§ 431. “Undue and Unreasonable, or Unjust to Any State.”

The only preferences or discriminations which can be forbidden under this section, are preferences or discriminations which are either (1) undue and unreasonable, or (2) unjust to any State. The preferences prohibited by the Railway and Canal Traffic Act, 1854, and by the American Inter-state Commerce Act, are preferences which are “undue or unreasonable.” As no distinction seems ever to have been judicially drawn between the words “undue” and “unreasonable,” but on the contrary they have been declared to “point to the same sort of mischief” (per Lindley, L.J., Phipps v. London and N.W.R. Co. [1892] 2 Q.B. at p. 251), it would seem that their use conjunctively instead of disjunctively makes no material difference.

The words “unjust to any State” may be compared with the words “unjust discrimination” in sec. 2 of the American Inter-state Commerce Act. The American Act, designed to control persons and corporations, was chiefly concerned with injustice to persons; but this constitutional provision is designed to control the States themselves in their capacity as carriers, and is therefore concerned with injustice by one State to another. The insertion of these words, “unjust to any State,” perhaps does not definitely include any preference which was not already included in undue and unreasonable preferences; but it indicates that the section expressly contemplates the prevention of injustice between States, and it also indicates that States, as well as individuals, will be entitled to complain of any breach of federal legislation as to preferences. It may be compared with sec. 13 of the American Inter-State Commerce Act, which provides that “any person, firm, corporation.… or any body politic or municipal organization complaining” of any violation of the Act may apply to the Commission.

Question of Fact.—What constitutes undueness, unreasonableness, or injustice to a State, is a question of fact to be determined broadly on a consideration of the circumstances of each case; and on these questions the decision of the Inter-State Commission is absolutely final. (See Phipps v. London and N.W.R. Co. [1892] 2 Q.B. 229; Palmer v. London and S.W.R. Co., L.R. 1 C.P. 593; Texas and Pac. R. Co. v. Inter-State C.C., 162 U.S. 145.)

Since the question whether a rate is reasonable or not is a question of fact, to be determined on consideration of the circumstances of each case, it would seem to be beyond the power of the Parliament to empower the Commission to prescribe rates. The power to forbid a preference or discrimination is not the power to make a rate unlawful, but the power to forbid a difference between two rates. The Parliament under this section cannot empower the Commission to forbid a rate, but only to forbid a preference or discrimination caused by an inequality of rates. Moreover, to prescribe a general rate would be practically to decide that the rate is reasonable, and so to prejudge the case without reference to the circumstances.

“It is argued on behalf of the Commission that the power to pass upon the reasonableness of existing rates implies a right to prescribe rates. This is not necessarily so. The reasonableness of a rate, in a given case, depends on the facts, and the function of the Commission is to consider these facts and give them their proper weight. If the Commission, instead of withholding judgment in such a matter until an issue shall be made and the facts found, itself fixes a rate, that rate is prejudged by the Commission to be reasonable.” (Cincinnati, &c., R. Co. v. Inter-State C.C., 162 U.S. at pp. 196–7.)

Though what is undue, unreasonable, or unjust, is a question for the Commission alone, it will be useful to point to some of the principles which seem to be indicated by

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the Constitution, read in the light of the authorities already cited. The three kinds of rates to which special reference may be made are (1) prohibitive rates, intended to prevent the flow of trade in one direction, with a view to inducing it in another; (2) competitive rates; (3) long-haul and short-haul rates.

(1.) Prohibitive Rates.—Any rate made unreasonably high for the purpose of preventing inter-state traffic in any direction could undoubtedly be forbidden by the Federal Parliament if any person or State were thereby prejudiced. And it seems clear that, even without federal legislation, any such rate would be unlawful under sec. 92 as an interference with freedom of trade, irrespective of any question of discrimination. If this were not so, any State could practically levy export or import duties upon State railways.

The common law, though it does not oblige a carrier to charge all customs equally, limits him to a reasonable charge. (Baxendale v. Eastern Counties R. Co., 27 L.J. C.P. 137.) It is unnecessary to argue that this rule of the common law becomes applicable as inter-state law, under the Constitution; but it seems that some such test is involved in the requirement of freedom of trade between the States. That is to say, whilst federal legislation is needed in order to forbid the relative inequality of rates, a rate which is in itself unreasonably obstructive is forbidden by the Constitution itself. (See Notes to sec. 92.)

(2.) Competitive Rates.—“A rate may be unreasonable because it is too low, as well as because it is too high. In the former case it is unreasonable to the stockholder, and in the latter to the shipper.” (Inter-State C.C. v. Cincinnati, &c., R. Co., 167 U.S. at p. 511.) In this constitution it is undoubtedly contemplated that a rate may be unreasonable, or unjust, by being, in comparison with other rates on the same railway, too low— not indeed from the point of view of the stockholder, but of the locality which suffers by the discrimination. Every discrimination is in fact a matter of comparison between two or more rates, one of which is relatively too low, and one relatively too high.

As regards competitive rates, the Constitution expressly recognizes, in the provision that due regard shall be had to the financial responsibilities of the States, the business principle of competition within reasonable limits, for the purpose of preventing a financial loss in connection with the construction and maintenance of railways. And the Constitution also safeguards rates which are made low—even though from the point of view of another State they may be unreasonably and unjustly low, and even though they may be competitive in effect—if they are necessary for the development of the territory of a State (sec. 104).

These provisions seem to indicate that the Constitution contemplates reasonable competition between State railways, but at the same time recognizes that competition may become unreasonably and unjustly preferential. This is substantially in accordance with the English and American decisions already cited. (Phipps v. London and N.W.R. Co. [1892] 2 Q.B. 229.)

“It seems to me that … it is impossible to say that there is anything in point of law which compels the tribunal to exclude from consideration this question of competing routes. I do not go further than that. It is unnecessary to go further than that. I am not for a moment suggesting to what extent it is to weigh. I am not suggesting that there may not be such an excessive difference in charge made in cases of competition, as that it would be unreasonable and unfair when you are looking at the position of one trader as compared with the other.” (Per Lindley, L.J., Phipps v. London and N.W.R. Co. [1892], 2 Q.B. at p. 245.)

(3.) Long-haul and Short-haul.—Two questions arise in connection with rates for short and long hauls; whether a greater aggregate charge for the short-haul than for the long-haul is an undue preference; and whether an equal charge for the short-haul and for the long-haul is an undue preference. Neither the American nor the English Acts answer these questions absolutely, but they afford indications which may be a valuable guide.

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The American Act does not declare a greater aggregate charge for a shorter than for a longer haul to be an undue preference, but it prohibits it. The prohibition, however, is not absolute; the Commission being authorized to exempt any carrier, after investigation, from the operation of the section (sec. 4). The English Act of 1888 merely empowers the Commission to forbid a greater charge for a shorter than for a longer haul. (Sec. 27; see p. 906, supra.) Both provisions seem to imply that such a charge is not necessarily, though it may be usually, an undue preference. (See Hadley, Railroad Transportation, pp. 114–9.)

With the question of an equal charge for a shorter and for a longer haul, the American Act only deals negatively. Following the prohibition of a greater charge for a shorter haul, it declares that “this shall not be construed as authorizing any common carrier within the terms of this Act to charge and receive as great compensation for a shorter as for a longer distance.” In other words, it leaves the question, whether an equal charge is permissible, to the operation of the preference and discrimination clauses; merely rebutting the inference that might arise, from a greater charge being forbidden, that an equal charge was permitted. The English Act of 1888, in the provision for group rates, arrives at a somewhat similar result in a more explicit way. It provides (sec. 29, see p. 906, supra) that uniform charges may be made to and from a group of places at reasonable distances from each other; but subject to the proviso that the rates must not be such as to create an undue preference. This is a distinct recognition of the principle that an equal charge for a shorter and a longer haul is not necessarily an undue preference.

The resulting inferences would seem to be: (1) that generally speaking there should be a greater aggregate charge for a longer than for a shorter haul; (2) that a system of “group-rates” may justify an equal charge for a longer and for a shorter haul; (3) that in exceptional cases a greater charge for a shorter than for a longer haul may be justifiable; (4) that the question whether a long or short haul rate creates an undue preference must be decided accordingly to the circumstances of each case.

It should be noticed, however, that both the English and American provisions are chiefly for the protection of the short-haul customer who is discriminated against; in this Constitution the chief concern is for competing railways and traders who are prejudiced by the diversion of traffic due to the long-haul rate. In the one case the complaint is that short-haul rates are unfairly high as compared with long-haul rates; in the other, that long-haul rates are unfairly low as compared with short-haul rates.