Court upholds terms of arbitrated rail agreement

A rail service dispute that emerged in the 2015-16 crop year involving Louis Dreyfus Commodities and Canadian National Railway appears to be nearing the end of the line.

In a judgment dated May 4, 2018, the Federal Court of Appeal ruled that an arbitrator appointed by the Canada Transportation Agency acted reasonably when he established a level of services agreement that required CN to deliver 250 hopper cars per week to Dreyfus elevators that were served by railway.

Key to the ruling was the determination that CN should not be allowed to “ration” hopper cars unless its ability deliver cars is affected by unforeseeable circumstances that are beyond its control, also known as force majeure.

“The arbitrator did not accept that the concept of rationing should be accepted as the norm in determining what the level of service obligations should be in a given level of service agreement for a particular crop year,” wrote Federal Court of Appeal judge J.A. Near.

“This is hardly a startling proposition given that the (Canadian Transportation) Agency has indicated (previously) that rationing is only to be used in exceptional circumstances and for brief periods of time.”

“Overall, the arbitrator … imposed terms that he considered commercially fair and reasonable for the parties,” Near’s ruling continued.

“He was not obligated to adopt the rationing methodology proposed by … (CN) and, in my view, it was reasonable for him to allow for flexibility through the performance standard and force majeure clauses.”

The dispute between Louis Dreyfus and CN emerged in 2015 when the grain company and the railway were unable to negotiate a level of service contract.

The two parties requested arbitration through the Canadian Transportation Agency (CTA) and the agency referred the matter to an appointed arbitrator.

The arbitrator concluded that CN should be obligated to supply 250 cars per week to Dreyfus facilities, with weekly car deliveries scheduled at delivery points at Kegworth, Sask (near Glenavon), Aberdeen, Sask., and Dawson Creek, B.C.

The arbitrator rejected CN’s contention that car rationing should be considered a normal and acceptable business practice so that a railway can ensure that it is able to meet its contractual obligations to other shippers.

The dispute was the latest irritant affecting commercial relations between CN and Louis Dreyfus.

In 2014, Dreyfus filed a level of service complaint against the railway for failing to uphold the terms of a service level agreement involving the two parties.

That complaint was filed during the 2013-14 crop year, shortly after the federal government ordered CN and rival railway company Canadian Pacific to move a minimum of 500,000 tonnes of Western Canadian grain per week or face monetary penalties

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