[1] The question raised in this proceeding is whether an airline should be obliged to honour tickets sold by a travel agency at a discount from the airline's published tariff, where the airline authorized the travel agency to sell its tickets only at the tariff price. The appellants, Northwest Airlines, Inc. and KLM Royal Dutch Airlines, have refused to honour such tickets. In a decision dated April 29, 2003 (Decision No. 232-A-2003), the Canadian Transportation Agency concluded that Northwest and KLM were wrong and ordered corrective steps. The airlines have been granted leave to appeal that decision pursuant to section 41 of the Canada Transportation Act, S.C. 1996, c. 10.

Statutory framework

[2] The provisions of the Canada Transportation Act that are relevant to this appeal read as follows:

41. (1) An appeal lies from the Agency to the Federal Court of Appeal on a question of law or a question of jurisdiction on leave to appeal being obtained from that Court on application made within one month after the date of the decision, order, rule or regulation being appealed from, or within any further time that a judge of that Court under special circumstances allows, and on notice to the parties and the Agency, and on hearing those of them that appear and desire to be heard.

41. (1) Tout acte -- décision, arrêté, règle ou règlement -- de l'Office est susceptible d'appel devant la Cour d'appel fédérale sur une question de droit ou de compétence, avec l'autorisation de la cour sur demande présentée dans le mois suivant la date de l'acte ou dans le délai supérieur accordé par un juge de la cour en des circonstances spéciales, après notification aux parties et à l'Office et audition de ceux d'entre eux qui comparaissent et désirent être entendus.

[...]

(4) The Agency is entitled to be heard by counsel or otherwise on the argument of an appeal.

(4) L'Office peut plaider sa cause à l'appel par procureur ou autrement.

[...]

55. (1) In this Part, [...]

55. (1) Les définitions qui suivent s'appliquent à la présente partie. [...]

"tariff" [ « tarif » ] means a schedule of fares, rates, charges and terms and conditions of carriage applicable to the provision of an air service and other incidental services.

« tarif » ["tariff"] Barème des prix, taux, frais et autres conditions de transport applicables à la prestation d'un service aérien et des services connexes.

[3] The following provisions of the Air Transportation Regulations, SOR/88-58 are also relevant (emphasis added):

2. In these Regulations and Part II of the Act, [...]

2. Les définitions qui suivent s'appliquent au présent règlement et à la partie II de la Loi. [...]

"toll" means any fare, rate or charge established by an air carrier in respect of the shipment, transportation, care, handling or delivery of passengers or goods, or in respect of any service incidental thereto; (taxe)

« taxe » Prix, taux ou frais établis par un transporteur aérien pour le transport, l'expédition, la garde, la manutention ou la livraison des marchandises, pour le transport, le traitement et le soin des passagers, ou pour tout service connexe. (toll)

[...]

PART V

TARIFFS

[...]

DIVISION II

INTERNATIONAL

[...]

PARTIE V

TARIFS

[...]

SECTION II

SERVICE INTERNATIONAL

[...]

110. ...

(4) 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.

110. ...

(4) Lorsqu'un tarif déposé porte une date de publication et une date d'entrée en vigueur et qu'il est conforme au présent règlement et aux arrêtés de l'Office, les taxes et les conditions de transport qu'il contient, sous réserve de leur rejet, de leur refus ou de leur suspension par l'Office, ou de leur remplacement par un nouveau tarif, prennent effet à la date indiquée dans le tarif, et le transporteur aérien doit les appliquer à compter de cette date.

[...]

113.1 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

113.1 Si un licencié n'applique pas les prix, taux, frais ou conditions de transport applicables au service international et figurant à son tarif, l'Office peut :

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

a) lui enjoindre de prendre les mesures correctives qu'il estime indiquées;

(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.

b) lui enjoindre d'indemniser les personnes lésées par la non-application de ces prix, taux, frais ou conditions de transport.

Facts

[4] Northwest and KLM are licensed under the Canada Transportation Act, and their Canadian operations are subject to regulatory supervision by the Agency. They have both filed tariffs with the Agency.

[5] Travel Way Services Inc. once operated a travel agency in a mall in Rexdale, Ontario. Travel Way became an agent for Northwest and KLM through "general concurrence", that is, by the operation of certain rules of the International Air Transport Association (IATA). Travel Way was authorized to sell Northwest and KLM tickets only at the prices set out in their respective tariffs.

[6] Travel agents who sell airline tickets under the standard arrangements established by IATA make a weekly report of airline tickets sales to IATA pursuant to the IATA Bank Settlement Plan (BSP) and remit the sales proceeds at the same time or shortly thereafter. IATA ensures that the funds remitted by the travel agents, net of applicable commissions, are paid to the airlines.

[7] It is alleged that in October of 2002, Travel Way submitted a report to BSP indicating ticket sales of almost (Cdn) $1.5 million (including sales of 102 Northwest and KLM tickets for approximately $364,000). However, the reported proceeds were not remitted by Travel Way. To date the airlines have recovered only a minuscule portion of the reported proceeds.

[8] It was later learned that, before October of 2002, Travel Way's average weekly reported sales were approximately $2,000. After an investigation, Northwest and KLM concluded that Travel Way sold their 102 tickets for cash in an amount that was substantially less than the tariff price, issued the tickets and took the proceeds instead of remitting them pursuant to the BSP. This fraudulent activity is known in the travel industry as a "bust out". Criminal charges have been laid against certain individuals said to have been involved with Travel Way.

[9] The record lists the 102 tickets in issue in this case, with the names of the individuals to whom they were said to have been issued. However, with two exceptions, the record does not indicate how much money was paid to Travel Way for any of the tickets. The two exceptions are return tickets from Toronto to Bombay for which the holders paid a total of $3,200 cash. The total tariff rate for those two tickets was $6,036.14.

[10] The Northwest and KLM tickets issued by Travel Way appear on their face to be valid. They show a ticket price that is the same as the ticket price set out in the tariffs filed by Northwest and KLM with the Agency. Except in one case, there is no evidence that anyone who purchased any of the 102 tickets knew or could reasonably have been expected to know of any problem with their purchase. One possible exception is a principal of Travel Way to whom one of the tickets was issued. He was later charged with fraud in connection with this matter.

[11] Northwest and KLM suggested that the other purchasers should have been aware that something was amiss, because cash sales of airline tickets are unusual, and also because the volume of transactions at Travel Way during the week in October of 2002 was so much greater than normal. The record contains no evidence from which any conclusion can be reached about what members of the public know or can reasonably be expected to know about the tariff rates for airline tickets, or the normal practices of travel agencies. The record does not disclose whether or in what manner potential customers of Travel Way would have been aware of the scope of Travel Way's authority with respect to the sale of Northwest and KLM tickets. Nor was the Court referred to any authority for the proposition that the public is presumed or deemed to have such knowledge.

[12] Northwest and KLM honoured 28 of the 102 tickets before they realized what had happened. However, once they concluded that the tickets had been sold for less than the tariff amount, they refused to honour the remaining tickets. They did, however, preserve the reservations for the holders of those tickets, and permitted them to travel in accordance with their original arrangements under a newly issued replacement ticket for which the passenger paid a "discounted net fare", which was less than the tariff rate.

[13] Northwest and KLM issued 32 replacement tickets pursuant to this arrangement. The additional payment required from the passengers ranged from $1,042.99 to $2,529.99, depending upon the destination. Counsel for Northwest and KLM asserted in argument that this additional payment, combined with the cash payment probably made to Travel Way, would have approximated the tariff rate for the tickets. However, the record does not contain documents that permit that assertion to be verified.

[14] Of the 102 tickets, 28 were honoured and 32 were replaced as explained above. Holders of the 32 replacement tickets were permitted to retain the tickets issued by Travel Way, and may still have them. Of the remaining 42 tickets, one is the ticket referred to above that was issued to the principal of Travel Way. The record does not disclose what happened to the other 41 tickets. Northwest and KLM have indicated that if they recover anything from Travel Way, they will share it proportionally with holders of any of the 102 tickets that were not accepted or presented for travel.

[15] The Agency received complaints about the failure of Northwest and KLM to honour the tickets issued by Travel Way. The particulars of the complaints are not disclosed in the record. However, by letter dated December 19, 2002, the Agency required Northwest and KLM to

. . . show cause, by no later than January 2, 2003, why [the Agency] should not (i) find that, by refusing to transport person presenting tickets issued by Travel Way, Northwest failed to apply Rule 100NW and Rule 65 of the carrier's respective transborder and international tariffs, and KLM failed to apply Rule 65 of the carrier's international tariff, contrary to subsection 110(4) of the [Air Transportation Regulations]; and (ii) require, pursuant to section 26 of the [Canada Transportation Act], Northwest and KLM to accept for transportation persons presenting tickets or who have presented tickets issued by Travel Way.

[16] The relevant portions of the Northwest Airlines tariff referred to in the show cause order read as follows:

Northwest tariff: Tickets - General, Canadian General Rules Tariff

No. CGR-1, NTA(A) No. 241

Rule 100NW (F) A ticket which has not been validated or which has been altered, mutilated or improperly issued shall not be valid.

Northwest tariff: Tickets, International Passenger Rules and Fares Tariff

No. NW-1, NTA(A) No. 292

Rule 65 (A) (1) The carrier will not be obligated to issue a ticket or carry a passenger until such passenger has paid the applicable fare or has complied with credit arrangements established by the carrier.

Rule 65 (A) (2) No person shall be entitled to transportation except upon presentation of a valid ticket.

[17] Rule 65 of the KLM tariff is found in its tariff entitled "Tickets, International Passenger Rules and Fares Tariff No. KL-2, NTA(A) No. 311", and is substantially the same as Northwest's Rule 65.

[18] The record contains excerpts from the Northwest and KLM tariffs referred to above, but those excerpts do not list any fares. The record does not disclose whether the tariff fares for Northwest and KLM are to be found in the tariffs referred to in the record, or in other tariffs.

[19] Northwest and KLM filed submissions in response to the show cause order. The submission consists of statements of fact and argument. It is apparently the practice of the Agency to permit submissions that are not supported by affidavit. However, counsel for both parties agreed that the facts are substantially as stated in the airlines' submission.

[20] Two arguments were submitted for Northwest and KLM in support of its position that it had not breached the tariff rules cited by the Agency. With respect to Rule 65, it was argued that the holders of the 102 tickets issued by Travel Way had not paid the "applicable fare". With respect to Rule 100NW, it was argued that the tickets were "improperly issued", because the "applicable fare" had not been paid.

[21] Thus, the meaning of the phrase "applicable fare" in Rule 65 is central to the arguments of Northwest and KLM before the Agency and in this appeal. That phrase is not defined in the tariffs in issue, but the airlines argued that it can only be a reference to the tariff fare. The Agency rejected that argument, concluding instead that the phrase "applicable fare" is ambiguous because it was used by the airlines themselves to refer to different things: the tariff fare, the fare quoted on the ticket, the amount reported by Travel Way to BSP, and the fare at which Travel Way was authorized to sell the tickets. The Agency concluded that in the face of such ambiguity, it would interpret the phrase "applicable fare" to mean either the amounts charged by Travel Way or the amounts paid by ticket holders. As there was no evidence as to the prices actually paid for the tickets issued by Travel Way, Northwest and KLM were effectively precluded from relying on Rule 65. That also led to the conclusion that Northwest and KLM had not established that the tickets were "improperly issued". The Agency concluded that Northwest and KLM had failed to show cause for dishonouring the Travel Way tickets.

[22] The corrective measures ordered by the Agency are explained in the last four paragraphs of the decision, which read as follows:

The Agency notes that the travel reservation dates for all of the tickets issued by Travel Way which have not been honoured by Northwest and KLM have passed. Accordingly, an Agency order requiring the carriers to transport holders of those tickets on their original travel reservation dates would not serve any useful purpose. The Agency further notes that, as it has determined that Northwest and KLM failed to apply certain provisions of their tariffs, the Agency may, pursuant to paragraph 113.1(a) of the [Air Transportation Regulations], direct the carriers to take whatever corrective measures the Agency considers appropriate and, pursuant to paragraph 113.1(b) of the [Air Transportation Regulations], direct the carriers to pay compensation for any expense incurred by a person adversely affected by the carriers' failure to apply the provisions of their tariffs.

In determining the appropriate corrective measures to order in this case, a balance must be struck between the carriers' statutory, commercial and operational obligations and the rights of ticketholders to rely on the validity of tickets issued by an accredited travel agency. An overriding consideration in this regard is a carrier's obligation to oversee and control the sale of its tickets and to ensure that disputes with its authorized travel agents do not place the carriage of ticket holders in jeopardy.

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 [Air Transportation Regulations], to direct Northwest and KLM to take the following corrective measures, unless the carriers can clearly demonstrate to the Agency that specific ticketholders knowingly engaged in fraudulent activities relating to the issuance of the Travel Way tickets.

Provide holders of tickets issued by Travel Way, which have not been honoured by the carriers, with the option of either:

(a) being transported, at no additional charge, to the destinations set out in their original tickets issued by Travel Way within one year of the date of the Agency's decision, upon presentation to Northwest or KLM of the original tickets, or

(b) receiving a reimbursement for the tickets. In the absence of satisfactory evidence to the contrary, such reimbursement should be based on the price shown on the ticket.

Further, the Agency directs Northwest and KLM, pursuant to paragraph 113.1(b) of the [Air Transportation Regulations], to pay compensation for any expense incurred by a person adversely affected by the failure by Northwest or KLM to apply the specific provisions of their tariffs set out above. Claims for compensation should be filed directly with either KLM or Northwest by affected persons. Northwest and KLM shall provide the Agency with information relating to the persons to whom claims may be submitted.

[23] The absence of a supporting affidavit for the underlying facts is one unusual aspect of the record in this case. The other is that the parties agreed that the record could include three affidavits that were not before the Agency. One is an affidavit of a law professor, submitted for Northwest and KLM with its application for leave to appeal. That affidavit speaks only to the legal issue under appeal.

[24] The other two affidavits relate to factual matters that I presume are within the knowledge of the Agency but may not be a proper subject for judicial notice in this Court. The first factual affidavit is that of Gerald Strong, an employee of Northwest who is an experienced fraud investigator. His affidavit apparently was submitted earlier in these proceedings in support of an application for a stay of the decision of the Agency. It deals with some of the facts referred to above.

[25] The second factual affidavit is that of Gregory William Danylchenko, a tariff analyst with the Agency, whose affidavit was prepared in response to the application for leave to appeal. His affidavit refers to the practice of airlines who sell or permit the sale of tickets for prices that are not included in a tariff. Paragraphs 2 to 7 of his affidavit read as follows (emphasis added):

2. In the twenty-three years that I have been working in the area of air tariffs, I have observed the development of a sales practice in the air transportation industry which is now commonly referred to as the offering of net fares.

3. Net fares are discounted fares for air transportation which are not usually published in an air carrier's tariff.

4. Net fares are most often distributed by consolidators, who may be travel agents or wholesalers, to retail agencies.

5. The offering of net fares originally developed as a competitive response to the limited channels of distribution foreign air carriers entering the Canadian market have for the sale of their services. However, over the years, most Canadian air carriers have substantially reduced their sales forces and infrastructure, and many foreign air carriers have completely removed their direct-to-the-public sales presence. As a result, the offering of net fares through consolidators has now become a wide-spread industry sales practice.

6. For example, Skylink and Intair are two well-known consolidators who offer net fares for a number of air carriers' services, including those of Northwest Airlines, Inc. and KLM Royal Dutch Airlines. Attached and marked as Exhibit "A" to this affidavit are copies of a promotional flyer issued by Skylink as well as copies of certain screens from both Skylink's and Intair's websites.

7. As a result of the prevalence of the availability of net fares in the air travel market, the price a passenger pays for transportation often bears little resemblance to the fare published in an air carrier's tariff, the amount reported by travel agents to the agency which administers the settlement of payment among air carriers (BSP) may differ substantially from the amount collected by travel agents for the issuance of tickets and passenger tickets may or may not set out the actual price paid for the ticket.

Discussion

[26] By virtue of the limited scope of appeals under section 41 of theCanada Transportation Act, this Court cannot interfere with a decision of the Agency in the absence of an error of law or jurisdiction. Northwest and KLM argue that the interpretation of the phrase "applicable fare" is a question of statutory interpretation, and thus a question of law, because a similar phrase, "fares applicable", appears in subsection 55(1) of the Canada Transportation Act and section 113.1 of the Air Transportation Regulations, and should have the same meaning.

[27] They also point out that the Agency apparently failed to appreciate that the use of the phrase "applicable fare" in Rule 65 is not ambiguous even if it is used to refer to the tariff rate, the rate set out on the 102 tickets, the price at which Travel Way was authorized to sell the tickets, and the price as reported by Travel Way in its BSP report, because in fact all of those amounts are the same.

[28] I do not agree with Northwest and KLM that this case involves a problem of statutory interpretation. It seems to me to be primarily a problem of tariff interpretation, and a tariff is not a statute. However, a tariff is a document that establishes important legal rights and obligations. In my view, the interpretation of a tariff has enough of a legal component to bring questions of tariff interpretation within the scope of appellate review in section 41 of the Canada Transportation Act.

[29] I have concluded that a decision of the Agency on a question of tariff interpretation should be reviewed on a standard of reasonableness. In reaching that conclusion, I have accepted for the most part the detailed submissions on standard of review made on behalf of the Agency with respect to the relevant factors.

[30] The following factors seem to me to be the most important ones in the context of this case. First, decisions of the Agency are subject to appeal only with leave, and then only on questions of law or jurisdiction. Second, the Agency is a highly specialized and expert tribunal, charged with the responsibility of overseeing a complex array of transportation matters, including the filing and enforcement of air tariffs. Third, the interpretation of a phrase in a tariff engages to a considerable extent the specialized knowledge and expertise of the Agency in matters of the regulation of air transportation.

[31] Given that standard of review, the issue in this appeal is whether it was reasonable for the Agency to conclude that the phrase "applicable fare" in Rule 65 of the tariffs in issue does not mean the tariff rate, but the amount actually charged or paid for a ticket.

[32] The argument made for Northwest and KLM is that "applicable fare" in Rule 65 of the tariff must necessarily mean the same thing as "fares applicable" as used in section 55 of the Canadian Transportation Act and section 113.1 of the Air Transportation Regulations. That argument has a superficial attraction because of the similarity of words and subject matter. Also, if the phrase "applicable fare" appears in a tariff, and if there is somewhere in the same tariff a list of fares, one might well conclude that the phrase "applicable fare" means a fare that is on that list. Unfortunately, it is impossible to determine from the record whether the tariff rates appear in the same tariff in which Rule 65 appears.

[33] There is, however, a more important difficulty with the interpretation of Rule 65 proposed by Northwest and KLM. The difficulty arises from the fact that Northwest and KLM do not consistently operate in such a way that its authorized ticket prices are always in a tariff. On the contrary, there is evidence that Northwest and KLM have participated in the sale of tickets for "net fares", as explained in the affidavit of Mr. Danylchenko, but there is no evidence that Northwest and KLM amend their tariffs to include such net fare arrangements. It is reasonable to infer that Northwest and KLM have on occasion authorized the sale of tickets for amounts that are less than their tariff price. It follows that if the phrase "applicable fare" in Rule 65 is interpreted to mean only the tariff price, Northwest and KLM could rely on Rule 65 to justify dishonouring a ticket for which the holder has paid an authorized discounted price that is not in a tariff.

[34] I am aware that, in the factual context of this case, the Agency's interpretation of the phrase "applicable fare" in Rule 65 means that Northwest and KLM bear the risk of loss from fraudulent travel agents. However, the only alternative interpretation is the one proposed by Northwest and KLM. Under that interpretation, the risk of loss from fraudulent agents would be borne by passengers, and passengers would also be subject to the risk that Northwest and KLM could dishonour tickets sold for a price that is authorized by Northwest and KLM under an agreement that is not covered by a tariff, such as a "net fare" arrangement.

[35] Taking those considerations into account, and bearing in mind that it is open to Northwest and KLM to amend their own tariffs (subject to the approval of the Agency), I am compelled to the conclusion that the Agency's interpretation of Rule 65 must stand because it is more reasonable than the interpretation proposed by Northwest and KLM.

[36] Northwest and KLM also argued that the corrective measures ordered by the Agency are unreasonable, because in effect it would compel them to pay holders of the Travel Way tickets the full tariff rate unless the ticket holders proved that they paid Travel Way some lesser amount. They argue that the ticket holders have no incentive to offer such proof and, if they paid cash, they probably could not provide such proof in any event. I appreciate the difficulty faced by Northwest and KLM in that regard. However, I am unable to identify any error of law made by the Agency in devising its corrective measures.

[37] For these reasons, I would dismiss this appeal. The Agency has not asked for costs.

(s) "K. Sharlow"

J.A.

"I agree

Linden J.A."

"I agree

Malone J.A."

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-407-03

STYLE OF CAUSE: NORTHWEST AIRLINES, INC. And KLM ROYAL DUTCH AIRLINES

PLACE OF HEARING: Toronto

DATE OF HEARING: June 7, 2004

REASONS FOR JUDGMENT BY: Sharlow J.A.

CONCURRED IN BY: Linden J.A.

Malone J.A.

DATED: June 23, 2004

APPEARANCES:

Carol McCall

FOR THE APPELLANTS

Shelley Appleby-Ostroff

FOR THE RESPONDENT

SOLICITORS OF RECORD:

Paterson, MacDougall - Toronto, Ontario	FOR THE APPELLANTS
Canadian Transportation Agency - Hull, Quebec	FOR THE RESPONDENT

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Northwest Airlines Inc. v. Canadian Transportation Agency, 2004 FCA 238

Citations2004 FCA 238

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2004 FCA 238