GKN Westland Helicopters Ltd & Anor v Korean Air

On 22 December 1999, there was an accident involving Korean Air’s B747 aircraft near Stansted Airport. As a result of the accident, cargo on board the aircraft was destroyed. The Claimants in Action 2001 Folio 1420 lost a helicopter gearbox assembly with a weight of 636 kgs; the Claimants in the second Action, 2001 Folio 1422 lost six packages containing printing press equipment, with a total weight of 959 kgs.

The contracts of carriage which applied to this cargo were governed by the Warsaw Convention as amended at the Hague in 1995 and incorporated into English Law by the Carriage by Air Act 1961. The Convention provides a code which governs legal proceedings brought against a carrier [in this case, Korean Air] in respect of any loss or destruction of goods in the course of international carriage by air. There is no dispute between the parties as to the application of the Convention in this case.

Under Article 22 of the Convention, the carrier’s liability is limited to a sum calculated by reference to the weight of the goods. This limit will not apply if it is proved that the destruction or damage to the goods was caused intentionally or recklessly and with knowledge that damage would probably result [Article 25]. There is a two year time limit for bringing proceedings [Article 29]. Article 22(4) provides that

“The limits prescribed in this Article shall not prevent the court from awarding, in accordance with its own law, in addition, the whole or part of the court costs and of the other expenses of the litigation incurred by the plaintiff. The foregoing provision shall not apply if the amount of the damages awarded excluding court costs and other expenses of the litigation, does not exceed the sum which the carrier has offered in writing to the plaintiff within a period of six months from the date of the occurrence causing the damage, or before the commencement of the action, if that is later.”

The unit of currency mentioned in the Convention was a French franc. At the time, France’s currency was linked to the price or value of gold, and, therefore, the limit was readily calculable by courts of Convention countries throughout the world. However the picture has changed. In England, by virtue of section 4 of the Carriage by Air and Road Act 1979, for the limit of 250 francs was substituted “17 special drawing rights”. By further amendment in the 1979 Act a special drawing right was

“deemed to refer to the special drawing right as defined by the International Monetary Fund. Conversion of the sums into national currencies shall, in the case of judicial proceedings, be made according to the value of such currencies in terms of the special drawing right at the date of the judgment.”

These amendments came into affect from 1^st December 1997.

The Carriage by Air (Sterling Equivalents) Order, which came into force on 29 November 1999, defined the sterling equivalent of the Convention amount of 250 francs as “14.08”. Thus, according to it for every kilo in weight, the specified limit of £14.08 applied.

The relevant sequence of events is as follows.

On 10 May 2000, as subrogated insurers in relation to the six packages, Lloyd’s wrote to Korean Airways advancing a claim in respect of the loss of £66,0000. They said that although the air crash investigators had not finalised their investigations “there are preliminary indications which suggest that recorded faults on the aircraft from the previous incoming flight were not rectified and these faults may have been a factor in the causation of the crash.” On that basis the insurers said that they were unable to accept any offer of settlement based on the limit. On the same date a similar letter was written in relation to the helicopter gearbox assembly, putting a value on the cargo of £900,000.

On 5 July 2000 Korean Airways offered to settle the Claimants’ claim based upon a sum of US$20 per kilogram registered on the Air Waybill. That dollar amount was calculated by applying the last official price of gold to the figure of 250 francs. The US$ figures for the two cargoes were $12,720 and $19,180 for the helicopter gearbox assembly and the printing press equipment respectively. On 14 November 2001, Messrs Beaumont & Son [Beaumonts], on Korean Airlines’ behalf, offered the Claimants’ agents £8,854.88 and £13,502.72 respectively. This was a figure purportedly based upon the Sterling Equivalents Order of £14.08 per kilogram. The solicitors drew attention to the heavy burden of proof upon a cargo owner wishing to break the limit on compensation under Article 25. On 30 November 2001 agents for the cargo claimants said that they maintained that Korean Airways were not entitled to limit their liability. They said that the Attitude Director Indicator was malfunctioning on the in-bound flight to Stansted and was a factor in the cause of the subsequent crash. This met with a dusty answer and, on 28 December 2001, Beaumonts wrote saying that if proceedings had not been commenced any right to recover damages was now extinguished but that their previous offer at the limits of liability remained open for acceptance.

In fact, the Claimants had issued their Claim Forms on 16 December 2001 (within the two year time limit) and Beaumonts were so informed. They again re-iterated that there was no evidence to support a contention that Article 25 applied and pointed out that “should you fail to beat the offer we have made you will not be entitled to recover any costs at all pursuant to Article 22(4) of the Warsaw Convention.” On 28 May 2002, the Claimants’ solicitors, Messrs Holmes Hardingham Walser Johnston Winter [Holmes Hardingham] wrote to Beaumonts pointing out that the final report of the Air Accident Investigation Branch was not yet available but was expected to be published in a few months time. They considered that its findings would have a significant bearing on the case and the limitation defence in particular and suggested that the time for service of the particulars of claim be extended until 14 days after the AAIB report had been published. “If your clients do not so agree, we will hold you responsible for all such costs incurred.” On 29 May Beaumonts observed that the purpose of an AAIB report was not to apportion blame or liability and therefore they did not consider that the report would have the significance suggested and, given that a two week extension of time had already been granted, they were not willing to accede to the request for a further extension. Particulars of Claim were served on 30 May 2002, putting the value of the two cargoes at, respectively, £66,000 for the printing equipment and £333,285.71 in respect of the loss of the helicopter gearbox.

Holmes Hardingham reverted to the question of the forthcoming report and its impact on the case by their letter dated 10 June 2002. On 26 June 2002 a defence was filed admitting liability up to the limit: in relation to the claim for the helicopter gearbox the loss was calculated as 10,812 special drawing rights [636 kilos multiplied by 17]; in relation to the printing press equipment the loss was said to be 16,303 special drawing rights in respect of a weight of 959 kilos. Reference was made to the offers contained in the letter of 14 November 2001:

“However the Claimants have failed to accept that offer before the commencement of the action. Accordingly, by reason of Article 22(4) of the Convention the Defendant is not liable for any costs or other expenses incurred by the Claimants in respect of this action …”

On 18 July 2002, Beaumonts wrote to Holmes Hardingham indicating that they would be making payments into court.

“As you know, the limit of liability is calculated by reference to Special Drawing Rights. We propose to use the conversion from SDR to Sterling as published on the International Monetary Fund’s website to calculate the sterling value of Article 22 limits for the purpose of payment in. We attach a copy of the IMF website conversion for your reference. To avoid any unnecessary future dispute on this subject, we invite your agreement to this method of conversion.”

There was no response to this letter and on 29 July 2002, payments into court were made in relation to each action. In relation to the helicopter gearbox, the amount of the payment was £9,155.49 and in relation to the printing equipment the payment was £13,805.22. These payments into court were accepted on 14 August 2002. There was some (irrelevant) confusion about the funds in court but more pertinently Beaumonts asserted that the Claimants were not entitled to their costs by virtue of Article 22(4) whereas Holmes Hardingham asserted that they were entitled to costs as a matter of right under the Part 36 procedure. Beaumonts response was to the effect that part 36 of the CPR cannot override the provisions of an international treaty incorporated into English law by primary legislation. They said that any attempt to seek costs would be strenuously resisted.

In due course the defendants through Beaumonts issued an application seeking an order that notwithstanding the acceptance of the monies in court the Claimants are not entitled to their costs but rather they should pay the defendants’ costs of the action and this application on an indemnity basis. The issue before the court is clear. What is the relationship between the provisions of part 36 and the provisions of the Convention? The relevant provision of that part may be summarised in this way. Part 36 refers both to payments into court and offers to settle. A defendant to a money claim cannot make an effective part 36 offer to settle that claim without making a payment into court. Where a payment into court is made and timeously accepted by the Claimant “the claimant will be entitled to his costs of the proceedings up to the date of serving notice of acceptance” [part 36.13]. By virtue of CPR 44.12(1)(b), where, as here, there is an entitlement to costs after acceptance of a payment into court, “a costs order will be deemed to have been made on the standard basis”. On acceptance, the claim is stayed.

The parties’ arguments are well set out in the two witness statements and the skeleton arguments submitted on each side. As I have come to expect from these two advocates, the quality of the presentations on each side was impressive, and I am grateful to them. The following is simply a bare summary of the points which were made.

For Korean Airways, the following points are made:

For the Claimants the following points are made.

It will be seen that there are a number of distinct issues:

I start with general principles:

Logically question (3) comes first. The exception in Article 22(4) applies only when the amount of the damages awarded (whatever that might mean) does not exceed the sum which the carrier has offered in writing within either 6 months after the accident or six months before the commencement of the action. The accident was in December 1999; the offer from Korean Airways was made in July 2000 more than six months after the accident and more than six months before the commencement of proceedings. It was, therefore, not an offer to which Article 22(4) applies. It seems to me that the words of Article 22(4) on this point are not capable of any other meaning, however one approaches the task of construction. Beaumonts’ offer in their letter of 14 November 2001 was made within 6 months of the date of commencement of the proceedings [December 2001]. But the payment into court was greater than the amount of the offer contained in that letter (due largely, I think, to a simple but understandable error). If, therefore, the payment into court falls within the meaning of “the amount of the damages awarded” in Article 22(4), that amount did exceed the sum which was offered in that letter. Even though it was clear that at all times the Claimants had on offer from mid 2001 compensation subject to the limit, the requirements of Article 22(4) have not been satisfied. Although the difference between what was offered and what was paid in was not the reason why the payment in was accepted (but not the offer), nonetheless the payment in was of a larger sum that had been offered. Therefore, under the Convention the exception does not apply. If the exception does not apply, there can be no question of a conflict between the Convention and the Rules and no reason why the Rules should cease to apply as they stand. The fact that in certain circumstances the procedural rules may conflict does not entitle the court to ignore them in circumstances where there is no conflict. This conclusion means that the application before me must be dismissed. The rule is designed to produce finality and the consequences specified in the rule apply automatically, without more.

But out of deference to the quality of the arguments, and because I can see that this is a potentially important point for those lawyers who specialise in the aviation field, I propose to say something about the other issues. The most difficult question is whether when a payment into court has been accepted and the proceedings brought to an end there has been an award of damages by the court. In my view, the answer to that question is yes. The first sentence of paragraph 22(4) says that the limits “shall not prevent the court from awarding” costs. Like Bingham J, I think that the plain inference is that but for Article 22(4) the monetary liability of a carrier in circumstances where the limit applied would have been confined to the amount of the limit. In order for the Claimants to recover their costs, they must say that the court has awarded costs, even though the court itself has not considered the matter. If the court has awarded costs, then I think it has also ‘awarded’ damages. The fact that the carrier has paid to the Claimant an amount calculated in accordance with the limit does not lead me to conclude that damages have not been paid. By the court’s rules, the payment and receipt of those damages terminates the litigation just as a judgment would do. The plain purpose which colours the Convention is that a carrier’s liability should be limited to a specified amount; that claimants should be encouraged to accept their due entitlement and that, if they do not, when they have been offered the limit, they should lose their entitlement to costs. It cannot have been the intention of the Convention that to prevent a claimant from recovering his costs the carrier would have to incur substantial costs himself in order to have an award of damages against him after a trial. It would be inappropriate to apply a procedural rule which gives such a claimant his costs when the Convention says he should not have them. The payment into court procedure is entirely apt for a carrier when sued by a claimant. It was argued that the carrier had other ways to protect himself, such as by writing a Caldebank letter. I do not agree. The legal effect of such a letter will not necessarily lead to a result contemplated by Article 22(4). Litigation should be discouraged rather than encouraged and the payment in procedure is compatible with that objective.

Therefore, had Beaumonts made the right offer [that is an offer no less than the payment into court] then I would have deprived the Claimants of their costs, so as to give effect to Article 22(4) of the Convention.

As it is, the application must be dismissed. When the taxing officer comes to assess the Claimants’ costs of the action on a standard basis he will no doubt bear in mind that this was a small claim which could and should have been brought in the County Court. I am not impressed by the argument that the two year time limit was going to expire before the AAIB report and that it was appropriate to delay the proceedings until after its publication. The launch of an unlimited claim, as here, was speculative. In my view, the Claimants should have agreed with Beaumonts the sterling equivalent of the limits and accepted the revised offer which, no doubt, would have emerged in November 2001.