Month: September 2018

The CJEU holds that compensation under Regulation 261/2004 is payable by carrier for delays or cancellations caused by its own employees’ wildcat strike

1. On the 17 April 2018, the Court of Justice of the European Union(“CJEU”) handed down judgment in the joined cases of Helga Krüsemann and Others v TUIfly GmbH (“Krüsemann”) [1,2].

2. The applicants in the proceedings all had bookings with TUIfly for flights provided by the carrier between 3 and 8 October 2016. All those flights were cancelled or subject to delays equal to or in excess of three hours upon arrival due to an exceptionally high number of absences on grounds of illness amongst TUIflystaff, following the carrier’s notification to its staff of company restructuring plans.

3. The CJEU noted that whilst absenteeism due to illnessa mong TUIflystaff was typically around 10% of the workforce,between 1 and 10 October 2016 that rate increased to between 34% to 89% in the case of cockpit crewstaff and of 24% to 62% in the case of cabin crewstaff.

4. Accordingly, from 3 October 2016 TUIfly fully abandoned its initial schedule offlights, while making sub-chartering arrangements with other air carriers and recalling staff members who were on leave. Despite these measures, however, over 50 flights between 3 and 6 October 2016 were cancelled and all flights departing from Germany were cancelled on 7 and 8 October 2016.

5. On the evening of 7 October 2016, TUIfly’s management informed its staff that an agreement had been reached with the staff representatives and thereafter the strike ended.

6. The European Court was therefore asked to rule on whether the situation between 1 October and 8 October 2016 could be classified as “extraordinary circumstances” within the meaning of Article 5(3) of Regulation (EC) No. 261/2004 (“the Regulation”), such that compensation provided for in Article 5(1)(c)(iii) and Article 7 of the Regulation was not payable.

The Court’s decision

7. After tackling a challenge to the admissibility of the references, the Court gave short shrift to the idea that the industrial action on the part of TUIfly’s staff amounted to extraordinary circumstances within the meaning of the Regulation.

8. Whilst noting that Recital 14 of the Regulation stated that extraordinary circumstances may occur ‘in cases of strikes that affect the operation of an operating air carrier’, the CJEU referred to it having previously held that the circumstances referred to in Recital 14 were ‘not necessarily and automatically grounds of exemption from the obligation to pay compensation’ (referring to Wallentin-Hermann, C-549/07, paragraph 22), consequently, it was necessary ‘to assess, on a case by case basis, if it fulfils the two cumulative conditions’ as confirmed in Pešková and Peška (C-315/15), namely whether the events in question were, by their nature or origin, not inherent in the normal exercise of the activity of the air carrier concerned and are beyond its actual control [3].

9. Having repeated the well-established principle that, as a derogation from a regulation offering a high level of protection for passengers, Article 5(3) must be interpreted strictly, the CJEU observed that the spontaneous nature of the industrial strike – a “wildcat” strike [4] – had its origins in the carrier’s ‘surprise announcement of a corporate restructuring process’ [5].

10. The CJEU took the view that such ‘restructuring and reorganisation of undertakings are part of the normal management of those entities’ [6] and that carriers ‘as a matter of course, when carrying out of their activity, face disagreements or conflicts with all or part of their members of staff’ [7]. Accordingly, such events were inherent in the normal exercise of TUIfly’s activities and were within the actual control of the carrier because the strike ceased following an agreement that it concluded with staff representatives [8].

What impact?

11. Prior to this decision it was commonly considered that wildcat strikes, even amongst a carrier’s own workforce, could be regarded as “extraordinary circumstances”. Now it is clear that only industrial action by third parties, caused as a result of actions also taken by third parties, might be capable of falling within the example found in Recital 14. However, as always, much will depend on whether a carrier is able to show that such events are not inherent in the exercise of its normal activities and were beyond its actual control, and that no reasonable measures taken by the carrier could have avoided the strike or the cancellation/delays caused.

Lawrence Power © cl@whitestonechambers.com

[1] Joined Cases C-195/17, C-197/17 to C-203/17, C-226/17, C-228/17, C-254/17, C-274/17, C-275/17, C-278/17 to C-286/17 and C-290/17 to C-292/17.

[2] http://eur-lex.europa.eu/legalcontent/EN/TXT/?qid=1395932669976&uri=CELEX:62017CJ0195 

[3] Paragraph 32 of the judgment.

[4] The phrase having been adopted by the CJEU in its judgment.

[5] Paragraph 38.

[6] Paragraph 40.

[7] Paragraph 41.

[8] Paragraph 44.

The CJEU holds that compensation under Regulation 261/2004 is not payable by the carrier who operated the flight under a wet lease

1. On 4 July 2018, the Court of Justice of the European Union (“CJEU”) handed down judgment in the case of Wirth and Others v Thomson Airways Ltd (“Wirth”)1. The case concerned who the operating air carrier was within the meaning of Article 2(b) of Regulation (EC) No. 261/2004 (“the Regulation”) in respect of a delayed flight the claimants had been carried on.

2. The claimants had confirmed bookings for a flight from Hamburg in Germany to Cancún in Mexico, bearing a flight code which referred to TUIFly. The booking confirmation stated that the bookings were issued by TUIFly, but that the flight was operated by Thomson Airways.

3. Under the terms of a wet lease, TUIFly had chartered an aircraft, including crew, from Thomson Airways for a stipulated number of flights. The lease provided that TUIFly was responsible for ‘ground handling including passenger handling, passenger welfare at all times, cargo handling, security in respect of passengers and baggage, arranging on-board services, etc.’. TUIFly had also applied for all the relevant slots, had marketed the flights and secured all authorisations.

4. As the claimants’ flight had been delayed past the requisite three hours they sought compensation from Thomson Airways. The carrier refused to pay on the ground that it was not the operating air carrier within the meaning of Article 2(b) of the Regulation.

5. Article 2(b) states that an ‘operating air carrier’ is an ‘air carrier that performs or intends to perform a flight under a contract with a passenger or on behalf of another person, legal or natural, having a contract with that passenger’.

6. Some may query at this point why the passengers choose Thomson Airways rather than (or in addition to) TUIFly, or indeed why Thomson Airways appealed twice in the German courts and defenced the CJEU reference when both airlines are sister companies (Thomson now being called TUI Airways). Thankfully such perseverance has generated useful guidance from the CJEU on the meaning of ‘operating air carrier’ as set out below.

7. In considering the language of Article 2(b) the CJEU held that it contained ‘two cumulative conditions’, first that a carrier must operate the flight in question, and second that there must be ‘a contract concluded with a passenger’2.

8. The CJEU adjudged that a carrier would meet the first condition where ‘in the course of its air passenger carriage activities, [it] decides to perform a particular flight, including fixing its itinerary’; crucially the Court also held that by so doing the carrier would meet the second condition as it ‘offers to conclude a contract of air carriage with members of the public’. The Court regarded such a decision by the carrier as it bearing ‘the responsibility for performing the flight in question, including, inter alia, any cancellation or significantly delayed time of arrival’3.

9. It would therefore appear the CJEU considered the cumulative conditions set out in Article 2(b) to be a single test – if the first condition is met then the second condition will necessarily have been met too.

10. As it was common ground that Thomson Airways had leased the aircraft and the crew to TUIFly, it had not fixed the itinerary, and had not determined the performance of the flight, the Court held that the carrier could not be considered the operating air carrier within the meaning of the Regulation4. The Court therefore decided that as the first condition of Article 2(b) had not been met it was unnecessary to decide the second condition – whether there had been a contract with the passengers in question5.

11. Given the syntax of Article 2(b), the CJEU was probably right to describe the conditions as ‘cumulative’, or perhaps more aptly “composite”, but in the same way as its formulation of the inherency and control test6, the Court has left open the question of what the purpose of the second condition is.

12. Moreover, one may query whether it necessarily follows that when a carrier decides to perform a particular flight, including fixing its itinerary, it also contracts with the passengers who are carried on the flight. In the case of a codeshare neither condition, as formulated by the CJEU, would appear sufficient to establish which of the two carriers was the operating carrier.

13. As is customary in interpreting the European Court’s jurisprudence, one has to both search around the edges of the judgment and consider it holistically to discern its wider implications.

14. In the penultimate paragraph of the judgment7, the Court held that a carrier could not be considered the operating carrier, even if a booking confirmation named that carrier as operating the flight, if it ‘does not bear the operational responsibility’ for it. No further exposition of this phrase was given, however, in considering the beginning of judgment,8 having operational responsibility is likely to mean a carrier fulfilling the majority of the following criteria:

(a) controlling the flight’s schedule/itinerary;

(b) holding the flight’s airport slots;

(c) holding all relevant operational authorisations/permissions;

(d) marketing the flight;

(e) organising ground handling services, including passenger baggage;

(f) having responsibility for passenger welfare at the departure airport(s), for example under Articles 8 and 9 of the Regulation; and

(g) arranging in-flight services.

15. The Court held that its interpretation was consistent with the principle set out in Recital 7 of the Regulation which states that in order to ‘ensure the effective application of this Regulation, the obligations that it creates should rest with the operating air carrier who performs or intends to perform a flight, whether with owned aircraft, under dry or wet lease, or on any other basis’9.

16. However, a potential implication of the CJEU’s decision is that neither carrier is liable in a scenario where one carrier contracts with a passenger (i.e. has a booking with) and the other carrier actually provides the booked flight, as neither fulfil both of the conditions set out in Article 2(b). The factors detailed in paragraph 14 above therefore have to be considered carefully to decide which carrier can more aptly be characterised as having operational responsibility for the flight in question, thereby being the operating carrier.

17. From a passenger’s perspective, a useful consequence of the judgment is that if a carrier is shown to have operational responsibility for the flight it will also have met the second condition in Article 2(b) of performing the flight under contract with the passenger, even in circumstances where there is no direct contract between the carrier and the passenger. This might fly in the face of conventional notions of agency, but were it otherwise, neither carrier in the scenario identified in the paragraph above might be classified as the operating air carrier – one only having the contract with passenger and the other only performing the flight. Clearly such an outcome would fundamentally undermine the objective of ensuring a high level of protection for passengers set out in Recital 1 of the Regulation.

18. Ironically, given the reference arose from Germany, the CJEU’s decision chimes with a decision of the German Federal Court10,11 dated one day after the reference was received by the European Court.

19. In that case, the claimants had booked a flight with the defendant airline from Dusseldorf to Nador in Morocco. The flight was operated under the defendant’s IATA code, but with an aircraft including crew leased from a Spanish airline under a wet lease. The booking confirmation and the electronic ticket showed the defendant airline as the operating carrier. The flight arrived with a delay of more than seven hours and therefore compensation was claimed against the German carrier.

20. The Dusseldorf Local Court and the Dusseldorf Regional Court dismissed the claim in the first and second instances, respectively. As the appeal court, the Dusseldorf Regional Court determined that the defendant carrier was not liable for compensation as the technical and operative liability lay with the lessor, and therefore it was the lessor who was the operating air carrier under Article 2(b).

21. The Federal Court of Justice set aside the Dusseldorf Regional Court’s decision and granted compensation to the claimants. The upper court held that in case of a wet lease, the lessee must be regarded as the operating air carrier. As had the CJEU, the Federal Court regarded Recital 7 as evidencing that a carrier may perform a flight without its own aircraft or crew and still be regarded as the operating carrier.

22. The Federal Court of Justice held that its understanding corresponded with the purpose of ensuring the effective application of the Regulation, as the responsibility for marketing and organising the flight lay with the lessee and generally required a presence at the airport so as to offer the services set out in Articles 8 and 912.

What impact?

23. The CJEU’s judgment is a reminder to practitioners to consider carefully whether wet leases and operating agreements between carriers are sufficiently clear to enable the contracting parties to know who is liable to passengers in the event of a flight’s cancellation or delay. Without this clear understanding, the costs and benefits of such agreements cannot be fully understood. With such an appreciation it hopefully also avoids unnecessarily claims for contribution or applications for substitution in court proceedings.

Lawrence Power ©

5 July 2018

cl@whitestonechambers.com

1 https://eur-lex.europa.eu/legalcontent/EN/TXT/HTML/?uri=CELEX:62017CJ0532&qid=1395932669976&from=EN

2 Paragraph 18.

3 Paragraph 20.

4 Paragraph 21.

5 Paragraph 22.

6 In respect of extraordinary circumstances under Article 5(3).

7 Paragraph 26.

8 Paragraph 8.

9 Paragraph 24.

10 X ZR 102/16 and X ZR 106/16, Fluggastrechte bei “Wet Lease”, 12 September 2017.

11 http://juris.bundesgerichtshof.de/cgibin/rechtsprechung/document.py?Gericht=bgh&Art=en&sid=f2d1da1056d0d23bab997c77 f5567ffe&nr=79505&linked=pm&Blank=1

12 I am indebted to Kathrin Lenz from Arnecke Sibeth Dabelstein for her article ‘Passenger rights and information obligations under wet lease agreement’ (9 May 2018) for distilling the Federal Court’s decision: https://www.internationallawoffice.com/Newsletters/Aviation/Germany/ArneckeSibeth/Passenger-rights-and-information-obligations-under-wet-lease-agreement

The Court of Appeal was recently asked whether a couple could recover damages pursuant to the implied condition in section 4(2) of the Supply of Goods and Services Act 1982, (“the 1982 Act”), for harm suffered whilst on an all-inclusive holiday.

In April 2011, Mr and Mrs Wood travelled to the Dominican Republic on holiday.  Whilst there Mr Wood suffered acute gastroenteritis and had to be hospitalised for four days.   It was accepted by His Honour Judge Worster that the couple only consumed food provided by the hotel during their stay.  He concluded that the provision of food and drink to Mr and Mrs Wood constituted the supply of good and services under the 1982 Act and awarded them £24,000 in total compensation.

First Choice appeal this decision arguing that His Honour Judge Worster should have concluded that:

1. The contract in question was a contract for services and it could not simultaneously be a contract for goods.
2. No property in goods was transferred to Mr and Mrs Wood and they held no property in the food they consumed.
3. By virtue of either of the above there was no implied condition under Section 4(2) of the 1982 and that the correct implied term was one of “reasonable care and skill” under Section 13 of the Sale of Goods and Services Act.

First Choice focused on the second point submitting that a licence was granted to all-inclusive customers to consume food or drink.  First Choice relied on PST Energy 7 Shipping LLC and another v OW Bunker Malta Ltd and another [2016] AC 1034; [2016] UKSC 23. This case involved the sale of ship fuel.  There was a clause stating that title in the fuel would not pass to the ship owners until it had been paid for in full and another clause stating that the ship owner could use the fuel from the moment of delivery.  This was deemed not a contract for sale due to the retention of title clause which demonstrated there was no intention to transfer the property in the fuel.

On behalf of Mr and Mrs Wood, it was argued that a contract could be both a contract for goods and services simultaneously. First Choice could fulfil their obligations through others and whilst the Woods would have to show agreement to transfer of property in the food and drink they received, this would not have to be direct.  Furthermore, the submission that the hotel maintained possession of the food until it was eaten (at which point it was destroyed) was unrealistic.

Lord Justice Burnett dismissed the appeal stating that he could not find PST Energy to be applicable citing the retention of title clause as a distinguishing factor.  He reasoned that property in a meal, once ordered, transfers when the meal is served. Being in buffet form should not change this, i.e when the customer helps themselves to a portion property transfers. He also disagreed that this could make package tour operators the de factoguarantors for food they are contracted to provide all over the world.  any potential claimants would still have to prove fault on the part of the holiday provider to be successful.

Lord Justice McFarlane and Sir Brian Leveson, agreed with the conclusions reached by Lord Justice Burnett.

Mina Heung

© 2017 Chambers of Lawrence

The Court of Appeal holds that compensation under Regulation 261/2004 is available for delay on connecting flights which start or end outside of the EU.

1. On the 12 October 2017, the Court of Appeal delivered judgment in the joined cases of Gahan v Emirates and Buckley and ors v Emirates [2017] EWCA Civ 1530, in which both the Civil Aviation Authority and the International Air Transport Association intervened.

Flying Emirates through Dubai

2. Miss Thea Gahan had booked with Emirates to travel from Manchester to Dubai (the first leg) and then from Dubai to Bangkok (the second leg). Her first leg was delayed so that she arrived in Dubai 3 hours and 56 minutes late, missing her connecting flight, and finally arrived in Bangkok 13 hours and 37 minutes late. At first instance, she was awarded compensation under Article 7 of the Regulation in respect of the first leg but the second leg was discounted, meaning Miss Gahan only recovered €300 and not €600. Miss Gahan appealed on the basis that her final destination was Bangkok, at which she arrived more than 3 hours late, and therefore she was entitled to recover €600.

3. In the second of the joined cases, the Buckley family had booked with Emirates to travel from Manchester to Sydney via Dubai. Their first leg was delayed by 2 hours 4 minutes so that their second leg was automatically rebooked and they arrived in Sydney a further 16 hours and 39 minutes late. In contrast to Miss Gahan, the Buckleys were successful at first instance and Emirates appealed.

4. The Court of Appeal had to consider:

(1) whether compensation for the second leg of the journey in each case was awardable under Regulation (EC) No 261/2004 (“the Regulation”); and

(2) as a result of arguments made by Emirates, whether there was jurisdiction under the Regulation itself; and

(3) if so, whether it was excluded by the Montreal Convention. Section 19 of the Montreal Convention, of which the EU and UK are signatories, limits liability for damage caused by delay [20] – [24].

Connecting flights and delay

5. The Court of Appeal allowed Miss Gahan’s appeal and dismissed Emirate’s so that compensation was available for both legs in both cases. The Court started with the basic proposition that:

‘… where a carrier provides a passenger with more than one flight to enable him to arrive at his destination, the flights are taken together for the purpose of assessing whether there has been three hours or more delay.’ [73]

6. Accordingly, what counted was the delay in a passenger reaching their final destination. This was based on EU jurisprudence from Sturgeon v Condor Flugdienst GmbH [2009] ECR 1-10923 (C-402/07 and C-432/07), and from Air France SA v Folkerts [2013] (C-11/11), in both of which the Court of Justice for the European Union (“CJEU”) held that compensation under Article 7 of the Regulation was to be quantified by reference to the delay in arriving at the passengers’ final destination. In the case of directly connecting flights, a passenger’s final destination was the destination of the last flight (Article 2(h)).

Jurisdiction under the Regulation

7. The Court went onto reject Emirates’ second argument that the Regulation did not apply to flights operated by non-Community carriers (such as Emirates) outside of the EU. The Court considered that the Regulation took effect:

‘… when the carrier is present in the EU and it imposes a contingent liability on the carrier at that point. The liability may never crystallise but if it does do so, it will crystallise outside the jurisdiction.’ [76]

8. The basis for jurisdiction over non-Community carriers under the Regulation was, contrary to the submission on behalf of Emirates, territorial in nature [77]. It was sufficient that the first of two connecting flights departed from the EU. There were two reasons for this:

(a) the activity outside the EU was not relevant to jurisdiction, but to quantum. The Regulation applies to non-Community carriers because they use EU airports. Measuring delay by reference to connecting flights is simply the best way of measuring inconvenience [78]; and

(b) the decision was supported by the case of Holmes v Bangladesh Biman Corp [1989] AC 1112 which suggests that place of departure, stopping place, or destination are sufficient to avoid breaching extraterritoriality [79].

9. The Court noted that this finding might produce some anomalous results:

‘… it is possible that there is no compensation for delay on a flight which starts outside the EU and has several “legs”, some of which take place in the EU.’ [80]

10. However, the Court justified this anomaly by implying that the purposive logic of Sturgeon, which holds that long delay causes similar inconvenience to cancellation in the case of connecting flights, outweighed potential oddities [80].

The Montreal Convention and the Regulation

11. As an alternative submission, Emirates had argued that there was no jurisdiction to award compensation under the Regulation, since the Montreal Convention took precedence.

12. The Court made two preliminary points before deciding the issue:

(a) As stated in Council Decision 2001/539: (1) the EU exercises competence to regulate the activity of carrier’s activities within the EU, including those of non-Community carriers; whereas (2) the UK has competence in relation to non-Community carriers outside the EU [83].

(b) The Montreal Convention is not a pre-accession treaty to which Article 351 TFEU applies. It was ratified after the UK joined the EU. The relevance of this was questionable given the principle that Member State institutions should not act to prevent or hinder the performance by the EU of its international obligations [83].

13. Following Dawson v Thomson Airways Ltd [2015] WLR 883,the Court noted that:

‘… the jurisprudence of the CJEU as to the meaning of [the] Regulation … is binding on this Court even though it conflicts with jurisprudence of the Supreme Court and House of Lords.’ [86]

14. Although it was true that Dawson concerned a Community carrier, the principle was the same:

‘… a point of international law decided by the CJEU was binding on the national court if it was a necessary step in reaching a conclusion as to the meaning of an EU regulation.’ [86]

15. The Court found that it was bound by Lord Toulson’s findings at paragraphs 59 and 66 of Stott v Thomas Cook Tour Operators Ltd [2014] AC 1347that any issue as to the compatibility of the Regulation with the Montreal Convention had to be determined in accordance with EU law [60]. That meant the Court was similarly bound by Nelson v Deutsche Lufthansa AG [2012] (C-581/10) in which the CJEU had held that there was no overlap in scope between the Montreal Convention and the Regulation since the damage dealt with under each was different. The former provided for individual damage to be proved on a case-by-case basis. The latter dealt with fixed compensation for inconvenience which was identical for all passengers on a given flight [31]-[32].

16. Despite rejecting Emirates’ and IATA’s arguments, the Court expressed concern that the CJEU had decided in Nelson the meaning of damage for the purpose of the Montreal Convention without considering any international jurisprudence on the point. Although the Court concluded that it was barred by Stott, and the supremacy of EU law, from considering this issue for itself. The Court went so far as to question whether the CJEU might have been ultra vires in determining the question in Nelson so that it might not be binding on Member States [89], however, the potential for a reference to the CJEU on this issue was a matter for another day [88].

What impact?

17. Whilst the Court’s decision will come as a significant blow to carriers who operate outside of the EU, it will equally come as no great surprise to lawyers in the aviation sector. The key findings of the Court for carriers to mull over are undoubtedly [73]:

‘In the case of directly connecting flights, travelled without any break between them, the final destination is the place at which the passenger is scheduled to arrive at the end of the last component flight.’

18. And [80]:

‘… rights on cancellation operate by reference to the final destination, so that they include compensation for any connecting flight that is cancelled and not re-routed so as to arrive within three hours of the original scheduled time of arrival at the final destination.’

19. It remains to be seen whether carriers will consider limiting directly connecting flights, or providing different bookings and tickets for each flight to avoid the “directly connecting” moniker, or even providing substantial lag times between connecting flights to ensure sufficient buffers so that even longish delays avoid passengers missing connections.

20. Given the nature of modern air travel with carrier alliances, and many bookings sold by travel agents or online booking services allowing for passengers to plan for tight transit times, it is important carriers consider what “directly connecting flights” mean in the context of their own terms of booking and conditions of carriage.

Ikeni Mbako-Allison

© 2017 Chambers of Lawrence Power
www.whitestonechambers.com
law@whitestonechambers.com