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Omnitrax bound by law to fix rail lines to Churchill: experts

OMNITRAX</p><p>Omnitrax says it will cost as much as $60 million to repair its Hudson Bay Railway line.</p></p>

OMNITRAX

Omnitrax says it will cost as much as $60 million to repair its Hudson Bay Railway line.

OTTAWA — Omnitrax could be legally compelled to fix its damaged rail line to Churchill under federal rules that prohibit companies from abandoning train lines, experts in transportation law say.

The Denver-based firm could be held accountable for the added costs of transporting supplies north, experts say, citing a February regulatory decision that found another rail company liable for refusing to repair a bridge.

“Federal railway companies have an obligation to provide service for traffic offered on their lines, and that’s a statutory obligation,” said Lucia Stuhldreier, a lawyer with the Vancouver firm McMillan, who specializes in rail-transportation agreements.

On May 24, the Hudson Bay Railway became inoperable from north of Gillam to Churchill after heavy flooding washed out numerous bridges. On July 18, Omnitrax said it wouldn’t repair the line because it was “not economically viable.” Since then, Ottawa has insisted Omnitrax has a contractual obligation to keep the rail line running under a 2008 agreement that saw the feds and Manitoba each contribute $20 million for repairs to the line.

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OTTAWA — Omnitrax could be legally compelled to fix its damaged rail line to Churchill under federal rules that prohibit companies from abandoning train lines, experts in transportation law say. 

The Denver-based firm could  be held accountable for the added costs of transporting supplies north, experts say, citing a February regulatory decision that found another rail company liable for refusing to repair a bridge.

"Federal railway companies have an obligation to provide service for traffic offered on their lines, and that’s a statutory obligation," said Lucia Stuhldreier, a lawyer with the Vancouver firm McMillan, who specializes in rail-transportation agreements.

On May 24, the Hudson Bay Railway became inoperable from north of Gillam to Churchill after heavy flooding washed out numerous bridges. On July 18, Omnitrax said it wouldn’t repair the line because it was "not economically viable." Since then, Ottawa has insisted Omnitrax has a contractual obligation to keep the rail line running under a 2008 agreement that saw the feds and Manitoba each contribute $20 million for repairs to the line.

Transportation lawyers tell the Free Press Omnitrax’s obligations are outlined in a federal law that take priority over funding disputes.

The Canada Transportation Act compels railway companies to maintain operations on the lines they own. They otherwise have to follow an intentionally complicated process to get rid of the line, said Gavin Magrath, a Toronto lawyer who focuses on international transportation cases.

"The moral or ethical backdrop is that if you’re going to operate a railroad, you probably get granted a bunch of land to use for the right-of-way, and you’re providing a kind of semi-public service in a monopoly environment. So it’s very strictly regulated."

The act compels rail companies to submit business plans to Ottawa at least every three years, indicating whether they intend to keep each of their rail lines running. (Omnitrax wouldn’t say when it submitted its last plan.)

In that plan, they can issue a notice of discontinuance, which starts a 12-month period so people are informed the company wants to drop the line. After that, the railway has to advertise the line to the public and negotiate a price in good faith. The buyer has to agree to keep the line running. 

If no one buys the line, the company can choose to continue running the line, or ask Ottawa to take it over in exchange for "net salvage value," an amount the federal government calculates based on the value of land and steel minus the cost of salvaging it. The transport minister has the first crack on the sale, followed by the province (Manitoba and possibly Saskatchewan, as the Hudson Bay Railway curves west) and then municipalities along the line.

Omnitrax could solicit a buyer and avoid the entire process. While it signed a confidential agreement with First Nations group Missinippi Rail, the company said it needs federal money.

"If they are planning to discontinue the operation and they haven’t admitted that to the (Canadian) Transportation Agency, they’re causing problems," Magrath said. "It may be privately owned, but it’s still a public utility."

The law says companies that sell, lease or transfer rail lines must keep operating them for three years, unless the transport minister says otherwise.

Stuhldreier said Omnitrax may find itself in front of a federal regulator that recently came down against Canadian Pacific Railway.

In July 2014, fire damaged a bridge that had CP Rail lines in Richmond, B.C., and sustained more damage when a barge collided with it. That prevented chemical-shipping company Univar from transporting supplies. CP declared a force majeure, an exceptional circumstance that curtails contractual obligations.

In February, the transportation agency ruled CP Rail had breached its obligations to keep service running within a reasonable amount of time. The regulator ruled that "Univar is entitled to compensation for the expenses it incurred as a result of CP’s failure to fulfil its level of service obligations."

The regulator looked at previous cases, and said "a railway company cannot permanently relieve itself of its statutory obligations by indirect means by deciding not to rehabilitate a railway line." Instead, a company that found it financially unviable to repair a line would have to start a formal process to have it transfer or discontinued.

Stuhldreier says the case shows costly disasters can only temporarily halt companies’ obligations.

"They basically looked at the facts and said we should allow CP a reasonable amount of time to fix things," she said. "But they can’t indefinitely absolve themselves… just by refusing to repair the damage."

The agency ordered a confidential amount of reimbursement, but took into account the hit to Univar’s reputation, as well as the added transportation costs from after the date at which the company could have repaired the tracks. CP has asked the Federal Court for leave to appeal the case.

Stuhldreier said that might mean Omnitrax could be held liable for Churchill companies forced to pay higher transportation costs.

Her McMillan firm colleague, Ryan Gallagher, suggested Omnitrax may have acknowledged its own obligations last month when it said the line would cost $20 million to $60 million to repair 

"There’s no ability for anyone to say the line can’t be rebuilt, that it’s completely impossible. The issue is a matter of money, and who’s going to pay for it," he said. 

A spokeswoman at Omnitrax wouldn’t comment on how the company views its legal obligations, but said it hasn’t moved toward dropping the line since its last news conference July 18.

"As we shared in Winnipeg during our technical briefing, we have not taken steps to discontinue the line," the company wrote. It repeated its position that its top priority is "working with government to return safe and reliable service."

dylan.robertson@freepress.mb.ca

Read more by Dylan Robertson .

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