Sarah Joanna Haas August 24 2022 No right for full reimbursement after airline bankruptcy Arnecke Sibeth Dabelstein | Aviation - Germany Sarah Joanna Haas Aviation IntroductionFactsLower courtsSupreme CourtCommentIntroductionThe German Supreme Court recently decided upon an appeal regarding the reimbursement of a ticket price while the defendant airline was undergoing insolvency.(1) The decision examined the legal value of article 8 of the EU Flight Compensation Regulation.(2) The particular question was whether a claim for reimbursement constitutes a claim of the insolvency estate (ie, a statutory secondary claim for monetary reimbursement) or an insolvency claim (ie, for fulfilment of the contract). The flight had been booked and paid for before the opening of the insolvency proceedings on the assets of the air carrier, but the flight had been only cancelled after the initiation of such proceedings.FactsIn August 2019, the plaintiffs booked return flights from Frankfurt, Germany, to Windhoek, Namibia, that should have been operated in April 2020. The plaintiffs paid the airfare.On 1 December 2019, the defendant declared bankruptcy, and insolvency proceedings were opened against the assets of the airline. The airline continued to be self-administered and entitled to dispose over its own affairs, and continued its flight operations thereafter.The defendant cancelled the flights booked by the plaintiffs after Namibia issued an entry ban due to the covid-19 pandemic. The plaintiffs declared their withdrawal from the contract of carriage.The insolvency proceedings against the defendant's assets were suspended by order of 26 November 2020 after an insolvency plan had been established. The plaintiffs demand reimbursement of the ticket costs plus interest.Lower courtsThe first-instance court ordered the defendant to pay the costs as requested. On appeal by the defendant, the action was dismissed by the court of appeal. The court of appeal explicitly allowed a second appeal to the Supreme Court, through which the plaintiffs sought to have the first-instance court's judgment restored. The Supreme Court appeal was unsuccessful.The court of appeal ruled that the plaintiffs were only entitled to payment of the quota specified in the insolvency plan. The claim under article 8(I)(a) of the EU Flight Compensation Regulation was a statutory secondary claim based on the contract of carriage. This constituted an obligation of the insolvency estate if the act giving rise to the claim (ie, the cancellation of the flight) had only taken place after the opening of the insolvency proceedings. At the time of the cancellation, however, the plaintiffs were no longer entitled to transport, which is a prerequisite for a claim for reimbursement. The right to carriage had lapsed with the opening of insolvency proceedings against the defendant's assets.The contract of carriage was not subject to section 103 of the German Insolvency Code because the plaintiffs had made full advance payments before the opening of the insolvency proceedings. Consequently, the insolvency administrator was no longer authorised to fulfil the contract. The claim for carriage had been converted into a monetary claim with the opening of the insolvency proceedings pursuant to section 45(1) of the Insolvency Code. However, this claim could only be pursued by means of registration in the insolvency schedule. The applicants had not applied for payment of the plan quota.Supreme CourtThe Supreme Court upheld the decision and ruled that, pursuant to section 45(1) of the Insolvency Act, non-monetary claims are to be asserted at the value that can be estimated for the time of the opening of the insolvency proceedings. According to its wording, the provision only regulates the assertion of the claim in the insolvency proceedings. The equal satisfaction of creditors from the assets under insolvency law is only feasible if the claims are suitable for the calculation of the quota.The cancellation concerned the claim for carriage that was no longer enforceable due to the opening of insolvency proceedings. The plaintiffs did not have a claim to fulfilment of the carriage from the estate. These were insolvency claims that could only be pursued in accordance with the provisions on insolvency proceedings.(3)Because the plaintiff failed to announce the value of his claim towards the insolvency schedule, he will remain unpaid regarding the reimbursement.CommentThe Supreme Court decision is consistent with previous case law and shows the limits of the EU Flight Compensation Regulation. The claim for reimbursement is not "above all" and a failure to act with regard to the declaration to the insolvency estate leaves the plaintiff empty-handed.Passenger rights do not take precedence over the rights of other creditors and the rules of the game of insolvency law must also be observed in the light of the EU Flight Compensation Regulation. It remains unknown whether the Court of Justice of the European Union (CJEU) – especially with its consumer-friendly approach – might have seen a violation of the supremacy principle of EU law. However, the CJEU was not asked, so the Supreme Court decision is final.For further information on this topic please contact Sarah Joanna Haas at Arnecke Sibeth Dabelstein by telephone (+49 403 177 9756) or email ([email protected]). The Arnecke Sibeth Dabelstein website can be accessed at www.asd-law.com.Endnotes(1) BGH, Ref IX ZR 142/21, judgment from 5 May 2022, ECLI:DE:BGH:2022:050522UIXZR142.21.0.(2) EU Regulation 261/2004.(3) Section 87 of the Insolvency Code.