Kingstreet Investments Ltd. et al. v. New Brunswick (Minister of Finance) et al., 2005 NBCA 56

• Judge: Ryan, Robertson and Richard, JJ.A.
• Court: Court of Appeal (New Brunswick)
• Case Date: November 10, 2004
• Jurisdiction: New Brunswick
• Citations: 2005 NBCA 56;(2005), 285 N.B.R.(2d) 201 (CA)

Kingstreet Inv. Ltd. v. N.B. (2005), 285 N.B.R.(2d) 201 (CA);

    285 R.N.-B.(2e) 201; 744 A.P.R. 201

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[French language version follows English language version]

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

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Temp. Cite: [2005] N.B.R.(2d) TBEd. JN.007

Kingstreet Investments Ltd. and 501638 N.B. Ltd. (plaintiffs/appellants) v. The Province of New Brunswick as represented by the Department of Finance and New Brunswick Liquor Corporation (defendants/respondents)

(38/04/CA; 2005 NBCA 56)

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

New Brunswick Court of Appeal

Ryan, Robertson and Richard, JJ.A.

May 26, 2005.

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. The plaintiffs' restitutionary claim was allowed with respect to all moneys paid from the time that they commenced legal proceed­ings.

Interest - Topic 5010

Interest as damages (prejudgment interest) - General principles - Calculation of inter­est - Simple or compound - The New Brunswick Court of Appeal allowed in part a restitutionary claim with respect to mon­eys paid under an invalid law - The court rejected the plaintiffs' claim for compound interest at 13.5%, the same amount that was prescribed by regulation on delinquent payments of gasoline taxes - The court rejected the plaintiffs' argument of "what is good for the goose is good for the gan­der" - The 13.5% interest rate prescribed by regulation was intended to stimulate timely remission of gasoline taxes - That limited purpose could not be transposed to the plaintiffs' restitutionary claim - The plaintiffs had not even alleged mala fides on the defendant's part - The plaintiffs were entitled to interest to compensate them for the loss of the use of the moneys - See paragraphs 97 and 98.

Interest - Topic 5313

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

Restitution - Topic 63

Unjust enrichment - General - Requirement of enrichment at plaintiff's expense - The New Brunswick Court of Appeal held that public authorities could raise passing-on as a defence to restitutionary claims based on moneys paid under invalid legislation - The court held that the initial burden of proof was with the defendant government, to establish that on a balance of probabili­ties the economic burden of the invalid tax was shifted to a third party - The court rejected case law that placed the burden on the plaintiff to establish a negative (that the cost was not passed on) - If the plain­tiff actually added the cost of the illegal tax to the invoice price of the goods or services being marketed then the defendant government had met its burden - The court recognized a rebuttable presumption that the illegal tax was passed on in circum­stances where it was established that the impugned tax qualified as an indirect tax, as determined under existing constitutional principles - See paragraphs 49 to 82.

Restitution - Topic 69

Unjust enrichment - General - Where money paid under invalid law - [See Resti­tution - Topic 63 ].

Restitution - Topic 69

Unjust enrichment - General - Where money paid under invalid law - The New Brunswick Court of Appeal held that the pleas of "inefficiency" and "fiscal chaos" were not sufficient to support a rule of law immunizing public authorities from resti­tutionary claims based on moneys paid under invalid legislation - There was a general right of recovery with respect to such moneys - However, the Limitation of Actions Act was a valid defence for limit­ing the amount recoverable - If no statu­tory prescription period existed, the defen­dant was entitled to rely on the related equitable doctrines of laches and acquies­cence, leaving the following four other possible defences: fiscal chaos; estoppel by representation; change-of-position and passing-on - The court was "drawn to the line of reasoning" that held that govern­ments should not be entitled to raise fiscal chaos as a defence because there was no objective way of knowing when the thresh­old level would be met - Of the remaining three defences, the court held that only the defence of passing-on was available to governments resisting restitutionary claims based on moneys paid under invalid legis­lation - See paragraphs 27 to 76.

Restitution - Topic 69

Unjust enrichment - General - Where money paid under invalid law - The New Brunswick Court of Appeal held that public authorities could raise passing-on as a defence to restitutionary claims based on moneys paid under invalid legislation, except where the payments were made under protest - The court stated that "I am prepared to accept that a plaintiff who is entitled to recover moneys paid under protest will receive a windfall in cases where the cost of the illegal tax was passed on to a third party. However, there is a juristic reason why the plaintiff should recover even though there has been no deprivation. The law must provide an incentive for those who are otherwise unwilling to challenge the validity of a tax." - See paragraphs 86 to 96.

Restitution - Topic 8003

Defences - General - Change of position - The New Brunswick Court of Appeal held that the defence of change-of-position was of no benefit to public authorities that were defending restitutionary claims based on invalid tax legislation - The court stated that "Admittedly, it is open to a defendant to plead that, as a result of a mistaken payment, an expenditure was incurred that otherwise would not have been made. However, the defence applies only in cases where the payment relates to an unre­quested benefit and not where moneys are paid under an unlawful demand. Moreover, for the defence to be accepted, the defen­dant must show more than mere expendi­ture of the moneys. Normally, the defen­dant must establish that the expenditure was in some sense extraordinary and not simply made in order to meet ordinary expenses or to pay existing debts." - See paragraph 48.

Restitution - Topic 8004

Defences - General - Estoppel - The New Brunswick Court of Appeal stated that to establish a defence of estoppel by represen­tation, a defendant not only had to estab­lish detrimental reliance, but also that it occurred as a result of a statement or conduct amounting to a representation by the plaintiff - Further, the defendant had to establish that the representation or conduct had been intended to induce the defendant to enter into a course of conduct that quali­fied as detrimental reliance - The court stated that "As is apparent, estoppel is not a realistic defence when it comes to gov­ernments who are resisting a restitutionary claim based on an illegal tax." - See para­graph 48.

Restitution - Topic 8005

Defences - General - Passing-on - [See Restitution - Topic 63 and second Resti­tution - Topic 69 ].

Restitution - Topic 8006

Defences - General - Fiscal chaos - [See second Restitution - Topic 69 ].

Cases Noticed:

Air Canada and Pacific Western Airlines Ltd. v. British Columbia, [1989] 1 S.C.R. 1161; 95 N.R. 1, refd to. [paras. 1, 101].

Eurig Estate, Re - see Eurig Estate v. Ontario Court (General Division), Regis­trar.

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. [paras. 6, 109].

Allard Contractors Ltd. et al. v. Coquitlam (District) et al., [1993] 4 S.C.R. 371; 160 N.R. 249; 35 B.C.A.C. 241; 57 W.A.C. 241, refd to. [para. 18].

Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134; 246 N.R. 201; 129 B.C.A.C. 1; 210 W.A.C. 1, refd to. [para. 18].

Urban Outdoor Trans Ad et al. v. Scar­borough (City) (1999), 98 O.T.C. 57 (Sup. Ct.), refd to. [para. 18].

Nepean Hydro Electric Commission v. Ontario Hydro, [1982] 1 S.C.R. 347; 41 N.R. 1, refd to. [para. 25].

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. 25].

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. 25].

Peel (Regional Municipality) v. Ontario, [1992] 3 S.C.R. 762; 144 N.R. 1; 59 O.A.C. 81, refd to. [para. 27].

Woolwich Building Society v. Commis­sioners of Inland Revenue, [1993] A.C. 70; 145 N.R. 163 (H.L.), refd to. [para. 29].

Amax Potash Ltd. et al. v. Saskatchewan, [1977] 2 S.C.R. 576; 11 N.R. 222, refd to. [para. 29].

Nanaimo Immigrant Settlement Society et al. v. British Columbia (2004), 202 B.C.A.C. 172; 331 W.A.C. 172; 242 D.L.R.(4th) 394 (C.A.), leave to appeal refused (2005), 334 N.R. 193 (S.C.C.), refd to. [para. 32].

United States v. Butler (1936), 297 U.S. 1 (Sup. Ct.), refd to. [para. 36].

Air Canada v. British Columbia (1986), 30 D.L.R.(4th) 24 (B.C.C.A.), refd to. [para. 41].

Neles Controls Ltd. v. Minister of National Revenue (Customs and Excise) (2002), 288 N.R. 260 (F.C.A.), refd to. [para. 43].

British Columbia v. Canadian Forest Prod­ucts Ltd., [2004] 2 S.C.R. 74; 321 N.R. 1, refd to. [para. 49].

Commissioner of State Revenue (Victoria) v. Royal Insurance Australia Ltd. (1994), 126 A.L.R. 1 (H.C.), refd to. [para. 51].

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. 54].

Reference Re Farm Products Marketing Act (Ontario), [1957] S.C.R. 198, refd to. [para. 55].

Shannon v. Lower Mainland Dairy Prod­ucts Board, [1938] 4 D.L.R. 81 (P.C.), refd to. [para. 55].

Canada (Attorney General) v. British Co­lumbia (Registrar of Titles Vancouver), [1934] 4 D.L.R. 764 (B.C.C.A.), refd to. [para. 55].

Moses v. Macferlan, [1558-1774] All E.R. Rep. 581 (K.B.), refd to. [para. 58].

Becker v. Pettkus, [1980] 2 S.C.R. 834; 34 N.R. 384; 117 D.L.R.(3d) 257, refd to. [para. 60].

Decorative Carpets Inc. v. State Board of Equalization (1962), 373 P.2d 637 (Cal. Sup. Ct.), refd to. [para. 60].

San Giorgio SpA, Re Payment of Illegal taxes: Amministrazione Delle Finanze Dello Stato (State Finance Ad­ministration) v. San Giorgio SpA, [1985] 2 C.M.L.R. 658 (Eur. C.J.), refd to. [para. 69].

Payment of Illegal Taxes, Re: E.C. Com­mission v. Italy, [1989] 3 C.M.L.R. 25 (Eur. C.J.), refd to. [para. 69].

Les Fils de Jules Bianco S.A. v. Directeur Général des Douanes et Droits Indirects, [1989] 3 C.M.L.R. 36 (Eur. C.J.), refd to. [para. 69].

Allied Air Conditioning Inc. et al. v. Brit­ish Columbia et al., [1994] 5 W.W.R. 62; 40 B.C.A.C. 161; 65 W.A.C. 161; 87 B.C.L.R.(2d) 207 (C.A.), refd to. [para. 76].

Cherubini Metal Works Ltd. v. Nova Scotia (Attorney General) (1995), 137 N.S.R.(2d) 197; 391 A.P.R. 197 (C.A.), refd to. [para. 76].

Standard Oil Co. v. Bollinger, Director of Finance et al. (1929), 169 N.E. 236 (Il. Sup. Ct.), refd to. [para. 91].

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. 98].

Canada v. Premier Mouton Products Inc., [1961] S.C.R. 361, refd to. [para. 111].

Rathwell v. Rathwell, [1978] 2 S.C.R. 436; 19 N.R. 91, refd to. [para. 114].

Authors and Works Noticed:

Dagan, Hanoch, The Law of Ethics of Restitution (2004), p. 77 [para. 73].

England, Law Commission, Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and Payments, Law Com. No. 227 (1994), generally [para. 51].

Hogg, Peter W., and Monahan, Patrick J., Liability of the Crown (3rd Ed. 2000), generally [para. 24]; pp. 250 [para. 29]; 255 [paras. 29, 33]; 256, 257 [para. 65].

Hogg, Peter W., Constitutional Law of Canada (1997) (Looseleaf), pp. 30-7, 251-52 [para. 80].

Jones, Gareth, Restitution in Public and Private Law (1991), generally [para. 24]; pp. 29 [para. 51]; 37, fn. 124 [para. 65]; 44 [para. 48]; 45 [para. 50]; 46, fn. 157 [paras. 61, 77].

Maddaugh, Peter D., and McCamus, John D., The Law of Restitution (2nd Ed. 2004) (Looseleaf), c. 3, generally [para. 24]; pp. 2-13 [para. 59]; 10-37 [para. 48]; 11-38, 11-39 [para. 50]; 22-26 [para. 33]; para. 3:100 [para. 104].

Mew, Graeme, The Law of Limitations (2nd Ed. 2004), p. 38 [para. 39].

Michell, Paul, Restitution "Passing On" and the Recovery of Unlawfully De­manded Taxes: Why Air Canada Doesn't Fly (1995), 53 U.T. Fac. L. Rev. 130, generally [para. 50]; pp. 156 to 158 [para. 64].

Woodward, Jr., William J., "Passing-on" the Right to Restitution (1985), 39 U. Miami L. Rev. 873, generally [para. 50].

Counsel:

Eugene J. Mockler, Q.C., for the appel­lants;

David D. Eidt, for the respondents.

This appeal was heard on November 10, 2004, by Ryan, Robertson and Richard, JJ.A., of the New Brunswick Court of Ap­peal. The court delivered its decision on May 26, 2005, which contained the following opinions:

Robertson, J.A. (Richard, J.A., concur­ring) - see paragraphs 1 to 99;

Ryan, J.A., dissenting - see paragraphs 100 to 123.