#6846 - Kingstreet Investment Ltd V. New Brunswick - Restitution of Unjust Enrichment BCL

Kingstreet Investment Ltd v. New Brunswick

Facts

Since 1988, the corporate appellants have been operating a number of night clubs in the cities of Fredericton and Moncton, New Brunswick, that are licensed to sell alcoholic beverages. They purchase their alcohol from the New Brunswick Liquor Corporation’s retail stores and, in addition to the retail price, pay a user charge, as prescribed by regulation adopted pursuant to the Liquor Control Act, R.S.N.B. 1973, c. L 10, s. 200(3). That user charge has varied over the years from 11 percent of the retail price to the current 5 percent: see Fees Regulation — Liquor Control Act, N.B. Reg. 89 167,s. 5. The trial judge found, and the parties agree, that the appellants have paid over $1 million in such charges. The appellants have challenged the constitutional validity of the user charge and seek by way of relief reimbursement of all amounts paid over the years with compound interest.

I agree: the trial judge’s decision that the user charge constitutes an unconstitutional indirect tax must stand.

Holding

Constitutional basis for recovery – not Unjust Enrichment

This appeal concerns whether restitution is available for the recovery of monies collected under legislation that is subsequently declared to be ultra vires. For the reasons given below, I find that restitution is generally available. I agree with Robertson J.A. that there is no general immunity affecting recovery of an illegal tax. I would, however, decide the case on the basis of constitutional principles rather than unjust enrichment.

The Court’s central concern must be to guarantee respect for constitutional principles. One such principle is that the Crown may not levy a tax except with authority of the Parliament or the legislature: Constitution Act, 1867, ss. 53 and 90. This principle of “no taxation without representation” is central to our conception of democracy and the rule of law. As Hogg and Monahan explain, this principle “ensures not merely that the executive branch is subject to the rule of law, but also that the executive branch must call the legislative branch into session to raise taxes.”

When the government collects and retains taxes pursuant toultra vireslegislation, it undermines the rule of law.To permit the Crown to retain anultra virestax would condone a breach of this most fundamental constitutional principle. As a result, a citizen who has made a payment pursuant to ultra vireslegislationhas a right to restitution.

Immunity for payments to Government - not accepted – three reasons

As Wilson J. explained in dissent in Air Canada, the immunity rule proposed by La Forest J. amounts to saying that “the principle should be reversed for policy reasons in the case of payments made to governmental bodies” (p. 1215 (emphasis in original)).

In my view, privileging policy considerations in the case of ultra vires taxes threatens to undermine the rule of law.

Rule of Law: If the constitutional rule requiring the Crown to only spend public funds under legislative authority has sufficient weight to compel recovery of an unauthorized expenditure by the Crown, notwithstanding the principles of unjust enrichment, then it is difficult to understand a common law bar to the recovery of unconstitutionally imposed taxes. Presumably, the constitutional limitations on the Crown’s power to spend are of equal importance as the constitutional limitations on the Crown’s power to raise revenue. In my view, these principles are really two sides of the same coin.

Exceptions on policy grounds must be left to the Parliament: Another policy reason given by La Forest J. for the immunity rule was a concern for fiscal inefficiency and fiscal chaos (p. 1207). My view is that concerns regarding potential fiscal chaos are best left to Parliament and the legislatures to address, should they choose to do so…. Moreover, this Court’s decision in Air Canada demonstrates that 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.

Affirming Wilson J’s reasoning in Air Canada: Turning to La Forest J.’s concern about potential fiscal inefficiency, I agree with Wilson J. in Air Canada, where she queries:

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.

No role for unjust enrichment – Two Reasons

Having rejected the immunity rule, this raises the question of whether claims for the recovery of unconstitutional taxes should be analysed on the basis of the private law rules of unjust enrichment or constitutional principles. As explained above, the recovery of unconstitutional taxes is warranted on the basis of limitations to the state’s constitutional authority to tax, and in particular on the fundamental constitutional principle that there shall be no taxation without representation (see Birks, at c. 6; Hogg, at p. 55-16; and Hogg and Monahan, at pp. 246-47)…. I must therefore discuss why, in my view, an unjust enrichment analysis is inappropriate in this case before setting out the proper restitutionary basis for the repayment of ultra vires taxes…. I would not decide this appeal as a matter of unjust enrichment.

Constitutional Principles would be ignored:

The taxpayers in this case has recourse to a remedy as a matter of constitutional right. This remedy is in fact the only appropriate remedy because it raises important constitutional principles which would be ignored by treating the claim under another category of restitution… Nevertheless, it is my view that the analytical framework of the modern doctrine of unjust enrichment is inappropriate in this case. Restitution for ultra vires taxes does not fit squarely within either of the established categories of restitution. The better view is that it comprises a third category distinct from unjust enrichment. Actions for recovery of taxes collected without legal authority and actions of unjust enrichment both address concerns of restitutionary justice, but these remedies developed in our legal system along separate paths for distinct purposes. The action for recovery of taxes is firmly grounded, as a public law remedy in a constitutional principle stemming from democracy’s earliest attempts to circumscribe government’s power within the rule of law. Unjust enrichment, on the other hand, originally evolved from the common law action of indebitatus assumpsit as a means of granting plaintiffs relief for quasi-contractual damages.

Difficulties in the application of Unjust Enrichment Principle:

The application of private law principles in the realm of public and constitutional law is not without its difficulties. These difficulties have in the past been resolved by a flexible application of the unjust enrichment principle. McLachlin J. had explained inPeelthat the three-part formulation of the unjust enrichment principle was capable of going beyond the traditional categories of recovery and of allowing the law to develop in a flexible way as required to meet changing perceptions of justice. This restitutionary framework was recently restated and refined inGarland v. Consumers’ Gas Co.,2004 SCC 25 (CanLII), [2004] 1 S.C.R. 629, 2004 SCC 25.Garlandestablished a two-part analysis for determining whether there was a juristic reason for the enrichment that should operate to deny recovery. First, the plaintiff is required to show that no established category of juristic reason for the enrichment exists. If no reason exists, the burden shifts to the defendant to show that there is some other reason why recovery should be denied…. It is at this second stage of the test that courts...