Allstream Corp. v. Bell Canada, 2005 FCA 247

Date: 20050708

Docket: A-398-04

Citation: 2005 FCA 247

CORAM:        DESJARDINS, J.A.

DÉCARY, J.A.

PELLETIER, J.A.

BETWEEN:

                                                           ALLSTREAM CORP.

                                                                                                                                            Appellant

                                                                           and

BELL CANADA, XIT TÉLÉCOM, TELUS COMMUNICATIONS (QUÉBEC) INC., FÉDÉRATION DES COMMISSIONS SCOLAIRES DU QUÉBEC, L'ASSOCIATION DES COMMISSIONS SCOLAIRES ANGLOPHONES DU QUÉBEC, LA SOCIÉTÉ GRICS, LE CRCD DU BAS ST-LAURENT, LA COMMISSION SCOLAIRE DU PAYS-DES-BLEUETS, LA COMMISSION SCOLAIRE DE LA RIVERAINE, COMMISSION SCOLAIRE DES PHARES, CENTRE DES TECHNOLOGIES DE L'INFORMATION ET DES COMMUNICATIONS - RÉGIONAL ABITIBI-TÉMISCAMINGUE, CONSEIL RÉGIONAL DE DÉVELOPPEMENT DE L'ABITIBI-TÉMISCAMINGUE ET LE CONSEIL TRIBAL DE LA NATION ALGONQUINE ANISHINABEG

                                                                                                                                      Respondents

                                                                           and

                                           CANADIAN RADIO-TELEVISION AND

TELECOMMUNICATIONS COMMISSION

                                                                                                                                          Intervener

                                           Heard at Montréal, Quebec, on June 1, 2005.

                                    Judgment delivered at Ottawa, Ontario, on July 8, 2005.

REASONS FOR JUDGMENT BY:                                                                       DESJARDINS J.A.

CONCURRED IN BY:                                                                                                DÉCARY J.A.

PELLETIER J.A.

Date: 20050708

Docket: A-398-04

Citation: 2005 FCA 247

CORAM:        DESJARDINS, J.A.

DÉCARY, J.A.

PELLETIER, J.A.

BETWEEN:

                                                           ALLSTREAM CORP.

                                                                                                                                            Appellant

                                                                           and

BELL CANADA, XIT TÉLÉCOM, TELUS COMMUNICATIONS (QUÉBEC) INC., FÉDÉRATION DES COMMISSIONS SCOLAIRES DU QUÉBEC, L'ASSOCIATION DES COMMISSIONS SCOLAIRES ANGLOPHONES DU QUÉBEC, LA SOCIÉTÉ GRICS, LE CRCD DU BAS ST-LAURENT, LA COMMISSION SCOLAIRE DU PAYS-DES-BLEUETS, LA COMMISSION SCOLAIRE DE LA RIVERAINE, COMMISSION SCOLAIRE DES PHARES, CENTRE DES TECHNOLOGIES DE L'INFORMATION ET DES COMMUNICATIONS - RÉGIONAL ABITIBI-TÉMISCAMINGUE, CONSEIL RÉGIONAL DE DÉVELOPPEMENT DE L'ABITIBI-TÉMISCAMINGUE ET LE CONSEIL TRIBAL DE LA NATION ALGONQUINE ANISHINABEG

                                                                                                                                      Respondents

                                                                           and

                                                CANADIAN RADIO-TELEVISION

AND TELECOMMUNICATIONS COMMISSION

                                                                                                                                          Intervener

REASONS FOR JUDGMENT

DESJARDINS, J.A.

[1]                This is an appeal pursuant to section 64 of the Telecommunications Act (the Act) S.C., 1993, c. 38 of the decision entitled Optical fibre service arrangements, Telecom Decision CRTC 2004-20, dated March 23, 2004, of the Canadian Radio-Television and Telecommunications Commission (the Commission). Such an appeal is brought "on a question of law or of jurisdiction" (section 64 of the Act), following leave of this Court.

[2]                In Optical fibre service arrangements, the decision under appeal, the Commission approved special facilities tariffs (SFTs) submitted by Bell Canada in Bell Tariff Notice 6734 and Bell Tariff Notice 6757 for the provision of optical fibre services pursuant to certain customer-specific arrangements (CSAs). All except one of the CSAs sought by Bell Canada pertained to network arrangements associated with the "Villages branchés du Québec" program, a Quebec government initiative aimed at supporting the construction of broadband networks for rural municipalities, school boards and other public institutions. The other CSA pertained to an optical fibre network arrangement in Ontario.

[3]                The CSAs proposed by Bell Canada consisted principally or exclusively of intra-exchange dark fibre. The optical fibre services at issue in this appeal are leading-edge telecommunications transmission facilities capable of carrying great volumes of traffic. The term "dark fibre" refers specifically to optical fibre facilities consisting of inert glass fibres. Once electronics are attached, the facilities can be "lit" to transmit data at a high speed.

[4]                The regulatory framework applicable to the provision of intra-exchange optical fibre was established in Tariff filings related to the installation of optical fibres, Telecom Decision CRTC 97-7, 23 April 1997 (Decision 97-7). At para. 18 of the decision under appeal, the Commission explained its Decision 97-7 in the following terms:

18. In Tariff filings related to the installation of optical fibres, Telecom Decision CRTC 97-7, 23 April 1997 (Decision 97-7), the Commission established the regulatory framework applicable to intra-exchange optical fibre. The Commission stated that optical fibre should generally be provided under General Tariffs. However, the Commission was also of the view that SFTs for optical fibre would be appropriate where construction had to be undertaken to provide facilities to a particular customer and where facilities could have little economic reuse value. The Commission found that, where SFTs would be appropriate, the rates for optical fibre should not be less than General Tariff rates for the same facility distance. The Commission directed companies to justify in their SFT applications why such a tariff was necessary, provide facility distances and provide details for any extraordinary costs. The Commission was also of the view that in the case of customer-specific tariffs that include the use of optical fibre, the cost should reflect General Tariff rates for optical fibre and that if no General Tariff rates were available, such rates should be filed at the same time as the filing of the proposed customer-specific tariff.

[5]                At paragraph 19 of the decision under appeal, the Commission summarized its earlier Decision 2002-76, Regulatory Safeguards with respect to incumbent affiliates, bundling by Bell Canada and related matters (the Nexxia decision), which it referred to later at paragraph 56 of its decision:

19. In Decision 2002-76, the Commission directed Bell Canada to file proposed tariffs and to provide the Commission with information regarding all contracts for single source and packaged arrangements involving Bell Canada tariffed service elements, whether offered directly by Bell Canada or through Bell Nexxia Inc. (Bell Nexxia) or any other Bell Canada affiliate under common control of Bell Canada.

[6]                In the decision under appeal, the members of the Commission, both the majority and the dissenting members, eleven members in toto, found that the rates proposed by Bell failed to comply with the rating criteria set out by the Commission in its Decision 97-7, because the rates that Bell was charging fell below the applicable price floor established in Decision 97-7. That is, the SFT rates were lower than the General Tariff for the same facility distance. The Commission noted specifically, at para. 55 of the decision under appeal, that a strict application of its findings would have resulted in the denial of each and every referenced tariff notice proposed by Bell Canada.

[7]                The majority of the members decided, notwithstanding these findings, that exceptional circumstances militated in favour of the approval of five CSAs arrangements described in Bell Tariff Notice 6734 and in two of the three CSAs described in Bell Tariff Notice 6757. The majority wrote:

55. The Commission notes that a strict application of the above findings would have resulted in the denial of each and every referenced tariff notice proposed by Bell Canada. However, the Commission considers that a number of the arrangements are characterized by exceptional circumstances that render such a blanket result inappropriate.

56. The Commission notes that Tariff Notice 6734 pertains to CSAs in respect of which the contract negotiations and nearly all of the service provisioning were completed prior to 12 December 2002, the date of issuance of Decision 2002-76, pursuant to which Bell Canada filed the arrangements in question for the Commission's approval. The Commission further notes la Fédération's statement that some of the arrangements were negotiated between the school boards and Bell Nexxia, that construction of certain networks covered under Tariff Notice 6734 has been completed and that the networks are operational. The Commission considers that denial of the CSAs subject to Tariff Notice 6734 would lead to significant disruption of existing service, dislocation of complex equipment and facility configurations, at a significant cost and to the detriment of school boards and municipalities in the relevant areas. In these circumstances, the Commission considers that it would not be appropriate to apply the findings set out in this decision to the arrangements proposed under cover of Tariff Notice 6734.

57. In addition, the Commission notes that for two of the three CSAs contained in Tariff Notice 6757, Bell Canada was the only qualified bidder. In those particular circumstances, the application of the findings set out above would very likely result in the communities concerned being left without the benefit of dark fibre network service. The Commission considers that such a consequence would be contrary to the public interest. Accordingly, the Commission finds that it would not be appropriate to apply the findings set out in this decision to the two CSAs subject to proposed SFT items N4(a)(1)a.1. and N4(a)(1)a.2.

58. The Commission underscores the exceptional nature of its treatment of the SFTs approved on an interim basis in the Orders.

[8]                The two dissenting members, Barbara Cram and Stuart Langford, were highly critical of the majority. They held that it was not appropriate to derogate from the rating policy set out in Decision 97-7 and that the proposed SFTs for optical fibre services should meet or exceed the General Tariff rates. They both wrote elaborate opinions on the matter.

[9]                Commissioner Cram noted that, with the advent of competition, the Commission had undertaken twelve years in a continuing painstaking process of wringing out the cross subsidization between the various classes of ratepayers and that, to step back from cost based rates and reintroduce hidden cross subsidization was a retrograde and chilling step. She denounced the reasons given by the majority for making an exception to the Commission's policy. Commissioner Langford said the decision "disregarded a decade of Commission decisions intended to eradicate the sort of non-competitive behaviour allowed by the majority". Bell Canada, he said, had broken the rules and was permitted "to profit from its non-compliance with clear Commission rules".

The relevant provisions

[10]            The relevant provisions of the Act are Section 7, 25, 27, 47 and 64. They provide as follows:

The issues

[11]            The appellant raises two issues:

(a) whether it is within the Commission's jurisdiction under the Act to approve a rate that it has found to be not just and reasonable or which it has found to be unjustly discriminatory;

(b) alternatively, whether the decision under appeal is otherwise unreasonable or irrational.

a)      Whether it is within the Commission's jurisdiction under the Act to approve a rate                  that it has found to be not just and reasonable or which it has found to be unjustly                    discriminatory:

[12]            The appellant states that, except where a service is forborne, a Canadian carrier such as Bell cannot provide a telecommunications service without obtaining the Commission's approval of a tariff specifying the rate to be charged for the service (section 25 of the Act). In turn, section 27 requires that all rates be just and reasonable and rates may not be unjustly discriminatory, save for the limited circumstances set out in paragraph 27(6)(b) of the Act.

[13]            The appellant submits that the Commission can only approve a rate under section 25 that is in compliance with section 27 of the Act, namely a rate that is both just and reasonable pursuant to subsection 27(1) and that is not injustly discriminatory pursuant to subsection 27(2). Parliament, it says, has very clearly specified the limited circumstances in which a carrier may charge a non-compliant rate. These circumstances, set out in paragraph 27(6)(b) of the Act, give a carrier the right to provide non-compliant rates to "any charitable organization or disadvantaged person or other person" only with the approval of the Commission.

[14]            The appellant submits therefore that by holding that the SFTs in the decision under appeal did not meet the rating criteria set out in Decision 97-7 because they were lower than the General Tariff for the same facility distance, the Commission effectively found that the rates were not just and reasonable and/or were unjustly discriminatory. Despite this clear finding, the majority proceeded to nonetheless approve the non-compliant rates due to what it termed "exceptional circumstances". The decision under appeal, the appellant says, was thus essentially based on a finding that cannot be sustained having regard to the Commission's statutory mandate.

[15]            The appellant's argument is based upon the premise that Decision 97-7 defines, for all purposes, the criteria for establishing just and reasonable rates so that any departure from those criteria is a departure from just and reasonable rates. But no general policy, such as Decision 97-7, can be expected to anticipate every possible circumstance. It is therefore inappropriate to argue that a rate is not just and reasonable because it does not comply with the criteria set out in Decision 97-7 without regard to the particular circumstances giving rise to the tariff submitted for approval. Ultimately, the issue is whether the rates approved are just and reasonable, and non-discriminatory, not whether they comply with Decision 97-7.

[16]            In this case, the Commission exercised its discretion and identified that the circumstances were exceptional and justified a departure from Decision 97-7. Insofar as Allstream's primary argument is that any deviation from the rating criteria set out in Decision 97-7 necessarily results in rates that are unjust and unreasonable, it must fail for the reasons set out above. This then leads to a consideration of Allstream's alternate argument.

(b)     Alternatively, whether the decision under appeal is otherwise unreasonable or                          irrational.

[17]            In the alternative, the appellant submits that by basing its approval of the rates on "exceptional circumstances", the Commission relied on irrelevant considerations and rendered a decision which is irrational and unreasonable on its face.

[18]            The appellant says that the exercise of discretion must be based on a weighing of considerations that are pertinent to the objects of the administration of the statute or to the "perspective within which the statute is intended to operate", (Canadian Union of Public Employees v. Ontario (Minister of Labour), [2003] 1 S.C.R. 539 at para. 93, 94, Binnie J., Canadian Union of Public Employees). It adds that the consideration of extraneous or irrelevant factors by a statutory decision-maker constitutes an error of law or an error of jurisdiction ([1982] 2 S.C.R. 2">Canadian Union of Public Employees, Maple Lodge Farms v. Government of Canada, [1982] 2 S.C.R. 2 at 7-8); Canadian Union of Public Employees, para. 172-176).

[19]            The appellant accepts that the determination of whether a rate is just and reasonable, and is not unjustly discriminatory, falls into an area of economic regulation which lies within the Commission's expertise. The nature of the question considered by the Commission, it says, involves the application of a legal standard, i.e., whether the rates are just and reasonable and not unjustly or unduly discriminatory or preferential, to a set of facts. This type of question, it says, is one of mixed fact and law, and the nature of the question, taken together with the existence of a statutory right of appeal, suggests that the standard of review should be reasonableness simpliciter (Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748 at 770-771, para. 44-45).

[20]            With respect to Tariff 6734, the Commission, says the appellant, departed from relevant considerations and went on to consider, as "exceptional circumstances", a number of irrelevant considerations:

(a)    the Commission took into account the fact that Bell Canada had entered into untariffed agreements with customers prior to the issuance of the decision Regulatory safeguards with respect to incumbent affiliates, bundling by Bell Canada and related matters, Telecom Decision 2002-76 (the Nexxia decision), notwithstanding the fact that Bell Canada knew or ought to have known it was required to file tariffs for those services;

(b)    the Commission took into account the fact that construction of certain of the networks had been completed and were operational, despite the fact that this was a direct consequence of Bell Canada's illegal behaviour in proceeding without prior CRTC approval of its tariffs; and

(c)    the Commission took into account its belief that denial of the CSAs would result in disruption of service and dislocation of equipment, at significant costs to the customers, although as Commissioner Cram pointed out, the issue was one of money.

[21]            With respect to Tariff Notice 6757, the Commission, says the appellant, considered that as Bell Canada was the sole bidder, certain customers would not have the benefit of dark fibre network service if the proposed arrangements were denied - notwithstanding the fact that, if Tariff Notice 6757 was denied because the rates were too low, Bell Canada itself or other competitors may have been ready and willing to offer the service at properly tariffed rates.

[22]            The appellant highlights the fact that the courts have historically deferred to utilities commissions in deciding which factors are relevant in determining a just and reasonable rate. However, such factors have typically been economic considerations of the rates themselves. Examples from the jurisprudence sanction reliance on a utility's costs, investments, reserves, and allowances for necessary working capital; a rate of return on the utility's investment; the recovery of fair and reasonable expenses; costs of debt and equity; and general economic conditions. The factors relied on in this case are not economic considerations relative to the rates themselves and therefore, the appellant argues, the Court should not defer to the Commission.

[23]            In short, the appellant argues that the reason the proposed arrangements were put in place at rates which, it says, violated section 27 of the Act was precisely due to Bell Canada's failure to seek prior approval of these rates - which in itself was a direct contravention of section 25 of the Act. It submits that the consequences of Bell Canada's failure to observe the law with respect to the requirement for prior approval therefore cannot be a relevant consideration in these circumstances.

[24]            Before I embark on an analysis of the appellant's contentions, some considerations should be given on the applicable standard of review with respect to this issue.

[25]            The standard of review on an appeal from a decision of an administrative tribunal is determined by the pragmatic and functional analysis. The proper approach was established in the case of Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226 at para. 26 (Dr. Q):

(3) A Review of the Pragmatic and Functional Factors

¶ 26       In the pragmatic and functional approach, the standard of review is determined by considering four contextual factors -- the presence or absence of a privative clause or statutory right of appeal; the expertise of the tribunal relative to that of the reviewing court on the issue in question; the purposes of the legislation and the provision in particular; and, the nature of the question -- law, fact, or mixed law and fact. The factors may overlap. The overall aim is to discern legislative intent, keeping in mind the constitutional role of the courts in maintaining the rule of law.

[26]            Under the first factor, while the presence of a statutory right of appeal under section 64 is not determinative of a correctness standard, it is a factor suggesting a more searching standard of review (Barrie Public Utilities v. Canadian Cable Television Associations, [2003] 1 S.C.R. 476, para. 11). However, according to subsection 64(5) of the Act, the Court may not draw any inferences on appeal that are inconsistent with the factual determinations of the Commission. While it is not a privative clause, it does serve to insulate the Commission's decisions on questions of fact.

[27]            Under the second factor, while the Commission's expertise in carrying on its statutory duties has been recognized by the courts in numerous cases (Bell Canada v. Canada (Canadian Radio-Television and Telecommunications Commission, [1989] 1 S.C.R. 1722 at 1746; Federation of Canadian Municipalities v. AT & T, [2003] 3 F.C. 379 at 407 para. 30 (F.C.A.) (right of access), the expertise we are concerned with is not the expertise of the decision maker in general but its expertise relative to that of the Court itself on the issue in question. As will become clearer under the third factor, rate-setting is part of the Commission's expertise.

[28]            Under the third factor, the provisions at stake in the present appeal, namely subsections 27(1) and 27(2) of the Act refer to a rate to be "just and reasonable" and non-discriminatory. Although these subsections set out legal standards, they entail wide discretion given to the decision-maker as to what is "just", what is "reasonable", what "unjustly" discriminates or gives an "undue" or "unreasonable" preference or subjects any person to an "undue" or "unreasonable" disadvantage. Moreover, in order to determine whether a rate is just and reasonable, the Commission, pursuant to subsection 27(5) of the Act, is given the discretion "to adopt any method or technique that it considers appropriate, whether based on a carrier's return on its rate base or otherwise". The determination of rates under sections 25 and 27 of the Act falls into an area which lies at the very core of the Commission's expertise.

[29]            In addition to this, section 47 of the Act provides that the Commission shall exercise its powers and perform its statutory duty with a view to implementing the Canadian telecommunications policy objectives and ensuring that Canadian carriers provide telecommunications services and charge rates in accordance with section 27. An analysis of these nine policy objectives found in section 7 of the Act raises policy issues, which are polycentric in nature in that they involve the weighing of a large number of interlocking and interacting interests and considerations. In such cases, courts are called upon to exercise restraint (Dr. Q, at 240, para. 30; Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982 at 1008 para. 36; Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services), [2004] 3 S.C.R. 152 at para. 15).

[30]            The fourth factor to be considered in the pragmatic and functional approach is the nature of the question before the Commission. Whether a rate is just and reasonable is a question of mixed fact and law. However, as I mentioned above, the Commission is given a great amount of latitude in determining which method or technique it will use in determining the appropriateness of the rate. This will largely be a discretionary exercise and as such the nature of the question in this case suggests that greater deference should be accorded.

[31]            I find that the Commission's decision with respect to the approval of the CSAs in this case must be reviewed on a basis of patent unreasonableness. The determination of just and reasonable rates falls squarely within the Commission's expertise and involves the Commission's policy-making role. Where a specialized tribunal such as the Commission is asked to make a decision which is in accordance with the purpose of the Act and its expertise, the Court will show a great amount of deference.

[32]            The Commission's decision will therefore not be disturbed unless the Commission made a patently unreasonable error which would amount to an error of law or of jurisdiction (section    64). A patently unreasonable decision will be one which is clearly irrational or not in accordance with reason (Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247).

[33]            With respect to Tariff 6734, the Commission took into account the fact that the contract negotiations and nearly all of the service provisioning were completed before the issuance of Decision 2002-76, pursuant to which Bell Canada filed the arrangements in question for the Commission's approval. The Commission also noted a statement by one of the interveners, la Fédération des Commissions scolaires du Québec, that some of the arrangements were negotiated between the school boards and Bell Nexxia, that the construction of certain networks had been completed, that the networks were operational, and that a denial of the approval of the CSAs would be greatly disruptive to these communities and would cause dislocation of complex equipment and facility configurations at significant costs to the school board and municipalities concerned . With respect to Tariff Notice 6757, the Commission considered that as Bell was the sole bidder, certain customers would not have the benefit of dark fibre network service if the CSAs were denied.

[34]            The Commission as a whole has experience in rate setting. The variety of opinions and concerns expressed in the decision under appeal is an indication that different members held different views on the industry, the market, the services to be provided, the policy objectives and their application in these circumstances. It is apparent that the Commission was greatly concerned about the effect of a denial of services on the communities concerned and the dislocation of complex equipment and facility configurations at a significant cost and to the detriment of school boards and municipalities in the relevant areas and that such concerns outweighed, in its view, Bell's failure to seek prior approval of these rates. These are considerations that a specialized board can entertain and weigh relative to other considerations. It is true that these considerations are not purely economic in the sense referred to by the appellant such as costs, investment, allowance for necessary working capital, rate of return, etc. These considerations, however, are part of the Commission's wide mandate under section 7, a mandate it alone possesses and are quite distinct from the grant of a rebate under paragraph 27(6)(b) of the Act, a power the Commission did not invoke.

[35]            The Commission's choice of "exceptional circumstances" was not patently unreasonable. I therefore cannot find that they were irrelevant considerations which would amount to an error of law or jurisdiction.

[36]            I would dismiss this appeal with costs.

        (s) "Alice Desjardins"                

J.A.

"I agree.

     Robert Décary J.A."

"I agree.

     J.D. Denis Pelletier J.A."

FEDERAL COURT OF APPEAL

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                   A-398-04

Appeal from certain orders ofthe Canadian Radio-Television and Telecommunications Commission (the "Commission" or CRTC) in Telecom Decision CRTC 2004-20, Optical Fibre Service Arrangements, dated March 23, 2004 (the "Decision") by which the CRTC approved rates for optical fibre tariffs submitted by Bell Canada under Tariff Notices 6734 and 6757 (the "Tariffs").

STYLE OF CAUSE:               Allstream Corp. V. Bell Canada et al    

PLACE OF HEARING:                     Montreal

DATE OF HEARING:                       June 1^st, 2005

REASONS FOR JUDGMENT:        DESJARDINS J.A.      

CONCURRED IN BY:                      DÉCARY J.A.

PELLETIER J.A.

DATED:                                              July 8, 2005

APPEARANCES:

SOLICITORS OF RECORD: