On Saturday evening, Boris Johnson announced a national lockdown for England. Significantly, for the travel industry, this means it will be against the law to have an overnight stay away from your primary residence, or to go on holiday (in the UK or overseas) between the November 5 and December 2, although business travel is still permitted.
For tour operators and package organisers, the legal position on refund obligations under the PTRs will depend on whether the package holiday can still go ahead as contracted or not – which will ultimately come down to whether the flights are cancelled.
The initial lockdown in March saw thousands of flights cancelled due to the ban on holidays, but it remains to be seen whether that will happen again. In fact, Ryanair has already confirmed it will not be cancelling flights as a result of the lockdown, although it will allow customers to move flights for free.
If, as a result of the lockdown, the customer’s flight is cancelled or if any other elements of the holiday can no longer be provided, then the holiday can no longer be performed as contracted and in accordance with the Package Travel and Linked Travel Arrangements Regulations 2018 (PTRs), the customer is entitled to a full refund of monies paid within 14 days of the cancellation.
If the flight isn’t cancelled, and all other elements of the package holiday are still able to go ahead as contracted, then performance of the package isn’t affected and, as such, it could be argued that there isn’t any obligation under the PTRs for the organiser to cancel the holiday and provide the customer with a refund in these circumstances.
However, there is an argument that the contract between the customer and the tour operator has been frustrated by the fact that it is illegal for a customer to go on holiday between November 5 and December 2. Under the law of frustration, the customer is entitled to a refund of monies paid for services not provided, however the supplier may also be entitled to deduct an amount to cover the value of any expenses incurred by the supplier (which cannot be recovered from elsewhere).
This position is consistent with the Covid-19 guidance issued by the Competitions and Markets Authority. The CMA states that where a contract cannot go ahead due to lockdown laws (including where the customer can no longer receive services due to lockdown laws), customers will generally be entitled to a full refund for any payments they have made for services not received under the contract. However, the CMA does state that there are limited exceptions to the full refund rule. For example, a business may be able to deduct a contribution to the costs it has already incurred in relation to the specific contract in question (where it cannot recover them elsewhere).
It should be flagged however, that the CMA has made it clear that it expects any deductions from refunds to be ‘limited’ and that such cases are likely to be rare. As such, a tour operator should ensure any deductions are kept to a minimum and limited to costs which incurred by the tour operator which cannot be recovered elsewhere. For example, flight costs where the customer wishes to cancel their holiday but the airline has refused a refund to the operator as the flight wasn’t cancelled.
Where the customer’s flight isn’t cancelled, most airlines will more than likely offer the opportunity to move flights to a later date for free, or a credit note – and these options should be offered to the customer as an alternative to cancellation. In the event the customer wishes to cancel their holiday, travel insurance may be able to cover the cost of any shortfall in the customer’s refund.
The law of frustration has not been tested in the courts in the context of travel and Covid-19 and neither has the CMA’s guidance, yet. As such, the above position is open to interpretation and there will no doubt be some customers who continue to argue for a full refund in all circumstances. Courts tend to be consumer-friendly and it will be interesting to see how they interpret the law in these unprecedented circumstances.
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