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.