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CTA in Rail Line Discontinuance Case Upheld on Appeal
Published in the January 2009 issue of Transportation Notes - View Article
On December 12, 2008, the Federal Court of Appeal released a decision interpreting s. 142(2) of the Canada Transportation Act, S.C. 1996, c.10 (the “Act”), relating to the process that must be followed when a railway determines that it will discontinue its operations on a particular rail line.
By way of background, Division V of the Act starts off this process with the railway continually maintaining and updating a publicly available three-year plan identifying which lines it intends to continue operating, and which lines it intends to take steps to discontinue.
When a decision is taken to dispose of a rail line (through a sale, lease or other form of transfer), s. 142(2) of the Act mandates that a railway “shall not take steps to discontinue operating a railway line before the company’s intention to discontinue operating the line has been indicated in its plan for at least twelve months” (the “notice period”). The purpose of the notice period (as stated by a former Minister of Transportation) is to “give [adequate] time for short line purchasers to come along.”
The next stage of the process permits the railway to advertise (in a prescribed manner) the availability of the rail line for sale, lease or other transfer. Such advertisement is to include “a description of the railway line.” Where potential acquirers come forward, the railway is required to consider their offers in good faith, and where a reasonable offer emerges, the railway is required to reach an agreement with the bidder within six months of the date upon which persons were permitted to make their interest known.
Where no reasonable offers materialize, the railway must then offer the rail line to federal, provincial and municipal levels of government for a price not to exceed its net salvage value.
In the event that there are still no offers after this process, pursuant to s. 146 of the Act, the railway may, finally, discontinue operating the line, on providing notice to the Canadian Transportation Agency.
The matter at hand became a litigious affair when the Canadian National Railway (the “CNR”) published inconsistent descriptions of a rail line to be discontinued/sold in its three-year plan, and in the subsequent advertisement that was part of the discontinuance process.
More specifically, in December 2004, the CNR identified its Kinghorn Subdivision line as a candidate for discontinuance on its Three-Year Network Rail Plan. At that time, the rail line in question was described as the line spanning from mile 0.00 to mile 195.60.
In May 2006, the Municipality of Greenstone (the “Municipality”) indicated that it had an interest in acquiring the line — but shortly afterwards decided not to submit an offer, nevertheless reserving its right to purchase it for the net salvage value, if and when it became available at a later stage in the process.
The CNR’s three-year plan was subsequently revised in October 2006 to describe the portion to be discontinued as being from mile 1.70 to mile 193.00.
Unfortunately for CNR, the portion advertised as being available (in accordance with the advertising provisions of the Act) was from mile 1.70 to mile 130.0 and 138.1 to 193.0 — i.e., the description did not include miles 130.0 to 138.1.
There being no takers for the advertised line by any private parties, or the federal or provincial governments, the Municipality indicated its interest in acquiring the lines (as they were described in the advertisement) for their net salvage value and asked the CTA for its assistance in determining the acquisition price.
Several days after making the request, having noted the discrepancy between the description in the advertisement and that set out on the CNR’s Plan on its website, the Municipality asked the regulator, the Canadian Transportation Agency (the “CTA”), for clarification on what, specifically, was being offered for sale.
The CTA sought submissions from the CNR and the Municipality on this point, but did not reach a determination until some six weeks after the CNR delivered its notice to the CTA that it would be discontinuing the line because no private or public purchasers had come forward to acquire it.
Notwithstanding the CNR’s notice, after considering the submissions of the parties on what, specifically, was being offered for sale, the CTA determined that, by failing to properly describe the lines to be discontinued in its three-year plan, the CNR failed to comply strictly with the transfer and discontinuance provisions contained in Division V of the Act — and, consequently, the CNR was ordered to commence the discontinuance process afresh, meaning that it had to go back to the first step of amending its three-year plan to accurately reflect the portion of its line that it intended to discontinue.
The CNR appealed.
The Federal Court of Appeal upheld the decision of the CTA, rejecting a number of the arguments made by the CNR out of hand as being “without merit” — it went as far as to decline to “engage into a discussion in the abstract as to the appropriate standard of review” on the unmeritorious grounds.
The Court did, however, explicitly deal with the CNR’s argument that, in the Act, the words “railway line” are defined to include “a portion of a railway line.” In other words, CNR’s argument was that, because the definition contemplates a portion of a line (as opposed to the entire line), CNR is at liberty to reduce the amount of rail line being offered for sale within the notice period, without re-engaging the process.
Based on this argument, when the CNR sought to dispose of only a subset of the total Kinghorn line (i.e., that which is set out in the three-year plan, less the 8.1 miles that were not included in the advertisement), s. 142(2) has been complied with and the legislative process has been followed.
The Court rejected this argument, holding that it is critical that potential purchasers be aware of which specific portions of the rail line are for sale. It held that, for example, buyers may “become interested when the discontinuance is … reduced and becomes more manageable or affordable for them.”
To hold otherwise would deprive prospective purchasers of the full twelve-month period in which they can make an informed decision on whether to acquire the rail line.
Having come to this conclusion, the CNR was ordered to commence the process again, and the Municipality was therefore able to avoid having to commit to the purchase for at least another twelve months.
In the meantime, the CNR must continue its operation on the lines in question.
Canadian National Railway v. Greenstone
[2008] F.C.A. No. 1734