Agency Rulings

Decision No. 472-R-2003

August 14, 2003

APPLICATION by the Canadian American Railroad Company pursuant to subsection 127(1) of the Canada Transportation Act, S.C., 1996, c. 10, for an order directing the Canadian National Railway Company to provide interswitching at prescribed regulatory rates at East Saint John, in the province of New Brunswick.

File No. T7360/02-1

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APPLICATION

On November 4, 2002, Kugler Kandestin, a legal firm representing the Chapter 11 Trustee of the Canadian American Railroad Company (hereinafter CDAC), pursuant to the provisions of the United States Bankruptcy Act, filed an application with the Canadian Transportation Agency (hereinafter the Agency), requesting that the Agency issue an order directing the Canadian National Railway Company (hereinafter CN) to interswitch its traffic at the rates prescribed in the Railway Interswitching Regulations, SOR/88-41, from the point where the line of CN connects with the line of New Brunswick Southern Railway Co. Ltd. (hereinafter NBSR) in East Saint John to its final destination at the Potash Terminal in the port of Saint John, in the province of New Brunswick.

On December 3, 2002, CN filed its answer to the application, and on December 13, 2002, Bangor & Aroostook Railroad System (hereinafter Bangor), an affiliated company to CDAC, filed a reply to CN's answer.

In its reply, Bangor expanded the remedy originally sought to include, as an alternative to its preferred remedy which consists of an application for interswitching, the granting of running rights or a declaration to the effect that CN had breached its common carrier obligations.

In early January 2003, Montreal, Maine & Atlantic Railway, Ltd. (hereinafter MMA) and the Montreal, Maine & Atlantic Canada Company (hereinafter MMAC) acquired Bangor and its operating subsidiaries, including CDAC. The original application filed by CDAC, as amended by Bangor, was therefore continued by MMA, which is specifically seeking the following relief from the Agency:

- an order declaring that MMA is entitled to receive interswitching services, pursuant to section 127 of the Canada Transportation Act (hereinafter the CTA), for potash traffic carried for and on behalf of MMA by its subcontractor, NBSR, from the NBSR/CN connection in Saint John to the Potash Terminal located on CN's line in the port of Saint John, at the rates prescribed in the Railway Interswitching Regulations;

- in the alternative, an order which would grant to MMA, in respect of potash traffic carried by MMA's subcontractor, NBSR, for and on behalf of MMA, the right to run and operate its trains over the rail lines belonging to CN from the NBSR/CN connection in Saint John to the Potash Terminal located in the port of Saint John, pursuant to section 138 of the CTA;

- in the further alternative, a declaration that CN has failed to fulfil its statutory obligations to provide a reasonable level of service and, in particular, its level of service obligations regarding the receiving and delivering of traffic, as set out in subsection 114(1) of the CTA, by refusing to grant MMA access to the Potash Terminal, located on the line of CN in the port of Saint John.

PRELIMINARY MATTERS

In its letter dated December 19, 2002, CN filed a number of procedural objections based on the grounds that there was an unusual confusion as to the true status of the applicant and the nature of the proceedings. CN contended that these conditions, combined with the dramatic change to the scope of the proceedings at the reply stage constituted a blatant breach of the procedural rules and those of fairness and natural justice, in that it placed CN in a unfair position in having to respond to critically undefined and deficient pleadings. Accordingly, CN requested that the Agency dismiss the proceedings as being deficient in fact and in law, subject to the rights of the applicant to refile an appropriate and adequate application.

By Decision No. LET-R-13-2003 dated January 23, 2003, the Agency, in light of CN's procedural objections with respect to the identity of the applicant, the remedies being sought and the facts filed in support of the application, and in light of the transaction in early January 2003 which led MMA and MMAC to purchase Bangor and its operating subsidiaries, including CDAC, addressed interrogatories to MMA in order to get clarifications on a number of issues.

MMA submitted that its management resources were almost completely dedicated to the start up of the new railway operations and requested an extension of time to respond to the interrogatories, which MMA filed on March 7, 2003. By letter dated March 11, 2003, CN claimed that the response to the interrogatories filed by MMA contained numerous new elements of information and, consequently, requested that the document be considered as a de novo submission in order to provide CN with a full and complete opportunity to respond. By Decision No. LET-R-67-2003 dated March 18, 2003, the Agency, in consideration of the rules of natural justice, initiated a further exchange of pleadings in accordance with the rules for the filing of an answer and a reply prescribed in the National Transportation Agency General Rules, SOR/88-23 (hereinafter the General Rules). As a result, CN filed an additional answer to the application on April 24, 2003 and MMA filed its reply to the answer on May 5, 2003.

In its answer, MMA made a number of claims for confidentiality, pursuant to section 11 of the General Rules, on the grounds that the disclosure of some of the requested information would result in competitive harm to MMA. By letter dated March 13, 2003, CN contested the claims for confidentiality made by MMA and requested that the Agency order MMA to release a full and complete copy of its answer to the interrogatories. By letters dated March 28 and April 3, 2003, CN confirmed that it was satisfied with the level of disclosure of the expurgated documents produced by MMA.

ISSUES

The issues to be addressed are:

- whether it is warranted to order CN, pursuant to section 127 of the CTA, to provide interswitching services for potash traffic carried for and on behalf of MMA by its subcontractor, NBSR, from the NBSR/CN connection in Saint John to the Potash Terminal located on CN's line in the port of Saint John, at the rates prescribed in the Railway Interswitching Regulations;

- alternatively, whether it is warranted to grant to MMA, in respect of potash traffic carried by MMA's subcontractor, NBSR, for and on behalf of MMA, the right to run and operate its trains over the rail lines belonging to CN from the NBSR/CN connection in Saint John to the Potash Terminal located in the port of Saint John, pursuant to section 138 of the CTA;

- alternatively, whether CN has failed to fulfil its common carrier obligations, as set out in sections 113 to 115 of the CTA, by allegedly refusing to interswitch potash traffic at the Saint John connection. Should the Agency decide that CN has breached its common carrier obligations to provide adequate service, the Agency must then determine whether relief is appropriate, including the secondary issue of whether MMA is entitled to receive regulated interswitching services in Saint John, and whether MMA would suffer substantial commercial harm if relief were not granted.

FACTS

By Decision No. 690-R-2002 dated December 24, 2002, the Agency issued a certificate of fitness, effective December 30, 2002 to MMA and its wholly-owned subsidiary, the MMAC. The said certificate of fitness, as amended by Decision No. 448-R-2003 dated August 7, 2003 allows MMA to operate a railway:

- between the Canada/United States border at mileage 32.63 of the Newport Subdivision, [near Glenton, Quebec], and the Canada/United States border at mileage 43.32 of the Newport Subdivision [near Highwater, Quebec];

- between the Canada/United States border near Saint-Léonard, New Brunswick and Saint-Léonard, New Brunswick;

Similarly, the certificate permits the MMAC to operate a railway:

- between Saint-Jean, Quebec and Lennoxville, Quebec; between Ste-Rosalie, Quebec and Farnham, Quebec; between Farnham, Quebec and Stanbridge, Quebec; between Brookport at mileage 0.0 of the Newport Subdivision and the Canada/United States border at mileage 26.25 of the Newport Subdivision [near Sutton, Quebec];

- between Lennoxville, Quebec and the Canada/United States border near Boundary, Quebec; and

- by virtue of an interchange agreement with the Canadian Pacific Railway Company (hereinafter CP), on CP's Adirondack Subdivision between Saint-Jean, Quebec and Saint-Luc Junction, Quebec.

The Agency declared that MMA is subject to federal jurisdiction, by virtue of paragraph 88(2)(a) of the CTA, as it is a company operating a railway from the United States into Canada. Furthermore, the Agency declared that MMAC is subject to federal jurisdiction, by virtue of paragraph 88(2)(b) of the CTA, as it is a wholly-owned subsidiary of MMA, a railway within the legislative authority of Parliament.

POSITIONS OF THE PARTIES

The applicants

MMA explains that, for the purposes of the proceedings, it is the successor in fact to the trustees in bankruptcy of CDAC, Van Buren Bridge Company, Bangor & Aroostook Railroad Company and Quebec Southern Railway Ltd., which, together with the Northern Vermont Railroad, comprised the system of the Bangor & Aroostook Railroad. MMA purchased a significant number of Bangor's assets.

MMA submits that CN acted in a manner tantamount to a refusal to permit a large shipment of potash to be carried by CDAC and interswitched to CN's line from the NBSR/CN connection in Saint John to the Potash Terminal in the port of Saint John in August 2002. MMA indicates that over the period leading to mid-August 2002, CDAC, in connection with CP, successfully negotiated an agreement with Canpotex, a fertilizer shipper located in Saskatchewan, to transport potash fertilizer from western Canada to Saint John, for exportation. Pursuant to the agreement, CP would carry the traffic from Yarbo, in the province of Saskatchewan, to Saint-Jean, in the province of Quebec, where the traffic would be transferred to CDAC, which would haul the cars to Brownville Junction, Maine, and then interchange it to EMR/NBSR which would in turn deliver the cars to CN at the CN/NBSR connection in Saint John, for delivery to its final destination at the Potash Terminal in the port of Saint John. Bangor specifies that the only rail access to the Potash Terminal is over the line of CN.

MMA contends that the overall route was a CP and CDAC movement as CDAC was the railway company completely responsible for the carriage and delivery of the traffic from Brownville Junction to the Potash Terminal. Under this arrangement, NBSR would act as a haulage carrier and its only role is to provide subcontracted haulage to the CN line for and on behalf of CDAC.

MMA explains that in mid-August 2002, Canpotex gave to CP a block of 111 cars loaded with potash destined for the Potash Terminal in the port of Saint John. According to MMA, CN advised that it would not provide interswitching at the prescribed rates and would accept no liability for the train. MMA contends that because of CN's refusal to accept liability for the train, CDAC was unable to give NBSR a guarantee of revenue and, consequently, NBSR refused to accept the train. Bangor indicates that Canpotex was then forced to make alternate arrangements with CN to transfer the traffic to CN at Montréal for delivery to the Potash Terminal at Saint John. Accordingly, MMA emphasizes that when the train arrived in Montréal, instead of being routed as previously authorized by the shipper via CDAC-NBSR, the traffic was rather diverted to CN for a direct delivery to the Potash Terminal.

MMA submits that as a result of CN's refusal to accept liability for the train and its denial of access, CDAC lost a valuable business opportunity to carry and deliver potash from western Canada and, similarly, CN secured a valuable revenue haul for itself. MMA contends that CN had an obligation to interswitch the potash train arriving at the port of Saint John on a MMA routing under haulage subcontract with NBSR/EMR entered into for and on behalf of MMA.

MMA stresses that it has no running rights agreement with NBSR, and the latter operates only as a haulage vehicle, under subcontract with MMA and carries MMA traffic for which MMA is responsible to the shipper. MMA emphasizes that it is the "railway line" by virtue of the subcontract made for NBSR to carry goods on its behalf, and by virtue of the Bill of Lading and Confidential Contract existing. MMA stresses that the connecting federally-regulated "railway line" referred to in subsection 127(1) of the CTA is MMA and not NBSR.

Bangor contends that there is no policy or legal reason why a federally-regulated railway company should have an obligation to interswitch with another federally-regulated railway company where their respective lines physically connect, and on the other hand these interswitching obligations do not extend to another federally-regulated railway company which connects to it by virtue of a haulage agreement over the lines of a provincially-regulated railway company. Furthermore, Bangor also stresses that, pursuant to subsection 128(4) of the CTA and given the transfer of the line from CP to NBSR in January 1995, interswitching should be available in Saint John as of right because CP, the previous owner of the NBSR line, was federally regulated.

As to the level of service obligations, MMA relies on sections 114, 115 and 116 of the CTA and requested that the Agency find that CN's conduct was a failure to fulfil its statutory level of service obligations. Furthermore, MMA questions this conduct considering that non-potash traffic carried by CDAC and its subcontractor, NBSR, had been interswitched by CN at Saint John for a period of over seven and a half years. But in respect of potash traffic, prior to the agreement, CN had handled all of Canpotex's tonnage for export via Saint John directly from the mine site in Saskatchewan.

In respect of the application for running rights, Bangor submits that it would be in the public interest to grant running rights because the Potash Terminal should have access to traffic carried by other carriers than CN, by virtue of the national transportation policy, as outlined in section 5 of the CTA. Bangor insists that should CDAC, and now MMA, not be entitled to interswitching, then the policy objectives of the CTA would be defeated and the Potash Terminal would be captive to CN and would effectively lose competition.

CN

CN stresses that CDAC does not operate a railway in the province of New Brunswick and the only connection that exists in Saint John is between CN and NBSR, which is a provincially-incorporated and operated railway company. CN questions the standing of CDAC to file the complaint as it does not operate any railway in Saint John, it does not connect with CN at Saint John, it does not have a mandate to represent or act on behalf of NBSR nor does it represent any shipper or consignee who allegedly may have suffered from CN's deficient services.

CN emphasizes that CDAC is seeking a declaration that certain provisions of the CTA and regulations are applicable to CN; it is merely seeking a ruling in abstracto as to the scope of the legal obligations of CN with respect to the interchange activities at Saint John. According to CN, there is no statutory authority for the Agency to make the requested declaration.

CN contends that CDAC provided no particulars whatsoever to substantiate its allegations that CN has declined to honour its legal obligation to provide interswitching in East Saint John. Accordingly, CN concludes that unless CDAC provides documented evidence to substantiate its claims, the application should be dismissed.

In response to subsequent documents filed by Bangor and MMA, CN questions the standing of CDAC to file the application it did on two formal grounds: CDAC and now MMA have no standing to seek the determination of the status of the rail interchange at Saint John as this is a matter between the actual operators, NBSR and CN; furthermore, the decision requested from the Agency is hypothetical as the traffic in question was never interlined with CN at destination, but rather was routed to final destination at the Potash Terminal, as requested by CP.

CN strongly objects to the allegations made to the effect that it has not met its level of service obligations by refusing to interswitch traffic at Saint John to the Potash Terminal as the so-called CDAC traffic was never tendered to CN at Saint John for transfer to the Potash Terminal. CN stresses that it never denied the transfer of railway cars from the CN/NBSR connection at Saint John to the Potash Terminal and concludes that the lack of critical and factual elements is sufficient for the Agency to proceed with an outright dismissal of the application.

CN emphasizes that MMA has purchased from the Trustee in Bankruptcy the assets of CDAC/Bangor, but not the companies themselves, nor their business, and, accordingly, MMA has no standing in these proceedings and no involvement with the alleged events of August 2002 leading to the current application. CN indicates that nowhere can one find the clear and unambiguous statement that MMA has bought the shares and/or business of the former CDAC/Bangor and has inherited their rights and obligations. In that context, CN concludes that MMA has no legal standing to pursue a debate for and in the name of CDAC/Bangor, and in connection with facts prior to the time it acquired any legal status as a railway company in Canada.

Furthermore, CN indicates that MMA is in an even worse position as the Commercial Agreement dated September 30, 2000, between CDAC/Bangor and EMR/NBSR, was never assigned by NBSR and EMR and, indeed, MMA, by virtue of its certificate of fitness, has no operating authority over this route. Therefore, CN questions why MMA would request running rights over the lines of CN in the port of Saint John to deliver potash traffic at the terminal when, in fact, it has no authority to operate over the NBSR/EMR trackage to reach Saint John.

CN concludes that the application of CDAC was ill-founded in law and in facts and, therefore, should be dismissed by the Agency.

ANALYSIS AND FINDINGS

In making its findings, the Agency has examined all of the evidence submitted by the parties during the pleadings, as well as all relevant considerations. The remedies sought by the applicants are considered separately below.

Application for interswitching

As part of the remedy sought, MMA made an application, pursuant to subsection 127(1) of the CTA, for an order directing CN to provide interswitching at prescribed regulatory rates at East Saint John.

Subsections 127(1) and (2) of the CTA provide that:

(1) If a railway line of one railway company connects with a railway line of another railway company, an application for an interswitching order may be made to the Agency by either company, by a municipal government or by any other interested person.

(2) The Agency may order the railway companies to provide reasonable facilities for the convenient interswitching of traffic in both directions at an interchange between the lines of either railway and those of other railway companies connecting with them.

The Agency points out that the term "railway company" refers to a railway within the legislative authority of Parliament that holds a certificate of fitness issued under section 92 of the CTA.

In Saint John, CN, a railway company operating under federal jurisdiction, connects with NBSR, which is a provincially-incorporated and operated railway company. In the absence of a connection between two federally-regulated railway companies, Saint John does not satisfy the definition of an interchange, as outlined in section 111 of the CTA, and, therefore, the Railway Interswitching Regulations do not apply in Saint John.

Bangor contended that there is no policy or legal reason why a federally-regulated railway company should have an obligation to interswitch with another federally-regulated railway company where their respective lines physically connect, and on the other hand these interswitching obligations do not extend to another federally-regulated railway company which connects to it by virtue of a haulage agreement over the lines of a provincially-regulated railway company. MMA insisted that CDAC was the railway company completely responsible for the carriage and delivery of the traffic from Brownville Junction to the Potash Terminal and added that, under the arrangement, NBSR would be acting as a haulage carrier and its only role was to provide subcontracted haulage to the CN line for and on behalf of CDAC. MMA contended that the connecting federally-regulated "railway line" referred to in subsection 127(1) of the CTA is MMA and not NBSR, and that, consequently, CN had an obligation to interswitch the potash train arriving at the port of Saint John on a MMA routing under haulage subcontract with NBSR/EMR entered into for and on behalf of MMA.

The provisions of the CTA require that to be eligible for regulated interswitching, a connection must exist, that is in conformity with the definition of an interchange which is defined as follows: "interchange" means a place where the line of one railway company connects with the line of another railway company and where loaded or empty cars may be stored until delivered or received by the other railway company. It is clear from the definition of an interchange that a physical connection of two federally-regulated railway companies is required. In Saint John, there is no ambiguity that the line of CN connects with the line of NBSR. The Agency cannot accept the rationale made by MMA that because NBSR operates in this case as a subcontractor for MMA, it would confer the status to MMA of having a line of railway in Saint John. Furthermore, this rationale is in contradiction with the certificate of fitness issued to MMA; MMA did not make an application for a certificate of fitness in respect of a line of railway in Saint John.

Bangor also stressed that pursuant to subsection 128(4) of the CTA and given the transfer of the line from CP to NBSR in January 1995, interswitching should be available as of right because CP, the previous owner of the NBSR line, was federally-regulated.

Subsection 128(4) of the CTA preserves the entitlement of shippers to an interswitching rate where they are located on a line of a federal railway that has been transferred under Division V of the CTA or section 158 of the National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.) (hereinafter the NTA, 1987) and became a provincial railway. Subsection 128(4) of the CTA provides that: "For greater certainty, the transfer of a railway line, or an operating interest in it, under Division V or section 158 of the National Transportation Act, 1987 does not affect any entitlement to an interswitching rate."

The Agency notes that the line of railway connecting in Saint John with CN, which was acquired from CP by NBSR, was not transferred pursuant to section 158 of the NTA, 1987, which covers the conveyance of railway lines without abandonment. Pursuant to Decision No. 569-R-1993 and Order No. 1993-R-266 dated August 23, 1993, the National Transportation Agency ordered the abandonment of the operation of the line and therefore, the entitlement of shippers to regulated interswitching services is not applicable in the present case.

In light of the foregoing, the application for an order directing CN to provide interswitching at prescribed regulatory rates at Saint John is dismissed.

Application for running rights

Alternatively, MMA is seeking an order which would grant, in respect of potash traffic carried by MMA's subcontractor, NBSR, for and on behalf of MMA, the right to run and operate its trains over the rail lines belonging to CN from the NBSR/CN connection in Saint John to the Potash Terminal located in the port of Saint John, pursuant to section 138 of the CTA.

Subsection 138(2) of the CTA provides that: "The Agency may grant the right and may make any order and impose any conditions on either railway company respecting the exercise or restriction of the rights as appear just or desirable to the Agency, having regard to the public interest".

As outlined in Decision No. 505-R-2002 dated September 10, 2002 in the case of Ferroequus Railway Company Limited v. CN, when filing an application for running rights, an applicant must, at a minimum, prove that there exists a problem in the marketplace that could be addressed by granting running rights. Specifically, that regulatory intervention through the granting of running rights is necessary to correct a problem that the market, without regulatory intervention, would be otherwise incapable of correcting.

In reviewing the arguments filed in respect of its application for running rights, the Agency notes that the applicants have not presented any details on how they would operate and exercise the rights if the said running rights were granted. Similarly, the applicants did not file any arguments, other than the level of service complaint which will be examined below, indicating as to how the granting of running rights would benefit the public interest.

Moreover, as established in its consideration of the previous issue, the Agency notes that MMA does not have a line of railway connecting at Saint John nor does it operate a railway in Saint John. During the exchange of pleadings, MMA indicated that, in the past, it has tried to negotiate a running right agreement with NBSR but the negotiations failed to materialize into a concrete agreement. Given that MMA does not have any operations whatsoever in Saint John, the granting of running rights over the line of CN from the connection in Saint John to the Potash Terminal in the port of Saint John would serve no useful purposes as MMA would not be in a position to directly exercise these running rights.

Accordingly, the application for running rights in the port of Saint John is dismissed.

Level of service complaint

Sections 113 to 115 of the CTA set out the statutory obligations of federally-regulated railway companies and include the services that a railway company must provide to accommodate traffic. Section 113 of the CTA deals with what is generally referred to as common carrier obligations. Under this provision, a railway company must provide, according to its powers, adequate and suitable accommodation for the receiving, loading, carrying, unloading and delivering of all traffic offered for carriage on its railway. Section 116 of the CTA confers upon the Agency the authority to investigate a complaint with respect to the level of service offered. If the Agency determines that a railway company is not fulfilling its service obligations, it may order relief. Section 27 of the CTA empowers the Agency to grant any relief that it deems just and proper, and pursuant to subsection 27(2), the Agency must, when granting relief, be satisfied that the applicant would suffer substantial commercial harm if the relief were not granted.

MMA explained that in mid-August 2002, Canpotex gave to CP a block of 111 cars loaded with potash destined for the Potash Terminal in Saint John. MMA admitted that CDAC had been unable to give NBSR a guarantee of revenue and, consequently, NBSR refused to accept the train. Concretely, it is NBSR who decided to refuse to accept the train and not CN. However, according to MMA, the traffic was not delivered in accordance with the original shipping instructions issued by Canpotex because of CN's refusal to provide interswitching at the prescribed rates at Saint John and to accept liability for the train. Bangor admitted that it was the decision of Canpotex, the party responsible for the determination of the routing of the traffic and that was directly affected by the consequences of having to reroute the traffic, to make alternate arrangements and to divert the traffic to the lines of CN at Montréal for delivery into the Potash Terminal at Saint John. Incidentally, the Agency notes that Canpotex chose not to intervene in these proceedings.

With respect to CN's conduct in handling the said traffic, the Agency has previously determined that regulated interswitching does not apply in Saint John and, consequently, CN was under no statutory obligation to perform interswitching at Saint John at the rates prescribed by the Railway Interswitching Regulations. In respect of the allegation that CN refused to accept liability for the train, the Agency notes that no evidence was filed that such a decision was made.

Accordingly, the Agency concludes that there was no conclusive evidence that CN breached its common carrier obligation to provide adequate service. Notwithstanding this lack of evidence, the Agency notes that the facts surrounding MMA's application for a level of service complaint arose at a time where CDAC was the affected railway company. Given that MMA only acquired the assets of the former CDAC railway company, the Agency, as pointed out by CN, seriously questioned the right of MMA to file such a level of service complaint. Therefore, the complaint in respect of the level of service provided by CN is dismissed.

CONCLUSION

In light of the foregoing, the Agency hereby dismisses the application.