Credit, When Credit Won't Do

A.        Introduction

1.     The lockdown measures put in place to tackle the Covid-19 epidemic have left many holiday plans in tatters. The closest we can get to Roman Holiday at the moment is on Amazon Prime Video. At the same time, families facing increasingly straitened circumstances would no doubt welcome the refund of the money previously paid for a holiday in sunnier times. There have been widespread reports in the press in late April and early May 2020 of holiday companies and airlines refusing to refund families their money, even though holidays and flights have been cancelled. There has been an increasing trend for such companies to offer only credit notes or vouchers instead. The Consumers’ Association through its website www.Which.co.uk has also drawn attention to practice of certain banks to refuse “Chargeback” scheme claims and claims under section 75 of the Consumer Credit Act 1974 (‘CCA 1974’).

2.     In this article, we explore what consumers might do to get their money back. We will therefore look at:

2.1.  What rights consumers have in relation to cancelled holidays, flights and hotels under UK law;

2.2.  Whether or not travel insurance might fill the gap and whether banks’ “Chargeback” scheme and the procedure against credit card companies under section 75 CCA 1974 would offer some redress;

2.3.  Finally, we consider how any consumer rights are best practically enforced. We look in particular at the available Small Claims Procedures and the prospect for group litigation to be brought to protect consumers’ rights.

B.        Substantive consumer rights

(1) Rights under the consumer’s contract

 3.     The first port of call will be for any consumer to look at the terms and conditions of the contractual counterparty with whom they booked the relevant flight, hotel or holiday package. The terms and conditions may themselves provide an entitlement to a full refund in the event that a flight or holiday is cancelled. For example, clause 3.6.4.2. of Expedia’s standard terms and conditions states: 

“3.6.4.2 Cancellations by Expedia Travel before travel

On rare occasions, Expedia Travel may have to cancel your Package Holiday and it reserves the right to do so.  If it has to do so, it will notify you as soon as possible.  Expedia Travel may (at its discretion) also offer you an alternative Package Holiday if it is able to do so and inform you of its impact on the price of your booking.  If the alternative Package Holiday is of a lower quality or cost, you may be entitled to a price reduction in accordance with Article 3.6.9 below.  If Expedia Travel cannot offer you an alternative, or even if you just prefer, it will provide you with a full refund of any payments made for the Package Holiday.”

4.     However, other companies, such as Easyjet, have terms and conditions that provide no separate contractual entitlement to a refund for cancelled flights. Clause 15.5 of the Easyjet Terms and Conditions essentially states that the cancellation provisions found in the Warsaw Convention 1929, as amended; the Montreal Convention 1999, as amended; or Regulation 261/2004/EC (addressed below) will apply.

5.     The next step will be to determine what law governs the contractual relationship between the consumer and the service supplier.  The current regime for determining the applicable law of a contractual claim is set out in Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (‘the Rome I Regulation’).(1) Many sets of terms and conditions for holidays and flights offered for sale in the UK will have a choice of law clause that identifies the governing law of the contract as the law of England and Wales, Scotland or Northern Ireland. Under Article 3 of the Rome I Regulation, an express choice of law agreed between the parties is usually determinative. In a consumer context, however, this is subject to the terms of Article 6, which states in its relevant part:

“1.   Without prejudice to Articles 5 and 7, a contract concluded by a natural person for a purpose which can be regarded as being outside his trade or profession (the consumer) with another person acting in the exercise of his trade or profession (the professional) shall be governed by the law of the country where the consumer has his habitual residence, provided that the professional:

(a) pursues his commercial or professional activities in the country where the consumer has his habitual residence, or 

(b) by any means, directs such activities to that country or to several countries including that country, and the contract falls within the scope of such activities.

2. Notwithstanding paragraph 1, the parties may choose the law applicable to a contract which fulfils the requirements of paragraph 1, in accordance with Article 3. Such a choice may not, however, have the result of depriving the consumer of the protection afforded to him by provisions that cannot be derogated from by agreement by virtue of the law which, in the absence of choice, would have been applicable on the basis of paragraph 1.”

6.     The rationale for this provision is set out in recital (25) to the Rome I Regulation as follows:

“Consumers should be protected by such rules of the country of their habitual residence that cannot be derogated from by agreement, provided that the consumer contract has been concluded as a result of the professional pursuing his commercial or professional activities in that particular country. The same protection should be guaranteed if the professional, while not pursuing his commercial or professional activities in the country where the consumer has his habitual residence, directs his activities by any means to that country or to several countries, including that country, and the contract is concluded as a result of such activities.”

7.     In many cases, the applicable law shall be the law of the place where the consumer has his or her habitual residence. This is certainly the case for supplies of flights and package holidays. The exception is likely to be holiday accommodation booked directly with the owner or its agent in another country.(2) Article 6(4)(a) of the Rome I Regulation states that Articles 6(1) and (2) shall not apply to “a contract for the supply of services where the services are to be supplied to the consumer exclusively in a country other than that in which he has his habitual residence.” In those cases, in the absence of an express choice of law clause, Article 4(1)(b) states that “a contract for the provision of services shall be governed by the law of the country where the service provider has his habitual residence.” Habitual residence is defined under Article 19 by reference to the circumstances at the time of conclusion of the contract. For corporate and other legal entities, it is the place of their central administration. For natural business persons, it is their principal place of business. Contracts for hotels and similar accommodation booked abroad directly by consumers may well then be subject to the law of that country.

8.     Assuming that one of the laws of the United Kingdom is the applicable law of the contract, a consumer may well be able to rely upon the suite of protections conferred by the Consumer Rights Act 2015 (‘CRA’).(3) Section 52 CRA 2015 requires the service to be performed within a reasonable period of time. That clearly will not be met where the service is cancelled. Cancellation of a service which has been fully paid for may well constitute a breach of contract. But a claim for damages for breach of contract may run into difficult issues concerning frustration of the contract or force majeure issues. These issues do not arise if the consumer simply relies on his or her statutory rights. Section 54(5) confirms that if the service is not performed in a reasonable time, there is a right to a reduction in price and/or a refund under section 56. Section 56(2) confirms that a price reduction can include the full amount of the price, so an entitlement to a refund in full can arise in appropriate circumstances.  Section 56(4) and (5) CRA 2015 states:

“(4) A refund under this section must be given without undue delay, and in any event within 14 days beginning with the day on which the trader agrees that the consumer is entitled to a refund.

(5) The trader must give the refund using the same means of payment as the consumer used to pay for the service, unless the consumer expressly agrees otherwise.”

 9.     This statutory provision therefore makes clear that a consumer is not obliged to accept a refund voucher or credit note. He or she can insist upon a refund in full of the purchase price. Section 57(3) also confirms that a term of a contract to supply services is not binding on the consumer to the extent that it would prevent the consumer in an appropriate case from recovering the price paid or the value of any other consideration. Any contractual term that restricts the right of the consumer to a refund is also not binding, pursuant to section 57(4) CRA 2015.

10.    It follows that once it is accepted by a holiday company or airline that a refund is due, that refund must be given using the means of payment the customer chose. This will typically be a refund to the credit or debit card used to pay for the holiday or flight. It will also be due within 14 days. Unless the customer expressly agrees, a refund by credit note or voucher, to be used with the same company at a point in the future, will not be satisfactory. Nor would any contractual term that insisted on refund by credit note or voucher be binding. The persistent failure of holiday companies or airlines to give refunds within 14 days is therefore unlawful. Claims can be brought for enforcement of the statutory protections offered by the CRA 2015.

(2) Rights under Council Regulation 261/2004/EC for cancelled flights  

11. Consumers also have specific rights to compensation conferred by Council Regulation 261/2004/EC in the event of cancelled flights: Article 1(1)(b). The Regulation covers any flights departing from an airport in the EU (including, at the moment, the UK) regardless of the place of establishment of the airline. Incoming flights fall within its scope if they are operated by an airline with an operating licence issued under the EU’s authorisation regime.(4) Recital (11) confirms the legislative intention was to allow passengers either to obtain reimbursement of the purchase price for cancelled flights or to obtain re-routing under satisfactory conditions.(5) This intention is met by the operative provisions of Articles 5 and 8 of Regulation 261/2004. 

12.  Article 5 states that in the case of a cancellation of the flight, passengers concerned shall be offered three different types of remedy depending on the circumstances behind the cancellation and the possibility of re-routing.(6) For most consumers in the present situation, an offer of re-routing will not be practical. Replacement flights are simply not running.(7) The UK Government has issued a general “Covid-19 Exceptional Travel Advisory Notice” which presently advises British nationals against all but essential international travel.  This is likely to remain in force for some time, given the UK Government’s overall lockdown strategy and the risk that a premature re-opening of outbound travel could create a whole new set of repatriation and consular issues for the Government as local conditions and control measures are subject to unpredictable changes.  We shall therefore proceed on the assumption that re-routing within a reasonable period of time is not possible.

13. The first set of remedies is the form of assistance set out in Article 8. Article 8 confirms that the carrier must offer passengers the choice between: (a) re-routing, on the one hand, and (b) reimbursement together with, where relevant, a return flight to the first point of departure at the earliest opportunity. ‘Reimbursement’ for these purposes, in accordance with Article 8(1)(a), means:

“reimbursement within seven days, by the means provided for in Article 7(3), of the full cost of the ticket at the price at which it was bought, for the part or parts of the journey not made, and for the part or parts already made if the flight is no longer serving any purpose in relation to the passenger's original travel plan. . .”

14. The second form of assistance is the right to care conferred by Article 9. This typically operates where the cancellation is at the airport. It covers the right to meals and refreshment during any waiting time, hotel accommodation where an overnight stay is required and relevant transport to and from the airport (as well as certain communication expenses).

15. The third form of remedy is the right to compensation. The amount of compensation available of €250, €400 or €600 per passenger depends on the length of the journey and whether the journey completes within the EU. However, this compensation is unlikely to be available during the present pandemic, for two reasons. First, many flights are now being cancelled more than two weeks in advance of the scheduled departure date, so that no compensation is payable in the light of Article 5(1)(c)(i) of the Regulation. Secondly, the airline is not required to pay compensation if it can show that “the cancellation is caused by extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken.” While it is true that the Court of Justice of the European Union (‘CJEU’) has construed this derogation narrowly,(8) it seems likely that the Covid-19 pandemic and the serious restrictions on free movement imposed in Member States would count as “extraordinary circumstances.”(9) The CJEU has construed “extraordinary circumstances” as events which, by their nature or origin, are not inherent in the normal exercise of the activity of the air carrier and are outside that carrier’s actual control.(10) 

16.  Consumers will, however, be able to insist on full reimbursement of the price of their flight. This includes reimbursement of any taxes or charges which formed a component of the cost of the flight.(11) Article 7(3) provides that the reimbursement must be paid in cash, by electronic bank transfer, bank order or bank cheque. It is only with the “signed agreement of the passenger” that the reimbursement can be made by travel vouchers or the provision of other services. Many of the airlines presently insisting on vouchers have therefore failed to comply with the requirement of the Regulation to offer reimbursement in one of the other forms. The Commission Guidelines issued in March 2020(12) recognise at [2.2] that customers choosing themselves to cancel flights may prefer to accept a voucher in place of a refund, but also confirms that:

 “This situation has to be distinguished from the situation where the carrier cancels the journey and offers only a voucher instead of the choice between reimbursement and re-routing. If the carrier proposes a voucher, this offer cannot affect the passenger’s right to opt for reimbursement instead.”

17.     It is also arguable that mere assent by clicking on a website link does not amount to “signed agreement” to accept the voucher, at least unless the clear choice has been presented to the consumer for his or her informed consent.(13) That argument is supported by the fact that the objective of Regulation No 261/2004 is to ensure a high level of protection for passengers and consumers, by strengthening their rights in a number of situations involving serious trouble and inconvenience.(14) Moreover, in an analogous context of passengers who are denied boarding against their will (i.e. ‘bumped’ passengers), the CJEU has held that such passengers should be fully informed of their rights and given the information needed to enable them to make an effective and informed choice between the available options.(15)

18.   There are two words of warning, however. First, some intermediary travel companies (such as Opodo or Expedia) will sometimes charge commission to the passenger for booking a flight with a third-party airline. That commission may or may not be separately invoiced to the consumer or charged as a separate entry on a debit or credit card entry. The third-party airline is not obliged to refund that commission if it had no knowledge that the travel company as an intermediary was charging it.(16) This has to be ascertained on the facts of any given case.

19.  Secondly, where a consumer has booked a package holiday which includes a flight, the provisions governing refunds for cancelled package holidays(17) will take precedence. Article 3(6) of Regulation 261/2004 states that:

“This Regulation shall not affect the rights of passengers under Directive 90/314/EEC.(18) This Regulation shall not apply in cases where a package tour is cancelled for reasons other than cancellation of the flight.”

20.   In Case C-163/18 HQ v Aegean Airlines [2020] 1 CMLR 9, CJEU, the consumers booked flights to and accommodation in Greece with a Dutch travel company. The travel company became insolvent and the holidays were cancelled. The consumers were not able to claim in practice against the insolvent travel company under the terms of Directive 90/314/EEC. Instead, they sought reimbursement of the full cost of the flights from Aegean Airlines. The CJEU noted that Article 8(2) of Regulation 261/2004 stated that the right to reimbursement applied for passengers whose airline tickets formed part of a package, except where such a right arose under Directive 90/314/EEC. At [34], the CJEU held that those rights were not cumulative. If rights could be claimed under the Directive, no direct right to a refund could be asserted against the airline. That was so even if the right under the Directive could not be enforced. The CJEU observed that rights under the Directive were intended to be subject to a State guarantee at national level, which would save consumers from insolvent travel firms. In the absence of such a guarantee, a Francovich claim for damages might be brought directly against the Member State concerned: [40]-[43].

(3) Rights under the Package Travel Regulations

21.     For those consumers who booked a flight as well as hotel accommodation, the substantive right to reimbursement for cancellation will be derived from the Package Travel Directive (EU) 2015/2302. The Package Travel and Linked Travel Arrangements Regulations 2018 (‘the Package Travel Regulations’) implement the terms of the Package Travel Directive in the United Kingdom. Since the Directive does not confer any rights on individuals which can be exercised against other private parties (such as airlines or travel companies),(19) consumers will have to look to the Package Travel Regulations for their substantive rights.

22.     Regulation 13, which gives effect to the relevant provisions of Article 12 of the Directive for these purposes, covers the termination of the package travel contract by the travel organiser. It implies a series of contractual terms into the contract, regardless of the law which actually governs the contract: Regulation 36. Regulation 13(3) is stated to apply when (among other things), the organiser is “prevented from performing the contract because of unavoidable and extraordinary circumstances and notifies the traveller of the termination of the contract without undue delay before the start of the package.” Regulation 13(3) in those circumstances provides that the obligation is to “provide the traveller with a full refund of any payments made for the package,” but no further liability to pay compensation arises. Regulation 14(3) states that the refund “must be made to the traveller without undue delay and in any event not later than 14 days after the package travel contract is terminated.”

23.     These contractual terms can also then be enforced by consumers. In short, consumers are entitled to a full refund within 14 days in relation to cancelled package holidays. A failure to provide such a refund gives rise to an actionable breach of contract, which can be pursued in the domestic courts, together with a claim for interest in respect of late payment. 

C.        Possible ‘insurance’ solutions, including ‘Chargebacks’

(1) Rights under a typical travel insurance policy

24.  Should consumers have difficulties enforcing their substantive rights, they might wish to turn next to study the terms of their travel insurance policy.  Many policies provide for reimbursement in the event that a flight or holiday is cancelled as a result of illness or redundancy, both of which may be relevant circumstances during this pandemic.  For example, the Post Office single trip travel insurance policy provides, at Section A, that the insurer will reimburse for cancellation causing financial loss up to a specified amount (which varies according to the policy obtained).  Such loss may include “non-refundable deposits and amounts You have paid for travel and accommodation You do not use because of Your inability to commence travel or complete the trip”.  The cancellation cover applies to trips that the insured has been forced to cancel owing to circumstances beyond their control, including (1) the “unforeseen illness, injury or death of You, a Close Relative or any person with whom you have arranged to travel or stay during the Trip”, (2) “your compulsory quarantine”, and (3) if “You are made redundant and You qualify for redundancy payment under current legislation”. 

25.   Cover may be more limited if the consumer’s cancelled trip is the result of an airline cancellation. For example, at Section A the Post Office policy only covers cancellation/delay of a flight caused by “Strike or Industrial Action … adverse weather conditions, or the mechanical breakdown of, or accident of, the aircraft.”  If the airline fails to supply the service in other circumstances (the examples of “error, insolvency, omission, default, or otherwise” are given) then the policy will not reimburse, and advises the insured to “direct any claim in this case to the provider involved.”  

26.   Some enhanced protection policies may, however, make specific provision for cover during a pandemic. For example, Section P of the Post Office policy, “Enhanced Trip Disruption Following Terrorism or Natural Catastrophe Event”, allows for certain reimbursement (at Section P1) if a ‘Natural Catastrophe’ delays departure from the UK for at least 24 hours from the start of the trip. ‘Natural Catastrophe’ is defined to include a “Pandemic as declared by the World Health Organisation”. Claims may also succeed where the insurance provider has made specific additional provision for Covid-19 on existing policies.  For example, the Post Office have added cover to certain policies, extending cancellation cover to circumstances in which the FCO advise against travel. 

27.   It should be noted that where the airline has provided a refund for a cancelled flight, a consumer cannot make double recovery for the same loss.(20) Less obviously, where the airline is required to provide a refund, reimbursement for present financial loss caused by cancellation is highly unlikely to be available.  For example, the Post Office policy (as set out above) is said at Section A only to cover “non-refundable” expenses, and at its “General Exclusions” provides that the policy does not apply to “costs recoverable from another source”: [32]. Consumers should study the terms of their existing policy carefully and check for any specific Covid-19 top-up provision made by their provider.  Travel insurance providers’ claims handlers will usually advise quickly whether a claim is likely to be paid out (and many claims are authorised to be paid during the initial telephone call registering the claim).

(2) Requests made to / claims against card issuers

28.      Another option available to consumers is seeking to recover a refund either directly from, or via, their card issuer.  There are two key mechanisms enabling this: (1) a “Chargeback” request; (2) a claim under section 75 CCA 1974.  We briefly summarise these processes below.

(a) Chargeback

29.  Chargeback is a mechanism whereby a card issuer can seek to claw back money transferred to a merchant on a consumer’s instruction.  Unlike section 75, Chargeback is not a statutory protection. Instead, it arises from the scheme rules set by those companies that facilitate funds transfers under credit or debit card payment systems (such as Visa or Mastercard).  Accordingly, different card issuers may operate different Chargeback procedures depending on which scheme they subscribe to. 

30.  Broadly speaking, however, a consumer may be entitled to a Chargeback if, following payment, the merchant does not provide the goods or services paid for. In those circumstances, the consumer may make a Chargeback claim to his or her card issuer, who will then seek to have the funds returned (although there is no guarantee that they will be able to do so).  Most schemes limit the period in which a Chargeback request may be made.  Consumers should therefore report the merchant’s refusal to provide a refund to their bank as quickly as possible. The availability of the Chargeback mechanism is not generally conditional on a minimum spend. Again, double recovery is precluded and Chargeback refunds will not be made to the extent of refunds already made by the merchant.   

(b) Section 75 CCA 1974

31. Section 75 CCA 1974 make provision for “Liability of creditor for breaches by supplier”.  In short, it provides that if a consumer has a claim against a supplier in misrepresentation or breach of contract in respect of a purchase made wholly or partly with a credit card, the consumer “shall have a like claim against [their credit card provider], who, with the supplier, shall accordingly be jointly and severally liable to the debtor”: section 75(1).  The imposition of joint and several liability is limited to the purchase of “any single item to which the supplier has attached a cash price not exceeding £100 or more than £30,000”: section 75(3).  Accordingly, if a consumer used a credit card to pay for a flight or holiday which was priced at between £100 and £30,000, and that service was cancelled, the card issuer is jointly and severally liable for any breach of contract by the supplier. 

32.  The following three features of section 75 protection may make it particularly attractive to consumers.  First, the consumer does not need to have made the whole purchase on his or her credit card.  The £100 minimum relates to the price of the service. If a consumer pays only part of that on a credit card, section 75 applies.  Secondly, the only limitation on the territorial scope of the application of section 75 is that the relevant credit arrangement must be a UK credit arrangement. Accordingly, the provision may apply to overseas supply transactions.(21) Thirdly, section 75 gives a consumer a cause of action in damages for breach of contract against the card issuer (rather than a bare refund); and so the consumer may be entitled to claim losses in addition to the sum paid for the cancelled service.

33.      Two notes of caution, however, must be sounded in relation to the application of section 75 in the current circumstances. First, as indicated above, claims for breach of contract in the present environment may run into issues concerning frustration or force majeure.  As the card issuer’s liability is joint and several with the supplier, the bank may in principle invoke defences which would have been available to the supplier defending a claim for breach of contract. Secondly, the specific contractual circumstances will also need to be taken into account. It is possible that the number and complexity of individual contractual arrangements for a given holiday may throw up further arguable defences for the credit card issuer, which it is not possible to cater for at the generalised level considered here.

D.        Practical enforcement for consumers 

34. Each of the Civil Aviation Authority and the Competition and Markets Authority were reported in the Times on 2 May 2020 to be investigating the persistent failures of airlines and holiday companies to give full refunds for cancelled services. However, that investigation could take some time and may well get bogged down in statutory appeals. In the meantime, of course, consumers could take matters into their own hands. Here, a distinction must be drawn between claims based on cancelled package holidays and those based on cancelled flights alone.

35.  The Courts of England and Wales are very likely to have jurisdiction over consumer claims for holidays booked with travel companies offering services in their jurisdiction, even if the claims arise against airlines or holiday companies established elsewhere. The question of jurisdiction is governed by the Brussels Recast Regulation.(22) Article 4 of the Brussels Recast Regulation generally requires an EU established defendant to be sued in its Member State of domicile, but special rules exist for consumers under Articles 17 and 18 of that Regulation. Where a consumer has bought a package holiday, Articles 17 and 18 permit the consumer to bring a claim against the holiday company in his or her place of domicile, if they wish. However, such a claim must be brought directly against the travel organiser responsible for the supply of the package holiday.(23)

36.     As for claims in respect of flights alone, the question of jurisdiction is not dealt with in Regulation 261/2004,(24) so again the Brussels Recast Regulation applies. The CJEU has nonetheless held that Article 17 does not establish jurisdiction where the claim is based on Regulation 261/2004 alone, since Article 17(3) confirms that the section on consumer contracts does not apply to a contract of transport, “other than a contract which, for an inclusive price, provides for a combination of travel and accommodation.”(25) It follows that a consumer who has purchased only an airline ticket which has been cancelled must either sue the airline or travel company in the country of the consumer’s domicile (26) or seek to rely upon the terms of Article 7(1)(a) and (b) of the Brussels Recast Regulation.

37.   Article 7(1)(a) permits jurisdiction to be established, in matters relating to contract, on the basis of the place of performance of the contractual obligation. For the provision of services (such as air transport), Article 7(1)(b) states that is the place where the services were provided or should have been provided. For a cancelled flight departing from the UK, the consumer may choose the jurisdiction either on the basis of the place of departure or the place of arrival of the cancelled flight. (27) It does not matter, for these purposes, that the passenger has bought the flight via a travel company intermediary. The airline is regarded as providing services on behalf of the travel company. The claim remains one concerning “matters of contract” for the purposes of Article 7 of the Brussels Recast Regulation. (28) Consumers with cancelled flights departing from or arriving in the UK will accordingly be able to commence proceedings in the national courts of England and Wales, Scotland or Northern Ireland (depending on where they live). 

38.   The value of claims for cancellation of holidays will, in many cases, fall within the £10,000 jurisdictional limit for the small claims court procedure in England and Wales.(29) There is a limited costs’ regime in small claims brought in England and Wales under CPR Part 27, which restricts the exposure of a consumer to the legal costs of an airline or travel company. A claimant must first send a standard pre-action protocol letter to the airline or travel company, containing the usual matters. These include the identity of the claimant and defendant, an outline of the background to the dispute, the substantive entitlement asserted and the remedy sought, including any claim for interest made.(30) In England and Wales, small claims may now be filed online.(31) For claims of up to €5,000 against a defendant domiciled in another Member State to that of the consumer, the European Small Claims Procedure is also available before the domestic courts.(32) A judgment given in the European Small Claims Procedure is recognised and enforceable in another Member State without the need for a declaration of enforceability and without any possibility of opposing its recognition.

E. The potential for Group Litigation

39.   The time and effort required for bringing even a claim under the Small Claims procedure (domestic or European) may well deter many. It seems likely, however, that some form of group claim could be initiated against holiday companies and airlines which have refused to give full refunds in cash; and against card issuers which have routinely denied Chargeback or section 75 CCA 1974 claims. 

40.   Group claims can be pursued by a number of procedural mechanisms under the Civil Procedure Rules. These include representative proceedings under section II of CPR Part 19 and claims subject to Group Litigation Orders (‘GLOs’) under section III of CPR Part 19 and PD19B.

41.   Before an application is made for a GLO, consideration must be given to whether any other order may be more appropriate (PD19B paragraph 2.3).  This has sometimes led to GLOs being characterised as “orders of last resort”: an overly pessimistic description which does not reflect the courts’ willingness to proceed by way of GLO (or, importantly, conventional case management drawing on features of the GLO regime) in suitable cases. Paragraph 2.3 of PD19B expressly requires consideration of consolidation or representative party actions, but it is not limited to those alternatives: Schmitt v DePuy International Ltd [2016] EWHC 638 (QB) at [43]. The Court in Schmitt drew attention to the flexibility of bespoke case management on the basis of flexible, conventional case management powers, holding at [48] that: “Issues such as controlling costs across a group of claimants represented by multiple firms of solicitors and the need for test cases to be binding upon the whole cohort can be addressed by the court’s conventional case management powers.” 

42.   The representative claim procedure contained in section II of CPR part 19 requires there to be more than one person with “the same interest” in a claim: rule 19.6.  The test of same interest embraces three elements.  First, a common interest; second, a common grievance; and, third, a remedy beneficial to all: Independiente Ltd v Music Trading On-Line (HK) Ltd [2003] EWHC 470 (Ch), Sir Andrew Morritt VC.  A representative claimant does not need to obtain the consent of the represented class (or of the Court), but the Court may direct that a person not be permitted to act as a representative (rule 19.6(2)). The members of the represented class are bound by any ultimate judgment but can only enforce the judgment or have it enforced against them with the leave of the court: CPR r. 19.6(4).  

43.   In Richard Lloyd v. Google [2019] EWCA Civ 1599, CA, the Court of Appeal reversed the High Court and allowed a claim by a consumer protection champion, Richard Lloyd, to proceed against Google on behalf of a class of more than four million iPhone users.  The representative claim sought compensation under section 13 of the Data Protection Act 1998 for damage in tracking the users’ activity without their consent, for commercial purposes.  No distinctive facts affecting the members of the representative class were asserted, other than that they had not consented to the abstraction of their data.  Giving the judgment of the Court of Appeal, the Chancellor, Sir Geoffrey Vos, held that as the claimant’s counsel disavowed reliance on any facts affecting any individual claimant within the represented class, that had the effect of reducing the damages that might be claimed to the “lowest common denominator” but did not mean they did not have the same interest in the claim [75].  As it was also “impossible to imagine that Google could raise any defence to one represented claimant that did not apply to all others”, it could be said that “[t]he wrong is the same, and the loss claimed is the same.  The represented parties do, therefore, in the relevant sense have the same interest.” [75]. 

44.   It is clear from [76] of the Court’s judgment that an important part of the Court’s conclusion that the interests of the represented class were appropriately served by allowing a representative claim which disavowed reliance upon individual facts (which facts might entitle some claimants to greater recovery) was the expiration of limitation.  The Court clearly felt that more seriously affected members of the representative class would have initiated proceedings by now if they had an interest in the claims (and, in any event, any such claimants who did subsequently come out of the woodwork could apply to be joined to seek additional losses): [76].   

45.   Where there is a diversity of damage between the members of the represented class, the representative procedure may be used to obtain a judgment on liability alone, which then forms a basis for members of the represented group to pursue their own damages claims on their own facts (whether individually or by way of another group litigation process).  Nevertheless, representative claims still require the successful navigation of a number of procedural obstacles. They are unlikely to be appropriate where extensive factual differences exist between members of the potential class, even if many common issues of law arise. 

46.   The GLO procedure is more apt to accommodate differences between the class which is subject to a GLO. The suitability of proceedings for management by a GLO turns on the identification of multiple claims (existing or prospective) which give rise to “GLO issues” (r.19.11(1)), being “common or related issues of fact or law” (CPR r. 19.10), also expressed as “common issues of fact or law that are likely to arise in the litigation” (PD19B para 3.2(4)). In practice, this permits different categories of claimant with common issues between their claims to be managed in one procedure and for certain common, preliminary issues, to be tried in a relatively economical way.   

47.   The GLO procedure has its own unique set of procedural features (albeit in many cases these enshrine pre-GLO procedural innovations developed by the courts pursuant to their general case management powers).  These include the creation of a group register, the definition of GLO issues which will determine whether a claim is suitable for admission to the group register, the appointment of lead solicitors to manage the GLO claims and costs’ sharing mechanisms.  

48.   A GLO must be applied for (unless it is raised by a court of its own motion) and requires authorisation by specified senior judges, depending on the Court division in which the claims have been commenced. GLOs (or case management analogous to GLOs) are flexible procedural regimes which seek to achieve economy of cost and time to allow for overlapping claims to be progressed in a proportionate manner.   

49.    The advent of representative proceedings, Group Litigation Order claims or “GLO-lite” conventionally case-managed collective claims has been accompanied by significant changes in the way in which litigation is financed. The very limited availability of civil legal aid has meant that different funding models have been obliged to evolve. The development of the litigation funding market has revolutionised the practical ability to bring group claims. In most cases, a litigation funder will work together with a law firm and establish a management or steering committee which drives such litigation forward.  The participation of the litigation funder gives individual claimants a financially viable route to recovery of damages, in circumstances where the individual claimant’s relatively low level of loss or damage would otherwise potentially be dwarfed by the potential costs exposure. This is particularly true where a defendant with extensive resources chooses to defend a series of ‘test cases’ before the national courts in order to limit the scope of their liability as far as possible (and possibly deter further claims).(33) The practical ability of a funder and a law firm to identify and sign up members of the affected class may determine whether it is advisable to seek to proceed by way of a representative claim or by way of a GLO (or ‘GLO-lite’ bespoke procedure under conventional case management powers). 

50.   Litigation funding models usually include insurance cover based on an “After the Event” insurance policy. In addition to securing funding for the group claimants’ own legal costs, the litigation funder pays for ATE cover to protect the claimant group against adverse costs liability. The upfront cost of the ATE cover is recovered by the litigation funder upon success by recovery from the overall sums paid out in the litigation. Such funding models also feature conditional fee arrangements with lawyers; or damages-based agreements providing for a share in the proceeds of the litigation.

51.   The clear limitation on a commercial funder’s adverse costs liability (to the same extent as its contribution to the costs of the party funded) in the so-called Arkin cap (34) has been effectively (if not formally) limited to situations where a commercial funder funds only one element of a piece of litigation, for a defined return. The Court of Appeal has held that the Arkin cap is not a binding rule. It represents an exercise of the broad, discretionary nature of a court’s jurisdiction to award costs against non-parties under section 51 of the Senior Courts Act 1981: Chapelgate Credit Opportunity Master Fund Ltd v Money [2020] EWCA Civ 246, CA per Newey LJ at [38]. The more indeterminate liability which litigation funders therefore face does not seem to have unduly affected the litigation funding market, though it may increase the emphasis on visibility, monitoring and costs budgeting of adverse costs and on the adequacy of ATE cover. 

52.    The continuing press interest in the conduct of travel companies and airlines in this difficult time, as well as the reactions of certain card issuers, may well lead to a groundswell of support for the use of these collective procedures in short order. Meanwhile, for the disgruntled and motivated consumer, the smalls claims procedures identified above may lead to the full refund of monies due to them. 

This article was written by Kieron Beal QC and Tom Mountford.

The views and opinions expressed in this article are the author’s own and do not reflect the view of Blackstone Chambers.

References:

(1) OJ [2008] L No 177, 4.7.2008, p. 6-16, and corrigendum OJ [2009] L No 309, 24.11.2009, p. 87.

(2) The ‘universal application’ provision in Article 2 of the Rome I Regulation means that no distinction will be drawn between the laws of the EU Member States and the laws of third countries, in terms of being determined to be the applicable law governing the contract.

(3) See section 99 CRA 2015 for its territorial extent.

(4) Regulation (EC) No. 1008/2008/EU of the European Parliament and of the Council of 24 September 2008 on common rules for the operation of air services in the Community (Recast), OJ [2008] L No 293, 31.10.2008, p. 93, as amended by Regulation (EU) No 2018/1139 and Regulation (EU) No 2019/2.

(5) In fact, if the re-routed flight is late arriving, compensation may still be claimed: Case C-832/18 A v. Finnair Oyj [2020] EU:C:2020:204, CJEU at [33].

(6) Case C-832/18 A v. Finnair Oyj (supra), CJEU at [21].

(7) A fact recognised by the EU Commission in its Commission Notice Interpretative Guidelines on EU passenger rights regulations in the context of the developing situation with Covid-19, OJ [2020] C No 89I, 18.3.2020, p 1 at [2.1].  

(8) Case C-257/14 Van der Lans [2015] EU:C:2015:618, CJEU at [35]-[37].

(9) The Commission Guidelines (see note 7) at [3.4] take the view that the “extraordinary circumstances” criteria are met where public authorities either outright prohibit certain flights or ban the movement of persons in a manner that excludes, de facto, the flight in question to be operated. The Commission recognises that national measures or restrictions imposed by Member States may lead to flights being so empty that it is better to cancel them in advance to allow passengers adequate time for “organisational measures to be taken.”

(10) Case C-832/18 A v. Finnair Oyj (supra) at [38]; Case C-159/18 Moens [2019] EU:C:2019:535, CJEU at [16].

(11) Case C‑112/11 ebookers.com Deutschland [2012] EU:C:2012:487, CJEU at [14].

(12) See note 7 above.

(13) There does not yet appear to be any case under the Regulation of what “signed agreement” means. But Article 23 of Regulation 1008/2008 (as amended) sets out certain requirements for pricing of airlines fares. It states that “optional supplements” shall be “communicated in a clear, transparent and unambiguous way at the start of any booking process and their acceptance by the customer shall be on an ‘opt-in’ basis.”

(14) Case C‑255/15 Mennens [2016] EU:C:2016:472, CJEU at [26].

(15) Case C-354/18 Rusu v. SC Blue Air [2019] EU:C:2019:637, CJEU at [52] to [58].

(16) Case C-601/17 Dirk Harms v. Vueling Airlines SA [2018] EU:C:2018:702, CJEU at [20]. 

(17) But not for the ‘statutory’ compensation arising from delayed flights: Case C-215/18 Libuše Králová v. Primera Air Scandanavia [2020] EU:C:2020:235, CJEU at [34] and [35]. 

(18) This Directive has been repealed and replaced by Directive (EU) 2015/2302 of the European Parliament and of the Council of 25 November 2015 on package travel and linked travel arrangements, amending Regulation (EC) No 2006/2004 and Directive 2011/83/EU of the European Parliament and of the Council and repealing Council Directive 90/314/EEC, OJ [2015] L No 326, 11.12.2015, p. 1 (‘the Package Travel Directive’). 

(19) Case 91/92 Faccini Dori [1994] ECR I-3325, CJEU at [19]-[27]. 

(20) The ‘statutory’ compensation available under Regulation 261/2004 (of up to €400 per passenger) is not intended to replicate a specific loss. It is intended to compensate, in a standardised and immediate manner, for the damage that is constituted by the inconvenience that delay and cancellation causes, without the passengers having to suffer the inconvenience inherent in the bringing of actions for damages before national courts: Case C-354/18 Rusu v. SC Blue Air (supra) at [28]. It is intended only to cover the damage that is virtually identical for every passenger: [30]. It is not intended as a proxy for individual loss, suffered on a case by case basis, such as loss of salary: [31]-[33] and [40]. In principle, the compensation should not therefore be treated as compensation received for a specific insured loss and should not (at least without express words in the policy) be deducted from the sums due under the policy. 

(21) See Office of Fair Trading v Lloyds TSB Bank Plc [2007] UKHL 48, [2008] 1 AC 316, HL at [44] per Lord Mance (with whom Lords Hoffman, Hope, Walker and Brown agreed ([1], [9], [15] and [16], respectively)). 

(22) Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (OJ 2012 L 351, p. 1).

(23)Case C-215/18 Libuše Králová v. Primera Air Scandanavia [2020] EU:C:2020:235, CJEU at [61] and the case law cited therein.

(24) Case C-464/18 ZX v. Ryanair DAC [2019] EU:C:2019:311, CJEU at [24].

(25) Case C-464/18 ZX v. Ryanair DAC (supra) at [28], which nonetheless recognised that airline customers would be consumers.

(26) For a legal person established within the EU, this will be either its statutory seat, the location of its central administration or its principal place of business: see Article 63 of the Brussels Recast Regulation. For airlines established outside the EU altogether, jurisdiction will need to be established by applying the rules found in CPR Rule 6.36 ff and CPR PD 6B.

(27) Case C-213/18 Guaitoli v. easyjet Airline Ltd [2019] EU:C:2019:927, CJEU at [42]; Case C-204/08 Rehder [2009] EU:C:2009:439, CJEU at [43] and [47].

(28) Case C-215/18 Libuše Králová v. Primera Air Scandanavia (supra) at [47]-[49] and [52].

(29) Lower limits of £5,000 apply in Scotland and £3,000 in Northern Ireland.

(30) A specific Pre-Action Protocol for Package Travel Claims applies only to claims brought for gastric illness suffered on holiday: https://www.justice.gov.uk/courts/procedure-rules/civil/protocol/pre-action-protocol-for-resolution-of-package-travel-claims. But it does have a template Pre-action Protocol Letter before Claim attached to it. The generic Pre-Action Protocol Guidance is available at https://www.justice.gov.uk/courts/procedure-rules/civil/rules/pd_pre-action_conduct.

(31) https://www.gov.uk/make-court-claim-for-money

(32) Regulation (EC) No 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure, OJ [2007] L No 199, 31.7.2007, p. 1.

(33) The very large number of references for preliminary rulings to the CJEU in the last two years which raise issues concerning Regulation 261/2004 might suggest to the cynically minded that the airline industry was seeking to peg back the application of the Regulation as far as possible.

(34) Derived from Arkin v Borchard Lines Ltd and others [2005] EWCA Civ 655, CA.