The law behind....holidays
1 February 2006
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The arrival of the internet has created a new style of holiday-making whereby people buy flights and accommodation from separate suppliers rather than in a single package from a tour operator. But without the same protection as that afforded to package holidays, how is the law changing to keep up?
The past 10 years or so have seen a dramatic change in both the type of holidays generally sold in the UK and the manner in which they are provided and sold. Ten years ago, the most common sort of holiday was the package holiday. This is the holiday that has all the basic ingredients put together (flight, accommodation etc) and is sold at one inclusive price. Package holidays are provided by tour operators, and it is the tour operator that has contractual responsibility to the consumer. Ten years ago, these were primarily sold through travel agents through high-street outlets (such as Thomas Cook) or call centres. Despite Teletext, there were few electronic sales.
Over the last decade, though, electronic sales have increased dramatically, and with this method of sale has come a change in the type of holiday arrangement. It is increasingly common for holiday-makers to put together their arrangements themselves rather than purchase a package. Companies such as lastminute.com enable holiday-makers to purchase accommodation from one source and flights from another. These holidays are sometimes referred to as 'dynamic packages' but the use of the word 'package' is misleading.
There is considerable difference between the legal obligations that surround packages and arrangements that consumers put together themselves. As the law stands, when consumers put arrangements together themselves, even if through an intermediary, the holiday-maker's remedy lies against the ultimate supplier and there is little or no remedy against the intermediary. With packages, however, the position is rather different, and holiday-makers have very considerable legal rights against the tour operator (and indeed the travel agents through whom any packages are sold). There is also a much tighter regime of financial protection requirements for packages.
Regulation within the holiday industry is, by and large, voluntary. It comes about through membership of organisations such as the Association of British Travel Agents (Abta), but that membership is not compulsory to enable companies to trade. There are two exceptions. The first is that sales of flights are regulated by the Civil Aviation Authority (CAA). The second is that the Office of Fair Trading (OFT) regularly scrutinises the contract terms used in the holiday industry and has, over the past few years, waged a campaign against contract terms that it has regarded as unfair and contrary to the Unfair Terms in Consumer Contracts Regulations 1999.
Anyone in the UK, other than an airline, who sells flights or offers them for sale must comply with the Civil Aviation (Air Travel Organisers’) Licensing) Regulations, enforced by the CAA. Essentially, these regulations provide that, to be allowed to sell flights in the UK legally, the vendor must either hold and Air Travel Organisers’ License (Atol) or be the authorised agent of an Atol holder. To obtain an Atol, it is necessary to provide financial protection arrangements satisfactory to the CAA. These arrangements are normally provided by a bond – a form of guarantee by a bank or other financial institution to pay a certain sum in the event of the Atol holder’s financial failure. That money is then used to reimburse customers’ money paid for flights that they would not now receive, or to pay for the repatriation of those stranded overseas. Should the bond monies be insufficient to cover these costs, there is a back-up fund administered by the Air Travel Trust (ATT). The ATT’s fund is currently behind the recent Government debate about the imposition of a levy on air travel.
The Atol system covers not only flights, but all arrangements that are sold with flights as part of packages. There is currently, however, a debate as to the exact definition of 'package' within the Atol Regulations and the Package Travel Regulations. This debate has led Abta to initiate judicial review proceedings against the CAA. The outcome of those proceedings, in which Field Fisher Waterhouse acted for Abta, will have a significant impact upon the meaning of 'package' and the financial protection arrangements adopted within the travel industry.
Aside from the financial protection requirements of the Atol Regulations, the Package Travel Regulations also impose financial protection requirements upon tour operators selling packages. Where the package involves flight elements, these are satisfied by compliance with the Atol Regulations. In all other cases, though, separate financial protection arrangements must be made. Again, these are normally provided through bond arrangements.
General consumer law applies to any holiday description, whether it appears in a brochure, on a website or flyer, or in any other material. Additionally, brochures that describe packages are subject to particular requirements imposed by the Package Travel Regulations.
Brochures, for example, must detail "the type of accommodation, its location, category or degree of comfort and its main features". In other words, there must always be a form of star rating applied to properties so as to give consumers a reasonably good indication of the standard of accommodation. The brochure must also contain general information about passport and visa requirements that apply to UK citizens and health formalities required for the journey and stay. It is, of course, good sense for tour operators to provide this information, but it is also a legal requirement.
There are numerous other details that brochures must include, and failure so to do will be a criminal offence. Primarily, the offence is committed by the tour operator whose brochure it is, but the Package Travel Regulations also provide that a travel agent that makes available brochures that are in breach of the regulations will also commit a criminal offence, unless the agent can satisfy one of the defences. Passing the blame on to the tour operator is, in general terms, a defence for the agent, but it will not be available to the agent if it was aware of the failure in the brochure.
The Package Travel Regulations introduced a new liability regime for package holidays. It is a regime that makes the tour operator liable for the negligence of those who supply component parts of the package. (It is important to bear in mind that typically, tour operators do not actually themselves supply the services that make up the package, but use airlines, foreign transport companies, hoteliers etc to supply the components of the packages.) The regulations do not impose strict liability upon the tour operator, in that liability does not attach, no matter the reason for things going wrong with the holiday. But where there is any negligence (be it on the part of the tour operator or the relevant supplier), there will be liability/
Liability claims break down into three general categories. One is claims for poor quality; another is claims that arise when someone is injured as a result of, for example, diving into a swimming pool; and one is the food-poisoning type of claim. These latter types of claim have proliferated in recent years and this proliferation has coincided with the onset of class actions.
Where a dissatisfied holiday-maker has a valid claim for compensation that does not involve personal injury, it is well established that there are three heads of damage. These are diminution of value, which is the amount by which the value of the holiday contract has been diluted because of the breach; second, there is the claim for special damages – ie out-of-pocket expenses; third, there is the claim for loss of enjoyment.
Loss of enjoyment is a damages claim that has developed during the past 20 years or so. One of the ongoing debates is whether its amount should be determined by holiday cost or not. For example, if because of poor quality a holiday has been a total disaster, should the loss of enjoyment compensation be a multiple of the holiday cost or should it be a universal general figure? Adoption of the former approach means that those who pay more for their holiday will receive greater compensation when something goes wrong.
Peter Stewart is head of travel and tourism at Field Fisher Waterhouse
how is the law changing to keep up?