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    Time is Money: Aviation Insurers Look to the Sky as ECJ Opens the Door to Delayed Flight Claims

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    Aviation insurers could face a new stream of claims after the European Court of Justice (ECJ) confirmed that airlines should pay compensation to passengers who are subject to long delays. This gives delayed passengers the same rights under Articles 5 to 7 of Regulation (EC) 261/2004 (the Regulation) as those who are denied boarding or whose flights are cancelled.

    Responding to an application from the English High Court in TUI Travel and Others v Civil Aviation Authority (C-629/10), the ECJ confirmed its previous decision in Sturgeon and Others [2009] which extended compensation to delayed passengers on the basis of the principle of equal treatment. As a result, delays of three hours or more will entitle passengers to seek compensation from their airline according to the fixed amounts set out in the Regulation.

    Case History
    The reference to the ECJ was made by the English High Court in relation to an application for judicial review brought by TUI Travel, British Airways, easyJet and the International Air Transport Association (IATA) against the Civil Aviation Authority (CAA). The applicants requested confirmation that the CAA would not interpret the Regulation as imposing an obligation to compensate passengers for delay, but the CAA refused to do so.

    This application in turn arose as a result of the ECJ’s decision in Sturgeon where it held that loss of time constitutes an inconvenience which is covered by the Regulation and that inconvenience must be redressed by providing compensation to the affected passengers. That decision was controversial because it appeared to extend the reach of the Regulation beyond the clear wording of Articles 5 to 7, which only expressly provided for compensation to passengers whose flights had been cancelled or who had been denied boarding.

    Article 5 of the Regulation states that in the event of a cancellation, passengers shall “have the right to compensation by the operating air carrier in accordance with Article 7, unless … [the air carrier] can prove that the cancellation is caused by extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken.”

    However, Article 6, on delays, merely states that passengers shall be offered “assistance” by the air carrier, which includes services such as a hotel or transport depending on the circumstances.

    The questions posed by the High Court to the ECJ revolved around whether interpretation of the Regulation so as to require compensation for delayed passengers was invalid because of inconsistency with the Montreal Convention, or because it breached the principles of proportionality or of legal certainty. Alternatively, if there was no obligation to compensate, it asked whether this was a breach of the principle of equal treatment. The TUI Travel reference was joined with the German case of Nelson v Deutsche Lufthansa AG (C-581/10) where similar questions had been posed. Several other interested parties, including the governments of the UK, Germany, France and Poland also submitted opinions to the ECJ.

    Legal Questions
    In answering the questions before it, the ECJ said that the loss of time caused by a flight delay is considered an inconvenience within the meaning of Regulation No 261/2004 but does not constitute “damage occasioned by delay” under Article 19 of the Montreal Convention. Therefore, as explained in Sturgeon, it falls within the scope of the harm contemplated by the cancellation provisions in the Regulation, but does not come within the scope of Article 29 of the Convention which provides for an action for damages in the event of damage resulting from delays. As a result, the obligation under the Regulation is compatible with Article 29 of the Convention, and in fact is additional to Article 29 as it is triggered at an earlier stage. Passengers subject to damage as a result of a long delay may therefore claim under both the Regulation and the Montreal Convention.

    It was also argued by TUI Travel and Others that an obligation to compensate delayed passengers would contravene the principle of legal certainty, a point which the ECJ roundly rejected. It found “no tension” between the earlier, related judgments of IATA and ELFAA (C-344/04) and Sturgeon, and pointed out that the principle of legal certainty is aimed at ensuring individuals can ascertain unequivocally what their rights and obligations are and take steps accordingly. Air carriers, however, cannot rely on that principle and claim that an obligation to compensate delayed passengers infringes it, the ECJ said. In any event, it held that following the decision in Sturgeon, both passengers and air carriers could know unequivocally the point from which compensation could be claimed.

    Comment
    The main criticism of this decision (and of Sturgeon before it) is that the obligation to compensate passengers for a delayed flight will pose a financial burden on air carriers. This point was made by TUI and the UK Government, and it was argued that the increased costs would ultimately be passed on to passengers.

    In reaching its decision, the ECJ recognised this concern, but it said that the consequences of imposing a financial burden on airlines were not disproportionate to the aim of ensuring a high level of protection for air passengers, which was the aim of the Regulation. The high level of protection required for passengers, as made clear in the preamble to the Regulation, is regardless of whether they are denied boarding or whether their flight is cancelled or subject to a long delay.

    However, the ECJ appeared to suggest that the compensation obligation on air carriers would not be too great in any event. This, it said, is because (i) the obligation only relates to long delays; (ii) fixed amounts of €250, €400 and €600 depending on the distance of the flights may be reduced by 50% under Article 7(2)(c) if the delay is less than four hours; and (iii) there is no obligation if the delay is caused by “extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken, that is, circumstances which are beyond the air carrier’s actual control.”

    This ‘extraordinary circumstances defence’ has been the subject of much debate. To date, the Icelandic volcanic ash cloud in 2010 and the heavy snowfall the following winter have been deemed ‘extraordinary circumstances’ but such events are rare thus indicating a very limited defence for airlines. For example, if a flight is delayed because of a minor fault spotted on a pre-flight check, it is unlikely that these will be ‘extraordinary circumstances’ sufficient to avoid the obligation to pay compensation, even if the fault and resultant delay was caused by a third party maintenance company.

    The ECJ also expressly stated that an obligation to give compensation to delayed passengers would be “without prejudice to air carriers’ rights to seek compensation from any person who caused a delay, including third parties”, and this may reduce their financial burden accordingly. This comment may offer some consolation to air carriers (and their insurers), who will undoubtedly see increased claims as a result of this decision.

    One anomaly that persists despite this clarification from the ECJ is the application of the compensation provisions in the Regulation: while they apply to all EU airlines as well as non-EU airlines operating flights that leave from the EU, they do not apply to non-EU airlines returning to the EU. Therefore, for passengers leaving Europe on a non-European carrier, only their outbound flights will be covered by Articles 5 to 7 of the Regulation and not their return.

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