Letter Decision No. 2014-05-02

This is further to Louis Dreyfus Commodities Canada Ltd.'s (LDC) request for interim relief filed as part of its April 14, 2014 level of service complaint to the Canadian Transportation Agency (Agency) against the Canadian National Railway Company (CN) in which LDC is seeking:

CN to provide service to LDC immediately, in such manner and within such time or during such period as the Agency deems expedient having regard to all proper interests, and that the particulars of the obligations to be fulfilled be specified by the Agency.

Background

On March 25, 1999, LDC entered into a confidential contract (Confidential Contract) with CN with respect to rail service at LDC's grain handling elevator facilities, among other things.

On April 14, 2014, LDC filed a level of service complaint against CN requesting the Agency to provide an order determining that CN has failed to fulfill its level of service obligations, as prescribed by sections 113 to 116 of the Canada Transportation Act (CTA) and stated in the Confidential Contract,in regards to LDC’s elevator facilities at Glenavon (Kegworth), Saskatchewan (Glenavon); Aberdeen, Saskatchewan (Aberdeen); Joffre, Alberta (Joffre); and Lyalta, Alberta (Lyalta) (LDC's Facilities).

LDC also requested that:

pending the Agency’s final determination on the Complaint, the Agency grant an Interim Order pursuant to subsection 28(2) of the Act, requiring CN to provide service to LDC immediately, in such manner and within such time or during such period as the Agency deems expedient having regard to all proper interests, and that the particulars of the obligations to be fulfilled be specified by the Agency

Preliminary matter

In its April 14, 2014 submission, LDC made claims for confidentiality with respect to the Confidential Contract and both parties provided redacted versions of relevant submissions.  The Agency has reviewed the claims and agrees that the information contained in the Confidential Contract should be treated as confidential. In its deliberations, the Agency has considered the public and confidential information but, in the public decision, the confidential information will be redacted.

Interim relief

The authority of the Agency to issue interim relief is provided for in subsection 28(2) of the CTA:

The Agency may, instead of making an order final in the first instance, make an interim order and reserve further directions either for an adjourned hearing of the matter or for further application.

In Decision No. LET-AT-R-356-2001, the Agency confirmed that the three-part test applicable to applications for interlocutory injunctions, as well as for stays, applies to an application for an interim order under subsection 28(2) of the CTA.

This test, as set out by the Supreme Court of Canada in RJR MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 312 (RJR), has been summarized by the Agency in Decision No. LET-AT-R-356-2001as follows:   

The onus to show that an interim order should be granted rests on the applicant. Briefly stated, at the first stage, the applicant must demonstrate that there is a serious question to be tried. At the second stage, the applicant is required to demonstrate that irreparable harm will result if the relief is not granted. The third part of the test requires an assessment of the balance of inconvenience to the parties; in other words, which of the two parties will suffer the greater harm from the granting or refusal of an interlocutory injunction.

First stage of the test: serious issue to be tried

In RJR, the Supreme Court of Canada stated on page 32 of its Decision:

What then are the indicators of "a serious question to be tried"?  There are no specific requirements which must be met in order to satisfy this test.  The threshold is a low one.  The judge on the application must make a preliminary assessment of the merits of the case.

...

Once satisfied that the application is neither vexatious nor frivolous, the motions judge should proceed to consider the second and third tests, even if of the opinion that the plaintiff is unlikely to succeed at trial.  A prolonged examination of the merits is generally neither necessary nor desirable.

CN agrees that this standard would normally be sufficient to satisfy the first stage of the test. However, CN submits that this first stage of the test is modified when an applicant seeks a mandatory interlocutory injunction, that is, an injunction that orders the defendant to carry out a positive act.

CN submits that Courts have provided guidance in several cases as to the test applicable to the granting of interlocutory mandatory injunction.    CN refers to B-Filer Inc. v. TD Canada Trust 2008 ABQB 749 wherein Romaine J. stated:

As in B-Filer, GPAY now asks this Court to compel the TD to continue a banking relationship with the company despite receipt of a notice to terminate. In other words, the application is for interim specific performance of TD's obligations under the Business Services Master Agreement. It is thus an application for mandatory injunction, and GPAY must show a strong prima facie case for this injunction to be granted.

CN further submits that as LDC is seeking a mandatory interlocutory injunction, that is, one requiring a positive act by CN, the first stage of the test requires LDC to establish that it has a strong prima facie case.  LDC, on the other hand, argues that the "serious issue to be tried" standard applies to an application for mandatory injunctive relief.  In support of this, LDC refers to  a unanimous decision of the Saskatchewan Court of Appeal in Potash Corp. of Saskatchewan Inc. v. Mosaic Potash Esterhazy Limited Parternership., [2012] 2 W.W.R. 659 (C.A.) (Potash),  that establishes the requirements for a mandatory interim injunction as follows:

[42] It is readily apparent, of course, that [earlier] decisions from this Court on this issue were rendered well before the Supreme Court’s rulings in Metropolitan Stores and RJR-MacDonald and without direct reference to the concerns of principle underpinning those two decisions. Accordingly, they are now of questionable authority and must be reassessed. In my view, we must take our cue from the Supreme Court and hold that, going forward, use of the serious issue to be tried approach should be the general rule in relation to all applications for interlocutory injunctive relief, including applications for mandatory relief.

The Agency finds that the jurisprudence cited by CN does indicate a higher standard when applicants are seeking for the mandatory interim injunction. The Agency also finds, from a review of the jurisprudence submitted by the parties, that the description of the standard applicable to mandatory injunction is not uniform.

While no clear guidance has been provided by the Supreme Court of Canada, the Federal Court of Appeal provides direction in analysing the question of the applicable test for mandatory injunctions.

In Sawridge Band v. Canada, 2004 FCA 16, [2004] 3 FCR 274, at para 46, when faced with an argument for a higher standard, the Federal Court of Appeal indicated that:

The test for granting an interlocutory injunction, as adopted by the Supreme Court of Canada in Manitoba (Attorney General) v. Metropolitan Stores Ltd.; and RJR-MacDonald Inc. v. Canada (Attorney General), is threefold. First, there must be a serious question to be tried. Such test should be applied to an interlocutory injunction application, whether it is prohibitory or mandatory.

. . . the fact that the Crown is asking the Court to require the appellants to take positive action will have to be considered in assessing the balance of convenience”.

Accordingly, the Agency will apply the "serious issue to be tried" test, as set out in RJR, (i.e., the non-frivolous or vexatious standard). 

LDC argues that the serious issue to be tried is CN's service failure.  LDC maintains that CN has breached its level of service obligations as set out in the Confidential Contract and that this breach, as identified in LDC's application, is prima facie evidence of CN's breach of its "contractual and statutory level of service obligations to LDC."  LDC states that "the case is not only arguable - it is persuasive and compelling."

In RJR, the Supreme Court of Canada stated that: "[o]nce satisfied that the application is neither vexatious nor frivolous, the motions judge should proceed to consider the second and third stages."

Therefore, the Agency is of the opinion that, based on LDC's application, the question of whether CN has breached its level of service obligations to LDC is neither vexatious nor frivolous and therefore is a serious issue to be tried. 

The Agency is also of the opinion that LDC has established a strong prima facie case, had this higher standard been applicable.  In an oft-cited passage, in Injunctions and Specific Performance, loose-leaf, (Aurora, On: Canada Law Book, 2008), Justice Sharpestated that the question of whether an applicant has shown a strong prima facie case "probably means no more than, if the court had to finally decide the matters on its merits, on the basis of the material before it, would the plaintiff succeed?"  This does not mean that an applicant must actually prove its case.

Thus, the Agency finds that LDC has met the first stage of the test.

Second stage of the test: the irreparable harm

At this stage, the Agency must examine the potential harm to the applicant.  The harm to the respondent is only considered in the third and final stage of the test.

In Decision No. LET-R-248-2004, the Agency referred to a summary of what the test for irreparable harm entails:

At the stage of the irreparable harm test, the issue to be decided is whether a refusal to grant relief could so adversely affect the applicant’s own interests that the harm could not be remedied if the eventual decision on the merits does not accord with the result of the interlocutory application (RJR-MacDonald, supra, at p. 341). The word “irreparable” refers to the nature of the harm suffered rather than its magnitude.

[...]As stated in RJR-MacDonald, supra, at page 341, irreparable harm is “harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other”. As examples of the former, the Supreme Court refers to instances where one party will be put out of business by the court’s decision, where one party will suffer permanent market loss or irrevocable damage to its business reputation.

LDC argues that, in referring to RJR and Potash, the second stage focuses on the nature rather than the magnitude of the harm and therefore, harm will be established where "the expected loss is difficult or impossible to quantify or is otherwise not amenable to compensation in the form of monetary damages." 

LDC submits that Potash, Hudson Bay Mining and Smelting Co. v. Dumas, [2014] M.J. No. 12, 2014 MBCA 6 (Hudson Bay Mining) illustrates that irreparable harm will generally be considered to have been established in circumstances involving potential loss of customers and/or damage to the applicant's commercial reputation.  LDC submits that, in Potash, the Saskatchewan Court of Appeal noted the following findings in Hudson Bay Mining with respect to the concept of harm in the second stage, "irreparable harm, that is harm not susceptible or difficult to be compensated in damages…"

CN contends that the onus rests squarely upon LDC as applicant to demonstrate that an award of damages would not adequately compensate it for any loss. In CN's opinion, proof of irreparable harm cannot be inferred. CN argues that the evidence of irreparable harm must be clear and unequivocal; it cannot be speculative or based on conjecture. Rather, it must be probable that irreparable harm will be suffered.

CN submits that it is not enough for a party seeking an interim injunction to show that irreparable harm may arguably result if the stay is not granted, and allegations of harm that are merely hypothetical will not suffice.  CN states that LDC curiously claims that the "substantial monetary damages" it has incurred and will continue to incur, are somehow evidence of "irreparable harm". CN argues that quantifiable monetary damages are the very antithesis of what constitutes "irreparable harm", which by its definition is harm incapable of being compensated in monetary damages.

CN contends that LDC makes a bald assertion that its reputation as a "reliable supplier of grain" to its customers has been damaged as a result of CN's failure to meet its service obligations.  CN submits that LDC does not file any affidavit evidence to substantiate its allegations of reputational harm.  CN is of the opinion that any refusal by the Agency to order interim relief here will not lead any party to think ill or less of LDC.

The Agency is of the opinion that the only issue to be decided at this stage is whether the refusal to grant the injunctive relief sought could cause LDC irreparable harm not compensable in damage.

Robert Sharpe, in Injunctions and Specific Performance, states that irreparable harm"Has not been given a definition of universal application:  its meaning takes shape in the context of each particular case."  

The Agency notes that LDC is seeking an interim order directing CN to provide service in accordance with the terms and conditions of the Confidential Contract with respect to LDC's Facilities.  LDC submits that CN's failure to honour the commitments made under the Confidential Contract results in LDC's inability to fulfill its own obligations with respect to contracts it has signed with various producers.

Apart from financial damages, LDC submits that CN's failure to provide adequate and suitable accommodation for LDC's traffic has resulted in and continues to cause reputational harm.  LDC explains that "reputational harm is caused when a supplier in a competitive market, like LDC, is unable to fulfill its commitment to its customers".

LDC submits that irreparable harm will result to it in a number of different ways if the interim relief is not granted by the Agency.  First,   LDC submits that CN's failures "are causing a rapid deterioration in the relationship that LDC has carefully developed over the years with its valued customers [...] CN's unpredictable and erratic rail service severely damages the relationship with its customers and is jeopardizing LDC's ability to retain its customers."  LDC also maintains that CN's failure to provide service in accordance with its contractual obligation causes irreparable damages to LDC's reputation as a reliable supplier of grain products to international markets.

In support, LDC produces a letter from one of its customers complaining about LDC's inability to deliver product, requesting that urgent action be taken.

There are numerous cases where it was concluded that loss of actual or potential customers or diminution of an applicant's reputation would cause irreparable harm not compensable in damages.  The critical point, however, relates to the key evidence necessary to establish reputational harm and loss of potential customers.

The Agency is of the opinion that reputational harm and/or loss of potential customers has been established in this case.   The evidence supports a finding that LDC has suffered and will continue to suffer irreparable harm if interim relief is not granted.  In this case, the Agency is, prepared to accept that CN's alleged breach of its contractual obligation vis-à-vis LDC results in harmful consequences for LDC.  This puts LDC in a position of being unable to fulfill its commitment to its customers.  The Agency accepts that unpredictable and erratic rail service to LDC jeopardizes LDC's ability to retain customers which also causes irreparable harm to LDC's reputation as a reliable supplier of grain products.

Thus, the Agency finds that LDC has met the second stage of the test.

Third stage of the test: the balance of convenience

In considering the third stage of the test for “balance of convenience”, the Agency must determine which of the two parties will suffer the greater harm from the granting or refusal of the interim order pending a decision on the merits.

LDC states that it agreed to make itself captive to CN in reliance on CN's agreement to provide the level of service set out in the Confidential Contract.  According to LDC, CN "clearly has the financial and operational capacity to acquire, marshal and utilize manpower and equipment necessary to fulfill its contractual and statutory obligations to LDC – it simply is choosing not to do so."  LDC submits that the balance of convenience clearly rests with a decision to grant the relief sought.

LDC claims that CN’s breach also has a significant impact on the farmers that provide grains to LDC for storage and shipment. LDC’s Facilities are at capacity, resulting in farmers being unable to sell their products to LDC at the present time. 

CN submits that any interim order could result in it being in actual breach of its service obligations to any number of its other shippers.  In CN's opinion, the balance of convenience is in favour of maintaining the status quo and permitting CN to serve LDC in accordance with its car allocation policies in place.

CN has requested that, should the interim order be granted, LDC should be required to give an undertaking to pay to the respondent any damages that the respondent sustains by reasons of the injunction, should LDC fail in the ultimate result.

LDC states that it is prepared to give whatever undertaking as to damages that may be required.

In deciding whether to grant the application, the Agency must decide whether or not the balance of convenience lies in LDC's favour or not.  Clearly, the ultimate focus must be on the justice and equity of the situation at issue.  The potential burdens on the respondent must be carefully weighed. CN claims that the granting of the interim order sought could result in it being in actual breach of its obligations to other shippers. Pending the issuance of a final determination, CN is asking the Agency to be permitted to serve LDC in accordance with its car allocation policies and to maintain the status quo. 

The difficulty with the above arguments lies in the assumption that LDC requires enhanced services.  CN's arguments did not address the fact that CN, pursuant to the Confidential Contract, committed to provide a specific level of service to LDC. To maintain the status quo pending a final determination would permit CN to put aside its contractual obligations. In this case, maintaining the status quo has a greater potential to create harm that will be left uncompensated if LDC's application is successful.

To the extent that LDC is requesting CN to act in accordance with the Confidential Contract, and to the extent that LDC is prepared to give an undertaking as to damages, the Agency is persuaded that the balance of convenience lies with the applicant.

[7 paragraphs redacted]

Conclusions

In light of the foregoing, the Agency has examined the interim relief request sought by LDC in support of its level of service complaint and, pursuant to section 26 and subsection 28(2) of the CTA, orders CN to provide train service for placement of empty cars for loading and pick-up of loaded cars at LDC's Facilities in Glenavon, Aberdeen, Joffre and Lyalta. 

[paragraph redacted]

This interim relief is in effect until such time as the Agency reaches a final decision on the merits of LDC's complaint.

Undertaking

This interim order will take effect immediately upon LDC providing CN with an undertaking that meets the following requirements.  LDC must undertake to pay to CN any direct damages that CN could sustain during the period the interim order is in effect should LDC fail to establish that CN breached its obligations pursuant to the Confidential Contract.

This is a public redacted version of a confidential decision that issued on May 2, 2014 which cannot be made publicly available.