Thomas Fuller Construction Co. (1958) Ltd. v. Ottawa Civic Hospital, [1989] 2 CTC 143

Hollingworth, J.:—This is an application for the determination of a contract agreement by and between Fuller (contractor) and the Ottawa Civic Hospital (the owner) in respect of the following question:

Whether pursuant to the provisions of the said contract agreement the respondent is entitled to claim from the applicant moneys received by the applicant by way of a refund of federal sales tax paid by the applicant in respect of materials purchased by it in the course of performing its obligations under the said contract agreement.

In short, the applicant wants a declaration that the tax refunds belong to the contractor and not the hospital and it asks for judgment in the amount of $292,382, plus prejudgment interest and costs.

I am advised by counsel that there is absolutely no judicial authority on this particular question.

The applicant contracted with the respondent on June 7, 1988, to construct the Heart Institute Research Centre for the hospital for the sum of $11,038,000. “in lawful money of Canada which includes all prime costs, costs of insurance, bonds and permits, allowances, provincial and federal taxes in force at this date”. In the instructions to bidders, Article 9.1, which formed part of the specifications index, Article 9, Taxes, Federal and Provincial Taxes are to be included, and then the matter of taxes is amplified on page 17 of the application Record under Article 3, Taxes and Duties, under terms of payment. Article 3.1 reads:

3.1 The Contractor shall pay the government sales taxes, customs duties and excise taxes with respect to the Contract.

3.2 Any increase or decrease in net tax value to the Contractor due to changes in such taxes and duties after the date of the tender shall increase or decrease the Contract Price accordingly.

In this case, we are only concerned with federal sales tax.

Although the contract was signed in 1988, work had begun on the Centre by late '87 and the applicant/contractor had made applications for nine different refunds beginning March 1, 1988, and ending on February 13, 1989, which totalled $237,101.99. On November 11, 1988, the respondent/owner belatedly sent a direction to the applicant/contractor asking that a direction be signed authorizing that the refunds be forwarded to it, but when the contractor refused to do so, the hospital simply deducted the sum of $292,382, (which was the estimate of the total sales tax exemption) from the $413,000 progress payment, and this application is to decide the entitlement to the deductions.

Briefly, the Excise Tax Act, R.S.C. 1970, c. E-13, together with the Regulations under the Excise Tax Act, determines how refunds should be handled. Briefly, there are four ways to deal with the tax. First, the contractor purchases the goods, pays the tax and sells to the exempt institution, providing the contractor applies within a two-year period. That was done here. Or, alternatively, the contractor pays the tax and has the right to the refund. This is section 44.2 of the Act. By subsection 44.25(2) of the Act, the hospital can pay the tax and apply to Revenue Canada for rebate if done within two years and, alternatively, the hospital can make a purchase and claim exemption and there would be no refund.

It was only the contractor who could apply to Revenue Canada because the contractor purchased the supplies and, hence, the assignment which the owner requested. But it would appear that only the one who pays the tax can apply for the refund, was Mr. Hewitt's contention.

Both counsel claim that the contract is clear and unambiguous. It was Mr. Hewitt's interpretation that the contractor on reading the contract realizes that he will get the refunds and he adjusts his bidding price accordingly. Mr. Kelly argued that, equally, the contract is clear and unambiguous, that the hospital is entitled to the moneys, that the precise figures include federal taxes and if included in price, the hospital was paying for it in the contract price. He says the excise tax legislation doesn't change anything and it does not suggest that the parties cannot freely contract in terms of the rebate. There is no conflict therefore with the legislation which is simply procedural insofar as obtaining the refund is concerned. Mr. Kelly finally says that this is a clear case of unjust enrichment of the contract.

Counsel have supplied me with dictionary definitions of what "clear" and “unambiguous” mean. I agree with both counsel that the wording of the contract is clear and it is unambiguous and, consequently, the admission of parol evidence in documentary form in this particular case is unnecessary.

It was incumbent upon the contractor to pay the federal taxes. He did so. The contract is silent about the refund, but if the owner/hospital had wanted the refund paid to it, it could have easily so stated because it was it who drew the contract and would not permit any alterations therein.

The learned authors of Goff and Jones, The Law of Restitution, 1966, say this about unjust enrichment:

This principle pre-supposes three things. First that the defendant has been enriched by the receipt of a benefit; secondly that he has been so enriched at the plaintiff's expense, and thirdly that it would be unjust to allow him to retain the benefit.

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There is no doubt that the contractor is in a windfall position, but the second condition that he has been so enriched at the plaintiff's (here, owner's) expense is not applicable. The owner has not coughed up the money. He just did not receive the rebate.

In the result, the tax refunds may be retained by the applicant and I give a declaration to this effect. I therefore give him judgment for the full amount of the tax refund, but under the circumstances, do not allow any prejudgment interest, although I grant the applicant its costs to be taxed.

Application granted.