International Civil Aviation Organization
WORKING PAPER
C-WP/13342
22/05/09
 
Corresponding C-DEC

COUNCIL — 187TH SESSION

 

Subject No. 16:

Legal work of the organization

Subject No. 16.3:

International air law conventions

 

REPORT ON THE OUTCOME OF THE REVIEW BY ICAO REGARDING THE LIMITS

OF LIABILITY UNDER THE MONTREAL CONVENTION OF 1999

 

(Presented by the Secretary General)

 

EXECUTIVE SUMMARY

The limits of liability established under the Montreal Convention of 1999 are subject to a built-in periodic review mechanism in order to prevent erosion of limits due to inflationary conditions. This paper reports on the outcome of the first such review conducted by the Secretariat under Article 24 of the Montreal Convention of 1999. The said review concluded that the threshold set out in the Convention for adjusting the limits of liability has been exceeded, necessitating an upward revision of the limits. In accordance with the procedure regarding the revision of the limits of liability set out in the instrument, States Parties have to be notified as to the revised limits. To this end, a State letter will be issued.

Action: The Council is invited to request the Secretary General to send a State letter notifying States Parties to the Montreal Convention of the outcome of the review and the revised limits of liability.

Strategic Objectives:

This working paper relates to Strategic Objective F.

Financial implications:

Additional resources only required in case a meeting of States Parties to the Montreal Convention of 1999 becomes necessary.

References:

Doc 9740, Convention for the Unification of Certain Rules for International Carriage by Air, done at Montreal on 28 May 1999

1.                   INTRODUCTION

1.1                                       The Montreal Convention of 1999 (Doc 9740) establishes in its Articles 21 and 22 the liability limits of the air carrier for damages in relation to the carriage of passengers, baggage and cargo. The amounts so established are expressed in Special Drawing Rights (SDRs), a unit of account established by the International Monetary Fund (IMF). The SDR is defined as a basket of currencies whose composition is reviewed periodically to ensure that it reflects the relative importance of currencies in the world's trading and financial systems. Today, the basket consists of the euro, Japanese yen, pound sterling, and U.S. dollar. The table below illustrates the history of the basket composition and weights:

SDR Valuation Basket:
Percentage Weights at Inception of Period

 

1981-85

1986-90

1991-95

1996-2000

2001-05

Proposed

2006-10

U.S dollar

42

42

40

39

45

44

Euro

29

34

Deutsche mark

19

19

21

21

French franc

13

12

11

11

Japanese yen

13

15

17

18

15

11

Pound sterling

13

12

11

11

11

11

 

Source: IMF – Finance Department

1.2                                       At the Diplomatic Conference which adopted the Montreal Convention, States were mindful of the need to ensure that the said limits of liability retain their economic value with the passage of time and that they would not erode due to inflation or other economic factors subsequent to the coming into force of the convention.

1.3                                       Consequently, the Convention provides in its Article 24 (Review of Limits) a built-in mechanism, sometimes referred to as the escalator-clause, which sets out the process for a periodic review and revision as necessary of the aforementioned limits of liability. The review mechanism was deliberately designed along the lines of a tacit approval process, ensuring general application while involving all States Parties.

1.4                                       This paper presents the conclusions and resulting consequences of the said review which was carried out by the Air Transport Bureau (ATB) in coordination with the Legal Affairs and External Relations Bureau (LEB).

2.                   review under article 24 of the convention

2.1                                       Article 24 provides that the limits of liability be reviewed by the Depositary (ICAO) at five-year intervals, the first such review to take place at the end of the fifth year following the date of entry into force of the convention.

2.2                                       In its relevant part, Article 24, paragraph 1, stipulates that the limits be reviewed by reference to an inflation factor which corresponds to the accumulated rate of inflation since the date of entry into force of the convention. The measure of the rate of inflation to be used in determining the inflation factor is the weighted average of the annual rates of increase or decrease in the Consumer Price Indices of the States whose currencies comprise the SDR. As the Montreal Convention entered into force on 4 November 2003, ICAO initiated the process of reviewing the limits at the end of 2008, and the inflation factor used corresponded to the accumulated weighted rate of inflation over the period 2003-2008. As the IMF released pertinent official 2008 data only in April 2009, the review could only be concluded thereafter.

3.                   results of review – Determination of inflation factor

3.1                    Historical Consumer Price Index (CPI) data was obtained from the IMF World Economic Outlook Database, April 2009 Edition, available on the IMF public website. This database is usually updated in April and September of each year. The table below summarizes the analysis regarding the annual percentage change in average consumer prices for the period concerned:

 

 

United States

 

Euro area

 

Japan

 

United Kingdom

Weighted Index

 

CPI

weight

CPI

weight

CPI

weight

CPI

weight

 

2003

 

 

 

 

 

 

 

 

100.0

2004

2.7

0.45

2.18

0.29

0.0

0.15

1.3

0.11

102.0

2005

3.4

0.45

2.19

0.29

-0.3

0.15

2.0

0.11

104.4

2006

3.2

0.44

2.20

0.34

0.3

0.11

2.3

0.11

107.0

2007

2.9

0.44

2.15

0.34

0.0

0.11

2.3

0.11

109.4

2008

3.8

0.44

3.29

0.34

1.4

0.11

3.6

0.11

113.1

4.                   REVISION of liability limits

4.1                                       As a result of the above review and calculations set out in paragraph 3 above, it has been determined that the inflation factor has exceeded 10 per cent, the threshold stipulated in the convention for triggering an adjustment of the limits of liability. The determined inflation factor is 13.1 per cent. As a consequence, the limits of liability would need to be adjusted as follows:

Old Limits (SDR)

 

Revised Limits (SDR)

Rounded Revised Limits (SDR)

 

17

 

x 13.1%

 

19.227

 

19

 

1000

 

x 13.1 %

 

1 131

 

1 131

 

4150

 

x 13.1%

 

4 693.65

 

4694

 

100 000

 

x 13.1%

 

113 100

 

113 100

4.2                                       For ease of reference, one SDR was valued on 22 May 2009 at U.S. $ 1.54.

5.                   notification to stateS parties

5.1                                       In accordance with Article 24, paragraph 2, of the Convention, ICAO has to notify States Parties to the Montreal Convention of the outcome of the review. In this context, a State letter should be issued designed to inform these States of the adjusted limits and recalling that, in line with the tacit approval mechanism spelled out in paragraph 2 of Article 24, the said revisions shall become effective for all States Parties six months following the notification, unless within three months after the said notification a majority of States Parties have registered their disapproval with ICAO. Should the latter occur, the revisions would not become effective and ICAO would be required to refer this matter to a meeting of the States Parties (Diplomatic Conference). Should the former occur, Article 53, paragraph 8 (d) of the Convention provides that ICAO shall promptly notify all signatories and States Parties of the date of the coming into force of the revised limits of liability. The State letter will also invite States to adjust, if necessary, their implementing legislation to give full effect of the revised limits, once approved and effective.

5.2                                       The Council will be advised regarding the outcome of the notification procedure in due course.

— END —

 


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