upper lakes group inc. v. canada
A-162-94
Upper Lakes Group Inc., The Canadian Brotherhood of Railway Transport General Workers (Seafarer Section"Local 401), The Canadian Brotherhood of Railway Transport General Workers (Marine Engineers Section"Local 402), The Canadian Merchant Service Guild, La Société du Parc Industriel et Portuaire de Bécancour, and La Société Terminaux portuaires du Québec (Appellants)
v.
National Transportation Agency, Canadian National Railway Company, and ICI Canada Inc. (Respondents)
Indexed as: Upper Lakes Group Inc. v. Canada (National Transportation Agency) (C.A.)
Court of Appeal, Isaac C.J., Hugessen J.A. and [ho]Chevalier D.J."Ottawa, April 4 and May 4, 1995.
Transportation " Appeal by leave from National Transportation Agency's decision under National Transportation Act, 1987, s. 113(5) CN's rate for transporting fine crushed salt from Windsor, Ontario to Bécancour, Quebec non- compensatory but neither significantly harming competitor, Upper Lakes Group, nor substantially lessening competition " Whether test used by Agency to determine whether rate tending to substantially lessen competition (whether rate so low as to force other from market) too high " Whether Agency's definition of market too broad " Whether Agency erred in considering effect of loss of fine crushed salt traffic on whole of Upper Lakes' business " Whether Agency erred in failing to consider harm to appellants other than Upper Lakes, intervenors.
Competition " Appeal by leave from National Transportation Agency's decision CN's rate for transporting fine crushed salt non-compensatory, but neither significantly harming competitor nor substantially lessening competition " Interpretation of National Transportation Act, s. 113(5) " Purpose of competition law, particularly predatory pricing " Definition of market " Comparison with Competition Act, s. 50(1)(c) " Whether other appellants, intervenors competitors.
Administrative law " Statutory appeals " Appeal by leave from National Transportation Agency's decision under National Transportation Act, 1987, s. 113(5)(b) CN's rate to transport fine crushed salt non-compensatory but neither significantly harming competitor nor substantially lessening competition " N.T.A. decisions subject to appeal on questions of law, jurisdiction " Standard of review correctness, tempered by due regard for experience, expertise of senior administrative tribunal in interpretation, application, operation of non-jurisdictional provision of governing statute.
This was an appeal by leave from a decision of the National Transportation Agency. The question of law for determination was whether the Agency's decision was founded on a wrong interpretation of National Transportation Act, 1987, subsection 113(5). Canadian Salt Company Ltd. (CSC) ships large quantities of fine crushed salt for chemical processes from Windsor, Ontario to its customer ICI Forest Products (ICI) in Bécancour, Quebec. Since the early 1980s ULS, a marine carrier, had carried the salt by ship during the St. Lawrence seaway navigation season. It had shipped iron ore and minerals back from the lower St. Lawrence to Great Lakes ports (backhaul traffic). CN had transported the salt by rail during the winter months. In 1993 CN negotiated a contract with ICI covering transportation of all of the latter's fine crushed salt requirements for three years. ULS lost all of the business and the accompanying backhaul. ULS complained that CN's rate was non-[ho]compensatory contrary to National Transportation Act, 1987, subsection 112(2), which requires that every rate be compensatory. Joining in the complaint were three unions representing ULS employees and companies representing the port and stevedoring services in Bécancour. On appeal, interventions were filed by various industry associations and lobby groups. The Agency concluded that the rate was non-compensatory. Subsection 113(5) provides that where the Agency determines that the rate is not compensatory, unless the company establishes to the satisfaction of the Agency that the rate does not have the effect or tendency of substantially lessening competition or significantly harming a competitor and was not designed to have that effect, the Agency shall disallow that rate and require the company to substitute a rate that is compensatory. The Agency held that as the salt traffic was only a small percentage of the ULS total traffic, the rate charged by CN did not significantly harm ULS. It considered the loss of backhaul traffic irrelevant. Furthermore, CN did not design its rates with a view to driving ULS from the market and thereafter raising its rates to a higher than competitive level in order to recoup any losses incurred. As ULS has continued to carry 70% of CSC salt in the form of coarse crushed salt, competition had not been lessened. If CN were to raise its rates above competitive levels, ULS would then be able to recapture the traffic.
The appellants argued that (1) whether the rate was "so low as to force the other from the market" was too high a test; (2) the Agency's definition of the market, which included traffic other than that in fine crushed salt between Windsor and Bécancour, was too broad; (3) the Agency erred in its assessment of significant harm by looking at ULS "total traffic" as well as by refusing to consider the loss of "backhaul" traffic; and (4) the Agency erred in failing to consider the harm caused to the appellants other than ULS and to the various intervenors who were suppliers of services to ULS and had also suffered a loss of business resulting from ULS's loss of traffic.
Held (Isaac C.J. dissenting), the appeal should be dismissed.
Per Hugessen J.A. (Chevalier D.J. concurring): Since the National Transportation Agency is a highly specialized tribunal whose decisions are binding and conclusive on matters of fact but subject to appeal on questions of law or jurisdiction, the standard of review is one of correctness tempered by due regard for the experience and expertise of a senior administrative tribunal in the interpretation, application and operation of a non-jurisdictional provision of its governing statute.
When sections 112 and 113 are read purposively and in context, in the light of their statutory history, of transportation policy as enunciated in the Act and of competition policy as set out in contemporaneous legislation, the Agency's interpretation is the only correct one. The National Transportation Act, 1987, adopted at the same time as the Competition Act, places a strong emphasis on competition. The Agency correctly adopted an interpretation of paragraph 113(5)(b) which views its purpose as being consonant with the purpose of competition law in Canada, particularly as relating to predatory pricing. Even if read in isolation, the interpretation of paragraph 113(5)(b) would be the same. Price cutting is, after all, frequently a symptom of vigorous competition rather than otherwise. It is only when low prices form part of a monopolistic strategy that they become anti-competitive.
It was doubtful that the issue of the definition of the market was properly raised. The question of law on appeal was confined to the interpretation of subsection 113(5). The word "market" does not appear in that subsection or in section 112 or elsewhere in section 113. Furthermore, leave could not have been obtained on this question. The definition of market in cases of this sort is a question of fact, not of law. Even assuming the matter to be properly raised, it was without substance. The appellants' argument was based on references in the N.T.A. decision to traffic other than that in fine crushed salt. The Agency based its finding that CN's rate had not substantially lessened competition not only on ULS's "continued presence in the transportation market" but also on its specific finding of fact that if the rates were raised "ULS would be able to recapture the traffic presently lost to it". That was with [ho]reference to the traffic in fine crushed salt between Windsor and Bécancour. Further, the appellants' attack was based on a wrong reading of the statute. The references in subsection 112(3) and in paragraph 112(4)(c) to the relevant "movement" are part of a specific direction to the Agency as to the method to be used by it in determining the compensatory or non-
compensatory character of the rate; they have nothing to do with the definition of the relevant market, a term which is not even employed in the statute. The decision as to how to define the market for the purpose of assessing whether or not competition has been substantially lessened is one which is peculiarly within the expertise and knowledge of the Agency. The statute does not contain any direction or limitation as to the manner in which the Agency is to exercise its judgment in this regard.
The words "substantially lessening competition" in paragraph 113(5)(b) require the Agency to assess a rate in the light of market conditions generally and to determine whether it has the effect or tendency of substantially lessening competition or is designed to have that effect. The second test is whether the rate has the effect or tendency of "significantly harming a competitor". It is the person of the competitor and his business which must be looked at, not merely his share of the particular market concerned. Given the expressed desirability of fostering competition, the statute was not intended to regard every loss of business due to below cost pricing as being significant and requiring regulatory intervention. The Agency properly looked at the effect of the loss of the fine crushed salt traffic on the whole of ULS's business and concluded that it was not significant. The refusal to consider the alleged loss of backhaul traffic as a separate matter was not based on any wrong interpretation of paragraph 113(5)(b). It was consistent with its approach to the question of significant harm generally. Also, since the lost traffic alleged by ULS already included the alleged lost backhaul traffic, it would have been wrong to consider it a second time. These are also matters within the Agency's field of expertise.
The harm envisaged by paragraph 113(5)(b) is harm to a "competitor". None of the other appellants or intervenors were competitors of CN. None was a carrier, or furnished transportation services directly to others.
Per Isaac C.J. (dissenting): Questions of interpretation of the enabling statute are not within the scope of the Agency's expertise. The Court is better qualified to determine issues of interpretation. The standard of review is one of correctness, enlarged by the power given to the Court in subsection 65(3) to draw, in its discretion "all such inferences as are not inconsistent with the facts expressly found by the Agency and are necessary for determining the question of law".
The Agency erred in law in basing its decision as to the relevant market on irrelevant considerations as a result of its incorrect interpretation of the subsection. The words "relevant market" do not appear in subsection 113(5), but the notion is implicit in the references to "competition" and "competitor", which, as creations of the market economy, exist in a market. The Agency was required, as a matter of law, to define the market in order to give full effect to the words "competition" and "competitor". What constitutes the relevant market in a given case is a question of fact. The Agency's reasons gave no indication that it was alive to the distinction between questions of law and of fact. This led to confusion about what must be considered and the criteria to be used in defining the relevant market for the purposes of subsection 113(5). The only relevant market on which evidence was led was the movement of traffic in fine crushed salt from Windsor to Bécancour. That was the only field of rivalry between CN and ULS. The Agency therefore erred in construing subsection 113(5) by considering other product markets in deciding whether the non-compensatory rate had the effect or tendency of substantially lessening competition.
After defining the relevant market, both in law and in fact, the Agency was required to ask whether CN had shown on a balance of probabilities that the non-compensatory rate did not have the effect or tendency of substantially lessening competition in that market. It did not do so. It asked instead whether the non-compensatory rate had the tendency or effect of eliminating a competitor from the market and answered that it did not.
The Agency's reasons were devoid of any analysis as to whether the appellants other than ULS were competitors and, if so, whether the harm to them should be considered in its analysis of harm to a competitor. On a proper definition of the relevant market, the Agency might well have decided, on the evidence, that all the appellants were competitors and that the harm to them should be considered.
Since backhaul traffic in iron ore was an integral part of the fronthaul traffic in fine crushed salt, the backhaul traffic was relevant. The Agency committed reviewable error by refusing to consider relevant evidence in its assessment of the extent of the harm suffered by ULS.
The conclusion that the non-compensatory rate did not significantly harm ULS was also based on an incorrect definition of the relevant market. By including in its analysis evidence of traffic in a different product and in a different geographical market, the Agency based its conclusion on irrelevant considerations and thus erred in law.
statutes judicially considered
Canadian Charter of Rights and Freedoms, being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44], s. 7.
Combines Investigation Act, R.S.C. 1970, c. C-23 (as am. by S.C. 1986, c. 26, s. 19), ss. 32(1)(c) (as am. by S.C. 1974-75-76, c. 76, s. 14), 34(1)(c) (as am. idem, s. 16).
Competition Act, R.S.C., 1985, c. C-34 (as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 19), ss. 1.1 (as enacted idem), 50(1)(c).
Federal Court Rules, C.R.C., c. 663, R. 1312.
Motor Vehicle Transport Act, 1987, R.S.C., 1985 (3rd Supp.), c. 29.
National Transportation Act, 1987, R.S.C., 1985 (3rd Supp.), c. 28, ss. 3 (as am. by S.C. 1992, c. 21, s. 33), 37(3), 65(1),(3), 110 "confidential contract", "traffic", 112, 113.
Railway Act, R.S.C., 1985, c. R-3, ss. 285 (rep. by R.S.C., 1985 (3rd Supp.), c. 28, s. 333), 286 (rep. idem).
Shipping Conferences Exemption Act, 1987, R.S.C., 1985 (3rd Supp.), c. 17.
cases judicially considered
applied:
Bell Canada v. Canada (Canadian Radio-television and Telecommunications Commission), [1989] 1 S.C.R. 1722; (1989), 60 D.L.R. (4th) 682; 38 Admin. L.R. 1; 97 N.R. 15; Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557; [1994] 7 W.W.R. 1; (1994), 92 B.C.L.R. (2d) 145; 4 C.C.L.S. 117; Queen, The v. J. W. Mills & Son Ltd. et al., [1968] 2 Ex. C.R. 275; affd (1968), 56 C.P.R. 1; Mills (J. W.) & Son Ltd. et al. v. The Queen, [1971] S.C.R. 63; (1970), 14 D.L.R. (3d) 464; 1 C.C.C. (2d) 420; 64 C.P.R. 7; R. v. Hoffmann-La Roche Limited (1980), 28 O.R. (2d) 164; 109 D.L.R. (3d) 5; 53 C.C.C. (2d) 1; 48 C.P.R. (2d) 145; 14 C.R. (3d) 289 (H.C.); affd (1981), 33 O.R. (2d) 694; 125 D.L.R. (3d) 607; 15 B.L.R. 217; 62 C.C.C. (2d) 118; 58 C.P.R. (2d) 1; 24 C.R. (3d) 193 (C.A.); Canadian Pacific Ltd. v. Canada (National Transportation Agency), [1992] 3 F.C. 145; (1992), 144 N.R. 235 (C.A.).
considered:
United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316; (1993), 102 D.L.R. (4th) 402; 153 N.R. 81; Queensland Co-operative Milling Association Ltd., Re; Re Defiance Holdings Ltd. (1976), 25 F.L.R. 169 (Aust. Trade Pract. Trib.); R. v. Nova Scotia Pharmaceutical Society, [1992] 2 S.C.R. 606; (1992), 114 N.S.R. (2d) 91; 93 D.L.R. (4th) 36; 313 A.P.R. 91; 74 C.C.C. (3d) 289; 43 C.P.R. (3d) 1; 15 C.R. (4th) 1; 10 C.R.R. (2d) 34; 139 N.R. 241; R. v. Consumers Glass Company Ltd. and [ho]Portion Packaging (1981), 33 O.R. (2d) 228; 124 D.L.R. (3d) 274; 14 B.L.R. 172; 60 C.C.C. (2d) 481 (H.C.).
referred to:
Canadian Broadcasting Corp. v. Canada (Labour Relations Board), [1995] 1 S.C.R. 157; (1995), 121 D.L.R. (4th) 385; 177 N.R. 1; Canadian National Railway Co. v. Handyside et al. (1994), 170 N.R. 353 (F.C.A.); In the matter of a complaint made by Atlantic Container Express Inc. dated July 6, 1989 that the Canadian National Railway Company is charging certain rates to Newfoundland destinations not consistent with the Terms of Union and National Transportation Agency Decision No. 266-R-1991 dated May 22, 1991, No. 254-R-1992, decision dated 6/5/92, N.T.A.
authors cited
Canada. House of Commons. Standing Committee on Transport. Minutes of Proceedings and Evidence, Issue No. 35 (13 April 1987).
Canada. Senate. Standing Senate Committee on Transport and Communications. Proceedings, Issue No. 16 (13 July 1987).
Crampton, Paul S. Mergers and the Competition Act. Toronto: Carswell, 1990.
Driedger, E. A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983.
Lexenomics Inc. The Competition Act and Federal Economic Regulation of the Transportation Sector: A Comparative Assessment, Final Draft. Ottawa: Fraser & Beatty, 1992.
National Transportation Act Review Commission. Competition in Transportation: Policy and Legislation in Review, vol. 1. Ottawa: Minister of Supply and Services Canada, 1993.
Nozick, Robert S. The 1995 Annotated Competition Act, 1995 Edition prepared by Peter Monastyrskyj. [ho]Scarborough, Ont.: Carswell, 1995.
APPEAL from National Transportation Agency's decision that although CN's rate for transporting fine crushed salt was non-compensatory, it neither significantly harmed ULS, a competitor, nor substantially lessened competition. Appeal dismissed.
counsel:
Richard J. Lande and A. Pretto for appellants.
Serge Cantin, Q.C. for respondent Canadian National Railway Company.
Brian A. Crane for respondent ICI Canada Inc.
Richard Makuch for respondent National Transportation Agency.
Norman B. Willans for intervenor St. Lawrence Seaway Authority.
Dennis Johnson for intervenor International Association of Great Lakes Ports.
Jacques A. Laurin for intervenors Chamber of Maritime Commerce and Canadian Shipowners Association.
No one appearing for the Attorney General of Canada.
No one appearing for the Windsor Harbour Commission.
solicitors:
Lande & Associates, Westmount, Quebec, for appellants.
Canadian National Railway Company Legal Services, Montréal, for respondent Canadian National Railway Company.
Gowling, Strathy & Henderson, Ottawa, for respondent ICI Canada Inc.
National Transportation Agency Legal Services, Ottawa, for respondent National Transportation Agency.
Norman B. Willans, Ottawa, for intervenor St. Lawrence Seaway Authority.
Thunder Bay Harbour Commission Legal Services, Thunder Bay, Ontario, for intervenor International Association of Great Lakes Ports.
Legault, Longtin, Laurin, Halpin, Montréal, for intervenors Chamber of Maritime Commerce and Canadian Shipowners Association.
Deputy Attorney General of Canada for the Attorney General of Canada.
David S. H. Cree, Windsor, Ontario for the Windsor Harbour Commission.
The following are the reasons for judgment rendered in English by
Isaac C.J. (dissenting): I have had the privilege of reading in draft the reasons of Mr. Justice Hugessen for dismissing this appeal. I accept as accurate the facts and the reasons of the National Transportation Agency (hereinafter the Agency) as he has stated them. I would, however, add the following facts: first, there was evidence that fine crushed salt is used by the respondent ICI Canada Inc. (hereinafter ICI) to produce chlorine, caustic soda and derivative compounds used in the bleaching of paper products and that this salt is different from table salt, used for seasoning food and from coarse crushed salt, used for de-icing roads; secondly, there was evidence that the appellant Upper Lakes Group Inc. (hereinafter ULS) had specially adapted re-claimer type vessels to carry the traffic in fine crushed salt; thirdly, there was evidence that as a direct consequence of the loss of the traffic in fine crushed salt, the appellant ULS also lost the backhaul traffic in iron ore and, as a result, at least one of those vessels had been "moth-balled"; and, fourthly, there was no evidence to support the Agency's conclusion that the appellant ULS would be able to bid for the traffic in fine crushed salt if at a future time the respondent Canadian National Railway Company (hereinafter CN) increased its price for the same traffic. I also agree that no special reasons have been shown to justify an award of costs. I am, however, in respectful disagreement with his proposed disposition of the appeal and with his analytical approach to the issues which it raises.
The appeal comes here by leave granted solely on the following question of law:
Is the decision of the Agency founded on a wrong interpretation of subsection 113(5) of the National Transportation Act, 1987?
The appeal raises important issues concerning the proper interpretation of the anti-competitive pricing provisions of the National Transportation Act, 19871*ftnote1 R.S.C., 1985 (3rd Supp.), c. 28. (hereinafter the Act) and the impact of that interpretation on the proper administration of national transportation policy.
I. Standard of Review
Like Mr. Justice Hugessen, I consider it important to decide at the outset what the standard of review in this appeal should be. Although he has reproduced subsection 65(1) of the Act, which gives the conditional right of appeal, I reproduce that subsection here for convenience and add to it subsection 65(3), which is also relevant in deciding what that standard should be:
65. (1) An appeal lies from the Agency to the Federal Court of Appeal on a question of law or a question of jurisdiction on leave therefor being obtained from that Court on application made within one month after the date of the decision, order, rule or regulation sought to be appealed from or within such further time as a judge of that Court under special circumstances allows, and on notice to the parties and the Agency, and on hearing such of them as appear and desire to be heard.
. . .
(3) An appeal shall be heard as speedily as practicable and, on the hearing of the appeal, the Court may draw all such inferences as are not inconsistent with the facts expressly found by the Agency and are necessary for determining the question of law or jurisdiction, as the case may be.
It is useful to note here that the Act does provide in subsection 37(3) a finality clause on questions of fact in the following terms:
37. . . .
(3) The finding or determination of the Agency on any question of fact within its jurisdiction is binding and conclusive.
I agree that the standard of review in statutory appeals has been laid down in Bell Canada v. Canada (Canadian Radio-television and Telecommunications Commission), [1989] 1 S.C.R. 1722 and Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557, where Iacobucci J., for the Court, echoing what was said by Gonthier J. in Bell Canada, supra, stated at page 591:
Consequently, even where there is no privative clause and where there is a statutory right of appeal, the concept of the specialization of duties requires that deference be shown to decisions of specialized tribunals on matters which fall squarely within the tribunal's expertise.
However, in considering this standard, it is important to keep in mind the following observations of Sopinka J., for the majority, in United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316, at page 335:
On the other side of the coin, a lack of relative expertise on the part of the tribunal vis-à-vis the particular issue before it as compared with the reviewing court is a ground for a refusal of deference.
Whatever expertise the Agency might have in the formulation and administration of the national transportation policy as expressed in section 3 [as am. by S.C. 1992, c. 21, s. 33] of the Act, I do not regard questions of interpretation of its enabling statute as being comprehended within its scope. What was said by Gonthier J. in Bell Canada, supra, at page 1747 is applicable here, mutatis mutandis, with equal force:
Except as regards the choice, amongst remedies available to the appellant, of the most appropriate remedy to achieve the goal of just and reasonable rates throughout the interim period, the decision impugned by the respondent is not a decision which falls within the appellant's area of special expertise and is therefore pursuant to s. 68(1) subject to review in accordance with the principles governing appeals. Indeed, the appellant was not created for the purpose of interpreting the Railway Act or the National Transportation Act but rather to ensure, amongst other duties, that telephone rates are always just and reasonable. [Emphasis added.]
On issues of interpretation, I am of the opinion that this Court is better qualified for the purpose. I am, therefore, unable to agree that the standard of review "is one of correctness tempered by due regard for the experience and expertise of a senior administrative tribunal in the interpretation, application and operation of a non-jurisdictional provision of its governing statute".
It is my view that on the question of law propounded in the order granting leave to appeal, the standard of review is one of correctness, enlarged however, by the power given to the Court in subsection 65(3) to draw, in its discretion, "all such inferences as are not inconsistent with the facts expressly found by the Agency and are necessary for determining the question of law".
II. Reasons of the Agency
In responding to the appellants' complaint, the Agency conducted a two-stage analysis. In the first stage, the Agency reviewed the confidential contract together with other relevant material supplied by the respondent CN to determine the actual variable costs associated with CN's total traffic, in all commodities, from Windsor, Ontario to Bécancour, Quebec. It determined that the variable cost methodology was representative of the movement of the traffic and applied it in order to ascertain the proportion of those costs that were attributable to the movement of fine crushed salt. The Agency concluded its first-stage analysis as follows:2*ftnote2 Reasons, Appeal Book, vol. I, at p. 15.
Using this method, the results indicate that the variable costs for the movement of this particular traffic are higher than the CN confidential contract rate, thereby making the rate non-compensatory.
Having concluded that the rate in the confidential contract was non-compensatory, the Agency then, in the second stage of the analysis, purported to follow the directions given in subsection 113(5) which requires CN to satisfy the Agency on a balance of probabilities that the non-compensatory rate does not have the effect or tendency of
a) substantially lessening competition, or
b) significantly harming a competitor, and was not designed to have that effect.
The Agency failed to consider whether the appellants other than ULS were competitors of CN and rejected a submission by CN that ULS and CN were not competitors, concluding that "when two rival concerns strive to secure as much business as possible by making concessions with respect to price and service, these two concerns are indeed competitors.3"*ftnote3 Ibid., at p. 16. I pause here to make two observations: first, the only evidence before the Agency that CN and ULS were rivals and had made concessions as to price and service in order to secure as much business as possible was evidence relating to the rivalry between these two firms for the movement of traffic in fine crushed salt from Windsor to Bécancour; and, secondly, implicit in the finding that ULS and CN were competitors is the notion that both firms were in the same market, i.e., there was a common field of rivalry between the firms in which the substitutability of the supply of their services is a function of price. See Queensland Co-operative Milling Association Ltd., Re; Re Defiance Holdings Ltd. (1976), 25 F.L.R. 169 (Aust. Trade Pract. Trib.) at page 190:
We take the concept of a market to be basically a very simple idea. A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them. (If there is no close competition there is of course a monopolistic market.) Within the bounds of a market there is substitution " substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive.
Having determined that ULS and CN were competitors, the Agency postulated that: "The question, however, is whether one of these companies designed a rate that was so low as to force the other from the market."4*ftnote4 Ibid.
The Agency then proceeded to examine statistics cited by the appellant ULS to the effect that it had lost to CN 100% of the traffic in fine crushed salt and that this loss represented 30% of its total traffic in salt. The Agency also considered an allegation by CN that it had only 16% of the combined rail and marine traffic for salt and that the traffic which ULS lost was only 1% of the total ULS traffic. Based on these statistics, the Agency concluded that "CN has established to its satisfaction that the rate charged by CN did not significantly harm ULS"5*ftnote5 Ibid. and refused to consider the appellants' arguments that the loss of backhaul traffic by ULS should be taken into account in assessing whether ULS had been harmed significantly by the non-compensatory rate.
The Agency concluded its analysis as follows: first, it said that, based upon a review of the evidence, "CN did not design its rates for the movement of salt from Windsor to Bécancour with a view to driving ULS from the market and thereafter raising its rates to a higher-than-competitive level in order to recoup any losses incurred."6*ftnote6 Ibid. As evidence of this, presumably, the Agency stated that ULS continues to ship approximately 70% of the Canadian Salt Company Limited (hereinafter CSC) salt in the form of coarse crushed salt (a different product from that which is in issue here). Secondly, the Agency declared that competition has not been lessened because ULS has a continued presence in the transportation market (a different market from that to which the complaint related). Thirdly, without any supporting evidence, and in my view, contrary to the evidence, the Agency further declared that, "Should CN at any time raise its rates above competitive levels, ULS would then be able to recapture the traffic presently lost to it."7*ftnote7 Ibid.
Fourthly, without any supporting evidence whatsoever, the Agency speculated:8*ftnote8 Ibid.
[I]f ICI were faced with a higher-than-competitive rate, it could negotiate for the most market-sensitive rate among all modes during the next round of contract negotiations, and ULS would again have a chance to regain the traffic. The existence of such competition in the marketplace would preclude CN from raising its rates above competitive levels in the future.
This analysis led the Agency to conclude "that CN did not intentionally design the rate to have the effect or the tendency of substantially lessening competition or significantly harming a competitor"9*ftnote9 Ibid. and it refused to disallow the non-compensatory rate.
III. Contentions of the Parties
The appellants contend that the Agency erred in three respects:
(i) it used the wrong market in its analysis; more specifically, it erred in concluding that the relevant traffic to consider in deciding whether the non- compensatory rate had the effect or tendency of substantially lessening competition or of significantly harming a competitor was the ULS total traffic (all commodities included) or the global traffic in salt when, as directed by subsection 113(5), it should have considered only the traffic in the movement of fine crushed salt from Windsor to Bécancour;
(ii) it used the wrong test in concluding that the non-compensatory rate did not have the effect or tendency of substantially lessening competition; and
(iii) it erred in concluding that the non-compensatory rate did not have the effect or tendency of significantly harming a competitor and was not designed to have that effect. It fell into this error by
(a) failing to consider the evidence presented to show that the other appellants were competitors;
(b) refusing to consider the loss of backhaul traffic in assessing harm to ULS; and
(c) using the wrong test for determining whether the non-compensatory rate had the effect or tendency of significantly harming a competitor, namely, whether that rate was "so low as to force the other competitor from the market."
The appellants were supported by the St. Lawrence Seaway Authority, the Canadian Trucking Association, the Windsor Harbour Commission, the International Association of Great Lakes Ports, the Chamber of Maritime Commerce, and the Canadian Shipowners Association, all of whom were granted intervenor status. These intervenors adopted the appellants' contentions and made submissions of their own respecting the public interest implications of the Agency's decision. They were unanimous that the decision was wrong in law and had a negative impact on the proper administration of the national transportation policy, stated in section 3 of the Act.
The respondent CN contends that in reaching its conclusion, the Agency acted within its jurisdiction and that its decision was based upon sound principles of administrative law. Consequently, so it was argued, this Court should not interfere unless the Agency's conclusion was shown to be unreasonable and there was no such showing. This respondent [ho]contends as well that the conclusion of the Agency was one of fact and, therefore, one to which this Court should defer. The respondent ICI rested its contention squarely on dicta in Bell Canada, supra and Pezim, supra. Their positions were supported by the Agency which was joined as a respondent in the appeal.
IV. Issues
The sole issue for determination is that stated in the order granting leave, which I repeat here for convenience:
Is the decision of the Agency founded on a wrong interpretation of subsection 113(5) of the National Transportation Act, 1987?
V. Principles of Interpretation
The question on which leave to appeal was granted requires us to examine the interpretation which the Agency placed on subsection 113(5) of the Act. The modern approach to statutory interpretation is the words-in-total-context approach which has been formulated as follows:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.10*ftnote10 E. A. Driedger, Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983), at p. 87.
VI. Analysis
a) Relevant Statutory Provisions
The statutory provisions relevant to this appeal are found in Division 1 of Part III of the Act which deals with transportation of freight by rail. Section 110 contains a definition of some of the words and phrases used in Division 1. For example:
110. . . .
. . .
"confidential contract" means a contract entered into pursuant to subsection 120(1);
. . .
"traffic" means the traffic of goods including equipment required for the carriage of goods on rolling stock.
Sections 112 and 113 deal with rates. I reproduce them here in their entirety, because their proper interpretation lies at the heart of this appeal:
112. (1) In this section and section 113, "rate" means any net rate, whether it
(a) is an agreed charge or is set out in a tariff or confidential contract, or
(b) is prescribed or determined in the manner prescribed pursuant to paragraph 152(4)(b) or established as a competitive line rate,
determined after deduction of any rebate, reduction or allowance set out in an agreed charge, tariff or confidential contract.
(2) Every rate shall be compensatory.
(3) A rate shall be deemed to be compensatory when it exceeds the variable cost, as determined by the Agency, of the movement of the traffic concerned.
(4) In determining for the purposes of subsection (3) the variable cost of any movement of traffic by a railway company, the Agency
(a) may, subject to paragraphs (b) and (c) and to the regulations made under section 349 of the Railway Act, include therein or exclude therefrom such items or factors relating to costs as the Agency considers appropriate;
(b) shall compute the costs of capital in all cases by using the costs of capital approved by the Agency as appropriate for the Canadian rail division of Canadian Pacific Limited; and
(c) shall use the costs specific to that movement by the company if specific costs are available or, if specific costs are not available, the available costs that are most directly related to that movement.
113. (1) Where the Agency receives a complaint made by any person that a rate is not compensatory, the Agency shall conduct such investigation of the rate as, in its opinion, is warranted.
(2) The Agency may, at any time prior to the completion of an investigation conducted pursuant to subsection (1), make an interim order having the same effect as an order under subsection (5).
(3) Where the Agency is conducting an investigation pursuant to subsection (1) in relation to a rate charged by a railway company, the Agency may require the company to furnish to it within such period as is specified by it any information that, in the opinion of the Agency, is required by it to determine whether the rate is compensatory.
(4) Where a railway company does not comply with a requirement for information made by the Agency under subsection (3), the Agency may use such cost estimates as appear to it reasonable for the purposes of determining whether the rate charged by the railway company is compensatory.
(5) On completion of an investigation conducted pursuant to subsection (1) and within ninety days after the complaint is received,
(a) the Agency shall determine whether the rate in respect of which the complaint was made is compensatory; and
(b) where the Agency determines that the rate is not compensatory, unless the company establishes to the satisfaction of the Agency that the rate does not have the effect or tendency of substantially lessening competition or significantly harming a competitor and was not designed to have that effect, the Agency shall make an order disallowing that rate and requiring the company to substitute for that rate a rate that is compensatory.
I agree with Mr. Justice Hugessen that sections 112 and 113 of the Act should be "read purposively and in context" but I disagree with him about the meaning of context. It is well accepted that legislative history is one contextual element to consider.
b) Legislative History
The Act is one of a number of statutes11*ftnote11 Lexenomics Inc. The Competition Act and Federal Economic Regulation of the Transportation Sector: A Comparative Assessment (Ottawa: Fraser & Beatty, Final Draft August 17, 1992). enacted by Parliament in the last decade to give effect to the policy, still in vogue, of deregulation of the national economy. This development signalled a marked departure in national economic management from the regime, in existence since the early years of Confederation, in which key sectors of the national economy were regulated by the state. Under this new dispensation the economy would be driven not by state regulation but by market forces. Henceforth, the role of the state would be to provide a framework in which market forces could have free rein.
Consistent with this new policy orientation, Parliament enacted four statutes of relevance to this appeal. In 1986, the Combines Investigation Act12*ftnote12 R.S.C. 1970, c. C-23 (as am. by S.C. 1986, c. 26, s. 19). was revised and renamed the Competition Act.13*ftnote13 R.S.C., 1985, c. C-34 (as am. by R.S.C., 1985 (2nd Supp.), c. 19), Part II. In that statute, Parliament enacted general rules respecting competition, applicable to all sectors of the national economy. A year later, Parliament enacted three statutes aimed specifically at deregulating the national transportation industry. The most important of these is the National Transportation Act, 1987, in issue here, which effectively deregulated air transportation in Canada south of the 60th parallel and adopted market oriented rules to facilitate intra-modal rail competition and to break down joint rate setting by railways. It is said14*ftnote14 National Transportation Act Review Commission. Competition in Transportation: Policy and Legislation in Review, vol. 1. Ottawa: Minister of Supply and Services Canada, 1993. that this statute is the cornerstone of the strategy of the Government of Canada to develop a competitive transportation system serving the diverse needs of Canadian travellers and shippers. The goal of this legislation is to replace reliance upon state regulation of the transportation sector with decisions made in reaction to the market-place. Henceforth, transportation decisions would be governed more by the needs and wants of shippers and travellers than by the state. At the same time, Parliament also enacted two companion statutes, namely, the Shipping Conferences Exemption Act, 198715*ftnote15 R.S.C., 1985 (3rd Supp.), c. 17. which imposed new conditions upon shipping conference exemptions from conspiracy prosecutions under the Competition Act, and the Motor Vehicle Transport Act, 1987,16*ftnote16 R.S.C., 1985 (3rd Supp.), c. 29. which removed barriers to entry into extra-provincial trucking.
c) Parliamentary Debates
Parliamentary debates relating to the legislation may also be looked at to determine the purpose of the legislation and the mischief at which it is aimed.
Sections 112 and 113 replace sections 285 and 286 of the Railway Act17*ftnote17 R.S.C., 1985, c. R-3 [ss. 285 (rep. by R.S.C., 1985 (3rd Supp.), c. 28, s. 333), 286 (rep. idem)]. which dealt with freight rates. Those sections read:
285. (1) Except as otherwise provided by this Act, all freight rates shall be compensatory, and the Commission may require the company issuing a freight tariff to furnish the Commission at the time of filing the tariff or at any time with any information required by the Commission to establish that the rates contained in the tariff are compensatory.
(2) A freight rate shall be deemed to be compensatory when it exceeds the variable cost of the movement to the traffic concerned as determined by the Commission.
(3) In determining for the purposes of this section and section 286 the variable cost of any movement of traffic, the Commission shall
(a) have regard to all items and factors prescribed by regulations of the Commission as being relevant in the determination of variable costs; and
(b) compute the costs of capital in all cases by using the costs of capital approved by the Commission as proper for the Canadian Pacific Limited.
286. (1) The Commission may disallow any freight rate that after investigation the Commission determines is not compensatory.
(2) Where the Commission receives information by way of a complaint or otherwise containing evidence that a freight rate shown in a tariff filed with the Commission is not compensatory, the Commission shall conduct an investigation to determine if that rate is compensatory, and in any other case the Commission may, of its own motion, conduct such an investigation.
During clause-by-clause study of the Act by the Standing Committee on Transport of the House of Commons, the Parliamentary Secretary to the Minister of Transport explained the mischief at which subsection 113(5) is aimed as follows:18*ftnote18 Minutes of Proceedings and Evidence of the Standing Committee on Transport, 13 April 1987, at p. 35:172.
Mr. Thacker: But the amendment, Mr. Chairman, would take away the possibility of having a rate that was less than compensatory; that is, the recovery of full cost. This amendment states that if there is an investigation and they find the rate was below compensatory, then they have to automatically increase it to the compensatory rate. As long as it is not hurting somebody the existing clause gives a bit of flexibility for a period of time at least. Surely that would seem to be wise.
The following exchange between members of the Committee and the acting General Counsel of the Canadian Transport Commission (the Agency's predecessor), who appeared as a witness in those proceedings, is also instructive as to the purpose of the legislation and the mischief at which it is aimed:19*ftnote19 Ibid., at p. 35:173.
Ms Bloodworth: I understand there may have been some examples of that in Quebec as well. In other words, it would be a very tough test for the railway to meet here. If they are hurting anyone, or the effect of the rate is to hurt any competitor, they will not be able to meet it. It is only if no competitor is hurt by that lower rate that they will be allowed to charge it.
Mr. Ouellet: Well, let me ask a question. If all the good examples you just gave were possible under the old section of the act, why do you not leave it as it is? Why did you introduce this new twist that was not in the old Railway Act?
Mr. Mulder: Mr. Chairman, again, if I may, the old act was only used once, and that was in the ACE case. But there have been times, and I hope I am not speaking too much against the railways, where the railways would have said to a person negotiating a raise that they cannot go any lower because then they are below cost, and that is against the law. So the railways would use that as a reason not to drive a rate down any further in negotiations with a shipper. So now the shipper can say you are allowed to go below cost as long as you do not drive anybody else out of business.
The Chairman: Then you are saying Mr. Robichaud's amendment removes this flexibility to have developmental rates, which are not going to hurt anybody.
Mr. Mulder: Right.
Ms Bloodworth: Mr. Chairman, if I could just make one comment in response to Mr. Ouellet's question, the answer is that it is not possible under the present law. We suspect it is occurring occasionally, and no one is complaining. But legally, if anybody brought that to the agency's attention they would have to disallow that, whether anyone was hurt or not. So we are recognizing the fact that if no one is hurt, they should be able to allow it.
The acting General Counsel also appeared as a witness before the Standing Senate Committee where she explained the purpose of the legislation in the following passages:20*ftnote20 Proceedings of the Standing Senate Committee on Transport and Communications, 13 July 1987, at pp. 16:35-16:36.
The other requirement was a rate floor. Their rates had to be compensatory; they could not set below compensatory. This was at the insistance [sic] of the trucking industry, which was afraid that if railways were allowed to set non-compensatory rates they would put the trucking companies out of business.
Subject to that, however, they were virtually allowed to set whatever rates they chose. That system worked very well where there was competition. Wherever there was trucking competition particularly, that system worked very well.
However, since 1967 there was extreme growth in particularly the bulk resource industry in Canada and that industry is by and large captive to rail, and captive to one rail line because of its location. Therefore, I am sure you are going to hear during the course of your hearings from many shippers who would count themselves in that category. In other words, it is not economically feasible for them to ship by any mode other than rail and they only have one railway available. Those shippers have complained for some considerable length of time, starting back in about the mid-1970s, that they were not fairly treated under the existing legislation. You will see in this legislation certain measures to recreate that balance.
. . .
So these provisions do several things when it comes to rates. They continue the provision that rates must be compensatory; you will find that in clauses 112 and 113. However, they allow for a sort of defence, if you like, by a railway company if a rate is found to be non-compensatory. The agency will not disallow it. If you look at paragraph 113.(5)(b) [sic], they shall determine whether the rate is compensatory, and:
where the Agency determines that the rate is not compensatory, unless the company establishes to the satisfaction of the Agency that the rate does not have the effect or tendency of substantially lessening competition or significantly harming a competitor and was not designed to have that effect, make an order disallowing that rate
The reason for that provision is that it was argued by several parties that if you have a non-compensatory rate that was not hurting anyone, was not harming competition, why should the law insist that it go up? That certainly is a fairly logical, common sense type of argument.
The people that argue that rates should be compensatory will be a competitor. Indeed, the only cases that have arisen"the one most recently had to do with Atlantic Container Express complaining about certain CN rates"were competitors who were arguing that they would be unfairly disadvantaged. So if there is no competitor that is being hurt, and the shipper is benefiting from a lower rate . . . . And the reason for that is not because the railway is giving away service; it may be because it is trying to develop a new market and it is prepared to give a break on the rate for six months or a year because it feels it is going to gain more business. There is always a valid business reason behind that particular reason. So that continues this provision, but it does modify it by making it a little more flexible.
From this history and from the legislation, it is clear that sections 112 and 113 must be read both purposively and together. Subsection 112(2) continues the rule that all rates fixed by railways for the transportation of freight must be compensatory in the sense defined in the legislation. Subsection 113(5) provides for the only exception. As in all other cases where exceptions are provided in legislation, the subsection imposes upon a railway seeking to rely upon the exception an onus to bring itself squarely within its terms. The onus must be discharged on a balance of probabilities. The subsection spells out with precision the manner in which that onus should be discharged if the non-compensatory rate is to be maintained. Where the Agency determines that the railway has charged a non-compensatory rate in a particular case, the onus shifts to the railway to satisfy the Agency on a balance of probabilities that the non-compensatory rate does not have the effect or tendency of
a) substantially lessening competition, or
b) significantly harming a competitor, and was not designed to have that effect.
Failure to satisfy the Agency to the requisite degree will result in disallowance of the non- compensatory rate and the substitution of a compensatory rate.
That is the analytical framework which Parliament has laid down for the Agency to follow in cases such as this where a complaint is made that a railway is charging a rate that is non-compensatory. The appellants and their supporting intervenors say that the Agency fell into error in this case by failing to follow it. I agree.
d) Relevant Market
I disagree with Mr. Justice Hugessen that "the definition of market in cases of this sort is a question of fact and not one of law". I agree with him that the words "relevant market" do not appear in subsection 113(5) of the Act. But this is not surprising, since the notion of relevant market is implicit in the references in the subsection to "competition" and "competitor". "Competition" does not occur, and a "competitor" does not exist, in a vacuum. As creations of the market economy, they exist only in a market. A market is, as I have said, an area of rivalry between suppliers of goods and services who vie with each other for the patronage of consumers of those goods and services in which price is a significant determinant in the exchange process. In deciding, on the first branch of subsection 113(5), whether the non-compensatory rate had the effect or tendency of substantially lessening competition or, on the second branch of the subsection, whether the non-compensatory rate had the effect or tendency of significantly harming a competitor, the Agency was required, as a matter of law, to define the market in order to give full effect to the words "competition" and "competitor" where they appear in the subsection. This implies interpreting those words according to the rule of interpretation that I have already mentioned. If the Agency errs in its interpretation of "competition" or "competitor", it will have erred in law.
I find support for this conclusion in R. v. Nova Scotia Pharmaceutical Society, [1992] 2 S.C.R. 606, decided under the Combines Investigation Act [R.S.C. 1970, c. C-23], which involved an allegation that paragraph 32(1)(c) [as am. by S.C. 1974-75-76, c. 76, s. 14] of that Act, proscribing conspiracies and agreements to lessen competition unduly, was offensive to section 7 of the Canadian Charter of Rights and Freedoms21*ftnote21 Being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44]. due to its vagueness and overbreadth. At pages 647-648, Justice Gonthier, for the Court, spoke extensively about the distinction between the various questions of law and questions of fact raised by the test to be applied when assessing whether competition in a market is unduly lessened:
According to the appellants, since the determination of whether the restriction on competition was undue is a question of fact, not subject to appellate review, no conclusion can be drawn from the case law. This argument rests on a mistaken perception of the distinction between questions of fact and questions of law.
In the context of s. 32(1)(c), the process followed and the criteria used to arrive at a determination of "undueness" are questions of law and as such are reviewable by an appellate court. The application of this process and these criteria, that is the full inquiry, often involving complicated economic issues, into whether the impugned agreement was an undue restriction on competition, remains a question of fact. The general rule that appellate courts should be reluctant to venture into a re-examination of the factual conclusions of the trial judge applies with special force in a complex matter such as here.
The legal content of s. 32(1)(c), however, is not exhausted by a search for the meaning of unduly. Section [sic] 32(1)(c) must not be taken in a vacuum. Its interpretation is conditioned, first of all, by the purposes of the Act. Furthermore, its content is enriched by the rest of the section in which it is found and by the mode of inquiry adopted by courts as they have ruled under it. These are matters of law, pertaining to the determination of undueness under s. 32(1)(c), and as such most relevant.
A similar view was expressed by Crampton in Mergers and the Competition Act:22*ftnote22 Toronto: Carswell, 1990, at p. 264.
However . . . it is important to recognize that while the delineation of the relevant market in a particular case is a question of fact, the meaning of the notion of "relevant market" is a question of law. That is to say, while the limits of a market in a particular case will be a function of both the unique factual situation at hand and the weight that is placed on certain factors by the Competition Tribunal, the issue of what must be considered, and the legitimacy of the various criteria, are questions of law. [Emphasis added.]
At footnote 9, Crampton explains the passages from Queen, The v. J. W. Mills & Son Ltd. et al., [1968] 2 Ex. C.R. 275, at page 305; affd [1971] S.C.R. 63 and R. v. Hoffmann-La Roche Limited (1980), 28 O.R. (2d) 164 (H.C.); affd (1981), 33 O.R. (2d) 694 (C.A.), at pages 705-706 upon which Mr. Justice Hugessen relies for his conclusion that "relevant market is a question of fact." His explanation reads [at page 264]:
It would appear from the context of the remarks in these cases that the learned judges meant that the question "what constitutes the relevant market in a given case" is a question of fact. The distinction is important, because the meaning of the notion "relevant market" does not change from one fact situation to another.
The reasons of the Agency give no indication that it was alive to this distinction. This led, unfortunately, to confusion about what must be considered and the criteria to be used in defining the relevant market for the purposes of subsection 113(5). It is clear from the complaint and from the evidence led to support it that the dispute between the appellants and CN related to a discrete market, namely, the movement of the traffic in fine crushed salt from Windsor to Bécancour. References to the global market in the transportation of salt of all kinds or the total transportation business of ULS were irrelevant to the issues that the Agency was required to consider. I conclude, then, that the Agency erred in law in basing its decision as to the relevant market on irrelevant considerations as a result of its incorrect interpretation of the subsection.
e) The Test Used by the Agency
The appellants say that the Agency applied the wrong test in deciding whether the non- compensatory rate had the effect or tendency of substantially lessening competition. As I understand his reasons, Mr. Justice Hugessen is of the view that the test applied by the Agency is the only correct one, for the reasons that he gave. I do not agree.
After defining the relevant market, both in law and in fact, the first question which the Agency was required to ask and to answer was whether CN had shown on a balance of probabilities that the non- compensatory rate did not have the effect or tendency of substantially lessening competition in that market. The Agency did not ask or answer that question. The Agency asked, instead, whether the non-[ho]compensatory rate had the tendency or effect of eliminating a competitor from the market and answered that it did not. Mr. Justice Hugessen supports the correctness of this question and answer by invoking the provisions of paragraph 50(1)(c) of the Competition Act, the Director's Guidelines issued pursuant to the provisions of that Act and jurisprudence developed in criminal proceedings under predecessor legislation, paragraph 34(1)(c) [as am. by S.C. 1974-75-76, c. 76, s. 16] of the Combines Investigation Act.
Paragraph 50(1)(c) and its predecessor, paragraph 34(1)(c), created the offence of predatory pricing. I reproduce both paragraphs here for ease of reference:
Combines Investigation Act
34. (1) Every one engaged in a business who
. . .
(c) engages in a policy of selling products at prices unreasonably low, having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have such effect,
is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years. [Emphasis added.]
Competition Act
50. (1) Every one engaged in a business who
. . .
(c) engages in a policy of selling products at prices unreasonably low, having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have that effect, is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years. [Emphasis added.]
To be sure, the language used in subsection 113(5) is, in some respects, similar to that used in these paragraphs. But in other respects it is different. The Agency was under a duty to take those differences as well as the similarities into account in deciding on the meaning of the subsection and the true object and intent of Parliament in enacting it. The first difference to note is that paragraphs 34(1)(c) and 50(1)(c) proscribe a policy or sustained practice of predatory pricing, while subsection 113(5) does not. It speaks only of a single non-compensatory rate. The second difference is that the conduct proscribed by those paragraphs is selling at prices that are unreasonably low, while subsection 113(5) proscribes non- compensatory rates, a term defined in subsection 112(3). The third difference is that the offence created is made out if one of the consequences of the proscribed conduct is eliminating a competitor. Under subsection 113(5), on the other hand, the railway must disprove that the non-compensatory rate has the effect or tendency of significantly harming a competitor. Surely, significant harm to a competitor is not synonymous with elimination of that competitor. It is also significant, I think, that in the Act, Parliament did not create the offence of predatory pricing as it did in the Competition Act. Instead, in subsection 113(5), Parliament provided a "defence" to a railway whose conduct is alleged to have fallen short of the rule laid down in subsection 112(2) of the Act.
In its analysis, the Agency was obliged to heed and give effect to the language used by Parliament in subsection 113(5). That obligation could not be discharged by fixing its gaze on the language used in another statute, enacted for a different, though related, purpose and basing its interpretation of the subsection on policies and jurisprudence developed under that other statute. It is elementary that in the interpretation of statutes, the assumption must be that Parliament does not legislate in vain. The language used in the statute being construed must be given its ordinary meaning having regard to context. The Agency failed to do so in this case and fell into error.
Sections 112 and 113 must be read together. Subsections 112(1) and (2) of the Act require all rates, including rates in confidential contracts, to be compensatory. This is the general rule. Subsection 112(3) provides that a rate is deemed to be non- compensatory when it exceeds the variable costs of the movement of the traffic concerned, as determined by the Agency. This is an absolute. There is no choice in the matter. A rate charged by a railway, whether compensatory or not, is movement specific, i.e., it relates to a specific movement for a specific customer. The requirement that all rates be compensatory applies to any single rate. Unlike paragraph 50(1)(c) of the Competition Act which requires a policy or sustained practice of selling at unreasonably low prices as a necessary feature of predatory pricing, the Act provides that a single non-compensatory rate must be justified under subsection 113(5) or be disallowed and replaced by one that is compensatory. There is also no choice here. In other words, there is a presumption that a non-compensatory rate will have the effect or tendency of substantially lessening competition or of significantly harming a competitor and was designed to have that effect.23*ftnote23 In the matter of a complaint made by Atlantic Container Express Inc. dated July 6, 1989 that the Canadian National Railway Company is charging certain rates to Newfoundland destinations not consistent with the Terms of Union and National Transportation Agency Decision No. 266-R-1991 dated May 22, 1991 (decision rendered 6 May 1992), No. 254-R-1992 (N.T.A.), at p. 6.
So the first question to ask when faced with a non-compensatory rate is whether it has been shown not to have the effect or tendency of substantially lessening competition. However, since competition exists only in a market economy, market definition is a necessary aspect of this question. The only relevant market on which evidence was led was the movement of traffic in fine crushed salt from Windsor to Bécancour. That was the movement of traffic in respect of which the appellants' complaint was made. That was the movement of traffic in respect of which the Agency found the rate non-compensatory. On the evidence, that was the only field of rivalry between CN and ULS. There was no evidence that the two were rivals in the movement of the traffic in coarse crushed salt or in table salt. The Agency therefore erred in construing subsection 113(5) by considering other product markets in deciding whether the non-compensatory rate had the effect or tendency of substantially lessening competition.
It is nihil ad rem to say, as the Agency did, that ULS is still present in the transportation market, that it is still carrying 70% of the traffic in coarse crushed salt or that ULS would be able to recapture the traffic in fine crushed salt if CN raised its rate above competitive levels. The issue before the Agency was not CN's conduct in the global transportation market or the global market for the movement of traffic in salt. There certainly was no clear evidence that ULS could recapture the lost traffic if CN raised its rate above competitive levels. The only issue in respect of which evidence was led was that relating to the market for the movement of fine crushed salt from Windsor to Bécancour. The Agency failed to deal solely with this issue because it misread the first branch of subsection 113(5). In doing so, it asked the wrong question and gave the wrong answer, thus committing an error of law.
I should not leave this aspect of the appeal without saying that the wrong test which the Agency applied as a result of its incorrect interpretation of the first branch of subsection 113(5) is not assisted by statements such as: "Price cutting is, after all, a symptom of vigorous competition rather than otherwise" or "It is only when low prices form part of a monopolistic strategy that they become anti-competitive." Whatever validity such statements might have in other contexts, they have none for sections 112 and 113 of the Act. What subsection 112(2) proscribes is a rate that is non-compensatory. All rates must be compensatory, so that subsection reads. Furthermore, subsection 113(5) does not require the showing of a "monopolistic strategy". It requires justification of a rate that is non-compensatory in order to avoid the mandatory sanctions of disallowance and substitution.
f) Significant Harm to Competitor
The appellants led evidence before the Agency that they priced their marine services strategically so that their collective services would be competitive with any price that CN would propose. However, the Agency found that only CN and ULS were competitors.
The appellants also led evidence that they had suffered significant financial loss as a direct result of CN's non-compensatory rate and the consequent loss of the movement of traffic in fine crushed salt. Nonetheless, the reasons of the Agency are devoid of any analysis as to whether the appellants other than ULS were competitors in light of this evidence and, if so, whether the harm to them should be considered in its analysis of harm to a competitor within the meaning of the second branch of the subsection.
I was at first inclined to the view, expressed by Mr. Justice Hugessen, that the Agency committed no reviewable error in finding that ULS and CN were the only competitors. Upon reflection, however, I have concluded that on a proper definition of the relevant market as I have outlined it, the Agency might well have decided, on the evidence, that all the appellants were competitors and that the harm to them should be considered. I am therefore unable to assent to Mr. Justice Hugessen's conclusion that the appellants other than ULS were not competitors or that the evidence of the harm which they suffered as a direct result of the non-compensatory rate was irrelevant.
I turn now to a consideration of the Agency's reasons for concluding that the non-compensatory rate did not have the effect or tendency of harming ULS. For convenience, I reproduce the relevant portions of those reasons:24*ftnote24 Reasons, Appeal Book, vol. 1, at p. 16.
The Complainants cite statistics which indicate that CN now has 100 percent of the ICI fine crushed salt market and that ULS has lost 30 percent of its total salt traffic, suggesting that the fine crushed salt is a significant portion of the ULS traffic. CN alleges, however, that of the combined rail and marine traffic for salt, the rail share was 16 percent in 1991 and the salt which is the subject of this complaint comprises only one percent of all the ULS traffic, and thus is not a significant share.
In view of the fact that the volume-related statistics referred to above indicate that this salt traffic is only a small percentage of the ULS total traffic, the Agency finds that CN has established to its satisfaction that the rate charged by CN did not significantly harm ULS. The arguments raised by the Complainants with regard to the ULS loss of backhaul traffic are not relevant in this case and were not taken into consideration.
I commence by making some observations on the Agency's refusal to take into account evidence of the loss of the backhaul traffic. The uncontradicted evidence before the Agency was that in order to compete for the traffic in fine crushed salt, ULS fronthauled fine crushed salt from Windsor to Bécancour and backhauled iron ore from Bécancour to other ports on the Great Lakes. There was also evidence that ULS lost the movement of the backhaul traffic as a direct result of its loss of the fronthaul traffic. Since backhaul traffic in iron ore was an integral part of the fronthaul traffic in fine crushed salt, it defies logic that the backhaul traffic should be considered irrelevant. But this is what the Agency did. To seek to justify the Agency's approach on the basis that the loss of backhaul traffic was included in the consideration of the loss of fronthaul traffic is to misread the record. There is no evidence that the loss of backhaul traffic was included in the quantification of the loss of fronthaul traffic. I conclude that the Agency committed legal error by refusing to consider relevant evidence in its assessment of the extent of the harm suffered by ULS.
As regards the Agency's conclusion that it was satisfied that the non-compensatory rate "charged by CN did not significantly harm ULS"25*ftnote25 Ibid. , I need only repeat what I have already said, i.e. that the conclusion is based on an incorrect definition of the relevant market. The statistical evidence proved that ULS had lost 100% of the movement of the traffic in fine crushed salt from Windsor to Bécancour. That was the market in respect of which the complaint was made, in relation to which the rate was found to be non-compensatory, and in relation to which "competition" and "competitor" were to be assessed. This is the analysis that a correct interpretation of the language of sections 112 and 113 required. By including in its analysis evidence of traffic in a different product and in a different geographical market, the Agency based its conclusion on irrelevant considerations and thus fell into legal error flowing from a serious misreading of the relevant sections of the Act, including subsection 113(5).
VII. Summary
The purpose of the Act is to allow free but fair competition in the national transportation market, not as an end in itself, but in order to enhance the competitiveness of the consumers of national transportation services. To achieve that purpose, subsection 112(2) enacted the general rule that every rate for the movement of traffic in freight by a railway shall be compensatory, i.e., not below the variable cost of the particular movement. Subsection 113(5) is an exception to the general rule. As evidenced by reference to the minutes of the proceedings in the Senate and House of Commons, the subsection was enacted to allow railways to charge a non-compensatory rate provided competition was not substantially reduced or a competitor was not significantly harmed thereby.
Without undertaking the analysis required properly to determine their meaning, the Agency engaged in a ritualistic incantation of the words of subsection 113(5), and thus based its decision on an erroneous interpretation of that subsection by failing to assess correctly whether the non-compensatory rate charged by the respondent CN had the effect or tendency of substantially lessening competition or significantly harming a competitor in the relevant market or was designed to have that effect.
VIII. Conclusion
I would answer in the affirmative the question propounded in the order granting leave to appeal, set aside the decision of the Agency and remit the hearing of the appellants' complaint to the Agency, differently constituted, for redetermination in accordance with these reasons.
In view of this conclusion, I do not find it necessary to decide whether the substitution of a compensatory rate, if necessary, should have retroactive effect.
* * *
The following are the reasons for judgment rendered in English by
Hugessen J.A.:
Introduction
This is an appeal by leave from a decision of the National Transportation Agency rendered following an investigation pursuant to section 113 of the National Transportation Act, 198726*ftnote26 R.S.C., 1985 (3rd Supp.), c. 28. of a complaint lodged by Upper Lakes Group Inc. (hereinafter ULS) and others against Canadian National Railway Company (hereinafter CN) for alleged breach of section 112 of that Act. Sections 112 and 113 read as follows:
112. (1) In this section and section 113, "rate" means any net rate, whether it
(a) is an agreed charge or is set out in a tariff or confidential contract, or
(b) is prescribed or determined in the manner prescribed pursuant to paragraph 152(4)(b) or established as a competitive line rate,
determined after deduction of any rebate, reduction or allowance set out in an agreed charge, tariff or confidential contract.
(2) Every rate shall be compensatory.
(3) A rate shall be deemed to be compensatory when it exceeds the variable cost, as determined by the Agency, of the movement of the traffic concerned.
(4) In determining for the purposes of subsection (3) the variable cost of any movement of traffic by a railway company, the Agency
(a) may, subject to paragraphs (b) and (c) and to the regulations made under section 349 of the Railway Act, include therein or exclude therefrom such items or factors relating to costs as the Agency considers appropriate;
(b) shall compute the costs of capital in all cases by using the costs of capital approved by the Agency as appropriate for the Canadian rail division of Canadian Pacific Limited; and
(c) shall use the costs specific to that movement by the company if specific costs are available or, if specific costs are not available, the available costs that are most directly related to that movement.
113. (1) Where the Agency receives a complaint made by any person that a rate is not compensatory, the Agency shall conduct such investigation of the rate as, in its opinion, is warranted.
(2) The Agency may, at any time prior to the completion of an investigation conducted pursuant to subsection (1), make an interim order having the same effect as an order under subsection (5).
(3) Where the Agency is conducting an investigation pursuant to subsection (1) in relation to a rate charged by a railway company, the Agency may require the company to furnish to it within such period as is specified by it any information that, in the opinion of the Agency, is required by it to determine whether the rate is compensatory.
(4) Where a railway company does not comply with a requirement for information made by the Agency under subsection (3), the Agency may use such cost estimates as appear to it reasonable for the purposes of determining whether the rate charged by the railway company is compensatory.
(5) On completion of an investigation conducted pursuant to subsection (1) and within ninety days after the complaint is received,
(a) the Agency shall determine whether the rate in respect of which the complaint was made is compensatory; and
(b) where the Agency determines that the rate is not compensatory, unless the company establishes to the satisfaction of the Agency that the rate does not have the effect or tendency of substantially lessening competition or significantly harming a competitor and was not designed to have that effect, the Agency shall make an order disallowing that rate and requiring the company to substitute for that rate a rate that is compensatory.
The appeal to this Court is restricted to questions of law or jurisdiction:
65. (1) An appeal lies from the Agency to the Federal Court of Appeal on a question of law or a question of jurisdiction on leave therefor being obtained from that Court on application made within one month after the date of the decision, order, rule or regulation sought to be appealed from or within such further time as a judge of the Court under special circumstances allows, and on notice to the parties and the Agency, and on hearing such of them as appear and desire to be heard.
The Court, in granting leave, formulated a single question of law as follows:
Is the decision of the Agency founded on a wrong interpretation of subsection 113(5) of the National Transportation Act, 1987? [Appeal Book, vol. II, page 274.]
Background
Canadian Salt Company Ltd. (hereinafter CSC) located in Windsor, Ontario, ships large quantities (approximately 270,000 tonnes a year) of fine crushed salt for chemical processes to its customer ICI Forest Products (hereinafter ICI) in Bécancour, Quebec. Since the early 1980s, these shipments had been moved by ship during the St. Lawrence seaway navigation season and by rail during the winter months when the seaway was closed. Originally, CSC paid the transportation charges and sold its salt on a delivered basis to ICI. In April 1993, CN negotiated a confidential contract with ICI covering transportation of all of the latter's fine crushed salt requirements for three years. As a result, ICI thereafter purchased its salt undelivered and assumed the entire cost of shipping it from Windsor to Bécancour by rail. ULS, which had been the marine carrier for the bulk of this traffic, lost the business and CN acquired all of it.
In July 1993, ULS filed a complaint with the Agency charging that CN's rate was non- compensatory contrary to subsection 112(2). Joining in the complaint were three unions representing ULS employees and companies representing the port and stevedoring services in Bécancour. At the hearing of the appeal in this Court, interventions were also filed by the Windsor Harbour Commission, the St. [ho]Lawrence Seaway Authority, the International Association of Great Lakes Ports, the Canadian Trucking Association, the Chamber of Maritime Commerce and the Canadian Ship Owners Association.
After receiving submissions from the interested persons, the Agency concluded that the rate offered by CN for the transportation of fine crushed salt between Windsor and Bécancour was less than the variable cost calculated by the Agency as attributable to the traffic and that the rate was accordingly non-compensatory within the meaning of section 112. No leave to appeal was sought or obtained in respect of that finding. Since it is one of fact, it is, in the terms of subsection 37(3) of the Act, "binding and conclusive".
The Agency then invited submissions as to the appropriate order which should be made under the terms of paragraph 113(5)(b), supra. After considering these submissions the Agency gave the decision now under attack. The relevant paragraphs of that decision read as follows:
[1] Paragraph 113(5)(b) of the NTA, 1987 requires that the company, in this case CN, establish to the satisfaction of the Agency that the rate for the movement of fine crushed salt between Windsor and Bécancour does not have the effect or tendency of substantially lessening competition or significantly harming a competitor, in this case ULS, and that it was not designed to have that effect.
[2] CN states in its arguments that "Upper Lakes Shipping and Canadian National were not per se competitors, but rather carriers making offers to their respective customer." The Agency is of the opinion that when two rival concerns strive to secure as much business as possible by making concessions with respect to price and service, these two concerns are indeed competitors. The question, however, is whether one of these companies designed a rate that was so low as to force the other from the market.
[3] The Complainants cite statistics which indicate that CN now has 100 percent of the ICI fine crushed salt market and that ULS has lost 30 percent of its total salt traffic, suggesting that the fine crushed salt is a significant portion of the ULS traffic. CN alleges, however, that of the combined rail and marine traffic for salt, the rail share was 16 percent in 1991 and the salt which is the subject of this complaint comprises only one percent of all the ULS traffic, and thus is not a significant share.
[4] In view of the fact that the volume-related statistics referred to above indicate that this salt traffic is only a small percentage of the ULS total traffic, the Agency finds that CN has established to its satisfaction that the rate charged by CN did not significantly harm ULS. The arguments raised by the Complainants with regard to the ULS loss of backhaul traffic are not relevant in this case and were not taken into consideration.
[5] Furthermore, the Agency reviewed the evidence and finds that CN did not design its rates for the movement of salt from Windsor to Bécancour with a view to driving ULS from the market and thereafter raising its rates to a higher-than-competitive level in order to recoup any losses incurred. ULS continues to ship approximately 70 percent of the CSC salt in the form of coarse crushed salt. Competition has not been lessened as attested by the ULS continued presence in the transportation market. Should CN at any time raise its rates above competitive levels, ULS would then be able to recapture the traffic presently lost to it. Further, if ICI were faced with a higher-than-competitive rate, it could negotiate for the most market-sensitive rate among all modes during the next round of contract negotiations, and ULS would again have a chance to regain the traffic. The existence of such competition in the marketplace would preclude CN from raising its rates above competitive levels in the future. Therefore, the Agency concludes that CN did not intentionally design the rate to have the effect or the tendency of substantially lessening competition or significantly harming a competitor. [Appeal Book, vol. I, page 16; I have numbered the paragraphs for ease of reference.]
Appellants' position
As I understand them, the appellants' arguments include four separate attacks on this decision:
1) the Agency imposed too high a test and asked itself the wrong question when it inquired whether the rate was "so low as to force the other from the market" (decision, paragraph 2, supra);
2) the Agency erred in its definition of the market which was too broad in considering matters other than the traffic in fine crushed salt between Windsor and Bécancour (decision, paragraphs 3, 4, 5, supra);
3) the Agency erred in its assessment of significant harm by looking at ULS "total traffic" as well as by refusing to consider the loss of "backhaul" traffic (decision, paragraph 4, supra); and
4) the Agency erred in failing to consider the harm caused to the appellants other than ULS and to the various intervenors who are suppliers of services to ULS and have also suffered a loss of business resulting from ULS's loss of traffic.
Standard of review
It is appropriate at the outset to say a word about the standard of review to be applied by this Court on an appeal from the Agency. Two recent decisions of the Supreme Court of Canada are directly in point. They are Bell Canada v. Canada (Canadian Radio-television and Telecommunications Commission)27*ftnote27 [1989] 1 S.C.R. 1722. and Pezim v. British Columbia (Superintendent of Brokers).28*ftnote28 [1994] 2 S.C.R. 557.
(An even more recent decision, Canadian Broadcasting Corp. v. Canada (Labour Relations Board), [1995] 1 S.C.R. 157 also deals with the question but in the context of judicial review rather than statutory appeal.)
The following passage from the reasons for judgment of Iacobucci J. in Pezim, supra, [at pages 590-591] quoting from the reasons for judgment of Gonthier J. in Bell Canada, supra, summarizes the current state of the law:
Having regard to the large number of factors relevant in determining the applicable standard of review, the courts have developed a spectrum that ranges from the standard of reasonableness to that of correctness. Courts have also enunciated a principle of deference that applies not just to the facts as found by the tribunal, but also to the legal questions before the tribunal in the light of its role and expertise. At the reasonableness end of the spectrum, where deference is at its highest, are those cases where a tribunal is protected by a true privative clause, is deciding a matter within its jurisdiction and where there is no statutory right of appeal. See Canadian Union of Public Employees, Local 963 v. New Brunswick Liquor Corp., [1979] 2 S.C.R. 227; U.E.S., Local 298 v. Bibeault, [1988] 2 S.C.R. 1048, at p. 1089 (Bibeault), and Domtar Inc. v. Quebec (Commission d'appel en matière de lésions professionnnelles), [1993] 2 S.C.R. 756.
At the correctness end of the spectrum, where deference in terms of legal questions is at its lowest, are those cases where the issues concern the interpretation of a provision limiting the tribunal's jurisdiction (jurisdictional error) or where there is a statutory right of appeal which allows the reviewing court to substitute its opinion for that of the tribunal and where the tribunal has no greater expertise than the court on the issue in question, as for example in the area of human rights. See for example Zurich Insurance Co. v. Ontario (Human Rights Commission), [1992] 2 S.C.R. 321; Canada (Attorney General) v. Mossop, [1993] 1 S.C.R. 554, and University of British Columbia v. Berg, [1993] 2 S.C.R. 353.
The case at bar falls between these two extremes. On one hand, we are dealing with a statutory right of appeal pursuant to s. 149 of the Act. On the other hand, we are dealing with an appeal from a highly specialized tribunal on an issue which arguably goes to the core of its regulatory mandate and expertise.
This Court's decision in Bell Canada v. Canada (Canadian Radio-Television and Telecommunications Commission), [1989] 1 S.C.R. 1722 (Bell Canada), is particularly helpful in deciding the present case as it dealt with a statutory right of appeal rather than an application for judicial review. Gonthier J., writing for this Court, stated the following at pp. 1745-46:
It is trite to say that the jurisdiction of a court on appeal is much broader than the jurisdiction of a court on judicial review. In principle, a court is entitled, on appeal, to disagree with the reasoning of the lower tribunal.
However, within the context of a statutory appeal from an administrative tribunal, additional consideration must be given to the principle of specialization of duties. Although an appeal tribunal has the right to disagree with the lower tribunal on issues which fall within the scope of the statutory appeal, curial deference should be given to the opinion of the lower tribunal on issues which fall squarely within its area of expertise.
Consequently, even where there is no privative clause and where there is a statutory right of appeal, the concept of the specialization of duties requires that deference be shown to decisions of specialized tribunals on matters which fall squarely within the tribunal's expertise. [Emphasis in text.]
Since we are here dealing with a highly specialized tribunal whose decisions are binding and conclusive on matters of fact but subject to appeal on questions of law or jurisdiction only, I take it that the standard is one of correctness tempered by due regard for the experience and expertise of a senior administrative tribunal in the interpretation, application and operation of a non-jurisdictional provision of its governing statute.
Bearing this standard in mind, I turn now to the appellants' arguments.
The test used by the Agency
As I read the Agency's decision, the test of whether CN's rate was so low as to force ULS from the market was used for the purpose of determining whether CN's rate had the effect or tendency of substantially lessening competition. The appellants suggest that it was also used by the Agency in respect of the question of significant harm but I do not think that this can be the case in the light of the Agency's treatment of the latter question in paragraph 4 of the quoted portion of the decision, supra, a treatment, which it may be noted, is also attacked by the appellants on other grounds.
As I understand the appellants' criticism of the test as it is applied to the question of competition it is that it places the threshold too high and that there may be a substantial lessening of competition which does not necessarily have the effect or tendency of driving a competitor from the market. In my view, this criticism fails to take account of the context in which paragraph 113(5)(b) appears and of its legislative purpose.
Prior to the adoption of the National Transportation Act, 1987, railway tariffs were subject to regulation by the Agency's predecessor, the Canadian Transport Commission. The requirement that tariffs should be compensatory was contained in section 285 of the Railway Act29*ftnote29 R.S.C., 1985 c. R-3. and the remedy therefor was found in section 286:
286. (1) The Commission may disallow any freight rate that after investigation the Commission determines is not compensatory.
(2) Where the Commission receives information by way of a complaint or otherwise containing evidence that a freight rate shown in a tariff filed with the Commission is not compensatory, the Commission shall conduct an investigation to determine if that rate is compensatory, and in any other case the Commission may, of its own motion, conduct such an investigation.
There is nothing in this text which ties it directly to competition policy. Indeed, in a context of fully- regulated rates one can well imagine circumstances in which the requirement that rates be compensatory might be invoked by the railways themselves in submissions to the regulator for the purpose of justifying an increase in rates.30*ftnote30 For an example of an attempt by a railway to invoke subsection 112(2) in a rate arbitration case see Canadian National Railway Co. v. Handyside et al. (1994), 170 N.R. 353 (F.C.A.).
The adoption of the National Transportation Act, 1987, effected a radical change of policy in the matter of rates and competition in the transportation industry. That change was succinctly described by my brother Linden J.A. in Canadian Pacific Ltd. v. Canada (National Transportation Agency):31*ftnote31 [1992] 3 F.C. 145 (C.A.), at p. 150.
It should be noted that there are novel features in this policy which, inter alia, promote intramodal railway competition, underscore that competition and market forces are the prime agents of an effective transportation system and protect shippers without limiting the opportunity of carriers to compete. Before the enactment of this Act in 1987, regulation of railway rates was more rigid, more public and rates were collectively set. With the passage of the new Act, rates are no longer established collectively and publicly in all cases; they may be negotiated individually and confidentially. Rebates and specific rates are allowed, whereas they were not before. The system has been rendered more limber.
The Act itself enunciates Canada's transportation policy in detail in section 3 as follows:
3. (1) It is hereby declared that a safe, economic, efficient and adequate network of viable and effective transportation services accessible to persons with disabilities and making the best use of all available modes of transportation at the lowest total cost is essential to serve the transportation needs of shippers and travellers, including persons with disabilities, and to maintain the economic well-being and growth of Canada and its regions and that those objectives are most likely to be achieved when all carriers are able to compete, both within and among the various modes of transportation, under conditions ensuring that, having due regard to national policy and to legal and constitutional requirements,
(a) the national transportation system meets the highest practicable safety standards,
(b) competition and market forces are, whenever possible, the prime agents in providing viable and effective transportation services,
(c) economic regulation of carriers and modes of transportation occurs only in respect of those services and regions where regulation is necessary to serve the transportation needs of shippers and travellers and such regulation will not unfairly limit the ability of any carrier or mode of transportation to compete freely with any other carrier or mode of transportation,
(d) transportation is recognized as a key to regional economic development and commercial viability of transportation links is balanced with regional economic development objectives in order that the potential economic strengths of each region may be realized,
(e) each carrier or mode of transportation, so far as practicable, bears a fair proportion of the real costs of the resources, facilities and services provided to that carrier or mode of transportation at public expense,
(f) each carrier or mode of transportation, so far as practicable, receives fair and reasonable compensation for the resources, facilities and services that it is required to provide as an imposed public duty, and
(g) each carrier or mode of transportation, so far as practicable, carries traffic to or from any point in Canada under fares, rates and conditions that do not constitute
(i) an unfair disadvantage in respect of any such traffic beyond that disadvantage inherent in the location or volume of the traffic, the scale of operation connected therewith or the type of traffic or service involved,
(ii) an undue obstacle to the mobility of persons, including those persons who are disabled,
(iii) an undue obstacle to the interchange of commodities between points in Canada, or
(iv) an unreasonable discouragement to the development of primary or secondary industries or to export trade in or from any region of Canada or to the movement of commodities through Canadian ports,
and this Act is enacted in accordance with and for the attainment of those objectives to the extent that they fall within the purview of subject-matters under the legislative authority of Parliament relating to transportation.
I note in particular the strong emphasis which this policy places upon competition. I also note that almost contemporaneous with the National Transportation Act, 1987, Parliament adopted the Competition Act in which Canada's competition policy was revised and updated; that Act contains a strong statement of purpose as follows:32*ftnote32 R.S.C., 1985, c. C-34 (as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 19), s. 1.1 (as enacted idem).
1.1 The purpose of this Act is to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, in order to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices.
The Competition Act in its turn contains provisions respecting predatory pricing which uses language remarkably similar to paragraph 113(5)(b) of the National Transportation Act, 1987. Paragraph 50(1)(c) reads:
50. (1) Every one engaged in a business who
. . .
(c) engages in a policy of selling products at prices unreasonably low, having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have that effect,
The Agency, rightly in my view, has adopted an interpretation of the terms of paragraph 113(5)(b) which views its purpose as being consonant with the purpose of competition law in Canada, particularly as relating to predatory pricing. The test used by the Agency in the decision under review had been enunciated and explained in greater detail a little less than a year previously in Agency decision 705-R-1992 of November 26, 1992 as follows:
Paragraph 113(5)(b) of the NTA, 1987 sets out an industry specific test that determines whether rates are "predatory" or "anti-competitive". Predatory rate setting is typified by a dominant carrier in a particular market setting rates so low that over a long enough period of time it drives one or more of its competitors from the market and deters other carriers from entering the market. Following the exit of the competition, and with the absence of any threat of new entry, the predator raises its rates to supra-competitive levels, thereby recouping any losses incurred when rates were below costs. [At page 4.]
That view of the purpose of the test is remarkably similar to the one set out in the Guidelines issued by the Director:33*ftnote33 See The 1995 Annotated Competition Act, Robert S. Nozick. 1995 Edition prepared by Peter Monastyrskyj. Carswell, 1995, at p. 345.
The concept of predatory pricing is best illustrated by a dominant firm in a market setting its prices so low, over a long enough period of time, that it may drive one or more of its competitors from the market, or deter other companies from entering the market, or both. Following the exit of competitors from the market, or upon successfully deterring new entry, the predator is expected to raise prices significantly in an attempt, in the now less-competitive market it had created, to recover the costs incurred (i.e., losses or foregone profits) during the period of predation.
This is precisely the type of conduct that the Director seeks to identify in response to situations brought forward for examination under the statute. Although such pricing behaviour does confer some benefits to the purchasers in the market during the period of predation, those benefits will be transitory or shortterm, and eventually outweighed by increased costs during the period of recoupment.
The Agency's position is also very much in line with judicial statements on the matter. In R. v. [ho]Hoffmann-La Roche Limited.,34*ftnote34 (1980), 28 O.R. (2d) 164 (H.C.), at p. 192. Linden J., as he then was, said:
This section is aimed at combatting predatory pricing. The classic example that is given to demonstrate the evil of predatory pricing is this: One company, the predator, decides to sell its product at a very low price in order to put his competitor out of business, because they cannot or will not sell at such a low price. If the competitor goes out of business, the predator may then increase his prices, make back any loss as a result of the predatory campaign and continue to reap the benefits of greater profits, because his former competitor has now departed from the scene.
Although tactics such as this may make good business sense in certain circumstances, Parliament has decided to forbid these practices because the public interest demands a system in which fair competition thrives.
Likewise in R. v. Consumers Glass Company Ltd. and Portion Packaging,35*ftnote35 (1981), 33 O.R. (2d) 228 (H.C.), at pp. 246-247. O'Leary J. said:
Section 34(1)(c) of the Combines Investigation Act prohibits a policy of selling at prices unreasonably low, having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have such effect. The Act does not specifically define what constitutes an unreasonably low price. In deciding whether a price is unreasonably low the Court should bear in mind that the purpose of the Act is to protect the public interest in free competition, and that s. 34(1)(c) of the Act prohibits predatory pricing, that is to say, the selling at low prices for anti-competitive purposes. As mentioned earlier, the classic example of predation runs as follows:
(1) The predator deliberately sacrifices present returns by lowering the selling price for the purpose of driving rivals out of the market.
(2) The rivals, having less financial staying power than the predator, are driven out of the market.
(3) In the absence of competition the predator raises its prices so as to recover the sacrificed returns and earn higher profits.
Finally, I note (although this would not be conclusive if the Agency had indeed erred in law) that the test which it used is actually suggested in some of the material filed by the appellants themselves before the Agency:
Therefore, it is submitted that there is high likelihood that the pricing action of Canadian National has the effect of eliminating competition from the market, so that it will ultimately be able to increase its freight rates for the salt movement and recoup the losses it is currently incurring. [Appeal Book, Vol. II, page 241.]
Even if read in isolation, the terms of paragraph 113(5)(b) could scarcely be susceptible of a meaning different from that given to them by the Agency. Price cutting is, after all, frequently a symptom of vigorous competition rather than otherwise. It is only when low prices form part of a monopolistic strategy that they become anti-competitive.
When the terms of sections 112 and 113 are read purposively and in context, in the light of their statutory history, of transportation policy as enunciated in the Act and of competition policy as set out in contemporaneous legislation, it is my view that the Agency's interpretation of them is the only correct one.
The definition of the market
As a preliminary, I would note that, in my view, it is very doubtful indeed that this question is properly raised by the appellants. As noted, the appeal to this Court is by leave on a question of law only. That question is, in terms, confined to the interpretation of subsection 113(5). The word "market" appears nowhere in that subsection or indeed anywhere else in section 112 or 113.
Furthermore, and even more importantly, it is my opinion that leave could not have been obtained on this question. It is now settled law, in my view, that the definition of market in cases of this sort is a question of fact and not one of law. In Queen, The v. J. W. Mills & Son Ltd. et al.,36*ftnote36 [1968] 2 Ex. C.R. 275; affd [1971] S.C.R. 63. Gibson J. said, at page 305:
As a matter of law of course there is no definition of the "market" in relation to which the evidence of any alleged violation of sections 32(1)(a) and 32(1)(c) of the Combines Investigation Act may be examined. What is the relevant market in every case is a matter of judgment based upon the evidence. [Emphasis added.]
Likewise, on the appeal of the decision in Hoffmann-La Roche, supra,37*ftnote37 R. v. Hoffmann-La Roche Limited. (Nos. 1 and 2) (1981), 33 O.R. (2d) 694 (C.A.), at p. 706. Martin J.A. said:
What constitutes a relevant market is essentially a question of fact depending on the circumstances underlying the particular offence alleged. [Emphasis added.]
Even assuming the matter to be properly raised, however, it is in my view without substance. As I understand it, the appellants' argument is founded on the reference in paragraphs 3, 4 and 5 of the decision to traffic other than the traffic in fine crushed salt between Windsor and Bécancour. It is said that this is an error because of the direction contained in subsection 112(3) to have regard to the "movement of the traffic concerned" and in paragraph 112(4)(c) to use costs of or related to "that movement".
I cannot accept that argument. In the first place, as I read the Agency's decision, it bases its finding that CN's rate had not substantially lessened competition not only on ULS's "continued presence in the transportation market" but also on its specific finding of fact that if the rates were raised "ULS would be able to recapture the traffic presently lost to it". In my view there can be no doubt that the latter phrase is a reference to the traffic in fine crushed salt between Windsor and Bécancour.
I would note further, however, that in my opinion the appellants' attack is based on a wrong reading of the statute. The references in subsection 112(3) and in paragraph 112(4)(c), to the relevant "movement," are part of a specific direction to the Agency as to the method to be used by it in determining the compensatory or non-compensatory character of the rate; they have nothing to do with the definition of the relevant market which, as I have indicated, is not even a term employed in the statute. The decision as to how to define the market for the purpose of assessing whether or not competition has been substantially lessened is one which is peculiarly within the expertise and knowledge of the Agency; that tribunal is far better placed than this Court to weigh the impact of rates on competition in and between various markets and modes. Indeed it is even possible, given the complex inter-relation between modes, rates, routes and areas in transportation markets, that a non- compensatory rate in one mode or route may be found to have produced an anti-competitive effect in another market altogether. Certainly the statute does not contain any direction or limitation as to the manner in which the Agency is to exercise its judgment in this regard and I would not interfere.
Significant harm
The appellants attack the Agency's finding that CN's rate did not cause significant harm to ULS on the ground that the Agency erred in comparing the fine crushed salt traffic with "ULS total traffic" (decision, paragraph 4). They also take issue with the Agency's refusal to consider the alleged loss of "backhaul" traffic.
I think this attack is based on a misconception of paragraph 113(5)(b). That paragraph, in my view, looks to two separate kinds of actual, potential or intended damage. The first is damage to the public policy interest in free and vigorous competition. The words used are "substantially lessening competition" [underlining added]. They require the Agency to assess the rate in the light of market conditions generally and to determine whether or not it has the effect or tendency of substantially lessening competition or is designed to have that effect.
The second test is quite different and looks to the private interests of the persons who may be harmed; the question is whether the rate has the effect or tendency of "significantly harming a competitor". It is the person of the competitor and his business which must be looked at, not merely his share of the particular market concerned. A loss of a very small part of a competitor's business, even though it be all of his business in that particular market, may not cause a significant harm; contrariwise, even if the competitor had only a small market share, its loss may be devastating to him. Indeed, given the expressed desirability of fostering competition, it cannot be the case that the statute would regard any and every loss of business due to below cost pricing as being significant and requiring regulatory intervention. In my view, it was no error for the Agency to look at the effect of the loss of the fine crushed salt traffic on the whole of ULS's business and to conclude that it was not significant.
The Agency's refusal to consider the alleged loss of backhaul traffic as a separate matter is entirely consistent with its approach to the question of significant harm generally. Also, since the lost traffic alleged by ULS already included the alleged lost backhaul traffic it would have been wrong to consider it a second time. I would add that we are here again dealing with a matter which is very much within the Agency's field of expertise: the question as to whether the carriage of iron ore and minerals from the lower St. Lawrence to ports in Lakes Michigan and Superior is truly a "backhaul" to the much shorter distance transportation of salt from Windsor to Bécancour, together with issues as to possible cross-subsidization between the various rates involved, are matters with which the Agency may be expected to be very familiar. I am not persuaded that its refusal to consider the loss of the backhaul as separate from the loss of the fine crushed salt traffic is based on any wrong interpretation of paragraph 113(5)(b).
Harm to others
The harm envisaged by paragraph 113(5)(b) is harm to a "competitor". In my view, none of the other appellants or intervenors, including the various industry associations and lobby groups, can properly be described as a competitor of CN. None of them is a carrier within the meaning of the Act. None of them furnishes transportation services directly to others. Some of them furnish services or labour to ULS but any harm suffered by them from a loss of business by their customer or employer is too remote to be within the contemplation of the statute.
Disposition
Before concluding I think it is appropriate to say a word about the disposition sought by the appellants and the intervenors in the event that the appeal were allowed. They ask that CN's rate be disallowed with retroactive effect and that ICI be ordered to pay a compensatory rate from the outset. I can see no possible justification for such an order which would produce paradoxical, indeed bizarre results: ICI would suffer, CN would profit and the appellants would not gain. If I had allowed the appeal I would simply have sent the matter back to the Agency with directions that it is to make an appropriate, i.e. forward-looking order under paragraph 113(5)(b); both the ninety-day time limit in subsection 113(5) and the power to make interim orders in subsection 113(2) strongly suggest that that is the only type of order contemplated by Parliament.
Conclusion
I would dismiss the appeal. No special reasons have been shown which would justify an order for costs pursuant to Rule 1312 [Federal Court Rules, C.R.C., c. 663].
Chevalier D.J.: I agree.