The world has waited two decades for US leadership on these protocols. Twenty- one nations ratified them, nine short of the minimum needed for them to take effect. Meanwhile, the list of nations acting unilaterally to protect their citizens keeps growing. The UK and Italy set limits higher than the protocols in the 1980s. Japan removed all limits in 1992. Now Australia and 32 nations of the European Civil Aviation Conference are considering higher limits that will probably gain approval this year.
Sean Gates, aviation solicitor at Beaumont and Son in London, observes that liability limits today are in 'a fluid state.' And because all these actions contradict the protocols, it is already rumoured that some nations who ratified them may soon rescind. Unless Washington acts uncharacteristically fast after two decades of dither and delay and is somehow able to reverse the rest of the world's thinking, the Montreal Protocols are dead.
When they were drafted in 1975, the protocols were hailed for their proposal to lift liability limits that had become an embarrassment. In cases where an airline's wilful misconduct is absent, the 1929 Warsaw Convention set a limit of $8,300 per passenger. The 1955 Hague Protocol doubled that limit, but the US still rejected it as too low. Instead, after a decade of fruitless arm twisting, Washington effectively imposed a $75,000 limit and a waiver of certain Warsaw defences by threatening to withhold operating permits for foreign airlines unless they agreed. In a 1966 intercarrier accord, all airlines serving the US 'voluntarily' accepted these terms.
The Montreal Protocols raised liability limits again to 100,000 Special Drawing Rights (SDRs), equal to about $140,000. But they went much further. Protocol 3 also eliminated the important right of carriers to agree higher limits through special contracts with passengers. Moreover, in a provision that has drawn the most criticism, it made the 100,000 SDR cap unbreakable, by eliminating a claimant's right to exceed the limit based on proof of an airline's wilful misconduct. In place of that right, the protocol authorised supplemental plans to compensate victims for any additional amounts, with such plans funded by passengers rather than airlines.
Brazil was the only nation to ratify the Montreal Protocols in their first five years. The last nation to ratify was Argentina in 1990. Most of the world has waited to see what the US would do, and particularly what type of supplemental plan it might devise to compensate victims for amounts exceeding the unbreakable cap.
Then, as now, the devil has been in the details. How much should US passengers be charged to fund a supplemental plan? What compensation cap, if any, should apply to each passenger? Or each accident? Who should administer the plan, and wouldn't that create another costly bureaucracy? How can Washington compel foreign carrier participation and how should a US plan interface with plans adopted abroad? Finally, critics asked, as a matter of principle why should passengers have to fund their own compensation for injuries or death at the hands of airlines? According to Lee Kreindler, prominent New York air crash lawyer, this was 'akin to requiring patients to buy insurance when they go to their physicians to pay for a doctor's malpractice.'
During this debate the US Senate voted only once on the Montreal Protocols and failed to ratify them by one vote.
The longer Washington delayed, the more questions arose. With inflation and higher damage awards, the 100,000 SDR protocol limit looked increasingly low. Today Iata reckons the limit would need to be $300,000 simply to adjust for inflation. The protocols allowed periodic increases, but only by small increments or only through cumbersome diplomatic processes. In separate studies, Japan and Australia concluded that the costs of supplemental plans would exceed the costs of airlines taking out additional insurance, so it was still cheaper to raise liability limits than to create a separate plan.
Moreover, the goal of restoring international uniformity would be undermined by national variations in supplemental plans. Koichi Abe, Japan Airlines' vice president for legal affairs, warned in Lloyd's Aviation Law that differing plans by nations that ratified the protocols, coupled with other variations among nations which did not, would be 'verging on chaos.'
However, by far the strongest objections focused on the protocols' unbreakable cap. Its rationale is to control insurance costs and rely instead on supplemental plans to compensate victims. 'It's the only way to keep developing countries in the treaty and make it universal,' explains Jim Landry, former president of the US Air Transport Association. Others justify the unbreakable cap as the way to end protracted litigation by claimants trying to break Warsaw's liability limits by proving wilful misconduct.
But legal scholars in several countries argue that a liability limit that applies despite proof of wilful misconduct is unenforceable. Italy's courts have gone so far as to invalidate the Warsaw treaty limits even though they may be broken in wilful misconduct cases.
Legal issues aside, the protocols' unbreakable cap has become their Achilles heel. Anthony Mercer, Air New Zealand's solicitor, told a recent legal conference: 'The apparently impregnable, unbreakable character of the limit . . . is, or has been, the fundamental abiding reason for objection or obdurate opposition to ratification of Montreal 3.'
Inevitably, US delay and concerns such as these have led nations to act unilaterally. The most widely applauded move came in 1992 when Japan announced its airlines would reserve only limited defences and otherwise waive all liability limits. Their willingness to allow unlimited recovery without proof of fault has been too big a pill for other nations to swallow, but the trend is clearly towards higher limits.
Australia will probably pass legislation this year raising limits for its international carriers to 260,000 SDR, equivalent to the A$500,000 limit also proposed for domestic flights. Australia's attorney general has warned that Canberra cannot, as a Warsaw signatory, compel foreign carriers serving Australia to adopt the same limits, but it can and will require them to carry insurance in that amount. As evidence of its determination, Canberra threatens a marketing nightmare for foreign carriers which do not voluntarily adopt these higher limits. On Australian flights, such carriers will be compelled to notify passengers that their limits are lower.
Europe's initiative could have wider effect. The European Civil Aviation Conference is recommending an intercarrier agreement with a 250,000 SDR limit, reviewable every three years, on all flights to, from, or within any of its 32 nations. Addressing the need for early payments to victims, it would require interim payments within 10 days of any accident.
Ian Awford, aviation lawyer at London's Barlow Lyde & Gilbert, says Ecac's recommendation is not self-enforcing, but adds: 'Initially, carriers will be persuaded to enter the proposed intercarrier agreement, and legislation by the individual States will no doubt follow should the persuasion not be effective.'
Describing these developments at a London aviation insurance conference in February, Awford said Europe's 'tendency to hang on to the coat tails of the United States has lessened; no doubt due to the fact that the garment has become somewhat threadbare.'
Thirteen members of Ecac ratified the Montreal Protocols in the late 1980s. In light of the new joint Ecac position, the continuing effect of those ratifications seems shaky. Australia signed but never ratified the Montreal Protocols. Now its proposed limits of more than twice the protocol cap with mandatory insurance for foreign airlines at these higher levels cannot be reconciled with the protocols, and Canberra confirms it would not consider approving the protocols today.
Harold Caplan, UK aviation insurance consultant and frequent critic of US delay, still cautions against unilateral initiatives. Citing Europe's proposal and signs that Washington may finally stir, he says: 'In my opinion Australian moves should be suspended' until US and European positions are reconciled. 'Otherwise Australia may be odd man out.'
That does not seem to worry Australia. Peter Harbison, general manager at Sydney's BDW Aviation Services, has participated in consultations leading to Australia's proposal. His reaction echoes Canberra's sentiments: 'We're too far down the track. History suggests that waiting for Europe to reach consensus on significant issues can take longer than expected - let alone Europe and the US.'
The Clinton Administra-tion tried last year to move the US off dead centre by convening a group of all interested parties. Comprising government officials and representatives from airlines, manufacturers, insurers, and trial lawyers, this group groped for some consensus. Airlines wanted to keep liability limits. Their insurers wanted a right of contribution from manufacturers. Manufacturers, which do not benefit from treaty limits, wanted protection from punitive damages. Plaintiffs' lawyers wanted to denounce strict liability and simply rely on fault with unlimited damages. It became 'a battle of egos,' recalls George Tompkins Jr, a New York aviation insurance lawyer who was invited largely because of his advisory role in Japan's initiative.
Iata had applied earlier for US antitrust immunity so its member airlines could seek some joint solution to this morass. While the White House group was still debating, the Department of Transportation sat on Iata's request. This past February, four months after the group gave up and disbanded, DOT granted limited antitrust immunity.
This short-term grant expires in late June. DOT's order says: 'We are granting the application because the discussions proposed by Iata may bring about an interim solution that will serve either until Montreal Protocols 3 and 4 are ratified and enter into force, or until negotiation and entry into force of a new Convention meeting all US requirements.'
This is the closest Washington has come to acknowledging a possibility of something other than the Montreal Protocols, even though DOT then repeated the long-standing US position: 'The best alternative, of course, is an international agreement such as the Montreal Protocols and Supplemental Compensation Plan, but it is because that approach has proven to be such a complex and lengthy one, and given the pressing need to have an updated liability regime, that we are entertaining this . . . request.'
The ATA's Jim Landry still believes in the Montreal Protocols. But he also concedes that the groundswell of initiatives elsewhere signals a clear warning that 'We'd better do something or this whole Warsaw system's going to crumble.' In preparing for Iata's June summit, 'Everybody is conscious of an urgency.'
Washington has also started to contemplate a world without Montreal Protocols. DOT's order granting immunity described two scenarios. Under one, DOT would approve special contracts by individual airlines for their own limits, such as it did for Japan's after they waived liability limits. Another would be a uniform regime imposed unilaterally by Washington, as it did in 1966, on all airlines serving the US.
Both ideas focus on the US; elsewhere there are others. The most obvious is a continuation of present trends - more special contracts imposed by countries which still support the basic Warsaw framework. Air New Zealand's Anthony Mercer also advocates amending the Montreal Protocols to improve their acceptance. But JAL's Koichi Abe, among others, thinks that will never work so long as the protocols retain an unbreakable cap. Abe predicts: 'in the long term, the world regime will head for unlimited liability.'
In the short term the question is whether the Montreal Protocols have any future at all. On that, even such defenders as Jim Landry concede: 'The time is extremely ripe.'
Source: Airline Business
