This article was first written by Ian Skuse, Blake Morgan LLP – Partner for Travel Law Today issue eight, which can be download at abta.com/travellawtoday

Claims management companies (CMC) have played a significant role in assisting consumers to make claims against businesses in the travel sector including claims for consumers alleging holiday sickness. 

In January 2018, the number of CMCs dealing with holiday sickness cases fell by 37% from 225 the previous year. Across the personal injury claims sector, the total was 630, which had fallen from 868 CMCs in 2016¹. ABTA, with its “stop sickness scams” campaign, was praised in the regulator’s report for helping tackle the issue of fraudulent cases that had been made to various tour operators and hotels.

It has not only been the area of sickness cases where CMCs operate. Airlines and those involved in other aspects of package travel and flight delay claims have had problems in managing the volumes of claims that are currently being made. Commentators suggest that with the closing of PPI claims in August 2019, we will see a significant rise in the number of CMCs taking on claims in the travel sector.

A new regulator

From 1 April 2019, the regulation of CMCs has been managed by the Financial Conduct Authority (FCA) and complaints about their conduct can be escalated to the Financial Ombudsman. Whilst this appears to be good news, the FCA has been set up to inherit the work of the previous regulator, the Ministry of Justice, but only certain types of claims fall within the scope of the FCA regime. In particular, whilst the FCA can deal with personal injury claims (including holiday sickness), CMCs are not required to register and be regulated for other travel claims. These might include poor quality, general breaches of contract and flight cancellations and delays.

The outcome of this is that some CMCs can choose to be regulated, some must be regulated and others can simply operate without any regulation at all. In my experience, mosts CMCs are unregulated, which can cause difficulty for those in receipt of a claim. The lack of  registration with a regulator might mean a lack of proper client accounts, as well as no code of conduct, and a possibly insufficient clarity about what the CMC will do and for what price and about contract terms.

When claims do settle, there are real issues about dealing with unregistered CMCs where it is not clear how the money will be kept and forwarded to the consumer after deduction of fees agreed with the customer but unknown to the payee. Understandably, unregistered CMCs will press for recognition, exclusivity of access to their ‘client’ and for urgent payment, so they can take the slice they had agreed as a commission.

Taking on the CMCs

In the flight delay sector, airlines have been encouraged to promote their claims procedures to passengers, and to make early compensation payments to passengers as soon as practically possible. Passengers are actively encouraged by both the CAA and the EU to contact the airline directly to recover the total compensation payable without the need to approach any third party. However, CMCs have seen the involvement of airlines as interference with their right to act as the attorney or solicitor for the claimant consumer, and to demand that they alone can contact the passenger and receive the compensation payment. 

Bott & Co v Ryanair

These arguments were raised in the case of Bott & Co Solicitors Ltd v Ryanair DAC (2019) (Court of Appeal). The airline had revised its conditions of carriage to include new provisions, which required all passengers wishing to claim for flight delay, cancellation or denied boarding to lodge a claim form on the airline’s own website, and to allow a 28-day period during which the airline would investigate the claim. During this period, the conditions of carriage confirmed that the airline was entitled to communicate with the passenger directly and not to correspond with any third-party CMC or solicitor instructed. The conditions of carriage stated ‘Ryanair will not process claims submitted by a third party if a passenger concerned has not submitted the claim directly to Ryanair and allowed Ryanair time to respond in accordance with (Article 15.22) above’. There was also provision for payments to be made to the passenger direct.

Bott are well known solicitors in the consumer flight delay market. The Court of Appeal found against Bott’s argument that, as solicitors, they were entitled to an ‘equitable lien’ on compensation payments that contained or partly contained their professional fees. This argument, if successful, would mean that all compensation payments would have to be made to Bott rather than made by the airline direct to the passenger. The court held that this issue did not arise because despite being a firm of solicitors, the services provided by Bott were not of the nature where payment was preserved under an equitable lien as they were merely advising a client as to whether or not there was a good case and if so, then going through a mechanical process in making a claim. These were not ‘litigation services’ that could create any obligation for payments from the airline.

Secondly, Bott argued that the process introduced by the changes to the conditions of carriage were an obstacle to the rights of the consumer to bring the case and accordingly unfair. Again, this argument failed. The Ryanair claims process (detailed at length in the judgement) was fair and did not create an obstacle in the path of a passenger wishing to claim. The court endorsed the statement of the CAA on its website to the effect that passengers should be encouraged to use each airline’s own claims procedure. This view was also endorsed by the European Commission, which states ‘passengers should always seek to contact the operating carrier before considering other means to seek redress for their rights’.

Opportunities

Ryanair’s system for compensating passengers who had experienced delays and cancellations was found to be fair, and did not interfere with the consumer’s right to recover monies due under Regulation 261/2004. Other airlines might equally benefit, particularly where enhanced passenger procedures to make a claim are simplified and quick. Where CMCs see travel claims as fertile territory, tour operators and others affected might consider:

1. Whether they can insist upon only dealing with solicitors or whether they deal only with a registered CMC properly appointed for the claimant only after they have investigated over an agreed short period. 
2. Whether on current booking conditions they can insist upon paying compensation or payments to their client by cheque, or direct bank payment rather than via any third party.
3. Whether booking conditions could be amended to introduce a preliminary investigation period prior to any direct contact with any third party acting for the consumer. 

Of course nothing can prevent customers seeking court resolution where alternative methods are available but fail to produce a resolution of the claim.

^{1 Claims Management Regulator: annual report 5 July 2018.}