Letter Decision No. CONF-4-2017

REDACTED VERSION
February 28, 2017
APPLICATION by Univar Canada Ltd. against the Canadian Pacific Railway Company (CP), pursuant to sections 25.1 and 113 to 116 of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA); AND IN THE MATTER OF a hearing held in Vancouver, British Columbia on October 13 and 14, 2016.
Case number: 
15-04576

TRIBUNAL

Scott Streiner - Chair of the Panel, Chair and Chief Executive Officer, Canadian Transportation Agency

Stephen Campbell - Member, Canadian Transportation Agency

William G. McMurray - Member, Canadian Transportation Agency

PARTICIPANTS

Forrest C. Hume - Counsel for Univar Canada Ltd.

John Landry - Counsel for Univar Canada Ltd.

Simon R. Coval – Counsel for Canadian Pacific Railway Company

Sylvie Lang – Counsel for Canadian Pacific Railway Company

SUMMARY

[1] Univar Canada Ltd. (Univar) filed with the Canadian Transportation Agency (Agency) a complaint against CP alleging that CP failed to fulfill its level of service obligations as a result of a fire on July 9, 2014 that damaged the Marpole Rail Bridge (Marpole Bridge), which runs south from the Marpole Spur and allows for direct rail service to Univar’s facility in Richmond, British Columbia (facility).

[2] Univar requests that the Agency find that CP has failed to fulfill its level of service obligations for the receiving, loading, carrying, and delivering of traffic to and from the facility and order CP to:

  1. repair the Marpole Bridge and restore rail service forthwith, and to fulfil its level of service obligations to and from the facility; and
  2. compensate Univar, pursuant to paragraph 116(4)(c.1) of the CTA, for all expenses Univar incurred due to CP’s service failure, including legal fees, until such time as CP has restored rail service to the facility. Univar requests that the compensation be paid by CP on a monthly basis. Alternatively, Univar seeks its legal fees for this proceeding under section 25.1 of the CTA

[3] CP denies that it has breached its level of service obligations and states that is was unable to provide direct rail service to Univar as a result of force majeure circumstances. It asks the Agency to dismiss the application.

[4] The issues to be addressed in this case are:

  1. Did CP breach its level of service obligations to Univar?
  2. If so, what is the compensation to which Univar is entitled?
  3. Should the Agency award Univar’s legal fees?

[5] For the reasons set out below, the Agency finds that:

  1. Following CP’s cessation of service after the fire that damaged the Marpole Bridge, CP has been in breach of its level of service obligations to provide direct rail service to Univar except from July 10, 2014 until July 9, 2015 (first reasonable pause) and from March 11, 2016 until June 10, 2016 (second reasonable pause). CP remains in breach from the end of the second reasonable pause until such time that CP either restores direct rail service to Univar by rehabilitating the Marpole Bridge, or it has been relieved of its obligation to operate the line pursuant to section 146 of the CTA. To be relieved of its obligation, CP would have to complete the transfer and discontinuance process as set out in Part III, Division V of the CTA (discontinuance process).
  2. Univar is entitled to compensation for the expenses it incurred as a result of CP’s failure to fulfill its level of service obligations, from the end of the first reasonable pause until the commencement of the second reasonable pause, and from the end of the second reasonable pause until such time that CP either restores direct rail service to Univar by rehabilitating the Marpole Bridge, or it has completed the discontinuance process.
  3. The Agency dismisses Univar’s request for an award of legal fees.

BACKGROUND

[6] Univar is a Canadian distributer of chemicals and related products and services. It purchases products from a global network of producers and manufacturers for storage and repackaging at a network of distribution facilities. The products supplied by Univar are used in a variety of industries, including mining, pulp and paper, paints and coating, oil and gas, water treatment, food, household and industrial cleaning, and pharmaceuticals.

[7] CP is a federally-regulated railway company.

[8] The parties do not have a confidential contract. Univar has shipped under tariff with CP, specifically [REDACTED].

[9] Univar’s facility is located on the island of Richmond, British Columbia, and serves as a chemical distribution plant and Univar’s primary administrative office. The facility’s private siding provides Univar access to CP’s railway line by connecting to CP’s Van Horne Industrial Lead which, in turn, is connected to CP’s Van Horne Spur. The Marpole Bridge, which is located on the Van Horne Spur, provides the only direct rail link to Univar’s facility. Univar does not have direct access to any other railway company from its facility, and it is the only shipper served by CP south of the Marpole Bridge.

[10] The Marpole Bridge is a swing span bridge that spans the north arm of the Fraser River and connects Vancouver to Richmond. It has been leased or owned by CP since its construction in 1902.

[11] On July 9, 2014, a fire damaged 10 timber trestle spans as well as deck ties on the steel approach span, and the control system for the swing span on the northern side of the Marpole Bridge. The fire was caused by an unknown third party. Neither the swing span nor the southern abutment was damaged in the fire. On July 10, 2014, CP imposed an embargo prohibiting further movement of rail traffic over the bridge.

[12] On July 29, 2014, CP communicated to Univar that a force majeure had been declared and it could not provide Univar with direct rail service across the Marpole Bridge as a result of the damage caused by the fire. In May 2015, CP reinforced the damaged bridge in order to repatriate 23 empty rail cars that were stranded at the facility. Since the fire, CP has not transported any loaded railway cars over the Marpole Bridge. In addition, CP has taken no action to repair the Marpole Bridge or to initiate a discontinuance process.

[13] On September 29, 2015, Univar filed its complaint with the Agency, which included a request for confidentiality pursuant to section 31 of the Canadian Transportation Agency Rules (Dispute Proceedings and Certain Rules Applicable to All Proceedings), SOR/2014-104 (Dispute Adjudication Rules).

[14] In its application, Univar submits that CP’s failure to provide service has had a material impact on Univar, both financially and in terms of its reputation. Univar states that it has [REDACTED]. Univar indicates that as its facility does not have direct access to any other railway company, it has been forced to make alternative arrangements for the movement of its goods, none of which are as adequate, efficient or economical as direct rail service. Univar indicates that [REDACTED].

[15] In Decision No. LET-R-7-2016 dated February 25, 2016, the Agency found that the issues raised by the application are sufficiently complex to warrant an oral hearing.

[16] Over the course of the proceeding, CP submitted additional evidence advising the Agency that on March 10, 2016, a barge collision occurred at the Marpole Bridge. CP indicates that it declared another force majeure. Moreover, CP submitted further evidence related to two additional barge collisions at the Marpole Bridge, one that occurred on or around May 19, 2016, and the other on July 30, 2016.

[17] The Agency convened a public hearing on October 13 and 14, 2016 in Vancouver.

PRELIMINARY MATTERS

Confidentiality of information in the joint condensed book

[18] In Decision No. LET-R-32-2016 dated July 19, 2016, parties were directed to file a bound condensed book, at or before the hearing, containing the excerpts from the record that the parties would refer to in their oral argument.

[19] Prior to the oral hearing on October 13, 2016, parties filed with the Agency along with the condensed book, their respective summaries of oral arguments. These summaries form part of the joint condensed book filed by the parties at the hearing. CP’s summary included a request for confidentiality. Regarding the condensed book, two versions were filed: a public and a confidential version.

[20] The information redacted in the condensed book is consistent with the information that has been confirmed by the Agency as confidential throughout these proceedings. The Agency has found that this redacted information relates to information that is commercially sensitive and relevant to the case, that its disclosure to the public would likely cause specific direct harm to Univar as well as CP, and that the public interest in the disclosure of such information does not outweigh the potential significant harm to the parties. As a result, the public version of the condensed book will be placed on the Agency’s public record and the confidential version of the condensed book will be placed on the Agency’s confidential record.

CP’s filing of without prejudice communications between the parties

[21] In its answer to the application, CP submitted a number of communications between the parties regarding the negotiations of settlement of this dispute, some of which were marked “without prejudice”. Univar states in its reply that such communications should be deemed inadmissible unless privilege is waived by both parties. Univar contends that it has not waived privilege, but does not formally ask for the evidence to be removed from the record. In addition, counsel for Univar referenced some of the same communications during the oral hearing.

[22] The Agency addressed this argument at the hearing, noting that there was no formal request filed by either party to strike the evidence from the record. As such, the Agency determined that the evidence will remain on the record, but be given the appropriate weight according to the Agency’s discretion.

THE LAW

[23] The application before the Agency raises issues directly related to the statutory level of service obligations imposed upon a railway company by Parliament. These provisions are currently found in sections 112 through 116 of the CTA. This application also addresses, indirectly, the statutory scheme that allows a railway company to extinguish its obligation to operate a line of railway pursuant to section 146 of the CTA.

[24] In determining the outcome of this application, section 112 of the CTA requires that a rate or condition of service established by the Agency under Division IV of the CTA must be “commercially fair and reasonable to all parties”.

[25] Sections 113 to 116 of the CTA establish a railway company’s level of service obligations with respect to traffic offered for carriage on the railway. These sections are little changed from the Railway Clauses Consolidation Act, 1851, 14 – 15 Vict, c. 5 and have been reviewed many times by Parliament. Their purpose is to provide a remedy for shippers to reduce any imbalance in bargaining power in their dealings with railway companies.

[26] Sections 113 to 115 of the CTA set out the level of service obligations of federally regulated railway companies and establish that a railway company shall provide, according to its powers, adequate and suitable accommodation for the receiving, loading, carrying, unloading and delivering of all traffic offered for carriage on its railway.

[27] Section 116 of the CTA requires the Agency to investigate complaints made by any person against a railway company for not fulfilling its service obligations. If a railway company is found to not have fulfilled its level of service obligations, the Agency has the power to order remedies that are relevant to the nature of the breach in service.

[28] For the Agency to be satisfied that a railway company has not breached its level of service obligations, the railway company must provide 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.

[29] 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.

[30] 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). In other words, a railway company cannot be bound to meet its level of service obligations when it is not reasonably possible to do so. In the reasons for that ruling, Mr. Justice Rand stated that:

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).

[31] In Canadian National Railway Company v. Northgate Terminals Ltd, [2011] 4 F.C.R. 228 (Northgate), the Federal Court of Appeal examined how the principle of reasonableness in Patchett was to be applied, and stated that “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.”

[32] In 2014-10-03">Decision No. 2014-10-03, the Agency stated the following in regard to reasonableness:

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.

[33] In 268-R-2013">Decision No. 268-R-2013, the Agency found that relief of a railway company’s legal obligations should not be granted lightly, and that such relief should be based on the circumstances of each case. The Agency stated:

The SSC (sic) found in Patchett that the statutory duty imposed upon a railway company was not an absolute one and that a railway company’s obligation “is qualified by a characteristic of reasonableness and depends upon all the circumstances.” While this legal obligation or duty is, as the SSC (sic) stated, “permeated with reasonableness,” the Agency is of the opinion that it does not change the fact that the railway company has a statutory duty to meet its level of service obligations unless, for example, it is unable to do so through no fault of the railway company. A railway company should not be relieved of its level of service obligations lightly and the railway company’s level of service obligations to its shippers should be examined on a case by case basis with respect to reasonableness.

[34] Accordingly, the Agency found that costs imposed on a railway company by a third party do not necessarily constitute a force majeure. Rather, a railway company is generally expected to pay the costs necessary to maintain its railway line and discharge its statutory service obligations, except where the costs of doing so are so disproportionate that they justify exempting the railway company from its statutory duty to provide service.

[35] The Agency is of the opinion that the decision of the Railway Transport Committee of the Canadian Transport Commission (CTC) in Canadian Pacific Limited (Esquimalt and Nanaimo Railway Company) [1976] CTC 353 (1976 decision) is relevant to this case. This decision relates to CP’s failure to rebuild two bridges in order to make a railway line operable.

[36] In its decision, the CTC stated

[…] If the Company felt that it would be unreasonable from a financial point of view to rebuild these bridges, then the Railway Act contains provisions for the Company to apply to the Commission to abandon the line. These provisions are there for just that purpose, and, if the Company cannot place itself within the requirements of these provisions, it has a statutory obligation to maintain service on its line.

[…]

In any event, having abandoned the operation of its line without approval, and contrary to Section 106 of the Railway Act, CPR is now asking the Committee to approve retroactively all it has failed to do, by not ordering the Company to rebuild these bridges and make the line operable. The Committee cannot possibly condone the manner in which CPR has proceeded, as by doing so it would be allowing the Company to do indirectly what cannot be done directly except by way of abandonment proceedings in conformity with the abandonment provisions found in the Railway Act at Sections 106 and 252 and following. If the Committee were to accede to the Company’s demands, it would not only be approving the illegal conduct of CPR up to the present with regard to this line, but it would also be leaving the door wide open for CPR to use this method in the future on other lines of railway as a way of avoiding compliance with not only the abandonment sections of the Railway Act but also with Section 262.

In other words, by allowing the request of CPR in this application, the Committee would be implicitly saying that it was permitting the Company both now and in the future to contravene its statutory obligations as found in the Railway Act in order to abandon lines of railway, whether economic or not, which could not be otherwise legally abandoned. It would render the abandonment sections of the Act meaningless if a company could avoid their application by simply failing to maintain lines of railway and thereby indirectly but effectively abandoning the operation of such lines. Such a procedure would also have the end result of taking away all the effect of Section 262(1) by rendering it applicable at the whim of the railway company rather than obligatory. The Railway Act was enacted in order to provide the companies involved as well as the Commission with certain procedures to follow, and, when the Act dictates a specific procedure to follow, both must abide by its provisions. Just as with any kind of law, one cannot do indirectly what one is not allowed to directly.

[37] The 1976 decision makes it clear that a railway company cannot permanently relieve itself of its statutory obligations by indirect means by deciding not to rehabilitate a railway line. Rather, if a railway company feels that it would be unreasonable from a financial point of view to rehabilitate a railway line, the railway company must follow the steps provided for by statute for transfer and discontinuance of the line.

[38] The discontinuance process applies to all railway companies under the legislative authority of Parliament. Pursuant to this process, the discontinuance of the operation of a line of railway may only occur after a railway company has completed a prescribed series of steps pursuant to sections 141 to 146 of the CTA.

ISSUE 1: DID CP BREACH ITS LEVEL OF SERVICE OBLIGATIONS TO UNIVAR?

POSITIONS OF THE PARTIES

Univar

[39] Univar maintains that CP is required to provide the same level of rail service as it did before the fire and that CP will only be relieved of its level of service obligations upon completion of the statutory discontinuance process.

[40] Univar states that while railway companies are generally free to allocate resources and assets as they see fit, that flexibility exists only to the extent that they do not breach their level of service obligations. Univar submits that the level of service provisions establish that a railway company has an ongoing duty to furnish adequate and suitable accommodation and to transport traffic without delay. Univar indicates that as a federally regulated railway company, CP is required to comply with these obligations.

[41] Univar contends that a railway company will only be relieved of its level of service obligations after a line has been sold, leased or otherwise transferred to another railway company for continued operations, or the railway company has acquired the right to discontinue the line after having complied with the requirements of Part III, Division V of the CTA. Univar indicates that the railway company’s level of service obligations continue until the closure of such a transaction.

[42] Univar submits that CP has the burden of establishing that it had valid reasons for failing to provide the service requested by Univar. Univar indicates that, in particular, CP must 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”. Univar argues that CP will not be able to discharge this burden as there is no legitimate basis for its refusal to provide the rail service that Univar has relied on for decades.

[43] Univar indicates that even if CP’s force majeure clause applied to the July 9, 2014 fire, which Univar does not concede, the clause does not excuse CP from its obligations in perpetuity. Univar contends that, on its face, the force majeure clause only excuses a party from the performance of its obligations so long as it is “prevented or delayed in such performance by any event which is unavoidable or beyond its reasonable control”.

[44] Regarding the March 10, 2016 barge collision, Univar indicates that CP has filed no evidence of any steps it has taken to repair the bridge beyond removing debris from the river and securing the bridge. Univar contends that to the extent that CP has failed to act to repair the damage caused by the barge collision, CP is in breach of its service obligations. Univar states that CP cannot rely on force majeure in these circumstances.

[45] Univar contends that the force majeure in this case is not a matter that is beyond CP’s control and the remedy for the force majeure is for CP to restore the Marpole Bridge. Univar submits that CP’s own evidence indicates that CP can repair the Bridge; it has simply chosen not to do so.

[46] Univar argues that while the fire may have initially prevented CP from fulfilling its level of service obligations for the short time it might have taken CP to assess the Marpole Bridge and conduct interim and permanent repairs, CP cannot credibly claim that the fire continues to prevent it from servicing Univar. Univar contends that, pursuant to the force majeure provision of CP’s tariff, if force majeure applied, the railway company would be relieved of its service obligations for a reasonable time following the fire. However, that provision also requires CP to take all reasonable steps to remedy the situation as soon as possible. Univar indicates that while CP acknowledges this, it nonetheless seeks to rely on force majeure to excuse itself from its service obligations in perpetuity.

[47] Univar states that if the fire had damaged a bridge on a congested portion of CP’s network, CP would have repaired that bridge in days or weeks, not years. Finally, Univar argues that CP has cited no jurisprudence in support of its proposition that a force majeure incident, once it happens, becomes a permanent “vacation” from a railway company’s level of service obligations.

CP

[48] CP submits that an unforeseeable event, such as a bridge fire caused by a third party, is exactly the type of event contemplated by the Agency as legitimately preventing a railway company from fulfilling its statutory obligations.

[49] CP argues that under section 112 of the CTA, which governs the whole of Division IV of the CTA, including sections 113 through 116, CP’s level of service obligations after the fire are to be determined by a commercially fair and reasonable balancing of interests between the parties in the particular circumstances of the case.

[50] CP states that in instances of force majeure declarations that have been made by a railway company, Agency and predecessor rulings show that the extent of the railway companies’ obligation to provide, and in some cases fund, an ongoing freight service to customers, either directly or indirectly, is determined on a case by case basis and is permeated with considerations of reasonableness after a careful balancing of shipper and railway company impacts and interests. As such, the freight service may be altered, suspended or terminated consistent with valid shipper and railway company needs and for periods of time unrelated to those that might otherwise apply in a formal discontinuance proceeding under Division V, Part III of the CTA.

[51] CP contends that the fallacy of Univar’s argument that the only reasonable resolution - for CP to reconstruct the bridge and provide direct rail service - lies in the reconstruction costs to the bridge. CP submits that these costs are in excess of [REDACTED], which are necessary on safety and environmental grounds. CP is of the view that, in terms of a reasonable solution to the bridge fire and Univar’s legitimate business needs, it is difficult to comprehend how any legal service obligation on CP should involve an order requiring CP to rebuild the Marpole Bridge at a cost of [REDACTED].

[52] Putting that amount into business terms, CP states that for the last four full years prior to the fire, Univar, the only shipper served by the line that crosses the Marpole Bridge, has shipped on average [REDACTED] rail cars per year. CP points out that, of those rail cars, [REDACTED] are interswitched by CP and handed over at nearby locations to Canadian National Railway Company and BNSF Railway Company for the line-haul move. CP asserts that this means that it will never recover the return on capital investment on a 100 year asset. CP further submits that if it is ordered to reconstruct and maintain the bridge, it will be an order in perpetuity whether or not there is any rail freight traffic over it.

[53] CP argues that the reconstruction of the Marpole Bridge is not a reasonable outcome given the costs involved, the time to rebuild, the regulatory uncertainties for bridge approvals, the low traffic volumes involved, the uncertainty of future traffic volumes, and the availability of the immediate transload option to nearby rail storage points, an option that Univar claims it had been using for [REDACTED] of its traffic even before the bridge fire.

[54] CP indicates that although it does not dispute that generally rail freight is both efficient and economical for Univar and may well be an optimal service for Univar’s logistical needs, the law in Canada does not dictate that the railway company’s obligation is absolute or that a shipper must be guaranteed for all times and at all costs an identical service funded by the railway company. CP submits that this is not the law in Canada in the face of a service interruption that arises in a force majeure circumstance, where no fault is attributable to the railway company or its agents.

[55] CP states that it was entitled to assert an instance of force majeure pursuant to its tariffs, then in existence and under which Univar traffic was being carried. CP indicates that the tariff provision reflects the Agency’s treatment of events that prohibit ongoing rail freight service.

[56] In respect of the March 10, 2016 barge collision, CP states that the center span structures of the bridge were damaged and that safe navigation of the river required CP to lift the center span. CP indicates that, in the circumstances, it had no choice but to declare another force majeure relative to CP service at this location.

[57] CP submits that while the Marpole Bridge is in force majeure, CP cannot reasonably fulfill its service obligations and therefore, it cannot be found in breach of those obligations. CP disagrees with Univar’s position that the force majeure period must end within a reasonable time.

[58] Regarding the March 10, 2016 barge collision, CP submits that notwithstanding the damage caused by the fire and/or any possible reconstruction of that part of the bridge, renewed service is not possible due to the barge strike damage.

[59] CP insists that it is unreasonable to expect CP to rebuild the Marpole Bridge, and as a result, the force majeure is permanent and CP is therefore permanently unable to reasonably provide direct rail service over the bridge.

ANALYSIS AND FINDINGS

[60] A careful review of the relevant statutory provisions and jurisprudence outlined in the “Law” section above makes it clear that, on the one hand, shippers are entitled to ongoing rail transportation services for their traffic on an existing line, barring extraordinary circumstances and until such time as the operation of that line is properly transferred or discontinued, and, on the other hand, a railway company is not required to provide service that it previously provided when factors beyond its control make it impossible or clearly unreasonable for it to do so. How these considerations are balanced will depend on the specific circumstances of each case. As a rule, any interruption in the obligation that would otherwise exist to provide rail service on the line should be as limited as possible, consistent with the purposes of the level of service provisions.

[61] More specifically, when a force majeure event damages railway infrastructure, it may temporarily become unreasonable for a railway company to provide direct service using that infrastructure. The Agency notes that this approach is not only consistent with the law, but also with the language of force majeure clauses commonly written into commercial contracts and agreements.

[62] In general, this reasonable pause is the period of time that it would reasonably take to rehabilitate the damage to the infrastructure caused by a force majeure event, based on the specific facts of the case. This ensures that the railway company is not required to provide rail service where it would be unreasonable to require it to do so, while shippers are not deprived of the rail service any longer than necessary.

[63] Such a reasonable pause should be distinguished from the discontinuance process, which removes the railway company’s obligations in respect of the operation of the railway line. Until that process is complete, a railway company cannot be relieved of level of service obligations in perpetuity.

[64] The Agency notes that the parties agree that the fire that damaged the Marpole Bridge on July 9, 2014 was caused by an unknown third party and that the March 10, 2016 barge collision was caused by a third party. Both incidents were beyond the reasonable control of either CP or Univar.

[65] The Agency finds that both these events resulted in force majeure situations that made it unreasonable, for a period of time, for CP to continue providing direct rail service over the Marpole Bridge to Univar’s facility. The question that then arises is the length of the reasonable pause.

[66] CP’s claim of an extended or indefinite cessation of its service obligation solely because of the costs associated with the reconstruction of the Marpole Bridge is unreasonable and contrary to the level of service provisions of the CTA. The reasonable pause should be limited to the amount of time it would have taken CP to rehabilitate the infrastructure damaged as a result of each of the force majeure events and restore direct service to Univar, had CP chosen to undertake such repairs without delay.

[67] With respect to the period of time to rehabilitate the Marpole Bridge, CP submitted with its answer a report from Hemmera Envirochem Inc. (Hemmera Report), dated November 9, 2015, which outlines certain environmental and regulatory considerations. The Hemmera Report states that the overall construction timeline for the north span of the Marpole Bridge is expected to be six to eight months. The Hemmera Report also identifies various permits and approvals that CP may be required to obtain prior to the onset of construction. The Hemmera Report states that the estimated timeframe to obtain the necessary environmental permits and approvals may be at least 60 business days, once completed applications are accepted by the regulatory agencies.

[68] Although Univar indicates that it does not accept CP’s expected reconstruction timelines, Univar did not provide any evidence to support its position. The Agency finds that the timelines set out in the Hemmera Report are reasonable, particularly given the environmental sensitivity of its location of the Marpole Bridge on the north arm of the Fraser River.

[69] Therefore, the Agency finds that it was unreasonable for CP to provide direct rail service to Univar as a result of the July 9, 2014 force majeure event for a period of 12 months directly after the fire that damaged the Marpole Bridge, 12 months being the Agency’s determination of the reasonable length of time it should have taken CP to rehabilitate the bridge. As such, the first reasonable pause in CP’s direct service obligation is from July 10, 2014 until July 9, 2015.

[70] In respect of the March 10, 2016 barge collision, the Agency notes that CP’s submission includes an estimate of 13 weeks to complete the reconstruction. Univar indicates that this time estimate is misleading and that it appears that it would only take an additional 10 weeks to complete the repairs based on the work that has already been done. Although Univar indicates that it does not accept CP’s estimate, Univar did not provide any substantive evidence to support its position. Based on CP’s time estimate, the Agency finds that the March 10, 2016 barge collision justifies a second reasonable pause of 13 weeks to complete the construction. As such, the second reasonable pause is from March 11, 2016 until June 10, 2016.

[71] Having determined that the first reasonable pause period was from July 10, 2014 until July 9, 2015, and the second reasonable pause period was from March 11, 2016 until June 10, 2016, the Agency notes that CP has still neither rehabilitated the damaged infrastructure, effectively restoring direct rail service to the shipper, nor has it completed the discontinuance process.

[72] In light of this, the Agency finds that CP has breached its level of service obligations to Univar for the period following the first reasonable pause until the commencement of the second reasonable pause, and for the period following the second reasonable pause until such time that it either restores direct rail service to Univar by rehabilitating the Marpole Bridge, or it has completed the discontinuance process.

ISSUE 2: WHAT IS THE COMPENSATION TO WHICH UNIVAR IS ENTITLED?

[73] Pursuant to paragraph 116(4)(c.1) of the CTA, if the Agency determines that a railway 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 railway company’s failure to fulfill its service obligations.

[74] In this case, after the reasonable pause has ended, if the railway company has not rehabilitated the damaged infrastructure and restored service or completed the discontinuance process, the railway company must compensate the shipper for any expenses that the shipper incurs as a result of the failure to provide direct rail service. These expenses correspond to the difference between the costs of direct rail service and the costs of any alternative service arrangements made by the shipper.

[75] The shipper must be compensated until such time as the railway company either rehabilitates the infrastructure damaged by a force majeure event and effectively restores direct rail service to the shipper, or until the railway company has completed the discontinuance process.

[76] The Agency notes that Univar provided a list of expenses that it claims to have incurred as a result of the failure by CP to provide direct rail service. Univar states that it has calculated these expenses from the date of the fire. Having determined that CP was not obligated to provide direct rail service for the first reasonable pause period and the second reasonable pause period, any expenses incurred by Univar during those periods are not attributable to CP. As such, only expenses incurred as a result of CP’s failure to fulfill its level of service obligations can be recovered by Univar.

[77] Having established CP’s failure to fulfil its obligations to Univar, CP is therefore obligated to compensate Univar’s expenses, from the end of the first reasonable pause until the commencement of the second reasonable pause, and from the end of the second reasonable pause until such time that CP either rehabilitates the damaged infrastructure and effectively restores direct service to the shipper, or until it has completed the discontinuance process.

ISSUE 3: SHOULD THE AGENCY AWARD UNIVAR’S LEGAL FEES?

POSITIONS OF THE PARTIES

Univar

[78] Univar has made a claim for legal fees up to the date that it filed its application with the Agency. Univar submits that paragraph 116(4)(c.1) of the CTA gives the Agency the authority to order a railway company to compensate a shipper for expenses that it has incurred as a result of the railway company’s failure to fulfill its request for service.

[79] Univar further argues that if the Agency does not award Univar compensation for its legal fees on a full indemnity basis under paragraph 116(4)(c.1), then Univar is entitled to its legal fees under section 25.1 of the CTA. Univar submits that pursuant to section 25.1 of the CTA, the Agency has all the powers that the Federal Court has to award costs in any proceeding before it.

[80] Univar states that in exercising its discretion to award costs, the Agency may consider a number of factors, including whether the applicant has a substantial interest in the proceeding and whether there were exceptional or extraordinary circumstances that gave rise to the shipper’s complaint. Univar submits that this case is exceptional, as CP has not simply failed to meet its level of service obligations, it has shown a complete disregard for those obligations.

CP

[81] CP submits that the claim for legal fees is not an expense within the meaning of paragraph 116(4)(c.1); rather, this is an account, or estimated account, that must rely on the Agency’s ability under subsection 25.1(2) of the CTA to award costs against a respondent such as CP in tribunal proceedings. There can be no double counting and the specific overrides the general when it comes to statutory coverage.

[82] CP further states that, as for any request for a cost award under subsection 25.1(2) of the CTA, the applicant must submit evidence establishing bad faith on the part of CP, such as a reluctance to negotiate, dithering, or a failure to communicate. CP asserts that no such evidence has been submitted, and that at all times, it has acted reasonably, fairly and properly.

Univar’s reply

[83] Univar contends that it does not seek to “double count” its legal fees; rather, it only seeks it under section 25.1 of the CTA if the Agency does not compensate Univar for its legal fees under paragraph 116(4)(c.1) of the CTA.

[84] Univar reiterates that legal fees are “expenses” within the meaning of paragraph 116(4)(c.1) because, to borrow the language of the that provision, they are expenses that Univar “incurred as a result of [CP’s] failure to fulfil its service obligations”. According to Univar, but for CP’s continued refusal to restore its rail service, Univar would not have been put to the considerable expense of retaining counsel to prepare this application. Univar states that the legal fees it has incurred are therefore recoverable under the CTA. Univar further notes that its claim only represents its legal fees up to the time of filing its application and it claims legal fees for the entire proceeding.

ANALYSIS AND DETERMINATION

[85] Paragraph 116(4)(c.1) empowers the Agency to order the railway company to “compensate” any person for expenses incurred as a result of a breach of level of service obligations.

[86] Whether this permits the Agency to order CP to pay Univar its legal costs in this matter is a question of statutory interpretation.

[87] Recently, the Supreme Court of Canada reiterated the approach to statutory interpretation in B.C. Freedom of Information and Privacy Association v. British Columbia (Attorney General), 2017 SCC 6, at para. 21:

the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament…

[88] In the circumstances of this particular case, the key phrase of paragraph 116(4)(c.1) is “compensate any person adversely affected for any expenses that they incurred as a result of the company’s failure to fulfill its service obligations.” The Agency finds that the most reasonable interpretation of this statutory language is that it is intended to cover expenses stemming directly from a service breach and not any legal costs of pursuing an application against the railway company for that breach. This interpretation is buttressed by the presence of a clear, unambiguous provision in the CTA concerning the Agency’s power to award costs, subsection 25.1(1), which grants the Agency all the powers that the Federal Court has to award costs in any proceeding before it. It is unlikely that Parliament intended for paragraph 116(4)(c.1) to act as a duplicate mechanism for parties to claim their legal costs, particularly at a potentially higher rate, i.e. full compensation, than they would otherwise be entitled to under the traditional costs rules enshrined by subsection 25.1(1).

[89] Furthermore, the Agency notes that legal costs are not fully compensatory in nature. In Sherman v. Canada (Minister of National Revenue - M.N.R.), [2004] F.C.J. No. 136, at para. 8, the Federal Court of Appeal observed that the purpose of costs is not full reimbursement of all expenses and disbursements incurred by a party, but to provide partial compensation: a compromise between compensating the successful party and burdening the unsuccessful party. Indeed, the Supreme Court of Canada noted in British Columbia (Minister of Forests) v. Okanagan Indian Band, [2003] 3 S.C.R. 371, at paras. 25-26, that costs further a wide range of policy objectives, of which compensation is only one. Therefore, given that paragraph 116(4)(c.1) is premised on awarding full compensation for expenses incurred, such expenses do not, when properly interpreted, include legal costs.

[90] Accordingly, for all these reasons, the Agency finds that paragraph 116(4)(c.1) does not include compensation for legal costs.

[91] The Agency’s practice with respect to claims for costs under section 25.1(1) is to award costs only in special or exceptional circumstances. The Agency finds that Univar has not adduced sufficient evidence to establish that this case meets that threshold, and therefore dismisses Univar’s request for an award of costs.

DIRECTION

[92] Having identified the periods of time for which Univar is entitled to compensation for expenses, pursuant to paragraph 116(4)(c.1) of the CTA, the Agency is providing the parties an opportunity to agree on the amount owed to Univar. If the parties are unable to reach an agreement, the Agency will open pleadings to gather information and establish the quantum of compensation owed to Univar.

[93] The Agency hereby provides the parties until 5:00 p.m. Gatineau local time on May 1, 2017, to reach an agreement on the quantum of compensation owed to Univar for the period of July 10, 2015 until March 10, 2016, and from the period of June 11, 2016 on an ongoing basis.

Pleadings process

[94] If the parties have not advised the Agency by May 1, 2017 that they have reached an agreement on the compensation owed to Univar, pleadings will automatically open. In such case, Univar will have until 5:00 p.m. Gatineau local time on the fifteenth business day after the above deadline to file its submission with the Agency and provide a copy to CP.

[95] Univar’s submission must include full documentation in support of Univar’s request for compensation for expenses, for the period from July 10, 2015 until March 10, 2016, and from the period of June 11, 2016 on an ongoing basis until CP either restores direct rail service to Univar by rehabilitating the Marpole Bridge, or it has completed the discontinuance process. As part of its supporting documentation, Univar should file a copy of its invoices for expenses claimed during these periods, as well as any other relevant documents, including an independent, itemized estimate or quote for expenses that Univar will continue to incur until CP resumes direct service to Univar or CP has completed the discontinuance process.

[96] CP will have until 5:00 p.m. Gatineau local time on the tenth business day after the receipt of Univar’s submission to file its answer with the Agency and provide a copy to Univar. It is important, for the efficiency of case processing, that answers be complete when they are filed with the Agency. The answer should only address the arguments raised by Univar in its submission.

[97] Univar will have until 5:00 p.m. Gatineau local time on the fifth business day after the date of receipt of CP’s answer to file a reply with the Agency and provide a copy to CP. The reply must not raise issues or arguments that are not addressed in CP’s answer or introduce new evidence unless Univar has made a request and that request has been granted by the Agency.

[98] Once the pleadings are complete, the Agency will consider the evidence on file and issue a ruling on Univar’s request for compensation for expenses.

[99] In view of the nature of this direction, the Agency retains jurisdiction over the remedial portion of this matter until either it is notified by the parties that an agreement on compensation has been reached, or it has issued a final decision on compensation for expenses incurred by Univar as a result of CP’s breach of its level of service obligations, pursuant to the pleadings process set out above.

This is a public redacted version of Confidential Decision No. CONF-4-2017 that issued on February 28, 2017 which cannot be made publicly available.

Member(s)

Scott Streiner
Stephen Campbell
William G. McMurray
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