Some Considerations of Railway Regulation
Publication:
The Empire Club of Canada Addresses (Toronto, Canada), 29 Apr 1909, p. 220-230


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McLean, S.J., Speaker
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Text
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Speeches
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The subject of transportation as the most important single economic question in Canada today. Ways in which Canada has been re-made by its transportation facilities. Instances of the early consideration of a systematic policy in regard to transportation and attracting traffic from the adjacent republic. The work of railway development. The importance of railway development, recognized in every change of industrial life. How railway development has been aided by the development of our corporation system. Relations of corporate management to the public. Considerations bearing upon the question of public policy in regard to railway corporations, for the most, to Canadian conditions. Looking at Great Britain for the development of a railway regulative policy. Great Britain, Canada and the United States having adopted the policy of private ownership plus government control. A system of government ownership and management prevailing over most of the rest of the world. Some history that led to this policy in England and subsequently in Canada and the U.S. Comparisons between systems. The central facts in the regulative policy are those of rates and of the relation of the regulative body to the courts. The rates issue, with illustrative instances. Also the question of the level of the rates. The organization and power of the Canadian Railway Commission. Rationale and background for the structure and organization of the regulative powers in Canada. Details of the Railway Act. Control over rates and discriminations. A brief summary of what the Commission has had brought before it in Toronto. The attempt in connection with the Commission work to arrive at substantial justice. Rapidity of settlement. Developing precedents in regard to certain lines of regulative policy. Some of the strong chairmen that the Commission has been fortunate to have. Even now in a formative period. Starting with a wide jurisdiction which was made wider. Recognizing that the proper development of a regulative policy in regard to railways is a measure which is in the truest interests of Canada.
Date of Original:
29 Apr 1909
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English
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SOME CONSIDERATIONS OF RAILWAY REGULATION.
An address by MR. S. J. MCLEAN, PH.D., member of Dominion Railway Commission, Ottawa, before the Empire Club of Canada, on April 29th, 1909.

Mr. President and Gentlemen,

It gives me much pleasure to be present at your meeting today. I have known of the work of the Empire Club for a considerable time. While I have never had the privilege of attending any of its sessions before I know the value of its work. Last fall, when my friend Dr. Goggin cornered me and asked me to address you, to inflict some remarks upon you I should say, I thought possibly I might, acquire merit in absentia. My life is rather a moving one, and I thought possibly the intention might be taken for the deed. However, on account of the accuracy of your telephonic connection, when I arrived in town Dr. Goggin was on my trail, and I am here. I have chosen the topic " Some Considerations of Railway Regulation " for the reason that when I have exhausted my time, and possibly my audience, I shall not at least have exhausted the subject.

The subject of transportation, to my mind, is the most important single economic question in Canada today. It is not necessary to go into any details of amplification. You are all confronted by the fact, in your various vocations and interests, that -Canada has been remade by its transportation facilities. No country in the world has, in proportion to population, contributed more generously to the development of transportation systems by rail and water than Canada, and it is significant that at a very early date in the history of Canada the idea of a systematic policy in regard to attracting traffic from the adjacent republic was entered into. I remember some years ago coming across a letter written in 1821 by Col. By, drawing attention to the fact that by the proper development of the St. Lawrence route, traffic from the States adjacent to the Great Lakes might be drawn down that route for export by way of our own seaports. It is significant that even at that time the idea of a consecutive policy was present in the minds of Canadians. We have had to wait quite a while for the proper development of our route in that respect.

As regards the work of railway development: in an old country a railway is simply an accessory to the existing trade. In a new country a railway is a colonizing factor. The railway has gone ahead of population, pulled population after it. It was my fortune in 1901, in connection with some work which I had the honour of doing for the Government, to traverse a great part of the Canadian North-west. Recently I was back through that section, and it was a source of surprise and pleasure to see the development of the country, to find in sections where formerly there was hardly any population, in sections with no population in fact, now thriving towns. One section which was then unsettled has now a railway traversing it-a railway which is known as the road of a hundred wheat stations.

The importance of railway development is recognized in every change of industrial life. Railway development has been aided by the development of our corporation system. We all know that the corporate system of management has great advantages from the financial standpoint. By the Accretion of small sums of capital, works that could not otherwise be conducted have been carried out. We can take that for granted, but in connection with the problem of corporation organization there comes up the further question of the relations of corporate management to the public. We recognize certain distinctions between ordinary mercantile corporations and corporations that are affected by public use; and there has developed in different countries a body of law dealing with corporations which are affected by public use. So I wish to draw attention! to some considerations bearing upon the question of public policy in regard to railway corporations, confining what I have to say, for the most part, to Canadian conditions.

In the development of a railway regulative policy we have, as in many other things, to go to Great Britain. In the world today we have two general systems of policy in regard to railway control. We have in Great Britain, Canada and the United States adopted the policy of private ownership plus government control. Broadly speaking, in the rest of the world a system of government ownership and management prevails. I am not concerned with the discussion of the merits of either system. I am simply accepting the fact. In England, as early as 1854, it was recognized that difficulties arose in connection with the question of the relation of railways to the public. At first in the earlier Acts it was thought that the competitive conditions which governed ordinary trade would govern railways as well. The idea (I am probably carrying coals to Newcastle in mentioning it) was that the railway bed would be free to all in the same way as a canal was free to different carriers, and that the railway bed might be used by the rolling stock of an individual in return for payment or tolls, and that by competition on that roadbed rates would be regulated. In 1844 it was recognized that difficulties were in the way-the necessity of unified management and the impossibility of separate control. There also came up preferences and discrimination between shippers, so in the Act of 1854 the undue preference was legislated against. It was found in the development of railway regulation in England that the enforcement of the undue preference clauses of that Act through the courts, as was the earlier intention, had some defects. It was found also that there were difficulties in the way of regulating railways directly by Parliament; that is to say, by passing general statutes, because these general statutes did not allow sufficient discretion to deal with the individual conditions. And so we find in 1873, and later in 1888, the organization of the Railway and Canal Commission in Great Britain.

In England the general policy has been to deal with the question of undue preference or discrimination, giving the regulative body no control over individual rates in this; that is to say, the regulative body is concerned with relative unreasonableness, not with the question of the reasonableness of the rate per se. The old policy was to place certain maximum rates in the charters of railways, and there are decisions on record that any rate which is within the maximum fixed by the statute is (per se a reasonable rate. In the legislation of 1888, which amended and expanded the regulative legislation of 1873, no power over an individual rate was given to the Railway Commission except in the question of through rates. In 1894 legislation was passed empowering the Commission to investigate the reasonableness of the rates increased since 1892. That has been construed by the English Railway and Canal Commission in a narrow way.

In the United States, as the result of a long period of agitation, an Act was passed in 1887 directed especially against discriminations. There are also prohibitions in regard to unreasonable rates. The American Commission for a time claimed the right to exercise jurisdiction in regard to the reasonableness of particular rates, and direct reductions of them; but later by court decisions it was held that the Commission did not possess any power to reduce individual rates for the future. That was subsequently amended by legislation of 1906, under which the Commission has regulative power over individual rates for the future. In both countries there comes up the question of the relation of the regulative body (the Commission) to the courts. In England the decision of the Railway and Canal Commission is final as to the question of fact, and there may be one appeal on a question of law. In general, where there has been an appeal from the Commission, it has been decided in a comparatively short time by the courts, generally within a period of six months.

In the United States, on account of the division of powers under the constitution, the Interstate Commerce Commission, is not a court. It has no final power. Before the amendment of 1906 many delays took place in connection with the enforcement of the various orders of the Commission. A case might be heard before the Commission and the railway might be unwilling to be bound by its decision, and the whole question might run the gamut of the courts up to the Supreme Court. In one case eleven years elapsed between the order given by the Commission and the decision of the Supreme Court, and all the Supreme Court decided was that the Commission was not justified in its finding on the facts. Under such circumstances as those the petitioner might be dead before a decision was reached. In dealing with the question of regulation in Canada we had to recognize the experiences of other countries-of Great Britain and the United States. I may refer, then, to the jurisdiction of the Commission in Canada, arid briefly state what we have been attempting to accomplish.

Under the organization of our Commission, which, since the amendment of last year, now consists of six members, the power of the Commission is final on a question of fact. On any question which, in the opinion of the Commissioners, is a question of law, the finding of the Chief Commissioner is final. There may be an appeal on a question of law or of jurisdiction to the Supreme Court. Then, again, there may be an appeal from the Commission to the Governor-in-Council. Or the Governor-in-Council may of his own motion overrule the order of the Commission and direct what action shall be taken, -and the action so directed to be taken shall be the order of the Commission.

The reason for the latter provision is the desire to maintain the principle of responsible government. In the earlier days of railway legislation in Canada the right to exercise general regulative powers was reserved to the Parliament of Canada; for example, the power contained in the Railway Act prior to 1888, giving Parliament the right to reduce rates, but not so as to produce less than 15 percent of a dividend on the investment. As a result of the investigation of the 15 Royal Commission, 1886 to 1888, the Act was amended and that particular provision I referred to struck out of the Act, and a varied jurisdiction in regard to matters of rate discriminations, safety appliances, etc., was conferred on the Railway Committee of the Privy Council, which was responsible to Parliament. Under the amending Act of 1903, the powers hitherto possessed by the Railway Committee of the Privy Council, plus certain additional wider powers, were conferred upon a Commission. By giving the Governor-in-Council a control over the Commission the principle of ministerial responsibility is maintained.

As to the power over rates the Commission has power to declare a rate unreasonable. It has power to declare what shall be a reasonable rate. It has a thorough-going power over rates which is not possessed either by the English Commission or by the United States Commission; because, as I indicated in the case of the English Commission, there is only a limited jurisdiction over individual rates which have been increased subsequent to. 1892. In the United States the jurisdiction 'is limited by the court control. In the case of Canada the decision of the Commission is final on a question of facts; that is to say, the rate regulation is a matter of fact. Of course, if there is some material point of law involved, then there comes the question of the matter going to the Supreme Court, as in the matter of commutation rates, which involves the question as to whether certain powers conferred upon the railways by section 341 of the Railway Act were controlled by section 77 of the Act dealing with discrimination. Some very important legal points are involved, with the result that such cases, will go before the Supreme Court. We have a control over the rates which exceeds that possessed by any other railway regulative commission in the world.

As regards discriminations we have powers there, wide powers, similar to those I referred to as existing in the English Acts. We have also control over the question of classification, which, as you will know, is fundamental in rate-making, because a change in a class means a change in the rate, and the power to regulate rates without power to regulate classification would be giving with the right hand to take away with the left. Our jurisdiction is not limited to questions of rates alone. We have a very diversified jurisdiction in other respects. It occurred to me that it might be of interest to you to have brought before you a brief summary of what we have had before us in this city.

In three days' sittings here we have had some thirty-seven cases, and in these cases some thirty-seven different points have been involved. It is just by accident, however, that you find this identity of number. We had to consider such questions as culverts, highway crossings, drainage under tracks, railway sidings, dangerous level crossings, inter-railway relations where one railway crosses another, the question of the cost of protection-as of installing inter-locking devices, de-rails-land damages, applications by independent telephone companies to have telephones installed in certain railway stations, delay in shipments, and last but not least, one in regard to the viaduct. That may be taken as a fairly comprehensive summary of the kind of work that comes before us. We have jurisdiction regarding rates, regarding highway crossings, inter-railway relations, safety appliances, speed of trains, telephone rates, telegraph rates, express rates, sleeping-car rates, and other powers which would be too tedious to enumerate.

The Commission may not be composed of philosophers; we certainly are peripatetics. In my own experience, since early in January I have travelled not far from 9,000 miles. We are all in the same box. It was recognized in the Royal Commission of 1886-88 that one defect in the existing policy of railway regulation was that all those who had complaints to bring up had to have them dealt with at Ottawa before the Railway Committee of the Privy Council. It is true that recommendation was made that some subordinate officials might be appointed on behalf of the Privy Council to go out and take testimony, and on the basis of this testimony the matters might be dealt with in Ottawa. This recommendation was not carried out. We, however, move from place to place. For example, when we were in Edmonton early this year a farmer came before us having a complaint that he had fenced off a certain portion of the right-of-way of a highway, by consent of his neighbours, and he complained that the wires had been cut by engineers of a railway company, and as a result some of his cattle were killed on the tracks. We have no jurisdiction with regard to questions of damages. I refer to this case to show that the farmer came before us in Edmonton and explained his case, and I wish to say that in a small matter like that in the older days he would have to present his case in person or by counsel before the Railway Committee of the Privy Council-a matter of considerable expense.

Take the question of highway crossings. Our peripatetic organization enables us to pick out some centre and to hear various cases about highway crossings, disputes about protection, etc. We give our earnest attention to the matter of crossings, and our decentralized organization enables us to get closer to the seat of complaint. In the latter part of January I had the privilege to travel with the Chief Commissioner on a six weeks' trip through to Victoria. In the six weeks we handled three hundred and thirty applications. Our record was at Medicine Hat-four cases in forty-five minutes. In going through on that trip we had the opportunity to meet the individuals who had complaints, representatives from different farmers' associations, shippers' associations, some cases represented by lawyers, some cases represented in person. In the last year, ending March 31st, 1909, the Board has handled about eleven hundred formal applications. I have not in mind just how many informal applications, but the number would be about three of the latter to one formal application.

The attempt in connection with the Commission work is to arrive at substantial justice. That is all human justice can be between the parties, and to do this as promptly as possible. Some cases which come before us are not very complicated-a matter, it may be, regarding the planking at a highway, a question of fact. Others are more complicated and require a longer period of deliberation, special reports from officers, etc.; but we attempt to get at results as quickly as possible, always keeping in mind substantial justice to the parties as representing the general public, because we recognize that in a question, say, affecting rates, delay defeats the remedy. I have referred in passing to the eleven-year period which elapsed in one case in the United States, but that is an extreme case. But on an average the cases appealed from the Interstate Commerce Commission, and which go to the Supreme Court, prior to 1906 took about four years to settle. The remedy was defeated by the length of time required in the process.

Rapidity of settlement is not the only thing. Rapidity plus injustice is the worst thing; but if you can get at the facts and get a relatively speedy solution, conditions are better, and I have often found that people are more interested in a speedy solution than in getting every point settled in their favour. We recognize that we have complicated matters brought before us, and we give as careful consideration as is possible for fallible human beings to all the facts brought before us. We have had only a limited experience. The life of the Commission began in 1904. We have been gradually developing precedents in regard to certain lines of regulative policy. We know that we have made our mistakes, in which we are in harmony with the rest of humanity, but we are attempting to give careful, serious attention to the general interests of the public-not the public construed in a narrow sense, because we have to recognize that anything which is unfair to a transportation company is, in the long run, detrimental to the interests of the public. If we should take up a policy which meant that a railway company was to be deprived of the legitimate return upon its investment, in the long run, by retarding investment, it would react upon the development of the country. Some years ago, in a report which I made to the Government of Canada, I made the statement, which I take the liberty of quoting, that " any regulative policy which results in depriving a transportation company of a legitimate return upon the investment is as detrimental to the public as any policy which endeavoured to obtain high rates upon an improperly inflated capitalization through arbitrary discriminations and other measures."

In the development of the work of the Board Canada has been fortunate in that the Commission has possessed strong chairmen. The late Mr. Blair, with whom it was my privilege to be associated in various special investigations was a man who brought to the work of the Board a wealth of administrative ability. You all know the legal ability, the judicial acumen of the late Mr. Commissioner Killam. In regard to the present chairman, it would be a matter of bad taste for me to attempt to pass any opinion upon one of my colleagues. You are in a better position than I am to estimate his work, but I am permitted to say-it is within the bounds of good taste-that no man could work for a pleasanter colleague or work with a more considerate man, and a man with broader ideas of the proper application of work in connection with the detail matters that come before us.

I would say, again, that we are even yet in a formative period. We started with a wide jurisdiction. The jurisdiction has been made wider. Possibly some awkward questions may be referred to us; we must struggle with them. You will remember that we are attempting to work out, as I have said, substantial justice. We may fail sometimes, but we are trying to hold the balance as even as we can, recognizing that the proper development of a regulative policy in regard to railways is a measure which is in the truest interests of Canada.

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Some Considerations of Railway Regulation


The subject of transportation as the most important single economic question in Canada today. Ways in which Canada has been re-made by its transportation facilities. Instances of the early consideration of a systematic policy in regard to transportation and attracting traffic from the adjacent republic. The work of railway development. The importance of railway development, recognized in every change of industrial life. How railway development has been aided by the development of our corporation system. Relations of corporate management to the public. Considerations bearing upon the question of public policy in regard to railway corporations, for the most, to Canadian conditions. Looking at Great Britain for the development of a railway regulative policy. Great Britain, Canada and the United States having adopted the policy of private ownership plus government control. A system of government ownership and management prevailing over most of the rest of the world. Some history that led to this policy in England and subsequently in Canada and the U.S. Comparisons between systems. The central facts in the regulative policy are those of rates and of the relation of the regulative body to the courts. The rates issue, with illustrative instances. Also the question of the level of the rates. The organization and power of the Canadian Railway Commission. Rationale and background for the structure and organization of the regulative powers in Canada. Details of the Railway Act. Control over rates and discriminations. A brief summary of what the Commission has had brought before it in Toronto. The attempt in connection with the Commission work to arrive at substantial justice. Rapidity of settlement. Developing precedents in regard to certain lines of regulative policy. Some of the strong chairmen that the Commission has been fortunate to have. Even now in a formative period. Starting with a wide jurisdiction which was made wider. Recognizing that the proper development of a regulative policy in regard to railways is a measure which is in the truest interests of Canada.