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Supreme Court sides with B.C. community in tax fight with paper company

OTTAWA - The Supreme Court of Canada dismissed an appeal Friday by a paper-making company over the property taxes assessed by a British Columbia community against one of its mills.

The court sided with the district of North Cowichan on Vancouver Island in a tax dispute with Catalyst Paper Corp. (TSX:CTL) which had argued its taxes were too high because they bore no relationship to the municipal services it actually used.

In a unanimous 7-0 decision, the high court rejected the company's argument, saying the community tax bylaw was not unreasonable and that municipalities can apply different tax rates to different kinds of property.

"I conclude that the power of the courts to set aside municipal bylaws is a narrow one and cannot be exercised simply because a bylaw imposes a greater share of the tax burden on some ratepayers than on others," Chief Justice Beverley McLachlin wrote in the decision.

McLachlin wrote that courts reviewing bylaws for reasonableness must consider the wide variety of factors municipal councillors may face.

"Only if the bylaw is one no reasonable body informed by these factors could have taken will the bylaw be set aside," she said.

B.C.-based Catalyst makes speciality papers, newsprint and pulp at four mills in British Columbia and Arizona.

Catalyst spokeswoman Lyn Brown said Friday the company was disappointed by the decision, but said it gives the company clarity in its talks with the district.

"We will certainly be following up with the municipalities where our mills are located to continue to press for adjustments," Brown said.

"We're prepared to pay our fair share, but clearly the Supreme Court in the decision did point out there is no doubt that the impact of the bylaw in North Cowichan is harsh."

The B.C. government has launched an expert panel that will provide the province with advice towards streamlining the re-introduced provincial sales tax and make business taxes more competitive.

Earlier this week, Catalyst received the go-ahead from a B.C. court to begin a financial restructuring and filed for protection from creditors in the United States.

The B.C. court issued an initial order under the Canada Business Corporations Act to begin a restructuring process that will see bondholders take control of the firm and reduce its overall debt by $315.4 million.

The U.S. filing in a Delaware court was made under provisions of Chapter 15, a form of filing that foreign companies operating in the U.S. employ when seeking protection from creditors.

The company's recapitalization plan would create a new board of directors and give voting control of the paper company to its bondholders.

It is also subject to new contracts with the unions at the company's Canadian mills being ratified by the end of January.

--Craig Wong reports for Canadian Press.

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