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05 June 2013
In early 2012 the Supreme Court of British Columbia ruled in Unlu v Air Canada. Its decision was recently upheld by the British Columbia Court of Appeal (2013 BCCA 112).
The case related to the practice of several air carriers of identifying the fuel surcharge levied on their tickets in a manner that may cause passengers to believe that these charges are taxes collected by a third party, when in fact fuel surcharges are collected by the airline for its own benefit.
In the case at hand, the plaintiffs complained about two flights between Vancouver and Germany where the fuel surcharges in question were identified under the code "YQ" on electronic tickets under the heading "Tax". In the case of Lufthansa, the amount of the fuel surcharge was shown on its own. In the case of Air Canada, it was commingled with three other charges under the heading "Tax".
The plaintiffs alleged that this practice contravened the provincial Business Practices and Consumer Protection Act (SBC 2004 c2), which provides that suppliers shall not engage in a "deceptive act or practice". A 'deceptive act or practice' includes making a representation or engaging in conduct "that has the capability, tendency or effect of deceiving or misleading a consumer".
As a principle of Canadian constitutional law, matters relating to aeronautics fall under the jurisdiction of the federal government.
The doctrine of paramountcy has developed to address situations where provincial legislatures pass laws whose operational effects are incompatible with federal legislation. Where this occurs in cases relating to aeronautics (as well as other subject matter that is the domain of the federal government), the doctrine of federal paramountcy arises, giving effect to the federal act over its provincial counterpart:
"The plaintiff's claims against the appellant airlines are made under s. 5 of the Provincial Act, which prohibits deceptive acts and practices in respect of consumer transactions. It is the intention of the plaintiff to apply to have the action certified as a class proceeding under the Class Proceedings Act, R.S.B.C. 1996, c. 50."
In this case, Air Canada and Lufthansa challenged the applicability of the provincial act over their operations in a summary trial in a lower court because, they argued, rates and fees associated with international air travel are governed by Section 110 of the Air Transportation Regulations (SOR/88-58), enacted pursuant to Section 86 of the federal Canada Transportation Act (SC 1996, c10).
More specifically, Section 110 of the regulations requires an air carrier operating an international service to file a tariff with the Canadian Transportation Agency (CTA). Section 122 of the regulations mandates the information that must be contained in the tariff, including the fare rates and charges that may be charged by the airline.
When beginning its analysis, the court emphasised that the plaintiffs were not alleging that the air carriers had no right to levy a fuel surcharge or that the amount of the surcharge was unreasonable. They also raised no issue with regard to the wording of the tariffs filed by the air carriers. The only issue to be decided was whether the provincial act had any place in the dispute.
The court set out the test from Quebec (Attorney General) v Canadian Owners and Pilots Association (2010 SCC 39), which provides that the doctrine of federal paramountcy is engaged (thereby rendering a provincial enactment inoperative) when:
On the issue of operational conflict, the appellate court upheld the lower court's ruling that there was none. The appellate court found that in order for the operational conflict to be found, the provincial act would have to prohibit a deceptive statement (which it does) and the federal act would have to require a deceptive statement (which it unsurprisingly does not).
Nevertheless, the air carriers argued that they were required to follow the terms of their tariff, which required them to identify the fuel charges in the way that they appeared on the tickets in question.
The appellate court was unimpressed by this argument and held that:
"[t]he fallacy in the [air carriers'] argument is that neither the federal legislation nor the tariff requires the appellants to show the fuel surcharge as a tax on the ticket… The [air carriers] are not correct in their assertion that the federal legislation says 'yes you must', because the legislation does not require the surcharge to be shown as tax."
In making its decision on this point, the court noted that since the case had commenced, new advertising regulations had been implemented under the federal act which prohibited the use of the word 'tax' to describe an air transportation charge. The court made three points with regard to the amended federal advertising regulations:
The court went on to deal with the issue of whether the provincial act "frustrated the federal purpose". Again, the appellate court accepted the finding of the lower court that it did not.
The air carriers argued that the federal act and the Air Transportation Regulations were a complete code for the regulation of all matters related to air travel, including airline tariffs and tickets, and that the CTA is intended to be the final decision maker in respect of these matters. The air carriers further argued that the purpose of the federal act would be frustrated if the provincial legislatures were permitted to intrude on the CTA's domain.
In support of their argument, the airlines referenced Section 18(b) of the regulations, which prohibits licensee air carriers from making misleading public statements with respect to their air services. The air carriers argued that this demonstrated that the CTA had already been granted authority to deal with misrepresentation as a result of this provision.
The appellate court rejected this argument, holding that the plaintiffs' allegations against the air carriers related not to "publicly made" statements, but rather to representations printed on purchased tickets:
"section 5 of the Provincial Act, which protects consumers against deceptive acts and practices, is entirely compatible with the federal legislation and, in particular within the context of the plaintiffs' claims, s. 5 is compatible with s. 135.91 of the [Air Transportation Regulations], which prohibits the use of the term "tax" in an advertisement to describe an air transportation charge of an airline."
The court similarly rejected the air carriers' argument that the CTA had jurisdiction to deal with the issue of the YQ surcharges because, under Section 113.1 of the Air Transportation Regulations, it can order an airline to pay compensation for losses suffered by a passenger when an air carrier fails to apply its tariffs. The court found that this case was not about the application of tariffs – rather, it was about the way in which surcharges were represented on tickets issued by the air carriers.
The court also found that because the issue in the matter at hand was not the "reasonableness of the surcharges", Section 111 of the regulations also had no application. (This section of the regulations allows individuals to challenge tariffs that they believe are not "just and reasonable").
On the issue of "frustrating the federal purpose", the court referenced the regulatory impact statement that was prepared when the above-referenced advertising regulations came into force. In that document, the drafters specifically indicated that:
"[t]he advertising of products and services is subject to consumer protection of general application… at the provincial level through provincial legislation… It is the advertisers' responsibility to ensure that they comply with all applicable legislation respecting advertising, not just the [Air Transportation Regulations]."
Finally, the court had to determine whether the doctrine of inter-jurisdictional immunity applied to this case. This doctrine protects the core of a federal power from provincial legislation where the provincial legislation in question encroaches on the core of a federal power and such transgression is serious enough to prevent the provincial enactment from being applied. The appellate court agreed with the lower court's finding that even if carrying passengers by air was part of the core of the federal jurisdiction over aeronautics, the seriousness of the impairment of that core by the provincial act was not sufficient to attract the doctrine of inter-jurisdictional immunity.
In this regard, the appellate court noted that the protection afforded to the public against deceptive practices was entirely consistent with, for example, the new advertising regulations, which also prohibit the use of the word 'tax' to described an air transportation charge imposed by an airline.
The court found in favour of the plaintiffs and permitted the complaint with respect to Section 172 of the provincial act to proceed. The plaintiffs were awarded the costs of the appeal.
For further information on this topic please contact Carlos P Martins at Bersenas Jacobsen Chouest Thomson Blackburn LLP by telephone (+1 416 982 3800), fax (+1 416 982 3801) or email (firstname.lastname@example.org).
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