Global asset management quarterly: A global briefing on developments and market trends
Welcome to the thirteenth edition of Global asset management quarterly.
Regulation (EC) 261/2004 is described by general counsel of many major airlines as their biggest challenge, and for good reason. Even the best run airline suffers delays from time to time and the administrative and financial burden of dealing with the resultant claims for compensation is huge.
EC261 was originally designed to deter airlines from choosing to overbook flights or to cancel them for commercial reasons. It has been progressively extended by a string of decisions from the Court of Justice of the European Union (ECJ), Europe’s supreme court, whose decisions are binding on EU member states. In 2012, the ECJ held that even though EC261 expressly provides for compensation to be paid to a passenger only where he or she is denied boarding, or his or her flight is cancelled, a long delay is equivalent to a cancellation and therefore compensation is also payable if a flight is delayed by three or more hours1. Depending on the length of the flight, the compensation payable is between €250 and €600, in many cases far more than the cost of the ticket.
An airline has a defence to a claim for compensation if the delay, cancellation or denied boarding was (a) caused by “extraordinary circumstances” which (b) could not have been avoided even if all reasonable measures had been taken. “Extraordinary circumstances” is not defined in EC261, but rulings of the ECJ have sought to interpret it. Until the recent Pešková case2 which concerned an incident of a bird strike to an aircraft, the leading authority was the 2009 case of Wallentin-Hermann3. This referred to the circumstances listed in Recital 14 of EC261, namely “political instability, meteorological conditions incompatible with the operation of the flight concerned, security risks, unexpected flight safety shortcomings and strikes that affect the operation of an air carrier”. It went on to state that an event would be regarded as an extraordinary circumstance only if, like those listed in Recital 14, it “is not inherent in the normal exercise of the activity of the air carrier concerned and is beyond the actual control of that carrier on account of its nature and origin”.
Although it did not appear to be the original intention of EC261 that an airline had to pay compensation where it could not operate an aircraft, rather than chose not to do so, ECJ has tended to take a consumer-oriented view. It has already ruled that technical faults, even if unforeseeable and unavoidable, and even if caused by premature failure of components, are not extraordinary circumstances4. Similarly, the ECJ has held that damage caused by a groundhandling contractor of the airline to an aircraft shortly before take-off is also not extraordinary5. In both cases the ECJ consider that the event was “inherent” in the operation of the air carrier and therefore not extraordinary. Passengers have sought to argue that a range of other things which are beyond an airline’s control, but which happen with reasonable frequency, such as lightning strikes and bird strikes, are not “extraordinary” since they are inherent in the operation of the aircraft.
Airlines looked forward to the decision in Pešková with some trepidation. In July 2016, Advocate General Bot, whose role is to consider the written and oral submissions and to deliver an impartial opinion to the Court, had opined that bird strikes are inherent and therefore not extraordinary6. To the relief of airlines, the judgment which the ECJ delivered on 4 May 2017 did not follow the Advocate General’s decision (as occasionally happens) and instead took a less consumer-oriented view. The decision also usefully gives clarification on some other aspects.
Marcela Pešková and Jiří Peška were delayed 5 hours and 20 minutes on a flight from Burgas to Ostrava operated by the Czech airline Travel Service. There had already been a technical delay of 1 hour and 45 minutes but the major cause of the delay was a bird strike - a collision between a bird and an aircraft - during the landing of the aircraft on the preceding flight. A local technician carried out the mandatory checks on the aircraft and found no damage. However, the aircraft’s owner did not accept the technician’s authorisation to carry out the checks, so a Travel Service technician was flown to re-inspect the aircraft. Once the inspections had been completed, the aircraft was able to operate the Burgas to Ostrava flight with the resultant delay.
The relevant parts of the Pešková decision are as follows:
“23…it is clear from the Court’s case law that the premature failure of certain parts of an aircraft does not constitute extraordinary circumstances, since the breakdown remains intrinsically linked to the operating system of the aircraft.
24 In the present case, a collision between an aircraft and a bird, as well as any damage caused by that collision, since they are not intrinsically linked to the operating system of the aircraft, are not by their nature or origin inherent in the normal exercise of the activity of the air carrier and are beyond its actual control. Accordingly, that collision must be classified as “extraordinary circumstances”… [emphasis added]
25…it is irrelevant whether the collision actually caused damage to the aircraft concerned…”
The Court draws a distinction between matters which are “internal” to the airline, and which are therefore “inherent”, and those which have some external or extraneous cause, and are therefore not “inherent”. This distinction is different from one which has been argued by passengers, and which has found favour in some lower courts, that “inherent” means something which an airline inevitably encounters from time to time, i.e. because aircraft operate in the sky, and lightning strikes are a common manifestation in the sky, aircraft have to be fit to deal with lightning strikes and they are not therefore extraordinary7. Indeed, although the Czech court which referred the Pešková case to the ECJ, asked questions about whether frequency was significant to whether an event is extraordinary, there is no mention in the ECJ’s judgment which suggests that this is not a relevant factor.
The approach taken by the ECJ in Pešková does not merely assist in determining whether bird or lightning strikes are extraordinary, but is likely to have far wider application and in effect usurp Wallentin-Hermann as the leading authority.
Although in Pešková the airline was successful on the “extraordinary circumstance” principle, it still lost the case on the particular facts of this case. This was because the ECJ found that the original inspection of the aircraft was carried out by a duly authorised technician, and that therefore the delay waiting for the second technician was caused not by the extraordinary circumstance but by a new event which was not extraordinary. Accordingly, the delay caused by the wait for the second technician could not be regarded as extraordinary which meant that with the initial technical issue the total delay attributable to non-extraordinary circumstances was greater than 3 hours, so compensation was payable. Obtaining a second opinion is unlikely to be the normal operating practice of most airlines so this aspect is unlikely to have little general relevance.
The ECJ gave guidance on the steps an airline must take to satisfy the “all reasonable measures” limb. The ECJ confirmed that an airline does not have to make intolerable sacrifices to avoid the extraordinary circumstance. In relation to bird strikes, the ECJ noted that anti-bird control measures are unlikely to be solely the responsibility of airlines, and that “only those measures which can actually be [an airline’s] responsibility must be taken into account” when deciding whether “all reasonable measures” had been taken.
Finally, the ECJ gave guidance on the approach to be taken to delays and cancellations which result from multiple causes. The ECJ confirmed that where an overall delay is caused not only by an extraordinary circumstance (e.g. a bird strike) but also some other event which is non-extraordinary (e.g. a technical defect), the delay caused by the extraordinary circumstance must be deducted from the total length of the delay in arrival of the flight to determine whether the part of the delay for which the airline is responsible is equal to or greater than 3 hours.
This decision gives welcome clarity on the ambit of the extraordinary circumstance defence. It prevents the “inherent” argument being taken to an extreme instead being limited to that which is inherent in the normal operation of an airline. The other clarifications will also assist in resolving some of the other issues which regularly arise in court proceedings.
The ECJ is the EU’s highest court so the Pešková decision is not capable of appeal. The decision is binding in all cases which come before the court of any member state, including the UK. It is expected that the Pešková case will provide much needed clarity to passengers and airlines, and the courts who have to decide the issues which arise between them.
This Legalflyer edition also includes an article on recent regulation enacted in the Peoples’ Republic of China directed at addressing passenger protection in the domestic aviation market.
Sturgeon & Ors v Condor Flugdienst GmbH (Case C-402/07)
Pešková and Peška v Travel Service AS (Case C-315/15)
Wallentin-Hermann v Alitalia - Linee Aeree Italiane SpA (Case C-549/07)
van der Lans. v. Koninklijke Luchtvaart Maatschappij NV (Case C-257/14)
Siewert v Condor Flugdienst GmbH (Case C-394/14)
E.g. Tsang v Ryanair (decision of HHJ Harris QC County Court at Oxford, 4 November 2016)
Welcome to the thirteenth edition of Global asset management quarterly.
Some of the world’s largest pension funds and asset managers are drawing up plans for mandatory corporate reporting of climate issues and carbon pricing, among other actions, as outlined on day 8 of COP25 in Madrid.
Jargon at international climate talks often acts as a barrier to quick understanding of the nature and status of key issues – Article 6, ITMOs, ‘corresponding adjustments’ and (my personal favourite) A6,4ERs are just a few of the phrases used.