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Judging the Reasonableness of Contractual Terms
Published in the March 2009 issue of Transportation Notes - View Article
The case of Air Canada v. Canadian Transportation Agency and Peter Griffiths provides important guidance as to how the Canadian Transportation Agency (“the Agency”) is to assess whether terms and conditions of carriage imposed by an air carrier are “unreasonable” within the meaning of the Canada Transportation Act (“the Transportation Act”) and the Air Transportation Regulations (“the Regulations”).
The case arose out of Air Canada’s proposed revision of its general rules tariff and the Agency’s reaction to this proposed revision. On March 23, 2009, the Federal Court of Appeal unanimously decided that the matter would be sent back for reconsideration before the Agency, as a result of the Agency’s failure to properly weigh the reasons for Air Canada’s tariff revisions against the inconvenience caused to the passenger by those revisions.
The revisions at issue in this case involve changes to Air Canada’s domestic, transborder and international tariffs with respect to the carriage of pets and their kennels weighing under 70 pounds. On June 1, 2007, Air Canada revised its tariffs to provide that pets and their kennels weighing less than 70 pounds could no longer be carried as checked baggage, but would henceforth be carried as cargo. Air Canada had previously revised its tariffs to discontinue the carriage of pets and their kennels weighing more than 70 pounds as checked baggage.
The complainant in the case, Peter Griffiths, (“Mr. Griffiths”) was a passenger who traveled mainly between Toronto and Mexico City with a pet weighing approximately 13 pounds. The essence of Mr. Griffiths’ complaint was that the change in the carriage of pets from checked baggage to cargo caused him a number of inconveniences, including an increase in fees and additional time spent arranging for the retrieval of his pet from cargo services, as opposed to having it available together with other checked baggage.
The Agency determined the case based on section 67.2 of the Transportation Act, which gives the Agency the authority to suspend or disallow terms and conditions of domestic carriage which the Agency finds to be unreasonable. The Agency also relied on sections 86(1)(h) of the Act and 111 of the Regulations, which allow the Agency to suspend or disallow terms and conditions of international carriage that are not “just and reasonable” or cause a passenger “undue or unreasonable prejudice or disadvantage.”
Air Canada provided its rationale for the change in a series of detailed submissions to the Agency. This rationale was centered on the following commercial and operational concerns: (1) an increased volume of checked baggage as a result of new security measures prohibiting the carriage of liquids on-board; (2) new post-September 11 security requirements that checked baggage must be carried on the same flight as the passenger who registered the checked baggage or a later flight; (3) record load factors; (4) the additional complexity in handling animals as checked baggage arising out of standards developed by the International Air Transport Association to ensure humane carriage of animals; and (5) a change in business plan involving increasing the frequency of flights with reliance on smaller aircraft with more limited cargo capacity, which posed additional challenges in handling a large volume of checked baggage, but provided great benefits in connectivity and availability of flights to passengers. Air Canada also explained to the Agency that it was “implementing a distinct revenue model that relies on operations being simplified to the greatest extent possible.”
Air Canada made a number of further submissions on measures that it was taking in order to mitigate the effect of the changes on passengers, including some degree of harmonization in pricing between the checked baggage and cargo prices, the reduction of time lags in the delivery of pets via cargo to two hours, and a proposed exemption for certain health certificates on domestic flights.
The Agency determined that the tariff change was unreasonable and unjust. The legal test relied upon by the Agency involves striking a balance between “the rights of the passenger to be subject to reasonable terms and condition of carriage” and the air carrier’s “statutory, commercial and operational obligations”. This test was set out in a previous decision of the Agency, Del Anderson v. Air Canada. That decision also explained that, generally, reasonableness has to be determined in a contextual manner and can be understood as meaning “without a rational basis”. This test has been repeatedly applied by the Agency in its subsequent cases.
However, while adverting to this test, the Agency concluded that the reason the change in tariff was unreasonable was that “an imbalance exists ... in that such carriage creates commercial advantages for the carrier alone, while exposing pet owners to many significant disadvantages.” The Agency found that these disadvantages involved a higher price to the passenger, additional arrangements to be made by the passenger, and additional time spent by the passenger in retrieving the pet. The Agency noted that in order for the change in tariff to be a “viable alternative” it must “not entail significant disadvantages for persons traveling with domestic pets.”
The Agency did not consider the commercial and operational concerns put forward by Air Canada. Nor did the Agency consider the argument by Air Canada that, while some passengers may have been disadvantaged by the increase in price, advantages would accrue to other passengers as a result of this policy, including increased frequency of flights using smaller-sized aircraft which would provide service to smaller communities, the streamlining of the cargo pricing regime to benefit owners of larger pets which already had to be shipped cargo, the simplification of operations, and having all pets handled by specialized personnel in the cargo department.
In its appeal to the Federal Court of Appeal, Air Canada argued that the decision made by the Agency was unreasonable and incorrect, insofar as the Agency’s purported balancing was in fact a unilateral assessment of the issues. Air Canada argued that the Agency failed to consider both whether Air Canada’s operational and commercial concerns had a rational basis, and whether the change in the tariff was reasonable when these concerns were weighed against the inconvenience to the passenger. Rather than putting all factors on the scale, including the disadvantages to Air Canada as a result of continuing to carry pets and their kennels under 70 pounds as checked baggage, as well as the potential benefits to other passengers due to streamlining policies, the Agency determined the matter in absolute terms. Simply by finding that Mr. Griffiths would be inconvenienced, the Agency considered that the scales had been tipped in the passenger’s favour. Such an approach, Air Canada argued, was contrary to the very test that the Agency itself had set out. Air Canada also argued that this approach was incorrect on a common law of contract analysis, wherein the obtaining of advantages by one side while causing disadvantages to the other would not in itself be a proper basis on which to invalidate a contract, and in fact is a common feature of many contracts. Such a situation can also be found in other air carrier tariffs which have not been invalidated by the Agency, for instance, in tariffs granting the air carrier discretion to remove and ban disruptive passengers.
The Federal Court of Appeal agreed with Air Canada’s argument. Having examined the reasons, the Federal Court found it evident that the Agency failed to conduct a proper balancing on the standards that it had itself previously set out. The Court found that the Agency failed to weigh Air Canada’s reasons for the tariff change as against the inconveniences to the passenger.
The Court’s decision is an important one for air carriers from a broader legal perspective. As the Court stated during oral argument, while the Agency is entitled to deference as a specialized tribunal, this deference also has to be earned by the demonstration of proper reasoning. A decision where inconvenience to the passenger alone is considered the basis for declaring a tariff unreasonable clearly should not stand. The effects and operation of tariff terms are always contextual, a give-and-take between the air carrier and the particular passenger affected by certain terms, as well as the air carrier’s body of passengers as a whole who are affected by how an air carrier is able to run its operations. The Agency’s very function and responsibility is to engage in this multidimensional weighing. In this case the Court found, in no uncertain terms, that the Agency failed to fulfill its role.
Air Canada v. Canadian Transportation Agency and Peter Griffiths, 2009 FCA 95