Decision No. 313-C-A-2010

File No. M4120-3/09-04027

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INTRODUCTION AND ISSUE

[1] Gábor Lukács filed a complaint with the Canadian Transportation Agency (Agency) alleging that WestJet's limit of liability of $250 per passenger, per incident for damage to, or loss or delay of baggage carried between domestic points is unreasonable, and therefore contrary to subsection 67.2(1) of the Canada Transportation Act, S.C. 1996, c. 10, as amended (CTA).

[2] In its Decision No. LET-C-A-51-2010 dated March 29, 2010, the Agency made certain preliminary findings and provided WestJet and Mr. Lukács with the opportunity, by way of a show cause proceeding, to address the Agency's preliminary findings. The Agency also provided WestJet with the opportunity to show cause why the Agency should not order specific actions as set out in the decision, respecting the carrier's limit of liability for the domestic carriage of baggage. The Decision that sets out the submissions and the preliminary findings is attached as an appendix.

[3] The issue to be addressed is whether WestJet has shown cause why the Agency should not determine that the carrier's limit of liability of $250 for the domestic carriage of baggage is unreasonable, and therefore contrary to subsection 67.2(1) of the CTA.

THIS CASE

[4] In this Decision, the Agency will provide its determination on the preliminary findings set out in Decision No. LET-C-A-51-2010, based on the Agency's analysis of the evidence on file in conjunction with the Agency's findings from the previous decision and the pleadings on the show cause.

[5] The Agency will also address the arguments advanced by WestJet that the Agency's preliminary findings depart significantly from previous Agency decisions relating to subsection 67.2(1) of the CTA.

THE BALANCING TEST APPLIED

[6] The test established by the Agency in determining whether a term or condition of carriage is "unreasonable" within the meaning of subsection 67.2(1) of the CTA is set out in Decision No. LET-C-A-51-2010.

FINAL DECISION

Limits of liability applied in other jurisdictions and by the Montreal Convention

The Agency's preliminary finding

[7] The Agency found that WestJet's submission respecting this particular matter is not compelling, and that the weighing of evidence favours Mr. Lukács' position.

Submissions

[8] The parties did not address this matter in their responses to the show cause.

Analysis and finding

[9] As the parties did not provide any response to this, the Agency, based on its analysis of this particular issue as set out in Decision No. LET-C-A-51-2010, finds that WestJet has not provided any compelling evidence and that the weighing of evidence favours Mr. Lukács' position that, in considering the reasonableness of WestJet's domestic limit of baggage liability, it is appropriate to take into account the limits existing in other jurisdictions and the limit of baggage liability required by the Montreal Convention.

The harm to be remedied

The Agency's preliminary finding

[10] The Agency found that WestJet's arguments are not persuasive, and that the carrier did not adequately demonstrate why its statutory, commercial and operational obligations require that WestJet maintain its current limit of baggage liability.

Submissions

[11] WestJet submits that, to date, there has been no evidence that passengers travelling domestically regularly check personal property valued at more than $250. The carrier points out that a review of the Agency's decisions fails to reveal any previous complaints alleging that WestJet's limit of liability for the domestic carriage of baggage is unreasonable.

[12] WestJet maintains that a higher limit of liability will make the carrier vulnerable to dishonest passengers who embellish the value of the contents of their baggage. WestJet suggests that although Air Canada may be exposed to the same embellishment, the carrier's different cost structure allows it to better absorb the additional liability limit.

[13] Mr. Lukács maintains, given the data filed by WestJet, which indicate that approximately 25 percent of claims for compensation involved settlements in excess of $250, that the disallowance of the carrier's current limit of liability will merely synchronize WestJet's tariff with practice, and that the volume of complaints concerning a particular tariff provision is irrelevant as to whether the provision is reasonable. With respect to the latter point, Mr. Lukács suggests that WestJet has been successful in convincing passengers that the compensation it is offering exceeds that which may be gained by filing a formal complaint.

[14] With respect to WestJet's assertion that it will be in a vulnerable position should it be required to increase its limit of baggage liability, Mr. Lukács notes that the carrier has failed to file any evidence to quantify the additional cost that it would incur as a result of a higher limit.

[15] Mr. Lukács submits that WestJet has failed to provide evidence to demonstrate that disallowing or substituting the carrier's limit of liability will negatively affect WestJet's statutory, commercial and operational obligations.

Analysis and findings

[16] With respect to WestJet's assertion that, given that the Agency has not received any previous complaints concerning the carrier's limit of baggage liability, there is no evidence that the carrier's limit of liability is unreasonable, the Agency is of the opinion that the absence of previous complaints is not indicative of the reasonableness of a term and condition of carriage. In Decision No. LET-C-A-51-2010, the Agency indicated that it was of the opinion that the low volume of complaints relating to a particular matter may not necessarily be a determining factor as to whether a certain term and condition of carriage is unreasonable. The Agency noted that the data filed with the Agency by WestJet respecting the compensation tendered by the carrier in response to baggage claims over the five-month period August 2009 – December 2009 reveal that of the 241 claims filed during the reported period, 61 involved compensation exceeding WestJet's limit of liability of $250, with the highest amount being $1,450.40. The Agency stated that WestJet's apparent willingness, at times, to compensate passengers in amounts that exceed the limit set out in the carrier's tariff may affect the number of complaints relating to such limit.

[17] With respect to WestJet's argument that there is no evidence to indicate that passengers travelling domestically check baggage valued at more than $250, the evidence submitted by WestJet in the form of data relating to compensation tendered by the carrier over the period August 2009 – December 2009 suggests that for at least 25 percent of the claims filed, the value of baggage may have exceeded $250.

[18] With respect to WestJet's contention that a higher limit of liability may encourage dishonest passengers to embellish claims, the Agency does not find this argument to be compelling as, without supporting rationale, such argument is based on a presumption that passengers are acting in bad faith. If WestJet has a concern in this respect, it may introduce various means in an effort to disqualify claims that may be ill-founded, such as requiring reasonable proof to demonstrate that the expenses claimed for the damage to or loss of baggage, or delay in delivery of baggage, are legitimate. By such means, the amount of compensation tendered to a passenger may not automatically reflect the maximum liability for which WestJet's tariff provides.

[19] The Agency finds that WestJet's submission respecting this particular matter is not compelling, and that the weighing of evidence favours Mr. Lukács' position that a limited number of complaints respecting a term and condition of carriage does not necessarily suggest that the term and condition of carriage is reasonable.

Limits of liability applied by other domestic carriers

The Agency's preliminary finding

[20] Despite WestJet's assertion that the low volume of complaints respecting baggage suggests that there is no systemic problem that requires to be addressed, the Agency found that WestJet's submission respecting this particular matter is not convincing.

Submissions

[21] WestJet asserts that the sample of carriers set out in Decision No. LET-C-A-51-2010 is skewed towards carriers that have higher limits of liability than WestJet, and that Air Canada's limit of liability of $1,500 differs markedly from that of other domestic air carriers. WestJet submits that there are numerous carriers that have limits that are comparable to it, including Air Labrador, CalmAir, Hawkair and Pacific Coastal Airlines. WestJet argues that its limit of liability cannot be considered unreasonable given the limits applied by the vast majority of carriers offering domestic services. WestJet maintains that, given that there are several modes of transportation routinely used by Canadians, and that the CTA encourages a multi-modal approach to the regulation of the transportation network, the Agency should consider other modes of transportation in determining what constitutes a reasonable limit of liability for the domestic carriage by air of baggage. In this respect, WestJet notes that rail operators, such as Ontario Northland ($100/bag; 2 bag maximum) and VIA Rail Canada Inc. ($375/children; $750/adult; $250 specified items), and the bus operator, Greyhound Canada ($250), apply limits of liability that are comparable to the limit applied by WestJet.

[22] WestJet notes that it does not provide less overall protection to passengers than that provided by other carriers that have different limits of liability than WestJet. The carrier submits that it has chosen to focus on other areas to enhance the customer experience, such as those set out in "The WestJet Care-antee".

[23] Mr. Lukács states that WestJet's submission respecting limits applied by other carriers is misleading in that Ontario Northland's limit applies to carry-on baggage, and not to baggage placed in the care of the carrier, and that, for a minimal charge, Greyhound Canada allows passengers to declare excess valuation up to a limit of $1,000. Mr. Lukács maintains that the air carriers cited by WestJet do not represent genuine competition because the overlap between these carriers' networks and WestJet's network is minimal, if any. Mr. Lukács submits that WestJet's limit of liability should not be considered to be reasonable simply because it is comparable to the limits applied by other carriers, which limits are unreasonably low.

Analysis and finding

[24] It is WestJet's position that the Agency's preliminary finding that the carrier's limit of baggage liability is unreasonable is incorrect as the finding fails to consider the lower limits applied by the vast majority of other domestic air carriers, and by certain rail and bus providers. Mr. Lukács questions whether the carriers cited by WestJet as having lower limits represent genuine competition to WestJet, and submits that information provided by WestJet respecting the limits applied by Ontario Northland and Greyhound Canada is misleading.

[25] While WestJet has identified examples of the limits applied by other domestic carriers, it has not provided any persuasive arguments to support its position that its limit of liability cannot be considered unreasonable. In this respect, the Agency agrees with Mr. Lukács' submission that WestJet's limit of liability should not be considered to be reasonable simply because it is comparable to the limits applied by other carriers, given that these very limits may be unreasonably low.

[26] In addition, WestJet has failed to establish that the air carriers to which it has referred, and which have limits of baggage liability that are lower than WestJet's, represent significant competition over WestJet's network, a factor that could have been considered by the Agency in making its determination. The Agency is aware that WestJet's primary domestic competitor on most of the carrier's routes, namely, Air Canada, applies a maximum limit of $1,500 for the domestic carriage of baggage, with a provision for excess valuation to a maximum of $2,500.

[27] With respect to WestJet's assertion that the Agency should consider the limits of liability applied by other modes of domestic transport, and specifically, the examples provided by WestJet in support of its position, the Agency is of the opinion that the information provided by the carrier is of limited value as this information, as noted by Mr. Lukács, does not fully reflect the liability assumed by the carriers cited by WestJet. As such, the Agency discounts WestJet's argument in this particular respect.

[28] Finally, WestJet submitted that controlling the number of baggage claims and the liability associated with those claims is one of the means by which WestJet remains profitable. While the objective of achieving profitability is appropriate, the Agency does not believe that this objective relieves an air carrier from the legislative requirement that the carrier apply reasonable terms and conditions of carriage. To hold otherwise would have the effect of gutting subsection 67.2(1) of the CTA.

[29] The Agency finds that WestJet's submission respecting this particular matter is not compelling, and that the weighing of evidence favours Mr. Lukács' position that WestJet's comparison of its limit of liability to that of other carriers is not persuasive given that the limits applied by other carriers may themselves be unreasonable.

Access to tariffs and the availability of insurance

The Agency's preliminary finding

[30] The Agency found that WestJet's submission concerning this particular matter was less persuasive than that of Mr. Lukács.

Submissions

[31] The parties did not address this matter in their respective submissions relating to Decision No. LET-C-A-51-2010.

Analysis and finding

[32] As the parties did not provide any further submissions in response to this, the Agency, based on its analysis of this particular issue as set out in Decision No. LET-C-A-51-2010, finds that WestJet's submission respecting this particular matter is less persuasive than that of Mr. Lukács that the accessibility to tariffs is irrelevant given that the terms and conditions of carriage set out in the tariffs are imposed on passengers.

Commercial obligations

The Agency's preliminary finding

[33] The Agency found that WestJet had not presented any persuasive evidence to justify the carrier's current limit of baggage liability of $250.

Submissions

[34] WestJet did not address this particular matter in answering Decision No. LET-C-A-51-2010.

[35] Mr. Lukács submits that WestJet has failed to provide evidence to demonstrate that disallowing or substituting the carrier's limit of liability will negatively affect WestJet's statutory, commercial and operational obligations.

Analysis and finding

[36] In Decision No. LET-C-A-173-2009, the Agency posed several questions to WestJet in an effort to obtain information from the carrier, including that of a commercial and financial nature, which would assist the Agency in reaching a decision in this matter. Among these questions were:

[37] WestJet has not explained the rationale for the limit of liability of $250, and has failed to provide any evidence relating to the potential negative financial consequences should the carrier be required to increase its limit of liability, particularly to a level equivalent to the Montreal Convention or that of Air Canada.

[38] In the absence of any persuasive evidence with respect to this particular matter, the Agency finds that WestJet has failed to justify the reasonableness of the carrier's current limit of baggage liability of $250.

Issue arising from WestJet's answer to Decision No. LET-C-A-51-2010

The preliminary finding is a significant departure from the Agency's past decisions relating to complaints filed under subsection 67.2(1) of the CTA

Submissions

[39] WestJet contends that the Agency's preliminary findings in Decision No. LET-C-A-51-2010 run contrary to the Agency's previous decisions relating to subsection 67.2(1) of the CTA that:

Low cost carriers are subject to a different operating environment than legacy carriers, and therefore their conditions of carriage should not necessarily be assimilated with those of legacy carriers

Discounted fares are subject to more onerous restrictions.

[40] WestJet maintains that given that it is a low cost carrier offering discounted fares, subsection 67.2(1) of the CTA provides the carrier with some flexibility in placing restrictions on conditions of carriage.

[41] WestJet submits that, in Decision No. 333-C-A-2006, respecting a complaint relating to an increase by Air Canada in the fee for the carriage of an animal in the aircraft, the Agency, in determining that the increase was justified, found that lower cost carriers, such as WestJet, should not necessarily be viewed in the same manner as legacy carriers in that their business models are not the same.

[42] WestJet notes that, in Decision No. 680-C-A-2001, regarding a complaint concerning a prohibition against back-to-back ticketing applied by Air Canada, the Agency considered the fact that lower priced tickets could reasonably be subject to more restrictive conditions.

[43] WestJet submits that, in Decision No. 37-C-A-2002, respecting a complaint relating to a change fee applied by Air Canada to discounted tickets, the Agency acknowledged that it was not unreasonable for air carriers that offer lower fares to impose restrictions on their tickets. WestJet further submits that the Agency came to the same conclusion in Decision No. 38-C-A-2002.

[44] Mr. Lukács maintains that the cases cited by WestJet concern pricing, fees and fare structure, and that these cases can easily be distinguished from the present case, which relates to WestJet's limit of liability arising from the carrier's failure to fulfill contractual obligations. Mr. Lukács submits that the significant difference between the two types of provisions can best be described as the former being a "front end" condition, which regulates the normal course of rendering services, while the latter is a "back end" condition, which governs the rights of passengers after the carrier does not satisfy its contractual obligations.

[45] Mr. Lukács disputes WestJet's contention that it is a low cost carrier, noting that WestJet's domestic fares are usually nearly identical to those of Air Canada. In this respect, he submits that WestJet has not provided any evidence to support its position that it is a low cost carrier, nor has it explained the meaning of the phrase. Mr. Lukács further notes that WestJet can no longer be considered as solely a domestic carrier given that it has expanded its operations to include destinations in North and Central America.

[46] Mr. Lukács maintains that the Agency has never determined that offering a discount fare exempts a carrier from the obligation to apply reasonable terms and conditions of carriage, and that WestJet has not established any logical link between the carrier's current limit of liability and fare structure.

Analysis and finding

[47] The Agency addresses complaints on a case-by-case basis and applies the balancing test set out in Decision No. LET-C-A-173-2009 to the particular facts of each case.

[48] Moreover, the Agency finds that the previous decisions to which WestJet refers are distinguishable from the matter currently before the Agency for the reason set out by Mr. Lukács, specifically, that the cases cited by WestJet concern the reasonability of pricing, fees and fare structure, while the present case relates to WestJet's limit of liability arising from the carrier's losing or damaging baggage. Furthermore, notwithstanding the argument put forward by WestJet regarding the nature of its operations and the availability of discounted fares, these do not relieve the carrier of the requirement to apply reasonable terms and conditions of carriage. In addition, the Agency is aware that all carriers in the United States, so-called "legacy" and "low cost carriers" alike, are subject to a maximum liability of USD 3,300 for the domestic carriage of baggage.

[49] The Agency finds that WestJet's submission respecting this particular matter is not compelling, and that the weighing of evidence favours Mr. Lukács' position that the cases cited by WestJet are distinguishable from the present case, and that the offering of discounted fares does not allow an air carrier to apply unreasonable terms and conditions of carriage.

CONCLUSION

[50] 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.

[51] The Agency determines what constitutes reasonable terms and conditions of carriage on a case-by-case basis. In some cases, what constitutes a reasonable term and condition of carriage can be determined by reference to other statutory provisions, for example, the terms and conditions of carriage established by the Montreal Convention, or to commercially accepted practices. While other limits of liability may be found to be reasonable, the Agency is of the opinion that the limit established by the Montreal Convention for international carriage is also reasonable in the domestic context.

[52] In its Decision No. LET-C-A-51-2010, the Agency made certain preliminary findings respecting this matter, and provided WestJet with the opportunity to show cause why the Agency should not disallow the carrier's limit of liability for the domestic carriage of baggage. The burden was therefore on WestJet to demonstrate that its limit of liability is not unreasonable.

[53] The Agency has weighed WestJet'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 in the determination of the aforementioned balance. Therefore, the Agency finds that WestJet's stated statutory, commercial and operational obligations with respect to the limit of liability for the domestic carriage of baggage do not outweigh the interests of Mr. Lukács and other consumers to be subject to reasonable terms and conditions of carriage.

[54] In view of the foregoing, the Agency concludes that WestJet has failed to show cause why the Agency should not disallow the carrier's domestic tariff provision, providing for a limit of baggage liability of $250, as being unreasonable, and therefore contrary to subsection 67.2(1) of the CTA. Accordingly, the Agency:

1. disallows WestJet's domestic tariff provision, providing for a limit of baggage liability of $250 as being unreasonable, and therefore contrary to subsection 67.2(1) of the CTA ; and
2. directs the carrier, within 20 working days of this Decision, to propose to the Agency a higher limit of liability, with justification for this limit, with a provision allowing the passenger, for a reasonable supplementary charge, to declare excess valuation. Associated with this direction would be the requirement that, prior to travel, WestJet fully disclose to passengers the option of declaring excess valuation, e.g. by setting out the option on tickets/itineraries. WestJet's submission shall be copied, at the same time, to Mr. Lukács, who will have 10 working days to file an answer with the Agency, copied to WestJet. WestJet will then have 5 working days to file a reply with the Agency, copied to Mr. Lukács.

[55] Should the Agency determine that WestJet's proposal is unreasonable, the Agency will require the carrier to apply the same limit of liability as that required under the Montreal Convention.

[56] Pursuant to subsection 28(1) of the CTA, the disallowance referred to above will come into effect coincident with the effective date of a revised tariff provision governing WestJet's limit of liability for the domestic carriage of baggage that is acceptable to the Agency.

Members

• J. Mark MacKeigan
• Geoffrey C. Hare

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DECISION NO. LET-C-A-51-2010

Re: Complaint concerning the limit of liability for baggage applied by WestJet for domestic carriage

This refers to the above-noted complaint dated July 6, 2009 by Gábor Lukács, WestJet's answer dated September 22, 2009, Mr. Lukács' reply dated October 2, 2009, Decision No. LET-C-A-173-2009 dated December 3, 2009 wherein the Canadian Transportation Agency (Agency) posed certain interrogatories to WestJet, the carrier's answers dated December 23, 2009 and January 12, 2010, and Mr. Lukács' replies dated January 2 and February 2, 2010.

SUBMISSIONS

Mr. Lukács alleges that WestJet's limit of liability of $250 per passenger, per incident for damage to, or loss or delay of baggage carried between domestic points is unreasonable, and is therefore contrary to subsection 67.2(1) of the Canada Transportation Act (CTA).

Mr. Lukács submits that the limits of liability applicable to the international carriage of baggage are relevant in determining whether WestJet's limit is reasonable, and notes that the following regimes apply to the carriage of baggage:

• Montreal Convention/European Union: 1000 Special Drawing Rights (approximately Canadian $1800) per passenger
• United States of America (domestic): U.S. $3300 (approximately Canadian $3800)
• Australia (domestic): Australian $1600 (approximately Canadian $1475)
• New Zealand (domestic): New Zealand $1500 (approximately Canadian $1100) for each unit of goods that is lost or damaged
• Japan (domestic): 150000 Yen (approximately Canadian $1800)

Mr. Lukács also submits that Air Canada's domestic limit of baggage liability of $1,500 is reasonable as it conforms with international standards.

WestJet agrees with Mr. Lukács' assertion that the Montreal Convention is useful in considering the matter before the Agency in that parties have access to an adequate account of the liability regime which the Convention imposes, but disagrees with Mr. Lukács' contention that the liability regimes applicable to other jurisdictions are relevant.

WestJet maintains that the reasonableness of a rule must be considered in the context of the entire statutory scheme of which it is a part and the significance of that statutory scheme in the larger context of the system of laws of which it forms a part. WestJet submits that the entire system must be examined to determine how it balances rights and obligations and identifies whether a balance is reasonable. WestJet suggests, for example, that an air carrier would find it reasonable to assume increased liability for baggage in exchange for an unbreakable limit of liability for personal injury. WestJet submits that, in the case of the Montreal Convention, this balance may be examined, but such balance cannot be examined in the case of other legal systems.

With regard to the Montreal Convention, WestJet notes that liability limitations represent one part of numerous rules which define the rights and responsibilities of parties, and that in some instances, the rights and responsibilities favour the passenger, while in other instances, the carrier is favoured. WestJet argues that to select provisions of the Montreal Convention that are particularly favourable to a passenger, while ignoring other provisions of the Convention, would seriously distort the allocation of rights and obligations, which is fundamentally unfair to air carriers. WestJet notes that, although the Carriage by Air Act, which incorporates the Montreal Convention, empowers the Governor-in-Council to apply the Convention to domestic carriage, the Canadian government has elected not to do so.

WestJet maintains that, in fact, there is no harm to be remedied. WestJet submits that, with respect to the processing of baggage, it has taken the operational steps necessary to deliver a quality product which produces a high level of customer satisfaction. In this regard, WestJet asserts that the number of baggage complaints against the carrier is so low as to lead to the conclusion that there is no evidence that any passenger or group of passengers has formed the opinion that WestJet has imposed unreasonable terms of carriage.

WestJet points out that its Web site sets out terms and conditions of carriage, and that passengers enjoy the advantage of consumer protection legislation which gives these passengers access to the carrier's tariffs. WestJet submits that a person always has the option of insuring baggage on commercial terms, or travelling on another carrier. WestJet further submits that it has a commercial obligation to earn a profit for its shareholders, and that it should have the freedom to price its product accordingly.

In Decision No. LET-C-A-173-2009, the Agency listed the limits of liability for the domestic carriage of baggage for certain Canadian carriers, including carriers whose limit of liability exceeds that applied by WestJet, and requested the carrier to comment on these limits, particularly on those which are higher than the limit of liability applied by WestJet. The carriers identified by the Agency were:

• Canadian North ($750 per passenger, with a provision for excess valuation)
• Air Canada ($1,500 per passenger, with a provision for excess valuation)
• Porter Airlines ($1,000 per passenger)
• Bearskin Airlines ($750 per ticket, with a provision for excess valuation)
• First Air ($750 per passenger, with a provision for excess valuation)

In response, WestJet acknowledges that some carriers offer higher limits of liability, but notes that these carriers are not consistently profitable. The carrier maintains that controlling the number of baggage claims and the liability associated with those claims is one of the many ways in which WestJet manages to distinguish itself as one of the most consistently profitable of all air carriers.

With regard to WestJet's comments respecting the relevance of the liability regimes under foreign jurisdictions, Mr. Lukács submits that Canadian courts regularly rely on decisions rendered by courts in the United Kingdom and the United States, without any additional expert evidence as to the law in these countries.

Mr. Lukács notes that foreign carriers offering higher domestic limits of liability have the same commercial imperatives as WestJet, but there is no evidence to suggest that these higher limits have an impact on these carriers' financial viability. Mr. Lukács further notes that, based on his calculations using figures provided by WestJet in its submission and a limit of liability of $1500, the cost to WestJet of increasing its limit to $1500 would be insignificant.

Mr. Lukács maintains that WestJet's comment regarding the availability of its tariff is irrelevant given that the contract of carriage between the carrier and passenger is not a result of free bargaining, but is imposed on passengers. Mr. Lukács opines that WestJet's submission that passengers have the option of choosing another carrier is also irrelevant because of the imbalance between the economic powers of passengers and air carriers. Mr. Lukács rejects WestJet's assertion that there is no need to increase its baggage liability because there is no evidence that a systemic problem exists, noting that the legislative intent of subsection 67.2(1) of the CTA is to ensure that systemic problems do not develop.

Mr. Lukács submits that the data filed by WestJet respecting compensation for baggage claims support a finding that a higher limit of liability would not result in proportionally higher compensation to passengers. Mr. Lukács notes that these data reveal that, on many occasions, WestJet tendered compensation which exceeded the carrier's limit of liability of $250. Mr. Lukács maintains, therefore, that an Agency direction that WestJet increase its limit of liability to $1500 will merely synchronize the tariff with the carrier's apparent practice, and will not create any noticeable costs for WestJet.

ANALYSIS AND PRELIMINARY FINDINGS

The balancing test to be applied

The test established by the Agency in Decision No. 666-C-A-2001 requires that when determining whether a term or condition of carriage is "unreasonable" within the meaning of subsection 67.2(1) of the CTA, a balance must 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.

The terms and conditions of carriage are set 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 statutory or purely commercial requirements. There is no presumption that a tariff is reasonable.

When balancing the passenger's 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.

Limits of liability applied in other jurisdictions and by the Montreal Convention

Mr. Lukács maintains that, in considering the reasonableness of WestJet's domestic limit of baggage liability, it is appropriate to take into account the limits existing in other jurisdictions and the limit of baggage liability required by the Montreal Convention.

WestJet submits that the entire legal system in a foreign jurisdiction must be examined to determine how it balances rights and obligations and identifies whether a balance is reasonable.

WestJet argues that to select provisions of the Montreal Convention that are particularly favourable to a passenger, while ignoring other provisions of the Convention which favour carriers, would seriously distort the allocation of rights and obligations, which is fundamentally unfair to air carriers.

Mr. Lukács asserts that Canadian courts regularly rely on decisions rendered by courts in the United Kingdom and the United States, without any additional expert evidence as to the law in these countries.

The Agency notes that the domestic air transport industry is largely deregulated, and that, unlike the case with respect to international transportation, air carriers operating domestic services in Canada are not constrained by international conventions, for example, the Montreal Convention, which dictate that certain terms and conditions of carriage, such as those relating to liability, be applied. Given the absence in the domestic regime of any instrument requiring that certain rights and responsibilities apply to passengers and carriers in respect of liability, carriers are relatively free to strike what they perceive to be an appropriate balance between such rights and responsibilities, provided that the terms and conditions of carriage are reasonable.

With respect to the liability regime which may apply in foreign jurisdictions, the Agency is of the preliminary opinion that, in addressing the issue as to whether certain baggage liability is reasonable, it may not be necessary to examine the entire legal system of a foreign jurisdiction to determine how it balances rights and responsibilities.

The Agency finds that WestJet's submission respecting this particular matter is not compelling, and that the weighing of evidence in respect of this particular matter favours Mr. Lukács' position.

The harm to be remedied

WestJet submits that, given the low number of complaints filed by WestJet's passengers respecting baggage, there is no harm to be remedied.

Mr. Lukács dismisses WestJet's assertion that there is no need to increase its baggage liability because of the absence of evidence that a systemic problem exists, noting that the legislative intent of subsection 67.2(1) of the CTA is to ensure that systemic problems do not develop.

The Agency is of the opinion that the low volume of complaints relating to a particular matter may not necessarily be a determining factor as to whether a certain term and condition of carriage is unreasonable. The Agency notes, in this regard, that the data filed with the Agency by WestJet respecting the compensation tendered by the carrier in response to baggage claims over the five-month period August 2009 – December 2009 reveal that of the 241 claims filed during the reported period, 61 involved compensation exceeding WestJet's limit of liability of $250, with the highest amount being $1450.40. WestJet's apparent willingness, at times, to compensate passengers in amounts which exceed the limit set out in the carrier's tariff may affect the number of complaints relating to such limit.

The Agency also notes that, given WestJet's submission that there is no harm to be remedied given the low volume of complaints by the carrier's passengers regarding baggage, it could be argued that an increase in WestJet's limit of baggage liability will have minimal financial consequences. The Agency further notes that, by Decision No. LET-C-A-173-2009, the Agency provided WestJet with the opportunity to quantify the financial impact should the carrier be required to apply a higher limit of baggage liability, such as the limit applied by Air Canada, or that required under the Montreal Convention, and that WestJet chose not to file a substantive response.

With respect to this particular matter, the Agency finds that WestJet's arguments are not persuasive, and that the carrier has not adequately demonstrated why its statutory, commercial and operational obligations require that WestJet maintain its current limit of baggage liability.

Limits of liability applied by other domestic carriers

In Decision No. LET-C-A-173-2009, the Agency listed the limits of liability for the domestic carriage of baggage for certain Canadian carriers, including carriers whose limit of liability exceeds that applied by WestJet. WestJet submits that some carriers offer higher limits of liability, but these carriers are not consistently profitable, and that controlling the number of baggage claims and the liability associated with those claims is one of the means by which WestJet remains profitable.

Given WestJet's assertion that the low volume of complaints respecting baggage suggests that there is no systemic problem which requires to be addressed, the Agency finds that WestJet's submission respecting this particular matter is not convincing.

Access to tariffs and the availability of insurance

WestJet notes that, by legislative edict, passengers have access to carriers' tariffs, and that the carrier posts its tariffs on its Web site, thereby facilitating a passenger's choice as to the carrier on which to travel. WestJet also notes that passengers have the option of acquiring insurance for baggage.

Mr. Lukács submits that the availability of WestJet's tariffs or those of other carriers is irrelevant given that the contract of carriage between the carrier and passenger is not a result of free bargaining, but is imposed on passengers.

The Agency is of the opinion that the ability to access tariffs and insurance, and the availability of other carriers on which to travel, does not negate the need to respect the legislative requirement that terms and conditions of carriage be reasonable.

The Agency finds that WestJet's submission concerning this particular matter is less persuasive than that of Mr. Lukács.

Commercial obligations

WestJet submits that it has a commercial obligation to earn a profit for its shareholders, that it should have the freedom to price its product accordingly, and that controlling the number of baggage claims and the liability associated with those claims is of the many ways in which WestJet manages to distinguish itself as one of the most consistently profitable of all air carriers.

Mr. Lukács notes that other carriers offering higher domestic limits of liability have the same commercial imperatives as WestJet, but there is no evidence to suggest that these higher limits have an impact on these carriers' financial viability.

The Agency is of the opinion that a carrier's commercial obligation to be profitable, and to generate earnings for shareholders, is not a compelling argument to justify a term and condition of carriage which may be unreasonable and the Agency rejects this argument. To argue, as WestJet does, that maintenance of an industry-leading level of profitability trumps a regulatory requirement of tariff reasonability would be to elevate maintenance of profitability to a status of defence to any failure to meet a regulatory requirement. This goes well beyond the balancing requirement between a carrier's statutory, commercial and operational obligations and the rights of passengers to reasonable terms and conditions of carriage as set out in the CTA.

With respect to this particular matter, the Agency finds that WestJet has not presented any persuasive evidence to justify the carrier's current limit of baggage liability of $250.

CONCLUSION

A balance must be struck between the particular carrier's statutory, commercial and operational obligations and the rights of passengers to reasonable terms and conditions of carriage.

The Agency has weighed WestJet's evidence and submissions against the evidence and submissions presented by Mr. Lukács. The Agency finds that Mr. Lukács' arguments are more compelling and persuasive in determining that balance. Therefore, the Agency finds that WestJet's stated statutory, commercial and operational obligations respecting a limit of baggage liability do not outweigh the interests of Mr. Lukács and other consumers to be subject to reasonable terms and conditions of carriage.

Accordingly, the Agency finds, on a preliminary basis, that WestJet's domestic limit of baggage liability of $250 is unreasonable, and is therefore contrary to subsection 67.2(1) of the CTA. Given the possible wider ramifications of an Agency decision in this regard, the Agency provides WestJet with the opportunity to show cause, within 20 days of this Decision, why the Agency should not disallow the carrier's domestic tariff provision, providing for a limit of baggage liability of $250, as being unreasonable, and therefore contrary to subsection 67.2(1) of the CTA. WestJet's response must also be served on Mr. Lukács at the same time, who will have 10 days from receipt of the response to file a reply, copied concurrently to WestJet.