UK: Carriage by Air: Liability for Costs

The dispute arose as a result of the crash of Korean Airline’s ("Korean") B747 near Stansted on 22 December 1999. All of the cargo on board the aircraft was destroyed including a gear box assembly weighing 636 kg’s and printing press equipment weighing 959 kg’s. The sequence of events was as follows: on 5 July 2000, Korean made a settlement offer of US$31,900; on 14 November 2001, Korean revised its offer to US$22,357.60 (equivalent to Warsaw limits); on 16 December 2001 proceedings were issued; and on 29 July 2002, Korean made a Part 36 payment into court of US$22,960.71.

Article 22(4) provides that:

The Claimants argued that by accepting the Part 36 Payment into Court they were entitled to recover their costs from Korean in accordance with the provisions of the CPR. Korean argued that the offer (equivalent to the Article 22 limits) made on 14 November 2001 calculated by multiplying the weight of the destroyed consignments in kg’s by £14.08 in accordance with the Carriage by Air (Sterling Equivalent’s Order) 1999 precluded the Claimants from recovering their costs and sought an order to this effect. Korean’s case was that the provisions of Article 22(4) over-rode any procedural provision that was inconsistent with it.

The Claimants argued that the exception to Article 22(4) did not apply because:-

(a) the Part 36 payment was greater than the offer made on 14 November 2001; and

(b) there was no "award of damages" to the Claimant; instead they simply accepted a Part 36 payment.

The court acknowledged authority supporting the contention that a State’s procedural rules must not be applied so as to produce a result which is contrary to the express provisions of the Convention. Accordingly the first consideration for the court was to determine whether the exception to Article 22(4) was applicable in this case. The offer of 5 July 2000 fell outside the scope of Article 22(4) because it was made more than 6 months after the date of the accident and more than the 6 months before proceedings were issued. The 14 November offer did fall within the ambit of Article 22(4) and, in common with the Part 36 payment, was intended to represent the carriers’ limit of liability under Article 22 but, due to an error in converting SDR’s to pounds sterling, the Part 36 payment was slightly larger than the 14 November offer in respect of both consignments.

By virtue of this error the amount actually accepted by the Claimants exceeded the written offer made in accordance with Article 22(4). Consequently, the court held that the exception to Article 22(4) did not apply and dismissed the Defendant’s application seeking an order disallowing the Claimants’ costs.

However, Mr Justice Morison went on to state by way of judicial comment that, had the 14 November offer not been exceeded by the Part 36 payment, he believed that accepting the latter would satisfy the requirements of Article 22(4) in that such acceptance would constitute "damages awarded" within the meaning of the Article. In his view the intention of Article 22(4) was to encourage claimants to accept their entitlement under the limits and that if they did not do so they risked losing their entitlement to costs unless the limits could be broken. In such circumstances it would be inappropriate to apply procedural rules which would award the claimant his costs when the Convention says they should not be awarded.

Although on the facts, the court was not required to determine whether Article 22(4) takes precedence over Part 36 of the CPR in circumstances where there is a conflict, this case does provide helpful judicial guidance as to the way a court is likely to deal with such cases in the future. In short, an offer made under the provisions of Article 22(4) should take precedence over any Part 36 payment provided the sum offered exceeds or is at least equivalent to the sum paid into court.