Newsletter. EU Commission s strategy for open and connected Europe. Aviation. July Contents

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1 Aviation Newsletter July 2017 Contents EU Commission s strategy for open and connected Europe Page 1 Surprise from the European Court bird strikes constitute extraordinary circumstances for the purposes of Regulation 261/2004 Page 4 Noise nuisance and the definition of in flight : Lorna Peires v Bickerton s Aerodromes Limited Page 7 PTSD as a bodily injury: Australian appeal court clarifies the position Page 9 International employees: making sure that rights don t fly away Page 11 Cyber security of aircraft: regulatory and industry response to cyber threats Page 13 Brexit update Page 16 EU competition law: airfreight cartel update Page 17 EU Commission s strategy for open and connected Europe On 8 June the European Commission published a communication entitled Aviation: Open and Connected Europe, setting out its strategy intended to further support open and connected aviation markets in the EU and beyond, by safeguarding competition and connectivity, facilitating investments in European airlines and enhancing the efficiency and connectivity of European skies, in particular by means of the following initiatives: Urging the Council to swiftly decide on the signing of an aviation agreement with Ukraine, and to grant it a mandate to negotiate further such agreements with Bahrain, China, Kuwait, Mexico, Oman and Saudi Arabia A proposal for a new Regulation to safeguard competition in air transport, replacing Regulation 868/2004 Interpretative guidelines on the rules on ownership and control of European airlines in Regulation 1008/2008, and a review of these rules Interpretative guidelines on the rules on public service obligations in Regulation 1008/2008, and a review of these rules Encouraging Member States and stakeholders to adopt various practices in connection with industrial action and strikes with a view to improving continuity of air traffic services, exploring further integration of European airspace and urging the Council and Parliament to swiftly adopt the outstanding Single European Sky proposals. Proposal for a new Regulation safeguarding competition in air transport The Commission expresses the view that such a regulation is required, because there is no international framework governing such behaviour, either multilaterally or bilaterally, and the provisions of the existing legislation on the subject, Regulation 868/2004 are inadequate. Perhaps at least partly because of this, the existing Regulation has never been used in practice. Under the proposal, the Commission would be able to launch an investigation if there is prima facie evidence of either a violation of international legal obligations or the existence of a practice adopted by a third country or third country carrier affecting competition and causing injury or threat of injury to one or more EU carriers. If the Commission concludes

2 that there is sufficient evidence and the matter merits being taken further, it could then initiate formal proceedings to investigate the situation and obtain necessary information. Such proceedings should be concluded within 2 years, unless either prolonged or shortened in the case of urgency, or suspended because the problem has been eliminated in the meantime. If the Commission concludes that there has been a violation of applicable international obligations, and no other remedy has been obtained, and the Commission does not consider that to do so would be against the EU interest, then the Commission shall adopt redressive measures (subject to complying with any applicable international consultation or dispute settlement procedure). Such measures shall be the measures provided for by the act containing the applicable international obligations or available under relevant rules and principles of public international law. Where the Commission concludes that a practice has caused injury or threat of injury to one or more EU carriers, and the practice or injury has not been eliminated, and the Commission does not consider that to do so would be against the EU interest, the Commission shall adopt redressive measures against the third country carrier(s) in question, consisting of either financial duties or any measure of equivalent or lesser value, as necessary, and for the length of time necessary, to offset the injury or threat of injury in question. The Commission shall publish its decision, together with a statement of reasons, in the EU Official Journal. The proposal represents an attempt by the Commission to address what many regard as a growing problem in international air transport, resulting from increased liberalisation and competition but without any international rules or framework regulating such competition. It remains to be seen whether it will be accepted by the Council and the Parliament, and then, if it is, whether it will have any more success than the current, unused, Regulation. At first sight, the provisions on violation of international obligations may not add much to the current situation, given that the provisions only apply if there are international obligations that have been violated, and that the envisioned redressive measures are defined as the measures provided for by the international act or public international law. The provisions on practices causing injury are certainly much wider than the existing provisions, but there are likely to be difficulties in enforcement, not least because of the difficulty of obtaining sufficient evidence and establishing the necessary causal link, and also because of complications caused by existing bilateral relationships. Dealing with such behaviour in comprehensive aviation agreements between the EU and other countries may turn out to be a more effective way of regulating it, and this is rightly included in the Commission s objectives. Guidelines on ownership and control rules The main elements of the Guidelines are as follows: The nationality requirement can only be satisfied by natural persons, so that, where an airline is owned and/or effectively controlled wholly or partly by one or more intermediate entities that are not natural persons, the requirement applies to the natural persons who own and/or effectively control those entities at the final level of the ownership and control line. Difficulties may arise when a person has more than one nationality. It is for Member States to lay down conditions for the acquisition and loss of its nationality, but with due regard to EU law and international law norms and obligations (which in particular require a genuine connection between the applicant and the country or its nationals). The Commission considers that the ownership requirement is satisfied if at least 50% plus one share of the undertaking s equity capital is owned by EU nationals. While a case by case analysis will be required (particularly where there exist different classes of shares, or warrants or options, or institutional investors), as a general rule equity capital involves the right to participate in decisions affecting the operations of the undertaking, and the right to obtain a share in its residual profits or assets in the event of liquidation. Specific problems may arise where both the stake held by EU shareholders in an intermediate entity and the stake held by the latter in an air carrier represent less than 100% of the respective shares. Particular challenges arise in the case of companies that are publicly quoted or owned by investment institutions, not least because shareholdings may change from day to day and there may be several stages of ownership. Where shares are held by a nominee, trust, fund or other institutional investors, the requirement may be satisfied if the registered owner is an EU national, although account must be taken of whether another person is the beneficial owner. As regards effective control, a case by case assessment must be made, but the essential test is one of decisive influence over strategic business decisions (eg, on appointment of senior management, adoption of budgets and business plans, major investments and market-specific rights. Mere veto rights, without the rights positively to influence management, would be insufficient. Effective control by EU nationals may exist even where there is joint control (for the purposes of the Merger Regulation) by EU nationals and non-eu nationals. 2

3 The first step in assessing effective control is analysis of corporate governance, ie, how decisions are made by decision-making bodies within the undertaking. Veto rights enjoyed by non-eu nationals have to be carefully considered, but will not necessarily lead to loss of effective EU control. As regards shareholding levels, where shares are widely held, a share of less than 50% may be considered to confer effective control, and as a general rule a no- EU holding of more than 30% should be carefully assessed. The nationality of key management individuals is not in itself determinative, although it would be relevant in the case of links with a non-eu shareholder. Particular shareholder rights requiring scrutiny include the right to veto a transfer of shares, pre-emption rights and put, call or conversion options, and certain conditions subject to which the investment is made may also need to be scrutinised. Also relevant will be the degree of financial dependence of the undertaking on, and any dependency on commercial cooperation with, the non-eu shareholder. The guidelines provide a helpful summary of the Commission s approach to the application of the rules, but do not really go much beyond the principles outlined in the Commission s one published decision on the matter, re Swissair/Sabena in 1995, and in the guidelines issued by the UK CAA, which have been in existence for some time. As the Commission repeatedly says, case by case assessment in the light of the particular facts and circumstances will always be required. More important in many ways is the fact that the Commission is launching a review of the rules. This is long overdue, as, while the traditional rules may have been appropriate at a time when most airlines were State-owned, they have become increasingly inappropriate and incompatible with the growing globalisation of the industry and participation of private capital in it, often on an international basis. For further information, please contact John Balfour, Mark Bisset or Tom van der Wijngaart Aviation bulletin July

4 Surprise from the European Court bird strikes constitute extraordinary circumstances for the purposes of Regulation 261/2004 In a preliminary ruling delivered on 4 May 2017 in Pešková v Travel Service a.s, the Court of Justice of the EU held that a collision between an aircraft and a bird is classified under the concept of extraordinary circumstances for the purposes of Regulation 261/2004, thus excusing the carrier from paying compensation for resulting delay, provided the carrier can show that the circumstances could not have been avoided even if all reasonable measures had been taken. Facts The applicants booked a flight from Burgas (Bulgaria) to Ostrava (Czech Republic) with Travel Service. The flight was carried out on 10 August 2013 with a delay in arrival of 5 hours and 20 minutes. The flight formed part of the journey Prague Burgas Brno (Czech Republic) Burgas Ostrava. During the landing of the flight from Burgas to Brno, according to Travel Service, the aircraft collided with a bird. The aircraft was subjected to checks, although no damage was found. Nonetheless, a Travel Service technician was taken by private aircraft from Slany (Czech Republic) to Brno to put the aircraft back in operation. He was told by the aircraft s crew that the checks had already been performed by another firm but its authorisation to carry out the checks was not accepted by Sunwing, the owner of the aircraft. Travel Service once again checked the point of impact, which had earlier been cleaned, and found no traces on the engines or other parts of the aircraft. The aircraft then flew from Brno to Burgas, then from Burgas to Ostrava, the flight taken by the applicants. Key issue The Prague District Court referred a number of questions to the CJEU. The key question was whether a collision between an aircraft and a bird constituted extraordinary circumstances within the meaning of Article 5(3) of Regulation 261/2004, giving rise to an exemption from the obligation to compensate for delay. Legal context Article 5(1) of the Regulation provides that in case of cancellation of a flight, the passengers concerned shall have the right to compensation by the operating air carrier in accordance with Article 7. Under Article 5(3), an operating air carrier shall not be obliged to pay compensation in accordance with Article 7, if it can prove that the cancellation is caused by extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken. Although extraordinary circumstances are not defined, recital 14 states that: Such circumstances may, in particular, occur in cases of political instability, meteorological conditions incompatible with the operation of the flight concerned, security risks, unexpected flight safety shortcomings and strikes that affect the operation of an operating air carrier. Previous decisions In a series of earlier decisions, the CJEU limited the scope of the circumstances in which carriers could rely upon the defence and also extended the situations in which carriers were obliged to provide compensation. In Wallentin-Hermann, the CJEU held that a technical problem in an aircraft leading to cancellation of a flight did not constitute 4

5 extraordinary circumstances unless the problem stemmed from events which, by their nature or origin, were not inherent in the normal exercise of the air carrier concerned and were beyond its actual control. In Jet 2 v Huzar, applying Wallentin, the English Court of Appeal held that technical problems that caused delay to air passengers were inherent in the normal exercise of a carrier s activity, even if they were not foreseeable. Therefore, they did not amount to extraordinary circumstances, allowing the carrier to avoid its obligation to pay compensation for delay. Despite the wording of Article 5(1) of the Regulation (which refers only to compensation in the event of cancellation), in the case of Sturgeon, the CJEU had decided that passengers whose flights were delayed for three hours or more had the same right to compensation under Article 5 as those whose flights had been cancelled. In Van der Lans, the CJEU held that air carriers were required to compensate passengers where delays occurred due to unforeseen technical problems following the premature malfunction of certain components. The Court stated that since the functioning of aircraft inevitably gives rise to technical problems, air carriers are confronted as a matter of course in the exercise of their activity with such problems and that technical problems which come to light during the maintenance of aircraft or on account of failure to carry out such maintenance cannot constitute, of themselves, extraordinary circumstances. The Pešková case extraordinary circumstances Whilst the above cases were undoubtedly welcomed by consumer groups, air carriers would have been justified in anticipating this latest judgment on bird collisions with a degree of gloom. Any concern that, if they had not already opened, the floodgates were about to open would have been reinforced by the Opinion of Advocate General Bot delivered in July 2016 on the Pešková case. It is instructive to compare and contrast his approach to the key issue, as to whether or not bird strikes amount to extraordinary circumstances, with that of the court. He referred to the fact that wildlife hazard is a well-known phenomenon in air transport and that aircraft manufacturers conduct extensive testing in relation to the resistance of aircraft to bird collisions. Such collisions are not out of the ordinary events and therefore did not, in his view, constitute extraordinary circumstances. The Court, perhaps somewhat surprisingly in light of the above case-law, adopted a different approach. With reference to Recital 14, the court stated that events may be classified as extraordinary circumstances, within the meaning of Article 5(3), if, by their nature or origin they are not inherent in the normal exercise of the activity of the air carrier concerned and are outside that carrier s actual control. It concluded that: In the present case, a collision between an aircraft and a bird, as well as any damage caused by that collision, since they are not intrinsically linked to the operating system of the aircraft, are not by their nature or origin inherent in the normal exercise of the activity of the air carrier concerned and are outside its actual control. Accordingly, that collision must be classified as extraordinary circumstances within the meaning of Article 5(3) of Regulation No 261/2004. The onus is on air carriers to prove the existence of extraordinary circumstances and, as repeatedly stated, given that this amounts to a derogation from the right to compensation, this will be strictly interpreted. Reasonable measures Proof of extraordinary circumstances is not the end of the matter. Under Article 5(3), the air carrier must also prove that the extraordinary circumstances could not have been avoided even if all reasonable measures had been taken. The decision in Pešková throws further light on how the court approaches the question of reasonable measures. Applying the principles set out in the case of Eglītis and Ratnieks, reasonable measures are measures appropriate to the situation, and this means conditions which are technically and economically viable for the air carrier concerned. It further stated that reasonable measures is an individualised and flexible concept, leaving to the national court the task of assessing whether, in the circumstances of the particular case, the air carrier could be regarded as having taken measures appropriate to the situation. In relation to the risk of bird collision, such measures include control measures preventing the presence of birds which can at a technical and administrative level be taken by an air carrier but do not require it to make intolerable sacrifices in light Aviation bulletin July

6 of the capacities of its undertaking. Air carriers will not be obliged to carry out measures which properly fall within the remit of others such as airport operators and air traffic controllers. It will, however, be a question of fact, in the circumstances of each case, as to whether or not an air carrier has taken appropriate measures. In the Pešková case, following a collision with a bird, the aircraft operated by Travel Service underwent, after landing, a safety check carried out by an authorised firm without any damage being found on the aircraft. The Court found that this was a necessary and appropriate response to the collision. However, Travel Service sent a further technician to the location to carry out a second safety check, since the owner of the aircraft refused to recognise the authorisation of the firm which carried out the initial check. The Court noted that it is for the air carrier, faced with extraordinary circumstances, to adopt measures appropriate to the situation, deploying all its resources in terms of staff or equipment and the financial means at its disposal in order to avoid, as far as possible, the cancellation or delay of its flights. However, the Court held that when a check had already been carried out by an expert authorised under the applicable rules, the view cannot be taken that a second check inevitably leading to a delay equal to or in excess of three hours to the arrival of the flight concerned constitutes a measure appropriate to the situation. Accordingly, in ruling upon the second question referred to it by the national court, the CJEU stated that cancellation or delay of a flight is not due to extraordinary circumstances when that cancellation or delay is the result of the use by the air carrier of an expert of its choice to carry out fresh safety checks necessitated by a collision with a bird after those checks have already been carried out by an expert authorised under the applicable rules. Comment The decision in Pešková resolves the vexed question as to whether or not bird strikes may amount to extraordinary circumstances within the meaning of Regulation 261/2004, in favour of the conclusion that they do. There has previously been an inconsistent approach to this question in the courts in the UK and elsewhere. The Pešková decision affirms the approach recently adopted in the UK courts in the case of Rosenblatt v BA, where the judge also made reference to the National Enforcement Bodies Guidance, which cited bird strikes under the list of extraordinary circumstances, requiring immediate compulsory checks and possible repair. In light of the principles set out in Eglītis and affirmed in Pešková, an interesting question arises as to the extent to whether a small operator may be deemed to have a more restricted duty when considering the question of reasonable measures than a larger operator with greater resources at its disposal. A more specific question arises as to the nature of any technical check which should be performed following a collision. The judgment emphasises that the maintenance of punctuality of flights must not be accorded priority over the objective of safety. However, any delay caused by carriers or owners of aircraft asking their own preferred technician to carry out a check, as opposed to arranging a check by a more readily available local technician, may not qualify for the exemption from compensation. Where there is no immediately available technician authorised under the rules to carry out a check, it is unclear what steps taken by carriers or aircraft owners may be considered reasonable. For example, might it be considered reasonable to fly in the carrier s preferred and approved technician who is three hours away where there is a local authorised technician only two hours away? Quite possibly not, if one follows the approach of the court in Pešková. This will be a question of fact to be decided by the courts when considering the individual circumstances of each case. The financial implications of the Pešková decision are substantial. Thousands of claims were on hold pending the decision of the CJEU and will now need to be re-considered in light of the judgment. However, whilst welcoming the decision, air carriers should be alert to the fact that the focus of any future claims in such cases is likely to shift to the issue of reasonable measures. Unless carriers are in a position to prove in the individual circumstances of the case that reasonable measures were taken to avoid delay (including any delay in the provision of technical checks), they will remain liable for compensation. So, although there is likely to be a significant reduction in claims, it would be premature to announce the death of this area of litigation. For further information, please contact Bea Hockton 6

7 Noise nuisance and the definition of in flight : Lorna Peires v Bickerton s Aerodromes Limited The case of Lorna Peires v Bickerton s Aerodromes Limited (reported at [2017] EWCA Civ273) involved a claim by Mrs Peires, the owner of a large property in Buckinghamshire, against the owner of Denham Aerodrome ( Bickerton s ). Mrs Peires alleged that helicopter exercises carried out on the aerodrome, which was adjacent to her property, caused excessive noise creating a nuisance. She sought an injunction to stop the nuisance and claimed damages in the sum of 700,000 to compensate her for alleged loss of value to her property. Specifically, Mrs Peires complained of noise generated from helicopter exercises carried out on a sloping part of the field between her property and the Aerodrome. These helicopter exercises involved landing, taking off, hovering, turning the helicopter 180 degrees and landing again. These helicopter exercises form part of mandatory training requirements for helicopter pilots. The Court of Appeal decided in favour of Bickerton s, overturning the decision of Mr Justice Peter Smith at first instance. The decision was based on the definition of in flight and the application of the statutory immunity available under the Civil Aviation Act 1982 ( CAA 1982 ). Legal background Section 76(1) of the CAA 1982 provides for immunity from liability in respect of trespass, nuisance and surface damage where the flight of an aircraft is at a height above the ground that is reasonable having regard to wind, weather and all circumstances of the case provided that the Air Navigation Order has been complied with. Section 77(2) relates to nuisance cause by aircraft, specifically on aerodromes, and provides immunity from an action of nuisance where the noise and vibration are caused by an aircraft on an aerodrome to which the provision applies by virtue of an Air Navigation Order, as long as the provisions of such Order are complied with. First instance decision At first instance, Mr Justice Peter Smith rejected Bickerton s reliance on the immunity afforded under section 76(1) on the basis that the training exercise on the slope could not be regarded as part of flight. He said the section is plainly designed to cover journeys with aircraft passing over other property and the associated take-off and landing. The Judge interpreted the word reasonable within Section 76 to mean that the activity is only permissible if it is carried out in a reasonable way. He concluded that the activities were not reasonable. Mr Justice Peter Smith further rejected Bickerton s section 77(2) argument on the basis that the exemptions only applied to operations that involved flying and here the operations on the slope did not involve flight. Instead, he described the helicopters as at best hovering for a defined period. He concluded that the helicopters could not be described as taking off or landing during the exercises that Mrs Peires complained of. Mr Justice Peter Smith granted an injunction to allow only for fixed periods of training at fixed times per week in an agreed location. No damages were awarded. The appeal Bickerton s appealed the High Court decision on four distinct grounds. However, permission to appeal was only granted in Aviation bulletin July

8 relation to two of the four grounds, and only the first permitted ground was heard in oral submissions. The ground pleaded was that the judge was wrong in law in concluding that the statutory immunities in section 76 and 77(2) do not apply. Mrs Peires cross appealed for the failure of the judge to award damages. Definition of in flight On appeal, the case turned on the meaning of in flight, which is defined in Article 3 of the Air Navigation Order 2016: an aircraft is deemed to be in flight.in the case of a piloted flying machine, from the moment when, after the embarkation of its crew for the purpose of taking off, it first moves under its own power, until the moment when it next comes to rest after landing. As stated above, sections 76(1) and 77(2) provide immunity from liability for nuisance in certain circumstances provided that the relevant provisions of the Air Navigation Order are complied with (for 76(1) in relation to height and for 77(2) in relation to noise and vibration). Article 218 of the Air Navigation Order 2016 (replacing equivalent provisions in the preceding Order) provides that the Secretary of State may prescribe conditions under which noise and vibration may be caused by aircraft on licensed aerodromes. Such conditions are contained in Article 11 of the Air Navigation (General Regulations) 2006, which authorised noise and vibration only when the aircraft is taking off or landing, and in certain other circumstances which are not relevant to this case. Airspace users and aircraft must also comply with the Standardised European Rules of the Air ( SERA ). These require that operation of an aircraft either in flight, on the movement area of an aerodrome or at an operating site shall be in compliance with the general rules, the applicable local provisions and, in addition, when in flight, with either the visual flight rules or the instrument flight rules. The SERA also specify certain minimum heights below which aircraft shall not be flown; however, there are exceptions to these rules which include practising approaches to land at an aerodrome and where a helicopter is conducting manoeuvres in accordance with normal aviation practice (provided that the helicopter is not operated closer than 60 metres to any person, vessels, vehicles or structures located outside of the aerodrome). The decision The Court of Appeal heard argument relating to the statutory immunities in section 76(1) and 77(2) before informing both parties that they had reached a conclusion that the appeal should be allowed on this ground alone. The Court held that the judge at first instance had erred in not recognising the helicopter activity as involving flight. He had confined flight to lateral travel from one fixed point to another [and] gave no justification or explanation for that limitation, and the Court could see no justifiable basis for such a limitation. The Court of Appeal held that helicopter exercises, involving rising a certain distance, turning and landing, do in fact constitute flight for the purposes of the CAA This is reinforced by the definition of in flight in Article 3 of the 2016 Order, as set out above. The Court of Appeal further held that the judge had misinterpreted section 76(1) as this does not contain any precondition for immunity that the flight must be reasonable. The reference to reasonableness is in relation to the height of the aircraft only and there is no general requirement of reasonableness. The Court also relied on the fact that the helicopter exercises formed a mandatory part of training to obtain a helicopter pilot s licence, and it was therefore considered implicit in the CAA s published exceptions to the SERA minimum height requirements that such authorised helicopter pilot manoeuvres constitute flying. Comment The case provides useful guidance on the meaning of in flight. It is not only lateral flight from one point to the other that constitutes in flight for the purpose of the statutory immunities contained in the CAA 1982; aerial activity including rising a certain distance, turning and landing also falls within its scope. Further, the case provides recognition of the potential safety implications which could arise if such helicopter activities were not considered to be in flight, as reasonable safety standards require that such helicopter manoeuvres are subject to the requirements of the Air Navigation Order and the SERA. For further information please contact Sarah Pearson 8

9 PTSD as a bodily injury: Australian appeal court clarifies the position The New South Wales Court of Appeal has clarified the position in Australia regarding the recovery of damages for psychological injuries under the 1999 Montreal Convention, as enforced in Australia by the Civil Aviation (Carriers Liability) Act 1959 (Commonwealth). Reversing the decision at first instance, the Court of Appeal determined that, in the absence of medical evidence demonstrating physical damage to the claimant s brain, post-traumatic stress disorder (PTSD) is not a bodily injury for which the airline is liable under the Montreal Convention. Background Ms Casey was a nurse employed by Care Flight who was travelling on a flight that had been arranged to evacuate a patient from Samoa to Melbourne in November The aircraft was scheduled to refuel at Norfolk Island, but due to dangerous weather conditions, was prevented from landing and the pilot ditched the aircraft in the ocean. All occupants survived and were rescued some 90 minutes later by a fishing boat. Ms Casey suffered extensive physical injuries as a result, as well as PTSD and other psychiatric harm including major depression and anxiety, and pain syndrome. Ms Casey claimed damages for all of her injuries pursuant to Article 17(1) of the Montreal Convention, which provides that (t) he carrier is liable for damage sustained in case of death or bodily injury of a passenger upon condition only that the accident which caused the death or injury took place on board the aircraft or in the course of any of the operations of embarking or disembarking. Purely mental injury is not sufficient to amount to a recoverable bodily injury under Art 17 of the Montreal Convention, although, at least in Australia, it is settled that psychological injury accompanied by bodily injury is recoverable. The parties were generally in agreement that Ms Casey s physical injuries and other psychiatric injuries (including major depressive and anxiety disorders, and pain syndrome) were recoverable as the evidence indicated that the physical injuries were at least in part a cause of the other psychiatric injuries. The main issue in dispute in the proceedings, both at first instance and on appeal, was whether Ms Casey s PTSD constituted a bodily injury under the Montreal Convention. Decision at first instance In 2015, the Supreme Court of NSW held that psychological injury is recoverable where it can be proven to be a species of bodily injury, that is, if the condition itself involves a physical change to the brain. Expert evidence demonstrated that Ms Casey had suffered biochemical changes in her brain and body and alterations in the brain s neurotransmitter pathways. In addition, Ms Casey s failure to respond to treatment that she had received for both PTSD and other psychiatric conditions was consistent with Ms Casey having suffered organic damage to her brain. The primary judge considered that the evidence supported a conclusion that Ms Casey s PTSD constituted a bodily injury. Decision on appeal The major issue on appeal was whether the judge at first instance had erred in finding that Ms Casey s PTSD amounted to a bodily injury. Pel-Air submitted that the case authorities did not justify a conclusion that any change in bodily condition or function was sufficient to constitute bodily injury within the meaning of the Montreal Convention. Based on a review of the relevant Australian, English and United States case authorities, the Court concluded that the expression bodily injury is limited to damage to a person s body. However, there is no reason that the term bodily injury should be considered to exclude damage to the brain where the evidence demonstrates that there has been some physical destruction to the claimant s brain. Aviation bulletin July

10 The evidence concerning Ms Casey s PTSD justified the conclusion that Ms Casey s brain was malfunctioning due to biochemical changes suffered to her brain. Although the expert evidence referred to scientific research suggesting that some individuals with PTSD can suffer from physical changes to certain areas of the brain, there was no specific evidence that could prove that Ms Casey had in fact suffered structural changes to her brain. The Court distinguished between biochemical changes to the brain and physical changes to the brain, concluding that biochemical changes cannot fairly be described as injuries to the body for the purpose of the Montreal Convention. In the absence of evidence of physical damage to the brain, it was determined that the trial judge had erred in finding that Ms Casey s PTSD was a bodily injury on the basis that the normal functioning of her brain was impaired. Comment The appeal decision adopts an approach to the interpretation of Article 17 of the Montreal Convention that is consistent with previous case law, namely that the term bodily injury is a word of limitation that draws a distinction between physical and mental injuries. On a proper interpretation of the Montreal Convention, it does not include pure psychiatric injury. Psychiatric injury is only recoverable: where mental anguish follows and is caused by physical injury; or if the psychological injury is proven to be a species of bodily injury in a physical sense. The Court of Appeal has realigned the Australian position with that of the dominant international authorities - that, in the absence of specific evidence of physical damage to the claimant s brain, PTSD is a purely psychiatric injury for which an airline is not liable under the Montreal Convention. For further information please contact Maurice Thompson, James Cooper or Jess Harman 10

11 International employees: making sure that rights don t fly away Airlines frequently have employees who carry out their duties in a number of different countries. A recent preliminary ruling of the Advocate General of the Court of Justice of the EU against Ryanair and its staffing company Crewlink acts as a timely reminder that while the employer may include an express jurisdiction clause in a contract of employment this does not mean that the employee s right to bring a claim elsewhere will necessarily be restricted by it. European Union regulations (2001 Brussels Regulation now updated as the Recast Brussels Regulation) recognise that because of the inequality in bargaining positions between an employer and an employee, any decisions on where the contract can be enforced should be taken with a view to protecting the weaker party, being the employee. The same EU regulations provide that an employer situated (with a degree of permanence) in an EU member state may be sued by an employee: in the courts of that same member state; or in the member state in which the employee habitually carries out his work (which may be a different member state); or if the employee does not habitually carry out his work in any one country (for example if they work in aviation or other transport sectors) then the employee can bring a claim in the courts based in the country where the employer s business is situated. Claims were brought by cabin crew members employed either directly by Ryanair or by Crewlink (an Irish company that supplied staff to Ryanair) for unpaid wages, overtime pay, enhanced pay for night work and severance pay. Because they worked in the aviation industry, a further EU regulation (3922/91 on the harmonization of technical requirements and administrative procedures in the field of civil aviation) applies, requiring a home base to be identified; being the location nominated by the operator to the crew member from where they would normally start and end a period of duty. The cabin crew contracts of employment stated that the employment relationships were subject to Irish jurisdiction and Irish governing law. Despite this, the cabin crew brought their claims in Belgium. However, the Belgian labour tribunal decided that it did not have jurisdiction to hear the claims. The cabin crew members appealed, and the appeal court asked the CJEU to give them guidance as to how the place in which the employee habitually carries out his work should be interpreted, within the context of the aviation industry. In his preliminary ruling, the Advocate General concluded that when considering where the employee was based, and therefore what jurisdiction applied, what should be taken into account is the place where or from which the employee principally carried out his duties with his employer. Since the crew members started their shift in Belgium and worked in Ireland during their shift it was not possible to identify the place where they principally carried out their duties. The Advocate General nevertheless thought it was possible to identify the place from which they carried out their duties and identified a number of factors it took into consideration. This included that the crew members: started and ended their working day in Belgium at Charleroi Airport; received instructions relating to their tasks and organised their work at Charleroi airport (even though the instructions were sent from Ireland) Aviation bulletin July

12 worked on aircraft, which were also based at Charleroi airport (that they were Irish registered made no difference); were contractually required to live less than one hour from Charleroi airport; and reported their sickness absence at and had access to a crew room at Charleroi airport. In light of these factors, the Advocate General concluded that while it was for the national court to decide the jurisdiction is to be determined as being the place where or from which the worker principally carries out his obligations vis-à-vis his employer. Specific points for the national court to consider included: where they start and end their working day; where the aircraft worked aboard are habitually based; the place the employee is contractually required to live; the place where an office (crewroom) made available by the employer is situated; the place they are made aware of instructions communicated by the employer; and where they organise their working day, attend disciplinary hearings or report sick. Practical considerations: While this ruling deals with jurisdiction (ie where a claim may be brought), it does not deal with governing law (ie which substantive law applies to determine rights) although similar considerations apply. While in many cases employers will be left with no choice on jurisdiction - the employees being able to choose which option is most favourable to them the factual matters identified by the Advocate General as to be taken into account do include some operational aspects over which the employer will have control, eg sickness reporting, and which could be determined by the employer to help try and level the playing field. Equally where an employee is proposed to transfer to work from a home operating base in a different EU member state, employers would be well advised to consider at that point the jurisdictional and governing law aspects as part of any decision. While the preliminary ruling is advisory only at this stage, the full court tends to follow the Advocate General s opinion. For further information please contact Nick Elwell-Sutton 12

13 Cyber security of aircraft: regulatory and industry response to cyber threats Cyberattacks on the aviation industry have become a serious concern. As increasingly complex and integrated information systems are adopted by the aviation sector, the threat of vulnerability to cyberattack increases. It has been estimated that the aviation sector faces over one thousand attempted cyberattacks each month. While most cyberattacks will seek to obtain passenger and financial data, many seek to disrupt the operations of airlines, airport operators and air traffic control providers. Recently, aircraft infected by malware have resulted in delays and loss of private information. A successful cyberattack that affects the operations of an inflight aircraft could have catastrophic consequences. In April 2015 a computer security expert was removed from a flight after posting on Twitter that he had hacked into the aircraft s inflight entertainment system and accessed the aircraft s thrust management control to issue a climb command causing the aircraft to move slightly off course. He also claimed to have accessed the cabin management system through the aircraft s satellite communications system. The FBI obtained warrants to search this individual s computers and continues to investigate his activities. While aircraft manufacturers and independent experts hold that the access claimed by this individual is impossible, the claims themselves, and the FBI s significant response to them, reveal that the threat of a cyberattack on aircraft systems while inflight is a genuine and growing concern. In addition, there are cyber threats to ground systems that could have a serious impact on inflight aircraft. The primary ground-based vulnerabilities for inflight aircraft are networks which upload or download flight information to aircraft, as well as maintenance and repair monitoring systems. These systems are considered less secure than on-board systems. In June 2015, operations at Warsaw Chopin Airport were disrupted by a cyberattack on flight planning operation systems which resulted in flight cancellations and groundings. One can imagine if such an attack had affected inflight aircraft. ICAO / IATA International aviation regulators have raised the spectre of cyber threats to their highest levels. Most recently, the International Civil Aviation Organization (ICAO) issued a Working Paper in September 2016 following a meeting of its Executive Committee on aviation security policy which identifies possible actions to combat cyber threats. ICAO has called upon aviation regulators and stakeholders to collaborate on raising awareness and addressing threats as well as coordinating on practical policies and measures. ICAO has also proposed a number of possible actions to be taken by regulators and stakeholders, including a global framework to address cyber threats, national regulatory oversight and initiatives by individual stakeholders to protect their operations against cyberattack. Within this context, particular importance has been placed upon the need to develop measures for early detection of cyberattacks and a swift response. As part of this, ICAO has called upon stakeholders to share information and best practices, put in place training and incentives for employees and come to a common understanding on which systems are critical and focus resources upon those systems. Following on from ICAO s concerns, the International Air Transport Association (IATA) has adopted a three-pillar strategy and developed and provided a Toolkit on cyber security for airlines. The three pillars IATA has adopted in order to understand, define and assess cyber risks are (1) risk management, (2) advocacy and (3) reporting and communication. Risk management includes developing a threat guide and the development of a Cyber Security Management System to assist airlines in risk assessment and mitigation of threats. Advocacy efforts serve to enhance communications with regulators. While reporting requirements raise awareness and foster the sharing of information. Aviation bulletin July

14 The practical IATA Cyber Security Toolkit arising from this strategy is designed to assist airlines in raising awareness of cyber threats and better understand those risks. The Toolkit provides a situational assessment of cyber security, identifies cyber threats, offers a framework for assessing cyber risks and provides guidance for developing cyber security management systems. Further, pursuant to the goal of increased cooperation and information sharing, ICAO and IATA have partnered with the Civil Air Navigation Services Organisation and the International Coordinating Council of Aerospace Industry Associations to establish an Industry High Level Working Group on cyber security to agree on a common framework and mutually support their individual aspects of the aviation sector to combat cyber risks. Federal Aviation Administration (FAA) The FAA in the United States has responded to the threat of cyberattack through the creation of a high level advisory committee and partnership with private cyber security interests to develop a comprehensive and coordinated national programme. Further, legislation passed by the United States Congress last year requires the FAA to adopt plans to improve existing security systems, among other things. As part of its effort to progress current systems and incentivise the development of advanced security initiatives, the FAA has proposed cybersecurity regulations for aircraft manufacturers, inviting researchers to contribute to the FAA s agenda for testing aircraft susceptibility to cyberattack. This programme is aimed at spotting potential entryways to aircraft systems and reducing those risks. European Aviation Safety Agency (EASA) At the European level, in 2015, EASA presented an aviation Cybersecurity Roadmap, taking into account the principles adopted by the international regulators. Earlier this year, EASA, together with the Computer Emergency Response Team (CERT-EU), announced the implementation of a European Centre for Cyber Security in Aviation (ECCSA); a public-private partnership that in many ways aims to achieve the same goals as the FAA s high-level advisory committee. ECCSA is organised to develop detailed understanding of cyber threats, serve as a central resource for information collection and sharing, identify potential security flaws and develop responses. While participation in ECCSA is voluntary, anticipated stakeholders include aviation manufacturers, aviation sector organisations, airlines, air navigation service providers, airport authorities and others. Civil Aviation Authority (CAA) The CAA in the United Kingdom has taken steps to organise a national framework in line with the strategies and policies of the international regulators and the EASA Cybersecurity Roadmap. This framework is expect to be implemented this fiscal year and will include, among other things, the development of a fully coordinated cyber security programme. Airlines and other stakeholders Airlines depend on the integrity of their information systems for their ground and flight operations, many of which are directly relevant to the safety of aircraft in flight. While many airlines, airports and others involved in the safe operation of aircraft have strong and reliable systems already in place, the aviation sector has not always adopted a coordinated approach to their information systems or considered the overall threat to those systems. In an effort to better coordinate these separate systems, airports and air navigation providers have implemented robust cyber security procedures and best practices, including redundant software and hardware systems, to combat potential cyberattacks in accordance with international recommendations. Likewise, airlines have been quick to adopt procedures in coordination with the IATA Cyber Security Toolkit to better synchronise with those ground systems on which they rely for the safety of their aircraft. Technological developments While Boeing and the other major aircraft manufacturers maintain that the current technology installed in aircraft is sufficiently isolated and secure to prevent hacking of vital aircraft systems, regulatory initiatives and technical developments are being undertaken to specifically address the threat of cyberattacks. As stated above, the FAA has proposed legislation seeking to partner with private interests in identifying potential cyber risks to aircraft and developing innovative design means to address those risks. 14

15 Further, engineers at the defence and electronics company Raytheon have announced work on a cyberattack warning system consisting of both software and hardware components; the software would provide a quick defence to attacks while a hardware module would protect vital aircraft systems in the event of an attack. The company has compared the system to the missile warning systems on military aircraft, allowing pilots to immediately detect if any aircraft systems have been hacked and take appropriate action in response. Conclusion As information systems evolve so do hackers and others wishing to manipulate technology to cause terror or harm. The aviation industry must keep pace with technological developments or risk falling prey to serious cyber risks. The industry finds itself in a position where it must constantly work to stay one step ahead of those potentially seeking to access aircraft systems. Coordinated regulation, industry investment and manufacturing advances have so far proven effective in preventing the fears of a cyberattack on an aircraft from becoming a reality; however, vigilance must be maintained in the face of changing threats. For further information, please contact Dylan Jones Aviation bulletin July

16 Brexit update The UK Prime Minister gave the Article 50 notice on 29 March, starting the exit procedure and setting the clock ticking, and negotiations commenced on 19 June. So far, there is no further clarity about the negotiating position or policy of either side on aviation, except only that it will not be the subject of initial focus in the discussions, although the UK Secretary of State for Transport has spoken of the need for a deal as a matter of priority and the best possible continuing access for the UK to the market. Furthermore, initial general statements from the EU side about unwillingness to make concessions and not permitting the UK to cherry pick create some doubt about whether a special deal for aviation will be possible. Whereas it might be true in other sectors that no deal would be better than a bad deal, no deal is likely to be a bad outcome for aviation, as the WTO does not apply to aviation and hence there is no WTO fall-back position. However, at least there is now greater public awareness of the importance of aviation in the UK/EU relationship, and more public discussion of the issues raised by Brexit for aviation and possible ways forward. Moreover, it is beginning to be appreciated that no EU/UK aviation deal will be bad for airlines, passengers and businesses not only in the UK but also throughout the EU. At a conference in Rome on 9 June organised by Studio Pierallini and LUISS School of Law, at which Rob Lawson was chairman and Mark Bisset and John Balfour speakers, the possible adverse effects on Italy were made clear by several of the speakers not only because of the importance of UK traffic to Italian business and tourism, but also because Italy s first and third carriers are Ryanair and easyjet, and between them they carry almost 50% of all air passengers in Italy. On the basis of present shareholdings in the two airlines, if Brexit takes place either without an aviation deal or without significant restructuring of the shareholdings (and in the case of easyjet the successful establishment of a subsidiary or associated company in an EU Member State), then the large majority of their operations in Italy will be without clear legal foundation. Speakers also reminded the conference of the importance of consumer interests in EU law, and forcefully expressed the view that passengers should not lose the connections and flight opportunities they currently enjoy, that governments cannot afford to allow this to happen and that enlightened self-interest should prevail. Since the conference, easyjet has announced that it is establishing a Vienna-based airline to carry on its European operations after Brexit, and that it expects to receive an Austrian AOC and operating licence in the near future. If a sensible outcome is to be achieved, it will be important for it to be understood that failure to find a solution would harm not just UK interests but consumers and business throughout the EU, and for these arguments to outweigh the self-serving protectionist arguments which will inevitably be made by those airlines which can see benefit in reduced competition. Indeed, Carsten Spohr, chief executive of Lufthansa has already been reported as saying that there will be no special aviation deal and that he expects Germany and France to take a hard line, and the reason for this is clear. Particularly as aviation does not appear to be being given priority in the negotiations, it may be optimistic to think that agreement on an aviation deal can be reached in the little time between now and the end of March In fact, so far as airlines are concerned there is even less time than this, because airline schedules for summer 2019 need to be known during the first half of 2018 in order to allow the customary scheduling and slot arrangements to be made and services to go on sale. The only way in which any certainty is likely to be achieved by then is if at least a temporary continuation of the status quo is agreed, pending agreement on a more permanent solution. The Government has also recently introduced to Parliament the European Union (Withdrawal) Bill, commonly known as the Great Repeal Bill, although this is something of a misnomer as, rather than repealing EU regulations (which will cease to apply anyway on withdrawal), it seeks to re-enact them into UK domestic law, pending further consideration. For further information, please contact John Balfour, Mark Bisset or Tom van der Wijngaart 16

17 EU competition law: airfreight cartel update Readers will be aware of the decision on price fixing by the Commission when, in 2010, it imposed fines of EUR 799 million in respect of alleged agreements on surcharges, principally on fuel prices. The decision had followed a leniency application by Lufthansa, which led to dawn raids by the Commission and coordinated investigations by authorities in other jurisdictions. Eleven carriers agreed to cooperate with the Commission and received fines, with reductions of between per cent, with charges against other carriers and a consultancy firm withdrawn for lack of evidence. There were also fines and settlements in other jurisdictions including the US. Summary of 2010 Commission decision The 2010 decision concluded that, from December 1999 until February 2006, airlines had colluded to introduce a fuel surcharge in respect of services to, from and within the EU, so as to impose a flat rate surcharge per kilo of cargo, with coordination on increases or decreases. This was in response to increasing oil prices. The decision also concluded that carriers had agreed to introduce a security surcharge to address the costs of security measures imposed following the terrorist attacks of September 2001, and had agreed not to pay commission to freight forwarders on surcharges. The decision stated that contacts took place at head office and local office level, by means of telephone contacts and meetings of the local Board of Airline Representatives associations. Annulment of decision The European Commission s decision and fines were overturned on appeal in December 2015 by the General Court (the CJEU first instance court) on grounds of internal inconsistencies which were found to infringe the parties rights of defence. The Court found that it was unclear whether, and the extent to which, evidence set out in the grounds, could establish the existence of the separate infringements set out in the operative parts. There was no ruling on the substantive pleas of the airlines. Re-adoption of decision The Commission did not appeal to the CJEU against the judgment, but rather, on 17 March 2017, adopted a new decision in respect of the cartel. It did so without re-issuing fresh proceedings, writing to the airlines stating that the 2010 decision would require some adaptation of the recitals and the operative parts of the 2010 decision but would not lead to new objections or alter the substance of the Statement of Objections sent out in December 2007 (prior to the 2010 decision). The Commission s re-adopted decision has not yet been published. Further appeals Airlines have appealed to the General Court against the Commission s re-adopted decision (appeals must be lodged within two months of the decision). A future issue will discuss developments as and when they emerge. For further information, please contact John Milligan. The grounds of the Commission decision referred to a single continuous infringement committed by all the addressees, for which they were all jointly and severally liable irrespective of whether the airlines operated on the routes concerned. The articles of the decision - the operative parts however, referred to four infringements relating to different periods and different routes and committed by different carriers, with liability attributed only to the carriers which participated in the unlawful conduct referred to in those articles. Aviation bulletin July

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