Monarch collapses. A right royal mess
No sooner than Monarch had gone into administration than my daughter was on the phone to me requesting legal advice.
She had bought two return air tickets to Venice with Monarch departing in two weeks time and had just heard that they had gone bust. What should she do?
It turned out that the tickets were bought direct from Monarch via the internet using her credit card. Independently of that she had also booked two nights in a hotel, the cost of which was non-refundable.
The first thing to note is that the flights are not covered by the ATOL scheme. According to the CAA website Monarch opted out of ATOL for all their flight-only sales in December 2016. My advice therefore was that as she had spent more than £100 on the flights then she was covered by s.75 of the Consumer Credit Act 1974. This provision makes the creditor i.e. the credit card company, jointly and severally liable for any breach of contract by the supplier, in this case Monarch. Monarch are clearly in breach of contract by cancelling the flight.
In these circumstances credit card companies can usually be persuaded to refund the money paid for the flights. But this would create a dilemma. To purchase replacement tickets would cost £400 more than the original flights, but not to go would mean losing the cost of the hotel booking.
What the credit card companies are not too keen to tell you is that they are also liable for ‘consequential losses’. What this means is that when a breach of contract occurs the party in breach is liable in damages for whatever it costs to put you in the same position as if the contract had not been broken – subject only to you taking reasonable steps to mitigate your loss.
The Financial Ombudsman Service website has a case study involving a family who were abroad when their airline became insolvent. They had to buy new return flights which cost them £1,980.60. Once they were home, the complainant made a claim to her credit card provider, under section 75, for the cost of the flights home from the USA. In due course the card provider refunded £1,349.25. This was based upon what the return leg of their original flights had cost. This was £631.35 less than had been paid for the replacement flights.
On complaining to the FOS it was held that the card provider’s liability to the claimant under section 75 was not limited to passing on any refund it was able to obtain from the airline. The card provider was also liable to the claimant for the additional costs that had been reasonably incurred as a result of the airline’s breach of contract.
The flights from the USA had cost Mrs K £1,980.60, so the card provider’s refund still left her out of pocket by £631.35. The FOS told the card provider to pay her this amount.
On this basis my daughter is entitled to go out and buy replacement flights, as near as possible to her original flights, and claim the difference back from her credit card provider. Alternatively she could stay at home and accept the refund for the cost of the flights but claim the cost of cancelling her hotel – which would be a reasonably foreseeable loss. In due course her credit card provider will be entitled to claim an indemnity in any insolvency proceedings involving Monarch – should there be any money left over.
There is a wider issue here of course. Flight-only is not covered by the ATOL scheme. In the event of an airline insolvency there is no fund to protect passengers who have lost out or been stranded by the airline. This is a gap in consumer protection which should be filled. Currently the government is considering how to update the ATOL system and how to implement the new Package Travel Directive. It should take the opportunity to establish insolvency protection for airline passengers along the same lines as the protection for package holidaymakers.
David Grant is Editor in Chief of the Travel Law Quarterly.