Ulrich Steppler Katharina Sarah Bressler August 8 2012 Alternative dispute resolution for passenger claims Arnecke Sibeth Dabelstein | Aviation - Germany Ulrich Steppler, Katharina Sarah Bressler Aviation Introduction Who can bring claims?Types of conciliation bodiesTypes of claimsCivil court actionsAdministrative proceedingsEstimated costsCommentIntroductionOn July 4 2012 the Federal Cabinet adopted draft legislation regarding the introduction of conciliation bodies for airline passengers. The draft legislation envisages a change to the Air Traffic Act and still needs to be approved by the Parliament.The aim of the draft legislation is to allow passengers to make claims against airlines in a fast, cheap and straightforward manner. It is also hoped that the conciliation process will free the civil courts from the burden of an ever-increasing number of passenger claims.Who can bring claims?All passengers – apart from business travellers and passengers travelling on package tours (under certain conditions) – can bring claims before the conciliation bodies.Types of conciliation bodiesThe draft legislation stipulates the implementation of two types of conciliation bodies: conciliation bodies organised by private law and a public conciliation body.Participation in the conciliation process is voluntary for airlines. Both the Association of the German Airline Industry and the Board of Airline Representatives in Germany e V have agreed to participate. Airlines willing to participate must implement or join an existing private-law conciliation body. Airline passengers travelling with airlines that are voluntarily participating in the conciliation process can turn to the respective private-law conciliation bodies to bring a claim. If the airline in question is not voluntarily participating, passengers must turn to the public conciliation body.Types of claimsPassengers can bring claims if the amount in dispute is between €10 and € 5,000 and the dispute has resulted from cancellation, delay, denied boarding, damage or loss of baggage, or carriage of persons with reduced mobility.A claim can be brought before the relevant conciliation body only if the passenger has first tried to resolve the dispute directly with the airline and the airline:has not responded within 30 days;has not compensated the claim in the expected amount; orhas denied compensation.Further, a claim cannot be brought if:the German courts do not have jurisdiction;civil proceedings have already been brought; orthe case has already been settled outside of court.Civil court actionsThe possibility to file claims before the civil courts remains unaffected by the introduction of conciliation bodies. Also, the conciliation process is not mandatory in order to bring a claim before the civil courts. If a mediator's suggested settlement is not accepted by one of the parties in the conciliation process, the case can still be brought before the civil courts. However, if a settlement is reached and accepted by both parties in the conciliation process, it is binding and a claim before the civil courts cannot be brought or will be unlawful respectively.Administrative proceedingsThe introduction of a conciliation process will have no direct effect on administrative proceedings brought before the Federal Aviation Office (LBA). However, the prosecution of administrative offences will be at the discretion of the relevant authority. Therefore, the LBA can refrain from entering into or staying administrative fine proceedings if a conciliation process is ongoing. The LBA can also abandon administrative fine proceedings, depending on the outcome of the conciliation process.Estimated costs Passengers bear no costs. According to the draft legislation, a small conciliation fee for passengers (maximum €20) can be introduced, under certain conditions, two years after the conciliation bodies commence operation. However, it appears highly unlikely that these conditions will be fulfilled.Expenses for airlines will be significant. In the explanatory memorandum to the draft legislation, the following costs are estimated, which will be borne by the industry:Private-law conciliation bodies –one-time fee for implementing or joining an existing conciliation body – € 22,000;annual expenses for running the conciliation body (mainly labour costs) – €1.2 million; andannual administrative expenses (for fulfilling information requirements) – € 6,000.Public conciliation body –implementation of a public conciliation body – € 377,000.However, these costs will be transferred to the airlines entirely by levying a conciliation fee.Airlines will also have to bear all costs in relation to the conciliation process, regardless of whether the claim has merit (unless the claim is evidently an abuse of process). The explanatory memorandum estimates a fee of €240 for each conciliation process before private-law conciliation bodies and €290 for each case before the public conciliation body.The estimations are based on an average of 6,500 cases per year (80% of which will go before the private-law conciliation bodies). Each case is estimated to require three-and-a-half hours of work. Trained lawyers are envisaged to act as mediators.CommentThe introduction of conciliation bodies for passenger claims would be yet another setback for the airline industry, particularly because airlines will have to bear all the costs. Firstly, airlines will have to finance the setting up and maintenance of private-law conciliation bodies and the public conciliation body. In addition, it is envisaged that airlines will bear the costs of the conciliation process even if the claim brought by the passenger is without merit (unless the claim is an abuse of process, which will be the exception).Therefore, the introduction of conciliation bodies is likely to open the floodgates for passengers to bring claims against airlines, as there is no cost risk for them in doing so. As a result, airlines may face many more passenger claims than before. The publicity that the introduction of the conciliation bodies will generate – making passengers all the more aware of their rights – will probably foster this development.In light of the above, the arguments contained in the explanatory memorandum as to why the introduction of conciliation bodies will also be advantageous for airlines are weak. First, it seems far-fetched to argue that airlines will benefit because the conciliation process will result in better customer retention. Second, it is questionable whether airlines will save costs as a result of this process – especially considering the likely increase in the number of claims and the costs involved in establishing and maintaining the conciliation bodies.Furthermore, the parties will not have to accept the mediator's suggestion in the conciliation process. In such cases a claim can still be brought before the civil courts. It is therefore possible that in many cases the airlines will not only have to go through the conciliation process, but will also have to enter into court proceedings if dispute cannot be settled.Consumer protection specialists are likewise unhappy with the draft legislation: they have criticised it for not being sufficiently customer-friendly.It remains to be seen how this controversial topic will develop over the next few months and, in particular, how the LBA (as the national enforcement body) will handle passenger complaints that will be dealt with before the conciliation bodies.For further information on this topic please contact Ulrich Steppler or Katharina Sarah Meigel at Arnecke Siebold Rechtsanwälte by telephone (+49 69 97 98 85 0), fax (+49 69 97 98 85 85) or email ([email protected] or [email protected]).