Final Offer Arbitration
What is FOA?
Final Offer Arbitration (FOA) allows shippers who are dissatisfied
with the rates charged or proposed to be charged by a railway company
for the movement of goods, or with any of the conditions associated
with the movement of goods, to submit the matter to an Arbitrator
appointed by the Canadian Transportation Agency (the Agency).
remedy may be used to challenge freight rates that are published in a
railway company's tariff. It may also be used upon the expiry of
rates in a confidential contract if the shipper and the carrier have
not reached an agreement on new rates. Relevant ancillary services and
charges may also be included in FOA submissions.
factor that the arbitrator must consider is whether there is available
to the shipper an alternative, effective, adequate and competitive
means of transporting the goods to which the matter relates. Shippers
who do have access to viable transportation alternatives, for example,
through trucking or access to another railway company, may find it
difficult to succeed in an FOA.
FOA has territorial
limitations. The Agency has declined to refer rates and conditions for
movements beyond Canadian borders to an arbitrator. This restricts the
use of FOA in relation to international rail traffic.
FOA process is confidential and the arbitrator is required to select
either the final offer of the shipper or that of the carrier and does
not have the ability to impose a compromise on the parties. The
arbitrator's decision is retroactive to the date on which the shipper
filed its submission for FOA with the Agency. The arbitrator also gives
direction regarding the payment of additional freight charges by the
shipper or the partial refund of freight charges for the time from the
shipper's submission for FOA and the date of the arbitrator's
Who can initiate an FOA?
A submission for FOA can be made by shipper, that is, a person who
sends or receives goods by railway or who intends to do so. Recent
amendments to the Canada Transportation Act (the CTA) made FOA
available to a group of shippers who wish to make a joint submission
How does the process work?
Although FOA was originally intended to be a simple, straight-forward
remedy, it now frequently involves technical legal arguments and expert
evidence. It requires a significant commitment of time and resources on
the part of the shipper, who will normally be represented by legal
counsel and may retain expert consultants to provide evidence in
support of the shipper's final offer.
Initiating the process
Step 1: Notice
The shipper must
given written notice to the railway company of its intent to do so at
least five days before submitting the matter for FOA.
Step 2: Submission to the Agency
After this five-day period, the shipper submits the matter to the Agency for FOA. The submission must include:
shipper's final offer which contains all the terms and conditions which
the shipper proposes be applicable to its traffic but does not include
any dollar amounts
- an undertaking by the shipper to ship the goods to which the FOA relates in accordance with the decision of the arbitrator and
- an undertaking by the shipper to pay its share of the arbitrator's fee.
the shipper and the carrier have already agreed on an arbitrator, the
name of that arbitrator should also be included, but such agreement is
Step 3: Service on the railway company
A full copy of the FOA submission must be delivered to the carrier on the same day as it is submitted to the Agency.
The role of the Agency
Step 4: Preliminary applications
carrier is entitled to raise preliminary objections to the FOA
submission in a written application to the Agency. If the railway
company brings such an application, the shipper will be given an
opportunity to provide a written response, and the Agency will normally
make a determination on the basis of the written submissions.
the shipper consents to defer the appointment of an Arbitrator, the
arbitration process moves forward even if the Agency has not yet made a
determination on the carrier's objection. Should the Agency
ultimately agree with the carrier's objection, it may order that the
arbitration be discontinued, that it be continued under specified
conditions or that the Arbitrator's decision be set aside.
previous FOAs, the Agency has dealt with a variety of objections,
including objections related to the type of ancillary service included
in the shipper's final offer and the fact that a portion of the
movement at issue occurred over the lines of a provincial railway
company. An overview of some of the issues that have been raised before
a referral to an Arbitrator are described on the Agency's website [http://www.cta-otc.gc.ca/rail-ferro/arbitration/table2_e.html].
Step 5: Final offers of both parties
ten days after the shipper's original submission, both parties are
required to file their final offers including dollar amounts with the
Agency. The parties do not serve copies of their final offers on each
other. Instead, the Agency simultaneously forwards a copy of the
shipper's offer to the carrier and a copy of the carrier's offer to the
shipper. If one party does not submit a final offer within the
specified time, the final offer submitted by the other party is deemed
to be the final offer selected by the Arbitrator.
Step 6: Appointment of arbitrator
Agency maintains a list of arbitrators on its website and provides
parties to an FOA with a current list and curriculum vitae for each
Arbitrator. Each party will be asked to file a list of Arbitrators it
would accept, and the Agency will look for a match, i.e., a name that
appears on both lists. This process may be repeated if necessary and is
described in greater detail on the Agency's website [http://www.cta-otc.gc.ca/contact/list-arb/index_e.html].
the shipper consents to a deferral of the appointment, the Agency must
appoint an Arbitrator within five days after providing the parties with
each other's final offers.
The CTA prescribes certain steps for the conduct of an FOA.
Additional procedural matters are normally determined by the Arbitrator
in consultation with the parties. The Agency has developed rules for
the conduct of an arbitration which, although not binding, may be
adopted for this purpose. These procedures are available on the
Agency's website [http://www.cta-otc.gc.ca/rail-ferro/arbitration/rules_e.html].
Step 7: Pre-hearing conference (optional)
Arbitrator typically convenes a pre-hearing conference by telephone to
confirm the dates for the completion of remaining procedural steps and
to deal with scheduling and other arrangements for an oral hearing, if
Step 8: Exchange of written evidence
15 days of the date on which the Agency refers the matter to the
Arbitrator, the parties must exchange, in writing, the information that
they intend to submit to the Arbitrator in support of their final
offers. In preparing this written evidence, the parties must keep in
mind that they may not be permitted to place in evidence at the hearing
information that has not been disclosed to the other party at this step.
Step 9: Exchange of interrogatories
seven days after written evidence is exchanged, each party may direct
interrogatories to the other. Interrogatories are written questions
which allow the parties to gain a better understanding of each
otherâ€™s case. They can be a vehicle through which the shipper can
gain relevant insight into operational matters or to obtain written
confirmation from the carrier in relation to certain facts that form
part of the shipper's case.
Step 10: Answers to interrogatories
15 days after receiving interrogatories from the other party, the
shipper and the carrier must provide answers to the interrogatories
directed to them. This can become an onerous process in cases where
large numbers of interrogatories are received. Since the CTA does not
limit the number of interrogatories a party may direct to the other, it
is not uncommon to have to prepare hundreds of answers in this limited
The preparation of answers to interrogatories
requires as much care as the preparation of evidence. Any discrepancies
between the written answers given at this stage and answers provided by
witnesses during the oral hearing can significantly weaken a party's
credibility and overall case.
Parties may object to
interrogatories that are irrelevant and may decline to disclose
information they consider confidential. Before taking this approach,
however, the shipper must be aware that if it unreasonably withholds
information that the Arbitrator subsequently deems to be relevant, that
withholding must be taken into account by the Arbitrator in making his
or her decision.
Arbitration hearing and decision
Step 11: Oral hearing
Arbitrator is required to render a decision within 60 days after the
shipper's original submission to the Agency, there are normally only
seven or eight days left in which to hold an oral hearing before the
Arbitrator. To facilitate an efficient hearing process, it is possible
to have the witnesses of each party simple adopt and summarize the
evidence previously exchanged, in order to leave sufficient time for
cross-examination. It is not uncommon for witnesses to give evidence as
part of a panel, so that each witness may deal with those
cross-examination questions that are most closely related to his or her
area of responsibility and expertise, while making efficient use of
limited hearing time.
Step 12: Arbitrator's decision
Arbitrator must select either the final offer of the shipper or that of
the carrier and does not have the ability to impose a compromise on the
parties. The CTA prohibits the Arbitrator from including reasons in his
or her decision, unless all of the parties to the arbitration request
written reasons for the decision. Since reasons may simply provide the
unsuccessful party with a basis for challenging the arbitrator's
decision in court, it is generally not advisable to agree in advance or
after a successful arbitration to request reasons.
the CTA requires the arbitrator to render a decision within 60 days, it
permits the parties to agree to an extension of that time-frame. Where
the arbitrator requests additional time to consider the evidence
presented, there is normally little if anything to be gained by
refusing that request.
Step 13: Tariff or contract
the arbitrator renders a decision, the railway is required to set out
the rate or rates and conditions that have been selected by the
arbitrator in a tariff, unless the parties agree to include the rate or
rates and conditions in a confidential contract. It is usually in the
shipper's interest to defer a decision on whether the result of the
arbitration will be set out in a tariff or in a confidential contract
until after the arbitrator's decision.
Settlement and Discontinuance
It is common for parties to continue or resume negotiations towards
commercial arrangements while the FOA process moves forward. FOA
requires a significant investment of time and resources by both
parties. This, combined with the "all or nothing" nature of the
outcome tends to encourage the parties to continue or resume commercial
negotiations. If a resolution is reached before the arbitrator renders
a decision, the parties typically record their agreement in writing and
advise the Agency and the arbitrator that they have agreed that the
matter should be withdrawn from arbitration. The FOA is then
All of the timelines specified in the CTA for FOA proceedings must be
strictly observed. Neither the Agency nor the arbitrator has the
ability to extend or relax deadlines, except in specified
circumstances. Time periods expiring on a weekend or holiday require
particular attention, and there are legal rules that govern such
How does a Multi-Party FOA work?
While the recently introduced multi-party FOA generally follows the
similar procedural time-table, there are certain important differences:
Mandatory mediation prerequisite
Agency may not refer a matter submitted to FOA by a group of shippers
to an arbitrator unless the shippers demonstrate that an attempt has
been made to mediate the matter. This requirement adds a preliminary
procedural step, for which a minimum of 30 days should be allowed.
Objections by the carrier
multi-party FOAs, the carrier must file ant preliminary objections
within seven days of the shipper's joint submission. If no objection
is filed within this time, the matter is deemed to be eligible for the
Carrier objections are likely to focus
on this eligibility. This may include legal arguments and evidence on
whether the matter is "common to all the shippers" and whether the
terms of the joint offer "apply to all of them". As shippers begin
to use the multi-party FOA remedy, the Agency will be called upon to
define the meaning of these terms.
The shippers must file a
joint answer to the carrier's objection within five days, and the
carrier is given two days to file a written reply to that answer. The
Agency is required to rule on the preliminary objection no later than
the date on which it is required to refer the matter to the arbitrator.
CTA extends certain deadlines to accommodate the participation of
additional parties and the fact that shippers will be required to act
jointly throughout the process. Specifically:
- the time for filing final offers including dollar amounts (Step 5 in the Summary above) is extended from ten days to 20 days;
- the time within which the arbitrator must render a decision (Step 12) is extended from 60 days to 120 days;
- the arbitrator is given the power to extend the deadlines for any of the intervening steps, if considered necessary.
How does a Summary Process FOA work?
Where a final offer involves freight charges totally $750,000 or
less, a "summary process" applies, unless the shipper indicates in
its original submission for FOA that it wishes to follow the standard
process. The summary process is available in FOAs involving a single
shipper as well as in multi-party FOA proceedings.
Fewer procedural steps
8 through 10 of the arbitration process outlined above (exchange of
written evidence, interrogatories and answers to interrogatories) do
not apply in a summary process FOA. Instead, each party may file a
response to the final offer of the other within seven days after the
matter is referred to the arbitrator. This eliminates the opportunity
to direct written questions to the carrier, and the shipper will need
to consider whether the ability to test the carrier's case in advance
is essential to its case.
If the arbitrator considers it
necessary, he or she may invite the parties to make oral
representations or ask them to appear before him or her to provide
Abbreviated time for a decision
a summary process FOA involving a single shipper, the arbitrator must
render a decision within 30 days (rather than 60 days) after the matter
is first submitted to the Agency for FOA. In a multi-party FOA
following the summary process, the deadline for rendering a decision is
shortened from 120 days to 90 days.
What is required to succeed?
Apart from the requirement to consider the existence of competitive
transportation alternatives, the CTA does not specify the criteria
which an arbitrator must consider in reaching a decision. In preparing
the information to be submitted to the arbitrator in support of its
final offer, a shipper should accordingly also address why the
information is relevant in the specific circumstances. This may differ
from case to case.
Evidence to support the shipper’s final offer may include the following:
- absence of competitive transportation alternatives
The shipper should provide evidence that there is not available to it
an alternative, effective, adequate and competitive means of
transporting the goods to which the arbitration relates. This will
include information regarding the absence of rail alternatives (or
their lack of effectiveness because of higher costs, circuitous routing
or additional handling involved). The limitations of other modes of
transport should also be addressed, for example, by explaining why
trucking over very long distances is not efficient. A shipper with
large shipping volumes may be able to argue that the trucking industry
simply does not have the resources to handle all of its traffic.
- rate history
The rates under which the shipper’s traffic moved immediately before
the dispute being arbitrated may be evidence of what both parties
considered reasonable in the recent past, if the rates in question were
contained in a confidential contract. Freight rates unilaterally
established by the railway in a tariff are evidence of what the railway
considered reasonable. This can provide the basis for an argument that
the railway company is seeking an excessive freight rate increase.
In some cases, the shipper may wish to include a more extensive rate
history to demonstrate that the increase now being sought by the
carrier is disproportionate to the year-over-year increases it has
accepted over a representative period of time. Alternatively, a longer
history could be used to support an argument that after a series of
substantial rate increases, a more moderate hike is now appropriate.
- rate negotiations preceding the FOA
An account of negotiations leading up to the arbitration and, where
appropriate, during the early stages of the arbitration process will
generally provide the arbitrator with a better understanding of what
has led the parties before him or her. Depending on the circumstances,
this evidence may show that the carrier’s final offer represents a
retreat from a more reasonable position taken during the negotiations
or that, while the shipper has already made significant concessions,
the carrier has not. The carrier’s conduct in negotiations may also
provide more general evidence of an imbalance in bargaining strength.
- railway costs
The costs incurred by the carrier to provide service to the shipper may
also be a relevant consideration. Railway costing is a specialized area
of expertise, and a shipper wishing to lead evidence in this area will
normally require the assistance of a consultant who can provide expert
evidence of the costs associated with moving the shipper’s traffic. A
railway costing consultant will ordinarily require details of how the
shipper’s traffic moves, including routing, equipment, shipment weights
and particulars of ancillary services provided.
- shipper investments in efficiency
Depending on the circumstances, evidence of facility upgrades or
operational improvements implemented by the shipper that enable the
carrier to provide the transportation services more efficiently may be
of assistance to the shipper.
- the market for the shipper’s product
Commodity prices in the markets into which the shipper sells may also
be a relevant consideration, for example, where the shipper can show
that market conditions make the freight rates contained in the
carrier’s final offer unsupportable. Including such evidence is not
without risk, however, since it may enable the carrier to raise a
multitude of issues relating to the shipper’s operating costs and
- freight rates charged by the carrier on similar traffic
Where the shipper is able to access information that freight rates
charged by the carrier on similar traffic are more comparable to those
contained in the shipper’s final offer than to the rates advanced by
the railway company, this may be of assistance. Access to this type of
information, however, is normally limited. Rates published in general
tariffs are typically higher than those offered by a carrier in
negotiations for a confidential contract, and a shipper will generally
not be able to obtain information about contractual rates enjoyed by
other shippers. There may be circumstances, however, where evidence in
this area is available, for example, if the FOA relates only to a
portion of the shipper’s traffic and where rates paid by the shipper on
its remaining traffic (which is not the subject of the FOA) offer a
favourable comparison. To provide a proper basis for the comparison it
may be necessary to also provide a railway costing analysis in respect
of this other traffic.
above list is not exhaustive. Depending on the circumstances, some of
the types of evidence identified here may not assist the shipper. A
shipper may also identify additional areas of evidence to support the
argument that the shipper’s final offer is more reasonable than that of
the carrier and more representative of what the carrier would be able
to charge if it had to compete for the shipper’s traffic with other
transportation service providers.
|(no mandatory mediation)
||Attempt to mediate the dispute
(6-10 weeks in advance)
|Written Notice to Carrier of Intent to Submit the Matter to FOA
(at least 5 days before filing)
|Written Notice to Carrier of Intent to Submit the Matter to FOA
(at least 5 days before filing)
|Submission filed with the Agency (including final offer without dollar amounts) and served on Carrier
||Submission filed with the Agency (including final offer without dollar amounts) and served on Carrier
|Shipper and carrier file their final offers (with dollar amounts) with the Agency(within 10 days of submission)
joint final offer and carrier's final offer (with dollar amounts) are
filed with the Agency (within 20 days of submission)
[Deadlines in respect of preliminary carrier objections occur in this period]
|Arbitrator appointed (within 5 days)
|Parties exchange written evidence (within 15 days)
||Parties file written responses with arbitrator (7 days)
||Arbitrator appointed (within 5 days)
|8 days left for hearing (if required by arbitrator)
||Parties exchange written evidence (within 15 days or such longer time as determined by the arbitrator)
||Parties file written responses with arbitrator (7 days or such longer time as determined by the arbitrator)
|Interrogatories (within 7 days)
||Decision (day 30)
|Answers to Interrogatories (within 15 days)
||Interrogatories (within 7 days or such longer time as determined by the arbitrator)
||Hearing (if required by arbitrator)
|8 days left for hearing
||Answers to Interrogatories (within 15 days or such longer time as determined by the arbitrator)
||Decision (day 90)
|Decision (day 120)