This edition of Jones Day's Airlines and Aviation
Alert focuses on a handful of the many practical issues faced
by aviation businesses, particularly in Asia. As the airlines of
China and other Asian countries expand their operations around the
world, those carriers and the businesses with which they interact
have moved from the conceptual to the practical.
Our first article outlines advantages to choosing "New York law" to be the governing law in contracts for the sale of aircraft to Chinese buyers. Most notably, the contract laws of New York and China both impose obligations of good faith on the parties. In both jurisdictions, this rule injects an element of fairness that protects the parties' interests and expectations, in a way that is not guaranteed under the laws of other jurisdictions, such as England. Therefore, use of New York law can help a seller meet the expectations of the Chinese buyer.
The ability of the parties to China aircraft sale contracts to make their own choice of law is fairly new, made possible by China's 2009 ratification of the Cape Town Treaty and Protocol, and it will be increasingly significant as businesses in this area pursue the opportunities created by China's enormous demand for new airplanes.
We then present an overview of arbitration regimes available in
Asia. Thanks to increased ad hoc and institutional arbitration
activity in Asia, not to mention the welcoming efforts of some
Asian jurisdiction governments, venues like Hong Kong and Singapore
now are attractive locales for international arbitration, taking
their place with the traditional venues in the U.S. and Western
Europe. This article compares the arbitration rules of the major
arbitration institutions in Asia—CIETAC, HKIAC, SIAC, and
UNCITRAL—and makes recommendations on what elements to
include in your arbitration agreement.
A third article looks ahead to Chinese airlines entering into alliances with air carriers of other countries, which of course would present the kinds of antitrust risk concerns that motivate other jurisdictions to authorize grants of antitrust immunity. Chinese law does not offer any explicit antitrust immunity. However, avenues may be available under existing law to reduce antitrust risk. Chinese law requires that some joint ventures be reported to its Ministry of Commerce, whose clearance may imply government approval of the conduct for which the joint venture was established. Similarly, the other Chinese antitrust agencies may review and choose to allow business activities after the parties commit to certain conduct going forward. Completing these procedures may give airlines some comfort they can proceed with lessened risk of Chinese antitrust challenge to coordination within international alliances such as oneworld, SkyTeam, or Star.
Finally, we report on U.S. litigation that will affect both U.S. and non-U.S. aviation businesses and advise on how aircraft lease financiers may avoid the risks created by recent decisions that denied insurance coverage under hull and liability policies where the operator intentionally caused the loss. The Highland Capital case presented the disturbing story of an operator that stripped parts from aircraft insured by the financier and leasing company, which had protected themselves with a standard policy endorsement that named them as additional insureds. The insurers resisted coverage, arguing that the state of mind of the wrongdoing operator should be imputed to the financiers. The district court and Second Circuit accepted this argument, and also ignored the endorsement's statement that coverage could not be invalidated by the independent actions of any other party. This article offers ways to avoid this troublesome and mistaken interpretation of this standard policy endorsement.
We hope you enjoy our Alert. We are very privileged to represent airlines and industry clients in a variety of interesting and challenging matters, and we believe the aviation industry is unique. It is indispensable to economic growth and it ensures the quality of modern life. We welcome your comments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.