Transport Committee on March 26th, 2013

[Annette Gibbons, Director General, Surface Transportation Policy, Department of Transport]

The approach to drafting the request of a shipper to a railway for a service agreement and then the request to an arbitrator, if a shipper wasn't successful in the request for a commercial agreement, was using high-level language that very much mirrors the existing obligations on railways under what we call the “common carrier obligation”, which is section 113 of the Canada Transportation Act.

So we use the same approach in the language on a service agreement as exists in the act already under the common carrier obligation.

Some of the thinking about providing a more detailed approach was that you could end up limiting the scope of what is covered, and we wanted to leave it broad. The language under the common carrier obligation is intentionally broad, and the language that we then use for the new provisions is broad. In fact, it covers all of the things that the shippers had asked for in the consultations held with them last summer, with the exception of the penalties issue, which was addressed in front of the committee the last time the department was here, and the commercial dispute resolution process.

Those are the only two items that had been raised in the shippers' list of what they wanted to see by way of what a service agreement could contain that are not covered in the language in the bill; everything else is covered. So having this broad approach that reflects the common carrier obligation in fact covers the wide variety of service elements that were raised by the shippers, with the exception of those two elements I mentioned.

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

Can I ask precisely about that element? One of my recommendations is that, if the shippers want to include the breach of the service agreement, consequences should be included in it. If there are no consequences to breaching the agreement, then you don't reward good behaviour, so to speak. When something goes wrong, there have to be consequences; that needs to be part of the service agreement.

Why not allow this to be there? If it is not, then the agreement becomes an empty shell. Is it really worth the paper it is written on, if you don't specify what kind of consequence should be in place if there is a violation of conditions?

[Annette Gibbons]

The approach taken in the bill to ensure compliance is the use of an administrative monetary penalty mechanism, to ensure in that way that there is a strong incentive to comply with the agreement.

The specific issue of penalties raised by the shippers, as the department and the minister noted when we were here the last time, is that there were issues around asking what is effectively a regulatory agency to predetermine penalties before a breach takes place. There were problems with that particular mechanism.

In the end, as the minister stated when he was before the committee, the use of administrative monetary penalties was chosen as a mechanism that is very strong and that provides a very strong deterrent to non-performance or non-respect of a contract, without getting into the difficulties that the penalty approach raised by the shippers would have presented.

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

I don't quite get it. If there's no penalty....

[Annette Gibbons]

There is. There's an administrative monetary penalty.

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

Can you explain what that means in plain language?

[Annette Gibbons]

It's a mechanism whereby, if a shipper feels that an arbitrated service agreement that has been imposed under the auspices of the agency has been breached, then the shipper can come to the agency and the agency will investigate the alleged breach. If it finds that in fact there has been a breach, then the agency can impose an administrative monetary penalty of up to $100,000.

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

Right, but the $100,000 doesn't go to the shippers; it actually goes to the agency, doesn't it?

[Annette Gibbons]

That's right.

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

As far as the shipper is concerned, really for non-performance they get nothing back. They want to build in at the beginning, right in the service agreement, a feature to say that if you do not perform, these are the consequences.

You have to do that. If you don't do it, if you allow the non-performance to take place and then say, “you can complain about it later, and by the way, even if you win the arbitration you're not going to get any money back”...well, why would anyone do that?

Why wouldn't we allow the agreement to define, if there is non-performance, what kind of penalty would be in place? When you write something, you want to know how, if something goes wrong, you are going to be punished or how much money you are going to pay. If not, then a service agreement really doesn't really have much force.

This is the crux of it. If you don't punish non-performance, why have an agreement?

[Annette Gibbons]

Non-performance would in fact be penalized through the use of the administrative monetary penalty.

These penalties are used in various statutes. The fact that they go to the government is a feature of administrative monetary penalty regimes. The focus is not on earning revenues; the focus is on providing a deterrent to non-performance under the law. This is a feature of these regimes.

They are used in legislation, and in this case the mechanism was used to provide a strong deterrent in a way that is consistent with the role of regulatory agencies, rather than follow a proposed approach whereby anything may be proposed by way of penalties and then the regulatory agency would have to set up a scheme for future breaches without knowing what those breaches might be.

The complexity of establishing a scheme before breaches have taken place is something that is just not done by regulatory agencies.

As to the specific issue of shippers being compensated for any damages they suffer from a breach, they can in the end go to the courts, so there is a mechanism for shippers to seek damages. But there is also the deterrent on non-performance by a railway through the administrative monetary penalty regime.

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

But the deterrent is $100,000. How did you pick $100,000? Some of the shippers are telling me that if the grain doesn't show up on time, or if by the time it shows up the container ship has already left, it's too late, and there are millions of dollars of injury or loss. Really, how is $100,000 a deterrent?

Maybe that's a rhetorical question.

May I ask one other question? There is a Liberal amendment that I'm not clear on. Do you want me to come at it in the second round, or do you want me to ask it now? I don't want to hog all the time.

[The Chair, Conservative, Larry Miller]

The only question I would ask is whether asking about that amendment now, when we're not on it, is a valuable use of time or not. It's up to you.

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

Rather than going back and forth, I thought I would bring it out.

[The Chair, Conservative, Larry Miller]

Okay, then ask it now, Ms. Chow, and we'll move on to the next.

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

This is the amendment to give railway companies the right to make submissions before the proposal to arbitrators. The bill, as written now, doesn't allow that. This is really allowing CN and CP to submit more documents.

If we do this, will it not prejudice the shippers? They are not as financially well off in some cases. There could all of a sudden be a huge number of documents tabled.

[The Chair, Conservative, Larry Miller]

Ms. Chow, you're talking about Liberal amendment 5.

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

Yes; it's not in the original bill. The original bill said—

[The Chair, Conservative, Larry Miller]

It's at page 12 in the amendments package.

[Annette Gibbons]

Mr. Chair, is this question directed to the department?

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

Yes.

Well, I could ask my Liberal friends this, but I wasn't sure why you didn't put it in. I don't quite support this amendment, but you didn't put it in for the reason that...?

It's to the department.

[The Chair, Conservative, Larry Miller]

Well, they're not going to put it in when it's a Liberal amendment.

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

Do you know what? I'll deal with this when the motion is.... I'll ask the Liberal....

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

Mr. Chair, I don't see any problem with examining some of these amendments prior to clause-by-clause study. They affect earlier decisions. For example, if Ms. Chow were to support this, she might reject another amendment based on her intended support of this one. So I think it's fair for us to pose questions about amendments before we get to clause-by-clause consideration.

[The Chair, Conservative, Larry Miller]

Yes, go ahead.