Brault-Clément Inc. v. Her Majesty the Queen, [1992] 1 CTC 44

Hugessen, J.:—1 have had the advantage of reading the reasons prepared by my brother Pratte, J.A. I refer to his statement of the facts and proceedings giving rise to the case. It will suffice to note that the parties agreed that the solution of the case would depend on the answer to the question whether the appellant acted as mandatary of the provincial Department of Revenue in collecting the tobacco tax imposed by a provincial statute (Tobacco Tax Act, R.S.Q. 1964, c. 72).

The appellant is bound by the terms of a contract concluded by it with the provincial Department of Revenue. My brother judge has set out the most important clauses of the contract. It describes the relations between the appellant and the provincial Department several times as being those of a mandator and mandatary. Of course, it is true that this language is not conclusive: goods are not determined by their label. However, the fact remains that the description given by the parties to the contract signed by them is an important point to be taken into consideration in determining the true nature of that contract. This is especially so when the question is raised in a case between a third party (here the federal Department) and one of the parties to the contract, and when it is that same party which, in the absence of the cocontracting party (the provincial Department), is arguing that the contract is not what it appears to be. In such circumstances, if there is any doubt as to the true nature of the contract, it seems to me that doubt should be resolved in the sense that the parties to the contract themselves have indicated.

In any case, it is clear that the contract between the appellant and the provincial Department is not in the classic form of a mandate as described in articles 1701 et seq. of the Civil Code. That does not mean that it cannot be regarded as a mandate. The appellant made much of the difference between, on the one hand, the clauses of his agreement with the provincial Department concerning the duty to render an account and the risk of things being lost in the custody of the mandatary, and on the other, the articles of the Civil Code dealing with these matters. It asked the Court to conclude that, because of this difference, the contract cannot be a mandate. In my opinion, this argument is unconvincing: neither the obligation to render an account nor the responsibility for losses incurred by the mandatary during his administration is of the essence of the contract of mandate.

What is the essence or the fundamental idea of a mandate? What factor distinguishes it from other nominate contracts recognized by the civil law? It is representation. To see this, one need only refer to P.-B. Mignault, Le Droit Civil Canadien, t. VIII, Montreal, Wilson & Lafleur, 1909, page 4:

I have said that the idea of representation is fundamental to a mandate. Though the role of the mandatary appears to be active and that of the mandator passive, in legal terms the reverse is the case. The mandatary only acts and speaks on behalf of the mandator, and it is the latter who acquires the rights and undertakes the duties to third parties, not the mandatary. This is so true that it is only when the mandatary goes beyond the limits of his mandate, when he acts on his own behalf—and so in practice repudiates the mandate—that he becomes obligated to the third parties with whom he deals. Similarly, it is for the same reason, as we will see, that even if the mandatary is subject to an absolute lack of capacity this will not prevent his acts from imposing a duty on the mandator.

This essential feature of mandate enables us to distinguish it from the hire of work, because a person who hires his work or services is not representing the person who accepts the work, whereas there is no mandate without representation.

[Emphasis added.]

Does the appellant represent the provincial Department by virtue of its contract with the Department? In my opinion, the answer has to be yes.

First, I think there is no question that when the retailer pays the appellant the amount of tax which will eventually be paid by the consumer when the retail sale occurs, that payment can be set up against the provincial Department. If, for example, the appellant failed to pay the Department the amount of the eventual tax it had in fact collected from its various retailers, would anyone suggest that the latter should pay the money to the Department? Though the Act itself imposes a duty on the retailer to pay the tax to the Department, it seems clear that early payment made to the wholesaler discharges the duty to the Department and if the latter dared to sue the retailer in those circumstances, the payment already made to the wholesaler (the appellant) would be the most complete estoppel against the originator of the action.

Another sign, in my opinion, that the appellant actually represents the provincial Department, and that this is accordingly a mandate, is to be found in the clauses of the contract dealing with the rights of the parties if the retailer, to whom the appellant has sold tobacco, becomes bankrupt before paying the tax to the latter. For ease of reference, I set them out here:

12. If as a result of the bankruptcy of the person to whom the Undertaking has sold tobacco, the Undertaking has not as the Minister's mandatary received the wholesale sales tax on that tobacco, it may, on the Minister's written authorization, deduct from the monthly payment next after receipt of such authorization tax not paid by the bankrupt but already paid to the Minister by the Undertaking.

For the purposes of this paragraph it is agreed by the parties hereto that any partial payment received by the Undertaking from the person to whom tobacco was sold in bulk, from the latter's trustee in bankruptcy, liquidator or any other person who stood surety for or assumed the debt, shall be deducted first from the total amount of tax which the Undertaking should have received from the bankrupt and which is still unpaid, unless the Minister on being informed of the bankruptcy in due time has not filed his claim with the trustee because of the negligence of one of his employees or if the claim has been dismissed; however, even in that case the Undertaking shall first deduct from the tax any amounts it has received other than those to which it is entitled under the Bankruptcy Act.

13. The deduction mentioned in clause 12 shall only be taken into account on the following conditions,

(a) the sale or delivery to the bankrupt of the quantity of tobacco concerned in the request for a deduction took place within the twelve months preceding the date ot assignment of property or the bankruptcy or liquidation petition;

(b) it shall be the Minister and not the Undertaking that exercises the right to submit to the trustee or liquidator the claim for tax unpaid by the bankrupt and deducted or to be deducted from a payment by the Undertaking to the Minister;

(c) so that the Minister may submit his claim at the proper time, the Undertaking shall forward a statement of the unpaid tax to the Minister, by registered mail and on the form prescribed by him, as soon as the Undertaking receives notice of the bankruptcy or liquidation and even before its next monthly report is submitted to the Minister.

(Appeal case, pages 80-81)

In my view, these clauses confirm that the legal debt to the provincial Department created by the Tobacco Tax Act when the retailer receives tax from the consumer at the time of the retail sale remains the Department's debt despite the fact that the latter authorized the appellant to collect it early. We have seen that if the debtor (the retailer) pays this debt (whether before or after it is due) to the wholesaler that payment discharges the debt. However, if he does not pay it, it is the Department which has the right to claim it and it retains all its privileges in this regard. Moreover, the Quebec Superior Court has already made such a ruling in a case involving the system, for all practical purposes identical, created to collect fuel taxes:

Whereas, if the Department of Revenue had the right to collect gasoline and oil tax, it also had the power to appoint an agent and impose on him the conditions of his mandate in the collection of the tax and his remuneration;

Whereas the creditor Irving Oil Inc. has not acted as the debtor's representative, but as an agent of the Department of Revenue, according to the terms and conditions of the contract concluded;

Whereas, to avoid a multiplicity of claims to all buyers and complicated and uncertain bookkeeping, the Department of Revenue could more expeditiously and effectively collect the gasoline tax by agreeing with the vendors that they would provide a complete statement of their sales and pay the amount of tax collectible on the said sales within the deadline specified by law, except for reimbursing the said vendor agents in the event the latter could not later collect the said taxes themselves;

Whereas the creditor Irving Oil Inc., which does considerable business selling gasoline and oil, regularly and normally made payments of fuel taxes based on its sales figures, but was entitled to reimbursement by the Department of Revenue if the debtor went bankrupt or was unable to repay the amounts it had advanced to the Department of Revenue;

Whereas the contract concluded between the parties does not change the provisions of the Act, does not discharge the debtor from its obligation to pay the gasoline tax and does not affect the applicants privileged rights;

Whereas the said contract is absolutely just and fair to the vendor since, if the Revenue Department makes it its agent for collection of the tax, it cannot place it in an unfavourable position, make it pay the gasoline and oil tax when it has not collected it, and abandon an unsecured debt in the event the debtor becomes bankrupt;

Whereas accordingly the debtor was required to pay the gasoline and oil tax, it has never done so and under the Act it owes the gasoline tax to the Department of Revenue . . .

Sous-ministre du Revenu du Quebec v. De Coster, [1967] C.S. 180, 10 C.B.R. (N.S.) 176, at 183-84.

Finally, in the event that the retailer pays the estimated tax to the appellant and the latter in turn pays it to the Department, if the tobacco is lost or destroyed in the retailer's custody (as the result, for example, of a theft or accident), and even before the tax is actually due, the Department would be obliged to reimburse the retailer the amount of the tax thus overpaid. On the other hand, the appellant, which acted for itself as a seller of tobacco, would not be required to reimburse the part of the amount received from the retailer representing the price of the product, as the thing sold is at the buyer's risk. The explanation of this situation is representation: to the extent that the appellant acted for the Department in collecting the tax at the time the price was paid, it is the Department, the mandator, which is required to render an account for the overpayment which it received through its mandatary; however, to the extent that the appellant acted for itself there was no overpayment and no reimbursement is required.

All these factors persuade me that the agreement between the appellant and the provincial Department of Revenue is primarily one of representation and that what is involved here is accordingly a mandate.

I would dismiss the appeal with costs.

Desjardins, J.A.:—1 have come to the same conclusion as my brother Hugessen J.A., but by a different route.

The provisions of the Quebec Tobacco Tax Act, R.S.Q. 1964, c. 72 ("the Act") which seem to me most relevant for purposes of the reasoning I intend to develop are as follows:

2. In this act, unless the context indicates a different meaning:

(7) "purchaser" means any person who purchases from a vendor tobacco at a retail sale in the Province;

(15) "vendor" includes both wholesale vendor and retail vendor. . .

3. No person may sell tobacco in the Province unless a license therefor has been, upon his application, issued to him under authority of this act, and unless such license be in force at the time of sale.

Such license shall remain in force until revoked for cause by the Minister.

8. . . . every consumer shall pay to Her Majesty in the rights of the Province, at the time of making a purchase of tobacco in this Province, for consumption by himself or by any other person, a tax in respect of the consumption of such tobacco at the rate of ten per centum of the retail price.

In the case of a purchase of cigarettes, the consumption tax so payable shall be one-fifth of one cent per cigarette.

Tl. The tax payable by the purchaser at the time of his purchase shall be collected and accounted for by the vendor and be remitted by him to the Minister through the Department of Revenue, in such manner as the Lieutenant-Governor in Council may prescribe.

The vendor shall act, in such a case, as the agent for the Minister and shall account for and remit to him the amounts so collected, within fifteen days immediately following the calendar month during which any sale has taken place.

12. The Minister may make an allowance to the vendors for their services in collecting and forwarding the tax to the Revenue Branch, which allowance shall be determined by the Lieutenant-Governor in Council.

24. In order to facilitate the collection and remittance of the tax imposed by this act or to prevent the double payment of such taxes on the same tobacco, the Minister may effect such arrangements as he may deem expedient to make with a vendor and such arrangements shall be subject to this act.

28. (1) For the purpose of carrying into effect the provisions of this act according to their true intent or of supplying any deficiency therein, the Lieutenant- Governor in Council may make such regulations, not inconsistent with this act, as are considered necessary.

(3) The Lieutenant-Governor in Council may also make regulations:

(a) to authorize the Minister to make arrangements with any manufacturer or wholesale vendor of tobacco for the collection of the tax imposed by this act

[Emphasis added.]

In Atlantic Smoke Shops Ltd. v. Conlon, [1943] A.C. 550, 4 D.L.R. 81 the Judicial Committee of the Privy Council held to be valid under subsection 92(2) of the Constitution Act, 1867 a tax imposed by New Brunswick on consumers of tobacco, which was accompanied by machinery for collection which made the retail vendor the government's collection agent (Ibid., at page 561). The retail vendor's function was described by the Judicial Committee of the Privy Council as follows (Ibid.):

By regulations made under s. 20 of the Act it is to be collected by the retail vendor, who is constituted an agent of the minister for the collection of the tax, and has to give a receipt for the tax to the customer and account to the Tobacco Tax Commissioner for the tax thus collected, subject to the allowance of three per cent, as remuneration.

As my brother Pratte, J.A. has observed, the Quebec government, like that of other provinces, made the wholesale vendor part of the tobacco tax collection machinery in order to facilitate collection which would otherwise be difficult because of the thousands of consumers involved. The courts have accepted this collection technique as still being one of “direct taxation” because the person ultimately affected by the tax is still the consumer at the time of purchase. Thus in Re Hill and Minister of Revenue (1985), 50 O.R. (2d) 765, at 772 [1] Krever, J., then of the Ontario High Court, said the following:

It would be difficult, if not impossible, to devise a practical method of imposing a tax on the consumer in respect of the sales of articles sold in massive quantities without resorting to the use of agents for the purposes of collection. That this sort of enforcement machinery does not have the effect of taxing these persons who are part of the collection process but who are not consumers seems to me to follow from the reasoning of the Judicial Committee of the Privy Council in Atlantic Smoke Shops Ltd. v. Conlon, [1943] 4 D.L.R. 81, [1943] 3 W.W.R. 113, a decision that dealt with the constitutional validity, as legislation imposing a direct tax within the province, of the Tobacco Tax Act, 1940 of New Brunswick. Under that Act a tax was to be paid at the time of purchase by anyone who bought tobacco for his or her own consumption from a retail vendor in the province and for the purpose of collecting the tax the retail vendor was constituted the agent of the Minister. It was held that the Act enacted a direct tax on the consumer and was therefore enacted under s. 92(2) of what is now the Constitution Act, 1867.

In another Ontario case, Loeb Inc. v. Ontario (Minister of Revenue) (1987), 39 D.L.R. (4th) 723, 59 O.R. (2d) 737, at 729 (Ont. H.C.) Smith, J. explained with respect to that province: ” . . . a wholesaler will not obtain a permit unless he agrees to be a collector. . .”.

He then added:

The procedure, not expressly sanctioned by the Act or the regulations, consisted of exacting the equivalent of the tax moneys from the wholesalers based upon the purchases from the manufacturers and without reference to retail sales. The reason for adopting this practice was explained by Mr. Rowsell, [2] as being historical in nature, in the following terms:

At one time the tobacco tax was collected at the retail level. There was a considerable amount of default suspected and it was moved then to a collection arrangement under which the wholesaler would remit the tax being paid by the consumer to the retailer, up to the wholesaler, across to the Ministry, so the retailer would simply remit it to us under that collection arrangement.

In Chehalis Indian Band v. B.C. (1988), 31 B.C.L.R. (2d) 333, at 337-38 the British Columbia Court of Appeal summarized as follows the gasoline tax legislation and collection machinery adopted by that province:

The Act imposes a per litre tax on a person who purchases gasoline at retail sale in the province (s. 4(2)). The retail seller of that gasoline is required to collect that tax from the purchaser at the time of sale (s. 6). The minister is authorized under the Act to appoint collectors to collect this tax from retail dealers (s. 1). There are relatively few manufacturers of gasoline in the province and they, being at the apex of the marketing chain, are appointed collectors under the Act to collect the tax imposed on the retail sale of the gasoline and to remit the tax collected to the Crown. Those persons in the marketing chain between the manufacturer/collector and the retail dealer are known under the Act as deputy collectors.

The collection scheme employed in this case was designed for ease of administration and accounting. A retailer's inventory of gasoline is turned over relatively fast and the amount of tax will be collected on the gasoline when sold to a retail purchaser is known. Thus each seller in the chain, from manufacturer to wholesale dealer, collects an amount equal to the tax at the time it makes its sale. The commercial effect is that the selling price of the gasoline, at each stage of the chain, is a price which includes an amount equal to the tax, although the legal liability for the tax does not arise under the statute until the retail sale is made.

Regarding them as similar to the system in effect in Ontario, it said, at page 340: “In 423092 Ont. Ltd. v. M.N.R., Ont. H.C., March 6, 1986 (unreported) at page 15, Mr. Justice Barr referred to the tax collected under such a scheme as'a direct tax which is collected indirectly'."

The agreement signed between the appellant and the Minister, relevant passages of which are quoted by Pratte, J.A., provides in clause 3 that the tax which the appellant undertakes to remit will be calculated on its purchases from its own suppliers. The appellant explained that the amount payable to the Minister was indicated on the invoice given to it by its supplier ("tax memo”). Like the Ontario formula described in Loeb Inc. v. Ontario (Minister of Revenue), the amount to be paid does not take retail sales into account.

The Minister is authorized to sign agreements with the wholesale vendor pursuant to section 24 and paragraph 28(3)(a) of the Tobacco Tax Act,” in order to facilitate the collection and remittance of the tax" imposed by the Act. Under the agreement the appellant, which following its purchase is preparing to put consumer goods in circulation, first pays to the Minister the tax which in actual fact is the one which will eventually be due under the Act from the consumer. Under clause 2 of the agreement, it then represents the Minister in collecting the tax which the retailer must remit to the Minister. In return, it is remunerated by the Minister (Clause 9 of the agreement). Clauses 12, 13 and 14 are essentially adjustment measures between the appellant, the retailer and the Minister. If as a result of the retailer's bankruptcy the wholesale vendor cannot reimburse itself for the money it has already paid the Minister, it may, if the sale occurs 12 months before the assignment of property or petition in bankruptcy and if it alerts the Minister promptly, be reimbursed the amount it has prepaid. A comparable situation exists in the case of insolvency by the retailer. The wholesaler is not to be penalized as the result of developments the consequences of which the Minister must bear, and the Minister is not deemed to receive more than what he would have been entitled to if he had made the collection himself. If it happens, and this is covered in clause 22 of the agreement, that the goods are lost in the custody of the wholesaler, the latter may ask for reimbursement equivalent to the amount of tax lost as a result of this destruction.

It is very likely that, as a result of agreements concluded with wholesalers, the money collected by the provincial treasury differs from that eventually paid by consumers as a whole. One has to take into account the remuneration paid to the wholesaler (Ibid.), and then uncertainties of all kinds, such as bankruptcy of the retailer for sales of over 12 months (clause 12 of the agreement). Though there is no complete correlation between the amount which the consumer will ultimately pay and the amount remitted to the Minister by the appellant, the agreement creates a practical mechanism for collecting a consumer tax.

This system, which the appellant is not challenging, probably in light of the existing case law, can be justified in constitutional terms only if the wholesaler and the retailer are the Minister's mandataries in dealing with the consumer. By not challenging the agreement in constitutional terms, the appellant accepts this principle.

The appellant objects to the method of collection, in which there is first a payment by it calculated on its purchases, and argues that this is not a mandate but an innominate contract. According to subsection 2(7) of the Act, the mandate to collect the tax does not take effect until the time of the retail sale. The agreement which it signed, the appellant said, is thus inconsistent with the idea of a mandate, since under the Act the Minister cannot receive tax from the retailer at the time of the bulk sale. It argued that the Minister has thus made it responsible for carrying out a legal act on his behalf which he himself does not have the power to do. In the appellant's submission, the idea of representation is thus absent from the legal arrangement created by the agreement. The appellant further argued that the money remitted cannot constitute the tax collected under the Act, as the latter requires that the tax be calculated on a percentage applied to the retail selling price of tobacco products other than cigarettes and cigars, while the money remitted by the appellant depends on the retail price suggested by the manufacturer, a price which does not neces- sarily correspond to the actual retail selling price. Finally, the appellant submitted that though the parties used the word "mandate" in the agreement to describe their relationship under article 1013 C.C.L.C. the Court must determine the true nature of the contract and to do this, it must examine the relations between the parties and not the designation used by them.

This is reverse reasoning which might have had some effect if the constitutionality of the system was in question; but, once again, it is not being challenged. The real nature of the agreement must be analysed in light of its constitutional source rather than in terms of the method used; it is machinery for the collection of a direct tax based on representation.

I conclude that a mandate is involved and, accordingly the amounts of tax which the appellant paid under the Tobacco Tax Act during the relevant period are not part of the “cost amount” of the tobacco products included in its inventory for purposes of the deduction mentioned in paragraph 20(1)(gg) of the Income Tax Act. [3]

I would dismiss the appeal with costs.

Pratte, J.A.:—The appellant is appealing from a judgment of Pinard, J. of the Trial Division, which dismissed the action brought by it to vary the assessments of its income tax for the 1977 to 1980 taxation years inclusive.

In calculating its income for each of those years the appellant, as a wholesaler of tobacco products, could under paragraph 20(1)(a) of the Income Tax Act [4] deduct an amount proportional to the cost [5] of the tobacco products described in its inventory at the start of the year. The question raised by this appeal concerns the manner in which the appellant, for the purposes of paragraph 20(1)(gg) was to calculate the cost of tobacco, cigars and cigarettes appearing in its inventory. In particular, this question is whether it was necessary, contrary to what was held by the trial judge, to include in this cost certain amounts which the appellant paid the Quebec Minister of Revenue during the years at issue pursuant to agreements concluded with him in order to facilitate collection of the tax imposed by the Quebec Tobacco Tax Act, R.S.Q. 1964,

c. 72.

As its name indicates, this Act imposed a tax on tobacco. It was a direct tax imposed on the consumer, who had to pay it to the retailer who was responsible for collecting it as the Minister of Revenue's mandatary. For the purposes of this case, it will suffice to know the following provisions of the Act as it appeared in the 1964 Revised Statutes:

2. In this act, unless the context indicates a different meaning:

(2) “consumer” means any person who purchases from a vendor tobacco at a retail sale in the Province;

(7) "purchaser" means any person who purchases from a vendor tobacco at a retail sale in the Province;

(14) "tobacco" means tobacco in any form in which tobacco is consumed, and includes snuff, but does not include cigars sold at a retail price of five cents or less each and raw leaf tobacco . . .

3. No person may sell tobacco in the Province unless a license therefor has been, upon his application, issued to him under authority of this act, and unless such license be in force at the time of sale.

Such license shall remain in force until revoked for cause by the Minister. R.S. 1941, c. 87, s. 3.

8. In order to provide for the exigencies of the public service of the Province, every consumer shall pay to Her Majesty in the rights of the Province, at the time of making a purchase of tobacco in this Province, for consumption by himself or by any other person, a tax in respect of the consumption of such tobacco at the rate of ten per centum of the retail price.

In the case of a purchase of cigarettes, the consumption tax so payable shall be one-fifth of one cent per cigarette. R.S. 1941, c. 87, s. 8; 4-5 Eliz. Il, c. 52, s. 1. [6]

11. The tax payable by the purchaser at the time of his purchase shall be collected and accounted for by the vendor, and be remitted by him to the Minister through the Department of Revenue, in such manner as the Lieutenant-Governor in Council may prescribe.

The vendor shall act, in such a case, as the agent for the Minister and shall account for and remit to him the amounts so collected, within fifteen days immediately following the calendar month during which any sale has taken place. R.S. 1941, c. 87, s. 11.

12. The Minister may make an allowance to the vendors for their services in collecting and forwarding the tax to the Revenue Branch, which allowance shall be determined by the Lieutenant-Governor in Council. R.S. 1941, c. 87, s. 12.

24. In order to facilitate the collection and remittance of the tax imposed by this act or to prevent the double payment of such taxes on the same tobacco, the Minister may effect such arrangements as he may deem expedient to make with a vendor and such arrangements shall be subject to this act. R.S. 1941, c. 87, s. 24.

Under this Act, therefore, the Minister of Revenue was required to collect from all tobacco retailers in the province the tax they had themselves collected from consumers. To simplify his task the Minister, in common with the governments of other provinces, [7] had arranged for this tax, instead of being collected in the manner provided by the Act, to be first paid by wholesalers as if it were an indirect tax imposed on them through their purchases. To ensure this result, it was necessary to be in a position, at the time the wholesaler purchased from the manufacturer, to calculate the amount of the tax that would eventually be owed for the tobacco purchased. This was simple for the tax on cigarettes, since the Act provided that this tax was a certain amount per cigarette. However, it was impossible for other tobacco products on which the tax imposed was proportional to the retail selling price. The Minister resolved this difficulty, apparently, by deciding that for those products the tax would be collected on the basis of the retail selling price suggested by the manufacturer. Thus, the manufacturer who sold to a wholesaler could easily calculate and indicate on his bill the amount of the tax that would eventually be paid for the goods sold. It was then only necessary to require wholesalers to pay this tax, which they did not owe. The Minister managed this [8] by concluding an agreement with each of them under which the wholesaler undertook, first, to pay the tax on all tobacco he purchased from a manufacturer, and second, to collect that same tax from each person, wholesaler or retailer, to whom he sold it. These agreements also provided that the wholesaler would be entitled to remuneration proportional to the amount of tax he paid the Minister each month.

It is important to look more closely at the terms of these agreements. The only problem raised by this appeal, as I have noted, is that of whether in determining the cost of its inventory for the purposes of paragraph 20(1)(gg) the appellant could take into account amounts of tax which it had paid the Minister under such an agreement. To resolve this problem one has to try and determine the nature of these payments, and this assumes that one also determines the true nature of the agreement under which they were made.

In reality, during the period at issue the agreement concluded between the Minister and the appellant was altered several times. However, these alterations did not change the substance and we need only refer to the agreement that was in effect from April 1, 1978 to June 30, 1979. The principal clauses of this agreement, in which the appellant was referred to as the "Undertaking", were the following:

To attain the objectives of ss. 24 and 28 of the Tobacco Tax Act, R.S.Q. 1964, c. 72, the parties hereby agree on the following, namely:

2. The Undertaking shall act as a mandatary of the Minister in the collection of the tax levied by the Act. The said tax shall be collected by the Undertaking from any person, including any other wholesaler, to whom it sells or delivers tobacco in Quebec whatever the location from which the Undertaking ships this tobacco.

3. The Undertaking undertakes to make its monthly payments based on its purchases of all tobacco bought or obtained by it. Further, it holds itself personally liable for payment in full of the tax relating to any tobacco it may purchase, except for tobacco bought from another Undertaking to which it has already paid tax on the tobacco.

4. The Undertaking undertakes to perform all the obligations and to comply with all administrative measures imposed in respect of a mandatary by the Act and by the Revenue Department Act, S.Q. 1972, c. 22 and its regulations, in addition to the stipulations contained in this agreement.

5. The Undertaking shall submit by the fifteenth day of each calendar month at latest a report on the form prescribed by the Minister, indicating the tobacco tax owed for the preceding month. The Undertaking undertakes to make monthly payments to the Minister corresponding to the amount of the tax it has collected or shall collect on all tobacco bought or obtained by it in the preceding month. The total amount of tax so determined shall be remitted to the Minister as follows: half the amount when the report is filed and the other half at latest on the last working day of the month during which the report is to be filed.

7. Any amount of tax not paid by the Undertaking to the Minister within the period specified in paragraphs 5 or 6, as the case may be, shall bear interest at the rate in effect under the Revenue Department Act, S.Q. 1972, c. 22 and its regulations.

9. In so far as remittances are made in accordance with the provisions mentioned in paragraphs 5 or 6, the Undertaking shall be entitled to an indemnity determined in accordance with the following rules:

(a) when the Undertaking acts as a wholesaler, the indemnity payable shall be two per cent of the tax remitted;

(b) when the Undertaking acts as a retailer, the indemnity payable shall be two per cent of the tax remitted; in this case, the total amount of the indemnity payable to the Undertaking shall be limited to $1,000 per financial year.

12. If as a result of the bankruptcy of the person to whom the Undertaking has sold tobacco, the Undertaking has not as the Minister's mandatary received wholesale sales tax on that tobacco, it may, on the Minister's written authorization deduct from the monthly payment next after receipt of such authorization tax not paid by the bankrupt but already paid to the Minister by the Undertaking.

13. The deduction mentioned in clause 12 shall only be taken into account on the following conditions:

(a) the sale or delivery to the bankrupt of the quantity of tobacco concerned in the request for a deduction took place within the twelve months preceding the date of the assignment of property or the bankruptcy or liquidation petition;

(b) it shall be the Minister and not the Undertaking which exercises the right to submit to the trustee or liquidator the claim for tax unpaid by the bankrupt and deducted or to be deducted from a payment by the Undertaking to the Minister;

(c) so that the Minister may submit his claim at the proper time, the Undertaking shall forward a statement of the unpaid tax to the Minister, by registered mail and on the form prescribed by him, as soon as the Undertaking receives notice of the bankruptcy or liquidation and even before its next monthly report is submitted to the minister.

14. If as a result of the insolvency, established by the Undertaking to the Minister’s satisfaction, of a person to whom the Undertaking has sold tobacco at wholesale, and who has not been placed in bankruptcy or liquidation, the Undertaking is not paid for the tobacco sold and has not received as the Minister's agent tax on the bulk sale of such tobacco, it may on written authorization from the Minister deduct from the monthly payment next after receipt of such authorization the tax not paid by that person but already paid by the Undertaking to the Minister, subject to the following conditions:

(a) the undertaking has made all reasonable efforts to collect;

(b) the sale or delivery of the quantity of tobacco concerned in the request for a deduction took place within the twelve months preceding the date on which the request was made to the Minister;

(c) only the Minister, and not the Undertaking, shall subsequently exercise the right to claim and collect the unpaid tax.

22. The Minister may also allow the Undertaking, on a request being made by it with supporting detail as the result of fire, theft, flood or other causes not due to the fault of the Undertaking, to make a deduction from a payment in the manner specified in paragraph 12; the Minister shall be finally responsible for determining the facts of such an incident and the quantity of tobacco lost.

If we go by the wording of this agreement, which it must be said was entirely written by the Minister without the appellant having any right to negotiate its terms, it would appear to be a contract of mandate requiring the appellant, in return for remuneration, to collect the tax on the tobacco which it sells and to remit that tax to the Minister. If this is an accurate description, it clearly follows that the amounts paid to the province by the appellant under this agreement should not have been included in the cost of the tobacco it purchased. By paying these amounts, the appellant did not pay for the tobacco it purchased, it simply remitted and paid to the Minister the amount of the tax which it had been authorized to collect. It is then understandable that counsel for the appellant made a strenuous effort to show, as he sought to do at trial, that despite the designation given to the agreement in question by the parties it was not a true mandate. [9]

The nature of the contract of mandate is well known. It is a contract by which the mandator delegates the performance of a legal act to the mandatary, so that when that act is carried out by the mandatary it produces all its legal consequences on the property of the mandator as if it had been performed by the mandator himself. Article 1713 of the Civil Code states that, after performing his mandate, "the mandatary is bound to render an account of his administration, and to deliver and pay over all that he has received under the authority of the mandate, even if it were not due”.

Is the agreement concluded between the appellant and the Quebec Minister of Revenue a mandate? The label which the parties themselves have placed on their contract is not conclusive. A lease is still a lease even if the parties say that it is a sale.

Assuming that this agreement was a mandate, what is the legal act that the appellant was made responsible for performing on the Minister's behalf? Referring to clause 2 of the agreement, the answer must be that the appellant received a mandate to collect from wholesalers and retailers when it sold tobacco "the tax levied by the Act". As that Act imposed on retailers a duty to collect the tax from consumers to whom they sold, it is tempting to conclude that the agreement made the appellant responsible for collecting from retailers the tax which they had themselves received from consumers on the Minister's behalf; but that is not the case, since first the agreement expressly provided that the appellant had to collect tax not only from retailers but also from wholesalers to which it sold, and second, the agreement contemplated at least implicitly that the appellant would collect that tax even before it was due from the consumer. What a strange mandate this is, the collection of a tax which is not yet due from a person other than its eventual debtor! In fact, contrary to what clause 2 of the agreement states, the mandate the appellant received, assuming that it was a mandate, could not be simply one of collecting the tax on tobacco. To say that there was a mandate, one must assume that the appellant was made responsible by the Minister for making the necessary arrangements so that wholesalers and retailers to whom it sold tobacco would pay it in its capacity as the Minister's agent the estimated amount of the tax that would eventually be received by the retailer when the sale to the consumer took place. This means that extremely complex arrangements would have had to be made between the appellant and its customers. That was not the actual situation. The evidence clearly indicates that when the appellant made sales to its customers, it made no other arrangements with them than that of selling them its products at a price that enabled it to reimburse itself for what it had paid the Minister.

I have already noted that the contract of mandate imposes on the mandatary who has performed his mandate a duty "to render an account of his administration, and to deliver and pay over all that he has received under the authority of the mandate”. The mandatary's first duty, therefore, is to perform his mandate and his second duty (in the sense that it arises only after the mandate has been performed or should have been) is that of rendering an account. What is striking on reading the agreement concluded by the appellant is that the duty which the latter had first to perform was not that of carrying out an alleged mandate, but clearly that of paying the Minister the estimated amount of tax on the tobacco it purchased from the manufacturer. Of course, there is nothing to say that a mandatary given the duty of collecting a debt should not pay his mandator in advance the amount he expects to receive in the performance of his mandate, but usually, if there is a mandate, it is contemplated in that case that after the mandate is performed the necessary adjustments will be made to ensure that the mandator receives everything the mandatary has collected for him, and nothing more. A contract under which a creditor, for a fixed price paid to him by another person, authorizes a mandatary to collect his debt is more like an assignment of a debt than a mandate. In the case at bar, while the agreement between the parties clearly provided that, in certain circumstances, the appellant could be reimbursed for what it had paid, it did not guarantee that the appellant would be reimbursed in all cases where, after making payment, it found that the tax was not due.

The foregoing leads me to conclude that the contract concluded by the appellant and the Quebec Minister of Revenue was not a contract of mandate. The fact that the Minister may have wished to give it the appearance of a mandate was undoubtedly to avoid any challenge of its validity on the ground that a province, which cannot impose indirect taxes, also cannot collect direct taxes it imposes as if they were indirect taxes. The contract in question, in my opinion, is simply one by which the appellant undertook, first, to pay the Minister when it purchased tobacco from a manufacturer certain sums which the Minister accepted in payment of the tax that might eventually be due on that tobacco from consumers, and second, to resell its goods at a high enough price to ensure that the appellant could recover the money so paid.

Does it follow that the money paid by the appellant under this agreement should have been included in calculating the cost of the tobacco described in the appellant's inventory? In my view, the answer depends on the circumstances. If the appellant had freely concluded the agreement which it signed with the Minister, considering that such an agreement was profitable for it, the answer would have to be in the negative. In such a case it could not be said that the appellant had paid this money to obtain the tobacco which it purchased. In the case at bar, however, though the evidence is not entirely clear on this point, it seems to me to show that the agreement in question was imposed on all wholesalers by the Quebec Minister of Revenue. Further, the system for collecting tobacco tax which he set up required that all wholesalers sign such an agreement without exception. In these circumstances, the duty which the agreement imposed on the appellant to pay the tax on all the tobacco it purchased from a manufacturer seems to me to be sufficiently close to the duty to pay an indirect tax on that product for one to conclude that the money paid by the appellant in performance of this duty should have been included in calculating the cost of its tobacco.

I would allow the appeal, set aside the judgment of the Trial Division and refer the assessments at issue back to the Minister for reconsideration and reassessment in accordance with these reasons: the whole with costs, both at trial and on appeal.

Appeal dismissed.