In this article Nick Parkinson explores how the recent decision in Sherman –v- Reader Offers puts organisers at risk of having to refund customers in full even if they have ‘had the holiday of a lifetime’. Potentially, ‘significant changes’ just got even more significant…
Sherman –v- Reader Offers – The Impact So Far
Much has been discussed about the impact of the recent Court of Appeal decision in Sherman –v- Reader Offers Ltd [2024]. First, we said goodbye to the ‘flicker of hope’ test, as debated in our previous article here. Second, the court grappled with the basic but fundamental question as to ‘when a package contract is formed’, as covered by Travel Weekly and our very own Stephen Mason here.
In this article, however, we will focus on refunds due to customers where: a) a significant change is made to a package holiday, b) the customer is not properly informed, or offered the option to cancel with a full refund, and c) the customer proceeds with the holiday but brings a claim for a refund ‘after the event’.
Background
Mr and Mrs Sherman booked a cruise to explore the Northwest Passage. Various changes were made to the itinerary and a dispute arose as to whether those changes were significant. Reluctantly or not, Mr and Mrs Sherman duly embarked on the cruise and remained there for its full duration. Several years later, the courts eventually decided that the changes made to the itinerary did amount to a ‘significant change’ for the purpose of Reg 12 of the 1992 Package Travel Regulations (Reg 11 of the 2018 Regulations).
So to what might Mr & Mrs Sherman be entitled?
You may be forgiven for thinking that, although it wasn’t the cruise they bargained for, nevertheless Mr and Mrs Sherman received a full cruise, similar to that for which they had paid. Presumably, therefore, the amount recoverable will vary on a ‘case by case’ basis depending on the extent to which the changes reduced the travellers’ enjoyment of the holiday? Not so, say the Court of Appeal.
The ball has now been passed back to the lower courts where they will be asked to determine what Mr and Mrs Sherman would have done had the organiser provided them with the option, prior to departure, to: a) proceed with the cruise based on the adjusted itinerary, or b) cancel the trip and receive a full refund. If the lower courts determine that Mr and Mrs Sherman would have cancelled, they will be entitled to a full refund. It matters not how much they enjoyed, or loathed, their holiday.
Is That Correct?
Unhelpfully, the Court of Appeal did not offer a ‘chain of reasoning’ to explain if or why a full refund must always be offered in these circumstances. Is there something specific about the facts in Sherman, or in the Regulations, which led them to this conclusion? For example, was the court influenced by the fact that:
- Mr & Mrs Sherman were on a cruise making it logistically unattractive to disembark early;
- The Regulations are intended to offer a high level of consumer protection and, in that context, a breach of Regulation 12 (now Reg 11) ought to lead to a full refund to deter further breaches by organisers.
Alternatively, it may be that the Judges were falling back on basic contractual principles, that they felt are so obvious that it was not necessary to lay them out. Either way, the Judgment ‘leaves us guessing’ as to exactly how and why the Court of Appeal came to that decision.
Rather than falling down the rabbit hole with speculation, however, let’s simply ask the question… is it a fair outcome?
Having Your Cake…
No doubt, we can imagine scenarios where a full refund would be entirely justified in these circumstances. However, it could also lead to some perverse outcomes. Let’s take an extreme example to illustrate the point:
- A fictional traveller, Krystene, has a two week safari package holiday booked to South Africa;
- Her outgoing airport is changed from her local airport, Glasgow, to London Heathrow;
- This is obviously a ‘significant change’ but she is not offered an option to cancel with a full refund;
- Krystene reluctantly proceeds with the holiday. The additional travel on the first day is a massive inconvenience but, once she is there, she has the holiday of a lifetime;
- On her return to the UK, however, Krystene speaks to a friend who explains that she should have been given the option of a refund. Krystene is not a happy bunny;
- Krystene says that, had she been given the option, she would have cancelled the holiday and taken the full refund and rebooked with a different provider. Given the inconvenience of travelling from Glasgow to London before the outgoing flight, it will not be difficult for a Judge to accept that Krystene would indeed have cancelled.
The outcome? The first two days aside, Krystene had the ‘holiday of a lifetime’. Nevertheless, if the decision in Sherman is followed strictly, she will be entitled to a full refund. Krystene can ‘have her cake and eat it too’
Should Organisers Be Worried?
Perhaps the risk is theoretical. In practice, most travellers who make the most of their holiday, despite a significant change being made, are unlikely to insist on a full refund and ‘take it to trial’ – armed with the Court of Appeal Judgment in Sherman to wave before the District Judge. Even if they do so, some Judges will be slow to accept that ‘the customer would have cancelled’ in circumstances where the traveller seemed to ‘have a good time’ – despite the significant change.
Meanwhile, if the Judge does NOT accept that the customer ‘would have cancelled’, there is much better news for package organisers. In that outcome, the Court of Appeal say that no refund will be due. The customers will, however, be entitled to compensation based on the difference between the price which they paid and the value of the services actually supplied (ignoring any complaints about the quality of service).
That said, when facing the possibility of having to issue a ‘full refund’ due to a breach of Reg 11, organisers will need to carefully consider ‘what offers to make’ before defending such claims to trial.
The Bottom Line?
Whatever we think of the above, whether it is ‘right or wrong’ and whether it is ‘fair or not’ – the decision in Sherman comes from the Court of Appeal and is legally binding on the lower courts in England & Wales. The Sherman case therefore underlines the importance to organisers to make sure they fully understand their obligations under Reg 11 of the 2018 Regulations. In particular:
- Do the changes proposed amount to a ‘significant change’?
- If so, have you followed the correct process under Reg 11 to ensure that customers are: a) properly informed, and b) given the option to cancel with a full refund
Nick Parkinson
Partner
If you ever find yourself unsure about the above, or any other issues discussed in this article, feel free to get in touch at advice@travlaw.co.uk.
This article was originally published on: 3 June 2024
