Library:
Case Comment: Jurisdiction over Freight Forwarders
Published in the December 2009 issue of Transportation Notes - View Article
On November 26 a sharply divided bench of the Supreme Court of Canada released a decision respecting legislative jurisdiction over freight forwarders. While the specific decision is of interest to a limited section of the transportation industry, the differing approaches of the majority and dissenting justices have implications for all participants in the industry—implications which indeed extend beyond any particular industrial segment.
The issue presented in Consolidated Fastfrate Inc. v. Western Canada Council of Teamsters was whether Fastfrate is subject to provincial or federal labour relations laws. This question would be resolved by interpretation of a provision of the Constitution Act, 1867 which assigns to the federal Parliament of Canada jurisdiction over “Works and Undertakings connecting the Province with any other or others of the Provinces, or extending beyond the Limits of the Province”. This constitutional provision makes it clear that the federal Parliament has the sole authority to legislate in relation to matters affecting the core business of, for example, companies which provide interprovincial air or rail service.
Of course, interprovincial air and rail carriers actually transport people and goods over provincial boundaries. Fastfrate does not. It receives and consolidates freight in one province and, typically through another of its branches in another province, deconsolidates the freight and arranges local delivery. For the interprovincial haul it contracts with rail and road carriers. From the perspective of the consignor and consignee, Fastfrate is the relevant entity. Fastfrate’s customers receive one bill of lading and cannot determine the identity of any third party carrier from the shipping documentation. Fastfrate assumes responsibility for any claims and purchases insurance as an indemnity against its legal liability. The business of the company is managed centrally and not at the branch level. All of these factors suggest that Fastfrate is offering its customers an interprovincial transportation service. However, Fastfrate does not actually carry goods across provincial boundaries. The crux of the case is whether this last fact matters. For the majority, it is the entire case. For the dissenting justices, it is irrelevant.
The sharp division in the Supreme Court of Canada is also found in the decisions below. In the first instance, the Alberta Labour Relations Board (“ALRB”) concentrated on the integrated corporate structure and the presence of Fastfrate at both ends of the transportation chain. It found Fastfrate was subject to federal regulation. Fastfrate instituted judicial review proceedings in the Court of Queen’s Bench and succeeded. The reviewing judge agreed that “physical involvement in the interprovincial carriage of goods” was essential and that in its absence, provincial regulation should prevail. This case then went to the Court of Appeal where a dissenting justice “focused on the specific services that Fastfrate performs, rather than the services which it contracts out” and would have opted for provincial regulation. However, the majority agreed with the ALRB. In the Supreme Court of Canada the tables were turned again. A majority of six found in favour of provincial regulation whereas three justices in dissent would have restored the decision of the ALRB and confirmed the existence of federal jurisdiction.
The decision of the majority certainly does provide clarity and simplicity of application. The biggest challenge for the majority was to reconcile their decision with an earlier decision which affirmed that a telecommunications company which has a physical presence limited to a single province can nevertheless provide an interprovincial telecommunications service by virtue of contracts with other telephone companies. Because it provides such a service, it is, in the words of the Constitution Act, 1867 an “Undertaking connecting the Province with any other or others of the Provinces” and is accordingly subject to federal regulation. The constitutional qualification is the same as that in question in the present case.
That telecommunications case, Alberta Government Telephones v. Canada, has a firm place in Canadian jurisprudence and appears to be a significant precedent in favour of a finding of federal jurisdiction over Fastfrate. However, the majority rejected this view. They seized upon the following distinction: “whereas communication works and undertakings can facilitate interprovincial communication from a fixed location, transportation, by definition, involves mobility of goods, persons and transportation equipment”. It is this difference which allows the majority to find that there is no inconsistency in treating Alberta Government Telephones differently than Fastfrate, although both are entities which hold out an interprovincial service and provide it by way of contracts with third parties—other telephone companies in one case, and rail carriers in the other.
The dissenting justices criticize the “originalism” implicit in the majority’s reasons, that is to say, the emphasis on what the framers of the Constitution intended in 1867. By scrutinizing early texts the majority concluded that the primary jurisdiction over “Works and Undertakings” is provincial and that federal jurisdiction can only be justified in an exceptional case. This, the dissent argues, results in a decision which is taken without sufficient attention to “the business realities of 2009”.
“However, methods of transportation and communication have evolved since 1867, as have the methods by which businesses organize themselves to deliver such services. In an era where contracting out elements of a service business is commonplace, the modalities of how a truly interprovincial transportation operation ‘undertakes’ to move its customers’ freight from one part of Canada and deliver it to another should not contrive to defeat federal jurisdiction. Checkerboard provincial regulation is antithetical to the coherent operation of a single functionally integrated indivisible national transportation service.”
The dissent, having begun with this clear call for an approach which takes into account current business conditions, undertakes a review of the cases considered and either relied upon, or distinguished, by the majority. It comes to quite different conclusions respecting the essential teaching of some, and the reliability of others, of these authorities.
Of central importance is the Alberta Government Telephones case. The majority, it will be recalled, distinguished this case on the basis that the technologies in the two industries, telecommunications and transportation, differ. Of course, the dissent concedes that the technologies differ, but insists “no distinction has been drawn in our cases to date between the legal test applicable to communication undertakings and that applied to transportation undertakings”. The essential question for the dissenting justices is the nature of the service the company undertakes to provide. This requires a consideration of the details. The fact that its customers deal only with Fastfrate, that the actual carrier is invisible to the customers, that Fastfrate accepts responsibility for damage or loss and that its “interprovincial undertaking is managed interprovincially” requires the conclusion that it is properly a federally regulated enterprise.
It will be years, we believe, before the full implications of the Fastfrate case can be known. Of course, on the surface, it appears exceedingly clear. No enterprise involved in providing transportation services will, by reason of the nature of the service it provides, fall within the sphere of federal regulation unless it actually moves people or goods over provincial boundaries. However, there is likely to be academic debate over whether the majority or the dissent did a better job of explicating what each took to be persuasive precedents. According to the dissent, the decision of the majority is effectively a reversal of the Alberta Government Telephones case as well as of the related case of United Transportation Union v. Central Western Railway Corp. The majority justices clearly do not agree, but whether Fastfrate can live comfortably with UTC and ATC remains to be seen.
If the pendulum were to eventually swing in the other direction, thus reuniting the approach taken to transportation and telecommunications regulation, the implications for other participants in the transportation industry could be of interest. Currently, travel intermediaries—tour operators and travel agents—are regulated at the provincial level. Three Canadian provinces, Quebec, British Columbia, and Ontario, have enacted legislative schemes to regulate the conduct of travel intermediaries. These schemes involve the existence of specialized tribunals and the administration of trust funds intended to provide protection for the travelling public in the event of the insolvency of a travel service provider.
Would these perhaps be vulnerable to constitutional challenge on the theory that travel intermediaries are providing an interprovincial (and international) service? A detailed review of the services actually provided by the intermediaries might yield varying results, for the participants range from “mom and pop” travel agents to huge operators with operations on many continents who certainly might be said to provide a service which spans many jurisdictional boundaries.
The fear that travel intermediaries may be swept into the federal net underlay at least one of the judgments referred to in the Fastfrate decision. Thus, the Ontario Superior Court, in an earlier case involving the status of a freight forwarder, justified its decision to require a strict “actual carriage” requirement in part by observing: “To hold otherwise would mean that any travel broker or other person engaged in general commerce could, by contract, provide interprovincial undertakings, even though he had no facilities whatsoever, and thereby claim that he was not subject to provincial jurisdiction”.
The Attorney General for Ontario, who intervened in the appeal, shared this concern, noting that if the view espoused by the dissent were to prevail “travel agencies whose ‘regular and continuous’ dominant purpose is to facilitate interprovincial and international travel could become subject to federal jurisdiction”.
Given the decision in Fastfrate, there would appear to be no immediate reason to fear the absorption of travel intermediaries into the federal sphere of jurisdiction and indeed there are reasons which could be advanced to support such an accretion to federal jurisdiction. In the world of carriage by air, for example, it might make good sense to have all the major participants subject to a single legislative scheme. However, we will not pursue that possibility here but will end with a suggested parallel between a determination which is routinely made under the Canada Transportation Act and the determination by the Court in Fastfrate. The Canadian Transportation Agency has the responsibility to determine, for licensing purposes, whether any particular entity is providing a publicly available air service. The entity which provides the air service must be licensed. To identify that entity, the Agency asks who has commercial control of the service. This may not necessarily be the airline which “flies the metal”, and it is the party in commercial control which will require the licence, in the eyes of the Agency.
Thus, it appears to us, the Agency makes its determinations in a way consistent with that of the dissenting justices in Fastfrate. Of course, the legal contexts are very different. One involves the interpretation of an ordinary statute, the other division of constitutional powers. It is not suggested that the approach taken by the Court in Fastfrate should revolutionize practice before the Agency. However, there is an interesting parallel which may bear further examination. In each case it is clear a transportation service is being provided and the question is “who is providing it?” To this writer at least, it is difficult to accept the proposition that we can answer that question by simply identifying who is flying the plane or driving the truck. The approach taken by the dissenting justices pays more respect to the reality of the business transaction. We predict that, in the very long run, it will prevail.
Consolidated Fastfrate Inc. v. Western Canada Council of Teamsters, 2009 SCC 53