Good relations should be backed up with a written agreement
Many tour operators tell us that they have survived the past 2 years in part down to their good relations. Some suppliers were willing to agree to refund, rearrange or offer credit notes to tour operators.
Whilst good relations are important it is essential for tour operators (and their suppliers) to back up any informal arrangements with legally enforceable agreements. This will ensure that each party understands their responsibilities and what will happen if, or when, things go wrong.
Tour Operator Liability
It is vital to fully understand the tour operator’s liability to customers before drafting a supplier agreement.
In the event of cancellation by the tour operator pre-departure they are responsible for reimbursement of customer monies, plus compensation, depending on the reason for cancellation.
In the event of cancellation by the customer pre-departure, the customer is obliged to pay cancellation charges. The exception to this is where there are unavoidable and extraordinary circumstances at the place of destination that will significantly affect the performance of the package or the carriage of passengers to the destination in which case tour operators are obliged to refund in full. For more information in relation to this see https://www.mb-law.co.uk/travel-articles/the-right-of-the-traveller-to-cancel-pre-departure-without-payment-of-cancellation-charges/
If a customer brings a legal claim it is likely to be against the tour operator in the UK because tour operators are, as a matter of law, responsible for the acts and omissions of their suppliers.
Following the case of X -v- Kuoni, it is now clear that this liability extends to acts and omissions of their supplier’s employees providing, or purporting to provide, a promised service.
The tour operator remains liable even if there is no negligence on their part or on the part of their supplier.
Business to business contracts are a matter for negotiation. Taking into consideration the tour operator’s liability the parties should ensure that the contractual agreement addresses:
- Relationship and expectations
The parties’ relationship to each other and what each party expects of the other should be clearly set out.
A crucial provision in any supplier agreement is an indemnity. Both tour operators and suppliers need to understand and agree indemnity provisions. Extreme care needs to be taken with the wording of these to ensure that they are both effective and enforceable.
- Law and jurisdiction
Another key consideration is the applicable law and jurisdiction (ideally English Law and English Courts) so that tour operators can enforce the terms in England and not the country where the services take place.
Tour operators must ensure that their suppliers have insurance to cover the risks associated with operating their business. Consider limitations on that insurance, including whether suppliers are covered in the event that they are not negligent but the tour operator is liable. There is little point in having an effective indemnity provision if the supplier has no insurance (or other means) to cover it so that enforcement would result in the supplier going out of business.
- Events outside the control of the parties
The agreement must clearly indicate any agreed arrangements in the event of circumstances outside the control of the parties, for example, the arrangements the parties agreed in the pandemic including refunds, credit notes or an agreement to rearrange services without incurring fees.
Consider what happens in the event of a breach of the agreement, what steps must be taken to remedy a breach and do the parties want a right to terminate. Consider what happens when a supplier breach results in the cancellation of a package by the tour operator.
- Duration and termination
Consider the duration of any agreement and how and when either party may wish to terminate it including what happens to existing bookings.
Where a supplier asks customers to sign waivers, be aware that this may affect any agreed indemnity, and therefore the ability of a tour operator to recover from a supplier.
Preferably use your own supplier agreement which should cover as a minimum the above. Ideally any agreement should be drafted by a suitably experienced legal professional. We strongly recommend that you seek advice on supplier contracts before you sign them.
If you have any queries about anything in this article please contact Claire Ingleby (email@example.com)
Please note this information is for general guidance only and is not intended to be a substitute for specific legal advice.