Municipal bylaws to be judged on reasonableness standard

Catalyst Paper Corp. v. North Cowichan (District), 2012 SCC 2 deals with the validity of municipal bylaws.

Municipalities do not have any inherent power; they are purely creatures of statute. Accordingly their bylaws must be confined to the authority given by statute. That said, the review of bylaws is to be determined by the reasonableness standard; the critical question is what factors the court should consider in determining what lies within the range of possible reasonable outcomes.  Courts reviewing bylaws for reasonableness must approach the task against the backdrop of the wide variety of factors that elected municipal councillors may legitimately consider in enacting bylaws, including broad social, economic and political issues.  Only if the bylaw is one no reasonable body informed by these factors could have taken will the bylaw be set aside.

The Court holds:

[10]                          It is a fundamental principle of the rule of law that state power must be exercised in accordance with the law.  The corollary of this constitutionally protected principle is that superior courts may be called upon to review whether particular exercises of state power fall outside the law.  We call this function "judicial review".

[11]                          Municipalities do not have direct powers under the Constitution.  They possess only those powers that provincial legislatures delegate to them.  This means that they must act within the legislative constraints the province has imposed on them.  If they do not, their decisions or bylaws may be set aside on judicial review.

[12]                          A municipality's decisions and bylaws, like all administrative acts, may be reviewed in two ways.  First, the requirements of procedural fairness and legislative scheme governing a municipality may require that the municipality comply with certain procedural requirements, such as notice or voting requirements.  If a municipality fails to abide by these procedures, a decision or bylaw may be invalid.  But in addition to meeting these bare legal requirements, municipal acts may be set aside because they fall outside the scope of what the empowering legislative scheme contemplated.  This substantive review is premised on the fundamental assumption derived from the rule of law that a legislature does not intend the power it delegates to be exercised unreasonably, or in some cases, incorrectly.

[13]                          A court conducting substantive review of the exercise of delegated powers must first determine the appropriate standard of review.  This depends on a number of factors, including the presence of a privative clause in the enabling statute, the nature of the body to which the power is delegated, and whether the question falls within the body's area of expertise.  Two standards are available: reasonableness and correctness.  See, generally, Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, at para. 55.  If the applicable standard of review is correctness, the reviewing court requires, as the label suggests, that the administrative body be correct.  If the applicable standard of review is reasonableness, the reviewing court requires that the decision be reasonable, having regard to the processes followed and whether the outcome falls within a reasonable range of alternatives in light of the legislative scheme and contextual factors relevant to the exercise of the power: Dunsmuir, at para. 47.

[14]                          Against this general background, I come to the issue before us — the substantive judicial review of municipal taxation bylaws.  In Thorne's Hardware Ltd. v. The Queen, [1983] 1 S.C.R. 106, at p. 115, the Court, referring to delegated legislation, drew a distinction between policy and legality, with the former being unreviewable by the courts:

The Governor in Council quite obviously believed that he had reasonable grounds for passing Order in Council P.C. 1977-2115 extending the boundaries of Saint John Harbour and we cannot enquire into the validity of those beliefs in order to determine the validity of the Order in Council. 

(See also pp. 111-13)  However, this attempt to maintain a clear distinction between policy and legality has not prevailed.  In passing delegated legislation, a municipality must make policy choices that fall reasonably within the scope of the authority the legislature has granted it.  Indeed, the parties now agree that the tax bylaw at issue is not exempt from substantive review in this sense.

[15]                          Unlike Parliament and provincial legislatures which possess inherent legislative power, regulatory bodies can exercise only those legislative powers that were delegated to them by the legislature.  Their discretion is not unfettered.  The rule of law insists on judicial review to ensure that delegated legislation complies with the rationale and purview of the statutory scheme under which it is adopted.  The delegating legislator is presumed to intend that the authority be exercised in a reasonable manner.  Numerous cases have accepted that courts can review the substance of bylaws to ensure the lawful exercise of the power conferred on municipal councils and other regulatory bodies: Bell v. The Queen, [1979] 2 S.C.R. 212; O'Flanagan v. Rossland (City), 2009 BCCA 182, 270 B.C.A.C. 40; Westcoast Energy Inc. v. Peace River (Regional District) (1998), 54 B.C.L.R. (3d) 45 (C.A.); Canadian National Railway Co. v. Fraser-Fort George (Regional District) (1996), 26 B.C.L.R. (3d) 81 (C.A.); Hlushak v. Fort McMurray (City) (1982), 37 A.R. 149, Ritholz v. Manitoba Optometric Society (1959), 21 D.L.R. (2d) 542 (Man. C.A.).

[16]                          This brings us to the standard of review to be applied.  The parties agree that the reasonableness standard applies in this case.  The question is whether the bylaw at issue is reasonable having regard to process and whether it falls within a range of possible reasonable outcomes: Dunsmuir, at para. 47.