[2001] 3 F.C. 552
A-775-98
2001 FCA 145
Michelin Tires (Canada) Ltd. (Appellant)
v.
Her Majesty the Queen (Respondent)
Indexed as: Michelin Tires (Canada) Ltd. v. Canada (C.A.)
Court of Appeal, Rothstein, Evans and Malone JJ.A. —Toronto, March 29; Ottawa, May 7, 2001.
Practice — Limitation of Actions — Taxpayer seeking to recover federal sales tax overpaid during period 1983-84 — Revenue Canada rejecting claim as refund of overpayments made more than four years prior to date of assessment, time-barred by Excise Tax Act, s. 44(7.1) — Overpayments made more than six years before taxpayer commenced action for restitution — Subject to six-year limitation period applicable to actions against Crown under Federal Court Act, s. 39, Crown Liability and Proceedings Act, s. 32 — Taxpayer must prove facts required to postpone commencement of limitation period.
Customs and Excise — Excise Tax Act — Taxpayer claiming refund of overpayments of federal sales tax on ground of unjust enrichment — Claim dismissed by F.C.T.D. as overpayments subject to four-year limitation period in Excise Tax Act, s. 44(7.1) — Appeal decided on basis of six-year limitation period under Federal Court Act, s. 39, Crown Liability and Proceedings Act, s. 32 — Time starting to run from date of overpayment — No evidence taxpayer not at fault in failing to discover overpayment.
Trusts — Revenue Canada rejecting taxpayer’s refund request regarding certain sales tax overpayments — Taxpayer bringing action for unjust enrichment on basis of constructive trust — Only taxpayer’s claim for constructive trust as remedy to recover mistaken payments request for equitable remedy — Constructive trusts attaching to specific assets of defendant representing enrichment — Not charge on defendant’s general assets for amount of plaintiff’s claim — Has yet to shed all limitations flowing from proprietary character — Tracing still required to determine availability of constructive trust — Remedy of constructive trust not available as no evidence overpayments could be traced.
Restitution — Taxpayer seeking restitution of overpayments of federal sales tax — Claim barred by six-year limitation period — Not all restitutionary claims equitable in nature — Mistaken payments recoverable at common law by action for money had, received to use of plaintiff — Discoverability principle applicable to claims for restitution of money paid under mistake of fact — No evidence taxpayer failed to discover facts upon which cause of action based despite exercise of due diligence.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Crown Liability and Proceedings Act, R.S.C., 1985, c. C-50 (as am. by S.C. 1990, c. 8, s. 21), s. 32 (as am. idem, s. 31).
Excise Tax Act, R.S.C. 1970, c. E-13, s. 44(1)(a),(c), (7.1) (as am. by S.C. 1980-81-82-83, c. 68, s. 15).
Excise Tax Act, R.S.C., 1985, c. E-15.
Federal Court Act, R.S.C., 1985, c. F-7, s. 39(2).
Limitation Act, R.S.B.C. 1979, c. 266, s. 3(4), 14(2).
CASES JUDICIALLY CONSIDERED
NOT FOLLOWED:
Forest Oil Corp. v. Canada, [1997] 1 F.C. 624 (1996), 126 F.T.R. 119 (T.D.).
CONSIDERED:
Canadian Marconi Co. v. Canada, [1992] 1 F.C. 655 (1991), 85 D.L.R. (4th) 670; [1991] 2 C.T.C. 352; 91 DTC 5626; 137 N.R. 15 (C.A.); Chase Manhattan Bank N.A. v. Israel-British Bank (London) Ltd., [1981] Ch. 105; Federated Co-Operatives Ltd. v. Canada, [2001] F.C.J. No. 315 (C.A.) (QL); Westdeutsche Landesbank Girozentrale v. Islington London Borough Council, [1996] A.C. 669 (H.L.); Air Canada v. British Columbia, [1989] 1 S.C.R. 1161; (1989), 59 D.L.R. (4th) 161; [1989] 4 W.W.R. 97; 36 B.C.L.R. (2d) 145; 41 C.R.R. 308; 95 N.R. 1; 2 T.C.T. 4178; Air Canada v. Ontario (Liquor Control Board), [1997] 2 S.C.R. 581; (1997), 33 O.R. (3d) 479; 214 N.R. 1; 102 O.A.C. 1; Consumers Glass Co. Ltd. v. Foundation Co. of Canada Ltd. (1985), 51 O.R. (2d) 385; 20 D.L.R. (4th) 126; 30 B.L.R. 87; 33 C.C.L.T. 104; 13 C.L.R. 149; 1 C.P.C. (2d) 208; 9 O.A.C. 193 (C.A.).
REFERRED TO:
Milliken & Co. v. Interface Flooring Systems (Canada) Inc. (1996), 75 C.P.R. (3d) 481; 123 F.T.R. 269 (F.C.T.D.); Peel (Regional Municipality) v. Canada; Peel (Regional Municipality) v. Ontario, [1992] 3 S.C.R. 762; (1992), 98 D.L.R. (4th) 140; 12 M.P.L.R. (2d) 229; 144 N.R. 1; 59 O.A.C. 81; Harper v. Royal Bank of Canada (1994), 18 O.R. (3d) 317; 114 D.L.R. (4th) 749; 71 O.A.C. 237 (Div. Ct.); Soulos v. Korkontzilas, [1997] 2 S.C.R. 217; (1997), 32 O.R. (3d) 716; 146 D.L.R. (4th) 214; 46 C.B.R. (3d) 1; 17 E.T.R. (2d) 89; 212 N.R. 1; 100 O.A.C. 241; 9 R.P.R. (3d) 1; Air Canada v. Ontario (Liquor Control Board) (1994), 2 G.T.C. 7186 (Ont. Gen. Div.).
AUTHORS CITED
Goff of Chieveley, Robert Goff and Gareth Jones. The Law of Restitution, 5th ed. London: Sweet & Maxwell, 1998.
Maddaugh, Peter D. and John D. McCamus. The Law of Restitution. Aurora: Canada Law Book, 1990.
APPEAL from a Trial Division decision ((1998), 158 F.T.R. 101) dismissing taxpayer’s action for unjust enrichment on the ground that the four-year limitation period in the Excise Tax Act applied to both the statutory right to a refund and non-statutory claims for the restitution of overpayments of federal sales tax. Appeal dismissed.
APPEARANCES:
Dalton J. Albrecht for appellant.
Christopher M. Rupar for respondent.
SOLICITORS OF RECORD:
Fraser Milner Casgrain LLP, Toronto, for appellant.
Deputy Attorney General of Canada for respondent.
The following are the reasons for judgment rendered in English by
Evans J.A.:
A. INTRODUCTION
[1] In August 1988, Revenue Canada informed Michelin that the company had miscalculated its federal sales tax for the period 1984-87 and, as a result, had overpaid. Revenue Canada refunded these overpayments, but refused to refund the amount that Michelin had overpaid in the period 1983-84, on the ground that the Excise Tax Act [R.S.C., 1985, c. E-15] precluded the refund of overpayments made more than four years earlier.
[2] In April 1993, Michelin filed a statement of claim in the Federal Court to recover on the ground of unjust enrichment the overpayment that it had made in the period 1983-84. The claim was dismissed by Reed J. in the Trial Division [(1998), 158 F.T.R. 101], who held that the four-year limitation period for the recovery of refunds contained in the Excise Tax Act applied not only to the statutory right to a refund, but also to non-statutory claims for the restitution of money paid under a mistake of fact. Consequently, she did not have to consider whether, if Michelin’s restitutionary claim had not been barred by the four-year limitation period, it was in any event barred by the six-year limitation period that applies to actions instituted in the Federal Court, and to proceedings against the federal Crown.
[3] In my opinion, this appeal can be decided on the basis of the six-year limitation period. Two issues are raised. First, is the period inapplicable because Michelin is seeking equitable relief? Second, if it is applicable, did it start to run in 1988 when Michelin discovered its errors, rather than in 1984 when it made the overpayment? If time started to run in 1988, then the proceeding that Michelin instituted in the Court in 1993 was brought within six years and was not statute-barred. However, if time started to run in 1984, Michelin was out of time.
[4] For the reasons that follow, I have concluded that, even if Michelin’s non-statutory claim for the restitution of the 1983-84 overpayments was not subject to the four-year limitation period prescribed in the Excise Tax Act, it was subject to the six-year limitation period applicable to actions in the Federal Court, and against the federal Crown. Further, because time started to run against Michelin from the date of the overpayment, its statement of claim was time-barred.
[5] It is therefore unnecessary to decide whether Reed J. was correct to conclude that the four-year limitation period in the Excise Tax Act, as then drafted, applied to both the statutory right to a refund, and non-statutory claims for the restitution of overpayments of tax on the ground of unjust enrichment.
B. THE FACTS
[6] This litigation has proceeded on an agreed statement of facts. Those relevant to the disposition of this appeal are as follows.
[7] Revenue Canada commenced an audit of Michelin for federal sales tax late in 1987. This showed that, for the period June 30, 1984 to the end of August 1987, Michelin had overpaid by $1,104,092.80 and underpaid by $781,808.71. Accordingly, Revenue Canada issued a notice of assessment in August 1988, setting out the results of the audit and assessing Michelin for a net overpayment of $322,284.09.
[8] The mistakes made by Michelin in calculating its sales tax liability were attributable to a number of factors, including: miscalculations of taxable sales, arithmetical errors, overstatements of value, understatements of deductions, and the incorrect calculation of credits.
[9] As a result of the audit, Michelin became aware that it had also made mistakes in calculating its federal sales tax liability for the period June 1, 1983 to August 1984. The amount overpaid in this period was $63,324. However, by a notice of decision dated March 7, 1989, the Minister refused to allow Michelin’s objection that the notice of assessment did not credit it with this sum. The Minister was of the view that these overpayments were made more than four years prior to the date of the assessment and hence were time-barred by subsection 44(7.1) [as am. by S.C. 1980-81-82-83, c. 68, s. 15] of the Excise Tax Act, R.S.C. 1970, c. E-13.
[10] In June 1989, Michelin appealed the Minister’s decision to the Canadian International Trade Tribunal, alleging that the Excise Tax Act was not an absolute bar to its right to a statutory refund and, in the alternative, if it was, it did not curtail Michelin’s right to recover the overpayments on equitable grounds. In November 1991, the appeal was adjourned sine die at Michelin’s request, pending the release of a decision from this Court on whether the Minister had a discretion to extend the four-year time limit on statutory refunds.
[11] The Court held in Canadian Marconi Co. v. Canada, [1992] 1 F.C. 655 (C.A.) that the statutory time limitation was absolute and admitted of no discretion. In view of this decision and the Minister’s submission that the Tribunal had no jurisdiction to determine Michelin’s equitable claim for the recovery of its overpayment of tax, no further steps were taken to pursue the appeal.
[12] Instead, in April 1993, Michelin commenced an action for unjust enrichment in the Federal Court, which, as I have already noted, Reed J. dismissed. Michelin appeals to this Court from that decision.
C. THE STATUTORY FRAMEWORK
Excise Tax Act, R.S.C. 1970, c. E-13.
44. (1) A deduction from, or refund of, any of the taxes imposed by this Act may be granted
(a) where an overpayment has been made by the taxpayer;
…
(c) where the tax was paid in error;
…
(7.1) Subject to subsection (7), no refund of moneys paid or overpaid in error, whether by reason of mistake of fact or law or otherwise, and taken into account as taxes imposed by this Act shall be granted under this section unless application in writing therefor is made to the Minister by the person entitled to the refund within four years after the time the moneys were paid or overpaid.
Federal Court Act, R.S.C., 1985, c. F-7
39. …
(2) A proceeding in the Court in respect of a cause of action arising otherwise than in a province shall be taken within six years after the cause of action arose.
Crown Liability and Proceedings Act,
R.S.C., 1985, c. C-50
[as am. by S.C. 1990,
c. 8, ss. 21, 31]
32. Except as otherwise provided in this Act or in any other Act of Parliament, the laws relating to prescription and the limitation of actions in force in a province between subject and subject apply to any proceedings by or against the Crown in respect of any cause of action arising in that province, and proceedings by or against the Crown in respect of a cause of action arising otherwise than in a province shall be taken within six years after the cause of action arose.
D. ANALYSIS
[13] As I have indicated, the only issue that I need to decide in order to dispose of this appeal is whether Michelin’s non-statutory claim for restitution is barred by the six-year limitation period prescribed by section 39 of the Federal Court Act, R.S.C., 1985, c. F-7, and by section 32 of the Crown Liability and Proceedings Act, R.S.C., 1985, c. C-50.
[14] It is conceded that the overpayments in the period June 1983 to August 1984 were made more than six years before Michelin commenced its action for restitution in the Trial Division. Nonetheless, Michelin advances two arguments to support its position that its claim is not time-barred.
(i) Equitable Nature of the Relief
[15] Michelin argues that, since it is seeking equitable relief, the statutory prescription periods do not apply to its claim for restitution. Counsel relies for this proposition on Milliken & Co. v. Interface Flooring Systems (Canada) Inc. (1996), 75 C.P.R. (3d) 481 (F.C.T.D.). Even if this were a correct statement of the law, which I do not have to decide, Michelin’s argument cannot succeed in this case.
[16] First, it is not accurate to say that all restitutionary claims are equitable in nature because they can be classified as emanations of the general principle that the law will not permit a defendant to be unjustly enriched at the expense of the plaintiff. Thus, mistaken payments were typically recoverable through the common law action for money had and received to the use of the plaintiff. The recognition of the law of restitution as a distinct source of rights and obligations, and the generalisation of discrete claims, both legal and equitable in origin, by reference to the principle of unjust enrichment, are relatively recent phenomena in our legal system. See generally, Peel (Regional Municipality) v. Canada; Peel (Regional Municipality) v. Ontario, [1992] 3 S.C.R. 762, at pages 787-788; Peter D. Maddaugh and John D. McCamus, The Law of Restitution (Aurora: Canada Law Book, 1990), at pages 4-10, and 13-21.
[17] Thus, the fact that Michelin has framed its claim as one for restitution or unjust enrichment does not necessarily mean that the claim is for equitable relief. Only its claim for a constructive trust as a remedy to recover the mistaken payments is a request for an equitable remedy.
[18] Second, there is authority for the proposition that a court may impose the equitable proprietary remedy of a constructive trust in order to ensure that a defendant is not unjustly enriched by the receipt and retention of a mistaken payment: Chase Manhattan Bank N.A. v. Israel-British Bank (London) Ltd., [1981] Ch. 105; Harper v. Royal Bank of Canada (1994), 18 O.R. (3d) 317 (Div. Ct.). However, Michelin has not established the facts necessary to obtain this form of relief.
[19] In particular, a constructive trust will not be imposed unless the plaintiff can point to property in the hands of the defendant that is identifiable as the property, or its proceeds, that was transferred by or obtained from the plaintiff without a juristic reason, or that the defendant could not otherwise retain in good conscience. That is, the constructive trust attaches to specific assets of the defendant that represent the enrichment; it is not a charge on the defendant’s general assets for the amount of the plaintiff’s claim.
[20] Thus, after concluding in Chase Manhattan, supra, that a constructive trust was in principle available as a remedy for the recovery of money paid by the plaintiff under a mistake of fact, Goulding J. (at page 128) directed an inquiry as to what had become of the money “and what assets (if any), in the possession or power of the defendant, now represent the said sum or any part thereof”.
[21] The requirement that a constructive trust will only be imposed on property in the hands of the defendant that is identifiable as property that the defendant cannot conscionably retain was the basis on which this Court dismissed the appeal in Federated Co-Operatives Ltd. v. Canada, [2001] F.C.J. No. 315 (C.A.) (QL). In my respectful opinion, the Court in Forest Oil Corp. v. Canada, [1997] 1 F.C. 624 (T.D.) erred in imposing a constructive trust to enable the appellant to recover a mistaken payment without any inquiry to ascertain if the money that it had mistakenly paid, or its proceeds, could be identified in the hands of the Crown.
[22] I recognize that the constructive trust is rapidly emerging in Canada as a very flexible equitable remedy that may be imposed in a wide variety of contexts to prevent unjust enrichment and, more generally, to prevent individuals from keeping property that in good conscience they should not retain, particularly, for example, when the property was obtained by a wrongful act, such as the breach of a fiduciary duty: see, in particular, the judgment of McLachlin J. (as she then was) in Soulos v. Korkontzilas, [1997] 2 S.C.R. 217.
[23] Accordingly, it has been suggested that, when used simply as a remedy to prevent unjust enrichment and profiting from unconscionable conduct, the constructive trust may have lost its proprietary basis: Lord Goff of Chieveley and Gareth Jones, The Law of Restitution, 5th ed. (London: Sweet & Maxwell, 1998), at pages 84-89.
[24] Thus, in the course of a broad reformulation of some of the basic principles applicable to proprietary remedies in the law of restitution in Westdeutsche Landesbank Girozentrale v. Islington London Borough Council, [1996] A.C. 669 (H.L.), Lord Browne-Wilkinson (at pages 714-715) disapproved the reasoning, but not the result, in Chase Manhattan, supra, because it presupposed that the mistaken payer retained an equitable interest in the money when it was paid. This reasoning, he said, was inconsistent with the more flexible nature of the constructive trust when imposed as a remedy to prevent unjust enrichment. Thus, he concluded (at page 715):
Although the mere receipt of the moneys, in ignorance of the mistake, gives rise to no trust, the retention of the moneys after the recipient bank learned of the mistake may well have given rise to a constructive trust.
[25] However, despite its new-found flexibility as an equitable remedy, the constructive trust has not shed all the limitations that flow from its proprietary character. Thus, Lord Browne-Wilkinson did not suggest in Westdeutsche Landesbank, supra, that Goulding J. had erred in Chase Manhattan, supra, when he ordered an inquiry into whether the mistaken payment could be identified in the defendant’s assets. Such an inquiry would only have been ordered if Goulding J. had thought that tracing was still required to determine the availability of a constructive trust.
[26] Accordingly, since Michelin provided no evidence that its overpayments could be traced, the remedy of a constructive trust is not available to it on the basis of the agreed facts. As a result, it is unnecessary for me to consider the soundness of the premise of the appellant’s argument, namely that the constructive trust claimed here is not subject to the six-year limitation period because it is an equitable remedy.
[27] Counsel for the appellant also referred us to Air Canada v. British Columbia, [1989] 1 S.C.R. 1161 as a case where, although relief was ultimately denied, the Supreme Court of Canada appeared willing in principle to permit the recovery of tax paid under an unconstitutional statute, even though the claim included money paid outside the limitation period.
[28] However, the amounts claimed by Air Canada in that case went back to August 1, 1974 and the proceeding was commenced in the Supreme Court of British Columbia on July 30, 1980, just within the applicable limitation period: Limitation Act, R.S.B.C. 1979, c. 266, subsections 3(4) and 14(2). Pacific Western Airlines, one of the two plaintiffs that commenced related but separate actions that were heard at the same time as Air Canada’s, commenced its proceeding outside the limitation period. Nonetheless, since all the claims failed on other grounds, and the limitation point was not considered in the reasons for judgment of the Supreme Court of Canada, there is nothing here to assist the appellant.
[29] Finally, counsel relied on Air Canada v. Ontario (Liquor Control Board), [1997] 2 S.C.R. 581, where the Court permitted Air Canada to recover fees that it had been charged by the respondent under a statutory provision that was held to be inapplicable. In this case, the Supreme Court allowed the recovery of all the fees that had been paid including, apparently, payments made outside the limitation period.
[30] However, the limitation issue was not pleaded at trial ((1994), 2 G.TC. 7186, at para. 80, per Saunders J.), nor was it discussed by the Supreme Court of Canada. The Court’s reasons also give no indication that a constructive trust was the relief granted. I do not regard the references to equitable considerations relevant to the availability of a defence (Air Canada v. British Columbia, supra, at pages 1197 et seq., and 1207) as indicating that the Court regarded the relief sought by Air Canada as equitable. Accordingly, this case is not helpful to Michelin.
(ii) The Discoverability Principle
[31] In the alternative, counsel for Michelin submitted that if, contrary to his first argument, section 39 of the Federal Court Act applies to the appellant’s claim for restitution, it was commenced within the limitation period. His argument is that the limitation period only commenced in 1988 when Michelin discovered that it had overpaid federal sales tax in the period 1983-84. Therefore, since Michelin filed its statement of claim in the Federal Court in April 1993, it was within the six-year limitation period.
[32] Counsel submitted that it is a principle of general application, no longer limited to claims in tort, that time does not start to run against a plaintiff until it has discovered, or ought to have discovered by the exercise of reasonable diligence, that it had a cause of action. Thus, in Consumers Glass Co. Ltd. v. Foundation Co. of Canada Ltd. (1985), 51 O.R. (2d) 385 (C.A.), at page 398, the discoverability principle was said to apply to claims in both contract and tort. For the purpose of this appeal, I am prepared to assume that the principle can also apply to claims for the restitution of money paid under a mistake of fact.
[33] However, no evidence was led to establish that Michelin was not at fault in failing to discover, before Revenue Canada’s audit, that it had overpaid the amount of federal sales tax that it owed for the period 1983-84. Since a limitation period presumptively starts to run when the cause of action arises, in this case when Michelin made its overpayments, the plaintiff bears the burden of proving the facts required to postpone its commencement.
[34] In this context, I note that the original errors were apparently made by Michelin’s own staff who, presumably, had acted on company-generated information about the volume and value of the sales of the company’s products, and the related expenditures. No doubt it was not always easy to calculate the tax owing on the basis of this information, although I would observe that the sources of miscalculation included arithmetical errors and were discovered by Revenue Canada in the course of a routine audit. In any event, there was no suggestion that Michelin’s errors were the result of its having reasonably relied on erroneous information or advice supplied from outside the company.
[35] In the absence of further information in the agreed statement of facts about the circumstances in which the errors were originally made, or about the reasonableness of measures subsequently taken, or not taken, by Michelin to detect errors of this kind, Michelin has not proved that its failure, prior to August 1988, to discover the facts upon which its cause of action is based occurred despite its exercise of due diligence.
E. CONCLUSIONS
[36] For these reasons, I would dismiss the appeal with costs.
Rothstein J.A.: I agree.
Malone J.A.: I agree.