The Claim in the District Court:
A motion for approval of a claim as a Class Action suit was filed to the District Court of Nazareth.
Plaintiff purchased flight tickets on EL AL Israel Airlines to Geneva and Madrid through a travel agency. The price of the tickets was in US Dollars and the Plaintiff paid for the tickets in Israeli Shekels (NIS).
The travel agency calculated the exchange rate according to the "Cash Rate", while, as alleged, it should have calculated it according to the "Transfers and Cheques Rate", which is lower. Plaintiff alleged that all travel agencies in Israel calculate the exchange rate according to the higher rate.
In addition Plaintiff alleged that there is agency and trust relationship between the travel agency and the carrier - EL AL and hence, the acts of the travel agency should be attributed to EL AL, especially in light of the fact that EL AL was aware of the said difference in the exchange rate.
The District Court stated that according to EL AL's operating license, it should have used prices and exchange rates according to those provided by IATA (International Air Transport Association)
The Court ruled that IATA rates oblige EL AL and that there is an agency relationship between the travel agency and the carrier. The Court attributed the selling of the tickets to EL AL and approved the claim as a Class Action suit against EL AL for the high exchange rates which consumers were charged.
The Appeal - Supreme Court Decision:
EL AL appealed the District Court decision to the Supreme Court (M.T.A. 5765/02 EL AL Israeli Airlines v. Eital Zilbershlag), alleging that the IATA rate has no binding force being only a voluntary agreement by companies which are members of IATA.
In addition, EL AL alleged that it has no agency relationship with travel agencies regarding the exchange rates the agencies charge passengers, although several other activities of the travel agencies do oblige EL AL.
In its judgement which was handed down on 26th August 2009, the Supreme Court stated that three questions should be addressed:
•1. Whether EL AL is obliged by IATA to charge the Transfer and Cheques Rate.
•2. Whether the agency's actions of selling the ticket for the Cash Rate can be attributed to EL AL.
•3. If the answers to the above questions are positive, which causes of action do EL AL consumers have and are these causes of action suitable for filing the claim as a Class Action suit.
The Court analyzed the first question and ruled that the IATA rate was adopted in EL AL's operating license. Even if the IATA rate was accepted voluntarily, it became binding after the operating license referred thereto as the rule for calculating rates.
"The basic point is that the IATA rate is the obligatory rate and therefore EL AL was obliged to convert the dollar rate of the airline tickets which it sold, in accordance to the transfer rate."
As to the second question, the Supreme Court made an assumption that there are cases in which an agency relationship will be established.
However, in order to establish the agency relationship for this particular purpose, Plaintiff should prove that EL AL was aware of the exchange rates calculated by the travel agencies and that the calculations were made with the knowledge of EL AL and with its active or passive approval.
If it is proven that travel agencies are agencies of EL AL and act in accordance with its instructions regarding the determination of the ticket price, including the manner exchange rates are calculated, then EL AL will be found liable for breaching its operating license conditions.
However, in our case the Supreme Court determined that:
"The travel agents are business entities separated from the airline companies and their profits derive from, among other things, the purchase of airline tickets by customers through them, and it cannot be stated that by selling tickets to customers they constitute an agency of the airline companies. I would add that it is very doubtful in my opinion that the travel agencies are perceived in the eyes of the customers as agencies of the airline companies. It is more reasonable that the customers approaching the travel agencies perceive them as separate entities providing them with service which includes, among other things, also the purchase of airline tickets."
The Supreme Court declined Plaintiff's allegation and ruled that for the purpose of selling airline tickets and calculating their prices, including the exchange rate, travel agencies are not agencies of EL AL (the carrier) and EL AL cannot be held liable for their actions.
The motion to approve the claim against EL AL as a Class Action suit was denied.
Conclusion
In the eyes of the Supreme Court, a travel agency may be considered as an agent of a carrier when the carrier knew, encouraged or instructed the travel agency how to act.
However as to setting ticket prices and calculating the exchange rate, a carrier is a not party to these decisions and the travel agency acts on these issues by itself and not as an agent of the carrier.
Another important issue which was determined in this precedent is that the IATA rates oblige the carrier, which is required to calculate the exchange rate in accordance with the Transfer and Cheques Rate.
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