Decision No. 452-R-1991

August 19, 1991

File Nos. T6115/427
T6115/447

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INTRODUCTION

The Canadian National Railway Company (hereinafter CN) and the Goderich-Exeter Railway Company Limited (hereinafter GER), an Ontario company which is a wholly owned subsidiary of RailTex Inc. (hereinafter RailTex), an American company which owns a number of short line railway companies in the United States, entered into an asset purchase agreement on October 29, 1990 for the conveyance by CN of the Exeter and Goderich Subdivisions to GER. (This agreement is hereinafter referred to as the conveyance agreement). On February 22, 1991, the National Transportation Agency (hereinafter the Agency) received notice from CN of the conveyance agreement pursuant to subsection 158(2) of the National Transportation Act, 1987 (hereinafter the NTA, 1987). A copy of the conveyance agreement which included a request that its confidentiality be preserved was also filed with the Agency.

Subsection 158(3) of the NTA, 1987 states that:

(3) Within six months after the receipt of a notice under subsection (2), the Agency shall, after holding such hearings, if any, as are required in its opinion to enable all persons who wish to do so to present their views on the conveyance of the line of railway or segment, approve the agreement for the conveyance unless the Agency determines that the conveyance would not be in the public interest or that the company to whom the line or segment is to be conveyed is not authorized to operate it. (Emphasis added)

PRELIMINARY MOTION

United Transportation Union - Canada (hereinafter UTU) requested disclosure of the conveyance agreement and certain other information it considered relevant to the public interest. By letter decision dated May 31, 1991, the Agency denied the request of UTU because UTU had not sufficiently addressed the relevancy of the information sought nor were any detailed reasons given why the specific information was required or how such information would be used to assist the Agency in its deliberations. Furthermore, the Agency found that, notwithstanding the relevancy issue, UTU had not convincingly demonstrated that the public interest in disclosure of the conveyance agreement outweighed any specific direct harm CN had claimed would likely result to it and GER by disclosure of the conveyance agreement.

MATTERS CONSIDERED BY THE AGENCY

Upon the direction of the Agency of March 20, 1991, CN published a notice of the conveyance agreement on April 10, 1991 in the newspapers of the area concerned and served copies of the notice on the shippers on the line and on others believed to be interested in this proceeding. The closing date for interventions was thirty (30) days from the date of publication of the notice.

The Agency received twelve submissions in response to the above-mentioned notice. Five interveners supported the proposed conveyance, three interveners supported the concept of the conveyance but expressed certain concerns related to future land lease and freight rate arrangements with GER, potential future abandonment of the lines and the impact on local railway labour, and four interveners opposed the conveyance agreement.

Mr. Paul Klopp, M.P.P. Huron, The Township of Hibbert, the Corporation of the County of Huron, the Corporation of the Town of Seaforth, and the Port Stanley Terminal Rail Inc. supported the conveyance of the Exeter and Goderich Subdivisions from CN to GER/RailTex. In its application, CN provided the Agency with copies of correspondence it had received from the County of Perth, the Corporation of the Town of Goderich, the Town of Exeter and the City of Stratford which indicated support for the conveyance of the lines to GER.

Goderich Elevators Limited (hereinafter Goderich Elevators) stated that it had no objection to the conveyance agreement but did have reservations concerning the establishment of rates for land and siding agreements by GER in the future.

Hensall District Co-operative, Incorporated (hereinafter Hensall) did not object to the conveyance agreement but expressed concerns similar to those of Goderich Elevators with regard to future rates for land/siding agreements. Other concerns were in respect of the maintenance of competitive combined CN/GER freight rates, and any contingencies regarding CN reacquiring the lines should the GER not be a successful enterprise.

The Ministry of Transportation of the Province of Ontario (hereinafter the Ministry) submitted that it supports the continuation of rail service on the Exeter and Goderich Subdivisions and the concept of regional railways, which serve and support local development. However, the Ministry expressed concern regarding the impact the conveyance agreement would have on current CN employment as well as concern regarding the safety of rail operations by GER.

Four residents of Gloucester Terrace in the Town of Goderich (hereinafter the Gloucester residents) opposed the conveyance agreement because of their concern over structural and mechanical faults to their homes and damage to their property which they believe to be caused by CN rail operations on the line adjacent to their property. The Gloucester residents are opposed to the conveyance agreement until such time as an agreement is reached limiting the weight and speed of trains on the line adjacent to their property.

The Brotherhood of Locomotive Engineers - Provincial Legislative Board of Ontario (hereinafter BLE 1) opposed the conveyance agreement as not being in the public interest in four main areas, namely: the potential job loss to its membership and replacement with a less highly trained work force; the potential loss of bargaining rights under provincial jurisdiction, the potential relaxation of operational and personnel safety standards from federally regulated minimums which would impact on public safety; and the long term financial stability of GER/RailTex.

The Brotherhood of Locomotive Engineers - Division 68 (hereinafter BLE 2) opposed the conveyance of the Exeter and Goderich Subdivisions to GER for four basic reasons: 1) the sale price of the lines was substantially less than the long term value of the asset to CN and the country; 2) the sale of the only rail link to the only port on Lake Huron "to a foreign country" was not in the interest of national security; 3) the fragmentation of the CN rail system was not in the long term interest of CN or of Canadians; and 4) the impact the conveyance agreement would have on unionized railway employees. In this last regard, BLE 2 sought the establishment of dual seniority and interchangeable rights for its members between CN and GER/RailTex as a condition to the conveyance agreement.

UTU opposed the conveyance agreement on the grounds that it is not in the public interest to allow the sale of these profitable lines which are operated in a safe and efficient manner by a financially secure Canadian company. UTU stated that CN adequately serves the needs of the shippers in the area, provides employment to persons in the area, and has a proven record of maintaining the road bed, track infrastructure and level crossings.

UTU contended that information concerning: the financial status, long term stability and viability of GER; the occupational health and safety record of GER/RailTex; the business plans of GER in support of its ability to provide and maintain adequate service to shippers; CN and/or GER plans regarding displaced CN employees as a result of the conveyance; and GER plans concerning the maintenance of the right-of-way, track structure and level crossings, were all relevant to assessing the public interest. UTU submitted that the Agency should consider these matters in evaluating whether the conveyance agreement is in the public interest.

Furthermore, UTU submitted that, to its knowledge, CN had not provided any evidence in respect of the matters summarized above to substantiate that the proposed conveyance was in the public interest and therefore the Agency ought not to approve the conveyance agreement.

Lastly, UTU requested that the Agency hold a public hearing in order to consider the conveyance agreement prior to making its determination pursuant to section 158(3) of the NTA, 1987.

In response to the interventions of Goderich Elevators and Hensall, CN referred to a letter dated November 12, 1990 from RailTex to the Minister of Transportation, Province of Ontario, which indicated the commitment of GER/RailTex to being a good corporate citizen of the province. CN indicated that its agreement with GER to jointly market service on the lines should result in continued competitive rates. CN also stated that it does not intend to operate the lines if GER operations were unsuccessful, however, CN and GER intend to avoid such a situation by jointly promoting rail service on the lines.

In direct response to the submissions of Goderich Elevators and Hensall, RailTex stated that land leases, siding agreements and freight rates would be negotiated in the same manner as with CN in the past "... on the basis of commercial considerations mutually acceptable to our [(GER/RailTex)] customers and our organization."

CN submitted that the intervention of the Gloucester residents is not concerned with the conveyance per se. RailTex responded to the Gloucester residents by indicating that only one locomotive hauling a limited number of cars would be in service on the line adjacent to their property and hopefully the limited train size would alleviate their concerns.

CN contended that the concerns expressed by the Ministry, BLE 1, BLE 2, and UTU in respect of business plans and the impact of the conveyance on service levels, operating practices (employee and public safety), and rates were not at issue or relevant because the provisions of section 146 of The Railways Act, R.S.O. 1950, c. 331 of the Province of Ontario, obligates GER to provide adequate and suitable accommodation for traffic. CN stated that this Act empowered the provincial regulator, the Ontario Municipal Board (OMB), to enforce the provisions of The Railways Act. If any person were aggrieved by the actions of the GER, recourse would be available to them through the OMB.

With further regard to operational safety concerns expressed by the Ministry, BLE 2, and UTU, CN stated that GER intends to train its employees in the Canadian Railway Operating Rules. CN also provided evidence of the emphasis RailTex, parent of GER, places on employee and operational safety.

In the view of CN, the national security concern raised by BLE 1 is unrealistic. The essential consideration is the continued viable operation of the line.

With regard to the concerns expressed by UTU, BLE 1, BLE 2, and the Ministry related to the impact the conveyance would have on the unionized employees of CN, CN contended that this matter was no longer an issue in the approval process of the Agency in view of the appeal decision of the Supreme Court of Canada in the case of the Central Western Railway Corporation v. United Transportation Union et al, [1990] 3 S.C.R. 1112. This ruling stated that the Central Western Railway Corp. (hereinafter CWR) did not come under federal jurisdiction and therefore it was not subject to the Canada Labour Code, R.S.C., 1985, c. L-2 (3rd Supp.) (hereinafter the Code). Consequently, union agreements with CN, the previous owner of the CWR lines, were not transferable or applicable with the sale of the line from CN to CWR. CN submitted that the circumstances of the GER fit perfectly with the ruling of the Supreme Court of Canada and therefore GER would not be required to accept the previous labour agreements of CN.

CN also noted that its collective agreements with the UTU did not form part of the conveyance agreement. CN stated that UTU members would remain CN employees and they would be able to exercise their rights according to their collective agreements. CN also indicated negotiations with the UTU arising from this sale had begun and were continuing.

FINDINGS

PUBLIC INTEREST

The Agency has considered all the material received and on file and has determined that a public hearing is not necessary in this case and that a Decision can be rendered based on the information on file. The UTU was the only intervener to make such a request.

With respect to the concerns of Goderich Elevators and Hensall, the Agency is of the view that the terms of the conveyance agreement adequately provide for the replacement of existing land lease and siding agreements with CN by GER and the establishment of competitive freight rates by GER.

Insofar as the submission of the Gloucester residents is concerned, the Agency recognizes the sense of frustration this group has over a situation it has been trying to resolve for apparently some time. However, the Agency considers that the complaint of the Gloucester residents is not sufficient grounds upon which to withhold approval of the conveyance agreement. Nevertheless, the Agency is currently considering this complaint as a matter separate and distinct from the conveyance agreement. Also, the Agency notes that the provisions of The Railways Act of Ontario allows the OMB powers in which to address complaints such as this one.

With regard to the concerns expressed by BLE 1, BLE 2 and UTU, the Agency has carefully reviewed their submissions, the responses of CN, and the conveyance agreement.

The Agency finds the provisions of section 158 of the NTA, 1987 allow railway companies to enter into conveyance agreements with other companies for the sale of any line of railway, profitable or not. Furthermore, contrary to the argument of UTU that it is not in the public interest to allow the conveyance of these lines because they are profitable (a conclusion independently arrived at by UTU), the Agency is of the view that the longer term financial and operational viability of GER would be enhanced by the fact that GER is acquiring a well-established and profitable operation.

The Agency also finds the concerns of BLE 2 relating to national security to be unfounded.

Notwithstanding the absence of detailed financial information in respect of GER, the Agency holds the view that because GER is a new company with no historical financial status, it is appropriate for the Agency to look through GER to the parent company, RailTex, for some assurance of the financial status and viability of the proposed operations. Based on the information on file in this regard, the Agency is satisfied that RailTex, as exhibited in the management of its other short line companies, has the financial resources to provide GER with any required financial support. In any case, the Agency is of the view that the marketing and operating terms of the conveyance agreement now provide a reasonable framework within which GER can be financially and operationally viable.

The Agency has considered the contention of UTU that matters such as the business plans of GER related to service levels and operational practices, its plans for maintaining the right-of-way, track and crossings and railway safety measures ought to be considered in the public interest in assessing the conveyance agreement. The Agency finds that the conveyance agreement adequately addresses these issues. Moreover, regardless of the terms incorporated in the conveyance agreement, it is important to note that provincial carriers are bound by statute to provide suitable and adequate accommodation for traffic in a safe operating environment. In the event that a carrier fails to meet its common carrier obligations under the provisions of The Railways Act of Ontario, any party adversely affected would have recourse under this provincial statute to seek remedial action from the appropriate provincial regulatory body.

With regard to the labour related issues raised by the unions and the Ministry, the Agency notes that the collective agreements of CN with the unions are excluded from the conveyance agreement and that negotiations arising from this proposed conveyance are in progress. If any of the unions disagree with the lack of "successor rights" of their collective agreements in this conveyance, then this matter should be more appropriately brought before the Canada Labour Relations Board. The Agency is of the opinion that any CN employees adversely affected by the conveyance will be able to exercise their rights according to their present collective agreements. If there are any disagreements arising from the application of a collective agreement, the employees also have recourse to the Canada Labour Relations Board.

Lastly, UTU implied that the conveyance agreement should not be approved because CN had not substantiated that the conveyance was in the public interest. Section 158 of the NTA, 1987 states, in part, that "... the Agency shall, ... approve the agreement, unless the Agency determines that the conveyance would not be in the public interest..." (Emphasis added). The Agency is of the opinion that the onus is not on the railway company conveying the line to substantiate that the conveyance is in the public interest.

In conclusion, the Agency, having reviewed the conveyance agreement and the submissions filed, finds no convincing evidence that this conveyance would not be in the public interest.

GER AUTHORITY TO OPERATE

The Agency has reviewed the Goderich-Exeter Railway Company Limited Act, 1990, S.O. 1990, c. Pr41 and is satisfied that the GER has the legislative authority to operate the Goderich and Exeter lines.

The Agency recognizes that, by approving the conveyance agreement at this time, it may be perceived as prematurely relinquishing its jurisdiction over the operation of these lines. However, the Agency does not consider this to be the case.

The Agency notes that the terms of the conveyance agreement require both CN and GER to obtain whatever approvals are necessary from the jurisdictional authorities before closing of the transactions contemplated by the agreement can be effected. The Agency is of the opinion that it is not necessary to await the determination by the OMB, the provincial rail regulatory authority, if the GER has the authority to operate its proposed railway in the Province of Ontario. If the GER does not receive the required approvals from the OMB, the conveyance agreement will fall and this decision of the Agency will become moot.

DETERMINATION

Accordingly, the Agency hereby approves, pursuant to subsection 158(3) of the NTA, 1987, the conveyance agreement between CN and GER for the conveyance of the Goderich and Exeter Subdivisions from CN to GER, including lands, buildings and operations related rail facilities.

Notwithstanding Agency approval of the conveyance agreement, the Agency retains jurisdiction over these lines while CN is the owner/operator. The Agency will cease to have jurisdiction when GER becomes the owner/operator of the lines as a provincial carrier which, according to the terms of the agreement, will not occur until GER receives the required provincial authorization to open the lines for traffic. GER will be subject to provincial jurisdiction upon assuming ownership of the lines at the closing of the conveyance agreement.