Synopsis: As we start to look forward to the holiday season, hospitality businesses should take note of a landmark court decision which could change travel operators’ rights to charge cancellation fees when holidaymakers cancel their booking at short notice. Nick Drew, solicitor at Pitmans LLP, looks at the impact the decision may have on the hospitality industry.

Background:

Bruce Crawcourt of Shrewsbury booked a holiday for his family to Majorca with the package holiday provider, Thompson, but was forced to cancel the trip at six days’ notice because of illness. TUI UK Limited (“TUI”), Thompson’s parent company, insisted that the £2,200 paid for the holiday was non-refundable due to a cancellation provision in their terms and conditions.

The provision, which stated: “To cover the cost of processing your cancellation, and to compensate us for the risk that we may not be able to resell your travel arrangements, we’ll make a cancellation charge on the scale shown below….”A sliding scale of compensation then provided an increasing level of compensation payable as the departure date approaches, with 100% of the booking price being payable if cancellation is notified within 14 days of departure.

This sliding scale of compensation is very common in most travel operators’ booking terms, and is also used by some airlines and hotel operators.

Mr Crawcour investigated further, and through online searches of the flight and hotels included in the package, it became apparent that Thompson had successfully resold his airline seats within 24 hours, and had resold or cancelled his hotel room two days before departure. It was therefore clear that Thompson had suffered no significant loss from the cancellation.

The question arose as to why should Thompson be entitled to retain the cost of the holiday if it had not actually suffered any loss? Mr Crawcour took his case to his local Small Claims Court in Telford where he represented himself against TUI’s legal representatives.

The claim:

Mr Crawcour’s argument was that TUI was in breach of the Unfair Terms Consumer Contract Regulations 1999 and the guidance from the Office of Fair Trading on Unfair Contract Terms in Package Holiday Contracts 2004.

This legislation and guidance allows travel operators to charge cancellation fees based on the sliding scale of compensation, provided such charges are genuine pre-estimates of the travel operators’ loss.

However, Mr Crawcour argued that technology developments and real time information in the way holiday bookings are made has allowed travel operators to monitor whether they have managed to resell the airline seats and hotel rooms and therefore calculate very easily whether they have made a loss on a last minute cancellation. He claimed that holidaymakers should not be subject to an unfair term which penalises them with an arbitrary charge when the travel operator has managed to resell their booking.

The Decision:

The court found in favour of Mr Crawcour with the judge ruling that the cancellation charges in Thompson’s terms and conditions could not be a genuine pre-estimate of loss and was therefore an unfair term.

Mr Crawcour was awarded a full refund of the cost of the holiday plus his court fees.

Impact:

TUI has successfully asked for the leave to appeal to the High Court and so this is unlikely to be the last we hear of the matter.

However, TUI’s persistence to pursue the decision signals that this is not simply about the cost of Mr Crawcour’s holiday – it is a decision which could have wide ramifications for the way the hospitality industries’ terms and conditions operate.  

If the appeal fails then this case could prove a significant victory for consumers and force businesses in the hospitality industry to revisit the way their terms and conditions are drafted for cancellations by the consumer. It may also open the floodgates for further claims by consumers in the run up to the holiday season.