Scope Of Limitation Of Liability Clauses In Rail Tariffs Considered By Federal Court Of Appeal

A recent decision of the Federal Court of Appeal ("FCA") confirmed that CP Rail can benefit from limitations of liability in relation to claims of third parties, contained in its published tariffs, where CP Rail is not negligent. The case is relevant as railways are sometimes named as defendants where they are not negligent in relation to losses which are out of their control. However, the FCA held that CP Rail cannot limit its liability to shippers through published tariffs, for loss or damage or delay resulting from CP Rail's negligence.

This decision has implications for the allocation of risk between shippers and railway companies, and may provide an incentive for parties to negotiate direct commercial agreements instead of relying on published tariffs.

In Canadian Pacific Railway Company v. Canexus Chemicals Canada LP et al., 2015 FCA 283, the FCA overturned a decision of the Canadian Transportation Agency (the "CTA"), which studied limitation of liability and indemnity language in published railway tariffs. A group of shippers (the "Shippers") had asked the CTA to rule on the legality and reasonableness of the limitation of liability and indemnity provisions found in Item 54 of CP Rail's Tariff 8. The FCA undertook a complex statutory interpretation exercise involving the Canada Transportation Act (the "Act"), its associated regulations, and CP Rail's Tariff 8, and ultimately overturned the CTA's decision.

The Shippers alleged that the limitation of liability provisions in Tariff 8 did not comply with section 137(1) of the Act, which restricts a railway company's ability to limit its liability by tariff. The CTA had found that the limitation of liability provisions in CP Rail's Tariff 8 were not being interpreted by CP in a manner which was consistent with section 137(1) of the Act. The FCA disagreed and ruled, in part, that section 137(1) of the Act allowed CP to limit its liability to third parties in circumstances where CP was not negligent.

By way of background, the FCA observed that railway companies are subject to common carrier obligations requiring them to accept goods for carriage from any person who pays the relevant tariff. The common carrier obligations are codified in section 113 of the Act. As a result of the common carrier obligations, railway companies do not have the ability to decline traffic that represents an unacceptable exposure to liability. Railway companies must publish tariffs setting out their rates and...