Letter Decision No. CONF-2-2017

REDACTED VERSION
January 20, 2017
Application by Emerson Milling Inc. (EMI) against the Canadian National Railway Company (CN) pursuant to sections 113 to 116 and 127 of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA).
Case number: 
15-03518

SUMMARY

[1] This Decision follows two others related to EMI’s July 29, 2015 application with the Canadian Transportation Agency (Agency) alleging that CN breached its level of service obligations, and deals with two issues:

  1. Should the Agency, pursuant to paragraph 116(4)(c.1) of the CTA, order CN to compensate EMI for expenses that it incurred as a result of CN’s failure to fulfill its service obligations?
  2. If so, what amount should the Agency order CN to compensate EMI?

[2] For the reasons provided below, the Agency orders CN to compensate EMI for expenses that it incurred as a result of CN’s failure to fulfill its level of service obligations, in the amount of $[REDACTED] by February 20, 2017.

BACKGROUND

[3] On July 29, 2015, EMI filed an application with the Agency against CN pursuant to sections 113 to 116 and 127 of the CTA. EMI is seeking:

  1. a determination that CN’s refusal to provide adequate and suitable accommodation for the receiving and loading of EMI’s traffic is a breach of CN’s level of service obligations under the CTA;
  2. an order requiring CN to provide service to siding RD-47 in accordance with the orders that EMI will place in future;
  3. an order requiring CN to interswitch rail cars received in interchange from BN between the interchange at Emerson, MB and siding RD-47; and,
  4. in the alternative, an order requiring CN to provide service to EMI in any manner and within any time or during any period that the Agency deems expedient, having regard to all proper interests.

[4] In a subsequent submission, EMI filed a request for an order granting EMI its expenses incurred as a result of CN’s failure to fulfill its level of service obligations as well as an order granting EMI special costs. CN filed a request for costs on a solicitor-and-client basis.

[5] On March 4, 2016, in Decision No. CONF-1-2016 (March Decision), the Agency found that CN has level of service obligations with respect to EMI’s traffic.

[6] On August 26, 2016, in Decision No. CONF-11-2016 (August Decision), the Agency found that CN’s failure to furnish adequate and suitable accommodations for EMI’s traffic by refusing to allow EMI to receive and load its traffic at either RD-47 or [REDACTED] is a breach of its level of service obligations. The Agency ordered CN to, within 30 days of the date of the decision, furnish adequate and suitable accommodations for the receiving and loading of EMI’s traffic at either RD-47 or [REDACTED], with CN to choose between these locations.

[7] The Agency also found that both RD-47 and [REDACTED] satisfy the conditions for interswitching and ordered CN to provide interswitching for EMI’s traffic at the Emerson Noyes interchange, in accordance with the Railway Interswitching Regulations, SOR/88-41.

[8] On September 2, 2016, EMI e-mailed CN’s counsel asking that CN advise EMI at the earliest possible date when service would be resumed and which location it had selected. On September 23, 2016, EMI e-mailed CN’s counsel again. CN responded, informing EMI that it had selected [REDACTED] as its loading site. On September 27, 2016, EMI e-mailed CN indicating that [REDACTED] was still not set up for EMI on CN’s website. In response, CN informed EMI that it was working on the issue and that the system would be ready shortly.

[9] On September 29, 2016, there were multiple exchanges between EMI and CN as EMI was having difficulty ordering cars through the CN website and was not able to order cars through the website from either CN or BNSF. On that same day, EMI was able to place an order for one car from CN and one car from BNSF. The CN car was confirmed for grain week starting October 9, 2016; the BNSF car was not confirmed. EMI’s car order was delivered by CN on October 9, 2016.

ISSUE 1: SHOULD THE aGENCY, PURSUANT TO PARPAGRAPH 116(4)(C.1) OF THE CTA, ORDER cn TO COMPENSATE emi FOR EXPENSES THAT IT INCURRED AS A RESULT OF cn’S FAILURE TO FULFILL ITS SERVICE OBLIGATIONS?

[10] In its submission, EMI claims expenses for:

  1. trucking its product from its facility in Emerson, Manitoba to [REDACTED] in Winnipeg, Manitoba;
  2. transloading its product at [REDACTED]; and
  3. demurrage charges from [REDACTED] and CN.

CN’s position

[11] CN submits that the Agency should dismiss EMI’s claim for expenses. According to CN, it is not appropriate to penalize it by awarding EMI expenses given that the Agency could have ordered CN to provide ongoing service to EMI at [REDACTED] on EMI’s first application, which would have relieved EMI of the burden of any of the expenses that it has claimed; however, the Agency did not. CN further asserts that it is not responsible for the expenses incurred during the time period during which EMI’s application was pending as it continued to provide service to EMI at one of the locations specifically named in the March Decision.

[12] CN submits that EMI acknowledged that its claim for expenses was in fact a claim for damages. CN also argues that EMI did not file sufficient evidence to establish its expense claim in the first instance. CN objects to the Agency allowing EMI to remedy this error by providing it an opportunity to file new evidence.

EMI’s position

[13] EMI submits that expenses are not a penalty against CN but compensation for EMI for the out-of-pocket costs it incurred as a result of CN’s breach of its level of service obligations. Furthermore, EMI argues that CN should not be excused from paying EMI’s expenses because counsel for EMI once mistakenly used the term “damages” and that these expenses would be called “damages” in civil court. EMI maintains that its expenses were referred to erroneously as “damages” on one occasion but that this does not transform the expenses into something different and that this should not disentitle EMI from recovering them under the CTA.

[14] According to EMI, the delay that CN refers to was the result of CN’s position that its level of service obligations were contractual and not statutory.

[15] With respect to CN’s claim that the Agency could have ordered CN to provide service to EMI at [REDACTED] on EMI’s first application, EMI notes that CN opposed EMI’s application for an interim order and that CN could have served EMI at [REDACTED] from the very beginning, thus avoiding the current application before the Agency. EMI submits that CN took its unlawful position at its own risk and that by maintaining a position that is wrong in law, CN risked EMI incurring hundreds of thousands of dollars in expenses that CN may be ordered to pay back to EMI pursuant to paragraph 116(4)(c.1) of the CTA.

Analysis and determinations

[16] Paragraph 116(4)(c.1) of the CTA sets out that if the Agency determines that a company is not fulfilling any of its service obligations, the Agency may:

…order the company to compensate any person adversely affected for any expenses that they incurred as a result of the company’s failure to fulfill its service obligations…

[17] In 2015-07-10">Decision No. 2015-07-10 (EMI Decision), the Agency determined that lost revenue does not constitute an “expense” for the purposes of paragraph 116(4)(c.1) of the CTA. The Agency stated in paragraph 90 of that decision that:

…the expenses which the Agency may compensate for are those which are out of pocket, that is to say, an expenditure that results from a breach in the railway company’s level of service. By this interpretation, the Agency finds that lost revenue is not an expense. Lost revenue is just that, the loss of potential revenue from customers that could have potentially been served had the railway company fulfilled its level of service obligations. The loss of revenue is, as CN submits, damage and not an expense.

[18] The Agency finds that although EMI, in a previous submission in this proceeding, referred to its expenses as “damages”, its claims constitute expenses pursuant to paragraph 116(4)(c.1) of the CTA, not damages, and therefore should be considered as such by the Agency.

[19] CN’s claim that it should not be responsible for the expenses incurred by EMI because it continued to provide service at one of the locations specifically named by the Agency is not a persuasive argument. In the March Decision, the Agency identified a non-exhaustive list of sites that it found to constitute “points of stopping” for the purposes of the CTA, and directed the parties to file pleadings in order for the Agency to determine where, if anywhere, adequate and suitable accommodation for the receiving and loading of EMI’s traffic could be provided by CN.

[20] The Agency notes that in the March Decision, it had not made a determination about adequate and suitable accommodation with respect to any of the identified locations, including transloading in Winnipeg. Furthermore, in the August Decision, with respect to transloading in Winnipeg, the Agency found that adequate and suitable accommodation for the receiving and loading of EMI’s traffic could not be furnished at that location and that by not providing service at either [REDACTED] or RD-47, CN had breached its level of service obligations.

[21] As a result of CN’s breach of its level of service obligations with respect to EMI’s traffic, EMI had to find an alternative means to transport it goods, specifically, trucking its product to and transloading it at [REDACTED]. EMI incurred these expenses to continue to maintain its operations, that is, to continue to transport it product to its customers.

[22] Based on the above, the Agency finds that CN should be required to compensate EMI for the expenses that the latter incurred as a result of CN’s failure to fulfill its level of service obligations.

ISSUE 2: WHAT AMOUNT SHOULD THE AGENCY ORDER CN TO COMPENSATE EMI?

Time Period

EMI’s position

[23] EMI submits that, based on the August Decision, CN should have resumed service on September 25, 2016 (30 days from the August Decision). EMI submits that for it to have received cars for the week of September 25, 2016, it would have had to order cars from CN on September 20, 2016, because to order cars with CN, a shipper must place its order no later than 1:30 p.m. on the Tuesday prior to the given week.

[24] EMI submits that service did not resume until it was able to receive, carry and deliver traffic at [REDACTED] as required by the service provisions of the CTA, which was October 9, 2016. EMI maintains that this is consistent with a regime that allows EMI to fully capture its expenses flowing from CN’s breach of its level of service obligations.

CN’s position

[25] CN argues that it resumed service on September 23, 2016, when it confirmed to EMI that it had selected [REDACTED], that the location is set up in CN’s system to reflect EMI as a tenant, and that it is ready for EMI to order and load equipment.

[26] CN argues that the Agency did not order CN to “deliver cars” but that it ordered CN to resume service, which according to CN means “to establish a loading siding available to EMI from which it can order and load equipment on a go-forward basis.” CN further argues that if the Agency intended “delivered cars,” it would have stated as much.

Analysis and determinations

[27] Neither of the proposals advanced by the parties is appropriate. The date that CN confirmed to EMI that it had selected [REDACTED] is not appropriate as the mere confirmation of the location where CN intends to provide service does not obviate EMI’s need to incur trucking expenses. October 9, 2016, the date on which EMI was able to receive and load traffic at [REDACTED] is not appropriate either. Instead, the Agency finds that it is appropriate to award EMI its expenses up to the date on which it was able to place an order for cars in CN’s ordering system for delivery at [REDACTED], i.e. September 29, 2016. It was on that date that EMI could reasonably end its reliance on trucking to address its shipping requirements, in the face of CN’s breach. Therefore the period over which the Agency will consider EMI expenses is from March 4, 2016 to September 29, 2016 (eligible period).

Expenses

[28] In the August Decision, the Agency noted that:

Prior to July 31, 2015, EMI trucked its product to RD-47; however, in response to CN’s refusal to provide service at either RD-47 or [REDACTED], which the Agency has found to be a breach of CN’s level of service obligations, EMI has been trucking its product to and transloading it at [REDACTED]. The expenses being claimed by EMI are the expenses resulting from the trucking of its product to and its transloading at [REDACTED].

[29] Furthermore, the Agency recognized that when EMI was receiving and loading its traffic at RD‑47, it incurred costs to truck its product from its facility to RD-47; therefore, based on EMI’s request for expenses related to the trucking of its product to and its transloading at [REDACTED], the expenses for which EMI may be entitled to compensation are properly represented by the difference between:

  1. 1. the costs that EMI would have incurred to truck its product to and transload it at either RD-47 or [REDACTED]; and,
  2. 2. the costs that it incurred to truck to and transload its product at [REDACTED].

[30] Specifically, with respect to the costs that EMI would have incurred to truck its product to and transload it at either [REDACTED] or RE-47, the Agency directed EMI to provide the following:

  1. an independent, itemized estimate or quote from a trucking company for costs to truck its product from its facility to both RD-47 and [REDACTED] from March 4, 2016 to the date on which CN resumes service to EMI;
  2. an independent, itemized estimate for the costs that would have been incurred by EMI for the transloading of its product at RD-47 or [REDACTED] from March 4, 2016 to the date on which CN resumes service to EMI; and,
  3. copies of the invoices for the trucking of its product from its facility to RD-47 and an itemized list of costs for the transloading of its product at RD-47 for the entire year prior to July 31, 2016.

Costs that EMI would have incurred to truck its product to and transload it at [REDACTED]

EMI’s position

[31] EMI submits two options for determining the costs that it would have incurred to truck its product to and transload it at [REDACTED]. According to EMI, it used its own equipment and employees to truck its product to and load it at RD-47; therefore, it has no invoices for trucking and transloading at this siding. However, in order to estimate the costs that EMI would have incurred from March 4, 2016 to October 8, 2016, MNP LLP (MNP), of behalf of EMI, prepared a Quantification of Costs Report (Costs Report) to estimate EMI’s cost per metric tonne (MT) using its own equipment and employees. Based on the Costs Report, EMI submits that the expenses that it would have incurred from March 4, 2016 to October 8, 2016 are $[REDACTED].

[32] The second option that EMI proposes is to determine the expenses that it would have incurred for trucking and transloading based on quotes from outside companies. EMI submits that, based on the quotes, the expenses that it would have incurred from March 4, 2016 to October 8, 2016 are $[REDACTED]. However, EMI submits that the Agency should use the Costs Report in determining EMI’s expenses instead of the quotes.

CN’s position

[33] CN submits that, if the Agency does award EMI any expenses, the quotes should be used in assessing the cost of shipping at [REDACTED], rather than the Costs Report.

[34] CN argues that the Costs Report relies heavily on a range of assumptions for which there is no underlying evidence. CN states that the Costs Report is based on information provided by EMI to MNP which has not been filed in these proceedings, MNP did not verify that information, and MNP has assumed that the information is complete and accurate. Finally, CN submits that the Costs Report is quite carefully qualified and that any flaw in the underlying information or assumptions may materially change the conclusion. CN argues that, on the other hand, the quotes from service providers for trucking and loading services filed by EMI are unqualified, clear statements from independent parties that do not rely on representations from EMI or on assumptions.

Analysis and determinations

[35] Although the Agency directed EMI to file, with respect to trucking, an itemized estimate or quote from a trucking company and with respect to transloading, an itemized estimate for the costs that it would have incurred, EMI instead filed two options for determining the costs that it would have incurred. Under the first option, the trucking and transloading costs are estimated based on EMI using its own equipment and employees and under the second option, the trucking and transloading costs are estimated using quotes from outside companies.

[36] The Agency finds that the quotes from the two companies best satisfy the Agency’s direction. The companies, [REDACTED] and [REDACTED], are independent and both companies’ quotes itemize the work to be done, the equipment that would be used, the estimated amount of time to complete the work and the associated hourly rate that would be charged.

[37] The Agency will therefore determine EMI’s expenses using the quotes submitted by EMI, which amount to $[REDACTED]. However, as EMI’s submission contains costs outside of the eligible period, the Agency will reduce EMI’s expenses by $[REDACTED] (trucking and transloading invoices with a shipping date that falls outside of the eligible period, totalling $[REDACTED]  and $[REDACTED], respectively).

[38] The Agency therefore finds that during the eligible period, EMI would have incurred costs in the amount of $[REDACTED] for trucking its product to and transloading it at [REDACTED].

Costs incurred to truck to and transload EMI’s product at [REDACTED]

EMI’s position

[39] EMI submits that from March 4, 2016 to October 8, 2016, it incurred trucking and transloading expenses in the amount of $[REDACTED]. Furthermore, EMI submits that it incurred expenses in the amount of $[REDACTED] for demurrage over the same period.

[40] In support of its claim of costs incurred, EMI filed the affidavit of Laura St. Vincent (affidavit), the bookkeeper at EMI. The affidavit contains copies of invoices from various trucking companies for hauling EMI’s product from EMI’s facility to [REDACTED] and copies of invoices from [REDACTED] for transloading EMl’s product at the [REDACTED] transloading facility from March 4, 2016 to October 8, 2016.

[41] EMI also used its own trucks and employees to truck its product from its facility to [REDACTED] over that period.

[42] In addition, the affidavit includes copies of invoices from [REDACTED] and CN for demurrage, which EMI claims it incurred as a result of having to transload at [REDACTED] and that if it had been able to load its product at [REDACTED], it would not have incurred these charges. According to EMI, it would have had control over its operations at RD-47 or [REDACTED] as it can arrange to have personnel work on weekends. On the other hand, EMI argues that it had no control over [REDACTED]’s operations.

[43] In response to CN’s argument that EMI must establish that it would not have incurred those charges at [REDACTED], EMI maintains that it is immaterial whether the demurrage would have been incurred at [REDACTED].

[44] EMI submits that these demurrage charges are an out of pocket expense incurred as a result of CN’s breach of its level of service obligations and are therefore expenses that the Agency should include in EMI’s compensable expenses pursuant to paragraph 116(4)(c.1) of the CTA.

CN’s position

[45] CN submits that EMI’s claim for demurrage should be dismissed as it does not fall under any of the items identified by the Agency in the August Decision. CN argues that, nevertheless, in order for the Agency to consider the demurrage charges as expenses, EMI must establish that it would not have incurred those charges at [REDACTED], which according to CN, EMI has failed to do.

Analysis and determinations

[46] As the only expenses disputed by CN are related to the demurrage charges claimed by EMI, the Agency accepts the expenses filed by EMI with respect to trucking its product to and transloading it at [REDACTED], which amount to $[REDACTED]. However, as EMI’s submission contains expenses outside of the eligible period, the Agency will reduces EMI’ expenses by $[REDACTED], a sum comprised of the following elements:

  • trucking and transloading invoices with a shipping date that falls outside of the eligible period, totalling $[REDACTED] and $[REDACTED], respectively;
  • invoices that do not contain shipping dates and whose invoice dates fall outside, or at the start of the eligible period, totalling $[REDACTED]; and,
  • with respect to the expenses sourced from the Costs Report, expenses associated with weight tickets outside of the eligibility period, totalling $[REDACTED].

[47] Furthermore, the Agency has reviewed EMI’s submission and notes that it contains computational errors and expenses not supported by documentation; accordingly, the Agency reduces EMI’s expense by $[REDACTED]. Specifically, the Agency excludes the trucking and transloading expenses that are not supported by invoices, totalling $[REDACTED] and $[REDACTED], respectively. The Agency also excludes the transloading expenses from invoice 150 that were also included in invoice 149, totalling $[REDACTED]. Finally, the Agency excludes $[REDACTED] as a result of a computational error in determining the life of the 2009 equipment in the Costs Report.

[48] The Agency therefore finds that during the eligible period, EMI incurred expenses in the amount of $[REDACTED] for trucking its product to and transloading it at [REDACTED].

[49] With respect to demurrage, the Agency finds that these charges, when incurred by a shipper as a result of a railway company’s breach of its level of service obligations, are out of pocket expenses and therefore may be considered as expenses that the Agency may order the railway company to compensate for under paragraph 116(4)(c.1) of the CTA.

[50] However, in this case, the Agency finds that EMI has not established that the expenses were a result of CN’s breach of its level of service obligations with respect to EMI’s traffic. That is to say, EMI did not establish that it would not have incurred these demurrage costs at [REDACTED]. In addition, the Agency notes that, although EMI is claiming $[REDACTED]  for demurrage expenses, the supporting invoices filed with the affidavit do not reconcile to this amount. The Agency therefore denies EMI’s request for expenses related to demurrage costs.

[51] Based on the above, the Agency finds that EMI incurred expenses in the amount of $[REDACTED] as a result of CN’s breach of its level of service obligations with respect of EMI’s traffic.

CONCLUSION

[52] As noted above, the Agency found in the August Decision that the expenses for which EMI may be entitled to compensation are properly represented by the difference between:

  1. the costs that EMI would have incurred to truck its product to and transload it at [REDACTED], specifically $[REDACTED]; and,
  2. the costs that it incurred to truck to and transload its product at [REDACTED], specifically $[REDACTED].

[53] The Agency therefore finds that EMI is entitled to compensation in the amount of $[REDACTED] as a result of CN’s breach of its level of services obligations with respect to EMI’s traffic.

ORDER

[54] The Agency orders CN to compensate EMI in the amount of $[REDACTED] by February 20, 2017.

DIRECTION

[55] As both parties filed a request for costs, the Agency provides the parties an opportunity to file their submission in support of their respective request with the Agency. Accordingly, the Agency provides EMI and CN until 5:00 p.m. Gatineau local time on February 10, 2017 to file their submission in support of their request with the Agency, with a copy to be provided simultaneously to the other party. EMI and CN will each have until the fifth business day after receipt of the other party’s submission to file their response to the submission with the Agency, with a copy to be provided simultaneously to the other party. EMI and CN will then have until the third business day after receipt of the other party’s response to file their reply with the Agency, with a copy to be provided simultaneously to the other party.

This is a public redacted version of Confidential Decision No. CONF-2-2017 that issued on January 20, 2017 which cannot be made publicly available.

Member(s)

Scott Streiner
Stephen Campbell
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