UK: Aviation Bulletin - June 2011

Last Updated: 4 July 2011

Which? Super-Complaint Regarding Airline Card Charges And OFT Investigation

In April 2011, the UK Office of Fair Trading wrote to a number of airlines which operate from the United Kingdom further to a "super-complaint" made by Which?, a UK independent consumer organisation, raising two principal concerns:

  • The imposition of credit and debit card surcharges is not always sufficiently transparent and the revelation of charges late in the purchasing process restricts consumers from effectively and efficiently shopping around and comparing prices; and
  • Where surcharges exceed a "reasonable" estimate of the costs likely to be incurred by the trader in processing the consumers' payments, consumers are likely to be harmed.

Which? considers that the above practices are most likely to result in detriment where there is no practicable alternative payment mechanism for consumers. Which? has highlighted these practices as being particularly prevalent in the passenger transport market. Detailed research regarding the internet booking processes and levels of card charges adopted by 10 major European airlines has been undertaken by Which? and presented in the super-complaint. Research is also presented regarding the general practice of adding charges in stages through a booking process, known as "drip pricing" and how this affects consumers' behaviour.

Under Section 11 of the Enterprise Act 2002, the OFT is required to respond within 90 days to a super-complaint made by a designated consumer body such as Which? regarding features of a market in the UK which are or appear to be significantly harming the interests of consumers. The OFT must publish a response within the 90 day period stating how it intends to respond to the complaint and in particular whether it has decided to take any action.

Pursuant to the Enterprise Act 2002, the OFT may also make proposals to the UK Government on any matter relating to its function following which the law may be changed. The OFT may also accept and enforce undertakings from those being investigated.

In order to have a sufficiently clear picture of the markets under scrutiny and to be able to fully respond to the super-complaint, the OFT has submitted detailed requests for information regarding payment surcharges to several airlines.

EU Regulation 1008/2008

The main governing legislation on air fares is EU Regulation 1008/2008 on common rules for the operation of air services in the EU.

Article 23 on information and non-discrimination states as follows:

"1. Air fares and air rates available to the general public shall include the applicable conditions when offered or published in any form, including on the Internet, for air services from an airport located in the territory of a Member State to which the Treaty applies. The final price to be paid shall at all times be indicated and shall include the applicable air fare or air rate as well as all applicable taxes and charges, surcharges and fees which are unavoidable and foreseeable at the time of publication. In addition to the indication of the final price, at least the following shall be specified;

(a) air fare or air rate;

(b) taxes;

(c) airport charges; and

(d) other charges, surcharges or fees, such as those related to security or fuel;

where the items listed under (b), (c) and (d) have been added to the air fare or air rate. Optional price supplements shall be communicated in a clear, transparent and unambiguous way at the start of any booking process and their acceptance by the customer shall be on an 'opt-in' basis."

In its Information Note regarding application of Regulation 1008/2008, the Commission gave the following guidance:

"The final price to be paid shall at all times be indicated; this means that the final or "allinclusive" price needs to be indicated whenever there is a price quote, and this in all types of information e.g. advertisements or information given by the travel agent or a website. With regard to the booking process, the final price to be paid should be provided right from the beginning of the booking process. For example, websites should show the final price right from the first page and not add other unavoidable elements at a later stage of the booking process.

Accordingly, DG TREN's services are of the opinion that:

An unavoidable booking fee or credit card fee should be included in the indicated final price. This should also be the case where no alternative payment method (e.g. bank card) is available for consumers outside the carrier's home country. If fees differ for different payment modes, then the lowest fee should always be included in the price. If a payment fee cannot be included because it is applied per booking and not per passenger, then its existence and amount must be clearly indicated next to the price."

In 2009 and 2010 the Commission conducted "sweeps" of airlines websites to ensure compliance with Article 23 and requested that several made changes.

EU Directive 2005/29

There are also relevant general provisions in EU Directive 2005/29 concerning unfair business-to-consumer commercial practices. The Directive is implemented in the UK by the Consumer Protection from Unfair Trading Regulations 2008/1277.

Directive 2005/29 states that commercial practices shall be unfair if they materially distort or are likely to materially distort the economic behaviour (with regard to the product) of the average consumer whom it reaches or to whom it is addressed. It also states that in particular commercial practices shall be unfair which are misleading or aggressive. Article 6 of the Directive states that commercial practices shall be misleading if they contain false information or in any way deceive or are likely to deceive the average consumer (even if the information is factually correct) in relation to several stated elements which is likely to cause the consumer to take a transactional decision which the consumer would not otherwise have taken. One of the elements cited in Article 6 is price or the manner in which the price is calculated.

EU Directive 95/13

Additional protection for consumers is contained in EU Directive 95/13 on unfair terms in consumer contracts, which obliges Member States to ensure that adequate and effective means exist to prevent the continued use of unfair terms in contracts concluded with consumers. The Directive defines a term as unfair where it has not been individually negotiated and causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer. Terms which are unfair are not enforceable and may be prohibited. The Directive is implemented in the UK by the Unfair Terms in Consumer Contracts Regulations 1999/2083.

European decisions on fare transparency and card charges

The Which? super-complaint states that Regulation 1008/2008 encouraged the German consumer federation, VZBV, to challenge airlines on card surcharges based on German legislation, arguing that such surcharges were an unfair contract term where they could not reasonably be avoided and where they were not transparent. The super-complaint states that the results of such action are so far inconclusive. In a case which appears to be related to the VZBV complaint, Berlin's Superior Court of Justice ruled that a blanket card charge of Ł5 per passenger per flight applied by one airline was illegal unless a free payment method was also offered. It is not clear on what ground the Berlin Court reached its decision.

According to a ruling from the German Federal Court in 2003, an on-line reservation system should be regarded as an integrated whole, or one process, and therefore it would be sufficient to indicate the final, all-inclusive price to be paid by the customer before the end of the booking process where this price may only be determined by the booking process itself and the customer's completion of the relevant data within the booking process. Although the German case pre-dated Regulation 1008/2008 and concerned the German Pricing Regulation, the provisions of the German Regulation appear to be similar to those of Article 23 of the EU Regulation.

The German Federal Court decision was applied by the High Court of Vienna in 2009 in a decision concerning the Austrian Pricing Regulation and Article 23 of the EU Regulation.

The Catalan Consumer Agency (ACC) of the Catalan government in Spain fined four airlines in late 2010 for violations of consumer law in connection with ticket sales including regarding card charges. It is unclear what law was applied in reaching the decision but two low-cost airlines were fined for surcharging payment by credit or debit card at prices higher than those advertised and for charging a surcharge for paying by credit and debit card. The ACC ruled that "airlines have to establish an alternative system for payment which is free to the customer".

Conclusions

Levying a card charge is not in itself a breach of EU Regulation 1008/2008 provided that this is shown in the fare from the point where it is known to be unavoidable. The more difficult issue is at what point the charge becomes unavoidable, particularly where available payment methods and hence charges vary between countries. Based on the German and Austrian decisions mentioned above, there is an argument that, because the booking process should be regarded as an integrated whole, provided the charge is shown before the customer commits to the booking that should be sufficient. However, it appears that certain national enforcement bodies in the EU take a stricter approach in their interpretation of Regulation 1008/2008 and expect such charges to be included in the total price from the outset. Therefore, airlines may need to consider setting up separate sites for different countries where they have not already done so.

The level of such charges is a concern raised by Which?. However, even where they could be said to be disproportionate to the actual cost to the airline of credit or debit card payments, this is also not of itself in breach of Regulation 1008/2008 or indeed EU competition law although, if the airline has a dominant position in a given market, further consideration would be necessary.

It is also arguable that failing to offer any free payment method and adding charges during the booking process are unfair and potentially misleading commercial practices within the meaning of Directive 2005/29. Particularly, it appears to be Which?'s main concern that drip-pricing distorts the ability of consumers to compare prices for air travel and may lead them to take decisions they would not otherwise have taken.

Therefore, in addition to ensuring that their websites comply with Article 23 of Regulation 1008/2008, airlines should also ensure that information regarding the amount and application of any card charges is made as clear as possible to customers at an early stage in the booking process, preferably at the time the first quote is given, to reduce the risk of criticism or even prosecution. In such circumstances, it is difficult to see how even high card charges could be said to be in breach of EU law.

Exclusivity of Montreal Convention upheld in the context of EU legislation on disabled passengers

From its incarnation in 1929, one of the conceptual strengths of the Warsaw Convention was its attempt to provide a complete code in respect of the matters that it covered. This required a uniform application in all participating member states, meaning that domestic law could not interfere with or override its terms. Senior courts in many jurisdictions important for aviation have supported the Warsaw Convention by recognising its exclusivity. The Montreal Convention 1999 was intended to benefit from the same principle of exclusivity. However, one disgruntled passenger whose physical needs were not dealt with to his satisfaction sought to challenge this principle, claiming the benefit of EU legislation. Earlier this year, the English High Court, following a review of several domestic and international cases, handed down a judgment in favour of exclusivity in the case of Tony Hook v British Airways plc.

Background

Mr Hook appealed a decision against him given by the Central London County Court rejecting his claim that, as a disabled passenger, British Airways inadequately attended to his seating needs. Specifically, he claimed the benefit of UK Regulations enacting EU legislation (Regulation 1107/2006) concerning the rights of disabled persons and persons with reduced mobility when travelling by air. The UK Regulations purport to create a cause of action for damages including in relation to injury to feelings. The County Court judge held that the Montreal Convention 1999 provided Mr Hook's exclusive remedy against British Airways and that its provisions did not encompass damages of the type claimed.

The issue

Article 29 of the Montreal Convention sets out the basis for its exclusivity by providing that "any action for damages, however founded ... can only be brought subject to the conditions and such limits of liability as are set out in this Convention..." When taken together with provisions of Article 17, it limits the circumstances in which carriers may be liable to passengers for death and bodily injury to "accidents". The question for the Court becomes whether or not the UK Regulations, creating a liability for injury to feelings (which is not a stand alone cause of action under the Convention), can be interpreted so as to circumvent the regime laid down by the Convention.

On appeal Mr Hook argued that the Montreal Convention's provisions on exclusivity did not apply to his claim on the basis that the Convention regulates liability of carriers for "accidents" but does not concern itself, as the EU Regulation does, with disability discrimination.

Appeal to the High Court

Mr Hook asked the appeal Judge, Supperstone J, to distinguish the settled and often cited House of Lords view on the exclusivity principle set out in its 1997 decision in Sidhu v British Airways, on the basis that that case only deals with common law negligence and that since 1997 there have been several EU Regulations concerning air travel which must now be taken into account when interpreting the Convention. However, the judge noted that the case law from the European Court to support this argument served to show that EU rules can only be relevant where they do not address issues covered by the Convention. The Judge looked at the speech of Lord Hope in Sidhu, who recognised that to admit exceptions to the Convention's exclusivity "would distort the whole system, even in cases for which the Convention did not create any liability on the part of the carrier". The Judge further recognised decisions from the United States Supreme Court that came to the same view - in particular its 1999 decision in El Al Israel Airlines Limited v Tsui Yuan Tseng, in which it stated that the purpose of the Convention is to achieve the uniformity of rules governing claims arising from international air transport.

On the issue of discrimination within aviation, another decision from a senior United States court was considered – King v American Airlines – which dismissed a claim by a black passenger claiming to have been denied boarding on account of his race. This case was reviewed in El Al v Tseng wherein it was acknowledged that the Warsaw Convention not only created an exclusive cause of action but created also "a comprehensive liability system" for remedying injuries. The "King" court concluded that it did not need to carve out an exception for civil rights actions from the plain language of the Warsaw Convention ("any cause of action, however founded") so as to ensure that there would be no passenger segregation according to race without any legal recourse. The Tseng Court went further to say that to do so would "eviscerate the uniformity that is the animating purpose behind the convention".

Mr Hook argued that an international treaty cannot override fundamental European legal rights, and on this basis the "exclusivity judgments", such as Sidhu, should not apply. This argument was rejected with the support of the 2009 decision of the European Court in Wallentin-Herman v Alitalia (a case ironically notorious for its strict, and arguably incorrect, interpretation of the "extraordinary circumstances" defence in EU Regulation 261/2004 on denied boarding, cancellation and delay) wherein the Convention was held to be an integral part of Community law. The Court was also referred to EU Regulation 2027/97, which expressly provides that the liability of Community air carriers – of course including British Airways – is to be governed by the Convention, which the Judge found does not permit a claim for injury to feelings.

As an alternative to the exception to the exclusivity argument, Mr Hook submitted that discrimination claims must be afforded the same protection under the law of the United Kingdom as equivalent rights under EU law.

Supperstone J decided that the UK Regulations must be read so as to uphold the exclusivity of the Convention, that the Convention pre-empts discrimination claims of all types arising out of carriage by air, and that the Regulations provide a remedy as part of an administrative regime operated by the Civil Aviation Authority.

Discussion

The Judge wholly upheld the Sidhu decision and endorsed the view that a court does not have the power to rewrite the words of a treaty. While the Convention is not a complete code covering all areas of liability between an air carrier and its passengers, it cannot be avoided in relation to those matters that it does cover by reference to causes of action not found within the Convention, and thus provides the only recourse available to passengers. So satisfied was the Judge that this matter was clear that he refused the Appellant's request to refer the matter to the European Court.

This is a significant case because it is the first Montreal Convention authority supporting the principle of exclusivity (other seminal cases on the issue concern the equivalent provisions in the Warsaw Convention). In doing so, the Court provides a clear statement that any rights not provided for by the Convention, even those considered to be fundamental under EU law, are insufficient to override the intention of the Convention to provide an international uniform liability regime.

It is interesting to contrast the judgment with the 2006 judgment of the Court of Justice in connection with the challenge which IATA and ELFAA brought to Regulation 261/2004 on the basis that its provisions on delay conflicted with the Montreal Convention, in which the Court found a spurious distinction between the matters governed by each, and hence that there was no conflict.

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