Comparative studies of available relief for defective aircraft and grounding losses under the legal regimes in China and the U.S.: product tort liability or contractual warranty liability?

Abstract

ABSTRACT Two crashes of Boeing 737 MAX aircraft in 2019 resulted in the total grounding of all 737 MAX aircraft worldwide. The issue of grounding losses and available relief has attracted widespread attention. From a legal perspective, such losses, which include aircraft devaluation, operating losses, and added costs, constitute pure economic loss. Both Chinese and U.S. law provide for remedies for defects in a sales contract’s subject matter. Under U.S. law, pure economic losses are claimable only by way of a contractual claim. In China, however, current tort law allows for relief for losses other than those arising from aircraft devaluation/losses. Under the Chinese Civil Code, any exemptions stipulated in an aircraft sales contract on grounding losses arising from an aircraft manufacturer’s intentional or grossly negligent acts are invalid. Given the differing regimes in China and the U.S., aviation product liability insurance is an alternative relief channel for grounding losses, for which airlines, under certain circumstances, can directly file a claim with insurance companies. Consequently, characterization of grounding losses as a product tort liability or a contractual warranty liability shall impact on the determination of court jurisdiction, disputing parties and applicable law in the litigation process.