T-2639-85
Consumers Glass Company Limited (Plaintiff)
v.
Her Majesty the Queen in right of Canada
(Defendant)
INDEXED AS: CONSUMERS GLASS COMPANY LIMITED V.
CANADA
Trial Division, Cullen J.—Toronto, June 14;
Ottawa, June 29, 1988.
Restitution — Customs duties paid in error — Payments
returned under s. 46 Customs Act for duties paid within two
years — Whether balance refundable on basis of unjust
enrichment — As general rule, payments made under mistake
of law, rather than mistake of fact, cannot be recovered, unless
made under compulsion — Supreme Court of Canada having
recognized right to recover monies paid under mistake on sole
ground of unjust enrichment — Recovery not barred by s. 46
Customs Act as does not preclude action based on unjust
enrichment.
Customs and excise — Customs tariff — Customs duties
paid in error — Payments returned under s. 46 Customs Act
whereby recovery can be effected if application made within
two years — S. 46 not precluding action to recover balance of
monies paid on basis of unjust enrichment.
From 1979 to 1983, the plaintiff paid duties on glass-making
machinery parts, which could have been imported under Tariff
Items 42700-1 or 42700-6 duty free. The duties were paid
under a mistake of law. A redetermination was made pursuant
to paragraph 46(2)(b) of the Customs Act and duties remitted
for the two year period preceding the date of the refund, in
accordance with that provision. The plaintiff seeks reimburse
ment of the balance on the basis of unjust enrichment.
Held, the action should be allowed.
In a majority decision, the Supreme Court of Canada held, in
Hydro Electric Commission of Nepean v. Ontario Hydro, that
payments made under a mistake of law, rather than mistake of
fact, cannot be recovered unless 1) they were made under
compulsion or 2) they were made with respect to an illegal
transaction or contrary to statute, but the parties were not in
pari delicto. Dickson J. [as he then was] dissented, being of the
view that the distinction between mistake of fact and law is
meaningless, and that monies should be returned if, on general
principles of equity, it would be unjust not to do so. The
majority did not expressly disagree with the minority regarding
the principles of unjust enrichment. The issue was not raised
and would be difficult to apply to public bodies, as in that case.
The doctrine of restitution has been described as having the
following characteristics: 1) the existence of a special relation
ship between the parties, frequently contractual at the outset;
2) knowledge of the benefit on the part of the defendant and 3)
either an express or implied request by the defendant for the
benefit or acquiescence in its performance. The courts have
approached the question of unjust enrichment from various
premises, however it now appears that, in Canada, there is a
more generalized and fundamental principle of redressing
unjust enrichment, which may go beyond its English origins.
The Supreme Court of Canada recognized in County of Carle-
ton v. City of Ottawa the right to recover monies paid under
mistake on the basis of unjust enrichment. While the case
involved a mistake of fact, the basis for recovery rested solely
on the grounds of unjust enrichment. The strong dissent in the
Nepean Hydro case provides a solid basis for the relief sought
here.
Section 46 of the Customs Act, providing an administrative
scheme for recovery from the Department, does not prohibit an
action based on unjust enrichment, and therefore, does not bar
recovery.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Customs Act, R.S.C. 1970, c. C-40, s. 46(2)(6),(4)(b).
Customs Tariff R.S.C. 1970, c. C-41, Schedule A, Tariff
Items 42700-1, 42700-6 (as enacted by S.C.
1980-81-82-83, c. 67, s. 7(1)).
Excise Tax Act, R.S.C. 1970, c. E-13, s. 46.
Financial Administration Act, R.S.C. 1970, c. F-10, s.
17.
CASES JUDICIALLY CONSIDERED
FOLLOWED:
County of Carleton v. City of Ottawa, [1965] S.C.R. 663;
52 D.L.R. (2d) 220.
APPLIED:
Peel (Regional Municipality) v. Canada, [1987] 3 F.C.
103 (T.D.); Fibrosa Spolka Akcyjna v. Fairbairn,
Lawson, Combe, Barbour Ld., [1943] A.C. 32 (H.L.).
NOT FOLLOWED:
Hydro Electric Commission of Nepean v. Ontario Hydro,
[1982] 1 S.C.R. 347.
DISTINGUISHED:
Greenwood v. Bennett, [1972] 3 All E.R. 586 (C.A.).
CONSIDERED:
Re Kasprzycki and Abel (1986), 55 O.R. (2d) 536 (Dist.
Ct.); Jacobs (George Porky) Enterprises Ltd. v. City of
Regina, [1964] S.C.R. 326; Cooper v. Phibbs (1867),
L.R. 2 H.L. l49; Kiriri Cotton Co. Ltd. v. Dewani,
[1960] A.C. 192 (H.L.); Brook's Wharf and Bull Wharf
Ld. v. Goodman Brothers, [1937] 1 K.B. 534 (C.A.);
Nicholson v. St. Denis et al. (1975), 57 D.L.R. (3d) 699
(Ont. C.A.); McLaren v. The Queen, [1984] 2 F.C. 899
(T.D.); More (James) & Sons Ltd. v. University of
Ottawa (1974), 49 D.L.R. (3d) 666 (Ont. H.C.); Canadi-
an Institute of Mining & Metallurgy v. Canada,
T-898-78, Rouleau J., judgment dated 11/ 4 / 8 5, F.C.T.D.,
not reported.
REFERRED TO:
Deglman v. Constantineau, [1954] S.C.R. 725; [1954] 3
D.L.R. 785; Pettkus v. Becker, [1980] 2 S.C.R. 834; 117
D.L.R. (3d) 257; White et al. v. Canada Central Trust
Co. et al. (1984), 7 D.L.R. (4th) 236 (N.B.C.A.).
AUTHORS CITED
Gautreau, J. R. Maurice, Q.C., "The Renaissance of
Restitution" (Address to County of Carleton Law
Association, October 23, 1986) [unpublished].
COUNSEL:
John T. Morin, Q.C. for plaintiff.
Thomas L. James for defendant.
SOLICITORS:
Campbell, Godfrey & Lewtas, Toronto, for
plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
CULLEN J.: No evidence was called. The parties
hereto filed an agreed statement of facts as
follows:
1. The plaintiff Consumers Glass Company Limited ("Con-
sumers") is a corporation incorporated pursuant to the laws of
Canada, and carries on business of the manufacture of glass
with offices and facilities in the Province of Ontario and
elsewhere.
2. In connection with its business, Consumers imports into
Canada certain glass-making machinery parts, and has done so
since the early 1960's. During the period from April, 1979, to
May, 1983, the glass-making machinery parts imported by
Consumers included items identified as blunt steel casings for
bottle moulding machines, blowheads, funnels, guide plates,
guide rings, thimbles, bronze castings, sleeves, baffle ring stock,
take out tongs and holders (jaws), blanks and various other
parts and attachments for glass-making machinery (hereinafter
collectively referred to as the "Parts").
3. In the course of entering the goods into Canada, Consum
ers attended at the Customs house and therein rendered to the
customs officer its completed customs documentation and entry
forms in respect of which it paid Customs duties. At the time of
their entry into Canada, the aforementioned Parts were exempt
from Customs duties. However, Consumers paid the following
Customs duties in respect of the Parts during the period from
April, 1979, to May, 1983:
1979 $ 83,498.83
1980 131,750.33
1981 153,927.97
1982 90,809.12
1983 52,577.39
TOTAL $512,563.64
4. Prior to April, 1979, Consumers had been importing into
Canada glass-making machinery parts identical or similar in
nature to the Parts on a duty-free basis by obtaining remission
orders under Tariff Item 42700-1 of the statutory tariffs under
section 17 of the Financial Administration Act. In addition,
Consumers obtained a ruling from a Dominion Customs
appraiser in Hamilton on July 17, 1980, that such glass-making
machinery parts were admissible duty-free under Tariff Item
42700-6. The said Customs Appraiser also ruled that such
goods previously classified under Tariff Item 42700-1 as parts
of glass-making machines were also admissible under Tariff
Item 42700-6.
5. Tariff Item 42700-6 is a specific provision applicable to
glass-making machines, not including furnaces, and accessories,
attachments, control equipment and tools for use therewith,
and parts of the foregoing. The Parts could have been imported
into Canada on a duty-free basis had they entered Canada
under this Tariff classification, which came into effect on
January 1, 1980. Alternatively, the Parts could have been
imported into Canada under Tariff Item 42700-1, which would
have permitted Consumers to apply for a retroactive remission
order under the Machinery Program. Therefore, at the time of
importation the Parts were not subject to the payment of
Customs duties, and no such duties were ever owing or payable
by Consumers.
6. None of the Parts were imported under either of Tariff
Items 42700-1 or 42700-6. When the Parts were imported
Consumers or its agent paid Customs duties in accordance with
and in reliance upon tariff classifications accepted by Customs
officers acting on behalf of Her Majesty. Accordingly, Con
sumers mistakenly paid the Customs duties as set out in
paragraph 3 herein. It is agreed between the parties that for
purposes of the trial of this action Consumers paid such duties
as a result of a mistake of law, and not a mistake of fact.
7. The importation of the Parts was necessary for the mainte
nance of Consumers' equipment and machinery, without which
it could not have continued to manufacture the glass products
essential to its business. However, in this action Consumers
does not allege that such duties were paid or extracted under
practical or other compulsion, and Consumers by this agree
ment abandons any such claim or allegation referred to in its
Statement of Claim.
8. Upon discovering that the Parts had been imported into
Canada other than under Tariff Items 42700-1 or 42700-6,
Consumers submitted written requests to a Dominion Customs
Appraiser in the prescribed form for a redetermination or
reappraisal of the tariff classification, pursuant to paragraph
46(2)(b) of the Customs Act and Customs Memorandum
D-11-6-1, paragraph 6(a). As the result of these requests,
Consumers obtained refunds of Customs duties in the amount
of approximately $100,000.00.
9. In respect of the requests for a redetermination which were
denied by the Dominion Customs Appraiser, Consumers
applied to the Deputy Minister, Revenue Canada, on or about
May 8, 1984, for a redetermination of the tariff classification in
accordance with paragraphs 46(1)(a) and 46(4)(d) of the
Customs Act, and Regulations thereunder.
10. On or about July 16, 1984, the Deputy Minister acknowl
edged that the Parts should have been classified by Consumers
under Tariff Item 42700-6 and refunded to Consumers a
further sum of approximately $90,000.00 representing the Cus
toms duties paid in error by Consumers in respect of the Parts.
However, the Deputy Minister only refunded to Consumers the
duties mistakenly paid in the two-year period preceding the
date of the refund, from July 6, 1982, to July 6, 1984, as
provided for in section 46 of the Act.
11. In total, therefore, of the $512,563.64 paid by Consumers
which it did not by law have to pay in respect of the Parts,
Consumers has received a refund of approximately $190,000.00
for which it properly applied within the provisions of the Act.
12. It is agreed between the parties that by virtue of the
provisions of section 46 of the Act, the Deputy Minister did not
have authority to redetermine the tariff classification for those
goods in respect of which Consumers did not apply within two
years of their importation, and therefore could not grant a
refund of approximately $322,563.64.
13. The only issue between the parties to be determined by this
Court is whether Consumers is entitled to a refund of the
monies paid by it in error, based on the principle of unjust
enrichment.
ISSUE
The issue to be decided is whether the plaintiff
is entitled to a refund of $322,563.64, the balance
of the monies paid by it in error, on the basis of
unjust enrichment. The resolution of this issue
requires a determination of the following:
1. that monies paid under mistake of law are
recoverable pursuant to the restitutionary principle
of unjust enrichment; and
2. that recovery by Consumers is not barred by
the provisions of the Customs Act [R.S.C. 1970, c.
C-40] .
Special Note: I propose to make some general
comments on the subjects of mistake of fact, mis
take of law and the law of restitution before
dealing with the Supreme Court of Canada's deci
sion in Hydro Electric Commission of Nepean v.
Ontario Hydro, [1982] 1 S.C.R. 347. I recognize
that the implications of the Nepean Hydro deci
sion will have to be considered in regards to recov
ery of the payment made by the plaintiff before
proceeding with any type of discussion of the
principle of unjust enrichment. Very basically, the
majority of the Supreme Court of Canada found
that in absence of compulsion or an illegal transac
tion, the rule applicable on mutual mistake of law
operates to deny recovery of monies paid. In the
case before me the parites have agreed that the
customs duties were paid as a result of a mistake
of law and that there was no compulsion.
DISCUSSION
The underlying principle governing recovery of
benefits obtained by mistake was outlined by
Carnwath D.C.J. in Re Kasprzycki and Abel
(1986), 55 O.R. (2d) 536 (Dist. Ct.), at page 539:
It is a general principle in English and Canadian law that
money paid by mistake, subject to certain exceptions, is gener
ally recoverable. This principle had its beginnings in modern
law in the case of Kelly v. Solari (1841), 9 M. & W. 54, 152
E.R. 24. The principle is based on the theory that money paid
from a plaintiff to a defendant will be recoverable, if the
payment was not "voluntary". Thus a payment made because
the payer was mistaken and but for which the payment would
not have been made has been described as a payment that is not
"voluntary". The payment is dealt with as if the payer had not
truly intended to bestow a benefit upon the payee, to the effect
that the payee has been unjustly enriched. This type of pay
ment has been described in the case-law as a payment under
mistake of fact.
A distinction has been made between a belief
that is founded on a mistake as to the factual
circumstances explaining the payment and one
that is founded upon mistake as to the law that
applies to those circumstances. As a general rule,
payments made under a mistake of law alone,
cannot be recovered by the payer while payments
made under a mistake of fact can usually be
recovered. In Nepean Hydro (supra), Estey J.
explained the basis for this distinction, at page
412:
These authorities, both old and current, relating to the
situation where mistake of law alone is present, are founded, in
my respectful view, on good sense and practicality. Certainty in
commerce and in public transactions such as we have here is an
essential element of the well-being of the community. The
narrower rule applicable to mistake of law as compared to that
applicable to mistake of fact springs from the need for this
security and the consequential freedom from disruptive undoing
of past concluded transactions. Mistake of fact is, of course,
limited to the parties and has no in rem consequences; hence
the more generous view. In any event, nothing has been brought
to light in the review of the law by the parties on this appeal to
indicate any basis for the merging of the principles applicable
to the categories of mistake, and indeed the wisdom enbodied in
the authorities augurs for the maintenance of this ancient
distinction.
However, various lines of cases have evolved which
have managed to circumvent what has been
described as the "harshness of the mistake of law
rule". In some instances, courts have chosen to
classify the mistake as one of fact rather than law
(see Jacobs (George Porky) Enterprises Ltd. v.
City of Regina, [1964] S.C.R. 326) or they have
classified the mistake as a type of mistake of law
which relates only to private rights rather than to
the general law, i.e. the ordinary laws of 'the
country (see Cooper v. Phibbs (1867), L.R. 2 H.L.
149). The Courts have also looked to the defen
dant's conduct in relation to the mistaken transac
tion (see Kiriri Cotton Co. Ltd. v. Dewani, [ 1960]
A.C. 192 (H.L.), and the line of cases that grew
out of Kiriri which seemed to establish that where
the parties are not in pari delicto (on equal terms)
money paid under a mistake of law may be recov
ered). Lord Denning made the following com
ments, at page 204 of the Kiriri decision:
The true proposition is that money paid under a mistake of law,
by itself and without more, cannot be recovered back. James
L.J. pointed that out in Rogers v. Ingham [(1876), 3 Ch. D.
351, 355]. If there is something more in addition to a mistake
of law—if there is something in the defendant's conduct which
shows that, of the two of them, he is the one primarily
responsible for the mistake—then it may be recovered back.
Thus, if as between the two of them the duty of observing the
law is placed on the shoulders of the one rather than the
other—it being imposed on him specially for the protection of
the other—then they are not in pari delicto and the money can
be recovered back; see Browning v. Morris [(1778), 2 Cowp.
790, 792] by Lord Mansfield. Likewise, if the responsibility for
the mistake lies more on the one than the other—because he
has misled the other when he ought to know better—then again
they are not in pari delicto and the money can be recovered
back; see Horse v. Pearl Life Assurance Co. [1904 1 K.B. 558,
564] by Romer L.J. These propositions are in full accord with
the principles laid down by Lord Mansfield relating to the
action for money had and received.
Dickson J. (as he then was) at page 367 of his
dissenting judgment in Hydro Electric Commis
sion of Nepean described the Kiriri principle as
allowing a party to benefit from a protective stat
ute "and to recover money paid under a mistake of
law, where the law' in question is a statute whose
purpose is to protect his interests".
Hydro Electric Commission of Nepean v. Ontario
Hydro, supra:
Although there are various arguments which
can be raised to circumvent the "mistake of law
rule" one still has to contend with the majority
decision of the Supreme Court of Canada in
Nepean Hydro which preserved the traditional
distinction between recovery under mistake of law
and mistake of fact. In this case the municipality
of Nepean challenged billing charges by claiming
that Ontario Hydro lacked statutory authority to
demand payments. There was no legal, moral or
other obligation to make the payments, however,
Ontario Hydro exacted them and the municipality
paid them by mistake.
Both the majority and minority decisions are
worth reviewing as they contain an extensive anal
ysis of the requirements for recovery of payments
made under a mistake of law.
Majority decision: the majority agreed with the
decision of the lower courts and held that there
was no statutory authority to support the payment
scheme and that the money had been paid under a
mutual mistake of law. Estey J., for the majority,
made the following concluding comments, at page
411:
Mistake of law "without more" and without "something
more in addition" (in the words of Lord Denning in Kiriri,
supra, at p. 204) may be an allusion to the need to find
compulsion or illegality to introduce a right of recovery on the
happening of mutual mistake of law. In compulsion, recovery is
allowed as the payment is not made voluntarily and there is no
reason to suppose, only because of the fact of payment, that the
plaintiff had surrendered his right to recover his moneys paid
under practical compulsion. In the case of illegal transactions,
the concept of in pari delicto is introduced to determine
entitlement to recovery. In the absence of either of these
elements, the "something more in addition to a mistake of
law", supra, is missing, and the rule applicable on mutual
mistake of law operates to deny recovery.
The law applicable to the transaction in this appeal is not
that applicable to the recovery of payments made under duress
or to the recovery of moneys paid under an illegal transaction,
but rather the law applicable to the recovery of moneys paid
under the mutual mistake of law occurring in the absence of
either of the other two elements. Hence the rules for recovery
applicable with respect to illegality and compulsion are not
relevant. In such circumstances the exemptions relating to
illegal transactions are not operable. The principle of mistake
of law thus bars recovery of the moneys paid by the appellant.
At pages 395 to 398 of his reasons, Estey J.
examined the principles outlined in the Kiriri case,
where recovery might be possible where payment
was made under a mistake of law, namely:
1) by the defendant's conduct he is the one
primarily responsible for the mistake;
2) as between the two of them the duty of obeying
the law is placed on the shoulders of one rather
than the other;
3) the duty of observing the law is imposed on the
one for the protection of the other.
and then at page 399 indicated that even assuming
that the law was as it was enunciated in Kiriri, the
appellant had not brought itself within the law and
therefore the general principle of mistake applied.
In fact, Estey J. did not believe that the principles
in Kiriri were applicable to the case before the
Court and disposed of the case on other grounds.
Estey J. at page 400:
As noted above, the Judicial Committee of the Privy Council
in Kiriri, supra, purported to find the root for the variation of
the general law pertaining to the recovery of moneys paid under
mistake of law in the judgments of Lord Mansfield from 1760
to 1780. These are the cases to which reference was made
directly and indirectly: Smith v. Bromley (1760), 2 Doug. 696;
99 E.R. 441 (in notis); Browning v. Morris (1778), 2 Cowp.
790; 98 E.R. 1364; and Lowry and Another v. Bourdieu (1780),
2 Doug. 468; 99 E.R. 299. These judgments, however, concern
the rule invoked in actions for the recovery of moneys paid
under an illegal transaction.
He continued at page 407:
The appellant and the respondent had been participating in the
pre- and post-1966 scheme as part of their respective operations
under the Act. Each was mistaken as to the basis for the
scheme under that statute. The principles of law pertaining to
the rights of parties to illegal transactions has no application
because these relate to transactions contrary to public policy or
prohibited by statute. Such is, of course, not the case here. We
are concerned with unauthorized acts and mutual mistake with
respect thereto. The law of mutual mistake applies because in
the circumstances such a mistake occurred. Any exception to
the general rule barring recovery of moneys paid in an illegal
transaction when the parties are not in pari delicto does not
apply here because neither party has committed a delict and no
wrongful conduct in the sense of actions contrary to statute or
public policy has taken place.
Therefore, according to Estey J., the principles
applicable to mistake of law and illegality were
separate and therefore a claimant who made a
payment based on mistake of law (only) could not
use the in pari delicto argument as it was only
relevant in illegality of contract cases, not in cases
where there was only a mutual mistake. However,
Estey J. did indicate that there are two situations
where payments made under a mistake of law may
be recoverable, namely:
1) payments made under compulsion as the pay
ments were not voluntary; and
2) payments which were illegal or contrary to
statute on the ground that the parties were not in
pari delicto.
In the Nepean Hydro case, Estey J. found that
neither of these situations existed and therefore the
law of mutual mistake applied.
In the case before me the parties have agreed
that payment of customs duties was not made
under compulsion. Therefore, Estey J.'s comments
on page 408 would not be helpful to the plaintiff.
In fact, Estey J. made it clear that if the payments
had been made under compulsion they would be
recoverable whether or not there was a mistake of
law. In essence, the presence of mistake of law in
the compulsion situation would be irrelevant. (For
another case dealing with the recoverability of a
payment made under a mistake of law and under
compulsion see Peel (Regional Municipality) v.
Canada, [1987] 3 F.C. 103 (T.D.)).
As mentioned earlier, the issue of whether
monies paid under a mistake of law were neverthe
less recoverable on a specific fact situation was
dealt with by Carnwath D.C.J. in Re Kasprzycki
and Abel, supra. Carnwath D.C.J. found that the
payments made by the tenant pursuant to an
increase of rent declared void by statute were paid
under a mistake of law. However, these payments
were recoverable because they were made pursu
ant to an illegal contract in which the parties were
not in pari delicto. Carnwath noted that the Land
lord and Tenant Act [R.S.O. 1980, c. 232] was
created for the protection of tenants and therefore
the tenant fell within the class of persons designed
to be protected per the Kiriri case.
Dickson J.'s dissent: Dickson J. (as he then was),
in his dissenting judgment, examined in great
detail the many exceptions to the general principle
that money paid under a mistake of law is not
recoverable. Dickson J. felt that the distinction
between mistake of law and mistake of fact was
meaningless and that money should be returned if
on general principles of equity, it would be unjust
to retain it. He noted in the case before the Court,
that honesty and common justice required that the
defendant repay the plaintiff. Dickson J. made the
following comments, at pages 367-368:
Finally, the most significant judicial development in the area
of mistake of law is not an exception or qualification to the rule
but rather the resurgence in English and Canadian jurispru
dence of the doctrine of restitution or unjust (or unjustified)
enrichment. The Fibrosa decision, and Lord Wright's reasons
in particular, marked the "modern revival of restitution as a
flexible and growing system" (Waddams, The Law of Con
tracts (1977), at p. 213, n.6). Once a doctrine of restitution or
unjust enrichment is recognized, the distinction as to mistake of
law and mistake of fact becomes simply meaningless.
This Court has applied the doctrine of restitution or unjust
enrichment in the case of the Corporation of the County of
Carleton v. Corporation of the City of Ottawa, [1965] S.C.R.
663. In this case the County of Carleton had mistakenly paid
for the maintenance of an indigent whose maintenance, pursu
ant to by-law and agreement, was properly the responsibility of
the City of Ottawa. There was no discussion as to the existence
of a mistake of law (responsibility under the by-law or the
several agreements providing for social welfare) or a mistake of
fact (the solicitor for the County of Carleton had neglected to
include this particular indigent in a list of welfare cases deliv
ered to the City of Ottawa). The action was based and decided
upon the doctrine of restitution. Citing Lord Wright's famous
statement in the Fibrosa case Hall J. held at p. 669 that:
The respondent [City of Ottawa] by the act and fact of
annexation and by the terms of said Exhibit 11, para. 10
assumed responsibility for the social service obligations of the
appellant [County of Carleton] to the residents of the area
annexed, and the fact that one welfare case was inadvertently
omitted from the list cannot permit the respondent to escape
the responsibility for that case. To paraphrase Lord Wright,
it is against conscience that it should do so.
Therefore is there an alternative approach to
"ignore" the existence of a mistake of law and
decide the case on the basis of unjust enrichment?
Although I tend to agree with Dickson J. that once
the doctrine of unjust enrichment is recognized
this distinction between mistake of law and fact
becomes meaningless, I still think that because the
parties have agreed that the payment was made
under a mistake of law, the issue has to be
addressed in some way, especially given the
Supreme Court of Canada's decision in Nepean
Hydro, supra.
What is interesting to note and is of some
significance is that Estey J. in Nepean Hydro did
not expressly disagree with the position of the
minority regarding the principles of unjust enrich
ment. He did indicate, at page 412, that the issue
was not raised and commented, at page 413 that,
Neither has the authority to "accumulate" surplus assets or
resources. The concept of unjust enrichment is not easily
associated with these relationships.
Unjust Enrichment:
The principle of unjust enrichment can be
described at best as vague. A discussion of this
principle usually begins with the English Court of
Appeal decision in Brook's Wharf and Bull Wharf
Ld. v. Goodman Brothers, [1937] 1 K.B. 534
(C.A.). In this case the plaintiff was allowed to
recover customs duties it paid on furs which had
been imported by the defendant. Lord Wright
discussed the doctrine of restitution and indicated,
at page 545, that as between the plaintiff and the
defendant the obligation did not arise out of con
tract but instead:
The obligation is imposed by the Court simply under the
circumstances of the case and on what the Court decides is just
and reasonable, having regard to the relationship of the parties.
As indicated earlier, this passage was quoted and
applied by the Supreme Court of Canada in
County of Carleton v. City of Ottawa, [1965]
S.C.R. 663; 52 D.L.R. (2d) 220.
A few years later Lord Wright made the follow
ing much-quoted observation in Fibrosa Spolka
Akcyjna v. Fairbairn, Lawson, Combe, Barbour
Ld., [1943] A.C. 32 (H.L.), at page 61:
It is clear that any civilized system of law is bound to provide
remedies for cases of what has ben called unjust enrichment or
unjust benefit, that is to prevent a man from retaining the
money or some benefit derived from another which it is against
conscience that he should keep. Such remedies in English law
are generically different from remedies in contract or in tort,
and are now recognized to fall within a third category of the
common law which has been called quasi-contract or
restitution.
MacKinnon J.A. in Nicholson v. St. Denis et al.
(1975), 57 D.L.R. (3d) 699 (Ont. C.A.), (leave to
appeal to Supreme Court of Canada refused
[[1975] 1 S.C.R. x]), at page 701 made some most
insightful comments on Lord Wright's words and
on the doctrine of unjust enrichment:
The trial Judge acknowledged that the words were extremely
broad and general but he felt that the Court should not attempt
to whittle them down. Counsel for the plaintiff took the position
in this Court that these words really meant that it was totally
dependent upon the individual Judge's conscience as to whether
he considered the circumstances such as to give rise to the
remedy of unjust enrichment.
If this were a true statement of the docrine then the unruly
horse of public policy would be joined in the stable by a steed of
even more unpredictable propensities. The law of unjust enrich
ment, which could more accurately be termed the doctrine of
restitution, has developed to a give remedy where it would be
unjust, under the circumstances, to allow a defendant to retain
a benefit conferred on him by the plaintiff at the plaintiff's
expense. That does not mean that restitution will follow every
enrichment of one person and loss by another. Certain rules
have evolved over the years to guide a Court in its determina
tion as to whether the doctrine applies in any particular
circumstance.
It is difficult to rationalize all the authorities on restitution
and it would serve no useful purpose to make that attempt. It
can be said, however, that in almost all of the cases the facts
established that there was a special relationship between the
parties, frequently contractual at the outset, which relationship
would have made it unjust for the defendant to retain the
benefit conferred on him by the plaintiff—a benefit, be it said,
that was not conferred "officiously". This relationship in turn is
usually, but not always, marked by two characteristics, firstly,
knowledge of the benefit on the part of the defendant, and
secondly, either an express or implied request by the defendant
for the benefit, or acquiescence in its performance.
Therefore, MacKinnon J.A. associated the follow
ing characteristics with the doctrine of restitution:
1) the existence of a special relationship between
the parties, frequently contractual at the outset;
2) knowledge of the benefit on the part of the
defendant;
3) either an express or implied request by the
defendant for the benefit, or acquiescence in its
performance.
In Nicholson, a contractor (plaintiff) made
improvements to a building at the request of the
occupant in possession under an agreement of
purchase and sale. The contractor mistakenly
believed the occupant was the owner. After the
work had been completed, the occupant defaulted
on his agreement and on the agreement of pur
chase and sale. The owner (defendant) retook
possession and the contractor tried to recover the
outstanding payments from the owner on the basis
of unjust enrichment. The Court of Appeal found
that the principle of unjust enrichment did not
apply in this case. There was no agreement or
relationship with the defendant who had neither
encouraged the work nor had been guilty of any
wrongdoing. Further, the plaintiff had taken no
steps to ascertain the state of title or to secure his
rights under the Mechanics' Lien Act [R.S.O.
1970, c. 267].
Muldoon J. in McLaren v. The Queen, [1984] 2
F.C. 899 (T.D.), after quoting MacKinnon J.A. in
Nicholson, described "special relationship" at
pages 905-906 in the following terms:
What is that special relationship? It may be contractual,
fiduciary or matrimonial. It may be a very casual arrangement,
or an unenforceable contract. It seems to be the sine qua non of
success, but it is not an inevitable guarantee of success. A
special relationship is a factor in all but two of the cases, cited
here by counsel, in which the plaintiffs have succeeded. It is the
essential nexus between the defendant's words and conduct, and
the plaintiffs conferring of the benefit, in the following cases:
[Muldoon J. cited ten cases].
The claim of unjust enrichment has been made in other
cases, and failed, where the court found no nexus or special
relationship—or no adequate nexus—between the parties. The
cases cited here in this category are: Nicholson v. St-Denis et
al. ((1975) 51 D.L.R. (3d) 699 (Ont. C.A.)); Ledoux v.
Inkman et al., ([1976] 3 W.W.R. 430 (B.C. Co. Ct.)); Norda
Woodwork & Interiors Ltd. v. Scotia Centre Ltd. ([1980] 3
W.W.R. 748 (Alta Q.B.)).
Muldoon J. found that in the absence of any
special relationship, and on the evidence, the plain
tiffs action based on unjust enrichment could not
succeed. According to Muldoon J. the salient
factor in the case before him was the absence of
any special relationship.
In McLaren, supra, a rancher, hereinafter
referred to as the "occupant", mortgaged his land
in favour of the Industrial Development Bank and
his interest was subsequently foreclosed. The
Department of Indian Affairs and Northern De
velopment acquired title. The occupant began legal
proceedings to reclaim the land. The occupant was
allowed to remain in adverse possession while the
proceedings were in progress. It was during this
period that the plaintiff supplied seed and services
to plant the land. The plaintiff brought an action
to recover the value of the seed and services from
Her Majesty on the grounds of either agency of
necessity or unjust enrichment.
Based on the above-noted cases, it would seem
that in order to succeed in an action based on
unjust enrichment, the plaintiff will first have to
convince the Court that a special relationship
existed between itself and the defendant. However,
if the special relationship cannot be established,
the case of Greenwood v. Bennett, [1972] 3 All
E.R. 586 (C.A.) shows that an action in injust
enrichment can succeed without the existence of a
special relationship. Based on the contents of the
agreed statement of facts, I feel the Greenwood
case can easily be distinguished and as Muldoon J.
indicated in McLaren, at page 907:
That case [Greenwood] is an extension of the principle beyond
the circumstances of special relationship. If it evinces the
common law of Canada, which is highly doubtful, it neverthe
less is not applicable to the circumstances of the case at bar.
It should be noted that the courts have approached
the question of unjust enrichment from various
premises. One does not seem limited in the way
one choses to deal with the issue.
In More (James) & Sons Ltd. v. University of
Ottawa (1974), 49 D.L.R. (3d) 666 (Ont. H.C.),
Morden J., at page 676, quoted from Goff and
Jones, Law of Restitution (1966):
This principle [unjust enrichment] "presupposes three things:
first, that the defendant has been enriched by the receipt of a
benefit; secondly, that he has been so enriched at the plaintiffs
expense; and thirdly, that it would be unjust to allow him to
retain the benefit".
Morden J. applied the above-noted principles to
the facts and found that the plaintiff was entitled
to succeed in restitution, for the defendant would
be unjustly enriched if he were permitted to retain
the portion of the taxes paid by the plaintiff but
not included in the contract price. The plaintiff, a
building contractor, executed a construction con
tract with the University of Ottawa for the con
struction of a building. Under the terms of the
contract a reduction in taxes imposed on building
materials was to be passed on for the University's
benefit. However, the contract was silent as to the
allocation of tax increases. The provincial sales tax
was removed but at the same time an additional
federal tax was levied on building materials. By
the terms of the contract, the contractor was
required to pass on the reduction in provincial tax.
However, he was still required to pay the addition-
al federal tax. Under section 47A of the Excise
Tax Act [S.C. 1963, c. 12, s. 6 (as am. by R.S.C.
1970, c. E-13, s. 46)], the University applied for
and received from the federal government a tax
refund based on the added tax paid by the contrac
tor. The claim for recovery of tax paid was made
on the basis of unjust enrichment. Morden J. made
the following comments, at pages 676-677:
In my respectful view, the facts in this case clearly entitle the
plaintiff to recover on the basis of restitution. Undoubtedly the
defendant has been enriched by the receipt of a benefit—the
$9,094.54. I said enriched because this payment puts it in a
profit or windfall position. It is totally in excess of reimburse
ment. Secondly, this enrichment has been at the plaintiffs
expense. Notionally the defendant has received and holds the
plaintiffs money. Section 47A of the Excise Tax Act, by its
express terms, requires as a condition precedent to the payment
back of the tax that "the tax imposed by Part VI has been paid
in respect of those materials". The plaintiff paid this tax. But
for this payment the defendant would not have received the
moneys from the Government. It is taking direct advantage of
the plaintiffs payment. In my view it is clearly unjust for the
defendant to retain the benefit. The obligation which the law
imposes on the defendant does not spring from the Excise Tax
Act but from the principle of unjust enrichment.
On the other hand, Rouleau J. in Canadian Insti
tute of Mining & Metallurgy v. Canada, T-898-
78, judgment dated 11/4/85, F.C.T.D., not report
ed, noted, at page 6 that in order to succeed in an
action based on unjust enrichment, "the plaintiff
must satisfy the Court that there is an enrichment
on the part of the defendant, a resulting and
connected loss to the plaintiff and the absence of
legal justification for the enrichment of one at the
expense of the other".
This case involved an action to recover monies
spent by the plaintiff between 1969 and 1975 that
was in excess of the second class mail rate. During
the years in question, the postmaster had deter
mined that the lower rate, i.e. second class rate,
did not apply to the plaintiffs periodicals. How
ever, in 1975, the plaintiff convinced the postmas
ter that the second class rate applied to its periodi
cals. Rouleau J. found that there was no
contractual obligation between the parties on
which the claim could be based. With respect to
the unjust enrichment claim, he found that the
third element required for unjust enrichment,
namely the absence of legal justification, was not
present in this case.
Lastly, we have Strayer J.'s comment in Peel
(Regional Municipality), supra, at page 117, that
"the Deglman case, County of Carleton case and
the dissenting judgment in Nepean Hydro (the
substance of which was not rejected by the majori
ty, just thought to be unapplicable in that case) all
indicaté that in Canada there is now a more
generalized and fundamental principle of redress
ing unjust enrichment which may go beyond its
English origins and which informs [I think he
meant "forms"] or should [in]form any particular
judgment in this area".
The Academic View:
Counsel for the plaintiff made the point that:
The opinion of the overwhelming majority of learned authors is
that there is no justification for maintaining a distinction
between mistake of fact, pursuant to which money is recover
able, and mistake of law and that such distinction is unsupport
able. The distinction serves no useful purpose and commenta
tors have been unable to find any real basis for its existence:
Reference: Nepean, per Dickson J. at p. 210; Klippert, Unjust
Enrichment, at p. 152; S.M. Waddams, The Law of Contracts
(2nd ed. 1984) at p. 292.
J. R. Maurice Gautreau, Q.C. in a scholarly
discourse entitled "The Renaissance of Restitu
tion" delivered at Mont Ste-Marie on October 23,
1986 to the County of Carleton Law Association,
stated in part:
INTRODUCTION
There is a renaissance occurring in the law of restitution in
Canadian Courts. Whether it is uprooting an unjust enrichment
or imposing a fiduciary duty, our Courts are showing a willing
ness and an assurance that is as warming as it is mature. It may
be that we have entered a new era of equity. [Emphasis added.]
This is welcome because the reign of absolutism in the fields of
commerce and property has not left much room for consider
ations of fairness and good conscience. (For example Jirma
Ltd. v. Mister Donut (1975) 1 S.C.R. 2 in contract and
Murdock (1975) 1 S.C.R. 423 in property).
BASICS
The law of restitution:
1. Is a distinct body of law, independant of tort and contract;
2. Is a law of general application and not one of particular
instances; and
3. It has unjust enrichment as its basic rationale or primary
principle.
It is of particular value because of its flexibility and adaptabili
ty; in addition, its technical requirements of proof are lighter
and the remedies broader.
RESTITUTION IN GENERAL
An action founded in restitution is generically different from
an action founded in tort or contract and is now recognized to
fall within a third category of the common law which was once
referred to as quasi-contract or implied contract but which is
now properly called restitution or unjust enrichment ... . The
point here is that an action in restitution stands on its own and
does not have to be bent into the shape of a quasi-contract or a
quasi-trust.
The gist of such an action is obligation imposed by the ties of
natural justice and equity. It is designed to prevent a person
from retaining a profit or a benefit derived from another in
circumstances where it offends one's sense of justice and con
science that the person should be permitted to retain it.
The categories of restitution are never closed. It is a law of
general application and not one of particular instances so that
we do not have to fit a claim into a slot marked "quantum
meruit" or "money had and received" ....
Mr. Justice La Forest when he was on the New Brunswick
Court of Appeal wrote the judgment of the court on restitution
in White v. Central Trust Co. (1984) 7 D.L.R. (4th) 236. It is a
broadly sculpted and scholarly judgment and very welcome
because it illuminates and gives perspective to this field of law.
He stated that the well recognized categories of unjust enrich
ment must be regarded as clear examples of the more general
principle that transcends them. We are currently in a similar
poistion with regard to unjust enrichment as we are in relation
to negligence where we have for some time been abandoning
recourse to particularized duties in favour of a generalized duty
to one's neighbour. The principle of unjust enrichment was
created by the law to meet situations of obvious injustice and is
not to be frustrated by the technicalities of whether a particular
transaction calling for restitution arises out of a contract or not.
It transcends such distinctions.
UNJUST ENRICHMENT
Unjust enrichment in the usual case has three requirements:
(a) an enrichment;
(b) a corresponding deprivation, and,
(c) the absence of any juristic reason for the enrichment.
(Sorochan v. Sorochan S.C.C. July 31, 1986, unreported [since
reported at [1986] 2 S.C.R. 38]).
The requirements are fairly obvious. The benefit and depri
vation are simple questions of fact. The juristic reason justify
ing the retention of the benefit can be as simple as that a gift
was intended or that there existed an obligation, contractual or
otherwise, to give the benefit.
FLEXIBILITY
Flexibility is a key feature and value in the law of restitution
or unjust enrichment. In Sorochan, supra, the Supreme Court
repeated what it had said in Pettkus v. Becker, [1980] 2 S.C.R.
834, at 850-851:
The equitable principle on which the remedy of constructive
trusts rests is broad and general; its purpose is to prevent
unjust enrichment in whatever circumstances it occurs.
RECENT ILLUSTRATIONS
The Sorochan and White v. Central Trust Co. cases are two
good examples of modern Canadian approach. [Emphasis
added.] They declare and demonstrate the flexibility and
adaptability of restitutionary principles.
In White v. Central Trust Co., Mearle Smith claimed certain
securities from his step-children which he had given to their
mother and who, in turn, had given them to her children on her
death under her Will. Mr. Smith claimed them as his own. He
requested that they deliver them to him, which they did. One of
the elements involved was the understanding by the children
that they would inherit under his Will. When the children
delivered the securities, they also executed a release to the
mother's estate and to Mr. Smith as executor. When he died,
the children were not beneficiaries under his Will. They sued in
contract and for money had and received. The trial judge held
that there was no contract and, moreover, they had signed a
release.
The Court of appeal was not as certain that there was no
contract (the trial judge found a lack of necessary intent) but in
any event dealt with the claim from the basis of unjust
enrichment.
La Forest J.A. delivered the judgment of the court on the
question of unjust enrichment. (Angers J.A. concurred, but
delivered additional reasons dealing with the ineffectiveness of
the release. He held that it released the mother's estate but did
not extinguish the claim against Mr. Smith).
La Forest J.A. stated that the claim for restitution based on
unjust enrichment does not depend on the existence or non
existence of a contract and went on to say:
... the principle of unjust enrichment was created by the law
to meet situations of obvious injustice and it [is] not to be
frustrated by the technicalities of whether a particular trans
action calling for restitution arises out of a contract or not. It
transcends such distinctions. Indeed the technical antece
dents of restitution found in early common law causes of
action straddled later classifications such as contract ...
He further stated:
As I have tried to indicate the well recognized categories of
unjust enrichment must be regarded as clear examples of the
more general principle that transcends them. We are current
ly in a similar position with regard to unjust enrichment as
we are in relation to negligence where we have for some time
been abandoning recourse to particularized duties in favour
of a generalized duty to one's neighbour, although the pro
cess has not yet proceeded as far in the case of restitution.
The facts of the case in White bore similarities to previously
recognized unjust enrichment categories but it did not fit
squarely into any of them. This would not defeat the claim.
It is clear from the judgment of the Supreme Court of
Canada in Sorochan, supra, that technical rules have no stat
ure in situations of unjust enrichment and that the principles
involved are broad, general and flexible.
CONCLUSIONS
The First Issue:
My conclusion on the issue is that the law in
Canada is moving toward a revival of or a stronger
emphasis on the law of restitution on the basis of
unjust enrichment. Unjust enrichment offends
one's acceptance of that which is right and proper.
The law of restitution "is of particular value
because of its flexibility and adaptability, and in
addition its technical requirements , of proof are
lighter and the remedies broader": Gautreau,
supra. It meets Lord Wright's convictions in
Fibrosa (supra) [at page 61]:
It is clear that any civilized system of law is bound to provide
remedies for cases of what has been called unjust enrichment or
unjust benefit that is to prevent a man from retaining the
money of or some benefit derived from another which it is
against conscience that he should keep.
There is no question that the doctrine of unjust
enrichment is firmly entrenched and accepted in
Canadian law. See: Fibrosa Spolka Akcyjna v.
Fairbairn, Lawson, Combe, Barbour Ld., [1943]
A.C. 32 (H.L.); Deglman v. Constantineau,
[1954] S.C.R. 725, at pages 734-735; [1954] 3
D.L.R. 785, at pages 794-795; County of Carleton
v. City of Ottawa, [1965] S.C.R. 663, at pages
668-669; 52 D.L.R. (2d) 220, at pages 224-225;
Pettkus v. Becker, [1980] 2 S.C.R. 834, at pages
847-849; 117 D.L.R. (3d) 257, at pages 273-275;
White et al. v. Canada Central Trust Co. et al.
(1984), 7 D.L.R. (4th) 236 (N.B.C.A.), at pages
241-247.
Not to recognize the law of restitution based on
unjust enrichment is to ignore equity and equitable
remedies. I believe the law of England is much
stricter than the laws of Canada on this point, but
it is to the credit of Canadian jurisprudence that
recognition has been given to this equitable
solution.
I would be more wary of the conclusion had
Estey J. rejected out of hand the dissent in the
Nepean case (supra). However, his comments [at
page 412] are worth repeating here:
Since writing the foregoing I have had the opportunity of
reading the reasons of my colleague Dickson J. The thrust of
the appellant's submission was centred on the question as to
whether the parties to the mistake of las were in pari delicto.
Unjust enrichment is mentioned in its factum only with refer
ence to the argument that the appellant and the respondent
were not in pari delicto. In the course of argument the appel
lant, in response to a question from the Court, stated that it was
not urging and not founding its appeal on the abolition of the
distinction in law between mistake of fact and mistake of law.
Indeed, the rule was accepted, and the application sought in the
appellant's argument was that said to have been followed by
this Court in Eadie v. The Township of Brantford, supra.
Accordingly my considerations have been confined to the oper
ation of the doctrine of mistake of law as argued.
Before Nepean, the Supreme Court of Canada
had recognized in Carleton (supra), the right to
recover monies paid under mistake on the basis of
unjust enrichment, and while Carleton involved a
mistake of fact, the basis for recovery rested solely
on the Bounds of unjust enrichment.
The strong dissenting opinion in Nepean called a
tour de force by one author, was not rejected by
the majority decision and provides a solid basis for
the relief sought here.
Accordingly, the plaintiff is entitled to recover
the remaining monies, namely $322,563.64 duties
mistakenly paid by the plaintiff, plus interest.
The Second Issue:
Is recovery barred by the provision of section 46
of the Customs Act? Section 46 provides a method
for reappraisal or redetermination of a custom
officer's decision, and provides for an ultimate
appeal to the Deputy Minister, following which an
appeal to the Federal Court regarding the law is
possible. Here of course we have no disagree-
ment—all admit a mistake was made and an over-
payment of duties resulted.
This section provides an administrative scheme,
showing the approach that must be taken to effect
a recovery from the Department. It does not pro
hibit or preclude an action based on unjust enrich
ment. Should Parliament have intended to remove
that basic right to a court action, then it should
specifically provide for it in the legislation.
Because action in the courts is not prohibited, the
plaintiff is entitled to bring this action.
The plaintiff is entitled to its costs of this action.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.