The industry has now had several months to adjust to the new landscape for delay claims under EC Regulation 261 which was created by the European Court of Justice ruling in Sturgeon v Condor/Böck v Air France published on 19 November 2009.

The Sturgeon judgment reinterpreted the Regulation so as to read into it an obligation on airlines to pay compensation of between €250-€600 for flight delays exceeding three hours. In doing so, the ECJ has essentially "rewritten" Regulation 261 by construing it in a manner which can never have been intended at the time this legislation came into effect in February 2005.

The Sturgeon judgment has been the focus of intense criticism from the airline industry and its professional advisers and of lobbying efforts with national regulatory authorities and the European Commission. The purpose of this note is not to rehearse the many criticisms which can be made of the judgment, or the many reasons why the ECJ erred badly in its reasoning. Those are only too well-known to airlines. Instead, this note will provide an update on developments since the judgment was published, will review the possibility of legal challenges to the judgment and will set out what options are realistically available to carriers who are now facing claims for compensation for flight delays under Regulation 261.

Status of the Sturgeon Case Itself

Carriers and National Enforcement Bodies ("NEBs") throughout EU Member States have been busy analysing how they should now react to the judgment and the industry has been assessing what legal avenues are available to overturn the judgment, or to restrict its application. Any legal challenge to the judgment - or to the validity of Regulation 261 as now construed - must be initiated in a national court of an EU Member State but will ultimately have to be referred to the ECJ for decision. An immediate line of attack was the Sturgeon case itself which, following the ECJ judgment, was remitted back to the Bundesgerichtshof (the German Federal Court of Justice). Condor, the defendant airline, tried to persuade the German Federal Court to refer the case back to the ECJ, arguing that the ECJ had exceeded its competence in its judgment. That referral would have given an immediate opportunity for a re-examination of the ECJ's reasoning. Unfortunately, on 19 February 2010, the Federal Court declined to refer the case back to the ECJ; the German Court took the view that the ECJ had answered the questions originally put to it when the case was referred for a preliminary ruling and that the case raised no further questions regarding the interpretation of Regulation 261. The Sturgeon case itself is therefore at an end. In light of the approach of the German Federal Court, which took the view that the ECJ judgment should be followed, it is now unlikely that either that court or any other court in Germany will be prepared to refer delay cases under Regulation 261 to the ECJ. The options open to carriers to defend delay claims in Germany are therefore limited.

As to the other part of the equation - the Böck v Air France claim - our understanding is that it remains in the Handelsgericht in Vienna, awaiting a decision.

What is the Position of the European Commission?

Individual carriers, industry associations and NEBs have all discussed the Sturgeon judgment and its consequences with the European Commission but so far the latter remains generally unsympathetic to carriers' predicament. That is perhaps inevitable. Regulation 261 is the EU's flagship air passenger rights regulation and the EU legislators are understandably reluctant to accept that it or the ECJ's interpretation of it might be flawed. It seems likely that the same consideration influenced the ECJ's obvious anxiety in Sturgeon to avoid the conclusion that the apparent unequal treatment of delays and cancellations within the provisions of the Regulation might render those provisions invalid, hence the Court's rewriting of the Regulation so as to erase that potential inequality.

The position of the Commission is that the Sturgeon judgment stands; that Regulation 261, properly construed, has provided for delay compensation since it first came into force in 2005; that carriers must now pay delay compensation; that NEBs must take enforcement action against carriers who fail to pay; and that failure on the part of any Member State's NEB to do so will represent a breach by that Member State of its obligations properly to enforce the Regulation.

Is Sturgeon Binding on National Courts?

There has been some commentary to the effect that, as a preliminary ruling of the ECJ, the Sturgeon judgment does not bind national courts other than those courts hearing the specific case in which the reference was made, the suggestion being that airlines can defend claims in, say, the English court by saying that Sturgeon does not apply. The position unfortunately is not that simple. A preliminary ruling represents the ECJ's interpretation of the EU legislation to which it relates; that legislation (as interpreted) is binding throughout EU Member States, and national courts may well take the view that they must therefore give effect to the preliminary ruling. Whilst carriers may try to argue the point in the lower courts, they should be prepared to meet some opposition to it.

Is Sturgeon Retrospective?

Technically the answer to this question is "yes". Preliminary rulings provide clarification as to the meaning and scope of EU legislation; the effect therefore is to rule on what the relevant regulation has meant from the date it first came into effect. The ECJ has power to apply a temporal restriction on its judgments to prevent this retrospective effect but did not do so in Sturgeon. In theory, therefore, claims for delay compensation going back to February 2005, when Regulation 261 came into effect, could now be brought, although there are differences of opinion as to whether any limitation period would apply to such claims and, if so, what that would be. Whilst the indications are that retrospective claims will not necessarily be encouraged by designated complaints handling bodies for 261 claims in all Member States, that does not mean that any such claims would be unfounded if they are pursued.

Will Regulation 261 be Amended?

The Sturgeon judgment has undoubtedly left Regulation 261 in a mess. When the ECJ's Advocate General first raised the question of whether the Regulation breached the principle of equal treatment by providing for compensation for flight cancellation but not for flight delay, her view was that the problem could not be resolved through a different construction, as the wording of the Regulation (at least in this respect) is unambiguous. At that stage, before the ECJ gave judgment, it was anticipated that the likely outcome would be a reopening and amendment of the Regulation. That remains a possibility, and amendment is now badly needed following the judgment. It is unclear, however, whether there is the necessary political will within the governments of Member States to engage in amendment of pro-consumer legislation (which seems to become ever more pro-consumer with every ECJ judgment relating to it), and to what extent there would in any event be consensus between Member States as to the form which any amended Regulation should take.

Is There Going to be a Legal Challenge to Sturgeon?

Any legal challenge will have to be initiated in national courts and then be referred to the ECJ for a ruling. There are two possible avenues of challenge: referrals to the ECJ in the context of an individual passenger delay claim; or some form of administrative action involving a National Enforcement Body. The latter course of action is likely to enable a more sophisticated and objective approach to the legal issues but, in either case, the legal arguments will be the same and will focus on the following:

  • Legal certainty: it is a fundamental principle of EU law that rules must be clear and precise so that it is possible to ascertain rights and obligations unequivocally. It is now impossible to discern the remedies relating to flight delays from a reading of Regulation 261, so far did the Sturgeon judgment depart from what the Regulation actually says.
  • Proportionality: EU law requires that legislation must be proportionate to the aims it seeks to achieve, and that measures must not go beyond what is necessary to achieve those aims. When Regulation 261 was being drafted, the notion that there ought to be compensation for flight delays was considered and rejected. The aim of Regulation 261 was to achieve a high level of protection for air passengers and to discourage commercial behaviour on the part of airlines which might cause inconvenience to passengers. However, in circumstances where passengers can already claim compensation for flight delays under the Montreal Convention 1999, it must be questioned whether providing for compensation also under Regulation 261 now provides a further remedy to passengers which is far out of proportion to the original objectives. A note of caution, however: the legality of a measure will only be jeopardised if it is manifestly unsuitable for achieving the particular aim, and so it will not be straightforward to persuade a court that the principle of proportionality is infringed by Regulation 261 as construed by Sturgeon.
  • Equal treatment: the principle at play here is that comparable situations must not be treated differently and different situations must not be treated the same. In Sturgeon, the Advocate General initially highlighted the potential infringement of that principle because, under Regulation 261, passengers whose flights are cancelled can claim compensation whilst delayed passengers - who may suffer similar inconvenience - have no such entitlement. The Advocate General took the view that the drafting of Regulation 261 is clear and unambiguous and so this apparent infringement could not be remedied through interpretation; amendment of the Regulation would be needed in order to correct the problem. Questions arise as to whether, having heard scant legal argument on the issue, the ECJ was correct in concluding that there is indeed an infringement of the principle of equal treatment, whether that undermines the validity of Regulation 261 from the date it came into force in 2005, and whether it was legitimate for the ECJ to try to correct the problem through an extraordinary re-interpretation of the existing drafting.
  • Inconsistency of Sturgeon with the judgment of the ECJ Grand Chamber in IATA and ELFAA v Department for Transport (2006): in the IATA case, the ECJ held that the delay remedies in Regulation 261 were not inconsistent with those in the Montreal Convention 1999. The Montreal Convention is supposed to constitute an exclusive liability regime, but the ECJ took the view that the Regulation 261 delay remedies cover matters which are not legislated for in the Montreal Convention and that there was therefore no conflict. However, at the time of the IATA case, everyone (the ECJ included) believed the only remedies for delayed flights under Regulation 261 were care and assistance, which the ECJ described as standard and immediate compensatory measures to redress the inconvenience which all delayed passengers experience. It is pretty apparent that the ECJ in the IATA judgment had no contemplation that compensation might be payable for delay under Regulation 261. Although the issue remains contentious, it can be argued that there was at least some basis for the ECJ's decision that the right to care and assistance under Regulation 261 is different in nature to the right to damages for delay which arises under Montreal and which is assessed on a case by case individual basis. However, Sturgeon has now conferred on delayed passengers an entitlement to monetary compensation; the consequence is that the Regulation arguably now encroaches much more obviously onto the territory already governed by the Montreal Convention, thereby giving rise to a potential conflict with international treaty obligations which must be resolved.

Of course there are challenges in inviting the ECJ to reconsider its judgment and to conclude that it made a mistake, and resistance to that notion can be expected. The prospects of success will be improved if carriers can point to new issues arising from the judgment, such as inconsistency with the IATA decision and perhaps questions of legal certainty and proportionality which need to be resolved. Whilst there undoubtedly needs to be a proper appraisal of the principle of equal treatment in the context of Regulation 261, it is possible that the ECJ's default position on that question will be that the question has already been adequately considered in the Sturgeon case and that it need not be revisited.

Legal challenges - individual references and a judicial review commencing in the English courts - remain likely. There is a great deal that is wrong with the Sturgeon decision and, whilst carriers should be under no illusion that any of the legal arguments are straightforward, there does need to be a proper debate before the ECJ as to whether Regulation 261, as re-construed, is invalid. In the meantime, however, carriers need to determine what approach they will take to claims for delay compensation under the Regulation.

How Should Carriers Deal with Claims for Delay Compensation?

Airlines should weigh the following factors in deciding what approach to take to claims for delay compensation under Regulation 261:

  • The cause of the delay should be assessed carefully. It may be possible to establish a defence of extraordinary circumstances; if so, that is a complete answer to the claim without any need to raise arguments as to whether Sturgeon should be followed or not.
  • Many airlines are resisting payment of delay compensation on the basis that the law is unclear following Sturgeon. That is a credible position to adopt, particularly pending the outcome of any legal challenges, albeit this approach may not always be regarded sympathetically by courts or by all NEBs.
  • The Sturgeon judgment is clearly wrong but it is possible that national courts may start from the premise that, absent a further referral to the ECJ for clarification, they are bound to apply it.
  • Sooner or later there will be a legal challenge and/or moves to amend Regulation 261 which may give some measure of clarity as to whether the Sturgeon judgment will be overturned or its scope diminished. If that were to happen, it will be impossible at that stage, in practical terms, for airlines to recover any delay compensation already paid out.
  • The approach to retrospective claims is likely to vary from one Member State to another. The Commission takes the view that the judgment applies retrospectively. However, in some Member States, there is no great encouragement of retrospective claims by the NEB or complaints handling body though that will not necessarily prevent such claims from being pursued.
  • Refusing to pay delay compensation risks provoking enforcement action from the relevant NEB. The approach of NEBs may vary; there is little appetite for enforcement action in the NEBs of some Member States though all are under pressure from the Commission to enforce the Regulation fully; in some Member States, the existing enforcement legislation would make it difficult for fines to be imposed on carriers for a failure to pay delay compensation; whilst other Member States are much more proactive about enforcement action. Carriers will need to make an assessment depending on the jurisdiction in which claims are being pursued.

In the event of claims being pursued through national courts, carriers can seek to defend claims on the basis of legal uncertainty, lack of proportionality, conflict with previous ECJ decision or inconsistency with the Montreal Convention liability regime. It is possible, depending on which Member State's courts are hearing the case, that the national court would want to refer such issues to the ECJ for a ruling. There are obvious costs implications for an airline in seeking to pursue its case through to the ECJ.

There is no "one size fits all" solution to how carriers should now respond to delay claims and airlines should be wary of advice to the contrary. An assessment is needed in each case of the legal position, the facts surrounding each particular claim and the extent to which circumstances call for a pragmatic, or a legal, resolution.

BLG's regulatory team would be happy to assist any airline wishing to explore its options in further detail.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.