Security and Insolvency

AuthorMatthew Chapman/Sarah Prager/Jack Harding/Dominique Smith/Thomas Yarrow/Henk Soede

Chapter 11

Security and Insolvency


11.1 As in so many other respects, the Package Travel Regulations 1992 (at least on the surface) transformed the security requirements within the package travel business. Since the Package Travel Regulations 1992 were implemented, however, the package travel market (and, indeed, human society more generally) has been transformed by technological advancements, and these changes required a more flexible approach to the regulation of package travel arrangements. The Package Travel Directive 2015 and the Package Travel Regulations 2018 were purposed to do just that. In this chapter, consideration is given to the security provisions of the Package Travel Regulations 2018, in addition to other voluntary and statutory security schemes.1

11.2 Historically, the travel industry in general and the package travel sector of that industry in particular have been beset by very public scandals, usually involving the collapse of tour operators, resulting in the loss to travellers of their hard-earned holiday money. In the worst cases, travellers have been stranded abroad with no means of financing their return home following the collapse of their tour operator. The first the holidaymaker knows of such difficulties is usually a demand from an angry hotelier seeking payment for meals and rooms that should have been paid for months before (and for which the tourist has already made payment to the tour operator).2

11.3 Those waiting to embark on their holidays usually discover a problem when the tickets do not arrive and telephone enquiries are dealt with by an anonymous answering service or a perfunctorily apologetic notice sellotaped to

1This chapter does not address the security requirements in the Package Travel Regulations 1992 in any detail, and the reader is referred to previous editions of this work for a more comprehensive summary of these provisions.

2Precisely what happened to Austrian holidaymakers stranded on Crete, see Case C-364/96 Verein

Fur Konsumenteninformation v Austria [1999] All ER (EC) 183, CJEU.

538 Saggerson on Travel Law and Litigation

the tour operator’s office door. The fact that such scandals represent the exception rather than the rule3and that, throughout the relatively short history of package travel, infinitely more travellers have enjoyed holidays that, only a few decades ago, would have been the preserve of the wealthy undertaking a ‘Grand Tour’, seems to get lost in the welter of recrimination that follows the insolvency of any tour company, be it large or small.

11.4 On a smaller scale, scanning the more scandalous sections of the press, reports of holiday and tour ‘organisers’ running off with funds that should have been appropriated to some annual trip or tour are not as rare as they should be. Clarksons, Court Line and are amongst the bigger names to have faltered within living memory. More recently, of course, the travel market was left shaken by the compulsory liquidation of Thomas Cook, one of the world’s leading leisure travel group, with sales of £9.6 billion and around 19 million clients in the year prior to its bankruptcy. In response, the CAA organised the largest peacetime repatriation of more than 140,000 travellers and the competent authority settled around 340,000 claims, at a value of almost £350 million covered by the Government-run ATOL protection scheme.4

11.5 These are but a few headline-making examples which have led many travellers to hold tour operators in low esteem. Such a bad public image was probably never entirely justified – not least because, in each of the examples cited above, sophisticated voluntary security arrangements were in place to protect the traveller, but it has taken many years for the travel industry to live down the reputation imposed on it by a disreputable, disorganised or unlucky few. That the industry has, in large measure, lived down this poor reputation is mostly attributable to self-regulation and voluntary financial control. Notwithstanding this self-regulation at the reputable end of the industry – the larger part of it – the Package Travel Regulations 1992 and the Package Travel Regulations 2018 imposed obligations in respect of the security of travellers’ money. This is a laudable ambition. However, there can be no doubt that the effectiveness of the Regulations in this regard will only be as good as their enforcement. The disreputable, disorganised, dishonest and the plain ignorant will, no doubt, still offer packages without putting in place the security arrangements demanded of them by the Regulations, and when they do the enforcement authorities are not likely to encounter them until a problem has arisen or an insolvency has occurred. Prosecuting such defaulters after the event may be sufficient to send a message of warning to others minded to behave in the same way and ignore the statutory regime, but trading standards prosecutions will achieve very little for the

3Although Austria appears to have had a glut of such failures, see above and Case C-140/97

Rechburger and Others v Republic of Austria [1999] ECR I-3499, CJEU.

travellers victimised by the failure of their tour operator to employ regulated security measures specifically designed for their protection.


11.6 As if the point needed emphasising, it should be noted that the Package Travel Regulations 2018 apply only to packages and LTAs as defined by the Regulations. As shown in earlier chapters, the regulatory net does not catch every arrangement by which travellers make provision for the holidays of themselves and their families. While the Regulations will catch a much wider range of arrangements relative to the Package Travel Regulations 1992,5there will be many holiday arrangements which fall outside of the protection provided by the legislative scheme. The position of travellers under the Package Travel Regulations 1992 was significantly less beneficial, and travel arrangements booked online or which had a significant element of customisability often fell outside the statutory scheme. As a means of offering some comfort to those travellers who found – by design or (more often) inadvertence – that they did not have a package within the meaning of the Package Travel Regulations 1992, regulators in this jurisdiction developed a new concept: ‘Flight-Plus’. Flight-Plus was initially defined, and its obligations and protections described, in the ATOL Regulations 2012,6but there have been amendments to reflect the wider, more expansive meaning of ‘package travel’ as contained in the Regulations.7These schemes are considered below. Before doing so, however, it is worth pausing to review some of the basic problems that arise in the event of a tour operator’s or travel agent’s insolvency and to consider briefly statutory and voluntary security arrangements that exist outside the scope of the Regulations.


11.7 It is small consolation to the traveller to be informed that the ordinary principles of contract are not displaced simply by reason of the fact that their tour operator has gone into liquidation. The traveller may, in theory, have a perfectly enforceable contract against the company in liquidation, but this will mean very little in practice where service providers have not been paid, airline seats not reserved and where, inevitably, there is no money left to pay for the services or from which the traveller can be compensated (or their advance payments refunded). The fate of the traveller, stranded at home before their travel

5See Chapter 1 for a detailed discussion.

6Civil Aviation (Air Travel Organisers’ Licensing) Regulations 2012 (SI 2012/1017).

7See Chapter 1 for a detailed discussion.

540 Saggerson on Travel Law and Litigation

commences, is as nothing in comparison to the problems faced by those who have embarked on their travel only to be stranded by a defaulting tour operator. Such travellers have the additional problem of seeking and paying for transportation home as well as interim accommodation. The repayment of deposits and expenses incurred is unlikely; the payment of compensation for loss of enjoyment and disappointment is unthinkable. Before both the Package Travel Regulations 1992 and the Package Travel Regulations 2018, the traveller would have had a number of possible avenues to explore.

11.8 The traveller could look to the travel agent in respect of any money paid which the travel agent was holding as an agent of the traveller; this would include those instances where money was paid to the agent before any contract with the tour operator had been concluded or confirmed as a general rule. It is also possible that the agent would have offered an independent ‘money-back’ guarantee as consideration for the traveller booking through their agency. Looking to recover money held by a travel agent should almost always be feasible where the travel agent was acting as a mere booking agent for the traveller in non-package cases.

11.9 If the traveller had paid for the travel services by credit card, they may have a claim against the credit card company by reason of section 75 of the Consumer Credit Act 1974. Such a claim would almost certainly exist where the credit card had been accepted directly by the tour operator. However, the position has proved more controversial where the travel agent has accepted the credit card as payment for package services offered by a tour operator.


Section 75 and the tour operator

11.10 It seems to be (almost) universally accepted that where a traveller pays a tour operator directly (whether the payment is a deposit, a down payment or in full) by credit card (as opposed to a charge card), the credit card company, being jointly liable to the consumer under the Consumer Credit Act 1974 for any breach of...

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