In this alert:

McKenzie & McKenzie v Air Tahiti Nui Pty Ltd [2009] NSWDC

Review of Carrier’s Liability and Insurance

Modernising the Rome Convention of 1952

McKenzie & McKenzie v Air Tahiti Nui Pty Ltd [2009] NSWDC

In this recent New South Wales District Court case, the Court reviews the factual matrix for determining if the carrier is the proper defendant. Interestingly, it also finds that the conduct of the defendant’s solicitors “lured [the plaintiffs’ solicitor] into a belief reasonably held that he was correct in identifying this defendant as the proper defendant in the proceedings”.

Mr & Mrs McKenzie were injured during Air Tahiti Nui flight TN3 from New York to Papeete on 19 November 2005 when their aircraft struck turbulence.

The following matters were uncontroversial in the proceedings:

• the carriage was governed by the Warsaw Convention, as amended by the Hague Protocol, as further amended by the Montreal Protocol (“the Convention”);
• the plaintiffs were issued with paper tickets by Flight Centre at Gosford;
• the tickets state they are issued by Air Tahiti Nui, the carrier has airline code 244 and the actual flight number is TN3;
• the carrier nominated in the Flight Centre documentation is Air Tahiti Nui; 
• searches of the Australian corporate regulatory authorities revealed the defendant is the registered owner of the business name Air Tahiti Nui; and
• the defendant is a wholly owned subsidiary of “Air Tahiti Nui (Societe Anonyme)” (“SA”), a company incorporated according to French law and having its head office in Papeete.

A letter from the International Air Transport Association to Air Tahiti Nui was tendered to confirm the defendant’s designator as “TN” and three digit code “244”.

Despite the weight of the above evidence, the defendant alleged in its defence that it was not the carrier for the purpose of the Convention. It argued that a review of its website would have revealed that SA was the correct defendant. The Court remarked that if the defendant is right, “it brings to a new level of obscurity the steps which are required by a diligent lawyer to obtain the proper identity of a contracting party he or she proposes to sue on behalf of a client”.

Upon considering the relevant provisions in the Convention and the Civil Aviation Carriers’ Liability Act (Cth) (“the Act”), the Court noted that:

• the Convention does not define “carrier”;
• the Act defines a carrier to mean a person engaged or offering to engage in an air transport operation for the carriage of passengers to which Parts (ii) (iii) or (iv) applies;
• Condition 1 of the ticket states a carrier means all air carriers that may carry or undertake to carry the passenger or his baggage hereunder or perform any other service incidental to such air carriage; and
• Article 25A of the Convention entitles a servant or agent of the carrier to avail himself of the limits of liability if he proves he acted within the scope of his employment.

The Court referred to the United States decision in Lear v New York Helicopter Corporation (1993) 597 NYS 2d 411 which supported an expansion of the term “carrier” in the Convention to include the interrelated sister and parent corporations of the defendant that were obligated to perform services which were in furtherance of the contract of carriage. In that case the services included the inspection, maintenance and repair of the defendant’s helicopter.

The New York Court also referred to the decision in Young Jewellery Mfg. Co. v Delta Air Lines 67 AD 2d 148 where an independent contractor was engaged by Delta to provide interline baggage transfer services. As the services were functions the carrier would otherwise perform, the contractor was considered an agent of Delta and was therefore entitled to the same protection of the Warsaw limits as the carrier.

Although not entirely clear from the New South Wales District Court judgment, it appears that the defendant contended that SA was the actual carrier and the defendant was acting merely as its agent.

In support of this position, the defendant referred to the decision in Charles Kapar v Kuwait Airways Corporation 269 US App. DC 355. Kapar was a passenger on a Kuwait Airways flight that was hijacked over Iran. His ticket had been issued by Pan Am pursuant to an interline agreement with Kuwait Airways, for which Pan Am received a commission. Pan Am was shown as the carrier on the ticket but there was no dispute the flight was conducted by Kuwait Airways on one of their own aircraft. The Court restated the well-settled principle that an airline that issues a ticket for carriage on another airline acts only as the agent for the actual carrier.

The NSW District Court distinguished the Kapar decision on the ground that no agency arose in the instant case. The Court found the relationship between the defendant and SA was a seamless interdependent operation where the activities of each were conducted in the name of Air Tahiti Nui. No distinction could be drawn between the two in any documentation relevant to the plaintiffs’ travel. Accordingly, the court held the defendant was the carrier for the purpose of the Convention.

Estoppel by conduct

If there was any doubt about the above finding, the Court then went on to consider the conduct of the defendant’s solicitors in numerous correspondence and communications with the plaintiffs’ solicitors up to the commencement of the proceedings, including the hearing of an application for pre-suit discovery of documents.
The Court made the following findings:

• The defendant’s solicitors, up to the time it filed the defence in these proceedings, had ample opportunity to deny that its client was not the party liable as “carrier”;
• The defendant’s solicitors had specifically ignored invitations to reveal the true nature of its response to the demands by the plaintiffs’ solicitors;
• The conduct and correspondence of the defendant’s solicitors in fact lured the plaintiffs’ solicitor into a belief reasonably held that he was correct in identifying the defendant as the proper defendant to the proceedings; and
• There was absolutely nothing in the defendant’s documentation (on the discovery application) which was readily available or sensibly available on enquiry to the plaintiffs’ solicitor which would suggest that SA was the proper defendant.

The Court found this conduct fell within one of the defined categories of estoppel referred to in the High Court decision in Commonwealth of Australia v Verwayen (1990) 170 CLR 394, 24, namely, that the defendant’s solicitor knew that the other party laboured under an assumption and refrained from correcting him when it was his duty of conscience to do so.

As a result, the Court ordered that the defendant was estopped from denying its liability based on a defence that it was not the proper defendant.

Review of Carrier’s Liability and Insurance

In May 2009, the Department of Infrastructure, Transport, Regional Development & Local Government (“Department”) released a Discussion Paper on the review of Australia’s carrier’s liability and insurance arrangements.

The Discussion Paper is the third step in the preparation of a National Aviation Policy Statement (Aviation White Paper) that is intended to guide Australia’s aviation industry for the next ten years and beyond. Initially, an Issues Paper was released in April 2008 as the basis of consultation and engagement for the industry. A Green Paper was then released on 12 December 2008 describing the initiatives and policies that would take the industry forward. As part of the Green Paper, the Minister announced a comprehensive review of Australia’s carrier’s liability and insurance arrangements.

The Discussion Paper addresses many of the issues raised in response to the earlier Issues Paper and proposes thirty key preliminary findings for comment. Submissions will help the Department refine those findings, which will ultimately form part of the Aviation White Paper, due to be finalised later this year.

The Discussion Paper addresses:

• whether the recently implemented Montreal Convention of 1999 relating to commercial international carriage by air should also apply to domestic carriage within Australia;
• whether Australia should retain its strict and unlimited liability regime for third party surface damage (under the Damage by Air Act 1999) or consider the future implementation of two new conventions recently developed by ICAO, to replace the Rome Convention of 1952, which would lead to substantial amendments to the current legislation;
• whether changes should be made to the current mandatory passenger insurance requirements for carriers, including an increase to the passenger insurance limit;
• whether mandatory insurance schemes should be introduced for third party surface damage and the write back of war risk insurance for new perils.

Some key preliminary findings highlighted in the Discussion Paper are:

• the government should not apply the Montreal Convention to domestic travel at this stage and instead maintain a separate system of strict and capped liability;
• the domestic passenger liability cap should be increased to $725,000;
• the reference to “personal injury” in domestic legislation should be changed to “bodily injury” (consistent with the international regime) to remove compensation for pure mental injury;
• domestic carrier’s liability legislation should also be amended to provide an exclusive remedy for passenger compensation, consistent with the international regime;
• subject to the government’s position about the two new conventions to replace the Rome Convention, the strict and unlimited liability system for third party surface damage should remain;
• domestic carrier’s liability legislation should be amended to ensure compensatory damages are assessed in accordance with the relevant state civil liability laws;
• consideration should be given to require carriers to hold mandatory insurance for third party surface damage and AVN52D write back cover for war risks including new perils.

Submissions to the Discussion Paper are due by 26 June 2009.

Modernising the Rome Convention of 1952

The Convention on Damage Caused by Foreign Aircraft to Third Parties on the Surface, signed in Rome on 7 October 1952, was intended to unify, at international level, the law relating to compensation of persons who suffer damage on the ground caused by foreign aircraft. The Convention provides for a system of strict and limited liability on the operator of the aircraft. Liability exists regardless of fault and only very limited defences are available. In case of doubt, the registered owner is presumed to be the operator unless he can prove that some other person is the operator.

The Protocol to Amend the Convention, signed at Montreal on 23 September 1978, increased the limits of liability.

Neither the Convention nor the Protocol have received widespread acceptance: with only 49 states becoming parties, less than 25 per cent of ICAO's membership.

Australia initially became a party to the Rome Convention but denounced it in 1999, when it passed the Damage by Air Act. The Act implements a strict and unlimited liability regime on the carrier. Many of Australia’s aviation partners have similar liability systems for third party surface damage.

Work on the new conventions commenced in early 2001. The events of September 2001 and the resulting short term collapse of the aviation war risk insurance market prompted ICAO to place third party liability risks from acts of war and terrorism on the same agenda as the reform of the Rome Convention.

As a result, in April this year, ICAO finalised two separate conventions to replace the Rome Convention:

the Convention on Compensation for Damage to Third Parties, Resulting from Acts of Unlawful Interference Involving Aircraft will provide compensation under a strict and limited liability regime for damage to third parties as a result of acts of unlawful interference involving aircraft. At the heart of this new instrument is the creation of an International Civil Aviation Compensation Fund which may potentially provide victims of an event with compensation up to US$4.5 billion in addition to the amount paid by the aircraft operator.

the Convention on Compensation for Damage Caused by Aircraft to Third Parties, modernizes the current legal framework provided for under the 1952 Rome Convention and related Protocol of 1978. It covers cases of damage caused by aircraft as a result of safety related matters (not involving an act of unlawful interference) and provides for full compensation of victims under a two tier liability system similiar to the Montreal Convention.

If you have any queries regarding this Alert, please contact a member of our Aviation team on 07 3231 2444.