The Weekly Roundup: a Travel Industry ABC

Articles | Mon 11th May, 2020

Attentive readers will note that the internationally renowned 1 Chancery Lane Weekly Roundup has a different title this week. Are we finally sick and tired of writing about Covid-19? Of course not! And we know that you, dear readers, never tire of reading about it. But with Covid-19 dominating the media, some of us are pining for news of Brexit. Here, then, especially for Jatinder Paul of Irwin Mitchell solicitors, is an article about a rather intriguing German case which will be of interest to Remainers and Brexiteers alike. Returning to the topic du jour, however, there is bad news for Airbnb, and good news for lawyers with experience of litigating group actions, something we all anticipate seeing a lot more of in the months to come.

Airbnb: the next casualty of the coronavirus?

For those in the travel industry, 2020 has certainly been an annus horribilis. As travel has ceased around the globe in response to the coronavirus pandemic, many hotels, holiday lets, and Airbnb rentals, lay empty. With news that Airbnb hosts are now launching their own direct-booking schemes and websites, and with bookings at an all-time low, it begs the question: how will Airbnb survive?

When Covid-19 initially spread across Europe, consumers began cancelling their upcoming holidays and rentals, devastating the travel industry. Cancellation and refund policies that were already in place with letting or holiday providers did not sufficiently deal with the scenario of a global pandemic. Consequently, consumers had difficulties cancelling their bookings and obtaining refunds, which led to rising criticism towards the travel industry and its response to the pandemic. Airbnb was not immune from such criticism, particularly as its cancellation policies were unclear. Airbnb sought to remedy the rising criticism by offering refunds to consumers and permitting blanket cancellations. However, Airbnb’s refund policy has left its hosts footing the bill.

It should be of no surprise that hosts have similarly criticised Airbnb’s response. Hosts usually dictate within their own cancellation policies the total amount by way of a refund that a consumer is entitled to, if they cancel their Airbnb booking within a specified period. However, Airbnb’s Covid-19 refund policy runs contrary to many host cancellation policies, entitling consumers to a greater level of refund. This has led to some hosts paying larger refunds and, subsequently, incurring financial loss. Despite Airbnb’s pledge to establish a relief fund for hosts impacted by Covid-19 cancellations, for some hosts it is simply too little too late. As a consequence, many hosts have created their own direct-booking websites. These websites could allow hosts to obtain a potentially higher profit, as no middle-man is involved; hosts would also have greater control over cancellations and refunds. With hosts actively choosing to market their own homes as short-terms lets, the picture looks bleak for Airbnb, who will face a lower availability of rentals with no clear date as to when they can be occupied.

There is, however, some light at the end of the tunnel. In an attempt to rebuild consumer confidence, Airbnb has announced that it is establishing a new cleaning protocol, which will launch this month. The protocol will provide recommendations concerning PPE and cleaning and will implement a form of social distancing by requiring a minimum period of 24 hours between rentals. However, this protocol is optional for hosts. Potential customers will be able to see before booking with Airbnb whether the host of their desired rental has signed up to the new protocol, which should, in theory, alleviate concerns and encourage travel.

In addition, it seems likely that many consumers may opt for a ‘staycation’ this year. This would allow consumers to book short-term rentals with Airbnb, without facing the heightened risks of contracting coronavirus by travelling abroad or by mingling with other guests at a hotel. Interestingly, some hosts in France have seen demand from French nationals soar for the summer months, which is a promising sign for the troubled company.

It is quite plain that consumers do want greater reassurance before embarking upon any holiday, particularly in the form of rigorous cleaning protocols in place. Yet, despite this, the biggest hurdle Airbnb faces (as does the rest of the travel industry) is getting consumers to actually travel. Many consumers have shelved their plans for a holiday this year. The timetable for ending lockdowns across Europe remains uncertain, as does the future of travel in response to the pandemic. Time will tell whether stringent cleaning procedures and social distancing will be enough to encourage consumers to emerge from their homes, however it is this author’s view that a significant proportion of the public will be reluctant to travel. However, the potential rise of staycations at least gives Airbnb a glimmer of hope.

About the author

Dominique Smith was called in 2016 and undertook pupillage in chambers under Jack Harding, Andrew Spencer and Sophie Mortimer. Her experience as a pupil in the field of travel law translated into a busy practice, and she is now a highly regarded practitioner within the area in her own right. She undertakes work for both Claimants and Defendants and has a particular interest and expertise in Coroners’ Inquests.

Is group litigation about to go viral? Early defensive measures

As the UK enters its eighth week of lockdown with no end in sight, the travel sector continues to be one of hardest hit: With revenues virtually at zero and the government showing no willingness to dilute consumers’ rights to a prompt cash refund for cancelled holidays and flights, the stage is set for a proliferation of claims, including “bet-the-company litigation” where smaller operators in particular are forced to litigate to avoid haemorrhaging much-needed cash.

Class-action lawsuits have already been filed in a number of US States and in Canada against various airlines for failing to provide refunds for cancelled flights. Compared with the US where class action lawsuits are commonplace, ‘Group Litigation Orders’ (”GLOs”) are still in their infancy in this jurisdiction. Indeed, only 14 GLOs have been made in the last five years. But the sheer scale of the current crisis, the commonality of the issues it raises and the attraction of certain features unique to the group litigation process (beyond the scope of this article) create the conditions for group litigation on a scale not yet seen in England and Wales.

In-house lawyers and other business leaders who plan ahead will find themselves in a much better position if/when their company is named as a defendant in group litigation.

What is a GLO?

A GLO is an order under Section III of CPR Part 19 which provides for the case management of claims which give rise to common or related issues of fact or law (referred to as “the GLO issues”). A judgment on any of the GLO issues is binding on the parties to all claims being managed under the GLO.

The GLO is an ‘opt-in’ regime, which means that individual claimants are not included in the action unless they take positive steps to join.

Defensive strategy

So long as the current freeze on non-essential travel remains in place, any defensive strategy will likely include measures to resist a GLO being made and prevent early determination of claims. These will include the following early considerations:

I           Has the pre-action protocol been complied with?

In the short-term, claimant decision-making will be driven by the fear (real or imagined) that many operators will not remain solvent throughout a long, drawn-out legal battle and so pre-action procedures may be truncated or even ignored completely.

Where proceedings are issued prematurely, an application can and should be made under paragraph 15(b) of the Practice Direction – Pre-Action Conduct and Protocols to stay proceedings unless and until pre-action procedures have been complied with.

II          Is the action adequately funded?

In considering whether to exercise its discretion to grant a GLO, the court will seek to give effect to the overriding objective, which is to enable the court to deal with cases justly and at proportionate cost. In Austin v Miller Argent [2011] EWCA Civ 928 the Court of Appeal upheld a decision to refuse to make a GLO where, at the time of applying, of the 516 prospective claimants, only two had BTE insurance in place (with a limit of £50,000) and none of them had been able obtain ATE insurance. The Court of Appeal held that ‘The making of a GLO commits both the parties and the court to the allocation of substantial resources to the conduct of group litigation. The court will not make a GLO before it is clear that there is a sufficient number of claimants, who seriously intend to proceed and whose claims raise common or related issues of fact and law.’

Defendants should examine closely what funding arrangements in place and whether claimants have the resources to see the litigation through or whether the GLO is, in truth, a mechanism designed to pressure them into early settlement.

III         Is the funding arrangement permissible?

Certain companies are already rushing to ‘buy up’ consumer claims against airlines and tour operators. What practically, such an arrangement involves remains unclear but it is likely to involve either an assignment of a cause of action or alternatively, a novel funding arrangement.

Whilst common law restrictions on third party funding have been considerably eroded by the introduction of conditional fee arrangements and damages-based agreements, prohibitions remain relation to ‘maintenance’ (funding by an unconnected third party) and ‘champerty’ (doing so for profit). The extent to which a funder controls the litigation and the impact of the arrangement on the quantum of damages are relevant to whether the funding is in breach of the rules. The fact that a funding arrangement is impermissible does not constitute grounds for dismissal of the action or even a stay, but it does render the arrangement unenforceable (Re Trepca Mines Ltd (No 2) [1963] Ch 199) and so the funder will be unable to recover its costs from the funded party or from the other side.

In addition, where the funded party loses, the funder may be liable to pay some or all of the costs of the litigation (Arkin v Borchard Lines Ltd and others [2005] EWCA Civ 655).

IV         Is there a ‘sufficient number’ of claims?

There is no prescribed minimum number of claims which must come within the scope of the GLO issues before a GLO can be made. Nor is there a requirement for all such claims to be issued at the time of applying for a GLO. However, in Austin v Miller Argent the Court of Appeal held that ‘the Court must not make a GLO before it is clear that there is a sufficient number of claimants, who seriously intend to proceed and those claims raise common or related issues of fact and law’. In Hutson v Tata [2016] EWHC 3031 (QB) Master Fontaine held that ‘… the court will not exercise its discretion to make a GLO unless satisfied that there exist sufficient number of…viable claims to make the exercise worthwhile.’

The burden of proving that there is a sufficient number of viable claims is on the applicant. That requires more than mere names on a register and is likely to require specific evidence that a claim has merits, that the claimant understands the risks of litigation and is prepared to see it through to its conclusion.

About the author

Tom Collins is ranked in Legal 500 as a specialist in Travel Law. He has considerable experience across a wide range of travel and private international law disputes and has advised claimants and defendants in multi-party actions.

And Now for Something Completely Different…

There were rumours of a sigh of relief in some quarters of Brussels on 31^st January, as the UK completed the formalities of the first stage of withdrawal: had the EU finally shed its most awkward Member State? Could it now get on with ever closer union?

Yet when it comes to the tug-’o-war between the National vs Union law sovereigntists, it may be that the UK was not always top of the awkward table. Who then? Poland and Hungary would certainly be contenders. The Commission has launched so-called Article 7 proceedings against each for undermining the key EU principles of the rule of law.

Few might suspect EU hegemon Germany to be at the top of this particular league, but the German constitutional court, the Bundesverfassungsgericht (BVerfG), has not always played ball with the Court of Justice. For years an uneasy truce has existed between the two, with the former typically avoiding asking the latter for rulings. Quiet fudges have been made by the EU institutions in areas of potential conflict – a typical example being the provision scribbled hastily at the end of the UK-EU Withdrawal Agreement which allows Germany (though not mentioned by name) to refuse to extradite its nationals to the UK during the transition period under the European Arrest Warrant on grounds of “fundamental principles of national law”, even though otherwise during this phase the UK is treated as if it were a Member State.

But an area where legal soothsayers could never see the truce holding concerned the European Monetary Union, with the clear conflict between centralised monetary policy and de-centralised economic policy. Indeed, the first reference to the CJEU made by the BVerfG in 2014 was for a preliminary ruling on whether the European Central Bank’s unconventional response to the Eurozone crisis was ultra vires. The decision came back from Luxembourg that it was not.

The issue, however, has resurfaced with a vengeance this week sending shockwaves (at least for legal-calibrated seismographs) through Europe. In an extraordinary judgment, the BVerfG has trashed a determination of the CJEU that a bond purchasing programme of the ECB was lawful. The BVerfG found that the CJEU had “exceeded its judicial mandate”, and that its decision was “not comprehensible and must thus be considered arbitrary from an objective perspective”. In its view the ECB had not balanced the objectives of its policy against the adverse effects, thus contravening the principle of proportionality, and the CJEU’s decision “lacked the minimum of democratic legitimacy” necessary under the German domestic law.

The Commission and ECB have been quick to shake off the ruling, with Christine Lagarde saying they will continue with their programme undeterred, but the German Bundesbank is now in a difficult position with a judgment from its national constitutional court which would prevent it from making further asset purchases if the ECB failed to address the proportionality concerns, despite the CJEU ruling that the programme was lawful.

Perhaps if the Brexiteers had seen such a precedent of national courts in open skirmish with Luxembourg, 2016 might have played out differently. Regardless, from a UK perspective this judgment creates a new tension. The UK, despite now being a third country, has committed to abiding by rulings of the CJEU with respect to any references made before the end of the transition period, and with respect to citizens’ rights, for a further eight years beyond that date. The UK has further agreed that any disputes arising under the Withdrawal Agreement involving the interpretation of EU law (which for some provisions could technically extend for generations) should ultimately be determined by the Court of Justice.

Is it possible Member State Germany has just unilaterally declared more freedom from the yoke of Luxembourg than the UK may have for a considerable time yet?

Now that would be awkward.

About the Author

Tom Yarrow is chambers’ latest acquisition, having been called in 2018. Before joining chambers Tom was a civil servant working in various government departments, including as a policy advisor on the UK-EU Withdrawal Agreement at the Department for Exiting the European Union. During pupillage he worked with the Government Legal Department, practising in public law in the fields of public international law, justice and security, human rights and immigration. He has regularly appeared in judicial review proceedings for the Secretary of State for the Home Department, and as a member of the Attorney General’s ‘junior junior’ scheme, he is able to take instructions directly from government clients. He now practises in all of chambers’ practice areas and is an enthusiastic and valued member of the travel team.