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Supreme Court Dismisses CN Fuel Surcharge Appeal

The Supreme Court of Canada today dismissed Canadian National Railway‘s (CN) appeal (2014 SCC 40) from the decision of the Federal Court of Appeal in Canadian National Railway v Canadian Transportation Agency (2010 FCA 65), which I reported on back in December 2012.

The matter originally arose out of a complaint by Peace River Coal (PRC) against CN in respect of fuel surcharges under the confidential service agreement, which incorporated CN’s tariff. PRC had signed the agreement under Tariff CN 7402, which applied a fuel surcharge when monthly average fuel price exceeded the strike price of $1.25. Three months later CN introduced Tariff CN 7403 which provided a strike price of $2.30. PRC wanted the new strike price to apply to their shipments, while CN insisted that the agreed strike price remain in effect until the expiration of the contract.

PRC complained the the Canadian Transportation Agency (CTA), but CN successfully argued that the charges in question were not within the Agency’s jurisdiction as they were confidential private terms agreed between the parties and not terms affecting the industry as a whole. This decision seemingly snuffed out PRC’s chances of obtaining the more favourable strike price and would have condemned it to several years of fuel surcharges much higher than those paid by industry generally.

PRC, along with the Canadian Industrial Transportation Association (CITA), petitioned the Minister of Transport under s.40 of the Canada Transportation Act, SC 1996 c 10, and through the Minister ultimately the Government of Canada issued an order clarifying that fuel surcharges and confidential service agreements were among the charges that the Agency could consider (although not determining the underlying dispute).

CN brought a judicial review of this decision in the Federal Court: Canadian National Railway v. Canada (Attorney-General) 2011 FC 1201. At trial the Court found that the decision of the governor-in-council was one of jurisdiction, a question of pure law, and held it to the standard of “correctness”; under this standard the Court rejected the Minister’s decision and restored the Agency’s decision that the fuel surcharges were out of its bailiwick.

The Federal Court of Appeal disagreed, finding instead that s.40 of the Act conveyed broad discretion on the Minister, and that decisions of the governor-in-council should therefore be treated with deference to the Minister’s particular experience and judgment in the regulatory structure established by the Act and evaluated not on the “correctness” standard but the “reasonableness” standard. Under this standard, the Minister’s decision reflected a reasonable interpretation of the Act given the overarching policy objective of efficient regulation. The Agency could review the tariff charges imposed under the confidential agreement, which affected more than just PRC because the tariff is incorporated into many service agreements.

The Supreme Court has now confirmed that in matters under the Transportation Act (as well as under similar regulatory structures) the decision-making powers of the government should be treated with deference and evaluated under the “reasonableness” standard. The Minister’s reasonable decision is upheld, and the Agency will be able to determine complaints in respect of tariff charges imposed under Confidential Service Agreements.

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