On 23rd October 2012, the CJEU handed down its judgment in Joined Cases C-581/10 and C-629/10 Nelson/TUI. The ruling, which has been much-anticipated by airlines and passengers alike, confirms that fixed compensation under EU legislation is available not just to those whose flights have been cancelled, but also – in certain circumstances – to those who have suffered delays. While those have suffered the iniquities of delayed flight may welcome the ruling, there is reason for some alarm at the interventionist approach of the CJEU to the interpretation of the EU regulation which was at issue.
The legal provisions in play
The EU legislature has provided a comprehensive code in Regulation (EC) No 261/2004 of 11 February 2004, providing for compensation and assistance to passengers in the event of denied boarding, long delay and cancellation of flights (“the Regulation”).
The ruling in Nelson/TUI concerned the proper interpretation of various provisions of the Regulation. On its face, these provide for the clearest of demarcations between cancellation and delay.
Where a flight is cancelled – which, under Article 2, refers to the non-operation of a previously planned flight on which at least one place was reserved – then passengers have certain rights under Article 5. They have a right to certain “assistance” (broadly, reimbursement or re-routing) under Article 8 and, unless certain notice and re-routing requirements are met, to fixed compensation under Article 7. This can be as much as EUR 600, depending on the distance of the flight, albeit subject to a 50% reduction where passengers are re-routed to their final destination within 2,3 or 4 hours of the scheduled arrival time of the original flight, again depending on the distance of the flight.
Delay, on the other hand, is covered by Article 6 of the Regulation. This again provides for “assistance” – in this case, meals and accommodation pursuant to Article 9, and, in extreme cases of delay, re-routing or reimbursement as in cases of cancellation. However, unlike cancellation, there is no express provision in the Regulation for compensation in relation to delay.
Notably, compensation for airline passengers is also covered by the 1999 Montreal Convention. Article 19 of Montreal provides that airline carriers will be liable for damages “occasioned by delay”, up to a prescribed maximum amount, and subject to a “reasonable measures” defence. Article 29 then provides that any damages action, whether under this Convention or otherwise, must be brought subject to the conditions and limits of liability contained in it. Moreover, in any such action, “punitive, exemplary or any other non-compensatory damages shall not be recoverable”.
Previous case law of the CJEU
The interpretation of the Regulation had already come before the CJEU. In Case 344/04 IATA and ELFAA, which involved a multi-faceted challenge to the validity of the Regulation as a whole, the CJEU stated that the system set up by Articles 5 and 6 of the Regulation, on cancellation/delay respectively, was “entirely unambiguous”. This statement reflects the clear distinction between cancellation and delay on the face of the Regulation.
However, a large injection of doubt was provided by the subsequent ruling in Joined Cases C-402/07 and C-432/07 Sturgeon and others. In that case, which involved very long delays indeed, Advocate General Sharpston had observed that, from the point of view of passengers, there was no difference in inconvenience between a very long delay and a cancellation. The distinction drawn between cancellation and delay in the Regulation accordingly raised issues of equal treatment, a fundamental principle of EU law. She recommended reopening the oral hearing in order to hear submissions on this point, which had not been raised by the parties. However, rather than follow this suggestion, the CJEU opted to simply rule that passengers whose flights are cancelled are in a comparable situation in terms of inconvenience to passengers whose flights are delayed and who reach their final destination three or more hours after the scheduled time (3 hours being the ‘trigger’ point at which compensation must be available in the case of cancelled flights).
The facts of TUI/Nelson
Mr and Mrs Nelson were due to fly with Lufthansa from Frankfurt to Lagos on 27 March 2008 at 22.50 on flight No LH 565. In fact, that flight did not depart until 01.00 on 29 March 2008. The Nelsons were provided with accommodation over the period of the delay. However, they brought an action before a German national court for compensation of EUR 600 each plus interest under the Regulation. Their case was squarely within the scope of Sturgeon, but Lufthansa proceeded to argue that (a) the ruling in Sturgeon could not be reconciled with the Montreal Convention and (b) the Court of Justice had exceeded its jurisdiction.
In the meantime, following the ruling in Sturgeon, TUI Travel, an international grouping which owns 7 airlines, as well as the International Air Transport Association, sought confirmation from the UK’s Civil Aviation Authority that it would not interpret the Regulation as obliging the airlines to compensate delayed passengers. The CAA refused, leading to an action by TUI and others before the national courts.
Both the German and UK courts made references for a preliminary ruling from the CJEU under Article 267 TFEU, effectively asking the Court of Justice whether the prior ruling in Sturgeon should be upheld.
The CJEU’s decision in TUI/Nelson
A preliminary ruling was sought on a number of issues, but the essential questions answered by the judgment are (i) whether passengers whose flights are delayed enjoy rights to compensation under the Regulation (i.e. whether Sturgeon remains good law) and (ii) if yes, whether this result is compatible with the Montreal Convention.
(i) Upholding Sturgeon
The CJEU, unsurprisingly, opted not to overturn Sturgeon. It recognised that compensation is not expressly provided under the Regulation in cases of delay (para. 32). However, in terms of inconvenience suffered, passengers whose flights were delayed by three hours or more were in a comparable situation to those whose flights had been cancelled (para. 34). Accordingly, as per Sturgeon, the principle of equal treatment demanded that the Regulation be interpreted so that both categories of passenger enjoy the same right to compensation under Article 7 (para. 37-38).
(ii) Reconciliation with international law
The CJEU also ruled against the airline carriers on the issue of compatibility with the Montreal Convention. The carriers’ argument was that allowing compensation for delay under the Regulation would conflict with Article 29 of Montreal, which provides that any action for damages, including in cases of delay, must be strictly subject to the conditions and limits of Montreal itself. The CJEU disagreed. It held that a loss of time cannot be categorised as “damage occasioned by delay”, the latter being the wording used by the Montreal Convention, and referring to specific damage suffered by individual delayed passengers, rather than the blanket inconvenience caused to all passengers by delay.
There is little to quibble with in relation to the CJEU’s finding that, from the passenger’s point of view, a long delay may be just as inconvenient as a cancellation. Doubtless that was the experience of many the frequent-flying judges in the Grand Chamber. However, from the point of view of a sensible analytic approach to the Regulation itself, the decision is less defensible. There can be no doubt whatever that the Regulation was intended to distinguish between delays and cancellations. Compensation is available for the former, but not the latter.
Moreover, despite its laudable commitment to equal treatment, the CJEU gave little or no consideration to the EU legislature’s decision to draw the distinction that it did. The introduction of the compensation provisions in Article 7 of the Regulation were specifically intended to deter airlines from cancelling flights in circumstances where they would otherwise have an economic incentive to do so. On a common-sense level, this rationale is less persuasive in relation to delays where the flight ultimately still flies, and still incurs all the associated costs from fuel to landing fees. More importantly, however, even if the CJEU itself took the view that such arguments were dubious, it arguably should have been more deferential to the considered decision of the legislature to strike the balance that it did. It is hard to see that there is anything manifestly unreasonable in drawing a distinction between delay and cancellation, and yet the CJEU was willing to employ the principle of equal treatment to ride roughshod over the clear wording of the Directive.
For European lawyers, there will be no surprise at the CJEU’s willingness to go beyond an interpretation of the plain words of the Regulation. That said, given the CJEU’s clear concern to ensure a high degree of protection for passengers, it may have given insufficient consideration to the effect of requiring airline carriers to compensate delayed passengers. In so far as the ruling essentially increases the putative operating costs of airlines, those increased costs are likely ultimately to be passed on to consumers in the form of higher prices or cost-saving initiatives, perhaps resulting to poorer service and fewer flights. To be fair to the Court, it recognised such a possibility, but noted (at para. 83) that no specific evidence had been brought by any of the parties. But this again overlooks the fact that where such potentially wide-ranging economic consequences are at stake, decisions are best made by the legislature, and not the Court.
There is also reason to query the Court’s finding on the compatibility of its interpretation with Montreal. In particular, its finding that a “loss of time” is not damage “occasioned by delay”, and so compensation for delay under the Regulation did not fall within the scope of Article 29 of Montreal (see para. 51), is a somewhat dubious linguistic attempt to extricate its own interpretation of the Regulation from any risk of infringing international law. Furthermore, its own reference to compensation under the Regulation being a “standardised measure” (para. 52) seems to make its interpretation fall foul of Article 29 of Montreal, which states that “non-compensatory” damages are not recoverable in cases of delay.
All that said, the judgment is clear and there is now no doubt as to obligations of air carriers in cases of delay. Lawyers practising in this area will note with interest the power of the principle of equal treatment, even outside the more traditional fields of application of race, gender and the like. Meanwhile, informed passengers will, no doubt, be celebrating in departure lounges around the EU.