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The Supreme Court of Canada's approach to the recovery of ultra vires taxes: at the border of private and public law.

I INTRODUCTION

II THE RESTITUTION OF ULTRA VIRES TAXES: THE CANADIAN
LAW PRIOR TO KINGSTREET
 Amax Potash
 Air Canada v. British Columbia
 Air Canada v. Ontario (LCBO)
 Re Eurig Estate
 Summary

III KINGSTREET V. NEW BRUNSWICK (DEPARTMENT OF FINANCE)
 Facts
 At Trial--The New Brunswick Court of Queen's Bench
 On Appeal--The New Brunswick Court of Appeal
 At the Supreme Court of Canada
 The Death of the Immunity Rule from Air Canada
 The Relationship between Constitutional and Restitutionary
 Principles
 The 'Passing On' Defence
 Limitation Periods and Ultra Vires Taxation

IV NARROWING THE REACH OF KINGSTREET: CANADA (ATTORNEY GENERAL)
V. HISLOP

V CONCLUSION: THE RESTITUTION OF ULTRA VIRES TAXES
GOING FORWARD


Abstract

This article explores the Supreme Court of Canada's approach to the recovery of ultra vites taxes in two recent cases, Kingstreet Investments Ltd. v. New Brunswick (Department of Finance) and Canada (Attorney General) v. Hislop. Ultra vires taxation refers to the collection of taxes by a government when those moneys are levied pursuant to an unconstitutional statute, regulation or order-in-council, or by a statutory authority acting outside of the bounds of its enabling legislation.

The article argues that in Kingstreet, the Supreme Court correctly adopted an essentially constitutional law rather than a restitutionary or private law framework in deciding cases of ultra vires taxation. This framework was appropriate given the fundamental constitutional principles at stake--no taxation without representation and the rule of law. It is further argued, however, that because these fundamental constitutional principles are at issue, the recovery of ultra vires taxation should not have been categorized as a separate, third branch of the law of restitution by the Court; nor should the recovery of ultra vires taxes have been made subject to ordinary statutory limitation periods. Furthermore, although the Court was correct in holding that the 'passing on' defence was inapplicable in cases of ultra vires taxation, the article notes that the decision in Kingstreet may undermine the use of the defence in other areas of the law.

The article also argues that Hislop unduly restricts the scope of the reasoning in Kingstreet that ultra vires taxes should be recoverable by the taxpayer. By holding that Kingstreet does not apply in cases where unjust enrichment of the state has occurred through compulsory benefit schemes, Hislop severely limits the circumstances in which payments made to the state pursuant to an unconstitutional statute may be recovered.

Resume

Cet article explore l'approche de la Cour Supreme du Canada pour recuperer les taxes ultra rires dans deux cas recents, Kingstreet Investments Ltee c. le Nouveau-Brunswick (Ministere des Finances) et Canada (Procureur general) c. Hislop. L'imposition ultra vires porte sur le recouvrement de l'impot par un gouvernement lorsque l'imposition est effectuee selon un reglement, un decret, ou une loi anticonstitutionnelle, ou une autorite legislative qui agit en dehors des limites de son mandat.

L'article avance que, dans Kingstreet, la Cour Supreme a adopte une loi essentiellement correcte d'un point de vue constitutionnel, au lieu d'un cadre base sur la restitution ou sur le droit prive, pour rendre jugement dans les cas d'imposition ultra vites. Cette approche est appropriee, etant donne les principes constitutionnels fondamentaux impliques--pas de taxation sans representation, et la primaute d'un Etat de Droit. Cependant, l'argumentation continue puisque, etant donne les principes constitutionnels fondamentaux qui sont en question, la Cour n'aurait pas du classifier la recuperation d'imposition ultra vires separement en tant que troisieme ramification de la loi sur la restitution; la recuperation de taxes ultra vires ne devrait pas non plus etre assujettie aux periodes limites statutaires conventionnelles. De plus, bien que la Cour ait pris la bonne decision en jugeant que la defense de "passing on" etait inapplicable dans les cas de taxes ultra vires, l'article indique que la decision dans Kingstreet pourrait limiter l'emploi de la defense dans d'autres aspects de la loi.

L'article avance aussi que Hislop limite excessivement la portee du raisonnement dans Kingstreet qui etablit que les contribuables devraient pouvoir recuperer les taxes ultra vires. En confirmant que Kingstreet ne s'applique pas aux cas ou l'enrichissement injustifie de l'etat decoule de programme d'avantages sociaux obligatoires, Hislop limite severement les circonstances ou les paiements faits a l'etat suite a une loi anticonstitutionnelle peuvent etre recuperes.

I INTRODUCTION

This article will evaluate the current Canadian law of restitution as it relates to ultra vires taxation. Ultra vires taxation refers to the collection of fees or taxes by the government when those moneys are levied pursuant to an unconstitutional statute, regulation, or order-in-council, or by a statutory authority acting outside of the bounds of its enabling legislation. The law on ultra vires taxes is on the border between public and private law. On the one hand, it implicates the following foundational concepts and principles of the Canadian constitutional order: (1) the separation of powers between the judiciary, legislatures, and the executive; (2) the division of powers between the federal and provincial governments; and (3) the rule of law. On the other hand, levying ultra vires taxes leads taxpayers to seek recovery for moneys unconstitutionally collected by the state. Cases of ultra vires taxation are therefore also about justice between the opposing parties in a private law action for the restoration of those moneys paid to the government. Allowing governments to retain ultra vires taxes is essentially to condone arbitrary state action or, in other words, to permit governments to do what is legally impermissible. The underlying importance of the Canadian law on ultra vires taxation is the fact that it establishes whether arbitrary state action will be countenanced.

Two recent decisions of the Supreme Court of Canada have dramatically altered the law in this area. In Kingstreet Investments Ltd. v. New Brunswick (Department of Finance) the Court clarified to a great extent the enormous confusion surrounding the state of the law on the restitution of ultra vires taxes. Kingstreet was unequivocal that ultra vires taxes must be recoverable. Otherwise, serious harm is done to constitutional principles and the rule of law. Canada (Attorney General) v. Hislop involved the right of saine-sex survivors to their deceased partners' Canada Pension Plan payments. (2) In Hislop, the Court distinguished Kingstreet, and did so on the basis that cases regarding ultra vires taxes are fundamentally different from cases such as Hislop, which concern government benefits and programs.

This article will argue that Kingstreet was rightly decided in opting to assess cases of ultra vires taxes through constitutional rather than private law principles and in holding in favour of recovery by the taxpayers. That the recovery of ultra vires taxes legitimately constitutes a third branch of restitution law as Bastarache J. decides is less defensible. Justice Bastarache also appropriately rejected the use of the 'passing on' defence. He attempted to narrow the impact of the judgment by stating that his critique of the passing on defence should apply only to the realm of ultra vires taxes. The reasons offered by the Court in rejecting the defence, however, are persuasive and suggest that passing on is unlikely to persist as a valid defence in the law of restitution more generally. It is problematic, however, that the Court limited recovery in Kingstreet to the six-year period prescribed by the New Brunswick Limitation of Actions Act. (3) The Act should instead have been read down so that an ordinary statute does not allow the province to do indirectly what it is constitutionally barred from doing directly.

Hislop, it will be argued, unjustifiably narrowed the scope of Kingstreet. Hislop was decided on s. 15 equality rights under the Canadian Charter of Rights and Freedoms. (4) It was not decided on principles of unjust enrichment. Kingstreet created the strong presumption for the recovery of any unjust enrichment by the state. The reasoning in Kingstreet could potentially have been extended beyond cases involving ultra vires taxes to those of unjust enrichment by the state through contributory benefit programs. By distinguishing cases of ultra vires taxation from those concerning government benefits, Hislop limited this strong presumption of recovery to a much narrower subset of cases than was necessary or desirable.

This article will provide an in-depth study of the Canadian law on ultra vires taxation. It will first assess the state of the law on the restitution of ultra vires taxes prior to the Court's decision in Kingstreet. Kingstreet is in many ways a reaction to the incoherence and inconsistency of the previous case law. All of the issues dealt with in the case were anticipated in the earlier case law. It is therefore necessary to deal with the major cases prior to Kingstreet in detail. Second, it will consider Kingstreet and the implications stemming from the decision. Third, it will assess the impact of Hislop on the law of unjust enrichment by the state.

II THE RESTITUTION OF ULTRA VIRES TAXES: THE CANADIAN LAW PRIOR TO KINGSTREET

This section will highlight the major cases on ultra vires taxation prior to Kingstreet as they set the stage for the Supreme Court's decision. The state of the law on the restitution of ultra vires taxes before Kingstreet was soundly criticized as incoherent. (5) At best, its application by Che courts could be described as inconsistent. There were strands within the law prior to Kingstreet that strongly articulated the arguments in favour of restitution. There were others which were hostile to restitution of the taxes and instead concluded in favour of retention by the state. It was the latter position which was generally victorious in Canadian courts. The four major cases discussed here foreshadow key issues in the Kingstreet decision: the arguments in favour and against the restitution of ultra vires taxes, the complex inter-relationship between public and private law considerations, the validity of the 'passing on' defence, and the applicability of statutory bars to recovery.

Amax Potash

The Supreme Court dealt with the issue of ultra vires taxes as early as 1977 in Amax Potash Ltd. v. Government of Saskatchewan. (6) The province of Saskatchewan imposed a tax on potash producers. They subSequently feared that the tax could be correctly characterized as an indirect tax. Under the Constitution Act, 1867, s. 92(2), provinces may only levy direct taxes. (7) Indirect taxation is under the exclusive purview of the federal government under s. 91(3). (8) The taxation scheme was therefore likely to be unconstitutional as ultra vires the province. To pre-empt any action for restitution of what was likely an ultra vires tax, the province enacted the Proceedings Against the Crown Act. (9) Section 5(7) of the Proceedings against the Crown Act barred the recovery of the moneys paid to Saskatchewan in the event that the tax was found to be ultra vires. The legislation was specifically enacted to prevent recovery by the potash producers. At issue in the judgment was hOt whether the potash tax itself was ultra vires, but whether the Proceedings Against the Crown Act was unconstitutional for barring the potential recovery of ultra vires taxes.

Justice Dickson, writing for the Court, acknowledged that there were no applicable precedents on point in Canadian law. The Court was faced with a novel legal problem. He held that barring the recovery of taxes collected pursuant to an ultra vires statute was impermissible. It would allow a province to do indirectly what the Constitution prevented it from doing directly:
 To allow moneys collected under compulsion, pursuant to an ultra
 vires statute, to be retained would be tantamount to allowing the
 provincial Legislature to do indirectly what it could not do
 directly, and by covert means to impose illegal burdens. (10)


The provisions of the Act barring the restitution of the taxes were thus struck down on the reasoning that "if a state cannot take by unconstitutional means it cannot retain by unconstitutional means". (11)

The decision in Amax Potash is a clear statement of the constitutional imperative for the recovery of ultra vires taxes. Justice Dickson does hot find that the provincial tax is ultra vires, but clearly prohibits the enactment of specific bars to recovery. The judgment does not contemplate the relation between a private law right of restitution and public law or public policy concerns that may vitiate that right. Constitutional principles alone govern the issue. Notably, the decision does not consider the constitutionality of general limitations statutes. If applied, general limitation statutes may also bar the recovery of ultra vires taxes, just like the specific statutory bar found unconstitutional here. The applicability of general limitation statutes only became an issue in Kingstreet thirty years later.

Air Canada v. British Columbia

Much of the confusion in the lower courts on the law regarding ultra vires taxes stems from a decision of the Supreme Court in 1989, Air Canada v. British Columbia. (12) The case inspired three separate judgments by the Court. Justice La Forest wrote for himself and two other justices, Beetz J. concurred with the majority decision for himself and one other, and Wilson J. dissented. Justice Le Dain took no part in the judgment. Several airlines were seeking the restitution of moneys paid under a gasoline tax since 1974. The Court ruled that the tax was in actuality a direct tax, validly enacted by the provincial government. In his judgment, La Forest J. abolished the distinction between mistake of law and mistake of fact, which prior to Air Canada had been relevant. The law had previously barred restitution in cases of mistake of law, but La Forest J. dismissed this rule as lacking in clarity and being unduly harsh. On this point, Air Canada was a welcome clarification.

Justice La Forest's judgment, however, also deals at length in obiter with the general legal framework applicable to claims of restitution for ultra vires taxes. This section is the most often-cited and heavily criticized part of the decision. Ultra vires taxation, he held, carries with it special policy concerns which necessitate a legal analysis removed from the regular restitutionary framework. Taking into account these policy concerns, he posited a broad immunization rule barring the recovery of ultra vires taxes levied pursuant to an unconstitutional piece of legislation. Under this rule, the province or federal government should be immune from having to repay such taxes because of the need to protect the government's discretion over the treasury and to prevent the risk of fiscal chaos. He decided that if a long-standing tax is ruled ultra vires, then having to repay the moneys would unduly harm the government's ability to decide on public priorities and to build the schools, roads, and hospitals that serve the public interest. In his view, allowing recovery by a few private individuals or corporations would jeopardize the protection of the public interest. Private right, in his conception, must yield to policy concerns in the public interest.

The portion of the judgment most criticized by scholars of unjust enrichment involves La Forest J.'s acceptance of a passing on defence. (13) The passing on defence permits a party which has been unjustly enriched to retain the moneys if the claimant has passed on the cost to another party. Restitutionary principles only allow recovery, in La Forest J.'s assessment, where there has been an actual loss. If a business passes on the cost of an ultra vires tax to consumers in the form of higher prices, then the business has not actually suffered any loss in his view. On this account, if there has been no loss, then no recovery is permissible as it would simply provide a windfall to the claimant. It is worth noting that by applying the passing on defence here, La Forest J. introduced a novel concept into Canadian law. This defence has been highly controversial ever since.

Air Canada v. Ontario (LCBO)

In Air Canada v. Ontario (Liquor Control Board of Ontario), the Supreme Court ordered the restitution of gallonage fees collected by the LCBO from airlines selling alcohol on airplanes. (14) The provincial statute authorizing such fees had been misapplied to include the gallonage fees charged to the airlines. The province conceded that restitution was owed for the fees collected after January 1, 1984. Justice Iacobucci decided that the province was obliged to restore all the moneys collected prior to that date as well.

Air Canada v. Ontario (LCBO) is an important statement in the context of fees levied by a misapplied statute. Rather than being ultra vires in a constitutional sense, such fees are invalid according to administrative law. The decision does not permit any deviations from the principle that unjust enrichment by the state is recoverable, at least in the administrative law context. In other words, Iacobucci J. had rejected the existence of bad faith as a precondition for restitution when a fee arose from the misapplication of an otherwise valid statute. He further decided that the parties subject to the law were under no obligation to ensure that the statute was applied correctly. This was the sole responsibility of the government. The sophistication of the parties seeking restitution--the airlines in this case--was irrelevant.

Re Eurig Estate

Re Eurig Estate clarified the remedies available to courts and the options available to legislatures when a tax is determined to be ultra vires. (15) The majority of the Supreme Court in Re Eurig found that probate fees were a direct tax and were, therefore, intra vires the Ontario government. The tax remained unconstitutional, however, because it violated s. 53 of the Constitution Act, 1867. Section 53 requires that taxation bills originate in the House of Commons or in the provincial legislature. The probate fees were found to be a tax imposed by the Lieutenant Governor in Council without the clear and unambiguous authorization of the legislature. As a result, the Court granted a suspended declaration of invalidity for six months. The reasoning was that the government required time to respond to the finding of unconstitutionality against a source of revenue on which it had long depended. The dissent and concurring judgment deviated from the majority's interpretation of s. 53, but not on the potential availability of suspended declarations of invalidity as a remedy.

The options available to courts and legislatures upon a finding that a tax is ultra vires mitigate to a great extent concerns of fiscal chaos as enunciated in Air Canada. Re Eurig confirmed the availability of suspended declarations of invalidity. It also, however, reinforced the options that governments have in the face of a finding that a tax is ultra vires; they are often able to repackage the tax in constitutional form and apply it retroactively. In Re Eurig, the province responded in exactly this way by enacting the tax in a valid fashion before applying it retroactively. The unconstitutional probate fees were repackaged in a constitutionally valid form and imposed upon the same parties.

The potential disruptive impact of the recovery of unconstitutional taxes is minimized by the availability of suspended declarations of invalidity by courts and the retroactive imposition of valid taxation by legislatures. These options dramatically reduce, if not eliminate, the potential for fiscal chaos, as long as there is a potentially valid way for the tax to be re-imposed. The availability of both suspended declarations of invalidity and valid retroactive taxation legislation factored strongly into Bastarache J.'s reasoning in Kingstreet.

Summary

The state of Canadian law prior to Kingstreet was inconsistent and lacked a clear framework. A common law bar on the recovery of ultra vires taxes, the existence of the defence of passing on, and a policy concern with fiscal chaos stemmed from Air Canada. The case of Amax Potash clearly prevented specific, statutory bars to recovery, though the principles favouring recovery as articulated in the case were not picked up by La Forest J. in Air Canada. Subsequently, Re Eurig confirmed that suspended declarations of invalidity by courts and the imposition of valid, retroactive taxation statutes by legislatures provided a wide range of options to minimize disruptions caused by the recovery of ultra vires taxes. A distinction was drawn, however, between the recovery of taxes that were ultra vires under constitutional law and invalid pursuant to administrative law. The recovery of unconstitutional taxes was largely barred by Air Canada while restitution was available for taxes or fees that were illegal in an administrative law sense under Air Canada v. Ontario (LCBO). This was an untenable situation. If anything, the reasoning in favour of restitution was stronger in cases of unconstitutionality than it was in cases of misapplied statutes. It is the Constitution, not administrative law, that is the supreme law of the land. Given this background, Kingstreet was an eagerly anticipated opportunity for the Supreme Court to reform the law of ultra vires taxation in Canada.

III KINGSTREET V. NEW BRUNSWICK (DEPARTMENT OF FINANCE)

Facts

In Kingstreet, several bar and night club owners in the province of New Brunswick launched an action to recover fees charged by the New Brunswick Liquor Corporation. The bar and night club owners were licensed to sell alcohol in the province. They purchased alcohol from the provincial liquor retail stores operated by the Corporation. The owners were required to pay the retail price, but were also obliged to pay an additional user charge pursuant to a regulation of the New Brunswick Liquor Control Act. (16) This user charge had varied between 5 per cent and 11 per cent of the retail price since the bar owners began operating in 1988. The total amount of moneys paid was agreed by the parties to be over $1 million. It was also agreed at trial that the user fee far exceeded the amount needed by the province to recoup the costs of administering the licensing scheme.

At Trial--The New Brunswick Court of Queen's Bench

The bar owners were unsuccessful in attaining relief at trial. (17) The trial judge, Russell J., applied the general common law rule against recovery and the defence of passing on articulated by La Forest J. in Air Canada. He held that bar patrons had in actuality paid the cost of the user fee in the form of higher prices. The user fee had been passed on by the bar owners to their consumers, hence no relief was available. The avoidance of fiscal turmoil was a notable consideration for Russell J. in denying recovery.

On Appeal--The New Brunswick Court of Appeal

The majority decision of Robertson J.A. at the Court of Appeal rejected the common law bar to recovery from Air Canada, but recognized the defence of passing on. (18) He held that restitutionary principles prevented a plaintiff from gaining a windfall. If restitution was ordered, the bar owners would receive such a windfall because they had passed on the cost of the user fee to their customers. Furthermore, if the province was forced to restore the fee to the bar owners, the bar patrons would effectively be charged twice--once as bar patrons and a second rime as taxpayers in New Brunswick. The private interest of the bar owners would be advanced at the expense of the public interest represented by the province. This would be an inequitable result in the view of Robertson J.A.

The majority accepted the existence of certain exceptions to the defence of passing on that would allow recovery. The framework Robertson J.A. adopted included a rebuttable presumption that passing on had not occurred where a tax had been declared ultra vires. It would therefore rest with the government to prove that the tax had been passed on, and that the government was therefore entitled to retain the moneys in question. In addition, Robertson J.A. held that exceptions for protest and compulsion exist. The defence of passing on would be inapplicable if the plaintiff had protested the payment of the moneys in question or was under compulsion to pay the fee. He ruled that the commencement of legal proceedings on May 25, 2001 was sufficient protest to engage the exception. Therefore, bar owners were eligible to recover the moneys paid after the protest filed on May 25, 2001, but not those paid before that date. The defence of passing on, in his decision, did not allow recovery until such a protest occurred. This meant that the majority acknowledged the tenuous existence of the passing on defence in Canadian law. In the alternative that the defence did not exist, Robertson J.A. held that all of the moneys should then be restored to the bar owners subject to the six year limitation period within the provincial limitations statute.

In dissent, Ryan J.A. held that the claim for restitution should be barred as the owners had passed on the cost of the user charge to consumers. Ryan J.A. held that when a charge had been passed on, no corresponding deprivation had occurred, so a claim of unjust enrichment could not be made out.

At the Supreme Court of Canada

Justice Bastarache wrote for a unanimous Supreme Court. The Kingstreet ruling reformed important areas of both private and public law. (19) It fundamentally reshaped the law on ultra vires taxation and employed reasoning likely to have a broad impact on the general law of restitution. In the decision, Bastarache J. rejected the immunization rule of La Forest J. from Air Canada and decided the case on constitutional principles.

The decision is important in four respects: (1) its rejection of the immunity rule; (2) its treatment of the relationship between constitutional and restitutionary principles and subsequent categorization of ultra vires taxation cases; (3) its rejection of the passing on defence; and (4) the application of the New Brunswick limitations statute. The next section of the article will deal with each of these significant aspects of the decision in turn.

The Death of the Immunity Rule from Air Canada

The immunity rule from Air Canada barring the recovery of ultra vires taxes was an example of extreme deference shown by the Court to governments. It allowed the state to appropriate moneys without proper authorization. Even if a tax was ruled ultra vires, there was no remedy for the plaintiff. Justice La Forest justified this in Air Canada by saying that ultra vires taxation must not be recoverable if we wish to avoid fiscal chaos. He thus effectively limited the rights of individuals seeking recovery, in order to avoid the unrealized danger that repaying the ultra vires taxes would so weaken the treasury as to cause veritable fiscal chaos.

This reasoning is extremely problematic. As Professor Birks has written, "a merely hypothetical danger of disruption certainly does not warrant an undiscriminating denial of restitution". (20) The judgment of La Forest J. in Air Canada was so wary of undermining long-standing sources of government income that individual rights were sacrificed to policy concerns--namely fiscal chaos--outside of the law of restitution. Though the immunization rule had only ever been endorsed by four of nine Supreme Court justices, it had been applied since Air Canada with regularity.

The decision of Bastarache J. in Kingstreet finally ends this unsatisfactory state of affairs. Justice Bastarache began by describing the retention of unconstitutionally collected taxes by the state as an "injustice". (21) He recognized in the judgment that La Forest J. did not actually speak for a majority of the Court in positing the immunization rule. Accordingly, Bastarache J. favoured the dissent of Wilson J. in Air Canada that permitted recovery.

Kingstreet acknowledges the essential constitutional norms that are in play when ultra vires taxes are levied. Justice Bastarache decided that to bar recovery would violate the rule of law, which he described as "this most fundamental constitutional principle". (22) It would further undermine the principle of "no taxation without representation [that is] central to our conception of democracy and the rule of law". (23)

These two principles--the rule of law and no taxation without representation--are constitutionally sound. Taxation measures must be approved by the legislature. They cannot be enacted by the executive alone without proper authority from the legislative body. This is enunciated in ss. 53 and 90 of the Constitution Act, 1867, (24) as well as the Bill of Rights (1688) (25) enacted by the British Parliament and received into Canadian law. In broad strokes, the executive must call the legislature into session to enact taxation, and only those taxes approved by the legislature may be levied. A tax that is not approved by the legislature or which goes beyond the scope of what is approved by the legislature is impermissible. These constitutional guarantees had developed as a basic check on the arbitrary actions of governments. They compel the Crown to obey the rule of law. (26)

Correctly interpreted, they also compel recovery if the taxes are ultra vires in a constitutional sense or are the result of a misapplied statute. It should make no difference whether a tax is levied pursuant to an unconstitutional statute or levied by an administrative agency acting outside of the bounds of its enabling statute. In either case, the required authority from the legislature has not been given. Kingstreet recognizes this point. It eliminates the distinction in the case law between taxes that are ultra vires in a constitutional sense and those that are ultra vires under administrative law.

Air Canada v. Ontario (LCBO) established a strong rationale for why taxes that are ultra vires under administrative law should be recoverable. (27) In these situations, a public authority empowered by statute collects moneys from taxpayers without proper authorization from the enacting legislation. In other words, the authority is acting outside of the bounds of its statutory authority. In Air Canada v. Ontario (LCBO), the regulatory agency exceeded the terms of its legislative authority, so the fees it had imposed were returned to the airlines which had paid the moneys.

Justice Iacobucci in Air Canada v. Ontario (LCBO) confirmed that the moneys were collected without valid statutory authority and thus must be recoverable. The decision in Air Canada v. Ontario (LCBO) unfortunately does not detail a rationale for recovery in the administrative law context. Presumably, however, the underlying principles favouring recovery are the same whether from the perspective of administrative or constitutional law--that to bar recovery violates the principles of the rule of law and no taxation without representation. No taxation should be permitted without approval from the legislature. Kingstreet ended the arbitrary and incoherent distinction between the two types of ultra vires taxes that had dogged the case law prior to that point.

In addition to these concerns regarding legislative authority, Kingstreet also has the added dimension of federalism. The unconstitutional tax levied by the New Brunswick Liquor Corporation violated the division of powers between the federal and provincial governments. It was not merely an example, as was Re Eurig, of the Crown overstepping the authority granted to it by the legislature in the form of statute and regulation. Levying the tax was ultra vires the constitutional powers of the province. To bar the recovery of the ultra vires tax, as was done at trial, did not only damage the rule of law and the principle of no taxation without representation, but it also violated ss. 91 and 92 of the Constitution Act, 1867, (28) which divide the legislative powers between the provincial and federal governments. Only the federal legislature may authorize indirect taxation of the type imposed by New Brunswick.

Justice Bastarache, however, did not base his rejection of the immunization rule on the grounds of respecting the division of powers. Avoiding the erosion of federalism would have been another plausible reason for him to reject the immunization rule in this case. Instead, he founded his judgment in the broader principles of the rule of law, and that there should be no taxation without representation. By focusing on unconstitutional taxation in general, rather than simply taxes ultra vires the competency of one order of government, he broadened the reach of his decision. Therefore, Kingstreet applies to all cases of ultra vires taxation, including those where the executive has not received sufficient legislative authority to levy a tax under s. 53, and not just those involving the division of powers.

The Relationship Between Constitutional and Restitutionary Principles

In an action for restitution between two private parties, concerns regarding the appropriate roles of the legislature, executive, and judiciary are not relevant. Ultra vires taxation, however, raises the distinct issue of how far-reaching the courts should be in interfering with the spending prerogatives of governments. In Air Canada, La Forest J. responded to the considerations raised by cases of ultra vires taxation by introducing the policy concern of fiscal chaos as overriding the normal restitutionary analysis. Justice La Forest held that "special considerations operate to take this case out of the normal restitutionary framework". (29) In his decision, ultra vires taxes raised distinct policy concerns outside of the normal operation of private law. Air Canada did not discuss the rule of law or the idea that taxation requires representation. Instead, it grafted public policy concerns on top of the normal analysis for unjust enrichment. These policy concerns overwhelmed the private rights of plaintiffs to recover, thus leading to the development of the immunization rule. Much of the criticism of Air Canada stemmed from this mixing of private law and public policy.

In Kingstreet, Bastarache J. not only rejected the immunization rule but disagreed with La Forest J. on the appropriate use of private and public law in cases of ultra vires taxation. Whereas La Forest J. applied policy concerns to nullify the private law reasoning favouring restitution, Bastarache J. opted for a different approach. He decided that "[b]ecause of the constitutional rule at play, the claim can be dealt with more simply than one for unjust enrichment in the private domain". (30) By relying on the rule of law and no taxation without representation to eliminate the immunization rule, Bastarache J. adopted an essentially constitutional, as opposed to a private law, analysis.

Still, Bastarache J. did not wholly dispense with the framework provided by the law of restitution. He was not willing to consider ultra vires taxation as an exclusively public law issue. The decision was also based in the private law of restitution. He wrote that there were "at least two" types of restitution--restitution for wrongdoing and for unjust enrichment. (31) Justice Bastarache held that the restitution of unconstitutionally collected taxes formed a third, distinct branch of the law of restitution. He held that the case could be decided as restitution for unjust enrichment but should not, because "[t]his case raises the separate notion [from the two types of restitution] of restitution based on the constitutional principle that taxes should not be levied without proper legal authority". (32) The restitution of unconstitutional taxes is a third branch according to Bastarache J. because of the constitutional and policy concerns raised by ultra vires taxes. In his view, these policy concerns must be considered and they were inconsistent with restitution for unjust enrichment. A third category was, in his opinion, the only viable way to deal with the issue.

The creation of a "third branch" of restitution law appears to be undesirable. Cases of ultra vires taxation, like Kingstreet, should be decided on the basis of constitutional principles and should afford a public law remedy. There is no need to categorize cases of this nature as falling within either the law of restitution or private law more generally. The incoherence of the case law prior to Kingstreet largely stemmed from the attempt to solve a public law problem--namely, the collection of taxes pursuant to an ultra vires statute--via private law analyses. The application of the passing on defence and the doctrines of compulsion and protest all emerged from the private law of restitution. As applied in the earlier case law, all of these concepts did not fit well into the public law context of ultra vires taxation. Much confusion ensued. Through his categorization of recovery of ultra vires taxes as forming part of the law of restitution, Bastarache J. risked the continued melding of private and public law considerations in an equally problematic manner in the future. The underlying principle in Kingstreet, that there be no taxation without representation in order to preserve the rule of law, has the potential to be undermined as the test for restitution evolves to respond to private law rather than public law concerns.

The creation of a third branch of restitution is not just undesirable but also untenable. The potential mixing of public and private law principles is problematic largely because public law principles simply do hot fit well within a private law framework. The reasoning of Bastarache J. in itself would appear to lead to that conclusion. As he demonstrates, public law principles are not at home in either of the two established branches of restitution law. Respect for the division of powers between the federal and provincial governments, the separation of powers between the judiciary, legislature, and executive, and the protection of the treasury, are not proper concerns of private law.

The necessity of keeping public and private law distinct, at least in this context, is justified by a consideration of the roots of the two potential frameworks of analysis--the law of restitution and constitutional principles derived from ss. 53 and 90 of the Constitution Act, 1867. Public and private law necessitate different considerations, values, and emphases. The private law of restitution is "a tool of corrective justice". (33) It is about justice between the parties. Public law is another matter. As Bastarache J. writes,
 [t]he action for recovery of taxes is firmly grounded, as a public
 law remedy in a constitutional principle stemming from democracy's
 earliest attempts to circumscribe government's power within the
 rule of law. Unjust enrichment, on the other hand, originally
 evolved from the common law action of indebitatus assumpsit as a
 means of granting plaintiffs relief for quasi-contractual damages.
 (34)


Justice Bastarache's decision to evaluate cases of ultra vires taxation on constitutional principles, namely ss. 53 and 90 of the Constitution Act, 1867, would appear to stem from his recognition that ultra vires taxation is a public law rather than a private law matter. Positing a third branch of the law of restitution that is concerned with ultra vires taxation simply confuses the fact that the constitutional guarantee of no taxation without representation is the principle that ensures recovery, and not the principle of corrective justice between parties. By creating a third branch of the private law of restitution, even though constitutional principles are at stake, Bastarache J. appears to undermine the basic recognition in the case that public law should govern the issue.

To term the framework developed by Bastarache J. in Kingstreet as a component of the private law of restitution would be a misnomer. Doing so may prove dangerous if it leads us back into the doctrinal confusion characterizing the earlier cases which attempted to mix public and private law. A preferable approach would have been to apply the constitutional principles as Bastarache J. did, but also to acknowledge that the legal framework for evaluating those principles is public rather than private.

One possible counter-argument to my assertion that a constitutional framework is appropriate is that the test for unjust enrichment is sufficiently flexible to allow constitutional principles to fit comfortably within the private law framework. In Garland v. Consumers' Gas Co., (35) the Supreme Court recently pronounced a flexible scheme for unjust enrichment that does take policy considerations into account. If it can be argued that these policy considerations may include constitutional principles, then perhaps it was appropriate for Bastarache J. to create a third branch of restitution rather than opting for a purely constitutional framework.

Garland applied a two-stage analysis in establishing the existence of a juristic reason for enrichment. The existence of a juristic reason for the enrichment would result in the denial of recovery. The first stage of the Garland test required the plaintiff to demonstrate that there is no existing and established category of juristic reason for the enrichment. If it was proven that this category of juristic reason did not exist, then under the second stage of the test, the defendant had the burden of establishing another type of reason to deny recovery. At this second stage, the Supreme Court had recognized that policy considerations were relevant to proving that the defendant was not unjustly enriched. One could argue that it is through this second stage of the test that public policy considerations relevant to the recovery of ultra vires taxation could be legitimately evaluated by the courts. It would, therefore, be appropriate to keep cases of ultra vires taxation within the third branch of private law restitution and there would be no need for the separate constitutional framework argued for in this section.

Following a more thorough analysis, however, it becomes clear that the test for restitution in Garland v. Consumers' Gas cannot legitimately encompass the constitutional principles relevant to cases of ultra vires taxation. The test in Garland requires policy concerns to be evaluated, but only "proper policy considerations" (36) may be considered. Justice Bastarache acknowledged that only policy considerations appropriate to private law may be considered as "proper" in the first two branches of restitution--restitution for wrongdoing and restitution for unjust enrichment. (37) He wrote, "By proper policy considerations, I mean those that have traditionally informed the development of restitutionary law." (38)

If this is the case, it is unclear why the restoration of ultra vires taxes to the taxpayer is a third branch of the law of restitution at all. Though policy concerns certainly forma part of private law in general and the law of restitution in particular, (39) the types of concerns relevant here were of a constitutional flavour. They were not the type of policy considerations that were appropriate within a private law test. Justice Bastarache clearly acknowledged as much in his consideration of the Garland test. Given this background, there was little value in creating a third branch of the law of restitution. The normal tests and considerations involved in the law of restitution were simply not operative in the approach taken by Kingstreet, nor should they be given the constitutional considerations at stake. To characterize an analysis of ss. 53 and 90 of the Constitution Act, 1867 as part of the law of restitution, when the test for unjust enrichment from Garland had been deemed inappropriate in the context of ultra vires taxation, is to invite doctrinal confusion. It also betrays the thrust of Bastarache J.'s own arguments in Kingstreet.

Two leading private law scholars, Lionel Smith and Mitchell McInnes, have both recently argued that the traditional classification of cases of ultra vires taxation as within private law is correct and should not have been treated as a distinct third branch of the law of restitution. (40) They argue that even though constitutional principles such as the rule of law and no taxation without representation are in play at Kingstreet, the recovery of ultra vires taxation is a private law problem that requires a private law solution. To hive off cases like Kingstreet, in their view, is to undermine the coherence of the law of restitution and unjust enrichment. Smith, in particular, offers a sophisticated discussion of the relationship between the concepts of restitution and unjust enrichment, along with an analysis of the inconsistencies in the Supreme Court's decisions on the law of restitution in recent years. As for McInnes, he supports the House of Lords' recent decision in Deutsche Morgan Grenfell Group Pic. v. I.R.C. (41) as a preferable treatment of unconstitutional taxes as compared to the approach taken in Kingstreet.

Smith writes that "on either the pre-Garland or post-Garland understanding of the law of unjust enrichment, a claim to recover undue taxes was always treated as part of the law of unjust enrichment". (42) Later in the paper, he states, "It is not clear why we should have 'constitutional restitution', as opposed to using the ordinary private law of unjust enrichment, perhaps subject to some modification when the defendant is the Crown." (43)

I do not intend to enter into the debate regarding the classification of ultra vires taxation within private law. Given my argument that cases of ultra vires taxation should be decided on a public law rather than private law basis, however, I will address the major arguments that Smith makes for classifying and treating these cases as within private law. Smith makes two central arguments in rejecting a public law treatment of Kingstreet: (1) that private law doctrine should govern the recovery of ultra vires taxation in order to preserve "consistency across fields of private law"; (44) and (2) that a constitutional law framework cannot provide an adequate remedy without the use of the private law of restitution.

On his first major point, Smith argues that just as we consider misfeasance by a public office holder to be a tort and not a public law issue, so we should consider unjust enrichment by the government to be a private law issue. By labeling public misfeasance a tort and requiring proof of the elements of the tort for liability to be found, he argues, we ensure internal consistency in the law of torts. (45) Later in his argument, Smith provides further examples of breaches of contract with the state and vicarious liability for the actions of its employees as evidence of government action that is treated within private law, rather than constitutional law. (46) McInnes argues along similar lines that the state should be treated just like any other party. (47)

Though Smith's concern for consistency across areas of private law is certainly a valid one, I would like to suggest that a constitutional approach is still preferable. First, the cases prior to Kingstreet, whatever their other virtues, created tremendous uncertainty and incoherence in this area of law. I have argued that much of this incoherence stemmed from an attempt to resolve a public law problem through private law means. A private law framework is not designed to incorporate concerns about proper constitutional procedures being followed in order for taxation to be properly authorized. Neither is private law designed to regulate the relation between the executive and the legislative branches. Taxation raises constitutional issues that are not relevant in cases where the state is vicariously liable for the acts of its employees or where it acts in breach of a contract. Recovery in cases of ultra vires taxation should thus be decided with recourse to these constitutional principles; it should not be dependent on the private law test of restitution. It is not consistency within private law that should be central here, but setting the appropriate boundaries between private and public law.

McInnes argues, similarly to Smith, that the state should be treated like any other party in a private law action, including actions for recovery of ultra vires taxes. He approvingly refers to the recent House of Lords' Deutsche Morgan case for following this approach and criticizes Bastarache J. for not taking a similar tack. (48) Like Smith, McInnes' primary concern appears to be ensuring consistency within the law of restitution. Again, it is the boundaries between public and private law that are of greater concern here. The state may be appropriately considered equivalent to a private actor when it enters into a contract or its employees commit tortious acts for which it is vicariously liable. Nevertheless, ultra vires taxation implicates constitutional principles entrenched in the Constitution that are not relevant in those situations. The state may be the equivalent of an individual or a corporation in some types of actions, but it is fundamentally different from other potential parties in actions for the recovery of ultra vires taxation.

Smith's second major argument is that a constitutional approach to ultra vires taxes must fail because it cannot provide the appropriate remedy. According to him, a constitutional remedy providing for recovery would be a "free-standing public law compensation claim". (49) He argues that no such free-standing remedies can exist, except for s. 24 of the Charter, (50) which was not relied on in Kingstreet. Public law claims must be anchored in statute or the common law, he argues, and the common law does not recognize such a constitutional remedy. He cites the minority concurring opinion of Lamer C.J. in Peel (51) for the proposition that constitutional relief outside of s. 24 cannot provide the remedy that is required in cases of ultra vires taxation. (52)

Smith is correct to the extent that damages are not usually awarded for constitutional breaches outside of the Charter context. I would concede that the normal public law remedies outside of the Charter would include a declaration of invalidity, reading down, reading in, severance, and so on, but not monetary awards. This does not mean, however, that monetary awards for the recovery of ultra vires taxation are without basis.

I would argue that courts are not prevented from ordering monetary payments for violations of constitutional norms outside of s. 24 of the Charter. There is no actual restraint on the courts' abilities to order the public law remedy that justice requires in the circumstances where the Constitution has been violated. I do not interpret the minority concurrence in Peel as conclusive proof otherwise. There is no theoretical reason why ordering the recovery of moneys collected pursuant to an ultra vires statute would be unavailable as a remedy. Under s. 52 of the Constitution Act, 1982, a court is fully within its authority to order the return of ultra vires taxes, which were collected in violation of either the division of powers in ss. 91 and 92 of the Constitution Act, 1867 or provisions relating to taxes in ss. 53 and 90. (53)

Smith's characterization of the availability of recovery does not adequately take into account the context-specific nature of constitutional remedies. As Kent Roach has written with respect to constitutional remedies generally, courts should select remedies depending on the context. He states that, "Both s. 24 of the Charter and s. 52 of the Constitution Act, 1982 invite judges to consider the relevant 'circumstances' in which they order remedies." (54) A contextual approach allows courts to craft the remedy that is appropriate to a particular situation.

The particular circumstances of cases of ultra vires taxation point in the direction of a constitutional remedy on a contextual approach. In these cases, there is a violation of one or more constitutional provisions. The rule of law and the fundamental right to no taxation without representation have been undermined by ultra vires legislation or by a statutory authority operating outside of the bounds of its enabling legislation. In other words, these taxes have been unjustly collected. Under these circumstances, a return of the moneys collected pursuant to the ultra vires tax is an appropriate remedy. On a contextual approach, such an award is within the legitimate discretion of the courts. An exclusively constitutional approach is therefore capable of not only analyzing ultra vires taxation cases, but of supplying the appropriate remedy where required. In these cases, it is constitutional principles that are primarily at stake and a public law remedy that is appropriate. In recent years, the Supreme Court has displayed tremendous creativity in its use of public law remedies--such as suspended declarations of invalidity--thus demonstrating the discretion it has in selecting remedies, as well as its willingness to use a broad set of remedial tools. (55)

If a constitutional remedy is to be applied in these cases, as largue it should, we must still be aware of the incentives that will be created for plaintiffs and governments. Benjamin Marie in his recent article, "Kingstreet Investments: Taking a Pass on the Defence of Passing On", (56) points out the problematic incentives that may exist. The more likely it is that a plaintiff will be legally entitled to recover moneys collected as ultra vires taxes by the government and the larger this amount is, the more likely the government will be to retroactively impose the tax if it is constitutionally possible to do so. If statutory limitation periods of otherwise general validity do not apply, as I will argue later in this article, the amount of potential recovery will be even greater and the incentives on the government to retroactively apply the tax will also increase. Furthermore, a rational potential plaintiff will take the government's likely actions into account. If it is a near certainty that governments will retroactively impose the unconstitutional tax in a valid fashion, then plaintiffs will have little or no incentive to go to court to assert their rights. Given these incentives, making the legal test for recovery of ultra vires taxes friendlier to the plaintiff may actually have the perverse effect of making recovery by the plaintiff of his or her money less likely.

One possible way to reduce these problematic incentives would be for courts to consider applying a constitutional exemption in appropriate circumstances. A constitutional exemption could potentially be granted to the plaintiff who succeeds in attaining recovery of ultra vires taxes with respect to any future legislation that would be enacted by the government to retroactively re-impose the tax in a valid fashion. The exemption could be granted in anticipation of the legislation that would almost certainly be passed by a legislature in response to a judicial decision ordering recovery of large amounts. The province of New Brunswick, for example, responded to the Supreme Court's decision in Kingstreet by retroactively imposing the tax in what is likely a constitutionally valid fashion. (57)

The possible use of constitutional exemptions in cases of ultra vires taxation is not far-fetched. Exemptions of a certain type have been applied in the context of suspended declarations of invalidity. When temporarily suspending a declaration that a legislative provision is unconstitutional, the Supreme Court has often crafted individual remedies for the applicant who has brought the unconstitutionality to the Court's attention. As Kent Roach writes, "The general rule established by the Supreme Court is that successful applicants should be exempted from the period of delay." (58) Only the successful applicant, in other words, gets the immediate benefit of a finding of unconstitutionality.

Yet, it is noteworthy that the use of constitutional exemptions is potentially problematic because it creates unfairness between similarly situated plaintiffs. (59) Only the first plaintiff to bring the case to court successfully will be insulated from retroactive imposition of the tax in a constitutionally valid fashion. Others who paid the tax would not be able to benefit from a judicial ruling that the tax is unconstitutional if retroactive legislation is passed. A constitutional exemption in respect of legislation retroactively imposing the tax would, therefore, provide a strong incentive for plaintiffs to go to court, but would create unfairness between the successful plaintiff and the others who paid the unconstitutional tax.

The merits and disadvantages of courts applying constitutional exemptions in this situation requires a much more detailed analysis than can be offered within the confines of this article. (60) Constitutional exemptions are, however, one possible way to at least partially reduce some of the perverse incentives that may be present if recovery by plaintiffs for significant amounts is likely to occur.

In summary, the restitution of ultra vires taxes is more properly considered an aspect of constitutional law, rather than part of a new third branch of the law of restitution, or entirely within the private law model presented by Lionel Smith. As Bastarache J. wrote regarding the law of restitution: "Some of the components of the modern doctrine [of unjust enrichment] are of little use to a principled disposition of the matter [of ultra vires taxation], but are rather liable to confuse the proper application of the key principles of constitutional law at issue." (61) Stated differently, a public law remedy that returns the unconstitutionally collected taxes is the appropriate remedy to apply. Positioning cases of the Kingstreet variety within the law of restitution merely adds to the potential confusion rather than detracting from it.

The 'Passing On' Defence

The defence of passing in the context of ultra vires taxes was introduced by La Forest J. in Air Canada, and this defence allows the state to escape the burden of repaying the unconstitutionally collected taxes. Justice Bastarache summarized the defence as follows:
 The basic premise of the passing-on defence is that if the taxpayer
 has passed on the burden of the tax payments to others, usually via
 price increases charged to its customers, the taxpayer has not
 suffered a deprivation, the taxing authority's enrichment was not
 at its expense, and it would receive a windfall if it were awarded
 recovery. (62)


The defence has attracted widespread criticism both in the case law and in commentaries. (63) At the New Brunswick Court of Appeal, the majority rejected the immunity rule but accepted the defence of passing on. In his judgment, Bastarache J. rejected the defence in its entirety in this area of law. He critiqued the defence for three reasons: (1) it is inconsistent with the law of restitution, (2) it is "economically misconceived", and (3) it is too difficult in practice to ascertain whether passing on has occurred or not. (64) Kingstreet held that it is inappropriate to deny relief on the basis of passing on in cases of ultra vires taxation. In other words, Bastarache J. rejected the defence "as generally inapplicable in the context of ultra vires taxes". (65)

Justice Bastarache rejected the defence in part because it is inconsistent with the basic principles of restitution law. The defence was created in order to prevent windfalls to the plaintiff. Windfalls, as La Forest J. held in Air Canada, are against the principles of restitution law. In contrast, deciding who may or may not receive a windfall is not and should not be a concern of the law of restitution. The law of restitution, in the words of Bastarache J. in Kingstreet, "is not founded on the concept of compensation for loss". (66)

Justice Bastarache reasoned that if La Forest J. was correct in holding that the law of restitution cannot provide windfalls to plaintiffs, then the defence should have been applied throughout the law of restitution. It has not. Prior to Air Canada, the defence was confined to cases of ultra vires taxation and mistake of law. Justice Bastarache cited Maddaugh and McCamus, who argue that the limited application of the defence is due to its theoretical failings:
 [T]he mere fact that the taxpayer has mistakenly paid, with its own
 money, the revenue authority is sufficient to establish an unjust
 enrichment at the plaintiff's expense. As between the taxpayer and
 the Crown, the question of whether the taxpayer has been able to
 recoup its loss from some other source is simply irrelevant. (67)


Justice Bastarache might have written more pointedly that by the logic of the passing on defence, no damages would ever occur in tort or contract law either, as the harm could nearly always be said to be passed on to consumers. He did, however, cite Lebel J. on this point from British Columbia v. Canadian Forest Products Ltd. that "the passing on defence would, in effect, result in an argument that no damages are ever recoverable in commercial litigation because anyone who claimed to have suffered damages but was still solvent had obviously found a way to pass the loss on". (68)

The second and third criticisms correctly, taken up in Kingstreet suggest that the defence is economically misconceived and, practically speaking, too difficult to prove. Taxpayers such as the bar owners may easily respond to tax levies by raising the price for consumers. If higher prices decreased sales, then the bar owners likely suffered a loss. If higher prices did not affect profits, then there is no conclusive way of proving that the price of a drink would not have been raised regardless. Proving that a fee has been passed on is therefore practically impossible and inconsistent with economic reality. Benjamin Alarie has demonstrated that, in economic terms, there is little merit in the passing on defence and the Court in Kingstreet was right to reject it for being economically misconceived. (69)

Kingstreet's rejection of the passing on defence was long overdue in the area of ultra vires taxation. The defence was inappropriate in this context and ill-fitting with accepted principles of private law. To bar recovery where an illegal fee, charge, or tax has been passed on is a misunderstanding of the law of restitution. The defence distorted a proper understanding of the relationship between the taxpayer and the taxing authority. That a tax has been passed on is no longer a valid defence in cases of ultra vires taxation.

The critiques provided by Bastarache J. are sufficiently persuasive that the validity of the defence in any other area of Canadian law is severely in doubt. If the passing on defence should be eliminated in cases of ultra vires taxation because of the aforementioned reasons, (70) then it should not be present in other areas of the law. The same reasons the defence is deficient in this context apply equally well to other areas of restitution and private law more generally. It is unlikely that this strong and persuasive criticism of the defence will be limited to the set of cases involving ultra vires taxes. Hopefully, Kingstreet signais the end of the misguided passing on defence more generally in Canadian law. This is a welcome development for the law of restitution and private law as well as the law on ultra vires taxation.

Limitation Periods and Ultra Vires Taxation

Though Bastarache J. decided in favour of recovery in Kingstreet, he applied the six-year limitation period found in the New Brunswick Limitation of Actions Act. The bar owners were only able to recover the ultra vires taxes that had been paid to the government during the six years prior to the filing of the claim on May 25, 2001. At the Court of Appeal, Robertson J.A. stated that if he was wrong about the existence of the passing on defence, the New Brunswick limitations statute should still apply.

I would argue that the application of the Limitation of Actions Act in this case was incorrect. The law in relation to limitation periods and constitutional remedies is generally unsettled. For remedies under the Charter, one commentator has noted that "[t]here is a remarkable paucity of judicial guidance on whether the remedy under section 24(1) is governed by a limitation period". (71) The case law largely supports the application of limitation periods to Charter claims, but decisions have diverged in contradictory directions. (72) For declarations of invalidity pursuant to s. 52 of the Constitution Act, 1982, it is clear that if legislation is declared constitutionally invalid, a government should not be able to avoid this result by the application of a limitations stature. There is, however, precious little direct authority on the subject. (73) Section 24(1) of the Charter was not at stake in Kingstreet; instead, the decision in Kingstreet dealt with the claim under ss. 53 and 90 of the Constitution Act, 1867.

In applying the limitation period, Kingstreet misreads the relevant case law and misunderstands the requirement for recovery of ultra vires taxation. In Amax Potash, a statute specifically enacted to bar recovery of taxes collected pursuant to an ultra vites statute was deemed unconstitutional. In retaining the ultra vires taxes, the province attempted to do indirectly that which it was constitutionally barred from doing directly. Justice Robertson at the New Brunswick Court of Appeal distinguished Kingstreet from Amax Potasb, and stated that a "substantive difference" existed between general, existing limitations legislation like the New Brunswick statute and "legislation enacted for the specific purpose of barring restitutionary claims based on an invalid or unconstitutional tax". (74) Justice Bastarache at the Supreme Court endorsed this reasoning, and cited Robertson J.A., who wrote, "A Limitation of Actions Act is valid legislation adopted for a valid purpose. It does not seek to achieve indirectly what cannot be achieved directly." (75)

Respectfully, this is a misreading of the reasoning in Amax Potash. Justice Bastarache and Robertson J.A. have chosen to give the Amax Potash decision the narrowest reading possible. They interpreted Amax as holding that only statutes specifically enacted to bar the recovery of ultra vires taxes are unconstitutional. The reasoning of the Court in Amax Potash is actually much broader than that. As the Court wrote in Amax Potash:
 The principle governing this appeal can be shortly and simply
 expressed in these terms: if a statute is found to be ultra vires
 the legislature which enacted it, legislation which would have the
 effect of attaching legal consequences to acts done pursuant to
 that invalid law must equally be ultra vires because it relates to
 the same subject matter as that which was
 involved in the prior legislation. If a state cannot take by
 unconstitutional means it cannot retain by unconstitutional means.
 (76)


Though a stature specifically enacted to bar recovery was at issue, the reasoning in the decision can easily be extended to apply to general limitations statutes. As Robertson J.A. writes, the New Brunswick Limitation of Actions Act is "valid legislation enacted for a valid purpose". (77) This does not mean it should be given an interpretation that is unconstitutional. Applying the limitation period from the limitations act allows the province to retain taxes that it is constitutionally barred from levying. It allows the state to achieve indirectly what it cannot do directly.

In a situation where an otherwise valid, general piece of legislation may be given an unconstitutional reading, that is, allowing retention of ultra vires taxes, or a constitutional one, it is settled law that the stature should be "read down". It should be interpreted in accordance with the Constitution, rather than in an unconstitutional fashion. As Peter Hogg has written:
 The 'reading down' doctrine requires that, whenever possible, a
 stature is to be interpreted as being within the power of the
 enacting legislative body. What this means in practice is that
 general language in a statute which is literally apt to extend
 beyond the power of the enacting Parliament or Legislature will be
 construed more narrowly so as to keep it within the permissible
 scope of power.... Reading down is sometimes said to depend upon a
 presumption of constitutionality: the enacting legislative body is
 presumed to have meant to enact provisions which do not transgress
 the limits of its constitutional powers; general language which
 appears to transgress the limits must therefore be 'read down' so
 that it is confined within the limits. (78)


This doctrine suggests that the New Brunswick limitations statute should have been read down by the Supreme Court in Kingstreet. There were two interpretations available to the Court--one was constitutional and the other was not. To allow the general, and otherwise valid, statute to bar recovery is to permit an unconstitutional result. Reading the general statute in this manner gives it exactly the same constitutional effect as the specific piece of legislation that was deemed unconstitutional in Amax Potash. There is some precedent for reading down a limitation period to respect the division of powers. In Clark v. Canadian National Railway Co., (79) the federal Railway Act barred some tort actions. While otherwise valid, the stature was read down to bar only those causes of action that the Railway Act itself created. If the limitation period in the Railway Act had been interpreted as barring causes of action in tort, it would have infringed on an area of exclusive provincial responsibility. (80)

Furthermore, in Kingstreet the application of the limitation period reflects a misunderstanding of the interrelationship between the constitutional and private law principles at play in cases of ultra vires taxation. Limitations statutes provide a valuable function in private law actions. This was recognized in Kingstreet by Robertson J.A., who wrote that "[a] prescription statute is adopted for purposes of providing a defendant with 'peace of mind'; to be secure in the knowledge that he or she is no longer at risk from a stale claim accompanied by stale testimony". (81) One could also add that by providing a definitive cut-off date beyond which actions may not be launched, limitation periods foster economic certainty for individuals and corporations who no longer need to factor the potential for costly litigation into their planning. (82)

Ensuring peace of mind for defendants, eliminating stale claims, and providing economic certainty are certainly worthy goals. In cases involving ultra vires taxation, however, there are more central principles at stake. Justice Bastarache's judgment is a very strong articulation of the respect that is due the rule of law, "this most fundamental constitutional principle". (83) The principle of "no taxation without representation" was held up in Kingstreet as "central to our conception of democracy and the rule of law". (84) Given the primacy of the rule of law, as well as the principle of no taxation without representation, in a conflict pitting those principles against the rationales underlying the existence of limitations statutes, the constitutional principles should prevail. A lack of compliance by the executive and legislature with the rule of law is a greater danger than that posed by stale testimony or uncertainty.

Despite his conclusion on limitation periods, the force of Bastarache J.'s own judgment actually weighs in favour of reading down the New Brunswick limitations statute. Allowing the province to retain the ultra vires taxes collected prior to the six year period runs contrary to the very principles to which Bastarache J. appealed in eliminating the immunization rule. If the rule of law is as fundamental a principle as Bastarache J. established in Kingstreet, the New Brunswick statute should be interpreted in such a light.

This is not to say that limitation periods should never be relevant in constitutional litigation. Where the rule of law is implicated at such a fundamental level, however, no limitation period should be applicable. Time-limiting claims for recovery undermines the rule of law by permitting the state to retain those taxes collected beyond the limitation period. Allowing the government to retain ultra vires taxes is to condone the arbitrary use of state power. It does a great disservice to the division of powers between the provincial and federal governments where a province has levied an indirect tax, as well as the separation of powers between the legislature and executive. Such a result should never be countenanced.

In Kingstreet, there is no full defence of why the limitation period in the New Brunswick statute should apply. Justice Bastarache simply applies the limitation period with little discussion. It is therefore worth asking whether there is an argument to be made in justifying BaStarache J.'s position. The best argument that could be marshaled on behalf of this position comes from cases that hold limitation periods to apply in claims for Charter remedies under s. 24(1).

In cases that apply a limitation period to remedies sought under s. 24(1), courts have largely depended on a particular understanding of the Charter stemming from the words of Mclntyre J. in R. v. Mills. (85) As a majority of the Ontario Court of Appeal wrote in Prete citing Mills:
 It is argued that the absence of a limitation period in the Charter
 implies that, in actions seeking a Charter remedy, the provincial
 and federal limitation statutes would be applied along with the
 network of procedural rules governing all actions. In R. v. Mills,
 McIntyre J. said:

 The task of the court will simply be to fit the application into
 the existing jurisdictional scheme of the courts in an effort to
 provide a direct remedy, as contemplated in s. 24(1). It is
 important, in my view, that this be borne in mind. The absence of
 jurisdictional provisions and directions in the Charter confirms
 the view that the Charter was not intended to turn the Canadian
 legal system upside down. What is required rather is that it be
 fitted into the existing scheme of Canadian legal procedure. There
 is no need for special procedures and rules to give it full and
 adequate effect. (86)


Jutsice McIntyre in Mills views the Charter as a constitutional document which was not intended to displace the existing order. To the courts that have applied limitation periods to Charter claims, the absence of a limitation period in the Charter itself in combination with this minimalist view of the Charter's purpose justifies time barring claims.

A remedy under s. 24(1) was not sought in Kingstreet. The claim was not under the Charter, but rather pursuant to ss. 53 and 90 of the Constitution Act, 1867. Nonetheless, an argument could have been made along similar lines. Despite the importance of ss. 53 and 90, the argument would be that the legal system is not turned upside-down by these provisions in the Constitution. If values as important as those contained in the Charter can be subject to limitation periods, there is no reason why recovery of ultra vires taxes should not be as well. The reasons for having a limitation period in the first place, such as economic certainty, eliminating stale claims and so on, apply just as much to government as to a private actor. For instance, governments require economic certainty in order to establish budgetary priorities. By arguing along the lines of Mills, Bastarache J. could have offered a more extensive defence for applying the limitation period in Kingstreet.

Nevertheless, I would still argue that limitation periods should not apply to the recovery of ultra vires taxes. At stake in Kingstreet is the rule of law. To some extent, the rule of law is always at issue in any legal proceeding. In cases of ultra vires taxes, however, applying a limitation period allows a government to truncate its basic obligations to the people it serves. I would argue that claims for recovery of ultra vires taxes engage a higher-level value than those values implicated in the rationale for limitation periods. To limit an action for recovery of ultra vires taxes is to undermine the basic principle that the Constitution is the supreme law of the land. In cases on ultra vires taxation, there is a higher order principle that is genuinely at stake, the rule of law.

Given the far-reaching nature of the judgment in Kingstreet in favour of recovery, it is worthwhile pondering why Bastarache J. applied the limitation period at all. He was quite willing to radically alter the law by eliminating the immunization rule and passing on defence, which were established in Air Canada in 1989, and applied frequently thereafter. The entire thrust of the judgment pointed to the need to read down the limitation statute, yet Bastarache J. reached a different conclusion. The section on limitation periods in Kingstreet consisted merely of three short paragraphs; there is very little to glean from the text of the decision.

One possible interpretation is that this approach to limitation periods marks the quiet, yet regrettable, return of a judicial fear of fiscal chaos. By finding in favour of recovery, Bastarache J. explicitly dismissed the concern for fiscal chaos in Air Canada. In permitting limitation periods to apply, he may have been tempering the far-reaching nature of that conclusion. Taxes collected pursuant to an ultra vires statute may be long-standing sources of income which governments rely upon in order to meet the spending priorities that they set in the public interest. In Kingstreet, the sure at issue was over $1 million. Although this was a significant amount for the bar owners, restoration of the full sum would in no way have put the provincial government in danger of fiscal chaos.

On the other hand, it is not difficult to imagine other more lucrative streams of government income facing challenge in the future. Both the immunization rule and the passing on defence skewed the balance heavily against plaintiffs and towards governments. Now that both the rule and defence have been eliminated, more claims for the restoration of ultra vires taxes seem likely. The potential for disruption to governments' ability to budget and spend in the public interest will likely multiply.

The proper conclusion to be drawn from the potentially disruptive effects of the Kingstreet rules, however, should not be to allow limitation statures to minimize the liability of governments. As Bastarache J. himself noted, the availability of suspended declarations of invalidity as ordered in Re Eurig permitted courts to give governments time to respond, during which they may retroactively re-enact the tax in a constitutionally valid fashion. In the majority of cases, these options will prevent any real chance for fiscal chaos. Therefore, no need exists to minimize the impact of a finding that a tax is ultra vires by time limiting the claim for restitution.

IV NARROWING THE REACH OF KINGSTREET: CANADA (ATTORNEY GENERAL) V. HISLOP

The Supreme Court provided a framework in Kingstreet that strongly favours plaintiffs in actions seeking recovery of ultra vires taxes. Yet, it did not take long for the Court to narrow the reach of Kingstreet. A mere two months later, the Court released Hislop, an eagerly anticipated decision that severely hinders rights claimants in actions for restitution of unjust enrichment by the state under government benefit programs. Hislop is problematic because it does not recognize the unjust enrichment by the state which occurs when benefits are denied to those who contributed through their taxes to a government benefits program. It must also be noted that Hislop is a seminal decision on the law of constitutional remedies, though a full analysis on that point is beyond the scope of this article. It will be especially relevant for the law of retroactive Cbarter relief.

In 1999 in M. v. H., (87) the Supreme Court found the federal government's restriction of survivor benefits under the Canada Pension Plan (CPP) (88) to opposite-sex partners to be a violation of s. 15 of the Cbarter. In response, the government passed the Modernization of Benefits and Obligations Act (MBOA). (89) Hislop round several provisions of the MBOA and the CPP to be counter to s. 15(1), as they discriminated against same-sex couples. The decision, however, did not allow recovery of the survivor benefits by same-sex survivors over the period from 1985, when s. 15 of the Cbarter came into force, to 1999.

Four sections of the CPP as amended by the MBOA were at issue in Hislop. Pursuant to s. 44(1.1), same-sex spouses could only receive survivor benefits if the spouse died after 1997. In other words, the government responded to M. v. H by refusing to make benefits retroactive to the date s. 15 of the Charter came into effect or the date of death of the spouse if it occurred later. Section 72(2) prevented same-sex survivors from receiving payments prior to July 2000. Section 72(1), coming into force in June 2001, put both same- and opposite-sex couples in an identical position from that date onward. No survivor could receive benefits in arrears more than 12 months prior to when the application was received. Section 60(2) of the CPP was also challenged even though it was not part of the MBOA amendments. It was a general provision stipulating that applications for survivorship benefits by estates of the surviving spouses must be made within a year of the death of the surviving spouse. In other words, once the second of the two spouses had died, the estate had only 12 months to apply for the benefits owed under the CPP.

The Supreme Court held that ss. 44(1.1) and 72(2) violated s. 15 and were not saved by s. 1 of the Charter. This was the same conclusion reached by the Ontario Court of Appeal and was expected. Both provisions unconstitutionally drew distinctions on the prohibited ground of sexual orientation between saine-sex and opposite-sex couples. The Court, however, upheld ss. 72(1) and 60(2) in finding that the year-long cap on arrears and the restriction on claims by the estates of same-sex survivors were constitutional.

For s. 72(1), the Court engaged primarily in a protracted analysis of retroactive Charter remedies. The Court concluded that because of a substantial change in the law occurring in M. v. H., it was appropriate to limit the retroactive effect of the remedy in this case. The result insulated the government from being forced to pay benefits to all same-sex survivors from the coming into force of s. 15 in 1985 to the end of 1999.

Section 60(2) was constitutional in the Court's view because s. 15(1) of the Charter applies to those covered by the term "individual"; the Court took this to mean natural persons and an estate does not fall into this category. As it is not a natural person, the dignity of an estate cannot be infringed. This type of infringement is necessary to make out a s. 15(1) claim, so the claim must fail in respect of s. 60(2).

There is a strong argument on the basis of Kingstreet that the reasoning employed by the Court in Hislop to uphold ss. 72(1) and 60(2) is unconvincing. The Court analyzed these provisions exclusively through the lens of s. 15. This interpretation allowed the Court to construct an elaborate argument on retroactive Charter remedies to uphold the constitutionality of s. 72(1). By applying a s. 15 analysis, the Court was also able to exclude claims by the estates of the survivor spouses on the basis that they did not have standing. This interpretation of the facts of the case and legal arguments of the claimants, that Hislop involved a s. 15 claim for retroactive Charter relief, was not the only avenue open to the Court.

Hislop could instead have been approached by the Court as a case of unjust enrichment by the state. The framework so recently established in Kingstreet would have been applicable here. Unlike other government programs such as Old Age Security, the CPP is a contributory scheme. Same-sex partners contributed to the scheme during the period when recovery was denied, yet did not receive the benefits available to opposite-sex couples. The Court in Hislop denied the restitution of the funds paid by same-sex partners over that time.

This is an extremely problematic outcome. An individual pays into the CPP in the expectation of receiving a pension once eligible or with the expectation that the pension will transfer to his spouse or partner upon his death. The state received moneys pursuant to the CPP and MBOA, but denied payment on an unconstitutional basis by discriminating between same-sex and opposite-sex couples. Between 1985 and 1999 payments were made to the state and benefits were denied to same-sex couples, then and subsequently, pursuant to unconstitutional statutes. The CPP was, in other words, unjustly enriched by the contributions paid to them by same-sex couples who were denied survivor benefits.

Though Kingstreet related to ultra vires taxes, the forceful reasoning there favouring restitution could have been applied in Hislop. Instead, the Hislop majority distinguished Kingstreet. The majority wrote:
 The difference between the result in Kingstreet and the type of
 situation in the present case may be understood in terms of the
 basic distinction between cases involving moneys collected by the
 government and benefits cases. Where the government has collected
 taxes in violation of the Constitution, there can be only one
 possible remedy" restitution to the taxpayer. In contrast, where a
 scheme for benefits falls afoul of the s. 15 guarantee of equal
 benefit under the law, we normally do not know what the legislature
 would have done had it known that its benefits scheme failed to
 comply with the Charter. In benefits cases, a range of options is
 open to government ... In our political system, choosing between
 those options remains the domain of government. (90)


There is something to the majority's reasoning that benefits cases are somehow different from those involving ultra vires taxes and that courts should not intrude into governments' authority to determine social programs as they see fit. Benefit schemes are discretionary and subject to the democratic will of the government. Governments may choose to limit or end them if deemed unconstitutional rather than expanding the class of beneficiaries. (91)

Yet distinguishing Kingstreet here ignores the fact that the CPP was and remains a contributory benefits scheme. Furthermore, these contributions were and continue to be compulsory. Same-sex couples had no option but to remit taxes to the government to fund the CPP even as they were denied access to those benefits for many years. Hislop is technically about benefits rather than taxes, but to differentiate the cases on this basis is to rely on a distinction without a difference. Like a tax, moneys were paid directly to the state by individuals. Contribution was not an option, but an obligation imposed by the state. Unfortunately, by distinguishing Kingstreet, Hislop narrows the reach of Kingstreet exclusively to cases of ultra vires taxes and not to cases involving contributory government benefit schemes.

The reasoning in Hislop may be appropriate in cases concerning Old Age Security and similar government programs that are not contributory. Under the CPP, however, the federal government collected moneys from these individuals yet denied survivor pensions to same-sex partners on the basis of unconstitutional statutory provisions. The government program was unjustly enriched at the expense of the claimants in Hislop. The reasoning in Hislop that governments' should possess maximum discretion to allocate benefits should be limited exclusively to government benefits programs which are non-contributory. For non-contributory benefits schemes, there is a legitimate and far greater imperative to preserve governments' discretion to choose how to allocate the funds. Contributory benefit schemes, however, are a different matter. As with ultra vires taxation, there is a strong rule of law argument that the collected funds should be recovered if denied on unconstitutional grounds. Discrimination between same-sex and opposite-sex survivors is patently unconstitutional under s. 15 of the Charter. The moneys collected from some individuals were not dispersed to their survivors because of a distinction based on sexual orientation. Instead of engaging in a protracted analysis of retroactive Charter remedies, the Court could have opted for a much more straightforward approach to the case. The state was unjustly enriched by an unconstitutional statute and recovery should have been granted. While Kingstreet engaged the allocation of taxing authority between the federal and provincial governments, federalism was not an aspect of Hislop. The argument from the principle of the rule of law, however, is just as powerful in Hislop as it was in Kingstreet.

In contrast to his role as the author of the Kingstreet judgment for the unanimous Supreme Court, Bastarache J. dissented from the majority judgment of Lebel and Rothstein JJ. in Hislop. His dissenting judgment differed from the majority primarily on the proper approach to determining the constitutionality of s. 72(1) of the MBOA. The majority and dissent adopted conflicting criteria for ascertaining when to deny the retroactivity of a constitutional remedy. Justice Bastarache disagreed with the following propositions made by the majority: (1) a "substantial change in law" imposed by the courts was the threshold test for deviating from the norm of retroactive constitutional remedies, (92) and (2) that a substantial change in the law relating to same-sex couples occurred with the M. v. H. decision. The dispute between Bastarache J. and the rest of the Court in Hislop was not regarding the lawfulness of retaining moneys collected pursuant to an unconstitutional statute over the time period allowed by the Court. Both the majority and minority thus reached the same conclusion, even if by alternate routes.

With Kingstreet and Hislop being decided less than two months apart, the disconnect in Bastarache J.'s approach from one case to the other is problematic. Though differing from the majority in Hislop on several key doctrinal points, Bastarache J. agreed with the basic distinction proposed by Lebel and Rothstein JJ. between cases of benefits collected pursuant to a discriminatory statute and those of unconstitutional taxation. (93) Anomalies in the treatment of the plaintiffs in Kingstreet from those in Hislop by Bastarache J. stem from this basic distinction drawn by both the majority and minority.

The majority in Hislop was open about its reticence in imposing a large quantum of liability that would impair the federal government's fiscal health. As they wrote, "[a] retroactive remedy in the instant case would encroach unduly on the inherently legislative domain of the distribution of government resources and of policy making in respect of this process". (94) With the desire to avoid fiscal chaos that arguably remained in his judgment in Kingstreet on the issue of limitation periods, despite a rejection of fiscal chaos in discussing the immunization rule, it may not have been a great leap for Bastarache J. to be in agreement with the majority on this point. In both cases, Bastarache J. demonstrated a subtle but persistent willingness to preserve the maximum fiscal discretion for governments at the expense of rights claimants.

V CONCLUSION: THE RESTITUTION OF ULTRA VIRES TAXES GOING FORWARD

Kingstreet reshaped the Canadian law of ultra vires taxes largely for the better. The immunization rule from Air Canada was an unwarranted barrier to the recovery of taxes that were collected in violation of the Constitution. The passing on defence was largely incoherent and its demise was long overdue. The overwhelming weight of academic commentary was harshly critical of the defence of passing on. Justice Bastarache's decision is such a comprehensive critique that it is likely to be followed in all areas of the law of unjust enrichment on this point. Kingstreet thus likely spells the end of the passing on defence not just in the context of ultra vires taxation, but in Canadian law.

Kingstreet is more problematic in its categorization of ultra vires taxation as a third branch of the law of restitution. The policy considerations at play are distinctly constitutional and public policy oriented--namely, the proper role of courts in relation to legislatures, the appropriate separation of powers between the executive and the legislature, and the control of the public purse. The rule of law and no taxation without representation are generally not at issue in cases of unjust enrichment between private parties. Though the flexible framework for unjust enrichment in Garland allows for policy concerns, it only allows for policy concerns that are proper to private law. The most important considerations in cases of ultra vires taxation are better understood as part of the public law of the Constitution rather than as a third branch of restitution. The result in Kingstreet would likely have been the same regardless of how the case was categorized. Going forward, however, substantial confusion would likely have been avoided if the case had been categorized as within public law rather than private law.

The acceptance of the limitation periods to restrict the recovery of ultra vires taxes is a conclusion at odds with the basic premises of the decision in Kingstreet. To permit general statutes of limitations to apply and thus partially bar recovery, is to misunderstand the reach of the decision in Amax Potash and the fundamental nature of the constitutional principles in play. It unjustly allowed the province in Kingstreet to do indirectly what it is constitutionally barred from doing directly. Concerns about potentially creating fiscal chaos likely factored into the Court's decision to time limit recovery.

In the future, the applicability of limitation periods is likely to be a subject of litigation in claims for restitution of ultra vires taxes. Kingstreet introduced a much more plaintiff friendly regime. An increased volume of ultra vires taxation claims will surely result. It remains to be seen how far courts will be willing to apply limitation periods when the thrust of the principles so forcibly upheld in Kingstreet points in the other direction.

Finally, the full potential implication of Kingstreet on the law of restitution may never be felt. By distinguishing even contributory benefits schemes from cases of ultra vires taxation in Hislop, the Supreme Court drastically narrowed the reach of Kingstreet. In doing so, it drew an untenable distinction between two forms of unjust enrichment by the state: the collection of payments to fund government programs and ultra vires taxes. Therefore, litigants will have to operate within the framework set up by Hislop and Kingstreet. It is likely, however, that the boundary between the two cases will continue to be probed and challenged by future claimants.

* The author would like to thank Benjamin Alarie, Sujit Choudhry, Stephen M. Waddams, and the editors of the University of Toronto Faculty of Law Review for comments on various portions of this paper.

(1) [2007] 1 S.C.R. 3, 2007 SCC 1 [Kingstreet].

(2) [2007] 1 S.C.R. 429, 2007 SCC 10 [Hislop].

(3) Limitation of Actions Act, R.S.N.B. 1973, c. L-8, s. 9.

(4) Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act, 1982 (U.K.), 1982, c. 11 [Charter].

(5) See, among other academic commentary, Peter W. Hogg, Constitutional Law of Canada, looseleaf, 5th ed. supplemented (Scarborough, ON: Carswell, 1997) at 58-14-58-19; Peter W. Hogg & Patrick J. Monahan, Liability of the Crown, 3d ed. (Scarborough, ON: Carswell, 2000) at 246-247; Peter D. Maddaugh & John D. McCamus, The Law of Restitution, looseleaf (Aurora, ON: Canada Law Book, 2004) at 11-34-11-46; Paul Michell, "Restitution, 'Passing-On', and-the Recovery of Unlawfully Demanded Taxes: Why Air Canada Doesn't Fly" (1995) 53(1) U. T. Fac. L. Rev. 130.

(6) [1977] 2 S.C.R. 576 [Amax Potash].

(7) Constitution Act, 1867 (U.K.), 30 & 31 Vict., c. 3, reprinted in R.S.C. 1985, App. II, No. 5. According to s. 92(2), provincial governments are competent to legislate in relation to "direct taxation within the province in order to the raising of a revenue for provincial purposes".

(8) The federal government may legislate in relation to "the raising of money by any mode or system of taxation" under s. 91(3). They are thus able to impose direct and indirect taxes. See Hogg, supra note 5 at 31-2-31-3.

(9) R.S.S. 1965, c. 87.

(10) Amax Potash, supra note 6 at 590.

(11) Ibid. at 592.

(12) [1989] 1 S.C.R. 1161 [Air Canada].

(13) See Hogg, supra note 5; Maddaugh & McCamus supra note 5; and Michell, supra note 5. Peter Birks offers a strong critique of the reasoning underlying Air Canada, albeit in the British context, in "Restitution from the Executive: A Tercentenary Footnote to the Bill of Rights", in Paul D. Finn, ed., Essays on Restitution (Sydney, Australia: Law Book Co., 1990, 164).

(14) [1997] 2 S.C.R. 581 [Air Canada v. Ontario (LCBO)].

(15) [1998] 2 S.C.R. 565 [Re Eurig].

(16) R.S.N.B. 1973, c. L-10, s. 200(3); Fees Regulation--Liquor Control Act, N.B. Reg. 89-167, s. 5. Following Kingstreet, the government of New Brunswick amended these provisions in An Act to Amend the Liquor Control Act, S.N.B. 2007, c. 23, s. 1. The new provision s. 131.3 retroactively imposes the tax at issue in Kingstreet. Retroactive taxation legislation will be discussed below, beginning at 85.

(17) (2004), 273 N.B.R. (2d) 6, 2004 NBQB 84.

(18) (2005), 285 N.B.R. (2d) 201, 2005 NBCA 56 [Kingstreet (N.B.C.A.)].

(19) Kingstreet, supra note 1.

(20) Birks, supra note 13 at 204.

(21) Kingstreet, supra note 1 at para. 13.

(22) Ibid. at para. 15.

(23) Ibid. at para. 14.

(24) Supra note 7, ss. 53 and 90.

(25) (U.K.), 1688, 1 Will. & Man, sess. 2, c. 2.

(26) Hogg, supra note 5 at 55-14-58-19; Hogg and Monahan, supra note 5 at 246.

(27) Supra note 14.

(28) Supra note 7, ss. 91-92.

(29) Air Canada, supra note 12 at 1203.

(30) Kingstreet, supra note 1 at para. 13.

(31) Ibid. at para. 33.

(32) Ibid.

(33) Ibid. at para. 32.

(34) Ibid. at para. 40, citing Maddaugh & McCamus, supra note 5 at 1-4, among others.

(35) [2004] 1 S.C.R. 629, 237 D.L.R. (4th) 385 [Garland]; Kingstreet, supra note 1 at para. 36.

(36) Kingstreet, supra note 1 at para. 38.

(37) Ibid.

(38) Ibid.

(39) Stephen M. Waddams, Dimensions of Private Law (Cambridge: Cambridge University Press, 2003) at 191.

(40) Mitchell McInnes, "Restitution for Ultra Vires Taxes" (2007) 123(Jul) Law Q. Rev. 365; Lionel Smith, "Public Justice and Private Justice: Restitution after Kingstreet" (Paper presented at the Conference on Corporate and Commercial Law, University of Toronto Faculty of Law, October 2007) [unpublished]. At this point it is worth clarifying terminology. Lionel Smith provides a detailed and sophisticated argument regarding the use of the terms "restitution" and "unjust enrichment" in his paper. The focus in this article is on the need for a public law remedy, so I do not wish to wade into the debate in the private law literature on the relationship between the concepts of unjust enrichment and restitution for the purposes of my argument. In this article, I treat unjust enrichment as a causative event that compels a public law remedy of recovery by the taxpayer. The idea of a "causative event" is derived from the later work of Peter Birks, Unjust Enrichment, 2d ed. (Oxford: Oxford University Press, 2005).

(41) [20061 3 W.L.R. 781, [20061 U.K.H.L. 49.

(42) Smith, supra note 40 at 15.

(43) Ibid. at 22.

(44) Ibid. at 20.

(45) Ibid. at 21.

(46) Ibid. at 24-25.

(47) McInnes, supra note 40. Lionel Smith does acknowledge to a greater degree than McInnes that special considerations may apply where the state is a party in a private law action. See Smith, ibid. at 22 and text accompanying n. 40, above.

(48) McInnes, ibid. at 366.

(49) Smith, supra note 40 at 20.

(50) Supra note 4, s. 24.

(51) Peel (Regional Municipality) v. Canada, [1992] 3 S.C.R. 762 at para. 98; Smith, supra note 40 at 22.

(52) Smith, Ibid. at 22.

(53) Constitution Act, 1982, supra note 4, ss. 24, 52; Constitution Act, 1867, supra note 7, ss. 53, 90-92.

(54) Kent Roach, Constitutional Remedies in Canada, looseleaf (Aurora, Ontario: Canada Law Book, 2006) at para. 8.40.

(55) Ibid. at para. 14.1680.

(56) Benjamin Marie, "Kingstreet Investments: Taking a Pass on the Defence of Passing On" (University of Toronto Legal Studies Series Research, Paper No. 1023789, October 2007), online: SSRN <http://papers.ssrn.com/so13/papers.cfm?abstract_id=1023789> at 14-17.

(57) An Act to Amend the Liquor Control Act, supra note 16. Marie, ibid. at 19, n. 38, concurs in the preliminary conclusion that the recent New Brunswick legislation is likely constitutional.

(58) Roach supra note 54 at para. 14.1856. See also n. 397.

(59) Ibid. at 14-27-14-40.1.

(60) For a fuller examination of constitutional exemptions see Roach, ibid. at 14-27-14-40.1 and Sujit Choudhry & Kent Roach, "Putting the Past Behind Us? Prospective Judicial and Legislative Constitutional Remedies" (2003), 21 S.C.L.R. (2d) 205 on prospective remedies.

(61) Kingstreet, supra note 1 at para. 35.

(62) Ibid. at para. 42.

(63) Commissioner of State Revenue (Victoria) v. Royal Insurance Australia Ltd. (1994), 182 C.LR. 51,126 A.L.R. 1; British Columbia v. Canadian Forest Products Ltd., [2004] 2 S.C.R. 74, 240 D.L.R. (4th) 1, Lebel J., dissenting on other grounds [Canadian Forest Products]; see the articles cited supra notes 5 and 13.

(64) Kingstreet, supra note 1 at para. 44.

(65) Ibid. at para. 52.

(66) Ibid. at para. 47.

(67) Ibid. at para. 45. See Maddaugh & McCamus, supra note 5 at 11-43.

(68) Canadian Forest Products, supra note 63 at para. 206.

(69) Alarie, supra note 56.

(70) Maddaugh & McCamus, supra note 5 at 11-38-11-46.

(71) Graeme Mew, The Law of Limitations, 2d ed. (Markham, Ont: LexisNexis Butterworths, 2004) at 307.

(72) See e.g. Prete v. Ontario (Attorney General) (1993), 110 D.L.R. (4th) 94 (Ont. C.A.), 68 O.A.C. 1 [Prete]; St.-Onge v. Canada, [1990] F.C.J. No. 1842 (EC.T.D.), aff'd [2001] F.C.J. No. 1569 (F.C.A.), leave to appeal to S.C.C. refused, [2001] 8.C.C.A. No. 638; Nagy v. Phillips (1996), 137 D.L.R. (4th) 715 (Alta. C.A.), 187 A.R. 97; Ravndahl v. Saskatchewan, [2007] 10 W.W.R. 606, including a strong dissent by Smith J.A. [Ravndahl].

(73) See the dissenting judgment of Smith J.A. in Ravndahl, ibid. at para. 100.

(74) Kingstreet (N.B.C.A.), supra note 18 at para. 42.

(75) Kingstreeet, supra note 1 at para. 60, citing Robertson J.A in Kingstreet (N.B.C.A.), supra note 18 at para. 42.

(76) Amax Potash, supra note 6 at 592.

(77) Kingstreet (N.B.C.A.), supra note 18 at para. 42.

(78) Hogg, supra note 5 at 15-26.

(79) [19881 2 S.C.R. 680 [Clark].

(80) Hogg, supra note 5 at 15-26-15427.

(81) Kingstreet (N.B.C.A.), supra note 18 at para. 42, cited with approval by Bastarache J. in Kingstreet, supra note 1 at para. 59.

(82) Mew, supra note 71 at 12-13. See also among many others the Ontario Law Reform Commission, Report on Limitation of Actions (Toronto: Department of the Attorney General, 1969); "Recommendations for a New Limitations Act", Report of the Limitations Act Consultation Group (Toronto: Ministry of the Attorney General, March 1991); and U.K. Law Commission, Limitation of Actions, (London: H.M.S.O., April 2001).

(83) Kingstreet, supra note 1 at para. 15.

(84) Ibid. at para. 14.

(85) [1986] 1 S.C.R. 863, 29 D.L.R. (4th) 161 [Mills].

(86) Prete, supra note 72 at 101 [references omitted].

(87) [1999] 2 S.C.R. 3 [M. v. H.].

(88) R.S.C. 1985, c. C-8, ss. 44(1.1), 60(2), 72.

(89) S.C. 2000, c.12.

(90) Hislop, supra note 2, Rothstein and Lebel JJ. at para. 108.

(91) Ibid.

(92) Ibid. at paras. 137-143.

(93) Ibid. at para. 163, Bastarache J. dissenting.

(94) Ibid. at para. 117.

MICHAEL PAL, Michael Pal, B.A. (Hon.) (Queen's), M.A. (Toronto), J.D. (Toronto), Student-at-Law at McCarthy Tetrault LLP.
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