Docket: 1900 The City of Prince Albert Appellant Respondent by Cross-Appeal (Applicant) - v. -, 2011 SKCA 151

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2011 SKCA 151 Date: 20111214 Between: Docket: 1900 The City of Prince Albert Appellant Respondent by Cross-Appeal (Applicant) - and - Domtar Pulp & Paper Products Inc. Respondent Appellant by Cross-Appeal (Respondent) - and - City of Prince Albert Board of Revision Respondent (Respondent)

Coram: Lane, Richards and Herauf JJ.A. Counsel: Heather D. MacMillan-Brown for the Appellant and Respondent by Cross-Appeal, The City of Prince Albert Leonard D. Andrychuk, Q.C. for the Respondent and Appellant by Cross-Appeal, Domtar Pulp & Paper Products Inc. Appeal: From: 2010 SKQB 4 Heard: October 26, 2011 Disposition: Appeal dismissed Cross-appeal allowed Written Reasons: December 14, 2011 By: The Honourable Mr. Justice Richards In Concurrence: The Honourable Mr. Justice Lane The Honourable Mr. Justice Herauf Richards J.A. I.

Introduction [ 1 ] At its heart, this case concerns an agreement regarding the property taxes payable to the City of Prince Albert in respect of a pulp mill and a paper mill. [ 2 ] Domtar Pulp & Paper Products Inc. (“Domtar”) is the current owner of the mills in issue. It was unhappy with the assessments placed on the mills for 2009 and appealed to the Board of Revision for Prince Albert. The City contended that, in light of a provision in an agreement between it and a former owner of the mills, the Board had no jurisdiction.

It argued that, pursuant to the agreement, any tax dispute had to be resolved either by mutual agreement or by arbitration. The Board said it had no authority to adjudicate such questions and went on to decide the appeals. This led the City to attempt to quash the Board’s findings by way of a judicial review application in the Court of Queen’s Bench. [ 3 ] The Chambers judge found, in effect, that the agreement with the former owner was binding on Domtar and effective.

However, he also found that, properly construed, it did not prevent Domtar from appealing the assessments to the Board of Revision. [ 4 ] The City takes issue with the decision of the Chambers judge. It says the agreement precludes Domtar from going to the Board of Revision. Domtar cross-appeals. It contends the agreement is invalid and therefore cannot stand in the way of its property tax appeals. [ 5 ] I conclude, for the reasons set out below, that the City’s appeal must be dismissed and Domtar’s cross-appeal allowed. I do so because the agreement is not valid and, thus, does not bind Domtar. II. Background A.

Some History

[ 6 ] The roots of the present controversy reach back to 1966. At that time, Prince Albert Pulp Company Limited (“PAPCO”) was exploring the prospect of constructing a pulp mill (the “Pulp Mill”) on a package of land located near the City of Prince Albert (the “City”). The land was to be annexed to the City. [ 7 ] PAPCO negotiated property tax concessions from the City. They were reflected in a bylaw (“Bylaw No. 1”) enacted by the City.

However, there were no provisions in The City Act, R.S.S. 1965, c. 147 empowering cities to enter into what might be called “tax agreements.” Therefore, the effective implementation of the arrangement between PAPCO and the City required a special act of the Legislature. [ 8 ]

An Act to confirm Certain Bylaws of The City of Prince Albert , S.S. 1966, c. 101 (the “ PAPCO Act ”) was enacted in 1966. It secured the legal integrity of Bylaw No. 1 by the simple expedient of attaching the Bylaw as a

schedule and declaring it to be “validated, ratified and confirmed.” [ 9 ] Bylaw No. 1 settled PAPCO’s municipal tax burden for the long-term. There was to be a complete exemption from municipal taxes until June 30, 1968, a payment of $50,000 for 1968 and then payments of $100,000 per year (plus an increase of 3 percent per year) from January 1, 1969 to December 31, 1989. Taxes payable after December 31, 1989 were to be settled by mutual agreement or, if necessary, by arbitration. In this latter regard, subparagraph 1(

d) of Bylaw No. 1 provided as follows: (

d) the amount of taxes to be levied against and collected from the said company after the 31st day of December, A.D. 1989, shall be settled and determined by mutual agreement, and if no agreement can be made the question of said taxation shall be settled and determined by a board of arbitration according to the provisions of The Arbitration Act in force in the Province of Saskatchewan; [ 10 ] In 1986, PAPCO announced that the Pulp Mill was going to be acquired by Weyerhaeuser Canada Ltd.

Weyerhaeuser intended to build a paper mill (the “Paper Mill”) on the property and, as a result, the City and Weyerhaeuser negotiated an agreement (the “Weyerhaeuser Agreement”). With respect to the Pulp Mill, Weyerhaeuser agreed to pay a specified amount in lieu of taxes for 1986 and $1,109,000 (with specified adjustments linked to changes in the municipal mill rate) in succeeding years.

As an incentive to construct the Paper Mill, Weyerhaeuser and the City agreed that taxes on the Paper Mill would be forgiven for five years and that there would then be a phase-in to a higher and ongoing rate. [ 11 ] The City decided to proceed on the basis that its authority to enter a long-term tax agreement of this sort was to be found in subparagraph 1(

d) of Bylaw No. 1. The City and Weyerhaeuser then formally entered into the Weyerhaeuser Agreement and it was approved by way of a new City bylaw. [ 12 ] The Weyerhaeuser Agreement provided that disputes between Weyerhaeuser and the City with respect to Weyerhaeuser’s tax liability would be resolved either by way of mutual agreement or arbitration. Clause 5(

c) of the Agreement provided as follows: (

c) In the event that Weyerhaeuser objects to or disagrees with the amount of taxes payable hereunder or the increase or decrease in assessed values determined pursuant to clauses 5(

a) and 5(

b) aforesaid, then the matter may be settled by mutual agreement or between the City and Weyerhaeuser, failing which, a matter of increased or decreased assessed values shall be determined by arbitration pursuant to the provisions of the Arbitration Act of Saskatchewan. [ 13 ] Weyerhaeuser closed both the Pulp Mill and the Paper Mill in early 2006. No pulp or paper has been manufactured at the site since that time. [ 14 ] Domtar acquired the Mills from Weyerhaeuser in March of 2007. [ 15 ] The first notices of assessment received by Domtar from the City were in respect of the 2008 taxation year.

One assessment related to the land and buildings comprising the Pulp Mill. The other related to the land and buildings comprising the Paper Mill. [ 16 ] Domtar believed the 2008 assessments had been improperly determined and were much too high. It appealed them to the Board of Revision for Prince Albert. This prompted the City to write to Domtar, asking whether it intended to observe the terms of the Weyerhaeuser Agreement.

The letter advised Domtar that, if its property was subject to the same tax rules as were applied to other industrial sites, Domtar’s tax liability would be $9.7 million, as compared to the $3.2 million that had been paid in 2007. [ 17 ] Domtar says it was not then fully familiar with the background of the Weyerhaeuser Agreement and chose to temporarily resolve the dilemma by requesting an indefinite adjournment of the proceedings before the Board of Revision.

Counsel acting for Domtar at the time, not counsel on this appeal, wrote to the City and said: Nonetheless, as discussions concerning the possible re-opening of the mill are ongoing, Domtar is prepared to and does confirm its

intention to observe the terms and conditions of the 1986 agreement, unless and until a new state of affairs crystallizes. [ 18 ] In mid-2008, Domtar removed the equipment from the Paper Mill building. B. The Proceedings Before the Board of Revision [ 19 ] For the 2009 taxation year, the Assessor treated the Paper Mill and the Pulp Mill in a way which increased their assessed values substantially. Domtar believed this was unfair given that the Mills were long-closed, all of the equipment had been removed from the Paper Mill and that some 55 Canadian pulp and paper facilities had been recently shuttered.

It filed notices of appeal to the Board of Revision with respect to both the Paper Mill and the Pulp Mill. [ 20 ] The City advised Domtar that it would be making a preliminary objection at the opening of the hearing before the Board. In its view, the Weyerhaeuser Agreement precluded the appeal. [ 21 ] The appeals were heard by the Board on August 5, 2009. The Board found that it had no authority to decide whether Domtar’s tax liability was governed by the Weyerhaeuser Agreement. As a result, it proceeded with the hearing. [ 22 ] The Board ultimately allowed both appeals.

The particulars of its reasoning are not relevant for present purposes. Both the City and Domtar filed appeals to the Saskatchewan Municipal Board. Those appeals are on hold pending the outcome of this appeal. C. The Proceedings in the Court Below [ 23 ] The City brought an application in the Court of Queen’s Bench seeking to quash the decisions of the Board of Revision on the basis that, in light of the Weyerhaeuser Agreement, the Board lacked jurisdiction to entertain Domtar’s assessment appeals.

The City also sought a declaration that, as per the Weyerhaeuser Agreement, any objection or disagreement Domtar had with it in relation to property taxes had to be resolved either by way of mutual agreement or arbitration. [ 24 ] The Chambers judge outlined the background of the dispute and laid out the relevant considerations concerning the applicable standard of review. He then examined the issues raised by the City and Domtar and very briefly concluded as follows: (

a) The Weyerhaeuser Agreement had been validly negotiated and implemented pursuant to subparagraph 1(

d) of Bylaw No. 1. (

b) The Weyerhaeuser Agreement is binding on Domtar. (

c) The Weyerhaeuser Agreement is still effective and, as a result, 2009 and future property taxes are to be determined by mutual agreement or arbitration. (

d) The Weyerhaeuser Agreement does not supplant Domtar’s ability to appeal its assessments because the Agreement concerns taxes only and taxes are different than assessments. III. Analysis [ 25 ] As noted at the outset, this case involves an appeal and a cross-appeal. In combination, they raise the following issues: (

a) Is the Weyerhaeuser Agreement legally valid? (

b) If the Weyerhaeuser Agreement is valid, is it binding on Domtar? (

c) If the Weyerhaeuser Agreement is valid and is binding on Domtar, is it still effective in light of the closures of the two Mills?

(

d) If the Weyerhaeuser Agreement is valid, is binding on Domtar and is still effective, does it deny Domtar the right to appeal theassessments? [26] In my view, and as explained more fully below, the Weyerhaeuser Agreement is not valid and this appeal can be resolved on thatbasis alone. Accordingly, I do not propose to consider issues (b), (

c) or (d). [27] As indicated, the Weyerhaeuser Agreement was put in place in 1986. At that time, The Urban Municipality Act, 1984, S.S. 1983-84, c. U-11 did not empower a city to enter a tax agreement with a term extending beyond five years. Section 275(3) of the Act said this:

(3) A council may, by bylaw, enter into an agreement, subject to any terms and conditions that the council may specify, with the owneror occupant of any land or improvement designated in the bylaw for the purpose of exempting that land or improvement from taxation, inwhole or in part, for not more than five years. [28] As a result, it is clear that the City’s authority to enter into the Weyerhaeuser Agreement had to have been found in the PAPCO Actand Bylaw No. 1. More particularly, and as the City and Domtar both agree, the Agreement had to have been implemented on thestrength of subparagraph 1(

d) of Bylaw No. 1. That subparagraph deals with tax liabilities after the end of 1989 and reads as follows: (

d) the amount of taxes to be levied against and collected from the said company after the 31st day of December, A.D. 1989, shall besettled and determined by mutual agreement, and if no agreement can be made the question of said taxation shall be settled anddetermined by a board of arbitration according to the provisions of The Arbitration Act in force in the Province of Saskatchewan; [29] I pause here to note that it is appropriate to use a broad and purposive approach in interpreting municipal legislation like thePAPCO Act and, because it is a

schedule to the PAPCO Act, in interpreting Bylaw No. 1 itself. The relevant principles were described asfollows by the Supreme Court of Canada in United Taxi Drivers’ Fellowship of Southern Alberta v. Calgary (City), 2004 SCC 19, [2004]1 S.C.R. 485: 6 The evolution of the modern municipality has produced a shift in the proper approach to the

interpretation of statutes empoweringmunicipalities. This notable shift in the nature of municipalities was acknowledged by McLachlin J. (as she then was) in Shell CanadaProducts Ltd. v. Vancouver (City), (SCC), [1994] 1 S.C.R. 231, at pp. 244-45. The "benevolent" and "strict"construction dichotomy has been set aside, and a broad and purposive approach to the

interpretation of municipal powers has beenembraced: Nanaimo, supra, at para. 18. This interpretive approach has evolved concomitantly with the modern method of draftingmunicipal legislation. … … 8 A broad and purposive approach to the

interpretation of municipal legislation is also consistent with this Court's approach tostatutory

interpretation generally. The contextual approach requires "the words of

an Act ... to be read in their entire context and in theirgrammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament": … [30] With this approach in mind, I turn to Domtar’s arguments. As a matter of general approach, it begins by suggesting that thePAPCO Act should be seen as a special exemption granted under s. 496(2) of The City Act, the governing legislation as of the date of thePAPCO Act was enacted.

The relevant part of s. 496(2) reads as follows: 496 The following property shall be exempt from taxation: … 2. property specially exempted by law; [31] Domtar says that, because s. 496(2) contemplated tax exemptions being granted only to the current owners of properties, BylawNo. 1 (in light of the fact it provides such exemptions) must be read as involving tax concessions given only to PAPCO, the then ownerof the proposed Mill. [32] In my view, this line of argument involves a basic misunderstanding of the legislative status of the PAPCO Act.

Simply put, thatAct is a regular statutory enactment of the Legislature and, as such, is in no way subsidiary to The City Act. More particularly, it is notsomething enacted “under,” or “pursuant to,” s. 496(2) of that Act. Accordingly, Domtar’s efforts to link the PAPCO Act to s. 496(2) donot helpfully advance its position. [33] That point aside, Domtar goes on to contend that Bylaw No. 1 was clearly and expressly concerned with an agreement between

PAPCO and the City and that, as a result, subparagraph 1(

d) of Bylaw No. 1 cannot be read as having been aimed at, or concerned with, anything other than PAPCO’s tax liabilities. Domtar says it follows that Bylaw No. 1 cannot be construed as having empowered the City to enter into an agreement with Weyerhaeuser. The City, on the other hand, says Bylaw No. 1 should be read as having been aimed at the long-term operation of the Pulp Mill. In its view, the Bylaw ran with the Mill and was not limited to taxation questions between the City and PAPCO. [ 34 ] What is to be made of these competing positions?

Obviously, and centrally, it is necessary to start with the wording of Bylaw No. 1 itself. I note that, on its face, the Bylaw is clearly restricted to the relationship between the City and PAPCO. This is evident in every one of its features. Thus, for example, the relevant parts of the

preamble do not refer to tax concessions in relation to the Pulp Mill itself. They refer to concessions made by the City to PAPCO: A bylaw of the City of Prince Albert providing for special concessions to be given by the City of Prince Albert to Prince Albert Pulp Company Limited , a body corporate with its Head Office at 2236 Albert Street, in the City of Regina, in the Province of Saskatchewan, hereinafter called “the company”.

Whereas the company intends to construct and operate a pulp mill on the lands hereinafter described and has requested certain concessions pertaining to taxation of its said lands and the buildings to be erected thereon as well as the machinery and equipment which is to be placed in the said buildings, its operation of the said pulp mill, and all assets which shall be used in connection with the operation of its said pulp mill; [emphasis added] [ 35 ] Similarly, the opening words of para. 1 of the Bylaw do not speak to the taxes to be levied against the Pulp Mill regardless of who owns it.

They speak to the taxes to be paid by PAPCO: 1. If Prince Albert Pulp Company Limited constructs, completes, equips and operates a pulp mill on the following lands and site, namely: … the City of Prince Albert will levy and collect from the said company municipal taxes according to the terms hereafter set out, namely: … [emphasis added] [ 36 ] Not surprisingly, subparagraph 1(d), the part of the Bylaw relied on by the City as being the foundation for the Weyerhaeuser Agreement, also speaks to the taxes to be paid by “the said company,” i.e.

PAPCO, in the period after December 31, 1989. [ 37 ] The City attempts to deal with the plain meaning of these words by arguing that subparagraph 1(

d) should be read purposively. In this regard, it says the PAPCO Act and Bylaw No. 1 were aimed generally or broadly at establishing a stable long-term taxation framework in respect of the Pulp Mill and not at relations with PAPCO in particular. In my view, this argument overstates the objective of the Legislature and is not persuasive. [ 38 ] In 1966, PAPCO obviously wanted some certainty in relation to its ongoing tax burden before it was prepared to assume the risks involved in constructing and operating the Pulp Mill. Simply put, PAPCO sought long-term tax concessions and tax predictability.

Significantly, that is exactly what it got by virtue of Bylaw No. 1. It would have made complete sense for the Province and the City to approve tax incentives for PAPCO, the originator of the project, but to keep their positions open with respect to whether those incentives should be extended to any new or subsequent owners.

Neither the record before the Court nor the logic of the Bylaw indicates that its true purpose was to grant tax concessions to any and all possible owners of the Pulp Mill. [ 39 ] In more particular terms, the City says it is important to read Bylaw No. 1 as being concerned with the construction and continued operation of the Pulp Mill. In this regard, it points to the first “whereas” clause in the Bylaw which contains the words “[w]hereas the company intends to construct and operate a pulp mill… .” I see little merit in this argument either.

The words emphasized by the City are merely a recitation of the obvious. Clearly PAPCO did not intend to construct a pulp mill and then to immediately put it in moth balls. It intended to operate the Mill and, obviously, that is precisely why Bylaw No. 1 sets out both the formulae for calculating PAPCO’s tax liability for a twenty-plus year period through to December 31, 1989 and why it also includes a mechanism for determining taxation rates beyond that date. Again, it would have made complete sense for the Province and the City to lock in incentives for PAPCO in order to induce it to build the Pulp Mill.

The question of whether such incentives should be extended to a third party buyer is another matter--a matter not addressed in the Bylaw.

[ 40 ] In this latter regard, the City says it is only logical that, with Bylaw No. 1 operating for such a long term, PAPCO and the City must have contemplated that the Pulp Mill could be sold before the term expired. I find this line of analysis to be unpersuasive as well. As things unfolded, the Pulp Mill was sold some 20 years after it was constructed. However, the record does not indicate this was inevitable or, more to the point, that it was somehow foreseeable or in the contemplation of PAPCO and the City as of 1966.

In any event, and to repeat, the best way to see the tax concessions embedded in Bylaw No. 1 is as an incentive given to PAPCO, the originator of the project. There is nothing before this Court to suggest the tax concessions were intended to run with the Pulp Mill itself and to operate regardless of who owned that property. [ 41 ] Accordingly, and by way of a bottom line, I am unable to accept the City’s position on this matter. Bylaw No. 1 says what it says and no reasonable “purposive”

interpretation of it can give subparagraph 1(

d) a meaning so broad that it could have empowered the City to enter into a tax agreement with Weyerhaeuser. IV. Conclusion [ 42 ] I conclude, for the reasons outlined above, that the City’s appeal must be dismissed and Domtar’s cross-appeal allowed. The City had no authority to enter into the Weyerhaeuser Agreement and, as a result, the Agreement is not legally valid. It cannot operate to preclude Domtar from appealing property tax assessments to the Board of Revision.

Thus, in the end, the Chambers judge reached the correct bottom-line result but did so for the wrong reason. [ 43 ] Domtar is entitled to costs in the usual way with respect to its cross-appeal. Given the amount of overlap between the cross-appeal and the City’s appeal, there will be no order as to costs in relation to the appeal. DATED at the City of Regina, in the Province of Saskatchewan, this 14th day of December, A.D. 2011. “Richards J.A.” Richards J.A. I concur “Lane J.A.” Lane J.A. I concur “Herauf J.A.” Herauf J.A.