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					                                                                                                            Volume V, Issue 3 — March 2009

Judging the Reasonableness of Contractual Terms
The case of Air Canada v. Canadian Trans-         able together with other checked baggage.
portation Agency and Peter Griffiths pro-                                                                        Inside This Issue
                                                  The Agency determined the case based on
vides important guidance as to how the Cana-      section 67.2 of the Transportation Act, which
dian Transportation Agency (“the Agency”)         gives the Agency the authority to suspend or
is to assess whether terms and conditions of                                                           Accessible City Buses ··············· 2
                                                  disallow terms and conditions of domestic
carriage imposed by an air carrier are            carriage which the Agency finds to be unrea-
“unreasonable” within the meaning of the
Canada Transportation Act (“the Transpor-
                                                  sonable. The Agency also relied on sections          Jurisdiction ······························· 3
                                                  86(1)(h) of the Act and 111 of the Regula-
tation Act”) and the Air Transportation Regu-     tions, which allow the Agency to suspend or
lations (“the Regulations”).                      disallow terms and conditions of interna-            End of the Line·························· 4
The case arose out of Air Canada’s proposed       tional carriage that are not “just and reason-
revision of its general rules tariff and the      able” or cause a passenger “undue or unrea-
Agency’s reaction to this proposed revision.      sonable prejudice or disadvantage.”
On March 23, 2009, the Federal Court of                                                              monization in pricing between the checked
                                                  Air Canada provided its rationale for the          baggage and cargo prices, the reduction of
Appeal unanimously decided that the matter        change in a series of detailed submissions to
would be sent back for reconsideration before                                                        time lags in the delivery of pets via cargo to
                                                  the Agency. This rationale was centered on         two hours, and a proposed exemption for
the Agency, as a result of the Agency’s fail-     the following commercial and operational
ure to properly weigh the reasons for Air                                                            certain health certificates on domestic flights.
                                                  concerns: (1) an increased volume of checked
Canada’s tariff revisions against the incon-      baggage as a result of new security measures       The Agency determined that the tariff change
venience caused to the passenger by those         prohibiting the carriage of liquids on-board;      was unreasonable and unjust. The legal test
revisions.                                        (2) new post-September 11 security require-        relied upon by the Agency involves striking a
The revisions at issue in this case involve       ments that checked baggage must be carried         balance between “the rights of the passenger
changes to Air Canada’s domestic, transbor-       on the same flight as the passenger who            to be subject to reasonable terms and condi-
der and international tariffs with respect to     registered the checked baggage or a later          tion of carriage” and the air carrier’s
the carriage of pets and their kennels weigh-     flight; (3) record load factors; (4) the addi-     “statutory, commercial and operational obli-
ing under 70 pounds. On June 1, 2007, Air         tional complexity in handling animals as           gations”. This test was set out in a previous
Canada revised its tariffs to provide that pets   checked baggage arising out of standards           decision of the Agency, Del Anderson v. Air
and their kennels weighing less than 70           developed by the International Air Transport       Canada. That decision also explained that,
pounds could no longer be carried as checked      Association to ensure humane carriage of           generally, reasonableness has to be deter-
baggage, but would henceforth be carried as       animals; and (5) a change in business plan         mined in a contextual manner and can be
cargo. Air Canada had previously revised its      involving increasing the frequency of flights      understood as meaning “without a rational
tariffs to discontinue the carriage of pets and   with reliance on smaller aircraft with more        basis”. This test has been repeatedly applied
their kennels weighing more than 70 pounds        limited cargo capacity, which posed addi-          by the Agency in its subsequent cases.
as checked baggage.                               tional challenges in handling a large volume       However, while adverting to this test, the
The complainant in the case, Peter Griffiths,     of checked baggage, but provided great bene-       Agency concluded that the reason the change
(“Mr. Griffiths”) was a passenger who trav-       fits in connectivity and availability of flights   in tariff was unreasonable was that “an im-
eled mainly between Toronto and Mexico            to passengers. Air Canada also explained to        balance exists ... in that such carriage creates
City with a pet weighing approximately 13         the Agency that it was “implementing a dis-        commercial advantages for the carrier alone,
pounds. The essence of Mr. Griffiths’ com-        tinct revenue model that relies on operations      while exposing pet owners to many signifi-
plaint was that the change in the carriage of     being simplified to the greatest extent possi-     cant disadvantages.” The Agency found that
pets from checked baggage to cargo caused         ble.”                                              these disadvantages involved a higher price
him a number of inconveniences, including         Air Canada made a number of further sub-           to the passenger, additional arrangements to
an increase in fees and additional time spent     missions on measures that it was taking in         be made by the passenger, and additional
arranging for the retrieval of his pet from       order to mitigate the effect of the changes on     time spent by the passenger in retrieving the
cargo services, as opposed to having it avail-    passengers, including some degree of har-                                        (Continued on page 3)

                                                                                                                                         March 2009 | 1
OC Transpo Ordered to Take Immediate Action

On March 11, 2009, the Canadian Transpor-         position that it would not oppose the correc-
tation Agency released a ruling that demon-       tive measures. It did, however, emphasize its
strated to OC Transpo (and the public trans-      requirement that OC Transpo had to imple-
portation community in Canada), that it           ment a plan to monitor compliance by bus
would not entertain significant delays in the     drivers. This was to be done within a
implementation of its accessibility rulings —     “reasonable timeframe”.
even when its rulings were unclear at first       Following this decision, OC Transpo was
instance.                                         able to demonstrate that compliance had
The whole thing started back in April 2007        increased from 14% to 79% by September
(just a month after the Supreme Court of          2008. It also submitted that once the GPS
Canada issued its reasons in the fateful CCD      system was up and running, compliance              “… it is the respon-
v. Via Rail case, see Transportation Notes,       would be 100%. Apparently, there had been
passim) when the Agency delivered its deci-       some delays in implementing the new system         sibility of OC
sion in a complaint brought by a visually         — but OC Transpo submitted that it had been
impaired passenger, Terrance Green, against       “working diligently” to address them.              Transpo to ensure
the public bus operator in Ottawa.                In the last half of 2008, OC Transpo re-
In his complaint, Mr. Green recounted two         quested a variance in the Order to allow it to     consistent applica-
instances in November 2006 when he                have the new system up and running by De-
boarded a bus operated by OC Transpo with         cember 31, 2009. The extra time was re-
his guide dog and asked the driver to call out    quired to purchase and install the automated       tion of its policy
his requested stop before arriving at it.         stop announcement system.
Although it was the policy of OC Transpo to       Mr. Green opposed the request for the vari-        and that announce-
honour such requests (and, as well, to call out   ance.
major stops even if not asked to do so), the      In considering whether compliance with the         ments are made
“transportation cycle” broke down in these        original ruling had been achieved, the
two instances, causing Mr. Green to miss his
intended stops. Evidence was also lead that
                                                  Agency found that OC Transpo had                   and clearly heard,
                                                  “misconstrued” the order to mean that it was
this “transportation cycle” breakdown was         sufficient to work towards getting the new
not an uncommon occurrence on OC Transpo          automated system installed. Apparently, the
                                                                                                     with or without an
buses.                                            Agency did not expect a two-year delay in
The Agency considered the complaint under         achieving full compliance (i.e., 100% call-out     automated stop an-
the lens of s. 172 of the Canada Transporta-      of major and requested stops).
tion Act which prohibits public transportation    In the latest March 2009 ruling the Agency         nouncement sys-
providers from imposing undue obstacles on        clarified that its intention was to mandate full
the mobility of persons with disabilities.        compliance with the policy within a short          tem.”
Drawing on principles from the VIA Rail           time of its 2007 decision (i.e., 90 days)
decision, the Agency determined that the          whether or not the technology was installed
incidents that were the subject of Mr. Green’s    within that period. This had never before
complaint did, in fact, violate the s. 172 re-    been explicitly stated.
quirements on transportation service provid-      The Agency varied its earlier order to require
ers.                                              OC Transpo to, within 20 days, ensure that
Accordingly, the Agency gave OC Transpo           all major and requested stops are called out in
90 days to show cause as to why it should not     a manner that permits them to be clearly
take certain corrective measures, such as         heard.
amending its Transit Operation Handbook to        In addition, OC Transpo was ordered to re-
reflect the policy that major and requested       port the compliance rate to the public via its
stops should be called out, modifying its         website and to also report this information
training in this regard, ensuring that the GPS    directly to Mr. Green each month for 24
system (which OC Transpo was intending to         months, commencing in May 2009.
install on its buses by 2008) would be acti-
vated in such a manner as to automatically        In the closing words of its latest decision, the
call out major stops and, of most signifi-        Agency said that the ruling was not intended
cance, monitoring bus drivers’ compliance         to limit the Agency’s power to have its en-
with these policies.                              forcement division undertake independent
                                                  investigations of compliance, investigate
OC Transpo responded to the “show cause”          further complaints, or levy administrative
invitation by indicating that Ottawa City         monetary penalties.
Council had, in any event, imposed similar
requirements on its operations.                                  CTA Decision No. 85-AT-MV-2009

The Agency was satisfied with OC Transpo’s

                                                                                                                      March 2009 | 2
No Jurisdiction over Foreign Carrier
The Canadian Transportation Agency (“the            terms and conditions in its international tariff,   that the carriage of the passenger was by
Agency”) recently clarified that its jurisdic-      that the terms and conditions regarding invol-      means of an interline ticket, as opposed to an
tion does not extend to a ticket governed by        untary downgrading and involuntary refunds          Air Canada online or codeshare ticket, ob-
Aeroplan terms and conditions on a segment          are unjust and unreasonable, that Air Canada        tained through Aeroplan. As such, the trans-
operated by a carrier wholly outside of Can-        discriminated against him by reneging on a          portation complained of was governed by
ada under the terms of an interline ticket.         promise to compensate him for the down-             Aeroplan’s terms and conditions and the
The passenger purchased a ticket through            grade and that it failed to make its interna-       tariffs of the various carriers on their respec-
Aeroplan for business class travel with sev-        tional tariff available to him for inspection.      tive legs of the journey. The segment at issue
eral Star Alliance carriers, including Air Can-     Air Canada submitted that the ticket was            was operated by Spanair and not by Air Can-
ada and Spanair, from Toronto through sev-          purchased through an Aeroplan “Star Alli-           ada, and at the time of travel, Spanair was not
eral European cities, returning through New         ance Rewards” ticket that consisted of vari-        a licensee under the Canada Transportation
York to Toronto. The passenger was unhappy          ous flights with different Star Alliance part-      Act. Accordingly, the Agency did not have
that Spanair allegedly downgraded him on            ners; thus Aeroplan’s terms and conditions          jurisdiction to order relief against Spanair,
the Spanair flight from Ibiza to Madrid,            applied to the ticket and Air Canada’s inter-       even if the passenger had complained against
Spain from business class to “Avant” class          national tariff only applied to the segment         it. The Agency also held that as Aeroplan is
(the difference being the middle seat is empty      operated by Air Canada (New York to To-             neither a licensee nor an air carrier for the
in business class).                                 ronto). Air Canada submitted that the passen-       purposes of the CTA and the ATR, it does
                                                    ger failed to demonstrate that its rules are        not fall under the jurisdiction of the Agency.
The passenger filed a complaint with the                                                                The Agency also held that Air Canada made
Agency against Air Canada for the carrier’s         unjust or unreasonable or that it engaged in
                                                    unjust discrimination and that, in any case, its    its tariff available to the passenger through its
refusal to compensate him for Spanair’s al-                                                             website and at the airport.
leged failure. He argued that Air Canada’s          international tariff is not applicable to the
                                                    complaint.                                                               Kouznetchik v. Air Canada.,
international tariff covered all segments of                                                                 Decision No. 82-C-A-2009 (March 10, 2009)
his ticket and that it contravened several sec-     In dismissing the passenger’s argument that
tions of the ATR. Specifically, he argued that      Air Canada is responsible for the actions of
Air Canada had failed to set out its terms and      Aeroplan, the Agency reviewed detailed
conditions of carriage concerning substitution      information about the history and corporate
of a different class of service in its interna-     structure of Aeroplan and found that Aero-
tional tariff, that it did not properly apply the   plan is indeed an independent entity. It found

Reasonable terms, continued
(Continued from page 1)
                                                    tariff was reasonable when these concerns           that the Agency failed to conduct a proper
                                                    were weighed against the inconvenience to           balancing on the standards that it had itself
pet. The Agency noted that in order for the         the passenger. Rather than putting all factors      previously set out. The Court found that the
change in tariff to be a “viable alternative” it    on the scale, including the disadvantages to        Agency failed to weigh Air Canada’s reasons
must “not entail significant disadvantages for
                                                    Air Canada as a result of continuing to carry       for the tariff change as against the inconven-
persons traveling with domestic pets.”              pets and their kennels under 70 pounds as           iences to the passenger.
The Agency did not consider the commercial          checked baggage, as well as the potential           The Court’s decision is an important one for
and operational concerns put forward by Air         benefits to other passengers due to streamlin-      air carriers from a broader legal perspective.
Canada. Nor did the Agency consider the             ing policies, the Agency determined the mat-        As the Court stated during oral argument,
argument by Air Canada that, while some             ter in absolute terms. Simply by finding that       while the Agency is entitled to deference as a
passengers may have been disadvantaged by           Mr. Griffiths would be inconvenienced, the          specialized tribunal, this deference also has to
the increase in price, advantages would ac-         Agency considered that the scales had been          be earned by the demonstration of proper
crue to other passengers as a result of this        tipped in the passenger’s favour. Such an           reasoning. A decision where inconvenience
policy, including increased frequency of            approach, Air Canada argued, was contrary           to the passenger alone is considered the basis
flights using smaller-sized aircraft which          to the very test that the Agency itself had set     for declaring a tariff unreasonable clearly
would provide service to smaller communi-           out. Air Canada also argued that this ap-           should not stand. The effects and operation of
ties, the streamlining of the cargo pricing         proach was incorrect on a common law of             tariff terms are always contextual, a give-
regime to benefit owners of larger pets which       contract analysis, wherein the obtaining of         and-take between the air carrier and the par-
already had to be shipped cargo, the simplifi-      advantages by one side while causing disad-         ticular passenger affected by certain terms, as
cation of operations, and having all pets han-      vantages to the other would not in itself be a      well as the air carrier’s body of passengers as
dled by specialized personnel in the cargo          proper basis on which to invalidate a con-          a whole who are affected by how an air car-
department.                                         tract, and in fact is a common feature of           rier is able to run its operations. The
In its appeal to the Federal Court of Appeal,       many contracts. Such a situation can also be        Agency’s very function and responsibility is
Air Canada argued that the decision made by         found in other air carrier tariffs which have       to engage in this multidimensional weighing.
the Agency was unreasonable and incorrect,          not been invalidated by the Agency, for in-         In this case the Court found, in no uncertain
insofar as the Agency’s purported balancing         stance, in tariffs granting the air carrier dis-    terms, that the Agency failed to fulfill its
was in fact a unilateral assessment of the          cretion to remove and ban disruptive passen-        role.
issues. Air Canada argued that the Agency           gers.
                                                                                                           Air Canada v. Canadian Transportation Agency
failed to consider both whether Air Canada’s        The Federal Court of Appeal agreed with Air                                      and Peter Griffiths,
operational and commercial concerns had a           Canada’s argument. Having examined the                                                2009 FCA 95
rational basis, and whether the change in the       reasons, the Federal Court found it evident

                                                                                                                                        March 2009 | 3
End Of The Line
Early in March, the Supreme Court of Can-           the Supreme Court of Canada, they warrant                    the individual loss will be $6.91 whether the
ada denied an application for leave to appeal       closer examination.                                          shareholder sells for a loss which exceeds
launched by CP Ships and senior officers of         At the heart of the complaint is the decision                $6.91, for a loss of less than $6.91 or for a
that company. The case involves an applica-         of CP Ships to convert from Generally Ac-                    profit.
tion for certification of a national class of       cepted Accounting Principles (GAAP) to                       The proposed class defendants also objected
claimants who allege they have suffered loss        Statutory Accounting Principles (SAP). On                    on the grounds that the application of the
as a result of misleading statements which          August 9, 2004, CP Ships announced that it                   Quebec legislation respecting class actions to
resulted in inflated share prices. In particular,   would have to restate net income as a result                 persons resident outside the province was
the identified class is all persons resident in     of implementing SAP effective January 2004.                  unconstitutional. The Court rejected this
Canada who purchased shares of CP Ships             The examination of its results under SAP                     argument, referring to another recent Supe-
between June 29, 2003 and August 9, 2004            would, the company announced, require                        rior Court decision: Noelia Brito c. Pfizer
and who, at the latter date, still held shares      negative revisions. The complainants allege                  Canada. Justice Barakett, who decided the
purchased in this period.                           that the requirement of these negative revi-                 present case, stated that he entirely agreed
An application for certification of this class      sions was known as early as January of 2003                  with the reasoning in Pfizer and adopted as
was considered by the Superior Court of the         and should have been revealed at that time.                  his own the analysis therein set out.
Province of Quebec in the summer of 2008.           As in any proposed class action, the claim-                  In the Pfizer, Justice Grenier undertook a
Certification was granted and the defendants        ants were required to demonstrate that the                   lengthy examination of the issue of extraterri-
then sought leave to appeal to the Supreme          claims of individual members of the class                    torial application and concluded that there
Court of Canada. As that leave application          would raise identical or similar issues of law               can be no general rule precluding such appli-
has been denied, the decision of the Superior       or fact. The defendants resisted certification               cation. Some dozen Quebec cases have al-
court is final and the matter will proceed as a     on the basis that there was no sufficient simi-              lowed the certification of pan-Canadian
class action.                                       larity in the legal and factual issues. Pre-                 classes and the legislatures of some provinces
A refusal to grant leave to appeal is not,          sumably—although this is not explicitly                      have specifically recognized the possibility of
strictly, an affirmation of the decision below.     stated in the reasons—they argued that the                   extraterritorial application. Although it is true
However, the outcome of this leave applica-         court would have to consider the situation of                that there may be problems with respect to
tion does give some additional support to the       each individual purchaser to determine                       enforcement and that the law applicable to
line of reasoning accepted in the Superior          whether he had been misled and the financial                 residents of one province may be different
Court.                                              consequences for him of any wrong he thus                    from that applicable to another province,
The points on which that court most insisted        suffered.                                                    extraterritorial application will be appropriate
were all related to the propositions that any       The court rejected this argument and af-                     so long as there is a “real and substantial
wrong committed was suffered by the market          firmed that if a wrong was committed, it was                 connection” between the jurisdiction whose
as a whole and that the damage suffered by          committed on the market as a whole and that                  statute is to be applied and the persons who
individuals would differ only in so far as they     the result would be a calculable damage                      may be subject to the proceedings. On the
held more or fewer shares. The court also           which would be exactly the same for each                     basis of this analysis, Justice Barakett con-
made reference to a recent decision on the          share purchased. Once this damage per share                  cluded that a pan-Canadian class was appro-
issue of extraterritorial application of class      is established, it does not matter, the Court                priate.
action legislation and adopted the reasoning        concluded, when the individual purchaser                                                  Nguyen c. CP Ships Ltd.
of that decision. As the reasons for decision       sells his share or for what price. In the hypo-                                                 2008 QCCS 3817
now have something like the imprimatur of           thetical case of a damage-per-share of $6.91,

Gerard Chouest                                      James P. Thomson                                             Carlos Martins
(416) 982-3804                                      (416) 982-3805                                               (416) 982-3808                                                  
Tae Mee Park                                        Ioana Bala
(416) 982-3813                                      (416) 982-3810                       

                   33 Yonge Street Suite 201,       Our transportation law group represents the interests of carriers in litigation of personal injury, property loss and
                   Toronto, Ontario, CANADA         commercial disputes. We also advise on insurance and regulatory issues and represent clients before the courts,
                                                    agencies, tribunals and authorities with important jurisdiction over transportation undertakings.
                   Phone: 416 982-3800
                   Fax: 416 982-3801                These Transportation Notes are intended to provide general information and do not constitute legal advice.
                                                    Readers should consult legal counsel on matters of interest or concern raised by anything in this publication.
                                                    We welcome your comments and suggestions.

                                                                                                                                                      March 2009 | 4

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