Omnitrax says it can break contract with Ottawa after government intervention, flooding

The company that owns the only rail line to the northern Manitoba town of Churchill says factors like government interference and unprecedented flooding mean it doesn't have to hold up the terms of its contract with Ottawa.

Omnitrax also says it won't pay to repair the tracks, which were damaged by severe spring flooding.

Over the weekend, Prime Minister Justin Trudeau said Omnitrax, the Denver-based company that owns the rail line, has legal obligations to clean up and repair the tracks.

"This is a responsibility that is squarely on the shoulders of Omnitrax," Trudeau told reporters in Winnipeg on Saturday.

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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.

$40M for railroad upgrades in 2008

Omnitrax, which also owns the now-closed Port of Churchill, bought the rail line and the Hudson Bay Railway Company from the province in 1997.

In 2008, the federal and provincial governments each gave $20 million to the company, which was also expected to put in $20 million, to upgrade the railroad.

The contract that came with the money, obtained through freedom-of-information laws, stated Omnitrax had to assume full responsibility for the operation, maintenance and repair of the rail line until October 2018.

If the company discontinues or abandons the rail line or port, Ottawa is entitled to have the funding returned, according to the contract.

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Omnitrax also received subsidies from Ottawa following the end of the Canadian Wheat Board in 2012 and the provincial government has given millions in funding to the company, including $820,000 in payments under a 2015 agreement.

The Port of Churchill was closed last August with little warning.

That was followed by a winter of powerful blizzards and a spring of severe flooding, which washed out sections of the rail line into Churchill, a community of 900 located about 1,000 kilometres north of Winnipeg on the western shore of Hudson Bay.

Without that rail line, Churchill has become a fly-in community.

Omnitrax has said it won't pay to repair the tracks and asked the federal and provincial governments for help. It estimates the cost of the repairs at $20 million to $60 million.

Since the 2008 agreement, "circumstances relevant to that agreement have fundamentally and adversely changed in ways not contemplated at the time of those agreements," a spokesperson at Hudson Bay Railway said in an email to CBC News.

"The dissolution of the Wheat Board, the dismantling of the Churchill Gateway Development Corporation, and most recently, the unprecedented [once in] 200-year flood which has caused very substantial damage to the rail line and rendered it inoperable … prompted HBR to declare a force majeure on the line," the statement said.

Transport Canada said since the rail line is privately owned, it does not take part in assessing damage to the line. However, the agency said it expects Omnitrax to live up to the agreement the company made with the Government of Canada in 2008 to keep the rail line in operating condition.

"Under the 2008 agreement, Omnitrax cannot significantly reduce, discontinue or abandon the Bay Line or other fixed assets. Omnitrax has an obligation to repair and maintain its line and maintain service to residents, and we expect Omnitrax to meet its obligations," Transport Canada said in a statement to CBC.

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The Manitoba government said Ottawa needs to step up and make its intentions clear.

"This dispute revolves around a contractual agreement between Omnitrax and the federal government," the province said in a statement. "The future of the railway is inextricably tied to the port, and ports and railways are federally regulated assets.

"A clear signal from the federal government on its intentions is the single most important need for Churchill and its future at this time," the province's statement said.

"The Manitoba government has taken critical steps to ensure the provision of food and necessities for the people of Churchill, including the shipment of propane and fuel supplies to last over the winter."