Air Canada v. British Columbia [1989] 1 S.C.R. 1161: Applicants seeking seeking the reimbursement of amounts paid as "gasoline taxes" under the Gasoline Tax Act found to be ultra vires. Payment under an ultra vires statute does not constitute "compulsion". Before a payment will be regarded as involuntary there must be some natural or threatened exercise of power

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

The Act, as it stood on August 1, 1974, taxed every purchaser on all gasoline sold in the province for the first time after its manufacture in, or importation into, the province. The Act remained in this form until 1976 even though the Privy Council had struck down a similar provision for not being a direct tax within s. 92(2) of the Constitution Act, 1867. The definition of "purchaser" was repealed and replaced in July 1976. "Purchaser" was defined to mean any person who, acting for himself or as agent, bought or received delivery of gasoline within the province for his or her own use or consumption. In 1981, legislation was enacted purporting to extend the application of legislation similar to that enacted in 1976 back to August 1, 1974. This legislation also purported to legalize the Crown's retention of the money collected from 1974 to 1976 under the Act as it then stood: moneys collected as taxes, penalties (page 1163) or interest under the Act during that period were to "be conclusively deemed to have been confiscated by the government without compensation".

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

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

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

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

Held (Wilson J. dissenting in part): The appeal by Air Canada and Pacific Western Airlines should be dismissed, the Crown's cross-appeal against them should be allowed and the Crown's appeal against Canadian Pacific Airlines should be allowed. As to the first constitutional question, the Gasoline Tax Act, as it existed in 1974, was constitutionally invalid, but the amendments of 1976 and 1981 were valid. The second constitutional (page 1164) question should be answered in the negative; the third did not need to be answered.

At 1166: …while the principles of unjust enrichment can operate against a government to ground restitutionary recovery, where the effect of an unconstitutional or ultra vires statute is in issue, special considerations operate to take the case out of the normal restitutionary framework and require a rule responding to the underlying policy concerns specific to this problem. The rule is against recovery of ultra vires taxes, at least in the case of unconstitutional statutes. The policies that underlie this rule are numerous. Chief among these are the protection of the treasury, and a recognition of the reality that if the tax were refunded, modern government would be driven to the inefficient course of reimposing it, either on the same or on a new generation of taxpayers, to finance the operations of government. It could lead to fiscal chaos, particulary where a long-standing taxation measure is involved. The tax here is of broad general application and has been imposed for decades.

Exceptions may exist where the relationship between the state and a particular taxpayer results in the collection of tax which would be unjust or oppressive in the (page 1167) circumstances. The present case does not, however, call for a departure from the general rule. The tax, though unconstitutional, raised an issue bordering on the technical. Had the statute been enacted in proper form there would have been no difficulty in exacting the tax as actually imposed. Nor was there compulsion. Payment under an ultra vires statute does not constitute "compulsion". Before a payment will be regarded as involuntary there must be some natural or threatened exercise of power possessed by the party receiving it over the person or property of the taxpayer for which he has no immediate relief than to make the payment. Finally, the fact that the province may have been in a better position to determine that the statute was unconstitutional does not affect the rule. The policy reasons underlying it remain.

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