Decision No. 460-R-2013

December 13, 2013

APPLICATION by the Canadian National Railway Company for a ruling related to a railway company’s obligations under section 146.01 of the Canada Transportation Act, S.C., 1996, c. 10, as amended.

File No.: 
R8150/372/13-1

APPLICATION

[1] On December 9, 2013, the Canadian National Railway Company (CN) filed an application with the Canadian Transportation Agency (Agency) requesting a ruling on the meaning and application of section 146.01 in respect of a railway line.  Specifically, CN asks the Agency to rule that:

[T]emporary arrangements (and the associated operations) under which CN would authorize other rail operators to access the Line and run their trains on it to haul traffic and provide service to customers located on the Line until the process set out in sections 143 to 145 of the CTA is completed does not constitute resumption of operations of the line by CN for the purpose of section 146.01 of the Canada Transportation Act (CTA) that would impose any obligations on CN respecting its operations.

ISSUES

[2] Does CN have any obligations under the CTA in respect of the operation of the Line having regard to the requirements of section 146.01 of the CTA?

[3] Can CN allow third parties to operate on the Line while CN completes the steps set out in sections 143 to 145 of the CTA (discontinuance process) without losing the benefits of the exemptions in section 146.01 of the CTA?

CN’S POSITION

[4] On November 6, 1998, CN entered into an Asset Purchase Agreement (APA) with Trillium Railway Company Limited (Trillium), operating as St. Thomas and Eastern Railway (STER). The APA was with respect to the sale from CN to STER of certain real and personal property comprising CN’s Cayuga Line (Line) which is defined in the APA to mean:

[T]hose portions of CN’s lines of railway and right-of-way, as follows:

  1. That part of the Cayuga Subdivision extending from Delhi, Ontario at mile 80.00, to Yarmouth, Ontario at mile 114.55; and
  2. The 0.64 mile of CN’s Tillsonburg North Spur starting at mile 94.05 of the Cayuga Subdivision and all connecting branch lines and spurs as shown on […] (Line)

[5] The APA contains the various terms and conditions under which the Line was sold to STER, including, but not limited to, the following:

  • a description of the purchased assets, which comprises all of CN’s right, title and interest in the real and personal property comprising the Line (with certain exclusions); and
  • the payment of the purchase price.

[6] The APA also contains a repurchasing obligation by CN, which states:

In the event that at any time STER, its successors or assigns (“Seller”) desires to:

  1. Sell, assign, transfer, encumber, charge, lease or sublet in whole or in part the Cayuga Line and/or the Purchased Assets; or
  2. Apply to have the Cayuga Line discontinued, it shall so notify CN in writing (the “Disposition Notice”) and upon receipt by CN of the Disposition Notice

CN shall repurchase the Purchased Assets from the Seller upon payment of:

  1. The Purchase Price as set out in [...]
  2. The net salvage value of the additional and betterments made to the Cayuga Line [...]

[7] On May 5, 1999, the transfer of the railway land titles from CN to Trillium was registered with the Ontario Land Registry Office.

[8] On November 29, 2013, Trillium sent CN, in accordance with the provisions of the APA, the Disposition Notice requesting that CN proceed with the repurchase of the Line as STER “desires to....apply to have the Cayuga Line discontinued...”

[9] CN states that CN and Trillium have agreed to effect the repurchase of the Line on December 20, 2013.

[10] CN advises that in accordance with section 146.01 of the CTA, CN will not resume operating the Line and will proceed under the discontinuance provisions set out in sections 143 to 145 of the CTA.

[11] CN states that there are customers currently located on the Line and that “CN wants to explore options with third‑party rail operators to maintain service where possible during the period when CN advertises the Line in accordance with the process set out in sections 143 to 145 of the CTA.”

ANALYSIS AND FINDINGS

Issue 1: Does CN have any obligations under the CTA in respect of the operation of the Line having regard to the requirements of section 146.01 of the CTA?

[12] Section 146.01of the CTA states:

  1. If, by reason of the instrument or act by which a railway line or an operating interest in a railway line is transferred through the process set out in sections 143 to 145 or otherwise, the railway line or operating interest in the railway line returns to the railway company that transferred it, the railway company shall, within 60 days after the day on which the return takes place, resume operations of the line or follow the process set out in sections 143 to 145.
  2. If a railway line or operating interest in a railway line returns to a railway company that transferred it and the company decides to follow the process set out in sections 143 to 145 in respect of the railway line or operating interest, the company is not subject to subsection 142(2) in respect of the railway line or operating interest and has no obligations under this Act in respect of the operation of the railway line.

[13] Based on the language in this provision, the conditions set out in section 146.01 for CN to be exempted from subsection 142(2) and from its obligations under the CTA in respect of the operation of the Line are:

  1. The Line or an operating interest in the Line was transferred to STER;
  2. The Line will be returned to CN; and
  3. CN has decided to follow the process for discontinuance of the Line and to not resume operations.

[14] In addressing CN’s request, the Agency will examine whether these conditions have been met in respect of the Line.

a) Was the Line or an operating interest in the Line transferred to STER?

[15] The evidence filed by CN demonstrates that CN transferred, by way of a sale, all of CN’s right, title and interest in the real and personal property comprising the Line in consideration of the purchase price and STER took possession of the purchased assets for continued operation of the Line by STER. The transfer of the railway land titles has been registered with the Ontario Land Registry Office.

[16] Based on the above, the Agency finds that the Line was transferred to STER within the meaning of section 146.01 of the CTA.

b) Will the Line be returned to CN?

[17] Under the APA, CN has the obligation to repurchase the Line upon receipt of a Disposition Notice by STER. CN and STER agreed to effect the repurchase of the Line on December 20, 2013, at which point all real and personal property assets transferred to STER will return to CN upon the payment of the repurchase price.

[18] The Agency finds that on the date on which the repurchasing of the Line will take effect, the Line, transferred to STER by CN, will return to CN within the meaning of section 146.01 of the CTA.

c) Has CN decided to follow the process for discontinuance of the Line and to not resume operations?

[19] CN submits that it will not resume operations on the Line and indicates that it intends to proceed with the discontinuance process.

[20] The Agency notes that section 146.01 of the CTA does not prescribe any conditions, whether in substance or in form, under which the decision to resume operations or to follow the discontinuance process is to be made. The Agency is satisfied that this condition is met with CN’s stated decision not to resume operations and to instead follow the discontinuance process.

[21] Having found that the conditions set out in section 146.01 will be satisfied on the date on which the repurchasing of the Line will take effect, the Agency therefore finds that CN will not have any obligations under the CTA in respect of the operation of the Line.

[22] As the Agency has found that CN does not have any obligations under the CTA in respect of the operation of the Line, the Agency must next consider whether CN can allow third parties to operate on the Line without losing the benefits of the exemptions in section 146.01 of the CTA while it follows the discontinuance process in respect of the Line.

ISSUE 2: Can CN allow third parties to operate on the Line while CN completes the steps set out in sections 143 to 145 of the CTA (the discontinuance process) without losing the benefits of the exemptions in section 146.01 of the CTA?

[23] CN acknowledges that by allowing third parties to operate on the Line, it could be argued that CN is acting as if it wants to resume operations despite its statement that it will not resume operations and will instead proceed with the discontinuance process. CN’s position, however, is that neither the text of section 146.01 of the CTA nor Parliament’s intent when introducing this section in the discontinuance provisions indicates that allowing third‑party railway companies access to the Line during the discontinuance process constitutes a resumption of CN’s operations for the purposes of section 146.01.

[24] CN submits that that the objective of the discontinuance provisions under the CTA is to enable “railway companies to divest railway lines that are uneconomic to operate while favoring the continued operations of those lines by parties interested in acquiring them.” CN suggests that the requirement imposed on railway companies to first offer the lines for continued operation indicates Parliament’s primary objective, continued operation of railway lines.

[25] The Agency notes that when the conditions set out in section 146.01 of the CTA are met, the railway company is exempt from two obligations otherwise imposed by the CTA when discontinuing a railway line outside the context of a transfer. These exemptions are:

  1. there is no obligation in respect of the operation of the line; and
  2. the railway company is exempt from the requirement set out in subsection 142(2) of the CTA to indicate in its three-year plan its intention to discontinue operating the line for 12 months before discontinuing the operation of the line.

[26] The Agency agrees with CN that when the conditions necessary for section 146.01 of the CTA to apply are met, a railway company has no obligations in respect of the operation of a railway line. However, nothing in the text of section 146.01 precludes voluntary operation of the Line while the discontinuance process is underway.

[27] The Agency is of the opinion that the fact that a railway company voluntarily allows operations on its railway line during the discontinuance process for the benefit of shippers does not cause the railway company to lose the benefit of the exemptions in section 146.01 of the CTA. To hold that CN will waive the benefits of section 146.01 by allowing third parties to operate on the Line to accommodate shippers located on the Line, when it has no obligation to do so, would be contrary to one of the purposes of the transfer and discontinuance provisions, which is to favour continued operation of railway lines.

[28] The Agency finds that, as the evidence in the record establishes that the conditions necessary for section 146.01 to apply are met, CN is not subject to subsection 142(2) of the CTA in respect of the Line and has no obligations in respect of the operation of the Line.

[29] The Agency also finds that CN will not lose the benefits of the exemptions if it allows third‑party railway companies to operate on the Line while CN completes the discontinuance process set out in sections 143 to 145 of the CTA.

Member(s)

Geoffrey C. Hare
Raymon J. Kaduck
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