Prince et al. v. ACE Aviation Holdings Inc. et al.

[Indexed as: Prince v. ACE Aviation Holdings Inc.]

Ontario Reports

Ontario Superior Court of Justice,

Conway J.

June 26, 2013

115 O.R. (3d) 721 | 2013 ONSC 2906

Case Summary

Conflict of laws — Forum conveniens — Plaintiffs bringing proposed class action against Air Canada in Ontario alleging that defendant unlawfully charged them U.S. transportation taxes on Air Canada ticket purchases — Defendant failing to demonstrate that U.S. was clearly more appropriate forum in which to resolve claim with respect to charges on tickets paid for in Canada — U.S. more appropriate forum in which to adjudicate claim with respect to tickets paid for in U.S. as that claim required adjudication on matters relating to imposition and collection of taxes on transactions occurring within U.S.

Conflict of laws — Jurisdiction — Plaintiffs bringing proposed class action against Air Canada in Ontario alleging that defendant unlawfully charged them U.S. transportation taxes on Air Canada ticket purchases — Defendant being present and carrying on business in Ontario — Real and substantial connection existing between claim and Ontario — Ontario court having jurisdiction to adjudicate dispute — "Revenue rule" not preventing court from adjudicating dispute — That rule preventing Canadian courts from enforcing foreign revenue laws or judgments but not restricting courts from adjudicating any matter that may involve foreign tax laws.

The plaintiffs brought a proposed class action in Ontario alleging that Air Canada had unlawfully charged them United States transportation taxes on Air Canada ticket purchases. The defendant brought a motion for an order dismissing or permanently staying the action on the basis that the court did not have jurisdiction over the dispute and on the basis of forum non conveniens.

Held, the motion should be granted in part.

As the defendant was present and carried on business in Ontario, the Ontario court had presence-based jurisdiction. Further, there was a real and substantial connection between the claim and Ontario such that the court could assume jurisdiction. The "revenue rule" did not prevent the court from adjudicating the dispute. That rule prevents a foreign state from suing in Canada for taxes due under the law of the foreign state. It is an enforcement rule. The rule does not broadly restrict the court from adjudicating any matter that may concern or involve foreign tax laws.

The defendant failed to demonstrate that the U.S. courts were a clearly more appropriate forum in which to resolve issues with respect to charges on tickets paid for in Canada. However, they succeeded in doing so with respect to tickets paid for in the United States. The plaintiffs' argument for those tickets was that the defendant was giving extra-territorial effect to U.S. tax law. A Canadian court should not be adjudicating any matters relating to the imposition and collection of taxes on transactions occurring within the United States. To do so would constitute an interference with U.S. tax sovereignty. The claim with respect to tickets paid for in the U.S. should be stayed. [page722]

Cases referred to

Ashad v. Deutsch Lufthansa Aktiengesllschaft (c.o.b. Lufthansa German Airlines), [2009] O.J. No. 4979, 2009 64820 (S.C.J.); Club Resorts Ltd. v. Van Breda, [2012] 1 S.C.R. 572, [2012] S.C.J. No. 17, 2012 SCC 17, 291 O.A.C. 201, 2012EXP-1452, J.E. 2012-788, EYB 2012-205198, 429 N.R. 217, 343 D.L.R. (4th) 577,91 C.C.L.T. (3d) 1, 10 R.F.L. (7th) 1, 17 C.P.C. (7th) 223, 212 A.C.W.S. (3d) 712; Incorporated Broadcasters Ltd. v. Canwest Global Communications Corp. (2003), 2003 52135 (ON CA), 63 O.R. (3d) 431, [2003] O.J. No. 560, 223 D.L.R. (4th) 627, 169 O.A.C. 1, 31 B.L.R. (3d) 161, 30 C.P.C. (5th) 282, 120 A.C.W.S. (3d) 966 (C.A.); United States of America v. Harden, 1963 42 (SCC), [1963] S.C.R. 366, [1963] S.C.J. No. 38, 41 D.L.R. (2d) 721, 44 W.W.R. 630, [1963] C.T.C. 450, 63 D.T.C. 1276

Statutes referred to

Internal Revenue Code, USC: Title 26, 4261(a), (b), (c), (e)(2), 4262

Authorities referred to

Walker, Janet, Castel & Walker: Canadian Conflict of Laws, 6th ed., looseleaf (Markham, Ont.: LexisNexis Canada, 2005)

MOTION for an order dismissing or staying the action.

Timothy Trembley, for moving party Air Canada.

Peter C. Wardle, Jacqueline Horvat and Erin Pleet, for plaintiffs, responding parties.

[1] Endorsement of CONWAY J.: — The plaintiffs have brought a proposed class action against Air Canada. They claim that Air Canada has unlawfully charged them United States transportation taxes on Air Canada ticket purchases.

[2] Air Canada brings this motion for an order dismissing or permanently staying this action on the basis that this court does not have jurisdiction over the dispute and on the basis of forum non conveniens.

Summary of Claim

[3] The action was commenced in December 2008. The statement of claim has been amended twice. According to the fresh statement of claim (the "Claim"), Air Canada improperly collected U.S. transportation taxes on ticket purchases by Ms. Prince, a U.S. resident, and Mr. Walach, a Canadian resident.

Ms. Prince

[4] Ms. Prince claims that on several occasions she purchased tickets on the Air Canada website for travel exclusively within Canada. Each time and regardless of whether she was located in Canada or the United States when she purchased the ticket, Air Canada charged her a "U.S.A. Transportation Tax" and a "U.S. Flight Segment Tax", because she was a U.S. resident. [page723]

[5] According to the Claim:

the U.S.A. Transportation Tax and the U.S. Flight Segment Tax are imposed under 4261(a) and (b) of the United States Internal Revenue Code, USC: Title 26 (the "Code") on "taxable transportation";

"taxable transportation" is defined as transportation that begins and ends in the U.S. or the 225-mile zone. The term "225-mile zone" means that portion of Canada and Mexico that is not more than 225 miles from the nearest point in the continental United States;

4261(e)(2) of the Code provides that where amounts are "paid outside the United States for taxable transportation, the taxes imposed by subsections (a) and (b) shall apply only if such transportation begins and ends in the United States".

Mr. Walach

[6] Mr. Walach claims that he purchased a ticket from Air Canada for a flight between Los Angeles and Calgary. He was in Canada when he booked the flight.[^1] He claims that Air Canada charged him a U.S.A. Transportation Tax and a U.S. Passenger Facility Charge on the flight.

[7] For purposes of this motion, the plaintiffs accept that Mr. Walach was actually charged an "International Travel Facilities" tax pursuant to 4261(c) of the Code, not the U.S.A. Transportation Tax under 4261(a). The plaintiffs also accept that the statutory exception in 4261(e)(2) does not apply to the International Travel Facilities tax.

The allegations

[8] The plaintiffs' allegations differ depending on whether the ticket was paid for in Canada or the United States.

[9] With respect to tickets paid for in Canada, the plaintiffs make two allegations:

Air Canada collected taxes under 4261(a) and (b) of the Code on tickets paid for in Canada, where the flights do not begin and end in the United States, contrary to 4261(e)(2) of the Code (the "Improper Collection" argument).[^2] [page724]

Air Canada collected U.S. taxes on tickets paid for in Canada, thereby giving unlawful extra-territorial effect to U.S. tax laws in Canada (the "Extra-Territorial" argument).[^3]

[10] With respect to tickets paid for in the United States, the plaintiffs make only the Extra-Territorial argument. They allege that Air Canada collected U.S. taxes on tickets paid for in the United States where the flights originate from and land exclusively within Canada in the 225-mile zone, thereby giving unlawful extra-territorial effect to U.S. tax laws in Canada.[^4]

[11] The plaintiffs further allege that Air Canada negligently misrepresented that the U.S. taxes had to be paid as a condition of carriage.

[12] The plaintiffs seek various declarations against Air Canada with respect to its improper collection of taxes, as well as orders for restitution and an accounting and, in the alternative, damages for negligent misrepresentation.

Jurisdiction

[13] The sole issue in this motion is whether this court has jurisdiction to adjudicate the dispute between the parties and, if it does, whether the court should exercise its discretion to decline jurisdiction.

[14] Air Canada concedes that it is present and carries on significant business in Ontario. There is no question that this court has jurisdiction over Air Canada. This court has presence-based jurisdiction: see Club Resorts Ltd. v. Van Breda, [2012] 1 S.C.R. 572, [2012] S.C.J. No. 17, 2012 SCC 17, at para. 79; see also Incorporated Broadcasters Ltd. v. Canwest Global Communications Corp. (2003), 2003 52135 (ON CA), 63 O.R. (3d) 431, [2003] O.J. No. 560 (C.A.), at paras. 29-36. Further, there is a real and substantial connection between the claim and the Province of Ontario such that this court can assume jurisdiction: see Van Breda, at para. 90.[^5] [page725]

[15] Air Canada submits that even if this court has jurisdiction over Air Canada, this court cannot adjudicate this dispute because of the "revenue rule" set out in United States of America v. Harden, 1963 42 (SCC), [1963] S.C.R. 366, [1963] S.C.J. No. 38. It argues that the revenue rule prevents this court from considering any issues relating to the imposition and collection of U.S. taxes.

[16] In my view, Air Canada is misapplying the revenue rule. That rule prevents a foreign state from suing in this country for taxes due under the law of the foreign state: Harden, at pp. 369-70 S.C.R. It is an enforcement rule. Canadian courts will not enforce foreign revenue laws or judgments, either directly or indirectly: see Janet Walker, Castel &Walker: Canadian Conflict of Laws, 6th ed., looseleaf (Markham: LexisNexis Canada, 2005), s. 8.4, p. 8-2.

[17] The revenue rule does not, as Air Canada suggests, broadly restrict this court from adjudicating any matter that may concern or involve foreign tax laws.

[18] In this case, the court is not being asked to enforce a claim by the U.S. government for the recovery of taxes. It is being asked to adjudicate the plaintiffs' claim against Air Canada. The issues are whether Air Canada is entitled to and has properly collected amounts from its customers on ticket purchases. There is nothing in the revenue rule that prevents this court from determining those issues.

[19] Apart from the revenue rule, Air Canada has not referred to any other statute, rule or other legal principle that would preclude this court from deciding these issues.[^6]

[20] Air Canada argues that this dispute must be addressed on a diplomatic level between Canada and the United States.[^7] It provides no support for this submission. Whether or not a diplomatic resolution may be possible does not, in my view, prevent this matter from being litigated through the court system. [page726]

[21] This court has jurisdiction to adjudicate the plaintiffs' claim.

Forum non Conveniens

[22] Air Canada submits that even if this court has jurisdiction to adjudicate the plaintiffs' claim, the action should be stayed on the basis of forum non conveniens. It submits that this dispute should be litigated in the U.S. courts, which are the experts in their own tax legislation and are in a better position to deal with issues of the validity and application of the Code.

[23] The burden is on Air Canada to show why this court should decline to exercise jurisdiction. It must show that the alternative forum is clearly more appropriate: Van Breda, at paras. 101-112. The non-exhaustive list of factors that the court is to consider are set out in Van Breda, at para. 110.

[24] I note that in order to adjudicate this dispute, a Canadian court will require expert evidence to prove the relevant provisions of the Code. However, this is no different than other cases in which a Canadian court is required to consider a foreign law in order to determine a domestic dispute.

Tickets paid for in Canada

[25] As set out above, the plaintiffs make two arguments with respect to tickets paid for in Canada. In my view, both of these issues are properly addressed by a Canadian, not a U.S., court:

Extra-Territoriality argument: I cannot see how it is more appropriate for a foreign court to determine whether Air Canada's charges to its customers in Canada are lawful in this country. That is a matter for our courts to decide.

Improper Collection argument: Air Canada argues that a U.S. court is in a better position to determine whether Air Canada properly applied 4261(e)(2). I disagree. The court will have to determine whether the amount was "paid outside the United States" and whether the "transportation begins and ends in the United States". There is no reason why a Canadian court, with expert evidence if required, cannot make those determinations.

[26] Air Canada is located in Canada and carries on business in Ontario. One of the plaintiffs is a Canadian resident. Witnesses are located in both the U.S. and Canada. The alleged ticket payments were made in Ontario. There are strong connections between the claim and the Province of Ontario. [page727]

[27] Further, according to Air Canada's expert (Mr. Bezozo), if this case is transferred to the U.S., each of the plaintiffs and proposed class members first have to apply for an administrative refund from the Internal Revenue Service. This will subject them to an additional procedural step before they can even pursue their Improper Collection claim in the U.S. courts.

[28] Air Canada has not demonstrated that the U.S. courts are a clearly more appropriate forum in which to resolve issues with respect to charges on tickets paid for in Canada.

Tickets paid for in the United States

[29] I come to a different conclusion, however, with respect to tickets paid for in the United States.

[30] The plaintiffs' argument for those tickets is that Air Canada is giving extra-territorial effect to U.S. tax law because it is collecting U.S. taxes on tickets for travel occurring within Canada in the 225-mile zone.

[31] In my view, a Canadian court should not be adjudicating any matters relating to the imposition and collection of taxes on transactions occurring within the United States. To do so would constitute an interference with U.S. tax sovereignty.

[32] The plaintiffs attempt to cast this as a Canadian domestic law issue because the ticket is for travel in Canada. They also argue that whether Air Canada has authority to collect these taxes in the United States is an issue of Canadian domestic law. They cite no authority for these propositions.

[33] I reject these submissions. Regardless of how the plaintiffs frame their argument, they are in essence attempting to challenge a tax charged in the United States. If the taxpayer has an issue with respect to that tax, he should be required to follow the procedures available to him and seek recourse in that country. That is clearly the more appropriate forum in which to resolve any such any issues.

[34] I further reject the plaintiffs' submission that this part of the claim should be entitled to proceed simply to avoid a multiplicity of proceedings. The issues with respect to the charges on tickets paid for in Canada and the United States are fundamentally different. I see no unfairness to the plaintiffs in requiring them to address these issues in the country in which the relevant transaction occurred.

[35] The plaintiffs' claim with respect to tickets paid for in the United States is stayed. [page728]

Decision

[36] Air Canada's motion, as it relates to the plaintiffs' claim with respect to tickets paid for in Canada, is dismissed. Air Canada's motion, as it relates to the plaintiffs' claim with respect to tickets paid for in the United States, is granted. That part of the plaintiffs' claim is stayed.

[37] I encourage the parties to agree on the costs of this motion. If the parties are unable to agree, brief written submissions (not exceeding three pages, double spaced, exclusive of bill of costs) may be made to me within 30 days.

Motion granted in part.

Notes

[^1]: Mr. Walach also filed affidavit evidence about other flights he purchased in Canada between California and Canadian cities (Toronto, Calgary, Vancouver) on which he was charged U.S. taxes.

[^2]: See paras. 5(a), (b) and (c), para. 6(a) and para. 23 of the Claim. The plaintiffs concede that the Improper Collection argument does not apply to Mr. Walach's ticket purchases, since the taxes he was charged do not fall within the statutory exception in 4261(e)(2).

[^3]: See paras. 5(a) to (c), 6(b) and (c) of the Claim. The plaintiff submits that in the case of purchasers like Ms. Prince, if the court determines that Air Canada improperly collected taxes on those ticket purchases contrary to 4261(e)(2), it may not consider it necessary to deal with the extra-territorial issues.

[^4]: See paras. 5(d), 6(b) and (c) and 24 of the Claim.

[^5]: The presumptive connecting factors between the claim and the Province are: Air Canada carries on business in Ontario; many of the alleged ticket purchase transactions took place in Ontario; and many of the alleged negligent misrepresentations took place in Ontario.

[^6]: Air Canada refers to cases such as Ashad v. Deutsch Lufthansa Aktiengesllschaft (c.o.b. Lufthansa German Airlines), [2009] O.J. No. 4979, 2009 64820 (S.C.J.) in which Low J. stayed the plaintiff's claim as it was governed by the Warsaw Convention, which had removed the subject matter from this court's jurisdiction. Those cases are of no assistance to Air Canada.

[^7]: Air Canada supports this argument by noting that an informal complaint was made by the Canadian government in the 1950s when the U.S. transportation tax was first imposed in Canada. It also notes that 4262 of the Code contemplates that the countries may enter into an agreement to reduce the scope of the 225-mile zone.

End of Document