On May 4, 2006, the Minister of Transport introduced Bill C-11 in the House of Commons to amend the Canada Transportation Act (“CTA”). The bill received Royal Assent on June 22, 2007.
The bill is similar to its two predecessors, C-26 and C-44, both of which died on the Order Paper with the dissolution of prior sessions of Parliament. According to department officials, Bill C-11 focuses on “balancing the interests of communities, consumers, commuters and urban transit authorities with those of air and rail carriers.” No mention is made of the balance between rail carriers and shippers. Bill C-58, introduced in the House on May 30, 2007, addresses some of those issues sought by some rail shippers for many years.
Bill C-58 (at Second Reading before the House adjourned until September 17, 2007) may clarify CTA provisions intended to protect rail shippers from abuse of market power by rail carriers. Among other things, Bill C-58 would expressly allow a group of shippers to initiate final offer arbitration, addressing a complaint that the use of this dispute settlement provision was prohibitively expensive for smaller shippers and even some not-so-small shippers. Further, the bill would repeal a 20-year-old provision that a shipper seeking relief respecting rates or service under the CTA first demonstrate that it would suffer substantial commercial harm if the relief were not granted. This reverse onus provision is one of the most frequently mentioned weaknesses of the CTA. There are a number of new provisions as well, to be addressed in a future note.
Bill C-11, which is now law, deals with all modes of transportation. This discussion highlights three of the most significant amendments:
- National Transportation Policy,
- Reviews of Mergers and Acquisitions, and
- Dispute Resolution: Public Passenger Service Providers and Railway Companies.
National Transportation Policy
Bill C-11 replaces section 5 of the CTA with an updated National Transportation Policy Statement that had gone virtually unchanged since 1967, although governments had recently attempted to make similar changes (failed Bill C-44, which made some changes from failed Bill C-26). The new policy’s main feature is to elevate the role that competition, economics and efficiency play in serving the needs of users, advancing the well-being of Canadians and enabling competitiveness and economic growth of areas throughout Canada.
Bill C-11 is striking in its reference to principles used in antitrust economics to benefit society in general and users in particular. The policy statement recognizes the dilemma inherent in reliance on competition when rates and services are provided by monopolies, which characterizes Canadian transportation providers across modes, particularly rail, but also air and marine carriers in certain corridors. Whether the new policy results in constraining the market power of carriers over price and service remains to be seen.
Review of Mergers and Acquisitions
Under the Competition Act, parties engaged in a transaction exceeding certain monetary thresholds must notify the Commissioner of Competition, allowing the Commissioner to block, approve or change the terms of such a transaction. Before the passage of Bill C-11, the CTA merger review provisions set out mandatory notification procedures for parties involved in airline industry transactions.
Bill C-11 repeals those previous provisions and replaces them with a new regime that would govern any federal transportation undertaking (air, rail, marine, buses, trucks, airports or marine ports). As a result, parties to a transaction involving a transportation undertaking that is notifiable under the Competition Act must also give notice to the Minister of Transport. Transactions involving air transportation require further notification to the Canadian Transportation Agency. In addition to the information required by the Competition Act, the notice must contain information that will allow the Minister to assess public interest concerns in relation to national transportation.
The Minister of Transport must then publish guidelines with respect to the information parties provide regarding the public interest impact of the transaction. If the Minister is of the opinion that the proposed transaction does not raise public interest issues, the Minister must give notice to the parties of that opinion within 42 days. If public interest issues arise, the Minister may direct the Agency or a third party to examine those issues. The Governor in Council must ultimately approve the proposed transaction. Further, an air transportation undertaking cannot be completed unless the Agency determines the transaction would result in a Canadian undertaking (as that term is defined in the CTA).
The amendments additionally require the Commissioner of Competition to report to the Minister and the parties to the transaction on “any concerns regarding potential prevention or lessening of competition that may occur as a result of the transaction.” The report must be made within 150 days after the original filing date, or any longer period the Minister may allow. The report immediately becomes public after receipt by the Minister.
Before the Minister makes a recommendation to the Governor in Council for approval, the Minister must:
- consult with the Commissioner about overlap between concerns the Minister has regarding the proposed transaction and any competition concerns raised by the Commissioner’s report; and
- consult with the parties to address those public interest and competitive concerns, after which the parties must inform the Minister and Commissioner of any measures they are prepared to undertake to address those concerns, including revisions to the transactions.
If the Governor in Council is satisfied it is in the public interest to approve the proposed transaction, it may approve the transaction and specify any conditions or terms that are appropriate.
Bill C-11 does not make any further changes to the merger review amendments first proposed in its predecessor, Bill C-44 (see “Mergers of Transportation Undertakings”).
Dispute Resolution: Public Passenger Service Providers and Railway Companies
Adopting the proposals in predecessor bills, Bill C-11 amends the provision definitions in the CTA to include “public passenger service provider” (“PPSP”). A PPSP is defined to mean “VIA Rail Canada Inc., a passenger rail service provider designated by the Minister or an urban transit authority.”
Bill C-11 adds provisions that pertain to a process of dispute resolution between PPSPs and railway companies. When a PPSP and a railway company cannot agree on a rate, term or condition related to the operation of the passenger service on the railway’s facilities, the PPSP may, after reasonable efforts to resolve the matter, apply to the Agency for a decision. Either party may also reapply to the Agency for a new resolution if they cannot agree on the implementation of the previous decision. Notably, this procedure intends to replace the existing final offer arbitration recourse for PPSPs set out in Part IV of the CTA.
Final offer arbitration is a process available to a shipper dissatisfied with the rates or conditions of service proposed by a railway company. An independent arbitrator reviews the final offers made by each party, and selects one or the other. Predecessor bills proposed amendments to the final offer arbitration procedure which Bill C-11 did not adopt. Recourse to final offer arbitration is still available to a “railway company engaged in passenger rail services,” though it remains to be seen whether the new system will gain traction over the final offer arbitration mechanism.
The amendments require the Agency to take into consideration a number of factors when fixing the amount to be paid by a PPSP for use of the railway company’s facilities or services. These factors include the variable costs incurred by the railway for allowing such use, the cost of improvements, the cost of capital and contribution to constant costs, and the value of any benefits that would accrue to the railway company. Any decision made by the Agency will be binding on the parties for five years, or any other period agreed to by the parties.
In order to promote public transparency, future contracts between railway companies and PPSPs must be made available to the public upon request. This requirement applies to current contracts, except where the Agency has excluded the contract on the grounds that harm would likely result to the applicant if it were to be disclosed.
In contrast to the final offer arbitration procedures that involve an independent arbitrator, the above amendments give the Agency a role in dispute resolution. The dispute resolution mechanism allows for PPSPs to gain access to federallyregulated railways in a manner designed to allow for compensation to the railways by the PPSP that prevents the imposition of unreasonably high rates.