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Guidelines for the Interpretation of "Substantial Commercial Harm"

1.0 Introduction

Shipper groups have expressed concerns regarding the negotiating tools that are subject to the "substantial commercial harm" test of subsection 27(2) of the Canada Transportation Act (the CTA). Provisions dealing with competitive line rates and level of service obligations require applicants to satisfy the Canadian Transportation Agency (the Agency) that the applicant would suffer substantial commercial harm if the Agency did not grant the relief sought.

To date, there is a lack of any significant precedent-setting interpretations or other information on what the provision implies. As a result, the Agency has drafted these guidelines on factors it may consider under a subsection 27(2) test to assist shippers and carriers in understanding this provision of the CTA. As always, the Agency will continue to base its decisions on the individual merits of each case.

1.1 Purpose

These guidelines briefly describe the nature and extent of evidence the Agency may require, under subsection 27(2) of the CTA, to be satisfied that an applicant would suffer "substantial commercial harm".

1.2 Section 27

Section 27 of the CTA reads as follows:

Relief

27. (1) "On an application made to the Agency, the Agency may grant the whole or part of the application, or may make any order or grant any further or other relief that to the Agency seems just and proper.

Limitation
(2) "Where an application is made to the Agency by a shipper in respect of a transportation rate or service, the Agency may grant the relief sought, in whole or in part, but in making its decision the Agency must be satisfied, after considering the circumstances of the particular case, that the applicant would suffer substantial commercial harm if the relief were not granted.

Circumstances
(3) "The circumstances to be considered by the Agency in making its decision under subsection (2) may include, but are not limited to, the following:
a) the market or market conditions relating to the goods involved;
b) the location and volume of traffic of the goods;
c) the scale of operation connected with the traffic;
d) the type of traffic or service involved:
e) the availability to the applicant of alternative means of transporting the goods; and
f) any other matters that appear to the Agency to be relevant.

Amendments
(4) "The Agency may, on terms or otherwise, make or allow any amendments in any proceedings before it.

No Applicability to FOA
(5) "This section does not apply in respect of final offer arbitration under Part IV."

2.0 Nature of Proceedings

The Agency is a quasi-judicial tribunal that functions like a court. It is not bound by strict rules of evidence or procedure and can be flexible. Parties appearing before it need not have counsel.

In any proceeding subject to subsection 27(2) related to the granting of relief, the Agency must be satisfied on a balance of probabilities that the applicant would suffer substantial commercial harm if the Agency did not grant the relief requested.

2.1 Time Frame for Relief

Section 29 of the CTA requires the Agency to determine all disputes within 120 days, unless the parties consent to extend this time frame. Shorter time periods may apply under certain provisions in the statute.

For example, the Agency must make decisions related to requests for competitive line rates and joint rates within 45 and 90 days, respectively.

2.2 It's Not a Pre-Test!

The Agency decides on substantial commercial harm at the same time that it determines the merits of an application. Unlike past provisions under the law, subsection 27(2) does not create a prima facie test. That is, the legislation does not say that the Agency must decide that the shipper "would suffer substantial commercial harm if the relief were not granted" before the Agency can hear an application.

In any proceeding, the Agency would likely ask for evidence and argument on "substantial commercial harm" and rule on that question when ruling on the application itself. For example, if a shipper applied for a ruling relating to an alleged breach of a railway’s "level of service obligations," the Agency would assess the "substantial commercial harm" and "level of service" aspects of the case at the same time, not sequentially.

This clearly distinguishes subsection 27(2) of the CTA from, for example, section 23 of the National Transportation Act, 1967. Under the provisions

of section 23, an applicant had to file an application for leave to appeal an action of a carrier, and this application had to convince the former Canadian Transport Commission that a "prima facie" case existed, before the Commission would investigate the carrier’s action.

3.0 Interpretation

3.1 Relief

Under subsection 27(1) of the CTA, the Agency may grant all or part of an application, or give any further or other relief that seems just and proper. This subsection applies to any application filed with the Agency under the provisions of the CTA or other legislation.

3.2 Limitation

When a shipper makes an application concerning a transportation rate or service, subsection 27(2) imposes a limitation on the Agency. The limitation is that the Agency be satisfied that the applicant/shipper would suffer substantial commercial harm if the requested relief were not granted. Given the remedies available under the CTA for various modes of transport, this means that, practically speaking, subsection 27(2) has the greatest impact on rail matters.

When reviewing an application under subsection 27(2), the Agency must determine whether this limitation affects the applicant. Among other matters, the Agency must determine whether the applicant is a shipper and whether the application relates to a transportation rate or service.

3.3 Definitions

"Shipper" is defined in section 6 of the CTA as "a person who sends or receives goods by means of a carrier or intends to do so." In turn, a "carrier" is defined as "a person who is engaged in the transport of goods or passengers by any means of transport under the legislative authority of Parliament."

Certain complaint and application sections of the CTA expressly refer to "shippers" making applications (such as subsection 121(2) on joint rates and section 132 on competitive line rates). However, other sections, such as section 116 (level of service) and subsection 127(4) (extended interswitching), include shippers because they speak in terms of "any person," "railway company," "a municipal government" or "any other interested person."

3.4 Transportation Rate or Service

The limitation in subsection 27(2) applies only to an application related to a transportation rate or service. There is no list in the CTA stating which applications are subject to this section. Requests related to a transportation rate include requests for joint rates, competitive line rates or extended interswitching. Applications can also be made relating to a transportation service such as a request that the Agency require a railway company to meet a level of service obligation.

Section 27 does not apply to final offer arbitration.

4.0 "Substantial Commercial Harm"

If the Agency concludes that the applicant falls into the "shipper" category and that the relief requested relates to a "transportation rate or service," the Agency can proceed to determine whether the applicant would suffer "substantial commercial harm."

4.1 Subjective Assessment

The word "substantial" is imprecise and open to interpretation. Any determination becomes, therefore, a case-by-case assessment by the Agency based on the information presented. Overall, it appears that something "substantial" is valuable; more than insignificant and greater than the minimum.

Although Parliament has not defined the phrase "substantial commercial harm," similar terminology has been examined in jurisprudence and in legal lexicons. The Agency may refer to these discussions to assist it in interpreting the phrase.

5.0 The Agency's Responsibilities

5.1 Type of Evidence to be Adduced

Subsection 27(3) of the CTA acts as a guide to the type of matters the Agency may examine when it determines "substantial commercial harm." At a minimum, the Agency ought to understand:

the type of traffic involved;
the origin and destination of the traffic;
the standards of service required; and
the markets that the shipper is seeking to maintain, expand or enter.

The Agency should also assess the nature and extent of commercial harm the shipper would suffer if it is unable to obtain the requested relief from the Agency.

The Agency may not need to ask a shipper to reveal detailed financial information, existing and pro forma, to show likely impacts if relief is not granted. And the shipper may not need to provide oral evidence before the Agency if a paper or "file" hearing takes place. However, if an oral hearing takes place, the shipper may present witnesses who can provide evidence of the commercial harm the shipper will likely suffer. Under Agency procedures, the railway company may question these witnesses.

5.2 Prospective Nature of Test

The legislation speaks of likely future harm if relief is not granted. Therefore, the Agency must assess whether harm will happen and, if so, how extensive it will be. Such an assessment requires a certain amount of latitude since it is speculative. The Agency must be satisfied that substantial commercial harm would occur if the relief were not granted.

It may be more difficult to prove that harm will occur in the future than to show that harm has already occurred in the past. Therefore, an applicant may prefer to provide proof that it has suffered past harm, and argue that it is still incurring substantial commercial harm and will continue to do so if the Agency does not act to remedy the situation.

Commercial harm could include adverse effects on a company’s reputation or sales; adverse effects arising from the fact that the company is not meeting its contracts; significant financial expenses; or lost expansion opportunities.

6.0 Subsection 27(3)

6.1 Circumstances to be Considered

Subsection 27(3) helps the Agency determine the types of matters that it may examine when deciding whether a shipper would suffer substantial commercial harm if relief were not granted. The subsection also helps the Agency assess the extent of harm relative to a shipper’s operation.

For example, in addition to the availability of alternative means of transport, subsection 27(3) states that the Agency may consider the following factors:

the market or market conditions related to the goods involved;
the location and volume of traffic of the goods;
the scale of operations connected with the traffic; and
the type of traffic or service involved.

Such considerations, which consistently cite the "goods" or the "traffic," indicate that the Agency should adopt a narrow approach when assessing substantial commercial harm to a shipper’s operation. That is, the examination would be limited to harm related to the traffic or goods subject to the application. The Agency need not assess the impact on the shipper’s entire operation, unless the application involves all of the shipper’s traffic.

Some shippers have cited a decision made by the Agency’s predecessor 1 to suggest that the Agency will grant relief only if a shipper would otherwise fall into bankruptcy.

However, this case does not apply directly to section 27 of the CTA, because it examined carriers and carrier competition in a market, and did not limit itself to effects on a particular shipper.

In this decision, the National Transportation Agency was required to decide on the predatory pricing provisions that existed under the law at that time. After examining the competition in the transportation markets affected, the Agency found the railway’s aggressive pricing strategy did not significantly harm either competition generally or competitors specifically. By having this decision upheld, shippers were able to benefit from the railway’s pricing structure.

It should be noted that the "harm" identified in subsection 27(2) need not be harm through an observable loss, for example, through the loss of previous sales contracts in certain markets. On the contrary, because the law leaves this definition open, a shipper may be able to argue the loss of future or potential gain. To continue the example, a shipper could argue the "harm" exists in an inability to attract future customers in new or emerging markets.

7.0 Scope of the Agency’s Review

The scope of the Agency’s review will depend on the nature of the application and the extent of the operations that are the subject of the application—that is, the impact of the transportation rate or service on the specific portion of the shipper’s operation in dispute.

If a shipper is seeking relief related to a transportation rate or service that the shipper feels has caused or will likely cause substantial commercial harm to all of the shipper’s operations or all of its traffic, the Agency may examine overall impacts on the shipper.

On the other hand, if the application is limited to part of a shipper’s operations or to the traffic of one of many commodities, the Agency may focus on only that portion of the shipper’s operations or traffic.

8.0 Causes and Impact of Substantial Commercial Harm

Agency proceedings involving section 27 deliberations may, in certain circumstances, be costly to the parties, depending on the nature of the application. From an economic perspective, it is not in the applicant’s interest to file an application for relief if a rate, act or omission of a carrier does not have at least some commercial impact on the applicant.

Therefore, the applicant should be able to demonstrate that the likely impact of the carrier’s actions on the shipper would be more than insignificant. For example, this might require establishing that the rate or service in question adversely affects the shipper’s ability to market its goods, maintain its market position or penetrate new markets. In this respect, the applicant might also show that the carrier’s transportation rate or service puts the applicant at a disadvantage in comparison to its competitors.

8.1 Examples

Example 1: Two manufacturers of a similar product are located in the same region. Company A is served by two rail carriers: Carrier C and Carrier D. Company B is served at origin only by Carrier C. Using Carrier D, Company A can get access to a specific market in the United States. However, Company B is now in a position to expand its markets in the US, so it seeks and receives Carrier D’s agreement to serve the company from the nearest interchange point, under certain terms and conditions.

Company B then asks Carrier C to establish a competitive line rate from the point of origin to the nearest interchange point with Carrier D. Carrier C proposes a rate that Company B rejects. If Company B were to accept the rate, it would not be able to compete in the US market with Company A. The proposed rate may limit Company B’s ability to expand its markets, resulting in lost sales and revenues and limited future growth.

Company B believes Carrier C’s actions have constrained its ability to compete. Company B could ask the Agency to establish a competitive line rate. It would be required to substantiate its claim that it would incur substantial commercial harm if the relief were not granted.

Example 2: A rail carrier commits to providing three-day-a-week service to a shipper, but the carrier’s service is unreliable. This erratic service could result in delayed deliveries, staff overtime, lost sales, lost markets and loss of goodwill. If it continued without relief, it could harm the shipper’s reputation and operations. The shipper could ask the Agency to confirm the carrier’s level of service obligations. It would be required to substantiate its claim that it would continue to incur substantial commercial harm if the relief were not granted.

Note, however, that CTA provisions that may be subject to subsection 27(2) are not designed to alleviate any inherent disadvantages a shipper may suffer due, for example, to the shipper’s scale of operations or geographic location relative to destination markets, or to general market downturns. Their goal is to ensure that shippers receive relief when necessary and that carriers provide a commercially fair rate and adequate transportation service.

The table on pages 11 and 12 illustrates possible causes of substantial commercial harm and their possible impact on a shipper’s operation, as well as the type of evidence that a shipper might provide to prove both cause and impact.

9.0 Confidentiality

The Agency’s Rules of Procedure clearly describe what parties to a proceeding should do when they believe that any information they may place before the Agency is confidential.

Under these rules, a person trying to declare a document confidential must state why it should not be publicly disclosed to other persons.

The Agency will balance the interests of the parties when dealing with claims for confidentiality. The Agency understands that harm can result when commercial information is disclosed to a party’s suppliers or competitors. At the same time, the Agency realizes that parties to a proceeding must have sufficient information to be able to present their side of the case to the Agency.

10.0 Appeals

10.1 Section 40 of the CTA: Governor in Council

An Agency decision may be varied or rescinded, at any time, on petition of any person to Cabinet, or on Cabinet’s own motion. Any Cabinet order varying or rescinding an Agency decision is binding on the Agency and on all parties.

10.2 Section 41 of the CTA: Federal Court

Any person may file an appeal of an Agency decision with the Federal Court of Appeal, on a question of law or a question of jurisdiction, within one month of the decision, or within any extended time period the Court permits. The timing of a final appeal decision from the Court varies depending on the parties and the issues, but the Court generally determines an appeal within 18 months of the Agency’s decision. Recent changes to the rules of court procedure now require the parties to an appeal to act within strict time frames.

Unless one of the parties to the decision has asked, and the Agency finds, that its decision be held in abeyance pending the appeal, the Agency’s decision applies from the moment it is issued.

Substantial Commercial Harm

POSSIBLE CAUSES	EXAMPLES OF EVIDENCE RELEVANT TO CAUSE	POSSIBLE IMPACT ON SHIPPER	EXAMPLES OF EVIDENCE RELEVANT TO IMPACT	POSSIBLE REMEDIES
Unsatisfactory rate (e.g. rate too high)	Documentation / records or analyses demonstrating:		Documentation / records or analyses demonstrating:
	other shippers of the same goods at the location are receiving more favourable rates that cannot be justified by any cost or efficiency factor a substantial rate increase has occurred a substantial change in annual transportation costs has occurred over a specified period the company is a captive shipper with no other competitive alternative transportation services	detrimental effect on operations or financial performance of the company loss of market share decreased ability to compete in or penetrate new markets loss of sales or potential sales cancellation of orders increased transportation costs slowing plant operations postponement of expansion plans	past and current production levels ability of company to increase market prices to offset freight cost increases relative change in product market prices vs. change in transportation costs sales trends over a specified period transportation costs as a percentage of company’s operating costs over a specified period if other transportation was used for traffic, respective percentages of company’s traffic volumes and freight costs change in traffic volumes over a specified period cancellations over a specified period financial performance of affected operations over a specified period plant or company’s growth rate over a specified period	extension of interswitching limits under subsection 127(4) to give the company access to rail competition establishment of a competitive line rate (CLR) under section 132 to give the company access to rail competition establishment of a joint rate under subsection 121(2)

POSSIBLE CAUSES	EXAMPLES OF EVIDENCE RELEVANT TO CAUSE	POSSIBLE IMPACT ON SHIPPER	EXAMPLES OF EVIDENCE RELEVANT TO IMPACT	POSSIBLE REMEDIES
Provision of unsatisfactory transportation service or performance, as demonstrated by:	Documentation / records or analyses demonstrating:		Documentation / records or analyses demonstrating:
unreliable service lack of proper equipment poor condition of equipment delays in transit time insufficient frequency of service improper cargo handling or product care poor carrier responsiveness circuitous or ineffective routing lack of reasonable facilities for switching service inadequate loading or unloading facilities	complaints from customers failure to meet delivery dates due to unreliable service cancelled orders (with reasons) excessive damage claims increased costs due to overtime or use of a more expensive mode, expressed as a percentage over a specified period circuitous and inefficient routing by carrier when a shorter, faster route is available that the company is a captive shipper with no other competitive alternative transportation services poor service over time	loss of market loss of sales or orders increased costs plant slowdown loss of access to new or emerging markets	decrease in traffic volumes number of sales or orders lost amount and percentage of increased costs over a specified period actual impact on plant operations (employees) cancelled sales orders or contracts complaints from customers financial performance of affected operations over a specified period plant or company’s growth rate over a specified period loss of clients	Agency ruling under section 116 that carrier is breaching level of service obligations (Agency can order appropriate relief) establishment of CLR or extended interswitching to give the company access to an alternative service provider

Glossary of Terms

Competitive Line Rate (CLR) — If a shipper is located beyond the 30-kilometre interswitching limit, it can request the Agency to set a CLR for movements over the railway serving the shipper to the interchange point for furtherance to another railway. Arrangements must first be completed with the connecting carrier for the balance of the movement. The CLR would be based on applicable interswitching rates and the local railway revenue information derived in competitive situations.

Interswitching — If a shipper has access to only one railway carrier at origin or destination, it may have its cars interswitched from the carrier to another at prescribed rates, providing its siding is within a 30-kilometre radius of the point of interchange. However, under subsection 127(4), shippers may apply to the Agency for extended interswitching rights beyond the 30-kilometre limit.

Final Offer Arbitration (FOA) — A shipper who is dissatisfied with rates charged by a carrier and who cannot resolve the issue may submit the matter in writing to the Agency for a final offer arbitration. The shipper’s request for final offer arbitration would include the final offer of the shipper to the carrier and the last offer received by the shipper from the carrier. The Agency refers the matter to an arbitrator agreed upon by the shipper and carrier. The arbitrator shall select the final offer of either the shipper or the carrier. A final offer arbitration is not a proceeding before the Agency and is not subject to the "substantial commercial harm" test.

Levels of Service — If a shipper believes a railway company is not providing "adequate and suitable accommodation for the carriage of traffic", it may file a complaint with the Agency to investigate the matter. If the Agency determines that service obligations are not being carried out, it may order the company to fulfill that obligation in any manner the Agency deems expedient.

Joint Rates — A shipper intending to move traffic over a continuous route in Canada, where portions of the route are operated by two or more railway companies, may ask the railway companies to agree on a joint tariff for the continuous route and on the apportionment of the rate in the joint tariff. If the railways cannot agree on a joint tariff and rate apportionment, the Agency may direct the companies to come to an agreement or it will make the determination itself.

Notes:

1. Upper Lakes Group Inc. et al v. National Transportation Agency et al [1995] 3 F.C. 395, a case decided under the minimum compensatory rate provision of the NTA, 1987. back

ISBN 0-662-63965-0
Catalogue No. TU4-10/1998

For information about the Agency and its programs you can also call:
(819) 997-0344

Correspondence can be addressed to:

Canadian Transportation Agency
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This publication is available in alternative format.

This Guide has been prepared for information purposes only. In all cases the language of the Legislation and Regulations is final authority.


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	Last Updated: 2003-07-24	[ Important Notices ]