SUPREME
COURT OF CANADA
Between:
Kingstreet
Investments Ltd. and 501638 NB Ltd.
Appellants /
Respondents on cross‑appeal
and
Province
of New Brunswick as represented by the Department of Finance and
New
Brunswick Liquor Corporation
Respondents /
Appellants on cross‑appeal
‑ and ‑
Attorney
General of Manitoba, Attorney General of British Columbia,
Attorney
General of Alberta, Canadian Constitution Foundation and
Consumers’
Association of Canada
Interveners
Coram:
McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron
and Rothstein JJ.
Reasons for
Judgment:
(paras. 1 to 62)
|
Bastarache J. (McLachlin C.J. and Binnie, LeBel,
Deschamps, Fish, Abella, Charron and Rothstein JJ. concurring)
|
______________________________
Kingstreet Investments Ltd. v. New Brunswick (Finance), [2007]
1 S.C.R. 3, 2007 SCC 1
Kingstreet Investments Ltd. and
501638 NB Ltd. Appellants/Respondents
on cross-appeal
v.
Province of New Brunswick as represented
by the Department of Finance and
New Brunswick Liquor Corporation Respondents/Appellants
on cross‑appeal
and
Attorney General of Manitoba, Attorney General of
British Columbia, Attorney General of Alberta,
Canadian Constitution Foundation and
Consumers’ Association of Canada Interveners
Indexed as: Kingstreet Investments Ltd. v. New
Brunswick (Finance)
Neutral citation: 2007 SCC 1.
File No.: 31057.
2006: June 20; 2007: January 11.
Present: McLachlin C.J. and Bastarache, Binnie,
LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ.
on appeal from the court of appeal for new brunswick
Constitutional
law — Remedy — Restitution — Ultra vires
taxes — Taxpayers seeking reimbursement of user charges paid pursuant
to ultra vires legislation — Whether Crown immune from claims for
recovery of ultra vires taxes — Whether such claims must be analysed
on basis of constitutional principles rather than unjust enrichment.
Restitution — Unjust
enrichment — Ultra vires taxes — Taxpayers seeking
reimbursement of user charges paid pursuant to ultra vires
legislation — Whether taxpayers’ claims for recovery of ultra vires
taxes must be analysed on basis of constitutional principles rather than unjust
enrichment.
Restitution — Defences — Passing‑on
defence — Protest and compulsion exception — Taxpayers
seeking reimbursement of user charges paid pursuant to ultra vires
legislation — Whether passing‑on defence applicable to deny
recovery — Whether taxpayers’ payments made under protest and
compulsion recoverable.
Since 1988, the corporate taxpayers have been
operating a number of night clubs in New Brunswick that are licensed to
sell alcoholic beverages. They purchase their alcohol from the provincial
liquor corporation’s retail stores and, in addition to the retail price, pay a
user charge, as prescribed by regulation. The taxpayers challenged the
constitutional validity of the user charge and seek by way of relief
reimbursement of all amounts paid over the years with compound interest. The
Court of Queen’s Bench declared the user charge to constitute an
unconstitutional indirect tax but denied recovery. The court found that the
taxpayers had passed on the tax burden to their customers in the form of
increased prices and applied the passing‑on defence to the taxpayers’
claim for unjust enrichment. The court also applied the general rule against
recovery of ultra vires taxes. The majority of the Court of Appeal
allowed the restitutionary claim with respect to all monies paid from the time
the taxpayers protested by commencing legal proceedings against the Province.
For monies paid prior to the commencement of legal proceedings, which were held
not to have been paid under protest, the majority denied the claim on the basis
of the passing‑on defence.
Held: The
appeal is allowed in part. The cross‑appeal is dismissed.
This case should be decided on the basis of
constitutional principles rather than unjust enrichment as an unjust enrichment
analysis is ill‑suited to deal with the issues raised by ultra vires
taxes. The taxpayers in this case have recourse to a remedy as a matter of
constitutional right. This remedy is the only appropriate one because it
raises important constitutional principles which would be ignored by treating
the claim under another category of restitution. [12] [34]
Restitution is generally available for the recovery of
monies collected under legislation that is subsequently declared to be ultra
vires. Such restitution is warranted to guarantee respect for
constitutional principles, in particular, in this case, the principle that the
Crown may not levy a tax except with authority of the Parliament or the
Legislature. This principle of “no taxation without representation” is central
to our conception of democracy and the rule of law. When the government
collects and retains taxes pursuant to ultra vires legislation, it
undermines the rule of law. To permit the Crown to retain an ultra vires tax
would thus condone a breach of this most fundamental constitutional principle.
As a result, a taxpayer who has made a payment pursuant to ultra vires legislation
has a right to restitution. In a public law context, a rule which would, for
policy considerations, immunize public authorities from restitutionary claims
with respect to monies paid under invalid legislation must be rejected. To
privilege policy considerations in the case of ultra vires taxes
threatens to undermine the rule of law. Moreover, the availability of
suspended declarations of invalidity and the possibility for Parliament or a
legislature to enact valid taxes and apply them retroactively, so as to limit
or deny recovery of ultra vires taxes, are sufficient to guard against
the possibility of fiscal chaos. [12] [14‑15] [20‑21] [25]
The passing‑on defence is not available to the
Crown in the context of a claim for the recovery of taxes paid pursuant to ultra
vires legislation. The defence is inconsistent with the basic premise of
restitution law. Restitutionary principles provide for restoration of what has
been taken or received from the plaintiff without justification. Restitution
law is not concerned by the possibility of the plaintiff obtaining a windfall
because it is not founded on the concept of compensation for loss. The defence
is also economically misconceived and creates serious difficulties of proof as
there are inherent difficulties in a commercial marketplace of proving that the
loss was not passed onto consumers. [42] [44] [47‑48]
Since the passing‑on defence is generally
inapplicable in the context of ultra vires taxes, it is unnecessary to
deal with the doctrine of protest and compulsion which functions as an
exception to the passing‑on defence. However, as a general rule, this
doctrine should be discarded insofar as it applies to payments made to public
authorities, whether pursuant to unconstitutional legislation or as the result
of a misapplication of otherwise valid legislation. [52] [57]
Claims for the recovery of ultra vires taxes
may be subject to an applicable limitation period. Here, the six‑year
limitation period set out in s. 9 of the New Brunswick Limitation of
Actions Act applies. The taxpayers can therefore only recover, with
interest, the user charges paid during the six years preceding the filing date
of their notice of application. However, this is not an appropriate case for
the awarding of compound interest as the taxpayers did not allege any wrongful
conduct on behalf of the Province that might warrant moral sanction. [59] [61‑62]
Cases Cited
Discussed: Air Canada v. British Columbia, [1989]
1 S.C.R. 1161; referred to: Air Canada v.
Ontario (Liquor Control Board), [1997] 2 S.C.R. 581; Eurig
Estate (Re), [1998] 2 S.C.R. 565; Amax Potash Ltd. v.
Government of Saskatchewan, [1977] 2 S.C.R. 576; Woolwich
Equitable Building Society v. Inland Revenue Commissioners, [1993]
A.C. 70; Reference re Goods and Services Tax, [1992]
2 S.C.R. 445; United States v. Butler, 297 U.S. 1
(1936); Peel (Regional Municipality) v. Canada, [1992]
3 S.C.R. 762; Pacific National Investments Ltd. v. Victoria (City),
[2004] 3 S.C.R. 575, 2004 SCC 75; Garland v. Consumers’
Gas Co., [2004] 1 S.C.R. 629, 2004 SCC 25; Canadian
Pacific Air Lines Ltd. v. British Columbia, [1989] 1 S.C.R. 1133;
Ross v. The King (1902), 32 S.C.R. 532; Abel Skiver Farm
Corp. v. Town of Sainte‑Foy, [1983] 1 S.C.R. 403; Willmor
Discount Corp. v. Vaudreuil (City), [1994] 2 S.C.R. 210; Ville
de Sept‑Îles v. Lussier, [1993] R.J.Q. 2717; Commissioner of
State Revenue (Victoria) v. Royal Insurance Australia Ltd. (1994),
182 C.L.R. 51; British Columbia v. Canadian Forest Products Ltd.,
[2004] 2 S.C.R. 74, 2004 SCC 38; Hanover Shoe, Inc. v.
United Shoe Machinery Corp., 392 U.S. 481 (1968); Law Society
of Upper Canada v. Ernst & Young (2002), 59 O.R. (3d) 214; Mackin
v. New Brunswick (Minister of Finance), [2002] 1 S.C.R. 405,
2002 SCC 13; Miron v. Trudel, [1995] 2 S.C.R. 418; Bank
of America Canada v. Mutual Trust Co., [2002] 2 S.C.R. 601, 2002 SCC 43.
Statutes and Regulations Cited
Civil
Code of Lower Canada, arts. 1047, 1048.
Civil Code of Québec, S.Q. 1991, c. 64, art. 1491.
Constitution Act, 1867, ss. 53 , 90 , 92(9) .
Fees Regulation — Liquor
Control Act, N.B. Reg. 89‑167,
s. 5.
Limitation of Actions Act, R.S.N.B. 1973, c. L‑8, s. 9.
Liquor Control Act, R.S.N.B. 1973, c. L‑10, s. 200(3).
Authors Cited
Baudouin, Jean‑Louis, et
Pierre‑Gabriel Jobin. Les obligations, 6e éd.
Cowansville, Qué.: Yvon Blais, 2005.
Birks, Peter. “Restitution from
the Executive: A Tercentenary Footnote to the Bill of Rights”, in
P. D. Finn, ed., Essays on Restitution. Sydney,
Australia: Law Book Co., 1990, 164.
Goff of Chieveley,
Robert Goff, Baron, and Gareth Jones. The Law of Restitution,
4th ed. London: Sweet & Maxwell, 1993.
Hogg, Peter W. Constitutional
Law of Canada, vol. 2, loose‑leaf ed. Scarborough,
Ont.: Carswell, 1992 (updated 2005, release 1).
Hogg, Peter W., and
Patrick J. Monahan. Liability of the Crown, 3rd ed.
Scarborough, Ont.: Carswell, 2000.
Maddaugh, Peter D., and
John D. McCamus. The Law of Restitution. Aurora,
Ont.: Canada Law Book, 2004 (loose‑leaf updated
September 2005).
APPEAL and CROSS-APPEAL from a judgment of the New
Brunswick Court of Appeal (Ryan, Robertson and Richard JJ.A.) (2005),
254 D.L.R. (4th) 715, 285 N.B.R. (2d) 201,
744 A.P.R. 201, 8 B.L.R. (4th) 182, 2005 G.T.C. 1510,
[2005] N.B.J. No. 205 (QL), 2005 NBCA 56, reversing in part
a decision of Russell J. (2004), 236 D.L.R. (4th) 733,
273 N.B.R. (2d) 6, 717 A.P.R. 6, [2004]
N.B.J. No. 75 (QL), 2004 NBQB 84. Appeal allowed in part
and cross‑appeal dismissed.
Eugene J. Mockler, Q.C., and Adam B. Neal, for the
appellants/respondents on cross‑appeal.
David D. Eidt,
for the respondents/appellants on cross‑appeal.
Eugene Szach and Stewart J. Pierce,
for the intervener the Attorney General of Manitoba.
Nancy E. Brown and Jonathan Penner, for the intervener the Attorney
General of British Columbia.
Nicholas James Parker
and David Kamal, for the intervener the Attorney General of
Alberta.
Barbara A. McIsaac,
Q.C., and Howard R. Fohr, for the intervener the Canadian
Constitution Foundation.
Joseph J. Arvay,
Q.C., and Brent B. Olthuis, for the intervener the
Consumers’ Association of Canada.
The judgment of the Court was delivered by
BASTARACHE J. —
1. Facts
1
Since 1988, the corporate appellants have been operating a number of
night clubs in the cities of Fredericton and Moncton, New Brunswick, that are
licensed to sell alcoholic beverages. They purchase their alcohol from the New
Brunswick Liquor Corporation’s retail stores and, in addition to the retail
price, pay a user charge, as prescribed by regulation adopted pursuant to the Liquor
Control Act, R.S.N.B. 1973, c. L‑10, s. 200(3). That user charge
has varied over the years from 11 percent of the retail price to the current 5
percent: see Fees Regulation — Liquor Control Act, N.B. Reg. 89‑167,
s. 5. The trial judge found, and the parties agree, that the appellants have
paid over $1 million in such charges. The appellants have challenged the
constitutional validity of the user charge and seek by way of relief reimbursement
of all amounts paid over the years with compound interest.
2
The appellants’ initial argument was that the user charge constituted an
indirect tax, which is ultra vires the Province of New Brunswick’s
constitutional taxing power. However, the day before the trial began,
appellants’ counsel forwarded a letter to the Clerk’s office informing the
court that he would argue in the alternative that the user charge constituted a
direct tax that was illegally imposed by regulation rather than originating in
the legislature. The appellants may have realized that their submission that
the charge constituted an indirect tax weighed in favour of the Province’s
argument that the club owners had in fact passed on the cost of the charge to
their customers by increasing their prices.
3
The appellants also attempted to argue that the user charge, if held to
constitute a tax, was ultra vires in the administrative law sense. It
was argued that, as a matter of statutory interpretation, the legislature authorized
the imposition of a user charge and not a tax. Robertson J.A., on behalf of a
majority of the Court of Appeal, concluded that this was a last‑minute
attempt to characterize the user charge as a misapplication of an otherwise
valid statutory provision, in order to avoid the application of the general
rule against the recovery of ultra vires taxes proposed by La Forest J.
in Air Canada v. British Columbia, [1989] 1 S.C.R. 1161 (“Air Canada”).
4
The trial judge held that the user charge constituted an indirect tax
which, since it was not tailored to the cost of regulating the licensees, could
not constitute a “[l]icenc[e] in order to [sic] the raising of a Revenue
for Provincial, Local, or Municipal Purposes” in accordance with s. 92(9) of
the Constitution Act, 1867 ((2004), 273 N.B.R. (2d) 6, 2004 NBQB 84, at
para. 4). As a matter of fact, he held that the user charge had been passed on
and that it therefore qualified as an indirect tax. Accordingly, the trial
judge declared the impugned regulation to be ultra vires the Province of
New Brunswick. The Province did not appeal from this judgment. Before the Court
of Appeal, the parties agreed that the user charge constitutes an unlawful tax
((2005), 285 N.B.R. (2d) 201, 2005 NBCA 56, at para. 1). Robertson J.A.
rejected the appellants’ attempts to recharacterize the user charge as either a
direct tax which could not be imposed by way of regulation, or as ultra
vires in the administrative law sense. I agree: the trial judge’s decision
that the user charge constitutes an unconstitutional indirect tax must stand.
5
As a result, this Court is only concerned with the appellants’ claim for
relief. The principal issue is whether money paid to a public authority
pursuant to ultra vires legislation is recoverable. The case is argued
on the basis of a claim for unjust enrichment. The Province relies on the
common law bar to recovery of unconstitutional taxes articulated by La Forest
J. in Air Canada. The Province further relies on La Forest J.’s
judgment in Air Canada, at p. 1202, for the proposition that
“[t]he law of restitution is not intended to provide windfalls to plaintiffs
who have suffered no loss.” It submits that where the burden of an ultra
vires tax has been passed on, the requirement for a corresponding
deprivation has not been met.
6
By contrast, the appellants submit that La Forest J.’s common law bar to
recovery for ultra vires taxes was obiter and did not win a
majority of votes in Air Canada. They rely on Wilson J.’s dissenting
opinion in that case and on this Court’s unanimous decision in Air Canada v.
Ontario (Liquor Control Board), [1997] 2 S.C.R. 581 (“Ontario (Liquor
Control Board)”), for the proposition that the responsibility of ensuring
the applicability and the constitutionality of a law lies with the governmental
agency in charge of administering that law, not the taxpayer. Turning to the
passing-on defence, the appellants argue that it is inconsistent with basic
restitutionary principles, that it is economically misconceived, and that it is
fraught with practical difficulties related to proof. In their submission, the
trial judge’s finding that the cost of the tax was passed on to bar patrons is
irrelevant to their unjust enrichment claim.
2. Judicial History
2.1 New Brunswick Court of Queen’s Bench
(2004), 273 N.B.R. (2d) 6, 2004 NBQB 84
7
Russell J. dismissed the appellants’ claim for relief. The trial judge
found as a matter of fact that the appellants had passed on the tax burden to
their customers in the form of increased prices. On this basis, he applied the
passing-on defence to the appellants’ claim for unjust enrichment and denied
recovery. Moreover, the trial judge applied the general rule against recovery
of ultra vires taxes enunciated by La Forest J. in Air Canada,
at pp. 1206-7. As in Air Canada, he found the regulation to be
deficient only in form, insofar as it resulted from the Province’s failure to
tailor the charge to the cost of regulating the licensees. Finally, the trial
judge emphasized that fiscal turmoil could result if restitution were allowed,
and that government would be driven to the inefficient course of re‑imposing
the tax.
2.2 New Brunswick Court of Appeal (2005),
285 N.B.R. (2d) 201, 2005 NBCA 56
8
Robertson J.A., writing on behalf of the majority, noted that the
distinction between monies paid under mistake of fact and monies paid under
mistake of law has been abolished and that the issue must therefore be decided
on the basis of restitutionary principles. He considered this Court’s decision
in Air Canada but was not prepared to immunize public authorities from
restitutionary claims resulting from invalid legislation.
9
However, he was prepared to recognize the validity of the passing-on
defence, relying on La Forest J.’s statement in Air Canada to the effect
that the law of restitution is not intended to provide windfalls to plaintiffs.
He concluded that the equities lie with the Province because, when a benefit
accrues to the government, it accrues to the public interest, and because to
hold otherwise would cause bar patrons to pay the tax twice. Robertson J.A.
acknowledged that the defence has been much criticized for being contrary to
restitutionary principles, economically misconceived and fraught with practical
difficulties. However, he rejected the economic argument because there is
nothing preventing the plaintiffs from proving that they are still out of
pocket despite having passed on a portion of the tax — as a result of reduced
sales, for example. Turning to the practicality of the defence, Robertson J.A.
considered the evidentiary difficulties and costs associated with discerning
whether the tax has effectively been passed on. He resolved these concerns by
placing the initial burden of proof on the Province, with the caveat that there
is a rebuttable presumption of passing on in the case of an illegal indirect
tax, and the further caveat that the defence would have no application in cases
where monies were paid under compulsion and protest. Robertson J.A.
emphasized that the plaintiffs should not be entitled to a windfall and
expressed concern that the government be able to defend claims for unjust
enrichment to avoid potential fiscal disruption.
10
Accordingly, the majority allowed the restitutionary claim with respect
to all monies paid from the time the claimants protested by commencing legal
proceedings against the Province (May 25, 2001). For monies paid prior to the
commencement of legal proceedings, which were held not to have been paid under
protest, the majority denied the claim on the basis of the passing-on defence.
In the alternative, Robertson J.A. concluded that if he was wrong with respect
to the existence of the passing-on defence in Canadian restitutionary law, then
the claimants would be entitled to all monies paid subject to the six‑year
limitation period set down in the Limitation of Actions Act, R.S.N.B.
1973, c. L‑8.
11
Ryan J.A. dissented and held that the appellants’ claim should fail
because they had recouped the cost from their customers. Ryan J.A. was of the
view that the passing-on defence goes to the existence of one of the three
elements of a claim for unjust enrichment, namely a corresponding deprivation.
Thus, regardless of whether payments were made under protest and compulsion, if
the costs were passed on, then there was no deprivation and no unjust
enrichment. In his opinion, payment under protest could not alter the fact that
one of the three elements of an unjust enrichment claim had not been
established.
3. Introduction
12
This appeal concerns whether restitution is available for the recovery
of monies collected under legislation that is subsequently declared to be ultra
vires. For the reasons given below, I find that restitution is generally
available. I agree with Robertson J.A. that there is no general immunity
affecting recovery of an illegal tax. I would, however, decide the case on the
basis of constitutional principles rather than unjust enrichment. An unjust
enrichment analysis is ill-suited to deal with the issues raised by ultra
vires taxes. The Court’s central concern must be to ensure the
constitutionality of fiscal legislation. Moreover, the availability of
suspended declarations of invalidity as ordered in Eurig Estate (Re),
[1998] 2 S.C.R. 565, and the possibility of retroactive ameliorating legislation
are sufficient to guard against the possibility of fiscal chaos. I would also
reject the passing-on defence raised by the Crown in this case. Accordingly, I
would allow the appeal in part.
4. Restitution for Ultra Vires Taxes
4.1 Constitutional Remedy
13
This case is about the consequences of the injustice created where a
government attempts to retain unconstitutionally collected taxes. Because of
the constitutional rule at play, the claim can be dealt with more simply than
one for unjust enrichment in the private domain. Taxes were illegally
collected. Taxes must be returned subject to limitation periods and remedial
legislation, when such a measure is deemed appropriate. As will later be
discussed, no passing-on defence should be entertained.
14
The Court’s central concern must be to guarantee respect for
constitutional principles. One such principle is that the Crown may not levy a
tax except with authority of the Parliament or the legislature: Constitution
Act, 1867, ss. 53 and 90 . This principle of “no taxation without
representation” is central to our conception of democracy and the rule of law.
As Hogg and Monahan explain, this principle “ensures not merely that the
executive branch is subject to the rule of law, but also that the executive
branch must call the legislative branch into session to raise taxes” (P. W.
Hogg and P. J. Monahan, Liability of the Crown (3rd ed. 2000), at p.
246. See also P. W. Hogg, Constitutional Law of Canada (loose-leaf
ed.), vol. 2, at pp. 55-16 and 55-17; Eurig, at para. 31, per Major J.).
15
When the government collects and retains taxes pursuant to ultra
vires legislation, it undermines the rule of law. To permit the Crown to
retain an ultra vires tax would condone a breach of this most
fundamental constitutional principle. As a result, a citizen who has made a
payment pursuant to ultra vires legislation has a right to
restitution: P. Birks, “Restitution from the Executive: A Tercentenary Footnote
to the Bill of Rights”, in P. D. Finn, ed., Essays on Restitution
(1990), c. 6, at p. 168.
16
This Court has previously recognized this right. In Amax Potash Ltd.
v. Government of Saskatchewan, [1977] 2 S.C.R. 576, the Court struck down a
provision that purported to bar recovery of ultra vires taxes. At p.
590, Dickson J. (as he then was) based his holding on constitutional
principles:
Section 5(7) of The Proceedings against the Crown
Act, in my opinion, has much broader implications than mere Crown immunity.
In the present context, it directly concerns the right to tax. It affects,
therefore, the division of powers under The British North America Act, 1867.
It also brings into question the right of a Province, or the federal Parliament
for that matter, to act in violation of the Canadian Constitution. Since it is
manifest that if either the federal Parliament or a provincial Legislature can
tax beyond the limit of its powers, and by prior or ex post facto legislation
give itself immunity from such illegal act, it could readily place itself in
the same position as if the act had been done within proper constitutional
limits. To allow moneys collected under compulsion, pursuant to an ultra
vires statute, to be retained would be tantamount to allowing the
provincial Legislature to do indirectly what it could not do directly, and by
covert means to impose illegal burdens.
17
In Woolwich Equitable Building Society v. Inland Revenue
Commissioners, [1993] A.C. 70, the House of Lords has also recognized a
right to restitution for payments made pursuant to ultra vires taxes.
Without even referring to unjust enrichment, Lord Goff held, at p. 172, that
restitution was available as a matter of “common justice”:
. . . the retention by the state of taxes unlawfully exacted is
particularly obnoxious, because it is one of the most fundamental principles of
our law — enshrined in a famous constitutional document, the Bill of Rights
1688 — that taxes should not be levied without the authority of Parliament; and
full effect can only be given to that principle if the return of taxes exacted
under an unlawful demand can be enforced as a matter of right.
18
However, the general availability of restitution for ultra vires
taxes has to date not been clearly established. In Air Canada, La Forest
J. was of the opinion that policy considerations operated to take claims for
taxes paid pursuant to unlawful legislation outside of the restitutionary
context. He proposed a general rule that the Crown should be immune to claims
for recovery of unconstitutional and ultra vires levies. But La Forest
J. did not command a majority in that case and so the status of his proposed
immunity rule was never clear. It is necessary, therefore, to consider why such
an immunity rule should be rejected before discussing the proper basis for
restitution in this case.
4.2 Rejecting the Immunity Rule
19
In obiter statements pronounced in Air Canada, La Forest
J. explained on behalf of three members of a six‑judge panel that, while
[i]t is clear that the principles of unjust enrichment can operate
against a government to ground restitutionary recovery . . . in this kind of
case, where the effect of an unconstitutional or ultra vires statute is
in issue, I am of the opinion that special considerations operate to take this
case out of the normal restitutionary framework, and require a rule responding
to the specific underlying policy concerns in this area. [Emphasis added;
p. 1203.]
20
Like Robertson J.A., I accept Wilson J.’s rationale for rejecting a rule
which would immunize public authorities from restitutionary claims with respect
to monies paid under invalid legislation. Wilson J. was of the view that
“[w]here the payments were made pursuant to an unconstitutional statute there
is no legitimate basis on which they can be retained” (Air Canada, at
p. 1216). As Professor Hogg explained at p. 55‑13:
Where a tax has been paid to government under a
statute subsequently held to be unconstitutional, can the tax be recovered by
the taxpayer? In principle, the answer should be yes. The government’s right to
the tax was destroyed by the holding of unconstitutionality, and the tax should
be refunded to the taxpayer. [Footnote omitted.]
This very
principle was recognized by a unanimous Court in Reference re Goods and
Services Tax, [1992] 2 S.C.R. 445, where it was held that an ultra vires
law cannot constitute a juristic reason for the state’s enrichment.
21
As Wilson J. explained in dissent in Air Canada, the immunity
rule proposed by La Forest J. amounts to saying that “the principle should be
reversed for policy reasons in the case of payments made to governmental
bodies” (p. 1215 (emphasis in original)). Those policy reasons, according to La
Forest J., included the fact that the unconstitutional tax at issue in Air
Canada came close to raising a merely technical issue. Relying on this
passage, the trial judge in the present case held that the impugned regulation
was deficient only in form, insofar as it resulted from the Province’s failure
to tailor the charge to the cost of regulating the licensees. In my view,
privileging policy considerations in the case of ultra vires taxes
threatens to undermine the rule of law.
22
Professor Hogg has explained that
the constitutional principle that ought to dominate all others in this
context is the principle that the Crown may not levy a tax except by the
authority of the Parliament or Legislature. This principle, enshrined in the
Bill of Rights of 1688, ensures not merely that the executive branch is subject
to the rule of law, but also that the executive branch must call the
legislative branch into session to raise taxes (and vote supply). To permit the
Crown to retain a tax that has been levied without legislative authority is to
condone a breach of one of the most fundamental constitutional principles.
[Footnote omitted; pp. 55-16 and 55-17.]
23
Professors Hogg and Monahan argue, at pp. 246‑47, that permitting
taxpayers to recover taxes paid pursuant to unconstitutional statutes is more
consistent with the well‑settled rule that the Crown may recover monies
paid out of the consolidated revenue fund without legislative authority, where
the expenditure was not authorized. Such has always been the case,
even if it was made under a mistake of law, and even if the recipient
could have raised the defences of estoppel or change of position to an action
by a private plaintiff. In this situation, the governing rule is the
fundamental constitutional principle that prohibits the Crown from spending
public funds except under the authority of the Parliament or Legislature. To
apply the ordinary rules of restitution so as to render an unauthorized expenditure
irrecoverable would in effect permit an important constitutional safeguard to
be evaded. The same reasoning ought to apply when it is the subject suing
the Crown to recover a payment made to the Crown, since the same constitutional
principle is in issue. [Emphasis added; footnotes omitted; p. 247.]
24
If the constitutional rule requiring the Crown to only spend public
funds under legislative authority has sufficient weight to compel recovery of
an unauthorized expenditure by the Crown, notwithstanding the principles of
unjust enrichment, then it is difficult to understand a common law bar to the
recovery of unconstitutionally imposed taxes. Presumably, the constitutional
limitations on the Crown’s power to spend are of equal importance as the
constitutional limitations on the Crown’s power to raise revenue. In my view,
these principles are really two sides of the same coin.
25
Another policy reason given by La Forest J. for the immunity rule was a
concern for fiscal inefficiency and fiscal chaos (p. 1207). My view is that
concerns regarding potential fiscal chaos are best left to Parliament and the
legislatures to address, should they choose to do so. Where the state leads
evidence before the court establishing a real concern about fiscal chaos, it is
open to the court to suspend the declaration of invalidity to enable government
to address the issue. In Eurig, Major J. suspended a declaration of
invalidity for six months. Because, in that case, unconstitutionally levied
probate fees were used to defray the costs of court administration in the
Province, he expressed concern that an immediate deprivation of this source of
revenue might have harmful consequences for the administration of justice.
Moreover, this Court’s decision in Air Canada demonstrates that it will
be open to Parliament and to the legislatures to enact valid taxes and apply
them retroactively, so as to limit or deny recovery of ultra vires taxes.
Obviously, such legislation must also be constitutionally sound.
26
La Forest J.’s proposed immunity rule seems to have arisen in part out
of a concern that the provinces might be constitutionally barred from passing
remedial legislation by the holding in Amax Potash. La Forest J.
referred to the American case of United States v. Butler, 297 U.S. 1
(1936), in which the Supreme Court held unconstitutional the Agricultural
Adjustment Act, making almost $1 billion in invalid taxes repayable by the
government. In response, Congress passed an Act which provided that no refunds
for such taxes would be allowed unless the claimant could establish the burden
of the tax. La Forest J. stated that, “[i]n view of Amax, supra,
a province faced with a similar situation could not enact a similar measure”
(p. 1205).
27
The legislation at issue in Amax Potash was s. 5(7) of the Saskatchewan
Proceedings against the Crown Act, R.S.S. 1965, c. 87, which provided:
5. . . .
(7) No proceedings lie against the Crown under this
or any other section of this Act in respect of anything heretofore or hereafter
done or omitted and purporting to have been done or omitted in the exercise of
a power or authority under a statute or a statutory provision purporting to
confer or to have conferred on the Crown such power or authority, which statute
or statutory provision is or was or may be beyond the legislative jurisdiction
of the Legislature;
In declaring
this provision to be unconstitutional, Dickson J. explained that
if a statute is found to be ultra vires the legislature which
enacted it, legislation which would have the effect of attaching legal
consequences to acts done pursuant to that invalid law must equally be ultra
vires because it relates to the same subject‑matter as that which was
involved in the prior legislation. If a state cannot take by unconstitutional
means it cannot retain by unconstitutional means. [p. 592]
The impugned
provision in Amax Potash sought to immunize the Province from any claim
relating to any action or omission authorized by legislation subsequently
declared ultra vires. In this sense, the legislation attempted to attach
legal consequences to acts undertaken pursuant to invalid laws. By contrast, in
Air Canada, the Province of British Columbia enacted a new and valid tax
which it imposed retroactively. It then retained the monies paid pursuant to
the invalid legislation as payment for the new and valid retroactive tax. The
critical distinction between these two cases is that the valid retroactive tax
at issue in Air Canada constituted a legal basis for the taking and
retaining of the monies, independently of the prior unconstitutional tax. For
this reason, I find La Forest J.’s concern about the impact of Amax
Potash on the Provinces’ ability to enact retroactive legislation so as to
limit recovery of unconstitutional taxes to be, with respect, unwarranted.
28
Turning to La Forest J.’s concern about potential fiscal inefficiency, I
agree with Wilson J. in Air Canada, where she queries:
Why should the individual taxpayer, as opposed to taxpayers as a whole,
bear the burden of government’s mistake? I would respectfully suggest that it
is grossly unfair that X, who may not be (as in this case) a large corporate
enterprise, should absorb the cost of government’s unconstitutional act. If it
is appropriate for the courts to adopt some kind of policy in order to protect
government against itself (and I cannot say that the idea particularly appeals
to me) it should be one which distributes the loss fairly across the public.
The loss should not fall on the totally innocent taxpayer whose only fault is
that it paid what the legislature improperly said was due. [p. 1215]
29
Concerns about fiscal chaos and inefficiency should not be incorporated
into the applicable rule. I agree with Professor Birks that
[s]o far as concerns the fear of wholesale reopening
of past transactions and the danger of fiscal disruption, the principle of
legality [including that government must tax with legislative authorization and
within its constitutional limitations] outweighs those dangers and requires
that judges leave it to legislatures to impose what restrictions on the right
of restitution they think necessary, wise and proper. At all events, a merely
hypothetical danger of disruption certainly does not warrant an
undiscriminating denial of restitution. [p. 204]
30
For these reasons, I would not adopt the general immunity rule proposed
by La Forest J. It is important to note, however, that La Forest J. had
envisioned the rule against recovery of ultra vires taxes as operating
outside of the private law context. In his view, the special policy concerns
meant that the issue of recovery of ultra vires taxes was outside of the
normal unjust enrichment and restitution framework. As he put it, at p. 1204,
“[w]hat this suggests is that there are solid grounds of public policy for not
according a general right of recovery in these circumstances, and that this
prohibition exists quite independently of the law of restitution” (emphasis
added). As such, failure to adopt the immunity rule articulated by La Forest J.
does not suggest that within the law of unjust enrichment policy
considerations might not apply to limit the liability of public bodies in
certain contexts. Because La Forest J.’s immunity rule was formulated outside
of the law of unjust enrichment, its rejection should not have a bearing on the
future development of this branch of the law. This being said, as I will now
demonstrate, the law of unjust enrichment should not find application in cases
for the recovery of illegally imposed taxes.
31
Having rejected the immunity rule, this raises the question of whether
claims for the recovery of unconstitutional taxes should be analysed on the
basis of the private law rules of unjust enrichment or constitutional
principles. As explained above, the recovery of unconstitutional taxes is
warranted on the basis of limitations to the state’s constitutional authority
to tax, and in particular on the fundamental constitutional principle that
there shall be no taxation without representation (see Birks, at c. 6; Hogg, at
p. 55-16; and Hogg and Monahan, at pp. 246-47). This would place the
restitutionary right clearly within a public law context. However, there is no
question that the law of unjust enrichment, although developed in the private
law context, can apply to public bodies. Indeed, the present case was argued at
the lower courts and before this Court on the grounds of unjust enrichment. I
must therefore discuss why, in my view, an unjust enrichment analysis is
inappropriate in this case before setting out the proper restitutionary basis
for the repayment of ultra vires taxes.
4.3 Basis for the Constitutional Remedy: Why
an Unjust Enrichment Framework Is Inappropriate
32
Restitution is a tool of corrective justice. When a transfer of value
between two parties is normatively defective, restitution functions to correct
that transfer by restoring parties to their pre-transfer positions. In Peel
(Regional Municipality) v. Canada, [1992] 3 S.C.R. 762, McLachlin J. (as
she then was) neatly encapsulated this normative framework: “The concept of
‘injustice’ in the context of the law of restitution harkens back to the
Aristotelian notion of correcting a balance or equilibrium that had been
disrupted” (p. 804).
33
There are at least two distinct categories of restitution: (1)
restitution for wrongdoing; and (2) restitution for unjust enrichment: P.
D. Maddaugh and J. D. McCamus, The Law of Restitution
(loose-leaf ed.), at p. 3‑7. This case raises the separate notion of
restitution based on the constitutional principle that taxes should not be
levied without proper legal authority. The first category is not readily
applicable here since, in the case of ultra vires taxes enacted in good
faith, it cannot be said that the government was acting as a “wrong-doer”. The
choice, then, is between restitution for unjust enrichment or restitution based
on constitutional grounds.
34
The Province submits that, from a moral and public policy perspective,
it cannot be said to have unjustly benefited from an enrichment as a result of
the ultra vires charges. I would not decide this appeal as a matter of
unjust enrichment. The taxpayers in this case has recourse to a remedy as a
matter of constitutional right. This remedy is in fact the only appropriate
remedy because it raises important constitutional principles which would be
ignored by treating the claim under another category of restitution. Claims of
unjust enrichment against the government may still be appropriate in certain
circumstances (see Pacific National Investments Ltd. v. Victoria (City),
[2004] 3 S.C.R. 575, 2004 SCC 75). Nevertheless, it is my view that the
analytical framework of the modern doctrine of unjust enrichment is
inappropriate in this case.
35
In a colloquial sense, it might be said that the retention of improperly
collected taxes unjustly enriches governments. However, a technical
interpretation of “benefit” and “loss” is hard to apply in tax recovery cases.
Furthermore, in the context of this case, the unjust enrichment framework adds
an unnecessary layer of complexity to the real legal issues. Some of the
components of the modern doctrine are of little use to a principled disposition
of the matter, but are rather liable to confuse the proper application of the
key principles of constitutional law at issue.
36
The application of private law principles in the realm of public and
constitutional law is not without its difficulties. These difficulties have in
the past been resolved by a flexible application of the unjust enrichment
principle. McLachlin J. had explained in Peel that the three-part
formulation of the unjust enrichment principle was capable of going beyond the
traditional categories of recovery and of allowing the law to develop in a
flexible way as required to meet changing perceptions of justice. This
restitutionary framework was recently restated and refined in Garland v.
Consumers’ Gas Co., [2004] 1 S.C.R. 629, 2004 SCC 25. Garland
established a two-part analysis for determining whether there was a juristic
reason for the enrichment that should operate to deny recovery. First, the
plaintiff is required to show that no established category of juristic reason
for the enrichment exists. If no reason exists, the burden shifts to the
defendant to show that there is some other reason why recovery should be
denied. At this point of the analysis, the Court explicitly recognized that the
juristic reasons for the enrichment had to be considered in light of the
reasonable expectation of the parties and certain public policy considerations
(para. 46). It is at this second stage of the test that courts would weigh the
equities in the particular circumstances of each case.
37
McLachlin J. had previously explained in Peel that
[t]he courts’ concern to strike an appropriate balance between
predictability in the law and justice in the individual case has led them in
this area, as in others, to choose a middle course between the extremes of
inflexible rules and case by case “palm tree” justice. The middle course
consists in adhering to legal principles, but recognizing that those principles
must be sufficiently flexible to permit recovery where justice so requires
having regard to the reasonable expectations of the parties in all the circumstances
of the case as well as to public policy. [p. 802]
38
The Garland approach is, as one can see, very complex; it
requires that courts look only to proper policy considerations. By
proper policy considerations, I mean those that have traditionally informed the
development of restitutionary law. Otherwise, they risk turning the test into a
subjective analysis that has less to do with legal reasoning than with the
dispensing of “palm tree” justice. As previously explained, La Forest J. was
prepared to immunize public bodies in Air Canada where monies were paid
pursuant to an unconstitutional statute for reasons of public policy. He
explained that “[c]hief among these are the protection of the treasury, and a
recognition of the reality that if the tax were refunded, modern government
would be driven to the inefficient course of reimposing it either on the same,
or on a new generation of taxpayers, to finance the operations of government”
(p. 1207). The question in the present case became, ultimately, whether such
concerns are properly considered within the Garland test. In my view,
they are not. Considerations related to preserving the public purse do not
properly fall within the second branch of the juristic reason analysis, which
is more concerned with broad principles of fairness. In Garland, for
example, the overriding public policy concern was ensuring that criminals do
not profit from their crime (para. 57). This is not to say that any and all
fairness considerations are appropriate. As I said above, they must be rooted
in the policy considerations that are traditionally found in unjust enrichment
cases.
39
For the above reasons, I would conclude that the ordinary principles of
unjust enrichment should not be applied to claims for the recovery of monies
paid pursuant to a statute held to be unconstitutional. I do not therefore
need to address in any length the distinction between mistake of law and
mistake of fact, which used to be of significance in unjust enrichment cases
for mistaken payments. Traditionally, although monies paid under mutual mistake
of fact were recoverable, monies paid under mutual mistake of law were not.
However, this Court has abandoned the distinction between mistake of fact and
mistake of law as it applies to the law of unjust enrichment: see Air Canada;
Canadian Pacific Air Lines Ltd. v. British Columbia, [1989] 1 S.C.R.
1133; and Pacific National Investments. There can be no doubt that the
ordinary principles of unjust enrichment now apply in cases of payments made
pursuant to mutual mistake of law. While this point perhaps needed to be
clarified, it is of little moment in this case given that unjust enrichment is
an inappropriate framework for restitution.
40
Restitution for ultra vires taxes does not fit squarely within
either of the established categories of restitution. The better view is that it
comprises a third category distinct from unjust enrichment. Actions for
recovery of taxes collected without legal authority and actions of unjust enrichment
both address concerns of restitutionary justice, but these remedies developed
in our legal system along separate paths for distinct purposes. The action for
recovery of taxes is firmly grounded, as a public law remedy in a
constitutional principle stemming from democracy’s earliest attempts to
circumscribe government’s power within the rule of law. Unjust enrichment, on
the other hand, originally evolved from the common law action of indebitatus
assumpsit as a means of granting plaintiffs relief for quasi-contractual
damages (Maddaugh and McCamus, at p. 1-4; Goff and Jones, The Law of
Restitution (4th ed. 1993), at p. 7; Peel, at pp. 784 and 788, per
McLachlin J.).
41
From a comparative perspective, it is interesting to note that in Quebec
our Court has expressed the view that actions for recovery of illegally
collected taxes could be brought by the more simple route that I suggest. In
its opinion, such claims could be brought under art. 1491 of the Civil Code
of Québec, S.Q. 1991, c. 64, or under the predecessor provisions,
arts. 1047 and 1048 of the Civil Code of Lower Canada, as actions
for “undue payment” (Ross v. The King (1902), 32 S.C.R. 532; Abel
Skiver Farm Corp. v. Town of Sainte-Foy, [1983] 1 S.C.R. 403, at p. 423, per
Beetz J.; Willmor Discount Corp. v. Vaudreuil (City), [1994] 2
S.C.R. 210, at p. 218, per Gonthier J.; see also J.‑L. Baudouin
and P.-G. Jobin, Les obligations (6th ed. 2005), at pp. 556-58; Ville
de Sept-Îles v. Lussier, [1993] R.J.Q. 2717 (C.A.)).
5. Passing-On Defence
42
Robertson J.A. found that the only possible defence the Province could
raise in the present case was that the appellants had passed on the cost of the
charge (paras. 46-48). The basic premise of the passing-on defence is that if
the taxpayer has passed on the burden of the tax payments to others, usually
via price increases charged to its customers, the taxpayer has not suffered a
deprivation, the taxing authority’s enrichment was not at its expense, and it
would receive a windfall if it were awarded recovery. However, unlike Robertson
J.A., I would reject the passing-on defence in the context of the recovery of
taxes paid pursuant to ultra vires legislation.
43
La Forest J. would have applied the defence, if necessary, so as to deny
recovery in Air Canada. He found that
the evidence supports that the airlines had passed on to their
customers the burden of the tax imposed upon them. 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. What
the province received is relevant only in so far as it was received at the
airlines’ expense. [pp. 1202-3]
44
There are three major criticisms of the passing-on defence: first, that
it is inconsistent with the basic premise of restitution law; second, that it
is economically misconceived; and third, that the task of determining the
ultimate location of the burden of a tax is exceedingly difficult and
constitutes an inappropriate basis for denying relief.
45
The defence of passing on has developed almost exclusively in the
context of recovery of taxes and other charges paid under a mistake of law. If,
as La Forest J. suggests in Air Canada, “[t]he law of restitution is not
intended to provide windfalls to plaintiffs who have suffered no loss” (p.
1202), then the defence ought to have arisen in other contexts as well. At the
very least, the defence of passing on should also apply to mistaken payments,
whether of fact or law, but such has generally not been the case in Canada (see
Maddaugh and McCamus, at p. 11-46). Professors Maddaugh and McCamus suggest
that the reason the defence has not been applied outside the context of ultra
vires taxes is because it is inconsistent with the basic principles of
restitutionary law. They argue that “the mere fact that the taxpayer has
mistakenly paid, with its own money, the revenue authority is sufficient to
establish an unjust enrichment at the plaintiff’s expense. As between the
taxpayer and the Crown, the question of whether the taxpayer has been able to
recoup its loss from some other source is simply irrelevant” (p. 11-45).
46
It is on this same basis that the Australian High Court refused to
recognize the defence in Commissioner of State Revenue (Victoria) v. Royal
Insurance Australia Ltd. (1994), 182 C.L.R. 51. Brennan J. explained that
[t]he fact that Royal had passed on to its policy
holders the burden of the payments made to the Commissioner does not mean that
Royal did not pay its own money to the Commissioner. The passing on of the
burden of the payments made does not affect the situation that, as between the
Commissioner and Royal, the former was enriched at the expense of the latter.
It may be that, if Royal recovers the overpayments it made, the policy holders
will be entitled themselves to claim a refund from Royal of so much of the
overpayments made by Royal to the Commissioner as represents the amount paid to
Royal by the policy holder. However that may be, no defence of “passing on” is
available to defeat a claim for moneys paid by A acting on his own behalf to B
where B has been unjustly enriched by the payment and the moneys paid had been
A’s moneys. [Footnotes omitted; pp. 90-91.]
47
I note that Royal Insurance is a case involving the overpayment
of taxes, but in my view the principle is equally applicable to the present
case. As mentioned earlier, restitutionary principles provide for restoration
of “what has been taken or received from the plaintiff without justification” (Royal
Insurance, at p. 71). Restitution law is not concerned by the possibility
of the plaintiff obtaining a windfall precisely because it is not founded on
the concept of compensation for loss.
48
In addition to being contrary to the basic principles of restitution
law, the defence of passing on has also been criticized for being economically
misconceived and for creating serious difficulties of proof. In British
Columbia v. Canadian Forest Products Ltd., [2004] 2 S.C.R. 74, 2004 SCC 38,
LeBel J., writing in dissent but not on this point, commented on the inherent
difficulties in a commercial marketplace of proving that the loss was not
passed on to consumers. LeBel J. noted that every commercial entity could be
accused of passing on all or part of any damages suffered by it, by its own
rates or charges to its customer. This is because it is difficult to determine
what effect a change in a company’s prices will have on its total sales. Unless
the elasticity of demand is very low, the plaintiff is bound to suffer a loss,
either because of reduced sales or because of reduced profit per sale. Where
elasticity is low, and it can be demonstrated that the tax was passed on
through higher prices that did not affect profits per sale or the volume of
sales, it would be impossible to demonstrate that the plaintiff could not or
would not have raised its prices had the tax not been imposed, thereby
increasing its profits even further. LeBel J. referred to these various figures
as “virtually unascertainable” (para. 205, citing White J. in Hanover Shoe,
Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968), at p. 493). LeBel
J. ultimately concluded that “[t]he passing on defence would, in effect, result
in an argument that no damages are ever recoverable in commercial litigation
because anyone who claimed to have suffered damages but was still solvent had
obviously found a way to pass the loss on” (para. 206, citing Ground J. in Law
Society of Upper Canada v. Ernst & Young (2002), 59 O.R. (3d) 214
(S.C.J.), at para. 40).
49
Although LeBel J. was criticizing the application of the passing-on
defence in tort law, his criticisms are equally appropriate, if perhaps not
more so, in the context of restitution law. This is because, unlike restitution
law, tort law is premised on the concept of compensation for loss, such that
concerns about potential windfalls are appropriate.
50
Recognition of the defence in Air Canada has also led to
uncertainty in its application. In Canadian Pacific Air Lines, released
contemporaneously with Air Canada, the defence was applied to the claim
for recovery of a beverage tax, which the Court noted was imposed on
passengers, not on the airline. The airline was simply a collector of the tax.
This holding is uncontentious insofar as the airline was merely collecting the
tax as an agent of the Crown. In my view, the defence of passing on was not
necessary to arrive at that conclusion. In the same case, the airline was
allowed to recover the social services tax paid on the value of the aircraft
and aircraft parts with no discussion of the defence. However, La Forest J. in Air
Canada found the defence to be applicable to the tax on fuel so as to deny
recovery. The holdings in these cases with respect to the application of the
passing-on defence are difficult to reconcile.
51
For the above reasons, I would reject the passing-on defence in its
entirety.
6. Application of the Doctrine of Protest
and Compulsion
52
Robertson J.A. granted recovery of the illegal user charge on the basis
that it was paid under protest. This is another issue that had posed problems
in the context of recovery of money paid under an ultra vires tax. The
doctrine of protest and compulsion functions as an exception to the passing-on
defence. As Professors Maddaugh and McCamus explain, “the defence [of passing
on] would no longer be available once the taxpayer signaled, through protest,
that the unlawfulness of the taxation measure was being challenged” (pp. 11-44
and 11-45). Thus, even though Robertson J.A. accepted the Province’s argument
that the appellants had passed on the cost of the tax, he found that the
payments made under protest and compulsion were recoverable. Because I have
rejected the passing-on defence as generally inapplicable in the context of ultra
vires taxes, it is not necessary to deal with the doctrine of protest and
compulsion. I think some general comments will, however, be useful.
53
In my view, the doctrine of protest and compulsion is simply not
applicable to cases such as the present. This flows from the constitutional
basis for the right of restitution in this case: that the Crown should not be
able to retain taxes that lack legal authority. It therefore matters little
whether the taxpayer paid under protest and compulsion. If the law proves to
be invalid, then there should be no burden on the taxpayer to prove that they
were paying under protest. Such a finding would be inconsistent with the nature
of the cause of action in this case. As Lord Goff said in Woolwich, at
p. 172, “full effect can only be given to that principle [that taxes should not
be levied without proper authority] if the return of taxes exacted under an
unlawful demand can be enforced as a matter of right”. The right of the party
to obtain restitution for taxes paid under ultra vires legislation does
not depend on the behaviour of each party but on the objective consideration of
whether the tax was exacted without proper legal authority.
54
I also have concerns about the applicability of the doctrine of protest
and compulsion to cases where the tax, although collected pursuant to valid
legislation, was misapplied in relation to the taxpayer. The tax is valid, but
the taxpayer should never have had to pay it. The problem, in my view, stems
from the notion of compulsion in the context of payments made pursuant to law.
Duress first found recognition as a limited ground for the recovery of damages
against an intimidating party in tort. A contract entered into under duress was
held to be voidable at the instance of the coerced party (see Maddaugh and
McCamus, at pp. 26-2 and 26‑3). The recovery of benefits conferred under
duress is achieved via an action in restitution (ibid., at p. 26‑6.1).
Duress vitiates the voluntary nature of the payment.
55
Professors Maddaugh and McCamus explain, at p. 11‑20, that “if one
is mistaken about the law, one pays because one believes one is obliged to do
so by law. If one is responding to duress, it must be that the individual
believes or strongly suspects that there is no legal requirement to pay.”
However, in my opinion, the absence of duress on the part of the taxpayer
should not be an important factor. It is not up to the taxpayer but rather to
the party that makes and administers the law to bear the responsibility of
ensuring the validity and applicability of the law (see also Ontario (Liquor
Control Board)). I agree with Wilson J. in Air Canada that
payments made under unconstitutional legislation are not “voluntary” in
a sense which should prejudice the taxpayer. The taxpayer, assuming the
validity of the statute as I believe it is entitled to do, considers itself
obligated to pay. Citizens are expected to be law‑abiding. They are expected
to pay their taxes. Pay first and object later is the general rule. The
payments are made pursuant to a perceived obligation to pay which results from
the combined presumption of constitutional validity of duly enacted legislation
and the holding out of such validity by the legislature. In such circumstances
I consider it quite unrealistic to expect the taxpayer to make its payments
“under protest”. Any taxpayer paying taxes exigible under a statute which it
has no reason to believe or suspect is other than valid should be viewed as
having paid pursuant to the statutory obligation to do so. [pp. 1214-15]
Although made
in the context of ultra vires legislation, Wilson J.’s comments are
equally applicable to the situation where a taxpayer is required to pay a levy
because of an incorrect application of the law. In either case, the protest
requirement is inappropriate.
56
There is a second concern which arises in cases where monies have been
paid to public authorities pursuant to unconstitutional legislation or as a
result of the misapplication of an otherwise valid law. In Eurig, for
example, payment under protest and the commencement of legal proceedings was
held to be sufficient to trigger the exception allowing recovery. The end
result is that whenever a tax is declared ultra vires, only the
successful litigants will be granted recovery of the unconstitutional charges.
All other similarly situated persons will not benefit from the Court’s holding.
This raises concerns about horizontal equity that are similar to those raised
by the doctrine of constitutional exemption. This Court has alluded to such
concerns in Mackin v. New Brunswick (Minister of Finance), [2002] 1
S.C.R. 405, 2002 SCC 13, and in Miron v. Trudel, [1995] 2 S.C.R. 418. In
my view, constitutional law should apply fairly and evenly, so that all
similarly situated persons are treated the same.
57
I would therefore discard the doctrine of protest and compulsion insofar
as it applies to payments made to public authorities, whether pursuant to
unconstitutional legislation or as the result of a misapplication of otherwise
valid legislation. Once the immunity rule is rejected, there is no need to
distinguish between cases involving unconstitutional legislation and cases
where delegated legislation is merely ultra vires in the administrative
law sense. In all such cases, the payment of the charge should not be viewed as
voluntary in a sense that would prejudice the taxpayer. Rather, the plaintiff
is entitled to rely on the presumption of validity of the legislation, and on
the representation as to its applicability by the public authority in charge of
administering it.
58
In cases not involving payments made to public authorities pursuant to
unconstitutional legislation or the misapplication of an otherwise valid law,
my view is that courts should insist on proof of compulsion in fact. The mere
fact that the payment was made in protest should be neither necessary nor
sufficient to establish compulsion. Protest may accompany a voluntary payment
(in order to protect a hypothetical restitutionary entitlement), and compulsion
may occur without any evidence of formal protest. Insisting on compulsion in
fact is more principled and ensures that all similarly situated persons will be
treated equally, regardless of protest.
7. Application of Limitations Law
59
My view is that claims such as the present may be subject to an
applicable limitation period. The New Brunswick Limitation of Actions Act
provides that:
9 No other action shall be commenced but within six years
after the cause of action arose.
60
Section 9 was clearly intended to cover all other actions not
specifically provided for in the legislation. There is no reason why modern
restitutionary claims ought not to be subject to s. 9. I agree with Robertson
J.A. that such a result does not run afoul of the principles developed by this
Court in Amax Potash:
In my view, the reasoning adopted in Amax Potash
has no application to cases in which the provinces are relying on a pre‑existing
statutory prescription period. There is a substantive difference between
existing legislation that bars potential claims, unless brought within a fixed
period, and legislation enacted for the specific purpose of barring
restitutionary claims based on an invalid or unconstitutional tax. A
prescription statute is adopted for purposes of providing a defendant with
“peace of mind”; to be secure in the knowledge that he or she is no longer at
risk from a stale claim accompanied by stale testimony. It is not adopted for
the purpose of barring claims outright. A Limitation of Actions Act is
valid legislation adopted for a valid purpose. It does not seek to achieve
indirectly what cannot be achieved directly. [para. 42]
61
Finally, the point at which time will begin to run must be determined.
The cause of action was complete at the moment the Province illegally received
the payment. For this reason, the appellants can only recover the user charges
paid during the six years preceding the filing date of their Notice of
Application (May 25, 2001).
8. Conclusion
62
For the above reasons, I would allow the appeal in part and dismiss the
cross-appeal. The appellants are entitled to recover all user charges paid on
or after May 25, 1995, with interest. However, I conclude that this is not an
appropriate case for the awarding of compound interest as the appellants did
not allege any wrongful conduct on behalf of the Province that might warrant
moral sanction (see Bank of America Canada v. Mutual Trust Co., [2002] 2
S.C.R. 601, 2002 SCC 43). The appellants are entitled to their costs in this
Court and in the courts below.
Appeal allowed in part and cross‑appeal dismissed, with costs.
Solicitors for the appellants/respondents on cross‑appeal: Mockler
Peters Oley Rouse, Fredericton.
Solicitor for the respondents/appellants on cross‑appeal: Attorney
General of New Brunswick, Fredericton.
Solicitor for the intervener the Attorney General of
Manitoba: Attorney General of Manitoba, Winnipeg.
Solicitor for the intervener the Attorney General of British
Columbia: Ministry of Attorney General of British Columbia,
Victoria.
Solicitor for the Attorney General of Alberta: Attorney
General of Alberta, Edmonton.
Solicitors for the intervener the Canadian Constitution
Foundation: McCarthy Tétrault, Ottawa.
Solicitors for the intervener the Consumers’ Association of
Canada: Arvay Finlay, Vancouver.