14
Sep
20
Articles, Travel & Cross Border Claims
The Weekly Roundup: the Madonna Edition

We at 1CL admire and encourage commitment to a cause, but even we blanched this week when we read of the determination of a 20 year old Slovenian woman, Julija Adlesic, who cut off her own hand with a circular saw in order to claim a €1,000,000 insurance payout. We can only imagine how irritated she must have been when police retrieved the hand and doctors were able to reattach it. All too predictably, the story ended in tears, when she was sentenced to a two year custodial sentence for attempted insurance fraud. She continues to protest her innocence, but given that days before the accident her boyfriend had googled how artificial hands work, the Slovenian judge was having none of it. This week’s edition of the Weekly Roundup, by popular demand, features another determined woman; we hope you enjoy the Madonna Edition.

 

Like An Airline, restructured for the very first time

In a Judgment handed down on 4th September 2020, Snowden J has sanctioned the first use of the new restructuring regime introduced by the Corporate Governance and Insolvency Act 2020 (“CIGA 2020”) by Virgin Atlantic Airways Limited (“the Company”).

More detail on this new restricting procedure can be found in our previous article on CIGA 2020.

Virgin’s Predicament

Whilst fundamentally sound as a business, Virgin Atlantic has unsurprisingly been experiencing a liquidity crisis due to the unprecedented reduction in passenger numbers caused by the Covid-19 pandemic. As a result, without a restructuring and cash injection, the Company’s cash flow would reach a critical level by the week commencing 21st September 2020, with the Company running out of available cash altogether by 5th October 2020.

In the circumstances, the Company would likely have had to be placed into administration in mid-September 2020. Independent advice from consultancy firm Alvarez & Marshal indicated that this would result in the Company’s creditors receiving only 10.5p to 21.4p in the £.

Details of the Plan

The plan involves deferring payments of substantial parts of the Company’s debts as well as cash injections from the Virgin Investments Limited (beneficially owned by Sir Richard Branson) of some £200 million as well as £170 million from investment firm Davidson Kempner.

Four classes of the Company’s creditors are involved. Significantly, these include the Company’s operational lessors which will allow its planes to continue to operate (“the Operational Plan Creditors”). It also preserves the Group’s valuable landing and departure slots at Heathrow Airport.

The Company will only pay 15% of the rent due for its planes until late 2021 and has reached an instalment agreement with a large section of its trade creditors (“the Trade Plan Creditors”) to ensure that they do not cease providing the Company with essential goods and services. These Trade Plan Creditors were collectively owed approximately £51.67 million.

Overall, the restructuring plan is predicted to result in a much better return for the classes of creditors involved than if the Company had entered administration. The trade creditors involved are likely to receive upwards of 80% of their debts.

Certain trade creditors are not included in the plan and as such, their claims against the Company are not reduced or deferred by it; they can expect to be paid in full in the ordinary course of events.  Most significantly, these include creditors who provide goods and services essential to the everyday running of the Company (such as insurance companies, ticket agents and public bodies) as well as trade creditors who had either already agreed to reduce their debts by 20% or more, or those owed less than £50,000 (inc VAT).

Commentary

The restructuring plan received virtually unanimous support from those creditors involved. There was only disagreement among the various trade creditors, though only two voted against the plan, still resulting on support from 99.4% (by value) of the creditors which made up the class.

It appears that creditors are alive to the fact that without careful balancing, the effects of the pandemic on those industries most affected have the potential to be devastating.

The judgment is a timely reminder that the effects of the pandemic are only now coming to the fore and it may well be that other airlines look to follow a similar route over the coming months. It is early days but it is an encouraging sign that airlines (among others in the hospitality industry) are findings ways to navigate through the effects of the pandemic and have options available to them.

The deal and the sanction Judgment are likely to serve as a template for other restructurings under the new UK regime. The Judgment contains a helpful overview of how the court should approach such restructuring proposals which will be a helpful starting point for proposed restructuring plans by other companies going forward.

About the Author

Chris Pask was called in 2013. He undertakes work arising out of contractual disputes, including cases involving sale of goods and supply of services, and in particular claims raising issues of fundamental dishonesty. Chris accepts instructions by way of Direct Public Access.

 

 

Holiday (season is cancelled): the latest twist in The Great Refund Saga

Holidaymakers and travel companies were dealt another hammer-blow on Wednesday when the UK government announced that social gatherings in England of more than six people will (except in very limited circumstances) be unlawful from this week. The new law will apply not only to those meeting in public spaces and venues but in private properties including holiday rentals. From Monday 14th September police will have the power to issue fines to anyone caught breaking the law, up to a maximum of £3,200 for a repeated offence. The devolved governments intend to bring forward similar measures although in Scotland and Wales, children under 11 or 12 will be exempt.

The move comes at a time of unprecedented demand for UK holiday rentals, driven by holidaymakers deterred by the dwindling number of foreign destinations on the UK’s travel corridor list. And for companies operating in the sector, it follows one of the worst years on record, with most of the holiday season affected by lockdown. Matt Fox, co-founder of BigCottages.com, which offers tens of thousands of larger properties, says there was a sharp drop in traffic to the website when the new rules were announced. “It’s a real shame,” he says. “The sector was just starting to find its feet again and had the rug pulled out from under it.” It likely that huge numbers of UK ‘staycationers’ will be affected, including those hoping to rent large properties over the Christmas holidays.

Once again then, we return to the Great Refund Saga. The BBC reports that because the new rules are enforceable by law, ‘there are relatively clear rights to a refund for those whose plans have been affected and have already paid’. While there may be sound commercial reasons for maintaining goodwill with their customers, it is far from clear that these latest measures will in fact frustrate holiday contracts or that travel companies are obliged to offer refunds.

  • The contract may provide that the risk of supervening events like a second lockdown or limits on social gatherings are borne by the consumer. Many holiday companies will have substantially re-written their terms and conditions since March in anticipation of such measures.
  • A contract is only frustrated where the supervening event was neither foreseen nor reasonably foreseeable at the time of contracting. For contracts entered into since March it may be harder to assert that these new measures were not a distinct possibility.
  • Unlike lockdown, where there was a blanket ban on residing anywhere other than your home, consumers are still free to travel and take up residence in their holiday rental; they are merely limited by the number of guests. Performance of the contract remains possible.
  • As to whether performance will nevertheless be ‘radically different’ to what was agreed, again, perhaps not: (1) the contract is likely to have been made with a single member of the group rather than the group as a whole and (2) it is unlikely that the number of guests is an express term of the contract, merely that use of the property is permitted subject to a maximum number of guests.

More detailed guidance is likely to be issued by the Competition and Markets Authority in the coming days but ultimately, it will be a matter for the Courts to decide these issues on what inevitably will be a case-by-case basis.

About the Author

Called in 2010, Tom Collins is ranked in the 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.

 

 

Express Yourself (in Zlotys or Euros)

Since Covid-19 announced its arrival on the global stage, tourists in Britain and the EU have had their holidays cancelled, their refunds rejected and their summers ruined. But the covid crisis has also acted as a stress test for the strength and durability of our consumer protection regimes, particularly those relating to travel. In some respects, our systems have made a good account of themselves, but it is clear they are not without their blemishes.

Happily our courts possess a semblance of self-awareness and will correct these blemishes where possible. A recent example can be identified in the Court of Justice of the European Union’s decision in Delfly v Smartwings Poland, Case C-356/19. The decision in Delfly concerned the Air Passenger Rights Regulation (Regulation (EC) No 261/2004) (the “Regulations”) (implemented domestically by The Civil Aviation (Denied Boarding, Compensation and Assistance) Regulations 2005 (SI 2005/975). Put briefly, Ms X was entitled to €400 in compensation under Article 7(1)(b) of the Air Passenger Rights Regulation after her flight to Poland was delayed by more than 3 hours. Ms X assigned her claim to Delfly, a Polish firm, who subsequently brought an action for compensation against Smartwings Poland. Somewhat understandably, Delfly sought compensation in Polish Zlotys and not Euros. But Polish law required that the claim be expressed in Euros and not Polish Zlotys as this is how it was expressed in the Regulations. Sensing an opportunity, Smartwings Poland sought to argue (correctly) that the claim should be dismissed on account of the failure to properly denominate the compensation sought. The Polish Court decided to make a reference to the CJUE for a preliminary ruling on this issue.

The issue was cast as follows – under the Air Passenger Rights Regulation, can passengers (or, as here, their legal successors) whose flights have been cancelled or subject to a long delay demand payment of the amount referred to in that regulation in the national currency of their place of residence, so that the regulation precludes legislation or case-law of a Member State which results in the dismissal of an action brought for that purpose by such passengers on the sole ground that the claim was expressed in that national currency? (Clunky, I know).

The CJEU answered in the affirmative. The Court’s starting point was the observation that the purpose of the Regulations was to ensure a high level of protection for passengers: Recital 1. It followed, on the CJEU’s analysis, that the provisions conferring rights on air passengers (in this case Article 7(1)) should be interpreted broadly: [24]. In addition to that requirement to broadly interpret the rights of air passengers, the Court also considered that restricting the right to compensation under Article 7(1) to Euro denominated awards only would prejudice those situated in non-Euro Member States: [30]. Combined, those rationales were sufficiently persuasive for the Court to find that Article 7(1) should be interpreted so that a claim for compensation could be brought in the currency of any nation state, not just euros. In other words, this result will preclude the dismissal of actions brought under the Regulations (or a Member State’s equivalent provisions) on the sole ground that the claim was expressed in the national currency of the claimant.

What to make of it all? Well, in practical terms, the impact of the decision is likely to be small – perhaps even very small. But it seems to me that the underlying spirit of the judgment and the broad interpretative stance taken by the Court should be welcomed by the many thousands of tourists who have been wronged this Summer. It is clear the CJEU are taking the rights of air passengers seriously.

About the Author

Henk Soede was called to the Bar in 2019 and is currently a pupil (soon to be tenant) in Chambers. Since April 2020, he has been instructed by solicitors for both Claimants and Defendants in cross border disputes, package travel and other related claims. He is eager to build on his experience in these areas.

 

 

…And Finally…

Regular readers will know that, like Madonna herself, we at 1CL shun the limelight at all costs and never seek publicity. But we were gratified this week to receive notice that two of the team, Sarah Prager and Andrew Spencer, are winners of the Lawyer Monthly Women in Law Awards 2020: Personal Injury, and the Lawyer Monthly Legal Award 2020: Personal Injury, respectively. The 1CL trophy cabinet is now positively overflowing, what with our go-karting award and quiz team shield, not to mention the various cups and rosettes won by the erstwhile 1CL racehorse. Goodbye obscurity, Hello! magazine.

 

Written by or involving: Tom Collins, Christopher Pask

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