The Traveller’s Dilemma: Should I Cancel?

23rd July 2020 by Professor David Grant

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During the coronavirus outbreak one question that continues to be raised is this: “Last year I booked and paid a deposit for a package holiday which is due to take place in September this year. Despite it taking place in a coronavirus hotspot my tour operator has not yet cancelled it. Very soon I will have to pay the balance. What should I do because I don’t want to go but I don’t want to lose my money either? What is my legal position?”

This is clearly a dilemma for many holidaymakers and the answer in not straightforward but it is possible to give some general guidance so that holidaymakers might avoid making mistakes.

Legally speaking what needs to look at is the complicated interrelationship between the contract the traveller has made with the tour operator; the Package Travel Regulations; the advice given out by the Foreign Office and, if the traveller is covered by travel insurance, whether that may be relevant too.

The Contract

A standard package holiday contract will consist of a promise by the tour operator to provide the holiday some time in the future in exchange for payment by the traveller often in the form of an immediate deposit followed by payment of the balance about eight weeks before the holiday commences. These are legally binding obligations on both sides – to provide the holiday and to pay for it and failure to abide by the terms of the contract puts that party in breach.

So long as the tour operator is in a position to provide the holiday then the traveller is under an obligation to pay for it according to the terms of the contract. So if with eight weeks to go the tour operator is still saying that they will be providing the holiday then the traveller must pay for it – and that includes paying the balance with eight weeks to go. Failure to do so puts the traveller in breach in which case the usual penalty, as laid down in the contract, is to forfeit the deposit.For an expensive holiday this could amount to a large sum but the traveller’s loss will be capped at that amount.

Deferring paying the balance in the hope that the operator will cancel the holiday comes with a sting in the tail. The tour operator sometimes has a discretion not to treat the failure to pay the balance as a breach of contract and can keep the contract open. But the nearer the traveller gets to the actual date of departure the higher the penalty is for cancelling. They may find themselves in a position with say only four weeks to go and the tour operator then chooses to accept the breach – in which case they may find that they will have to pay far more than the deposit. Whether or not the tour operator would enforce this is another matter seeing as how they would have to find a way of recovering the money from the traveller and in practical terms it might not prove feasible given the traveller’s natural reluctance to pay. And if they later cancel the holiday anyway it would not look good.

The Package Travel Regulations

If the tour operator doesn’t actually cancel the contract but makes a significant change for reasons beyond their control then the traveller has the right to cancel the holiday.

Previous examples of significant changes might have been a change of hotel if there was an outbreak of norovirus at the hotel or if a port is closed because of an imminent hurricane or the traveller has been re-routed by coach because an airline has stopped flying due to an ash cloud.

In the current situation the tour operator might be saying that because of the coranavirus outbreak they will not be cancelling the holiday but the traveller can rebook for next year or can accept a voucher to use at a later date. Clearly this would amount to a significant change. In these circumstances the traveller is entitled to cancel the contract and have a full refund which must be paid to within 14 days. However there is nothing to prevent the traveller from accepting a substitute package or a voucher if the tour operator offers one. However travellers need to be wary of the difference between a voucher and a refund credit note – which is discussed later. If, instead of making changes to the package, the tour operator simply decides to cancel the package altogether for reasons beyond their control then this gives the traveller the right to a full refund and to have it paid within 14 days – again with the option of a substitute package or a voucher should the traveller wish to accept that.

The point to emphasise here, whether there is a significant change or an outright cancellation, the right to cancel doesn’t arise until the traveller is notified of the change or cancellation. Until this occurs the traveller remains bound by the contract and will have to pay the balance. If the traveller take matters into their own hands and decide to cancel unilaterally they run the risk of losing their deposit.

In the SARS epidemic in 2003 a couple took the initiative and cancelled their holiday to China and Hong Kong before the tour operator did so. It was held by the court that as they had jumped the gun they were not entitled to a refund of the cancellation charges they had to pay to the tour operator. The irony was that a few days later the tour operator did cancel the tour and everyone else received a full refund.

Foreign Office Advice

At the time of writing the Foreign Office advice is that, with some exemptions, no one should undertake non-essential travel and it goes without saying that this would cover package holidays. The problem here is that the advice applies today not next September, by which time the position may have changed drastically. It would be foolish to cancel a holiday now on the basis of today’s advice because it may very well have changed by the time the traveller is scheduled to travel.

ABTA is advising its members that in the event of Foreign Office advice against non-essential travel they should be prepared to refund the price of your holiday. However this only applies where travel is ‘imminent’, by which they mean within 48 hours of departure.

It is entirely possible however that tour operators are making decisions to cancel holidays long before the 48 hour deadline. Cruise lines for instance are already cancelling cruises as far ahead as November. If this is the case then a traveller will be eligible for a refund well before the balance has to be paid. In circumstances where tour operators have not taken decisions as early as the cruise companies but they do decide to cancel your holiday before the 48 hour deadline then according to the Package Travel Regulation they must inform you of this ‘without undue delay’ – and if this comes before the balance is due then you will not have to pay it and you will get your deposit back.

Of course there is a huge incentive for tour operators not to inform you as early as they can because they are desperate keep travellers’ money and to improve their cashflow. This would be an undoubted breach of the Regulations but it doesn’t release you from your dilemma. You may suspect that the tour operator has already taken the decision to cancel but you may be wrong, in which case if you don’t pay your balance on time it is you that will be in breach – and you will lose your deposit.

Travel Insurance

It is unlikely that your travel insurance will offer you any solace if you decide unilaterally to cancel. Disinclination to travel is not one of the events that most travel insurance policies cover. And you need to look carefully at the small print in your insurance contract for exclusions. A survey by Which? discovered that some policies would not pay out for cancellations or travel disruption or even on Foreign Office advice.

Are Vouchers a Good Substitute?

Mention has already been made of vouchers and looking at them from one perspective this might seem to be the ideal solution if a traveller is not desperate to have a refund. On the one hand the traveller has a promise that they will get their holiday some time in the future, sometimes with an added bonus, and on the other the tour operator is helped to keep afloat.

Problems may arise however if the tour operator goes into liquidation, as some of them sadly have. Although the Package Travel Regulations have established comprehensive protection for travellers in the event of their tour operator becoming insolvent there is a difference between a voucher and a refund credit note. The former is not protected by the insolvency regime whereas the latter, according to ABTA is, and this view has been belatedly recognised by the Department for Transport and the CAA. So the lesson here for travellers is not to accept any form of voucher or incentive in lieu of a refund unless what they are being offered carries full insolvency protection.

And just to cheer everyone up in these strange times there is a nightmare scenario. As mentioned above, the Package Travel Regulations will protect travellers in the event of their tour operator going bust. The main vehicle for doing this is the Air Travel Trust – a fund which refunds travellers in the event of insolvency and is also used to repatriate travellers stranded abroad by a tour operator insolvency. This fund was robust enough to withstand the recent insolvencies of both Monarch and Thomas Cook. And if there is a shortfall then according to European Court of Justice case law the Government is required to step in and make up the deficit. So this suggests that if travellers accept refund credit notes then they will still be protected even if the ATT is fully depleted.

Unfortunately there is one exception to the rule that the Government must step in and that is that the obligation placed upon Governments to ensure that travellers are protected against insolvency is only for ‘reasonably foreseeable costs’. This is based upon the wording of the EU Package Travel Directive which says that insolvency protection should not have to take into account highly remote risks, for instance the simultaneous insolvency of several of the largest organisers. If large numbers of tour operators become insolvent because of the pandemic then this could be regarded as a highly remote risk and if the insolvency protection regime currently in place is inadequate to make full refunds available then the Government might be tempted to say that their priorities lie elsewhere and will not honour refund credit notes.

This too is probably a remote possibility but it may provide food for thought for those travellers considering cancelling their holiday or taking a refund credit note.

David Grant is Editor of the Travel Law Quarterly
He can be contacted at david.grant@tlq.travel

holiday-law

About the Author

David Grant is Professor Emeritus at Northumbria University and was Visiting Professor of Travel Law at Leeds Metropolitan University.

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