In a long-awaited but widely anticipated judgment delivered on 23 October 2012 in the joined cases of TUI and Others and Nelson, the Grand Chamber of the Court of Justice of the European Union (CJEU) 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 re-open 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 consistently with the principle in EU law of equal treatment, and found that passengers whose flights are delayed for long periods are inconvenienced in the same fashion as those passengers whose flights are cancelled and therefore should be treated in the same way. The CJEU noted that Recital 15 of the Regulation referred to the notion of a “long delay”, and that by linking the notion of long delays to extraordinary circumstances, the legislature must be taken to have linked the same notion to the right to compensation.
In trying to find some support for this flimsy argument, the CJEU noted that airlines which cancelled flights could avoid paying compensation to their passengers if they re-routed those passengers, with the new flight arriving within a three-hour window of the original scheduled time of arrival. Applying the principle of equal treatment meant that airlines did not have to pay compensation to passengers who experienced a delay of less than three hours, but that compensation had to be paid to passengers who experienced longer delays.
With greater desperation, the CJEU also noted that in Article 6 of the Regulation, the care and assistance provisions to be provided by airlines to passengers (food, drink, free telephone calls) are triggered by a delay of 2 hours or more in the case of flights of 1,500 kilometres or less. If this was the minimum benchmark, then a “long delay” had to mean delays of 3 hours or more. 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, and that compensation would have to be paid unless the delay was caused by “extraordinary circumstances”, which could not have been avoided even if all reasonable measures had been taken.
What the CJEU ignored
In reaching its 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:
“In the carriage of passengers, baggage and cargo, any action for damages, however founded, whether under this Convention or in contract or tort or otherwise, can only be brought subject to the conditions and such limits of liability as are set out in this Convention … In any such action, punitive, exemplary or any other non-compensatory damages shall not be recoverable”.
As the compensation for delay would be 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.
Challenges to the Sturgeon judgment
The Sturgeon judgment was received badly by airlines and airline associations, who felt that the CJEU had moved the goalposts by introducing rights of compensation for flight delays of 3 hours or more, which had been intentionally excluded by the draftsmen of Regulation 261, and mounted several legal challenges to the judgment in their national courts. Two of these cases were referred up to the CJEU.
In the UK, judicial review proceedings were brought by TUI, easyJet, British Airways and IATA against the UK Civil Aviation Authority, following the UK CAA’s stance that airlines had to abide by Sturgeon. In Germany, in a dispute between passengers (Nelson) and the airline Lufthansa concerning the delay to a flight of more than 24 hours, the German Court sought clarification concerning the scope of the Sturgeon judgment and the compatibility of the judgment with the Montreal Convention. These two challenges were dealt with at the same time by 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 Advocate General’s Opinion
On 15 May 2012, after an interminable wait, the Advocate General issued his Opinion on the case, which was not legally binding but was intended to guide the CJEU in formulating its judgment.
Perhaps not surprisingly, the Advocate General, in a poorly reasoned and brief opinion, confirmed 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 a slim hope that the larger panel of judges sitting in the Grand Chamber of the CJEU considering the challenges could overturn the decision of the smaller panel of judges in the Fourth Chamber that had decided the Sturgeon case.
The October judgment
Following a further wait of over five months, the CJEU eventually delivered its judgment on 23 October 2012.
As anticipated, it is not good news for airlines.
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 which could not be avoided even if all reasonable measures had been taken.
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 on an aircraft (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; the reality is that, in the wake of the Wallentin-Hermann decision, they were not giving very much away to the airlines.
In reaching its judgment, the CJEU held as follows:
- Equal treatment – 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.
- Montreal Convention – 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. The CJEU found by way of a rather convoluted and circular line of argument that, as Article 19 of the Montreal Convention deals with situations where the damage arises as a result of a delay, there is a causal link between the delay and the damage, and the damage is individual to passengers depending on the nature of the loss suffered by them. In contrast, a “loss of time” is not a damage arising as a result of a delay, but is an inconvenience, like other inconveniences inherent in cases of denied boarding and flight cancellation. They found that such an inconvenience is not governed by the Montreal Convention. The CJEU also found that as a “loss of time” is suffered identically by all passengers whose flights are delayed, 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, in the previous CJEU ruling in the IATA and ELFAA case, had been found not to be in conflict with the Montreal Convention. The CJEU was keen to emphasise once again, as they did in the Sturgeon judgment and the IATA and ELFAA case, 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 fixedrate compensation they will now receive.
- Legal certainty – 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 be able to ascertain unequivocally what their rights and obligations are and take steps accordingly. The CJEU referred to the Advocate General’s Opinion on this point for support that once the Sturgeon judgment was delivered, 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.
- Proportionality – the obligation to compensate passengers whose flights are delayed for 3 hours or more is consistent with the principle in EU law of proportionality (which means that the measures adopted by EU institutions should not exceed the limits of what is appropriate and necessary to attain the legitimate objectives of the legislation and the disadvantages caused must not be disproportionate 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 (who would seek to pass the costs on to passengers by way of increased fares), 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 CJEU also 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 4 hours of the original scheduled arrival time.
- Retroactivity – 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.
Where does that leave airlines facing claims for compensation?
There are probably four categories of passenger claims arising out of delayed flights. Taking each in turn:
- 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
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 the failure or actions of a third party. Depending upon the status of the proceedings brought by the passenger, and the particular procedural rules that govern the proceedings in the courts in which the case is ongoing, strategically you may want to consider joining that third party to those proceedings. Joining third parties to proceedings 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 or not 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 on force majeure or exclusion clauses in contracts with you in defending any attempts to extract compensation from them.
- Claims that have been filed with your customer relations departments but have not yet made their way to the courts
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 defences 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 (1) above.
- Claims that will now be made arising out of delayed flights preceding the date of this judgment
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. There is an outstanding reference to the CJEU in the case of Joan More v KLM where a ruling is sought on whether the relevant limitation period for claims under the Regulation should be restricted to the two-year limitation period set out in the Montreal Convention. However, as the CJEU has now ruled that claims under the Regulation fall outside the scope of the Montreal Convention, it is unlikely that they will apply the two-year limitation period found in the Montreal Convention to claims for fixed-rate compensation under the Regulation. The CJEU is more likely to apply a different limitation period, or simply leave national law to fill in the gaps.
If you cannot defend the claim using the laws of limitation or prescription, see (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 reports, 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 airlines keep those documents relating to flights which are delayed for 3 hours or more for longer.
- Claims that will now be made arising out of future delayed flights
The only real defence available to you now is extraordinary circumstances, as to which see (1) above.
The future – revision of Regulation 261
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 revision 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. 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 following the revision to the Regulation, a non-exhaustive list of extraordinary circumstances can be agreed between all affected parties and the legislators, giving some certainty over what is and what is not an extraordinary circumstance, and that the mechanisms by which airlines are able to pass the consequences of any delay on to those parties who are responsible for them will be strengthened.
The European Commission and MEPs have made it clear to airlines and airline associations that the fixed rate compensation regime for cancellation and delay will remain, and that the key judgments of the CJEU in the IATA/ELFAA case, the Wallentin- Hermann case, and the Sturgeon case, interpreting the text of the Regulation, will not be reversed.
In the face of this clear message, the airlines and airline associations have proposed a series of “joint amendments” on key issues in the Regulation as follows:
The airline associations have said that a more explicit definition of extraordinary circumstances is required to improve clarity and consistency of enforcement, and have submitted to the European Commission a non-exhaustive list of what they consider should be categorised as extraordinary circumstances. Without prejudice, as it were, to that list, the airline associations have said that the CJEU judgment in Wallentin-Hermann simply added unnecessary confusion, was far too broad in its scope, covering almost all technical shortcomings discovered on an aircraft at the last moment, and excluding the vast majority of technical faults from the scope of extraordinary circumstances.
Delays – compensation
The airline associations say that while there is no justification for compensation in the event of delays, the trigger for compensation being paid should be at least 5 hours for all flights, regardless of the length of flight, so as to be consistent with the length of delay that qualifies for a refund under Article 6(1)(iii) and Article 8(1)(a) of the Regulation. The airline associations have also made it very clear that the airlines need at least 6 hours for their ops departments to retain the flexibility to do reverse rotations (on shorter haul) and more than 6 hours on longer haul flights, so that they do not have to default to cancelling the flight entirely.
Following this rationale, the airline associations have proposed 3 different triggers according to the length of the flight, as follows:
- 6 hours or more delay and all flights less than 1500km
- 9 hours or more delay on all intra-community flights more than 1500km, and for all other flights of between 1,500 – 3,500km
- 12 hours or more delay on all flights not falling under the above categories.
Delays – duty of care and assistance
The airline associations have proposed that the obligation on airlines to provide meals and refreshments should be subject to availability and facilities, and must be limited and proportionate to the immediate and real needs of the passengers. They have asked that the definition of “mass disruption” be clarified, as it is at present unclear, and in cases of “mass disruption” such as the volcanic ash crisis, there needs to be more responsibility and cost sharing taken on by local authorities – who could open up public facilities like schools and halls to accommodate disrupted passengers.
The airline associations have said that the limits to care and assistance should apply to all cases of force majeure – in other words, all circumstances which are beyond an airline’s control.
On hotel accommodation, the airline associations have suggested that the hotel accommodation airlines are obliged to provide should be limited to 2 nights and the allowable costs of hotel accommodation capped at €80 per night per person.
Rights of redress against third parties
The airline associations have pointed out that although ACI professes support for passenger rights, when airports have been directly responsible for disruption, they have never accepted any responsibility for the cost of providing care and assistance or for footing the bill for compensation to be paid to passengers.
The associations also point out that Air Navigation Service Providers take no responsibility when disruption is caused by them – for example when there are illegal strikes – and will not indemnify the airlines for fulfilling their obligations under the Regulation.
The airline associations say that groundhandling agents simply point to exclusion clauses or contractual waiver clauses in the standard form IATA Groundhandling Agreement (GHA).
As a consequence of this failure by third parties to bear responsibility for cancellations and delays, airlines are being penalised and have no rights of redress against third parties.
The airline associations have therefore proposed that in the revised Regulation there should be a new provision stating that any contract or law limiting or excluding third parties’ liability will be considered illegal.
So what we can expect from the revised Regulation?
Representatives of the European Commission have confirmed informally that we can expect the following in a legislative proposal by the end of this year:
- Existing rights will be confirmed, not expanded. The intention is to fine tune the rights, clarify passenger rights and make the enforcement of those rights more effective
- The Regulation will be adjusted to take account of financial limits so compensation will be more proportionate
- Extraordinary circumstances will be better defined so as to reflect the CJEU judgments and either include a nonexhaustive list of extraordinary circumstances within the text of the revised Regulation, or as an Annex to the Regulation. The advantage of not including a non-exhaustive list in the text would be that it would not have to be submitted as part of the legislative proposal and would not as a consequence require a co-decision with the European Parliament and Council. If the non-exhaustive list is contained in an Annex to the revised Regulation, it could be adjusted by the use of delegated acts, so as to quickly take account of changes of circumstance and further CJEU rulings as they emerge
- The Extraordinary Circumstances Working Group, which includes the UK CAA’s Safety Regulation Group and seven National Enforcement Bodies, has been going through instances of delay and cancellation caused by technical shortcomings in aircraft and consulted with certain airlines’ ops teams, and found that more often than not, the delay or cancellation was justified. The findings of the Working Group, which will report back to the European Commission, may lead to a less restrictive application of the principles laid down in the CJEU judgment in the case of Wallentin – Hermann, and a more consistent approach to the treatment of claims for compensation for delay and cancellation arising from aircraft “going tech” at the last minute
- The Sturgeon ruling, giving fixed compensation payments to passengers on delayed flights will be written into the revised Regulation, but the length of delay triggers are likely to be extended out to 6, 9 and 12 hours from the Sturgeon trigger of 3 hours or more
- There is likely to be a cap imposed on the obligation on airlines to provide accommodation in extraordinary circumstances to 2 nights and an allowance of €80 per night per passenger for accommodation. This will be balanced by the introduction of contingency plans for the repatriation of passengers stranded at airports where there is mass disruption, such as during the recent volcanic ash crisis, which will include looking at responsibility being taken by local public authorities to provide alternative temporary accommodation
- There will be stronger rights of recourse against third parties (such as airport authorities and air navigation service providers) so that airlines can get real rights of redress against such parties to recover costs of care and assistance. It is envisaged that a new article will be included in the text of the revised Regulation stating that any contract or law limiting or excluding a third party’s liability will be considered illegal.