Carriers should be entitled to claim damages under a bilateral aviation agreement for losses suffered as a result of a terrorist incident, a lawyer told a recent panel at the 10th Annual McGill Conference on International Aviation Liability and Insurance in Montreal.

As part of their armoury, airlines are now considering claims under investment treaties for damages suffered because of an act of terrorism, where the parties to the bilateral aviation agreement fail to protect the carrier’s investment by employing inadequate security measures, Jeffrey Ellis at Clyde & Co in New York said.

Ellis said he was recently asked by a client to review whether a bilateral investment treaty could be used by an airline to bring a claim for damages as a result of a terrorist incident.

“This has not been instituted before, but we do believe it is an available remedy for an airline, which is usually on the paying end of these incidents. This would allow an airline to recoup what are frequently tremendous losses,” he said.

“This particular theory allows a way around sovereign immunity and jurisdictional issues that, previously, would probably have been insurmountable both legally and practically, in terms of allowing a claim to go forward.”

He cited a hypothetical situation where an act of terrorism causes an aircraft to crash and the people on board to suffer injury or death.

“Their injuries are compensated either under a liability regime such as the Montreal Convention 1999 or by national law,” he said.

“But what happens if the airline suffers damages as well? For example, if there is an investigation following this incident, and it is concluded that the security being provided is inadequate and there is an operational ban that leads to a cease in operations. The airline can suffer tremendous damages and may even go out of business. Would that airline have a claim? And where could it bring such a claim?”

He said investment treaty arbitration was now an option, where the basis for the original bilateral agreement was the encouragement of investment, backed by protections or guarantees made by the two nations, including the security of that investment.

An airline, which as part of a bilateral aviation treaty is operating in that same country, is doing so in accordance with a decision to invest its operations in that country, he suggested.

“If it is determined that the country that encouraged this investment – and was party to the bilateral aviation treaty – did not provide the level of security required, which is always the reason cited for the operational ban, then did it fail to protect the investment of the airline? The answer to that, I would posit, is very likely yes,” he said.

“The private party, which in this case would be an airline, could institute an arbitration under the arbitration rules of one of the conventions that would apply and then bring its claim against the nation for failing to comply with proper security for its investment. It could seek damages.”

Through private litigation, the airline could seek a remedy that “previously was simply not open” to it, he said, expanding an area of the law that has historically been dealt with almost exclusively by nation states, he added.

Ellis spoke on a panel considering the liability of governments for aviation accidents or acts of terrorism, which was moderated by Robert Donald at DLA Piper in Calgary. The panel also featured Barry Benson, director of the aviation and admiralty section at the US Department of Justice, James Healy-Pratt at Stewarts Law in London, and James Kreindler at Kreindler & Kreindler in New York.

The conference concluded on 23 June.