Kingstreet Investments Ltd. et al. v. New Brunswick (Minister of Finance) et al., (2007) 355 N.R. 336 (SCC)

• Judge: McLachlin, C.J.C., Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein, JJ.
• Court: Supreme Court of Canada
• Case Date: Tuesday June 20, 2006
• Jurisdiction: Canada (Federal)
• Citations: (2007), 355 N.R. 336 (SCC);2007 SCC 1;276 DLR (4th) 342;JE 2007-115;51 Admin LR (4th) 184;25 BLR (4th) 1;[2007] 1 SCR 3;EYB 2006-112095;[2007] DTC 5029;[2007] SCJ No 1 (QL);355 NR 336;152 ACWS (3d) 1151;309 NBR (2d) 255

Kingstreet Inv. Ltd. v. N.B. (2007), 355 N.R. 336 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2007] N.R. TBEd. JA.001

Kingstreet Investments Ltd. and 501638 NB Ltd. (appellants/respondents on cross-appeal) v. Province of New Brunswick as represented by the Department of Finance and New Brunswick Liquor Corporation (respondent/appellant on cross-appeal) and Attorney General of Manitoba, Attorney General of British Columbia, Attorney General of Alberta, Canadian Constitution Foundation and Consumers' Association of Canada (intervenors)

(31057; 2007 SCC 1; 2007 CSC 1)

Indexed As: Kingstreet Investments Ltd. et al. v. New Brunswick (Minister of Finance) et al.

Supreme Court of Canada

McLachlin, C.J.C., Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein, JJ.

January 11, 2007.

Summary:

The plaintiffs operated several nightclubs that were licensed by the New Brunswick Liquor Corporation (NBLC) to sell alcoholic beverages. They purchased these products from the NBLC's retail stores and, in addition to the retail price, paid a "user charge" pursuant to a Liquor Control Act Regulation. The charge varied from 11% of the retail price to the current 5%. The plaintiffs alleged that the user charge was not a regulatory fee but an indirect tax and ultra vires the province or an illegal direct tax imposed by regulation rather than originating in the Legislature. The plaintiffs sought, inter alia, reimbursement of all amounts paid under this head with compound interest.

The New Brunswick Court of Queen's Bench, Trial Division, in a decision reported at 273 N.B.R.(2d) 6; 717 A.P.R. 6, allowed the action, holding that the charge was an indirect tax and ultra vires the Province. The court refused to order restitution. The plaintiffs appealed.

The New Brunswick Court of Appeal, Ryan, J.A., dissenting, allowed the appeal in part. See 285 N.B.R.(2d) 201; 744 A.P.R. 201. The plaintiffs' restitutionary claim was allowed with respect to all moneys paid from the time that they commenced legal proceedings. The plaintiffs appealed. The Province cross-appealed.

The Supreme Court of Canada allowed the appeal in part and dismissed the cross-appeal. The plaintiffs were entitled to recover all user charges paid on or after May 25, 1995, with interest (i.e., those that were not statute barred). However, this was not an appropriate case for the awarding of compound interest as the plaintiffs did not allege any wrongful conduct on behalf of the Province that might warrant moral sanction.

Constitutional Law - Topic 2521

Determination of validity of statutes or acts - Effect of invalidity - General principles - [See Restitution - Topic 69].

Crown - Topic 2888

Crown immunity - Exceptions - Restitution for ultra vires taxes - The Supreme Court of Canada held that the immunity rule should have no application in cases claiming restitution for the payment of ultra vires taxes - See paragraphs 19 to 30.

Interest - Topic 5010

Interest as damages (prejudgment interest) - General principles - Calculation of interest - Simple or compound - The Supreme Court of Canada allowed the appellant's appeal in part, permitting them to recover taxes paid pursuant to ultra vires provincial legislation, subject to the applicable limitation period - The court held that this was not an appropriate case for the awarding of compound interest as the appellants had not alleged any wrongful conduct by the province that might warrant moral sanction - See paragraph 62.

Interest - Topic 5313

Interest as damages (prejudgment interest) - Interest on payment of money or debt withheld - Amount due from Crown - [See Interest - Topic 5010].

Limitation of Actions - Topic 6203

Restitution - General - Applicable limitation period - The Supreme Court of Canada allowed the recovery of taxes paid pursuant to ultra vires legislation, subject to the applicable limitation period - The court stated that "The New Brunswick Limitation of Actions Act provides that: '9. No other action shall be commenced but within six years after the cause of action arose.' Section 9 was clearly intended to cover all other actions not specifically provided for in the legislation. There is no reason why modern restitutionary claims ought not to be subject to s. 9." - See paragraphs 59 to 61.

Mistake - Topic 1706

Recovery of money paid under mistake - Mistake of law - Money paid under invalid legislation - [See Restitution - Topic 69].

Restitution - Topic 64

Unjust enrichment - General - Juristic reason for enrichment - In Garland v. Consumers' Gas Co. (S.C.C.) the court established the following two-part analysis for determining whether there was a juristic reason for an enrichment that should operate to deny recovery: (1) the plaintiff was required to show that no established category of juristic reason for the enrichment existed; and (2) if no reason existed, the burden shifted to the defendant to show that there was some other reason why recovery should be denied - The court explicitly stated that juristic reasons for the enrichment had to be considered in light of the parties' reasonable expectation and certain public policy considerations - It was at this second stage of the test that courts would weigh the equities in the particular circumstances of each case - The Supreme Court of Canada stated that by proper policy considerations, it meant those that had traditionally informed the development of restitutionary law - Otherwise, there was a risk of turning the test into a subjective analysis that had less to do with legal reasoning than with the dispensing of "palm tree" justice - Considerations related to preserving the public purse did not properly fall within the second branch of the juristic reason analysis, which was more concerned with broad principles of fairness - See paragraphs 36 to 38.

Restitution - Topic 69

Unjust enrichment - General - Where money paid under invalid law - The Supreme Court of Canada held that, where a government attempted to retain unconstitutionally collected taxes, the claim should not be dealt with as one for unjust enrichment in the private domain because of the constitutional rule at play - The principle of "no taxation without representation" was central to our conception of democracy and the rule of law - When the government collected and retained taxes pursuant to ultra vires legislation, it undermined the rule of law - To permit the Crown to retain an ultra vires tax would condone a breach of this most fundamental constitutional principle - As a result, a citizen who had made a payment pursuant to ultra vires legislation had a right to restitution, subject to limitation periods and remedial legislation, when appropriate - The court rejected the application of the immunity rule, the passing-on defence and the doctrine of protest and compulsion - The court's central concern was to guarantee respect for constitutional principles - See paragraphs 1 to 58.

Restitution - Topic 70

Unjust enrichment - General - Where money paid under mistake of law - The Supreme Court of Canada stated that it had abandoned the distinction between mistake of fact and mistake of law as it applied to the law of unjust enrichment - The court stated that there "can be no doubt that the ordinary principles of unjust enrichment now apply in cases of payments made pursuant to mutual mistake of law."- See paragraph 39.

Restitution - Topic 105

Unjust enrichment - Bars - Work done or monies paid voluntarily, not under duress or compulsion - The Supreme Court of Canada stated that "In cases not involving payments made to public authorities pursuant to unconstitutional legislation or the misapplication of an otherwise valid law, my view is that courts should insist on proof of compulsion in fact. The mere fact that the payment was made in protest should be neither necessary nor sufficient to establish compulsion. Protest may accompany a voluntary payment (in order to protect a hypothetical restitutionary entitlement), and compulsion may occur without any evidence of formal protest. Insisting on compulsion in fact is more principled and ensures that all similarly situated persons will be treated equally, regardless of protest." - See paragraph 58.

Restitution - Topic 702

Benefit acquired from the plaintiff - Recovery of money - Money paid under duress or compulsion - The Supreme Court of Canada stated that the doctrine of protest and compulsion functioned as an exception to the passing-on defence - The court held that the passing-on defence was generally inapplicable in the context of ultra vires taxes - This flowed from the constitutional basis for the right of restitution: that the Crown should not be able to retain taxes that lacked legal authority - It therefore mattered little whether the taxpayer paid under protest and compulsion - If the law proved to be invalid, then there should be no burden on the taxpayer to prove that they were paying under protest - The court also had concerns about the applicability of the doctrine of protest and compulsion to cases where the tax, although collected pursuant to valid legislation, was misapplied in relation to the taxpayer - Duress vitiated the voluntary nature of the payment - However, the absence of duress on the taxpayer's part should not be an important factor - It was not up to the taxpayer but rather to the party that made and administered the law to bear the responsibility of ensuring its validity and applicability - See paragraphs 52 to 57.

Restitution - Topic 702

Benefit acquired from the plaintiff - Recovery of money - Money paid under duress or compulsion - [See Restitution - Topic 105].

Restitution - Topic 705

Benefit acquired from the plaintiff - Recovery of money - Money paid under invalid law - [See Restitution - Topic 69 and first Restitution - Topic 702].

Restitution - Topic 8005

Defences - General - Passing-on - The Supreme Court of Canada rejected the passing-on defence in the context of  the recovery of taxes paid pursuant to ultra vires legislation - Earlier, in British Columbia v. Canadian Forest Products Ltd., LeBel, J., writing in dissent, but not on this point, had stated that "[t]he passing on defence would, in effect, result in an argument that no damages are ever recoverable in commercial litigation because anyone who claimed to have suffered damages but was still solvent had obviously found a way to pass the loss on" - The court stated that although LeBel, J., was criticizing the application of the passing-on defence in tort law, his criticisms were equally appropriate, if perhaps not more so, in the context of restitution law - This was because, unlike restitution law, tort law was premised on the concept of compensation for loss, such that concerns about potential windfalls were appropriate - See paragraphs 42 to 51.

Restitution - Topic 8005

Defences - General - Passing-on - [See Restitution - Topic 69 and first Restitution - Topic 702].

Restitution - Topic 8006

Defences - General - Fiscal chaos - A Province argued, inter alia, that it should be immune from restitutionary claims with respect to ultra vires taxes on the ground of fiscal chaos - The Supreme Court of Canada stated that "concerns regarding potential fiscal chaos are best left to Parliament and the legislatures to address, should they choose to do so. Where the state leads evidence before the court establishing a real concern about fiscal chaos, it is open to the court to suspend the declaration of invalidity to enable government to address the issue. ... it will be open to Parliament and to the legislatures to enact valid taxes and apply them retroactively, so as to limit or deny recovery of ultra vires taxes. Obviously, such legislation must also be constitutionally sound."- See paragraph 25.

Cases Noticed:

Air Canada and Pacific Western Airlines Ltd. v. British Columbia, [1989] 1 S.C.R. 1161; 95 N.R. 1, refd to. [para. 3].

Air Canada v. Liquor Control Board (Ont.) et al., [1997] 2 S.C.R. 581; 214 N.R. 1; 102 O.A.C. 1, refd to. [para. 6].

Eurig Estate v. Ontario Court (General Division), Registrar, [1998] 2 S.C.R. 565; 231 N.R. 55; 114 O.A.C. 55, refd to. [para. 12].

Amax Potash Ltd. et al. v. Saskatchewan, [1977] 2 S.C.R. 576; 11 N.R. 222, refd to. [para. 16].

Woolwich Building Society v. Commissioners of Inland Revenue, [1993] A.C. 70; 145 N.R. 163 (H.L.), refd to. [para. 17].

Reference Re Goods and Services Tax, [1992] 2 S.C.R. 445; 138 N.R. 247; 127 A.R. 161; 20 W.A.C. 161, refd to. [para. 20].

United States v. Butler (1936), 297 U.S. 1 (S.C.), refd to. [para. 26].

Peel (Regional Municipality) v. Ontario, [1992] 3 S.C.R. 762; 144 N.R. 1; 59 O.A.C. 81, refd to. [para. 32].

Pacific National Investments Ltd. v. Victoria (City) et al., [2004] 3 S.C.R. 575; 327 N.R. 100; 206 B.C.A.C. 99; 338 W.A.C. 99; 2004 SCC 75, refd to. [para. 34].

Garland v. Consumers' Gas Co., [2004] 1 S.C.R. 629; 319 N.R. 38; 186 O.A.C. 128; 2004 SCC 25, refd to. [para. 36].

Canadian Pacific Airlines Ltd. and Pacific Western Airlines Ltd. v. British Columbia, [1989] 1 S.C.R. 1133; 96 N.R. 1, refd to. [para. 39].

Ross v. R. (1903), 32 S.C.R. 532, refd to. [para. 41].

Abel Skiver Farm Corp. v. Ste-Foy (Town) and Commission Scolaire de Ste-Foy, [1983] 1 S.C.R. 403; 54 N.R. 345, refd to. [para. 41].

Willmor Discount Corp. v. Vaudreuil (City), [1994] 2 S.C.R. 210; 167 N.R. 381; 61 Q.A.C. 141, refd to. [para. 41].

Ville de Sept-Îles v. Lussier, [1993] R.J.Q. 2717 (C.A.), refd to. [para. 41].

Commissioner of State Revenue v. Royal Insurance Australia Ltd. (1994), 182 C.L.R. 51 (Aust. H.C.), refd to. [para. 46].

British Columbia v. Canadian Forest Products Ltd., [2004] 2 S.C.R. 74; 321 N.R. 1; 198 B.C.A.C. 1; 324 W.A.C. 1; 2004 SCC 38, refd to. [para. 48].

Hanover Shoe Inc. v. United Shoe Machinery Corp. (1968), 392 U.S. 481, refd to. [para. 48].

Law Society of Upper Canada et al. v. Ernst & Young et al., [2002] O.T.C. 227; 59 O.R.(3d) 214 (Sup. Ct.), refd to. [para. 48].

Mackin v. New Brunswick (Minister of Finance) - see Rice, P.C.J. v. New Brunswick.

Rice, P.C.J. v. New Brunswick, [2002] 1 S.C.R. 405; 282 N.R. 201; 245 N.B.R.(2d) 299; 636 A.P.R. 299; 2002 SCC 13, refd to. [para. 56].

Miron and Valliere v. Trudel et al., [1995] 2 S.C.R. 418; 181 N.R. 253; 81 O.A.C. 253, refd to. [para. 56].

Bank of America Canada v. Mutual Trust Co. et al., [2002] 2 S.C.R. 601; 287 N.R. 171; 159 O.A.C. 1; 2002 SCC 43, refd to. [para. 62].

Authors and Works Noticed:

Baudouin, Jean-Louis, and Jobin, Pierre-Gabriel, Les obligations (6th Ed. 2005), pp. 556 to 558 [para. 41].

Birks, Peter, Restitution from the Executive: A Tercentenary Footnote to the Bill of Rights, in Finn, P.D., Essays on Restitution (1990), c. 6 [para. 31]; c. 6,  p. 168 [para. 15]; p. 204 [para. 29].

Finn, Paul D., Essays on Restitution (1990), c. 6, p. 168 [para. 15]; p. 204 [para. 29].

Goff, Robert and Jones, Gareth, The Law of Restitution (4th Ed. 1993), p. 7 [para. 40].

Hogg, Peter W., and Monahan, Patrick J., Liability of the Crown (3rd Ed. 2000), pp. 246 [paras.14, 23, 31]; 247 [paras. 23, 31].

Hogg, Peter W., Constitutional Law of Canada (1992 Looseleaf Ed.) (2005 Update, Release 1), vol. 2, pp. 55-13 [para. 20];  55-16 [paras. 14, 22, 31]; 55-17 [paras. 14, 22].

Maddaugh, Peter D., and McCamus, John D., The Law of Restitution (2nd Ed. 2004) (2005 Looseleaf Update), pp. 1-4 [para. 40]; 3-7 [para. 33]; 11-20 [para. 55]; 11-44 [para. 52]; 11-45 [paras. 45, 52]; 11-46 [para. 45]; 26-2, 26-3 [para. 54]; 26-6.1 [para. 54].

Counsel:

Eugene J. Mockler, Q.C., and Adam B. Neal, for the appellants/respondents on cross-appeal;

David D. Eidt, for the respondent/appellant on cross-appeal;

Eugene Szach and Stewart J. Pierce, for the intervener, the Attorney General of Manitoba;

Nancy E. Brown and Jonathan Penner, for the intervener, the Attorney General of British Columbia;

Nicholas James Parker and David Kamal, for the intervener, the Attorney General of Alberta;

Barbara A. McIsaac, Q.C., and Howard R. Fohr, for the intervener, the Canadian Constitution Foundation;

Joseph J. Arvay, Q.C., and Brent B. Olthuis, for the intervener, the Consumers' Association of Canada.

Solicitors of Record:

Mockler Peters Oley Rouse, Fredericton, New Brunswick, for the appellants/respondents on cross-appeal;

Attorney General of New Brunswick, Fredericton, New Brunswick, for the respondent/ ppellant on cross-appeal;

Attorney General of Manitoba, Winnipeg, Manitoba, for the intervener, the Attorney General of Manitoba;

Ministry of Attorney General of British Columbia, Victoria, British Columbia, for the intervener, the Attorney General of British Columbia;

Attorney General of Alberta, Edmonton, Alberta, for the intervener, the Attorney General of Alberta;

McCarthy Tétrault, Ottawa, Ontario, for the intervener, the Canadian Constitution Foundation;

Arvay Finlay, Vancouver, British Columbia, for the intervener, the Consumers' Association of Canada.

This appeal was heard on June 20, 2006, by McLachlin C.J.C., Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein, JJ., of the Supreme Court of Canada. Bastarache, J., delivered the following reasons for judgment for the court in both official languages on January 11, 2007.