Airport

Council

International

The 16th Annual Risk

Management Conference

January 14 – 16, 2015

San Diego, CA

Avoiding Pitfalls and

Liabilities:

The Standard Ground

Handling Agreement

and What it Means to You

Christopher B. Kende

Cozen O’Connor,

45 Broadway, Suite 1600

New York, NY 10006

ckende@cozen.com

2

Roadmap

• Introduction and General Purpose of the

SGHA

• Description of structure and various

parts

• Discussion of liability and indemnity

provisions running between ground

handlers and carriers

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• Pitfalls and problems in connection with

litigation between ground handlers and

carriers

• Conclusions and suggestions for

possibly simplifying procedures involving

disputes between grounds handlers and

carriers

4

Introduction

• The SGHA is part of the Airport

Handling Manual (AHM), promulgated

by the International Air Transport

Association (IATA), an international

trade body that serves to promote and

develop contract standardization, among

other things, among the global air

transport industry

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• The SGHA is found at chapter 810 of

the AHM

• The SGHA has been in effect for many

years and has been subject to a number

of amendments, the most recent being

in 2004, 2008 and 2013

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• Main purpose of the SGHA is to

standardize procedures with regard to

ground service providers (GSPs) and to

specify the functions of the handling

services required

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• The term “standard” in the title of the

SGHA essentially means that the

agreement cannot be modified;

however several amendments, as

discussed further below, have impacted

the standard terms

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• In addition to standardizing practices

and procedures, the SGHA also defines,

limits and controls the various

responsibilities running between carriers

and GSPs, in the event of death or injury

of individuals, including employees of

the GSPs or airlines, and the property of

both

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• The liability and indemnification

provisions will be the focus of this

presentation

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Structure of the SGHA

• The SGHA is made up of three parts:

– A main agreement

– Annex A

– Annex B

• Annex B can be amended and adapted

to meet the needs of the parties

• If there are differences between the

standard agreement and the annexes,

the language in the annexes will control

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• With regard to liability issues, there is a

fourth component provided for in Annex

B, entitled “Liability and Indemnification

Agreement”

• Although the SGHA generally runs

between a terminal operator and a

ground handler, the liability and the

indemnification agreement generally

runs directly between the GSP and the

carrier

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• The Liability and Indemnification

Agreement specifically implements the

liability provisions of Annex B, as will be

discussed further on

13

The Main Agreement

• The main agreement, which is the

standard form promulgated by IATA,

covers the following areas:

– Definitions

– Provision of services

– Fair Practices

– Subcontracting services

– Carrier representation

– Standard of work

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– Remuneration

– Accounting and settlement

– Liability and indemnity

– Arbitration

– Stamps, duties and registration fees

– Duration, modification and termination

• The focus of this discussion will be the

liability and indemnity provisions found

in Article 8

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Overview of Liability and Indemnity

Provisions in the Main Agreement

• Article 8 defines the liability and

indemnity obligations running between

the GSP and the carrier

• Section 8.1 provides that the carrier may

not make any claim against the GSP

and shall indemnify the GSP against any

legal liability for claims or suits (including

costs and expenses, which means legal

defense costs) in respect of:

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– Delay, injury or death of persons carried by

the carrier

– Injury or death of any employee of the

carrier

– Damage to or delay or loss of baggage,

cargo or mail

– Damage to or loss of property owned or

operated by or on behalf of the carrier and

– Any consequential loss or damage

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• The indemnity obligation does not apply if it

can be shown that the GSP acted

intentionally or recklessly with the

knowledge that the damage, death, delay

or injury would probably result

• The indemnity obligation requires that the

GSP must notify the carrier of any claim or

suit “without undue delay” and must also

furnish the carrier with any required

assistance in the defense of the claim

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• Finally, the indemnity provides that, in the

event a court determines that the

limitations and defenses under the

Montreal Convention do not apply, the

indemnity itself is subject to those

limitations and defenses

• In other words, the carrier will be able to

invoke the limitations and defenses of the

Montreal Convention, even where they

would not normally apply, because the

injury, death or delay was caused by the

GSP 19

• Paragraph 8.2 precludes the carrier from

making a claim against the GSP with

regard to damage, death, delay, injury or

loss to third parties caused by the

operation of the carrier’s aircraft as a

result of an act or omission by the GSP

unless, again, the injury or death was

done with intent to cause damage or

recklessly with the knowledge that such

damage would probably result

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• Section 8.3 allows the carrier to assert

any defense or limitation under the

contract of carriage with regard to any

claims which the carrier must indemnify

under Section 8.1

• Section 8.4 limits the ability of the GSP

to make a claim against the carrier and

requires it to indemnify the carrier for

liability for claims or suits, including

defense costs, for:

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– Injury or death to any employee of the GSP

its servants, agents, and some

subcontractors and

– Damage to or loss of property owned or

operated by or on behalf of the GSP and

consequential damages as a result thereof,

all of which arise from any act or omission

of the carrier in the performance of the

SGHA, unless those acts were done with

the intent to cause damage or were carried

out recklessly

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• Section 8.5 provides that the handling

company will be required to indemnify

the carrier for physical loss or damage

to the carrier’s aircraft caused by the

GSP’s negligent act or omission (note:

simple negligence is a basis for

indemnity here, not gross negligence)

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• Section 8.5, however provides that the

handling company’s liability will be

limited to an amount not exceeding the

deductible of the carrier’s hull or all risk

policy, which shall not in any event

exceed $1.5 million, and that any loss

below $3,000 shall not be indemnified

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• Finally, Section 8.3 specifies that the

carrier shall have no ability to claim

against the handling company for any

and all consequential loss or damage

“howsoever arising” as a result of

damage to carrier’s property

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• Paragraph 8.6 (which appears to have been

added in 2008) further provides that the

handling company will be required to

indemnify the carrier for loss or damage to the

carrier’s cargo, caused by a negligent act or

omission of the handling company1

• However, any liability of the GSP is limited to

the terms of the Warsaw Convention, to wit,

17 SDR per kilo or the actual compensation

paid out by the carrier, whichever is less, with

a maximum limit of $1 million

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1This is an exception to the limitation on claims for consequential damages

• Further, any cargo claim must be

submitted within the jurisdictional time

limits of the Warsaw Convention, that is,

two years

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Annex A

• Annex A essentially provides for the

services to be performed by the GSPs

• It has eight sections which describe the

categories of services which GSPs are

normally expected to provide. It does

not contain any provisions regarding

liability or indemnification and is not

relevant to this discussion

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Annex B

• Annex B is often considered the “real

agreement” since it actually sets forth

the contract terms relating to ground

handling, including liability and

indemnity obligations

• Although the denominated title is

“Standard Ground Handling Agreement

– Simplified Procedure”, it is far from

that

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• If anything, in this litigator’s view, the

liability and indemnity provisions set

forth in Annex B, which are meant to

supersede in part the liability provisions

in the main agreement, only provide an

extremely fertile ground for dispute and

litigation

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• Paragraph 12 of Annex B, entitled

“Indemnity and Limits of Liability”,

specifically provides that,

notwithstanding the provisions of the

Main Agreement certain terms will be

substituted

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• Paragraph 12.2 requires that the handling

company (GSP) indemnify, defend and hold the

carrier harmless from claims, including defense

costs, which may be suffered or accrued by or

chargeable to the carrier due to loss or damage

to property of any person, except property

owned or leased by the carrier, and operated by

the handling company, or injury or death of any

person arising out of the negligence or willful

misconduct in the handling company and the

furnishing of services pursuant to the

agreement

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• The handling company is not liable to

the carrier for consequential or indirect

damages of any kind, and the carrier

agrees to waive, defend and hold the

handling company harmless from any

such damages or claims

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• The carrier agrees to waive, defend and

hold the handling company harmless

from any claims or damages on account

of loss or damage to property owned or

leased by the carrier and operated by

the handling company, whether or not

such loss or damage arose out of the

acts or omissions of the handling

company

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• Further, the handling company will be

responsible for damage to property

owned or leased by the carrier and

operated by the handling company,

caused by the gross negligence or willful

misconduct of the handling company

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• Paragraph 12.13 specifically requires

that the carrier agree to the liability and

indemnity obligations to the handling

company under Article 8 of the main

agreement (even though that article is

amended by Article 12 of Annex B) for

all claims with a maximum limit of

liability of $1,500,000

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• Paragraph 12.13 further requires the entry

into a specific agreement between the

carrier and the handling company

implementing the terms of paragraph 12.13

• That agreement specifically provides that the

liability provisions will be governed

exclusively by Article 8 of the main

agreement as published by the IATA and

that the liability referred to in paragraph 8.5

of Article 8 is limited to $1,500,000

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• Finally, the separate agreement

provides that the handling company is a

specific third party beneficiary of the

terms and conditions of paragraph 12 of

Annex B

• As can be seen by the foregoing, it is

virtually impossible to read Article 8 of

the main agreement and Article 12 of

Annex B together in a consistent way

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• The only thing that appears clear is that,

under no circumstances, can the

handling company be responsible for

consequential damages incurred by the

carrier unless it is guilty of willful

misconduct or recklessness

39

State Law Considerations

• Many states have limitations on the

ability to indemnify parties, particularly if

the indemnitee is negligent

40

• For example, New York General Obligations

Law, Section 5-322-1 provides that a

covenant, promise or agreement “in

connection with or collateral to a contract or

agreement relative to the construction,

alteration, repair or maintenance of a building

structure, appurtenances or appliances” which

purports to indemnify and hold harmless the

indemnitee against liability for damage for

bodily injury or property is void against public

policy where the indemnitee is negligent

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• The section generally applies to

indemnification agreements between

contractors and subcontractors in the

construction industry

• However, there are a number of cases in

New York which would tend to support the

proposition that aircraft maintenance is

considered encompassed by this provision

42

• See e.g. Bishop v. Port Authority of N.Y.

& N.J. 170 A.D. 2d, 565, 566 N.Y.S. 2d

341 (App. Div, 1st Dept.,1991) (Airline

could not obtain contractual

indemnification to the extent its own

negligence contributed to the injured

plaintiff’s accident)

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• Therefore there is a reasonable chance

an indemnity provision in favor of a

ground handler, involving either

maintenance or service to an aircraft

might be void against public policy under

New York law, where the GSP is wholly

or partially negligent

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Issues for Consideration in Litigating

Disputes Under the SGHA

• Report of “incidents” and/or “accidents”

to the FAA

• Willful misconduct or gross negligence

• Use of adjusters and experts

• Discovery issues, particularly in

connection with foreign carriers

• Issues relating to spoliation of evidence

• Incremental costs, estimates and

consequential damages

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General Conclusions

• Disputes under the SGHA can be

expensive, time consuming and complex

• Issues of indemnification, gross

negligence and applicable state law can

frequently subsume the merits

• By definition, these disputes involve

amounts equal to or under $1.5 million

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• A “loser pays” clause might discourage

frivolous suits and encourage alternative

forms of resolution

• Mandatory ADR procedures, such as a

requirement that chief executives of the

GSP and carrier confer prior to the

initiation of litigation, as well as

mandatory mediation clauses, may well

reduce costs and increase the likelihood

of amicable resolution of such disputes

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• GSPs and carriers should be viewed as

business partners and many disputes

should be resolved on the basis of a

business relationship rather than who

has the best or most aggressive

attorney

• This is especially true in the context of

aviation safety

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QUESTIONS?

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THANK YOU FOR YOUR ATTENTION.

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