General Overview of Shipper Protection Provisions

Canadian law offers a variety of remedies to shippers who are reliant upon rail transportation but are dissatisfied with freight rates, ancillary charges and conditions or the quality of service offered by their rail carrier. This document provides an overview of those remedies in relation to federally regulated railways such as CN and CP, who are subject to the Canada Transportation Act (CTA.) A list of all railway companies subject to this legislation is available on the Agency's website at http://www.cta-otc.gc.ca/rail-ferro/companies/companies_e.html. In some provinces shippers who contract directly with a provincial short line may have similar remedies available to them under provincial laws.

Which particular remedy will afford the best recourse depends on the nature of the problem or dispute encountered as well as the particular circumstances of the case. The following table identifies the available remedies and the types of issues that may be addressed using them.

Different types of disputes can arise in relation to freight rates and other charges. For example, a shipper may be dissatisfied with rates or charges as they are set by the rail carrier. Alternatively, a shipper may accept that a particular charge is in place but believe that it is being incorrectly applied by the rail carrier.

Under the CTA, a federal railway company may not charge a "rate for the movement of traffic" unless it has published that rate in a tariff or the rate is contained in a confidential contract with a shipper. Once a rate for the movement of goods is published in a tariff in accordance with the requirements of the CTA, that rate is the "lawful" rate of the railway company. Similarly, where the parties have entered into a confidential rail transportation contract, the terms of that contract will determine the rates than can legally be charged.

FOA allows a shipper who is 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). This remedy is concerned with setting the rates and charges that will apply to the shipper's traffic rather than with resolving disputes over whether existing rates and charges are being correctly applied. Although rail freight rates are typically the primary focus of FOA, various ancillary charges and conditions can also be included in an FOA proceeding.

FOA may be used to challenge rates published in a tariff or when a contract containing rates expires. It does not allow shippers to re-open current contract rates.

Although FOA has traditionally been a private dispute between one carrier and one shipper, amendments to the CTA enacted in 2008 have created a multi-party FOA process that permits two or more shippers to make a joint FOA submission concerning a matter common to all of them. FOA proceedings are confidential and the result is normally binding for only one year.

FOA involving a single shipper

The submission for FOA involves the filing of a final offer without dollar amounts with the Agency together with the request that the matter be referred to an arbitrator and an undertaking by the shipper to ship traffic in accordance with the terms selected by the arbitrator.

The arbitrator's decision must be rendered within 60 days after the shipper submits the matter for FOA. During that time, FOA requires a substantial commitment of time and resources to the process which normally includes: the preparation of a final offer including dollar amounts and written evidence, the exchange of written questions and answers and the conduct of a hearing before the arbitrator. For matters involving freight charges not exceeding $750,000, there is an expedited or "summary" process with fewer procedural steps which requires the arbitrator to render a decision within 30 days.

The arbitrator must select either the final offer of the shipper or that of the railway company and does not have the ability to impose a compromise. This all-or-nothing approach makes FOA a high risk process for both the rail carrier and the shipper, providing an incentive to negotiate an acceptable commercial arrangement.

One of the key factors an arbitrator is required to take into account in selecting a final offer is whether the shipper has access to an alternative, effective, adequate and competitive means of transporting the goods to which the arbitration relates. Where such alternatives are available, a shipper may find it difficult to persuade an arbitrator to select the shipper's offer.

Multi-Party FOA

The FOA remedy is also available to a group of shippers acting jointly. To qualify for a multi-party FOA:

• the subject matter must be “common to all the shippers”
• the participating shippers must make a single joint offer in respect of the subject matter
• the terms of the final offer must apply to all of the shippers.

Potential applications of multi-party FOA may include situations where several shippers of a particular commodity believe that they are being charged freight rates that are higher than those charged for a different commodity with similar shipping requirements, or a group of shippers located in a particular region who are dissatisfied with rates and conditions that disadvantage them in relation to competitors in other regions.

Shippers commencing a multi-party FOA should anticipate preliminary applications to the Agency by the railway company to determine whether a matter is in fact “common to all the shippers” and whether the terms of their joint offer “apply to all of them”. The Agency must rule on such preliminary objections before referring the matter to an arbitrator.

Another requirement peculiar to multi-party FOA is that the shippers must demonstrate to the satisfaction of the Agency that an attempt has been made to mediate the matter before submitting it for multi-party FOA.

The time periods set for each of the procedural steps in a multi-party FOA are longer than those allotted for a single-shipper FOA, and the arbitrator must render a decision within 120 days after the day on which the submission for multi-party FOA is filed with the Agency or, in the case of a summary FOA, within 90 days.

Amendments to the CTA enacted in 2008 have created a new complaint process before the Agency that permits shippers to challenge charges and associated terms and conditions for the movement of traffic or for the provision of incidental services. This remedy is available only in relation to charges, terms and conditions that are contained in a tariff which applies to more than one shipper.

The process is commenced by a written complaint to the Agency. The railway company is required to respond in writing to the complaint, and the Agency may require further information to be exchanged and may hold an oral hearing in order to investigate the matter. A decision will normally be rendered within 120 days. Depending on the specific charges, terms or conditions being challenged, and the breadth or potential breadth of their application to other shippers, complaints under the new provision may well prompt other shippers to intervene.

Since the CTA does not define the terms “charge” or “charge for the movement of traffic” the scope of this remedy and its potential overlap with the types of disputes that may be submitted to FOA ("rates for the movement of goods") remains to be determined. A railway company may object to an Agency proceeding in respect of the reasonableness of a charge, on the basis that the charge complained of is a proper subject for an FOA but not for a complaint before the Agency or vice versa. Subject to the Agency's ruling on such preliminary objections in any specific complaint, this remedy will likely offer shippers recourse against unreasonable charges and rules relating to demurrage, weighing, improper loading or unloading (i.e., failure to release cars in a clean state), overloaded cars and improper shipping documentation, to name only a few.

In order to grant relief under the new provision, the Agency must find that the charges or associated terms and conditions are unreasonable. In making that determination, the Agency is required to take into account the following factors:

• the objective of the charges or associated terms and conditions [e.g. discouraging shippers from overloading railway cars]
• the industry practice in setting the charges or associated terms and conditions
• in the case of a complaint relating to the provision of any incidental service, the existence of an effective, adequate and competitive alternative to the provision of that service [e.g., warehousing; weighing].

In addition, the Agency may consider any other factor that it considers relevant.

The Agency has the power to establish new charges or associated terms and conditions if it finds that those published by the railway company are unreasonable. Any charges or associated terms and conditions established by the Agency, however, must be commercially fair and reasonable to the shippers who are subject to them, including shippers who may not have participated in the proceeding, as well as to the railway company that issued the tariff containing them. The Agency will specify how long its order remains in effect, but this may not be longer than one year.

Where a shipper disagrees with the manner in which the rail carrier is applying existing rates and charges rather than with the levels at which they have been set, it may be possible to obtain relief through a proceeding in court. For example, where two or more tariff rates have potential application to a shipper’s traffic, the shipper is entitled to the most favourable rate that applies. Similarly, where a tariff provision in respect of ancillary charges and rules is capable of more than one plausible interpretation, a court will tend to adopt the interpretation that is more favourable to the shipper. In this respect, railway tariffs are similar to other types of arrangements where the wording that governs the relationship between the parties is chosen by one of them without any input or negotiation from the other.

The presumption of lawfulness associated with publication in a tariff applies only to rates for the movement of traffic - it does not apply to ancillary charges or rules that cannot be characterized as "rates for the movement of traffic". This may leave some additional scope for a court to set aside particularly onerous or unreasonable conditions.

With respect to rates, charges and conditions contained in a confidential contract, the courts will likewise have the jurisdiction to adjudicate disputes over how the contractual wording governing rates and charges should be interpreted and applied.

The CTA imposes a statutory obligation on railway companies to provide suitable and adequate accommodation for traffic. The level of service provisions in the CTA provide for a complaint process that may be initiated by a shipper who is experiencing service deficiencies. This complaint process has been used to address all aspects of rail service, including car supply, service frequency, allocation of locomotive power and infrastructure requirements. The provisions have also been successfully relied upon by a shipper to enforce its right to determine the routing of its traffic.

The Agency has extensive remedial powers which include the ability to order the railway to allot, distribute and use cars, locomotives and other equipment as directed by the Agency and to acquire whatever property may be needed to provide proper service. In the case of grain dependent branch lines, the Agency also has the ability to order running rights in favour of another railway company.

The process is commenced by a written complaint to the Agency. The railway company is required to respond in writing to the complaint, and the Agency may require further information to be exchanged and may hold an oral hearing in order to investigate the matter. A decision will normally be rendered within 120 days, although the Agency has the ability to expedite the process in urgent matters.

The Agency does not have the ability to order the railway company to pay compensation for past losses arising from service deficiencies. However, once the Agency determines that a railway company has failed in its service obligations, that finding can be used as the basis of a claim for damages in a court proceeding.

Regulated Interswitching

Interswitching involves the transfer of traffic from the lines of one railway company to the lines of another railway company. Where a shipper is served by only one railway, the shipper is entitled to transfer its traffic to another railway at a rate set by the Agency if the shipper's facility (either at origin or at destination) is located any point within a 30 km radius of where the two railways connect.

The point of connection must be an "interchange", that is, a place where loaded and empty railcars may be stored until they are delivered or received by the other railway. CN and CP publish lists of such interchange points on their respective websites (in CP's case as part of its Tariff CPRS 6666).

The applicable interswitching rates have been established by the Agency in the Railway Interswitching Regulations for different "zones" based on track distances between the shipper's facility and the interchange. The regulations specify a rate per car, both for single cars and for 60 car blocks. Regulated interswitching gives a shipper who would ordinarily be dependent on a single rail carrier access to a second railway company, which may offer competitive rates and service.

Where the lines of two railway companies connect but there are no arrangements for interswitching in place, the CTA permits municipal governments or “any other interested person” to apply to the Agency for an interswitching order which will require the railway companies to provide reasonable facilities for the convenient interswitching of traffic in both directions.

Extended Interswitching

A shipper who is outside of the 30 km radius may apply to the Agency for an order that will deem its facility to be within interswitching limits. In dealing with applications for extending interswitching, the Agency has taken into consideration not only the physical proximity of the shipper’s facility to the interchange but also the shipper’s competitive position in relation to any of its competitors in the same region. In one case, the applicant’s facility was located outside interswitching limits while all of its competitors in the region were within interswitching limits. The Agency allowed the extended interswitching application even though the shipper’s facility was 24% of the distance outside the 30 km radius. In another case, where this competitive factor was absent, the Agency refused an extended interswitching order even though the shipper’s facility was only 18% of the distance outside a 30 km radius.

The rate set by the Agency for extended interswitching in any given case must be “commercially fair and reasonable to all parties”. The Agency has generally interpreted this requirement to mean that in setting a rate it must have regard both to the need to preserve competitive access and ensuring that the rail carrier receives fair compensation for providing service as an imposed public duty.

Competitive Line Rate (CLR)

A shipper located beyond the 30-kilometre interswitching limit whose facility is more remote from the nearest interchange may apply to the Agency to set a competitive line rate (CLR) for moving goods over the originating railway to the interchange point, for transfer to another railway. The CLR will be based on applicable interswitching rates and on the revenue the railway company generates by moving the same or substantially similar traffic over similar distances.

In order for a shipper to qualify for a CLR, the following conditions must be met:

• The shipper must be served by only one railway at origin or destination.
• There must be a continuous route from origin to destination operated by two or more carriers.
• There must be an interchange between the local carrier and the connecting carrier.
• The route selected by the shipper must use the nearest interchange in the direction of the traffic.
• The shipper must have reached an agreement with a connecting carrier as to rates and service.

One of the main obstacles to obtaining relief through the CLR remedy is the pre-requisite that the shipper must first reach an agreement with the connecting carrier. A commission established by the federal government in 1992 to review transportation legislation concluded that CN and CP have effectively declined to compete with each other through CLRs, and as a result the provision is largely inoperative in Canada. Where a shipper is able to reach an agreement with a connecting carrier, CLRs may be an option.