21 Feb, 2012

European Court: Insolvent Tour Firms Must Refund Clients, Even If Fraud is Involved

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Luxembourg, 16 February 2012 — The European Court of Justice has ruled that the protection of travellers against the risk of insolvency on the part of the package travel organiser also applies where the insolvency is attributable to the organiser’s fraudulent conduct. It is the obligation of the travel organiser to hold sufficient security to ensure, in the event of insolvency, repayment of the cost of the travel and the repatriation of travellers applies whatever the causes of the insolvency may be.

Editor’s Comment Due to the poor economic conditions in Europe, protecting sellers against bankruptcies of tour operators, airlines, OTA’s, etc, has become imperative and must be discussed at the ITB 2012. European law provides for protection of Europeans in issues such as safety, security and consumer protection. It’s time for global suppliers of services to European buyers to demand protection against defaults and bankruptcies in Europe too.

According to a media release by the Court of Justice, one of the aims of the Package Travel Directive (Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours (OJ 1990 L 158, p. 59). is to ensure that, in the event of insolvency or bankruptcy on the part of the travel organiser, the repatriation of the consumer and the refunding of the money paid over are guaranteed.

“To that end, the directive places the travel organiser under an obligation to provide evidence of sufficient security to cover that refund and repatriation in such a situation. Accordingly, the German Civil Code (Bürgerliches Gesetzbuch) provides that the travel organiser must guarantee that the amount paid for a trip will be refunded if the travel services are not provided because of the travel organiser’s insolvency.

The Landgericht Hamburg (Regional Court, Hamburg, Germany) asked the Court of Justice whether that protection of consumers also applies where the insolvency is attributable to fraudulent conduct on the part of the travel organiser. The Landgericht Hamburg had to make a ruling on the action brought by Mr Blödel-Pawlik against HanseMerkur Reiseversicherung AG, a German insurance company, concerning its refusal to refund the cost of package travel which did not take place because of the insolvency of the travel organiser, Rhein Reisen GmbH.

The travel organiser – which, in the view of the Landgericht, had never really intended to organise the trip which Mr Blödel-Pawlik had booked for himself and his wife – became insolvent because it had embezzled the money paid by prospective travellers. It had taken out insurance against insolvency with HanseMerkur Reiseversicherung AG and had provided Mr Blödel-Pawlik with two notices of guarantee confirming that the cost of the trip would be refunded if the trip did not take place owing to the organiser’s insolvency. According to the insurance company, however, the Package Travel Directive is not intended to protect travellers against fraudulent conduct on the part of a package travel organiser.

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In its judgment, the Court replied that the protection conferred on travellers under that directive in the event of insolvency on the part of the package travel organiser applies even where the insolvency is attributable to the organiser’s own fraudulent conduct. The directive is specifically aimed at arming consumers against the consequences of insolvency, whatever its causes. Accordingly, the fact that the insolvency of the travel organiser is attributable to its own fraudulent conduct cannot constitute an obstacle to the refund of money paid over or to the repatriation of travellers.

Excerpts from the ruling (the full text can be read here)

The dispute in the main proceedings and the question referred for a preliminary ruling

On 4 August 2009, Mr Blödel-Pawlik booked package travel for himself and his wife with Rhein Reisen GmbH (‘Rhein Reisen’), a company which, as a travel organiser, had taken out insurance against insolvency – effective from 1 August 2009 – with HanseMerkur.

Rhein Reisen provided Mr Blödel-Pawlik with two notices of guarantee which confirmed that the cost of the trip would be refunded if the travel services failed to be provided owing to the travel organiser’s insolvency.

Before the start of the trip, Rhein Reisen informed Mr Blödel-Pawlik that it was obliged to declare itself insolvent.

It is apparent from the file that Rhein Reisen, represented by a sole administrator, never really intended to organise the trip in question. Both the chronology of events and the transactions shown on the travel organiser’s bank account statements reveal fraudulent conduct on the part of that operator.

In those circumstances, Mr Blödel-Pawlik presented HanseMerkur with a claim for reimbursement of the price which he had paid for the trip.

HanseMerkur argues, however, that it is not required to arrange a refund, since Article 7 of Directive 90/314 does not cover a situation where the travel has been cancelled solely because of fraudulent conduct on the part of the travel organiser.

The Landgericht Hamburg (Regional Court, Hamburg) is also doubtful as to whether Directive 90/314 seeks to protect consumers against fraudulent conduct on the part of travel organisers.

On the view that resolution of the dispute before it depends on the interpretation of Directive 90/314, the Landgericht Hamburg decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

‘Does Article 7 of [Directive 90/314] also apply where the travel organiser becomes insolvent because, from the beginning with fraudulent intent, it has used all the money collected from the travellers for an improper purpose and it was never intended that the trip would be organised?’

Consideration of the question referred

By its question, the national court is essentially asking whether Article 7 of Directive 90/314 is to be interpreted as covering a situation in which the insolvency of the travel organiser is attributable to its own fraudulent conduct.

In that regard, it should be borne in mind, first of all, that Article 7 of Directive 90/314 places the travel organiser under an obligation to hold sufficient security for the refund of money paid over and for the repatriation of the consumer in the event of insolvency, the purpose of that security being to protect consumers against the financial risks arising from the insolvency of package travel organisers (see Joined Cases C‑178/94, C‑179/94 and C‑188/94 to C‑190/94 Dillenkofer and Others [1996] ECR I‑4845, paragraphs 34 and 35).

Thus, the fundamental objective of that provision is to ensure that the repatriation of the consumer and the refund of money paid over are guaranteed in the event of insolvency or bankruptcy on the part of a travel organiser (see, to that effect, Dillenkofer and Others, paragraphs 35 and 36).

It is clear that the wording of Article 7 of Directive 90/314 does not attach to the guarantee any specific condition regarding the causes of the travel organiser’s insolvency.

In that connection, the Court has held, in paragraph 74 of its judgment in Case C‑140/97 Rechberger and Others [1999] ECR I‑3499, that Article 7 of Directive 90/314 imposes an obligation of result, that is to say, an obligation to guarantee package travellers the refund of money paid over and their repatriation in the event of the travel organiser’s bankruptcy, and that such a guarantee is specifically aimed at arming consumers against the consequences of the bankruptcy, whatever the causes of it may be.

The Court inferred from this that facts such as imprudent conduct on the part of the travel organiser or the occurrence of exceptional or unforeseeable events cannot constitute an obstacle to the refund of money paid over or to the repatriation of consumers under Article 7 of Directive 90/314 (see Rechberger and Others, paragraphs 75 and 76).

Moreover, such an interpretation of Article 7 of Directive 90/314 is substantiated by the objective which that directive must pursue, which is to ensure a high level of protection for consumers (see Dillenkofer and Others, paragraph 39).

In the light of the above considerations, the answer to the question referred is that Article 7 of Directive 90/314 is to be interpreted as covering a situation in which the insolvency of the travel organiser is attributable to its own fraudulent conduct.

Costs

Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable. On those grounds, the Court (Fifth Chamber) hereby rules:

Article 7 of Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours is to be interpreted as covering a  situation in which the insolvency of the travel organiser is attributable to its own fraudulent conduct.