Air Canada v. British Columbia, [1989] 1 S.C.R. 1161
Air Canada and Pacific Western Airlines Ltd. Appellants
v.
Her Majesty The Queen in Right of
the Province of British Columbia and
the Attorney General of British Columbia Respondents
and
The Attorney General for Ontario,
the Attorney General of Quebec,
the Attorney General of Nova Scotia,
the Attorney General for New Brunswick,
the Attorney General of Manitoba,
the Attorney General for Saskatchewan,
the Attorney General for Alberta,
and the Attorney General of Newfoundland Interveners
and between
Her Majesty The Queen in Right of
the province of British Columbia and
the Attorney General of British Columbia Appellants
v.
Air Canada, Pacific Western Airlines Ltd.
and Canadian Pacific Airlines Ltd. Respondents
and
The Attorney General for Saskatchewan Intervener
indexed as: air canada v. british columbia
File Nos.: 20079, 20082, 20085.
1988: June 8, 9, 10; 1989: May 4.
Present: Beetz, McIntyre, Lamer, Wilson, Le Dain*, La Forest and L'Heureux‑Dubé JJ.
on appeal from the appeal court for british columbia
Taxation -- Provincial powers -- Tax levied first purchaser of gasoline following manufacture -- Tax amended to apply to purchaser ultimately consuming gasoline -- Airlines involved in interprovincial and international service taxed for fuel purchases in province -- Whether or not original tax ultra vires the province -- Whether or not amended tax ultra vires the province -- If so, whether or not taxes paid by mistake under ultra vires statute refundable -- Whether or not taxes contrary to s. 7 Charter right to liberty ‑‑ If so, whether or not taxes justified under s. 1 -- Gasoline Tax Act, 1948, R.S.B.C. 1960, c. 162, s. 25(1), (2), (3), (4), (5) -- Miscellaneous Statutes Amendment Act, 1976, S.B.C. 1976, c. 32, s. 7 -- Constitution Act, 1867, ss. 91(2), 92(2), (10)(a) -- Canadian Charter of Rights and Freedoms, ss. 1, 7.
Statutes -- Retroactive operation -- Taxing statutes -- Ultra vires taxing provision amended -- Amendment providing for retroactive operation of amendment -- Whether or not retroactive application of taxing provision ultra vires the province -- Finance Statutes Amendment Act, 1981, S.B.C. 1981, c. 5, s. 20.
In 1980, Air Canada, Pacific Western Airlines and Canadian Pacific Airlines commenced separate actions (which were heard together) against British Columbia, seeking the reimbursement of amounts paid as "gasoline taxes" under the Gasoline Tax Act in effect on and following August 1, 1974. (A fiat was no longer necessary to sue the provincial Crown from August 1, 1974.) Air Canada and Pacific Western Airlines sought to recover the taxes paid between August 1, 1974 and the date of trial. Canadian Pacific Airlines' claim was limited to the taxes paid between August 1, 1974 and July 1, 1976.
The Act, as it stood on August 1, 1974, taxed every purchaser on all gasoline sold in the province for the first time after its manufacture in, or importation into, the province. The Act remained in this form until 1976 even though the Privy Council had struck down a similar provision for not being a direct tax within s. 92(2) of the Constitution Act, 1867. The definition of "purchaser" was repealed and replaced in July 1976. "Purchaser" was defined to mean any person who, acting for himself or as agent, bought or received delivery of gasoline within the province for his or her own use or consumption. In 1981, legislation was enacted purporting to extend the application of legislation similar to that enacted in 1976 back to August 1, 1974. This legislation also purported to legalize the Crown's retention of the money collected from 1974 to 1976 under the Act as it then stood: moneys collected as taxes, penalties or interest under the Act during that period were to "be conclusively deemed to have been confiscated by the government without compensation".
Air Canada and Pacific Western Airlines alleged that none of the definitions made the tax a direct tax in the province for provincial purposes so as to give the province jurisdiction under s. 92(2) of the Constitution Act, 1867. All three airlines contended that, even if the 1976 version of the statute were constitutional, they were still entitled to be reimbursed for moneys paid between 1974 and 1976 because the 1981 attempt to give the 1976 tax retroactive effect was invalid.
At trial the province conceded that the Act as it existed before 1976 was ultra vires, but the 1976 Act was held to be valid. The 1981 legislation to give the tax retroactive effect, however, was found to be ultra vires. The airlines were therefore entitled to recover taxes paid between 1974 and 1976 but not the taxes paid after 1976.
The Court of Appeal dismissed the appeal by Air Canada and Pacific Western Airlines on the issue of their liability after 1976. The Attorney General cross‑appealed against Air Canada and Pacific Western Airlines and appealed against Canadian Pacific Airlines on the issue of the province's liability to repay the taxes collected between 1974 and 1976. The Court of Appeal, by majority, dismissed the Crown appeals. Appellants were granted leave to appeal to this Court.
The constitutional questions before this Court queried: (1) if the Gasoline Tax Act, as amended in 1976 and 1981, was ultra vires in its application or otherwise constitutionally inapplicable to the airlines here; (2) whether the application of the Gasoline Tax Act to the airlines violated s. 7 of the Canadian Charter of Rights and Freedoms; and (3) if so, whether its application was justified under s. 1.
Held (Wilson J. dissenting in part): The appeal by Air Canada and Pacific Western Airlines should be dismissed, the Crown's cross‑appeal against them should be allowed and the Crown's appeal against Canadian Pacific Airlines should be allowed. As to the first constitutional question, the Gasoline Tax Act, as it existed in 1974, was constitutionally invalid, but the amendments of 1976 and 1981 were valid. The second constitutional question should be answered in the negative; the third did not need to be answered.
Per Lamer, La Forest and L'Heureux‑Dubé JJ.: The Crown could not rely on the Act as it existed in 1974 to justify collection or retention of the taxes levied between 1974 and 1976. The Act could not be "read down" so as to apply only to persons who purchased gasoline for their own use or consumption as it was in practice applied.
The 1976 tax met the requirements of s. 92(2) of the Constitution Act, 1867: it was a direct tax, imposed in the province and for provincial purposes. A direct tax is one demanded from the very person who it is intended or desired should pay it. The 1976 Act clearly taxed the ultimate consumer of the gasoline and made no provision for passing it on to others, whatever the opportunities of recouping it by other means. The transaction attracting the tax took place in the province and the purchaser had a sufficient presence in the province to be taxed there. Nothing in the Constitution Act, 1867 requires that the taxpayer must benefit from the tax. A person, a transaction or property in the province may be taxed by the province if taxed directly.
The Act did not impose a consumption tax and references to consumption or use in the definition of purchaser merely defined the taxpayer. Since the tax was imposed in the province in respect of the purchase of gasoline, it did not matter where it was consumed, whether in airspace or in another province. That the tax could have an effect on persons outside the province was of no consequence.
The Charter right to "life, liberty or security of the person" could not be invoked here. The airlines were required to pay taxes in the same way as other purchasers of gasoline within the province. An ordinary tax like the one at issue could not be equated with expropriation.
Federal jurisdiction over trade and commerce (s. 91(2)), interprovincial undertakings (s. 92(10)(a)) and aeronautics was not violated by the 1976 Act. Any alleged violation of the trade and commerce power would be based on the impugned tax's being characterized as a consumption tax on the airlines' fuel. The federal power over interprovincial undertakings and aeronautics did not create an immunity for the airlines from otherwise valid provincial legislation. By and large federal undertakings, like other private enterprises functioning within the province, must operate in a provincial legislative environment, and must like them pay provincial taxes imposed within the province.
The words of the 1976 Act clearly indicated that the Legislature meant to give effect to the whole of the statute in its amended form from the date of its enactment. The argument that the 1976 Act was invalid because the Legislature could not amend an ultra vires statute so as to make it intra vires was without merit.
The taxing provisions of the 1981 legislation, like the 1976 legislation, were a proper exercise of the province's power to impose direct taxation in the province. The sole difference was that the 1981 provisions were given retroactive effect -- a result that was not constitutionally barred. The tax illegally collected under the ultra vires provision before 1976 would be equal to the amount levied in 1981 and the moneys owing by the taxpayers under the 1981 provision was simply to be taken out of the equal amounts collected from those taxpayers under the invalid tax. The subsection which referred to "confiscation" was nothing more nor less than machinery for collecting the taxes properly imposed in the other subsections and accordingly could not taint their constitutionality.
The 1981 legislation does not violate the principle enunciated in Amax Potash Ltd. v. Government of Saskatchewan, [1977] 2 S.C.R. 576. Amax concerned a situation where the province sought to avoid repaying a tax it was bound by law to pay. It simply sought in an indirect way to give effect to an invalid statute. Here the Legislature did directly what it was empowered to do -- impose a direct tax and give it retroactive effect.
The argument that, apart from the 1981 Act, the airlines could not recover on the basis that the tax was paid under a mistake of law (the "mistake of law" rule) could not succeed. The rule was rejected as having been constructed on inadequate foundations as lacking in clarity and resulting in undue harshness. It should not in any event be extended to the constitutional plane. The development of the law of restitution had rendered otiose the distinction between mistakes of fact and mistakes of law. It should play no part in the law of restitution. Recovery should generally be allowed in any case of enrichment at the plaintiff's expense caused by a mistake, subject to any available defences or equitable reasons for denying recovery. Restitution should apply against public bodies as well as to private individuals.
Restitutionary principles, however, preclude recovery where the plaintiff has suffered no loss. If the taxing authority retains a payment to which it was not entitled, it will be unjustly enriched but not at the taxpayer's expense if the economic burden of the tax has been shifted to others. Generally, it is preferable to leave the enrichment with the tax authority instead of putting the judicial machinery in motion for the purpose of shifting the same enrichment to the taxpayer. The law of restitution is not intended to provide windfalls to plaintiffs who have suffered no loss. Rather, 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 taxpayer's expense. The taxpayer must show that it bore the burden of the tax to make out its claim. What the province received was relevant only in so far as it was received at the taxpayer's expense.
Apart from this, while the principles of unjust enrichment can operate against a government to ground restitutionary recovery, where the effect of an unconstitutional or ultra vires statute is in issue, special considerations operate to take the case out of the normal restitutionary framework and require a rule responding to the underlying policy concerns specific to this problem. The rule is against recovery of ultra vires taxes, at least in the case of unconstitutional statutes. The policies that underlie this rule are numerous. Chief 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. It could lead to fiscal chaos, particulary where a long-standing taxation measure is involved. The tax here is of broad general application and has been imposed for decades.
Exceptions may exist where the relationship between the state and a particular taxpayer results in the collection of tax which would be unjust or oppressive in the circumstances. The present case does not, however, call for a departure from the general rule. The tax, though unconstitutional, raised an issue bordering on the technical. Had the statute been enacted in proper form there would have been no difficulty in exacting the tax as actually imposed. Nor was there compulsion. Payment under an ultra vires statute does not constitute "compulsion". Before a payment will be regarded as involuntary there must be some natural or threatened exercise of power possessed by the party receiving it over the person or property of the taxpayer for which he has no immediate relief than to make the payment. Finally, the fact that the province may have been in a better position to determine that the statute was unconstitutional does not affect the rule. The policy reasons underlying it remain.
The rule against the recovery of unconstitutional and ultra vires levies is an exceptional rule, and should not be construed more widely than is necessary to fulfil the values which support it. The rule should not apply where a tax is extracted from a taxpayer through a misapplication of the law. Where an otherwise constitutional or intra vires statute or regulation is applied in error to a person to whom, on its true construction, it does not apply, the general principles of restitution for money paid under a mistake should be applied, and, subject to available defenses and equitable considerations, the general rule should favour recovery. No distinction should be made between mistakes of fact and mistakes of law.
Per Beetz J.: While agreeing with the reasons and conclusions of La Forest J., it is not necessary to deal with the "Mistake of Law" defence or to express any opinion thereon with respect to private law or public law and with respect to the recovery of taxes levied pursuant to an unconstitutional statute because the new Gasoline Tax Act was valid in its entirety. If the rule should be against the recovery of ultra vires taxes, at least in the case of unconstitutional taxes, this rule should not extend to cases of error in the application of the law.
Per McIntyre J.: The reasons for judgment of La Forest J. were agreed with, subject to the qualifications expressed by Beetz J.
Per Wilson J. (dissenting in part): British Columbia's Gasoline Tax Act, as it existed in 1974, was ultra vires the province and could not be relied upon by the Crown to justify the collection or retention of the taxes levied against the appellants between 1974 and 1976. The unconstitutional aspects were remedied by amendment made in 1976. However, in 1981, the province through the imposition of a retroactive tax and the confiscation of the taxes paid between 1974 and 1976 attempted unsuccessfully to give effect to the earlier unconstitutional legislation in violation of principles already stated by this Court.
Appellants' claim for repayment is not defeated by the doctrine of mistake of law which should not be extended to moneys paid under unconstitutional legislation. Otherwise, taxpayers would be obliged to check out the constitutional validity of taxing legislation before paying on pain of being unable to recover anything paid under unconstitutional laws. The appellants were entitled to rely on the presumption of validity of the legislation and on the representation as to its validity by the legislature enacting and administering it.
Payments made under unconstitutional legislation are not "voluntary" in a sense which should prejudice the taxpayer. The taxpayer, assuming the validity of the statute which it is entitled to do, considers itself obligated to pay. 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.
Payments made under a statute subsequently found to be unconstitutional should be recoverable and the principle should not be reversed for policy reasons in the case of payments made to governmental bodies. If any judicial policy were to be developed, that policy should be one which distributes the loss fairly across the public. The loss should not fall on the totally innocent taxpayer who paid what the legislature improperly said was due.
The appellants were not required to show that the unjust enrichment of the province was at their expense. The argument that their receipt of the money back amounted to a "windfall" because in all likelihood they had recouped it from their customers is no basis on which to deny recovery. Where payments are made pursuant to an unconstitutional statute there is no legitimate basis on which they can be retained.
Section 7 of the Canadian Charter of Rights and Freedoms had no application to this case for the reasons given by La Forest J.
Cases Cited
By La Forest J.
Considered: Hydro Electric Commission of Nepean v. Ontario Hydro, [1982] 1 S.C.R. 347; distinguished: Amax Potash Ltd. v. Government of Saskatchewan, [1977] 2 S.C.R. 576; referred to: Air Canada v. British Columbia (Attorney General), [1986] 2 S.C.R. 539; Attorney-General for British Columbia v. Canadian Pacific Railway Co., [1927] A.C. 934; Attorney-General for British Columbia v. Kingcome Navigation Co., [1934] A.C. 45; Marine Petrobulk Ltd. v. R. in right of B.C. (1985), 64 B.C.L.R. 17; Bank of Toronto v. Lambe (1887), 12 A.C. 575; R. in right of Manitoba v. Air Canada, [1980] 2 S.C.R. 303; Atlantic Smoke Shops, Ltd. v. Conlon, [1941] S.C.R. 670; Braniff Airways, Inc. v. Nebraska State Board of Equalization and Assessment, 347 U.S. 590 (1954); Reference re the Employment and Social Insurance Act, [1936] S.C.R. 427; Attorney-General for Canada v. Attorney-General for Ontario, [1937] A.C. 355; United Air Lines, Inc. v. Mahin, 410 U.S. 623 (1973); Edelman v. Boeing Air Transport, Inc., 289 U.S. 249 (1933); Delta Air Lines Inc. v. Department of Revenue, 455 So.2d 317 (1984 Fla.), cert. denied 474 U.S. 892 (1985); Reference re Upper Churchill Water Rights Reversion Act, [1984] 1 S.C.R. 297; Campbell‑Bennett Ltd. v. Comstock Midwestern Ltd., [1954] S.C.R. 207; Commissioner for Motor Transport v. Antill Ranger & Co., [1956] A.C. 527; Norton v. Shelby County, 118 U.S. 425 (1886); Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan, [1978] 2 S.C.R. 545; Reference re Manitoba Language Rights, [1985] 1 S.C.R. 721; R. v. Mercure, [1988] 1 S.C.R. 234; Vancouver Growers Ltd. v. G. H. Snow Ltd., [1937] 3 W.W.R. 121; Glidurray Holdings Ltd. v. Qualicum Beach (1981), 31 B.C.L.R. 82; The King v. National Trust Co., [1933] S.C.R. 670; R. v. Williams, [1942] A.C. 541; Lovitt v. The King (1910), 43 S.C.R. 106; Bilbie v. Lumley (1802), 2 East 469, 102 E.R. 448; Coleman v. Inland Gas Corp., 21 S.W.2d 1030 (1929); Mercury Machine Importing Corp. v. City of New York, 144 N.E.2d 400 (1957); United States v. Butler, 297 U.S. 1 (1936); Kiriri Cotton Co. v. Dewoni, [1960] A.C. 192; A. J. Seversen Inc. v. Village of Qualicum Beach (1982), 135 D.L.R. 122; Maskell v. Horner, [1915] 3 K.B. 106; Lynden Transport Inc. v. R. in Right of British Columbia (1985), 62 B.C.L.R. 314.
By Wilson J. (dissenting in part)
Amax Potash Ltd. v. Government of Saskatchewan, [1977] 2 S.C.R. 576; Bilbie v. Lumley (1802), 2 East 469, 102 E.R. 448; Hydro Electric Commission of Nepean v. Ontario Hydro, [1982] 1 S.C.R. 347.
Statutes and Regulations Cited
Canadian Charter of Rights and Freedoms, ss. 1, 7.
Constitution Act, 1867, ss. 91(2), 92(2), (10)(a)
Finance Statutes Amendment Act, 1981, S.B.C. 1981, c. 5, s. 20.
Fuel‑oil Tax Act, R.S.B.C. 1924, c. 251.
Gasoline Tax Act, 1948, R.S.B.C. 1960, c. 162, s. 25(1), (2), (3), (4), (5).
Miscellaneous Statutes Amendment Act, 1976, S.B.C. 1976, c. 32, s. 7.
Social Service Tax Act, R.S.B.C. 1979, c. 388.
Authors Cited
Birks, Peter. An Introduction to the Law of Restitution. Oxford: Clarendon Press, 1985.
British Columbia. Law Reform Commission. Report on Benefits Conferred Under a Mistake of Law. Victoria: Province of British Columbia, Ministry of the Attorney General, 1981.
Corbin, Arthur Linton. Corbin on Contracts, vol 3. St. Paul: West Publishing, 1960.
Goff of Chieveley, Robert Goff, Baron and Gareth Jones. The Law of Restitution, 3rd ed. London: Sweet and Maxwell, 1986.
Hogg, Peter W. Constitutional Law of Canada, 2nd ed. Toronto: Carswells, 1985.
Kennedy, W. P. M. and D. C. Wells. The Law of the Taxing Power in Canada. Toronto: University of Toronto Press, 1931.
McCamus, John D. "Restitutionary Recovery of Moneys Paid to Public Authority Under a Mistake of Law: Ignorantia Juris in the Supreme Court of Canada" (1983), 17 U.B.C. Law Rev. 233.
Palmer, George E. The Law of Restitution, vol. III. Boston: Little, Brown, 1978.
Pannam, Clifford L. "The Recovery of Unconstitutional Taxes in Australia and in the United States" (1964), 42 Texas L. Rev. 779.
APPEAL and CROSS‑APPEAL from a judgment of the British Columbia Court of Appeal (1986), 4 B.C.L.R. 356, [1986] 5 W.W.R. 385, dismissing the airlines' appeal and dismissing the Crown's cross‑appeal from a judgment of Macdonald J. (1984), 51 B.C.L.R. 175, [1984] 3 W.W.R. 353. The appeal by Air Canada and Pacific Western Airlines Ltd. should be dismissed, the Crown's cross‑appeal against them should be allowed, the Crown's appeal against Canadian Pacific Airlines Ltd. should be allowed, Wilson J. dissenting in part. As to the first constitutional question, the Gasoline Tax Act, as it existed in 1960, was constitutionally invalid, but the amendments of 1976 and 1981 were valid. The second constitutional question should be answered in the negative; the third did not need to be answered.
D. M. M. Goldie, Q.C., W. S. Martin, C. F. Willms and R. G. Berrow, for the appellant Air Canada.
Wendy G. Baker and Peter G. Voith, for the appellants Canadian Pacific Airlines Ltd. and Pacific Western Airlines Ltd.
E. Robert A. Edwards, Q.C., and Joseph J. Arvay, Q.C., for the respondents the Province of British Columbia, et al.
Elizabeth Goldberg and Gerry Sholtack, for the intervener the Attorney General for Ontario.
Michel Jolin, for the intervener the Attorney General of Quebec.
Reinhold M. Endres, for the intervener the Attorney General of Nova Scotia.
Richard P. Burns, for the intervener the Attorney General for New Brunswick.
Dirk Blevins and Stewart J. Pierce, for the intervener the Attorney General of Manitoba.
Robert G. Richards, for the intervener the Attorney General for Saskatchewan.
Howard Kushner, for the intervener the Attorney General for Alberta.
F. Greig Crockett, for the intervener the Attorney General of Newfoundland.
//Beetz J.//
The following are the reasons delivered by
BEETZ J. -- I have had the advantage of reading the reasons for judgment written by my brother Justice La Forest. I agree with his reasons and conclusions. However, since I take the view that the new s. 25 of the Gasoline Tax Act of British Columbia is constitutionally valid in its entirety, I do not find it necessary to express any opinion with respect to the "Mistake of Law" defence, either in private law or in public law, nor with respect to the recovery of taxes levied and paid pursuant to an unconstitutional statute.
Assuming without deciding that my brother La Forest J. is correct in holding that "the rule should be against recovery of ultra vires taxes, at least in the case of unconstitutional statutes", I agree with him that this rule should not extend to a case of misapplication of the law such as the misapplication of the Social Service Tax Act of British Columbia to aircraft, aircraft parts and alcoholic beverages in the related appeals.
I agree with the disposition proposed by my brother La Forest J.
//McIntyre J.//
The following are the reasons delivered by
MCINTYRE J. -- I agree with the reasons for judgment of my brother, Justice La Forest, subject to the qualifications expressed by my brother, Justice Beetz, which I would adopt.
//La Forest J.//
The judgment of Lamer, La Forest and L'Heureux-Dubé JJ. was delivered by
LA FOREST J. -- This judgment deals with the third of a trilogy heard at the same time involving the application and constitutionality of the Social Service Tax Act, R.S.B.C. 1979, c. 388, and the Gasoline Tax Act, 1948, R.S.B.C. 1960, c. 162. Most of the major issues raised regarding the former Act have been dealt with in a separate judgment on the first and second appeals, issued contemporaneously herewith. This judgment deals with the Gasoline Tax Act. However, a number of issues, most importantly the issue whether taxes paid under a mistake of law may be recovered, are common to the second appeal and to this, the third appeal. Since these issues were originally raised and more directly addressed in relation to the Gasoline Tax Act, I have in the interests of clarity and comprehensiveness dealt with them in this judgment.
The principal issues raised in this appeal are:
(1)whether the Gasoline Tax Act of British Columbia, both as originally enacted and as amended over the years, is constitutionally valid under s. 92(2) of the Constitution Act, 1867 as imposing direct taxation within the province in order to the raising of a revenue for provincial purposes;
(2)whether, if the Act as originally enacted was ultra vires, a later amendment can retroactively impose the tax and permit the retention of the amounts unconstitutionally levied before the amendment in settlement of the tax owing under the amendments; and
(3)whether, apart from statute, an unconstitutional tax paid by a taxpayer may be recovered.
Also at issue is whether the tax is invalid or inapplicable, as infringing against the federal powers respecting trade and commerce, aeronautics and interprovincial undertakings, or as violating s. 7 of the Canadian Charter of Rights and Freedoms.
Facts
In 1980, Air Canada, Pacific Western Airlines and Canadian Pacific Airlines commenced actions in the Supreme Court of British Columbia against the Province of British Columbia, seeking the reimbursement of $18 million, $9 million and $3.5 million respectively, which amounts the airlines had paid as "gasoline taxes" under the Gasoline Tax Act, 1948, as amended. The sums claimed by Air Canada and Pacific Western Airlines represented payments made to the province under the Act between August 1, 1974 and the date of trial. Canadian Pacific Airlines' claim was limited to the payments it made in the 23-month period between August 1, 1974 and July 1, 1976. The significance of the August 1, 1974 starting date is that from that date it was no longer necessary to obtain a fiat to sue the provincial Crown. Separate actions for taxes paid prior to 1974 were subsequently launched (see Air Canada v. British Columbia (Attorney General), [1986] 2 S.C.R. 539), but the latter actions do not form the subject matter of this appeal.
The Gasoline Tax Act was originally enacted in 1923, and has since been amended and consolidated on numerous occasions. The relevant provision of the Act as it stood on August 1, 1974 provided that every purchaser shall pay a tax equal to 10 cents per gallon on all gasoline purchased, except gasoline purchased for use in an aircraft, which was taxed at a lower rate. Section 2 defined "purchaser" in these terms:
"purchaser" means any person who within the Province purchases gasoline when sold for the first time after its manufacture in or importation into the Province.
A virtually identical provision in the British Columbia Fuel-oil Tax Act, R.S.B.C. 1924, c. 251, had been struck down by the Privy Council in Attorney-General for British Columbia v. Canadian Pacific Railway Co., [1927] A.C. 934, on the ground that since the initial purchaser could always resell the commodity and thereby pass on the tax, it was not a direct tax within the meaning of s. 92(2) of the Constitution Act, 1867. Oddly enough, though the Fuel-oil Tax Act was shortly afterwards amended so as to impose the tax directly on the consumer, an approach later held by the Privy Council to conform to the constitutional requirements of s. 92(2) (see Attorney-General for British Columbia v. Kingcome Navigation Co., [1934] A.C. 45), no such step was taken in respect of the Act impugned in the present case until 1976. In July of that year, however, by s. 7 of the Miscellaneous Statutes Amendment Act, 1976, S.B.C. 1976, c. 32, the definition of "purchaser" was repealed and replaced by the following:
"purchaser" means any person who, within the Province, purchases or receives delivery of gasoline for his own use or consumption or for the use or consumption by other persons at his expense, or on behalf of, or as an agent for, a principal who is acquiring the gasoline for use or consumption by the principal or by other persons at his expense.
This provision, of course, took effect only from 1976. In 1981, however, the province enacted the Finance Statutes Amendment Act, 1981, S.B.C. 1981, c. 5, which by s. 20 enacted a new s. 25 of the Gasoline Tax Act purporting by ss. 25(1) to (4) to extend the application of the Act, in a form similar to that enacted in 1976, back to August 1, 1974, and by s. 25(5) purporting to legalize the retention by the Crown of the money collected from 1974 to 1976 under the Act as it then stood. Section 25 reads as follows:
25. (1) In this section "purchaser" means any person who, within the Province, after August 1, 1974 and before July 8, 1976, purchased or received delivery of gasoline for his own use or consumption or for the use or consumption by other persons at his expense, or on behalf of or as an agent for a principal who was acquiring the gasoline for use or consumption by the principal or by other persons at his expense.
(2) Every purchaser shall pay to Her Majesty for the purpose of raising revenue for Provincial purposes a tax of 15¢ a gallon on all gasoline purchased by him after August 1, 1974 and before February 28, 1975, but
(a)where gasoline was purchased for use in an aircraft the tax shall be 3¢ a gallon, and
(b)where gasoline in the form of liquefied petroleum gas or natural gas was purchased to propel a motor vehicle the tax shall be 10¢ a gallon.
(3) Every purchaser shall pay to Her Majesty for the purpose of raising revenue for Provincial purposes a tax of 17¢ a gallon on all gasoline purchased by him after February 27, 1975 and before July 8, 1976, but
(a)where gasoline was purchased for use in an aircraft the tax shall be 5¢ a gallon, and
(b)where gasoline in the form of liquefied petroleum gas or natural gas was purchased to propel a motor vehicle the tax shall be 12¢ a gallon.
(4) Where a purchaser is liable to pay tax under subsection (2) or (3) and the gasoline was used or consumed for
(a)the operation of logging trucks other than on public highways,
(b)the operation of a motor vehicle on a public highway by any person who had suffered the loss of a limb, or who was permanently confined to a wheelchair, or who was in receipt of a 100% disability pension through active service in any war while in Her Majesty's service, or
(c)the operation of the power unit of a motor vehicle, while the vehicle was stationary, for any industrial purpose approved by the minister,
the taxes of 17¢ a gallon and 12¢ a gallon shall be reduced to 5¢ a gallon, and the taxes of 15¢ a gallon and 10¢ a gallon shall be reduced to 3¢ a gallon.
(5) Where, after August 1, 1974 and before July 8, 1976, money was collected or purported to have been collected as taxes, penalties or interest under this Act, the money shall by this section be conclusively deemed to have been confiscated by the government without compensation.
Section 62(5) of the Finance Statutes Amendment Act, 1981 makes clear the retroactive character of this provision. It reads:
62. . . .
(5) Section 20 shall be deemed to have come into force on August 1, 1974 and is retroactive to the extent necessary to give it effect on and after that date.
In these three actions, which were heard together, two of the airlines (Air Canada and Pacific Western Airlines) submitted that the province had no jurisdiction to levy these taxes under any of the various statutory definitions of "purchaser", as none of those definitions made the tax a direct tax in the province for provincial purposes as required by s. 92(2) of the Constitution Act, 1867. All three airlines contended that, even if the 1976 version of the statute were constitutional, the airlines were still entitled to be reimbursed for moneys paid between 1974 and 1976 because the 1981 attempt to give the 1976 tax retroactive effect was invalid. In fact, it appears that the province has already reimbursed the airlines, and it is the province that is seeking recovery.
The Courts Below
At trial, counsel for the Attorney General conceded that the Act as it stood on August 1, 1974, was ultra vires, given the Privy Council's decision in Attorney-General for British Columbia v. Canadian Pacific Railway Co., supra, but he maintained that the province was entitled to retain the money collected during the 1974-1976 period by virtue of (1) the 1981 amendment, which gave the 1976 definition retroactive effect, and (2) common law defences.
In light of this concession, it was only necessary for the trial judge, B. D. Macdonald J., to deal with the validity of the statutes of 1976 and 1981 ‑- see (1984), 51 B.C.L.R. 175. Turning to the 1976 statute, more specifically, to the question whether the definition of "purchaser" in that statute cured the defect in the previous definition and rendered the tax from 1976 onwards a direct tax within the province pursuant to s. 92(2) of the Constitution Act, 1867, Macdonald J. concluded that it did. In his view, the 1976 definition disclosed that the nature of the tax was a purchase or transaction tax. Such a tax was direct because it was levied upon a person who purchased gasoline for his own use or consumption. It was also imposed within the province. So long as purchase or delivery took place within the province, the tax applied, and the place of use or consumption was irrelevant. The Constitution Act, 1867 did not require consumption within the province when what the province intended to tax was a transaction within the province.
Macdonald J. summarily rejected attacks on the validity of the 1976 amendment based on arguments (1) that for a provincial tax to be valid it must be collected from those who can receive a benefit, and that the airlines could not receive any benefit; and (2) that the Act impaired the airlines' capacity as a federal undertaking to carry on business in the province. He also rejected the argument that a province cannot amend an ultra vires statute so as to cure the defect that rendered it invalid. As he put it at p. 184, "If the province has the power to impose this tax by re-enacting the whole Act, I find it difficult to accept the proposition that it cannot do so by amending the single definition which makes it invalid."
Macdonald J. then considered the validity of s. 25 of the Finance Statutes Amendment Act, 1981. He read that provision as purporting to do two things: (a) as imposing, by ss. 25(1) to (4), a fresh tax on any person who, between August 1, 1974 and July 8, 1976, purchased or received delivery of gasoline in the province for his own use or consumption; and (b) as providing, by s. 25(5) that money collected as taxes between August 1, 1974 and July 8, 1976, "shall . . . be conclusively deemed to have been confiscated by the government without compensation."
So far as the fresh tax was concerned, Macdonald J. held that since the tax was direct, there was no impediment to enacting it retroactively. In his view, the airlines' reliance on this Court's decision in Amax Potash Ltd. v. Government of Saskatchewan, [1977] 2 S.C.R. 576, (hereinafter Amax), to challenge the validity of this new tax was misplaced. In the present case, a fresh tax was being levied retroactively pursuant to a valid re-enactment. Amax applied to a situation where there was no consitutional basis for the impugned legislation. It did not apply to invalidate a taxing statute where there is a constitutional power to enact such a measure provided it is done in proper form, as in the present cases. Sections 25(1) to (4) were, therefore, valid, and each of the airlines was in consequence obliged to pay a fresh tax pursuant to these provisions.
Macdonald J., however, found s. 25(5) ultra vires. It purported to confiscate taxes paid pursuant to the ultra vires legislation and, therefore, fell within the reasoning in Amax. He recognized that the province might well be in a position to set off the liability of the airlines arising under ss. 25(1) to (4) against its obligation to repay taxes improperly collected under the Act as it existed between 1974 to 1976, but, he stated, that matter was not before him.
The airlines, therefore, succeeded in their claims that they were entitled to recover taxes paid between 1974 and 1976. However, they were not entitled to recover taxes paid after 1976.
Air Canada and Pacific Western Airlines appealed to the British Columbia Court of Appeal on the issue of their liability after 1976. As already noted, Canadian Pacific Airlines had not disputed this liability. The appeals were unanimously dismissed. The Attorney General cross-appealed against Air Canada and Pacific Western Airlines, and appealed against Canadian Pacific Airlines on the issue of the province's liability to repay the taxes collected between 1974 and 1976. In separate judgments, the Court of Appeal (Hinkson and Lambert JJ.A., Esson J.A. dissenting) dismissed the Crown appeals -‑ see (1986), 4 B.C.L.R. 356.
Hinkson J.A. noted that, as a result of the British Columbia Court of Appeal decision in Marine Petrobulk Ltd. v. R. in right of B.C. (1985), 64 B.C.L.R. 17, the airlines did not advance the submission that the trial judge erred in concluding that the 1976 definition of "purchaser" rendered the tax a direct tax within the province as required by s. 92(2) of the Constitution Act, 1867. He rejected the submission that the tax was, as the airlines argued, a "consumption tax" and in consequence invalid because 99% of the fuel was consumed outside the province (since the airspace over a province is not a situs for provincial taxation). In his view the tax was a purchase tax. It was directed to a person within British Columbia who purchased gasoline with the intention of consuming it. The Legislature was not concerned, and need not be concerned with where the person consumed the gasoline purchased. For this reason, he dismissed the airlines' appeals.
Lambert J.A. reached the same conclusion. In his view, the Act as amended in 1976, taken as a whole, imposed a tax either on the transaction of purchase for the purpose of consumption, or on a person who purchased goods for the purpose of consumption. The qualification that the purchase must be for the purchaser's own use or consumption was a condition of the application of the tax, as was the fact that the purchase must take place within the province, but those conditions did not affect the true incidence of the tax, which was directed at the transaction of purchase for consumption, or at a purchaser who bought for the purpose of consumption.
Esson J.A. concluded, for substantially the same reasons as given by Hinkson J.A., that the 1976 definition of "purchaser" in the Gasoline Tax Act rendered the statute constitutional. In his opinion, the statute limited the incidence of the tax to those who purchase or receive gasoline for their own use or consumption. The purpose of that limitation was to ensure that the tax would have no tendency to be passed on; the limitation did not make the imposition a tax on consumption.
On the cross-appeal by the Attorney General against the direction that the moneys paid between 1974 and 1976 must be repaid, counsel for the Attorney General conceded the invalidity of s. 25(5) of the Finance Statutes Amendment Act, 1981 in light of the Amax decision, but submitted that this provision should be severed from the remainder of s. 25, leaving ss. 25(1) to (4) as a valid retroactive tax.
Though they arrived at the same conclusion, the two majority judges differed in their views on this issue. Hinkson J.A. concluded that it was wrong to read s. 25 as imposing both a "fresh tax" and then confiscating tax money already collected. The tax having been imposed retroactively in ss. 25(1) to (4), s. 25(5) made it clear that its payment was to be made by confiscating the moneys already paid. Section 25(5) was therefore integral to the scheme, and once it was conceded that it was invalid, ss. 25(1) to (4) would also fall. The provisions could not be severed since the Legislature would not have enacted them without also enacting s. 25(5). Section 25(5), which gave purpose and meaning to the rest of the section, so tainted the remainder of s. 25 that the whole section was ultra vires. The other majority judge, Lambert J.A., agreed with the trial judge that while s. 25(5) was ultra vires, ss. 25(1) to (4) were severable and constituted a valid retroactive tax, not a colourable attempt to retain moneys paid to the Crown under an unconstitutional taxing statute. They did not amount to a legislative confiscation of taxes under an ultra vires statute forbidden under the principle in Amax. He, therefore, upheld the trial judge's conclusion that these provisions were constitutional, but refrained from expressing any opinion about the effectiveness or enforceability of the tax and dismissed the cross-appeal. Lambert J.A.'s view left open the possibility that the province might validly collect the tax.
In the Court of Appeal, the province also argued that it was not required to repay the tax collected because of the operation of the common law rules regarding "mutual mistake of law" and "voluntary payment of tax". After reviewing the evidence, Hinkson J.A. found that from 1927 onwards, the province was aware that the tax was unconstitutional, while the airlines did not suspect this until they decided to challenge the legislation. These findings refuted the suggestions that there was a mutual mistake of law and that during the period in question the payments made by the airlines were made voluntarily knowing that the tax was unconstitutional.
Hinkson J.A. also rejected the contention that the parties were in pari delicto, i.e., that if the province was to blame for imposing the tax, the airlines were equally to blame for paying it. While he could not, he stated, on the evidence conclude that Air Canada had acted under practical compulsion in paying the tax, as Hydro Electric Commission of Nepean v. Ontario Hydro, [1982] 1 S.C.R. 347 (hereinafter Nepean), required, he distinguished that decision on the basis that it was not a constitutional case. He then relied on this Court's judgment in Amax for the proposition that, in a federal state, the Crown cannot engage in an ultra vires exercise of power by way of taxation and then call in aid either legislation enacted by it or common law rights to retain the proceeds of that taxation. He, therefore, concluded that the province could not retain the moneys paid during the period in question. He did, however, leave open the possibility that the Crown could impose a fresh retroactive tax.
Lambert J.A., too, found that even if the common law principles applicable to recovery of taxes would preclude restitution, they must be subject to a constitutional exception. If money taxed under an ultra vires statute could be retained, the Constitution would be flouted. Thus, the Nepean and Amax cases were perfectly reconcilable. In his view, payment pursuant to an ultra vires statute amounted to irresistible practical compulsion even in the absence of protest or complaint by the taxpayer. He was also of the view that retention by the Crown of taxes collected under an ultra vires statute would be ultra vires.
Esson J.A. dissented on the cross-appeal. In his view the trial judge erred in holding that the province must repay the airlines the taxes paid by them prior to July 1, 1976. The salient fact upon which he based that conclusion arose from the decision on the main appeal that the airlines were in the same position as all others who purchased fuel within British Columbia for their own consumption. Before July 1976, although the tax was imposed under an invalid statute, it was in essence the same tax as the present one. Then, as now, it was imposed "at the pump", i.e., at the point of purchase for consumption. The statute was, until 1976, ultra vires the province because it authorized a tax in terms that could have resulted in its being passed on to others. It was capable of being indirect and, therefore, was indirect. But the moneys the airlines now seek to recover were not paid by them in satisfaction of an indirect tax. As actually administered, the tax was within the powers of the province. In that sense, the defect was one of constitutional form rather than substance.
Esson J.A. disagreed with the view that Amax stands for the proposition that any money paid as taxes under a statute later held to be ultra vires can never be retained, and that private law considerations such as were relied upon in Nepean are irrelevant. Rather, Amax simply stood for the proposition that an attempt by a legislature to enact a statute barring access to the courts would be struck down as attempting by covert means to impose illegal burdens. Amax held that fundamental principles of federalism preclude a province from barring access to the general law where the issue is whether the province has exceeded its powers and whether, if it has, the taxpayer is entitled to a remedy. However, where the legislature has not created such a bar, there is no reason why the province should not be able to rely on ordinary principles of justice and fairness in defending itself against a taxpayer's claim for repayment of moneys. The airlines should be entitled to recover only if they could satisfy the requirements of the action for money had and received which are rooted in principles of justice and equity.
In these cases, the requirements of common law principles were not met. The mistake is one of law, not fact. The in pari delicto exception had no application. There was no duress or compulsion in the collection of the tax. Moreover, even if there was practical compulsion, it would not be unjust to permit the Crown to keep the money, since the money collected was clearly within the province's competence to tax. The province received no benefit, and the taxpayer suffered no detriment not authorized by the Constitution. It could not be suggested that if the province retained this money, it would be unjustly enriched. Rather, it is the airlines who, if successful, would obtain a windfall.
Esson J.A. therefore would have allowed the cross-appeal and dismissed the airlines' action for recovery of the taxes paid.
The Appeal to this Court
Leave to appeal to this Court was then sought and was granted on all issues. These issues included two not argued before the courts below, namely, whether the impugned statute as it existed in 1974 was constitutionally valid, and whether its application in the circumstances of this case contravened s. 7 of the Canadian Charter of Rights and Freedoms. The following constitutional questions were stated:
1.Is the Gasoline Tax Act, R.S.B.C. 1960, c. 162, as amended by S.B.C. 1976, c. 32 and as subsequently amended, ultra vires in its application or otherwise constitutionally inapplicable to Air Canada in the circumstances of this case?
2.Does the application of the Gasoline Tax Act to Air Canada in the circumstances of this case violate s. 7 of the Canadian Charter of Rights and Freedoms?
3.If so, is its application justified on the basis of s. 1 of the Canadian Charter of Rights and Freedoms?
The Attorneys General of the following provinces intervened to make submissions regarding the constitutional questions: Ontario, Quebec, Nova Scotia, New Brunswick, Manitoba, Saskatchewan, Alberta and Newfoundland.
I propose to deal with the issues in terms of the impugned Act as it existed at the relevant dates.
The Act in 1974
As already described, the Gasoline Tax Act as it existed in 1974 was, in its relevant aspects, substantially the same as it had been at the time of its original enactment in 1923. It imposed a tax on a purchaser of gasoline when it was sold for the first time after its manufacture in, or importation into the province. Since the Privy Council in Attorney-General for British Columbia v. Canadian Pacific Railway Co., supra, had, we saw, found a similar provision to be ultra vires on the ground that the tax imposed by it was not direct as required by s. 92(2) of the Constitution Act, 1867, because it was capable of being passed on to subsequent purchasers, counsel for the Attorney General of British Columbia in the courts below refrained from arguing the validity of the tax imposed under the Act as it existed in 1974. In this Court, however, counsel invited us to review the C.P.R. case and to hold that the tax had been valid from its inception. He asked us to "read down" the Act so that it would apply only to persons who purchase the gasoline for their own use or consumption as it was in practice applied. He observed that the Privy Council in the C.P.R. case did not expressly advert to this possibility. However, since counsel squarely raised the issue in that case (see supra, p. 935), the Privy Council must have found it unnecessary to deal with it expressly. In my view, it quite correctly rejected this argument sub silentio. The words of the statute were clear and it is not for the courts to look for outside evidence of how an Act is applied in practice to determine its constitutional validity. This could lead to finding a statute in one province valid, while holding an identical statute in another province invalid if the circumstances to which it was applied were different. It is not for the courts to redraft statutes, particularly taxation statutes. Even if it were, I do not think it would be appropriate after over sixty years to overrule a case that not only constitutes a distinct step in the development of the definition of direct taxation, but that has been repeatedly cited and relied upon by the courts since it was decided.
The Act as it existed in 1974 cannot, therefore, be relied upon by the Crown to justify collection or retention of the taxes levied between 1974 and 1976.
The 1976 Act -‑ the s. 92(2) Arguments
The principal attack on the validity of the 1976 Act was that it did not conform to the requirements of s. 92(2) of the Constitution Act, 1867. Thus, it was argued, the tax imposed was not a direct tax; it was not imposed in the province; and it was not for provincial purposes, each of which conditions is required by s. 92(2). All of these submissions were rejected, rightly in my view, by the courts below.
That the tax is a direct tax I have no doubt. Since at least Bank of Toronto v. Lambe (1887), 12 A.C. 575 (P.C.), the generally accepted test of what constitutes a direct tax has been that of John Stuart Mill: "A direct tax is one which is demanded from the very persons who it is intended or desired should pay it." That person is clearly identified in the definition in the 1976 Act as the ultimate consumer of the gasoline; there is no passing on of the tax to others, whatever may be the opportunities of recouping the amount of the tax by other means (a very different thing). Whether one chooses to call it a transaction tax or a tax against the purchaser does not affect this simple reality. However important it may be to distinguish between taxes on persons, property or transactions for the purpose of determining whether a tax is imposed in the province, the relevant inquiry in determining whether the tax is direct or indirect is generally whether it conforms to the test just quoted (see Kennedy and Wells, The Law of the Taxing Power in Canada, at p. 61). In some cases, it is true, the courts have decided the latter question on the basis of a "categories" test, but that is irrelevant here.
I have no doubt either that the tax is imposed in the province. It is imposed on a purchaser of gasoline and a purchaser is defined as "any person who, within the Province, purchases or receives delivery of gasoline for his own use or consumption . . . ." Whether the tax is viewed as one on a transaction (the purchase) or on a person (the purchaser) does not matter for this purpose either. The purchase must obviously take place in the province and the purchaser has a sufficient presence in the province to be taxed there.
The airlines argued that the tax was a tax on the consumption of gasoline. Since most of that consumption, so far as the airlines were concerned, was in the airspace, which falls outside the province (see R. in right of Manitoba v. Air Canada, [1980] 2 S.C.R. 303), the tax was imposed outside the province. I cannot agree with this contention. The Act clearly does not impose a consumption tax. The references in the definition to consumption or use merely define the taxpayer, i.e., a purchaser who buys gasoline for his own use. Since the tax is imposed in the province in respect of the purchase of gasoline, it does not matter where the gasoline is consumed, whether it is in the airspace or in another province. The passing reference by Taschereau J. in Atlantic Smoke Shops, Ltd. v. Conlon, [1941] S.C.R. 670, at p. 717, to the fact that only in exceptional cases will tobacco (the subject matter of the tax there) be consumed outside the province, in no way detracts from this.
There may, I suppose, be cases where a tax, though in form a purchase tax within the province, might, in essence, be a tax on consumers outside the province. But the present statute is a general one directed at all purchasers of gasoline within the province. The fact that some of these purchasers may consume some or a considerable portion of the gasoline outside the province does not change the basic character of the Act, which is one that imposes a tax on the purchase of gasoline within the province. That it may have an effect on persons outside the province is of no consequence. In the only field where the issue of the territoriality of legislation has been canvassed in any depth, succession duties, it has often been held that property in the province passing on death, or its transmission there as a result of that event, may be taxed in that province although the beneficiary who bears the burden of the tax resides outside the province. R. in right of Manitoba v. Air Canada, supra, is in no way contrary to this approach. What that case decided was that mere overflight of an aircraft or the landing of an aircraft in a province in the course of a through-flight did not give the aircraft sufficient presence in the province to make it the subject of a tax there. Here the transaction between the seller of the gasoline and the taxpayer clearly took place in the province.
It was also argued that the tax was not raised "in order to the raising of a Revenue for Provincial Purposes" within the meaning of s. 92(2) of the Constitution Act, 1867. In support of this position, counsel asserted that for a provincial tax to be valid it must relate to opportunities, benefits or protection afforded by the taxing province to the taxpayer or class of taxpayers. The province, counsel went on, did not and could not confer such benefits or provide such opportunities or protection since the control of aeronautics was solely within the powers of Parliament. Under these circumstances, the levy imposed here amounted to expropriation rather than taxation. In this context, reference was made to United States authorities such as Braniff Airways, Inc. v. Nebraska State Board of Equalization and Assessment, 347 U.S. 590 (1954), per Reed J. (hereinafter Braniff).
I cannot accept these contentions. Though spoken in dissent, the view of Duff C.J. in Reference re The Employment and Social Insurance Act, [1936] S.C.R. 427, regarding the requirement that taxation must be "for provincial purposes" has never been successfully challenged. That requirement, he said (at p. 434) "mean[s] neither more nor less than this: the taxing power of the legislatures is given to them for raising money for the exclusive disposition of the legislature." Despite the airlines' argument to the contrary, the Privy Council on the appeal from that case (Attorney-General for Canada v. Attorney-General for Ontario, [1937] A.C. 355) did not cast doubt on Duff C.J.'s proposition. What the Privy Council objected to in that case was not the tax (if there was one), but that the federal legislation there in question was in pith and substance a law in relation to insurance so framed as to encroach upon a field within the exclusive competence of the provinces (see pp. 366-67). There is nothing in the Constitution Act, 1867 requiring that the taxpayer must benefit from the tax. A person, a transaction or property in the province may be taxed by the province if taxed directly.
I do not find the Braniff case and similar American decisions particularly useful in this context. The Braniff case is more akin to R. in right of Manitoba v. Air Canada, supra, since it involved taxation of flight equipment engaged in interstate commerce, with the difference that the court in Braniff held that there were sufficient regular stops within the state to give the planes in question there sufficient contact with the state to permit them to form the subject matter of taxation there. Here there can be no doubt that the transaction was located within the province.
The 1976 Act ‑- Subsidiary Arguments
In addition to arguing that the 1976 Act did not meet the requirements of s. 92(2) of the Constitution Act, 1867, the airlines also advanced a number of subsidiary arguments.
To buttress the argument under s. 92(2) that the airlines received no benefit from the tax, the airlines also relied on s. 7 of the Canadian Charter of Rights and Freedoms. The tax, they argued, was tantamount to an expropriation. I fail to see, however, how the "life, liberty or security of the person" of the airlines is involved (assuming the provision can otherwise apply to them in circumstances like these) by being required to pay taxes in the same way as other persons who purchase gasoline within the province. It is simply not accurate to equate an ordinary tax like the one at issue in this case with expropriation. Assuming it is necessary to show a relationship between the tax and the benefits derived by the airlines, finding that relationship poses no difficulty here. Indeed, Air Canada admitted that airport facilities are serviced by municipal and provincial utilities, including water, electricity, and road systems to the airport. To that may be added fire protection and the benefits provided to various of the airlines' facilities and offices as well as to their employees.
Counsel for the airlines also argued that the 1976 Act in its application to fuel consumed by the airlines was invalid as violating ss. 91(2) (trade and commerce) and 92(10)(a) (interprovincial undertakings) of the Constitution Act, 1867, and the federal aeronautics power. The argument regarding the trade and commerce power appears to have been based on the characterization that the impugned tax was a consumption tax, a view I have already rejected. There is no indication that the tax in question here is anything but a general tax imposed upon all purchasers of gasoline in the province. While it may incidentally affect interprovincial or international trade, that burden is no greater than that imposed on intra-provincial trade. There is nothing discriminatory about the tax, and no one argues that it is so heavy as to amount to regulation. The gasoline is not purchased as an article of commerce for sale abroad. It is intended to be, and is used by the airlines. Even under the broader interpretation given to the commerce power in the United States, a similar approach to state taxes imposed on fuel used in interstate and international flights has been followed in that country; see among others United Air Lines, Inc. v. Mahin, 410 U.S. 623 (1973); Edelman v. Boeing Air Transport, Inc., 289 U.S. 249 (1933); Delta Air Lines, Inc. v. Department of Revenue, 455 So.2d 317 (1984 Fla.), cert. denied 474 U.S. 892 (1985).
So far as the attack based on the federal nature of the undertaking (i.e., s. 92(10)(a) and the aeronautics powers), the airlines at times appeared to argue for a type of enclave theory making them immune from otherwise valid provincial legislation. This contention is wholly without merit. By and large federal undertakings, like other private enterprises functioning within the province, must operate in a provincial legislative environment, and must like them pay provincial taxes imposed within the province. Obviously, if a tax amounted to a colourable attempt to regulate a federal undertaking, that would not be permitted; see Reference re Upper Churchill Water Rights Reversion Act, [1984] 1 S.C.R. 297, at pp. 324-25. Again, there may be instances where provincial statutes may cripple or destroy a federal undertaking; see Campbell-Bennett Ltd. v. Comstock Midwestern Ltd., [1954] S.C.R. 207. However, we are far from any situation here that would attract the application of these principles.
Finally, it was argued that the 1976 Act was invalid because the Legislature could not by an amendment to an ultra vires statute make the statute intra vires. That proposition had, I think wisely, been virtually abandoned in the Court of Appeal. It is abundantly obvious from the words used in the 1976 Act that the Legislature meant to give effect to the whole of the statute in its amended form from the date of its enactment. In this I fully agree with Macdonald J.
I see no reason then why the airlines should be immune from the tax imposed under the 1976 statute, nor on the basis of these arguments, from the 1981 Act. The latter Act, however, raises difficulties of its own, and I shall now turn my attention to these.
The 1981 Act
In 1981, the Legislature enacted a new s. 25 of the taxing Act. Substantially, ss. 25(1) to (4) purport to retroactively impose a tax on a person who, within the province, between August 1, 1974 and July 8, 1976, purchased gasoline for his own use or consumption. Section 25(5) then goes on to provide that where during that period moneys were collected as taxes, penalties or interest under the Act, such money "shall . . . be conclusively deemed to have been confiscated by the government without compensation".
None of the judges in the courts below casts any doubt on the legislative power of the province to impose a retroactive tax in the manner provided in ss. 25(1) to (4). What they really disagreed about was the effect of s. 25(5) on those provisions. In common with these judges, I am unable to see any constitutional impediment to the province's enacting ss. 25(1) to (4). On the reasoning regarding the 1976 Act, these provisions seem to be a proper exercise of its power to impose direct taxation in the province, the sole difference being that the 1981 provisions are given retroactive effect, a result that is not constitutionally barred. The real question, then, is whether when ss. 25(1) to (4) are conjoined to s. 25(5), they become so coloured by the latter provision as to make all of s. 25 ultra vires.
That, of course, raises the issue whether s. 25(5) is itself ultra vires. There are, in my view, some serious difficulties in establishing its invalidity. It may be, if the provision stood alone, that it could be successfully maintained that it violates the principle in the Amax decision. I need not consider that situation because it does not stand alone. It is the fifth of five subsections, the first four of which impose a valid direct tax, and it must obviously be read in that context. It must also be read in light of the well known principle that it must be assumed that the Legislature intended to stay within the confines of its constitutional competence. While, as Esson J.A. notes, the expression "confiscated" is distasteful, one should not permit it to mislead us regarding the purpose of s. 25(5). The function of the courts is not to give the Legislature lessons in tact. Their function, rather, is to attempt to discern what the Legislature, however clumsily, was attempting to achieve by the language it used, a task that should, as already noted, be informed by the presumption that the Legislature intended to stay within its constitutional powers.
In the context in which it appears, s. 25(5) seems to be nothing more nor less than machinery for collecting the taxes properly imposed in the first four subsections of s. 25. It must be remembered that the amounts illegally collected under the ultra vires provision before 1974 would be equal to the taxes levied under ss. 25(1) to (4). Administratively, the taxes levied under the invalid scheme were collected in the same manner and in the same amounts and from the same taxpayers as would have occurred if the scheme had originally been framed along the lines of ss. 25(1) to (4). What the Legislature attempted to do by s. 25(5), therefore, was to provide collection machinery whereby the moneys owing by the taxpayers under the latter provision could simply be taken out of the equal amounts it had collected from those taxpayers under the invalid tax. It was in that sense that the moneys were deemed to have been confiscated by the government.
To read s. 25(5) otherwise demands that one attribute to the Legislature the intent to impose double taxation. Hinkson J.A. clearly saw this but found that the provision violated the principle in Amax, supra, and so all of s. 25 must fall. On this point, I respectfully disagree. In that case, the Legislature sought, by giving itself immunity, to avoid repaying an unlawful tax. This was simply an indirect way of giving effect to the invalid statute. Immediately after the statement I have just cited, Dickson J. quoted from the headnote to the Privy Council case, Commissioner for Motor Transport v. Antill Ranger & Co., [1956] A.C. 527 (P.C.), as follows: "the immunity accorded by that Act (the Barring Act of 1954) to the unlawful exactions was as offensive to the Constitution as the unlawful exactions themselves . . . ." The situation is entirely different here. The Legislature did directly what it was empowered to do -‑ impose a direct tax under ss. 25(1) to (4). I see no reason why it could not then take that tax out of moneys it had improperly collected from the taxpayers under the ultra vires statute, just as it could have set it off against any other obligation of the government to the taxpayers. The good fortune of the Legislature, in the unusual facts of this case, in having collected amounts that matched precisely those owing by each taxpayer under ss. 25(1) to (4) affords no reason to brand as unconstitutional a tax that it can validly impose and collect.
Since the foregoing issues were not strongly pursued, however, I find it better also to base my decision on considerations raised in relation to "mistake of law" to which I now turn.
"Mistake of Law"
In federal countries like Canada where governments possess only limited legislative power, constitutional lawyers and judges alike have largely concentrated on the constitutional validity of laws. The effect of action taken under unconstitutional laws is only rarely considered. It is easy enough, I suppose, to accept without discrimination the words of Field J. in Norton v. Shelby County, 118 U.S. 425 (1886), at p. 442, that an unconstitutional statute "confers no rights; it imposes no duties; it affords no protection; it creates no office; it is, in legal contemplation, as inoperative as though it had never been passed". From this basis it may quite readily be deduced that anything done under colour of an ultra vires statute has no more effect than if the statute had not existed. In the case of an ultra vires taxing statute, that would mean that the money levied pursuant to the statute should be recoverable from the state by the taxpayer under the ordinary remedies for recovering moneys paid to others without right or compensation, through an action for restitution for unjust enrichment, and indeed there are cases such as Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan, [1978] 2 S.C.R. 545, and R. in right of Manitoba v. Air Canada, supra, where recovery has been allowed.
We know, however, that this neat, logical construct does not always prevail. There is a clear distinction between declaring an Act unconstitutional and determining the practical and legal effects that flow from that determination. Dramatic illustrations of this distinction can be found in Reference re Manitoba Language Rights, [1985] 1 S.C.R. 721, and R. v. Mercure, [1988] 1 S.C.R. 234. In the field of taxation the courts have on numerous occasions at the sub-constitutional level held that payments made under a mistake of law are irrecoverable. That rule has also been applied to payments made pursuant to unconstitutional statutes in at least two lower court decisions in this country (see Vancouver Growers Ltd. v. G. H. Snow Ltd., [1937] 3 W.W.R. 121; Glidurray Holdings Ltd. v. Qualicum Beach (1981), 32 B.C.L.R. 82 (C.A.)
The province invited us to apply the rule to this case. It principally relied on the Nepean case, supra, to support its claim that it was entitled to retain the moneys paid under the impugned legislation in this case. The action in the Nepean case arose as a result of a scheme developed by Ontario Hydro for the cost of power. Under this scheme, newer municipalities, like Nepean, contributed more heavily to the capital cost of the hydro system than other municipalities. While Nepean rigorously protested the nature of the scheme from 1966 to 1973, it was only in 1974 that it came to the conclusion that the additional charges assessed to it had no legal basis in Ontario Hydro's enabling Act. This Court agreed with the contention that the additional charge was unlawfully levied by Hydro against Nepean, but by a 3-2 majority judgment delivered by Estey J., it concluded (in common with the courts below) that Nepean could not recover the moneys unlawfully levied by Ontario Hydro on the ground that Nepean had voluntarily paid them under a mistake of law. The mistake of law rule, however, was not itself attacked; it was accepted by the parties; see Estey J. (pp. 381-82 and 412). In particular, Estey J. noted (at p. 412) that the only mention of unjust enrichment made by the appellant was in reference to the in pari delicto argument, although he did at one stage observe (at p. 413) that in his view the concept of unjust enrichment is not easily associated with the relationship of public bodies like the parties to the action there.
Counsel for Pacific Western Airlines led the airlines' attack on the validity and applicability of the "mistake of law doctrine". First of all, she stated, the Court should require restitution because to do otherwise would undermine the Constitution and be contrary to public policy. The province should not, therefore, be permitted to legislatively escape the consequences of its unconstitutional act. Nor should the airlines be denied recovery by the application of common law or equitable principles developed in the context of private law or in non-federal states. In the Amax case, supra, she noted, this Court held that a provincial legislature could not enact a statute barring recovery of taxes collected under an unconstitutional statute. It would be anomalous, she continued, if a court could deny recovery on the basis of a common law rule -‑ the mistake of law rule ‑- that the legislature could not enact.
The foregoing argument seems to me to rest on a misconception of the Amax case and of the place of the mistake of law rule in this context. The facts in Amax were that the province had by an unconstitutional statute levied taxes which the taxpayer had, on the assumed facts, paid under compulsion and which, therefore, it was entitled to recover. What the statute there impugned did was to bar actions for taxes paid under an unconstitutional statute that were otherwise recoverable. The legislature was, in essence, giving effect to the unconstitutional statute. It was doing indirectly what it could not do directly. Air Canada v. British Columbia (Attorney General), supra, is of a similar nature. The actions of the province there would have had the effect, by the exercise of the power to grant or refuse a trial, of indirectly giving effect to an unconstitutional statute. Whether, and within what limits, the province may regulate recovery of unconstitutional taxes is really not in issue here. The issue is the very different one of the effect of action taken pursuant to an ultra vires or unconstitutional statute.
In developing the law in public areas like this, the courts have not unnaturally turned to relevant experience in areas of private law, and where it appeared appropriate, they have, on occasion, simply transplanted such principles of private law to the realm of public and constitutional law. This type of transplantation has been done in other areas of law. For example, the principles for determining whether a tax is "within the province" for the purposes of s. 92(2) of the Constitution Act were derived in no small measure from the rules developed at common law to determine which ordinary should have power to administer an estate; see The King v. National Trust Co., [1933] S.C.R. 670; R. v. Williams, [1942] A.C. 541. But this borrowing should not blind us to what the courts are really doing. They are defining rules of public and constitutional law. This is underlined again by reference to the situs rules. Though these were imported from the common law, they have been transformed, and it is constitutionally impermissible for a province to prescribe the conditions fixing the situs of property for the purposes of defining what may be taxed within the province; see Lovitt v. The King (1910), 43 S.C.R. 106, at p. 160; The King v. National Trust Co., supra. Similarly, the courts are at liberty to adopt the mistake of law rule, which finds its origin in private law, to define the effects of ultra vires or unconstitutional statutes. Whether this would be wise or not is another question, one to which I shall return. But if so adopted, one should not be misled by the supposed anomaly of the courts using a common law rule to do what a legislature could not by statute enact.
I mentioned earlier that it may or may not be wise to incorporate the mistake of law defence in the constitutional fabric. This brings me to what I consider the most weighty point made on behalf of the airlines. Counsel for Canadian Pacific Airlines invited us to do away with the mistake of law rule. As she noted, the common law has largely permitted recovery of payments made under a mistake of fact. The same approach should, she contended, be followed in the case of a mistake of law. The distinction between the two, she stated, has resulted in confusion, ambiguity and injustice, and should no longer be recognized. She urged us to adopt the dissenting reasons of Dickson J., as he then was, in the Nepean case, supra.
I do not intend to regurgitate what was said by Dickson J. in his judgment. Suffice it to say that it constitutes a thorough, scholarly and damning analysis of the mistake of law doctrine from its beginning and through the egregious error of Lord Ellenborough C.J. in the case of Bilbie v. Lumley and Others (1802), 2 East 469, 102 E.R. 448, to the present day; see Goff and Jones, The Law of Restitution, 3rd ed., at p. 117. What the judgment reveals is a rule built on inadequate foundations, lacking in clarity (the distinction between a mistake of fact and mistake of law can best be described as a fluttering, shadowy will-o'-the-wisp), and whose harshness has led to a luxuriant growth of exceptions (twelve perhaps, though the identity and scope of the exceptions I am told has led to considerable learned esoteric debate). Despite this, and despite almost universal criticism, the doctrine has spread from its original place in contract law into other areas, including public law (such as in Nepean itself), and it now even more ambitiously threatens to invade the domain of constitutional law. This explosion has, as Corbin has observed, probably occurred because of the temptation under the pressure of work for judges to seize upon the first plausible rule that becomes handy to dispose of a case that has no merit; Corbin on Contracts (1960), vol. 3, para. 617, at p. 756. The result is that while the rule undoubtedly serves some useful functions, these could be achieved by other means. As Dickson J. himself put it at p. 362:
The modern justification for the existence of the rule against recovery of monies paid under a mistake of law has been the stability of contractual relations. The rule though is often used as a handy means of disposing of cases where, in fact, recovery of money should be barred, and would be, under a more searching analysis of the case. [Emphasis in original.]
From his analysis, Dickson J. concluded that the judicial development of the law of restitution or unjust (or as Dickson J. noted, "unjustified") enrichment renders otiose the distinction between mistakes of fact and mistakes of law. He would abolish the distinction, and would allow recovery in any case of enrichment at the plaintiff's expense provided the enrichment was caused by the mistake and the payment was not made to compromise an honest claim, subject of course to any available defences or equitable reasons for denying recovery, such as change of position or estoppel. Dickson J. considered the finality of transactions to be an important, but not an absolute value, and its weight in a particular context was best assessed within the context of the principles of the law of restitution. He preferred to do this rather than by engrafting new exceptions to a rule that has over the years been variously described as "most unfortunate", "monstrous", "decrepit" and "unjust".
I am aware that Dickson J. was speaking in minority (for himself and Laskin C.J.), but it can scarcely be maintained that the three judges who formed the majority rejected this position. Indeed, they never really faced this issue at all. The case, we saw, was argued on the basis that it fell within one of the exceptions to the mistake of law rule, that the parties were not in pari delicto, and they dealt with it accordingly. After having read Dickson J.'s judgment, Estey J. was at pains to note that in the argument unjust enrichment had only been tangentially mentioned and that the distinction between mistake of fact and mistake of law was not raised; indeed, it was accepted. "Accordingly," he concluded, "my considerations have been confined to the operation of the doctrine of mistake of law as argued."
This can hardly constitute an expression of opinion -‑ let alone a definitive one ‑- by this Court on the issues raised by Dickson J., and I therefore have no hesitation in following his lead in these matters. In my view the distinction between mistake of fact and mistake of law should play no part in the law of restitution. Both species of mistake, if one can be distinguished from the other, should, in an appropriate case, be considered as factors which can make an enrichment at the plaintiff's expense "unjust", or "unjustified". This does not imply, however, that recovery will follow in every case where a mistake has been shown to exist. If the defendant can show that the payment was made in settlement of an honest claim, or that he has changed his position as a result of the enrichment, then restitution will be denied. Even were I not of the opinion that this "rule" should be abolished, I would not be prepared to extend to the constitutional plane a rule so replete with technicality and difficulty as the mistake of law rule. Constitutional adjudication invites the formulation of broad principles suitable to the accommodation and resolution of broad social and political values, and this much criticized rule seems singularly unsuited to that purpose.
As Dickson J. stated, however, unjust enrichment, particularly in this field, is no formula for easy solutions. The present case illustrates this. In the Nepean case, Estey J. made the passing comment that the concept of unjust enrichment was not easily associated with the relationship of public bodies such as were in issue there. I am not prepared to go that far. Where one party is enriched at the expense of another, it is appropriate to begin by asking if the principles of restitution would afford recovery to the deprived party, whether that party is a public body or not. However, as my comments below will indicate, where unconstitutional or ultra vires levies are in issue, special considerations do arise which may call for a different rule.
In this case, I have no doubt that the province has been enriched through the imposition of this unconstitutional tax. A more difficult issue which could preclude recovery in this case, even if I were to base my decision solely on the application of restitutionary principles, is whether the enrichment of the province was at the expense of the plaintiff airlines. The Attorney General argued that the airlines were able to pass on the burden of the tax to their passengers. Counsel for Air Canada, however, strongly pressed that the "passing-on" defence should only be available where the tax has been specifically charged to other identified parties so as to make those parties the true taxpayers. He submits that otherwise the fact that a tax may have been passed on is no ground on which to deny recovery. Though the airlines may have increased their prices to raise revenue to pay the tax, the resulting higher prices may have had an impact on sales volume which may in turn have an out-of-pocket impact on the airlines' profit.
While it will take some time for the courts to work out the limits of the developing law of restitution, it is useful on this point to examine the American experience. Professor George E. Palmer, in his work, The Law of Restitution, makes the following comment (1986 Supp., at p. 254):
There is no doubt that if the tax authority retains a payment to which it was not entitled it has been unjustly enriched. It has not been enriched at the taxpayer's expense, however, if he has shifted the economic burden of the tax to others. Unless restitution for their benefit can be worked out, it seems preferable to leave the enrichment with the tax authority instead of putting the judicial machinery in motion for the purpose of shifting the same enrichment to the taxpayer.
In my view there is merit to this observation, and if it were necessary I would apply it to this case as 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.
This alone is sufficient to deny the airlines' claim. However, even if the airlines could show that they bore the burden of the tax, I would still deny recovery. It is clear that the principles of unjust enrichment can operate against a government to ground restitutionary recovery, but 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.
It is not without significance that an examination of the case law of the United States, Australia and New Zealand shows that generally there is no recovery of taxes paid pursuant to legislation which is unconstitutional or otherwise invalid. (See Clifford L. Pannam, "The Recovery of Unconstitutional Taxes in Australia and in the United States" (1964), 42 Texas L. Rev. 779, George E. Palmer, The Law of Restitution, vol. III, at p. 248.) While this rule has most often been stated in the traditional terms of mistake of law, which I have rejected, it is noteworthy that even in jurisdictions in the United States where the mistake of law rule is not followed (Connecticut and Kentucky), or has been abolished (New York), the courts have nevertheless held that a voluntary payment of taxes under an unconstitutional statute is not recoverable; (see Pannam, supra, at pp. 793-94, Palmer, supra, vol. III, at pp. 248-49).
What 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. This policy was forcefully stated by Logan J. in the Kentucky Court of Appeals (where it will be remembered there is no general mistake of law doctrine) in Coleman v. Inland Gas Corp., 21 S.W.2d 1030 (1929), at p. 1031:
. . . all state governments have been slow indeed to open the doors of their treasuries and allow money to pass therefrom after it has once found lodgment within the governmental vaults. This is as it should be. The state is the sovereign and its affairs must be conducted for the best interest and welfare of the people. That calls for the expenditure of large sums of money for governmental affairs, and such sums of money can be obtained only through taxation. The state should determine the amount which it will spend by the probable income it will receive. When the income is collected it is allocated to different funds. The state uses the funds nearly always during the current year. It has been universally held, unless a contrary conclusion was forced by an ironclad statute, that no taxpayer should have the right to disrupt the government by demanding a refund of his money, whether paid legally or otherwise . . . .
See also Mercury Machine Importing Corp. v. City of New York, 144 N.E.2d 400 (1957), especially at p. 404. Similar sentiments were expressed by M. A. MacDonald J.A. in Vancouver Growers Ltd. v. G. H. Snow Ltd., supra. Such a rule is sensible. The only practical alternative as a general rule would be to impose a new tax to pay for the old, which is another way of saying that a new generation must pay for the expenditures of the old. At best it is simply inefficient.
A related concern, and one prevalent through many of the authorities and much of the academic literature is the fiscal chaos that would result if the general rule favoured recovery, particularly where a long-standing taxation measure is involved. That this is not an unfounded concern can be seen by reference to one incident in the United States. A provision has been inserted in the United States Internal Revenue Code removing the distinction between mistakes of fact and mistakes of law because of the harsh and unjust results that had occurred under the general rule. This, however, placed a severe strain on the United States Treasury when the Supreme Court in United States v. Butler, 297 U.S. 1 (1936), held unconstitutional the Agricultural Adjustment Act making almost one billion dollars in invalid taxes (a respectable amount now but overwhelming during the depression) repayable by the government. Faced with this situation Congress immediately passed an Act which provided that no refunds for such taxes would be allowed unless the claimant could establish the burden of the tax. In view of Amax, supra, a province faced with a similar situation could not enact a similar measure.
To some extent the present case raises difficulties of a similar character. As Esson J.A. remarked at p. 390:
It is instructive to consider what the consequences might be if Professor Hogg's thesis [which advocates general recovery of unconstitutional taxes] were to be applied to the Gasoline Tax Act. The tax imposed under it for decades before 1976 was a tax of broad general application. It has long been a major component of the provincial budget. Every operator of a vehicle contributed to the provincial coffers in this way. The total number of such taxpayers must be in the millions. The amount involved in these three actions is "only" something over six million dollars. In the modern scale of things, that will not have a major additional impact on the already sorry financial state of the province. A few more schoolrooms and a few more hospital wards may have to be closed and a few roads may go unrepaired; or perhaps the matter will be dealt with by a further increase in the deficit so that future generations will bear the burden. The blow will, however, be greater than that inflicted by these cases. We are told that other large taxpayers, including one of the national railways, commenced action before the period of limitation expired and await the outcome of these actions to decide whether to go ahead.
The situation would be much worse, of course, if the Statute of Limitations or laches could not be pleaded, a question Esson J.A. did not resolve and upon which it is unnecessary for me to embark.
Those who favour recovery of ultra vires taxes concede that an exception would be required where this would disrupt public finances; see John D. McCamus, "Restitutionary Recovery of Moneys Paid to Public Authority Under a Mistake of Law: Ignorantia Juris in the Supreme Court of Canada" (1983), 17 U.B.C. Law Rev. 233. But how would a court determine this? Among other complications is the fact that what can make recovery against the state impractical is the length of time during which an invalid tax has been collected. Equitable laches could be brought into service, but these ordinarily involve some discernible act of acquiescence to trigger their operation. The obvious remedy is a period of limitations, but it would be inappropriate for courts at this late date of legal development to define such periods which, to be effective, may have to differ from one type of tax to another.
Professor Birks has argued that the dominant value should be respect for the principle that there should be no taxation without parliamentary sanction, and so the general rule should favour recovery; see Peter Birks, An Introduction to the Law of Restitution, at p. 294. Even Professor Birks, however, concedes that "Where there is a serious danger that public finances will be disrupted it may be necessary to limit or exclude a right to restitution" (at p. 298). I agree that the value he favours is worthy of protection, but in the context of taxes exacted through unconstitutional statutes in light of the other policies outlined above, I am not willing to give it the dominant status that Birks would accord it.
All in all, I have become persuaded that the rule should be against recovery of ultra vires taxes, at least in the case of unconstitutional statutes. It seems best to function from the basis of that rule with exceptions where the relationship between the state and a particular taxpayer resulting in the collection of the tax are unjust or oppressive in the circumstances. However, this case does not call for departure from the general rule. The tax levied in this case, though unconstitutional, comes close to raising a mere technical issue. Had the statute been enacted in proper form there would have been no difficulty in exacting the tax as actually imposed. Though specific evidence was not led on this point, were recovery to be allowed, the airlines would receive a windfall, and fiscal chaos could well result. Many others could well bring suit, for this is a general tax applying to all purchases of gasoline in the province. It is true that many of these would not be in a position to establish their claims but it would be odd if this factor were taken into account since its general effect would be to favour the strong against the weak. Finally, there is not the element of discrimination, oppression or abuse of authority which would warrant recovery.
This rule against the recovery of unconstitutional and ultra vires levies is an exceptional rule, and should not be construed more widely than is necessary to fulfil the values which support it. Chief 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. Though the drawing of lines is always difficult, I am persuaded that this rule should not apply where a tax is extracted from a taxpayer through a misapplication of the law. Thus, where an otherwise constitutional or intra vires statute or regulation is applied in error to a person to whom on its true construction it does not apply, the general principles of restitution for money paid under a mistake should be applied, and, subject to available defenses and equitable considerations discussed earlier, the general rule should favour recovery. In exceptional cases public policy considerations may require a contrary holding, but those exceptional cases do not justify extending the general rule of non-recovery of unconstitutional or ultra vires levies. As Professor Palmer has noted (The Law of Restitution, supra, vol. III, at p. 247):
The effect of restitution in dislocating the fiscal affairs of the governmental unit in such isolated instances of mistake is nothing like it would be where many payments have been made under a tax law which is unconstitutional or invalid for some other reason.
In my view no distinction should be drawn between those cases which would traditionally be considered as mistakes of fact, as for example where a tax assessment is based on a misapprehension of the facts which attract the tax, or where an error has been made in calculation, and those cases where the taxing statute is construed in error so as to impose liability on a party not liable on the true construction of the statute. In both cases recovery should be available.
If recovery in all cases is to be the general rule, then that is best achieved through the route of statutory reform. If there are limits to the extent to which, because of the Amax principle, a legislature may limit recovery of taxes by a taxpayer who is at law entitled to recoup them, there would appear to be no limit to the legislature's providing for their recovery. This could take into account the types of variables already mentioned, the nature of the tax, the amounts involved, the times within which a claim may be made, the situation of those who are in a position to recoup themselves from others, and so on. Considerable study has gone into the nature of such legislation in the United States, where several jurisdictions have adopted this expedient: see Pannam, supra, at pp. 504 et seq. In Canada, see the Law Reform Commission of British Columbia's Report on Benefits Conferred Under a Mistake of Law (1981).
The airlines then contended that they should recover on the ground that they were not in pari delicto with respect to the imposition and collection of the tax. They cited in aid Kiriri Cotton Co. v. Dewoni, [1960] A.C. 192, at p. 204, where Lord Denning remarked that "If there is something in the defendant's conduct which shows that, of the two of them, he is the one primarily responsible for the mistake ‑- then it may be recovered back". On this issue, I am in substantial agreement with Esson J.A. Like him, I agree that this ground is effectively disposed of by the judgment of Estey J. in Nepean, supra, at p. 394, in the following passage:
The parties here did not `agree' to do something prohibited by the Act. The respondent submitted a claim for payment of charges for power supplied, which were not authorized by the Act under which the parties were operating and the appellant, in all innocence, paid the account so rendered. The "in pari delicto" test and its terminology seem most inappropriate and utterly unconnected to the realities of the transaction.
While the province may have been in a better position to determine that the statute was unconstitutional and could therefore be accused, as Esson J.A. calls it, of "sloppy legislative housekeeping", I do not think that changes the picture. The same policy grounds against recovery exist and cannot depend on the competence or care of its legal advisers at the time. At all events, as he notes, it would not be unjust for the province to retain money that it could have obtained in any event by a statute properly framed to do what it purported to do; see A. J. Seversen Inc. v. Village of Qualicum Beach (1982), 135 D.L.R. 122 (B.C.C.A.)
Finally, the airlines contended that they paid the tax as a result of practical compulsion. For reasons that are apparent from the views earlier expressed, I do not accept Lambert J.A.'s view that payment under an ultra vires statute constitutes "compulsion" within the meaning of the rule sought to be applied here. That would substantially amount to saying, a view I have rejected, that there is a general rule of recovery when taxes are paid under an ultra vires statute. What the rule of compulsion seems to require is that there is no practical choice but to pay in the circumstances, or to put it another way, before a payment will be regarded as involuntary there must be some natural or threatened exercise of power possessed by the party receiving it over the person or property of the taxpayer for which he has no immediate relief than to make the payment; see Pannam, supra, pp. 785-87; see in this context Maskell v. Horner, [1915] 3 K.B. 106; Lynden Transport Inc. v. R. in Right of British Columbia (1985), 62 B.C.L.R. 314. Hinkson and Esson JJ.A. examined the factual basis upon which this contention is founded and, in my view, correctly arrived at the conclusion that there was no practical compulsion, and I find it unnecessary to review these again.
Disposition
For these reasons, I would dismiss the appeal by Air Canada and Pacific Western Airlines and allow the Crown's cross-appeal against them. I would also allow the appeal of the Crown against Canadian Pacific Airlines. I would order the airlines to repay the Crown the following amounts, respectively: Air Canada, $4,399,642.85; Pacific Western Airlines, $1,934,122.91; Canadian Pacific Airlines, $7,052,785.88.
I would reply to the constitutional questions as follows:
1.Is the Gasoline Tax Act, R.S.B.C. 1960, c. 162, as amended by S.B.C. 1976, c. 32 and as subsequently amended, ultra vires in its application or otherwise constitutionally inapplicable to Air Canada in the circumstances of this case?
A.The Act, as it existed in 1960, was constitutionally invalid, but the amendments of 1976 and 1981 are valid.
2.Does the application of the Gasoline Tax Act to Air Canada in the circumstances of this case violate s. 7 of the Canadian Charter of Rights and Freedoms?
A. No.
3.If so, is its application justified on the basis of s. 1 of the Canadian Charter of Rights and Freedoms?
A.It is unnecessary to answer this question.
//Wilson J.//
The following are the reasons delivered by
WILSON J. (dissenting in part) -- I have had the benefit of the reasons of my colleague Justice La Forest on this appeal and I fully agree with his conclusion that the Gasoline Tax Act, 1948 of British Columbia as it existed in 1974 was ultra vires the province and cannot be relied upon by the Crown to justify the collection or retention of the taxes levied against the appellants between 1974 and 1976. I agree with him also that this situation was corrected by the amendments made to the legislation in 1976 and that gasoline tax was properly exigible after 1976.
I take a different view, however, from my colleague of what was done by the province in 1981. I do not doubt for a moment that the province was free in 1981 to impose a retroactive tax covering the period 1974 to 1976. I do not believe, however, that it can do so as a mechanism for the confiscation of payments made under the earlier unconstitutional legislation.
It is, in my view, impossible to divorce s. 25(1) to (4) from s. 25(5). The only possible basis for the confiscation under s. 25(5) is the imposition of the retroactive tax under s. 25(1) to (4). Certainly the payments made under the ultra vires legislation could not support such a confiscation since the monies were not as a constitutional matter properly exigible under that legislation. Moreover, the fact that the amount payable under s. 25(1) to (4) coincides exactly with the amount paid under the ultra vires legislation is not, as my colleague suggests, a matter of "good fortune" for the legislature, but makes it perfectly clear that s. 25(1) to (5) were intended to defeat any claim for the return of the money paid under the ultra vires legislation. If, of course, such monies are not recoverable by law in any event, the confiscation provision is unnecessary; the province is then entitled to retain the money and there is nothing in the amended legislation to say that such payments must be applied against the new retroactive tax. The legislation does not require it nor was any claim of set-off made by the Crown. The Crown thus seeks legislatively to have its cake and eat it too. By confiscating the earlier payments it hopes to defeat the claim for their return. By not pleading a set-off it does not have to acknowledge any right on the part of the appellants to the return of such monies. Instead, by imposing a retroactive tax it purports to create a new base of liability against which the confiscated payments may but do not have to be applied. The imposition of the retroactive tax in the exact amount of the payments made under the ultra vires legislation combined with the act of confiscation lead, in my opinion, to the inescapable conclusion that the intent of the province was to defeat any claim for the return of the monies paid pursuant to the ultra vires legislation so as to achieve indirectly what it could not achieve directly, namely the imposition of an ultra vires tax. This, in my view, is a clear violation of the principle in Amax Potash Ltd. v. Government of Saskatchewan, [1977] 2 S.C.R. 576 (hereinafter Amax). It is an attempt, through the combined effect of a retroactive tax and confiscation of the monies already paid, to give effect to unconstitutional legislation.
In case I am wrong in this, I propose to consider, as does my colleague, whether the doctrine of mistake of law provides an alternate basis on which the appellants should succeed in their claim for repayment.
My colleague expresses the view that monies paid under a mistake of law should, despite the traditional rule to the contrary, be in general recoverable unless there is some specific reason why they should not be. My colleague reaches this conclusion by discarding the traditional common law distinction between mistake of fact and mistake of law in favour of the equitable doctrine of unjust enrichment. Whatever the nature of the mistake, the key question, my colleague suggests, should be whether the respondent has been unjustly enriched at the appellants' expense or whether there is some specific reason which makes restitution inappropriate in the circumstances. My colleague concludes that there was unjust enrichment in this case but he finds two reasons why restitution is inappropriate. The first is that the appellants in all likelihood passed on the burden of the ultra vires tax to their customers; the unjust enrichment of the respondent was therefore not shown to be at the expense of the appellants. The second is that the general rule of recovery should, as a matter of policy, be reversed where the person unjustly enriched is a governmental body.
Before dealing with the suggested exceptions to the general rule I would like to address the underlying rationale for the traditional rule that monies paid under a mistake of law are irrecoverable. I think it is clearly and succinctly expressed by Lord Ellenborough in Bilbie v. Lumley (1802), 2 East 469, 102 E.R. 448, at p. 472 and pp. 449-50 as follows:
Every man must be taken to be cognizant of the law; otherwise there is no saying to what extent the excuse of ignorance might not be carried. It would be urged in almost every case.
In other words, the underlying premise on which the rule is based is that ignorance of the law is no excuse. The citizen is deemed to know the contents of legislation. The appellants in this case knew the law, i.e., that the monies were payable under the statute then in force and they paid. What they did not know was that the law was unconstitutional. It seems to me, however, that the appellants were entitled in making their payments to rely on the presumption of validity of the legislation and that, if the presumption was not by itself enough, they were entitled to rely on the representation as to its validity by the legislature enacting and administering it. It would be my view that the mistake of law doctrine (if it is to be retained) should certainly not be extended to monies paid under unconstitutional legislation. Otherwise taxpayers will be obliged to check out the constitutional validity of taxing legislation before they pay their taxes in pain of being unable to recover anything paid under unconstitutional laws. In my opinion, this is to place the onus of inquiry as to constitutionality in the wrong place.
If a valid distinction is to be made between payments made in error under perfectly valid legislation (as to which the mistake of law doctrine would seem clearly to apply) and payments made under unconstitutional legislation quite properly presumed by the taxpayer to be constitutional (as to which the doctrine of mistake of law has no application), it is unnecessary for me to consider whether the traditional rule as to the irrecoverability of monies paid under a mistake of law should be abolished. However, I am in complete agreement with what my colleague has to say on this subject and, were it necessary for me to do so in order to dispose of this case, I would support the minority view expressed by Dickson J. in Hydro Electric Commission of Nepean v. Ontario Hydro, [1982] 1 S.C.R. 347.
It is, however, my view 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.
Based on the foregoing reasoning I conclude that payments made under a statute subsequently found to be unconstitutional should be recoverable and I cannot, with respect, accept my colleague's proposition that the principle should be reversed for policy reasons in the case of payments made to governmental bodies. What is the policy that requires such a dramatic reversal of principle? 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. I find it quite ironic to describe such a person as "asserting a right to disrupt the government by demanding a refund" or "creating fiscal chaos" or "requiring a new generation to pay for the expenditures of the old". By refusing to adopt such a policy the courts are not "visiting the sins of the fathers on the children". The "sin" in this case (if it can be so described) is that of government and only government and government has means available to it to protect against the consequences of it. It should not, in my opinion, be done by the courts and certainly not at the expense of individual taxpayers.
My colleague advances another reason why the appellants should be denied recovery in this case. He says, in effect, that the appellants would be receiving a "windfall" if they received their money back because in all likelihood they have already recouped the payments made on account of the ultra vires tax from their customers. In terms of my colleague's analysis, the appellants are unable to show that the unjust enrichment of the province was at their expense. In my view there is no requirement that they be able to do so. Where the payments were made pursuant to an unconstitutional statute there is no legitimate basis on which they can be retained. As Dickson J. stated in Amax, supra, at p. 590:
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.
Likewise, Professor Hogg commenting on Amax in his treatise Constitutional Law of Canada (2nd ed. 1985) said at p. 349:
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.
Indeed, even on my colleague's unjust enrichment analysis Dickson J. found in Nepean, supra, that there were no equitable reasons of principle or policy to preclude recovery from Ontario Hydro. He said at p. 373:
I do not think it is any answer in law for Ontario Hydro to say to Nepean "True, we took your money unlawfully but we do not have to repay it because we mistakenly paid it out to other people". The fact is that Ontario Hydro did receive, and did have the use and benefit of Nepean's money. What it did with it is, as Mr. Laidlaw said, a problem for Ontario Hydro. The mere spending of the money is not, of itself, sufficient to establish a defence (Rural Municipality of Storthoaks v. Mobil Oil Canada Ltd., supra).
If this appeal is properly disposed of on the basis of the equitable doctrine of unjust enrichment, I see no reason why the same approach taken by Dickson J. towards the difficulties of Ontario Hydro in making restitution should not be taken to any similar difficulties faced by the government of British Columbia.
For all these reasons I would allow the appeal and dismiss the cross-appeal and, failing agreement as to quantum, I would refer the matter back to the trial judge to determine the amount owing to the appellants for taxes and interest from July 1, 1976 to the date of judgment. I would award the appellants their costs both here and in the courts below.
I agree with my colleague for the reasons given by him that s. 7 of the Canadian Charter of Rights and Freedoms has no application to this case. I would answer the constitutional questions as follows:
1. Is the Gasoline Tax Act, R.S.B.C. 1960, c. 162, as amended by S.B.C. 1976, c. 32 and as subsequently amended, ultra vires in its application or otherwise constitutionally inapplicable to Air Canada in the circumstances of this case?
A.The Act prior to the 1976 amendments was ultra vires the Province of British Columbia. The amendments made to the Act in 1981 were also ultra vires.
2.Does the application of the Gasoline Tax Act to Air Canada in the circumstances of this case violate s. 7 of the Canadian Charter of Rights and Freedoms?
A. No.
3.If so, is its application justified on the basis of s. 1 of the Canadian Charter of Rights and Freedoms?
A.It is unnecessary to answer this question.
The appeal by Air Canada and Pacific Western Airlines Ltd. should be dismissed, the Crown's cross‑appeal against them should be allowed and the Crown's appeal against Canadian Pacific Airlines Ltd. should be allowed, WILSON J. dissenting in part. As to the first constitutional question, the Gasoline Tax Act, as it existed in 1960, was constitutionally invalid, but the amendments of 1976 and 1981 were valid. The second constitutional question should be answered in the negative; the third did not need to be answered.
Solicitors for the appellant Air Canada: Russell & DuMoulin, Vancouver.
Solicitors for the appellants Pacific Western Airlines Ltd. and Canadian Pacific Airlines Ltd.: Davis & Company, Vancouver.
Solicitor for the respondents the Province of British Columbia, et al.: The Attorney General of British Columbia, Victoria.
Solicitor for the intervener the Attorney General for Ontario: The Attorney General for Ontario, Toronto.
Solicitor for the intervener the Attorney General of Quebec: The Attorney General of Quebec, Ste‑Foy.
Solicitor for the intervener Attorney General of Nova Scotia: The Attorney General of Nova Scotia, Halifax.
Solicitor for intervener the Attorney General for New Brunswick: The Attorney General for New Brunswick, Fredericton.
Solicitor for the intervener the Attorney General of Manitoba: The Attorney General of Manitoba, Winnipeg.
Solicitor for the intervener the Attorney General for Saskatchewan: Brian Barrington‑Foote, Regina.
Solicitor for the intervener the Attorney General for Alberta: The Attorney General for Alberta, Edmonton.