The following article appeared in ABTA's issue of Travel Law Today - Spring 2022.

Understand your obligations

The legal obligations of package organisers are set out in the Package Travel and Linked Travel Arrangements Regulations 2018 (PTR).

The PTR are not particularly user-friendly but there is plenty of helpful guidance available, such as the summary published by the Department for Business, Energy & Industrial Strategy and here in Travel Law Today.

It might seem obvious, but it is critical that package organisers have a good understanding of their obligations under the PTR. This will help ensure that they are compliant, which lowers the risk of customer claims, regulatory enforcement and adverse publicity. Moreover, it enables package organisers to identify where risks lie, to plan how best to manage these risks and to implement strategies to reduce potential exposures, some of which I cover in this article.

Have a broad-based approach to compliance

Some aspects of the PTR are red lines that should not be crossed. For instance, package organisers must ensure that they have insolvency protection in place for the packages they sell. Non-compliance with this requirement is serious and likely to bring enforcement action by a regulator and personal consequences for the directors in the event of a failure.

Other aspects are open to interpretation. How exactly does the mandatory precontract information form have to be provided to the customer? Does a particular set of circumstances constitute “unavoidable and extraordinary circumstances” and thus trigger the customer’s full refund rights? Can a package organiser insist that a customer take a substitute hotel?

In these grey areas, it is wise not to simply look for the legal answer and then stick rigidly to that. Rather, a broader assessment should be taken of the risks that might flow from a particular decision, the legal risk being just one. The package organiser may have good legal grounds for adopting a particular course of action, such as to deny a full refund, but that has to be balanced against the commercial and reputational risks associated with the particular situation.

If the financial consequences of agreeing to pay refunds is low, but the commercial and reputational risks of denying a refund are high, this may militate in favour of overriding strict adherence to the PTR.

In short, package organisers need to have a decision-making process that enables them to identify and balance the legal, commercial and reputational risks associated with PTR compliance.

Carefully drafted terms and conditions

The PTR set out the minimum legal rights for customers, which cannot be overridden by the package organiser’s terms and conditions.

However, these minimum rights can be supplemented and enhanced by the package organisers’ terms and conditions. This is often done inadvertently, for instance where package organisers seek to explain in their own words the rights of the customer under the PTR, or where illustrations are used to explain the customer’s rights.

Unless the customer terms and conditions are drafted very carefully, the explanations and illustrations given may (and often do) extend the rights of the customer beyond what is set out in the PTR. That is, of course, a choice for the package organiser. However, if package organisers wish to put themselves in the strongest legal position, then they should ensure that their terms and conditions are strictly aligned with the PTR.

Manage the risks of supplier refunds and insolvency

The COVID-19 pandemic led to the widescale cancellation of flights, which in turn meant that package organisers had to cancel and refund holidays within 14 days. For most, this proved impossible in circumstances where the airline refused or delayed the refund to the package organiser, thus bringing significant adverse publicity and regulatory scrutiny from the Competition and Markets Authority.

What saved many package organisers was the fact that they had paid for the flight using a corporate payment card (known as a virtual card). This enabled the package organiser to initiate chargebacks if the airline did not pay the refund voluntarily.

In turn, this ensured that refunds were able to flow back down the payment chain to the customer, albeit in some instances the chargeback was contested by the airline and had to be determined in a Visa or Mastercard arbitration.

This exact scenario had previously played out following the failures of Monarch Airlines and Thomas Cook Airlines, where travel companies had to refund the entire booking or substitute a new flight. The fact these airlines were paid using a virtual payment card meant that the travel companies were able to recover the price of the flight through chargebacks even though the airlines were insolvent.

Any travel company would be well advised to take advantage of this important feature of virtual payment cards to manage the risks of suppliers refusing to pay refunds or entering insolvency.

Manage the risks of personal injury claims

Package organisers are liable for the proper performance of the holiday. If customers suffer an injury or illness because of a supplier’s negligence, then the customer may bring a damage claim against the package organiser. It is also possible, albeit very rare, for criminal proceedings to be brought against the package organiser for its own negligence.

These risks mean that all package organisers should have insurance in place to cover the costs and expenses that may flow from such risks. In addition, package organisers need to have a safety management system in place to manage the risks of customers suffering an injury or illness as a result of a supplier’s negligence. This will help ensure that under-performing suppliers are either removed from sale or are required to address identified risks. It will also help the package organiser to demonstrate that they are taking their safety obligations seriously if they are required to demonstrate the steps they took to ensure the safety of the holiday.

Rhys Griffiths, Fox Williams LLP – Partner and Head of Travel