A-193-02
2003 FCA 271
Canadian Pacific Railway Company (Appellant)
v.
Canadian Transportation Agency and Canadian Wheat Board (Respondents)
Indexed as: Canadian Pacific Railway Co. v. Canada (Transportation Agency) (C.A.)
Court of Appeal, Rothstein, Sexton and Sharlow JJ.A.-- Ottawa, May 20, 21 and June 23, 2003.
Transportation -- Railway transportation of grain -- An Act to amend the Canada Transportation Act regulating maximum annual revenues earned to move western grain -- Canadian Transportation Agency determines revenue cap for each railway -- If cap exceeded, excess plus penalties paid over -- Demurrage excluded for revenue cap purposes -- Agency holding portion of revenues attributed to demurrage by CP Rail unreasonable, to be included in revenues subject to cap -- Whether Agency empowered by Act, ss. 150, 151 to make impugned decision -- Definition of demurrage -- How Agency's decision arose -- Statutory right of appeal -- Question of statutory interpretation, not technical question engaging Agency's expertise -- Not "polycentric" question involving balancing interests -- Decision to be reviewed on correctness standard upon application of pragmatic, functional approach -- Once Agency finds amount reasonably characterized as demurrage, powers exhausted -- Parliament's intention as to Agency's role regarding demurrage -- Not to undertake broad assessment whether charges justified by market, railway cost considerations, effect on shippers, consignees -- Intensive freight rate regulation no longer applicable under current legislation -- Agency lacking statutory authority to determine reasonableness of demurrage revenues -- Reasons for difference in wording between s. 150(3)(b), 150(3)(a), (c) considered -- Whether Agency, to have regard to proportionality test equating harm, compensation to asset owner, penalty paid by shipper -- Railway's power to set demurrage policies not impairing integrity of revenue cap regime -- Act, s. 112 inapplicable to demurrage -- Poor communications between CP Rail, customers perhaps subject for s. 113 service complaint, irrelevant as to demurrage.
This appeal concerned the Canadian Transportation Agency's interpretation of demurrage in paragraph 150(3)(b) of the Canada Transportation Act and whether the Agency has power to determine the reasonableness of demurrage revenues.
The transportation of grain by rail has been subject to freight rate regulation since 1897. Legislation enacted in 2000 replaced regulation based on maximum rates with maximum annual revenues that could be earned by Canadian Pacific Railway Company (CP) and other prescribed carriers. The Agency determines each railway's revenue cap for each crop year according to the formula prescribed by the Act. If a carrier's revenues exceed the cap, it has to pay out the excess together with penalties pursuant to the Railway Company Pay Out of Excess Revenue for the Movement of Grain Regulations. Demurrage charges are excluded from revenues in determining whether the cap has been exceeded. Demurrage is charged if a shipper or consignee detains a railway car beyond the free time allowed for loading or unloading. The Agency decision herein impugned was that a portion of the revenues attributed by CP to demurrage was unreasonable and that portion was ordered to be included in revenues subject to the cap. CP argued that the Agency erred in law in purporting to determine the reasonableness of CP's demurrage revenues and in ordering the amount found unreasonable included in revenues subject to the cap.
While "demurrage" is not defined in the Act, it has been held to mean a "charge made by the Railways for the detention of a freight car beyond the free time provided for by the applicable special arrangements tariffs and is intended as an inducement to promptly release the freight car, and alternatively, to compensate partially the Railways, should the freight car be detained beyond the free time allowance".
This matter came before the Agency following a revision of CP's demurrage policy which had been to assess shippers or consignees debit days for each car day beyond the two days' free time for unloading and to allow a credit if cars were unloaded faster. This practice is known as "average demurrage". Under that policy, CP's demurrage revenue was only $7,600 per month. But, in 2001, the rail carrier adopted a new policy eliminating the credit for fast unloading. Under this "straight demurrage" policy, CP's monthly demurrage revenue increased to $75,700.
The Agency determined that the amount of the increase was to be included in revenues subject to the cap. It interpreted paragraph 150(3)(b) as contemplating "an assessment of the reasonableness of overall demurrage charges on western grain movements".
It was agreed that both the Agency's interpretation of the provision and the jurisdictional question were to be reviewed according to the standard of correctness. The existence of a statutory right of appeal in subsection 41(1) was suggestive of a more searching standard of review. This being a question of statutory interpretation and not a technical one, the Agency had no expertise to support a more deferential review standard. Nor was the interpretation of the provision a "polycentric" question involving a balancing of interests. All of the factors in the pragmatic and functional approach pointed to the correctness standard of review.
Held, the appeal should be allowed.
The Agency erred in its interpretation of paragraph 150(3)(b). Its mandate is restricted to determining whether an amount may reasonably be characterized as in respect of demurrage. Having made an affirmative decision on that, the Agency's power to deal with demurrage is exhausted. It is without authority to determine the reasonableness of demurrage revenues, limit increases or to include any portion of demurrage income in revenues subject to the carrier's cap.
Determining whether demurrage revenues are reasonable is a function entirely different from the Agency's role as contemplated by Parliament. It would require the Agency to engage in a broad assessment of whether demurrage charges or increases therein are justified by market or railway cost considerations and the effect on shippers and consignees. Such intensive freight rate regulation is inapplicable under current railway legislation. Even in the case of the movement of western grain by rail, revenue regulation is not based on reasonableness but on the application of a formula taking into account changes from base year figures in volume, length of haul and inflation. The Parliamentary intent to minimize regulation is revealed by paragraph 5(c) of the Canada Transportation Act and, as was said in the Agency member's dissenting opinion, its mandate "is one of broad oversight rather than attempting to regulate the day-to-day commercial practices or policies of the railway company". This was, of course, a big change from the historical situation under the Railway Act of 1952 when the Board of Transport Commissioners for Canada could "disallow any tariff or any portion thereof that it considers to be unjust or unreasonable". Even today, under section 112 of the current legislation, a limited number of rates have to be "commercially fair and reasonable" but that section has no application to demurrage. The wording chosen reveals Parliament's intention that demurrage charges not be subject to a reasonableness test.
The Agency argued that if its power was restricted to determining whether an amount was for demurrage, paragraph 150(3)(b) would have been worded in a manner comparable to paragraphs 150(3)(a) and (c) which do not require the Agency to reasonably characterize incentives, rebates or compensation for running rights as such. Since that duty is imposed with respect to demurrage, it should be inferred, the Agency submitted, that it had been given authority to determine the "reasonableness of overall demurrage charges". Such inference was not, however, justified. The difference in wording is perhaps attributable to the fact that the Agency is required to perform a function under paragraph 150(3)(b), while no positive obligation is imposed by paragraphs 150(3)(a) and (c) whereunder the Agency may accept a carrier's submissions without further consideration. Another reason for the difference in wording may have been the greater sensitivity on the part of shippers and consignees regarding demurrage than with the matters covered by the other paragraphs. Another suggestion was that there was a greater potential for abuse by carriers inappropriately characterizing amounts as demurrage, rather than as revenues subject to their cap than there was in respect of the matters dealt with in the other paragraphs.
The Agency also suggested that it had to have regard to the proportionality test, equating the harm and consequent compensation to the asset owner to the penalty paid by the shipper. It was urged that if the relationship is disproportionate, the amount is unreasonable. This Court was prepared to accept that if a carrier sought to impose extreme charges for the detention of cars, it would be open to the Agency to determine that all revenues arising from the charges could not reasonably be characterized as in respect of demurrage. But that is not what the Agency did herein: it purported to assess the reasonableness of CP's demurrage revenues. Its reasonableness assessment was based entirely on the carrier's adoption of the straight demurrage policy rather than on the rate charged, which was the same under both policies.
The Agency's concern that a carrier's unilateral power to establish demurrage policies could impair the effectiveness of the revenue cap regime was misplaced. The railways do not possess unfettered power to decide what constitutes demurrage: it is the Agency which determines whether amounts are reasonably characterized as in respect of demurrage.
Nor could the Court accept the argument of the Canadian Wheat Board, that section 112 of the Act empowers the Agency to determine the reasonableness of demurrage revenues. That section is related only to rates or conditions of service established by the Agency. The limited number of rates that the Agency may establish include joint line rates and inter-switching rates.
The suggestion that there may be poor communications between CP Rail and its customers was irrelevant to the matter litigated herein although it could be the subject of a level-of-service complaint under Act, section 113.
statutes and regulations judicially
considered
An Act to amend the Canada Transportation Act, S.C. 2000, c. 16.
| An Act to authorize a Subsidy for a Railway through the Crow's Nest Pass, S.C. 1897-1898, c. 5, s. 1(e). |
| Canada Transportation Act, S.C. 1996, c. 10, ss. 5(c), 112, 113, 121(2)(b), 128, 150 (as am. by S.C. 2000, c. 16, s. 10), 151 (as am. idem). |
| Railway Act, R.S.C. 1952, c. 234, s. 328. |
| Railway Company Pay Out of Excess Revenue for the Movement of Grain Regulations, SOR/2001-207. |
cases judicially considered
applied:
Canadian Pacific Ltd. v. Canada (National Transportation Agency) (1992), 151 N.R. 16 (F.C.A.); Canadian Pacific Ltd. v. Canadian Transport Commission, [1979] 2 F.C. 809; (1979), 99 D.L.R. (3d) 52; 26 N.R. 482 (C.A.) (dissenting opinion of Pratte J.A.); Barrie Public Utilities v. Canadian Cable Television Assn., [2003] 1 S.C.R. 476 (2003), 225 D.L.R. (4th) 206; 49 Admin. L.R. (3d) 161; 304 N.R. 1.
authors cited
Transportation Logistics Dictionary, 3rd ed. Washington: International Thomson Transport Press, 1989.
STATUTORY APPEAL from a Canadian Transportation Agency decision that a portion of revenues attributed to demurrage by CP Rail was unreasonable and would have to be included in revenues subject to a cap. Appeal allowed.
appearances:
Marc Shannon for appellant.
Alain Langlois and Gregory E. Smart for respondent Canadian Transportation Agency.
Margaret I. Wiebe for respondent Canadian Wheat Board.
solicitors of record:
Canadian Pacific Railway Legal Services, Calgary, for appellant.
Canadian Transportation Agency, Hull, for respondent Canadian Transportation Agency.
Canadian Wheat Board, Winnipeg, for respondent Canadian Wheat Board.
The following are the reasons for judgment rendered in English by
Rothstein J.A.:
INTRODUCTION
[1]The railway transportation of grain from points in western Canada to Thunder Bay and later to Vancouver and Prince Rupert for export, has been the subject of an evolving system of freight rate regulation since 1897 with An Act to authorize a Subsidy for a Railway through the Crow's Nest Pass, S.C. 1897-98, c. 5, paragraph 1(e). Prior to August 1, 2000, the movement of western grain was regulated based on maximum rates. By An Act to amend the Canada Transportation Act, S.C. 2000, c. 16, this maximum rate regulation was replaced with the regulation of maximum annual revenues that the Canadian Pacific Railway Company (CP), Canadian National Railway Company and other prescribed railway companies may earn for the movement of western grain.
[2]Under this new form of regulation, the Canadian Transportation Agency (Agency) determines the maximum revenue entitlement (revenue cap) for each railway company for each year ending July 31 (crop year) according to a formula set out in the Canada Transportation Act, S.C. 1996, c. 10 (as amended by S.C. 2000, c. 16). If a railway company's revenues for the movement of western grain for the crop year exceed the company's revenue cap for that year, the company is required to pay out the excess together with applicable penalties pursuant to the Railway Company Pay Out of Excess Revenue for the Movement of Grain Regulations, SOR/2001-207 of June 7, 2001.
[3]For purposes of determining if a railway company's revenues exceed its revenue cap, certain amounts earned by the railway company are excluded from the company's revenues. One such exclusion is revenue earned by the railway company for demurrage. Generally, demurrage charges are levied when a shipper or consignee detains a railway car beyond the free time allowed for loading or unloading. For purposes of this case, demurrage is specifically defined subsequently in these reasons.
[4]In its decision number 664-R-2001, dated December 21, 2001, the Agency found that a portion of the revenues which CP attributed to demurrage was unreasonable. That portion was ordered to be included in CP's revenues subject to CP's revenue cap.
ISSUE
[5]CP says the Agency is only empowered to determine whether amounts a railway company alleges are in respect of demurrage are reasonably characterized as such. If the Agency determines that it is reasonable to characterize revenues as being in respect of demurrage, the Agency's jurisdiction is exhausted. CP says the Agency does not have the power to determine the reasonableness of demurrage revenues and that the Agency erred in law by purporting to determine the reasonableness of CP's demurrage revenues and ordering the amount it found to be unreasonable to be included in its revenues subject to its revenue cap.
RELEVANT STATUTORY PROVISIONS
[6]The maximum revenue regulatory scheme is set forth in sections 150 [as am. by S.C. 2000, c. 16, s. 10] and 151 [as am. idem] of the Canada Transportation Act. The only provisions that are relevant to this appeal are subsections 150(1), (2) and (3):
150. (1) A prescribed railway company's revenues, as determined by the Agency, for the movement of grain in a crop year may not exceed the company's maximum revenue entitlement for that year as determined under subsection 151(1).
(2) If a prescribed railway company's revenues, as determined by the Agency, for the movement of grain in a crop year exceed the company's maximum revenue entitlement for that year as determined under subsection 151(1), the company shall pay out the excess amount, and any penalty that may be specified in the regulations, in accordance with the regulations.
(3) For the purposes of this section, a prescribed railway company's revenue for the movement of grain in a crop year shall not include
(a) incentives, rebates or any similar reductions paid or allowed by the company;
(b) any amount that is earned by the company and that the Agency determines is reasonable to characterize as a performance penalty or as being in respect of demurrage or for the storage of railway cars loaded with grain; or
(c) compensation for running rights. [Emphasis added.]
DEFINITION OF DEMURRAGE
[7]Demurrage is not defined in the Canada Transportation Act. However, it is a well-known term and this Court, in Canadian Pacific Ltd. v. Canada (National Transportation Agency) (1992), 151 N.R. 16 (F.C.A.), found, at page 22, that demurrage had been usefully defined by Pratte J.A. in his dissent in Canadian Pacific Ltd. v. Canadian Transport Commission, [1979] 2 F.C. 809 (C.A.). At page 811, Pratte J.A. had stated:
As stated by Rand J. in The North-West Line Elevators Association v. Canadian Pacific Railway Co. ([1959] S.C.R. 239 at 244) demurrage charges "are concerned with the unreasonable detention of railway equipment." The parties have agreed, for the purposes of these proceedings, that demurrage could be defined as:
A charge made by the Railways for the detention of a freight car beyond the free time provided for by the applicable special arrangements tariffs and is intended as an inducement to promptly release the freight car, and alternatively, to compensate partially the Railways, should the freight car be detained beyond the free time allowance.
[8]The Canadian Wheat Board submitted that this definition was not complete, in that it fails to recognize that demurrage charges should not be levied when it is the railway company and not the shipper or consignee that causes the detention of the car beyond the free time allowed for loading or unloading. CP does not dispute that for demurrage to be chargeable, the delay must be caused by the shipper or consignee. I think this is implicit in the definition of demurrage adopted by this Court and I am satisfied that this is an appropriate definition for purposes of this appeal.
THE AGENCY'S DECISION
[9]The issue before the Agency arose as a result of a revision to CP's demurrage policy effective July 1, 2001. Prior to this time, CP's demurrage policy had been to assess shippers or consignees debit days for each car day beyond two-days' free time for unloading and to credit shippers and consignees if cars were unloaded faster than the two-day free time allowed. This is called average demurrage. Under an average demurrage policy, credits a shipper or consignee receives are applied against demurrage charges for cars detained longer than the free time allowed. See Transportation Logistics Dictionary, 3rd ed. (Washington: International Thomson Transport Press, 1989), at pages 68-69. Under its average demurrage policy, CP's demurrage revenue was about $7,600 per month.
[10]With the tariff revision effective July 1, 2001, CP adopted a demurrage policy whereby shippers or consignees were assessed for each car day beyond the free time allowed, but were not credited for releasing cars faster than the two-day free time allowed. This is called straight demurrage. See Transportation Logistics Dictionary, supra. The Agency found CP's demurrage revenue increased to about $75,700 per month as a result of the policy change from average to straight demurrage.
[11]CP had charged $60 per car per day under its average demurrage policy for cars detained beyond the free time allowed. This charge did not change under the straight demurrage policy. The increase in revenue resulted solely from the elimination of credits given to shippers or consignees.
[12]The Agency, by a 2-1 majority, concluded that the amount of revenue above the revenue earned under the average demurrage policy should be included in CP's revenues subject to its revenue cap, i.e. the amount in excess of approximately $7,600 per month. The effect of including this amount of CP's revenues in its revenues subject to its revenue cap is that the revenues CP could potentially earn for the movement of western grain in a crop year would be reduced.
[13]In coming to its conclusion, the Agency interpreted paragraph 150(3)(b) as contemplating "an assessment of the reasonableness of overall demurrage charges on western grain movements". In finding that CP's revenues over and above the revenues earned under the average demurrage policy, i.e. over $7,600 per month, were unreasonable and should be subject to CP's revenue cap, the Agency said:
1. its interpretation of paragraph 150(3)(b) was consistent with the thrust of the revenue cap legislation;
2. the legislation did not intend to depart from the industry standard that demurrage charges should act as both compensation payable to a railway company and as a penalty to shippers and that there should be a degree of proportionality between the two;
3. CP's demurrage revenues had gone up from about $7,600 to $75,700 per month; and
4. there was a lack of effective communication between CP and its customers that inhibited customers from efficiently arranging their railway car usage.
STANDARD OF REVIEW
[14]The parties are agreed that the Agency's interpretation of paragraph 150(3)(b) is to be reviewed on a standard of correctness. More specifically, the parties say that the question of whether paragraph 150(3)(b) empowers the Agency to determine the reasonableness of CP's demurrage revenues and include the amounts found to be unreasonable in CP's revenues subject to its revenue cap, is to be determined on a standard of correctness.
[15]I find the Supreme Court's standard of review analysis in Barrie Public Utilities v. Canadian Cable Television Assn., [2003] 1 S.C.R. 476, at paragraphs 10-19, to be useful as the right of appeal, the issue of expertise and the nature of the question are similar to those issues in this case.
[16]The Canada Transportation Act grants a right of appeal to this Court on leave being granted on a question of law or jurisdiction. Subsection 41(1) provides:
41. (1) An appeal lies from the Agency to the Federal Court of Appeal on a question of law or a question of jurisdiction on leave to appeal being obtained from that Court on application made within one month after the date of the decision, order, rule or regulation being appealed from, or within any further time that a judge of that Court under special circumstances allows, and on notice to the parties and the Agency, and on hearing those of them that appear and desire to be heard. [Emphasis added.]
[17]This Court decides leave applications under the Canada Transportation Act on the basis of whether a question of law or jurisdiction is fairly arguable. Once leave has been granted, as it was in this case, the statutory right of appeal is a factor suggesting a more searching standard of review.
[18]As to relative expertise, the question here is one of statutory interpretation. More specifically, the question is whether the Agency's mandate empowers it to determine if a railway company's demurrage revenues are reasonable and order that an amount found to be unreasonable be included in the company's revenues subject to its revenue cap. This is not a technical question. On this question, there is no expertise in the Agency relative to that of the Court that would support a more deferential standard of review. On the contrary, questions of statutory interpretation are generally within the province of the judiciary. This factor suggests a less deferential approach.
[19]The purpose of the legislation and the provision at issue must also be considered. Much of the Agency's work involves the implementation of the regulatory provisions of the Canada Transportation Act. In respect of the transportation of western grain, this involves the annual determination of a railway company's revenue cap and revenues. However, the proper interpretation of paragraph 150(3)(b) is not a "polycentric" question involving the balancing of interests. Again, this factor points to a less deferential standard of review.
[20]Finally, the nature of the question is legal. Is the determination by the Agency of the reasonableness of demurrage revenues contemplated by paragraph 150(3)(b)? The Agency will have occasion to act under paragraph 150(3)(b) annually and the determination of the extent of its powers will affect its approach in future years. This implies less deference.
[21]Applying the pragmatic and functional approach to the circumstances of this appeal, I conclude that all four factors point to a correctness standard of review.
ANALYSIS
| Paragraph 150(3)(b) |
[22]I am of the respectful view that the Agency erred in its interpretation of paragraph 150(3)(b). The Agency's mandate is to determine only whether any amount may reasonably be characterized as being in respect of demurrage. Once amounts are found to be reasonably characterized as such, the Agency's authority to deal with demurrage is exhausted. The Agency does not have the power to determine the reasonableness of demurrage revenues, limit increases in a railway company's demurrage revenues or determine that any portion of demurrage revenues it finds to be unreasonable be included in the railway company's revenues subject to its revenue cap.
[23]I infer from the Agency's decision that the process under paragraph 150(3)(b) is that a railway company will file with the Agency, among other information, amounts of revenue which it claims is in respect of demurrage. In other words, it is the railway company initially that characterizes amounts as being in respect of demurrage. The role of the Agency is to determine whether it is reasonable to characterize the amounts as such.
[24]From the words of section 150 and, in particular paragraph 150(3)(b), I construe the Parliamentary intention in respect of demurrage as follows:
1. some revenues that a railway company earns that are related to the movement of western grain are not to be subject to its revenue cap;
2. demurrage revenues are one of the amounts which are not to be included in a railway company's revenues subject to its revenue cap;
3. a railway company may characterize certain amounts as being in respect of demurrage that may not reasonably be characterized as such;
4. the Agency has the power and the duty to determine if the railway company's characterization of the amounts as being in respect of demurrage is reasonable;
5. the Agency has the power and duty to include in the railway company's revenues subject to its revenue cap any amount it finds unreasonable to be characterized as being in respect of demurrage; and
6. if the Agency determines that any amount that the railway company characterized as demurrage is reasonable to characterize as such, the amount is to be excluded from the railway company's revenues subject to its revenue cap.
[25]According to the definition of demurrage adopted by this Court, if the Agency determines that it is reasonable to characterize revenues as resulting from charges made by a railway company to induce a shipper or consignee to promptly release cars and to compensate the railway company for the detention of cars beyond the allowed free time, its jurisdiction is exhausted.
[26]I think member Keith Penner had the correct appreciation of the Agency's role in his dissenting reasons. Mr. Penner:
1. adopted the definition of demurrage accepted by this Court;
2. examined CP's demurrage policy and compared it to typical railway demurrage programs;
3. considered industry standard demurrage charges and found that CP's charges were in line with accepted industry standards;
4. found that the absence of a debit and credit system as under an average demurrage policy does not mean that the adoption of a straight demurrage policy is not demurrage;
5. determined that demurrage is not demurrage simply because a railway labels it as such; and
6. provided an example of charges that could not reasonably be characterized as demurrage--charges arising from the elimination by a railway company of free time for loading or unloading, i.e. giving the shipper or consignee no free time.
[27]Determining whether demurrage revenues are reasonable is an entirely different function. That function would require the Agency to engage in a broad assessment of whether demurrage charges or increases in demurrage charges can be justified by market and/or railway cost considerations and the effect on shippers and consignees. That type of intensive freight rate regulation is no longer applicable under current railway legislation. Even in the case of the movement of western grain by rail, where regulation is more pervasive than for other commodities or regions, the regulation of a railway company's revenues is not based on reasonableness but rather on application of a formula taking into account changes from base year figures in volume, length of haul and relevant inflation.
[28]An interpretation of paragraph 150(3)(b) that would confer on the Agency intensive regulatory control over the reasonableness of a railway company's demurrage revenues is not in keeping with Parliament's intent to minimize regulation as expressed in paragraph 5(c) of the Canada Transportation Act (National Transportation Policy):
5. . . .
(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 . . . .
I am of the opinion that member Penner viewed the Agency's regulatory mandate correctly when he stated in his dissenting reasons:
Overall, I find that this kind of assessment by the Agency is consistent with the view that as a regulator, the Agency's role under the revenue entitlement provisions is one of broad oversight rather than attempting to regulate the day-to-day commercial practices or policies of the railway company.
[29]The regulation of rates charged by railway companies is not unknown to Parliament. Historically, during the period of intensive regulation of railway companies, the Board of Transport Commissioners for Canada was empowered to "disallow any tariff or any portion thereof that it considers to be unjust or unreasonable". See Railway Act, R.S.C. 1952, c. 234, s. 328. While railway companies today operate in a much more deregulated environment and the Agency does not have pervasive power to control railway rates, it is apparent that the terminology to control rates, if it intended to do so, was not unknown to Parliament. Indeed, under the current legislation, section 112, which applies to a limited number of rates established by the Agency, requires that the "rate . . . be commercially fair and reasonable". While section 112 is not applicable to demurrage revenues or charges, it further indicates the type of terminology that Parliament uses when it intends there to be regulatory control over the reasonableness of a railway company's rates or revenues.
[30]Had it been Parliament's intention that a railway company's demurrage charges or demurrage revenues should be subject to a reasonableness test, Parliament would have adopted well-known terminology to effect that purpose. It did not do so. Rather, it adopted quite a unique word formula "any amount . . . that the Agency determines is reasonable to characterize . . . as being in respect of demurrage". The necessary implication is that Parliament's intention was not to make demurrage charges or revenues subject to a reasonableness test.
[31]Read in its ordinary and grammatical sense and in context, paragraph 150(3)(b) empowers the Agency to characterize amounts as being, or not being, in respect of demurrage. But it does not grant the Agency the authority to determine the reasonableness of demurrage revenues.
Comparing paragraph 150(3)(b) with paragraphs 150(3)(a) and (c)
[32]The Agency says that, if its function was restricted only to characterizing amounts as being, or not being, in respect of demurrage, paragraph 150(3)(b) would have been written in a manner comparable to paragraphs 150(3)(a) and (c). According to the Agency, nothing in paragraphs 150(3)(a) and (c) requires the Agency to reasonably characterize incentives, rebates or compensation for running rights as such. By contrast, paragraph 150(3)(b) places that duty on the Agency in respect of demurrage. As a result, the Agency inferred it had been given the authority by Parliament to determine the "reasonableness of overall demurrage charges".
[33]The Agency rightly points out the difference in wording between paragraphs 150(3)(a) and (c) on the one hand, and paragraph 150(3)(b) on the other. However, the Agency's inference from that difference in wording is, in my respectful opinion, not justified.
[34]It may be that the difference in wording is attributable to the Agency being required to perform a function under paragraph 150(3)(b), while there is no equivalent requirement in paragraphs 153(a) and (c). Under paragraph 150(3)(b), the Agency is required to review the amounts the railway company submits as being revenues in respect of demurrage and determine whether it is reasonable to characterize the revenues as such.
[35]By contrast, under paragraphs 150(3)(a) and (c), there is no positive obligation on the Agency to determine if amounts are in respect of incentives, rebates or compensation for running rights. Of course, that does not mean that the Agency may not look at amounts the railway company says are incentives, rebates or compensation for running rights. However, there is no positive obligation on the Agency to characterize such amounts as there is under paragraph 150(3)(b). Under paragraphs (a) and (c), the Agency may accept the railway company's submissions without further consideration.
[36]The reason for the difference in wording, as between paragraphs 150(a) and (c) on the one hand and (b) on the other, is not obvious. Perhaps, as suggested by counsel for CP, it was because of a greater sensitivity among shippers and consignees with respect to demurrage than with respect to incentives, rebates or compensation for running rights. Indeed, by Order in Council, P.C. 1959-569 dated May 7, 1959, the Board of Transport Commissioners for Canada was ordered to suspend the railway companies' demurrage charges applicable to the movement of western grain and the opportunity of the railway companies to assess demurrage charges remained suspended until 1995 (see dissenting reasons of member Penner). Counsel for the Commission submitted that there was more potential for abuse by railway companies inappropriately purporting to characterize amounts as demurrage, rather than as revenues subject to the revenue cap than in the case of incentives, rebates or running rights compensation.
[37]Whatever the reasons for the difference in wording, the words of paragraph 150(3)(b) do not confer on the Agency the jurisdiction to determine the reasonableness of demurrage revenues.
The Proportionality Test
[38]The Agency expressed the view that it was required to have regard to "[t]he `proportionality test' which equates the harm and consequent compensation to the asset owner to the penalty paid by the shipper." The Agency said that when the relationship becomes disproportionate, the resulting amount becomes unreasonable.
[39]One purpose of demurrage charges is to compensate the railway company for the investment in the car, i.e. for the lost opportunity to earn revenue if the car had been promptly released. I accept that if a railway company attempted to impose extreme charges for detention of cars, it would be open to the Agency to determine that all the revenues arising from the charges could not reasonably be characterized as being in respect of demurrage.
[40]Therefore, the Agency may consider the level of charges and the revenues earned from imposition of those charges. However, its mandate is not to determine the reasonableness of the charges or revenues. It is to determine if the level of charges or the manner of imposing the charges indicates that any part of the revenues arising therefrom is not reasonable to be characterized as being in respect of demurrage.
[41]That is not what the Agency did in this case. In its reasons, the Agency repeats the words of paragraph 150(3)(b). However, the sentence immediately following states:
This conclusion is based on the Agency's finding that the wording of the statute contemplates an assessment of the reasonableness of overall demurrage charges.
It is obvious, from its reasons, that the Agency purported to assess the reasonableness of CP's demurrage revenues.
[42]Indeed, its reasonableness assessment was based solely on CP's adoption of the straight demurrage policy in place of its prior average demurrage policy. The Agency's assessment was not, and could not be based on CP's charges which were the same under both policies--$60 per car per day. The Agency did not purport to reduce the per-car per-day charge. A shipper, who only incurred debit days under the average demurrage policy, would pay the same demurrage to CP under both the average and straight demurrage policies. It is, therefore, difficult to understand how CP's revenues for car detention beyond the free time allowed could be characterized as anything but being in respect of demurrage.
Integrity of the Revenue Cap Regime
[43]The Agency was concerned that a railway company's unilateral power to set grain demurrage policies could impair the effectiveness of the revenue cap regime because it would be entirely up to the railway company to decide what constituted demurrage and, therefore, what residual amount constituted statutory grain revenue.
[44]I think this concern is misplaced. The railway companies do not have unfettered power to decide what constitutes demurrage. It is the Agency that is to determine whether amounts are reasonably characterized as being in respect of demurrage. If the Agency determines that amounts alleged by a railway company to be demurrage revenues may not reasonably be characterized as such, the Agency will order such amounts to be included in the railway company's revenues subject to its revenue cap.
Argument of the Canadian Wheat Board
[45]The Canadian Wheat Board argued that section 112 of the Canada Transportation Act empowers the Agency to determine the reasonableness of demurrage revenues. Section 112 provides:
112. A rate or condition of service established by the Agency under this Division must be commercially fair and reasonable to all parties.
[46]I am unable to agree with the Canadian Wheat Board. As I earlier indicated, section 112 is referable only to rates or conditions of service established by the Agency. Under the Canada Transportation Act, there are a limited number of rates that the Agency may establish. Examples would be joint line rates established by the Agency under paragraph 121(2)(b) where the railway companies participating in a joint line movement do not agree on the rate. Another example would be inter-switching rates set by the Agency pursuant to section 128. However, demurrage charges assessed by the railway companies in respect of western grain are not established by the Agency. Section 112 has no application.
Communication Between CP and its Customers
[47]I need make one final observation. In justifying its unreasonableness finding, the Agency seems to have taken into account a lack of effective communication between CP and its customers which it found inhibited the customers from effectively managing their railway car usage. A failure of a railway company to adequately communicate with its customers may be a valid subject of a level-of-service complaint under section 113 of the Canada Transportation Act. I need make no judgment on that point. It is an irrelevant consideration for purposes of determining whether it is reasonable to characterize an amount as being in respect of demurrage.
[48]Demurrage is assessable when a car is detained beyond the free time as a result of shipper's or consignee's default. Where the detention is caused by the railway company, demurrage is not assessable. Thus, as counsel for CP pointed out, when bunching occurs as a result of railway operations, such that the railway company delivers more cars than the shipper or consignee can reasonably handle at one time and cars are, therefore, detained beyond the free time allowed, the shipper or consignee may dispute any demurrage charges that the railway company purports to assess. If there is a dispute over fault, that is to be determined between the parties or, if necessary, by the Court. It is not a matter that is relevant under paragraph 150(3)(b).
CONCLUSION
[49]The appeal should be allowed with costs. The Agency's decision should be quashed and the matter should be remitted to the Agency for redetermination in accordance with these reasons.
Sexton J.A.: I agree.
Sharlow J.A.: I agree.