Catalyst Paper Corp v North Cowichan: Reasonable Enough

Chief Justice McLachlin, for a unanimous Supreme Court of Canada (7-0), has confirmed (see [2012] 1 SCR 5) that Canada’s municipal councils are entitled to consider a wide range of factors when making a decision with respect to the make-up of a particular taxation bylaw. What’s more, McLachlin CJ makes it clear that a municipal council need not provide formal reasons for its decision. Though she acknowledges that the “reasonableness” of a bylaw may be challenged in court, the Chief Justice adheres to the principle that the judicial power to quash a local bylaw is extremely narrow.

The claimant in this case, Catalyst Paper Corporation, makes paper – as opposed to catalysts, of course – and it does so with the help of industrial mills. The particular mill of interest is situated in the pristine District of North Cowichan on the southeastern shore of Vancouver Island. It is often said that Vancouver Island has it all – and, until recently, Catalyst Paper would have most likely agreed. When Catalyst Paper first set up shop, the island was packed with trees of the paper-producing variety and, being an island, it sat nice and close to the transportation-friendly ocean. The ocean and trees haven’t changed much since then (see your local environmentalist for a different opinion), but plenty else has changed in North Cowichan over the past few decades.

The biggest change was demographic, as a flurry of new residents sought serenity in the District. In turn, residential property values shot skywards – the value of Catalyst Paper’s industrial property, however, remained relatively stable. Instead of increasing residential property taxes to levels that would accurately reflect these new residential property values, the District’s Municipal Council decided to keep residential taxes low and jack up the tax rate on industrial properties.

By 2007, residential properties accounted for roughly 90% of the District’s total property value, but contributed only 40% of the total property tax revenue. Until it was repealed in 1984, a provincial regulation had provided that the ratio between residential and industrial property tax rates could not surpass 1:3. This ratio recently hit 1:20 in North Cowichan, placing it among the highest in British Columbia.

Catalyst Paper began lobbying for tax reform back in 2003. The District Council, in response, actually acknowledged the issue and agreed to gradually reduce the tax rates on major industrial properties. Unsatisfied, however, by the Council’s “gradual” commitment, Catalyst Paper turned to the courts. Herein lies the central issue facing the Supreme Court: to what extent do courts have the power to review – and, by extension, set aside – municipal taxation bylaws? On the one hand, Catalyst Paper argues that courts absolutely do have the power to set aside “unreasonable” city bylaws [see Dunsmuir]. On the other hand, the District contends that a court’s power to overturn a municipal tax bylaw is so narrow that it cannot be used to overturn something as simple a disproportionate tax burden.

McLachlin CJ agrees with Catalyst Paper in the sense that “reasonableness,” as opposed to “correctness,” constitutes the appropriate standard of judicial review, but she sides with the District as to the limited scope of such a review. In assessing the reasonableness of a municipal bylaw, McLachlin CJ writes that a court may consider both the “process” and the “content” of that bylaw.

Process: Catalyst Paper believes that the Council’s decision-making process was flawed because the city failed to provide formal reasons for its decision. In rejecting this argument, McLachlin CJ states quite clearly that Canada’s municipal councils are in no way required to provide formal reasons for its bylaws. “In any event,” she notes, “the trial judge found [that] the reasons for the bylaw at issue here were clear to everyone.” Indeed, the trial judge found that the Council did, in fact, consider and weigh a number of relevant factors in making its decision.

Content: Without question, the economic consequences of this bylaw are pointed and harsh. Though McLachlin CJ admits the severity of these consequences, she believes that the Council was entitled to consider a wide range of factors in making its decision. In particular, the Council took into account the impact that high property taxes would have on its fixed-income residents. Rather than ignoring Catalyst Paper’s complaints entirely, the Council actually set out a plan to move gradually towards a more equitable distribution of the tax burden. Ultimately, McLachlin believes that the bylaw favours residential property owners, but not unreasonably so.

A final thought for those disgruntled, socially conscious Torontonians out there rubbing their winter-cycling gloves together in anticipation of one day challenging a Ford Nation bylaw in court: this might be a good decision to read.

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