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Submission to the Civil Aviation Department on Modernization of the Rome Convention of 1952

  • Consultation Papers
  • 2009.02.27

INTRODUCTION

  1. The Consumer Council is pleased to submit its views to the Civil Aviation Department (CAD) regarding the two draft conventions on compensation for damage caused by aircraft to third parties arising from acts of unlawful interference or from general risks.
     
  2. This paper sets out the Council's response in relation to the following two aspects of the draft conventions which have direct relevance to the interests of aircraft passengers/consumers.
  1.  Compensation for damage caused by aircraft to third parties arising from acts of unlawful interference or from general risks; and
  2.  Contribution to the Supplementary Compensation Mechanism (SCM).

COUNCIL RESPONSE

Compensation for damage caused by aircraft to third parties arising from acts of unlawful interference or from general risks

  1. In principle, the Council welcomes the expansion of protection coverage by having provisions in the draft conventions to cover compensation for damage caused by aircraft to third parties on the ground arising from acts of unlawful interference or from general risks.
     
  2. As to the first layer of compensation, it is noted that under Articles 3 and 4 of the conventions, aircraft operator is strictly liable for damage caused by an aircraft in flight and such liability would be capped based on the weight of the aircraft.
     
  3. The Council appreciates that limits need to be specified in order to provide certainty as to the extent of the liability of the operator for damage within the scope of the conventions. The Council does not venture to suggest the appropriate level, suffice to say that the liability caps should be set at an adequate level having regard to the likely compensation to be provided.
     
  4. To provide reasonable compensation, the Council considers that there should be a mechanism for reviewing and updating the liability caps to ensure that there would be adequate compensation to provide redress to victims.
     
  5. The Council urges CAD to ensure that aircraft operators would meet their responsibilities in maintaining adequate insurance or guarantee to cover liability in the event of an aviation accident. Regardless of whether or not the conventions would be adopted, CAD should assess if the aviation industry in Hong Kong faces any difficulties in accessing appropriate levels of insurance to cover their potential liabilities.
     

Contribution to the Supplementary Compensation Mechanism (SCM)

  1. The Council considers that the suggestion of establishing a Supplementary Compensation Mechanism (SCM) is worthy of further exploration by CAD. As noted in the draft Unlawful Interference Convention, the SCM would provide additional protection to victims, i.e. ensure payment of compensation to victims in the event that the required protection cannot be fully covered by the first layer of compensation.
     
  2. However, the Council is concerned with funding of the second layer of compensation with amounts collected from passengers (and for cargoes). Under Article 12 of the convention, the funding of the SCM would be paid directly by consumers of flight services. The Council believes that aircraft operators conducting flight business should have the responsibility to contribute to the SCM in case the total amount of damages exceeds the cap or they are unable to secure adequate insurance or guarantee from the market to cover the first layer of compensation.
     
  3. Notwithstanding that the contribution to SCM may not be significant if many States Members become party to the convention, the Council is of the view that the cost of financing the SCM should, in principle, be borne by the operators instead of being funded by passengers. To serve consumer's interest, the Council suggests that CAD should further explore possible source of funding of the SCM, with a view to reducing the cost burden on passengers, and also consider if an industry-based reserve fund could be built up instead.
     
  4. Some may argue that the costs of funding even if initially borne by operators are likely to be passed on to passengers through higher air ticket prices. As a result, the benefits of not requiring direct payment from passengers/customers may be partly offset through the transfer of costs by operators. Notwithstanding that, the Council considers that the way the SCM would be funded may enhance consumer/public confidence in the commitment of the operators in contributing to an industry-funded compensation scheme.
     
  5. As to the duration for contributions, the Council considers that further contributions to the SCM should not be required once an appropriate target level of reserves has been built up. The Council is of the view that there should be a mechanism for temporary suspension or reinstatement of contributions when the SCM exceeds the targeted-funding level or falls below a stipulated minimum level. Continuing to require mandatory contribution beyond the amounts needed will only incur cost burden to operators/passengers but will not provide more protection to victims.
     
  6.  It is noted that under Article 14 of the convention, the rate of contributions in respect of passengers and cargoes would be equal for all States Parties. The Council considers that the rate of contributions towards the SCM should be based on relative risk as this would avoid implicit cross-subsidies among States Parties. Adopting a risk-based approach to award no-claim or low risk States Parties with lower rate of contributions is proposed for consideration of CAD.