:
Thank you very much, Mr. Chair.
Members of the committee, I am very happy and honoured to be here with you.
[English]
Mr. Chair, thank you for having me here today to speak about Bill .
I am joined by Annette Gibbons, director general, surface transportation policy, and Alain Langlois, senior legal counsel, modal transportation law, with Transport Canada.
Bill is a very important milestone for our rail industry. This legislation will help ensure that railways and shippers work together to accomplish a shared goal to improve rail freight service in Canada. It will help shippers expand their growth and their businesses, while ensuring that the railways can manage an efficient rail shipping network for everyone.
As this committee knows, rail shipping is extremely important to our country's economy. Some 70% of our surface freight moves by rail. A strong and effective railway-shipper relationship is essential, which is why our government committed to table this important legislation. It will support job creation, economic growth, and long-term prosperity in Canada.
[Translation]
I won't dwell too long on the road that led us to where we are today, but I think it's important nonetheless to touch on it briefly.
In 2008, our government created an independent committee to review the rail freight services in Canada. The committee carried out an in-depth study on rail freight transport. It concluded that there was an imbalanced relationship between the shippers and the railways, and that the situation needed to be rectified by leveraging the shippers' influence.
The committee recommended using service contracts as a commercial tool in order to provide a clear framework and a better predictability and reliability of freight services. In March 2011, our government accepted this commercial approach put forward by the committee. We also made a commitment to table Bill to ensure that Canada has the rail system that it needs to support a strong economy.
[English]
Most importantly, I'm confident this bill will pave the way for better commercial relationships between railways and shippers, which is ultimately the best outcome for everyone.
It is essential for the committee to understand why this legislation is necessary. We are not dealing with the normal free market. The reality is that many shippers have limited choices when it comes to shipping their products. It is therefore necessary to use the law to give shippers more leverage to negotiate service agreements with the railways.
The intent is to create the conditions that will allow for successful commercial negotiations that would normally be possible in a free market. Ideally the legislation will never have to be used.
Bill was developed in close consultation with both shippers and railways. We consulted widely and listened carefully to the input we received. Multiple sectors, including forestry, agriculture, mining, and energy, came forward to offer their views, as did the railways.
It was important to take the necessary time to carefully consider all of these complex issues and to develop intelligent and responsible legislation.
Most fundamentally, Bill creates a strong incentive for shippers and railways to negotiate service agreements commercially. It gives shippers the statutory right to a service agreement with the railways, and it will require a railway to make an offer to a shipper within 30 days of receiving a request for a service agreement.
[Translation]
Should contract negotiations fail, shippers could turn to the Canadian Transportation Agency to request that an arbitrator impose one. The agency is a regulatory body renowned for its expertise. The agency already manages several other arbitration and dispute resolution processes.
In order to access arbitration, the shipper needs to demonstrate that he or she made the necessary efforts to come to an agreement and that a notice was served to the railway company 15 days before the request for arbitration.
[English]
While this is a low threshold to trigger arbitration, it does require the parties to attempt to negotiate an agreement on their own before going to the agents. The shipper will be in the driver's seat. He gets to trigger arbitration, identify the type of service desired, and frame the issues to be addressed in front of the arbitrator. Both the shipper and the railway will then provide submissions to the arbitrator with their views on what the agreement should include.
Through an interest-based process, the arbitrator will have to consider the interests of both parties when establishing an agreement that is commercially fair and reasonable. The arbitrator will have to consider the shipper's transportation requirements as well as the railway's obligation to serve all shippers. The arbitrator will have the flexibility to determine what service elements are fair and reasonable in the particular circumstances of each case. There is no one-size-fits-all solution to these issues because every shipper is different.
It is essential that the arbitrator have enough flexibility to establish an agreement that makes sense for each unique situation. The arbitration process will benefit shippers because it will be fast, only 45 days, and the imposed contract will be binding and non-appealable.
[Translation]
To enforce these arbitrated service agreements, Bill sets out administrative monetary penalties. If the agency confirms that a railway company violated the arbitrated service agreement, it could fine the company a maximum of $100,000 per violation. This threshold is four times higher than the other existing penalties. The penalty would be applied to each violation. Therefore, if there are multiple violations of the arbitrated service agreement, the cumulative fine could reach hundreds of thousands of dollars.
This is a considerable monetary penalty for railway companies who do not respect their commitments. What I am proposing is different from the penalty system that the shippers put forward. They asked the government to give the arbitrator the power to establish a penalty system within the service agreement, therefore allowing them to be compensated later if the railway company didn't provide the services promised.
We studied this proposal very closely, but it entailed significant legal issues which made it inapplicable.
[English]
First, punitive penalties are not enforceable in commercial contracts. It would simply be unprecedented to have a regulatory agency impose pre-established penalties. Regulatory agencies address breaches of legislation after they take place, not before.
Second, such a penalty regime would disadvantage shippers by limiting their right to sue the railway in court for real damages after a service breach.
Finally, it would be an enormously complex and time-consuming task for an arbitrator to predetermine a penalty for every different kind of service failure before it happened.
For all these reasons, I'm proposing administrative monetary penalties because they will achieve the same outcome for shippers: a strong financial consequence to ensure railways are held accountable without creating unnecessary legal risk. The penalty regime will be fast, efficient, and inexpensive for shippers. I fully expect that the railways will want to avoid these penalties, so they will respect the imposed terms of service.
[Translation]
Now I would like to address certain points that were raised during the debate at second reading.
Some people fear that once this legislation is adopted, shippers who already have an agreement with a railway company will not be able to use arbitration before this contract is enforced.
Shippers and railway companies have entered into these agreements voluntarily, based on certain commercial expectations. Therefore it would be unfair to change the rules of the game for agreements that have already been signed. These agreements will eventually expire, and at that point, the shippers will be able to use arbitration if necessary, as laid out in Bill .
Moreover, in regards to the transportation of goods to the U.S.A., Bill would cover the Canadian portion of shipments to the U.S.A. However, it would not seek to broaden the agency's jurisdiction in order to cover railway activities in the United States.
We have a different railway regulatory system than the United States. Expanding the scope of Canadian laws to include the United States would cause problems and compromise Canada-U.S. relations. Furthermore, American carriers operating in Canada would strongly oppose such an idea. Essentially, we must respect American jurisdiction just as the United States respects ours.
[English]
I've also heard concerns that there is no commercial dispute resolution mechanism established in Bill .
By definition, you cannot use legislation to impose a commercial process. This bill outlines an arbitration process to resolve disputes once commercial options have failed. What the parties agree to do commercially is entirely up to them. Nothing in the bill prevents them from coming up with their own commercial dispute resolution process.
Shippers are also concerned that it may be too costly for them to use the arbitration process. This bill limits the costs that the government can control. The arbitration process has been limited to 45 days, in part to keep costs down. For the other costs, shippers may wish to enlist lawyers and experts to assist them in the arbitration process, but they control the use of such services.
It is also important to highlight that nothing in the bill diminishes the existing common carrier obligation that railways have had for over 100 years under section 113 of the act. The new arbitration process that will be established by Bill C-52 complements the existing provisions in the act.
[Translation]
In conclusion, when we made a commitment to table this bill, we clearly indicated that its emphasis would be on the service. The shippers supported this approach, and when it was being drafted, they did not ask for the rates to be included. The legislation lays out other measures that allow shippers to address rates and fees if the shippers believe that they are unfair.
Bill is complementary to other remedies. All of the measures in the bill will offer shippers the clarity, predictability and reliability that they need to succeed. That is what they have told us.
[English]
To quote the position of the Coalition of Rail Shippers, “Bill meets the fundamental requests of railway customers for commercial agreements.” Similarly, Pulse Canada, which represents pulse farmers, notes that the legislation will help them ensure that they are “seen in markets around the world to be reliable, consistent suppliers”.
We must act so that our rail freight system is well positioned to support economic growth, resource development, and our government's ambitious domestic and international trade agenda. We need Bill to ensure more predictable service to shippers, who help fuel our economy, farmers, who sell grain on the international markets, lumber mills, looking to expand sales overseas, and mineral producers, who ship products such as potash and coal.
Railways and shippers depend on each other to succeed. Since the rail freight service review has been launched, we have seen improvements in rail service in Canada. I commend the railways for working with shippers to negotiate for more service contracts. This bill is about solidifying and building upon those important gains.
Mr. Chair, for generations, agriculture and natural resources have created jobs and growth throughout Canada. To harness this potential and build for future growth, we need a strong rail freight system. I call all members of Parliament to support Bill without delay, so that these proposed measures will help achieve that goal.
I thank you and the committee for your time this afternoon.
[Translation]
Mr. Chair, thank you for your attention. My team and I will be pleased to answer any questions from the committee members.
Thank you very much, Mr. Chair.
:
Thank you very much, Mr. Chairman.
To pursue some of these issues a little more closely, I'll start with, again, the issue of the confidential contracts that may be in existence already, but of course by their very nature they're confidential, so no one knows for sure. If you were to look at proposed paragraph 169.31(3)(a), this is in the section that refers to those contracts and prohibits an application for arbitration while they're in existence.
I think it would be of some comfort to the committee if the department could consult a bit more extensively with both the railways and the shippers' coalition to give us a better feel for how many of these existing arrangements there are. Is it 8 or 10? Is it 200? How many are there? How many are beyond the timeframe that the minister referred to of just a year or two? Is there anyone out there who runs for 5 years, or for 10 years, for example? If the department had some statistics around that, I think it would give us more comfort as to how big a loophole that is in terms of access to arbitration. I wonder if the department could take a look at that.
Second, I'd be interested in your comments on the implications of this legislation for short-line rail operators. Is there anything in this bill that directly or indirectly has an impact for those typically farmer-owned or community-owned organizations that are running short-line rail systems, or are they completely exempt and unaffected by anything that is contained in Bill ?
Third, I wonder if you could give us a little help in understanding the new proposed subsection that appears on page 12 of the bill for section 177, which is the section that actually deals with the penalties. It talks in terms of “The Agency may, by regulation...designate” certain things as triggering penalties, and the penalties “shall not be more than $100,000”. I would like to know more about what actually triggers a penalty here and who decides.
If you have a commercial contract and one party is unhappy with the other side, typically they sue and present their case in court, but for these penalties, who will actually make the decision that a violation or, in the language of that section, a “contravention” has occurred? How does that contravention come to the attention of the decision-maker? Is it up to one side or the other to complain to the CTA, and then the CTA will decide whether or not there's been a contravention, and if so, what will be the level of penalty? Will it be not more than $100,000? I think we need a little more clarity around how those penalties work.
My fourth question, which I'll ask and then wait for answers to all of them, is that, since this is brand new legislation dealing with an area that has been a minefield of complaints for quite a few years, would it be a good idea to say that the department would, in two, three, or five years, review the practical impact of this legislation to identify whether or not the arbitration systems are working?
For example, is it just a backdrop and commercial arrangements are being worked out and nobody really has to have recourse to the legislation? Is it working out in the way that it was intended? Are shippers finding the arbitration process accessible if they need it, or are there financial or administrative barriers that are getting in the way? Would it be a good idea to have in the law a provision whereby the practical experience here gets reviewed a few years down the road to see if it's working out in the way the government intends?
:
I'll start with the last question, and raise a couple of points.
The agency will be reporting on the use of the provision, so certainly in its annual report it will be providing a sense of the number of arbitration cases it is seeing.
In terms of the use of arbitration agreements, certainly the department and the minister interact frequently with railways and shippers, and we get a good sense from them of changes that are happening out on the ground.
The final point I'd make on that is that there is a review of the Canada Transportation Act coming up in 2015. Certainly we would expect that stakeholders will discuss how they're finding this new provision on service agreements to be working in practice in the context of discussions in that review. That is a mandatory review.
In terms of the third question, on penalties, the agency's understanding is that they are intending to prepare regulations to implement the administrative monetary penalty regime for these arbitrated service agreements. In terms of what triggers a penalty and who decides, essentially the service agreements themselves will provide the framework for the specific penalties that may be applicable in each case.
Just to give you an example, if the service agreement has a performance standard in it that the railway is to provide service to the shipper on a certain day of the week and to provide a certain number of cars, that's what would determine, then, whether or not there's been a violation.
You asked who would determine it. It would be the shipper who would claim there has been a violation. The shipper would approach the agency. The agency would have the authority to conduct an investigation of the shipper's assessment of the situation. It would seek evidence as to whether or not there's been a breach. If it finds that there has, in fact, been a breach, then it would be in a position to impose an administrative monetary penalty. It would be brought to the attention of the agency by the shipper, and then the agency would do the assessment.
In terms of the second question on short lines, short lines are subject to the requirement to offer shippers a service agreement if they are federally regulated. I don't have the exact number, but we understand that there are between 20 and 25 short-line railways that are federally regulated. Those would be subject to the provision and required to offer service agreements to shippers who ask for one.
In terms of shippers, I think you may have been referring to producer-car loaders and whether or not they're eligible. They certainly are. A producer-car loader organization is a shipper, and can seek a service agreement, whether it's with a short line or with a class I railway.
On the question on statistics, on how many railways have confidential contracts greater than one or two years, we really don't have specific details on that because of the confidential nature of these contracts. What we do know from the railways, what they tell us is that the vast majority of the agreements, the contracts they sign with shippers, are for one- to two-year periods. We know there have been some agreements that are for longer periods, but we understand, again from the railways, that those are in the minority. They tend to be of more short duration.