Canadian Pacific Railway Company v. Canada (Transportation)

Canadian Pacific Railway Company v. Canada (Transportation) Court (s) Database Federal Court of Appeal Decisions Date 2007-06-14 Neutral citation 2007 FCA 240 File numbers A-160-06 Notes Digest Decision Content Date: 20070614 Docket: A-160-06 Citation: 2007 FCA 240 CORAM: DÉCARY J.A. SEXTON J.A. PELLETIER J.A. BETWEEN: CANADIAN PACIFIC RAILWAY COMPANY Appellant and CANADIAN TRANSPORTATION AGENCY Respondent Heard at Calgary, Alberta, on June 14, 2007. Judgment delivered from the Bench at Calgary, Alberta, on June 14, 2007. REASONS FOR JUDGMENT BY: SEXTON J.A. CONCURRED IN BY: DÉCARY J.A. CONCURRING REASONS BY: PELLETIER J.A. Date: 20070614 Docket: A-160-06 Citation: 2007 FCA 240 CORAM: DÉCARY J. A. SEXTON J. A. PELLETIER J. A. BETWEEN: CANADIAN PACIFIC RAILWAY COMPANY Appellant and CANADIAN TRANSPORTATION AGENCY Respondent REASONS FOR JUDGMENT (Delivered from the Bench at Calgary, Alberta, on June 14, 2007) PELLETIER J. A. (Concurring) [1] This is an appeal from a decision of the Canadian Transportation Agency (CTA) in which it held that certain amounts recovered by the appellant Canadian Pacific Railway Company (CPR) as performance penalties pursuant to its agreement with certain grain shippers were not performance penalties within the meaning of Canada Transportation Act and were in fact a return of Industrial Development Fund contributions made by the appellant. [2] As a result of its findings, the CTA held that the amounts were not to be included in the appellant’s revenue for the purposes of calculating the revenue cap provided for at s. 151 of the Act but that they were to be “factored against the capital account of each of the facilities subject to the contractual penalties”. This had the effect of reducing the amounts which could be deducted from the appellant’s revenue as the reasonable amortization of the IDF contributions. [3] The appellant challenges this decision on the basis that the amounts in question are, in fact, performance penalties and that the CTA does not have the jurisdiction to add to its revenue by revisiting amounts which have already been accepted as reasonable IDF contributions. [4] For the purposes of this discussion we are prepared to agree that the standard of review of the CTA’s decision is reasonableness simpliciter. [5] The CTA held that the amounts in question were not performance penalties because they were not related to the movement of western grain. The CTA reasoned that since the statutory definition of movement of grain refers to the actual carriage of grain by a prescribed railway company, an amount paid by reason of the non-movement of grain cannot be in relation to the movement of grain. With respect, a performance penalty relates to a failure to complete an obligation. If that obligation is to ship grain, and therefore involves the actual carriage of grain by a railway company, a performance penalty in relation to that obligation will necessarily involve the failure to actually move grain. The CTA acted unreasonably in excluding the payments in question as performance penalties on the basis that they did not actually involve the movement of grain. [6] Had the CTA characterized the amounts in question as performance penalties, they would have been excluded from the calculation of the appellant’s revenue cap on the basis of paragraph 150(3)(b). Because the CTA decided that these amounts did not relate to the movement of grain, they were excluded from the revenue calculation so that the appellant is no worse off. The real issue is the “recapture” of these amounts in calculation of the appellant’s IDF contributions. [7] The amounts in question were paid pursuant to two groups of contracts. In the first group, the shippers agreed to a monetary penalty in a predetermined amount if they failed to ship specified quantities of grain in a crop year. In the second group of contracts, the shipper agreed to pay a penalty calculated as a percentage of the amount contributed by the appellant to the construction of certain works in connection with the shipper’s facilities. The percentage payable varied with the degree of the shortfall. In either case, no amount was payable so long as the shipper met the volume requirements. [8] The CTA concluded that there was a direct link between the amounts payable and the IDF contributions made by the appellant and that the amounts received were therefore a clawback of the IDF contribution. This conclusion is unreasonable for several reasons. First, the connection between the payment and the contributions made appeared in only one of the two groups of contracts. The payments made pursuant to that group of contracts were a small proportion of the total amounts received by the appellant under this heading. It was unreasonable for the CTA to characterize the entire group of payment on the basis of the mode of calculation of a small part of those payments. Secondly, the payments only became due upon the failure of the shipper to meet its contractual obligations such that it would be entirely possible for the shipper to escape payment of these amounts altogether. In other words, there was no certainty that the payments would ever be made which is inconsistent with the notion of cost recovery by way of clawback. Finally, the only link between the payments and the IDF contributions was in the calculation in the amount of penalty payable. There were other ways of setting that amount, as is clear from the other group of contracts. [9] The CTA’s characterization of the amounts in question as clawback was therefore unreasonable and cannot stand. There was therefore no basis for the CTA to modify the amortization arrangement in place with respect to the appellant’s IDF contributions. As a result, we do not have to decide if, and under what circumstances, the CTA is entitled to intervene in the operation of the amortization scheme set out in ss. 150(5). J.D. Denis Pelletier J.A. SEXTON J. A. [10] I agree with the Reasons for Judgment read by Pelletier J.A. but I wish to go a step further. [11] The Canadian Transportation Agency (CTA) held that the monies paid by the grain handlers are not performance penalties because they do not relate to the movement of grain. The CTA said that the grain in question here did not actually move. [12] I disagree with the Agency’s reasons. While the grain here did not actually move, the penalties nevertheless related to the obligation of the grain handlers to provide certain quantities of grain which would be moved by Canadian Pacific Railway (CP). In my view the word, “movement” includes the obligation to provide those quantities of grain for movement by CP. [13] This opinion is buttressed by this Court’s decision in Canadian Pacific v. National Transportation Agency (1992), 151 N.R. 16. The issue in that case was whether storage charges were to be included as rates for the movement of grain. The National Transportation Agency there equated the word “movement” to the movement between two points and said actual movement was required so that storage charges could not be included as part of rates. Hugessen J. found this interpretation to be too narrow. He was of the view that “movement” refers to the whole process or series of actions by which grain is moved from origin to destination. He said: [30] In my view, grain does not cease being in the process of movement within the meaning of the WGTA simply because it is subject to temporary stoppages at any point or points between its being loaded on to rail cars and its delivery at destination. “Movement”, in the sense of carriage, refers to the whole process or series of actions by which grain is moved from origin to destination and it ends only with the placing or “spotting” of the rail cars so that they may be unloaded. To suggest that “movement” might end, or even be suspended, at some other point or points in the process would give rise to artificial and unworkable distinctions; it would also defeat the clear purpose of the WGTA which is to provide a single, subsidized statutory rate for grain moving east or west from the prairies to port. [14] By analogy I find that the CTA’s interpretation of “movement” to be inconsistent with the interpretation given by Hugessen J. in that it interpreted “movement” to exclude “non-movement”. It is clear from the reasons of Hugessen J. that movement includes the obligation to deliver and is not merely limited in its simplest sense as to “put in motion”. [15] Subsection 150(3)(b) in my view is broad enough to include in the expression “performance penalty”, penalties generally relating to the obligation to provide grain for movement by grain shippers. [16] I therefore find that the conclusion of the CTA in this respect was unreasonable in the case at bar and that the payments made to CP should be characterized as performance penalties related to movement of grain within the meaning of subsection 150(3)(b) of the Canada Transportation Act. [17] I will allow the appeal without costs, set aside that portion of Decision No. 755-R-2005 which deals, from paragraphs 63 to 81, with the “treatment of amounts paid by a grain company for failure to meet volume commitments contained within Industrial Development Fund contracts” and remit the matter back to the Canadian Transportation Agency for reconsideration on the basis of these reasons. J. Edgar Sexton J.A. “I agree. R. Décary J.A.” FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD DOCKET: A-160-06 STYLE OF CAUSE: Canadian Pacific Railway Company v. Canadian Transportation Agency PLACE OF HEARING: Calgary, Alberta DATE OF HEARING: June 14, 2007 REASONS FOR JUDGMENT DELIVERED FROM THE BENCH BY: SEXTON J.A. CONCURRED BY: DÉCARY J.A. CONCURRING REASONS BY: PELLETIER J.A. APPEARANCES: Glen H. Poelman Karl R. Seidenz FOR THE APPELLANT Ron Ashley FOR THE RESPONDENT SOLICITORS OF RECORD: Macleod Dixon LLP Calgary, Alberta FOR THE APPELLANT Canadian Transportation Agency Ottawa, Ontario FOR THE RESPONDENT