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The Perils of Rail Tariffs – Peace River Coal v CN

Facts: 
Peace River Coal (PRC) and Canadian National Railway (CNR) entered into a confidential contract (sometimes called a “confidential service agreement” or “CSA”) for transportation of coal by rail during the period from January 2008 through June 2010. The rates were subject to Fuel Surcharge Tariff CN 7402, which applied a surcharge when monthly average fuel price exceeded the strike price of $1.25.

In April 2008, three months into the 30 month contract, CN implemented Surcharge 7403 which applied a fuel surcharge only when the monthly average price exceeded a strike price of $2.30. PRC sought to apply this updated tariff and strike price to the existing CSA but CN refused.

So began a legal saga that took the parties to the Federal Court of Appeal and which continues today.

Application to Canada Transportation Agency
The rail market in Canada is a duopoly and is heavily regulated by the Canada Transportation Agency pursuant to the federal Transportation Act. PRC applied under s.120.1 of the Transportation Act, which permits the Agency to hear shipper complaints about the reasonableness of charges other than rates for the movement of traffic: the intent of the provision is to permit competitive rate-setting but prevent artificial inflation of effective freight rates by imposition of non-freight tariff charges. The Act requires that the complaint demonstrate a broader public interest by showing that the charge that is the subject of the complaint applies to other shippers, and not just the applicant.

CN sought to dismiss PRC’s complaint for lack of jurisdiction on the basis that the CSA applied only to PRC and not to other shippers and the agency could not interfere with its terms. The Agency dismissed the complaint and PRC did not appeal.

Petition to Minister
PRC had not given up, but had decided to pursue a political, rather than a legal, remedy. Along with the Canadian Industrial Transport Association (CITA), PRC petitioned the Minister of Transport to require Agency to include surcharges as reviewable charges under 120.1 and confirm the Agency’s authority to amend CSAs. The government of Canada issued a Privy Council Order stating that the existence of a CSA has no bearing on an inquiry into the reasonableness of a tariff charge, and that CN 7402 did apply to other shippers as well as the applicant and was therefore reviewable.

Judicial Review (2011 FC 1201)
On Judicial Review (sought by CN), the Court found that the Minister has broad authority not limited to questions of law and jurisdiction. The judge determined that the standard of review on a question of pure jurisdiction is “correctness”: if the Minister’s decision was not correct, the Judge would substitute the correct decision for the Minister’s.

In the result the judge found that a fuel surcharge is part of the ‘rate for the movement of traffic’ and was therefore specifically excluded from the Agency’s 120.1 review. Therefore the Minister’s decision was incorrect and reversed.

APPEAL:
The decision of the judge on review was appealed to a panel of the Federal Court of Appeal (2012 FCA 278, reasons by Dawson JA). The Court held that the Minister’s decision was one about the framing of the problem which is a question of fact (or perhaps mixed fact and law), and therefore the appropriate standard of review is reasonableness, not correctness.

The Minister’s decision and remedy was based on the purpose of the legislation supported by the evidence explained through the Minister’s written reasons and was therefore reasonable, and it was not open to the judge on review to substitute his decision.

Accordingly the appeal was allowed: the Minister’s decision was restored and the original application to the Agency for s. 120.1 relief can proceed.

Sadly further comment on the actual issues was avoided and obiter dicta in any event:

[56] For the purpose of this appeal, in my view, it is sufficient to state that this Court does not endorse the Judge’s reasoning or his conclusion that the fuel surcharge was a component of the rates for the movement of traffic. This issue should be determined by the Agency which is not bound by the reasoning or conclusion of the Federal Court.”

Stay tuned for the next, and perhaps final chapter, to be written in 2013!

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