UK: Aviation Bulletin - February 2011

Last Updated: 15 February 2011

The air cargo cartel case - lessons for the airline industry On 9 November 2010 the European Commission finally issued its long awaited decision and fined 11 airlines a total of €799 million for price fixing on fuel surcharges and security surcharges and refusing to pay commission on surcharges. This included over €300 million for Air France-KLM and €104 million for British Airways. SAS had its fine increased by 50% to €70 million in view of its previous involvement in market fixing with Maersk Air in 2001. Appeals by some or all of the airlines are likely. The decision contains important guidance for the aviation sector on the application of EU competition rules.

Over twenty airlines and a consultancy company were involved in a lengthy cartel investigation by the Commission. The investigation started in February 2006 following Lufthansa's revelations to the Commission in late 2005. The Commission's allegations were almost entirely based on "leniency" applications made by the 11 airlines – ie, statements made by them to the Commission confessing to illegal behaviour and implicating other airlines in it, in the hope of receiving reduced or no fines. Lufthansa as the "whistleblower" was rewarded with 100% immunity from fines. Martinair was rewarded with a 50% reduction down to Euros 29.5 million. All the airlines except one received some reduction.

The Commission issued proceedings in December 2007 but only published its decision almost 3 years later. The delay was caused partly by the change of Commission in early 2010, and partly by a number of airlines pleading inability to pay the high fines they expected, based on adverse economic circumstances that the industry was facing (as a result of the financial crisis and the volcanic ash disruption). These pleas required extensive investigation by the Commission, but were rejected in each case.

The Commission did not issue any findings of infringement or impose any fines in respect of the other airlines and the consultancy company which it investigated.

The lessons and points of interest

The first lesson of the case is that price fixing will be punished harshly. While some "credit" was given to several airlines for cooperating with the investigation once implicated, the high level of fines indicates the continued seriousness with which price fixing is punished by EU regulators (as it is also by US regulators). The total fines imposed in the US and the EU, as well as the damages agreed in civil litigation, amount to a staggering £2 billion. This huge sum must exceed any illicit gains made by the cartel participants and brings into question the suitability of such punishment on an industry where profitability is at best thin.

Another important lesson is the requirement for independence of pricing strategy. A common practice in the airline industry is "follow the leader" pricing with rates being set by reference to pricing announcements of a perceived market leader. A key lesson is that market leaders must ensure that the timing and format of any announcement is not designed to influence the conduct of other smaller market players. Equally, market "followers" must also ensure that their pricing decisions are demonstrably independent, keeping proper records to prove that their decisions were made independently.

A controversial feature of the decision is the Commission's calculation of fines partly by reference to services sold to customers located outside the EU and therefore beyond EU jurisdiction. In recognition of this, the Commission took into consideration 50% of the turnover achieved on EU third country routes in calculating the fines. That 50% figure appears arbitrary and no doubt will be subject to appeals.

An interesting element of the case was the involvement of a consultancy firm as a defendant, although charges against it were dropped in the final decision. In recent times, the Commission has shown an increasing interest in third party "intermediaries" suspected of facilitating cartel conduct. Thus, in its Guidelines on Horizontal Agreements of January 2011, the Commission specifically highlights the dangers of "sharing of data between competitors through a common agency (eg, a trade association) or a third party", giving "a market research organisation" as an example of the latter (see paragraph 105 of the Guidelines). Compliance officers in transport companies should ensure contacts with, or information supplied to, industry advisory entities is made with the strictest regard for EU competition law.

The final important lesson of the case is the need for rigorous compliance in any alliance meetings. Significantly, in announcing the decision, Commissioner Almunia recognised that coordination on surcharges could be part of legitimate airline alliance discussions, and said that such contacts were "ignored... for the purposes of this Decision". However, while accepting that surcharge coordination might be permissible alliance activity, the Commission found that there were also pricing discussions between alliance members which breached EU law. As the Commissioner warned: "the existence of an alliance agreement cannot give a blank cheque for naked price coordination among the members."

The air cargo case has also been a reminder that EU competition law became fully applicable to routes between the EU and non-EU states from 1 May 2004 onwards. Airlines face higher risks because of their international operations both from parallel investigations by EU and non-EU competition regulators, who cooperate extensively and exchange information when investigating international cartels, as well as from civil claims in a number of countries. While in the US and in the EU airlines are more accustomed to competition law, many airlines whose countries do not even have competition law have now vividly been reminded of the importance, and application to them, of EU and US competition law.

Of particular interest was the Commission's decision to grant a 15% reduction of fines on account of the regulatory environment in non-EU countries which, in the Commission's view, "encourage[s] anti competitive behaviour from the airlines". In certain third countries, air transport services are still subject to a high degree of regulation, including active encouragement to arrive at common positions on surcharges. The Commission recognised the pressures airlines must have been facing from such non-EU governments and thus granted some leniency. However, as the Commissioner stated in his speech: "none of the carriers was obliged to collude because of this regulatory environment (...) we consider this as a mitigating circumstance only, not as a valid excuse". Standing up to governmental pressure can be problematic in some countries. The state compulsion defence has seldom been accepted by EU regulators, and this may be a rare, if grudging, example.

Civil damages actions

A novel feature of the cartel proceedings has been the important role of civil damages actions started by business customers of the air carriers. Whilst in the US most of the carriers which applied for leniency have settled their civil damages claims, in Europe the civil damages actions have just started. In 2008, two flower growers and exporters claimed damages against British Airways in the English courts, alleging breaches of EU and UK competition law in the context of the cartel. For procedural reasons, their claim was dismissed and is currently subject to appeal. However BA has recently joined parties to the EU cartel proceedings as third party contributors to any damages that might eventually be awarded by an English court, (under Part 20 of the Civil Procedure Rules). One would expect this list of "contributors" now to be narrowed down to those airlines fined by the Commission.

In October 2010, another damages claim arising from the same cartel proceedings was lodged in the Dutch courts by Ericsson and Phillips against Air France, KLM and Martinair. It remains to be seen how the potential clash between these two civil jurisdictions (ie, the UK and the Netherlands) will be resolved as, under the so called "Brussels Regulation" (Regulation 44/2001), parties cannot be sued for damages for the same claim in more than one EU Member State.

These claims are indicative of the increasing enthusiasm on the part of corporate customers to sue for damages in appropriate cases. Commissioner Almunia observed that such private actions were a matter of "basic justice" for customers harmed by the cartel. Particularly as there is a current proposal by the Commission for a Directive on civil damages for infringements of competition law, it is likely that such private claims by business customers, something routinely seen in US courts, will become more prevalent in the EU.

Forum non conveniens - a powerful tool in the defence of multi-jurisdictional aviation litigation in the United States


On 4 October 2010 Judge Charles Breyer of the US District Court for the Northern District of California granted a motion for dismissal of all litigation arising from the accident of Air France flight 447 on 1 June 2009 on grounds of forum non conveniens (FNC). In his opening paragraph Judge Breyer stated: "the Court has great sympathy for all the families who lost loved ones in this horrific accident and is interested in seeing those families fairly and timely compensated. But sympathy cannot be a substitute for an unbiased application of the law." This significant decision, along with other decisions including the recent orders granting dismissals in the Kenya Airways KQ 507 and Adam Air DHI 574 cases, demonstrate that an FNC motion can be a powerful tool in the defence of multijurisdictional aviation litigation. This article will consider in particular the recent Air France decision.

FNC and its application in the United States

FNC is a common law doctrine of Scottish descent. It allows a court to decline to hear a case in favour of an alternative forum, if the interests of the parties and of justice so dictate.

In the context of international disputes, a claimant often has a choice between two or more countries in which to proceed against the defendant. The existence of such alternative fora has given rise to "forum shopping", a practice which has been defined (by Lord Reavson in Boys v Chaplin in 1971) as a claimant "by-passing his natural forum and bringing his action in some alien forum which would give him relief or benefits which would not be available to him in his natural forum".

A forum that is particularly susceptible to forum shopping is the United States, where there is an abundance of highly experienced litigation lawyers, and recoveries are perceived to be significantly higher than elsewhere. In the words of Lord Denning in his 1983 judgment in Smith Kline and French v Bloch, "As a moth is drawn to the light, so is a litigant drawn to the United States."

The field of aviation law is no exception to this. In recent years, there has been a steady rise in the number of foreign aviation claims being brought in the US. Frequently these claims arise out of aviation accidents that bear little or no connection to the US. Against this backdrop, FNC is increasingly significant in the defence of foreign aviation accident litigation in the US.

Plaintiffs' counsel are aware in commencing foreign aviation litigation in the US that defendants will seek dismissal on FNC grounds, and therefore employ a number of tactics in their continuing effort to defeat these motions. These include naming as many US based defendants as possible, including those with only a limited nexus to the accident, in order to establish a connection to the US.

It follows that it has become difficult for defendants' counsel to be confident of dismissal on FNC grounds. For this reason, FNC dismissal of the Air France litigation is highly significant.

Air France accident litigation

On 1 June 2009 Air France flight 447 left Brazil destined for France, and crashed over the Atlantic Ocean. All 228 passengers and crew lost their lives.

Over seventy foreign plaintiffs brought claims for the wrongful death of passengers and crew against Airbus, the French aircraft manufacturer, Thales Avionics, the French component part manufacturer, and more than one dozen US component part manufacturers.

Air France was sued directly in only one action arising from the death of two US citizens. None of the foreign plaintiffs were able to claim against Air France directly under the jurisdictional terms of the Montreal Convention.

Both Air France and the manufacturing defendants sought dismissal of the claims pursuant to the FNC doctrine. The claims were consolidated for court purposes, and in a single judgment the court granted FNC dismissal of all litigation arising from the accident. While other motions were heard at the same time, the most important decision rendered by the court concerned FNC.

Legal standard of FNC

A party moving to dismiss on FNC grounds bears the burden of showing that:

(a) there is an adequate alternative forum; and

(b) the private and public interest factors favour dismissal. The plaintiffs' choice of forum will not be disturbed by an FNC motion unless private and public interest factors strongly favour trial in the alternative forum. Further, the forum choice of a domestic plaintiff (in this case the two US plaintiffs) is entitled to considerable deference, whereas the forum choice of a foreign plaintiff is entitled to less deference.

a) Is France an adequate alternative forum?

When considering an FNC motion, it is relatively uncommon for a court to find that a proposed alternative forum is inadequate.

The litigation arising from the Air France accident proved to be no exception. It was noted by the court that "Plaintiffs do not really contend that France is an inadequate alternative forum", before it concluded that France was indeed an adequate, alternative forum.

Having established France to be an adequate alternative forum, the Court went on to consider whether private and public interest factors favoured FNC dismissal.

Private interest factors The court considered the following private interest factors:

  • relative ease of access to proof;
  • availability of compulsory process to secure the attendance of unwilling witnesses;
  • the cost of obtaining the attendance of willing witnesses; and
  • all other practical issues that make trial of a case easy, expeditious and inexpensive.

Although the Judge found that the fact that the domestic manufacturing defendants were situated in the US weighed against dismissal, the private interest factors as a whole pointed the other way. It was relevant that the criminal investigation and the official accident investigation conducted by the Bureau d'Enquetes et d'Analyses in France were taking place in France, and all physical evidence was located there. In addition, French civil courts could order the BEA to disclose the evidence in its possession, while a US court would only be able to obtain the evidence via a request pursuant to the Hague Convention or a Letter Rogatory, neither of which would necessarily be successful.

A further key factor in favour of dismissal was the ability to bring all parties together in France in a procedurally sensible fashion. In particular, under the jurisdictional provisions of the Montreal Convention, both the foreign plaintiffs and manufacturing defendants could sue Air France directly in France. However in the US, the foreign plaintiffs could not sue Air France, and there was a dispute as to whether the manufacturing defendants could bring a third party claim.

Public interest factors

The court considered the following public interest factors:

  • administrative difficulties flowing from court congestion;
  • local interest in having localized controversies resolved at home;
  • interest in having the trial in a forum that is familiar with the law governing the action;
  • avoidance of unnecessary problems in conflicts of law or in the application of foreign law; and
  • unfairness of burdening citizens in an unrelated forum with jury duty.

The court found that the public interest factors weighed in favour of dismissal for four primary reasons:

  • France had a greater interest in the litigation than the US. The flight was operated by a French airline and was destined for France, and the majority of passengers were French citizens, while only two were from the US. The US interest in manufacturing standards and in protecting the rights of two US citizens was "real and legitimate, but less significant than the French interest".
  • The court reiterated the point raised in relation to private interest factors that in France, unlike the US, the foreign plaintiffs could sue Air France directly. This would avoid potential jurisdictional difficulties created by the manufacturing defendants' attempts to sue Air France as a third-party defendant in the foreign plaintiffs' actions.
  • Remitting the action to the French courts would avoid the prospect of a US court having to apply French law.
  • The significant burden on the judiciary and potential jurors was considered disproportionate to the comparatively limited interest of the US in the litigation.

For the reasons outlined above, the court held that both private and public interest factors weighed in favour of dismissal of the claims to French courts on FNC grounds. Regarding the deference to be awarded to the plaintiffs' choice of forum, the court considered that the candid acknowledgement by foreign plaintiffs' counsel that they were participating in "forum shopping" reflected the reasons why little deference could be accorded to their choice of forum. In relation to the two US plaintiffs, the court accepted that while domestic plaintiffs' preferences were entitled to greater deference, this could not override the fact that private and public interest factors weighed heavily in favour of dismissal.

FNC and the Montreal Convention

In the direct claim brought against Air France by the representatives of the two US citizens, having found "fifth jurisdiction" (principal and permanent residence) in favour of the plaintiffs the court had to answer a threshold question before undertaking the traditional FNC analysis described above. Is the doctrine of forum non conveniens applicable under the Montreal Convention?

In the Air France litigation the plaintiffs argued that the Montreal Convention does not recognise the FNC doctrine on grounds that:

  • the Ninth Circuit Court in Hosaka held that the Warsaw Convention, the predecessor to the Montreal Convention, did not recognise FNC, and the language used in both Conventions is the same in this respect; and
  • FNC is incompatible with the fifth jurisdiction of the Montreal Convention, the purpose of which is to provide injured passengers with the option to sue in their home forum.

In addressing the first point, the court considered that there are two primary reasons why Hosaka does not compel the conclusion that FNC is not available in cases brought under the jurisdiction of the Montreal Convention.

First, in Hosaka the Ninth Circuit addressed the applicability of FNC under the Warsaw Convention, and explicitly stated that it was not considering applicability under the Montreal Convention. The FNC doctrine is a matter of procedure. The language used in the two Conventions regarding the applicability of procedural law is identical "Questions of procedure shall be governed by the law of the court seised of the case". However, Hosaka was decided not on the text of the Warsaw Convention, but on its drafting history, which is dramatically different from that of the Montreal Convention.

When the Warsaw Convention was drafted in 1929, FNC was relatively new and not well known. Therefore the Ninth Circuit's decision in Hosaka that FNC dismissal was not available absent an express statement to the contrary was explicable, albeit incorrect. However, by the time the Montreal Convention was drafted FNC was well established, and had even been employed in the US for dismissal of Warsaw Convention cases. In this context, the fact that the Montreal Convention reaffirms the incorporation of forum states' procedural law indicates a clear intention to allow FNC motions to apply. A brief examination of the Montreal Convention minutes confirms this approach; the delegates expressly acknowledge that as a matter of procedure FNC falls within the jurisdiction of the Convention. Indeed the Convention minutes indicate that the only reason the Convention does not explicitly incorporate the doctrine is due to concerns that certain nations would have difficulty ratifying the Convention where the doctrine is not part of their procedural law.

Secondly, other US courts had already addressed the issue of FNC under the Montreal Convention, and found that it is available (for example, in the litigation arising out of the West Caribbean accident in Venezuela in 2005, and Khan v Delta in 2010). These cases must surely provide greater authority on the applicability of FNC under the Montreal Convention than the case of Hosaka, where it was expressly declared that the Court was interpreting FNC under the Warsaw Convention, and not the Montreal Convention.

In addressing the second point, the court gave little weight to the plaintiffs' argument that allowing an FNC dismissal under the Montreal Convention would render the fifth jurisdiction meaningless. It was held that the combination of the fifth jurisdiction and the application of forum states' procedural law demonstrated an intent to give plaintiffs more choice among fora, but also to allow the courts to constrain that choice where FNC was available and a different forum more appropriate. Moreover, the court noted that it did not have authority to ignore the clear policy choice of the Convention to incorporate FNC within its scope.

For the above reasons, the court rejected the plaintiffs' arguments that Hosaka compelled refusal to grant dismissal pursuant to the FNC doctrine, and thus established the doctrine to be admissible.


Having established the admissibility of FNC under the Montreal Convention, the court applied the legal standard of the doctrine and found that France was an adequate alternative forum, and that private and public interest factors favoured dismissal. On these grounds, the defendants' motion for FNC dismissal was granted, and the litigation was dismissed.

While significant legal hurdles must be overcome in order to successfully employ it, Judge Breyer's decision illustrates the powerful potential of the FNC motion in the defence of multijurisdictional aviation litigation in the US. The decision is now on appeal.

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