Letter Decision No. 2014-10-03

Redacted version

October 3, 2014

Application by Louis Dreyfus Commodities Canada Ltd. against the Canadian National Railway Company, pursuant to section 116 of the Canada Transportation Act, S.C., 1996, c. 10, as amended.

Case number: 
14-02100

Introduction

Application

[1] On April 14, 2014, Louis Dreyfus Commodities Canada Ltd. (LDC) filed a level of service application with the Canadian Transportation Agency (Agency). LDC submits that the Canadian National Railway Company (CN) failed to fulfill its level of service obligations with respect to LDC’s elevator facilities at Glenavon, Saskatchewan (Glenavon); Aberdeen, Saskatchewan (Aberdeen); Joffre, Alberta (Joffre); and Lyalta, Alberta (Lyalta) (LDC’s Facilities).

[2] LDC requests that the Agency order CN to provide service to each of LDC’s Facilities in accordance with the terms specified in the confidential contract between LDC and CN dated redacted (Confidential Contract). LDC also requests that the Agency order CN to fulfill its level of service obligations in such a manner and within such time or during such period as the Agency deems expedient having regard to all proper interest, and that the particulars of the obligations to be fulfilled be specified by the Agency.

Issue

[3] Did CN breach its level of service obligations in relation to LDC’s Facilities for the receiving, carrying and delivering of rail cars as defined by the Confidential Contract, including in consideration of sections 113 to 115 of the Canada Transportation Act (CTA) as indicated in the Confidential Contract?

BACKGROUND AND OVERVIEW

[4] Sections 113 to 115 of the CTA establish a railway company’s statutory level of service obligations and subsection 113(4) of the CTA provides that a railway company and a shipper may agree on the manner in which the railway company will fulfill these obligations to the shipper. When such an agreement, including a confidential contract, exists, subsection 116(2) of the CTA provides that the terms of that agreement are binding on the Agency in making its determination under section 116 as to whether a railway company met its level of service obligations.

[5] The Confidential Contract between CN and LDC governs CN’s level of service obligations to LDC in this case. Pursuant to subsection 116(2) of the CTA, the Agency must take into account the terms of the Confidential Contract when evaluating LDC’s application. The Agency notes that in this case, the Confidential Contract reflects the parties’ agreement that the level of service provisions continue to apply. redacted :

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[6]  redacted . As CN and LDC are subject to the CTA and the terms of the Confidential Contract, the Agency considers it appropriate to divide its decision into two parts:

  1. the Agency will set out the evaluation approach to be used in examining a level of service application; and
  2. the Agency will consider the terms of the Confidential Contract.

[7] The Agency will first set out, in the sections below, the context, the legislative history and purpose, the Agency’s role in the application and the interpretation by the courts of the level of service provisions of the CTA.

[8] The majority of level of service applications received by the Agency are filed by shippers. Accordingly, the Agency will use the word “shipper” in this Decision in referring to applicants under the level of service provisions. However, the Agency notes that the level of service provisions of the CTA are not limited to shippers but rather provide, at subsection 116(1), for “any person” to file a level of service application. The Agency determines on a case-by-case basis whether an applicant is eligible as a “person” to have its case considered under section 116 of the CTA. In this case, no issue was raised as to LDC’s eligibility to apply under the level of service provisions of the CTA.

Context of the level of service provisions

[9] In this section, the Agency will provide a brief summary of the salient points of the level of service provisions and what they are designed to achieve.

[10] Sections 113 to 115 of the CTA are referred to as “common carrier” obligations and they have been designed as a shipper remedy. One of the purposes of the provisions is to enable the Agency to establish the level of service, which, in a normal competitive environment, would be expected to be set naturally by market forces. That is to say, the provisions are intended to ensure that the level of service is not established solely on the basis of a railway company’s interests and preferences, especially where railway companies can exercise monopoly power over captive shippers. When interpreting these provisions, it is necessary to give them the fair, large and liberal construction and interpretation that best ensures the attainment of their objectives. This means that an overly restrictive interpretation that does not attain its objectives must be rejected.

[11] The national transportation policy in paragraph 5(a) of the CTA provides that competition and market forces are the prime agents in providing viable and effective transportation services. Paragraph 5(b) allows for regulation and strategic public intervention to be used to achieve economic outcomes that cannot be achieved satisfactorily by competition and market forces alone.

[12] The Agency recognizes that transportation is a derived demand. Freight railway companies do not operate except to carry goods that are produced by other economic actors and it is the financial health of these primary economic actors that is protected by sections 113 to 115 of the CTA. However, these actors have competing interests. Essentially, the interests of the shipping community are best served by a transportation system with high capacity and intense competition. The interest of the railway companies is embodied in the industry phrase “sweating the assets,” which implies meeting the demand with the lowest possible costs in terms of infrastructure, car supply, crews and motive power. High efficiency operations with low operating ratios (typically measured by costs as a proportion of total revenues from operations) provide the best return to railway company shareholders. However, running a very lean operation has implications for the railway company’s ability to manage surges in demand or operational challenges such as infrastructure outages or adverse weather.

[13] The Agency is of the opinion that where competitive pressures are low or absent and where there is a relatively low cost to the railway company for delaying traffic or otherwise reducing the level of service, the supply of cars and motive power will tend to be set at a level that favours railway company (producer) preferences over shipper (consumer) preferences.

[14] As a shipper remedy, one of the purposes of section 113 of the CTA is to counterbalance the monopoly or near monopoly power that a railway company may exert with respect to certain shippers in some circumstances. To the extent that monopoly power can be exerted, the railway company’s preferences will overwhelm shippers’ preferences in terms of the overall car supply, supply of motive power, delays, deployment of crews and other level of service issues. In other words, it allows the railway company to impose its operational preferences on shippers to meet its operational efficiency objectives and maximize its own profit, even if this produces a suboptimal economic outcome with respect to the industry it serves.

[15] As set out in further detail in the following section, the level of service provisions have been a robust part of the CTA and its predecessors since before Confederation. They have been retained with little alteration through numerous legislation reviews by Parliament. Many shippers are captive to a single railway company and therefore lack bargaining power either on pricing or on level of service or both. As Class 1 railway companies rationalize their rail systems through discontinuance and abandonment, more shippers become captive. The level of service provisions exist to ensure suitable and adequate conditions for shippers, especially those who are captive or do not have other viable economic alternatives due to the volumes and distances involved.

[16] The Agency’s powers under section 116 of the CTA are broad enough to authorize the Agency to make orders affecting practically all aspects of a railway company’s business and operations where necessary to remedy a breach of its level of service obligations. Considering the language used in subsection 116(4) of the CTA in describing the orders that the Agency may make to remedy a breach of level of service obligations, it is clear that Parliament intended the Agency to have all the remedies necessary to correct any breach of level of service obligations. This includes the power to require a railway company to acquire property and the power to make orders respecting the allocation of cars or motive power.

Legislative history, purpose and the Agency’s role in the application of the level of service provisions

[17] The statutory level of service or common carrier obligations of federal railway companies are set out in sections 113 to 115 of the CTA. These sections clearly establish that a railway company has an ongoing duty to furnish adequate and suitable accommodation and to transport traffic without delay.

[18] Section 116 of the CTA allows any person to make a complaint to the Agency that a railway company is not fulfilling its service obligations. If the Agency makes such a finding, it may exercise the remedial powers set out in subsection 116(4) of the CTA. In addition to making orders with respect to car and motive power supply, the Agency may order such corrective action as it deems appropriate with respect to fleet acquisition, deployment, construction or other system-level remedies. It also provides the Agency broad latitude with respect to the timing and duration of orders and authorizes it to order compensation for expenses incurred as a result of a level of service breach.

[19] The level of service provisions must be read in light of the national transportation policy, which addresses the need for a competitive, economic and efficient national transportation system that meets the highest practicable safety and security standards and contributes to a sustainable environment at the lowest total cost. In order to advance the national transportation policy’s objective of enabling competitiveness and economic growth in both urban and rural areas throughout Canada, the provisions must be read in a manner that ensures that the Canadian economy is not negatively affected by the practices or preferences of railway companies where they unduly restrict the ability of shippers to move their goods.

[20] While paragraph 5(a) of the CTA emphasizes these objectives, it is tempered by paragraph 5(b), which allows for regulation and strategic public intervention to be used to achieve economic outcomes that cannot be achieved satisfactorily by competition and market forces alone. Sections 113 to 115 of the CTA provide a clear example of such a public intervention imposing common carrier obligations on federal railway companies.

[21] With respect to grain transportation, historically, federal and provincial governments provided a fleet of hopper cars for the railway companies and the management of the grain hopper car supply was often shared by a number of other players, including the industry-led Car Allocation Policy Group and the Canadian Wheat Board. However, the Class 1 railway companies now have sole discretion over the operation of their railways, including the size of the motive power and hopper car fleets, the allocation of cars and assignment of motive power and crews. The means for providing suitable and adequate service lies entirely in the hands of the railway companies.

[22] Regardless of changes in the grain handling and transportation system, the CTA does not authorize a railway company to refuse to provide service. As set out in subsection 113(2) of the CTA, a railway company must move traffic to destination upon payment of the lawful rate and it must, for that purpose, furnish adequate and suitable accommodation. In that sense, a railway company’s service obligations with respect to shippers are unconditional, subject to a shipper meeting its correlative obligations.

[23] The CTA is specific about the railway company’s duty, which is to provide adequate and suitable accommodation for “all traffic offered for carriage…” That is to say the obligation of a railway company is owed to each individual shipper in respect of whatever traffic is tendered to the railway company by each shipper. It does not imply that a breach to one shipper is acceptable if there are breaches to others. It also does not imply that a superior level of service to one shipper excuses or justifies an inferior level of service to another shipper. This is clear because allegations of discriminatory treatment have been raised in level of service applications throughout the history of the provisions. Examples include 344-R-2007">Decision No. 344-R-2007">344-R-2007, in which the applicant alleged that the railway company’s Advance Product programs discriminated against it and other small grain handling companies in the distribution of rail cars, and Decision No. 323-R-2002, in which the applicant alleged that the railway company discriminated between competing shippers in allocating its cars. In each case, the Agency found the railway company to be in breach of its level of service obligations.

[24] In other words, the compliance of a railway company with its level of service obligations to a shipper must be assessed having regard to that specific shipper’s individual requests for rail services, not simply according to the railway company’s assessment of the combined requests of all shippers or of groups of shippers, or its car allocation or rationing policies or programs.

[25] Further, pursuant to paragraph 113(1)(c) of the CTA, the duty must be undertaken “without delay.” This means that traffic cannot be routinely allowed to build up until the railway company considers it convenient to move it.

[26] As mentioned above with respect to the context of the level of service provisions, these sections have a long legislative history. Prior to Confederation, Part XXI of the Railway Clauses Consolidation Act, 1851, 14 – 15 Vict., c. 5, stated:

The trains shall…furnish sufficient accommodation for the transportation of all such passengers and goods as shall within a reasonable time previous thereto be offered for transportation ….and the part aggrieved by any neglect of refusal in the premises, shall have an action therefor against the Company.

[27] As early as 1906, language almost identical to what is presently found in the CTA was included in the Railway Act, 1906, R.S.C, 1906, c.37. Specifically, section 284 stated:

The company shall according to its powers, -

  1. Furnish, at the place of starting, and at the junction of the railway with other railways, and at all stopping places established for such purpose, adequate and suitable accommodation for the receiving and loading of all traffic offered for carriage upon the railway;
  2. Furnish adequate and suitable accommodation for the carrying, unloading and delivering of all such traffic;
  3. Without delay, and with due care and diligence, receive, carry and deliver all such traffic;
  4. Furnish and use all proper appliances, accommodation and means necessary to receiving, loading, carrying, unloading, and delivering such traffic.

[…]

(3)   If in any case such accommodation is not, in the opinion of the Board, furnished by the company, the Board may order the company to furnish the same within such time or during such period as the Board deems expedient having regard to all proper interests; or may prohibit or limit the use, either generally or upon any specific railway or part thereof, of any engines, locomotives, cars, rolling stock, apparatus, machinery, or devices, or any class of kind thereof, not equipped as required by this Act, or by any orders or regulations of the Board made within the jurisdiction under the provisions of this Act.

(4)   Such traffic shall be taken, carried to and from, and delivered at the places aforesaid on the due payment of the toll lawfully payable therefor.

[…]

(6)   For the purposes of this section the Board may order that specific works be constructed or carried out, or that property be acquired, or the specific tolls be charged, or that cars, motive power or other equipment be allotted, distributed, used or moved as specified by the Board, or that any specific step, systems, or methods be taken or followed by any particular company or companies, or by railway companies in general.

[28] The retention of these provisions in federal legislation reflects Parliament’s acknowledgment that regulatory intervention in railway level of service matters continues to be necessary. The Agency recognized the endurance of the level of service provisions in Decision No. 344-R-2007:

[70] While the Agency acknowledges that legislative and regulatory changes have placed a greater emphasis on shippers and carriers conducting their business through commercial negotiations, it also recognizes that it was not the intent of Parliament, in allowing greater freedoms through deregulation, for the railway companies to avoid their common carrier obligations pursuant to the CTA. Simply put, throughout the legislative and regulatory changes of the last 20 years—basically deregulation—the level of service obligations have remained virtually intact. They remain as one of the remedies available to shippers who feel that the service they are receiving from a railway company is not adequate.

[29] In that Decision, the Agency also reiterated the purpose of the legislation, which was to mitigate the market failure that results from a power imbalance in favour of the railway company:

[71] In general terms, CN has the statutory obligation to provide all grain shippers, whatever their size, with adequate and suitable accommodation for the carriage of their products to the extent that the service requested is reasonable in the circumstances. This encompasses the provision of railway equipment in acceptable quantities at acceptable times. The Agency finds that in establishing car supply policies that have restrictive terms and conditions like minimum order durations and exclude significant segments of the shipper community, CN unilaterally becomes the arbiter of which of its captive shippers are eligible for a competitive advantage. Through its virtually exclusive control of rail service in portions of the western Canadian grain market, CN creates an imbalance and, inevitably, as seen in this case, a failure in the marketplace. Providing a reasonable degree of certainty to shippers like GNG of both price and supply is not, contrary to CN’s assertion, considered to be a level of service beyond a railway company’s statutory common carrier obligations.

[30] While the Agency is, under the CTA, the body responsible for determining whether a railway company has fulfilled its level of service obligations, the Agency may only intervene to remedy a breach of a railway company’s level of service obligations when it receives an application. This means that the Agency can only address applications on a case-by-case basis, even though the issues raised in an application may be indicative of system-level problems.

[31] As the level of service provisions are remedial on a case-by-case basis, their purpose cannot be achieved, for example, by assessing a railway company’s compliance with its level of service obligations using a benchmark expressed in relation to its overall average levels of service to all shippers across the network or based on “historical levels” when it has been demonstrated that a shipper’s needs have not been accommodated. For the Agency to be satisfied that a railway company has not breached its level of service obligations, the railway company must bring before it application-specific evidence of the efforts it has made to furnish adequate and suitable accommodation for the movement of the shipper’s traffic or it must provide compelling reasons why the shipper’s request cannot be reasonably accommodated.

Interpretation of the level of service provisions by the courts

[32] The Supreme Court of Canada and the Federal Court of Appeal have interpreted the statutory level of service provisions in light of the test of reasonableness. The majority of the Supreme Court of Canada in Patchett & Sons Ltd v. Pacific Great Eastern Railway Co., (1959) S.C.R. 271 (Patchett) found that the level of service obligations of railway companies are not absolute but relative ones, and that the railway company’s duty is “permeated with reasonableness in all aspects of what is undertaken except the special responsibility, of historical origin, as an insurer of goods” (page 274). However, it is clear from the set of facts in that case that what the Supreme Court of Canada contemplated was that a railway company cannot be bound to meet its level of service obligations when it is not reasonably possible to do so. In other words, a railway company cannot be bound to do the impossible. In the reasons for that ruling, Justice Rand stated what needs to be examined when deciding whether a railway company’s level of service obligations have been complied with:

The carrier must, in all respects, take reasonable steps to maintain its public function; and its liability to any person damaged by such a cessation or refusal of services must be determined by what the railway, in the light of its knowledge of the facts, as, in other words, they reasonably appear to it, has effectively done or can effectively do to meet and resolve the situation (p. 275).

[33] In Canadian National Railway Company v. Northgate Terminals Ltd, [2011] 4 F.C.R. 228 (Northgate), the Federal Court of Appeal explicitly described how the principle of reasonableness stated in Patchett was to be applied:

[35] Patchett stands for the general proposition that the duty of a railway company to fulfil its service obligations is “permeated with reasonableness in all aspects of what is undertaken” (except in relation to its special responsibility as an insurer of goods, which is not in issue in this case). As I read Patchett, the three propositions to which CN refers in its argument are not free-standing principles of law. They are guidelines that must inform any determination by the Agency of a service complaint, but they do not necessarily compel a particular outcome. That is because the determination of a service complaint requires the Agency to balance the interests of the railway company with those of the complainant in the context of the particular facts of the case.

[36] A fair reading of the decision of the Agency discloses that it was well aware of its obligation to strike a reasonable balance between the interests of CN and the interests of Northgate in the factual context of the Northgate complaint. Contrary to the submissions of CN, the Agency did not require CN to furnish cars at all times sufficient to meet all of Northgate’s demands. The Agency did not deprive CN of the right to make a reasonable charge for its services or to require an extra payment for services requested in excess of the minimum level prescribed by the Agency. Nor did the Agency require CN to provide Northgate with service in circumstances where CN had no reasonable means of access. In my view, the Agency’s decision strikes a reasonable balance that is consistent with Patchett.

[34] It is clear that Patchett and the reasonableness test do not stand for the proposition that the level of service obligations only impose a soft obligation on railway companies. Railway companies must furnish adequate and suitable accommodation for the carriage, unloading and delivering of traffic that meets the requirements of the shipper, as long as the shipper has properly triggered the level of service obligations. In this regard, the railway company must comply with those obligations unless it demonstrates that it cannot reasonably do so.

[35] Having set out the context, the legislative history and purpose, the Agency’s role in the application, the interpretation by the courts of the level of service provisions of the CTA, as well as the reasonableness test established by the courts, the Agency will now apply these to develop an Evaluation Approach for determining whether a railway company has breached its level of service obligations under the CTA.

Evaluation Approach

[36] Unless the Agency determines that an applicant is not eligible to apply under the level service provisions of the CTA, the Agency will consider three questions in evaluating a level of service application, namely:

  1. Is the shipper’s request for service reasonable?
  2. Did the railway company fulfill this request?
  3. If not, are there reasons that could justify the service failure?

(a) If there is a reasonable justification, then the Agency will find that the railway company has not breached its level of service obligations;

(b) If there is no reasonable justification, then the Agency will find that there has been a breach of the railway company’s level of service obligations and will look to the question of remedy.

[37] The Agency will apply the Evaluation Approach in cases where the level of service application is with respect to the statutory obligations set out in sections 113 to 115 of the CTA. In cases where a confidential contract or other written agreement exists pursuant to subsection 113(4) of the CTA, the Agency’s determination is bound by the terms of the confidential contract. However, whether a level of service application involves a confidential contract or not, the Agency is of the opinion that the Evaluation Approach is sufficiently robust to allow it to fully assess the merits of any level of service application filed by a shipper.

Step 1: Is the shipper’s request for service reasonable?

[38] In 344-R-2007">Decision No. 344-R-2007 (at paragraph 71), the Agency established that a railway company’s obligation is to provide cars in acceptable quantities at acceptable times. When assessing what constitutes providing cars in “acceptable quantities at acceptable times,” the Agency cannot disregard the specific needs of individual shippers. In 42-R-2010">Decision No. 42-R-2010 (at paragraph 39), the Agency stated that “[t]he statutory requirement to serve all shippers is not sufficient, in itself, to absolve the railway company of its duty to provide suitable service to any individual shipper.”

[39] The Agency finds that the needs of the shipper must be assessed having regard to the principles stated in Decision No. 323-R-2002, where the Agency found that railway companies have the obligation to provide cars and carry traffic to the extent that the service requested is reasonable in the circumstances prevailing. To the extent that the number of cars requested by a shipper is reasonable, the Agency finds that this will constitute an acceptable quantity of cars, subject only to the railway company justifying why it cannot provide this number. Consistent with this finding, the first step of the Evaluation Approach to level of service applications should begin with an evaluation of the reasonableness of the shipper’s request for service.

[40] A shipper initiates the application of the level of service provisions of the CTA by making a request for rail service. Accordingly, at this first step of the Evaluation Approach, the Agency will examine the shipper’s request to ensure that it has properly triggered the railway company’s level of service obligations. In so doing, the Agency will consider the shipper’s submissions as well as the railway company’s response with respect to the reasonableness of the request, and may consider several factors. For example, a customer’s entitlement to receive cars should be considered in terms of its own obligation to properly communicate its demands in a manner that provides the railway company with adequate notice, allowing sufficient time to plan for and make operational arrangements to respond to the shipper’s car order. Among other things, at the time of the request, the shipper must have the capacity to receive, load and release the cars requested.

[41] Where the facts indicate that the shipper has a legitimate demand for service and that it has properly triggered the level of service provisions, its request will be considered reasonable. If the Agency finds that a shipper’s request is reasonable, it will turn its attention to the second step of the Evaluation Approach.

[42] The Agency is of the opinion that this approach is in keeping with subsection 113(2) of the CTA, which requires that traffic be taken, carried to and from, and delivered upon payment of the lawful rate, and paragraph 113(1)(c), which requires that this be done without delay. Together, these provisions set out part of a railway company’s level of service obligations, which is to carry all traffic that is tendered to it for carriage and to do so without delay. Accordingly, if there is a reasonable request to transport goods, the railway company has an obligation under the CTA to transport those goods.

[43] It should be noted that parties to a level of service dispute may define a shipper’s service requirements in a confidential contract or other agreement. To the extent that they have done so and to the extent that an alleged breach relates to that service requirement, the Agency will not be required to determine whether a service requirement that comes within the terms of the confidential contract is reasonable. The Agency will instead be bound by the agreement of the parties with respect to the service to be provided to the shipper. Their agreement on this point will stand in place of the Agency’s evaluation as to whether the shipper’s service request is reasonable.

Step 2: Did the railway company fulfill this request?

[44] In general terms, a railway company has statutory level of service obligation to provide adequate and suitable accommodation for the receiving, loading, carrying, delivering and unloading of rail cars to the extent that the service requested is reasonable in the circumstances, as discussed in Step 1.

[45] Where the Agency finds that the service request is reasonable, it will determine whether the railway company has fulfilled that request.

[46] Where the parties have defined the service requirements of the shipper and the manner in which the railway company will meet those requirements in a confidential contract or other agreement, the evaluation at Step 2 will determine whether the railway company provided the service that was agreed to by the parties.

[47] If the railway company has fulfilled the request, the Agency will find that it has not breached its level of service obligations to the shipper. If not, the Agency will turn its attention to Step 3 of the Evaluation Approach.

Step 3: If not, are there reasons that could justify the service failure?

[48] Pursuant to the CTA, a federal railway company must receive, carry and deliver all traffic offered for carriage “according to its powers.” This obligation is not, however, absolute under all conditions. A railway company is not called upon to perform the unreasonable or the impossible. For this reason, where the Agency finds that a railway company has failed to respond to the reasonable request of a shipper, the Agency will turn its attention to the justifications offered by the railway company for this failure.

[49] As the Supreme Court of Canada recognized in Patchett, “the carrier must, in all respects, take reasonable steps to maintain its public function.” It is clear that a railway company’s statutory duty to furnish adequate and suitable accommodation for traffic cannot be achieved solely on a reactive basis. Predictability, sustainability and foreseeability are basic requirements for a well-functioning service to individual shippers and for the logistics system overall.

[50] In 344-R-2007">Decision No. 344-R-2007, the Agency stated that providing a reasonable degree of certainty to grain shippers in both price and supply forms part of a railway company’s statutory common carrier obligations. The Agency is of the opinion that the CTA establishes a legal requirement on railway companies to make necessary arrangements to respond to the request of a shipper, and collectively all shippers, within the parameters of section 113 of the CTA, unless it is not reasonably possible to do so.

[51] The statutory level of service obligations placed on a railway company imply that it must make an effort to identify measures in advance of the course of events and to consider necessary arrangements that can address the needs of its customers. The Agency also notes that, consistent with the level of service obligations in sections 113 to 115 of the CTA and the remedies set out in subsection 116(4) of the CTA, a railway company’s obligations to satisfy the shipper’s request could also include, for example, hiring additional staff, or modifying the frequency and timing of service, as well as making arrangements, short-term or otherwise, for the acquisition of cars or motive power. These level of service obligations are initiated by a shipper’s request for service which, in turn, is to be responded to by the railway company by, when necessary, adding capacity or adjusting frequency or timing, in order to fulfill its obligations.

[52] The Agency finds that the remedies set out in subsection 116(4) of the CTA provide guidance on the measures a railway company can be expected to take to satisfy a shipper’s request. It is with this in mind that the Agency will determine whether the railway company’s level of service meets the requirements of the traffic offered for carriage.

[53] In evaluating whether the railway company has met its level of service obligations, the Agency will therefore consider the circumstances and facts in each case; “reasonableness” must be addressed as a factual question that cannot be answered in the abstract.

[54] In 323-R-2002">Decision No. 323-R-2002, the Agency held that because the shipper did not receive the cars it had requested, the burden fell on the railway company to establish that it “had valid reasons to not provide the requested hopper cars.” The evidence justifying a failure to provide a requested service must be put on the record by the railway company because the railway company is in the best position to identify and explain such a justification and because it is the railway company that has obligations under the CTA. The Agency will assess whether the service failure is justified based on this evidence.

[55] It should be noted that parties to a level of service dispute may have defined, by agreement, the situations in which a failure to provide service is justified. Where the parties have agreed to such terms in a confidential contract or other agreement, the Agency will be bound by such terms in evaluating whether the service failure is justified, and whether the terms of the contract in such a case have been respected.

(a)   If there is a reasonable justification, then the Agency will find that the railway company has not breached its level of service obligations.

[56] Under the CTA, railway companies operate in an almost entirely deregulated environment as it relates to the allocation of resources and assets for the purpose of their operations. However, this flexibility exists only to the extent that a railway company does not breach its level of service obligations. The Agency is of the opinion that, when a railway company fails to provide service, it has to show that it was not reasonably possible for it to furnish adequate and suitable accommodation despite its efforts to do so and based on factors clearly not under its control.

[57] In determining whether a railway company has fulfilled its level of service obligations in a reasonable manner, in past decisions the Agency has considered factors such as alternatives offered and the effect that fulfillment of the complainant’s request will have on the railway company’s operations and sustainability. Where relevant, it has also considered extenuating factors outside of the control of the railway company.

[58] The Supreme Court of Canada in Patchett established that a railway company is not in breach of its level of service obligations if it is not possible for it to provide service for reasons outside of its control. In Patchett, the railway company was unable to provide service because of unlawful picketers on the customer’s property. In assessing reasonableness, the Supreme Court of Canada considered who was responsible for the impossibility of providing rail service. The Court found that because only the customer had the power to rectify the situation, the railway company did not breach its level of service obligations.

[59] When assessing whether there is a justification for failing to respond to a shipper’s needs, the Agency will determine whether the railway company was confronted with a situation outside of its control. Examples aside from that identified in Patchett might include weather conditions, terminal unloads, terminal congestion at ports, operational restrictions, and derailments.

[60] Situations where car rationing has been implemented by a railway company are one of the most complicated in terms of determining whether the railway company’s failure to deliver all cars requested constitutes a reasonable justification. In 323-R-2002">Decision No. 323-R-2002, the Agency stated that rationing of cars could be considered appropriate where there are exceptional circumstances in which the available supply of equipment is insufficient to meet the excess demand. However, the Agency made it clear in that Decision that this could occur in extreme peak demand periods for relatively short periods of time.

[61] The Agency does not consider a railway company’s failure to fulfill a service request to be justified when rationing is sustained over long periods, when peak demand periods are prolonged and predictable, or when service shortfalls are a routine aspect of the railway company’s operations.

[62] The Agency is of the opinion that in some circumstances, past shipping patterns may be relevant in evaluating whether there is a justification for a failure to fulfill a reasonable request for service. However, in situations where, for example, the size of the harvest exceeds expectations or the railway company relies on forecasted crop sizes, past shipping patterns may not be sufficient for determining whether the service provided by the railway company meets its level of service obligations. In such situations, the specific efforts made by the railway company to address the situation will also be taken into account in deciding whether the railway company is in breach of its level of service obligations.

[63] When the Agency finds that there is a reasonable justification for failing to meet a shipper’s request, it will find that the railway company has provided suitable and adequate accommodation.

[64] When the parties are governed by a confidential contract or other agreement and when the Agency finds the justification raised by the railway company, which is addressed in the contract’s terms, to be reasonable, the Agency will find that there was no breach of the level of service obligations as set out in the contract.

(b)   If there is no reasonable justification, then the Agency will find that there has been a breach of the railway company’s level of service obligations and will look to the question of remedy.

[65] A railway company cannot refuse to carry traffic offered for carriage. As set out above, the Agency will conduct its evaluation on the basis that, if the shipper’s request is reasonable, service should be provided by the railway company unless it was not reasonably possible to do so. Several examples from past Agency decisions provide guidance on what fails to constitute a reasonable justification.

[66] The Agency and its predecessors have found a level of service breach when a railway company has treated different types of traffic and shippers differently. For example, in 478-R-1992">Decision No. 478‑R-1992, the National Transportation Agency of Canada (NTA) determined that meeting the request of one type of shipper while arbitrarily imposing sanctions against a different type of shipper requesting service from the same siding constituted a breach of the railway company’s level of service obligations. In 489-R-1992">Decision No. 489-R-1992, the NTA found that giving preferential treatment to elevator cars over producer cars on a given siding constituted a level of service breach.

[67] The Agency and its predecessors have found that claims of port or rail system congestion must be supported by sufficient evidence. In 132-R-1999">Decision No. 132-R-1999, the Agency rejected a railway company’s claim that its failure to provide cars was due to congestion at the ports because this claim was not supported by the evidence. In 282-R-2001">Decision No. 282-R-2001, the Agency found that a railway company’s claim that it had to apply pipeline management constraints due to congestion in the rail system was not supported by the evidence, and that the resulting rationing of cars to the shipper was not justified.

[68] The Agency is of the opinion that spotting more cars than in previous years, in itself, may not be sufficient to determine that the level of service offered was adequate and reasonable; more grain may have been shipped because the harvest was larger.

[69] In 166-R-2009">Decision No. 166-R-2009, the Agency did not accept CN’s position that the applicant could have moved to a seven-day-per-week operation or expanded its capacity to adjust to a change in frequency of service.

[70] As stated above, the Agency will consider what was reasonably possible in the circumstances, including whether the situation was within or outside the railway company’s control. In so doing, the Agency cannot limit its consideration to the distribution of rail cars and motive power the railway company claims was available at the time an alleged breach of section 113 of the CTA took place. To do so would be tantamount to the Agency accepting the railway company’s preferences as the sole determinant of the matter. This would be inconsistent with the purpose of the level of service provisions of the CTA.

[71] The Agency recognizes that railway companies are free to make business decisions with respect to asset acquisition and utilization; for instance, by using a smaller car fleet where utilization is optimized, that is “sweating the assets.”  However, in light of the level of service obligations set out in sections 113 to 115 of the CTA, a railway company cannot do so at the expense of service. Business decisions relating to the size of the car fleet must not result in the railway company breaching its level of service obligations. As well, Parliament clearly anticipated circumstances in which the railway company’s preferences would create negative impacts on shippers. The national transportation policy and the railway company’s level of service obligations, among other requirements within the CTA, aim to accommodate the natural growth of business, not to impose a constraint on it. If this was not the case, there would have been no need to specify the remedies the Agency could apply in a breach. It is clear that, through section 116 of the CTA, Parliament provided broad remedial powers to the Agency, including the power to order the expansion of the car or motive power fleets.

[72] To allow a railway company to invoke the limited size of its fleet as a defence for an alleged breach of its level of service obligations would amount to allowing the railway company to refuse to transport traffic, or to hold off providing service until it finds it convenient to do so. This would be contrary to the intent of paragraph 113(1)(c) and subsection 113(2) of the CTA.

[73] In light of the above principles, in situations where the Agency finds the justification lacking, it will find that there has been a breach of the railway company’s level of service obligations and will turn to determining the appropriate remedy in that situation. That is, the Agency will exercise its powers and apply subsection 116(4) of the CTA to achieve a balanced resolution in accordance with the principles set by the Supreme Court of Canada in Patchett.

[74] When the parties are governed by a confidential contract or other agreement and when the justification raised by the railway company does not fall within the justifications set out in the contract, the Agency will find that there has been a breach of the level of service obligations in violation of the contract’s terms.

[75] Having set out the Evaluation Approach to be applied to level of service applications under section 116 of the CTA, the Agency will now turn its attention to the specific facts and submissions filed in this case.

THIS CASE - DID CN BREACH ITS CONTRACTUAL LEVEL OF SERVICE OBLIGATIONS TO LDC IN RELATION TO LDC’S FACILITIES?

[76] As previously described in this Decision, pursuant to subsection 113(4) of the CTA, a shipper and a railway company may, by means of a confidential contract or other written agreement, agree on the manner in which level of service obligations are to be fulfilled by the railway company. Where such an agreement exists, subsection 116(2) of the CTA states that the terms of that agreement are binding on the Agency in making its determination. In this case, the alleged service breach is a breach of the provisions of the Confidential Contract with respect to the number of cars that CN must provide to LDC.

Factual background

[77] In or about 1999, LDC informed CN that it wished to construct five new grain handling facilities in areas served by CN. A Confidential Contract between LDC and CN was executed prior to the construction of the facilities in which the parties agreed, among other things, redacted and on the manner in which CN’s level of service obligations under section 113 of the CTA are to be fulfilled.

[78]  redacted . LDC’s current application is with respect to CN’s level of service obligations as they relate to four facilities; the Glenavon, Aberdeen Joffre and Lyalta facilities. Currently, the track capacity of all four facilities is a 104 car spot.

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[82] In order to evaluate whether CN has fulfilled its level of service obligations, the Agency will apply the Evaluation Approach set out previously in this Decision.

Application of the Evaluation Approach in this case

Step 1: is the shipper’s request for service reasonable?

[83] In Step 1 of the Evaluation Approach above, the Agency indicated that to the extent that the parties to a confidential contract have defined the service requirements of a shipper in a contract and to the extent that the alleged breach relates to such service, the terms of the contract will stand in place of the Agency’s evaluation as to whether the shipper’s service request is reasonable.

[84] In this case, the alleged breach relates to the number of cars delivered by CN to LDC’s Facilities. The parties do not agree on how the Confidential Contract has addressed the number of cars to be provided to LDC. Therefore, the Agency must determine what the parties have agreed to with respect to CN’s service requirements in the Confidential Contract.

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Positions of the parties

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[99] Finally, CN argues that should the Agency consider the Confidential Contract’s terms to be ambiguous, it may look to evidence of the parties’ conduct following the signing of the Confidential Contract to determine the meaning to be attributed to redacted . redacted . CN argues that LDC engaged in a pattern of over-ordering cars in 2013/2014. CN filed two e-mails from grain terminals which, according to CN, show that LDC did not obtain authorization for its orders at the time that these orders were placed with CN. CN characterizes LDC as having a “reckless approach to car ordering.”

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[104] In response to CN’s arguments that LDC has been phantom ordering cars, LDC states that these allegations are unsubstantiated and claims that at the time each order was placed, LDC had sales, confirmed terminal capacity and authorization for the order. LDC argues that the examples provided by CN ignore the reason why LDC orders were, at the time the application was filed, no longer authorized, namely that CN failed to serve LDC’s orders for several consecutive weeks or months in a row. redacted . While LDC does not dispute that it has ordered more cars in 2013/2014 than in previous years, it argues that this is due to the fact that it more than doubled its terminal capacity in Vancouver.

Analysis and findings

[105] In their respective pleadings, CN and LDC address what, in their view, they have agreed upon with respect to the service to be provided to LDC. As CN and LDC do not agree on the effect to be given to certain sections of the Confidential Contract, the Agency will apply the rules of contract interpretation to determine how the Confidential Contract addresses the question of service requirements.

Rules of contract interpretation

[106] In reading a contract, a few basic rules must be applied:

  • the contract should be read as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more terms ineffective;
  • the intention of the parties should be determined in light of the language they have used in the contract, on an objective basis; 
  • objective evidence of the surrounding circumstances or factual matrix underlying the negotiation of the contract may be considered; and
  • the contract may be interpreted in a manner consistent with sound commercial principles, so as to avoid a commercial absurdity.

[107] The Supreme Court of Canada recently set out certain basic principles of contract interpretation in Sattva Capital Corp. v. Creston Moly Corp, 2014 SCC 53. The Court emphasized that in interpreting a contract, “the goal of the exercise is to ascertain the objective intent of the parties – a fact-specific goal – through the application of legal principles of interpretation” (paragraph 49). The Court also found:

[50] […] Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.

[108] The Court addressed the role and nature of the “surrounding circumstances” or “factual matrix” and emphasized that while these can be considered, they must not supersede the words of the contract, and must consist of objective evidence:

[57] While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62).

[58] The nature of the evidence that can be relied upon under the rubric of “surrounding circumstances” will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann, “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man” (Investors Compensation Scheme, at p. 114). Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact.

Interpretation of the Confidential Contract between LDC and CN

[109] Based on the wording of the Confidential Contract, the Agency makes the following findings:

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[110] In the Confidential Decision dated May 2, 2014 (Interim Order), the Agency, based on the evidence available at that time, found the arguments of LDC to be more persuasive and determined that redacted . The Agency has now had the opportunity to review and consider all the evidence filed by the parties in support of their claims with respect to the interpretation to be given to the terms of the Confidential Contract.

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[118] The Agency will now turn its attention to the number of cars ordered by LDC in the period covered by the application. Table 1 shows the number of cars ordered by LDC from Week 1 to Week 35 of the 2013/2014 Crop Year and is based on the submissions of both parties. LDC submitted car order data for each facility; however, CN only submitted car order data at the aggregate level. Where CN’s data differs from LDC’s, it is indicated in parentheses.

TABLE 1: Cars Ordered
Week # # of cars ordered Total
Aberdeen Joffre Lyalta Glenavon
1 0 0 0 0 0
2 100 15 0 35 150 (151)
3 0 0 0 0 0 (104)
4 98 0 0 0 98 (0)
5 0 0 104 0 104
6 0 0 104 0 104
7 0 0 104 104 208 (156)
8 104 104 106 0 314 (364)
9 104 104 104 52 364 (362)
10 104 104 155 0 363 (312)
11 0 90 0 0 90 (154)
12 0 0 0 104 104
13 104 104 52 0 260
14 111 0 104 0 215 (208)
15 0 104 0 104 208
16 104 51 0 104 259
17 104 104 155 104 467 (468)
18 104 0 104 0 208
19 0 104 0 104 208
20 0 0 0 0 0
21 108 104 104 5 321
22 52 0 104 0 156
23 104 104 104 0 312
24 104 108 104 0 316
25 0 0 104 55 159
26 104 104 0 104 416
27 104 104 104 104 416
28 104 104 104 104 416
29 104 104 104 104 416
30 104 104 104 104 416
31 104 104 104 104 416
32 104 104 104 104 416
33 104 104 104 104 416
34 208 104 104 0 416
35 104 104 104 104 416
 

[119]  redacted .

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[121] The data show that during the 2013/2014 crop year, there were several weeks where LDC did not place any car orders at its facilities, redacted .

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Conclusions with respect to Step 1

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Step 2: Did CN fulfill LDC’s service requirements?

[128] With respect to Step 2 of the Evaluation Approach, where the parties have agreed on the service requirements owed by the railway company to a shipper in a confidential contract, the Agency’s analysis will turn to whether the railway company actually provided the service that was agreed upon by the parties.

[129]  redacted . The Agency will therefore, in Step 2, determine whether there are discrepancies between the number of cars ordered and the number of cars delivered in this case. If discrepancies exist, the Agency will turn to Step 3 of the Evaluation Approach to determine whether these discrepancies are justified.

Position of LDC

[130] LDC submits that CN’s erratic, unreliable and inadequate service at the facilities has constituted, and continues to constitute, a breach of CN’s level of service obligations to LDC.

[131] LDC goes on to claim that from January 4 to March 29, 2014, CN repeatedly refused service into Glenavon. LDC provided data in support of its claim of service shortfalls at its facilities. According to LDC, CN has failed to provide a total of 3,497 hopper cars in the current crop year.

[132] LDC submits that:

  • Glenavon began experiencing rail car order shortfalls in Week 16 and saw no Service Units from Week 25 to Week 35; 
  • Aberdeen experienced rail car order shortfalls in Week 13, Week 14 and Week 21 and saw no Service Units in Week 22 and Week 28 as well as from Week 30 to Week 35;
  • Joffre experienced rail car order shortfalls in Week 23 and saw no Service Units in Week 28 and from Week 30 to Week 35; and
  • Lyalta experienced rail car order shortfalls in Week 17, Week 21 and Week 22 and saw no Service Units in Week 27 and from Week 30 to Week 35.
Analysis and findings

[133] The Agency notes that CN did not object to LDC’s claims with respect to CN’s service to LDC’s Facilities.

[134] The Agency notes that CN did not dispute the data submitted by LDC; the data submitted by CN on car orders is consistent with LDC’s data except in two instances, as set out in Table 2 below.

[135] The Tables below show the number of cars ordered by LDC, the number of cars served by CN and the difference for Week 1 to Week 35 of the 2013/2014 Crop Year, by each facility.

[136] LDC submitted cars ordered and cars served data for each facility for the 2013/2014 Crop Year. CN submitted, by facility, a summary of waybill records showing the number of cars shipped in the 2012/2013 Crop Year and the 2013/2014 Crop Year. The Agency notes that CN submitted these data for the purpose of showing that there is usually very little demand for cars at Glenavon in the winter months. However, because these data include information for all four facilities, the data are included in the Tables below and are shown in parentheses where they are different from the data provided by LDC. As CN did not provide data on the number of cars ordered by facility to compare against its number of cars shipped by facility data, the Agency’s analysis will be based on LDC’s data.

TABLE 2: Aberdeen  - Cars Ordered, Cars Served and the Difference (# of cars)
Week # Cars ordered Cars Served Difference
1 0 0 0
2 100 100 (0) 0
3 0 0 (193) 0
4 98 98 (0) 0
5 0 0 0
6 0 0 (1) 0
7 0 0 0
8 104 104 (0) 0
9 104 104 (100) 0
10 104 104 (102) 0
11 0 0 (2) 0
12 0 0 (84) 0
13 104 101 (102) 3
14 111 102 (125) 9
15 0 0 0
16 104 104 (101) 0
17 104 104 (95) 0
18 104 104 (7) 0
19 0 0 (104) 0
20 0 0 0
21 108 104 (0) 4
22 52 0 (102) 52
23 104 104 (1) 0
24 104 104 (0) 0
25 0 0(98) 0
26 104 104 (0) 0
27 104 103 (0) 1
28 104 0 104
29 104 104 (101) 0
30 104 0 (103) 104
31 104 0 104
32 104 0 (102) 104
33 104 0 104
34 208 0 (104) 104
35 104 0 104
 

[137] Based on LDC’s data, CN did not provide any of the ordered cars to LDC’s Aberdeen facility in Week 22 and Week 28 and from Week 30 to Week 35. In addition, CN did not provide all the cars ordered in Week 13, Week 14, Week 21 and Week 27. In Week 14, LDC ordered 111 cars and in Week 21, LDC ordered 108 cars, redacted , in Week 14, CN served 102 cars, redacted . In Week 21, CN served 104 cars, redacted . In Week 27, LDC ordered 104 cars; redacted , CN served 103 cars, redacted . Finally, in Week 34, LDC ordered 208 cars, redacted ; CN did not provide any of these cars. The Agency therefore finds that based on the above, CN did not fulfill the service requests made by LDC at its Aberdeen facility in Week 13, Week 14, Week 22, Week 27, Week 28, and Week 30 to Week 35.

TABLE 3: Joffre  - Cars Ordered, Cars Served and the Difference (# of cars)
Week # Cars ordered Cars Served Difference
1 0 0 0
2 15 15 0
3 0 0 0
4 0 0 0
5 0 0 0
6 0 0 0
7 0 0 0
8 104 104 (0) 0
9 104 104 (102) 0
10 104 104 (101) 0
11 90 90 (101) 0
12 0 0 (0) 0
13 104 104 (0) 0
14 0 0 (99) 0
15 104 104 (49) 0
16 51 51 (101) 0
17 104 104 (99) 0
18 0 0 0
19 104 104 (54) 0
20 0 0 (1) 0
21 104 104 (89) 0
22 0 0 0
23 104 96 (100) 8
24 108 108 (0) 0
25 0 0 (65) 0
26 104 104 (7) 0
27 104 104 (89) 0
28 104 0 (18) 104
29 104 104 (0) 0
30 104 0 104
31 104 0 104
32 104 0 104
33 104 0 (198) 104
34 104 0 (102) 104
35 104 0 104
 

[138] Based on LDC’s data, CN did not provide any of the ordered cars to LDC’s Joffre facility in Week 28 and from Week 30 to Week 35. In addition, CN did not provide all the cars ordered in Week 23. redacted . In addition, in Week 24, LDC ordered 108 cars, redacted , CN served all 108 cars. The Agency therefore finds that based on the above, CN did not fulfill the service requests made by LDC at its Joffre facility in Week 23, Week 28, and Week 30 to Week 35.

TABLE 4: Lyalta  - Cars Ordered, Cars Served and the Difference (# of cars)
Week # Cars ordered Cars Served Difference
1 0 0 0
2 0 0 0
3 0 0 0
4 0 0 0
5 104 104 (102) 0
6 104 104 (102) 0
7 104 104 0
8 106 106 (0) 0
9 104 104 (106) 0
10 155 155 (51) 0
11 0 0 (102) 0
12 0 0 0
13 52 52 (104) 0
14 104 104 (0) 0
15 0 0 (104) 0
16 0 0 0
17 155 154 (51) 1
18 104 104 (101) 0
19 0 0 0
20 0 0 (103) 0
21 104 52 (0) 52
22 104 73 (0) 31
23 104 104 (52) 0
24 104 104 (47) 0
25 104 104 (55) 0
26 0 0 (102) 0
27 104 0 104
28 104 104 (0) 0
29 104 104 (102) 0
30 104 0 104
31 104 0 (104) 104
32 104 0 104
33 104 0 (103) 104
34 104 0 104
35 104 0 104
 

[139] Based on LDC’s data, CN did not provide any of the ordered cars to LDC’s Lyalta facility in Week 27 and from Week 30 to Week 35. In addition, CN did not provide all the cars ordered in Week 17, Week 21 and Week 22. The Agency notes that in Week 8 and Week 10, LDC ordered redacted , CN served all the cars. In addition, in Week 17, LDC ordered 155 cars, redacted , CN served 154 cars. The Agency therefore finds that based on the above, CN did not fulfill the service requests made by LDC at its Lyalta facility in Week 21, Week 22, Week 27 and Week 30 to Week 35. While there is a discrepancy in cars ordered versus cars delivered in Week 17, the cars ordered by LDC in this Week redacted the discrepancy in cars delivered, namely 154 cars, amounted to a single car.

TABLE 5: Glenavon  - Cars Ordered, Cars Served and the Difference (# of cars)
Week # Cars ordered Cars Served Difference
1 0 0 0
2 35 35 (34) 0
3 0 0 0
4 0 0 0
5 0 0 0
6 0 0 0
7 104 104 (0) 0
8 0 0 (99) 0
9 52 52 (49) 0
10 0 0 0
11 0 0 0
12 104 104 (0) 0
13 0 0 (98) 0
14 0 0 0
15 104 104 (99) 0
16 104 52 (0) 52
17 104 104 (97) 0
18 0 0 0
19 104 0 104
20 0 0 0
21 5 0 5
22 0 0 (48) 0
23 0 0 0
24 0 0 0
25 55 0 (1) 55
26 104 0 104
27 104 0 104
28 104 104 (0) 0
29 104 0 104
30 104 0 104
31 104 0 104
32 104 0 104
33 104 0 104
34 0 0 0
35 104 0 (100) 104
 

[140] Based on LDC’s data, CN did not provide any of the ordered cars to LDC’s Glenavon facility in Week 19 and Week 35, from Week 25 to Week 27 and from Week 29 to Week 33. The Agency notes that in Week 21, LDC ordered 5 cars that were not served by CN; redacted CN did not serve these cars. In addition, CN did not provide all the cars ordered in Week 16. The Agency therefore finds that based on the above, CN did not fulfill the service requests made by LDC at its Glenavon facility in Week 16, Week 19, Week 25 to Week 27, Week 29 to Week 33 and Week 35. While there is a discrepancy in cars ordered versus cars delivered in Week 21, the number of cars ordered during this week, namely five, redacted .

[141] The Agency therefore finds that in several service weeks at LDC’s Facilities, there is a discrepancy between the number of cars ordered by LDC and the number of cars delivered. Therefore, CN has failed to fulfill LDC’s service requests. Having made this determination, the Agency will now turn its attention to Step 3 of the Evaluation Approach to examine whether there are justifications for the service failures.

Step 3: If not, are there reasons that could justify the service failure?

[142] Although CN did not dispute the fact that there were occurrences where the cars LDC ordered were not provided, CN did submit substantial arguments to support its claim that it could not reasonably have provided the requested service.

[143] As set out previously in this Decision, with respect to Step 3 of the Evaluation Approach, where the parties have agreed in a confidential contract on terms that would justify a service failure, the Agency will adhere to those terms in its evaluation. Furthermore, the Agency indicated that at this step in the evaluation process, the evidentiary burden to justify a service failure falls on the railway company.

Positions of the parties

[144] CN refers to a variety of events and situations that led to its failure to provide the service that LDC requested. Specifically, CN identifies the following explanations for the level of service provided to LDC during the 2013/2014 Crop Year:

  • The 2013/2014 record prairie grain crop;
  • The 2013/2014 cold winter weather, which, according to CN, caused it to, among other things, reduce traffic on its light density branch lines, including its line to Glenavon, to maintain network fluidity;
  • The Order Imposing Measures to Address the Extraordinary Disruption to the National Transportation System in Relation to Grain Movement (Order in Council); and
  • The fluidity of its network.

[145] CN indicates that it provided LDC with 55 percent more grain cars than it received during the same period last year and that this increase should prevent LDC from complaining that service was inadequate. LDC points out that the Agency has rejected the notion that providing more cars than in previous years is a defense to a level of service complaint, and cites 488-R-2008">Decision No. 488-R-2008.

[146]  redacted .

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[148] LDC argues that CN is threatening to violate the level of service provisions of the CTA with respect to service to other shippers if the Agency finds that it must respect its level of service obligations to LDC. LDC points out that CN is obliged to provide service to all of its customers in accordance with the CTA and that this line of argument should be rejected by the Agency.

Analysis and findings

[149] The Agency has found that CN did not dispute LDC’s evidence demonstrating that CN failed to fulfill its service requests over the course of several weeks. In turning to the justifications for such service failures, the Agency will consider CN’s arguments in light of the Confidential Contract and will also comment on the level of service provisions contained in the CTA.

[150] The Agency noted previously in this Decision that arguments relating to the level of service provided in previous years and to limited fleet size will not in themselves justify a service failure. redacted .

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[165] The Agency finds that the inference to be drawn with respect to what CN considers an adequate fleet of hopper cars is obvious. The Agency has no doubt that railway company preferences would favour the smallest fleet consistent with moving the ton-miles required to maximize revenue under the Maximum Revenue Entitlement program and the highest possible utilization rates throughout the year.

[166] However, the Agency is of the opinion that CN’s position, if actually applied in practice, would be a formula for system-wide delays. This would be in violation of shippers’ right under paragraph113(c) of the CTA to have their traffic received, carried and delivered without delay. The Agency notes that a railway company moves grain from a large number of captive shippers under the Maximum Revenue Entitlement program. As a result, a railway company has no incentive to invest resources to avoid service delays and the railway company may maximize its profit without the threat of losing its business. In a monopoly situation, the railway company does not receive the same signals it would in a competitive environment. The opportunity costs to the shippers of unfulfilled orders do not affect the railway company’s revenues and the costs of demurrage for vessels awaiting shipments are borne by shippers alone.

[167] This is in stark contrast to the interest of shippers, who would benefit from a larger car fleet and more motive power to ensure that their crop can be moved to market with the minimum possible delay, both to maximize revenue and reduce expenses.

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[174] The Agency therefore finds that CN did not establish reasons, redacted , that would justify the service failures identified in Step 2.

CONCLUSION

[175] In examining whether CN breached its level of service obligations to LDC in relation to LDC’s Facilities, the Agency, in using its three-step Evaluation Approach, found that:

Step 1: The terms of the contract will stand in place of the Agency’s evaluation as to whether the shipper’s service request is reasonable; LDC’s service requirements, as agreed to by the parties with respect to LDC’s Facilities, are:

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Step 2: In several service weeks at LDC’s Facilities, there is a discrepancy between the number of cars ordered by LDC and the number of cars delivered. Therefore, CN has failed to fulfill LDC’s service requests.

Step 3: CN did not establish reasons, redacted , that would justify the service failures identified in Step 2.

[176] The Agency therefore finds that CN has breached its level of service obligations to LDC.

[177]  As the Agency has found, based on its three-step Evaluation Approach, that CN breached its level of service obligations to LDC, the Agency must next consider the remedy in this case.

ORDER

[178] Pursuant to subsection 116(2) of the CTA, the terms of the Confidential Contract are binding on the Agency in making its determination. The Agency is of the opinion that the terms of the Confidential Contract also provide guidance on the remedy. As the Agency has found above what constitutes CN’s level of service obligation to LDC’s Facilities, the Agency orders CN, for the remaining life of the Confidential Contract as applied to each facility, to comply with the terms of that contract, namely:

  • redacted .
  • redacted .

[179]  redacted .

[180]  redacted .

OTHER MATTERS

[181]  redacted .

[182]  redacted .

[183] Previously in this Decision, the Agency noted LDC’s submission that CN was “threatening to violate the level of service provisions of the CTA with respect to service to other shippers if the Agency finds that it must respect its level of service obligations to LDC.”  The issue of whether CN breached its level of service obligations to other shippers is not before the Agency in the context of this application. However, based on the principles set out above, a practice that would consist of reducing service to one shipper to improve service to another would be inconsistent with the requirements of the level of service provisions and their purposes as set out in this Decision.

[184] The Agency finds it necessary to reiterate the principles stated above in the Agency’s Evaluation Approach. Providing service to other shippers is not, in and of itself, a justification for a service failure to a shipper. Should CN choose to fulfill its level of service obligations to LDC by reducing the service it provides to other shippers, it may be doing so in violation of sections 113 to 115 of the CTA, with respect to those affected shippers. CN would therefore, on application by an affected shipper, be exposed to the Agency ordering remedies under section 116 of the CTA.

[185] LDC’s request for the Agency to award LDC its costs for this proceeding will be addressed in a separate decision.

This is a public redacted version of a confidential decision that issued on October 3, 2014 which cannot be made publicly available.

Member(s)

Geoffrey C. Hare
Raymon J. Kaduck
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