ontario, either directly or indirectly through the control of its predecessors, affiliates and/or subsidiaries.

22. The business of each of Molson Coors Canada Inc. and Molson Canada 2005 is inextricably interwoven with that of the other and each is the agent of the other for the 12 marketing, pricing, sales and distribution of beer in Ontario and for the purposes of the conspiracy and other wrongful conduct alleged herein.

23. The defendant Sleeman is a Canadian corporation, with its principal place of business in Guelph, Ontario. Sleeman is a subsidiary of Sapporo Breweries Ltd., a

Japanese brewer. Sleeman is a shareholder in BRI.

24. The Board of Directors of BRI consists of four representatives of each of Molson andLabatt.

25. During the Class Period, the defendants Labatt, Molson and Sleeman owned and operated BRI. During the Class Period, the defendants Labatt, Molson and Sleeman directed BRIto enter into the Market Allocation Agreement with the LCBO.

Joint and Several Liability

26. The defendants are jointly and severally liable for the actions of and damages allocable to all co-conspirators arising from the Market Allocation Conspiracy and the

Prices and Fees Conspiracy.

27. Whenever reference is made herein to any act, deed or transaction of any corporation, including a Crown corporation, the allegation means that the corporation or limited liability entity engaged in the act, deed. or transaction by or through its officers, directors, agents, employees or representatives while they were actively engaged in the management, direction, control or transaction of the corporation's business or affairs. 13

T he Conspiracy Claim

The Market Allocation Conspiracy

28. The sale of alcohol in general, and of beer specifically, in Ontario is regulated.

Pursuant to the LCA, the only entities permitted to operate stores for the sale of beer to the public are LCBO, a non-share capital provincial Crown corporation, and BRl, a private chain of retail outlets. BRl was established as a consortium of Ontario-based brewers shot1ly after the end of the Prohibition in Ontario. Through national and international consolidation, it has come to be owned by only three international brewers, the defendants

Laban, Molson and Sleeman.

29. On June l, 2000, the LCBO and BRl entered into the Market Allocation Agreement which allocates beer market segments in Ontario between the two entities. The Market

Allocation Agreement contains the following features:

(a) Beer Selling Roles. The Market Allocation Agreement provides:

.. Consistent with historical practice, LCBO wi II not sell beer in

non-combination stores in packages containing more than 6 containers, and

will not promote beer at price points greater than 6 containers." Thus,

members of the Proposed Class who wish to purchase beer in containers of

more than 6 (i.e. a 12-pack or 24-pack), which are generally less expensive

per bottle or can than containers of 6, cannot do so at the local LCBO store

and have to attend at a BRl outlet. Members of the Proposed Class who

wished to purchase 12 or more beers from the LCBO would have to

purchase that amount in packages of 6, rather than the less expensive 12- or

24-packs. 14

(b) Sales to Licensees. The Market Allocation Agreement provides: ··BRI will

continue to sell to licensees all beer SKU's [i.e. stock keeping units - a

distinct identifier for each product) sold in Beer Stores; the LCBO will

continue to sell to licensees beer SKU's sold exclusively by LCBO." Thus,

for beer sold at BRl, licensees arc required to purchase that beer exclusively

through BRJ. This includes many, if not all, of the most popular and widely

consumed brands of beer in Ontario.

new Beer Store has opened in a combination store community, the existing

LCBO store is to revert to a non-combination 6-pack store and will carry

package sizes no greater than 6 containers." Thus, once a BR I outlet opens

in a community where previously LCBO effectively served as the local beer

store, LCBO will withdraw from the market for beer in packages larger than

(d) Agency Stores. The Market Allocation Agreement provides: ·'Agency

stores are established by the LCBO under powers granted by the LCA. BRI

and LCBO to have separate commercial contracts with the operation of

agency Stores: - LCBO on wine, spirits and non-Ontario beer[;] - BRIon

all Ontario beer sold in the BRI system. BRIto enter into agreements to sell

Ontario beer to new operations of agency stores. BRl to enter into

agreements to sell Ontario beer to existing agency store operators when

their existing agency store contracts are renewed:· ·'Agency stores.. are

independent local retailers authorized by LCBO to sell beverage alcohol in 15

conjunction with other goods, usually in communities where alcohol

consumers do not have reasonable access to an LCBO store. Pursuant to the

Agreement, operators of"agency stores·· cannot choose to purchase Ontario

beer from LCBO and must purchase it from BRI. "Agency stores·· that

purchased Ontario beer from LCBO at the time of the Agreement had to

switch to purchasing from BRI upon renewal of their contracts.

30. By entering into the Market Allocation Agreement, the defendants created a monopoly in certain beer products in Onta1io, where none was intended by the LCA.

While the LCA empowered both the LCBO and BRl to sell beer in Ontario, the Market

Allocation Agreement provides that only BRI will sell packages of more than 6 beers

(which are the most populat· package sizes) to the public, and that only BRl will sell the brands of beer carried by the BRl (which are the most popular and widely-consumed brands in Ontario) to restaurants and agency stores. This provides BRI with a monopolist position in the largest segments of the beer market. The Initial Report of Premier's

Adviso1y Council on Government Assets, dated November 13, 2014, provides that total beer sales to consumers and businesses in Ontario amount to approximately $3 billion annually, almost 80% of which is accounted for by BRL

31. As a result of the Market Allocation Agreement, in certain key segments of the beer market, the defendants Molson, Sleeman and Labatt control both the manufactw-ing and the retail and wholesale distribution of their products. The contractual monopoly created as part oftbe Market Allocation Agreement has eliminated price competition in these market segments, enabling Molson, Sleeman and Labatt to set prices for beer at supra-competitive levels, which arc then approved by LCBO. In particular, because the Market Allocation 16

Agreement required Ontario ··licensees" to purchase beer sold at BRI exclusively from

BRI, ·'licensees" were forced to pay supra-competiti ve ··licensee'' prices for such beer.

32. The prices charged to ·'licensees" were approximately 30-50% higher for major

brands than the prices charged to consumers purchasing beer at BRI. Sales to ·'licensees·· make up approximately 18-20% of the Ontario beer market. In the absence of the Market

Allocation Agreement, the defendants Molson, Sleeman and Labatt would not have had an effective monopoly on the retailing or the most popular beer brands and packages

(including beer that they themselves manufacture) and would have competed for this business with LCBO. Such competition would have resulted in lower prices.

33. This ability on the part of Molson, Sleeman and Labatt to set supra-competitive

·'licensee" prices and the ability of BRl to charge such prices to ·'licensees" was a direct result of the conspiracy to allocate the beer market, such that the defendants have joint and several liability for damages arising from both the market allocation and the charging of supra-competitive "licensee" prices.

34. At least part of the unlawful overcharge on "licensee" prices was passed on to patrons of the "licensees."

35. As a result of the Market Allocation Conspiracy, individual consumers who wished to purchase a package of more than 6 containers of beer could not do so at the LCBO.

During the Class Period, LCBO customers who wished to purchase 12, 24 or more containers of beer overpaid for beer, by reason of having to purchase those amounts in packages of 6. Packages of 6 are generally more expensive, per container, than larger packages. 17

36. As a pat1 of the Market Allocation Conspiracy, BRl was able to, and did, impose supra-competitive "listing" fees, ·'handling" fees and other fees and service charges upon brewers that wished to sell their beer through BRI. Such fees were imposed upon all brewers who sold their beer through BRI, except Molson, Labatt and Sleeman. Molson,

Labatt and Sleeman, as owners ofBRI, did not, and do not, pay such fees. Such fees have a dispropot1ionate impact on small brewers. The fees charged were imposed per brand, per package size, per each BRI retail store. For example, if a craft brewer wished to sell two brands of beer in a 6-pack and 12-pack format at three BRI retail stores, it wou ld have to pay 12 sets of the ··handling·· and other fees. The imposition of such fees presents an anti-competitive obstacle to market entry and causes increased costs to brewers, other than

Molson, Labatt and Sleeman, that wish to sell. their beer through BRI. This also results in reduced consumer choice as many smaller brewers simply cannot pay the costs required to sell their beer at BRL For those brewers that paid the costs required and sold beer through

BRI, at least pat1 of the unlawful overcharge on the ··handling·· and other fees was passed on by the brewers to consumers. This ability on the part of BRI to charge supra-competitive ·'listing" or ·'handling" fees was a direct result of the conspiracy to allocate the beer market, such that the defendants have joint and several liability for damages arising from the charging of supra-competitive ··listing"' or ·'handling" fees.

37. Defendants were aware and intended that the Market Allocation Conspi1·acy would result in increased prices for beer (including beer sold to ''licensees"). Defendants were aware and intended that at least pat1 of the unlawful overcharge on "licensee" prices would be passed on to patrons of .. Iicensees." Defendants were also aware and intended that the

Market Allocation Conspiracy would result in increased prices for ·'listing"' and ··handling" 18

fees, and that at least par1 of the price increase would be passed on to members of the

Proposed Class who purchased craft beer from the BRI. As a direct result of the unlawful

conduct alleged herein, the plaintiffs and other members of the Proposed Class paid and

continue to pay artificially inflated prices for beer manufactured, marketed, sold and/or

distributed during the Class Period and have thereby suffered losses and damages.

38. The defendants Molson, Sleeman and Labatt used their ownership of BRI as a

vehicle to give eflect to the conspiracy and arc liable tor the conduct ofBRl in giving effect

to the Market Allocation Conspiracy. The conduct of BRI was dominated and controlled

by the defendants, Molson, Sleeman and Labatt, in the sense that BRl did not operate

independently for the purposes of the creation and implementation of the Market

Allocation Conspiracy or the imposition of supra-competitive ·'licensee" prices and

.. listing" and .. handling" fees.

The Prices a11d Fees Co ~t spiracy

39. In the alternative, in reliance on the Market Allocation Conspiracy, Labatt, Molson

and Sleeman participated in a conspiracy to: (i) impose supra-competitive prices upon

''licensee" customers who as a result of the Market Allocation Agreement were required to

purchase any brands of beer sold at BRI; and (ii) cause BRl to impose supra-competitive

''listing" or ·'handling.. fees and charges upon competitor or craft brewers who wished to

sell their products at BRl.

40. At least part of the unlawful overcharge on ··ticensce" prices was passed on to

patrons of the ·'licensees.'' Similarly, at least par1 of the unlawful overcharge on .. listing'' 19 or "handling" fees were passed on to consumers of beer manufactured by competitor or craft breweries.

41. Defendants were aware and intended that the Prices and Fees Conspiracy would

result in increased prices for beer (including beer sold to ''licensees"). Defendants were aware and intended that at least pa1t of the unlawful overcharge on ''licensee" prices would

be passed on to patrons of •'Jicensees ". Defendants were also aware and intended that the

Prices and Fees Conspiracy would result in increased prices for ''listing" and ·'handling" fees, and that at least prut of the price increase would be passed on to members of the

Proposed Class who purchased craft beer from the BRl. The defendants Labatt, Molson and Sleeman were aware and intended that the Prices and Fees Conspiracy would result in increased prices for beer.

42. The defendants, Molson, Sleeman and Labatt, used their ownership of BRl as a vehicle to give effect to the conspiracy and are liable for the conduct of BRI in giving effect to the Prices and Fees Conspiracy. The conduct of BRI was dominated and controlled by the defendants, Molson, Sleeman and Labatt, in the sense that BRL did not operate independently for the purposes of the creation and implementation of the Prices and Fees

Conspiracy or the imposition of supra-competitive ''licensee" prices and ··Jisting" and

·'handling" fees. 20

Restrai11t 011 Trade

43. Further, or in the alternative, the Market Allocation Agreement IS void and unenforceable as being an unreasonable restraint on trade.

44. The Market Allocation Agreement is a covenant in restraint of trade. It is contrary to public policy. The Market Allocation Agreement cannot be justified as reasonable in the

interests of the defendants. The Market Allocation Agreement cannot be justified as reasonable with reference to the interests of the public.

Breaches of Part VI ofCo mpetitio11 Act

45. From at least as early as June l, 2000, and continuing at the present time, as part of the Market Allocation Conspiracy, the defendants engaged in a conspiracy to allocate sales, territories, customers or markets for the supply of beer sold to consumers and businesses in Ontario. The Market Allocation Conspiracy was intended to, did, and continues to, affect the prices of beer in Ontario.

46. The defendants carried out the Market Allocation Conspiracy by:

(a) participating in meetings, conversations, and communications in Ontario,

and elsewhere, to discuss the division of the beer market in Ontario;

(b) agreeing, during those meetings, conversations and communications, on the

division of sales of beer between BRI and LCBO and to othetwise allocate sales,

tctTitories, customers or markets for the supply of beer in Ontario;

of monitoring and enforcing adherence to the Market Allocation Conspiracy; 21

(d) the defendants Molson, Labatt and Sleeman participating m meetings, conversations, and communications m Ontario, and elsewhere, to discuss the imposition of supra-competitive .. licensee" prices, .. listing fees", .. handling fees'' and other fees and charges in Ontario;

(c) the defendants Molson, Labatt and Sleeman agreeing, during those meetings, conversations and communications, to impose " licensee'' prices for beer manufactured by the defendants Molson, Sleeman and Labatt sold at BRl to Ontario

"licensees," and to set such prices at a supra-competitive level;

(f) the defendants Molson, Labatt and Sleeman agreeing, during those meetings, conversations and communications, to cause BRI to impose ''listing fees.''

··handling fees·· and other fees and service charges upon all other brewers that wish to sell thei1· beer through BRI, and to set such fees at a supra-competitive level;

(g) actively and deliberately employing steps to keep their conduct secret and to conceal and hide facts, including but not limited to refu sing to disclose to the public or their competitors the terms of the Market Allocation Agreement or the written agreement documenting the Market Allocation Agreement;

(h) preventing or lessening, unduly, competition in the market in Ontario for the sale or distribution of beer;

(i) enhancing unreasonably the prices for beer in Ontario; and

U) engaging in other unlawful acts, the full particulars of which are known to the defendants and are unknown to the plaintiffs. 22

47. The ability on the pa11 of Molson, Sleeman and Labatt to set supra-competitive

"licensee" prices and to cause BRIto charge supra-competitive prices and fees was a direct result ofthe conspiracy to allocate the beer market, such that the defendants have joint and several liability for damages arising from both the market allocation and the charging of supra-competitive prices and fees. This aspect of the Market Allocation Conspiracy was intended to, did, and continues to, affect the prices of beer in Ontario.

48. In the alternative, defendants Molson, Sleeman and Labatt, m reliance on the agreement with the LCBO to allocate the market, conspired to: (i) impose supra-competitive prices upon "licensee" customers who as a result of the Market

Allocation Agreement were required to pw·chase any brands of beer sold at BRI from BRI; and (ii) cause BRl to impose supra-competitive fees and charges upon competitor brewers who wished to sell their products at BRl. ln furtherance of this unlawful conduct (whether determined to be part of the Market Allocation Conspiracy or a separate Prices and Fees

Conspiracy), Molson, Sleeman and Labatt engaged in the following conduct:

(a) participated in meetings, conversations, and communications in Ontario,

and elsewhere, to discuss the imposition of supra-competitive ·'licensee" prices,

''listing fees'', ''handling fees" and other fees and charges in Ontario;

(b) agreed, dming those meetings, conversations and communications, to

impose "licensee prices" for beer manufactured by the defendants Molson, Sleeman

and Labatt sold at BRI to Ontario "licensees," and to set such prices at a

supra-competitive level;

BRl to impose ''listing fees," ''handling fees" and other fees and service charges upon 23

all other brewers that wish to sell their beer through BRT, and to set such fees at a

supra-competitive level;

(d) engaged in meetings, conversations, and communications for the purpose of

monitoring and enforcing adherence to the Prices and Fees ConspiJacy;

(e) actively and deliberately employed steps to keep their conduct secret and to

conceal and hide facts, including but not limited to refusing to disclose to the public

or their competitors the terms of the Market Allocation Agreement or the written

agreement documenting the Market Allocation Agreement;

(t) prevented or lessened, unduly, competition in the market in Ontario for the

sale or distribution of beer;

(g) enhanced unreasonably the prices for beer in Ontario; and

(h) other unlawful acts, the full particulars of which are known to the

defendants and are unknown to the plaintiffs.

49. As a result of the unlawful conduct alleged herein, the plaintiffs and other members of the Proposed Class paid unreasonably enhanced/supra-competitive prices for beer.

50. The conduct described above constitutes offences under Part VI of the Competition

Act, in particular, section 45(1) of the Competition Act. The plaintiffs claim loss and damages under section 36( l) of the Competition Act in respect of such unlawful conduct. 24

Civil Conspiracy

51. The defendants voluntarily entered into agreements with each other to use unlawful means which resulted in loss and damages, including special damages, to the plaintiffs and other members of the Proposed Class. The unlawful means include the following:

(a) entering into agreements to allocate sales, territories, customers or markets

for the supply of beer sold to consumers and businesses in Ontario in contravention

of section 45(1) of the Competition Act;

(b) entering into agreements among defendants Molson, Sleeman and Labatt to

impose "licensee" prices for beer manufactured by the defendants Molson,

Sleeman and Labatt sold at BRI to "licensees" and to set such prices at a

supra-competitive level;

impose "listing fees," "handling fees" and other fees and service charges upon all

other brewers that wish to sell their beer through BRI, and to set such fees at an

anti-competitive level; and

(d) aiding, abetting and counselling the commission of the above offences,

contrary to sections 21 and 22 of the Criminal Code, RSC 1985, c C-46.

52. In furtherance of the conspiracy, the defendants, their servants and agents carried out the acts described in paragraphs 46 and 47 above. 25

53. The defendants were motivated to consp1re. Their predominant purposes and

CDncerns were to harm the plaintiffs and other members of the Proposed Class by requiring them to pay rutificially high prices for beer, and to illegally increase their profits on the sale ofbeer. The defendants' conduct was unlawful and was directed at the plaintiffs and other members of the Proposed Class.

54. The defendants intended to cause economic loss to the plaintiffs and other members of the Proposed Class. The defendants knew, or ought to have known, in the circumstances that their unlawful acts would likely cause injury to the plaintiffs and other members of the

Proposed Class.

Unjust Enrichment for Unlawful Overcharge

55. As a result of their conduct, BRI and its owners, Molson, Sleeman and Labatt, benefited from a significant enhancement of their revenues on the sale of beer. All members of the Proposed Class have suffered a corresponding deprivation as a result of being forced to pay inflated prices for beer. There is no juristic reason or justification for the enrichment of BRI, Molson, Sleeman or Labatt, as such conduct is t01tious, unjusti:fiable and unlawful under the Competition Act.

56. It would be inequitable for BRl, Molson, Sleeman or Labatt to be permitted to retain any of the ill-gotten gains resulting from their unlawful conspiracy.

57. The plaintiffs and other members of the Proposed Class are entitled to the amount of the BRl, Molson, Sleeman and Labatt's ill-gotten gains resulting from their unlawful and inequitable conduct. 26

LCBO's Conduct ilr Participating in tile Market Allocation Conspiracy was Ultra Vires 58. LCBO had no statutory authority to enter into the Market Allocation Agreement.

The Market Allocation Agreement is ultra vires of the LCBO because it inappropriately fettered the discretion of LCBO to control the sale of beer by agreeing not to: (i) sell 12- and 24-packs at its LCBO stores; and (ii) sell beer to .. licensees." The LCA empowered both LCBO and BRI to sell beer in Ontario, while the Market Allocation Agreement inappropriately prevented LCBO from selling the most popular brands and packages of beer to "licensees" and retail purchasers. respectively.

59. Further, the Market Allocation Agreement was ullra vires of LCBO because it was entered into for an unauthorized or an ulterior purpose. In particular, contrary to LCBO"s statutory purpose to control the sale of liquor in the province, the Market Allocation

Agreement benefitted three large, foreign-owned brewers, to the detriment of Ontario

··licensees,.. individual consumers. craft brewers and taxpayers. The Market Allocation

Agreement was also ultra vires ofLCBO because it was unreasonable and its effect was to discriminate between the defendants Labatt, Molson and Sleeman on the one hand, and all other beer manufacturers on the other, as well as between "licensee'' customers on the one hand, and retail customers on the other.

The Unlawful "Licensee" Prices Claim

60. The Plaintiffs make the following claims about the regulatory regime governing the sale of beer in Ontario:

(a) During the Class Period, the defendants Molson, Sleeman and Labatt

breached section 3( I )(i) of LCA by setting unlawful ·'licensee·· prices for 27

beer sold to ·'licensees," which prices were greater than retail prices set by

Molson, Sleeman and Labatt for the same classes, varieties and brands of

beer. During the Class Period, the defendant BRI breached section 3( l )(i) of

LCA by charging unlawful ''licensee'' prices for beer sold to "licensees,''

which prices were greater than prices charged by BRIto retail customers for

the same classes, varieties and brands of beer.

(b) Section 3(l)(i) ofthe LCA does not permit LCI30 to fix ''licensee'' prices

for beer that arc different from retail prices for beer. The only bases upon

which prices can be differentiated are: class (alcohol concentration); variety

(e.g., wheat beer, light beer, etc.) and brand. Price differentiation on the

basis of the type of purchasing customer is impermissible;

to be kept tor sale in government stores pw·suant to section 3( I )(h) of the

LCA. It is authorized to fix prices for the various classes, varieties and

brands of liquor pursuant to section 3(1)(i) of the LCA. Once LCBO fixes

the price of liquor of a particular class, variety and brand, pursuant to

section 3( I )(i), such price must be the same in all govemment stores,

including stores operated by BRI;

(d) Until2002, "licensee'' customers paid retail prices for beer, but their

purchases were subject to a tax, sometimes referred to as the "gallonage

tax." Licences to Sell Liquor regulation, RRO 1990, Reg 719, section I 03,

formerly stated, in part: ·'The holder of a liquor sales license ... shall pay a

fee of: $2.64 per hectoliter of beer purchased for sale or consumption under 28

the license ..." In 2002, the ''gallonage tax" was revoked.2 Thereafter,

Molson, Labatt and Sleeman began increasing ·'licensee" prices, and their

.. licensee" prices now exceed retail prices by 30-50%.

(e) Prior to 20 I 0, LCBO set the prices of beer. In 2010, the Minirnum Pricing

ofLiq uor and Other Pricing Mailers regulation, 0 Reg 116/ I 0, transferred

the power to set beer p1i ces from LCBO to the brewers. The Plaintiffs seek

a declaration that the Minimum Pricing regulation is of no force and effect.

Whether the Minimum Pricing regulation is valid or not, it does not

authorize brewers to charge ·'licensee" prices and does not provide a juristic

reason {or the brewers' enrichment.

(f) During the Class Period, in some circumstances, the defendants Molson,

Labatt and Sleeman provided large ·'licensees" cash payments and other

monetary and non-monetary benefits (including the making of false

purchases, gifting promotional items, and gifting equipment and hardware).

This effectively lowered the price that large ··ticensees" paid for beer. Such

conduct by Molson, Labatt and Sleeman violated section 3( I )(i) ofthe LCA

and section 2 of the Manufaclurers · Licences regulation, RRO 1990, Reg

720, which prohibits a manufacturer of liquor from directly or indirectly

offering a financial or mate1ial inducement to a .. licensee'· for the purpose

of increasing the sale or distribution of a brand of liquor.

~ 0. Reg. 247/02, s. 28. 29

61. BRI docs not retain any profits from its operations. Its profits flow through to its owners, the defendants Laban, Molson and Sleeman. This does not absolve BRI of having to disgorge any unlawful profits obtained through the imposition of unlawful .. licensee·' prices.

62. As a result of their conduct, Molson, Sleeman, Labatt and BRI were unjustly enriched by the amount that the ·'licensee'' prices exceeded retail prices. The plaintifls and other members of the Proposed Class who are ''licensees'' or who purchased beer from a

"licensee'' suffered a corresponding deprivation as a result of having to pay unlawfully high "licensee'· prices. Accordingly, the plaintiffs seek the disgorgement from Molson,

Sleeman, Labatt or BRI of the amount by which ''licensee" prices set by the defendants

Molson, Sleeman and Labatt and charged by BRI exceeded the retail prices for the same classes, varieties and brands of beer during the Class Per·iod. In the alternative, the plaintiffs seek the disgorgement from Molson, Sleeman, Labatt or BRI of the amount by which the .. licensee'' prices set by the defendants Molson, Sleeman and Labatt and charged by BRl for each class, variety and brand of beer sold by these defendants exceeded the lowest "licensee'' prices (including the illegal "rebate'') charged to any ''licensee·· customer for the same classes, varieties and brands of beer during the Class Period.

63. There is no juristic reason or justification for the enrichment of Molson, Sleeman,

Laban and BRI. The charging of .. licensee.. prices that are different from retail prices is contrary to section 3( I )(i) of the LCA. There is no juristic reason or justification for

Molson, Sleeman and Labatt setting, and causing BRIto charge, .. licensee" prices for beer.

There is no juristic reason or justification for BRI charging .. licensee" prices for beer. 30

The Misconduct by a Public Authority Claim

64. In entering into the Market Allocation Agreement, the LCBO acted contrary to the

Jaw. The purpose and effect of the Market Allocation Agreement is contrary to law because it is not permitted by, and is contrary to, the Cornpetition Act, including section 45.

Fw·thermore, the Market Allocation Agreement was not authorized by a regulation, contrary to section 8 of the LCA.

65. LCBO improperly fixed or approved "licensee" prices submitted to it by Molson,

Labatt and Sleeman, contrary to section 3(l)(i) ofthe LCA. To the extent that, sta1ting in

20 I 0, such fixing or approval was mandated by the Minimum Pricing ofLiquor and Other

Pricing Matters regulation, the regulation is of no force and effect, for reason of it being contrary to section 3( I )(i) of the LCA.

66. Further, by reason of the foregoing breaches of the Competition Act, the LCA and other Jaws, as set out above, the conduct of LCBO in entering into and conducting its business pursuant to the Market Allocation Agreement amounts to misconduct by a public authority warranting an award of compensatory damages against LCBO having regard to these circumstances:

(a) LCBO's action was commercially unreasonable regulatory action taken

without regard to the interests of Proposed Class. The commercial

unreasonableness of this action is illustrated by the fact that LCBO agreed

to exit certain markets for beer, including sales to ··licensees" of the most

popular beer brands and sales of beer to individual consumers in packages

larger than six. 31

(b) LCBO's action was taken for improper purposes not justified by the LCA

and without assessing the regulatory impact upon members of the Proposed

Class. ln particular, the action benefitted three large, foreign-owned

brewers, to the detriment of Ontario ''licensees," individual consumers,

craft brewers and taxpayers. LCBO's actions enabled Labatt, Molson and

Sleeman to la rgely control the retailing of beer and gave these entities a

monopoly on the retailing of beer in the most popular 12-pack and 24-pack

sizes, and sales to " licensees.'' ln turn, Labatt, Molson and Sleeman abused

this power by providing preferential retail exposure to their own brands and

imposing supra-competitive fees upon competitor brewers and ''licensee''

prices that far exceeded retail prices upon ·'licensee" customers. They did

so under the oversight of the LCBO.

with no transparency or accountability, without proper govemmental

approvals or process, and not pursuant to proper public regulation. This

action was contrary to section 8(1 )(d) of the LCA and the Legislation Act

2006, SO 2006, c 21 , Sch F and its predecessor legislation. LCBO knew or

ought to have known that it was required to follow the steps necessary to

enact a proper public regulation and was reckless in failing to do so.

(d) LCBO's action was contrary to the law of Ontario and Canada, taken in

circumstances in which the LCBO knew or ought to have known that there

was no legal justification.

(e) LCBO's action has no economic j ustification. As par1 of the Market

Allocation Conspiracy, LCBO agreed to withdraw from market segments 32

that it was already servicing. For example, LCBO agreed to cease operating

combinations stores (LCBO stores that retailed all sizes of beer packages)

wben a BRI store opened in the community, and agreed to not renew

contracts with agency stores (stores in underserviced communities

authorized by the LCBO to sell alcohol) when they expired.

(f) LCBO knew or ought to have known that the Market Allocation Agreement

exposed members of the Proposed Class to economic detriment, which

detriment did occur beginning in 2000 and continued thereafter, throughout

the Class Period, to the knowledge of LCBO.

(g) LCBO knew or ought to have known that the Market Allocation Agreement

violated the Competition Act.

(h) The LCA does not authorize or permit LCBO to prefer the interests of the

owners of BRl over those of the Proposed Class with respect to the

allocation of supply or the price of beer. LCBO' s statutory mandate is to

control the sale of liquor in the province and to ensw·e price uniformity

across all sales channels. LCBO's choice to permit price discrimination

against ''licensees" was unreasonable, reckless and was foreseeable to cause

economic damages to the Proposed Class.

(i) LCBO's action caused losses and damages to the Proposed Class as

described in this Fresh as Amended Statement of Claim. 33

On behalf of the Proposed Class, the plaintiffs claim an award of compensatory damages to put members of the Proposed Class in the positon they would have been in, had LCBO not entered into, and conducted its business pursuant to, the Market Allocation Agreement and had the LCBO not engaged in the other misconduct alleged herein.

Waiver of Tort

67. ln the alternative to damages, in all of the circumstances, the plaintiffs plead an entitlement to ''waive the tort" of civil conspiracy and claim an accounting or other such restitutionary remedy for disgorgement from Molson, Sleeman, Labatt or BRI of the revenues generated by the defendants as a result of their unlawful conspiracy and other wrongful misconduct alleged herein.

68. As a direct, proximate, and foreseeable result of the defendants' wrongful conduct, the plaintiffs and other members of the Proposed Class overpaid for beer. As a result ofthe unlawful conspiracy, the defendants profited from the sale of beer at a11ificially inflated prices and were accordingly unjustly enriched. The defendants accepted and retained the unlawful overcharge. It would be unconscionable for the defendants to retain the unlawful overcharge obtained as a result of the alleged conspiracy.

69. Moreover, it would be unconscionable for the defendants, Molson, Labatt and

Sleeman, to retain any the amount by which ''licensee" prices exceeded retail prices.

Discovcrability

70. The claims alleged herein engage no applicable limitations period, because the conduct complained of is continuous and ongoing as ofthe date ofthe claim. 34

71. On April 16, 2015, the Ontario government announced its intention to enter into a

New Beer Framework Agreement with the owners of BRI. The New Beer Framework

Agreement, if implemented, will permit beer (in packages of 6) to be sold in up to 450 additional retail locations, among other changes. Even if put in place, the New Beer

Framework Agreement will not put an end to the illegal anti-competitive behaviour complained of by the plaintiffs. BRI will maintain a monopoly position with respect to

24-packs and sales to " licensees."

72. FUJ1hermore, the beer market in Ontario is not exempt from competition regulation and thus, the plaintiffs had no reason to expect that the defendants had entered into an agreement to allocate markets for beer. A reasonable person under the circumstances would not have been alerted to investigate the legitimacy of the defendants' conduct in the supply of beer.

73. Accordingly, the plaintiffs and other members of the Proposed Class did not discover, and could not discover through the exercise of reasonable diligence, the existence of the facts alleged in the claim prior to December 9, 20 L4. On that day, the Market

Allocation Agreement was revealed to the public in a newspaper a1ticle, through the eff01ts of a journalist and a whistleblower, rather than through disclosure by the defendants.

74. Notably, the Market Allocation Agreement was entered into without proper governmental approvals or process, and not pursuant to a properly enacted regulation. This was contrary to section 8( I)(d) of the LCA, as well as the Legislation Act 2006, SO 2006, c

21, Sch F and its predecessor legislation.

75. The defendants actively, intentionally and fraudulently concealed the existence of 35 the combination and consp1racy from the public, including the plaintiffs and other members of the Proposed Class. The affinnative acts of the defendants alleged herein, including acts in furtherance of the conspiracy, were fraudulently concealed and carried out in a manner that precluded detection. As detailed in paragraphs 46 and 48 above, the defendants took active, deliberate and wrongful steps to conceal their participation in the alleged conspiracy.

Damages

76. The defendants' conduct had the following effects, among others:

(a) the defendants Molson, Sleeman and Labatt unlawfully set, and caused BRJ

to charge, ''licensee" prices for beer to .. licensee·· members of the Proposed

Class, which were significantly higher than retail prices;

(b) the defendant BRl charged unlawful ·'licensee" prices for beer to ·'licensee"

members of the Proposed Class, which were significantly higher than retail

pnces;

in Ontario to .. licensee" members of the Proposed Class. ··Licensees·· were

overcharged for beer manufactured by the defendants Molson, Labatt and

Sleeman and sold at the BRI. Some of the overcharge imposed by the

defendants was passed on by the ··licensees" to individual members of the

Proposed Class;

(d) the defendants Molson Sleeman and Labatt caused the defendant BRI to

impose supra-competitive ··listing·· and ·'handling" fees and charges upon 36

competitor brewers who wished to sell their products at BRI. Some of the

overcharge imposed by the defendants was passed on by competitor

brewers to "licensees" and individual members ofthe Proposed Class;

(e) individual members of the Proposed Class who wished to purchase more

than 6 containers of beer but attended at an LCBO and had to purchase that

amount in packages of6, rather than the more economicall2- or 24-packs;

and

(f) the plaintiffs and other members of the Proposed Class have been deprived

of free and open competition for beer in Ontario.

77. By reason of the wrongful conduct alleged herein, the plaintiffs and other members of the Proposed Class paid more for beer than they would have paid in the absence of the illegal conduct of the defendants. The plaintiffs and other members of the Proposed Class have suffered loss and damages in an amount equal to what they overpaid for beer as a result of the defendants' wrongful conduct alleged herein, which amount is not yet known but to be detennined. Full pa1ticulars of the loss and damages will be provided before t:Jial.

Punitive, Aggravated and Exemplary Damages

78. The defendants used, and continue to use, their market dominance, illegality and deception in fwtherance of a conspiracy to illegally profit from the sale of beer. They were and are, at all times, aware that their actions would have a significant adverse impact on all members of the Proposed Class. The conduct of the defendants was, and remains, high-handed, reckless, without care, deliberate, and in disregard of the plaintiffs' and

Proposed Class members' rights. 37

79. Accordingly, the plaintiffs request substantial punitive, exemplary and aggravated damages in favour of each member of the Proposed Class.

80. The plaintiffs propose that this action be tried at Toronto, Ontario.

Date: January 8, 2015 SISKINDS LLP Amended as of: May ~ 20 15 Barristers and Solicitors 680 Waterloo Street London, ON N6A 3V8

Charles M. Wright LSUC#: 36599Q Paul Bates LSUC#: 226190 Linda Visser LSUC#: 521581 Ronald Podolny LSUC#: 56908C

Tel: (51 9) 672-2121 Fax: (5 19) 672-6065

Lawyers for the Plaintiffs DAVID HUGHES and and LIQUOR CONTROL BOA RD OF Court File No.: CY-14-518059-00CP 63 1992 ONTARIO fNC. ONTARlO , et al. Plaintiffs Defendants

ONTAR10 SUPERIOR COURT OF JUSTICE

PROCEEDING COMMENCED AT TORONTO

Proceeding under the Class Proceedings Act. 1992

FRESH AS AMENDED STATEMENT OF CLAIM

SISKJi'lJ)S LLP Barristers & Solicitors 680 Waterloo Street P.O. Box 2520 London. ON N6A 3 Y8 ----- Charles M. Wright (LSUC#: 36599Q) Paul Bates (LSUC# : 226190) Linda Visser (LSUC#: 521581) Ronald Podolny (LSUC#: 56908C)

Tel: (5 19) 672-21 21 Fax: (5 19) 672-6065

Lawyers for the Plaintiffs

2530770 17