Chambers of Lawrence Power
4 King’s Bench Walk, Ground Floor, Temple, London, EC4Y 7DL Tel: 020 7822 8822 Fax: 020 7822 8844 www.4kbw.net
Contractual time limits and the nature of compensation
under Regulation (EC) 261/2004
1 On 23 March 2015, the Civil Aviation Authority (‘the CAA’) released a compliance report entitled ‘Financial compensation, technical faults and time limitations’.1 The report outlined the CAA’s view on the law as it presently stands in respect of compensating airline passengers under Regulation (EC) No.261/2004 (‘the Regulation’), for cancellations and long delays to their flights.
2 The report additionally examined a number of UK and foreign airlines’2 responses to the following five questions:
(1) Following the Jet2 v Huzar judgment3 the CAA published updated guidance (CAA List) on the incidents that could be considered to be an ‘extraordinary circumstance’. Please confirm that you apply this guidance when considering compensation claims.
(2) Are you paying passenger claims for compensation that fall within the scope of the Jet2 v Huzar judgment?
(3) If you are not paying passenger claims, please explain what approach you are taking to these claims and your reasoning for not paying.
(4) The Dawson v Thomson Airways judgment4 confirmed that the limitation period in the UK for taking a case to court in respect of the Denied Boarding Regulations is six years. Please confirm that you apply this limitation period.
(5) If, for any reason, you apply a different limitation period, please explain what it is, how you apply it in practice (for example through your terms and conditions), and why you consider it is not in conflict with the Dawson v Thomson Airways judgment.
3 The report concluded that of the 15 largest airlines asked to respond, the approaches of three of the airlines did not meet the CAA’s expectations on compliance. It was
1 Available at http://www.caa.co.uk/docs/33/CAP%201275%20Compliance%20Report%20230315.pdf 2 The terms ‘airline’ and ‘air carrier’ are used interchangeably in this article. 3 [2014] EWCA Civ 791. 4 [2014] EWCA Civ 845
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therefore announced (to much fanfare on BBC Radio 4’s Money Box programme5) that the CAA will be commencing enforcement action under Part 8 of the Enterprise Act 2002 against Jet2.com Limited (‘Jet2’) and Wizz Air Hungary Airlines Limited (‘Wizz Air’) by requesting undertakings from the airlines to comply with the CAA’s expected approach, in particular changing their contractual time limits for bringing claims under the Regulation from 2 to 6 years.
4 The CAA’s view on contractual time limits can be summarised as being reliant on a misconstrued interpretation of the effect of the CJEU’s decision in Joan Cuadrench Moré v KLM (C-‐139/11) and the Court of Appeal judgment in Dawson v Thomson Airways Ltd, a view which is discussed further below.
5 Additionally the report revealed that the CAA will use its Part 8 powers to obtain further information from Ryanair on its approach to assessing passenger claims for flights disrupted by technical faults.
6 This article examines below whether the CAA’s views on contractual limitations are correct and whether it is prudent to take enforcement action against a number of airlines on the basis of its views, both in light of recent cases from the County Court at Liverpool, and the proper scope of the Court of Appeal’s judgments in Jet2 v Huzar and Dawson v Thomson Airways.
Drew v Ryanair 7 On 29 January 2015, judgment was handed down in Drew v Ryanair Ltd6 in the
County Court at Liverpool in respect of the applicability of the airline’s terms and conditions that purported to time-‐bar a claim brought under article 7 of Regulation (EC) no.261/2004 (‘the Regulation’).
8 The hearing was a test case in respect of a number of claims brought by passengers for delays or cancellations caused to their flights. Ryanair Ltd’s (‘Ryanair’) defence to all of these actions was that they were time barred by reason of having been brought more than two years after the time limit specified in the airline’s terms and conditions (in force at the time of booking).
5 http://www.bbc.co.uk/programmes/b05j92m4 6 Claim no. A00BL660.
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9 As the Regulation contains no provision on the time limits for bringing actions before the national courts for compensation under articles 5 and 7, it is prima facie open to airlines to place contractual time limits on bringing such actions.
10 The particular condition relied upon by Ryanair was article 15.2 of its General Conditions of Carriage for Passengers and Baggage (‘General Conditions’) which provided:
“Any right to damages shall be extinguished if an action is not brought within two years of the date of arrival at destination, or the date on which the aircraft was scheduled to arrive or the date on which the carriage stopped. The method of calculating the period of limitation shall be determined by the court of law where the case is heard.”
11 District Judge Henthorn, handing down a reserved judgment, held that compensation under article 7 of the Regulation could not be classed as ‘damages’, and therefore did not fall within the scope of the limit imposed by article 15.2 of the General Conditions. The judge went on to decide that if he was wrong about the classification of compensation, the reference to ‘damages’ in article 15.2 was sufficiently ambiguous that it should be construed contra proferentem, i.e. against the airline being the drafter of the condition.
12 In response to additional arguments raised by the claimant, the judge made further findings that:
(1) Ryanair’s conditions did not amount to a derogation of article 15 of the Regulation that excludes airlines from limiting or waiving their obligations owed to passengers under the Regulation.
(2) The airline’s conditions were not unfair as two years provided a reasonable time limit within which to bring a claim under the Regulation.
13 The case is to be compared with the Scottish case in 2014 of Vergara v Ryanair Ltd7 in which Sheriff Principal Lockhart held on appeal that a claim for compensation under the Regulation was not a claim for damages as the entitlement to compensation arose without needing to prove loss to the passenger, or fault on the part of the airline. The sheriff in the court below had therefore been wrong to equate the
7 18 July 2014, Ayr Sherriff Court, claim no. 2014CAYR35, found at: https://www.scotcourts.gov.uk/search-‐judgments/judgment?id=53d29da6-‐8980-‐69d2-‐b500-‐ff0000d74aa7
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payment of compensation with the payment of damages for a delict (a civil wrong). Accordingly, Ms Vergara’s claim was also not time-‐barred by article 15.2 of Ryanair’s General Conditions.
14 The impact of Drew v Ryanair has already been felt in cases concerning other airlines. In a case in February 2015, again in the County Court at Liverpool, District Judge Smedley placed reliance on Drew v Ryanair in finding that, as compensation was not damages, section 69 of the County Courts Act 1984 did not apply to claims for compensation under the Regulation, the effect being that the claimants were not entitled to interest on the sums awarded.
15 This article examines six questions in light of these judgments and the CAA’s report:
(1) Is compensation payable under article 7 of the Regulation the same as ‘damages’ at common law in England and Wales?
(2) What about ‘compensation’ payable under other parts of the Regulation?
(3) If ‘compensation’ under article 7 is not ‘damages’ then can interest be
awarded for such claims? (4) Are contractual terms and conditions limiting the time to bring claims
under the Regulation unfair? (5) Do such terms and conditions amount to an infringement of article 15 of
the Regulation?
(6) Is the CAA’s proposed enforcement actions the correct approach?
Is compensation under the Regulation the same as ‘damages’?
16 It is worth remarking that in a slew of cases in 2013 and 20148, Ryanair successfully argued that its terms and conditions applied to claims under the Regulation so as to
8 Thieme v Ryanair Limited, Deputy District Judge Sherlock, Cardiff County Court, 14 March 2013; Pickard v Ryanair Limited, District Judge Maw, Lincoln County Court, 31 July 2013; Wills v Ryanair Limited, District Judge Sparrow, Southampton County Court 18 December 2013; Goel and Jaskirat v Ryanair Limited, Deputy District Judge Masheder, Manchester County Court, 5 March 2014; Burke v Ryanair Limited, Bury St Edmunds County Court, 8 April 2014.
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bar those brought after the two-‐year limit. However, as was pointed out by Sheriff Principal Lockhart in Vergara v Ryanair Ltd9, it appears that few if any of these cases fully evaluated whether ‘compensation’ under the Regulation amounted to ‘damages’ under the common law.
17 In examining the definition of ‘damages’, reliance was placed by both District Judge Henthorn in Drew and the sheriff in Vergara on the authoritative practitioners’ text, McGregor on Damages.
18 McGregor10 defines damages “quite simply as an award in money for a civil wrong”.11 Three types of case are described where “pecuniary satisfaction by success in an action” do not constitute damages because they are not dependent on wrongdoing12, the three types being:
(1) actions for money payable by the terms of a contract;
(2) actions in restitution not based on a wrong, and
(3) actions under statutes where the right to recover is independent of any wrong.13
19 District Judge Henthorn in Drew concluded that payments under article 7 of the Regulation were analogous to payments under various Social Security Acts, or compensation under the Employment Rights Act 1996, the latter including compensation for unfair dismissal.14 In drawing the analogies the judge held that such payments were “clearly expressed not to be damages in MacGregor on Damages [sic]”.
20 With respect to the district judge, his analogies are misconceived. In analysing situations in which statutes create rights to recover money, McGregor on Damages gives the following guidance:
“Actions claiming money under statutes, where the claim is made independently of a wrong, are not actions in damages… On the other hand, actions claiming money which are based upon statutes which have created a
9 At para.18. 10 19th Ed., 2014, Sweet & Maxwell. 11 Ibid, p.1, para.1-‐001. 12 Ibid, p.2, para.1-‐003. 13 Ibid. 14 Para.23 of the judgment.
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tort are actions for damages and are within the definition adopted here. The statutory tort may be one the existence of which is spelt out by the courts from the general duty imposed by statute, or the statute may create the tort expressly…”15
21 It is evident from the above passage that where statutes create torts, and allow for actions for the recovery of money in compensation for such tortious acts, this compensation might be capable of being described as damages.
22 The authors of Winfield & Jolowicz on Tort16 quote Winfield’s original definition of ‘tort’:
“Tortious liability arises from the breach of a duty primarily fixed by law; this duty is towards persons generally and its breach is redressible by an action for unliquidated damages.”17
23 Whilst the authors of Winfield & Jolowicz on Tort conclude that the above definition cannot be relied on as being entirely accurate in today’s legal landscape, they make it clear that the remedy of unliquidated damages is a necessary element of any definition of ‘tort’ or ‘tortious liability’:
“If the claimant cannot recover unliquidated damages then whatever claim he may have, it is not for tort.”
24 Although further reasons are not given by the authors for the quoted view, it is an integral part of tort law that damages are intended to, as far as money can, place the claimant back in the position s/he would have been in had s/he not suffered the tortious act. As this exercise will differ on a case-‐by-‐case basis, damages cannot be fixed at a set rate; they depend on the individual circumstances of each claimant and hence cannot be liquidated.
25 Accordingly, compensation awarded on an unfair dismissal claim can properly be thought of as a payment in respect of a civil wrong created by statute18, and an unliquidated damages claim, for whilst compensation may be capped, an award is designed to place the claimant back in the position prior to being unfairly dismissed which depends on the claimant’s particular circumstances.
15 p.3, para.1-‐007. 16 19th Ed., 2014, Sweet & Maxwell. 17 p.3, para.1-‐003. 18 Originally created in legislation by the Industrial Relations Act 1971.
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26 By contrast, what the Regulation creates in article 7 cannot be construed as the creation of a tort as compensation is fixed (250, 400 or 600 euros), and therefore not unliquidated; nor is compensation dependent on wrongdoing being committed by the airline.
27 Support for the conclusion that compensation under article 7 is not the same as damages can be found in Nelson v Deutsche Lufthansa A.G. (cases C-‐581/10 and C-‐629/10)19 – interestingly not mentioned in either the Drew or Vergara judgments.
28 In Nelson the CJEU held that compensation under article 7 could not be categorised as “damage occasioned by delay” within the meaning of article 19 of the Montreal Convention20, giving the following three reasons:21
(1) A loss of time is not damage arising as a result of a delay, but is an inconvenience, like other inconveniences inherent in cases of denied boarding, flight cancellation and long delay and encountered in them, such as lack of comfort or the fact of being temporarily denied means of communication normally available.
(2) A loss of time is suffered identically by all passengers whose flights are delayed and, consequently, it is possible to redress that loss by means of a standardised measure, without having to carry out any assessment of the individual situation of each passenger concerned. Consequently, such a measure may be applied immediately.
(3) There is not necessarily a causal link between, on the one hand, the actual delay and, on the other, the loss of time considered relevant for the purpose of giving rise to a right to compensation under the Regulation or calculating the amount of that compensation.
29 Although Nelson was not referred to in District Judge Henthorn’s judgment in Drew, he adopted the same terminology in deciding that a payment under article 7 was in effect a payment for inconvenience caused by delay22. As there was no freestanding right to damages for inconvenience in English law – for such a right has to be ancillary to a claim for personal injury or damage to property – the judge held that a
19 [2013] 1 All E.R. (Comm) 385. 20 The Convention for the Unification of Certain Rules for International Carriage by Air (‘the Montreal Convention’). 21 Paragraphs 51-‐53 of the judgment. 22 Para.24.
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compensatory claim for inconvenience under article 7 could not be described as a damages claim.23
30 Sheriff Principal Lockhart in Vergara made a similar finding, and additionally held that a claim for compensation under article 7 was not a claim for damages as it was not contingent on proof of negligence or breach of contract on the part of the airline. Accordingly compensation could not be said to be in respect of the commission of a ‘civil wrong’, i.e. the commission of a tort, given the absence of the necessity for wrongdoing.
31 The fact that the scheme of compensation under article 7 is not dependent on there being ‘fault’ on the part of an airline was a point also emphasised in Jet2.com Limited v Huzar.24
32 As Ryanair’s present conditions include the words “any damages and/or compensation”, District Judge Henthorn concluded his judgment in Drew by commenting that his determination that the claim was not time-‐barred might well have been different had it concerned the new wording. This seems somewhat of an understatement given that the word ‘compensation’ would specifically include a claim under article 7.
33 In conclusion, it is evident compensation pursuant to article 7 of the Regulation cannot be regarded as damages within the meaning of English law.
Compensation under other articles of the Regulation
34 The distinction between damages and compensation under article 7 may be said to be different in respect of claims for failure to provide reimbursement or re-‐routing under articles 5(1)(a) and 8, care and assistance under article 9, and “further compensation” as referred to in article 12 of the Regulation.
35 In Rodriguez v Air France [2011] (case C-‐83/10), the CJEU confirmed that article 12 permitted national courts to award compensation provided for in the Montreal Convention25 or “under national law”, for damage, including non-‐material damage, arising from breach of contract.
23 Ibid. 24 [2014] EWCA Civ 791. 25 Described as ‘damages’ in the Convention itself.
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36 The CJEU also emphasised in Rodriguez that an airline’s failure to carry out its obligations under articles 8 and 9 could give rise to a claim for reimbursement of a plane ticket, the cost of meals and refreshments, hotel accommodation, and/or transport between the airport and place of accommodation if the airline refused, or otherwise failed, to provide such services.
37 In McDonagh v Ryanair Ltd [2013] (case C-‐12/11), the CJEU said the following about such claims:
“…an air passenger may only obtain, by way of compensation for the failure of the air carrier to comply with its obligation referred to in Articles 5(1)(b) and 9 of Regulation No 261/2004 to provide care, reimbursement of the amounts which, in the light of the specific circumstances of each case, proved necessary, appropriate and reasonable to make up for the shortcomings of the air carrier in the provision of care to that passenger, a matter which is for the national court to assess.”
38 It is difficult to see this definition as anything other than the payment of unliquidated damages arising “from the breach of a duty primarily fixed by law” as defined in Winfield & Jolowicz on Tort.26
39 It should be remembered that article 12 permits any award of compensation made under the Regulation to be deducted from any other award of compensation permitted by the Montreal Convention or domestic legislation so as to prevent double-‐recovery; a point emphasised by the sheriff in Vergara.27
Can interest be obtained on compensation under article 7?
40 As stated above, Deputy District Judge Smedley placed reliance on Drew v Ryanair in holding that claimants could not recover interest as s.69 of the County Courts Act 1984 did not apply to claims for compensation under the Regulation.28 Whilst compensation under article 7 is not damages for the reasons explored above, and therefore the judge’s decision is undoubtedly correct, s.69 of the 1984 Act also permits interest to be awarded in respect of claims for recovery of debts.
41 In full section 69(1) states:
26 See paragraph 22 above. 27 Paragraph 23. 28 Nor under section 35A of the Senior Courts Act 1981.
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“Subject to rules of court, in proceedings (whenever instituted) before the county court for the recovery of a debt or damages there may be included in any sum for which judgment is given simple interest, at such rate as the court thinks fit or as may be prescribed, on all or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose…”
42 The question that inevitably arises then is whether a claim for compensation under article 7 of the Regulation can be said to be in respect of “the recovery of a debt” within the meaning of s.69(1) of the 1984 Act?29
43 Nowhere in the Regulation is the right to compensation, as created in article 7, described as a ‘debt’. Once a passenger is subject to a cancellation or delay of over three hours then there exists an ‘obligation’ on the part of the particular airline to pay the passenger a fixed sum of money, subject to the airline raising a defence under article 5(3). If an airline can establish in court, or it is accepted by a claimant passenger, that the cancellation or delay in question was caused by an ‘extraordinary circumstance’ then article 5(3) acts as a complete defence to the claim.
44 The right to compensation under article 7 can therefore only become a properly described debt, i.e. a sum of money that is due and owing, either when liability is accepted by the airline or pursuant to a court judgment finding in favour of the passenger.
45 If a right to compensation under article 7 only crystallises as a debt upon the delivery of a court judgment then until this time, including at the date of issuing the claim, the claim itself cannot be described as a claim for the recovery of a debt within the meaning of s.69(1) of the 1984 Act. Accordingly, interest should not be given on any sum awarded under a judgment. Of course, pursuant to s.74 of the 1984 Act, any money awarded will become a judgment debt, with interest accruing on it, after the date for payment of the sum awarded has passed.
46 In summary, defendant airlines appear to be in a strong position to argue that interest should not be awarded in the County Court under s.69 of the 1984 Act, or in the High Court under s.35A of the Senior Courts Act 1981.
29 It appears there is no binding case authority on this issue.
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47 However, one can envisage arguments being advanced that might place emphasis on a wider definition of ‘debt’ to claim that interest does accrue, for example, that compensation claims under article 7 are ‘contingent’ debts or liabilities which fall within the definition found in s.69(1). That said, the use of the word ‘recovery’ implies a debt outstanding when a claim is first issued which is not the case in defended claims under article 5 and 7.
Are terms and conditions limiting the time to bring claims under the Regulation unfair?
48 In Drew v Ryanair, District Judge Henthorn referred briefly to the decisions of District Judge Mitchell in Clissold v Ryanair Ltd30 and District Judge Benson in Banks v Ryanair Ltd31, in both of which Ryanair’s terms and conditions in respect to time limits were found to be fair.
49 Whilst the decision in Clissold is not publically available online, in Drew District Judge Henthorn drew attention to the fact that Ryanair had placed reliance in Clissold on the fact that the Office of Fair Trading had approved its terms and conditions.
50 In its submission to the CAA32, Jet2 relied upon the decision in Clissold and that of Pickard v Ryanair (2013) in support of their two-‐year contractual limitation period. In both cases, the passengers’ claims were dismissed as they had not been brought within Ryanair’s two-‐year limitation period which in both cases was adjudged to have been “fairly imposed”.
51 Jet2 also referred in its submission33 to a number of decisions of the Liverpool County Court in which claims against the airlines had been struck out by the Court of its own volition on the basis that, by entering into a contract with the airline, the passenger had agreed, under the relevant clause of terms and conditions, that the limitation for claims would be reduced to two years.
52 In reaching his own conclusions that article 15.2 of Ryanair’s General Conditions was not unfair, District Judge Henthorn in Drew said:34
30 3 May 2012 31 22 August 2014. 32 See page 25 of the CAA’s report. 33 See page 25 of the CAA’s report. 34 At para.30.
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“All [the conditions] do is limit the time in which a claim can be made and the time period of two years is not unreasonable or unfair. I consider that the operator of a budget airline is entitled to provide reasonable limit on the time in which any claim can be made. Otherwise they would be obliged to provide for contingent liabilities in their accounts for up to six years. The time allowed gives passengers more than ample opportunity to bring a claim within a reasonable period. For example, the two year period is substantially more than the time for Claimants to present claims before Employment Tribunals.”
53 In Vegrara v Ryanair, Sheriff Principal Lockhart was not required to decide the issue of fairness as the findings by the sheriff in the court below that article 15.2 of Ryanair’s General Conditions did not breach the Unfair Contract Terms Act 1997, or the Unfair Terms in Consumer Contracts Regulations 1999, were not challenged.35
54 In its submission to the CAA, Jet2 said this about a contractual limitation period being unreasonable, viz. unfair:36
“Provided that the conditions of carriage are incorporated into the contract with the passenger, and the period is not unreasonable, an airline has a defence to a claim if it is commenced in the courts after the expiry of that shorter contractual period. … “A 2 year limitation period cannot be considered to be unreasonable given that it is the same period as is provided for in the Montreal Convention in respect of much more complex and serious causes of action. Indeed it is a generous period when one considers that in a flight delay claim, the passenger immediately has all of the information and evidence he or she needs to lodge a claim.”
55 At least one academic commentator has recently doubted whether contractual conditions limiting the time to bring claims “could withstand sustained scrutiny in the light of European Union consumer-‐protective norms, in particular the provisions set out in Directive 13/1993 on Unfair Terms in Consumer Contracts and its national implementing measures”.37
35 See para.6 of the judgment. 36 See pages 24 and 25. 37 Prassl, Jeremias, ‘EU Aviation Law before the English Courts: Dawson, Huzar, and Regulation 261/2004’, Air & Space Law journal, Kluwer International Online, vol.39, no.6 (2014): 365–384, at 379.
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56 As no higher court has considered whether a two-‐year time limitation on Regulation claims are unfair under EU and domestic legislation, a return to first principles is necessary to establish which position is correct.
57 Turning first to the Unfair Contract Terms Act 1977 (‘UCTA’), the statute prohibits a party in certain situations, including one in which that party’s written standard terms of business are used, from excluding or restricting liability in relation to a claim for breach of contract or negligence, except in so far as the term satisfies the requirement of reasonableness.
58 The method for determining reasonableness is laid down in section 11(1). The clause in question must have been a fair and reasonable one to be included in the contract having regard to the circumstances that were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.
59 The cases of Thomas Witter Ltd v TBP Industries Ltd38 and Sargant v CIT (England) (t/a Citalia) 39 confirmed that UCTA applies to contractual limitation clauses purporting to set time-‐limits for bringing claims.
60 Although UCTA arguably does not apply to a contractual term that sets a time limit to bring a claim under article 7 of the Regulation – as such a claim is not dependent on the airline being in breach of a contact or acting negligently – this it somewhat moot as clauses setting time limits will apply to types of claims brought under the Montreal Convention40, and therefore will need to withstand the scrutiny of UCTA’s provisions.
61 In Sargant, the claimant was prevented from bringing a claim against the defendant tour operator because she had not complied with the contractual requirement to lodge a written complaint within 28 days of returning from her holiday. Circuit Judge Sir David Hughes-‐Morgan held that the clause passed UCTA’s test of reasonableness because delay caused genuine prejudice to the defendant’s chance of defending the claim and the ABTA Code of Conduct for Tour Operators in force at the time permitted a time limit on complaints of not less than 28 days. Furthermore, Regulation 5(9) and Schedule 2 of the Package Travel Regulations 1992, although not yet in force at the time of the claimant’s holiday, permitted such restrictions.
38 [1996] 2 All ER 573. 39 [1994] C.L.Y. 566 (Croydon County Court). 40 Given that claims under the Convention will almost invariably be breaches of contract and/or claims in negligence even though the Convention proves the sole avenue of redress.
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62 It is noteworthy that the Montreal Convention requires passengers to give written notice to the air carrier in respect of both damage to baggage and damage caused by delay claims, such notice to be given within 7 days of receipt in the case of checked baggage and 21 days from the date on which the baggage is returned.41,42
63 Consideration of whether a contractual limitation clause is ‘fair and reasonable’ under UCTA will largely involve the same considerations as to whether the clause is unfair under the Unfair Terms in Consumer Contracts Regulations 1999 (‘UTCCRs’).43
64 Pursuant to Reg.5(1) of UTCCRs, a contractual term which has not been individually negotiated shall be regarded as unfair “if, contrary to the requirement of good faith, it causes significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer”.
65 Lord Bingham described the essence of good faith as “a principle of fair and open dealing”44 which required terms to be expressed “fully, clearly and legibly, containing no concealed pitfalls or traps” with “appropriate prominence” being “given to terms which might operate disadvantageously to the consumer”.45
66 The UTCCRs also include a list of potentially unfair terms at paragraph 1, Schedule 2, the following two being relevant:
“(b) inappropriately excluding or limiting the legal rights of the consumer vis-‐à-‐vis the seller or supplier or another party in the event of total or partial non-‐performance or inadequate performance by the seller or supplier of any of the contractual obligations; and
(q) excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy.”
67 Fairness is to be judged taking into account the nature of the subject matter of the contract and by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or any other contract on which it
41 Per article 31. 42 The Convention relating to the Carriage of Passengers and their Luggage by Sea (‘the Athens Convention’), in respect of luggage claims for contracts of carriage on the sea, has similar provisions. 43 The UTCCRs implement Directive 93/13/EEC on unfair terms in consumer contracts (Unfair Terms Directive). Note that the UTCCRs will be replaced by Part 2 of the Consumer Rights Bill if enacted. 44 Interfoto Picture Library Ltd v Stiletto Visual [1988] 1 All ER 348 at 352. 45 Director General of Fair Trading v First National Bank Plc [2001] UKHL 52, para.17.
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depends. In Perenicova v SOC finance spol sro 46 , the CJEU remarked that the requirement in Directive 93/13/EEC to have regard to all the existing circumstances gave “a particularly wide definition of the criteria for making such an assessment”.
68 In a frequently cited passage, Lord Millett in Director General of Fair Trading v First National Bank Plc47 gave the following guidance48 in determining whether a clause might fall foul of Reg. 5(1):
“It is obviously useful to assess the impact of an impugned term on the parties' rights and obligations by comparing the effect of the contract with the term and the effect it would have without it. But the inquiry cannot stop there. It may also be necessary to consider the effect of the inclusion of the term on the substance or core of the transaction; whether if it were drawn to his attention the consumer would be likely to be surprised by it; whether the term is a standard term, not merely in similar non-‐negotiable consumer contracts, but in commercial contracts freely negotiated between parties acting on level terms and at arms' length; and whether, in such cases, the party adversely affected by the inclusion of the term or his lawyer might reasonably be expected to object to its inclusion and press for its deletion. The list is not necessarily exhaustive; other approaches may sometimes be more appropriate.”
69 In Mohammed Aziz v Catalunyacaixa49, the CJEU gave the following guidance at paragraphs 68 and 69 of the judgment:
“In order to ascertain whether a term causes a ‘significant imbalance’ in the parties’ rights and obligations arising under the contract, to the detriment of the consumer, it must in particular be considered what rules of national law would apply in the absence of an agreement by the parties in that regard. Such a comparative analysis will enable the national court to evaluate whether and, as the case may be, to what extent, the contract places the consumer in a legal situation less favourable than that provided for by the national law in force. To that end, an assessment should also be carried out of the legal situation of that consumer having regard to the means at his disposal, under national legislation, to prevent continued use of unfair terms.
46 [2012] (C-‐453/1). 47 [2001] UKHL 52. 48 At para.54. 49 [2013] (C-‐415/11).
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“With regard to the question of the circumstances in which such an imbalance arises ‘contrary to the requirement of good faith’, having regard to the sixteenth recital in the preamble to the directive and as stated in essence by the Advocate General in point 74 of her Opinion, the national court must assess for those purposes whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to such a term in individual contract negotiations.”
70 The following principles can therefore be gathered from the above cited case law:
(1) The determinative requirements for the fairness test are the separate requirements of lack of good faith and significant imbalance.
(2) The requirement of good faith is one of fair and open dealing: openness requires that terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps.
(3) Appropriate prominence should be given to terms that might operate disadvantageously to the consumer.
(4) Fair dealing requires that a seller/supplier should not, whether deliberately or unconsciously, take advantage of the consumer's necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract or weak bargaining position.
(5) Fairness is to be judged taking into account the nature of the subject matter of the contract and by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or any other contract on which it depends. In other words, it will be necessary to consider the effect of the inclusion of the term on the substance or core of the transaction / contract.
(6) In assessing fairness, and as part of the exercise in (5) above, it will be necessary to compare the effect of the contract with the term included and the effect the contract would have without it.
(7) In deciding whether a seller/supplier has dealt fairly and equitably with the consumer, the courts should decide whether it could reasonably be assumed that the consumer would have agreed to such a term in (hypothetical) individual contract negotiations. Put another way, the court should assess
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whether, if the term were drawn to the consumer’s attention, s/he would be likely to be surprised by it or object to its inclusion and press for its deletion.
(8) Whether the term is a standard term, not merely in similar non-‐negotiable consumer contracts, but in commercial contracts freely negotiated between parties acting on level terms and at arms' length may be a determining factor.
(9) In order to ascertain whether a term causes a ‘significant imbalance’ in the parties’ rights and obligations to the detriment of the consumer, particular consideration must be given to what rules of national law would apply in the absence of the term. Such a comparative analysis will enable the national court to evaluate whether and, as the case may be, to what extent, the contract places the consumer in a legal situation less favourable than that provided for by the national law in force.
(10) It may be unfair to exclude or limit the legal rights of the consumer in the event of total or partial non-‐performance or inadequate performance by the seller or supplier of any of its contractual obligations.
(11) It may be unfair to exclude or hinder the consumer’s right to take legal action or exercise any other legal remedy.
71 Before applying these principles to contracts that limit the time to bring Regulation claims, it is important to note that terms that reflect the law are not, in terms of their substance, subject to the UTCCRs (regulation 4). As this includes laws providing for compensation to travellers as dictated by international treaties incorporated into UK law, and statutorily prescribed terms and conditions50, the limitation of two years in respect of Montreal Convention claims cannot be impugned by UTCCRs’ provisions.
72 The starting point is that the Regulation itself does not contain any provision concerning the time limit for bringing an action, and therefore whether a contractual period of two years to bring a claim is a fair period of time has to be assessed by comparison to what the Court of Appeal confirmed in Dawson v Thomson Airways was the period of limitation under the Limitation Act 1980: six years.
73 Turning then to the principles summarised above, provided an air carrier’s terms and conditions that purport to limit the time period to bring claims under the Regulation
50 RWE Vertrieb AG v Verbraucherzentrale Nordrhein-‐Westfalen eV (C-‐92/11).
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are expressed fully, clearly and legibly and is easily accessible – by, for instance, making it mandatory to look at the terms and/or for the passenger to confirm the terms have been read before booking – the requirement of good faith will have been met.
74 Given that a term limiting a right to bring a claim under the Regulation to two years arguably does not operate disadvantageously to the consumer, it is questionable whether it needs to be given prominence over and above any other terms and conditions. Provided such a condition has its own heading, or is otherwise separated to an extent from the other terms and conditions, it will have been given appropriate prominence.
75 On the assumption that a condition limiting the time period to bring a claim is expressed fully, clearly and legibly, is easily accessible, and accordingly is incorporated into the contract at the time of booking, it cannot be said with any conviction that an air carrier was taking advantage of the consumer's necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract or weak bargaining position.
76 In taking into account the nature of the subject matter of the contract, and by reference to all the circumstances existing when the term was agreed, and to all of the other terms of the contract, it similarly cannot be said that a condition limiting the ability of a passenger to bring a claim within two years is unfair.
77 It is without doubt that both passengers and air carriers alike wish speedy resolutions to long delays or cancellations. It is therefore in both parties’ interests that there is an expeditious closure to any dispute that arises and having a comparatively short period of time within which to achieve this – in comparison to periods mandated by the Limitation Act 1980 – serves both parties.
78 In taking into consideration all the circumstances of the case, it is important to note that most air carriers’ terms and conditions, certainly in respect of air carriage and thereafter, are modelled on the airline industry standard as drafted by the International Air Transport Association (IATA) in Recommended Practice Note 1724. In respect to a time limitation clause, model article 16.2 provides:
“Any right to damages shall be extinguished if an action is not brought within two years of the date of arrival at destination or the date on which the aircraft is scheduled to arrive or the date on which the carriage stopped. The method
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of calculating the period of limitation shall be determined by the law of the Court where the case is heard.”
79 Such a term, or a variation of it, is therefore a standard term within the industry and was drafted to take into account the time limit set out in article 35(1) of the Montreal Convention. As pointed out by Jet2 in its submissions to the CAA, the time limit under the Montreal Convention applies to claims for death and bodily injury, which by their very nature are often more serious and complex claims than claims for fixed compensation for delayed or cancelled flights under the Regulation. It would seem illogical for simpler claims to have a longer limitation period than a limitation period for more complex claims that has been internationally agreed.51
80 It is also important to remember that the IATA conditions of carriage were amended after intervention by the Office for Fair Trading in 1999, and therefore on their face were considered fair under the legislation at the time (which has remained largely unchanged).
81 In respect of the Regulation itself, it is well known that moves are afoot within the EU legislature to amend the instrument. ‘European Parliament legislative Resolution of 5 February 2014 on the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 261/2004’ is the current embodiment of such reform.
82 The European Parliament’s Amendment 128 (adding Article 16a(2) to the Regulation) provides that if a passenger wishes to make a complaint to an air carrier with regard to his rights under the Regulation, s/he shall submit it within three months from the date on which the flight was performed or was scheduled to be performed. The proposed amendment adds that the submission of a complaint within three months, and after the expiry of that three-‐month period, shall be without prejudice to his right to enforce his claims under this Regulation “within the framework of the judicial system and an out-‐of-‐court resolution”. However, the fact that a passenger has to make a complaint within three months from the date of the performed flight, with the particular air carrier in question having two months within which to provide a full answer to the passenger shows the tight timeline both the EU Commission and the European Parliament envisages for resolution of disputes under the Regulation.
51 As of February 2015, there are 111 parties to the Convention.
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83 The European Parliament’s Amendment 130 52 proposes that any complaint a passenger wishes to make to a designated national ‘out-‐of-‐court dispute resolution body’, about an alleged infringement of the Regulation, must make such a complaint not less than one year from the date on which s/he submitted the complaint/claim to the air carrier concerned (and after the carrier has given a full response itself).
84 Amendment 130 further proposes that it will be for the designated national body to set the time limit for such a complaint, in England and Wales this would of course be the CAA. The European Commission’s original text envisaged a period of not less than two months from the date of the air carrier’s determination of the complaint before a passenger could make a further complaint to a designated national body. It is unclear why the European Parliament sought to extend the period as this would mean a passenger having to wait seven months after an air carrier had rejected his/her claim before s/he could make a complaint to a designated national body. It would be surprising if this time limit remained in the finalised text of an amended Regulation.
85 Notwithstanding the differing time limits in the two versions of amendment 130, in both the Commission’s and the Parliament’s Amendment 132 the designated national body has three months 53 within which to respond to a passenger’s complaint.
86 Playing out these time lines then within the context of a two-‐year time limit to bring a claim before the UK courts: in making a complaint/claim to the air carrier, the passenger has three months from the date of the performed flight, and then a two-‐month period within which to receive the reply. Assuming the air carrier responds on the last day permitted, this would have been five months since the date of the flight. If the passenger then wished to make a complaint to the national out-‐of-‐court dispute resolution body s/he has to wait a further 7 months to do so, by this stage a year would have elapsed since the flight. The national body then has three months to reply. If the national body does not uphold the complaint then the passenger would still have 9 months within which to file a claim with the court. Given that the passenger will have become familiar with the nature of the Regulation and the air carrier’s defence by this stage, having approximately 9 months within which to file a court claim, even without legal assistance, seems a reasonable time frame to be bound by.
52 Which adds further provisions to the proposed Article 16(a). 53 Specifically 90 days in the European Parliament’s version of the amendment.
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87 Turning to a comparison of the effect of the contract with the term and the effect it would have without it, it is clear, by virtue of the judgment in Dawson v Thomson Airways, that where there is to be no contractual limitation period the passenger would have six years within which to bring a court claim to enforce his/her rights under the Regulation. The central question is whether losing the four years under the Limitation Act is unfair to the consumer; for the reasons already highlighted it appears not.
88 Would a consumer would have agreed to a two-‐year time limit in (hypothetical) individual contract negotiations? Again, for the reasons elaborated above it seems likely they would, given the relatively straightforward nature of putting forward a claim under the Regulation, certainly in comparison to a claim for death or bodily injury under the Montreal Convention. In essence, all a passenger is required to do in his/her particulars of claim is set out details of their booking/flight with the defendant airline and the period of delay or the nature of the cancellation. The onus is then of course upon a carrier to put forward a defence of extraordinary circumstances under article 5(3) of the Regulation.
89 It therefore seems hard to conclude that if a two-‐year time period to bring a claim under the Regulation were to be specifically brought to the passenger’s attention s/he would be surprised by it, or object to its inclusion and press for its deletion at the point of entering into the contract.
90 Returning to District Judge Henthorn’s view in Drew v Ryanair54, it is difficult to take issue with his conclusions that a time period of two years is not unreasonable or unfair. As he observed, an air carrier is entitled to place a reasonable limit on the time in which any claim can be made, and should not have to provide for contingent liabilities in their accounts for up to six years. As the judge stated, a two-‐year period “gives passengers more than ample opportunity to bring a claim within a reasonable period”. This would so even were the Regulation to be amended and a system of alternative dispute resolution made mandatory as envisaged in the draft proposals.
Do such contractual time limits amount to infringements of article 15 of the Regulation?
91 Article 15(1) of the Regulation provides:
“Exclusion of waiver
54 See paragraph 52 above.
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1. Obligations vis-‐à-‐vis passengers pursuant to this regulation may not be limited or waived notably by a derogation or restrictive clause in the form of carriage.”
92 District Judge Henthorn in Drew came to the following conclusion55:
“The Defendant’s conditions do not seek to exclude or limit the entitlement to compensation or the amount of compensation. They merely fix a time limit by which claims should be made and in my view that does not amount to a derogation or a restricted clause. There is no provision preventing passengers from claiming nor any attempts to limit the amount of compensation to which they are entitled under Article 7 of the Regulation.”
93 Jet2 set out its view on the effect of article 15 of the Regulation in its submission to the CAA as follows:
“…we note that it has been suggested recently that Article 15 of the Regulation limits an airline's entitlement to agree a period shorter than the normal contractual time limit. Article 15 does not have this effect. It prevents an airline from limiting or waiving ‘obligations’. The only relevant obligation in the Regulation is the obligation of the airline to pay compensation in the sums set out in Article 7. Article 15 prevents an airline from imposing a term which reduces the extent of its obligation to pay compensation; it does not prevent it from setting a reasonable period for the lodgment of claims. We are unaware of any court decision to the contrary.”
94 One academic commentator has suggested, however, that a contractual limitation clause might amount to an infringement of article 15 of the Regulation56, although reasons for this view were not given in detail.
95 As the Regulation itself does not contain any time limits by which claims must be brought, the CJEU was asked in Moré v KLM57 to decide what limitation period applied. The Court held that neither article 35 of the Montreal Convention nor article 29 of the Warsaw Convention applied58, as the Regulation fell outside the scope of both conventions. Instead it was for the domestic legal system of each
55 At paragraph 29 of the judgment. 56 Prassl, Jeremias, ‘EU Aviation Law before the English Courts: Dawson, Huzar, and Regulation 261/2004’, Air & Space Law journal, Kluwer International Online, vol.39, no.6 (2014): 365–384, at 379. 57 [2012] (C-‐ 139/11). 58 Both of which stipulate a two-‐year time limit to bring claims.
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Member State to determine the time limits for bringing actions for compensation pursuant to the Regulation, provided that the domestic time limit(s) observe the EU principles of equivalence and effectiveness.
96 The onus on national courts is mirrored in Article 19(1), s.2 of the Treaty of the European Union which puts the responsibility for “providing remedies sufficient to ensure effective legal protection in the fields covered by Union law” on member states through their respective domestic courts being “Union courts”.59
97 As to the principles of equivalence and effectiveness, in Comet60, the European Court of Justice (ECJ)61 held that time periods must not render the bringing of an action under Community law “practically impossible”. In Palmisani62, the ECJ held that any substantive or procedural requirements for claims concerning EU law must not be less advantageous than for similar claims that only concern national law. In Francovich63, the ECJ held that national provisions “must not be so framed as to make it virtually impossible or excessively difficult to obtain reparation”.64
98 It is to be noted that in Germany the time limit for bringing claims under the Regulation is three years. In the Netherlands, the Court of Amsterdam held65 that the two-‐year limitation period inserted into article 8:183 of the Civil Code (to give effect to the Montreal Convention) applied to all air transport related claims, notwithstanding the general civil limitation period of five years under article 6:310 of the Civil Code.66
99 Although reducing the time period from six years to two years may arguably be less advantageous to passengers, for the reasons explained above it appears unarguable that a two-‐year time period makes the bringing of a claim under the Regulation “practically impossible”, “virtually impossible or excessively difficult”, particularly when other EU Member States have identical or similar time periods as mandated by domestic legislation or their courts.
59 European Consumer Law, 2nd Ed., 2014, Reich et al, Intersentia, page 346. 60 [1976] (C-‐45/76). 61 As it was then called. 62 [1997] (C-‐261/95). 63 [1991] (C-‐6/90 & C-‐9/90). 64 Para.43. 65 1 December 2011, case ECLI:NL:RBAMS:2011:BU6471. 66 Issue 142, VII-‐964, paragraph [1017.1].
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100 Given that English contract law has as one of its central tenets the idea that parties are free to contract on terms that they deem fit, provided they are not unfair or illegal, it is doubted that an English court would consider a two-‐year time period to amount to a derogation of article 15 of the Regulation, or otherwise offend the principles of equivalence and effectiveness in passengers seeking redress.
101 In summary, there can be no sensible suggestion that the introduction of a two-‐year period within which to make a claim against an air carrier limits or waives any obligation arising from the Regulation. The air carrier’s obligations under the Regulation are in no way been diminished by such a limitation clause, only the period within which a claim can be brought. For the reasons already given, such a limitation is not unfair.
Are the CAA’s proposed enforcement actions the correct approach?
102 In its compliance report, the CAA gave the following summary of the effect of Dawson v Thomson Airways:
“The Court of Appeal considered whether existing English case law restricted the limitation period in respect of bringing a compensation claim under EC261/2004 to 2 years. The Court found that it did not and that for claims brought under EC261/2004, the UK limitation period of 6 years applied.”
103 The report went on to conclude:
“This ruling [in Dawson v Thomson Airways] is straightforward and we expect airlines to apply a 6 year limitation to claims brought under EC261/2004.”
104 In response to being asked by the CAA whether the airline provided a six-‐year time period to bring claims pursuant to the Dawson v Thomson Airways judgment, Jet2 wrote as follows:
“Jet2.com applies a contractual limitation period of two years as clearly set out in its conditions of carriage, which are incorporated into every contract with passengers. The Dawson judgment did not consider the effect of contractual time limits which are incorporated into conditions of carriage and only dealt with the question of the general limitation period. In Jet2.com’s case there is an overriding contractual limitation period of two years.”
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105 It is this author’s opinion that Jet2’s view as to the effect of Dawson v Thomson Airways is the correct one. In summary, the Court of Appeal in its judgment followed European jurisprudence and concluded that the six-‐year limitation period under section 9 of the Limitation Act 1980 applied instead of the two-‐year period under article 35 of the Montreal Convention. In English law, section 9 of the Limitation Act 1980 provides that “an action to recover any sum recoverable by virtue of any enactment shall not be brought after the expiration of six years from the date on which the cause of action accrued”.
106 The Court was not asked to decide whether a contractual limitation period of less than six years was permissible; it was simply asked to decide whether the time limit on actions brought under the Montreal Convention applied to the Regulation. The Court found that it did not, though it made no comment on whether a contractual period of two years could be capable of being effective so as to bar claims brought after this time.
107 It was hoped that after the decision in Drew v Ryanair the issue of contractual time limits and compensation under the Regulation had attained a degree of certitude. It now appears that unless the CAA changes its views on taking enforcement action, at least one UK airline will find itself defending its two-‐year time limit in the higher courts. If the Authority is to base its enforcement case on the analysis contained in its report, it is likely to face an uphill struggle in the courts.
108 It is somewhat surprising to note from the CAA’s report that after its successes in the county courts in respect of its two year limitation period, in its submission to the CAA Ryanair confirmed that it would be changing its limitation period to six years, though at the time of writing its clause remains unchanged and makes no distinction between claims brought in the UK or outside.67
Christopher Loxton © 2015 [The author had no part in advising on, or drafting, any of the air carriers’ submissions to the CAA] Acknowledgments:
I am indebted to my colleagues, John Ditchburn and Timothy Salisbury, for contributing their thoughts to this article.
67 http://www.ryanair.com/en/terms-‐and-‐conditions/article15/