Journal

Pergamon

SO969-6997(96)00014-2

of Air

Transport

Management, Vol. 3, No. 1, pp. 37-45, 1997

Copyright 0 1996 Elsevier Science Ltd
Printed in Great Britain. All rights reserved
0969-6997/96 $kOO + 0.00

Regulatory management of the

Warsaw System of air carrier
liability
R.I.R. Abeyratne
Centre for Research and Institute of Air and Space Law, McGill University, Montreal, Quebec and ICAO,
Montreal, Quebec, Canada

This article focuses on the 67 year old Warsaw Convention on private liability of air carriers and
the Warsaw System which comprises the Convention
itself and the subsequent Hague,
Guatemala City and Montreal Protocols 3 and 4, all of which have attempted to manage the
system of private liability in conformity with changes in soci+commercial
circumstances. It also
traces regional developments in this area of liability with a view to assessing the advantages and
disadvantages of the various measures that have so far been taken. Against this backdrop, the
latest innovations of the Japanese proposal and the 1995 IATA Intercarrier Agreement are
analyzed in order to assess their credibility as management tools. The various stratagems and
elements that now need to be considered in the management of this complex area of liability are
also discussed.
This article has been written in the authors private capacity and its contents should not be
attributed to his professional or academic affiliations. Copyright @ 1996 Elsevier Science Ltd
Keywords: air carrier liability, Warsaw Convention, Warsaw System

Introduction
The latest innovation in air carrier liability-the
IATA
Intercarrier Agreement on Passenger Liability-was
unanimously approved and adopted by the Slst Annual
General Meeting of IATA in Kuala Lumpur on 31
October 1995. It represents an unusual form of international law making whereby an association of private
airlines is setting standards for international
compliance. However, this initiative can be hailed as a
courageous attempt at leading the way to modernize
the international unification of private air law, subject
to approval by governments.
The Agreement also
attempts to offer a visionary interpretation and appreciation of existing international
legal instruments.
Another advantage of this initiative is that it brings into
focus serious weaknesses of current unified private
international air law and shows the readiness of the
industry to find solutions which are calculated to be
beneficial to the consumer. Although allegedly tendentious, this initiative has assisted the IATA carriers to
appear willing to take an ostensibly selfless action to
break through the quagmire of treaties and protocols
which clog the system of private liability in aviation.
However laudable the IATA initiative is, it is incontrovertible that even if it is implemented by air carriers

with the approval of respective governments, it cannot

be a permanent measure towards the unification of
private air law in consonance with the law of treaties. A
new legal regime, or at least a suitable modification of
the current one, will be reached only if States themselves radically revisit the Warsaw System and formally
revise or replace it with a totally new instrument.
Nothing short of global unification on a broad basis
could successfully establish a new system of liability in
this area. Such a system should aim at effective risk
management on a global and common basis, obviate
complex conflict of law issues and harmonize, to the
extent possible, conflicts of jurisdiction. The management of such a system has to ensure a large degree of
predictability and certainty so that a victim will obtain
just and equitable compensation for damage caused
whilst at the same time assuring that the air carrier
concerned will not be left at the end of the settlement
with nightmarish visions of increased liability premiums
which will be imposed on that carrier when the insurance renewals are due the next time round.
Of course, any system of management which is
charged with introducing and implementing measures
must attempt to restore as much as possible the status
quo ante and introduce clear rules on the jurisdiction of
courts of law. Jurisdictional issues bring to bear the
37

Management of Warsaw System of air carrier liability: R I R Abeyratne

compelling
need to prevent conflicts of jurisdiction
or
lack of jurisdiction
and settle issues related to forum
shopping-which
is detrimental
to
all
parties
concerned-thereby
calling
for the elimination
of
ambivalence.
Besides, clear and unified rules are essential to enable the airline industry to obtain effective and
economic insurance
coverage.
The above features
of management
can only be
achieved by regulatory
measures.
These in turn would
have to be introduced
by the international
community
through
the auspices
of ICAO,
which is the only
international
regulatory
body charged with regulatory
responsibility
for matters of global civil aviation. As a
first measure,
the management
process should commence with an in-depth review of the existing state of
affairs.

The Warsaw Convention

One of the most outstanding
features of the Warsaw
System in terms of management
strategy is its genesis
itself. In 1929, the Warsaw Conference-which
was the
precursor
to the Warsaw Convention-in
a brilliant
show of liability management,
veered from established
legal concepts of tort law to place a presumption
of
liability on the carrier. This reversal of fortune prima
facie ensured
the award
of compensation
to the
claimant and reserved the right of the carrier to rebut
the presumption
of liability
in exceptional
circumstances when the carrier takes all necessary precautions
to avoid the damage or when it is impossible
to take
such measures.
Contributory
negligence
of the injured
or dead passenger
was also a factor in favor of the
carrier. The final strategy of the Conference
was to
blend the presumption
of liability of the carrier with a
limitation of liability which protected the carrier against
flood gates of litigation and possibilities
of being sued
for huge sums of money,
whilst at the same time
introducing
a provision in the Warsaw Convention
that
would break the limit of liability in case of the carriers
wilful misconduct.
This balanced
management
structure was built by the Warsaw Conference
at a time
when air transport was in its infancy and carriage by air
was a dangerous
adventure.
Most airlines (with the
exception
of US airlines) were owned by the government and operated by the public service. The limitation
of liability therefore
primarily
served to protect not
only the airlines
but the governments
themselves.
However, now, after 67 years, the limitation of liability
of the Warsaw Convention
has become unrealistically
low and presumed fault of the carrier has given way to
more expedient
trends which ensure compensation
to
the claimant and protection
of the carrier concerned.

The Warsaw System

Since its introduction,
the Warsaw Convention
has
undergone
a metamorphosis
several times due partly to
38

the rapid evolution

of air transport
within a relatively
short span of 50 years and partly to the growing
dissatisfaction
of States with its liability limits. Article
41 of the Warsaw Convention
vested responsibility
for
the amendment
of the Convention
in the Government
of France. France transferred
this responsibility
on a de
facto basis to the Legal Committee
of ICAO and to a
diplomatic
Conference
convened
by the ICAO Council. The Hague Protocol of 1955 was a result of this
transfer
of authority.
Changes
made by the Hague
Protocol
to the Warsaw
Convention
were largely
cosmetic-the
most important
being an increase in the
liability limits, which even in 1955 was thought to be
inadequate.
In 1966, the United States denounced
the
Warsaw Convention
as amended
by the Hague Protocol (the United
States never ratified
the Hague
Protocol) and management
of the Warsaw System was
taken over by the airline industry with the adoption of
the 1966 Montreal
Protocol-a
temporary
solution
reached essentially by the airlines to increase the limits
of liability and introduce
the principle of strict liability
regardless
of fault on the part of the carrier.
The
IATA-sponsored
Montreal
Protocol
effectively
precluded the Warsaw System from being denounced
by
the United
States but gradually
paled into insignificance as its limits of liability too became hopelessly
inadequate
in the face of the forces of inflation.
Perhaps the most innovative
management
change of
the system occurred in 1971 when the Guatemala
City
Protocol
introduced
the principle
of strict liability
irrespective
of fault while at the same time increasing
the limit of liability to US$lOO 000 (from US$20 000 in
the original Warsaw Convention
and US$40000 in the
Hague Protocol).
The Protocol also simplified requirements for documents
of carriage to enable electronic
data processing
and computer
record maintenance
of
tickets. The Protocol
quite cleverly linked the two
elements of limits of liability and electronic ticketing by
making the US$lOOOOO limit unbreakable
even in the
case of faulty ticketing
by the carrier concerned.
In
other words, the carriers wilful misconduct,
even if
proved,
could not result in compensation
over and
above the limit being awarded to the claimant.
The
Protocol also had a provision
relating to the periodic
adjustment
of limits of liability (set to be consonant
with inflationary
trends);
a settlement
inducement
clause to facilitate
and expedite
out of court settlements; and a personal
injury clause as against the
purely bodily injury clause of the Warsaw Convention
which did not admit to claims for mental distress. In
addition,
the Protocol
embellished
the principle
of
contributory
negligence
by unifying
the principles
already included
in the Warsaw Convention
further,
and introduced
the principle that the jurisdiction
of the
courts of the injured passengers
residence
would be
recognized
in the case of personal
claims under the
Warsaw System. A supplementary
compensation
fund
was yet another management
tool used by the Guate-

Management of Warsaw System of air carrier liability: R I R Abeyratne

mala City Protocol, whereby provision was made for

States to have flexibility in awarding compensation to
victims over and above the limits of liability, by having
access to the compensation fund.
Apart from the fact that despite its many virtues, the
Guatemala City Protocol has yet to enter into force,
one of the inadequacies of the Guatemala City Protocol
was its link to a gold standard in its extrapolation of
liability limits. Therefore, the entry into force of the
Guatemala City Protocol was initially obstructed due to
the crisis of gold as the worldwide yardstick of values
and its replacement by the SDR (Special Drawing
Rights-a basket of currencies set by the International
Monetary Fund) in international
banking parities.
More than twenty years ago-in
September 1975ICAO held another Diplomatic
Conference
that
adopted three Additional Protocols 1975 and a Montreal Protocol No. 4, 1975, all of which have been
waiting for the last 20 years to enter into force.
Protocols Nos. 1, 2, and 3 are to fulfil a minor
function-to
add to the Warsaw Convention, and that
Convention as amended at The Hague in 1955 and in
Guatemala City in 1971. They also addressed the gold
clause (gold francs) to express the amount of the limits
by the concept of SDRs of the International Monetary
Fund-a
new yardstick of values after gold had been
demonetized
and become just another commodity,
finding its value on the market according to the general
principles of supply and demand. Montreal Protocol
No. 4 was a substantive amendment of the Warsaw
Convention as amended at the Hague with respect to
cargo. It simplified the formalities of the air waybill and
allowed its replacement by a computer record and
pioneered the regime of strict liability regardless of
fault in the international carriage of cargo-a
vast
modernization of unified law.
It is interesting to assess the failure of the Montreal
Protocols and question the reasons for such numerous
attempts at modernized unification of private air law to
be rejected for nearly 20 years after their introduction.
As for Montreal Protocol No. 3 and Protocol 4-which
incorporate the Guatemala City Protocol-there
is
explicit provision in the Guatemala City Protocol in
Article XX that they cannot enter into effect unless
ratified by the United States. Although in the United
States, which in fact supported the Protocols vigorously, and has been enthusiastic to ratify them, many
pragmatic difficulties which have emerged from these
instruments
have seemingly precluded the United
States from recording their ratification to these instruments.
The Warsaw system and its window of litigation on
wilful misconduct of the carrier has given rise to
indiscreet attempts by claimants at unlimited compensation, making the system unmanageable
as a
whole. Some examples are the litigation in United
States courts on cases such as the PAN AM 103
litigation (the Lockerbie case) and the Korean Air (KL

007) case where the evidence

points to damage being

caused by unlawful action beyond the control of the
carrier. The standards used by juries in these cases,
which render their verdict on a preponderance
of
probabilities rather than on the criminal law standards
of finding evidence beyond reasonable doubt, make
judgments sensitive to factual and evidential interpretation which may not always necessarily admit to an
equitable finding by the court concerned.

States Initiatives at Liability Limitation

The growing dissatisfaction with the Warsaw System
has led to unilateral actions by States and airlines which
represent a defacto amendment of the system and the
consequent diffusion of its homogeneity. In keeping
with the flexibility afforded by the Warsaw Convention
whereby airlines may enter into contracts for higher
levels of liability, many airlines of the world have
unilaterally increased their liability to SDR lOOOO&
about US$150OO&and
the available evidence does
not suggest any substantial increase of the insurance
premiums for such an increase of the limits. Italy has
already imposed an SDR 100000 limit on all Italian air
carriers anywhere in the world and on all foreign
carriers operating to, from or through the Italian
territory. Since 1992, the United Kingdom requires all
carriers licensed by the Civil Aviation Authority to
increase their limit of liability to SDR 100000. More
than three years ago, in November 1992, the Japanese
air carriers agreed on a new tariff provision under
which they accept liability without any limit. They will
not use the defence under Article 20 and accept in fact
the strict liability principle up to the sum of SDR
100000. Above that sum the defences under the Warsaw Convention would be available and their liability
will be based on fault with reversed burden of proof.
This Japanese initiative is a historic breakthrough and
so far has not been copied anywhere else in the world.
In 1995 Australia enacted new legislation which will
increase the carriers liability to about SDR 260000
(about US$390000). The European Union (EU) initially proposed a regulation on air carrier liability requiring
operators serving a point within the European Union to
increase their liability limit to no less than ECU 600 000
(about US$750000). The more broadly based European Civil Aviation Conference (ECAC) encouraged
its members to require, for transportation
involving
ECAC territory, a limit of at least SDR 250000 (about
US$380 000). According to the ECAC recommendation, the limit of liability should be reviewed every
three years. It also suggests that those who suffered
damage should receive the uncontested part of the
claim within three months and an upfront payment of
5% of the limit should be paid in case of injury or 10%
in case of death. The most recently proposed EU
Council Regulation on air carrier liability would re39

Management of Warsaw System of air carrier liability: R 1 R Abeyratne

move any statutory

limit of liability and would introduce strict liability up to the sum of ECU 100000.

IATA Initiatives
On 24 September
1993, IATA requested an authorization from the European
Commission
and from the US
Department
of Transportation
to initiate discussions
among its member
air carriers concerning
the conditions and limits of liability. Such an authorization
and
antitrust
immunity
were seemingly
necessary in order
not to run afoul of the antitrust
and competition
regulations
in force.
The European
Commission
granted such authorization
in September
1993 and the
US Department
of Transportation
issued Order DOT
95-2-44 only on 22 February
1995-some
17 months
later-while
still exploring
a solution to implement
a
domestic supplemental
system that would permit ratification
of the Montreal
Protocol
No. 3 (originally
limited to 120 days and later extended until 31 December 1995 and then until 1 November
1996).
The DOT Order expressed
conditions
and expectations that, in passenger
claims arising from international
journeys
ticketed in the USA, a passenger
would be entitled to prompt and complete compensation on a strict liability basis with no passenger
limits
and with the measure of damages to be available in the
US domestic carriage. Furthermore,
the order required
the coverage to extend also to US citizens and permanent residents traveling internationally
anywhere in the
world. The DOT saw the possible results of the IATA
deliberations
as temporary,
pending entry into force of
Montreal
Protocols Nos. 3 and 4 and still apparently
expressing
hope that these instruments
will enter into
force, since the most current official ICAO policy still
urges speedy ratification
of Protocol No. 3. Although it
would seem somewhat
unusual
that the negotiation
relating to a multilateral
international
instrument
was
conducted
by a business association
of the airlines and
be subject to strict conditions
and expectations
formulated by one single government,
one cannot reasonably
find fault with such actions in the context of commercial
exigency which have arisen through a natural breakdown of management
of the Warsaw system of liability.
An IATA
Committee
considered
the matter
in
Atlanta in May 1995 and from 19 to 23 June 1995 IATA
convened
an Airline Liability Conference
in Washington. The Conference
was attended by 67 airlines from
all parts of the world, six regional airline associations
and by observers from ICAO, ECAC and the EU. The
IATA Conference
arrived at the following conclusions:

(1) The

(2)
40

Warsaw
Convention
must be preserved.
However, the existing passenger liability limits for
international
carriage by air are grossly inadequate
in many jurisdictions
and should be revised as a
matter of urgency.
Governments,
through ICAO, and in consultation
with airlines,
should act urgently
to update the

Warsaw Convention
system and to address liability
issues.
should act expeditiously
to bring into
(3) Governments
force Montreal
Protocol
No. 4 (cargo) independently of their consideration
of Montreal Additional Protocol No. 3.
The conditions
and expectations
for the Conference
set out in US DOT Order 92-2-44 of 22 February
1995
restricted
the ability of participating
airlines to reach
agreement
at this (Washington)
session on the enhancement
of compensation
for passengers
under the
Warsaw Convention
system. In particular,
the Conference objected to the expectation
of the United Statesthat the results of the Conference
would ensure full
compensatory
damages for claims by all US citizens and
permanent
residents traveling between countries
outside the US&-on the basis that it would discriminate
between passengers nationalities
and would impose on
airlines an unreasonable
responsibility
that should be
borne by the US Government.
The IATA Conference
in Washington
DC in June
1995 failed to draft a text of an intercarrier
agreement
similar to the 1966 Montreal
Agreement
due to its
inability to comply with the strict conditions
and expectations imposed by the US authorities.
The Conference established
two Working Groups-one
to study
the cost impact on airlines of the enhanced
liability
package
accepted
unilaterally
or recommended
by
different groups and another to assess and report on
appropriate
and effective means to secure complete
compensation
for passengers,
including
the Japanese
initiative
and the US Supplemental
Compensation
Plan, taking particular account of the circumstances
of
small- and medium-sized
airlines. It was expected that
the text of the new Intercarrier
agreement,
the plan for
appropriate
and effective means to secure complete
compensation
and related documents,
would be presented for the approval
of the 1995 IATA Annual
General
Meeting
on 30-31 October
1995 in Kuala
Lumpur and thereafter
be submitted for requisite governmental
approval.
The IATA Conference
in Washington
DC in June
1995 recommended
that the new enhanced
liability
package should be adopted by airlines as quickly as
possible to include the following:

(1) An

updated liability limit of SDR 250000, taking

into account the effects of inflation on the limits in
the 1966 Montreal agreement,
the 1971 Guatemala
City Protocol and the 1975 Montreal
Additional
Protocol
No. 3, as well as limits proposed
by
governments.
(2) Periodic updating of liability limits to reflect the
effects of inflation.
for up-front payment to
(3) Standards and procedures
meet claimants
immediate
needs, in accordance
with established
local custom, practice and applicable local law.

Management of Warsaw System of air carrier liability: R I R Abeyratne

of the defence under Article 21 of

(4) The retention
the instruments
of the Warsaw Convention
system
(contributory
negligence).
so require,
a waiver up to
(5) Where circumstances
SDR 250000 of the defences
under Article 20,
paragraph
1 of the instruments
of the Warsaw
system.
circumstances
so require,
recovery
of
(6) Where
proven
compensatory
damages
beyond
SDR
250 000 through appropriate
and effective means.
Complete
compensation
as
allowed
by and in
(7)
accordance
with applicable
law.
The June 1995 IATA Airline Liability Conference
had a swift follow-up on 25-26 July 1995 in London and
7-8 August 1995 in Washington
where the two working
groups met. These meetings and their outcome had a
profound
impact
on the approach
to the possible
solution of the problem.
After less than two days of
consultations
with insurance brokers in London, it was
concluded that a split two-tier system of liability (up to
SDR 250 000 and then above that limit through pooled
insurance coverage) would be unwieldy, expensive and
risk-prone.
The Working
Groups
recommended,
as the most
realistic,
least complicated
and, overall
most costeffective approach,
a definitive
merging of the previously considered
two-tier
solution.
They recommended a complete waiver of any limits subject to the
condition
that full recoverable
compensatory
damages
will be determined
on the basis of the law of the
domicile of the passenger
and that, in principle,
the
defences under the Warsaw system will remain available to the carrier.
Thus, without
sufficiently
wide
discussion
and with the indirect
involvement
of the
insurance
brokers,
a new intercarrier
agreement
was
prepared which departs substantially
from all previous
initiatives
and eliminates
completely
the concept of a
limit of liability,
which has thus far been the basic
feature of unified private air law. The text has been
drafted to permit maximum flexibility to the carriers in
the development
of their individual
conditions
of carriage and tariff filings, taking into account applicable
governmental
regulations.
Carriers have wide flexibility under the IATA Agreement
to waive any defences
up to a specified
monetary
amount
of recoverable
compensatory
damages
(as circumstances
may warrant), which is a flexibility
also provided
for in the
Japanese initiative.
There is no doubt that throughout
the history of the
unification
of private air law, the issue of the amount of
the limit of liability has been the most controversial
element.
While it proved possible
and desirable
to
unify provisions on the documents
of carriage and their
legal relevance:
the regime of liability;
provisions
on
successive and combined
carriage; and the rules relating to the jurisdiction
of courts,
the limitation
of
liability provision has escaped any efforts at a satisfac-

tory unification
due to the economic
disparities
of
states and the different cost of living in different parts
of the world. The question that emerges now under the
IATA Agreement
is whether a complete removal of the
limitation
of liability will prove acceptable
and conducive towards insurance
of all airlines-big
or smalland be conducive
to more effective unification
of law
on a global scale. Although
no economic studies have
been made which have resulted in transparent
data on
the effect of this measure on the insurance
premiums,
in particular
for the small and medium
airlines,
the
IATA Joint Working Groups anchored their arguments
for recommending
the adoption of a universal waiver of
limits on the fact that any numerical limit will continue
to attract litigation which would be calculated to avoid
its effectiveness;
become
a baseline
for settlement
negotiations
and a target for claims; need to be
regularly updated for inflation;
and require a second
tier mechanism
for the US (and, likely, elsewhere),
thus creating implementation
and harmonization
difficulties. On the other hand, the Working Groups contended that the absence of a numerical limit will restore
the universality
of the Warsaw limits system; promote
and facilitate negotiated,
as opposed to court-imposed,
settlements
in each jurisdiction
in accordance with local
considerations
and levels of damages;
and lead to
insurance
premium
levels which would eventually
reflect actual damages paid out, rather than hypothetical
concepts of risk.

Assessment of IATA Intercarrier Agreement

The new IATA Intercarrier
Agreement
on Passenger
Liability
was adopted
on 31 October
1995 and was
signed by 12 airlines-Air
Canada,
Air Mauritius,
Austrian
Airlines,
Canadian
International,
Egyptair,
Japan
Airlines,
KLM, SAA,
SAS, Saudi Arabian
Airlines, Swissair and TACA-reflecting
that all geographic regions were symbolically
represented.
An interesting fact is that no explanation
is available as to
why none of the major US airlines signed on the spot.
It is to be assumed that antitrust legislation leads them
to wait for an explicit government
approval on the basis
of the specific tariff clauses to be developed
by the
airlines for implementation
of the Agreement.
The
agreement
is supposed to be implemented
by 1 November 1996 or upon receipt of the requisite government
approvals,
whichever is later. It is supposed to replace
the 1966 Montreal Agreement
by a number of counterpart agreements
signed by individual
airlines (and
possibly
different
in specific detai1s-e.g.
waiver of
defences up to a specified monetary amount of recoverable compensatory
damages) all of which shall constitute one Agreement.
The Kuala Lumpur
Agreement
is by no means an
amendment
of the Warsaw system, since an amendment could be accomplished
only by an action of
sovereign
States in accordance
with the international
41

Management of Warsaw System of air carrier liability: R I R Abeyratne

law of treaties. The Warsaw Convention

of 1929 and
the Convention
as amended by The Hague Protocol of
1955 continue
to stand as the sources of unified law.
The Intercarrier
Agreement
recognizes that nothing in
this Agreement
shall affect the rights of the passengers
or the claimants otherwise available under the Convention. The provisions of the Warsaw system that are in
force have a mandatory
(or perhaps imperative)
nature
and any clauses purporting
to infringe such mandatory
rules, whether by deciding the law to be applied, or by
altering the rules as to jurisdiction,
would be null and
void as per Article 32 of the Convention.
Accordingly,
the Intercarrier
Agreement
cannot
change the mandatory
provisions
of the Convention.
Carriers may only agree that in practical application
of
the Convention
they will not invoke the limit of liability
with respect to death, wounding or other bodily injury
of the passenger
and, possibly, that up to a specified
monetary
amount they will waive the defences available under the Convention.
This approach
does not
contribute
to the evolution
and modernization
of unified private
air law-the
no limit approach
is by
necessity attached to the antiquated
body of the 1929
Convention
or the 1955 Protocol; the creative development of the unified law achieved in 1971 at the Guatemala City Conference
(simplification
of documentation
and its possible replacement
by a computerized
record,
strict liability, settlement
inducement
clause, enhancement of the jurisdiction
of courts
to favour
the
claimant) are no closer to implementation
than before.
The jurisdiction
of courts remains mandatorily
restricted to the fora enumerated
in Article 28 of the
Convention-place
of residence
of the carrier,
his
principal place of business, place of the carriers establishment or the court having jurisdiction
at the place of
destination.
It is far from clear at the present time how
a competent
Court may be convinced
by the private
Intercarrier
Agreement
to determine
and award compensation by reference to the law of the domicile of the
passenger.
One of the drawbacks
of the domicile
principle is that a court would readily consider the lex
fori as overriding the domicile of the claimant. There is
no cursus curiae relating to decisions which have judgments based on the law of the domicile of the passenger.
The reference
to the law of the domicile
of the
passengers
is undoubtedly
an ingenious
tool to seek a
balance in the award of compensation
on a global scale
and to keep insurance
premiums
of carriers under
control. According
to the domicile theory passengers
from countries with a low cost of living would qualify
for low levels of compensation
according to the law of
their domicile and passengers
from countries
with a
high cost of living would qualify for high levels of
compensation
according
to the law of their domicile.
However, the concept of domicile is not a magic wand
that would solve disparities
in the determination
and
award of compensatory
damages.
There is no global
42

unity in the definition

of the concept of domicile as
indeed jurisprudence
will show. In any case, application of the law of the domicile of the passenger has no
legal basis in the face of Articles 17 and 24 (2) of the
Warsaw Convention
and cannot be made binding by
the terms of the carriers tariff or the IATA Intercarrier
Agreement.
Some of the emergent
problems that would remain
unanswered
even after a possible acceptance
of the
IATA Agreement
are as follows:

(1)

(2)

What will be the situation

in cases of successive
carriage performed
by different
air carriers+ne
of them party to the Intercarrier
Agreement
and
the other not-who
are not governed by exactly the
same terms? Similarly, what will be the problems in
the ever-growing
practice of code-sharing
when
one carrier concludes the contract of carriage and
another actually performs it and they are not both
parties to the Agreement
or not governed by the
same terms?
What will be the impact of the no limit approach
on insurance premiums,
in particular for the small
and medium carriers? There is no transparency
in
the field of specific insurance
premiums
and they
appear to be a closely guarded
business
secret
known only to the particular
airline and their
insurance
broker.
It is generally
believed
that
major airlines with modern fleets of aircraft and
established
safety records would benefit from the
operative
economies
of scale and the insurance
premiums
would represent
a smaller portion
of
their operating
costs than would be the case for
small or medium airlines.

The IATA
Joint Working
Groups
believed
that
insurance
costs related to the new approach
in the
Intercarrier
agreement
may be mitigated since:

(1)

airlines already generally

face the risk of current
Warsaw/Hague/Montreal
Agreement/voluntary
limits being broken, especially in the US, and must
insure against this risk;
(2) the measure of compensatory damages being calculated according to the law of the domicile of the
passenger should, overall, minimize
forum shopping, reduce the cost of claims paid, and create a
more predictable
environment;
and
(3) insurance brokers indicate that, in a market-driven
scenario, waiver of liability limits will better reflect
the real long-term costs of compensatory
damages.
At least some of the logic of this evaluation
sounds
unconvincing.
For instance,
there is absolutely
no
guarantee
that the courts will determine
and award
compensation
by reference to the law of the domicile of
the passenger. The concept of domicile is not uniformly defined in law and the domicile of a passenger is a
fortuitous
and unpredictable
element,
particularly
if
one were to consider
the multitude
of international

Management of Warsaw System of air carrier liability: R I R Abeyratne

passengers
the airlines carry. It is more sensible
to
expect that overall insurance
premiums
will be determined by the highest perceived
risk defined by expected claims on behalf of passengers
domiciled
in a
country
or countries
with the highest level of compensation.
A certain amount of forum shopping cannot be prevented
by the imperative
provision of Article
28 of the Convention,
although claimants
still do not
enjoy the enhanced jurisdiction
which they would have
benefitted
from under the Guatemala
City Protocol
and Protocol No.3 Article 28.
The initiative
of the airlines to introduce
a breakthrough against the impasse which is now presented
by
the Warsaw system is commendable.
However,
it has
been alleged that the airlines are not acting with an
altruistic concern for the well-being of their passengers.
Their interest
is seemingly
to streamline
and clarify
their own risk management
problems
and to avoid
lengthy and costly litigation. Their action is also alleged
to be motivated
by an effort to preempt
a more
damaging
possible
action
of the US and other
governments-a
potential denunciation
of the Warsaw
system that would create chaotic and unpredictable
conflicts
of laws and conflicts
of jurisdiction
issues
which would benefit no one but the powerful lobbies of
the trial lawyers and enhance
time-consuming,
costly
and unpredictable
litigation.
It is claimed that the new
Intercarrier
Agreement
will expedite the settlement
of
claims and there will be little need for such adversary
litigation under the Agreement.
The claimant will only
have to prove the extent of recoverable
compensatory
damages.
The very concept of recoverable
compensatory
damages remains undefined
in the international
unification
of law under the Warsaw Convention
and The Hague
Protocol-the
only imperative
sources of law in force.
The Warsaw Convention
in Article 17 refers only to
damage sustained and in no way prescribes that such
has to be determined
and awarded by reference to the
law of the domicile of the passenger. There still remains
a vast disparity between the jurisprudence
in the United States and the rest of the world whether
only
pecuniary
damage
is to be compensated
and, in
particular,
in the face of the US jury awards for
pre-death pain and suffering, loss of consortium,
loss of
parental guidance,
loss of enjoyment
of life etc., which
often reach amounts
out of any proportion
to the
compensation
awarded
anywhere
else in the world.
Therefore,
the mental trauma suffered by a passenger
remains a contentious
issue under the Warsaw Convention and The Hague Protocol and is subject to different
decisions before different courts of law.
Although the IATA Intercarrier
Agreement
on Passenger Liability cannot amend the Warsaw instruments
in force, it would strongly affect their practical application and render many of their provisions
moot. For
example,
the penalty for defects in the documents
of
carriage or in the notice would become irrelevant
in a

no limit environment.
In practice it could mean that
the formalities
of the documents
of carriage prescribed
by the Convention
will have no practical legal consequences and they could be disregarded.
A computer
record could replace the formal passenger
ticket and
baggage check. The concept of wilful misconduct
in
Article 25 of the Convention
and The Hague Protocol
would
also become
irrelevant
unless
a claimant
attempts to go beyond the compensatory
damages and
claims punitive
damages
which are still technically
claimable in the USA under Article 24 of the Convention.

Management of the Warsaw System

ICAO Initiatives
On 15 November
1995, the Council of the International
Civil Aviation
Organization
decided
to establish
a
Secretariat Study Group to assist ICAOs Legal Bureau
in developing
a mechanism to accelerate modernization
of the Warsaw
System.
The results of the Study
Groups deliberations
of February 1996 are reflected in
a new draft instrument
which has been developed
by
the Legal Bureau of ICAO.
The elements of the new draft Convention
are contained in a single consolidated
legal instrument
representing a composite
text that is meant to replace the
current complex system of Conventions
and Protocols.
It retains the framework
of the Warsaw Convention,
and at the same time, includes some elements
of the
Hague Protocol.
The draft instrument
has fully incorporated
the cargo provisions
of Montreal
Protocol
No. 4 and, where appropriate,
has included provisions
of Montreal
Protocol No. 3 and the Guatemala
City
Protocol.
Provisions
of the ICAO instrument
on the issue of
passenger
liability are similar to the principles
of the
Japanese
initiative.
However,
the ICAO instrument
has retained
the status quo on liability principles
regarding baggage and cargo, aligning documentary
requirements
to facilitate the flow of passengers,
baggage
and cargo and to obtain the benefits of new technology
in the issuance of documents
of carriage.
Jurisdictional
issues have been retained
in the new
ICAO document
as they appear under the present
regime, with the possibility of adding another jurisdiction along the lines of the Guatemala
City Protocol. As
for notice of application
of the new rules, such would
be given to the passenger
in the same manner
as
prescribed
in the Hague Protocol.
The concept
of
damages, to be awarded in accordance
with the law of
the forum, has been left unchanged.
At the time of writing,
it was envisaged
that a
Rapporteur
would review and revise the draft Convention, whereupon
the document would be submitted for
the consideration
of the Legal Committee
of ICAO. It
is to be seen whether any changes to the present format
of the draft would be recommended
by the Rapporteur.
43

Management of Warsaw System of air carrier liability: R I R Abeyratne

Comments
As the Kuala Lumpur Agreement
by no means represents a final solution, but remains only as a temporary
and pragmatic solution showing a possible way out of
the impasse reached by the States for some 30 years.
the current
challenge
for States will be to expedite
studies in the framework
of the ICAO Legal Committee and to finalize a new Convention
unifying the rules
relating to international
carriage by air. Introducing
another Protocol
may not be the right approach,
as
there is already a Protocol,
Protocol-to-Protocol
and
Protocol-to-Protocol-to-Protocol-a
jumbled
maze of
legal documents
that are neither
self-contained
nor
authentic
in all ICAO
languages
and are kept by
different depositaries.
As has been demonstrated
in the
ICAO initiative,
the best elements
of the Guatemala
City Protocol
and the substance
of Protocol
No. 4,
coupled with the no limit concept (if widely accepted
by the industry),
is a good starting point for such a new
Convention,
provided
an effective
way is found to
award compensation
with reference
to jurisdictional
issues and further unify a definition
of recoverable
compensatory
damages.
It may be also desirable
to
consider
the inclusion
of a settlement
inducement
clause forcing the air carrier or the claimant to pay the
costs of litigation if they do not make or accept an offer
of settlement
equal to the eventual judicial award. The
up-front
payments
to the claimant
immediately
after
the accident (as recommended
by ECAC and formulated in the last draft EU Council regulation)
would
also serve a valuable
socio-economic
purpose,
and is
therefore
a worthwhile
consideration,
although
it
appears quite unrealistic
to make such payments
not
later than ten days after the event as Article 4(l) of
the proposed
EU Council regulation
suggests. It does
not take a skilled and experienced
legal practitioner
to
figure out that more time than that is required
in
practice just to determine
the claimant or claimants and
what their respective rights may be.
It is unavoidable
that a unified law of international
air transport
which addresses
modern,
commercial
exigencies of aviation must be urgently adopted in the
form of an international
treaty which is supported
by
the political
will of sovereign
states and which is
binding
in the courts of law. Before
such a new
international
unification
is achieved, the question as to
whether it is realistic to expect that Montreal Protocol
No. 4 of 1975 (cargo) will be soon ratified regardless of
the issue of passenger
liability must be addressed.
Of
course, this appears somewhat improbable
in the present context, at least with respect to the United States.
Montreal
Protocol No. 4 is not a self-standing
instrument but only an element of the separate and distinct
international
instrument
known as the Warsaw Convention as amended at The Hague, 19.55, and by Protocol
No. 4 of Montreal, 197.5, the result of the sequential
amendment
of the system by a Protocol and then by a
44

Protocol-to-Protocol.
There is no authentic
consolidated text of such an instrument
and it has to be
construed
by inserting
it into the original
Warsaw
Convention
of 1929 (the text of which is authentic only
in French),
the amending
provisions
of The Hague
Protocol of 1955 and the amending
provisions
of the
Montreal
Protocol No. 4 of 1975. Thus, the resulting
instrument
would contain
the Warsaw/Hague
provisions with respect to passengers and baggage (not so far
ratified by the United
States and not acceptable
to
them) as well as the new and acceptable
provisions
relating to cargo. Many States may face difficulty in
ratifying, at this stage, an instrument
containing
what is
perceived as obsolete provisions with respect to passengers. The situation is not made any easier by the fact
that Montreal
Protocol
No. 4 would not permit a
sweeping
reservation
that the ratification
does not
apply to the provisions
relating to passengers.
In this
context and under these circumstances,
it is encouraging that the ICAO draft instrument
has included the
provisions
of this Protocol,
thus obviating
a further
separate consideration
of it by States.
Since the implementation
of the IATA Intercarrier
agreement
is facing practical difficulties
it is apparent
that airlines will feel compelled
to implement
it in
different
modified forms to suit their specific needs.
(e.g. some airlines are contemplating
different conditions for different routes or not to apply the waiver of
the limits or defences with respect to claims made by
public social insurance or similar bodies, whether such
are used for indemnity
or contribution
or acquired by
way of subrogation
or assignment).
This status quo
would undoubtedly
lead to further disunification
of the
law and consequent
disarray.
A further threat to the credibility and sustenance
of
the IATA Agreement
is the recent proposal
of the
Commission
of the European
Communities
for a Council regulation
that would constitute valid law in respect
of the 15 members of the European
Union and Community carriers. Of course, the regulation
would have
applicability
only within the Union, but nonetheless,
unlike the IATA Agreement,
it is a valid law, albeit in
a limited
but regional
context,
which extends
the
jurisdictional
purview
of Article 28 of the Warsaw
Convention
to a Court of a member State where the
claimant has his domicile or permanent
residence.
Theoretically,
future regulatory management,
which
admits to modernization
of the Warsaw System and
review of the ratification
of international
air law instruments, may indeed take one of two directions.
The
international
aviation community
may wish to revisit
Montreal
Protocol No. 3 and address once again the
contentious
characteristic
of the Protocol as reflected in
its rigid and unbreakable
limit of liability, with a view
to obviating it in line with modern commercial
exigencies. It may, on the other hand, wish to draft a new
legal instrument
(along the lines of the ICAO initiative), taking into account the latest development
in the

Management

international arena, as reflected by the Japanese initiative and initiatives of IATA and the European Union.
The former may include consideration of a special
contract which may be beneficial to the passenger, and
the latter may attenuate the still useful elements of the
Guatemala and Montreal instruments. In any event,
management of this complex area of private liability in
air law should not be undertaken without consideration
of the implications of commercial practices such as code

of Warsaw System of air carrier liability: R 1 R Abeyratne

sharing by airlines, the use of electronic tickets in the

carriage of persons by air, the use of computer reservation systems and the electronic tagging of baggage. The
successful management of the Warsaw System of liability or a totally new system would depend on the extent
to which the international
aviation community
accommodates
these prolific commercial practices
within its regulatory umbrella.

45