Air Canada v. British Columbia, [1989] 1 S.C.R. 1161

Air Canada and Pacific Western Airlines Ltd. Appellants

v.

Her Majesty The Queen in Right of the Province of British Columbia and the Attorney General of British Columbia 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, and the Attorney General of Newfoundland Interveners

and between

Her Majesty The Queen in Right of the province of British Columbia and the Attorney General of British Columbia Appellants

v.

Air Canada, Pacific Western Airlines Ltd. and Canadian Pacific Airlines Ltd. Respondents

and

The Attorney General for Saskatchewan Intervener

indexed as: air canada v. british columbia

File Nos.: 20079, 20082, 20085.

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 appeal court for british columbia

Taxation -- Provincial powers -- Tax levied first purchaser of gasoline following manufacture -- Tax amended to apply to purchaser ultimately consuming gasoline -- Airlines involved in interprovincial and international service taxed for fuel purchases in province -- Whether or not original tax ultra vires the province -- Whether or not amended tax ultra vires the province -- If so, whether or not taxes paid by mistake under ultra vires statute refundable -- Whether or not taxes contrary to s. 7 Charter right to liberty ‑‑ If so, whether or not taxes justified under s. 1 -- Gasoline Tax Act, 1948, R.S.B.C. 1960, c. 162, s. 25(1), (2), (3), (4), (5) -- Miscellaneous Statutes Amendment Act, 1976, S.B.C. 1976, c. 32, s. 7 -- Constitution Act, 1867, ss. 91(2), 92(2), (10)(a) -- Canadian Charter of Rights and Freedoms, ss. 1, 7.

Statutes -- Retroactive operation -- Taxing statutes -- Ultra vires taxing provision amended -- Amendment providing for retroactive operation of amendment -- Whether or not retroactive application of taxing provision ultra vires the province -- Finance Statutes Amendment Act, 1981, S.B.C. 1981, c. 5, s. 20.

In 1980, Air Canada, Pacific Western Airlines and Canadian Pacific Airlines commenced separate actions (which were heard together) against British Columbia, seeking the reimbursement of amounts paid as "gasoline taxes" under the Gasoline Tax Act in effect on and following August 1, 1974. (A fiat was no longer necessary to sue the provincial Crown from August 1, 1974.) Air Canada and Pacific Western Airlines sought to recover the taxes paid between August 1, 1974 and the date of trial. Canadian Pacific Airlines' claim was limited to the taxes paid between August 1, 1974 and July 1, 1976.

The Act, as it stood on August 1, 1974, taxed every purchaser on all gasoline sold in the province for the first time after its manufacture in, or importation into, the province. The Act remained in this form until 1976 even though the Privy Council had struck down a similar provision for not being a direct tax within s. 92(2) of the Constitution Act, 1867. The definition of "purchaser" was repealed and replaced in July 1976. "Purchaser" was defined to mean any person who, acting for himself or as agent, bought or received delivery of gasoline within the province for his or her own use or consumption. In 1981, legislation was enacted purporting to extend the application of legislation similar to that enacted in 1976 back to August 1, 1974. This legislation also purported to legalize the Crown's retention of the money collected from 1974 to 1976 under the Act as it then stood: moneys collected as taxes, penalties or interest under the Act during that period were to "be conclusively deemed to have been confiscated by the government without compensation".

Air Canada and Pacific Western Airlines alleged that none of the definitions made the tax a direct tax in the province for provincial purposes so as to give the province jurisdiction under s. 92(2) of the Constitution Act, 1867. All three airlines contended that, even if the 1976 version of the statute were constitutional, they were still entitled to be reimbursed for moneys paid between 1974 and 1976 because the 1981 attempt to give the 1976 tax retroactive effect was invalid.

At trial the province conceded that the Act as it existed before 1976 was ultra vires, but the 1976 Act was held to be valid. The 1981 legislation to give the tax retroactive effect, however, was found to be ultra vires. The airlines were therefore entitled to recover taxes paid between 1974 and 1976 but not the taxes paid after 1976.

The Court of Appeal dismissed the appeal by Air Canada and Pacific Western Airlines on the issue of their liability after 1976. The Attorney General cross‑appealed against Air Canada and Pacific Western Airlines and appealed against Canadian Pacific Airlines on the issue of the province's liability to repay the taxes collected between 1974 and 1976. The Court of Appeal, by majority, dismissed the Crown appeals. Appellants were granted leave to appeal to this Court.

The constitutional questions before this Court queried: (1) if the Gasoline Tax Act, as amended in 1976 and 1981, was ultra vires in its application or otherwise constitutionally inapplicable to the airlines here; (2) whether the application of the Gasoline Tax Act to the airlines violated s. 7 of the Canadian Charter of Rights and Freedoms; and (3) if so, whether its application was justified under s. 1.

Held (Wilson J. dissenting in part): The appeal by Air Canada and Pacific Western Airlines should be dismissed, the Crown's cross‑appeal against them should be allowed and the Crown's appeal against Canadian Pacific Airlines should be allowed. As to the first constitutional question, the Gasoline Tax Act, as it existed in 1974, was constitutionally invalid, but the amendments of 1976 and 1981 were valid. The second constitutional question should be answered in the negative; the third did not need to be answered.

Per Lamer, La Forest and L'Heureux‑Dubé JJ.: The Crown could not rely on the Act as it existed in 1974 to justify collection or retention of the taxes levied between 1974 and 1976. The Act could not be "read down" so as to apply only to persons who purchased gasoline for their own use or consumption as it was in practice applied.

The 1976 tax met the requirements of s. 92(2) of the Constitution Act, 1867: it was a direct tax, imposed in the province and for provincial purposes. A direct tax is one demanded from the very person who it is intended or desired should pay it. The 1976 Act clearly taxed the ultimate consumer of the gasoline and made no provision for passing it on to others, whatever the opportunities of recouping it by other means. The transaction attracting the tax took place in the province and the purchaser had a sufficient presence in the province to be taxed there. Nothing in the Constitution Act, 1867 requires that the taxpayer must benefit from the tax. A person, a transaction or property in the province may be taxed by the province if taxed directly.

The Act did not impose a consumption tax and references to consumption or use in the definition of purchaser merely defined the taxpayer. Since the tax was imposed in the province in respect of the purchase of gasoline, it did not matter where it was consumed, whether in airspace or in another province. That the tax could have an effect on persons outside the province was of no consequence.

The Charter right to "life, liberty or security of the person" could not be invoked here. The airlines were required to pay taxes in the same way as other purchasers of gasoline within the province. An ordinary tax like the one at issue could not be equated with expropriation.

Federal jurisdiction over trade and commerce (s. 91(2)), interprovincial undertakings (s. 92(10)(a)) and aeronautics was not violated by the 1976 Act. Any alleged violation of the trade and commerce power would be based on the impugned tax's being characterized as a consumption tax on the airlines' fuel. The federal power over interprovincial undertakings and aeronautics did not create an immunity for the airlines from otherwise valid provincial legislation. By and large federal undertakings, like other private enterprises functioning within the province, must operate in a provincial legislative environment, and must like them pay provincial taxes imposed within the province.

The words of the 1976 Act clearly indicated that the Legislature meant to give effect to the whole of the statute in its amended form from the date of its enactment. The argument that the 1976 Act was invalid because the Legislature could not amend an ultra vires statute so as to make it intra vires was without merit.

The taxing provisions of the 1981 legislation, like the 1976 legislation, were a proper exercise of the province's power to impose direct taxation in the province. The sole difference was that the 1981 provisions were given retroactive effect -- a result that was not constitutionally barred. The tax illegally collected under the ultra vires provision before 1976 would be equal to the amount levied in 1981 and the moneys owing by the taxpayers under the 1981 provision was simply to be taken out of the equal amounts collected from those taxpayers under the invalid tax. The subsection which referred to "confiscation" was nothing more nor less than machinery for collecting the taxes properly imposed in the other subsections and accordingly could not taint their constitutionality.

The 1981 legislation does not violate the principle enunciated in Amax Potash Ltd. v. Government of Saskatchewan, 1976 CanLII 15 (SCC), [1977] 2 S.C.R. 576. Amax concerned a situation where the province sought to avoid repaying a tax it was bound by law to pay. It simply sought in an indirect way to give effect to an invalid statute. Here the Legislature did directly what it was empowered to do -- impose a direct tax and give it retroactive effect.

The argument that, apart from the 1981 Act, the airlines could not recover on the basis that the tax was paid under a mistake of law (the "mistake of law" rule) could not succeed. The rule was rejected as having been constructed on inadequate foundations as lacking in clarity and resulting in undue harshness. It should not in any event be extended to the constitutional plane. The development of the law of restitution had rendered otiose the distinction between mistakes of fact and mistakes of law. It should play no part in the law of restitution. Recovery should generally be allowed in any case of enrichment at the plaintiff's expense caused by a mistake, subject to any available defences or equitable reasons for denying recovery. Restitution should apply against public bodies as well as to private individuals.

Restitutionary principles, however, preclude recovery where the plaintiff has suffered no loss. If the taxing authority retains a payment to which it was not entitled, it will be unjustly enriched but not at the taxpayer's expense if the economic burden of the tax has been shifted to others. Generally, it is preferable to leave the enrichment with the tax authority instead of putting the judicial machinery in motion for the purpose of shifting the same enrichment to the taxpayer. The law of restitution is not intended to provide windfalls to plaintiffs who have suffered no loss. Rather, its function is to ensure that where a plaintiff has been deprived of wealth that is either in his possession or would have accrued for his benefit, it is restored to him. The measure of restitutionary recovery is the gain the province made at the taxpayer's expense. The taxpayer must show that it bore the burden of the tax to make out its claim. What the province received was relevant only in so far as it was received at the taxpayer's expense.

Apart from this, while the principles of unjust enrichment can operate against a government to ground restitutionary recovery, where the effect of an unconstitutional or ultra vires statute is in issue, special considerations operate to take the case out of the normal restitutionary framework and require a rule responding to the underlying policy concerns specific to this problem. The rule is against recovery of ultra vires taxes, at least in the case of unconstitutional statutes. The policies that underlie this rule are numerous. Chief among these are the protection of the treasury, and a recognition of the reality that if the tax were refunded, modern government would be driven to the inefficient course of reimposing it, either on the same or on a new generation of taxpayers, to finance the operations of government. It could lead to fiscal chaos, particulary where a long-standing taxation measure is involved. The tax here is of broad general application and has been imposed for decades.

Exceptions may exist where the relationship between the state and a particular taxpayer results in the collection of tax which would be unjust or oppressive in the circumstances. The present case does not, however, call for a departure from the general rule. The tax, though unconstitutional, raised an issue bordering on the technical. Had the statute been enacted in proper form there would have been no difficulty in exacting the tax as actually imposed. Nor was there compulsion. Payment under an ultra vires statute does not constitute "compulsion". Before a payment will be regarded as involuntary there must be some natural or threatened exercise of power possessed by the party receiving it over the person or property of the taxpayer for which he has no immediate relief than to make the payment. Finally, the fact that the province may have been in a better position to determine that the statute was unconstitutional does not affect the rule. The policy reasons underlying it remain.

The rule against the recovery of unconstitutional and ultra vires levies is an exceptional rule, and should not be construed more widely than is necessary to fulfil the values which support it. The rule should not apply where a tax is extracted from a taxpayer through a misapplication of the law. Where an otherwise constitutional or intra vires statute or regulation is applied in error to a person to whom, on its true construction, it does not apply, the general principles of restitution for money paid under a mistake should be applied, and, subject to available defenses and equitable considerations, the general rule should favour recovery. No distinction should be made between mistakes of fact and mistakes of law.

Per Beetz J.: While agreeing with the reasons and conclusions of La Forest J., it is not necessary to deal with the "Mistake of Law" defence or to express any opinion thereon with respect to private law or public law and with respect to the recovery of taxes levied pursuant to an unconstitutional statute because the new Gasoline Tax Act was valid in its entirety. If the rule should be against the recovery of ultra vires taxes, at least in the case of unconstitutional taxes, this rule should not extend to cases of error in the application of the law.

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

Per Wilson J. (dissenting in part): British Columbia's Gasoline Tax Act, as it existed in 1974, was ultra vires the province and could not be relied upon by the Crown to justify the collection or retention of the taxes levied against the appellants between 1974 and 1976. The unconstitutional aspects were remedied by amendment made in 1976. However, in 1981, the province through the imposition of a retroactive tax and the confiscation of the taxes paid between 1974 and 1976 attempted unsuccessfully to give effect to the earlier unconstitutional legislation in violation of principles already stated by this Court.

Appellants' claim for repayment is not defeated by the doctrine of mistake of law which should not be extended to moneys paid under unconstitutional legislation. Otherwise, taxpayers would be obliged to check out the constitutional validity of taxing legislation before paying on pain of being unable to recover anything paid under unconstitutional laws. The appellants were entitled to rely on the presumption of validity of the legislation and on the representation as to its validity by the legislature enacting and administering it.

Payments made under unconstitutional legislation are not "voluntary" in a sense which should prejudice the taxpayer. The taxpayer, assuming the validity of the statute which it is entitled to do, considers itself obligated to pay. Any taxpayer paying taxes exigible under a statute which it has no reason to believe or suspect is other than valid should be viewed as having paid pursuant to the statutory obligation to do so.

Payments made under a statute subsequently found to be unconstitutional should be recoverable and the principle should not be reversed for policy reasons in the case of payments made to governmental bodies. If any judicial policy were to be developed, that policy should be one which distributes the loss fairly across the public. The loss should not fall on the totally innocent taxpayer who paid what the legislature improperly said was due.

The appellants were not required to show that the unjust enrichment of the province was at their expense. The argument that their receipt of the money back amounted to a "windfall" because in all likelihood they had recouped it from their customers is no basis on which to deny recovery. Where payments are made pursuant to an unconstitutional statute there is no legitimate basis on which they can be retained.

Section 7 of the Canadian Charter of Rights and Freedoms had no application to this case for the reasons given by La Forest J.

Cases Cited

By La Forest J.

Considered: Hydro Electric Commission of Nepean v. Ontario Hydro, 1982 CanLII 42 (SCC), [1982] 1 S.C.R. 347; distinguished: Amax Potash Ltd. v. Government of Saskatchewan, 1976 CanLII 15 (SCC), [1977] 2 S.C.R. 576; referred to: Air Canada v. British Columbia (Attorney General), 1986 CanLII 2 (SCC), [1986] 2 S.C.R. 539; Attorney-General for British Columbia v. Canadian Pacific Railway Co., 1927 CanLII 482 (UK JCPC), [1927] A.C. 934; Attorney-General for British Columbia v. Kingcome Navigation Co., 1933 CanLII 320 (UK JCPC), [1934] A.C. 45; Marine Petrobulk Ltd. v. R. in right of B.C. (1985), 1985 CanLII 487 (BC CA), 64 B.C.L.R. 17; Bank of Toronto v. Lambe (1887), 12 A.C. 575; R. in right of Manitoba v. Air Canada, 1980 CanLII 16 (SCC), [1980] 2 S.C.R. 303; Atlantic Smoke Shops, Ltd. v. Conlon, 1941 CanLII 46 (SCC), [1941] S.C.R. 670; Braniff Airways, Inc. v. Nebraska State Board of Equalization and Assessment, 347 U.S. 590 (1954); Reference re the Employment and Social Insurance Act, 1936 CanLII 30 (SCC), [1936] S.C.R. 427; Attorney-General for Canada v. Attorney-General for Ontario, 1937 CanLII 363 (UK JCPC), [1937] A.C. 355; United Air Lines, Inc. v. Mahin, 410 U.S. 623 (1973); Edelman v. Boeing Air Transport, Inc., 289 U.S. 249 (1933); Delta Air Lines Inc. v. Department of Revenue, 455 So.2d 317 (1984 Fla.), cert. denied 474 U.S. 892 (1985); Reference re Upper Churchill Water Rights Reversion Act, 1984 CanLII 17 (SCC), [1984] 1 S.C.R. 297; Campbell‑Bennett Ltd. v. Comstock Midwestern Ltd., 1954 CanLII 216 (SCC), [1954] S.C.R. 207; Commissioner for Motor Transport v. Antill Ranger & Co., [1956] A.C. 527; Norton v. Shelby County, 118 U.S. 425 (1886); Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan, 1977 CanLII 210 (SCC), [1978] 2 S.C.R. 545; Reference re Manitoba Language Rights, 1985 CanLII 33 (SCC), [1985] 1 S.C.R. 721; R. v. Mercure, 1988 CanLII 107 (SCC), [1988] 1 S.C.R. 234; Vancouver Growers Ltd. v. G. H. Snow Ltd., 1937 CanLII 245 (BC CA), [1937] 3 W.W.R. 121; Glidurray Holdings Ltd. v. Qualicum Beach (1981), 1981 CanLII 691 (BC SC), 31 B.C.L.R. 82; The King v. National Trust Co., 1933 CanLII 53 (SCC), [1933] S.C.R. 670; R. v. Williams, 1942 CanLII 367 (UK JCPC), [1942] A.C. 541; Lovitt v. The King (1910), 1910 CanLII 55 (SCC), 43 S.C.R. 106; Bilbie v. Lumley (1802), 2 East 469, 102 E.R. 448; Coleman v. Inland Gas Corp., 21 S.W.2d 1030 (1929); Mercury Machine Importing Corp. v. City of New York, 144 N.E.2d 400 (1957); United States v. Butler, 297 U.S. 1 (1936); Kiriri Cotton Co. v. Dewoni, [1960] A.C. 192; A. J. Seversen Inc. v. Village of Qualicum Beach (1982), 1982 CanLII 431 (BC CA), 135 D.L.R. 122; Maskell v. Horner, [1915] 3 K.B. 106; Lynden Transport Inc. v. R. in Right of British Columbia (1985), 1985 CanLII 438 (BC SC), 62 B.C.L.R. 314.

By Wilson J. (dissenting in part)

Amax Potash Ltd. v. Government of Saskatchewan, 1976 CanLII 15 (SCC), [1977] 2 S.C.R. 576; Bilbie v. Lumley (1802), 2 East 469, 102 E.R. 448; Hydro Electric Commission of Nepean v. Ontario Hydro, 1982 CanLII 42 (SCC), [1982] 1 S.C.R. 347.

Statutes and Regulations Cited

Canadian Charter of Rights and Freedoms, ss. 1, 7.

Constitution Act, 1867, ss. 91(2), 92(2), (10)(a)

Finance Statutes Amendment Act, 1981, S.B.C. 1981, c. 5, s. 20.

Fuel‑oil Tax Act, R.S.B.C. 1924, c. 251.

Gasoline Tax Act, 1948, R.S.B.C. 1960, c. 162, s. 25(1), (2), (3), (4), (5).

Miscellaneous Statutes Amendment Act, 1976, S.B.C. 1976, c. 32, s. 7.

Social Service Tax Act, R.S.B.C. 1979, c. 388.

Authors Cited

Birks, Peter. An Introduction to the Law of Restitution. Oxford: Clarendon Press, 1985.

British Columbia. Law Reform Commission. Report on Benefits Conferred Under a Mistake of Law. Victoria: Province of British Columbia, Ministry of the Attorney General, 1981.

Corbin, Arthur Linton. Corbin on Contracts, vol 3. St. Paul: West Publishing, 1960.

Goff of Chieveley, Robert Goff, Baron and Gareth Jones. The Law of Restitution, 3rd ed. London: Sweet and Maxwell, 1986.

Hogg, Peter W. Constitutional Law of Canada, 2nd ed. Toronto: Carswells, 1985.

Kennedy, W. P. M. and D. C. Wells. The Law of the Taxing Power in Canada. Toronto: University of Toronto Press, 1931.

McCamus, John D. "Restitutionary Recovery of Moneys Paid to Public Authority Under a Mistake of Law: Ignorantia Juris in the Supreme Court of Canada" (1983), 17 U.B.C. Law Rev. 233.

Palmer, George E. The Law of Restitution, vol. III. Boston: Little, Brown, 1978.

Pannam, Clifford L. "The Recovery of Unconstitutional Taxes in Australia and in the United States" (1964), 42 Texas L. Rev. 779.

APPEAL and CROSS‑APPEAL from a judgment of the British Columbia Court of Appeal (1986), 1986 CanLII 1118 (BC CA), 4 B.C.L.R. 356, [1986] 5 W.W.R. 385, dismissing the airlines' appeal and dismissing the Crown's cross‑appeal from a judgment of Macdonald J. (1984), 1984 CanLII 686 (BC SC), 51 B.C.L.R. 175, [1984] 3 W.W.R. 353. The appeal by Air Canada and Pacific Western Airlines Ltd. should be dismissed, the Crown's cross‑appeal against them should be allowed, the Crown's appeal against Canadian Pacific Airlines Ltd. should be allowed, Wilson J. dissenting in part. As to the first constitutional question, the Gasoline Tax Act, as it existed in 1960, was constitutionally invalid, but the amendments of 1976 and 1981 were valid. The second constitutional question should be answered in the negative; the third did not need to be answered.

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

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

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.

//Beetz J.//

The following are the reasons delivered by

BEETZ J. -- I have had the advantage of reading the reasons for judgment written by my brother Justice La Forest. I agree with his reasons and conclusions. However, since I take the view that the new s. 25 of the Gasoline Tax Act of British Columbia is constitutionally valid in its entirety, I do not find it necessary to express any opinion with respect to the "Mistake of Law" defence, either in private law or in public law, nor with respect to the recovery of taxes levied and paid pursuant to an unconstitutional statute.

Assuming without deciding that my brother La Forest J. is correct in holding that "the rule should be against recovery of ultra vires taxes, at least in the case of unconstitutional statutes", I agree with him that this rule should not extend to a case of misapplication of the law such as the misapplication of the Social Service Tax Act of British Columbia to aircraft, aircraft parts and alcoholic beverages in the related appeals.

I agree with the disposition proposed by my brother La Forest J.

//McIntyre J.//

The following are the reasons delivered by

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

//La Forest J.//

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

LA FOREST J. -- This judgment deals with the third of a trilogy heard at the same time involving the application and constitutionality of 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. Most of the major issues raised regarding the former Act have been dealt with in a separate judgment on the first and second appeals, issued contemporaneously herewith. This judgment deals with the Gasoline Tax Act. However, a number of issues, most importantly the issue whether taxes paid under a mistake of law may be recovered, are common to the second appeal and to this, the third appeal. Since these issues were originally raised and more directly addressed in relation to the Gasoline Tax Act, I have in the interests of clarity and comprehensiveness dealt with them in this judgment.

The principal issues raised in this appeal are:

(1) whether the Gasoline Tax Act of British Columbia, both as originally enacted and as amended over the years, is constitutionally valid under s. 92(2) of the Constitution Act, 1867 as imposing direct taxation within the province in order to the raising of a revenue for provincial purposes;

(2) whether, if the Act as originally enacted was ultra vires, a later amendment can retroactively impose the tax and permit the retention of the amounts unconstitutionally levied before the amendment in settlement of the tax owing under the amendments; and

(3) whether, apart from statute, an unconstitutional tax paid by a taxpayer may be recovered.

Also at issue is whether the tax is invalid or inapplicable, as infringing against the federal powers respecting trade and commerce, aeronautics and interprovincial undertakings, or as violating s. 7 of the Canadian Charter of Rights and Freedoms.

Facts

In 1980, Air Canada, Pacific Western Airlines and Canadian Pacific Airlines commenced actions in the Supreme Court of British Columbia against the Province of British Columbia, seeking the reimbursement of $18 million, $9 million and $3.5 million respectively, which amounts the airlines had paid as "gasoline taxes" under the Gasoline Tax Act, 1948, as amended. The sums claimed by Air Canada and Pacific Western Airlines represented payments made to the province under the Act between August 1, 1974 and the date of trial. Canadian Pacific Airlines' claim was limited to the payments it made in the 23-month period between August 1, 1974 and July 1, 1976. The significance of the August 1, 1974 starting date is that from that date it was no longer necessary to obtain a fiat to sue the provincial Crown. Separate actions for taxes paid prior to 1974 were subsequently launched (see Air Canada v. British Columbia (Attorney General), 1986 CanLII 2 (SCC), [1986] 2 S.C.R. 539), but the latter actions do not form the subject matter of this appeal.

The Gasoline Tax Act was originally enacted in 1923, and has since been amended and consolidated on numerous occasions. The relevant provision of the Act as it stood on August 1, 1974 provided that every purchaser shall pay a tax equal to 10 cents per gallon on all gasoline purchased, except gasoline purchased for use in an aircraft, which was taxed at a lower rate. Section 2 defined "purchaser" in these terms:

"purchaser" means any person who within the Province purchases gasoline when sold for the first time after its manufacture in or importation into the Province.

A virtually identical provision in the British Columbia Fuel-oil Tax Act, R.S.B.C. 1924, c. 251, had been struck down by the Privy Council in Attorney-General for British Columbia v. Canadian Pacific Railway Co., 1927 CanLII 482 (UK JCPC), [1927] A.C. 934, on the ground that since the initial purchaser could always resell the commodity and thereby pass on the tax, it was not a direct tax within the meaning of s. 92(2) of the Constitution Act, 1867. Oddly enough, though the Fuel-oil Tax Act was shortly afterwards amended so as to impose the tax directly on the consumer, an approach later held by the Privy Council to conform to the constitutional requirements of s. 92(2) (see Attorney-General for British Columbia v. Kingcome Navigation Co., 1933 CanLII 320 (UK JCPC), [1934] A.C. 45), no such step was taken in respect of the Act impugned in the present case until 1976. In July of that year, however, by s. 7 of the Miscellaneous Statutes Amendment Act, 1976, S.B.C. 1976, c. 32, the definition of "purchaser" was repealed and replaced by the following:

"purchaser" means any person who, within the Province, purchases or receives delivery of gasoline for his own use or consumption or for the use or consumption by other persons at his expense, or on behalf of, or as an agent for, a principal who is acquiring the gasoline for use or consumption by the principal or by other persons at his expense.

This provision, of course, took effect only from 1976. In 1981, however, the province enacted the Finance Statutes Amendment Act, 1981, S.B.C. 1981, c. 5, which by s. 20 enacted a new s. 25 of the Gasoline Tax Act purporting by ss. 25(1) to (4) to extend the application of the Act, in a form similar to that enacted in 1976, back to August 1, 1974, and by s. 25(5) purporting to legalize the retention by the Crown of the money collected from 1974 to 1976 under the Act as it then stood. Section 25 reads as follows:

25. (1) In this section "purchaser" means any person who, within the Province, after August 1, 1974 and before July 8, 1976, purchased or received delivery of gasoline for his own use or consumption or for the use or consumption by other persons at his expense, or on behalf of or as an agent for a principal who was acquiring the gasoline for use or consumption by the principal or by other persons at his expense.

(2) Every purchaser shall pay to Her Majesty for the purpose of raising revenue for Provincial purposes a tax of 15¢ a gallon on all gasoline purchased by him after August 1, 1974 and before February 28, 1975, but

(a) where gasoline was purchased for use in an aircraft the tax shall be 3¢ a gallon, and

(b) where gasoline in the form of liquefied petroleum gas or natural gas was purchased to propel a motor vehicle the tax shall be 10¢ a gallon.

(3) Every purchaser shall pay to Her Majesty for the purpose of raising revenue for Provincial purposes a tax of 17¢ a gallon on all gasoline purchased by him after February 27, 1975 and before July 8, 1976, but

(a) where gasoline was purchased for use in an aircraft the tax shall be 5¢ a gallon, and

(b) where gasoline in the form of liquefied petroleum gas or natural gas was purchased to propel a motor vehicle the tax shall be 12¢ a gallon.

(4) Where a purchaser is liable to pay tax under subsection (2) or (3) and the gasoline was used or consumed for

(a) the operation of logging trucks other than on public highways,

(b) the operation of a motor vehicle on a public highway by any person who had suffered the loss of a limb, or who was permanently confined to a wheelchair, or who was in receipt of a 100% disability pension through active service in any war while in Her Majesty's service, or

(c) the operation of the power unit of a motor vehicle, while the vehicle was stationary, for any industrial purpose approved by the minister,

the taxes of 17¢ a gallon and 12¢ a gallon shall be reduced to 5¢ a gallon, and the taxes of 15¢ a gallon and 10¢ a gallon shall be reduced to 3¢ a gallon.

(5) Where, after August 1, 1974 and before July 8, 1976, money was collected or purported to have been collected as taxes, penalties or interest under this Act, the money shall by this section be conclusively deemed to have been confiscated by the government without compensation.

Section 62(5) of the Finance Statutes Amendment Act, 1981 makes clear the retroactive character of this provision. It reads:

62. . . .

(5) Section 20 shall be deemed to have come into force on August 1, 1974 and is retroactive to the extent necessary to give it effect on and after that date.

In these three actions, which were heard together, two of the airlines (Air Canada and Pacific Western Airlines) submitted that the province had no jurisdiction to levy these taxes under any of the various statutory definitions of "purchaser", as none of those definitions made the tax a direct tax in the province for provincial purposes as required by s. 92(2) of the Constitution Act, 1867. All three airlines contended that, even if the 1976 version of the statute were constitutional, the airlines were still entitled to be reimbursed for moneys paid between 1974 and 1976 because the 1981 attempt to give the 1976 tax retroactive effect was invalid. In fact, it appears that the province has already reimbursed the airlines, and it is the province that is seeking recovery.

The Courts Below

At trial, counsel for the Attorney General conceded that the Act as it stood on August 1, 1974, was ultra vires, given the Privy Council's decision in Attorney-General for British Columbia v. Canadian Pacific Railway Co., supra, but he maintained that the province was entitled to retain the money collected during the 1974-1976 period by virtue of (1) the 1981 amendment, which gave the 1976 definition retroactive effect, and (2) common law defences.

In light of this concession, it was only necessary for the trial judge, B. D. Macdonald J., to deal with the validity of the statutes of 1976 and 1981 ‑- see (1984), 1984 CanLII 686 (BC SC), 51 B.C.L.R. 175. Turning to the 1976 statute, more specifically, to the question whether the definition of "purchaser" in that statute cured the defect in the previous definition and rendered the tax from 1976 onwards a direct tax within the province pursuant to s. 92(2) of the Constitution Act, 1867, Macdonald J. concluded that it did. In his view, the 1976 definition disclosed that the nature of the tax was a purchase or transaction tax. Such a tax was direct because it was levied upon a person who purchased gasoline for his own use or consumption. It was also imposed within the province. So long as purchase or delivery took place within the province, the tax applied, and the place of use or consumption was irrelevant. The Constitution Act, 1867 did not require consumption within the province when what the province intended to tax was a transaction within the province.

Macdonald J. summarily rejected attacks on the validity of the 1976 amendment based on arguments (1) that for a provincial tax to be valid it must be collected from those who can receive a benefit, and that the airlines could not receive any benefit; and (2) that the Act impaired the airlines' capacity as a federal undertaking to carry on business in the province. He also rejected the argument that a province cannot amend an ultra vires statute so as to cure the defect that rendered it invalid. As he put it at p. 184, "If the province has the power to impose this tax by re-enacting the whole Act, I find it difficult to accept the proposition that it cannot do so by amending the single definition which makes it invalid."

Macdonald J. then considered the validity of s. 25 of the Finance Statutes Amendment Act, 1981. He read that provision as purporting to do two things: (a) as imposing, by ss. 25(1) to (4), a fresh tax on any person who, between August 1, 1974 and July 8, 1976, purchased or received delivery of gasoline in the province for his own use or consumption; and (b) as providing, by s. 25(5) that money collected as taxes between August 1, 1974 and July 8, 1976, "shall . . . be conclusively deemed to have been confiscated by the government without compensation."

So far as the fresh tax was concerned, Macdonald J. held that since the tax was direct, there was no impediment to enacting it retroactively. In his view, the airlines' reliance on this Court's decision in Amax Potash Ltd. v. Government of Saskatchewan, 1976 CanLII 15 (SCC), [1977] 2 S.C.R. 576, (hereinafter Amax), to challenge the validity of this new tax was misplaced. In the present case, a fresh tax was being levied retroactively pursuant to a valid re-enactment. Amax applied to a situation where there was no consitutional basis for the impugned legislation. It did not apply to invalidate a taxing statute where there is a constitutional power to enact such a measure provided it is done in proper form, as in the present cases. Sections 25(1) to (4) were, therefore, valid, and each of the airlines was in consequence obliged to pay a fresh tax pursuant to these provisions.

Macdonald J., however, found s. 25(5) ultra vires. It purported to confiscate taxes paid pursuant to the ultra vires legislation and, therefore, fell within the reasoning in Amax. He recognized that the province might well be in a position to set off the liability of the airlines arising under ss. 25(1) to (4) against its obligation to repay taxes improperly collected under the Act as it existed between 1974 to 1976, but, he stated, that matter was not before him.

The airlines, therefore, succeeded in their claims that they were entitled to recover taxes paid between 1974 and 1976. However, they were not entitled to recover taxes paid after 1976.

Air Canada and Pacific Western Airlines appealed to the British Columbia Court of Appeal on the issue of their liability after 1976. As already noted, Canadian Pacific Airlines had not disputed this liability. The appeals were unanimously dismissed. The Attorney General cross-appealed against Air Canada and Pacific Western Airlines, and appealed against Canadian Pacific Airlines on the issue of the province's liability to repay the taxes collected between 1974 and 1976. In separate judgments, the Court of Appeal (Hinkson and Lambert JJ.A., Esson J.A. dissenting) dismissed the Crown appeals -‑ see (1986), 1986 CanLII 1118 (BC CA), 4 B.C.L.R. 356.

Hinkson J.A. noted that, as a result of the British Columbia Court of Appeal decision in Marine Petrobulk Ltd. v. R. in right of B.C. (1985), 1985 CanLII 487 (BC CA), 64 B.C.L.R. 17, the airlines did not advance the submission that the trial judge erred in concluding that the 1976 definition of "purchaser" rendered the tax a direct tax within the province as required by s. 92(2) of the Constitution Act, 1867. He rejected the submission that the tax was, as the airlines argued, a "consumption tax" and in consequence invalid because 99% of the fuel was consumed outside the province (since the airspace over a province is not a situs for provincial taxation). In his view the tax was a purchase tax. It was directed to a person within British Columbia who purchased gasoline with the intention of consuming it. The Legislature was not concerned, and need not be concerned with where the person consumed the gasoline purchased. For this reason, he dismissed the airlines' appeals.

Lambert J.A. reached the same conclusion. In his view, the Act as amended in 1976, taken as a whole, imposed a tax either on the transaction of purchase for the purpose of consumption, or on a person who purchased goods for the purpose of consumption. The qualification that the purchase must be for the purchaser's own use or consumption was a condition of the application of the tax, as was the fact that the purchase must take place within the province, but those conditions did not affect the true incidence of the tax, which was directed at the transaction of purchase for consumption, or at a purchaser who bought for the purpose of consumption.

Esson J.A. concluded, for substantially the same reasons as given by Hinkson J.A., that the 1976 definition of "purchaser" in the Gasoline Tax Act rendered the statute constitutional. In his opinion, the statute limited the incidence of the tax to those who purchase or receive gasoline for their own use or consumption. The purpose of that limitation was to ensure that the tax would have no tendency to be passed on; the limitation did not make the imposition a tax on consumption.

On the cross-appeal by the Attorney General against the direction that the moneys paid between 1974 and 1976 must be repaid, counsel for the Attorney General conceded the invalidity of s. 25(5) of the Finance Statutes Amendment Act, 1981 in light of the Amax decision, but submitted that this provision should be severed from the remainder of s. 25, leaving ss. 25(1) to (4) as a valid retroactive tax.

Though they arrived at the same conclusion, the two majority judges differed in their views on this issue. Hinkson J.A. concluded that it was wrong to read s. 25 as imposing both a "fresh tax" and then confiscating tax money already collected. The tax having been imposed retroactively in ss. 25(1) to (4), s. 25(5) made it clear that its payment was to be made by confiscating the moneys already paid. Section 25(5) was therefore integral to the scheme, and once it was conceded that it was invalid, ss. 25(1) to (4) would also fall. The provisions could not be severed since the Legislature would not have enacted them without also enacting s. 25(5). Section 25(5), which gave purpose and meaning to the rest of the section, so tainted the remainder of s. 25 that the whole section was ultra vires. The other majority judge, Lambert J.A., agreed with the trial judge that while s. 25(5) was ultra vires, ss. 25(1) to (4) were severable and constituted a valid retroactive tax, not a colourable attempt to retain moneys paid to the Crown under an unconstitutional taxing statute. They did not amount to a legislative confiscation of taxes under an ultra vires statute forbidden under the principle in Amax. He, therefore, upheld the trial judge's conclusion that these provisions were constitutional, but refrained from expressing any opinion about the effectiveness or enforceability of the tax and dismissed the cross-appeal. Lambert J.A.'s view left open the possibility that the province might validly collect the tax.

In the Court of Appeal, the province also argued that it was not required to repay the tax collected because of the operation of the common law rules regarding "mutual mistake of law" and "voluntary payment of tax". After reviewing the evidence, Hinkson J.A. found that from 1927 onwards, the province was aware that the tax was unconstitutional, while the airlines did not suspect this until they decided to challenge the legislation. These findings refuted the suggestions that there was a mutual mistake of law and that during the period in question the payments made by the airlines were made voluntarily knowing that the tax was unconstitutional.

Hinkson J.A. also rejected the contention that the parties were in pari delicto, i.e., that if the province was to blame for imposing the tax, the airlines were equally to blame for paying it. While he could not, he stated, on the evidence conclude that Air Canada had acted under practical compulsion in paying the tax, as Hydro Electric Commission of Nepean v. Ontario Hydro, 1982 CanLII 42 (SCC), [1982] 1 S.C.R. 347 (hereinafter Nepean), required, he distinguished that decision on the basis that it was not a constitutional case. He then relied on this Court's judgment in Amax for the proposition that, in a federal state, the Crown cannot engage in an ultra vires exercise of power by way of taxation and then call in aid either legislation enacted by it or common law rights to retain the proceeds of that taxation. He, therefore, concluded that the province could not retain the moneys paid during the period in question. He did, however, leave open the possibility that the Crown could impose a fresh retroactive tax.

Lambert J.A., too, found that even if the common law principles applicable to recovery of taxes would preclude restitution, they must be subject to a constitutional exception. If money taxed under an ultra vires statute could be retained, the Constitution would be flouted. Thus, the Nepean and Amax cases were perfectly reconcilable. In his view, payment pursuant to an ultra vires statute amounted to irresistible practical compulsion even in the absence of protest or complaint by the taxpayer. He was also of the view that retention by the Crown of taxes collected under an ultra vires statute would be ultra vires.

Esson J.A. dissented on the cross-appeal. In his view the trial judge erred in holding that the province must repay the airlines the taxes paid by them prior to July 1, 1976. The salient fact upon which he based that conclusion arose from the decision on the main appeal that the airlines were in the same position as all others who purchased fuel within British Columbia for their own consumption. Before July 1976, although the tax was imposed under an invalid statute, it was in essence the same tax as the present one. Then, as now, it was imposed "at the pump", i.e., at the point of purchase for consumption. The statute was, until 1976, ultra vires the province because it authorized a tax in terms that could have resulted in its being passed on to others. It was capable of being indirect and, therefore, was indirect. But the moneys the airlines now seek to recover were not paid by them in satisfaction of an indirect tax. As actually administered, the tax was within the powers of the province. In that sense, the defect was one of constitutional form rather than substance.

Esson J.A. disagreed with the view that Amax stands for the proposition that any money paid as taxes under a statute later held to be ultra vires can never be retained, and that private law considerations such as were relied upon in Nepean are irrelevant. Rather, Amax simply stood for the proposition that an attempt by a legislature to enact a statute barring access to the courts would be struck down as attempting by covert means to impose illegal burdens. Amax held that fundamental principles of federalism preclude a province from barring access to the general law where the issue is whether the province has exceeded its powers and whether, if it has, the taxpayer is entitled to a remedy. However, where the legislature has not created such a bar, there is no reason why the province should not be able to rely on ordinary principles of justice and fairness in defending itself against a taxpayer's claim for repayment of moneys. The airlines should be entitled to recover only if they could satisfy the requirements of the action for money had and received which are rooted in principles of justice and equity.

In these cases, the requirements of common law principles were not met. The mistake is one of law, not fact. The in pari delicto exception had no application. There was no duress or compulsion in the collection of the tax. Moreover, even if there was practical compulsion, it would not be unjust to permit the Crown to keep the money, since the money collected was clearly within the province's competence to tax. The province received no benefit, and the taxpayer suffered no detriment not authorized by the Constitution. It could not be suggested that if the province retained this money, it would be unjustly enriched. Rather, it is the airlines who, if successful, would obtain a windfall.

Esson J.A. therefore would have allowed the cross-appeal and dismissed the airlines' action for recovery of the taxes paid.

The Appeal to this Court

Leave to appeal to this Court was then sought and was granted on all issues. These issues included two not argued before the courts below, namely, whether the impugned statute as it existed in 1974 was constitutionally valid, and whether its application in the circumstances of this case contravened s. 7 of the Canadian Charter of Rights and Freedoms. The following constitutional questions were stated:

1. Is the Gasoline Tax Act, R.S.B.C. 1960, c. 162, as amended by S.B.C. 1976, c. 32 and as subsequently amended, ultra vires in its application or otherwise constitutionally inapplicable to Air Canada in the circumstances of this case?

2. Does the application of the Gasoline Tax Act to Air Canada in the circumstances of this case violate s. 7 of the Canadian Charter of Rights and Freedoms?

3. If so, is its application justified on the basis of s. 1 of the Canadian Charter of Rights and Freedoms?

The Attorneys General of the following provinces intervened to make submissions regarding the constitutional questions: Ontario, Quebec, Nova Scotia, New Brunswick, Manitoba, Saskatchewan, Alberta and Newfoundland.

I propose to deal with the issues in terms of the impugned Act as it existed at the relevant dates.

The Act in 1974

As already described, the Gasoline Tax Act as it existed in 1974 was, in its relevant aspects, substantially the same as it had been at the time of its original enactment in 1923. It imposed a tax on a purchaser of gasoline when it was sold for the first time after its manufacture in, or importation into the province. Since the Privy Council in Attorney-General for British Columbia v. Canadian Pacific Railway Co., supra, had, we saw, found a similar provision to be ultra vires on the ground that the tax imposed by it was not direct as required by s. 92(2) of the Constitution Act, 1867, counsel for the Attorney General of British Columbia in the courts below refrained from arguing the validity of the tax imposed under the Act as it existed in 1974. In this Court, however, counsel invited us to review the C.P.R. case and to hold that the tax had been valid from its inception. He asked us to "read down" the Act so that it would apply only to persons who purchase the gasoline for their own use or consumption as it was in practice applied. He observed that the Privy Council in the C.P.R. case did not expressly advert to this possibility. However, since counsel squarely raised the issue in that case (see supra, p. 935), the Privy Council must have found it unnecessary to deal with it expressly. In my view, it quite correctly rejected this argument sub silentio. The words of the statute were clear and it is not for the courts to look for outside evidence of how an Act is applied in practice to determine its constitutional validity. This could lead to finding a statute in one province valid, while holding an identical statute in another province invalid if the circumstances to which it was applied were different. It is not for the courts to redraft statutes, particularly taxation statutes. Even if it were, I do not think it would be appropriate after over sixty years to overrule a case that not only constitutes a distinct step in the development of the definition of direct taxation, but that has been repeatedly cited and relied upon by the courts since it was decided.

The Act as it existed in 1974