European News (Aviation Industry)

We are pleased to announce that Clyde & Co has recently merged with a 30 lawyer French firm, Honig Preel Mettetal Buffat Coulon. Clyde & Co’s partnership has been increased by the addition of ten French partners and the Paris office is known as HPMBC Clyde & Co. In addition to non-contentious work, the primary focus of the new office is insurance, aviation, marine, transportation, energy and product liability work.

The merger has enabled us to create the largest insurance practice in France and also one of the largest aviation practices. Apart from representing aviation insurers the office acts for, amongst others, major aviation manufacturers and has experience of many high profile cases. The office’s strength in air-carriage work in general has now been supplemented by a particular expertise in product liability work, aviation transactions and regulatory services.

Developments in European aviation law continue unabated. We report below on some recent developments in European aviation law.

Following last year’s developments at ICAO level on the noise front, the European Parliament passed a Directive which has repealed the Re-certificated Aircraft Regulation, colloquially known as the "Hushkits Regulation". The Re-certificated Aircraft Regulation had a damaging impact on the aviation industry and directly affected certain operators of re-certificated Chapter 3 aircraft. The Directive adopts the so called "balanced approach" to noise management, consistent with wider international policy and it allows some flexibility to enable local solutions to be developed for local problems where appropriate.

The debate on the European Single Sky continues. The UK Government has submitted a response to the European Commission’s second consultation paper. Although there is still much discussion to occur, it is anticipated that a European Single Sky will be introduced in 2004.

The European Commission is formulating plans to implement league tables which illustrates airlines with the worst record of delays, lost baggage and cancelled flights. Unsurprisingly, leading airlines are strongly resisting this claiming that a ranking system would be unfair. The European Commission wishes to follow the process used in the USA, where airlines are ranked according to their performance.

This year has seen the adoption of a regulation creating the European Aviation Safety Agency (EASA). The EASA will assist in devising common standards for safety and environmental protection as well as ensuring the uniform application of such standards within the EU. The EASA has one year to become operational from the adoption date of the Regulation.

The European Commission presented a proposal for Community accession to ICAO. It is seeking a mandate from the European Council to negotiate with ICAO, the long-term aim being to enable the European Commission to co-ordinate with ICAO.

The European Council has reached an agreement on a decision agreeing to community accession to Eurocontrol. It is expected that the Accession Protocol will be signed at a diplomatic conference this year.

The European Parliament has approved a European Commission proposal which lays down new rules for the introduction of the fair allocation of slots at EU airports. One of the key principles is that new air carriers should be given a fair chance when entering the market for slots. Parliament’s approval was subject to amendments for clarifying the wording of the proposal, to preserve planning certainty and flexibility for carriers and to confirm that EU Member States have discretionary powers in transport and environmental policy. There are still further discussions to come and the plan is that decisions on airport slot allocation should be taken by the end of 2002.

President Bush has stated that intelligence sources have been alerted to the possibility of ‘simple’ hi-jackings, rather than what actually happened on September 11. Although there have been comparatively few unlawful airliner seizures since Dawson’s Field, there have been many unlawful takings of smaller aircraft which have provoked debate as to whether they constituted "hi-jackings".

Very broadly, unlawful seizures of general aviation type aircraft take place either when the aircraft is in flight, or a pilot on the ground is taken captive and coerced to fly an aircraft to which they have access. In common parlance both would be described as hi-jackings but at least in the United Kingdom only the former is actually a hi-jacking on a legal basis.

The correct classification is of importance to the insurance industry because hi-jacking is normally excluded from Aviation All Risks covers by virtue of the War, Hi-jacking and Other Perils Exclusion Clause, which typically states that:

This Exclusion is sometimes, but not always, written back by the Extended Coverage Endorsement, in which case there is no conflict, but if it is not written back, the prudent insured also obtains separate War Risks cover.

The Aviation Hull "War and Allied Perils" Policy provides cover for hi-jacking by a mirror image of this Exclusion. Thus simplistically, if an unlawful seizure is a hi-jacking it is covered by the War Risks Policy, if it is not, then it is prima facie covered by the All Risks. To be a hi-jacking, at the time of the incident the aircraft must be "in Flight" and the person or persons doing the hi-jacking must be on board the aircraft.

Subject to the normal rules of proof as to when and where the offence took place, "hi-jacking" claims should not pose too many problems, and they probably would not were it not for the fact that "hi-jacking" is an English term of art which does not necessarily mean the same, or indeed anything, in other countries.

Article 1 of the Convention for the Suppression of Unlawful Seizure of Aircraft. The Hague, 16 December 1970 ("Hague Convention 1970") states:

and by Article 3:

There is no mention of "hi-jacking", it is merely "the offence".

The Hague Convention 1970 was enabled into United Kingdom law by the Hi-jacking Act 1971, now repealed and replaced by identical provisions in the Aviation Security Act 1982, Section 1 of which paraphrases Article 1 of the Convention as follows:

The definition in the Act of "in flight" is the same as in the Convention.

So "hi-jacking" has been substituted for "the offence", and we thus have a definition of "hi-jacking", but applicable only for offences tried within the United Kingdom.

Some other English speaking States chose to call "the offence" air (or aerial) piracy. This is perhaps doubly unfortunate, as not only is there an immediate danger of confusion, but on most normal historical definitions of piracy there must be two vessels, the pirate vessel and the victim; indeed to compound potential confusion, there is an English offence of air piracy – which does require two ‘vessels’.

The reason for the distinction between aircraft seizures "in flight" and otherwise is clear from the definition of "in flight". The transition occurs when the aircraft is sealed to the outside world by closing the last door, thus precluding easy access by security or police et alios ("the competent authorities"). Since the aircrew and cabin staff are then ‘on their own’, it was felt appropriate to apply a more draconian regime to the perpetrators.

This worthy objective is therefore defeated if another definition of "in flight" is applied, for example by a Policy wording.

In a recent Arbitration under the provisions of AVS.103 – the "50/50" Clause – relating to a helicopter loss in Colombia, although all those involved were outside the aircraft the learned Arbitrator applied the All Risks definition of "Flight", which includes when the rotors are in motion.

Since, almost by chance, the engine had been stopped before an armed seizure, he felt able to find that ‘although the helicopter was unlawfully hi-jacked or

seized it was not seized or hi-jacked in flight’ so that the All Risks Underwriters were fully liable for the loss.

For the reasons outlined above, and ignoring whether hi-jacking is a legal term of art in Colombia and whether the broad definition of "in flight" was correctly applied, whilst the helicopter could obviously have been unlawfully seized, it could not have been hi-jacked. However, it seems that if the rotors had been in motion, the arbitrator would have held that the helicopter was "in flight" and thus "hi-jacked", although the participants were outside the aircraft – thus defeating the clear intention of the drafters of the Hague Convention 1970.

Turning to foreign risks written or re-insured in London, the position becomes more confused, especially if there is a local jurisdiction clause. The first case is the fairly typical one where a foreign insured is issued with the London Aircraft Insurance Policy AVN1C with no Extended Coverage Endorsement, but with a local jurisdiction clause. For the reasons outlined, their local jurisdiction will almost certainly not have any definition of "hi-jacking".

If an ensured also has War Risks cover, this should not affect them, so long as it is the London War Risks wording, but it might give rise to a heated dispute between the respective insurers.

Perhaps of more danger is the re-insurance in London of a local wording where the re-insurance policy includes the War, Hi-jacking and Other Perils Exclusion Clause. One does not have to travel far to find an example of the problem.

In France the Fédération Francaise des Sociétés d’Assurances ("FFSA") has issued standard wordings for use, among other things, in all French aviation policies. Convention Spéciale "A1" is broadly equivalent to the English War Risks cover, and is subtitled Assurance Corps des Aéronefs Contre Les Riques de Guerre et Assimilés. (i.e. Aircraft hull insurance against war and equivalent risks).

The "hi-jacking" coverage wording in Convention Spéciale "A1", in an unofficial translation is:

We therefore have the position not uncommon in jail breaks in France where, for example, armed men burst into a crew room and compel a pilot to fly them in a helicopter to a prison with the intention of liberating a colleague. Since at the time of the ‘unlawful exercise of control of the crew’ the helicopter is not in flight, either by the Hague Convention 1970, or on an English wording, it is not a "hi-jacking", and is thus prima facie covered by the All Risks, but by the FFSA wording it is a War Risk.

Even if the policy wording as issued to a French insured is an approved translation of the English wording, but with a French jurisdiction clause, in the event of a dispute there is a danger that a French Court would rely upon the FFSA wording! This leads to the anomalous position that any illegal seizure of an aircraft in France is a War Risk, be it on the ground or in flight.

In order to avoid disputes, the inclusion in Policies of a definition of "hi-jacking" which accords with the Hague Convention 1970 should be considered, and likewise if there is a Policy definition of "in flight" – as in helicopter policies – which includes periods when the aircraft doors are open, and passengers and/or crew are physically outside the aircraft – this should be again restricted to the Hague Convention 1970 definition for the purposes of "hi-jacking" claims.

One final point exists, which is almost invariably overlooked. Both under the Hague Convention 1970 and the Aviation Security Act 1982, if the seized aircraft’s flight terminates in the same State that it took off from – in other words the flight was wholly within that State’s boundaries, even if the seizure was ‘in flight’ as defined, it is neither "the offence" under the Hague Convention nor a "hi-jacking" under the English Act.

This article appeared in Insurance Day on 2 October 2002.

In our Autumn 2001 edition of Sky Law we reported on the First Instance decision in this case.

The Appeal has now been heard and by a unanimous judgment of the Court of Appeal the decision has been reversed.

In short, the Court of Appeal determined that the CMR Convention scheduled to the Carriage of Goods by Road Act 1965 applied, compulsorily, to the road leg of the carriage by the airline. As a result of the decision the opportunity now exists to break severe limits of liability which would not have been the case had Montreal Protocol (No. 4) applied or, indeed, the airline’s own Conditions of Carriage in the Air Waybill. The Court of Appeal judgment has already been cited in a New South Wales Court of Appeal decision (Schenker v Siemens).

A request for leave to appeal the decision was refused, but there is an attempt to obtain leave to appeal from the House of Lords.

The Court of Appeal decision is important and could have very interesting repercussions, for example, can it always be said exactly when air carriage ends, so that there is no clash of Conventions and in what circumstances will the introduction of a road leg into a predominantly air carriage lead to the loss of the considerable limitation protection that might otherwise be afforded by Montreal Protocol (No. 4)?

An article discussing the case, and written by Clyde & Co’s casehandlers, appeared in Insurance Day on 18 April; copies of the article are available on request.

An air carrier has recently been held liable in the UAE for the full value of a cargo claim despite a clear limitation of liability provision in its Master Air Waybill ("MAWB").

Three house air waybills (HAWBs) were issued by freight forwarders, DFI, to the shipper of designer sunglasses for carriage from Milan to Sharjah – the financing bank was named as consignee. DFI signed the HAWBs "as agent for [the carrier]", although one HAWB noted that DFI acted as the "Applicant’s nominated freight forwarders". Remarkably, the terms on the reverse side of the HAWBs were never disclosed in the proceedings.

The consignments were consolidated into one MAWB, issued by DFI as carrier’s IATA agent on the carrier’s standard IATA form. The MAWB named DFI as the shipper and a local freight forwarder in the UAE as consignee.

The air waybills all permitted the carrier to substitute other means of transportation without notice. However, the HAWBs were also claused: "Transhipment: Not Permitted". The flight code shown on the air waybills represented a flight by the carrier from Schipol to Sharjah. The carrier had no direct flight from Milan to Sharjah and, as DFI knew from previous engagements, the first leg of the carriage from Milan to Schipol was sub-contracted to road hauliers, during which leg the cargo was stolen.

Surprisingly, the claimants pleaded that the Warsaw Hague Convention (the "Convention") applied to the claim. However, they argued that under Article 25 of the Convention the carrier could not limit its liability due to gross recklessness in shipping the goods by road in breach of the prohibition of transhipment.

The carrier argued that, if the Convention did apply, the carrier could not be held liable because the loss occurred during the road leg and not during "carriage by air". Alternatively, the carrier argued it was entitled to the benefit of Article 20 having taken all necessary measures to avoid the loss and/or Article 21 in that the cargo owners had contributed to the loss by not declaring a value for the goods. If the Court still considered the carrier to be liable, the carrier was entitled to limit liability pursuant to the Convention, the terms of the MAWB and/or local law.

The Court rejected the claimants’ apparent own goal and held that liability fell to be determined according to the terms of the contract.

The Court held that the contract was evidenced by the three HAWBs issued by DFI as the carrier’s agent. The Court did not require sight of the terms on the reverse side of the HAWBs and did not explain the function of the MAWB.

The Court found that the typed clausing on the HAWBs which prohibited transhipment meant that the carrier, through its agent, had contractually agreed to carry the goods directly by air from Milan to Sharjah. Accordingly, there was no need to consider the printed wording which allows change of mode of transport nor IATA Resolutions permitting such right.

As the Convention did not apply the carrier could not rely on Article 22 limits. Further, the analogous provision of domestic law applied only to "carriage by air" and therefore did not apply to a loss during carriage by road. The carrier could therefore rely upon a contractual right to limit liability but on the incomplete copy of the HAWBs (which evidenced the contract), there was no provision for limitation of liability. The carrier was accordingly found fully liable.

The case involves the reverse of the Quantum –v- Plane Trucking and Air France scenario since the road leg preceded the air leg.

The UAE Commercial Code is ultimately derived from its French equivalent and it will be interesting to see whether the Sharjah Court of Appeal ultimately allows the carrier to rely on the provisions of the Warsaw Hague Convention, by a theory of contractual incorporation, since such argument has received favour in France contrary to other European authorities.

Legislation giving effect to Montreal Protocol No. 4 ("MP4") in England was introduced in May 1999. Unlike its predecessor, the Warsaw-Hague Convention, which allowed for limits to be broken in cases of intentional or reckless conduct by the carrier, its servants or agents, MP4 provides that limits of liability for cargo loss or damage (being 17 Special Drawing Rights) "may not be exceeded whatever the circumstances".

Leaving aside any discussion of how and when MP4 operates there are still actions ongoing in the High Court involving damage or loss, which occurred before May 1999. In a recent decision at a trial of a preliminary issue, Mr Justice Tomlinson held that, prior to May 1999, the Warsaw Hague Convention, as stated in the Carriage of Goods by Air 1961, had the "force of law" and accordingly was the applicable Convention in this action.

One might be forgiven for thinking "res ipsa loquitur" (i.e. "the matter speaks for itself"). The defendants thought otherwise. They argued that because the contract was made in Portugal, between a Portuguese shipper and carrier, for the carriage of Portuguese banknotes from Portugal to London, on a Portuguese registered aircraft, the "proper" law of the contract was Portuguese law, and that the proper law should determine the applicable version of the Convention in the action. Needless to say, at the time of loss, being March 1999, MP4 was already in force in Portugal, and its application could potentially have saved the defendants several hundred thousand pounds.

Mr Justice Tomlinson rejected the defendants’ submission that ratification of MP4 by the United Kingdom created an international law obligation to give effect to MP4 as "flawed" and "subversive of constitution". He noted that the defendants would have particular difficulty with their argument, had Parliament not given effect to MP4 in May 1999. He accepted the claimants’ submissions that, as the Warsaw Hague Convention, at the date of loss, had the "force of law", it was compulsorily applicable at the date of loss, that it formed a complete code in substitution for any contractual terms which sought to infringe the rules laid down in the Convention, and that, even if Portuguese law was the implied choice of law, since it would infringe rules laid down by the Convention, it would be null and void pursuant to Article 32.

The decision will probably have limited impact insofar as MP4 is now the applicable Convention in the United Kingdom. However, from a more general perspective, it is significant in that it reaffirms the findings of Donaldson J in Corocraft –v- Pan American Airways [1969] QB 616 that the liability imposed by the Carriage of Goods by Air Act of 1961 and its Convention (now MP4) would in any action before the English Court apply "in substitution" for any liability of the carrier at common law and in contract, and that the Act has "the force of law in the United Kingdom". That decision was not, as the defendants argued, one of construction as opposed to principle. Leave to appeal was refused.

Recent developments concerning jurisdiction under French law have had an impact on some aviation cases, particularly those involving airlines and their insurers, as they can now be sued in France by claimants who can avoid the provisions of the Warsaw Convention by simultaneously suing a defendant residing in France.

The general principles of international jurisdiction are:

In order to decide whether or not they have jurisdiction over a lawsuit with an international element brought in a French court, French courts use the same criteria which are used in domestic law for determining domestic territorial jurisdiction.

French courts therefore should accept jurisdiction in the following cases:

1. if the defendant resides in France (which does not necessarily mean that the defendant has French nationality);
2. if the defendant is a company whose head office or subsidiary establishment is registered in France and whose business activities gave rise to the claim;
3. if, in a contractual matter, the contract was performed in France (for example, France is the place of delivery or the place where the service was rendered);
4. if, in a matter of tort liability, the originating cause occurred in France or if the loss was suffered in France.

French courts also have jurisdiction to hear related actions brought against several defendants when one of the defendants, against whom there is a good cause of action, resides in France (Article 42 of New Civil Code of Procedure – ("NCP"), which has recently taken on great importance, particularly in aviation matters (see 3 below).

Articles 14 and 15 of the French Civil Code also give French courts jurisdiction when the nationality of one of the parties, either the plaintiff or the defendant, is French.

Article 14 states that:

A French citizen may be sued in a French court for contractual obligations undertaken by him in a foreign country, even with a foreign citizen.

Thus, pursuant to Articles 14 and 15, a French court may decide that it has jurisdiction if one of the parties to the suit is French – even if that party does not reside in France and/or has no other link with France – notwithstanding that the court would not have jurisdiction according to the general rules of international jurisdiction set forth above.

However, from the parties’ point of view Articles 14 and 15 are only optional, since the parties may waive them – but if the parties do wish to apply those articles, then the Court must do so. Such waiver of the application of these articles by the parties may be explicit, as in the case of a contractual arbitration clause.

That said, it is nonetheless unusual for a French court to accept jurisdiction on the basis of those Articles due to the numerous treaties to which France is a party, which bar the application of Articles 14 and 15.

Indeed, the Brussels Convention of 27 September 1968 (now replaced by EC Regulation No. 2001 dated 22 December 2000 and in force as from 1 March 2002) bars the application of Articles 14 and 15 of the French Civil Code to a defendant residing in an EC Member State. This is also the position under the Hague Convention dated 15 April 1958.

The Cour de Cassation (French Supreme Court) has therefore not rendered many judgments on Articles 14 and 15 recently, the last known decision concerning Article 14 having been handed down on 31 January 1995.

In that case, the claimant was a French company that had secured the rights of a bankrupt American company by taking over its debt. The Cour de Cassation confirmed that the French court must accept jurisdiction when the claimant is French, even though the parties to the contract were American and the contract was performed in the USA (place of delivery).

Cases where Articles 14 and 15 may continue to be of importance are where a defendant does not reside in the EC. Article 4.2 of EC Regulation of 22 December 2000 provides that any person residing in an EC Member State may, whatever their citizenship, invoke that State’s domestic rules of jurisdiction against a defendant who does not reside in an EC Member State (while such rules cannot be used against a defendant who does reside in an EC Member State).

This means that not only French citizens but also foreign citizens residing in France would be able to rely on Articles 14 and 15 of the French Civil Code against a defendant who does not reside in the EC, which was not formerly the case.

In fact, French courts do often accept jurisdiction, not however, pursuant to attachment of privilege, but by application of Article 42 of the New Code of Civil Procedure which, in this case, is applied at an international level.

Article 42 states that:

A French court would thus accept jurisdiction if only one of the defendants resides in France, on condition that there is a serious cause of action against that defendant, that is to say that the defendant has not been sued for the sole purpose of having the whole matter heard in a French court.

In a case involving an aircraft crash, the Cour de Cassation ruled that pursuant to Article 42 above, French courts have jurisdiction over a case brought against an airline, even though the Warsaw Convention is applicable and France is not one of the four jurisdictions named in Article 28 of that Treaty, if there is also a proper French defendant.

In that decision, dated 25 November 1997, the Cour de Cassation found for the foreign claimants who sued the aircraft manufacturer (domiciled in France) and the foreign airline in France for an accident that occurred in Nepal. The court ruled that:

That decision caused a big stir amongst airlines, as it seems to be the sole example of a Court accepting jurisdiction in a Warsaw Convention case where the Court is not one of those designated in Article 28 as being mandatory and exclusive i.e.:

• the Court where the air carrier is ordinarily resident
• the Court where the air carrier has its principal place of business
• the Court where the carrier has an establishment by which the contract has been made
• the Court having jurisdiction at the place of destination.

The Cour de Cassation has not yet had the opportunity of confirming or modifying its position on this issue and for the time being the French first instance courts, and Courts of Appeal, follow this precedent, meaning that foreign claimants are still able to sue a foreign air carrier in France for an accident occurring abroad, provided that they also sue another defendant who resides in France (usually the aircraft manufacturer).

It is likely that the Cour de Cassation will have to rule again on several similar cases within the coming months, which should give a clear idea about the position of the French courts on this tricky problem.