Air Transportation (Contractual Liability)
1. Subject and development
Liability for the vast majority of all international carriage of persons, baggage and cargo was for more than 70 years determined pursuant to the Convention for the Unification of Certain Rules Relating to International Carriage by Air. Having application was either the very first version signed at Warsaw on 12 October 1929 or, in most cases, the Warsaw Convention in the version of the Hague Protocol of 1955. These two versions of the Convention were, inter alia, amended by the supplementary Convention of Guadalajara of 1961 as well as by the Montreal Protocols of 1975.
During the era of its prevalence, this so-called Warsaw Convention system was the basic international private law regime for civil aviation and covered several areas. Among others, this system governed the following issues: the conclusion of contracts relating to the carriage of passengers; the legal aspects of the carriage of baggage and cargo; the peculiarities of combined carriage; the enforcement of the law; and questions relating to tortious and contractual liability. The central feature of the Warsaw liability system was the privilege of the air carrier to limit its liability, particularly relating to personal injuries.
As a consequence of the evolution and change witnessed in international air traffic, the need for numerous modifications of the Convention system proved inevitable. These modifications led to the existing Warsaw regime becoming extremely fragmented and complex, rendering it eventually unfit for its purpose. In addition, its liability system (including the limitation of liability) was questioned by the aircraft industry itself, as airlines in fact accepted a nearly unlimited liability through their voluntary accession to and compliance with the Intercarrier Agreement. Ultimately, these various factors created the impetus for a general revision of the liability system.
The Warsaw liability system has recently been supplanted by the Montreal Convention (1999). However, despite the advanced ratification status of this new liability regime, it does not (yet) apply worldwide. Therefore, for certain international air connections, the Warsaw Convention and its Protocols and supplementary Conventions are still effective.
2. The Montreal Convention
Motivated by a desire to remove the ambiguities that had resulted from the fragmented regime of the Warsaw Convention, the international community of states created a new Convention at the conference of the International Civil Aviation Organization (ICAO) in Montreal on 28 May 1999. This new Convention aims to unify and modernize the numerous rules relating to the liability resulting from air carriage contracts. The Convention for the Unification of Certain Rules for International Carriage by Air entered into force between the ratifying states on 4 November 2003, after ratification by the United States as the 30th state. Germany ratified the Convention on 29 April 2004 and on 28 June 2004 it entered into force in all EU Member States as well as in the European Community itself. By June 2011, the Montreal Convention had been signed by 97 states.
The Montreal Convention will gradually replace the Warsaw Convention, but it does not intend to abrogate it. Thus, whereas Art 55 of the Montreal Convention states that it prevails over all the instruments of the Warsaw Convention, no particular obligation exists to abrogate either the original Warsaw Convention or its subsequent amendments. The clauses of the Warsaw regime will therefore continue to play a role, but only a subordinate one. Before the Montreal Convention is ratified by the entire community of nations, further questions, particularly relating to the (parallel) applicability of the two regimes, will inevitably arise.
a) Scope of application
The Montreal Convention applies to all international carriage of persons, baggage or cargo performed by aircraft for reward. It is applicable, on the one hand, to events taking place on a flight between two states parties. On the other hand, the Convention can also be applied to transports which begin and end within the territory of a single state party with a stopping place within the territory of another state, ie it is irrelevant whether or not the layover state is member to the Convention.
The Convention is not applicable to one-way flights to non-states parties and to return flights from non-states parties to states parties.
The Montreal Convention regulates several liability scenarios, with liability in respect of passengers, baggage, cargo and delay being the most important.
(i) Passengers. Air carrier liability results in the case of an accident on board the aircraft or in the course of any of the operations of embarking or disembarking. For such liability to arise, the accident must lead to the death or bodily injury of a passenger. Basically, every unexpected or special incident without any active involvement of the passenger is defined as an accident. In such a case, the air carrier is liable for the damage resulting therefrom up to an amount unlimited in principle, subject to the possible contributory negligence or other wrongful act or omission of the injured person. If the air carrier is able to prove such negligence, it will be fully or partly relieved from potential liability. If not, its liability is based on a two-tier system of liability which is essentially based on the amount of damage. The first tier is applied to damages not exceeding 100,000 SDRs per passenger (one SDR = Special Drawing Right corresponding to about €1.10 as of June 2011). In this tier the carrier is not able to exclude or limit its liability (strict liability). The second tier covers liability for amounts of damages exceeding 100,000 SDRs. Here, the carrier’s liability exists without any limitation, ie the air carrier is liable for all damage due to its (even slight) negligence or other wrongful act or omission.
The air carrier can only be freed from liability if it proves that there is no fault on its part. No other limitation of liability is foreseen. Any claims for punitive damages are explicitly excluded. To fulfil the immediate financial needs of the injured or his relatives, the air carrier can be obligated to make an advance payment. However, this has to be backed by the relevant national law also contemplating such advance payments, as is the case in the EU and in Switzerland. These advance payments do not, however, constitute a recognition of liability and may be offset against any amounts subsequently paid as damages by the carrier.
(ii) Baggage. Liability for baggage may result from its destruction, loss or damage if the precipitating event took place either on board the aircraft or in the course of any of the operations of embarking or disembarking. Liability for unchecked baggage including personal items exists only if the damage was caused by the fault of the carrier or its servants or agents. The carrier is not liable if and to the extent that the damage resulted from the inherent defect, quality or vice of the baggage.
Whereas the Warsaw Convention is based on a liability system incorporating a weight-related restriction, the Montreal Convention restricts liability—independently from the weight of the baggage—to 1,000 SDRs. This limit applies per passenger for registered and for non-registered baggage. Higher limits may be agreed upon if the passenger has made a special declaration of interest in delivery at destination at the time when the checked baggage was handed over to the carrier. The upper limit of liability does not apply to cases of acts or omissions of the carrier, its servants and agents, done with intent to cause damage or recklessly and with knowledge that damages would probably result.
(iii) Cargo. The air carrier is liable for the destruction or loss of or damage to cargo if the damage cannot be attributed to an inherent defect or quality of the cargo, or to defective packing, and if the incident causing the damage occurred while the air carrier was in charge of the cargo. Additionally, the fact that damages are caused by an act of war or an armed conflict leads to an exemption from liability. The liability can in any event not exceed 17 SDRs per kilogram, unless the consignor has made a special declaration of interest in delivery at destination at the time when the package was handed over to the carrier.
This limit applies even in cases of recklessness or intent (eg theft by the air carrier and its servants and agents). This aspect of the Convention has been criticized.
(iv) Delay. The carrier is also liable for damage occasioned by delay in the carriage of passengers, baggage or cargo if the air carrier or its servants or agents did not take all reasonable measures to avoid the damage. This liability for damage caused by delay is in principle limited to the total amount of 4,150 SDRs (passenger), 1,000 SDRs (baggage) and 17 SDRs/kilogram (cargo). The first two limits of liability (passengers and baggage) apply only if the damage did not result from an act or omission of the carrier, its servants and agents, done with intent to cause damage or done recklessly and with knowledge that damage would probably result.
c) Further issues of regulation
(i) Jurisdiction. Like the Warsaw Convention, the Montreal Convention allows a choice of the four traditional jurisdictions in which actions for damages can be brought within the territory of a state party: before the court of the air carrier’s domicile; before the court of the air carrier’s principal place of business; before the court of the carrier’s place of business at which the contract was made; or before the court at the place of destination of the carriage.
In addition to these traditional jurisdictions, the Montreal Convention allows actions for damages resulting from the death or injury of a passenger to be brought before a court in the territory of a state party in which the passenger has his or her fixed and permanent abode at the time of the accident. Furthermore, it has to be a court in the territory of a state party to or from which the carrier operates services and in which the carrier conducts its business from premises leased or owned by the carrier itself.
(ii) Court fees. The limitations of liability mentioned above do not prevent the court from awarding additional court costs and other expenses (including interest) incurred by the plaintiff in the course of the litigation. Here, the regulations of the competent court apply. The additional amount will, however, only be granted if the amount of the damages awarded, excluding court costs and other expenses of the litigation, exceeds the sum which the carrier offered in writing to the plaintiff within a period of six months from the date of the occurrence causing the damage, or before the commencement of the action, whichever is later. Here, the Montreal Convention encroaches upon the national rules of procedure, which may—as is well known—provide very different rules in this regard.
(iii) Arbitration proceedings. A previous agreement to settle possible liability disputes by arbitration is possible only for the carriage of goods and is thus excluded for passenger claims. However, a subsequent agreement to settle passenger claims by arbitration is acceptable (arbitration (international)). In this respect the Convention states that the arbitration tribunal has to apply the provisions of the Convention.
(iv) Transport documents. The Warsaw liability system requires that the carrier make express reference to the limitation of liability in order to be able to invoke such limitation later. The Montreal Convention has considerably eased and simplified this rule. Although certain statements are still required, no sanctions are connected with their omission. Furthermore, electronic tickets are explicitly included in the Montreal Convention. Electronic air waybills are also allowed and the Montreal Convention includes certain rules on their tenor. Here as well, the omission of information does not lead to the elimination of the liability limits.
3. European law aspects
The enactment of the Montreal Convention on 28 June 2004 for all the EU Member States as well as for the European Union itself led to the enactment of Reg 889/2002 complementing Reg 2027/97 governing the liability of airlines in case of accident. According to this regulation, the Montreal Convention is applicable to all air carriage by EU airlines, regardless of whether a national or an international carriage is concerned. In addition, detailed duties to supply references and information are imposed in case of carriage within EU boundaries, and the regulation entails insurance protection to cover the expenses incurred in cases requiring compensation. The contracting states have the duty to ensure that their air carriers maintain adequate insurance coverage. On request of other Member States, evidence of such insurance must be provided. It is left to the Member States to determine the manner in which the required insurance coverage will be extended to air carriers. The European Union Reg 785/2004 of 1 May 2005 sets minimum amounts for the insurance coverage for airlines and aircraft operators. As an example, coverage of up to 250,000 SDRs is required in the case of a passenger’s personal injury or death, 1,000 SDRs for baggage and 17 SDRs per kilogram for cargo. Meanwhile, the European Court of Justice has repeatedly identified the Montreal Convention as an integral element of the legal system of the Community and has addressed its proper interpretation (eg ECJ Case C-344/04 – IATA  ECR I-403).
The entry into force of the Montreal Convention clarifies the regime of international air traffic. Through its terms, the numerous international law treaties and protocols as well as the regulations under European law have been gathered into one single instrument. Against this background, it is no coincidence that the Montreal Convention comprises many elements of existing Conventions. Some terms were to a greater or lesser degree adopted from the original Warsaw Convention or the Hague Protocol. Other provisions have been taken from the Guatemala City Protocol, from the Montreal Protocols and from the Intercarrier Agreement which was implemented by the aircraft industry. The strength of the Convention undoubtedly lies in the unification of all these provisions into one single Convention, at last providing legal certainty and legal clarity to all parties involved in an air carrier contract.
Given the often diverging interests found in the community of nations and the sometimes difficult negotiations during the ICAO conference, the willingness of 52 states to sign the newly created Convention at the end of the conference demonstrates the great international readiness to leave behind the old Warsaw regimes and to replace them with the new Convention. As an impressive number of states have joined the new Convention, this hope has come to fruition.
Martin Ryff, ‘Das Montrealer Übereinkommen’ [1/2000] 128 ASDA/SVLR Bulletin 8; Roland Schmid and Wolf Müller-Rostin, ‘Die Änderungen des internationalen Lufttransportrechts durch das Montrealer Übereinkommen von 1999’ [2/2003] 135 ASDA SVLR Bulletin 13; Stephan Hobe and Otto Kimminich, Einführung in das Völkerrecht (2004); Walter Schwenk and Elmar Giemulla, Handbuch des Luftverkehrsrechts (2005); Paul S Dempsey and Michael Milde, International Air Carrier Liability (2005); IH Ph Diederiks-Verschoor, An Introduction to Air Law (2006); Elmar Giemulla and Ronald Schmid, Frankfurter Kommentar zum Luftverkehrsrecht, vol 3 (looseleaf); George N Tompkins, Liability Rules Applicable to International Air Transportation as Developed by the Courts in the United States: From Warsaw 1929 to Montreal 1999 (2010).