Decision No. 73-R-1988

April 15, 1988

File No. DR 87-1001

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HEARD AT Winnipeg, Manitoba March 23, 1988.

BETWEEN

• Alberta Food Products
• Alberta Terminals Canola Crushers Ltd.
• Canbra Foods Ltd.
• CSP Foods Ltd.
• United Oilseed Products Inc.

APPELLANTS

and

• Canadian Pacific Limited
• Canadian National Railway Company

RESPONDENTS

Quorum

The Honourable Erik Nielsen

Chairman

Edward Weinberg

Member

Craig S. Dickson

Member

APPEARANCES

A. Jenkins

Avocat, Office national des transports

M.E. Rothstein, c.r. et J.E. Foran

Avocats, Western Crushers (Alberta Food Products, Alberta Terminals Canola Crushers Ltd., Canbra Foods Ltd., CSP Foods Ltd. et United Oilseed Products Inc.)

A.H. Turnbull et M. Shannon

Avocats, CP Rail

G. Nerbas

Avocat, CN Rail

BACKGROUND

Between December 3rd and 15th of 1987 the Canadian Transport Commission received notice from 21 shippers of proposed lower rate agreements with the Canadian National Railway Company and Canadian Pacific Limited in accordance with paragraphs 45(1)(a) and (b) of the Western Transportation Grain Act (hereinafter WGTA). Subsequently, as directed by the Commission, CN Rail and CP Rail provided public notice on December 29 and 30, 1987 pursuant to paragraph 45(1)(c) of the WGTA.

In accordance with subsection 47(1) of the WGTA, the final date for filing appeals of the proposed lower rates was January 29, 1988, thirty days from the giving of public notice required by paragraph 45(1)(c).

In response to the public notice of the proposed lower rates, the Agency received 10 applications for leave to appeal and three public interest submissions.

Leave to appeal was denied to all applications, except the Western Crushers, on the grounds that no new information, facts or issues were contained in the applications that had not been presented during the public hearings last year.

Alberta Food Products, Alberta Terminals Canola Crushers Ltd. and United Oilseed Products Inc. entered into agreements with CN Rail, and Canbra Foods Ltd. and CSP Foods Ltd. entered into agreements with CP Rail pursuant to paragraph 45(1)(b) of the WGTA wherein lower rates were negotiated for all grades and grains covered by Schedule I of the WGTA shipped in covered hopper cars.

The CN Rail rate reduction is $1.50 per tonne subject to the condition that there be a minimum 18 car block from one origin to one destination and a minimum gross weight. The CP Rail rate reductions are $1.00 per tonne on incremental tonnage over 25,000 tonnes up to 30,000 tonnes and $1.25 per tonne on incremental tonnage over 30,000 tonnes from each origin. In the case of both railway companies, the rate reductions are applicable only for commodities shipped in covered hopper cars.

SUMMARY OF POSITIONS OF PARTIES

The Applicants, Alberta Food Products, Alberta Terminals Canola Crushers Ltd., Canbra Foods Ltd., CSP Foods Ltd., and United Oilseed Products Inc., also known as the Western Crushers, argued that the application for leave to appeal should be granted. The Respondents, CP Rail and CN Rail, contested this application for leave to appeal.

The Applicants, Western Crushers, stated that this application for leave to appeal was based on the proposed lower rate on seed. However, the relief they sought was not for the disallowance of the canola seed rate but for the extension of that seed rate to canola oil. Western Crushers argued that to allow the proposed lower rate for canola seed but not for canola oil would be discriminatory and would be an unreasonable discouragement to an industry that has fought for years to obtain rate parity. Western Crushers argued that the railways' acts and omissions have taken unfair advantage of a monopoly situation with respect to rail captive canola oil shippers by not extending the lower rates to canola oil.

CP Rail submitted that Canbra Foods Ltd. and CSP Foods Ltd. freely entered into agreements with CP Rail for reduced rates under section 45 of the WGTA and, in fact, fully and freely complied with the regulatory procedures of subsection 45(1) of the WGTA. There is no such thing as a meal agreement, or a seed agreement, argued CP Rail. There is only an agreement that applies to all WGTA commodities that originate in facilities on CP Rail lines, that are shipped in covered hopper cars, that could be loaded to a gross maximum weight of 263,000 pounds.

CP Rail argued that the Applicants did not indicate that they were under any duress before or after they signed the agreements. Canbra Foods Ltd. and CSP Foods Ltd. cannot now seek leave to appeal their own agreement and seek to have the Agency amend their agreement to include oil moved in tank cars. To do so would make meaningless any agreement entered into under section 45 of the WGTA. CP Rail argued that the Applicants were trying to do indirectly what they could not do directly.

CN Rail supported and adopted the positions of CP Rail in respect of the Western Crushers on CN's rail lines. CN Rail also noted that the lower rates applied only to commodities shipped in covered hopper cars and not in tank cars. CN Rail further agreed that the Applicants could not use section 47 of the WGTA to renegotiate an agreement they had freely entered into. CN Rail argued that the very rate proposed could be appealed, but not something entirely different. Carriage of canola oil in tank cars, stated CN Rail, constitute a different subject matter from the subject matter before the Agency.

REASONS FOR DECISION

The WGTA was enacted by Parliament in 1983 following a lengthy period of consultation and a formal study by Dr. Clay Gilson of the University of Manitoba. The WGTA abolished the Crow Rate regime which had governed freight rates for grain since the waning years of the nineteenth century, and replaced it with a statutory rate structure that is determined by the costs of rail transportation and predicated on distances from prairie origins to the Lakehead and Pacific tidewater. Under the WGTA all rates for the carriage of grain are published and generally vary only with the distance from the port terminals. However, Parliament provided for a partial exception to the statutory rate structure by empowering a shipper and a railway company to enter into contract rates, pursuant to section 45 of the Act, which rates are different than those prescribed through the operation of law. Subsection 45(1) states as follows:

"45(1) A railway company may, in respect of any crop year, include in its tariff a rate that is lower than that provided by section 43 if

(a) the railway company and any shipper to whom such a rate would apply have agreed on a lower rate;

(b) the shipper has, in the manner prescribed by the Commission, given notice to the Commission of the proposed lower rate;

(c) the railway company, after the notice referred to in paragraph (b) has been given but not later than seven months prior to the beginning of that crop year, has, in the manner prescribed by the Commission, given public notice of its intention to include such a lower rate in its tariff, and

(d) the Commission has not disallowed a proposed lower rate pursuant to section 47."

Thus, although allowing for an exception to the ordinary rule of cost-driven rate-setting by the regulatory authority, Parliament required that shipper-carrier lower rate contracts be advertised to the public. In addition, the statute provides in section 47 for a right to appeal, with leave, from any proposed lower rate intended to be implemented under section 45 of the WGTA. Section 47 states as follows:

"47(1) Any person who believes on reasonable grounds that he will be adversely affected by any lower rate proposed to be implemented under section 45 may apply to the Commission for leave to appeal the proposed lower rate within thirty days of the giving of the public notice referred to in paragraph 45(1)(c).

(2) Subject to the thirty day delay set out in subsection (1), sections 59 to 63 of the National Transportation Act, 1987 apply, with such modifications as the circumstances require, in respect of an application under subsection (1) and in respect of any appeal that results therefrom, except that

(a) the Commission shall dispose of the application and any appeal that may result therefrom within ninety days of the making of the application; and

(b) in disposing of the matter, the Commission may disallow any proposed lower rate or allow it with or without conditions, including conditions relating to the extension of similar rates to other points.

(3) Where a railway company does not accept any condition imposed by the Commission pursuant to paragraph (2)(b), the company cannot charge the lower rate in respect of which the condition was imposed.

(4) Where, in allowing a proposed lower rate under paragraph (2)(b), the Commission makes it a condition that such lower rate as the Commission deems appropriate be extended to other points, the railway company that accepts the condition may extend such lower rate without complying with paragraphs 45(1)(a) to (c)."

An important feature of the statutory scheme expressed in sections 45 and 47 is that a lower rate may arise only at the initiative of a shipper and a carrier together, through an agreement. The statute has not conferred power on this Agency to impose a lower rate on a carrier in the absence of an agreement providing they meet the same conditions of the rate agreement. The lower rate only occurs if the economic interests of a shipper and a carrier propel them into an agreement on that subject matter. It is for this reason that lower rates under section 45 may be regarded as an exception to the ordinary rule of prescribed statutory freight rates for western grain.

The importance of this principle was recently affirmed by the Canadian Transport Commission in the case of Cargill Limited v. Canadian National Railway Company (unreported 1986). That case resulted from shipper-carrier contracts pursuant to section 45 of the WGTA between CN Rail and United Grain Growers and Alberta Wheat Pool, for lower rates at Dawson Creek and Pouce Coupé in the Province of British Columbia during the 1986-87 crop year. Those contracts precipitated an application by Cargill Limited for leave to appeal the proposed lower rates, based in part on the alleged inability of Cargill and CN Rail to consummate their negotiations for a lower rate during the 1986-87 crop year with a shipper-carrier contract. In denying the Applicant leave to appeal, the Commission said this about the contract mechanism employed in section 45 of the Act:

"Section 45 of the WGTA is a permissive section and is not obligatory. It does not require competition or cost-efficiencies but rather agreement between the parties. The Applicant's proposals to CN Rail were made pursuant to subsection 45(1); CN Rail, for whatever reason(s), chose not to agree with that proposal. Further, because there is no agreement, CN Rail is not obliged pursuant to section 45, to apply the BCR mileage determination to the Applicant's elevators at Hythe and Albright, as contended."

We concur with the view that section 45 contemplates a process of negotiation between two or more enterprises culminating in agreement, or non-agreement, without interference from the regulatory authorities. Once agreement has been reached, and public notice duly given, the Agency may consider any applications for leave to appeal that may arise from the lower rate that has been embodied in the agreement under section 45. However, no remedy is provided in the statute for an aggrieved shipper or railway where negotiations between the parties for a lower rate contract have been fruitless. Our role is restricted under section 47 of the WGTA to a consideration of the merits of any appeal that are directed at the broader concept of prejudice to the public interest. It is within this framework that we have considered this application for leave to appeal by the Applicants, the Western Crushers.

Both in the pleadings of the Applicants and in the argument made before us at the hearing, we were informed that negotiations between the Applicants and the Respondents occurred in the autumn of 1987 on the subject of an agreement for lower rates on grain, including canola seed, meal and oil. For whatever reasons the Applicants and the Respondents came to terms on the basis of lower rates for "all grades and grains covered by Schedule 1 of the WGTA shipped in covered hopper cars". This includes canola seed and canola meal but, of necessity, excludes canola oil owing to the impracticability of transporting oil in covered hopper cars, instead of tank cars.

The situation illustrated by this leave application, simply put, is that the parties negotiated for a lower rate contract to cover canola seed, meal and oil. The parties agreed on a contract for lower rates on seed and meal, but not on oil. Now the shipper parties have come to this Agency seeking to invoke the statutory appeal process to obtain through regulatory fiat what they were unable to obtain through the process of bargaining. Would the grant of leave to appeal in these circumstances be congruent with the policy of the statute?

The grant of leave to appeal under section 47 is an exercise of discretion that is based as much on law as on policy. In this case we think that our decision need not necessarily be founded on the legal arguments with respect to the issues of jurisdiction or statutory construction that were put to us, as much as it should reflect the intention of Parliament and the policy of the statute. Where, as here, an agreement is reached by two parties, it is not appropriate for this Agency to entertain an appeal designed to vary an existing contract by the extension of the contract, at the request of one of those contracting parties, to other products moved in different types of rail equipment, which is the remedy sought by the Applicants. This is particularly appropriate under this statute since, in the absence of a lower rate contract, the railway companies are entitled to charge only a regulated freight rate determined by the cost of transportation and thus no real question of monopoly or unfair advantage through captivity is present in any real or substantive sense.

Our decision, as expressed at the conclusion of the hearing on March 23, 1988 is that leave to appeal should be denied. It remains only for us to say, as we did at the hearing, that the erudite arguments of counsel were most welcome and helpful to us and we express our thanks to all.