Lawyers to the travel and leisure industry
travellers’checks
Autumn 2004
contents
Insurance update
1
The future of consumer
protection
3
Increase in fuel charges
4
IATA challenge to new
passenger protection rights
4
New rules under the
Montreal Convention 1999
5
Home or away...
7
Stop press
8
Corporate killing new law at last
8
Welcome to the
autumn edition....
Regulation, regulation,
regulation is the theme of our
Insurance update
From 14 January 2005, the Financial
Services Authority ("FSA"), the UK's
financial services regulator, will be
responsible for regulating firms that
carry out "general insurance business"
as part of the implementation of the
Insurance Mediation Directive by the
United Kingdom.
Autumn edition of Travellers'
Checks. The travel industry is
one of the most heavily
regulated sectors in the UK and
given the number of recent
developments, we are dedicating
a whole edition to update you in
the areas of financial protection,
security, insurance and
employment law to name but a
few.
www.ngj.co.uk
Following representations made by
ABTA and others, the FSA has agreed
that agents and operators selling
travel insurance will not need to be
regulated where insurance mediation
activities are carried on in relation to
"connected contracts of insurance".
However, ABTA members will be
subject to regulation in this area
imposed by ABTA. In broad terms, a
"connected contract of insurance" is a
contract of insurance which:
(1) is not a contract of long term
insurance;
(2) has a total duration (including
rights to renewal) of 5 years or
less;
(3) has an annual premium (or the
equivalent of an annual premium)
of €500 or less;
(4) covers the risk of: (a) breakdown,
loss of or damage to, non-motor
goods supplied by the provider; or
(b) damage to, or loss of, baggage
and other risks linked to travel
booked with the provider.
(5) does not cover any liability risks
(except in the case of a contract
which covers travel risks, where the
travellers’checks
cover is ancillary to the main cover
provided by the contract);
(6) is complementary to the service
being provided by the provider;
and
(7) is of such a nature that the only
information that a person requires
in order to carry on one of the
insurance mediation activities is the
cover provided by the contract.
This exemption applies to activities
carried on by "a provider of relevant
goods or services". Article 72B of the
Financial Services and Markets Act
2000 (Regulated Activities) Order
2000 (inserted by SI 2003/1476 arts
2,11) defines a provider as:
"a person who supplies non-motor
goods [any goods which are not
mechanically propelled road
vehicles] or provides services
related to travel in the course of
carrying on a profession or
business which does not otherwise
consist of carrying on regulated
activities."
Good news for
accommodation only
suppliers
Initially, the FSA maintained that the
exclusion from FSA regulation was not
available to accommodation only
providers as they interpreted the
phrase very restrictively, asserting that
in order to qualify for the exemption,
the travel arrangements must
incorporate an element of transport
from A to B.
We challenged this on behalf of one
of our accommodation only clients.
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ABTA became involved and also
negotiated in favour of the industry
and we are pleased to say that the
FSA have now given the provision a
wider interpretation. The FSA have
concluded that travel is not necessarily
synonymous with transport but more
widely refers to arrangements which
necessitate travel.
To put this in practical terms, the
exemption would be available to
persons (mainly but by no means
wholly limited to travel agents and
tour operators) whose regular
business involves them in offering
services involving travel as a package
with insurance included. The FSA
have said that they would expect that
the regular business of a person to
whom the exclusion applies would
involve making arrangements for the
purpose of travel, as opposed to
making arrangements solely or
predominantly for the purpose of
merely providing the means of travel.
As part of this "package", the FSA
would expect the insurance to be in a
standard form offered to all customers
irrespective of whether or not they
choose to make their own travel
arrangements. The FSA have said that
under this interpretation of "travel", a
villa rental company may be regarded
as covered by the exemption, as may
any other person providing holiday
accommodation. In the FSA's view, it
should be possible to distinguish such
a person from other providers of
accommodation such as hotels on the
basis that the former would be
persons who can reasonably be
regarded as providing services related
to travel and who might be expected
to offer travel insurance whilst the
latter are not.
However, readers should note that the
sale of travel insurance by a travel
agent on a stand alone basis (that is,
other than with travel booked with
the agent) is not excluded and is
therefore the subject to FSA
regulation.
Autumn 2004
The future of consumer protection
Last year we reported on the CAA's
consultation process on the scope of
consumer protection. The CAA's final
advice to Government on the
protection for flights and holidays in
the future was published on 20 July
2004 and took into account
comments from the industry and its
response to a draft advice published
earlier this year.
The recommendations acknowledge
that the ATOL system is becoming less
effective because more and more
people buy separate holiday
components through the internet
rather than as part of a package.
These arrangements are unprotected,
since they fall outside both the ATOL
Regulations and the Package Travel
Regulations but consumers do not
realise that they are at risk of being
stranded or losing money in the event
of an insolvency.
The number of these arrangements is
on the increase. The CAA's research
showed that last year in the UK 12
million leisure flights and holidays
carried no protection, and the
coverage of ATOL has declined from
98% of leisure travellers in 1997 to
70% in 2003. The CAA stress that
this is of particular concern, given the
number and complexity of travel
company failures in recent times.
The CAA's advice to Government is
that there is now a serious problem in
that holiday protection through ATOL
is waning and the trend can only be
reversed by a change in the law. The
key recommendations are that:
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The scope of travel protection
should be extended to cover UK
originating international return
flights that are sold in the UK and
paid in advance irrespective of the
nationality of the airline. The
protection should be extended to
cover other facilities where these
are sold with a flight, either in a
package within the meaning of the
Package Travel Regulations or by
another supplier in conjunction
with the flight.
It would be preferable for the
change to take place at European
level, and the Government should
use its influence within the
European Commission to secure a
change in the legislation. It may
be a slow process (and there is a
possibility of airline failures which
will impact on the public in the
interim) and the CAA recommends
that the Government changes UK
legislation without waiting for a
change at European level.
and exploring whether travel
insurance policies might be
expanded to cover airline failure in
more cases and whether such
policies could be sold at the point
of sale.
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Developing a code of conduct for
airlines and travel companies
which would specify the
information to be passed to
consumers on financial security.
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Further research needs to be
carried out into the method of
providing protection through a
common fund, bond or insurance
instrument. If Government agrees
with the CAA's conclusion that
legislative change is required, the
CAA will carry out a Regulatory
Impact Assessment and consider
the various funding methods in
more detail.
Travellers' Checks will, of course, be
reporting on the Government's
response.
UK legislation may not be changed
sufficiently quickly to deal with the
increasing problem. The CAA has
proposed some interim measures
that might be adopted on a
voluntary basis. The effectiveness
of the interim measures would be
a factor in determining the speed
of changes in UK legislation. The
voluntary measures proposed are
comprehensive and reliable
repatriation arrangements to cover
flights sold on their own; airlines
providing financial protection
where a flight is sold by an airline
in conjunction with other facilities
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travellers’checks
Increase in fuel charges
In August 2004, British Airways and
Virgin Atlantic increased the surcharge
payable on all one-way long haul
flights from £2.50 to £6.00 - resulting
in an extra £12.00 charge in the cost
of tickets for return flights. The
increase was in response to a rise in
fuel prices of 45% in the last 12
months.
If operators wish to pass on additional
costs to consumers by increasing the
price of a pre-booked package
holiday, they will need to consider the
Guidance issued by the OFT on Unfair
Terms In Booking Conditions In
Holiday Brochures which we reported
in our Spring 2004 edition:
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Regulation 11 of the Package
Travel Regulations allows suppliers
to surcharge after a holiday has
been booked only in limited
circumstances. Terms that provide
for surcharges beyond those
allowed by the Package Travel
Regulations are highly likely to be
considered unfair and void and of
no effect by virtue of Regulation
11(1).
The OFT is firmly of the view that
terms providing for surcharges are
void under the Package Travel
Regulations unless they provide for
both upwards and downward
revision in the event of decreases
in costs.
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Regulation 11(2) defines the
circumstances in which surcharges
are allowed and this extends to
transport costs, including the cost
of fuel. However, Regulation 11(3)
provides that no increase may be
made within a specified period,
which may not be less than 30
days before departure.
Regulation 11(3) also requires a
supplier to absorb part of any
increase, equivalent to at least 2%
of the original cost of the holiday.
IATA challenge to new passenger protection rights
On 17 February 2005 new legislation
will come into effect requiring airlines
to increase denied boarding
compensation (DBC) and also to
compensate passengers where their
flights have been delayed. The new
law is set out in Regulation 261/2004,
"on establishing common rules on
compensation and assistance to
passengers in the event of denied
boarding and of cancellation or long
delay of flights". The Regulation was
approved on 17 February 2004 and
comes into force next year.
The United Kingdom and Ireland both
voted against the Regulation. They
and IATA were concerned that
terrorist-related threats could require
planes to be re-routed or cancelled.
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In those circumstances the carrier
would clearly not have been at fault.
In addition, the lack of any defence
for bad weather conditions would
particularly affect operators in
northern Scandinavia and the
northern British Isles who might be
required to refund the costs not only
of their own flight, but also of a long
haul flight where their flight formed
part of a longer journey (i.e.
interlining).
Having failed to persuade the
European Commission of the validity
of its concerns, IATA launched legal
proceedings in April of this year in the
English High Court. Under EU law,
IATA has no standing to challenge the
Regulation directly in the European
Court of Justice ("ECJ"), but is relying
on the High Court's power to refer
questions on the interpretation of EU
law to the ECJ.
IATA is seeking a declaration that the
Regulation is unlawful. IATA has two
legal grounds for its challenge. The
first is that the Regulation allows
airlines no defence against delays
caused by matters outside their
control such as bad weather or
industrial action. Under the Montreal
Convention, however, to which the
European Community is a signatory,
air carriers are not to be held liable for
delays which are outside their control
where they take all reasonable
measures to avoid that delay. The
Regulation will arguably put the
Autumn 2004
European Community in breach of its
commitments under the Convention.
The second argument is that a
potential defence which allowed
carriers not to pay compensation
where the cause of delay was outside
their control, was removed from the
draft Regulation by the EU
Conciliation Committee. There
appears to have been no justification
for this removal given that the Council
had suggested such measures and the
European Parliament had raised no
concerns to the defence. The High
Court has now accepted these
arguments and agreed to refer the
matter to the ECJ. An Attorney
General of the ECJ will give an
Opinion on the case later this year,
and the ECJ will publish its decision
following its consideration of the
Opinion. Given the date when the
Regulation is to come into force it is
likely that the Court will be asked to
expedite its processes so that the
industry is not forced to adapt to a
Regulation that may be declared to be
unlawful shortly after its
implementation. If IATA is successful,
it is likely that the Commission will
propose a redraft of the Regulation
which would then need to be
approved - this would add at least a
year's delay to the current timetable.
IATA's claim and the position of the
UK and Irish governments can at least
in part be explained by the fact that
the budget airlines (e.g. Ryanair and
Easyjet) would have to increase their
fares by proportionally more than the
traditional airlines to fund the
proposed compensation packages.
Any pressure on fares currently
charged by the successful UK and Irish
budget airlines would almost certainly
impact on their passenger numbers.
New rules under the Montreal
Convention 1999
The Montreal Convention (the
"Convention") became effective on
28 June 2004, and has partly
replaced the existing regime
governing the liability of air carriers in
relation to passengers, baggage and
cargo as established under the 1929
Warsaw Convention, as amended at
the Hague.
not be held liable if any damage
resulted from a flaw in the baggage
itself.
The objective of the Montreal
Convention is to provide a greater
level of financial protection for air
passengers and their baggage, and
for consignors of cargo.
If the carrier admits the loss of a piece
of checked baggage, or if it has not
arrived within 21 days after it should
have arrived, the passenger is in a
position to rely on the contract of
carriage, and all the rights they derive
under it.
Baggage
Identification tag
Under the Montreal Convention, the
carrier must provide the passenger
with a baggage identification tag for
each piece of checked baggage. The
"baggage check" of the earlier
instruments in the Warsaw system
has disappeared. Therefore, no record
need be made of the weight of the
baggage as liability is no longer based
on weight.
Destruction, loss or damage
The carrier is liable for damages
sustained in the case of destruction or
loss of, or of damage to, checked
baggage upon condition only that the
event that caused the destruction,
loss or damage took place on board
the aircraft, or during any period
within which the checked baggage
was in the charge of the carrier. The
carrier is not liable if and to the
extent that the damage resulted from
the inherent defect or quality of the
baggage. Accordingly, a carrier should
With respect to unchecked baggage,
including personal items, a carrier will
only be liable if the damage resulted
from the fault of the carrier, its
servants or agents.
The convention does not specify what
is required from the passenger to
establish damage or loss to baggage.
However, it is likely that carriers will
continue to operate under a claim
form system, as before.
If a person accepts delivery of checked
baggage without complaint this is
prima facie evidence that it has been
delivered in good condition. If there
has been damage to the baggage, the
person who has accepted the delivery
must complain to the carrier after the
discovery of damage and, at the
latest, within 7 days from the date of
receipt of the checked baggage.
Delay
In the case of delay, the complaint
must be made at the latest within 21
days from the date on which the
baggage or cargo was placed at the
passenger's disposal. All complaints
must be made in writing and, in the
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travellers’checks
case of damage, must be made within
7 days. If a passenger fails to make
the complaint within the first 7 days,
no action can be brought against the
carrier, except where fraud is alleged
against the carrier.
Compensation for destruction, loss,
damage or delay
The liability of the carrier in the case
of destruction, loss, damage or delay
is limited to 1,000 special drawing
rights ("SDRs") for each passenger.
SDRs are an artificial currency unit
created by the IMF in 1969. They are
a measure of a country's reserve
assets in the international monetary
system. 1,000 SDRs is the equivalent
of £800 - £850. This limit will apply
unless the passenger has made, at the
time of checking in the baggage, a
special declaration of interest and has
paid a supplementary sum. In that
case, the carrier will be liable to pay a
sum not exceeding the declared sum,
unless they are able to prove that the
sum was greater than the passenger's
actual interest. Clearly, these limits will
not apply if there is proof of intention
or reckless misconduct on the part of
the carrier. In the usual way,
customers who wish to place valuable
items in checked luggage will need to
make a special declaration of interest.
In the absence of this sort of
declaration, any claim for loss or
damage is limited to 1,000 SDRs.
It is important to remember that the
carrier will only be liable for
unchecked baggage if either the
carrier, its employees or agents are at
fault. This is not the case with
checked baggage and the level of
responsibility becomes such that a
carrier will be liable provided the
destruction, loss or damage took
place on board the aircraft or during
any period within which the checked
baggage was in their charge.
Death and bodily injury
Apart from the much higher limits on
liability for baggage claims, this is the
area where the Montreal Convention
makes the most changes. There are
no financial limits on liability for
passenger injury or death. For
damages up to 100,000 SDRs, the air
carrier cannot seek to limit or exclude
liability except, it seems, where there
is contributory negligence. There is
some doubt about this even now.
If the claim is above 100,000 SDRs, a
carrier can defend itself against the
claim by providing that it was not
negligent or otherwise at fault. If the
carrier were to prove that:
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(a) such damage was not due to
negligent or other wrongful act or
omission of the carrier, its
employees or agents; or
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(b) such damage was solely due
to negligent or other wrongful act
or omission by a third party, the
carrier could limit the amount it
had to pay out in damages to the
extent that they exceed the
100,000 SDRs. These limits do not
prevent a Court from awarding a
passenger recovery of his or her
legal costs (costs of bringing the
claim and interest).
The limit set out above will not apply
if the amount of damages (not
including costs or interest) awarded by
the Court is less than an amount
which the carrier offered in writing
within six months from the incident or
six months from the commencement
of the action, if that is later. This
means that a passenger may not get
payment of his Court costs or other
litigation costs, including interest, if he
recovers less than was previously
offered by the carrier.
There is also provision for advance
payment to be made if a passenger is
killed or injured. The carrier must
make an advance payment, to cover
immediate economic needs, within 15
days from the identification of the
person entitled to compensation. In
the event of a death, this advance
payment should not be less than
16,000 SDRs.
Limitation Period
The limitation period for bringing
claims for damages is two years from
the date of arrival of the aircraft, or
from the date on which the aircraft
ought to have arrived.
Autumn 2004
Home or away - can overseas employees sue their UK
employer in cases of discrimination?
In our last edition, Travellers' Checks
reported on the case of Lawson v
Serco Limited [2004] which held that
the right to bring an unfair dismissal
claim applies only to "employment in
Britain". This would have prevented
overseas staff employed by operators
or agents from pursuing claims for
termination of their employment.
However, the position is under review
as Mr Lawson has recently been
granted qualified leave to appeal to
the House of Lords.
The case of Saggar v Ministry of
Defence & Others [2004] examines
the same issues in respect of sex and
race discrimination claims. In this
case, the Employment Appeal Tribunal
(“EAT”) considered the jurisdiction of
English employment tribunals to hear
claims of sex and race discrimination
brought by three army officers
employed by the Ministry of Defence
and stationed abroad. Under the sex
and race discrimination legislation the
test is different from that under the
ERA 1996 - an employee can claim
discrimination "unless he does his
work wholly outside of Great Britain".
We set out the issues which the EAT
considered material to determining
jurisdiction:
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What is the relevant time?
This test involves establishing the
period during which it must be
determined whether the applicant
works wholly outside Great Britain.
The EAT held that a tribunal must
consider where the applicant was
wholly or mainly working at the
time of the alleged discrimination.
The EAT stated there can be no
discrimination at an establishment
in Great Britain if the person being
discriminated against either used
to work in Great Britain but has
not done so for many years, or
was employed under a contract
which contemplated he might be
employed in Great Britain but in
fact never was.
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What is work?
The next issue was what
constituted "work" for the
purpose of the phrase "employee
does his work wholly outside Great
Britain". The EAT directed
tribunals to consider the following:
(a) is the applicant required or
expected under the contract to
perform the task in question, or is
the applicant simply permitted to
do it, or do it in his or her own
time?
These principles will affect the
travel and leisure industry. If
employees who are predominantly
based abroad return to the UK
periodically for training, the English
courts may have jurisdiction to
hear any claim they may bring for
sex and race discrimination. This is
in contrast to the position for
unfair dismissal claims where the
same employees cannot bring a
claim. Furthermore, a revised
section 8 Race Relations Act is now
in force and extends the protection
of the Act in respect of
discrimination on the grounds of
"race or national or ethnic origin"
to employees who work wholly
outside Great Britain, where they
are essentially British based
workers posted to work for a UK
company abroad.
(b) what is the content of the
work? and
(c) what is its duration and its
regularity?
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Is there a minimum period for
which the employee must be
present in Great Britain?
The EAT considered whether one
day's work in Britain was sufficient
to avoid a finding that an
employee was working "wholly"
outside Britain. The EAT referred
to this as the "de minimis"
principle.
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travellers’checks
Corporate killing - new law at last?
Shortly after the 1997 Southall train
crash Government announced plans
to introduce a new offence of
corporate killing. This complex issue
has been brought to the fore again by
manslaughter charges being dropped
against certain key figures at Railtrack
over the Hatfield rail crash in October
2000.
organised fails to ensure the health
and safety of persons employed in
or affected by them.
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The Corporate Homicide Bill follows
the recommendations of the Law
Commission in 1997:
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Corporate killing would be
committed where the company's
conduct in causing death fell far
below what could be reasonably
expected.
The corporate offence should not
require the risk to be obvious, nor
would the prosecution need to
prove that the defendant was
capable of appreciating the risk.
A death should be regarded as
having been caused by the
conduct of the company if it is
caused by a management failure,
so that the way in which the
activities are managed or
Who to contact
For further information contact
Cynthia Barbor or Laura Harcombe.
cynthia.barbor@ngj.co.uk
laura.harcombe@ngj.co.uk
© Nicholson Graham & Jones 2004
8
Such a failure will be regarded as a
cause of someone's death even if
the immediate cause is the act or
omission of an individual.
Individuals within a company could
still be liable for the offences of
reckless killing and killing by gross
carelessness as well as the
company being liable for the
offence of corporate killing.
Government has attributed the delay
in passing the new law to the
complexities of drafting. However,
pressure groups and union leaders
have suggested the delay is due to the
Government's reluctance to displease
the business world. Current thinking
is that the draft bill will be presented
within the current session.
Stop press
Kirkpatrick & Lockhart
Nicholson Graham LLP
Travellers' Checks is pleased to
announce that Nicholson Graham &
Jones will be merging with US law
firm Kirkpatrick & Lockhart LLP
("K&L") with effect from 1 January
2005.
K&L, which has no existing presence
in London, currently comprises
approximately 800 lawyers in 10 US
cities with its largest population of
lawyers in Pittsburgh, Washington,
New York and Boston. Additionally
they have offices in Miami, Dallas,
Harrisburg, Newark, Los Angeles and
San Francisco. K&L serves a dynamic
and growing clientele in regional,
national and international markets
which include representation of over
half the Fortune 100.
Comment
It is good practice for all companies in
the travel and leisure sector to
implement a health and safety and
due diligence policy to minimise risks
to staff and customers.
Nicholson Graham & Jones
110 Cannon Street, London EC4N 6AR
020 7648 9000 www.ngj.co.uk
The contents of these notes have been
gathered from various sources. You
should take advice before acting on any
material covered in Travellers’ Checks.
The merged firm will be known as
Kirkpatrick & Lockhart Nicholson
Graham LLP.