Judgments

[1996] 1 F.C. 355

A-316-95

Canadian National Railway Company (Appellant)

v.

The National Transportation Agency and National Gypsum (Canada) Limited (Respondents)

Indexed as: Canadian National Railway Co. v. Canada (National Transportation Agency) (C.A.)

Court of Appeal, Isaac C.J., Marceau and Robertson JJ.A.—Ottawa, September 12 and October 2, 1995.

Transportation — Appeal from National Transportation Agency’s decision National Transportation Act, 1987, s. 120(6) not applicable to exclude party to confidential contract from applying for final offer arbitration under s. 48 — Contract silent as to possibility of failure to agree on rate changes — Arbitration provisions available when no confidential contract, and when confidential contract silent or indefinite as to term or condition of execution.

Constitutional law — Distribution of powers — National Transportation Act, 1987 final offer arbitration provisions permitting parties to private contracts to apply for arbitration relating to rates, conditions of carriage — Parliament having exclusive legislative authority with respect to railways connecting provinces or extending beyond limits of province — Legislation on subject-matter within federal jurisdiction can affect matters within provincial jurisdiction, including property and civil rights — Arbitration provisions integral part of legislative scheme regulating freight rates — That issues of rates, conditions of carriage arising with respect to execution of private contract not taking them out of federal legislative competence.

This was an appeal from the National Transportation Agency’s decision that National Transportation Act, 1987, subsection 120(6) did not preclude National Gypsum from applying for final offer arbitration. Subsection 48(1) permits a shipper who is dissatisfied with rates for the movement of goods or with any of the conditions associated therewith to submit the matter to the Agency for final offer arbitration. Subsection 120(6) provides that no party to a confidential contract is entitled to submit a matter for final offer arbitration under section 48 without the consent of all parties to the confidential contract. CN and National Gypsum (Canada) Ltd. had entered into a confidential transportation agreement. It was to remain in effect for five consecutive one-year contract periods. It provided for negotiations of rate changes 90 days prior to the yearly anniversary dates and permitted the parties to agree to modify rates. National Gypsum notified CN that it wished to commence a review of the rates. When negotiations were not successful, National Gypsum notified CN of its intention to submit the matter to final offer arbitration pursuant to section 48. CN objected that the freight rates were governed by the confidential contract and therefore, pursuant to subsection 120(6), could not be submitted for arbitration without its consent. The Agency held that a party to a confidential contract may submit a matter that is not governed by the contract to final offer arbitration. Price was not governed by the contract herein since it was to be negotiated.

The issues were whether subsection 120(6) applied, and whether the final offer arbitration provisions (sections 48 to 57) were constitutionally invalid as matters relating to property and civil rights and therefore within provincial jurisdiction.

Held, the appeal should be dismissed.

Subsection 120(6) did not apply. The contract did not provide for the possibility of a failure to agree on rate changes. The final arbitration provisions are available not only when there is no confidential contract, but also when the confidential contract is silent or indefinite as to a term or condition of its execution.

The constitutional attack was unfounded. The Parliament of Canada has exclusive legislative authority with respect to railways connecting a province with any other province, or extending beyond the limits of a province. Absent colourability, legislation on a subject-matter within federal jurisdiction can affect matters within provincial jurisdiction, including property and civil rights. The final offer arbitration provisions establish a method of determining rates in special instances and, as such, are an integral part of the whole legislative scheme regulating freight rates. They are specifically addressed to disputes relating to rates or conditions associated with the movement of goods, issues that are integral to the operation of the railways. The quick, simple and out-of-court settlement of those disputes is a means of achieving the object and purpose of the Act, which is to render the railway industry more efficient and competitive and the transportation system more economical. That the issues of rates and conditions of carriage arise with respect to the execution of a private contract does not nullify their significance with respect to a legitimate and valid federal objective and take them out of federal legislative competence.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Constitution Act, 1867, 30 & 31 Vict., c. 3 (U.K.) (as am. by Canada Act 1982, 1982, c. 11 (U.K.), Schedule to the Constitution Act, 1982, Item 1) [R.S.C., 1985, Appendix II, No. 5], ss. 91(29), 92(10), 92(13).

National Transportation Act, 1987, R.S.C., 1985 (3rd Supp.), c. 28, ss. 3 (as am. by S.C. 1992, c. 21, s. 33), 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 120(6).

CASES JUDICIALLY CONSIDERED

CONSIDERED:

Canadian Pacific Railway Company v. Notre Dame de Bonsecours (Corporation of), [1899] A.C. 367 (P.C.).

REFERRED TO:

Clark v. Canadian National Railway Co., [1988] 2 S.C.R. 680; (1988), 54 D.L.R. (4th) 679; 47 C.C.L.T. 1; 32 C.P.C. (2d) 97; 89 N.R. 81; Grand Trunk Railway Company of Canada v. Attorney-General of Canada, [1907] A.C. 65 (P.C.); Tropwood A.G. et al. v. Sivaco Wire & Nail Co. et al., [1979] 2 S.C.R. 157; (1979), 99 D.L.R. (3d) 235; 10 C.P.C. 9; 26 N.R. 313.

APPEAL from the National Transportation Agency’s decision that National Transportation Act, 1987, subsection 120(6) did not apply to exclude a party to a confidential contract which did not provide for the possibility of a failure to agree on rates from applying for final offer arbitration. Appeal dismissed.

COUNSEL:

Brian A. Crane, Q.C. and Ronald D. Lunau for appellant.

Richard G. M. Makuch for respondent National Transportation Agency.

Daniel M. Campbell, Q.C. for respondent National Gypsum (Canada) Limited.

Lewis E. Levy, Q.C. and Josephine A. L. Palumbo for intervenor Attorney General of Canada.

SOLICITORS:

Gowling, Strathy & Henderson, Ottawa, for appellant.

Legal Services Directorate, National Transportation Agency, Hull, Quebec for respondent National Transportation Agency.

Cox, Downie, Halifax, for respondent National Gypsum (Canada) Limited.

Deputy Attorney General of Canada for intervenor Attorney General of Canada.

The following are the reasons for judgment rendered in English by

Marceau J.A.: When Parliament, in 1987, in furtherance of new aims and policies for the transportation system in general and the railway industry in particular, enacted the National Transportation Act, 1987 [R.S.C., 1985 (3rd Supp.), c. 28] (the NTA 1987), it included, under the heading “Mediation and Arbitration”, provisions pursuant to which arbitrators appointed by the National Transportation Agency would assist shippers and carriers in resolving their disputes regarding rates and related conditions associated with the transportation of goods. Pursuant to subsection 48(1) of the NTA 1987:

48. (1) A shipper who is dissatisfied with the rate or rates charged or proposed to be charged by a carrier for the movement of goods or with any of the conditions associated with the movement of goods may, where the matter cannot be resolved between the shipper and the carrier, submit the matter, in writing, to the Agency for final offer arbitration.

There was, however, a basic exception to the availability of final offer arbitration system contained in subsection 120(6) of the Act:

120. ...

(6) Notwithstanding anything in this Act, no party to a confidential contract is entitled to request an investigation under section 59 of a matter that is governed by the confidential contract, or to submit to the Agency such a matter for final offer arbitration under section 48, without the consent of all parties to the confidential contract.

This appeal, from a decision of the respondent Agency dated March 9, 1995, is concerned firstly with the application of this exclusion from the new arbitration system and secondly, and alternatively, with the constitutional validity of all the final offer arbitration provisions.

The facts that gave rise to the appeal are as follows.

On May 30, 1994, the respondent National Gypsum (Canada) Ltd. (National Gypsum) and the appellant Canadian National Railway Company (CN) entered into confidential transportation agreement number 01271 (the contract), pursuant to which CN agreed to transport gypsum rock from National Gypsum’s quarry in East Milford, Nova Scotia, to its shipping facility in Wright’s Cove, Dartmouth, Nova Scotia. Some features of that contract must be specifically noted.

Paragraph 1 sets out the duration of the agreement:

Effective Date and Term

A.   This contract shall be effective as of the 1st day of January 1994 and shall remain in effect for five (5) consecutive one (1) year contract periods terminating the 31st day of December 1998.

B.   The contract period shall be renewed for an additional contract period unless either party gives to the other written notice of termination of the contract at least sixty (60) days prior to the end of a contract period.

Paragraph 2B states that the rates shall be dealt with in Schedule 1:

CN, acting solely as a contract carrier, agrees to transport the commodity between the origins and destinations and at the rates specified in Schedule 1.

Schedule 1 first specifies the rates to be effective until December 31, 1994 and then provides as follows:

1.   Each year on the 1st of January beginning in 1995 rates will be adjusted in accordance with the following:

Approximately 90 days prior to the yearly anniversary dates, the two companies will commence negotiations of rate changes. Such negotiation will take into consideration each company’s market environment. Additionally, such discussions will take into consideration any productivity improvement which has been achieved through mutual cooperation during the term of this contract and the net benefits which have been achieved by both parties through such mutual cooperation.

2.   The parties may mutually agree at any time to amend Schedule 1 to add, modify or delete origins, destinations, including applicable rates and conditions (“Revised Schedule 1”).

A revised Schedule 1 shall be effective without being signed on behalf of the parties. Notwithstanding the foregoing, either party may request that a revised Schedule 1 be signed and each party hereby undertakes to comply with such request.

Around October 1994, National Gypsum indicated to CN that it wished to commence a review of the rates effective as of January 1, 1995. Negotiations took place but they were not successful. On December 19, 1994, CN advised National Gypsum that, since the parties had been unable to reach an agreement as to new rates for 1995, the existing contract rates would continue to apply. National Gypsum replied by notifying of its intention to submit the matter to final offer arbitration pursuant to section 48 of the NTA 1987. On February 14, 1995, National Gypsum formally filed its submission with the Agency. CN immediately objected. It contended that the matter of the freight rates to be paid by National Gypsum was governed by the confidential contract that existed between the parties and therefore, pursuant to subsection 120(6) of the NTA 1987, could not be submitted for final offer arbitration without its consent. By letter dated March 9, 1995, the Agency rejected CN’s objection. It wrote:

The Agency has reviewed the submissions of National Gypsum and CN, as submitted in their respective letters dated February 14 and 27, 1995 and February 23, 1995 and March 6, 1995. The Agency has determined that subsection 120(6) of the National Transportation Act, 1987 does not in itself preclude a party to a confidential contract from making an application to the Agency for Final Offer Arbitration.

A party to a confidential contract may submit a matter that is not governed by a confidential contract to the Agency for Final Offer Arbitration. The Agency notes that the matter of price is not governed by the confidential contract between National Gypsum and CN since price is to be negotiated between the parties for 1995 and subsequent years. Therefore, the matter submitted for arbitration is not governed by the confidential contract between the parties. CN’s request to dismiss National Gypsum’s application for Final Offer Arbitration is denied.

CN sought and was given leave to appeal this decision.

National Gypsum’s position before the Agency, and again before this Court on the application for leave, was, in effect, that the rates to be charged by CN for the carriage of National Gypsum’s goods, effective January 1995, were not matters governed by a confidential contract, since the contract in issue ceased to exist beyond the 1994 year in the absence of an agreement as to the rates. Rates are, of course, an essential element of a contract of carriage and a mere agreement to negotiate them is of no legal effect since it cannot have any binding force. Without that essential element, the contract itself is unenforceable and, as a result, must be viewed as legally non-existent. Subsection 120(6), therefore, is not applicable.

CN’s position all along has remained based on two propositions. The first one is that the Agency has no jurisdiction to dispose of the question of whether the matter of rates after 1995 was settled by the contract. This, it was argued, is a matter of interpretation that can only be disposed of by the provincial courts. As soon as the Agency could verify that the question of rates had been addressed by the contract, it was required to abide by the exclusionary provision, subsection 120(6), and reject National Gypsum’s request for final offer arbitration. The second proposition is that the contract actually settles the matter of rates after 1995. The argument here is as follows. The contract is a five-year contract composed of five one-year periods. The only way to terminate it is by notice under paragraph 1B; without such notice prior to the end of a period, the contract with all its terms, including the rates set out in Schedule 1, carries on automatically and remains in force for another period. The “negotiation” clause in Schedule 1 only envisages discussions taking place to review the positions of both parties as a result of possible changes in the market conditions; it does not require that an agreement on rate changes be arrived at, failing which the contract is at an end. The rates, therefore, are properly covered by the terms of the contract, and the exclusion in subsection 120(6) is directly applicable.

Neither of these positions put forth by the parties appears to me to be acceptable. National Gypsum does not explain why the parties would have provided for two means of terminating their agreement: the 60-day notice or the simple refusal to accept new rates. Nor does National Gypsum explain what happens to the terms and conditions of carriage if the contract becomes automatically non-existent. CN, for its part, does not tell us how the Agency can decide whether the rates after 1995 are “governed” by the contract within the meaning of subsection 120(6) without some interpretation of its provisions. This interpretation, of course, will entail consideration of a question of law subject to review on the standard of correctness; but such consideration seems necessary in order to exercise the mandate conferred upon the Agency by Parliament in the case of a referral. As for CN’s proposed interpretation of the contract, it is undermined by the wording of the basic clause of Schedule 1 wherein it is provided that each year rates will be adjusted, not may be, thus excluding the possibility that the previous rates will be automatically carried forward into the following year.

Even more disturbing to me than these obvious failings of the positions adopted by the parties with respect to the meaning of their agreement is the thought that contractors with so much experience and business acumen would accept to place themselves in such a tenuous position, that of being at the other’s mercy with respect to the rates with no alternative, in the event of disagreement, but to accept the premature termination of the contract with all its terms and conditions. It seems evident that there must be a third position, and I think it is easy to find one. Indeed, each party advanced its position upon the initial observation that the contract does not provide for the possibility of a failure to agree on rate changes. It is true that the contract is totally silent in that respect, but the legislative context in which the contract was entered into, the law that was to govern its execution and that the two parties must have had in mind when they contracted (and it should be noted here that the parties took care to state clearly that their contract was made pursuant to the provisions of Part III of the NTA 1987), could very well supply a means of resolving the dispute, provided the mere existence of the contract would not preclude a recourse to the final offer arbitration provisions of the NTA 1987. The respondents wisely now defend that view and the decision of the Agency under appeal is, as we have seen, to that effect. And rightly so, in my judgment.

The Agency first reached the conclusion that the rates of carriage for the years 1995 and following were not governed by the confidential contract existing between the parties, who presumably had deemed it preferable to leave them for negotiation without providing any special mechanism for securing agreement. That being the case, the question then was whether the exclusionary provision of subsection 120(6) was applicable. The Agency determined that it was not. The final offer arbitration provisions are available not only when there is no confidential contract between the parties, but also when the confidential contract entered into by them is silent or indefinite as to a term or condition of its execution. The interpretation given by the Agency to subsection 120(6) of the Act, its enabling statute, was not only reasonable, it was, in my opinion, the correct one. It conforms with the text, which speaks of a matter in dispute, as well as with the purpose, the scheme and the spirit of the whole legislation which is to favour fair but smooth and untroubled relations between shippers and carriers in the transportation industry.[1]

I reject, therefore, the appellant’s contention that subsection 120(6) of the Act prevented the Agency from referring the question of rates payable by National Gypsum to an arbitrator for final offer arbitration. In view of that conclusion, CN’s subsidiary ground of attack against the Agency’s decision must be addressed: the alleged unconstitutionality of sections 48 to 57 of the NTA 1987.

CN submits that the provisions set out in sections 48 to 57 of the NTA 1987 constitute legislation in relation to private contractual rights and remedies. They are, therefore, legislation in relation to property and civil rights, matters within the exclusive legislative jurisdiction of the provinces under subsection 92(13) of the Constitution Act, 1867 [30 & 31 Vict., c. 3 (U.K.) (as am. by Canada Act 1982, 1982, c. 11 (U.K.), Schedule to the Constitution Act, 1982, Item 1) [R.S.C., 1985, Appendix II, No. 5]]. Pursuant to subsections 91(29) and 92(10) of the Constitution Act, 1867, the Parliament of Canada has exclusive legislative authority with respect to railways connecting a province with any other province, or extending beyond the limits of a province, but, as stated by the Privy Council in Canadian Pacific Railway Company v. Notre Dame de Bonsecours (Corporation of), [1899] A.C. 367, at page 372:

The British North America Act, whilst it gives the legislative control of the appellants’ railway quâ railway to the Parliament of the Dominion, does not declare that the railway shall cease to be part of the provinces in which it is situated, or that it shall, in other respects be exempted from the jurisdiction of the provincial legislatures.

Counsel for CN refers to the discussion by the Supreme Court, in Clark v. Canadian National Railway Co., [1988] 2 S.C.R. 680, of the extent of the federal jurisdiction over railways wherein it was repeated that the “integral element” test was applicable in the same manner as in the case of any other single federal subject. Counsel submits that the determination of the private contractual rights of parties to a transportation contract is not an “integral element” of the regulation of railways. The effect of the final offer arbitration provisions of the NTA 1987 is simply to establish a scheme that provides a special legal remedy for the resolution of private contractual disputes. By their true nature and character, such provisions do not constitute railway legislation but rather legislation in relation to contractual rights and civil remedies.

My view differs altogether from that of counsel for CN. The federal legislative authority to deal with contractual aspects of transportation services within federal regulatory power, such as interprovincial railways, is unquestionable (Grand Trunk Railway Company of Canada v. Attorney-General of Canada, [1907] A.C. 65 (P.C.); Tropwood A.G. et al. v. Sivaco Wire & Nail Co. et al., [1979] 2 S.C.R. 157). It is true that the impugned provisions are aimed at contractual relations of a commercial nature between shippers and carriers, that they introduce a remedy to a dispute between private parties without any public interest issue being engaged and that they create a scheme which gives the Agency a direct role only at the outset, the decision of the arbitrator being final and binding. But it is trite law, absent colourability, that legislation on a subject-matter within federal jurisdiction can affect matters within provincial jurisdiction, including property and civil rights. The final offer arbitration provisions of the NTA 1987 establish a method of determining rates in special instances and, as such, are an integral part of the whole legislative scheme chosen by Parliament to regulate freight rates in the new economic and commercial context now prevailing in Canada. They are specifically addressed to disputes relating to rates or conditions associated with the movement of goods, issues that are integral to the operation of the railways. The quick, simple and out-of-court settlement of those disputes, with indirect involvement of the Agency, is no doubt a means, and an important one, to achieve the object and purpose of the new National Transportation Act, 1987 which, as stated in more detail in section 3 [as am. by S.C. 1992, c. 21, s. 33] thereof, is aimed, in effect, at rendering the railway industry, in particular, more efficient and more competitive, and the transportation system, generally, more economical. The fact that the issues of rates and conditions of carriage arise in the course of or with respect to the execution of a private contract cannot have the effect of nullifying their significance with respect to a legitimate and valid federal objective and, as a result, take them out of the federal legislative competence.

The constitutional attack raised by the appellant against the final offer arbitration provisions of the NTA 1987 is totally unfounded in my judgment.

It is my view, therefore, that this appeal has no merit and should be dismissed.

Isaac C.J.: I agree.

Robertson J.A.: I agree.

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