The ash cloud from Iceland's Eyjafjallajokull volcano that shut down much of Europe's air space in April 2010 has been held to be an example of "extraordinary circumstances" under Art 5(3) of EC Regulation 261/2004 (the Regulation), exempting airlines from paying compensation for the cancellation of flights.

In Marshall v Iberia Líneas Aéreas de España SA [Mayor's and City of London County Court, 13 December 2010], the Marshall family brought claims in the small claims track after the Madrid to London leg of their journey from Ecuador to the UK was cancelled on 18 April 2010. The family chose to make their own way back to London and, upon their return, claimed and received a refund from Iberia for the unused portion of their tickets. They claimed for the cost of the alternative travel arrangements from Madrid to London, €250 per person as stipulated in the Regulation plus additional damages for inconvenience. The action was based on alleged breaches of contract and of the Regulation.

District Judge Trent found that there had been no breach of the Regulation as the Marshall family had chosen to accept reimbursement instead of being re-routed on an alternative flight. There was no obligation under the Regulation for compensation to be paid for alternative travel arrangements and so this element of the claim was dismissed. The remaining element of the claim under Art 7(1)(a) depended on whether the ash cloud constituted "meteorological conditions incompatible with the operation of the flight concerned." This is the wording in Recital 14 of the Regulation given as an example of "extraordinary circumstances" under which obligations on airlines should be limited or excluded. The claimants relied on Iberia having made no official statement as to the "extraordinary circumstances" but the judge held that despite that, "I have no hesitation in finding, on the balance of probabilities, that the Defendant has proved that these circumstances represented known and unavoidable circumstances which, by virtue of Art 5(3) exclude the Defendant from having to pay compensation under Art 7(1)(a)."

However, the Judge was critical of Iberia for failing to produce evidence of its standard conditions being incorporated into the terms of carriage, notwithstanding that the airline was seeking to rely on those conditions to exclude contractual liability. The airline had submitted witness evidence from a senior sales representative to the effect that tickets bought through their website would automatically require the purchaser to confirm acceptance of Iberia's standard conditions of travel. The Judge held that that was not sufficient and the airline had to produce evidence of the terms being incorporated in the carraige in question. Given that the cancellation of the flight was due to circumstances beyond the airline's control, there was no breach of the terms of carriage.