Friday, June 09, 2006

Case Comment -- Canada 3000 -- Thumbs Down

We at Pith and Substance sometimes kid Justice Binnie about his prose style. But we kid because we love. The man did a bang up job of making a statutory interpretation case about who should pay for Canada 3000's unpaid airport charges about as interesting as it could possibly be.

There are some interesting thoughts on statutory interpretation -- the Court was as strong as it has ever been on emphasizing policy over text. I'm not so sure they really know what they're doing when they get to the policy stuff, though.

The Pithlord was an impoverished student when Canada 3000 was in business, and he vividly recalls the unpleasant food and lack of leg room -- which is not generally a problem for him, since the Pithlord's genetic code fated him never to attain the median male height. (The Pithlord is also fated to be bald, and takes such solace as he can from the fact that he is hairier and taller than his father was at the same age.) Canada 3000 is particularly famous for its sudden insolvency, leaving numerous stranded passengers.

The Pithlord is therefore not surprised to learn that the airline didn't even own its planes. It leased them. It's as if anybody can be an airline these days. As Justice Binnie notes, clearly pining for a more innocent time:

After decades of financial turbulence, an airline in the modern era may consist of little more than a name, with its aircraft leased, its suppliers on week to week contracts and even its reservation and yield management systems outsourced to one of the global service providers... [Yes, the use of "turbulence" is pretty lame old-guy humour -- but he's improving! Give the man some slack. It's not a bad image of the post-modern nominalist corporation.]

In addition to forcing thousands of ordinary Canadians to put upon their extended families for longer than anyone really is up for, it didn't pay its airport or navigation services fees. These are the source of revenue for the quasi-privatized entities spun out of Transport Canada in the mid-90s. Those entities decided they wanted to take the unpaid bills out of the owners of the airplanes, who had leased them to Canada 3000. The owners, not suprisingly, responded that those debts weren't their debts. They just leased the planes.

There are basically four options here:

1. The owners of the planes have no liability for the unpaid fees.

2. The unpaid fees constitute a lien on the planes: liability is limited to the value of the plane, but the airports get a proprietary right in the asset.

3. The unpaid fees give the airports the right to seize the planes, but not to use them or any proprietary interest in them.

4. The owners are jointly and severally liable for the unpaid fees. (To more than the value of the plane in the airport.)

The lower courts picked #1. The SCC picked #3. This cannot be the best one from a policy point-of-view, since it imposes an inappropriate degree of judicial discretion, and creates a situation of bilateral veto over the use of a productive asset. From a policy point of view, I would prefer to see a lien system based on admiralty law -- airports should get an interest in planes of insolvent companies equal to the fees they are owed. Because it is a statutory interpretation case, you can't just blame the court if the policy result is bad -- it might be Parliament's fault. But from an interpretative point of view, I think the lower courts were right: the language of the statute was too unclear to justify what is effectively expropriation.

There is definitely a case to allow the airports some kind of remedy against the planes, like admiralty law gives some creditors against ships. The basic public policy goal here ought to be to permit as much competition as possible in an industry where huge capital investments are required as a barrier to entry. The airports are, for practical purposes, natural monopolies. They therefore need to be regulated -- at minimum, they should be required to take all comers on equal terms. The downside with that, as Justice Binnie points out, is they can't take contractual action to control the risk of airline default. The danger that the airports will abuse their market power creates an insurmountable "transaction cost."

One trouble with the solution adopted is the filter of judicial discretion, which is not appropriate in a market economy for ranking claims in insolvency. That is followed by a situation where two parties -- the creditor and the owner -- can each veto productive use of the planes, but there is no clear quantum of claim that the creditor has against the plane.

The issues seem similar in principle to those in admiralty law. Why don't the feds adopt solutions that have been worked out over a thousand years, and apply them here?

On a more narrowly legal level of interpretation, I accept Binnie's points about the importance of policy. But the biggest policy concern for the courts should be the intrusion on private property. Don't let the politicians get away with that without being clear. Binnie dispatches this concern in a paragraph, but it seems to me like it should have been the dominant one.

Case comment of Canada 3000 Inc., Re; Inter-Canadian (1991) Inc. (Trustee of), 2006, SCC 24. Picture of Mr. Justice Binnie credit Phillipe Landreville, Supreme Court of Canada collection.