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On 23 October 2012 the Grand Chamber of the Court

of Justice of the European Union (ECJ) handed down

its judgment in the joined cases of Nelson v

Deutsche Lufthansa AG and TUI Travel plc,

British Airways plc, easyJet Airline Co. Ltd and

the International Air Transport Association.1

Upholding the notorious judgment in Sturgeon v

Condor Flugdienst and Bӧck v Air France

(Sturgeon)2, and affirming the Opinion of Advocate

General Bot issued in May this year, the ECJ ruled

that Regulation (EC) 261/2004 (the Regulation)

entitles passengers to compensation for delay of three

hours or more.

The ECJ refused to place any temporal limit on the

effect of its interpretation of the Regulation, meaning

that carriers are bound by the obligation to pay

compensation for delay retrospectively, in respect of

contracts formed prior to the judgment.

BACKGROUND

In short, the questions considered by the ECJ were:

■ Is there a right to compensation under the

Regulation in the event of a flight delay, and if so

under what conditions?

■ If such a right exists are Articles 5 (on

cancellation), Article 6 (on delay) and Article 7 (on

compensation) valid in light of:

The Montreal Convention 1999 (MC99)?

The principle of legal certainty?

The principle of proportionality?

■ If the judgment states that the Regulation should

be interpreted as giving delayed passengers a right

to compensation, are there any limits to the

temporal effects of the judgment?

CONSIDERATION BY THE ECJ

Is there a right to compensation under the

Regulation in the event of a flight delay, and if so

under what conditions?

The ECJ held that, while no provision of the

Regulation specifically grants compensation to

passengers for delay, the principle of equal treatment

requires comparable situations to be treated the same

unless objectively justified otherwise.

The ECJ noted that, while passengers whose flights

are cancelled are expressly entitled to compensation

under Article 5(1)(c)(iii)3, "passengers who learn at

the very last moment before their flight, or even during

the flight, that there will be a long delay, and that they

will reach their final destination three hours or more

after the arrival time originally scheduled" have no

such right.4

The ECJ stated that passengers who are delayed and

passengers whose flights are cancelled must be

COMPENSATION FOR DELAY

The Judgment of the Court of Justice of the European Union

02 | 14411104

considered as being in comparable situations, "because

those passengers both suffer a similar inconvenience,

namely, a loss of time equal to or in excess of three hours

in relation to the original planning of that flight".5

According to the ECJ, the recitals to the Regulation

support this interpretation, as they refer to the fact that

one of the aims of the Regulation is to increase protection

for all passengers, including those suffering a long delay.

The ECJ further noted that, as "the legislature was also

seeking to strike a balance between the interests of air

passengers and those of carriers", the Regulation

provides that carriers are not obliged to pay

compensation for cancellation or delay if it is caused by

extraordinary circumstances which could not have been

avoided even if all reasonable measures had been taken.6

Therefore, the ECJ held that "passengers whose flights

are delayed are entitled to compensation under that

regulation where they suffer, on account of such flights, a

loss of time equal to or in excess of three hours, that is,

where they reach their final destination three hours or

more after the arrival time originally scheduled by the

air carrier".7 No compensation is payable if the carrier

can prove extraordinary circumstances within the

meaning of Article 5(3).

Validity of this interpretation of Articles 5 (on


compensation) in light of MC99

The airlines contended that, if the Regulation conferred a

right to compensation upon delayed passengers, this

would conflict with MC99, which entitles passengers to

an exclusive cause of action and a sole remedy in respect

of "damage occasioned by delay in the carriage of

passengers by air…"8 and states that any award for

damages excludes "punitive, exemplary or any non-

compensatory damages".9

The ECJ referred to the judgment in the IATA case, in

which it was held that MC99 did not prevent actions by

public authorities to redress "in a standardised manner,

the damage that is constituted by the inconvenience that

delay in the carriage of passengers by air causes, without

the passengers having to suffer the inconvenience

inherent in the bringing of actions for damages before

the courts."10

The ECJ held that "a loss of time cannot be categorised

as 'damage occasioned by delay' within the meaning of

[MC99], and, for that reason, it falls outside the scope of

Article 29 …".11

The ECJ went on to distinguish the right to damages

under MC99 by highlighting the requirement for a

"causal link between the delay and the damage", and that

such damage is individual to the passengers. The ECJ

stated the loss of time is not damage arising as a result of

a delay, but an inconvenience, and also that there was not

necessarily a causal link between the actual delay and the

loss of time considered relevant for assessing whether

and how much compensation is due.12

On that basis, the ECJ held that the obligation to

compensate passengers whose flights are delayed is

compatible with MC99.



compensation) in light of: The principle of legal

certainty

The airlines contended that imposing an obligation to

compensate delayed passengers would contravene the

principle of legal certainty due to (1) its incompatibility

with the IATA decision, according to which no

compensation for delay is payable, and (2) its

inconsistency with the wording of the Regulation itself,

which provides a right to compensation for passengers

whose flights are cancelled and who are denied boarding

only.

The ECJ rejected this argument, and stated that there was

"no tension" between the judgment in Sturgeon that

compensation for delay was available under the

Regulation, and the IATA judgment.13

The ECJ noted that the principle of legal certainty

requires that individuals must be able to ascertain

unequivocally what their rights and obligations are and

take steps accordingly. The ECJ reasoned that, in light of

the requirements arising from the principle of equal

treatment, carriers "cannot rely on the principle of legal

certainty and claim that the obligation imposed on them

by [the Regulation] to compensate passengers, in the

event of a delay … " amounts to an infringement.14

Effectively, the principle of equal treatment overrides the

principle of legal certainty.

Interestingly, the ECJ then chose to add that the position

was certain once the judgment in Sturgeon was delivered.



compensation) in light of: The principle of

proportionality

The airlines and the UK Government had argued that, if

the Regulation was to be interpreted as giving delayed

passengers a right to compensation, this would be

disproportionate to the aims of the Regulation as it would

impose an excessive financial burden on carriers, the

financial costs of which would be passed on to passengers

www.dlapiper.com | 03

through increased fares and reduced flights from local

airports to outlying destinations.

The ECJ held that this interpretation of the Regulation

would not be rendered invalid by the operation of the

principle of proportionality. It stated that the "loss of

time suffered is irreversible, objective and easily

quantifiable", and that granting affected passengers

"immediate fixed pecuniary compensation is particularly

appropriate".

It was admitted that there would be "certain financial

consequences15" for carriers, but that these could not be

considered disproportionate to the aim of ensuring a high

level of protection for passengers.

The ECJ added that compensation would not be payable

for all delays, only "long delays". It reiterated the

finding in Sturgeon that carriers could still reduce any

compensation payable by 50% if re-routing minimised

the delay on arrival to two, three or four hours under

Article 7(2) depending on the distance, or avoid it

altogether if it can prove extraordinary circumstances

under Article 5(3).

The availability of Article 13 was also noted, which

provides that the obligations under the Regulation are

without prejudice to a carrier's right to seek

compensation from any person who caused the delay,

including third parties. The ECJ considered that this

could "reduce or even remove the financial burden borne

by carriers".16

Ultimately, however, the ECJ held that the objective of

consumer protection "may justify even substantial

negative economic consequences for certain economic

operators", according to case law.

Temporal effects of the judgment

The possibility of limiting the temporal effects of the

judgment was then considered. The carriers submitted

that the temporal effects of a ruling that compensation for

delay is payable under the Regulation should be limited

to exclude delays prior to the judgment, unless court

proceedings had already been brought prior to the

judgment.

The reasoning behind this was that, until the date of the

judgment, it was reasonable for carriers to conclude that

no compensation was payable, since this was contrary to

the judgment in the IATA case, and contrary to the plain

wording of the Regulation.

The ECJ stated that, according to settled case law, the

effect of rulings given under Article 267 TFEU is to

clarify and define "the meaning and scope of the rule as

it must or ought to have been understood and applied

from the time of its entry into force."

Therefore, courts of all member states must apply the

judgment in the present case "even to legal relationships

which arose and were established before the judgment

ruling on the request for interpretation, provided that in

other respects the conditions for bringing a dispute

relating to the application of that rule before the

competent courts are satisfied."

COMMENTS

This is a disappointing if not unexpected ruling for

carriers and, despite there being no express right to

compensation for delay in the Regulation, carriers must

now interpret Articles 5 to 7 as providing for such a right

and pay compensation to delayed passengers if they reach

their "final destination three hours or more after the

arrival time originally scheduled."

Article 6 of the Regulation clearly refers to the period of

delay as being calculated by reference to the scheduled

departure of a flight. The judgment, however, states that

it is delay upon arrival that is relevant. Therefore, even if

a flight departs according to schedule and is delayed in

the air or otherwise after departure, it may entitle

passengers to compensation for delay. Clearly, this

represents a further departure from the text of the

Regulation.

The ECJ also refers to the passengers' "final destination"

in relation to the concept of compensation for delay.

While the term "final destination" is mentioned elsewhere

in the Regulation, for the purpose of calculating the

distance to be taken into consideration when determining

the level of compensation payable, the judgment suggests

that the passenger's entire journey may be considered in

the context of calculating the period of delay. This could

include a delay accumulated during several flights rather

than one flight alone. It should be noted that this point

has already been referred to the ECJ in Air France v

Folkerts (Case C-11/11) and the ruling in that case will

be of great significance to carriers.

In relation to the ECJ's refusal to limit the temporal scope

of the interpretation of compensation for delay, carriers

will now be obliged to compensate passengers with

qualifying delays retrospectively. While the ECJ has

been asked to consider whether the time limit for bringing

claims under the Regulation can be limited by reference

to the two year period provided under MC99 in More v

KLM (Case C-139/11) it is considered unlikely that this

will be accepted by the ECJ, with the result that claims

for compensation for delay may be brought in relation to

flights taken dating back to inception of the Regulation in

February 2005.

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That said, national rules on limitation would fall within

the narrow exception provided for in the judgment17.

Carriers will therefore be able to reject claims which fall

outside any limitation period applicable in the member

state where the claim is brought. In the UK, it is likely

that the relevant limitation period is six years, which is

the limitation period for contractual claims.

It is anticipated that carriers will be faced with a number

of challenges in applying this judgment, such as the

scope of the term delay, the retrospective effect of the

judgment, and a more significant need to prove

extraordinary circumstances. As the Regulation is

currently under revision, carriers should be vocal about

these specific issues, in the hope that they may be

addressed in a new text, or in forthcoming rulings.

_____________________

1 C-581/10 and C-629/10

2 C-402/07 and C432/07 dated 19 November 2009

3 This provides that passengers whose flights are cancelled are entitled to compensation

unless they are informed more than 7 days before the scheduled time of departure and are

offered re-routing, allowing them to depart no more than one hour before the scheduled

time of departure and to reach their final destination less than two hours after the scheduled

time of arrival.

4 Paragraphs 31 and 32 of the Judgment

5 Paragraph 34 of the Judgment



8 MC99, Article 19

9 MC99, Article 29

10 C-344/04 IATA and ELFAA


12 Paragraphs 50 to 54 of the Judgment




16 Paragraphs 77 to 80 of the Judgment

17 Paragraph 88 of the Judgment states that the ruling "must be applied by the courts even to

legal relationships which arose and were established before the judgment…provided that

in other respects the conditions for bringing a dispute relating to the application of that

rule before the competent courts are satisfied."

KEY CONTACTS

Kathryn Ward

Partner

T +44 (0)20 7796 6788

[email protected]

Lauren Payne

Trainee Solicitor

T +44 (0)20 7153 7154

[email protected]

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