UK: Volcanic ash and closure of airspace - airlines' obligations under EU Regulation 261/2004 (Part 1)

As reported in our February 2010 Bulletin, airlines operating from European airports were already extremely concerned at the beginning of this year by the decision of the CJEU in the joined cases of Sturgeon v Condor and Böck and Lepuschitz v Air France which effectively sought to re-write Regulation 261/2004 and extend their obligation to pay fixed levels of compensation to flight delays over 3 hours. However, this concern was soon to be overshadowed by entirely unforeseen events.

Seismic activity at the Eyjafjallajokull volcano in Iceland started at the end of 2009 and gradually increased in intensity until 20 March 2010 when a small eruption started. From 14 April 2010 the eruption entered a second phase and created an ash cloud that spread across parts of Northern Europe and surrounding areas rising to a height of approx 30,000 feet. This led to the closure of much of Europe's airspace from 15 until 20 April.

The presence of volcanic ash in the air is a safety hazard to aircraft as the particles can affect aircraft systems and, if ingested into an engine, can transform into glass due to extreme heating, inhibiting the performance of the engine and in some cases leading to flame out. Some airlines have reported finding volcanic dust in engines during borroscope inspections. Subsequent eruptions have ensued but these have caused more limited closures of airspace. The seismic activity at Eyjafjallajokull continues and may well do for some time given that its last eruption continued for over 12 months.

These unprecedented events have caused significant unforeseen burdens for airlines as a result of the Regulation. It is clear at least that the fixed levels of compensation specified in Article 7 are not payable upon cancellation of flights due to the closure of airspace. The events constitute "extraordinary circumstances" even within the restricted definition given by the CJEU in Wallentin-Herman v Alitalia and thus the defence provided by Article 5.3 is available to airlines. This was confirmed by EU Transport Commissioner Kallas soon after the beginning of the crisis in April 2010

However, the remaining obligations upon airlines under the Regulation in the event of flight cancellation and delay, particularly care and assistance at airports and overnight accommodation along with associated transport costs, continue to apply. As has received much publicity, some low cost carriers have strongly criticised the open-ended nature of such obligations in view of the frequently low price paid by their passengers, and legacy carriers have suffered disproportionate costs also. Ryanair, for example, is reported to have paid over €40 million to meet its obligations under the Regulation as a result of the airspace closures. Its renowned chief executive initially asserted that such claims would not be paid but he subsequently agreed to pay "reasonable" claims.

Some airlines have pointed out that equivalent compensation in the ferry and rail sectors is limited to the price a passenger has paid for the ticket. They claim it is inequitable that a passenger who paid say €40 for a ticket is potentially entitled to claim many times that amount for hotel and associated expenses.

Some commentators have suggested that the crisis demonstrates how political considerations were a primary motivating factor for the Regulation without proper consideration being given to its effects. The volcanic eruption has certainly given rise to a number of practical issues in respect of which the Regulation is unclear and this article attempts to shed some light on these.

Right to care whilst waiting to be re-routed

The events of April 2010 demonstrated how open-ended airlines' obligations can be where it is not possible to re-route passengers for several days. Where passengers choose the option of re-routing rather than a refund following a flight cancellation, carriers are obliged to offer the care and assistance specified in Article 9. This covers meals and refreshments (in reasonable relation to waiting time), hotel accommodation and associated transport and two telephone calls, telexes, faxes or emails. The carrier's obligation is to offer the passenger the choice but no time is specified for the passenger to make the choice. Strictly, there would seem to be nothing to stop a passenger who did not clarify his/her intentions being accommodated, potentially for several days, and subsequently asking for a refund if re-routing had not been possible by that time.

Although the Regulation is again unclear in this respect, in the event that re-routing is not possible until the next day, where passengers can reasonably return home arguably they ought to do so and airlines should have no obligation to meet hotel expenses for passengers who are at their point of departure.

The obligations of the operating carrier to provide care and assistance to passengers whose flights are cancelled apply to all passengers with confirmed reservations, even those who have not presented themselves for check in. Some airlines have questioned whether they are liable for the hotel and meal expenses of passengers who have not come to the airport, so that the airline did not have an opportunity to offer care of its own. There have been some lower level court decisions in England which held that the Regulation does not create rights which are enforceable by passengers, so that if a carrier does not make any offer, the passenger has no remedy other than to complain to the relevant national enforcement body which could prosecute. However, such decisions are surprising as the clear provisions of EU Regulations are generally directly enforceable by those affected by non-compliance and, in view of the general approach of courts (particularly the CJEU) to interpretation of the Regulation, it seems likely that, even where no offer of accommodation was made, carriers would be obliged to reimburse reasonable hotel and meal expenses subject to the provision of receipts.

However, where airlines have offered meals and hotels but passengers have not accepted these offers and made their own arrangements, airlines should have good arguments to contest claims for such expenses.

The Regulation does not impose any time limit on the obligation to offer care, with the apparent result that passengers are entitled to such care until they can be re-routed, however long that may take. During April 2010, when it was not clear how long the closure of airspace would last, some airlines questioned how long the care obligations could reasonably last. Under Article 8.1 (a) any reimbursement must be paid within 7 days. Although the position is by no means clear, it is at least arguable that if re-routing is not possible within 7 days, it is reasonable that the care obligations should cease in line with the time limit specified for reimbursement.

Clearing the backlog

Article 11 of the Regulation provides that operating carriers shall give priority to persons with reduced mobility and any persons accompanying them as well as unaccompanied minors. The obligation is expressed to apply to care but it is likely that similar priority should be given when re-routing passengers once airspace opens after a long closure. Beyond that, the Regulation gives no clue as to whom airlines should give priority when clearing the backlog and most airlines seem to have adopted a sensible first-in, first-out approach without displacing passengers with confirmed reservations on services once airspace reopens.

The Regulation does not suggest that airlines have any obligation to provide additional flights or to re-route passengers on other carriers but such obligations, particularly the latter, may be inferred by a court if it is not possible to re-route passengers for some time following the reopening of airspace.

Delay

Although delay seems to have been less of an issue than cancellation, the provisions of the Regulation relating to delay may also be relevant.

Where flights are delayed for 2, 3 or 4 hours (depending on the length of the flight), the care obligations in Article 9 also apply. If a flight is delayed for 5 hours or more, passengers should also be offered a refund in accordance with Article 8.1 (a). However, the re-routing obligation does not apply, which is logical given that it is still intended that the flight will operate.

In addition, in the event of delay passengers may also claim proven losses under Article 19 of the Montreal Convention, although the carrier will have a defence where it could not reasonably avoid the damage. This defence would certainly apply for so long as airspace remained closed but may not do so after it reopens, and a passenger who is delayed further may have the additional right to damages under the Convention if the carrier cannot show that it took all reasonably necessary measures.

Looking forward

On 27 April 2010, EU Transport Commissioner Kallas presented to Commissioners a preliminary assessment of the effects of the closure of airspace and this identified a number of immediate, short and medium term measures to be taken. Significantly, immediate measures included a co-ordinated EU action to revise the existing ICAO recommended procedures in the event of volcanic activity. Further, the assessment confirmed that state aid for carriers affected by the closure would be permitted in principle provided it was granted on the basis of uniform criteria and did not distort competition.

Many airlines have called for the Regulation to be redrafted to exclude situations such as the volcanic ash crisis or at least to cap airlines' exposure in such event. However, there has been no indication from the Commission that any such measures will be introduced, and any amendment of the Regulation raises the possibility that other, less welcome, amendments may be introduced.

In the meantime, some aviation authorities, including in the UK and Ireland, have doubled the allowable concentration of atmospheric volcanic ash in which it is deemed safe to fly, with the result that total closures of airspace are less likely to occur in the future. Additionally, some carriers are testing new technology with manufacturers to allow aircraft to avoid any ash particles in the air. These measures are likely to reduce the extent of disruption in the future.

As has been reported recently, some carriers are also considering legal proceedings, either individually or by way of a class action, in respect of the April closure of European airspace, and it appears that some proceedings have already been commenced. In the UK potential defendants could include the UK CAA, NATS, the then Secretary of State and Eurocontrol. Given the significant level of costs which have been incurred by airlines, it is not surprising that they are investigating how to recoup these. However, a detailed analysis will be required of which body was actually responsible for which decisions and actions and what their respective powers and duties were in order to determine if there has been any breach of duty. This will not be a straightforward exercise and it may well be difficult to establish liability

The Hague Convention on Products Liability: European courts awarding US damages

The Hague Convention on the Law Applicable to Products Liability was recently applied by a Barcelona Court to award US damages against manufacturers of aircraft components, in what is understood to be the first application of the Convention in an aviation disaster context. The decision is under appeal. This article considers the Convention's raison d'être, the Spanish decision, and the extent to which the Convention's application might be challenged.

The Convention

The Convention (http://hcch.e-vision.nl/index_en.php?act=conventions.text&cid=84 ) was concluded at the Hague in 1973, with a broad intention to establish common provisions on the law applicable in product liability cases with an international aspect. It is currently in force in just 11 European countries, namely Spain, France, the Netherlands, Croatia, Finland, Luxembourg, Montenegro, Norway, Serbia, Slovenia, and the former Yugoslav Republic of Macedonia. Where product liability cases come before the courts of these 11 countries, the Convention should determine the law pursuant to which a manufacturer's liability for damage caused by their product will be assessed.

The Convention's applicable law provisions are found at Articles 4-6. Applying these to the context of a product liability claim filed against manufacturers of an aircraft or its component parts following an aviation disaster, where the habitual residence of the "person directly suffering damage" coincides with either the manufacturer's principal place of business or the place where the product was acquired by the "person directly suffering damage", the law of the habitual residence of the "person directly suffering damage" will apply (Article 5). Where Article 5 does not apply, Article 4 applies the law of the place of injury (i.e. the accident site) if that place is also the habitual residence of the "person directly suffering damage", the manufacturer's principal place of business, or the place where the "person directly suffering damage" acquired the product.

Where neither of Articles 4 or 5 applies, Article 6 applies the law of the manufacturer's principal place of business unless the claimant bases his claim on the law of the place of injury. Article 11 is the key provision in the context of the potential application of US law, since this establishes that there is no requirement for the Convention to have been adopted by the country to whose law Articles 4-6 point. If, therefore, the Convention points to US law, US law can be applied by the courts of the 11 Convention States regardless of the fact that the US is not a signatory. If the Convention were held to apply in an aviation context, it is likely to be a primary objective of claimants' lawyers to bring their claims within the scope of Article 6, with a view to application of US law against US manufacturers.

Background

The context for the Spanish Court's application of the Convention was litigation arising from the 1 July 2002 Bashkirian Airlines (BAL) / DHL mid-air collision over Uberlingen in Germany. The chain of events leading to the collision included an erroneous instruction to the BAL flight crew from the lone Swiss air traffic controller on duty. Whilst the BAL's onboard Traffic Collision Avoidance System (TCAS) instructed its crew to climb and the DHL's TCAS instructed its crew to descend, the air traffic controller instructed the BAL crew to descend as well. Had both aircraft followed their respective TCAS instructions, negative separation would have increased and the collision would have been avoided. Faced with conflicting instructions from ATC and their onboard TCAS, the Russian crew fatally followed the ATC instruction to descend, setting them on a collision course with the DHL aircraft. All 71 people on board both aircraft were killed. The German Civil Aviation Authority concluded that the accident was attributable to two direct causes: (1) the failure of the lone Swiss air traffic controller on duty to notice the dangerous separation infraction between the two aircraft in sufficient time; and (2) the BAL crew's decision to follow the ATC order over the conflicting TCAS order.

Shopping for forum

The families of 30 BAL passengers filed wrongful death suits against TCAS manufacturers Honeywell International Inc. (Honeywell) and Aviation Communications and Surveillance Systems (ACSS) before the US New Jersey District Court. That litigation was dismissed on the basis of forum non conveniens (FNC) in October 2005, and the plaintiffs subsequently re-filed in Spain in April 2007. They alleged three defects in the manufacturers' TCAS products and argued that damages should be calculated according to Arizona and New Jersey law pursuant to Article 6 of the Convention (Arizona being ACSS's principal place of business and New Jersey being Honeywell's).

Applying the Convention

The Convention's preamble and Article 1 are unquestionably broad ("Desiring to establish provisions on the law applicable, in international cases, to products liability... This Convention shall determine the law applicable to the liability of the manufacturers... for damage caused by a product"), and the present case had international elements and concerned the liability of manufacturers in respect of an allegedly faulty product.

Judge Carbonell had "no doubt" that the Convention applied, agreeing with the plaintiffs that neither of the Convention's Articles 4 or 5 were applicable on the facts and that Article 6 should therefore operate to apply Arizona law for ACSS and New Jersey law for Honeywell. Assisted by expert opinions in respect of New Jersey and Arizona law provided by the manufacturers and plaintiffs, the Judge analysed the requirements of each US state's product liability legislation and the extent to which the plaintiffs had proven liability in respect of the TCAS. After a considered analysis (her judgment runs to some 170 pages), the Judge rejected two of the plaintiffs' alleged faults in the TCAS, but agreed with their third complaint that the TCAS Pilot Manual did not make sufficiently clear that a TCAS order in conflict with an ATC order must always be followed by pilots. The Judge noted the Manual's permissive rather than obligatory language, with pilots for example being "authorised" (rather than obliged) to deviate from directly contradictory ATC instructions (a scenario which the Judge held the TCAS Manual had not properly contemplated). Having found liability, a thorough analysis of Arizona and New Jersey damages law culminated in the Spanish Judge awarding an aggregate award against both manufacturers of USD 10,474,906 (comprising USD 6,738,738 against ACSS and USD 3,736,168 against Honeywell). Whilst this was a fraction of the aggregate economic and non-economic damages claimed against both manufacturers (which exceeded USD 320 million, excluding unquantified pre-death pain and suffering and punitive damages), the Spanish court's award was substantially higher than any amount which might have been recoverable under Russian law.

Should the Convention apply?

Judge Carbonell's decision that there was "no doubt" that the Convention applied and that Article 6 should determine applicable law is interesting when the Convention's drafting history is considered (Explanatory Report by W.L.M. Reese, March 1973). : "It seems reasonable to suppose that the great majority of cases will fall within the scope of either article 4 or article 5. Likewise, these articles insure against the application of what might be thought to be a fortuitous law by requiring that two important contacts be located in a State before that State can be selected as the State of applicable law. Then, only in the rare case, where neither the injury nor the habitual residence of the person directly suffering damage is grouped in a State with another one of the contacts mentioned in articles 4 and 5, is the claimant given an option [article 6]."

Intended in 1973 as a fall-back provision to be used only as a last resort, Article 6 ironically appears to have become almost a default position when applying the Convention in an aviation accident context. To recap, Article 4 applies the law of the accident site if that is also the habitual residence of the victim; or the principal place of business of the manufacturer being sued; or "the place the product was acquired by the person directly suffering the damage". Since a passenger onboard a commercial aviation flight would never himself have acquired the product alleged to be at fault (such as the TCAS), it is difficult to see how this applies in an aviation context. Some would argue that "product" refers to the flight ticket which gave the passenger indirect use of the allegedly faulty component. This argument was however rejected by the Spanish Court in BAL/DHL. The chance of Article 4 selecting applicable law in respect of an accident over land is low; and it would presumably not apply at all if an accident were to occur over international waters (since there would be no internal law of the State of the place of injury). Article 5 applies the law of the habitual residence of the victim where that is also the principal place of business of the manufacturer being sued or the place the "product" was acquired. For US forum shoppers, if the manufacturer were North American then the litigation would presumably have been started and would presumably remain in the US if the victim was also North American. Unless the passenger's ticket was held to be the "product", Article 5 therefore appears to have no application in the context of an aviation accident. Whilst all Convention roads do not lead to Article 6, the vast majority would appear to do so. The drafting history illustrates that those formulating the Convention had probably not envisaged this unfortunate outcome.

Liability and US damages

The decision of the appeal court is awaited with interest, although the relatively low damages at stake might mean that the manufacturers and plaintiffs settle before such an appeal were heard.

Whether manufacturers and their insurers will now think twice before pursuing FNC dismissal from the US remains to be seen, although the reasoned application of US law by the Barcelona court may go some way to reassuring those who may have feared excessively high damages. Perhaps the restricted discovery and lack of jury trials in civil law jurisdictions adopting the Convention will still weigh in favour of FNC dismissal from the US even where it is envisaged that the alternative Court might apply US law. What the Barcelona Court was not asked to consider, and what will no doubt come before the courts of one of the 11 Convention Contracting States at some stage, is a situation in which an airline is joined to a Convention case by manufacturers. In such a scenario, airlines might argue that the court should instead apply the bespoke, aviation-focused Montreal Convention 1999 to determine the law applicable in respect of any damages to be awarded against them.

Rome II

Going forwards, US manufacturers will certainly consider whether US litigation in which they are involved might be re-filed following an FNC dismissal to one of the 11 European countries in which the Convention is in force. Whilst the eight Convention countries in addition to France, Spain and the Netherlands are relatively small (and only three - Luxembourg, Slovenia and Finland - are members of the European Union) one would expect plaintiffs' counsel to do all they can to find forum in one of these 11 countries. The Bashkirian passengers did not have an obvious connection to Spain, but nevertheless found Spanish forum.

To the extent litigation were re-filed in any one of the 18 non-Convention EU countries excluding Denmark (including Germany, the United Kingdom and Italy), the legislation to focus on is EU Regulation 864/2007 on the Law Applicable to Non-Contractual Obligations ("Rome II") which is now in operation and would designate the law applicable to noncontractual obligations arising out of torts (Article 4) or damage caused by products (Article 5). As a general rule, Article 4 in respect of torts applies the law of the country in which the damage occurs, whilst Article 5 for product liabilities applies the law of: (1) the habitual residence of the person suffering damage, provided the product was marketed there; or, failing that (2) the country in which the product was acquired, provided the product was marketed there; or failing that (3) the country in which the damage occurred, provided the product was marketed there. Whilst the Convention takes precedence over Rome II for the 6 EU countries party to both, Rome II's choice of law provisions promisingly appear to increase the chances of US-based manufacturers avoiding being subject to US law before a European court.

The collapse of the BA/Virgin price-fixing prosecution: over-reliance on leniency programmes?

On 1 August 2007 the Office of Fair Trading (OFT) publicly announced that British Airways (BA) had admitted collusion with Virgin Atlantic (Virgin) on long-haul passenger fuel surcharges in response to rising oil prices between August 2004 and January 2006, in infringement of competition law, the resulting price increases being included in the total price of the ticket. Over the infringement period surcharges rose from £5 to £60 per ticket on a long haul return flight.

After a year of investigation, BA agreed to pay a penalty of £121.5 million. Virgin was granted full immunity under the OFT's leniency policy and did not have to pay any penalty as it supplied the OFT with substantial information relating to the cartel agreement with BA and full details of the infringement. Virgin's senior executives involved in the surcharges discussions with BA were also granted immunity from criminal prosecution in the UK.

This was a high profile case with transatlantic ramifications: in 2007 BA had also agreed to plea guilty before the US Department of Justice and to pay a $300m million criminal fine in the US.

In early 2010, the OFT decided to start criminal proceedings in the UK against four BA senior executives (former and current) involved in the price-fixing arrangements with Virgin. This was the first time that the OFT decided to enforce the criminal cartel offence against individuals introduced by Section 188 of the Enterprise Act 2002 for serious and damaging anti-competitive behaviour (i.e. hard–core cartels). Under Section 188, an individual is guilty of a cartel offence if he dishonestly agrees to engage in any hard core cartel infringement listed therein, including price fixing. Dishonesty is a key requirement of the offence, based on the test established by the case of R v Gosh and the recent House of Lords' decision in Norris v USA. All the conditions appeared to be met to give the OFT full assurance of a first successful criminal conviction for cartel offences in the UK in a case raising immense media and consumer interest.

However, on 10 April 2010 the OFT announced its decision to withdraw its criminal proceedings following the discovery of a "fundamental email disclosure problem", meaning that a substantial volume of emails had not been provided by Virgin to the OFT, which were likely to be relevant to the BA executives' defence. This was a fundamental breach of the disclosure duties of the OFT in conducting prosecutions.

As a result, the OFT has been heavily criticised for the way it conducted its criminal investigation and revealed its inexperience in the management of its leniency programme. The collapse of the prosecution illustrates the shortcoming of the OFT's cartel investigation methodology and internal failures, such as the lack of critical analysis of leniency applicants' statements. It also suggests the OFT's tendency to over-rely on "whistleblowers", who can exaggerate in the evidence they provide in order to obtain immunity from fines and from criminal prosecution.

It would have been better for the OFT to have conducted a comprehensive investigation of its own, corroborating the evidence presented by Virgin and thoroughly interviewing the witnesses on whose statements it would have to rely in court, so as to avoid the possibility of finding exculpatory evidence just before the trial that questioned the entire prosecution's case.

Leniency programmes are a very important tool in the fight against cartels, but this case exposed their shortcomings and will surely have an impact on how the OFT manages future cases both civil and criminal, particularly those in which it proposes to impose heavy fines and/or to issue criminal proceedings.

The ATA case against the EU ETS

Introduction

On 16 December 2009 the Air Transport Association of America (ATA) and three US airlines (American, Continental and United) commenced their long-threatened action against the inclusion of aviation in the European Union Emissions Trading Scheme (ETS). The case was commenced in London as the UK is the first EU country to implement the early stages of the ETS, but a reference has now been made to the Court of Justice of the EU (CJEU). Success by the ATA and the US airlines would of course have profound implications for the future of EU climate change policy relating to aviation, certainly as regards US airlines, and possibly more widely.

Background

On 19 November 2008, the European Parliament and Council adopted Directive 2008/101 (the Directive), which amends Directive 2003/87 so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the EU. Member States are required to implement the Directive. The UK government has chosen to implement the Directive by a two-stage legislative process. First, the Secretary of State for Energy and Climate Change made the Aviation Greenhouse Gas Emissions Trading Scheme Regulations 2009 (the Regulations) which entered into force on 17 September 2009, and implement certain provisions of the Directive. There is a consultation underway with regard to the second stage.

Under EU law, only the CJEU has power to declare EU legislation invalid. While the claimants lack standing to bring a direct challenge against the Directive before the CJEU, they may challenge it in proceedings before the UK courts, which must then make a reference to the CJEU where there is a substantial doubt as to the legal position. The ATA's case is therefore directed against the Regulations. The UK government opposes the claims made but has no objection to referral to the CJEU, and indeed on 27 May the High Court agreed to make such a reference.

Most airlines which are to be regulated by the UK have to date been complying with the Regulations under protest, pending a legal challenge.

The claimants' case

The primary concerns of the claimants are: first, the obligation to surrender allowances in respect of emissions from flights over third countries' airspace and over the high seas as well as over the airspace of EU Member States; and, secondly, the unilateral application of an emissions trading scheme to aviation outside the framework of ICAO.

More specifically, the claimants seek to challenge the legality of the ETS on the grounds that it is contrary to certain provisions of the Chicago Convention, the Kyoto Protocol and the EU/US Open Skies Agreement.

Article 1 of the Chicago Convention - sovereignty

The claimants argue that the ETS is contrary to the customary international law principle that each state has complete and exclusive sovereignty over the airspace above its territory, which is restated by Article 1 of the Chicago Convention, as follows:

The claimants argue that the ETS regulates US airlines in US airspace from their point of departure in the US and across the Atlantic (with in many cases only a small proportion of their journey taking place over EU airspace), by requiring them to give up allowances in respect of such flights, and thus infringes the principle of sovereignty

One of the key points made by the Treasury Solicitor, defending the claim on behalf of the Secretary of State, is that the EU is not bound by the Chicago Convention because it is not a signatory to it. If this argument is upheld by the CJEU then that would dispose completely of all of the claimants' arguments related to the Chicago Convention.

In any event, the Treasury Solicitor also argues that the fact that operators are required to give up allowances to cover emissions caused by flights which pass over the territory of third countries does not amount to regulation over the territory of a third country state. The claimants do not explain how the sovereignty of the states flown over is infringed, and it is difficult to see how they could. The ETS's requirements have no impact whatsoever on the sovereignty of other states, which remain free to impose emissions schemes and other rules so far as concerns aviation over or into or from their territory.

Article 11 of the Chicago Convention – air regulations

Article 11 of the Chicago Convention reads as follows:

Article 11 is relied on by the claimants to demonstrate that regulations made by each state may only apply within the territory of that state. Article 11, however, has a specific purpose and is evidently a non-discrimination provision. It requires that rules which are applied by a contracting state within its airspace shall be applied to aircraft of all nationalities without discrimination, and that aircraft within that state's airspace shall comply with those rules. As all flights to/from EU Member States would be treated similarly under the ETS, there would be no question of any discrimination.

Further, Article 11 relates to laws and regulations relating to the admission and departure of aircraft and their operation and navigation within a contracting state's territory, and does not apply to environmental legislation regarding emissions trading. Nor does it state that the only regulations which can apply in relation to a contracting state's airspace are those made by the state in question.

Article 12 of the Chicago Convention – rules of the air

Article 12 of the Chicago Convention reads as follows:

Article 12 therefore provides that regulations relating to "flight and manoeuvre" shall be uniform across contracting states. According to the ICAO Legal Bureau this extends to rules for the regulation of greenhouse gas emissions. The argument here may be that the emissions charges are levied by reference to fuel burn, and that there is an inherent conflict between the free "operational and navigational activities" of airlines and the need to conserve fuel to avoid higher emissions charges.

Further, the claimants allege that rules in respect of flights over the high seas are solely for ICAO, and that rules which states make regarding flight and manoeuvre of aircraft in their own airspace must be consistent with ICAO rules and regulations.

Like Article 11, Article 12 also has a specific and evident purpose. It requires contracting states to adopt measures to ensure that rules on flight and manoeuvre in their airspace are complied with and are kept uniform with those established from time to time under the Chicago Convention. It also states that the rules in force over the high seas on flight and manoeuvre shall be those established under the Chicago Convention. Article 12 relates to regulations concerning the flight and manoeuvre of aircraft, and it seems unlikely that it also applies to environmental legislation regarding emissions trading.

Article 15 of the Chicago Convention – fees, duties and other charges

Article 15 is headed "Airport and similar charges". The first part of it is concerned with the principle of public use airports being open under uniform conditions to all aircraft, and with principles as to charges for the use of airports and air navigation facilities. In the context of emissions trading attention has focussed on the last sentence, which reads as follows:

The claimants argue that the imposition of a requirement on foreign aircraft to give up emission allowances would contravene Article 15.

The Treasury Solicitor argues, on the contrary, that the ETS is not a "fee, due or other charge", but rather an administrative scheme which obliges air operators to monitor and report their emissions and gives them the option of whether to operate within their allocated allowances or to exceed those allowances by buying additional allowances. Even if an air operator decides to exercise the latter option, the amount which it pays cannot (it is argued) be characterised as a fee, due or charge, particularly when one looks at the overall context in which the provision appears. ICAO's Council Resolution on Taxation of International Air Transport states: "Charges are levies to defray the costs of providing facilities and services for civil aviation", whereas the ETS is not "designed and applied specifically to recover the costs of providing facilities and services for civil aviation".

A further counter-argument is that, even if the ETS could be described as a charge, it is not imposed in respect "solely" of the right of transit over or entry into or exit from territory. The Treasury Solicitor cites in support of his defence the 2007 case of R (Federation of Tour Operators) v HM Treasury, in which the judge found that UK Air Passenger Duty was not a due imposed solely in respect of transit, entry or exit, because it was equally payable if the flight did not leave the UK, and was essentially an anti-discrimination provision precluding a state from favouring its national airline or airlines when imposing charges. It is argued that this is also the case with the ETS.

Though not referred to in the UK government's case, there is also Dutch authority to the effect that a departure tax levied by the Government of The Netherlands was not contrary to Article 15, for a variety of reasons but primarily because: (i) there is no indication that the term "charges" should be interpreted to cover taxes, in addition to "fees" and "dues"; (ii) the heading of Article 15 refers to "airport and similar charges"; and (iii) if contracting states had wanted to restrict their sovereign rights to levy taxes, the treaty would have contained clear language to that effect.

Both the UK case and the Dutch case have been criticised. It has been pointed out that the words "due" and "charge" are, by their ordinary meaning, capable of including a tax such as the Dutch tax – indeed, the Spanish, French and Russian texts of the Chicago Convention refer to "taxes". It has also been pointed out that the reference to overflight, in respect of which no charges may be imposed, suggests that Article 15 is intended to be an absolute, rather than non-discriminatory, rule. The Convention is concerned with international air transport: indeed, its title is Convention on International Civil Aviation. Hence it is most unlikely that the parties to it intended by the word "solely" to mean that states could impose fees, dues and charges in respect of international air transport provided they also did so in respect of domestic air transport: the parties would not have been interested in what states did as regards air transport within their own territory. Given that the Chicago Convention is concerned only with international air transport, could it really have been intended that the prohibition contained in Article 15 could be by-passed simply by applying the same tax to domestic aviation as well?

Article 24 of the Chicago Convention – customs duty

Article 24 prohibits the imposition of "customs duty, inspection fees or similar national or local duties or charges" in respect of fuel, as follows:

Although the UK government argues that the ETS is not a duty or charge within the scope of Article 24, it is not apparent how Article 24 would assist the claimants' case even if it were, as it only relates to fuel on board an aircraft while on the ground.

The Open Skies Agreement

The Open Skies Agreement was entered into between the EU and the US in April 2007. The claimants argue that taxing the consumption of aircraft fuel, including by reference to emissions, is prohibited by Article 11(2)(c), which exempts from taxes "fuel... introduced into or supplied in the territory of a Party for use in an aircraft of an airline of the other Party engaged in international air transportation, even when those supplies are to be used on a part of the journey performed over the territory of the Party in which they are taken on board."

The UK government argues that the ETS does not fall within the categories of taxes, levies, duties, fees and charges from which fuel is to be exempt.

Whilst a large number of ETS allowances will be issued to airlines for free (at least in the initial trading period commencing in 2012), there will be at least three elements of the ETS scheme which could be argued to constitute a tax, levy, duty, fee or charge: first, the allowances which would be purchased through the public auction, secondly the excess or surplus emissions which would need to be covered by the purchase of additional allowances on the open market and, thirdly, any fines imposed for failure to surrender sufficient allowances at the end of each reporting period.

In 1999 in Case C-346/97 Braathens the CJEU held that a Swedish tax on emissions, calculated on fuel consumption, amounted to a tax on fuel, on the grounds that, as there was a direct and inseverable link between fuel consumption and the polluting substances emitted in the course of consumption, the tax at issue "must be regarded as levied on consumption of the fuel itself". While the judgment is not directly relevant, the same reasoning could possibly be applied to the ETS.

Unlike most of the issues raised by ATA, the argument in relation to the Open Skies Agreement would, of course, only assist the US airlines, although other bilateral agreements may contain equivalent restrictions on the taxation of fuel which might be capable of being argued to be similarly extended.

The Kyoto Protocol

The claimants' final argument is that the Kyoto Protocol provides that the parties shall pursue reduction of greenhouse gas emissions from international aviation "working through the ICAO".

The UK government points out that the Kyoto Protocol does not require states to work exclusively through ICAO. This is also a curious argument for US companies to raise as the USA has famously not ratified the Kyoto Protocol.

What constitutes holiday pay?

In the case of British Airways plc v Williams and others, the Supreme Court had to consider whether the Court of Appeal had correctly ruled that British Airways had not breached Regulation 4 of the Civil Aviation (Working Time) Regulations 2004 (the Aviation Regulations) by only paying airline pilots basic pay during their annual leave, and decided to refer the question of what is meant by 'paid annual leave' in the Civil Aviation Directive (CAD) to the Court of Justice of the EU (CJEU)

Facts

British Airways' pilots were engaged on terms of employment which provided that their remuneration included three components:

• the first consisted of a fixed annual sum (Basic Pay); and
• the second and third consisted of supplementary payments varying according to time spent flying and time spent away from base.

Contractual holiday pay was paid at the level of Basic Pay only, on the basis that, if the pilots were not flying and not away from their home base, they were not entitled to the supplementary payments.

Ms Williams, acting as the lead claimant for approximately 2,750 pilots employed by British Airways, complained that holiday pay should be equal to the total amount normally earned when working and that by paying Basic Pay only British Airways was in breach of Regulation 4 of the Aviation Regulations.

Legal issues

In light of the complaints raised, it has been necessary for the tribunals and courts to consider the application of the relevant European Directives and domestic UK legislation as follows.

Article 7 of the EU Working Time Directive (WTD) gives workers the right to paid annual leave, but does not specify how a worker's pay while on annual leave should be calculated; that is left to national legislation or practice.

The Association of European Airlines and a number of workers' federations entered into an Aviation Agreement on 22 March 2000 containing provisions relating to paid annual leave for both flight and cabin crew, which was implemented into European Community law by the CAD. However, like the WTD, the CAD does not specify how workers' pay while they are on annual leave is calculated. This is left to national legislation or collective agreements.

The WTD was implemented into UK domestic law by the Working Time Regulations, Regulations 13 and 16 provide entitlement to a period of annual leave and that, while on annual leave, workers are entitled to be paid at the rate of a week's pay for each week of leave, calculated in accordance with Sections 221 to 224 of the Employment Rights Act 1996 (ERA), with the effect that employers should average their employee's earnings over the preceding 12 weeks.

Following amendments to the WTD, consequential amendments were made to the Working Time Regulations, including an amendment to the effect that Regulations 13 and 16 did not apply to workers covered by the Aviation Agreement as implemented by the CAD.

The Aviation Regulations (which implemented the CAD) apply to flight and cabin crew on board civil aviation aircraft flying for the purposes of public transport. Although Regulation 4 of the Aviation Regulations provides for a "paid annual leave" entitlement of at least four weeks, there is no provision equivalent to Regulation 16(2) of the Working Time Regulations about how that pay should be calculated

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