Date: 20010208
Docket: T-142-99
Neutral Citation: 2001 FCT 38
Ottawa, Ontario, Thursday the 8th day of February 2001
| PRESENT: The Honourable Madam Justice Dawson |
BETWEEN:
NELES CONTROLS LTD.
Plaintiff
- and -
HER MAJESTY THE QUEEN
Defendant
REASONS FOR ORDER AND ORDER
DAWSON J.
[1] In this action the plaintiff seeks a declaration that it is entitled to a refund of approximately $400,000 on account of custom duties paid in respect of certain valves the plaintiff imported during the period from February, 1988 to October, 1990. The plaintiff's claim alleges that the Crown has been unjustly enriched as a result of the payment of the customs duties. This case is one of sixteen initiated by a group of importers in February and March of 1999; each case raises the same issues on similar facts. The total amount at issue is approximately $2,000,000, exclusive of interest and costs.
[2] Before the Court at this time, pursuant to order of the learned Prothonotary Madam Aronovitch, is a motion for the determination upon agreed facts and documents of the following questions of law:
| i) Is the plaintiff's claim barred, in whole or in part, by its failure to avail itself of the other remedies available to it? |
| ii) Is the plaintiff's claim barred, in whole or in part, by the doctrine of laches? |
| iii) Is recovery for unjust enrichment in this particular case affected by the fact that the relevant provisions of the Machinery Program were passed with retroactive effect? and |
| iv) In order to establish that it suffered a detriment, is it sufficient for the plaintiff to show that its prices for the subject goods were established in a competitive environment against goods that were subject to lesser rates of duty than those that pertained to the subject goods? |
BACKGROUND FACTS AND CIRCUMSTANCES
[3] The following appears from the agreed facts and documents.
[4] Division III of the Customs Tariff, R.S.C. 1985 (3rd Supp.), c. 41, as amended by S.C. 1997, c. 36 ("Act") provides for relief from the payment of customs duties payable on goods classified under qualifying tariff items when such goods are not available from production in Canada.
[5] Under what is known as the Machinery Program, the Minister of National Revenue ("Minister") may authorize duty relief for "Machinery and Equipment" which in the Minister's opinion is not available from production in Canada. "Machinery and Equipment" is defined in section 73 of the Act as "... goods that are classified under a tariff item enumerated in Schedule VI and, where applicable, under a code enumerated in that Schedule with respect to that tariff item".
[6] The Machinery Program provides for duty relief in two instances. First, pursuant to section 74 of the Act, no customs duties are payable where the imported goods are included on the list of machinery and equipment ("Minister's List") established by the Minister under section 75 of the Act. Second, pursuant to section 76 of the Act, remission of duties may be granted to individual importers in respect of specific goods. At the times material to this action remission could be sought in advance of the importation of goods, and remission authorities were normally made retroactive to the 90th day preceding the date of application. On request, remission authorities could be made retroactive for the full period allowable for refund applications under section 77 of the Act, which was five years.
[7] The Minister's List is continuously reviewed, and revisions are published periodically in the Canada Gazette. In deciding whether to put a particular item on the Minister's List the Act requires the Minister to form the opinion, having regard to specified criteria, that the item is not available from production in Canada.
[8] There is no specific procedure set out in the Act to allow importers to petition the Minister to place an item on the Minister's List and no statutory appeal mechanism exists in respect of decisions to add or delete items from the Minister's List. The Minister's decision may however be reviewed pursuant to section 18.1 of the Federal Court Act, R.S.C. 1985, c. F-7.
[9] Duty relief under section 74 of the Act may be claimed by any importer who imports any of the goods described in the Minister's List.
[10] Remission authorities under section 76 of the Act are initiated by application from individual importers in respect of specific goods which they import or plan to import. When considering such applications the Minister is required to form an opinion on the availability of the goods from Canadian production according to the same criteria used with respect to the Minister's List. While section 76 authorities are issued to the specific applicant, in some circumstances they may be assigned to another importer.
[11] No statutory appeal exists in respect of the Minister's decisions under section 76 of the Act, although they too may be reviewed pursuant to section 18.1 of the Federal Court Act.
[12] A denial of a request for refund pursuant to the Minister's List does not preclude an application for remission under section 76, and vice versa. Additionally, under what was section 101 of the Act (now section 115 of the Act) either the Minister or the Minister of Finance may recommend to the Governor in Council that duties be remitted.
[13] The plaintiff's goods are valve components and complete valves described in the import documentation as "butterfly valves" and "ball valves". At the time of importation (between February, 1988 and October, 1990) the goods were classified under tariff items 8481.80.91, 8481.80.92, 8481.80.99, 8481.90.10 or 8481.90.40 as they read at that time, and the plaintiff paid duties at the rate of between 5.4% and 10.2% of the landed value of the particular good (depending upon the tariff classification of the particular good and the time of importation).
[14] The subject goods were, after importation, sold by the plaintiff in competition with similar goods sold by other suppliers. The plaintiff's importer competitors paid duties on similar imported goods at the same, less or zero rates as that paid by the plaintiff (according to the country of origin and eligibility for preferential rates of duty). The plaintiff and its importer competitors would factor the amount of duty they each paid in setting their respective prices for the goods that they sold in competition with one another.
[15] At the time of importation the Minister's List did not authorize refunds for "rotary valves". Some, but not all, of the tariff items under which the subject goods were originally imported were eligible for the Machinery Program because they were Schedule VI tariff items.
[16] On April 26, 1990, Order in Council No. P.C. 1990-755 issued which, among other things, amended Schedule I to the Customs Tariff by revoking tariff items 8481.80.91, 8481.80.92, 8481.80.99, 8481.90.40 and 8481.90.10 as they read prior thereto and enacting various new tariff items including 8481.80.99 and 8481.90.10. The Order in Council also amended Schedule VI by revoking 8481.80.91 and adding 8481.80.99. The Order in Council was made retroactive so as to cover all imports to January 1, 1988.
[17] In July of 1990, the Minister's List was amended to include "rotary valves" of tariff item 8481.80.90. That tariff item was a Schedule VI tariff item and this amendment was made retroactive to cover all imports to January 1, 1988.
[18] Prior to this amendment the Minister's List did not contain an item for "rotary valves".
[19] Subsequent to the making of these amendments the plaintiff applied to have the tariff classification of the subject goods redetermined to 8481.80.99 and 8481.90.10 as they were amended to read, thereby making the goods eligible for consideration for remission and/or refund under the Machinery Program.
[20] That redetermination application was granted with the consequence that the subject goods were deemed to have been imported under either new tariff item 8481.80.99 or 8481.90.10, retroactive to the time of importation. Those new tariff items carried lower rates of duty than did the tariff items under which the goods were originally cleared for entry. As a result, the rate of duty was reduced and a partial refund of duty was made to the plaintiff.
[21] Thereafter, beginning in 1991 the plaintiff began submitting refund requests for the imported goods using an assigned remission authority granted to another corporate entity pursuant to section 76 of the Act for goods described as "ball check valves", "ball valves" and "butterfly valves". None of those requests were approved because the assignment of the authority was considered to be invalid.
[22] Beginning in December of 1992, the plaintiff began submitting refund requests pursuant to section 100 of the Act on the ground that the subject goods were rotary valves or parts (also an item on the Minister's List). One hundred and thirty-eight refund applications were submitted in respect of each importation of the subject goods.
[23] All refund applications were submitted within five years of the importation which they related to as required by the Act.
[24] The plaintiff's claims were rejected by way of Detailed Adjustment Statements issued by the defendant from February, 1993 to July, 1993.
[25] This action therefore arises in the context of a post-import exercise of a remission authority. The plaintiff claims to be entitled to the refund on the ground that the imported valves were "rotary valves" as that term appeared on the Minister's List, while the defendant asserts that the term "rotary valves" as it appears on the Minister's List does not include the subject goods.
[26] There is no statutory appeal mechanism in respect of the Minister's refusal to grant a refund. Such decision may be subject to judicial review pursuant to section 18.1 of the Federal Court Act. The plaintiff did not seek judicial review of the rejection of its refund claims, nor did it apply for a remission authority under section 76 of the Act in respect of the subject goods after the refund applications were rejected (it is admitted that the plaintiff was aware of this procedure) nor did the plaintiff seek ministerial review of the remission decision pursuant to what was section 101 of the Act.
[27] The plaintiff was aware that an action was commenced in the Federal Court in September of 1993 by which Cameron Iron Works Canada Ltd. claimed damages for unjust enrichment as a consequence of the defendant's denial of refund claims. Those claims had been made with respect to the same retroactive amendments to the Machinery Program as are relevant to this case. That action was discontinued in January of 1999.
[28] At this time the defendant has destroyed some of the original transaction and refund requests, as well as records relating to how various codes, including "rotary valves", were introduced into the Minister's List.
[29] Such destruction was pursuant to government policy on record retention which provides that Machinery Program records are retained for a period of five to twenty years depending on the type of record.
[30] The plaintiff has retained duplicate originals of the refund applications and has made copies available to the defendant.
RELEVANT STATUTORY PROVISIONS
[31] The legislative provisions of the Act relevant to this action, as they were at the material times, are as follows:
| 74.(1) No customs duties are payable in respect of machinery and equipment that, at the time the machinery and equipment is accounted for under section 32 of the Customs Act, is included on the list of machinery and equipment established by the Minister pursuant to subsection 75(1).
...
75.(1) The Minister may establish a list of machinery and equipment that, in the opinion of the Minister, having regard to the criteria mentioned in subsection (3), is not available from production in Canada.
...
76.(1) Where an application for remission is made in accordance with subsection (4) in respect of machinery and equipment not included on this list established pursuant to subsection 75(1) and the Minister is of the opinion, having regard to the criteria mentioned in subsection 75(3), that the machinery and equipment is not available from production in Canada, the Minister may remit in respect of the machinery and equipment
(a) that portion of the customs duties that, but for this subsection, would be payable in respect of the machinery and equipment that is attributable to the excess of its value for duty over five hundred dollars; and
...
77.(1) A refund shall be granted of the portion of the customs duties or excise taxes described in paragraph 76(1)(a) or (b) if:
(a) a remission of the portion is made under subsection 76(1);
(b) the portion of the duties was paid; and
(c) an application for refund is made in accordance with subsection (2).
(2) For the purposes of paragraph (1)(c), an application for refund must be
(a) supported by such evidence as the Minister may require; and
(b) made in the prescribed manner and in the prescribed form containing the prescribed information within five years, or, where another time is prescribed, within that other time, after the machinery and equipment in respect of which it is made is accounted for under section 32 of the Customs Act.
...
100.(1) A refund shall be granted of the whole or a portion of duties, other than the goods and services tax, if
|
|
| (a) relief from the payment of the whole or the portion of duties, other than the goods and services tax, is required to be granted by Division III, III.1, IV or V or the duties, other than the goods and services tax, were not payable under section 74 or 75.1;
(b) the whole or the portion of the duties, other than the goods and services tax, was paid; and
(c) an application is made in accordance with subsection (2) and section 104.
(2) For the purposes of subsection (1), an application must
(a) be supported by such evidence as the Minister may require;
(b) be made in the prescribed manner and in the prescribed form containing the prescribed information within five years, or, where another time is prescribed, within that other time, after the goods or materials in respect of which it is made are accounted for under section 32 of the Customs Act or released under section 86 of this Act; and
(c) be made before the exportation of the goods and disclose the number mentioned in the certificate issued under subsection 82(1), where relief was required to be granted by section 80.
|
74.(1) Aucun droit de douane n'est exigible sur les machines et appareils qui, à la date de leur déclaration en détail en application de l'article 32 de la Loi sur les douanes, sont inscrits sur la liste de machines et appareils établie par le ministre en application du paragraphe 75(1).
...
75.(1) Le ministre peut établir, compte tenu des critères visés au paragraphe (3), une liste de machines et appareils qui ne sont pas produits au Canada.
...
|
| 76.(1) Sur demande présentée conformément au paragraphe (4), le ministre peut, s'il juge, compte tenu des critères prévus au paragraphe 75(3), que les machines et appareils qui font l'objet de la demande ne sont pas produits au Canada, remettre sur ces machines ou appareils :
a) la fraction des droits de douane qui, sans le présent paragraphe, serait payable sur les machines et appareils et constituée par l'excédent de sa valeur en douane sur cinq cents dollars;
...
77.(1) Est accordé un remboursement de la fraction des droits de douane ou des taxes d'accise visée aux alinéas 76(1)a) ou b) si, à la fois :
a) remise de la fraction est accordée en vertu du paragraphe 76(1);
b) la fraction des droits a été payée;
c) une demande est présentée conformément au paragraphe (2).
(2) Pour l'application de l'alinéa (1)c), les demandes sont :
a) assorties des justsificatifs exigés par le ministre;
b) présentées, selon les modalités réglementaires et établies en la forme, ainsi qu'avec les renseignements, déterminés par le ministre, dans les cinq ans ou, le cas échéant, dans le délai prévu par règlement suivant la déclaration en détail, en application de l'article 32 de la Loi sur les douanes, des machines ou apprareils qui en font l'objet.
...
100.(1) Est accordé un remboursement de la totalité ou d'une fraction des droits, autres que la taxe sur les produits et services, si, à la fois :
a) en application des sections III, III.1, IV ou V, il y a obligation d'accorder une exonération du paiement de la totalité ou d'une fraction des droits, autres que la taxe sur les produits et services, ou si les droits, autres que cette taxe, n'étaient pas exigibles en application des articles 74 ou 75.1;
b) la totalité ou la fraction des droits, autres que la taxe sur les produits et services, a été payée;
c) une demande est présentée conformément au paragraphe (2) et à l'article 104.
(2) Pour l'application du paragraphe (1), les demandes sont :
a) assorties des justificatifs exigés par le ministre;
b) présentées selon les modalités réglementaires et établies en la forme, ainsi qu'avec les renseignements, déterminés par le ministre dans les cinq ans ou, le cas échéant, dans le délai prévu par règlement, suivant la déclaration en détail en application de l'article 32 de la Loi sur les douanes ou le dédouanement en application de l'article 86 de la présente loi, des marchandises ou des matières et matériels qui en font l'objet;
c) présentées avant l'exportation des marchandises avec la déclaration du numéro indiqué sur un certificat délivré en vertu du paragraphe 82(1), dans les cas où l'exonération devait être accordée en vertu de l'article 80.
|
|
| (i) Is the plaintiff's claim barred, in whole or in part, by its failure to avail itself of the other remedies available to it? |
| [32] The defendant submitted that the plaintiff's claim is so barred on two bases. |
| [33] First, the defendant submitted that having regard to the decision of the Supreme Court of Canada in [1977] 2 S.C.R. 67">Cie Immobilière Viger v. Lauréat Giguère Inc., [1977] 2 S.C.R. 67 (S.C.C.) there are six requirements which must be met in order for a plaintiff to succeed in an action for unjust enrichment. One of those requirements was submitted to be that the plaintiff must establish the absence of any other remedy. Therefore, it was submitted that the effect of the plaintiff's failure to seek judicial review of the Minister's decisions or to seek pursuant to section 76 of the Act remission of the duty paid was to preclude the plaintiff from seeking the equitable and discretionary remedy of unjust enrichment. |
| [34] Second, the defendant submitted that the applicable legislation comprised a complete code for the imposition of duties on goods imported into Canada and for the resolution of disputes arising from the imposition of those duties. The consequence of the failure by the plaintiff to avail itself of the remedies provided in the Act was said to prevent recourse to the Court under the doctrine of unjust enrichment. |
| [35] As to the first basis submitted by the defendant, I accept the plaintiff's submission that the jurisprudence of this Court establishes that the absence of any other remedy is not a requisite condition for a claim of unjust enrichment to succeed. Rather, a claimant must prove first, an enrichment of the defendant; second, a corresponding deprivation of the plaintiff; and, third, no juridical reason for the enrichment, all in circumstances where it would be unjust that the benefit be retained. See: Forest Oil Corp. v. Canada, [1997] 1 F.C. 624 (T.D.); Michelin Tires (Canada) Ltd. v. Minister of National Revenue (Customs and Excise) (1998), 158 F.T.R. 101 (F.C.T.D.); Federated Co-operatives Ltd. v. Minister of National Revenue (Customs and Excise) (1999), 165 F.T.R. 135 (F.C.T.D.). |
| [36] To the extent that the defendant placed reliance upon [1977] 2 S.C.R. 67">Cie Immobilière Viger, supra, there the Supreme Court was dealing with the extent to which the theory of unjustified enrichment had been incorporated into the civil law. As well, there the Court noted, without deciding the point, that some authorities doubted whether the absence of any other remedy was a necessary element of the cause of action. Thus I do not find this case to be a binding authority on the need to establish the absence of any other remedy. |
| [37] As for the second basis of the defendant's submission, in Air Canada v. British Columbia, [1989] 1 S.C.R. 1161 the Supreme Court of Canada confirmed that principles of unjust enrichment can operate against a government to ground restitutionary relief, stating at page 1207 that: |
| Thus, where an otherwise constitutional or intra vires statute or regulation is applied in error to a person to whom on its true construction it does not apply, the general principles of restitution for money paid under a mistake should be applied, and, subject to available defenses and equitable considerations discussed earlier, the general rule should favour recovery. |
| [38] As a principle of statutory interpretation, where legislation and the rules of equity overlap, the legislature is presumed not to depart from the prevailing law unless it has clearly expressed its intention to do so by providing a full and complete regulation of the matter at issue. See: Glaxo Wellcome PLC v. The Minister of National Revenue, [1998] 4 F.C. 439 (F.C.A.) at page 467. |
| [39] Thus where tax has been overpaid and its return is sought by way of a claim alleging unjust enrichment, this Court has reviewed the taxing legislation to determine whether the legislation provides a complete code for the repayment of the amount paid in error. If it does, resort to a claim for equitable relief is precluded. In that circumstance the legislative provisions and the complete code they establish provide a juridical reason for the enrichment. |
| [40] As to whether the legislation does comprise a complete code applicable to the repayment of amounts paid, as stated in Memorandum D8-5-1 (a document before the Court in the Joint Book of Documents) published by what was then Revenue Canada Customs and Excise, the purpose of the Machinery and Equipment Program is to provide relief from the payment of customs duties otherwise payable if the subject goods are not available from production in Canada. Therefore, no customs duties are payable in respect of machinery and equipment included on the Minister's List. Where an importer is of the view that machinery or equipment not on the Minister's List is, nonetheless, not available from Canadian production an application may be made to the Minister for remission of duties or refund if the duties have been paid. A request for refund may be made retroactive for the full period of five years. Interest is payable in the case of refund claims in certain circumstances. |
| [41] Decisions by the Minister with respect to whether goods are on the Minister's List, and whether to grant a section 76 remission or a refund are all subject to judicial review. |
| [42] Moreover, section 74 of the Customs Act, R.S.C. 1985 (2nd Supp.), c.1 provides, subject to specified conditions, for the refund of the whole or part of customs duties paid where duties were overpaid or paid in error on goods for any reason other than an erroneous determination of tariff classification, or value for duty (or for part of the relevant period, an erroneous determination as to the origin of goods imported from the United States). |
| [43] The facts alleged in the present case therefore in my view fall within those circumstances contemplated by Parliament when enacting sections 74, 76, 77 and 100 of the Act and section 74 of the Customs Act. The legislative provisions provide a full panoply of options to an importer to have its contention that imported goods are not available from Canadian production determined. If successful in advancing that contention relief in the form of remission, refund or interest is provided for. |
| [44] Additionally, in each case the applicable legislation provides prescriptive periods. Any application for judicial review of a decision of the Minister must be commenced within the time limit stipulated by section 18.1 of the Federal Court Act. A refund application made pursuant to section 77 or section 100 of the Act must be made within five years after the goods were accounted for under section 32 of the Customs Act. Any application under section 74 of the Customs Act must be made within two years of the date the goods were accounted for. |
| [45] In view of the full extent of the circumstances contemplated by the legislation where relief would be available and the provisions for relief, and in view of the time periods prescribed for the pursuit of those remedies, I conclude that the applicable legislation does provide a complete code for the repayment of amounts paid in error or as a result of misapplication of the Act. |
| [46] The plaintiff argued that proceeding by way of an action is more convenient because all 138 refund claims can be dealt with together in the same action and all matters of fact can be decided with the benefit of viva voce evidence. While that may be correct, those considerations are not sufficient to oust the operation of the statutory scheme. |
| [47] For these reasons, I would answer the first question in the affirmative. |
| (ii) Is the plaintiff's claim barred, in whole or in part, by the doctrine of laches? |
| [48] The doctrine of laches when raised as a defence requires the defendant to establish that by delaying the institution or prosecution of the claim the plaintiff has either: |
| (a) acquiesced in the defendant's conduct; or |
| (b) caused the defendant to alter its position in reasonable reliance upon the plaintiff's inaction. |
| Mere delay is insufficient to establish the defence, and in every case the inquiry to be made is whether the balance of justice favours granting or withholding the remedy sought. Acquiescence requires delay after both deprivation of rights and acquisition of full knowledge of those rights so as to give rise to an inference that the rights have been waived. See: M.(K.) v. M.(H.), [1992] 3 S.C.R. 6. |
| [49] Because equity requires that all of the circumstances be weighed to determine what is required by the interests of justice, this defence is ill-suited for determination on a preliminary basis on a restricted evidentiary record. In my view parties should not, as a general rule, be encouraged to seek determination of the availability of this defence on a preliminary basis. |
| [50] Having expressed that general concern, in the particular circumstances before me at the joint urging of counsel I am prepared to answer the question as posed. |
| [51] In arguing that the plaintiff's claim is barred by the doctrine of laches the defendant asserted that: |
| i) by July of 1993, at the latest, the plaintiff knew the facts giving rise to its cause of action in equity but it delayed commencing this action for approximately six years and took no steps in the intervening period to enforce its alleged rights. This was said to constitute acquiescence; and |
| ii) as a result of the delay in commencing the action the defendant destroyed documents which would have assisted in the defence of the matter and also used the duty collected to meet various and complex financial obligations. These circumstances were said to make it unjust to allow recovery at this time. |
| [52] In response to the suggestion of acquiescence the plaintiff argued that in view of the lack of case law with respect to the Machinery Program it was not unreasonable for it to have awaited the outcome of the action brought by Cameron Iron Works. It noted that this action was commenced within two months of the discontinuance of that action. |
| [53] While I am not persuaded that it was prudent for the plaintiff to take no steps to advise the defendant that it was reserving its rights while awaiting judgment in the Cameron Iron Works action, in view of that possible explanation for the delay and on the limited evidentiary record before me I do not believe that I ought to infer that the plaintiff in effect waived any of its rights to pursue a claim for unjust enrichment. |
| [54] As to the assertion of prejudice, the plaintiff's response is two-fold. First, it stated that any prejudice caused by the destruction of files was "self-induced" because documents were destroyed pursuant to departmental policy and not as a result of any specific action or inaction on the part of the plaintiff. The plaintiff pointed to the existence of its duplicate copies of refund claims and to the alleged irrelevance of documents relating to the creation of the Minister's List. Second, the plaintiff asserted that as a matter of policy laches should not be applied to cases where recovery is sought of taxes paid as a result of error or misapplication of the taxing legislation. |
| [55] I accept the plaintiff's submission that the defendant has failed to establish prejudice arising from the plaintiff's conduct. The documents were destroyed pursuant to departmental policy. Pursuant to that policy documents may have been destroyed as early as 1992 in circumstances where the Act entitled the plaintiff to claim a refund as late as 1993 for items imported in 1988. Destruction subsequent to 1992 occurred at a time when the defendant was defending the Cameron Iron Works action which would have involved at least some of the same policy documents. A refund claim could have been filed by the plaintiff in respect of 1990 imports as late as 1995. |
| [56] As to the effect of the fact that the monies at issue have been spent, in Air Canada v. British Columbia, supra, at page 1207 the Supreme Court noted that notwithstanding policy concerns, in circumstances where taxes were paid in error the general principles of restitution for money paid in error should be applied, subject to available defences and equitable considerations. The general rule should favour recovery. Thus, I do not find that the simple fact that the monies collected have been spent is sufficient to make it unjust to allow the claim to proceed. |
| [57] For these reasons, in the exercise of my discretion, I have not been persuaded that the balance of justice favours withholding the remedy sought. Thus, I would answer the second question in the negative. |
| (iii) Is recovery for unjust enrichment in this particular case affected by the fact that the relevant provisions of the Machinery Program were passed with retroactive effect? |
| [58] The plaintiff contended that because the material provisions of the Machinery Program were passed with retroactive effect it would be unfair to require the plaintiff to prove as an element of the claim of unjust enrichment that the burden of the tax was not passed on. The plaintiff pointed to the fact that the Act never required a claimant to prove that it had not passed on the burden of the tax as a condition of granting a refund. The plaintiff argued that Parliament must, in making the provisions retroactive, have assumed that at least some refund claimants would already have sold the goods in respect of which refunds would be claimed and, having done so, without any expectation that they would later be able to claim a refund, many of those claimants would thereby have passed on some or all of the burden of the tax. Therefore the plaintiff said that Parliament made it clear that it meant to allow recovery regardless of whether such recovery created a windfall for any importer. |
| [59] I reject this argument for the following reasons. |
| [60] Here, the plaintiff chose not to avail itself of the statutory scheme. Rather, the plaintiff sued invoking the Court's equitable jurisdiction to grant relief where otherwise there would, it is alleged, be an unjust enrichment. One of the requisite elements of the cause of action selected by the plaintiff is the need to establish a corresponding loss or detriment related to the defendant's enrichment. Having chosen to pursue this remedy, the plaintiff must establish the requisite elements of the cause of action. |
| [61] This does not mean that it is irrelevant that the legislative amendments were made with retroactive effect. However, in my view that is merely one factor which may be taken into account with other equitable considerations for the purpose of determining whether restitution should be granted. This factor may or may not be persuasive. It does not obviate the need to prove that the burden was not passed on. |
| [62] I would therefore answer this question in the negative. |
| (iv) In order for the plaintiff to establish that it suffered a detriment, is it sufficient for it to show that its prices for the subject goods were established in a competitive environment against goods that were subject to lesser rates of duty than those that pertained to the subject goods? |
| [63] The evidence as agreed by the parties is to the effect that the subject goods were sold by the plaintiff in competition with similar goods sold by other suppliers. The plaintiff's importer competitors paid duties on similar imported goods at the same, less or zero rates as that paid by the plaintiff (depending upon the country of origin and eligibility for preferential rates of duty). The plaintiff and its importer competitors would factor the amount of duty they each had paid when setting their respective prices for the goods which they sold in competition with one another. |
| [64] Moreover, as a result of the redetermination of the tariff classification the rate of duty paid by the plaintiff was reduced and a partial refund of the duty paid by the plaintiff was made. It was conceded in argument by plaintiff's counsel that it was the unreduced amount which was taken into account when the plaintiff made its pricing decisions. |
| [65] In this factual context the parties generally acknowledged the requirement that the plaintiff must establish that it suffered a detriment, but differed as to what constitutes suffering a detriment. In essence the plaintiff stated that as a matter of law it would be sufficient if it established that allowing it to recover the duties paid would not confer any windfall upon it. The defendant submitted that the plaintiff must show that it "bore the burden of the tax". |
| [66] The general principle was stated by the Supreme Court in Air Canada v. British Columbia, supra, at pages 1202 and 1203, as follows: |
| The law of restitution is not intended to provide windfalls to plaintiffs who have suffered no loss. Its function is to ensure that where a plaintiff has been deprived of wealth that is either in his possession or would have accrued for his benefit, it is restored to him. The measure of restitutionary recovery is the gain the province made at the airlines' expense. If the airlines have not shown that they bore the burden of the tax, then they have not made out their claim. |
| There the Supreme Court would have denied recovery to the plaintiff on this basis because the evidence established that the plaintiffs had passed on to their customers the burden of the tax. |
| [67] While acknowledging this general principle, the plaintiff stated that the jurisprudence establishes that the plaintiff should succeed in proving that it did not pass on the burden of the tax where shows any one of the following: |
| a. Goods in respect of which the taxes were paid were sold at a loss or at a time when the plaintiff was losing money; or |
| b. Goods in respect of which the taxes were paid were sold under competitive conditions where prices were set independently of the taxes; or |
| c. Goods in respect of which the taxes were paid were capital goods; or |
| d. The plaintiff was competing against goods that were subject to a lesser amount of or no tax; or |
| e. It can demonstrate that it lost sales on the taxed goods by price margins of less than the amount of the tax. |
| [68] The plaintiff asserted that it would therefore be sufficient if it established that it sold goods in competition with others who were subject to less or no tax. |
| [69] In contending that the burden of establishing a detriment is met where goods in respect of which the taxes were paid are sold at a loss or at a time when the plaintiff was losing money, the plaintiff relied upon Air Canada v. Ontario (Liquor Control Board), [1997] 2 S.C.R. 581 and CP Air v. British Columbia, [1989] 1 S.C.R. 1133. I do not find either case to support the exception asserted by the plaintiff. |
| [70] In the Air Canada v. Ontario (Liquor Control Board) case, supra, it was conceded before the Supreme Court by the appellant that there had been no error in ordering restitution of fees paid after January 1, 1984. The only issue was whether restitution should have been ordered on fees paid earlier, at a time when the Liquor Control Board was unaware of the inapplicability of the licensing law to the plaintiff. The unimpugned decision to allow restitution was not, I find, based upon any exception to the general principle, but rather upon a factual basis (see the decision of the Ontario Court of Appeal (1995), 24 O.R. (3d) 403 (C.A.) at page 432). There, the evidence established that gallonage fees on alcoholic beverages were not passed on to the airlines' passengers because ticket prices and charges for liquor were a function of competitive conditions and were entirely independent of the cost of liquor. |
| [71] The CP Air case, supra, relied upon by the plaintiff was released by the Supreme Court of Canada as part of a trilogy of cases which included Air Canada v. British Columbia, supra. I can find nothing in the reasons of the Supreme Court in the CP Air case to detract from the general principle articulated in Air Canada v. British Columbia quoted above concerning the passing on of the burden of any tax. |
| [72] In arguing that it would be sufficient to show that goods were sold under competitive conditions where prices set were independent of the taxes, the plaintiff again relied upon Air Canada v. Ontario (Liquor Control Board), supra. I repeat that in my view this case turned upon the evidence before the Court, and not upon any general principle of law. How prices were set was simply one evidentiary factor which the Court looked at in order to determine whether the tax had been passed on via the ticket price or beverage cost. |
| [73] Reliance was placed by the plaintiff upon the CP Air case and upon Allied Air Conditioning Inc. v. British Columbia (1994), 109 D.L.R. (4th) 463 (B.C.C.A.) to argue that the general principle does not apply where a tax was paid on capital goods. As noted above, I find nothing in the CP Air case to detract from the general principle found in Air Canada v. British Columbia, supra. |
| [74] Similarly, I do not find the decision of the British Columbia Court of Appeal in Allied Air Conditioning Inc., supra, to support any different principle applicable to capital goods. There is no suggestion of any such principle in the reasons of Justice Legg, concurred in by Justices Taylor and Proudfoot. While the reasons of Justice Taylor do contain reference to the CP Air case, tax on the capital assets there acquired for continuous use, and that it was not contended in that case that the recovery of the acquisition cost over time would establish that the tax had been passed on, I read those comments to be referable to the subsequent reference to the regulatory regime which permitted ticket fares to be increased in respect of operating costs. |
| [75] The plaintiff also relied upon the closing comments of Justice Taylor in Allied Air Conditioning Inc. to support its contention that a deprivation may be established where the plaintiff competes against goods sold subject to a lesser amount of, or no, tax. That comment was, in my view, obiter and insufficient to establish the principle asserted by the plaintiff. |
| [76] Finally the plaintiff pointed to the decision of the Nova Scotia Court of Appeal in Cherubini Metal Works Ltd. v. Nova Scotia (Attorney General) (1995), 137 N.S.R. (2d) 197 (N.S.C.A.) to argue that it is sufficient to demonstrate that it lost sales on the taxed goods by price margins of less than the amount of the tax. |
| [77] In Cherubini, supra, a contractor sought to recover an overpayment of sales tax. The contractor led detailed evidence to the effect that it lost jobs by an amount less than it had mistakenly calculated when preparing its bid and that its bid prices were set in a fashion which was "intuitive" and not simply a matter of adding various components. In some cases the amount of profit included in the bid had been reduced to ensure that it was the lowest bidder. Recovery of the overpaid tax was allowed because the evidence supported the conclusion that the contractor "suffered the economic burden of its errors". The province's enrichment was found to be "directly related to the respondent's deprivation". The Court of Appeal stressed at page 208 that "the question of whether the tax was passed on to the customers is one of fact". |
| [78] In that circumstance, I do not think it correct to say that the case establishes a blanket principle that "the requisite deprivation is established where a plaintiff can demonstrate that it lost sales on the taxed goods by price margins of less than the amount of the tax". Rather, this fact may be one way a plaintiff establishes on the totality of the relevant evidence that it did not pass on the burden of the tax. Recovery would then follow if the detriment was directly related to the defendant's enrichment. |
| [79] Having reviewed all of the plaintiff's arguments I am unable to conclude that in order to establish that it suffered a detriment it would be sufficient for the plaintiff to show that its prices for the subject goods were established in a competitive environment against goods that were subject to lesser rates of duty than those which pertained to the subject goods. Multiple considerations may enter the process of setting prices. |
| [80] I would therefore answer the fourth question in the negative. |
| [81] For the above reasons, it is ordered that the questions to be determined by the Court are answered as follows: |
| i) Is the plaintiff's claim barred, in whole or in part, by its failure to avail itself of the other remedies available to it? |
| ii) Is the plaintiff's claim barred, in whole or in part, by the doctrine of laches? |
| iii) Is recovery for unjust enrichment in this particular case affected by the fact that the relevant provisions of the Machinery Program were passed with retroactive effect? |
| iv) In order to establish that it suffered a detriment, is it sufficient for the plaintiff to show that its prices for the subject goods were established in a competitive environment against goods that were subject to lesser rates of duty than those that pertained to the subject goods? |
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