Canadian Pacific Air Lines Ltd. v. British Columbia, [1989] 1 S.C.R. 1133

Canadian Pacific Air Lines Ltd. and Pacific Western Airlines Ltd. Appellants

v.

Her Majesty The Queen in Right of the province of British Columbia Respondent

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, the Attorney General of Newfoundland and the Canadian National Railway Company Interveners

and between

Air Canada Appellant

v.

Her Majesty The Queen in Right of the province of British Columbia, the Attorney General of the province of British Columbia, the Minister of Finance for the Province of British Columbia and E. J. Turner, in his capacity as Commissioner, Social Service Tax Act 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, the Attorney General of Newfoundland and the Canadian National Railway Company Interveners

indexed as: canadian pacific air lines ltd. v. british columbia

File Nos.: 17875, 17902, 17910, 19602.

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 court of appeal for british columbia

Taxation -- Provincial powers -- Tax levied goods purchased in or brought into province -- Tax applied to aircraft and aircraft parts and in-flight sales of alcohol on flights within or originating or terminating in province ‑‑ Airlines involved in interprovincial and international service -- Whether or not tax should be imposed on aircraft and aircraft parts -- Whether or not tax should be imposed on in-flight sales of alcohol on flights within or originating or terminating in province -- If tax inapplicable, whether or not tax collected should be refunded -- Social Service Tax Act, R.S.B.C. 1979, c. 388, ss. 1, 2(1), (4), 5.

Courts -- Judgments -- Judgment granted in one set of actions finding tax inapplicable -- Second action seeking same finding -- Second action also raising additional issues, including whether or not tax collected under inapplicable tax refundable.

British Columbia's Social Service Tax Act provided for a tax on the purchase of tangible goods purchased in British Columbia. It also imposed the tax on goods purchased outside the province and brought into the province by its residents or businesses carrying on business in the province. The tax was applied to aircraft and aircraft parts and was calculated, in accordance with different formulae negotiated with each airline, on the percentage of miles travelled by the aircraft in airspace over British Columbia to the total miles travelled. The formulae had no statutory base. All aircraft and parts were bought outside the province and were used to meet the airlines' operational needs on flights forming part of a more comprehensive international and interprovincial service. The aircraft were in constant use. The airlines also collected this tax in respect of in-flight liquor sales made to passengers in airspace over British Columbia if the flight originated or terminated in, or connected two points within, the province.

The First Appeal

Canadian Pacific Air Lines Ltd. and Pacific Western Airlines Ltd. were granted declarations in the Supreme Court of British Columbia that this tax did not or could not constitutionally apply (a) to their aircraft and aircraft parts, such as engines, when used on flights that originate from, terminate in or connect two points in the province, and (b) to their in-flight sales of alcoholic beverages. Air Canada later applied for and was granted the same relief in relation to an earlier action brought by it. The Court of Appeal set aside the declaration with respect to the tax on aircraft and aircraft parts but upheld the declaration relating to liquor sales. The three airlines appealed that Court's decision as it related to the tax on aircraft and aircraft parts and the province cross‑appealed that decision as it related to the tax on alcoholic beverages.

The Second Appeal

Air Canada had commenced its action by writ of summons issued before the applications in the first appeal had been made but only proceeded to trial after the judgment of the Court of Appeal had been rendered in those applications. In its action, Air Canada sought not only declarations as to the applicability and constitutionality of the Act but also other relief including recovery of the taxes paid in respect of aircraft and aircraft parts and of the tax on in-flight liquor sales. Air Canada also raised a number of "new issues". It queried whether the tax as it applied to its operation was authorized by s. 92(2) of the Constitution Act, 1867, and whether it infringed on the federal powers over aeronautics and over interprovincial trade and undertakings. In this Court it also relied on s. 7 of the Canadian Charter of Rights and Freedoms. The action was dismissed at trial and on appeal on the ground that the issue (including the new issues) had been decided in the first appeal and in any event that the new issues were groundless. Air Canada appealed to this Court. In this Court, the Crown argued that even if Air Canada succeeded on its points, Air Canada could not recover because it had paid the taxes under a mistake of law.

Held: The airlines' first appeal relating to taxes on the aircraft and parts should be allowed and the province's cross‑appeal relating to taxes on in‑flight sales of alcoholic beverages should be dismissed.

Per Lamer, La Forest and L'Heureux-Dubé JJ.: The predominant purpose of the Social Service Tax Act was to impose a retail tax payable by the ultimate consumer of the goods in the province. The provision relating to tax on goods brought into the province for consumption by the ultimate consumer was to serve as a supplementary provision to guard against avoidance of the purchase tax by a consumer's purchasing goods outside the province. It was aimed at goods brought into the province on a permanent basis. It had no application to aircraft regularly flying in and out of the province. If it did so apply, it would, if it were to be imposed by all provinces on interprovincial airlines, place a much heavier burden on these entities than on local airlines and other businesses. An intention on the part of the Legislature to enact a measure having such discriminatory potential should not be lightly assumed. The formulae which were used to alleviate any unfair tax burden on the airlines were without statutory basis and so did not bind the taxing authorities. It was unnecessary to decide if such a formula, given properly framed legislation, would impose an undue burden on interprovincial undertakings.

There was not sufficient presence in the province to provide a basis for the imposition of the tax on in-flight sales of alcohol, whether that sale occurred in an overflight or in a flight originating or terminating in a province.

Held: The second appeal by Air Canada should be allowed as regards the amount claimed for taxes unlawfully collected in respect of its aircraft and parts.

Per Lamer, La Forest and L'Heureux-Dubé JJ.: Since the issue regarding the applicability of the Act had now been decided in Air Canada's favour in the first appeal (i.e., the Act did not apply to it), there was no reason why it should be refused recovery. The fact that Air Canada paid the money on the basis of a mistake of law does not preclude recovery as is explained in Air Canada v. British Columbia, [1989] 1 S.C.R. 000. The new issues were also rejected for the reasons given in that case.

Air Canada cannot recover the money paid by its passengers for the tax on alcoholic beverages. It was simply acting as an agent to collect it under the Act.

Per Beetz J.: The reasons of La Forest J. were agreed with, subject to the qualifications expressed in Air Canada v. British Columbia.

Per McIntyre J.: The reasons of La Forest J. were agreed with, subject to the qualifications expressed by Beetz J.

Per Wilson J.: For the reasons given by La Forest J., the Social Service Tax Act, R.S.B.C. 1979, c. 388, as a matter of statutory interpretation, does not apply to the respondent airlines' aircraft and parts. The payment made by Air Canada on account of taxes under the Act was accordingly made under a mistake of law. Since monies paid under a mistake of law should, like monies paid under a mistake of fact, be recoverable, the respondent airlines' mistake afforded no defence to the province against a claim for recovery of the monies paid.

The imposition of the tax on the sale of alcoholic beverages to passengers while airborne over British Columbia was unconstitutional since such sales did not take place "within the province". These moneys were not, however, recoverable by the respondent airlines because, although they represented payments made under unconstitutional legislation, the tax was imposed on and paid by the passengers who purchased drinks. The airlines were merely tax collectors, not taxpayers, and could not claim recovery of the money for their own use and benefit.

Cases Cited

By La Forest J.

Referred to: The Queen in Right of Manitoba v. Air Canada, 1980 CanLII 16 (SCC), [1980] 2 S.C.R. 303; Northern Telecom Ltd. v. Communications Workers of Canada (No. 1), 1979 CanLII 3 (SCC), [1980] 1 S.C.R. 115; Atlantic Smoke Shops, Ltd. v. Conlon, 1943 CanLII 372 (UK JCPC), [1943] A.C. 550; Cairns Construction Ltd. v. Government of Saskatchewan, 1960 CanLII 59 (SCC), [1960] S.C.R. 619; Murphy v. Canadian Pacific Railway Co., 1958 CanLII 1 (SCC), [1958] S.C.R. 626; Attorney-General for Alberta v. Attorney-General for Canada (Alberta Bank Case), 1938 CanLII 251 (UK JCPC), [1939] A.C. 117.

By Wilson J.

Followed: Air Canada v. British Columbia, [1989] 1 S.C.R. 000.

Statutes and Regulations Cited

British Columbia Supreme Court Rules, ss. 10(1)(b), 18(1), (2), (3), (6).

Canadian Charter of Rights and Freedoms, s. 7.

Constitution Act, 1867, s. 92(2).

Gasoline Tax Act, 1948, R.S.B.C. 1960, c. 162.

Social Service Tax Act, R.S.B.C. 1979, c. 388, ss. 1, 2(1), (4), 5.

Authors Cited

Scott, F. R. Comment (1934), 12 Can. Bar Rev. 303.

APPEAL from a judgment of the British Columbia Court of Appeal, [1982] B.C.W.L.D. 641, allowing in part an appeal, heard together, from a judgment of Proudfoot J. (with respect to Canadian Pacific Air Lines Ltd. and Pacific Western Airlines Ltd.) and a judgment of Callaghan J. (with respect to Air Canada) as those judgments related to the non‑applicability of tax to aircraft and aircraft parts but dismissing the appeal as it related to the inapplicability of the tax to in-flight sales of alcoholic beverages. The airlines' first appeal relating to taxes on the aircraft and parts should be allowed and the province's cross‑appeal relating to taxes on in-flight sales of alcoholic beverages should be dismissed.

APPEAL from a judgment of the British Columbia Court of Appeal dismissing an appeal from a judgment of Macdonald J. The second appeal by Air Canada as regards the amount claimed for taxes unlawfully collected in respect of its aircraft and parts should be allowed.

Wendy G. Baker and Peter G. Voith, for the appellants Canadian Pacific Air Lines Ltd. and Pacific Western Airlines Ltd.

D. M. M. Goldie, Q.C., W. S. Martin, C. F. Willms and R. G. Berrow, for the appellant Air Canada.

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.

D'Arcy McCaffrey, Q.C., and Joe E. Hershfield, for the intervener the Canadian National Railway Company.

Beetz J.

The following are the reasons delivered by

BEETZ J. -- Subject to what I have written in the appeals and cross-appeal relating to the Gasoline Tax Act of British Columbia, I agree with the reasons of my brother, La Forest J., as well as with his proposed disposition of these appeals.

McIntyre J.

The following are the reasons delivered by

MCINTYRE J. -- I agree with the reasons for judgment of my brother, La Forest J., subject to the qualifications expressed by my brother, Beetz J., which I would adopt.

La Forest J.

The judgment of Lamer, La Forest and L'Heureux-Dubé JJ. was delivered by

LA FOREST J. -- The cases considered in this judgment form part of a trilogy of appeals heard at the same time in which the airlines, Canadian Pacific, Pacific Western and Air Canada, raise numerous issues regarding the application and constitutionality of two taxing statutes of British Columbia, 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. This judgment deals with the appeals regarding the Social Service Tax Act. A first set of appeals involving all three airlines (which for convenience, I shall refer to as the first appeal) raises the questions whether that Act, on its true construction applies, or can constitutionally apply,

(a)to the respondent airlines' aircraft, engines, components, parts, equipment and rotable spares (hereafter compendiously referred to as "aircraft and parts") when used on flights that originate from, terminate in or connect two points in the province, and

(b)to sales by the airlines of alcoholic beverages which are served to passengers on such flights after the aircraft is airborne and has achieved cruising speed.

The second appeal is by Air Canada alone. In addition to raising supplementary arguments relating to the first of the above questions, Air Canada seeks to recover the taxes paid. This raises the further question whether, assuming the taxes were wrongly collected, they can be recovered by Air Canada. The latter question raises two issues: whether taxes paid under a mistake of law are recoverable, and whether Air Canada may recover the taxes on the alcoholic beverages on behalf of the passengers. All of these additional questions (except the issue concerning the recovery of the taxes on alcoholic beverages) were also raised in the appeal concerning the Gasoline Tax Act (the third appeal) where they were more directly addressed, and I shall, therefore, deal with them in the judgment on that appeal, which is issued contemporaneously with this judgment.

Background

In general terms, the Social Service Tax Act (of which a counterpart exists in most of the provinces) imposes a tax on a person who purchases tangible personal property at a retail sale in the province for his own consumption or use. The tax is based on a percentage of the purchase price. A similar tax is imposed on a person who brings such property in the province for his consumption or use. In the case of the airlines' aircraft and parts brought into the province, the tax, by virtue of administrative formulae not provided by statute, is applied only in respect of flights originating from, terminating in, or connecting two points in the province. According to the formulae, the tax is calculated on the percentage of miles travelled by the aircraft in provincial airspace to the total miles travelled.

More specifically, s. 2(1) imposes the tax in the usual case to which the Act applies, a purchase in the province. It reads:

2. (1) A purchaser shall pay to Her Majesty in right of the Province at the time of making the purchase a tax at the rate of 4% of the purchase price of the property purchased.

Section 1 defines "purchaser" and "retail sale" in a manner that makes it clear that the taxpayer is (minor additions apart) a purchaser who purchases tangible personal property at a retail sale in the province for his own use or consumption. These provisions read:

1. ...

"purchaser" means a person who acquires tangible personal property at a sale in the Province for his own consumption or use, or for the consumption or use by other persons at his expense, or on behalf of, or as the agent for, a principal who desires to acquire such property for consumption or use by that principal or other persons at his expense, and includes a promotional distributor to the extent that the purchase price of the tangible personal property provided by way of promotional distribution exceeds the amount of the payment specifically made for it by the person to whom the tangible personal property is so provided;

"retail sale" means a sale to a purchaser for purposes of consumption or use and not for resale;

Section 5 makes provision for collecting the tax through the seller, who is deemed to be an agent of the Minister for the purpose.

Rounding out the scheme is s. 2(4) which imposes a similar tax on persons who reside or carry on business in the province who acquire tangible personal property outside the province. Section 2(4) imposes the tax on any such person who brings into, or receives in the province, any such property acquired by him for value for his own consumption or use. It reads as follows:

2. ...

(4) A person residing or ordinarily resident or carrying on business in the Province who brings or sends into the Province or who receives delivery in the Province of tangible personal property for his own consumption or use, or for the consumption or use of other persons at his expense, or on behalf of, or as the agent for, a principal who desires to acquire such property for the consumption or use by that principal or other persons at his expense, shall immediately report the matter in writing to the commissioner and supply to him all pertinent information as required by him in respect of the consumption or use of the property, and furthermore, at the same time, shall pay to Her Majesty in right of the Province a tax at the rate of 4% of the purchase price of the tangible personal property.

Each airline, while disputing its liability, has paid the tax imposed under s. 2(4) on the basis of a formula as above described. Such formula is prepared pursuant to the following administrative instruction which, as noted, has no statutory base:

Aircraft which, in the opinion of the Commissioner, normally enter into interprovincial or foreign trade are subject to the tax under the Act on the basis of the percentage of miles travelled in the Province to total miles travelled.

The formulae, which were negotiated with the airlines, are not the same for each airline. That for Canadian Pacific Air Lines Ltd., according to its petition, is as follows:

C x B x R = T M

C ‑Average cost of all aircraft, parts, etc.

M ‑Total miles travelled by all aircraft during their estimated lives;

B ‑Total miles travelled by all aircraft in airspace over British Columbia;

R ‑Rate of tax;

T ‑Tax payable.

That for Air Canada and Pacific Western Airlines Ltd., on the other hand, reads:

TAX = Cost of aircraft parts, etc. x B.C. Miles x Rate of Tax 5 years total miles

The flights in respect of which the airlines' aircraft and parts were taxed, as the airlines were careful to underline, form part of a more comprehensive international and interprovincial service. The three airlines provide scheduled and chartered air transportation services within Canada and to points outside Canada. All aircraft used by them in their operation are purchased outside British Columbia. From time to time they also purchase outside British Columbia engines, components, parts, equipment and other tangible property for repairs and overhaul of the aircraft and for equipping the aircraft for their use in the airline operation.

None of the aircraft is used exclusively in airspace over British Columbia. All are used wherever required to meet the operational needs of the airlines. They are in constant use and remain on the ground only for maintenance and repairs, to load and unload passengers and cargo, to refuel or restock, or to comply with published schedules.

The first major issue, we saw, relates to the application of s. 2(4) to the aircraft and parts. The second concerns the tax imposed under s. 2(1) on the purchase of alcoholic beverages sold by the airlines to passengers for consumption after the aircraft reaches a cruising altitude and before it lands.

Judicial History

The initial step in these proceedings was taken by Canadian Pacific Air Lines Ltd. on April 28, 1981. It issued a petition pursuant to Rule 10(1)(b) of the British Columbia Supreme Court Rules which provides for the making of an originating application to the court when the sole or principal issue is one of construction of an enactment or other document. On February 2, 1982, Pacific Western Airlines Ltd. issued a similar petition. Both sought the same relief, i.e., a declaration that the Act on its proper construction did not apply (a) to aircraft and parts purchased outside British Columbia and used in the airlines' flight operation, or (b) to the sale by the airlines of alcoholic beverages aboard aircraft while they are in the airspace over British Columbia.

The two petitions were heard together by Proudfoot J. on February 15, 1982 ([1982] B.C.W.L.D. 641). Proudfoot J. granted the declarations sought by the petitioners. In her view, the cases were governed by The Queen in Right of Manitoba v. Air Canada, 1980 CanLII 16 (SCC), [1980] 2 S.C.R. 303. That case was similar to the present except that it was concerned with through-flights over Manitoba and stopovers during flights through Manitoba. In one respect, Proudfoot J. observed, the province's case was stronger than those before her in that there the formula for the tax on airlines was spelled out in the Act. At all events, she saw no reason why the rationale of that case would not extend to flights that originate or terminate in the province or connect two points in the province. As in that case, the aircraft was in the airspace and not in the province, and consequently neither the aircraft and parts nor the liquor attracted the tax.

Some time before these petitions were heard, Air Canada, on May 1, 1981, had commenced an action by writ of summons. It claimed that the Act did not apply to Air Canada and was ultra vires the province. In its statement of claim, Air Canada did not restrict its claim for relief to a declaration regarding the applicability and constitutional validity of the tax in relation to its operation, but also sought, among other relief, repayment of the tax collected since 1974.

On July 14, 1982, after Proudfoot J. had declared that Canadian Pacific Air Lines Ltd. and Pacific Western Airlines Ltd. were not subject to tax under the Act, Air Canada made an application pursuant to Rule 18(1) of the British Columbia Supreme Court Rules for declarations that on its true construction the Act did not apply to Air Canada's aircraft and parts purchased outside British Columbia and used in the flight operation of its airline business or to the sale of alcoholic beverages aboard its aircraft while in the airspace over British Columbia. In short, it applied for precisely the same relief as that granted to Canadian Pacific Air Lines Ltd. and Pacific Western Airlines Ltd. alleging that there was no fact which would constitute a defence to the claim of Air Canada in that respect. It did not at that time seek the additional relief set forth in its statement of claim, wishing no doubt to tailor that part of its demand for summary judgment to take advantage of the decision of Proudfoot J. Rule 18 reads as follows:

Summary Judgment in an action

(1) In an action in which an appearance has been entered, the plaintiff, on the ground that there is no defence to the whole or part of a claim, or no defence except as to amount, may apply to the Court for judgment on an affidavit setting out the facts verifying the claim or part of the claim and stating that the deponent knows of no fact which would constitute a defence to the claim or part of the claim except as to amount.

(2) On the hearing of an application under subrule (1) the Court may exercise any of its powers under Rule 52(8) and may

(a)grant judgment for the plaintiff on the whole or part of the claim and may impose terms on the plaintiff, including a stay of execution of any judgment, until the determination of the defendant's counterclaim or third party proceeding,

(b)allow the defendant to defend the whole or part of the claim either unconditionally or on terms relating to the giving of security, time, the mode of trial or otherwise, and may give directions pursuant to Rules 40(41) and (42) for the hearing of evidence at trial

(e) grant any other order it thinks just.

(3) Where a plaintiff obtains judgment under subrule (2), he may continue the action in respect of any remaining part of the claim, any other claim or against any other defendant.

(6) In an action in which an appearance has been entered, the defendant, on the ground there is no merit in the whole or part of the claim, may apply to the Court for judgment on an affidavit setting out the facts verifying the defendant's contention that there is no merit in the whole or part of the claim and stating that the deponent knows of no facts which would substantiate the whole or part of the claim.

On August 11, 1982, Callaghan J. granted the declarations sought by Air Canada. According to the information before us, he simply applied to Air Canada the decision of Proudfoot J. in the Canadian Pacific Air Lines Ltd. and Pacific Western Airlines Ltd. cases.

The province then appealed to the British Columbia Court of Appeal from the decisions of Proudfoot J. on the Canadian Pacific Air Lines Ltd. and Pacific Western Airlines Ltd. petitions, and of Callaghan J. on the Air Canada summary judgment application. The appeals were heard together and were allowed in part. The declaration relating to the tax on the aircraft and parts was set aside, thus making the airlines liable for the tax on these items. The declaration relating to the liquor, however, was upheld.

In holding that the tax applied to the aircraft and parts, Macfarlane J.A., Seaton and Anderson JJ.A. concurring (1983), 1983 CanLII 306 (BC CA), 46 B.C.L.R. 213, made a distinction between overflights and momentary stopovers, which were in issue in The Queen in Right of Manitoba v. Air Canada, supra, and flights originating or terminating in the province or beginning and ending there. In the latter case, there was in his view a sufficiently substantial connection to satisfy the constitutional requirement in s. 92(2), Constitution Act, 1867, that the taxed subject must be "within the province" before it can be taxed. Once it was decided that there was a sufficient connection to attract the tax, there was no objection to the province measuring the amount of the tax on the basis of miles travelled in the airspace over the province as compared to total miles travelled by the aircraft. The Act, he noted, did not specify the extent of the use, so it need not be any particular degree or type of use. In strict terms, he stated, if an aircraft lands, proceeds to the terminal, loads and unloads, and performs maintenance, the airline is using the aircraft in the province. Macfarlane J.A. also briefly rejected the argument that the tax was legislation in relation to a federal undertaking on the ground that the tax did not represent a colourable attempt to regulate aeronautics. The sole issue, he thought, was simply one of situs. Similarly, he found it irrelevant that the amount of the tax was measured in terms of airspace. The issue was whether the aircraft had sufficient presence in the province to attract the tax. On the other hand, the presence of an aircraft in the airspace over British Columbia did not create a sufficiently substantial presence in the province to make liquor sales in the airspace subject to the tax. There was no real distinction between such sales on overflights and on those that originate or terminate in British Columbia.

The three airlines then applied for and were granted leave to appeal to this Court. The province cross-appealed in respect of the Court of Appeal's decision regarding the tax on alcoholic beverages. This is the first appeal.

Air Canada then proceeded to trial in its action, (which ultimately culminated in the second appeal) in which, as noted earlier, it sought not only declarations as to the applicability and constitutionality of the Act but other relief including recovery of the amounts it had paid in taxes between July 14, 1976 and February 1, 1978, namely $903,424.57 in respect of the tax on aircraft and parts, and $90,279.52 in respect of the tax on liquor. As to this additional relief, I should note that the province in this Court argued that taxes voluntarily paid to the Crown are irrecoverable by the taxpayer as having been paid under a mistake of law.

At the start of the trial, the province brought a motion under Rule 18(6) of the rules of court, set out above, for a summary dismissal of the action. Rule 18(6), it will be recalled, provides for dismissal, on application, of an action where there is no merit in the whole or part of the claim. The province argued that it was entitled to summary judgment on the basis that the issues raised by Air Canada were res judicata.

Macdonald J. dismissed the province's motion. He, however, rejected Air Canada's argument that because the original application was an application for summary judgment, the effect of the dismissal of that application was to leave the parties in the same position as before the motion was brought so the trial should proceed as though no motion was ever brought. He also rejected the argument that this Court had, by granting a postponement of the time for filing the notice of appeal, said that Air Canada was entitled to a trial. He nonetheless dismissed the motion. In his view, he should hear the evidence. He observed that in Northern Telecom Ltd. v. Communications Workers of Canada (No. 1), 1979 CanLII 3 (SCC), [1980] 1 S.C.R. 115, this Court had declined to answer a constitutional issue because it lacked the necessary facts. Such a result was to be avoided. Otherwise, the appeal to this Court could be inconclusive or lead to further litigation. The facts the airlines could establish, he asserted, might convince him that he was not bound by the decision of Macfarlane J.A. The decision of this Court should be based on the facts established at trial and not be open to the potential argument that the Court of Appeal proceeded on a mere supposition or facts that were not on the record.

At trial, Air Canada, in addition to adducing new evidence, sought to raise three alleged new issues. The first of these was that provincial legislation that affects or interferes with rights outside the province or has a substantial extra-provincial effect is ultra vires. The position is not wholly easy to follow, but as I understand it the point is that Air Canada's operations were largely outside British Columbia. Because, owing to economic forces, the tax may be recovered from passengers throughout Canada and beyond, it was indirect and therefore ultra vires. A second argument was that the tax was not imposed "in order to the raising of a Revenue for Provincial Purposes" within the meaning of s. 92(2) of the Constitution Act, 1867. There was no provincial purpose here. The province had no role in aeronautics in so far as interprovincial carriers were concerned, and it thus conferred no benefit to the airline from the tax. In this Court, this argument was buttressed by the further contention that the levying of a tax from which the taxpayer derived no benefit violated s. 7 of the Canadian Charter of Rights and Freedoms. Finally, Air Canada claimed to be entitled to recover the money it had collected from its passengers for the tax on liquor.

Macdonald J. dismissed the action. He reiterated that the reason he had allowed the trial to proceed was to ensure that this Court would be in a position to give a definitive answer to the constitutional issues raised. If he was incorrect in this, he stated, the courts above could simply refuse to consider that evidence. At all events, the additional evidence would not, in his view, have changed the Court of Appeal's conclusion. He also dealt with and rejected the new issues.

An appeal to the British Columbia Court of Appeal (per Taggart J.A., Carrothers and Lambert JJ.A. concurring) was dismissed through the application of the principle of res judicata. More specifically, it held, the circumstances required the application of issue estoppel. Here, in fact, there was but one action with Air Canada seeking to try the same issue twice. It had originally been successful on its first attempt when Callaghan J. granted its motion. It was partially unsuccessful on appeal, and it now sought a full trial on the issue on which it failed. While, ordinarily, a plaintiff who is unsuccessful under Rule 18 is entitled to a full trial, here Air Canada had carefully singled out an issue for resolution, and that issue had been decided, initially in its favour, but adversely to it on appeal. At all events, it had been decided. As a consequence, in the court's view, issue estoppel applied. The additional evidence should, therefore, not have been permitted. If it was required, it should have been before Callaghan J. and the Court of Appeal on the summary judgment application. Taggart J.A. also noted that one might well say that Air Canada, having under Rule 18 elected a remedy and having fully argued the issues, should not now be permitted to seek additional remedies at a full trial, but added that he need not decide this point.

On the assumption that he was wrong on the question of res judicata, Taggart J.A. agreed with Macdonald J. that the additional facts would not have altered the finding of the Court of Appeal. So far as the new issues were concerned, they should, he thought, have been raised before Callaghan J., and Macdonald J. should have applied issue estoppel to them. On the assumption that he was wrong, however, he dealt with and rejected all the new arguments.

Air Canada then sought and was granted leave to appeal to this Court on February 28, 1986. This is the second appeal.

The Attorneys General of the following provinces intervened: Ontario, Quebec, Nova Scotia, New Brunswick, Manitoba, Saskatchewan, Alberta and Newfoundland. The Canadian National Railway Company also intervened.

The Issues

The parties and the interveners raised a wide variety of issues, but as I view the matter, only a few need be discussed in the resolution of these appeals. I shall, in dealing with the first appeal, discuss the tax on aircraft and parts, and then the tax on alcoholic beverages. I shall then deal with the remaining issues in the second appeal.

The Tax on Aircraft and Parts

The first issue to be determined is whether on its true construction the Act applies to the aircraft and parts. The province claims it does by virtue of s. 2(4) of the Act, which I have already cited in full. That provision applies to residents, and more pertinently, to any person "carrying on business in the Province who brings or sends into the Province or who receives delivery in the Province of tangible personal property for his own consumption or use ...." Section 2(4), like other provisions in a statute, must be read both in its specific context and in its context as a whole. That consideration must be firmly kept in mind in considering whether the entry into the province of the aircraft and parts in the course of the operations of the airlines previously described constitutes "bringing" or "sending" them into province or "receiving delivery" of them there.

While I would not, in the absence of a detailed examination, wish to categorize the Act as being solely intended to impose a retail tax payable by the ultimate consumer of the goods, there can be no doubt, as I mentioned before, that this is its predominant purpose. The Act, in its general structure and intent, closely resembles the type of enactment originally approved by the courts in Atlantic Smoke Shops, Ltd. v. Conlon, 1943 CanLII 372 (UK JCPC), [1943] A.C. 550, and later generalized to include all tangible personal property; see Cairns Construction Ltd. v. Government of Saskatchewan, 1960 CanLII 59 (SCC), [1960] S.C.R. 619. This predominant purpose, in my view, is of considerable assistance in understanding the import of s. 2(4). Indeed, Viscount Simon L.C. in the Conlon case (p. 568) observed of a similar provision that it was manifest that it was enacted merely as a supplementary provision. The nature of this particular provision also argues for its interpretation in the light of the overall scheme. It is a provision which, if it stood alone, might well be construed as infringing upon s. 121 of the Constitution Act, 1867 which provides that "All articles of the growth, Produce, or Manufacture of any one of the Provinces shall ... be admitted free into each of the other Provinces." Viscount Simon in Conlon, it is true, rather underplayed that possibility, but subsequent cases have indicated that the courts would closely scrutinize a tax that in Rand J.'s words "in its essence and purpose is related to a provincial boundary"; see Murphy v. Canadian Pacific Railway Co., 1958 CanLII 1 (SCC), [1958] S.C.R. 626, per Rand and Cartwright JJ.; see also a Comment by F. R. Scott (1934), 12 Can. Bar Rev. 303, at p. 308.

This context, it seems to me, strongly supports the view that the general purpose of s. 2(4) is to serve as a supplementary provision "to guard against the methods of avoidance of" the purchase tax; see Viscount Simon in Conlon, at p. 568. If that view is correct, what the provision was intended to do was to prevent the evasion of the tax and consequent loss of revenue by the simple expedient of a consumer's purchasing goods outside the province. The provision equalizes the burden by taxing out-of-province purchases by provincial residents at the same rates as if the purchases had taken place in the province. The out-of-province purchaser pays the tax when he "brings or sends the goods" into the province or "receives delivery" for his use or consumption. This is confirmed, I think by the words used in the provision, and especially if one considers them in connection with the purported application of the provision to the facts of this case. What I think is contemplated is the bringing of a purchased item into the province on a permanent basis, at which time it is taxable once and for all at a stated percentage of the purchase price as the provision clearly provides. If such a tax was imposed on interprovincial airlines by every province, it would place a much heavier burden on these entities than on local airlines and other businesses. Whether the imposition of such a tax would be sufficiently discriminatory as to make it invalid within the principle in Attorney-General for Alberta v. Attorney-General for Canada (the Alberta Bank case), 1938 CanLII 251 (UK JCPC), [1939] A.C. 117, I need not consider. It is sufficient to say that I do not think one should lightly assume an intention on the part of the Legislature to enact a measure having the discriminatory potential of the statute here if given a broader interpretation than the general scheme of the Act would suggest.

I am aware that the taxing authorities sought to alleviate any unfair burden the tax might impose on the airlines by calculating it on a basis proportional to the use of their aircraft in the province. But there is no statutory basis for this practice and, as the Court of Appeal noted, they did not have to do this. It may well be that the Legislature could, by properly framed legislation, impose a proportional tax of the kind the taxing authorities sought to levy here if it did not impose an undue burden on interprovincial undertakings. But I do not think I should speculate further about the matter. As Laskin C.J. noted in The Queen in Right of Manitoba v. Air Canada, supra, at p. 320, it is "preferable to avoid dealing with it, in conformity with the general rule in constitutional cases not to engage issues which do not squarely arise for decision". This approach seems to me to be particularly apt in an area as intricate and so fraught with consequences as the constitutional power of taxation.

I, therefore, conclude that on a proper construction of the Act, the tax provided by s. 2(4) does not apply to the airlines' aircraft and parts. Consequently, leaving aside the issues relating to the recovery of the taxes from the province, the constitutional questions raised by the airlines relating to these items need not be addressed.

The Tax on Alcoholic Beverages

Both Proudfoot J. and the Court of Appeal declared that the sales by the airlines of alcoholic beverages to passengers aboard the aircraft while they were in the airspace over British Columbia were not covered by the Act. I agree. In The Queen in Right of Manitoba v. Air Canada, supra, Laskin C.J. stated, at p. 316:

I am prepared, on this view, to assume that the Province has some legislative jurisdiction in the air space above it so that the pivotal question is whether Air Canada aircraft, engaged in overflights are "within the Province", as this quoted phrase is used in s. 92(2) which empowers a Province to impose "direct taxation within the Province in order to the raising of a revenue for provincial purposes".

Merely going through the air space over Manitoba does not give the aircraft a situs there to support a tax which constitutionally must be "within the Province". In the case of aircraft operations, there must be a substantial, at least more than a nominal, presence in the Province to provide a basis for imposing a tax in respect of the entry of aircraft into the Province.

He was there speaking of overflights, but like the Court of Appeal, I can see no real distinction between a sale of liquor in airspace on an overflight, and one that originates or terminates in British Columbia. In either case, both the person taxed and the transaction in respect of which he is taxed take place on the aircraft when it is in the airspace. Under these circumstances, there is no presence in the province sufficient to provide a basis for the imposition of the tax.

The Second Appeal

The Court of Appeal, it will be remembered, dismissed this appeal. They quite properly held that the issues that had been raised before Callaghan J. could not be relitigated before Macdonald J. And I am inclined to agree with that court that the additional evidence was of no serious consequence. I need not consider whether issue estoppel also applied to the additional issues raised before Macdonald J. because I agree with the conclusions of the Court of Appeal on the merits of these issues. My reasons will be apparent from a perusal of my reasons in the third appeal between the same parties relating to the Gasoline Tax Act of British Columbia delivered contemporaneously with this judgment. For reasons there stated, I would also reject the contention that the relevant legislation in the present case violates s. 7 of the Charter.

These matters are, however, no longer relevant except as regards costs. Essentially the Court of Appeal dismissed the appeal because of determination in earlier proceedings in the same action which had decided against Air Canada the major issues on which recovery depended. They have now been decided in its favour. The decision of the Court of Appeal has been reversed in so far as the tax on the aircraft and parts is concerned. The Court in the first appeal has held that the Act does not apply to these items. Absent other considerations, there seems no reason to refuse Air Canada the recovery it seeks. There is nothing to indicate it ever abandoned this claim. In seeking summary judgment, it merely tried to obtain a ruling on issues to which it thought, in light of Proudfoot J.'s judgment, there was no defence as Rule 18 clearly contemplates. It could then continue its action in respect of any remaining issues. It would have been better to await the ultimate disposition of the first appeal before raising additional issues, but this seems to me to be relevant only as to costs.

The province, however, argued that it can resist recovery on the basis that the payment by Air Canada was made on the basis of a mistake of law. As mentioned earlier, I have dealt with this issue in the third appeal. For reasons there given, I do not think this defence is available to the province.

One further issue requires examination. Air Canada seeks to recover the money paid by its passengers for the tax on alcoholic beverages. It argued that the province had unjustly enriched itself by collecting the tax and that it alone was in a position to rectify the wrong by returning the money to the passengers by way of reduced fares. Like Macdonald J. and Taggart J.A., I can see no basis on which Air Canada is entitled to receive this money. The tax was imposed on the passengers, not Air Canada. Air Canada was simply an agent to collect it under the Act and, in fact, obtained a fee for doing so. I am unable to see how it could identify the passengers who consumed the liquor, so its repayment to Air Canada would simply amount to a windfall to the airline.

Disposition

For these reasons, I would allow the airlines' first appeal relating to the taxes on the aircraft and parts, and dismiss the province's cross-appeal relating to the taxes on alcoholic beverages sold in aircraft while they are in the airspace. I would restore the orders of Proudfoot J. and Callaghan J. The airlines are entitled to their costs throughout.

I would allow the second appeal by Air Canada as regards the amount claimed for taxes unlawfully collected in respect of its aircraft and parts, and award the sum claimed, namely, $903,424.57. I would dismiss the appeal as regards the amount claimed for taxes unlawfully collected in respect of alcoholic beverages. In the particular circumstances of this case, the province should recover its costs at trial and before the Court of Appeal. There should be no costs on the appeal to this Court.

Wilson J.

The following are the reasons delivered by

WILSON J. -- I agree with my colleague La Forest J. for the reasons given by him that as a matter of statutory interpretation the Social Service Tax Act, R.S.B.C. 1979, c. 388, does not apply to the respondent airlines' aircraft and parts. This being so the payment made by Air Canada on account of taxes under the Act was made under a mistake of law. Having concurred with my colleague by way of obiter dicta in Air Canada v. British Columbia, [1989] 1 S.C.R. 000, that monies paid under a mistake of law should, like monies paid under a mistake of fact, be recoverable, I agree with my colleague that the respondent airlines' mistake in this case affords no defence to the province against a claim for recovery of the monies paid.

I agree also with my colleague La Forest J. that the imposition of the tax on the sale of alcoholic beverages to passengers while airborne over British Columbia was unconstitutional since such sales did not take place "within the province". I also agree with my colleague that these monies are not recoverable by the respondent airlines even although they were paid under unconstitutional legislation. I distinguish this case from the case dealing with the Gasoline Tax Act in that the tax in this case was not a tax on the respondent airlines but on the passengers who purchased drinks. The monies paid did not come out of the airlines' pockets but out of the pockets of their passengers who would be entitled, were it practical to do so, to make the claim for their return. The airlines in this case were merely tax collectors and not taxpayers. There is therefore no foundation for their claim that the monies should be returned to them for their own use and benefit.

In the result I agree with the disposition of these appeals proposed by my colleague.

The airlines' first appeal relating to taxes on the aircraft and parts should be allowed and the province's cross‑appeal relating to taxes on alcoholic beverages sold in aircraft while in airspace should be dismissed with costs.

The second appeal by Air Canada as regards the amount claimed for taxes unlawfully collected in respect of its aircraft and parts should be allowed.

Solicitors for the appellants Pacific Western Airlines Ltd. and Canadian Pacific Air Lines Ltd.: Davis & Company, Vancouver.

Solicitors for the appellant Air Canada: Russell & DuMoulin, 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 the 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.

Solicitors for the intervener Canadian National Railway Company: Taylor McCaffrey Chapman, Winnipeg.

• Le Dain J. took no part in the judgment.