Mert Hifzi and Sue Barham, Holman Fenwick Willan LLP
The European Union’s flagship air passenger rights legislation, EC Regulation 261/2004 relating to denied boarding, cancellations and long delays of flights (EU261), has given rise to fairly non-stop controversy over the last five years. Even the most ardent supporter of the Regulation would be hard-pressed to argue that a series of European Court of Justice (CJEU) judgments, together with the impact of EU261 on airlines during the volcanic ash airspace closures which affected northern Europe in 2010, have not stretched the application of this legislation some distance beyond its original intended scope. The consequence has been a radical expansion in obligations owed to passengers by all airlines operating services in and out of the EU. The reach of this legislation to airlines all around the world, coupled with an intensely developing claims regime in some EU jurisdictions, places EU261 high up on the agenda of airline customer relations departments everywhere.
The number of case referrals to the CJEU relating to EU261 is extraordinarily high and that in itself is testament to the inadequacy of the drafting of the original legislation and the controversial nature of some of the case law it has generated. There are now finally moves to amend EU261, in part to clarify some of the grey areas in the existing law. The amendments may go some way to correcting the imbalance which has developed between the interests of consumer protection on the one hand and the operational imperatives of the airlines on the other. Two important considerations arise, however. First, the road to enactment of a revised EU261 is full of potholes and there is unfortunately every possibility that the final revision will look quite different to that which has been proposed; second, some of the increased obligations on airlines are simply not reversible.
Expanding Carrier Obligations
To recap, in 2008 the CJEU at a stroke reduced airlines’ ability to defend themselves against compensation claims under EU261 where flights had to be cancelled due to technical problems, holding in Wallentin v Alitalia that such problems are in the main to be regarded as inherent in the normal operation of a commercial airline; an airline should expect to encounter technical problems from time to time and they do not therefore constitute “extraordinary circumstances” within the meaning of EU261. Each cancellation for technical reasons therefore risks giving rise to compensation obligations for the airline of up to €600 per passenger.
In 2009, in undoubtedly the most infamous judgment on the interpretation of EU261, the CJEU determined that the right to compensation which it creates for cancelled flights extends also to passengers whose flights are delayed by three hours or more on arrival (Sturgeon and Others). The infamy arose from the unquestionable absence of any express right to such compensation in EU261 itself for this scenario, from the lack of a clear intention on part of those involved in its drafting to create such a right and from the arguable conflict created by the judgment not only with earlier case law of the CJEU itself, but also with international law. There was also dismay among airlines, industry associations and commentators alike at the intellectual sleight of hand employed by the CJEU in reaching its judgment. Notwithstanding the resounding criticism from industry as well as a formal legal challenge (Nelson and Others v Deutsche Lufthansa and TUI Travel and Others v Civil Aviation Authority), the Sturgeon ruling was confirmed by the CJEU in October 2012. Claims activity following flight delays has increased exponentially as a result, as has the corresponding growth of claims handling companies in several EU countries.
The volcanic ash airspace closures in Europe in 2010 saw airlines picking up many days’ worth of hotel bills and other expenses for stranded passengers unable to fly in or out of the EU. There was widespread acceptance that the EU261 passenger welfare obligations on airlines to provide accommodation and refreshments to their passengers awaiting rerouting or delayed flights had not really been designed to cover such extended waiting periods. However, there was also an unambiguous expectation on the part of the European Commission and the various EU member state national enforcement bodies that those obligations nevertheless applied in full. The overall resultant cost to the industry was eye-watering.
The trend continued in March 2013 when the CJEU ruled that a short delay on departure, which was not itself sufficient to trigger EU261 passenger welfare obligations but which caused a passenger to miss a flight connection, gave rise to a right to delay compensation where the passenger then arrives more than three hours late at their final destination (Air France v Folkerts). The fact that the judgment is in most ways a logical extension of the CJEU’s reasoning in the Sturgeon case has been scant consolation to airlines given that many regard the legal analysis in the latter as very significantly flawed. The Folkerts case has also opened up the prospect for non-EU carriers of being liable to pay compensation under EU261 in relation to passengers who miss connections in those carriers’ hubs outside the EU following late arrival of a previous EU-departing flight – another unwelcome development that is at odds with previous CJEU case law.
The application of EU261 has been dogged, not just by judicial law-making which arguably goes far beyond what can be justified on normal principles of construction, but also by inconsistent application throughout the EU. Prior to the Nelson decision, for example, some courts were fully applying Sturgeon rules on delay compensation, whilst others were not. A more recent example is a document drawn up as a result of input from the national enforcement bodies as to those circumstances they regard as “extraordinary” and those they do not. Whilst the document bears the health warning that it is preliminary, guidance only and not binding, it is nevertheless published on the European Commission’s website, contains helpful information, and carriers ought really to be able to place some weight upon it in determining their obligations in any given case. Instead, some member states’ courts are acknowledging the document whilst others are refusing to place any weight upon it. So much for harmonisation.
Proposals to amend EU261
The sheer volume of case law on EU261, its inconsistent application by the courts and inconsistent enforcement by the national enforcement bodies in different member states, as well as the unintended impact of EU261 during the volcanic ash airspace closure have all finally given the impetus to attempts to revise the regulation. In March 2013 the European Commission published proposed amendments to EU261 that will be the subject of detailed review and further work in the EU’s legislative bodies over the coming months. All carriers operating into and out of the EU will be keeping an anxious eye on the activities of the legislators. Some of the proposed changes are inevitable. Although there remains a school of thought that the compensation regime established by EU261 – and extended by case law – is disproportionate and unjustified, it is quite apparent that it is too late to turn back the clock. The entitlement to compensation for flight delays will be enshrined in the new Regulation, as will the unavailability of a defence of extraordinary circumstances where there are routine technical problems. Liability for missed connections also looks set to be expressly drafted into the Regulation, the latter being a source of particular concern that it will operate as a discouragement to interlining and will therefore act to the detriment of the travelling public, rather than being of any benefit.
There are, however, some plus points in the proposed amendments. There is greater definition around the term “extraordinary circumstances” in a specific annex to the new draft Regulation; whilst the content of the list of circumstances which will be considered extraordinary will not necessarily meet with airlines’ universal agreement, it may at least help to reduce the amount of litigation which that term alone has generated over the last few years. In relation to delay compensation, crucially a much longer delay will be required: compensation will be triggered, depending on the distance of the flight concerned, by a delay of five, nine or – on a long haul flight – 12 hours. If that proposal is maintained, it will go a long way to easing the extensive additional financial burden which the Sturgeon judgment has placed upon airlines, particularly long haul carriers operating flights out of the EU. There is also some potential easing of passenger welfare obligations where a delay or cancellation is due to extraordinary circumstances: whilst the obligation for airlines to provide overnight accommodation is maintained, the Commission proposed it be limited to a maximum of three nights and €100 per night.
The proposed revision to EU261 has received a cautious welcome from the airline industry. However, storm clouds have since gathered. As a result of input from the European Parliament and its Committee on Transport and Tourism, hundreds of amendments have been tabled. Some, one would hope, will be jettisoned fairly readily (such as a suggestion that airlines should give written notification to passengers of their EU261 rights drafted in each of the 24 languages of the EU – a needless expense if ever there was one). Others, however, are more worrying. In particular, the longer trigger points for delay compensation are under threat and there is pressure for those triggers to be a maximum of five hours – or even left at the current three hours. Not only would that maintain the financially damaging impact of the Sturgeon and Nelson decisions but it would also make the proposals in relation to liability for missed connections due to delay far less palatable. There is also pushback in relation to the maximum monetary amounts payable for overnight accommodation and in relation to the period for which an airline may be obliged to provide that passenger welfare with suggestions that, in certain circumstances, the obligation will remain open-ended in terms of duration, as it is now.
Airlines and their associations will wish to take every opportunity to influence the revision process to EU261 over the coming months. There is undoubtedly a body of opinion that believes that airlines should, as a matter of policy, be responsible for picking up the tab every time something goes wrong with a flight. The challenge in revising EU261 will be to maintain the more balanced parts of the current proposals in the face of that approach.
It should go without saying that these are not concerns only for EU airlines. All carriers with operations into the EU are affected and have an interest in engaging with the revision process. It should also be remembered (with some trepidation) that EU261 has been used as something of a model for air passenger rights legislation elsewhere in the world – Brazil, Israel and the Philippines being just three examples. Some would say that EU261 is the very last place one should start if one wants to produce a balanced piece of consumer protection legislation in this area but that has not acted as a deterrent. The shape of the new EU261 is therefore likely also to influence the development of air passenger rights in other parts of the globe – another incentive, one can only hope, for the legislators to get it right.