Who’s the operating carrier? Not the lessor rules the European Court

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.

Christopher Loxton ©

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

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