Legal Risks in Air Transportation

Legal Risks in Air Transportation

Air transportation forms a vital part of global trade due to its speed and international reach, but it is also associated with a distinct level of legal risk. Legal risks in this field affect not only airlines, but also shippers, consignees, freight agents, and insurers. Identifying these risks helps parties draft precise contracts, prevent costly disputes, and reduce the likelihood of breach of obligations.

In this article, Soroush Salamian Law Firm examines various legal risks, including liability for loss or damage to cargo, delivery delays, cargo security, violations of protective regulations, cyber risks, and insurance-related complexities. The objective is to provide practical solutions for identifying, managing, and mitigating these risks, enabling air transportation stakeholders to make informed legal and operational decisions.

Legal Framework Governing Air Transportation

Air transportation law includes a combination of national laws, international regulations, and contractual practices. The air carriage contract and transport document play a central role and determine conditions such as carrier liability, reporting deadlines for loss, and limits on compensation. In international transactions, the governing law and dispute-resolution forum should be expressly specified to avoid conflicts of law and enforcement complications.

Alongside contractual terms, flight safety and security regulations, governmental requirements for specific cargo, electronic air waybills, and customs procedures, additional obligations may be imposed. Ambiguity in determining the applicable law or the absence of clear contractual clauses are among the main sources of legal risk. For this reason, drafting clear legal provisions before any shipment is essential.

Risks Related to Transport Documents and Letters of Credit

Air transport documents are legally fundamental. The air waybill serves as evidence of the transport undertaking and, in some transactions, may also form the basis for payment under letter of credit arrangements. Incomplete documents, altered records, or forged airway bills may give rise to both civil and criminal proceedings.

In addition, when letters of credit are used, banks generally review only the documentary compliance on its face. As a result, facially compliant documents may result in improper payments. In such cases, recovering funds and allocating liability are common challenges. Secure document management, the use of tamper-resistant electronic records, and clear dispute resolution mechanisms in contracts are among the key ways to reduce this risk.

Carrier Liability for Loss of or Damage to Cargo

An airline’s liability for non-delivery, loss, or damage to cargo is governed by the air waybill terms and the applicable law. In many cases, liability is limited, and compensation caps apply based on weight or declared value. Proving a causal link between breach of obligation and the loss is important when seeking full compensation.

For example, inadequate packaging or inaccurate information provided by the shipper may weaken the carrier’s liability. Likewise, where damage results from events beyond the airline’s control, liability defences may be accepted. Transparency in declared value, compliance with loss notification formalities, and preservation of supporting documents are essential for enforcing legal rights.

Risks Related to Delay in Cargo Delivery

Delays in cargo delivery may result in direct and consequential financial losses, especially for time-sensitive goods such as pharmaceutical shipments or perishable products. From a legal perspective, the ability to claim damages for delay depends on the contract terms, the existence of a delivery time condition, or established industry practice.

Deadlines for reporting claims and contractual rules regarding damage calculation must also be observed. Companies should obtain suitable insurance for sensitive cargo and include clear liability provisions for delay in their contracts to reduce the likelihood of disputes.

Security Risks and Control of Air Cargo

Air transportation is subject to strict security regulations. Cargo must be controlled for identity, contents, and packaging. Failures in security screening or the transport of prohibited items may result in cargo seizure, administrative penalties, and criminal prosecution.

The airline, airport operator, and shipper each carry responsibilities regarding compliance with security standards, and contracts should clearly allocate these responsibilities. Staff training, inspection procedures, and recording systems are important for demonstrating compliance when facing regulatory allegations.

Cyber Risks and Protection of Cargo Information

As loading, tracking, and document issuance processes become increasingly digital, air transportation is exposed to cyber threats. Sabotage of tracking systems, manipulation of electronic documents, or unauthorised access to commercial information may cause significant operational and legal losses.

Data responsibility and personal information protection requirements may also give rise to litigation or regulatory fines. Therefore, implementing cybersecurity standards, encrypting sensitive documents, and adopting restricted-access policies are essential control measures to reduce this risk.

Risks in Air Carriage of Dangerous Goods and Special Regulations

The air transport of dangerous goods is subject to highly specific regulations covering classification, packaging, marking, and cargo declaration requirements. Incorrect declarations or absence of the required documents may create civil and criminal liability for companies and may also lead to flight prohibition or cargo seizure.

Each participant in the transport chain must ensure that the applicable requirements have been met and that technical documentation can be produced when required. Contracts should clearly define notification obligations and document verification responsibilities.

Contractual Relationships Among the Airline, Shipper, and Freight Agent

In the operational structure of air transportation, multiple actors are involved, including the shipper, freight agent, and airline, each with distinct roles and responsibilities. Ambiguity in contracts regarding the boundaries of responsibility may lead to multiple disputes.

At the same time, the freight agent, who provides coordination and documentation services, usually has contractual responsibilities toward the cargo owner. Careful drafting of tripartite contracts, or the inclusion of clear back-to-back clauses among the parties at the time of contracting, is one of the best ways to reduce exposure to complex claims.

Insurance and the Insurer’s Role in Air Cargo Claims

Cargo insurance and carrier liability insurance are the primary tools for reducing financial risk. Insurance policies provide different levels of coverage and usually include conditions regarding timely notification of loss, submission of documents, and implementation of loss mitigation measures. After payment, the insurer may pursue recourse rights against the responsible party.

For this reason, coordination in documentation among the cargo owner, carrier, and insurer, as well as awareness of policy exclusions, is essential in the claims process.

Resolution of Air Transport Disputes, Arbitration, and Enforcement of Foreign Awards

Many air transportation contracts include arbitration clauses that refer disputes to a specialised forum. Arbitration offers advantages such as speed, confidentiality, and the ability to select expert arbitrators. However, in international disputes, attention must be paid to the enforceability of arbitral awards in the country where enforcement is sought.

In the absence of an arbitration clause, determining the competent court and addressing enforcement challenges may complicate the recovery process. Therefore, anticipating the place of enforcement and suitable enforcement safeguards is a strategic contractual consideration.

Practical Measures for Preventing and Managing Legal Risks in Air Transportation

To reduce legal risks in air transportation, the following measures are recommended:

• Draft transport contracts with clear clauses on liability, governing law, and dispute resolution forum.
• Clearly declare cargo value and obtain additional insurance coverage where needed.
• Implement secure electronic documentation processes and document authentication measures.
• Strictly comply with security requirements and regulations for special cargo categories.
• Establish cybersecurity systems and maintain activity logs.
• Prepare loss notification procedures and document checklists for rapid response.
• Provide regular training for technical and legal personnel.

Implementing these measures reduces litigation risk and strengthens the parties’ ability to defend themselves if a dispute arises.

Frequently Asked Questions About Legal Risks in Air Transportation