Australia: Trade & Transport Bulletin - Developments in air carriage liability

Last Updated: 19 February 2010

In this issue of the Trade & Transport Bulletin we look at two developments affecting international air carriage liability – recent significant changes to liability limits under the Montreal Convention 1999 and a decision by the New South Wales Court of Appeal.

Air Tahiti Nui Pty Ltd v McKenzie [2009] NSWCA 429 concerned what constitutes a 'contracting carrier' under the Warsaw Convention as amended at The Hague 1955 and by Montreal Protocol No 4 (collectively known as the Montreal No 4 Convention). The judgment arose out of an appeal from proceedings relating to injuries sustained by the plaintiffs during a flight from New York to Tahiti. Allsop P and Handley AJA ultimately upheld the trial judge's decision that Air Tahiti Nui Pty Ltd (Air Tahiti) was a 'carrier' for the purpose of the Montreal No 4 Convention.

The Conventions

Article 17 of the Montreal No 4 Convention covers both 'contracting' and 'actual' carriers and provides that:

The carrier is liable for damage sustained in the event of the death or wounding of a passenger or any other bodily injury suffered by a passenger, if the accident which caused the damage so sustained took place on board the aircraft or in the course of any of the operations of embarking or disembarking.

The Guadalajara Convention defines 'contracting' and 'actual' carriers in Article 1 as follows:

'contracting carrier' means a person who as principal makes an agreement for carriage governed by the Warsaw Convention with a passenger or consignor or with a person acting on behalf of the passenger or consignor.
'actual carrier' means a person, other than the contracting carrier, who, by virtue of authority from the contracting carrier, performs the whole or part of the carriage contemplated in [the paragraph above] but who is not with respect to such part a successive carrier within the meaning of ... Warsaw. Such authority is presumed in the absence of proof to the contrary.'

The Decision

Air Tahiti had denied it was the carrier, claiming instead that its parent company, Air Tahiti Societe Anonyme (ATSA) was the carrier. Air Tahiti argued ATSA was the entity that ultimately undertook the actual carriage, as ATSA was the operator of the aircraft, the employer of the flight crew, a member of the International Air Transport Association (IATA), and the holder of an Air Operator's Certificate and an International Airline Licence.

Importantly for the parties, the two-year limitation period for an action against ATSA had expired.

Air Tahiti argued that even if it was a party to a contract with the plaintiffs, ATSA was the undisclosed principal (and hence Air Tahiti could not be a 'principal' as required by the Guadalajara Convention definition of 'contracting carrier'). The Court rejected this argument and noted that where a travel or transport intermediary undertakes a contractual obligation for carriage (even if it cannot perform the contract itself and has to subcontract with an actual carrier), they are contracting as a principal.

Air Tahiti also argued that it did not have 'authority' to require ATSA to undertake the carriage (as envisaged by the Guadalajara Convention definition of 'actual carrier'). The Court rejected this argument on the basis that such authority was presumed in the absence of proof to the contrary.

The Court then considered the factual matrix in which the contract of carriage arose to determine whether Air Tahiti made an agreement for carriage as a principal with the plaintiffs.

The plaintiffs had booked their flights through Flight Centre. The terms of the contract of carriage were ambiguous on the identity of the contracting carrier. Flight Centre's terms and conditions specifically stated that Flight Centre acted as 'a travel agent only'. So it was necessary to consider the contractual relationship between Flight Centre, Air Tahiti and ATSA.

The Court ultimately concluded that Air Tahiti contracted (through Flight Centre) with the plaintiffs as principal for the carriage from New York to Tahiti. In doing so, the Court took into account the following:

  • Air Tahiti paid Flight Centre incentive commissions if particular sales targets were met (which payments were made from Air Tahiti's own account).
  • The agreement between Air Tahiti and Flight Centre made no mention of ATSA.
  • Tickets were issued to the plaintiffs by Air Tahiti.
  • Flight Centre had authority to bind Air Tahiti for air travel but there was no evidence of authority on the part of Flight Centre to bind ATSA.
  • If ATSA had wished to ensure Flight Centre's clients entered into contracts of carriage with it directly, the agreement with Flight Centre could have specifically provided for this.
  • There was no specific evidence that Air Tahiti contracted with Flight Centre as agent for ATSA and the terms of Flight Centre's agreement with Air Tahiti tended to exclude such an arrangement.

The judgment reinforces the tendency for courts (when ruling on contractual interpretation) to consider objectively all relevant documentation surrounding a contract and the context in which they were created when determining who the parties intended the contract to bind.

Whilst the Court did not need to do so, it also held that even if Air Tahiti was not the contracting carrier, it was estopped from denying that it was.

Implications

While the case was decided on its facts and related to the Montreal No 4 Convention, it seems that the same outcome would have been arrived at if the Montreal Convention 1999 had been the relevant convention. It is therefore a decision which is indicative of the attitude courts are likely to take in future attempts by air carriers to hide behind corporate structures to avoid liability.

Montreal Convention 1999 - revision of liability limits for international air carriage

The liability limits under the Montreal Convention 1999 (Montreal 99) for death or bodily injury and in respect of delay, baggage and cargo have increased pursuant to a review conducted by the International Civil Aviation Organization.

Montreal 99 has formed part of Australian law since 24 January 2009 following amendments to the Civil Aviation (Carriers' Liability) Act 1959 (Cth). Montreal 99 has formed part of New Zealand law since 4 November 2003 following amendments to the Civil Aviation Act 1990 (NZ). Article 29 of Montreal 99 (an 'escalator clause') provides a mechanism for increasing liability limits to account for inflation from increases or decreases in the Consumer Price Indices of contracting States whose currencies comprise Special Drawing Rights as defined by the International Monetary Fund.

The following changes to the liability limits under Montreal 99 came into effect on 30 December 2009:

  • The limit for the first tier of liability for each passenger for damage sustained in the case of death or bodily injury of a passenger increased from 100,000 SDRs to 113,100 SDRs.
  • The limit of liability for each passenger in relation to damage caused by delay in the carriage of persons increased from 4,150 SDRs to 4,694 SDRs.
  • The limit of liability for each passenger in the case of destruction, loss, damage or delay in relation to the carriage of baggage increased from 1,000 SDRs to 1,131 SDRs.
  • The limit of liability in the case of destruction, loss, damage or delay in relation to the carriage of cargo increased from 17 SDRs per kg to 19 SDRs per kg. The next review pursuant to Montreal 99's escalator clause will take place in 2014.

The next review pursuant to Montreal 99's escalator clause will take place in 2014.

For more information, please contact:
Marcus Saw, Solicitor
Tel +61 3 9274 5178
marcus.saw@dlaphillipsfox.com

Andrew Tulloch, Partner
Tel +61 3 9274 5825
andrew.tulloch@dlaphillipsfox.com

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit www.dlaphillipsfox.com

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