Decision No. 388-C-A-2005

June 22, 2005

File No. M4370/L80/03-8

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COMPLAINT

[1] On September 9, 2003, Mohammed Omar Satari filed with the Air Travel Complaints Commissioner (hereinafter the Commissioner) the complaint set out in the title.

[2] On February 20, 2004, the complaint was referred to the Canadian Transportation Agency (hereinafter the Agency) for its consideration as the complaint raised a tariff issue that falls within the jurisdiction of the Agency.

[3] In a letter dated March 11, 2004, the parties were advised of the Agency's jurisdiction in this matter. Mr. Satari was also requested to advise whether he wished to pursue this matter formally before the Agency. As both parties had filed comments with the Commissioner in respect of the complaint, the Agency also sought the parties' agreement to have the comments that they filed with the Commissioner considered as pleadings before the Agency.

[4] On March 18, 2004, Mr. Satari advised the Agency that he wished to pursue this matter formally before the Agency, and agreed that the Agency consider the comments filed with the Commissioner as pleadings before the Agency.

[5] On March 26, 2004, Deutsche Lufthansa Aktiengesellschaft (Lufthansa German Airlines) [hereinafter Lufthansa] requested that pleadings be opened to permit the carrier to file additional submissions.

[6] On March 30, 2004, Lufthansa was requested to address Mr. Satari's complaint in the context of subsections 110(4) and (5) of the Air Transportation Regulations, SOR/88-58, as amended (hereinafter the ATR). On April 16, 2004, Lufthansa requested an extension until May 6, 2004 to file an answer. In its Decision No. LET-C-A-113-2004 dated April 23, 2004, the Agency granted Lufthansa the requested extension. On May 6, 2004, Lufthansa filed its answer to the complaint. On May 14, 2004, Mr. Satari requested an extension until May 30, 2004 to file a reply to the carrier's answer. In its Decision No. LET-C-A-144-2004 dated May 20, 2004, the Agency granted Mr. Satari the requested extension. On May 28, 2004, Mr. Satari filed his reply to the carrier's answer. On June 2, 2004, Lufthansa filed a further submission.

[7] In its Decision No. LET-C-A-188-2004 dated July 26, 2004, the Agency provided Lufthansa with an opportunity to show cause, within 21 days from the date of the Decision, why the Agency should not: (i), find that, by refusing to refund the purchase price of the tickets that are the subject of Mr. Satari's complaint, Lufthansa failed to apply Rule 90(E)(1) [Refunds] of the tariff applicable to Lufthansa, namely the International Passenger Rules and Fares Tariff No. LH-1, CTA(A) No. 312, published by the Airline Tariff Publishing Company, Agency (hereinafter Lufthansa's tariff), contrary to subsection 110(4) of the ATR; and (ii), require Lufthansa, pursuant to section 113.1 of the ATR, to refund the purchase price of the aforementioned tickets in accordance with Lufthansa's tariff.

[8] By letter dated August 4, 2004, Lufthansa requested an extension until August 30, 2004 to respond to Decision No. LET-C-A-188-2004. By Decision No. LET-C-A-234-2004 dated August 18, 2004, the Agency granted Lufthansa the requested extension. On August 30, 2004, Lufthansa filed its response to Decision No. LET-C-A-188-2004.

[9] In its Decision No. LET-C-A-358-2004 dated December 24, 2004, the Agency requested Mr. Satari and Lufthansa to respond to certain questions regarding Ideal Travel Tours & Cruises Ltd. (hereinafter Ideal Tours), the travel agency from which Mr. Satari purchased the Lufthansa tickets, and SkyLink and WorldPlus, the travel wholesalers that actually issued these tickets. On January 11, 2005, Mr. Satari filed his response; and on January 25, 2005 and February 4, 2005, Lufthansa filed submissions in response to Decision No. LET-C-A-358-2004.

[10] Pursuant to subsection 29(1) of the Canada Transportation Act, S.C., 1996, c. 10 (hereinafter the CTA), the Agency is required to make its decision no later than 120 days after the application is received unless the parties agree to an extension. In this case, the parties have agreed to an indefinite extension of the deadline.

PRELIMINARY MATTER

[11] Although the submission filed by Lufthansa on June 2, 2004 was received after the close of pleadings, the Agency, pursuant to section 4 of the Canadian Transportation Agency General Rules, SOR/2005-35, hereby accepts this submission as being relevant and necessary to its consideration of this matter.

ISSUES

[12] The issues to be addressed are:

1. whether Lufthansa has shown cause as to why the Agency should not find that, by refusing to refund the purchase price of the nine unused tickets that are the subject of Mr. Satari's complaint, Lufthansa failed to apply Rule 90(E)(1) of its tariff, contrary to subsection 110(4) of the ATR, and if not,
2. whether Lufthansa has shown cause as to why the Agency should not require Lufthansa, pursuant to section 113.1 of the ATR, to refund the purchase price of the aforementioned tickets in accordance with Lufthansa's tariff.

POSITIONS OF THE PARTIES

[13] Mr. Satari submits that, in early January 2003, he requested Ideal Tours, a travel agency located in British Columbia, to issue tickets for sixteen persons to travel with Lufthansa between Vancouver, British Columbia, Canada and Djeddah, Saudi Arabia, departing in January 2003 and returning in March 2003. Mr. Satari also submits that Ideal Tours required payment in cash for the purchase of the tickets, that he paid Ideal Tours the sum of $23,920 in cash for the tickets, and that Ideal Tours verbally advised him that refunds could be obtained for any unused tickets. Mr. Satari contends that he requested a receipt for his purchase, but this request was denied by Ideal Tours, which advised him that the tickets constituted the receipt. In support of his claim for refunds, Mr. Satari filed with the Agency a copy of an affidavit he provided to Lufthansa attesting that he paid $23,920 in cash for sixteen tickets, and copies of the nine unused tickets.

[14] Mr. Satari notes that he had not purchased tickets from Ideal Tours before, that he was referred to the travel agency by a member of his travelling party, and that he opted to travel with Lufthansa because it offered the best price and was the only one of two carriers offering service between Vancouver and Djeddah that could fully accommodate the travelling party.

[15] While seven persons were able to travel as planned, nine individuals were unable to do so because of Saudi Arabian visa restrictions. When Mr. Satari, on behalf of the individuals who were unable to travel, attempted to obtain refunds for the nine unused tickets, he discovered that Ideal Tours' office had closed, and that Ideal Tours had apparently purchased the tickets with credit cards it was not authorized to use. Subsequently, Mr. Satari approached Lufthansa in an effort to obtain refunds. Lufthansa advised him that refunds would be forthcoming if Mr. Satari could prove that the travel wholesalers that issued the tickets, SkyLink and WorldPlus, were paid. Mr. Satari advises that his attempt to pursue this matter with SkyLink was unsuccessful as SkyLink indicated to him that it only conducts business with travel agencies.

[16] Lufthansa submits that Ideal Tours was at no time acting as Lufthansa's agent, was never accredited by the International Air Transport Association (hereinafter IATA), did not have an agreement with Lufthansa, and had no authority to issue tickets or do any other action on Lufthansa's behalf. While Mr. Satari may have formed the impression that Ideal Tours was acting with Lufthansa's authority, such an impression is legally irrelevant, according to Lufthansa. The carrier maintains that as there was no agency relationship between Lufthansa and Ideal Tours, Lufthansa cannot be legally responsible for Ideal Tours' actions.

[17] Lufthansa submits that an agency relationship did exist between Ideal Tours and Mr. Satari at all relevant times. It adds that it was as the agent for Mr. Satari that Ideal Tours approached SkyLink and WorldPlus and requested that tickets be issued for Ideal Tours' principal. Lufthansa argues that in purporting to pay SkyLink and WorldPlus for the tickets with credit cards that it had no authority to use, Ideal Tours committed a fraudulent act that induced Lufthansa to issue the tickets in question and, thereby, enter into contracts of carriage with the ticketholders. Lufthansa maintains that because the effect of an Agency order requiring the carrier to refund the purchase price of the tickets would result in Lufthansa compensating Mr. Satari for a fraud committed by his own agent, the making of such an order would be unfair to the carrier.

[18] Lufthansa further submits that because the contracts of carriage were induced by fraud, it is entitled in law to declare, and does declare, that the contracts of carriage are void. In the absence of contracts of carriage, Lufthansa submits that: (1), there is nothing for its tariff to apply to and, therefore, there can be no recourse to the tariff to justify the payment of a refund to Mr. Satari; and that (2), the Agency has no jurisdiction to adjudicate the dispute or, alternatively, there is no legal basis for the complaint. Lufthansa also argues that as it did not receive any money for the tickets in question, there is nothing for it to refund.

[19] Lufthansa submits that if the Agency orders Lufthansa to refund the purchase price of the unused tickets, it will commence a civil action against Mr. Satari for recovery of any money it pays him pursuant to that order, plus interest and costs. Lufthansa is confident that such an action will be successful because it believes that any Agency order requiring refund payments would be based on a fraud committed by Mr. Satari's agent, for which Mr. Satari is in law responsible. According to Lufthansa, an Agency order requiring it to refund the purchase price of the tickets in question would, therefore, be nugatory.

[20] In response to the questions posed by the Agency in Decision No. LET-C-A-358-2004 dated December 24, 2004, Mr. Satari maintains that Lufthansa was irresponsible in issuing tickets to Ideal Tours before receiving payment for such tickets, and in failing to contact financial institutions to determine whether the credit cards used by Ideal Tours were valid. Mr. Satari questions why Ideal Tours was permitted to secure tickets from Lufthansa if Ideal Tours was not an authorized agent for the carrier, and why so much time elapsed before Lufthansa discovered that fraud had been perpetrated.

[21] Lufthansa submits that it has had a commercial relationship with SkyLink and WorldPlus for over ten years. Lufthansa notes that the tickets issued by SkyLink and WorldPlus to Mr. Satari's travelling party were the first Lufthansa tickets issued by the two travel wholesalers that involved Ideal Tours. Lufthansa submits that both SkyLink and WorldPlus obtained authorization for Ideal Tours' use of credit cards before tickets were issued. Lufthansa advises that Ideal Tours requested WorldPlus to issue tickets to Mr. Satari's party on a "rush basis", provided valid credit card numbers for the purchase of these tickets, and indicated to WorldPlus that the appropriate credit card forms would follow in due course. Lufthansa submits that WorldPlus only became aware of Ideal Tours' fraudulent use of the credit cards months after the transaction.

ANALYSIS AND FINDINGS

[22] In making its findings, the Agency has carefully considered all of the evidence submitted by the parties, as well as the relevant provisions of the ATR, and Lufthansa's tariff on file with the Agency.

[23] Subsection 110(4) of the ATR provides that:

Where a tariff is filed containing the date of publication and the effective date and is consistent with these Regulations and any orders of the Agency, the tolls and terms and conditions of carriage in the tariff shall, unless they are rejected, disallowed or suspended by the Agency or unless they are replaced by a new tariff, take effect on the date stated in the tariff, and the air carrier shall on and after that date charge the tolls and apply the terms and conditions of carriage specified in the tariff.

[24] Section 113.1 of the ATR provides that:

Where a licensee fails to apply the fares, rates, charges, terms or conditions of carriage applicable to the international service it offers that were set out in its tariffs, the Agency may

(a) direct the licensee to take corrective measures that the Agency considers appropriate; and

(b) direct the licensee to pay compensation for any expense incurred by a person adversely affected by the licensee's failure to apply the fares, rates, charges, terms or conditions of carriage applicable to the international service it offers that were set out in its tariffs.

[25] Rule 65(A)(2) of Lufthansa's tariff provides that,

A ticket which has not been validated or which has been altered, mutilated or improperly issued shall not be valid.

[26] Rule 65(A)(3) of Lufthansa's tariff provides, in part, that,

No person shall be entitled to transportation except upon presentation of a valid ticket. Such ticket shall entitle the passenger to transportation only between points of origin and destination and via the routing designated thereon.

[27] Rule 90(E)(1) of Lufthansa's tariff provides, in part, that,

(E) Voluntary Refunds

For the purpose of this paragraph, the term "Voluntary Refund" shall mean any refund of a ticket or portion thereof other than an involuntary refund, as described in paragraph (D) of this rule. Voluntary refunds shall be computed as follows:

(1) If no portion of the ticket has been used, refund will be the full amount of the fare paid, less any applicable service charge and communication expenses, (See Rule Nos. 60 (RESERVATIONS) and 65 (TICKETS).

Has Lufthansa shown cause why the Agency should not find that, by refusing to refund the purchase price of the nine unused tickets that are the subject of Mr. Satari's complaint, Lufthansa failed to apply certain provisions of its tariff, contrary to subsection 110(4) of the ATR?

[28] Essentially, all of Lufthansa's arguments in support of its refusal to refund the nine tickets at issue are based on characterizing the relationship between Ideal Tours and Mr. Satari as that of agency, and applying the corresponding legal doctrine that principals are liable for the actions of their agents. The Agency is of the opinion, however, that the fundamental issue to be determined is whether the tickets issued by SkyLink and WorldPlus were valid. In this regard, the Agency notes that these tickets were issued by IATA-accredited travel agents, there is no evidence on file to indicate that these tickets were not in the form prescribed by IATA, and there is nothing on the face of any of the tickets to indicate that they are not valid. The Agency also notes, with reference to Rule 65(A)(2) of Lufthansa's tariff, that there is no evidence to indicate that the tickets were not validated, or were altered, mutilated or improperly issued. There is also no evidence on file to suggest that Mr. Satari and his party should have been aware that Ideal Tours may have been engaging in illegal activities, or that Mr. Satari and his party purchased the tickets from Ideal Tours in other than good faith. Further, the Agency notes that seven of the sixteen tickets purchased by Mr. Satari were, in fact, honoured by Lufthansa, and that, in all likelihood, the remaining nine tickets would have been honoured if ticketholders had not encountered difficulties obtaining visas from the Saudi Arabian government. The Agency is therefore of the opinion that the nine unused tickets are valid.

[29] The Agency notes that each of the unused tickets bears the fare basis code "QLMEAX". A review of Lufthansa's tariff on file with the Agency has failed to reveal such fares or any rules specifically associated with these fares. In the absence of any fare rules relating to "QLMEAX" fares, including provisions governing the refund of fares, the Agency is of the opinion that the general terms and conditions of carriage set out in Lufthansa's tariff, specifically those terms and conditions pertaining to refunds appearing in Rule 90(E)(1), apply. Specifically, this tariff provision states, in part, that,

(E) Voluntary Refunds

For the purpose of this paragraph, the term "Voluntary Refund" shall mean any refund of a ticket or portion thereof other than an involuntary refund, as described in paragraph (D) of this rule. Voluntary refunds shall be computed as follows:

(1) If no portion of the ticket has been used, refund will be the full amount of the fare paid, less any applicable service charge and communication expenses, (See Rule Nos. 60 (RESERVATIONS) and 65 (TICKETS).

[30] In light of the foregoing, the Agency is not satisfied that Lufthansa has shown cause why the Agency should not find that, by refusing to refund the nine unused tickets issued by WorldPlus and SkyLink, Lufthansa failed to apply Rule 90(E)(1) of its tariff, contrary to subsection 110(4) of the ATR.

[31] Therefore, the Agency finds that Lufthansa should have refunded the nine unused tickets in accordance with Rule 90(E)(1) of the carrier's tariff.

Has Lufthansa shown cause why the Agency should not require the carrier, pursuant to subsection 113.1 of the ATR, to refund the purchase price of the nine unused tickets issued by WorldPlus and SkyLink?

[32] As set out above, the nine unused tickets purchased by Mr. Satari's travelling party are considered to be valid and Lufthansa failed to apply the provisions of its tariff, providing for refunds of unused tickets. The Agency, therefore, finds that Lufthansa should have refunded the nine unused tickets issued by the carrier's accredited agents, namely WorldPlus and SkyLink.

[33] Accordingly, the Agency is not satisfied that Lufthansa has shown cause why the Agency should not, pursuant to section 113.1 of the ATR, require the carrier to provide the appropriate refunds.

[34] The Agency notes that, as it has determined that Lufthansa failed to apply certain provisions of its tariff, the Agency may, pursuant to paragraph 113.1(a) of the ATR, direct the carrier to take whatever corrective measures the Agency considers appropriate and, pursuant to paragraph 113.1(b) of the ATR, direct Lufthansa to pay compensation for any expense incurred by a person adversely affected by the carrier's failure to apply the provisions set out in its tariff.

[35] In determining the appropriate corrective measures to order in this case, a balance must be struck between the air carrier's statutory, commercial and operational obligations and the rights of ticketholders to rely on the validity of tickets issued by accredited travel agencies, such as WorldPlus and SkyLink. An overriding consideration in this regard is an air carrier's obligation to oversee and control the sale of its tickets, and to ensure that persons purchasing tickets in good faith not be penalized because of the failure by the carrier to properly manage its ticket distribution network.

CONCLUSION

[36] After careful consideration of the unique circumstances before it in this case, the Agency considers it appropriate, pursuant to paragraph 113.1(a) of the ATR, to direct Lufthansa to take the following corrective measure, unless the carrier can clearly demonstrate to the Agency that specific ticketholders knowingly engaged in fraudulent activities relating to the issuance of the tickets:

Provide reimbursement for the nine unused tickets. In the absence of satisfactory evidence to the contrary, such reimbursement should be calculated as follows: $23,920, which represents the total amount that Mr. Satari swears by affidavit that he paid for sixteen tickets, multiplied by 9/16, the fraction representing the number of unused tickets of the total purchased. This formula produces a total amount of $13,455. Expressed in individual terms, the refund should amount to $1,495 for each unused ticket.

[37] Further, the Agency, pursuant to paragraph 113.1(b) of the ATR, directs Lufthansa to pay compensation for any expense incurred by a person adversely affected by the carrier's failure to apply the specific provisions of its tariff set out above. Claims for compensation should be filed directly with Lufthansa by affected persons. Lufthansa shall provide the Agency with information relating to the person(s) to whom claims may be submitted.