The Montreal Convention, (formally, the “Convention for the Unification of Certain Rules for International Carriage by Air”) was adopted in 1999 by the International Civil Aviation Organization (ICAO) and came into effect in in 2003, when the United States became the 30th State Party to ratify the Convention. The Montreal Convention modernized and replaced the Warsaw Convention, the prior multilateral treaty for “international carriage”, generally defined as carriage by air for compensation between two countries, while retaining many of the Warsaw Convention’s core provisions.
The Montreal Convention therefore governs recovery for most airline subrogation damage claims. Importantly, the Montreal Convention preempts state law claims against airlines for cargo damage sustained during international carriage, and cases that fall under the Convention’s scope are subject to a two-year statute of limitations.
For subrogation purposes, the Montreal Convention established air carrier liability limits for compensatory damage to cargo. Under Article 24(1), known as the “Escalator Clause”, the Convention mandates that the limits of liability shall be reviewed by the ICAO at five-year intervals. Last month, the ICAO announced the outcome of its recent review, and increased the maximum liability of air carriers in respect of cargo from 22 SDR (Special Drawing Rights) per kilogram up to 26 SDR/kg.
Special drawing rights are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). The value of a SDR is based on a basket of key international currencies reviewed by IMF every five years. The weights assigned to the currencies in the SDR basket are adjusted to take into account their current prominence in terms of international trade and national foreign exchange reserves. For the period of August 2022 through July 2027, the SDR basket consists of the following five currencies: U.S. dollar – 43.38%; Euro – 29.31%; Chinese yuan – 12.28%; Japanese yen – 7.59%; and Great Britain pound sterling – 7.44%.
The revisions to the air carrier liability limits will take effect beginning December 28, 2024. This adjustment will allow for potentially substantial higher recoveries in subrogated air cargo claims, especially for heavier items transported.
