REGS Committee Report

March 18, 1999

          The Standing Joint Committee for the Scrutiny of Regulations has the honour to present its

(Report No. 64 – Chandler Subdivision Subsidies)

1.       Pursuant to its permanent reference, section 19 of the Statutory Instruments Act, R.S.C. 1985, c. S-22, the Joint Committee wishes to draw the attention of the Houses to SOR/93-43, Order Varying a “letter decision” (Chandler Subdivision) Issued by the National Transportation Agency. This instrument purports to vary the National Transportation Agency’s letter-decision of August 6, 1992 so as to authorize the payment of branch line subsidies for the Chandler Subdivision until the date of its abandonment. The Joint Committee has concluded that this order is ultra vires, in that it seeks to provide for the payment of subsidies otherwise than in accordance with the relevant provisions of the National Transportation Act, 1987.

2.       On February 5, 1991, the National Transportation Agency (now the Canadian Transportation Agency) ordered the Canadian National Railway Company to abandon the segment of the Chandler Subdivision between Ste-Adélaïde and Gaspé as of February 5, 1992. On November 21, 1991, however, this order was rescinded by the Governor in Council pursuant to section 64 of the National Transportation Act, 1987, effectively requiring CN to continue to operate the branch line. On April 23, 1992, Canadian National requested the National Transportation Agency to authorize the payment of subsidies to compensate the railway company for losses incurred in operating the branch line. In its letter-decision of August 6, 1992, the Agency rejected CN’s request for a determination of its actual losses for the purpose of continued payment of branch line subsidies in connection with the operation of the relevant segment of the Chandler Subdivision. It was the position of the Agency that once the abandonment order had been rescinded, there was no “claim period” as defined in section 178(1) of the Act, and thus there could be no entitlement to branch line subsidies. On January 28, 1993, however, the Governor in Council made the Order Varying a “letter decision” (Chandler Subdivision) Issued by the National Transportation Agency, which purported to vary the Agency’s decision so as to allow the payment of branch line subsidies.

3.                  The National Transportation Act, 1987 was repealed on July 1, 1996 with the coming into force of the Canada Transportation Act, S.C. 1996, c. 10. The new Act does not provide for the payment of subsidies in respect of losses incurred from the operation of uneconomic branch lines. Thus no payments were made for losses incurred from the operation of the Chandler Subdivision after July 1, 1996, and no situation similar to that dealt with in this Report will arise under the new legislation.

4.       In a letter dated February 5, 1998, the Chairmen of your Committee requested the Minister of Transport to advise the Committee “as to the total amount of the branch line subsidies” paid pursuant to the variation Order registered as SOR/93-43.  In his reply of February 9, 1999, the Minister indicated that more than $3,000,000.00 had been paid to CN as branch line subsidies pursuant to the variation Order. The legality of this Order, and of the payments made pursuant to it, is an issue of continued importance.

5.       Section 178 of the National Transportation Act, 1987 provided for the payment of subsidies for the operation of branch lines in an amount equal to the actual losses incurred in such operation during a “claim period”. Section 178(1) of the Act defined “claim period” for the purposes of section 178 as follows:

            178. (1) In this section, “claim period”, in relation to a branch line, means the period

             (a) beginning

                 (i) on the date that an application for the abandonment of the operation of the branch line is filed with the Agency, where an application is made under this Division, or

               (ii) on the coming into force of this section, where the application to abandon the branch line was made under section 255 of the Railway Act, as it read immediately before the coming into force of this section, and

             (b) ending on the earlier of

                 (i) the date fixed for abandonment in the order made under section 162, 165, 166 or 175 or under subsection 258(1) of the Railway Act, as it read immediately before the coming into force of this section, as varied under section 64 or subsection 165(2) or 172(2) or under subsection 259(2) of the Railway Act or section 66 or 67 of the National Transportation Act, as those provisions read immediately before the coming into force of this section,

                 (ii) where the order for abandonment is rescinded under subsection 172(1), the date on which it is rescinded, and

                 (iii) where an order is made under subsection 174(3), the date on which the company ceases to operate the line pursuant to the order,

          but does not include a crop year or part thereof in respect of which the branch line has been designated as a grain dependent branch line by the Agency pursuant to section 41 of the Western Grain Transportation Act.

It is clear from the definition of “claim period” in section 178(1) that such a period must be one of fixed and certain duration. Section 178(1) defined a claim period by reference to certain occurrences, the dates of which serve to establish the commencement and termination dates of the claim period. As the definition of claim period was structured, there could be no such period and no subsidy payments until both a definite date of commencement and a definite date of termination could be identified, and section 178(2) of the Act in turn made it clear that subsidies may only be paid with respect to losses incurred during a financial year in a “claim period”.

6.       The Joint Committee has not disputed the view of the Department of Transport that for purposes of section 178(1) of the National Transportation Act, 1987, CN’s application for abandonment of the relevant portion of the Chandler Subdivision remained active notwithstanding the Order in Council of November 12, 1991 rescinding the Agency’s abandonment order. Thus, the date of the application would serve to establish the commencement of the “claim period” with respect to which branch line subsidies might be paid as provided by section 178(1)(a)(i) of the Act. There is, however, no date which can serve as the end date for a claim period under the terms of section 178(1)(b).

7.       Subparagraphs (ii) and (iii) of section 178(1)(b) are clearly not relevant. Although subparagraph (i) referred to the date fixed for abandonment in the abandonment order as one possible termination date for a “claim period”, in this instance the rescission of the abandonment order means that there is no such date. Nor is the reference to the date fixed for abandonment in the abandonment order “as varied under section 64” applicable, since here the abandonment order was not varied, but rather was rescinded. Section 64 of the Act clearly distinguished between the varying and the rescinding of an order. Nor are the remaining provisions referred to in subparagraph (i) of any relevance in this instance.

8.       The purpose of providing for the payment of branch line subsidies was to provide compensation for the continued operation of uneconomic branch lines between the time an application for abandonment was filed and the date fixed for abandonment in an abandonment order. Until an order was made authorizing the abandonment, it would not be known whether in fact abandonment would occur. If abandonment was not to be authorized, there would of course be no entitlement whatsoever to branch line subsidies. That is why the definition of “claim period” in section 178(1) required that such a period must be one of fixed and certain duration and that such period be established before any subsidies could be paid. As the definition of claim period was structured, there could be no such period until both a definite date of commencement and a definite date of termination were identified.

9.       The Department of Transport has argued that insofar as the application for abandonment remained active until reconsidered by the Agency, there was an entitlement to subsidies until such disposition. What if the Agency was to dispose of an application by rejecting it? After all, in the present instance subsidies continued to be paid, not by virtue of the application of section 178, but as a result of the variation order made by the Governor in Council. The result of the Department’s position would seem to be that every application for abandonment of a branch line would give rise to an entitlement to subsidies until the application was disposed of. Yet where the application was rejected, there would be no entitlement to subsidies. This further illustrates why section 178(1)(b) provided that a claim period was established only once a date of commencement and date of termination had been fixed. Until an abandonment order had been issued there could be no claim period, and if there was no such claim period there could be no entitlement to subsidies.

10.     It goes without saying that the power conferred on the Governor in Council by section 64 of the Act to “vary or rescind any decision, order, rule or regulation of the Agency” could not be used to do that which was not authorized by the Act in the first place, and the Governor in Council had no power to vary a decision of the Agency to permit the payment of subsidies other than in those circumstances contemplated by section 178 of the Act. This being the case, it must be concluded that there was no lawful authority for the payment of branch line subsidies pursuant to the variation Order registered as SOR/93-43.

11.     While successive Ministers of Transport have continued to assert that the entitlement of a railway company to branch line subsidies under the National Transportation Act, 1987 arose upon the submission of its application for abandonment of the branch line, at no point has the Committee been provided with a precise statement as to exactly how the wording of section 178(1)(b) of that Act supports this position. It is not enough to simply claim that section 178 allowed subsidies to be paid without a claim period having been first established; such a position must find support in the words of the enactment. In this instance such support is obviously lacking. In the absence of an answer to a question that has repeatedly been put to the Department of Transport and to its responsible Minister, the Committee must conclude that the question cannot be answered because there is nothing in section 178(1)(b) to support the validity of the subsidies that were paid to CN in respect of the Chandler Subdivision. Indeed, the Department of Transport has itself conceded that the rescission of the Agency’s abandonment order by the Governor in Council pursuant to section 64 of the Act is “an action that is not covered by paragraph 178(1)(b)”. It was also accepted that the abandonment date for purposes of section 178 was therefore unknown. The Standing Joint Committee agrees with this assessment.

12.     We note here that the Committee’s view as to the legality of these payments was also shared by the National Transportation Agency. In its August 6, 1992 letter-decision, the Agency refused to recommend the payment of subsidies to CN on the ground that no claim period had been established. It stated that:

The National Transportation Agency considers that the situation dealt with by Order in Council P.C.1991-2326 is not provided for in section 178 of the National Transportation Act, 1987 and that the effect of this Order was to terminate the claim period for subsidies effective November 21, 1991. Consequently, the Agency cannot certify the amount of actual losses or recommend to the Minister of Transport the payment of subsidies for this branch line. (Translation)

While the Department of Transport holds a different view, it has been unable to substantiate it.

13.     At one point, the Department sought to maintain that the payment of branch line subsidies pursuant to the variation Order registered as SOR/93-43 was authorized by the National Transportation Act, 1987 as an advance payment. Since CN’s application for abandonment remained active, and would be dealt with by the Agency at some future time, it was argued that payments could be made in anticipation of an end date for the claim period being established eventually. Although the Act provided for the payment of subsidies in advance in certain circumstances, the Act also provided that any such advance payments were to be payments “under section 178”. Thus advance payments would have to have been authorized by section 178 in the first place, and were required to be with respect to a claim period established in accordance with that section. Moreover, until an order was made authorizing abandonment, with the result that an end date for a claim period was established, it could not even be known whether there would ever be any entitlement whatsoever to subsidies. The assertion that the payments made pursuant to the variation Order were advance payments as contemplated by the Act is therefore simply not sustainable.  

14.             The Department has also sought to find support for its position in section 169(1) of the National Transportation Act, 1987. This provision dealt with the situation where the Agency determined that the operation of a branch line or segment in respect of which an application for abandonment had been made was in the public interest. In such a circumstance, section 169(1) directed the Agency to dismiss the application for abandonment if the branch line or segment was economic or, where the branch line or segment was uneconomic but there was a reasonable probability of its becoming economic in the foreseeable future, to order that the operation of the branch line or segment not be abandoned. In the latter case, the application for abandonment was required to be reconsidered within three years. In the meantime, of course there would be no date fixed for abandonment. In the Department’s view, it could not have been Parliament’s intent that where the Agency ordered that the operation of a branch line or segment not be abandoned, the railway company would be required to continue to operate the uneconomic branch line or segment without compensation.

15.             This position simply ignores the clear language of section 178(1) of the National Transportation Act, 1987. In the Department’s own words:

the concept of “claim period” in the relevant provisions served to define the outer limits in time within which a financial year or portion thereof must have found itself to be a financial year contemplated by section 178 of the NTA. The statutory framework, as it then read, did not allow for the payment of the amount of actual loss incurred in any financial year or portion thereof which ran prior the date on which an application for abandonment had been filed or which ran after the date fixed for abandonment.

Yet the Department concludes that a claim period “existed from the moment an application for abandonment was filed and continued until such time as the date fixed for abandonment, as ultimately determined by the Agency, would have arrived.” Having recognized that subsidies could only be paid with respect to a financial year within a claim period, that the claim period must have a beginning and an end, and that the end date of the claim period was the date fixed for abandonment, how can the Department then seek to maintain that a claim period existed from the moment an application for abandonment was filed on the basis that at some point in the future a date for abandonment might be fixed? Section 178(1)(b) provided that a claim period was a period ending “on the date fixed for abandonment”, not on the date that “would be” fixed for abandonment.

16.             It cannot be emphasized too strongly that in all of the various arguments advanced by the Department of Transport in support of the validity of the variation Order, no portion of section 178(1) has ever been cited that substantiates its interpretation of the Act. As noted earlier, the Department has accepted that the rescission of the Agency’s abandonment order by the Governor in Council is “an action that is not covered by paragraph 178(1)(b)”. Indeed, it is for this very reason that your Committee has concluded that the Governor in Council exceeded his authority in making the variation Order. The Department has also claimed that its interpretation represents “a fair reading” of the Act that is consistent with the legislative intent. In seeking to determine the intent of legislation, however, one must rely first and foremost on the wording of that legislation. While professing concern that Parliament’s intent be respected, the Department disregards the very wording chosen to express this intent. Whether to implement what it feels is the policy that should have been reflected in the Act, to correct what it perceives as an error on the part of Parliament, or simply to advance its view as to what is or is not “fair”, it is not open to the Department to ignore the clear and express wording of section 178(1)(b).

17.     The Department has stated as well that its interpretation “is entirely consistent with the manner in which the Agency had over time interpreted and applied section 178 of the National Transportation Act, 1987.” This is demonstrably incorrect. In the very decision varied by the variation Order registered as SOR/93-43, the Agency advised CN that as the abandonment order had been rescinded, there was no “claim period” as defined in section 178(1) of the Act, and thus there could be no entitlement to branch line subsidies. In other words, there could not be a valid claim period until the actual end date of such a period had been fixed. If the Agency has accepted claims for the payment of branch line subsidies in respect of the Chandler subdivision, this is purely as a result of the variation Order made by the Governor in Council. In effect, the Agency has been ordered to do so.

18.     The National Transportation Act, 1987 clearly required that a claim period be established prior to any subsidies being paid or advance payments being made. The establishment of a claim period required that one of the two possible dates identified in section 178(1)(a) of the Act be fixed for the beginning of the period and that one of the three possible dates identified in section 178(1)(b) be fixed for the ending of the period. There was in this instance no date that could serve as the end of a claim period, which explains the Minister’s inability to provide such a date. Instead, the Minister has chosen to argue that it was not necessary for such a date to be fixed, provided that one “would be” fixed later. This is tantamount to suggesting that section 178(1)(b) can be ignored, a proposition that the Committee simply cannot accept.   

19.     Without a claim period having been established, no subsidies or advance payments could be paid, and the variation Order registered as SOR/93-43 was therefore made without lawful authority. It of course follows that the moneys that have been paid in the form of subsidies to the Canadian National Railway Company pursuant to the variation Order registered as SOR/93-43 were paid without legal authority and in contravention of section 26 of the Financial Administration Act, which provides that “no payments shall be made out of the Consolidated Revenue Fund without the authority of Parliament.” The Committee recommends that legislation be presented to the Houses for the purpose of retroactively validating the variation Order. This would also have the effect of validating the payments made in contravention of the Financial Administration Act and the terms of the National Transportation Act, 1987. The recommended legislation should also deal with any other subsidy payments that may have been made in similar circumstances.

In accordance with Standing Order 109 of the House of Commons, your Committee requests the government to table a comprehensive response to this Report.

A copy of the relevant Minutes of Proceedings and Evidence (Issue No. 20, First Session, Thirty-sixth Parliament) is tabled in the House of Commons.

Respectfully submitted,

Joint Chairmen