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Railways. Canadian National Railway Company v. Canada (Transportation Agency) [interswitching]
In Canadian National Railway Company v. Canada (Transportation Agency) (Fed CA, 2025) the Federal Court of Appeal (Stratas JA) allowed an appeal, this against a "Canadian Transportation Agency’s rates-setting decision" regarding 'interswitching'.
Here the court considers 'interswitching' and the rate-setting role of the CTA:[3] First, a word or two about interswitching. In many places in Canada, a shipper, such as a shipper of grain, can hire only one railway company to take grain to an interchange. At an interchange, another railway company can take the grain to its destination. In this situation, the railway company taking the grain to the interchange often enjoys a monopoly—the shipper is captive to the railway line of that railway company—and, but for price regulation under the Canada Transportation Act, the railway company can charge a monopoly rate.
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[9] Of note — and we will return to this at the end of these reasons—the Agency has never conducted and presented, with supporting reasons, a full analysis of the text, context and purpose of the sections in the Canada Transportation Act that bear on the issue in this case. Here, at least judging by the Agency’s reasons, it did not do that analysis, nor did it cite to any decision that did that analysis. Instead, over many years, in case after case, it seems that the Agency has applied standards that may or may not have come from the Act—we simply do not know.
[10] But we do know this: consistently the Agency has not considered commercial market factors when it sets interswitching rates. Given the lack of reasons, we can only assume that over the years the Agency has formed and maintained the view that commercial market factors are irrelevant under the Canada Transportation Act when it sets interswitching rates. We shall proceed on the basis that the Agency has been interpreting the Act in that way and did so in this case.
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[16] Section 127.1 of the Canada Transportation Act, the section that specifically empowers the Agency to make the decision it did, is the starting point. Section 127.1 tells the Agency to set interswitching rates every year. It also tells the Agency that when setting interswitching rates, it must consider the following:. the reduction in costs resulting from handling cars in a more efficient way (paragraph 127.1(2)(a));
. the long-term investment needed in the railways (paragraph 127.1(2)(b));
. certain average variable costs (subsection 127.1(3)); and
. the floor for the rates: they cannot be lower than the average variable costs (subsection 127.1(3)). [17] There is nothing in the precisely worded text of section 127.1 that says that the factors in subsections 127.1(2) and (3) are the only ones the Agency can or should consider. In other words, section 127.1 does not set out a complete and exclusive list of factors, nor does it set a ceiling for interswitching rates. Section 127.1 only sets out things the Agency must consider. We must go elsewhere in the Canada Transportation Act to see what other factors the Agency must consider.
[18] There are other sections in the Canada Transportation Act that speak to that. They confirm that section 127.1 does not set out a complete and exclusive list of considerations, nor a ceiling for interswitching rates.
[19] Of prime importance is section 112 of the Canada Transportation Act. It provides that "“[a] rate...established by the Agency”" in Division IV ("“Rates, Tariffs and Services”") "“must be commercially fair and reasonable to all parties”". Section 127.1 appears in Division IV of the Act. Thus, when setting interswitching rates, the Agency must apply that standard.
[20] "“[M]ust be commercially fair and reasonable to all parties” "is usefully broken down into three parts: what is "“fair and reasonable”", what is "“commercially”" fair and reasonable, and what is commercially fair and reasonable "“to all parties”".
[21] "“Fair and reasonable” "is one of the broadest phrases in the statute book. It is similar in breadth to" “just and reasonable” "rates in subsection 27(1) of the Telecommunications Act. S.C. 1993, c. 38 and "“equitable remuneration”" for tariffs in section 19 of the Copyright Act, R.S.C. 1985, c. C-42. This Court has opined that words of such breadth empower administrative decision-makers to consider "“broad policy considerations…in the Act”", using their "“factual appreciation”", "“regulatory experience”", "“policy appreciation”" and "“expertise about [the] regulated sector”", with some "“subjective judgment calls”" and "“subjective weighings and assessments”" along the way: Teksavvy Solutions Inc. v Bell Canada, 2024 FCA 121 at para. 22; CMRRA-SODRAC Inc. v. Apple Canada Inc., 2020 FCA 101 at paras. 48-49; Re:Sound v. Canadian Association of Broadcasters, 2017 FCA 138 at paras. 41-51; Bell Canada v. Bell Aliant Regional Communications, 2009 SCC 40, [2009] 2 S.C.R. 764.
[22] Just from the words "“fair and reasonable”", we can conclude that section 112 is broad enough to encompass commercial market factors. The Agency’s apparent view—that commercial market factors are always irrelevant—improperly limits the broad range of factors that the Agency must consider under section 112.
[23] Now "“to all parties”" in section 112 of the Canada Transportation Act. The Agency must consider what is "“fair and reasonable”" from the perspective of all parties. When the Agency fails to consider commercial market factors, which are factors important to CN, it effectively cuts out "“to all parties”" from the section.
[24] Finally, section 112 of the Canada Transportation Act contains the word "“commercially”". The legislative history behind the addition of "“commercially”" to section 112 underscores its significance.
[25] Section 112 and "“commercially”" first became part of Canadian law in 1996 when Parliament enacted the Canada Transportation Act, substantially replacing the less market-oriented Railway Act, R.S.C. 1985, c. R-3 and the National Transportation Act, 1987, R.S.C. 1987 (3rd Supp.), c. 28. Significantly, subsection 112(2) of the National Transportation Act, 1987 used the much narrower word, "“compensatory”", rather than "“commercially”".
[26] The 1996 reform, significant as it was, did not stand alone. It was part of a whole suite of statutes enacted during the previous decade aimed at deregulating the national economy to make it more market oriented: for a complete analysis of this legislative history and its great significance, see the discussion in Upper Lakes Group Inc. v. Canada (National Transportation Agency), 1995 CanLII 3595 (FCA), [1995] 3 F.C. 395 (C.A.).
[27] The Agency has regarded commercial market factors as irrelevant to its determination of interswitching rates. The plain meaning of "“commercially” "and the legislative history concerning and surrounding section 112 show that this is wrong. Effectively, the Agency has acted as if "“commercially”" were read out of section 112. This it cannot do.
[28] Overall, the three elements of section 112—"“fair and reasonable”", "“to all parties”", and "“commercially”"—all lead to the conclusion that when setting interswitching rates, the Agency must receive evidence relevant to the commercial market factors and consider those factors.
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[30] In this case, we need not speculate about what the purposes of the Canada Transportation Act are or discover those purposes from the text of the Act and legislative history. Section 5 of the Act, under the heading "“National Transportation Policy”", supplies us with the purposes.
[31] Section 5 says that a "“competitive, economic and efficient national transportation system… that makes the best use of all modes of transportation at the lowest total cost”" is furthered, in part, by "“regulation”" to" “achieve...outcomes that cannot be achieved satisfactorily by competition and market forces”". That explains why section 127.1 empowers the Agency to regulate rates. But section 5 also says that "“a competitive, economic and efficient national transportation system”" is essential to, among other things," “enable competitiveness and economic growth” "and that is" “most likely to be achieved”" where, among other things, "“competition and market forces…are the prime agents in providing viable and effective transportation services”".
[32] Given these purposes, how can the Agency say that commercial market factors are always irrelevant as a matter of law to the setting of interswitching rates under section 127.1 of the Act? For one thing, in some circumstances, might higher interswitching rates allow railway companies to reduce their rates elsewhere, improve their services, or make new capital investments, all of which might further a "“competitive, economic and efficient national transportation system”"? CN is correct that commercial market factors are relevant in the sense that as a matter of law they must be considered—though, as will be discussed, they may not be deserving of weight in particular cases or a class of cases.
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[34] CN notes that in many interswitching cases, a shipper is served by only one carrier, thus giving rise to the threat of monopoly pricing. But CN points out that this is not always the case. Sometimes there are two carriers, creating a market of sorts, which could be a useful comparable in the rates assessment: see, e.g., Decision No. 35-R-2009, dated February 6, 2009, at paras. 116-118. The Agency’s interpretation in this case would allow it to close its eyes to this potential comparable when coming up with interswitching rates that are "“commercially fair and reasonable”" to "“all parties”".
[35] As well, in the real world, the rates a railway company can charge in the market can further the Agency’s determination of what is "“commercially fair and reasonable to all parties”". While, as discussed above, the considerations set out in section 127.1 of the Act can set a floor for "“commercially fair and reasonable”" rates, evidence of the market price can serve as a ceiling. The Agency’s task of setting "“commercially fair and reasonable”" rates is no doubt furthered by knowing both the floor and the ceiling.
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[39] .... I conclude that when setting interswitching rates, the Agency must consider commercial market factors, as defined in paragraph 6, above.
[40] This does not mean that the Agency will always have to give significant weight to commercial market factors. Far from it. The assessment of weight is entirely for the Agency to decide on the evidence in each case, relying upon its industry appreciation, regulatory experience, and transportation expertise. As well, in some cases, the Agency may find the evidence concerning the commercial market factors to be unhelpful or deserving of little or no weight.
[41] It might be that in a particular case or a class of cases, after properly considering all the relevant factors under the Act, including the commercial market factors, the Agency sets rates at a level not much different from previously set rates. On the other hand, the Agency might set lower or higher rates. Either way, without any legal error, error on an extricable question of law or procedural error—and where the Agency adequately explains itself in its reasons—this Court cannot review the Agency’s decision under section 41 of the Canada Transportation Act: see Emerson Milling, above. At paras 42-48 the court considers the CTA's reasons, of which it had been critical.
. Halton (Regional Municipality) v. Canada (Transportation Agency) [approval of new]
In Halton (Regional Municipality) v. Canada (Transportation Agency) (Fed CA, 2024) the Federal Court of Appeal dismissed an appeal from Ontario municipalities of a decision of the Canada Transportation Act [CTA] to allow the construction of new railways [s.41(1)]:[1] The Canadian National Railway Company applied to the Canadian Transportation Agency under subsection 98(2) of the Canada Transportation Act, S.C. 1996, c. 10, for the approval of the location of certain railway lines it intends to construct in the Town of Milton, Ontario. These railway lines were part of a larger project, the construction of a terminal that would be used to transfer goods from train to truck and truck to train.
[2] Under subsection 98(2), the Agency had to be satisfied that "“the location of the railway line is reasonable, taking into consideration requirements for railway operations and services and the interests of the localities that will be affected by the line”". The Agency also had to be satisfied that the Crown met its duty to consult with Indigenous peoples.
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C. The Agency’s interpretation of subsection 98(2) of the Act
[15] The appellants have not demonstrated that the Agency committed legal error in its interpretation of subsection 98(2) of the Act. The Agency’s interpretation of subsection 98(2) is consistent with its text viewed in light of its context in the Act and its purpose. Its interpretation is also consistent with previous case law of this Court concerning subsection 98(2): Canadian National Railway Co. v. Canadian Transportation Agency, 1999 CanLII 20684 (F.C.A.) (CNR 1999) at paras. 7-20; Sharp v. Canada (Transportation Agency), 1999 CanLII 9356 (FCA), [1999] 4 F.C. 363 at paras. 7-16 (C.A.).
[16] The appellants submit that the Agency erred in determining what constitutes an interest of the locality in response to a particular application under subsection 98(2) of the Act. I disagree. The words of subsection 98(2) specifically contemplate this: the Agency is to "“[take] into consideration requirements for railway operations and services and the interests of the localities that will be affected by the line”". There is nothing in the context of the section in the wider Act or the purposes of the Act to suggest otherwise.
[17] In CNR 1999 at para. 12 and Sharp at para. 11, this Court, interpreting subsection 98(2), held that the Agency must consider the "“effect of the physical co-existence of railway lines in proximity to localities”" and must assess this on a case-by-case basis. This the Agency did.
[18] The Agency properly looked at the text of subsection 98(2). It noted (at para. 31) that it had to determine whether the location of the railway line is "“reasonable”", in part by considering the interests of the localities that will be affected by the line. It also noted (at para. 245) that "“what constitutes an interest of the locality is not determined in advance, either by the statute or by any guidelines”". So it decided to determine the interests of the localities on the facts. This was entirely consistent with CNR 1999 and Sharp. I see no error of law in the Agency’s approach. For good measure, Halton has not identified any topic that the Agency failed to consider under the rubric of "“the interests of the localities”".
[19] Halton also submits that the Agency proceeded against the proper interpretation of subsection 98(2) by wrongly "“weighing”" the two subsection 98(2) considerations rather than "“balancing”" them. Subsection 98(2) does not refer to "“balancing”" or "“weighing”" but those concepts seem implicit in the wording of the subsection: the requirements for "“railway operations and services”" on the one hand and the "“interests of the localities”" on the other hand are juxtaposed against each other, implying that they should be weighed or balanced. Without doubt, the Act does not preclude weighing or balancing under subsection 98(2). Indeed, it is hard to conceive how the Agency could balance the subsection 98(2) considerations without actually assessing the weight or force of the considerations; balancing and weighing are not mutually exclusive or antithetical concepts.
[20] A fair, holistic reading of the Agency’s reasons shows that it did weigh and balance these subsection 98(2) considerations, just as the subsection seems to require it to do. At one point in its reasons (para. 242), the Agency was quite explicit on the point, stating that it "“has a broad discretion to decide what weight to give the evidence of a given interest of a locality”" when it is "“balancing that interest against the requirements for railway operations and services”". . Halton (Regional Municipality) v. Canadian National Railway Company
In Halton (Regional Municipality) v. Canadian National Railway Company (Ont CA, 2024) the Court of Appeal considered (and dismissed) appeals of denials of injunction and declaration applications by several local municipalities against CN, this with respect to the construction of a huge rail intermodal hub near Milton. The primary issue was the extent to which this federal project required provincial and municipal authorizations in the face of the doctrine of 'interjurisdictional immunity'.
Here, the court briefly sets out the Canadian constitutional allocation of railways:[52] The parties agree that the federal government has exclusive jurisdiction over interprovincial railways. Section 91(29) of the Constitution Act 1867 provides the federal government with exclusive jurisdiction over subjects “expressly excepted” from matters otherwise exclusively within provincial jurisdiction. Section 92(10)(a) expressly excludes interprovincial railways from exclusive provincial jurisdiction over “Local Works and Undertakings”, while s. 92(10)(c) does the same for works that Parliament declares to be for the general advantage of Canada, which Parliament did with respect to “railway and other transportation works in Canada of CN” in s. 16(1) of the CN Commercialization Act, S.C. 1995, c. 24. . Canadian Pacific Railway Company v. Teamsters Canada Rail Conference
In Canadian Pacific Railway Company v. Teamsters Canada Rail Conference (Div Court, 2023) the Divisional Court considers an Ontario (!) labour JR, where the issue was the jurisdiction of an arbitrator. In this quote the court explains the extra-statutory (and apparently failed) role of the 'Canadian Railway Office of Arbitration (CROA) in railway labour relations:[9] In addition to being parties to a collective agreement, the Union and the Employer are also parties to a Memorandum of Agreement, establishing the Canadian Railway Office of Arbitration (“CROA”). CROA is a highly specialized tribunal, established to efficiently meet the unique needs of labour disputes within the Canadian railway industry. In Canadian National Railway Company v. Teamsters Canada Rail Conference, 2020 ONSC 7286, at para 21 the Divisional Court recognized CROA as a “highly specialized administrative tribunal” and that, given its mandate to provide a “fluid and efficient mechanism to manage employment relations in a complex industry”, decisions from CROA have “attracted a high degree of deference by reviewing courts.”
[10] As described by the Union (which the Employer did not dispute), the CROA process has been frustrated in the last ten years or so by the growing number of grievances and the lack of mutually agreeable arbitrators to sit as part of the fixed roster. In order to address the backlog of grievances, the Union and the Employer have resorted to ad hoc processes, outside of the formal CROA system, but governed by the same rules. Frequently, the parties have consented to using the Arbitrator in this case, William Kaplan, to hear their grievances through the ad hoc process. Mr. Kaplan is well known, experienced and respected in the labour relations world. . Canadian National v. Teamsters Canada
In Canadian National v. Teamsters Canada (Div Ct, 2020) the Divisional Court stated some practical basics of Canada's rail infrastructure make up: [4] CN is a railway company operating in Canada and North America. The respondent (the “Union”) is the exclusive bargaining agent for CN employees working for train and rail yard service on CN’s eastern lines. The relationship between CN and the Union is governed by Collective Agreement 4.16 (the “Agreement”). The Agreement discusses the work classification of conductors, trainspersons and yardpersons. Each group has distinct areas of work jurisdiction in the Agreement.
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[21] CROA [SS: Canadian Railway Office of Arbitration & Dispute Resolution] is a highly specialized administrative tribunal devoted to resolving railway employment disputes. CROA’s decisions are generally brief, deal with the interpretation of collective agreements, and are released quickly, in order to provide “a fluid and efficient mechanism to manage employment relations in a complex industry”: Canadian National Railway v. Teamsters Canada Rail Conference, [2017] N.S.J. 156 (S.C.), at para. 13 (“CNR v. TCRC”). CROA’s decisions have in the past attracted a high standard of deference by reviewing courts: Canadian Pacific Limited c. Fraternité des préposés à l'entretien des voies, 2003 CanLII 75291 (QC CA), [2003] J.Q. no 4776, at paras. 48-50. . Goderich-Exeter Railway Company Limited v. Shantz Station Terminal Ltd.
In Goderich-Exeter Railway Company Limited v. Shantz Station Terminal Ltd. (Ont CA, 2020) the Court of Appeal considers rarely litigated railway law, here the issue of 'demurrage'. In particular, must a right to demurrage be expressly set out in a contract:[1] The appellant, Goderich-Exeter Railway Company Limited (“GEXR”), appeals from the dismissal of its claim against the respondents for “demurrage”. Demurrage is a charge by a railway to a shipper for the detention of the railway’s equipment and assets—its railcars—beyond a specified amount of “free time” allowed for loading or unloading.[1] When properly payable, demurrage compensates the railway for the extended use of its assets and equipment and encourages their prompt return to the transportation network.
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The Common Law Required A Contract
[39] There is strong authority for the proposition that, at common law, a shipper’s obligation to pay freight charges – that is, charges for the movement of traffic – is based on a contract with the carrier. In some cases, that contract may be implied. For example, in N.Y. Central R. Co. v. Joseph Dolan & Sons Ltd., 1928 CanLII 487 (ON CA), [1929] 1 D.L.R. 817 (Ont. C.A.), at p. 820, this court adopted, with approval, the following statement:Ordinarily, the person from whom the goods are received for shipment assumes the obligation to pay the freight charges; and his obligation is ordinarily a primary one. This is true even where the bill of lading contains, as here, a provision imposing liability upon the consignee. For the shipper is presumably the consignor; the transportation ordered by him is presumably on his own behalf; and a promise by him to pay therefor is inferred (that is, implied in fact), as a promise to pay for goods is implied, when one orders them from a dealer. [40] Demurrage, as “one of those rates or charges…[that] relates to the movement of traffic” is a subset of freight charges: Canadian National Railway v. Neptune Bulk Terminals (Canada) Ltd., 2006 BCSC 1073 at paras. 95-96. Accordingly, the basis for a claim for demurrage would be the existence of a contract between the shipper and the carrier.
[41] In support of its argument that no contract is necessary, GEXR points to the fact that charges for demurrage by railways have both a long history and a firm underpinning in business efficacy and fairness. It submits that descriptions of the nature of the claim do not state that it is a function of contract.[42] For example, in North-West Line Elevators Association et al. v. Canadian Pacific Railway and Canadian National Railway et al., 1959 CanLII 54 (SCC), [1959] S.C.R. 239, Rand J. stated at p. 244:[T]he principle of exaction for delay in loading and unloading in water transportation has been known and applied for centuries. Its appropriateness to railway carriage can be assumed to have been recognized and acted upon both in England and in North America certainly from the middle of the nineteenth century.
Delay in loading or unloading cars of freight violates the implied understanding when equipment is placed at the disposal of shipper or consignee that no more than reasonable time shall be taken for either purpose. The profitable and efficient use of equipment is an important item of the costs reflected in the freight rates charged and is an essential in good railway management. That a railway is to supply expensive equipment in order to furnish, gratis, a storage means for shippers and consignees, reveals, on its mere statement, its own absurdity [Citation omitted; Emphasis added.] [43] As a further example, in Turner, Dennis & Lowry Lumber Co. v. Chicago, M & St. P. Ry. Co., 271 U.S. 259 (1926), Brandeis J. stated at p. 262:One cause of undue detention (of rail cars) is lack of promptness in loading at the point of origin, or in unloading at the point of destination. Another cause is diversion of the car from its primary use as an instrument of transportation by employing it as a place of storage, either at destination or at reconsignment points, for a long period while seeking a market for the goods stored therein. To permit a shipper so to use freight cars is obviously beyond the ordinary duties of a carrier. The right to assess charges for undue detention existed at common law. Now, they are subject, like other freight charges, to regulation by the Commission. Demurrage charges are thus published as a part of the tariffs filed pursuant to the statutes. [Emphasis added.] [44] I do not read either statement as suggesting that there is a right to charge demurrage to a party with whom the railway has no contract at all.
[45] The dispute in Turner was between a person to whom lumber had been shipped and the railway that carried it. It was not a dispute between parties who had no contractual relationship. Brandeis J. rejected the consignee’s contention that the demurrage charge was a penalty which could not be legally imposed by the railway or approved by its statutory regulator. His reference to demurrage previously having been a common law right does not suggest, at least as viewed through the lens of Ontario law, that it existed outside of contract; it simply contrasted how the right was previously governed (exclusively by the common law, which governed when and how a contract came into existence and the extent to which it could be enforced) with how the right came to be regulated (in part by statute).
[46] The issue in North-West Line Elevators was whether the Board of Transport Commissioners (then the statutory regulator of railway rates and charges) had correctly considered itself to be without authority to disallow a railway’s tariff that provided for demurrage charges to shippers. In dismissing the appeal, Rand J. did not say anything that suggested a railway could charge demurrage to a person with whom it had no contract to ship or carry goods. Rather, his statement is more consistent with the view that, where there is a contract between a shipper and a railway for the movement of freight, a right to charge demurrage will be implied into that contract as the freight rates otherwise charged will necessarily have been based on the profitable and efficient use of the railway’s equipment (subject to compliance with the statutory regulation of rates and charges of railways).
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