Date:
20090218
Docket: A-335-08
Citation: 2009 FCA 46
CORAM: NOËL
J.A.
NADON J.A.
PELLETIER
J.A.
BETWEEN:
CANADIAN PACIFIC RAILWAY
COMPANY
Appellant
and
CANADIAN TRANSPORTATION AGENCY and
THE ATTORNEY GENERAL OF CANADA
Respondents
REASONS FOR JUDGMENT
PELLETIER J.A.
[1]
In the
2006-2007 crop year, the appellant, Canadian Pacific Railway Limited (CP),
granted shippers certain incentives if they shipped grain in multi-car blocks
(MCBs) and imposed certain performance penalties if the cars in those MCBs were
not unloaded and released within certain specified periods. In calculating CP’s
“Maximum Grain Revenue Entitlement” (revenue cap) for the 2006-2007 crop year,
pursuant to section 150 of the Canada Transportation Act, S.C. 1996, c.
10 (the Act), the Canadian Transportation Agency (the Agency) decided that the
amounts paid to CP as performance penalties could not be reasonably
characterized as such, and concluded that they were, in effect, simply a
reduction in the incentives otherwise offered in relation to MCBs. As a result,
these amounts were included in CP’s revenue for the purposes of the revenue cap
calculation; had the Agency agreed that they were performance penalties, they
would have been excluded from revenue for the purposes of that calculation. CP
appeals to this Court from that decision, which is reported as Decision No.
655-R-2007 [the Agency’s decision].
FACTS
[2]
The rates that
a railway charges and the terms on which it carries goods are set out in
tariffs, which are prepared and published by the railways. In this case, three
of these tariffs are relevant. Tariff CPRS 4310-F sets out the rates payable
for the transportation of goods, described in item 350 of the same tariff
(grain), from certain locations in British Columbia to Thunder Bay, Ontario, or Vancouver, British Columbia. The rate table shows a rate
per tonne for a single car, so that, for example, the rate to ship a single car
of grain from Armstrong, British
Columbia to
Thunder Bay, Ontario is $56.85 per tonne, while
the rate to ship from the same car from Armstrong to Vancouver, British Columbia is $19.58 per tonne.
The tariff then indicates that certain rate reductions (incentives) are
available for MCBs, as follows:
A $4.00/tonne reduction on the published
rate will apply on 56-car block shipments.
A $7.00/tonne reduction on the published
rate will apply on 112-car block shipments.
A $7.50 /tonne reduction on the published
rate will apply on 112-car block shipments loaded in 10 hours.
[A.B., Tab 27, p. 1]
[3]
The
conditions that must be met in order to qualify for the incentives are
described in Tariff CPRS 4311. There are restrictions on the number of
shippers, the number of facilities to which the block is to be delivered, the
handling of the cars at that facility, and other conditions of similar nature.
Additionally, the shipper must obtain authorization to order multiple car
blocks by contacting CP’s “MaxTrax Coordinator” within the time specified in
the tariff. The tariff also specifies that the cars must be loaded within 10 or
24 hours, as specified by the shipper. If the specified loading time cannot be
met, then certain other conditions apply:
Customers that cannot
load within these time frames must apply for a delayed lift as per Tariff 4312
item 106 to protect their incentives.
Failure to advise CP
within the timeframe previously published in the delayed lift tariff …will
result in loss of incentive, having the loads and empties pulled, and
unfulfilled orders cancelled.
[A.B., Tab 26, p. 3]
[4]
The last
relevant tariff is Tariff CPRS 4312, specifically item 130 of that tariff, which
is reproduced in full below:
PENALTIES
DELAYED
UNLOADING OF MULTI CAR BLOCKS
If cars are shipped as
“multiple car block” according to Tariff CPRS 4311 – Series item 20000 but the
block is not unloaded and released empty within 24 hours of actual or
constructive placements, as per paragraph L {I} & P of Tariff CPRS 4311
-Series item 20000, the shipper shall pay a penalty of
-$180 per car on the
whole block shipped for blocks of 50-99 cars
-$180 per car on the
whole block shipped for blocks of 100+ cars
The empty release of the
block will be based on the time the last car of the shipped block is released
empty.
[A.B., Tab 28, p. 1]
[5]
The record
discloses that 99 per cent of MCB shipments in the relevant period complied
with the 24-hour deadline and that the penalties attributable to those which
did not amounted to some $180,000.
[6]
The Agency’s decision notes that the “normal” time allowed for unloading
a car in non-MCB situations is 60 hours, following which a performance penalty,
called demurrage, is imposed.
[7]
CP’s
position is that the tariffs must be read together as a coherent scheme. Where
a shipper obtains CP’s prior authorization to ship a MCB, and complies with all
the other conditions found in Tariff CPRS 4311, then it is billed for the
shipment in accordance with Tariff CPRS 4310-F. If, at the destination, the
facility is unable to meet the 24-hour unloading condition, the shipper
continues to obtain the benefit of the incentives set out in Tariff CPRS 4310-F,
but it must pay the $180 per car penalty for the entire block, as provided in
Tariff CPRS 4312. CP argues that the amount billed for freight, after allowance
for the incentive, is to be included in the calculation of its revenue cap, but
that the $180 per car penalty is to be excluded from the calculation on the basis
that it is a performance penalty, within the meaning of paragraph 150(3)(b)
of the Act.
LEGISLATION
[8]
The
relevant provisions of the Act are the following:
|
Maximum
Grain Revenue Entitlement
Ceiling
150. (1) A prescribed
railway company’s revenues, as determined by the Agency, for the movement of
grain in a crop year may not exceed the company’s maximum revenue entitlement
for that year as determined under subsection 151(1).
Payment of excess and penalty
(2)
If a prescribed railway company’s revenues, as determined by the Agency, for
the movement of grain in a crop year exceed the company’s maximum revenue
entitlement for that year as determined under subsection 151(1), the company
shall pay out the excess amount, and any penalty that may be specified in the
regulations, in accordance with the regulations.
Items not included in revenue
(3)
For the purposes of this section, a prescribed railway company’s revenue for
the movement of grain in a crop year shall not include
(a)
incentives, rebates or any similar reductions paid or allowed by the company;
(b)
any amount that is earned by the company and that the Agency determines is
reasonable to characterize as a performance penalty or as being in respect of
demurrage or for the storage of railway cars loaded with grain; or
(c)
compensation for running rights.
|
Revenu admissible maximal
Plafond
150.
(1) Le revenu d’une compagnie de chemin de fer régie pour le mouvement du
grain au cours d’une campagne agricole, calculé par l’Office, ne peut excéder
son revenu admissible maximal, calculé conformément au paragraphe 151(1),
pour cette campagne.
Remboursement et pénalité en cas d’excédent
(2) Si le
revenu d’une compagnie de chemin de fer régie pour le mouvement du grain au
cours d’une campagne agricole, calculé par l’Office, excède son revenu
admissible maximal, calculé conformément au paragraphe 151(1), pour cette
campagne, la compagnie verse l’excédent et toute pénalité réglementaire en
conformité avec les règlements.
Exclusion
(3)
Pour l’application du présent article, sont exclus du revenu d’une compagnie
de chemin de fer régie pour le mouvement du grain au cours d’une campagne
agricole :
a) les incitatifs, rabais ou réductions
semblables versés ou accordés par la compagnie;
b) les recettes attribuables aux amendes pour
non-exécution, aux droits de stationnement et aux droits de stockage des
wagons chargés de grain que l’Office estime justifié de considérer comme
telles;
c) les
indemnités pour les droits de circulation.
|
THE AGENCY’S
DECISION
[9]
The treatment of the $180 penalty is but one issue in a much larger
decision in which the Agency determined CP’s revenue cap. Prior to undertaking
the revenue cap determination, the Agency issued a consultation paper asking
for comments from interested parties. CP objects to the content of that paper
on the basis that it demonstrates that the Agency had pre-judged the
performance penalty issue. As it turns out, nothing turns on this so that
nothing more need be said about it.
[10]
The Agency’s reasoning is found
in three paragraphs, which are reproduced below:
[90] Accepting CP’s argument that the
entire MCB discount should be deducted from revenue is implicitly accepting
that all of the conditions of the tariff have been met – which is not the case.
…
[92] There are two reasons, each
sufficient by itself, to lead the Agency to conclude that the amounts collected
under Tariff CPRS 4312 Item 130 cannot be reasonably characterized as being in
respect of a performance penalty. The first reason stems from the finding that
the failure by a shipper to meet the 24-hour MCB unloading condition reflects a
failure to meet one of the conditions required to obtain its MCB incentive
discount, rather than a failure to meet a less stringent performance standard
of 60 hours. As such, it is not a performance penalty. In other words, if the
shipper’s operating behaviour is incented to greatly surpass industry norms, it
is hard to see by any reasonable standard that its failure to meet that special
threshold is really a performance penalty. Quite simply, it is only the loss of
an incentive, which in this case relates to the approximate amount of $2 per
tonne.
[93] The second reason to lead the Agency
to conclude that it is not reasonable for amounts collected under Tariff CPRS
4312 Item 130 to be reasonably characterized as being in respect of a
performance penalty stems from the fact that allowing CP to declare amounts
collected under Tariff CPRS 4312 Item 130 to be performance penalties, while at
the same time allowing CP to deduct from revenue the full amount related to the
MCB incentives, is clearly a contradiction in treatment, which would result in
a double benefit to CP and therefore potentially twice the cost to farmers who
pay for the movement of grain. This manner of imposing charges and assessing
revenues indicates that the “penalty” revenue is not a penalty at all. Rather,
again the approximate $2 per tonne represents the loss of an incentive.
ISSUE
[11]
The issue in this appeal is
whether the Agency fell into reversible error when it found that the amounts
charged by CP, pursuant to Tariff CPRS 4312, could not be reasonably
characterized as a performance penalty, within the meaning of paragraph 150(3)(b).
ANALYSIS
[12]
As always,
the first question to be resolved is the appropriate standard of review of the
Agency’s decision. The decision involves the interpretation to be given to
paragraph 150(3)(b) of the Act, the Agency’s home statute. The question
is a question of law, as indeed it must be since section 41 of the Act only
permits appeals on questions of law or jurisdiction, and no one has suggested
that this question is one of jurisdiction.
[13]
This same
disposition, though not the same question, was considered in Canadian
Pacific Railway Company v. Canada (Canadian Transportation Agency), 2003
FCA 271, [2003] 4 F.C. 558 [Canadian Pacific, 2003], where Rothstein
J.A. (as he then was), writing for the Court, conducted a pragmatic and
functional analysis and concluded that the standard of review was correctness.
The question in that case concerned the Agency’s determination that certain
demurrage charges imposed by CP were unreasonable.
[14]
Since then, the Supreme Court of Canada has
further refined the question of standard of review in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] S.C.J.
No. 9 [Dunsmuir], where it reduced the number of possible standards of
review by folding the standard of patent unreasonableness into the standard of
reasonableness. In discussing the application of the resulting two standards of
review, correctness and reasonableness, the Court commented at paragraph 54:
54
Guidance with regard to the
questions that will be reviewed on a reasonableness standard can be found in
the existing case law. Deference will usually result where a tribunal is
interpreting its own statute or statutes closely connected to its function,
with which it will have particular familiarity: Canadian
Broadcasting Corp. v. Canada
(Labour Relations Board), [1995] 1 S.C.R. 157,
at para. 48; Toronto
(City) Board of Education v. O.S.S.T.F., District 15,
[1997] 1 S.C.R. 487, at para. 39…
[15]
In Canadian National Railway Co. v. Canada (Canadian
Transportation Agency), 2008 FCA 363, [2008] F.C.J. No. 1643, this Court
revisited the question of the standard of review of the Agency’s decisions in
light of Dunsmuir, and in light of the Supreme Court’s decision in Council
of Canadians with Disabilities v. VIA Rail Canada Inc., 2007 SCC
15, [2007] 1 S.C.R. 650. It concluded that when the Agency is interpreting the
Act, its decision is entitled to be reviewed on the deferential standard of
reasonableness: see para. 51.
[16]
It is not necessary in this case to determine whether the
question in issue should be reviewed on a standard of correctness or
reasonableness, as the decision of the Agency cannot stand regardless of the
standard.
[17]
The Agency
gave two reasons for its conclusion that the amounts charged by CP under Tariff
CPRS 4312 were not performance penalties. The first is:
The first reason stems
from the finding that the failure by a shipper to meet the 24-hour MCB
unloading condition reflects a failure to meet one of the conditions required
to obtain its MCB incentive discount, rather than a failure to meet a less
stringent performance standard of 60 hours. As such, it is not a performance
penalty. In other words, if the shipper’s operating behaviour is incented to
greatly surpass industry norms, it is hard to see by any reasonable standard
that its failure to meet that special threshold is really a performance
penalty. Quite simply, it is only the loss of an incentive, which in this case
relates to the approximate amount of $2 per tonne.
[A.B., Tab 2, at para.
92]
[18]
The
Agency’s reasoning is not entirely clear, but it appears to suggest that the
$180 per car penalty cannot be a performance penalty because the 24-hour
requirement is so far in excess of the “industry standard” of 60 hours for
unloading cars. The Agency may have had in mind the comments of Rosthstein J.A.
in Canadian Pacific, 2003 at para. 39 that:
I accept that
if a railway company attempted to impose extreme charges for detention of cars,
it would be open to the Agency to determine that all the revenues arising from
the charges could not reasonably be characterized as being in respect of
demurrage.
[19]
In the
same way, the Agency might well be in a position to intervene if the railway,
in an attempt to artificially withdraw revenue from the revenue cap
calculation, imposed performance penalties based on performance standards so
high that shippers had no reasonable prospect of meeting them. But that is not
the case here; the evidence is that 99 per cent of shippers were able to meet
the 24-hour unloading standard.
[20]
There is nothing in the record to support the conclusion that the
industry norm for unloading MCBs is 60 hours. It may be that 60 hours is
normally allowed for the unloading of cars subject to the single car rate, but
that does not convert 60 hours into an industry standard for MCBs. By tying its
analysis of the question of performance penalty to an unsupported, and
therefore unreasonable, assessment of the relevant standard, the Agency came to
an unreasonable conclusion which cannot stand.
[21]
As this
Court indicated in Canadian Pacific Railway Company v. Canada (Canadian Transportation
Agency), 2007
FCA 240, [2007] F.C.J. No. 878, at para. 5, “a performance penalty relates to a
failure to complete an obligation”. The obligation in this case was to complete
the unloading of the cars in the MCB within 24 hours. Ninety-nine per cent of
shippers were able to do so. It is unreasonable to attempt to undermine the
legitimacy of the obligation imposed on shippers, and the penalty imposed for
the failure to comply, by reference to a standard whose relevance was simply
not supported by the evidence.
[22]
The second ground given by the
Agency for re-characterizing the amounts which CP claimed as performance
penalties was that recognizing those amounts as performance penalties involved
contradictory treatment, resulting in a double benefit. The double benefit was
the inclusion in revenue of an amount less than the amount actually received by
CP (freight plus the performance penalty) coupled with the withdrawal of the
amount received as a penalty from revenue on the ground that it is a
performance penalty.
[23]
This is a
single benefit. The amount of CP’s revenue is reduced by the amount of the
performance penalty. If the performance penalty is a legitimate performance
penalty, the legislation gives CP the right to exclude that amount from its
revenue. By doing so, CP is not surreptitiously obtaining an advantage to which
it is not entitled. It is simply doing what paragraph 150(3)(b) allows
it to do.
[24]
The Act does not oblige CP to
arrange its affairs so as to maximize its revenues for purposes of the revenue
cap calculation. Parliament has put in place a scheme under which the railways
have certain obligations and certain rights. The fact that CP could receive
revenue on two accounts – one of which is to be included in the revenue cap
calculation, and one which is not – does not mean that it must choose to
structure its affairs so that all revenue is included in the revenue cap
calculation. In this case, it is clear that the Agency regarded the scheme
contained in the three relevant tariffs as a graduated incentive scheme. CP may
well have been able to obtain the efficiencies it sought by structuring its
incentive program to provide for graduated incentives. Instead, it chose to
seek those efficiencies by resorting to a combination of incentives and
penalties. The fact that CP could have proceeded by way of a graduated
incentive scheme is not a reason for concluding, contrary to the legal form and
effect of the relevant tariffs, that it did so.
[25]
I would
therefore allow the appeal, set aside the decision of the Agency insofar as it
relates to the performance penalties and remit the matter to the Agency for
re-determination on the basis that no part of the performance penalties is to
be included in the calculation of CP’s revenue cap. CP is entitled to its costs
against the Canadian Transportation Agency.
“J.D.
Denis Pelletier”
“I
agree.
Marc Noël J.A.”
“I
agree.
M. Nadon J.A.”
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