Determination No. R-2018-226

October 31, 2018

DETERMINATION in the matter of Hudson Bay Railway Company’s (HBR) compliance with Decision No. CONF-11-2018 dated June 13, 2018.

Case number: 
18-04636

BACKGROUND

[1] HBR is a federally-regulated railway company. It holds a certificate of fitness issued by the Canadian Transportation Agency (Agency) on April 29, 1997, and operates railway lines between Flin Flon Junction and Flin Flon, Manitoba; between Sherritt Junction and Lynn Lake, Manitoba; between The Pas and Churchill, Manitoba; and between Thompson Junction and Thompson, Manitoba.

[2] In late May 2017, flooding due to heavy storm activity caused extensive damage to the railway line operated by HBR between Gillam and Churchill, Manitoba (railway line) and as a result, operation of the railway line was immediately suspended and has not, to date, resumed.

[3] On June 13, 2018, the Agency issued Decision No. CONF‑11‑2018 (Decision), following pleadings in respect of an application by Mark Rosner against HBR pursuant to sections 116 and 146 of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA).

[4] The Agency found that HBR breached its level of service obligations by failing to resume service on the railway line after the flooding in spring 2017 and after a reasonable pause period in rail service that ended in November 2017. The Agency ordered HBR to:

  • initiate the repair of the railway line by July 3, 2018, and to complete the repair and resume operation of the railway line as expeditiously as possible; and,
  • file a report on the progress of the repairs to the railway line with the Agency’s Chief Compliance Officer on the first day of each month, starting on August 1, 2018, and concluding when operation of the railway line is resumed (order).

[5] On August 1, 2018, HBR filed its first report (August 1 report), as required by the Decision.

[6] In its August 1 report, HBR stated that it had begun to complete the repairs before the July 3 deadline set out in the Decision by initiating a tender process to identify a contractor to conduct the repairs. However, HBR stated that it did not have the financial capability to undertake the full repairs to the railway line, and that repairs and the resumption of service depended on its sale to a potential buyer. HBR further indicated that, in June 2018, it had retained AECOM to assess the damage to the railway line. In its August 14, 2018 response to a question posed by the Chief Compliance Officer, HBR clarified that the services provided under this contract related to the Request for Proposals (RFP) process needed to attract qualified bids to perform the repairs. HBR indicated that bids from contractors were due on August 3, 2018 and that as soon as they were received, they would be reviewed and a contract would be awarded.

[7] On August 21, 2018, the Agency issued Determination No. R-2018-190 (Show Cause), in which the Agency expressed the preliminary view that HBR has failed to comply with the order. Specifically, the Agency stated that:

HBR’s contention that a tendering process constitutes compliance with the Agency’s order to “initiate the repair of the railway line by July 3, 2018” is questionable, particularly in the absence of a concrete plan on how HBR will meet the requirement “to complete the repair and resume operation of the railway line as expeditiously as possible”.

[8] The Agency further stated, with regards to HBR’s position that actual repairs would not begin until financial resources were found either by way of a sale of the railway line or through federal funding, that this was:

[…] in direct contravention of the Agency’s order which explicitly required repairs to be undertaken and operation of the railway line to be resumed “as expeditiously as possible”.

[9] The Agency referred to the Decision, in which it made it clear that financial circumstances do not relieve a railway company of its service obligations, including the obligations established by the Decision. A railway company that, for financial or other reasons, no longer wishes to operate a line can sell or transfer that line in accordance with subsection 141(3) of the CTA, or transfer or discontinue that line pursuant to the process set out in Part III, Division V of the CTA.

[10] The Agency concluded that HBR continued to be responsible for restoring service on the railway line during negotiations for a potential sale or transfer. The Agency provided HBR with an opportunity to show cause why the Agency should not find that HBR had failed to comply with the order and, based on this finding, establish specific deadlines for compliance steps and take action to enforce those deadlines.

[11] On August 27, HBR filed its response to the Show Cause (August 27 response) and, subsequently, the Agency provided Mr. Rosner with an opportunity to comment on HBR’s response. Mr. Rosner filed his comments on September 12, 2018 (September 12 comments). In addition, HBR filed, pursuant to the order, its September 1, 2018 report (September 1 report) and its October 1, 2018 report (October 1 report).

[12] In its September 1 report, HBR notified the Agency that the sale of HBR had been completed. Furthermore, on September 7, 2018, in response to questions directed by the Agency (September 7 response), HBR informed the Agency that, as of August 31, 2018, the shares of HBR had been acquired by the Arctic Gateway Group Limited Partnership (AGGLP).

ISSUE

[13] Is HBR complying with the order made in the Decision?

THE LAW

[14] Under section 26 of the CTA, the Agency “may require a person to do or refrain from doing any thing that the person is or may be required to do or is prohibited from doing under any Act of Parliament that is administered in whole or in part by the Agency.” Under subsection 33(4) of the CTA, the Agency “may, before or after one of its decisions or orders is made an order of a court, enforce the decision or order by its own action.”

POSITIONS OF THE PARTIES

HBR’s position

[15] In its August 27 response, HBR submits that it is in compliance with the order and argues that “there is simply no basis to suggest that ‘HBR has failed to comply with the order’”.

[16] HBR maintains that an RFP is an essential step in a project as major as this one. HBR argues that because of the extent of the damage to the railway line as well as the fact that the work to be performed is in a remote location, specialized expertise in railway construction and repair is required. According to HBR, an RFP process is the normal and prudent way in which companies undertake major and technically challenging projects. HBR argues that when RFPs are undertaken with competent providers, not only do such processes yield competitive pricing, but they also enhance the ability to complete challenging projects on time and in a practical manner.

[17] HBR states in its most recent status report, the October 1 report, that:

Between September 8 and September 27, work on the washouts at Mile 355, Mile 378.7, Mile 377.5, Mile 396.2, Mile 400.33, Mile 403.68-404.68, Mile 409.4, Mile 413.4, Mile 416.5, Mile 420.5, Mile 424.72-427.2 were substantially undertaken. Work continues on the remaining washouts with the continued goal of completing all necessary repairs prior to winter.

[18] However, HBR acknowledges that a derailment on an unrelated section of its tracks resulted in delays in the repairs. Finally, HBR submits that even after the repairs are complete, RFD testing and other works to achieve compliance with rules enforced by Transport Canada for the railway must be completed prior to resuming operations, but that it has made arrangements for the RFD testing.

Mr. Rosner’s position

[19] In his September 12 comments, Mr. Rosner submits that “for the first time in the CTA process,” HBR has demonstrated real progress in the restoration of the railway line, as it appears that physical repairs have commenced.

ANALYSIS AND FINDINGS

[20] At the time of the Show Cause, and more specifically, prior to July 3, 2018, HBR had retained AECOM to prepare the RFP (mid-June 2018) and pre-screened potential contractors (June 27, 2018). In its August 1 report, HBR stated that it did not have the financial capability to undertake the full repairs to the railway line, and that the repairs and the resumption of service depended on its sale to a potential buyer.

[21] In the Show Cause, the Agency stated that:

HBR’s contention that a tendering process constitutes compliance with the Agency’s order to “initiate the repair of the railway line by July 3, 2018” is questionable, particularly in the absence of a concrete plan on how HBR will meet the requirement “to complete the repair and resume operation of the railway line as expeditiously as possible”.

[22] Furthermore, the Agency found that HBR’s position that the actual repairs would not begin until financial resources are found either by way of a sale of the railway line or through federal funding is “[…] in direct contravention of the Agency’s order which explicitly required repairs to be undertaken and operation of the railway line to be resumed “as expeditiously as possible”.

[23] In its more recent submissions, HBR no longer asserts that the repair of the railway line is conditional upon its finding financial resources. HBR has been sold, and as described in the October 1 report, repairs have been initiated and significant progress has been made.

[24] Had the sale of HBR not been completed, it appears, based on HBR’s August 1 report, that HBR had no intention of moving beyond the initial steps that had already been taken and start the actual repairs to the railway line. If that had been the case, HBR would have been found to be in breach of the order. As the Decision makes clear, a railway company’s financial position does not relieve it of its level of service obligations.

[25] However, after the sale of HBR was completed, significant progress was made on the repairs. While HBR has experienced recent, unexpected delays as a result of a derailment on an unrelated section of its tracks, the Agency is satisfied that, at this point in time and based on the work completed between September 8 and 27, 2018, HBR is taking reasonable steps towards completing the repairs to the railway line in order to resume its operation as expeditiously as possible. Furthermore, the Agency accepts HBR’s statement that it will continue to work towards completing the repairs prior to the winter to be positive and consistent with the order.

CONCLUSION

[26] The Agency finds that HBR is not in contravention of the order.

[27] The Agency reminds HBR that, consistent with the Decision, HBR continues to be required to:

  1. complete the repair and resume operation of the railway line as expeditiously as possible; and,
  2. file a report on the progress of the repairs to the railway line with the Agency’s Chief Compliance Officer on the first day of each month, concluding when operation of the railway line is resumed.

Member(s)

Scott Streiner
Elizabeth C. Barker
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