Executive Summary: Key Legal and Evidentiary Issues

• Scope of LCBO’s statutory mandate and whether a “no price discrimination” warranty (section 14) is ultra vires or compatible with its objects to buy and sell liquor and promote social responsibility.
• Alleged statutory illegality of section 14 in light of Ontario’s Minimum Price Regulation and whether complying with the clause would necessarily force unlawful below-floor pricing.
• Characterization of section 14’s remedial mechanism as an enforceable contractual adjustment versus an unlawful penalty or unconscionable forfeiture, given LCBO’s fixed markup and large retroactive chargebacks.
• Claims of waiver and estoppel based on decades of non-enforcement, historic industry communications, and the evidentiary weight of the LCBO’s 2019 “letter to the trade” reminding suppliers about section 14.
• Allegations that LCBO exercised its contractual discretion in bad faith by changing its enforcement posture in 2023 and by using retroactive chargebacks set off against later invoices.
• Unjust enrichment arguments challenging LCBO’s retention of approximately $35.9 million in chargebacks, and whether the supply contracts supplied a sufficient juristic reason for the LCBO’s enrichment and the Applicants’ corresponding deprivation.

Background and parties
The case arises from an application by seven major spirits suppliers—Bacardi Canada Inc., Beam Canada Inc., Brown-Forman Corporation, Corby Spirit and Wine Limited, Diageo Canada Inc., Forty Creek Distillery Ltd. (operating as Campari Canada) and Remy Cointreau USA, Inc.—against the Liquor Control Board of Ontario (LCBO). The LCBO is a Crown corporation with a statutory monopoly over the wholesale purchasing and retail sale of spirits in Ontario. For each Applicant, the LCBO is effectively its sole customer in the province because direct sales to consumers or businesses are not permitted. The dispute centres on LCBO’s standard purchase order terms and conditions, in particular a longstanding “no price discrimination” clause (section 14), and LCBO’s decision beginning around 2019–2023 to actively enforce that clause by means of “chargebacks” set off against amounts otherwise payable to the suppliers.

Commercial relationship and pricing structure
The LCBO procures products through public product calls (needs letters), to which suppliers respond with proposed products and pricing. For successful listings, the LCBO issues a Notice to Purchase (NTP) that specifies an agreed retail price. It then issues purchase orders that state the Free On Board (FOB) price paid to the supplier per case. The standard purchase order terms and conditions, including section 14, are incorporated by reference in each purchase order, and suppliers are deemed to accept those terms when they accept each order. The LCBO, in conjunction with the Ministry of Finance, sets a fixed markup structure for each class of liquor. This markup, applied to the FOB price, covers its operating costs and generates profit that is remitted as a dividend to the Province. For a given product class, the LCBO’s gross margin is designed to be a consistent share of the retail price; it does not negotiate individual volume discounts but relies on a fixed markup policy to ensure transparency and consistency.

The no price discrimination clause (section 14)
Section 14 of the LCBO Terms and Conditions is a classic “most-favoured customer” provision. It prohibits the supplier from selling any product to the LCBO at a price (exclusive of taxes, duties and freight) higher than the price for the same product, in the same quantity, sold to another provincial or territorial liquor board or government liquor purchasing body in Canada. It also prevents suppliers from offering less advantageous terms or otherwise discriminating against the LCBO. Where a breach occurs, section 14 entitles the LCBO to recover, “on demand,” an amount equal to the difference between what the LCBO paid and what any other Canadian liquor board paid for the same product. The Applicants argued that, in practice, section 14 had not been meaningfully enforced for decades, that senior Canadian executives were unaware of it, and that industry experience suggested the LCBO aimed to keep retail prices higher rather than lower. They characterized LCBO’s sudden reliance on section 14, after years of silence, as fundamentally unfair.

Regulatory context and minimum pricing
Ontario has long imposed a minimum retail price (MRP) for each variety of liquor, initially via LCBO board resolutions and, since 2010, via regulation. Until April 1, 2025, O. Reg. 750/21 (Minimum Pricing of Liquor and Other Pricing Matters) prevented spirits from being sold to consumers below the MRP, which increased annually with inflation. Under this framework, discounting at the wholesale level can, when combined with the fixed markup, drive the resulting retail price towards or below the regulatory floor. The Applicants argued that complying with section 14, particularly when Quebec’s Société des alcools du Québec (SAQ) enjoyed more pricing flexibility and lower regulatory constraints, would put suppliers and the LCBO in a bind: matching SAQ-level FOB prices would allegedly force Ontario retail prices below the MRP, making section 14 effectively illegal or impossible to comply with if suppliers wished to maintain multi-provincial sales.

Events leading to enforcement and chargebacks
In November 2019, LCBO issued a “letter to the trade” reminding suppliers of the contractual requirement that any product sold to LCBO be available at a price equal to or lower than that offered to any other Canadian liquor board, and quoting section 14 in full. The letter was posted on LCBO’s “Doing Business With the LCBO” site and circulated to key industry organizations and senior supplier representatives. Around early 2023, after monitoring retail pricing across Canada and identifying significant pricing differentials, LCBO contacted suppliers it believed were not compliant with section 14, seeking confirmation of FOB pricing to other boards, particularly the SAQ. The Applicants say they provided this information under duress to mitigate threatened chargebacks. LCBO then imposed chargebacks by set-off under its contractual right to set off amounts owing to suppliers. As of April 23, 2025, the total of chargebacks assessed and deducted (or pending) across all Applicants was just under $36 million, reflecting the differences between what LCBO paid and what other boards paid for the same products.

Key legal issues and the court’s analysis
On ultra vires, the Applicants argued that section 14 was beyond LCBO’s statutory mandate, claiming that its main object was to promote social responsibility and secondarily to generate provincial revenue, such that insisting on the lowest wholesale prices conflicted with both objectives. The court rejected this, holding that the LCBO’s objects explicitly include buying and selling liquor as wholesaler and retailer and engaging in incidental activities. A clause ensuring that Ontario consumers do not subsidize higher supplier prices than those charged in other provinces was well within these objects and not inconsistent with LCBO’s social responsibility mandate. On illegality and minimum pricing, the Applicants contended that compliance with section 14 would force LCBO to breach the Minimum Price Regulation for some products, rendering the clause illegal. The court found that suppliers had lawful options: adjust prices to other provinces, decline to sell to certain jurisdictions, or not sell a given product to LCBO at all. Section 14 itself regulated only FOB pricing between supplier and LCBO; LCBO retained policy levers on markup and listing decisions to keep retail prices within regulatory constraints. The provision was therefore not statutorily illegal. The Applicants also argued that section 14 was a covenant in restraint of trade because the practical effect was to restrict suppliers’ ability to sell to other boards at independent prices. The court rejected this characterization. Section 14 only operated transaction-by-transaction, requiring that the FOB price for a particular quantity sold to LCBO not exceed that charged to other boards for the same quantity. It did not bar suppliers from trading with others, nor did it impose temporal or market-entry restrictions typical of non-competition covenants.

Penalties, forfeiture and unconscionability
A central issue was whether the chargeback mechanism in section 14 amounted to an unenforceable penalty or an unconscionable forfeiture, especially given LCBO’s fixed markup and the fact that higher FOB prices can actually increase LCBO’s profit per unit. The Applicants argued that because LCBO had not suffered financial loss on retail sales (and in fact profited from higher FOB prices), the retrospective chargebacks were punitive, extravagant and disproportionate. The judge held that section 14 was not a penalty clause. The remedy was rationally connected to the breach: it required repayment only of the difference between what LCBO paid and what another board paid for the same product, i.e., the “overcharge.” This was not a fixed, in terrorem sum but a calculation mirroring the economic effect of the breach. Even treating the provision as a forfeiture and applying equitable relief-from-forfeiture principles, the court concluded the Applicants had not shown unconscionability. The suppliers were sophisticated commercial actors, fully aware of Ontario’s regulatory regime and the LCBO’s unique status. Section 14 had long been part of the standard terms, and its consequences were apparent on its face. Any inequality of bargaining power due to LCBO’s monopoly status did not, on the evidence, make the remedy oppressive or shocking to the conscience, particularly given its consumer-protection rationale.

Waiver, estoppel and historic non-enforcement
The Applicants argued that LCBO had waived its right to enforce section 14 or was estopped by convention from retroactively enforcing it, relying on historical documents, prior non-enforcement, and alleged shared assumptions that FOB warranty clauses would not be pursued. The court emphasized that waiver requires proof of full knowledge and an unequivocal, conscious intention to abandon a known right, a stringent standard. Historic internal discussions about pricing, any isolated statements from the early 1990s, and periods of less active enforcement did not amount to a clear abandonment of section 14. Moreover, the terms and conditions were reaffirmed with every new purchase order, and none of the Applicants ever had section 14 removed or modified in writing as the contract expressly required. Regarding estoppel by convention, the court held that there was no sufficiently clear, mutual assumption between LCBO and the Applicants that section 14 was a dead letter. Whatever industry impressions may have existed earlier, the 2019 letter to the trade explicitly reminded suppliers of their ongoing obligations and LCBO’s rights under section 14, putting them on clear notice that LCBO regarded the clause as enforceable and expected compliance going forward.

Bad faith performance and unjust enrichment
The Applicants contended that LCBO’s shift in enforcement in 2023, including retroactive chargebacks and reliance on estimated pricing differentials before FOB data was supplied, breached the duty of honest performance and represented an arbitrary or capricious exercise of contractual discretion. The court found no bad faith. LCBO reasonably responded to evidence of widespread non-compliance, took steps to secure accurate pricing information (including offering neutral mechanisms for disclosure), and phased in chargebacks while allowing repayment plans and excluding products at the regulatory minimum price. Enforcing section 14 according to its plain language, after warning suppliers in 2019, was not dishonest or arbitrary. On unjust enrichment, the Applicants argued LCBO had been enriched by withholding tens of millions of dollars in chargebacks, corresponding to their deprivation, without a proper legal basis. The court held that the chargebacks were expressly authorized by the contracts, both through section 14 and the set-off provision, providing a clear juristic reason for any enrichment and precluding restitution. The amounts simply corrected overcharges arising from breaches of the no-price-discrimination warranty.

Ruling and outcome
Justice Cavanagh dismissed the application in its entirety, upholding the validity and enforceability of section 14 of the LCBO’s Terms and Conditions on all grounds advanced. The court confirmed that the clause was intra vires the LCBO’s statutory mandate, not illegal, not a restraint of trade, not an unenforceable penalty, and not a basis for equitable relief from forfeiture. Claims based on waiver, estoppel by convention, bad faith exercise of contractual rights, and unjust enrichment all failed. As a result, the LCBO is the successful party. The decision leaves intact the approximately $35.9 million in chargebacks already assessed and deducted under the contracts, but the judgment does not characterize that figure as a new monetary award or quantify any separate damages or costs in favour of the LCBO. The reasons end by dismissing the application and inviting written costs submissions if the parties cannot agree, so no exact amount can be determined from the judgment for any court-ordered monetary award or costs.