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Federal Court upholds 2014 ruling that CN failed to provide enough grain cars

EDMONTON — The Federal Court of Appeal has upheld a ruling that found Canadian National Railway breached its level of service obligations to a Prairie grain shipping company during a bumper crop two years ago. 

The case focused on a complaint filed by Calgary-based Louis Dreyfus Commodities Canada Ltd. with the Canadian Transportation Agency.

Dreyfus said CN (TSX:CNR) failed to provide enough rail cars to some of its grain elevators in Alberta and Saskatchewan to ship the record 2013-2014 crop.

The agency ruled in favour of Dreyfus and, at one point, ordered CN to supply rail cars to grain facilities in Glenavon, Sask., Aberdeen, Sask., Joffre, Alta., and Lyalta, Alta.

CN filed an appeal, arguing the agency did not take into account the exceptional size of the grain crop, the effect extreme cold weather had on the rail transportation system or demands from other grain companies.

CN also took issue with how the agency evaluates railways and said that it failed to treat it with procedural fairness.

A panel of three justices dismissed CN's appeal in a ruling handed down in Ottawa.

"There is no merit in CN's argument that it was denied procedural fairness," Justice Wyman Webb wrote.

Webb noted that during one six-week period of the crop year, CN failed to provide any grain shipping cars to the four elevators.

"CN submitted to the agency that it 'quickly ramped up its grain capacity after winter relented around the first week of March', therefore, it is difficult to understand how the harsh winter could be a justification for not delivering any cars to LDC (Dreyfus) during weeks 30 to 35."

It's not clear if CN faces any kind of penalty for breaching the service agreement with Dreyfus.

The transportation agency ordered CN to comply with the terms of its confidential agreement with the company in 2014 but details of the order were blacked out.  

Dreyfus officials declined to comment on the appeal court ruling.

The railway said it does not intend to appeal.

"CN is disappointed with the Federal Court of Appeal decision given the huge grain crop and severe winter conditions that significantly affected its operations in 2013-14," Mark Hallman, a CN spokesman wrote in an email Thursday, declining to discuss whether the rail company faces penalties.

The Canadian Transportation Agency did not respond to a request for comment.

Court documents cited in the case say the 2013 grain crop was 77 million tonnes compared to a previous five-year average of 57.2 million tonnes.

The Saskatchewan government said in July it warned the major rail companies and the federal government to be prepared to deal with another large crop this year.

Agriculture Minister Lyle Stewart said the province stressed the importance of ensuring the grain handling and transportation system is prepared to move this crop in a timely manner.

Stewart said grain farmers who were affected by the rail bottleneck in 2013-14 eventually recouped some of their losses when the crop was finally delivered, but he said transportation delays hurt customer confidence.

CN and Canadian Pacific (TSX:CP) have both said they have plans in place to transport the grain.