Discussion Paper: Status of Limited Distribution Tariffs under the Canada Transportation Act
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The Canada Transportation Act (CTA) identifies two mechanisms which govern the commercial relationship between railway companies and shippers: tariffs and confidential contracts. However, at least one hybrid mechanism has developed within the industry: limited distribution tariffs (LDTs). The use of LDTs and, potentially, any other hybrid mechanism to initiate movements of traffic is not explicitly provided for in the CTA. This raises the question of how hybrid mechanisms like the LDT fit into the CTA's legislative scheme and if they do not, whether they should.
The status of LDTs under the CTA is an important issue as it appears that their use is becoming more widespread in the shipment of all types of commodities by rail. There are also differing views within the shipper community as to the value and acceptability to them of such hybrid mechanisms.
On the one hand, it can be argued that hybrids like the LDT are not valid rate-setting mechanisms because they are not expressly provided for in the CTA. On the other hand, this may be a case where legislation does not keep pace with industry practice and, insofar as they are not inconsistent with legislative intent, perhaps hybrid mechanisms should be an accepted mechanism.
Division IV of Part III of the CTA regulates, in large part, the commercial relationship between railways and shippers. Section 117 of the CTA provides that a railway company shall not charge a rate unless it is set out in a tariff or a confidential contract. Each of these terms is defined in the legislation.
- Section 87 of the CTA defines a "tariff" as "a schedule of rates, charges, terms and conditions applicable to the movement of traffic and incidental services".
- Sections 117-119 of the CTA add further detail to this definition, namely that:
- tariffs are obligatory, in that a railway company may not charge a rate in respect of the movement of traffic unless it is set out in a tariff (or unless it appears in a confidential contract);
- tariffs must include any information required by regulation; and
- tariffs must be published and either publicly displayed or made available for public inspection.
- Section 111 of the CTA defines a "confidential contract" simply as "a contract entered into under subsection 126(1)".
- Section 126 sets out the following details in relation to confidential contracts:
- a railway company may enter into a contract with a shipper that the parties agree to keep confidential;
- the contract may contain terms respecting rates, reductions or allowances to rates in tariffs, rebates or allowances pertaining to previously charged rates in tariffs or confidential contracts, conditions relating to the traffic to be moved, and the manner in which the railway company will fulfill its level of service obligations under section 113; and
- matters governed by a confidential contract are prohibited from being submitted for final offer arbitration under section 161 of the CTA, without the consent of all the parties to the contract. As appears from this section, the CTA provides fewer recourses to parties choosing to enter into a confidential contract as compared with those who choose to use a tariff.
Tariff provisions aim to ensure rate transparency by requiring railway companies to publish their terms. Although railway companies unilaterally set their rates in tariffs, those tariffs are subject to public scrutiny and Agency oversight. It is possible to conclude, because they are published, that tariffs are of general application insofar as they can be accepted by any shipper who chooses to avail itself of their terms.
By contrast, confidential contracts were introduced into legislation to support increased competition and allow for greater commercial freedom. This mechanism was intended to allow shippers and carriers to negotiate rates and terms of carriage to the mutual benefit of each party and to keep the contents of their agreement private. As a result, the terms of a confidential contract will only apply as between the parties.
These two mechanisms have distinct, if not opposing, characteristics.
QUESTIONS FOR DISCUSSION
As noted in the Chairman's letter dated July 21, 2010, the Agency would like to hear your views on the prevalence of the use and forms of LDTs or other hybrid mechanisms and to solicit your views on the question of whether the use of such mechanisms is permitted within the legislative regime contained in Part III, Division IV of the CTA.
With a view to better understanding LDTs, Agency staff are seeking input and views on the following topics:
I. The form and formation of LDTs
- What are the characteristics of LDTs? (e.g. context, term)
- To what extent do LDTs reflect the agreement of the parties? If a shipper does not agree to a LDT offer of the railway company, what are the options available to the shipper?
- Are LDTs the only hybrid mechanism currently being used by railway companies?
II. The utility and value of LDTs
- What are the advantages and disadvantages of LDTs?
- How do these advantages/disadvantages compare with published tariffs or confidential contracts?
III. The legal status of LDTs
- Do you think the legislative scheme does, or should, allow LDTs as well as any other hybrid mechanisms to be used as a valid rate-setting mechanism?
- What are, or should be, the appropriate recourses for parties in the event of a dispute relating to LDTs or any other hybrid mechanisms?
Your comments in respect of this issue should be forwarded no later than March 1, 2011 to:
Manager, Rail Investigations
Or by electronic mail to: email@example.com
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