OMNITRAX ENTERPRISES INC.

, MARINE INVESTMENT COMPANY, OMNITRAX

CANADA FREIGHT INVESTMENT COMPANY, HUDSON BAY INVESTMENT
COMPANY, NORTHERN MANITOBA INVESTMENT COMPANY (Investors/Claimants)

Vs

GOVERNMENT OF CANADA

(Respondent)
Omnitrax Inc. is a transportation and transportation infrastructure holding company based at
Denver, Colorado, United States. It primarily own and operates railroads, with a network of
21 regional and shortline railroads in 12 U.S. states and three Canadian provinces.

It is one of the privately owned railroad companies in the United States. It was founded in
1968 as a subsidiary of BROE group. OmniTRAX moved into Canada in November 1996
with its purchase of the Hudson Bay Railway, which ran from The Pas, Manitoba, to the Port
of Churchill in Churchill, Manitoba. OmniTRAX then purchased the port itself for C$1 in
November 1997. As part of the deal, the Canadian government agreed to put C$34 million
worth of upgrades, dredging, and repairs into the port, while OmniTRAX pledged to add
C$45 million in upgrading the port facilities and Hudson Bay Railway. Three months later,
OmniTRAX purchased the Carlton Trail Railway track bought from the Canadian National
Railway. The 280 miles (450 km) ran from Warman, Saskatchewan, to White Star,
Saskatchewan, and from Speers Junction (near White Star) to end of the line at Meadow
Lake, Saskatchewan.

The railway is the only land-link to the port located on Hudson’s Bay in northern Manitoba
and an essential lifeline to the 900-person town as well as Indigenous communities in
neighbouring Nunavut. The company is contractually obliged to keep the line in good
working order as a condition of the $18.8 million in subsidies it received from Ottawa for
upgrading and maintenance.1 Yet Omnitrax has refused to repair the rail line since it was
seriously damaged by flooding in spring 2017.

After months of inaction on the repairs and increasing hardship in Churchill, the federal
government declared the company in default of its contribution agreements and took
Omnitrax to court. The company filed its NAFTA (under chapter 11) claim shortly afterward.
Omnitrax is putting the blame for its failure to repair the line on federal and provincial
government actions that have allegedly harmed the company.

What Chapter 11 of NAFTA beholds?

North America Free Trade agreement has bound around 450 million people together to
enable free trade and produce $17 trillion worth goods and services. NAFTA has enabled
investors a free, flexible, predictable and stable environment for trading for the foreign
investors.
Chapter 11 of NAFTA, also known as Investor-State Dispute Settlement (IDS), establishes
obligations for the parties’ treatment of investors and their investments. Obligations stands as
follows:

 National treatment: there should not be any biasness in the investments made by a
domestic and the foreign investor. There needs to be a parity in the treatment to the
investment.
 Most favoured Nation (MFN): There should not be any trade discrimination
between the NAFTA party country and the non NAFTA country.
 Expropriation: the host country cannot expropriate any investment of any country
without giving them appropriate compensation.

After being declared defaulter by the federal government, Omnitrax filed a claim against the
government under Chapter 11 of NAFTA.

As Mentioned above, in 1997, OmniTrax purchased Port of Churchill, as a part of

privitization of CN. The organisation operated the railway for two decades and traded mainly
wheat to the Port of Churchill on behalf of Canadian Wheat Board. In 2017, OmniTrax
suspended its services in the Churchill due to floods in the spring and refused to repair
allegedly due to economic infeasibility. To the claim of infeasibility was the shutdown of the
Canadian Wheat Board, which was primarily bringing the money to OmniTrax through Port
of Churchill in 2008. In 2008, under the contact between the federal government and
OmniTrax, the federal government had given $20 million for upgrading the Port. Due to
failing to fulfil the contract, federal government declared Omnitrax a defaulter and asked
them either finish the repair work in 30 days or the funding would be reverted.

Against this, OmniTrax filed the case under NAFTA chapter 11 against the government
claiming that Canadian government has sabotaged its efforts to repair and transfer of
ownership of the railway.

Omnitrax’s NAFTA claim also attacks the Manitoba government for blocking the company’s
proposals to transport oil by rail for export from the northern port. Omnitrax is demanding
$150 million in compensation.

The complaint was disputed because of the breaching of contract between the federal
government and Omnitrax.
Facts

 Omnitrax bought the railway from CN Rail and the now-closed Port of Churchill from
the federal government in 1997.
 The 1997 acquisition by OmniTRAX was actively supported and encouraged by the
Government of Canada. At the time, in addition to the purchase price paid by
OmniTRAX to CN (approximately $11,000,000), the Government of Canada
contributed approximately $24,000,000 to CN as an inducement to sell the HBR,
rather than discontinue and liquidate it.
 In concert with OmniTRAX's purchase of the HBR, the Government of Canada also
authorized the sale to OmniTRAX of the Port of Churchill by the Canada Ports
Corporation (a Government of Canada agency). The Port was sold to OmniTRAX for
$10, with the Government of Canada contributing approximately $4,000,000 to
rehabilitate the Churchill Tank Farm and approximately $24,000,000 to rehabilitate
the Port (including dredging, concrete repairs and window replacement, among other
things).
 The Government of Canada's sale of the Port of Churchill to OmniTRAX was
intended to facilitate OmniTRAX's establishment of the full infrastructure required to
support the transport of grain shipments through Churchill, as directed by the CWB.
The sale of the Port of Churchill also served to encourage further investment by
OmniTRAX in the HBR and related assets (such as the Churchill Tank Farm).
 The company also says the governemt’s decision to end the Canadian Wheat Board's
monopoly on western wheat and barley in 2012 drastically cut grain shipments along
the Hudson Bay Railway and through the Port of Churchill because the open market
allowed producers to use southern rail lines and ports, which are Canadian-owned:
The port of Churchill was developed for the trading of the wheat majorly and had
been service for past 85 years. Without wheat there has never been a reason for the
operation of the Port and it was the only profitable trade and was helping in the cost
recovery.
 Since OmniTRAX acquired the HBR it has never generated net profit from this
investment, despite having invested over $100 million in capital contributions over
the past 20 years.
 In 2008, the federal and Manitoba provincial governments pledged $20 million to
help upgrade the railway.
  The contract that came with the money, obtained through Freedom of Information
requests, said Omnitrax had to complete the upgrades by October 2018. That was
extended to 2019.
 Omnitrax also had to maintain and operate the rail line for 10 years after repairs were
completed — until 2029.
 If the company discontinues or abandons the rail line or port, Governemnt is entitled
to have the funding returned, the contract says.
 On October 13, 2017, the Government of Canada served OmniTRAX with a spurious
Notice of Default in relation to the July 2008 Contribution Agreement, alleging that
OmniTRAX had failed to fulfill its obligations pursuant to it. The Notice of Default
makes the impossible demand that OmniTRAX complete all of the required repairs to
the HBR within 30 days, failing which the Government of Canada will commence a
lawsuit against OmniTRAX. As explained below, this claim is without merit and only
serves to further undermine and sabotage efforts of OmniTRAX to divest itself of the
relevant assets.
 But Omnitrax argues recent events amount to a force majeure — a legal term
referring to unforeseeable circumstances that excuse a party from fulfilling a
contract — and it is unable to fulfill its contract with the federal government.
 Omnitrax president Tweed, as a Member of Parliament for Brandon-Souris under
Prime Minister Stephen Harper's Conservative government, voted for the legislation
that ended the wheat board's monopoly. 
 The government said late in October it planned to go ahead with legal action after
Omnitrax failed to meet a 30-day deadline to fix the rail line. 

Omnitrax claims were very weak. The acquisition was made two decades ago and they had
been funded well enough by the government. Decades later they expect the contractual
clauses to remain the same. They expect no changes be made seeing the current economic
conditions. They were funded with $20 million by the government Agreed with the fact that
wheat was a major source of maintaining the operations of the Port. But the wheat board was
dissolved in 2012, ever since then there was no efforts that were made by Omnitrax to find an
alternative to the maintain the cash flow. The economically feasibility rose in 2017, but there
was a time of 9 years where they failed. Also, the repair period was also extended from 2018
to 2019 still they failed and breached the contract. Also, Chapter 11 of NAFTA has been a
investor interested agreement where the investor has free will to file a claim against the
government. The investor-state system gives special rights to foreign investors without
applying any corresponding responsibility. The Nafta Chapter 11 puts no pressure on
Omnitrax to fulfil its legal commitments of repairing the line. Worse than this, Candian tax
payers are put in a position even if the government wins and pursue Omnitrax to repair the
line, the company could be able to recover all its costs with its court’s decision under
NAFTA. In effect, ISDS potentially indemnifies foreign investors from facing the domestic
legal consequences of their own misconduct.

Yes, the dissolution of Canadian Wheat Board eroded the viability and operations of the Port
but there is no denying the fact that other parties were also affected by the it and that to in
even worse ways. Prairie wheat and barley producers, for example, have experienced serious
transportation and marketing problems since the dismantling of the single desk and the
privatization of the CWB. Yet these parties must pursue any claims for relief through the
domestic courts. But the foreign investors stand a chance to claim the compensation form the
government.

The Issue: In its notice of intent to submit a claim to NAFTA arbitration, Omnitrax argues
that the Harper government’s dismantling of the Canadian Wheat Board (CWB) in 2012
damaged the company’s main line of business (transporting Western grain for export) and
sabotaged the economic viability of its investment in the railway and port. Asks for a
compensation of $150 million.

The Outcome: On June of 2018 OmniTRAX was ordered by federal regulators to repair the
tracks and had legal obligation to fix and maintain the track.

The Outcome seems to be correct because yes the organisation holds the obligation to repair
the track. The Company has not withheld the public interest and had it worked with the
government of Manitoba, the situation of suing would not have arisen. Due to this in 2017-
2018, goods and people have had been flown at much higher cost. Even with the extension of
repairing time for 30 days to 6 months they failed to adhere to the contract. NAFTA has an
imbalanced ISDS process and it was time for Canada to grasp the opportunity to eliminate the
re-negotiation. The Federal government had declared them defaulters after months of inaction
and inactivity on the repairing process. The company was legally obliged to keep the line in
good shape and had received a subsidy as well from the government. The claims made by
Omnitrax stand weak in the sense that it was not government’s complete responsibility for
their failure. The Dissolution of CWB had impacted other domestic firms more than it had
impacted the Omnitrax, yet they don’t stand a chance to ask for a claim but NAFTA chapter
11 provides that to foreign investors. They needed to reconsider the fact that the Canadian tax
payer’s hard earned money should not be wasted by not taking the responsibility of their own
failures.

Omnitrax president, Merv Tweed was one time chair of the parliamentary transportation
committee, who had voted in the favour of abolishment of the CWB, hence claim stands
weak with the organisation’s people involved in the failure.
References

https://en.wikipedia.org/wiki/OmniTRAX#cite_note-43

https://www.cbc.ca/news/canada/manitoba/omnitrax-files-notice-nafta-sabatoge-1.4401393

https://www.italaw.com/sites/default/files/case-documents/italaw94003.pdf

https://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-
diff/NAFTA-Interpr.aspx?lang=eng

https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-
acc/nafta-alena/fta-ale/11.aspx?lang=eng&_ga=2.107039618.104314593.1591636676-
605429313.1591636676

https://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/
2018/01/NAFTA%20Dispute%20Table%20Report%202018.pdf

https://www.producer.com/2018/01/omnitrax-not-solely-blame/

https://business.financialpost.com/commodities/agriculture/canadas-arctic-port-set-for-first-grain-
shipments-since-2015

https://www.railway-technology.com/news/group-companies-agrees-acquire-restore-churchill-rail-
line/

https://globalnews.ca/news/4276683/federal-regulators-rule-omnitrax-had-duty-to-fix-broken-rail-
line-to-churchill/

https://www.progressiverailroading.com/short_lines_regionals/news/OmniTRAX-sells-Hudson-Bay-
Railway-Churchill-port-facilities--55509

https://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/
2018/01/NAFTA%20Dispute%20Table%20Report%202018.pdf