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Railways - General (2). Northwest Territories v. Canadian National Railway Company Limited
In Northwest Territories v. Canadian National Railway Company Limited (Fed CA, 2026) the Federal Court of Appeal considers an appeal from a CTA decision, here in the context of an attempt by CNR to discontinue a NWT line:[1] The Meander River Subdivision is a Canadian National Railway Company (CN Rail) branch line running from High Level, Alberta, through Enterprise, Northwest Territories, to Hay River, where bulk petroleum products are transferred to barges for the Government of the Northwest Territories’ (GNWT) seasonal resupply of communities along the Mackenzie River and in the Western Arctic. In 2023, wildfires damaged sections of the line—the Northwest Territories’ only rail connection to the Canadian rail network.
[2] Between August and October 2023, the company repaired the approximately 269-kilometer section of the branch line from High Level to Enterprise, however in February 2024, CN Rail informed the GNWT that on the basis of its assessment, the existing level of demand and the significant cost of repairs, it was unable to rebuild the approximately 36-kilometre section from Enterprise to Hay River (Hay River section) without a project partner. Being unable to find one, in May 2024, CN Rail announced its intention to discontinue the Hay River section by putting it on its three-year plan and initiating the statutory process under Part III, Division V of the Canada Transportation Act (S.C. 1996, c. 10) (Act).
[3] In September 2024, GNWT applied to the Canadian Transportation Agency (Agency) under sections 113 to 116 of the Act alleging that CN Rail had failed to meet its level of service obligations when it did not repair the Hay River section and seeking an order that the company effect the necessary repairs and resume service up to Hay River. For its part, CN Rail asserted that its level of service obligations on the branch line were suspended as a result of the wildfires—a proposition with which the GNWT takes no issue—and the matter before the Agency chiefly concerned the length of reasonable pause which should be afforded to the company going forward, which CN Rail requested be extended until the statutory transfer or discontinuance process was completed, expected around the end of November 2025. The Agency ordered the bifurcation of the proceedings, finding it more reasonable to first address whether CN Rail breached its level of service obligations, and if so, then determine the appropriate relief.
[4] On July 30, 2025, the Agency rendered its decision on the liability portion of the proceedings; it determined that it was reasonable under the circumstances for CN Rail not to have initiated repairs to the Hay River section, in particular given that no traffic had been offered for carriage following the damage suffered in 2023 (Decision 31-R-2025). The GNWT argued that the reasonable pause period triggered by the wildfires should have ended in August 2024 when it was reasonable to assume that CN Rail could have completed the necessary repairs and continued with service up to Hay River. However, the evidence shows that no fuel traffic moves up to Hay River outside of the summer resupply season, consequently any service obligations of CN Rail would be limited to the summer months of 2025, given the discontinuance process was scheduled to be completed in November 2025. In its decision, the Agency added that even had traffic been offered prior to the completion of the discontinuance process, it would be unreasonable to require CN Rail to repair the Hay River section to provide service for, at most, a matter of weeks before that process was completed.
[5] Consequently, the Agency dismissed the GNWT’s application at the first stage of the proceedings and found that, in the particular circumstances of this case, the reasonable pause period in favour of CN Rail would be extended until the transfer and discontinuance process had been completed. In fact, during the hearing the GNWT confirmed that the statutory process has now been completed and that formal discontinuance of the Hay River section was filed by CN Rail.
[6] The GNWT now appeals that decision, raising a number of issues framed as questions of law or jurisdiction, as limited by subsection 41(1) of the Act. We should first mention the GNWT confirmed that given the filing of the discontinuance by CN Rail, it was no longer seeking an order that the company repair and resume operations on the Hay River section, but was limiting the relief sought to a declaration that CN Rail failed in its level of service obligations under sections 113 to 116 of the Act from the time that repairs could have been reasonably made—which the GNWT asserts was August 2024—to the completion of the discontinuance process.
[7] The GNWT argues that the Agency failed to engage in the balancing of interests’ framework mandated by the Supreme Court of Canada in A.L. Patchett and Sons Ltd. v. Pacific Great Eastern Railway Co., 1959 CanLII 41 (SCC), [1959] S.C.R. 271 and with the factors set out in subsection 116 (1.2) of the Act prior to extending the reasonable pause period in favour of CN Rail. We remain unconvinced of any error of law by the Agency. In essence, the real issue is whether it was reasonable for CN Rail not to have initiated repairs to the Hay River section. This is a question of fact or a mixed question of fact and law, thus not within our jurisdiction.
[8] The GNWT further argues that the Agency erred in law by miscalculating the statutory timelines applicable to the discontinuance process under sections 143 to 145 of the Act, finding that the process should have been completed by November 2025 when, in fact, the process should have been completed by March 2026, thus extending the time CN Rail would have otherwise been committed to its service obligations but for the reasonable pause ordered by the Agency. However, this issue is of no moment; the GNWT confirmed that no fuel traffic would have been shipped up to Hay River during the winter months of November 2025 to March 2026, thus providing no basis for a finding of any breach of the company’s service obligations during that period.
[9] Finally, the GNWT argues that the Agency violated basic rules of procedural fairness when it failed to compel CN Rail to provide evidence in support of its assertions. We find no basis for this argument. The Agency dismissed the GNWT’s request to deem portions of CN Rail’s answers as being inadmissible or to be given no weight. No procedural fairness issues arise from that decision. . Canadian National Railway Company v. Canadian Transportation Agency et al.
In Canadian National Railway Company v. Canadian Transportation Agency et al. (Fed CA, 2025) the Federal Court of Appeal dismissed two appeals, these brought against "two decisions of the Canadian Transportation Agency (Agency) dismissing the company’s requests under section 32 of the Canada Transportation Act, S.C. 1996, c. 10 (CTA) to vary its Volume-Related Composite Price Index (VRCPI) and Maximum Revenue Entitlement (MRE) for the 2021/2022 and 2022/2023 crop years (relevant crop years)".
Here the court considered "the pricing for rail transportation of grain from points in western Canada for export (western grain)", and illustration it's determination in this case:[3] For more than 25 years, Parliament has regulated the pricing for rail transportation of grain from points in western Canada for export (western grain) by capping the total revenue that a prescribed railway company (railway company or companies) may earn for the movement thereof in each crop year. Crop years for western grain in Canada run the twelve-month period from August 1 to July 31 of the following year; CN Rail is one of two prescribed railway companies in Canada.
[4] Under the MRE regime prescribed under the CTA, railway companies have relative freedom to set freight rates charged to shippers and grain producers for the movement of western grain based on market conditions, so long as the railway company’s total revenue during a crop year for the movement of western grain does not exceed its MRE for that crop year. If it does, pursuant to subsection 150(2) of the CTA and corresponding regulations, the railway company must pay all excess revenue and any penalty that may be specified in the regulations to the Western Grains Research Foundation (Foundation).
[5] The formula used by the Agency in the determination of a railway company’s MRE, prescribed in subsection 151(1) of the CTA (MRE determination formula), includes a number of factors, one of which is the VRCPI, a numerical multiplier which acts as an inflation index determined by the Agency using forecasted price variations based on forecasting models, expert data, detailed railway company submissions of historical costing information specific to them, forecasting indices and economic analyses and projections that look at macro trends in the economy more globally.
[6] Although the data used by the Agency in the determination of a railway company’s VRCPI includes, amongst other information, actual pricing data from the railway companies, the VRCPI is not a cost-based determination. Rather it uses a predictive methodology to capture forecasted price variations in the cost of railway inputs, i.e., expected variations due to inflation in the cost of labour, fuel, services, materials and other capital items to be used by the railway company for the purpose of transporting western grain during the upcoming crop year. The record suggests the methodology used to determine a railway company’s VRCPI is less a matter of a statutory direction or formulae, but rather of how the Agency determined to implement the CTA. Although Parliament defined the MRE regime, it left it largely to the Agency to set out the mechanics of implementation. The purpose of the VRCPI is to ensure that the transportation of western grain remains economically viable and that railway companies are not absorbing inflationary costs without compensation due to an artificially low MRE revenue cap. As recognized by this Court in Canadian Pacific Railway Company v. Canada (Transportation Agency), 2021 FCA 69 at para. 6, "“[w]hile the VRCPI is not the only factor affecting a railway’s MRE, it is a significant factor.”"
[7] Pursuant to subsection 151(5) of the CTA, the Agency is tasked with determining a railway company's VRCPI for each crop year on or before April 30 of the previous crop year, i.e., at least three months prior to the start of the crop year to which the VRCPI relates, enabling western grain stakeholders—including railway companies, shippers and producers—to plan their operations and account for freight rate increases or decreases in advance of the upcoming crop year based upon the anticipated MRE for each railway company. According to the Agency, this brings a level of certainty and predictability across the western grain market. Subsection 151(5) also provides that a railway company’s MRE for each crop year is to be determined by the Agency on or before December 31 of the following crop year, i.e., up to five months after the end of the crop year to which the MRE relates so as to account for the amount of western grain actually transported as well as the average distance travelled during that period, both being factors, along with the VRCPI, of the MRE determination formula in relation to a given crop year.
[8] As such, the statutory scheme of the MRE regime provides that a railway company will only receive confirmation of its allowable MRE, or MRE space, up to twenty months after the determination of the VRCPI for the relevant crop year; a lot may happen within twenty months in relation to the impact inflation has on the cost of railway inputs during the crop year. Accordingly, the Agency’s methodology for the determination of a railway company’s VRCPI for a given crop year has two components: the first is a percentage increase or decrease reflecting the prospective year over year forecasted inflationary changes in the cost of railway inputs for the upcoming crop year (forecast projection) and the second being a retrospective adjustment to the previous year’s forecast—either up or down—meant to capture any over or under forecasting by the Agency of the previous year’s VRCPI, incorporating updated forecasts for the upcoming crop year based upon updated data of the railway companies’ actual cost of railway inputs for the previous crop year (forecasting variance). The result of combining the prospective inflationary expectations of the forecast projection with the retrospective adjustment of the forecasting variance is applied by the Agency, as a percentage, to the VRCPI of the previous year to arrive at the numerical multiplier or inflation adjustment for the VRCPI for the upcoming crop year.
[9] The Agency’s determinations with respect to the company’s VRCPI and MRE with respect to the relevant crop years may be summarized as follows:April 2021 – the Agency determined CN Rail’s 2021/2022 VRCPI for the crop year set to begin on August 1, 2021 to be 1.4505, an increase of 0.50% over the previous year. This increase was the combination of an increase of 1.06% in the forecast projection component for the 2021/2022 crop year coupled with a decrease of 0.56% in the forecasting variance component to previous year’s forecast (2021/2022 VRCPI Determination).
The 2021/2022 crop year begins August 1, 2021, and runs to July 31, 2022.
March 15, 2022 – the Agency adjusts the 2021/2022 VRCPI to 1.4572 to account for the increase in the costs incurred by CN Rail to obtain and maintain hopper cars, pursuant to subsection 151(6) of the CTA.
April 2022 – the Agency determined CN Rail’s 2022/2023 VRCPI for the crop year set to begin on August 1, 2022, to be 1.6319, an increase of 11.99 % over the previous year. This increase was the combination of an increase of 4.55% in the forecast projection component for the 2022/2023 crop year coupled with an increase of 7.44% in the forecasting variance component to the previous year’s forecast (2022/2023 VRCPI Determination).
The 2022/2023 crop year begins August 1, 2022, and runs to July 31, 2023.
December 2022 – the Agency determined CN Rail’s 2021/2022 MRE (for the 2021/2022 crop year) to be $589,140,501 (2021/2022 MRE Determination). The 2021/2022 MRE Determination was made using a VRCPI of 1.4572, i.e., it did not take into consideration the forecasting variance of 7.44% made in April 2022. As CN Rail’s actual western grain revenue for the 2021/2022 crop year was $592,208,589, the Agency also ordered CN Rail to pay $3,221,492 in excess revenue and penalties to the Foundation.
April 2023 – the Agency determined CN Rail’s 2023/2024 VRCPI for the crop year set to begin on August 1, 2023, to be 1.8295, an increase of 12.11% over the previous year. This increase was the combination of a decrease of 0.08% in the forecast projection component for the 2023/2024 crop year coupled with an increase of 12.19% in the forecasting variance component to the previous year’s forecast (2023/2024 VRCPI Determination).
December 2023 – the Agency determined CN Rail’s 2022/2023 MRE (for the 2022/2023 crop year) to be $1,076,064,100 (2022/2023 MRE Determination). The 2022/2023 MRE Determination was made using a VRCPI of 1.6319, i.e., it did not take into consideration the forecasting variance of 12.19% made in April 2023. As CN Rail’s actual western grain revenue for the 2022/2023 crop year was $1,079,522,039, the Agency also ordered CN Rail to pay $3,630,836 in excess revenue and penalties to the Foundation. [10] As noted, a significant increase in CN Rail’s cost of railway inputs took place during the relevant crop years as a result of a considerable spike in inflation, in particular, according to CN Rail, for steel, fabricated metals and petroleum-related products as a result of what the company refers to as the "“unpredictable, once-in-a-century events”" of the COVID-19 pandemic and the conflict in Ukraine. To put matters into perspective, the record shows that between the 2010/2011 and 2021/2022 crop years, the retrospective adjustment made by way of the forecasting variance component to CN Rail’s annual VRCPI ranged between a decrease of 4.10% and an increase of 3.60%. However, for the relevant crop years, that component represented an increase of 7.44% and 12.19% respectively. According to CN Rail, the degree of what the company called the Agency’s "“forecasting errors in the economic sense”" with respect to the relevant crop years was unprecedented—as evidenced by the magnitude of the forecasting variance components—and led to seriously undervalued MRE determinations for those years corresponding to lost MRE space for the company of about $175 million over that period. CN Rail asserts that the company was left to unfairly absorb significant losses during the relevant crop years on account of the remarkable and unexpected rise in its cost of railway inputs coupled with an artificially low MRE which limited the freight rates the company was able to charge its shippers for the carriage of western grain during that period.
[11] As noted, the forecasting variance component of the VRCPI determined for any crop year is not given retroactive effect. Rather, there is a one-year lag in the adjustment to the previous year’s VRCPI; the adjustment to the VRCPI is made prospectively, with the forecasting variance component taken into account in the determination of the VRCPI for the following crop year, thus allowing, in the Agency’s view, for any necessary adjustment at that time.
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