Letter Decision No. 2015-10-06

INTRODUCTION

[1] In Decision No. LET-R-49-2015 dated August 25, 2015, the Canadian Transportation Agency (Agency) granted Emerson Milling Inc.’s (EMI) request to withdraw its motion to strike, with costs to the Canadian National Railway Company (CN). The reasons for the Decision are set out below.

APPLICATION

[2] On July 29, 2015, EMI filed an application with the Agency against the Canadian National Railway Company (CN) pursuant to sections 113 to 116 and 127 of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA) [application]. As part of its application, EMI also made a request for interim relief, pursuant to subsection 28(2) of the CTA.

[3] On August 3, 2015, CN filed its response to EMI’s request for interim relief (August 3^rd response).

[4] On August 5, 2015, EMI filed with the Agency, [REDACTED], a request for an order striking certain portions of CN response (August 5^th request), on the basis that it contained confidential information that [REDACTED]. As part of its request, EMI also requested costs on a solicitor‑client basis and punitive costs.

[5] On August 6, 2015, CN filed its response to EMI’s August 5^th request in which it requests costs on a solicitor-client basis and/or punitive costs (August 6^th response).

[6] On August 10, 2015, EMI indicated its willingness to withdraw its August 5^th request and asked that the Agency not order costs against either party (request to withdraw).

[7] On August 14, 2015, the Agency requested comments from both parties on EMI’s request to withdraw. On August 18, 2015, CN filed its response (August 18^th response) and on August 19, 2015, EMI filed its reply on EMI’s request to withdraw.

ISSUES

1. Should the Agency award costs to CN?
2. If so, on which scale?

THE LAW

[8] Section 35 of the Canadian Transportation Agency Rules (Dispute Proceedings and Certain Rules Applicable to All Proceedings), SOR/2014-104 [Dispute Adjudication Rules] states:

(1) Subject to section 36, a person may file a request to withdraw any document that they filed in dispute proceedings. The request must be filed before the close of pleadings and must include the information referred to in Schedule 13.

(2) If the Agency grants the request, it may impose any terms and conditions on the withdrawal that it considers just and reasonable, including the awarding of costs.

[9] Section 25.1 of the CTA states:

1. Subject to subsections (2) to (4), the Agency has all the powers that the Federal Court has to award costs in any proceeding before it.
2. Costs may be fixed in any case at a sum certain or may be taxed.
3. The Agency may direct by whom and to whom costs are to be paid and by whom they are to be taxed and allowed.
4. The Agency may make rules specifying a scale under which costs are to be taxed.

POSITIONS OF THE PARTIES

CN

[10] CN asserts that EMI, in its August 5^th request, alleged that CN had referenced certain “confidential information.” CN submits that EMI was mistaken. CN states that the reference was with respect to efforts made by CN in 2012-2013 to identify an acceptable alternative, including a proposal made at that time. CN submits that this fact was obvious.

[11] CN states that EMI’s August 5^th request was based on a fundamental mischaracterization by EMI and was wholly without merit, as EMI’s request to withdraw concedes.

[12] CN explains that it was forced to file its August 6^th response to EMI’s August 5^th request in order to provide additional evidence clearly showing that the August 5^th request was unfounded and improper.

[13] CN does not consent to the withdrawal of EMI’s August 5^th request without costs. CN requests a determination on costs. CN explains that it was put to the expense of responding to the August 5^th request in full, including EMI’s frivolous allegations and its demand for solicitor‑client or punitive costs. According to CN, the sole issue is whether an order for solicitor-client costs is warranted in the circumstances. Accordingly, CN is asking that the Agency order solicitor-client costs against EMI.

[14] CN states that it has a substantial interest in the proceeding, as EMI’s August 5^th request sought to strike evidence and arguments of CN that were directly relevant to the determination of EMI’s application and its request for interim relief.

[15] CN submits that it has participated in the proceeding in a responsible manner, it has made a significant contribution that is relevant to the proceeding, and it has contributed to a better understanding of the issues, while EMI’s August 5^th request was clearly made on the basis of a fundamental mischaracterization of the impugned passage. CN states that its August 6^th response fully explained how the impugned passage was not covered by any confidentiality agreement. CN adds that it fully explained its relevance and context, and provided e‑mails from 2012 and 2013 that were part of the discussions referred to in the impugned passage.

[16] CN contends that the public interest warrants an award of costs on a solicitor-client basis.

[17] CN refers to Decision No. 40-R-2015 where the Agency noted that its powers to award costs include those under section 400 of the Federal Court Rules, SOR/98-106. CN states that section 400 expressly includes consideration of, inter alia, any conduct of a party that unnecessarily lengthened a proceeding, and whether any step in the proceeding was improper, vexatious, or unnecessary, or taken through negligence or mistake. CN also refers to a Federal Court Decision (Glaxo Group Ltd. v. Novopharm Ltd.(1999), 3. C.P.R. (4^th) 333, [1999] F.C.J. No. 1595) where the Federal Court, in discussing section 400, noted that costs awards may be used to send messages against parties taking unreasonable positions.

[18] According to CN, EMI’s August 5^th request is the very image of this type of unreasonable position warranting sanction.

[19] CN submits that having been thoroughly disabused of the notion that it might seize an opportunity to prejudice the record in the proceeding, EMI now seeks to withdraw. According to CN, EMI’s August 5^th request was tactically brought and put CN to the expense and difficulty of responding in an extremely short time frame; a single day. CN adds that EMI’s August 5^th request sought solicitor-client and/or punitive costs on the basis of inflammatory and baseless allegations of improper conduct by CN that were entirely unsubstantiated. CN states that the Federal Court in H-D U.S.A., LLC v. Berrada, 2015 FC 189 noted that an unsuccessful allegation of bad faith is a factor that supports increased costs.

[20] CN submits that, in Decision No. 40-R-2015, the Agency held that there was a public interest in the proceeding and its outcome, and that this supported an award of costs. In the present case, CN submits that the public interest in the proceeding requires an award of costs on the basis of the position and conduct of EMI. CN adds that there is a critical public interest in fair and just adjudicative proceedings, which EMI has undermined.

[21] Ultimately, CN submits that EMI’s attempt to now retreat unscathed from its position is a concession that its conduct was an abuse of process. According to CN, the public interest in fair and just adjudicative proceedings requires censure of this sort of conduct.

EMI

[22] EMI submits that the impugned paragraph is susceptible to several interpretations, including that the paragraph referred to [REDACTED].

[23] EMI submits that it was justified in taking immediate action to protect its legitimate interest in the confidentiality of the [REDACTED], which it did by filing its August 5^th request. EMI believes that it was required to do so in order to prevent the [REDACTED] in this proceeding. EMI states that it acted reasonably and in good faith to protect its [REDACTED] with respect to the ambiguity in CN’s August 3^rd response which required subsequent clarification by CN.

[24] EMI indicates that, once CN clarified that the impugned paragraph referred only to events which took place prior to the executions by the parties of the Temporary License Agreement in March 2013, it accepted this clarification and offered on August 10, 2015 to withdraw its August 5^th request, in the interest of efficiency and expedience. However, EMI does not accept that the ambiguity in CN’s submission was “obvious” in the first instance. EMI states that it took a reasonable position in the face of ambiguity, and immediately sought to withdraw from that position upon receiving new information from CN.

[25] According to EMI, the integrity of the Agency’s adjudicative process and function has not been prejudiced, as CN repeatedly urges in its submissions in response to EMI’s request to withdraw. EMI adds that CN provided no explanation for how either EMI’s August 5^th request or EMI’s request to withdraw have in any way undermined the fairness or justice of this adjudicative proceeding. EMI submits that CN’s submissions in this respect are entirely unfounded and without substance. EMI states that any prejudice from the lengthening of this proceeding as a result of the August 5^th request is clearly only felt by EMI, as it has resulted in a delay of the adjudication of not only EMI’s request for an interim order, but also its application as a whole.

[26] EMI argues that the current matter is not analogous to Glaxo Group Ltd. v. Novopharm Ltd., as in that case, the “unreasonable position” taken by counsel caused significant delays in the trial of the action and frustrated the defendant’s right to an effective examination for discovery. EMI is of the opinion that in the present matter, it made a good faith attempt to protect its right to confidentiality, based on CN’s ambiguous submissions that required clarification. EMI submits that H-D U.S.A., LLC v. Berrada is not relevant to the current matter, as EMI did not claim that CN engaged in bad faith conduct.

[27] According to EMI, CN’s characterization of EMI’s August 5^th request as an “unsuccessful allegation of bad faith” is entirely without merit. EMI submits that the only party who has expressly alleged bad faith conduct in this proceeding is CN against EMI. EMI strongly denies the following allegations made by CN that: EMI “tactically brought” the August 5^th request to “seize an opportunity to prejudice the record” and “strike inconvenient facts under the auspices of a feigned ‘ambiguity’;” as well as any allegation that it acted in any way other than in good faith to preserve EMI’s [REDACTED], as is clearly set out in EMI’s request to withdraw.

[28] EMI submits that given the ambiguity of CN’s August 3^rd response and the reasonable conclusion that the impugned statement referred to proceedings that occurred [REDACTED], EMI’s mistake is perfectly understandable. EMI’s states that its August 5^th request alleged something it believed to be correct based on CN’s August 3^rd response, for which it sought adjudication from the Agency without making any allegations of bad faith against CN, which when clarified, EMI sought to withdraw its August 5^th request.

[29] EMI argues that the allegations contained in CN’s August 18^th response try to transform that mistake into something nefarious to support its claim for costs. According to EMI, its conduct in immediately seeking a withdrawal upon receiving clarification is entirely inconsistent with CN’s specious allegations that EMI brought the August 5^th request “tactically” or to “prejudice the record” in EMI’s favour.

[30] EMI suggests that clearly CN is the only party making “inflammatory and baseless allegations” of bad faith, allegations CN continues to make in the face of EMI’s clear explanation that it acted only in good faith to preserve its [“] and CN’s own concession that “EMI was mistaken.” EMI adds that this should be taken into consideration in assessing CN’s claim for solicitor-client costs, as well as any other award of costs on any basis in this proceeding.

[31] EMI submits that an award of solicitor-client costs is not warranted in the circumstances.

ANALYSIS AND FINGINDS

Should the Agency award costs to CN?

[32] Pursuant to subsection 35(1) of the Dispute Adjudication Rules, a person may file a request to withdraw any document that they filed in a dispute proceeding as long as the request is filed before the close of pleadings.

[33] The Agency notes that EMI, in accordance with the Dispute Adjudication Rules, asked to withdraw its August 5^th request, without costs.

[34] EMI claims that the issue at the heart of its August 5^th request was the ambiguity of CN’s August 3^rd response based on the negotiation history between the parties which permitted multiple reasonable interpretations. EMI asserts that, as a result, EMI engaged in a good faith and genuine attempt to protect its [REDACTED] in this proceeding. EMI states that it is ultimately in the interests of the efficient use of Agency resources and the expedient resolution of the level of service dispute in this proceeding that the question of the intended and actual interpretation of the impugned paragraphs be set aside.

[35] Pursuant to subsection 35(2) of the Dispute Adjudication Rules, the Agency may impose any terms and conditions on the withdrawal, including costs. CN has requested that, should the Agency accept the withdrawal, a determination on costs be made, as CN was put to the expense of responding to the request in full. In that regard, CN asks that the Agency order solicitor-clients costs against EMI.

[36] Pursuant to subsection 25.1(1) of the CTA, the Agency has all of the powers that the Federal Court has to award costs in a proceeding before it under the Federal Court Rules, notably under section 400. That section provides that the Federal Court has full discretionary power over the amount and the allocation of costs, and to determine by whom they are to be paid.

[37] In the past, the Agency has relied on a set of general principles in determining whether to award costs, including whether the applicant for an award of costs has a substantial interest in the proceeding; participated in the proceeding in a responsible manner; made a significant contribution that is relevant to the proceeding before the Agency; and contributed to a better understanding of the issues by all parties. In addition, the Agency may consider other factors, such as the importance and complexity of the issues; the amount of work; the result of the proceeding; and whether the “public interest” in the proceeding justifies an award of costs. The Agency also finds that awards of costs are at times warranted to encourage effective participation in proceedings before the Agency.

[38] The Agency finds it appropriate to consider these principles in this case.

Substantial interest in the proceeding

[39] In this case, EMI’s August 5^th request sought to strike evidence and arguments from CN's August 3^rd response that were directly relevant to the determination of EMI’s application and its request for interim relief. The Agency is of the opinion that CN’s interest in the proceeding is inherent in that the request for interim relief and the application relates to CN’s level of service to EMI and whether CN has an obligation to provide service to EMI at CN’s track RD-47. Therefore the Agency finds that CN had a substantial interest in the proceeding.

Participation in the proceeding in a responsible manner and contribution to a better understanding of the issues

[40] CN’s August 6^th response fully explained how the impugned passage was not covered by any confidentiality agreement but rather was the result of negotiations that took place years before. CN’s August 6^th response enabled the Agency to gain a better understanding of the issues at the heart of EMI’s August 5^th request. CN followed the time lines set by the Agency. The Agency therefore finds that CN made a significant contribution that was relevant to the proceeding. The Agency also finds that CN participated in the proceeding in a responsible manner.

Public interest

[41] CN submits that the public interest in the proceeding requires an award of costs on the basis of the position and conduct of EMI. According to CN, there is a critical public interest in fair and just adjudicative proceedings, which EMI has undermined. CN states that EMI’s attempt to now retreat unscathed from its position is a concession that its conduct was an abuse of process and therefore, the public interest in fair and just adjudicative proceedings requires censure of this sort of conduct.

[42] According to EMI, the integrity of the Agency’s adjudicative process and function has not been prejudiced, as argued by CN. EMI adds that CN provided no explanation for how either EMI’s August 5^th request or EMI’s request to withdraw have in any way undermined the fairness or justice of this adjudicative proceeding. EMI states that any prejudice from the lengthening of this proceeding as a result of the request to strike is clearly only felt by EMI, as it has resulted in a delay of the adjudication of not only EMI’s request for an interim order, but also its application as a whole.

[43] The Agency expects a proceeding to be commenced by filing any and all necessary supporting evidence. Alternatively, if the necessary and relevant evidence becomes available after the commencement of the proceeding, the Agency expects the party having commenced the proceeding to file a request to introduce that new evidence.

[44] EMI, as a participant in the negotiations with CN in 2012-2013, should have been aware of the issues discussed and/or it should have the same business records and familiarity with the history of negotiations as CN. EMI failed to provide any evidence, beyond its own statements and the filing of [REDACTED], to substantiate its August 5^th request, which led to the unnecessary use of CN and Agency resources to address it. The Agency finds that the “public interest” justifies an award of costs in this matter.

If so, on which scale?

[45] CN has requested that costs be allowed on a solicitor-client basis. EMI submits that an award of solicitor-client costs is not warranted in the circumstances. The Agency notes that, based on the principles established by the Courts, solicitor-client costs are generally intended to result in a full indemnity of legal fees and disbursements and are generally awarded only where there has been reprehensible conduct on the part of one of the parties such as delaying tactics, unduly prolonging proceedings or scandalous or outrageous conduct.

[46] In making its determination as to the appropriate scale of costs to be awarded, the Agency has taken into consideration various factors including the fact that EMI sought to withdraw its August 5^th Request immediately upon receipt of CN’s August 6^th response. The Agency is of the opinion that CN has not demonstrated that the factors required for the solicitor-client scale to apply are present in this case. In light of the above, the Agency finds that the scale of reasonable costs should be applied.

[47] The Agency will appoint a taxing officer. The taxing officer will conduct pleadings to gather information on the issue of the quantum of reasonable costs to be awarded. At the end of the pleadings and upon receipt of all necessary documentation, the taxing officer will make a determination.

CONCLUSION

[48] Pursuant to section 35 of the Dispute Adjudication Rules, the Agency grants EMI’s request to withdraw its August 5^th request, with costs to CN.

[49] The Agency, pursuant to subsection 25.1(3) of the CTA, appoints member Sam Barone as the taxing officer, whose role is to gather information and establish the quantum of reasonable costs, which shall be paid by EMI.

[50] Before the taxing officer conducts pleadings, the parties are provided with an opportunity to agree on the issue of costs. If the parties are unable to agree on the costs by November 6, 2015, CN may refer the matter to the Agency, following which the taxing officer will commence the above-noted process.

This is a public redacted version of a confidential decision that issued on October 6, 2015 which cannot be made publicly available.