Date: 20180307 Docket: T-348-16 Citation: 2018 FC 250 Ottawa, Ontario, March 7, 2018 PRESENT: The Honourable Madam Justice Strickland BETWEEN: OCEANEX INC. Applicant and CANADA (MINISTER OF TRANSPORT) AND MARINE ATLANTIC INC. Respondents and ATTORNEY GENERAL OF NEWFOUNDLAND AND LABRADOR Intervener JUDGMENT AND REASONS Background 4 The Parties 4 Constitutional Route 7 Legislation 8 (

i) Terms of Union 8 (ii) Constitution Act, 1982 9 (iii) Marine Atlantic Inc. Acquisition Authorization Act 10 (iv) Financial Administration Act 12 (

v) Canada Transportation Act 22 (vi) Canada Marine Act 23 The Evidence 25 History of Setting the Rates 27 Tripartite Agreement 29 Bilateral Agreement and Subsidiary Operating Agreements 30 2007 Revitalization Strategy (Phase I) 32 2010 Revitalization Strategy (Phase II) 33 Issues and Standard of Review 36 Constitutional Question 38 Preliminary Observation – Oceanex’s application for judicial review 39 Issue 1: Who made the 2016/17 Freight Rate Decision, the Minister or MAI? If MAI made the decision, is it a federal board, commission or tribunal as defined by s 2(1) of the Federal Courts Act ? 40 (

a) Who made the 2016/17 Freight Rate Decision, the Minister or MAI? 40 Oceanex’s Submissions 40 MAI’s Submissions 44 Canada’s Submissions 46 Newfoundland’s Submissions 52 Analysis 52

(

i) Absence of any statutory requirement that the Minister set freight rates 52 (ii) Corporate Plan 54 (iii) Control over MAI 63 (iv) Bilateral Agreement 72 (

a) Effect of 1987 OIC on amendment of the Bilateral Agreement 78 (

b) Was s 7(2) of the Bilateral Agreement amended by the parties such that the Minister was not required to approve MAI’s rates which do not exceed 5% 90 (

b) Is MAI a federal board, commission or tribunal? 94 Oceanex’s Submissions 95 MAI’s Submissions 97 Analysis 99 (

i) MAI’s power not conferred by statute 102 (ii) Crown prerogative 103 Issue 2: Does Oceanex have standing to bring the application? 117 Oceanex’s Submissions 117 MAI’s Submissions 121 Canada’s Submissions 122 Analysis 125 (

i) Direct standing 125 (ii) Public standing 134 (

a) Serious justiciable issue 136 (

b) Real stake or genuine interest 138 (

c) Reasonable and effective means of bringing the issue before the Court 140 Issue 3: Was s 5 of the CTA a relevant consideration when making the 2016/17 Freight Rate Decision? 145 Oceanex’s Submissions 145 MAI’s Submissions 147 Canada’s Submissions 148 Newfoundland’s Submissions 150 Analysis 152 Issue 4: If s 5 of the CTA is a relevant consideration, can it constrain the level of public cost Canada assumes to provide ferry services on the Constitutional Route, the provision of which services arises from the Terms of Union? 169 Oceanex’s Submissions 170 Canada’s Submission 173 MAI’s Submissions 174 Newfoundland’s Submissions 177 Analysis 181 Issue 5: Was the 2016/17 Freight Rate Decision reasonable? 195 Conclusion 196 Costs 198

[ 1 ] This is an application for judicial review brought by Oceanex Inc. (“Oceanex”), pursuant to s 18.1 of the Federal Courts Act , RSC, 1985, c F-7 (“ Federal Courts Act ”), challenging a decision which approved the 2016/17 rates for the provision by Marine Atlantic Inc. (“MAI”) of commercial freight services by sea to and from Port aux Basques on the island of Newfoundland and North Sydney, Nova Scotia.

As will be discussed below, the identity of the decision-maker is at issue and the challenge has given rise to a notice of a constitutional question. [ 2 ] Oceanex asserts that the Minister of Transport (“Minister”) permitted MAI to charge freight rates that are heavily subsidized, compete unfairly with and are detrimental to Oceanex, and that the decision that effected the 2016/17 freight commercial rates (“2016/17 Freight Rate Decision”) was made without taking into account, and was inconsistent with, relevant considerations, in particular, the National Transportation Policy (“NTP”) as set out in s 5 of the Canada Transportation Act , SC 1996, c 10 (“CTA”).

For the reasons that follow I have determined that Oceanex’s application cannot succeed. Background [ 3 ] What follows is a brief description of the parties, the relevant legislation, the evidence and factual background leading up to the making of the 2016/17 Freight Rate Decision. The Parties [ 4 ] Oceanex is a corporation incorporated and existing pursuant to the

Canada Business Corporations Act , RSC, 1985, c C-44 (“CBCA”). It describes itself as carrying on the business of short sea shipping and intermodal freight transportation in Canada. As a freight carrier, it offers scheduled pier to pier commercial freight services by water between the ports of Halifax, Nova Scotia and Montreal, Quebec and the port of St. John’s, Newfoundland and Labrador. It states that it also offers door-to-door intermodal freight transportation service between the island of Newfoundland and destinations across North America.

Oceanex was formed in 1991 and from 1998 to 2007 operated as a limited purpose trust, traded publically on the Toronto Stock Exchange. In 2007 a group of investors acquired all of the outstanding shares of Oceanex and privatized the company, one of those investors was Captain Sidney J. Hynes who has held the position of Executive Chairman of Oceanex since the privatization.

Oceanex currently owns and operates three vessels and states that it transports all types of freight traffic, including general cargo, roll on/roll off equipment, containers and trailers. [ 5 ] MAI is a corporation incorporated and existing pursuant to the CBCA . It is also a parent Crown corporation, as defined in s 83(1) of the Financial Administration Act , RSC, 1985, c F-11 (“FAA”), and is listed as such in

Schedule III of the FAA. As a Crown corporation, its corporate affairs and financial administration are governed by

Part X of the FAA. By way of corporate history, CN Marine Corporation was incorporated in December 1977 under the CBCA, at which time its shares were held by its parent company, the Canadian National Railway Corporation (“CNR”). In December 1978, the name of CN Marine Corporation was changed to CN Marine Inc. In 1986, pursuant to the Marine Atlantic Inc.

Acquisition Authorization Act , SC 1986, c 36, (“MAIAAA”) the Minister acquired from CNR all of the common shares of CN Marine Inc., which were held in trust for Her Majesty the Queen in Right of Canada and, pursuant to s 3 of the MAIAAA, the company’s name was changed to Marine Atlantic Inc. [ 6 ] MAI currently provides services on two routes. The first is a year round daily service between North Sydney, Nova Scotia and Port aux Basques, Newfoundland and Labrador which carries a mix of commercial and passenger traffic. The trip of 96 nautical miles takes approximately 6 hours from port to port.

During off peak season, January to March, there are a minimum of 2 scheduled sailings per day from each of North Sydney and Port aux Basques, or 28 sailings per week. During the shoulder season, September to December and April to June, this increases to 34 sailings per week and, during peak season, July to August, there are 46 crossings per week. The second route is between North Sydney and Argentia, Newfoundland and Labrador.

This is seasonal, June through September, primarily transports passengers, is a 280 nautical mile trip which takes approximately 14 to 16 hours port to port and is offered once per day between Monday and Saturday. MAI currently operates four vessels which have the ability to accommodate both commercial and private passenger vehicle traffic as well as passengers.

It owns three of these vessels and charters a fourth. [ 7 ] The Minister of Transport is responsible for the management and direction of the Department of Transport (“Transport Canada” or “TC”) ( Department of Transport Act , RSC 1985, c T-18 (“ Department of Transport Act ”), s 3(2)). This includes being accountable to Parliament for Crown corporations falling within the mandate of Transport Canada, such as MAI. The Crown Corporation and Portfolio Governance group within Transport Canada supports the Minister in fulfilling these responsibilities for reporting to Parliament.

Canada acknowledges that under the Terms of Union of Newfoundland with Canada (“Terms of Union”), which are incorporated by and are a

schedule to the Newfoundland Act , 12-13 Geo. VI, c 22 (U.K.) (“ Newfoundland Act ”), as referenced in s 52(2) of the Constitution Act, 1982 , being

Schedule B to the Canada Act 1982 (UK), 1982, c 11 (“ Constitution Act, 1982 ”) and thereby are a part of the Constitution of Canada, Canada is constitutionally obliged to provide a ferry service between North Sydney, Nova Scotia and Port aux Basques, Newfoundland and Labrador (“Constitutional Route”). This service is effected by MAI. [ 8 ] By Order dated July 19, 2016, the Attorney General of Newfoundland and Labrador (“Newfoundland”) was granted intervenor status in this application. Newfoundland states that it intervenes as the application requires judicial

interpretation of some of the most important provisions of the Terms of Union and because any decision that eliminates or reduces MAI’s federal subsidy will detrimentally impact the economy and the well-being of the citizens of Newfoundland and Labrador. Constitutional Route [ 9 ] While the distance of the Constitutional Route is not great, a mere 96 nautical miles, the route is extremely important to the residents and economy of Newfoundland and Labrador.

It has been described as the economic lifeline of the province, delivering goods to stores, exports to market as well as tourists to hotels and, friends and relatives to homes; the province’s marine highway (“On Deck & Below: A Report on the Gulf Ferry Forum”, Sept 1999 report to the Federal Minister of Transport, Leamon Affidavit, Exhibit 4) and, as " “an essential infrastructure component in strengthening the province’s economy” " (“Our Place in Canada: Main Report of the Royal

Commission on Renewing and Strengthening Our Place in Canada”, Leamon Affidavit, Exhibit 6). As to the ferry service on the Constitutional Route, a Special Examination Report of Marine Atlantic Inc. by the Auditor General of Canada (“Auditor General’s 2009 Report”) described MAI, which is the only provider of ferry services on that route, as a vital transportation link to Newfoundland and Labrador, its commercial customers transporting about 50% of the goods entering the province, including about 90% of perishable goods (Leamon Affidavit, Exhibit 8).

The Canadian Industrial Relations Board ruled in 2003 that a strike or lockout affecting MAI’s ferry operations at any time of the year would impose an immediate and serious danger to Newfoundland’s public safety or health ( Marine Atlantic Inc, 2004 CIRB 275 at paras 41-45 , Leamon Affidavit, Exhibit 5) and, a report prepared by the Minister of Transport’s Advisory Committee on Marine Atlantic Inc. states that it is generally recognized that MAI plays an essential role in the economic and social life of the province, carrying approximately 37% of all passengers, 65% of all freight (including 95% of all perishable goods) as well as hazardous goods, and that tourists travelling by ferry contribute to the economy of the province (A Strategy for the Future of Marine Atlantic Inc., Minister of Transport’s Advisory Committee on Marine Atlantic Inc., March 31, 2005, Leamon Affidavit, Exhibit 7).

Legislation (

i) Terms of Union [ 10 ] When Newfoundland became a province of Canada in 1949, the agreed basis for that union was set out in the Terms of Union. Relevant to this application are Terms 31, 32 and 36: Public Services, Works and Property 31. At the date of Union, or as soon thereafter as practicable, Canada will take over the following services and will as from the date of Union relieve the Province of Newfoundland and Labrador of the public costs incurred in respect of each service taken over, namely, (

a) the Newfoundland Railway, including steamship and other marine services; (

b) the Newfoundland Hotel, if requested by the Government of the Province of Newfoundland and Labrador within six months from the date of Union; (

c) postal and publicly owned telecommunication services; (

d) civil aviation, including Gander Airport; (

e) customs and excise; (

f) defence; (

g) protection and encouragement of fisheries and operation of bait services; (

h) geological, topographical, geodetic, and hydrographic surveys; (

i) lighthouses, fog alarms, buoys, beacons, and other public works and services in aid of navigation and shipping; (

j) marine hospitals, quarantine, and the care of shipwrecked crews; (

k) the public radio broadcasting system; and (

l) other public services similar in kind to those provided at the date of Union for the people of Canada generally. 32.

(1) Canada will maintain in accordance with the traffic offering a freight and passenger steamship service between North Sydney and Port aux Basques, which, on completion of a motor highway between Corner Brook and Port aux Basques, will include suitable provision for the carriage of motor vehicles.

(2) For the purpose of railway rate regulation the Island of Newfoundland will be included in the Maritime region of Canada, and through traffic moving between North Sydney and Port aux Basques will be treated as all rail traffic.

(3) All legislation of the Parliament of Canada providing for special rates on traffic moving within, into, or out of, the Maritime region will as far as appropriate, be made applicable to the Island of Newfoundland. … 36. Without prejudice to the legislative authority of the Parliament of Canada under the British North America Acts, 1867 to 1946, any works, property, or services taken over by Canada pursuant to these Terms shall thereupon be subject to the legislative authority of the Parliament of Canada. (ii) Constitution Act, 1982 [ 11 ] Pursuant to s 52 of the Constitution Act, 1982 , the Terms of Union are part of the Constitution of Canada:

" 52.

(1) The Constitution of Canada is the supreme law of Canada, and any law that is inconsistent with the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect. " " 52.

(1) La Constitution du Canada est la loi suprême du Canada; elle rend inopérantes les dispositions incompatibles de toute autre règle de droit. " "

(2) The Constitution of Canada includes " "

(2) La Constitution du Canada comprend : " " (

a) the Canada Act 1982, including this Act; " " (

b) the Acts and orders referred to in the schedule; and " " (

c) any amendment to any Act or order referred to in paragraph (

a) or (b). " "

a) la Loi de 1982 sur le Canada, y compris la présente loi; " "

b) les textes législatifs et les décrets figurant à l’annexe; " "

c) les modifications des textes législatifs et des décrets mentionnés aux alinéas

a) ou b). " "

(3) Amendments to the Constitution of Canada shall be made only in accordance with the authority contained in the Constitution of Canada. " "

(3) La Constitution du Canada ne peut être modifiée que conformément aux pouvoirs conférés par elle. " [ 12 ]

Section 53 and the

Schedule to the Constitution Act, 1982 , Modernization of the Constitution, lists amendments to the British North America Act, 1867 , as revised, now the Constitution Act, 1867 , and other enactments effecting the admission of provinces and territories. The Newfoundland Act is so listed, the Terms of Union being a

schedule thereof. (iii) Marine Atlantic Inc. Acquisition Authorization Act [ 13 ] Pursuant to s 3 (1) of the MAIAAA , on June 27, 1986, the name of CN Marine Inc., a corporation incorporated under the CBCA , was changed to Marine Atlantic Inc. and the articles of the corporation were amended accordingly. Further, the Minister was authorized to and did acquire all the common shares of MAI held by CNR to be held in trust for Her Majesty in right of Canada (s 4(2)). Sections 7 and 8 dealt with certain property and works and s 9 with the amendment of MAI’s articles of incorporation to restrict its business to marine transportation: " 7

(1) On the direction of the Minister, the National Company shall transfer to Her Majesty in right of Canada the property and works listed in

Part II of

Schedule B to Order in Council P.C. 1979-1449 of May 9, 1979. " "

(2) The management, administration and control of the property and works transferred to Her Majesty pursuant to subsection (1) is hereby vested in the Minister. " " 7

(1) Au reçu de l’ordre du ministre, la Société nationale transfère à Sa Majesté du chef du Canada les biens et ouvrages énumérés à la

partie II de l’annexe B du décret C.P. 1979-1449 du 9 mai 1979. " "

(2) Le ministre est chargé de la gestion et du contrôle des biens et ouvrages transférés à Sa Majesté en application du paragraphe (1). " " 8 The Minister, on such terms and conditions as the Governor in Council may prescribe, may sell, lease or otherwise dispose of to " " Marine Atlantic Inc. " " , or by agreement in writing permit " " Marine Atlantic Inc. " " to use, " " (

a) any real or personal property or interest therein, or " " (

b) any power, right or privilege over or with respect to any real or personal property or interest therein " " that is vested in or owned, controlled or occupied by Her Majesty in right of Canada and over which the Minister has the management, administration or control. " " 8 Le ministre peut, aux conditions que le gouverneur en conseil détermine, vendre ou donner en location à " " Marine Atlantique S.C.C. " " , ou d’une façon générale aliéner au profit de la société, ou permettre à celle-ci, selon entente écrite, d’utiliser les biens suivants — dont la propriété, le contrôle ou l’occupation appartient à Sa Majesté — gérés ou contrôlés par le ministre : " "

a) des biens meubles ou immeubles, ou des droits sur ceux-ci; " "

b) tout pouvoir, droit ou privilège afférent à des biens meubles ou immeubles, ou des droits liés à tel pouvoir, droit ou privilège. " " 9 The Minister and " " Marine Atlantic Inc. " " are hereby authorized to take, and shall within three months after the coming into force of this

section take, such steps as are necessary to amend the articles of " " Marine Atlantic Inc. " " to restrict the business that it may carry on to the acquisition, establishment, management and operation of a marine transportation service, a marine maintenance, repair and refit service, a marine construction business and any service or business related thereto. " " 9 Le ministre et " " Marine Atlantique S.C.C. " " sont autorisés à prendre les mesures nécessaires pour modifier les statuts de " " Marine Atlantique S.C.C.

" " afin de limiter les activités de la société à l’acquisition, la mise sur pied, la gestion et l’exploitation d’un service de transport maritime, d’un service d’entretien, de réparations et de radoub, d’une entreprise de construction navale et d’une entreprise ou de services corrélatifs. La procédure de modification est entamée dans les trois mois suivant l’entrée en vigueur du présent article. "

(iv) Financial Administration Act [ 14 ]

Part X of the FAA concerns Crown corporations and is binding on the Crown (s 84). Subsection 83(1) sets out the

definitions for that

part including a " “parent crown corporation” " which means a corporation that is wholly owned directly by the Crown, but does not include a departmental corporation. [ 15 ] Pursuant to s 83(2), a corporation is wholly owned directly by the Crown if: " (

a) all of the issued and outstanding shares of the corporation, other than shares necessary to qualify persons as directors, are held, otherwise than by way of security only, by, on behalf of or in trust for the Crown; or " " (

b) all the directors of the corporation, other than ex officio directors, are appointed by the Governor in Council or by a minister of the Crown with the approval of the Governor in Council. " "

a) toutes les actions en circulation de la personne morale, sauf les actions nécessaires pour conférer la qualité d’administrateur, sont détenues, autrement qu’à

titre de garantie seulement, par Sa Majesté, en son nom ou en fiducie pour elle; " "

b) les administrateurs de la personne morale, sauf les administrateurs nommés d’office, sont nommés par le gouverneur en conseil ou par un ministre avec l’approbation du gouverneur en conseil. " [ 16 ] Corporate affairs are addressed in Division I of the FAA . Each Crown corporation is ultimately accountable, through the appropriate minister, to Parliament for the conduct of its affairs (s 88). The Governor in Council may, on the recommendation of that minister, give a directive to a parent Crown corporation, if the Governor in Council is of the opinion that it is in the public interest to do so (s 89(1)).

However, before a directive is given, the minister shall consult the board of directors of the corporation with respect to the content and effect of the directive (s 89(2)). The minister must also cause a copy of any directive given to a parent Crown corporation to be laid before each House of Parliament on any of the first fifteen days on which that House is sitting after the directive is given (s 89(4)).

Forthwith after implementing a directive and completing any actions required to be taken in connection therewith, the parent Crown corporation shall notify the minister that the directive has been implemented (s 89(6)). [ 17 ] Division II addresses officers and directors. An officer-director, in respect of a parent Crown corporation, is defined to mean the chairperson and the chief executive officer of the corporation, by whatever name called (s 104.1).

Section 105 provides for the appointment of directors and officer-directors: " 105

(1) Each director, other than an officer- director, of a parent Crown corporation shall be appointed by the appropriate Minister, with the approval of the Governor in Council, to hold office during pleasure for a term not exceeding four years that will ensure, as far as possible, the expiration in any one year of the terms of office of not more than one half of the directors of the corporation. " " 105

(1) À l’exception des administrateurs- dirigeants, les administrateurs d’une société d’État mère sont nommés à

titre amovible par le ministre de tutelle, avec l’approbation du gouverneur en conseil, pour des mandats respectifs de quatre ans au maximum, ces mandats étant, dans la mesure du possible, échelonnés de manière que leur expiration au cours d’une même année touche au plus la moitié des administrateurs. " " … " " … " "

(5) Each officer-director of a parent Crown corporation shall be appointed by the Governor in Council to hold office during pleasure for such term as the Governor in Council considers appropriate. " "

(5) Les administrateurs-dirigeants d’une société d’État mère sont nommés à

titre amovible par le gouverneur en conseil pour le mandat que celui-ci estime indiqué. " [ 18 ] Subject to

Part X, the board of directors of a Crown corporation is responsible for the management of the businesses, activities and other affairs of the corporation (s 109). [ 19 ] Division III deals with financial management and control: 122

(1) Each parent Crown corporation shall annually submit a corporate plan to the appropriate Minister for the approval of the Governor in Council on the recommendation of the appropriate Minister and, if required by the regulations, on the recommendation of the Minister of Finance. 122

(1) Chaque société d’État mère établit annuellement un plan d’entreprise qu’elle remet au ministre de tutelle pour que celui-ci et, si les règlements l’exigent, le ministre des Finances en recommandent l’approbation au gouverneur en conseil.

(2) The corporate plan of a parent Crown corporation shall encompass all the businesses and activities, including investments, of the corporation and its wholly- owned subsidiaries, if any.

(2) Le plan d’une société d’État mère traite de toutes les activités de la société et, le cas échéant, de ses filiales à cent pour cent, y compris leurs investissements.

(3) The corporate plan of a parent Crown corporation shall include a statement of (

a) the objects or purposes for which the corporation is incorporated, or the restrictions on the businesses or activities that it may carry on, as set out in its charter; (

b) the corporation’s objectives for the period to which the plan relates and for each year in that period and the strategy the corporation intends to employ to achieve those objectives; and (

c) the corporation’s expected performance for the year in which the plan is required by the regulations to be submitted as compared to its objectives for that year as set out in the last corporate plan or any amendment thereto approved pursuant to this section.

(3) Le plan d’une société d’État mère comporte notamment les renseignements suivants :

a) les buts pour lesquels elle a été constituée ou les restrictions quant aux activités qu’elle peut exercer, tels qu’ils figurent dans son acte constitutif;

b) ses objectifs pour la durée du plan et chaque année d’exécution de celui-ci, ainsi que les règles d’action qu’elle prévoit de mettre en oeuvre à cette fin;

c) ses prévisions de résultats pour l’année durant laquelle le plan doit, en conformité avec les règlements, être remis, par rapport aux objectifs pour cette année mentionnés au dernier plan, original ou modifié, approuvé en conformité avec le présent article.

(4) The corporate plan of a parent Crown corporation shall be prepared in a form that clearly sets out information according to the major businesses or activities of the corporation and its wholly- owned subsidiaries, if any.

(4) Le plan d’une société d’État mère doit mettre en évidence les principales activités de la société et, le cas échéant, de ses filiales à cent pour cent.

(5) No parent Crown corporation or wholly-owned subsidiary of a parent Crown corporation shall carry on any business or activity in any period in a manner that is not consistent with the last corporate plan of the parent Crown corporation or any amendment thereto approved pursuant to this

section in respect of that period.

(5) Il est interdit à une société d’État mère ou à une de ses filiales à cent pour cent d’exercer pendant quelque période que ce soit des activités d’une façon incompatible avec le dernier plan, original ou modifié, qui a été approuvé en conformité avec le présent

article pour cette période.

(6) Where a parent Crown corporation, or a wholly-owned subsidiary of a parent Crown corporation, proposes to carry on any business or activity in any period in a manner that is not consistent with the last corporate plan of the corporation or any amendment thereto approved pursuant to this

section in respect of that period, the corporation shall, before that business or activity is so carried on, submit an amendment to the corporate plan to the appropriate Minister for approval as described in subsection (1).

(6) Dans le cas où une société d’État mère ou l’une de ses filiales à cent pour cent se propose d’exercer une activité d’une façon incompatible avec le dernier plan, original ou modifié, approuvé en conformité avec le présent article, la société, avant que cette activité ne soit commencée, soumet un projet de modification du plan au ministre de tutelle pour qu’il en recommande l’approbation dans les conditions prévues au paragraphe (1).

(6.1) The Governor in Council may specify such terms and conditions as the Governor in Council deems appropriate for the approval of a corporate plan or an amendment to a corporate plan.

(6.1) Le gouverneur en conseil peut assortir de conditions l’approbation d’un plan ou de ses modifications.

(7) The Governor in Council may make regulations prescribing, for the purposes of this section, the circumstances in which the recommendation of the Minister of Finance is required for the approval of a corporate plan or an amendment thereto.

(7) Le gouverneur en conseil peut, par règlement, indiquer, pour l’application du présent article, les circonstances qui nécessitent la recommandation du ministre des Finances pour l’approbation du plan, original ou modifié. [ 20 ]

Section 120 defines objectives, in relation to a parent Crown corporation as meaning the objectives of the corporation as set out in the corporate plan or an amendment to the corporate plan that has been approved pursuant to s 122. Sections 123 and 124 address the annual submission of operating and capital budgets, respectively: 123

(1) Each parent Crown corporation named in

Part I of

Schedule III shall annually submit an operating budget for the next following financial year of the corporation to the appropriate Minister for the approval of the Treasury Board on the recommendation of the appropriate Minister. 123

(1) Chaque société d’État mère mentionnée à la

partie I de l’annexe III établit annuellement un budget de fonctionnement pour l’exercice suivant; elle le remet au ministre de tutelle pour qu’il en recommande l’approbation au Conseil du Trésor.

(2) The operating budget of a parent Crown corporation shall encompass all the businesses and activities, including investments, of the corporation and its wholly- owned subsidiaries, if any.

(2) Le budget de fonctionnement d’une société d’État mère traite de toutes les activités de la société et, le cas échéant, de ses filiales à cent pour cent, y compris leurs investissements.

(3) The operating budget of a parent Crown corporation shall be prepared in a form that clearly sets out information according to the major businesses or activities of the corporation and its wholly- owned subsidiaries, if any.

(3) Le budget de fonctionnement d’une société d’État mère doit mettre en évidence les principales activités de la société et, le cas échéant, de ses filiales à cent pour cent.

(4) Where a parent Crown corporation anticipates that the total amount of expenditures or commitments to make expenditures in respect of any major business or activity in a financial year will vary significantly from the total amount projected for that major business or activity in an operating budget of the corporation or any amendment thereto that is approved pursuant to this

section for that year, the corporation shall submit an amendment to the budget to the appropriate Minister for the approval of the Treasury Board on the recommendation of the appropriate Minister.

(4) La société d’État mère qui prévoit que le total de ses dépenses ou de ses engagements de dépenses pour une activité principale au cours d’un exercice différera sensiblement du total prévu pour cette activité dans le budget de fonctionnement, original ou modifié, approuvé pour l’exercice en conformité avec le présent article, soumet un projet de modification du budget au ministre de tutelle pour qu’il en recommande l’approbation au Conseil du Trésor.

(5) The Treasury Board may specify such terms and conditions as it deems appropriate for the approval of an operating budget or an amendment to an operating budget.

(5) Le Conseil du Trésor peut assortir de conditions l’approbation du budget de fonctionnement ou de ses modifications. 124

(1) Each parent Crown corporation shall annually submit a capital budget for the next following financial year of the corporation to the appropriate Minister for the approval of the Treasury Board on the recommendation of the appropriate Minister. 124

(1) Chaque société d’État mère établit annuellement un budget d’investissement pour l’exercice suivant; elle le remet au ministre de tutelle pour qu’il en recommande l’approbation au Conseil du Trésor.

(2) The capital budget of a parent Crown corporation shall encompass all the businesses and activities, including investments, of the corporation and its wholly- owned subsidiaries, if any.

(2) Le budget d’investissement d’une société d’État mère traite de toutes les activités de la société et, le cas échéant, de ses filiales à cent pour cent, y compris leurs investissements.

(3) The Treasury Board may approve any item in a capital budget submitted pursuant to subsection (1) for any financial year or years after the financial year for which the budget is submitted.

(3) Le Conseil du Trésor peut approuver un poste du budget d’investissement visé au paragraphe (1) pour un ou plusieurs exercices suivant celui que vise le budget.

(4) The capital budget of a parent Crown corporation shall be prepared in a form that clearly sets out information according to the major businesses or activities of the corporation and its wholly- owned subsidiaries, if any.

(4) Le budget d’investissement d’une société d’État mère doit mettre en évidence les principales activités de la société et, le cas échéant, de ses filiales à cent pour cent.

(5) No parent Crown corporation or wholly-owned subsidiary of a parent Crown corporation shall incur, or make a commitment to incur, a capital expenditure in any financial year for which the corporation is required to submit a budget pursuant to this section, unless (

a) a budget for that year has been approved pursuant to this section; or (

b) the expenditure or commitment (

i) is included in an item for that year that has been approved pursuant to subsection (3) as part of a budget for a previous year, (ii) has been specifically approved pursuant to this

section as though it were a capital budget, or (iii) is, in the opinion of the board of directors of the corporation or subsidiary, essential to continue a current business or activity of the corporation or subsidiary as set out in a corporate plan or budget of the corporation that has been approved pursuant to this

section or

section 122 or 123.

(5) Il est interdit à une société d’État mère ou à une de ses filiales à cent pour cent d’effectuer une dépense d’investissement ou de s’y engager au cours d’un exercice pour lequel la société doit présenter un budget en vertu du présent article, sauf dans les cas suivants :

a) un budget pour cet exercice a été approuvé en conformité avec le présent article;

b) la dépense ou l’engagement: (

i) figure dans un poste relatif à l’exercice et approuvé en conformité avec le paragraphe (3) pour un exercice précédent, (ii) a été approuvé expressément en conformité avec le présent

article comme s’il s’agissait d’un budget d’investissement, (iii) est, selon le conseil d’administration de la société ou de la filiale, essentiel à la poursuite des activités courantes de l’une ou l’autre telles qu’elles figurent au plan ou au budget de la société approuvés en conformité avec le présent

article ou avec les articles 122 ou 123.

(6) Where, by reason of any one or more proposed expenditures or commitments to make expenditures, a parent Crown corporation anticipates that the total amount of expenditures or commitments to make expenditures in respect of any major business or activity in a financial year will vary significantly from the total amount projected for that major business or activity in a capital budget of the corporation or any amendment thereto that is approved pursuant to this

section for that year, the corporation shall submit an amendment to the budget to the appropriate Minister for the approval of the Treasury Board on the recommendation of the appropriate Minister, and the expenditure or expenditures shall not be incurred or commitments made before that approval is obtained.

(6) La société d’État mère qui prévoit que le total de ses dépenses ou de ses engagements de dépenses pour une activité principale au cours d’un exercice différera sensiblement, à cause d’un ou de plusieurs projets de dépenses ou d’engagements, du total prévu pour cette activité dans le budget d’investissement, original ou modifié, approuvé pour l’exercice en conformité avec le présent article, soumet un projet de modification du budget au ministre de tutelle pour qu’il en recommande l’approbation au Conseil du Trésor; ces dépenses et engagements ne peuvent se faire avant l’approbation.

(7) The Minister of Finance may require that his recommendation, in addition to that of the appropriate Minister, be obtained before a capital budget or an amendment to a capital budget is submitted to the Treasury Board for approval under this section.

(7) Le ministre des Finances peut exiger que sa propre recommandation, en plus de celle du ministre de tutelle, accompagne un budget d’investissement, original ou modifié, soumis au Conseil du Trésor pour approbation.

(8) The Treasury Board may specify such terms and conditions as it deems appropriate for the approval of a capital budget or an amendment to a capital budget.

(8) Le Conseil du Trésor peut assortir de conditions l’approbation du budget d’investissement ou de ses modifications. 125

(1) After a corporate plan, operating budget or capital budget, or an amendment thereto, is approved pursuant to

section 122, 123 or 124, the parent Crown corporation shall submit a

summary of the plan or budget, or the plan or budget as so amended, to the appropriate Minister for his approval. 125

(1) Une fois son plan, budget de fonctionnement ou budget d’investissement, originaux ou modifiés, approuvés en conformité avec les articles 122, 123 ou 124, la société d’État mère en établit un résumé qu’elle soumet au ministre de tutelle pour son approbation.

(2) A

summary shall encompass all the businesses and activities, including investments, of the parent Crown corporation and its wholly-owned subsidiaries, if any, and shall set out the major business decisions taken with respect thereto.

(2) Le résumé traite de toutes les activités de la société d’État mère et, le cas échéant, de ses filiales à cent pour cent, y compris leurs investissements, et souligne les décisions importantes prises à ces fins.

(3) A

summary shall be prepared in a form that clearly sets out information according to the major businesses or activities of the parent Crown corporation and its wholly-owned subsidiaries, if any.

(3) Le résumé doit mettre en évidence les principales activités de la société d’État mère et, le cas échéant, de ses filiales à cent pour cent.

(4) The appropriate Minister shall cause a copy of every

summary he approves pursuant to this

section to be laid before each House of Parliament.

(4) Le ministre de tutelle fait déposer devant chaque chambre du Parlement un exemplaire de chaque résumé qu’il approuve en conformité avec le présent article.

(5) A

summary laid before Parliament pursuant to subsection (4) stands permanently referred to such committee of Parliament as may be designated or established to review matters relating to the businesses and activities of the corporation submitting the

summary.

(5) Le résumé déposé devant le Parlement en conformité avec le paragraphe (4) est automatiquement renvoyé devant le comité parlementaire chargé des questions qui touchent aux activités de la société qui a établi le résumé. (

v) Canada Transportation Act [ 21 ] The CTA is binding on Her Majesty in right of Canada or a province (s 2) and applies in respect of transportation matters under the legislative authority of Parliament (s 3). Subject to s 4(3), which is not relevant to this application, nothing in or done under the authority of the CTA, other than Division IV of

Part III, affects the operation of the Competition Act , RSC, 1985, c C-34 (“ Competition Act ”) (s 4(2)). [ 22 ] The CTA sets out in s 5, by way of declaration, the National Transportation Policy:

" 5 It is declared that a competitive, economic and efficient national transportation system that meets the highest practicable safety and security standards and contributes to a sustainable environment and makes the best use of all modes of transportation at the lowest total cost is essential to serve the needs of its users, advance the well-being of Canadians and enable competitiveness and economic growth in both urban and rural areas throughout Canada. Those objectives are most likely to be achieved when " " (

a) competition and market forces, both within and among the various modes of transportation, are the prime agents in providing viable and effective transportation services; " " (

b) regulation and strategic public intervention are used to achieve economic, safety, security, environmental or social outcomes that cannot be achieved satisfactorily by competition and market forces and do not unduly favour, or reduce the inherent advantages of, any particular mode of transportation; " " (

c) rates and conditions do not constitute an undue obstacle to the movement of traffic within Canada or to the export of goods from Canada; " " (

d) the transportation system is accessible without undue obstacle to the mobility of persons, including persons with disabilities; and " " (

e) governments and the private sector work together for an integrated transportation system. " " 5 Il est déclaré qu’un système de transport national compétitif et rentable qui respecte les plus hautes normes possibles de sûreté et de sécurité, qui favorise un environnement durable et qui utilise tous les modes de transport au mieux et au coût le plus bas possible est essentiel à la satisfaction des besoins de ses usagers et au bien-être des Canadiens et favorise la compétitivité et la croissance économique dans les régions rurales et urbaines partout au Canada. Ces objectifs sont plus susceptibles d’être atteints si : " "

a) la concurrence et les forces du marché, au sein des divers modes de transport et entre eux, sont les principaux facteurs en jeu dans la prestation de services de transport viables et efficaces; " "

b) la réglementation et les mesures publiques stratégiques sont utilisées pour l’obtention de résultats de nature économique, environnementale ou sociale ou de résultats dans le domaine de la sûreté et de la sécurité que la concurrence et les forces du marché ne permettent pas d’atteindre de manière satisfaisante, sans pour autant favoriser indûment un mode de transport donné ou en réduire les avantages inhérents; " "

c) les prix et modalités ne constituent pas un obstacle abusif au trafic à l’intérieur du Canada ou à l’exportation des marchandises du Canada; " "

d) le système de transport est accessible sans obstacle abusif à la circulation des personnes, y compris les personnes ayant une déficience; " "

e) les secteurs public et privé travaillent ensemble pour le maintien d’un système de transport intégré. " (vi) Canada Marine Act [ 23 ] The Canada Marine Act , SC 1998, c 10 (“CMA”) states its purpose as:

4 In recognition of the significance of marine transportation to Canada and its contribution to the Canadian economy, the purpose of this Act is to (

a) implement marine policies that provide Canada with the marine infrastructure that it needs and that offer effective support for the achievement of national, regional and local social and economic objectives and will promote and safeguard Canada’s competitiveness and trade objectives; (a.1) promote the success of ports for the purpose of contributing to the competitiveness, growth and prosperity of the Canadian economy; (

b) base the marine infrastructure and services on international practices and approaches that are consistent with those of Canada’s major trading partners in order to foster harmonization of standards among jurisdictions; (

c) ensure that marine transportation services are organized to satisfy the needs of users and are available at a reasonable cost to the users; (

d) provide for a high level of safety and environmental protection; (

e) provide a high degree of autonomy for local or regional management of components of the system of services and facilities and be responsive to local needs and priorities; (

f) manage the marine infrastructure and services in a commercial manner that encourages, and takes into account, input from users and the community in which a port or harbour is located; (

g) provide for the disposition, by transfer or otherwise, of certain ports and port facilities; and (

h) promote coordination and integration of marine activities with surface and air transportation system. 4 Compte tenu de l’importance du transport maritime au Canada et de sa contribution à l’économie canadienne, la présente loi a pour objet de :

a) mettre en oeuvre une politique maritime qui permette au Canada de se doter de l’infrastructure maritime dont il a besoin, qui le soutienne efficacement dans la réalisation de ses objectifs socioéconomiques nationaux, régionaux et locaux aussi bien que commerciaux, et l’aide à promouvoir et préserver sa compétitivité; a.1) promouvoir la vitalité des ports dans le but de contribuer à la compétitivité, la croissance et la prospérité économique du Canada;

b) fonder l’infrastructure maritime et les services sur des pratiques internationales et des approches compatibles avec celles de ses principaux partenaires commerciaux dans le but de promouvoir l’harmonisation des normes qu’appliquent les différentes autorités;

c) veiller à ce que les services de transport maritime soient organisés de façon à satisfaire les besoins des utilisateurs et leur soient offerts à un coût raisonnable;

d) fournir un niveau élevé de sécurité et de protection de l’environnement;

e) offrir un niveau élevé d’autonomie aux administrations locales ou régionales des composantes du réseau des services et installations portuaires et prendre en compte les priorités et les besoins locaux;

f) gérer l’infrastructure maritime et les services d’une façon commerciale qui favorise et prend en compte l’apport des utilisateurs et de la collectivité où un port ou havre est situé;

g) prévoir la cession, notamment par voie de transfert, de certains ports et installations portuaires;

h) favoriser la coordination et l’intégration des activités maritimes avec les réseaux de transport aérien et terrestre.

The Evidence [ 24 ] The documents submitted by the parties in support of and in response to this application for judicial review are voluminous. They include many affidavits with multiple exhibits as well as transcripts of cross-examination on those affidavits. These reasons will not explicitly address the content of each affidavit, however, they are as follows: Oceanex i . Affidavit of Captain Sidney J.

Hynes, Oceanex CEO, sworn on September 8, 2016, with 75 exhibits, providing background information on the Newfoundland commercial freight market and short sea shipping; a history and description of Oceanex’s current operations; his evidence regarding MAI and its relationship with the federal government, including MAI’s operations, subsidies and the alleged 2010 amendment to the Bilateral Agreement; communications between Oceanex and the Minister with respect to Oceanex’s concerns over the federal government’s treatment of MAI; and, his evidence concerning the detrimental impact on Oceanex of the subsidized freight rates (“Hynes Affidavit #1”); ii .

Expert affidavit of David Gillen, an economist, sworn on September 8, 2016, providing opinion evidence on the role of competition in achieving the policy objectives set out in the CTA ; how economically efficient prices are set in transportation markets; and, what markets MAI serves and the consequences for Oceanex of the subsidization of MAI’s freight rates; iii . Expert affidavit of Peter Neary, historian, sworn on August 18, 2016, providing opinion evidence on the origin and meaning of Term 32 of the Terms of Union (“Neary Report”); Canada iv .

Affidavit of Michèle Bergevin, Director, Portfolio Management within the Crown Corporation and Portfolio Governance Directorate in Transport Canada, sworn on September 28, 2016, attaching as an exhibit a copy of the document entitled “Implementation of 2010 Budget Decision - Guidance for Corporate Plan of 2010/11 - 2014/15” (“Bergevin Affidavit #1”); v .

Affidavit of Michèle Bergevin sworn on December 7, 2016, with 22 exhibits, addressing Transport Canada’s role with respect to ferry freight and passenger services, Canada’s obligation under the Terms of Union to provide passenger and freight services on the Constitutional Route, an overview of the history of the provision of services on the Constitutional Route, an overview of MAI, its corporate governance and structure as well as the history of the setting of MAI’s rates; and, information on Transport Canada’s relationship with the marine industry (“Bergevin Affidavit #2”); MAI vi .

Affidavit of Shawn Leamon, MAI Vice President of Finance, sworn on December 7, 2016, with 27 exhibits, providing background about MAI; evidence concerning the importance of the MAI ferry service to Newfoundland and Labrador; an overview of MAI’s operations; information concerning MAI’s governance and its ability to set its rates; and, information related to the subsidy analysis of Jeffrey Church (“Leamon Affidavit”); vii .

Expert affidavit of Jeffrey Church, an economist, sworn on December 7, 2016, providing opinion evidence on whether the incremental profit earned from MAI’s commercial vehicle (freight) service is positive, which would contribute to the common costs of MAI and thereby reduce the subsidy requirement in whole from Canada and, in effect, meaning that the freight service itself is not subsidized; and, responding to the economic evidence of David Gillen (“Church Report”); Newfoundland viii .

Affidavit of Raymond Blake, historian, sworn on November 30, 2016, with 172 exhibits, providing opinion evidence on the intention of the parties to the Terms of Union with respect to Term 32; whether this was a commitment to simply operate a steamship between two points or something more; and, whether it was to be a subsidized service for the benefit of Newfoundland (“Blake Report”); ix . Affidavit of Dennis Bruce, economist, sworn on December 5, 2016, with 43 sources, responding to the opinion evidence of Captain Sidney J.

Hynes and David Gillen and providing his opinion on whether Oceanex’s evidence established that MAI’s pricing had a detrimental impact on Oceanex’s service offerings and on Oceanex and, if MAI was no longer subsidized, what the impact on Newfoundland and Labrador’s economy would be (“Bruce Report”); Reply and Sur-Reply Affidavits Oceanex x . Reply Affidavit of Captain Sidney J. Hynes sworn on January 19, 2017, with 6 exhibits, replying to the Leamon Affidavit, Church and Bruce Reports (“Hynes Affidavit #2”);

xi . Reply Affidavit of David Gillen, sworn on January 19, 2017, replying to the Church and Bruce Reports; Newfoundland xii . Reply Affidavit of Dennis Bruce, sworn on March 1, 2017, replying to Hynes Affidavit #2; Supplemental Affidavits Oceanex xiii . Supplemental Affidavit of Captain Sidney J. Hynes sworn on February 28, 2017, with 10 exhibits, regarding the admissibility of a report prepared for Transport Canada by Canadian Pacific Consulting Services (“CPCS”) Transcom Limited (“CPCS Report”), dated May 1, 2015 (“Hynes Affidavit #3”); Further Supplementary Affidavits MAI xiv .

Affidavit of Murray Hupman, MAI Vice President of Operations, sworn on September 20, 2017, concerning cross-examination evidence of Captain Sidney J. Hynes pertaining to the names of vessels available for short term charter (“Hupman Affidavit”); and Oceanex xv . Affidavit of Captain Sidney J. Hynes sworn on October 2, 2017, replying to the Hupman Affidavit (“Hynes Affidavit #4”).

History of Setting the Rates [ 25 ] It is not disputed that, pursuant to the Terms of Union, Canada is obliged to provide a ferry service on the Constitutional Route. [ 26 ] From Confederation in 1949 until 1977, Canada fulfilled this obligation through CNR. Bergevin Affidavit #2 states that, based on a review of Order in Council P.C. 1953-197, dated February 13, 1953 (“1953 OIC”), Canada provided for the deficits in the operation of the Constitutional Route on the basis that they arose from that obligation.

Further, based on a review of Order in Council P.C. 1955- 1215, dated February 13, 1953 (this is actually dated August 16, 1955) (“1955 OIC”), that in accordance with the Canadian National Railways Act, RSC 1927, c 172 (“ Canadian National Railways Act ”), the Governor in Council, on the recommendation of the Minister, entrusted to CNR the management and operation of new ferry and ferry terminals on the Constitutional Route. The Minister approved the capital expenditures required for the route and any related deficits were paid to CNR by funds appropriated by Parliament.

CNR operated ferry and coastal services in Newfoundland and Labrador, including the Constitutional Route, from 1955 to 1977. [ 27 ] On December 14, 1977, Canada, represented by the Minister, and CNR entered into a Memorandum of Understanding respecting east coast ferry and coastal services (“MOU”). The MOU described the roles, responsibilities and relationships of Canada, CNR and CN Marine, the incorporation of which was envisioned by the MOU.

This included that Canada would specify for each route the minimum standard of service to be provided and approve the basis on which fares or rates were to be charged by CN Marine to all users. CN Marine would contract with Canada to provide each ferry or coastal service required by Canada and submit annually for Governor in Council approval its capital and operating budgets and plans, annual reports and audited accounts and make recommendations to Canada concerning rates and fares to be charged. CN Marine Corporation was incorporated, under the CBCA , as a subsidiary of CNR on December 14, 1977.

In December 1978, CN Marine Corporation changed its name to CN Marine Incorporated (“CN Marine”). Tripartite Agreement [ 28 ] On May 18, 1979, on recommendation of the Minister, the Governor in Council approved, by Order in Council P.C. 1979-1449, dated May 9, 1979 (“1979 OIC”), Canada’s entering into a tripartite agreement with CNR and CN Marine (now MAI) (“Tripartite Agreement”).

Amongst other things, the parties agreed to have the contracted water and railway handling services performed in accordance with the terms and conditions of specific operating agreements and to thereby provide the described traffic offering, including dock to dock water transport (s 1(a)); that Canada, in respect to present or future operating agreements, would annually advise CN Marine of any changes respecting the required standard of service or the general level of rates and fares then under consideration by Canada (s 6(b)); and, required CN Marine to prepare and submit to the Minister two categories of planning documents, including an operating plan

summary and a preliminary estimation of revenue and expenditures, showing information which included recommendations as to specific rates and fares which Canada should approve as charges to the traffic offering to be levied by CN Marine under each specific operating agreement (s 29(b)(ii)). From 1978 to 1986, CN Marine operated various ferry services, including the Constitutional Route, and other coastal services in Atlantic Canada pursuant to the Tripartite Agreement.

Bilateral Agreement and Subsidiary Operating Agreements [ 29 ] In 1986, pursuant to the MAIAAA , CN Marine changed its name to Marine Atlantic Inc. and CNR transferred all of its common shares to Canada. [ 30 ] By Order in Council P.C. 1987-463 stamped approved on March 12, 1987 (“1987 OIC”) the Governor in Council, on the recommendation of the Minister, approved the cancellation of the Tripartite Agreement and the entry by the Minister into an agreement with MAI substantially in the form of the agreement attached thereto as

Schedule “A”. That agreement established the relationship between Canada and MAI under which subsidiary operating, capital, and land lease agreements relating to operating specific ferry and coastal services in Atlantic Canada could be executed and was entered into on March 31, 1987 (“Bilateral Agreement”).

[ 31 ] The

preamble of the Bilateral Agreement notes that for some time Canada had used MAI (previously CN Marine Inc.) as its principal instrument for providing certain federally supported ferry and coastal shipping services in the Atlantic Provinces, pursuant to the Tripartite Agreement, and that Canada and MAI wished to continue that arrangement without the involvement of CNR. Canada and MAI agreed to establish a set of mutually satisfactory conditions which would, within the statutory requirements imposed by

Part XII of the FAA, the regulations made thereunder and any other pertinent enactments of Parliament, facilitate the provision at Canada’s request, of certain ferry and coastal shipping services premised on efficient and cost-effective operations by MAI and the maintenance of levels of performance satisfactory to Canada. [ 32 ]

Section 2 states that the Bilateral Agreement would come into force on January 1, 1987 and remain in effect until terminated pursuant to the terms of the agreement or by written agreement of the parties. MAI was to operate the contracted services (s 1(1)(d)) and s 3(1)) as specified in subsidiary operating agreements, defined as the current subsidiary operating agreements, the current subsidiary capital funding agreement or the current subsidiary land lease agreements as the context may require (s 1(1)(i)) (“Subsidiary Operating Agreement”).

In consideration for the operation of the contracted services, Canada would pay to MAI amounts not exceeding the totals specified in the Subsidiary Operating Agreements of the applicable period. The Subsidiary Operating Agreements were to be amended annually to reflect agreed changes to the amounts payable thereunder (s 3(2)). As to the setting of fares and rates, s 3 states:

(3) Fares and Rates (

a) After receiving notice pursuant to section 6 (2) hereto concerning changes to the general level of rates, the Corporation shall recommend to the Minister for his approval, fares and rates for the movement of passengers, vehicles and cargo, and the approved fares and rates shall be used in the determination of the annual maximum Subsidiary Operating Agreement payments. (

b) Any recommendation by the Corporation to amend the tariff shall be submitted for the approval if the Minister at least sixty (60) days prior to the desired implementation date. The Minister reserves the right to amend, at any time, fares and rates already approved and the Corporation shall implement such changes as directed by the Minister. Amendments to the tariff approved or ordered by the Minister shall be communicated to the Corporation at least thirty (30) days prior to the date of implementation and may result in a compensatory change in the annual maximum Subsidiary Operating Agreement payments. (

c) the Corporation may, with the prior approval of the Minister, offer discounts where such action is consistent with sound commercial practice. (

d) the approved tariffs shall be appended to the Subsidiary Operating Agreements. [ 33 ] As to capital funding, Canada agreed to make payments to MAI in accordance with the provision of the Subsidiary Capital Finding Agreement for MAI’s approved annual capital budget and working capital needs (s 4(1)). [ 34 ] The undisputed evidence of MAI and Canada is that, pursuant to the Bilateral Agreement, between 1987 and 2007 MAI annually recommended fares and rates to the Minister for approval and that the approved rates were used in determining the annual maximum Subsidiary Operating Agreement payments. 2007 Revitalization Strategy (Phase I) [ 35 ] Bergevin Affidavit #2 states that in the 1990s, Canada shifted its role from a transportation owner and operator to that of a transportation regulator, policy maker and funder where appropriate.

In 1995, Transport Canada released the National Marine Policy which sought to narrow Canada’s role in providing ferry services. In 1996, the NTP was enacted as s 5 of the CTA . By 1998, MAI had reduced its services to only the Constitutional and Argentia Routes. By 2006, TC had determined that the amount of taxpayer money to subsidize the Argentia Route should be reduced and, for the first time, implemented a cost recovery policy. This period sometimes being referred to as the Revitalization Strategy Phase I.

In 2007, Canada announced a long term strategy to revitalize the passenger and freight services operated by MAI.

The first phase of this strategy included the adoption of predictable rate increases on the Constitutional Route by linking them to the Consumer Price Index; a fuel surcharge; a five year plan to be developed by the MAI board of directors outlining initiatives to enable MAI to improve services and achieve operational efficiencies, which to keep the services affordable, should include cost containment measures and strategies to increase revenues from non-constitutional services; advancement of a fleet renewal plan; and, additional funding (“Government of Canada presents the long-term strategy to revitalize Marine Atlantic Inc.”, Leamon Affidavit, Exhibit 10).

By letter to MAI from then Minister Lawrence Cannon, dated January 11, 2007 (“2007 Minister’s Letter”) the Minister noted that when Treasury Board ministers approved MAI’s 2006-2010 Corporate Plan they had specifically requested that a long term strategy be developed. The 2007 Minister’s Letter, discussed further below, also outlined the revenue strategy, including setting of a cost recovery target of 60-65%. 2010 Revitalization Strategy (Phase II) [ 36 ] The Auditor General’s 2009 Report was a special examination report of Marine Atlantic Inc. made by the Auditor General pursuant to s 138 of

Part X of the FAA . Amongst other things, the report raised concerns about MAI’s ability to meet strategic challenges including the risk of being unable to deliver the services it was responsible for providing and that MAI lacked an operational planning framework to ensure that its strategic direction and corporate plans were implemented. MAI’s challenges included aging ferries and shore-based assets, capacities to meet the traffic demand, failure to meet the cost recovery target set by the Minister and the need to increase its management capacity.

The report states that MAI needed to agree with Canada on a plan of action, including long term funding, to overcome its challenges. In its response, MAI accepted the recommendation and stated that in collaboration with Transport Canada it was finalizing a comprehensive revitalization proposal. Bergevin Affidavit #2 states that in response to the concerns raised by the Auditor General’s 2009 Report, Transport Canada and MAI developed the 2010 Revitalization Strategy.

[ 37 ] Bergevin Affidavit #2 also states that as part of the 2010 Revitalization Strategy, Canada and MAI agreed to amend certain terms of the Bilateral Agreement. One amendment being that MAI would determine the rates for the Constitutional Route, unless the increase exceeded 5% of the existing rate, in which event the approval of the Minister was required. As it had since 2007, MAI continued to decide all rates on the Argentia route.

Bergevin Affidavit #2 states that in order to implement the 2010 Revitalization Strategy, Canada and MAI agreed that they would work towards amending the Bilateral Agreement to reflect the action of the parties that had already been implemented. [ 38 ] Further, that the adoption of the 2010 Revitalization Strategy is reflected in the document entitled “Implementation of Budget 2010 Decision, Guidance for Corporate Plan of 2010/11 - 2014/15” (“Implementation of Budget 2010 Decision”). That document was created by officials at Transport Canada and was sent by email to MAI on April 8, 2010.

According to Canada, approval of the 2010 Revitalization Strategy was communicated to MAI through the Implementation of Budget 2010 Decision. [ 39 ]

Section 13 of the Implementation of Budget 2010 Decision states that: 13. The rate increases on the constitutional route would be set by MAI’s Board of Directors to a maximum of five percent per year taking into consideration the operating environment, the expected traffic demand and the overall cost recovery objective for the year.

Any higher rate increase would have to be submitted to the Minister of Transport, Infrastructure and Communities for approval with corresponding justification. [ 40 ] The Leamon Affidavit states that MAI interpreted this to mean that, going forward, MAI’s board of directors had this authority. [ 41 ] MAI’s 2010/2011-2014/2015 Corporate Plan under the heading “Revenue Generation”, states the following: With the approval of the Revitalization Strategy, the Corporation’s Board of Directors now accepts responsibility for future price changes across all services, including to a maximum of five percent per year on constitutional fares.

This is a change from the previous situation, where increases on constitutional fares were limited to increases in the Consumer Price Index (CPI), and brings added agility to the Corporation. [ 42 ] MAI’s 2010/2011-2014/2015 Corporate Plan was approved by Order in Council 2010-0812, dated June 17, 2010. [ 43 ] Starting with the 2010-2011 year, and in each subsequent year, the board of directors of MAI decided and implemented all rate changes for the Constitutional Route, none of which exceeded 5% of the prior year’s rate.

In January 2016, MAI announced that the rates for 2016/2017 would be increased by 2.6% of the previous years’ rates for the Constitutional Route. A December 10, 2015 resolution of the board of directors of MAI approving the 2016/2017 – 2020/2021 corporate plan reflects this determination, which became effective on April 1, 2016. Issues and Standard of Review [ 44 ] The parties have approached this application from very different directions. Oceanex asserts that the Minister permitted MAI to charge freight rates that are heavily subsidized, compete unfairly with and are detrimental to Oceanex.

Further, that the decision effecting the 2016/17 freight rates was made without taking into account, and was inconsistent with, relevant considerations, in particular, the NTP as set out in s 5 of the CTA . This spawned a number of related issues raised by various Respondents.

For example, in their responding memorandum of fact and law both MAI and Canada raise as an issue Oceanex’s standing to bring this application, to which issue Oceanex was permitted to respond by reply memorandum. [ 45 ] In my view, having considered the submissions, the issues arising in this matter can be framed and addressed as follows: 1 . Who made the 2016/17 Freight Rate Decision, the Minister or MAI?If MAI made the decision, is it a federal board, commission or tribunal as defined by s 2(1) of the Federal Courts Act ? 2 . Does Oceanex have standing to bring this application? 3 .

Was s 5 of the CTA a relevant consideration when making the 2016/17 Freight Rate Decision? 4 . If s 5 of the CTA was a relevant consideration, can it constrain the level of public cost Canada assumes to provide ferry services on the Constitutional Route, the provision of which services arises from the Terms of Union? 5 . Was the 2016/17 Freight Rate Decision reasonable? [ 46 ] The question of the applicable standard of review applies only to the fifth issue identified above.

In that regard, Oceanex submits the Minister made the 2016/17 Freight Rate Decision, which was unreasonable, if not incorrect, as the Minister failed to take into account all relevant considerations, including the NTP and the impact of the 2016/17 freight rates on Oceanex.

Thus, the decision should be quashed regardless of the applicable standard of review ( Federal Courts Act , s 18.1(4) ; Hupacasath First Nation v Canada (Foreign Affairs and International Trade Canada) , 2015 FCA 4 at paras 71-73 (“ Hupacasath ”); G Régimbald, Canadian Administrative Law , 2d (LexisNexis, 2015) at 232-233 (“Régimbald”)). [ 47 ] Neither MAI nor Newfoundland make submissions as to the standard of review. Canada asserts that Oceanex has no standing and that there is no decision of the Minister that is amenable to judicial review.

In the alternative, that the standard of review for any relevant decision of the Minister is reasonableness. [ 48 ] In my view, the standard of review of a decision by a minister or a federal board, commission or tribunal in setting rates is reasonableness (see Dunsmuir v New Brunswick , 2008 SCC 9 at para 47 (“ Dunsmuir ”)). In that regard, I note that statutorily regulated rate-setting decisions have previously been found to fall under the reasonableness standard because the setting of just and reasonable

rates involves fact finding and the application of law and policy considerations, the latter often being polycentric in nature (see BellCanada v Bell Aliant Regional Communications, 2009 SCC 40 at para 38; Re General Increase in Freight Rates (1954), 76 CRTC 12 atpara 4 (SCC), Great Lakes Power Limited v Ontario Energy Board, at para 22, aff’d 2010 ONCA 399, leave toappeal to SCC refused, 2010 CarswellOnt 9414; Telus Communications Company v Canadian Radio-Television and TelecommunicationsCommission, 2010 FCA 191 at para 33).

While the setting of the 2016/17 freight rates was not governed by statute, the decisionsimilarly involved the exercise of discretion which is to be afforded deference on judicial review (see Yukon Energy Corporation vYukon (Utilities Board), 2017 YKCA 15 at para 55; Union Gas Ltd v Ontario (Energy Board), 2013 ONSC 7048 at para 25). [49] A court conducting a review for reasonableness inquires into the qualities that make a decision reasonable, referring both to theprocess of articulating the reasons and to the outcomes.

In judicial review, reasonableness is concerned mostly with the existence ofjustification, transparency and intelligibility within the decision-making process but also with whether the decision falls within a range ofpossible, acceptable outcomes which are defensible in respect of the facts and law (Dunsmuir at para 47). Constitutional Question [50] On July 28, 2017 MAI filed a Notice of Constitutional Question in which it stated that it intended to question the constitutionalapplicability and effect of s 5 of the CTA and also set out background information and the legal basis for the constitutional question.

Aspecific question is not framed, however, MAI states: …Marine Atlantic asserts that the Terms of Union permit and authorize a subsidy from the Government of Canada in respectof Marine Atlantic’s service between North Sydney and Port aux Basques and thus that

section 5 of the CTA does not andcannot apply to preclude such a subsidy. Any finding that

section 5 of the CTA would preclude Canada from subsidizingMarine Atlantic’s service between North Sydney and Port aux Basques and the rates it charges for such service would beinconsistent with Canada’s constitutional commitment in Terms 31 and 32 of the Terms of Union, and to the extent of thatinconsistency

section 5 of the CTA would be of no force or effect. [51] In my view, this is captured by Issue 4 above. Preliminary Observation – Oceanex’s application for judicialreview [52] To place the issues in context it is helpful, as a starting point, to briefly set out the basis of Oceanex’s application. In its AmendedNotice of Application Oceanex describes the decision under review as the decision of the Minister to approve the 2016/17 freight rates,whether the Minister directly approved the rates or purported to allow a third party, MAI, to do so.

Alternatively, Oceanex asserts theMinister failed to approve the 2016/17 freight rates as proposed by MAI.

In the further alternatives Oceanex challenges the decision: ofthe Minister to pre-authorize the rate increase proposed by MAI up to 5%; to allow MAI to approve the 2016/17 freight rates; or, thedecision of MAI to approve those rates. [53] The grounds for the application include that the Minister’s decision to approve the 2016/17 freight rates is inconsistent withallowing competition and market forces to be the prime agents in providing viable and effective transportation services and has the directeffect of unduly favouring competing modes of transportation, such as trucking, to and from the island of Newfoundland and of reducingthe inherent advantage of water transportation providers, such as Oceanex.

Further, by failing to consider the NTP, the Minister erred inlaw and exceeded his jurisdiction by exercising his discretion unreasonably, contrary to public policy and by failing to take into accountall relevant considerations. [54] Oceanex’s written representations assert the Minister allowed MAI to charge heavily subsidized rates and compete unfairly withOceanex, notwithstanding that the Minister is bound by the NTP which, Oceanex asserts, provides first and foremost that competitionand market forces are the prime agents in providing viable and effective transportation services, with only limited exceptions and that therates are inconsistent with the NTP.

Oceanex states that it takes issue with having to compete with a business which does not have tocover its operating or capital costs. Further, that MAI has been able to maintain its market share to the detriment of Oceanex as a resultof its subsidized rates. Issue 1: Who made the 2016/17 Freight Rate Decision, theMinister or MAI? If MAI made the decision, is it a federalboard, commission or tribunal as defined by s 2(1) of theFederal Courts Act? (

a) Who made the 2016/17 Freight Rate Decision, the Minister or MAI? [55] The history of the determination of the rates for the Constitutional Route is set out above. However, the parties disagree as towhether the Minister or MAI made, or had the authority to make, the 2016/17 Freight Rate Decision. Oceanex’s Submissions

[ 56 ] Oceanex submits that, pursuant to the Bilateral Agreement, the Minister is required to: advise MAI of the level of fares and rates each year; approve the fares and rates for the movement of passengers, vehicles and cargo charged by MAI; and, reserved the right to amend at any time rates already approved (ss 7(2), 3(3)(

a) and (b)). The Bilateral Agreement has not been amended, rescinded or replaced and remains in force.

Accordingly, the Minister retains the power to approve MAI’s rates and cannot shield rate decisions from judicial review by pre-approving rates or delegating to MAI. [ 57 ] To support its position that the Minister made the 2016/17 Freight Rate Decision, when appearing before me Oceanex reviewed events from 1949 forward as, in its view, this establishes that Canada had always had and still maintains control over the terms and conditions by which MAI, and its predecessors, manage the ferry service, including the setting of rates. [ 58 ] In essence, Oceanex submits that in 1949, pursuant to Term 33 of the Terms of Union and Order in Council P.C. 1454, dated April 1, 1949 (“1949 OIC”), Canada transferred certain properties to CNR, subsequently CN Marine, and entrusted it with the right to manage and administer those properties for the purpose of providing the ferry service.

However, the entrustment did not give CNR an absolute right to operate and manage those properties and was always subject to specific terms and conditions, set by Canada by way of the 1949 OIC. This continued by way of 1979 OIC and the Tripartite Agreement. The power to manage didn’t depend on who owned the assets as it was Canada that set the terms and conditions.

The terms and conditions of the Bilateral Agreement, which were authorized by the 1987 OIC, in combination with MAI’s corporate plan and other actions, show the continued power of the Minister to control the terms and conditions of the operation and management of the ferry service on the Constitutional Route. [ 59 ] While Oceanex concedes that MAI owns the vessels in its service as well as vessel terminals, it asserts that MAI does so subject to the terms and conditions imposed by the Tripartite Agreement and the 1979 OIC, and that MAI does not have absolute discretion in providing that service.

And, by way of the MAIAAA , Canada wholly owns MAI. As to ss 7 and 8 of the MAIAAA, according to Oceanex, Canada by these provisions permitted MAI to have all of the properties it needed to operate and manage the ferry service, but subject to terms and conditions set by Canada. [ 60 ] Oceanex disagrees that MAI receives only broad direction from Canada under the FAA . Rather, it submits that MAI is subject to close government control regarding significant aspects of the corporation’s business.

Further, MAI is subject to reporting duties under the FAA , including submitting corporate plans, operating budgets, and capital budgets. According to Oceanex, the corporate plan is the most direct form of government control over MAI as this document identifies MAI’s corporate objects, strategy, goals, and business activities.

The corporate plan also includes MAI’s fees, sailings, annual performance, and financial outlook, all of which specific elements of the plan are subject to approval. [ 61 ] Oceanex also submits that MAI and the Minister work closely together in creating the corporate plan before submitting the document to the Governor in Council for approval. This consultation process amounts to de facto or pre-approving of the corporate plan by the Minister, even before the document goes to the Governor in Council for final approval.

According to Oceanex, pursuant to the FAA it was not open to the MAI board of directors to approve and announce rates in advance of approval of the corporate plan. [ 62 ] Oceanex also submits the 2007 Minister’s Letter imposed further terms and conditions on MAI, including cost recovery targets.

This letter directed MAI to develop comprehensive performance targets and to include them in subsequent subsidiary agreements. [ 63 ] As to the Implementation of Budget 2010 Decision, this was generated by Transport Canada in response to criticisms of the Auditor General and served to inform MAI of the steps it was required to take to remedy the situation. It also demonstrates direction by Canada over MAI.

And, while it purports to pre-approve the setting by MAI’s board of directors of the annual rate increases between 2010 and 2015 to a maximum of 5% per year without submission for approval to the Minister, it did not mention the NTP or the factors that may have been considered in arriving at those annual rate increases. Nor did it amend or purport to amend the Bilateral Agreement. At best the document represents the Minister’s pre-approval of annual rate increases to a maximum of 5%.

In any event, the annual budgeting and corporate plan process continued and involved the Minister in approving the specific rates that were eventually submitted for Treasury Board and Governor in Council approval, even though they were below 5%. [ 64 ] Oceanex also submits that a letter of October 30, 2014 from then Minister Lisa Raitt to Mr. Paul Griffin, CEO of MAI (“2014 Minister’s Letter”) set out additional requirements for MAI and affirmed the Minister’s control over all of MAI’s substantive financial decisions.

Specifically, MAI did not have authority to implement any of the requirements of the 2014 Minister’s Letter until its corporate plan and operating and capital budgets were approved. Oceanex submits that there is no evidence that the 2014 Mini

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