29 Apr

Refunds and compensation: when should refunds be given and when is compensation due?

The following article was written by Krystene Bousfield – Associate of ABTA Partner Travlaw for the Spring edition of Travel Law Today, which can be downloaded here.

Catch Krystene and also Travlaw's Matt Gatenby – Senior Partner & Head of Litigation and Stephen Mason – Senior Counsel all speaking at the upcoming virtual Travel Law Seminar on 19 May 2021, visit abta.com/abtaevents to find out more and register. Early bird discounts are available until 7 May.

A cancelled booking does not always equate to a full refund, or indeed any entitlement to compensation. To decipher whether any repayment is indeed due, we need to establish: who cancelled the booking; why they cancelled; and, perhaps most importantly, when they cancelled.

Package holiday bookings
The starting point, when considering whether refunds or compensation are due, is to look at the organiser’s terms and conditions, which include implied terms from the Package Travel and Linked Travel Arrangement Regulations 2018 (PTR).

A traveller can cancel a package booking at any time before the start of the holiday; however, a refund only becomes due if they cancel due to “unavoidable and extraordinary circumstances (UEC), which significantly affect the performance of the package or the carriage of passengers to the destination, occurring at the place of destination or its immediate vicinity” Regulation 12(7).

UEC are defined in the PTR as a “situation that is beyond the control of the traveller and where the consequences of which could not have been avoided even if all reasonable measures had been taken”.

If a customer cancels for any other reason, (unless your terms and conditions say otherwise) they are not entitled to a refund and, further, they may be required to pay reasonable termination fees in accordance with the terms of the booking contract – Regulation 12(3).

As a package organiser, you may terminate the booking and provide a full refund where you are constrained by circumstances beyond your control to alter significantly any of the main characteristics of the travel services (Regulation 11(3)) or when you are prevented from performing the contract because of UEC (Regulation 13 (2)(b)). In both instances, the customer would be entitled to a full refund, but not compensation.

So, at what stage does an organiser become constrained or prevented from performing the contract? The UK courts have stated that organisers are not constrained to cancel holidays so long as there is a ‘flicker of hope’ that the package may be able to continue. However, if and when it becomes blindingly obvious that the holiday cannot go ahead, and the customer does not wish to accept a suitable alternative (Refund Credit Note, deferred package, different package), then a full refund is due.

Putting all of the above together raises the question: at what stage is an organiser obliged to cancel a booking? Equally, at what point is a customer entitled to cancel a trip and insist on a full refund under Regulation 12(7)?

The guidance from the UK courts strongly suggests that tour operators are not obliged to cancel bookings until travel is imminent, perhaps just a few days before departure. Regulation 12(7) of the PTR does not set out a time limit as to when a traveller can invoke their right to cancel with a refund; however, logically, this must surely mirror the position as to when a tour operator is constrained to cancel a holiday under regulation 11(3). Once again, that would be once the ‘flicker of hope’ has expired, which would probably be a few days before departure.

Tour operators will have, and will continue to face, many different scenarios with their customers as the pandemic unfolds. Was the trip cancelled by the traveller prematurely before the ‘flicker of hope’ expired? Was the trip cancelled the day before travel but because of issues in the UK rather than issues at the place of destination? Was there FCDO advice in place against travel to the place of destination at the time of departure? The entitlement to refunds will always be determined by considering who cancelled the trip, when, and why.

Regulation 16 of the PTR sets out, quite clearly, the instances in which compensation is due. It states that the organiser must offer the traveller appropriate compensation for any damage that the traveller sustains as a result of lack of conformity. However, the traveller is not entitled to compensation if said lack of conformity is attributable to the traveller, attributable to an unconnected third party, or due to UEC.

Non-package holidays
The entitlement to both refunds and compensation concerning non-package holiday bookings will, in the first instance, be governed by your terms and conditions with the customer. Terms and conditions can only be enforced if they are deemed to be ‘fair’ in accordance with the Consumer Rights Act 2015.

The question of who cancelled the booking, why, and when still applies. Potentially, the ‘flicker of hope’ can also be applied subject to any other guidance in the terms and conditions.

A further matter to consider is whether the contract has become frustrated before either party cancelled the booking. A booking can only be frustrated if there are no terms in the contract that sufficiently deal with the situation. Some of the ways in which it can be frustrated are where it becomes impossible or illegal for one of the parties to perform their obligations under the contract, or where one party’s rights under the contract have significantly changed since the booking was made.

If a contract has been frustrated, for example, because a law is passed to prohibit holiday accommodation providers from opening, the contract is ‘brought to a stop’. The service provider is entitled to deduct any expenses reasonably incurred to arrange the booking, before returning the remainder to the customer.