Decision No. 466-R-2013

December 19, 2013

APPLICATION by Richardson International Limited pursuant to sections 127 and 128 of the Canada Transportation Act, S.C., 1996, c. 10, as amended, concerning the interswitching of traffic between the Canadian National Railway Company and the BNSF Railway Company at Emerson, Manitoba.

File No.: 
T7360/13-04200

INTRODUCTION

[1] Richardson International Limited (RIL) filed an application with the Canadian Transportation Agency (Agency) pursuant to sections 127 and 128 of the Canada Transportation Act (CTA) requesting that the Agency order the Canadian National Railway Company (CN) to interswitch RIL’s traffic between the siding at the Red River South elevator located on CN’s Letellier Subdivision and the line of BNSF Railway Company (BNSF) at the Canada-United States border at Emerson.

BACKGROUND

[2] RIL is the largest subsidiary of James Richardson & Sons, Limited, and Canada’s largest privately-owned agri-food business. It has been in business for more than 150 years. In May 2013, RIL acquired from Viterra Inc. (Viterra), among other assets, 19 country elevators and 13 crop input centres co-located with those elevators. RIL also acquired Viterra’s milling business, which includes oat processing plants that are located in Portage la Prairie, Manitoba; Martensville, Saskatchewan; Barrhead, Alberta; and South Sioux City, Nebraska, United States, as well as a wheat mill in Dawn, Texas, United States.

[3] RIL’s Red River South elevator is located on CN’s Letellier Subdivision at Letellier, Manitoba, alongside Manitoba Provincial Highway 75, approximately 95 kilometres south of Winnipeg, Manitoba, and 20 kilometres north of the Canada-United States border.

[4] The Red River South elevator is rated at 16,300 tonnes of grain storage capacity. The rail siding at the site allows for 104 rail cars to be spotted with a single service, and a train of this size can be loaded within a 24-hour period.

[5] The Red River South elevator is located closer to the Canada-United States border than any other high throughput elevator across the Prairies, other than the elevator at Coronach, Saskatchewan. The Red River South elevator is well positioned for shipping into the United States market.

[6] RIL’s recent acquisition of an oat milling plant in South Sioux City offers a new opportunity in the United States market. This plant processes approximately 120,000 tonnes of oats annually. In excess of 90 percent of the raw oats processed at South Sioux City are sourced from Canada and, from a freight rate perspective, the ideal origination area for these oats is southern Manitoba, where 20 to 25 percent of Canada’s oats are grown.

[7] CN is a railway company within the legislative authority of Parliament. It owns and operates, among other railway lines, the Letellier Subdivision on which the Red River South elevator is located. CN owns the railway right-of-way starting at the Canada-United States border up to Portage Junction in the Winnipeg area. CN’s railway right-of-way passes through Emerson.

[8] On May 29, 2013, RIL advised CN that it intended to order a train of 100 empty rail cars from BNSF for interswitch delivery by CN to the Red River South elevator for loading during the week of June 9 or 16, 2013. CN responded by asserting that the Red River South elevator is not open to interswitching with other rail carriers. CN claims that the “official” interchange with BNSF is in the United States, at Noyes, Minnesota, and that the Railway Interswitching Regulations, SOR/88-41, as amended (Interswitching Regulations) do not apply to traffic interchanged with BNSF at “Emerson-Noyes.”

ISSUE

[9] Is the Agency satisfied that the conditions for interswitching to be ordered are met, that is, a railway line of one railway company connects with a railway line of another railway company and the shipper is located within one of the prescribed zones from an interchange?

LEGISLATION

[10] Section 87 of the CTA defines a “railway company” as “a person who holds a certificate of fitness”. That provision also provides that the term “‘operate’ includes, with respect to a railway, any act necessary for [...] the operation of a train.”

[11] Subsection 90(1) of the CTA prohibits the operation of a railway without a certificate of fitness.

[12] Section 111 of the CTA sets out definitions that are applicable to Part III, Division IV, of the CTA 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;

“interswitch” means to transfer traffic from the lines of one railway company to the lines of another railway company in accordance with regulations made under section 128;

“interswitching rate” means a rate established by, or determined in accordance with, regulations made under paragraph 128(1)(b).

[13] Section 127 of the CTA states that:

  1. (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.
  3. If the point of origin or destination of a continuous movement of traffic is within a radius of 30 km, or a prescribed greater distance, of an interchange, a railway company shall not transfer the traffic at the interchange except in accordance with the regulations.
  4. On the application of a person referred to in subsection (1), the Agency may deem a point of origin or destination of a movement of traffic in any particular case to be within 30 km, or a prescribed greater distance, of an interchange, if the Agency is of the opinion that, in the circumstances, the point of origin or destination is reasonably close to the interchange.

TEST FOR INTERSWITCHING

[14] Pursuant to section 127 of the CTA, in order for interswitching to be ordered by the Agency, three specific criteria must be met:

  1. The line of one railway company must connect with the line of another railway company;
  2. There is a place where rail cars may be stored;
  3. The interchange location is within the prescribed interswitching zone.

CRITERION 1: THE LINE OF ONE RAILWAY COMPANY MUST CONNECT WITH THE LINE OF ANOTHER RAILWAY COMPANY

[15] In order to meet Criterion 1, three sub-conditions must be met, that is:

  1. There must be two railway companies within the meaning of the CTA;
  2. The two railway companies must have a line of railway within the meaning of the CTA; and,
  3. There must be a connection of the lines of the railway companies.

There must be two railway companies within the meaning of the CTA

Positions of the parties

RIL

[16] RIL submits that CN is a railway company subject to the legislative authority of Parliament. RIL points out that CN owns and operates the Letellier Subdivision on which the Red River South elevator is located.

[17] RIL states that pursuant to Certificate of Fitness No. 97015-5 issued by the Agency, BNSF is authorized to operate a railway in Canada, including in the province of Manitoba.

CN

[18] CN states that the Canadian Northern Railway Company, a predecessor of CN, entered into an agreement (1912 Agreement) with the Midland Railway Company of Manitoba (Midland) to provide certain running rights over CN’s railway line in Manitoba. CN states that Burlington Northern (Manitoba) Limited (BNML) became the successor in title to Midland, and acknowledges that BNML is a wholly-owned Canadian subsidiary of BNSF.

Analysis and findings

[19] The parties do not dispute that both CN and BNSF are railway companies within the meaning of the CTA. Moreover, the Agency issued a certificate of fitness to CN and all of its subsidiaries, wholly-owned or not, to operate or construct railways in Canada. Similarly, the Agency issued Certificate of Fitness No. 97015-5 to BNSF and its wholly-owned subsidiaries, that is, BNML, Burlington Northern and Santa Fe Manitoba Inc., to operate a railway in the provinces of British Columbia and Manitoba. As both railway companies hold a certificate of fitness, pursuant to section 87 of the CTA, both are railway companies within the meaning of the CTA.

[20] The Agency finds that the first sub-condition is met.

The two railway companies must have a line of railway within the meaning of the CTA

Positions of the parties

RIL – Contractual agreements

[21] RIL submits that contractual arrangements between CN and BNSF relating to rail operations in Manitoba include the 1912 Agreement.

[22] RIL contends that the 1912 Agreement grants BNSF extensive rights to operate over a Joint Section of track, which includes CN’s Letellier Subdivision from the Canada-United States border to Portage Junction in Winnipeg (defined in the 1912 Agreement as Section “A”).

[23] RIL states that pursuant to Section 2 of Article II of the 1912 Agreement, BNSF and CN are to have equal rights in all respects to the use of the trackage. RIL argues that the 1912 Agreement gives BNSFfull joint and equal possession and use […]” of CN’s trackage at Emerson, and gives BNSF the right to “[…] by its own employees and equipment do and transact over, upon and by means of said Joint Section, all such business as is or hereafter may be carried on by a railway company and a common carrier […]” In support of its argument, RIL states that as in the case addressed by the Agency in Decision No. 165-R-2013, the rights granted to BNSF under the 1912 Agreement are more than mere running rights and sufficient for BNSF to complete interchange activities on CN’s trackage at Emerson, as evidenced by the longstanding practice of the two railway companies.

[24] RIL states that in Decision No. 35-R-2009, the Agency again found that a railway company had a “line of railway” for the purposes of interswitching, notwithstanding that the railway company did not own the trackage. RIL submits that upon appeal to the Federal Court of Appeal (FCA) in Canadian National Railway Company v. Canadian Transportation Agency, 2010 FCA 166 (CN v. CTA), the FCA upheld the Agency decision and broadened the criteria used to determine whether a railway company has a “line of railway” for the purposes of interswitching. RIL adds that the FCA clarified that in considering this issue, the Agency must determine whether the railway company has rights with respect to the trackage that are sufficient for the railway company to treat the trackage as part of its line of railway.

[25] RIL contends that the 1912 Agreement and its specific restrictions illustrate that BNSF’s rights under the 1912 Agreement are more than “mere transit rights.” More specifically, under the 1912 Agreement, BNSF is explicitly precluded from transacting certain local business on the Joint Section. RIL states that while this restriction applies only to (a) local traffic between points on the Joint Section and (b) local traffic between any point on the Joint Section and Winnipeg, traffic originating at the Red River South elevator and consigned to a destination beyond the Joint Section does not fall into either of these categories.

[26] RIL submits that the Interchange Agreement entered into by BNSF and CN in 1977 (Interchange Agreement), which remains in effect, does not contain any provisions indicating that Noyes is the “only” interchange point between CN and BNSF in the area or that “all” interchange activities are to take place at Noyes. RIL contends that is it clear that the practice of CN and BNSF has been to exchange traffic not only in Noyes, but also in Emerson. In addition, RIL states that it is significant that CN does not deny either that the trackage at Emerson is capable of being used to exchange traffic or that it has in fact been used extensively for that purpose by BNSF and CN.

[27] RIL points out that the Official Railroad Station List, OPSL 6000, published by Railinc (OPSL) identifies both Emerson and Noyes as points of interchange between CN and BNSF.

[28] RIL maintains that the Interchange Agreement does not alter BNSF’s rights under the 1912 Agreement.

CN – Contractual agreements

[29] CN submits that RIL purports to interpret the 1912 Agreement in such a manner as to grant BNSF sufficient interest in the CN line between the Canada-United States border and Emerson for BNSF to have a line of railway in Canada and, as a result, for the interswitching provisions of the CTA to apply. CN adds that by obtaining running rights over the CN line, Midland obtained access to a United States railway network from its railway properties in Winnipeg.

[30] CN contends that the preamble of the 1912 Agreement establishes the purpose of the Agreement as follows: “The Midland desires to obtain running rights over portions of the lines aforesaid”, being the CN railway lines from the Canada-United States border to Portage Junction.

[31] CN states that Section 1 of Article II of the 1912 Agreement imposes one very important restriction on Midland, namely:

that the Midland shall not do or transact any local business between points on said Joint Section or between points on said Joint Section and Winnipeg, in either direction, and shall have no right to use any industrial spurs now or hereafter existing on Section “B”. [CN’s emphasis]

[32] CN further states that the parties to the 1912 Agreement provided for the consequences in the event that Midland was required by the then Board of Railway Commissioners for Canada to transact local business; Midland would then be required to pay the owner of the line 80 percent of all gross receipts from such business.

[33] CN contends that the 1912 Agreement did not allow Midland to transact local business which was clearly acknowledged by the parties when they entered into the “1921 Amending Agreement” for the specific purpose of allowing Midland to transact local passenger train business without the need to remit 80 percent of the gross receipts to CN.

[34] CN argues that these provisions show the intent of the parties to restrict the 1912 Agreement to the provision of running rights to Midland between the Canada-United States border and the Winnipeg area, where Midland could access its railway terminal properties. CN adds that the granting of the running rights was conditional on Midland not transacting local business on the line. According to CN, the terms of the 1912 Agreement are unambiguous in this respect, and the Agreement has been consistently administered in this manner by the parties for over 100 years.

[35] CN disagrees with RIL’s claims with respect to CN v. CTA. CN argues that the FCA was not commenting on the provisions of the 1912 Agreement, but was dealing with the provisions of the 1913 Transfer Track Agreement respecting how CN and BNSF handle traffic in Winnipeg.

[36] CN submits that BNSF and CN entered into the Interchange Agreement, under which the parties agree to interchange traffic at Noyes, and BNSF makes its Noyes’s interchange track available to CN for this purpose.

[37] CN contends that RIL purports to rely on the Interchange Agreement between CN and BNSF to suggest that BNSF has a line of railway in Canada.

[38] CN states that RIL refers to the Agency’s finding in Decision No. 165-R-2013 in respect of the interchange agreement between the Canadian Pacific Railway Company (CP) and BNSF at Coutts, Alberta and suggests that it should equally apply in respect of the interchange of traffic between CN and BNSF at Noyes. CN argues that a cursory review of the matter reveals that the factual situation upon which the Agency reached its conclusion in that Decision is completely different from this situation, and the conclusions reached in that Decision are inapplicable to this case.

[39] CN maintains that the agreement governing the interchange between CP and BNSF at Coutts specifically provides that the interchange activities are to occur on both sides of the Canada‑United States border.

[40] CN argues that the Interchange Agreement is clear: all interchange of traffic between CN and BNSF is to take place on BNSF’s interchange track at Noyes, not Emerson. CN contends that unlike the situation that prevailed in Decision No. 165-R-2013, the Interchange Agreement does not grant BNSF the right to perform any operations to interchange traffic at Emerson.

[41] CN submits that, as with any commercial agreement, each party chooses to enter into an agreement based on commercial considerations and an understanding of its relative rights and duties and the resulting benefits each expects to derive from the transaction. In the case of the 1912 Agreement, CN states that the one-way exchange of traffic under regulated interswitching was certainly not one of those considerations. CN argues that to now purport to apply regulated interswitching completely changes the parties’ relative rights and duties and fundamentally alters the commercial considerations on which the parties based their decision to enter into the 1912 Agreement.

[42] CN states that by granting the application under the guise of interswitching, the Agency would be changing the considerations that formed the basis of the parties’ consent to the 1912 Agreement, to the point of vitiating the original consent of the parties to that Agreement. CN adds that the Agency would be inserting itself in a private commercial agreement and rewriting the agreement. CN asserts that there are no provisions in the CTA that would allow the Agency to amend an agreement validly entered into between two railway companies. CN argues that Parliament would have had to provide very clear and unambiguous language to provide the Agency with such extraordinary power.

[43] Lastly, with respect to the OPSL, CN states that the inclusion of Emerson in the OPSL is an error and CN will be pursuing the matter with Railinc to correct the List.

Analysis and findings

[44] In previous decisions dealing with interswitching applications, the Agency and its predecessors have consistently considered that each railway company must “have a line of railway” as a precondition of interswitching.

[45] The Agency notes RIL’s position that BNSF has sufficient rights, pursuant to the 1912 Agreement, on the CN-owned trackage north of the Canada-United States border at Emerson,  to “have a line of railway” for the purpose of interswitching.

[46] The Agency also notes CN’s argument that the 1912 Agreement is misinterpreted by RIL as that Agreement only provides for running rights in order for BNSF to access its facilities in Winnipeg.

[47] As both parties have relied on the 1912 Agreement, which grants BNSF rights to operate over a Joint Section of track, including CN’s Letellier Subdivision, from the Canada-United States border to Portage Junction in Winnipeg, and as they have different understandings of the 1912 Agreement and of the extent of the rights thereby granted, a closer review of historical interswitching applications is necessary.

[48] In Decision No. 35-R-2009, the Agency determined that BNSF had a line of railway for interswitching purposes, based on the Agency’s conclusion that BNSF had a “sufficient ownership interest” in a line of railway that connected with CN’s line of railway in Fort Rouge, Manitoba. BNSF’s ownership interest resulted from a track construction agreement between CN and BNSF under which BNSF was responsible for part of the construction, maintenance and repair costs and was entitled to compensation should the agreement be terminated.

[49] In CN v. CTA, the FCA upheld Decision No. 35-R-2009, determining that the Agency properly decided that BNSF had a “line of railway.” The FCA agreed that BNSF’s contractual rights over the line consisted of more than “mere running rights” that allowed BNSF to use the facilities for the purpose of exchanging traffic as part of its business with CN.

[50] Based on the principles established in those Decisions, the Agency considers that a railway company may “have a line of railway” in relation to a line that it owns, or in relation to a line owned by another railway company over which it has sufficient rights to operate traffic and perform interchange activities.

[51] The Agency will therefore examine the nature of the rights conferred by the 1912 Agreement to determine whether it is entitled to more than “mere running rights” and whether BNSF has sufficient rights to operate traffic and perform interchange activities on the Joint Section.

Rights conferred by the 1912 Agreement

[52] CN interprets the 1912 Agreement as providing only mere running rights based on the preamble of that Agreement and the conduct of the parties since the effective date of the 1912 Agreement. The preamble states that “The Midland desires to obtain running rights over portions of the lines aforesaid.” However, the preamble to the 1912 Agreement does not describe the nature of those running rights.  

[53] RIL’s position is that the 1912 Agreement involves more than mere running rights.

[54] The Agency examined Section 1 of Article II of the 1912 Agreement (between two predecessor railway companies) which states, in part:

The Canadian Northern grants to the Midland upon the terms and conditions hereinafter stated, for and during the term hereinafter stated, the full joint and equal possession and use, in common with the Canadian Northern, and such other companies as it may admit, of all the joint section of railway above described, including, for the purposes of operating trains thereover, the use of the telegraph and telephone lines: and also the right to make and during said term maintain connections between the tracks of said Joint Section and the tracks of the Great Northern Railway Company and of the Northern Pacific Railway Company near Emerson aforesaid, and near the townsite of West Lynn aforesaid, and at a point on the line running west of Portage Junction between said Junction and the crossing of said line over the Canadian Pacific Railway near Wilkes Avenue, in the City of Winnipeg. The Midland may by its own employee and equipment, do and transact over, upon and by means of said Joint Section, all such business as is or hereafter […] except that the Midland shall not do or transact any local business between points on said Joint Section or between points on said Joint Section and Winnipeg, in either direction, and shall have no right to use any industrial spurs now or hereafter existing on Section “B”.

[55] The Agency notes that the wording of the 1912 Agreement clearly demonstrates that much more is conferred than “mere running rights.” While CN has “general control, management and administration of the Joint Section,” the 1912 Agreement allows BNSF “full joint and equal possession and use.” The Agreement further provides that CN’s agents and employees shall transact the business of BNSF without discrimination. BNSF’s full possession and use apply to the operation of the trains and the use of telegraph and telephone lines and provide BNSF with the right to make and maintain connections near Emerson, West Lynn and Portage Junction. BNSF may also perform, with its own employees and equipment, all business of a railway company and a common carrier, with the exception of the “local business”.

[56] In addition, the Agency notes that Section 1 of Article II of the 1912 Agreement also states:

If, under Order of the Board of Railway Commissioners for Canada or with the consent of [CN], or otherwise, the [BNSF] shall transact any such local business it shall account for and pay [CN] eighty (80) per cent of all gross receipts therefrom, but [CN] shall at all times maintain such train service on the Joint Section as will adequately provide reasonable service, both freight and passenger, for the local business originating thereon.

[57] The Agency finds that this clearly allows BNSF to choose to transact any local business by order of the Agency (the Board of Railway Commissioners for Canada at the time of the 1912 Agreement), or with the permission of CN, “or otherwise.” The term “or otherwise” means that this business may be transacted without any orders or permissions.

[58] The interswitching requested is not “local business” of the type specified in the 1912 Agreement. Even if it were, the second part of Section 1 of Article II of the 1912 Agreement contradicts any interpretation that BNSF is prohibited from conducting local business on the Joint Section. Instead, it points to the fact that BNSF, while permitted to conduct business, may only choose to conduct local business if it respects the allocation of the gross receipts resulting from transacting that local business. This means that BNSF is required to remit the majority of related gross receipts, which is 80 percent, to CN.

[59] As a result, BNSF has clearly been conferred the right to transact such business at any time, including at some point in the future. In exchange, the 1912 Agreement states that CN will maintain this section of the line for BNSF’s use as it relates to this additional business. Therefore, aside from this condition as it relates to the Joint Section, there are no absolute restrictions on BNSF’s rights other than a prohibition on the use of defined industrial spurs and two specified types of hauls, neither of which are relevant to the order RIL seeks.

[60] The Agency disagrees with CN’s claim that because BNSF has not transacted local business on the line for more than 100 years, this equates to a mutual understanding prohibiting this activity. The right in the contract is not extinguished solely because it has not been exercised. The Agency notes that the 1921 Memorandum of Agreement specifically amends the 1912 Agreement with respect to certain traffic, for the convenience of the railway companies, including substituting an amendment to the remission of receipts. It is clear that the 1912 Agreement has been amended pragmatically when new operating or economic considerations were encountered.

[61] Furthermore, the proposed traffic is not “local business” in the plain reading of the 1912 Agreement, and it is only local business and traffic to Winnipeg that is subject to a restriction. As BNSF has broad rights to operate on the Joint Section, no business that is not specified should be considered off limits.

[62] The Agency does not concur with CN’s position that any interpretation of the 1912 Agreement that includes more than running rights is beyond the powers of the Agency.

[63] The fact that the 1912 Agreement clearly indicates that the option to transact that specific business is available to BNSF and that BNSF has not availed itself of that option does not negate the existence of this right.

[64] Furthermore, the Agency considers that CN, in presenting this position, is offering extrinsic evidence to interpret the 1912 Agreement. The Supreme Court of Canada has held that when the provisions of a contract are clear and unambiguous, extrinsic evidence cannot be used to alter its meaning. In Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 SCR 129 (Novopharm), at paragraph 55, the Supreme Court of Canada explained that “[i]t is unnecessary to consider any extrinsic evidence at all when the document is clear and unambiguous on its face.”

[65] The Agency finds that, as in Novopharm, there is no ambiguity in the language used in the 1912 Agreement. One party’s subjective intention has no role in the interpretation of a contract where the language is clear and unambiguous.

[66] The Agency also notes CN’s position that by granting the application, the Agency would be changing the considerations that formed the basis of the parties’ consent to the 1912 Agreement, to the point of vitiating the original consent of the parties. While the Agency recognizes that the 1912 Agreement is a commercial agreement entered into by the predecessors of CN and BNSF, the Agency has found that the rights conferred by the Agreement are clear and unambiguous. It is well within the Agency’s powers to examine the 1912 Agreement in order to determine the extent of the rights provided for in that Agreement.

[67] In Decision No. 35-R-2009, the Agency examined contractual rights between the railway companies. In the subsequent appeal by CN, the FCA upheld the Agency’s decision and determined that the Agency properly decided that BNSF had a line of railway. The authority of the Agency with regards to the 1912 Agreement is not to amend it so as to confer rights to BNSF, but solely to determine what rights are granted to BNSF on the section of track that is the subject of RIL’s application before the Agency.

[68] In light of the above, the Agency finds that when applying the principle of the “sufficient rights to operate traffic and perform interchange activities” established in CN v. CTA, BNSF has sufficient rights to CN trackage through the 1912 Agreement and it “has a line of railway” for the purpose of interswitching.

Interchange activities

[69] Both parties have made reference to the Interchange Agreement with opposing views. CN refers to the Interchange Agreement and CN is of the view that the parties have agreed to only interchange traffic at Noyes and BNSF makes its interchange available to CN for this purpose. RIL contends that the Interchange Agreement does not contain any stipulation that Noyes is the “only interchange point” between CN and BNSF in the area or that “all” interchange activities are to take place in Noyes. RIL adds that the practice of CN and BNSF has been to exchange traffic not only in Noyes but also in Emerson, and notes that CN had not denied this.

[70] Whether interchange activities are strictly performed pursuant to the Interchange Agreement or whether the practice has arisen based on pragmatic operational considerations, the Agency notes that there is an uncontested history of interchanging between CN and BNSF with interchange activities occurring on both sides of the Canada-United States border. As a result, the Agency finds that BNSF has sufficient rights to CN’s trackage from the border into Emerson to allow that trackage to be treated as part of BNSF’s line of railway for the purpose of performing interchange activities at Emerson. The Agency also notes that both Emerson and Noyes are listed in the OPSL, despite CN’s assertion that this is an error. Even if Emerson were not listed in the OPSL, it would not change the fact that interchanging activities occur at Emerson.

[71] The parties have made several references to Decision Nos. 35-R-2009 and 165-R-2013 as they apply to contractual agreements between the parties. The Agency notes that RIL refers to paragraphs 61 to 63 of Decision No. 165-R-2013 and contends that the Agency’s conclusions in this part of its Decision related specifically to the issue of whether there was a “connection” between the lines of the two carriers for the purpose of the definition of “interchange” in section 111 of the CTA. RIL also points out that sections 111 and 127 use the word “connect” in relation to the lines of two railway companies, and the principles of statutory construction require that the word be given the same interpretation in both instances.

[72] The Agency is of the opinion that another comparison to this case could be made in relation to the physical connection of railway lines at an international border.  In Decision No. 165‑R‑2013, the Agency stated:

[62] While it can be said that two countries’ territories touch or abut an international boundary without overlapping, the same cannot be said of connecting railway lines. Connecting railway lines do not abut; each railway track joins together with the other track to form a continuous line. They are physically linked together. This means that it is impossible that a railway line’s connecting point be a thin membrane as would be the case of an international boundary. The physical connection of two railway lines necessarily happens over a physical distance which exceeds the width of an international boundary.

[63] Based on this, the Agency concludes that the physical connection of the lines of railway of BNSF and CP is wider than, and extends beyond, the international boundary into Canada at Coutts. Therefore, BNSF has a line of railway which extends beyond the international boundary into Canada. The Agency therefore finds that BNSF has a line of railway for the purpose of the interswitching provision of the CTA.

[73] The Agency is of the opinion that as, in the cited case, the BNSF-owned line of railway, although not on the Canadian side of the border, must also extend over a physical distance that exceeds the width of the Canada-United States border. However, as stated above, BNSF has a line of railway on the Joint Section because it has a certificate of fitness and because the rights conferred on it are “full joint and equal possession and use” of the Joint Section.

[74] The Agency therefore finds that: 1) BNSF has a line of railway for interswitching through the broad rights of the 1912 Agreement; 2) the physical trackage extends beyond the “thin membrane” of the Canada-United States border; and, 3) it is undisputed that the parties have a long standing practice of interchanging rail cars at both Noyes and Emerson. Therefore, BNSF has a point of interchange in Canada.

[75] The Agency finds that for any of the above three reasons the second sub-condition is met.

There must be a connection of the lines of the railway companies

Positions of the parties

RIL – Physical connection

[76] RIL maintains that a physical connection exists between the lines of CN and BNSF at the Canada-United States border between Emerson and Noyes.

[77] RIL refers to Decision No. 165-R-2013 where the Agency found that a similar physical connection between CP’s and BNSF’s lines of railway at the Canada-United States border between Coutts and Sweetgrass, Montana, United States was sufficient to satisfy the first requirement, meaning that there is a connection. RIL adds that where the connection point occurs at an international border, each line of railway overlaps the other, thus extending beyond the border.

[78] Concerning CN’s argument that the Canada-United States border is an “impossibly thin membrane,” RIL submits that it should be rejected as connections between railway lines, unlike international borders, are physical things that have a spatial dimension and invariably have a location.

[79] RIL submits that both sections 111 and 127 of the CTA use the word “connect” in relation to the lines of two railway companies, and the principles of statutory construction require that the word be given the same interpretation in both instances.

[80] RIL refers to Order No. 1992-R-207 and Decision No. 798-R-1993 to support its argument that for the purposes of section 127 of the CTA, a connection between a railway company and another railway company may exist notwithstanding that only one railway company has a full ownership interest in the trackage where the physical exchange of traffic takes place.

CN – Physical connection

[81] According to CN, the lines of CN and BNSF meet at the Canada-United States border without either one crossing the border. CN states that notwithstanding this physical reality, RIL purports to extend the BNSF track into Canada by applying the statement made by the Agency in Decision No. 165-R-2013 that the actual connection point of railway lines occurs in a two to four metre space.

[82] CN states that BNSF installed and maintains its railway line on its railway right-of-way which ends at the point immediately south of the Canada-United States border on the United States side. CN agrees that the railway lines of CN and BNSF touch and connect, but contends that neither railway line crosses the border.

[83] In relation to Decision No. 165-R-2013, CN argues that even if BNSF’s trackage was to extend two to four metres into Canada (which CN does not admit to), one could not seriously argue that it means that BNSF has a “line of railway” in Canada. CN is of the opinion that Parliament intended the CTA to apply to a railway undertaking in Canada and other obligations that arise from such an undertaking and not to a de minimis “two or four metre track.”

[84] CN maintains that its property, railway right-of-way and railway line stop at the Canada-United States border. CN adds that its crews do not and are not allowed to perform any maintenance activities on the southern side of the border.

[85] According to CN, the affidavit evidence of Thomas W. Wincheruk (Affidavit) and the Survey Report conducted by Pollock and Wright, Land Surveyors establish that CN’s railway line stops at the Canada-United States border. It also clearly establishes that BNSF’s railway line does not cross the border. CN maintains that, therefore, BNSF does not have a line of railway in Canada. CN argues that BNSF and CN each have a railway line in different countries that touch at the border. The result is that there is only one railway line in Canada from the border to Emerson and, therefore, there can be no connection between the railway lines of two railway companies in Canada.

[86] In reference to Decision No. 165-R-2013, CN asserts that any suggestion that BNSF’s track extends across the border is completely unsubstantiated and is incorrect.

[87] CN concludes that the essential requirement that there be a connection in Canada between two lines of railway of two railway companies required by section 127 of the CTA and by the definition of “interchange” in section 111 of the CTA is absent.

Analysis and findings

[88] The Agency notes that it is undisputed that CN’s railway line touches and connects with BNSF’s railway line at the Canada-United States border. However, the parties disagree with respect to where the physical connection occurs. In this regard, both parties have made reference to Decision No. 165-R-2013.

[89] CN claims that the factual situation upon which the Agency reached its conclusion in Decision No. 165-R-2013 is different from this one and the conclusions reached in that Decision are not applicable in this case. CN argues that based on the Affidavit and the Survey Report, CN’s railway line stops at the Canada-United States border, while BNSF’s railway line does not cross the border.

[90] While each case must be considered on its own merits, the Agency is of the opinion that the situation in this case is comparable to the situation in the case that led to Decision No. 165‑R‑2013, in the sense that the Canada-United States border is being crossed by a single railway line owned by two different railway companies on each side of the Canada-United States border. The Agency considers that the same principle that was used in Decision No. 165-R-2013 should apply, that is, the physical characteristics of a railway company’s track connection at an international border.

[91] As noted above, in Decision No. 165-R-2013, more specifically in paragraph 62, the Agency indicated that while it can be said that two countries’ territories touch or abut an international border without overlapping, the same cannot be said of connecting railway lines. Connecting railway lines do not abut; each railway track joins together with the other track to form a continuous line. They are physically linked together. This means that it is impossible that a railway line’s connecting point be a thin membrane as would be the case of an international border. The physical connection of two railway lines necessarily happens over a physical distance which exceeds the width of an international border.

[92] Alternatively, the Agency refers to Decision No. 798-R-1993 as it applies to the connection of railway lines. The National Transportation Agency of Canada (NTA) found the following with regards to connection and interchange:

As each Partner has a “line of railway”, it is the opinion of the Agency that interchanges will exist wherever a storage facility for cars exists on the Partnership Line. Even though there is physically only one line of railway, it is the ownership interest which, in the Agency’s view, is determinative of the existence of an interchange in this case.

[93] Decision No. 798-R-1993 pertained to a case involving a partnership of railway companies. The NTA was of the opinion that, on a jointly-owned railway line, an interchange trackage exists at any point where there are facilities to store rail cars. In this case, although the railway companies are not partners, the Agency has concluded that BNSF, as per the 1912 Agreement, has more than “mere running rights” over CN’s railway line and sufficient ownership interest to have a line of railway.

[94] In light of the established connection of the railway lines of the railway companies, the Agency finds that BNSF’s railway line extends into Canada and connects with CN’s railway line. The Agency considers that the connection of the railway lines of the railway companies happens in two different ways: by virtue of the physical connection of the railway lines and by the ownership rights established in the 1912 Agreement which effectively permit BNSF to connect at points along the entire railway line.

[95] The Agency therefore finds that the third sub-condition is met.

[96] The Agency has found that all three sub-conditions of Criterion 1 are met; consequently, Criterion 1 is met.

CRITERION 2: THERE IS A PLACE WHERE RAIL CARS MAY BE STORED

Positions of the parties

RIL

[97] With respect to the second criterion, RIL submits that the trackage where loaded or empty rail cars may be stored until delivered or received by the connecting railway company need not be located at the exact same point as the physical connection between the lines of the two railway companies.

[98] RIL contends that, rather, the term “place” in the definition of “interchange” is to be interpreted broadly taking into consideration the “physical differences and practicalities of railway operations.” In support of this argument, RIL refers to Decision No. 35-R-2009.

[99] RIL states that at Emerson-Noyes, facilities for the storage of rail cars exists on both sides of the Canada-United States border in close proximity to the physical connecting point between the two railway lines.

[100] RIL states that CN’s trackage in Emerson consists of CN’s mainline, as well as the following tracks where rail cars in interchange traffic can be stored:

  • the Emerson downtown Yard which consists of two tracks that hold 20 rail cars and 18 rail cars respectively;
  • a spur track, sometimes referred to as the Ridgeville Spur, which extends in an easterly direction from a point on CN’s mainline just south of the Emerson downtown Yard, with a capacity of approximately 65, 60-foot rail cars; and,
  • a siding located between the Red River and Manitoba Provincial Highway 75, along with a wye and a stub track that ends near the Canada-United States border, which is called Emerson Junction, with a total capacity of approximately 90 rail cars, including 60 rail cars on the siding track alone.

[101] RIL states that BNSF’s trackage in Noyes consists of the mainline, as well as the following trackage where rail cars in interchange traffic can be stored:

  • two tracks, which together hold 55 rail cars; and,
  • a short track that is used by CN and BNSF to stage the locomotive off the mainline when a headlight meet is taking place.

[102] RIL contends that in total, there is capacity for in excess of 190 rail cars to be stored on CN’s trackage at Emerson in connection with the interchange of traffic between CN and BNSF.

[103] RIL is of the opinion that a subsequent confidential agreement dated in 1983 governs a haulage arrangement whereby CN hauls BNSF traffic from Emerson to Winnipeg, as indicated in Decision No. 35-R-2009.

[104] RIL states that interchange operations between CN and BNSF at Emerson-Noyes have generally involved both railway companies crossing the Canada-United States border, and, more particularly:

  • BNSF’s crews and locomotives moving northbound rail cars across the border, placing them on CN’s trackage on the Ridgeville Spur, the Emerson downtown Yard and, occasionally, the Emerson Junction Siding;
  • CN’s locomotives and crews placing southbound rail cars on the Emerson Junction trackage and on BNSF’s tracks at Noyes, then returning north across the border to pick up the northbound rail cars from the Ridgeville Spur and the Emerson downtown Yard; and,
  • BNSF’s crews and locomotives returning north to Emerson to pick up southbound rail cars from the Emerson Junction trackage, moving them across the border and picking up any rail cars left by CN on BNSF’s tracks at Noyes before continuing south.

[105] RIL is of the opinion that because of the limited track capacity in Noyes, unit train traffic has typically been interchanged on CN’s track at Emerson.

CN

[106] CN contends that the capacity that RIL refers to as “the Emerson downtown Yard” is less than what is depicted by RIL as the siding to the north of the mainline is leased to a customer for its exclusive use.

[107] CN states that the capacity that RIL refers to as the “CN Emerson Junction and Wye” is less than depicted. The track located east of the mainline is only made of 60-lb rail and cannot be used for the traffic at issue. The wye is required for the purpose of train assembly, including reverse movements of locomotives. CN further states that the schematic map is not to scale and omits several features that constrain track capacity and railway operations, including public road crossings, a non-interlocking main track crossing at grade, and a railway bridge across the Red River on which locomotives and rail cars should not be left and switching must be kept to a minimum.

Analysis and findings

[108] CN disputes the storage capacity claimed by RIL to exist at its Emerson downtown Yard, as well as at the Emerson Junction and Wye, but does not provide its own estimate of storage capacity. Rather, CN simply claims that RIL’s numbers are incorrect.

[109] Furthermore, CN does not dispute RIL’s claim that interchanging between BNSF and CN occurs on both sides of the Canada-United States border and that unit train traffic has typically been exchanged on CN’s track at Emerson.

[110] CN has not provided evidence to contradict the information presented by RIL with respect to the storage capacity at Emerson or that the two carriers have been interchanging traffic located within the Agency’s jurisdiction. The Agency therefore finds that Emerson is a place where rail cars may be stored. Accordingly, the Agency finds that Emerson is an interchange within the meaning of section 111 of the CTA.

[111] The Agency therefore finds that Criterion 2 is met.

CRITERION 3: THE INTERCHANGE LOCATION IS WITHIN THE PRESCRIBED INTERSWITCHING ZONE

Positions of the parties

RIL

[112] RIL submits that if Emerson-Noyes is properly characterized as an interchange for the purposes of interswitching, the rail infrastructure at the Red River South elevator meets the definition of “siding” and CN qualifies as a “terminal carrier” in relation to traffic originating at the Red River South elevator.

[113] RIL states that as set out in subsection 127(3) of the CTA, where the origin or destination of a continuous movement is within a radius of 30 kilometres of an interchange, a railway company may only transfer the traffic at the interchange in accordance with the Interswitching Regulations.

[114] RIL further states that the Red River South elevator is located within the prescribed 30-kilometre distance of the point on the Canada-United States border where CN’s railway line connects with the railway line of BNSF and which qualifies as an “interchange” for the purposes of interswitching.

CN

[115] CN has not disputed that the Red River South elevator would be located within the interswitching zone if Emerson is properly characterized as an “interchange” for the purposes of interswitching.

Analysis and findings

[116] The Agency finds that Emerson is an “interchange” for the purposes of interswitching pursuant to the CTA and the Interswitching Regulations.

[117] Further, the Agency finds that the Red River South elevator, located 20 kilometres north of the Canada-United States border, meets the requirement as it is located within zone 3 of the prescribed interswitching zones.

[118] The Agency therefore finds that Criterion 3 is met.

OTHER MATTERS

[119] In the course of this case, both parties have attempted to use economic justifications for and against the interswitching requested. While it was useful to demonstrate that the rates offered by BNSF were significantly lower than CN’S offer, interswitching is a statutory right for shippers. The task before the Agency was not to assess any offer CN might make and choose between the offer and interswitching. CN was, and is, entitled to make competitive offers in the normal course of business. The task before the Agency was simply to assess whether the conditions required in the CTA had been met and, if so, to grant the order.

[120] CN’s argument that regulated interswitching has not occurred and therefore is not allowed is specifically rejected. This is a pro-competitive remedy and a preponderance of the evidence demonstrates that a new business opportunity has arisen and that the shipper has requested interswitching to transact this business for the first time.

CONCLUSION

In light of the above, the Agency finds that each of and all of the criteria set out above for interswitching are met. The Agency therefore orders CN, effective immediately, to provide interswitching for RIL’s traffic at Emerson, in accordance with paragraph 7(2)(c) of the Interswitching Regulations.

Member(s)

Raymon J. Kaduck
Geoffrey C. Hare
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