Frederick Lyon – X v. Kuoni – Now More a Risk to Defendants than Claimants

Introduction

Since it began its litigation journey in the High Court in 2016 ([2016] EWHC 3090 (QB)), the case of X v. Kuoni has been causing concern for both claimants and defendants. It has been said that it could spell, respectively, the end of compensation for accidents abroad and the end of the package travel business as we know it.

The case concerns an analysis of tour operators’ obligations for the negligent and/or criminal actions of the employees (or sub-contractors) of suppliers of holiday services. The issues are:

• Whether such actions are in truth a breach of the contract with the tour operator; and, particularly in the case of criminal conduct, whether an employee is providing a holiday service at all?

• Whether such an employee is themselves a ‘supplier of services’ for the purposes of the Package Travel, Package Holidays and Package Tours Regulations 1992 (“the 1992 Regulations”)?

• Whether there is any prospect of a defendant being able to rely on the, previously little used, exception to liability under regulation 15(2)(c)(ii) of the 1992 Regulations; namely that (notwithstanding a proven breach or improper performance of the contract) the failures were events which the other party to the contract or the supplier of services, even with all due care, could not foresee or forestall?

The Supreme Court has reserved the decision on the first issue to itself. It has now passed the matter to the European Court of Justice to decide on the interpretation of three key issues. Slightly paraphrased, these questions are;

• In the circumstances where there is either a failure to perform or an improper performance of the obligations arising under a contract for a package holiday between a consumer and an organiser/retailer and that failure or improper performance is the result of the actions of an employee of a provider of services to which the package holiday contract relates:

• Is there scope for the defendant to rely on the defence that such an event was one that the supplier of services, even with all due care, could not foresee or forestall;

• By which criteria is the national court to assess whether that defence applies;

• Where the organiser/retailer enters into a contract with a consumer to provide a package holiday and where a hotel company provides services to which the contract relates, is an employee of the hotel company themselves also considered a “supplier of services” for the purposes of the defence that the failure or improper performance was something that could not have been foreseen or forestalled.

The facts of the unfortunate underlying case are these:

The Facts

On 8^th July 2010, the claimant (X) arrived with her husband in Sri Lanka for a 15 day luxury package holiday at the Club Benota Hotel. The hotel had been billed as being four stars with the attendant facilities. The holiday was booked through the defendant (Kuoni) and the holiday was subject to that booking contract.

On 17^th July X met a uniformed employee of the hotel, N, who had approached the couple to ask for a drink and cigarette. It was found by the judge at first instance that X, at this stage, was aware that N was an electrician employed by the hotel.

Later that night X wanted to change rooms due to the noise being made by the next door neighbours. She went to go to reception to resolve the issue. While on the way she met N who indicated that there was a faster route to the reception through the hotel grounds. He led her to a door which he informed her was a short cut. It was in fact an engineering room and once inside N sexually assaulted and raped X. The claimant suffered personal injury and brought a claim for an agreed value of £29,000.

The procedural history

The claim at first instance came before HHJ McKenna, sitting as a judge of the High Court, who dismissed X’s claim on the basis that:

• The actions of N were not an improper performance or breach of the contract entered into between X and Kuoni. N was acting outside of his contracted duties;

• (obiter) If there was a breach of the regulations Kuoni had a defence under regulation 15(2)(c)(ii) in that the actions of N were not an event which Kuoni or [crucially] the supplier of services, which he took to be only the hotel, could foresee or forestall even with all due care;

• (obiter) if the hotel had been sued (which it was not) the hotel was not in any event vicariously liable for the assault committed by its employee.

The matter was then taken to the Court of Appeal ([2018] EWCA Civ. 938). Etherton MR and Asplin LJ gave a majority judgment (Longmore LJ dissenting). They found that:

• The actions of N were not part of the ‘Holiday Arrangements’ which Kuoni had contracted to organise for X. Guiding X to reception was no part of N’s role at the hotel (being employed as an electrician) Kuoni could not be liable as his actions in doing so could not have formed part of the contracted holiday arrangements;

• (obiter) Kuoni was not liable in any event because their liability was limited only to the actions of their suppliers. N was not a supplier because Kuoni did not have any direct contractual or promissory relationship with him. To hold otherwise would be to find that the defence that the actions could not be foreseen or forestalled could not have any practical application;

They made no finding on the issue of vicarious liability of the hotel as it was not necessary to do so.

Finally, the matter was referred on two points to the Supreme Court. These were: 1) whether the rape and assault of X constituted improper performance of the obligations of Kuoni under the contract; 2) if so, is liability excluded either by virtue of Kuoni’s own contract (which reflected the 1992 regulations) or regulation 15(2)(c)(ii) of the 1992 regulations.

The implications of the questions asked for claimants and defendants

While the implications of the decision for the parties (and particularly X) is obvious, the case has potential to make fundamental changes to the way in which all package holiday claims are run. There is a potential impact for both claimants and defendants depending upon which way the final decision is made. It is notable that consideration was given in the Court of Appeal to a direct referral to the European Court of Justice but was rejected, in part, on the basis that neither of the parties showed any “enthusiasm” for such a referral. The reason for this lack of desire on behalf of both sides is likely to be due to the delay and expense but may also result from the desire to avoid damage which the decision could do to consumer protection and/or the travel industry.

The implication of the decision for claimants

The impact of the Court of Appeal decision on claimants could not have been more stark. If there could be no liability of travel operators for the actions of employees of suppliers then there would be almost no cases in which operational negligence would lead to liability under the 1992 regulations (with food poisoning pursuant to Wood v. TUI [2017] EWCA Civ. 11excepted). The cleaner who failed to clean oil off a marble floor for several hours or (as Longmore LJ suggested) the boat captain who crashed a vessel would not be considered a supplier and accordingly there could be no liability under the 1992 regulations on the organiser. The Claimant would have to make the claims abroad directly against the employee or their employers – exactly the issue which the regulations (based on the 1990 Directive) sought to avoid. It was a particularly surprising conclusion in light of the Court of Appeal’s multiple decisions to the contrary in similar circumstances and in light of the fact that the Court does not seem to have been referred to authority on the issue before making the decision. By way of example, in the case of Wreford-Smith v. Airtours [2004] EWCA Civ 453 Potter LJ at [3] specifically states:

“by regulation 15 of those regulations the defendant was made liable for the negligence of any independent contractor used by the defendant to provide holiday services”.  

It could not be clearer that this part of the Court of Appeal’s judgment at least was wrong.

This particular point need not overly trouble claimant lawyers any longer as it has been specifically conceded by Kuoni in the Supreme Court (para [20 (2)]) that for the purposes of the regulations a supplier is not limited to those in direct contractual or promissory relationships with the tour operators but (pursuant to the travaux preparatoires for the Directive) must include suppliers in a chain of contractual authority descending from the tour operator. It is contended instead that N cannot be a supplier because they were at all times carrying on a criminal enterprise. This is a far more limited point than the risk that was previously perceived by claimant travel lawyers as there will only be a few cases where this point has application.

The wider point relates more accurately to an assessment of whether the employee who acts outside of their instructed tasks is acting in a way which is unforeseeable notwithstanding that they were (on the facts) providing ‘holiday services’. If Kuoni are correct, there are still (rare) cases where consumers would be able to establish vicarious liability directly against a hotel under English (or indeed foreign applicable law) but would be unable to bring an action against the tour operator in England notwithstanding a proven breach of contract. This would appear to be an issue which the 1992 regulations (and the 1990 directive on which they were based) were designed to prevent. 

The implication for defendants

If X is correct and an employee is always a supplier for the purposes of the 1992 regulations (so long as they are supplying ‘holiday services’) then a defence under regulation 15(2)(c) will be very difficult (if not impossible) to achieve. Plainly an employee who carried out their job poorly could, in the vast majority of cases, both foresee and forestall their negligence and/or criminal conduct by simply doing their job correctly.

In particular, it is notable that because the only question would be whether or not the supplier of services failed to provide or provided the service improperly, vicarious liability may have no application. The analysis of whether or not the employee’s actions were sufficiently connected to the role they were employed to do does not arise and does not form any part of the definition of ‘fault’ under the Directive of the 1992 Regulations. This will effectively amount to strict liability in those cases where the claimant is able to prove a breach of contract based on performance falling below local standards. Accordingly there would be (rare) cases where there would be no liability for the actions of an employee in a hotel in England booked directly or not as part of package but liability on the same facts would be established against a tour operator in relation to a holiday provided by a hotel in Turkey or St Lucia.

ABTA, intervening in the Supreme Court, has contended that the use of the word ‘fault’ in regulation 15 of the 1992 regulations should result in an analysis of whether the provider of the service (here the hotel) was vicariously liable for the actions of their employee. 

In essence the issue for both sides is this: either package tour organisers or consumers will have available to them fewer options than in a case brought under the usual provisions of domestic law. ABTA have attempted to suggest a middle way but, with respect, this attempts to import an English common law concept into a scheme designed to operate consistently across the whole of the EU including in counties which operate a civil code. The Directive is more consistent with being read as a civil code and should, in this author’s opinion, not have further imported definitions read into it.

A likely outcome

Dangerous as it is to make predictions in cases which are ongoing it appears, on balance, more likely that both the European Court and the Supreme Court will side with the claimant on this case. My reasons for this hunch (and it is no more than that) are:

In the Supreme Court

The Supreme Court will decide the question of whether N was providing ‘holiday arrangements’ itself. The entire referral to the ECJ is on the basis that this decision, together with the finding that the rape and assault constituted improper performance of the contract, has been made in X’s favour. It is unlikely that the Supreme Court would have been quite so specific in the terms of their reference if they had no intention of finding that this was the case.

Further, the dissenting judgment of Longmore LJ, quoted at length within the Supreme Court’s interim judgment, is very persuasive on this point. Essentially, it is argued that given this was a four star hotel it is not unsurprising to expect that members of staff who are approached by (or approach) a guest and offer assistance should reasonably be expected to provide this to a proper standard. Indeed, Kuoni’s contract specifically described the hotel as being all inclusive, the contract provided for service charges to be included and the definition of the package holiday included ancillary services. Accordingly, it seems likely that it will be found that when guiding to X to reception N will be found to have been providing (certainly improperly) a service contracted for as part of the ‘holiday arrangements’. This is a decision made on the facts and it will still be open to defendants to challenge whether an employee was providing holiday services in future cases.

In the ECJ

The ECJ has long been more likely to side with the consumer in matters of consumer protection. In particular one thinks of the cases referred in respect of the regulation 261/2004 EC (“the Denied Boarding Regulation”). In Stugeon & Ors v. Condor Flugdienst GmbH (C-402/07) the ECJ read into the regulation that a three hour delay was equivalent to a cancellation of a flight entitling literally hundreds of thousands of passengers to significant sums of compensation.

A finding in favour of the consumers would also be consistent with the pre-amble to the 1990 Directive that:

“The organizer and/or retailer party to the contract should be liable to the consumer for the proper performance of the obligations arising from the contract; whereas, moreover, the organizer and/or retailer should be liable for the damage resulting for the consumer from failure to perform or improper performance of the contract unless the defects in the performance of the contract are attributable neither to any fault of their nor to that of their suppliers”

The starting position is therefore that liability is established unless one of the exceptions excusing the organiser from fault are made out. The English common law lawyer’s natural response would be to seek to look to the definition of ‘fault’ but to do so would be to import common law context into a system designed for the application by many member states who operate a civil code type approach to the question. Indeed, it is notable that in France interpretation of the same directive has led to a presumption of strict liability unless the very limited exceptions can be established (Cf. Article L-211-16 of the French Tourism Code). In the interests of consistency between members states, which is another aim of the Directive specified within the pre-amble, it is more likely in the authors opinion, that the ECJ will seek to increase the liability of tour organisers rather than minimise it as this would be consistent with how the directive has been approached and implemented by other member states.

It seems likely that the ECJ will therefore suggest that the scope of the defence of unforeseeable circumstances is very limited. An example might be where a new recommended chemical is added to a swimming pool and is later, unexpectedly, found to cause serious rashes in a percentage of the population. The holiday of the rash sufferer might be ruined but the supplier of services – whether the hotel or the maintenance employees who applied the chemical to the pool – would be able to avail themselves of the defence. This latent defect type defence could also lead to an analysis that there was no breach of the contract or, if the contract committed itself to a stricter liability than exercise of reasonable care and skill, might provide a use for the defence under s.15(2)(c)(ii) (Cf. Hone v. Going Places [2001] EWCA Civ. 947 per Longmore LJ at [18]). While the defence might seem otiose in our jurisdiction, we must not be blinkered to the fact that other member states may not have equivalent terms of reasonable care and skill implied into their consumer contracts.

Ultimately it is probably immaterial how the ECJ answer the Supreme Court’s third question. If an employee is also a supplier of services then the defence that the failure to perform the contract was unforeseeable is unlikely to be effective, save in the very limited circumstances set out above. Conversely, provided the actions of an employee are part of or connected to the provision of holiday arrangements/services, the services provided by the employee are still arguably the services of the service provider. The negligent or criminal acts of an employee are not unforeseeable in EU jurisprudence (Anthony McNicholl Ltd & Ors. v. Minister for Agriculture Case C-296/86 [1988] ERC-1491 – where beef due for export was stolen due to fraud and/or negligence of a company’s employees this did not amount to abnormal and unforeseeable circumstances entitling the contract breaker to claim force majeure).

Conclusion

For now, the status quo remains, a holiday service provider whose employee who acts in a way that is previously unpredictable will be able to avoid liability under the defence provided by regulation 15(c)(ii). In an exercise of damage limitation, it appears that it has been conceded by the defendants that the defence should be limited to those actions which an employee undertakes outside of their contracted duties or where the unexpected conduct is criminal in nature.

Despite this concession, it is certainly possible, and perhaps likely, that this position will be altered by the ECJ. Ultimately this would mean that there will be fewer defences available to package tour providers as compared to domestic providers providing non-package services. The defence that they were not vicariously liable for the actions of an employee will not be available to them. The issue will then be an analysis of whether the employee was engaged in the provision of part of the holiday services at the point that the event occurred and whether the said event accordingly was a breach of contract. The employee who places a bomb in a hotel room is likely to confer liability upon the hotel and hence on the tour operator. The same employee placing a bomb by the roadside in town is unlikely to cause liability to attach if it happens to injure one of the guests.

Such a conclusion would still provide tour operators with an opportunity to defend themselves, but it would have to be accepted that this was somewhat limited. Tour operators will still retain the benefit of the decision of the Court of Appeal in Lougheed v. On The Beach [2014] EWCA Civ. 1538 and Claimants will still have to prove that the service provider (or their employees or sub-contractors) would be liable under the local standards applicable at the time in country.

Ultimately, however, it may be that operators will not welcome any ‘clarity’ that they receive from the ECJ on the issues referred by the Supreme Court in this case.