ECJ further limits scope of Package Travel Regulations defences (Case C‑578/19 X v Kuoni Travel Ltd [2021])

Frederick Lyon previously summarised the case of X v Kuoni  [2019] UKSC 37 when the Supreme Court sent its reference to the ECJ, and for the full background, that excellent precis can be read here: https://www.farrarsbuilding.co.uk/knowledge-base/frederick-lyon-x-v-kuoni-now-more-a-risk-to-defendants-than-claimants/

By way of brief reminder;

i) The case arose following a holidaymaker being raped by an electrician working as a contractor of the Sri Lanka based hotel which was itself the defendant’s supplier of services for the purposes of the Package Travel, Package Holidays and Package Tours Regulations 1992;

ii) At first instance in the High Court the case was dismissed and appealed to the Court of Appeal. The Court of Appeal also dismissed the case and, in a somewhat unfortunate judgment, apparently reduced the liability for tour operators generally under the 1992 Package Tour Regulations;

iii) The case was referred to the Supreme Court who provided an interim judgment referring the case to the ECJ.

The Supreme Court referred the following two questions (Directive 90/314 being the underpinning basis of the Package Travel, Package Holidays and Package Tours Regulations 1992):

‘(1) Where there has been a failure to perform or an improper performance of the obligations arising under the contract of an organiser or retailer with a consumer to provide a package holiday to which [Directive 90/314] applies, and that failure to perform or improper performance is the result of the actions of an employee of a hotel company which is a provider of services to which that contract relates:

• is there scope for the application of the defence set out in the second part of the third alinea to Article 5(2) [of Directive 90/314]; and, if so,

•  by which criteria is the national court to assess whether that defence applies?

(2) Where an organiser or retailer enters into a contract with a consumer to provide a package holiday to which [Directive 90/314] applies, and where a hotel company provides services to which that contract relates, is an employee of that hotel company himself to be considered a “supplier of services” for the purposes of the defence under Article 5(2), third alinea of [Directive 90/314]?’

This so-called ‘foreseeability’ defence referred to in the reference provides that an organiser or retailer shall not be liable where their failure to perform/improper performance is not attributable to any fault of theirs or another ‘supplier of services’ because “such failures are due to … an event which the organiser and/or retailer or the supplier of services, even with all due care, could not foresee or forestall.” While this may appear very similar to the defence of force majeure (under EU jurisprudence) the Directive and Regulations specifically differentiate the two – although minimal explanation is provided as to when one will apply and the other will not.

The ECJ has now given its ruling on the reference (https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:62019CJ0578&from=EN):

The ruling began by addressing the latter part of the reference itself first, holding that an employee of a service provider cannot themselves be considered a ‘supplier of services’ for the purposes of the directive. At first blush this appears to support use of the defence since it cannot simply be undermined by suggesting that the employee themselves could ‘foresee or forestall’ their own conduct.

However, the Court then went on to hold that:

1.This definition of ‘supplier of services’ does not preclude the employee’s acts or omissions from being treated as constituting non-performance or improper performance of the contract; and

2.The defence ‘must be interpreted as referring to a fact or incident which does not fall within the sphere of control of the organiser or the supplier of services’, and that where an employee’s actions do constitute non/improper performance in an instant case, those actions fall within the ‘sphere of control’ and so the defence does not apply.

Commentary

As foreshadowed in Frederick Lyon’s article, the ECJ has continued its long trend of siding with consumers, much to defendants’ (and their insurers’) dismay. This decision firmly confines the scope of the ‘foreseeability’ defence to very limited circumstances. The only question in such cases will be whether the employee’s actions constituted (non/improper) performance of the contract.

The worst possible outcome for defendants, all employees and contractors being found to be suppliers of services, has been avoided. This will be some comfort to defendants; as an employee of a supplier of services is not themselves a supplier of services the organiser is only liable for those actions linked to the obligations arising from the package travel contract (rather than more generally).

There remains a tension within the ECJ’s judgment on whether the ‘sphere of control’ test, as outlined in paragraph [61] of the judgment, can ever be avoided where the breach was caused by the act or omission of an employee. At paragraph [62] the court goes on to state that the defence cannot be relied on where the breaches occur due to ‘acts or omissions of employees of suppliers of services performing these obligations’. However, it might be considered that it is necessary to import a requirement of some fault in order for the definition of ‘sphere of control’ to make sense. It is an act or omission of an employee to fill the swimming pool with appropriate doses of recommended and sanctioned pool chemicals, however it is not within the ‘sphere of control’ of a supplier of services if it comes about that the said chemicals carry an unexpected and previously unknown medical side effect. Such questions may, in rare cases, require further analysis. 

The case will now return to the Supreme Court to consider in light of the ruling, though again as was noted in the previous analysis on this website, the basis of the reference significantly prefigured the likely outcome – namely that Mrs X will succeed in establishing that N was providing ‘holiday arrangements’ and that his behaviour constituted improper performance of the contract. She is therefore likely, following this ruling, to succeed in her appeal.

It remains to be seen how the judgment of the ECJ will affect interpretation of the differently drafted Package Travel and Linked Travel Arrangements Regulations 2018. The equivalent defence within the new regulations already makes clear that it can only be relied upon where the breach of contract is caused by unforeseeable and unavoidable action of a third party unconnected with the provision of the travel services or where it is due to unavoidable and extraordinary circumstances. It is arguable that in making their judgment limiting the defences available to defendants under the 1992 regulations the ECJ has gone some way to harmonising the defences available under the two sets of regulations.  

Article by Samuel Irving, a Pupil at Farrar’s Building.

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