Final Offer Arbitration
What is FOA?
Final Offer Arbitration (FOA) allows shippers who are dissatisfied with the rates charged or proposed to be charged by a railway company for the movement of goods, or with any of the conditions associated with the movement of goods, to submit the matter to an Arbitrator appointed by the Canadian Transportation Agency (the Agency).
The remedy may be used to challenge freight rates that are published in a railway company's tariff. It may also be used upon the expiry of rates in a confidential contract if the shipper and the carrier have not reached an agreement on new rates. Relevant ancillary services and charges may also be included in FOA submissions.
A key factor that the arbitrator must consider is whether there is available to the shipper an alternative, effective, adequate and competitive means of transporting the goods to which the matter relates. Shippers who do have access to viable transportation alternatives, for example, through trucking or access to another railway company, may find it difficult to succeed in an FOA.
FOA has territorial limitations. The Agency has declined to refer rates and conditions for movements beyond Canadian borders to an arbitrator. This restricts the use of FOA in relation to international rail traffic.
The FOA process is confidential and the arbitrator is required to select either the final offer of the shipper or that of the carrier and does not have the ability to impose a compromise on the parties. The arbitrator's decision is retroactive to the date on which the shipper filed its submission for FOA with the Agency. The arbitrator also gives direction regarding the payment of additional freight charges by the shipper or the partial refund of freight charges for the time from the shipper's submission for FOA and the date of the arbitrator's decision.
Who can initiate an FOA?
How does the process work?
Initiating the process
Step 1: Notice
The shipper must given written notice to the railway company of its intent to do so at least five days before submitting the matter for FOA.
Step 2: Submission to the Agency
After this five-day period, the shipper submits the matter to the Agency for FOA. The submission must include:
- the shipper's final offer which contains all the terms and conditions which the shipper proposes be applicable to its traffic but does not include any dollar amounts
- an undertaking by the shipper to ship the goods to which the FOA relates in accordance with the decision of the arbitrator and
- an undertaking by the shipper to pay its share of the arbitrator's fee.
If the shipper and the carrier have already agreed on an arbitrator, the name of that arbitrator should also be included, but such agreement is not required.
Step 3: Service on the railway company
A full copy of the FOA submission must be delivered to the carrier on the same day as it is submitted to the Agency.
The role of the Agency
Step 4: Preliminary applications
The carrier is entitled to raise preliminary objections to the FOA submission in a written application to the Agency. If the railway company brings such an application, the shipper will be given an opportunity to provide a written response, and the Agency will normally make a determination on the basis of the written submissions.
Unless the shipper consents to defer the appointment of an Arbitrator, the arbitration process moves forward even if the Agency has not yet made a determination on the carrier's objection. Should the Agency ultimately agree with the carrier's objection, it may order that the arbitration be discontinued, that it be continued under specified conditions or that the Arbitrator's decision be set aside.
In previous FOAs, the Agency has dealt with a variety of objections, including objections related to the type of ancillary service included in the shipper's final offer and the fact that a portion of the movement at issue occurred over the lines of a provincial railway company. An overview of some of the issues that have been raised before a referral to an Arbitrator are described on the Agency's website.
Step 5: Final offers of both parties
Within ten days after the shipper's original submission, both parties are required to file their final offers including dollar amounts with the Agency. The parties do not serve copies of their final offers on each other. Instead, the Agency simultaneously forwards a copy of the shipper's offer to the carrier and a copy of the carrier's offer to the shipper. If one party does not submit a final offer within the specified time, the final offer submitted by the other party is deemed to be the final offer selected by the Arbitrator.
Step 6: Appointment of arbitrator
The Agency maintains a list of arbitrators on its website and provides parties to an FOA with a current list and curriculum vitae for each Arbitrator. Each party will be asked to file a list of Arbitrators it would accept, and the Agency will look for a match, i.e., a name that appears on both lists. This process may be repeated if necessary and is described in greater detail on the Agency's website.
Unless the shipper consents to a deferral of the appointment, the Agency must appoint an Arbitrator within five days after providing the parties with each other's final offers.
The CTA prescribes certain steps for the conduct of an FOA. Additional procedural matters are normally determined by the Arbitrator in consultation with the parties. The Agency has developed rules for the conduct of an arbitration which, although not binding, may be adopted for this purpose. These procedures are available on the Agency's website .
Step 7: Pre-hearing conference (optional)
The Arbitrator typically convenes a pre-hearing conference by telephone to confirm the dates for the completion of remaining procedural steps and to deal with scheduling and other arrangements for an oral hearing, if required.
Step 8: Exchange of written evidence
Within 15 days of the date on which the Agency refers the matter to the Arbitrator, the parties must exchange, in writing, the information that they intend to submit to the Arbitrator in support of their final offers. In preparing this written evidence, the parties must keep in mind that they may not be permitted to place in evidence at the hearing information that has not been disclosed to the other party at this step.
Step 9: Exchange of interrogatories
Within seven days after written evidence is exchanged, each party may direct interrogatories to the other. Interrogatories are written questions which allow the parties to gain a better understanding of each otherâ€™s case. They can be a vehicle through which the shipper can gain relevant insight into operational matters or to obtain written confirmation from the carrier in relation to certain facts that form part of the shipper's case.
Step 10: Answers to interrogatories
Within 15 days after receiving interrogatories from the other party, the shipper and the carrier must provide answers to the interrogatories directed to them. This can become an onerous process in cases where large numbers of interrogatories are received. Since the CTA does not limit the number of interrogatories a party may direct to the other, it is not uncommon to have to prepare hundreds of answers in this limited time-frame.
The preparation of answers to interrogatories requires as much care as the preparation of evidence. Any discrepancies between the written answers given at this stage and answers provided by witnesses during the oral hearing can significantly weaken a party's credibility and overall case.
Parties may object to interrogatories that are irrelevant and may decline to disclose information they consider confidential. Before taking this approach, however, the shipper must be aware that if it unreasonably withholds information that the Arbitrator subsequently deems to be relevant, that withholding must be taken into account by the Arbitrator in making his or her decision.
Arbitration hearing and decision
Step 11: Oral hearing
Because the Arbitrator is required to render a decision within 60 days after the shipper's original submission to the Agency, there are normally only seven or eight days left in which to hold an oral hearing before the Arbitrator. To facilitate an efficient hearing process, it is possible to have the witnesses of each party simple adopt and summarize the evidence previously exchanged, in order to leave sufficient time for cross-examination. It is not uncommon for witnesses to give evidence as part of a panel, so that each witness may deal with those cross-examination questions that are most closely related to his or her area of responsibility and expertise, while making efficient use of limited hearing time.
Step 12: Arbitrator's decision
The Arbitrator must select either the final offer of the shipper or that of the carrier and does not have the ability to impose a compromise on the parties. The CTA prohibits the Arbitrator from including reasons in his or her decision, unless all of the parties to the arbitration request written reasons for the decision. Since reasons may simply provide the unsuccessful party with a basis for challenging the arbitrator's decision in court, it is generally not advisable to agree in advance or after a successful arbitration to request reasons.
While the CTA requires the arbitrator to render a decision within 60 days, it permits the parties to agree to an extension of that time-frame. Where the arbitrator requests additional time to consider the evidence presented, there is normally little if anything to be gained by refusing that request.
Step 13: Tariff or contract
Once the arbitrator renders a decision, the railway is required to set out the rate or rates and conditions that have been selected by the arbitrator in a tariff, unless the parties agree to include the rate or rates and conditions in a confidential contract. It is usually in the shipper's interest to defer a decision on whether the result of the arbitration will be set out in a tariff or in a confidential contract until after the arbitrator's decision.
Settlement and Discontinuance
How does a Multi-Party FOA work?
While the recently introduced multi-party FOA generally follows the similar procedural time-table, there are certain important differences:
Mandatory mediation prerequisite
The Agency may not refer a matter submitted to FOA by a group of shippers to an arbitrator unless the shippers demonstrate that an attempt has been made to mediate the matter. This requirement adds a preliminary procedural step, for which a minimum of 30 days should be allowed.
Objections by the carrier
In multi-party FOAs, the carrier must file ant preliminary objections within seven days of the shipper's joint submission. If no objection is filed within this time, the matter is deemed to be eligible for the multi-party process.
Carrier objections are likely to focus on this eligibility. This may include legal arguments and evidence on whether the matter is "common to all the shippers" and whether the terms of the joint offer "apply to all of them". As shippers begin to use the multi-party FOA remedy, the Agency will be called upon to define the meaning of these terms.
The shippers must file a joint answer to the carrier's objection within five days, and the carrier is given two days to file a written reply to that answer. The Agency is required to rule on the preliminary objection no later than the date on which it is required to refer the matter to the arbitrator.
The CTA extends certain deadlines to accommodate the participation of additional parties and the fact that shippers will be required to act jointly throughout the process. Specifically:
- the time for filing final offers including dollar amounts (Step 5 in the Summary above) is extended from ten days to 20 days;
- the time within which the arbitrator must render a decision (Step 12) is extended from 60 days to 120 days;
- the arbitrator is given the power to extend the deadlines for any of the intervening steps, if considered necessary.
How does a Summary Process FOA work?
Where a final offer involves freight charges totally $750,000 or less, a "summary process" applies, unless the shipper indicates in its original submission for FOA that it wishes to follow the standard process. The summary process is available in FOAs involving a single shipper as well as in multi-party FOA proceedings.
Fewer procedural steps
Steps 8 through 10 of the arbitration process outlined above (exchange of written evidence, interrogatories and answers to interrogatories) do not apply in a summary process FOA. Instead, each party may file a response to the final offer of the other within seven days after the matter is referred to the arbitrator. This eliminates the opportunity to direct written questions to the carrier, and the shipper will need to consider whether the ability to test the carrier's case in advance is essential to its case.
If the arbitrator considers it necessary, he or she may invite the parties to make oral representations or ask them to appear before him or her to provide further information.
Abbreviated time for a decision
In a summary process FOA involving a single shipper, the arbitrator must render a decision within 30 days (rather than 60 days) after the matter is first submitted to the Agency for FOA. In a multi-party FOA following the summary process, the deadline for rendering a decision is shortened from 120 days to 90 days.
What is required to succeed?
Apart from the requirement to consider the existence of competitive transportation alternatives, the CTA does not specify the criteria which an arbitrator must consider in reaching a decision. In preparing the information to be submitted to the arbitrator in support of its final offer, a shipper should accordingly also address why the information is relevant in the specific circumstances. This may differ from case to case.
Evidence to support the shipper’s final offer may include the following:
- absence of competitive transportation alternatives
The shipper should provide evidence that there is not available to it an alternative, effective, adequate and competitive means of transporting the goods to which the arbitration relates. This will include information regarding the absence of rail alternatives (or their lack of effectiveness because of higher costs, circuitous routing or additional handling involved). The limitations of other modes of transport should also be addressed, for example, by explaining why trucking over very long distances is not efficient. A shipper with large shipping volumes may be able to argue that the trucking industry simply does not have the resources to handle all of its traffic.
- rate history
The rates under which the shipper’s traffic moved immediately before the dispute being arbitrated may be evidence of what both parties considered reasonable in the recent past, if the rates in question were contained in a confidential contract. Freight rates unilaterally established by the railway in a tariff are evidence of what the railway considered reasonable. This can provide the basis for an argument that the railway company is seeking an excessive freight rate increase.
In some cases, the shipper may wish to include a more extensive rate history to demonstrate that the increase now being sought by the carrier is disproportionate to the year-over-year increases it has accepted over a representative period of time. Alternatively, a longer history could be used to support an argument that after a series of substantial rate increases, a more moderate hike is now appropriate.
- rate negotiations preceding the FOA
An account of negotiations leading up to the arbitration and, where appropriate, during the early stages of the arbitration process will generally provide the arbitrator with a better understanding of what has led the parties before him or her. Depending on the circumstances, this evidence may show that the carrier’s final offer represents a retreat from a more reasonable position taken during the negotiations or that, while the shipper has already made significant concessions, the carrier has not. The carrier’s conduct in negotiations may also provide more general evidence of an imbalance in bargaining strength.
- railway costs
The costs incurred by the carrier to provide service to the shipper may also be a relevant consideration. Railway costing is a specialized area of expertise, and a shipper wishing to lead evidence in this area will normally require the assistance of a consultant who can provide expert evidence of the costs associated with moving the shipper’s traffic. A railway costing consultant will ordinarily require details of how the shipper’s traffic moves, including routing, equipment, shipment weights and particulars of ancillary services provided.
- shipper investments in efficiency
Depending on the circumstances, evidence of facility upgrades or operational improvements implemented by the shipper that enable the carrier to provide the transportation services more efficiently may be of assistance to the shipper.
- the market for the shipper’s product
Commodity prices in the markets into which the shipper sells may also be a relevant consideration, for example, where the shipper can show that market conditions make the freight rates contained in the carrier’s final offer unsupportable. Including such evidence is not without risk, however, since it may enable the carrier to raise a multitude of issues relating to the shipper’s operating costs and efficiency.
- freight rates charged by the carrier on similar traffic
Where the shipper is able to access information that freight rates charged by the carrier on similar traffic are more comparable to those contained in the shipper’s final offer than to the rates advanced by the railway company, this may be of assistance. Access to this type of information, however, is normally limited. Rates published in general tariffs are typically higher than those offered by a carrier in negotiations for a confidential contract, and a shipper will generally not be able to obtain information about contractual rates enjoyed by other shippers. There may be circumstances, however, where evidence in this area is available, for example, if the FOA relates only to a portion of the shipper’s traffic and where rates paid by the shipper on its remaining traffic (which is not the subject of the FOA) offer a favourable comparison. To provide a proper basis for the comparison it may be necessary to also provide a railway costing analysis in respect of this other traffic.
The above list is not exhaustive. Depending on the circumstances, some of the types of evidence identified here may not assist the shipper. A shipper may also identify additional areas of evidence to support the argument that the shipper’s final offer is more reasonable than that of the carrier and more representative of what the carrier would be able to charge if it had to compete for the shipper’s traffic with other transportation service providers.
|Single Shipper||Single Shipper
|(no mandatory mediation)||Attempt to mediate the dispute
(6-10 weeks in advance)
|Written Notice to Carrier of Intent to Submit the Matter to FOA
(at least 5 days before filing)
|Written Notice to Carrier of Intent to Submit the Matter to FOA
(at least 5 days before filing)
|Submission filed with the Agency (including final offer without dollar amounts) and served on Carrier||Submission filed with the Agency (including final offer without dollar amounts) and served on Carrier|
|Shipper and carrier file their final offers (with dollar amounts) with the Agency(within 10 days of submission)||Shippers' joint final offer and carrier's final offer (with dollar amounts) are filed with the Agency (within 20 days of submission)
[Deadlines in respect of preliminary carrier objections occur in this period]
|Arbitrator appointed (within 5 days)|
|Parties exchange written evidence (within 15 days)||Parties file written responses with arbitrator (7 days)||Arbitrator appointed (within 5 days)|
|8 days left for hearing (if required by arbitrator)||Parties exchange written evidence (within 15 days or such longer time as determined by the arbitrator)||Parties file written responses with arbitrator (7 days or such longer time as determined by the arbitrator)|
|Interrogatories (within 7 days)||Decision (day 30)|
|Answers to Interrogatories (within 15 days)||Interrogatories (within 7 days or such longer time as determined by the arbitrator)||Hearing (if required by arbitrator)|
|8 days left for hearing||Answers to Interrogatories (within 15 days or such longer time as determined by the arbitrator)|
|Hearing||Decision (day 90)|
|Decision (day 120)|