A long road, hard travelled – some reflections on the application of consumer law to the travel sector in the COVID crisis

The outbreak of the coronavirus in early 2020 and the lockdown in March of that year created a challenge greater than any experienced in living memory for the travel industry, not just in the UK but also worldwide.

While pockets of the industry have benefitted such as private charter airlines, for the majority of travel agents, tour operators, hotels, airlines and service providers, it has been a highly stressful time. The consequence of many millions of holidays being cancelled has given rise to a conflict between consumer laws and the legitimate business interests of the industry.

UK consumer laws as regards the travel industry come from three key pieces of legislation:

The Package Travel and Linked Travel Arrangements Regulations 2018 ("PTRs")
The Consumer Rights Act 2015 ("CRA")
The Consumer Protection from Unfair Trading Practices Regulations 2008 (CPRs)

All three of these pieces of legislation, as well as others laws have been brought into focus throughout the pandemic.

Consumer law is enforced at a local level by trading standards officers (TSOs) who are employees of local authorities. At a national level the relevant body is the Competition and Market Authority (CMA) which has considerably greater powers than TSOs. The Civil Aviation Authority (CAA) acts as the regulator for the airline industry and also administers the ATOL scheme. Both the CMA and CAA have played a critical role in enforcing consumers' rights through the pandemic.

Refunds and COVID

The CMA set out its initial views in a Statement on coronavirus, consumer contracts, cancellations and refunds – initially published in March 2020 and updated in August of that year. This was addressed to all businesses and not just the travel sector but set out the CMA's view on a number of legally significant issues:

A contract that cannot be performed because it would be unlawful to do so or because it has become impossible to perform will be "frustrated" effectively meaning that the customer should obtain a full refund except where the contract has been performed in part or certain services have been delivered;
Terms allowing a business to retain a deposit or part payment where the contract has been frustrated are likely to be regarded as unfair under the CRA;
Credits and vouchers can be offered as alternatives to refunds but refunds must always be available;
Unilateral variations of contracts are likely to be regarded as unfair under the CRA;
Where a business cancels a contract because of Government guidance without providing any services then generally a full refund should be paid, however businesses can retain a deposit stated as non-refundable (so long as it is not a material percentage of the total price) or charge a cancellation fee where this reflects actual ;costs incurred.

Having received 17000 complaints relating to travel related refunds not being paid, the CMA issued an open letter in July 2020 to the travel industry stating its concerns that:

Tour operators were not issuing refunds within 14 days of termination of the contract as required under Regulation 11 of the PTRs; and
Businesses were providing customers with inadequate or misleading information under the CPRs.

While the CMA acknowledged the extraordinary pressures on the industry it considered it was not able to make any concessions in its application of the law to protect consumers. In reality, the number of complaints being made meant it was impossible for the CMA not to take that view. Shortly after sending the letter the CMA started approaching individual travel companies encouraging them to commit to make refunds within a specified time period

A number of companies gave such undertakings and the consensus developed that while refund credit notes had been a useful means of protecting businesses from a cashflow crisis ultimately they were not an appropriate alternative to a full cash refund.

In May 2021, the CMA wrote a further open letter to the travel industry confirming that in the light of significant on-going consumer complaints:

Consumer must receive a full refund where the organiser needs to alter significantly any of the main characteristics of the package, or where the customer exercises its right to cancel the package where there are unavoidable and extraordinary circumstances at the relevant destination or its immediate vicinity.
That the right to receive such a refund is made clear to consumers if their holiday is cancelled whether in emails or on a website and that the process for claiming such refunds are easy to use.
RCN should be refundable at any time and should convert to cash upon their expiry
Companies should avoid terms such as "refund guarantees" when such refunds are a statutory right in any event. Such "claims" are likely to infringe the CPRs;
FCDO advice against travel to a particular destination gives consumers a legitimate right to cancel and receive a full refund. Any operator refusing a refund in such circumstance would need to provide detailed evidence as to the basis for their position.

The CMA continues to pursue companies to give undertakings and to threaten legal action where they do not. In the case of Truly Travel Limited, the CMA has issued proceedings (as of 18 October) seeking a court order to require refunds to be paid. It is likely that the parties will wish to settle this matter before it comes to court.

Meanwhile the CAA has taken up its role of investigating airline and their refund policies. It has written to 18 airlines to put them under pressure to make refunds for cancelled flights and reports that most airlines have now committed to do so. It has also stated that under the ATOL regime, any RCNs granted will no longer benefit from ATOL protection unless they are redeemed for a holiday by September 2022. APC will be payable on any new booking although not on an amended original booking. Detailed advice on the treatment of RCNs is given on the CAA's website.

On top of the application of the existing law, the CMA is also supporting proposals for further reform of UK consumer laws to enhance the CMA's powers, in particular the right to impose stiffer penalties for infringement of up to 10% of an entity's turnover and giving the right to the CMA to impose these penalties without court sanction. These reforms if adopted would mark a significant expansion of the CMA's powers.

Greenwashing

Finally, we should mention the CMA's new code on green claims made by companies in their advertising.

The code notes that:

Claims must be truthful and accurate
Claims must be clear and unambiguous
Claims must not omit or hide important relevant information
Comparisons must be fair and meaningful
Claims must consider the full life cycle of the product or service
Claims must be substantiated

As the pressure increases on all companies to fulfil their ESG commitments, the risk of making claims that are not compliant with the code increases – failure to comply is likely to infringe the CPRs.

Conclusions

The direction of travel as regards consumer law is clear. Such laws are going to be strengthened and failure to comply will bring tougher sanctions, especially if the current proposed reforms are put into effect. Compliance has been extremely challenging for the travel sector, because of the difficulties in securing refunds from its supplier. Hopefully through 2022 COVID will subside and consumer confidence will return.

Neil Baylis
Mishcon de Reya LLP

2 December 2021