An Ontario delivery company claims a deal between the LCBO and an international logistics company to operate a warehouse near Toronto is squeezing them out of the alcohol business, alleging they’re the victims of a “conspiracy” against them.
In a lawsuit initially filed in 2022, an Ontario courier called Phyxiat — which delivers alcohol for the LCBO and independent wineries and brewers — claimed a contract handed out by the alcohol retailer to run one of its warehouses a few years ago has cost it millions.
The legal documents, which have not been proven in court, allege that a corporation run by an international courier DHL — along with the LCBO — worked deliberately to make it harder for Phyxiat to operate, therefore monopolizing the province’s alcohol supply chain.
“They’ve set up a monopoly, inside a monopoly, inside a monopoly,” Marc Roussel, president of Phyxiat, told Global News. “They are insulated from everything that ever happens.”
A spokesperson for DHL said it could not comment “as this is an ongoing legal matter.” The LCBO declined to comment for the same reason.
A March 2024 motion from an Ontario judge struck down some of Phyxiat’s initial claims that the government owed, and had failed to fulfil, a duty of care.
A new warehouse
Phyxiat claims that before the LCBO moved its warehouse Caledon, Ont., from downtown Toronto, it had no problem with the LCBO or the deliveries it carried out on its behalf.
At the beginning of 2021, the LCBO moved its warehouse after it had signed a signing contract with Trillium Supply Chain, part of DHL, in 2020 to run and operate it.
“We thought it was going to be pretty good — I wasn’t going to have to spend time on the Gardiner parking lot anymore,” Roussel said. “We initially thought it was going to be decent that way. Once we got to Trillium, it was a nightmare to begin with and the nightmare never stopped.”
The issues, according to the aggrieved courier, began when Trillium started to operate its warehouse.
Phyxiat’s legal claim alleges the new site was poorly managed by the private company, leaving drivers waiting hours to pick up products that would then often be broken or mislabelled.
“Phyxiat’s agents frequently arrive at the Facility at their appointed pickup time, to find that Trillium has not pre-picked and prepared orders/consignments,” part of the claim said, adding that drivers had allegedly waited “a full day” in some cases.
“When consignments are belatedly provided to Phyxiat, they are frequently mislabelled and often contain broken items.”
Roussel said the delays he experienced put more staffing demands on his company, forcing him to add warehouse assistants and to put more trucks on the road to make up for the shortfall when vehicles were waiting at the Caledon warehouse.
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Trillium’s statement of defence paints a different picture, alleging that Phyxiat was late or unprepared for its orders, including using vehicles that weren’t big enough.
“Phyxiat did not follow the established pickup process and was often late to attend at a dock for its scheduled time, which negatively impacted its ability obtain its shipments in an orderly and timely manner,” the defence claims.
“Phyxiat frequently experienced delays in loading its shipments from Trillium’s loading dock because it lacked a trailer large enough to handle all of its freight in a single shipment.”
The warehouse operator said it amended its process to accommodate Phyxiat and claimed there was “an improvement” in order pickup.
Claims of a squeeze
Phyxiat claims the issues it experienced were not incompetence, but part of a move to squeeze it out of the market — something both the LCBO and Trillium deny.
The lawsuit alleges that, since the contract between the LCBO and Trillium — which it said has not been made public — was signed, the logistics company “has conducted the otherwise monopolized services of the LCBO in a grossly negligent manner, entirely obviating from its and the LCBO’s duties to licensees.”
The legal claim alleges the agreement has been “carried out in a manner to otherwise eliminate” couriers like Phyxiat “to the benefit” of both Trillium and the LCBO itself.
“Trillium has intentionally caused Phyxiat Millions of Dollars in damages, to force it out of business,” the lawsuit claims. “Given the exclusive rights under the Secret Agreement, it has intentionally refused to meet the most basic standards and duty of care.”
The lawsuit also claims that Trillium has “been actively soliciting” Phyxiat’s clients and alleges that the LCBO and Trillium “agreed to cut the Plaintiff out of the liquor supply chain, so that they may perform more functions in the supply chain themselves, or by others (for fees) thereby earning profit which would otherwise be earned by the Plaintiff or similar companies.”
That is a claim explicitly denied by the LCBO in its statement of defence, which says the LCBO has not “been soliciting any of Phyxiat’s customers or acted without good faith.”
Trillium also denied the allegation.
Later in the defence, the Crown corporation denied “that it has made any financial gains or profits related to Phyxiat.”
The LCBO also denied that Trillium was running its warehouse “in an unlawful or negligent manner,” and that the agreement was being carried out “in a manner to eliminate Phyxiat or to knowingly and intentionally damage Phyxiat.”
Trillium denied “the allegation of conspiracy” in its submission, which added, “Trillium was never involved in or party to any agreement, either express or implied, to do anything, or refrain from doing anything, with respect to Phyxiat.”
Requests for help
In its lawsuit, Phyxiat said it has raised the concerns laid out both with the LCBO and the provincial government, which it said both owe it a duty of care to ensure that Trillium treats its couriers fairly.
“Phyxiat is dependent upon good supply management by LCBO and its agents, and is vulnerable to deficiencies and failures in this area,” the lawsuit said.
The documents said Phyxiat had written to the LCBO and to the provincial government to raise its concerns but said the response had not been satisfactory.
In its legal response, the LCBO said it had “considered the complaints” made by Phyxiat after the new warehouse opened and was “satisfied those complaints were unfounded” against Trillium.
“Phyxiat states that despite being materially aware of the negligent services, it has refused to remedy same, in mitigating damages to Phyxiat, instead leading a dishonest rendition, to avoid public scrutiny of its continued attempts to expand its monopoly on liquor industry,” Phyxiat’s claim added.
The LCBO, in its statement of defence, denied it “has any obligations or duties owing to Phyxiat, directly or indirectly, including to provide any particular approach to supply chain management.”
The March 2024 ruling struck Phyxiat’s claims from the original statement around the LCBO and the government’s duty of care.
Convenience store changes
The initial lawsuit was filed by Phyxiat in 2022, claiming issues with how the LCBO and its contract were being managed.
Since that ongoing lawsuit began, the courier said things have become more complicated.
In particular, the lawyer representing Phyxiat claimed that a recent change to how the convenience and grocery store program operates has taken away more customers for the company.
A promise from the LCBO to become the exclusive wholesaler of bars and restaurants is at the heart of the issue, something Phyxiat claims will make it nearly impossible to compete.
The original system meant that wineries or breweries could send their products to convenience stores or other locations using a courier of their choice, someone they would also rely on to deliver to restaurants. Over the summer, producers were apparently told they would have to rely on the LCBO and the Beer Store to ship their products, not a courier they selected.
Damien Buntsma, a lawyer representing Phyxiat, alleged the change was about reducing the number of couriers in Ontario’s alcohol ecosystem.
“What has happened is the LCBO has communicated directly with their clients and third parties that they must enter into essentially agreements directly with the LCBO which will then cut Phyxiat right out of the system — they will no longer be able to operate,” he said.
“They didn’t succeed in fully running Phyxiat out of business, so now instead… (they are) essentially saying to these companies, ‘If you don’t agree to use these couriers … then you’ll be out of business.”
The LCBO told Global News that “several supplying sources” deliver products for the LCBO and convenience stores. It did not directly address questions about changes to the delivery rules.
“If products are supplied by the LCBO, products are delivered using one of our contracted delivery partners, which have been selected through a competitive and transparent procurement process,” the LCBO said.