Restitution
front page

What's new?

Archive front page

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2007

2006

2008

2009

Eoin O'Dell and John Murphy have been discussing "passing on."

I think that the fact that you get can get a windfall in an account of profits based on disgorgement of the profits of wrongdoing does not help us with whether passing on is a defence in subtractive unjust enrichment. In disgorgement for wrongdoing, we do not care whether the plaintiff has suffered a loss or ends up better off (eg Keech v Sandford); in subtractive ue, we are supposed to be reversing a transfer (at least on some views ..).

I think Eoin is clearly right that La Forest J in Air Canada intended that passing on and fiscal chaos are two distinct ideas. Indeed, it is not always noticed that he denied the airlines' claim first on the basis that the fuel taxes in question were passed on to passengers, with the fiscal chaos point as an alternative. In fact, before he even got to the restitution discussion, La Forest J (with a clear majority on his side) held that the fuel taxes in question had been validly imposed (to put compendiously a complicated legislative history). Thus all of the restitution stuff (in respect of which he was speaking for only three of six judges anyway) could be seen as obiter; that includes the abolition of the distinction between mistakes of law and fact. But the bit on fiscal chaos is, as it were, doubly obiter, since it comes after two other alternative reasons, each sufficient to deny the claim.

It is also not always noticed that a companion case to Air Canada v BC was Canadian Pacific Airlines Ltd v BC, [1989] 1 SCR 1133, 59 DLR (4th) 218. This case was about a different tax, which had been imposed on (i) aircraft and aircraft parts and (ii) in-flight liquor sales. The taxing statute was valid but the court held that it applied to neither of (i) or (ii). Only one airline sought recovery of the taxes. It was allowed to recover in respect of (i) but not (ii). In this case La Forest J was speaking for five of the six judges, and Wilson J's concurring judgment is to the same effect. Relying on the Air Canada decision, La Forest J held that the province could not resist recovery on the basis of mistake of law. Thus, the discussion on mistake of law which was technically obiter in Air Canada becomes central in this case. One wonders about Beetz and McIntyre JJ, who expressly chose not to comment on this discussion in Air Canada, but then concurred with La Forest J in CP Air. But more germane to the present discussion is this: although the airline was allowed to recover the tax imposed on aircraft and parts, it was not allowed to recover that imposed on in-flight sales of alcohol. The reason for the latter was not passing on as such, but rather a conclusion that the tax had in fact been paid by the passengers, with the airlines collecting it as agent of the Crown.

Leaving that aside as yet another possibility, the result is that in Air Canada the fuel taxes were not recoverable due to passing on; in CP Air, the tax on aircraft and parts was recoverable and passing on was rejected. The BC CA tried to reconcile these positions in Allied Air Conditioning Inc v BC (1993), 87 BCLR 207, 109 DLR (4th) 463, [1994] RLR #60. The majority suggests that the difference is between taxes paid on capital assets (not passed on) versus taxes paid on operating costs (passed on), but the gist is that it is a factual issue. They rejected the trial judge's idea that it depended on whether the tax had been specifically broken out in the charges made to the customer. The last few RLR's will show a number of other Canadian cases that have tackled this issue. The emerging consensus (now supported by Air Canada v Ontario (Liquor Control Board) (1995) 24 OR (3d) 403; 126 DLR 4th 301 (Ont CA), which is on its way to the SCC) (man those airlines like to litigate) is that passing on is a question of fact.

I am not sure that it shouldn't be considered a matter of law. We are assuming that P has paid money to (or otherwise enriched) D, but that P has somehow passed on the burden of this to third party (3P). In other words, 3P has in turn paid (or otherwise enriched) P, and there is some connection between the two transactions. It might be that 3P has a claim against P, eg because the basis of 3P's payment to P was that P had to pay a corresponding amount to D. Once it turns out that P did not have to pay D, the basis of 3P's payment to P fails and the payment is recoverable. If anything, this should strengthen P's claim against D, should it not?

Another possibility is that 3P has a claim against D. In CP Air, that was because P was acting as D's agent to collect from 3P. I suppose there are other possible ways this could arise? Then, although we are usually averse to letting people pray in aid the rights of others, could D not legitimately defend against P? Not just or even at all because of passing on, but because D is liable for the same amount and cannot be made to pay twice.

Most commonly, 3P will have no claim against anyone (as in Kleinwort Benson Ltd v Birmingham City Council, summarized by Eoin); or at least, any such claim will be unclear in litigation between P and D. Then I am not sure that the transaction between 3P and P can be prayed in aid by D. D has to pay P, and if 3P wants to try to claim against P, that is an independent claim based on an independent transaction.

To put that another way: assume that P has made out a case against D which is perfect in every way (ie recovery would otherwise follow) except for the passing on argument. If we allow that argument and reject P's claim, are we saying that 3P has a claim against D? Are we saying that 3P might have a claim against D? Are we saying that 3P doesn't have a claim against P?

Maybe we should forget passing on, and always allow P to win against D. We then say to 3P: if you have a claim against P, go ahead and prove it; if you establish a claim against D, you will not be able to recover against D because D will be able to plead change of position (assuming D has satisfied the judgment P got against D); but this change of position by D will generate a claim by 3P against P, even if there was not one before. Then neither of D nor P will be able to keep an enrichment which actually came at the expense of 3P (assuming, as we always have to do, that 3P chooses to assert its rights).

Lionel