The shocking collapse of Monarch Airlines has left thousands of people stranded abroad or facing uncertainty and financial loss over future bookings. The Government has stepped in to repatriate people overseas (reportedly over 110,000) but those who have not yet travelled are left to their own devices. Figures suggest a staggering 860,000 will be affected. The framework of consumer protection in this situation is very disjointed and confusing.
The protection of ATOL and travel insurance are unique to the travel industry and could provide compensation for many who have booked flights as part of a package:
– if covered by ATOL – both the flight and the accommodation have to be booked under a single contract which is increasingly less common in the growing on-line market; or
– to those who have taken out travel insurance (although many policies don’t cover cancellation due to financial failure of the travel company).
It wouldn’t be surprising if, for a while at least, many people start to re-think how they purchase their holidays and might be less inclined to “go it alone”. There are however some background rights that apply to consumer contracts generally for any goods or services, including ‘non-package’ holidays.
Firstly, if the product has been paid for using credit (including a credit card) and the price of the product (not necessarily the amount paid on the card) is between £100 and £35,000 (or up to £60,260 for loans that are specific to the goods being purchased), Section 75 of the Consumer Credit Act 1974 makes the credit provider equally liable as the supplier for any failure to supply the goods or services to the required standard. This will include a liability to pay reasonable expenses incurred as a result of a breach of the supply agreement, for example, overnight accommodation if flights are cancelled. If there is any dispute about the credit company’s liability or the amount of compensation offered, the consumer can make a complaint to the Financial Services Ombudsman.
If payment was made by debit card this is not a credit purchase so Section 75 doesn’t apply. However, some banks will apply a chargeback through their agreement with the supplier which enables them to recover the amount paid by debit card from the supplier’s bank account. This can, however, be a bit hit and miss as availability of chargeback depends upon the particular card issuer’s agreement with the retailer – and there needs to be sufficient funds available in the supplier’s account to meet the chargeback (which is, of course, unlikely in the case of insolvency).
Whilst statutory compensation will apply to delayed/cancelled flights (see Sunny Sidhu’s blog re: American Airlines) this requires the airline to pay compensation, which in the case of Monarch isn’t going to be of any real practical benefit unless, by some miracle, funds are available to pay unsecured creditors’ claims.
Every situation involving Monarch Airlines will be different and will require cooperation and advice from the various agencies and organisations involved. If any specific advice is required please contact either Kristy Ainge or Raman Dhillon in our Litigation Department.
The general lessons however are to think about what industry/trade schemes are available when making a major purchase (e.g. ATOL) and how paying with credit (including a credit card even if it is your intention to pay off the balance in full) can give you greater protection if it all goes wrong.