New Tank Car Regulations for Transportation of Crude Oil and Other Flammable Liquids

On May 1, 2015, Transport Canada and the U.S. Department of Transportation introduced new regulations relating to the transportation of dangerous goods in Canada and the US. The regulations, which are in response to the recommendations of the Transportation Safety Board relating to the 2013 Lac-Mégantic disaster, introduce specifications for a new class of tank cars and retrofit requirements for existing tank cars used to transport flammable liquids.

Under the new regulations, existing tank cars used to transport flammable liquids, such as crude oil and ethanol, must be phased out between 2017 and 2025, depending on the type of tank car and flammable liquid being transported. The regulations will be applied first to tank cars carrying crude oil. Existing tank cars must be retrofitted or replaced by new tank cars to comply with the new standards, including thicker steel, full head shield protection, a jacket with thermal protection, top fitting protection and new bottom outlet requirements.

Impact on Documents Previously Deposited Under the Canada Transportation Act

Where an existing tank car is replaced with a new tank car to satisfy the new regulations and a security interest has been granted in the tank car being replaced, the underlying lease or security agreement must be examined to determine if such replacement is permitted. If the underlying lease or security agreement provides for substitution of collateral, then the tank car can be replaced (generally with the consent of the secured party). Although the lease or security agreement may contain language that allows for substitution and extends the security interest to any replacement or substitution collateral, an amendment to the corresponding deposit under the Canada Transportation Act1 (the "CTA") may also be required to ensure that the collateral is sufficiently described for the purposes of the CTA.

Where a tank car is retrofitted to satisfy the new regulations, and assuming that the tank car is not assigned a new car number as a result of the retrofitting process, documents previously deposited under the CTA will not be impacted, provided that the underlying lease or security agreement contains language to the effect that the security interest extends to additions to or replacements of the collateral.