Airlines collide with govt over payments

A major dispute between the International Air Transport Association (IATA) and the Transport Secretary over the rules for compensation payments for air disaster victims has clarified an important point of international law, according to lawyers involved in the case.

The row stems from the Government's Air Carrier Liability Order 1998, which came into force last October. It was designed to ensure implementation of new European rules contained in Council Regulation (EC) No 2027/99, which also took effect last October.

The purpose of the regulation is to scrap the compensation limits originally in- troduced under the Warsaw Convention (1929).

At the recent High Court hearing Mr Justice Jowitt said the changes made by the EC regulation had come after four decades of inflation had "substantially eroded" the value of the maximum compensation sum.

He said that many airlines had already voluntarily exercised rights under the convention to enter into special contracts, some of which provided for an increased limit to the damages payable and others which accepted that the amount payable should be fixed by the courts.

However, IATA – which represents the interests of around 260 airlines from around 150 countries and whose members carry around 98 per cent of scheduled air passengers – objected to the UK order.

Michael Beloff QC for IATA claimed the regulation placed obligations on airlines which created a conflict with the Warsaw Convention.

The judge agreed that there was a conflict which could impede the performance of EC member states' obligations which – under the Warsaw Convention – are owed to non-member states who are parties to the convention.

However, in refusing to refer the matter to the European Court, he held that the problem was met by the provisions of Article 234 of the Treaty of Rome.

And this aspect of the decision, says John Balfour of Beaumont and Son, who acted for IATA, is of major importance, stretching beyond the immediate case.

Article 234 stipulates that in cases of incompatibility with international law, EC member states should take all appropriate steps to eliminate the incompatibilities and see that pre-existing international obligations are not affected in the meantime. According to the judgment, this entails the suspension of the conflicting regulation until agreement is reached.

"The case has wider significance than the immediate dispute," Balfour says. "It is one of the few cases in which Article 234 has been interpreted and clarification given as to its suspensory effect – ie that if EC law conflicts with a pre-existing international treaty then it will be suspended pending resolution of the conflict."

On the immediate case he says: "Most, though not all, airlines these days do have higher limits than those set under the Warsaw Convention anyway, many as a result of a voluntary agreement promoted by IATA. This has caused people to question why IATA should want to attack the regulation.

"What IATA objected to was unilateral interference in a multilateral longstanding convention whereas higher or no limits voluntarily adopted by airlines are envisaged by and hence consistent with the Warsaw Convention.

"In the light of this judgment decisions will have to be made by the Government as to what to do now. We have asked the Government to clarify its position and to confirm that it will not prosecute airlines that do not comply with the rather difficult notification requirements imposed by the regulation while it is suspended."