The Queen v. Beaver Lamb and Shearing Co., [1960] SCR 505

Supreme Court of Canada

The Queen v. Beaver Lamb and Shearing Co., [1960] S.C.R. 505

Date: 1960-04-11

Her Majesty The Queen Appellant;

and

Beaver Lamb and Shearling Company Limited (Suppliant) Respondent.

1959: November 30; December 1; 1960: April 11.

Present: Kerwin, C.J. and Taschereau, Locke, Fauteux and Ritchie JJ.

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA.

Taxation—Excise tax—Taxpayer under mistake of law paid excise on "mouton"—Petition of Right to recover amounts paid—Whether payment made under duress or compulsion—Excise Tax Act, R.S.C. 1927, c. 179 as amended, ss. 80A, 105(1)(5)(6). (Excise Tax Act, R.S.C. 1952, c. 100, ss. 24, 46(1)(5)(6)).

The respondent company paid the Department of National Revenue $24,605.26 prior to June 30, 1953, as excise taxes on processed sheepskins known as "mouton". In the following September, the Department having threatened legal proceedings five months earlier, the respondent agreed to make a further payment of $30,000 as a final settlement of it tax arrears. In October, 1957, by petition of right, it sought to recover these amounts as having been paid in error, and referred to the 1956 decision of this Court in Universal Fur Dressers and Dyers Ltd. v. The Queen, [1956] S.C.R. 632, that "mouton" was not a fur and therefore not subject to excise tax. The claim as to the first amount was dismissed on the ground that it was made voluntarily, and no application for refund had been made within the time specified' in the Excise Tax Act. As to the second amount, the trial judge found that the respondent was entitled to recover because, on the evidence adduced, it was paid under duress or compulsion. The Crown appealed the latter ruling to this Court.

Held (Taschereau J. dissenting): The appeal should be allowed.

Per Kerwin C.J., Fauteux and Ritchie JJ.: The payment in question was made long after the alleged, but unsubstantiated, duress or compulsion. It was paid under a mistake of law, and no application for a refund was made in writing within the two year time limit as prescribed by s. 105(6) of the Excise Tax Act.

In notifying the insurance companies and the respondent's bank not to pay over any moneys due to it, the Department was merely proceeding according to the authority given it by the Act.

Per Locke and Ritchie JJ.: The respondent carried out a calculated and deliberate plan to defraud the Crown of moneys which it believed were justly payable. A compromise was agreed upon fixing the amount to be paid at $30,000. In the absence of any evidence on the matter, it could not be inferred that the threat made by an officer of the Department either induced or contributed to inducing or influenced the payment of the $30,000. The moneys clearly were paid under a mistake of law and were not recoverable. Brisbane v. Dacres, 5 Taunt. 143, referred to.

[Page 506]

Per Ritchie J.: Whatever may have been the nature of the threats exerted by the Department the payment of the $30,000 was not made "under immediate necessity and with the intention of preserving the right to dispute the legality of the demand" and it could not be recovered as money paid involuntarily or under duress.

Per Taschereau, J., dissenting: The respondent did not make the $30,000 payment voluntarily. Threats of imprisonment and actual seizures of bank account and insurance moneys were made to bring about the settlement. This kind of pressure amounted to duress, Mashell v. Horner, [1915] 3 K.B. 106, Knutson v. The Bourkes Syndicate, [1941] S.C.R. 419. S. 105 of the Excise Tax Act did not apply, as that section finds its application only when the payment has been made as a result of mistake of law or fact. Such was not the case here.

APPEAL from a judgment of Cameron J., of the Exchequer Court of Canada1, granting in part a petition of right. Appeal allowed.

D. S. Maxwell and D. H. Aylen, for the appellant.

H. J. Plaxton, Q.C., and R. H. McKercher, for the suppliant, respondent.

The judgment of the Chief Justice and of Fauteux J. was delivered by

The Chief Justice:—The substantial point in issue in this appeal is whether a payment by the respondent of a sum of $30,000 was made under duress or under compulsion. I have arrived at the conclusion that it was not so made.

The circumstances are detailed elsewhere and I do not propose to repeat them. For my purpose it is sufficient to emphasize that such payment was made long after the alleged duress or compulsion. The basis for the allegation is the evidence of Berg, the respondent's president, that in April 1953, in a conversation with the Assistant Deputy Minister of Excise the latter "took the attitude that he was definitely out to make an example of me in this case. He said: 'The situation has been prevalent in the industry for many years,' He said he is taking this case and making an example if he has to prosecute to the fullest extent." It is true that the Assistant Deputy Minister of Excise was not called to deny the alleged statement and, while the trial judge found Berg unworthy of credence in several respects when his testimony was contradicted by that of others, he found that in this particular case Berg was telling the truth.

[Page 507]

I proceed on the assumption that Berg did tell the truth as to what he was told in April 1953, but even so I find it impossible to believe that that conversation had any effect on the settlement arrived at in September 1953. Furthermore when the petition of right in this matter to recover a large sum of money, including the $30,000 in question, was filed on October 31, 1957, no such claim as that now before us was raised. That was done only on September 25, 1958, at the commencement of the trial.

According to the judgment of this Court in Universal Fur Dressers and Dyers, Limited v. Her Majesty the Queen2 it was held that there was no excise tax payable upon mouton. It was long before this that the $30,000 had been paid. That sum was paid under a mistake of law and, furthermore, under subs. (6) of s. 105 of The Excise Tax Act, no application for a refund was made in writing within two years after the money was so paid. Subs. (6) reads as follows:

6. If any person, whether by mistake of law or fact, has paid or overpaid to Her Majesty, any monies which had been taken to account, as taxes imposed by this Act, such monies shall not be refunded unless application has been made in writing within two years after such monies were paid or overpaid.

These conclusions dispose of all matters in controversy, except for the defence raised by the amendment at the trial, which, in my view, cannot be substantial.

The other claims raised by the respondent were disposed of by the trial judge quite properly against it. Before us it was stressed that there was duress because the Department notified the insurance companies and the respondent's bank not to pay over any monies due to it. No such claim was ever alleged but, in any event, what the Department did was merely to proceed according to the authority given it by the Act.

Each case must be decided on its particular facts and there is nothing inconsistent in this conclusion and that arrived at in Maskell v. Horner3 and Knutson v. The Bourkes Syndicate et al4.

[Page 508]

The appeal should be allowed with costs and the petition of right dismissed with costs.

Taschereau J. (dissenting):—The suppliant-respondent is a company incorporated under the laws of the Province of Ontario, having its head office at Uxbridge. The nature of its business was the processing of shearlings and lambskins. Shearlings are sheepskins that have been shorn. The wool is clipped off and used for lining in garments, galoshes, etc. When the wool is left on the skin, after being processed, it is transformed in what in the trade is called "mouton".

Shearlings were not at the relevant time excise taxable, but it was thought that "mouton" was attracting such a tax, under s. 80(A) of the Excise Tax Act as amended, which reads in part as follows:—

"80(A). (1) There shall be imposed, levied and collected, an excise tax equal to fifteen per cent of the current market value of all dressed furs, dyed furs and dressed and dyed furs,—

(i) imported into Canada, payable by the importer or transferee of such goods before they are removed from the custody of the proper customs officer; or

(ii) dressed, dyed, or dressed and dyed in Canada, payable by the dresser or dyer at the time of delivery by him.

(2) Every person liable for taxes under this section shall, in addition to the returns required by subsection one of section one hundred and six of this Act, file each day a true return of the total taxable value and the amount of tax due by him on his deliveries of dressed furs, dyed furs, and dressed and dyed furs for the last preceding business day, under such regulations as may be prescribed by the Minister.

(3) The said return shall be filed and the tax paid not later than the first business day following that on which the deliveries were made."

From June 1951, to the end of June 1953, the respondent paid to the Department of National Revenue, Customs and Excise Division, a sum of $24,605.26. It is clear that the respondent company made false returns to the Department, and billed "mouton" products which were thought taxable, as "shearlings" products which were not subject to taxation. Mr. Berg, who was the president of the respondent company, is quite frank on this point and does not try to escape his responsibility. In his evidence, he says:—

"Q. Now, Mr. Berg, I understand that during 1951 and 1952, it frequently developed that excise tax returns supplied to the department by Beaver Lamb and Shearling were not correct and falsified. Is that a correct statement?

A. Yes.

Q. That being so do you assume any responsibility for that result?

A. Yes.

[Page 509]

Q. I see. Now, would you be good enough to tell me just what you did in that connection?

A. We sent out mouton products and billed them as shearlings.

BY HIS LORDSHIP:

Q. Would you repeat that?

A. We sent out mouton products and billed them as shearlings.

Q. To your knowledge?

A. Yes, sir.

BY MR. MAXWELL:

Q. Why did you do this?

A. It was quite prevalent in the industry, and other firms were doing the same procedure and we had to stay in business."

On or about the first week of June, 1953, the respondent was informed by Mr. Phil Duggan, president of Donnell and Mudge, a company operating the same business as the respondent's, that they were claiming with others a refund for excise taxes paid to the Department of National Revenue on "mouton", as in their opinion, "mouton" not being a fur, but a processed product of a wool-bearing animal, was not subject to excise tax under 80(A) of the Act. The respondent was asked to join with them, and it was suggested that it should write a letter to the Department claiming such a refund.

In the meantime, the Department had, on the 13th of April 1953, before the Exchequer Court of Canada, sought to recover from the Universal Fur Dressers and Dyers Limited, $573.03 alleging that the defendant being a dresser and dyer of furs, was liable for the tax. It was held by this Court5, reversing the judgment of the Exchequer Court, that the merino sheep is a wool-bearing animal and not a fur-bearing one, that its skin although with the wool attached is not a fur, and is not, and could not be, transformed into a fur by the processes to which it was subjected. It is obvious that this applied not only to "mouton", but also to "shearlings".

The respondent discontinued making any further daily and monthly reports at the end of June, and in July its premises were destroyed by fire, and the company ceased to operate.

During the course of a routine audit, carried out by one Thomas G. Belch, an auditor employed by the Department of National Revenue, in March 1953, very wide fluctuations

[Page 510]

in the respondent's inventory were discovered, and further investigations revealed a scheme of operations whereby the respondent's invoices were prepared so as to indicate sales of shearlings where, in fact, mouton had been sold. In April, 1953, the Department issued an assessment against the respondent in the amount of $61,722.20 including penalties, over and above the amount of $24,605.26 which it had already paid.

Following receipt of the assessment, Berg, the president of the respondent company, went to Ottawa to see a high official of the Department. He returned a second time with a Montreal lawyer, but obtained no practical results. Finally, a Toronto lawyer succeeded in obtaining a final settlement on the 15th of September, 1953, upon payment of a sum of $30,000. It was also understood that the company would be prosecuted for having made false returns, would plead guilty, pay a penalty of $10,000 and a fine of $200. All this was complied with.

In October, 1957, the respondent, by petition of right, claimed from Her Majesty the sum of $54,605.26, being $24,605.26 paid up to June, 1953, and $30,000 paid in final settlement in September of the same year. Mr. Justice Cameron, in the Exchequer Court, dismissed the claim for $24,605.26, but granted the relief prayed for as to the $30,000.

The claim as to the first amount was dismissed on the ground that the payment was made voluntarily and that, in the alternative, in order to succeed, the respondent should have made, pursuant to s. 105 of the Act, an application to obtain such refund within a period of two years. The relevant parts of this section read as follows:—

"105. 1. A deduction from, or refund of, any of the taxes imposed by this Act may be granted

(a) where an overpayment has been made by the taxpayer;

(b) where the tax was paid in error;

6. If any person, whether by mistake of law or fact, has paid or overpaid to Her Majesty, any monies which had been taken to account, as taxes imposed by this Act, such monies shall not be refunded unless application has been made in writing within two years after such monies were paid or overpaid.

5. No refund or deduction from any of the taxes imposed by this Act shall be paid unless application in writing for the same is made by the person entitled therto within two years of the time when any such refund or deduction first became payable under this Act, or under any regulation made thereunder."

[Page 511]

The trial judge found as a fact, after analysing all the evidence, that no "application" had been made within" the period of two years, and that, therefore, the respondent was barred from recovering this sum of $24,605.26. But this issue is immaterial before this Court, as the respondent did not cross-appeal, and the matter is therefore finally settled.

But, the respondent alleges that it is entitled, as found by the trial judge, to a refund in the amount of $30,000 because, on the evidence adduced, it was made under duress or compulsion. There is no doubt that when an act is done under duress, under constraint, by injury, imprisonment or by threats, it is invalid. Coercion and compulsion negative the exercise of a free will, and vitiate a consent given under the fear that the threats will materialize. The parties then do not deal on equal terms.

When the president of the respondent company received the additional assessment in April, 1953, in the sum of $61,722.20, he immediately went to Ottawa where he saw a high official of the Department, and he was flatly told that he would be, as well as his bookkeeper, criminally prosecuted and sent to jail. This is how Berg testifies:

"He said to me 'Berg, I am very sorry for you, but I intend to prosecute you as this has been going on too long in this industry and it is unfortunate you have to be the one'. He said 'Unless we get fully paid, if I have to we will put you in gaol'."

And, as to his bookkeeper, Berg says in his evidence:—

"Q. What did you infer from the remarks of these two auditors when they spoke of prosecuting Mrs. Forsyth?

A. Because she signed falsified returns.

Q. Did they indicate that it was a matter of civil proceedings or criminal?

A. Criminal.

BY HIS LORDSHIP:

Q. What did they say?

A. They said she could be prosecuted for signing falsified returns and was liable for imprisonment."

Further in his evidence, Berg, speaking of his first interview with the official of the Department, testifies as follows:—

"Q. And what position did he take in regard to your representations in that connection?

[Page 512]

A. He took the attitude that he was definitely out to make an example of me in this case. He said: 'This situation has been prevalent in the industry for many years'. He said he is taking this case and making an example if he has to prosecute to the fullest extent."

Some time later, the president of the respondent company, accompanied by his Montreal lawyer, went to see another official of the Department. This official spoke to a higher authority and reported that "he was very sorry but he could not do anything for us. It was out of his hands; they definitely intended to take the fullest measures to make an example in this case."

At that time, which was approximately at the end of April, 1953, the respondent company owed nothing to the Department. "Shearlings" were not taxable, but it was thought erroneously that "mouton" was, as the decision of this Court in the Universal Fur Dressers case had not yet been rendered. But Berg had previously made the mistake of making false returns by billing as "shearlings" part of the merchandise which he had sold as "mouton".

Berg then contacted the Toronto lawyer previously referred to, who endeavoured to settle with the Department, and while the negotiations were being carried out in Ottawa, another pressure was exercised upon Berg. After the fire which destroyed the respondent's premises at the end of July, 1953, the Department seized the bank account and the insurance monies, until the amount claimed was fully paid. It is true that, in certain cases under the Act, the appellant has the right to exercise such a recourse, but in the present case, it is obvious that this move coupled with the previous threats that had been made, substantially added to respondent's fears and embarrassment.

Finally, a settlement was arrived at in September, 1953. The respondent paid $30,000, the company was prosecuted and not Berg personally, for making false returns, a penalty, as agreed upon, amounting to $10,000, and a fine of $200, were imposed and paid.

After a thorough examination of all the evidence, I have come to the conclusion that this appeal must fail. I am firmly convinced that the respondent did not pay this amount of $30,000 voluntarily, as claimed by the appellant, and that the trial judge was right when he negatived that

[Page 513]

submission. Duress and pressure were exercised by threats of imprisonment and actual seizures of bank account and insurance monies were made to bring about the settlement to which Berg eventually consented. In his uncontradicted evidence, he says:—

"BY MR. MAXWELL:

Q. Yes; I think, my Lord, that is it. Now, I want to talk for a moment about the $30,000 that was paid apparently some time in September 1953. Why was that $30,000 paid?

A. To relieve the pressure that the department brought to bear, that they intended to put me in gaol if I did not pay that amount of money.

BY HIS LORDSHIP:

Q. Would you repeat that.

A. The department threatened to put me in gaol if there was not a complete settlement made at that time and rather than have them take further action we settled for that."

It flows from well regulated principles that this kind of pressure to which the president of the respondent company was subject, amounts to duress, that it was a direct interference with his personal freedom and that, therefore, the agreement which resulted was not an expression of his free will. He obviously feared imprisonment and the seizure of his bank account and insurance monies for an indefinite period of time.

To support my views, I refer to what has been said by Lord Reading in Maskell v. Horner6,

"Upon the second head of claim the plaintiff asserts that he paid the money not voluntarily but under the pressure of actual or threatened seizure of his goods, and that he is therefore entitled to recover it as money had and received. If the facts proved support this assertion the plaintiff would, in my opinion, be entitled to succeed in this action.

If a person with knowledge of the facts pays money, which he is not in law bound to pay, and in circumstances implying that he is paying it voluntarily to close the transaction, he cannot recover it. Such a payment is in law like a gift, and the transaction cannot be reopened. If a person pays money, which he is not bound to pay, under the compulsion of urgent and pressing necessity or of seizure, actual or threatened, of his goods he can recover it as money had and received. The money is paid not under duress in the strict sense of the term, as that implies duress of person, but under the pressure of seizure or detention of goods which is analogous to that of duress. Payment under such pressure establishes that the payment is not made voluntarily to close the transaction (per Lord Abinger C. B. and per Parke B. in Atlee v. Backhouse, 3 M & W. 633, 646, 650). The payment is made for the purpose of averting a treatened evil and is made not with the intention of giving up a right but under immediate

[Page 514]

necessity and with the intention of preserving the right to dispute the legality of the demand (per Tindal C.J. in Valpy v. Manley, 1 C.B. 594, 602, 603). There are numerous instances in the books of successful claims in this form of action to recover money paid to relieve goods from seizure,"

The law, as so clearly stated by the Court of Appeal of England, applies in the instant case. See also Knuston v. The Bourkes Syndicate7 where Mr. Justice Kerwin (now Chief Justice of Canada) reviews the leading authorities.

The appellant also relies on s. 105 of the Excise Act which is to the effect that no relief may be granted by the Courts, if no application in writing has been made within two years. This provision of the law surely applies to the amounts that were paid previous to the 30th of June, 1953, as found by the learned trial judge, but surely not to the payment of $30,000 paid under duress or compulsion. This section finds its application only when the payment has been made as a result of a mistake of law or fact. This is not the case here.

In the result, I entirely agree with the findings of Mr. Justice Cameron, and particularly with the last two paragraphs of his reasons where he says8:—

"In the instant case, I have no hesitation in finding on the uncontradicted evidence of Berg that the payment of $30,000 was made under duress or compulsion. It will be recalled that legal proceedings were threatened against the suppliant, that Berg was threatened with imprisonment, that the main assets of the company namely, its bank account and its right to receive payment from the fire insurance company—were under seizure by the Department. There is no evidence to indicate that up to the time of the settlement, the officials of the Department had withdrawn their threats of criminal proceedings against Berg. The seizure of the bank account and of the insurance monies remained in effect until after the payment of $30,000 was made; and the Department insisted as a term of the settlement that the suppliant should be charged and would plead guilty to making fraudulent returns.

As has been stated above, the demand for payment of the taxes was illegal. For the reasons stated, I am of the opinion that the payment of $30,000 was not a voluntary payment but was made under duress or compulsion and that the suppliant is therefore entitled to recover that sum from the respondent."

The appeal should be dismissed with costs.

Locke J.:—The petition of right in this matter was filed on October 31, 1957 and by it the respondent sought to recover a sum of $24,605.27, said to have been paid by it

[Page 515]

as excise taxes on the delivery of mouton on and prior to June 1st, 1953, and a further sum of $30,000 "as and on account of excise taxes relative to delivery of like products" said to have been paid on February 11, 1954. The basis of the claim for the recovery of these amounts as pleaded was that they had been paid in error, without specifying the nature of the error, and it was said that a refund of the said amounts had been demanded on or about June 1, 1953. It was further alleged that, by a judgment of this Court delivered on June 11, 1956 in the case of Universal Fur Dressers and Dyers Ltd. v. Her Majesty The Queen,9 it had been decided that excise tax was not payable upon mouton.

By the defence filed on November 29, 1957 these various allegations, other than that relating to the judgment of this Court which was referred to, were put in issue and, alternatively, it was alleged that if any of the said sums were paid by mistake such payments were made under a mistake of law and were paid voluntarily.

It was not until the trial that the petition of right was amended to include an alternative claim that the sum of $30,000 was paid to the Department of National Revenue involuntarily and under duress, such duress consisting of the threat of criminal proceedings and the imposition of large penalties and fines against the suppliant and the president thereof. It was further claimed that the sum was paid under protest. This amendment was made on September 25, 1958.

The allegations made by this amendment were put in issue by amendments made to the statement of defence. The amended pleading alleged that the sum of $30,000 had been paid voluntarily by the respondent with a view of settling its excise tax liability with the Department and that effect had been given to the settlement by order-in-council.

The statute under which the excise tax referred to was imposed appears as c. 179, R.S.C. 1927, under the name of The Special War Revenue Act. In 1947, by c. 60, the name was changed to The Excise Tax Act. The Act, as originally passed, imposed, inter alia, a consumption or sales tax on a variety of goods produced or manufactured in Canada, and by s. 106 a person liable for tax under Part XIII of the Act

[Page 516]

was required to file each month a true return of his taxable sales for the last preceding month in accordance with regulations made by the Minister. The Act has been repeatedly amended. By c. 32 of the Statutes of 1942-43 s. 80A was added which imposed an excise tax equal to 25% of the current market value of furs dressed and dyed in Canada, payable by the dresser or dyer at the time of delivery by him, and required that every person liable for taxes under this section should, in addition to the monthly returns required by s-s.(1) of s. 106, file each day a true return of the total taxable value and the amount of the tax due by him on his deliveries of dressed and dyed furs for the last preceding day, such returns to be filed and the tax paid not later than the last business day following that on which the goods were delivered.

By c. 60 of the Statutes of 1947 the rate of the tax was reduced and s. 112 of the Act was repealed. The section which was substituted provided that every person required by, or pursuant to, any part of the Act (with an exception that is immaterial) to file a return, who failed to do so was guilty of an offence and liable to a penalty. Further, it was provided that when a return is filed as required "every person who makes, or assents or acquiesces in the making of, false or deceptive statements in the return, is guilty of an offence" and liable to a prescribed penalty. By the same enactment an amendment to s. 113(9) was made declaring, inter alia, that any person making, or assenting or acquiescing in the making of, false or deceptive entries in books as records of account required to be kept was guilty of an offence.

During the period between June 1st, 1951 and June 30, 1953 the respondent paid to the Department of National Revenue a sum of $24,605.26 as excise tax payable upon mouton sold during that period. The learned trial judge held as a fact that this money was paid under a mistake of law and that no application for a refund had been made by the respondent within two years of the time when such refund might have become payable and that, accordingly, by virtue of s. 105(6) of the Act, the claim failed. As there is no cross-appeal, this aspect of the case need not be further considered.

[Page 517]

The claim for the refund of the sum of $30,000 is based entirely upon the facts alleged in the amendment to the ' petition, and to deal with the matter requires some extended reference to the evidence.

On February 5, 1953 Thomas G. Belch, an excise tax auditor employed by the Department of National Revenue, examined the records of the respondent company for the purpose of verifying the taxes which had been paid. In doing so he found that, according to the company's records, they had sold some 20,000 to 23,000 skins more than they had available for sale. A subsequent investigation showed that the respondent had over a long period been selling mouton which was considered to be subject to the excise tax but showing on its own records that the sales were of shearlings, which were in value only about one-half that of mouton and which were not subject to the tax.

In order to carry out this fraudulent scheme it was necessary for Herbert Berg, the president of the respondent company, to have the assistance of Mrs. Marie Forsyth, the bookkeeper and stenographer for the respondent, who typed the sales invoices. In addition, Berg had apparently the cooperation of numbers of firms who purchased mouton from the respondent. The procedure followed with such firms was to show the goods delivered as being shearlings on the invoice delivered and upon the duplicate retained and, as these skins were free of excise, such sales were excluded from the daily and monthly returns made to the Department. In the ease of certain customers who were not co-operating with the respondent in perpetrating the fraud, while the original sales invoice rendered to the customer showed purchases of mouton as being such, Mrs. Forsyth would place in the company's records what purported to be a second copy of the invoice showing the sale as being of shearlings and the taxable value of the mouton delivered was then omitted from the daily and monthly returns. This was an offence against s. 113 (9) of the Act.

Apparently, the original returns which were made for the period in question were filed in the Police Court when the criminal charge hereinafter mentioned was heard by the presiding magistrate and, in some unknown manner, these records disappeared and were not available at the time

[Page 518]

of the trial of the action. From the date of the discovery of these frauds, however, the Department of National Revenue insisted that the daily and monthly returns made by the respondent to the Department which showed the total taxable value of the goods delivered should be signed by Berg personally instead of by Mrs. Forsyth, as had been done during the period when the taxable values were falsely stated. These returns were made upon a form specified by the Department for making excise tax returns and showed in each case the total taxable value of the goods delivered and the amount of excise tax paid or payable in respect of such sales. At the foot of each form there appears a form of certificate whereby an official of the company is required to certify that the amount stated truly represents all the tax due on furs dressed and/or dyed delivered on the date or during the month for which the return is made.

Between April 1, 1951 and January 31, 1953 the payment of excise taxes in an amount of $56,082.60 on mouton delivered was avoided in the above mentioned manner. On April 7, 1953 the Department of National Revenue demanded payment of the sum of $61,722.36 for excise tax on deliveries made on April 14 and 15, 1953, and a sum of $4,502.16 for penalties.

Berg apparently before retaining a lawyer came to Ottawa and it was during a discussion he then had with Mr. V. C. Nauman, Assistant Deputy Minister of Excise, according to Berg, that Nauman told him that he intended to prosecute him and that "unless we get fully paid if I have to we will put you in gaol", and said that this situation had been prevalent in the industry for many years, presumably meaning the making of false returns to avoid the payment of excise tax, and that he intended to make an example "if he has to prosecute to the fullest extent." This conversation appears to have taken place shortly after the receipt of the demand of April 17. On cross-examination, when asked why the $30,000 had been paid in September, he said it was to "relieve the pressure that the department brought to bear, that they intended to put me in gaol if I did not pay that amount of money." Thereafter, Berg said that he retained a

[Page 519]

Montreal solicitor who endeavoured apparently to settle the matter, and later at some unspecified date retained Mr. David Croll, Q.C. to act for the respondent.

The only evidence given as to the negotiations which resulted in the claim for excise taxes being settled is a copy of a letter written by the Deputy Minister of Excise to Mr. Croll dated September 15, 1953, which acknowledged the receipt of three certified cheques totalling $30,000 and said that:—

at our last meeting it was agreed that Berg would plead guilty to a charge of evasion in the amount of the $5,000 in behalf of his company, Beaver Lamb & Shearling Co. Limited. The penalty which the Court will impose will be double the amount of the $5,000 plus a fine of from $100 to $1,000. The Department, however, will be satisfied with a fine of $200 or $300. You asked this morning that the action (sic) be taken against the company instead of Berg personally but you said that there would be no question about his pleading guilty to the charge.

Neither Mr. Croll nor the Deputy Minister gave evidence. On October 23, 1953 an Information was laid by Belch on behalf of the Minister against the respondent company, charging that between the 1st day of August 1952 and the 6th day of October 1952 the respondent:—

did make or assent or acquiesce in the making of false or deceptive statements in the monthly sales and excise tax returns of Beaver Lamb and Shearling Co. Ltd. required to be filed by the Excise Tax Act… contrary to section 112(2) of the said Act.

the false returns alleged to have been made being for the months of August and September 1952. To this charge Berg-pleaded guilty on behalf of the company in the Toronto Police Court on November 14, 1953 when a penalty in the sum of $10,000, being double the amount of the tax evasion charged, and a fine of $200 were imposed. Thereafter, by order-in-council made on January 31, 1954 under the provisions of s. 22 of the Financial Administration Act, c. 116 R.S.C. 1952, c. 116, the sums of $17,859.04 excise taxes and $7,587.34 interest and penalties were remitted.

Nauman was not called as a witness on behalf of the Crown and the evidence given by Berg as to the threats made to him in April is not contradicted by any oral evidence. The mere fact, however, that this statement was said by Berg to have been made is not, in my opinion, in the circumstances of this case decisive of the matter.

[Page 520]

It is to be borne in mind that Berg was throughout the period between April 1st 1951 and January 31, 1953, during which time this scheme was carried out, of the belief that excise tax was payable upon mouton delivered by the company and that it was a calculated and deliberate plan to defraud the Crown of moneys which he believed were justly payable, a fact which he admitted at the trial. It was upon his instructions that Mrs. Forsyth made false returns to the Department of National Revenue during this period and recorded sales of mouton as shearlings for the purpose of perpetrating the fraud. This fact was also acknowledged by Mrs. Forsyth to Inspector Simmons of the Ontario Fire Marshal's Office, during the course of his enquiry into the fire which destroyed the respondent company's premises at Uxbridge on January 19, 1953 and, while Mrs. Forsyth denied that she had made these statements to the Inspector and that she had admitted to Belch that she knew the returns that were made were false, the learned trial judge did not believe her and said that he accepted the evidence of Simmons and Belch wherever it conflicted with that of Mrs. Forsyth and Berg. The latter had sworn to the fact that in June 1953 he had written a letter to the Department of National Revenue demanding a refund of the taxes paid on mouton prior to June 1, 1953 and Mrs. Forsyth had sworn that she had typed and mailed the letter making the application, but it was shown that no such letter was received by the Department. Cameron J. said that he did not believe either of them. Berg swore positively that he was not present in the Police Court in Toronto on November 14, 1953, when the plea of guilty was entered on behalf of the respondent company, but Belch and Mr. E. F. Denton, an excise tax auditor for the Department, were present and swore that he was there.

In view of the learned trial judge's finding that the evidence of the witness Berg is unworthy of belief, the question as to whether the statement said to have been made in April by Nauman induced or contributed to inducing the respondent to make the payment of the sum of $30,000 five months later is a matter to be determined by such inferences as may properly be drawn from the scant evidence that is available.

[Page 521]

It is to be remembered that the claim to recover the money on the footing that it was paid in consequence of the threats appears to have been an afterthought which was introduced into the case only at the commencement of the trial, nearly a year after the petition of right was filed. Up to that time it appears to have been assumed that the fact that the moneys had been paid in the mistaken belief that mouton was subject to excise tax was a sufficient basis for recovery, even though that mistake was one of law. If it be accepted that the threats were in fact made by Nauman, they were made in the month of April and it was not until nearly five months thereafter that the settlement was made.

According to Berg, the amount claimed in the Notice of Assessment sent to the respondent in April 1953, which showed the sum payable including penalties and interest as being $61,722.36, was excessive and included excise tax upon shearlings delivered in respect of which no tax was payable. This directly conflicts with the evidence of Belch. The respondent, however, elected not to give any evidence as to the negotiations between its solicitor and the Deputy Minister, other than that afforded by the letter of September 15, 1953 above mentioned.

In the absence of other evidence, I would infer that the liability of the respondent for excise taxes on the quantities of mouton delivered during the period was admitted by Mr. Croll and a compromise was agreed upon fixing the amount to be paid at $30,000 for reasons which do not appear and with which we are not concerned. It is perfectly clear that the solicitor was informed that the Crown proposed to lay an Information against Berg for breaches of s. 112(2) of the Excise Tax Act and to propose to the magistrate that a penalty of $10,000 and a fine should be imposed, and that it was at the request of the solicitor that the Deputy Minister had agreed that the Information should be laid against the respondent company rather than against Berg. The civil claim of the Crown for the taxes which Berg, the respondent's solicitor and the Deputy Minister believed to be payable and the criminal offences which had admittedly been committed under Berg's instructions were entirely

[Page 522]

distinct matters. Berg disclaimed any knowledge of the negotiations carried on by the respondent's solicitor who made the arrangements on its behalf.

In the absence of any evidence on the matter, we are asked to infer that the threat which had been made by Nauman in the previous April either induced or contributed to inducing or influenced Mr. Croll to agree to the payment of the sum of $30,000 in September, a compromise which on the face of it was a most favourable one for the respondent. For my part I refuse to draw any such inference.

It is apparently the fact that after the fire which destroyed the respondent's premises at Uxbridge the Department notified the insurance companies and the respondent's bank at Uxbridge not to pay over any moneys due to the respondent, this being done under the provision of s. 108(6) of the Excise Tax Act. It is suggested in argument that in some way this amounted to duress. However, this is not pleaded and the matter was not in issue at the trial and need not be considered.

There is no pretense that the moneys claimed were paid under protest, as would undoubtedly have been the case had Berg written the letter in June 1953 claiming a refund of the amounts paid which was the subject of part of the claim. A mere demand as of right for payment of money is not compulsion and money paid in consequence of it, with full knowledge of the facts, is not recoverable (Brisbane v. Dacres10; Barber v. Pott11).

These moneys clearly were paid under a mistake of law and are, in my opinion, not recoverable.

I would allow this appeal with costs and dismiss the petition of Right with costs.

Ritchie J.:—The facts of this case have been thoroughly reviewed in the reasons of other members of the Court, all of which I have had the benefit of reading.

As the Chief Justice has said, the substantial point in issue in this appeal is whether the $30,000 paid by the respondent to the Department of National Revenue in September 1953 was paid involuntarily and under duress or compulsion.

[Page 523]

The evidence indicates that the Department exerted the full pressure which the fraudulent action of the respondent's ' president and the provisions of the statute then thought to be applicable made available to it, but I am of opinion that even if this pressure did have any effect on the final settlement such effect was limited to hastening the conclusion of the transaction and was, in no sense, the reason for the respondent's recognition of the right to tax "mouton" which was at all times accepted wrongly, as the event turned out, by both parties.

The following excerpt from Mr. Berg's evidence at p. 33 of the Appeal Case clearly indicates that his objection to paying the full assessment of $61,722.36 which was originally claimed was based on the contention that this amount wrongly included taxes in respect of "shearlings" which were not subject to tax:

BY HIS LORDSHIP:

Q. I am not clear about that. You were processing shearlings. Are they young sheep?

A. Yes, sir.

Q. And you were processing mouton?

A. Yes, sir; from the sheepskins.

Q. And is it something different?

A. Yes.

Q. You were protesting part of the assessment. Were you doing anything other than processing shearlings so as to produce mouton?

A. No.

Q. That is all?

A. Yes.

Q. Then you were protesting only part of the assessment?

A. That assessment they gave me for $61,000.00 which was not correct.

Q. What part?

A. It was that they claimed I should have paid excise tax on all the products which I manufactured.

Q. What were you manufacturing other than mouton?

A. Just shearlings and mouton. Shearlings were not excise taxable; mounton was.

Q. Are you protesting that the assessment you received included both shearlings and mouton?

A. Fes, sir.

Q. You protested shearlings as not being within Section 80(A)?

A. Yes. (The italics are mine.)

In this regard it is of interest to record the following finding of the learned trial judge:

It will be noted that the item of $30,000 now claimed, while less than the total amount originally claimed by the Department, relates entirely to taxes which the suppliant by its fraudulent records and returns had endeavoured to escape paying.

[Page 524]

It seems to me to follow from this finding that the $30,000 in question was money which was thought to be justly due to the Department and which the suppliant had endeavoured to escape paying.

The case of Brocklebank, Limited v. The King12, is cited by the learned trial judge as an authority applicable to the present circumstances and he draws particular attention to the language used by Bankes L.J. at pp. 61-62 in holding that the money there paid was recoverable:

The payment is best described, I think, as one of those which are made grudgingly and of necessity, but without open protest, because protest is felt to be useless.

That decision is based in part on the fact that the money was paid to an official colore officii as is disclosed by the following observation of Scrutton L.J. in the Court of Appeal where he said at p. 67:

Further, I am clear that the payment by the petitioners in this case was not a voluntary payment so as to prevent its being recovered back. It was demanded by the Shipping Controller colore officii, as one of the only terms on which he would grant a licence for the transfer.

In this regard it seems appropriate to refer to what was said by Macdonald J.A., speaking in the same connection on behalf of the Court of Appeal of British Columbia in Vancouver Growers Limited v. Snow Limited13, where he said:

If payments made pursuant to an invalidated Act are to be regarded as made involuntarily because presumably the parties making the payments were not on equal terms with the authority purporting to act under the statute it may be difficult to procure officials willing to assume the necessary risk. A declaration of invalidity may be made after many years of operation and large amounts might be recoverable if it is enough to show in a literal sense that "the payments were made under circumstances which left the party no choice," or that "the plaintiff really had no choice and the parties … were not on equal terms." Every Act for taxation or other purposes, whether valid in fact, or for the time being thought to be valid, compels compliance with its terms under suitable penalties. The payee has no choice and the authorities imposing it are in a superior position. It does not follow, however, that all who comply do so under compulsion, except in the sense that every Act imposes obligations, or that the respective parties in the truest sense are not "on equal terms." It should be assumed that all citizens voluntarily discharge obligations involving payments of money or other duties imposed by statute.

[Page 525]

In that case there was no threat of imprisonment and no freezing of any of the plaintiff's assets, but what was said in that judgment is nonetheless pertinent in considering the extent to which the fact that the demand in the present case was made by officials of the Department is to be treated as giving rise to a situation in which the payment may be considered involuntary. The case has particular relevance to the circumstances here disclosed in that the statute there in question had been invalidated by a subsequent decision of the courts just as the provisions of The Excise Tax Act under which the present assessment was made were subsequently found to be inapplicable to "mouton" (see Universal Fur Dressers & Buyers Limited v. The Queen14,).

The generally accepted view of the circumstances which give rise to an action for the return of money paid under pressure or compulsion is expressed by Lord Reading in the case of Maskell v. Horner15, which has been approved by this Court in Knutson v. Bourkes Syndicate16, and The City of Saint John et al. v. Fraser-Brace Overseas Corporation et al.17

In my view the whole of Lord Reading's decision in that case must be read in light of the following description of the reasons for holding that such a payment can be recovered. Lord Reading there said at p. 118:

Payment under such pressure establishes that the payment is not made voluntarily to close the transaction. … The payment is made for the purpose of averting a threatened evil and is made not with the intention of giving up a right but under immediate necessity and with the intention of preserving the right to dispute the legality of the demand ….

(The italics are mine.)

In the present case, according to Mr. Berg's own testimony, as soon as he received the assessment of $61,722.36 he came to Ottawa to protest it on the ground that it included a tax on "shearlings" and he was then met by the threat "unless we get fully paid, if I have to we will put you in gaol." If such full payment had at once been made pursuant to this statement, then it might indeed be said to have been

[Page 526]

made "for the purpose of averting a threatened evil", but this is not what happened. On the contrary, the interview at which this statement was made turned out to be but the prelude to a prolonged series of negotiations in which two lawyers participated and which lasted from the end of April to the middle of September, culminating in the respondent paying only $30,000 and the company, not Berg, being prosecuted and subjected to a $10,000 penalty together with a fine of $200.

In the case of Knutson v. Bourkes Syndicate, supra, as in the case of Maskell v. Horner, supra, the payments were found to have been made under conditions amounting to protest, and although it is appreciated that actual protest is not a prerequisite to recovery when the involuntary nature of the payment can be inferred from the circumstances, it must nonetheless be observed that the prolonged negotiations for settlement which characterized this case are a poor substitute for "open protest" and in my view this serves to distinguish it from the cases above referred to.

With the greatest possible respect for the learned trial judge, I take the view that whatever may have been the nature of the threats exerted by the Department the payment of the $30,000 in question in this case which was made in September 1953 was not made "under immediate necessity and with the intention of preserving the right to dispute the legality of the demand" and that it cannot be recovered as money paid involuntarily or under duress.

For these reasons, as well as those stated by the Chief Justice and Mr. Justice Locke, I am of opinion that this appeal should be allowed with costs.

Appeal allowed with costs, Taschereau J. dissenting.

Solicitor for the appellant: W. R. Jackett, Q.C., Ottawa.

Solicitors for the suppliant, respondent: Plaxton and Company, Toronto.