Docket: A-140-15
Citation:
2016 FCA 232
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CORAM:
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PELLETIER J.A.
WEBB J.A.
DE MONTIGNY J.A.
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BETWEEN:
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CANADIAN
NATIONAL RAILWAY COMPANY
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Appellant
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And
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LOUIS DREYFUS
COMMODITIES CANADA LTD. AND CANADIAN TRANSPORTATION AGENCY
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Respondents
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REASONS
FOR JUDGMENT
WEBB J.A.
[1]
This is an appeal from the decision of the
Canadian Transportation Agency (Case No. 14-02100) dated October 3, 2014. Since
the full decision contained confidential information, a redacted public version
was released with the citation 2014-10-03. In that decision, the Agency found
that the Canadian National Railway Company (CN) had breached its level of
service obligations to Louis Dreyfus Commodities Canada Ltd. (LDC) for several
weeks during the 2013/2014 Crop Year.
[2]
CN sought and was granted leave to appeal this
decision under subsection 41(1) of the Canada Transportation Act, S.C.
1996, c. 10 (CTA).
[3]
For the reasons that follow I would dismiss this
appeal. Since the full decision contains confidential information, certain
parts have been redacted for this public version.
I.
Background
[4]
As part of LDC’s Canadian operations, LDC
operates grain elevator facilities in:
−
Glenavon and Aberdeen, Saskatchewan; and
−
Joffre and Lyalta, Alberta.
[5]
LDC handles and ships canola and wheat at each
of these four facilities. Prior to the construction of these facilities LDC
entered into a confidential contract with CN in 1999 (the Confidential
Contract).
[6]
The 2013 grain crop was a very large crop. CN
noted in its memorandum that “[t]he average Canadian
crop over the previous five years had been 57.2 million tonnes; the 2013 crop
was 77 million tonnes”. The winter of 2013/2014 was also harsh with
extremely cold temperatures. The combination of the extra-large crop and harsh
winter led to an Order-in-Council which came into force on March 7, 2014
(SOR/2014-55). This Order in Council provided as follows:
2 Subject to volume demand and
corridor capacity, the Canadian National Railway Company and the Canadian
Pacific Railway Company must each move the following minimum amounts of grain:
(a) during the first full crop week after the day on which this
Order comes into force, a minimum of 250,000 t;
(b) during the second full crop week after the day on which this
Order comes into force, a minimum of 312,500 t;
(c) during the third full crop week after the day on which this Order
comes into force, a minimum of 375,000 t;
(d) during the fourth full crop week after the day on which this Order
comes into force, a minimum of 437,500 t; and
(e) during any
subsequent full crop week after the day on which this Order comes into force, a
minimum of 500,000 t.
[7]
For several weeks during the 2013/2014 Crop Year
LDC did not receive all of the railcars that it had ordered. The most serious
discrepancies occurred in weeks 30 to 35. No cars were delivered by CN for any
of these six weeks to any these four facilities. For three of the facilities,
LDC had ordered at least 104 cars for each week for each facility. For the
fourth facility, LDC had ordered 104 cars for each week except week 34, when no
cars were ordered. Therefore, collectively for all four facilities, in total 2,392
cars were ordered for weeks 30 to 35, yet no cars were delivered for any of
these weeks. For week 34 for the facility in Aberdeen, LDC had ordered 208 cars
but since the total capacity of this facility is 104 cars, the number used by
the Agency for the discrepancy for this week was 104 cars.
II.
Decision of the Agency
[8]
The Agency set out a three step process to
determine if CN had met its level of service obligations to LDC:
Step 1: Is
the shipper’s request reasonable?
Step 2: Did
the railway company fulfill this request?
Step 3: If
not, are there reasons that could justify the service failure?
[9]
The Agency noted in paragraph 43 of its reasons
that a shipper and a railway company may enter into a confidential contract
that determines the level of service that will be provided by the railway
company. To the extent that a railway company has agreed to provide a certain
level of service, the Agency determined that it did not need to determine the
reasonableness of any request for service within the limits imposed by such
agreement. The railway company would be bound to provide the level of service
that it had agreed to provide.
[10]
In paragraph 88 of its reasons the Agency stated
that:
[88] Section
7.1C of the Confidential Contract outlines [redacted]:
[redacted]
[11]
The specific number of railcars that would
comprise a [redacted] was not set out in the Confidential Contract. In
paragraph 124 of its reasons, the Agency set out its finding in relation to the
meaning of a [redacted] with respect to the number of cars that were to be
delivered:
[124] The Agency
therefore finds that [redacted]. The agency further finds that the number of
cars ordered in a [redacted] may vary, and the number of cars actually
delivered may be reduced in accordance with [redacted].
[12]
[redacted]
[13]
As a result of the Agency’s interpretation of [redacted],
the Agency determined that CN had agreed to provide that number of railcars
ordered by LDC that was within the limits as set out in paragraph 124 of its
reasons. The Agency also concluded that CN did not deliver all of the cars as properly
ordered by LDC. In particular, as noted above, there was a period of six weeks
beginning with week 30 of the 2013/2014 crop year in which no cars were
delivered by CN to LDC’s facilities even though a large number of cars were
ordered by LDC for these weeks.
[14]
With respect to CN’s car allocation policies,
the Agency noted in paragraph 154 that:
… CN has provided
no evidence or explanation to establish that, for the service weeks where it
failed to supply the number of cars requested by LDC, it did so because it was
observing a car allocation policy in a manner consistent with [redacted].
Specifically, CN did not demonstrate how, under its car allocation policy, the
number of cars delivered to LDC was determined, nor how many cars this would
have represented for each service week. Moreover, CN did not demonstrate that
any such car allocation policy was respected when comparing the weekly car
allocation against the actual number of cars delivered.
[15]
The Agency also reviewed section 14 of the
Confidential Contract, which provides [redacted]. However, as noted by the
Agency, in order to invoke this clause CN would have had to give notice that it
was doing so and CN did not provide this notice. Therefore, the Agency found
that CN could not rely on [redacted] event in this case.
[16]
As a result, the Agency concluded that CN had
breached its level of service obligations to LDC during the 2013/2014 crop
year.
III.
Issues
[17]
CN, in its memorandum of fact and law, stated
that the following were the “points in issue”:
35. The
Agency made several errors of law or jurisdiction, including:
(a) erring
in the application of sections 113 to 116 of the CTA as interpreted in [A.L.
Patchett & Sons Ltd. v. Pacific Great Eastern Railway Co., [1959]
S.C.R. 271, 17 D.L.R. (2d) 449 (Patchett)];
(b) unilaterally
developing and applying a new three step “Evaluation Approach” that places an
absolute obligation on railway companies to service all requests of all
shippers at all times, regardless of the prevailing circumstances;
(c) through
the Evaluation Approach, wrongfully imposing on railway companies a “reverse
onus” of proof in defending the level of service complaints, requiring a
railway company to justify or demonstrate why it should not be found in breach
if the carrier fails to meet all of the shipper’s demands;
(d) refusing
to consider, or properly take into account, significant factors that impacted
rail service in 2013/14; namely:
(i) the
exceptional and unpredictable size of the grain crop during the 2013/14 crop
year;
(ii) the
exceptional weather conditions encountered during the 2013/14 winter and the
incontrovertible and deleterious impact such weather had on rail operations;
(iii) the
total demand on the railway system and the collective requests of all
shippers; and
(e) failing
to afford CN procedural fairness and natural justice through the imposition of
a previously undisclosed test and by making findings of fact they were not
raised or commented upon by either party in their respective pleadings.
(emphasis in
original)
IV.
Standard of Review
[18]
Under subsection 41(1) of the CTA, an
appeal to this Court from a decision of the Agency, if leave is granted, may only
be brought in relation to a question of law or jurisdiction. Therefore any
factual findings made by the Agency are not subject to review in this appeal.
[19]
Although CN referred to the identified errors as
errors of law or jurisdiction, none of the alleged errors relate to the
jurisdiction of the Agency. Therefore, the only standard of review that is
applicable in this appeal is the standard of review for questions of law. In Canadian
National Railway Company v. Canadian Transportation Agency, 2010 FCA 65,
[2011] 3 F.C.R. 264, this Court confirmed that the Agency is entitled to deference
in its interpretation of the CTA and therefore the standard of review
for questions of law will be reasonableness.
V.
Analysis
[20]
The first issue identified by CN above is that
the Agency erred in applying sections 113 to 116 of the CTA as
interpreted by the Supreme Court of Canada in Patchett. The general
proposition that is to be extracted from Patchett is that “the duty of a railway company to fulfil its service
obligations is ‘permeated with reasonableness in all aspects of what is
undertaken’ (except in relation to its special responsibility as an insurer of
goods…)” (Canadian National Railway Company v. Northgate Terminals
Ltd., 2010 FCA 147, [2011] 4 F.C.R. 228, at paragraph 35).
[21]
In particular, CN’s allegation is that the
Agency did not address whether LDC’s requests for railcars were reasonable.
[22]
I do not agree that the Agency erred in
its application of sections 113 to 116 of the CTA.
[23]
In this case, the Agency noted that the Supreme
Court of Canada had found in Patchett that the service obligations of a
railway company are “permeated with reasonableness”.
The Agency then stated that the first step in its analysis is to determine
whether the request for service was reasonable. However, the Agency also
determined that the requirement to determine whether the service request is
reasonable could be replaced by a contract between the shipper and the railway
company that provided for a certain level of service obligations.
[24]
It is important to note that the service
obligations to which the Supreme Court of Canada were referring in Patchett
are the service obligations imposed by the applicable statute. In this case
those obligations would be imposed by the CTA.
[25]
Subsection 113(4) of the CTA provides
that:
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A shipper and a railway company may, by means of a confidential
contract or other written agreement, agree on the manner in which the
obligations under this section are to be fulfilled by the company.
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Un
expéditeur et une compagnie peuvent s’entendre, par contrat confidentiel ou
autre accord écrit, sur les moyens à prendre par la compagnie pour
s’acquitter de ses obligations.
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[26]
The CTA contemplates that a shipper and a
railway company may enter into an agreement that would set out the manner in
which the service obligations of the railway company may be fulfilled. If the
parties have entered into such an agreement, the service obligations of the
railway company will be determined based on what the railway company agreed to
provide, not on whether any particular order is considered to be reasonable.
[27]
The Agency reviewed the Confidential Contract
and found that CN had agreed, under this contract, that it would deliver the
number of cars ordered by LDC provided that the number was within the range as
set out in paragraph 124 of its reasons.
[28]
Since the Agency found that CN had agreed to
supply the number of cars ordered by LDC (within the limits identified by the
Agency), CN cannot now complain that such orders were unreasonable. CN is
simply bound by the agreement that it reached with LDC. In my view, the Agency
did not commit any error of law in reaching this conclusion.
[29]
CN argued during the hearing that the
Confidential Contract was not a contract as contemplated by subsection 113(4)
of the CTA. However, whether this Confidential Contract was a
confidential contract as contemplated by subsection 113(4) of the CTA
will depend on the interpretation of this contract. In Sattva Capital Corp.
v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme Court
of Canada determined that the interpretation of a contract was a question of
mixed fact and law. The Supreme Court also noted that:
54. However, courts should be cautious
in identifying extricable questions of law in disputes over contractual
interpretation. Given the statutory requirement to identify a question of law
in a leave application pursuant to s. 31(2) of the AA, the applicant for
leave and its counsel will seek to frame any alleged errors as questions of
law. The legislature has sought to restrict such appeals, however, and courts
must be careful to ensure that the proposed ground of appeal has been properly
characterized. The warning expressed in Housen to exercise caution in
attempting to extricate a question of law is relevant here:
Appellate courts must be cautious,
however, in finding that a trial judge erred in law in his or her determination
of negligence, as it is often difficult to extricate the legal questions from
the factual. It is for this reason that these matters are referred to as
questions of "mixed law and fact". Where the legal principle is not
readily extricable, then the matter is one of "mixed law and fact"
... . [para. 36]
55. Although that caution was
expressed in the context of a negligence case, it applies, in my opinion, to
contractual interpretation as well. As mentioned above, the goal of contractual
interpretation, to ascertain the objective intentions of the parties, is
inherently fact specific. The close relationship between the selection and
application of principles of contractual interpretation and the construction
ultimately given to the instrument means that the circumstances in which a
question of law can be extricated from the interpretation process will be rare.
In the absence of a legal error of the type described above, no appeal lies
under the AA from an arbitrator's interpretation of a contract.
[30]
Therefore, whether this Confidential Contract
was a confidential contract for the purposes of subsection 113(4) of the CTA
is not a matter that can be appealed under the CTA.
[31]
CN also argued that the Agency did not interpret
“Service Unit” as used in this Confidential Contract
correctly. However, the Agency’s interpretation of “Service
Unit” as used in the Confidential Contract is not an extricable question
of law and therefore no appeal lies under the CTA from the Agency’s interpretation
of this term as used in the contract.
[32]
The second issue raised by CN is based on the
premise that the Evaluation Approach adopted by the agency would place “an absolute obligation on railway companies to service all
requests of all shippers at all times, regardless of the prevailing
circumstances”. However a fair reading of the reasons of the Agency does
not support this allegation. The Agency found that to the extent that the requests
by LDC for railcars were within the limits as contemplated by the Confidential
Contract, CN had agreed to supply such railcars. This finding was based on its
interpretation of the Confidential Contract that was applicable in this case.
There was no finding by the Agency that there is “an
absolute obligation on railway companies to service all requests of all
shippers at all times, regardless of the prevailing circumstances”.
[33]
The third issue referred to above assumes that
the Agency imposed on all railway companies a “reverse
onus” of proof. However, again, a fair reading of the reasons of the Agency
does not support this conclusion. The failure to satisfy the level of service
obligations in this case arose because of the specific Confidential Contract
that was entered into between CN and LDC. There was no general finding that the
Agency imposed on all railway companies a reverse onus of proof in all level of
service complaints. This issue simply does not arise in this case.
[34]
The fourth issue listed above is whether the
Agency failed to take into account certain factors that, according to CN,
impacted its ability to supply railcars. However, the relevance of these
factors is dependent on the interpretation of the Confidential Contract, which
as noted above, cannot be the subject of an appeal to this Court.
[35]
Although the effect that the large crop size and
the harsh winter would have had on CN’s ability to supply rail cars is a
question of fact, since CN spent a significant amount of time during the
hearing of the appeal on the harsh winter, it does warrant a few comments.
[36]
Counsel noted during the hearing that in cold
temperatures the length of trains must be reduced. In particular, when the
temperature is between -25 and -30C, the maximum length of a train is 8,000 ft
and when the temperature is below -35C, the maximum length is 4,500 ft. Counsel
referred, in particular, to the very cold conditions in December 2013. Counsel
stated that since the train length was reduced during that time, service had to
be reduced and suggested that this would account for the discrepancies between
the cars ordered and the cars delivered to LDC.
[37]
However, as noted above, the most significant
discrepancies started in week 30. During the hearing, counsel for CN stated
that week 30 would be around the first of March 2014. This would be after the period
of low temperatures when CN would be restricted in the length of the trains
that it could operate.
[38]
Counsel for CN then suggested that because CN
had encountered severe winter conditions in the preceding months that it would
take time for CN to be able to recover from those periods. However, this suggestion
is inconsistent with the submissions that were made by CN to the Agency:
146. However,
once winter finally relented around the first week of March, CN again quickly
ramped up its grain capacity. Just as it had done back in Week 6, CN began
shipping close to 4,500 cars for the first few weeks of March, and is now
shipping in excess of 5,000 cars per week again.
(emphasis added)
[39]
These submissions are dated May 12, 2014 and
therefore the reference to “now shipping in excess of 5,000
cars per week” would be a reference to mid-May.
[40]
During weeks 30 to 35, no cars were delivered by
CN to any of LDC’s facilities. Since week 30 was around the first of March,
this would be for the period from the first of March to mid-April. CN submitted
to the agency that it “quickly ramped up its grain
capacity” “after winter relented around the
first week of March”, therefore, it is difficult to understand how the
harsh winter could be a justification for not delivering any cars to LDC during
weeks 30 to 35.
[41]
CN also referred to the burden imposed on CN by
the Order-in-Council dated March 7, 2014. In its Memorandum, CN stated that it
had to “carry a minimum of 500,000 metric tonnes of
grain. To comply with the Order in Council, CN had to move between 5,000 to
5,500 grain cars each week, notwithstanding that moving 5,000 cars per week
on such a sustained basis had never been achieved before” (emphasis in
original).
[42]
However, the Order in Council provided for an
incremental increase in railcar shipments with the requirement for the first
week (which would be around the second week of March) only being one-half of
the final minimum amount. In the same paragraph of its submissions to the
Agency referred to above, CN also noted that:
146. …CN
shipped an average of 4,550 grain cars during the month of March, which is 15%
more grain than average during that period. In April, CN transported an
average of 5,300 cars per week and 5,500 the first week of May, graphically
evidencing CN’s major efforts and engagement towards the recovery.
(emphasis in original)
[43]
Assuming that the reference in its Memorandum to
moving 5,000 to 5,500 grain cars each week is to the number of railcars required
to reach the minimum requirement of 500,000 metric tonnes (which is the only
quantity referred to in this paragraph), then CN would have had to move 2,500
to 2,750 railcars during the first week after the Order in Council was in force
since the minimum requirement for that week was 250,000 t. Since CN moved an average
of 4,550 railcars per week during the month of March and 5,300 per week during
the month of April, during weeks 31 to 35 (approximately the second week of
March to mid-April), when the minimum quantities were being implemented on a
graduated basis, CN would have shipped more grain that it was obligated to ship
under the Order in Council. It is very difficult to reconcile CN’s very
significant movements of grain during March – April 2014 with its failure to
deliver any railcars to LDC’s facilities during weeks 30 – 35.
[44]
The last issue listed above is also related to
the test applied by the Agency and CN’s argument that the Agency applied a new
test. In my view, the test applied by the Agency is not inconsistent with the
principle as set out in Patchett as Patchett did not address the
level of service requirements when a railway company has entered into an
agreement to provide rail service. The analysis of the Agency simply took into
account the agreement that CN had entered into with LDC. There is no merit in
CN’s argument that it was denied procedural fairness.
[45]
CN also raised an issue with respect to the
findings of fact made by the Agency. However, as noted above, only questions of
law can be appealed under the CTA and therefore there is no appeal in relation
to any findings of fact.
[46]
As a result I would dismiss this appeal with
costs.
"Wyman W. Webb"
“I agree.
J.D. Denis Pelletier J.A.”
“I agree.
Yves de Montigny J.A.”
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