(1) TUI TRAVEL PLC, (2) BRITISH AIRWAYS PLC, (3) EASYJET COMPANY PLC AND (4) IATA -V- CIVIL AVIATION AUTHORITY

Reference to the European Court of Justice of decision in joined cases of Sturgeon v Condor Flugdienst and Bӧck v Air France1

On 20 March 2012, the ECJ heard oral representations pursuant to Reg 261/04, save in the case of from eight interested parties in the reference to it by two "extraordinary circumstances" which exonerate the , a tour operator and IATA of the 19 November carrier from the obligation to compensate. 2009 ECJ decisions in Sturgeon and Bӧck relating to compensation for delay pursuant to Regulation (EC) In reaching this decision, the ECJ expressed the view that 261/04. The Attorney General's decision will be damage sustained by passengers in the event of delay can published on 15 May 2012 with the Judgment to follow be comparable to that sustained as a result of some time thereafter. cancellation, and by allowing some passengers compensation under Reg 261/04 but not others would infringe the EU principle of equal treatment. BACKGROUND

The Sturgeon and Bӧck cases arose out of long delays to JUDICIAL REVIEW two flights, from Frankfurt to Toronto and from Vienna to City (via Paris) respectively, following which On 11 June 2010, Tui Travel, British Airways, easyJet the claimants argued in each case that the flights had and IATA commenced judicial review proceedings in the been cancelled rather than delayed, thereby entitling Administrative Court to: (1) seek a declaration that them to fixed compensation provided for by Reg 261/04 Articles 5 to 7 of Reg 261/04 do not provide for fixed in the case of cancellation but not delay. compensation in the event of delay, (2) prevent the CAA from applying the Sturgeon/Bӧck decisions ("Sturgeon"), The carriers argued that the flights were delayed and no and (3) refer the matter back to the ECJ for further compensation was available to the claimants since Reg interpretation. 261/04 does not provide for fixed compensation in the event of delay. Instead, the claims should be pursued via REFERENCE TO ECJ the Montreal Convention 1999 which provides a remedy for damage caused by delay. On 10 August 2010, the Administrative Court granted the application and referred the following questions to the The ECJ found, in favour of the airlines, that the flights ECJ: were indeed delayed and not cancelled. However, the ECJ also held that passengers who suffer a delay of more ■ Are Articles 5 to 7 of Reg 261/04 to be interpreted as than three hours should be entitled to fixed compensation requiring the compensation provided for in Article 7 to be paid to passengers whose flights are subject to view on it. Sturgeon, on the other hand, considered an delay within the meaning of Article 6 and, if so, in issue which was outside the scope of the questions asked. what circumstances? The absence of compensation for delay in Reg 261/04 is ■ If not, are Articles 5 to 7 of Reg 261/04 invalid, in not inconsistent with the EU requirement for equal whole or in part, for breach of the principle of equal treatment and, it was submitted, the ECJ should be treatment? resistant to override the law on the basis of inequality in a situation which involves cancellation -v- delay. ■ If the answer to question 1 is yes, are Articles 5 to 7 of Reg 261/04 invalid, in whole or in part, for (a) There is great danger in judicial intervention where the inconsistency with MC99, (b) breach of the principle law is clear, especially where there is an attempt to read of proportionality, and/or (c) breach of the principle the law across areas where it is not intended. For of legal certainty? example, the three hour limit after which compensation is payable makes no sense when read with other parts of ■ If the answer to question 1 is yes, and the answer to Reg 261/04 relevant to care and assistance. question 3 is no, what if any limits are to be placed upon the temporal effects of the ECJ's ruling? There is no rational basis for amending the law purely on the basis of the principle of equal treatment. This ■ If the answer to question 1 is no, what if any effect is approach is manifestly inappropriate and differences were to be given to the Sturgeon decision between 19 obviously noted in a flight cancellation as opposed to a November 2012 and the ECJ's ruling? delay when the legislation was drafted.

Eight parties expressed their interest in making Responsibility of a carrier in the event of denied submissions to the ECJ in respect of the referred boarding, delay and cancellation is different. Denied questions, namely: (1) Tui Travel, British Airways, boarding and cancellation can often occur for commercial easyJet and IATA, (2) Lufthansa, (3) , (4) reasons, to keep aircraft full. Delay, on the other hand, Poland, (5) , (6) EU Parliament, (7) EU happens for reasons largely beyond a carrier's control. Council, and (8) EU Commission. Compensation acts as a deterrence - it protects the Submissions were made in writing. While the ECJ will passenger by altering the carrier's behaviour. It therefore often decide a case referred to it on the basis of written makes sense in the event of denied boarding or submissions only, in this case a hearing was scheduled in cancellation. However, there is no such incentive in the order for the parties to make oral submissions to the case of delay. Further, in the event of delay, the aircraft Judges. usually takes off, whereas in the case of denied boarding or cancellation, the passenger must make alternative ECJ HEARING arrangements. On 20 March 2012, the eight interested parties made oral While compensation would assist the passenger, it would representations at the ECJ in Luxembourg to a 13 strong financially weaken carriers especially where the Judicial panel. All parties, with the exception of the EU compensation outweighs the cost of the original flight - Commission and Poland, opposed the introduction of this goes against the principle of proportionality. compensation in the case of delay pursuant to Reg 261/04 and requested that the Sturgeon decision be In a situation where the delay is due to the fault of a third overturned. The EU Commission and Poland supported party, such as a ground handler or airport authority, it is the Sturgeon decision and requested that it be upheld. not always possible to pass the cost of compensation on to that third party - to renegotiate the terms of such ARGUMENTS IN FAVOUR OF OVERTURNING contracts would require something to be offered by the STURGEON carrier in return. Tui Travel, BA, easyJet, IATA (the Airlines) Article 29 of MC99 provides that MC99 is exclusive, and Article 19 of MC99 already provides for compensation The Airlines submitted that Reg 261/04 as originally for damage caused by delay. This argument is further drafted was clear and did not provide for compensation developed by the German interested parties below. for delay. This was supported by the decision in IATA2 in 2006, which held that Article 6 of Reg 261/04, dealing In the event that Sturgeon is upheld, the Airlines with delay, was not inconsistent with MC99 given that submitted, it should only apply to claims brought after the MC99 already dealt with compensation for damage date of the judgment, and should not be applied caused by delay. retrospectively. Article 6 was not invalid on the grounds of legal uncertainty because the court in IATA had formed a clear

02 Lufthansa The Aim of MC99 is to ensure standardised rules are applied internationally. The EU applies MC99 to both Lufthansa focused on the exclusivity of MC99, which domestic and international flights in order to further already provides for compensation for damage caused by achieve standardisation of rules. If a claim for damages delay at Article 19. MC99 permits recovery for any for delay is permitted under Reg 261/04 the EU will length of delay and wherever the delay may occur, for suffer given that damages will be available from two example at the point of departure or destination; whereas separate sources of legislation in respect of delays over the decision in Sturgeon provides for compensation only three hours. after three hours of delay at the point of origin. United Kingdom Lufthansa argued that the types of compensation offered are the same - there is no distinction between fixed The UK focused on the principle of equal treatment: compensation available pursuant to Sturgeon or similar cases must be treated the same way and different compensation for damage caused by delay available cases must be treated differently unless there is objective under MC99. Further, one is deductible from the other, justification not to do so. The question is, therefore, are thereby demonstrating that they are intended to be one the two cases similar and, if so, is there any justification and the same. to treat them differently?

There is no gap in the legislation which requires the ECJ Passengers subject to cancellation are not the same as to intervene and award compensation for delay. Reg passengers subject to delay: in one case the flight does 261/04 was carefully thought out and is intended to not exist and in the other case the flight does exist. It is reflect the changing behaviour of carriers, not the change therefore understandable that such passengers should be in passenger convenience. treated differently.

Like the Airlines, Lufthansa argued that a carrier has no The arrangements of a carrier in respect of cancelled control over a delay and therefore there is no commercial flights are very different to those in respect of delayed advantage in awarding compensation in such a situation; flights. A cancellation by its nature leads to a re-route, whereas, in contrast, compensation in the case of denied whereas a delay leads the passenger to depart on the same boarding or cancellation makes sense. Upholding flight, but later. Sturgeon may result in carriers choosing to cancel flights which would otherwise have flown, subject to a delay. A distinction was made in Reg 261/04 because, to do otherwise would have been contrary to MC99. It is clear Germany that the primary objective of compensation is to deter carriers from denied boarding or cancellation commercial Germany considered equality of grounds for liability. practices by making such decisions economically Generally in order for liability to attach to a party, that unattractive. Carriers can control these situations and can party must have committed a tort. There must therefore act responsibly. be a finding of fact to establish liability. The repercussion of finding liability is an obligation to However, there is no commercial decision taken in the compensate, by way of damages. There may be various event of delay, nor any incentive not to delay a flight and reasons for liability and different methods of so the legislature draws a distinction between a compensating for the same, which will be cumulative. cancellation and a delay. It is tempting to think that the Reg 261/04 provides for deduction of one form of damage - namely loss of time - is the same, but it is not compensation from another. right to say that a cancellation and a delay is the same: one gets you there and the other does not. Article 29 of MC99 provides for exclusivity and precludes claims for damages for delay under Reg MC99 covers liability resulting from carriage by air, 261//04. A claim for delay under Reg 261/04 runs including delay, and generally there is no need to prove parallel to such a claim under MC99 and seeks to remedy fault on the part of the carrier. However, MC99 does not the same thing, albeit that Reg 261/04 does not require cover liability for flight cancellation, which can occur damage to have been suffered. prior to the operation of MC99 and is effectively a termination of the contract for carriage. The difference The IATA case limited damages for delay to care and has been repeatedly recognised by US courts. assistance only, to alleviate a passenger's immediate economic need. This is not provided for in MC99 and it A flat rate of compensation for delay available under Reg is therefore appropriate to be covered separately in Reg 261/04 would run contrary to MC99, as it would be non- 261/04. Compensation, on the other hand, is already compensatory in nature. Further Reg 261/04 does not covered by MC99. require that compensation for delay be read into it. To do so creates an ambiguity which should not be created.

EVERYTHING MATTERS | 03 The right to care and assistance after four hours, as EU Council provided for in Reg 261/04, demonstrates the inconsistency that would be created if compensation The Council argued that the principal objective of Reg were available after just three hours. Further, Reg 261/04 is to provide a high level of protection for the 261/04 only relates to delay in departure, whereas MC99 passenger in the most common situations where the provides for damage caused by any delay, thereby passenger's interests are at risk. The legislators intended creating a further inconsistency and further there to be a clear distinction between cancellation and demonstrating why a delay should not lead to a right to delay. Different situations should be objectively treated compensation pursuant to Reg 261/04. differently, even if they appear similar, and the Council considered that the differences were objectively justified EU Parliament and did not contravene the law.

Parliament asked the question whether MC99 and Reg The legislature chose not to provide compensation for 261/04 permit the same thing. There are two categories delay and that should be respected. A separation of of passenger, namely those who are delayed and those powers, which is what appears to have happened in the who are cancelled. The question is whether they should Sturgeon case, is a cause for serious concern. be treated equally. ARGUMENTS IN FAVOUR OF UPHOLDING Counsel submitted that separate rules in respect of delay STURGEON were superfluous as they had already been reviewed in the IATA decision in 2006. While comparable situations Poland must be treated the same way, to treat the two situations of cancellation and delay differently was not Poland argue that the provision of damages for delay, in discriminatory. addition to denied boarding and cancellation, is on all fours with the principle of equality. If a carrier is not Denied boarding and cancellation lead to a drastic responsible for the delay, it can rely on the "extraordinary modification of the contract. The consumer fulfils the circumstances" defence in Reg 261/04 or the "all contract but the carrier decides not to. It is necessary to measures" defence in MC99. Furthermore, the carrier look at responsibility and control, as well as what the can seek redress via third parties. passenger needs to do in order to get to his destination. Where compensation is due under Reg 261/04, this is As currently drafted, Reg 261/04 is inadequate and because the passenger is faced with no choice. In the disproportionate, and contravenes the principle of equal case of delay, on the other hand, a flight is still valid, treatment. Compensation in respect of a delay of more albeit that serious discomfort may be suffered. than three hours is reasonable and prevents long delays, which are the most inconvenient. It guarantees an Denied boarding and cancellation, where compensation amount to the passenger, without the need to go through has been adopted, are often imposed for commercial the proof of loss procedure. reasons and are invariably against the will of, and cause unacceptable trouble to, the passenger. The ECJ is able to legislate in this area, as it did in the IATA case in 2006. Further, the flat rate offered does The purpose of providing for compensation in the event not mean that the compensation is not compensatory - it of commercial cancellation or overbooking is that it does not seek to compensate for material damage, but for avoids a careless attitude being adopted by the carrier. In loss of time. MC99 Article 22 limits damage for delay to a delay situation, there is no control over the causing 4,150 SDRS, so in some cases passengers do not get full event, and the delay comes at a cost to the carrier. damages. Compensation can be deducted from other Further, to introduce compensation for a three hour delay compensation paid, and therefore the two systems would lead to an entitlement to €600 before a passenger complement one another. is entitled to a refreshment. In the event that Sturgeon is upheld, Poland submitted, it Compensation is not intended to merely compensate a should apply retrospectively to all claims for passenger for loss of time - if this were the case, no compensation for delay pursuant to Reg 261/04. compensation would be available in a situation where the carrier has delivered the passenger to his destination EU Commission sooner. The Commission supported Sturgeon and considered that With regard to the temporal effect of Sturgeon, if it is it was based on legally sound reasoning which was overturned but has already been applied by carriers, if consistent, proportionate and in line with MC99. The should not be held to have been done so incorrectly. purpose of Reg 261/04 is to ensure a high level of protection for passengers.

04 The economic impact of Sturgeon has been reviewed by departure, but instead focused on delay on arrival. If a the Commission to ensure that it is proportionate. The claim is made that way, then MC99 covers any damage Commission is also currently considering a revision of suffered. On the contrary, if an aircraft leaves late but Reg 261/04 and has carried out an impact assessment as arrives early there is no scope for damage suffered. It part of that process. In doing so it has commissioned a was submitted, in any event, that there is no need to report on the economic burden on carriers in 27 Member compare the two pieces of legislation. States, Iceland, and Switzerland. 2. Submissions have focused on the difference In addition, Eurocontrol data has been analysed from between denied boarding and cancellation, which 2007-09 which showed that only 0.6 to 0.7% of flights are often imposed by the carrier for commercial were delayed for more than two hours. In 2010, the reasons, and delay which is largely beyond the figure was higher due to the volcanic ash. carrier's control. In Sturgeon, there was argument as to whether the situations which arose amounted An estimate of the cost of Reg 261/04 has been made, to a cancellation or a delay. If the legislature had albeit that this has been based on assumptions, for known that carriers would have attempted to example the assumption that carriers follow Sturgeon extend the meaning of delay in order to avoid when it is known that most do not; the assumption that compensation, would it have drafted Reg 261/04 10% of passengers make a claim when the reality is only in such a way to deter such practices? 5%; and the assumption that extraordinary circumstances is applied to 50% of technical faults. In response it was submitted that, while carriers have been accused of delaying aircraft that should have been The real cost of Sturgeon is therefore insignificant. In cancelled in order to avoid compensation, the reality is 2009, the total cost of Reg 261/04 for carriers was €767m that this does not happen. If they did, the figures would - 0.6% of average turnover; the total cost that related to have shown a drop in cancellations and an increase in Sturgeon was €77m or 0.06% of average turnover. delays. There is no evidence of this. Further, Sturgeon could have been decided differently if a cancellation had The main issue is therefore the impact of the Judgment been defined differently to include their individual on passengers - the cost of compensation for relatively circumstances. few passengers is borne by all passengers by way of increase in fares. Any passengers may be a victim and After questioning, the interested parties were given an therefore there is a need to protect all passengers. opportunity to make brief replies.

QUESTIONS NEXT STEPS Following representations, the Raporteur asked two The Attorney General will hand down his opinion on 15 questions, namely: May 2012, following which we expect a judgment from the ECJ shortly thereafter. 1. If Reg 261/04 defines delay and restricts it to a delay of more than three hours, whereas MC99 For further information please contact: does not define delay or provide any time limit for the same, can you really say that Reg 261/04 is contrary to MC99? Instead, is it possible to say that the scope of the two are different and the Kathryn Ward consequences would be different, and therefore Partner Article 29 of MC99 in respect of exclusivity is not T +44 20 7796 6788 contravened? [email protected] In response, it was submitted that MC99 provides for delay in the arrival of the passenger and the consequences of the same for the passenger, whereas Reg 261/04 provides for delay in departure and the care and 1 Case references C-402/07 and C432/07 assistance needs that must be met at the departure airport 2 C344/04 as a result. Sturgeon, however, did not look at delay on

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