Insights

On 13 June 2024, the European Court of Justice (the “ECJ”) delivered a preliminary ruling on the interpretation and scope of Regulation (EC) No 261/2004 of the European Parliament and of the Council of 11 February 2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, and repealing Regulation (EEC) No 295/91 (the “Regulation”) in relation to proceedings involving Finnair Oyj (“Finnair”).

Background

The dispute in the main proceedings concerned a flight with Finnair scheduled for the 25 March 2016, departing from Helsinki, Finland and destined for Bangkok, Thailand (the “Scheduled Flight”). The aircraft, which had entered into service just over five months earlier, experienced technical failures with its fuel gage shortly before take-off. Finnair, concerned with flight safety, cancelled the Scheduled Flight, and operated the flight the following day, arriving around 20 hours after the scheduled arrival. Prior to this incident, such technical failure had never occurred to such an aircraft model before, and therefore, neither the manufacturer nor the safety authorities had been previously aware of such issues. Finnair immediately launched an investigation to understand the underlying cause of such technical failure.

Following the cancellation, Finnair refused to pay the sum claimed by the claimant passenger, which was that of EUR 600 in respect of the flat-rate compensation as is stipulated in accordance with Article 5(1)(c) and Article 7(1)(c) of the Regulation. Consequently, the passenger brought an action before the District Court of Finland. In their defence, Finnair claimed that they are to be exempt from having to pay compensation since the failure in question constituted an extraordinary circumstance within the meaning of Article 5(3) of the Regulation, and that they had taken all the measures which could reasonably be expected of them.

The initial court upheld the passenger’s claims and maintained that, while the technical failure was difficult to predict, such a failure was inherent in the normal exercise of the activity of an operating air carrier. As a result, Finnair filed an appeal before the Court of Appeal in Finland. The Court of Appeal overturned the previous judgement given by the District Court and held the view that the technical failure was beyond Finnair’s actual control. This decision was appealed by the passenger before the Supreme Court in Finland (the “Referring Court”). The Referring Court decided to stay proceedings and sought guidance from the ECJ on whether the technical failure in question constitutes an event of external origin, and therefore, falls within the meaning of extraordinary circumstance in Article 5(3) of the Regulation.

Applicable Remit of the Regulation

The Regulation aims to ensure a high level of protection for passengers, establishing minimum rights whenever their flight is either delayed, cancelled, or when a passenger is denied boarding. Pursuant to Article 5 of the Regulation, passengers who are faced with a cancelled flight have a right to be given assistance and have a right to compensation.

More specifically, in accordance with Article 5(1)(c) of the Regulation, passengers are entitled to compensation for flight cancellations in accordance with Article 7 unless (i) they are informed of the cancellation at least two weeks before the scheduled departure; or (ii) they are informed 7-14 days before the scheduled departure and are offered re-routing that departs within two hours of the original time of departure and arrives within four hours of the original scheduled time of arrival; or (iii) they are informed less than seven days before departure and offered re-routing that departs within one hour of the original time of departure and arrives within two hours of the original scheduled time of arrival.

Notwithstanding this, Article 5(3) of the Regulation allows for an exemption to the obligation imposed on air carriers to pay compensation. If the operating air carrier can prove that the cancellation or delay was caused by extraordinary circumstances which could not have been avoided, even if all reasonable measures had been taken to avoid such cancellation or delay, such operating air carrier will be exempt from having to pay compensation.

The ECJ’s Consideration

By its question to the ECJ, the Referring Court asked whether Article 5(3) of Regulation must be interpreted as meaning that the occurrence of an unexpected and unprecedented technical failure affecting a new aircraft model recently put into service, which results in the air carrier cancelling a flight, is covered by the concept of ‘extraordinary circumstances’, within the meaning of that provision, where the manufacturer of that aircraft recognises, after the cancellation of that flight, that that failure was caused by a hidden design defect concerning all aircraft of the same type and impinging on flight safety.

The ECJ considered that under Article 5(1) of the Regulation passengers affected by a flight cancellation have the right to compensation from the operating air carrier in accordance with Article 7(1) thereof, unless they have been duly informed in advance of the cancellation within the timeframes laid down in Article 5(1)(c). However, if the operating air carrier can prove that the cancellation was caused by ‘extraordinary circumstances’ which could not have been avoided, even if all reasonable measures had been taken, then the passengers will not be entitled to compensation.

Moreover, the ECJ stipulated that for an event to be considered as an extraordinary circumstance, two cumulative conditions need to be satisfied. Namely, that by their nature or origin, they are not inherent in the normal exercise of the activity of the operating air carrier concerned and that they are beyond the operating air carrier’s actual control.

It was further considered that technical problems with the functioning of an aircraft are inevitable and are therefore inherent in the normal exercise of the activity of the operating air carrier. However, if it is later discovered that a technical failure was caused by a hidden design defect, affecting all aircrafts of the same model, then such failures are not deemed to be inherent in the normal exercise of the activity of the operating air carrier, and, therefore, are capable of falling within the concept of extraordinary circumstances.

In its considerations, the ECJ made reference to other judgments, and highlighted the distinction between events whose origin are internal to the operating air carrier, with those events which are external. It is only those events which are deemed to be external to the operating air carrier which are capable of falling outside the operating air carrier’s actual control because they arise from acts of a third party.

The ECJ’s Ruling

The ECJ ruled that Article 5(3) of the Regulation is to be interpreted as meaning that, the occurrence of an unexpected and unprecedented technical failure which affects a new aircraft model, recently put into service and, which results in an operating air carrier cancelling a flight, is covered by the concept of extraordinary circumstances. This interpretation applies where the manufacturer of the affected aircraft recognises, after the cancellation of the flight occurs, that that failure was caused by a hidden design defect concerning all aircrafts of the same type and impinging on flight safety.

Concluding remarks

In this preliminary ruling, the ECJ’s ruling emphasised that while it is the operating air carrier’s responsibility to ensure the proper functioning of the aircraft it operates, when it comes to identifying and fixing a hidden design defect, which is only revealed by the manufacturer of the aircraft or by the competent authority, after the cancellation of the flight, such a situation cannot be said to be in the control or inherent in the normal activity of the operating air carrier’s activities. Ultimately, classifying a defect, which may impinge on the safety of passengers, as an event of external origin or an extraordinary circumstance aligns with the Regulation’s aim of ensuring high protection for air passengers, emphasizing safety over punctuality.

The author would like to thank Emma Attard Bondi, an intern at Ganado Advocates, for her assistance during the drafting of this law report.

Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report. This article was first published on The Malta Independent on 23/10/2024.