# Decision No. 291-C-A-2011

August 2, 2011

August 2, 2011

COMPLAINT by Gábor Lukács against Air Canada relating to baggage liability appearing in Rule 55(C)(7) of Air Canada’s International Passenger Rules and Fares Tariff, CTA(A) No. 458.

M4120-3/09-07287

## Introduction and Issues

[1] Gábor Lukács filed a complaint with the Canadian Transportation Agency (Agency) alleging that the baggage liability provision in Rule 55(C)(7) of Air Canada's International Passenger Rules and Fares Tariff, CTA(A) No. 458 (Tariff) is contrary to the Convention for the Unification of Certain Rules for International Carriage by Air signed in Montréal on May 28, 1999 (Montreal Convention) and the Convention for the Unification of Certain Rules Relating to International Carriage by Air signed at Warsaw on October 12, 1929 (Warsaw Convention). Mr. Lukács also alleges that the application of the provision is unclear. Mr. Lukács submits that Rule 55(C)(7) should be disallowed.

[2] In Decision No. LET-C-A-29-2011, the Agency made preliminary findings with respect to the clarity of the provision at issue, as well as whether it was unjust and unreasonable. The Agency provided Air Canada and Mr. Lukács with the opportunity, by way of a show cause proceeding, to address these preliminary findings.

[3] During the course of the initial pleadings on the complaint, Air Canada proposed a revised tariff provision to exclude from Rule 55(C)(7) the phrase "fragile or perishable articles". In response to Decision No. LET-C-A-29-2011, and to address the issue of clarity, Air Canada proposed a further revised tariff provision, as set out in the Appendix.

[4] The issues to be determined are whether the existing and proposed Rule 55(C)(7) are unjust and unreasonable, and whether the most recent proposed revised Rule 55(C)(7) is clear.

[5] In this Decision, the Agency will provide its determination on the preliminary findings set out in Decision No. LET-C-A-29-2011 based on the submissions made by both parties on the initial complaint filed by Mr. Lukács and in response to the show cause.

## Final Decision

What flexibility does an air carrier have to vary its terms and conditions of carriage depending on the origin and destination of travel and is it reasonable for Air Canada to exempt itself from liability on itineraries where neither the Warsaw Convention nor the Montreal Convention applies?

### The Agency's preliminary findings

[6] The Agency made the following preliminary findings in Decision No. LET-C-A-29-2011:

• in striking the balance between passengers' rights and the statutory, commercial and operational obligations of Air Canada, it is reasonable to apply the principles of the Montreal Convention to carriage involving itineraries to which neither the Montreal Convention nor the Warsaw Convention applies;
• in striking the aforementioned balance, it is reasonable, as a basic principle, that all consumers be afforded protection against lost, damaged or delayed baggage;
• with regard to the loss of checked baggage, the existing tariff provision and the proposed revision to Rule 55(C)(7), as they relate to liability for loss of baggage, are inconsistent with the principles of Article 17(2) of the Montreal Convention and are unreasonable;
• the existing and proposed Rule 55(C)(7), as they relate to liability for delay in delivery of certain types of articles in checked baggage, are unreasonable, as they have the effect of relieving the carrier from liability for damages caused by delay regardless of the particular circumstances, contrary to the principle of Article 19 of the Montreal Convention;
• as the existing and proposed Rule 55(C)(7) are not formulated in a manner that establishes a causal link between the damage to baggage and an inherent defect, quality or vice of the baggage, and are not consistent with the principles of Article 17(2) of the Montreal Convention, Rule 55(C)(7), as it relates to liability for damage to certain types of articles of baggage, is unreasonable; and,
• as a basic principle, consumers should be afforded protection against lost, damaged or delayed baggage irrespective of the itinerary that applies to their travel. Accordingly, existing and proposed Rule 55(C)(7) do not provide passengers with reasonable liability coverage.

### Submissions in response to the show cause

[7] Air Canada submits that its clarified Rule 55(C)(7) is just and reasonable as the principle that carriers can exclude their liability, as opposed to only limit it, is well acknowledged in Canadian law. In this regard, Air Canada maintains that sections 107 and 122 of the Air Transportation Regulations, SOR/88-58, as amended (ATR) specifically provide for a carrier's right to exclude itself from liability in domestic and international tariffs, respectively.

[8] Air Canada submits that in Decision No. 378-C-A-2000, Witvoet v. Bradley Air Services Limited and Decision No. 319-C-A-2007, Saleem v. Air Canada, the Agency acknowledged the validity of domestic tariff rules that exclude carrier liability for specified items, provided the rules are clear. Air Canada further submits that it would be an error of law for the Agency to contradict its previous findings and narrowly impose the principles of the Conventions for itineraries for which they do not apply.

[9] Air Canada maintains that the Agency should be consistent and apply the principles that apply to the rules of domestic carriage when assessing the validity of rules pertaining to international travel which are not subject to either the Montreal Convention or the Warsaw Convention.

[10] Air Canada asserts that the Agency cannot import part of a Convention regime when no Convention applies, as the courts of various jurisdictions have held that a Convention is a comprehensive regime that has to be construed as a whole. In support of this assertion, Air Canada refers to the cases of Sidhu v. British Airways Plc. [1997] 1 All E.R. 193 and El Al Israel Airlines, Ltd. v. Tseng 525 U.S. 155 (1999).

[11] Air Canada further states that restricting its right to exclude liability without providing the legislative protection of exclusive jurisdiction, time limits and notification obligations would be unreasonable and unjust.

[12] Air Canada also maintains that the Agency's Web site acknowledges that a carrier has a clear right to exclude its liability for certain articles, provided these articles are clearly identified in tariff rules. Air Canada submits that the content of the Agency's Web site accurately reflects the status of the law as well as previous Agency decisions regarding the application of domestic tariff rules.

[13] In addition, Air Canada submits that its proposed rule is consistent with tariff rules of other carriers, including Delta Air Lines, Inc.'s domestic rules and the rules applied by American Airlines, Inc. and British Airways Plc.

[14] Mr. Lukács submits that Rule 55(C)(7) has the effect of a blanket exclusion of liability which purports to relieve Air Canada from all liability with respect to loss, damage and delay of baggage containing certain items. He maintains that the Rule fails to take into consideration the guiding principles set out in paragraphs 36 to54 of Decision No. LET-C-A-29-2011.

[15] Mr. Lukács asserts that Air Canada misstates the law concerning carriers' rights to exclude themselves from liability in their tariffs. Mr. Lukács submits that sections 107 and 122 of the ATR concern the content and form of tariffs, and do not provide any additional rights to exclude liability. He argues that these sections are not relevant to, and provide no authority as to, the reasonableness of tariff rules.

[16] Mr. Lukács submits that exclusions must conform to all statutory requirements, including provisions of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA), and the ATR, and that, in particular, liability exclusions must be just and reasonable.

[17] Mr. Lukács maintains that Air Canada misrepresents the law concerning Decision No. 378-C-A-2000. He submits that the Agency never considered the reasonableness of Bradley Air Services Limited's tariff provisions in that Decision, as the case turned on the question of clarity of the tariff provisions. Mr. Lukács argues that Decision No. 227-C-A-2008, McCabe v. Air Canada, more properly reflects the current state of the law.

[18] Mr. Lukács argues that Air Canada also misrepresents the law concerning Decision No. 319-C-A-2007. Mr. Lukács states that, in that case, the Agency was considering whether Mr. Saleem was entitled to compensation for the loss of his baggage and, if so, in what amount, and whether Air Canada properly applied the terms and conditions relating to baggage liability as set out in its domestic tariff. Mr. Lukács submits that Decision No. 319-C-A-2007 did not address the issue of reasonableness.

[19] With respect to Air Canada's submission that its "clarified rule" is consistent with tariff rules of other carriers, Mr. Lukács submits that Air Canada refers to domestic tariff rules of three foreign airlines that are not subject to the regulatory powers of the Agency. Mr. Lukács argues that even if these tariffs were subject to the Agency's regulatory powers, it does not justify permitting Air Canada to maintain unreasonable tariff provisions.

[20] Mr. Lukács disagrees with Air Canada's arguments that the Agency does not have a right to consider the Montreal Convention as a persuasive authority for reasonableness of tariff provisions on itineraries where a Convention does not apply.

[21] Mr. Lukács submits that the Agency correctly considered the Montreal Convention as a persuasive authority and source for principles for determining whether the impugned tariff provision was reasonable. Mr. Lukács states that his position is supported by several Agency decisions. In this regard, he indicates, for example, that in Decision No. 483-C-A-2010, Lukács v. WestJet, the Agency ordered WestJet to raise its limit of liability applicable to domestic service to the amount prescribed by the Montreal Convention. WestJet sought leave to appeal the Agency's decision to the Federal Court of Appeal and argued, just as Air Canada has in this case, that the Agency cannot import part of the Convention regime where the Convention is not applicable. Mr. Lukács adds that the Federal Court of Appeal denied WestJet's application for leave to appeal.

[22] Mr. Lukács submits that the current state of the law in Canada fully supports the Agency's decision to consider the basic principles of liability underlying the Montreal Convention in determining the reasonableness of tariff provisions on itineraries where a Convention does not apply.

### Analysis and finding

[23] As noted above, Air Canada has submitted a revised Rule 55(C)(7), as set out in the Appendix, for consideration by the Agency. However, for the purpose of an assessment of reasonableness, the substance of the Rule, as so revised and clarified, is the same as the existing Rule to which Mr. Lukács has objected. Therefore, the Agency's following analysis, with respect to reasonableness, is equally applicable to all versions of Rule 55(C)(7).

[24] It is clear that the effect of Rule 55(C)(7) as set out in the versions submitted by Air Canada is to create a blanket exclusion of liability which relieves Air Canada from all liability regarding loss, damage and delay of baggage containing certain items.

[25] The Agency, in Decision No. LET-C-A-29-2011, provided Air Canada with the opportunity to respond to the Agency's preliminary finding that the exclusion from liability as set out in the existing and proposed Rule 55(C)(7) is unreasonable.

[26] In Decision No. 456-C-A-2009, Wyant v. Air Canada, the Agency applied a balancing test, previously established in Decision No. 746-C-A-2005, Black v. Air Canada, to assess whether a term or condition of carriage is "unreasonable" within the meaning of section 111 of the ATR. The test requires that a balance be struck between the rights of passengers to be subject to reasonable terms and conditions of carriage, and the particular air carrier's statutory, commercial and operational obligations.

[27] The terms and conditions of carriage are set out by an air carrier unilaterally without any input from passengers. The air carrier sets its terms and conditions of carriage on the basis of its own interests, which may have their basis in purely commercial requirements. There is no presumption that a tariff is reasonable.

[28] When balancing the passengers' rights against the carrier's obligations, the Agency must consider the whole of the evidence and the submissions presented by both parties and make a determination on the reasonableness or unreasonableness of the term or condition of carriage based on which party has presented the more compelling and persuasive case.

[29] The Agency has reviewed Air Canada's submissions and is not convinced, for the reasons set out below, that the existing and proposed revised tariff provisions are reasonable.

[30] Air Canada asserts that Rule 55(C)(7) is just and reasonable, as the principle that carriers can exclude their liability, as opposed to only limit it, is well acknowledged in Canadian law. In this regard, Air Canada refers to sections 107 and 122 of the ATR.

[31] In addition, Air Canada maintains that Decision Nos. 378-C-A-2000 and 319-C-A-2007 acknowledge the validity of domestic tariff rules that exclude carrier liability for specified items, provided the rules are clear.

[32] Mr. Lukács submits that Air Canada misstates the law concerning a carriers' rights to exclude themselves from liability in tariffs.

[33] Although it is accepted by the Agency that air carriers have the flexibility to establish their terms and conditions of carriage, this flexibility is subject to any Convention which may apply and the carrier's terms and conditions must be clear, just and reasonable and be otherwise consistent with the ATR and any other applicable legislative and regulatory instruments.

[34] With respect to the application of sections 107 and 122 of the ATR, these sections focus on the content and form of tariffs, and do not relate to the reasonableness of tariff provisions. Subparagraphs 107(1)(n)(xi) and 122(c)(xi) of the ATR specifically require that a carrier clearly state in its tariff the carrier's policy relating to exclusions from liability respecting passengers and goods. As to reasonableness, a carrier's policy is subject to other regulatory and legislative provisions. In particular, subsection 111(1) of the ATR and subsection 67.2(1) of the CTA require, respectively, that terms and conditions applicable to international carriage be just and reasonable, and that terms and conditions for domestic carriage not be unreasonable or unduly discriminatory. Essentially, the provisions related to clarity and reasonableness are distinct and impose different statutory obligations on the carrier with regard to the validity of its tariff. In this regard, the Agency accepts Mr. Lukács' submissions that sections 107 and 122 of the ATR are not relevant to the issue of whether the existing or proposed revised Rule 55(C)(7) is just and reasonable.

[35] As to Air Canada's submission respecting Decision Nos. 378-C-A-2000 and 319-C-A-2007, the Agency agrees with Mr. Lukács that these decisions do not support Air Canada's position that past Agency determinations support the exclusions from liability set out in the subject tariff provision.

[36] In Decision No. 378-C-A-2000, the Agency was merely addressing the clarity of the carrier's domestic tariff provisions respecting, among other matters, exclusions from liability.

[37] In Decision No. 319-C-A-2007, the Agency determined whether Mr. Saleem was entitled to compensation for the loss of his baggage and whether Air Canada properly applied the terms and conditions relating to baggage liability appearing in its tariff. As was the case for Decision No. 378-C-A-2000, the Agency was only reviewing the clarity of Air Canada's tariff provisions.

[38] Contrary to Air Canada's submissions, neither Decision No. 378-C-A-2000 nor Decision No. 319-C-A-2007 addresses the issue of reasonableness. As stated above, the sections of the ATR which address clarity and reasonableness are distinct. Accordingly, the cases that Air Canada cites in support of its position are not relevant to a reasonableness consideration pursuant to section 111 of the ATR and subsection 67.2(1) of the CTA.

[39] As stated by Mr. Lukács, the Agency, in numerous decisions respecting domestic cases has looked to the principles of the Montreal Convention for guidance in assessing whether a particular tariff provision relating to liability is reasonable, the most recent being Decision No. 483-C-A-2010. In that Decision, the Agency considered WestJet's response to Decision No. 313-C-A-2010 wherein the Agency directed WestJet, in part, to propose a limit of baggage liability for domestic carriage higher than the limit of $250 per passenger, which WestJet then applied. The Agency advised WestJet, in Decision No. 313-C-A-2010, that if the Agency were to determine that WestJet's proposed limit was unreasonable, the Agency would require WestJet to apply the same limit of liability as that required under the Montreal Convention. In Decision No. 483-C-A-2010, the Agency concluded that WestJet had failed to submit compelling and persuasive arguments in support of its proposed limit of liability of$1,000 for the domestic carriage of baggage. Accordingly, the Agency found that WestJet's proposed limit of liability was unreasonable, and required WestJet to revise its tariff to provide for a limit of liability equivalent to that set out in the Montreal Convention. As noted by Mr. Lukács, a subsequent application by WestJet for leave to appeal Decision No. 483-C-A-2010 was denied by the Federal Court of Appeal.

[40] In the matter at hand, which concerns travel involving countries that are not parties to the Montreal Convention and Warsaw Convention, the Agency expressed the preliminary opinion that consumers should be afforded protection against lost, damaged or delayed baggage irrespective of whether or not the Montreal Convention or Warsaw Convention applies. The Agency indicated that where there is a lack of Convention protection, it is just and reasonable for the principles of the Montreal Convention to apply to such travel.

[41] Air Canada asserts that the Agency cannot import part of the Convention regime when no Convention applies, as courts of various jurisdictions have held that the Convention is a comprehensive regime that has to be construed as a whole. Further, Air Canada submits that it would be unjust and unreasonable if the Agency were to restrict the carrier's right to exclude itself from liability without providing the legislative protection of exclusive jurisdiction, time limits and notification obligations.

[42] Air Canada argues that the Montreal Convention is a comprehensive regime that is to be construed as a whole. Air Canada refers to the cases of Sidhu v. British Airways Plc. [and El Al Israel Airlines, Ltd. v. Tseng for support of that principle. However, the Agency is not asking or requiring that Air Canada implement the entire scheme of the Montreal Convention, but rather that certain of Air Canada's tariff provisions reflect some of the principles set out in the Montreal Convention relating to liability which the Agency has determined are reasonable.

[43] The tariff wording proposed by the Agency in Decision No. LET-C-A-29-2011 does not preclude Air Canada from refusing compensation for the loss, damage or delay in delivery of certain articles, as Air Canada contends. However, it defines for Air Canada reasonable limitations on exemptions from liability.

[44] Air Canada also argues that it would be unjust and unreasonable to restrict its ability to exempt itself from liability without other provisions, such as time limits and notification obligations, being applicable. However, the tariff wording proposed by the Agency does not preclude Air Canada from applying such other provisions, provided that they meet the requirements of the ATR, including clarity and reasonableness.

[45] Air Canada further asserts that its proposed Rule 55(C)(7) is consistent with the domestic tariff rules of Delta Air Lines, Inc. and the tariff rules applied by American Airlines, Inc. and British Airways Plc. Air Canada is therefore suggesting that the Agency should not impose tariff rules inconsistent with industry practice. Mr. Lukács points out that the reference by Air Canada is to domestic tariff rules of a foreign carrier which are not subject to the regulatory oversight of the Agency, and argues that even if these tariffs were subject to the Agency's regulatory powers, it does not justify permitting Air Canada to maintain unreasonable tariff provisions. The Agency accepts the position of Mr. Lukács. Each jurisdiction has its own regulatory requirements and obligations which its carriers must follow that may be distinct from those of Canadian legislation and although those requirements and obligations may have some probative value, the Agency, in this case, considers reference to those other tariff rules as not being persuasive.

[46] With respect to Air Canada's submission that the Agency's Web site accurately reflects the status of the law and previous Agency determinations and should be relied on by the Agency, the material appearing on the Web site is provided solely for information purposes and may not always reflect the most recent determinations made by the Agency.

[47] In determining whether a tariff provision is just and reasonable, the Agency must strike a balance between an air carrier's statutory, commercial and operational obligations and the rights of passengers. In its response to the show cause, Air Canada was given an opportunity to provide any operational or commercial reasons as to why the Agency should not determine that the tariff provision at issue should not be found to be unjust or unreasonable. However, Air Canada did not do so. Accordingly, in assessing the above balance between Air Canada and its passengers, the Agency is of the opinion that the right of all international passengers to have an accepted international standard for baggage liability protection is reasonable.

[48] Further, Air Canada did not make any submissions regarding the substitute tariff provision proposed by the Agency in Decision No. LET-C-A-29-2011.

Does the phrase "Subject to the Convention, where applicable" render the tariff provision unclear, thereby contravening paragraph 122(c) of the ATR?

### The Agency's preliminary finding

[49] In Decision No. LET-C-A-29-2011, the Agency found that Rule 55(C)(7) in itself is unclear and that the phrase "Subject to the Convention, where applicable" renders the application of Rule 55(C)(7) unclear.

### Submissions

[50] Air Canada proposes to amend the existing Rule 55(C)(7) to delete the phrase "Subject to the Convention," and substitute it with the phrase "For the exceptional international itineraries where no Convention applies,". The full text of the proposed revised Rule 55(C)(7) is set out in the Appendix.

[51] Mr. Lukács submits that the amended rule addresses his concerns with respect to clarity.

### Analysis and finding

[52] The Agency finds that Air Canada's proposed amendment to existing Rule 55(C)(7) addresses the issue of clarity because it clearly states to which itineraries it applies. However, as a result of the Agency's above finding on unreasonableness, Rule 55(C)(7), although proposed to be amended by Air Canada, cannot stand.

## Conclusion

[53] A Balance Must Be Struck Between the particular air carrier's statutory, commercial and operational obligations and the rights of passengers to reasonable terms and conditions of carriage.

[54] The Agency determines on a case-by-case basis what constitutes reasonable terms and conditions of carriage. The Agency finds that it is reasonable for the principles related to baggage liability established by the Montreal Convention for international carriage to be applied to an itinerary where neither the Montreal Convention nor the Warsaw Convention applies.

[55] In Decision No. LET-C-A-29-2011, the Agency made certain preliminary findings respecting this matter, and provided Air Canada with the opportunity to show cause:

1. why the Agency should not, pursuant to paragraph 113(a) of the ATR, disallow Air Canada's existing Rule 55(C)(7) of the Tariff for being unjust and unreasonable, and therefore contrary to subsection 111(1) of the ATR;
2. why the proposed amendment to Rule 55(C)(7) of the Tariff should not, if it were to be filed with the Agency, be considered unjust and unreasonable and therefore contrary to subsection 111(1) of the ATR; and,
3. why Air Canada should not substitute the following or a similar provision for existing Rule 55(C)(7):

Carrier shall not be liable for the destruction, loss, damage, or delay in delivery of any property which is not acceptable for transportation in accordance with Rules 117 and 118 or for any other loss or damage of whatever nature resulting from any such loss or damage or from the transportation of such property, including damage or delay to perishable items or loss or delay of unsuitably or inadequately packed items, to the extent that the destruction, loss or damage resulted from the inherent defect, quality or vice of the baggage, or, in case of delay, that the carrier, its agents, and servants took all measures that could reasonably be required to avoid the damage or that it was impossible to take such measures. This exclusion is applicable whether the non acceptable property is included in the passenger's checked baggage with or without knowledge of the carrier.

[56] The burden was therefore on Air Canada to demonstrate that it would be unreasonable to apply the principles related to baggage liability of the Montreal Convention for international travel involving countries that have not ratified either the Montreal Convention or the Warsaw Convention.

[57] The Agency has weighed Air Canada's evidence and submissions against the evidence and submissions presented by Mr. Lukács. The Agency finds Mr. Lukács' arguments to be more compelling and persuasive. Furthermore, Air Canada has not provided any reasons with respect to its commercial and operational obligations for the Agency to consider in applying its balancing test.

[58] In light of the foregoing, the Agency concludes that Air Canada has failed to show cause:

1. why the Agency, pursuant to paragraph 113(a) of the ATR, should not disallow existing Rule 55(C)(7) for being contrary to subsection 111(1) of the ATR;
2. why the proposed Rule 55(C)(7) should not, if it were to be filed with the Agency, be considered unjust and unreasonable, and therefore contrary to subsection 111(1) of the ATR; and,
3. why the Agency's proposed tariff provision should not be substituted for the existing Rule 55(C)(7).

[59] Accordingly, the Agency:

• pursuant to paragraph 113(a) of the ATR, disallows Air Canada's existing Rule 55(C)(7) of the Tariff for being unjust and unreasonable, and therefore contrary to subsection 111(1) of the ATR;
• pursuant to paragraph 113(b) of the ATR, orders Air Canada, within 10 days from the date of this Decision, to substitute the following provision for the existing Rule 55(C)(7):

Carrier shall not be liable for the destruction, loss, damage, or delay in delivery of any property which is not acceptable for transportation in accordance with Rules 117 and 118 or for any other loss or damage of whatever nature resulting from any such loss or damage or from the transportation of such property, including damage or delay to perishable items or loss or delay of unsuitably or inadequately packed items, to the extent that the destruction, loss or damage resulted from the inherent defect, quality or vice of the baggage, or, in case of delay, that the carrier, its agents, and servants took all measures that could reasonably be required to avoid the damage or that it was impossible to take such measures. This exclusion is applicable whether the non acceptable property is included in the passenger's checked baggage with or without knowledge of the carrier.

• notes that, in filing the above substitute Rule, Air Canada may choose to add or refer to other provisions of the Tariff relating to such matters as time limits and notification obligations, provided those other provisions meet the requirements of the ATR, including clarity and reasonableness.

## Member(s)

• Geoffrey C. Hare
• John Scott

## APPENDIX

(From Air Canada's submission dated April 8, 2011 in response to Decision No. LET-C-A-29-2011)

To address the Agency's finding, Air Canada proposes to amend existing Rule 55(C)(7) to read as follows (clarified Rule):

For the exceptional international itineraries where no Convention applies, carrier is not liable for loss, damage to or delay in the delivery of [...] money, jewelry, silverware, negotiable papers, securities, or other valuables, business documents, or samples that are included in the passenger's checked baggage, with or without the knowledge of carrier.

Geoffrey C. Hare
John Scott
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