In a long-awaited but widely anticipated judgment delivered on 23 October 2012, the Grand Chamber of the Court of Justice of the European Union (CJEU) in the joined cases of TUI and Nelson reconfirmed the 2009 Sturgeon judgment of the Fourth Chamber of the CJEU, which had the controversial effect of rewriting Regulation (EC) No 261/2004 so as to provide passengers delayed for 3 hours or more in arriving at their final destination with the same rights to fixed-rate compensation as passengers whose flights are cancelled.

The impact of this latest judgment on airlines will be to reopen huge numbers of claims for compensation made by delayed passengers that had been stayed or put on hold by the English courts and other national courts in the European Union pending the outcome of the challenge to the 2009 Sturgeon judgment, and may expose airlines to mass claims for compensation from passengers who have suffered delays on flights of 3 hours or more over the last 6 years.

The Sturgeon judgment

In the 2009 Sturgeon judgment, the CJEU ruled that although Regulation 261 did not expressly give any right to fixed-rate compensation to passengers whose flights are delayed, the Regulation should be interpreted so that compensation would be payable to those passengers who experienced a delay of 3 hours or more, unless the delay was caused by “extraordinary circumstances”, namely circumstances which could not have been avoided even if all reasonable measures had been taken. The CJEU also ruled that a flight is “delayed” as opposed to “cancelled” if, notwithstanding the delay, it is operated in accordance with the airline’s original flight planning.

In reaching this controversial decision, the CJEU ignored:

  • the legislative history of Regulation 261 and the clear intention of the legislators to exclude payment of fixed-rate compensation for delays;
  • the 2006 judgment in the case of IATA and ELFAA in which the CJEU said that the Regulation laid down “precisely and clearly the obligations owed by an operating carrier in the event of cancellation of, or a long delay to, a flight”; and
  • the fact that the rewriting of the Regulation, so as to give fixed-rate compensation to passengers delayed by 3 hours or more, infringes Article 29 of the Montreal Convention, which provides that non-compensatory damages for delayed flights are not recoverable. As the compensation for delay under the Regulation is based on fixed amounts, determined by reference to flight distance, which does not relate in any way to the damage suffered by the passenger, this would make them “non-compensatory damages” under the Montreal Convention.

The CJEU also failed to give any guidance as to whether the Sturgeon judgment would have retroactive effect. Generally speaking, interpretive rulings of the CJEU on the meaning of the wording of EC Regulations have retroactive effect as they are deemed to be interpreting what the Regulation means and has always meant.

The challenges to the Sturgeon judgment

The Sturgeon judgment was received badly by airlines, who felt that the CJEU had moved the goalposts by introducing rights of compensation for flight delays of 3 hours or more, and mounted several legal challenges to the judgment in their national courts. Two of these cases – TUI and others, a UK challenge by various airlines and IATA, and Nelson, a German passenger claim – were referred up to the CJEU.

Many claims that had been brought by delayed passengers in national courts for fixed compensation were put on hold pending the outcome of the challenges against the Sturgeon judgment.

The judgment in TUI and Nelson

The CJEU eventually delivered its judgment on 23 October 2012.

Five months prior, the Advocate General issued his Opinion on the case, confirming that in his view the Sturgeon judgment should be upheld by the CJEU. Although in the vast majority of cases the CJEU follows the Opinion of the Advocate General, there remained perhaps a slim hope that the Grand Chamber of the CJEU would nevertheless overturn the decision of the Fourth Chamber in Sturgeon.

Unfortunately, this was not to be.

The CJEU upheld the Sturgeon judgment and confirmed that passengers, whose flights are delayed by 3 hours or more after the arrival time originally scheduled, will be entitled to the same fixed rates of compensation as passengers whose flights are cancelled, unless the delay is caused by extraordinary circumstances.

The scope of extraordinary circumstances that airlines could rely on in defending claims arising out of the cancellation of flights had already been reduced in the CJEU judgment of Wallentin- Hermann in December 2008, so as to effectively exclude reliance on technical problems discovered on an aircraft “at the last minute” (the aircraft “going tech”) unless that problem stemmed from events which, by their nature or origin, are not inherent in the normal exercise of the airline’s activity and beyond its control. The effect of the Wallentin-Hermann judgment was that airlines could rarely rely on extraordinary circumstances arising from technical problems with an aircraft. By extending the availability of the defence of extraordinary circumstances to delays of 3 hours or more, the CJEU was, so it said, seeking to strike a balance between the interests of passengers and airlines, but the reality is that in the wake of the Wallentin-Hermann decision, they were not giving very much away to the airlines.

The key points from the CJEU’s judgment are as follows:-

  • Although the Regulation does not expressly give any rights of compensation to delayed passengers, and only gives compensation rights to passengers whose flights are cancelled, the passengers in those two different scenarios are in fact in comparable situations because they suffer similar inconvenience, namely an irreversible loss of their time. Since passengers whose flights are cancelled are entitled to compensation where their loss of time is equal to or in excess of 3 hours, the CJEU reiterated the principle of equal treatment and found that passengers whose flights are delayed by 3 hours or more after the scheduled arrival time should receive the same levels of compensation. However, the CJEU pointed out that airlines will not have to pay out compensation if the delay is caused by extraordinary circumstances, and the amount of the compensation can be reduced by 50% where a passenger flying long-haul arrives at his place of final destination within four hours of the original scheduled arrival time.
  • The introduction of a requirement to compensate passengers whose flights are delayed by 3 hours or more would not be incompatible with the Montreal Convention. Delays result in a “loss of time”. This loss of time is an inconvenience, like other inconveniences inherent in cases of denied boarding and flight cancellation. The CJEU found that such an inconvenience is not governed by the Montreal Convention. A “loss of time” is also suffered identically by all passengers whose flights are delayed, so it is possible to redress that loss immediately by means of a standardised measure, without having to carry out any assessment of the individual situation of each passenger. The CJEU therefore reasoned that the payment of compensation for a “loss of time” inherent in a delay of 3 hours or more falls within a category of “standardised and immediate assistance and care measures” which, the CJEU held, were not in conflict with the Montreal Convention, a point which had been decided in the 2006 IATA/ELFAA case. The CJEU was keen to emphasise that the compensation payment scheme under the Regulation falls outside the scope of the Montreal Convention, and that passengers can still claim damages for delay under the Montreal Convention in addition to the fixed-rate compensation they will now receive.
  • The obligation to compensate passengers for delays of 3 hours or more is compatible with the EU law principle of legal certainty, which provides that individuals should know what their rights are. The CJEU believed that following Sturgeon, both passengers whose flights were delayed and airlines knew unequivocally what compensation would have to be paid. Furthermore, the introduction of a clear time limit would serve to prevent national courts across the EU making different assessments of what constitutes a “long delay” which would only give rise to legal uncertainty.
  • The obligation to compensate passengers whose flights are delayed for 3 hours or more is consistent with the principle that measures adopted by EU institutions should be proportionate to the aims pursued. The CJEU pointed out that the obligation to pay compensation will not be triggered by every delay, but only long delays, and that it would not impose an excessive financial burden on airlines, because according to data provided to the Court the proportion of delayed flights that would entitle passengers to compensation is less than 0.15%.
  • The airlines submitted that passengers should not be able to claim compensation in respect of delayed flights prior to the date of the present judgment, except for those passengers who had already brought court proceedings for compensation. In other words, airlines were arguing that there should be no retroactive effect to the judgment to allow passengers who had been delayed some time ago to now claim compensation.

The CJEU stated that its decision clarified the rights that delayed passengers have always had under the Regulation, meaning that passengers on delayed flights prior to this judgment, and even the Sturgeon judgment, may now be able to claim compensation. The CJEU relied on the fact that it had not restricted such rights in its earlier Sturgeon judgment, and it was too late to do so now.

Can airlines appeal this decision?

The reasoning of the CJEU is flawed in many places.

However, airlines are now almost certainly stuck with this ruling. Rulings from the Grand Chamber of the CJEU cannot be appealed. Furthermore, the CJEU is unlikely to entertain any further challenges to its decision – the Court has now come to the same conclusion on the issue of compensation for delayed flights on two separate occasions, and is unlikely to change its mind.

So where does that leave you as airlines facing claims for compensation from passengers whose flights were delayed?

There are probably four categories of passenger claims arising out of delayed flights:

  1. Claims that have already been brought by passengers in national courts, but which have been stayed or held over pending the outcome of the challenges to the Sturgeon judgment.
  2. Claims that have been filed with your customer relations departments but have not yet made their way to the courts.
  3. Claims that will now be made arising out of delayed flights preceding the date of this judgment.
  4. Claims that will now be made arising out of future delayed flights.

How should you deal with each of these categories of claim?

Taking them in turn:

  1. If the claim has been stayed by the court, either that claim will shortly expire automatically, or the passenger will have to apply for the stay of the proceedings to be lifted. Either way, it is probable that the passenger will want to actively pursue their claim for compensation. There is no real basis for arguing that the stay should not be lifted but, subject to taking a commercial decision to settle the claim, the extraordinary circumstances defence may be available to you. If the delay was caused by the aircraft going tech, you may still have potential defences albeit much reduced in scope by the Wallentin-Hermann judgment. If the delay was caused by circumstances beyond your control – such as meteorological conditions, runway closures or restrictions, or political instability – then you should hopefully be able to point to an extraordinary circumstance to defend the claim.

Even if the situation does not amount to an extraordinary circumstance, the delay may still have been caused by a third party. Depending upon the status of the proceedings brought by the passenger, and the particular procedural rules that govern the proceedings, strategically you may want to consider joining that third party to those proceedings. Joining third parties will add to the costs of the litigation, and will almost certainly slow down the proceedings. However, it may be possible to persuade the judge that he should hear the evidence relating to the failure or actions of the third party at the same time as the evidence of the claim brought by the passenger, with the possible outcome that the judge may order the third party to indemnify you against any compensation payable to the passenger. Alternatively, you may be able to claim that indemnity from the third party at a later stage, after the proceedings brought by the passenger have come to an end, but you will have to act quickly. This may be more cost-effective where you are having to defend a large number of passenger claims arising out of the same delayed flight. Whether you can join third parties to passenger claims, or seek an indemnity from them after judgment, will have to be considered on a case-by-case basis. It is likely that third parties will seek to rely upon force majeure or exclusion clauses in contracts with you in defending any attempts to extract compensation from them.

  1. There is no positive obligation on you as airlines to go back to those passengers to notify them of the present judgment, but in all probability they will find out about it through the media or through an approach from a claims organisation such as EU Claims. You may still have available to you the extraordinary circumstances defence as outlined in paragraph 1 above, and you should look at each individual claim on a case-by-case basis. If the delay to the flight for which the passenger seeks compensation was caused by a third party, then you should consider putting that third party on notice of the claim. In the event that the passenger is not satisfied with any explanation for the delay, or you cannot settle the claim, and the passenger commences court proceedings, then see paragraph 1 above.
  2. It is anticipated that the delivery of the present judgment will prompt a flood of claims by passengers in relation to flights delayed for 3 hours or more going back to 17 February 2005.

That raises the question of how far back passengers can claim compensation for delayed flights. There is no guidance on this point from either the CJEU or the Regulation. It may be possible to defend old claims for compensation on the basis that they are time-barred under the laws of limitation or prescription that apply to those claims. By way of example, if a claim is brought before the English courts by a passenger for compensation on a flight that was delayed for more than 3 hours in March 2006, the carrier can argue that that claim should not proceed, because the relevant limitation period for bringing such claims – 6 years – has expired. (We may have more clarity on this point soon when the CJEU rules in the case of More v KLM on whether the limitation period for claims under the Regulation should be two years as per the Montreal Convention, but as the CJEU has ruled that claims under the Regulation fall outside the scope of Montreal, this is unlikely). If you cannot defend the claim using the laws of limitation or prescription, see paragraph 1 above.

The retrospective effect of this judgment will create problems. Airlines may have destroyed their internal records relating to delayed flights they operated years ago. Without these records, airlines may be unable to take a view on the accuracy of the claim and whether they can defend the claim. Going forward, airlines should consider changing their document retention systems, so that they keep those documents relating to flights which are delayed for 3 hours or more for longer.

  1. The only real defence available to you now is extraordinary circumstances, as to which see paragraph 1 above.

The future

Airlines, and their associations, will now have to focus their attention on the European Commission’s proposal to revise the Regulation. The Commission’s legislative proposal is expected to be published at the end of this year, but any revised Regulation is unlikely to come into force until 2014 at the earliest.

It is unlikely that the Commission will do away with compensation rights for delayed passengers in the revised Regulation. However, airlines may be able to persuade the Commission that the effects of this latest judgment should be mitigated, for instance by increasing the number of hours by which a flight must be delayed before passengers are entitled to compensation. It is also hoped that during the process of revising the Regulation, a nonexhaustive list of extraordinary circumstances can be agreed between all affected parties which can be given legislative effect so there is some certainty going forward, and that the mechanisms by which airlines are able to pass the consequences of any delay on to those third parties who are responsible for them will be strengthened.