Decision No. 33-R-2011

February 9, 2011

APPLICATION by the Greater Vancouver Sewerage and Drainage District pursuant to section 101 of the Canada Transportation Act, S.C., 1996, c. 10, as amended.

File No. R8050/1144-003.50

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Application

[1] The Greater Vancouver Sewerage and Drainage District (GVSDD) filed an application with the Canadian Transportation Agency (Agency) pursuant to section 101 of the Canada Transportation Act (CTA) for a cost apportionment relating to the utility pipeline crossings known as the Hollyburn Interceptor and the Hollyburn Relief Sewer between 13th Street and Kew Road and between 15th Street and 25th Street, under and along the Canadian National Railway Company's (CN) Squamish Subdivision in West Vancouver, British Columbia.

[2] CN filed a motion requesting the dismissal of the application. CN cites two reasons for the dismissal. First, CN submits that the utility lines are not crossings as contemplated by sections 100 and 101 of the CTA. Second, CN requests that the Agency declare that the remedy provided for under section 101 of the CTA is not available to GVSDD because the matter is governed by existing encroachment agreements.

Background

[3] GVSDD is responsible for sewerage and drainage treatment and municipal solid waste disposal for 18 municipalities within the Greater Vancouver region. The Hollyburn Interceptor and the Hollyburn Relief Sewer form part of a major sewer pipeline that receives up to 69 million litres of water per day. They are located under and along a railway right of way currently managed and operated by CN.

[4] When the Hollyburn Interceptor and the Hollyburn Relief Sewer sections of the pipeline were originally conceived and constructed in 1960, four encroachment agreements relating to construction and maintenance were entered into between GVSDD and BC Rail Ltd. or BC Rail Partnership, or its predecessor since that time. The agreements are as follows:

• Encroachment Agreement No. 632 covers the Hollyburn Interceptor from 13th Street to 28th Street. The original agreement was entered into by GVSDD and Pacific Great Eastern Railway Company (PGERC) on September 30, 1960. The most recent agreement was entered into by GVSDD and BC Rail Partnership on January 9, 2002. A formula is contained therein for determining the initial annual rental, but the agreement states that the annual rate is subject to review and adjustment by BC Rail on December 1, 2003 and at the end of every 2 year period thereafter.
• Encroachment Agreement No. 1694 covers the Hollyburn Interceptor from 28th Street to Kew Road. The original agreement was entered into by GVSDD and PGERC on June 16, 1972. The most recent agreement was entered into by GVSDD and BC Rail Partnership on June 3, 2002. A formula is contained therein for determining the initial annual rental, but the agreement states that the annual rate is subject to review and adjustment by BC Rail on January 1, 2004 and at the end of every 2 year period thereafter.
• Encroachment Agreement No. 2950 covers the Hollyburn Relief Sewer Phase I from 15th Street to 19th Street. This agreement was entered into by GVSDD and BC Rail Ltd. on May 29, 1996. The agreement states that the annual rent is subject to review and adjustment on January 1, 1998 and every 2 years thereafter, based on an appraisal.
• Encroachment Agreement No. 5437 covers the Hollyburn Relief Sewer Phase II from 19th Street to 25th Street. The agreement was entered into by GVSDD and BC Rail Partnership on December 21, 2001. The agreement contains a formula for determining the initial annual rental rate, but states that this fee is subject to review and adjustment by BC Rail on January 1, 2004 and at the end of every 2 year period thereafter.

[5] The Agency notes that when the utility lines were conceived and the plan executed for their construction, the four encroachment agreements enabling the pipeline were entered into between GVSDD and BC Rail Ltd. or BC Rail Partnership, or its predecessor. The encroachment agreements were therefore entered into between provincial crown corporations. On July 15, 2004, it was announced that CN was taking over the management and operation of the BC Rail Co. property which includes the right of way in question.

Issues

[6] The issues are:

1. Are the Hollyburn Interceptor and the Hollyburn Relief Sewer sections of the pipeline utility crossings as contemplated under sections 100 and 101 of the CTA?
2. If so, are there existing agreements between the parties regarding the payment of compensation by GVSDD to CN in the form of encroachment fees for the subject utility crossings?

The law

[7] Section 100 of the CTA provides definitions which are relevant to the utility lines at issue:

"utility crossing" means the part of a utility line that passes over or under a railway line, and includes a structure supporting or protecting that part of the utility line or facilitating the crossing;

"utility line" means a wire, cable, pipeline or other like means of enabling the transmission of goods or energy or the provision of services.

[8] Subsection 101(4) of the CTA provides that section 16 of the Railway Safety Act, R.S.C., 1985, c. 32 (4^th Supp.) applies if a person is unsuccessful in negotiating an agreement relating to the apportionment of the costs of constructing or maintaining the road crossing or utility crossing.

[9] Subsection 16(1) of the Railway Safety Act states:

The proponent of a railway work, and each beneficiary of the work, may refer the apportionment of liability for the construction, alteration, operational or maintenance costs of the work to the Agency for a determination if they cannot agree on the apportionment and if no recourse is available under Part III of the Canada Transportation Act or the Railway Relocation and Crossing Act. The referral may be made either before or after construction or alteration of the work begins.

Positions of the parties and analysis

1. Are the Hollyburn Interceptor and the Hollyburn Relief Sewer sections of the pipeline utility crossings as contemplated under sections 100 and 101 of the CTA?

[10] GVSDD submits that utility lines that run alongside railway trackage are "utility crossings" within the meaning of sections 100 and 101 of the CTA, as described in Decision No. 709-R-2006 (Decision).

[11] CN contends that the Hollyburn Interceptor and the Hollyburn Relief Sewer sections of the pipeline do not constitute utility crossings under sections 100 and 101 of the CTA as the policy rationale behind the CTA was to prevent railway corridors from becoming virtual walls that could not be crossed and would limit urban or economic development.

[12] CN submits that neither the Decision nor Canadian Pacific Railway Co. v. Canada (Canadian Transportation Agency), [2008] F.C.J. No. 175 (QL) [ATCO Judgment] dealt with the broad question of whether the ATCO pipeline was a crossing within the meaning of the CTA, as the issue concerned two above-ground safety valves located on CN's right of way. CN makes a distinction between the construction of safety valves on the pipeline and the pipeline itself.

[13] According to CN, a strict interpretation of section 101 of the CTA should lead to the conclusion that Parliament intended to regulate utility crossings only. CN argues that utility lines constructed alongside railway lines by design are not crossing a railway line but rather using railway lands for the purpose of utilities.

[14] In the Decision, the Agency found that a "railway line" includes the railway right of way. Therefore, by definition, a utility crossing under section 100 of the CTA is intended to include encroachments on the land of the railway company's right of way by utility lines that run alongside the tracks. At paragraph 12 of the Decision, the Agency stated that "[a]s a preliminary matter, the Agency will consider the issue of whether the existing pipeline constitutes a crossing under the CTA". In paragraph 20 of the Decision, the Agency determined that "valves are works related to a utility crossing". In the Decision, the Agency makes no distinction between the valves and the pipeline itself.

[15] The Decision was appealed. The Federal Court of Appeal stated the following, in paragraph 16 of the ATCO Judgment, when citing the Agency's position before the Court: "It follows that the definition of "utility line" would include any part of a pipeline that is on or under the railway right of way." In paragraph 21 of the ATCO Judgment, the Federal Court of Appeal agreed with the Agency:

Given the statutory context, the Agency's interpretation gives the language of the definition of "utility line" a meaning that it can reasonably bear, and that is consistent with its purpose. In my view, the Agency's interpretation of the definition of "utility line" is reasonable. I see no basis for the intervention of this Court.

[16] In keeping with the precedents set by both the Agency decision and the Federal Court of Appeal judgment, the Agency finds that the Hollyburn Interceptor and the Hollyburn Relief Sewer sections of the pipeline are utility crossings under the CTA.

2. Are there existing agreements between the parties regarding the payment of compensation by GVSDD to CN in the form of encroachment fees for the subject utility crossings?

[17] Neither party disputes that four encroachment agreements were entered into with respect to the Hollyburn Interceptor and the Hollyburn Relief Sewer sections of the pipeline.

[18] GVSDD states that it has been informed by CN that the four encroachment agreements were assigned by BC Rail Co. to CN at the time that CN acquired BC Rail Co. and the right to operate over its roadbed under a long-term lease. However, GVSDD submits that it has not been able to confirm that these assignments have in fact been made.

[19] CN argues that the agreements are in force and are binding upon the parties, and that it has submitted all the documents necessary to prove that the assignments have been made. CN states that when a contract is made, parties must comply with the obligations. CN adds that the purpose of entering into a contract is to establish certainty on the matters agreed to for the duration of the contract and to create predictability in the relationship of the parties.

[20] CN also states that the "Railway" allowed GVSDD to occupy a significant portion of its right of way while GVSDD agreed to pay encroachment fees that would be adjusted on the basis of conditions also freely agreed to by GVSDD.

[21] The Agency notes CN's statement that the encroachment agreements are in force and are binding upon the parties. The Agency has dealt with similar issues in Decision Nos. 310-R-2003 and 65-R-2005. The Agency stated the following in Decision No. 310-R-2003:

[...] In general, the Agency does not interfere in a contractual agreement entered freely by the parties. The Agency is of the opinion that an agreement binds the parties to the terms of an agreement they freely negotiated and entered into. This would not preclude Agency involvement in any matter that parties could not agree to that would not have been included in the original existing agreement. [...]

[22] Therefore, the Agency must determine whether there are encroachment agreements governing the parties.

[23] Agreements Nos. 632, 1694 and 5437 provide for assignments: "This Agreement shall enure to the benefit of and be binding upon the parties hereto, the successors and assigns of BC Rail, and to the successors and permitted assigns of the Applicant." Agreement No. 2950 provides that "This Agreement shall enure to the benefit of and be binding upon the parties hereto, the successors and assigns of the Railway Company, and to the heirs, executors, administrators, successors and assigns of the Applicant." These are provisions on which BC Rail Partnership and BC Rail Ltd. and GVSDD signed off. Accordingly, the agreements provide that they will be binding upon assigns of BC Rail Partnership and BC Rail Ltd.

Corporate transactions

[24] To determine whether the agreements were assigned by BC Rail Partnership and BC Rail Ltd. to CN, the Agency must examine the transactions involving these corporations. The evidence shows that the Restated Transaction Agreement was signed between BC Rail Co., BCR Properties Ltd., CN and CN Acquisition Limited on November 25, 2003. The Restated Transaction Agreement provides the following:

BC Rail Co. owns 25% of the issued and outstanding shares in the capital of BC Rail Ltd. and 5% of the issued and outstanding partnership units in the BC Rail Partnership;

BCR Properties Ltd. owns 75% of the issued and outstanding shares in the capital of BC Rail Ltd. and 5% of the issued and outstanding partnership units in BC Rail Partnership;

BC Rail Ltd. owns 90% of the issued and outstanding partnership units in BC Rail Partnership.

[25] Accordingly, BC Rail Co. and BCR Properties Ltd. owned 100 percent of the units in BC Rail Ltd. and 10 percent of the units in BC Rail Partnership. BC Rail Ltd. owned 90 percent of the units in BC Rail Partnership.

[26] The Agency notes that article 2.1 of the Restated Transaction Agreement provides that BC Rail Co. and BCR Properties Ltd. agree to sell, assign and transfer to CN, and CN agrees to purchase from BC Rail Co. and BCR Properties Ltd., the BC Rail Ltd. shares and the BC Rail Partnership units. Consequently, on November 25, 2003, CN acquired all partnership units in BC Rail Partnership and BC Rail Ltd., thus owning 100 percent of the partnership units in BC Rail Partnership. CN filed evidence that shows that it actually owns 99 percent of the partnership units in BC Rail Partnership and that 1 percent of the partnership units is owned by CN Acquisition Limited.

[27] GVSDD raised an issue as to BC Rail Ltd. being dissolved. It submits that BC Rail Ltd.'s jurisdiction of incorporation was transferred to the federal jurisdiction on November 26, 2004 and the company's name was changed. GVSDD adds that this new company was dissolved on July 5, 2005, and questions whether the company's assets were distributed before the company's dissolution. According to GVSDD, if CN cannot demonstrate that encroachment agreement No. 2950 was assigned to CN prior to the dissolution, this encroachment agreement now vests in the Federal Crown. The Agency is satisfied that CN acquired the shares of BC Rail Ltd. on November 25, 2003. Moreover, CN has provided a distribution agreement which demonstrates that the assets were distributed on December 30, 2004, before the company was dissolved. The Agency is of the opinion that there is no issue concerning the dissolution of BC Rail Ltd.

Assignment of encroachment agreements

[28] Subsection 46(1) of the British Columbia Railway Act, R.S.B.C., 1996, c. 36 provides that BC Rail Co. may grant or assign one or more leases in any or all of the railway properties on any terms and conditions and for any purposes it considers appropriate. If BC Rail Co. assigns a lease, it does so through a Revitalization Agreement. "Revitalization Agreement" is defined in section 1 of the British Columbia Railway Act and "means any agreement referred to in section 46 by which the company [BC Rail Co.] makes a grant or assignment under section 46(1)".

[29] Subparagraph E(iii) of the Restated Transaction Agreement indicates that BC Rail Co. will lease, sublease, assign, license or sub-license to BC Rail Partnership the Railbed Real Property pursuant to the Revitalization Agreement. It also indicates that BC Rail Co. will further assign unto BC Rail Ltd. and BC Rail Partnership the Assigned Agreement pursuant to the Revitalization Agreement.

[30] On July 9, 2004, BC Rail Co. and BC Rail Partnership, which were, as per the Restated Transaction Agreement dated November 25, 2003, 99 percent owned by CN, entered into the Revitalization Agreement. The Revitalization Agreement is the main document which governs the relationship between BC Rail Partnership and BC Rail Co., thereafter, with BC Rail Partnership being the tenant and BC Rail Co. being the landlord.

[31] Under paragraph 4.1(a) of the Revitalization Agreement, BC Rail Co. assigned to BC Rail Partnership all of its rights, title and interest in and under all of the assigned agreements. Article 4 of the Revitalization Agreement read in conjunction with the definition of "assigned agreements", namely "[…] the leases and agreements in favour of third parties described in Schedule C […]" which includes the four encroachment agreements in this case, make clear that the parties to the Revitalization Agreement intended to assign encroachment agreements Nos. 632, 1694, 2950 and 5437 to BC Rail Partnership. The Agency accepts that CN holds 99 percent of the partnership units in BC Rail Partnership, and CN Acquisition Ltd. holds the other 1 percent. Therefore, CN also holds the rights in encroachment agreement No. 2950 originally entered into between GVSDD and BC Rail Ltd., and in encroachment agreements Nos. 632, 1694 and 5437 originally entered into between GVSDD and BC Rail Partnership.

[32] GVSDD submits that a Notice and Direction document demonstrates that CN's position does not align with its explanation of the Restated Transaction Agreement and the Revitalization Agreement. However, the Agency disagrees with GVSDD's interpretation of the Notice. The Notice states that BC Rail Ltd. and/or BC Rail Partnership has transferred and assigned all of its rights, title and interest to BC Rail Co. and in turn, BC Rail Co. has leased, subleased, licensed or sublicensed the property to BC Rail Partnership. The Agency is of the opinion that this Notice reflects the two agreements described above.

[33] In light of the above, the Agency finds that there are existing encroachment agreements between the parties and that CN has provided adequate evidence to show that the four agreements in question were assigned from BC Rail Co. to BC Rail Partnership, for which CN holds 99 percent of the partnership units.

Annual rental fees

[34] The Agency must also determine whether the original agreements or parts of them are no longer in effect and whether the parties agree on their replacement. If such is the case, the Agency may exercise its discretion pursuant to section 101 of the CTA.

[35] GVSDD submits that although the encroachment agreements themselves have not expired, they relate to the original annual rental rates that were agreed upon. GVSDD claims that there is no agreement between CN and GVSDD relating to the increased compensation that CN is currently demanding. GVSDD further claims that the renewal periods of the encroachment agreements between GVSDD and the railway company have lapsed without an agreement between the parties as to the annual rentals that will apply in the renewal periods. As such, GVSDD states that subsection 101(4) of the CTA is applicable for the current apportionment of costs.

[36] GVSDD argues that CN has abandoned the rental renewal provision of the encroachment agreements and has unilaterally changed the arrangement between GVSDD, BC Rail Partnership and BC Rail Ltd. as to the rental amounts to be paid. GVSDD submits that three of the agreements set out a formula which CN has not applied, and that CN's approach has been to abandon the formula and come up with its own new basis for establishing the rental amounts. GVSDD maintains that CN has unilaterally changed the rentals that have been provided for in the existing agreements without GVSDD's consent and without following the process set out in the existing agreements.

[37] CN affirms that whether it is acting in a manner consistent with the agreements is not within the scope of section 101 of the CTA. CN adds that contract interpretation of the agreements is an issue for which GVSDD may seize the courts. CN also indicates that each of the encroachment agreements has a provision by which the railway company may increase rates at two-year intervals and that there is no expiration date on the agreements.

[38] The Agency has previously considered the impact of existing rail crossing agreements in connection with applications under section 101 of the CTA. At paragraph 22 of Decision No. 65-R-2005, the Agency determined the following:

The Agency acknowledges that, as indicated in Decision No. 310-R-2003, it would not generally interfere in a contractual agreement entered into freely by the parties and that an agreement does bind the parties to the terms of an agreement they freely negotiated and entered into. However, in that same Decision, the Agency stated that this would not preclude Agency involvement in any matter that parties could not agree on that would not have been included in the original existing agreement. Furthermore, the Agency is of the opinion that if it is found that the original agreement or parts thereof are no longer in effect and that the parties cannot agree on their replacement, the Agency may exercise its discretion pursuant to section 101 of the CTA. [Emphasis added]

[39] The Agency must distinguish Decision No. 65-R-2005 from the case at hand. In Decision No. 65-R-2005, St. Catharines Hydro Utility Services Inc. (SCH) filed an application with the Agency pursuant to subsections 101(3) and (4) of the CTA for a ruling on the payment of compensation imposed by CN in the form of annual licence fees for a series of utility crossings. These licence agreements had been in place for many years. For licence agreements Nos. 44995 and 63421, the licence fee had expired. CN had proposed to charge the same rental payment for a period of 10 years, subject to the same terms and conditions as the original licence agreements.

[40] SCH submitted that the Agency could intervene as the parties did not agree on the specific matter of the fees at issue that CN continued to charge SCH in respect of the relevant utility crossings. CN argued that there were valid and binding agreements in effect, as there were no expiry dates. CN added that the agreements included the payment of fees by SCH to CN and that these fees were subject to review.

[41] The Agency noted that the licence agreements did not provide expiry dates. However, the evidence indicated that the fee payment provision was renegotiated and renewed for a period of 10 years. This renewal period for licence agreements Nos. 63421 and 44995 had since lapsed without an agreement between the parties as to the renewal fees. As a result, the Agency determined that it had jurisdiction.

[42] In the case at hand, GVSDD submits that, as with the two licence agreements in Decision No. 65-R-2005, the renewal periods of the encroachment agreements between GVSDD and CN have lapsed without an agreement between the parties as to the encroachment fees that will apply in the renewal periods. In Decision No. 65-R-2005, the 10-year period had lapsed. However, there is no such fixed period in the encroachment agreements before the Agency. The only relevant provision concerns the review and adjustment of encroachment fees by BC Rail Co. or the Railway Company at specific periods, meaning BC Rail Partnership or BC Rail Ltd., and now CN, may at those periods of time review and adjust the fees.

[43] In encroachment agreements Nos. 632, 1694, 5437, there is a formula for the encroachment fees. The Agency is of the opinion that the most sensible interpretation to give to this formula is that it was used to establish the initial encroachment fees as there is no variable included which could help the parties to calculate the adjustments. As for encroachment agreement No. 2950, there is no such formula. For three encroachment agreements, any future increase is governed by a review and adjustment by BC Rail Partnership, hence CN, at specific periods. The agreements do not require GVSDD's consent for BC Rail Partnership to make an adjustment.

[44] The Agency is of the opinion that GVSDD and CN agreed, according to the terms of all four agreements, that the encroachment fees are subject to review and adjustment by the railway company or to adjustments based upon an appraisal as requested by the railway company if required, at the end of every two-year period. The Agency finds that CN has unilaterally changed the encroachment fees on the basis of the text of the encroachment agreements, and that these agreements do govern the matter raised in the application.

[45] Furthermore, there is no evidence that one of the parties has terminated any of the encroachment agreements in accordance with the terms set out in the agreements. Therefore, the Agency finds that CN is legally authorized to claim payments under the four encroachment agreements and to exercise the rights provided for in these agreements.

Conclusion

[46] The Agency finds that both parties are still subject to the terms and conditions set out in the four encroachment agreements, including the encroachment fee increases as determined by CN.

[47] As the encroachment agreements still exist, the Agency has no jurisdiction to rule on the application for cost apportionment under subsection 101(4) of the CTA and, therefore, the Agency dismisses the application.

[48] Should the agreements be terminated, GVSDD may reapply, if necessary, under section 101 of the CTA, at which time the Agency would rule on any issues in dispute. This would include whether compensation is warranted where a mere easement is created without any real or appreciable damage to CN or its property.

Members

• Raymon J. Kaduck
• Jean-Denis Pelletier, P. Eng.