Judge John Murphy rejected a bid by Richmond County Municipal Council to head off the legal action, saying the mill's prospective buyer, Pacific West Commercial Corp., could argue its case before the court on Sept. 13.
Pacific West wants the court to terminate an agreement between Richmond County and the plant's former owner, Stora Enso.
Concluded in May 2006, the deal was later enabled in provincial legislation and fixed municipal tax rates paid by the NewPage Port Hawkesbury mill for a 10-year period.
Lawyers for Richmond County had argued that only the provincial legislature had the authority to amend a tax arrangement set out in legislation.
But Murphy said the legislation simply allowed the tax agreement to proceed.
"I do not believe the act prevents the parties from agreeing to terminate the deal," said Murphy.
The company contends it should pay about one-sixth of its current estimated tax bill of $2.5 million.
Outside court, Richmond County deputy warden Victor David said dropping the mill's assessment to about $400,000 would mean a 20 per cent tax hike for residents — something that would threaten local programs.
He said the county would rather negotiate a deal, but that's something that's proved elusive so far.
"We've had three bites of negotiations, but negotiations going backwards," David said. "We want something that's fair and equitable to the people of Richmond County."
In the absence of talks with Pacific West, chief administrative officer Warren Olsen said the municipality was prepared to make its case in court.
"We will be back in court for the real fight, which will start Sept. 13 on the merits of this," Olsen said.
In an earlier hearing Tuesday, Murphy granted an extension of the mill's creditor protection until Sept. 28.
But the judge also adjourned a decision on a further $1.5 million in spending, saying all of the interested parties hadn't been given enough notice of an agreement reached late Monday.
The money, designated for the ramp-up of operations at the mill ahead of its anticipated restart, comes from a $15.8-million fund set up by the provincial government to help keep the mill in a so-called hot idle mode.
Peter Wedlake, chief restructuring officer for court appointed monitor Ernst & Young, said the money would be used for maintenance, the inspection of machinery and to bring in limited supplies used in the paper making process.
"What we are trying to do is get the mill ready to start producing paper as soon as the deal is closed," said Wedlake.
A hearing on the agreement was scheduled for Thursday.
The mill in Point Tupper, N.S., closed last September, throwing some 600 employees out of work and affecting another 400 forestry contractors.
Vancouver-based Pacific West Commercial Corp. has indicated it wants to buy the mill for $33 million and restart one of two machines at the plant.
The province recently announced a $124.5-million financial package for the mill and the Utility and Review Board also approved a new discounted power rate.
However, the Canada Revenue Agency still has to give it's approval of the arrangement.
Pacific West has said it plans to call about 300 employees back to work by late September or early October.