The Australian Department of Infrastructure, Transport, Regional Development and Local Government recently published a Discussion Paper as part of its review of Australian carriers' liability and insurance arrangements. Feedback on the Discussion Paper is due by 26 June 2009 and decisions which follow that feedback will form part of an Aviation White Paper expected to be finalised before the end of the year.
Some of the key areas covered by the Discussion Paper include:
- Whether Australia's recent adoption of the Montreal Convention has seen a need for amendments to the compulsory insurance requirements for air carriers and to the domestic travel liability regime.
- The aviation insurance market and in particular mandatory passenger insurance, third party surface damage insurance and war risk insurance.
- Consumer protection and family assistance in the immediate aftermath of an air crash.
Modernisation Of The Rome Convention
A priority for the review is determining whether Australia should consider adopting two new conventions developed by the International Civil Aviation Organisation (ICAO) dealing with compensation for third party victims of air accidents ie those on the ground injured by crashing aircraft.
The first of these conventions, the Unlawful Interferences Convention deals with liability of carriers for death, injury and property on the ground arising from terrorist related incidents. The second is the General Risks Convention which deals with liability arising from other aviation incidents.
The two Conventions are intended to replace the Rome Convention which was negotiated in 1952 and has only 49 parties. Australia is not a party to the Rome Convention having itself imposed a strict and unlimited liability regime in the Damage by Aircraft Act 1999.
Under the Unlawful Interferences Convention, liability for the carrier is strict and capped dependent upon the size of the aircraft involved. Maximum liability would be SDR700 million (approximately AU$1.4 billion) which can be broken in exceptional circumstances only. The Convention proposes a supplementary compensation mechanism to compensate victims in the event that damage exceeds the carrier's capped liability through a fund created by a levy placed on passengers and cargo. (There are elements of this proposal not dissimilar to those applicable to oil pollution compensation in a maritime context.)
Liability is channelled through the operator so that victims cannot pursue claims against other potential defendants. The Convention is intended to apply to damage occurring in Party States caused by international flights regardless of whether the carrier is domiciled in a Party State.
If Party States decide to apply the Convention to domestic flights, then the supplementary compensation mechanism levies would also become payable on domestic passengers and cargo.
In relation to the General Risks Convention strict liability for the carrier to a threshold proportional to the aircraft's maximum take-off mass is prescribed. Beyond the threshold (as is the case with the Montreal Convention), the carrier would be liable for all losses unless the carrier proves that it was not negligent or that losses were solely due to the negligence of another party. There is no equivalent to the supplementary compensation mechanism.
The threshold is dependent on the size of the aircraft but ranges from SDR750,000 (approximately AU$1.5 million) to SDR700 million (approximately AU$1.4 billion).
Australia needs to consider whether to adopt the new Conventions in circumstances where at present in Australia carrier liability for third party surface damage is strict and uncapped.
The disadvantage of more restricted liability needs to be weighed up against the advantages created by the supplementary compensation mechanism, particularly where compensation might otherwise be limited by the value of an airline's insurance policy coverage combined with the value of its liquidated assets.
The Discussion Paper calls for the aviation industry's views on the possible adoption of the new Conventions.
The Discussion Paper also notes the following:
- The objectives of Australia's aviation liability and insurance framework should be to:
- Provide prompt and equitable compensation to victims of air accidents;
- Foster a productive and sustainable aviation industry;
- Provide an appropriate balance between the interests of victims, carriers, insurers and governments;
- Be as simple as possible, to increase certainty for industry participants and reduce compliance costs;
- and therefore be consistent with our international obligations, yet appropriately tailored for the Australian market.
- The Commonwealth should continue to regulate carriers' liability and insurance separately to other transport modes.
- In relation to international travel, Government should take further action where possible to limit the exposure of Australian travellers to the 'Warsaw System', and ensure that the Montreal Convention, or compensation provisions comparable to those provided under the Montreal Convention, apply in all possible circumstances.
- Governments should require international carriers servicing Australia to implement the IATA agreements, whereby carriers waive the caps instituted under the Warsaw System, and to waive the Warsaw defences up to a threshold of 100,000SDR. This requirement should be implemented by linking the requirements to the system of international airline licences. This measure would replace the higher caps that the Civil Aviation (Carrier's Liability) Act 1959 (CACL Act) currently imposes on Australian carriers operating under the Warsaw System.
- Industry should note that the Government is repealing part IIIB of the CACL Act which provides for the implementation of the now redundant Montreal Protocol No.3.
- In relation to international travel where Australia is neither the origin nor destination of carriage, the Government should continue to focus on its broader policy of providing information in relation to potential air safety concern.
- The Government should not apply the Montreal Convention to domestic travel at this stage, and instead maintain a separate system of strict and capped liability.
- The Government should increase the domestic passenger liability cap to AU$725,000 to reflect changes in the cost of living.
- The Government should ensure consistency between the international and domestic passenger liability frameworks in relation to the treatment of mental injuries by limiting the domestic system to compensation for 'bodily injuries'.
- The Government should explore the possibility of amending the CACL Act to clarify that it provides the exclusive remedy available to passenger victims, so that they are prevented from mounting legal proceedings based on alternative areas of law.
- The Government should maintain the system of strict and unlimited liability for carriers who cause damage to third parties on the surface.
- The Government should explore the possibility of amending the Damage by Aircraft Act 1999 (DBA Act) to recognise contributory negligence, allowing compensation payments to be reduced when victims are partly responsible for their losses.
- The Government should explore the possibility of amending the DBA Act to provide a 'right of contribution', allowing compensation payments to be appropriately apportioned between those who have contributed to the cause of an air crash.
- The Government should explore the possibility of amending the DBA Act to clarify that it provides the exclusive remedy available to third party victims, so that they are prevented from mounting legal proceedings based on alternative areas of law.
- The Government should consider amending the DBA Act to disallow claims for compensation for mental injury suffered by air crash witnesses.
- The Government should consider amending the DBA Act to clarify whether consequential damages are available under the Act, noting the overall objective of the carriers' liability and insurance framework.
- The Government should preserve the current arrangements in relation to time limits on actions brought under the DBA Act.
- The Government should work with State Governments to harmonise the liability framework for third party surface damage.
- The Government should amend the CACL Act and the DBA Act to ensure that damages are assessed in accordance with state government civil liability regimes.
- The Government should amend the CACL Act to harmonise the domestic travel baggage liability provisions with the baggage liability provisions of the Montreal Convention.
- The Government should amend the CACL Act to allow Regulations to apply to cargo provisions of the Montreal Convention to domestic carriage (replacing existing references to the Montreal Protocol No. 4), noting that it is not proposed to develop Regulations of this nature at this time.
- The Government should monitor the on-time performance of domestic carriers, leaving open the option of establishing compensation arrangements for delay that are similar to the relevant provisions of the Montreal Convention.
- The Government should increase the level of mandatory passenger insurance for domestic travel to AU$725,000 per passenger, in line with the proposed increase to the cap on liability.
- The Government should give consideration to working closely with industry to develop a system of mandatory insurance for third party surface damage, modelled on the minimum insurance standards required in the EC.
- The Government should give consideration to working closely with industry to develop a system that requires carriers to obtain insurance with coverage scope that is as broad as possible, by mandating the use of the AVN 52E write back clause in conjunction with the AVN 48B exclusion clause.
- The Government should monitor the aviation war risk insurance market and respond to market developments in accordance with the broader objectives of the liability and insurance framework.
- The Family Assistance Code continues to serve a useful purpose and should not be abandoned.
- The Family Assistance Code should continue to oblige airlines to make an 'advance payment' to family members in the event of a passenger death.
- If it is necessary to consider alternatives to the voluntary Family Assistance Code, the Government should give consideration to data from industry in relation to the impact of making compliance with the Code mandatory.
- Emergency Management Australia should continue to work closely with industry to address issues related to the Government's preparedness for an aviation disaster.
- The Discussion paper also seeks information on the following:
Third Party Insurance
- Of operators' total aircraft insurance costs (hull, passenger and third party), what proportion of the cost is for third party damage? For operators who do not currently insure against these risks, how much might insurance costs rise (as a proportion of total insurance costs)?
War Risk Insurance
- Are war risks commonly insured in the Australian aviation market? Of carriers' total aircraft insurance costs (hull, passenger and third party), what proportion is for additional war risks insurance? For carriers who do not currently insure these risks, how much might insurance costs rise (as a proportion of total insurance costs)?
Family Assistance Code
- What will the costs to industry of making compliance with the code mandatory? Are these costs likely to be mainly 'one off' establishment costs associated with developing procedures and protocols, or ongoing insurance costs?
Rome Convention Modernisation
- What are the aviation industry's views on the Conventions that are proposed to replace the Rome Convention?
The Discussion Paper is a very useful summary of the current position but also provides the background to the preliminary findings.
What will be of interest is to see whether Government receives the feedback from industry it is seeking, bearing in mind the short time frame imposed and the need for a substantial amount of work to be done – particularly by the insurance industry – to provide the further information that has been requested.
Clearly there is advantage in achieving a measure of consistency between international and domestic liability regimes and also greater international uniformity. But it remains to be seen whether Australia has an appetite for the scale of reform needed to achieve that consistency and uniformity of approach.
Submissions on the Discussion Paper are due by 26 June 2009. Click here for the Discussion Paper and submission details.
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