Ontario – arbitral award given no weight in court when litigant not party to the arbitration – #200

In G.E.X.R. v. Shantz Station and Parrish & Heimbecker, 2019 ONSC 1914, Madam Justice Catrina D. Braid declined to give evidentiary weight in her court to an arbitral award to which one of the litigants before her was not a party.  While open to giving arbitral awards some weight in certain circumstances, the plaintiff’s absence from the arbitration was sufficient to disregard the award.  Braid J. also commented on whether an adverse inference should be drawn if neither party called a key witness from the arbitral proceedings.

Goderich-Exeter Railway Company Limited (“GEXR”), a railway company, operates a shortline track (“Guelph Line”) owned by Canadian National Railway (“CN”) and connecting to other CN operated lines.  Parrish and Heimbecker (“P&H”), a grain company, ships cash grain eastward from the prairies and supplies that Eastern Canadian flour milling industry.

CN and GEXR have a rail track lease agreement authorizing GEXR to provide rail services over the Guelph Line.  GEXR holds a Certificate of Fitness issued by the Canadian Transportation Agency (“CTA”) granting it authority to be the only authorized operator on the Guelph Line during its lease with CN. Pursuant to the Canada Transportation Act, SC 1996, c 10, the Certificate of Fitness provides GEXR with the obligations and status of a railroad under Federal legislation.

Incorporated by P&H, Shantz Station Terminal Ltd. (“Shantz Station”) offers grain terminal and rail transit load facilities, including one along the Guelph Line (“Shantz Station Terminal”) built in 2003.  P&H is the sole client of that facility.  Both P&H and Shantz Station are “shippers” within the meaning of section 6 of the Canada Transportation Act.

The dispute involved liability for demurrage, a charge levied when loading/unloading goods in transit takes longer than the parties anticipated.

[13] The availability of railcars to move goods is a crucial element of the economic operations of a railway. Nevertheless, railway companies allow shippers a reasonable period of “free time” for loading or unloading railcars when equipment is placed at the shipper’s disposal. The railcars are provided for the purpose of transport and not for storage. When a shipper exceeds the time period to unload the freight and thereby withholds the railcars from transport service, the shipper may be liable to pay demurrage.

In the court litigation before Braid J., GEXR claimed P&H owed it demurrage in accordance with GEXR’s published tariff for delayed unloading at the Shantz Station Terminal.  P&H refused to pay the charges on the basis that, absent a contract between GEXR and P&H, GEXR had neither a contractual right nor legislative authority to require demurrage.  P&H asserted that it was prepared to pay demurrage at its station but only against invoices from CN.

In 2001, P&H sought to transition from moving its milling wheat by vessel to shipping its wheat directly by rail.  Though CN was interested in running a scheduled carrier program and use P&H’s milling wheat to fill the back of its trains, the parties anticipated that CN’s scheduling decisions might lead to “bunching”, the irregular receipt of rail cars at the destination.  Bunching may result in delays in unloading and impact on the shipper’s liability for demurrage if unable to unload the rail cars within the timeline set by the applicable demurrage tariff.

Based on prior experience, P&H expressed concerns about locating the terminal on a shortline.  To address those concerns, CN and P&H entered into a March 12, 2003 Memorandum of Understanding (“MOU”).

[25] Representatives of CN reassured Mr. Bryson that P&H would not be disadvantaged as a result of locating its terminal on the Guelph Line. They stated that only CN would invoice P&H for demurrage and that CN standard demurrage practices would be applied. CN drafted a Memorandum of Understanding (MOU), which was the agreement between CN and P&H. Based on the MOU, P&H agreed to build a terminal at Breslau on the Guelph Line.

The MOU included an arbitration clause.

Once service on the Guelph line commenced, a dispute arose whether GEXR could directly charge P&H demurrage.  Despite GEXR’s attempts at intervals in 2005, 2006 and 2007 to invoice P&H, the latter responded by stating it would not pay demurrage as per its agreement with CN.  Beginning in July 2010, GEXR began sending regular invoices and continued to do so despite P&H returning them and restating its position that only CN had the right to charge it demurrage. 

In or about June 2011, GEXR threatened to cease servicing P&H but CN told GEXR that GEXR was not entitled to alter service without CN’s prior consent.  CN sent P&H an invoice which P&H then recalculated under CN Tariff 9000 and paid it in part.  CN forwarded to GEXR the sum paid by P&H.  Because the reductions in the invoice were due to bunching on CN’s lines, GEXR did not understand the reduction and did not accept it.  CN did not send any further invoices to P&H on GEXR’s behalf.  Despite proposals by P&H to CN to modify their agreement and permit GEXR to bill demurrage directly to P&H, no new agreement was entered into by CN and P&H.

P&H initiated arbitration against CN.  GEXR was not a party to the arbitration.  The arbitrator determined that (i) CN had agreed in the MOU that only it would invoice P&H for demurrage and (ii) CN had breached the MOU.  The arbitrator awarded P&H damages.  Quantification of the damages was adjourned after completion of the court litigation held before Braid J.

Following the arbitration award, CN invoiced P&H for demurrage between August 2011 and October 2012, consolidating GEXR’s demurrage invoices.  The amounts are approximately the same amount claimed by GEXR in the litigation before Braid J.

Braid J. observed the interplay of the parallel court and arbitral processes, noting that CN’s invoice remained unpaid at the close of the evidence before her at trial and that there remained “a live issue between the parties as to whether CN Tariff 9000 should apply to that invoice”.

Asked by P&H to give the arbitral award evidentiary weight in the trial before her, Braid J. declined to do so.

[70] The arbitrator’s ruling is not, of course, binding on this court. GEXR was not even a party to the arbitration. Although an arbitral decision may carry some evidentiary weight in a subsequent or related matter, the weight and significance to be given to the prior decision will depend on the circumstances of each case, including the similarity of the issues, the identity of the participants, the nature of the earlier proceedings, and the opportunity given to the prejudiced party to contest it: see British Columbia (Attorney General) v. Malik, 2011 SCC 18 (CanLII); Bank of China v. Fan, 2014 BCSC 2043 (CanLII).

[71] P&H argues that the arbitrator’s decision should be accorded considerable weight in this action. I decline to do so.  Not only did GEXR not participate in those proceedings, I find that it is not necessary to rely on the arbitrator’s decision in light of the viva voce and documentary evidence introduced at this trial.

For reasons particular to the facts and the applicable transportation law, including legislation and case law, Braid J. dismissed GEXR’s action after thorough consideration.

Braid J. also provided comment on the absence of a CN witness.  Urged by defendants to draw an adverse interest, Braid J. declined to do so.  Her reasoning lends itself also to arbitral hearings in which third parties have relevant information but neither party calls upon them to attend and testify.

[30] None of the parties called a representative of CN to testify at this trial. The defendants ask the court to draw an adverse inference against GEXR; and to make a finding that GEXR did not call any CN witnesses because it anticipated that CN’s evidence would not assist GEXR but would instead confirm Mr. Bryson’s testimony.

[31] In the appropriate case, the court may draw an adverse inference from the failure to call witnesses. However, the circumstances in which an adverse inference may be drawn will be rare and should only be done with caution. Where uncalled witnesses are equally available to any party, an adverse inference will be unwarranted: see Sopinka, Lederman & Bryant, The Law of Evidence in Canada 5th ed. (Markham: LexisNexis, 2018) at paras. 6.471–6.472; R. v. Jolivet, 2000 SCC 29 (CanLII), [2000] 1 S.C.R. 751.

urbitral note – See paras 23-28 of Bank of China v. Fan, 2014 BCSC 2043 for a summary discussion of when relitigating a matter would not amount to abuse of process and whether the admissibility and effect of previous decisions promotes efficiency in dispute resolution and avoids duplication and inconsistent results.