Decision No. 566-R-1999

September 30, 1999

September 30, 1999

IN THE MATTER OF a complaint filed by the Long Lake Road and Rail Committee pursuant to subsection 144(3) of the Canada Transportation Act, S.C., 1996, c. 10, respecting the proposed discontinuance by the Canadian National Railway Company of a portion of its Imperial Subdivision, from mileage 9.00 to mileage 50.60, located in the province of Saskatchewan.

File No. R 8150/477


COMPLAINT

On March 26, 1999, the Long Lake Road and Rail Committee (hereinafter LLRRC) filed a complaint with the Canadian Transportation Agency (hereinafter the Agency) respecting the proposed discontinuance by the Canadian National Railway Company (hereinafter CN) of a portion of CN's Imperial Subdivision between mileages 9.00 and 50.60. LLRRC alleges that CN did not meet the requirements of the Canada Transportation Act (hereinafter the CTA). Specifically, LLRRC asserts that CN did not comply with subsection 144(3) of the CTA which requires that a railway company negotiate in good faith with prospective purchasers of a railway line proposed for discontinuance.

CN filed its answer to the complaint on April 29,1999. LLRRC replied to CN's answer on May 10, 1999.

Pursuant to subsection 29(1) of the CTA, the Agency is required to make its decision no later than 120 days after the application is received unless the parties agree to an extension. In this case, the parties have agreed to an extension of the deadline to September 30, 1999.

PRELIMINARY MATTERS

In its answer dated April 29, 1999, CN indicated that LLRRC submitted confidential material to the Agency as part of the pleadings. However, CN and LLRRC have reached an agreement whereby the confidential material is to be forwarded to CN and replaced with letters wherein the confidential information has been removed and this will form part of the Agency's record in this matter.

BACKGROUND

LLRRC is comprised of local producers who propose to purchase and operate the trackage as a short line railway company.

The process that railway companies must follow in transferring or discontinuing railway lines was revised in 1996 with the promulgation of the CTA. Sections 140 to 146 of the CTA provide a specific procedure that railway companies must undertake before transferring or discontinuing a line. Following a prescribed period of notice, the railway company must then advertise the line's availability for continued railway operations. The advertisement must include that the operation of the line may be discontinued if not transferred. If a party makes its interest known in acquiring the line for continued railway operations, the CTA provides four months for the party and the railway company to reach an agreement respecting acquisition of the line. Subsection 144(3) of the CTA requires that the railway company negotiate in good faith with the interested party. If no agreement is reached between these parties or if a transfer is not completed according to any agreement reached, the railway company must then offer all of its interest in the railway line to three levels of government (federal (if applicable), provincial and municipal) at no more than the net salvage value of the line. If no level of government offers to acquire the line, the railway company may then discontinue operations upon notice to the Agency.

FACTS

CN posted the line's status as a candidate for discontinuance in its three-year plan on July 3, 1996. On May 6, 1998, CN issued its Notice of Proposed Discontinuance respecting the line. Parties had until July 6, 1998 to make their interest known in acquiring the line.

CN convened a public meeting in Imperial, Saskatchewan on June 3, 1998, at which time CN outlined its plan for discontinuance and described the process and options available under the CTA. On July 3, 1998, LLRRC informed CN of its interest in acquiring the line. Pursuant to subsection 144(4) of the CTA, the parties have four months to reach an agreement respecting the sale. If no agreement is reached within the four month period, in this case by November 6, 1998, the railway company shall then offer the line to appropriate levels of government.

CN and LLRRC began an exchange of communications relating to the potential acquisition of the line by the LLRRC. Negotiations continued through 1998, including a meeting between the parties on November 23, 1998. However, no agreement was reached and on December 14, 1998, CN offered the line to the Province of Saskatchewan and local municipality governments as required by section 145 of the CTA. The deadline for governments to make an interest known in obtaining the line was February 16, 1999. If no agreements were reached by that date, CN would be allowed to discontinue operating the line.

CN and LLRRC continued negotiations until the submission of the complaint in March 1999. On March 30, 1999, CN announced that it would discontinue operations on the line effective April 15, 1999.

Following the submission of the complaint to the Agency, the parties each filed pleadings with the Agency. CN announced that it would discontinue operations on April 15 as scheduled, but undertook, in view of the Agency's involvement in the matter, to not dismantle any of the trackage prior to May 28, 1999.

POSITIONS OF THE PARTIES

The applicant, LLRRC, alleges that CN has not negotiated "in good faith" as required by the CTA. According to LLRRC, it provided CN with its initial offer on October 30, 1998. CN counters that the October 30 submission of the LLRRC was simply a one-page, general framework.

On November 20, 1998, LLRRC provided CN with a revised offer for the purchase and operation of the line. CN replied that the proposal contains too many conditions, such that CN cannot properly analyze the offer. The parties then met on November 23, 1998, at which time CN stated that it would sell the line to any party whose offer was economically better to CN than the option of discontinuing service. CN also informed LLRRC that the four month period provided in the CTA for an agreement to be reached had expired, and that CN intended to offer the line to the provincial and municipal levels of government.

On November 30, 1998, CN submitted a counterproposal to LLRRC, who subsequently responded on December 3, 1998, requesting a meeting with CN to discuss the proposals. On December 14, 1998, CN gave notice to the provincial and municipal governments. CN responded to the December 3, 1998 LLRRC proposal on January 15, 1999 by rejecting the proposal and asking LLRRC how it wished to continue with the matter.

On January 21, 1999, LLRRC requested additional information, and in light of CN's offer to governments, requested that CN respond by January 27. LLRRC reminded CN of its January 21 request for additional information and was subsequently told by CN that the request could not be located. LLRRC resent the information request, and CN answered on February 9, 1999. LLRRC sent a registered letter to CN on February 2, 1999, complaining of difficulties in accessing certain information and in reaching CN staff and certain information, and asking for an extension of time to prepare a further proposal.

On February 16, 1999, CN indicated that it was not prepared to extend the deadline and gave notice that it was proceeding with discontinuance. According to LLRRC, CN advised grain companies located along the line that they should empty their facilities by April 15, 1999, the date on which CN would discontinue service on the line. As a result, according to LLRRC, the grain companies informed local farmers that they would not accept any more incoming grain after April 1, 1999. In its complaint, LLRRC submits that in advising grain companies in February (while negotiations were ongoing) that service would be discontinued, CN attempted to de-market the line.

According to LLRRC, on February 25, 1999, CN requested a purchase and operational outline from LLRRC. LLRRC forwarded a proposal containing greater detail to CN on March 9, 1999, and requested a face-to-face meeting with CN. CN states that this proposal was not received until March 16. LLRRC states that on March 26, 1999, CN advised that it had completed its analysis of the latest proposal and informed LLRRC that it was unacceptable. CN declined to meet further, and LLRRC filed its complaint with the Agency, alleging that CN has not acted "in good faith".

On March 30, 1999, CN advised, as required under section 146 of the CTA, that the operation of the line would be discontinued on April 15, 1999.

In its answer to the complaint dated April 29, 1999, CN denies that it has not complied with the CTA. CN submits that it negotiated in good faith and has met and exceeded all of its statutory obligations. CN indicates that LLRRC has benefited from almost two years of advance notice of CN's intentions with respect to the line.

CN further submits that although LLRRC expressed interest in obtaining the line on July 3, 1998, a proposal was not filed with CN until October 30, 1998. According to CN, this meant that three and one half months of the four month negotiation period had expired. CN states that it could have terminated negotiations as early as November 9, 1998, but did not do so.

CN submits that it accommodated LLRRC in many ways, including voluntarily postponing the effective date of the discontinuance of the operation of the line from February 16, 1999 to April 15, 1999.

In its reply dated May 10, 1999, LLRRC submits that CN did not negotiate in good faith. There was only one day of negotiation, namely November 20, 1998. LLRRC submits that although CN may have included the line in its three-year plan, it was not until May 6, 1998 (when CN published its Notice of Intention to Discontinue the line) that the community believed that the line would actually be abandoned.

LLRRC further submits that it is not an easy task to arrange the acquisition of a short line railway, particularly when important milestones in the process occur during the growing season. LLRRC indicates that the information received from CN was only received at the end of July, 1998 and that the final report from its consultant was not received until October 27, 1998.

LLRRC states that it was under the impression that as long as a proposal was forwarded to CN during the four month period, CN would continue to negotiate as long as might be necessary to complete a deal.

According to LLRRC, it filed its complaint with the Agency only when it appeared that there would be no further opportunity to conclude a satisfactory arrangement with CN.

ANALYSIS AND FINDINGS

Part III, Division V of the CTA sets out the process that a railway company must follow in transferring or discontinuing the operation of a rail line. LLRRC submits that CN has not met the requirements of the CTA, specifically the requirement to negotiate in good faith. Section 144 of the CTA describes a portion of the process that must be followed when a railway company deals with a party interested in buying, leasing, or otherwise acquiring a rail line. Subsection 144(3) of the CTA states:

The railway company shall negotiate with an interested person in good faith and in accordance with the process it discloses.

The Agency is mindful of the concerns of LLRRC in terms of the time lines provided in the CTA for an interested party to negotiate with a railway company towards purchasing a line, and recognizes the amount of effort involved in the preparation of an offer to purchase a rail line. However, these are statutory time frames, and as stated above, CN has met, and in fact has, in many instances in this matter, provided additional time to LLRRC. It is thus the finding of the Agency that CN has complied with the time frames set out in Part III, Division V of the CTA.

There remains, however, a determination as to whether CN has complied with the "good faith" provision in subsection 144(3) of the CTA. A determination as to whether a party has negotiated in good faith requires a careful examination of the facts of the particular case. In this matter, the Agency has carefully reviewed the documentation and submissions filed by both parties.

This application largely concerns the nature of the communications between the parties. LLRRC alleged that the quality of negotiations was harmed by tight time frames provided by CN for replying to its counter offers. LLRRC submitted that CN did not actually negotiate; rather, the railway simply rejected the various proposals of LLRRC. CN suggested that the problems arose because LLRRC began the negotiation process late within the time frames provided for in the CTA. LLRRC advised that there was only one day of negotiation, namely the day of the meeting between the two parties.

The Agency is of the opinion that negotiations can take many forms, including the exchange of correspondence. Discussions as to conditions of sale may take place in writing. The record indicates that there was extensive written communication between the parties which included several exchanges of information. As stated above, the Agency recognizes the preparatory work involved in formulating an offer and negotiating a deal; however, CN was accommodating with respect to the statutory framework.

CONCLUSION

The Agency, after a careful review of the submissions on file, determines that there is no evidence indicating that CN has not met the requirements of subsection 144(3) of the CTA. Therefore, LLRRC's complaint is hereby dismissed.

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