Introduction

The Standard Ground Handling Agreement (SGHA) is a form agreement that has been issued by the International Air Transport Association for many years (AHM 810). Although not compulsory and subject to certain variations, it has been adopted for a substantial number of ground handling agreements between airlines and ground handling companies. Article 8.1 of the agreement stipulates that the carrier will make no claim against the ground handling company in respect of different types of loss and damage suffered by the airline and caused by an act or omission of the ground handling company, with an exception whereby the airline can recover some loss and damages if the act or omission is found to have occurred:

  • with the intent to cause damage; or
  • due to recklessness and with the knowledge that damage would probably result.

Through use of this exclusion clause, many ground handling companies have successfully escaped compensation liabilities, despite having committed gross negligence for some handling accidents. Many airlines have also refrained from taking legal action against a ground handling company or been reluctant to do so, as this subjects them to the burden of proving that the act of the ground handling company was done with the intent to cause damage or occurred due to recklessness and with the knowledge that damage would probably result. Airlines have typically also been afraid of bearing the relevant costs and expenses of the ground handling company should their litigation effort fail. However, this scenario changed considerably following an 2009 judgment of the Shanghai High Court.

Facts

The claimant airline signed the SGHA Simplified Procedure agreement with the respondent groung handling company in 2000, by which the company agreed to provide ground handling services, including maintenance and repair, to the airline. On January 25 2006 one of the airline's B747-400F aircraft stopped at Pudong Airport in Shanghai and the ground handling company began to carry out routine maintenance. The ground handling company's technician found a ground handle malfunction in the nose landing gear doors during the check and rectified the problem. However, during the subsequent operational test, the technician – violating the maintenance manual and ignoring a notice reading "Do not operate" which he himself had posted – activated the hydraulic system of the nose landing gear even though the safety pins had been removed and the landing gear lever was set at the 'retract' position. This retracted the nose landing gear, causing the front end of the fuselage to hit the ground of the apron. The airline and its eight insurers suffered a total loss of about $13,572,096.23 from this accident, and filed a claim against the ground handling company for compensation before the Shanghai High Court.

Issues

Of the various issues under consideration, the most important was the interpretation of Article 8.1 of the SGHA. The ground handling company cited this article to excuse it from liability, arguing that it contains similar wording to Article 25 of the amended Warsaw Convention, on which airlines rely to limit liability for passenger claims. Therefore, it contended, Article 8.1 should apply the same approach and test to that applied by airlines to cargo and passenger claims under Article 25. There are many precedents showing that when interpreting the wording "done recklessly with knowledge", courts will require proof that the person who carried out the wrongful act or omission had actual knowledge that the act or omission would probably cause the damage that occurred (ie, the 'subjective test'). In the present case, as there was no evidence to prove that the the ground handling company's technician had actual knowledge that his activating the hydraulic system would probably result in the retracting of the nose landing gear, he could not be deemed to have had "knowledge that damage would probably result" when applying the subjective test. Therefore, the ground handling company was entitled to enjoy the exclusion from liability pursuant to Article 8.1

The airline pointed out that this was a ground handling case, not an aviation case. As such, even though Article 8.1 has similar wording to Article 25 of the amended Warsaw Convention, the interpretation of "done recklessly with knowledge that damage would probably result" applied by airlines under Article 25 should be used only for reference purposes. However, even under Article 25, courts of different countries will apply different interpretation tests – not only the subjective test, but also the objective test. Under the objective test, a person's conduct is compared to that of a "reasonable" person. In other words, the main issue that courts will consider is whether a typical chief technician (with abilities and duties similar to those of the the ground handling company's technician) would not normally have undertaken the same actions that eventually led to the aircraft damage. In the case at hand, the aircraft would not have collapsed on its nose landing gear had the ground handling company's chief technician adhered to the relevant maintenance manual. A typical technician would have acted in accordance with his or her training and complied with the requirements of the maintenance manual by double-checking before activating any hydraulics, as he or she would know that this would cause the aircraft nose to collapse. Thus, objectively speaking, the technician should have had knowledge that damage would probably result. At the same time, the technician's own notice on the panel not to activate the hydraulics of the aircraft showed that he subjectively had such knowledge of the applicable requirements and potential consequences. Therefore, in applying both the objective test and the subjective test, the actions of the ground handling company's technician constituted an act "done recklessly with knowledge that damage would probably result". This gave the ground handling company no grounds for exemption from compensation liability.

Decision

The court held that the wording "with knowledge" refers to both "actually knew" and "should have known" in the Chinese legal sense. As an experienced aircraft maintenance engineer, the ground handling company's technician should have known the consequences of his violation of the maintenance manual, and his own warning ("Do not operate") also showed his actual knowledge of the possible damage at that time. Due to his reckless act and his belief that the landing gear would not retract, he activated the hydraulic system; this constituted an act "done recklessly with knowledge that some damage would result". The court thus ruled that the ground handling company was not exempt from liability under Article 8.1 and ordered it to pay the airline and its insurers compensation amounting to $13,572,096.23. In other words, the court applied the objective test to interpret Article 8.1. The case was later appealed to the Supreme People's Court, which upheld the judgment.

Comment

In its judgment the Shanghai High Court clarified several important legal issues, the most important of which is that the objective test should be applied in interpreting Article 8.1 of the SGHA, whereby a person's conduct is assessed in comparison to that of a "reasonable" person. At the same time, the judgment also clarified that violating a compulsory procedure requirement, such as a maintenance manual, may constitute an act "done recklessly with knowledge that damage would result". Both of these may reduce an airline's burden of proof under Article 8.1 when claiming against ground handling companies for ground service accidents. The case will likely become landmark jurisprudence in China, considering that most influential judgments issued by the Shanghai High Court are recommended by the Supreme Court to other lower-level courts as guidance.

However, as the wording of Article 8.1 is similar to that of Article 25 of the amended Warsaw Convention, and until this case the Chinese courts had issued no authoritative decision on the interpretation of Article 25, it is likely that future courts hearing cases relating to the interpretation of Article 25 or other similar stipulations/clauses will also heed the Shanghai High Court's judgment in this case. The judgment will thus not only affect subsequent ground handling cases, but also aviation issues and other cases.

For further information on this topic please contact Jin Yu-Lai at Shanghai Kai-Rong Law Firm by telephone (+86 21 5396 1065) or email (jinyulai@skrlf.com). The Shanghai Kai-Rong Law Firm website can be accessed at www.skrlf.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.