UK: Asia-Pacific Aerospace Briefing - Recent Legislative Changes in Hong Kong

Legislative changes in Hong Kong SAR will shortly see the former colony adopt the Montreal Convention 1999, bringing it into line with the PRC and Macau SAR.

The Hong Kong government’s aim of enhancing Hong Kong’s status as a major international and regional hub were boosted recently when three aviation bills were passed by the legislature.

The most significant piece of legislation is the Carriage by Air (Amendment) Ordinance 2005 which was passed in November and applies the Convention for the Unification of Certain Rules for International Carriage by Air signed in Montreal on 28 May 1999 (the "Montreal Convention") to the existing Carriage by Air Ordinance (Cap. 500).

The Montreal Convention will apply to contracts of carriage involving carriage from Hong Kong to other contracting states, which currently number 70. It will also apply to non-international carriage which includes carriage between Hong Kong and mainland China, as well as Taiwan and Thailand. However, it will not apply to international carriage governed by the un-amended Warsaw Convention including, for example, single sector carriage between Hong Kong and cities in Indonesia.

In essence, the Montreal Convention seeks to consolidate the Warsaw regime and to modernise its provisions, particularly in relation to compensation levels. How does it achieve this? Firstly, the Montreal Convention substantially increases the compensation levels in cases of passenger death or injury and damage to or loss of baggage.

In the case of passenger injury and death, the traditional Warsaw limit (in Hong Kong this is approximately US$17,290 for contracts governed by the Amended Convention) is replaced by a two-tier system - a first tier of liability of up to 100,000 SDRs for which airlines cannot exclude or limit liability (although exoneration for contributory negligence still applies), and a second tier of fault based, unlimited liability, in excess of the first tier. In practice, many airlines, including those based in Hong Kong, have already waived their right to rely upon the Warsaw regime limit so this aspect of the Montreal Convention is not controversial. More controversially, the Montreal Convention provides an additional fifth jurisdiction within which legal proceedings relating to death or injury of passengers may be commenced against foreign airlines. The Warsaw regime provides for four jurisdictions namely (a) the domicile of the carrier; (b) the country or state where the carrier has its principal place of business; (c) where the contract was made; and (d) the place of destination. The Montreal Convention introduces a fifth avenue by allowing proceedings to be commenced in the country or state where the passenger’s permanent residence is or was at the time of the incident provided that (i) the carrier operates passenger services (either its own or another’s aircraft by commercial agreement) to or from that state; and (ii) the carrier conducts business of passenger carriage from premises which it, or another carrier with which it has a commercial agreement, owns or leases in that state. The impact of this is that passengers now have a wider choice of jurisdictions in which to commence legal proceedings and may choose to do so in more plaintiff-friendly jurisdictions. For example, it is generally more advantageous for passengers to commence proceedings in the United States with its jury system and the propensity to award high levels of damages for victims of aircraft accidents.

Other important changes include the establishment of a 4,150 SDRs (US$6,054) limit in respect of passenger delay, an increased limit of liability of 1,000 SDRs (US$1458.89) in respect of the destruction, loss, damage or delay of baggage; and an unbreakable limit of 17 SDRs (US$25) per kilogram in respect of the destruction, loss, damage or delay of cargo. These limits will be reviewed by ICAO every five years and will be revised accordingly when a weighted inflation factor exceeds 10 per cent. This enables timely updating of the liability limits to reflect changing prices and avoids the problems experienced under the Warsaw regime.

As some readers may be aware, the Hong Kong government is considering proposals to introduce a mandatory advance payment scheme under which all Hong Kong registered airlines will be obliged to make advanced payments to passengers or their families within a certain time frame. BLG is involved in the consultation process.

In June 2005, our sister publication, BLG Aerospace News (Issue 22), informed readers of the Hong Kong government’s controversial proposal to amend Section 8(2) of the Civil Aviation Ordinance in order to exempt passive owners of aircraft from the strict liability regime applying to damage caused to a third party on the ground arising from an aircraft accident or objects or persons falling from the aircraft while in flight. On 11 January 2006, the Civil Aviation (Amendment) Bill 2005 was finally passed.

Under the old regime, an "owner" was defined in Section 8(4) as being a person holding legal title to the aircraft; and each person having management of the aircraft (including the aircraft operator). Thus, not only were airlines and aircraft operators subject to the strict liability regime, but also aircraft lessors and financial institutions and other passive owners of aircraft, even if they have no operational control over the aircraft. Therefore, passive owners of aircraft in Hong Kong had greater owner liabilities in Hong Kong than is the case in many other countries including Australia, New Zealand, Singapore, the UK and the USA.

The Government’s original proposal was to introduce new exemption criteria such that a person would not be considered as an "owner" of an aircraft for the purposes of imposing strict liability, if at the time of loss or damage caused by the aircraft: "that person had leased the aircraft to a third party for a period exceeding 14 days; no member of the crew of the aircraft had been in the employment of such person; and such person did not have management of the aircraft". Significant problems were, however, created by introducing the concept of "management" (which is omitted from legislation elsewhere) and by the Legislative Chamber’s decision to introduce a further amendment to Section 8(5)(c) such that it read: "such person does not have management of the aircraft including maintenance and repair". They also proposed that a similar qualification should be introduced to Section 8(4). The problem was that by making these amendments the range of organisations caught by the strict liability regime was increased. Subsequent industry pressure (particularly from airlines and MRO providers) has, however, resulted in a more favorable regime.

The amendment contained in the new section 8(5) now qualifies section 8(4) by stating that a person is not the owner of an aircraft, if at the time the material loss or damage was caused: (a) the aircraft had been bona fide demised, let or hired out by such person ("the lessor") to any other person ("the lessee") under a lease or other arrangement for a term exceeding 14 days; (b) under the lease or arrangement, the lessee was responsible for ensuring the airworthiness of the aircraft; and (c) no member of the crew of the aircraft was in the employment of the lessor. Internationally accepted standards are to be applied in defining "airworthiness" to include: (a) certification concerning aircraft design, construction, workmanship, materials, equipment carried and results of flying tests; (b) regular overhaul, repair and modification of aircraft (including equipment and parts thereof) and the maintenance schedule relating to the aircraft; (c) maintenance of aircraft by qualified personnel; and (d) keeping of a technical log for the aircraft. The introduction of section 8(5) has been largely applauded in Hong Kong because it effectively relieves passive owners from an otherwise unfair strict liability regime whilst maintaining adequate protection to consumers. However, the regime differs from the regimes found in some other countries as lessees who retain a responsibility for the airworthiness of an aircraft (however small) will be held strictly liable. Previous concerns of MROs and their insurers have been diminished thanks to s8(5)(b) which now extends to lessees who retain responsibility for maintenance and repair but excludes those who are simply contracted by the lessee to provide such services.

In view of the increasing number of reported incidents involving unruly or destructive passengers in recent years, ICAO adopted a resolution at its Assembly in Montreal in October 2001 urging contracting states to enact laws to deal effectively with problems of unruly passenger offences. In Hong Kong, the Aviation Security Ordinance is the principal legislation on aviation security and was recently amended in line with ICAO’s recommendations through the passing of the Aviation Security (Amendment) Bill 2005 which took effect on 9 November 2006.

The amendments introduce tougher controls on unruly and disorderly air passengers by adding new offences to the Ordinance to include: (a) obstruction of crew by failure to comply with safety instructions given by the aircraft commander or crew; (b) disorderly behaviour, the tampering or intervening with aircraft equipment or system; (c) intoxication; (d) smoking; and (e) use of prohibited electronic devices. They also extend Hong Kong’s jurisdiction over these and other offences related to assault, intimidation, sexual assault and criminal damage committed outside Hong Kong aboard non-Hong Kong controlled aircraft set to land in Hong Kong. The commander of the foreign aircraft must make a request to the Hong Kong Police Force to commence proceedings against the suspected offender and must give an undertaking that he and the operator of the aircraft has not made and will not make a similar request to the authorities of any place outside Hong Kong.

The amendments have been well received, particularly by the Hong Kong Police who are now able to prosecute offenders, where appropriate, for criminal acts and offences constituting unruly or destructive behaviour on board Hong Kong controlled as well as non-Hong Kong controlled aircraft.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.