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Canadian National Railway Co. is more than rail lines, locomotives and freight cars. The country's largest railway operator also has its own police force.

This legacy of the special powers first granted to railway companies in the late 19th century is now at the core of a legal battle between CN and a former employee accused of defrauding the corporation. Its use of the little known police powers had led to criminal charges that were later stayed, a lawsuit by CN, and now a counter-suit by the former employee.

Rail constables with law enforcement powers equal to that of police predate Confederation, and their numbers peaked in the 1880s during the construction of the national railway. Now, 125 years after the last spike, CN and Canadian Pacific Railway Ltd. are still entitled to employ private police forces, under federal legislation governing railway safety.

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The legal dispute between Scott Holmes and CN began in 2008, when the company filed a lawsuit claiming the long-time track supervisor was approving construction and maintenance contracts for companies that he controlled. The company was tipped off by Mr. Holmes's ex-wife, court documents allege.

CN obtained court orders seizing assets controlled by Mr. Holmes and his present wife.

At the same time, its police force launched a criminal investigation, laying fraud charges in November, 2009, late on a Friday afternoon. Mr. Holmes and his wife spent a night in jail before being granted bail.

A year later, after several CN police officers testified at a preliminary hearing, the Ontario government Crown attorney prosecuting the case stayed all charges.

Mr. Holmes is now asking a court to throw out CN's lawsuit, and he filed a civil action of his own in Ontario Superior Court last month, seeking $40-million in damages. "They are trying to ruin me," said Mr. Holmes, who maintains that CN's accusations against him are false. "I want them held accountable."

None of the allegations in either lawsuit have been proven in court. CN declined to comment on the case because it is before the courts.

The dual civil and criminal proceedings initiated by CN against Mr. Holmes were "an improper and unlawful joint venture amounting to an abuse of process," the former employee alleges in his statement of claim.

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CN officers testified at the preliminary hearing last fall that company executives directed their chief of police to begin the criminal probe. The CN police described the civil suit and criminal investigation as a "joint venture," one of its officers testified.

Defence lawyer Michael Lacy said CN rebuffed his suggestion in 2008 to turn the criminal investigation of his client over to an outside force. "They were using their criminal powers to try to enhance their civil interests. This is unprecedented," Mr. Lacy said. Transcripts of the preliminary hearing include testimony that senior CN lawyer Nizam Hasham shared with CN police confidential documents related to the civil suit. Mr. Hasham is one of the defendants named in Mr. Holmes's lawsuit and he declined comment when contacted by The Globe and Mail.

Graydon Sheppard, who represents Mr. Holmes in the civil proceeding, said the case raises broader questions about whether any private company should have its own police force. "There is no oversight body for CN police," he observed.

The Railway Safety Act gives the railway police the same powers as a municipal force, such as the right to lay criminal charges or access confidential law enforcement databases. There are about 80 CN police officers in Canada, the company said.

In recent years, the duties of railway police have primarily involved maintaining the security of rail lines. "This is a hangover from history," said Greg Marquis, a professor at the University of New Brunswick in Saint John, who has written on the history of policing in Canada. "It is an anomaly that perhaps should be revisited."

The concern that does not appear to be shared by the federal government, which gave this response when asked if it intends to review the private police powers in the act. "In a word, no," replied Transport Canada spokeswoman Maryse Durette.

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