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The Final Destination? The Court of Appeal’s decision in Gahan v Emirates

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

O’Connor v Bar Standards Board Disciplinary proceedings. A continuous process

Portia O’Connor won a landmark decision earlier this month when the Supreme Court unanimously decided to allow her appeal against the Bar Standards Board (BSB) and find that her claim was not time barred. This decision stems from a line of litigation starting in 2010 when the BSB Complaints Committee brought 6 disciplinary charges against Ms O’Connor. In May 2011 the Disciplinary Tribunal found 5 out of the 6 allegations proved. Ms O’Connor appealed to the Visitors of the Inns of Court who overturned the decision. Following her appeal, in 2013 Ms O’Connor issued proceedings against the BSB alleging a violation of Article 14 of the European Convention on Human Rights read in conjunction with Article 6 ECHR, contrary to section 6 of the Human Rights Act 1998 (HRA 1998). The BSB argued that Ms O’Connor’s claim was time barred under section 7(5)(a) of the HRA 1998. This section prescribes a time limit to bring proceedings of 1 year from the date on which the act complained of took place. The BSB contended that under this statute time started to run from the moment the initial Disciplinary Tribunal found the allegations against Ms O’Connor as proved and therefore the time limit for bringing a claim expired in 2012. Ms O’Connor submitted that time should run from the verdict of the Visitors of the Inns of Court in August 2012. In 2014, Ms O’Connor’s claim for compensation was struck out with the reason being that it was time barred and in any event the evidence did not support such a claim. Ms O’Connor appealed. Mr Justice Warby ruled that her appeal should be allowed in relation to her human rights claim, but that nevertheless it was time barred. Ms O’Connor took her dispute to the Court of Appeal where the then Master of the Rolls, Lord Dyson, held that the one-year limitation period under the Human Rights Act 1998 to challenge the BSB ran from when the disciplinary tribunal reached its initial verdict. She was given permission to appeal to the Supreme Court. The Supreme Court were asked whether the disciplinary proceedings constituted a single continuing act or a series of discrete actions for the purposes of the HRA 1998. The Supreme Court held that the disciplinary proceedings formed a single continuous act even though it consisted of separate steps. This meant that the limitation period commenced when the Visitors of the Inns of Court overturned the Disciplinary Tribunal’s decision in August 2012 not when the allegations against Ms O’Connor were found proved in 2011.The result is that Ms O’Connor was within time when she issued proceedings against the BSB in February 2013. There will be another court case to determine the merits of Ms O’Connor’s claim however the current decision is set to cause waves in the world of disciplinary proceedings.

Robert Pidgeon

Genuine Discretion vs Absolute Contractual rights

Business contracts have become the language and form of commercial transactions. Their ubiquity is only surpassed by their functionality. They are useful for establishing one parties rights and obligations towards others as well as available remedies and dispute resolution mechanisms. Contracts can also confer powers upon a party to decide on issues that affect another party.

As useful as contracts are it is not always the case that all their terms are in writing. Terms are often implied by statue, common law or other mechanism and this can impact the way the contract is performed. Therefore, it can be the case that the interpretation and performance of a contract is not governed by the wording alone.

This is the case when exercising a “genuine discretion” as there is an implied contractual term for the party to use their decision-making power in good faith and “not in a way which is capricious, arbitrary or irrational”. This would imply that there is a limit to how the party can act and their discretion on how to perform the contract is curtailed somewhat. This differs from the application of an absolute contractual right which is not limited by such an implied term. So where do we draw the line between the two?

Whilst the courts have not produce an ultimate distinction between these two concepts, the Court of Appeal in Mid Essex Hospital Services NHS Trust v Compass Group UK & Ireland Ltd (trading as Medirest) [2013] EWCA Civ 200 at para 83 drew the line by stating “The discretion involved making an assessment or choosing from a range of options, taking into account the interests of both parties.”

Following on from this the Supreme Court in Braganza v BP Shipping Limited [2015] UKSC 17,subsequently went to great lengths to describe how such an implied term should operate. Lady Hale found that the decision of the employer, BP shipping in this case, was unreasonable in the sense of Associated Provincial Picture Houses Ltd v Wednesbury Corporation. [1948] 1 KB 223. This implies that the two stage Wednesbury unreasonable test is applicable when assessing the exercise of contractual discretion.

Thus, while this principle is in no way new, the above cases show how it has recently become more prevalent and is applicable to a wider variety of circumstances. This trend does not appear to be slowing with cases as recent of September 2017 (see BHL v Leumi ABL Limited [2017] EWHC 1871 (QB)) discussing contractual discretion in relation to collection fees.

Thus, although it seems the courts have not clearly delineated the boundaries between a genuine discretion and an absolute contractual right what is clear is that the law relating to business contracts is changing and taking more consideration of the parties’ behaviour in performing the contract throughout its term. It appears that the distinction is likely to come down to the wording of the clause in the context of the surrounding factual circumstances.

Jerome Wilcox

Some risk for Great Reward: Longford Capital Secure Massive Investment for Litigation Funding

Litigation funding appears set to continue its exponential growth, with litigation funder Longford Capital Management LP announcing in September of this year that it had managed to raise a $500 million fund to support its litigation portfolios.

Longford Capital is a private investment company that provides funding to law firms, businesses, and individuals involved in large commercial disputes. Typically, this means claims worth between $25 million and $1 Billion.

Litigation funding covers lawyer’s fees and expenses incurred during litigation, in return for a piece of the settlement/ judgment if the case is successful. If unsuccessful, the client does not owe the funder anything. This form of investment seems to be attracting investors from numerous sectors looking to take advantage of this new asset that isn’t tied to more traditional markets.

This fund positively dwarfs Longford’s previous litigation fund of $56.5 million. In a press release, it was stated that they had, “already committed $100 mil for new investments”. Longford also announced the Limited Partner Advisory Committee for this fund which consists of five high profile investors:

John A. Beirne, Jr., Founding Partner and Chief Investment Officer of Beirne Wealth Consulting Services, LLC.
Michael D. Bills, Founder and Chief Investment Officer of Bluestem Asset Management, LLC
T. Bondurant French, Executive Chairman of Adams Street Partners, LLC.
Edward M. Liddy, former Chairman, President and CEO of The Allstate Corporation, former member of the Board of Directors and Chairman of the Audit Committee of The Goldman Sachs Group, Inc.
Jeffrey N. Vinik, former manager of the Fidelity Magellan Fund.

William H. Strong, Chairman and Managing Director of Longford Capital, when speaking of “Fund II”, stated that Longford was able to attract over $1 Billion dollars in interest and that “enthusiasm for litigation finance is also growing among the investor community”.

However, with such success comes competition. Other companies like Burford Capital made $488 million in new investments in the first half of 2017 and, closed its own $500 million fund to invest in litigation-related complex strategies in July of this year. As a result, the competition may cause the profit margin to shrink. There may also be trouble brewing on the horizon with the new Fairness in Class Action Litigation and, Furthering Asbestos Claim Transparency Act of 2017 which is currently before the US senate. This bill was introduced by The Institute for Legal Reform amidst concerns that litigation funding may be driving litigation strategy and as a result of calls for transparency relating to third party litigation funding. However, until that bill becomes law and the impacts are seen it looks like litigation funding isn’t slowing down anytime soon.

We expect to see the growth of the litigation funding market develop at double digit rate in 2018.

Flight makes emergency landing after wife secretly discovers husband cheating on her

For many, the design and release of “Touch ID”, a feature on all iPhones since 2013’s iPhone 5S,[1] has changed the way we access our phones and protect the private information contained on them. Rather than requiring a code, Touch ID allows phone users to unlock their device[2] by holding their fingerprint over a touch-sensitive button.

Passengers on Qantas flight QR-972 from Doha to Bali may now dispute the apparent advantages[3] of such instant access, after an argument between a husband and wife caused the pilot to make an emergency landing in Chennai on Sunday, 5 November. The wife, who was allegedly intoxicated, used her sleeping husband’s fingerprint to unlock his phone and discovered incriminating messages in his inbox.

She apparently became aggressive with the cabin crew who sought to calm her down after she repeatedly hit and shouted at her husband. The husband and wife and their young child were escorted off of the aircraft by the authorities at Chennai and placed in a holding room before the wife sobered up.

No criminal charges were made and the family later caught a flight to Doha from Kuala Lumpur. A Central Industrial Security Force official in India said that:

“On November 5, at about 10 am, Qatar Airways flight QR-962 (Doha-Bali) was diverted to Chennai. A lady along with her husband and a child, all Iranian nationals, were offloaded by Qatar Airline[s] as the lady passenger (who was intoxicated) misbehaved with crew members inflight. They were sent to Kuala Lumpur by Batik Air flight 6019 for further travel to Doha”.

The moral of the story

The events stand as a useful reminder of the willingness of airlines to divert flights in the interests of safety. The onboard safety of passengers is a paramount concern for cabin crew and the cockpit, and passengers can quickly find themselves in the hands of foreign authorities for what happens in the sky. Although there was apparently no criminal activity on which to prosecute, this could easily have been different if the argument had continued to escalate.

The story comes after reports the week before that two people were arrested after being caught carrying out a sexual act in full view of other passengers on a Delta airlines flight from Los Angeles to Detroit. The pair, who were strangers before meeting on the flight, were recorded by a fellow passenger. It later emerged that the man had a pregnant fiancee at home.

The ease with which the wife was able to check her husband’s personal messages raises broader questions concerning the safety of the Touch ID feature. This is particularly important since banking applications increasingly allow access to banking facilities, including the making of withdrawals and payments, with a mere fingerprint. Online purchases can also be made with fingerprints via Apple Pay and Paypal. P.I.N., come back; all is forgiven. Bye biometrics.

[1] With the exception of the 2017 iPhone X.

[2] The feature can also be used to purchase applications and access online banking facilities.

[3] On 4 September 2013, Wells Fargo analyst Maynard Um predicted that a fingerprint sensor in the iPhone 5S would help mobile commerce and boost adoption in the corporate environment: http://appleinsider.com/articles/13/09/04/fingerprint-sensor-in-apples-iphone-5s-predicted-to-boost-mobile-commerce-enterprise-adoption.

A bitter taste in the mouth of travel providers? The Court of Appeal’s Decision in Wood v TUI Travel plc T.A. First Choice 2017 EWCA Civ 11

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:

The contract in question was a contract for services and it could not simultaneously be a contract for goods.
No property in goods was transferred to Mr and Mrs Wood and they held no property in the food they consumed.
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 Power

Excessive service charges and what to do about them

Background

Service charges are fees that homeowners often commit to pay under the terms of the lease they enter into when they purchase their homes.[1] They are increasingly common in share-of-freehold properties, and commonly include the costs of insurance, lighting, maintenance, cleaning and the repair of common parts such as lifts and gyms, as well as fees for the purchase, sale, sublet or alteration of a flat. They can also effect the purchase of some freehold properties.

In recent years, such charges have spiralled and are often excessive, both in their amount and in exchange for the quality of service received. Research by Direct Line for Business indicates that a third of management companies hiked service charges in the years 2014 to 2016, pushing the average charge up to £1,863, which is over twice the average monthly rent.[2]

At the time of writing, service charges are unregulated. As such, they are often exploitative and homeowners may be left footing unexpected bills of between £1,000 and £3,000 per year.

What to do about service charges

There are a number of steps that can be taken by homeowners to challenge excessive or unreasonable service charges.

Short of buying the freehold of the property outright, the first step is always to complain directly to the managing agent or freeholder. Homeowners should write to the agent or freeholder, setting out in detail why they think the fees charged are unreasonable. Even if this yields no reduction, it is a useful step in narrowing down the issues and is in compliance with paragraphs 6 and 8 of the Practice Direction on Pre-Action Conduct and Protocols.[3]

If the agent or freeholder is unresponsive to negotiation, the matter may be referred to the First Tier Tribunal (Property Chamber).[4] This can be done in one of two ways.[5]

First, homeowners can make a Right to Manage application under the Commonhold and Leasehold Reform Act 2002 to acquire the right to manage the residential block.[6]Homeowners can either set up their own company to oversee the management or, more often than not, employ a different property management firm under more favourable terms.

Secondly, one can apply to the Tribunal to decide whether the amount charged is reasonable.[7] Under section 20 of the Landlord and Tenant Act 1985, service charges are limited to a reasonable amount. If the Tribunal determines that a sum claimed is unreasonable, it can be significantly reduced and homeowners may even have returned to them part of the sums already paid.

Reform

The Government is currently analysing responses to a major consultation, entitled “Tackling unfair practices in the leasehold market”, which ran from 25 July to 19 September 2017.[8] The consultation followed the announcement by Communities Secretary Sajid Javid of plans to cut out unfair abuses of leaseholders, including stamping out unreasonable service charges.

The Law Commission has also recently proposed the introduction of a new framework to regulate the charging of “event fees”, whereby owners of retirement homes are charged fees on certain events including sale, sub-letting or change of occupancy.

Chambers’ Commercial and Chancery Team is able to provide expert advice on the challenging of unreasonable service charges, as well as leasehold disputes generally.

[1] Section 18(1) of the Landlord and Tenant Act 1985 defines a service charge as “an amount payable by a tenant of a dwelling as part of or in addition to the rent–(a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, and (b) the whole or part of which varies or may vary according to the relevant costs”.

[2] https://www.directlinegroup.com/media/news/brand/2016/property_pain_service_charges_increasing_ rapidly_14_mar_2016.aspx.
[3] https://www.justice.gov.uk/courts/procedure-rules/civil/rules/pd_pre-action_conduct.
[4] If the management agent is registered with the Association of Residential Managing Agents, (“ARMA”), homeowners also have the right to complain to an independent ombudsman.
[5] Despite repeated lobbying by ARMA, freeholders cannot refer cases to the First Tier Tribunal (Property Chamber) in the same way as leaseholders.
[6] https://www.lease-advice.org/documents/form-rtm-eng.doc.
[7] https://www.lease-advice.org/files/2016/08/leasehold3-eng.doc.
[8] https://www.gov.uk/government/consultations/tackling-unfair-practices-in-the-leasehold-market.

Maxwell Myers
© 2017 Chambers of Lawrence Power

New aviation insolvency rules suggested in wake of Monarch collapse

In the early hours of the morning on 2 October 2017, Monarch Airlines flight ZB3785 from Tel Aviv to Manchester touched down. It was to be the Airlines’ last flight, just under 50 years since its first, when its Bristol 175 Britannia 300 turboprop landed in Madrid.
The collapse of the company resulted in the largest ever peacetime repatriation exercise, during which the Government and the Civil Aviation Authority, (the “CAA”), brought 110,000 stranded passengers back to the UK, running 700 flights over a two-week period. Commenting on the operation, Chris Grayling, Secretary of State for Transport, said that “[t]he CAA has essentially set up one of the UK’s largest airlines to conduct it”.
The Government has wasted no time in suggesting that the time has come to revisit the rules governing insolvency in the aviation sector. This article discusses these possible reforms.

The collapse of Monarch
Monarch Airlines was formed on 5 June 1967, as a subsidiary of Globus Getaway Holdings, being funded largely by the Mantegazza family. It expanded steadily until the 2000s, during which the company’s disappointing turnover forced the board to reconfigure many of the company’s operations. Despite these efforts, a pre-tax loss of £32.3 million was announced in the financial year ending in 2009.
Although reporting a modest profit in 2010, the company lost £45 million in the year ending October 2011. After a failed £75 million rescue package in 2011, the airline was bought for the nominal sum of £1 in 2014 by private equity firm Greybull Capital.
A particular concern prior to the takeover was the company’s pension scheme, which was reportedly carrying a deficit of some £158 million. As part of the takeover, the pension scheme was separated from the company under an agreement with the Pension Protection Fund, (the “PPF”), which was approved by the Pensions Regulator. Under the terms of the agreement, the former owners made a £30 million mitigation payment into the company and demonstrated that the company’s other creditors had made â€œsignificant compromisesâ€ on their claims. Greybull Capital gave the PPF a 10% equity stake in the restructured company as well as a £7.5 million secured loan note,[1] allowing the PPF to gain from any turnaround in the company’s fortunes.
Notwithstanding these efforts, reports emerged in September 2017 that the company was facing difficulties with its CAA Air Travel Organiser’s Licence, (“ATOL”), owing to severe financial difficulties. The airline had faced similar problems the year before, but managed to renew its licence following a quick cash injection from shareholders. Without its ATOL, the airline would have been unable to sell package holidays, rending many of its operations defunct.
On 30 September 2017, the CAA extended Monarch’s licence, leaving it with 24 hours to settle its financial affairs. On 1 October, however, the airlines’ late night flights to Ibiza were cancelled at the point of boarding as the deadline for its licence extension loomed. At 4:00 BST the following morning, the CAA confirmed that Monarch Airlines had ceased all operations and had entered administration, leaving 110,000 passengers overseas and over 300,000 future bookings cancelled.

The insolvency rules
On 3 October 2017, the company’s Chief Executive, Andrew Swaffield, publicly blamed the applicable insolvency rules for the company’s collapse. He explained that there was a detailed rescue plan in place, under which the airline was to sell its short-haul business and switch to long-haul flights using a fleet of new Boeing 737 Maxs. The new model’s fuel efficiency would have given the company a clear cost advantage over competitors.
However, the grounding of the airline by the CAA apparently made the search for an appropriate buyer impossible.
He told BBC Radio 4:
“The UK’s insolvency framework doesn’t allow airlines to continue flying, unlike in Germany or Italy, where we see both Air Berlin and Alitalia continuing in administration . . . We couldn’t figure out a way of reducing those losses significantly, either by selling the short-haul airline or by improving it”.
The suggestion seems to be that the company could have survived were it not for the immediate suspension of operations. The comments have resulted in speculation as to the appropriateness of the UK’s insolvency rules in the aviation sector.

Suggested reforms
On 9 October, Chris Grayling made a statement on the collapse of Monarch to the House of Commons. He said:
“Of course, right now our efforts are rightly focused on getting employees into new jobs and getting passengers home. After that, our effort will turn to working through any reforms necessary to ensure that passengers do not find themselves in this position again.
“We need to look at all the options–not just ATOL, but whether it is possible to enable airlines to wind down in an orderly manner and look after their customers themselves, without the need for the government to step in. We will be putting a lot of effort into that in the months ahead”.[2]
Exactly how the Government foresees enabling airlines to “wind down in an orderly manner and look after their customers themselves” remains to be seen. It seems that the policy behind any reform, however, will be to allow airlines to continue trading as long as possible and to avoid collapse as far as possible. This may mean more relaxed ATOL licensing requirements, or a grace period during which companies can trade, and hopefully stabilise, before entering administration.
Although no concrete steps have yet been taken, the preliminary comments on suggested reform have been welcomed by industry experts.
Following the statement to the House of Commons, Adrian Hyde, President of the Association of Business Recovery Professionals, (“R3″), commented that:
“The transport secretary’s interest in airline insolvency rules is welcome. The air industry is one of a number of parts of the economy where sector-specific rules on insolvency can make orderly wind-downs or business rescue tricky. Key licences can often be withheld from insolvent companies, for example. More structured wind downs could help improve outcomes for employees, creditors, and customers.
“Although the thinking behind some of the rules in various sectors is understandable, the rules can sometimes make rescue all but impossible–leading to avoidable job losses or creditors being left out of pocket–or can significantly alter the way the insolvency is handled. R3 would welcome the opportunity to work with the government and regulators to introduce constructive and positive reforms, as they have in other specific sectors”.

Watch this space
Whether or not “positive reforms” are made, Mr Grayling’s comments arguably commit the Government to a reconsideration of the insolvency framework applicable to the aviation sector. Following the controversies surrounding the Government bailout of the banks following the 2008 financial crisis, reform to the insolvency rules that would allow companies to cease trading in stages, mitigating losses and encouraging rescue, seems a positive and workable policy.
The collapse of the company also raises questions following the involvement of the PPF. On 9 October, Frank Field, Chair of the Work and Pensions Committee, wrote to Alan Rubenstein, Chief Executive of the PPF, asking whether the Fund has received any payments from Monarch in respect of the secured loan note and where it ranks in order of creditor preference.[3]
Commenting on the letter, Mr Field stated:
“How can it be that once again, mega rich individuals could walk away from a collapsed company with a bumper profit while ordinary people pick up the bill? This massively supports the case for the law to change, to robustly protect pension schemes against owners seeking to line their pockets while avoiding their responsibilities, in line with our recommendations”.

[1] A secured note is a form of loan that is backed by the borrower’s assets. In the event of default by the borrower, the assets can be sold as collateral to repay the loan.
[2] https://hansard.parliament.uk/commons/2017-10-09/debates/D27444A9-86D6-4E2B-A675-8D7A1DD15FF8/MonarchAirlines.
[3] http://www.parliament.uk/documents/commons-committees/work-and-pensions/Correspondence/Letter-from-the-Chair-to-CEO-of-The-Pension-Protection-Fund-relating-to-Monarch-Airlines-retirement-benefits-plan-9-October-2017.pdf.

Government begins crackdown on fraudulent holiday sickness claims following landmark private prosecution

Background

In June 2015 and July 2016, Paul Roberts, Deborah Briton and their two children visited the ever-popular holiday destination of Mallorca, the largest of the Balearic Islands.

Upon return to the UK after their 2015 holiday, Ms Briton posted on her Facebook account:
“Safely home after two weeks of sun, laughter, fun and tears. Met up with all our lovely holiday friends who made our holiday fab”.

She similarly posted after the 2016 holiday: “Back home after a fantastic holiday, my favourite so far”.

Notwithstanding their evident enjoyment of their holidays, the couple instructed solicitors in August 2016 and claimed against the hotel for £20,000 compensation after gastroenteritis, (also known as “Spanish tummy”), allegedly ruined their holidays.

The letter before claim stated that: “Our client’s holiday was ruined due to their symptoms as they were ill for the entire remainder of the trip. They were unable to enjoy the holiday”.

Upon discovery of Ms Briton’s clearly inconsistent Facebook posts and witness accounts of the family’s enjoyment of their holidays from hotel staff, tour operator Thomas Cook commenced a landmark private prosecution against the couple.

The prosecution follows a 500% increase in fraudulent holiday food claims since 2013, which led Foreign Secretary Boris Johnson to report in June 2017 that British holidaymakers’ digestive systems have “become the most delicate in the world”.

How to bring a private prosecution

Thomas Cook was able to bring a private prosecution pursuant to section 6(1) of the Prosecution of Offences Act 1985, which provides that any individual or organisation can commence criminal proceedings.

Although the vast majority of criminal proceedings are commenced by the Crown Prosecution Service, (the “CPS”), private prosecutions are a useful, albeit often costly, mechanism for the victims of crimes that the CPS do not prosecute. This is particularly important in times of austerity, during which state prosecution services may not have sufficient resources to prosecute successfully particular crimes.

For example, the Association of British Insurers, (the “ABI”), estimate that, in 2016, insurers detected 125,000 fraudulent insurance claims worth £1.3 billion and that a similar amount of fraud goes undetected each year.[1] Notwithstanding this, it seems that the CPS does not have the resources to dedicate sufficient time to cracking down on the problem of undetected fraud.

The private prosecution of Mr Roberts and Ms Briton is a vital step in the right direction, illustrating how useful private prosecutions can be in plugging any gaps left by the budgetary constraints imposed upon state prosecution services.

The sentencing hearing

After admitting four counts of fraud, Ms Briton was sentenced to nine months, and her partner 15 months, in prison.

Judge David Aubrey QC, sitting in Liverpool Crown Court, was highly condemnatory of the couple’s behavior. He referred to their claims for compensation as a “complete and utter sham”, stating that:

“Those who may be tempted in the future to make a dishonest claim in relation to fake holiday sickness, if they are investigated and brought to justice, whatever the circumstances of an individual, he or she must expect to receive an immediate custodial sentence”.

Government response

Mr Roberts and Ms Briton were sentenced on the same day that the Government announced a call for evidence from holiday companies of fraudulent holiday sickness claims. The document invites members of the public and relevant stakeholders to submit evidence of stated issues including the increase in low value personal injury claims following gastric illnesses allegedly suffered whilst on holiday. The Government will then use these responses to examine how it can best tackle the proliferation of fraudulent claims.

The call for evidence can be found here.

It marks the start of a clear crackdown on the problem, which has resulted in some Spanish holiday resorts reportedly considering banning British tourists altogether.

In announcing the launch of the call for evidence, Boris Johnson stated that:

“The recent rise in false claims against tour operators, partly fueled by unscrupulous touts, tarnishes the UK’s reputation overseas. It is also hugely unfair to those who genuinely do become ill, who risk becoming victims of unjustified suspicion. This is the first step in fighting the scam holiday claim epidemic”.

Such comments have been received well by industry experts.

After the announcement of the call for evidence, the Association of British Travel Agents, (“Abta”), commented that:

“It is crucial that the government brings in new rules that control legal costs on holiday sickness claims as soon as possible, and we welcome the chance to be able to submit further evidence from our members to help crack down on these bogus claims”.[2]

Lessons learnt

First and foremost, it is clear that the Government is committed to stamping out fraudulent holiday claims. Judge David Aubrey QC’s statement that those found guilty of making fraudulent claims will receive custodial sentences, together with the Government’s call for evidence, illustrates the strong stance to be taken in future cases.

This must also be viewed as part of the Government’s initiative to intervene in and stamp out fraudulent behaviour generally. The prosecution comes four weeks after the announcement by the City of London Corporation of plans to build a new court centre dedicated to fraud as well as cyber crime.

Justice Minister Dominic Raab commented that the new court “will build on UK legal services’ unique comparative advantage, by leading the drive to tackle fraud and crack down on cyber-crime”.

Finally, the case provides two useful reminders. First, of private companies’ willingness, particularly in the insurance sector, to investigate customer’s social media accounts when assessing the legitimacy of a claim. Secondly, of the usefulness of private prosecutions of crimes which state prosecution services choose not, for whatever reason, to prosecute.

[1] https://www.abi.org.uk/products-and-issues/topics-and-issues/fraud/.
[2] https://abta.com/news-and-views/news/abta-statement-in-response-to-the-governments-call-for-evidence-on-holiday.

The Final Destination

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.

Flying Emirates through Dubai

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]

Jurisdiction under the Regulation

7. The Court went on to 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 crystallize but if it does do so, it will crystallize outside the jurisdiction.’ [76]

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]

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 1347 that 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].

What impact?

18. And [80]:

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