British Columbia (Attorney General) v. Canada (Attorney General); An Act respecting the Vancouver Island Railway (Re), 1994 CanLII 81 (SCC), [1994] 2 SCR 41

The Attorney General of Canada Appellant

v.

The Attorney General of British Columbia Respondent

Indexed as: British Columbia (Attorney General) v. Canada (Attorney General); An Act respecting the Vancouver Island Railway (Re)

File No.: 22758.

1993: December 2; 1994: May 5.

Present: Lamer C.J. and La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major JJ.

on appeal from the court of appeal for british columbia

Constitutional law ‑‑ British Columbia Terms of Union ‑‑ Vancouver Island railway ‑‑ Whether Canada owes British Columbia constitutional obligation to ensure operation of train service between Victoria and Nanaimo ‑‑ British Columbia Terms of Union, R.S.C., 1985, App. II, No. 10, Term 11 ‑‑ An Act respecting the Vancouver Island Railway, the Esquimalt Graving Dock, and certain Railway Lands of the Province of British Columbia, granted to the Dominion, S.C. 1884, c. 6, preamble, schedule ‑‑ An Act relating to the Island Railway, the Graving Dock, and Railway Lands of the Province, S.B.C. 1884, c. 14, preamble.

Railways ‑‑ Discontinuance of passenger‑train services ‑‑ Vancouver Island railway ‑‑ Whether Canada has authority under Railway Act or National Transportation Act, 1987 to discontinue passenger‑train service between Victoria and Nanaimo ‑‑ Whether special federal legislation necessary ‑‑ Railway Act, R.S.C., 1985, c. R‑3, ss. 3(1)(b), 7 ‑‑ National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.), s. 64 ‑‑ An Act respecting the Vancouver Island Railway, the Esquimalt Graving Dock, and certain Railway Lands of the Province of British Columbia, granted to the Dominion, S.C. 1884, c. 6, s. 2, schedule.

Statutes ‑‑ Agreement in schedule ‑‑ Statutory ratification and confirmation of scheduled agreement ‑‑ Whether agreement incorporated into statute ‑‑ An Act respecting the Vancouver Island Railway, the Esquimalt Graving Dock, and certain Railway Lands of the Province of British Columbia, granted to the Dominion, S.C. 1884, c. 6, s. 2, schedule.

Railways ‑‑ Discontinuance of passenger‑train services ‑‑ Federal agency order for non‑discontinuance of passenger‑train service not reconsidered within five years as prescribed by railway legislation ‑‑ Whether Governor in Council had jurisdiction under s. 64 of National Transportation Act, 1987 to vary order after five‑year period ‑‑ National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.), s. 64 ‑‑ Railway Act, R.S.C., 1985, c. R‑3, s. 268(2).

When British Columbia joined Confederation in 1871, Canada agreed, pursuant to Term 11 of the British Columbia Terms of Union, to commence within two years, construction of a railway connecting the "seaboard of British Columbia with the railway system of Canada" and to complete the railway within ten years. In return, British Columbia agreed to convey to Canada a contiguous strip of land on Vancouver Island and on the mainland to secure the development of the railway. Delays in the construction of the railway led to negotiations and to a settlement in 1883, which was in turn ratified and embodied in both federal ("Dominion Act") and provincial ("Provincial Act") legislation. Under the terms of the 1883 settlement, British Columbia confirmed and renewed the grant of contiguous land along the Island rail corridor. In turn, Canada agreed to contribute $750,000 toward the cost of constructing the Esquimalt to Nanaimo line and to convey the granted lands to the contractors that would build the line. Canada then entered into a contract with the Dunsmuir railway syndicate, which agreed to construct the railway line and "continuously and in good faith operate the same". The Dunsmuir Agreement was ratified by, and attached as a schedule to, the Dominion Act. The line from Esquimalt to Nanaimo was completed in 1886 and extended to Victoria. The Dunsmuir Agreement was performed by the E & N Railway Co., which was purchased by the CPR in 1905. In the same year, Parliament passed a statute declaring the railway to be a work for the general advantage of Canada ("1905 Declaratory Act"). Anticipating the extension of the railway line to Courtenay, British Columbia passed a statute in 1912 exempting the extension lands from taxes. In the scheduled agreement to the 1912 Act, the E & N Railway Co. agreed to construct and "continuously operate" the extension. Pursuant to s. 2 of the 1912 Act, the provisions of the schedule formed an integral part of the Act. The extension was completed in 1914.

Following an application by the CPR, the Canadian Transport Commission ("CTC") declared in April 1984 that the Victoria to Courtenay passenger‑train service was uneconomic but directed that service on the line not be discontinued. Pursuant to s. 64 of the National Transportation Act, 1987, the Governor in Council varied the CTC order in October 1989, ordering the termination of the Victoria‑Courtenay passenger‑train service. Upon a petition by the province, the British Columbia Supreme Court granted a declaration that Canada has a perpetual constitutional obligation to maintain the rail service on the Victoria‑Nanaimo portion of the railway. The Nanaimo‑Courtenay portion, however, was expressly excluded from the declaration. In 1990, the Governor in Council revoked part of the 1989 Order‑in‑Council and amended the CTC order again, ordering the termination of the passenger‑train service only between Nanaimo and Courtenay. In a second petition, the province challenged the validity of the 1990 Order‑in‑Council. The British Columbia Supreme Court declared that it was made without jurisdiction by reason of the failure of the National Transportation Agency ("NTA"), the CTC's successor, to conduct a review of the CTC order within five years, as contemplated by s. 268(2) of the Railway Act. The court found that the effect of a failure to review within the five‑year period was to terminate the CPR's application to discontinue the service. After April 1989, there was therefore no order in existence upon which the jurisdiction of the Governor in Council under s. 64(1) of the National Transportation Act, 1987 could be founded. Both petition judgments were appealed. The Court of Appeal upheld the constitutional declaration in effect, although a continuing rather than a perpetual obligation on the part of Canada to ensure operation of rail service was recognized. The court also held that the 1990 Order‑in‑Council was ultra vires the Governor in Council.

Held (Lamer C.J. and McLachlin J. dissenting): The appeal should be allowed.

(1) Constitutional Issue

Canada does not owe a constitutional obligation to British Columbia in respect of the operation of the Victoria to Nanaimo Vancouver Island rail line. Although constitutional terms must be capable of growth, constitutional interpretation must nonetheless begin with the language of the constitutional law or provision in question. The wording of Term 11 is clear on its face and imposed only an obligation of construction on Canada, not an obligation of operation. Since there is no suggestion in the language of Term 11 that Canada has a continuing constitutional obligation to operate the Island rail line, British Columbia cannot assert that such an obligation, located in another instrument which is not itself constitutional, somehow attained constitutional status. Indeed, while the 1883 arrangements were an important way of implementing Term 11 and were the culmination of a nation‑building effort, such arrangements could not create obligations of a constitutional kind unless those obligations were already specifically envisioned by the language of Term 11. To assert otherwise is to suggest that British Columbia and Canada, acting alone in 1883, could agree upon, and give effect to, a constitutional amendment. Prior to 1949, constitutional amendments required the participation of the Imperial Parliament, since the Constitution Act, 1867 was an Act of that Parliament. Further, not all acts of nation building attain constitutional status. The 1883 arrangements resolved a constitutional dispute, but that resolution was part constitutional, part political. The principal constitutional part was the implementation of Term 11 obligations through the resolution of land‑grant issues. The political part was anything not specifically contemplated by the language of Term 11. Accordingly, if an obligation on behalf of Canada to operate the Vancouver Island rail line arose in 1883, that obligation resulted only from a political compromise intended to resolve a constitutional impasse. Finally, the case law in no way interferes with the conclusion that Canada has no constitutional obligation in respect of the operation of the Victoria to Nanaimo Vancouver Island rail line.

(2) Statutory Interpretation Issue

Per La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major JJ.: The Dunsmuir Agreement, which contains an undertaking to "continuously" operate the railway, was not given statutory force as part of the Dominion Act, a federal "special Act" which prevails over inconsistent provisions in the Railway Act by virtue of s. 3(1)(b) of the latter Act. In order to make an agreement scheduled to an Act a part of the Act itself, it is not sufficient to find words in the statute merely confirming and validating the agreement; rather, words in the statute must be found which demonstrate that the agreement was intended to have statutory force. All the tools of statutory interpretation can be called in aid to determine whether incorporation is intended. Here, the Dominion Act simply confirmed and ratified the Dunsmuir Agreement and did nothing more. Further, the fact that Parliament passed an Act in 1886 to alter curve radius requirements in the Agreement does not indicate that the Agreement was given statutory force by the Dominion Act. The 1886 Act was necessary to continue the Governor in Council's supervisory authority given by s. 2 of the Dominion Act over the amended version of the Agreement. Additionally, in establishing that curves of a particular radius could be accepted by the Governor in Council with the consent of the province, the 1886 Act may have had the unique purpose of achieving a form of federal/provincial cooperation. Finally, s. 4 of the 1905 Declaratory Act, which specifically maintained certain rights and liabilities arising out of the Provincial Act, did not operate to preserve any operational obligations apparent in the latter Act.

Although the scheduled agreement to the 1912 Act ‑‑ a provincial "special Act" ‑‑ was "apparently" given statutory force by s. 2 of that Act, the "continuous operation" provision contained in the schedule did not take effect notwithstanding the Railway Act by virtue of s. 7 of the latter Act. In 1912, British Columbia was not competent to legislate in respect of the Island rail line's operation. Having obtained jurisdiction over the line by virtue of the 1905 Declaratory Act, Canada had the exclusive ability to legislate in such a fashion. British Columbia was competent to exact a contractual promise of continuous operation from the E & N Railway Co. and this promise could receive statutory authorization in the 1912 Act, but the promise could not be elevated to the status of a statutory obligation by that Act. It is trite law that the Railway Act definition of "special Acts" encompasses only intra vires provisions of such Acts.

Since the "special Act" exemption in the Railway Act has no application in this case, Parliament need not enact special legislation to order the discontinuance of passenger‑train service on the Vancouver Island railway between Victoria and Nanaimo; reliance may instead be placed on the termination provisions of the Railway Act or s. 64 of the National Transportation Act, 1987.

Per Lamer C.J. (dissenting): When seeking to ascertain the meaning of a particular ratifying provision, one should not differentiate between mere "validation" and "incorporation into a statute" simply by looking at the words of the legislative provision which refers to the contract. The overall context and the aims pursued by the legislator must be taken into account. Here, the general context which led to the Dunsmuir Agreement and the nature of the duties contained therein strongly suggest that the provisions of the Agreement were given statutory force by the Dominion Act and, therefore, prevail over the inconsistent provisions of the Railway Act. First, the duty to "continuously" operate the railway found in the Agreement is more in the nature of a public duty, in the sense that it is owed to the public in general and not only to the other party to the contract. The public nature of the duty is the indication of an intent to incorporate the Agreement into the Dominion Act and thus to give it statutory force. Second, where statutes are enacted to give effect to a constitutional settlement, courts should not give them a narrow interpretation allowing one party to modify unilaterally the terms of the settlement. To do so would foster distrust between governments. It is clear that the Dunsmuir Agreement was part of the constitutional settlement between British Columbia and Canada. While it is a document distinct from the federal‑provincial agreement, its provisions are so intertwined with the provisions of the latter that it should not be regarded as some sort of accessory agreement between Canada and a private company. Finally, the fact that Parliament chose in 1886 to pass an Act to modify the Dunsmuir Agreement further demonstrates that it was of the view that the Agreement had been incorporated into the Dominion Act.

(3) Administrative Issue

Per La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, Iacobucci and Major JJ.: The Governor in Council had the authority under s. 64 of the National Transportation Act, 1987 to vary the CTC order, despite the fact that no review occurred within five years, as contemplated by s. 268(2) of the Railway Act. The Governor in Council has a vast discretion under s. 64 to vary a CTC or NTA order and the s. 64 power can be exercised at any time if such an order exists. Here, there was a valid and subsisting order at the time of the 1990 Order‑in‑Council. An order not to discontinue service made pursuant to s. 268(2) does not lapse in the event that a review of the application for discontinuance does not occur within five years. Under s. 268(2), the NTA is not required to reconsider its continuation order within five years; the NTA is only required to reconsider the application for discontinuance which originally led to that order. There is thus nothing in s. 268(2) to suggest that the status of an NTA order should change if a review does not take place within five years. The silence of the Railway Act with respect to the term of the order suggests that the order will persist as issued until varied or set aside. The CTC order is consistent with this interpretation of s. 268(2). It was not limited in time, nor do its terms suggest that failure to conduct a review of the application to discontinue will affect its persistence. These comments are sufficient to dispose of the third issue.

Alternatively, the word "shall" in s. 268(2) of the Railway Act is directory and not mandatory in its effect. There are significant adverse consequences associated with finding that s. 268(2) is mandatory in respect of applications to discontinue. If, at the end of a five‑year period, such an application automatically expired, a straightforward reading of the Railway Act leads to the conclusion that the railway company would be obliged by law to continue to operate the uneconomic service, but would lose the benefit of the subsidy which Parliament intended it to receive. To demand continued operation in the absence of otherwise available subsidy support is to deny the economic reality of the situation. The "mandatory" label is thus associated with an eventuality to be avoided. That eventuality is seriously inconvenient. Hardship would result from the operation of the statute itself and can be identified without independent evidence. Mandamus is not available to compel the NTA to reconsider the application to discontinue within the five‑year period. Until this period expires, the s. 268(2) prescription has not been contravened.

Per Lamer C.J. and McLachlin J. (dissenting): The 1990 Order‑in‑Council, made pursuant to s. 64 of the National Transportation Act, 1987, was ultra vires by reason of the NTA's failure to reconsider the CTC order within the five‑year period prescribed by s. 268(2) of the Railway Act. Under s. 268(2), it is not possible to sever the application for discontinuance of an uneconomic passenger‑train service from the order which follows and to devote the s. 268(2) reconsideration only to the former. To do so would be inconsistent with the scheme of the Railway Act and the wording of the section. It would also render the process of reconsideration meaningless since the only purpose of this process is to reconsider the decision that the uneconomic railway should continue to operate in light of current circumstances. In so far as one does so, one is considering the order. The CTC order was thus subject to a reconsideration within five years. The duty of reconsideration under s. 268(2) is mandatory and the NTA's failure to conduct a reconsideration within the time allotted by the Act has rendered the CTC order null and void. This result does not work serious general inconvenience to the railway company. The obligation to run the railway would continue, as it did before the railway's application for discontinuance. No case has been made that the subsidies that compensate the railway company for operating an uneconomic service would be affected, so hardship on that ground cannot be claimed. It was also open to the railway company to move to have the NTA reconsider the application within the five‑year period or to bring a new application upon the expiry of that period.

Cases Cited

By Iacobucci J.

Considered: Attorney‑General for British Columbia v. Esquimalt and Nanaimo Railway Co., 1949 324 (UK JCPC), [1950] A.C. 87, rev'g 1948 19 (SCC), [1948] S.C.R. 403, rev'g B.C.C.A., sub nom. Reference re Esquimalt and Nanaimo Railway, June 10, 1947, published in B.C. Gazette, June 19, 1947, at 1885; Attorney‑General of British Columbia v. Attorney‑General of Canada (1889), 14 App. Cas. 295, rev'g (1887), 1887 65 (SCC), 14 S.C.R. 345; disapproved: Melville (City of) v. Attorney General of Canada, 1982 5219 (FCA), [1983] 2 F.C. 123; referred to: The Queen in Right of Canada v. The Queen in Right of Prince Edward Island, 1977 2992 (FCA), [1978] 1 F.C. 533; Esquimalt and Nanaimo Railway Co. v. Treat (1919), 1919 427 (UK JCPC), 48 D.L.R. 139; Edwards v. Attorney‑General for Canada, 1929 438 (UK JCPC), [1930] A.C. 124; Attorney‑General of Ontario v. Mercer (1883), 1881 6 (SCC), 8 App. Cas. 767; Prince Edward Island (Minister of Transportation and Public Works) v. Canadian National Railway Co., 1990 13097 (FCA), [1991] 1 F.C. 129; Reference re Authority of Parliament in relation to the Upper House, 1979 169 (SCC), [1980] 1 S.C.R. 54; Reference re Resolution to amend the Constitution, 1981 25 (SCC), [1981] 1 S.C.R. 753; McGregor v. Esquimalt and Nanaimo Railway Co., [1907] A.C. 462; Burrard Power Co. v. The King, 1910 48 (SCC), [1911] A.C. 87; Ottawa Electric Railway Co. v. Corporation of the City of Ottawa, 1944 44 (SCC), [1945] S.C.R. 105; Winnipeg v. Winnipeg Electric Railway Co., 1921 378 (MB CA), [1921] 2 W.W.R. 282; Cree Regional Authority v. Canada (Federal Administrator), 1991 13614 (FCA), [1991] 3 F.C. 533; R. v. Furtney, 1991 30 (SCC), [1991] 3 S.C.R. 89; Kelner v. Baxter (1866), L.R. 2 C.P. 174; Attorney General of Canada v. Inuit Tapirisat of Canada, 1980 21 (SCC), [1980] 2 S.C.R. 735; Jasper Park Chamber of Commerce v. Governor General in Council, 1982 5179 (FCA), [1983] 2 F.C. 98; Montreal Street Railway Co. v. Normandin, 1917 464 (UK JCPC), [1917] A.C. 170; Reference re Manitoba Language Rights, 1985 33 (SCC), [1985] 1 S.C.R. 721; R. ex rel. Anderson v. Buchanan (1909), 44 N.S.R. 112; Karavos v. City of Toronto, 1947 326 (ON CA), [1948] O.W.N. 17; Williamson v. Fisher, [1934] O.W.N. 543; R. ex rel. Canadian Wirevision Ltd. v. New Westminster (City) (1964), 1964 834 (BC SC), 50 W.W.R. 465; Pacific Investments Ltd. v. Delano (1983), 1983 3041 (NS SC), 57 N.S.R. (2d) 427 (S.C.T.D.), aff'd (1983), 1983 5138 (NS CA), 62 N.S.R. (2d) 364 (S.C.A.D.).

By McLachlin J. (dissenting)

Attorney General of Canada v. Inuit Tapirisat of Canada, 1980 21 (SCC), [1980] 2 S.C.R. 735; Montreal Street Railway Co. v. Normandin, 1917 464 (UK JCPC), [1917] A.C. 170; Melville (City of) v. Attorney General of Canada, 1981 4571 (FC), [1982] 2 F.C. 3 (T.D.), rev'd 1982 5219 (FCA), [1983] 2 F.C. 123 (C.A.); Jasper Park Chamber of Commerce v. Governor General in Council, 1982 5179 (FCA), [1983] 2 F.C. 98.

By Lamer C.J. (dissenting)

Ottawa Electric Railway Co. v. Corporation of the City of Ottawa, 1944 44 (SCC), [1945] S.C.R. 105; Caledonian Railway Co. v. Greenock and Wemyss Bay Railway Co. (1874), L.R. 2 Sc. & Div. 347; Sankey v. Whitlam (1978), 142 C.L.R. 1; Cree Regional Authority v. Canada (Federal Administrator), 1991 13614 (FCA), [1991] 3 F.C. 533; Manchester Ship Canal Co. v. Manchester Racecourse Co., [1900] 2 Ch. 352.

Statutes Cited

Act relating to the Island Railway, the Graving Dock, and Railway Lands of the Province, S.B.C. 1883, c. 14 [rep. S.B.C. 1884, c. 14], preamble, clause (e.).

Act relating to the Island Railway, the Graving Dock, and Railway Lands of the Province, S.B.C. 1884, c. 14, preamble, clauses (a.), (b.), (c.), (d.), (e.), (k.), ss. 1, 7, 8, 9, 17, 22, 27.

Act respecting the Esquimalt and Nanaimo Railway Company, S.C. 1905, c. 90, ss. 1, 4.

Act respecting the Railway from Esquimalt to Nanaimo, in British Columbia, S.C. 1886, c. 15, s. 1.

Act respecting the Vancouver Island Railway, the Esquimalt Graving Dock, and certain Railway Lands of the Province of British Columbia, granted to the Dominion, S.C. 1884, c. 6, preamble, clauses (a), (b), (c), (d), (e), (k), ss. 1, 2, 3, 4, 5, 6, 8, 9, 13, Schedule, clauses 3 and 9.

Act to repeal the "Esquimalt and Nanaimo Railway Act, 1875", S.B.C. 1882, c. 16.

British Columbia Terms of Union (reprinted in R.S.C., 1985, App. II, No. 10), Term 11.

British North America (No. 2) Act, 1949 (U.K.), 13 Geo. 6, c. 81 (reprinted in R.S.C., 1985, App. II, No. 33) [rep. Constitution Act, 1982, s. 53(1)].

Canada Act 1982 (U.K.), 1982, c. 11, Schedule B.

Constitution Act, 1867, ss. 92(10)(a), 146.

Constitution Act, 1930 (U.K.), 20 & 21 Geo. 5, c. 26 (reprinted in R.S.C., 1985, App. II, No. 26), s. 1, Schedule, Item (4).

Constitution Act, 1982, ss. 43, 52(2), 53(1), Schedule, Items 4, 6, 22.

Esquimalt and Nanaimo Railway Company's Land Grant Tax Exemption Ratification Act, S.B.C. 1912, c. 33, s. 2, Schedule, clause 3.

National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.), s. 64.

National Transportation Act, 1987, S.C. 1987, c. 34, s. 64.

Prince Edward Island Terms of Union (reprinted in R.S.C., 1985, App. II, No. 12).

Railway Act, R.S.C. 1970, c. R‑2.

Railway Act, R.S.C., 1985, c. R‑3, ss. 2(1) "Special Act", 3(1), 7, 265, 266, 267, 268, 269, 270(1) [am. c. 28 (3rd Supp.), s. 324], (2).

Railway Act, 1903, S.C. 1903, c. 58, s. 6.

Authors Cited

British Columbia. Legislative Assembly. Papers in connection with the construction of the Canadian Pacific Railway between the Dominion, Imperial and Provincial governments [Carnarvon Papers]. Victoria, B.C.: Legislative Assembly, 1880, 198.

Hogg, Peter W. Constitutional Law of Canada, 3rd ed. Scarborough, Ont.: Carswell, 1992.

La Forest, Gérard Vincent. Natural Resources and Public Property under the Canadian Constitution. Toronto: University of Toronto Press, 1969.

La Forest, Gérard Vincent. The Allocation of Taxing Power Under the Canadian Constitution, 2nd ed. Toronto: Canadian Tax Foundation, 1981.

Romaniuk, Bohdan S., and Hudson N. Janisch. "Competition in Telecommunications: Who Polices the Transition" (1986), 18 Ottawa L. Rev. 561.

Wade, William, Sir. Administrative Law, 6th ed. Oxford: Clarendon Press, 1988.

APPEAL from a judgment of the British Columbia Court of Appeal (1991), 1991 2341 (BC CA), 59 B.C.L.R. (2d) 280, 84 D.L.R. (4th) 385, 2 B.C.A.C. 246, 5 W.A.C. 246, [1992] 1 W.W.R. 114, allowing in part an appeal from judgments of Esson C.J.S.C. declaring that Canada has a perpetual obligation to maintain rail service between Victoria and Nanaimo (1989), 1989 5320 (BC SC), 42 B.C.L.R. (2d) 339, 65 D.L.R. (4th) 494, [1990] 3 W.W.R. 61, and declaring that the order in council directing that passenger service be discontinued on the E & N Railway between Nanaimo and Courtenay was ultra vires the Governor in Council (1990), 1990 8029 (BC SC), 59 B.C.L.R. (2d) 273, 69 D.L.R. (4th) 217. Appeal allowed, Lamer C.J. and McLachlin J. dissenting.

Eric A. Bowie, Q.C., Lewis E. Levy, Q.C., and John R. Haig, Q.C., for the appellant.

George H. Copley and Patrick O'Rourke, for the respondent.

The following are the reasons delivered by

Lamer C.J. (dissenting) -- I have read the reasons of my colleagues, Mr. Justice Iacobucci and Madam Justice McLachlin. I am in agreement with the reasons of Iacobucci J. as to the constitutional law issue. However, on the administrative law issue, I respectfully disagree with him and would adopt the reasons of McLachlin J. In addition, and with respect, I cannot agree with either of them on the statutory interpretation issue. For the reasons that follow, I believe that the provisions of the Dunsmuir Agreement were given statutory force by the Act respecting the Vancouver Island Railway, the Esquimalt Graving Dock, and certain Railway Lands of the Province of British Columbia, granted to the Dominion, S.C. 1884, c. 6 ("Dominion Act"). Therefore, they prevail over the inconsistent provisions of the present Railway Act, R.S.C., 1985, c. R-3. I come to this conclusion not by a strict analysis of the words of the Dominion Act, but by examining the general context which led to the Dunsmuir Agreement and the nature of the duties contained therein.

Legislative Approval of Contracts

A government may enter into a contract and be bound by its terms, unless the contract is inconsistent with the terms of a statute or vitiated by the principles of contract law. To remove these constraints on the Crown's ability to contract, a legislature may give "legislative approval" to the terms of a particular contract. In the present case, it is not necessary to decide whether such legislative approval was required, because it was in fact given by s. 2 of the Dominion Act. As a result, we need only be concerned with the effects of the legislative approval given to the Dunsmuir Agreement.

There is no fixed formula for legislative approval of contracts. Sometimes, words such as "ratified", "confirmed", "validated", "given effect to" are used. In some cases, the statute states that the parties shall have the rights mentioned in the contract, or that they shall perform the duties set out in it. In other cases, there is specific language such as "the contract shall have the force of law". When faced with such "ratifying Acts", courts have distinguished between agreements which were given statutory force (i.e., were incorporated into a statute), and those which were not given such force. The validity of contracts which are simply approved (i.e., which are not given statutory force) cannot be challenged for lack of authority, lack of privity, and other reasons which might render the contracts void. "Incorporated" contracts have the additional feature of being assimilated to statutes. For instance, they may create duties for third parties that possibly cannot be created by contracts which are simply validated by a legislature, even though I need not decide this issue now. This distinction is generally accepted in the Canadian, English and Australian jurisprudence: Ottawa Electric Railway Co. v. Corporation of the City of Ottawa, 1944 44 (SCC), [1945] S.C.R. 105; Caledonian Railway Co. v. Greenock and Wemyss Bay Railway Co. (1874), L.R. 2 Sc. & Div. 347 (H.L.); and Sankey v. Whitlam (1978), 142 C.L.R. 1, at p. 77.

Although this distinction between simple validation and incorporation into a statute may be useful to help determine what the effects of any given statutory approval scheme are, it may give rise to confusion if it is used as a device by which to bypass an analysis of Parliament's intent in approving a particular contract. Differentiating between "mere validation" and "incorporation into the statute" should not be done by simply looking at the words of the legislative provision which refers to the contract. The overall context and the aims pursued by Parliament may, and indeed must, be taken into account when one seeks to ascertain the meaning of a particular ratifying provision. This was the approach of the Federal Court of Appeal in Cree Regional Authority v. Canada (Federal Administrator), 1991 13614 (FCA), [1991] 3 F.C. 533. Indeed, the narrow issue of whether the Dunsmuir Agreement was actually incorporated or not in the statute must not be allowed to obscure the real question, i.e., whether Parliament intended to make the 1883-1884 constitutional settlement subject to unilateral modification by the federal executive acting alone. In my opinion, Parliament had no such intention. I have come to this conclusion upon examining the historical context of the Dominion Act.

The Context of the 1884 Dominion Act

Two elements strike me as being most important in deciding whether Parliament intended to give statutory force to the Dunsmuir Agreement in the Dominion Act.

Firstly, the duty to operate continuously which was imposed upon the Esquimalt & Nanaimo Railway Company in the Dunsmuir Agreement was not a duty owed simply to the federal government with which there was privity of contract. It was more in the nature of a public duty, benefitting all British Columbians and other potential users of the railway. Generally speaking, contracts create duties between the parties to them, while legislation creates duties for categories of persons who have not consented to its enactment. When a statutorily approved contract contains duties of such a public nature, in the sense that they are owed to the public in general and not only to the other party to the contract, it may be inferred that Parliament intended to give statutory force to these promises by incorporating the agreement into the statute, and not that it intended merely to validate the contract. For instance, in Manchester Ship Canal Co. v. Manchester Racecourse Co., [1900] 2 Ch. 352, Farwell J., in concluding that a certain agreement appended to a statute had been given statutory force, noted, at p. 362:

The parties might waive the agreement between themselves for their own benefit. They could not waive the statutory duty imposed upon them, if it were a duty imposed for the benefit of the public at large.

Similarly, the James Bay Agreement, which was held to have been incorporated in federal and provincial statutes in Cree Regional Authority, supra, contains many public duties which are not necessarily owed to the signatories of the Agreement, but rather are owed to members of the aboriginal communities or to the public at large. The public nature of the duties is surely an indication of an intent to incorporate the Agreement into the Act and thus, to give it statutory force.

Secondly, it must be remembered that the Dominion Act was part of the settlement of a constitutional dispute between British Columbia and the federal government. The different constituent parts of the settlement may not themselves have constitutional force. Indeed, the two governments chose not to request a modification to the British Columbia Terms of Union (reprinted in R.S.C., 1985, App. II, No. 10) from the Imperial Parliament. Nevertheless, constitutional settlements should be construed as being as certain and fixed as possible. In cases where statutes were enacted to give effect to a constitutional settlement, courts should not give them a narrow interpretation allowing one party to unilaterally modify the terms of the settlement. To do so would foster distrust between governments.

In my view, it is clear that the Dunsmuir Agreement was part of the 1883-1884 constitutional settlement between British Columbia and the federal government. While it is a document distinct from the federal-provincial agreement, its provisions are so intertwined with the provisions of the latter that we should not consider it as some sort of accessory agreement between the federal government and a private company.

I also draw comfort from the fact that when the Dunsmuir Agreement was modified to allow the contractor to build curves sharper than expected in the railway line, an Act of Parliament was passed to effect the change: An Act respecting the Railway from Esquimalt to Nanaimo, in British Columbia, S.C. 1886, c. 15 ("Curve Act"). If the Agreement had not been given statutory authority, it could have been modified simply by agreement between the parties. The fact that Parliament chose to enact the Curve Act is a strong indication that it felt that such an enactment was required because the Dunsmuir Agreement had been incorporated into the Dominion Act. Also, I would note that the Curve Act refers to the initial curve requirements as "the requirements of the said Act forty-seventh Victoria, chapter six", even though these requirements were found in the Dunsmuir Agreement and not in the Act itself. This further demonstrates that Parliament was of the view that the Dunsmuir Agreement had been incorporated into the Dominion Act.

While of the view that the Dunsmuir Agreement had statutory force, the Court of Appeal did not find the Curve Act helpful in coming to that conclusion. The court accepted the proposition put forward by the Attorney General of Canada that the Curve Act was only intended to continue the "supervisory authority" of the federal government over the construction of the railway, such authority being valid only with respect to the original agreement, and not with respect to the amended agreement. I cannot accept this explanation. If the Dunsmuir Agreement had not been incorporated in the Dominion Act, it remained a contract which could have been modified by the consent of the parties. The "supervisory authority" of the federal government would have flowed from the terms of the Agreement and not from the Act. Thus, it would have been unnecessary to ask Parliament to extend this "authority". In fact, the reasoning of the Court of Appeal pre-supposes that the "supervisory authority" comes from the Act and not only from the Agreement. This, in turn, can only be true if the Agreement is incorporated in the Act, because the Act itself does not expressly mention such authority. In the end, this line of reasoning is contradictory. In my view, we cannot avoid the conclusion that the framers of the Curve Act believed that the Dunsmuir Agreement had statutory force.

The appellant urged that a contrary intent be inferred from the fact that some, but not all, provisions of the Dunsmuir Agreement are repeated in the Dominion Act. Only those provisions which are repeated, it argued, may have received statutory force. With respect, I do not find this argument convincing. One can speculate as to other reasons why the drafters may have included these provisions. For instance, Parliament may have wanted to make it completely clear that it approved the transfer of the funds mentioned in the Agreement (ss. 3 and 13). Also, it may have been felt that a specific provision was necessary to give effect to the customs duties exemption (s. 8). I note that a similar argument to the one advanced by the appellant here was put forward by the provincial government in Cree Regional Authority, supra, and was rejected by the Federal Court of Appeal in that case.

In the result, I find that the Dunsmuir Agreement has statutory force and that it prevails over s. 268 of the Railway Act.

For the foregoing reasons, I would dismiss the appeal.

The judgment of La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, Iacobucci and Major JJ. was delivered by

Iacobucci J. -- There are two basic questions to be answered in this appeal. Can the federal government, acting alone, constitutionally compel the termination of passenger rail services on Vancouver Island? If termination can be so achieved, how must it be achieved?

I. Facts

The history which forms the broader context of the present dispute has been impressively surveyed in several judgments. These include the per curiam decision of the British Columbia Court of Appeal in this case: British Columbia (Attorney General) v. Canada (Attorney General) (1991), 1991 2341 (BC CA), 59 B.C.L.R. (2d) 280. Additionally, there is the decision of this Court per Locke J., and of the British Columbia Court of Appeal per O'Halloran J.A., in the E & N Reference case: Attorney General for British Columbia v. Esquimalt and Nanaimo Railway Co., 1949 324 (UK JCPC), [1950] A.C. 87 (P.C.), rev'g 1948 19 (SCC), [1948] S.C.R. 403, rev'g B.C.C.A., sub nom. Reference re Esquimalt and Nanaimo Railway, June 10, 1947, published in B.C. Gazette, June 19, 1947, at p. 1885. I will not attempt a similarly extensive survey in these reasons. What follows is simply an overview of the historical facts necessary to my analysis inasmuch as a more complete history can be obtained through reference to the decisions I have cited.

British Columbia joined Confederation in 1871. This was formally achieved by the British Columbia Terms of Union (reprinted in R.S.C., 1985, App. II, No. 10). Pursuant to Term 11 of the Terms of Union, Canada agreed, in part, to commence within two years construction of a railway connecting the "seaboard of British Columbia with the railway system of Canada", and to "secure the completion" of that railway within ten years.

Between 1871 and 1883, Canada and British Columbia negotiated with one another in an attempt to resolve the railway obligation established by Term 11. In 1873, a route was selected which contemplated a fixed rail link between mainland British Columbia and northern Vancouver Island that was intended to traverse the Strait of Georgia. On the Island, the proposed route was to lead along the Island's east coast, through Nanaimo, to a proposed western terminus at Esquimalt, near Victoria.

In 1875, British Columbia granted to Canada a corridor of land along the 1873 route. This railway belt measured 20 miles on either side of the proposed line. Under Term 11, British Columbia had agreed "to convey to the Dominion Government . . . a similar extent of public lands along the line of railway throughout its entire length in British Columbia, not to exceed, however, twenty (20) miles on each side of said line". Thus, large tracts of land, both on Vancouver Island and on the mainland, were conveyed to secure the development of the railway as contemplated by Term 11.

Construction of the railway was delayed. These delays were particularly harmful to British Columbia, since no settlement or development of the granted land corridor could occur prior to the railway's completion. As a result, on Vancouver Island roughly one quarter of the Island's area, including most of its arable land, stood in developmental limbo.

A major cause of the construction delay was the emerging view that the 1873 route was neither technically nor financially feasible. Another route was selected and it was this route on which the railway was ultimately constructed. The new route led down the Fraser River Valley to a western terminus at Burrard Inlet, present-day Vancouver. British Columbia accepted the route change with resignation, and abandoned the idea of a fixed rail link to Vancouver Island. However, British Columbia continued to regard the Vancouver Island rail line between Esquimalt and Nanaimo as part of Canada's railway obligation under Term 11 of the Terms of Union.

In 1883, negotiations between British Columbia and Canada finally concluded, and the result was described in the Settlement Agreement of 1883. The Settlement Agreement was in turn ratified and embodied as a preamble in both federal and provincial implementing legislation: An Act relating to the Island Railway, the Graving Dock, and Railway Lands of the Province, S.B.C. 1884, c. 14 ("Provincial Act"); and An Act respecting the Vancouver Island Railway, the Esquimalt Graving Dock, and certain Railway Lands of the Province of British Columbia, granted to the Dominion, S.C. 1884, c. 6 ("Dominion Act").

Under the terms of the Settlement Agreement of 1883, Canada agreed to contribute a sum toward the cost of constructing the Esquimalt to Nanaimo line. British Columbia, in turn, confirmed and renewed the grant of contiguous land along the Island rail corridor, and Canada agreed to convey these lands to "the contractors who may build such railway": clause (e). Canada also agreed to take security from the contractors "for the construction and completion of such railway" before 1887: clause (e). With respect to these proposed contractors, British Columbia agreed to procure the incorporation of a company which would construct the Island rail line. The Esquimalt & Nanaimo Railway Company ("E & N Company") was thus created: s. 8 of the Provincial Act.

The province also agreed, in the Settlement Agreement of 1883, to grant to Canada 3.5 million acres of land in the Peace River interior of mainland British Columbia. This Peace River block grant was intended to respond to unforeseen events at least in part, inasmuch as railway corridor along the new mainland route was considered to be much less valuable than the corridor along the old route.

In addition to Canada and British Columbia, a third party, the proposed railway contractor ("Dunsmuir Syndicate"), was intimately involved in the negotiations which led to the Settlement Agreement of 1883. On the same day that Canada ratified that Agreement, Canada executed a contract ("Dunsmuir Agreement") with the Dunsmuir Syndicate. The Dunsmuir Agreement was ratified by, and attached as a schedule to, the Dominion Act. In the Dunsmuir Agreement, the Syndicate agreed to "construct, complete, equip, maintain and work continuously" the line of the railway, and to "continuously and in good faith operate the same": clauses 3 and 9 (emphasis added).

The line from Esquimalt to Nanaimo was completed in 1886 and extended to Victoria. The contract with the Dunsmuir Syndicate was performed by the E & N Company. In 1905, the E & N Company was purchased by the Canadian Pacific Railway Company ("CPR"). At the time of the purchase, the railway was declared to be a work for the general advantage of Canada by s. 1 of An Act respecting the Esquimalt and Nanaimo Railway Company, S.C. 1905, c. 90 ("1905 Declaratory Act"). However, pursuant to s. 4 of that Act, it was established that the declaration would not prejudicially affect the pre-existing rights and liabilities of British Columbia and the E & N Company.

In 1914, the Island rail line was extended north from Nanaimo to Courtenay. Anticipating the extension, British Columbia passed a statute exempting the extension lands from taxes. The statutory exemption was enacted subject to the requirement that the E & N Company "continuously operate" the extension: Esquimalt and Nanaimo Railway Company's Land Grant Tax Exemption Ratification Act, S.B.C. 1912, c. 33 ("1912 Provincial Land Tax Exemption Act"), Schedule, clause 3.

Both portions of the Island rail line, that is, between Victoria and Nanaimo, and between Nanaimo and Courtenay, have been operating continuously since their respective completion dates. Since 1977, VIA Rail has been responsible for the operation of passenger service on the line.

Pursuant to the Railway Act, R.S.C., 1985, c. R-3, a rail line can be declared "uneconomic", such that its operation can be rationalized or abandoned. The CPR first applied for a declaration and a termination order in 1974 (under forerunner legislation, the Railway Act, R.S.C. 1970, c. R-2). Following upon events which need not be recounted, in 1984, the Canadian Transport Commission ("CTC") declared that the Victoria to Courtenay rail line was uneconomic: CTC Order R-36539. The CTC directed, however, that service on the line not be discontinued.

The National Transportation Agency ("NTA"), the CTC's successor, did not perform a statutorily prescribed five-year review of the application for discontinuance of the rail line service. In 1989, after the review period expired, the Governor in Council purported to vary Order R-36539 pursuant to s. 64 of the National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.) (formerly S.C. 1987, c. 34). The termination of passenger rail service between Victoria and Courtenay was ordered, effective January 15, 1990: Order-in-Council P.C. 1989-1974.

British Columbia responded to P.C. 1989-1974 with a petition that alleges that Canada has a perpetual constitutional obligation to maintain the rail service on the Island. A declaration to this effect issued from the British Columbia Supreme Court, but it pertained only to the Victoria to Nanaimo portion of the rail line: (1989), 1989 5320 (BC SC), 42 B.C.L.R. (2d) 339, 65 D.L.R. (4th) 494, [1990] 3 W.W.R. 61. The Nanaimo to Courtenay portion was expressly excluded.

In deference to this result, the Governor in Council revoked Schedule VII to P.C. 1989-1974, meaning that its earlier termination order ceased to have effect. The Governor in Council proceeded, however, to amend again Order R‑36539. Termination of the passenger-train service between Nanaimo and Courtenay was thus ordered, effective January 15, 1990: Order-in-Council P.C. 1990-21.

British Columbia responded with a second petition. This petition challenges P.C. 1990-21 on the basis that it purports to vary a lapsed NTA order, such that P.C. 1990-21 is ultra vires the Governor in Council. A declaration to this effect issued from the British Columbia Supreme Court: (1990), 1990 8029 (BC SC), 59 B.C.L.R. (2d) 273, 69 D.L.R. (4th) 217.

Both the first and second petition judgments were appealed to the British Columbia Court of Appeal: (1991), 1991 2341 (BC CA), 59 B.C.L.R. (2d) 280, 84 D.L.R. (4th) 385, 2 B.C.A.C. 246, 5 W.A.C. 246, [1992] 1 W.W.R. 114. The Court of Appeal held that P.C. 1990-21 was, indeed, ultra vires the Governor in Council. The Court of Appeal also upheld the constitutional declaration in effect, although a continuing rather than a perpetual obligation on the part of Canada to ensure operation of rail service was recognized. This Court granted leave to appeal from that decision, [1992] 2 S.C.R. v.

II. Relevant Constitutional, Statutory, and Other Provisions

A.Constitution Act, 1867 (U.K.), 30 & 31 Vict., c. 3 (reprinted in R.S.C., 1985, App. II, No. 5)

146. It shall be lawful for the Queen, by and with the Advice of Her Majesty's Most Honourable Privy Council, on Addresses from the Houses of the Parliament of Canada, and from the Houses of the respective Legislatures of the Colonies or Provinces of Newfoundland, Prince Edward Island, and British Columbia, to admit those Colonies or Provinces, or any of them, into the Union . . . on such Terms and Conditions in each Case as are in the Addresses expressed and as the Queen thinks fit to approve, subject to the Provisions of this Act; and the Provisions of any Order in Council in that Behalf shall have effect as if they had been enacted by the Parliament of the United Kingdom of Great Britain and Ireland.

B. British Columbia Terms of Union (reprinted in R.S.C., 1985, App. II, No. 10)

11. The Government of the Dominion undertake to secure the commencement simultaneously, within two years from the date of the Union, of the construction of a railway from the Pacific towards the Rocky Mountains, and from such point as may be selected, east of the Rocky Mountains, towards the Pacific, to connect the seaboard of British Columbia with the railway sys­tem of Canada; and further, to secure the completion of such railway within ten years from the date of the Union.

And the Government of British Columbia agrees to convey to the Dominion Government, in trust, to be appropriated in such manner as the Dominion Government may deem advisable in furtherance of the construction of the said railway, a similar extent of public lands along the line of railway throughout its entire length in British Columbia, not to exceed, however, twenty (20) miles on each side of said line, as may be appro­priated for the same purpose by the Dominion Government from the public lands in the north-west territories and the Prov­ince of Manitoba. Provided that the quantity of land which may be held under pre-emption right or by Crown grant within the limits of the tract of land in British Columbia to be so conveyed to the Dominion Government shall be made good to the Domin­ion from contiguous public lands; and provided further, that until the commencement, within two years, as aforesaid, from the date of the union, of the construction of the said railway, the Government of British Columbia shall not sell or alienate any further portions of the public lands of British Columbia in any other way than under right of pre-emption, requiring actual residence of the pre-emptor on the land claimed by him. In consideration of the land to be so conveyed in aid of the construction of the said railway, the Dominion Government agrees to pay to British Columbia from the date of the Union, the sum of 100,000 dollars per annum, in half-yearly payments in advance.

C.Settlement Agreement of 1883, as incorporated by way of preamble into the Dominion Act and the Provincial Act which follow:

WHEREAS negotiations between the Governments of Canada and British Columbia have been recently pending, relative to delays in the commencement and construction of the Canadian Pacific Railway, and relative to the Vancouver Island Railway, the Esquimalt Graving Dock, and certain railway lands of the Province of British Columbia:

And, whereas, for the purpose of settling all existing disputes and difficulties between the two Governments, it hath been agreed as follows:--

(a). The Legislature of British Columbia shall be invited to amend the Act number eleven, of one thousand eight hundred and eighty, intituled "An Act to authorize the grant of certain public lands on the Mainland of British Columbia to the Government of the Dominion of Canada for Canadian Pacific Railway purposes," so that the same extent of land on each side of the line of railway through British Columbia, wherever finally settled, shall be granted to the Dominion Government in lieu of the lands conveyed by that Act:

(b). The Government of British Columbia shall obtain the authority of the Legislature to grant to the Government of Canada a portion of the lands set forth and described in the Act, number fifteen, of one thousand eight hundred and eighty-two, intituled "An Act to incorporate the Vancouver Land and Railway Company," namely, that portion of the said lands therein described, commencing at the southern boundary thereof and extending to a line running east and west, half-way between Comox and Seymour Narrows; and also a further portion of the lands conveyed by the said Act to the northward of and contiguous to that portion of the said lands last hereinbefore specified, equal in extent to the lands within the limits thereof which may have been alienated from the Crown by Crown grants, pre-emption, or otherwise:

(c). The Government of British Columbia shall obtain the authority of the Legislature to convey to the Government of Canada three and one-half millions of acres of land in the Peace River District of British Columbia, in one rectangular block, east of the Rocky Mountains and adjoining the North-West Territories of Canada:

(d). The Government of British Columbia shall procure the incorporation, by Act of their Legislature, of certain persons, to be designated by the Government of Canada, for the construction of the railway from Esquimalt to Nanaimo:

(e). The Government of Canada shall, upon the adoption by the Legislature of British Columbia of the terms of this agreement, seek the sanction of Parliament to enable them to contribute to the construction of a railway, from Esquimalt to Nanaimo, the sum of seven hundred and fifty thousand dollars, and they agree to hand over to the contractors who may build such railway the lands which are or may be placed in their hands for that purpose by British Columbia; and they agree to take security, to the satisfaction of the Government of that Province, for the construction and completion of such railway on or before the tenth day of June, one thousand eight hundred and eighty-seven, -- such construction to commence forthwith:

(k). This agreement is to be taken by the Province in full of all claims up to this date by the Province against the Dominion, in respect of delays in the commencement and construction of the Canadian Pacific Railway, and in respect of the non-construction of the Esquimalt and Nanaimo Railway, and shall be taken by the Dominion Government in satisfaction of all claims for additional lands under the terms of Union, but shall not be binding unless and until the same shall have been ratified by the Parliament of Canada and the Legislature of British Columbia:

D. Provincial Act

An Act relating to the Island Railway, the Graving Dock, and Railway Lands of the Province, S.B.C. 1884, c. 14

1. The hereinbefore recited agreement shall be and is hereby ratified and adopted.

2. There is hereby granted to the Dominion Government three and a half million acres of land in that portion of the Peace River District of British Columbia lying East of the Rocky Mountains and adjoining the North-West Territory of Canada, to be located by the Dominion in one rectangular block.

3. For the purpose of facilitating the construction of the Railway between Esquimalt and Nanaimo, it is hereby enacted that such persons . . . as may be named . . . shall be and are hereby constituted a body corporate and politic by the name of "The Esquimalt and Nanaimo Railway Company."

4. The company, and their agents and servants, shall lay out, construct, equip, maintain, and work a continuous double or single track steel railway of the gauge of the Canadian Pacific Railway . . . from a point at or near the harbour of Esquimalt, in British Columbia, to a port or place at or near Nanaimo on the eastern coast of Vancouver Island, with power to extend the main line to Comox and Victoria, and to construct branches to settlements on the east coast, and also to extend the said railway by ferry communications to the mainland of British Columbia, and there to connect or amalgamate with any railway line in operation or course of construction . . . .

5. The Consolidated Railway Act, eighteen hundred and seventy-nine (1879), of Canada, shall, so far as its provisions are applicable to the undertaking and are not inconsistent with or contrary to the provisions of this Act, apply to the said railway, and shall be read with and form part of this Act.

6. The lands to be acquired by the company from the Dominion Government for the construction of the Railway shall not be subject to taxation, unless and until the same are used by the company for other than railroad purposes, or leased, occupied, sold, or alienated.

7. The said Esquimalt and Nanaimo Railway Company shall be bound by any contract or agreement for the construction of the Railway from Esquimalt to Nanaimo which shall be entered into by and between the persons so to be incorporated as aforesaid, and Her Majesty, represented by the Minister of Railways and Canals, and shall be entitled to the full benefit of such contract or agreement, which shall be construed and operate in like manner as if such company had been a party thereto in lieu of such persons, and the document had been duly executed by such company under their corporate seal.

E. Dominion Act

An Act respecting the Vancouver Island Railway, the Esquimalt Graving Dock, and certain Railway Lands of the Province of British Columbia, granted to the Dominion, S.C. 1884, c. 6

1. The hereinbefore recited agreement is hereby approved and ratified.

2. The agreement, a copy of which, with specification, is hereto appended as a schedule, for the construction, equipment, maintenance and working of a continuous line of railway of a uniform gauge of four feet, eight and one-half inches, from Esquimalt to Nanaimo in Vancouver Island, British Columbia, and also for the construction, equipment, maintenance and working of a telegraph line along the line of the said railway, is hereby approved and ratified, and the Governor in Council is authorized to carry out the provisions thereof according to their purport.

3. The Governor in Council may grant to "The Esquimalt and Nanaimo Railway Company" mentioned in the said agreement, and incorporated by the Act of the Legislature of British Columbia lastly hereinbefore referred to, in aid of the construction of the said railway and telegraph line, a subsidy in money of seven hundred and fifty thousand dollars . . . .

SCHEDULE.

Between Robert Dunsmuir, James Dunsmuir and John Bryden [and other members of the "Dunsmuir Syndicate"] . . . and Her Majesty Queen Victoria, represented herein by the Minister of Railways and Canals . . . .

Whereas it has been agreed by and between the Governments of Canada and British Columbia, that the Government of British Columbia should procure the incorporation, by an Act of their Legislature, of certain persons to be designated by the Government of Canada, for the construction of a railway from Esquimalt to Nanaimo, and that the Government of Canada should take security from such company for the construction of such railway:

And whereas the parties hereto, of the first part, are associated together for the purpose of constructing or contracting for the construction of a railway and telegraph line from Esquimalt to Nanaimo, and are hereafter referred to as the said contractors:

3. That the said contractors shall and will well, truly and faithfully lay out, make, build, construct, complete, equip, maintain and work continuously a line of railway of a uniform gauge of four feet eight and a-half inches, from Esquimalt to Nanaimo, in Vancouver Island, British Columbia, the points and approximate route and course being shown on the map hereunto annexed, marked B, and also construct, maintain and work continuously a telegraph line throughout and along the said line of railway, and supply all such telegraphic apparatus as may be required for the proper equipment of such telegraph line, and perform all engineering services, whether in the field or in preparing plans or doing other office work, to the entire satisfaction of the Governor in Council.

4. That the said contractors will, upon and after the completion and equipment of the said line of railway and works appertaining thereto, truly and in good faith keep and maintain the same, and the rolling stock required therefor, in good and efficient working and running order, and shall continuously and in good faith operate the same, and also the said telegraph line and will keep the said telegraph line and appurtenances in good running order.

F. 1905 Declaratory Act

An Act respecting the Esquimalt and Nanaimo Railway Company, S.C. 1905, c. 90

1. The railway of the Esquimalt and Nanaimo Railway Company, hereinafter called "the Company," is declared to be a work for the general advantage of Canada.

2. Nothing in this Act shall prejudicially affect the respective rights and liabilities of the province of British Columbia and of the Company, now existing or which heretofore existed by virtue of the provisions of the Act of the Legislature of the said province, 47 Victoria, chapter 14 [the Provincial Act].

G. 1912 Provincial Land Tax Exemption Act

Esquimalt and Nanaimo Railway Company's Land Grant Tax Exemption Ratification Act, S.B.C. 1912, c. 33

2. The Agreement, a copy of which forms the Schedule to this Act, is hereby ratified and confirmed and declared to be legal and binding upon His Majesty the King, the Esquimalt and Nanaimo Railway Company, and the Canadian Pacific Railway Company, who are hereby authorized and empowered to do whatever is necessary to give full effect to the said Agreement, the provisions of which are to be taken as if they had been expressly enacted hereby and formed an integral part of this Act.

SCHEDULE.

3. The Company shall, on or before the thirty-first day of December, 1915, construct, complete, and thereafter continuously operate an extension of its main line northward from its present northerly terminus to a point at or near the Village of Courtenay.

H. Railway Act, R.S.C., 1985, c. R-3

2. (1) In this Act, and in any Special Act,

"Special Act", when used with reference to a railway, means any Act under which the company has authority to construct or operate a railway, or that is enacted with special reference to that railway, and includes

3. (1) Except as otherwise provided in this Act,

(a) this Act shall be construed as incorporated with the Special Act; and

(b) where the provisions of this Act and of any Special Act passed by Parliament relate to the same subject-matter, the provisions of the Special Act shall, in so far as is necessary to give effect to the Special Act, be taken to override the provisions of this Act.

7. Where any railway, the construction or operation of which is authorized by a Special Act passed by the legislature of any province, is declared by any Act of Parliament to be a work for the general advantage of Canada, this Act applies to the railway, and to the company constructing or operating it, to the exclusion of such of the provisions of the Special Act as are inconsistent with this Act, and in lieu of any general railway Act of the province.

8. ...

(2) If the Commission determines that the operation of an uneconomic passenger-train service should not be discontinued, the Commission shall so order, and thereafter shall reconsider the application for discontinuance at intervals not exceeding five years from the date of the original application or last consideration thereof, as the case may be, for the purpose of determining whether the passenger-train service should be discontinued . . . .

270. (1) In this section,

"claim period" means, in relation to any uneconomic passenger-train service, the period

(a) beginning ninety days after the date the application to discontinue the service has been filed with the Commission in accordance with the rules and regulations of the Commission, and

(b) ending on the date fixed by the Commission, or as varied pursuant to section 64 of the National Transportation Act, 1987, for the discontinuance of the service or part thereof;

(2) When an uneconomic service is being operated within a claim period, the company operating it may file a claim with the Commission for the amount of any actual loss of the company attributable to the service in any financial year of the company within the claim period, or, where only a part of a financial year is within the claim period, in that part thereof within the claim period.

I. National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.)

64. The Governor in Council may, at any time, in the discretion of the Governor in Council, either on petition of any party or person interested or of the Governor in Council's own motion, vary or rescind any decision, order, rule or regulation of the Agency, whether the decision or order is made inter partes or otherwise, and whether the rule or regulation is general or limited in its scope and application, and any order that the Governor in Council may make with respect thereto is binding on the Agency and on all parties.

III. Judgments Below

A. British Columbia Supreme Court (Esson C.J.)

With respect to the first petition brought by British Columbia (1989), 1989 5320 (BC SC), 42 B.C.L.R. (2d) 339, Esson C.J. found that Term 11 of the British Columbia Terms of Union is a skeletal constitutional provision that left much to be resolved between Canada and British Columbia. He recognized that neither Term 11 nor the Settlement Agreement of 1883 imposes an express obligation upon Canada to ensure continuous railway operation. He determined, however, that such an obligation could be properly inferred.

Esson C.J. noted that the only obligation to "continuously operate" the Island rail line is to be found in the Dunsmuir Agreement. He compared the language of that Agreement to the language used to describe a ferry service obligation in The Queen in Right of Canada v. The Queen in Right of Prince Edward Island, 1977 2992 (FCA), [1978] 1 F.C. 533 (C.A.). He concluded that "a promise in the Terms of Union to `continuously operate' can create a perpetual obligation" (p. 351). However, Esson C.J. indicated certain hurdles in the way of that conclusion: British Columbia "must satisfy the court that such an obligation on the part of Canada was created by the [Settlement Agreement of 1883] and, if it can, that it is enforceable on the same basis as an express term of the Terms of Union" (p. 351).

Esson C.J. proceeded to discuss two decisions which have interpreted the Settlement Agreement of 1883. He first considered Attorney-General of British Columbia v. Attorney-General of Canada (1889), 14 App. Cas. 295 (P.C.), rev'g (1887), 1887 65 (SCC), 14 S.C.R. 345 ("Precious Metals" case). When that case was before this Court, Ritchie C.J. suggested that the 1883 Agreement was a statutory arrangement which gave effect to and carried out a "constitutional compact" (p. 358), and Gwynne J. characterized the Agreement as being in "the nature of a treaty between these two independent bodies" (p. 372). Esson C.J. contrasted these statements to the Privy Council approach per Lord Watson, who said that Term 11 "merely embodies the terms of a commercial transaction, by which the one Government undertook to make a railway, and the other to give a subsidy, by assigning part of its territorial revenues" (p. 304). Esson C.J. preferred the approach of this Court, suggesting that the Privy Council took a "crabbed" (p. 358) view of Term 11.

Esson C.J. then dealt with a second decision, the E & N Reference case. He first quoted with approval an obiter suggestion from Locke J. to the effect that "the [$750,000 Settlement Agreement of 1883] subsidies were to be given to ensure not merely the construction of the railway and telegraph lines but also their operation in perpetuity" (p. 418 S.C.R.). He then pointed out that the Privy Council decision adopted the reasoning of O'Halloran J.A. from the British Columbia Court of Appeal, and suggested that the Privy Council thus adopted the position that Canada had a constitutional obligation to construct the Island rail line.

The conclusions of Esson C.J. in respect of the constitutional argument are reflected in the following passages from his judgment (at pp. 359-60):

I regard the statement of O'Halloran J.A. as a finding that, despite the protestations of the Dominion at the time, the substance of the matter was that the Dominion did obligate itself to secure construction of the railway. Given all the circumstances existing in 1883, including the relatively local nature of the island railway and the structure of the transaction, I infer that the province relied upon the undertaking to operate continuously given to the Dominion as a benefit which the Dominion impliedly offered to maintain for the benefit of the province. I further conclude that the province, by carrying out its part of the bargain, particularly the very onerous terms relating to the land grant, bound the Dominion to carry out, as part of its bargain with the province, its obligation to ensure continuous operations.

I also conclude that the province is correct in maintaining that the effect of the events of 1905, which gave the Dominion regulatory powers as well as contractual rights against the railway company, strengthened the claim of the province to be able to require the Dominion to enforce the company's obligation. It follows that, in my view, it is not open to Canada to unilaterally exercise its regulatory powers to bring about a cessation of service, as it has purported to do by the [Order-in-Council P.C. 1989-1974].

Notably, since the events which allowed Esson C.J. to infer the perpetual obligation all occurred prior to the extension of the Island line to Courtenay in 1912, he declared that Canada had an obligation to ensure rail service in perpetuity only in respect of the Victoria to Nanaimo portion of the line.

In light of these constitutional conclusions, Esson C.J. dealt only briefly in the first petition with the statutory argument which is part of this appeal. It is germane only to mention that Canada took the position before Esson C.J. that the Dunsmuir Agreement did not become part of the Dominion Act simply because it was "approved and ratified" by that Act. Esson C.J. responded (at p. 362):

In light of my conclusion that the agreement entered into between the Dominion and the province in 1883 has constitutional force, I doubt that this question is of much significance. In any event, I conclude that Sched. 1 to the 1884 Dominion Act is part of the statute. The cases relied on by the respondent do not deal with circumstances such as these in which the government is itself a party to the contract which is set out in the schedule. Perhaps more importantly, the contract in question has been held by cases of high authority to be part of the statute. See Esquimalt & Nanaimo Ry. v. Treat, 1919 427 (UK JCPC), [1919] 3 W.W.R. 356, 35 T.L.R. 737 at 738, 48 D.L.R. 139 (P.C.).

Finally, in the second petition brought by British Columbia (1990), 1990 8029 (BC SC), 59 B.C.L.R. (2d) 273, Esson C.J. addressed the administrative law issue arising out of P.C. 1990-21, which purports to order termination of passenger rail services on the Nanaimo to Courtenay extension. Although he held that the jurisdiction of the Governor General in Council under s. 64 of the National Transportation Act, 1987 is very broad, he nonetheless held that the jurisdiction has boundaries: "[o]ne is that the power is only to vary or rescind a decision, order, rule or regulation of the agency" (p. 278). Esson C.J. concluded that because the statutory five-year review did not occur, the effect "is simply to terminate the application of the railway to abandon" (p. 280). In the result, no order existed for the Governor in Council to vary. Esson C.J. held that P.C. 1990-21 was, therefore, ultra vires.

B. British Columbia Court of Appeal (per curiam) (1991), 1991 2341 (BC CA), 59 B.C.L.R. (2d) 280

1. Constitutional Issue

Like Esson C.J., the Court of Appeal recognized that the constitutional argument could be made only in respect of the Victoria to Nanaimo portion of the rail line. The Court of Appeal embarked upon an extensive historical review, and agreed with Esson C.J.'s analysis and conclusions on the constitutional issue. The Court of Appeal then proceeded to give additional reasons.

The Court of Appeal found the 1883 arrangements to be constitutional rather than commercial in nature, in line with the Supreme Court of Canada (and not Privy Council) decision in the Precious Metals case. The Court of Appeal did not consider itself strictly bound by the Privy Council result, inasmuch as the case dealt not with railway operations but with land grants, and the court characterized the Privy Council decision as a "serious misapprehension of Canadian constitutional history" (p. 302). The E & N Reference case was cited as support for a broader approach to the 1883 arrangements.

The Court of Appeal considered a number of factors to be significant to its decision. These points of support can be briefly summarized as follows:

1.The 1873 designation of Esquimalt as the western terminus is evidence:

a.of constitutional intentions existing at that time,

b.that a tidewater terminus would not satisfy Term 11,

c.that the interpretation of "seaboard" in Term 11 should refer to economics and population.

2.British Columbia maintained the railway land reserve on the Island from an early date.

3.Proposals early in 1874 for an immediate start on the island railway from Victoria to Nanaimo are indicative of Canada's constitutional intentions at the time.

4.A proposal by Lord Carnarvon in 1874 to expedite construction of the Esquimalt to Nanaimo portion of the rail line, although generally seen as a "compromise", is further evidence that Term 11 was intended to include a Vancouver Island railway.

5.Canada promised the E & N franchise to the Dunsmuir Syndicate before concluding the 1883 Settlement Agreement with British Columbia.

6.The 1883 arrangements included provisions relating to the mainland and island railways, and to the Peace River grant. The arrangements constituted an exercise in nation building.

7.The parallel structure of the mainland and island railway provisions in the 1883 arrangements makes the two railways constitutionally indistinguishable.

8.The Dunsmuir Agreement includes a provision requiring the E & N Company to work the rail line continuously. This covenant was a crucial part of the arrangements. The constitutional nature of the interlocking arrangements entitles British Columbia to enforce them through Canada. This involves the "working out" of Term 11's skeletal terms.

The Court of Appeal qualified the significance of these factors by observing that points (3) and (4) above may be ambiguous in meaning, and that points (5) to (8) may simply indicate the existence of negotiations intended to resolve a serious federal/provincial dispute.

In general terms, the Court of Appeal concluded as follows with respect to the constitutional issue (at pp. 307-8):

Canada assumed a constitutional obligation to British Columbia, and indeed to all of Canada, to ensure the continuation of the arrangements made to carry the Terms of Union into effect for the benefit of all its citizens. It is untenable, in our view, to argue that Term 11 was spent once the last spike on the Mainland railway was driven.

In view of the history of the E. & N., it is equally untenable to argue that it stands upon a different constitutional footing from the railway on the Mainland. There was a constitutional impasse when Canada sought to limit its obligation under Term 11 to securing a line of rail to an almost unpopulated point on the Pacific coast. That impasse was resolved in 1883. In our judgment, the resolution agreed upon, structured as we have described, was a constitutional arrangement.

In our view, therefore, the arrangements for the construction and continuous working of the E. & N. railway from Esquimalt to Nanaimo are constitutional and cannot be changed without the consent of the province.

In so far as the Court of Appeal determined that the constitutional obligation owed by Canada could be modified with provincial consent, the Court of Appeal amended the declaration issued by Esson C.J., such that the obligation became characterized as "continuing" rather than "perpetual".

2. Statutory Interpretation Issue

Dealing with the statutory interpretation issue in the alternative, the Court of Appeal held that if Canada could constitutionally order rail service termination, special legislation would be required to achieve the result. The court recognized that under s. 3 of the Railway Act, a "special Act" takes precedence over the Railway Act in the event of conflict. The court held that "[t]he [Dominion Act] clearly falls within the definition of a Special Act" (p. 309). In effect, therefore, the Court of Appeal held that, if the obligation in the Dunsmuir Agreement to "operate continuously" could be considered part of the Dominion Act itself, it would not be possible to order rail service termination using the provisions of the Railway Act for support.

The Court of Appeal proceeded to ask whether the Dunsmuir Agreement, as a schedule to the Dominion Act, has statutory force. In pursuing legislative intent, the Court of Appeal recognized "the need not only for examination of each relevant provision of a statute, by itself and in context of the whole Act, but consideration also of the overall purpose of the statute" (p. 314).

As a general proposition, the Court of Appeal was of the view that the Dunsmuir Agreement was a critical part of the 1883 settlement, such that it "must have been intended to have statutory force" (p. 320). Support for this view was taken from obiter comments in Esquimalt and Nanaimo Railway Co. v. Treat (1919), 1919 427 (UK JCPC), 48 D.L.R. 139 (P.C.). In that case, Viscount Haldane observed in passing that the Dominion Act gave "statutory authority" (p. 140) to the Dunsmuir Agreement.

The Court of Appeal also supported its view of the Dunsmuir Agreement by reference to the 1905 Declaratory Act which declared the E & N line to be a work for the general advantage of Canada. Since, in s. 4 of that statute, the pre-existing rights and liabilities of both British Columbia and the E & N Company were expressly preserved, the Court of Appeal held that "Parliament guaranteed the continued operation of the obligations created by the [Provincial Act], including those contained in the Dunsmuir Agreement" (p. 321). The Court of Appeal tied the Dunsmuir Agreement obligations to the Provincial Act by noting that s. 9 of that Act "provides that the company will `work' the railway" and by noting that s. 27 "binds the company to the provisions of the Dunsmuir Agreement" (p. 321).

The Court of Appeal thus concluded on the statutory interpretation issue that all of the provisions of the Dunsmuir Agreement were given statutory force by the Dominion Act. The court held, therefore, that the Railway Act could not permit a termination order in respect of the Island rail line. In reaching this conclusion, the court contrasted the potentially unprofitable character of the Island rail line with the generous extent of the railway land reserve. Notably, the provisions of the Schedule were held to have statutory force, even though five of the provisions were specifically repeated in the text of the Dominion Act itself.

3. Administrative Issue

Finally, the Court of Appeal turned to the administrative law issue. Canada argued before the Court of Appeal that a CTC (or NTA) order subsists as valid until varied or set aside because the CTC is a superior court of record. The Court of Appeal, however, noted that Esson C.J. had not characterized CTC Order R-36539 as void ab initio. Rather, the Court of Appeal held that the order was valid when it was made, but that it had simply lapsed (at pp. 327-28):

Whether the order was of a superior court of record or simply the order of a court of record with some of the powers of a superior court, the order, either by its terms, or by reason of the provisions of either of the above mentioned subsections of the Railway Act, 1970, or 1985 [subss. 260(8) and 268(2) respectively], expired five years after it was pronounced.

The court held that the purpose of the five-year review requirement in s. 268(2) of the Railway Act is to ensure that any review of a decision not to discontinue an uneconomic passenger-train service is "based upon information that [is] current and up-to-date" (p. 328). The court held that the five-year reconsideration requirement is a "fundamental and mandatory requirement of the regulatory system" (p. 330), and that failure to comply with the requirement cannot be considered a mere procedural error. The court stated that the authority of the Governor in Council to regulate railways is not absolute. It must be exercised within the limits of its Parliamentary grant. The court thus concluded that the variation order apparent in Order-in-Council P.C. 1990-21 is ultra vires the Governor in Council.

IV. Issues

The issues before this Court are the same three issues which were before the British Columbia Court of Appeal, namely:

1.Constitutional: Does Canada owe a continuing constitutional obligation to the province of British Columbia to ensure the maintenance of passenger and freight rail service on the E & N Railway between Victoria and Nanaimo?

2.Statutory Interpretation: If Parliament has jurisdiction to authorize the termination of rail service on the E & N Railway, does either the Railway Act, R.S.C., 1985, c. R-3, or the National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.), authorize the Governor in Council to exercise that jurisdiction, without further statutory authority?

3.Administrative: Was Order-in-Council P.C. 1990-21, enacted on January 11, 1990 (directing that passenger service on the E & N Railway between Nanaimo and Courtenay be discontinued) made without jurisdiction, and therefore ultra vires by reason of the failure of the NTA to conduct a five-year review of CTC Order R-36539?

As will be discussed in the following analysis, I am of the view that Canada does not owe a continuing constitutional obligation to British Columbia regarding the E & N Railway, that Parliament need not enact special legislation to order service termination on that railway, and that the impugned order of the Governor in Council was not ultra vires by reason of the failure of the NTA to conduct a five-year review of CTC Order R-36539.

V. Analysis

A. The Constitutional Issue

The required constitutional analysis begins with a recognition of the constitutional status of Term 11 of the British Columbia Terms of Union. Pursuant to s. 146 of the Constitution Act, 1867 it was lawful for British Columbia to enter Canada upon terms which "shall have effect as if they had been enacted by the Parliament of the United Kingdom of Great Britain and Ireland". Section 52(2) of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11, places the constitutional status of Term 11 beyond doubt. That section provides that the acts and orders listed in the Schedule to the Constitution Act, 1982 are part of Canada's Constitution. The British Columbia Terms of Union, dated May 16, 1871, are listed as Item 4 in that Schedule.

The railway obligations placed upon Canada by Term 11 which are thus endowed with constitutional force are located principally in the first paragraph of the term which I repeat:

11. The Government of the Dominion undertake to secure the commencement simultaneously, within two years from the date of the Union, of the construction of a railway from the Pacific towards the Rocky Mountains, and from such point as may be selected, east of the Rocky Mountains, towards the Pacific, to connect the seaboard of British Columbia with the railway sys­tem of Canada; and further, to secure the completion of such railway within ten years from the date of the Union.

I must emphasize, at the outset, that in the express language of Term 11, there is no reference to railway operations, continuing, perpetual, or otherwise.

Faced with the language of Term 11, British Columbia's position might be summarized in the following way. First, it is said that Term 11 is a skeletal provision, one which left much to be resolved between the province of British Columbia and the Dominion of Canada. Second, it is said that Canada breached the Term 11 obligation soon after 1871. In consequence of these two propositions, British Columbia asserts that all of the 1883 arrangements have constitutional force, since those arrangements effected a working out of the skeletal language of Term 11 and a resolution of Canada's constitutional breach position.

As to the characterization of Term 11 as a "skeletal" provision, I agree with British Columbia in so far as neither the route nor the terminus of the proposed railway could be known in 1871. The history of events between 1871 and 1883 clearly demonstrates the difficult resolution of these issues. The initial 1875 Vancouver Island land grants, for example, were clearly intended to uphold obligations in respect of the proposed route of 1873, but British Columbia felt free to renounce this grant once the route changed: S.B.C. 1882, c. 16; see also the E & N Reference case, per Bird J.A., at p. 1901 B.C. Gazette, and per Locke J., at p. 409 S.C.R. It was not until 1883 that the precise nature of the Term 11 obligation, in respect of land issues, took on a definite shape.

The Settlement Agreement of 1883 finally resolved the route and terminus difficulties, and it also resolved British Columbia's grievances in respect of the Esquimalt to Nanaimo line. The first three clauses of the Agreement speak to the concomitant resolution of land grant issues in respect of the mainland railway belt, an Island land grant, and the Peace River grant.

With particular regard to the Peace River grant, British Columbia asserts that the constitutional status of the 1883 arrangements cannot be narrowly confined to the language of Term 11. Term 11 suggests that the provincial land grant was to include only "contiguous" lands in the form of a railway belt. British Columbia says that the Peace River block was not contiguous to the mainland line, but has been treated as having a constitutional character. In particular, British Columbia argues that, once it was determined that Canada was overcompensated by the Peace River grant, a constitutional amendment was sought to effect restitution: Constitution Act, 1930 (U.K.), 20 & 21 Geo. 5, c. 26 (reprinted in R.S.C., 1985, App. II, No. 26), Schedule, Item (4).

I do not believe that the non-contiguous nature of the Peace River grant, coupled with the events of 1930, advances British Columbia's position appreciably. To advance this belief, I need not quibble with the proposition that the Peace River grant and the original railway belt served similar functions historically. As understood in 1871, the grant of the railway belt to Canada was intended to counterbalance the enormous undertaking assumed by Canada. Term 11 characterized the land grants as being "in aid of the construction of the said railway", and this captures the flavour of the transaction.

This original understanding of the railway belt's role must be placed in context, however, since it was also understood, in 1871, that the mainland rail line would lead through Yellowhead Pass on its way to Bute Inlet, some distance north of Burrard Inlet, and that the railway belt would include fertile agricultural lands. Since the route ultimately selected led through Kicking Horse Pass, and since the railway belt was consequently surrounded by less valuable land, the Peace River grant may have responded, at least in part, to this discrepancy between expectation and reality. Like the Term 11 railway belt, therefore, the Peace River block may have constituted aid for the "construction of the said railway".

The functional similarity I see between these two land grants is qualified only in this sense: the Peace River grant was effected by the Settlement Agreement of 1883, and not by Term 11. Therefore, it is not necessarily true that the Peace River grant was intended to be only "compensation" for the diminished value of the railway belt. The railway belt defined by Term 11 was granted "in aid of the construction of the said railway" (emphasis added). But by 1883, while the "said railway" could still be defined, different obligations on Canada's behalf had also arisen in respect of Vancouver Island. I will discuss my view of the Vancouver Island rail line in greater detail below. For the present, it is sufficient to observe that the Peace River grant undoubtedly "aided" the exercise of nation building, but its aid was not necessarily confined to the constitutional obligations of Term 11. 1883 involved other obligations which the Peace River block may have been intended to aid as well.

Leaving aside these nuances, I am willing to assume that the Peace River grant did nothing more than what British Columbia says it did, namely, that it shored up the diminished value of the Term 11 railway belt. In my opinion, however, this functional similarity between the railway-belt grant and the Peace River grant does not speak to the constitutionality of the latter. Instead, British Columbia can argue that the Peace River grant had constitutional status only because the grant was retransferred by way of Imperial instrument.

To respond to this point, which is the fulcrum of British Columbia's argument, I must note that the retransfer of lands in 1930 involved not only the Peace River block, but also the remaining unalienated railway belt itself. Although the latter conveyance clearly had constitutional dimensions, I am not inclined to endow the Peace River block with constitutional status simply by association. The Imperial character of the 1930 retransfer was demanded by some of its subject matter. That there may be a constitutional flavour about the remaining subject matter after 1930 says little about its flavour before that date. The lands granted pursuant to the clear language of Term 11 were "contiguous" lands. The treatment of the Peace River block in 1930 cannot alter the fact that the block does not comprise contiguous lands.

What is more, even if I were inclined to attribute a constitutional dimension to the Peace River block, I think the attribution would do little to assist British Columbia. The language of Term 11 contemplates a land transfer; it simply contemplates a transfer of "contiguous" land. If it were necessary to bring the Peace River block within this language, I might reason that, in 1871, it was generally understood that lands along a railway had recognized value. Thus, I could say that Term 11 spoke of "contiguous" lands to define the value of the land transaction for both parties. A necessary consequence of this reasoning would be that, once the route changed, a literal reading of the word "contiguous" would have frustrated the intention made evident by its inclusion. Thus, if it were necessary, and subject to the qualification offered later in these reasons, I could have invoked a "living tree" approach to constitutional interpretation to respond to the Peace River block: Edwards v. Attorney-General for Canada, 1929 438 (UK JCPC), [1930] A.C. 124 (P.C.).

But even this unnecessary extension of the living-tree doctrine has a foothold in Term 11 which I have already noted: Term 11 contemplates a land transfer. The language of Term 11 does not, however, contemplate an operational obligation of any kind. To read such an obligation in through the Settlement Agreement of 1883 would require development of some new doctrine, something more than a living-tree approach, which is not supported by the historical fact of the Peace River grant.

I need say nothing more to justify the conclusion that the Settlement Agreement of 1883 in some respects implemented the language of Term 11. To this extent only, I agree with British Columbia that Term 11 is skeletal in respect of certain land issues. Term 11 is skeletal only because the railway belt had to be marked out on the ground. Term 11 is not "skeletal" if that word implies the subsequent addition of a structure not defined by its terms. One senses that, in British Columbia's approach, the skeleton does not define the appearance of the species. However, as I will proceed to discuss, while the 1883 arrangements were an important way of giving Term 11 a precise meaning, the parties could not "work out" that which is not comprehended by Term 11 language, namely, an obligation in respect of railway operations.

It cannot be contended that either Canada or British Columbia was unaware, in 1871, of the distinction between constructing a railway, and operating a railway. A useful comparison exists in the Terms of Union which governed the entry of Prince Edward Island into Confederation in 1873 (Prince Edward Island Terms of Union (reprinted in R.S.C., 1985, App. II, No. 12); see also Constitution Act, 1982, Schedule, Item 6):

That the Dominion Government shall assume and defray all the charges for the following services, viz.:--

Efficient Steam Service for the conveyance of mails and passengers, to be established and maintained between the Island and the mainland of the Dominion, Winter and Summer, thus placing the Island in continuous communication with the Intercolonial Railway and the railway system of the Dominion; [Emphasis added.]

In The Queen in Right of Canada v. The Queen in Right of Prince Edward Island, supra, the Federal Court of Appeal effectively assumed that this clear language imposed upon Canada an operational obligation to ensure a service, and the court determined only how "continuous" that service must be. The contrast between this term, and British Columbia's Term 11, is striking: where, in Term 11, is the operational reference to railway service?

Although constitutional terms must be capable of growth, constitutional interpretation must nonetheless begin with the language of the constitutional law or provision in question. As early as 1883, in interpreting s. 109 of the Constitution Act, 1867, it was recognized in Attorney-General of Ontario v. Mercer (1883), 1881 6 (SCC), 8 App. Cas. 767 (P.C.), by the Lord Chancellor (Earl of Selborne) at p. 778 that:

It is a sound maxim of law, that every word ought, primâ facie, to be construed in its primary and natural sense, unless a secondary or more limited sense is required by the subject or by the context.

Equally, at the same time as the "living tree" approach to constitutional interpretation was developed in Edwards v. Attorney-General for Canada, supra, it was also said that "the question is not what may be supposed to have been intended, but what has been said" (per Lord Sankey L.C., at p. 137). In passing, I would not wish to be taken as having decided whether the other broad principles established in the Edwards case apply to specific agreements like Terms of Union, which were intended to settle specific problems.

The interpretive process proposed by British Columbia denies the straightforward proposition that regard must first be had for the language of the provision to be interpreted. British Columbia asserts that because some aspects of Term 11 are skeletal, the whole of the railway obligation must be considered ambiguous. I have already noted that Term 11 is "skeletal" only in a very limited sense. Even if a much broader view were acceptable, however, what British Columbia invites this Court to do is to move beyond the language of Term 11 to the Settlement Agreement of 1883, from thence to the Dominion Act, and from thence to the Dunsmuir Agreement where, finally, an obligation in respect of operations will be located.

In response to British Columbia's invitation, it is useful to cite Prince Edward Island (Minister of Transportation and Public Works) v. Canadian National Railway Co., 1990 13097 (FCA), [1991] 1 F.C. 129 (C.A.). In that case, the same Prince Edward Island Terms of Union already quoted were at issue. With reference to those terms, it was argued that Canada has a constitutional obligation to maintain or operate rail services on the Island. Writing for the Federal Court of Appeal, I stated (at pp. 136-37):

I do not find it necessary to deal with each of the imaginative steps along the interpretive journey mapped out by the appellant which leads to his constitutional destination. I say this for the reason that the Terms of Union do not require Canada to operate the railway in Prince Edward Island or to maintain and operate a rail link between the railway within Prince Edward Island and the railway on the mainland. This is acknowledged by counsel for the appellant, who also recognizes that what the Terms of Union expressly state is that the railway on the Island shall be the property of Canada and Canada will pay the cost of a service that will place the Island in continuous communication with the Intercolonial Railway and the railway system of the Dominion.

In my view, what the appellant is in effect arguing is that the Terms of Union are not clear on their face as shown by what he calls the poor drafting, brevity, disorganization and the like. To resolve the doubt one must discern an understanding that must be implied from the circumstances at the time and the conduct of the parties since the Terms of Union were approved. I find this approach rather dangerous because it can easily lead to a rewriting of the Terms if not a slanting of the arrangement unjustifiably in favour of one side. But more fundamentally I think the appellant's approach is misguided because what is surely paramount is the meaning to be given to the words chosen by the parties in the Terms of Union.

In this respect, I do not agree that the words chosen were badly expressed or otherwise defective. In fact, I believe the relevant Terms of Union are clear in their intent and meaning and should be taken to express the agreement that was intended by the parties. In other words, there is no need to rely on the rules of statutory construction, extrinsic evidence, or legislative history when the language under consideration is clear.

In like manner, I suggest that the case made by British Columbia in this appeal is answered with relative ease. Term 11 is clear on its face: it imposed an obligation of construction on Canada, not an obligation of operation.

In passing, I add that British Columbia can take no support from my obiter statement in the Prince Edward Island case, to the effect that (at p. 139): "If an obligation to operate perpetually were intended, clear language to that effect would have been employed as was done, as Counsel for CN pointed out, in the 1883 B.C. railway settlement". Clearly, this statement was unnecessary to the decision in that case, and, even as obiter, it is qualified since I also stated (in footnote 14 at p. 139): "Without commenting on the correctness of [Esson C.J.'s first petition] decision, I would point out that the facts and language of the relevant enactments are materially different from those in the case at bar". Additionally, the comment only suggests that if perpetual railway operation was intended when Prince Edward Island joined Confederation, the Terms of Union could have used the kind of language used in the Dunsmuir Agreement. The comment in no way considers whether the language of the Dunsmuir Agreement has constitutional status itself.

Then British Columbia argues that a broader view of Term 11 must be adopted because, by 1883, Canada was in breach of its obligations under that term. That Canada was in breach is clear. Term 11 established that construction of the rail line was to be commenced within two years, and completed within ten years, of 1871. As the simple existence of the Settlement Agreement of 1883 points out, neither of these time frames for construction was observed.

It is equally clear, in my view, that construction delays gave rise to a legitimate grievance on the part of British Columbia, since the settlement and development of that province was intimately associated with the land grants contemplated by Term 11. Ample evidence of British Columbia's concern over the delay can be located in the Carnarvon Papers, published by the province in 1880. In particular, I note the 1878 petition by the British Columbia Legislative Assembly which requested the right to "withdraw from the Union" (Carnarvon Papers, No. 198) in the event that British Columbia's grievances could not be satisfied by Lord Carnarvon's 1874 proposal.

I do not discount the proposition repeatedly asserted in the reasons of the Court of Appeal, namely, that the 1883 arrangements were the culmination of a nation-building effort. I must plainly state, however, that such arrangements could not create obligations of a constitutional kind unless those obligations were already specifically envisioned by the terms of Term 11. To assert otherwise is to suggest that British Columbia and Canada -- acting alone in 1883 -- could agree upon, and give effect to, a constitutional amendment.

The manner in which Canada's Constitution could have been amended in 1883 is, or should be, trite law. Today, of course, the federal government and any affected provincial government can agree upon constitutional amendments which affect no other province pursuant to s. 43 of the Constitution Act, 1982. Similarly, after 1949, amendment of the Constitution Act, 1867 could occur without Imperial Parliament consent if the amendment involved modification of a purely federal power: British North America (No. 2) Act, 1949 (U.K.), 13 Geo. 6, c. 81 (reprinted in R.S.C., 1985, App. II, No. 33), repealed by Constitution Act, 1982, s. 53(1) and Schedule, Item 22; see Reference re Authority of Parliament in relation to the Upper House, 1979 169 (SCC), [1980] 1 S.C.R. 54. Clearly, however, prior to 1949, constitutional amendments did require the participation of the Imperial Parliament, since the Constitution Act, 1867 (then the British North America Act, 1867) was an Act of that Parliament. If authority for this simple proposition is desired, see Reference re Authority of Parliament in relation to the Upper House, supra, at p. 60, and Reference re Resolution to amend the Constitution, 1981 25 (SCC), [1981] 1 S.C.R. 753, at p. 802.

I am thus somewhat confounded by the argument which suggests that Canada and British Columbia, acting alone, could have made an agreement which had a "constitutional nature" in 1883 which was not specifically contemplated by Term 11. As already noted, I have no doubt of the importance of the provisions of the Settlement Agreement of 1883 to the process of nation building. As recognized by the Privy Council in the E & N Reference case, the "whole arrangement would have broken down" (p. 108) if the parties had refused to enact their respective obligations in the Dominion and Provincial Acts. However, to admit that nation building was at issue is to admit an historical, not a constitutional, fact. All constitutional amendments, perforce, can be considered acts of nation building. But not all acts of nation building, perforce, attain constitutional status.

Indeed, to put the matter as I understand it, the 1883 arrangements resolved a constitutional dispute, but that resolution was part constitutional, part political. The principal constitutional part has already been reviewed, that is, the implementation of Term 11 obligations through the resolution of land-grant issues. The political part, quite simply, is anything which is not specifically contemplated by the language of Term 11 of the British Columbia Terms of Union. For example, I would clearly place Canada's contribution of $750,000 toward the Island rail line construction in this latter category: see clause (e) of the Settlement Agreement of 1883 and s. 3 of the Dominion Act. As recognized by the judgment of Rand J. in the E & N Reference case, there was indeed a "legitimate complaint on the part of the Province" (p. 436) in 1883, but the resulting arrangements were largely "political arrangements to be embodied in statutes" (p. 439).

I conclude, therefore, that if an obligation on behalf of Canada to operate the Vancouver Island rail line arose in 1883, that obligation resulted only from a political compromise intended to resolve a constitutional impasse. This is not to say that the 1883 arrangements lacked stability or importance. One need only consider the taxation collection agreements which have existed and do exist between the federal government and the provinces of Canada to realize that very stable political arrangements sometimes lack constitutional status: see G. V. La Forest, The Allocation of Taxing Power Under the Canadian Constitution (2nd ed. 1981), at p. 28.

Stated another way, I see no value in a constitutional argument which is not grounded in the language of the Constitution itself. It would be a vast extension of constitutional law to suggest that British Columbia and Canada could do anything but respond to such language in resolving the constitutional impasse which existed by 1883. As Professor Hogg has recognized in Constitutional Law of Canada (3rd ed. 1992), at p. 9:

The definition of the "Constitution of Canada" in s. 52(2) is introduced by the word "includes". In general, in Canadian statutes, the word "includes" indicates that the definition is not exhaustive. The word "means" is customary for an exhaustive definition. But, considering the specificity of the list of Acts and orders, and the grave consequences (namely, supremacy and entrenchment . . .) of the inclusion of other instruments, surely no court would be so bold as to make additions to the 30 instruments in the schedule. It seems only realistic, therefore, to regard the definition as exhaustive, although it omits many instruments of importance to the government of Canada or the provinces. For example, the definition omits the pre-1867 instruments which governed the territory now forming part of Ontario and Quebec: the Royal Proclamation of 1763, the Quebec Act of 1774, the Constitutional Act of 1791 and the Union Act of 1840. Also excluded are the pre-1867 instruments which are still the constitutions of Nova Scotia (1749), Prince Edward Island (1769), New Brunswick (1784), Newfoundland (1832) and British Columbia (1866).

The argument of British Columbia runs contrary to the common sense notion expressed by Professor Hogg. Since there is no suggestion in the language of the Terms of Union that Canada has a continuing constitutional obligation to operate the Island rail line, British Columbia cannot assert that such an obligation, located in another instrument which is not itself constitutional, somehow attained constitutional status. It is not necessary, of course, to discount completely the possibility that documents not listed in s. 52(2) of the Constitution Act, 1982 might yet be considered constitutional in certain contexts. That issue does not fall to be resolved in this case.

These comments are sufficient to dispose of the first issue. Nonetheless, I feel I must respond to certain arguments grounded in case law because of the reliance placed upon them in the courts below. In particular, extensive reference has been made to the Precious Metals case and the E & N Reference case already cited. I will comment upon each of these decisions in turn.

The controversy in the Precious Metals case concerned the nature of the land grant effected by the Provincial Act, and, in particular, s. 2 of that Act. Section 2 gave effect to British Columbia's obligation to convey a contiguous strip of land within the meaning of Term 11 of the Terms of Union. British Columbia and Canada went to court with a reference case to determine ownership of the precious metals beneath the railway belt. The precise issue to be determined was whether the grant from British Columbia to Canada was governed by the rule which governs Crown grants to private persons, "namely, that by a grant of land from the crown the precious metals would not pass unless the intention of the crown that they should pass was expressed in apt and precise words" (p. 357 S.C.R.).

Before this Court, the rule governing private grants was found to be inapplicable, and it was held that the provincial statute transferred mineral rights to Canada. There were two majority judgments. For Ritchie C.J., the following characterization of the grant was accepted (at pp. 357-58):

This is not to be looked upon as a transaction between the crown and a private individual, or to be governed by principles applicable to transfers between private parties. This was a statutory arrangement between the government of the Dominion and the government of British Columbia, in settlement of a constitutional question between the two governments, or rather, giving effect to, and carrying out, the constitutional compact under which British Columbia became part and parcel of the Dominion of Canada, and as a part of that arrangement the government of British Columbia relinquished to the Dominion of Canada ..., all right to certain public lands belonging to the crown . . .; it was a statutory transfer or relinquishment by the Province of British Columbia of the right of that province in or to such public lands to the Dominion of Canada, to be managed, controlled and dealt with by the Dominion government in as full and ample a manner as the provincial government could have done, had no such act been passed, and, in my opinion, having the same force and effect as if the British North America Act, instead of declaring that the several provinces should retain all their respective public property . . . and that all lands belonging to the several provinces should continue to belong to the several provinces, there had been engrafted thereon an exception of certain portions of such public lands which should belong to the Dominion government. [Emphasis added.]

In coming to the same conclusion, Gwynne J. (Taschereau J. concurring) held that the controlling feature on the facts was the intention of British Columbia and Canada at the time. For Term 11 purposes, Gwynne J. considered that Canada and British Columbia could be compared to independent actors on the international stage. He stated (at pp. 372-73):

The transaction thus authorized being of the nature of a treaty between these two independent bodies . . . the case must be regarded not at all in the light of a grant of land by the crown to a subject, but in the light of a treaty between the two independent contracting parties upon the faith of which alone the Province of British Columbia was received into and became part of the Dominion of Canada, and being given by the British North America Act the force of an act of parliament.

Gwynne J. held that the parties must have intended for Canada to have total control over the railway belt in order "to give effect to the condition upon which British Columbia was received into the union" (p. 386).

In quite short reasons, Lord Watson reversed the decision of this Court. Lord Watson obviously took issue with Gwynne J.'s characterization of Term 11 as embodying a treaty-like power. He stated (at pp. 303-4):

If the 11th Article of Union had been an independent treaty between the two Governments, which obviously contemplated the cession by the Province of all its interests in the land forming the railway belt, royal as well as territorial, to the Dominion Government, the conclusion of the Court below would have been inevitable. But their Lordships are unable to regard its provisions in that light. The 11th article does not appear to them to constitute a separate and independent compact. It is part of a general statutory arrangement, of which the leading enactment is, that, on its admission to the Federal Union, British Columbia shall retain all the rights and interests assigned to it by the provisions of the British North America Act, 1867, which govern the distribution of provincial property and revenues between the Province and the Dominion; the 11th article being nothing more than an exception from these provisions. The article in question does not profess to deal with jura regia; it merely embodies the terms of a commercial transaction, by which the one Government undertook to make a railway, and the other to give a subsidy, by assigning part of its territorial revenues. [Emphasis added.]

The language used by Lord Watson in this passage is troubling. If Lord Watson meant to suggest that Term 11 is simply a commercial and not a constitutional provision, then the judgment of the Privy Council must be regarded as having been rendered per incuriam for reasons I have already noted. If, then, Lord Watson erred in this fashion, the Court of Appeal below was correct to assert that the Privy Council "seriously misapprehen[ded]" (p. 302) Canadian history and the learned trial judge was correct to refer to its "crabbed" (p. 358) view of Term 11 (assuming without deciding that, as a matter of stare decisis, either court had sufficient justification to ignore the perceived authority of the Privy Council).

In any event, I prefer to advocate a more generous view of Lord Watson's reasons. Although Lord Watson held that Term 11 "merely embodies the terms of a commercial transaction", I do not believe he meant to assert that those terms were not, in themselves, of constitutional stature. Rather, I believe that Lord Watson intended to circumscribe the reasons of Gwynne J. Read expansively, Gwynne J.'s reasons might suggest that Term 11 authorizes treaty-making not confined by the language of Term 11 itself. I believe Lord Watson's statement is grounded in s. 146 of the Constitution Act, 1867, which states in part that Terms of Union could only be "subject to the Provisions of this Act". In other words, a meaning for Term 11 could not have been negotiated by Canada and British Columbia in contravention of the Constitution Act, 1867 itself, so as to extend unjustifiably the reach of the Terms of Union.

This interpretation makes Lord Watson's reasons intelligible. He proceeded from his allegedly narrow view of Term 11 to decide that the word "lands" as used in Term 11 connotes only certain necessary incidents of land, such as mines and minerals. According to Lord Watson, "jura regalia [Royal rights] are not accessories of land" (p. 305). Lord Watson then viewed Term 11 in the context of the Constitution Act, 1867, and, in particular, in light of the fact that "Royalties" belong to the provinces by virtue of s. 109. In the absence of any clear reason to suppose precious metals were intended to pass with the provincial transfer, a pre-eminent effect was given to s. 109, undoubtedly because of s. 146 of the Constitution Act, 1867. Looking back to the long passage quoted from Lord Watson above, it becomes especially relevant to note the distinction drawn between rights "royal as well as territorial". In my view, if royalties received the exceptional treatment I have described in the Precious Metals case, that treatment would be entirely consistent with the Privy Council's approach to the topic: see G. V. La Forest, Natural Resources and Public Property under the Canadian Constitution (1969), at pp. 79-83.

However, regardless of the view which is taken of the Privy Council decision in the Precious Metals case, it should be clear that there is nothing about that case which assists British Columbia in any way in this appeal. I have already conceded that, in respect of the kind of land issues discussed in the case, the 1883 arrangements did constitute a "carrying out [of] the constitutional compact" evident in the Terms of Union, as Ritchie C.J. suggested in the decision of this Court. 1883 implemented 1871. However, to the extent that either the parties or the courts below dispute whether the Precious Metals case is authority for the constitutional character of the 1883 arrangements in toto, the dispute demonstrates a logical error. That error exists in the assumption that the arrangements were either wholly geared toward constitutional implementation, or wholly geared toward commerce.

At issue in the E & N Reference case was s. 22 of the Provincial Act. Pursuant to s. 22, British Columbia enacted as follows:

22. The lands to be acquired by the company from the Dominion Government for the construction of the Railway shall not be subject to taxation, unless and until the same are used by the company for other than railroad purposes, or leased, occupied, sold, or alienated.

As a result of a 1945 Commission appointed to inquire into the forest resources of British Columbia and legislation relating thereto, the courts were asked to determine whether British Columbia could levy a certain form of tax against the E & N Company. This determination required a number of issues to be examined, but, for present purposes, it is sufficient to state that the courts were asked whether British Columbia and the E & N Company were united in contract with respect to the s. 22 obligation.

In the reasons of the British Columbia Court of Appeal, attention must be paid only to the reasons of O'Halloran J.A. O'Halloran J.A. concluded there was no privity of contract between the E & N Company and British Columbia relevant to the taxation issue. He held that the Dunsmuir Agreement was a contract between Canada and the Dunsmuir Syndicate (later the E & N Company), and that the 1883 Settlement Agreement (and Dominion and Provincial Acts) involved an agreement between Canada and British Columbia. O'Halloran J.A. specifically rejected the argument that s. 22 of the Provincial Act could be viewed as an offer from British Columbia to the E & N Company which was accepted through the latter's construction of the rail line. On this point, he stated (at p. 1888):

In my opinion, . . . the Provincial "draft bill" containing section 22 . . . was not an offer by the Province to the contractors, but was in historical truth an acceptance by the Province of the offer the Dominion made to the Province . . ., and which acceptance the Dominion produced to the contractors . . . to induce them to enter into the agreement with the Dominion of that date to build the railway, and as an assurance to the contractors that the Dominion could and would carry out the terms of the agreement it was then negotiating with them.

As a further point of analysis, O'Halloran J.A. examined in some detail the dealings among Canada, British Columbia, and the railway contractors. He took issue with the suggestion that British Columbia had dealt directly with the railway contractors in the following terms (at p. 1889):

It was the obligation of the Dominion under the Terms of Union and embodied in its offer to the Province of 5 May, 1883, that it would secure the construction of the railway. The Province since 1871 had been holding the Dominion firmly to that obligation, and it is inconsistent with the historical setting and the trend of events to suggest now, that the Province in 1883 suddenly embarked on a course of conduct which would have relieved the Dominion from that obligation.

In a similar vein, O'Halloran J.A. examined whether the contractors believed themselves to be negotiating directly with British Columbia. He stated (at p. 1892):

In the historical setting of the events which occurred the contractors could not fail to realize that the Province could not assume responsibility for the construction of the railway, for that was the obligation of the Dominion under the Terms of Union, and the failure to carry out that obligation had been the cause of much bitterness and agitation in the Province. It would be plain to the contractors, moreover, that the Dominion was contracting with them as principal and not as agent or trustee for the Province.

O'Halloran J.A. concluded that British Columbia dealt only with Canada, that British Columbia gave Canada what the latter wanted for the railway contractors, and that British Columbia did not deal with the contractors.

This Court reversed the British Columbia Court of Appeal. A contract was found, although three rather difficult sets of reasons were delivered, and several obiter statements were made.

For Locke J. (Kerwin J. concurring), it was not possible to locate any contractual relationship between British Columbia and the proposed contractor (i.e., the Dunsmuir Syndicate) from the course of dealings which preceded the Provincial Act. However, a contract could be found between the province and the E & N Company because of the Provincial Act itself. Locke J. held that pursuant to s. 9 of that Act, the E & N Company was to "lay out, construct, equip, maintain, and work" the rail line. He connected that obligation to s. 27, which provides that the E & N Company "shall be bound by any contract or agreement for the construction of the railway from Esquimalt to Nanaimo which shall be entered into" between the Dunsmuir Syndicate and Canada. Canada was seen to be a trustee which conveyed consideration from British Columbia to the contractor. On this basis, the E & N Company could enforce the tax exemption.

It is notable that Locke J. considered the quid pro quo for the E & N Company's ability to enforce the tax exemption to be that British Columbia could compel the Company to work the line. He stated (at pp. 422-23):

... it is clear that is what was intended, since otherwise the railway company might have simply built the line for the purpose of obtaining the valuable subsidies and discontinued operation if it proved unprofitable. . . . As I see the matter, the statutory obligation of the Province to exempt the lands from taxation upon the terms of sec. 22 continues in perpetuity in the same manner as the obligations of the railway company under secs. 9 and 27. . .

In a later passage, Locke J. makes similar reference to the E & N Company being "bound by the covenant given by the contractors to operate the railway . . . in perpetuity by reason of sec. 27 of the [Provincial Act]" (pp. 429-30). It may be useful to make two points about this reference immediately. First, Locke J.'s interpretation of events was reversed by the Privy Council. Second, and perhaps more important, the obligation of perpetual operation recognized by Locke J. was a contractual obligation owed by the E & N Company to British Columbia. To the extent that the respondent in this appeal attempts to derive constitutional support from this statement, the attempt must therefore fail. On the one hand, the alleged obligation at issue was not owed by Canada. On the other hand, as Locke J. recognized, the statutory character of the contract he found could be altered at will by British Columbia legislation (p. 423). Obviously, if a perpetual constitutional obligation exists, British Columbia would lack the capacity to alter it at will. Moreover, as no contract law notions have been argued in the present appeal, I need not discuss such notions further.

Like Locke J., Rand J. in the E & N Reference case found that a contract resulted from the enactment of the Provincial Act, rather than from preceding negotiations. Also like Locke J., Rand J. recognized that the arrangements were subject to repeal by the provincial legislature (pp. 438-39). What is more interesting for present purposes is that Rand J. specifically disavowed the constitutional approach taken by O'Halloran J.A. at the Court of Appeal. In concluding that the contractors dealt with Canada and not British Columbia, O'Halloran J.A. had taken the position that Canada incurred a Term 11 obligation to secure construction of the Island railway, and he inferred that British Columbia would not have dealt directly with the contractors (or vice versa) for fear of weakening this obligation. Rand J., however, stated (at pp. 435-36):

Nor would it be profitable to examine the constitutional position from which in substance O'Halloran and Bird JJ. A. proceeded, i.e. that the construction of the island railway was an obligation of the Dominion under the terms of union: even with that as an initial assumption, the conclusions to which the questions invite us, are not, in the view I take of the settlement as a whole, materially affected.

Similarly, for Kellock J., a contract arose inasmuch as Canada contracted as trustee for British Columbia as beneficiary. Interestingly, Kellock J. inferred that the Provincial Act involved a contract through reference to Lord Watson's description of Term 11 as a "commercial transaction" (p. 452). Finally, Estey J., too, found a contract in the statutory scheme.

In contrast, the Privy Council rejected the contract argument outright. Most important is Lord Greene's adoption of O'Halloran J.A.'s approach (at p. 107):

In the Court of Appeal O'Halloran J.A. came to the conclusion that there was no contractual relationship between the province and the contractors or the railway company. Their Lordships agree with this conclusion and with the reasoning on which it is based.

Although the Privy Council agreed that s. 22 of the Provincial Act was essential to the scheme of 1883, no contractual intention was found. In particular, Lord Greene rejected the suggestion that British Columbia would have had "any intention of a contractual nature that [s. 22 of the Provincial Act], when enacted, should remain for all time on the Statute Book" (p. 108).

The E & N Reference case is relevant in this case because British Columbia argues that when Lord Greene adopted the reasoning of O'Halloran J.A. from the Court of Appeal, he adopted that reasoning in its entirety, including O'Halloran J.A.'s characterization of the Vancouver Island rail line as a Term 11 rail line. I have several problems with this argument which I will consider in turn.

First, the Privy Council did not unqualifiedly adopt the reasons of O'Halloran J.A. in the E & N Reference case. Lord Greene simply agreed with O'Halloran J.A.'s contract law conclusion "and with the reasoning on which it is based" (supra, at p. 107). It is far from clear that O'Halloran J.A.'s Term 11 remarks are necessary to his contract law conclusion, since his constitutional interpretation simply informed his factual analysis of what the parties intended in 1883. Further, even if one assumes that a Term 11 status for the rail line was acknowledged, O'Halloran J.A. simply discusses the constitutional status of the construction obligation on Vancouver Island. Proving this status would not advance British Columbia's position in respect of an operational obligation.

Second, at the level of this Court in the E & N Reference case, Rand J. said it would be "unprofitable" (supra, at p. 435) to proceed from O'Halloran J.A.'s constitutional starting point. If the Privy Council intended to discount this blunt statement, I would consider it odd that the Privy Council judgment fails to acknowledge its existence.

Finally, although it is not necessary to my decision, I am somewhat sceptical of the suggestion that the Esquimalt to Nanaimo line can be considered a Term 11 rail line. That line is certainly not a line which connects to the "railway system of Canada" within the meaning of Term 11, and I would find it difficult to rationalize some facts of this case with a Term 11 characterization. Without embarking upon a detailed discussion of the point, I simply cite the difference in language between clause (e.) of the anticipated settlement agreement enacted as a preamble to An Act relating to the Island Railway, the Graving Dock, and Railway Lands of the Province, S.B.C. 1883, c. 14, and clause (e) of the Settlement Agreement of 1883 which actually resulted. I also suggest that it could be difficult to rationalize the decisions in McGregor v. Esquimalt and Nanaimo Railway Co., [1907] A.C. 462 (P.C.), and Burrard Power Co. v. The King, 1910 48 (SCC), [1911] A.C. 87 (P.C.), with a contrary view. I would have thought that a Term 11 rail line would, ipso facto, fall within the legislative jurisdiction of Canada by virtue of s. 92(10)(a) of the Constitution Act, 1867 as an interprovincial undertaking. It is difficult to understand why Canada would have declared the rail line to be a work for the general advantage of Canada in the 1905 Declaratory Act if that rail line had always been within Canada's legislative jurisdiction. None of these points, of course, discounts the significance of the Island rail line as a nation-building enterprise.

Thus, case law in no way interferes with the conclusions I have already reached. I reiterate that Canada owes no constitutional obligation to British Columbia in respect of the Victoria to Nanaimo Vancouver Island rail line. I would allow the appeal on this issue and set aside the contrary declaration issued by the Court of Appeal.

B. The Statutory Interpretation Issue

It will be helpful to describe precisely the statutory interpretation issue at the outset. Pursuant to ss. 3 and 7 of the federal Railway Act a "special Act" is accorded the following special treatment:

3. (1) Except as otherwise provided in this Act,

(a) this Act shall be construed as incorporated with the Special Act; and

(b) where the provisions of this Act and of any Special Act passed by Parliament relate to the same subject-matter, the provisions of the Special Act shall, in so far as is necessary to give effect to the Special Act, be taken to override the provisions of this Act.

7. Where any railway, the construction or operation of which is authorized by a Special Act passed by the legislature of any province, is declared by any Act of Parliament to be a work for the general advantage of Canada, this Act applies to the railway, and to the company constructing or operating it, to the exclusion of such of the provisions of the Special Act as are inconsistent with this Act, and in lieu of any general railway Act of the province.

In s. 2(1) of the Railway Act, one finds the following definition of a "special Act":

"Special Act", when used with reference to a railway, means any Act under which the company has authority to construct or operate a railway, or that is enacted with special reference to that railway . . .

It is clear enough that the Dominion Act, the Provincial Act, the 1905 Declaratory Act, and the 1912 Provincial Land Tax Exemption Act, must all be considered "special Acts", at least in so far as each was enacted "with special reference" to the E & N line.

Thus, based upon s. 3(1)(b), it is argued that if a "continuous operation" provision can be located within any federal "special Act" above listed, such a provision could not be contradicted by the Railway Act. The "special Act" provision would take precedence pursuant to s. 3(1)(b), and termination could not be effected using the provisions of the Railway Act. As a result, it is argued that Parliament must enact special legislation to order passenger rail service termination on the Island rail line.

Likewise, based upon s. 7, it is argued that if a "continuous operation" provision can be located within the provincial "special Act" above listed, such a provision would take effect unless this Court found that the special Act was inconsistent with the Railway Act. There is no doubt, of course, that the E & N Railway was declared to be a work for the general advantage of Canada as contemplated by s. 7. With reference to s. 3(1)(a), then, it is argued that the Railway Act permissively permits termination orders, and that a special Act which mandates "continuous operation" ought to be construed along with the Railway Act. It is said that there is no necessary inconsistency between a statute which permissively permits termination, and one which mandates continuous operation.

Two different "continuous operation" provisions exist in this case. The first, as already noted, exists in the Dunsmuir Agreement which is scheduled to the Dominion Act. The second is in an agreement scheduled to the 1912 Provincial Land Tax Exemption Act, and it relates only to the Nanaimo to Courtenay extension. The potential for each of these provisions to circumvent the general operation of the Railway Act will be considered immediately below.

However, I pause to observe that no particular effort has been made to debate whether the word "continuously" in this context should be given its strict meaning, or whether, in this case, "continuously" might be better interpreted to mean "continually". Continually can mean "done on a regular basis", whereas "continuously" implies something "done in perpetuity", or "unremittingly done". Since the point will not again arise, I think it should be made here: absent a compelling context (such as existed in The Queen in Right of Canada v. The Queen in Right of Prince Edward Island, supra), I would be loath to interpret a truly perpetual obligation if the context would be satisfied by something less.

Returning to the problem at hand, British Columbia's argument in respect of the Dunsmuir Agreement faces one significant hurdle: in order for the "continuous operation" obligations in the Dunsmuir Agreement to have any importance, those obligations must be part of a "special Act". British Columbia must thus prove that the provisions of the Dunsmuir Agreement, which Agreement appears as a schedule to the Dominion Act, were given statutory force by that Act, such that the provisions are, in effect, provisions of the Dominion Act itself.

The Court of Appeal reviewed a number of cases before reaching the conclusion that the Dunsmuir Agreement was intended to be incorporated into the Dominion Act. I do not find it necessary to consider all of these cases, especially since, subject to what is said below, I do not quarrel with the consideration given to them by the Court of Appeal.

Unlike the Court of Appeal, I find instructive the decision of this Court in Ottawa Electric Railway Co. v. Corporation of the City of Ottawa, 1944 44 (SCC), [1945] S.C.R. 105. For present purposes, it is sufficient to cite the following statutory provisions at issue in the case (S.C. 1924, c. 84, ss. 1 and 2):

1. The agreement set out in the Schedule to this Act . . . is ratified and confirmed, and the parties thereto are hereby empowered and authorized to carry out their respective obligations and to exercise their respective privileges thereunder.

2. Notwithstanding the provisions of The Railway Act, 1919. . ., the rates of fares on The Ottawa Electric Railway Company's transportation system, as established by the said agreement, shall not be altered before the thirteenth day of August, 1928, . . . and thereafter any alteration in such fares shall be governed by the terms and conditions of the said agreement.

Five judges took part in the Ottawa Electric decision, but only four judges through three sets of reasons determined the status of the agreement mentioned in the provisions above cited.

Focusing on the language in s. 1 of the statute, Rinfret C.J. (Taschereau J. concurring) came to the following conclusion (at p. 117):

. . . the agreement, while being "ratified and confirmed" by section 1, was not made part of the Act. The object of that section is to give the agreement validity and to state that "the parties thereto are hereby empowered and authorized to carry out their respective obligations and to exercise their respective privileges thereunder". Be it noticed that the authorization is to carry out the obligations and the privileges thereunder and, therefore, those of the agreement. No power or authorization is added to the agreement itself.

Rand J. was equally clear in reaching the opposite result. He stated (at p. 126): "I have little doubt that the provisions dealing with fares and the powers of the Board over them have become the subject of statutory enactment". Finally, Kerwin J. cited the two statutory provisions I have quoted above, and then offered the following comments (at p. 122):

But the provision that "the rates of fares ... shall not be altered ... by the Board of Railway Commissioners for Canada", coupled with the last leg of section 2 "and thereafter any alteration in such fares shall be governed by the terms and conditions of the said agreement" lead me to the conclusion that something more than mere approval of the agreement is accomplished and that in fact the agreement should be construed as a statutory enactment.

Although divided in the result, I discern a common thread in the judgments of Rinfret C.J. and Kerwin J., namely, that statutory ratification and confirmation of a scheduled agreement, standing alone, is generally insufficient reason to conclude that such an agreement constitutes a part of the statute itself. Although Kerwin J. held that incorporation was intended, it is apparent from his reasons that it was s. 2 of S.C. 1924, c. 84, which led him to conclude that "something more than mere approval of the agreement is accomplished". I infer from this conclusion that s. 1 of that Act, which simply ratified and confirmed the scheduled agreement, would have constituted "mere approval" rather than statutory incorporation from Kerwin J.'s perspective. On this point, therefore, his reasons accord with those of Rinfret C.J. (Taschereau J. concurring).

I also find useful the following dictum from Fullerton J.A. in Winnipeg v. Winnipeg Electric Railway Co., 1921 378 (MB CA), [1921] 2 W.W.R. 282 (Man. C.A.), at p. 306:

. . . in order to make an agreement scheduled to an Act a part of the Act itself it is not sufficient to find words in the statute merely confirming and validating the agreement; you must find words from which the intention can be inferred.

Like the Court of Appeal, I do not regard this statement as meaning that a scheduled agreement will have statutory force only if that intention is made express in a particular provision, e.g. "the agreement is hereby confirmed, ratified, and endowed with statutory force", although an intention nearly so obvious is sometimes apparent: see, e.g., s. 1 of the Constitution Act, 1930, already discussed, which gave the "force of law" to scheduled agreements. Rather, all of the tools of statutory interpretation can be called in aid to determine whether incorporation is intended: see, e.g., Cree Regional Authority v. Canada (Federal Administrator), 1991 13614 (FCA), [1991] 3 F.C. 533 (C.A.), at pp. 546-47 and 551-52. I do believe, however, that simple "ratification" or "confirmation" of a scheduled agreement, without more, is equivocal in terms of the required legislative intention.

In the Court of Appeal, an intention to confer statutory force was found because of the "constitutional importance of the undertaking", and because of the "plainly potentially unprofitable character" of the railway contrasted with the "extent of the grant" conferred upon Canada in compensation (p. 321). The Court of Appeal held that "[i]t seems wholly reasonable that Parliament would have intended that the obligations to maintain and operate the line be incorporated into the federal statute" (p. 321). With respect, I cannot agree with this approach. The question is not whether it would have been reasonable for Parliament to confer statutory force upon the Dunsmuir Agreement, but whether, in fact, there is anything about the Dominion Act which compels the conclusion that such force was actually conferred.

Pursuant to s. 2 of the Dominion Act, the Dunsmuir Agreement receives the following treatment:

2. The agreement, a copy of which, with specification, is hereto appended as a schedule, for the construction, equipment, maintenance and working of a continuous line of railway of a uniform gauge of four feet, eight and one-half inches, from Esquimalt to Nanaimo in Vancouver Island, British Columbia, and also for the construction, equipment, maintenance and working of a telegraph line along the line of the said railway, is hereby approved and ratified, and the Governor in Council is authorized to carry out the provisions thereof according to their purport. [Emphasis added.]

It is not difficult, in my view, to envision the rationale to account for the existence of this provision. Had the need arisen, for example, s. 2 might have prevented arguments to the effect that the Dunsmuir Agreement was ultra vires the executive. Given what is said immediately above, however, I do not believe that s. 2, by itself, bestows statutory force upon that Agreement.

Perhaps more to the point, unlike the Court of Appeal, I can find nothing outside of s. 2 which expresses the intention British Columbia must prove. The Dominion Act simply confirms and ratifies the Dunsmuir Agreement, authorizes the Governor in Council to carry out the contract, and proceeds, in several of its provisions, to recount specifically clauses from that contract (ss. 4, 5, 6, 8, and 9). If the Dunsmuir Agreement was intended to have statutory force, I would find this repetition of contractual provisions in the text of the Dominion Act to be inexplicable.

I also find that nothing outside of the Dominion Act causes me to rethink this obvious interpretation. The Court of Appeal considered Esquimalt and Nanaimo Railway Co. v. Treat, supra, to be a significant contrary authority, but I disagree. In that case, in a statement which was clearly unnecessary to a resolution of the case, Viscount Haldane suggested that through the Dominion Act, "statutory authority was inter alia given to . . . an agreement relative to the construction of the railway" (p. 140). I see no reason to believe that this passing remark was intended to determine the statutory or contractual status of the Dunsmuir Agreement, and, indeed, I perceive little difference between the suggestion that a statute "confirms" or "ratifies" a contract, and the suggestion that a statute gives "statutory authority" to a contract.

Likewise, I am not persuaded by arguments founded upon the 1905 Declaratory Act. As already noted, s. 1 of that Act declared the Island rail line to be a work for the general advantage of Canada. Pursuant to s. 4 of that Act, however, certain pre-existing rights and liabilities were expressly maintained:

4. Nothing in this Act shall prejudicially affect the respective rights and liabilities of the province of British Columbia and of the Company, now existing or which heretofore existed by virtue of the provisions of the Act of the Legislature of the said province, 47 Victoria, chapter 14 [the Provincial Act].

The Court of Appeal based a difficult argument upon this provision. It cited ss. 9 and 27 of the Provincial Act, apparently to suggest that these sections also gave statutory effect to the operational obligations located in the Dunsmuir Agreement. In this fashion, the Court of Appeal suggested that s. 4 of the 1905 Declaratory Act is significant because its terms operated in 1905 to obviate s. 6 of the federal Railway Act, 1903, S.C. 1903, c. 58. In similar fashion to s. 7 of the current Railway Act, s. 6 made the Railway Act, 1903 applicable to rail lines subjected to the declaratory power to the exclusion of inconsistent provisions in any provincial "special Act".

Although the Provincial Act is clearly a "special Act", I cannot agree with the Court of Appeal that ss. 9 and 27 of that Act have any particular significance in this case. Section 9 simply provides that the E & N Company "shall lay out, construct, equip, maintain, and work" the rail line. This reference to "working" the rail line, however, has nothing to do with an operational obligation; s. 9 simply gives the E & N Company the corporate power to act in a particular fashion. Section 27 of the Act is no more exceptional. It provides:

27. The said Esquimalt and Nanaimo Railway Company shall be bound by any contract or agreement for the construction of the Railway from Esquimalt to Nanaimo which shall be entered into by and between the persons so to be incorporated as aforesaid, and Her Majesty, represented by the Minister of Railways and Canals, and shall be entitled to the full benefit of such contract or agreement, which shall be construed and operate in like manner as if such company had been a party thereto in lieu of such persons, and the document had been duly executed by such company under their corporate seal.

While I agree with the Court of Appeal that s. 27 bound the E & N Company to the Dunsmuir Agreement, it could in no way statutorily create any right nor liability itself. It seems to me that s. 27 was simply intended to avoid problems associated with the rule in Kelner v. Baxter (1866), L.R. 2 C.P. 174, which deals with the ratification of pre-incorporation contracts. It was necessary only because the Dunsmuir Syndicate rather than the successor E & N Company was a party to the Dunsmuir Agreement.

Thus, s. 4 of the 1905 Declaratory Act did not operate to preserve any operational obligations apparent in the Provincial Act. The principal obligations of this kind are located in s. 17 of the Provincial Act, and preservation of these obligations would have rendered the 1905 Declaratory Act meaningless. None of which means that no rationale for the inclusion of s. 4 can be imagined. As the mere existence of the dispute in the E & N Reference case points out, Canada might well have believed in 1905 that the Provincial Act united the E & N Company and British Columbia in contract, and s. 4 might thus have been intended to preserve this perceived relationship.

Finally, I wish to mention in passing that An Act respecting the Railway from Esquimalt to Nanaimo, in British Columbia, S.C. 1886, c. 15, has been properly explained by the Court of Appeal. By that Act, Parliament legislatively altered curve radius requirements located in the Dunsmuir Agreement, and British Columbia asks why a statute was necessary to achieve this effect if the Dunsmuir Agreement did not have statutory force itself. In other words, since the curve radius changes were sought at the instance of the contractor, British Columbia asks why the contractor and Canada did not simply amend their contract. Like the Court of Appeal, however, I believe the so-called Curve Act had an obvious purpose. Section 2 of the Dominion Act gave the Governor in Council supervisory authority over the Dunsmuir Agreement, but the authority so-established pertained only to the Dunsmuir Agreement in its original form, i.e. the Agreement as scheduled to the Dominion Act. Once the nature of the Agreement changed, the Curve Act was necessary to maintain the Governor in Council's supervisory authority over the amended version.

Additionally, the Curve Act may have had a unique purpose not mentioned by the courts below, namely, it may have established a form of federal/provincial cooperation not apparent in the Dunsmuir Agreement itself. Whereas, in s. 2 of the Dominion Act, the Governor in Council alone was given powers to carry out the terms of the Agreement, in s. 1 of the Curve Act, it was established that curves of a particular radius could be accepted by the "Governor in Council . . . with the consent of the Lieutenant-Governor of the Province of British Columbia in Council". Thus, in respect of curve-radius requirements, the federal supervisory authority was statutorily confined by a consent requirement. Of course, had this requirement been embodied in a contractual amendment only, it would have been of little value to British Columbia, since that province was a third party in respect of the Dunsmuir Agreement. Therefore, to the extent that federal/provincial cooperation could have been achieved, it could only have been meaningfully achieved by statute. It is not necessary to consider whether this approach raises constitutional issues itself: see R. v. Furtney, 1991 30 (SCC), [1991] 3 S.C.R. 89.

For these reasons, I conclude that the operational provisions of the Dunsmuir Agreement never became part of a "special Act" within the meaning of the Railway Act or its predecessor legislation. The Dominion Act simply ratified and confirmed that Agreement. It did nothing more. It now remains for me to deal briefly with the argument founded upon the 1912 Provincial Land Tax Exemption Act.

Pursuant to s. 2 of the 1912 Provincial Land Tax Exemption Act, an agreement between British Columbia and the E & N Company scheduled to that Act was given statutory force in so far as the section could achieve that result. The intention to incorporate the agreement is particularly evident because s. 2 provides that the provisions of the agreement "are to be taken as if they had been expressly enacted hereby and formed an integral part of this Act". In the scheduled agreement, clause 3 provides that the E & N Company shall "continuously operate" the Nanaimo to Courtenay extension. British Columbia argued for the first time before this Court that this operational obligation is located within a "special Act" which can take effect notwithstanding the Railway Act.

The simple answer to British Columbia's argument is that, in 1912, British Columbia was not competent to legislate in respect of the Island rail line's operation. Having obtained jurisdiction over the line by virtue of the 1905 Declaratory Act, Canada then had the exclusive ability to legislate in such a fashion. Certainly, no effort has been made to suggest that the Nanaimo to Courtenay extension should be distinguished from the undertaking which existed at the time of the 1905 Declaratory Act. Accordingly, although British Columbia was undoubtedly competent to exact a contractual promise of continuous operation from the E & N Company, and although this promise could receive statutory authorization in the 1912 Provincial Land Tax Exemption Act, the promise could not be elevated to the status of a statutory obligation by that Act. It is trite law that the Railway Act definition of "special Acts" encompasses only intra vires provisions of such acts.

Finally, since preparing the foregoing, I have had the opportunity to read the reasons of Lamer C.J. In part, his reasons suggest, first, that the Dunsmuir Agreement involved "public" duties, and, second, that their statutory character ought to be inferred from the characterization of the Dunsmuir Agreement as a constitutional-dispute-settlement device. Both of these points emphasize the historical importance of the Dunsmuir Agreement obligations, and with that emphasis I do not quarrel. However, with respect, I take issue with the suggestion that stability must be achieved through statute. Practical considerations and the politics of the day rendered stable the Dunsmuir Agreement obligations. Its perseverance through many decades is testimony to that fact. We need not discount the importance of public duties or constitutional settlements in order to characterize the Dunsmuir Agreement as contractual rather than statutory.

For all of these reasons, I conclude that it is not necessary for Parliament to enact special legislation to order termination of services on the E & N line. The E & N Company never became obligated to ensure the continuous operation of that line as a statutory proposition. Accordingly, the "special Act" exemption in the Railway Act is of no application in this case. I would allow the appeal on this issue.

C. The Administrative Issue

The administrative law analysis begins with s. 268(2) of the Railway Act. That provision establishes the five-year review requirement which was not observed in this case. Section 268(2) provides:

(2) If the Commission determines that the operation of an uneconomic passenger-train service should not be discontinued, the Commission shall so order, and thereafter shall reconsider the application for discontinuance at intervals not exceeding five years from the date of the original application or last consideration thereof, as the case may be, for the purpose of determining whether the passenger-train service should be discontinued . . .

Claiming authority under s. 64 of the National Transportation Act, 1987, the Governor in Council in this case purported to vary 1984 CTC Order R-36539, despite the fact that no review occurred within five years as contemplated by s. 268(2) of the Railway Act. Section 64 of the National Transportation Act, 1987 gives the Governor in Council the following powers of review:

64. The Governor in Council may, at any time, in the discretion of the Governor in Council, either on petition of any party or person interested or of the Governor in Council's own motion, vary or rescind any decision, order, rule or regulation of the Agency, whether the decision or order is made inter partes or otherwise, and whether the rule or regulation is general or limited in its scope and application, and any order that the Governor in Council may make with respect thereto is binding on the Agency and on all parties.

The question which must be answered is whether the Governor in Council can vary an order pursuant to s. 64 of the National Transportation Act, 1987, when the NTA failed to conduct a five-year review pursuant to s. 268(2) of the Railway Act.

The parties are agreed that the Governor in Council has a vast discretion by virtue of s. 64 of the National Transportation Act, 1987. This Court described the s. 64 discretion in very broad terms in Attorney General of Canada v. Inuit Tapirisat of Canada, 1980 21 (SCC), [1980] 2 S.C.R. 735, at p. 745 (per Estey J.):

In its present state, s. 64 creates a right of appeal on questions of "law or jurisdiction" to the Federal Court of Appeal and an unlimited or unconditional right to petition the Governor in Council to "vary or rescind" any "order, decision, rule or regulation" of the Commission. These avenues of review by their terms are quite different. The Governor in Council may vary any such order on his own initiative. The power is not limited to an order of the Commission but extends to its rules or regulations. The review by the Governor in Council is not limited to an order made by the Commission inter partes or to an order limited in scope. . . . There can be found in s. 64 nothing to qualify the freedom of action of the Governor in Council, or indeed any guidelines, procedural or substantive, for the exercise of its functions . . .

Relying upon this statement from Inuit Tapirisat and upon the language of s. 64 which permits Governor in Council review "at any time", Canada argues that satisfaction of the five-year review requirement is not a precondition to a variation order.

Although there is force in Canada's position, I would not ascribe to the view that s. 64 conveys an untrammelled power to the Governor in Council. When, in Inuit Tapirisat, Estey J. observed that there is "nothing to qualify the freedom of action of the Governor in Council", he was considering the nature of a s. 64 appeal, and, particularly, the extent to which s. 64 involves procedural safeguards. This case involves a distinctly different issue, namely, whether there are any substantive preconditions to the exercise of the Governor in Council's discretion under s. 64.

I generally agree with the following statement by B. S. Romaniuk and H. N. Janisch in "Competition in Telecommunications: Who Polices the Transition" (1986), 18 Ottawa L. Rev. 561, at p. 628:

. . . subsection 64(1) deals exclusively with the power of Cabinet to vary or rescind CRTC [and NTA] decisions. It would be inappropriate in principle to attribute substantive law-making capacity to a statutory provision which merely creates a power of appeal or review. In any event, Cabinet's competence is confined to "any order, decision, rule or regulation of the Commission" which must mean any order, decision, rule or regulation made within the Commission's jurisdiction, as there can be no appeal from a nullity. In other words, Cabinet is not given any new authority to deal with telecommunications matters ab initio. Cabinet's authority is restricted to matters already dealt with by the Commission, and such matters must be orders, decisions, rules or regulations, that is to say, intra-jurisdictional matters.

While the Governor in Council can vary an order "at any time" pursuant to s. 64 of the National Transportation Act, 1987, and while the s. 64 jurisdiction has been recognized as vast in Inuit Tapirisat, supra, the s. 64 power can only be exercised if a CTC or NTA "order" exists. The only relevant issue becomes whether CTC Order R-36539 ceased to have effect five years after it was issued pursuant to s. 268(2) of the Railway Act.

A rather direct answer to the question is that s. 268(2) of the Railway Act comprehends two separate obligations for the NTA. The first obligation arises once the NTA determines that an uneconomic passenger-train service should not be discontinued, in which case the NTA "shall so order". The second immediately follows, in so far as the NTA "thereafter shall reconsider the application for discontinuance at intervals not exceeding five years". What is important to note about this structure is that the NTA is not required to reconsider its continuation order within five years; the NTA is only required to reconsider the application for discontinuance which originally led to that order. Thus, there is nothing in s. 268(2) to suggest that the status of an NTA order should change if a review does not take place within five years. The silence of the Railway Act with respect to the term of the order suggests that the order will persist as issued until varied or set aside.

This interpretation, I acknowledge, is contrary to the one apparently expressed in City of Melville v. Attorney General of Canada, 1982 5219 (FCA), [1983] 2 F.C. 123 (C.A.). That case involved an order-in-council made pursuant to s. 64 of the National Transportation Act, 1987 (formerly the National Transportation Act, R.S.C. 1970, c. N-17), which purported to vary a CTC order. Like the order in this case, the CTC order in Melville was not reviewed by the CTC within five years, and a statement of claim alleged that the order-in-council was, consequently, ineffective. In the Federal Court of Appeal, the statement of claim was struck out, for reasons expressed in Jasper Park Chamber of Commerce v. Governor General in Council, 1982 5179 (FCA), [1983] 2 F.C. 98 (C.A.). The reasoning from Jasper Park which must have been adopted is the following statement by Heald J.A.: "I do not agree that subsection 64(1) [of the National Transportation Act, 1987] authorizes the Governor in Council to vary any and all Commission orders no matter when they are issued . . ." (p. 115 (emphasis in original)). To the extent that Melville, supra, must thus assert that CTC or NTA orders lapse if the s. 268(2) review does not occur, I find it in error.

I note in passing that Order R-36539 is consistent with the interpretation I have adopted. The Court of Appeal suggested below that the order "by its terms . . . expired five years after it was pronounced" (p. 328). By its terms, Order R-36539 simply directed the E & N Company and Via Rail "not to discontinue the operation of the passenger-train service". The order was not limited in time, nor do its terms suggest that failure to conduct a review of the application to discontinue will affect its persistence. I must therefore respectfully disagree with the Court of Appeal on this point.

These comments, in my view, are sufficient to dispose of the third ground of appeal. The parties and the courts below discussed this ground in terms of whether s. 268(2), particularly in so far as the provision includes the words "shall reconsider", should be classified as a mandatory or directory provision. As I have interpreted them, however, the words "shall reconsider" are referable only to the original application for discontinuance, not to the CTC or NTA order. Since nothing turns on the persistence of the original application in this case, I would prefer not to discuss whether these words have a mandatory effect with regard to the application for discontinuance itself, since this case lacks a relevant factual foundation.

However, since preparing the foregoing reasons, I have had the opportunity of reading the reasons prepared by my colleague McLachlin J. In light of her position, I believe I must proceed to discuss the administrative issue further. I will address two points: first, the interpretation of s. 268(2) as a mandatory or directory provision; and, second, the related issue of mandamus.

To begin, I evince some concern about whether it is profitable to characterize s. 268(2) using the words "mandatory" or "directory" in a reverential way. These words, well-known to Anglo-Canadian jurisprudence, respond as best they can when the facts of a case involve failed procedural preconditions. Professor Wade introduces the topic of procedural conditions using the following language, in Administrative Law (6th ed. 1988), at pp. 245-46:

If the authority fails to observe such a condition, is its action ultra vires? The answer depends upon whether the condition is held to be mandatory or directory. Non-observance of a mandatory condition is fatal to the validity of the action. But if the condition is held to be merely directory, its non-observance will not matter for this purpose. In other words, it is not every omission or defect which entails the drastic penalty of invalidity.

Noticeably, what Professor Wade calls the "drastic penalty of invalidity", he ties to the concept of powers exercised ultra vires. Given the limitations of the debate premised upon the "mandatory" and "directory" labels -- which limitations I will proceed to describe -- it is with some reluctance that I invoke this debate in the context of s. 268(2). I say this because the disputed CTC order was clearly intra vires when it was originally made. There is a subtle but real distinction between an order which was a nullity when made because of some procedural defect, and an admittedly intra vires order which may cease to have effect according to the terms of an enabling provision.

Nonetheless, I must reluctantly cast aside this distinction and accept that whenever a statute uses the word "shall", there is a great temptation to emboss upon the word a conclusory label. Is the word "shall" in s. 268(2) "mandatory" or "directory" in its effect? McLachlin J. proceeds to answer this question by first citing Montreal Street Railway Co. v. Normandin, 1917 464 (UK JCPC), [1917] A.C. 170 (P.C.), and with that traditional citation I have no quarrel. I prefer, however, to place the greater emphasis on what has become of Normandin in Canadian case law.

In particular, I think it is relevant to note that in Reference re Manitoba Language Rights, 1985 33 (SCC), [1985] 1 S.C.R. 721, this Court commented upon the doctrinal basis of the Normandin distinction. The Court stated (at p. 741):

The doctrinal basis of the mandatory/directory distinction is difficult to ascertain. The "serious general inconvenience or injustice" of which Sir Arthur Channell speaks in Montreal Street Railway Co. v. Normandin, supra, appears to lie at the root of the distinction as it is applied by the courts.

In other words, courts tend to ask, simply: would it be seriously inconvenient to regard the performance of some statutory direction as an imperative?

There can be no doubt about the character of the present inquiry. The "mandatory" and "directory" labels themselves offer no magical assistance as one defines the nature of a statutory direction. Rather, the inquiry itself is blatantly result-oriented. In Reference re Manitoba Language Rights, supra, this Court cited R. ex rel. Anderson v. Buchanan (1909), 44 N.S.R. 112 (C.A.), per Russell J., at p. 130, to make the point. It is useful to make it again. Russell J. stated:

I do not profess to be able to draw the distinction between what is directory and what is imperative, and I find that I am not alone in suspecting that, under the authorities, a provision may become directory if it is very desirable that compliance with it should not have been omitted, when that same provision would have been held to be imperative if the necessity had not arisen for the opposite ruling.

The temptation is very great, where the consequences of holding a statute to be imperative are seriously inconvenient, to strain a point in favor of the contention that it is mere directory. . . .

Thus, the manipulation of mandate and direction is, for the most part, the manipulation of an end and not a means. In this sense, to quote again from Reference re Manitoba Language Rights, supra, the principle is "vague and expedient" (p. 742). This means that the court which decides what is mandatory, and what is directory, brings no special tools to bear upon the decision. The decision is informed by the usual process of statutory interpretation. But the process perhaps evokes a special concern for "inconvenient" effects, both public and private, which will emanate from the interpretive result.

With these thoughts in mind, I acknowledge my agreement with much of what McLachlin J. has said. In particular, I agree with her that the language of s. 268(2), and especially its use of the word "shall", suggests an imperative reading. Indeed, in Reference re Manitoba Language Rights, supra, this Court characterized the word shall as "presumptively imperative" in its ordinary grammatical meaning (p. 737). I also agree with McLachlin J. that the structure of the Railway Act demonstrates a concern for public input into termination decisions. Those concerns are real and pressing, and to ignore the value of public input in termination decisions would be to condone at least some level of inconvenience. But in my view, to the extent that I must make this alternative finding, I believe the approach of McLachlin J. focuses on the inconvenience of trammelling public input to the virtual exclusion of other kinds of inconvenience, both public and private.

I agree with McLachlin J. that if it is not possible to distinguish in s. 268(2) between the application for discontinuance and the eventual order, then the word "shall" as used in that section impacts upon both instruments. In other words, just as McLachlin J. would find the order to expire following the NTA failure to hold a five-year review, she would find that an application for discontinuance ceases to persist likewise. She states this most clearly when she observes (at p. 133):

The application would appear to be spent, or to terminate, only upon two events: (1) if the application for discontinuance is allowed, and (2) if it is denied and no reconsideration takes place at the end of the five-year period.

But what is the effect of this finding? If applications can expire automatically after five years, are there other elements of inconvenience to be considered?

In my opinion, there are significant adverse consequences associated with finding that s. 268(2) is mandatory in respect of applications to discontinue. These consequences derive from the treatment of subsidies in the Railway Act, which subsidies are available to support an uneconomic service ordered to continue: see s. 270(2). In particular, they derive from the definition of the subsidy "claim period" in s. 270(1). That definition provides:

270. (1) In this section,

"claim period" means, in relation to any uneconomic passenger-train service, the period

(a) beginning ninety days after the date the application to discontinue the service has been filed with the Commission in accordance with the rules and regulations of the Commission, and

(b) ending on the date fixed by the Commission, or as varied pursuant to section 64 of the National Transportation Act, 1987, for the discontinuance of the service or part thereof;

What is important to observe about this definition is that a company's entitlement to subsidy support is tied to the "date [of] the application to discontinue the service" by virtue of s. 270(1)(a). But if the application ceases to persist, what becomes of the entitlement? McLachlin J. suggests that "[n]o case has been made that the subsidies that compensate the railroad company . . . would be affected" (p. 138). But I suggest that the answer to the question just posed is obvious, and that such an answer was pressed upon this Court by Canada. In its factum, Canada stated:

. . . if the decision of the Courts below on this issue were upheld then railway companies would be liable to suffer financial prejudice through no fault of their own in any case where the National Transportation Authority failed to carry out its duty to conduct a five year review. The railway company would be obliged by law to operate the uneconomic service, but would lose the benefit of the subsidy which Parliament intended it to receive . . .

The strength of Canada's argument is witnessed by s. 270(2) of the Railway Act, which allows that a company can file a claim for subsidy support only in respect of "actual loss of the company attributable to the service in any financial year of the company within the claim period" (emphasis added).

Therefore, if, at the end of a five-year period, an application expired and a company's entitlement to subsidy support expired with it, the result would be highly anomalous. There is no question that a company would remain bound to operate the service, since the premise of the Railway Act is that service will continue unless an order for discontinuance is first obtained: see s. 265. And yet, such a company could not claim a subsidy once its application determined. The only recourse would involve re-application, in which case it is germane to observe that the s. 270(1)(a) definition permits subsidy claims only in respect of a period which begins "ninety days after the date the application to discontinue the service has been filed" (emphasis added).

A straightforward reading of those provisions which govern subsidization thus leads to one conclusion: if the word "shall" in s. 268(2) is mandatory in its effect, then railway companies can be deprived of subsidies without cause. As McLachlin J. observes, "[i]t is an extraordinary thing to demand of a company that it continue to operate an uneconomic service" (p. 136). Indeed it is, and to demand continued operation in the absence of otherwise available subsidy support is to deny the economic reality of the situation. There is both a public and private interest in the grand scale of railway economies. Thus, the "mandatory" label is associated with an eventuality to be avoided. That eventuality is seriously inconvenient.

Moreover, unlike both my colleague McLachlin J. and the Court of Appeal below, I believe that this potential for serious inconvenience can be identified without independent evidence of hardship. A straightforward reading of the Railway Act tells me that a company's legal entitlement to subsidies would be lost if the word "shall" in s. 268(2) were given an imperative reading. Hardship would result from the operation of the statute itself. I fail to appreciate how evidence could have been led so as to affect this interpretive conclusion.

Against this picture of inconvenience, British Columbia attempted to argue before this Court that a company could act to preserve its subsidy entitlement. It was suggested that a company could go to court to compel the s. 268(2) five-year review. My colleague McLachlin J. seems to have accepted this argument in part, inasmuch as she states: "[I]t was open to the CPR to move to have the NTA reconsider the application within the five-year period" (p. 138). Leaving aside the fact that the CPR was never a party to these proceedings, I challenge the premise upon which British Columbia's argument rests. This brings me to my second point: the related issue of mandamus.

The prerogative remedy of mandamus is used to enforce the performance of public duties by public authorities. I need not further elaborate upon its niceties, for in my introductory sentence, I have made the point I need to make: mandamus issues to remedy a breached duty. There can be no order of mandamus until a public authority is obliged to act.

A frequently cited authority for this proposition is Karavos v. City of Toronto, 1947 326 (ON CA), [1948] O.W.N. 17 (C.A.), which itself simply cites academic authority to summarize mandamus prerequisites. I withhold comment on all but the second prerequisite summarized by Laidlaw J.A., namely (at p. 18):

Before the remedy can be given, the applicant for it must show . . . (2) "The duty whose performance it is sought to coerce by mandamus must be actually due and incumbent upon the officer at the time of seeking the relief, and the writ will not lie to compel the doing of an act which he is not yet under obligation to perform".

Likewise in Williamson v. Fisher, [1934] O.W.N. 543 (C.A.), Middleton J.A. stated that mandamus proceedings must involve "a duty owing by the defendant to the plaintiff" (p. 546). See also R. ex rel. Canadian Wirevision Ltd. v. New Westminster (City) (1964), 1964 834 (BC SC), 50 W.W.R. 465 (B.C.S.C.); and Pacific Investments Ltd. v. Delano (1983), 1983 3041 (NS SC), 57 N.S.R. (2d) 427 (S.C.T.D.), aff'd (1983), 1983 5138 (NS CA), 62 N.S.R. (2d) 364 (S.C.A.D.).

In the absence of a duty, demonstrated to have accrued, the remedy of mandamus cannot be available, for to issue it would be to compel the particular exercise of a discretion. Compelled choice is a contradiction in terms. And so, on the facts of this case, there could have been no mandamus during the five-year period prescribed by s. 268(2) of the Railway Act. That provision contemplates that reconsideration will occur "at intervals not exceeding five years from the date of the original application or last consideration thereof". This language makes it abundantly clear that until the five-year period expires, the s. 268(2) prescription has not been contravened. Until the end of the last day of the fifth year, no railway company could deny that the duty might yet be fulfilled.

All that the CPR could have done in this case, and I reiterate here that I am speculating about the options of a company which is not a party to these proceedings, is correspond with the NTA and request that the five-year review occur. The NTA would have no legal obligation to respond. Is the subsidy claim of the CPR to hang upon so uncertain a hook? In my view, it should not. At least, it should not if another reasonable interpretation presents itself. So I answer, to the extent I am compelled to answer, that the word "shall" in s. 268(2) of the Railway Act is directory and not mandatory in its effect. I do not overlook the value of public input in reaching this decision. I simply find that the context of the Railway Act leads me to interpret inconvenience differently from my colleague McLachlin J.

For all of these reasons, I conclude that the courts below erred in determining that Order-in-Council P.C. 1990-21, clause (b)2 is ultra vires the Governor in Council. I would allow the appeal on this issue, and set aside the contrary declaration issued by the learned trial judge and affirmed by the Court of Appeal.

VI. Conclusions and Disposition

Three conclusions result from my analysis in this case. First, Canada has no constitutional obligation in respect of the operation of the Vancouver Island rail line. Second, to effect service termination on that line, it is not necessary for Parliament to enact special legislation; reliance may instead be placed on the termination provisions of the Railway Act or the review provision of the National Transportation Act, 1987. Finally, orders not to discontinue service, made pursuant to s. 268(2) of the Railway Act, do not lapse in the event that a review of the application for discontinuance does not occur within five years.

As these conclusions suggest, I would allow the appeal, set aside the judgment of the British Columbia Court of Appeal, and hold in favour of Canada on all three issues. In the result, the amended petitions by the respondent herein dated October 30, 1989 and January 11, 1990 are dismissed. The parties shall bear their costs here and in the courts below.

The following are the reasons delivered by

McLachlin J. (dissenting) -- This appeal presents three issues. I agree with Iacobucci J. on the issue of constitutional law and on the statutory interpretation point. On the third point, the administrative law point, I prefer the view of the Court of Appeal of British Columbia: (1991), 1991 2341 (BC CA), 59 B.C.L.R. (2d) 280, 84 D.L.R. (4th) 385, 2 B.C.A.C. 246, 5 W.A.C. 246, [1992] 1 W.W.R. 114. On this ground, I would dismiss the appeal.

Introduction -- The Regulatory System

The third issue challenges the validity of the Order-in-Council which terminated the railway line. To understand this issue, it is necessary to outline the regulatory scheme which Parliament has established for the termination of railway lines.

The operation of passenger-train services in Canada is a matter of public interest. Sometimes lines are uneconomic. But because of their possible public importance, the companies that run them are not permitted simply to abandon them. Parliament has set up a regulatory scheme defining when and under what conditions the operation of uneconomic railway lines can be terminated: Railway Act, R.S.C., 1985, c. R-3, ss. 265 to 269.

265. (1) If a company desires to discontinue a passenger-train service, the company shall, in accordance with the rules and regulations of the Commission [National Transportation Agency] in that regard, file with the Commission an application to discontinue that service.

266. If the Commission finds that in its opinion the company, in the operation of the passenger-train service with respect to which an application for discontinuance was made,

(a) has incurred actual loss in one or more of the prescribed accounting years including the last year thereof, the Commission shall, after such hearings, if any, as are required in its opinion to enable all persons who wish to do so to present their views on the discontinuance of the passenger-train service, and having regard to all matters that to it appear relevant, determine whether the passenger-train service is uneconomic and is likely to continue to be uneconomic and whether the passenger-train service should be discontinued; and

(b) has incurred no actual loss in the operation of the passenger-train service in the last year of the prescribed accounting years, it shall reject the application without prejudice to any application that may subsequently be made for discontinuance of that service.

267. In determining whether an uneconomic passenger-train service or parts thereof should be discontinued, the Commission shall consider all matters that in its opinion are relevant to the public interest including, without limiting the generality of the foregoing,

(a) the actual losses that are incurred in the operation of the passenger-train service;

(b) the alternative transportation services, including any highway or highway system serving the principal points served by the passenger-train service, that are available or are likely to be available in the area served by the service;

(c) the probable effect on other passenger-train service or other passenger carriers of the discontinuance of the service, or of parts thereof; and

(d) the probable future passenger transportation needs of the area served by the service.

268. (1) If the Commission determines that the operation of an uneconomic passenger-train service should be discontinued, the Commission shall by order fix such date or dates for the discontinuance of the operation of the service or parts thereof as to the Commission appears to be in the public interest, but a discontinuance date shall be

(a) not earlier than thirty days from the date of the order; or

(b) not later than one year from the date of the order.

(2) If the Commission determines that the operation of an uneconomic passenger-train service should not be discontinued, the Commission shall so order, and thereafter shall reconsider the application for discontinuance at intervals not exceeding five years from the date of the original application or last consideration thereof, as the case may be, for the purpose of determining whether the passenger-train service should be discontinued, and

(a) if the Commission finds that the passenger-train service has, since the last consideration, become an economic passenger-train service, it shall reject the application for discontinuance of the passenger-train service without prejudice to any application that may subsequently be made for the discontinuance of that service; or

(b) if the Commission finds that the passenger-train service continues to be an uneconomic service, it shall determine whether the service should be discontinued as provided by subsection (1) or continued as provided by this subsection.

269. The Commission shall cause such public notice of any hearing, finding, determination, order, reconsideration or rejection, made or given in respect of the passenger-train service pursuant to subsection 265(3), section 266 or subsection 268(1) or (2), to be given in the area served by the passenger-train service as the Commission deems reasonable.

The process involves several stages. The first is the stage of initial application to abandon. An application is brought before the National Transportation Agency ("NTA") to determine whether the company has suffered "actual loss": s. 265. If there is no actual loss, the application to abandon is dismissed: s. 266(b). If there is actual loss, the application proceeds to the second stage.

At the second stage, the NTA is required to determine if the passenger-train service is uneconomic and, if so, whether it should be discontinued: s. 266(a). Section 267 requires the NTA at this stage of the application to consider all matters that are in its opinion relevant to the public interest, including actual losses, alternative passenger services, probable effects on other train service or passenger carriers and probable future needs of passengers in the area. To determine these matters, the NTA may hold hearings.

At the end of the second stage, the NTA makes a decision as to the future of the line. If it concludes that the operation should be discontinued, it fixes by order the dates for the discontinuance of the service or parts of it: s. 268(1). On the other hand, if the NTA concludes that the uneconomic line should not be discontinued, it is obliged to do two things under s. 268(2). First, it must make an order that the service continue. Second, it must "reconsider the application for discontinuance at intervals not exceeding five years from the date of the original application or last consideration thereof".

Thus if the service is ordered continued, a third phase in the process is reached. This is the reconsideration of the application within the specified five-year period. The purpose of this reconsideration is made clear by s. 268(2)(a) and (b), which require the NTA to determine whether the passenger-train service "has, since the last consideration, become an economic passenger-train service", or, alternatively, whether it "continues to be an uneconomic service" and if so, whether it nevertheless should be continued. Public notice must be given: s. 269. In brief, what is required is a reappraisal of the order for continuance in light of the actual economic and social conditions prevailing at the time of the third stage. The Act views the application as continuing during this entire process. The application would appear to be spent, or to terminate, only upon two events: (1) if the application for discontinuance is allowed, and (2) if it is denied and no reconsideration takes place at the end of the five-year period.

If the NTA, upon reconsideration, determines that the passenger-train service continues to be uneconomic, but that the applicant must continue to operate it notwithstanding, Parliament has provided a final avenue of recourse -- a variation or recision of the NTA's order by Order-in-Council: National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.), s. 64. This is the fourth and final stage of the review process.

In this case, the third stage, reconsideration by the NTA within the five-year period, was skipped. After expiry of the five-year period, the matter went directly to the fourth stage, the Order-in-Council. The result was that the final order was made by the Cabinet without the NTA's reconsideration of current factors governing the application -- a condition which Parliament chose to qualify by the mandatory term "shall" -- and without the benefit of the public's current views on whether the service should be discontinued.

This raises the question of what happens to the NTA's stage-two order to continue the operation of the uneconomic passenger-train service if the required reconsideration is not undertaken within five years. One view is that the order for continued operation lapses. The other view is that the order continues notwithstanding the absence of review.

The Order-in-Council: s. 64 of the National Transportation Act, 1987

Section 64 of the National Transportation Act, 1987 empowers the Governor in Council to vary and rescind any decision or order of the NTA. While the language of the section is broad, it must be remembered that the powers it confers are in the nature of an appeal. Section 64 applies only to decisions or orders and the like made by the NTA: Attorney General of Canada v. Inuit Tapirisat of Canada, 1980 21 (SCC), [1980] 2 S.C.R. 735. If the NTA's decision that operation of the passenger-train service must continue is found to have lapsed due to failure to reconsider within the five-year period, then there is no order to be reversed and the Order-in-Council is invalid. If, on the other hand, the order is found to have continued, then the Order-in-Council is valid. Thus resolution of the third issue on this appeal comes down to this. Was the NTA's order valid, notwithstanding failure to hold the stage-three reconsideration, or did it lapse when, at the end of five years, no reconsideration had been held?

The Argument of Iacobucci J.

My colleague Iacobucci J. concludes at p. 119 that the NTA order for continuance of the passenger-train service did not lapse. This conclusion is based on two arguments: (1) a narrow view of the stage-three reconsideration which confines it to the "original" application; and (2) the absence of an express provision in the Act as to the duration of the stage-two order (at p. 119):

... the NTA is not required to reconsider its continuation order within five years; the NTA is only required to reconsider the application for discontinuance which originally led to that order. Thus, there is nothing in s. 268(2) to suggest that the status of an NTA order should change if a review does not take place within five years. The silence of the Railway Act with respect to the term of the order suggests that the order will persist as issued until varied or set aside. [Emphasis in original.]

I deal first with the argument that Parliament did not intend the reconsideration to be a review of the NTA's order for continued operation, but merely a review of "the application for discontinuance which originally led to that order". This leads my colleague to conclude that since the reconsideration has nothing to do with the order, it should not affect the validity of the order. The argument, as I comprehend it, stands or falls on the proposition that the reconsideration does not involve reconsideration of the order. This proposition in turn depends on a distinction between the application and the order for continued operation of the railway.

I have three difficulties with this argument. First, I do not see how one can sever the application process from the order. As explained above, the language of the Act suggests that the application remains alive throughout the reconsideration process. The order for continuance of the service does not terminate the application, since the process is not complete. My colleague seems to suggest that one can distinguish the "original" application from the order which follows and reconsider only the application. This does not seem to me to accord with the process envisaged by the Act.

Second, if one could sever the "original" application from the order, and devote the s. 268(2) reconsideration only to the former, the process of reconsideration would be meaningless. Surely the only purpose of a reconsideration is to reconsider the decision that the uneconomic railway should continue to operate in light of current circumstances. In so far as one does so, one is considering the order. In so far as one does not, the reconsideration is pointless.

This brings me to my third difficulty. The interpretation of my colleague runs counter to the wording of s. 268(2)(a) and (b). The two subsections make it clear that Parliament intended the NTA, on the reconsideration, to consider whether the order was still justified in light of current conditions. The NTA may on the one hand find "that the passenger-train service has, since the last consideration, become an economic passenger-train service". Or it may find "that the passenger-train service continues to be an uneconomic service", in which case it must determine whether the service should be discontinued or continued. (Emphasis added.) The public must be given notice and the economic and public interest concerns set out in s. 267 must be addressed. In short, the substance of the reconsideration is the very substance of the order whose continuance is at issue on these proceedings.

If this is so, it cannot be right to say that a reconsideration cannot affect the order and therefore that the failure to hold the reconsideration can have no effect on the order. In fact, the opposite would appear to be the case. It is an extraordinary thing to demand of a company that it continue to operate an uneconomic service. It must be justified by current conditions. Therefore an NTA order that it do so is made subject to a reconsideration within five years. Thus the reconsideration is directly related to the NTA order. Contrary to my colleague's assertion, there is indeed something in s. 268(2) "to suggest that the status of an NTA order should change if a review does not take place within five years" (p. 119).

The second point made by my colleague is that there is no express term in s. 268(2) as to the duration of an order. This is true. But a strong argument can be made that the mandatory wording of the reconsideration provision makes the duration of the order conditional upon the reconsideration taking place. That argument, to which I now turn, cannot be avoided, in my view, by the mere fact that the duration of the order is not expressly addressed.

Whether the NTA Order Lapsed

The issue is whether there was a valid and subsisting NTA order at the time of the Order-in-Council, despite the absence of a s. 268(2) reconsideration. The answer turns, in my view, on whether the duty to hold a reconsideration within five years was mandatory or permissive. If it was mandatory, then failure to hold the reconsideration renders the order null and void. If it was merely permissive or directory, failure to hold the reconsideration does not affect the validity of the order, which continues to subsist.

The distinction between mandatory and directory requirements in statutes and the consequences of non-compliance are well-settled. One starts from the proposition that where a statute places a mandatory public duty on a body, and that duty is not observed, then the acts of the body are rendered null and void. On the other hand, if the duty is found to be directory only, the neglect of it does not affect the validity of the acts done.

Whether a duty is mandatory or directory depends on the wording of the statute which imposes the duty, as well as on the consequences of holding the acts null and void viewed in the perspective of the purpose of the statute. As stated in Montreal Street Railway Co. v. Normandin, 1917 464 (UK JCPC), [1917] A.C. 170 (P.C.), at p. 175:

When the provisions of a statute relate to the performance of a public duty and the case is such that to hold null and void acts done in neglect of this duty would work serious general inconvenience or injustice to persons who have no control over those entrusted with the duty, and at the same time would not promote the main object of the Legislature, it has been the practice to hold such provisions to be directory only, the neglect of them, though punishable, not affecting the validity of the acts done.

In this case, the wording of s. 268(2) suggests that the reconsideration is mandatory: the NTA "shall" reconsider the matter at intervals not exceeding five years.

The next question is whether a holding that the duty to reconsider within five years is mandatory "would work serious general inconvenience or injustice to persons who have no control over those entrusted with the duty". In my view, it would not. The result of holding the duty to be mandatory is that the NTA order for continuance of the passenger-train service would be null and void. The obligation to continue to run the railroad would continue, as it did before the railroad's application for permission to discontinue. No case has been made that the subsidies that compensate the railroad company for doing so would be affected, so hardship on that ground cannot be claimed. I agree with the Court of Appeal that the appellant has not presented any evidence to support a claim that the subsidy would be lost. We do not have full facts or argument on the matter and I prefer to make no further comment upon it. More importantly, the effects of failure to hold the review, whatever they may be, were not entirely outside the control of the affected party, the CPR. In my view, it was open to the CPR to move to have the NTA reconsider the application within the five-year period. While such a request may not enjoy the force of a legal entitlement, it must not be forgotten that such a review is also very much in the interests of the government providing the subsidy necessary to continue the operation of the rail service. It is difficult to imagine a request for a review being denied by a statutory agency charged with a duty in mandatory terms. Should that by some chance occur however, a new application could be brought upon the expiry of the five-year period. In either case, there would be a current review by the NTA as a precondition to an order-in-council purporting to vary the decision. Whatever the outcome, it would be founded on a current assessment of the public interest.

Turning to the object of the provision, the aim of the reconsideration provision was, to quote the Court of Appeal, "to ensure that decisions respecting the operation of passenger-train service took place through an open, public and timely process" (p. 331 B.C.L.R.). That object is fostered by holding that a failure to reconsider within the five-year period renders the underlying order null and void. Indeed, not to so hold would be to render the five-year reconsideration provision meaningless and undercut the legislative goal of ensuring that correct information is assessed in an open, structured way. There would be no public hearing, no NTA assessment of current conditions. Notwithstanding the lapse of over five years since public input and NTA consideration, the CPR would be permitted to obtain a private order from the Governor in Council. In my view that was not the intention of Parliament.

In summary on this point, this case does not fall within the class of obligation that will be considered merely directory under Montreal Street Railway. I agree with the Court of Appeal that the duty of reconsideration was mandatory. The NTA's failure to hold the required reconsideration within the five-year period was, to quote Esson C.J., "simply to terminate the application of the railway to abandon and to require it, if it wishes to have the matter considered again, to make a fresh application under s. 265" ((1990), 1990 8029 (BC SC), 59 B.C.L.R. (2d) 273, at p. 280).

Authorities

As my colleague concedes, the cases which have been decided on this point support the view that failure to conduct a reconsideration within the time allotted by the Act renders the underlying NTA order null and void. In City of Melville v. Attorney General of Canada, 1981 4571 (FC), [1982] 2 F.C. 3, a similar case to this, the trial judge, without referring to s. 268(2) of the Railway Act, held that the Governor in Council could rescind a Canadian Transport Commission order "at any time". But this decision was reversed on appeal: 1982 5219 (FCA), [1983] 2 F.C. 123. Comments in the parallel case of Jasper Park Chamber of Commerce v. Governor General in Council, 1982 5179 (FCA), [1983] 2 F.C. 98, suggest express disagreement with the trial judge's view of the Cabinet's power in Melville. The Court of Appeal, per Heald J.A., stated (at p. 115): "I do not agree that subsection 64(1) authorizes the Governor in Council to vary any and all Commission orders no matter when they are issued...." (Emphasis added.)

The Power of the Governor in Council

It was argued that Parliament cannot have intended that the government's wish to terminate a passenger rail service should be interfered with, with the consequence that an uneconomic line must continue to operate when the government deems this not to be in the public interest.

The principle of the supremacy of Parliament is fundamental to our democracy; the principle of supremacy of Cabinet is not. The Cabinet, represented by the Governor in Council, possesses only such powers as Parliament chooses to confer upon it. Where Parliament chooses to regulate an issue like the discontinuance of passenger rail services through a regulatory process, then that process must be respected. I can do no better than quote the Court of Appeal on this point (at pp. 331-32 B.C.L.R.):

At the root of the appellant's claim is the assertion that Canada has been frustrated in its desire to implement its national policies with regard to uneconomic Crown railways. The answer to that position is that the Governor in Council does not have an absolute right to discontinue passenger-train service. It is not the primary regulator of railways. It cannot by any means it chooses implement its national policies of discontinuing uneconomic rail service. Its power is limited to varying or rescinding an order of the agency. The Governor in Council has no inherent authority and cannot act as a roving commission to rectify perceived wrongs except through the regulatory machinery which Parliament has provided.

Disposition

I would dismiss the appeal.

Appeal allowed, Lamer C.J. and McLachlin J. dissenting.

Solicitor for the appellant: John C. Tait, Ottawa.

Solicitor for the respondent: The Ministry of the Attorney General, Victoria.