Decision No. 35-R-2009

February 6, 2009

File No. T7360/08-1

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Background

[1] The Canadian National Railway Company (CN), BNSF Railway Company (BNSF) and the Canadian Pacific Railway Company (CP) each own rail infrastructure in the Winnipeg area. In addition, various running rights agreements permit the railway companies to access sections of each other's railway lines.

[2] BNSF traffic originating in the United States is exchanged from BNSF to CN at the Canada/United States border. Pursuant to a haulage agreement, BNSF rail cars are added to a CN train and are transported on CN's Letellier Subdivision to CN's Fort Rouge Yard. BNSF interchanges some of this traffic with CP and handles some local movement itself. BNSF traffic is also interlined beyond the Winnipeg area with CN. Some of this traffic is destined to Paterson Grain (Paterson), a division of Paterson GlobalFoods Inc., which has a facility in Lilyfield, Manitoba.

[3] CN has access to Paterson's facility through a running rights agreement with CP, and Paterson is also served directly by CP through spur trackage off CP's Carberry Subdivision.

[4] CN indicates that prior to filing this application, it approached BNSF to discuss handling Paterson's traffic under a commercial arrangement.

[5] CN submits the rail movements destined to Paterson fail to meet the prescribed conditions to constitute interswitching within the meaning of the Canada Transportation Act (CTA). As a result, any arrangement between CN and BNSF for delivery of BNSF's traffic to Paterson is subject to commercial discussions. BNSF states that the delivery of its traffic by CN to Paterson should be performed under the interswitching rules and rates provided in the Railway Interswitching Regulations, SOR/88-41, as amended (Interswitching Regulations).

Issue

[6] Do certain rail activities between BNSF and CN in the Winnipeg area constitute interswitching for the purpose of section 127 of the CTA?

Preliminary matters

[7] On October 27, 2008, Paterson and the Canadian Wheat Board (CWB) sought intervener status to oppose CN's application. On November 5, 2008, the Honourable Ron Lemieux, Minister of Infrastructure and Transportation for the Government of Manitoba (Government of Manitoba) filed a submission also opposing CN's application.

[8] On October 31, 2008, Paterson and CWB were granted intervener status by the Canadian Transportation Agency (Agency). The Government of Manitoba was granted intervener status on November 7, 2008.

[9] In its answer to CN's application, BNSF provided comments on interswitching rates, submitting that as the Paterson traffic can be moved in a car block, CN must only charge the car block interswitching rate and it would be improper to allow CN to charge the single car rate. CN stated that a discussion of the interswitching rates was irrelevant to and was inconsistent with its application. BNSF requested leave to submit additional comments on the applicability of the car block interswitching rate.

[10] On December 12, 2008, the Agency issued LET-R-181-2008 dismissing BNSF's request. The Agency found that BNSF had not demonstrated to the satisfaction of the Agency the relevance of the rate issue to the application as to whether certain rail activities between CN and BNSF in the Winnipeg area constituted interswitching pursuant to section 127 of the CTA.

Facts, positions of the parties and submissions

CN

[11] CN states that in 1912, the predecessors to CN and BNSF entered into an agreement granting BNSF running rights over CN's Letellier Subdivision from the Canada/United States border to Portage Junction in Winnipeg, and from Portage Junction to a point on the CN line west of Portage Junction, where BNSF could establish a connection (1912 Running Rights Agreement). Subsequently in 1913, CN and BNSF entered into an agreement for the construction of two tracks at Portage Junction where rail cars could be transferred between the two companies (1913 Transfer Track Agreement). BNSF operated its own trains over CN's Letellier Subdivision until 1983.¹

[12] Under the terms of a 1983 Haulage Agreement (Haulage Agreement) a "pool train" was established. Under this agreement, CN hauls BNSF traffic on CN trains together with its own traffic between the Canada/United States border to Portage Junction. The BNSF traffic handled on the pool train terminated at CN's "F" Yard, at the two tracks which were constructed pursuant to the 1913 Transfer Track Agreement. The first track was constructed for the purpose of delivering traffic to BNSF. The second track was constructed for the purpose of delivering BNSF traffic to CN.

[13] As a result of a reconfiguration of tracks in 2003, "F" Yard was removed. Currently, the transfer of BNSF traffic takes place at Fort Rouge Yard. BNSF indicates that Fort Rouge Yard is approximately 560 metres from "F" Yard. According to CN, the northbound BNSF traffic moving on the pool train is hauled to Fort Rouge Yard where it is picked up by BNSF for furtherance. Some of the traffic is then interchanged by BNSF with CP, and other traffic is handled locally by BNSF. Other traffic is interlined beyond the Winnipeg area with CN. Paterson's rail cars are not removed from the pool train, but are electronically interchanged from BNSF to CN. The latter delivers them to Paterson's facility utilizing CP trackage upon a payment of a contracted commercial rate per car.

[14] CN submits that the delivery of BNSF's traffic to Paterson is not subject to the regulated interswitching provisions of the CTA. CN submits that in order for section 127 of the CTA to apply, three cumulative conditions must be met. First, there must be an "interchange" within the meaning of section 111 of the CTA. Second, the origin or destination point of the traffic must be within a radius of 30 kilometres of the interchange. Finally, the carrier performing the interswitching must be a "local carrier" as defined in section 111 of the CTA.

[15] CN does not dispute that Paterson's facility in Lilyfield falls within a radius of 30 kilometres from Fort Rouge Yard. CN also does not deny that an interchange may exist between CN and BNSF in Winnipeg; however, CN argues that Fort Rouge Yard is not an interchange as defined in section 111 of the CTA.

[16] In considering the applicable legislation, CN notes that section 111 defines an "interchange" as a "place where the line of one railway company connects with the line of another railway company and where loaded or empty cars may be stored until delivered or received by the other railway company". CN submits that both physical elements relate to the same place. CN states that the fact that BNSF requires access to Fort Rouge Yard via running rights over a distance of 1.91 miles demonstrates that Fort Rouge Yard does not meet the definition of an "interchange". Fort Rouge Yard is not the place where the lines of the two companies connect. CN points out that a previous Decision of the National Transportation Agency, namely Decision No. 439-R-1989² (Celgar Decision), determined that accessing an interchange location via running rights failed to meet the condition for the existence of an "interchange" as defined in section 111 of the CTA. Therefore, CN submits that BNSF does not have a "line of railway" for the purposes of section 127 of the CTA.

[17] CN also notes that although railway companies may agree to exchange cars at a location other than where their respective lines connect, this is done either for commercial considerations or for the convenience and efficiency of operations, but this does not make them "interchange" points for the purposes of sections 111 and 127 of the CTA.

[18] CN states that although Paterson argues it is entitled to regulated interswitching pursuant to the 1913 Transfer Track Agreement, this agreement was entered into prior to the current regulated interswitching provisions and therefore could not have contemplated the provision of interswitching services at regulated rates. Further, as the agreement can be terminated by either party, if it did constitute the right to regulated interswitching, this right could be eliminated through the termination clause.

[19] CN adds that regulated interswitching exists by virtue of sections 127 and 128 of the CTA and it is therefore a statutory right available independent of contract when the conditions of these sections are met. Further, CN argues that commitments made to provide service to Paterson at a rate equal to a regulated interswitching rate is contractual and not statutory and Paterson's recourse is a matter for civil courts.

[20] CN states that it is not a "local carrier" as defined in section 111 of the CTA, which defines local carrier as "a railway company that moves traffic to or from an interchange on a continuous route from the point of origin or to the point of destination that is served exclusively by the railway company". CN asserts that there is no interchange as noted above and that the traffic does not move on a continuous route as illustrated by the fact that to access Paterson's facility, CN is required to operate over sections of a CP owned line, namely the line of another railway company. CN further asserts that in the absence of a commercial agreement with CP, CN would have no access to Paterson's facility. According to CN, it follows that the existence of running rights is insufficient to create a continuous route.

[21] In addition, CN notes that Paterson is not served exclusively by CN; rather, it is directly served by CP and is only accessible by CN via running rights over CP lines. CN submits that it would be inconsistent with the provisions of the legislation for interswitching rights to be subject to the existence of agreements or the discretion of the railway companies.

[22] CN further submits that the Agency has already determined where BNSF's interchange with CN is located, and that is near St. James Junction and not Fort Rouge Yard. CN notes that the Agency made this determination when it amended BNSF's Certificate of fitness in 2007.

[23] CN also notes that if these rail activities between CN and BNSF are determined by the Agency not to be interswitching, regulated interswitching at Paterson's facility will still exist. CN states that CP has a line of railway directly serving Paterson. Paterson would still continue to have direct access to CP and CN and regulated interswitching would continue to be available between CP and BNSF via a Zone 3 interswitch between CP and CN.

BNSF

[24] BNSF states that it has served customers in Winnipeg by interchanging traffic with CN from 1913 to the present, and since 1988, BNSF and CN have interswitched traffic with CN under regulated interswitching rates under the Interswitching Regulations. BNSF adds that there has been no dispute between itself and CN that eligible traffic was entitled to regulated interswitching rates from Fort Rouge Yard until approximately one year ago.

[25] BNSF adds that the 1912 Running Rights Agreement in conjunction with the Haulage Agreement provides the means for BNSF to transport its traffic to its own trackage and customers and to the transfer tracks at Fort Rouge Yard for interchange and interswitching to and from CN.

[26] BNSF notes that the 1913 Transfer Track Agreement provided that "it is in the interest of the parties hereto that there should be a transfer of cars from the line of one company to the line of the other at Portage Junction, Winnipeg". BNSF further points out that pursuant to the agreement each railway company shared 50 percent of the construction, maintenance and repair expenses for this track. The agreement also provided for BNSF to pay, as annual rent, an amount equivalent to one half of the value of the land used for the transfer track. BNSF maintains that the agreement also contemplates that the trains and cars of each railway company will operate on the transfer track. According to BNSF, a physical connection does exist between BNSF and CN to the west of Fort Rouge Yard and, by practice and agreement from 1913 to 2003, all traffic interchanged between BNSF and CN was interchanged at the transfer tracks, otherwise known as "F" Yard. The 1913 Transfer Track Agreement also permitted CN to change or alter the location or construction of the transfer tracks for any purpose at its own expense upon providing other transfer facilities as nearly as may be equally convenient. Since CN removed "F" Yard in 2003, this function has been carried out at Fort Rouge Yard.

[27] BNSF submits that two additional agreements exist which confirm the existence of interswitching: a CN-BNSF 2006 Haulage Agreement Amendment and a 2006 Running Rights Agreement. These two agreements were filed under a claim of confidentiality by BNSF. It is BNSF's position that based upon certain clauses contained within these agreements, CN believed regulated interswitching between itself and BNSF was available; otherwise CN would not have agreed to these provisions.

[28] BNSF maintains that there is an interchange within the meaning of the CTA with CN at Winnipeg. In considering the relevant interswitching provisions of the CTA, BNSF submits that the words of legislation must be read and analyzed in light of the purpose and scheme of the legislation. In this regard, BNSF submits that the interswitching provisions of the CTA are meant to provide shippers with competitive access at known prices to alternative carriers within interswitching limits.

[29] BNSF states that narrow approaches to the interpretation of the interswitching provisions and relevant definitions, which have the effect of excluding interswitching, do not support this objective. The use of the word "place" to describe the locale of both the physical connection and the storage tracks in the definition of "interchange" necessarily demands a broad interpretation as there are many configurations of interchange tracks. BNSF adds that many configurations are often driven by the convenience of the two railway companies involved, as is the case with the BNSF-CN interchange in Winnipeg.

[30] BNSF submits that the Celgar Decision confirms that there must be two railway lines connecting in order for an interchange to exist and that a railway company does not have a "line of railway" merely by virtue of a running right. However in this case, BNSF submits that it does have its own line of railway at Winnipeg which connects with CN's line. Further, BNSF refers to the Pere Marquette Rwy Co. v. CPR case³ in support of its position that it is typical of railway operations that one railway company's locomotives and trains will travel over another railway company's lines to reach an interchange track. BNSF states that its trains travelled the short distance along CN's Rivers Subdivision in order to reach the storage tracks located at "F" Yard, a distance which was slightly lengthened when CN moved the storage track to Fort Rouge Yard. BNSF points out that the reality of the railway industry is that storage tracks may be, and frequently are, physically located some distance from the connecting lines.

[31] As to CN's argument that it must be a "local carrier" as defined in the CTA for interswitching to apply, BNSF states that the CTA contains no such requirement as the term is neither used in the CTA interswitching provisions nor in the definition of an "interchange". "Local carrier" is in fact defined and used solely for the purposes of the competitive line rates provisions of the CTA. In addition, while CN states that the traffic in question must move on a continuous route, BNSF argues that a continuous route is not required by the provisions of the CTA dealing with interswitching or the Interswitching Regulations.

[32] BNSF states that prior to 2000, CN used its Oakpoint Subdivision to directly serve Paterson. Subsequently, CN entered into a running rights agreement with CP in order to discontinue portions of its Oakpoint Subdivision. The running rights agreement allowed CN to continue to provide service to its remaining customers on the Oakpoint Subdivision including Paterson. BNSF submits that the Oakpoint Subdivision customers within interswitching limits, including Paterson, had access to interswitching prior to CN's decision to substitute CP running rights for direct service on the Oakpoint Subdivision.

Paterson

[33] Paterson is the grain operations division of Paterson GlobalFoods Inc. It operates 37 licensed elevator sites spread across western Canada. Paterson states that BNSF delivers grain from Paterson's Lilyfield Terminal to various locations in the United States for final destinations in the United States and Mexico. Paterson points out that in accordance with the Interswitching Regulations and the terms of the 1912 Running Rights Agreement and the 1913 Transfer Track Agreement, BNSF and CN have been interswitching empty rail cars destined to the Lilyfield Terminal, and rail cars loaded with grain from the Lilyfield Terminal destined to the United States for many years.

[34] Paterson is of the opinion that the 1913 Transfer Track Agreement indicates that the usage of track with respect to the joint section of the rail line from Emerson, Manitoba, to Portage Junction, now Fort Rouge Yard at Portage Junction, would be one of joint track usage between CN and BNSF. Paterson argues that the agreement for joint usage is more than a standard running rights agreement. It was agreed upon in advance and the construction of the track was to be for joint usage, not simply running rights.

[35] Paterson adds that the wording of this agreement is clear as to the intent of the parties. Paterson submits that both CN and BNSF intended the 1913 Transfer Track Agreement to include the interswitching of rail cars at the interchange located at Portage Junction, and both parties have interswitched rail cars at Portage Junction since 1912, notwithstanding that the exact location of the interchange has moved throughout the years.

[36] Paterson submits that the exportation of goods from Manitoba is facilitated by the terms of these agreements and the Interswitching Regulations. Paterson asserts that exportation would be greatly limited and competitive rail shipping would be substantially reduced or eliminated should the Agency find in favour of CN.

[37] Paterson submits that CN cannot deny that its line of railway connects with BNSF's line in Winnipeg. Further, whereas section 111 of the CTA defines an interchange as "a place where the line of one railway company connects with the line of another railway company and where loaded or empty cars may be stored [...]", cars cannot be loaded or empty cars cannot be stored at the actual literal point of connection between the two railway lines. Such an interpretation is unreasonable and impossible. It is settled law that the words of an enactment are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme and object of the enactment, and the intention of Parliament.

[38] Paterson notes that consistent with industry, rail cars are loaded or empty cars are stored in yards or sidings close to the actual connection between railway lines but not necessarily at the actual connection between the railway lines.

[39] Paterson also points out that before commencing with the planning and construction of its Lilyfield Terminal, it had the agreement of CN that it would have full access to rail service through CN via interswitching with BNSF. Paterson adds that it invested over $17 million in construction and development costs. Paterson asserts that the service provided by CN pursuant to the Interswitching Regulations is an integral part of its business.

[40] Paterson further states that prior to the completion of the Lilyfield Terminal, CN advised Paterson that it was contemplating abandoning the operation of the Oakpoint Subdivision, but CN would still service the Lilyfield Terminal via an agreement with CP using CP's Carberry Subdivision. According to Paterson, CN confirmed that the terms agreed upon between CN and CP would provide Paterson with CN service in the same manner as previously agreed, including interswitching with BNSF, except that now CN service would be via the CP Carberry Subdivision. Based on these assurances, Paterson states that it did not oppose CN's abandonment of the Oakpoint Subdivision.

[41] Paterson argues that it is also entitled to regulated interswitching because of subsection 128(4) of the CTA. CN abandoned the operation of its Oakpoint Subdivision and Paterson submits this legislative provision means the interswitching rate in place prior to the abandonment is retained post abandonment, as this protective measure was enacted by Parliament when the federally-regulated railway companies received the freedom to abandon lines without regulatory oversight.

[42] It is CN's position that Paterson's interpretation of subsection 128(4) of the CTA is incorrect. CN states that this provision maintains an already existing right and it does not create a right. As regulated interswitching did not exist in the first place, CN submits that there is nothing to maintain post line transfer. Further, the intent of subsection 128(4) is to maintain access to regulated interswitching to a facility having such access, where it finds itself on the portion of a line transferred to a provincial short line railway company. Finally, CN argues that these provisions apply to a line of railway which has been transferred. The operation of the Oakpoint Subdivision was discontinued, not transferred.

CWB

[43] CWB is a corporation with an objective to market grain grown in western Canada in an orderly manner in interprovincial and export trade. CWB's mission is to market quality products and services in order to maximize returns to Western Canadian grain producers.

[44] CWB argues that Winnipeg North is the only place in Canada where it can originate BNSF rail cars at a CN station and this is accomplished through interswitching.

[45] CWB adopts the legal arguments advanced by BNSF and Paterson in their respective submissions and notes that should CN succeed with this application, there would be less rail competition in southern Manitoba and in Winnipeg in particular.

[46] CWB submits that access to rail car supply is critical in the grain handling and transportation system, a fact which has been recognized by the Agency. CWB further points out that interswitching is one of the competitive levers available to shippers to enable them to determine the most appropriate routing and, by its application, CN is seeking to foreclose the application of regulated interswitching rates for shipments from Winnipeg North.

[47] CWB concludes that CN should not be permitted to frustrate the competition already established by the application of regulated interswitching at the Fort Rouge Yard interchange.

The Government of Manitoba

[48] As CN's application deals with rail service to one shipper point, the Government of Manitoba requests that the Agency consider what impact a decision in favour of CN would have on the ability of other shippers located on CN lines in the Winnipeg region to access BNSF via regulated interswitching.

[49] The Government of Manitoba adds that interswitching is recognized as a key component of the CTA to stimulate competitive behaviour between the federally-regulated railway companies and also to derive fair and reasonable railway rates and services. The Government of Manitoba urges that the Agency approach CN's application with as expansive a perspective as possible.

Analysis and findings

(A) Application of section 127 of the CTA and related interswitching provisions

[50] It is clear from the submissions of the parties that CN has a different interpretation than BNSF and the interveners as to the scope of section 127 of the CTA and the conditions that are applicable to a finding that an interswitching movement is subject to the Interswitching Regulations.

[51] A determination of the scope of section 127 of the CTA involves the process of statutory interpretation of a jurisdictional provision in the Agency's constituting statute, as well as the interpretation and consideration of related interswitching provisions.

[52] The Supreme Court of Canada in Canada 3000 Inc., Re; Inter-Canadian (1991) Inc. (Trustee of), [2006] 1 S.C.R. 865, 2006 SCC 24 set out the approach to the interpretation of a statutory provision:

This case is from first to last an exercise in statutory interpretation, and the issues of interpretation are, as always, closely tied to context. The notion that a statute is to be interpreted in light of the problem it was intended to address is as old at least as the 16th century; see Heydon's Case (1584), 3 Co. Rep. 7a, 76 E.R. 637. In a more modern and elaborate formulation, it is said that "the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament" (E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87).

[53] Section 12 of the Interpretation Act, R.S.C. 1985, c. I-21 also provides that "every enactment is deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects."

(B) Statutory provisions

[54] Section 127 of the CTA provides:

127(1) If a railway line of one railway company connects with a railway line of another railway company, an application for an interswitching order may be made to the Agency by either company, by a municipal government or by any other interested person.

(2) The Agency may order the railway companies to provide reasonable facilities for the convenient interswitching of traffic in both directions at an interchange between the lines of either railway and those of other railway companies connecting with them.

(3) If the point of origin or destination of a continuous movement of traffic is within a radius of 30 km, or a prescribed greater distance, of an interchange, a railway company shall not transfer the traffic at the interchange except in accordance with the regulations.

(4) On the application of a person referred to in subsection (1), the Agency may deem a point of origin or destination of a movement of traffic in any particular case to be within 30 km, or a prescribed greater distance, of an interchange, if the Agency is of the opinion that, in the circumstances, the point of origin or destination is reasonably close to the interchange.

[55] Section 111 of the CTA sets out definitions that are applicable to Part III, Division IV of the CTA where the interswitching provisions are found. In respect of interswitching, the terms "interchange" and "interswitch" are defined as follows:

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

"interswitch" means to transfer traffic from the lines of one railway company to the lines of another railway company in accordance with regulations made under section 128.

[56] Similarly, the Interswitching Regulations set out the parameters for interswitching movements and define terms such as "terminal carrier" as "a railway company that interswitches traffic at an interchange to or from a siding."

(C) The national transportation policy

[57] The cornerstone of the CTA is the statement of the national transportation policy in section 5. While essentially a preamble to the statute, it nevertheless directs that the CTA is enacted in order to attain the stated objectives of the policy to the extent that they fall within the purview of the subject matters under the legislative authority of Parliament relating to transportation. Section 5 of the CTA provides, in part, that:

It is declared that a competitive, economic and efficient national transportation system that meets the highest practicable safety and security standards and contributes to a sustainable environment and makes the best use of all modes of transportation at the lowest total cost is essential to serve the needs of its users, advance the well-being of Canadians and enable competitiveness and economic growth in both urban and rural areas throughout Canada. Those objectives are most likely to be achieved when

(a) competition and market forces, both within and among the various modes of transportation, are the prime agents in providing viable and effective transportation services; [and]

(c) rates and conditions do not constitute an undue obstacle to the movement of traffic within Canada or to the export of goods from Canada.

(D) Intention of Parliament

[58] Legislation needs to be read and analyzed not only within the context of the particular statutory provisions at issue, but also keeping in mind the object and scheme of the legislation. In the present case, the Agency is considering the interswitching provisions of the CTA which appear in Part III, Division IV entitled "Rates, Tariffs and Services".

[59] For the most part, these provisions have existed in Canadian railway law in one form or another for a long time and continue the economic regulation of certain aspects of the federal railway transportation network by providing industry participants with a number of statutory rights and recourse while imposing statutory obligations on others.

[60] For example, among the provisions found in Part III, Division IV of the CTA, section 113 imposes on a railway company stated level of service obligations for the accommodation of traffic. Further, section 121 of the CTA allows a shipper who intends to move traffic over a continuous route where portions of it are operated by two or more railway companies to request that those companies agree on a joint tariff or enter into a confidential contract.

[61] Section 127 of the CTA allows the Agency to order interswitching when a railway line of a railway company connects with a railway line of another railway company within a radius of 30 kilometres of the point of origin or destination. Section 129 of the CTA allows a shipper who has access to the lines of only one railway company at the point of origin or destination, and where a continuous route between those two points is operated by two or more railway companies, to request that the local carrier establish a competitive line rate. Section 138 of the CTA provides that a railway company may apply to the Agency for a running rights order against another railway company.

[62] Basically, what these and related provisions have in common is that they provide specific statutory remedies to shippers or impose obligations on federal railway companies as part of an effort to redress instances where it is alleged there is a lack of competition in the marketplace. Essentially, the underlying policy premise of these provisions is to provide shippers with competitive alternatives.

[63] Interswitching of traffic between railway companies has existed in Canada since the early 1900's. The concept of interswitching was introduced to limit the proliferation of railway lines in urban areas serving manufacturing-based industries. However, limiting the number of railway lines in an area could create a monopolistic service and rate situation. The ability to exchange or interswitch traffic with another railway company or companies within certain limits was seen as a means to reduce exclusive control over traffic.

[64] The interswitching provisions of the CTA today are meant to provide shippers with greater access to competitive services at known prices to alternate rail carriers within interswitching limits. An interpretation of the relevant legislation should support this objective.

(E) Wording of section 127 of the CTA and related interswitching provisions

Interchange

[65] The parties agree that in order for regulated interswitching to apply there must be an interchange within the meaning of section 111 of the CTA and that the point of origin or destination of traffic must be within a radius of 30 kilometres of the interchange. All parties agree that the distance between Fort Rouge Yard and the Paterson facility in Lilyfield is within a radius of 30 kilometres.

[66] The parties do not agree however on whether the facts of this case meet the regulated interswitching provisions of the CTA and, in particular, the definition of "interchange", as found in section 111 of the CTA. In addition, CN asserts that a third condition must be met, namely that the carrier performing the interswitching must be a "local carrier" as defined in section 111 of the CTA. This position is not supported by BNSF, Paterson and CWB.

[67] CN asserts that BNSF traffic is left in Fort Rouge Yard for pick up by BNSF, a place where the line of CN does not connect with the line of another railway and thus Fort Rouge Yard is not an interchange within the meaning of section 111 of the CTA. More particularly, although BNSF does enter Fort Rouge Yard to pick up its traffic from the pool train, this is done over the CN line pursuant to a running rights agreement which is not sufficient to create an interchange at this location.

[68] In contrast, BNSF states that "interchange", as defined in section 111 of the CTA, establishes two requirements for its existence and that both requirements are met in the case before the Agency. The first requirement, that a line of one railway company connects with the line of another railway company, is met, as a "physical connection exists between BNSF and CN to the west of Fort Rouge Yard".

[69] As to the second requirement, "by practice and agreement", from 1913 until the present day, first at "F" Yard and presently at Fort Rouge Yard, loaded and empty cars are interchanged between BNSF and CN, a location where rail cars may be stored until delivered or required by the other railway company.

[70] Paterson submits that the 1913 Transfer Track Agreement between CN and BNSF establishes an interchange at Portage Junction and that rail cars have been interswitched at this location since 1912, although the exact location of the interchange has moved throughout the years from "F" Yard to Fort Rouge Yard, both located at Portage Junction.

[71] Subsection 127(1) of the CTA refers to an interswitching order being made by the Agency "[i]f a railway line of one company connects with a railway line of another company". The parties agree that a line of CN does connect with a line of BNSF. However, one of the issues between the parties is the location of this connection at mileage 4.5 of CN's Rivers Subdivision and the fact that this connection is not at Fort Rouge Yard, which CN submits is located 1.91 miles away.

[72] It is evident from a reading of the definition of the word "interchange" that the interchange is a place where the lines of two railway companies connect and where loaded or empty cars may be stored until delivered or received by the other railway company. The issue that has been raised by the parties is the geographical boundaries of this place.

[73] CN submits that the two requirements set out in the definition of "interchange" have not been met as the two conditions must relate to the same place, a situation that is not present in the current case: the lines of BNSF and CN do not connect at Fort Rouge Yard; they actually connect at mileage 4.5 of CN's Rivers Subdivision.

[74] BNSF, contrary to CN's position, argues that the word "place", as found in the definition of "interchange", demands a broad interpretation in order to support the objects of the interswitching provisions. BNSF states at paragraph 23 of its submission:

[T]he use of the word "place" to describe the locale of both the physical connection and the storage tracks in the definition of "interchange" necessarily demands a broad interpretation since there are many configurations of interchange tracks, configurations driven in many cases by the convenience of the two railways involved, as is the case with the BNSF-CN interchange in Winnipeg.

[75] Black's Law Dictionary, 6th Edition, defines "place" as "This word is a very indefinite term. It is applied to any locality, limited by boundaries, however large or however small. It may be used to designate a country, state, county, town, or a very small portion of a town. The extent of the locality designated by it must generally be determined by the connection in which it is used. In its primary and most general sense (it) means locality, situation, or site, and it is also used to designate an occupied situation or building."

[76] The Agency is of the opinion that the word "place" is a broad term which reasonably may cover an area that includes two connecting railway lines and a yard with both physical features not being exactly in the same location. There is no reference or specification in the definition of interchange regarding the proximity of the connecting lines and the storage yard that constitute the place where interswitching occurs.

[77] The Agency finds that the wording contained in section 111 of the CTA is broad enough to conclude that a reasonable interpretation of the word "place" in the definition of an "interchange" reflects physical differences and practicalities of railway operations, and the fact that generally, no two yards or track configurations are similar. Track layouts, space constraints and the topography of the land may affect where facilities for the storage of rail cars are built. As such, it may be virtually impossible to have facilities in place for the storage of rail cars at the connecting point of two railway lines.

[78] In this regard, Paterson states, in part, at paragraphs 33 and 34 of its intervention:

Railway cars cannot be loaded or empty cars cannot be stored at the actual literal point of connection between two railway lines (BNSF-CN). Attempting to limit an "interchange" to the actual connecting point of steel, wood and ballast is unreasonable. The actual connection point of rail lines occurs in a two to four metre space and it is unreasonable to interpret Section 111 to literally define the interchange as having to occur within these actual two to four metres. Such an interpretation is illogical, unreasonable and impossible.

Consistent with the industry, railcars are loaded or empty cars are stored in yards or siding close to the actual connection between rail lines but not necessarily at the actual connection between rail lines.

[79] In this case, given the configuration of the track and storage yard, BNSF must travel over the line of CN to access Fort Rouge Yard, which is where BNSF's loaded or empty cars are stored until delivered or received by BNSF. The fact that BNSF must now travel over a longer distance in order to reach the storage track, and thus the point where the two railway lines connect being further from the storage yard, is a result of CN's decision to move the location of the storage yard.

[80] This interpretation of the word "place" is also supported by the intent of the legislation in that a narrow interpretation would restrict interswitching as a competitive access mechanism and could possibly eliminate many interchange points. This broad interpretation as set out above reflects the current operational realities of many yards and taking a narrow interpretation would severely restrict the applicability of regulated interswitching which would be contrary to the intent of the legislation.

[81] Further, while CN submits that the Agency has already determined that BNSF's interchange with CN is located near St. James Junction as per BNSF's Certificate of fitness, the Agency issued the variance of the Certificate of fitness based on the determination that there is adequate liability coverage for the proposed construction or operation of a railway, and not as a determination of the interchange.

[82] While the railway company must specify the termini and route of every railway line to be operated, this listing does not necessarily make it an "interchange" for the purposes of the interswitching provisions of the CTA and the Interswitching Regulations.

Interswitch

[83] Section 111 of the CTA defines "interswitch" as the transfer of traffic "from the lines of one railway company to the lines of another railway company." There is a transfer of traffic between the two railway companies at Fort Rouge Yard. However, as set out above, BNSF has running rights over the CN line that permits it to enter Fort Rouge Yard for the transfer of its traffic to its locomotives.

[84] The 1912 Running Rights Agreement granted BNSF the right to run its trains on the CN Letellier Subdivision from Noyes, North Dakota, to Portage Junction, as well as the right to operate its trains on the CN line from Portage Junction west to a point on the CN line where BNSF could establish a connection. In 1983, the parties entered into the Haulage Agreement which established a pool train operation. Pursuant to this agreement, CN hauls BNSF traffic on CN trains together with its own traffic from Noyes to Winnipeg. CN, in its submission, states that it acts as a contract haulage carrier for BNSF and that the train hauling the BNSF traffic is a BNSF train for all intents and purposes.

[85] The 1913 Transfer Track Agreement provided for the construction of transfer tracks west of Portage Junction, which was located at "F" Yard and was used to transfer traffic between the two railway companies from 1913 to 2003.

[86] As a result of this agreement, two tracks were constructed at CN's "F" Yard. As submitted by CN, one track was constructed for the purpose of delivery of traffic to BNSF while the second track was constructed for the purpose of delivery of BNSF traffic to CN.

[87] As provided for in the 1913 Transfer Track Agreement, CN was entitled to change or alter the location of these transfer tracks. In 2003, "F" Yard was removed by CN and substituted with CN's Fort Rouge Yard, which BNSF submits is located approximately 560 metres just north of Portage Junction.

[88] Paterson submits that "[t]his agreement for joint usage is more than a standard running rights agreement [...] construction of said track was to be for joint usage, not simply running rights."

[89] The following sections of the 1913 Agreement support Paterson's position.

[90] Clause 1 of the 1913 Transfer Track Agreement reads:

That the Northern Company will construct for use in the transfer of cars from the lines of one company to the other, transfer tracks as indicated in red upon the attached plan marked "Exhibit A", and made a part hereof, and the parties hereto shall, during the continuance of this agreement, and on the terms hereinafter contained, use the said tracks for the purpose of transferring cars at Portage Junction, Winnipeg, from the line of one company to the line of the other; said transfer to be made in accordance with a method mutually agreed upon by the companies.

[91] Clause 2 reads:

That the Midland Company will, upon completion of the construction of said transfer tracks, pay to the Northern Company the sum of six thousand five hundred and thirty-three dollars and thirty cents ($6,533.30), being one-half of all the costs and expenses thereof, as shown on the statement attached hereto, such payment to be made on the execution hereof.

[92] Clause 3 reads in part:

That the Northern Company will do all the work of maintenance and repair of said transfer tracks, and the Midland Company will pay to the Northern Company one-half of all the cost thereof on monthly statements to be furnished by the Northern Company [...]

[93] Clause 4 reads in part:

That the Midland Company will also pay to the Northern Company, upon the 15th day of August, in each and every year, during the continuance of this agreement, the sum of two hundred dollars ($200.00) being an amount equivalent to rental upon one-half the value of the land used for such transfer tracks [...]

[94] Clause 7 reads:

That on the termination of this agreement each party hereto shall be entitled to one-half of the material contained in said transfer tracks, but upon the election of the Midland Company and at its written request the Northern Company will take all of the material and will pay to the Midland Company the cost thereof to the Midland Company as shown on the statement attached hereto, less a depreciation charge calculated at the rate of 6% per annum from the date hereof.

[95] As indicated above, in 2003, as a result of what CN refers to as a "physical reconfiguration of tracks in the Winnipeg area", the operations pertaining to the transfer of traffic to BNSF that took place within the 1,530 feet of track capacity at "F" Yard now takes place at CN's Fort Rouge Yard.

[96] Clause 5 of the 1913 Transfer Track Agreement provided for continuance of the transfer of traffic from BNSF to CN as per the terms and conditions of the agreement. Clause 5 reads:

That in case the Northern Company shall at any time during the continuance of this agreement desire to change or alter the location or construction of the said transfer tracks for any purpose whatsoever, the Northern Company may do so at its own expense upon providing other transfer facilities as nearly as may be equally convenient. If the parties hereto cannot agree upon the transfer facilities to be in such case substituted for these provided for herein, all questions in dispute shall be referred for determination to the Board of Railway Commissioners for Canada whose decision thereon shall be final. The terms of this agreement shall, mutatis mutandis apply to such new tracks as fully and to the same extent as to the tracks originally constructed hereunder.

[97] The Agency is of the opinion that based upon a reading of the provisions of the 1913 Transfer track Agreement as set out above and CN's submissions, the operating environment which existed at CN's "F" Yard is maintained at CN's Fort Rouge Yard. The traffic destined to Paterson is not physically transferred between the lines of the two railway companies using transfer tracks as, for efficiencies of operations, the Paterson traffic is not removed from the pool train, but rather stays intact and is transferred electronically. Nevertheless, for the nature of the movement, it would normally be removed from the pool train before being transferred to CN, similar to other movements performed between BNSF and CN in Fort Rouge Yard.

[98] In addition, the 1913 Transfer Track Agreement demonstrates that BNSF had a "line of railway" at "F" Yard and now has a "line of railway" at CN's Fort Rouge Yard. Unlike the 1912 Running Rights Agreement which, among other matters, established running rights, the 1913 Transfer Track Agreement gave to BNSF an ownership interest in the transfer track which is illustrated by the fact that, as per the Agreement, BNSF paid one half of all the costs and expenses associated with the construction of the transfer tracks, one half of any maintenance and repair of the tracks and, if the agreement is cancelled, BNSF is entitled to receive remuneration from CN for one half of the material contained in the transfer track.

[99] This conclusion is supported by Decision No. 798-R-1993 which dealt with the CNCP Ottawa Valley partnership, a partnership of CN and CP. Although this decision was ultimately rescinded by the National Transportation Agency (NTA) as the CNCP Ottawa Valley partnership was terminated, the principles set out in that Decision are applicable in this case.

[100] In that case, CN and CP filed with the NTA a notice of agreement to convey segments of their respective lines of railway and other assets in the Ottawa Valley region to CNCP Ottawa Valley partnership. This would have resulted in a single route of approximately 370 miles. Some parties were concerned that the interswitching provisions of the CTA would no longer apply as a result of this single route. They also referred the NTA to the Celgar Decision.

[101] In Decision No. 798-R-1993, the NTA stated:

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 an "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 [...]

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

[102] The Agency is therefore of the opinion that BNSF has a sufficient ownership interest in the transfer track at Fort Rouge Yard to have a line of railway for the purposes of the interswitching provisions of the CTA.

Celgar case

[103] CN refers to the Celgar Decision in support of its position that there is no connection between a CN line of railway and the line of another railway company at Fort Rouge Yard. Although BNSF had running rights over the CP line, this did not give it a line of railway for the purposes of section 127 of the CTA. Likewise, in this case, the fact that BNSF has running rights over the CN line into Fort Rouge Yard does not create an interchange.

[104] BNSF is of the view that the Celgar case only stands for the proposition that there must be two railway lines connecting for an interchange to exist, a situation which is present in this case, as BNSF has a line of railway that connects with a line of CN in Winnipeg. In contrast, in the Celgar case there was only one line of railway with another railway company having running rights over the one line.

[105] Paterson and CWB support BNSF in its position that the Celgar case is inapplicable, as the line of CN does connect with the line of BNSF at Portage Junction.

[106] In the Celgar case, the NTA found that there was only one railway line to the interchange at Nelson, British Columbia, that being CP's line of railway trackage. The NTA concluded that the Burlington Northern Railroad Co. did not have a "line of railway" by virtue of a running rights agreement with CP to Nelson. The second railway company had running rights over a line of railway and not an ownership interest in the line of railway as BNSF has at Fort Rouge Yard.

[107] The Agency is of the opinion that the Celgar case can be distinguished from this case in that the BNSF line connects with the CN line 1.91 miles to the west of Fort Rouge Yard and, as set out above, the definition of interchange does not require the connecting lines and the storage yard to be in the exact same place. In addition, BNSF has an ownership interest in the transfer tracks at Fort Rouge Yard.

Local carrier

[108] CN asserts that for regulated interswitching to apply, in addition to the requirement to have an interchange, CN must also be a "local carrier", as defined in section 111 of the CTA. In this regard, CN is of the opinion that it does not meet the conditions that constitute the definition of a local carrier and as a result, the interswitching provisions of the CTA do not apply.

[109] BNSF argues that you cannot import into subsection 127(1) of the CTA the requirement that CN be a local carrier, a term that is defined and used for the purposes of the competitive line rate provisions of the CTA.

[110] The phrase "local carrier" is defined in section 111 of the CTA as "a railway company that moves traffic to or from an interchange on a continuous route from the point of origin or to the point of destination that is served exclusively by the railway company".

[111] The Agency notes that, while the concept of "local carrier" is integral to the competitive line rate provisions found in sections 129 to 136 of the CTA, there is no indication in any of the interswitching provisions that the conditions that constitute a local carrier are to be met when considering whether regulated interswitching is applicable in a particular situation.

[112] The definitions found in section 111 of the CTA define words for the purposes of the provisions found in Part III, Division IV of the CTA and are to be used only where they are applicable. Unlike the competitive line rate provisions, no reference is made to the term "local carrier" in the interswitching provisions of the CTA, either in the CTA or the Interswitching Regulations.

[113] However, the Interswitching Regulations do make reference to a "terminal carrier", namely the railway company which interswitches traffic at an interchange to or from a siding.

[114] Although in a past decision, namely Decision No. 514-R-2007, the Agency, at paragraph 48, stated that the terminal carrier is also called the local carrier, the definition provided in that case was based on the particular facts of that case where the terminal carrier was in fact the local carrier. The Agency used the phrase "local carrier" in that Decision as it is recognized by industry as the terminal carrier for interswitching purposes. It does not, however, limit the applicability of interswitching to situations where the carrier is a local carrier.

[115] In fact, the impact of importing into the interswitching provisions of the CTA the requirement that CN be a local carrier results in the requirement that, for regulated interswitching to apply, there be only one railway company exclusively serving the shipper, an interpretation that narrows the application of who can benefit from regulated interswitching, and does not support the principles that regulated interswitching was designed to address.

[116] Generally, in the past, when making a determination on the applicability of interswitching, the Agency has dealt with cases where a shipper is served directly by only one carrier, and those decisions have addressed, for the most part, the issue of interswitching in that context. Earlier decisions have, therefore, based on facts before the Agency, referred to interswitching as applying where shippers are captive to the line of one railway company.

[117] In this case, both a line of CP and a line of CN serve Paterson. As set out above, the intention of the interswitching provisions is to provide shippers with greater access to competitive services. This is reflected in the statement of national transportation policy in section 5 of the CTA, which states, in part:

It is declared that a competitive, economic and efficient national transportation system [...] is essential to serve the need of its users, advance the well-being of Canadians and enable competitiveness and economic growth in both urban and rural areas throughout Canada. Those objectives are most likely to be achieved when

(a) competition and market forces, both within and among the various modes of transportation, are the prime agents in providing viable and effective transportation services.

[118] The provisions of the CTA and the Interswitching Regulations do not require that a carrier be served by only one railway company in order for interswitching to apply. This is in direct contrast with the competitive line rate provisions of the CTA, where the term "local carrier" is used and where in subsection 129(1) of the CTA it is specifically stated that in order for the competitive line rates to apply, a shipper must have "access to the lines of only one railway company at the point of origin or destination of the movement of the shipper's traffic".

[119] The Agency is of the opinion that for interswitching to apply, a shipper does not have to have access to only one railway company and the requirements of a "local carrier" do not apply to interswitching.

[120] CN further makes the argument that as the routing taken by CN to deliver traffic to Paterson requires CN to operate over CP lines pursuant to a running rights agreement, this means the routing is not continuous, which is a condition required by the definition of "local carrier".

[121] CN implemented a running rights agreement with CP as part of a co-production initiative which permitted CN to discontinue portions of its Oakpoint Subdivision that it had used to directly service the Paterson facility and, instead, serve the facility through running rights over portions of CP's Carberry Subdivision.

[122] The phrase "continuous route" is used in connection with the definition of "local carrier" and is referred to in section 129 of the CTA, where it is stated that a continuous route is one of the conditions required for the competitive line rates to apply. However, it is not similarly referenced in the interswitching provisions of the CTA.

Other matters

[123] Paterson raised a number of issues concerning its views regarding CN's service to and its assurances made regarding Paterson's Lilyfield facility. In its submissions, CN refuted these allegations.

[124] As the Agency has determined that the rail activities between CN and BNSF in this case constitute interswitching for the purposes of section 127 of the CTA, the Agency finds it unnecessary to address these issues.

Conclusion

[125] The Agency finds that an interchange, as defined in section 111 of the CTA, exists between BNSF and CN. There is a place where the railway line of BNSF connects with the railway line of CN at mileage 4.5 of CN's Rivers Subdivision, and CN's Fort Rouge Yard is a place where loaded or empty rail cars may be stored until delivered or received.

[126] The Agency also finds that the provisions of the 1913 Transfer Track Agreement between CN and BNSF establish that BNSF has a line of railway for the purposes of the interswitching provisions of the CTA.

[127] Therefore, the Agency determines that the rail activities between BNSF and CN in the area of Portage Junction constitutes interswitching for the purposes of section 127 of the CTA.

Members

• John Scott
• Geoffrey C. Hare