The Aviation Law Review: Editor's Preface
The Aviation Law Review continues to be among the most successful publications offered by The Law Reviews, with the online version massively increasing its reach within the industry not only to lawyers but to all those involved in the various aspects of management touched by laws and regulations the complexity, mutual inconsistency and occasional judicial incomprehensibility of which provide an endless source of debate and dispute between industry participants and their legal advisers. The Review is a source of guidance internationally and its provision of an introduction to experts in so many jurisdictions in this vital and complicated field is something of which we are justly proud.
This year I welcome new contributions from Brazil and Malta, and I extend my thanks and gratitude to all our contributors for their continued support. I would emphasise to readers that the contributors donate very considerable time and effort to make this publication the premier annual review of aviation law. All contributors are carefully selected based on their knowledge and experience in aviation law and we are fortunate indeed that they recognise both the value of the contribution they make and the further value it constitutes in the broader context of the Review.
After several years of pandemic-related issues affecting aviation and its insurance-related services, the attention of the aerospace industry has shifted dramatically to Russia's war on Ukraine. In the United States, the United Kingdom and the EU, providing goods and services to Russian entities has been prohibited, as has overflight of EU, UK and US territories. Russia has responded by allowing Russian airlines to re-register on the Russian register from March 14 planes leased from foreign companies and therefore already registered in countries other than Russia, where they will also be issued local certificates of airworthiness. This enables Russian operators to keep their foreign-leased aircraft, valued at over $12 billion, and to operate the planes on domestic and a few international routes, while making it harder for foreign companies to reclaim their jets without Russian government approval. This action by Russia is in transparent breach of Article 18 of the Chicago Convention, on which I comment further below.
While a small number of such aircraft have been repossessed by leasing companies, clearly such repossessions are unlikely to be permitted in the territories under the control of Russia, nor apparently in the territories of some states that have not adopted the Western sanctions-based approach to Russia's bellicose activity. This has inevitably forced lessors to consider their alternative options. Attention has focused on the possibilities of recovery from insurers and this battle has already been joined in various jurisdictions.
The overwhelming majority of Russian-operated aircraft are primarily insured by Russian companies, which then reinsure all or a large proportion of their risk in overseas markets, primarily in the United Kingdom and the EU. Those reinsurance policies have been affected by the standard AVN 111 Sanctions and Embargo Clause, which provides:
if, by virtue of any law or regulation . . . applicable to an Insurer . . . providing coverage to the Insured is or would be unlawful because it breaches an embargo or sanction, that Insurer shall provide no coverage
Insurers usually have to give notice to cancel a policy and notice was given in many cases when sanctions were first introduced in February, well in advance of the re-registration decision by Russia on 14 March, which could well have been regarded as the event of confiscation called for in those policies that might otherwise respond. However, there are other difficulties for insurers given that such policies have a mechanism for the protection of lessors in the AVN 67b clause, which preserves lessors' rights in the event of cancellation of the policy and may create a stand-alone policy (although this proposition has not been tested in court). Another difficulty arises as to the law governing the reinsurance policy and the jurisdiction in which claims may be made. The underlying policy will in most cases be subject to Russian law and jurisdiction. The reinsurance policy may address this in its terms. If Russian law and jurisdiction apply, the lessor, if it has rights by way of a cut-through or similar clause in the reinsurance policy, may be entitled to sue the reinsurers in Russia but would be unlikely to succeed, given the new Russian law permitting re-registration. If the law is that of the jurisdiction of the lessor or lead reinsurer, or is specified by the reinsurance policy, the lessor may be able to have a hearing where the issues of sanctions, severability of AVN 67b and recoverability under sanctions provisions and policy exclusions for state seizure can be addressed.
As a further complication for lessors, the aggregation provisions in some policies limit the recovery from insurers for each event – a clause of this kind gave rise to extended litigation in the United State following the 9/11 destruction of the twin towers in Manhattan, and in respect of which the mechanism for sharing the available proceeds between lessors has yet to be resolved. Relief may be available to some lessors that may have taken out contingent or possessed policies addressing the failure of the operator's policy to respond to lessors' claims. These policies have an advantage in that the lessor will be the named insured with a clear right to take direct action in its own name, and to recover if the circumstances of the loss are sufficiently clearly addressed in the wording.
Given that there are significant assets in many jurisdictions either in the name of Russian state entities or traceable via third parties to the Russian state, insurers that have identified significant exposure ought to be researching their rights to pursue those assets urgently, as there are likely to be numerous competing claimants. Finally, on a sombre note, it has to be pointed out that all the relevant policies will exclude damage caused by nuclear explosions.
As I have mentioned above, the actions of the Russian state in reflagging aircraft are in breach of that country's obligations under the Chicago Convention. As I explained last year in the context of the actions of Belarus in seizing an overflying foreign aircraft, the Council of the International Civil Aviation Organization (ICAO) has the power to investigate breaches of the Convention, and an obligation to report to contracting states any infraction of the Convention, as well as any failure to carry out recommendations or determinations of the Council. A minimum of 10 states have the power to convene an extraordinary session of the ICAO Council and a majority of states have the power to take appropriate action, including suspending a Member State. Whether these steps will be taken will depend on the will of the majority.
Readers of the preface in earlier editions of The Aviation Law Review will be aware of the recurrent theme relating to the approach of the Court of Justice of the European Union (ECJ) to the interpretation of the EU Flight Compensation Regulation (Regulation 261)1 governing passengers' rights arising from delays to and the cancellation of flights.
On 21 December 2021, the ECJ decision in Airhelp Limited v. Laudamotion GmbH addressed the facts of the scenario in which the carrier brought its scheduled flight forward by six hours and notified the passengers' travel agent more than two weeks prior to departure, although the agent failed to tell the passengers. Improbably, but in further pursuit of its rampage against common sense when the rights of passengers are at issue, the Court held that the carrier had to prove that the passengers had been given notification in due time, regardless of whether the failure to do so was the fault of the passengers' own agent.
In a deeply depressing decision of the UK Supreme Court, in Bott v. Ryanair, the Court held by a narrow majority that the claimant solicitor was entitled to recover its costs from the airline regardless of the fact that the firm had undertaken minimal work and that the claim was unlikely to be disputed, primarily by reference to the perceived need to bolster the rights of citizens to access the Court. The decision is presently limited to the rights of solicitors, but it is to be expected that non-solicitor claims companies will pursue their own claims for recovery on analogous principles.
Finally, in what has been described as a populist decision, the UK Department for Transport (DfT) has launched a consultation on post-Brexit passenger rights, including on whether Regulation 261 as applied in the United Kingdom should be changed so that compensation for delayed domestic UK flights is calculated as a percentage of the ticket price, and whether the length of delay that triggers compensation rights for domestic UK flights should be reduced from the existing threshold of three hours. The DfT is seeking views on the introduction of a sliding scale: 25 per cent of the ticket price for a delay of one to two hours; 50 per cent of the ticket price for a delay of two to three hours; and 100 per cent of the ticket price for a delay of over three hours. The DfT is also seeking views on similar rules for flight cancellations and denied boarding. It would seem that the United Kingdom has caught the carrier-critical mindset of the ECJ!
Airlines in Europe need to stand united to resist the continued assault of Regulation 261 on their very existence, for without such unity, to paraphrase Aesop, division can only produce disaster.
Once again, many thanks to all our contributors to this volume, including, in particular, those who have newly joined the group to make The Aviation Law Review the go-to aviation legal resource.
Gates Aviation Ltd
1 Regulation (EC) No. 261/2004 of the European Parliament and of the Council of 11 February 2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, and repealing Regulation (EEC) No. 295/91.