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Digest: Kingstreet Investments Ltd. v. New Brunswick (Department of Finance)

[2007] S.C.J. No. 1
2007 SCC 1

Court File No. 31057

Supreme Court of Canada

January 11, 2007
On appeal from the New Brunswick Court of Appeal, [2005] N.B.J. No. 205.

       Constitutional law — Division of powers — Provincial jurisdiction — Section 92, Constitution Act, 1867 — Appeal by Kingstreet Investments and 501638 NB from a New Brunswick Court of Appeal decision allowed in part — Lower courts had held that "user fees" charged to the appellants through licensed sale of alcohol constituted an unconstitutional indirect tax — Issue on appeal to the Supreme Court of Canada was whether money paid to public authority pursuant to ultra vires legislation was recoverable — Passing-on defence was not available for the recovery of taxes paid pursuant to ultra vires legislation — The six-year limitation period set out in s. 9 of the New Brunswick Limitation of Actions Act applied — The appellants would recover, with interest, the user charges paid during the six years preceding the filing date of their notice of application.

      Taxation — Constitution Act, 1867 — Provincial jurisdiction, s. 92 — Powers — Appeal by Kingstreet Investments and 501638 NB from a New Brunswick Court of Appeal decision allowed in part — Lower courts held that "user fees" charged to the appellants through licensed sale of alcohol constituted unconstitutional indirect tax — Issue on appeal to the Supreme Court of Canada was whether money paid to public authority pursuant to ultra vires legislation was recoverable — Passing-on defence was not available for the recovery of taxes paid pursuant to ultra vires legislation — The six-year limitation period set out in s. 9 of the New Brunswick Limitation of Actions Act applied — The appellants would recover, with interest, the user charges paid during the six years preceding the filing date of their notice of application.

       Appeal by Kingstreet Investments and 501638 NB from a New Brunswick Court of Appeal decision allowing the appellants' appeal in part from a decision of the Court of Queen's Bench. The appellant operated a number of night clubs that were licensed to sell alcoholic beverages. They purchased their alcohol from the provincial liquor corporation's retail stores. In addition to the retail price, the appellants also paid a user charge as prescribed by regulation. The appellants challenged the constitutional validity of the user charge and sought, by way of relief, reimbursement of all amounts paid over the years, with compound interest. The Court of Queen's Bench declared that the user charge constituted an unconstitutional indirect tax, but denied recovery. The court found that the appellants had passed on the tax burden to their customers in the form of increased prices, and applied the passing-on defence to the taxpayers' claim for unjust enrichment. The Court of Appeal allowed the restitutionary claim with respect to all monies paid from the time the appellants protested by commencing legal proceedings against the province, but denied the claim for monies paid prior to the commencement of legal proceedings, on the basis of the passing-on defence.

       HELD:  Appeal allowed in part. The cross-appeal was dismissed. The passing-on defence was not available for the recovery of taxes paid pursuant to ultra vires legislation. The defence was inconsistent with the basic premise of restitutionary law. Restitutionary principles provided for restoration of what had been taken or received without justification. The defence was also economically misconceived and created serious difficulties of proof, as there were inherent difficulties in a commercial marketplace of proving that the loss was not passed on to consumers. Claims for the recovery of ultra vires taxes could be subject to an applicable limitation period. In this case, the six-year limitation period set out in s. 9 of the New Brunswick Limitation of Actions Act applied. Therefore, the appellants could only recover, with interest, the user charges paid during the six years preceding the filing date of their notice of application. The case was not an appropriate one for the awarding of compound interest, as the appellants did not allege any wrongful conduct on behalf of the Province that might warrant moral sanction.

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