Recently District Court Amsterdam 26 August 2022, ECLI:NL:RBAMS:2022:5012, decided that KLM airlines is obliged to make financial restitution to passengers after a travel agency’s bankruptcy. The basis for the judgment lies in the Flight Compensation Regulation (EC) No 261/2004.
Case: on 13 January 2020 Dutch passengers book tickets to Brazil and Argentina via travel organization D-Reizen for an amount of € 2,079.13. D-Reizen pays to KLM an amount of € 1,928.18 for the operation of these flights. KLM has cancelled these flights due to the COVID-19 pandemic. D-Reizen goes into bankruptcy on 6 April 2021. The passengers initiate refund-proceedings against KLM for the amount paid by them. Their basis is Regulation (EC) No 261/2004. The court indeed orders KLM to pay the restitution.
Defence KLM. Obviously, KLM resists these claims. KLM’s main defences are: (i) there is no contract of carriage between KLM and the passengers, and (ii) KLM paid a refund of € 1,928.18 already on 8 December 2020 to the authorized representative D-Reizen, ie the contracting counterparty of KLM. Therefore, any refund claim has been settled.
Amsterdam court. The court considers that if there is no agreement between the airline and the passengers to perform these transport activities, the airline is deemed to perform these activities on behalf of the person who has an agreement with the passengers, according to Article 3 (5) of the Regulation. In addition, these passengers are entitled to a refund, with the obligation to make a refund resting on the airline providing the flight (referring to recitals 7 and 13 of the Regulation). The fact that the choice given by KLM between reimbursement or rebooking is left to the passengers (art. 8(1) in conjunction with art. 5(1)(a) Regulation) confirms that the refund must be paid directly to the passengers. If passengers do not opt for rebooking but for a refund, the court argues that the airline is responsible for leaving the choice between rebooking or refunds to the passengers. If they choose the latter, it is up to the airline – even without a transport agreement between the airline and the passengers – to refund the ticket price directly to the passengers.
KLM: we already paid D-reizen! The court also does not follow KLM’s argument that it paid already, in full settlement of the specific claim. The court disagrees: from the mere fact that the passengers had authorized D-Reizen to book flights for them, KLM should not have inferred that this authorization would also mean that D-Reizen on behalf of the passengers would have the power to receive the refund of ticket costs.
Consumer’s weak position. Indeed, the judgment could open the door for other claimants. The heading for this blog, however, is less heated. For travel contracts the position of a passenger/consumer has generally an agreeable level of protection. For many other contracts, when the counter party goes into insolvency, a consumer’s position is weak. Recently European independent think tank Conference on European Restructuring and Insolvency Law (CERIL) has payed attention to this structurally weak position. It has published a report: ‘Consumer as a Creditor in Corporate Restructuring and Insolvency’. See www.ceril.nl. It has been prepared by profs. Catarina Frade (Portugal) and Annina Persson (Sweden), with the assistance of academic scholars and practitioners from 9 jurisdictions. The Report includes these national reports.
And now? The scattered and diffuse bargaining power of consumers may require some regulatory solutions that help balance their disadvantageous procedural position. Clear and consensual solutions are yet to be presented, but the discussion must be further developed. CERIL recommends that the European Commission will arrange, under its aegis in collaboration with several European universities and European consumer organisations, a discussion to further clarify and possibly strengthen a consumer’s position in case of insolvency or preventive restructuring of a company to which the consumer is a client/customer. The Reporters present an agenda with key topics for this dialogue: (i) information regarding the contractual position of a consumer once restructuring and insolvency proceedings, including cross-border proceedings, are opened, (ii) information on the position of a consumer during the course of restructuring and insolvency proceedings, (iii) representation of consumers (or their interests) in restructuring and insolvency proceedings, and (iv) strengthening of a consumer’s financial position in case of its prepayments for goods or services in restructuring and insolvency proceedings.
Towards a European response. Evidently, for any European solution, the brainpower of specialists in private law (consumer law) and insolvency law is needed. The Report is available free of charge, see https://www.ceril.eu/news/ceril-report-2022-3-on-consumer-rights-in-restructuring-and-insolvency. No matter how, the coarse material is ready and sown. The agenda points the direction. Is the EU ready to harvest?