What if a railway company violates obligations set out in a level of service arbitration decision?

The Fair Rail Freight Service Act, passed on June 26, 2013, introduced a new dispute resolution option for shippers and railway companies who are unable to negotiate level of service (LOS) contracts respecting the manner in which a railway company will fulfill its service obligations under section 113 of the Canada Transportation Act (Act).

Upon the request of a shipper, the Agency appoints an arbitrator who will establish, in an arbitration decision, operational terms with which the railway company and the shipper must comply, including whether charges for services incidental to transportation should apply. The arbitrator’s decision is final and binding and is deemed a confidential contract. The LOS arbitration decision is valid for one year.

 Once the Agency is made aware by a shipper that an alleged violation of an obligation imposed on a railway company in a LOS arbitration decision has occurred, an Agency’s enforcement officer is appointed to conduct an investigation and determine whether a contravention has occurred. Where a contravention is confirmed, the enforcement officer issues a notice of violation imposing an administrative monetary penalty (AMP) of up to $100,000 per violation.

Who triggers an investigation?

A shipper triggers an investigation by informing the Agency in writing, alleging that a railway company has contravened an obligation contained in a LOS arbitration decision. Once notified, an Agency enforcement officer will communicate with the shipper to seek additional information, if necessary, and will then determine whether an investigation is warranted.

What is the nature of the Agency investigation?

The Agency enforcement officer will conduct a fact-finding investigation to determine if the railway company has not complied with an obligation in the LOS arbitration decision. The enforcement officer will seek information and supporting evidence from both the shipper and the railway company, to determine whether a contravention has occurred. The investigation may involve on-site visits to the offices of the shipper and the railway company to gather evidence.

At its discretion, the enforcement officer may share the evidence provided by the parties for their information, to verify its veracity. However, the investigation does not constitute a pleadings process, nor will the Agency oversee a process where the parties argue the meaning of provisions in the LOS arbitration decision.

At any time during this process, the enforcement officer can seek assistance from Agency staff for clarification or understanding of the nature of the provisions described in the LOS arbitration decision and other expertise from staff on rail operations. To ensure the integrity of the arbitration process, fairness and impartiality, the Agency will identify an employee who is a subject matter expert who has not been involved in any of the discussions and dealings related to the LOS arbitrated decision.

If the enforcement officer determines that no contravention has occurred, the investigation process is concluded and the parties are informed via e-mail or by phone. If it is determined that a contravention has occurred, the enforcement officer, based on the evidence, will determine the amount of the AMP and issue the NOV to the railway company. The notice will identify the violation(s), the name of the offender, the amount of the penalty, and how and when to pay the penalty.

What constitutes a contravention and how will each additional contravention be addressed?

A contravention occurs when the enforcement officer has determined that a railway company has not fulfilled an obligation contained in a LOS arbitration decision. Should the enforcement officer determine that a railway company is contravening more than one obligation, an AMP will be assessed for each contravention. As well, the railway company is expected to ensure immediate compliance with the terms ordered by the arbitrator, in addition to paying the AMP.

Will warnings be issued to railway companies?

As the railway company would have been involved in the arbitration process and the investigation, and would have received the LOS arbitration decision as a result of that process, a warning will not be issued.

Should all contraventions be 'amped' at the maximum amount prescribed in the Act?

No, a fixed AMPs framework would not permit the amount of a penalty to be set in proportion to the degree of seriousness of a contravention. Given that each LOS arbitration decision will be unique, it is difficult to pre-determine the amount of penalty that will apply for a violation of each obligation contained in the LOS arbitration decision. Due to the fact that no LOS arbitration decisions have yet been rendered, it is also premature to develop pre-established levels of penalties. 

What are the bases for a graduated AMP scheme?

As determined by the enforcement officer, the amount of the penalty will reflect the impact of the contravention on the shipper. In determining the amount of the penalty that will apply to each violation, the enforcement officer will consider both the seriousness of the impact on the shipper of non-compliance with the obligation and the number of previous violations of that LOS arbitration decision by the railway company.

The considerations/criteria that the enforcement officer will apply in determining the amount of the monetary penalty include:

• the impact of the non-compliance on the shipper;
• the nature and magnitude of penalties the railway company imposes on the shippers, such as demurrage (the AMPs will not be lower than what the railway company imposes on the shipper, the enforcement officer may consider a multiplying factor so as to ensure the monetary penalty is meaningful);
• the degree to which the railway company has not met the service obligation (a low variance, of say one day late or one car missing, would call for a lower penalty than a significant variance of five days late or 30 cars missing);
• the level of co-operation during an investigation;
• the compliance record of the railway company (whether it is taking, or has taken measures, to become compliant and avoid reoccurrence of the offense); and,
• the enforcement history of the railway company on other LOS arbitration decisions.

Over time, the Agency will further develop the criteria that will be applied to establish monetary penalties based on historical cases. 

Is the compliance history of a railway company a consideration in determining the amount of the AMP?

Compliance history will be taken into consideration by the enforcement officer. Should there be subsequent contraventions of that same LOS arbitration decision, a higher penalty will be imposed for all contraventions identified. To be clear, when considering the compliance history, contraventions of any provision of the LOS arbitration decision will be considered, not just a contravention of the same provision.

Can an enforcement officer’s determination be appealed or reviewed?

The Transportation Appeal Tribunal of Canada (TATC) provides a recourse mechanism to the national transportation sector regarding administrative actions taken by the Minister of Transport and the Canadian Transportation Agency under various pieces of federal transportation legislation. The Tribunal holds Review and Appeal hearings at the request of those affected by these administrative decisions.

However, no review is available, from TATC or otherwise, should the enforcement officer determine that there has been no contravention of the LOS arbitration decision obligation.

How will the outcome of an investigation be reported?

If the enforcement officer finds that no violation has been committed by the railway company with respect to the allegations of the shipper, both parties will be informed through informal communication.

If a notice of violation is issued, the Agency will report the outcome of its enforcement action on its Web site (Summary of enforcement actions). This information will be posted as soon as the notice of violation is issued and will be reported in such a way as to preserve the confidentiality of LOS arbitration decision.

The Agency will post the following information:

• the name of the railway company,
• the date of the contravention(s),
• a general statement related to the violated obligation(s), and
• whether it is under review by the Transportation Appeal Tribunal of Canada.

Due to confidentiality of the LOS arbitration decisions, no information regarding the specific obligation that was contravened or the identity of the shipper will be published.