Transport Committee on March 26th, 2013

[Olivia Chow, NDP, Trinity—Spadina, ON]

Let me rephrase that question.

In the bill that is in front of us, you didn't allow the shippers to submit documents prior to arbitration. Tell me why you drafted it that way.

[Alain Langlois, Senior Legal Counsel, Team Leader Modal Transportation Law, Department of Transport]

The way the legislation is drafted currently, the shipper files a submission on day one. Before filing a submission on day one, they have to advise the railway 15 days before that they are going to make a submission. The start of the process is the submission for arbitration on day one.

The second step in the process is 10 days later. Both parties at the same time have to file their proposal for how they propose to resolve the matters that have been referred to arbitration by the shippers. That's step two in the process.

Step three is the filing of documents to support their proposal, and that's day 20 in the process. At the same time, the railways and the shippers are expected to mutually file to each other and to the arbitrator the documents they intend to rely upon to support the offers they put on the table on day 10. After that, you get to the hearing of the matters before the arbitrator.

So other than the application itself, which is triggered obviously by the shipper, the entire process is geared to the railways and shippers acting simultaneously, through the arbitrator or before the agency.

The way I understand Liberal amendment 5, they would propose that if the railway intends to rely on anything that is captured in paragraphs (d), (e), or (f) of proposed section 169.37, on day five of the process they would have to advise the shippers, and on day 10 in the process, at the same time as the offer, they would have to file the material to the shippers.

Obviously I won't comment on the motion itself, but that's how I understand the motion to read.

[The Chair, Conservative, Larry Miller]

Mr. Goodale, do you have anything?

[Ralph Goodale, Liberal, Wascana, SK]

Mr. Chairman, I have three questions that I'd like to ask the witnesses, along some of the same lines that Ms. Chow was discussing.

In answer to an earlier question about damages, Ms. Gibbons said, I think, words to the effect that providing damages is something that's just not done by regulatory agencies and that it's more typical to impose these penalties.

It may not be done frequently by regulatory agencies, but of course it is done: on occasion they do levy damages. But it is a regular feature of arbitration, and arbitration is what is being established here, if the negotiating process isn't successful.

So why wouldn't you let the parties agree on level of service agreements that provide—between them contractually—for a way by which they could identify and provide for damages, and then, if that fails and the thing goes to arbitration, there allow the arbitrator to do it?

It may not be something the CTA does on a frequent basis, but for an arbitrator it's fundamental to the process of arbitration. Why not allow it as an option for the contracts to be negotiated between the parties here?

[Annette Gibbons]

I think the difference here is that even though this is an arbitration process, it is an imposed arbitration process. The idea of the parties agreeing to damages in a private arbitration, a commercial arbitration, is perfectly within their purview to do. In fact, we know that in commercial contracts there are often what are referred to as liquidated damages, whereby the parties agree that in the event of a breach, here is the amount one party will pay the other.

This is not a commercial arbitration. This is an imposed arbitration, imposed under legislation, and so we're setting out a—

[Ralph Goodale, Liberal, Wascana, SK]

Isn't that the very problem Mr. Lebel identified in the very first meeting: that we're not dealing with normally commercial circumstances, so that you need some unusual provisions to bring about a level playing field?

[Annette Gibbons]

We are still working within the confines of legislation and giving instructions to a regulatory body to carry out something. In constructing the scheme of arbitration within the act, we consider the normal function of a regulatory body. A regulatory body providing for an arbitration scheme whereby an arbitrator, case by case, can set out unique penalty schemes—damages schemes—for breaches that may occur in the future is just something we have not seen.

It was a question of finding a mechanism that would encourage compliance and be a deterrent against non-compliance with a contract, once imposed by an arbitrator, that is more consistent with the role of regulatory agencies and more consistent with the role of a legislatively imposed arbitration scheme.

[Ralph Goodale, Liberal, Wascana, SK]

Quite frankly, it sounds a little bit like wishful thinking. You have provided for the AMPs, the administrative monetary penalties, to be there but I don't think it's going to change the behaviour, or the circumstances—that the shippers obviously feel aggrieved. I think it's just not sufficient to correct the behaviour that was the cause for creating the review panel in the first place.

I have the same concern about the high-level language you described earlier—using the common carrier obligations that have been in the act from time immemorial, which obviously the shippers think have not worked. It is too vague, too general, too high-level.

What would be wrong with including language in the legislation, using that high-level service obligation nomenclature but then saying, “Not limiting the generality of the foregoing, here are specific things that fall within this definition”? You could satisfy what the shippers were asking for, and that is some specificity about what the term “service obligations” really means. Obviously the definition that's there now has not achieved the level of service that they think is appropriate.

Could you not have both: use your general language, but then run in some specific examples of what that general language includes?

[Alain Langlois]

I'll answer part of the question.

From a legal perspective, any time you put a list in legislation, despite the fact that the heading may be open or closed.... If it's closed, it's obviously what's in the list. If it's open, if you put in language such as, “Notwithstanding the generality of the foregoing, this is the stuff that seems to be included within the broader concept”, any time you do it you indirectly get to shrinking down what that big bubble at the top means. The longer the list is, the more courts are likely to look at the greater concept as comprising only matters that are limited to what is “described below”. There's always a risk, from a legal perspective, to putting a list in legislation.

The question is, do you need the list? Why would you put the list in? If you look at the precedent that has been established by the transportation agency through the years, the issue before the agency is rarely whether or not something that a shipper wants is captured by the concept. The question is whether the shipper is entitled to get it in the circumstance. It's never a question whether a switch is captured by “level of service”? It's clearly captured. The question is: in the circumstance, is this shipper entitled to whatever it is that they want?

I'm not aware of a lot of cases before the agency in which the agency came out with a ruling and simply confirmed that something a shipper wanted from the list of the elements we've seen is not captured by the concept of common carriers; it is. The question is always: what is just and reasonable in the circumstance, and is this shipper in the circumstance entitled to get what they're actually getting?

From my perspective, it's a false debate to get into the question of whether these things in the list are covered or not. In my view, they are covered, if we're talking about the same list—switches and all the things we've seen or discussed in the past, other than the two elements that Annette referred to earlier. The question has always been: are the shippers in the circumstance entitled to get what they want?

[Ralph Goodale, Liberal, Wascana, SK]

There's one final thing, then, on that same point about how if you sometimes try to be more specific, you limit the definition of what you mean. One point of concern of the shippers is the constant repetition in the legislation of the qualifier “operational” before the word “term”. Based on the logic you've just described, if the word “operational” is included, it must be intended as a limitation.

Could you describe for us what is the difference between “a term” of an agreement and “an operational term” of an agreement? How is the one less than the other?

[Alain Langlois]

Yes. I'll give you two very simple examples.

The terms of an agreement are anything. A confidentiality provision of an agreement is a term of an agreement. It's not an operational term.

I've heard shippers and shipping groups say repeatedly that the notion of “operational” is not defined in the act. With all due respect, it's not true. The act currently defines the word “operate”. If you go to the French version, you see that it defines specifically exploitation, which is the exact word that we're using in the law to reflect operational terms or termes d'exploitation. So the word “operate” is defined in legislation, and it's broadly defined: it's any act required for the operation of a train. It was meant to be very, very broad, and we intentionally, at least from a drafting perspective, didn't define it to further reduce the broad definition that was already in the legislation with respect to “operate”.

If people expect that the words “operational term” will encapsulate every term of an agreement, that's not what the legislation was meant to do. My drafting instruction was that you do not...the intent was not to capture every single term of agreement. The intention was to capture the obligation of the railway on how it will deliver its common carrier obligation to the shippers. The operation itself and how they deliver their common carrier obligations were specifically meant to be covered. That's the reason the term “operational” is used.

Terms and conditions that are normally found in agreements, such as “termination clause”, “confidentiality clause”, and all of these normal clauses that you would find in an agreement, were not meant to be captured by the term “operational”.

[The Chair, Conservative, Larry Miller]

Okay? We'll stop it there.

Mr. Watson.

[Jeff Watson, Conservative, Essex, ON]

I think I was on the list for previous debate, but having said that—

[The Chair, Conservative, Larry Miller]

You're next on the list—

[Jeff Watson, Conservative, Essex, ON]

That's fine. I'll defer for now, but I'll get on the list for later.

[The Chair, Conservative, Larry Miller]

Mr. Poilievre.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

What would be the impact of removing “operational”?

[Alain Langlois]

From the policy standpoint, a decision can be made. It opens it up.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

To...?

[Alain Langlois]

It's not for me to judge. From a legal standpoint, if you remove “operational”, everything gets included: price, although there is a specific exclusion for price, but the amount of the charge could be up for debate.

Any clause that we normally would find in a contract would be up for discussion. If I put myself in the shipper's position, it wouldn't be a good thing for a shipper. As I've said to the department time and time again, the shippers don't want the arbitrator to have the ability to force on them a volume commitment, for example. If you were to remove “operational” from proposed section 169.37 you essentially would allow an arbitrator, in response to a request from a shipper, to impose terms: an ability for the arbitrator to force the shipper to commit all the volume of a client to that railway.

From a legal standpoint, if you remove it, you open the legislation up to everything, everything that could be the subject of a contractual agreement between shippers and railways. I'll stop there.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Are prices regulated elsewhere?

[Alain Langlois]

Yes.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

If you remove “operational” and see arbitration take responsibility for pricing, you would have a duplication of that role.

[Alain Langlois]

The only comment for prices.... The language of the legislation right now makes it clear. We've put in a section that says for “greater certainty” price is not to be captured within arbitration, so price would probably not get captured because of that clause, but everything else likely would.

[Ed Holder, Conservative, London West, ON]

I'm sorry, but can you explain “everything else”? What does that mean?