March 3, 2015 by Canadian Underwriter
The federal government’s newly unveiled Bill C-52, the Safe and Accountable Rail Act, would, if it passes into law, introduce new limits on the power of railways to shift their risk to shippers.
In a Transportation Bulletin posted on their website on Feb. 27, McMillan LLP lawyers François Tougas and Ryan Gallagher (pictured below, respectively) noted a railway company is currently prohibiting from limiting or restricting its “liability to a shipper” for the movement of freight traffic, except by means of a written agreement.
“Railway companies have expressed increasing concern about risk of liability for the transportation of dangerous goods, particularly TIH (toxic inhalation hazard) commodities,” the bulletin said. “Some rail carriers had sought to pass on those risks to shippers of those goods by unilaterally issuing tariffs requiring shippers to indemnify, hold harmless and defend third party spill and accident claims against railways.”
The authors noted that Canadian Pacific Railway (CP) recently used its unilateral tariff-making power to shift liabilities to shippers. “In effect, CP allocated to shippers all liabilities associated with the rail transportation of TIH commodities to the extent caused by impecunious third parties, natural disasters and certain other causes; that is, anything not arising from the negligence or willful misconduct of CP,” the bulletin said.
In late 2012, a group of shippers of chlorine, a TIH commodity, initiated a proceeding before the Canadian Transportation Agency seeking an order requiring CP to remove the risk shifting portion of one of its tariffs on the grounds that it restricts CP’s liability to a shipper contrary to the Canada Transportation Act (http://laws-lois.justice.gc.ca/eng/acts/C-10.4/). The agency found the corresponding shipper obligation to indemnify and defend CP was limited to liabilities CP may owe to third parties, as opposed to “liability to a shipper.” Both CP and the shipper group have appealed certain aspects of the ruling to the Federal Court of Appeal.
“Bill C-52 would limit railway risk shifting power further by preventing a railway company from limiting its ‘liability, including to a third party,’ except ‘by means of a written agreement.’ This language accords to the agency the jurisdiction it felt it did not have in the chlorine shippers case against CP,” the authors wrote. “While the language of Bill C-52 does not explicitly address the indemnity and defense obligations that were at issue in those proceedings, the prohibition on liability shifting in the absence of a written agreement would logically extend to the unilateral imposition of shipper defense and indemnity obligations. Whether or not the agency or a court would agree that the CP limitations on its liability are prohibited or warranted remains to be seen.”
Nonetheless, the authors wrote, it is clear that railway companies and shippers remain free to allocate, by way of agreement, liabilities arising in connection with the rail transportation of a shipper’s traffic, the bulletin concluded.
The bill was a response to the Lac-Mégantic, Que. train derailment in July 2013, which claimed the lives of about 50 people. Among other items, the bill, if passed, into law, would implement a levy on shipments of crude oil, impose new railway insurance requirements and restrict a railway company’s ability to unilaterally shift risk of third party liability to shippers.