IATA and the European Low Fares Airline Association (ELFAA) have successfully negotiated round 1 in their attempt to challenge the validity of EU Regulation 261/2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delays. On 14 July 2004, the High Court in London ordered that certain questions concerning the validity of the Regulation be referred to the European Court of Justice for determination.

We have reported on the detailed provisions of the new Regulation previously (BLG Aerospace News Issue 16). The Regulation is due to come into force in EU Member States on 17 February 2004 and time for the ECJ to do anything about its provisions is therefore ticking away. The Regulation will impose significantly increased compensation levels (as against the existing 1991 EC denied boarding regulation) which will apply not only in cases of denied boarding by reason of overbooking but also, in some circumstances, in the event of cancellation of flights. It will also require carriers to provide assistance in the form of meals, accommodation and related expenses to passengers in the event of denied boarding, delay or cancellations as well obligations in relation to reimbursement and re-routing of passengers. Not surprisingly, the airline community (including but by no means limited to the low-cost carriers) has not greeted the Regulation with any great enthusiasm. The Regulation requires EU Member States to designate a body to be responsible for enforcing the new Regulation and calls for sanctions for non-compliance to be "effective, proportionate and dissuasive." The UK Department for Transport recently issued a Consultation Paper, to which responses are sought by 8 November 2004, proposing to make airlines (and potentially their individual directors) criminally liable if they fail to comply with the Regulation.

The legal challenge focuses on the provisions relating to delays and cancellations; amongst the arguments advanced are the following:

  • The delay provisions are inconsistent with the Montreal Convention 1999 in that the Regulation does not afford carriers any defence that they have taken all necessary measures to avoid the delay and, in legislating for the consequences of delay, they impinge upon matters which are the preserve of Montreal Convention, any claim in respect of delay being required to be brought subject to the conditions and limits set out in the Convention.
  • Internal inconsistency in that the Recitals to the Regulation imply that a defence of extraordinary circumstances, e.g. weather, security risks, strikes, should be available to carriers yet none is provided for in the body of the Regulation. In the case of assistance in the event of cancellations, previous drafts of the Regulation provided for a defence which was subsequently removed without any obvious discussion of the reason or justification for removal.
  • Lack of proportionality: that the remedies provided for in the Regulation are not in proportion to the legitimate objective of passenger compensation and assistance and that the objective could be achieved without the need to deny the carriers any defence; ELFAA also argue that, in the case of its members, the cost of meeting its liabilities in respect of cancellation and delays will be disproportionate to the income derived from each flight.
  • Discrimination: ELFAA assert that the remedies for cancellation and delay discriminate against low cost airlines as against other forms of low costs travel by road, rail and sea which are not subject to the same compensation and assistance regime. We suspect it may be difficult to persuade the ECJ as to the force of some of these arguments although the Regulation does appear to be a further example of the EU’s enthusiasm (some would say over-enthusiasm) for burdening an already highly regulated industry with yet more consumer-led legislation.

The UK Court has referred these issues to the ECJ with a request that the reference be heard as a matter of urgency, given the relatively short period of time which now exists before the Regulation is due to come into force across the EU. Whether this case will be dealt with by the ECJ on a sufficiently expedited basis remains to be seen. In the meantime, airlines must brace themselves for these significant increases in their liability exposure (including possible criminal liability) from next February.

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