Prince et al. v. ACE Aviation Holdings Inc. et al.
[Indexed as: Prince v. ACE Aviation Holdings Inc.]
Ontario Reports
Court of Appeal for Ontario,
Doherty, Lauwers and Strathy JJ.A.
April 15, 2014
120 O.R. (3d) 140 | 2014 ONCA 285
Case Summary
Conflict of laws — Forum conveniens — Plaintiffs bringing proposed class action on behalf of U.S. and Canadian passengers who purchased tickets on Air Canada flights in Canada and between Canada and U.S. — Plaintiffs claiming that defendant gave extra-territorial effect to U.S. tax laws by collecting transportation taxes levied under U.S. Internal Revenue Code and that defendant misapplied U.S. tax law by collecting taxes that were not lawfully exigible — Action stayed on basis that Ontario was not forum conveniens — Comity requiring that Ontario court not inquire into merits of plaintiffs' claims regarding U.S. revenue law unless and until issue of application of U.S. revenue law had been determined by U.S. authorities.
Conflict of laws — Jurisdiction — Plaintiffs bringing proposed class action on behalf of U.S. and Canadian passengers who purchased tickets on Air Canada flights in Canada and between Canada and U.S. — Plaintiffs claiming that defendant gave extra-territorial effect to U.S. tax laws by collecting transportation taxes levied under U.S. Internal Revenue Code and that defendant misapplied U.S. tax law by collecting taxes that were not lawfully exigible — Ontario court having jurisdiction to determine whether foreign law was being enforced extra-territorially and to grant appropriate relief — Action stayed on basis that Ontario was not forum conveniens.
The plaintiffs brought a proposed class action on behalf of U.S. and Canadian passengers who purchased tickets on Air Canada flights in Canada and between Canada and the U.S. They alleged that Air Canada had improperly collected transportation taxes levied under the U.S. Internal Revenue Code. They claimed that Air Canada was giving extra-territorial effect to U.S. tax laws and that it was misapplying U.S. tax law by collecting taxes that were not lawfully exigible. Air Canada moved for an order dismissing or permanently staying the action on the basis that the Ontario court did not have jurisdiction over the dispute and on the basis of forum non conveniens. The motion judge held that the court had jurisdiction, but stayed the claims of the sub-class of passengers who paid for tickets in the U.S. on the ground of forum non conveniens. The plaintiffs appealed, and Air Canada cross-appealed.
Held, the appeal should be dismissed; the cross-appeal should be allowed.
An Ontario court has jurisdiction to determine whether a foreign law is being enforced extra-territorially and to grant appropriate relief. However, the motion judge erred in failing to stay the entire action on the basis of forum non conveniens. As a matter of comity, the interpretation of the U.S. Internal Revenue Code, including its intended scope, should be undertaken by agencies and courts in the U.S. The plaintiffs should be required to apply to the IRS for a refund of the taxes in question and to appeal an unfavourable ruling. If the U.S. court affirmed the decision of the IRS that some or all of the taxes were payable, the Ontario court would have the benefit of those determinations, and the reasons for [page141] them, should it be called upon to decide whether the collection of the taxes was a violation of the principles governing the conduct of sovereign states and an extra-territorial application of the U.S. law in Canada. The proceeding should be stayed pending the pursuit of the plaintiffs' remedies in the U.S.
United States of America v. Harden, 1963 CanLII 42 (SCC), [1963] S.C.R. 366, [1963] S.C.J. No. 38, 41 D.L.R. (2d) 721, 44 W.W.R. 630, [1963] C.T.C. 450, 63 D.T.C. 1276, consd
Other cases referred to
2249659 Ontario Ltd. v. Sparkasse Siegen (2013), 115 O.R. (3d) 241, [2013] O.J. No. 2496, 2013 ONCA 354, 43 C.P.C. (7th) 22, 306 O.A.C. 288, 229 A.C.W.S. (3d) 109; Breeden v. Black, [2012] 1 S.C.R. 666, [2012] S.C.J. No. 19, 2012 SCC 19, 291 O.A.C. 311, 2012EXP-1450, J.E. 2012-786, 429 N.R. 192, EYB 2012-205200, 17 C.P.C. (7th) 1, 343 D.L.R. (4th) 629, 91 C.C.L.T. (3d) 153, 212 A.C.W.S. (3d) 713; Club Resorts Ltd. v. Van Breda, [2012] 1 S.C.R. 572, [2012] S.C.J. No. 17, 2012 SCC 17, 291 O.A.C. 201, 2012EXP-1452, J.E. 2012-788, EYB 2012-205198, 429 N.R. 217, 343 D.L.R. (4th) 577, 91 C.C.L.T. (3d) 1, 10 R.F.L. (7th) 1, 17 C.P.C. (7th) 223, 212 A.C.W.S. (3d) 712; Government of India v. Taylor, [1955] A.C. 491, [1955] 1 All E.R. 292, [1955] 2 W.L.R. 303, 34 A.T.C. 10, [1955] T.R. 9 (H.L.); Grammercy Ltd. v. Dynamic Tire Corp. (2004), 2004 CanLII 34318 (ON SC), 69 O.R. (3d) 210, [2004] O.J. No. 94, [2004] O.T.C. 32, 45 C.P.C. (5th) 268, 128 A.C.W.S. (3d) 59 (S.C.J.); Incorporated Broadcasters Ltd. v. Canwest Global Communications Corp. (2003), 2003 CanLII 52135 (ON CA), 63 O.R. (3d) 431, [2003] O.J. No. 560, 223 D.L.R. (4th) 627, 169 O.A.C. 1, 31 B.L.R. (3d) 161, 30 C.P.C. (5th) 282, 120 A.C.W.S. (3d) 966 (C.A.); Kaucky v. Southwest Airlines Co., 109 F.3d 349 (7th Cir. 1997); Moore v. Mitchell, 281 U.S. 18, 50 S. Ct. 175, 74 L. Ed. 673 (1930), affg 30 F.2d 600 (2d Cir. 1929); Ontario Assn. of Architects v. Deskin, 2000 CanLII 50987 (ON SC), [2000] O.J. No. 1589, [2000] O.T.C. 306, 19 C.C.L.I. (3d) 275, 47 C.P.C. (4th) 295, 96 A.C.W.S. (3d) 959 (S.C.J.); Tolofson v. Jensen, 1994 CanLII 44 (SCC), [1994] 3 S.C.R. 1022, [1994] S.C.J. No. 110, 120 D.L.R. (4th) 289, 175 N.R. 161, [1995] 1 W.W.R. 609, J.E. 95-61, 51 B.C.A.C. 241, 100 B.C.L.R. (2d) 1, 77 O.A.C. 81, 26 C.C.L.I. (2d) 1, 22 C.C.L.T. (2d) 173, 32 C.P.C. (3d) 141, 7 M.V.R. (3d) 202, 52 A.C.W.S. (3d) 40
Statutes referred to
Air Travellers Security Charge Act, S.C. 2002, c. 9, ss. 5, 15.1
Courts of Justice Act, R.S.O. 1990, c. C.43, s. 106
Excise Tax Act, R.S.C. 1985, c. E-15, s. 224.1
Internal Revenue Code, 26 U.S.C., ss. 4261, (e)(2), 7422(a), (f)(1)
Rules and regulations referred to
Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01(1), (3)(a)
Authorities referred to
Scassa, Teresa, and Michael Deturbide, Electronic Commerce and Internet Law in Canada, 2nd ed. (Toronto: CCH, 2012)
Walker, Janet, and Jean-Gabriel Castel, Canadian Conflict of Laws, 6th ed., looseleaf (Markham, Ont.: LexisNexis/ Butterworths, 2005)
APPEAL AND CROSS-APPEAL from the order of Conway J. (2013), 115 O.R. (3d) 721, [2013] O.J. No. 2992, 2013 ONSC 2906 (S.C.J.) on a motion to dismiss or stay an action.
William Sasso, Peter Wardle and Jacqueline Horvat, for appellants/respondents by way of cross-appeal. [page142]
David Byers and Genna Wood, for respondents/ appellant by way of cross-appeal.
The judgment of the court was delivered by
[1] STRATHY J.A.: — This appeal and cross-appeal raise issues of jurisdiction and forum conveniens in a proposed class action on behalf of U.S. and Canadian passengers who purchased tickets on Air Canada flights in Canada and between Canada and the U.S.
[2] The plaintiff appellants (who, for convenience, I refer to as the "appellants") are the proposed representative plaintiffs in the action. They allege that Air Canada has improperly collected transportation taxes levied under the United States Internal Revenue Code, 26 U.S.C. (the "Code").1
[3] Their claims are really quite simple. They say that Air Canada is collecting U.S. taxes on ticket purchases in Canada and on air travel in Canada, thereby giving extra-territorial effect to U.S. tax laws. They also say that Air Canada is misapplying U.S. tax law by collecting taxes that are not lawfully exigible.
[4] To advance these claims, the proposed class has been divided in four sub-classes. The sub-classes differ in terms of whether the passengers are resident in Canada or the U.S., whether the passengers paid for their tickets in Canada or in the U.S., and where the flights took off from and landed.
[5] For the purposes of this appeal and cross-appeal, the most important distinction is the jurisdiction where the passengers purchased their tickets. It is alleged that three of the sub-classes paid for their tickets in Canada. These passengers make both claims described above. On behalf of the single sub-class of passengers who paid for their tickets in the U.S., the appellants claim only that Air Canada's practices gave extra-territorial effect to the Code.
[6] Air Canada moved for an order dismissing or permanently staying this action on the basis that the Ontario Superior Court of Justice does not have jurisdiction over the dispute, and on the basis of forum non conveniens.
[7] The motion judge held the Superior Court of Justice had jurisdiction over the appellants' claims for recovery of taxes on tickets paid for in Canada and that Ontario was the convenient forum in which to try those claims. However, she stayed the [page143] claims of the sub-class of passengers who paid for tickets in the U.S., on the ground of forum non conveniens.
[8] The appellants appeal the stay granted by the motion judge with respect to tickets paid for in the U.S. Air Canada cross-appeals, asserting that all the claims should have been stayed.
[9] For the reasons that follow, I would dismiss the appeal, allow the cross-appeal and vary the order below by staying these proceedings pending pursuit of the appellants' remedies in the U.S.
A. The Class Action
[10] This action was commenced in 2008, but remains uncertified. A fresh statement of claim, delivered in April 2013, resulted in the motion to dismiss or stay the proceeding.
[11] In this section, I will describe the taxes at issue, the proposed class, the representative plaintiffs and the nature of the claims made in the action.2
(1) The U.S. taxes
[12] The U.S. imposes excise taxes on air transportation. A passenger's liability for tax varies, depending on the tax in question, the geographic scope of the transportation and the place of payment for the transportation.
[13] Under s. 4261 of the Code, purchasers of tickets are required to pay:
(a) a Transportation Tax at the rate of 7.5 per cent on the amount paid for transportation beginning in the U.S. or within 225 miles of the continental U.S. and ending in the U.S. or within 225 miles of the continental U.S. (s. 4261(a));3
(b) a Domestic Flight Segment Tax in the amount of $3.00 (indexed annually for inflation) on each segment of transportation (consisting of one takeoff and one landing), which begins and ends in the U.S. or within 225 miles of the continental U.S. (s. 4261(b)); and [page144]
(c) where the Transportation Tax is not applicable, an International Travel Facilities Tax of $12.00 (indexed annually for inflation) on any amount paid for transportation, if such transportation begins or ends in the U.S. (s. 4261(c)).
[14] If payment for the transportation is made outside the U.S., the Transportation Tax and the Domestic Flight Segment Tax are only payable if the transportation begins and ends in the U.S. (s. 4261(e)(2)).
[15] The International Travel Facilities Tax is payable whether payment is made inside or outside the U.S.
[16] Air Canada, like other air carriers, acts as a withholding agent on behalf of the U.S. in collecting the taxes at the time of ticket purchase. It then files returns and remits the taxes to the IRS. If the taxes are not remitted, Air Canada is liable to the U.S. for any amounts that were or should have been collected.
[17] Under U.S. law, a person who claims that any of these taxes have been improperly collected has no right of action against the withholding agent -- in this case, Air Canada. A taxpayer must follow a statutory procedure to recover a tax alleged to have been unlawfully collected. A claim for a refund must be filed with the IRS (s. 7422(a)). If the claim is successful, the tax will be refunded. If the claim is denied, the taxpayer may file suit in a Federal District Court or in the U.S. Court of Federal Claims. The only proper defendant in such a suit is the U.S.: s. 7422(f)(1); Kaucky v. Southwest Airlines Co., 109 F.3d 349 (7th Cir. 1997).
[18] These procedural requirements are not unique to the U.S. Sales taxes and other transportation-related charges are typically imposed on the buyer, but as a practical matter, the carrier must collect them at the time the ticket is sold. It would be impractical to collect the taxes when passengers board or disembark the aircraft. Canadian law also requires intermediaries, such as airlines, to collect taxes and other charges from customers. These Canadian laws also provide that the payer of the tax or charge has no private remedy against the intermediary: see, e.g., Excise Tax Act, R.S.C. 1985, c. E-15, s. 224.1; Air Travellers Security Charge Act, S.C. 2002, c. 9, ss. 5, 15.1.
(2) The proposed class and the representative plaintiffs
[19] The proposed class is defined as all persons who paid the U.S. Domestic Flight Segment Tax and the U.S. Transportation Tax to the defendants, directly or indirectly, on the purchase of airline tickets, and who fall within the following categories: [page145]
(a) Canadian residents who pay in Canada for flights that originate in Canada in the 225-mile zone and land in the U.S. or that originate in the U.S. and land in Canada in the 225-mile zone;
(b) U.S. residents who pay in Canada for flights that originate from and land exclusively (i.e., beginning and ending) within Canada in the 225-mile zone;
(c) U.S. residents who pay in Canada for flights that originate in Canada in the 225-mile zone and land in the U.S. or that originate in the U.S. and land in Canada in the 225-mile zone; and
(d) U.S. residents who pay for flights in the U.S. where the flights originate from and land exclusively (i.e., beginning and ending) within Canada.
[20] Ms. Prince is a businessperson residing in the U.S. She travels regularly in the U.S. and Canada. She claims she was charged the Transportation Tax and the Domestic Flight Segment Tax when she purchased tickets on Air Canada's website for travel from Toronto to Saskatoon and from Toronto to Windsor. She was also charged these taxes when she purchased a ticket from Windsor to Montreal on Air Canada's website, which she accessed from her computer in her lawyer's office in Windsor.
[21] Mr. Walach is a salesperson, residing in Toronto. He says he purchased a ticket for a flight from Los Angeles to Calgary on Air Canada's website, and was charged what the statement of claim refers to as a "USA Transportation Tax". Mr. Walach was actually charged the International Travel Facilities Tax and was not charged either the Transportation Tax or the Domestic Flight Segment Tax. He was also charged a "U.S. Passenger Facility Charge" imposed by the Los Angeles airport authority.4
[22] The proposed representative plaintiffs do not have the attributes of all members of the sub-classes. Indeed, there is some doubt whether Mr. Wallach falls within the class as presently defined as he was not charged either the Transportation Tax or the Domestic Flight Segment Tax. I will assume, as did the motion judge, that if this action is certified, the plaintiffs will be entitled to advance the claims of all the proposed sub-classes. [page146]
(3) The claims
[23] As explained by the motion judge, the appellants' complaints differ depending on whether a ticket was "paid for" in Canada or in the U.S. This distinction comes from the Code, which makes liability for taxes dependent on where the transportation is "paid for".
[24] In the case of tickets "paid for" in Canada, there are two complaints. First, that Air Canada collected U.S. taxes on tickets "paid for" in Canada, thereby giving unlawful extra-territorial effect to U.S. tax laws in Canada -- described by the motion judge as the "extra-territorial argument". Mr. Walach might make the same complaint in relation to the International Travel Facilities Tax he paid.
[25] The second complaint is that Air Canada collected the Transportation Tax and the Domestic Flight Segment Tax on tickets paid for in Canada, on flights that do not begin and end in the U.S., contrary to s. 4261(e)(2) of the Code. This was described by the motion judge [at para. 9] as the "'improper collection' argument". Ms. Prince's claims appear to fall into this category.
[26] In the case of tickets "paid for" in the U.S., the appellants make only the extra-territorial argument. They allege that Air Canada collected taxes in the U.S. on flights originating from and terminating exclusively in Canada in the 225-mile zone, thus giving extra-territorial effect to U.S. tax laws.
[27] The appellants also claim that Air Canada negligently misrepresented that they were required to pay the taxes when they purchased their tickets, when those taxes were not properly payable.
[28] In their submissions in this court, the appellants claimed that Air Canada's website deemed anyone who declared a U.S. residence at the time of purchase to have paid for the ticket in the U.S., and to be subject to the U.S. taxes, regardless of where that person was physically located when the purchase was made, and regardless of where the ticket was "paid for". When Ms. Prince, sitting in her lawyer's office in Windsor, bought tickets using her credit card on Air Canada's website, and declared herself to be resident in the U.S., she was charged the U.S. taxes as though she had "paid for" the tickets in the U.S., even though, in her view, she "paid for" them in Canada.
[29] The merits of these claims and the suitability of this proceeding as a class action are not, of course, before us. I note, however, that the determination of where goods or services are "paid for" may not be quite as simple in the case of Internet [page147] purchases as it is when a person buys a carton of milk at the corner grocery store. As Professor Michael Deturbide observes in his discussion of jurisdiction and the Internet, "[i]t is . . . difficult to localize online activities": Electronic Commerce and Internet Law in Canada, 2nd ed. (Toronto: CCH, 2012), at p. 601.
[30] Here, the situs of payment governs liability for the taxes, the division of class members into sub-classes and the identification of what claims have and have not been stayed by the motion judge. On the record before us, there is no clear answer to the question of where, in any given case, a class member's ticket was "paid for" as a matter of fact and law. I am not sure that the answer is as simple as the appellants would have it -- saying the ticket is "paid for" in the place where the purchaser is physically present when she clicks a button on her computer screen, authorizing the ticket to be charged to her credit card, which may have been issued in the U.S. by a U.S. bank. Is the ticket "paid for" in Canada when she is sitting in the Windsor law office, but "paid for" in the U.S. when she buys it using her computer to access the Internet from her hotel in Detroit?
B. The Motion Judge's Reasons
[31] The motion judge found (at paras. 13-21) that the Superior Court had presence-based jurisdiction over Air Canada and there was a real and substantial connection between the claim and Ontario, permitting the court to assume jurisdiction. In support of these conclusions, she referred to Club Resorts Ltd. v. Van Breda, 2012 SCC 17, [2012] 1 S.C.R. 572, [2012] S.C.J. No. 17, at paras. 79, 90. She found that the "revenue rule", referred to in United States of America v. Harden, 1963 CanLII 42 (SCC), [1963] S.C.R. 366, [1963] S.C.J. No. 38 (discussed below), was of no application, because the U.S. government was not seeking to collect taxes in Canada. The issue was simply whether Air Canada was entitled to collect the amounts at issue from its customers when they bought their tickets.
[32] She then turned to the forum non conveniens argument (paras. 22-35). By way of introduction, she noted, at para. 23, that Air Canada bore the burden on this issue:
The burden is on Air Canada to show why this court should decline to exercise jurisdiction. It must show that the alternative forum is clearly more appropriate: Van Breda, at paras. 101-112. The non-exhaustive list of factors that the court is to consider are set out in Van Breda, at para. 110.
[33] The motion judge distinguished between tickets paid for in Canada and tickets paid for in the U.S. She found the claims relating to tickets paid for in Canada raised issues that were properly addressed by a Canadian court and that Ontario was [page148] the forum conveniens for these claims. She came to a different conclusion on tickets paid for in the U.S.
(1) Tickets paid for in Canada
[34] In the case of tickets paid for in Canada, the first issue was the extra-territorial argument: by collecting taxes on tickets paid for in Canada, Air Canada was giving extra-territorial effect to U.S. tax laws in Canada. The motion judge found this was a matter for a Canadian court to decide.
[35] The second issue, the improper collection argument, was whether Air Canada had collected the Transportation Tax and the Domestic Flight Segment Tax on tickets paid for in Canada, contrary to s. 4261(e)(2) of the Code, where the flights did not both begin and end in the U.S. She found that a court would have to determine whether the amount was "paid outside the United States" and whether the transportation both "begins and ends" in the U.S. There was no reason why a Canadian court could not make these determinations, with expert evidence if necessary.
[36] The motion judge noted that Air Canada carries on business in Ontario; one of the plaintiffs is a Canadian resident; witnesses were located in both the U.S. and Canada; and the alleged ticket payments were made in Ontario. She concluded there are strong connections between the claim and Ontario.
[37] Moreover, she noted that in the U.S, the plaintiffs would be required to apply for an administrative refund from the IRS before they could bring their claims in court. This was an additional procedural hurdle that favoured proceeding in Ontario.
[38] The motion judge concluded, therefore, that Air Canada had not discharged the onus of establishing that Ontario was not a convenient forum for the determination of these claims.
[39] I pause here to note that there is a degree of circularity to this conclusion -- that a Canadian court can, for travellers who "paid for" their tickets in Canada, determine under U.S. law whether the ticket was "paid for" outside the U.S.
(2) Tickets paid for in the U.S.
[40] The motion judge came to a different conclusion, however, on the claims relating to tickets paid for in the U.S.
[41] She noted that the appellants argued that Air Canada was giving extra-territorial effect to U.S. tax laws by collecting U.S. taxes on tickets for travel between destinations in Canada within 225 miles of the continental U.S. She concluded, at paras. 31-33, that to permit these claims to proceed in Canada would interfere with U.S. sovereignty: [page149]
In my view, a Canadian court should not be adjudicating any matters relating to the imposition and collection of taxes on transactions occurring within the U.S. To do so would constitute an interference with U.S. tax sovereignty.
The plaintiffs attempt to cast this as a Canadian domestic law issue because the ticket is for travel in Canada. They also argue that whether Air Canada has authority to collect these taxes in the United States is an issue of Canadian domestic law. They cite no authority for these propositions.
I reject these submissions. Regardless of how the plaintiffs frame their argument, they are in essence attempting to challenge a tax charged in the United States. If the taxpayer has an issue with respect to that tax, he should be required to follow the procedures available to him and seek recourse in that country. That is clearly the more appropriate forum in which to resolve any such issues.
[42] The motion judge also rejected the appellants' argument that requiring them and other members of the proposed class to pursue their claims in the U.S. would result in a multiplicity of proceedings. There was no unfairness in requiring the proposed class to address the claims in the jurisdiction in which those claims arose.
[43] The motion judge accordingly stayed the claims with respect to tickets "paid for" in the U.S. The same circularity issue arises, in my view, in the assumption that one can readily identify which tickets were, as a matter of fact and law, paid for in the U.S.
C. The Submissions of the Parties
[44] The appellants' central argument is that by collecting U.S. taxes in Canada from them and members of the proposed class, Air Canada is acting as an extra-territorial collection agent of a foreign state, resulting in an extension of U.S. sovereignty into Canada. They do not challenge the Code as domestic U.S. law. Nor do they dispute that the amounts at issue in this action have been collected by Air Canada and remitted to the IRS.
[45] They say that all claims should proceed in Canada and the motion judge erred in determining that the claims relating to tickets paid for in the U.S., for travel in Canada within the 225-mile zone, should be heard in the U.S.
[46] In the cross-appeal, Air Canada says the entire action should be dismissed for want of jurisdiction or stayed on forum non conveniens grounds. It says that the appellants should make their complaint that the taxes were improperly levied against them in the jurisdiction that charged those taxes, according to its laws and procedures. It says the appellants are using a "loophole": trying to sue Air Canada in Canada in order to [page150] circumvent its statutory immunity from suit in the U.S. and the mandatory procedures applicable to claims for recovery of U.S. taxes. Permitting this action to proceed in Canada would be unfair to Air Canada, because, to use the expression employed in Kaucky v. Southwest Airlines Co., at p. 353 F.3d, it would be "whipsawed" -- bound to collect the tax under U.S. law, but prohibited from charging it by Canadian law.
D. Analysis
(1) Jurisdiction -- The revenue rule
[47] I begin with the threshold question of whether Ontario courts have jurisdiction over the appellants' claims.
[48] There is no doubt the Superior Court of Justice has presence-based jurisdiction over Air Canada. It was unnecessary to consider whether there was also a "real and substantial connection", because that issue does not arise where the court can assume jurisdiction based on the defendant's presence in the jurisdiction: Incorporated Broadcasters Ltd. v. Canwest Global Communications Corp. (2003), 2003 CanLII 52135 (ON CA), 63 O.R. (3d) 431, [2003] O.J. No. 560 (C.A.), at paras. 29-30.
[49] Air Canada's argument, however, is that the dispute concerns the interpretation of a U.S. revenue law and its application to U.S. and Canadian residents flying between the U.S. and Canada. This, it says, is a subject matter over which Ontario courts have no jurisdiction.
[50] Air Canada's submission is based on the "revenue rule" in Harden. There, the U.S. sought to enforce in Canada a judgment for taxes obtained in the U.S. District Court. The Supreme Court of Canada affirmed the principle, at p. 369 S.C.R., that "the courts of this country will not entertain a suit by a foreign State to recover a tax": referring to Government of India v. Taylor, [1955] A.C. 491, [1955] 1 All E.R. 292 (H.L.).
[51] The Supreme Court described this "ancient rule" as having two rationales. One was that it would be "contrary to all concepts of independent sovereignties "for one state to pursue a claim for taxes in the jurisdiction of another sovereign state, because in so doing it would purport to extend its sovereign authority in the territory of the other state (at p. 370 S.C.R.). The second reason was given by Learned Hand J. in Moore v. Mitchell, 30 F.2d 600 (2d Cir. 1929), at p. 604 F.2d, affd on other grounds 281 U.S. 18, 50 S. Ct. 175 (1930), and referred to in Harden, as a reluctance of the courts to adjudicate on "provisions for the public order of another state": [page151]
While the origin of the exception in the case of penal liabilities does not appear in the books, a sound basis for it exists, in my judgment, which includes liabilities for taxes as well. Even in the case of ordinary municipal liabilities, a court will not recognize those arising in a foreign State, if they run counter to the "settled public policy" of its own. Thus a scrutiny of the liability is necessarily always in reserve, and the possibility that it will be found not to accord with the policy of the domestic State. This is not a troublesome or delicate inquiry when the question arises between private persons, but it takes on quite another face when it concerns the relations between the foreign State and its own citizens or even those who may be temporarily within its borders. To pass upon the provisions for the public order of another State is, or at any rate should be, beyond the powers of the court; it involves the relations between the States themselves, with which courts are incompetent to deal, and which are intrusted to other authorities. It may commit the domestic State to a position which would seriously embarrass its neighbour. Revenue laws fall within the same reasoning; they affect a State in matters as vital to its existence as its criminal laws. No court ought to undertake an inquiry which it cannot prosecute without determining whether those laws are consonant with its own notions of what is proper.
[52] In commenting on Moore v. Mitchell in Castel and Walker, Canadian Conflict of Laws, 6th ed., looseleaf (Markham, Ont.: LexisNexis/Butterworths, 2005), Professor Janet Walker states, at 8.4:
In Moore v. Mitchell, the United States Circuit Court took the requirement of disregarding laws relating to the policies of foreign sovereigns to its logical conclusion: if the viability of a claim depends upon a determination entailing inquiry into the policies of a foreign sovereign, the claim must fail. Thus, taxes levied in a deceased's former residence would not be recoverable in estate proceedings in another jurisdiction. If the basis of the right sought to be vindicated consisted solely in the taxation laws of another jurisdiction, it would be impossible to determine its validity without engaging in an assessment of the policy of a foreign sovereign and this was something the court was not equipped to do.
(Footnote omitted)
[53] The author adds that under the revenue rule, the courts will "determine only the rights and obligations of the parties inter se that are not purely derivative of the sovereign authority of a foreign state": 8.4.
[54] The appellants' extra-territorial argument is that Air Canada's administrative practices gave extra-territorial reach to U.S. revenue laws. Their improper collection argument is that Air Canada misapplied those laws. In my view, just as an Ontario court will not assist the direct or indirect enforcement of foreign revenue laws in Canada, so it has jurisdiction to restrain the application of foreign laws in its territory by a foreign state or its agent. I am therefore prepared to assume that an Ontario court has jurisdiction to determine whether a foreign law is being enforced extra-territorially and to grant appropriate relief. [page152] This is consistent with Harden. I am also prepared to assume that an Ontario court can interpret a foreign law and grant relief against its misapplication.
[55] As I will explain, however, in this case an Ontario court should not inquire into the merits of the appellants' claims regarding the foreign revenue law unless and until the appellants have submitted their claim to the taxing authority in the state that collected the taxes at issue, and have exhausted their remedies in the courts charged with the interpretation and enforcement of that revenue law.
(2) Forum non conveniens
[56] The court's jurisdiction to stay a proceeding on the ground of forum non conveniens is part of its broader jurisdiction, under s. 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43, to stay a proceeding "on such terms as are considered just".
[57] The determination of forum conveniens is a matter of discretion. The motion judge's decision is entitled to deference in the absence of an error in law or principle, or a clear and serious factual error: 2249659 Ontario Ltd. v. Sparkasse Siegen (2013), 115 O.R. (3d) 241, [2013] O.J. No. 2496, 2013 ONCA 354, 306 O.A.C. 288, at para. 49, referring to Van Breda, at para. 112.
[58] In my view, the motion judge correctly stayed some of the claims in this action on the ground of forum non conveniens. Respectfully, however, she should have stayed all the claims.
[59] The motion judge's analysis of forum conveniens was incomplete. She properly put the onus on the moving party to show that the alternative forum was more appropriate and she considered the non-exhaustive list of factors set out in Van Breda, at para. 110. However, she did not consider the underlying requirement that the moving party demonstrate that "fairness to the parties and the efficient resolution of [the] claims" makes the other forum clearly more appropriate: Sparkasse, at paras. 53, 59; Van Breda, at para. 104.
[60] Moreover, while the motion judge considered the issue of U.S. sovereignty in her analysis of the claim concerning tickets paid for in the U.S., she did not consider either that issue, or the related issue of comity, in considering the claim for tickets "paid for" in Canada.
[61] In my view, the failure to consider these factors was an error of law which permits this court to make its own determination of the issue.
[62] A procedure exists in the U.S. for the recovery of taxes paid under an error of law. The motion judge, at para. 27 of her reasons, regarded this as an additional procedural step that [page153] worked to the appellants' disadvantage. In essence, she found that applying to the IRS for a refund would be a juridical disadvantage to them.
[63] In my view, this does not give sufficient weight to the principle of comity, which underlies the forum non conveniens analysis. The principle has been expressed in different ways. In Tolofson v. Jensen, 1994 CanLII 44 (SCC), [1994] 3 S.C.R. 1022, [1994] S.C.J. No. 110, it was described, at p. 1047 S.C.R., as respect for the right of a foreign state to make and apply laws within its territorial limits. In Van Breda, at para. 74, it was said to be a "flexible concept" which "cannot be understood as a set of well-defined rules, but rather as an attitude of respect for and deference to other states".
[64] Moreover, the concept of juridical advantage or disadvantage, relied upon by the motion judge, should be applied with some caution, having regard to the principle of comity and "an attitude of respect for the courts and legal systems of other countries, many of which have the same basic values as us": Van Breda, at para. 112. See, also, Breeden v. Black, 2012 SCC 19, [2012] 1 S.C.R. 666, [2012] S.C.J. No. 19, at paras. 26-27:
[A]n emphasis on juridical advantage may be inconsistent with the principles of comity. In particular, a focus on juridical advantage may put too strong an emphasis on issues that may reflect only differences in legal tradition which are deserving of respect, or courts may be drawn too instinctively to view disadvantage as a sign of inferiority and favour their home jurisdiction.
[65] In Canadian Conflict of Laws, Professor Walker summarizes the principle, at p. 13-22:
Where the parties are equally capable of litigating in either forum, advantages to one party are disadvantages to the other and vice versa . . . As a result, personal or juridical advantages should be considered along with the other factors in determining whether to grant a stay.
[66] The administrative process to recover an overpayment of tax from the IRS should not be characterized as a juridical disadvantage; comity requires that we view it in its context, as part of a complete system for the effective administration of taxes in the U.S. This is not, for example, a situation where the claims are simply unknown under U.S. law: see, e.g., Grammercy Ltd. v. Dynamic Tire Corp. (2004), 2004 CanLII 34318 (ON SC), 69 O.R. (3d) 210, [2004] O.J. No. 94 (S.C.J.).
[67] Nor does the motion judge's analysis give sufficient weight to the significant juridical advantage to Air Canada of proceeding in the U.S. -- its statutory immunity from suit: see Ontario Assn. of Architects v. Deskin, 2000 CanLII 50987 (ON SC), [2000] O.J. No. 1589, [2000] O.T.C. 306 (S.C.J.). The comparable provisions in the [page154] Excise Tax Act and the Air Travellers Security Charge Act demonstrate that Canada accepts such immunity as part of its own tax structure and as a reasonable protection for intermediaries collecting government taxes and charges.
[68] The appellants' claims raise issues about the taxes imposed by a foreign state, the methods used to collect those taxes, the immunity conferred on those who collect the taxes, and the procedures established for the recovery of taxes and for the interpretation of the taxing statute. As Harden tells us, at p. 371 S.C.R., these are matters that affect the foreign state in a manner "vital to its existence". Insofar as the analysis touches on the [at pp. 370-71 S.C.R.] "relations between the foreign State and its own citizens or even those who may be temporarily within its borders" it becomes a [at p. 370 S.C.R.] "troublesome [and] delicate inquiry".
[69] It is "troublesome and delicate" because, as a general rule of public international law, each state has jurisdiction to make and apply law within its territorial limit: Tolofson, at p. 1047 S.C.R.
[70] As Tolofson tells us, "[a]bsent a breach of some overriding norm, other states as a matter of 'comity' will ordinarily respect such actions and are hesitant to interfere with what another state chooses to do within those limits" (p. 1047 S.C.R.). The principle of comity calls for an "attitude of respect for and deference to other states": Van Breda, at para. 74.
[71] In this case, where the intrusion on Canadian sovereignty is not self-evident, we should operate from a presumption that a foreign state does not intend to infringe upon Canadian sovereignty by attempting to regulate persons or conduct within our territory. Before we engage in the interpretation of foreign revenue law which is said to have that effect, we ought to require the party alleging infringement to raise the issue in the appropriate forum in the foreign state. This achieves the goals of order, fairness, efficiency and comity, which are the bedrock of the forum non conveniens analysis.
[72] As a matter of comity, the interpretation of this U.S. statute, including its intended scope, should be undertaken by agencies and courts in the U.S. I would therefore stay this proceeding pending pursuit of the appellants' remedies in the United States. They should be required to apply to the IRS for a refund of the taxes in question. This will require the IRS to determine whether, in the factual circumstances of these cases, Air Canada overreached the intended scope of the Code. If the answer is yes, the appellants may recover the taxes and there may be [page155] means to ensure that other class members obtain redress, either in the U.S. or by moving to lift the stay in this action.
[73] If the answer is no, they will have the right to challenge the IRS decision in the U.S. Federal Court or the U.S. Court of Federal Claims, which are, and should be, the arbiters of U.S. law. Again, if one of those courts determines they are entitled to recover some or all of the taxes, they will have their remedies.
[74] If the U.S. court affirms the decision of the IRS that some or all of the taxes are payable, the Ontario court will have the benefit of those determinations, and the reasons for them, should it be called upon to decide whether the collection of the taxes is a violation of the principles governing the conduct of sovereign states and an extra-territorial application of U.S. law in Canada.
[75] The negligent misrepresentation claim should be stayed on the same terms. The appellants claim they paid taxes they did not have to pay because Air Canada falsely misrepresented the taxes were payable as a condition of air carriage. If the taxes were properly payable, the misrepresentation claim will fail. The appellants' liability for taxes should be determined before the misrepresentation claim proceeds.
E. Disposition
[76] For the foregoing reasons, I would dismiss the appeal, allow the cross-appeal and vary the order of the motion judge by staying this proceeding pending pursuit of the appellants' remedies in the U.S. Costs of the appeal and of the motion are granted to the respondent in the agreed amount of $50,000, inclusive of disbursements and all applicable taxes.
Appeal dismissed; cross-appeal allowed.
Notes
1 The claim against ACE Aviation Holdings Inc., alleged to be Air Canada's parent, is being discontinued.
2 Because the motion was brought under rule 21.01(3)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the parties were entitled to adduce evidence on the motion. Air Canada adduced evidence of U.S. taxation law.
3 The reason for the "225-mile rule" is unclear. It appears to have been in effect since 1956.
4 The Code permits an agency operating a public airport to charge a passenger facility fee to each passenger boarding an aircraft under its authority. The fee is collected by the air carrier when it sells the ticket.
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