Cancellation and the great refund saga

Just when we thought things might be calming down on refunds following cancellation of holiday bookings travel insurers are jumping in with claims brought using their rights of subrogation under the policy terms. Don’t lose hope or automatically pay these claims off, they are potentially defendable.

Travel insurers usually have a right under their policies of insurance to bring a claim against a company in the name of the customer (their insured).

These are potentially defendable claims for 4 main reasons:

1. You are an agent for a third party (often the case for villas)

In simple terms as an agent you are not responsible for, and have no liability in respect of, the performance of the owner’s or supplier’s contractual obligations. Accordingly, there is no basis for a claim against you. It is really important that your booking conditions and website are clear in terms of the capacity in which you act as without this defending on this basis could be difficult.

2. The client cancelled or failed to make payment in line with the contract

If a customer cancels a booking, the general position is that cancellation charges apply under the contract.  Likewise if a customer fails to make payment of monies due in line with a contractually agreed timescale, you are usually entitled to cancel and apply cancellation charges. With packages, under the Package Travel and Linked Arrangements Regulations 2018 (PTR) customers may rely on unavoidable and extraordinary circumstances at the place of destination or its immediate vicinity to avoid payment of cancellation charges, BUT may only do so where those circumstances significantly affect the performance of the package or the carriage of passengers to that destination. Arguably therefore a customer cannot cancel with a full refund in April for a holiday in May when it is unclear whether those same unavoidable and extraordinary circumstances will still exist at that time.

3. The holiday was curtailed

Where a package is curtailed by reason of the pandemic, the PTR provides that customers are entitled where appropriate to a price reduction for any period during which there is a lack of conformity with agreed arrangements, and appropriate compensation for any damage which the customer sustained as a result. There will, however, be no entitlement to compensation for any damage where the lack of conformity is due to unavoidable and extraordinary circumstances. Questions do arise as to what may constitute “damage”, whether a “price reduction” will be “appropriate” in the circumstances of the coronavirus pandemic and what the “appropriate price reduction” will / may be if one is generally appropriate. It is arguable that you should only be liable for a price reduction for services which could not be provided to the extent that you have been able to obtain refunds from the suppliers. Similar arguments would apply to single component (non-package) bookings in terms of your liability being to refund only those amounts you have been able to recover from your suppliers.

4. The contract was frustrated

The doctrine of frustration would apply where a contract becomes impossible to perform for reasons outside of the control of the parties, such as the global pandemic. The effect of frustration is to automatically discharge the contract between the parties and with it any rights which the parties may have had under that contract including those which may be implied by legislation. The Law Reform (Frustrated Contracts) Act 1943 (LRFCA) then steps in to deal with this situation.  This is a difficult argument especially with packages due to the PTR but it may still be worth having in your armoury.

If you have any queries about anything in this article please contact Claire Ingleby (claire.ingleby@mb-law.co.uk)