The Supreme Court today handed down judgment in this pivotal case for the travel industry and unanimously decided to refer to the Court of Justice of the European Union. The question before the Supreme Court was whether the respondent tour operator was liable to the appellant customer for breach of contract and/or under Reg 15 of the Package Travel, Package Holidays and Package Tours Regulations (SI 1992/3288) (“PTR”).

Snapshot of decisions so far

In 2010 the appellant and her husband entered into a contract with Kuoni for a package holiday to Sri Lanka.  They were due to stay at the Club Bentota hotel (the Hotel). Whilst on the package holiday, X  was sexually assaulted by N who was working at the Hotel as an electrician. N was on duty and wearing a uniform.

X brought proceedings against Kuoni for breach of contract and/or under the PTR and claimed damages for the assault on the basis that Kuoni was liable for the actions of the Hotel employee.

The High Court found there was no “improper performance” of the package and took the view that Kuoni would be able to rely on the statutory defence under PTR as the sexual assault could not be foreseen or forestalled; it was an unforeseeable event that could not have been prevented by the Hotel.

The Court of Appeal came to a majority decision and dismissed X’s appeal concluding that the employee, N,  was not a supplier within the meaning of provisions of the PTR. . The package did not include the employee’s conduct as this fell outside duties for which N was employed by the Hotel.

The dissenting view of Lord Justice Longmore was that “The whole point of the [Package Travel] Directive and the regulation is that the holidaymaker should have a remedy against his contractual opposite and it should be left to the tour operator to sort out the consequences with those whom it has itself contracted.”

The issues for the Supreme Court to determine were:

1. Whether the rape and assault of X constituted improper performance of Kuoni’s obligations under the contract;
2. If so, is any liability of Kuoni in respect of N’s conduct excluded under the contract and/or Section 15 (2) ( c ) of the 1992 Regulations.

Supreme Court judgment

The Supreme Court did not give a definitive judgment today but has referred the two issues to the European Court of Justice for clarification:

1. Where there has been a failure to perform or an improper performance of the obligations arising under the contract of an organizer or retailer with a consumer to provide a package holiday to which the Directive* applies, and that failure to perform or improper performance is the result of the actions of an employee of a hotel company which is a provider of services to which that contract relates:

• Is there scope for the application of the defence set out in the second part of the third alinea to article 5(2); and, if so,
• By which criteria is the national court to assess whether that defence applies?

2. Where an organiser or retailer agrees to provide a package holiday to which the Directive* applies, and the hotel provides the contracted services, is an employee of the hotel company a “supplier of services” under article 5(2) of the Directive?

Implications for the travel industry

As matters stand, the implications for the travel industry are far reaching and significant. If a hotel’s employee (or third party in whatever capacity) is deemed at all times a supplier of services, then the tour operator would appear to become liable under the PTR irrespective of what the employee has done.

This raises important questions as to the ability to rely upon the defences permitted within Regulation 15(2)(c) of the PTR as they become potentially ineffective if the appeal is allowed.

There are clear concerns that this could provide a forum for a wide range of claims to be brought, if third parties fall within the definition of “supplier” of the package, even though the Tour Operator has no real control over and cannot feasibly foresee what has happened.

Such reference to the European Court is clearly required to assist in clarifying and providing the necessary guidance. However it will mean further delay. Until such time, the status quo remains.

* Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours

Written by Sarah Murray-Smith and Deborah Sayers at BLM