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Air Freight liability increase

Contributed by:

Chris Dann

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Chris Dann

In a year to forget for international airlines, the hits keep coming. From 28 August, air carrier liability for loss, damage or delay significantly increased. Freight forwarders and others who contract for carriage by air will also be impacted by this 13.9% increase and exporters and importers can expect the cost of air freight to further increase.

Mandatory Convention governs air carriage

The international carriage of cargo, baggage and passengers by air is governed by the Montreal Convention, an international treaty which is applied in New Zealand by the Civil Aviation Act 1990. The Convention’s liability regime is mandatory and applies regardless of fault to whatever happens between an airport in one country and an airport in another country. A carrier can accept greater liability than that set out in the Convention, but cannot “contract out” and attempt to lower or limit its liability. The same applies to domestic air carriage and carriage by sea (albeit with different limits).

The intent of these no-fault, mandatory liability regimes for the carriage of goods is to provide consistency and certainty, given that international transport by its nature involves multiple jurisdictions, variances in domestic law and staff in multiple locations, often not under the direct control of the airline/shipping line which first received the goods.

Air carriers are liable under the Montreal Convention up to a defined monetary amount for death, injury or delay to passengers; destruction, loss, damage or delay to checked baggage; and destruction, loss, damage or delay to cargo. The liability limits are not denominated in any particular country’s currency, but rather in “Special Drawing Rights” (SDRs). SDRs are a mix of currency values established by the International Monetary Fund and fluctuate daily. As at the date of this article, 1 SDR = NZ$2.12.

So, what’s changed?

The Montreal Convention requires a review of liability limits every five years to reflect inflation – the weighted average of the annual change in the Consumer Price Indices of the United States, Japan, China, European Union and the United Kingdom.

This is the first increase since 2009 as no change was made at the 2014 review. The International Civil Aviation Organisation has determined that the accumulated rate of inflation since the last review was 13.9%.

Figure 1 below sets out the applicable limits and this year’s increase:

Figure 1

Relevant liability SDR Change NZD equivalent value
Death or injury to passengers 113,000 to 128,821 (per passenger) NZD271,380.29/passenger
($33,348 increase)
Damage caused by delay to passengers 4,694 to 5,346
(per passenger)
($1,372 increase)
Destruction, loss, damage or delay to baggage 1,131 to 1,288
(per passenger)
($330 increase)
Destruction, loss, damage or delay to cargo 19 to 22
(per kg)
($6.30/kg increase)

Easier enforcement on the way

Last year the Government released an exposure draft of a new Civil Aviation Bill to replace the current Civil Aviation Act 1990 and the Airport Authorities Act 1966. The proposed changes include:

  • a new drug and alcohol management scheme for commercial aviation operators
  • provisions which incorporate ‘Just Culture’ principles in the reporting of aviation incidents
  • amendments which take into account new technology like drones
  • clarification of aviation security officer powers, and
  • amendments to the authorisation regime for airline cooperative agreements (alliances).

In addition, the Bill proposes to give the Disputes Tribunal express jurisdiction to hear disputes over Montreal Convention liability limit claims for lost, delayed and damaged baggage and delayed flights – but not passenger injury and death or cargo claims.

The practical effect

Apart from passengers and cargo-owners receiving more in the event of loss, damage or delay, other practical implications of the increased liability limits for carriers and freight forwarders include the following.

  • Review your insurance arrangements – policies should be reviewed or insurers/brokers consulted to confirm that adequate cover is in place to account for the increased potential liability. Air carriers should be aware that Article 50 of the Montreal Convention requires them to maintain adequate insurance covering their liability under the Convention
  • Review your contracts and T&Cs – waybill terms, freight forwarding terms and other applicable contracts should be reviewed to update any reference to liability limits based on the old Convention limits. Look out for any reference to 19 SDRs (or its NZD equivalent).
  • Expect cost increases – as carrier costs increase due to the increased risk and insurance costs, we expect those costs to be passed on to customers. That will be unwelcome news for importers and exporters who are already facing capacity shortages and sharply increased costs as a result of the massive drop off in international passenger flights as a result of COVID-19. Most air freight is carried in the belly of passenger planes. Statistics New Zealand announced a 16% rise in the cost of transportation services in the June 2020 quarter.

International Air Freight Capacity Scheme

In a piece of positive news, the Government has agreed to extend the International Airfreight Capacity (IAFC) scheme, administered by the Ministry of Transport and NZTE, which was due to expire at the end of August.

The scheme provides financial support for international airfreight carriers to guarantee airfreight capacity on key routes with airline and carrier agreements. The scheme launched in May with an initial schedule of 53 weekly flights from New Zealand to key export destinations. In response to demand from the business community, the schedule has since grown to support 70 weekly flights as at the beginning of August. This represents about half of all the international flights flown from New Zealand each week.

The support agreements are now expected to be in place until the end of November 2020.

Internationally recognised partner, Chris Dann heads the transport and logistics team for law firm Anthony Harper. Joshua Oh is a solicitor in the same team, together they and the team are one of the few in New Zealand with strength and experience along all facets of the supply chain.