What is the law of travel agency and what do you need to know?

20th May 2021 by Anna Tindall

PDF IconOpen the Article

Rhys Griffiths and Anna Tindall

Travel agency is one of the more complex areas of travel law. In this article the authors provide a straightforward guide to some of those complexities.

The concept of “agency” is perhaps nowhere more prevalent than in the travel industry. However, it is a term which is often used imprecisely and to describe relationships which the law would not consider truly to be that of an agency. In this article we set out the basics of the law of travel agency and how it applies in the travel industry.

What is an “agent”?

An agent is someone who has been authorised to act on behalf of someone else (i.e. the “principal”), such that the agent can affect the relationship between the principal and a third party. The classic example of an agent is a party which is authorised to arrange for its principal to enter into contracts with third parties, but the concept of agency is a broad one and extends beyond simply contract formation. It can be applied to almost any scenario where someone is doing something for someone else.

 

What is a “travel agent”?

A “travel agent”, whether online or bricks and mortar, is used very broadly in the travel industry and often to describe arrangements which go beyond the strictest sense of the word “agency”. It is often used to describe any company which acts in an intermediary capacity of some sort, for instance:

-a company which advertises the travel services of the principal but then refers the

consumer to the principal to conclude the sale;
-a travel company which itself sells single travel services (such as hotel only), but which
advertises and provides a link through to a third party car hire provider;
-a “white label” model, whereby a travel company will provide a third party (such as an
airline) with a package holiday platform to incorporate within its own website. The airline
will overlay the package holiday platform with its own branding, but all consumer
interactions on that website will be taking place with the white label provider

It is often the case that travel agents will act in a number of different capacities in a single transaction. For instance, a travel agent may act:

  • as a travel advisor in the creation of a consumer’s itinerary;
  • as an agent for the consumer in the sale of the flight; and
  • as an agent for the supplier in the sale of the hotel.

In order to be a travel agent in the legal sense, the travel company must be appointed by its principal (e.g. a hotelier) as its agent. This is typically set out in a written agency agreement, which will determine the rights of the parties. In addition to this formal appointment, the travel agent must then ensure that it discloses the fact that it is acting as an agent to third parties (e.g. consumers) and that it does not give third parties the impression that it is acting as a principal.

The law will generally respect the terms of the contracts entered into by the parties. If the contract denotes a travel company as an agent, then that will usually determine the issue. However, there could be situations in which the courts would disregard the terms of the contract if it found that the contacts were a “sham” and/or did not properly reflect the economic reality of the relationships between the parties. Indeed, the UK tax authorities have tried to pursue this argument in relation to the business models of a number of online travel agents. So far it has failed, primarily because of the emphasis given by the courts on the importance of the courts respecting the terms of contracts.

How does the creation of a package holiday affect the travel agent’s status?

The involvement of the travel agent in the creation of an itinerary for the consumer might lead to the creation of a package holiday (or a linked travel arrangements) under the Package Travel and Linked Travel Arrangements Regulations 2018. Moreover, if the travel agent sells a flight to the consumer, whether on its own or as part of a package holiday, then the travel agent might be required to hold an ATOL pursuant to the ATOL Regulations 2012. Does this change the status of a travel agent into a principal?

The short answer is “no”, provided that the travel agent is careful to ensure that the sale process and the consumer “paperwork” maintains its status as a travel agent. There is otherwise a risk that the travel agent may end up selling a package of travel services under a single contract to the consumer and so act as a principal.

The relationship between the principal and the consumer

A principal will be bound by the acts carried out by its travel agent where the travel agent had actual or apparent authority to do those acts. As a matter of practical reality, the concept of “apparent authority” is very broad such that the principal will typically find it very difficult to deny being bound by the acts of the travel agent, even if the travel agent acted outside the scope of its actual authority.

As a matter of practice, travel agents usually arrange for consumers to enter into contracts with principals for the supply of the principals’ travel services. Provided that the travel agent made it clear to the consumer that the principal’s terms and conditions will form the basis of this contract, the consumer will be bound by the principal’s terms and conditions in relation to the provision of the travel service.

This means that the principal will be the party obliged to provide the travel services to the consumer, and against whom the consumer will have legal claims if there is some failure to perform or improper performance of the travel services. It is commonly said that the agent “drops out” of the situation once the contract between the consumer and the principal is formed, although this is not strictly accurate because the travel agent typically still has responsibilities to act as the “go between” between the principal and the consumer, for instance in collecting and remitting consumer payments. Typically, the travel agent will set out its duties to the consumer in its own terms and conditions, which the consumer will be asked to agree to upon entering into the booking.

 

The relationship between the travel agent and the principal

The duties of the travel agent to the principal are typically set out in a written agency agreement. For instance, travel agents may be required to:

  • Promote and sell the principal’s travel services;
  • Ensure the principal’s terms and conditions of booking are brought to the attention of the consumer;
  • Obtain the deposit and balance for the travel services and send it on to the principal;
  • Collect any cancellation and amendment charges on behalf of the principal;
  • Not make any secret profits in addition to the agreed commission rates or travel agency fees;
  • Refrain from overselling or making misrepresentations about the principal’s travel services; and
  • Comply with travel laws and regulations, particularly if the travel agent is creating package holidays.

In addition to these written terms, a travel agent may owe duties to the principal under the “common law” of agency, although these may be overridden by the terms of the written agency agreement. Under common law, agents typically owe their principals the following duties:

  • To obey the lawful instructions of the principal;
  • To act only within the limits of its authority,
  • To indemnify the principal for losses suffered as a result of the agent’s failure to comply with its duty to act within the limits of its authority; and
  • To use reasonable diligence and care when discharging its travel agency duties.

Of more significance is the fact that an agency relationship is typically considered as one of the classic examples of relationships which give rise to “fiduciary duties” on the part of the agent. This means that the agent will owe a legal duty:

  • Of loyalty and good faith to the principal;
  • Not to act against the interests of the principal (e.g. by putting its own interests above those of its principal).

This is because an agent generally has broad discretionary powers to bind the principal – as described above, a principal may be bound by the acts of an agent even if it has not permitted the agent to do those acts. In the light of the vulnerable position in which this puts the principal, the law imposes these fiduciary duties on the agent.


The relationship between a travel agent and the consumer

Travel agents have been described as “commercial chameleons”, whose roles can change even during the same transaction. For instance, in a single transaction it is possible for a travel agent to act in a number of different capacities:

  • Travel advisor: The travel agent may assume the role of a professional advisor, taking instructions from the consumer as to their requirements and/or special needs and then advising the consumer as to where to go, where to stay, the best travel arrangements to make, and so on.
  • Marketing agent for principal: The travel agent may be appointed as a marketing agent for a principal (e.g. a tour operator), where it is appointed to promote the principal’s holiday to the consumer.
  • Sales agent for principal: The travel agent may be appointed as a sales agent for a principal (e.g. a tour operator), where it is appointed to conclude the holiday sale for the principal and to arrange for the consumer to enter into a contract with the principal.
  • Agent for the consumer: The travel agent may be appointed as an agent for the consumer when concluding a booking with a principal for which it is not formally appointed (e.g. when booking low cost flights).
  • Service provider: A travel agent may provide the consumer with a technology platform which enables the consumer to make bookings with principals. In this context, the travel agent is not likely to be acting as an “agent” in the true sense of the word. Rather, it is acting as a principal in the provision of a booking service to the consumer.
  • Post-booking agent for principal: A travel agent may be appointed as an agent for the principal in dealing with post-booking matters. This might include collecting balances from the consumer, managing amendment and cancellation requests by the consumer and issuing travel documentation to the consumer.
  • Post-booking agent for the consumer: A travel agent may be appointed as an agent for the consumer in dealing with post-booking matters. This will include remitting balancing payments to the principal, making amendment and cancellation requests on behalf of the consumer and passing on travel documentation to the consumer.
  • Organiser: A travel agent may be an organiser of package holidays if the agent is responsible for creating the consumer’s package holiday.

In order to identify the duties owed by a travel agent to a consumer, it is first necessary to identify the capacity in which the travel agent is acting towards the consumer, which may vary at each point in the transaction. Its duties will then be defined by reference to this capacity and the terms of any contract which may exist between the travel agent and the consumer.

The analysis we have described above will, of course, depend upon a careful analysis of the facts and circumstances of a particular transaction. However, we would suggest that an agent is likely to owe the following duties to the consumer:

-Holding the consumer’s money securely;
-Using the consumer’s money to pay the principal;
-Making accurate bookings with the principal;
-Making amendment and cancellation requests on behalf of the consumer;
-Promptly sharing with the consumer all information and documents supplied by the
principal;
-Ensuring that the consumer is made aware of all terms and conditions which relate to
the booking with the principal; and
-Not making a secret profit (i.e. booking fees must be disclosed).

Shopbop
If a travel agent acts as an agent for the principal, it will in general have no liability to the consumer in relation to the performance of the travel services (unless, of course, the travel agent is also an organiser). Provided that the travel agent is acting within the scope of its actual or apparent authority, the travel agent’s acts will be taken as those of the principal and no claim will lie against the travel agent. Further, there is an implied duty at common law on a principal to indemnify an agent against all liabilities incurred by the agent in the performance of lawful acts within the scope of the agent’s authority. The consumer must, usually, therefore, bring its claim against the principal. However, there may be particular circumstances in which the travel agent may be so liable, including:

Conclusion

We hope you have found our four-part overview of the law of travel agency helpful and clear. It is, as one can see, an area which can be complicated because of the various roles which travel agents fulfil and the lack of clarity which typically exists in structuring the travel agent’s role in the first place. These are complications which can be resolved through some clear thinking as to the travel agent’s role, and contractual arrangements which mirror the intended structure.

Rhys Griffiths is a Partner with Fox Williams

He can be contacted at rgriffiths@foxwilliams.com

Anna Tindall isan Associate with Fox Williams

She can be contacted at atindall@foxwilliams.com

This article is based upon a series of articles first published in Travel Weekly

About the Author

Read More

The information on this website is brought to you free of charge. However some links on the site are affiliate links, including the links to Amazon. This means that we may receive a commission if you purchase something via that link. This funding helps pay for the upkeep, design and content of the site. Without it the site would not exist. If you have found the site useful or interesting please consider using the links to make your purchases; it will be much appreciated. For every commission we receive 10% will be donated to charity.

We use cookies, just to track visits to our website, we store no personal details. ACCEPT COOKIES What are cookies?