TLQ June 2013l Layout 1 - Travel Law Quarterly...Hocker Advocaten, Amsterdam Tel: +31 (20) 577 7773...

Leisure IndustriesNewsletter of the Leisure Industries Section of the International Bar Association Legal Practice Division

NUMBER 36 JUNE 2013

In this issue

Section officers 160

Regional Representatives 161

From the Chair 162

Articles 164

IBA Annual Conference Boston,6–11 October 2013Leisure Industries Section sessions 176

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[2013] T R A V E L L A W Q U A R T E R L Y 159

160 [2013] T R A V E L L A W Q U A R T E R L Y

ChairBrenda L PritchardGowling Lafleur Henderson,TorontoTel: +1 (416) 862 5716Fax: +1 (416) 863 [email protected]

Vice-ChairShivendra KundraKundra & Bansal, New DelhiTel: +91 (11) 2923 8021Fax: +91 (11) 2923 [email protected]

SecretaryDavid JacobySchiff Hardin, New YorkTel: +1 (212) 745 [email protected]

Corporate Counsel ForumLiaison OfficerKees van de MeentHocker Advocaten, AmsterdamTel: +31 (20) 577 7773Fax: +31 (20) 671 [email protected]

Membership OfficerSabrina FiorellinoCassel Brock & Blackwell, TorontoTel: +1 (416) 642 7455Fax: +1 (697) 259 [email protected]

Academic Liaison OfficerDavid GrantTravel Law Quarterly, Newcastle Upon TyneTel: +44 (191) 289 289 7Fax: +44 (191) 289 289 [email protected]

Website and PublicationCoordinatorConstantine BoulougourisNorton Rose, SydneyTel: +61 (2) 9330 8471Fax: +61 (2) 9330 [email protected]

Electronic Entertainment and Online Gaming Subcommittee

ChairJohn VernonThe Vernon Law Group PLLC, DallasTel: +1 (241) 273 3715Fax: +1 (214) 299 [email protected]

Vice-ChairGabrielle PatrickMutope Johnson & Associates, New YorkTel: +1 (646) 644 1970Fax: +1 (713) 529 [email protected]

SecretaryRosario CartagenaHeydary Hamilton, TorontoTel: +1 (416) 642 2800Fax: +1 (416) 972 [email protected]

——————————————LPD AdministratorCharlotte [email protected]

Section officers


Central AmericaErika VillarrealAnzola Robles & Associates, Panama City Tel: +507 263 0003 Fax: +507 263 0006 [email protected]

EuropeBabette Marzheuser-WoodField Fisher Waterhouse, London Tel: +44 (0)20 7861 4245 Fax: +44 (0)20 7488 [email protected]

Middle EastMelissa MurrayHadef & Partners, Dubai [email protected]

North AmericaRobert BernsteinMcCarter & English, New York Tel: +1 (212) 609 6834Fax: +1 (212) 645 0853 [email protected]

South AmericaJavier MedinAlfaro Abogados, Buenos Aires Tel: +54 (11) 4393 3003Fax: +54 (11) 4393 3004 [email protected]

South East AsiaJohn WilsonJohn Wilson Partners, Colombo Tel: +94 (11) 232 4579Fax: +94 (11) 244 6954 [email protected]

AfricaAlexis ApostolidisAdams & Adams, Pretoria Tel: +27 (12) 481 1602 Fax: +27 (12) 362 6440 [email protected]

AustraliaJoel GilmanHeritage Council of Western Australia, PerthTel: +61 (8) 6552 4134Fax: +61 (8) 6552 4001 [email protected]

Regional Representatives


Hi everyone. It must be spring; the flowers are in bloom, the Boston Bruins areheading deeper into the NHL playoffs and the Toronto Maple Leafs arebooking their tee-off times (but more on that later). That also means it is timefor the June edition of the IBA Leisure Industries Section Newsletter. But before we getto the serious stuff, there have been some pretty outrageous travel stories so far thisyear. Did you hear the one about the man who impersonated an Air France pilot andtried to ride in the jump seat? Apparently he was not quite as smooth as Frank AbagnaleJr as the crew became immediately suspicious of his claims when he couldn’t work outhow to open the jump seat. Not quite enough of an adventure for a Spielberg film, butyou never know what can happen in Hollywood. And there was also a woman whoboarded a flight from Los Angeles to New York then proceeded to sing the WhitneyHouston song ‘I will always love you’ over and over again, out of tune and at the top ofher voice. Needless to say, the flight made an unscheduled stop en route so that thewoman could be removed. It is unconfirmed, but I have a feeling the pilot received astanding ovation for refusing to listen to another encore.

On a side note, travel issues have been all over the Toronto news as of late as PorterAirlines has tabled a proposal to bring jets to Toronto’s island airport. This has sparked afierce debate in the city about the impact of traffic, noise and pollution caused byairports in densely populated urban centres. On the other hand, many downtownbusiness folks, have praised the fact that it is possible to leave their office and take-offwithin an hour. A report on the issue is due later this year which will surely attract globalattention as cities try to find the right balance between the convenience of air travel andthe effects of airports on neighbouring communities.

Despite these interesting news stories, all eyes have been on Boston as of late due tothe tragic events precipitated by cowardly acts of terrorism. The targets were innocentvictims participating in the Boston Marathon, which every year attracts participantsfrom every corner of the planet eager to take part in one of the world’s premiere athleticevents. We have been here before, in New York City, London, Madrid and Bali. Eachtime it is an opportunity for citizens, industry and government, and the heroes amongthem, to step up and renounce fear in favour of hope. As a personal anecdote, I was inNew York City during the ‘Anthrax Weekend’, but you wouldn’t have known it as thestreets were teeming with people who refused to sit idly at home in a state of collectiveparalysis. Similarly, just a few weeks after the Boston Marathon, right here at home, theToronto Marathon proceeded as planned in solidarity with Bostonians and their inspira-tional drive to stand strong and carry on.

From the ChairBrenda Pritchard,Gowling Lafleur Henderson, [email protected]

I know that we are all looking forward to the IBA Annual Conference this October inBoston in order to show a similar display of solidarity. No doubt the Boston tourismindustry will prove itself resilient despite the inevitable tightening up of security. Itshould be another fantastic conference; the Leisure Industries Section will be presentingand co-presenting four sessions and I urge you to attend them all, but equally as impor-tant is to find time catch up with friends and meet new ones. That being said, I can’t waitto see you all there! In the meantime; BOSTON. STRONG. (Of course, they didn’t haveto be quite as strong as they were when they dashed the Toronto Maple Leafs hopes ofmaking it to the second round of the Stanley Cup playoffs.)



On 17 April 2013 the Court of Appeal handeddown its long awaited judgment in the OlympicAirlines v ACG Acquisition XX LLC1 case. Thecase has generated much interest among theaviation community and this recent judgment islikely to be welcomed by lessors and financiersseeking to rely on contractual mechanisms inorder to manage risk and responsibility.

Background

In August 2008, ACG Acquisition XXLLC (‘ACG’), the aircraft lessor, agreed tolease a 17-year-old Boeing 737-300aircraft to Greek flag-carrying airline,Olympic Airlines (‘Olympic’), the lessee.The lease was a five year ‘dry’ operatinglease in which Olympic agreed to acceptthe aircraft on an ‘as is, where is’ basis.ACG undertook to deliver the aircraft inan airworthy condition, suitable forcommercial service and in compliancewith various other requirements. On 19August 2008, Olympic duly executed aCertificate of Acceptance which, in accor-dance with the lease, constitutedconclusive proof that it had accepteddelivery of the aircraft. On the same day,ACG accepted redelivery of the aircraftfrom its previous operator, AirAsia.

Following delivery the aircraftcommenced commercial service almostimmediately. However, shortly after,problems began to appear: in a pre-flightinspection in Athens on 6 September

2008, inspectors uncovered corrosion andvarious other defects with the aircraft,including a broken spoiler cable on theleft wing. The Greek Civil AviationAuthority (the ‘CAA’) promptly suspendedthe aircraft’s airworthiness certificate. Theaircraft was grounded and Olympicrefused to pay rent.

Olympic sent the aircraft to EuropeAviation, a facility selected by the lessorfor repair. However, the aircraft was notrepaired to the standard required by theCAA and in October, Olympic ceasedtrading. In March 2010, ACG terminatedthe lease and sought redelivery of theaircraft and damages.

The High Court decision2

ACG claimed that Olympic was liable forpayment of rent and maintenancereserves totalling US$4.6m for the periodup until redelivery, and US$6.9m indamages for loss of rent from return untilthe expiry date of the lease. Olympiccounterclaimed damages for breach ofcontract, claiming that the aircraft wasnot, in fact, in the delivery conditionrequired by the lease. In particular,Olympic argued that the aircraft was not‘airworthy’. They claimed €6.8m to coverthe cost of hiring a replacement aircraftand the cost associated with attempting toreturn the aircraft to an airworthy condi-tion. In the alternative, Olympic claimed:

Case note: Olympic Airlines v ACGAcquisitionJames BallBird & Bird, [email protected]


firstly, that it was entitled to reclaim rentand maintenance reserves on the basisthat there was a total failure of considera-tion and, secondly, that the lease wasfrustrated on termination of the aircraft’sairworthiness certificate by the CAA.

ACG further claimed that, in the eventthat the Court found that the aircraft wasnot airworthy or in the delivery conditionrequired, Olympic had signed theCertificate of Acceptance, which consti-tuted conclusive proof that the aircraftcomplied with the conditions requiredunder the lease at the time of delivery.Hence, Olympic’s acceptance meant thatit should be prevented from succeeding inits claim, either on the basis of contractualagreement or under the principle ofestoppel by representation.

The Court did not agree with ACG’scontractual argument, namely that execu-tion of the Certificate of Acceptanceconstituted conclusive proof that theaircraft was in the required condition atdelivery. It said that the Conclusive ProofClause made no direct reference to therequired delivery conditions of theaircraft, as detailed in Clause 4.2 andSchedule 2 of the lease. Instead, the effectof the Clause was to waive any rights thatOlympic might have had to refuse toaccept the aircraft. It did not precludeOlympic from claiming damages forACG’s failure to deliver the aircraft inaccordance with the required deliveryconditions.

However, the Court did accept ACG’salternative argument in relation to estop-pel by representation. It held thatrepresentations made by Olympic in theCertificate of Acceptance were such that itwould be inequitable for Olympic tosubsequently be allowed to allege that theaircraft did not comply with the leaseconditions. It emphasised that Olympichad ample opportunity to inspect and test

the aircraft before it accepted delivery.Further, Olympic was aware that uponsigning the Certificate of Acceptance,ACG would rely upon representationsmade in the Certificate in order to acceptredelivery from AirAsia. ACG, in relyingon such representations, was acting to itsdetriment, since it would no longer havethe right to refuse redelivery on groundsof the aircraft not being in the requiredcondition. The Court also found againstOlympic’s alternative arguments inrelation to failure of consideration andfrustration.

The Court of Appeal decision

Olympic appealed the decision of theHigh Court. It claimed that the Judge waswrong to find that the provisions of thelease agreement and Certificate ofAcceptance, whilst ineffective at amount-ing to contractual estoppel, neverthelessamounted to estoppel by representation.ACG reiterated its argument from theearlier hearing, namely, that of contrac-tual estoppel.

In handing down its judgment, theCourt of Appeal found that the lowerCourt had come to the correct conclusionbut had done so using incorrect reason-ing.

Allocation of risk and responsibility

The Judge began by explaining thedangers of drawing parallels betweenaircraft operating ‘dry’ leases and similarmaritime documents, such as timecharters of ships. He referenced the caseof Pindell v AirAsia,3 in which he empha-sised such dangers.

He went on to give a detailed analysisof the position of the lessor in aircrafttransactions. He noted that a lessor’s rolewas essentially a financial one. It does not,except for the brief interim between

leases, get involved with the operation ofthe aircraft. Lessees, however, are respon-sible for the day-to-day operation of theaircraft.

The Judge then discussed the complex-ities associated with risk allocation inaviation transactions. He stated that:

‘the complexity of a modernpassenger aircraft is such that, inthe absence of some contractualmechanism whereby compliancewith the contractually requireddelivery condition can be conclu-sively determined, parties to leasessuch as this could face years ofuncertainty as to the allocation ofresponsibility for defects of whichneither of them were aware ondelivery.’

The Judge noted that because of suchcomplexities, industry practice is suchthat the lessee elects whether or not toaccept lease of an aircraft, notwithstand-ing the fact that it may later transpire thatthe aircraft did not comply with therequired delivery conditions. He went onto note that, in this situation both partiesacknowledged that a full inspection of theaircraft was impossible. It would take acomplete disassembly in order to be surethat the aircraft was free from any undis-covered defects.

Therefore, the Judge acknowledgedthat parties to aviation transactions mustagree upon allocation of risk and respon-sibility in the contractual documentation.The question before the Court in thisinstance was whether the contractualmechanisms put in place by ACG wereenough to achieve such end?

The contractual estoppel argument

The Court of Appeal agreed with ACG’scontractual estoppel argument and, in

doing so, confirmed that ACG’s contrac-tual mechanisms for allocating risk andresponsibility were effective.Consequently, Olympic’s execution of theCertificate of Acceptance was conclusiveproof that it had accepted the aircraft andit was precluded from subsequently alleg-ing that it was not satisfactory.

The Judge felt that there was noambiguity surrounding the wording ofthe Certificate of Acceptance or the lease.Despite this, the lower Court had failed togive such wording its clear meaning andeffect. The Judge noted that the wordingof the Certificate of Acceptance was notentirely consistent with the ConclusiveProof Clause in relation to examination ofthe aircraft. However, he said that this wasirrelevant, stating:

‘it is implicit in the Certificate ofAcceptance, read with the lease,that the lessee has indeedexamined and investigated theaircraft or that it is content toconfirm the aircraft’s conditionwithout such an examination.’

As discussed above, the High Court foundthat the Conclusive Proof Clause did notmake express reference to Clause 4.2 orSchedule 2 to the lease. This led it toconclude that the Clause did not precludeOlympic from claiming damages forbreach of ACG’s obligations as to therequired condition of the aircraft.However, the Court of Appeal felt thatsuch express reference did not matter:

‘Clause 7.9 refers to Clause 4.2 andto Schedule 2 by clear implication.That the reference is not expressdoes not, I think, mean that thereference is insufficiently clear nordoes it prevent the words beinggiven their natural meaning. Their



natural meaning is that the aircrafthas been examined and investi-gated, that it has been found in thecondition required for delivery, andthat it has accordingly beenaccepted on (or for) lease.’

Thus, the Court of Appeal agreed withthe High Court in relation to theConclusive Proof Clause, specifically thatit confirmed Olympic’s acceptance of theaircraft and the obligation to begin to payrent, but, crucially, the Court of Appealfound that the Clause went further still. Ittook a more commercial stance and saidthat it also had the effect of precludingOlympic from alleging that the aircraftwas not in compliance with the conditionsrequired under the lease, preventingOlympic from claiming damages. TheCourt said that:

‘Clause 7.9 and the associatedCertificate of Acceptance is a veryelaborate mechanism if all itachieves is conclusive proof that thelessee has accepted delivery andthus the obligation to begin to payrent, but has not accepted that theaircraft was in fact in the conditionrequired to trigger an obligation toaccept delivery.’

Conclusion and impact

The Court of Appeal decision has beenwelcomed by members of the aviationcommunity and, in particular, by finan-ciers and lessors seeking to rely oncontractual provisions for risk allocation,including ‘as is, where is’ and conclusiveproof clauses. In arriving at its judgment,The Court of Appeal has demonstratedthat it has a sound commercial under-standing of the realities facing aircraftlessors. It acknowledged the distinctionbetween aircraft and shipping transac-tions and identified the complexitiesfacing parties to aircraft lease agreements.In particular it noted that dismantling anaircraft for full investigation beforeacceptance is commercially unrealistic.Thus, it has given credence to thecontractual mechanisms relied upon toestablish certainty by aviation lessors andfinanciers.

Notes

1. Olympic Airlines SA (in special liquidation) vACG Acquisition XX LLC (2013) EWCA Civ369

2. ACG Acquisition XX LLC v Olympic Airlines(in special liquidation) (2012) EWHC 1070(Comm)

3. Pindell v AirAsia (2011) 2 ALL ER (Comm)396


In this article the authors make out the case forlegalising hotel casinos in the Ukraine.

Introduction

Gambling is an issue which has beenpainful for many hoteliers in Ukraine forsome years. Since June 2009 gambling hasbeen prohibited by the moratoriumimposed under Ukraine law ‘OnProhibition of Gambling Business inUkraine’. But it looks as though the higheconomic demand for gambling businessexperienced by fashionable and luxuryhotels may be satisfied by a legislativeinitiative in the Ukrainian parliament,namely the draft law ‘On Gambling’. It isanticipated that this will create a legalframework that will finally allow gamblingto be carried out in an open and transpar-ent manner.

Consequences of a legal vacuum

All casinos, slot machines, sports betting,interactive gambling, and electronicvirtual casinos are banned under themoratorium. Although the legislator,when enacting that law, was guided bygood intentions and a desire to protectsociety from the negative effects ofgambling, in practice, things have turnedout the reverse.

In particular, many casinos andgambling centres began to operateoutside the law, depriving the Ukrainestate treasury of millions of hryvnia in taxrevenue, while the players still continuedto suffer the negative effects of the game.As a consequence everyone shared thelosses: the state, the players/gamblers andthose legitimate businesses which wantedto establish open, transparent and fairgames.

As the moratorium was adoptedforeign investors and Ukrainian businessfiled numerous claims against theUkrainian state authorities requiringreimbursement of sums for the unusedperiod of gambling licences cancelled dueto the moratorium but without success.After such unsuccessful attempts foreigninvestors regarded the political andregulatory climate in Ukraine as unstable.

In the current vacuum anyone whooperates a gambling business risks fines ofat least UAH 8m (approx. US$1m) andfaces the confiscation of their gamblingequipment and all of their profit will beforfeit to the state.

Currently we have a choice, we canaccept the status quo or we can adopt thelegislative amendments contained in thedraft law which are discussed below.

Hotel casinos: Is the game worththe candle?Timur BondaryevArzinger Law Office, Ukraine [email protected]

Lada ShelkovnikovaArzinger Law Office, [email protected]


Hotels: Leaders in the struggle forcasinos

The draft law provides that preference willbe granted to hotels who wish to establishcasinos. In particular, it is envisaged thatUkraine will be divided into areas: resortareas (the Autonomous Republic of theCrimea (ARC) and the main resort townsBukovel, Truskavets, Morshyn,Mukachevo) and the rest of the territoryof Ukraine. In that part of the Ukrainewhich does not belong to the resort areas,casinos will be permitted in 4–5 star hotelswhich have more than 100 rooms. Andwithin the resort areas casinos will bepermitted in hotels of 3–5 star categorywith more than 60 rooms. To date, thedraft law ‘On Gambling’ provides thepossibility of establishing a casino in aseparate building without linking it to thehotel, provided the area of the gamblinghall is at least 500 square metres.

Such preference is given to hotels dueto the legislators’ view that it is fashion-able and luxury (4–5 star) hotels whichwill be able to provide the proper equip-ment and software to gamble fairlywithout manipulation of games’ results.In addition, high end hotels will filter outinappropriate clients.

It is certainly the case that it is the 4–5star hotels which need this preference themost in order to compensate for lossesrelated to low occupancy rates.

It is impossible to underestimate theimportance of this issue because the 4–5star hotel sector in the non-resort cities ofUkraine are suffering in the currenteconomic climate. Low visitor numbersand a lack of domestic and foreigntourists coupled with high competition inthe market have resulted in low demandfor hotel services. As a result these hotelsdesperately need a decent alternative tohotel services and casinos will fulfil thisneed.

Legislative initiatives on gambling

Licensing

Under the draft law hoteliers will have toobtain a licence from the casino gamblingregulator. The proposed cost of thelicence will be UAH 40m although, to befair, it should be noted that this amount ispaid quarterly over the term of the seven-year licence.

Gambling without a licence will be even more expensive. Such an offence will be punishable with a fine of UAH80m (approx. US$10m), the confiscationof gambling equipment and the forfeit ofall profits from such gambling to the state.

Equipment certification and patenting

To prevent physical interference withgame results, and thus ensure achieve-ment of a truly fair game, all the casinoequipment (tables, slot machines, cylin-ders, software) must be certified inaccordance with technical standards,including those which set limits foraudible noise, electromagnetic emissionand radiation.

In addition, the casino will be obligedto undergo annual testing of equipmentfor compliance with the requiredstandards. And if the testing reveals thatthe software or hardware has been inter-fered with this will lead to a fine of UAH300,000 (approx. US$35,000), and confis-cation of equipment.

A casino will be obliged to registerevery gambling table and pay fees inaccordance with the rates set by local self-governments authorities (which isbelieved to be about US$1,500 per table).The casino must also be registered andhave at least ten gambling tables, whichsignificantly increases the cost of keepingthe casino, given the size of the proposedfee for each table.

Moreover, in order to obtain a licencethe equipment must be purchasedoutright by the casino or form part of itsinitial charter capital. Alternatively, if theequipment is purchased by virtue of aloan facility, it must be confirmed thatsuch equipment will become the propertyof the casino in the future.

Net assets of the casino

The net assets of the casino operator atthe end of each fiscal year within the termof the licence must be not less than UAH10m. It should be noted that maintenanceof net assets at the UAH 10m level isgoing to be a challenge, especially giventhe fact that in the first few years casinoswill struggle to attract a sufficiently largeenough clientele and to establishthemselves in the market while at thesame time paying the required licencefees. It would seem sensible therefore toprovide a period of grace for each casinoto achieve the specified level of net assets,perhaps three to five years.

Casino prize funds

It is proposed that the casino prize fundsshould be placed in a separate bankaccount of the operator or within thecasino cash desk, where at the end of eachworking day there must be no less thanUAH 500,000. This amount has to bewithdrawn from the cash flow of thecasino and frozen in the account of thecasino operator on behalf of the luckywinners on the night. In addition, toavoid any manipulation of the funds won,the draft law requires payment of funds tothe winners to be carried out within threeworking days.

Rules of the game

It is very important to ensure that thecasino is not able to manipulate the rules

of the game, thus the relevant rules mustbe approved by the licensing authority orby the so-called National Provider ofCasino Entertainment.

It is the legislators’ intent to compre-hensively regulate the technical andfinancial side of the gambling businessand any failure to comply will result inpenalties, fines and confiscation. As aconsequence it will be better to play fair ornot play at all.

Lottery terminals – alternatives toslot machines

Although currently it is impossible toestablish a fully operational casino, never-theless some gambling is permissibleunder the Ukraine law ‘On StateLotteries in Ukraine’ which came intoforce on 6 October 2012 and offered theopportunity of gambling by means of so-called lottery terminals. This law allowsbusinesses and individuals (acting asdistributors of the state lotteries) to equipestablishments with lottery terminals totake stakes from players and pass theminformation on stakes from the operatorof state lotteries. Lottery terminals looksimilar to ordinary slot machines,gambling on which is prohibited accord-ing to the Law of Ukraine ‘OnProhibition of Gambling Business inUkraine’. However, due to the fact thatthe lottery terminals use differenttechnology and software and areconnected to a central electronic bettingsystem they are not identical to slotmachines, and therefore not subject tothe moratorium.

The technological difference is that slotmachines contain devices and/or softwarewhich independently determined theresults of the draw and the amount ofprize, while results at lottery terminals aredetermined by a central electronic system.In this case the lottery terms are defined



by the operator of lotteries in accordancewith the aforesaid Law.

Pursuant to the Law, lotteries may becarried out only by licensed operators. Todate, there are only four operators in theUkrainian market. The requirements tobecome an operator are very stringent:the operator must have had experience inthe manufacturing and performance ofstate lotteries in the lottery market inUkraine for at least ten years, have at least5,000 operating lottery terminals, at least5,000 points of lottery distribution, and tohave a permanent operating unit withineach city of a population of over 500,000people.

However, in order to operate lotteryterminals, there is no need to acquire a

lottery operator licence; it is enough tobecome a so-called lottery distributorunder a contract with an existing opera-tor. This form of distribution does notrequire any permission and therefore, anyperson or any hotelier can obtain suchstatus simply by virtue of entering intoagreement with the operator.

There is no doubt that Ukraine needsto revive the gambling business. It gener-ates billions of hryvnia revenue andthousands of jobs and it will support thedevelopment of hotel business in theUkraine and attract foreign investment.Hoteliers should not wait passively forchange but lobby for the draft law to beenacted.


Introduction

In its recent decision in Lavier v MyTravelCanada Holidays Inc, 2013 ONCA 92, theCourt of Appeal for Ontario, Canada,denied class counsel’s request foradditional fees after the exhaustion of theclaims process resulting from a settlementof a class action. The class action was onbehalf of Canadian travellers to hotels inthe Dominican Republic who allegedlybecame ill from an outbreak of norovirusin 2004–2005. In its decision, the Courtprovided guidelines on the award of classcounsel fees and warned against awardingfees that are disproportionate to thebenefits actually provided to classmembers as a result of the settlement.

Background

Suzanne Lavier booked a travel packagewith MyTravel Canada Holidays Inc totravel to a resort in the DominicanRepublic in January 2005. Ms Lavierclaimed that she suffered variousgastrointestinal symptoms while staying atthe resort and started an action under theOntario Class Proceedings Act 1992, SO1992, c.6 against the tour operator on

behalf of all passengers who booked travelpackages to stay at the resort over a sevenmonth period during the 2004–2005season. Ms Lavier alleged that the tourprovider was negligent in sending classmembers to the resort when there was anoutbreak of norovirus.

Justice Perell of the Ontario SuperiorCourt of Justice initially dismissed MsLaver’s motion to certify the action as aclass proceeding. Justice Perell expressedreservations about whether a tour opera-tor could ever have a duty to provide classmembers with a ‘disease free, virus free’holiday, and found that the proposed classdefinition was overbroad. He furtherconcluded that the numerous individualissues remaining after a common issuestrial meant that a class proceeding wouldnot be preferable to individual actions. MsLavier successfully appealed JusticePerell’s decision on the preferability issuebut did not convince the appellate courtto restore the original class definition.The certification question was accordinglysent back before Justice Perell for certifi-cation on the basis of a reduced class –that is, all Canadian passengers (exceptfor passengers from the province of

Ontario Court of Appeal limits theaward of premium fees to classcounsel in travel class actionSally Gomery Norton Rose, [email protected]

Jamie MacdonaldNorton Rose, [email protected]


Quebec) who stayed at the resort over athree-and-a-half month period and whohad not already signed a release from thetour operator. This smaller class includedapproximately 4,000 passengers, less thanhalf the class size originally proposed.

Settlement agreement

After the appellate court sent the case backto Justice Perell for certification, theparties agreed to settle. The settlementwas concluded after long negotiations andwithout any admission of liability by thetour operator. Under the terms of thesettlement agreement, the tour operatorestablished a settlement fund ofCAN$2.25m from which class memberscould submit a claim for set amountsdepending on the length of time theyclaimed to have had gastrointestinalsymptoms during their holiday. Classmembers whose symptoms lasted only twodays did not need to present any medicaldocuments to support their illness, butcould simply submit a statement attestingto their experience. Class members whosesymptoms were of longer duration had toproduce a record from a physician, andwere then entitled to a higher set paymentor to seek arbitration. The tour operatoralso agreed to pay an initial counsel fee ofCAN$600,000 to class counsel over andabove the settlement fund.

If the claims of class members exceededthe funds available for settlement, thesettlement agreement provided that thecompensation to eligible claimants wouldbe prorated. If, on the other hand, anymoney remained in the settlement fundafter all eligible claims by all classmembers were paid, class counsel couldapply to the court for an additionalcounsel fee. Any money that remained inthe settlement fund at the end of theprocess would revert to the tour operator,

which reserved the right to oppose anyapplication by class counsel for anadditional fee.

The court has to approve any settle-ment under the Class Proceedings Act,1992. As such, Justice Perell certified theaction as a class proceeding on consentand subsequently issued an order approv-ing the settlement agreement. In hisreasons for the settlement approval order(2011 ONSC 1222), Justice Perellconcluded that the settlement was in thebest interest of class members butacknowledged “the possibility that thetake up will be low and the residue corre-spondingly high” and that the “finalassessment of the quality of the settlementwill depend upon the degree of take-up”.Justice Perell also noted that additionalclass counsel fees could only be justified ifthere was, among other things, a reason-able take-up of the settlement’s benefits:

‘Class Counsel have earned theirfee to date and will have to justifyany additional fees includingdemonstrating that there was areasonable take-up of the benefitsof the settlement.’

Request for additional counsel fee

Of the 4,000 class members with potentialclaims, only 354 class members actuallysubmitted an eligible claim. This meantthat the settlement had a take-up rate ofroughly nine per cent. The overwhelmingmajority of claims (279 or 79 per cent)were paid to class members who did notsubmit medical documentation support-ing the claim of illness during theirvacation. As a result, the total amount ofpayments to class members from theCAN$2m settlement fund was just overCAN$333,000.

Despite the low take-up rate, classcounsel applied for additional counselfees in the amount of CAN$395,000. Ifapproved, class counsel would havereceived a total counsel fee of CAN$995,000 – almost three times the amountpaid out of the settlement fund.

Justice Perell granted class counsel’sapplication for additional counsel fees(2012 ONSC 1673). Justice Perell agreedwith the tour operator’s submissions thathe needed to consider the take-up rate.However, he relied on case law from theUnited States – Boeing v Van Gemert, 444US 472 (1980) and Masters v WilmelminaModel Inc, 473 F.3d 423 (2007, 2nd Cir) –and Quebec – BMG Musique (Canada) Inc vGuilbert, 2007 QCCS 432, aff ’d 2009QCCA 231 – that focused on the notionaltotal value of funds available to classmembers in the settlement rather thanthe actual take-up rate when determiningappropriate counsel fees.

The tour operator appealed thisdecision to the Court of Appeal ofOntario.

The Court of Appeal’s decision

In its 14 February 2013 decision, theCourt of Appeal set aside Justice Perell’sdecision and directed the claims adminis-trator to return the CAN$395,000 left inthe settlement fund to the tour operator.

The Court of Appeal reaffirmed itsprevious holding in Gagne v Silcorp, 1998CanLII 1584 that in order to approve anycounsel fee, class counsel had to show thatthe counsel fee was ‘fair and reasonable inall the circumstances of the case.’ TheCourt of Appeal acknowledged that fixingcounsel fees in class proceedings is ‘an art,not a science’, and the court had to relyon a number of ‘yardsticks’ to come upwith a counsel fee that was fair andreasonable, including a consideration of

whether the counsel fee was proportionalto the risk undertaken and the resultsachieved. The Court of Appeal stressedthat this proportionality was necessary toensure that class counsel did not becomethe principal beneficiaries of any settle-ment.

In the present case, the Court ofAppeal found that Justice Perell hadidentified all of the proper factors toconsider when assessing whether theadditional counsel fee was ‘fair andreasonable’. He had however notadequately recognised the importance ofthe take-up rate, which led to a counselfee that was ‘manifestly disproportionateto the results actually achieved for theclass’:

‘The starting point for the‘yardsticks’ analysis must be recog-nition of the result achieved forpeople who fell ill at the resort. Inthis case, the result was thatapproximately nine per cent of theclass received compensationthrough the efforts of Class Counseland this compensation amount toabout one-sixth of the total negoti-ated fund. This is not a spectacularresult.’

The Court of Appeal held that, in thecircumstances of this case – where it wasclear that the vast majority of classmembers did not actually become ill at theresort and did not claim any compensa-tion from the settlement fund – the actualamount paid to class members was thebetter measure of the success of the settle-ment.

The Court of Appeal also rejected classcounsel’s argument that the additional feewas required to take account of the litiga-tion risk involved with taking on theaction. The Court of Appeal held that the



litigation risk ended with the conclusionof the settlement agreement and wasaccounted for in the initial counsel fee.

Commentary

This decision provides an importantcheck on the Ontario practice of awardingpremiums to class counsel to account forthe risks involved in bringing a classproceeding. While the court will continue

to award a premium where warranted,the court must ensure that the totalcounsel fees are proportionate with theresults actually achieved for the class. Ifthe court awards a counsel fee withoutdue regard to the actual benefit to classmembers of the action, the court runs therisk of making class counsel the mainbeneficiary of the proceeding.

Monday 1430 – 1730Private equity – private pastimesPresented by the Corporate and M&A Law Committee,the Leisure Industries Section and the North AmericanRegional ForumPrivate equity and other forms of financing in hotels,resorts, casinos and amusement parks.Tuesday 1430 – 1730

‘Gym bunnies and advertising hares’ – advertisinghealth food, drinks and supplements – what youcan, can’t and must sayPresented by the Healthcare and Life Sciences LawCommittee, the Leisure Industries Section and theProduct Law Advertising Committee

This session will discuss the following:• health products advertising;• diet products;• energy drinks; and• food supplements.

Wednesday 1430 – 1730Online gaming or gambling? Blurring the linebetween social media, entertainment andgamblingPresented by the Criminal Law Committee, the LeisureIndustries Section, the North American Regional Forumand the Technology Law CommitteeExploring the evolving relationship between onlinegaming, online gambling, entertainment and socialmedia and the legal implications of the new sector.

Thursday 1430 – 1730Revision of EC Regulation 261 on passenger rightsPresented by the Aviation Law Committee, theEuropean Regional Forum and the Leisure IndustriesSectionRegulation 261/2004 introduced important new rightsfor air passengers in the event of being denied board-ing, long delays and cancellations. The Regulation tookeffect in 2005 and sets a minimum level of qualitystandards which the airlines have to live up to, in orderto protect passengers.

Ever since the Regulation came into force, airlines havebeen seeking juridical redress to avoid its applicationwith the effect that the European Court of Justicedelivered interpretations which were not alwaysconsidered to be in line with pre-existing law.

The revision process of Regulation 261/2004 began in2012. Will the EU take the concerns of the industryinto consideration and what are these concerns? Willthe new Regulation foresee provisions for betterenforcement, and why would this be necessary? Thepanel will try to seek a compromise on these and otherquestions, or is a compromise just not feasible?Regulation 261/2004 and its revision is not only appli-cable to EU airlines and passengers but to all airlinesand passengers departing from an EU airport regard-less of their nationality. Hence, although this is EUlegislation, it will have an effect on the industry world-wide and is thus a reason for worldwide opposition.


• The largest gathering of the international legal community in the

world – a meeting place of more than 4,500 lawyers and legal

professionals from around the world

• More than 180 working sessions covering all areas of practice

relevant to international legal practitioners

• The opportunity to generate new business with the leading fi rms

in the world’s key cities

• A registration fee which entitles you to attend as many working

sessions throughout the week as you wish

• Up to 25 hours of continuing legal education and continuing

professional development

• A variety of social functions providing ample opportunity to

network and see the city’s key sights

• Excursion and tours programme

TLQ June 2013l Layout 1 - Travel Law Quarterly...Hocker Advocaten, Amsterdam Tel: +31 (20) 577 7773...

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Transcript of TLQ June 2013l Layout 1 - Travel Law Quarterly...Hocker Advocaten, Amsterdam Tel: +31 (20) 577 7773...