Décision n° 213-R-2001

May 3, 2001

File No. T 7475/01-1

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INTRODUCTION

By Decision No. LET-R-127-2001 dated March 16, 2001, the Canadian Transportation Agency (hereinafter the Agency) invited Ferroequus Railway Company Limited (hereinafter FE), the Canadian National Railway Company (hereinafter CN) and various industry participants to provide written submissions on the scope of section 138 of the Canada Transportation Act (hereinafter the CTA), in particular whether the running rights with traffic solicitation rights application filed by FE legally falls within its ambit. This is also in reference to CN's letter dated April 2, 2001 wherein CN, as a preliminary matter, requested that the Agency summarily dismiss the application of FE on the basis that: (i) FE is not a railway company pursuant to section 138 of the CTA; (ii) FE's application is without merit, frivolous, vexatious and an abuse of Agency process; and (iii) the scope of the application is outside the ambit of section 138 of the CTA.

ISSUES

The issues to be addressed are: a) whether FE has the standing to apply for a running rights order pursuant to section 138 of the CTA; b) whether FE's application is without merit, frivolous, vexatious and an abuse of Agency process; and, c) whether the portion of FE's application that seeks an order from the Agency granting it the right to pick up and deliver traffic from North Battleford to Prince Rupert falls within the ambit of section 138 of the CTA.

Issue I - FE standing

The Agency notes that the Agency Decision and the accompanying Certificate of fitness No. 99001 which were issued to FE on July 5, 1999, and upon which FE now relies, were granted for specific proposed purposes, as set out in the Decision and Certificate. In its letter decision of March 16, 2001, the Agency asked FE to indicate whether the proposed railway operation has been completed or is still ongoing. As well, the Agency asked FE to indicate/explain how this certificate of fitness is sufficient to found an application for running rights by FE as a "railway company" within the meaning of section 138 of the CTA.

In reply to this question, FE states that it is a railway company, incorporated under the Canada Business Corporations Act, R.S.C., 1985 c. 44 on August 20, 1998, with its corporate head office in Edmonton, Alberta. FE states that it received its certificate of fitness from the Agency on July 5, 1999 and that as the holder of such a certificate it is a federally-regulated railway company.

FE states that at the time of applying for this certificate, it intended to handle both specialty passenger and freight operations between St. Thomas, Ontario and Québec, Quebec, but that CN ultimately denied FE access to the lines of railway identified in the certificate. FE further asserts that it remains willing and able to complete this operation at any time CN permits. According to FE, it has, however, operated on other CN lines in southern Ontario further to an agreement with CN.

FE also states that it has undertaken negotiations with CN for the running rights identified in the instant application which, as a railway company, it is permitted to do. As these negotiations have broken down, FE now applies to the Agency under section 138 of the CTA. To this end, FE states that the certificate of fitness which it has held since 1999 has not been superseded, annulled, revoked, suspended or withdrawn and that as a valid holder of such a certificate, it has the right to apply to the Agency for the requested orders.

In its response, CN countered that FE's certificate of fitness was issued for the very limited and restricted purpose of allowing FE to "test" a proposed federal railway. According to CN, the status of a full federal railway company has never been granted to FE by virtue of this certificate, and it has never been subsequently expanded, varied or renewed.

CN also states that the "restricted purpose" for which the certificate was issued has been spent in that it was granted only to permit the operation of a test train. According to CN, this test was completed in February 2000 and as such the certificate is no longer of any effect.

In the alternative, CN states that section 91 of the CTA, as the enabling provision for the issuance of a certificate, does not contemplate the issuance of a certificate for a person that proposes to operate exclusively on the lines of another railway company. According to CN, this section, and the entire structure of the CTA, presupposes that a railway company will be a facility-based operator (that is, both an owner and operator of railway infrastructure).

In this sense, CN states that FE does not own its railway lines or have any traffic base and as a "reseller" or "above the rail operator", its entry through running rights is inconsistent with the Canadian model of railway regulation. With respect to the instant application, CN asserts that FE has no assets suitable for the movement of grain traffic in the areas identified in its application.

Analysis and finding on the standing of FE

The Agency's jurisdiction to issue a certificate of fitness lies in Part III, Division II of the CTA entitled "Construction and Operation of Railways". The new market entry provisions for federal railway companies are limited, requiring only a determination by the Agency that an applicant has sufficient third party liability insurance coverage (section 92) for a proposed railway operation or construction.

Prior to a determination of adequate insurance, the Agency must first be convinced that the applicant proposes to operate a railway. Section 87 of the CTA defines both the terms "operate" and "railway". The term "operate", with respect to a railway, is defined, in part, as, "... (including) any act necessary for the maintenance of the railway or the operation of a train", while the term "railway" is defined in part as "meaning a railway within the legislative authority of Parliament and includes...".

The term "propose" is not, however, defined under the statute. In the decisions issued to date by the Agency whereby a certificate of fitness is issued as a result of an application for a proposed operation, the Agency has relied upon statements of intention filed by the applicant. Evidence in support of a proposal has varied from case to case, yet the Agency in each case has been convinced, based upon the information before it, that there is a bona fide proposal to operate a federal railway.

In 1999, the Agency had before it an application by FE for a certificate of fitness for a proposed railway operation for the testing of FE's equipment on CN lines crossing over a provincial boundary. The Agency, at that time, concluded that FE was a federal railway based upon its proposal to operate a "railway" within the legislative authority of Parliament and, therefore, after determining that FE had adequate insurance for that operation, issued FE a certificate of fitness.

The available information now shows that the actual test train operation as proposed by FE in 1999 has not been completed. However, FE indicates that it has operated on the CN and the Canadian Pacific Railway Company (hereinafter CP) Caso Subdivision in Ontario.

The Agency finds that FE continues to "propose" to operate over the railway lines identified in Appendix 'A' of Agency Decision No. 388-R-1999, should CN give the authority to do so. In this respect, the Agency acknowledges the statement filed by FE that it remains "ready, willing and able to complete the proposed (interprovincial) railway operation at any time that CN will permit mainline operations".

In light of the above and given FE's continued commitment to operate a proposed federal railway, the Agency finds that FE has a valid certificate of fitness and is a railway company for the purposes of the CTA. As such, the Agency finds that FE is entitled to apply to the Agency under section 138 of the CTA for the issuance of a running rights order. CN's motion to have FE's application dismissed on that basis is therefore denied.

Issue II - Character of FE's application

In its letter dated April 2, 2001, CN submits that FE's application is without merit, frivolous, vexatious and an abuse of Agency process and should be summarily dismissed. In support, CN states that FE has no railway assets as defined in section 87 of the CTA suitable for use in running or operating a railway, or to pick up and deliver grain traffic from North Battleford to Prince Rupert. In a similar manner, CN further asserts that FE has no employees capable of running, operating or maintaining a railway to pick up and deliver grain traffic between North Battleford and Prince Rupert.

CN also submits that the business plan filed by FE is wholly deficient. CN points out that the Business Plan indicates that FE's business will operate 52 weeks per year while the Port of Prince Rupert has not operated year-round for the past five years. CN further states that no allowance is made in the Operations Plan for port congestion, the cyclical nature of grain transport or the usual events of force majeure.

CN argues that FE's estimate of moving 1.2 million tonnes of grain per year would mean that it would have to pick up and haul all of the grain from CN's lines over which it has access. According to CN, this is unrealistic. CN further asserts that the thin capitalization disclosed in the Business Plan does not indicate that FE has sustainable economic viability capable of ensuring the performance of its obligations in the event of any revenue disruption.

FE counters by stating, in part, that its Business Plan is adequate. In support, FE states that its Business Plan has been accepted by Working Opportunities Fund, a Canadian venture capital organization, as the basis for providing funding for the venture. In response to CN's argument that its estimate of moving 1.2 million tonnes of grain per year is unrealistic, FE admits that it does not know how many tonnes will be available in the first five years of its operation. However, FE argues that its Business Plan is a reflection of the revenues attained if all the grain were to be moved by FE and that the viability of its operations can be sustained at both lower and higher volumes of traffic.

With respect to CN's statement that the Port of Prince Rupert has not operated year round for the past five years, FE points out that the CTA contemplates that carriers will offer service 52 weeks per year and that is what FE intends to do.

Analysis and finding on the character of FE's application

The test for striking down an application on the basis that it is frivolous, vexatious and an abuse of process has been examined in numerous court cases. In Creaghan Estate v. The Queen, [1972] F.C. 732, Justice Pratte, then at the trial division, stated at page 736:

[...] in my view, a statement of claim should not be ordered to be struck out on the ground that it is vexatious, frivolous or an abuse of the process of the court, for the sole reason that in the opinion of the presiding judge, the plaintiff's action should be dismissed. In my opinion, a presiding judge should not make such an order unless it be obvious that the plaintiff's action is so clearly futile that it has not the slightest chance of succeeding, whoever the judge may be before whom the case could be tried. It is only in such a situation that the plaintiff should be deprived of the opportunity of having "his day in Court".

In the present case, the Agency finds that FE's application is not frivolous, vexatious or an abuse of the Agency's process. FE's proposal to seek running rights for the purpose of soliciting traffic along CN's line raises a serious and legitimate question to be tried. The Agency also finds that FE, through its application and answers to the Agency interrogatories, clearly demonstrates a bona fide intention to proceed with the proposed operation if its application is successful.

In light of the above, the Agency dismisses CN's motion to have FE's application summarily dismissed on the basis that it is frivolous, vexatious and an abuse of Agency process.

Issue III - Scope of FE's application

In its Decision No. LET-R-127-2001, the Agency invited the parties as well as various industry participants to provide written submissions on the scope of section 138 of the CTA, in particular whether the running rights with solicitation rights application filed by FE falls within its ambit.

The Agency has received written submissions from FE, CN, CP, the Brotherhood of Maintenance of Way Employees (hereinafter BMWE), the Canadian Wheat Board (hereinafter CWB), the United Transportation Union (hereinafter UTU), the Saskatchewan Minister of Highways and Transportation, the Chamber of Shipping of British Columbia, the Canadian Canola Growers Association, the Saskatchewan Association of Rural Municipalities, the Prince Rupert Port Authority (hereinafter the Port Authority) and the Saskatchewan Urban Municipalities Association (hereinafter SUMA).

Preliminary matter

Although SUMA filed its submission after the deadline prescribed by the Agency, the Agency, pursuant to section 8 of the National Transportation Agency General Rules, SOR/88-23, accepts this submission as being relevant and necessary to its consideration of this matter. The Agency also accepts, as part of these pleadings, the scope comments made by the Western Canadian Shippers' Coalition, Luscar Ltd., the Canadian Industrial Transportation Association, the Canadian Chemical Producers' Association and the Forest Products Association of Canada filed as part of their submissions on the merits of FE's application.

POSITIONS OF THE PARTIES

FE

FE submits that the plain and ordinary meaning of the words found in section 138 of the CTA does not impose any restrictions on the conditions which the Agency may impose in making an order authorizing one federally-regulated railway company to operate over and on any portion of the lines of another federally-regulated railway company. In the opinion of FE, the fact that section 138 of the CTA requires the Agency to have regard to the public interest in imposing conditions, respecting the exercise or restriction of the rights contemplated by section 138 of the CTA, is a recognition that those rights involve broader issues than those which may arise between an applicant and a host railway company.

FE further argues that the history of the competitive access provisions in Canadian railway legislation shows that when Parliament intended to impose limits on a legislative provision, it did so explicitly. As Parliament has chosen not to impose limitations on the Agency's authority under section 138 of the CTA, FE submits that Parliament intended that section to provide broad authority to the Agency to order rights of access.

FE also states that should section 138 of the CTA simply grant the Agency the authority to order an applicant railway company the right to run over and on the tracks of the host railway, none of the other authorities provided for in subsection 138(1) of the CTA would be necessary.

According to FE, the scope of section 138 of the CTA must be examined in the context of section 12 of the Interpretation Act, R.S.C., 1985, c. I-21, as well as section 5 of the CTA which declares the national transportation policy. FE contends that Parliament introduced section 138 of the CTA as a recognition that the extraordinary power possessed by the few federal railway companies would lead to monopoly abuse. Parliament therefore provided a statutory means by which one federally-regulated railway company could gain access to the tracks of another to create competition where competition has been foreclosed.

FE states that the competition which is envisaged by the national transportation policy has unfortunately not developed to date in Canada's railway system. In support of its observation, FE refers to the National Transportation Act Review Commission's report entitled "Competition in Transportation - Policy and Legislative in Review" and to Justice Willard Estey's Final Report entitled "Grain Handling and Transportation Review". FE points out that these two significant objective reviews of the railway system have concluded that such competition is lacking. FE further states that Justice Estey recommended a change to the existing wording of section 138 of the CTA to enhance the competitive access provided by that section. His recommended change was to substitute the words "any person" for the words "railway company" in section 138 of the CTA. FE submits that it is significant that Justice Estey did not recommend any other change in order to provide "open access" to the existing CN and CP lines. In the opinion of FE, as no further change in the wording of section 138 of the CTA is necessary to allow "open access", the current wording of section 138 of the CTA clearly encompasses traffic solicitation.

FE argues that interpreting section 138 of the CTA as meaning transit rights would imply that shippers' traffic on the subject line is the property of the host railway company and that only the host railway company may grant access to that traffic. FE submits that shippers on those lines are entitled to the benefit of competition for the provision of rail service for their traffic and section 138 of the CTA provides a means of access to competition for that traffic when such access is in the public interest.

Interveners in support of FE

In support of the position that section 138 of the CTA encompasses traffic solicitation rights, the Government of Saskatchewan (hereinafter Saskatchewan), the Canadian Canola Growers Association (hereinafter CCGA), the Prince Rupert Port Authority (hereinafter the Port Authority), CWB and the Western Canadian Shippers' Coalition (hereinafter WCSC) filed submissions with the Agency.

In its submission, CWB submits that there is a widespread industry belief that traffic solicitation rights are indeed considered to be within the scope of section 138 of the CTA. In support of its statement, CWB states that proof of this commonly-held view can be found in the voluminous commentary on the general topic of running rights that has developed over the years since the release of Justice Estey's report in December 1998. CWB points out that in that commentary, running rights have always been listed as part of the competitive access provisions. CWB further submits that if section 138 of the CTA is to be viewed as narrow in scope, it would have no competitive value and would provide no relief to shippers located along the lines of the host railway company. CWB argues that various sources such as Justice Estey, Arthur Kroeger, the Canadian Pulp and Paper Association, the Canadian Shipper Summit, the Competition Bureau, United Grain Growers, CN, CP and the Agency itself have always considered section 138 of the CTA as a competitive access provision. In the opinion of CWB, this sampling suffices to make it abundantly clear that the industry views section 138 of the CTA as a broad competitive provision that necessarily encompasses solicitation rights.

Saskatchewan submits that in considering the application for running rights, it perceives a viable, cost-effective and competitive rail sector as essential for Canada's continued prosperity. In Saskatchewan's opinion, a competitive rail sector provides lower rates, better service, and allows shippers the freedom to select the carrier of their choice. Saskatchewan states that the correct interpretation of section 138 of the CTA would allow the Agency to permit, where it deems appropriate, a railway company to operate over the line of another railway company on whatever terms the Agency considers appropriate. Saskatchewan suggests that this interpretation is harmonious with the plain and ordinary language of section 138 of the CTA when read in the context of the entire CTA, the scheme of the CTA and the purpose of the CTA. Furthermore, Saskatchewan asserts that this interpretation contains all the checks and balances that are necessary to ensure that the interests of the competing railway companies, the consumers of railway services, and a larger public are accommodated in a fair and equitable manner.

CCGA states that the issue of railway competition has been a critical part of any plan for the improvement of the current system. CCGA further submits that improved access provisions were seen as necessary by Justice Estey, who recommended that the "access to the connecting rail lines be simplified and clarified so as to better serve the national interest in obtaining competitive and efficient transportation by rail". CCGA advises that it has fully supported Justice Estey's recommendations, and therefore takes the position that the concept of open access would include the ability to procure grain from facilities on the line. In CCGA's opinion, without the ability to source grain on the line, running rights would be meaningless in terms of creating competition.

CCGA also states that on May 10, 2000, the Minister of Transport announced an 18 percent reduction in grain freight rates for the 2000-2001 crop year. CCGA submits that for most producers this has not resulted in any decrease in transportation costs. CCGA asserts that the reduced freight rates apply only on multi-car movements from High Throughput Elevators. In CCGA's opinion, the actual cost of moving grain to a location where there are freight incentives is often greater than the reduction of 18 percent claimed in the Minister's announcement. CCGA argues that growers need the option to deliver their production without incurring truck transfer costs. CCGA therefore contends that joint running rights must include the ability for the applicant to source grain on the host line.

The Port Authority also supports a broad interpretation of section 138 of the CTA that would allow traffic solicitation rights. The Port Authority submits that such an interpretation is consistent with the national transportation policy, the approach taken by the recent grain transportation review conducted by Justice Estey and the view of the industry. The Port Authority maintains that section 138 of the CTA is a competitive access provision and without the broadest interpretation which includes traffic solicitation, section 138 of the CTA would be denude of its competitive character.

In support of its position that section 138 of the CTA not be restricted to transit rights, WCSC filed as part of its submission its comments to the Canada Transportation Act Review Panel (hereinafter the Review Panel). WCSC, in summarizing its position, states that applications for running rights should be considered case by case and the provision of reciprocal running rights should also be considered. WCSC further submits that although its submission suggested proposed changes to section 138 of the CTA to enhance the remedy, it did not, however, recommend a change to the substantive wording of the rights provided for under section 138 of the CTA. In WCSC's view, the existing provision is capable of providing for solicitation rights for the guest railway company.

The Chamber of Shipping of British Columbia, the Saskatchewan Association of Rural Municipalities, SUMA, the Forest Products Association of Canada and Luscar Ltd. also filed submissions with the Agency stating their support for the position that section 138 of the CTA encompasses traffic solicitation rights.

CN

In support of its contention that section 138 of the CTA is restricted to "transit rights", CN submits that when a section in a statute must be interpreted, it is well established that the evolution of the statute may be used by the regulatory body to assist it in its interpretation. CN states that section 138 of the current CTA is narrower in scope than section 102 of the Railway Act of 1888 and section 193 of the Railway Consolidation Act of 1919, therefore implying that Parliament never contemplated the current running rights provision being used to solicit traffic from the shippers located on the host railway company's line. CN points out as an example that under the current legislation, Parliament has removed the reference to "enjoy" from a railway company's ability to "use and enjoy" the right-of-way, tracks, terminals and station grounds of the host railway company. In CN's opinion, the word "enjoy" acts to complement and extend the railway company's rights to use the host railway company's tracks. Similarly, CN submits that the authority to "have and exercise full right and power" to run and operate trains found in subsection 193(1) of the 1919 legislation was abridged in subsequent versions, and finally removed entirely with the introduction of the CTA in 1996. This too, in CN's opinion, must be seen as Parliament's intention to restrict the application of section 138 of the current CTA. CN therefore asserts that it is apparent from the legislative history of section 138 of the CTA that Parliament never contemplated these rights being used to solicit traffic from the shippers of the host railway company.

CN further argues that a section within an enactment must be interpreted in the context of the industry to which it applies and with the entire applicable statutory framework in mind. CN submits that there are two possible distinct structural models of railway companies, vertical integration on one hand, and a mandated open or forced access on the other. In CN's opinion, the Canadian model embodied in the CTA is one of vertical integration, with regulatory protections to shippers for both service and rates. CN states that under such a system, the owner of a railway is entitled to manage its assets without any interference so long as it provides suitable and adequate accommodation for all traffic. CN contends that if open access could be forced on a vertically integrated railway company, requiring it to open its track and facilities to alternate operators, legislative provisions would be expected in the applicable statute dealing with issues such as infrastructure reinvestment, operational disputes, and compensation. The need to consider full economic compensation for facilities and services provided by the owner would require elaborate costing inquiries and extensive regulatory interference. This approach is contrary to the current national transportation policy which is to provide a viable and effective railway transportation system with economic regulation only where necessary to serve the transportation needs of shippers.

CN further states that in the Canadian Railway Model, where the railway operators own their assets, Parliament introduced a series of provisions designed to provide shippers with recourse for both rates and services, as well as to ensure the timely resolution of disputes. CN submits that these options which include level of service obligations, joint rates, regulated interswitching, competitive line rates and final offer arbitration (hereinafter FOA), would be superfluous in a scheme where carriers are afforded open access to each others' shippers on the same line.

CN submits that when examined in light of the national transportation policy set out in section 5 of the CTA, it is immediately obvious that the proposed interpretation of section 138 of the CTA by FE would not be consistent with the object and purpose of the CTA, which is to promote a viable and effective railway transportation system with economic regulation only where necessary to serve the transportation needs of shippers. CN further asserts that the national transportation policy provides that economic regulation of carriers and modes of transportation occurs only where necessary and such regulations will not unfairly limit the ability of any carrier or mode of transportation to compete freely with any other carrier or mode of transportation. In CN's opinion, the Agency's imposition of non-consensual running rights allowing traffic solicitation would be one of the most severe and intrusive forms of "economic regulation of carriers" and would therefore not be in accordance with the objectives of the national transportation policy.

CN states that the CTA allows the freedom for a railway company to manage and operate its assets without economic interference so long as it is meeting its level of service obligations by providing suitable and adequate accommodation for traffic. This, in CN's opinion, is consistent with the purpose of the CTA which is to promote a viable and effective railway transportation system with economic regulation only where necessary to serve the transportation needs of shippers.

CN submits that the wording of section 138 of the CTA does not contemplate stopping and soliciting traffic from shippers located along the line. CN states that subsection 138(1) of the CTA speaks only of the right to "run and operate its trains over ... the railway of any other company". For CN, the right to run a train and operate over a line in the context of section 138 of the CTA does not also contemplate stopping and soliciting traffic from shippers located along the line. CN argues that if Parliament had intended section 138 of the CTA to accommodate the relief sought by FE, it would have included an additional subsection or clause allowing the guest railway company to solicit and carry or pick up and deliver the traffic of shippers along the shared track. As such, CN states that when reference is made to the right to "run and operate" its trains over a line, the ordinary meaning suggests an easement of necessity allowing to complete a logical network or route structure. This conclusion, in CN's opinion, is reinforced by the restrictive interpretation that must be given when statutory provisions such as section 138 of the CTA interfere with private property rights.

CN further argues that the scope of section 138 of the CTA may be drawn from the purpose of the legislation with regard to the remaining provisions of the CTA. In CN's opinion, FE's interpretation of section 138 of the CTA is inconsistent with the other provisions and the intent of the CTA.

More particularly, CN points out that if Parliament intended running rights to include the right to pick up and deliver traffic along the line of the host railway company, the legislation would contemplate corresponding obligations of service for the guest railway company. The fact that level of service requirements of section 113 of the CTA would not apply to a guest railway company is for CN compelling evidence that the running rights provisions were never intended to include traffic solicitation along the line of the host railway company. If, however, the CTA sections related to the level of service apply to the guest railway company, CN then submits that FE would be required to satisfy the level of service obligations of section 113 of the CTA. Such obligations would be coincidental with those of CN and as such, CN argues that it would be impossible to determine the parties responsible for the breach of a level of service. The fact that section 113 of the CTA does not apply to FE, or alternatively, that there is no mechanism for applying section 113 of the CTA coincidentally to two railway companies, confirms that it was never intended that one railway company could force itself onto another railway company's line and solicit traffic.

CN further submits that as FE has no level of service obligations or no obligation to continue operations, it would be able to withdraw from the market in the event of an unfavourable FOA. CN argues that this would defeat the purpose of FOA as set out in the CTA.

CN also argues that the Competitive Line Rate (hereinafter CLR) provisions are written in such a way that should FE's application for running rights with solicitation rights be granted, a shipper located on the CN lines subject to the running rights order would continue to enjoy the statutory right to be eligible for CLRs. CN points out that further difficulties would arise if the shipper requested that the local carrier establish a CLR under section 130 of the CTA, as there would be two carriers (CN and FE).

CN further submits that if FE's application for running rights with traffic solicitation rights were granted, CN would be subject to the discontinuance provisions of the CTA while FE could simply forfeit its running rights. CN argues that this consequence alone would render an expanded interpretation of section 138 of the CTA at odds with the national transportation policy.

CN states that as a prescribed railway company, it is subject to further economic regulations that are specific to the transportation of western grain as set out in Division VI of the CTA. As FE has not been specified as a prescribed railway company, FE would operate with no corresponding maximum revenue entitlement and no restriction in the rates to be set for single car movements. This, in CN's opinion, would unfairly limit CN's ability to compete freely with FE and would therefore be contrary to the national transportation policy.

CN submits that a cardinal rule of statutory interpretation provides that legislation which curtails property rights should be narrowly construed. CN submits that a court should lean in favour of an interpretation that leaves private rights undisturbed. CN states that it has invested heavily in constructing, upgrading and maintaining its railway and that granting FE expansive rights, such as those contained in the proposed application, is a de facto expropriation of CN's property. As a result, CN therefore argues that any ambiguity inherent in section 138 of the CTA must be resolved in favour of an interpretation resulting in the least possible disturbance to CN's private property rights.

To CN's knowledge, traffic solicitation rights have never been granted to a railway company seeking running rights through regulatory recourse. In CN's opinion, it has therefore been assumed by railway industry participants that such traffic rights have been unavailable under the wording of section 138 of the CTA or its precedent provisions.

Interveners in opposition

In support of the position that section 138 of the CTA does not encompass traffic solicitation rights, CP, the Brotherhood of Maintenance of Way Employees (hereinafter BMWE) and the United Transportation Union (hereinafter UTU) have filed submissions before the Agency.

CP submits that section 138 of the CTA specifically lists what rights may be granted by the Agency and does not include or refer to a power to grant the right to solicit traffic.

CP argues that section 138 of the CTA is an expropriation section, and as such must be strictly interpreted. In support, CP argues that the Board of Railway Commissioners (hereinafter the Board), in Re Guelph and Goderich Ry Co., (1903) Canadian Railway Cases, p. 140, considering the effect of the precursor of section 139 of the CTA, stated that "this enactment places railway companies under liability to be subject to similar treatment to that which, by the general expropriation clauses of the Act, they are empowered to mete out to private individuals". CP submits that the decision of the Board combined with an examination of expropriation law clearly establish that running rights provisions are expropriative by nature. Like CN, CP submits that expropriation legislation must be construed and interpreted restrictively. CP points out that there is no provision in section 138 of the CTA for solicitation rights. As Parliament has not deemed fit to include such powers in the section explicitly, it would not be appropriate for the Agency to infer such power.

CP asserts that section 138 of the CTA makes no reference to solicitation rights. In CP's opinion, the law firmly establishes that in reading a statute, words should not be added or deleted and that one should not try to fill in any gaps one thinks one sees. CP states that Parliament might easily have explicitly included the right to solicit traffic in this section but chose not to do so.

CP further submits that the plain and common meaning of the words "run and operate" in section 138 of the CTA does not include solicitation rights. CP submits that since 1888, when the first running right provisions were introduced, there has been no successful application which included the right to solicit traffic.

According to CP, a distinction must be made between the right to run and operate a train and the right to run and operate a business. CP submits that the power of the Agency under section 138 of the CTA is limited to being able, in appropriate cases, to order that an applicant railway company be permitted to physically move trains over another railway company's line. CP argues that this distinction is made in the definition of "operate"found in section 87 of the CTA. In CP's opinion, the operation of a train is only one of the things included in the operation of a railway as set out in section 87 of the CTA.

BMWE and UTU state that the legislative framework for running rights was never intended for the scale proposed. In support, BMWE and UTU submit that the Railway Act, in 1927, and probably earlier, set conditions upon which one railway company could use the tracks of another railway company and the determination of compensation. BMWE and UTU argue that this process was incorporated into sections 148 and 149 of the National Transportation Act, 1987, S.C., 1987, c. 34 (hereinafter NTA, 1987) and into section 138 of the current CTA. The difference, state BMWE and UTU, is that the CTA makes it much easier to create a railway company by obtaining a certificate of fitness. Under the former legislation, creating a railway company involved a Special Act of Parliament or letters patent of incorporation. According to BMWE and UTU, the legislative regime for obtaining running rights is similar. The system still envisions that a new railway company must construct, purchase or lease infrastructure.

BMWE and UTU further assert that a 1993 research report for the National Transportation Act Review Commission by the Research and Traffic Group entitled Cooperative Rail Sharing - Barriers and Options suggests that large-scale running rights such as those being proposed would draw the Agency deeper into regulating operational, technical and financial disputes between parties, contrary to the intent of the policy section of the CTA.

BMWE and UTU state that if the proposed scale of running rights contemplated by FE had been available by regulatory intervention since 1927, there would have been previous applications. This, in the opinion of BMWE and UTU, is sufficient evidence that this application is outside the scope of the current CTA.

BMWE and UTU further state that the scale and scope of the proposed running rights would have major and unknown consequences for labour relations and collective bargaining in Canada. BMWE argues that at a time when massive downsizing and reorganization in the industry have finally appeared to have ended, this application serves to completely change the dynamics of the labour relations environment in the industry.

In addition, UTU states that should the Agency approve this application, it would undermine the work of the Review Panel, which is due to release its report in a few months.

Other submissions

The Agency also received submissions from the Canadian Chemical Producers' Association (hereinafter CCPA) and the Canadian Industrial Transportation Association (hereinafter CITA).

CCPA and CITA indicate that they are not prepared to comment in detail on the arguments made in support of FE's application concerning the scope of section 138 of the CTA. However, CCPA and CITA mention that many observers in the North American railway system predict further consolidation of the system in one form or another in the relatively near future. If that occurs, CCPA and CITA submit that shippers will need as many viable competitive rail options as possible for moving their traffic. This, in the opinion of CCPA argues for a broad rather than narrow interpretation of section 138 of the CTA.

FE reply to CN and opposing interveners

In reply to CN's argument that the legislative history of section 138 of the CTA supports the position that the current wording of that section is narrow, FE submits that the wording of the different statutes is irrelevant. According to FE, whatever the Canadian railway law was 100 years ago has no bearing on the policy which is in effect today, which has its genesis in the NTA, 1987. The transportation policy objectives enunciated in the NTA, 1987, were continued in the CTA. With that in mind, FE submits that CN's conclusion which advances that Parliament narrowed the scope of Agency's power to grant running rights is incorrect.

As for CN's submission that the railway structure in Canada is one of vertical integration where the owner of a railway has the right to manage its assets without interference, FE submits that contrary to CN's assertion, the CTA provides a number of interferences with CN's ability to manage its assets such as interswitching, extended interswitching and competitive line rates. In the opinion of FE, these provisions have been enacted to implement the policy objectives of promoting intramodal competition.

In rebutting CN's contention that section 138 of the CTA should be given a restrictive interpretation conforming with the national transportation policy, FE submits that the national transportation policy enables the Agency to grant pick up and delivery privileges when necessary to serve the transportation needs of shippers in regions where competition is lacking. In the opinion of FE, the national transportation policy does not limit the Agency but empowers it to grant running rights with traffic solicitation.

With respect to CN's argument that the shipper protection mechanisms of the CTA would be superfluous if section 138 of the CTA permitted running rights with solicitation rights, FE states that the shipper provisions of the CTA are there for the assistance of shippers who are captive. According to FE, where shippers have competition options, recourse to the shipper protection mechanisms is unnecessary.

In reply to CN's argument that FE's presence on CN's lines would cause insurmountable problems with respect to various provisions of the CTA, FE states that it is significant that no such insurmountable problems currently exist in situations where CN agrees to provide access to other railway companies with the right to solicit traffic.

Thus, FE submits that like CN, FE would be subject to the same level of service obligations with respect to the railway lines on which it is authorized to operate for the purpose of soliciting traffic. In the case of a breach of level of service, FE submits that the party responsible for the statutory breach is the party which the Agency determines is responsible.

With respect to the Final Offer Arbitration provisions, FE states that it will not close down its operations and withdraw from the market altogether in the event of an unfavourable FOA. FE maintains that it provides a competitive choice to shippers which should help alleviate the need for shippers to resort to FOA.

FE contends that the same argument applies to the competitive line rates provisions. In FE's view, the shipper remedies are available to shippers who need them. FE further states that as it provides a competitive choice to shippers this should also alleviate the absence of CLRs as a remedy for shippers.

Regarding CN's assertions that it would be subject to the discontinuance provisions of Part III, Division V of the CTA unlike FE which could simply forfeit its running rights if it wished to no longer service a specific market, FE draws three conclusions. First, FE submits that there are no extensive regulatory requirements for CN to discontinue its operations under the current law. Second, FE argues that as a federally-regulated railway company serving customers, FE will be bound by the level of service provisions of the CTA. Third, FE states that FE's position will be no different from any other federally-regulated railway company which operates over the lines of another federally-regulated railway company in Canada.

With respect to CN's argument on the application of the revenue cap provisions, FE argues that section 147 of the CTA authorizes the Minister to specify railway companies other than CN and CP as prescribed railway companies. As for CN's restriction on the rate to be set for single car movements, FE states that this is an entirely academic argument as the restriction is against CN raising its rates. According to FE, its rates will be competitive with the existing CN rates to Vancouver.

Concerning CN's argument that section 132 of the CTA is an expropriation provision and should accordingly be given a restrictive interpretation, FE states that the authority of the Agency in section 138 of the CTA to make orders respecting the exercise or restriction of rights as appear just or desirable to the Agency having regard to the public interest, does not justify such a conclusion. In FE's opinion, the CTA allows the Agency to make orders in connection with railway property in many situations. Such orders would include: extended interswitching, requiring a railway company to acquire equipment or land, the setting of CLR rates by a railway company and requiring traffic to be routed in a particular manner. According to FE all of these orders curtail property rights and require railway companies to appropriate property.

In reply to CP's submission that the right to operate a train does not include the right to operate a railway business, FE submits that given the clear policy of the CTA and the broad language of section 138 of the CTA, there can be no doubt that the operation of trains includes the right to pick up and deliver traffic. If this were not the case, FE argues that the operation of the trains referred to section 138 of the CTA would amount to nothing more than simple joyriding.

In reply to BMWE's submission suggesting that the Agency defer to the Review Panel and await its report, FE states that this would be entirely inappropriate given the statutory mandate of the Agency.

ANALYSIS AND FINDINGS ON THE SCOPE OF FE'S APPLICATION

(I) Preliminary Matters

Interveners have asserted that the Agency should not undertake an examination and determination on the scope of section 138 of the CTA on the grounds that this very issue is also before the Review Panel, an independent body appointed by the Minister of Transport. They claim that it is inappropriate for the Agency to examine the same issue at this time and that it must, therefore, either stay or dismiss FE's application pending the report of the Review Panel.

On this point, the Agency acknowledges that the Review Panel has been asked by the Minister, as more particularly set out in its terms of reference, to consider proposals for enhancing competition in the railway sector, including enhanced running rights. This examination has also encountered the issue of the scope of section 138 of the CTA, including, for example, whether or not application rights should be extended to "any person" rather than limit this right to federal railway companies, as under the present CTA.

The Review Panel has already referred to this issue in its Interim Report dated December 29, 2000 and will undoubtedly deal with it in its final report scheduled for issuance by July 1, 2001.

While the Agency acknowledges that the Review Panel is examining this issue among several others in the course of its policy assessment, the Agency is a quasi-judicial tribunal to which Parliament has, by statute, given a clear and specific dispute resolution mandate. The Agency finds that to not undertake this statutory task at this time would effectively deny an applicant like FE the right Parliament has afforded to it, which is to seek redress from the Agency. Accordingly, the Agency will rule on the scope of section 138 of the CTA as raised by the application at hand.

(II) Scope of section 138 of the CTA

(A) Introduction

Section 138 of the CTA provides:

(1) A railway company may apply to the Agency for the right to

(a) take possession of, use or occupy any land belonging to any other railway company;

(b) use the whole or any portion of the right-of-way, tracks, terminals, stations or station grounds of any other railway company; and

(c) run and operate its trains over and on any portion of the railway of any other railway company.

(2) The Agency may grant the right and may make any order and impose any conditions on either railway company respecting the exercise or restriction of the rights as appear just or desirable to the Agency, having regard to the public interest.

(3) The railway company shall pay compensation to the other railway company for the right granted and, if they do not agree on the compensation, the Agency may, by order, fix the amount to be paid.

Determining the scope of section 138 of the CTA is a new task for the Agency, having never been considered by it or by its predecessors. While there have been several "running rights" applications filed with the Agency's predecessors over the years, in each case, the application itself has been withdrawn or otherwise resolved outside of any specific determination on scope. Nevertheless, the Agency and its predecessors have become familiar with running rights, both in principle and in practice by virtue of predecessor provisions under either the Railway Act, R.S.C. 1985, c. R-3, or the Canadian National Railway Company Act, R.S.C. 1985, c. C-19, where agreements among railway companies for running rights had to be filed with the regulatory tribunal or the Governor in Council. As well, the Agency has examined running rights agreements in the course of related regulatory proceedings either in railway line abandonments or conveyances or other proceedings where running rights have been a relevant consideration. Thus, while the interpretation of section 138 of the CTA is new to the Agency, running rights are not, having involved the Agency or its predecessors under Canadian railway law for many years.

The lack of any formal decision by way of precedent is not, however, indicative of the importance of this determination. Indeed, as acknowledged by the parties in these pleadings, the Agency's present finding on scope may have far-reaching consequences upon the Canadian railway industry structure, conduct and performance well into the future. It is with this in mind that the Agency has undertaken the following analysis.

Fundamentally, a determination of the scope of this provision is a task of statutory interpretation - in the present case, the task is the interpretation of a jurisdictional provision in the Agency's constituting statute. The Agency generally undertakes a structured approach to the problem. In doing so, the Agency examines the wording of the disputed provision, its context or "fit" within the statute, the overall regulatory framework in the industry, the policy behind the provision, the national transportation policy (where appropriate) and any precedents that may be relevant.

This approach is well-established in Canada and is one that has been confirmed by the Supreme Court of Canada in R. v. Gladue (1999), 171 D.L.R. (4^th). It is worth setting out fully the portion of this judgment which will assist the Agency:

" ... the proper construction of a statutory provision flows from reading the words of the provision in their grammatical and ordinary sense and in their entire context, harmoniously with the scheme of the statute as a whole, the purpose of the statute, and the intention of Parliament."

The Agency will follow this approach and will examine each of its constituent elements separately in the following analysis. This analysis will appear under the following headings:

The national transportation policy - Overview;
Words of section 138 of the CTA - Ordinary and grammatical sense;
Statutory context;
Intention of Parliament - Legislative history;
Intention of Parliament - Similar legislative wording in the CTA;
Harmonization;
Pervasive influence on owning railway company;
Conclusion.

(B) The national transportation policy - Overview

Fundamentally, the cornerstone of the CTA is the statement of the national transportation policy in section 5 of the CTA. 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 hereby declared that a safe, economic, efficient and adequate network of viable and effective transportation services accessible to persons with disabilities and that makes the best use of all available modes of transportation at the lowest total cost is essential to serve the transportation needs of shippers and travellers, including persons with disabilities, and to maintain the economic well-being and growth of Canada and its regions and that those objectives are most likely to be achieved when all carriers are able to compete, both within and among the various modes of transportation, under conditions ensuring that, having due regard to national policy, to the advantages of harmonized federal and provincial regulatory approaches and to legal and constitutional requirements,

...

(b) competition and market forces are, whenever possible, the prime agents in providing viable and effective transportation services,

(c) economic regulation of carriers and modes of transportation occurs only in respect of those services and regions where regulation is necessary to serve the transportation needs of shippers and travellers and that such regulation will not unfairly limit the ability of any carrier or mode of transportation to compete freely with any other carrier or mode of transportation,

(d) transportation is recognized as a key to regional economic development and that commercial viability of transportation links is balanced with regional economic development objectives so that the potential economic strengths of each region may be realized,

...

(h) each mode of transportation is economically viable.

The national transportation policy therefore establishes that its objectives are most likely to be achieved when all carriers are able to compete, both within and among the various modes of transportation, under conditions ensuring that competition and market forces are, whenever possible, the prime agents in providing viable and effective transportation services and where economic regulation of carriers and modes of transportation occurs only in respect of those services and regions where regulation is necessary to serve the transportation needs of shippers and travellers.

The policy, therefore, balances what are often two conflicting or competing objectives. That is, on the one hand it espouses a transportation network in which each mode is economically viable and operating in a market with limited regulatory interference. On the other hand, it envisages a transportation network subject to regulatory protection in order to best achieve the other objectives of the national transportation policy such as serving shippers' needs or regional economic development.

What is apparent from this policy statement is that it does not represent a unidimensional pursuit of competition at all costs. It advocates a balancing of various objectives among which competition is but one. This balancing is reinforced within the policy statement itself when it proclaims that competition and market forces are to be "... whenever possible, the prime agents in providing viable and effective transportation services" (paragraph 5(b)).

As will become apparent below, section 138 of the CTA is one of the "competitive access" provisions of the CTA. It enables the entry of one railway company, the guest railway company, onto the infrastructure of another railway company, the host railway company, so that instead of there being only one carrier on a given railway track or system, there are two. Whether the rights which this provision supports are transit only or are broader and encompass traffic solicitation, it provides a regulatory remedy that ultimately offers affected shippers the ability to use two railway companies rather than one.

(C) Words of section 138 of the CTA - Ordinary and grammatical sense

The Agency acknowledges that the phrase, "to run and operate its trains over and on ..." which appears in the section is not defined in the CTA, nor does it appear to have been judicially considered in Canada. Yet, there is a definition for the word "operate" in section 87 of the CTA which broadly defines the term to include, with respect to a railway: "... any act necessary for the maintenance of the railway or the operation of a train". The Agency finds that this definition affords interpretative guidance in respect of the physical operation of a railway extending the term "operate" to include, for example and among other matters, the construction and maintenance of level and grade-separated crossings, dispatching of trains, storage of diesels or rolling stock, and so on. There is no reference in this section to the commercial or business undertaking of the railway company as it may relate to matters of serving shippers and traffic solicitation rights. Although not definitive, the foregoing suggests a narrow interpretation.

The Agency has also examined CN's argument that the French-language text of section 138 of the CTA presents a clear indication of a narrow intent. CN argued that the limiting phrase "ces droits" in subsection 138(2) of the CTA clearly refers to the rights which can be granted under subsection 138(1) and, accordingly, subsection (2) is narrow. The Agency does not draw this conclusion. The question before the Agency is what those rights are under subsection (1) and the reference to "ces droits" in subsection (2) sheds no light on what they may be.

Similarly, the common day usage and the ordinary grammatical sense of the phrase, "to run and operate (its) trains over and on ... the railway" does not point conclusively to any particular interpretation. Certainly in common usage the phrase denotes a physical train operating or running on trackage, but this is as far as it goes. It does not carry with it the notion that it includes the ability to market and serve shippers who may be located along or in proximity to the railway line that is being operated upon.

While not pleaded before the Agency, the Agency has also examined available railway industry texts or codes in search of an established or industry-accepted standard for this phrase. In this respect, the Agency has examined the definitions appearing in the Uniform Classification of Accounts (hereinafter the Accounts) issued pursuant to section 156 of the CTA. These Accounts, which are promulgated by the Agency, establish an industry-wide regulatory accounting treatment for physical and commercial or financial railway operations. There is no definition in these Accounts of the phrase or any of the terms in issue appearing in section 138 of the CTA.

Overall, the Agency cannot definitively conclude that the grammatical and ordinary sense of the phrase "to run and operate its trains over and on ... the railway" includes traffic and solicitation rights. Furthermore, there is no industry-accepted code or definition which offers any assistance.

(D) Statutory context

Section 138 of the CTA appears in Part III, Division IV of the CTA entitled Rates, Tariffs and Services. This Division encompasses 29 sections that establish, among other things, an array of railway company and/or shipper rights or obligations. For the most part, these provisions have existed in Canadian railway law in one form or another for a long period of time and represent the residue of previous regulatory schemes which for various historical reasons were pervasive. They are essentially the survivors of several iterations of deregulation starting with the passage of the NTA, 1987 and, more recently, the CTA in 1996.

Part I of the CTA is entitled Administration and relates to matters such as the continuation and organization of the Agency, remuneration of members, duties of Chairperson, quorum, Agency rules and powers of the Agency. This Part is preceded by sections 1 through 6 which establish the national transportation policy in addition to providing a number of definitions such as "carrier" and "goods" as well as Agency-specific definitions relating to the Chairperson, Vice-Chairperson and Member. The Agency finds that there are no provisions in Part I or in sections 1 through 6 of the statute apart from the national transportation policy statement which offer any real assistance in understanding whether section 138 of the CTA is "broad" or "narrow".

Part II of the CTA deals exclusively with air matters that have no bearing on the present task and Part IV, which is entitled Final Offer Arbitration, establishes essentially a multi-modal (air, railway, water and suburban transit) statutory arbitration regime. There is nothing in this Part which offers any definitional assistance.

Part V of the statute is entitled "Transportation of Persons with Disabilities" and relates to eliminating undue obstacles in the federal transportation network to the mobility of persons with disabilities. Part VI, which is entitled General, contains various enforcement provisions including provisions permitting the issuance of administrative monetary penalties for the contravention of any legislation, regulation, order or direction made pursuant to the CTA.

The Agency recognizes that any economic regulation of carriers and modes of transportation should only occur where necessary, this given section 5 of the CTA. The Agency also acknowledges that Parliament saw fit, in enacting Part III, Division IV of the CTA, to 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.

In the view of the Agency, overall, Part III, Division IV of the CTA represents a careful balancing of free market competition and regulation in that it only regulates some aspects of railway companies' commercial operations, leaving other areas untouched. Taken one step further, a close examination of many of these specific "regulated competition" provisions in this Division shows that the degree or extent of "competition" they introduce is limited.

Among the provisions found in Part III, Division IV, section 113 of the CTA imposes on a railway company stated level of service obligations for the accommodation of traffic. 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. 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 km of the point of origin or destination. Section 129 of the CTA allows a shipper, who only has access to the lines of a 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.

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 there is alleged to be a lack of competition in the marketplace. As such, these represent a surrogate for or alternative to free market competition in the Canadian railway industry. To this extent, section 138 of the CTA, whether it is broad or narrow, neatly fits within the competitive access provisions under the law.

Nevertheless, given this "fit" within the Division, it is still necessary to assess the extent to which the section fits or how it fits. That is, what is its scope in terms of offering a competitive remedy. The Agency finds it instructive here that section 138 of the CTA immediately follows two important competitive access provisions, interswitching and competitive line rates. While both of these provisions grant recourse to shippers by way of granting access to more than one railway company for the movement of their traffic, they do not offer unlimited rights or recourse.

To the contrary, they are carefully limited. Thus, access to interswitching is essentially limited to instances where the local railway connects to another railway within a radius of 30 km while the access to a competitive line rate is restricted to instances where at least two railway companies operate on a continuous route between the point of origin and destination and one of these railway companies, as the connecting carrier, concludes an agreement with the shipper to move the traffic.

An examination of section 139 of the CTA as the provision immediately following section 138 of the CTA is also instructive. This provision permits the Governor in Council to make an order for the joint or common use of a railway right of way when there would be significant efficiencies and cost savings resulting from this joint or common use and, when such an order would not unduly impair the commercial interests of the companies. It is apparent that this provision is limited in that it mandates the use by one company of another railway company's right of way, and this, solely when the commercial interests of the companies are not unduly impaired. Accordingly, like the interswitching and competitive line rate provisions, section 139 of the CTA too is limited in its application. Nevertheless, these provisions, notably the interswitching and competitive line rate provisions, provide shippers with competitive alternatives. This is their underlying policy premise.

The Agency finds that section 138 of the CTA has a like premise. That is, it has been enacted in order to provide a competitive alternative to the provision of railway services by one railway company. While section 138 of the CTA is railway-driven in the sense that the railway company is the applicant, it nevertheless contemplates a second railway company operating on a "host" or "owning" railway company's infrastructure. It is not an unfettered right as the applicant must meet the hurdles identified in the section. Nevertheless, it establishes a surrogate for free market competition by mandating the entry of one carrier onto the network of another.

FE submitted that the only reason why one railway company would wish to gain access to the track of another is to create competition where competition has been foreclosed. Thus, FE inferred that transit only rights are inadequate to address any lack of competition. The Agency finds to the contrary. That is, an order of running rights under section 138 of the CTA that grants a "transit" right would give a short line carrier's shippers the choice of two competing carriers at all interchanges that may exist between the two railways. Where once there was one carrier at an interchange, there would be two. For example, instead of a short-line carrier or regional carrier collecting traffic on its feeder network for delivery to a CN interchange for the furtherance by CN to destination, a short line carrier, under a running rights 'transit' order, would be able to continue on to port in a seamless transportation movement or alternatively transit the CN trackage as far as the closest interchange with CP for furtherance by CP, with that carrier's agreement, from that point to ultimate destination.

The Agency finds that this kind of limited entry and the resulting enhancement of competition is entirely consistent with the national transportation policy.

Fundamentally, the overall placement of section 138 of the CTA in the statute fits in with the view that it was intended to enhance competition, to complement other competition-related remedies and to assist where, for example, alternatives like the interswitching or the competitive line rate provisions cannot be applied. Yet, like the provisions in the statute which surround it, it is limited in ambit.

(E) Intention of Parliament - Legislative history

CN and several interveners in opposition to FE stated that the history of running rights legislation in Canada is conclusive of Parliament's intent that the present section be limited to transit rights. CN and these interveners examined the previous legislation going back to 1888 and noted that the language has changed over time. They argued that the deletion of enabling language such as "enjoy" in the relevant provisions and the transfer to the Governor in Council of a decision mandate relative to joint use of railway infrastructure is indicative that the Agency's discretion has been curtailed and this, they argued is support for their overall position that section 138 of the CTA is narrow in nature.

They also argued that the absence of any regulatory proceedings or precedents dealing with running rights is indicative of an acceptance in the industry that the rights are narrow in nature.

Going back to the inception of running rights in 1888, the relevant provisions under the law have never referred to traffic solicitation rights or pick up and delivery rights. Indeed, there has never been any reference to such rights in the progression of repeals and re-enactments of these provisions. The Agency concludes, based upon the wording in 1888 or in 1919, that the original intention was not to grant open access to another carrier. Further, there has been no clear language in any of the amendments over time which detracts from this conclusion.

Contrary to the arguments of FE, the Agency finds that the wording changes over time suggest a narrowing of the philosophy behind the section. This conclusion is apparent from the absence in the present section of broad enabling language such as the right of the applicant to have "full right and power" over and to "enjoy" the owning railway companies' assets.

(F) Intention of Parliament - Similar legislative wording in the CTA

The Agency has also examined other provisions under the CTA in search of Parliament's intention. In this respect, the wording of paragraph 138(1)(c) is similar to the wording of subparagraphs 116(4)(e)(i) and (ii) of the CTA.

In examining these provisions in particular as well as others under the CTA the Agency is guided by the rule of statutory construction appearing in section 12 of the Interpretation Act, which provides:

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.

Subparagraphs 116(4)(e)(i) and (ii) provide that if the Agency determines that a railway company is not fulfilling any of its statutory service obligations, the Agency may, if the service obligation is in respect of a grain-dependent branch line listed in Schedule I, order the company, on terms and conditions that the Agency considers appropriate, to grant certain rights to another railway company. These rights include: (i) to "run and operate" its trains over and on any portion of the line, and (ii) in so far as necessary to provide service to the line, to "run and operate" its trains over and on any portion of any other portion of the railway of the company against which the order is made but not to solicit traffic on that railway, to take possession of, use or occupy any land belonging to that company and to use the whole or any portion of that company's right-of-way, tracks, terminals, stations or station grounds.

As a preliminary point, the Agency accepts that the right to "operate" mandated under subparagraph 116(4)(e)(ii) of the CTA has been restricted by Parliament.

In examining sections 116 and 138 of the CTA, in addition to assessing the remedial purpose of the law, the Agency acknowledges the principle that Parliament must be seen to speak for a purpose and that as a rule of statutory interpretation, the same words found in a statute ought to be given the same meaning. Thus, Driedger, on the Construction of Statutes (3d), states at page 163:

It is presumed that the legislature uses language carefully and consistently so that within a statute or other legislative instrument the same words have the same meaning and different words have different meanings. Another way of understanding this presumption is to say that the legislature is presumed to avoid stylistic variation. Once a particular way of expressing a meaning has been adopted, it is used each time that the meaning is intended.

In the present case, Parliament has restricted the meaning of the words "to run and operate" otherwise found in subparagraph 116(4)(e)(ii) of the CTA, to exclude the right to solicit traffic. The words "run and operate" found in subparagraph 116(4)(e)(i) of the CTA, taken in isolation, must therefore include the right to solicit traffic. Given that no similar restriction is found in section 138 of the CTA and given that the same words ought to be given the same meaning throughout a statute, section 138 of the CTA includes traffic solicitation rights unless the purposes of each provision are different. If the purposes of the sections are different, different meanings for the same words are warranted.

With regard to the "purpose" of section 116 of the CTA, the Agency finds that the level of service provisions under the statute are among the most important under the CTA. They ensure, among other matters, that if a shipper is captive to one railway company, that company must nonetheless offer that shipper an adequate service level. Without this protection, shippers would effectively be captive to the market power of a single supplier.

The amendments to section 116 of the CTA introduced by Bill C-34 on July 26, 2000 advanced this purpose one step further by adding special protection for grain shippers. That is, by enacting new level of service provisions at that time, Parliament concluded that special or supplementary level of service remedies were needed to aid such shippers given some of the industry-specific problems they were facing.

Among these new sections, Parliament has provided that there are very serious consequences when a railway company breaches its level of service obligations in respect of a grain-dependent branch line, one of which is the right of the tribunal to order that another railway company effectively step into the shoes of the owning railway company, use its infrastructure and solicit its business. This is a drastic remedy and Parliament has concluded that it is only available when there has been a contravention of the level of service obligation under subparagraph 116(4)(e)(i) of the CTA.

Section 138 of the CTA is different. It lies quite apart from level of service considerations. Basically, section 138 of the CTA is a competitive access provision and section 116 of the CTA is a railway service provision.

Unlike section 116, section 138 of the CTA does not require proof that a railway company has breached its level of service obligations. In fact, it does not require proof that the incumbent railway company has breached any of the provisions under the law. In this respect, it is obvious that an open access running rights order against an incumbent railway company like CN (in this case) could have pervasive and potentially serious consequences.

The Agency finds that the running rights and level of service provisions are structurally separated in the statute, that section 138 of the CTA has no reference whatsoever to the service levels of the owning railway company, and that subparagraph 116(4)(e)(i) of the CTA provides a particular type of running rights remedy with traffic solicitation, on a grain-dependent branch line only, for a breach of level of service obligations. All of these indicate that sections 138 and 116 of the CTA were enacted for different purposes.

In summary, the Agency finds that the purposes of sections 138 and 116 of the CTA are different. Subsection 116(4) of the CTA allows, in part, for running rights as a remedy for a breach of service on a grain-dependent branch line but makes it clear that running over another's rail line does not also permit the guest railway company to do business along all of the host's railway lines. Section 138 of the CTA simply allows for access and a transit right if it is in the public interest to do so. Accordingly, the Agency finds that this difference merits the conclusion that section 138 of the CTA is not broad enough to encompass the open access operating rights that are requested in FE's application.

(G) Harmonization

CN argued that the granting of running rights including traffic solicitation rights would create difficulty in the application of various provisions of the CTA such as: the level of service, the competitive line rate, final offer arbitration, the transfer and discontinuation process and the revenue cap provisions. CN argued on these grounds that section 138 of the CTA cannot include solicitation rights. FE submitted the contrary and argued that it is significant that no such insurmountable problems currently exist in situations where CN agrees to provide access to other railway companies with the right to solicit traffic.

With respect to the level of service provisions, CN is concerned that FE would not be subject to the level of service provisions under the CTA or, in the alternative, that the level of service provisions would apply concurrently to CN and FE. On this point, the Agency finds that section 113 of the CTA requires that "a railway company shall, according to its powers, in respect of a railway owned or operated by it" fulfill its service obligations. As FE would clearly operate a railway, section 113 of the CTA would require FE, like CN, to meet the stated railway level of service obligations while operating on CN's lines. There is nothing in the CTA to prevent the level of service provisions from applying in cases where two railway companies operate simultaneously on the same line.

With respect to the competitive line rate provisions, CN argues that they are written in such a way that if running rights with solicitation rights were granted, a shipper located on the CN lines subject to the running rights order would enjoy a double benefit to the extent that they would continue to be eligible for CLRs. The Agency finds that the competitive line rate provisions were designed to apply only in the cases where shippers are served by one railway company at either the point of origin or destination. Thus, subsection 130(1) of the CTA provides that a local carrier serving the shipper at the point of origin or destination, as the case may be, shall, on the request of the shipper, establish a competitive line rate applicable to the movement of the traffic between the point of origin or destination, whichever is served exclusively by the local carrier, and the nearest interchange with a connecting carrier. The wording of subsection 130(1) of the CTA incorporates the definition of "local carrier" found in section 111 of the CTA which states that a local carrier means a railway company that moves traffic to or from an interchange on a continuous route from the point of origin to the point of destination that is served exclusively by the railway company.

The Agency finds that the wording of these provisions illustrates the inapplicability of the competitive line rate provision where there are two or more railway companies operating on the same line at the point of origin and destination.

In respect of the FOA provisions, CN submitted that as FE has no statutory level of service obligation and no obligation to continue operations, it would be able to withdraw from the market in the event of an unfavourable FOA ruling. As found above, FE would be subject to the level of service provisions of the CTA while operating on the CN lines and pursuant to paragraph 165(2)(c) of the CTA, it would be compelled to comply with the decision of the arbitrator for at least a period of one year or any lesser period set by the arbitrator.

CN is correct in arguing that FE could withdraw from the market following the period prescribed in the arbitrator's decision. CN would, however, enjoy the same right. That is, following the expiration of the prescribed period in an arbitrator's ruling, CN has the right to discontinue the operation of any affected railway line pursuant to Part III, Division V of the CTA.

With respect to statutory discontinuance provisions, CN argued that if FE's application for running rights with soliciting rights were granted, CN would continue to be subject to the discontinuance provisions of the CTA while FE could simply forfeit its running rights and exit the market. Although the Agency acknowledges this possibility, the Agency is of the opinion that the applicability to CN and not to FE of the discontinuance provisions of Part III, Division V of the CTA has little impact on the meaning of section 138 of the CTA.

The purpose of Part III, Division V of the CTA is to enable railway companies to more readily divest themselves of unprofitable railway lines while encouraging the continuation of railway services whenever possible. These provisions are far less pervasive than the historical provisions and as such, impose much less of a regulatory burden on the railway company. Indeed, in many instances, the railway company may sell its railway lines with no regulatory involvement. The fact that some of these provisions, for example the publishing of a three-year plan under section 141 of the CTA, would apply to CN and not to FE is not symptomatic of an "unlevel" playing field. In and of itself, this is not sufficient to conclude in terms of statutory interpretation that FE as an applicant under section 138 of the CTA ought not to have traffic solicitation rights.

As for the western grain regulatory provisions (the "revenue cap"), CN stated that as a prescribed railway company, it is subject to further economic regulation relating to the transportation of western grain, as set out in Part III, Division VI of the CTA. CN argued that as FE has not been specified as a prescribed railway company, FE would operate with no corresponding revenue entitlement limit and no restrictions on the rates to be set for single car movements. This, in CN's opinion, would unfairly limit CN's ability to compete freely with FE and would, therefore, be contrary to the national transportation policy.

The Agency finds that Part III, Division VI of the CTA imposes on prescribed railway companies a maximum revenue entitlement for transporting western grain as well as a restriction on the rates the companies may set for single car movements. By enacting these provisions, Parliament also contemplated the possibility of other railway companies (that is, other than CN and CP) being subject to this revenue cap. While section 147 of the CTA defines "prescribed railway company" as CN and CP, any other federal railway company may also become bound if so prescribed. Accordingly, following the issuance of any possible Agency order granting FE the right to run and operate on CN lines, FE too could be made subject to these revenue cap provisions.

On a broader level, however, CN argued that there is a potential competitive inequity in this case in that its pricing freedom for western grain movements will be proscribed while that of FE will not. The Agency questions whether a new entrant like FE would adopt a pricing strategy that is designed to exceed CN or CP rates. In any event, CN is not required to charge a prescribed rate on its railway lines for the transportation of western grain. The revenue cap only provides that it not exceed a maximum revenue entitlement for all of its western grain transportation.

In respect of the pervasiveness of any running rights order, CN also argued that if such an order were to include traffic solicitation rights, provisions would be expected in the CTA dealing with issues such as infrastructure reinvestment, operational disputes, and compensation. The absence of such provisions, according to CN, indicates that section 138 of the CTA cannot be broad.

In respect of infrastructure reinvestment and compensation, the Agency finds that subsection 138(3) of the CTA allows the Agency to fix the compensation for the right granted if the parties cannot reach an agreement. In this respect, following the issuance of any order granting a railway company the right to run and operate its trains over the line of another railway company, the Agency would expect the parties to negotiate an adequate compensation package. In the event that the parties should fail to reach a negotiated agreement, the Agency, pursuant to subsection 138(3) of the CTA, could examine all relevant elements in establishing the appropriate compensation to be paid to the host railway company.

Concerning the day-to-day operational disputes envisaged by CN, the Agency finds that subsection 138(2) of the CTA provides that the Agency may make any order and impose any conditions on either railway company respecting the exercise or restriction of the rights as appear just or desirable to the Agency. Some of these operational disputes or the potential for them arising in the future might then be dealt with at the time of any Agency order. Yet, there would be a myriad of issues arising in any traffic solicitation order involving, among other matters, dispatching, storage, car staging, maintenance, scheduling and switching.

All of these are railway industry matters that are dealt with by railway companies on a daily basis. Yet the Agency also finds that while these kinds of disputes may arise in a transit-only running rights remedy, their likelihood as well as their significance would increase exponentially when the running right is imposed and is as broad as that requested by FE. Even if the owning railway company had the utmost good faith in abiding by the terms and spirit of such an order, there would be a host of problems that arise and which would have to be settled if the two carriers were to operate on the same track at the same time.

The Agency has the mandate, pursuant to subsection 138(2) of the CTA, to impose any conditions which appear just or desirable to the Agency having regard to the public interest and, while the Agency has the expertise and the experience to create and administer any such conditions, the Agency does not find that these extend to resolving, through a quasi-judicial process, the plethora of operational disputes that would arise as a result of any open access running rights order.

(H) Pervasive influence on owning railway company

CN and CP argued that the impact of a broad running rights order against them would be pervasive. In this respect, they argued that section 138 of the CTA is so pervasive that it is or is tantamount to an expropriation section and, as such, it must be strictly interpreted.

In this respect, the Agency finds that section 138 of the CTA, even if limited to 'transit rights', may entail some kind of interference with property rights. That is, even by a regulatory order for transit rights, the property rights of the owning or host railway company would be affected. The extent to which they would be affected depends on the nature and extent of rights granted. It is then a question of degree, with traffic solicitation rights carrying more scope for interference than the lesser transit rights.

Notwithstanding, the Agency finds that section 138 of the CTA is not an expropriation provision per se. Rather it is a provision which permits the Agency, in appropriate circumstances where so merited in the public interest, to permit one railway company to run and operate on the infrastructure of another railway company. The fact that the compensation provisions relative to expropriation in previous railway legislation and which continue to exist to some extent in the federal Expropriation Act do not exist in the CTA is indicative of a finding that section 138 of the CTA is not expropriative in character.

Further, the Agency finds that if there are any compensation issues that may arise under section 138 of the CTA, Parliament has provided that they be dealt with under subsection 138(3) of the CTA. Under this provision, the Agency may, by order, fix the amount to be paid. This represents the balance which Parliament has drawn between the broader 'public interest' rights in the granting of running rights with any consequent interference with the host railway companies' property rights.

While not necessarily expropriative in law, section 138 of the CTA nevertheless mandates interference with property rights, here, those of the owning railway company. The Agency finds that the potential for this interference would be inordinately high in instances of broad running rights. This provides additional grounds for concluding that section 138 of the CTA is narrow in scope.

CN also maintained that the Canadian railway industry is vertically integrated and that the entire legislative and regulatory structure adopted in Canada is premised upon this integration. By vertical integration, the Agency understands CN to mean that one railway company owns the infrastructure and, basically alone, operates on it - as opposed to regimes in place in other jurisdictions where, for example, the ownership of the infrastructure and the operating rights over it are separate.

CN stated that the owning railway company has the right to manage its assets without regulatory interference, particularly any such interference which may arise under a regulated running rights order. To the extent that any such order constitutes an interference with a property right, the Agency finds that the CTA, generally in Part III and particularly in the competitive access provisions including section 138 of the CTA, all mandate interference in one form or another. The Agency finds that, in enacting these provisions, Parliament has undertaken the necessary balancing of public versus private interests and has concluded that for the policy objective of promoting intramodal competition such an interference is to be tolerated.

Yet, it is also imperative to acknowledge, and as set out at the beginning of the Agency's analysis above, that the CTA does not pursue competition at all costs. It does not somehow subordinate all of a railway company's interests and assets in favour of competition. The CTA, and the national transportation policy in particular, create a balance between the public interest, in competition for example, and private property rights. The law does not grant railway companies an unfettered right to conduct their business however they see fit, nor does it permit shippers or railway company competitors to claim for themselves, in the name of competition, significant components of a railway company's business or assets.

For all of the above reasons, the impact of regulated broad traffic solicitation rights on CN and indeed on the Canadian railway industry in general is potentially so pervasive that the Agency does not find that section 138 of the CTA can legally support such broad running rights requests. The wording of the section, the national transportation policy, the import of related competitive access provisions, their remedial purposes and the Agency's appreciation of Parliament's intent simply do not legally support such an interpretation.

In light of the foregoing, the Agency concludes that subsections 138(1) and (2) of the CTA do not empower the Agency to grant a railway company the right to run and operate on and over specified lines of another railway company for the express purpose of soliciting as well as carrying the freight of shippers served by the said railway lines.

(I) Conclusion

The Agency hereby dismisses FE's application which was filed with the Agency pursuant to subsections 138(1) and (2) of the CTA, on the grounds that it seeks a running rights remedy which is legally beyond that which can be granted by the Agency under these provisions.