Ferroequus Railway Co. v. Canadian National Railway Co.

Ferroequus Railway Co. v. Canadian National Railway Co. Court (s) Database Federal Court of Appeal Decisions Date 2003-11-26 Neutral citation 2003 FCA 454 File numbers A-89-03 Notes Reported Decision Decision Content Date: 20031126 Docket: A-89-03 Citation: 2003 FCA 454 CORAM: STRAYER J.A. NOËL J.A. EVANS J.A. BETWEEN: FERROEQUUS RAILWAY COMPANY LIMITED Appellant and CANADIAN NATIONAL RAILWAY COMPANY LIMITED and THE CANADIAN TRANSPORTATION AGENCY Respondents and CANADIAN PACIFIC RAILWAY COMPANY Intervener Heard at Vancouver, British Columbia, on November 25 and 26, 2003. Judgment delivered from the Bench at Vancouver, British Columbia, on November 26, 2003. REASONS FOR JUDGMENT OF THE COURT BY: EVANS J.A. Date: 20031126 Docket: A-89-03 Citation: 2003 FCA 454 CORAM: STRAYER J.A. NOËL J.A. EVANS J.A. BETWEEN: FERROEQUUS RAILWAY COMPANY LIMITED Appellant and CANADIAN NATIONAL RAILWAY COMPANY LIMITED and THE CANADIAN TRANSPORTATION AGENCY Respondents and CANADIAN PACIFIC RAILWAY COMPANY Intervener REASONS FOR JUDGMENT OF THE COURT (Delivered from the Bench at Vancouver, British Columbia on November 26, 2003) EVANS J.A. [1] The dispute in this case involves a relatively small, but important aspect of the historic and ongoing struggle over freight rates for the transportation of grain from the prairies to the west coast ports from which it enters the world market. More particularly, it concerns the role of the enhancement of competition in the exercise of the National Transportation Agency's power to grant a railway company the right to operate over another company's tracks. Although a statutory power to grant running rights has existed for over eighty years, it has never been exercised. Indeed, we are told that this is the first case to test the scope of the Agency's legal authority. [2] In October 2001, Ferroequus Railway Company Ltd. ("FE") applied to the Canadian Transportation Agency under subsection 138(1) of the Canada Transportation Act, 1996 S.C., c. 10, for an order authorising it to operate over portions of Canadian National track. It wanted to compete with CN and Canadian Pacific in the carriage of wheat from the prairies to, principally, the underutilised Port of Prince Rupert. FE's application was strongly supported by the Canadian Wheat Board, the largest shipper of grain in Canada. [3] Subsection 138(2), which empowers the Agency to make such an order, and to impose conditions on it, provides as follows: (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. (2) L'Office peut prendre l'arrêté et imposer les conditions, à l'une ou à l'autre compagnie, concernant l'exercice ou la limitation de ces droits, qui lui paraissent justes ou opportunes, compte tenu de l'intérêt public. Compensation must be paid for any right granted under 138(2) and, if the parties cannot agree the amount, the Agency may fix it: subsection 138(3). [4] In a decision rendered on September 10, 2002, the Agency refused to make a running rights order in favour of FE, principally because FE had adduced no evidence of either market abuse or failure as a result of the conduct of the existing rail carriers of western Canadian wheat, CN and CP, or of a problem with the rates or the service as a result of a lack of competition. FE was granted leave to appeal to this Court from the Agency's rejection of its application. [5] The following extracts from the lengthy reasons of the majority, found at pages 50 and 53 of the Appeal Book, explain the bases of the Agency's conclusions on the main issue and identify what FE says is the Agency's fundamental error. A statutory running right is an exceptional remedy. Its exceptional character is supported on many fronts: it is expropriative in nature; there are significant operational problems to be expected in its application; there will likely be a continuing need for regulatory intervention; it may lead to the fragmentation of railway markets; it may create disincentives for the host to invest in infrastructure and may have capital funding implications for the host railway company. As well, there may be other less intrusive remedies available under the law. It is, therefore, not enough for an applicant to state as grounds for an application that competition will be increased or that railway rates will go down. While this may be the result, there can be an offsetting downside to this on the host carrier and its shippers, both in the catchment area which is subject to the application as well as system wide. There has to be more than simply the enhancement of competition in a market for the section to apply. Section 138 of the CTA does not promote competition for competition's sake. ... The Agency finds that the principle of competition without actual evidence of market abuse or failure is not sufficient to trigger the application of section 138 of the CTA. First, the public interest under the CTA does not advocate the unidimensional quest for competition and second, the mere potential for market abuse or failure is not sufficient to impose regulated running rights. [Emphasis added] ... At a minimum, railway companies that apply to the Agency for running rights under section 138 of the CTA must be able to establish that there is a rate or service problem in the relevant markets, that the problem is related to a lack of adequate and effective competition and that the granting of regulated running rights will either eliminate or alleviate the problem. ... ... The above finding alone is sufficient to deny the application. The Agency recognizes, however, that the issue of running rights is one of broad and continuing interest in the transportation community. The Agency also recognizes that the proponents provided a great deal of excellent evidence with respect to FE's proposal. [6] FE says that the Agency's essential error was its insistence, indicated in the italicised words quoted above, that FE adduce evidence of market failure or abuse, or of a problem with the current rates or service, as a condition precedent to balancing all the relevant considerations in order to determine whether it was in the public interest to impose on CN the running rights requested by FE. [7] Counsel argued that neither the language of subsection 138(2), nor the previous jurisprudence of the Board or the courts, provides any support for this restricted reading. Indeed, it is contrary to the National Transportation Policy, which is enacted as section 5 of the Act and, among other things, stipulates in paragraph (b) that: competition and market forces are, whenever possible, the prime agents in providing viable and effective transportation services. The Agency, counsel submitted, should have regarded section 138 as a measure adopted by Parliament for enhancing competition, together with other provisions in the same part of the Act designed to enhance competition, namely the remedies of interswitching (section 127) and competitive line rates (section 129). [8] Counsel for FE argued that, in so concluding, the Agency had made a jurisdictional error by importing into the statute a condition precedent to the exercise of its discretion on an application for running rights in which it "may grant the right and may make any order ... having regard to the public interest." [9] Alternatively, if the Court were of the view that the Agency had considered other aspects of the public interest, even though FE had not proved that the grant would effectively remedy an existing market failure or its consequences, FE submitted that the Agency had taken into account irrelevant factors, such as the financial viability of FE. It had also attached a totally inappropriate weight to the absence of evidence of market failure and had consequently given so little weight to other relevant factors that it had thereby effectively fettered its ability to exercise its discretion in the light of all relevant aspects of the application. [10] Counsel summarized FE's position by saying that the question before the Court was a matter of statutory interpretation and therefore a pure question of law within the province of the Court, not the Agency. In FE's submission, the question is whether Parliament intended the Agency to undertake the balancing of factors on a section 138 application after the applicant had established, not only that the grant of running rights would enhance competition in the relevant market by introducing another carrier, but would also effectively remedy an existing market abuse or failure, or a problem with the rates or service that is attributable to the lack of competition. [11] We do not agree. In our view, there are two flaws in FE's characterization of the Agency's reasoning as creating an unwarranted "condition precedent" to the exercise of its public interest discretion, and as thereby failing to exercise its "jurisdiction" or, at the very least, "fettering" its exercise of discretion. [12] First, it is inconsistent with the terms of the Agency's reasons. The Agency explicitly rejected (at page 49 of the Appeal Book) the argument of CN and CP that section 138 contained unexpressed pre-conditions to the Agency's consideration of FE's application. In examining the arguments raised in the present proceedings, the Agency finds that there is no language in section 138 or elsewhere in the CTA that states or establishes any of the pre-conditions to the Agency's consideration of FE's application that have been advanced by CN, CP and others. For example, FE need not prove as a preliminary matter that there has been any breach by anyone of the substantive provisions under the law. Thus, as a jurisdictional question, there is no condition precedent that has to be met on this account. [Emphasis added] [13] Having found that FE had not adduced the evidence necessary to establish that the public interest in competition could warrant the grant of running rights, the Agency nonetheless analysed other elements of the public interest that had been raised during the hearing. To the extent that some of these considerations may have been legally irrelevant to the Agency's exercise of its discretion, which we do not decide, they were not material to the Agency's decision and thus could not justify allowing the appeal. [14] The answer to counsel's allegation that the Agency attached too little weight to other factors that were relevant is that the question of relative weight to be afforded to the various considerations is a matter within the Agency's discretion. It is not normally the business of a reviewing court to substitute its view of the relative weight to be attributed to various factors considered in the exercise of discretion for that of the specialist administrative agency to which Parliament has entrusted the task: Suresh v. Canada (Minister of Citizenship and Immigration), [2002] 1 S.C.R. 3, 2002 SCC 1 at para. 37. In any event, it seems clear that FE itself regarded the public interest in competition as the most important factor favouring the grant of running rights. [15] Second, FE's characterization of the Agency's errors is out of step with the approach to judicial review of administrative action endorsed by the Supreme Court of Canada, especially in some of its more recent pronouncements on the centrality of the pragmatic and functional analysis in defining the roles of specialist agency and reviewing court in administering and implementing a statutory regulatory scheme. [16] In particular, the Court has warned of the very limited value of the old doctrinal language of administrative law, which tended to identify "a categorical or nominate error" in a tribunal's decision and "to slot a particular issue into a pigeon hole of judicial review and, on this basis, demand correctness from the decision-maker"; such an approach can "no longer dictate the journey": Dr. Q v. College of Physicians and Surgeons of British Columbia, 2003 SCC 19 at paras 22, 24 and 25 (per McLachlin C.J.). [17] I would include "exceeding jurisdiction", and taking into account the "irrelevant" and ignoring the "relevant" in the list of terms that are long past their "best before date", even if they were not already spoiled when they were first used to stock the shelves of the law of judicial review. None addresses the central question in judicial review, namely, the appropriate definition of the decision-making roles to be assigned respectively to the specialist agency and the reviewing court. [18] We also disagree with FE's contention that the question to be decided is a "pure" question of law. True, the Agency's conclusion is likely to be of some precedential importance and is not confined to the facts of this case. As a result of the Agency's decision in the present case, subsequent applicants for running rights may expect the Agency to dismiss their application if they do not demonstrate that the grant would effectively remedy market abuse or failure, or dissatisfaction with existing rates or service as a result of the lack of competition. [19] However, as L'Heureux-Dubé J. recognized in Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817 at para. 54, issues of discretion and statutory interpretation are often inextricably intertwined and are not susceptible of surgical separation. The statutory context of the Agency's decision in this case strikingly illustrates the truth of this observation. [20] First, the open-ended language of subsection 138(2) defining the Agency's legal powers is redolent of discretion. The only express legal limitation on the Agency's discretion to grant a running rights order is that it must have "regard to the public interest." [21] Second, it is common ground that the factors to which the Agency must have regard when determining whether the grant of running rights is in the public interest are contained in the National Transportation Policy. This Policy both informs and, because of its statutory base, imposes a legal limitation on, the Agency's exercise of discretion. [22] However, since the Policy expresses the often competing considerations that the Agency must balance when making a particular decision, it inevitably operates at a level of some generality and does no more than guide and structure the Agency's exercise of discretion in any given fact situation. Thus, it imposes a relatively soft legal limit on the Agency's exercise of power, in the sense that it will rarely dictate a particular result in any particular case. [23] Having set out the parameters of our approach to the central issue in dispute in this case, we turn now to a consideration of the elements of the pragmatic and functional analysis to determine the standard of review to be applied to the Agency's decision. [24] First, Parliament has provided a right of appeal from decisions of the Agency to this Court on questions of law and jurisdiction: subsection 41(1). The existence of a right of appeal is normally to be regarded as an indication that Parliament intended to subject an agency's decisions to relatively close judicial supervision, and therefore as a factor favouring correctness as the standard of review. [25] We do not disagree with this as a general proposition. However, we would also note that the right of appeal in question here is subject to two significant limitations that may cast some doubt on the extent to which it should be regarded as a positive indication of review for correctness. First, it is limited to questions of law and jurisdiction and excludes findings of fact. Second, the right of appeal is conditional on the grant of leave by the Court. [26] In both these respects, a person wishing to appeal a decision of the Agency is worse off than a person who can apply for judicial review under section 18.1 of the Federal Court Act, R.S.C. 1985, c. F-7. And, it has been held, statutory silence on access to the Court is a neutral factor in the pragmatic and functional analysis: Dr. Q at para. 27. In such cases, a federal administrative agency is reviewable on the apparently somewhat broader grounds contained in section 18.1 of the Federal Court Act. Hence, it is difficult to accept that a right of appeal that may be more restrictive of an individual's access to the Court than if the Act had been silent can be regarded as much of an indicator of a legislative intention that the Court should subject to Agency decisions to correctness review. [27] It is common ground that, as a specialist administrative agency mandated to regulate an important, varied and complex industry, namely national transportation, the Agency has a high degree of expertise. In this respect, it is like other economic regulatory federal and provincial agencies. More controversial, however, as we have already indicated, is the proper characterization of the issue in dispute in this case, and the extent to which it falls within the Agency's expertise. [28] The principal question in dispute in this case, according to FE, is a purely legal question: whether an application under section 138 can be dismissed because the applicant has provided no evidence of either market failure or abuse, or of a problem with the rates or services arising from a lack of competition that would be effectively remedied by the grant of running rights. [29] In our view, however, to assert that this question can be divorced from an understanding of transportation policy or discretion runs counter to the symbiotic relationship of law and policy in public administration, and to the role of specialist agencies charged with the task of administering a regulatory scheme under legislation that does not purport to identify and solve the myriad, complex and unforeseeable problems that will arise before the Agency on a case-by-case basis. [30] FE's characterization of the question to be decided as one of "pure" law on which no judicial deference is due is very difficult to square with the broad discretion given to the Agency by section 138(2). For, as the Supreme Court has noted, the breadth of a statutory discretion is an indication that judicial deference is called for when a court is reviewing an agency's decision made pursuant to that discretion. If Agency expertise in the regulation of railways and carriage by rail is not engaged in deciding when competition concerns could warrant a grant of running rights in the public interest, it is difficult to know when it would be. [31] It is also important to note that the decision of whether to grant to a railway running rights over another's tracks is highly polycentric in nature. On the facts of this case, it involved balancing the competing interests of shippers and producers on the one hand, and of the existing rail carriers on the other. The broader ramifications of the decision, and the range of interests potentially affected, are indicated by the nature and number of the interveners before the Agency. They included CP, whose interests were not directly at stake, railway employees and retirees, the Canadian Wheat Board, the Commissioner of Competition, the operators of grain elevators, a coal company, and the Port of Prince Rupert. [32] In our view, a consideration of all the elements of the pragmatic and functional analysis discussed above points clearly to a deferential standard of review. Indeed, despite the absence of a preclusive clause and the presence of a limited right of appeal, we agree with the position taken at the hearing by counsel for CN, CP and the Agency itself. Patent unreasonableness is the appropriate standard of review of a polycentric question concerning the regulation of activities within the mandate of a highly specialised agency, and lies closer to the discretion than to the law end of the spectrum. [33] It remains to apply that standard to the decision under review. Counsel for FE did not argue that if, contrary to their submissions, correctness was not the standard of review, the appeal should be allowed because the Agency's decision was unreasonable. Indeed, in our view, it could not plausibly be maintained that the Agency's reasoning was so obviously and grievously erroneous that its decision cannot be permitted to stand. On the contrary, the Agency's analysis is careful, balanced, cogent and detailed, and was properly responsive to the position advanced on behalf of FE. [34] In particular, it is difficult to take issue with the rationality of the Agency's principal reason for concluding that FE had not demonstrated a lack of competition, or the effects thereof, that would support a finding that the grant of running rights was in the public interest. I can do no better than to reproduce again what the Agency said at page 50 of the Appeal Book. A statutory running right is an exceptional remedy. Its exceptional character is supported on many fronts: it is expropriative in nature; there are significant operational problems to be expected in its application; there will likely be a continuing need for regulatory intervention; it may lead to the fragmentation of railway markets; it may create disincentives for the host to invest in infrastructure and may have capital funding implications for the host railway company. As well, there may be other less intrusive remedies available under the law. [35] The fact that one member of the Agency entered a vigorous dissent does not throw into doubt the rationality of the majority's reasoning. That a rational case can be made for reaching the opposite conclusion from that reached by a majority does not demonstrate the irrationality of the majority's view. Indeed, for what it is worth, we note that another member of the Agency gave concurring reasons, on the ground that the majority did not go far enough. [36] Our conclusion that the Agency committed no reviewable error on the main question, the competition issue, effectively subsumes the argument made by FE that the Agency ignored relevant factors and took into acount the irrelevant. We therefore need say nothing about them. [37] Finally, FE submitted that the Agency breached the duty of procedural fairness in two respects. First, in the course of considering the financial viability of FE and the reliability of its business plan, the Agency took into consideration the level of compensation that might be awarded as a condition of the grant of running rights. Counsel argued that this was unfair. Because the Agency had stated previously that it would only consider the question of compensation if and when it decided to grant the section 138 application, counsel for FE was not prepared to properly address the Agency on this issue. [38] In our view, there is no merit in this point, for three reasons. First, the Agency was entitled to dismiss the application because FE had not demonstrated that the grant of running rights was warranted on the principal ground advanced by FE, namely, enhanced competition. Consequently, the financial viability of FE could not in itself justify the grant of running rights, although doubts on this score might have conceivably counted against it if it had established grounds for granting its application. [39] Second, what the Agency said (at page 57 of the Appeal Book) about compensation and FE's financial viability seems to us to be so obvious and completely unexceptionable that it hardly constitutes a finding adverse to FE on which it ought to have been heard at greater length, after an adjournment: The Agency is of the view that it would be inappropriate to determine or prejudge at this time what exact elements should form the compensation fee or at what level such fees should be set. In this context, the Agency finds that if FE's assumed expense for reimbursing CN for use of its trackage were lower than the access fee ultimately paid to CN, this would have a further negative impact on FE's earnings expectations. [40] Third, counsel conceded that, while he objected at the time to the Board's considering compensation, he did not request an adjournment so that he could participate effectively on the issue. In our view, having missed this opportunity, FE cannot now argue that it was denied procedural fairness because the level of compensation was raised unexpectedly and tangentially in the course of the hearing on FE's financial viability. [41] The second fairness argument is that the Agency breached the duty to be procedurally fair when it refused to accept written submissions made by FE after the date for submitting further material had passed. FE argued that the public interest nature of Agency proceedings means that the Agency should not confine itself to considering material submitted at the hearing, but should be prepared to entertain late submissions, up until the time that it was ready to render its decision. [42] Again, in our view this point lacks any merit. FE wished to make late written submissions on the conditions that the Agency might impose on the grant of running rights in order to respond to the concerns expressed during the hearing by those opposing the section 138 application. Indeed, it might well have been unfair to the other parties if the Agency had considered FE's late submissions without reopening the oral hearing to allow for cross examination and for oral submissions to be made in response. This would cause further delays. If, as FE suggested, the Agency was bound to accept written submissions at any time before it rendered its decision, the hearing might never end. [43] Procedural fairness guarantees only a reasonable right to participate in administrative decision-making, not a virtually open-ended opportunity to raise additional points or to introduce evidence. It does not eliminate an agency's ability to control its own process. That would be a recipe for administrative grid-lock. [44] For all these reasons, the appeal will be dismissed with costs payable by FE to CN. (Sgd.) "John Maxwell Evans" J.A. FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD DOCKET:A-89-03 STYLE OF CAUSE: Ferroquus Railway Corporation v. Canadian National Railway Company et al PLACE OF HEARING: Vancouver, B.C. DATE OF HEARING: November 25 and 26, 2003 REASONS FOR JUDGMENT OF THE COURT:Strayer, JA: Noël, JA; Evans, JA DELIVERED FROM THE BENCH BY:Evans, JA APPEARANCES: Mr. Forrest C. Hume Mr. Louis J. Zivot FOR THE APPELLANT Mr. William J. Kenny, Q.C. Mr. Darin J. Hannaford FOR THE RESPONDENT - Canadian National Railway Company Mr. Alain LangloisFOR THE RESPONDENT - Canadian Transportation Agency Mr. Marc ShannonFOR THE INTERVENER - Canadian Pacific Railway Company SOLICITORS OF RECORD: Forrest C. Hume Law Corporation, Vancouver, BC Lang Michner, Vancouver, BC FOR THE APPELLANT Miller Thomson, Edmonton, AB FOR THE RESPONDENT - Canadian National Railway Company Canadian Transportation Agency, Ottawa, ONFOR THE RESPONDENT - Canadian Transportation Agency Legal Services, Canadian Pacific Railway Company,FOR THE INTERVENER - Calgary, ABCanadian Pacific Railway Company