2004 BCCA 410 Nanaimo Immigrant Settlement Society v. British Columbia

Before:	The Honourable Madam Justice Prowse
	The Honourable Mr. Justice Low
	The Honourable Mr. Justice Oppal

J.J. Arvay, Q.C. and M.G. Underhill	Counsel for the Appellants
E.C. Chiasson, Q.C. and B.W. Dixon	Counsel for the Respondent
Place and Dates of Hearing:	Vancouver, British Columbia
June 9-11, 2004
Place and Date of Judgment:	Vancouver, British Columbia
July 26, 2004

Written Reasons by:

The Honourable Madam Justice Prowse

Concurred in by:

The Honourable Mr. Justice Low
The Honourable Mr. Justice Oppal

Reasons for Judgment of the Honourable Madam Justice Prowse:

NATURE OF APPEAL

[1] The underlying issue in this appeal is the entitlement of Her Majesty the Queen in Right of the Province of British Columbia (the "Province") to retain "licence fees" paid by a class of charitable and religious organizations (the "appellants") between 1987 and 1998, with respect to bingo and casino gaming operations they conducted during that period. The appellants have challenged those fees as being unconstitutional and contrary to s. 207(1)(b) of the Criminal Code, R.S.C. 1985, c. C-46 (the "Code").

[2] The appeal and cross-appeal are from the order of a chambers judge, made December 10, 2003 pursuant to Rule 18A of the Rules of Court, B.C. Reg. 221/90, determining common issues under the Class Proceedings Act, R.S.B.C. 1996, c. 50 (the "CPA"). The chambers judge resolved the common issues and dismissed the appellants' class action for recovery of the casino and bingo gaming "licence fees". His order provides, in part, as follows:

AND THIS COURT ORDERS that the common issues are determined as follows:

1. Are the "licence fees" imposed by the Province on charitable gaming lawful or ultra vires the Lottery Act?

Answer: Lawful and not ultra vires.

2. Are the "licence fees" in substance a tax, and if so:

(a) Indirect and outside of the Province's power under sections 92(2) and (9) of the Constitution Act;

(b) Direct and yet contrary to section 207(1)(b) of the Criminal Code of Canada and, or otherwise, ultra vires or inoperative of the Province;

Answers: (2) The fees are a tax, but

(a) not indirect;

(b) direct, but not contrary to the Criminal Code.

3. Do the Amendments to the Lottery Act of 1998 and 1999 or the common law deprive either class, or some of the members of either class, from recovering "licence fees" paid to the Province;

Answer: Yes.

4. Are the claims of the plaintiffs and of the Class subject to a limitations defence and as a result statute-barred, in whole or in part.

Answer: No answer required.

AND THIS COURT FURTHER ORDERS that this action be and is hereby dismissed.

[3] The decision of the chambers judge may be found at (2003), 22 B.C.L.R. (4th) 308, 2003 BCSC 1852.

ISSUES ON APPEAL AND CROSS-APPEAL

[4] The appellants submit that the chambers judge erred in finding that:

(1) the "licence fees" imposed by the Province on charitable bingo gaming were direct, rather than indirect, taxes;

(2) the "licence fees" imposed by the Province on charitable casino gaming (and, if the bingo licence fees were direct taxes, on bingo gaming), were not inoperative as being contrary to s. 207(1)(b) of the Code; and

(3) the appellants' claim for recovery of the licence fees on restitutionary principles was barred by the common law.

[5] On the cross-appeal, the Province submits that the chambers judge erred in finding that the "licence fees" were taxes, rather than regulatory fees ancillary to a true regulatory scheme. They also submit that the appellants' claims are barred, in whole or in part, by provisions of the Limitation Act, R.S.B.C. 1996, c. 266.

RESULT

[6] I am not persuaded that the chambers judge erred in finding that the "licence fees" paid by the appellants with respect to their charitable casino and bingo gaming operations between 1987 and 1998 were direct taxes which did not offend s. 207(1)(b) of the Code. I do not find it necessary, therefore, to determine whether the licence fees, if unlawful, would have been recoverable by the appellants on restitutionary principles, or whether their claims were statute-barred.

[7] For the reasons which follow, I would dismiss the appeal and the cross-appeal.

RELEVANT LEGISLATIVE AND LITIGATION BACKGROUND

[8] The following chronology summarizes the legislative history of charitable and religious lottery operations in British Columbia:

(1) 1969 – The Code was amended to add the predecessor to s. 207 to permit limited forms of charitable and religious lotteries authorized by the provinces.

(2) 1970 – B.C. passed an Order in Council permitting it to conduct public gaming, and a small Licensing Branch within the Ministry of the Attorney General began issuing licences to charitable and religious organizations to conduct lotteries.

(3) 1974 – The B.C. Legislature enacted the Lotteries Act, S.B.C. 1974, c. 51 (renamed the Lottery Act in 1979, R.S.B.C. 1979, c. 249). Section 2(1)(d) of the Act authorized the responsible minister to regulate and licence certain persons to conduct lotteries as permitted under the Code and authorized the Lieutenant Governor in Council to make regulations and orders for the conduct of such lotteries.

(4) From the 1970s to the mid-1980s, licensing and imposition of licence fees were governed by the British Columbia Lottery Regulations, B.C. Reg. 651/76. From January 4, 1977 to April 1986, bingo licence fees were set at 1% of the total value of prizes if the total exceeded $20,000, or a flat fee if the total was less. During the same period, casino licence fees were set at 2% of the gross proceeds where the gross proceeds exceeded $5,000, or a flat fee if the proceeds were less.

(5) June 3, 1986 – The Provincial Secretary and Minister of Government Services issued Policy Directives Respecting Licensing of Lottery Events in British Columbia. Licence fees for bingo were set at 1% of gross receipts or a flat fee of $25, whichever was greater; and casino licences were set at 5% of gross receipts where the gross proceeds exceeded $1,000 and a flat fee where the gross proceeds were less.

(6) April 7, 1987 – The B.C. Gaming Commission was established by Order in Council 612/87. Another Order in Council of the same date (579/87) authorized the Gaming Commission to issue licences under the charitable gaming exemption in the Code. The Lieutenant Governor in Council also approved Terms and Conditions Respecting Licensing of Lottery Events in British Columbia which were adopted by the Gaming Commission. Those terms did not change bingo fees, but increased casino licence fees to 10% of the "win", that is, the difference between bets placed and payouts made (effective May 1, 1987).

(7) April 8, 1988 – Bingo fees were increased to 2% of gross receipts for all "A" licences.

(8) 1988 – Certain licence fee revenues began to be paid into the Consolidated Revenue Fund. (Until that time, lottery proceeds were paid into a provincial lottery fund and administration fees were paid out of that fund).

(9) June 5, 1992 – All licence fee revenues were directed to the Consolidated Revenue Fund pursuant to s. 9 of the Budget Measures Implementation Act, 1992, S.B.C. 1992, c. 3.

(10) October 31, 1997 - The Gaming Proceeds Distribution Regulation, B.C. Reg. 362/97 came into force whereby no licence fees were payable for charitable gaming licences until January 1998. The fees were reinstated in February 1998.

(11) June 1, 1998 – As of this date, the Gaming Commission no longer issued casino gaming licences (except for social occasion casinos) and as of July 1, 1998 bingo licence fees were no longer included in the terms and conditions of "A" licences.

(12) July 30, 1988 – The 1996 Lottery Act was amended by the Miscellaneous Statutes Amendment Act (No. 3), S.B.C. 1998, c. 37 (the "1998 Act"). The 1998 Act deemed as valid the regulations set out, licences issued, and fees imposed between 1987 and 1998 and had retroactive effect. The Act also immunized the government and Gaming Commission from legal action in relation to licences issued and fees imposed.

(13) July 15, 1999 – The Fee Statutes Amendments Act, S.B.C. 1999, c. 32 (the "1999 Act") was enacted which amended the 1979 and 1996 Lottery Act(s) by requiring fee payment in accordance with a schedule of fees identical to those previously in force, and permitting the money already paid pursuant to the earlier enactments to be applied against the retroactive fees imposed under the 1999 Act, as long as they were imposed in respect of the same matter.

(14) April 11, 2002 – The Lottery Act was repealed by s. 112 of the Gaming Control Act, S.B.C. 2002, c. 14, which incorporated the provisions of the 1998 Act.

[9] From the time the Gaming Commission was established in 1987, it determined that casino revenues should be split so that 50% went to the charities, 40% went to not-for-profit-operators and 10% went to government as "fees" to cover regulatory costs. For bingo, the Gaming Commission established a "fee" of 2% of gross sales of bingo cards sold at the door of bingo halls to prospective players.

[10] The revenues from casino and bingo gaming grew exponentially to the point that, by 1997, the Province's revenues from those gaming operations exceeded their regulatory costs by over $75 million.

[11] As representatives of charitable and religious organizations who managed and conducted casino and bingo events between 1977 and 1998, the appellants commenced action claiming declarations that certain licence fees imposed by the Province were ultra vires the Lottery Act in place at the relevant times, or ultra vires or inoperative the Province, and they sought an order for recovery of the fees collected since 1977.

[12] At the summary trial of the common issues before the chambers judge, the appellants conceded that the licence fees were intra vires the Lottery Act (the first common issue), and that the casino licence fees were direct taxes. They also limited their class claims to licence fees paid to the Province between 1987 and 1998.

[13] The extended history of the related proceedings which preceded this appeal is summarized in the reasons for judgment of Madam Justice Newbury, speaking for the Court, in Nanaimo Immigrant Settlement Society v. British Columbia (2001), 84 B.C.L.R. (3d) 208, 2001 BCCA 75. I will refer to only a few of those proceedings, as follows:

(1) January 14, 1998 - Nanaimo Community Bingo Assn. v. British Columbia (Attorney General) (1998), 52 B.C.L.R. (3d) 284 (S.C.). Owen-Flood J.: (a) held that the Gaming Proceeds Distribution Regulation, B.C. Reg. 362/97, was ultra vires the Attorney General of B.C. under s. 7 of the Lottery Act and (b) granted a declaration that the Province cannot receive, or authorize or require "for-profit" companies to receive, the proceeds of gaming that is managed and conducted by charitable and religious organizations in B.C. since to do so would be contrary to s. 207(1)(b) of the Code. Owen-Flood J. found that: "The intent of the Regulation is clearly revealed by its effect. The effect of the Regulation is to facilitate and bring about a sizable expansion of charitable gaming in British Columbia and so enable the Province to divert a large proportion of money raised by charitable or religious organizations, for charitable or religious purposes, to government coffers, namely, the Consolidated Revenue Fund." (Para. 24.)

(2) January 11, 1999 – Nanaimo Community Bingo Assn. v. British Columbia, [1999] B.C.J. No. 278 (S.C.). Hutchison J. ordered that the certification hearing be divided into two parts: the first, to determine whether the pleadings disclosed a cause of action; the second, to determine whether a class proceeding would be the preferable procedure for a fair and efficient resolution of the common issues.

(3) June 17, 1999 – Nanaimo Community Bingo Assn. v. British Columbia, [1999] B.C.J. No. 1637 (S.C.), Hutchison J. ordered that the claims of these appellants did disclose a cause of action and, therefore, could proceed.

(4) December 8, 2001 – Nanaimo Immigrant Settlement Society v. British Columbia, [1999] B.C.J. No. 2933 (S.C.). Hutchison J. held that a class action was the preferable procedure for deciding the constitutional issues common to the appellants’ claims and certified the action as a class proceeding.

(5) March 6, 2000 - Nanaimo Community Bingo Assn. v. British Columbia (Attorney General) (2000), 76 B.C.L.R (3d) 32, 2000 BCCA 166. On appeal from the decision of Owen-Flood J., the Province conceded that Owen-Flood J. was correct in finding that the Gaming Proceeds Distribution Regulation was beyond the scope of the Lottery Act. This Court allowed the appeal from the declaration made by Owen-Flood relating to the illegality of the Regulation "on the simple ground that no such declarations should ever be made. Either legislation is struck down or it is not struck down." (Para. 6.)

(6) February 6, 2001 – Nanaimo Immigrant Settlement Society v. British Columbia (2001), 84 B.C.L.R. (3d) 208 (B.C.C.A.). This Court upheld Mr. Justice Hutchison's decisions of June 17, 1999, [1999] B.C.J. No. 1637, and December 8, 1999, [1999] B.C.J. No. 2933, and permitted the class action to proceed.

DISCUSSION OF THE ISSUES

(1) Regulatory Fees or Taxes (The Cross-Appeal)

(a) Decision of the Chambers Judge

[14] The chambers judge framed this issue, at para. 23 of his reasons, as whether the licence fees "are in reality a direct tax, or alternatively a valid levy under s. 92(9) of the Constitution Act, 1867, as 'other Licences in order to the raising of Revenue for Provincial purposes.’"

[15] The principal decision relied upon by the chambers judge in addressing this issue was the judgment of Mr. Justice Bull in Re La Farge Concrete Ltd. and District of Coquitlam, [1973] 1 W.W.R. 681 (B.C.C.A.). At para. 67 of his decision the chambers judge quoted the following extract from p. 685 of the La Farge decision:

... In my view, the key lies in the question as to what is the primary and real purpose, or pith and substance, of the legislation –- is the levy or tax (whether direct or indirect by nature) merely ancillary, or adhesive, to the licensing scheme of regulating or prohibiting a trade, or is it essentially a fiscal imposition, or taxation, under a form of disguise or a colourable concept?

[16] The chambers judge found that, although the "licence fees" imposed for casino and bingo gaming were designed, in 1987-88, to be part of a true regulatory scheme for charitable gaming in the Province, the nature of those fees changed when it became apparent to the government that the income derived from the fees grossly exceeded the regulatory costs. He observed that by the time the 1999 Act was passed, the total surplus of revenues over expenses from bingo and casino gaming operations had grown to roughly $75 million. He concluded (at para. 66) that the licence fees had become a direct tax "at least by the time the funds were diverted to the Consolidated Revenue fund by the Budget Measures Implementation Act, 1992, supra".

[17] At para. 61 of his reasons, the chambers judge stated that the casino and bingo fees were valid and justified "as either ancillary to a true regulatory scheme under the Lottery Act or, if they yield amounts far beyond the defraying of the expenses of such a regulatory scheme, as direct taxes".

[18] The chambers judge went on, in obiter dicta, to refer to the alternate possibility that the fees could convert from a regulatory levy to an indirect tax. At para. 69 of his reasons, he stated:

If I be wrong that the tax here is not direct, but indirect, then the question is open for final resolution. But it cannot be, in my opinion, that once a regulatory scheme is fashioned by a province that levies fees that would be otherwise an indirect tax, as in Allard [infra], the revenues can go on substantially increasing over time so that the revenues may be paid to the Consolidated Revenue Fund. If such revenues continue substantially in excess of the amounts required to meet the costs of the scheme, the regulatory fees convert, when the facts become clear to legislators, to taxes. There must come a time of reckoning when such a province will be found to be ultra vires their constitutional powers for levying an indirect tax.

(b) Position of the Parties

[19] The Province relies on the chambers judge's initial finding that at the time the "licence fees" were implemented in 1987-88, they were designed to meet the costs of the regulatory scheme for casino and bingo gaming. The Province submits that the chambers judge erred, however, in finding that the pith and substance of the scheme "shifted" over time from purely regulatory to general revenue-based, with a corresponding change in the nature of the fees collected from true regulatory fees to taxes. In effect, the Province submits that, "once a regulatory fee, always a regulatory fee".

[20] The Province acknowledges, however, that when the licence fees were implemented in 1987-88 there was no valid provincial legislative authority in place authorizing the imposition of such fees. At that time, the Province was apparently of the view that such fees were authorized by s. 207 of the Code, which contemplated that the Lieutenant Governor in Council could issue licences regulating charitable gaming.

[21] When the Province subsequently recognized that specific provincial legislation was required to underpin and validate the "licence fees" collected between 1987 and 1998, it enacted the 1998 Act with retroactive effect. The Province submits that the sole purpose of the 1998 Act was to regularize and validate the "licence fees" collected from 1987 to that date, and that the 1998 Act did not change the nature of the fees collected from true regulatory fees to taxes.

[22] Similarly, the Province submits that the purpose and effect of the 1999 Act was not to change the nature of the "licence fees" collected since 1987 to taxes per se, but to offset the amount of fees collected since 1987 (as validated by the 1998 Act) against direct taxes imposed under the 1999 Act.

[23] In support of its position, the Province places particular reliance on the decision of the Quebec Court of Appeal in Villeneuve v. Quebec (Attorney General) (1996), 141 D.L.R. (4th) 431, leave to appeal to S.C.C. refused, [1997] 1 S.C.R. xii, which held that the Province of Quebec was entitled to retain, as public revenues, substantial, but unforeseen, surpluses arising from fees paid under the Automobile Insurance Act, R.S.Q., c. A-25.

[24] In reply, the appellants submit that even if the "licence fees" were designed to cover only the regulatory costs of charitable gaming in 1987-88 when they were implemented, that is of little significance since there was no legislation at that time authorizing their collection. They submit that it makes no sense to speak of the pith and substance of the 1987-88 regulatory scheme when no authorized scheme for collecting "licence fees" was in place.

[25] The appellants also submit that the Province clearly recognized the absence of a valid legislative base for the collection of the licence fees in 1998 when it passed the 1998 Act in an attempt to retroactively validate the collection of the "licence fees" since 1987. The appellants submit that it was apparent to the Province in 1998 that the amount of the "licence fees" collected grossly exceeded the regulatory costs and that the 1998 Act, therefore, must be viewed as retroactively imposing taxes rather than regulatory fees.

[26] The appellants submit that, in any event, the 1999 Act made it clear that the licence fees collected from 1987 forward were taxes, rather than regulatory fees. In their view, the passage of the 1999 Act is determinative of this issue against the Province.

[27] The appellants do not seek to uphold the chambers judge's reasons insofar as those reasons suggest that legislation may have a shifting "pith and substance" whereby a "licence fee" constitutional at its inception could become unconstitutional solely because the fees collected substantially exceeded the regulatory costs. They submit, however, that when the 1998 and 1999 Acts were passed, the Province knowingly stepped beyond the bounds of imposing mere regulatory fees into the realm of taxation, and that, with respect to bingo licence fees, it stepped into the unconstitutional realm of indirect taxation.

(c) Analysis

[28] The basis of the Province's claim on the cross-appeal is that the "licence fees" collected from 1987-88 for bingo and casino gaming constituted regulatory fees imposed pursuant to a true regulatory scheme. Counsel for the Province stated that the primary constitutional foundation for its claim was s. 92(9) of the Constitution Act, 1867, (U.K.), 30 & 31 Vict., c. 3, reprinted in R.S.C. 1985, App II, No. 5, taken in conjunction with ss. 92(7), (13) and (16).

[29] Those provisions are as follows:

92. In each Province, the Legislature may exclusively make Laws in relation to Matters coming within the Class of Subjects next herein-after enumerated; that is to say, —

. . .

(7) The Establishment, Maintenance, and Management of . . . Charities . . . in and for the Province . . . .

. . .

(9) Shop, Saloon, Tavern, Auctioneer, and other Licences in order to the raising of a Revenue for Provincial, Local, or Municipal Purposes.

. . .

(13) Property and Civil rights in the Province.

. . .

(16) Generally all Matters of a merely local or private Nature in the Province.

[30] The question of whether a particular fee is in the nature of a regulatory fee or a tax was dealt with by Mr. Justice Gonthier, speaking for the court, in Westbank First Nation v. British Columbia Hydro & Power Authority, [1999] 3 S.C.R. 134. In that case, the issue was whether s. 125 of the Constitution Act, 1867 prevented the Westbank First Nation from applying its assessment and taxation by-laws (passed pursuant to the Indian Act, R.S.C. 1985, c. I-5) to B.C. Hydro, an agent of the provincial Crown. (Section 125 prohibits one level of government from taxing the property of the other.) The issue was whether the by-laws imposed taxes or some other form of regulatory fee. Mr. Justice Gonthier set out the relevant approach to this issue at para. 30 of the decision:

In all cases, a court should identify the primary aspect of the impugned levy. This was the underlying current of the earlier cases on s. 125, which focussed on the "pith and substance" of the charge: [authorities omitted]. Although in today's regulatory environment, many charges will have elements of taxation and elements of regulation, the central task for the court is to determine whether the levy's primary purpose is, in pith and substance: (1) to tax, i.e., to raise revenue for general purposes; (2) to finance or constitute a regulatory scheme, i.e., to be a regulatory charge or to be ancillary or adhesive to a regulatory scheme; or (3) to charge for services directly rendered, i.e., to be a user fee.

[31] Later in his reasons, Gonthier J. summarized the various indicia of taxes and of regulatory charges, as follows (at paras. 43-44):

In order to determine whether the impugned charge is a "tax" or a "regulatory charge" for the purposes of s. 125, several key questions must be asked. Is the charge: (1) compulsory and enforceable by law; (2) imposed under the authority of the legislature; (3) levied by a public body; (4) intended for a public purpose; and (5) unconnected to any form of a regulatory scheme? If the answers to all of these questions are affirmative, then the levy in question will generally be described as a tax.

As is evident from the fifth inquiry described above, the Court must identify the presence of a regulatory scheme in order to find a "regulatory charge". To find a regulatory scheme, a court should look for the presence of some or all of the following indicia of a regulatory scheme: (1) a complete, complex and detailed code of regulation; (2) a regulatory purpose which seeks to affect some behaviour; (3) the presence of actual or properly estimated costs of the regulation; (4) a relationship between the person being regulated and the regulation, where the person being regulated either benefits from, or causes the need for, the regulation. This list is not exhaustive. In order for a charge to be "connected" or "adhesive" to this regulatory scheme, the court must establish a relationship between the charge and the scheme itself. This will exist when the revenues are tied to the costs of the regulatory scheme, or where the charges themselves have a regulatory purpose, such as the regulation of certain behaviour.

[Emphasis added.]

[32] In this case, the fees in issue have some characteristics of both a tax and of a regulatory fee. The focus on appeal, however, was on whether the pith and substance of the legislation imposing the fees was (1) to tax; i.e., to raise money for general purposes; or (2) to finance or constitute a regulatory scheme; i.e., to be a regulatory charge or to be ancillary or adhesive to a regulatory scheme. It is not suggested that the fees were in the nature of "user fees", which Gonthier J. described in Westbank as a "subset" of regulatory fees.

[33] In addressing that question, the appellants submitted that there was no nexus between the fees imposed and the cost of the regulatory scheme, and no serious attempt after 1987 (or even then) to match the fees to the cost of the charitable gaming regime. They submit that the only reasonable conclusion to be drawn at the time the 1998 Act was passed (and, a fortiori, by the enactment of the 1999 Act) was that the fees were intended to be a tax; that is, a method of raising general revenues.

[34] In that regard, it is common ground that, prior to the enactment of the 1998 Act, there was no valid legislative underpinning for the collection of the licence fees in issue. It is also common ground that the 1998 Act was designed to validate, retroactively, the scheme in place since 1987-88 whereby substantial monies, far in excess of the regulatory costs, had been collected by the Province. Finally, it is not disputed that, when it passed the 1999 Act, the Province intended to retain the amounts it had collected from 1987-1998 as taxes.

[35] I agree with the appellants that, at the time the 1998 Act was passed, the Legislature knew (or should have known): that the licence fees collected grossly exceeded the regulatory costs of the scheme; that there had been no serious attempt to match the fees collected to the cost of the regulatory scheme since their implementation; and that the revenues received had been directed to the consolidated revenue fund, in part, since early 1988, and, in full, since 1992. That being so, I have difficulty with the proposition advanced by counsel for the Province that the pith and substance of the 1998 Act was the retroactive validation of regulatory fees, rather than the retroactive imposition of taxes for the purpose of raising (or retaining) general revenues. In that regard, I reject the Province's submission that the pith and substance of the 1998 Act turns on the intention of the "regulators" in 1987-88.

[36] In my view, in the absence of valid legislative authority for the imposition of the fees prior to 1998, the nature of the fees imposed as of 1987 must be examined from the perspective of what was known by the Legislature at the time it retroactively imposed the fees. When that knowledge is taken into account, the inescapable conclusion is that what was validated in 1998 was the collection of taxes retroactive to 1987, not the collection of mere regulatory fees ancillary to a regulatory scheme.

[37] In my view, any residual doubt as to the nature of the fees collected dissolves with the enactment of the 1999 Act. The Province concedes that the 1999 Act imposed taxes, not regulatory fees. It did so by imposing a tax in 1999 equivalent in amount to the monies collected in casino and bingo gaming fees from 1987 to 1998, and by offsetting the amounts collected against the amount of the 1999 tax. Counsel for the Province would characterize this as offsetting regulatory fees against taxes; counsel for the appellants would characterize it as offsetting taxes against taxes. In either case, it is noteworthy that the government decided in 1998 to discontinue licence fees on bingo and casino gaming (with limited exceptions) with the result that the only taxes which were to be imposed under the 1999 Act were those already collected.

[38] I do not find the Villenueve decision to be of assistance with respect to this issue, not the least because that case did not present the problem encountered here of fees imposed in the first instance without legislative authority. Had there been valid legislation in place when the bingo and casino fees were initially imposed, the Villeneuve decision may have assisted the Crown in its argument that the fees were valid regulatory levies even if the proceeds significantly exceeded the regulatory costs and were used for general revenue purposes.

[39] Nor, in my view, does the decision of Allard Contractors Ltd. v. Coquitlam (District), [1993] 4 S.C.R. 371, assist the Province given the unusual, and markedly different, legislative and factual background in this case. (I will say more about the Allard decision later in these reasons in my discussion of direct and indirect taxes.)

[40] In the result, I am persuaded that the 1998 Act retroactively imposed taxes in the form of licence fees for the period 1987-1998, and that the 1999 Act ensured that the monies thereby collected could be retained as taxes. I would, therefore, dismiss the cross-appeal.

[41] The questions remain, however, whether the taxes on bingo gaming were of a direct or indirect nature, or, if the taxes were indirect, whether they were, nonetheless, supportable under s. 92(9).

(2) Bingo Fees – Direct or Indirect Taxes

(a) Decision of the Chambers Judge

[42] The chambers judge noted that the appellants had conceded that the "licence fees" on casino gaming were direct taxes. The appellants did not make the same concession with respect to the "licence fees" on bingo gaming, which, in their submission, were indirect taxes and unconstitutional as not falling under any of the heads of s. 92 of the Constitution Act, 1867.

[43] As earlier stated, the chambers judge decided that the bingo license fees constituted a direct tax. In so doing, he considered the appellants' submission that the tax on bingo gaming was essentially a commodity tax based on the sale of bingo paper in the following passage at paras. 60-61 of his reasons:

. . . [T]he plaintiffs argue that the fees levied against charitable bingo are based on the gross revenues from the sale of bingo cards to the players and thus are passed on to the players as an indirect tax. While the "fee" to the players is gauged by the cards sold to them, what a bingo player is interested in is playing a game of chance in the hope of winning a prize. The cards have no intrinsic value unless there is someone to give out markers, call the letters and numbers picked at random, and generally take charge of the game. The players pay for the excitement of the game.

In my view, it is the opportunity to game that is being sold and it is the opportunity to game that is being taxed. There is no commercial product headed for the marketplace. It is a single tax meant for a single entity, the licensee authorized to provide the opportunity to gamble. Analyzed in this fashion, there is no general tendency of the tax to be passed on within the meaning of the cases. I find that the bingo "fees" are justified as either ancillary to a true regulatory scheme under the Lottery Act or, if they yield amounts far beyond the defraying of the expenses of such a regulatory scheme, as direct taxes. [Emphasis added.]

(b) Position of the Parties

[44] The appellants submit that the tendency of the bingo tax is indirect because the bingo tax is related directly to the gross revenue from the sale of bingo paper. They say it is apparent that the tax has a tendency to be passed on to the players, whether or not it is passed on in practice. They liken it to a commodity tax which, in most cases, has been found to be an indirect tax which clings to the commodity (the bingo paper) and is generally passed on to the ultimate consumer. The appellants say this tax is no different than a tax on the vendor of tickets to sporting or theatre events, where the sports fan or theatregoer pays for a form of entertainment, and where one would expect the cost of the tickets to be passed on to the consumer.

[45] In support of their submission, the appellants place particular reliance on the decision of the Privy Council in The King v. Caledonian Collieries, Limited, [1928] A.C. 358, aff’g [1927] S.C.R. 257.

[46] In reply, the Province submits that the trial judge correctly identified the tax as having the tendency to be borne by the bingo operator, who can offset the cost by reducing the value of prizes or otherwise absorb the tax as a "cost of doing business". The Province supports the chambers judge's rejection of the argument that the tax in this case is similar to a commodity tax or similar to that imposed in Caledonian Collieries, supra. The Province also submits that comparing the tax on bingo gaming with the tax imposed on vendors of tickets to theatre or sporting events is of no assistance since the appellants have cited no authority for the proposition that the latter taxes are necessarily indirect.

(c) Analysis

[47] Section 92(2) of the Constitution Act, 1867 provides:

92. In each Province the Legislature may exclusively make laws in relation to . . .

(2) Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes.

[48] In this case, there is no dispute between the parties as to the difference between a direct and an indirect tax. The real issue is whether the chambers judge erred in his application of the law to the facts in finding that the tax was direct.

[49] The classic statement of the distinction between a direct and an indirect tax, which the Supreme Court of Canada has adopted, is that of John Stuart Mill in his work, Principles of Political Economy (1848), Book V, c. III, at p. 371:

Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons who, it is intended or desired, should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another; such are the excise or customs.

[50] It is common ground that the question of whether the tax is in fact passed on to someone other than the person on whom it is imposed is in no way determinative of whether the tax is direct or indirect. It is "the general tendencies of the tax and the common understandings of men as to those tendencies" which is relevant: see Canadian Industrial Gas & Oil Ltd. v. Saskatchewan, [1978] 2 S.C.R. 545 at 558 (per Martland J. for the majority) and at 582 (per Dickson J., as he then was, in dissent), quoting Bank of Toronto v. Lambe (1887), 12 App. Cas. 575 (P.C.).

[51] It is apparent from the authorities that determining whether the general tendencies of a tax are direct or indirect is not an exercise which lends itself to a "but, of course" answer. With the possible exception of certain classes of taxes which have been consistently held to be either direct or indirect, each case must be examined and determined on its own facts.

[52] In examining a particular tax to determine whether it is direct or indirect, the following indicia, referred to by Mr. Justice Gonthier in Reference re Quebec Sales Tax, [1994] 2 S.C.R. 715, at 725-27, are of some assistance:

. . . [O]ne indicium is whether the intention of the legislator as to who should bear the tax is clear. In the case of direct taxes, Viscount Simon recognized that "the taxing authority is not indifferent as to which of the parties to the transaction ultimately bears the burden, but intends it as a ‘peculiar contribution' on the particular party selected to pay the tax" (Atlantic Smoke Shops, Ltd. v. Conlon, [1943] A.C. 550, at p. 564). A related indicium of direct taxation is whether everyone knows how much tax they really pay (Mill, Book V, c. VI, cited with approval by Viscount Simon in Atlantic Smoke Shops; see also Attorney-General for Quebec v. Reed (1884), 10 App. Cas. 141 (P.C.)). At Confederation, the decision to limit the provincial legislatures to direct taxation was aimed at transparency and thought to enhance political accountability. Though the criterion of accountability may not be the central focus of the more recent jurisprudence pertaining to s. 92(2), transparency still serves to identify a tax as direct.

A third indicium, one of indirectness, was recognized by Rand J. in Canadian Pacific Railway Co. v. Attorney General for Saskatchewan, [1952] 2 S.C.R. 231. He pointed to the attachment of a tax to a good as a strong indication that the tax is indirect (at pp. 251-52):

If the tax is related or relateable, directly or indirectly, to a unit of the commodity or its price, imposed when the commodity is in course of being manufactured or marketed, then the tax tends to cling as a burden to the unit or the transaction presented to the market.

Thus, where the tax "clings" to the product in the sense that its amount attaches to the good and moves together with the good through the chain of supply, an element of indirectness may be present. The validity of Rand J.'s indicator is demonstrated most vividly by customs duties and excise taxes. This test was recently applied in Allard Contractors, supra, at pp. 394-98, to identify a volumetric fee on soil removal as an indirect tax.

. . .

The final proposition of relevance in determining the constitutional validity of the proposed value-added tax is that the nature of a tax is not affected by the system of collection [citations omitted]. The fact that a retailer collects the tax from a consumer on behalf of the government and then physically pays the money over to the government does not alter the characterization of such a tax as direct. The person intended to bear the burden of the tax, the consumer, is still the one who in reality pays it even though the retailer as agent for the government collects it.

[53] Mr. Justice Gonthier went on to observe, at p. 728, that "the provinces have come to enjoy considerable freedom in constructing their tax systems".

[54] As earlier noted, the appellants rely on Caledonian Collieries, supra. There, the Privy Council upheld a decision of the Supreme Court of Canada finding that a tax imposed pursuant to the Mine Owners Tax Act, 1923, S.A., 1923, c. 33, was ultra vires the Province as being an indirect tax. Under the Act, the owner of the mine was subject to a tax of 2% on the gross revenue from the mine. The Privy Council found that, while the tax was stated to be a tax on gross revenue, it was, in reality a tax on the sale of coal, "the subject of a commercial transaction". In finding that the tax was indirect, the Privy Council stated at p. 362:

Their Lordships can have no doubt that the general tendency of a tax upon the sums received from the sale of the commodity which they [the producers] produce and in which they deal is that they would seek to recover it in the price charged to a purchaser. Under particular circumstances the recovery of the tax may, it is true, be economically undesirable or practically impossible, but the general tendency of the tax remains.

[55] In this case, the appellants' argument hinges on the fact that the tax is imposed on the gross revenue from bingo, and, more importantly, that gross revenue is expressly tied to the sale of bingo paper (bingo cards). "Gross revenue" is defined in the Lottery Act, R.S.B.C. 1979, c. 249, as amended by the 1999 Act, as follows:

"gross revenue" means,

(a) in the case of a casino event, the revenue produced as a result of the gaming activity,

(b) in the case of a bingo event, the revenue derived from the sale of cards before the deduction of prizes and expenses and calculated on the basis of the retail sales value of bingo paper used less voided paper, and . . .

[56] The appellants submit that the fact that the gross revenue from a bingo event is tied to the sale of bingo paper makes this case analogous to the tax in Caledonian Collieries, supra. In their submission, the tendency of the tax imposed on the gross revenue is that it be passed on to the consumer (bingo player). They contrast this tax with the tax on the gross revenues from casino events, which are not tied to the sale of any particular "commodity".

[57] In my view, however, there is no true analogy between the sale of coal, or any other commercial commodity, and the sale of bingo tickets. Bingo paper is not a commodity; there is no commercial market in bingo tickets per se. For that reason, I do not find the commodity cases to be of assistance, except in their statement of general principles.

[58] It is clear, however, that what is being "sold" at these gaming events is of value in that it generates substantial revenues, both to the operators and, through the taxes paid, to the government. The chambers judge described what was being sold as "the opportunity to game". He found that the tax imposed was a single tax, meant for a single entity - the licensee authorized to provide the opportunity to gamble. Viewed in that fashion, he found that there was no tendency in law for the tax to be passed on.

[59] In these circumstances, and given the sui generis nature of the tax in question, I am not persuaded that the chambers judge erred in finding that the tax was direct; i.e. that it did not have a tendency to be passed on. In that regard, I note that the tax on casino gaming (which is admitted to be a direct tax) and the tax on bingo gaming are both based on gross revenue. For example, the fee "For a bingo event or ticket raffle licence issued to a charitable or religious organization …" is set out in Column 2 of the Fee Schedule to the 1999 Act (amending the 1979 Lottery Act) as “$25, or 1% of the gross revenue from the bingo event or the ticket raffle, whichever is greater". The fee "For a casino licence issued to a charitable or religious organization for the conduct and management of a lottery scheme involving casino games that are approved by the commissions at the time of issuance of the licence”, is also either a flat fee of $25 or $50, or 5% of gross revenue from the lottery scheme. Similar fees are set out in the amendments to the later Lottery Acts which were amended by the 1999 Act. Thus, while the gross revenue is defined differently in the Act for bingo and casino gaming, the method of taxing the gross revenue is essentially the same.

[60] I am not persuaded that the tax on the gross revenues from a bingo event is different in tendency from the tax on gross revenues from a casino event. In each case the "vendor" is selling the opportunity to game, and in each case the "purchaser" is purchasing a chance to win. While it may be expedient to calculate gross revenues in the case of bingo events by counting the number of cards sold, and that is not as readily done given the variety of "games" available in a casino event, I am unable to see a difference in principle between the two sources of revenue, or in their tendency.

[61] It seems unlikely that the Legislature intended any difference in taxing one revenue versus the other. They are both revenues from games of chance imposed upon the operator of the event. While the fact that the gross revenues are tied to the number of tickets sold at bingo events raises the spectre of an indirect tax, that is, one which has a tendency to be passed on to the consumer, I am unable to conclude that this is the purpose or effect of the tax. I also note that in some instances the tax for bingo events will be a flat fee, which is a factor generally signifying a direct tax. I agree with the chambers judge that the tax was intended to be borne by the operator of the event as part of the cost of doing business, or in this case, the cost of running the charity.

[62] In the result, I conclude that, like the tax on casino gaming, the tax on bingo gaming is a direct tax. I would, therefore, dismiss this ground of appeal.

[63] Because I have concluded that the bingo fees constitute a direct tax, it is not necessary to resolve the question of whether, if these fees constituted an indirect tax imposed in conjunction with s. 92(9), they were, nonetheless, valid. I will address that question only to the extent of referring briefly to Allard, supra. There, after reviewing several authorities which considered the scope of s. 92(9), Mr. Justice Iacobucci, speaking for the Court, stated (at p. 402):

In the above cases, decided either by this Court or the Privy Council, one can discern a consistent treatment of the scope of s. 92(9) of the Constitution Act, 1867. Although somewhat broad language was used by Lord Atkin in Shannon [British Columbia v. Lower Mainland Dairy Products Board, [1938] A.C. 708 (P.C.)], it appears generally true that s. 92(9), in combination with ss. 92(13) and (16), comprehends a power of regulation through licences. It is a power which is not confined to the requirement of direct taxation in s. 92(2). However, in so far as it comprehends indirect taxation, these cases -- either explicitly or upon their facts -- have limited the power of indirect taxation such that it can only be used to defray the costs of regulation. [Emphasis added.]

[64] Mr. Justice Iacobucci concluded that it had yet to be determined whether s. 92(9) encompassed a power to levy indirect taxes for the purpose of raising revenues in excess of regulatory costs.

[65] In this case, for the reasons I have given at paras. 14 to 40, I have concluded that the casino and bingo licence fees were not supportable as true regulatory fees under any combination of ss. 92(9), (7), (13) or (16). Thus, to the extent that the licence fees in this case could be viewed as indirect (rather than direct) in their tendency, they would not be supportable on the basis of the Allard decision.

[66] Further, since the issue of whether the licence fees in this case could be supported solely on the basis of s. 92(9) was not raised on this appeal, I adopt Mr. Justice Iacobucci's approach in Allard and leave that issue for another day.

(3) Are the Taxes contrary to s. 207(1)(b) of the Code

[67] Having concluded that the bingo and gaming licence fees constitute direct taxes, the next question is whether their imposition is contrary to s. 207 of the Code. Section 207, which is found under Part VII – "Disorderly Houses, Gaming & Betting", provides, in part:

207. (1) Notwithstanding any of the provisions of this Part relating to gaming and betting, it is lawful

(a) for the government of a province, either alone or in conjunction with the government of another province, to conduct and manage a lottery scheme in that province, or in that and the other province, in accordance with any law enacted by the legislature of that province;

(b) for a charitable or religious organization, pursuant to a licence issued by the Lieutenant Governor in Council of a province or by such other person or authority in the province as may be specified by the Lieutenant Governor in Council thereof, to conduct and manage a lottery scheme in that province if the proceeds from the lottery scheme are used for a charitable or religious object or purpose;

[Emphasis added.]

(a) Decision of the Chambers Judge

[68] The issue before the chambers judge was whether, assuming the licence fees on both bingo and casino gaming constituted direct taxes, they were illegal or inoperative under s. 207(1)(b) of the Code on the basis that they were "proceeds from the lottery scheme" which were not used “for a charitable or religious object or purpose”. The focus of submissions was on whether the words "proceeds from the lottery scheme" meant proceeds inclusive or exclusive of taxes. The chambers judge commenced his analysis of this issue at para. 33 of his decision:

The argument between the plaintiffs and the Crown is to be found in the meaning of the words "the proceeds from the lottery scheme". Are such proceeds to be net of expenses, inclusive of constitutional taxes, or gross proceeds without taking into account expenses? That was the same question facing the Texas Court of Appeals in Aerospace Optimist Club of Fort Worth v. Texas Alcoholic Beverage Commission, 886 S.W. 2nd 556 (1994). The provisions of the Texas Constitution, art. III, §. 47(b), before the court, were as follows:

The Legislature by law may authorize and regulate bingo games conducted by a church, synagogue, religious society ... [a number of other charitable organizations] or nonprofit organization supporting medical research or treatment programs.... The law must also require that:

(1) all proceeds from the games are spent in Texas for charitable purposes of the organizations....

[69] The Texas Court of Appeals held, at p. 561, that the phrase "all proceeds" meant "net proceeds after payment of reasonable, incidental, and necessary expenses". It also held that there was nothing in the legislation which expressly or impliedly prohibited the Legislature from taxing gross receipts from a bingo game and that, bearing in mind the broad taxing powers of the Legislature, it could impose a tax on the gross receipts.

[70] The chambers judge found this reasoning persuasive and held that "proceeds from the lottery scheme" under the Code had the same meaning as in the Aerospace Optimist Club decision, that is, it meant gross receipts less reasonable, incidental and necessary expenses and taxes.

[71] In coming to this conclusion, the chambers judge noted that in R. v. Furtney, [1991] 3 S.C.R. 89, the Supreme Court of Canada recognized the authority of the provinces to legislate in relation to gaming under various heads of s. 92, including property and civil rights (13), licensing (9), and maintenance of charitable institutions (7), as long as the provincial legislation did not clash with the Code. He found that there was no clash between the provincial laws taxing gross receipts of lottery schemes and s. 207(1)(b) of the Code if "proceeds from the lottery scheme" was interpreted as in Aerospace Optimist Club, supra.

(b) Position of the Parties

[72] On appeal, the appellants have modified their position to some extent. Rather than emphasize the words "proceeds from the lottery scheme" in s. 207(1)(b), they emphasize the words "are used for a charitable or religious object or purpose". In their submission, while it could be said that reasonable and incidental expenses, such as genuine licence fees, costs of concession items (including G.S.T.), rent, and other operating costs could be said to be "used for a charitable or religious object or purpose", taxes on gross lottery receipts do not fit that description. In their submission, while the former expenses could be seen as essential to the running of the lottery operation, in the sense that the lottery could not be run without incurring those expenses, the same could not be said of taxes.

[73] The Province submits that taxes are as necessary and incidental an expense of doing business (the lottery business) as licensing fees, rental payments and other administrative and operational costs, and that there is no principled basis for drawing the distinction between taxes and other expenses which the appellants now seek to draw.

(c) Analysis

[74] I agree with the chambers judge, essentially for the reasons given by him, that "proceeds of the lottery scheme" within the meaning of s. 207(1)(b) means proceeds net of reasonable and incidental expenses, including taxes. I see nothing in s. 207(1)(b) which suggests that Parliament intended to restrict in any way the right of the Province to tax lottery proceeds, even assuming that Parliament had such a power. Nor am I persuaded that because s. 207(1)(a) clearly permits the provinces to participate in the lottery business, they cannot exact a benefit under s. 207(1)(b) by way of taxes. The language of that section simply does not give rise to such a restrictive interpretation.

[75] I also reject the appellants' alternative submission that the words "used for a charitable or religious purpose" preclude the taxing of the gross proceeds from the lottery scheme. In my view, taxes are as much a cost of doing business as are licence fees, rental fees, and other expenses incidental to the running of the lottery. I agree with the Province that the appellants’ attempt to distinguish provincial taxes as an expense which cannot be deducted from gross proceeds, from other expenses incidental to the operation of the lottery which can be deducted, is artificial and unpersuasive. I reiterate that I find nothing in s. 207 of the Code which can reasonably be viewed as precluding the right of the Province to tax the proceeds from the lottery scheme.

[76] I would dismiss this ground of appeal.

CONCLUSION

[77] Since I have found that the licence fees are direct taxes which are not contrary to s. 207(1)(b) of the Code, it is unnecessary for me to consider the other issues raised in the appeal and cross-appeal.

[78] In the result, I would dismiss the appeal and the cross-appeal. Since the parties have enjoyed divided success, I would order that they bear their own costs.

“The Honourable Madam Justice Prowse”

I AGREE:

“The Honourable Mr. Justice Low”

I AGREE:

“The Honourable Mr. Justice Oppal”

Citation:	*Nanaimo Immigrant Settlement Society v. British Columbia,*
	2004 BCCA 410