Ontario Lottery Survives Legal Challenge by the Mohawk Council of the Kahnawà:ke

By: Jeffrey Hamlin

The Ontario Superior Court handed a clean victory to Ontario’s internet gaming (“iGaming”) regulator and Attorney General last Monday, when it declared that Ontario’s regime for online gaming comports with Canada’s Constitution and Criminal Code. The much-anticipated decision disposed of a lawsuit that the Mohawk Council of Kahnawà:ke (the “Council”) filed in November 2022, alleging that (i) Canadian law prohibits lottery schemes (to include sports wagering games) that are not “managed and conducted” by a provincial government, and (ii) iGaming Ontario or iGO (the regulator) does not “manage” or “conduct” online lottery games as required by law, but outsources that work to private-sector gaming operators instead. The Court was not persuaded and rendered judgment for Ontario.

Canada’s Criminal Code prohibits many forms of gambling and lottery schemes, but expressly allows “lottery schemes that are conducted and managed by provincial governments.” On that basis, the Ontario government established a regime for regulating internet gambling in 2021. More specifically, the government formed iGaming Ontario or iGO as a subsidiary of the Alcohol and Gaming Commission of Ontario for the express purpose of conducting and managing prescribed online lottery schemes in accordance with the Code.

Months later, the Council filed suit alleging that iGaming Ontario was acting beyond the scope of its legal authority and asked the court to declare two allegedly problematic provisions to be unlawful and inoperative. The Council argued that a provision of the Gaming Control Act was unlawful because it requires all lottery schemes to be “conducted and managed” by the Ontario Lottery but requires all “suppliers” to be registered, a term the Act defines to include operators. The Council argued that if iGaming Ontario approved operators of online lottery games for registration as suppliers, the relevant lottery schemes would be unlawful because the games would be managed and conducted not by iGO, but by the operators, all of whom would be private entities or individuals.

The second provision the Council objected to provided that “a lottery scheme offered through a gaming site that is an electronic channel operated by a supplier registered as an operator is prescribed as an online lottery scheme.” Again, the Council argued that a lottery scheme operated by a supplier that is registered as an operator would be unlawful because the scheme would not be managed and conducted by iGO, but by the private operator.

The court declined to adopt Council’s crimped reading of both provisions. Relying on the legislative history, statutory context, grammatical and ordinary meaning of “conduct and manage,” case law, and other tools of construction, the court held that the above-referenced provisions simply require that, in places where lotteries have been decriminalized, the provinces are authorized to regulate, manage, and license gambling such that the public is protected. The court interpreted “conduct and manage” to mean active oversight comparable to that of a conductor conducting an orchestra or a manager managing a team. The judge explained that, to “conduct and manage” lottery schemes, the province must “exert a sufficient level to control to maintain its position as the ‘operating mind’ of the lottery. It must do so in a way that protects public safety and fosters responsible gaming. It must do more than distantly oversee or regulate the scheme; the province must exert direction and control over it. It need not be involved in granular operations, but it needs to be far more than a “hands-off” licensor.”

Mohawk Council of Kahnawà:ke v. iGaming Ontario, 2024 ONSC 2726 ¶ 98 (Ontario Sup. Ct. 2024). The court found that iGaming Ontario’s oversight of the lottery schemes was more than sufficient to satisfy the manage-and-conduct requirement.

The case is notable for several reasons, not least of which is that it pitted the interests of the Kahnawà:ke people against Ontario’s interest in regulating online games within its borders. One might wonder what cognizable interest the Council could have had in how Ontario regulates internet gaming. The court had the same question but found no evidence that the Council had any particular interest in the issues raised in the petition. Indeed, evidence tended to show that the Council was trying to protect its years-long near-monopoly in the interactive gaming market, just as the Council had done when Ontario’s legislators first met to discuss the legalization of sports betting. Members of the Council seemingly decided that opposing iGaming Ontario made sense strategically: the tribe would reap significant benefits if the Council persuaded legislators or judges to prevent or delay Ontario’s entry into the online betting space. Though the court found that the Council had standing to challenge iGO’s regulatory approach, it ultimately rejected the Council’s arguments and held that iGO was acting within the bounds of the law.

The May 13 opinion is the first judicial pronouncement vindicating Ontario’s approach to iGaming and, because the decision is thorough and well-reasoned, it is likely to discourage similar challenges in other provinces with analogous laws.