Unlimited liability: the new ball game in international transportation by air.

• Author: Barry, Desmond T., Jr.

The Warsaw Convention, whose formal title is a tongue twister, Convention for the Unification of Certain Rules Relating to International Transportation by Air,(1) is a treaty that governs air carriers' legal liability in international air transportation and to which the United States is a signatory. The best known provision of the convention is stated in Article 22(1), which provides that in the "transportation of passengers the liability of the carrier for each passenger shall be limited to the sum of 125,000 francs." At the time the United States adhered to the convention in 1934 that amount was approximately US$10,000.

Under the auspices of the International Air Transport Association (IATA), foreign and domestic airlines met during 1995 and 1996 for the purpose of raising or voluntarily eliminating that liability limitation for passenger injury and death. This article summarizes the results of those meetings and the likely effects the resulting IATA intercarrier agreements will have on the litigation of claims arising under the Warsaw Convention.

REACHING AGREEMENTS

Airlines have no legal power to alter the Warsaw Convention. Since it is a treaty, it can be amended only by its signatory governments in accordance with the procedures established by the convention itself By the express terms of Article 32 of the convention, carriers cannot try to change or "infringe the rules laid down by this convention, whether by deciding the law to be applied, or by altering the rules as to jurisdiction." Any such attempt would be "null and void," but Article 22(1) states, "Nevertheless, by special contract, the carrier and the passenger may agree to a higher limit of liability."

The carriers at the IATA meetings desired to effect the change in the limits of liability by amending their contracts of carriage with passengers (the ticket stock) or their filed tariffs with governments, which become part of the carrier's contract with the passenger. They proposed to do this under the mechanism of "special contract" as permitted by Article 22(1).

When the airlines first met in the summer of 1995, a consensus developed to raise the liability limits to 250,000 "special drawing rights," which would be approximately US$365,000. Special drawing rights (SDRs) are a type of international "currency" created by the International Monetary Fund (IMF) and allocated to its member nations. They are an international reserve asset, although they are only accounting entries, not actual coin or paper, and not backed by precious metal. Subject to certain conditions set by the IMF, a nation that has a balance of payments deficit can use SDRs to settle debts to another nation or to the IMF. Based on September 1996 rates, one SDR equaled US$1.46.

As the IATA discussions continued, however, a number of carriers decided that the best course of action would be to waive the limits of liability completely. Among the motivating factors for this was a desire to eliminate the lengthy litigation arising from major international aircraft disasters -- such as that concerning the Korean Airlines 007 shoot-down and the Pan Am 103 Lockerbie bombing -- and the skyrocketing expenses they believed were inherent in the regime of limited liability. Under Article 25 of the convention, a passenger injured or killed during "international transportation" must prove "willful misconduct" on the part of the carrier to overcome the liability limit. With the voluntary waiver of the limitation, the issue of willful misconduct no longer would need to be litigated.

The mechanism of an intercarrier agreement to raise the Article 22 liability limits had been invoked successfully in the past. In 1966, air carriers operating to the United States agreed in what is called the Montreal Agreement, that where "international transportation" was involved and the contract of carriage (the passenger ticket) included "a point in the United States of America as a point of origin, point of destination or agreed stopping place":

* The limit of liability for each passenger for death, wounding, or other bodily injury [shall be US] $75,000 inclusive of legal fees"; and

* The carrier "shall not, with respect to any claim arising out of the death, wounding or other bodily injury of a passenger, avail itself of any defense under Article 20(1) of the Convention."(2)

The defense of Article 20(1) of the convention, referred to in the Montreal Agreement, provides: "The carrier shall not be liable if he proves that he and his agents have taken all necessary measures to avoid the damage or that it was impossible for him or them to take such measures."

Subsequent to the Montreal Agreement, several individual carriers voluntarily raised their limits to 100,000 special drawing rights (US$146,000) by tariff.

The IATA carriers believed that they needed antitrust immunity to discuss and arrive at an agreement affecting legal liability. "Discussion" immunity was granted by the U.S. Department of Transportation (DOT), and the carriers reached several agreements in the course of their meetings. The first was a general "Umbrella Accord," concluded in October 1995 in Kuala Lumpur. This agreement is referred to as the IIA (IATA Intercarrier Agreement). The second was an agreement designed to implement the provisions of the Umbrella Accord and was concluded in early 1996. It is referred to as the MIA (Agreement on Measures to Implement the IATA Intercarrier Agreement).

The Air Transport Association (ATA), a trade association of American carriers, also concluded its own implementing agreement, which differs in some respects from the MIA. The ATA Agreement is referred to as the IPA (Intercarrier Agreement on Passenger Liability).

All three agreements were submitted to the DOT for approval. In an order to show cause issued on October 3, 1996, the DOT tentatively approved the three agreements, but it attached certain conditions that were vigorously opposed by...