Currently the liability of European air carriers for damage sustained during international flights resulting from death or injury to passengers and damage to cargo and baggage is regulated by the 1929 Warsaw Convention (as amended by the The Hague Protocol and the Guadalajara Convention). It is common knowledge that the system of the Warsaw Convention, which was created over 65 years ago when air travel was considered to be risky and air carriers had to be protected against unlimited liability, is considered inadequate by many, taking into account today's aviation market. The limits set by the Warsaw Convention are generally considered to be too low from an economic and social point of view. The defences available to the airlines under Article 20 (1)and Article 25 of the Warsaw Convention have led to many lengthy legal proceedings.

There have been several attempts to improve the Warsaw Convention system since 1955, but it has proved difficult to collect the required number of signatories necessary to ratify an amendment of the Convention (which has 123 signatories). The U.S. Government has imposed higher limits of liability under the 1966 Montreal Inter-carrier Agreement on all carriers operating on its territory and eliminated the air carriers' due care defence.

Japanese airlines have abolished the liability ceilings of the Warsaw Convention and now apply a system of strict liability for claims up to SDR 100,000 under an inter-carrier agreement of 1992. The latest development on an international level initiated by IATA is the 1995 Kuala Lumpur Inter-carrier Agreement on Passenger Liability. Initially, 12 airlines - including Austrian Airlines, SAS, KLM and Swissair - signed the agreement and IATA is trying hard to get the rest of the world's support for its initiative.

Meanwhile, the European Commission has prepared its own proposal for uniform rules regarding air carriers' liability which were formally presented on 15 February 1996 (published in C 1996/104). With its proposal the Commission not only strives to overcome the inadequacies of the current system of liability, it also intends to further develop the principles of a single aviation market by implementing a set of uniform rules which covers the operation of air services, internationally as well as domestically.

In short, the proposed Council Regulation covers four major issues:

1. the abolition of liability limits for death or injury of passengers;

2. strict liability of the air carrier for damages up to a maximum of ECU 100,000 (i.e. abolition of the "due care defences");

3. mandatory advance payments in case of death resulting from the accident of ECU 50,000 and up to a maximum of ECU 50,000 in case of injury. The advance payment has to be made within 10 days after the accident occurred and may be offset against the sum of a final settlement. However, under no circumstances the victim or his/her heirs shall be obligated to return an advance payment;

4. the victim or his/her heirs may initiate legal proceedings in the E.U. Member State where they are domiciled or permanently resident even if such jurisdiction is not available to them under Article 28 of the Warsaw Convention.

The new regulation shall apply to all international and domestic flights operated by Community Carriers, i.e. carriers within the meaning of Council Regulation No. 2407/92 which operate under an operating licence granted by an E.U. Member State.

The proposal also obligates Community carriers, non-Community carriers, their representatives and travel agents to provide certain information to their passengers. Community carriers are required to inform their passengers of the regulations mentioned above under 1, 2 and 3. These regulations must be part of the carrier's conditions of carriage. Non-Community carriers are required to inform their passengers when selling tickets in the E.U. that the above regulations do not apply to its operations. On request, these carriers must provide their passengers with details of their liability conditions.

The proposed Council Regulation also provides for a procedure and the possibility for the Commission to periodically increase the amounts mentioned in the regulation in conformity with economic developments.

The Commission does not find it necessary to also present uniform rules for damage to baggage or cargo, since improvement of that regime is being dealt with by ICAO.

According to the Commission the proposed regulation will not adversely affect the position of small and medium-sized airlines within the Community. The expected increment of operating costs due to higher insurance costs will be insignificant even for smaller airlines.

The airline industry has already put question marks to the Commission proposal. And indeed it would appear that the Commission proposal is a hasty piece of work with insufficient consideration for what happens in the real world. Some critical observations:

  • The mandatory advance payment rules are unrealistic and could lead to serious problems resulting from the time pressure caused by the 10 days deadline. For instance, especially in case of a major accident, the 10 days period will be too short to properly identify victims and/or their heirs or to assess or calculate expected damage (in case of injury). In the event of an accident involving casualties from a variety of jurisdictions the question arises who is entitled to the advance payment, i.e. who is the "person entitled to compensation". What if there are multiple claims for an advance payment by a number of self-proclaimed persons entitled to compensation.

Besides, in certain jurisdictions within the E.U. (like The Netherlands) compensable damages are limited to loss of support and funeral expenses. In many cases the compensable loss will be less than ECU 50,000.

  • Another feature, which is rather odd, is that the lump sum paid to the person entitled to compensation (whoever that may be in wrongful death cases) is under no circumstances refundable. What if the carrier, under pressure of the 10 day period, pays the full amount of ECU 50,000 to the spouse of the deceased and it turns out that the couple was estranged and living apart and that other persons (i.e. persons supported by the deceased) claimed later. And what if the actual loss (in a personal injury case or in a wrongful death case), as determined by the court in accordance with applicable law, is less than ECU 50,000? We see no justification for the rule that the mandatory advance payment is not refundable. There is no reason to place airline passengers in a better position than train or bus passengers, or any other persons involved in an accident.
  • It is also feared that the proposed rule of strict liability will open the floodgates to waves of unwarranted claims and proceedings. And what would be the sanction if non-Community airlines do not comply with the information obligations imposed on them by the regulation? Furthermore, the proposed rules only relate to death, wounding or any other bodily injury, whereas it is generally known that the implementation of the Warsaw Convention system on claims for damages relating to mental injury widely differ from (Member) State to (Member) State. It would be welcomed if the Commission (or the Council) grabs this opportunity to provide uniform rules in this respect as well.
  • The Commission proposal prescribes that a summary of the requirements is to be printed on tickets. The Commission is not quite up to speed with the upcoming age of ticketless travel. Apart from that, the question arises why any warning as to the applicability of the proposed rules is necessary. These rules are so passenger-friendly that it is the carrier rather than the passenger who needs to be warned.
  • It is not clear whether 5th jurisdiction rule (domicile/residence of the passenger) is compatible with the provisions of the EC Civil Jurisdiction Convention and the provision of article 32 of the Warsaw Convention.
  • What are the implications of the changed liability regime on the operating costs of the carrier and to what extent does an increase in those costs adversely affect the competitive position of air travel to high speed trains?

It is hoped that the Commission will not, in its eagerness to launch a new comprehensive liability regime prior to IATA, forget to reflect on all implications.

For further information, please contact - Onno Rijsdijk, De Brauw Blackstone Westbroek, Amsterdam, Tel: 31 20 5481 435 - E: Mail Address - bbw001@ibm.net - or enter text search 'De Brauw Blackstone Westbroek' and 'Business Monitor'.