Letter Decision No. LET-C-A-51-2010

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 ($1500 per passenger, with a provision for excess valuation)
• Porter Airlines ($1000 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&lang=eng">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.

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.

If you have any questions concerning the foregoing, you may contact Mike Redmond at telephone number 819-997-1219, facsimile number 819-953-7919 or mike.redmond@otc-cta.gc.ca.