Decision No. 798-R-1993

November 19, 1993

File No. T 6100-11

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BEFORE:

• Keith Penner Chairman of the Public Hearing and Member of the National Transportation Agency
• Hon. J.A. McGrath, P.C. Member, National Transportation Agency
• George Minaker Member, National Transportation Agency

APPEARANCES:

• I. MacKay Counsel, National Transportation Agency
• I. Green-Sloan
• M. Huart Canadian National Railway Company
• F. Hume Canadian Pacific Limited
• P. Huband
• J. Foran Canadian Pacific Forest Products Ltd., Tembec Inc., Canadian Oilseed
• B. Hochman Processors Association, Canadian Pulp and Paper Association, Council of Forest Industries of British Columbia, Luscar Ltd., Novacor Chemicals Ltd. and Sultran Ltd.
• E. McArthur Regional Municipality of Ottawa-Carleton
• J. Mitchell Corporation of the City of Ottawa
• T. Macerollo Representing J. Manley, MP, Ottawa South
• J. O'Neill Councillor, City of Ottawa
• G. Brown Councillor, City of Ottawa
• F. McLennan President, Hunt Club Community Organization, Ottawa
• E. Abbot Canadian Railway Labour Association
• J. Merritt Canadian Auto Workers Union, Local 100, Rail Division
• M. Burke City of North Bay
• S. Juneau Ottawa Valley Chapter, Canadian Parks and Wilderness Society
• K. Konze Federation of Ontario Naturalists
• D. Freeman The Wildlands League, Canadian Parks and Wilderness Society
• S. Lee
• H.W. Gow Transport 2000 Canada
• P. Davidson Brotherhood of Maintenance of Way Employees
• D. McCracken
• M. Rolf von den Baumen Ministry of Natural Resources, Government of Ontario
• M. McKeen
• D. Maraldo
• M. Wilton
• P. Nielsen Public Interest

INTRODUCTION

Subsection 158(1) of the National Transportation Act, 1987 (hereinafter the NTA, 1987) states in part that, subject to the approval of the National Transportation Agency (hereinafter the Agency), a railway company may enter into an agreement with any other company, whether within the legislative authority of Parliament or not, to sell, lease or otherwise transfer to the other company a line of railway or a segment thereof.

Subsection 158(2) of the NTA, 1987 states in part that on entering into an agreement referred to in subsection 158(1) in respect of a line of railway or segment, the company shall give notice in writing of the agreement to the Agency and give such public notice as the Agency may direct.

On June 11, 1993, the Canadian National Railway Company (hereinafter CN) and Canadian Pacific Limited (hereinafter CP) filed with the Agency a notice of an agreement dated June 7, 1993 (hereinafter the Agreement) to convey segments of their respective lines of railway and other assets (hereinafter the Partnership Property) in the Ottawa Valley region of Ontario and Quebec to CNCP Ottawa Valley, a partnership of CN and CP (hereinafter the Partnership), in order to consolidate rail services in the Ottawa Valley into a single route. In effect, they intend to establish a single route of approximately 370 miles for their competing train services, operating between western Quebec (De Beaujeu) and Yellek, Ontario (west of North Bay).

A map of the lines which are to be conveyed (hereinafter the Partnership Line) is found in Appendix A.

The Partnership Line will include the CN Alexandria Subdivision from De Beaujeu to Hawthorne at Ottawa; the trackage which is jointly-owned by CN and CP and which extends from Hawthorne into the Ottawa passenger station to Wass and to Bells Junction, as well as between Hawthorne and Wass; the CN Beachburg Subdivision from Bells Junction to Nipissing Junction; the CN Newmarket Subdivision from Nipissing Junction to Birches Road in North Bay; and the CP Cartier Subdivision from Birches Road to Yellek, where it will reconnect to the CN line. Also forming part of the Partnership Line are two smaller segments of railway, namely the trackage from a point near Pembroke to Camspur and between North Bay and Mattawa.

The specific mileage points of the lines of railway to be conveyed are as follows:

The Ottawa Terminal Joint Facility lines located between Hawthorne, Ontario, and Bells Junction, Ontario, currently owned jointly by CN and CP:

• the Alexandria Subdivision from mileage 72.73 to mileage 76.43;
• the Beachburg Subdivision from mileage 0.0 to mileage 12.4;
• the Walkley Line from mileage 0.0 to mileage 5.83;
• the Freight Shed Leads from mileage 0.0 to mileage 3.23;
• the Ellwood Subdivision from mileage 0.0 to mileage 5.02; and
• the Prescott Subdivision from mileage 4.89 to mileage 5.25.

Additionally, CN and CP filed with the Agency applications to abandon the operation of certain lines of railway and to construct connections, all of which are required in order to establish the single line route.

The two CP abandonment applications seek abandonment of the operation of virtually all of its lines between Smith Falls and Mattawa, Ontario, excluding a small segment from Pembroke to Camspur. The CN abandonment application relates to a segment of track of 2.1 miles located in North Bay.

CN and CP have stressed that the CP abandonment applications are fundamental to the implementation of the Agreement; the CN abandonment application, while not a pre-condition of the implementation of the Agreement, involves trackage which will not be required if the conveyance application is approved.

Furthermore, should the abandonment applications be approved, CN and CP have requested that the Agency fix a date for the abandonment not before July 1, 1994 and at least three months after the approval by the Agency of the conveyance under section 158 of the NTA, 1987. This period would allow them time to construct the proposed connections.

In the event that the Agency were to authorize the conveyance and abandonment applications, the construction of certain connections will be necessary at points along the Partnership Line. These connections will link the CN and CP lines of railway at De Beaujeu, Quebec, North Bay, Ontario, and Yellek, Ontario.

Specifically, the De Beaujeu connection is required in order for CP to gain access to the Partnership Line at its eastern extremity; the Birches Road connection, located east of North Bay, is required to connect the CN trackage to be conveyed to the Partnership between North Bay and Nipissing, and points east, and the CP trackage to be conveyed to the Partnership between North Bay and Yellek, being the western extremity of the Partnership Line; and the Yellek connection, just west of North Bay, is required in order for CN to gain access to the Partnership Line at Yellek.

Following the directions of the Agency of July 14 and 20, 1993, CN and CP served copies of the public notice of the Agreement on interested parties on July 27, 1993 and published the notice in local area newspapers on August 1, 3, 4 and 11, 1993. In its letter of September 27, 1993, the Agency expressed its deep concern that CN and CP had not advertised the application nationally as was directed by the Agency. The Agency stated that it considers this application to be one of national importance in as much as it may serve as a model for future similar transactions, and that all persons, nationally, should be given an opportunity to comment on it. To this end, the Agency advertised nationally its own notice of public hearing.

Subsection 158(3) of the NTA, 1987 provides that, within six months after the receipt of a notice of agreement, the Agency shall, after holding such hearings, if any, as are required in its opinion to enable all persons who wish to do so to present their views on the conveyance of the line of railway or segment, approve the agreement for the conveyance, unless the Agency determines that the conveyance would not be in the public interest or that the company to whom the line or segment is to be conveyed is not authorized to operate it.

The Agency issued a notice of public hearing on September 22, 1993, stating that a hearing to consider the various applications would be held starting on October 13, 1993 in Hull, Quebec.

PARTNERSHIP AGREEMENT

The following section serves to highlight the provisions of the Agreement filed with the Agency.

Purpose of the Agreement

The Partnership arrangement will allow CN and CP to effect economies while providing for customer-oriented operations.

CN and CP desire the Partnership to serve as a model for similar arrangements to be entered into by CN and CP in the future.

Business of the Partnership

The business of the Partnership will be to acquire, maintain, manage, work, operate, hold and deal with the Partnership Properties in accordance with the Agreement and to conduct such activities and operations in relation to the Partnership Line as the Board of Directors (hereinafter the Board) may determine.

The Partners

CN and CP may compete against each other in providing services over the Partnership Property through the operation of their own trains and by competing for traffic anywhere on the Partnership Line.

Both CN and CP will have the right to operate over the Partnership Property for bridge traffic and for access to customers situated on the Partnership Line and over other lines which connect with these properties.

All revenues earned in providing railway freight services over the Partnership Properties are for the account of the railway company providing such services and shall not in any way be deemed to be for the account of the Partnership.

Each Partner will pay a car mileage charge for its use of the Partnership Line. This charge will be equal to ordinary maintenance costs plus program work costs, minus third party recoveries, in respect of each section over which the Partner operates. Neither Partner shall pay less than twenty percent of the total amount incurred or earned by the Partnership per annum for all Partnership Property.

Partnership Property

Under the Agreement, CN and CP are to deliver to the Partnership all necessary deeds, conveyances, bills of sale, assurances, transfers, assignments and consents, including all necessary consents and approvals to the assignment of the leases, agreements and contracts referred to in Schedules A and B (these schedules describe the lines of railway to be conveyed to the Partnership), and any other documents necessary to transfer the CN and CP properties to the Partnership. It became apparent during the course of the proceedings, by way of correspondence with the Agency and at the public hearing, that the railway companies intend to convey the Partnership Property to CN and CP as joint tenants.

Financial Arrangements

CN will contribute to the Partnership lines and assets worth an estimated value of $45,000,000, while CP will contribute lines, abandoned lines and other assets worth an estimated value of $25,000,000.

CP will pay the Partnership which will then pay CN a promissory note of $9,900,000. This amount represents approximately one-half of the difference between the valuations of the CN properties and the CP properties. This amount is due on the earlier of the date which is 42 years from the closing date or the date of termination of this Agreement.

During the public hearing, CN and CP indicated that they had not completed the valuation of the Ottawa Terminal Joint Facility properties. These assets will also become Partnership Property.

The Board

Subject to the Agreement, the business and affairs of the Partnership will be managed by a Board, which will be comprised of six members of whom each Partner will appoint three.

General Manager

A General Manager will be appointed by the Board. The responsibilities of the General Manager will include employee and labour relations; asset maintenance; purchasing, leasing and selling surplus assets; rail traffic control; administration and accounting; executing contracts on behalf of the Partnership; hiring and maintaining a permanent work force; and preparing and submitting to the Board capital and operating budgets annually.

The staff reporting to the General Manager will consist of supervisors for employees designated with the task of taking care of the infrastructure, administrative personnel and, possibly, an employee who will be responsible for leases, land sales, wire crossings and contracts. The Agreement provides that CP and CN employees will have equal access to the work opportunities created by the Partnership.

Term and Dissolution

Either Partner may request that the Partnership be dissolved every 21 years from the closing date, provided that at least two years of advance notice is given to the other Partner. After such notice is given, the Partners shall use their best efforts to negotiate in good faith the terms of dissolution. Should the Partners fail to come to an agreement, the Partnership Agreement provides a measure for dissolution.

Sale and Transfer of Partnership Interest

The Agreement allows for the sale or transfer of all but not less than all of a Partner's interest to an affiliate of the Partner, with the consent or approval of the other Partner.

Ontario Northland Transportation Commission (hereinafter the ONR)

The Partnership will grant to the ONR the right to operate bridge traffic over the Partnership Line between Yellek and Nipissing Junction in consideration of payment by the ONR to the Partnership of certain charges.

VIA Rail Canada Inc. (hereinafter VIA)

The Agreement acknowledges that CN has granted to VIA the right to operate over CN properties pursuant to the VIA Train Service Agreement (hereinafter the VIA Agreement). CN has confirmed that the VIA Agreement will continue to be effective in accordance with its terms until and including December 31, 1998. Commencing on the date of termination of the VIA Agreement, the Partnership shall grant to VIA, if requested by VIA, the right to operate over the Partnership Line between De Beaujeu and Federal in consideration of payment by VIA to the Partnership of such charges and upon such terms as may be negotiated between the Partnership and VIA.

Train Dispatch and Control

The Agreement provides that the Partner who currently dispatches operations on any specific line segment will continue to do so until the Partnership contracts these services to another party or establishes its own rail traffic control system.

CN and CP offered as evidence that traffic control principles will ensure that scheduling and handling of trains will be impartial. On average, they expect to operate eight to ten regularly scheduled freight trains per day over the Partnership Line between De Beaujeu and Yellek. However, traffic will increase to 16 to 20 train movements per day during peak periods, in addition to the passenger train services operated on the principal route servicing Ottawa.

MATTERS TO BE CONSIDERED

Applicability of section 158 of the NTA, 1987 to this conveyance

The Agreement between CN and CP provides that:

8.1 CN and CP shall each deliver to the Partnership all necessary deeds, conveyances, bills of sale, assurances, transfers, assignments and consents, ... referred to in Schedules A and B,...

8.2 CN and CP shall deliver actual possession of the CN Properties and the CP Properties, respectively, to the Partnership.

One of the issues that has arisen during the proceedings relates to whether or not a conveyance to a partnership can be made under section 158 of the NTA, 1987. By letter dated September 7, 1993, the Agency required CN and CP and invited the parties of record to file with the Agency their views on this issue. It was during this exchange of correspondence that the Agency first became aware of the intention of both CN and CP to hold title to the lines to be conveyed as joint tenants. As such, it was argued that the conveyance would be to two railway companies.

In response to the letter of the Agency dated September 7, 1993, and as further advanced at the public hearing, CN and CP have asserted that a partnership is an agreement between two or more parties with certain legal consequences. In support of its assertion, CP stated that pursuant to the Canadian Encyclopedic Digest for Ontario, Third Edition, Volume 24, Title 106, paragraph number 6, "A Partnership in Ontario is not a legal person distinct from the partners of whom it is composed."

CN and CP submitted that the subject conveyance will not be to the Partnership but to CN and CP. As CN and CP are federally incorporated railway "companies" within the meaning of section 2 of the Railway Act, R.S.C., 1985, c. R-3, conveyances to the Partnership are conveyances to CN and CP, two "companies". CN and CP have submitted that pursuant to subsection 33(2) of the Interpretation Act, R.S.C., 1985, c. I-21, "Words in the singular include the plural, and words in the plural include the singular." Accordingly, the word "company" in section 158 of the NTA, 1987 can be read as "companies".

Mr. Foran, counsel for several shipper clients (hereinafter the Shipper Group), argued that irrespective of the manner in which title is to be taken, the lines to be conveyed will be partnership property and that a partnership is not a "company" within the contemplation of section 158 of the NTA, 1987.

Subsection 21(1) of the Partnerships Act, R.S.O., 1990, c. P.5, provides that all property and rights and interests in property originally brought into the partnership shall be considered "partnership property" and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement. The Shipper Group argued that, with the above in mind, the Agency is required to rule on the Agreement filed before it as written given that it clearly states that the conveyance will be to the Partnership and not, as CN and CP voiced during the public hearing, to CN and CP themselves. The Partners hold title to the properties being conveyed in trust for the Partnership as the Partnership itself cannot hold title.

The Shipper Group also argued that the NTA, 1987 does not contemplate that more than one person will own a railway. It maintained that "company", as defined in section 158 of the NTA, 1987, cannot be interpreted in the plural tense since a contrary intention is found in the NTA, 1987 which rebuts the provision of the Interpretation Act which allows singular words to be interpreted in the plural tense.

In the same vein, Transport 2000 Canada (hereinafter Transport 2000) stated that the Railway Act contemplates only single integral railway companies as recipients of the authority to conduct a railway. Therefore, Transport 2000 contends that the Agency does not have jurisdiction to approve the proposed conveyance pursuant to section 158 of the NTA, 1987.

Running rights/joint management

A representative of the Canadian Railway Labour Association (hereinafter the CRLA) argued that subsection 158(1) of the NTA, 1987 is specific and requires that any agreement be between a railway company and another company. Since subsection 158(1) of the NTA, 1987 limits a conveyance to a company and since the Partnership is not a company, there can be no conveyance. The CRLA advanced that in reality no lines of railway are conveyed to the Partnership per se and that the Agreement does not convey lines in any physical or legal sense from one company to the other. It submitted that the proposed conveyance is not contemplated by section 158 of the NTA, 1987 nor is it consistent with the overall legislative objective of that Act. There are express provisions in the NTA, 1987 to facilitate short line railways, to abandon the operation of lines of railway, to share facilities and to obtain running rights on other lines of railway, and section 98 of the Railway Act, provides for a joint management facility.

Authority to operate

Arguments were also heard relating to subsection 10.1(1) of the Railway Act which provides that:

No person shall construct or operate a railway that is within the legislative authority of Parliament unless that person is authorized by a Special Act to do so or, where the Special Act is letters patent incorporating a company under section 11,

(a) the railway constructed or operated is a railway in respect of which a certificate of public convenience and necessity was issued under subsection 12(2); or

(b) no railway is constructed and the termini and route of the line of the railway that is operated are specified in a certificate of fitness issued under subsection 12(5).

CP also offered that subsection 10.1(2) of the Railway Act provides that:

... a railway company that is continued as a corporation under the Canada Business Corporations Act and that constructs or operates a railway does not contravene subsection (1) if, apart from that continuance, the railway company would not contravene subsection (1). (Emphasis added)

CP maintained that the company has been continued as a corporation under the Canada Business Corporations Act, R.S.C., 1985, c. C-44.

CN and CP advanced arguments to the effect that the partnership constituted is between two federally incorporated railway companies who will be taking title to the lines to be conveyed and operating them. They added that the powers of the Partnership to operate a railway is a consequence of the lines being conveyed to CN and CP as partnership property and of the authority of the railway companies to operate the lines as a result of their ownership interests in them, as well as of the Order in Council to be obtained pursuant to section 23 of the Canadian National Railway Act, R.S.C., 1985, c. C-19 (hereinafter the CNR Act). Furthermore, CP will have alternative authority to operate the lines pursuant to section 7 of An Act respecting Canadian Pacific Railway Company, S.C. 1929, c.65 (hereinafter the Special Act of 1929).

The Shipper Group argued that a partnership would not have letters patent of incorporation and therefore could not obtain operating authority under a certificate of public convenience and necessity or a certificate of fitness. The only manner in which to obtain authority to operate a railway within the legislative authority of Parliament is via an Act of Parliament enacted with special reference to the railway. It also argued that an Order in Council is not a "Special Act" within the meaning of the Railway Act but rather an Act of the Executive, which is not an Act of Parliament nor is it an Act as defined by the Interpretation Act.

Furthermore, the Agency heard evidence that due to the Partnership Line extending beyond the limits of a province, it should fall under federal jurisdiction. This being the case, the Partnership could not be granted Special Act status by the Governor in Council who does not have the authority to confer such status upon a provincially-constituted partnership. Consequently, without a Special Act, the Partnership is not authorized to construct or operate a federal railway.

The Shipper Group argued that the NTA, 1987 does not contemplate ownership separate from authority to construct or operate a line.

Power of CN to enter into the Agreement

The powers of CN to enter into the Agreement are set out in paragraph 23(2)(b) of the CNR Act, which provides that:

With the approval of the Governor in Council and on the recommendation of the Minister of Transport, agreements for any one or more of the purposes specified in subsection (3) may be entered into

...

(b) between any company comprised in the National Railways and any company approved or designated for the purpose by the Governor in Council.

Paragraph 23(3)(b) of the CNR Act sets out the purposes for which agreements may be entered into under subsection 23(2) and they include:

(b) the purchase, sale or leasing of the railway or the undertaking in whole or in part of either party to the agreement;

The Agency heard evidence on whether or not subsection 23(10) of the CNR Act could prevent CN from entering into any agreement with CP. This subsection stipulates that:

Nothing in this section shall be construed to authorize the amalgamation of any company comprised in National Railways with any company comprised in Pacific Railways as defined in section 3 of chapter 39 of the Revised Statutes of Canada, 1952, nor to authorize the unified management and control of the railway system forming part of National Railways with the railway system forming part of Pacific Railways as so defined.

CN submitted that this subsection contemplates an amalgamation not unlike that found in section 96 of the Railway Act.

CN also argued that insofar as subsection 23(10) of the CNR Act is concerned, neither Partner will lose its identity. Furthermore, the lines of railway to be conveyed are only a small percentage of the CN and CP systems.

Powers of CP to enter into the Agreement

In its letter dated September 29, 1993, the Agency requested all parties of record and required CN and CP to address the issue of the authority of CP to enter into the Agreement, particularly considering the effect of section 7 of the Special Act of 1929.

Section 7 of the Special Act of 1929 provides that:

The directors of the Company may from time to time enter into any agreements or arrangements with the Canadian National Railway Company or any other company owning, controlling or operating any railway comprised in its system for selling, conveying or leasing by one to the other of the whole or an undivided joint right, title and interest in and to the whole or any portion of any line or lines of railway or other property, or for the granting by one to the other for a fixed period or in perpetuity of such rights and privileges as the directors may see fit, whether by way of joint operation of any line or lines of railway, or the running of the trains of one company over the tracks of the other, or otherwise howsoever in respect of the lines, tracks, terminal facilities and appurtenances of either company; such agreements or arrangements to be subject to the like consent of the shareholders, the sanction of the Governor in Council upon the recommendation of the Board of Railway Commissioners for Canada, application notices and filing provided for in sections one hundred and fifty-one and one hundred and fifty-four of the Railway Act, whichever may be applicable.

CP argued that it did not need authority under section 7 of the Special Act of 1929 because subsection 23(5) of the CNR Act provides that a company approved or designated under paragraph 23(2)(b) of the CNR Act has the power or capacity to enter into an agreement. According to CP, the Order in Council, if granted, will provide that CP is a company approved or designated for the above-noted purposes by the Governor in Council, as required by paragraph 23(2)(b) of the CNR Act.

CP then argued that the provisions of section 7 of the Special Act of 1929 requiring consent of the shareholders and sanction of the Governor in Council have, in effect, been repealed because they are repugnant to section 158 of the NTA, 1987. CP submitted that the subsequent general Act, the NTA, 1987, may repeal portions of a prior Special Act if they are absolutely repugnant to one another. It argued that the requirement to obtain the shareholders and the Governor in Council approval set out in section 7 of the Special Act of 1929 is repugnant to and inconsistent with the provisions of section 158 of the NTA, 1987. That section no longer requires such approvals with respect to the sale or transfer of a line of railway or segment. CP maintained that with the enactment of the NTA, 1987, the Parliament recognized that not every line sale would require all of the above-noted requirements. However, transactions dealing with the acquisition or sale of "all or substantially all" of the railway of a company still require shareholders approval, but not Governor in Council approval. CP argued that it is acquiring or selling a line of railway or segment that does not constitute all or substantially all of its railway.

As such, CP contends that it has complied with section 7 of the Special Act of 1929 and has the power to enter into the Agreement.

PUBLIC INTEREST

Subsection 158(3) of the NTA, 1987 requires the Agency to consider whether or not the conveyance is in the public interest.

Jurisdiction over the Partnership Line

The issue of whether or not the Partnership Line would escape federal jurisdiction and, therefore, not be governed by the Railway Act, the NTA, 1987 and other applicable federal railway legislation was addressed at the public hearing. This concern initiated from the fact that the Partnership would be provincially registered and, as the Shipper Group maintained, that it is not a "railway company" as it will not have authority to construct or operate a railway.

CP and CN argued that the federal constitutional status of the lines to be conveyed would not change given that the said lines are transferred between federal railway companies and will join two provinces, making this an extra-provincial undertaking. The Partnership Line will cross the Ontario border into the province of Quebec at three locations, i.e. east and west of Portage du Fort and just east of Glen Robertson.

CP advanced that although the Partnership will be registered pursuant to section 2(3) of the Business Names Act, R.S.O., 1990, c. B.17, of Ontario, the Partnership will be subject to provincial law, following registration, only to the extent that CP and CN will provide the public with knowledge of who the partners are in order to permit the public to commence actions or formulate pleadings in proceedings against the proper parties in civil litigation, and the Partnership will be governed by the contractual rules contained in the Partnerships Act insofar as interpretation of the Agreement is concerned.

Applicability of paragraph 158(4)(a) of the NTA, 1987

In the same vein as jurisdiction, some concerns were raised with respect to the applicability of paragraph 158(4)(a) of the NTA, 1987 which provides that:

Where, pursuant to an approval under subsection (3), a line of railway or segment is conveyed to another railway company

(a) the railway company that conveyed the line or segment shall not have any obligations under this or any other Act of Parliament in respect of the operation of the line or segment unless it resumes the ownership or control of the line or segment;

CP responded that this paragraph contemplates the conveyance of a railway line from one railway company to another railway company where the conveying railway company ceases to have any ownership in the railway line. CP believed that the latter part of this paragraph which reads "... unless it resumes the ownership or control of the line or segment" covers the present conveyance application as the proposed conveyance allows the conveying railway company to resume part ownership of the entire line in question. As such, ownership and control are not being relinquished per se but rather the whole ownership will be jointly owned.

Competitive Access and Service Provisions

Submissions made by interveners offered arguments which stressed that the arrangement proposed by CN and CP would have detrimental effects on the rights and requirements of shippers as it would preclude them from competitive access and service provisions.

Interchanges and Connections

Section 110 of the NTA, 1987 defines an interchange as follows:

means a place where the line of a railway company connects with the line of another railway company and where loaded or empty cars may be stored until delivered or received by that other company;

Section 150 of the NTA, 1987 defines connections of intersecting railway lines as follows:

Where the lines or tracks of one railway are intersected or crossed by those of another railway, ...

The Shipper Group argued that the consolidation of rail services from the separate and distinct lines of railway into a single jointly-owned routing would preclude interchanges and connections between the two carriers in the Ottawa Valley, even at the terminal ends of the Partnership Line at Yellek and De Beaujeu. The Shipper Group also advanced that neither of these can exist given that the Partnership is not a railway company within the contemplation of the Railway Act or the NTA, 1987. As interchanges would no longer exist, shippers could not avail themselves of competitive line rates. The Shipper Group further reinforced its concern by stating the fact that the Agreement was silent on the preservation of existing interchanges.

The Agreement excludes specific assets from the Partnership Property. Schedule A-2 and Schedule B-2 of the Agreement detail these excluded assets which include the CN trackage at Glen Robertson and Portage du Fort and the CP Temiscaming Subdivision trackage at Mattawa, trackage at Camspur and trackage at North Bay.

Consequently, the Shipper Group is of the view that the points at which the separate lines of CN and CP connect with the Partnership Line would not be interchanges in that the separate lines of CN and CP would not connect with the line of "another railway" company.

CN and CP testified that this arrangement of joint ownership will respect the existing interchange points and competitive access provisions of the NTA 1987. They stated that the Agency will retain full jurisdiction over the Partnership Line and common carrier obligations through its jurisdiction over the Partners.

CP submitted that Decision No. 439-R-1989 of the Agency dated September 5, 1989 concerning an application by the Celgar Pulp Company established that the determinative factor in whether an interchange exists between two railway companies is whether those companies have ownership interests at locations where there are connecting lines of railway and whether loaded or empty cars may be stored at the interchange.

Regarding connections, CP explained that applications may be filed with the Agency pursuant to section 150 of the NTA, 1987 and both CN and CP would be parties to the proceedings given their undivided interests in ownership.

Interswitching and Competitive Line Rates

The Shipper Group argued that shippers seeking extended interswitching and those located within currently authorized interswitching limits would no longer have access to interswitching provisions given that interswitching under the proposed arrangement would no longer meet the definition contained in section 110 of the NTA, 1987. Under this section, to interswitch means:

in relation to traffic, to transfer the traffic from the lines of one railway company to those of another railway company in accordance with regulations made under subsection 152(4);

One of the shippers who would suffer harm from the loss of interswitching is Canadian Pacific Forest Products Ltd. (hereinafter CP Forest Products) who's mill is located in Gatineau on the CP Lachute Subdivision. CP has divested its share in this company. CP Forest Products currently interswitches traffic at Ottawa. A representative from the company explained that it becomes very important when negotiating a contract with CP to have competitive options available.

The Shipper Group feared that shippers may be placed in a situation similar to that which happened to the Celgar Pulp Company. They further argued that no interchange existed at Nelson as the point connected a line of CP with a line of CP.

The Shipper Group noted that sections 134 to 143 of the NTA, 1987 provide for competitive lines rates (hereinafter CLR) which may be established from the point of origin or destination served by the local carrier to or from an interchange served by a connecting carrier. Given its argument that interchanges will no longer exist on the Partnership Line, CLR will accordingly not be available.

CP testified that since CN and CP will continue to respect the existing interchanges, interswitching and CLR will continue to apply at these interchanges. However, it was the opinion of CP that shippers located on the Partnership Line would not have to take advantage of the provisions relating to interswitching or CLR given that they would have direct access to both railway companies under the Partnership arrangement. Thus, some shippers that were only accessible through interswitching before will now have direct access to the services of two railway companies.

Level of Services

The Shipper Group submitted that section 145 of the NTA, 1987 contemplates the ownership of a line of railway by one railway company. This section provides that every railway company shall afford all adequate and suitable accommodation for the receiving, carrying and delivering of traffic on and from its railway and for the transfer of traffic between its railway and other railways. As such, the Partnership arrangement would negate this provision as it relates to the Partnership Line. The Shipper Group questioned how common carrier obligations could be met if the Partnership did not intend to acquire or operate any rolling stock and the Agreement did not contain a provision which would require the Partnership to comply with any common carrier related Agency directions.

Evidence presented by CN and CP revealed that more than ninety-five percent of the traffic presently carried by CN and CP between North Bay and De Beaujeu is overhead traffic moving between eastern and western Canada. The customers will not be affected by the Partnership arrangement as CP and CN will continue to provide competitive rail services. Furthermore, customers located on the Partnership Line will have access to two railway companies, rather than just one. Therefore, the competitive alternatives for these customers will be improved.

Compensatory Rate Complaints, Final Offer Arbitration, Public Interest Investigations and Running Rights

Concerns were raised that final offer arbitration and public interest investigations would no longer apply given their definitions under the respective sections 47 and 58 of the NTA, 1987. These sections stipulate that such actions would only occur between shippers and carriers. Section 4 of the NTA, 1987 defines "carrier" as "any person engaged in transport by a mode of transportation referred to in subsection 2(2)". The Shipper Group argued that as a partnership is not a person, the Partnership cannot be a carrier.

Regarding compensatory rate complaints and public interest investigations, CP explained that they would be directed to the carrier against whom the complaint is made. With respect to final offer arbitration, the Partner that would be involved would be the one whose rate the arbitration implicated. Concerning tariffs and confidential contracts, CN and CP will pursue their own rate-making policies independent of each other and will issue their own tariffs and contracts for traffic moving over the Partnership Line.

Another concern heard related to running rights as defined under section 148 of the NTA, 1987. This provision enables a railway company to take possession of, use or occupy any lands belonging to any other railway company, to use the right-of-way, tracks, terminals, stations or station grounds of any other railway company and to exercise rights and powers to run and operate its trains over and on any portion of the railway of any other railway company. It was argued that because the Partnership was not a "railway company" within the legislative authority of Parliament, this provision would no longer apply to the proposed conveyance.

CP argued that with respect to running rights, the Agreement specifically allows for third party users to operate over the Partnership Line on the condition that they pay for such use in accordance with the provisions of the Agreement.

Cost Savings

In their evidence, CN and CP indicated that their joint usage of the CN line will allow each railway company to realize, in the long term, savings of between thirty to forty percent in track and roadway costs. These savings will materialize as a consequence of their joint usage which will permit CN and CP to eliminate what they characterize as under-utilized and parallel lines carrying almost the same volume of trains and freight traffic through the Ottawa Valley. Furthermore, they submitted that the lines of both railway companies require significant capital improvements in order to maintain safe and efficient operations.

Other benefits of joint usage include the sharing of capital and operating costs on the Partnership Line as well as the utilization of assets released from the lines of CP proposed to be abandoned. The latter will offset some of the capital renewals required on the Partnership Line.

CN and CP testified that joint usage of the Partnership Line will allow them to provide more efficient and viable services in the Ottawa Valley by eliminating the unnecessary costs associated with maintaining two under-utilized parallel lines and that the efficiencies gained will promote both intermodal and intramodal competition.

As the proposed conveyance will result in cost savings to CN and CP in the long term, shippers will also benefit from it in the long term, since it will assist in re-establishing the commercial viability of the railway in eastern Canada.

During the course of the public hearing, CN and CP were required by the Agency to file their business plans. The Agency later ruled, during the public hearing, that these plans were of confidential nature.

Future Abandonment of the Operation of the Partnership Line

CP advanced that if only one Partner wishes to seek abandonment of the operation of the Partnership Line, only that Partner needs to apply for the abandonment. In the case where one Partner is authorized to abandon operation of a line, the jurisdiction of the Agency would be relinquished with respect to the operations of that Partner, but operation of the line of the other Partner would remain unaffected as would the jurisdiction of the Agency with respect to this latter Partner. Once the Agency issues an abandonment order and the date fixed for abandonment passes, its jurisdiction ceases with respect to the line concerned and the ownership reverts to the owner of the line who is governed by the provincial property laws with respect to the land. If both CN and CP wish to abandon the operation of the Partnership Line, they would both be required to apply.

CN submitted that it would not be attractive for only one Partner to abandon a segment of the Partnership Line as this Partner would still have to support some of the costs associated with the Partnership. In addition, the applicants submitted that they believed that the intent of the individuals responsible for formulating the Agreement was to ensure savings by sharing facilities.

Lastly, CN testified that it does not foresee any abandonment being proposed of the Partnership Line because both Partners intend to use the line for bridge traffic, which serves as an essential link of the system.

Economic Effect on Algonquin Park and Local Communities

The Agency heard evidence from representatives of the Ministry of Natural Resources of the Province of Ontario (hereinafter the MNRO), the Wildlands League, the Federation of Ontario Naturalists (hereinafter the FON) and the Canadian Parks and Wilderness Society, regarding the potential impact of increased rail traffic through the Algonquin Park (hereinafter the Park) and on the local communities.

These parties opposed the CP application to abandon its line from Petawawa to Mattawa given that this will result in the consolidation of the operations of CN and CP onto the CN line which runs for approximately 130 kilometres through the Park. As well, these interveners opposed the proposed railway connection between the CN line and the CP line near North Bay, which would be constructed through a provincially significant wetland.

Although it is more appropriate to discuss the concerns of these parties directly within the decisions relating to these specific abandonment and connection applications, the Agency is of the view that the potential impact should also be mentioned herein as they relate specifically to the conveyance application itself.

A representative of the MNRO introduced as evidence its preliminary results of a 1993 study entitled "Rail Impact Study", which solicited opinions of visitors on the proposed increase in rail traffic which would result from the Partnership arrangement. The survey concluded that about forty-four to fifty percent of the Park users who visited areas that were affected by the sight and sound of trains found that these factors lessened their enjoyment of the Park. The survey sought to uncover whether or not they would continue to visit the Park if train movements would doubled or tripled. According to the representative of the MNRO, about one third of those who responded to that question said they would not return if movements doubled and two thirds responded that they would not return if movements tripled.

Based on these survey results, the MNRO calculated the economic impact at provincial, regional and local levels if the Park were to experience a thirty percent reduction in visitation. The representative of the MNRO attested that a reduction would cause an economic loss provincially and regionally of $1,812,000 and an economic impact to secondary industries of provincial and regional output losses of $4,269,184 and $2,456,548, respectively. Furthermore, the economic loss to North Bay would be $906,575 and five employment years while Pembroke would experience a loss of $798,678 and 7.1 employment years.

In response to the submission of the MNRO, CP stressed that the MNRO was unsuccessful in supporting its argument that the Park users oppose the presence of the CN Beachburg Subdivision in the Park and oppose an increase in train traffic. CP supported its statement by offering that of all of the survey respondents who participated in the 1992 Interior Visitor Survey for Algonquin Provincial Park, a neutral survey designed in part to elicit the real concerns of campers, not one cited the presence of the railway as a matter of concern.

In response to the statistics from this same survey, CP argued that the MNRO exaggerated the potential economic loss by matching this neutral survey with another survey, namely the Rail Impact Survey. Specifically, the figure representing the provincial impact of $1,812,000 was incorrectly derived as conceded by one of the MNRO representatives in the course of the CP cross-examination of CP. CP suggested that this figure was overstated by a factor of four.

Secondly, the assumption that thirty percent of the visitors of the Parks would not return to the Park if train traffic doubled was erroneous given that this figure was derived by what CP argued to be a leading and skewed Rail Impact Survey. To solidify CP's point, an example was given of a survey participant, Mr. MacDougall, who wrote that this particular survey did not investigate the real issues and offered examples as to how it was "particularly leading".

Even though the survey was skewed to achieve a particular result, CP argued that it failed to do so as many participants expressed that they had not even heard a train or, if they did, it did not lessen their enjoyment of their visit. These were responses which representatives of the MNRO failed to mention in their arguments.

Furthermore, CP explained that the 1989-90 Algonquin Provincial Park Master Plan Review, which considers many aspects of the Park that concern the Ministry of Natural Resources and the public of Ontario, did not mention the presence of the railway in the Park.

CP noted that rail traffic was at one time far more extensive through the Park than it is currently, as attested to by the witnesses of the MNRO. The fluctuations in business cause traffic levels to rise and fall over the years.

Regarding the argument of the MNRO that North Bay and Pembroke would suffer severe economic loss if the applications should be approved, CP questioned why a representative of the Corporation of the City of North Bay would give evidence to support the Partnership project and why would the Deputy Mayor of the City of Pembroke write to the Agency to support the abandonment applications.

Submission made by Mr. Nielsen

Three requests were made by Mr. Peter Nielsen. He asked the Agency to direct CN and CP to first, address any safety-related impacts; second, correct any environmental impact; and third, undertake the necessary works to ensure adequate drainage of the Beachburg Subdivision.

In his written submission filed with the Agency, Mr. Nielsen indicated that he intends to file a claim, pursuant to section 108 of the Railway Act, against CN for compensation for damages resulting from CN's operation of the segment of the Beachburg Subdivision on which his house borders.

OTHER PUBLIC INTEREST ISSUES

Collective Agreements

The CRLA was concerned with how the Partnership, not being a separate legal entity, could execute, with labour organizations, collective agreements for the employees of the Partnership.

CP later clarified that this would be the responsibility of CN and CP, acting on behalf of the Partnership.

Safety of the Partnership Line

The Canadian Auto Workers Union, Local 100, Rail Division sought clarification with respect to how the Partnership would respond to emergencies, its response equipment facilities and workforce. CN and CP testified that it is the intention of both Partners to continue to maintain the same emergency response vehicles and procedures as currently exist within CN and CP. In the event that an emergency response is required, the railway company that is responsible for the incident will take care of restoring the service. However, both railway companies will assist each other if need be, as is currently the practice.

Existing Policies

One of the CN witnesses for the Partnership arrangement confirmed that, under the Partnership scenario, there would not be any changes to the existing railway policies which deal with fencing, public crossing maintenance, drainage, culverts and weed control.

VIA

Parties at the public hearing voiced their concern about the impact of the Partnership arrangement on the level and schedule of services provided by VIA.

CN and CP gave evidence that the existing VIA schedule will be protected under the Agreement and that the Partnership has made a commitment to CN to accommodate the schedules of VIA. Although CP admitted that it may be harder now for VIA to negotiate a change in the schedule or add a service due to the increase in traffic associated with the Agreement, CN and CP have made a provision in its Agreement that the Partnership will grant rights to VIA to continue its operations over the Partnership Line, but it will have to renegotiate its train service agreement when the current one expires in December of 1998.

OTHER ISSUES EXAMINED

Environmental Concerns

During the public hearing, representatives of the MNRO, the Wildlands League, the FON and the Canadian Parks and Wilderness Society testified as to the negative impact that they believed would occur on the environment and wildlife within the Park as a result of the increase in railway traffic. Some of these parties requested that an environmental assessment be undertaken regarding the potential impact of the project.

A representative of the MNRO submitted that the CN Beachburg Subdivision runs along major watershed systems for about 120 kilometres and that, if a derailment were to occur and toxic materials were to escape into the water system, much of the watershed systems would be contaminated as a result of the interlinking nature of the systems. This would affect visitors of the Park and ecosystems, like the wetland, fisheries and wildlife. According to a representative of the MNRO, increased rail traffic may also lead to an increase in wildlife mortality and an increase in the risk of fire.

In the event that the Agency were to approve the conveyance, the above interveners recommended the substitution of the CP route for that of the CN route west of Pembroke to North Bay, a proposal which they claim would have fewer environmental risks. They proposed that the Partnership use the existing connection between the CN and CP line just north of Pembroke thereby allowing trains to switch back onto the CP line parallel to the Trans-Canada Highway. Under this scenario, CN and CP would be required to use the CP line of railway proposed to be abandoned from Petawawa to Mattawa and to abandon the CN line through the Park.

This same representative requested the Agency to give the environment equal weight, if not more, in its consideration of the conveyance, abandonments and connections of the railway lines.

Grade Separations and Improved Warning Devices

Representatives from the Regional Municipality of Ottawa-Carleton (hereinafter the RMOC), the City of Ottawa, the Hunt Club Community Association, the Corporation of the City of North Bay and the representative for the Member of Parliament for the Federal riding of Ottawa South have all requested that, should the conveyance application be approved, the Agency impose specific conditions in any order to ensure the construction of adequate grade separations.

Many of these interveners requested that Agency approval be conditional upon grade separations being constructed at Conroy and McCarthy Roads and upon an undertaking of a funding commitment from CN and CP to these parties for these grade separations. These parties testified that the need for grade separations is a result of railway development and increased levels of train traffic.

The Corporation of the City of Ottawa requested that the Agency require CN and CP to undertake, prior to approval of the Agreement, a review of the proposed rail operations on the Walkley Line; that this study assess changes to rail operations, rail and yard infrastructure, switching operations, and road/rail crossing protection changes in order to minimize the impact of increased rail traffic resulting from the Partnership arrangement; and that CN and CP assess the protection required, including a grade separation. The Corporation added that CN and CP should be made responsible for the funding of any such improvements.

In addition, the Hunt Club Community Association recommended that a signalling device at the appropriate traffic light intersections be installed to advise motorists of a train crossing.

Moratorium

The CRLA requested that the Agency reject the application in the public interest on the grounds of the recommendation by the Minister of Transport to place a moratorium on all abandonment applications for secondary and main line trackages until a basic national railway network has been established.

It also argued that when considering the public interest, the Agency should not be allowed to establish a new rationalized rail system in Canada, on an ad hoc basis, driven by the agenda and timetable of the railway companies.

AGENCY FINDINGS

Applicability of section 158 of the NTA, 1987 to this conveyance

The first question to be resolved is whether the Partnership meets the criteria, established under subsection 158(1) of the NTA, 1987, which stipulates that a railway company may enter into an agreement with any other railway company, whether within the legislative authority of the Parliament of Canada or not, to sell, lease or otherwise transfer to the other company a line of railway or a segment thereof.

The Agency recognizes that, in law, a partnership is not a legal person distinct from the partners of whom it is composed nor is it a "company" as contemplated under section 158 of the NTA, 1987.

Furthermore, the Partnership, not being a separate legal entity, cannot hold title to the properties detailed in the Agreement. As a result, the conveyance of lines, as indicated by CN and CP, will be to the two railway companies as joint tenants.

Notwithstanding this conveyance, it is the view of the Agency that all property to be conveyed under the Agreement, including the joint properties of the Ottawa Terminal Joint Facility, are meant to become Partnership Property. The Agreement is clear on this:

8.1 CN and CP shall each deliver to the Partnership all necessary deeds, conveyances, bills of sale, assurances, transfers, assignments and consents, ... referred to in Schedules A and B, ...

8.2 CN and CP shall deliver actual possession of the CN Properties and the CP Properties, respectively, to the Partnership.

As such, all the normal rules governing partnership property apply including the rule that the partners cannot deal with the property otherwise than in accordance with any partnership agreement. However, as the Partnership itself cannot hold title, and since the title will be held by CN and CP, the Agency views the conveyance as being to two railway companies, namely CN and CP.

While this view does have implications for the relationships of third parties to the Partnership, some of which will be considered later in the context of the various responsibilities that a railway company has under the NTA, 1987 and the Railway Act, the Agency is not convinced that the decision to form a partnership of two railway companies precludes those railway companies, as partners, from effecting a conveyance under section 158 of the NTA, 1987. For the purposes of the conveyance under section 158 of the NTA, 1987, the Agency considers that, in dealing with the conveyance to the Partnership, it is dealing with a conveyance to CN and CP.

With respect to the issue of whether or not legislation allows for conveyance to more than one company, the Agency notes that subsection 33(2) of the Interpretation Act provides that words in the singular include the plural. Such an interpretation is consistent with section 158 of the NTA, 1987, which refers to a railway company selling to another company. In the case at bar, the conveyance is to two "companies".

Running rights/joint management

The Agency is of the view that the agreement is not a running rights agreement or joint management agreement, as proposed by the representative of the CRLA. As stated above, the titles of land will be conveyed to CN and CP pursuant to section 158 of the NTA, 1987, and each Partner can operate the Partnership Line as a consequence of its joint ownership.

Authority to operate

The Agency is of the opinion that the Partners have the authority to operate the Partnership Line to be conveyed given that, as railway companies, they have the authority to operate railway lines in which they have an ownership interest.

Power of CN to enter into the Agreement

The Agency is of the view that subsection 23(10) of the CNR Act does not preclude CN from entering the Partnership arrangement. This subsection, in the Agency's view, could preclude the selling or disposing of the whole of the railway system that is part of the "National Railways" as defined, but does not preclude the sale of a portion of its system as is the case at hand.

Power of CP to enter into the Agreement

The Agency is of the view that corporate powers to enter the Agreement with CN may be granted to CP pursuant to subsection 23(5) of the CNR Act. However, this does not waive any other corporate governance provision to which CP may be subject. The Agency is of the opinion that the powers of CP to enter into the Agreement must be considered in light of section 7 of the Special Act of 1929. That Act imposes requirements to obtain shareholders approval and Governor in Council sanction of agreements with CN. CP argued that these requirements no longer apply because they are inconsistent with section 158 of the NTA, 1987. The Agency agrees that they do not apply but is of the view that the reason is because of the effect of paragraph 44(h) of the Interpretation Act which provides that:

44. Where an enactment, in this section called the "former enactment", is repealed and another enactment, in this section called the "new enactment", is substituted therefor,

...

(h) any reference in an unrepealed enactment to the former enactment shall, with respect to a subsequent transaction, matter or thing, be read and construed as a reference to the provisions of the new enactment relating to the same subject-matter as the former enactment, but where there are no provisions in the new enactment relating to the same subject-matter, the former enactment shall be read as unrepealed in so far as is necessary to maintain or give effect to the unrepealed enactment.

The Agency is of the view that section 158 of the NTA, 1987 replaces the requirements found in what is now section 95 of the Railway Act for shareholder approval and Governor in Council sanction in respect of the sale of lines of railway that do not constitute all or substantially all of a company's lines.

PUBLIC INTEREST

In its consideration of the public interest, the Agency has regard to the national transportation policy set out in subsection 3(1) of the NTA, 1987, which states in part that:

... a safe, economic, efficient and adequate network of viable and effective transportation services making the best use of all available modes of transportation at the lowest total cost is essential to serve the transportation needs of shippers and travellers and to maintain the economic well-being and growth of Canada ...

Jurisdiction over the Partnership Line

The Agency concludes that the Partnership Line will remain within federal jurisdiction through the CN and CP ownership and operations of the Partnership Line.

Applicability of paragraph 158(4)(a) of the NTA, 1987

The Agency is of the view that CN and CP, as Partners, will continue to have obligations in respect of the operation of the Partnership Line, as both will continue to maintain ownership and control of the Partnership Line.

Competitive Access and Service Provisions

It was argued during the course of the public hearing that if the conveyance application were granted, the competitive access and service provisions would no longer apply. The Agency does not agree with this conclusion.

Interchanges and Connections

Whether or not interchanges will continue to exist at various locations on the Partnership Line depends on the consideration of the definition of "interchange" found in section 110 of the NTA, 1987. Section 110 of the NTA, 1987 defines an interchange as:

... a place where the line of a railway company connects with the line of another railway company and where loaded or empty cars may be stored until delivered or received by that other company;

The Agency is of the opinion that interchanges will exist anywhere the jointly-owned Partnership Line meets with any other line of railway, including that of CN and CP, and anywhere there are facilities to store cars. This is due to the lines of the Partnership, as discussed above, being those of the Partners, who are themselves railway companies. The Agency is satisfied that the ownership interest that each Partner has in the Partnership Line is sufficient to conclude that each Partner has a "line of railway" for the purposes of the definition of "interchange".

As each Partner has a "line of railway", it is the opinion of the Agency that interchanges will exist wherever a storage facility for cars exists on the Partnership Line. Even though there is physically only one line of railway, it is the ownership interest which, in the Agency's view, is determinative of the existence of an interchange in this case. The present application is different from that related to the Celgar Pulp Company in which the second railway company had only joint trackage usage and running rights over a line of railway and not an ownership interest in the line of railway.

Connections will also continue to exist where the Partnership Line is intersected or crossed by those of another railway.

Interswitching and CLR

In light of the conclusion that interchanges will continue to exist, interswitching will accordingly also continue to be available to shippers within the interswitching distance zones of an interchange, as set out by the Interswitching Regulations, SOR/88-41. As a consequence, the continued existence of interchanges thereby allows for shippers to have access to CLR.

With specific reference to CP Forest Products, this company would continue to have access to an interchange at Ottawa.

Level of Services

Sections 144 and 145 of the NTA, 1987 impose level of service obligations on railway companies in respect of any railway owned or operated by it and require that a railway company afford all adequate and suitable accommodation for receiving, carrying and delivering traffic on and from "its railway". The Agency is satisfied that CN and CP will continue to be subject to these provisions in as much as they will own and operate railways everywhere on the Partnership Line.

The Agency, in considering all evidence presented, is of the view that the Partnership arrangement is likely to provide shippers with more, not less, competitive railway services.

Compensatory Rate Complaints, Final Offer Arbitration, Public Interest Investigations and Running Rights

Rates will continue, under the NTA, 1987, to be the responsibility of CN and CP respectively. As such, compensatory rate complaints, pursuant to section 13 of the NTA, 1987, would continue to be handled as they have always been. Public interest investigations and final offer arbitration will continue to apply given that these provisions apply to shippers and carriers and that CN and CP will be the carriers operating on the jointly-owned line.

The Agency is satisfied that running rights on the Partnership Line will continue to be available pursuant to section 148 of the NTA, 1987.

Cost Savings

With respect to the savings which would result from joint usage of the Partnership Line as outlined in the Agreement, the Agency is of the opinion that there are, according to the business plans of CN and CP, significant cost savings to be realized. The Agency believes that such significant savings could make the railway mode a more viable, economic and efficient one, as declared to be in the interest of Canada by the national transportation policy.

Future Abandonment of the Operation of the Partnership Line

Subsection 159(1) of the NTA, 1987 provides that:

No railway company shall abandon the operation of a line of railway, otherwise than pursuant to an order of the Agency made under this Division on the application of the company.

Since both CN and CP will continue to operate a line of railway, over the Partnership Line, the Agency is of the view that a withdrawing Partner would be required by section 160 of the NTA, 1987 to apply for the abandonment of its operation.

If the withdrawing Partner obtains authority from the Agency to abandon the operation of a specific trackage, that Partner's ability and common carrier obligations to operate over that part of the Partnership Line would cease. However, the other Partner would continue to operate and provide service as required, given that it still has service obligations.

In the case where both Partners wish to withdraw from operating the Partnership Line, they would both be required to seek Agency approval under the abandonment provisions of the NTA, 1987.

Economic Effect on the Park and Local Communities

The Agency has examined the documents filed by the MNRO and has determined that there is no conclusive evidence establishing that the resulting increase in traffic through the Park will have substantial negative economic effects on the Park itself or on the local communities. With respect to the local communities located along the CP lines, good highway networks exist to continue to service them.

Submission made by Mr. Nielsen

Regarding the three requests made by Mr. Nielsen, the Agency is of the view that safety-related concerns should be raised with Transport Canada; environmental issues will be dealt with under the section entitled "Environmental Concerns"; and, lastly, drainage concerns cannot be considered until an application has been filed with the Agency.

The Agency is of the opinion that any claim that Mr. Nielsen may have under section 108 of the Railway Act is a matter between himself and the railway company.

Other Public Interest Issues

The Agency is of the view that the provisions of the Agreement are common to railway operating agreements. As such, the Agency has no reason to question that such provisions should not continue to be as adequate as they have been in the past.

The Partnership will be operated by experienced staff. A General Manager with experience will be hired and the employees responsible for the maintenance of the Partnership Line will be skilled employees currently employed by CN and CP. The employees who will work for the Partnership will be covered by collective agreements which will fall under the Canada Labour Code. Staff responsible for dispatching will be employees currently employed by CN and CP, as the dispatching function will be arranged for and managed by the Partner currently responsible for their respective lines of railway.

Moreover, CN and CP have a proven record of their ability and reliability to operate as safe carriers. As federal railway companies, CN and CP will continue to be bound by federal safety requirements.

The Agency notes that VIA and the ONR will be able to continue to operate services under the Partnership arrangement, in the same manner as they are currently doing.

As attested to during the public hearing, the increase in the volume of freight trains over the Partnership Line may render it more difficult for VIA to negotiate a specific schedule. While the Agency recognizes that this will be a consequence of the Agreement, neither VIA nor the ONR intervened in the proceedings.

OTHER ISSUES EXAMINED

Environmental Concerns

The proposed conveyance is of a type that appears on the Agency Exclusion List and is therefore of a type that does not require an environmental assessment. The Agency Exclusion List was one which was approved by the Federal Environmental Assessment Review Office pursuant to paragraph 11(a) of the Environmental Assessment and Review Process Guidelines Order, SOR/84-467 (hereinafter the EARP Guidelines Order). As such, the Agency determines that it has fulfilled the duties conferred upon it by the EARP Guidelines Order.

The Agency considers that a conveyance is merely a transfer of property from one party to another which in and of itself has no environmental impact. It was argued that it is the use of that property which may cause an environmental impact. Without agreeing or disagreeing, the Agency notes that CN is already authorized to handle the necessary traffic volumes on its line through the Park.

Section 13 of the EARP Guidelines Order provides that notwithstanding the determination concerning a proposal made pursuant to section 12, if public concern about the proposal is such that a public review is desirable, the initiating department shall refer the proposal to the Minister of Environment for a public review by a panel. The Agency has determined that the degree of public concern expressed about the proposal was not such that a public review is desirable.

Grade Separations and Improved Warning Devices

Regarding the request by interveners to place conditional orders or recommendations committing CN and CP to fund and construct grade separations or install improved warning devices, the Agency has concluded that the issue of grade separations and improved warning devices is a regulatory process separate from that currently before the Agency. If approved, the Partnership Line becomes jointly-owned trackage. The Agency is of the view that this will not affect the filing or processing of any such applications. These interveners may wish to file grade separation and warning device applications pursuant to the appropriate legislative powers.

Moratorium

The Agency has not granted the request of the CRLA to reject the subject application on the grounds that the Minister of Transport has recommended a moratorium on all abandonment applications, given that this is a policy issue which the CRLA should address to the Minister of Transport.

DETERMINATION

The Agency has reviewed the terms of the Agreement and all of the evidence submitted and on file, as well as that presented at the public hearing, and has determined that it has not found sufficient evidence to conclude that the proposed conveyance would not be in the public interest.

Accordingly, the Agency hereby approves, pursuant to subsection 158(3) of the NTA, 1987, the Agreement between CN and CP to convey to the Partnership those segments of their respective lines of railway in the Ottawa Valley region of Ontario and Quebec, as detailed in the Agreement. This approval is conditional upon CN and CP conveying the Partnership Line as joint tenants as they have proposed.

CN and CP are required to advise the Agency in writing of the date upon which the conveyance transaction has been completed and the Agreement implemented.

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Dissenting Opinion of the Honorable J. A. McGrath, P.C., Member of the National Transportation Agency, to Decision No. 798-R-1993

Although I recognize the overall objectives of the Canadian National Railway Company (hereinafter CN) and Canadian Pacific Limited (hereinafter CP) to effect economies through the consolidation of rail services onto a single route, I cannot concur with my colleagues that subsection 158(1) of the National Transportation Act, 1987 (hereinafter the NTA, 1987) is the appropriate mechanism to effect such a joint effort given that CN and CP are proposing to achieve their objectives through the formation of a partnership.

CN and CP have testified that by way of a partnership agreement (hereinafter the Agreement) dated June 7, 1993, they intend to convey segments of their respective lines in the Ottawa Valley region of Ontario and Quebec to CNCP Ottawa Valley, a partnership of CN and CP. Clearly, it is the partnership format which the two railway companies have chosen to achieve their objectives and it is section 158 of the NTA, 1987 pursuant to which they are now seeking approval by the Agency of their Agreement.

Subsection 158(1) of the NTA, 1987 states:

158(1) Subject to the approval of the Agency, a railway company may enter into an agreement with any other company, whether within the legislative authority of Parliament or not, to sell, lease of otherwise convey to the other company a line of railway, or a segment thereof and, in such case, the railway company shall be deemed not to have abandoned the line or segment for the purposes of this or any other Act.

(emphasis added)

As has been highlighted above, it is my view, as regards to subsection 158(1) of the NTA, 1987, that the operative word is "company". However, the evidence is clear that the proposed conveyance is to a partnership which is inconsistent with the intention of subsection 158(1) of the NTA, 1987 which clearly contemplates a conveyance to a company.

The end result of a conveyance under subsection 158(1) of the NTA, 1987 is that another railway company eventually operates and has ownership or control over the conveyed line of railway. CN and CP have shown that the end result of their conveyance is a jointly owned line of railway under the umbrella of a partnership which in fact manages the operation of the line of railway. Subsection 158(1) of the NTA, 1987 was not intended, in my opinion, to cover this type of arrangement whereby, in effect, three parties, CN, CP and the partnership, contribute to the operation of a line of railway.

Although Mr. Hume, counsel for CP, has indicated in his submission before the Agency an intention on the part of CN and CP to respect interchanges on the Partnership Line, I believe that I must have regard first to the legislation which states:

"interchange" means a place where the line of a railway connects with the line of another railway company and where loaded or empty cars may be stored until delivered or received by that other company;

(emphasis added)

It is my view that neither CN or CP will have a "line of railway" in the sense contemplated by the definition.

Along the same vein, Mr. Hume's statement that if the Agreement were to be rewritten reference to "the partnership" would probably be replaced by "CN and CP" does not convince me that the conveyance is to a company.

In conclusion, the Agreement that is before the Agency for approval is for the conveyance of rail lines to the CNCP Ottawa Valley Partnership which is not a railway company within the meaning or contemplation of subsection 158(1) of the NTA, 1987.

As a result of my determination, there is no need for me to consider subsection 158(3) of the NTA, 1987 or any of the other related applications that are before the Agency, as they are all connected to the conveyance application.

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ERRATUM

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December 2, 1993

File No. T 6100-11