Canada: Agricultural Law Netletter - 7 November 2016

HIGHLIGHTS

* A Justice of the Federal Court has overturned a decision of an arbitrator appointed under s. 169.37 and 169.38 of the Canada Transportation Act. The arbitrator had rejected Canadian National Railway's argument that it was entitled to ration the number of cars supplied during peak periods of demand and inclement winter weather. The Court held that by eliminating the possibility of rationing cars in appropriate circumstances, the arbitrator ignored CN's obligations to other shippers and its operational restrictions, both of which are mandatory statutory considerations under the Act. (Canadian National Railway Company v. Louis Dreyfus Commodities Canada Ltd., CALN/2016-026, [2016] F.C.J. No. 1163, Federal Court)

NEW CASE LAW

Canadian National Railway Company v. Louis Dreyfus Commodities Canada Ltd.;

CALN/2016-026,

Full text: [2016] F.C.J. No. 1163;

2016 FC 1190,

Federal Court,

J. O'Reilly J.,

October 25, 2016.

Rail Transportation -- Allocation of Rail Cars for Grain Transport -- Railway's Right to Ration Cars.

The Canadian National Railway Company ("CN") applied to the Federal Court for the judicial review of a decision made by an arbitrator pursuant to s. 169.37 and 169.38 of the Canada Transportation Act, SC 1996, c 10 (the "Act").

CN provides transportation services to Louis Dreyfus Commodities Canada Ltd. ("Dreyfus"), which is a seller and shipper of grain.

After CN and Dreyfus failed to agree on contractual terms for the 2015-2016 crop year, Dreyfus requested arbitration with the Canadian Transportation Agency (the "Agency"). The Agency referred the matter to an arbitrator in 2015.

Sections 169.37 and 169.38 of the Act provide as follows:

169.37 The arbitrator's decision must establish any operational term described in paragraph 169.31(1)(a), (b) or (c), any term for the provision of a service described in paragraph 169.31(1)(d) or any term with respect to the application of a charge described in paragraph 169.31(1)(e), or any combination of those terms, that the arbitrator considers necessary to resolve the matters that are referred to him or her for arbitration. In making his or her decision, the arbitrator must have regard to the following:

  1. the traffic to which the service obligations relate;
  2. the service that the shipper requires with respect to the traffic;
  3. any undertaking described in paragraph 169.32(1)(c) that is contained in the shipper's submission;
  4. the railway company's service obligations under section 113 to other shippers and the railway company's obligations to persons and other companies under section 114;
  5. the railway company's obligations, if any, with respect to a public passenger service provider;
  6. the railway company's and the shipper's operational requirements and restrictions;
  7. the question of whether there is available to the shipper an alternative, effective, adequate and competitive means of transporting the goods to which the service obligations relate; and
  8. any information that the arbitrator considers relevant.

169.38(1) The arbitrator's decision must

  1. be made in writing;
  2. be made so as to apply to the parties for a period of one year as of the date of his or her decision, unless the parties agree otherwise; and
  3. be commercially fair and reasonable to the parties.

The arbitrator, among other things, rejected CN's proposal that it be entitled to limit car allocations based on rationing (which involved allocating rail cars on a pro rata basis among shippers according to data based on a portion of the 2012-2013 crop year) and rejected the proposition of treating rationing as a normal business practice. The arbitrator, relying on an earlier Agency decision, commented that rationing should be carried out only for short periods in exceptional circumstances [at para. 9 and 10].

The arbitrator also concluded that CN should have sufficient inventory to provide Dreyfus with its requested cars per week without impinging on shipper requirements, and that this outcome was commercially fair and reasonable to the parties [at para. 11].

CN argued that the arbitrator's decision was unreasonable as it failed to abide by the requirements set out in the Act and in particular that the arbitrator had omitted reference to factors he was required to consider including the level of service that Dreyfus actually required, CN's operational requirements and restrictions, and CN's obligations to other shippers.

Decision: O'Reilly, J. concluded that the arbitrator's decision overlooked mandatory statutory factors by prohibiting CN from rationing its supply of cars to Dreyfus, even in exigent circumstances; concluded that the arbitrator's approach was unreasonable; overturned his decision, and referred the matter to another arbitrator [at para. 38].

O'Reilly, J. considered the following issues:

1. Standard of Review:

The parties agreed that the Court could only overturn the arbitrator's decision if it was unreasonable. O'Reilly, J. stated at para. 13:

[13] ...As the arbitrator was dealing with a matter of "interest arbitration" rather than "rights arbitration", the decision merits considerable deference (Public Service Alliance of Canada v NAV Canada, 2015 ONSC 1407, 2015 ONSC 1407 (Div Ct)).

2. Whether the Arbitrator's Decision was Unreasonable:

O'Reilly, J. reviewed a number of Agency decisions including Louis Dreyfus Commodities Canada Ltd. v. Canadian National Railway Company (Case No. 14-02100, Oct. 3, 2014), upheld by the Federal Court of Appeal in Canadian National Railway Company v. Dreyfus, 2016 FCA 232); Louis Dreyfus Commodities Canada Ltd. v. Canadian National Railway Company (Case No. 14-05609, March 12, 2015); Louis Dreyfus Commodities Canada Ltd. v. Canadian National Railway Company (Case No. 14-05341, June 18, 2015); Richardson International Limited v. Canadian National Railway Company (Letter Decision No. 2014-12-18, December 18, 2014), and Viterra Inc. v. Canadian National Railway Company (Letter Decision No. 2014-12-18, December 18, 2014).

O'Reilly, J. also referred to the 1959 decision of the Supreme Court of Canada in Patchett & Sons Ltd. v. Pacific Great Eastern Railway Co., [1959] SCR 271 at 274, which is referred to in a number of the Agency decisions and the decision of the Federal Court of Appeal.

O'Reilly, J. concluded [at para. 34 to 37] as follows:

[34] These decisions, including that of the Federal Court of Appeal, all reflect the principles stated by the Supreme Court of Canada in Patchett, above. Justice Rand, as he then was, stated for the majority that a rail carrier's duty "is permeated with reasonableness in all aspects of what is undertaken..." (at p. 274). Therefore, a railway "is not bound to furnish cars at all times sufficient to meet all demands"; rather, reasonableness is a factual inquiry and "how each situation is to be met depends upon its total circumstances" (at p. 275).

[35] Bearing these principles in mind, I find that the arbitrator's decision was unreasonable. By effectively eliminating the possibility of rationing cars in appropriate circumstances, the arbitrator ignored CN's obligations to other shippers and its operational restrictions, both of which are mandatory statutory considerations.

[36] While there is ample support for the proposition that car allocation policies should be invoked infrequently and only for limited periods, that they cannot override shippers' legitimate and reasonable demands, and that they should be based on fair and transparent criteria, I see no justification for the arbitrator's conclusion that CN's service obligation to LDC should not take account of the possibility of rationing. The arbitrator's approach essentially eliminates the possibility of adapting to a harsh Canadian winter, a patently unrealistic scenario.

[37] Since reasonableness of service is a factual question, an arbitrator assessing a prospective arrangement between a railway company and a shipper should take account of the possibility that unforeseeable circumstances may arise. Not all the pertinent facts are known at the commencement of the crop year, so an arbitrator has to contemplate and accommodate various factors that may affect the delivery of cars. The arbitrator did not do so here.

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