REVIEW OF GAMING LEGISLATION IN ONTARIO

1 INTRODUCTION
1.1 Historical Overview .................................................................................................................... 2

2 LEGAL FRAMEWORK IN CANADA

2.1 Lawful Gaming Activities .......................................................................................................... 4
2.2 Offence Created .......................................................................................................................... 5
2.3 Provincial Jurisdiction to Legislate in the Gaming Area ........................................................... 6
2.4 Judicial Pronouncements ............................................................................................................ 7

LEGAL ISSUE #1 - STRUCTURES FOR GAMING ACTIVITIES - "CONDUCT AND

3
MANAGE" REQUIREMENT
3.1 What are the provisions of the Criminal Code .......................................................................... 9
3.2 What are the structures for carrying on gaming activities in Ontario? ................................... 12
3.2.1 Lotteries ........................................................................................................................................ 12
3.2.2 VLT Gaming ................................................................................................................................. 13
A. Private Sector Proposal ............................................................................................................... 14
3.2.3 Casino Gaming in Ontario ............................................................................................................ 20
A. Legislative Framework ............................................................................................................... 20
B. Windsor Casino Model ............................................................................................................... 22
I. Description of the Relationship Between the OCC and the Private Operator ...... 22
II. Analysis of the OCC/Private Operator Relationship based on Windsor
Contract .................................................................................................................... 23
III. Analysis of the Dual Role of Private Operator both as independent contractor
and agent of the OCC ............................................................................................... 28
IV. Does the Agency Relationship Satisfy the "Control" Element? ............................ 29
V. Does the role of the GCC as Regulator amount to Conduct and Manage? .......... 30
VI. Can the OCC Appoint an Agent and Delegate to it the Conduct and Manage
Function? .................................................................................................................. 31
VII. The Private Operator and Electronic Gaming ........................................................ 32
C. Conclusions With Respect to the OCC/Private Operator Model ...................................................

o Criminal Code, Section 207(3) ..................................................................................

 U

o Windsor Contract - OCC does not have control in fact over the gaming
operations .....................................................................................................................
o No colour of right from Ontario legislation .................................................................
o Substance over form prevails .................................................................................. 34

o "Artificiality" of Dual Role of Private Operator .....................................................35

o OCC is managing the "Operating Agreement", not the games of chance ..............36
3.2.4 Charitable Gaming in Ontario .................................................................................39
A. Historical Evolution of Charitable Gaming ............................................................ 39
B. Legislative Developments in Ontario ..........................................................................
I. Gaming Control Act, 1992 ..............................................................................
II. Order in Council .............................................................................................
C. Concerns about Charitable Gaming ............................................................................
I. Break Open Tickets and Retailer Locations ...................................................
II. Bingo Lottery Events - Using Registered Bingo Hall Owner/Operator

D. Flaw in the Ontario Legislative Scheme .....................................................................

E. Authority to Delegate "Conduct and Manage" Functions ..................................... 51
F. Terms and Conditions of Licence: Sufficiency of Control Features ......................51
G. Charitable Gaming Regimes in other Provinces .........................................................

6 LEGAL ISSUE #2 - PROCEEDS FROM GAMING ACTIVITIES

A. Charitable Gaming ...............................................................................................................................
............ 54 I. Are the Proceeds From Charitable Gaming used 'for a charitable or religious object or
purpose"

B. Casino Gaming ................................................................................................................................55

7
LEGAL ISSUE #3 - ELECTRONIC GAMING
A. Legislative Authorization ................................................................................................................57
B. "Enhanced Bingo" ............................................................................................................................59
(i) Personal Bingo Verifiers ("PBV") .......................................................................................... - 60
(ii) Bingo King System - System 12 ................................................................................................61

(iii) Registered Gaming Suppliers of Ontario - Request for Proposal ..............................................64

 (iv) Star of Fortune Proposal ..........................................................................................65
C. Electronic Bingo ..............................................................................................................................65
D. Media Bingo ....................................................................................................................................66
E. Rationale for Government Action in Electronic Gaming ...............................................................67

8 ABORIGINAL GAMING
A. Current Gaming Activities ..............................................................................................................69
B. Charitable Gaming - Status as "Charitable Organization" .............................................................69

SCHEDULE 1
Section 207 of the Criminal Code ........................................................................................................ 71

SCHEDULE 2
Identifying the Nature of the Relationship Between the OCC and the Private Operator .....................73
Appointment of Operator ................................................................................................................73
Appointment of Operator as Independent Contractor ....................................................................74
Appointment of Operator as Agent .................................................................................................75
Limitation on Authority of Operator ...............................................................................................75
Access to Building ...........................................................................................................................75
Interim Casino Equipment ..............................................................................................................76
Other Services ..................................................................................................................................76

SCHEDULE 3
Indicia of Control and Compliance with the Conduct and Manage Provisions of the Criminal
Code with respect to Gaming Operations at the Windsor Casino Complex (the "Business")

by the Ontario Casino Corporation (the "OCC") ............................................................................77

SCHEDULE 4
Comparative Analysis of the Windsor Contract and the Checklist .....................................................82
1. Financial Matters Pertaining To The Business .................................................................................82
(a) Budgeting and Forecasts ..........................................................................................................82

(b) Periodic Financial Reporting to OCC ......................................................................................83

 iv
(c) Financial Matters Requiring Prior Approval of OCC ...............................................................83
(d) Financial Control and Reporting Systems ................................................................................83
(e) Commingling ............................................................................................................................84
(f) Independent Verification ..........................................................................................................85
(g) Access to Information ...............................................................................................................85
2. Operational Aspects Of The Business ...............................................................................................86
(a) Decisionmaking ........................................................................................................................86
(b) Supervision ...............................................................................................................................86
(c) Operational Matters Requiring Prior Approval of OCC ...........................................................86
(d) Ownership of Assets .................................................................................................................87

(e) Inspection ..................................................................................................................................87

3. Management Of The Business ........................................................................................................87
(a) Participation in Management ..................................................................................................... 87
(b) Managerial Matters Requiring Prior OCC Approval ................................................................ 87
(c) Policies and Procedures ............................................................................................................. 88
4. Economic Arrangements With The Private Operator .....................................................................88
(a) Indicia of Private Operator Control ........................................................................................... 88

SCHEDULE 5
Description of Computers and Other Electronic Devices
Currently in Use Within Bingo Halls in Ontario .................................................................................... 90
1. Autotronic 7000 Blower Unit (or similar device) ..................................................................... 90
2. Autotronic 7000 Flashboard (or similar device) ....................................................................... 90
3. Colour Closed Circuit TV System ............................................................................................ 90
4. "Quick Chek Verifier" Computer Verification System ............................................................ 91

SCHEDULE 6

1. The Star of Fortune Proposal in Response to RGSO - RFP ............................................................... 92

1. REVIEW OF GAMING LEGISLATION IN ONTARIO

2 INTRODUCTION

This review of gaming legislation in Ontario represents a culmination of our legal analysis of
the gaming market as it has evolved in Ontario. The legal analysis began when a private sector
initiative to implement video lottery terminals ("VLTs") in Ontario was proposed. That proposal
adopted the Windsor Casino Model for implementation of VLT gaming. In reviewing the private
sector proposal, and in particular, whether it was lawful under the Criminal Code, it became
necessary to expand the scope of review to include the Windsor Casino Model, upon which the VLT
proposal was premised, and as well, the provisions of the Criminal Code authorizing permissible
electronic gaming.

The analysis, which is contained in a separate document entitled Supporting Legal

Analysis/Documents, developed as follows:

• our mandate began with a request to conduct a legal analysis of a private sector
proposal to implement VLT gaming in Ontario;
• since the private sector VLT proposal was premised on it, this necessitated a review
and legal analysis of the Windsor Casino Model;
• this in turn led to the analysis of charitable gaming in Ontario;
• we then examined the legislative framework which currently exists for gaming in
Ontario; and
• we assessed whether the structures which have evolved for carrying on gaming
activities are legally sound.

As a result of our legal analysis and our observations of the gaming market as it has evolved in
Ontario, we identified three principal concerns about the lawfulness of gaming activities having
regard to the provisions of the Criminal Code. The starting point is that gambling is inherently
criminal in nature and gambling activities are prohibited under the Criminal Code. The Criminal
Code provides for certain exemptions, making lawful gaming activities where prescribed conditions
are met. Gaming activities that do not fall clearly within the exemptions contravene the Criminal
Code prohibition and are illegal.
 2-

The three principal legal issues are

(i) An aggressive interpretation of the exemptions created under the Criminal Code has
resulted in the establishment of structures for the carrying on of gaming activities in Ontario,
sanctioned by provincial legislation, which are inconsistent with the provisions of the
Criminal Code.

(ii) The intrusion of the private sector into the gaming sphere has resulted in the diversion of
gaming proceeds from public purposes to private interests and from charitable or religious
purposes to private interests, both in conflict with the intent of the Criminal Code.

(iii) The use of electronic gaming machines

• in the proposed private sector initiative to implement VLTs in Ontario
• in bingo and media bingo, under the auspices of a licensed charity, and
• in casinos by private sector operators
are of particular concern, in light of the provisions of the Criminal Code. The Criminal Code
provisions intended to grant to the provincial government the exclusive jurisdiction to
engage in electronic gaming. Use of electronic gaming machines (including VLTs, slot
machines or bingo terminals), computers or video devices by others is unlawful. The unlawful
use of these electronic gaming machines, computers or video devices, in gaming activities
carried on by persons other than the provincial government represents an incursion on the
exclusive jurisdiction of the provincial government to engage in electronic gaming and results in
a diversion of proceeds from public sector purposes to private interests. Further, the conduct
is in breach of the Criminal Code.

2.1 Historical Overview

In Canada, the federal Parliament enacted the Bill respecting Criminal Law, this being
Canada's first Criminal Code in 1892. Article 205 banned almost all lotteries and made them criminal
offences. The only legal lotteries remaining were those with artistic and utilitarian objects. In 1912, the
totalizer was legalized and horse racetracks became the only legalized betting places in Canada.'

1
Labrosse, Michel The Lottery...From Jacques Cartier's Day to Modern Times (Loto Quebec, 1985).
 -3-
It was not until 1969, when an Omnibus Bill was passed by the House of Commons that
certain lottery schemes became lawful. The Bill constituted a complete recasting of many aspects of the
Criminal Code. Four categories of groups or individuals could legally operate lotteries: the
Government of Canada, the Government of a Province, certain charitable or religious organizations, as
well as agricultural fairs and any organization or person holding a permit duly issued by a province. In
1985, by agreement, the Federal Government removed itself from this field and granted to the
provinces and their agencies the sole legal right to conduct or have conducted lotteries and games of
chance. The Federal Government did retain, however, the authority to permit and regulate pari-
mutuel betting on horse races. Amendments to the Criminal Code in 1985 reflected this and further,
clarified the law and eliminated any doubt that the use of electronic gaming machines i.e. computers,
video devices and slot machines was to be within the exclusive domain of the provincial government
(discussed below under the heading - Legal Issue #3: Electronic Gaming).

A detailed chronology of historical and legislative developments affecting gaming activities in

Canada is contained in the Supporting Legal Analysis/Documents.
 4

3 LEGAL FRAMEWORK IN CANADA

The starting point is that gaming activities are considered to be inherently criminal in nature
and are prohibited under the Criminal Code. The Criminal Code provides for certain exemptions,
making lawful gaming activities where prescribed conditions are met.2 Gaming activities that do not
fall clearly within the exemptions contravene the Criminal Code prohibitions and are illegal.

3.1 Lawful Gaming Activities

Under the Criminal Code, the following types of gaming activities are permitted:

(a) The federal government may pewit and regulate pari-mutuel betting on horse races.

(b) A provincial government, either alone or in conjunction with other provinces, may
conduct and manage lottery schemes, including electronic gaming, in accordance
with provincial legislation. Only the province may conduct and manage games of
chance played through a slot machine, computer or video device.

(c) A province may licence, or may specify another licensing authority to licence,
charitable gaming events, excluding slot machines, computer or video devices, that
are conducted and managed by a charitable or religious organization. The proceeds
from such operations must be used for charitable or religious purposes. In Ontario,
there are four major types of gaming activities licensed under this provision: bingo,
(including media bingo), raffles, break-open tickets (also known as nevada tickets)
and monte carlo events (table games and wheels of fortune).'

Gaming activities are considered a criminal matter, subject to the exclusive legislative jurisdiction of
the federal Parliament pursuant to Section 91(27) of the Constitution Act, 1867. Gaming activities
are prohibited under Part VII of the Criminal Code, subject to the exemptions created in Section 204
(horse racing) and Section 207, discussed herein.

2 In his Budget Speech in the Ontario Legislature on May 7, 1996, the Honourable Ernie Eves,
Minister of Finance announced the intention of the Ontario Government to establish permanent
charity event sites in Ontario, to replace the current three-day roving charity events (monte carlo events).
 -5-
(d) A province may licence the board of a fair or of an exhibition to conduct and
manage gaming activities, excluding slot machines, computer or video devices.

(e) A province may licence a person to conduct and manage gaming activities,
excluding slot machines, computer or video devices, in a public place of amusement if
the amount or value of each prize awarded does not exceed $500.00 and the money or
other valuable consideration paid to secure a chance to win a prize does not exceed
$2.00.

In addition, where the province does licence persons referred to in the Criminal Code
exemptions listed above, the province may also set out in the licence terms and conditions relating to
the conduct, management and operation of the lottery scheme to which the license relates: Section
207(2).

The Criminal Code also provides that it is lawful for any person - for the purpose of a lawful
lottery scheme - to do anything... that is required for the conduct, management or operation of the
lottery scheme if, in fact, the lottery scheme falls within the exemptions of the Criminal Code:
Section 207(l)(g). However, the lottery scheme is lawful only if the Provincial Government or the
licensed charity/person identified in the exemption provisions above is conducting and managing the
lottery scheme. If another person conducts or manages the lottery scheme, the scheme is not within the
exemptions and as a result, is contrary to the Criminal Code and is illegal.

Note that a private bet between individuals not engaged in any way in the business of betting is
not prohibited unless it involves the operation of three card monte, punch boards, coin tables and
games involving these items or dice, which activities are completely prohibited by the Criminal Code.

3.2 Offence Created

With respect to lottery schemes, the Criminal Code establishes that it is an indictable offence
(the Crown may elect to proceed by way of indictment or summarily) for anyone to do anything that is
not authorized by Section 207, in the case of the conduct, management or operation of a lottery
 -6-
scheme. Where the person simply participates in an unlawful lottery scheme, this also constitutes an
offence, punishable on summary conviction.

3.3 Provincial Jurisdiction to Legislate in the Gaming Area

It has been contended that "Parliament has delegated through the Code, certain regulatory and
operational functions over gaming to the provinces".4 It is erroneous to view the provisions of
Section 207 of the Criminal Code as an attempt by the federal government to delegate criminal law
power to the provincial governments. Such a delegation would constitute an illegal delegation based
on the general constitutional law rule against inter-governmental delegation of legislative authority
from Parliament to a provincial legislature.5

The Supreme Court of Canada has considered this issue in the case of Furtney.6 The Court
held that the provisions of Section 207 could not be characterized as a delegation of a legislative
power of Parliament, but rather a forbearance from acting legislatively in a particular area. The Court
found that the regulation of gaming activities has a clear provincial aspect under Section 92 of the
Constitution Act, 1867, and that the provincial government could validly legislate and regulate in such
aspects.

The Furtney case stands for the proposition that a provincial legislature has jurisdiction to
legislate in the gaming area subject only to Parliamentary paramountcy in the case of a clash between
federal and provincial legislation. Note that there is a limitation on a provincial legislature's
jurisdiction to legislate in this area. The province cannot prohibit and punish in the interest of public
morality because such legislation is, in pith and substance, criminal law.'

"The Gaming Market Place in Ontario" Report of Ministry of Consumer and Commercial Relations -
Policy, Agencies and Corporate Affairs Division (August, 1995) ("MCCR Report")

A - G. N.S. v. A -G. Can. [1950] 4 D.L.R. 369.

5
Furtney et al v. The Queen [Indexed as R. V. Furtney (1991) 3 SCR 89]
6
Johnson v. Alberta (Attorney General), [1954] S.C.R. 127.
 -7-
3.4 Judicial Pronouncements

Recent judicial pronouncements make it clear that in Canada, gaming activities continue to be
illegal and are not to be condoned, unless clearly carried on within the exemption provisions under the
Criminal Code.

The Manitoba Court of Appeal, in a 1990 Judgment, which decided that Keystone, a
commercial bingo hall operator, was in fact, conducting and managing bingo lottery events, stated as
follows:

"Lotteries have been declared by statute to be common and public

nuisances (Stat. (1698), 10 Will. 3, c. 23, s. 1); and they have been
categorized as offences against decency and morality. Apart from the
decriminalization of certain lotteries conducted under government
regulation, lotteries today remain prohibited by Parliament".8
(emphasis added)

More recently, in a 1994 Judgment which decided that unlicensed gaming activities,
specifically, operating video lottery devices in cafes and social clubs were illegal, the Ontario Court
of Appeal stated:

"Section 207 defines the reach of the crime by stating that it does not
extend to lotteries licensed under authority of the province under
prescribed conditions. The clear intent is not to condone gaming but to
decriminalize it in circumstances where regulations will minimize the
potential for public harm. In doing so, Section 207 gives no hint that
provinces were to regulate such commercial gaming as is here alleged,
nor is there any basis for saying that such activity does not remain
offensive and under the Criminal Law power of Parliament.

8
Keystone Bingo Centre Inc.. v. Manitoba Lotteries Foundation (1991), 76 D.L.R. (4th) 423 (Man.
C.A.)
 -8-
The business of organized gaming is the subject matter of the
prohibitions, presumably because it invites cheating and attracts other
forms of criminal activities. There is no evidence that public
perceptions of commercial gaming have been changed or that it is any
less criminal in nature than it ever has been".9 (emphasis added)

Finally, the Ontario Court of Appeal, in an earlier Judgment, commented on the legislative
purpose of a predecessor to Section 206 of the Criminal Code, relating to Offences in relation to
Lotteries and Games of Chance. Cory, J., speaking for the Court, stated:

"This section...it is to be noted, is found under the heading "Offence in

Relation to Lotteries and Games of Chance". It is designed to protect
persons from those who would exploit people who understandably
dream of substantial monetary gains that materialize overnight.
Surely, this is a weakness that is common to most members of the
family of mankind. The mathematics of pyramid schemes is such that
for most participants other than the instigators the end result must be
the loss of their investment".10 (emphasis added)

It is against this brief historical background and in light of these recent judicial
pronouncements that we raise concerns about the unlawfulness of certain gaming activities in Ontario.

9
R v. Andriopoulous, unreported, Ontario Court of Appeal judgement rendered October 17, 1994. R.
10
v. MacKenzie. Ennis and Meilleur (1982), 36 O.R. (2d) 562 (Ont. C.A.).
 -9-
4 LEGAL ISSUE #1 - STRUCTURES FOR GAMING ACTIVITIES - "CONDUCT AND
MANAGE" REQUIREMENT

An aggressive interpretation of the exemptions created under the Criminal Code has
resulted in the establishment of structures for the carrying on of gaming activities in Ontario,
sanctioned by provincial legislation, which are inconsistent with the provisions of the Criminal
Code.

4.1 What are the provisions of the Criminal Code

As noted above, gaming activities are considered to be inherently criminal in nature, and are
prohibited under Part VII of the Criminal Code. The Criminal Code provides for certain exemptions
in Section 207, making lawful gaming activities where the prescribed conditions are met. Section 207
of the Criminal Code is attached hereto as Schedule 1.

The essential requirement under the exemption provisions of the Criminal Code is that the
lottery scheme be conducted and managed by the government of a province, in the case of Section
207(1)(a) or in the case of a charitable or religious organization, a fair or an exhibition, or a person in
a public place of amusement, that the lottery scheme be conducted and managed by those persons
pursuant to a licence issued by the Lieutenant Governor in Council of the province. In the case of
electronic gaming, Section 207(4)(c) provides that any lottery scheme "operated on or through a
computer, video device or slot machine" will not be lawful unless it is "conducted and managed by
the government of the province, either alone or in conjunction with the government of another
province".

The essential requirement then is who is "conducting and managing" the lottery scheme.
There are few judicial decisions which have interpreted the meaning of "conduct and manage" as it is
used in Section 207 of the Criminal Code. The principles of statutory interpretation and construction
which the Courts have recognized, an application of those principles and a review of the relevant
jurisprudence is set out in detail in the Supporting Legal Analysis/Documents. The guiding
principles which have been gleaned from the ordinary meaning of the words, from the jurisprudence
and from the legislative intent of Section 207 and which may be used to interpret the meaning of
"conduct and manage" may be summarized as follows:
 -10-
• The Provincial Government or licensed charity/person, not the Private Operator,
must be the operating mind of the lottery scheme: Keystone case
• The Provincial Government or the licensed charity/person must be directly
associated with and be part of the lottery scheme: Keystone case
• Substance over form is relevant: Keystone case
• A scheme calculated - whether intentionally or inadvertently - to circumvent the
Criminal Code is not acceptable: Keystone case
• Gaming operations that contravene the Criminal Code cannot be otherwise
sanctioned by or be given a colour of right by provincial legislation: Keystone case
• The Provincial Government or licensed charity/person must control the gaming
business and take an active part in the running of the gaming business: Black's Law
Dictionary11
The Provincial Government or licensed charity/person must "operate" the gaming
business (subject to Section 207(l)(g) of the Criminal Code): Pride of Derby casel2
• It is relevant to whom proceeds from the lottery scheme go: Keystone case
• The Provincial Government or licensed charity/person who is conducting the lottery
scheme must lead, guide and plan the lottery scheme: R. v. McKenzie et al casel3
• The Provincial Government or licensed charity/person must conduct and manage the
lottery scheme; doing one or the other will not suffice: Maynard casel4.
• The conduct and management of the lottery scheme is not limited to some form of
"oversight" or indirect control over the scheme and its operation. The term
"conduct" certainly includes the physical operations of the event: Gladue and Kirby
case's

Black's Law Dictionary (6th edition, page 662) Definition of "manage": "some evidence indicating the
taking of an active part in the running of the business, something suggesting control", Also, Abbott
v. Smith, [1965] 2 Q.B. 662 n.
11
Pride of Derby & Derbyshire Angling Assn. v. Br. Celanses Ltd. [1953] Ch. 149: ..."The meaning of
the word "conduct" was considered in Pride of Derby... where it was construed to mean "manage" or
"
operate"."
12

v. McKenzie, Ennis and Meilleur (1982), 36 O.R. (2d) 562 (Ont. C.A.)

Maynard v. Williams, [1955] 1 W.L.R. 54 (Queen's Bench Division). E. v.

13

Gladue and Kirby (1986), 30 C.C.C. (3d) (Alta. Prov. Ct.)

 -11-
• More than one person can be found to be conducting and managing a lottery scheme. Even
if both the Provincial Government or licensed charity/person and the Private
Operator are found to be conducting and managing the lottery scheme, the Private
Operator does not have the benefit of the Criminal Code exemptions: Gladue and
Kirby case
• To conduct or manage a scheme, it is not necessary that one should be the proprietor of it:
a person who has wide authority and whose activities are of a wide scale in
respect of the lottery scheme can be found to be conducting the scheme: Miller
case16

In summary, it is critical to the conduct and manage requirement that the Provincial
Government or licensed charity/person have control in fact of the lottery scheme and direct and have
charge of the lottery scheme. A private sector operator may not lawfully operate a lottery scheme if
the conduct and manage requirement on the part of the Provincial Government or licensed
charity/person is not met.

There is no legal formula yet that the courts have developed for the purpose of ascertaining
what minimum functions or processes are necessary to satisfy the conduct and manage requirements.
One must look at each factual situation and determine from the overall mix of powers and duties who
is responsible for the lottery scheme. In order to comply with Section 207(1)(a), the province must
maintain ultimate control over all major aspects of the gaming activities. It is not adequate for the
government to have a regulatory role and assume only a "notional" role on. the business side. The role
of any private sector participant must be limited to aspects of the "operational" functions, and must
always be performed under Provincial Government direction and control.

Similarly, in order to comply with Section 207(1)(b), (c) or (d), the licensed charity/person
must maintain ultimate control over all major aspects of the gaming activities. In the case of these
licensed lotteries, the licensee is obligated to conduct and manage the lottery scheme and may not
turn over this responsibility to another person.

16 R. v. Miller (1951), 99 C.C.C. 79 (Ont. Co. Ct.)

 - 12-
Although there is no prescribed legal formula setting out clear cut criteria to determine what is
necessary to conduct and manage in all lottery schemes, we have the above noted guiding principles.
We turn now to examine the private sector VLT proposal and the structures which exist in Ontario
involving private sector participation in casino gaming, charitable gaming as well as in electronic
gaming. Before turning to examine those structures, it is appropriate to review briefly the manner in
which lottery schemes are carried out in Ontario by the Ontario Lottery Corporation ("OLC").

4.2 What are the structures for carrying on gaming activities in Ontario?

4.2.1 Lotteries

The Ontario Lottery Corporation Act ("OLCA") empowers the OLC to develop, undertake,
conduct and manage lottery schemes on behalf of Her Majesty in Right of Ontario: Section 7. The
OLC conducts and manages its lottery schemes as a Crown Corporation pursuant to its enabling
legislation and in accordance with Section 207(1)(a) of the Criminal Code. The OLCA further
empowers the OLC to make any regulations necessary to carry out its mandate to conduct lottery
schemes, including regulations concerning the sale of lottery tickets by persons other than the OLC
and regulations concerning any matter necessary to carry out effectively the intent and purpose of the
OLCA.

Lottery machines and tickets are owned by the OLC and distributed through OLC retail
outlets. Retail outlets sell the lottery product and collect a commission from the OLC for this service,
pursuant to contractual arrangements authorized by regulations made under the OLCA. The OLC, as
Operator, retains authority over the conduct and management of the lotteries, while providing
retailing flexibility and consumer convenience through its network of retailers.

A lottery scheme is broadly defined in the OLCA to include a "lottery, a game of chance and a
game of mixed chance and skill": Section 1. The legislative mandate of the OLC is accordingly
broad enough to encompass virtually any gaming activity, including games of chance.
 - 13 -
Note that there is no prohibition or restriction on the OLC, as a Crown corporation, to
conduct and manage lottery schemes that are operated on or through a computer, video device or
slot machine. Indeed, by virtue of the Criminal Code provisions, the provincial government -through
a Crown corporation - has exclusive jurisdiction to engage in electronic gaming.

4.2.2 VLT Gaming

As indicated at the outset, our legal analysis of the gaming market in Ontario was initiated
when a private sector proposal was put forward to implement VLT gaming in Ontario. Our legal
analysis of the Private Sector VLT Proposal is set out in detail in the Supporting Legal
Analysis/Documents. The OLC has shared with the Ontario Gaming Control Commission ("GCC") a
synopsis of this legal analysis, which was then reflected in a joint submission by them to the Ministry
of Finance, made pursuant to the Ministry's request.

The Private Sector Proposal was put forward and our analysis conducted prior to the Ontario
Government's announcement of its intention to introduce VLT gaming in Ontario. In his Budget
Speech on May 7, 1996, the Honourable Ernie Eves, Minister of Finance, announced that "the
Ontario Lottery Corporation will be responsible for the operation and management of the VLT
network and the Ontario Gaming Control Commission will oversee and control every aspect of VLT
gaming activity". He also stated that "Initially, VLTs will be located only at race tracks and
permanent charity events sites...Once an acceptable implementation plan is developed, the network
can then be expanded to the hospitality industry..."

In his Statement of Intent delivered on June 13, 1996, the Honourable Norman W. Sterling,
Minister of Consumer and Commercial Relations, stated that the Government is still considering
implementation options for video lotteries. It is seeking external advice to ensure that the ultimate
implementation of video lotteries, including the degree of private and public sector involvement, is
based on sound business principles.

Proposed amendments contained in Bill 75 - An Act to regulate alcohol and gaming in the
public interest, to fund charities through responsible management of video lotteries and to amend
certain statutes relating to liquor and gaming - contemplate that persons who provide goods or
 -14-

services for VLT lotteries conducted by the OLC must be registered as suppliers with the GCC. Bill
75 also proposes that the GCC will have authority to establish standards for equipment used in video
lotteries. Bill 75 received First Reading in the Ontario Legislature on June 13, 1996, and is currently
the subject matter of hearings before the Standing Committee on the Administration of Justice of the
Ontario Legislature. Neither the establishment of permanent charity event sites nor VLTs at race
tracks are specifically dealt with in Bill 75.

Our legal analysis, for the most part, is based on the original Private Sector Proposal, the
proponent of which was the Ontario Hospitality Coalition for Video Gaming. Leading this coalition
was the Ontario Video Gaming Corporation ("OVGC"). More recently, the OVGC appeared before the
Standing Committee on the Administration of Justice advocating its position that a private sector
operator finance, operate and maintain a video lottery scheme in Ontario.!' The OVGC filed a written
proposal with the Standing Committee which we have reviewed. Our legal analysis of the Private
Sector Proposal remains unchanged and is set out herein. It continues to be relevant to the
Government's determination of the appropriate implementation option, including the degree of private
and public sector involvement, which must ultimately be based on sound legal principles.

A. Private Sector Proposal

Prior to any further consideration of a private sector proposal, the lawfulness of such a
structure must be carefully scrutinized. It is timely to do so before any private sector interests
become stakeholders in the VLT gaming market.

We have considered whether a proposal which contemplates that a private sector operator
will finance, operate and maintain VLT gaming in Ontario conflicts with the provisions of the
Criminal Code. The private sector proposal contemplates the installation of VLTs at bars, taverns,
restaurants, privately owned establishments, casinos, race tracks and impermanent charitable events
with little or no physical security. VLTs would be used at premises not owned or controlled by a
government entity. The private sector proposal - relying on the Government Ownership/Private

17 Submissions to the Standing Committee on the Administration of Justice regarding Bill 75 by the
Ontario Video Gaming Corporation dated August 7, 1996.
 -15-
Operator Model used by the government of Ontario to implement casino gaming in Ontario -
contemplates:
• that VLT gaming will be implemented pursuant to Section 7 of the OLCA;
• that the OLC will enter into a contract with the Private Operator similar to the one
governing the operation of the Windsor Casino;
• that the Private Operator will finance, operate and maintain a network of VLTs
throughout the province;
• that the Private Operator will own the VLTs; and
• that the Private Operator will share in the proceeds from the VLT gaming.
(hereinafter referred to as the "Private Operator Proposal")

We have identified a concern that the Government Ownership/Private Operator Model which
has been used to implement casino gaming in Ontario does not satisfy the conduct and manage
requirements under the Criminal Code. A detailed legal analysis of the Windsor Casino Model is set
out below.

The concern which we have identified in the context of casino gaming is amplified in the
context of the Private Operator Proposal for VLT gaming because there are fundamental differences
between casino gaming and VLT gaming. The following additional concerns arise:
• In casino operations, the gaming activity is conducted in a government-owned,
centralized, confined and controlled physical environment, access to which can be
more readily controlled, particularly in the case of minors.
• VLT gaming activities are carried out in a decentralized manner, at a multiplicity of
physical locations, most of which are privately-owned establishments rendering
enforcement of control mechanisms significantly more difficult.
• >From a technological point of view, where VLT gaming is carried out, it is not clear
that the OLC would have the controls necessary to monitor and ensure compliance
through a third party - the Private Operator - rather than directly under the control and
management of the OLC. The remote locations of VLT's, the potential for interference
and the fact that the OLC is relying on a third party's information system renders the
monitoring/enforcement mechanism less secure.

• There are factors that make VLTs more likely to create "problem gambling":
 -16-
♦ the ease of access to VLTs by a greater percentage of the Ontario population
(contrasted with travelling to a casino location);
the nature of the gaming activity -- constant, fast-action games with a
calculated amount of payback to encourage players to spend more while they
are playing; and
♦ the lower cost of playing VLTs

Hence, a greater requirement for government - not private sector - control over the conduct,
management and operation of VLT gaming.

Additionally, we have a concern that VLT gaming - if implemented in Ontario in the manner
contemplated in the Private Operator Proposal - may be characterized as "a scheme calculated to
circumvent the provisions of the Criminal Code" and unlawful, according to the KeystonQ case. To the
extent that a Private Operator Proposal contemplates a structure in which

• the Ontario Government will notionally own the VLT gaming business
• the OLC - as agent of the Ontario Government - will be designated to conduct and
manage the video lottery scheme, and
• the Private Operator will develop, finance and operate the video gaming enterprise,
including owning the VLTs and a central computerized data centre,

this would, on its face, not conform with the conduct and manage requirements under Section
207(1)(a) of the Criminal Code. This structure would be unlawful even if the Private Operator were
under the regulatory supervision of the GCC, as contemplated. The regulation of the Private Operator
would amount to a monitoring or oversight function and would not be sufficient to constitute conduct
and management of the VLT gaming by the Ontario Government.

The Private Operator Proposal contemplates implementation of VLT gaming under the
auspices of the OLC - at least in name - and under the regulatory supervision of the GCC. Note that
under the current legislative regime in Ontario, lottery schemes that are conducted and managed by the
OLC are exempt from the Gaming Control Act, 1992 ("GCA") and accordingly, do not fall under

the regulatory supervision of the GCC. As noted above, Bill 75 is intended, inter alia, to require
 -17 -

persons who provide goods or services for VLT lotteries conducted by the OLC to be registered as
suppliers with the GCC.

Even if the Private Operator and other persons who provide goods or services for video
lotteries are registered as suppliers with the GCC, this, in our view, does not satisfy the requirement
that to be lawful the Province must conduct and manage the video lottery scheme.

B. Why regulation of a single private sector operator is not sufficient to constitute conduct
and management of a VLT lottery scheme

It has been contended elsewhere18 that where a Province regulates to establish standards in
four key aspects of VLT lottery schemes, namely,

• games and equipment

• manufacturer/suppliers of equipment
• sites and siteholders
• advertising

and the Province regulates to provide means for determining that these standards are met, the
Province is conducting and managing a VLT lottery scheme, notwithstanding the involvement of a
private sector operator.

Does regulation by the Province of the private sector operator amount to sufficient control
over the VLT lottery scheme to constitute conduct and management by the Province? The plain
meaning of conduct and manage connotes engagement in or carrying on an activity, rather than
detached monitoring or oversight of the activity. If "regulating" was considered an acceptable control
mechanism by Parliament in enacting Section 207(1)(a), then a licensing scheme would have been
prescribed as the control mechanism respecting Section 207(1)(a) lottery schemes as it has been
prescribed in respect of charitable/religious lottery schemes under Section 207(1)(b), rather than a

18 Submission to the Standing Committee on the Administration of Justice regarding Bill 75 made by the
Ontario Video Gaming Corporation and Figure 1 thereto - Legal Opinion prepared by the
Honourable Mr. Charles Dubin, of Tory, Tory, Deslauriers and Binnington dated April 17, 1996.
 - 18 -
conduct and manage prescription. As a matter of statutory interpretation, a reading of Section 207(1)
in its entirety suggests that Parliament intended the Provincial Government to conduct and manage -
not regulate by means of an approval process or a licensing regime - lottery schemes permitted under
Section 207(1)(a).

The jurisprudence establishes that it is critical to the conduct and manage requirement that
the Province have control in fact of the VLT lottery scheme, and that it direct and have charge of
the VLT lottery scheme. This requirement, in our view, is not met where the Province simply
regulates to establish standards in key aspects of a VLT lottery scheme and regulates the means for
determining that these standards are met.

Even if the Province could establish a central computer network to which all VLTs would be
networked and the Province would carry out appropriate audits, this monitoring function does not, in
our view, amount to the conduct and manage requirement. A single private sector operator of a VLT
lottery scheme would still control the following:

♦ contract for and purchase the entire supply of VLTs in the Province
♦ choose locations, including specific sites in which the VLTs are to be located (subject
to standards prescribed by the Province)
♦ contract with the person who controls the location
♦ choose the type of VLT to be used, the number of VLTs for each location, the total
number of VLTs for the Province (subject to equipment standards prescribed by the
Province)
♦ take charge of the delivery, installation and maintenance of the VLTs (subject to
standards prescribed by the Province)
♦ take charge of advertising or promotion (subject to standards prescribed by the
Province) with respect to the availability of VLTs
♦ take charge of operational and business planning
♦ take charge of financial and operational reporting
♦ set payout levels for the VLTs (subject to standards prescribed by the Province)
♦ arrange for the payment of prizes

♦ manage the proceeds from the VLT lottery scheme

 -19-

maintain books and records

Applying the guidelines set out in the jurisprudence concerning the meaning of conduct and
manage, in our view, the Province is not conducting and managing the VLT lottery scheme by
regulating its key aspects because:

1. The Province is not taking an active part in the running of the VLT lottery
business, nor is it controlling the VLT lottery business.

2. The role of the Province is limited to a form of oversight, or indirect control over the
conduct of the private-sector operator(s) in the VLT lottery scheme.

3. The Province has no involvement in the operational and business planning of the VLT lottery
business nor in the financial and operational reporting - these are responsibilities of the
private-sector operator. Yet these are key indicia of control of the VLT lottery business.

4. The Province does not direct and have charge of the VLT lottery scheme.

5. A single, private sector entity owns/finances, operates and maintains the entire network
of VLTs in the Province.

Even if the VLTs were housed solely in government owned premises, for example, a
government owned entertainment centre, - which is not now contemplated in Ontario - the lawfulness of
a Private Operator Model would be questionable, unless there were such stringent control features in
relation to the VLT gaming operation in place - that OLC was in fact, conducting and managing the
VLT gaming business. We question from a practical point of view, whether such control features could
be built into a Government Ownership/Private Operator model without significant duplication of effort
on the part of OLC and the Private Operator rendering the model inefficient.

For these reasons, the Ontario Government's reliance on the Private Operator Proposal would
not constitute sufficient direct control amounting to the Ontario Government conducting and
 - 20 -

managing VLT gaming so as to render the VLT gaming in Ontario lawful within Section 207(1)(a) of
the Criminal Code.

Additionally, VLTs constitute video devices within the meaning of Section 207(4)(c) of the
Criminal Code. The Criminal Code provisions intended to grant to the provincial government the
exclusive jurisdiction to engage in electronic gaming (discussed below under the heading - Legal
Issue #3: Electronic Gaming). Based on our review of the Private Operator Proposal, it is the
Private Operator - not the Ontario government - who conducts, manages and operates VLT gaming.
This contravenes not only the provisions of Section 207(1)(a) of the Criminal Code, as outlined
above, but also Section 207(4)(c) which grants only to a provincial government the authority to
conduct and manage electronic gaming.

3.2.3 Casino Gaming in Ontario A.

Legislative Framework

In December, 1993, the Ontario Government enacted new legislation establishing the OCC.
The Ontario Casino Corporation Act ("OCCA") creates the OCC which has, among its objects

® to conduct and manage games of chance: Section 5(a)

• to provide for the operation of casinos: Section 5(c).

There is no express power in the OCC authorizing the OCC to enter into a contract with a
Private Operator concerning the conduct, management or operation of games of chance.19

The Ontario Legislature, at the same time, enacted complementary amendments to the GCA
which establish a regime for the regulation of casinos - being places in which lottery schemes

19 This is in contrast to the Gaming Control Act enacted in Nova Scotia. Under the Act, the Nova Scotia
Gaming Corporation has the express power to "enter into an agreement with a person to develop,
undertake, organize, conduct and manage a lottery scheme": s. 25(1)(c). The Act defines precisely
the scope of the relationship between the Nova Scotia Gaming Corporation and that "person" as an
"agency relationship" and expressly prohibits a delegation of authority given to the agent.: s. 25(4).
 -21-

conducted and managed by the OCC are to be carried out - as well as for the regulation of the
suppliers of goods and services to the casino operations. The GCC, created under the provisions of
the GCA, is charged with the legislative mandate to administer the GCA and the regulations in the
public interest and in accordance with the principles of honesty and integrity. The role of the GCC, as
regulator, includes, inter alia,

• enforcing registration requirements and regulating the conduct of persons who supply
goods or services to a casino operation
• approving the actual goods and services supplied in a casino operation
• approving the games of chance used in a casino operation
• approving the operation of a casino

Note that the role of the GCC is strictly one of "regulator". The GCC does not engage in
conducting and managing games of chance. This activity falls strictly within the legislative mandate of
the OCC. There is no provision in the enabling legislation which expressly authorizes a delegation of
the OCC's powers to conduct and manage games of chance to another person, nor the appointment of
an agent to do so on behalf of the OCC.

On the basis of the legislative framework outlined above, the Ontario Government has
adopted as a model for the operation of casinos and the conduct and management of games of
chance, the "Government Ownership/Private Operator Model".

We have examined the casino model in Ontario by looking at the following:

I. a description of the relationship between the OCC and the Private Operator based on a
written agreement made between them;
II. analysis of the OCC/Private Operator relationship based on the said agreement;
III. analysis of the dual role of the Private Operator, both as independent contractor and
agent of the OCC;
IV. whether the agency relationship satisfies the "control" element necessary to meet the
"conduct and manage" requirement;
V. whether the role of the GCC as regulator amounts to "conduct and manage";
VI. whether the OCC can appoint an agent and delegate to it the conduct and manage
function; and
 -22-
VII. whether the Private Operator can engage in electronic gaming.

B. Windsor Casino Model

I. Description of the Relationship Between the OCC and the Private Operator

An Interim Casino Operating Agreement (the "Windsor Contract") was entered into between
the OCC, as agent of Her Majesty The Queen in right of Ontario and Windsor Casino Limited,
owned equally by Caesars World, Inc., Circus Circus Enterprises, Inc. and a subsidiary of Hilton
Hotels Corporation. Windsor Casino Limited is defined as the "Operator" of the Windsor Casino.
Pursuant to the Windsor Contract, the Operator (referred to herein as the "Private Operator") is to
establish and the OCC is to approve policies with respect to the operation of the Windsor Casino
Complex (the "Approved Operating Policies") which would further define and delineate the
responsibilities of the OCC and the Private Operator.

The Windsor Contract creates a "dual role" for the Private Operator both as agent of OCC
and as independent contractor. The Private Operator is an independent contractor generally for all
purposes to improve, develop, operate and maintain the Interim Casino Complex. The OCC appoints
the Private Operator as OCC's sole and exclusive agent to operate on its behalf, the games of
chance to be carried on in the casino. In both roles, the Private Operator's activities are subject
to the provisions of the Windsor Contract, the Approved Operating Policies and the then
current Approved Operating Budgets.

Games of chance are defined in the Windsor Contract as a lottery scheme conducted and
managed by a government under Section 207(1)(a) of the Criminal Code. The definition expressly
excludes lottery schemes conducted by the OLC under the OLCA.

The Windsor Contract attempts to limit the authority of the Private Operator in terms of
operating - not conducting and managing - the games of chance as follows:

• the Private Operator is prohibited from taking any action which would have a material effect or
could reasonably be expected to have a material effect on the operations, affairs, condition or
prospects of the Casino without obtaining the approval of OCC;
 -23-
• the Private Operator is prohibited from taking any'action in connection with the operation of
the Interim Casino Complex that is inconsistent in any material respect with the Approved
Operating Policies without the approval of the OCC; and
• OCC and its authorized representatives shall be provided with working space and office
support in or near the Casino and shall be entitled to access to all areas of the Casino.

It is noteworthy that all personnel employed in the Interim Casino Complex - including those
who are operating the games of chance - are employees of the Private Operator, not the OCC. We
understand that in addition, there are present in the Windsor Casino OPP officers seconded to the
GCC. A more detailed outline of the key aspects of the relationship between the OCC and Private
Operator is set out at Schedule 2.

II. Analysis of the OCC/Private Operator Relationship based on Windsor Contract

Prior to obtaining and reviewing the Windsor Contract, we had prepared a checklist of
"indicia of Control and Compliance with the Conduct and Manage Provisions of the Criminal Code
with Respect to Gaming Operations at the Windsor Casino Complex (the "Business") by the OCC", a
copy of which is attached as Schedule 3 (the "Checklist"). The Checklist identifies, in our view, the
control features which are the indicia of control which the OCC must have in respect of the gaming
business in order to satisfy the conduct and manage requirements of Section 207(1)(a) of the Criminal
Code.

The Checklist was compiled following our review of decisions in which the Courts and
administrative (including tax) tribunals have examined whether de facto control exists and decisions in
which indicia of control principles have been enunciated. The Checklist of indicia of control was also
based on established business law principles reflected in commercial agreements. It is important to note
that not all indicia of control must be present. Courts will exercise judgement having regard to the
overall situation. The final determination would be a matter of substance over form. What is actually
happening as a matter of fact in the day-to-day operations of the business as opposed to what may be
set forth in an agreement, is determinative of where control in fact resides.
 -24-
A review of the Windsor Contract discloses that there are a number of controls which should
be in place to establish actual control of the Windsor Casino Complex by the OCC which are not
covered pursuant to the Windsor Contract. A detailed comparative analysis of the Windsor Contract
with the Checklist is set out at Schedule 4 attached hereto. The following are key areas of concern
in the Windsor Contract from a "control in fact" perspective.

Financial Matters Pertaining To The Business

(a) Budgeting and Forecasts:

The concept of "approval" by OCC of the Operating Budget (which by definition, includes
matters of a capital nature) and the control by OCC over the financial aspects of the Business
is undermined by the provisions of section 4.2 dealing with dispute and failure of OCC to
approve. This section provides that if OCC fails to approve or to submit objections to the
Private Operator within thirty days, it is deemed, to have accepted. Moreover, if OCC objects
to certain portions, the undisputed portions are deemed approved and until approved, the
disputed portions are replaced with the corresponding items in the Approved Operating
Budget for preceding year (as adjusted). When read together with section 13.1, which
contains the dispute resolution provisions (non-binding mediation), it would appear that the
Private Operator must agree to changes in the proposed Operating Budget proposed by the
OCC and that, accordingly, the OCC cannot dictate to the Private Operator its required
amendments to the Operating Budget.

(b) Periodic Financial Reporting to OCC:

The Windsor Contract contains no daily reporting requirement with respect to cash balances
and deposits or bank reconciliations. To some extent, this would diminish the immediacy of
control by OCC over the financial aspects of the Business.

(c) Financial Control and Reporting Systems:

Overall, OCC does not appear to have direct access to and immediate or daily control over
the Gross Revenues of the Business. It would have been helpful to have included, for greater
certainty, in the various financial and banking provisions contained in the Windsor Contract

a provision to the effect that the Private Operator is prohibited from mating any additional
 - 25 -
withdrawals from the Operating Accounts or from making expenditures other than in
accordance with Approved Operating Budgets.

(d) Commingling:,
The Windsor Contract does not contain a prohibition against commingling gaming
revenues with other revenues of the Windsor Casino Complex. It is unclear as to whether
the parties have in fact set up separate bank accounts.

(e) Access to Information

Pursuant to subsection 2.3 (b) the OCC and its authorized representatives are to be provided
with working space and office support in or near the Casino and with access to all areas of the
Casino. A potential area of concern, however, is the fact that the Windsor Contract does not
state that OCC is to have open and unrestricted access at any time to any and all financial
information pertaining to the Business, which, given the cash nature of the business and the
potential for criminal or other similar activity would seem to be prudent for control.

There does not appear to be any computer linkup or open and unrestricted electronic access to
financial information by OCC required pursuant to the Windsor Contract.20

Operational Aspects Of The Business

(a) Decisionmaking:
Except for the right to approve Operating Budgets and approve Operating Policies, (discussed
below) OCC does not appear to have final approval and participation in decisionmaking on
fundamental matters pertaining to the operation of the Business pursuant to the Windsor
Contract.

(b) Supervision:

20 Apart from the Windsor Contract, the OCC is obligated under its existing legislation to ensure that
any person with whom it has entered into a contract to provide for the operation of a casino or a
related business must make available immediately to the OCC all reports, records and other
documents, presumably upon request of the OCC: OCCA, s.16(5). However, this does not afford the
OCC unrestricted electronic access to financial records of the Private Operator.
 - 26 -
Subject to being provided with working space and office support, the Windsor Contract does
not contain any further provisions relating to the OCC being engaged in reviewing or
supervising the day to day operations of the Business.

Management Of The Business

(a) Participation in Management:

It is not apparent from the Windsor Contract that senior OCC employees and officers are
contemplated to have a direct involvement in the managerial functions of the Business from a
review and supervision perspective, although OCC is to have access and certain financial
reporting is presumably required to be made to someone at OCC.

(b) Managerial Matters Requiring Prior OCC Approval:

The only input which OCC has with respect to the selection and retention of officers,
executives or senior employees is pursuant to section 6.1 (j) wherein OCC has the right to
approve the identity of any new President or Chief Financial Officer of the Private Operator.

Economic Arrangements With The Private Operator

(a) Indicia of Private Operator Control

The Private Operator's fee, as provided for in the Windsor Contract, is discussed below under
the heading - "Proceeds from Gaming Activities". To the extent that the Private Operator
has, pursuant to the Heads of Agreement dated May 14, 1994 committed to fund the
establishment of the Casino Complex, financial risk and investment is significant. On this
basis, it can be inferred that, irrespective of the stated terms of the Windsor Contract, control
in fact of the Business by the Operator is likely to be significant. From certain statements
contained in the Windsor Contract, it may be inferred that the knowledge of the Operator
with respect to the Business is more significant than that of the OCC; however, it is not clear
as to whether this degree of knowledge would place the Operator in a position of influence
or control.
 - 27 -
In summary, the Windsor Contract does not specifically provide for any day to day input and
involvement in the decisionmaking and operations of the Business, nor does it provide for any
computer linkup or open and unrestricted electronic access to financial information by the OCC.

Based on the foregoing, we are of the view that there are a number of controls which
should be in place to establish actual control by the OCC of the games of chance played in the
Windsor Casino, which are not covered pursuant to the Windsor Contract. These would
include a definitive right of approval of Operating Budgets and a more active and direct
participation in the supervision of and in the day to day gaming operations. In the absence of
these types of controls, the OCC, in our view, does not have control in fact over the gaming
operations and hence, is not conducting and managing the games of chance. Additionally,
there is a concern that pursuant to the Windsor Contract, the compensation formula goes
beyond simply remunerating the Private Operator for performing the implementation and
operation of the casino and provides the Private Operator with a very real participation in the
profits from operating games of chance. This is discussed in greater detail below under the
heading - "Proceeds from Gaming Activities".

"Approved Operating Policies"

We did consider whether there might be contained in the "Approved Operating Policies"
control features or checks and balances in favour of the OCC in respect of the Private Operator's
operation of the games of chance. In response to our request for copies of the Approved Operating
Policies, we were informed that the OCC, in exercising its discretion under the Windsor Contract, has
not found it necessary to formally approve all of the Private Operator's day-to-day operating
policies and procedures. The OCC has approved only those Operating Policies which it views as
requiring approval, whether for the sake of ensuring the consistency of certain policies across all
casinos in the province or otherwise.

As at April 3, 1996, there were two Operating Policies approved by the OCC under the
Windsor Contract, as follows:

o A document entitled "Casino Windsor Charitable Donations and Corporate Sponsorship

Programme" dated November 8, 1994; and
 -28-
o A document entitled "Casino Windsor Responsible Gambling Programme" dated November 8,
1994.

The titles of these Approved Operating Policies suggest that neither concerns checks and
balances or control features in favour of the OCC in respect of the games of chance operated by the
Private Operator in the Windsor Casino. No other Approved Operating Policies were identified.'

III. Analysis of the Dual Role of Private Operator both as independent contractor and agent of
the OCC

The nature of the relationship between the OCC and the Private Operator attempts to divide -
somewhat artificially - the functions performed by the Private Operator. For the limited purpose of
the gaming business, the Private Operator acts as the agent of the OCC. For the purpose of carrying out
all other functions in relation to the Casino Complex, the Private Operator is designated as an
independent contractor.

The complex of functions for which the Private Operator is responsible, including the
planning, financing, implementation, employment of workers, operation and sharing in significant
revenues of the casino and related services and facilities go well beyond the factors referred to in the
Keystone22 case, on which basis the Court found that the operator was conducting and managing the
lottery schemes, because it was the "operating mind". It appears to be the Private Operator, in
proposing all the planning and financing of the Windsor Casino, and in implementing the construction
of and operating the facilities of the Windsor Casino, that carries out "the action...of guidance,
leading" as the term "conduct" was defined in the case of R. v. MacKenzie, Ennis and Meilleur2.

In connection with the opening of the province's second casino, the OCC was reviewing the
Operating Policies contained in the Internal Control Manual of Windsor Casino Limited, not for the
purpose of approving it, but to determine whether it is necessary or desirable to ensure consistency of
these policies across all casinos in the province.

21 Keystone, supra

23 R. v. MacKenzie, supra.
 - 29 -
The question remains, however whether it is still possible for the Ontario Government to
legally conduct and manage the extensive activities engaged in by the Private Operator by means of
a "control" role throughout the process.

Does the Agency Relationship Satisfy the "Control" Element?

Such a control element is difficult to establish in view of the extensive involvement in

planning, implementing, operating and sharing in revenues that is contemplated for the Private
Operator. The difficulties in establishing a sufficient element of control, within the meaning of
conduct and manage are compounded by the following issues relating to the lines of authority from
the Criminal Code exemption of Parliament, through the Government of Ontario, through the OCC
into the hands of the Private Operator.

Under Section 3(2) of the OCCA,

"The Corporation [ie: the Ontario Casino Corporation] is for all its purposes an
agent of Her Majesty and its powers may be exercised only as an agent of
Her Majesty". (emphasis added)

The result of the establishment of this upper tier principal - agency relationship is that the
element of control as between the principal, (Her Majesty), and the ultimate Private Operator is
remote, and arguably something less than the control necessary for the purposes of the conduct and
management requirement. An agency relationship has been established between the Private Operator
and the OCC - not the Private Operator and Her Majesty The Queen. Since the OCC is an agent of
Her Majesty, hence the Private Operator is acting in the capacity of sub-agent of Her Majesty for the
purpose of "operating" the games of chance.

As noted above, there is no express power in the OCC authorizing the OCC to delegate its
authority or to appoint an agent or to enter into a contract with the Private Operator' concerning the

24 Although under Section 6(1) of the OCCA, the OCC is, except as limited by that Act, empowered
with the capacity, rights, powers and privileges of a natural person for carrying out its objects, i.e. the
OCC may enter into contracts, this general provision could not empower the OCC to do by
contractual arrangement what it is otherwise prohibited from doing by the Criminal Code. The
 - 30 -

operation of games of chance. On the contrary, the OCCA establishes in Section 5(a) as one of the
objects of the OCC, that it - the OCC and not an agent thereof - shall "conduct and manage games of
chance". This is to be contrasted with section 5(c) of the OCCA in which the OCC has, as another of
its objects, "to provide for the operation of casinos", not games of chance. In our view, the
juxtaposing of these objects means that in providing for the operation of casinos, the OCC may
contract out non-gaming functions relating to the operations of the casino, but not the games of
chance. The games of chance must be conducted and managed by the OCC.

The distinction between "operating" and conducting and managing games of chance - which
appears to be the underpinning of the arrangement between the OCC and the Private Operator - is in
our view an artificial one, having reviewed the Windsor Contract. The provisions of Section
207(l)(g) of the Criminal Code do indeed refer to the conduct, management or operation of the
lottery scheme, authorizing any person to do anything that is required for the conduct, management or
operation of a lottery scheme; but the lottery scheme must be lawful. In order for gaming in casinos
to be lawful, it must be conducted and managed by the OCC.

Furthermore, as noted, it is our view that the Windsor Contract lacks the indicia of control
necessary to ensure that the OCC has ultimate control and direction over the gambling activities in
the Windsor Casino Complex. In the absence of these types of controls, the OCC, in our view, does
not have control in fact over the gaming activities, and hence, is not conducting and managing the
games of chance.

V. Does the role of the GCC as Regulator amount to Conduct and Manage?

It may be argued that the "control" element is found in the GCA and the powers that are given
to the GCC to regulate the activities of the Private Operator's, among others, in relation to the Casino

OCCA is to be contrasted with the provincial legislation in Nova Scotia establishing the casino
operation, where the Nova Scotia Gaming Corporation is expressly authorized to enter into a contract
with
the private operator to "conduct" lottery schemes.

25 The Gaming Control Act, 1992 and Regulation 69/94 made thereunder obligates a casino operator,
among other suppliers, to register with the Gaming Control Commission. Ontario Regulation 70/94
prescribes requirements concerning prior approval from the GCC of proposed games of chance and
 -31-
Complex. We do not agree. To the extent that the GCC exercises "control" it is control exercised by
virtue of a regulatory function - monitoring or oversight of the conduct of the Private Operator (who
is obligated to register under the GCA) operating games of chance - rather than a principal's control
over an undertaking. Even the presence in the Windsor Casino of OPP officers seconded to the GCC
does not, in our view, satisfy the "conduct and manage" requirements.

Does regulation by the GCC of the Private Operator amount to sufficient control to constitute
conduct and management by the OCC, as agent of Her Majesty, the Queen? The plain meaning of
conduct and manage connotes engagement in or carrying on an activity, rather than detached
monitoring or oversight of the activity. As noted above, if oversight of an activity by a regulator was
considered an acceptable control mechanism by Parliament in enacting Section 207(1)(a), then a
public licensing scheme would have been prescribed as the control mechanism respecting Section
207(1)(a) lottery schemes as it has been prescribed in respect of lottery schemes under Section
207(l)(b) (c) and (d), rather than a conduct and manage prescription.

VI. Can the OCC Appoint an Agent and Delegate to it the Conduct and Manage Function?

While the relationship between the OCC and the Private Operator identifies the Private
Operator as an "operator" of the business within the casino and as an "agent" of the OCC for the
purposes of "operating" - not conducting and managing - the games of chance, this is an artificial
distinction, for the reasons outlined above. It is equally unlawful for a person to "operate" a lottery
scheme where it is not "conducted and managed" lawfully, in the case of the gambling in the Windsor
Casino, by the OCC. The offence provision contained in Section 207(3) makes it an offence, to
improperly engage in the conduct, management or operation of a lottery scheme.

In our view, the obligation to conduct and manage conferred exclusively on the "government
of (the) province" under Section 207(1)(a) of the Criminal Code, as a right which the provincial
government has been granted in its capacity as a provincial government, is a right which may not be
delegated or assigned to an agent.

game rules. Regulation 628/94 (amending Regulation 70/94) prescribes record-keeping and
surveillance and security requirements for casino operators.
 -32-
The general rule is that the agent must perform his undertaking personally. It is clear that
Parliament intended that a provincial government conduct and manage lottery schemes. The fact that
Parliament did not empower under Section 207(l)(a) the government of the province to delegate the
proper authority to conduct and manage a lottery scheme to another person - as a matter of statutory
interpretation - means that the word "personally" is to be read into Section 207(l)(a) after the
provincial government.

Generally, where a legislature has placed "special trust" in a named authority, there is a
greater likelihood that any subsequent delegation thereof will be effectively disallowed by the courts.
Regard will be had to whether the delegation involves the substance of the power possessed by the
original authority or only matters of administrative detail."

Parliament has made lawful lottery schemes which are conducted and managed by a provincial
government and has effectively placed a special trust in the provincial governments, decriminalizing
gaming activities conducted by a provincial government. Gaming activities - which are otherwise
unlawful - are a matter of special trust as evidenced by the exclusive monopoly of provincial
governments to conduct and manage gaming. That special trust in the provincial government has, by
virtue of the legislative scheme in Ontario, been delegated to the OCC, a Crown Corporation. The
propriety of this delegation is not questioned. However, the subsequent sub-delegation of that power
from the OCC to a Private Operator - who is purportedly authorized to operate the gaming business,
(i.e. games of chance) and not merely carry out some administrative detail - is improper.

VII. The Private Operator and Electronic Gaming

Finally, slot machines and other computer and video devices are operated as games of chance
in the Windsor Casino Complex. The Criminal Code provisions intended to grant to the provincial
government the exclusive jurisdiction to engage in lottery schemes involving electronic gaming
machines (discussed below under the heading Legal Issue #3 - Electronic Gaming). When the
Private Operator - not the OCC - operates the games of chance in the Casino Complex, its
participation - based on our review of the Windsor Contract -- is tantamount to conducting and
managing the games of chance. Those games of chance include electronic gaming. This contravenes

26 Canadian Encyclopedia Digest, Ontario Third Edition, Volume 1, Title 3 - Administrative Law
 - 33 -
not only the provisions of Section 207(1)(a), of the Criminal Code, but also Section 207(4)(c) of the
Criminal Code which grants only to a provincial government the authority to conduct and manage
electronic gaming.

C. Conclusions With Respect to the OCC/Private Operator Model

The legislation authorizing casino operations in Ontario has been implemented using a
structure - the Government Ownership/Private Operator Model - which is, in our view, flawed. The
legislative scheme in Ontario, which establishes the OCC as the Operator, to conduct and manage
games of chance and the GCC, as the regulator, to regulate casinos and suppliers of goods and
services to the casino operations, is not - on its face - flawed. It is the arrangement between the OCC
and the Private Operator - as reflected in the Windsor Contract which allows the Private Operator to
operate the gaming business -albeit as agent of the OCC that raises a concern. That scheme is
flawed if the reality is that the Private Operator is conducting and managing the games of chance in
the casino.

Based on our legal analysis and a review of the Windsor Contract, it is our view that
on balance, a Court would find the arrangement to be legally flawed. It is the OCC that must
have control in fact of the games of chance played in the Windsor Casino. It is the OCC that
must direct and have charge of the casino gaming. Additionally, the OCC/Private Operator
Model in Ontario raises a concern with respect to the Private Operator's participation in the
profits of the casino gambling operation, discussed below under the heading - "Proceeds from
Gaming Activities".

Our reasons for concluding that the arrangement between the OCC and the Private
Operator, as reflected in the Windsor Contract, is legally flawed are summarized as follows:

o Criminal Code, Section 207(3)

The Criminal Code establishes that it is an offence for any person who, for the purposes of a
lottery scheme, does anything that is not authorized pursuant to Section. 207 in relation to the

conduct, management or operation of lottery schemes. Accordingly, if the Private Operator who is
 -34-
operating the lottery scheme, (i.e. the games of chance) is found to be conducting or managing the
lottery scheme, the Private Operator's activities, unless authorized under the provisions of Section
207, are contrary to Section 207(3) the Criminal Code.

o Windsor Contract - OCC does not have control in fact over the gaming operations

We are of the view - as outlined in the analysis of the Windsor Contract, above - that there
are a number of controls which should be in place to establish actual control of the Windsor Casino
Complex by the OCC which are not created pursuant to the Windsor Contract. There appear to be no
Approved Operating Policies which establish that the OCC directs and has charge of the games of
chance played in the Windsor Casino (- the titles of the two identified suggesting that they are not
relevant to this issue). In the absence of these types of controls, the OCC, in our view, does not have
control in fact over the gaming operations and hence, is not conducting and managing the games of
chance.

o No colour of right from Ontario legislation

If the Private Operator operating the games of chance in Ontario casinos is, in fact,
conducting and managing the games of chance, in contravention of the provisions of the Criminal
Code, not even the legislature of Ontario could give the Private Operator the colour of right to act in
the manner in which it does. Even more so, the Government of Ontario could not by acquiescence or
otherwise, render lawful what is otherwise an illegal business: Keystone, supra.

o Substance over form prevails

We have a concern that the manner in which casino gaming has been implemented in Ontario
could be characterized as "a scheme calculated to circumvent the provisions of the Criminal Code":
Keystone, supra. While there are statutory controls in place, including reporting and auditing
requirements, prior approval requirements in respect of the games of chance, registration
requirements, etc, the regulation of the Private Operator who operates games of chance amounts to a
monitoring or oversight function and may not be sufficient to constitute conduct and management of
the games of chance by the OCC: Keystone, supra. The Windsor Contract, on its face, purports
 - 35 -
to provide to the OCC an ultimate review and supervision power over the operations of the Private
Operator. Notwithstanding these contractual provisions, we are doubtful that the actual controls
which have been established are sufficient to constitute conduct and management of the games of
chance by the OCC.

It was suggested by government representatives, in Standing Committee on Finance and

Economic Affairs Meetings that the government's lack of expertise in operating games of chance led
it to favour the Private Operator Model in the short term, in expectation of acquiring for itself the
necessary expertise through experience and training27. Unless members of the OCC, or their
designees, are actively participating in the day to day operation of the games of chance and have
representation on the management team and/or have meaningful representation on the board of
directors, this argument does little to cure the flaw in the scheme used to implement casino gaming in
Ontario. While we have not been afforded the opportunity to review the Operating Policies, it
would appear from the provisions of the Windsor Contract that this is not the case. In the absence of
this type of direct participation by the OCC, one wonders, parenthetically, how the government will
ever acquire the experience and training required to operate the games of chance, that being the
justification for the scheme.

o "Artificiality" of Dual Role of Private Operator

We have considered herein the dual nature of the relationship between the OCC and the
Private Operator; that is, the Private Operator as an independent contractor for all aspects of the
casino business except for "gaming purposes" when it acts as agent of the OCC. The questions and
issues arising from the dual nature of the relationship highlight the "artificiality" of the relationship.
If substance over form is to prevail in assessing the OCC/Private Operator arrangement, the
artificiality of the arrangement, from a practical point of view, suggests that it may be "a scheme
calculated to circumvent the provisions of the Criminal Code": Keystone, p.430.

27
(September 8th and 9th, 1993), p.F-743
 -36-
o OCC is managing the "Operating Agreement", not the games of chance

It has been suggested elsewhere that "the OCC owns the Windsor Casino and manages the
Operating Agreement between the Province and Private Sector Operator".28 The language is curious -
since it is difficult to contemplate how one manages a contractual agreement. In our view, "managing
the Operating Agreement" - rather than the games of chance - may amount to something more than
"regulating" the Private Operator when it conducts and manages the games of chance. However, as
noted, this does not amount to the OCC conducting and managing the games of chance.

♦ ♦
There is no court decision which deals specifically with the lawfulness of the arrangement
between the OCC and the Private Operator in the Windsor Casino and in particular, with the issue of
the conduct and management of the casino lottery schemes.

However, the issue of the lawfulness of the Windsor Casino was raised in the context of an
expropriation case - Legoyeau Holdings Limited v. The Corporation of the City of Windsor29.
Legoyeau, who owned land which the City of Windsor sought to expropriate to facilitate the
construction of a permanent casino, brought an application for judicial review to invalidate the Notice
of Intention to Expropriate. Legoyeau argued that the Notice was invalid on five grounds, including by
reason that "the casino use was at all events, illegal under the laws of this country." The Divisional
Court dismissed the application on expropriation and planning grounds, without discussion of the issue
of the lawfulness of the intended casino use under the gaming provisions of the Criminal Code.

Legoyeau then requested the Minister of Environment and Energy to designate the Windsor
Casino as an undertaking subject to the Environmental Assessment Act. According to this Act,
enterprises or activities or proposals, plans or programs in respect of enterprises or activities "by or

"The Gaming Marketplace in Ontario", Ministry of Consumer and Commercial Relations - Policy,
Agencies and Corporate Affairs Division (August 1995).

Unreported decision of the Ontario Court of Justice (General Division) (Divisional Court) dated
2s
February 16, 1994; affirmed Ontario Court of Appeal, June 21, 1994, (unreported).
 -37-

on behalf of Her Majesty in right of Ontario or by a public body" are automatically subject to the
Act, while major commercial enterprises must be designated by regulation.

In a letter dated May 2, 1994 (and filed by Legoyeau in subsequent appeal proceedings), the
Minister of Environment and Energy stated that:

The casino is not subject to the EA Act [referring to the Environmental

Asselsment Act]. Windsor Casino Limited which is responsible for the
finance, design and construction of the casino complex, will operate the
businesses to be carried out in the complex. They are not subject to the
EA Act since the Act does not apply to private sector undertakings. The
MCCR which initiated the project and will act as the regulatory body are
not subject to the Act under Regulation 334, subsection 6(1).

On a motion for leave to appeal, Legoyeau's counsel relied on the MOEE letter and submitted
that the casino was not a public sector undertaking conducted and managed by the provincial
government but rather was a private sector development and undertaking by a private sector
corporation, Windsor Casino Limited. The City of Windsor argued that there could be no doubt that the
legislative intent of the Ontario Casino Corporation Act was to create the Ontario Casino
Corporation (the "Corporation") to conduct and manage a casino in the City of Windsor on lands
acquired by the City.

In its decision, the Court of Appeal (Goodman, Abella and Austin, JJ.A.) dismissed
Legoyeau's appeal, stating that:

Section 207(1)(a) of the Criminal Code provides that it is not illegal for
the government of a province to conduct and manage "a lottery scheme" in
that province. Ontario proposes to do just that. It is now operating on a
temporary basis in what was the Windsor Art Gallery. What is proposed
is to build a permanent casino on the expropriated land. What is proposed
is entirely legal. Being legal, there is no impediment to the City using its
power to expropriate for that purpose.

The Court of Appeal did not refer to the MOEE letter. Nor did the Court discuss the issue

of whether the OCC or the Private Operator was, in fact, conducting and managing the games of
 -38-
chance under the Windsor Casino Model. Hence, the decision is silent on the issue of the propriety of
the role of the Private Operator in the Windsor Casino Model.

There is an inherent inconsistency in the Ontario Government asserting - for Environmental

Assessment Act purposes - that the gaming businesses carried out in the Windsor Casino are private
sector undertakings (i.e., major commercial or business enterprises, or activities or proposals, plans or
programs other than by or on behalf of the government of Ontario), while at the same time asserting
- for Criminal Code purposes - that the same gaming businesses are conducted and managed by the
Ontario Government. This inherent inconsistency is a further indication, in our view, that the
arrangement between the OCC and the Private Operator is legally flawed.

In expressing our view on the lawfulness of the Windsor Casino Model, we have not had the
benefit of reviewing the actual relationship between the OCC and the Private Operator, which may
create a relationship different than that reflected in the Windsor Contract (for example, contrary to
what appears from the Windsor Contract, the OCC may actually direct and have charge of the games of
chance played in the Windsor Casino). This is not evident from the documents and facts available to us
concerning the Windsor Casino.

Our view assumes that a challenge of the OCC/Private Operator arrangement would be
adjudicated in the context of a civil proceeding, not in the criminal courts. If a challenge of the
OCC/Private Operator arrangement were to be initiated by way of criminal proceedings against the
Private Operator, the onus would be on the Crown to prove beyond a reasonable doubt that the
Private Operator is involved in unlawful gaming activities. The burden of proof is an onerous one. If,
on the other hand, a challenge of the OCC/Private Operator arrangement arises in the context of a
civil proceeding, the onus of proof - on a balance of probabilities - would be less onerous..

A criminal prosecution against the Private Operator would have to be instigated by the
Ontario Attorney General's office since the administration of justice and enforcement of the Criminal
Code provisions fall within the jurisdiction of the provinces. A prosecution is unlikely if the Attorney
General's office has vetted the Windsor Contract.
 - 39 -
We have raised a number of concerns, based on our legal analysis, about the Government
Ownership/Private Operator Model in Ontario. However, we would be remiss if we did not state that
our legal analysis of the Windsor Casino Model is subject to the facts available to us on how the
Windsor Casino is conducted and managed and our review of the Windsor Contract. As noted, the
actual relationship between the OCC and the Private Operator may differ from that reflected in the
Windsor Contract.

Finally, the jurisprudence reviewed - though instructive in interpreting and construing the
meaning of the conduct and manage requirements of Section 207(1)(a) of the Criminal Code - is not
determinative since none of the cases is "on all fours" with the Government Ownership/Private
Operator model. The Keystone case may be distinguished inasmuch as the conduct of Keystone was
not regulated by a government agency. This is in contrast to the Private Operator, whose activities
are subject to the Windsor Contract and whose conduct is regulated by the GCC. Additionally, in the
Keystone case, counsel for Keystone conceded that Keystone was conducting and managing the
lottery scheme.

In the Andriopoulous case, the Ontario Court of Appeal stated that the clear intent of Section
207 was not to condone gaming but to decriminalize it in circumstances "where regulations will
minimize the potential for public harm". In the OCC/Private Operator arrangement, arguably,
supervision by the OCC and the GCC should minimize the potential for public harm. It is therefore
distinguishable from the unregulated gambling in the Andriopoulous case.

3.2.4 Charitable Gaming in Ontario

A. Historical Evolution of Charitable Gaming

In 1969, the Criminal Code was amended to permit a charitable or religious organization,
under the authority of a licence issued by the Lieutenant Governor in Council, or by such person or
authority specified by the Lieutenant Governor in Council, to conduct and manage a lottery scheme in
the province. The justification for this amendment was that raffles, lotteries and bingos were among
the only methods of raising money which were available to these organizations. The small scale of
these lottery schemes enabled charities to staff and organize the events using their own members,
and in most cases, it was the members themselves who would participate in the lottery
 -40-
schemes. It is an essential element of this legislative authorization that the proceeds from the lottery
scheme be used for a charitable or religious object or purpose: Section 207(1)(b) of the Criminal
Code. Note that charitable and religious organizations are prohibited from conducting gaming on or
through a computer, video device, or slot machine: Section 207(4)(c) of the Criminal Code.

Although it was the charities that were authorized pursuant to the exemption under the
Criminal Code to conduct and manage the lottery schemes, the private sector operators gradually
assumed many of the functions (in bingo hall operations) originally performed by the charities. In
exchange for these services, the private sector operators - rather than the charities - received proceeds
from the charitable gaming, resulting in a lessening of proceeds directed to worthwhile charitable
activities30

This arrangement proved extremely profitable for the operator, and the charities were
receiving more money then they had been able to raise on their own31. The bingo industry flourished
under this arrangement.32 The rise of the commercial operator developed without its conduct being
subject to government regulation, registration or review. All compliance and reporting requirements
were placed on the licensee, while the operator was not held accountable. A decline in volunteerism
and the rapid growth of the commercial sector made it increasingly difficult for the licensee to
conduct and manage the lottery scheme.33 This role had effectively been assumed by the private
sector with no government regulation over this operation.

In an unregulated environment, problems began to develop. In Ontario, charities were

supposed to take a minimum of twenty percent of the bingo revenue, prizes were to account for sixty-
five percent, and the operator was to take fifteen percent. However, the operator took its percentage

Letter written by then Minister of Consumer and Commercial Relations, M. Churley dated February, 1990
accompanying report entitled "Charitable Gaming - Putting the Charities Back in the Driver's Seat" -
"Draft for Consultation Report" issued by Ministry of Consumer and Commercial Relations (the
"Charitable Gaming Report").

30
Keystone Bingo Centre Inc. v. Manitoba Lotteries Foundation et. al. (1989), 48 M.P.L.R. 41, 60 Man.
R. (2d) (191) (Man. Queen's Bench)

"Bingo Numbers don't add up", Globe and Mail, Aug. 17, 1992, p.A6
31
Charitable Gaming Report, supra, p.5.
 -41-
before the charity, and in many cases the charity would end up receiving much less than twenty
percent.

B. Legislative Developments in Ontario

In response to the explosive growth in bingo halls, in 1989, the Ontario Government placed a
moratorium on the licensing of bingos in new commercial facilities. As well, in 1990, the then
Ontario Government published a report - entitled "Charitable Gaming: Putting the Charities Back
in the Driver's Seat" - designed to address the problems. It was at this juncture that the Provincial
Government began to lay the foundation for the regulation of the commercial sector. As a result of
this Report, the then Government introduced new legislation, regulations, and a complementary Order
in Council which were intended to accomplish two primary objectives:

1) To subject the gaming "supplier" (those involved in the gaming industry) which
includes the "bingo hall owner or operator" to registration requirements, and to
introduce the concept of the "regulated supplier".

2) To put "control" back in the hands of charities, through the licensing schemes and
terms and conditions of the licence.

I. Gaming Control Act, 1992

The Gaming Services Act, 1992 received Royal Assent on December 10, 1992, and was
subsequently amended in December, 1993 and renamed the Gaming Control Act, 1992 ("GCA"). It
was intended to regulate the public gaming sector (expressly excluding lottery schemes conducted by
the OLCM), and to give charitable and religious organizations greater control over the conduct and
management of charitable gaming events. The Act and Regulations provided for the registration

34 Bill 75 - An Act to regulate alcohol and gaming in the public interest, to fund charities through
responsible management of video lotteries and to amend certain statutes relating to liquor and
gaming - received 1st Reading in the Ontario Legislature on June 13, 1996. Bill 75 contains
amendments to the Gaming Control Act, 1992 requiring persons who provide goods or services for
video lotteries conducted by the OLC to be registered suppliers with the Gaming Control
Commission. The GCC will also have authority to establish standards for equipment used in OLC's
video lottery schemes.
 -42-
of a "supplier", one who provided goods or services to a licensee: Section 4. The term "services" was
given an expanded definition to include providing gaming premises, providing management or
consulting services, providing employees involved in gaming operations, and the manufacture and
distribution of materials or supplies related to gaming: Section 4(2). Classes of suppliers for purposes
of registration under the Act include:

1. bingo hall owner or operator

2. gaming services supplier ["GSS"]
3. gaming equipment supplier ["GES "]
4. gaming equipment manufacturer
5. bingo paper or break open ticket manufacturer
6. break open ticket seller ["BOT seller"]

II. Order in Council

Order in council 2688/93 ("OIC 2688/93"), approved and ordered October 27, 1993 - and
revoking all previous Orders in council relating to the issuing of licences for lottery schemes was
made under the authority of the Criminal Code. It provides that the Director of Gaming Control may
issue a licence to any person eligible to conduct and manage a lottery scheme subject to the
provisions of Section 207 of the Criminal Code.

OIC 2688/93 further provides that a municipal council may issue a licence authorizing an
eligible charitable organization (as determined by the Gaming Control Director) to conduct certain
lottery schemes in the nature of bingo, media bingo, raffles, bazaars and break open tickets. Prizes
must not exceed specified monetary values. Eligibility criteria are issued by the GCC and published
 -43-
in its Lottery Licensing Policy Manual3S. The eligibility criteria are applied by the municipal council
to determine whether to issue a license to a charitable organization.

There is nothing in OIC 2688/93 which confers upon a municipal council the power to
exercise discretion in the determination of eligibility. If in fact, the municipal council determines
eligibility based upon criteria other than those set out in the GCC Lottery Licensing Policy Manual,
the municipal council would be acting outside its powers. Provided the municipal council does not
exercise discretion in determining eligibility, but simply applies the criteria prescribed by the Director
of the GCC, then its function is purely an administrative one. It should be noted that OIC 2688/93
does allow a municipal council to exercise discretion to refuse to issue a license where it is not "in
the best interests of the inhabitants of the municipality": paragraph 2.(2) of OIC 2688/93.

Use of Proceeds from Charitable Gaming

35
The GCC has published a Fact Sheet to Charitable Gaming in Ontario.
This sheet identifies the following mandatory prerequisites to be considered eligible for a lottery
licence:

• Organizations must have been in existence for at least one (1) year before being considered
eligible for lottery licences
• The organization must have a place of business in Ontario, demonstrate that it is established
to provide charitable services in Ontario and use proceeds for objects or purposes which
benefit Ontario residents

As well the Fact Sheet provides that the following questions may be used to determine the eligibility of
the applicant:

• Does the organization qualify as a charitable or religious organization?

• Is the organization established to provide charitable services in Ontario and use proceeds for
objects or purposes which benefit Ontario residents?
• Does the organization restrict its mandate to any segment of the community?
• Does a significant portion of the community benefit by the fund raising of the applicant?
• Is the applicant properly organized such that it is separate from any other organization? i.e.
legally, financially, organizationally.
• Has the applicant been in operation for at least one (1) year and have a proven charitable
mandate? If not, it is not eligible.
• Are there at least 3 persons who will assume full responsibility for the operation and conduct
of the event.
• What will the proceeds be used for and is the intended use consistent with the classification?
• Does the organization have a place of business in Ontario.
 44

OIC 2688/93 requires that:

"the gross proceeds of the lottery shall be used for the specified charitable
or religious objects or purposes providing a direct benefit to Ontario
residents."

Section 1(d) of OIC 2688/93 - which is the Interpretation Section defines "gross proceeds" as
follows:

"gross proceeds" means all money and other things of value received by a
person in the conduct of a lottery event; (emphasis added)

OIC 2688/93 does, however, expressly authorize that from the gross proceeds, the cost of the
prizes awarded and such reasonable and necessary expenses actually incurred in the management
and conduct of the lottery be paid, the remaining proceeds to be used for the charitable object or
purpose: Section 11(1)(b) of OIC 2688/93. The OIC makes clear that such expenses are to be
restricted to those set out in the terms and conditions of the licence.

The requirements for obtaining a lottery licence and the terms and conditions thereof were
designed to ensure that the licensed party was legitimate, that the proceeds were to be used for
charitable purposes, and that the licencee would undertake responsibility for administrative and
financial functions which would ensure that the lottery scheme remained "within the control" of the
licencee.

The Government, through the terms and conditions imposed upon a licencee, has attempted to
return the "control" of the lottery scheme to the licensed charity. In adopting the above regulatory
scheme, Ontario has endorsed the use of a "private operator" working in conjunction with the
licensed charity.

Media Bingo

OIC 2688/93 also contains a provision which purports to authorize a licensed charity to
conduct a media bingo lottery event on or through, among other means, a television. This conflicts
with the provisions of Section 207(4)(c) of the Criminal Code, as discussed below.
 -45-

C. Concerns about Charitable Gaming

The structures which have evolved in Ontario for the carrying on of charitable gaming, raise
concerns because of the involvement of the Private Operator. Admittedly, the legislative regime in
Ontario requires that charities engaging in charitable gaming events hold a licence, the terms and
conditions of which are intended to ensure that the conduct and management requirements of the
Criminal Code are satisfied. However, the involvement of the Private Operator is such that we
question whether control in fact of the charitable gaming events is in the hands of the charity and
whether the charities direct and have charge of the lottery scheme. This question is raised, in
particular, in the context of Break Open Tickets ("BOT") and Bingo lottery events, which gaming
activities as they are carried out in Ontario do not, in our view, comply with the conduct and manage
requirement and the use of proceeds for a charitable purpose requirement of the Criminal Code.

I. Break Open Tickets and Retailer Locations

The new legislative scheme in Ontario established - as one vehicle for charitable gaming
purposes - a BOT Lottery Licence. One scenario contemplated is when the licensed charity sells
BOTs at a third party location through a registered BOT seller36. The third party locations are
primarily retail establishments, including lottery kiosks. It is under this scenario - BOT lotteries in
the retail environment - that we question whether the charitable or religious organization is
conducting and managing a BOT lottery, as required under Section 207(1)(b) of the Criminal Code.

BOT lottery schemes are unlike other charitable gaming events, such as raffles and bingo
lottery events carried on at the premises of the charities of the licensed charities. The fact that bona
fide members of the licensed charities are present at least in a nominal capacity at these gaming events
distinguishes it from a BOT lottery scheme, where the licensed charity has no presence or
involvement in the retail establishments where BOTs are sold. There is also the practice which has
developed in the BOT marketplace where a GSS approaches a licensed charity, takes all steps
necessary to establish the BOT lottery including locating the BOT seller, a retail establishment, and
then "prepays" the licensed charity its share of the proceeds before even having commenced the BOT

36 Ontario
Regulation 23/93 made under the Gaming Control Act, 1992 [formerly named the Gaming
Services Act, 1992]
 - 46 -

lottery scheme. Clearly, in this instance, it cannot be said that the licensed charity directs and has
charge of the lottery scheme.

When a licensed charity "conducts and manages" a BOT lottery from retailer locations, using
the services of a GSS, the licensed charity in effect loses de facto control of the conduct of the
lottery. This point is most clearly illustrated where the GSS organizes the BOT lottery and prepays
the licensed charity in advance of the lottery event occurring.37 The control feature in this scenario is
supposed to be the terms and conditions of the BOT licence. However, even the terms of the BOT
license which provide that "the licensee has the option of receiving its proceeds from the sale of BOT
at the time the tickets are delivered for sale to the BOT seller" - allow the licensed charity to remove
itself completely from the conduct and management of the BOT lottery event. The Lottery
Licensing Policy Manual issued by the GCC, under the heading of BOT lottery, cites functions
which are fundamental to the management and sale of BOTs. The Policy Manual states further that
these functions: "must be carried out only by the licensed organization unless service is being
provided by a Gaming Service Supplier registered under the GCAi38

In this scenario, the licensed charity is, in our view, too far removed from the sale of BOTs,
to be considered conducting and managing the BOT lottery. As well, we question whether the
licencee exerts sufficient control to enable it, under the terms of the licence, to comply with the
requirements that the licencee shall be responsible for ensuring the payment of all prizes, and to
ensure that BOTs are kept secure.39 Given that the GSS in this scenario delivers the BOTs to the
seller, we question whether the seller, in conjunction with the GSS, does not in fact conduct and
manage the BOT lottery in its own capacity."

Paragraph 7.4(b)(v) of the Break Open Ticket Lottery License.

37 Such a supplier would be a GSS, who, for a fee, assumes the responsibility for almost all
administrative, financial and distribution responsibilities of the licensee. One source of the City of
38 Toronto Licensing Office has estimated that 98% of charitable licensees use such GSSs.

Reference paragraph 4.3 and 4.4 of the Break Open Ticket Lottery Licence.
39

This arrangement, of payment of proceeds by the seller upon delivery by licensee, was considered in a
40 legal opinion issued by the Federal Department of Communication in January 1991, to the Deputy Tax

Commissioner of the State of Nebraska Department of Revenue regarding the sale of "Pickle Card Games"
(otherwise known as break open tickets) by non-profit enterprises. After scrutinizing a similar type of
arrangement, the Commission found that there was insufficient participation by the
 -47-
The express provisions of the Policy Manual and the Terms and Condition of the Licence, in
effect, authorize the licensed charity to "delegate" virtually all of the conduct and management of the
BOT lottery event to persons not otherwise authorized under Section 207(1)(b) of the Criminal Code
to conduct and manage lottery schemes.

In addition to the design flaw in the legislative scheme "regulating" BOT lotteries, there is an
enforcement problem. The control feature is supposed to be the terms and conditions of the BOT
Lottery License issued to a licensed charity. However, from a practical point of view, neither the
Director of the GCC nor the municipality - who issue BOT licenses - has the resources to enforce the
terms and conditions of BOT licenses. Without meaningful and effective enforcement, market forces
take over. Where market forces dominate, the licensed charity is likely to sacrifice a portion of its
annual gaming revenue, to preserve a guaranteed stream of payments. Just as charities sacrificed
gaming revenues to bingo operators to maintain the flow of revenues to charities, so too are charities
sacrificing BOT revenues to ensure a constant stream of lottery revenues.

The design flaw in the legislative scheme has manifested itself in a number of serious problems
that have developed in the context of charitable gaming involving BOTs and other products (eg. raffle
tickets) that are sold in the retail environment. These problems - many of which have been
documented in the press41- are identified as follows:

• illegal commissions for premium locations (eg. mall kiosk or centrally located retail outlet)
• competition between charitable organizations in order to obtain premium retailer locations
• maintaining the integrity of a BOT lottery is more difficult because of the absence of

participation and control by the licensed charity

nonprofit enterprise to conclude that it was conducting the break open ticket lottery. This legal
opinion while not binding on an Ontario Court, is of interest.

41 The Sault Star, "That a Ticket Probe Nixes for Local Licenses Won't Say Where" (May 6, 1995); The
Sault Star, "Playing the Nevada Ticket Game" (June 3, 1994); The Ottawa Citizen, "OBE Grabs
Charity's Fund Raiser" (March 1, 1994); Timmins Press, "Timmins Lease Fees Doctored Lottery
Tickets" (March 28, 1994); The Sault Star, "Charges Pending in Two Year Nevada Probe"
(November 11, 1995)
 -48-
The unlawful manner in which BOT lottery schemes are conducted and managed by GSSs
and other private sector interests and additionally, unlicensed "grey" market BOTs, to the extent that
they exist, have the effect of diverting revenues from charitable purposes to private interests. Since
BOTs sold through retailer locations compete head to head with OLC lottery schemes, this unlawful
gaming activity also represents revenue slippage from the point of view of potential government
revenues from its lottery schemes.

II. Bingo Lottery Events - Using Registered Bingo Hall Owner/Operator

Another aspect of the charitable gaming marketplace which gives rise to a concern about its
lawfulness is bingo lottery events. It is questionable whether, the charitable or religious organization
who uses the services of a registered Bingo Hall Owner/Operator (instead of conducting the bingo
lottery event in its own premises using its own volunteers) is, in fact, conducting and managing a
bingo event lottery in accordance with Section 207(l)(b) of the Criminal Code. The question arises in
light of:
• the high number of Bingo Hall Owner/Operator employees per hall
• the degree of participation in the lottery scheme by the Bingo Hall Owner/Operator
• the minimum requirement of only three bona fide active members of the licensed charity to
be present, and
• the provision of "consultation" to the licensed charity (either directly or through a bingo
sponsors association) by the Bingo Hall Owner/Operator in respect of organizational
functions, including

scheduling times and dates for bingo events

♦ determining prizes to be awarded
♦ determining game schedules and prices of cards
♦ pooling of bingo proceeds.

There are over 277 bingo halls registered in Ontario which provide the services outlined
above. Of these halls, 42 are operated by one company, and 8 are operated by another, the balance
 -49-
2
are owned by sole proprietors. Each bingo hall employs ari average of 20-25 people 4 It is estimated
that a significant percentage of bingo games in the province are conducted using registered Bingo
Hall Owner/Operators and their employees.

The actual involvement of the licensed charity in a bingo lottery event using a registered bingo
hall owner/operator is limited to essentially:

• receiving from the hall manager an allocation of bingo cards for the session
• distributing the cards to runners (usually charity members of which only three are required as
a minimum) to sell throughout the bingo session
• assisting the caller to verify a winning card
• awarding prize money to the winning bingo players
• financial reporting, banking and record keeping in accordance with the Terms and Conditions
of the Bingo Lottery Event Licence

It should be noted that the Bingo Hall Owner/Operator:

• sets the "Prize board", which is the value and distribution of prizes that the bingo hall will
offer during a given session according to the terms of the licence
• provides the caller as well as supplying the equipment used in the bingo, the hall premises, an
allocation of bingo cards for the session
• has discretion over which licensees will be given a session to conduct and manage a bingo
lottery event

This factual description of bingo lottery events in Ontario using registered bingo hall
owners/operators raises a concern about who, in fact, is conducting and managing the bingo lottery
event. The charity does not have control in fact of the bingo lottery event and it does not direct and
have charge of the bingo lottery event.

42 "TheGaming Marketplace in Ontario" Report of Ministry of Consumer and Commercial Relations -

Policy, Agencies in Corporate Affairs Division (August, 1995) "MCCR Report".
 -50 -

Another issue which arises in assessing the lawfulness of bingo lottery events in Ontario
concerns the increasing use of computers and other electronic devices within bingo halls. This issue is
addressed in greater detail below under the discussion concerning traditional bingo, enhanced by the
use of computer/electronic devices ("Enhanced Bingo").

D. Flaw in the Ontario Legislative Scheme

Section 207(1)(b) of the Criminal Code makes it lawful for a charitable or religious
organization to conduct and manage a lottery scheme in a province provided that

• the lottery scheme is conducted pursuant to a licence issued by the

Lieutenant Governor in Council and

• the proceeds are used for a charitable or religious purpose.

The provincial legislature has no jurisdiction under Section 207(1)(b) of the Criminal Code to
make laws authorizing persons to conduct and manage a lottery scheme. The authority granted to
the Lieutenant Governor in Council of a province under Section 207(l)(b) is simply to licence
persons otherwise authorized under Section 207(l)(b) to conduct and manage a lottery scheme.43
The authority to lawfully conduct and manage lottery schemes must derive from the Criminal Code,
not provincial legislation. Accordingly, the Ontario Government could not, by virtue of the GCA or
any other provincial law authorize any other person - whether it be a GSS, a GES, a BOT seller or a
Bingo Hall Owner/Operator, to conduct and manage lottery schemes.

The question is whether the Lieutenant Governor in Council under Section 207(l)(b) of the
Criminal Code is empowered to not only licence charitable and religious organizations, but to
authorize them to "delegate" the conduct and management of charitable gaming events to persons not
otherwise authorized under the Criminal Code.

43 Similar authority is granted to the Lieutenant Governor in Council of a province to licence persons
otherwise authorized under Section 207(1)(c) (fair or exhibition) and (d) (public place of amusement)
of the Criminal Code to conduct and manage a lottery scheme.
 -51-
In the case of BOT lottery schemes, the express provisions of the Lottery Licensing Policy
Manual produced by the GCC and the Terms and Condition of the BOT Licence appear to authorize
the licensed charity to "delegate" virtually all of the conduct and management of the gaming event to
persons not otherwise authorized under Section 207(l)(b) of the Criminal Code to conduct and
manage lottery schemes.

In the case of Bingo lottery schemes - based on our understanding of how charitable bingos are
actually carried on in Ontario - the Bingo Hall Owner/Operator is using its greater resources to
"assist" the licensed charity in fulfilling its obligations under the terms of the licence. The price of this
convenience may, in the absence of enforcement, result in the unlawful delegation of the "conduct and
manage" function to the Bingo Hall Owner/Operator. Once the Bingo Hall Owner/Operator has
assumed de facto control of a majority of the components of the bingo lottery event, then he is no
longer simply operating the gaming activity but is conducting and managing it.

E. Authority to Delegate "Conduct and Manage" Functions

Does the Lieutenant Governor in Council - through the licensing power granted to it by
Parliament have the power to authorize a licensed charity to delegate functions to other persons such
as is being done in Ontario? The role of the Lieutenant Governor in Council is limited to "licensing"
someone who is otherwise authorized by Parliament to conduct and manage lottery schemes. In the
case of Section 207(1)(b), only charitable and religious organizations are so authorized. It is
not within the jurisdiction of the Lieutenant Governor to authorize others - either directly or
by authorizing the licensee to delegate its authority to others to conduct and manage lottery
schemes.

Can the licensed charity itself delegate to other persons the conduct and manage functions?
Parliament has made lawful lottery schemes which are conducted and managed by a charitable and
religious organization and where the proceeds of the lottery scheme are for a charitable or religious
purpose. Parliament has effectively placed a special trust in charitable and religious organization,
decriminalizing gaming activities conducted by a charitable and religious organization. Gaming
activities - which are otherwise unlawful - are a matter of special trust. That special trust in the
 -52-
charitable and religious organizations has, by virtue of the legislative scheme in Ontario been
delegated to the Bingo Hall Owner/Operators, GSSs, GESs, and the BOT sellers, among others.

The propriety of this delegation by the charitable and religious organizations to others is
questionable. This delegation is purportedly authorized by the Terms and Conditions of the Licence,
the GCA and the policies of the GCC. The Keystone case established that, if the private sector
operator is the "operating mind" and is operating the lottery schemes in contravention of the
provisions of the Criminal Code, not even the legislature of the province could give the private
sector operators the colour of right to act in the manner in which they do.

F. Terms and Conditions of Licence: Sufficiency of Control Features

The Terms and Conditions of the Licences issued to charities are intended to serve as
"control" features in the relationship between the charity and the Private Operator - that is, to ensure
that the licensed charity is conducting and managing the lottery event. However, to the extent that
the Terms and Conditions are not being strictly complied with or, alternatively, the Terms and
Conditions authorize a licensed charity to delegate virtually all aspects of the conduct and
management of the lottery event, the "control" of the lottery scheme, in fact, is with the Private
Operator. To the extent that the Private Operator is the "operating mind" of the lottery scheme, then it
is the Private Operator, not the charity that is conducting and managing the lottery scheme. The
Keystone case establishes that a Private Operator who supplies the premises, operating expertise,
services, operating equipment and personnel to a licensed charity at a venue that is not publicly
owned premises or premises owned or possessed by the licensee authorized to conduct and manage the
lottery scheme may result in a finding that it is the Private Operator, not the licensee, that is
conducting and managing the lottery scheme. Even though Ontario has established a registration
regime for the Private Operator, the Keystone case establishes that provincial legislation could not
give the Private Operator the colour of right to act in the manner in which it does, if in fact, the
Private Operator is conducting and managing the lottery scheme.

G. Charitable Gaming Regimes in other Provinces

 - 53 -

It is useful to look to other provinces of Canada and the regimes which have been established
for the regulation of charitable gaming, particularly in relation to private sector involvement. Other
provincial regimes may serve as a model for changes to the Ontario structures which have evolved.

In Alberta, BOTs are manufactured by private companies for sale to charities. The charities
obtain a licence to sell the BOTs at community centres, legions halls, or the premises of the
organizations. No BOT may be sold through a retail or liquor establishment.

Community Bingo is conducted under licence on a small scale at the premises of the charitable
organization, or under licence on a much larger scale through a Bingo Association which is
comprised of 25-30 registered charities. In this large scale situation, the Association enters into a
lease with a private landlord for the premises, but the association remains responsible for the
administration, staffing and financial activities of the bingo games. There are no private bingo
operators in the province.

In British Columbia, BOTs are the sole jurisdiction of the British Columbia Lottery
Corporation (the "Corporation"), which has the additional responsibility of conducting and managing
lottery schemes such as "649" in the province. The Corporation distributes BOTs through its regular
channels, but also may supply BOTs to a bingo management company or bingo association for sale at
a bingo event. The BOT lottery is separate and distinct from the Bingo, and the revenues are not
directly allocated to the charitable organization.

In Quebec, no BOTs may be sold through a retail establishment. BOT lotteries are allowed for
the benefit of charitable organizations; however, BOTs may be sold only in conjunction with a
licensed bingo lottery event.

In Manitoba, one body, the Manitoba Lotteries Corporation is responsible for all gaming in
the province including, the regulation, licensing, and conducting and managing of lottery schemes as

44 Bill 76 - The Gaming Control and Consequential Amendments Act was introduced by the Manitoba
Government on June 3, 1996. The proposed legislation establishes a new Gaming Control
Commission, as regulator, responsible for inter alia, ensuring all lottery suppliers, equipment and
employees are registered. These registration requirements are applicable in respect of both suppliers to
the Manitoba Lotteries Corporation and suppliers to licence holders.
 -54-
There are no private gaming suppliers in the province. The Corporation is the sole supplier of BOTs,
and in turn sells the BOTs to licensees for sale at bingos. BOTs are currently sold at 25 of the 750
retail outlets authorized to sell Western Canada Lottery Corporation products. Under the above
framework, the Government of Manitoba has centralised all aspects of gaming regulation and
operation in one entity (a second entity - the Gaming Control Commission - is contemplated under
Bill 76). Unlike Ontario, in response to the growth of private gaming operator, Manitoba assumed
control of charitable gaming operations instead of permitting the private sector to continue its
involvement.

With respect to bingo lottery events, private sector involvement is limited. A majority of the
licensed bingo lottery events are conducted in church basements and in community halls. Licences
for charitable gaming are issued by the Regie des Alcools, des Courses et des Jeux. Quebec's
charitable organizations may offer one bingo game per week, with up to $3,500 in prizes.
 - 55 -

6. LEGAL ISSUE #2 - PROCEEDS FROM GAMING ACTIVITIES

The intrusion of the private sector into the gaming sphere has resulted in the diversion
of proceeds derived from lottery schemes from public purposes to private interests and from
charitable or religious purposes to private interests, both in conflict with the intent of the
Criminal Code.

A. Charitable Gaming

I. Are the Proceeds From Charitable Gaming used "for a charitable or religious object or
purpose"

We question whether the regulatory scheme for charitable gaming established in Ontario under
Order in Council 2688/93 and the GCA is in compliance with the provisions of Section 207(1)(b) of
the Criminal Code. It requires that "the proceeds from the lottery scheme are used for a charitable or
religious object or purpose". In particular, the question is whether this provision being complied with
given that the Bingo Hall Owner/Operators, GSSs and GESs are receiving a significant, and perhaps
excessive percentage of the charitable gaming revenues?

A recent report published by MCCR estimated that the annual gross wagering in the
Charitable Gaming category was $2.07 billion 45 Of this amount, the "win", the gross amount
wagered minus the prizes paid out, for the charitable segment was $565 million. This amount has
been further broken down into categories. Of the $565 million, $290.2 million or 51.36%, is
provided to charitable licensees, while $240.1 million or 42.5% is spent on expenses. For this
estimate, expenses include the cost of tickets and bingo paper, all staff, hall rental, other supplies, as
well as including a profit margin for the Bingo Hall Owner/Operator, GES, GSS or BOT seller if
necessary. Admittedly, this figure includes expenses which are unavoidable in the conduct and
management of lottery schemes. Notwithstanding, 42.5% spent on expenses seems an inordinate
amount to be diverted to the private sector. This amount is not being used for a charitable or

45 "The Gaming Marketplace in Ontario" Report of Ministry of Consumer and Commercial Relations -
Policy, Agencies and Corporate Affairs Division (August, 1995).
 - 56 -
religious object or purpose. This, in our view, flies in the face of the provisions of the Criminal
Code and is precisely the concern expressed by the Manitoba Court of Appeal in the Keystone case.

On the basis of the Keystone, case, we question whether charitable gaming, as it is currently
being carried on in Ontario is lawful, where Private Operators (albeit, registered under the GCA)
receive gaming revenues that go beyond simply remunerating the Private Operator on the basis of a
fair rate of return for the resources committed. It is not sufficient that the charitable organization
carrying on gaming activities is licensed; nor is it sufficient that the licensed charity conduct and
manage the gaming event. In order for the gaming activities to be lawful, each of the conditions
prescribed by the Criminal Code must be satisfied. One of the essential elements is that the proceeds
from the lottery schemes must be used for a charitable or religious purpose. It is questionable
whether this essential element is being met under the current legislative scheme in Ontario.

B. Casino Gaming

Pursuant to section h.l of the Windsor Contract, the Operator's fee is 2.75 per cent of the
Gross Operating Receipts in each operating year and 5 per cent of the Net Operating Margin. The
Net Operating Margin is defined to mean Gross Operating Receipts less Win Tax, Operating
Expenses, FF&E Repairs and certain reserves (but is not net of interest expense, Capital Renewals,
capital expenditures, the Operator's Fees, G.S.T., depreciation and rent and other payments). Based
on the financial statements contained in the OCC Annual Report 1994/1995, the Private Operator's
fee for the period from the commencement of operations on April 1, 1994 to March 31, 1995 was
$26.824 million.``

The compensation formula contained in the Windsor Contract, in our view, goes beyond
simply remunerating the Private Operator for performing the implementation and operation of the
casino (that is, a fair rate of return for the resources committed to the endeavour) and provides the
Private Operator with a very real participation in the profits from operating the games of chance.
This raises a concern based on the Keystone case, supra p.430. Admittedly, the Criminal Code does
not expressly provide that proceeds from lottery schemes must go to public purposes, where the
lottery schemes are conducted under Section 207(1)(a) - in contrast to Section 207(1)(b) where

46
Ontario Casino Corporation Annual Report, 1994/1995, p.29.
 - 57 -
proceeds must be used for a charitable or a religious object or purpose. However, the fact that
Parliament has created a monopoly in favour of provincial governments - that is, in order for lottery
schemes to be lawful under Section 207(1)(a), such lottery schemes must be conducted and managed
by a provincial government, implies that Parliament intended that the proceeds from the lottery
scheme be for public purposes rather then private interests.

The Private Operator's "fee" at Casino Windsor is tantamount to a very real participation in
the profits. As such, it represents a diversion of gaming revenues from public purposes to private
interests, contrary to the intent of Section 207(l)(a) of the Criminal Code.

Recommendations: Proceeds from Gaming Activities

If there is to be lawful private sector involvement in gaming activities, legislative amendments

designed to ensure that the Private Operator receives remuneration that is consistent with the market
value of the goods and services rather than compensation on a percentage of proceeds or profit
sharing basis would go some way towards curing one of the flaws in the current legislative scheme in
Ontario. This applies to both charitable and casino gaming.

There remains, however, the issue concerning whether the conduct and management of the
gaming activities is in the hands of the licensed charity, in the case of charitable gaming and in the
case of casino gaming, in the hands of the OCC as required under Section 207(1) of the Criminal
Code, as discussed above.
 - 58 -
7. LEGAL ISSUE #3 - ELECTRONIC GAMING
The use of electronic gaming machines
• in the proposed private sector initiative to implement video lottery terminals
("VLTs") in Ontario
• in bingo and media bingo, under the auspices of a licensed charity,
• in casinos by private sector operators
are of particular concern, in light of the provisions of the Criminal Code. The Criminal
Code provisions intended to grant to the provincial government the exclusive
jurisdiction to engage in electronic gaming. Use of electronic gaming machines
(including VLTs, slot machines or bingo terminals), computers or video devices by
others is unlawful. The unlawful use of these electronic gaming machines, computers
or video devices, in gaming activities carried on by persons other than the provincial
government represents an incursion on the exclusive jurisdiction of the provincial
government to engage in electronic gaming and results in a diversion of proceeds from
public sector purposes to private interests. Further, the conduct is in breach of the
Criminal Code.

A. Legislative Authorization

It is lawful only for a provincial government under Section 207(1)(a) to conduct and
manage a lottery scheme that is operated on or through a computer, video device or slot machine.
Section 207(4)(c) of the Criminal Code establishes that the exemptions contained in Section
207(1)(b), in favour of charitable or religious organizations, and those contained in Section 207(1)(c)
and (d), in favour of fairs and exhibitions or public places of amusement are expressly limited such
that those organizations or persons may not be licensed to conduct or manage lottery schemes using:

".... a game or proposal, scheme, plan, means, device, contrivance or operation described in
any of paragraphs 206(1)(a) to (g) that is operated on or through a computer, video
device or slot machine, within the meaning of subsection 198(3)." (emphasis added)
(hereinafter referred to as "Electronic Gaming")
 - 59 -

A plain reading of the words of Section 207(4)(c) suggests that licensed charities, among
others, are precluded from engaging in Electronic Gaming. Indeed, consultation with one of the
drafters of Section 207 of the Criminal Code confirms that the intent of Section 207(4) was to ensure
that electronic gaming was reserved for the provincial governments and that Electronic Gaming be
outside the purview of all other persons - including charitable and religious organizations - authorized
to engage in lawful lottery schemes.

A review of the proceedings of the Senate Committee on Legal and Constitutional Affairs
with respect to the 1985 Criminal Code amendments discloses that the amendments were intended,
among other reasons, to clarify the law so as to restrict the operation of computers, video devices and
47
slot machines to the exclusive use of the provinces. Submissions made by witnesses before the
Senate Committee expressed the view that prior to the 1985 amendments, the Criminal Code
provisions were open to an interpretation that licensed lottery schemes (i.e., charitable and religious
organizations, fairs and exhibitions and places of amusement) could use electronic devices for
example, slot machines, which were the principal electronic gaming device at that time. Submissions
were made before the Senate Committee that the 1985 amendments were required, in part, in order
to remove any doubt that those licenced to conduct and manage lottery schemes were restricted from
using electronic gaming devices.

During the Senate Committee meetings, it was apparent that certain of the provinces - namely
Ontario - took a more restrictive view of the provisions of the pre-1985 Criminal Code, interpreting its
provisions to preclude the use of electronic gaming machines in licenced lottery schemes (i.e., by
charitable and religious organizations, fairs and exhibitions and public places of amusement).
However, others did not take such a restrictive view . The 1985 amendments to the Criminal Code
were intended to clarify the law and eliminate the confusion concerning the potential broad usage of
electronic gaming equipment. Mr. Richard Mosley, General Counsel, Criminal Law Policy and
Amendments Section, Department of Justice, a witness before the Senate Committee commenting on
the 1985 amendments, stated at p. 33:13:

47 Hansard, Senate Committee on Legal and Constitutional Affairs [R. Mosley, General Counsel,
Criminal Law Policy and Amendments Section, Department of Justice and M. Gagnon (representing
the Interprovincial Lottery Corporation) appearing as witnesses].
 - 60 -

"The licensing of lottery schemes or gambling devices which are operated on or

through any computer, video device or machine would also not be permitted.
However provincial governments themselves could operate such devices. [Emphasis
added].

The findings of the Senate Committee confirm that the intention of the 1985 amendments was
to clarify the law and eliminate the confusion concerning the use of electronic gaming equipment.
The Senate Committee's findings, among others, were that the 1985 amendments

"...would restrict the availability of gaming computers and video devices, as well as
slot machines, to lottery schemes actually conducted and managed by the provinces. At
present it is arguable that, those who may conduct gaming under provincial licence
are not precluded from using these devices".48

Accordingly, charitable and religious organizations, as well as fairs, exhibitions and public

places of amusement, are prohibited from conducting lottery schemes using, inter alia, a game, device

or operation that is operated on or through a computer, video device or slot machine. B.

"Enhanced Bingo"

An emerging issue with respect to charitable gaming in Ontario concerns the use of
video/computer devices, particularly in relation to bingo lottery events. The competition for gaming
revenues, the development of new technology and the less restrictive interpretation of the Criminal
Code prohibition by the GCC has led private sector operators under the auspices of charitable
licensees, to attempt to introduce a variety of electronic devices designed to make bingo more
exciting. Private sector operators in Ontario have taken the position that it is necessary to offer larger
prizes and a "high degree of excitement" to attract new, younger players to bingo, and to remain
competitive with other lottery schemes and entertainment in the province.

In this analysis, we will refer to traditional Bingo, that is, a Bingo Lottery Event played with
paper cards, where the operation and play of the event is supplemented with electronic and/or
computer devices as "Enhanced Bingo"

48 z d.
 - 61 -
Enhanced Bingo is here to stay. This represents an evolution of the bingo industry in Ontario.
Illustrations of computers and other devices currently in use within bingo halls in Ontario are set out at
Schedule 5 hereto and include:

• Autotronic 7000 Blower Unit (or similar device)

• Autotronic 7000 Flashboard (or similar device)
• Colour Closed Circuit TV System
• "
Quick Chek Verifier" Computer Verification System

A description of the devices in Schedule 5 serves to illustrate that electronic and computer
devices are becoming an integral part of the bingo industry.

The current use of these electronic/computer devices within bingo halls in Ontario suggests
that the GCC has approved the registration of the Gaming Equipment Supplier or their use by the
registered Bingo Hall Owner/Operator. We have not examined the propriety or lawfulness of these
electronic and computer devices used in bingo halls. However, recently approved computer devices
and significant pending applications before the GCC and the Courts have been considered in detail in
our Supporting Legal Analysis/Documents, and are summarized herein, including:

• Personal Bingo Verifiers;

• Video Bingo King System;
• Registered Gaming Suppliers of Ontario/Star of Fortune Proposal

(i) Personal Bingo Verifiers ("PBV")

A computer device which was recently granted approval by the GCC for use in bingo halls in
Ontario is the personal bingo verifier ("PBV").

A PBV is a hand held computer unit which, when programmed before the session, will store all
faces that the patron will be playing during that session. These units enhance the speed of the game
and allow a player to purchase six times as many cards as could normally be played.
 - 62 -
Prior to each game, the player enters a specific two or three digit game code supplied by the
caller. During the game, the player enters each number as it is called. The PBV compares this number
with those stored in memory. The PBV alerts the player when it registers a bingo match, and identifies
the particular card on which the bingo has been called. Once the specific bingo card is identified, it is
the responsibility of the player to manually dab the card before it can be submitted for verification and
prize collection. Winning cards must be manually dabbed in order to comply with provincial
regulatory requirements.

In allowing the application for use of PBVs, the GCC acknowledged that, according to the
terms of the charitable licence, it was prohibited for bingo to be played on the verifier. The terms
and conditions of the bingo licences with respect to the use of personal bingo verifiers explicitly
prohibit the playing of the game on the verifier. The game must be played on the paper cards in the
normal course. Hence, the requirement for the player to submit for verification and prize collection, a
manually dabbed winning card. However, the PBV can be used by the player as an ancillary
device.

It is questionable whether a PBV has been accurately characterized by the GCC as an ancillary
device, which was the basis of the GCC's decision to allow the use of the PBV. It is an integral part
of the bingo game - insofar as the bingo player is concerned - he is empowered by virtue of the PBV to
play six times as many cards then could normally be played. As such, the player's chances of winning
are multiplied. This decision of the GCC represents a narrow interpretation of the prohibition
contained in Section 207(4)(c) against Electronic Gaming by a licensed charity. The decision also
reflects the tremendous pressure being exerted by private sector interests, under the guise of a
charitable licensee, to encroach upon the area of Electronic Gaming.

(ii) Bingo King System - System 12

The GCC rejected an application by The International Centre. (the "Centre") for approval to
use Bazaar Novelty's Video King Gaming System Inc.'s System 12 ("the Bingo King System") in the
Province of Ontario. The Bingo King system uses a manual "blower and ball system" but also uses
video/computer devices. The GCC advised the Centre that the Bingo King System would not comply
with Section 207(4)(c) of the Criminal Code because the bingo game would be operated "on or
 - 63 -

through a computer". In deciding the Bingo King System application, the Director of the GCC
identified a framework to be used in evaluating proposed equipment devices:

• The Director will first assess each piece of equipment to ensure compliance with the conduct
and management requirement of Subsections 207(l)(b) and 207(4) of the Criminal Code.
• The Director then takes into account the activities or functions that are involved in the
operation of a lottery scheme. In this respect, the Director breaks down a lottery scheme into
basic components to determine what functions the equipment will affect.
• The Director will also employ an "inoperable" test, as was done in this application. The
question asked is whether the lottery scheme continues to be played if the computer or
electronic device becomes inoperable. If the answer is yes, then the system or device is
"ancillary" to the conduct and management of the lottery scheme, and is likely to be
approved subject to policy or other implications which may arise from the use of the
equipment.

In this case, the GCC also decided that the Bingo King System would be considered a "slot
machine" as defined in subsection 198(3) of the Criminal Code.

The Centre filed a Notice of Application for Judicial Review in the Ontario Divisional Court
on July 17, 1995.49 The Centre asserted that the chance element in the bingo game is performed
manually through a blower and ball system, and that Section 207(4)(c) of the Criminal Code is
applicable only in circumstances where the entire chance element is operated on or through a
computer or video device. Subsequently, the GCC filed a motion in the Divisional Court for an Order
quashing the Application on the grounds, inter alia, that there had been no exercise by the GCC of a
statutory power or statutory power of decision. Essentially, the position of the GCC was that the
GCC had not been called upon to make a decision but rather, simply provided advice or views
concerning the legality of the Bingo King System. The GCC also took the position that the Director
would consider taking action, if contrary to the GCC's advice or views, the applicant were to utilize the
Bingo King System. The motion to quash was dismissed by Feldman J. who was of the view that the
jurisdictional issue being raised by the GCC on the motion was inextricably tied to the argument

49 T.I.C.C. Limited (c.o.b. as "The International Centre") v. Ontario Gaming Control Commission, Ont.
Ct (Gen. Div.) (Divisional Court) heard June 26, 1996 (unreported).
 -64-
of the case on the merits and accordingly, the issue should be decided at the hearing of the
Application.

The Application was heard by the Divisional Court (Steele, Borins and Adams JJ.) on June
26, 1996. During oral argument, it became clear that there was disagreement between the.parties as
to what the proposed use of the Bingo King System would entail. The GCC had based its decision to
refuse the use of the Bingo King System on the understanding that the bingo cards would be
generated and sold to players through the computer unit itself. The GCC made this assumption on the
basis of meetings with the Centre and on the basis of viewing a promotional video of the capabilities
of the Bingo King System.

At the hearing, counsel for the Centre (relying on affidavit evidence) asserted that although
the Bingo King System machine had the capability to allow players to purchase up to 250 unique
cards while sitting in front of the terminal, this capability would be disabled and players would
purchase their cards in hard copy in the usual manner. The serial numbers on each purchased card
would then be imputed into a player's terminal so that the game of bingo could be placed on the Bingo
King System, with the computer keeping track of all the player's cards. The Applicant's position was
that in this scenario, no element of chance or uncertainty would be present on or through the
computer.

In light of the disagreement between the parties as to what the proposed use of the Bingo
King System would entail, the Court referred the Application, on consent of the parties, back to the
GCC for further submissions by the Applicant. The Court was of the opinion that the record was not
sufficiently complete for a decision to be made.

Assuming the Centre resubmits its Application to the GCC for approval to use the Bingo King
System -albeit in revised format, such that the machine is disabled from allowing players to purchase
cards through the terminal - the lawfulness of the Bingo King System, in our view, is questionable.
Even if the Bingo King System is not generating the bingo cards, it would allow players to play their
purchased cards through the use of a video terminal. Given the use of bar code technology, it would be
possible to allow players to purchase their cards, and then quickly and efficiently scan the card serial
numbers into the Bingo King System terminal. This would then permit a player to play up to
 - 65
250 bingo cards at one time. The Bingo King System would be an integral part of the bingo game,
empowering the bingo player to play many more cards then could normally be played. As such, the
player's chances of winning are multiplied. In our view, this use of the Bingo King System could not be
characterized as an ancillary device but rather, an integral part of the bingo game. The use of the
Bingo King System, in our view, would be contrary to the prohibition contained in Section 207(4)(c)
against Electronic Gaming by a licenced charity.

The GCC Operability Test

As noted above, the GCC has developed the operability test in assessing whether an
otherwise prohibited device - i.e. a computer, video device or slot machine - is ancillary to the
operation of the lottery scheme. It is questionable whether the GCC, under its enabling legislation,
has the jurisdiction to decide points of law - which the GCC is doing when it applies the operability
test or permits the ancillary exemption. There is jurisprudence which supports the proposition that
an administrative body - like the GCC - is not empowered to decide points of law.50 This is quite
apart from the licensing authority of the GCC which is derived from OIC 2688/93 and which pertains
to charitable and religious organizations and the licensing of other exempt persons under Section
207(1), of the Criminal Code.

(iii) Registered Gaming Suppliers of Ontario - Request for Proposal

The Registered Gaming Suppliers of Ontario ("RGSO"), an association representing

approximately seventy-five percent of all registered commercial Bingo halls in Ontario (of which
there are over 277), has issued a Request for Proposal ("RFP") to create a province-wide Bingo
game.

The RFP contemplates that a-centrally controlled computer system ("System") will link a
number of halls across the province. These links will be established by satellite, cable, or both.
Monitoring and verification of winning cards will be conducted through the central computer system.
The RGSO will be the overall "operator" of the System and will enter into a contract with the licensed
charity. The RGSO will in turn purchase the services of the successful proponent to operate the

50
Charity Vending Ltd. v. Alberta Gaming Commission (1988), 45 C.C.C. 455 (Alta. C.A.).
 - 66 -
System. Since the game would be province-wide, the licensed charity would be required to obtain a
provincial license from the Director of GCC.

Given that the System uses a central computer, video, and possibly a satellite hook-up, it is the
responsibility of the successful proponent to ensure that the System complies with Section 207(4) of
the Criminal Code.

(iv) Star of Fortune Proposal

Star of Fortune Gaming Management Corporation had prepared a response to the RGSO
RFP. A detailed description of the Star of Fortune proposal is set out at Schedule 6 herein. It is a
system which essentially relies on two computer systems - identified as "accounting systems". The
GCC, in previous decisions, has allowed the use of computer systems as accounting systems. Hence,
the Star of Fortune proposal identifies the computer systems as "accounting systems" to give the
scheme a colour of right based on the permissive use of computerized accounting systems in relation
to charitable gaming. The Star of Fortune proposal can only be characterized as a sham. This
illustrates the extreme measures to which private sector interests will go in order to obtain
authorization - under the guise of charitable or religious organizations - to conduct and manage
Enhanced Bingo.

C. Electronic Bingo

Electronic Bingo, which has not yet been introduced in Ontario (although it is played in other
provinces) is perhaps the next step in the evolution of the bingo industry. Electronic Bingo is played on
a video or computer device and accordingly, it falls squarely within the exclusive jurisdiction of the
provincial government to engage in Electronic Gaming. The introduction of Electronic Bingo in
Ontario must be through the Provincial Government (or a Crown corporation) in order for it to be
lawfuL

The introduction of electronic bingo in British Columbia, established as "STARSHIP ON

MAIN" in Vancouver by the British Columbia Lottery Corporation triggered a public debate. It was
introduced in 1989 on a test project basis and is ongoing. The issue, when British Columbia Lottery
 - 67 -
Corporation entered the field of Electronic Bingo (with revenue accruing to government) was what
the impact would be on charities, bingo being a traditional lottery event of charitable organizations.
Consideration was given to charities as "stakeholders in the proceeds of bingo activity". The Brief to
the Gaming Review Team prepared by the British Columbia Lottery Corporation dated December 3,
1992 commented that charities might accept a guarantee that the current level of income would be
maintained for a number of years. With respect to private sector operators, the British Columbia
Lottery Corporation stated as follows:

"But what about the background industry that is behind the charities; those
entrepreneurs for whom the charities provide a front? These people include casino
management companies, bingo hall owners and other real estate holders. Those who
really run charitable gaming in British Columbia.

These people will see the growth of their private business slacken. They will have to
be content with the status quo, perhaps a shrinking of the status quo.

It is suggested that private entrepreneurs are always subject to the vagaries of the
marketplace and must accept this competition."5'

This commentary is useful, in our view, in terms of addressing one of the issues that will arise

upon the introduction of Electronic Bingo, namely the allocation of such lottery revenues. D.

Media Bingo

Section 2.2(e) of OIC 2688\93 empowers a municipal council to issue a licence authorizing an
eligible charitable organization to conduct and manage

"a media bingo lottery event conducted on or through a television, radio,

newspaper or other means of communication where the amount or value of the prize
or prizes awarded is-not greater than $5,500.00" (emphasis added)

A media bingo lottery event concluded on or through a television arguably contravenes the
provisions of Section 207(4)(c) (unless it can successfully be argued that a television is not a

5' British Columbia Lottery Corporation Report, p.11

 - 68 -
computer, video device or slot machine) because it precludes a charitable organization from
conducting and managing lottery scheme through a computer, video device or slot machine.

Media bingo, which is available as and used by charitable organizations is another illustration
of an incursion on the prohibition against Electronic Gaming by charitable organizations.: To date,
the GCC has used an "operability test" in granting an "ancillary exemption" for a deviceewhose use
would otherwise be prohibited pursuant to the provisions of the Criminal Code. In other_ words, a
prohibited device will be permitted by the GCC if its use is ancillary to the activities or function of a
lottery scheme. The GCC reasons that if the device was to become inoperable, and the normal play of
the game is not interrupted, its use is considered "ancillary".

In the case of media bingo, this "ancillary exemption" would not hold. It is the very broadcast
of the bingo lottery event over the television network which embodies the game itself. Televisions,
telephones and computers are fundamental to the lottery scheme. If any of these devices were to
become inoperable, the lottery scheme could no longer function as a bingo lottery scheme. Hence,
we question whether media bingo is being carried on lawfully when it is conducted by charitable
organizations in Ontario.

E. Rationale for Government Action in Electronic Gaming

Parliament has granted to the provincial government the exclusive jurisdiction to conduct and
mange lottery schemes operated on or through a computer, video device or slot machine to prevent
charities and others named in Section 207(l)(b) - (f) from engaging in Electronic Gaming. This
precludes charities from engaging in geographically wide-spread, highly organized gaming among
many individuals. Given that the genesis of charitable gaming emerged in small scale bingos and
raffles held in church basements, among members of the charitable or religious organization, then the
use of electronic devices would fundamentally change the scope of charitable gaming.

It is unlawful under the Criminal Code to have anyone but the Provincial Government engage
in Electronic Gaming. Hence, if Electronic Gaming is to continue as a gaming activity in Ontario .and
if it is to be carried on lawfully, the government, not charities or private sector operators, must
conduct and manage Electronic Gaming. How revenues derived from Electronic Gaming are to be
 - 69 -
allocated - whether it be to charitable organizations or other public purposes will be part of the
rethinking and refocusing that is required to respond to the evolution of the bingo industry.

Private Sector participation in Electronic Gaming - under the guise of a licensed charity -is
illegal. The pace of technological innovation, and the ingenuity of private sector operators to
construct devices to circumvent the provisions of Section 207(4)(c) of the Criminal Code may
ultimately lead to a convergence of Sections 207(1) (a) and 207(1) (b) gaming activities. At such a
point, there is likely to be head to head competition for limited gaming revenues between the
provincial government and private sector operators under the guise of charitable and religious
organizations. To the extent that the private sector operators are permitted to encroach on Electronic
Gaming, proceeds from these gaming activities will be diverted from public purposes to private
interests, given that charities effectively share proceeds with the Private Operator under the current
legislative regime in Ontario.
 -70-

8. ABORIGINAL GAMING

A. Current Gaming Activities

Aboriginal groups (which include the Indian, Inuit and Metis people, pursuant to Section 35 of
the Constitution Act, 1982) are involved in both casino gaming (Casino Rama) and charitable
gaming on reserve lands in Ontario. These gaming activities raise substantive concerns similar to
those identified herein with respect to the OCC/Private Operator Model and charitable gaming.

It should be noted that prosecutions are ongoing against Aboriginal Groups who have
engaged in gaming activities - without the requisite licenses (issued pursuant to Orders in Council) or
who purport to establish "casino" type gaming activities on Reserve Lands. Such gaming activities are
purportedly justified on the basis of the inherent right of self-government. Enforcement of
Criminal Code provisions, evident in prosecutions against Aboriginal Bands engaged in unlawful
gaming on Reserve Lands - should be equally observed off Reserve Lands and in all instances of
unlawful gaming in Ontario.

B. Charitable Gaming - Status as "Charitable Organization"

With respect to charitable gaming, an additional issue arises - why are Aboriginal groups
considered charitable or religious organizations for the purposes of Section 207(1)(b) of the
Criminal Code?

At common law there is a subjective test imposed. This subjective test has benefitted the
eligibility quotient in favour of Aboriginal groups. The objects and the activities of an Aboriginal
entity that wished to qualify would be tailored to include at least one of the following:

(i) the relief of poverty;

(ii) the advancement of education;
(iii) the advance of religion; and

(iv) any other activity of a charitable nature that is of general benefit to the community.
 -71-
Until such time as Aboriginal groups achieve a level of wealth, education and status, such that none of
the common law tests qualify the Aboriginal group as a charitable organization, then First National charitable
gaming activity is permissible under Section 207(l)(b) of the Criminal Code, subject to the concerns
identified herein.

Since aboriginal gaming raises distinct legal and policy issues, it is appropriate to defer consideration
of these issues and deal with them separately.
- 72 -
 - 73 -

SCHEDULE 1
Section 207 of the Criminal Code

S.207 MARTIN'S CRIMINAL CODE 1996

PERMITTED LOTTERIES / Terms and conditions of licence / Offence/ Definition of "lottery scheme" /Exception re: pari-mutuel
betting.

207.(1) Notwithstanding any of the provisions of this Part relating to gaming and betting, it is lawful
a) for the government of a province, either alone or in conjunction with the government of another province, to conduct
and manage a lottery scheme in that province, or in that and the other province, in accordance with any law enacted by
the legislature in that province;
b) for a charitable or religious organization pursuant to a licence issued by the Lieutenant Governor in Council of a
province or by such other person or authority in the province as may be specified by the Lieutenant Governor in Council
thereof, to conduct and manage a lottery scheme in that province if the proceeds from the lottery scheme are used for a
charitable or religious object or purpose;
c) for the board of a fair or of an exhibition or an operator of a concession leased by that board, to conduct and manage a
lottery scheme in a province where the Lieutenant Governor in Council of the province or such other person or
authority in the province as may be specified by the Lieutenant Governor in Council thereof has
(i) designated that fair or exhibition as a fair or exhibition where a lottery scheme may be conducted and managed, and
(ii) issued a licence for the conduct and management of a lottery scheme to that board or operator;
d) for any person, pursuant to a licence issued by the Lieutenant Governor in Council of a province or by such other
person or authority in the province as may be specified by the Lieutenant Governor in Council thereof, to conduct and
manage a lottery scheme at a public place of amusement in that province if
(i) the amount or value of each prize awarded does not exceed five hundred dollars, and
(ii) the money or other valuable consideration paid to secure a chance to win a prize does not exceed two dollars;
e) for the government of a province to agree with the government of another province that lots, cards or tickets in
relation to a lottery scheme that is by any of paragraphs (a) to (d) authorized to be conducted and managed in that other
province may be sold in the province;
t) for any person, pursuant to a licence issued by the Lieutenant Governor in Council of a province or such other person
or authority in the province as may be designated by the Lieutenant Governor in Council thereof, to conduct and manage
in the province a lottery scheme that is authorized to be conducted and managed in one or more other provinces where the
authority by which the lottery scheme was first authorized to be conducted and managed consents thereto;
g) for any person, for the purpose of a lottery scheme that is lawful in a province under any of paragraphs (a) to (t), to do
anything in the province, in accordance with the applicable law or licence, that is required for the conduct, management or
operation of the lottery scheme or for the person to participate in the scheme; and
h) for any person to make or print anywhere in Canada or to cause to be made or printed anywhere in Canada anything
relating to gaming and betting that is to be used in a place where it is or would, if certain conditions provided by law are
met, be lawful to use such a thing, or to send, transmit, mail, ship, deliver or allow to be sent, transmitted mailed, shipped
or delivered or to accept for carriage or transport or convey any such thing where the destination thereof is such a place.
2) Subject to this Act, a licence issued by or under the authority of the Lieutenant Governor in Council of a province as
described in paragraph (1)(b), (c), (d) or (t) may contain such terms and conditions relating to the conduct, management
and operation of or participation in the lottery scheme to which the licence relates as the Lieutenant Governor in Council
of that province, the person or authority in the province designated by the Lieutenant Governor in Council thereof or any
law enacted by the legislature of that province may prescribe.
3) Every one who, for the purposes of a lottery scheme, does anything that is not authorized by or pursuant to a provision of
this section
a) in the case of the conduct, management or operation of that lottery scheme,
(i) is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years, or
(ii) is guilty of an offence punishable on summary conviction; or
b) in the case or participating in that lottery scheme, is guilty of an offence punishable on summary conviction.
4) In this section, "lottery scheme" means a game or any proposal, scheme, plan, means, device, contrivance or
operation described in any of paragraphs 206(1)(a) to (g), whether or not it involves betting, pool selling or a pool
system of betting other than
a) a dice game, three-card monte, punch board or coin table;
 -74-
b) bookmaking, pool selling or the making or recording of bets including bets made through the agency or a pool or pari-
mutuel system, on any race or fight, or on a single sport event or athletic contest; or
c) for the purposes of paragraphs (1)(b) to (f), a game or proposal, scheme, plan, means, device, contrivance or operation
described in any of paragraphs 206(1)(a) to (g) that is operated on or through a computer, video device or slot machine,
within the meaning of subsection 198(3).
5) For greater certainty, nothing in this section shall be construed as authorizing the making or recording of bets on horse-races
through the agency or a pari-mutuel system other than in accordance with section 204. R.S., c.C-34, s.190; 1974-75-76,
c.93, s.12; R.S.C.1985, c.27(lst Supp.), s.31, c.52 (1st Supp), s.3.
 - 75 -
SCHEDULE 2
Identifying the Nature of the Relationship Between the OCC and the Private Operator

Based on our review of the Windsor Contract (without the benefit of having reviewed the Operating
Policies), the following identifies key aspects of the nature of the relationship between the OCC and the
Private Operator:

Appointment of Operator
Article Two concerns the appointment of Operator. The provision creates the "dual nature" of the role of
the Private Operator both as agent of OCC and as an independent contractor. Article Two contains the
following provisions:

"2.1 Appointment of Operator as Independent Contractor: Subject to Section 2.2, OCC

hereby retains, on a sole and exclusive basis, the Operator as an independent contractor to
improve, develop, operate and maintain the Interim Casino Complex in accordance with this
Agreement, the Approved Operating Policies and the then current Approved Operating Budget
for the Term. The Operator hereby accepts such appointment as independent contractor upon
and subject to the terms, conditions, covenants and provisions set forth herein. In connection
with this appointment, the Operator shall not enter into any agreements with third parties as
agent of OCC or otherwise hold itself out as a disclosed agent acting on behalf of OCC as
principal.

"2.2 Appointment of Operator as Agent: Notwithstanding Section 2.1, OCC hereby appoints
the Operator as OCC's sole and exclusive agent to operate on its behalf the Games of Chance to
be carried on in the Casino in accordance with this Agreement, the Approved Operating
Policies and the then current Approved Operating Budget for the Term. the Operator hereby
accepts such appointment as agent upon and subject to the terms, conditions, covenants and
provisions set forth herein.

"2.3 Limitation on Authority of Operator: The Operator hereby acknowledges and agrees that
the Province of Ontario must conduct and manage all Games of Chance to be carried on in the
Interim Casino Complex as required under paragraph 207(1)(a) of the Criminal Code
 - 76 -
(Canada). In order to ensure compliance with such provision, in addition to any other
limitations on the powers and authority of the Operator as set forth herein, the Operator shall
not take any action which the Operator believes would have a material effect and could
reasonably be expected to have a material effect on the operations, affairs, condition or
prospects of the Casino without obtaining the approval of OCC. Without limiting the foregoing:

(a) the Operator shall not take any action in connection with the operation of the
Interim Casino Complex that is inconsistent in any material respect with the
Approved Operating Policies without the approval of OCC; and

(b) OCC and its authorized representatives shall, in accordance with the Approved
Operating Plan, be provided with working space and office support in or near the
Casino and shall be entitled to access to all areas of the Casino.

In acting hereunder in all matters relative to this Agreement and in approving or

consenting to any matter hereunder not otherwise specifically provided for, OCC and
the Operator shall act in a reasonable manner taking into account the requirements of
paragraph 207(1)(a) of the Criminal Code (Canada) and the Operator's and
Participants' advice stemming from their knowledge and experience as owners and
operators of casino properties and the gaming industry generally.

"2.4 Access to Building: In order for the Operator to perform its services hereunder,
subject to Applicable Law, OCC agrees to provide the Operator with full access to the
Building."

Appointment of Operator as Independent Contractor

In summary, the Private Operator is an independent contractor generally for all purposes to improve,
develop, operate and maintain the Interim Casino Complex. This is subject to section 2.2 of the Agreement,
the Approved Operating Policies and the current Approved Operating Budget.

Appointment of Operator as Agent,

 -77-
OCC appoints the Private Operator as OCC's sole and exclusive agent to operate on its behalf, the games
of chance to be carried on in the Casino. This is to be in accordance with the Agreement, the Approved
Operating Policies and the then current Approved Operating Budget. Games of Chance are defined in section
1(a)(f) of the Windsor Contract as a lottery scheme conducted and managed by a government under section
207(1)(a) of the Criminal Code but does not include a lottery scheme conducted by the OLC under the
OLCA.

Limitation on Authority of Operator

Section 2.3 of the Windsor Contract attempts to limit the authority of the Private Operator so as to ensure
that the provincial government is conducting and managing the games of chance in the Interim Casino
Complex, in accordance with section 207(1)(a) of the Criminal Code. This provision attempts to limit the
authority of the Private Operator as follows:

• The Private Operator is prohibited from taking any action which would have a material effect or
could reasonably be expected to have a material effect on the operations, affairs, condition or
prospects of the Casino without obtaining the approval of OCC;

• The Private Operator is prohibited from taking any action in connection with the operation of the
Interim Casino Complex that is inconsistent in any material respect with the Approved Operating
Policies without the approval of the OCC; and

• The OCC and its authorized representatives shall be provided with working space and office support
in or near the Casino and shall be entitled to access to all areas of the casino

Access to Building

The OCC agrees to provide the Private Operator with full access to the Building which is defined to mean
the premises comprising the entire building, including those areas located in the Building which are used for
the purpose of playing or operating a Game of Chance

Interim Casino Equipment.

 - 78 -
Section 3.4 establishes that the Private Operator, as agent for OCC, is to purchase or lease the interim
casino equipment to be used in the Casino, the Casino being defined as those areas located in the building
which are used for the purpose of playing or operating a Game of Chance. Interim Casino Equipment to be
used in those parts of the Interim Casino Complex other than the Casino is to be purchased or leased by the
Operator as an independent contractor.

Other Services

Section 3.5 prescribes other services which the Operator is to provide, as independent contractor. The
following are noteworthy:

• hire and train personnel to be employed in the operation, renovation and development of the Interim
Casino Complex, all such personnel to be employees of the Operator and not OCC: Section
3.5(c)

• ensure that it - the Private Operator - is registered as a supplier as required under the regulatory
legislation, i.e., the GCA: Section 3.5(a)

• in consultation with OCC, prepare and obtain OCC's approval to the Operating Policies for the
Interim Casino Complex: Section 3.5(d)

Note that the Operating Policies is defined in Section 1.1(bp) as follows:

"Operating Policies means a collective term for the standards, policies and procedures to be adopted in
connection with the operation of the Interim Casino Complex including hiring and training policies and
procedures, human resource programs, marketing programs, insurance and bonding, credit and collection,
security (both physical and gaming), cash management and investment policies and purchasing and
inventory policies and procedures."
 - 79 -

SCHEDULE 3

Indicia of control and compliance with the conduct and manage provisions of the criminal code
with respect to gaming operations at the Windsor casino complex (the "business") by the
ontario casino corporation (the "occ")
1. FINANCIAL MATTERS PERTAINING TO THE BUSINESS

(i) Budgeting and Forecasts:

requirement to prepare, for final approval of OCC, annual operating and capital budgets requirement
for OCC approval of material adjustments or revisions to annual operating or capital budgets

(ii) Periodic Financial Reporting to OCC:

monthly financial reporting prepared on a budget to actual basis

monthly payroll reporting (including withholdings and remittances)
daily cash balances and deposits respecting gaming revenue (i.e. amounts wagered less amounts paid as
winnings) and bank reconciliations

(iii) Financial Matters Requiring Prior Approval of OCC:

all material expenditures or other financial commitments other than those contained in the OCC
approved operating and capital budgets, including the following:
capital expenditures
borrowing or incurring indebtedness
transferring, assigning, charging, selling or in any other manner encumbering or disposing of any
material assets
payments out of the ordinary course of business, including any distribution to the Private Operator
acquiring real property or material assets used in connection with the Business
 - 80 -
(iv) Financial Control and Reporting Systems

establishment of cash management policies and procedures approved by OCC

establishment of operating bank accounts with financial institutions approved by OCC and
requirement for deposit by Private Operator of all cash generated by the Business (excluding agreed
upon gaming bankroll)
disbursement of funds only in accordance with approved operating and capital budgets and in
accordance with an agreed upon schedule of payments and priorities
designated officers of Private Operator approved by OCC to have bank signing authority

(v) Commingling

− prohibition against commingling by the Private Operator of gaming revenues with other revenues
of the Windsor Casino Complex

(vi) Independent Verification

− requirement for periodic independent professional audit of the Business

(vii) Access to Information

requirement for Private Operator to maintain books and records to specified standards and to make
same available to OCC and the provincial auditor at all times for inspection open and unrestricted
electronic access to financial information pertaining to the Business to OCC

2. OPERATIONAL ASPECTS OF THE BUSINESS

(viii) Decision Making

− OCC to have final approval and participation in decision making on fundamental matters pertaining
to the operation of the Business
 -81-
(ix) Supervision

existence of OCC employees/officers involved in reviewing/supervising day-to-day operations of the

Business by the Private Operator

(x) Operational Matters Requiring Prior Approval of OCC

entering into material agreements or other contractual commitments which bind the Business (i.e.
contracts, leases, third party supply arrangements) which are not otherwise contained in the approved
operating or capital budgets
any material change in the operations of the Business (including terminating any aspect of the
Business or introducing any new aspects of the Business or the manner in which it is conducted) any
transactions out of the ordinary course
establishment of security and surveillance systems

(xi) Ownership of Assets - OCC to have ownership of gaming related assets of

the Business (i.e. gaming equipment) ()di) Inspection

requirement of Private Operator to afford access to OCC at all times to inspect the operations of the
Business, including security systems and surveillance

3. MANAGEMENT OF THE BUSINESS (xiii) Participation in Management

existence of senior OCC employees and officers with direct involvement in managerial functions from a
review and supervision perspective
 - 82 -
(xiv) Managerial Matters Requiring Prior OCC Approval

selection and retention of officers and executives

selection and retention of senior employees
establishment of formal structure/procedure for review of day-to-day decision making and operations
(i.e. corporate hierarchy, reporting lines)

(xv) Policies and Procedures

establishment of policies and procedures relating to the training and supervision of employees
approved by the OCC
involvement of OCC in planning and strategic decision making activities of the Business
preparation of annual business plan containing proposals with respect to promotion and marketing
of the Business and the games of chance to be conducted

4. ECONOMIC ARRANGEMENTS WITH THE PRIVATE OPERATOR

(xvi) Indicia of Private Operator Control

whether the remuneration to the Private Operator is consistent with the market value of the services
provided
whether the economic arrangements place the Private Operator in a position to use or exert influence
and control of the Business (general principle - the greater the economic interest, the greater the
likelihood of control in fact)
whether the particular knowledge or expertise of the Private Operator in fact place it in a position of
influence or control (determine whether OCC has sufficient knowledge and expertise in relation to the
Business so as not to be subject to influence or control by the Private Operator) length of term of
contract and circumstances in which OCC may terminate - the agreement to utilize the services of the
Private Operator may be sufficiently extended and terminable in such limited circumstances so as to
amount to a "licensing" of the Private Operator to conduct a gaming operation
 - 83 -
existence of any "special arrangements" such as rights of first refusal on future activities or exclusive
commitments to third party suppliers at the instigation of the Private Operator may suggest undue
influence or control by the Private Operator
- 84
 -85-.

SCHEDULE 4

Comparative Analysis of the Windsor Contract and the Checklist

The following is a comparative analysis of the Windsor Contract and the Checklist. Terms with initial
capitalized letters used in this analysis and not otherwise defined shall have the respective meanings attributed
to such terms in the Windsor Contract. For ease of reference, the headings below follow the major headings
contained in the Checklist.

1. Financial Matters Pertaining To The Business (a)

Budgeting and Forecasts:

Pursuant to section 4.2 of the Windsor Contract the Operator is required to submit to OCC within
forty-five days of an Operating Year the proposed Operating Budget for the ensuing year for its
approval and thereafter to submit revisions to OCC to the Approved Operating Budget "from time to
time". By definition, Operating Budget would also include matters of a capital nature contemplated in
the Checklist. This requirement appears to satisfy the requirements contemplated by the Checklist.
However, the concept of "approval" by OCC of the Operating Budget and the control by OCC over
the financial aspects of the Business is undermined by the provisions of section 4.2 dealing with dispute
and failure of OCC to approve. This section provides that if OCC fails to approve or to submit
objections to the Private Operator within thirty days, it is deemed to have accepted. Moreover, if OCC
objects to certain portions, the undisputed portions are deemed approved and until approved, the
disputed portions are replaced with the corresponding items in the Approved Operating Budget for
preceding year (as adjusted). When read together with section 13.1, which contains the dispute
resolution provisions (non-binding mediation), it would appear that the Private Operator must agree to
changes in the proposed Operating Budget proposed by the OCC and that, accordingly, the OCC
cannot dictate to the Private Operator its required amendments to the Operating Budget.
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(b) Periodic Financial Reporting to OCC:,

Annual audited financial statements for the Business are required to be delivered by the Private
Operator to OCC within ninety days of the end of each year. In addition, the Windsor Contract also
contemplates the delivery of annual audited financial statements for the Private Operator. (It is
unclear as to whether these would be different, as the Private Operator is not permitted to carry on
any other business, but presumably this is to confirm compliance by the Private Operator). Pursuant to
subsection 4.3 (a), monthly reports are also required to be generated by the Operator and submitted
to OCC, as contemplated by the Checklist. Separate reporting is not required with respect to payroll,
as contemplated by the Checklist, but this would presumably be subsumed within the monthly
reports required. The Windsor Contract contains no daily reporting requirement with respect to cash
balances and deposits or bank reconciliations. To some extent, this would diminish the immediacy
of control by OCC over the financial aspects of the Business.

(c) Financial Matters RequirinPrior Approval of OCC:

The Windsor Contract does appear to meet or exceed the Checklist requirements with respect to
financial matters requiring approval. Pursuant to section 4.1 the Private Operator is required to
provide the Services, including negotiation of contracts and purchase of equipment in compliance
with the Approved Operating Budget and Approved Operating Policies. Pursuant to subsection 4.3
(d), the Private Operator is permitted to withdraw from or reserve in the Casino Accounts payments
for Operating Expenses and FF&E Repairs in accordance with the Approved Operating Budget.
Major Capital Improvements require the approval of the OCC. The Windsor Contract does contain the
appropriate restrictions respecting borrowing and encumbering assets.

(d) Financial Control and Reporting Systems:

The Windsor Contract does require the Private Operator to deposit in the appropriate Casino
Accounts "in the normal course and without delay" all Gross Revenues and all other cash, etc. It is
unclear as to whether this means more or less frequently than daily. The Windsor Contract
specifically contemplates, in section 4.3 (e) the establishment by the Private Operator of cash
management policies and procedures approved by OCC in consultation with the Private Operator.
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Unless the cash management policies or the Operating Policies somehow confer on OCC a right of
access to these bank accounts, OCC does not appear to have direct access to same. There is a
thorough and detailed checklist of the priority of payments required to be made by the Operator in
accordance with subsection 4.3 (d). However, these payments are made by the Operator and, pursuant
to the definitions of "Operating Account" and "Executive Staff' only the employees of the Private
Operator have signing authority over or access to these Operating Accounts. Pursuant to
subparagraph 4.3 (d) ()ii), any amounts remaining in the account are required to be wired to an
account designated by OCC within twenty days of the end of each month. While this time frame ties
into the period within which monthly financial reporting is required to be given to OCC by the Private
Operator, it seems to be a long period of time to leave excess cash in Operating Accounts to which
OCC has no access. Overall, OCC does not appear to have direct access to and immediate or daily
control over the Gross Revenues of the Business. It would have been helpful to have included, for
greater certainty, in the various financial and banking provisions contained in the Windsor Contract a
provision to the effect that the Private Operator is prohibited from making any additional withdrawals
from the Operating Accounts or from making expenditures other than in accordance with Approved
Operating Budgets.

(e) Commingling:

Pursuant to subsection 4.3 (h), the Windsor Contract does contain a prohibition against commingling
funds not related to the Interim Casino Complex, but does not contain a prohibition against
commingling gaming revenues with other revenues of the Windsor Casino Complex. It would be
possible, however, for separate accounts to be designated by the OCC if the Casino Accounts were
established in this fashion, but it is unclear as to whether the parties have in fact set up separate bank
accounts.

(f) Independent Verification:

The Windsor Contract does provide for audited financial statements to be prepared on an annual
basis.

(g) Access to Information:

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The Windsor Contract does contain an affirmative covenant by the Private Operator to keep adequate
records and books of account in accordance with generally accepted accounting principles which
requirement is qualified by materiality. In subsection 4.3 (i) a similar requirement appears with
respect to the Business, which is not qualified by materiality.

Pursuant to subsection 2.3 (b) the OCC and its authorized representatives are to be provided with
working space and office support in or near the Casino and with access to all areas of the Casino. A
potential area of concern, however, is the fact that the Windsor Contract does not state that OCC is to
have open and unrestricted access at any time to any and all financial information pertaining to the
Business, which, given the cash nature of the business and the potential for criminal or other similar
activity would seem to be prudent for control. The Windsor Contract contains curious wording
respecting access in several subsections to the effect that "OCC and its authorized representatives
shall have the right contemplated by the Enabling Legislation to obtain information with respect to
the Interim Casino Complex" and other sections appear to require "reasonable notice" be given to the
Operator to provide financial information. If there was, in fact, anything untoward, this reasonable
notice would make it more difficult to detect. There does not appear to be any computer linkup or
open and unrestricted electronic access to financial information by OCC required pursuant to the
Windsor Contract.

2. Operational Aspects Of The Business (a)

Decisionmaking;

Except for the right to approve Operating Budgets and approve Operating Policies, OCC does not
appear to have final approval and participation in decisionmaking on fundamental matters pertaining to
the operation of the Business pursuant to the Windsor Contract.

(b) Supervision:

As indicated above, pursuant to subparagraph 2.3 (b) OCC and its authorized representatives are to
be provided with working space and office support, however the Windsor Contract does not contain
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any further provisions relating to the OCC being engaged in reviewing or supervising the day to day
operations of the Business.

(c) O p e r a t i o n a l _____ Matters _____ Requiring _____ Prior ____ Approval _____ of ____ OCC:

While it may be inferred that the Private Operator is not entitled to enter into agreements or other
contractual commitments which bind the Business (such as contracts, leases and third party supply
arrangements), which are not contained in the Approved Operating Budget, there does not appear
to be a specifically stated prohibition to this effect. The Windsor Contract does provide that any
Major Capital Improvements, in addition to those to be undertaken as part of the Pre-Opening
Services shall only be undertaken to the extent and on terms mutually agreed upon by the Operator
and OCC. The Windsor Contract further provides in subsection 6.1 (m) that the Operator is required
to obtain OCC's prior approval to any significant changes to the standards, policies and procedures
set forth in the Approved Operating Policies. As indicated above, by definition, Operating Policies
extends to and includes matters such as marketing programs credit and collection, cash management
purchasing an inventory policies and procedures and security.

(d)Ownership of Assets

As indicated above, it would appear from the wording in section 3.4 that OCC does have ownership
of the gaming related assets of the Business. This section provides that the Operator shall "as agent
for OCC, purchase or lease the Interim Casino Equipment to be used in the Casino".

(e) Inspection:

As indicated above, the Windsor Contract does provide OCC with access to all areas of the Casino.
Presumably, this would be sufficient to enable OCC to inspect the operations of the Business,
including security systems and surveillance.

3. Management Of The Business

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(a) Participation in Management:

As indicated above, it is not apparent from the Windsor Contract that senior OCC employees and
officers are contemplated to have a direct involvement in the managerial functions of the Business
from a review and supervision perspective, although OCC is to have access and certain financial
reporting is presumably required to be made to someone at OCC.

(b) Managerial Matters Requiring Prior OCC Approval:

Pursuant to the definition of Operating Policies, standards are established for hiring and training of
employees and human resource matters. Pursuant to section 3.5 the Private Operator, as independent
contractor is charged with the responsibility of identifying, selecting, interviewing, hiring and training
personnel employed in connection with the Interim Casino Complex. The only input which OCC has
with respect to the selection and retention of officers, executives or senior employees is pursuant to
section 6.1 (j) wherein OCC has the right to approve the identity of any new President or Chief
Financial Officer of the Operator. This falls short of the suggested standards set out in the Checklist.
Again, as indicated above, there does not appear to be any day to day input and involvement in the
decisionmaking and operations of the Business which is specifically set forth in the Windsor Contract.
However, it is possible that the "Operating Policies" which are established by the OCC do contain
such requirements and structure. Without reviewing the Operating Policies, we are not in a position to
determine the extent of OCC's involvement in the day to day management of the Business. Based
solely on the Windsor Contract, it appears to be minimal or non-existent.

(c) Policies and Procedures:

The matters covered under this heading in the Checklist appear to be covered in the components of
the Operating Policies pursuant to the Windsor Contract.

4. Economic Arrangements With The Private Operator (a)

Indicia of Private Operator Control

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Pursuant to section h.1, the Operator's fee is 2.75 per cent of the Gross Operating Receipts in each
operating year and 5 per cent of the Net Operating Margin. The Net Operating Margin is defined to
mean Gross Operating Receipts less Win Tax, Operating Expenses, FF&E Repairs and certain
reserves (but is not net of interest expense, Capital Renewals, capital expenditures, the Operator's
Fees, G.S.T., depreciation and rent and other payments). Based on the financial statements contained in
the OCC Annual Report 1994/1995, the Private Operator's fee for the period from the
commencement of operations on April 1, 1994 to March 31, 1995 was $26.824 million. This fee
suggests that the Private Operator has a very real participation in the profits of the casino gaming
business, and is not simply being remunerated for implementing and operating the casino.
To the extent that the Private Operator has, pursuant to the Heads of Agreement dated May 14, 1994
committed to fund the establishment of the Casino Complex, financial risk and investment is
significant. On this basis, it can be inferred that, irrespective of the stated terms of the Agreement, the
control in fact of the Business by the Operator is likely to be significant.

From certain statements contained in the Windsor Contract, it may be inferred that the knowledge of
the Operator with respect to the Business is more significant than that of the OCC; however, it is not
clear as to whether this degree of knowledge would place the Operator in a position of influence or
controL The term of the Windsor Contract is relatively short, as it expires in April, 1997. Based
solely on the length of the Term, it cannot be said then that the Windsor Contract amounts to
"licensing" of the Operator. The Windsor Contract does contain a first right of refusal on future
activities, namely the right to conduct or manage other casinos within 125 kilometres of the Interim
Casino Complex.
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SCHEDULE 5

Description of Computers and Other Electronic Devices

Currently in Use Within Bingo Halls in Ontario

[Note: Our legal analysis has not examined the propriety or lawfulness of the use of any of the
following computer/electronic devices, as they are currently used in bingo halls within Ontario.]

1. Autotronic 7000 Blower Unit (or similar device)

This machine is used to mix, select, and store bingo balls as they are called. The mixture of balls is
accomplished using a blower mechanism which uses air to mix the balls within a chamber. The caller
selects the pattern to be played by either manually inputting the pattern into a keyboard, or by using a
preprogrammed card which automatically recalls the game pattern.

As a ball is selected, it is placed into a unique positionS2 on a the control board. Each position is
wired in such a manner that the number is illuminated on the flashboard once the ball is placed in its
position.

2. Autotronic 7000 Flashboard (or similar device)

The flashboard is used to illuminate the numbers as they are called. The flashboard informs the patron
of the numbers which have been called, the last number called, a running total of the number of balls
called, and the pattern of the game being played.

3. Colour Closed Circuit TV System

It is common to mount a video camera upon the blower unit, so that each ball selected can be
displayed on television monitors throughout the hall. In this manner, the patron can see, as well as hear, the
numbers being called. In using such a device, the patrons can see the ball on the monitor for
approximately seven seconds before it is called. A rule associated with the use of such a system is that

52 Of which there are 75, one position for each bingo ball.
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a ball is not technically "called" until it has been called verbally. Therefore, a player may not yell bingo
until the verbal call.

The use of such a system is designed to enable players the opportunity to scan and dab their cards
prior to the verbal can. This has the effect of speeding up the play of the game, which is beneficial to the
operator.

4. "Quick Chek Verifier" Computer Verification System

Traditionally, in order to verify a winning card, the runner would have to verbally call back each of the
numbers on the player's card. Now that most halls have adopted disposable bingo paper with a unique
serial number for each card, a computer verification system can be used to verify cards much more
quickly. When used in conjunction with particular types of paper, all of the card faces which may be
played during a session are stored in the verifier. When a bingo is called, the runner reads out the unique
four or five digit number printed on the card. When this number is entered into the verifier, the card face is
generated by the computer and displayed on the television monitors throughout the hall to show the
winning pattern. The verifier will also distinguish a "false" bingo.

In this manner the use of the verifier prevents a runner from having to call back every number marked.
The distributor of this device, - Bazaar & Novelty - estimates that the use of a verifier will save an
estimate of 25 to 40 minutes in three hours of play, freeing up time for additional games.
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1. The Star of Fortune Proposal in Response to RGSO - RFP

Star of Fortune Gaming Management Corporation, in response to the RGSO RFP has proposed a
system which essentially relies on two computer systems - identified as "accounting systems" -in our
view, to give the scheme a colour of right based on the permitted use of computerized accounting systems
in relation to charitable gaming. The system is described as follows:

• Two "accounting systems" will be used. The first accounting system is located in each remote bingo
hall and is operated by a remote hall sales co-ordinator (the "Co-ordinator"). Prior to each game, the
Co-ordinator will enter sales in dollars and the serial numbers of the cards sold into the hall personal
computer. A report file of this information is transmitted by modem to the Audit Operator of the host
computer at the central origination centre in Hamilton. A confirmation of data received is sent back
to each remote hall. This process is repeated for each of the 125 remote halls.

The Proposal states at page 17: "In addition, the essential game information will be
communicated by the hall manager over the telephone conference call prior to the game.
Confirmation will also be returned in the same manner."

• Once the Audit Operator has received the information from each hall, and agrees with the
information from the on-line conference, he or she will approve the filing information, and physically
communicate it to the operator of the second accounting computer system, called the Gaming
Verification Computer. This accounting system calculates the prize money for the main prize minutes
before the game commences.

• Ten minutes prior to the game, using the same network system that connects the Co-ordinator at each
hall to the Audit Operator, each remote (clerk) switches to a voice-mode connecting the clerk
together with the origination centre in Hamilton. This creates an on-line gaming conference
linked by voice: the Proposal, page 18.
 -96-
• The game proceeds from the origination centre, and balls are called verbally. When bingo is called in
a remote hall, the clerk of that hall reads the card serial and face numbers to the Game Manager at
the origination centre. The card is verified and a display of the winning verified card is generated by
the computer and broadcast to a television monitor in each hall so that players may watch
verification. The proposal states at page 18: "The winning numbers are also read back over the
telephone network simultaneously".

The Star of Fortune Proposal is a scheme which has been structured in such a way as to technically
meet the test established in the GCC's interpretation of Section 207(4)(c).

• First, within the Proposal, every computer system is referred to as an "accounting system",
notwithstanding the fact that each is a sophisticated database program. The reference to an
"accounting system" is consistent with the GCC permissive use of computers for the "preparation of
financial reports" in the conduct and management of a lottery scheme. However, these "accounting
systems" go far beyond mere accounting processes. That a private operator would resort to the use of
semantics to avoid a provision of the Criminal Code demonstrates that the interpretation provided by
the GCC may be easily abused.

• Secondly, upon a consideration of the term "computer" above, the Star of Fortune proposal relies on
a very narrow interpretation of computer, such that a telephone system is not a computer. American
jurisprudence, while not binding, is persuasive and establishes that a telephone system is a computer.

As well, it should be noted that for the purposes of Section 342.1 of the Criminal Code:
Unauthorized Use of Computer, terms defined within the section broaden the scope and meaning
of a computer system in a manner consistent with the approach contained in American jurisprudence
with respect to interconnected devices. We submit that a broad definition, similar to the terms of
Section 342.1 should be used in interpreting the phrase "operated on or through a computer..." in
Section 207(4)(c) of the Criminal Code.

• Thirdly, all significant data transmission via modem is carried out in conjunction with voice
transmission and confirmation. Star of Fortune has relied on the fact that voice transmission of data
over the phone lines is less offensive to the Criminal Code than data transmission in the form of
computer files. The Proposal assumes it is permitted. Relying on this fact - which is not supported
 - 97 -

in law - the Proponent then asserts that data transmission via modem is "ancillary" to the voice
transmission of data. Should the data transmission/satellite broadcast become inoperable, the game
will not be interrupted because of the "voice" telephone link. Realistically, the number of potential
players makes the input, transmission, retrieval and verification of information fundamental to the
integrity of the lottery scheme. It is only with the capacity of computers and technology that such a
scheme is possible. The voice transmission of information, which is clearly redundant in relation to
the efficiency of computer data transmission, is incorporated in order to take advantage of the
"ancillary" exemption. This demonstrates how the GCC interpretation of Section 207(4)(c) may
easily be abused. In our view, the Star of Fortune Proposal can only be characterized as a sham.

Fourthly, the Star of Fortune Proposal assumes a narrow reading of the phrase "operated on or
through". Considering the judicial interpretations of "operate[d]", almost every aspect of the
Proposal, from the input of individual hall sales and bingo cards in play, to the transmission and
verification of data could and should be considered part of the operation of the bingo game. To look at
it otherwise would not only be inconsistent with the accepted definitions of "operate[d]" but would lead
to absurd results.

• The manner in which the GCC has to date seen fit to interpret and exercise its powers has resulted in
and will continue to result in: (i) an incursion into the exclusive jurisdiction of the government of the
province to conduct and manage lottery schemes operated on or through a computer, video device
or slot machine; and (ii) giving authorization to private operators under the guise of charitable or
religious organizations to conduct and manage Electronic Gaming. The result of the foregoing will
be to divert proceeds from lottery schemes from those parties lawfully entitled to such revenues.

ICAPEXSUM.8 @ N:\57258Ip
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