LAST UPDATED 17/03/2020: This article will be regularly updated over the coming days and weeks in order to keep you up to date with what is a fast moving situation where new questions and answers are emerging all the time!
As the ongoing coronavirus pandemic unfolds, Nick Parkinson, Associate at Travlaw, attempts to answer as many questions as possible in relation to travel companies’ obligations to customers. In particular, in relation to when refunds are due.
In my previous article here, I set out the basic rules that should be followed in order to determine when when customers’ are entitled to a full refund where their holiday has been affected by the coronavirus pandemic. However, I also listed numerous questions that we are faced with when applying any real life scenario to those rules. I will now attempt to answer as many of those questions as possible.
PACKAGE HOLIDAYS – Answers!
N.B. It is assumed in all of the scenarios below that your T&C’s do not offer any more favourable terms than the Package Travel Regulations
Cash Flow! How long do I have before I have to issue a refund?
The current position is that you are expected to issue refunds within 14 days of cancelling holidays, in situations where you accept that either a full or partial refund is due. However, the Regulations were intended to find the ‘right balance between a high level of consumer protection and the competitiveness of businesses’. The sheer scale of a global crisis such as the coronavirus pandemic does not seem to have been anticipated, or catered for in the Regulations.
ABTA are therefore currently lobbying the government to pass emergency legislation to remove the 14 day rule, together with other measures to assist the industy! See their official press release here.
In light of this development, we believe that travel companies are entirely justified, in certain circumstances, to refrain from issuing refunds pending a response from the government.
Can I offer Alternatives?
Before you are obliged to offer any refunds, you are entirely free to offer alternatives to customers such as replacement holidays, adjusted itineraries or deferred holidays (credit). It is possible offer incentives to get customers to agree to your proposals.
At what point do I have to cancel future bookings?
You are not obliged to cancel future bookings. i.e. those that are currently unable to proceed due to the coronavirus pandemic, so long as there is a ‘flicker of hope’ that the holiday can go ahead. You do not need to cancel these bookings until it is ‘blindingly obvious’ that it cannot go ahead.
You may well therefore want to take a bullish stance on this point, even if it is looks very unlikely that a holiday in say 7 days will not go ahead. Nobody has a crystal ball and this is a fast moving situation. What may look unlikely today, could change tomorrow. After all, Donald Trump changes his mind every 5 minutes!
Do I have to refund customers even if I am not able to get refunds from my suppliers?
Yes. Your obligations to your suppliers in no way affect your obligations to your customers. For this reason, it is very important to try to negotiate the best possible terms with your suppliers. Our commercial team can help you with this if/when you are ready to sign any supplier agreements in the future.
What exactly constitutes a significant change?
There is limited guidance from the courts or the Regulations on this point, and no simple, black and white answer to the question. The starting point would be to try and put yourself in the shoes of the average consumer and ask yourself: “if you were going on the holiday would you think it was a significant change? “
Of course, if you take the view that the change is not significant the onus is then on the customers to challenge this by taking legal action. Only when such action is taken will the industry have a clearer idea as to what view the courts will take.
What if the holiday can go ahead, but an event that forms part of the package has been cancelled?
This depends on how the holiday was advertised, and how significant that event was in the context of the holiday as a whole. If you have sold a weekend trip to watch the Old Firm Derby in Glasgow, then the customers are more than likely entitled to a full refund. If you think the event that has been cancelled is not significant, forming an peripheral part of the holiday, you may well be entitled to argue that no or minimal refunds are due.
What if there are extraordinary circumstances at the place of destination that affect the carriage of customers to the place of destination, but the customers have arranged their own transport to the start of the holiday?
Customers may have a reasonable argument to say that they are entitled to cancel and obtain a full refund. However, the wording of the Regulations is far from clear. If the intention of the relevant rule here (under Article 12.7) was to give protection to customers even if they have arranged their own transport to the start of the holiday, it could and should have said so. This is an argument that could well be tested in the courts and may even be a point that would need to be referred to the European Courts (ignoring Brexit for a second!).
What if there are border restrictions on entering say Singapore but your tour is only passing through Singapore airport for a connecting flight?
This does not trigger any obligations under the Regulations to offer refunds. The situation is similar to a customer that has turned up at the airport without a valid VISA or passport.
If, however, the restrictions came into force at late notice, and the customer ends up ‘stranded’ at the border, see below.
What if customers’ are left stranded where, for example, there has been a late decision by a country to close or restrict the borders during the holiday?
You are obliged to offer customers assistance when they are in difficulty such as:
- providing appropriate information on health services, local authorities and consular assistance
- assisting them to make distance communications
- help them to find alternative travel arrangements.
You are not obliged to fund the cost of transport (repatriation) back to the start of the holiday unless the customer is stranded to a failure on your part to perform the holiday services (e.g. incorrect VISA advice).
What exactly is the place of destination? Is that the country where the holiday takes place? Is it the specific area of the country? What if the holiday includes travel to several countries?
This is another point where the Regulations fail to offer sufficient clarity. The conservative approach would be to assume that the courts will interpret it in favour of the consumer. However, this uncertainty gives rise to an opportunity to challenge this through the courts. Again, it may even need to be referred to the European Courts (CJEU).
What if my T&C’s do not allow refunds, for example due to force majeure? *updated 19/03/2020
If you have sold a package holiday, you cannot simply outright ban any entitlement to refunds or compensation. Where your T&C’s attempt to offer less protection than the Package Travel Regulations, the Regulations will always prevail. On the other hand, if you have offered more favourable terms than the Regulations, you are bound by those terms.
What are reasonable cancellation charges? *added 19/03/2020
If a customer wants to cancel the package holiday contract before the start of the holiday, the starting point is that you are entitled to apply your standard termination fees as per your T&C’s which should be based on:
- the time of the termination of the contract before the start of the package; and
- the expected cost savings and income from alternative deployment of the travel services.
If you do not have standard termination fees then the refund due should be based on: the price of the package minus the cost savings (if any) and income from alternative deployment of the travel services. In the context of this pandemic, no doubt it will typically be impossible to redeploy those travel services!
In either case, with or without standard termination fees, if the customer so requests, you must justify the amount of that cancellation fee.
EXCEPTION: The exception to the above is that the customer is entitled to cancel the package before the start of the holiday where there are extraordinary circumstances at the place of destination. See examples on that below.
Partial Refunds – updated 30/03/20
The traditional approach is that, when a holiday is cancelled after it is has started (through no fault of their own), customers are entitled to a partial refund to account for those travel services that they did not receive.
The rules in the PTR, however, are not entirely clear about this, which opens the door to an argument that no refunds at all are due. The rules state that the customer must be offered an appropriate price reduction (partial refund). This begs the question as to what is ‘appropriate’ in the context of mass cancellations due to a pandemic that threatens the very existence of the travel industry. This is an untested legal point, so if you want to explore these arguments further, feel free to get in touch.
For those that are prepared to accept the traditional approach of offering customers partial refunds based on the value of services that the customer did not obtain the benefit of, below is an example as to how you might calculate that refund:
Your net costs:
- £200 – flight out
- £700 – accommodation (£100 x 7 nights)
- £100 – flight back
TOTAL costs you have incurred – £1,000
Sale price to customer – £1,500
If the holiday is cancelled on the 5th day (after 4 nights), the customer is only entitled to a refund equivalent to 3 nights accommodation. That would be a total of £300 which represents 30% of the net costs that you have incurred. On that basis, you would offer the customer 30% of the sale price, i.e. £450.
NB. The cost of the return flight has not been refunded. The assumption being that the customer will either return on the original flight as per the itinerary, or you will arrange a replacement flight sooner (if that is viable). Either way, the customer is not entitled to a refund for the return flight unless they are have paid for that personally.
Do I have to offer the same refunds to customers from the UK, EU and outside of the EU?
The short answer is: yes to EU customers (for now), and ‘not necessarily’ to non-EU customers.
The Package Travel Regulations only apply to packages sold or offered for sale in the UK. However, these Regulations come from an EU Directive – so the same rules exist in every EU country. As such, EU customers will always be entitled to the same rights.
As for non-EU customers, it is entirely possible to offer them different T&C’s. However, if you have already offered your customers T&C’s with terms that mirror the Package Travel Regulations, you are bound by those terms. For future reference, however, you may well want to speak to our commercial team to help you further on this.
Hang on, am I actually selling a package to start at all? (e.g. if you are only supplying say accommodation and event tickets)
This is a big topic in itself. A good starting point would be to read one of our previous articles here, which explains when supplying a ‘tourist service’ (e.g. PGA Tour tickets) plus 1 other travel service (e.g. accommodation) will constitute a package holiday!
Needless to say, you do not want to be burdening yourself with the onerous obligations of the Package Travel Regulations if you are not actually selling packages! If in doubt, get in touch.
Advice From the Authorities
What are the consequences if I do not follow the advice of the FCO?
There is a good chance that this will invalidate both your public liability insurance, and any travel insurance held by UK customers. Proceeding with a holiday against FCO advice could, therefore, have unlimited financial risks (should anything happen to your customers on the holiday). However, if in doubt check the exact wording of the policy!
What if the FCO advise against travel to say Singapore but your tour is only passing through Singapore airport for a connecting flight?
See above. You should check your policy and see if this action would invalidate the policy. Even it the policy is invalidated, FCO advice is advisory only. If the customer is willing to travel, and if you take a view that the risk is so low to be of real concern, the holiday can proceed.
What if the FCO are not advising against travel to a particular destination, but the authorities in another country are (e.g. the CDC in the USA)?
Again, as above, the answer lies in the exact wording of your public liability insurance. Is it worded such that only the FCO advise would invalidate the policy? Or is it worded more broadly to cover other international agencies such as the CDC or otherwise?
What do I do about the governments’ advice against international school trips and people over 70 travelling on cruises?
Most customers are likely to cancel their holiday. If they do so, based purely on the government advice and when the holiday can otherwise proceed as normal, then you are entitled to say that this is ‘disinclination to travel’. The situation is comparable to a customer that breaks their leg the day before a holiday. They should be referred to your normal cancellation terms, and also to revert to any travel insurance policy that they have taken out.
What if the customers do not cancel?
You may simply decide take cancel bookings and offer a full refund due to the risk of any harm coming to your customers. However, the advice is (currently) advisory only, so there is no obligation on you to cancel such bookings.
Once again, the answer lies in the exact wording of your public liability insurance. If this invalidates your policy, you may well take a commercial view that it is too risky to allow the customer to travel. In that case, you would be cancelling their booking and would be obliged to offer a full refund.
What exactly constitutes a cruise? Does a riverboat cruise with 20 passengers count?
There is no clear guidance on this; however where we have no definitions to work with, or more detailed guidance from the authorities, the answer is often to ask what ‘cruise’ means in plain simple English. On that basis, even a riverboat cruise or a yachting holiday could potentially be classed as a cruise.
Schools & Charities
What do I do about international school trips following the recent government advice?
See above – under ‘advice from authorities’ section.
What if the holiday was supplied based on donations received through a Charity? Do I have to refund the customers or the Charity?
TBC – please check this page regularly for updates
Customers With Symptoms?
How can I limit the risk of infected customers attending a holiday?
Firstly, you should check your T&C’s to see if you have any ‘health requirements’ before they are entitled to travel on the holiday. If so, remind your customers of their obligations under any relevant clauses.
You could also consider sending out a questionnaire to customers before the start of the holiday to find out:
- if they currently have any symptoms
- what symptoms (if any) they have
- for how long (each symptom)
- whether they have been to XYZ in the last X days
- whether they have been in close contact with anyone diagnosed or displaying symptoms of covid-19 in the last X days
- if they are self-isolating and, if so, why (some people are doing this just to be cautious, others because they have household members with symptoms)
If possible, try and get this information say 7 days before the holiday, and also just before the start of the holiday.
Once you have all this information you can then take a view on whether or not to allow the customer to travel, taking into the account the current advice from the authorities.
What if I find out that customers are ‘or might be’ infected before the holiday starts?
Right now, the advice is that anyone with a ‘new cough’ or ‘temperature’ should self-isolate for 14 days. If the customer is unable to attend the holiday because they have to self-isolate, you will not be obliged to offer refunds. This situation is no different than a customer breaking a leg the day before a holiday. The customer should be referred to check any travel insurance.
Your risks of letting people travel if they are or ‘might be’ infected
The best advice is not to allow customers to travel on the package if you have real cause to suspect that they have, or may have, coronavirus because:
- Duty of care. You have a ‘duty of care’ to other customers travelling on the holiday, your employees and ground handling agent. If they are infected and can prove, on the balance of probability, that your decision to let the ‘first infected customer’ travel was negligent –
- Insurance. Check your public liability insurance. Are there any T&C’s that could invalidate your policy if you do not make and act upon potential risks of infection?
- Quarantine. The customers could end up being quarantined during the holiday if their symptoms escalate. This poses all sorts of other complications (covered in further questions below)
You do, however, need to balance this against a degree of common sense. For example, customers will not be happy and may try to seek compensation and a full refund if they think you have cancelled their holiday unreasonably and beyond the current guidelines from the authorities (e.g. if you cancel their booking just because they have a runny nose and went to China 6 months ago). Inevitably there will be difficult grey areas in the middle!
Do I have to pay for medical treatment if customers get ill during the holiday?
No. There is no obligation to pay medical expenses; however you are obliged to provide reasonable assistance to any customer ‘in difficulty’ including:
- providing appropriate information on health services, local authorities and consular assistance; and
- assisting them to make distance communications and helping them to find alternative travel arrangements
You can charge a ‘reasonable fee’ for such assistance.
Do I have to pay for accomodation costs if customers are quarantined during the holiday?
Potentially, yes. If you are unable to physically get your customers to the ‘final location’ of the holiday (as per the itinerary) due to the coronavirus pandemic, you are obliged to cover the cost of 3 nights accommodation. If possible, it should be an equivalent standard to the accommodation used on the holiday. You are not obliged to cover any costs beyond 3 nights.
Customers That Are Left Stranded During The Holiday
As explained above, you may be obliged to cover the cost of 3 nights accommodation if you are unable to physically get your customers to the ‘final location’ of the holiday (as per the itinerary) due to the coronavirus pandemic.
However, airlines also have an obligation to cover accommodation costs indefinitely where the customers are stranded due to the return flight being cancelled.
Repatriation costs (flights/trains etc)
If the package includes carriage (flights, trains, coach etc), you are obliged to arrange (or fund) replacement return carriage to the starting point of the holiday if customers decide to cancel the holiday because you are unable to supply one or more of the travel services. Two examples to compare and contrast:
A) You have a land based rail based tour starting in Egypt and passing through Jordan before ending in Israel. Your customers are stranded at the border of Israel due to a decision by the authorities to stop all trains going in to the Israel. As you are unable to supply the train journey in to Israel, customers may cancel the rest of the holiday. If so, you are obliged to arrange carriage back to the starting point of the holiday. As all the carriage was expected to by rail, you are expected to arrange the return carriage by rail also.
B) Same scenario as above, except an individual customer is denied entry at Israel as he/she has been to Italy in the last 14 days. Here, the customer is not stranded due to your inability to supply the travel services. You do not therefore need to arrange return carriage. You are, however, still obliged to:
- cover the cost of accommodation for up to 3 nights
- offer ‘reasonable assistance’ (as explained in other examples above)
Cash Flow & Insolvency Concerns
How long do I have before I have to issue a refund?
ABTA are currently lobbying the government to pass emergency legislation to remove the obligation to refund customers within 14 days of cancellation, together with other measures to assist the industry! See their official press release here.
In light of this development, we believe that travel companies are entirely justified, in certain circumstances, to refrain from issuing refunds pending a response from the government.
What are the financial consequences if I do not issue customers refunds? *updated 30/03/20
If customers believe that refunds are due, the usual remedy that they would take would be to issue a claim in the County Court. However, an alternative option would be for customers to try to make a claim through a ‘chargeback’ scheme, or under s.75 of the Consumer Credit Act, where payment has been made by debit or credit card.
The implications of any civil claims being made through the County Courts are as follows:
- The process of issuing proceedings takes several weeks, often months
- You may, in some situations, have a valid defence to some claims (e.g. based on the certain ambiguous terms in the Regulations).
- If a defence is filed, the court process takes much longer. It may take 6-9 months depending on the capacity of the court (perhaps longer if the courts are forced to close due to the pandemic)
- The customers may or may not instruct lawyers to act for them
- You do not necessarily need to instruct lawyers to defend any claims – but we are happy to assist if required
- Your exposure to court fees:
- Claims under £10,000 – the court fee ranges from £35 to £455 depending on the value of the claim.
- Claims over £10,000 – the court fee will be 5% of the total amount claimed
- Your exposure to the Claimant’s legal costs:
- Claims under £10,000 – if the Claimant instructs lawyers, they can recover up to approximately £120 depending on the value of the claim
- Claims over £10,000 – if the Claimant instructs lawyers, they can recover their costs based on an hourly rate (that could be expensive!)
Chargebacks & Consumer Credit Act Claims
The alternative approach taken by some customers is to make chargeback, or similar, claim through their credit or debit card provider. If you receive any such claims, do get in touch for further advice on how to oppose them.
Could customers complain to a regulator?
Yes, customers could complain against any regulators such as the CAA or the CMA. However:
- Regulators tend to only get involved if a company is deliberately flouting the law without good cause
- The Regulator is unlikely to get involved where there are potential defences to claims (and there are various ambiguities in the Regulations as highlighted above)
- The Regulator may well be unwilling to take any action pending the outcome of ABTA’s request here to pass emergency legislation.
Can customers not claim against their credit card instead?
Customers can claim against credit card companies if you are in ‘breach of contract’, which potentially you could be if you dispute that a refund is due (or simply fail to pay). However, it is possible for credit companies to then pursue you for any monies they have to pay out (including legal fees) to defend such claims. This is no, therefore, a direction that we would recommend you send your customers!
The right of customers to claim against their credit card company is better suited for when the company in breach of contract has gone insolvent, and does not have any insolvency protection.
My insurer will not renew my insolvency protection. What other options do I have?
The other two options are bonding, or a trust fund. If you need further advice on this please contact our commercial team here.
What is my personal liability if my company were to go insolvent?
TBC – further information to follow
Who pays the customers if my company were to go insolvent?
If you are selling packages, you are obliged to have insolvency protection. Assuming you have this in place, the customers should be protected either by:
- Flight based packages: The Air Travel Trust Fund. This is intended for any packages that include flights. The fund is administered by the CAA and covers all holidays that are covered with an ATOL certificate.
- Non-flight based packages: Insolvency protection insurance, bonding or a trust fund.
Assuming the customers are protected as above. you can therefore reassure them that they should not expect to lose out – and may assist you to ask customers to be patient whilst you assess when you are able to issue refunds without jeopardising your business.
If my company goes insolvent, will I be able to start another company in the future? Will the CAA issue a new ATOL licence in the future?
TBC – please check this page regularly for updates
WHAT NEXT FROM TRAVLAW?
These are of course unprecedented times for the travel industry and we fully recognise the need to do whatever we can to assist all those struggling during these very difficult times. With that in mind, to try and get as much information in answers to these Questions, we intend to publish further articles over the coming days and weeks.
Do look out for my colleague, Ami Naru, who will be answering Employment questions via Travel Weekly’s Coronavirus Crisis Advice Panel.