IN THE SUPREME COURT OF

Citation: Catalyst Corporation v. Campbell River (City), 2009 BCSC 1752 Date: 20091221 Docket: S094249 Registry: Vancouver

Between: Corporation Petitioner

And

City of Campbell River Respondent

Before: The Honourable Mr. Justice Voith

Reasons for Judgment

Counsel for the Petitioner: Roy W. Millen Alexandra Luchenko

Counsel for the Respondent: Guy McDannold

Place and Date of Hearing: Vancouver, B.C. August 13 and 31, 2009

Place and Date of Judgment: Vancouver, B.C. December 21, 2009

Catalyst Paper Corporation v. Campbell River (City) Page 2

Overview

[1] The petitioner Catalyst Paper Corporation (“Catalyst”) challenges the legality of Tax Rates Bylaw No. 3383, 2009, adopted by the City of Campbell River (the “City”) on May 12, 2009 (the “Bylaw”). The focus of Catalyst’s application is the Class 4 Major Industry (“Major Industry”) property tax rate set by the Bylaw.

[2] Catalyst raises several distinct legal issues. Principally, however, it asserts that the rates of taxation imposed by the Bylaw on Major Industry property owners is unreasonable.

[3] The challenge advanced by Catalyst in this proceeding is one of four related proceedings. Catalyst has also commenced similar proceedings against each of the District of North Cowichan, the City of and the City of Powell River. Catalyst has very significant facilities and operations in each of these communities. Those various proceedings bear Action No’s. S094246, S094250 and S094317 respectively.

[4] These four proceedings were heard by me sequentially based on a schedule agreed to by the parties. Each of the proceedings has evidence unique to the particular matter. Most of the respondent local governments were represented by different counsel. In addition, several of the proceedings raise legal issues which are unique to that proceeding. In the main, however, the four proceedings raise a number of questions which are common to all four matters. Accordingly, the parties agreed that I was, in the first matter I heard, to create a set of Reasons which addressed the statutory framework as well as the legal issues that were shared by all four proceedings. Subsequent Reasons for the individual proceedings would follow and would consider the circumstances of the particular case in the context of those initial Reasons.

[5] The proceeding against the District of North Cowichan was heard first. On October 16, 2009 I gave Reasons in Catalyst Paper Corporation v. North Cowichan (District), 2009 BCSC 1420 (the “North Cowichan Reasons”). Those Reasons, as Catalyst Paper Corporation v. Campbell River (City) Page 3 agreed, created a central framework which addressed the legal issues that were common to all proceedings.

Background

Catalyst and its Operations

[6] Catalyst is the largest specialty paper and producer in Western North America. In addition to its operations in each of the respondent municipalities it has a recycling operation in , British Columbia. It has a further operation in .

[7] Catalyst owns a and at Elk Falls within the boundaries of Campbell River. This mill was established in 1952. As of December 31, 2008, the mill had 470 employees though most of these employees are currently on indefinite layoff as significantly reduced market demand has required that Catalyst curtail production at the mill.

[8] When the mill is operating it creates more than 1,100 jobs. This is approximately 8% of the workforce in Campbell River. Throughout the province, nearly 10,000 jobs are directly or indirectly dependent on Catalyst’s operations.

Catalyst’s Concern in this Proceeding

[9] A large majority of Catalyst’s property in Campbell River is categorized as Major Industry property. As such, Catalyst’s property tax bill is based primarily on the rate set by the Bylaw for Major Industry properties.

[10] The Bylaw imposes a tax rate on Major Industry property of $41.20 for every thousand dollars of assessed value. Class 1 Residential (“Residential”) property, by way of comparison, is taxed at a rate of $4.00 per thousand dollars of assessed value. Thus, under the Bylaw, the Major Industry rate is more than 10 times that of the Residential rate. The result of this is that 18.7% of the property taxes levied by the City are allocated to Major Industry, although in 2008, Major Industry properties accounted for only 3.4% of the total tax base in the City. Catalyst Paper Corporation v. Campbell River (City) Page 4

[11] Over a 20 year period from 1989 to 2009, the Residential tax rate per thousand dollars of assessed value has decreased by 25%. In that same period the Major Industry tax rate has increased by approximately 17%. According to the City’s evidence, Campbell River’s average Residential tax rates are $319.00 less than the average in “other communities”, though the record is not clear as to which communities were included in the analysis.

Catalyst’s Efforts to Address its Property Tax Rates

[12] Since at least 2004, Catalyst and its predecessors have sought to persuade Campbell River and the other municipalities where it operates that Major Industry tax rates were unreasonable and should be reduced. It developed a communications strategy which caused it to meet with, write to and make presentations to municipal officials on numerous occasions to express its grave concerns about the unsustainable property tax levels that were being imposed upon its facilities.

[13] As a corporate landowner, Catalyst cannot vote municipally though it is required to pay municipal taxes. Attempted dialogue or persuasion is one of the few options open to it. The cost of moving its mill from Campbell River is prohibitively expensive.

[14] Notwithstanding these various efforts at persuasion made by Catalyst over a half decade, Campbell River’s Major Industry tax rates remained largely static.

Catalyst’s Financial Circumstances

[15] In recent years, and in particular over the last 18 months, Catalyst has faced significant financial challenges. Its share price has fallen from approximately $7 per share in 2002 to approximately 16¢ a share in June of 2009. Its market capitalization has similarly declined from $1.2 billion in early 2002 to about $60 million in June 2009.

[16] The significant levels of municipal tax paid by Catalyst are exacerbating its difficulties. In 2007, Catalyst recorded an after-tax net earnings loss of $31 million, Catalyst Paper Corporation v. Campbell River (City) Page 5 which is approximately the amount of municipal tax that it paid that year. In total, over the five year period from 2004 to 2008, Catalyst posted an after-tax net loss of $186 million. During that same period, Catalyst paid $157 million in municipal property taxes in British Columbia. In 2008, the property tax it paid to the four municipalities where it operates on Vancouver Island and to Coquitlam amounted to one-sixth of all Major Industry taxes in the province.

[17] Catalyst has endeavoured to address its financial difficulties. It has reduced its workforce by about 1,000 employees in the last two years. It has moved its offices. It has curtailed production significantly. It has, as has been noted, curtailed operations at the Campbell River facility indefinitely with the results that all of its hourly staff and many of its salaried employees have been indefinitely laid off.

The Consumption of Services Report and Further Discussions

[18] In 2008, Catalyst sought to obtain the empirical data which would establish that it paid far more in municipal taxes than it was consuming in municipal services. Accordingly, it retained a team of consultants, with various types of expertise, to generate a credible report that would deal with, among other things, property tax rates and the services consumption patterns of the various property classes within the municipalities where Catalyst operates.

[19] The consultants developed a model to establish the empirical relationship between a municipality’s consumption of services patterns, cost of service delivery and property tax distribution. To prepare these models the consultants, to the extent possible, used methodologies established in earlier reports created by the City of Vancouver and the District of North Vancouver. The consultants also met with, and gathered significant community-specific information from each of the municipalities that they were addressing.

[20] The consultants’ Municipal Sustainability Model, City of Campbell River (“Campbell River Report”) was the first report completed by the consultants. Using information obtained from the City, as well as federal, provincial and other data, the Catalyst Paper Corporation v. Campbell River (City) Page 6 report analyses the City’s 2008 expenditures, line by line, and allocates them to the nine property classes according to their level of service consumption. The consultants completed a draft report in early March of 2009 and provided a copy to the City for its review and comment.

[21] Following delivery of the draft report, one of the consultants, MR. Fitzgerald, had numerous discussions with City officials about the report and its methodology. Virtually no substantive changes to the report arose as a result of these discussions.

[22] The Campbell River Report, it is fair to say, established that current property tax rates in Campbell River bear no relationship to the consumption of services by various classes.

[23] According to the Campbell River Report, Major Industry property owners in Campbell River paid a far greater proportion of taxes relative to other classes when compared to the percentage of services they consumed as a class. Major Industry property comprised 3% of the total assessed value of land in the City and consumed approximately 5.2% of the total municipal services provided by the City in 2008. In the same year, Major Industry properties paid taxes representing 26% of the total property taxes levied by the City. If one focuses on Catalyst alone, its consultants estimated that it consumed approximately 4.7% of the municipal services provided by the City in 2008.

[24] These conclusions are a function of the fact that Catalyst’s Campbell River operations are a relatively modest user of municipal services. Its facilities have a deep seaport adjacent to its site. Virtually all inputs are delivered to it by water and outbound pulp and paper is transported by ship. Its mill does not use the municipal sewer system as it has a separate waste management system on site. Virtually all water used by its mill is delivered using Catalyst’s own pumping system and pipes.

[25] By contrast, in 2008 Residential property owners in Campbell River consumed a higher percentage of services than their percentage contribution to property taxes. That group comprises 84.5% of City property assessments and Catalyst Paper Corporation v. Campbell River (City) Page 7 consumed approximately 58.7% of City services, but paid only 50.3% of City taxes in 2008.

[26] Similarly, Class 6 Business properties consumed far more, on a percentage basis, than they paid in taxes. Business properties paid only 20% in taxes, but consumed approximately 31.3% of City services.

[27] Catalyst’s consultants estimated that Catalyst consumed about $1 million worth of City services in 2008 while paying $4.76 million in City property taxes for municipal purposes. Each of the Residential and Business classes are taxed at considerably less than the cost of services they consume, leading to the conclusion that Major Industry provides a significant subsidy towards the municipal services consumed by property owners in other classes.

[28] Throughout the fall of 2008 and spring of 2009, Catalyst continued to meet with municipal officials. It met with the mayors of each of the communities where it operates. It met with the Minister of Community Development and the Minister of Forests. It generated and distributed a brochure for the residents of the communities where it operates explaining its circumstances and its property tax concerns. It consistently expressed that it could not sustain the levels of property taxation to which it was subject.

The Tax Rates Bylaw

[29] As previously noted, the Bylaw was adopted on May 12, 2009. The Bylaw sets the property tax rates applicable to the nine provincially prescribed property classes. Of particular note are the following rates established by the Bylaw:

Property Class Total Municipal Tax Rates Rated to Class 1 (General and Debt plus Library) 1 Residential 4.0086 1.000:1 4 Major Industry 41.2082 10.279:1 5 Light Industry 13.1882 3.289:1 6 Business and Other 13.1882 3.289:1 Catalyst Paper Corporation v. Campbell River (City) Page 8

[30] Pursuant to the Bylaw, the City has assessed property taxes to Catalyst in the aggregate amount of $6.2 million. Of this amount, $4.8 million is for City municipal purposes. Catalyst has only paid $1.5 million of that figure.

Issues

[31] Catalyst has raised the following distinct questions:

(a) Are the rates of taxation imposed by the Bylaw on Major Industry property owners unreasonable?

(b) Is the Bylaw inequitable?

(c) Is the Bylaw ultra vires the City because it does not accord with the ratios prescribed by the Municipal Tax Regulation, B.C. Reg. 426/2003?

Standing

[32] Section 262 of the Local Government Act, R.S.B.C. 1996, c. 323, permits an interested person to apply to have a bylaw set aside for illegality. Catalyst is resident in the City and owns a large proportion of the Major Industry property in Campbell River. As a taxpayer Catalyst is an interested person with standing to challenge the Bylaw.

Analysis

[33] The North Cowichan Reasons addressed a number of specific issues which are directly relevant to this proceeding. In particular, paragraphs 24 to 93 of the North Cowichan Reasons should be incorporated mutatis mutandis into these Reasons in order to properly consider the issues now raised by Catalyst. Catalyst Paper Corporation v. Campbell River (City) Page 9

a) Are the Rates of Taxation Imposed by the Bylaw on Major Industry Property Owners Unreasonable?

[34] As discussed more fully in the North Cowichan Reasons, at paragraphs 45 to 52, Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, described the necessary content of a reasonable administrative decision. Specifically, the Court said at paragraph 47:

47. ...In judicial review, reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision- making process. But it is also concerned with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law.

[35] In this case, Catalyst says both aspects of the Dunsmuir formulation are engaged. It says the Bylaw is not rationally supported in that there is no logical connection between the municipal purposes underlying the Bylaw and the Bylaw itself. In advancing this proposition, Catalyst is primarily concerned with the fact that one cannot discern how the City arrived at the results contained in the Bylaw.

[36] Catalyst also says that the Bylaw, in result, is outside of the “range of possible acceptable outcomes which are defensible in respect of the facts and law”. In advancing the second proposition, Catalyst says that the Major Industry rates established by the Bylaw are so excessive that they cannot be supported regardless of whether the decision-making process relied on by the City to arrive at that result is rational or not.

[37] A very significant component of Catalyst’s submissions focussed on the Campbell River Report and the fact that the tax rates paid by Catalyst bear no relationship to the services it consumes. In paragraphs 82 to 93 of the North Cowichan Reasons, I dealt with why, in my view, Council was under no statutory or other compulsion to fix tax rates in the Bylaw with reference to the services consumption pattern of a particular class of property owner. In addition, the use of a services consumption model, without more, provides a lens which is far too narrow Catalyst Paper Corporation v. Campbell River (City) Page 10 to properly reflect the breadth of the considerations which Council addresses when fixing municipal property tax rates.

[38] In The North Cowichan Reasons at paragraphs 57 to 67, I also dealt with what evidence had to be before the court in order to properly consider whether a decision made under s. 197 of the Community Charter, S.B.C. 2003, c. 26 was reasonable.

[39] In this case, Council had before it, and can reasonably be taken to have considered, a considerable body of information.

[40] Council had before it the various materials and correspondence it had received from Catalyst outlining its position and concerns. It also had the Campbell River Report dealing with Catalyst’s consumption of municipal services.

[41] Campbell River’s City Manager and its General Manager of Financial Services prepared a report dated March 15, 2009, which analyzed the Campbell River Report and its conclusions. They concluded that, “at this time, the concept of the Consumption Based Property Tax Distributions Model must be rejected due to the weaknesses mentioned”. Some of the concerns advanced in this report appear to be misconceived. This would pertain, for example, to the views expressed by the authors on Catalyst’s fire insurance. Other comments, however, are properly grounded. There is a recognition, for example, that none of the communities within which Catalyst operates were prepared to adopt a consumption model. Furthermore, there is a recognition that implementation of such a model would reduce the taxes obtained from Major Industry from approximately 26% to 3.4% of all municipal taxes collected. The financial consequences of giving effect to a consumption model was an entirely legitimate or proper consideration for Council. Thus, leaving aside the fact that there existed no legal imperative which required the adoption of, or adherence to the results generated from a municipal services consumption model, Council did consider the Campbell River Report as well as an internal report which recommended rejection of its application. Catalyst Paper Corporation v. Campbell River (City) Page 11

[42] Council would have been aware that in 2004, the City adopted a five point Action Plan aimed at reducing the share of taxation collected from Major Industry properties. That Plan established the following distinct policies:

• There was to be no additional taxation on new capital investment in the Major Industry classification unless the Major Industry tax rate multiple was less than four times the Residential rate.

• The target percentage of taxes from Major Industry was to be less than 25% of the total levy with a goal of attaining this target by or before 2010.

• Where production capacity was removed from Major Industry, recognition was to be given to lowering the amount of the property taxation levy from the Major Industry class based on the taxable assessment reduction provided by the British Columbia Assessment Authority.

• Any additional taxes received from new investment in Class 2 (Utilities) was to be used to reduce Major Industry’s share of the tax levy until the share of the Major Industry tax levy was less than 25% of the total tax levy or the Major Industry tax multiple was less than four times the Residential rate, whichever came first.

• Council was to work with other local governments and Major Industry partners to engage in discussions with the provincial government on providing local governments with other sources of revenue in order to lower local government dependence on property taxation.

[43] Council would have been acutely aware of the particular circumstances facing the City and its constituents in the spring of 2009. Mr. Halstead, the Corporate Officer and General Manager of Campbell River, has deposed that:

For the 2009 taxation year the Council of the City of Campbell River encountered a “perfect storm” of declining taxation and other revenues and unavoidable increased expenditures. The City of Campbell River faced a $4.4 million budget shortfall as a result of a combination of revenue losses from Catalyst Paper Corporation v. Campbell River (City) Page 12

the TimberWest Sawmill closure and the downturn in the local development environment as well as rising contract, service and labour costs.

[44] In recognition of the difficult financial circumstances facing Council, the City established a Financial Task Force on Major Industry Revenue Loss. That Task Force, apparently established in February 2009, was to provide recommendations to Council on, inter alia, how to adapt to a major loss in tax revenue. The Task Force held some two dozen meetings from its inception to early June 2005. It reviewed the history of the problems associated with the level of taxation of Major Industry and discussed multiple topics which were tied to how best to deal with the issue.

[45] The Chair of the Task Force explained the approach taken by the Task Force in this way:

The Task Force was unanimous in stating that it had no interest in giving a tax break to any one taxpayer. Our objective is to seek solutions that benefit all taxpayers on a fair and equitable basis. [emphasis in original]

[46] On March 31, 2009, in an interim report to Council, the Task Force described its efforts and work to date and said:

The Task Force reviewed the City’s current financial bylaws, policies and guiding documents; examined the City’s current user fees and other sources of revenue; identified long-term taxation issues and trends that will affect the City’s fiscal sustainability; reviewed comparability of the City with other similar communities through the use of appropriate indices, benchmarks, performance indicators, taxation levels, and service levels; and made every effort to talk with members of the public during daily life for feedback on options.

[47] During the period that the Task Force was doing its work, Council also asked that staff prepare a financial plan based on an increase to the taxes of an average household of approximately $150.00 and on a $500,000 shift in tax revenue from Major Industry to Residential.

[48] On May 12, 2009, Council adopted the 5-Year Financial Plan required under s. 165 of the Community Charter, S.B.C. 2003, c. 26. That document provides some insight into the complexity of the undertaking faced by Council in arriving at the decisions and allocations contained in the Bylaw. The Financial Plan, which is a Catalyst Paper Corporation v. Campbell River (City) Page 13 necessary precursor to the Bylaw, tabulates no less than 10 different sources of revenue to arrive at a 2009 revenue budget of slightly more than $68 million. Of that figure, approximately $25 million is generated from property taxes. At the same time, the expenditure side of the Plan contains a dozen different categories of municipal expenditure. These categories contain such diverse headings as Protective Services, General Services, Transportation Services, Public Health Services, Parks and Cultural Services, Airport Services and Capital Expenditures. The various categories of Revenue and Expenditure underscore the diversity of the many considerations that faced Council prior to its adoption of the Bylaw.

[49] Faced with a funding shortfall of $4.4 million, which included the $500,000 tax shift from Major Industry, Council reduced its expenditures by $1.4 million through staff reductions, layoffs and reduced hours for some staff. There was also a property tax increase of $3.6 million applied to all classes other than Major Industry.

[50] After adoption of the Bylaw on May 12, 2009, a Media Release was prepared which summarized the Bylaw as well as the service level reductions required to achieve a balanced budget. That Release is particularly relevant because it again shows the breadth and diversity of the issues facing Council when it adopted the Bylaw. The following are some of the references found in the Release:

The Financial Plan includes $3.6 million in new taxes and a $500,000 property tax shift away from Class 4 (Major Industry). The 9.82 per cent increase equates to approximately $150 per average residential property. Council initially faced a $4.4 million budget shortfall related to a combination of revenue losses from the sawmill closure and the downturn in the local development environment as well as rising contract, service and collective agreement costs. In addition, the City is required by legislation to set aside funding for asset replacement, for which Council reserved $600,000. Council addressed the total $5 million budget shortfall through a combination of: 1. $3.6 million in net tax increases 2. $1.4 million in operating budget cuts Council eliminated the anticipated draw on the City’s surplus. “Large draws on the City’s surplus are not sustainable,” the Mayor says. “Local governments are required, by law, to balance their budget, and Council made provisions for future financial challenges without drawing on the City’s surplus.” Catalyst Paper Corporation v. Campbell River (City) Page 14

Service cuts amounting to $1.4 million in cost savings come from across all City departments and include staff reductions, the elimination of unassigned positions, layoffs and reduced hours for some workers. “A number of projects and initiatives have been postponed, and we will all feel the repercussions of reduced services,” the Mayor emphasizes. “Council agreed to only those service reductions and eliminations that won’t compromise the long-term integrity of the City. Road, water and sewer services will be maintained at current levels.” Council’s previously announced strategic plan around financial sustainability, living green, improved community communications and external relations and planning for a livable community will be pursued. With new tax from Class 2 (Utility), the City will gain an additional $540,000. “A $938,000 increase in Class 7 (Managed Forest Lands) taxation is focused on lands where use in the foreseeable future is not forestry – to encourage economic stimulation through alternative land use and related activity,” explains Mayor Cornfield. “This change affects all Class 7 land holders, and since TimberWest is the largest holder, the City is working with them to evaluate tax implications, identify lands not required for long-term forestry and work to rezone and remove land from Class 7 as appropriate.” Considering some of the Financial Task Force recommendations, “Council shifted $500,000 away from major industry taxation, further reducing our dependency on this revenue source and creating a more attractive business climate,” the Mayor says. Class 6 (Business) does not share in this shift. “At a time when revenues are down and costs are rising, we took the first steps to implement one of the priorities in our strategic plan: financial sustainability,” the Mayor explains. “The global economy and the reality of the times dictate a significant portion of these changes. We’ve been fair and shared the challenge by distributing the increased taxation across all tax classes except major industry, and we’re meeting our community’s needs through a combination of service cuts and revenue increases – without drawing on the City’s surplus – to move us forward to a brighter future.”

[51] The complexity and difficulty of the decision faced by Council is also reflected in the fact that the Task Force, subsequent to the adoption of the Bylaw, felt it appropriate to communicate its disagreement with Council’s decisions. It wrote to the Mayor and Council saying:

However, we are unanimously disappointed in your decision to reduce our reliance on Class 4 taxation by only $500,000 when this amount fell considerably short of our recommendation. We feel that this decision merely delays the inevitable problem of a significant reduction in Class 4 taxation. Council had a chance to be pro-active in its approach to Major Industry taxation and set a new standard of fairness to this Class. Instead, we will again be reactionary to the inevitable problem that fast approaches us. Catalyst Paper Corporation v. Campbell River (City) Page 15

We do not believe that your decision on this issue was community-centric.

[52] While the Task Force may have disagreed with the conclusions of Council, decision-making authority under s. 197(1) of the Community Charter clearly resides with Council. The fact that the Task Force and Council arrived at markedly different conclusions in addressing the issue of Major Industry property taxes is not surprising. The focus of the Task Force was much more finite in scope than the broad focus of Council. Council is charged with establishing a Financial Plan and with adopting a tax rate bylaw which addresses a great many issues. Fixing the appropriate level of tax to be generated from Major Industry property holders and ensuring that that level of tax is appropriate in relation to other classes of property owners is but one component of a complex undertaking. Furthermore, the nature of the decision-making exercise, which precedes the adoption of a tax rate bylaw, is of necessity, highly discretionary. Different people, acting reasonably, are likely to arrive at different conclusions.

[53] In its submissions, Catalyst argued, “Reasonableness, in short, requires reasons for the decision being made as it was. By necessary implication, there must be a rational connection between purpose and action that can be explained by a decision maker in a logical fashion”. In this case, Council had before it a considerable body of information relevant to the Bylaw prior to its adoption. Much of this information related directly to the question of whether, or to what extent, Major Industry taxes should be adjusted. The decision made by Council is a composite of many competing objectives. Furthermore, it is the product of a consensual process whereby the various members of Council are likely to weigh the considerations giving rise to the Bylaw differently. The end product is one that is endorsed by all. The decision-making pathways followed by the various members of Council to arrive at this end product will inevitably be different.

[54] Thus, factors such as the diversity and competing nature of the considerations underlying the Bylaw, the broad discretionary nature of many of these considerations and the nature of the decision-making process engaged in by Council militate against there being a concise or precise expression of why Major Industry Catalyst Paper Corporation v. Campbell River (City) Page 16 rates were fixed in the Bylaw at the level they were. This fact does not, however, mean that the Bylaw is not rational or intelligible. The content and expression of rationality and intelligibility is necessarily modified by the nature of the decision made. Thus, in an adjudicative decision there would be an expectation of a “rational connection between purpose and action that can be explained by a decision-maker in a logical fashion”. This is so for many reasons including the fact that procedural fairness would likely require such a formal explanation. In instances where a decision is legislative in nature, is highly discretionary and is policy based, the means of expression or explanation for the basis for a decision will necessarily be both altered and limited. In this case, the factors which were considered by Council and which underlay its decision, the expression of the policies directly relevant to a reduction of Major Industry rates and the contents of both the Financial Plan and of the Media Release are all rationally connected to the Bylaw and all directly support the reasonableness of the decision made by Council under s. 197 of the Community Charter.

i) Do the Major Industry Tax Rates in the Bylaw fall Outside of the Range of Permissible Outcomes?

[55] Catalyst argues that the Bylaw, in its effect or result, is unreasonable. This is so by various measures. Some are based on Catalyst’s consumption of services model which I addressed earlier. Others are based on such factors as the ratio of Major Industry to Residential tax rates or the fact that Residential property taxes in Campbell River are lower than in many communities.

[56] These various assertions are partly addressed by the evidence. For example, the respondent has pointed to higher Major Industry to Residential tax rate ratios in numerous other communities. The following is a partial list of such communities.

Community Ratio Quesnel 13.680:1 Vancouver 14.174:1 Catalyst Paper Corporation v. Campbell River (City) Page 17

Williams Lake 14.677:1 Coldstream 15.580:1 Grand Forks 17.060:1 Burnaby 17.884:1 Sparwood 19.153:1 North Vancouver District 19.408:1 Coquitlam 19.766:1 North Cowichan 20.229:1 Ladysmith 21.897:1 Lake Cowichan 21.988:1

[57] Catalyst asserts that these are not true comparables. The very fact, however, that a court would have to begin to assess or weigh what underlies such ratios in a wide variety of communities, large and small, urban and rural, underscores the difficulty and untenability of such an exercise.

[58] This is tied to the second difficulty associated with measuring the acceptability of the outcomes arising from the Bylaw. In the North Cowichan Reasons, at paragraphs 68 to 80, I dealt at length with the basis for and the extent of judicial deference that will be afforded to a municipal decision that is policy based, discretionary and legislative in nature.

[59] Those authorities reveal that for more than 100 years courts have consistently expressed a significant reluctance to question or re-visit the reasonableness of municipal decisions that are intra vires and properly made on the basis of relevant considerations. Absent extraordinary circumstances, circumstances which can fairly be described as “overwhelming” or a set of outcomes which are so aberrant as to enable a court to conclude that “no reasonable authority could ever have come to it”, a court will not interfere: Associated Provincial Picture Houses, Ltd. v. Wednesbury Corporation, [1948] 1 K.B. 223 (C.A.),at 230. Catalyst Paper Corporation v. Campbell River (City) Page 18

[60] Catalyst also points to comparisons elsewhere in Canada and North America to establish in legal terms that the Bylaw is unreasonable in result and that in practical terms, its ability to compete globally is being impaired. For example, a recent report indicates that North American property taxes, excluding those levied on Catalyst’s B.C. mills, average less than $5 per tonne. By contrast, the property taxes imposed on Catalyst’s amount to $12 per tonne of capacity.

[61] Furthermore, Catalyst’s competitors in other communities across Canada have significantly lower property tax burdens than Catalyst’s B.C. mills. For example, Catalyst points to a Weyerhaeuser in Grande Prairie, Alberta, to St. Marys Paper Corp.’s. paper mill in Sault Ste. Marie, Ontario, to Domtar Corporation’s uncoated free-sheet mill in Windsor, Quebec and to Alberta-Pacific Forest Industries Inc.’s pulp mill in Athabasca, Alberta. Each of these facilities operates in an environment where the Major Industry to Residential ratio is a fraction of the ratio in Campbell River.

[62] Much of this information or similar information was available to Council when it adopted the Bylaw. The ratios for these facilities outside of British Columbia appear to be markedly differently from the ratios relevant to Major Industry in much of British Columbia. The reasons for such differences, I have no doubt, are complex. The extent to which such factors place industry in British Columbia at a competitive disadvantage with industry in other jurisdictions is a question that engages broad questions of policy that are best addressed by government. Concurrently, these are clearly matters that are outside of the purview of the courts.

[63] In this case, I am of the view that the Bylaw is rationally supported and that its effects or outcomes are within the range of permissible outcomes. Accordingly, the Bylaw is reasonable.

b) Is the Bylaw Inequitable?

[64] In the North Cowichan Reasons, at paragraphs 115 to 118, I dealt with the case law relevant to a municipality’s obligation to fix taxes in an equitable manner Catalyst Paper Corporation v. Campbell River (City) Page 19 and how that obligation relates to its ability to set taxes as between different classes in a manner that is discriminatory or variable.

[65] The petitioner advanced the following set of propositions in its submissions:

The municipality’s power to tax must be informed by the common law maxim that taxing authorities must deal with all taxpayers in an even-handed and equitable manner. While the City has the jurisdiction to impose different rates on different property classes, the differences must be rational and equitable. The massive disparity between classes demonstrates that the tax rates set under the Bylaw are outside the equitable range of values.

[66] In recognizing that the “City has the jurisdiction to impose different rates on different property classes”, Catalyst concedes the entitlement of the City to discriminate between property classes, albeit on the basis of relevant considerations. In emphasizing the need for rationality and in asserting the tax rates under the Bylaw are “outside of an equitable range of values”, Catalyst simply advances its theory of its case in slightly recast terms.

[67] For the reasons I have given, I do not believe that the Bylaw is inequitable either because it is irrational or because it generates Major Industry rates that are outside of an equitable range of values.

d) Is the Bylaw ultra vires the City because it does not accord with the Ratios Prescribed by the Municipal Tax Regulation?

[68] Just as the Community Charter authorizes municipal taxation, regional districts are empowered by the Local Government Act to recover the costs of their services. The imposition of property taxes through the municipalities in a regional district is one of the methods regional districts are authorized to use, under s. 803 of the Local Government Act, to recover such costs.

[69] A regional district is required by ss. 805 and 805.1 of the Local Government Act to send each municipality a requisition each year for services which states the amount required to be paid by the municipality and which allows the municipality to collect a property tax using the tax base authorized under s. 804.3 of the Local Catalyst Paper Corporation v. Campbell River (City) Page 20

Government Act. The municipality then includes the necessary taxes in its property tax bylaw, in accordance with s. 197(1)(b) of the Community Charter.

[70] The particular manner in which property taxes are imposed by a municipality for regional district services depends on whether the activity, in respect of which taxes are imposed, requires an establishing bylaw. Generally, establishing bylaws for municipal services are required pursuant to s. 800 of the Local Government Act; however, there are certain exceptions to this requirement. For example, a regional board need not pass an establishing bylaw to institute general administrative functions or a service which is specifically provided for under the Local Government Act.

[71] Where an establishing bylaw is not required, the Local Government Act prescribes that property value taxes must be imposed on the net taxable value of land and improvements in the participating area.

[72] In turn, the Municipal Tax Regulation, B.C. Reg. 426/2003 as amended by B.C. Reg. 336/2008, effective November 28, 2008, provides at s. 4:

4. If a property value tax is imposed under section 197(1)(b) [property taxes for other bodies] of the Community Charter on the basis of (a) the net taxable value of land and improvements, (b) the net taxable value of land, or (c) the net taxable value of improvements, unless otherwise expressly provided, the relationships between tax rates, expressed as ratios of the rate on each property class to the rate on Class 1, must be as set out in the following Schedule:

[73] The Schedule which follows s. 4 establishes a mandatory Major Industry to Residential ratio of 3.4:1.

[74] Conversely, where an establishing bylaw is required, s. 804.3(2) of the Local Government Act provides that the regional district has the discretion to decide between various enumerated bases upon which taxes may be imposed. Specifically, the regional district may set out in its establishing bylaw that taxes are to be collected on one or more of the following bases: Catalyst Paper Corporation v. Campbell River (City) Page 21

(a) the assessed value of land and improvements in the participating area, other than land and improvements exempt from taxation for municipal purposes; (b) the assessed value of land in the participating area, other than land exempt from taxation for municipal purposes; (c) the assessed value of improvements in the participating area, other than improvements exempt from taxation for municipal purposes; (d) the net taxable value of land and improvements in the participating area; (e) the net taxable value of land in the participating area; (f) the net taxable value of improvements in the participating area.

[75] However, this discretion is also not without limits. Section 197(4)(b) of the Community Charter states that for the purposes of taxation for collection on behalf of other governments, the relationship between the different property class rates must be the same as the relationships between classes for City collection purposes, unless otherwise required under the Community Charter or another Act.

[76] The annual requisition from the Strathcona Regional District to Campbell River includes no explanation of how the Regional District’s tax rates were set. Nor did the Regional District’s 2009-2013 Financial Plan Bylaw (upon which the requisition was based).

[77] Nevertheless, the Regional District Rate applied by the City results in a ratio between Major Industry and Residential taxpayers of 10.28028:1. The City states in its affidavit material that this is because it imposed taxes based on s. 804.3(2), which does not require compliance with the Municipal Tax Regulation. However, the ratio between Major Industry and Residential for Regional District purposes is actually slightly higher than the City ratio. The precise ratio between Major Industry and Residential taxpayers for City purposes is 10.27995:1, while the Regional District ratio is, as stated, 10.28028:1. This, without more, is not in compliance with s. 197(4) of the Community Charter.

[78] Moreover, because the City ratio between Major Industry and Residential is greater than 3.4:1, the resulting ratio considering all services (including those requiring an establishing bylaw and by extension compliance with the Municipal Tax Catalyst Paper Corporation v. Campbell River (City) Page 22

Regulation) would have to be less than the ratio for general property taxation imposed by the City under the Bylaw. The total requisition from the Strathcona Regional District to the City was $3,412,750. That requisition is segregated in the following table into the particular requisition made, the manner in which taxes were imposed based on the requisition, the amount of the requisition and the percentage of the specific requisition to the whole of the requisition made.

Requisition Tax Base Amount Percentage of Total Administration – Member Converted General $ 187,907 5.5% Municipalities Purpose Assessment Feasibility Study – Converted Value $ 7,826 0.2% Regional General Purpose Assessment (Municipal Members) Emergency Converted Value $ 25,000 0.7% Preparedness (Northern Hospital Purposes Communities) Plan Assessment Service 911 Answering Service Converted Value $ 214,798 6.3% General Purpose Assessment Greater Campbell River Net Taxable Value $2,977,219 87.2% Arena and Pool General Purpose Assessment TOTAL $3,412,750 99.7%

[79] The first two services did not require an establishing bylaw. The fifth service, the Greater Campbell River Arena and Pool, appears to be levied against net taxable value. This is apparent from the face of the Requisition as well as from the relevant establishing bylaw. Taxes in respect of these services could only be levied against net taxable value and were subject to the 3.4:1 ratio established under the Municipal Tax Regulation. Thus, at least 93% of the Strathcona Regional District total requisition was in respect of services recoverable through taxation that was imposed on the basis of net taxable value alone. On this basis, the ratio between Major Industry and Residential should, as a matter of mathematical necessity, be well below the ratio for such property taxes set by the City. Catalyst Paper Corporation v. Campbell River (City) Page 23

[80] Accordingly, I find that the tax rates set in the Bylaw for Regional District purposes are ultra vires.

[81] It was common ground between the parties that if I concluded that the tax rates in the Bylaw for Regional District purposes were ultra vires, while the remainder of the Bylaw was valid, I should sever the Regional District tax rates from the remainder of the Bylaw.

[82] This result is consistent with the language of s. 262 of the Local Government Act which allows a court to set aside all or part of a bylaw for illegality. It is consistent with the affirmation found in the relevant case law that severance is available where it can be determined that the municipality “likely would have enacted the remainder of the legislation independently”: Greater Victoria School District No. 61 v. Oak Bay (District), 2006 BCCA 28, 51 B.C.L.R. (4th) 288 at paragraph 26. Finally, it is consistent with the result in each of Paul’s Restaurant Ltd. v. Victoria (City), [1991] B.C.J. No. 373 (S.C.) and Re Finlay Forest Industries Ltd., 7 M.P.L.R. (2d) 201, [1991] B.C.J. No. 3711 (S.C.). In each of these cases, the court applied the doctrine of severance when it declared a portion of a municipal property tax bylaw illegal and quashed the bylaw to the extent of the illegality.

Summary

[83] I make the following specific orders:

i) Column “C” of Schedule “A” of the Bylaw is illegal and is set aside. ii) The balance of the Bylaw is upheld. iii) Having regard to the importance of and time spent on the various issues raised by the parties, the respondent is to receive 80% of its costs.

“Voith J.”