General

Industry structure

How is the rail transport industry generally structured in your country?

The Canadian rail system is operated by over 60 rail companies.

There are two major Class 1 freight railways (with revenues exceeding C$250 million in the past two years): Canadian National Railway Company (CN) and Canadian Pacific Railway (CPR). Together, CN and CPR represent the vast majority of Canada’s annual rail tonne-kilometres and overall tonnage carried by the rail sector, collectively owning and operating more than 80 per cent of the industry’s tracks. Given this industry dynamic, this chapter focuses primarily on the federally regulated Class 1 freight railways, unless otherwise noted.

Some large US-based carriers have freight rail operations in Canada as well, including Burlington Northern Santa Fe Railway Company and CSX Transportation Inc.

Canada is also serviced by more than 50 short-line railways, some of which are federally regulated while others are provincially regulated. Short lines typically connect shippers to Class 1 railways, to other short lines or to ports to move products across longer distances.

VIA Rail, a Crown corporation established in 1977, operates Canada’s national passenger rail service on behalf of the government.

Ownership and control

Does the government of your country have an ownership interest in any rail transport companies or another direct role in providing rail transport services?

As noted in question 1, VIA Rail is a Crown corporation operating a national passenger rail service.

In addition, the grain transportation system utilises a fleet of hopper cars. Hopper cars are owned by a number of entities, including the federal and provincial governments. As of 2015, the federal government owned over 8,000 hopper cars, while the provincial governments of Alberta and Saskatchewan each owned approximately 900 cars. These cars have been apportioned between CN and CPR for their use. Many of these publicly supplied hopper cars have been retired or will be retired in the future.

Are freight and passenger operations typically controlled by separate companies?

Yes. See question 1.

Regulatory bodies

Which bodies regulate rail transport in your country, and under what basic laws?

Most aspects of rail transport are regulated by the Canadian Transportation Agency (the Agency) under the Canada Transportation Act (CTA) and its associated regulations. The Agency is an independent administrative body. It performs two key functions within the federal transportation system. First, as a quasi-judicial tribunal, the Agency adjudicates a range of transportation-related disputes. Second, as an economic regulator, the Agency provides approvals, issues licences, permits and certificates of fitness, and makes regulations on a wide range of matters involving federally regulated modes of transportation.

Rail safety is regulated by Transport Canada (a federal Crown department) under the Railway Safety Act (RSA) and its associated regulations. Transport Canada develops regulations, rules and standards regarding the safety of federally regulated railways, monitors compliance with those rules, regulations and standards, and takes enforcement action as required.

Market entry

Regulatory approval

Is regulatory approval necessary to enter the market as a rail transport provider? What is the procedure for obtaining approval?

Any person who proposes to operate or construct a passenger or freight railway must first apply under the CTA for a certificate of fitness. The application is made to the Agency and must include a completed certificate of insurance form, and must indicate the termini and route of each operation.

The Agency will issue a certificate of fitness if it is satisfied that there will be adequate liability insurance cover for the proposed operation or construction. The liability insurance must cover the specified risks set out in the CTA, which include third-party bodily injury and death, third-party property damage, risks associated with a leak, pollution or contamination, and certain costs associated with a railway accident involving designated goods.

The minimum liability insurance cover necessary differs for passenger and freight rail service. For passenger rail service, the adequacy of the liability insurance cover is determined in accordance with the Railway Third Party Liability Insurance Coverage Regulations. For freight rail service, minimum liability insurance cover is set out in a schedule to the CTA and depends primarily on the volume of dangerous goods being carried on the railway.

In addition to obtaining a certificate of fitness, prior to commencing operations a railway company must apply under the RSA for a railway operating certificate. The application is made to Transport Canada and must include a description of the operations of the company and copies of the safety rules established by the company.

Transport Canada will issue a railway operating certificate if the company meets the baseline safety requirements applicable to its operations. Transport Canada may place terms and conditions on the certificate to limit or restrict operations where deemed necessary for safe railway operations.

Each province has its own legislative requirements for approval of a new short-line railway.

Is regulatory approval necessary to acquire control of an existing rail transport provider? What is the procedure for obtaining approval?

Certain mergers and acquisitions will be subject to regulatory approval under competition laws. See questions 12 to 14 for a discussion of applicable competition laws.

In addition to any competition-related requirements, the new operator of the railway would need to follow the usual procedure for obtaining a certificate of fitness and a railway operating certificate.

Is special approval required for rail transport companies to be owned or controlled by foreign entities?

No.

Is regulatory approval necessary to construct a new rail line? What is the procedure for obtaining approval?

A railway company cannot construct a railway line (including main lines, branch lines, yard tracks, sidings or spurs) without the approval of the Agency. Approval is obtained by filing an application with the Agency. The application must contain full project details (including the right of way, names of property owners and proposed crossings), maps, plans, the purpose of the project and any other pertinent information. Notice of the application must be provided to all parties that may be affected by or have an interest in the proposed line. This may require both direct notices and public notices in local newspapers.

The Agency may grant approval it if considers that the location of the railway line is reasonable, taking into consideration the requirements for railway operations and services, and the interests of the localities that will be affected by the line.

Agency approval is not required to construct a railway line within the right of way of an existing line, or within 100 metres of the centre line of an existing line for a distance of no more than 3 kilometres.

In addition to Agency approval, a railway company must ensure that any environmental assessment that may be required of its proposed railway line construction project is undertaken.

Market exit

Discontinuing a service

What laws govern a rail transport company’s ability to voluntarily discontinue service or to remove rail infrastructure over a particular route?

The CTA prescribes a detailed process that a railway company must follow if it wishes to discontinue operations over a railway line.

All railway companies must prepare and keep up to date a plan indicating, for each of its railway lines, whether it intends to continue to operate the line or whether it intends to take steps to discontinue operating the line within the next three years. This plan must be accessible to the public and the company must notify the Agency and federal, provincial and municipal governments of any changes to the plan.

If a railway company wishes to discontinue operating a railway line, it must first publicly advertise the availability of the line for sale, lease or other transfer for continued railway operations. This advertisement must include the company’s intention to discontinue operating the line if it is not transferred, and the company must accept statements of interest for a period of at least 60 days. A railway company cannot advertise the line until it has indicated its intention to discontinue the line in its three-year plan for a period of at least 12 months.

The railway company has six months from the advertised deadline to reach an agreement with an interested party. Both the railway company and any interested party must negotiate in good faith. Should the Agency determine, upon receiving a complaint, that the railway company is not negotiating in good faith and that the sale, lease or transfer of the railway line would be commercially fair and reasonable, it may order the railway company to enter into an agreement with the interested party.

If an agreement is not reached within six months, the railway company may decide to continue operating the railway line, in which case it shall amend its three-year plan to reflect its decision. Alternatively, the railway company shall offer to transfer all of its interest in the railway line to the applicable federal, provincial and municipal governments and urban transit authorities for not more than the net salvage value of the line.

If a railway company has complied with the foregoing process, but no agreement for the sale, lease or other transfer of the railway line is made through that process, the railway company may discontinue operating the line on providing notice of that discontinuance to the Agency. After providing the notice, the railway company has no further obligations under the CTA with respect to the operation of the railway line.

This same process applies, with some modification, to grain-dependent branch lines.

Yard trackage, sidings and spurs are excluded from the transfer and discontinuance process.

 

On what grounds, and what is the procedure, for the government or a third party to force a rail transport provider to discontinue service over a particular route or to withdraw a rail transport provider’s authorisation to operate? What measures are available for the authorisation holder to challenge the withdrawal of its authorisation to operate?

The Agency may cancel or suspend a certificate of fitness if it determines that a railway company is not maintaining adequate liability insurance cover. A decision of the Agency may be appealed to the Federal Court of Appeal on a question of law of jurisdiction, within one month of the date of the decision. Alternatively, a decision of the Agency may be appealed to the Governor in Council on any grounds and at any time.

Transport Canada may cancel or suspend a railway operating certificate if it determines that a railway company is not meeting the requirements of the certificate if the company contravenes the RSA. Generally speaking, Transport Canada will cancel or suspend a railway operating certificate only in cases of chronic non-compliance or where the operations pose a serious risk to safety. If a railway company’s railway operating certificate is cancelled (as opposed to suspended), the company will never be allowed to operate a railway in Canada. A decision of Transport Canada may be appealed by requesting a review by the Transportation Appeal Tribunal of Canada within 30 days of the decision.

Insolvency

Are there sector-specific rules that govern the insolvency of rail transport providers, or do general insolvency rules apply? Must a rail transport provider continue providing service during insolvency?

As of 23 May 2018, with the adoption of amendments to the CTA, railway companies are now subject to the general bankruptcy and insolvency regimes of the federal Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA). Formerly, a bankruptcy and insolvency regime specific to railway companies was contained in sections 106 to 110 of the CTA, which allowed proceedings to take place in the Federal Court rather than in provincial superior courts that have jurisdiction under the BIA and the CCAA. There is no requirement under the CTA, the BIA or the CCAA for a rail transport provider to continue providing service during insolvency, although if a railway chooses to do this it must maintain its service and other obligations under the CTA.

Competition law

Competition rules

Do general and sector-specific competition rules apply to rail transport?

Under the federal Competition Act, the Commissioner of Competition may review any merger (including acquisitions, amalgamations and other business combinations) to assess its competitive impact. Generally, and unless one of the narrow exemptions under the legislation applies, if the merger exceeds certain prescribed ‘size-of-party’ and ‘size-of-transaction’ thresholds, the merger parties must notify the Commissioner. The level of detail included in a notification varies, depending on how much competitive overlap exists between the parties. The transaction parties must not close their transaction before expiry of a statutory waiting period unless the Commissioner has terminated or waived the waiting period as permitted under the Competition Act.

The CTA has application to the rail transport industry (as well as to certain other transport industries) in the context of a merger. If a proposed rail transport merger is notifiable under the Competition Act, the transaction parties must also notify the Minister of Transport (the Minister) prior to closing their transaction. The Minister may decide that a public interest review is necessary, though this step has rarely been taken in the past.

Regulator competition responsibilities

Does the sector-specific regulator have any responsibility for enforcing competition law?

A review under the CTA of a proposed rail transport merger will only occur if the Minister determines that the transaction raises issues of public interest. The review process under the CTA requires the Competition Bureau, which is headed by the Commissioner, to review the proposed merger and for the Commissioner to report to the Minister regarding potential prevention or lessening of competition that may occur as a result of the merger.

Competition assessments

What are the main standards for assessing the competitive effect of a transaction involving rail transport companies?

Under the Competition Act, the Commissioner assesses a transaction to determine if it will result in substantial prevention or lessening of competition. The Competition Bureau has published Merger Enforcement Guidelines that explain the factors the Commissioner considers when assessing a transaction. Examples of such factors include the level of effective competition that would exist post-merger, whether substitutes for the applicable products or services are available in the relevant market, and whether prospective competitors face barriers to entry.

If the Minister initiates a public interest review of a transaction, he or she may take a multitude of factors into account, including economic, environmental, safety, security and social factors.

Price regulation

Types of regulation

Are the prices charged by rail carriers for freight transport regulated? How?

Generally speaking, federally regulated railways have the ability to set their own prices by issuing and publishing a tariff of rates under section 117 of the CTA.

However, prices may also be set between a railway and a specific shipper by way of a number of other statutory mechanisms under the CTA. These include a negotiated confidential contract (section 113(4)) or an arbitrated resolution imposed upon the parties under the final offer arbitration regime (section 159).

Aside from the above, freight rates for the movement of western Canadian grain are also subject to a form of indirect regulation. Rate controls in relation to this industry have existed since 1897 in various forms. Under the current regime, CN and CPR are entitled to set their own rates subject to a maximum revenue entitlement, as defined by legislative formulas. A legislative penalty is incurred in the event a railway exceeds this sum. The maximum revenue entitlement therefore acts as a de facto control on the rates associated with the carriage of this commodity.

Are the prices charged by rail carriers for passenger transport regulated? How?

As with freight traffic, federally regulated passenger railways have the ability to set their own prices by issuing and publishing a tariff of rates pursuant to section 117 of the CTA. The tariffs must comply with the Railway Traffic and Passenger Tariffs Regulations. The Regulations set out the specific information to be included in the tariffs, such as a statement of rates, point of origin and destination, description of route, and terms and conditions of the tariff, including terms and conditions of carriage of persons with disabilities.

Is there a procedure for freight shippers or passengers to challenge price levels? Who adjudicates those challenges, and what rules apply?

See question 15. If a shipper is dissatisfied with the published tariff of rates in relation to its traffic it may attempt to negotiate a confidential contract with a railway. Alternatively, shippers can submit terms of service, including rates, to arbitration by way of final offer arbitration.

During final offer arbitration, the shipper and railway designate an arbitrator or arbitrators. If they fail to agree, the Agency may appoint arbitrators from a predetermined and publicly available roster. The proceedings are governed by template rules authored by the Agency and published online, unless the parties agree to their own procedure. The shipper and the railway exchange offers in relation to rates and conditions of service. The arbitrator (or panel, as the case may be) must select either the shipper’s offer or the railway’s. The decision is imposed for the period of time agreed to by the parties or, if no agreement is reached, then for a period not exceeding two years. No reasons are issued for the offer selection unless both parties agree.

Must rail transport companies charge similar prices to all shippers and passengers who are requesting similar service?

No. Significant amounts of freight move under confidential contract - the terms of which are not publicly available but presumably vary by shipper based on myriad factors.

Network access

Sharing access with other companies

Must entities controlling rail infrastructure grant network access to other rail transport companies? Are there exceptions or restrictions?

A railway company is not required to grant network access to another railway company unless ordered to do so by the Agency or the Governor in Council.

A railway company may apply to the Agency for the following rights:

  • take possession of, use or occupy any land belonging to any other railway company;
  • use the whole or any portion of the right of way, tracks, terminals, stations or station grounds of any other railway company; and
  • run and operate its trains over and on any portion of the railway of any other railway company.

The Agency may grant the right and impose any conditions as appear just or desirable to the Agency, having regard to the public interest.

In addition, the Governor in Council may (on application or on its own initiative) request two or more railway companies to consider the joint or common use of a right of way if the Governor in Council is of the opinion that its joint or common use may improve the efficiency and effectiveness of rail transport, and would not unduly impair the commercial interests of the companies. Alternatively, the Governor in Council may order the joint or common use of the right of way if it is satisfied that significant efficiencies and costs savings would result.

In practice, these regulatory measures are rarely used and any running rights or joint-track usage are instead negotiated by the companies.

Access pricing

Are the prices for granting of network access regulated? How?

A railway company that obtains running rights over the line of another railway company by order of the Agency must pay compensation for that right. If the companies cannot agree on the compensation, the Agency may, by order, fix the amount to be paid.

Similarly, if the companies cannot agree on the compensation to be paid in respect of the joint or common use of the right of way, the Governor in Council may, by order, fix the amount to be paid.

There are no regulatory or legislative criteria governing these compensation rates.

Competitor access

Is there a declared policy on allowing new market entrants network access or increasing competition in rail transport? What is it?

The CTA articulates a National Transportation Policy that provides that competition and market forces, both within and among the various modes of transport, are the prime agents in providing viable and effective transport services. In theory, regulation and intervention are used only in cases of market failure, or when competition and market forces cannot achieve the desired economic or social outcomes.

The CTA also contains a number of competitive access provisions that are intended to increase competition within the rail sector and thereby improve price and service options for shippers. These provisions include running rights, interswitching and long-haul interswitching.

Proposals to increase competition by increasing network access have generally been rejected.

Service standards

Service delivery

Must rail transport providers serve all customers who request service? Are there exceptions or restrictions?

Section 113 of the CTA imposes a requirement known as the ‘level of service’ obligation. It requires that a federally regulated railway provide ‘adequate and suitable accommodation for the receiving and loading of all traffic offered for carriage on the railway’. As discussed in question 24, this obligation may be enforced by a shipper complaint to the Agency and can result in a variety of remedial orders. The Agency adjudicates such complaints in accordance with rules published by regulation - currently, the Canadian Transportation Agency Rules (Dispute Proceedings and Certain Rules Applicable to All Proceedings).

The level of service regime is a codification of the common carrier obligation, with roots in both English and American law. The obligation is triggered by the presentation of traffic, and there are few exceptions or restrictions in this respect. A railway cannot refuse service to any shipper, including those transporting dangerous goods.

However, it is also well established that rail service providers are not required to meet all demands at all times. A railway’s level of service obligation has been stated to be ‘permeated with reasonableness’. Thus, a railway may fail to provide service in specific instances if that failure is reasonable in the circumstances. A significant body of administrative and judicial case law has been generated on this subject as a result. The analysis is inherently contextual and evidentiary in nature. The CTA was amended on 23 May 2018 to expressly state the considerations that the Agency will review during level of service investigations.

Are there legal or regulatory service standards that rail transport companies are required to meet?

Yes; see question 22. In the absence of a confidential contract or arbitrated terms, federally regulated railways are required to meet the service standard embodied by section 113 of the CTA.

Provincially regulated railways (eg, short lines) may be subject to similar service requirements. See, for example, the Railway Act, SS 1989-90, Chapter R-1.2 section 39; Railway (Alberta) Act, RSA 2000, Chapter R-4 section 24.

Challenging service

Is there a procedure for freight shippers or passengers to challenge the quality of service they receive? Who adjudicates those challenges, and what rules apply?

Yes; see question 22. In addition to level of service complaints, which are retrospective in nature, a shipper can request service level arbitration under section 169.31 of the CTA to prospectively determine the terms of service applicable to its traffic.

During service level arbitration, the Agency designates an arbitrator from a predetermined and publicly available roster. The railway and the shipper must submit term proposals. The arbitrator is required to consider specific factors and to reach a determination as to commercially reasonable terms of service that will apply for one year. Reasons are issued for the decision. The proceedings are governed by rules published by regulation - currently, the Rules of Procedure for Rail Level of Service Arbitration.

Safety regulation

Types of regulation

How is rail safety regulated?

The main statute regulating rail safety in Canada is the RSA. Transport Canada also develops regulations, rules and standards that apply to the regulation of rail safety. Railways are monitored and audited to ensure compliance with the safety regime and, when necessary, investigation and enforcement action may be undertaken by the Transportation Safety Board of Canada (TSB).

Competent body

What body has responsibility for regulating rail safety?

Rail safety in Canada is regulated by Transport Canada. Transport Canada is responsible for proposing and updating policies, laws and regulations respecting rail safety, as well as conducting inspections and enforcement activities related to the rail industry’s equipment, operations and facilities. Independently, the TSB is responsible for investigating railway safety incidents and may make recommendations for the amendment of railway safety legislation.

Manufacturing regulations

What safety regulations apply to the manufacture of rail equipment?

The Railway Safety Appliance Standards Regulations impose detailed and strenuous requirements upon all rolling stock constructed or reconstructed and used on railways subject to the jurisdiction of the Agency. The Regulations prescribe the number, dimensions, location and manner of application for various parts of the rolling stock manufactured, including brakes, running boards, ladders and handholds.

Additionally, pursuant to the Locomotive Safety Rules and Freight Car Safety Rules, every new freight locomotive, passenger loco­motive and freight car must be designed and constructed in accordance with the Association of American Railroads Manual of Standards and Recommended Practices.

Maintenance rules

What rules regulate the maintenance of track and other rail infrastructure?

Operation and maintenance of rail infrastructure is governed generally by Part II of the RSA, which imposes a requirement on railways to hold a valid railway operating certificate to maintain or operate railway infrastructure or equipment in Canada.

Additionally, the Track Safety Rules (TSR), prescribed pursuant to section 7 of the RSA, set out minimum safety requirements for federally regulated standard gauge railway tracks. The TSR set operating speed limits, prescribe minimum safety requirements for the physical condition of rails and certain track appliances, and set standards for the frequency and manner of track inspections used to detect deviations from the TSR. Furthermore, the TSR set out the certification requirements for a track supervisor and track inspector, who must be employed by railways to carry out the prescribed track inspections. Records of these inspections must be maintained.

What specific rules regulate the maintenance of rail equipment?

As with rail infrastructure, Part II of the RSA generally governs the maintenance of rail equipment. A railway operating certificate is required to maintain or operate railway equipment on tracks in Canada.

Furthermore, the Locomotive Safety Rules and the Freight Car Safety Rules prescribe the minimum safety standards for locomotives and freight cars operated by federally regulated railway companies in Canada. Both sets of Rules require the railway to ensure that all locomotives and freight cars placed or continued in service are regularly inspected by a certified inspector to identify any defects. The Rules list safety defects that, when identified as present, will prohibit the railway from placing or continuing that locomotive or freight car in service. The Freight Car Safety Rules also impose additional safety requirements on freight cars containing dangerous goods.

Accident investigations

What systems and procedures are in place for the investigation of rail accidents?

Rail accidents are investigated by the TSB. The TSB was created pursuant to the Canadian Transportation Accident Investigation Safety Board Act, and any investigations carried out by it are governed by the provisions of that Act.

When the TSB is notified of a rail accident and it is determined that an investigation is warranted, a three-phase investigation process is undertaken. The field phase involves the appointment of an investigator-in-charge and an investigation team. During this phase, the accident site is secured and examined and interviews of witnesses and involved personnel are conducted. The examination and analysis phase involves a detailed examination and testing of the accident wreckage, review of any related records, and the creation of simulations to determine and reconstruct the sequence of events. Finally, the report phase involves the drafting and multi-level review of a publicly available accident report that identifies the findings of the investigation and any safety deficiencies, including the causes and contributing factors of the accident.

Accident liability

Are there any special rules about the liability of rail transport companies for rail accidents, or does the ordinary liability regime apply?

The ordinary liability regime will apply to railway companies.

Pursuant to the Safe and Accountable Rail Act, amendments were made to the CTA in 2016 respecting railway liability. Federally regulated railway companies have since been required to carry a minimum level of insurance based on the type and volume of dangerous goods they carry, ranging from C$25 million to C$1 billion. A railway company whose train is involved in an accident will be liable for all losses and expenses in relation to the accident, up to the amount of the minimum liability insurance cover.

Additionally, the Safe and Accountable Rail Act introduced amendments to the CTA that create a fund financed by crude oil shippers to be used in the event of a railway accident involving crude oil. The Fund for Railway Accidents Involving Designated Goods is used to provide compensation above the required insurance level maintained by the railways.

Financial support

Government support

Does the government or government-controlled entities provide direct or indirect financial support to rail transport companies? What is the nature of such support (eg, loans, direct financial subsidies, or other forms of support)?

The federal government typically invests in industry as a matter of policy in the form of direct financial subsidies. The current government has implemented several programmes and initiatives aimed at funding certain rail transport projects. For example, the Trade and Transportation Corridors Initiative led by Transport Canada will invest C$2 billion over 11 years for the National Trade Corridors Fund, a merit-based programme to make Canada’s trade corridors more efficient and reliable. Additionally, Transport Canada’s Rail Safety Improvement Program provides federal funding to projects that address rail line safety issues or reduce the number of injuries and deaths from accidents along rail lines and on rail property.

Requesting support

Are there sector-specific rules governing financial support to rail transport companies and is there a formal process to request such support or to challenge a grant of financial support?

There are no sector-specific rules governing financial support to railway transport companies and there is no formal process to request such support or challenge any grant of financial support.

Labour regulation

Applicable labour and employment laws

Are there specialised labour or employment laws that apply to workers in the rail transport industry, or do standard labour and employment laws apply?

Rail transport falls under federal jurisdiction. The employment of railway employees is regulated by the Canada Labour Code (the Code).

The Code applies to railway employees the same as it does to any other employee of a federally regulated industry, except in regard to working hours and days of rest. Under the Railway Running-Trades Employees Hours of Work Regulations, railway employees are exempt from the provisions of the Code establishing a standard work week. There is case law to suggest that railway employees may also be exempt from overtime provisions of the Code as a result of being exempt from the standard work week.

The terms and conditions of employment may also be subject to any applicable collective agreement.

The RSA and regulations also include additional railway specific safety requirements (such as scheduling of hours) for some railway employees.

Environmental regulation

Applicable environmental laws

Are there specialised environmental laws that apply to rail transport companies, or do standard environmental laws apply?

Canadian rail transport companies are subject to standard environmental laws, as set out in the Canadian Environmental Protection Act 1999 and the various other federal and provincial environmental legislation. Furthermore, Division VI.2 of the CTA creates a scheme for the liability of and compensation payable by railway companies in the case of accidents involving designated goods. The strict liability regime is based on the ‘polluter pays’ principle, and applies to carriers of crude oil, petrol, fuel oils, etc. The specifics of the scheme are addressed in question 31.