Executive Summary: Key Legal and Evidentiary Issues

• Whether forecasting variances and their causes can qualify as a “change in the facts or circumstances” under section 32 of the Canada Transportation Act (CTA) permitting the Canadian Transportation Agency to review or vary prior VRCPI and MRE determinations.

• Confirmation that the VRCPI is a predictive inflation index based on forecasted price variations in railway input costs, and not a cost-based determination tied to actual in-year costs.

• Operation of the MRE regime as a system that values predictability and finality, including the requirement that VRCPI be determined before, and MRE after, the relevant crop year, and the implications of introducing in-year adjustments.

• Distinction made by the Agency between circumstances justifying section 32 reconsideration (such as clerical or calculation errors or methodology changes) and forecasting variances, which are expected and integral to the predictive methodology.

• CN Rail’s reliance on the magnitude of forecasting variances (7.44% and 12.19%) and its assertion of about $175 million in lost MRE space, contrasted with the Agency’s view that such variances do not constitute cifoc and are handled prospectively in subsequent VRCPI determinations.

• Rejection of CN Rail’s appeals, including its procedural fairness arguments, and dismissal of both appeals without costs, leaving the Agency’s VRCPI and MRE determinations and the related payment orders in place.

Facts and outcome of the case

Regulatory framework and parties

The appeals arise from two decisions of the Canadian Transportation Agency dismissing section 32 requests by Canadian National Railway Company to vary its VRCPI and MRE for the 2021/2022 and 2022/2023 crop years. Under the MRE regime in the Canada Transportation Act, Parliament caps the total revenue a prescribed railway company may earn each crop year from the movement of western grain for export, with crop years running from August 1 to July 31. CN Rail is one of two prescribed railway companies; Canadian Pacific Railway Company is the other prescribed railway company and intervened in the appeals. If a railway’s revenue for western grain exceeds its MRE for a crop year, it must pay the excess and any penalty to the Western Grains Research Foundation.

VRCPI and MRE determinations in issue

The VRCPI is a numerical multiplier in the statutory MRE formula. It is determined by the Agency using forecasted price variations for railway inputs, including labour, fuel, services, materials and other capital items, and is not cost-based. For 2021/2022, the Agency set CN Rail’s VRCPI at 1.4505 in April 2021, later adjusting it to 1.4572 on March 15, 2022 to account for increased hopper car costs. For 2022/2023, the Agency set CN Rail’s VRCPI at 1.6319 in April 2022, an 11.99% increase over the previous year, combining a 4.55% forecast projection and a 7.44% forecasting variance. For 2023/2024, it set the VRCPI at 1.8295 in April 2023, a 12.11% increase over the previous year, combining a 0.08% decrease in the forecast projection and a 12.19% forecasting variance.

In December 2022, the Agency determined CN Rail’s 2021/2022 MRE using a VRCPI of 1.4572, resulting in an MRE of $589,140,501. CN Rail’s actual western grain revenue for that crop year was $592,208,589, and the Agency ordered CN Rail to pay $3,221,492 in excess revenue and penalties to the Western Grains Research Foundation. In December 2023, the Agency determined CN Rail’s 2022/2023 MRE using a VRCPI of 1.6319, resulting in an MRE of $1,076,064,100. CN Rail’s actual western grain revenue for that crop year was $1,079,522,039, and the Agency ordered CN Rail to pay $3,630,836 in excess revenue and penalties.

Section 32 requests and Agency’s response

CN Rail applied under section 32 for reconsideration of its 2021/2022 VRCPI and MRE determinations and for reimbursement of the payment ordered to the Western Grains Research Foundation, and later filed a section 32 request regarding its 2022/2023 VRCPI determination. CN Rail argued that extraordinary increases in the costs of steel, fabricated metals and petroleum-related products during the relevant crop years, attributed to the COVID-19 pandemic and the conflict in Ukraine, created unprecedented forecasting variances of 7.44% and 12.19%, and that this led to undervalued MRE determinations and loss of about $175 million in MRE space. It also proposed that the Agency recognize its purported losses and allow compensation through a system of additional MRE space in future crop years, relying on section 27 of the CTA.

The Agency dismissed both section 32 requests, stating that forecasting variances are expected and integral to its predictive methodology in setting the VRCPI and do not, in themselves or through their external causes, amount to a change in the facts or circumstances under section 32 within the MRE regime. It noted that section 32 may be used to correct inputting or calculation errors or adjust for methodology changes, but not to address forecasting variances. It also emphasized the need for predictability, stability and finality, observing that using section 32 to update VRCPI within a crop year would undermine the MRE regime and could turn annual VRCPI determinations into a series of in-season interim decisions.

The court’s decision and outcome

CN Rail appealed both decisions under section 41 of the CTA, ultimately seeking that they be set aside and remitted for redetermination based on the court’s view of section 32. The court held that the key issue was whether the Agency erred in law in determining that forecasting variances in VRCPI and MRE determinations, in the context of the MRE regime, did not constitute a change in facts or circumstances under section 32. The court found that section 32 expressly conditions reconsideration on “the opinion of the Agency,” and that this wording gives the Agency discretion to determine what counts as a relevant change.

The court concluded that the Agency’s decision not to treat forecasting variances or their causes as cifoc for VRCPI and MRE determinations was within its statutory discretion and consistent with the scheme of the CTA. It agreed that the VRCPI is an inflation index based on forecasted cost variations, not a cost-based index that adjusts for actual costs in a particular crop year, and that forecasting variances are addressed by the methodology through adjustments in the following year’s VRCPI. The court rejected CN Rail’s arguments based on the exceptional nature and magnitude of the events and forecasting variances, and declined to treat those as legal errors.

On procedural fairness, the court held that the Agency’s reasons were sufficiently transparent and that the references to predictability and finality did not constitute new issues requiring further submissions. It found no breach of CN Rail’s right to be heard. The court therefore dismissed both appeals. It declined to award costs to any party, including costs relating to CN Rail’s efforts to obtain further documents, and made no order for damages.