Discussion paper on Package Travel Directive 90/314/EEC

I.

CURRENT REGULATORY FRAMEWORK

Council Directive 90/314/EEC of 13 June 1990 on Package Travel, Package Holidays and Package Tours i is designed to protect consumers who contract package travel in the EU. It covers the sale of a pre-arranged combination of the following elements: transport, and/or accommodation, and/or other tourist services not ancillary to transport or accommodation and accounting for a significant proportion of the package. Consumers will only be covered where, at least two of these elements are sold or offered for sale at an inclusive price and the service covers a period of more than twenty-four hours or includes overnight accommodation. The Directive contains far-reaching rules concerning the liability of package organisers and retailers, who must accept responsibility for the performance of the services offered. There are some exceptions, for example cases of "force majeure", or similar circumstances which could neither be foreseen nor overcome. However, even in these cases the organiser must use his best endeavours to help consumers. The amount of compensation payable may be subject to certain limits but not to an unreasonable degree. Limits may indeed apply under international conventions. The Directive also prescribes rules on the minimum information that must be given to consumers. It contains specific requirements with regard to the content of brochures, where these are issued. For example, any brochure made available to consumers must indicate clearly and accurately the price, destination, itinerary and the means of transport used, type of accommodation, meal plan, passport and visa requirements, health formalities, timetable for payment and the deadline for informing consumers in the event of cancellation. Consumers are entitled to cancel the contract if the organiser seeks to change the essential elements of the arrangements agreed. The Directive also contains provisions on the security to be provided by operators and covering repayment of the price and repatriation of consumers in the event of the operator's insolvency. The Directive has been transposed in all Member States. Given the minimum harmonisation character of the Directive, a number of Member States have adopted national provisions which go beyond the level of consumer protection foreseen in the Directive. ii. MAIN REGULATORY ISSUES AT STAKE

Clear problems exist in the regulation of package travel. This is evidenced by existing European Court of Justice case law. In addition, the Directive is a minimum harmonisation directive. The Commission fears its transposition into national laws may have led to significant divergences in the degree of protection afforded to consumers across Europe. The emergence of new products and technologies have also changed the package travel market substantially in the past 10 years and these must be taken into consideration.

The aim of this paper is therefore to pinpoint the main regulatory problems encountered in the regulation of package travel since the adoption of the Directive. In doing so, it will draw on its findings set out in its report on the implementation of the Directive ii and take into account the opinion of the European Parliament iii, the Council iv, and the views of a number of stakeholders. This issues raised in this paper are by no means exhaustive. Member States are asked to raise any other issue of importance to them in the course of the meeting. 1. Scope of the Directive

a) Extension to cover all organisers of packages The Commission has received calls from stakeholders to extend the scope of the Directive to all package organisers, including organisers which put together a package occasionally (see definition of organiser at Article 2.2.) e.g. packages organised in the course of specific activities (sport, school, religious, etc). The Commission at this stage does not endorse this position. However, it would like to consult with Member States to hear their views on this issue. QUESTION 1.Should the scope of the Directive be extended to cover to a wider range of package organisers? If so who should be covered by the Directive? We do not agree to extend the scope of the Directive to organisers, who make packages only occasionally. The directive shall apply to profit activity of the travel entrepreneurs, who organise package tours continuous (even if it a school trip, ski tour, conference, company excursion). The purpose of the activity is the key issue. b) Inclusion of package like products sold in separate components The emergence of the internet and low-cost airlines has led to the flourishing of new package like products and selling techniques, such as dynamic packaging in which the consumer plays an active role in putting the package together. Components are often sold separately and therefore escape the scope of the Directive. It is often not made clear to consumers that this is the case and they are unaware that they are not protected. Package travel companies also complain regularly to the Commission that these practices create unfair competition in the market. To illustrate how dynamic packaging operates, the Easyjet.com website is often cited as an example of a website that can mislead consumers. For instance, after booking a flight, the consumer is asked whether he wants to book a hotel and/or car rental and is redirected to separate websites. The bookings of the different services are subject to individual contracts made with distinct companies and separate payments, and therefore are not covered by the Directive. A possible solution to problems linked to package like products would be to extend the scope of the Directive to cover these products with a view to afford uniform protection for consumers and avoid distortion of competition, without however covering genuinely separate bookings. In considering this solution, the Commission will look into the operation of Travel Discount Clubs (i.e. where consumers pay a membership fee v for a club that offers holidays and/or separate components of holidays at discounted or privileged prices) to assess whether and how the Directive applies to them and whether consumers are adequately protected.

Another solution would be to increase consumer awareness. This could be done by either one of the following solutions or a combination of these: launching consumer information campaigns; best practice or the adoption of an information requirement indicating whether the consumer is covered by the Directives provisions. QUESTIONS: 1. Have you encountered problems with package like products in your Member State? Could you please describe the type of product(s) causing problems (e.g. dynamic packaging; sale of travel products by a Travel Discount Club) and what these problems are? Yes. In Hungary we have the same problems, eg. www.wizzair.com, www.adriatica.net etc. (low cost airlines, budget accommodation). Internet selling is a serious and for the time being an unresolved problem. On such internet websites travellers/consumers can book and put together a complex package which is often offered by foreign companies (not by professional travel organisers). Customers do not have enough information about the organiser and often conclude contract beyond their national law. Travel Discount Clubs temporarily are not highly represented in the Hungarian travel market. 2. Would you favour the extension of the scope of the Directive to cover package like products? Yes. The scope shall apply the existing notion of package and besides such products if all in all are corresponding to the package definition. We also suggest to reconsider if package definition is appropriate and the binding to the scope. According to the changes of the European travel market in the last 10 years, it would be more effective for consumer protection if besides IT tours other tourist services and tour operating activity will be under the scope of the revised Directive. 3. Do you think that providing consumers with clear and unequivocal information concerning the application of the Directive would be sufficient? In which manner should this information be provided? According to the Hungarian customer policy and circumstances it shall not be an appropriate measure and this solution will not guarantee appropriate consumer protection across is EU member states. 4. Do you have any other observations/suggestions? Suggestion: a key element to catch dynamic packages, without having intermediaries falling under the scope of the Directive, is that at least one of the services included in the package should be sold by the supplier in his own name. The definition of the notion of package should not be too long and, as much as possible, remain similar to the current wording. (According to ECTAA= Group of National Travel Agents and Tour Operations Association standpoint) 2. Definition of essential terms: Article 2 The European Court of Justice has ruled on the interpretation of a number of concepts of the present wording of the Directive. These definitions, accordingly, require updating. These include: a) The definition of a package According to Art. 2 of the Directive 'package' means the pre-arranged combination of not fewer than two of the following when sold or offered for sale at an inclusive price and when the service

covers a period of more than twenty-four hours or includes overnight accommodation: (a) transport; (b) accommodation; (c) other tourist services not ancillary to transport or accommodation and accounting for a significant proportion of the package. The separate billing of various components of the same package shall not absolve the organizer or retailer from the obligations under this Directive; The expression pre-arranged combination has caused serious difficulties and, following the judgment vi of the ECJ, it should be redefined so that is interpreted as to include combination of tourist services put together at the time when the contract is concluded between the travel agency and the consumer. The Commission has also received requests to extend the protection afforded by the Directive to services performed over a period of less than twenty-four hours or which do not include overnight accommodation, e.g. organised sightseeing excursions or organised tours to cultural or sporting events. Clarification of the expression inclusive price may also be needed. Indeed, the criteria sold or offered for sale at an inclusive price appears to be a compulsory element of the definition of package travel. However, the last sentence of Article 2(1) seems to state that the element inclusive price has only an indicative character vii. The Commissions attention has also been drawn other expressions needing clarification i.e. other tourist services not ancillary to transport or accommodation and accounting for a significant proportion of the package which are deemed unclear by certain stakeholders. QUESTIONS : 1. Have you encountered problems with the definition of package in your Member State? In general no. We experienced that in the Hungarian travel market a significant number of travel agents put together different tourist services (buying from other tour operators) and sell to the customers directly even if they are not the primary buyers from the hotels, other suppliers. It may be a problem as well in the EU market. 2. Do you agree that the definition of a package should be updated to reflect ECJ case law? Absolutely yes. 3. Do you agree that services covering a period of less than twenty-four hours and/or services which do not include overnight accommodation should be covered by the Directive? Yes, but only if it contains more than two elements, eg. sightseeing tour and lunch together or 1 day flight programmes etc. 4. Do you agree that the following notions need to be clarified: inclusive price, other tourist services, significant proportion of the package? Please indicate other if appropriate. Yes, according to ECJ case-law. 5. Do you have any other observations/suggestions? No. b) Amendment to the definitions of organiser and consumer

An organiser is defined in the Directive as the person who, other than occasionally, organizes packages The notion of other than occasionally may have caused interpretation problems (see also comment on scope at 1(a) above). A consumer is defined in the Directive as the person who takes or agrees to take the package ('the principal contractor'), or any person on whose behalf the principal contractor agrees to purchase the package ('the other beneficiaries') or any person to whom the principal contractor or any of the other beneficiaries transfers the package ('the transferee'). The European Parliament has called for this definition to be reconsidered. The Commission would like to hear whether Member States have encountered problems with the interpretation of this definition or whether it has caused problems in practice. It is worth noting that the notions of consumer and business (e.g. organiser, retailer, supplier) will be dealt with, in a more detailed manner, in the broader context of the review of the consumer acquis. QUESTIONS: 1. Have you encountered problems with the definition of organiser or consumer in your Member State? We encountered problems concerning to internet selling. It should be important to lay down that the tour operator sells the packages or tourist services in his own name. It is also has to be clarified that tour operators selling packages only through via internet in which Member State have to be registered, and if not the tour operator is operating the internet portal who is responsible for the performance? 2. Do you agree with updating the definition of organiser in order to clarify the expression other than occasionally? Yes. The Directive shall emphasize the profit activity, it covers a continuous activity. 3. Do you have other observations/suggestions? Consumer definition shall correspond to other EU regulation. The Commission has to decide if business travellers (as customers) shall be under the scope or not.

3. Pre-contractual information requirements: Article 3 In order to strengthen consumer protection, the Directive could specify that pre-contractual information constitutes a part of the contract. The Directive expressly states that information given in the brochure is binding for the organiser/retailer; however as the organiser/retailer is exempted from this obligation if he informs the consumer of changes before the conclusion of the contract, the binding nature of the brochure can be relatively easily overcome. QUESTIONS: 1. Have you encountered problems with the pre-contractual information requirements in your Member State? Is the list up to date? The list is up-to-date in the 214/1996. (XII. 23.) Gov. Decree according to the Directive. 2. Do you agree that pre-contractual information should constitute a part of the contract? According to the Hungarian regulation the pre-contractual information constitutes the travel contract.

3. Do you have other observations/suggestions? In Article 3 it is stated that the particulars contained in the brochure are binding on the organizer or retailer, unless: - changes in such particulars have been clearly communicated to the consumer before conclusion of the contract, in which case the brochure shall expressly state so, - changes are made later following an agreement between the parties to the contract. The notion of such changes has to be clarified eg. cost of fuel, other accommodation facilities, changes in itinerary etc. 4. Variation in price (Article 4.4)

The Directive sets out at Article 4(4) provisions concerning additional charges which can be imposed on the consumer in precise circumstances. The Directive as it stands does not spell out whether the contract may provide for administrative costs related to price increases to be passed on to the consumers. The Commission wishes to hear Member States views on this issue. QUESTIONS: 1. Have you encountered problems with the provisions on price variation in your Member State? After the conclusion of the travel contract no, provisions are clear. But changes in the price list of the brochure is a serious problem, the revised Directive should deal with this case as well. More price flexibility should be allowed until the contract is concluded. Maybe the term price is replaced by the wording details about the criteria for the calculation of price. After the contract has been concluded, price should vary in accordance with previously established criteria.

2. Do you have other observations/suggestions?

6.

Withdrawal from the contract by the consumer: Article 4(5)

According to Article 4 (5), the consumer can withdraw from the contract only if the organiser significantly alters any of the essential terms, such as price. Consumer stakeholders note that there are many changes which can significantly alter the contract such as the accommodation offered, the travel time or duration, the tourist services which are available at the destination. However, it may not always be clear to the parties what amounts to an essential term without resorting to litigation. QUESTIONS: 1. Have you encountered problems in your Member State with the provisions of Article 4 (5), in particular the reference to essential terms? Yes, it needs to be a clear notation for these terms.

2. Do you have other observations/suggestions?

7.

Compensation in case of cancellation Article 4(6)(b)(i)

The provisions for compensation in cases of cancellation of the contract as set out at Article 4(6)(b)(i) may need to be reconsidered. For instance, the Directive does not specify the method of calculation of the compensation. The Commission is also interested in hearing whether the provisions concerning cancellation in case of an insufficient number of participants have caused any problems in practice. QUESTIONS: 1. Have you encountered problems with cancellation for the reason of an insufficient number of participants in your Member State? No. The provisions are clear, and the tour operators try to offer other possibilities in these cases. According to the Hungarian Decree the consumer shall be entitled to take substitute package or repaid with 20 % interest. 2. Do you agree that the consumer is compensated in case of cancellation on the ground that there is an insufficient number of participants? Consumers are not be compensated in Hungary in such cases, for the time being we have not encountered problems. 3. Do you have other observations/suggestions?

8.

Liability of organisers: Article 5

a) Joint liability Article 5 provides that Member States shall take steps to ensure that retailers and/or organisers are liable for the proper performance of the contract in all but 3 cases (failures attributable to the consumer; failures which are unforeseeable or unavoidable and attributable to a third party; and force majeure) irrespective of whether the obligations under the contract are to be performed by the organiser and/or the retailer or by other service suppliers. The Directive has therefore granted Member States flexibility in implementing these provisions and the transpositions in the Member States differ significantly. In most cases the organiser will always be liable, including in cases of performance by a service supplier. However, the liability of the retailer is often more limited. This can be problematic in particular in cases where the retailer and the organiser are in different countries. The consumer might have to pursue his rights cross-border in a foreign language against a business he has not dealt with previously. Therefore it should be considered whether a retailer who is selling products from organisers based in another country, be it another Member State or a third country, should be jointly liable in all cases.

QUESTIONS: 1. Do you agree that a joint liability system be set up in cases where the retailer and the organiser are in different countries? In this case yes. But the revised Directive should assign clearly if the tour operator or the travel agent is liable for the performance and damages, or/and expression should be deleted. Because now Member States decide about this issue. Member States should have the obligation to allow tour operators to rely on applicable International Conventions, not only to limit compensation but also to limit their liability. The tour operator should also be allowed to rely on possible limitations of liability/compensation provided in existing Community instruments and national laws. 2. Do you have other observations/suggestions?

b) Damages It should be also considered whether the limitation for non-physical damage under the contract should be deleted, or at least whether a common threshold should be introduced. Furthermore, the possibility for the tour operator/ organizer to limit their liability in case of physical or non-physical damage according to international agreements, such as the Warsaw or the new Montreal Convention, should be clearly advertised and known to consumers. Finally, according to the European Court of Justice viii, Article 5 is to be interpreted as conferring, in principle, on consumers a right to compensation for moral damage resulting from the nonperformance or improper performance of the services constituting a package holiday. A provision recognising this right in the Directive should be considered.

QUESTIONS: 1. Have you encountered problems with the limitation of compensation for non-physical damage in your Member State? Should a threshold be introduced? We have not encountered this problem yet. In Hungary according to the 214/1996. (XII. 23.) Gov. Decree there is not allowed for the tour operator to limit one track its liability for non-physical damage. According to the Hungarian Civil Code the interested parties of the travel contract could agree about the limitation. 2. Do the limitations of liability stemming from international conventions or agreements cause problems for consumers? No. In Hungary the Hungarian Tourist Authority (HTA) made a summary report about the international conventions and it is available for the consumers via the HTA website. 3. Has the interpretation of damages caused problems in practice, in particular with regard to moral damages and cross border cases? No.

4. Do you have other observations/suggestions?

QUESTIONS : 1. Have you encountered problems with compensation for moral damages in your Member State? The Hungarian Civil Code regulates moral damages, the measure depends on the courts decisions. For moral damages related to travelling/package tours we have no special provisions. 2. Do you agree that the Directive includes a provision on this issue or would it be better that the issue is dealt with by national legislation? It is better if this issue will be dealt with by the national legislation (civil law). 3. Do you have other observations/suggestions? 10. Security for Insolvency: Article 7

Article 7 of the Directive states that "the organiser and/or retailer party to the contract shall provide sufficient evidence of security for the refund of money paid over and for the repatriation of the consumer in the event of insolvency. It does not however prescribe how this obligation is to be implemented in the Member States. As a result, a multitude of systems have appeared. e.g. a deposit, a collective guarantee association, or a bank guarantee. In addition, the wording "sufficient evidence of security" is lacking in precision. The absence of uniform rules or principles applicable to guarantee funds throughout the EU have led to significant differences in the level of consumer protection across Europe as well as to potentially anti-competitive situations within the internal market. For instance, some Member States have instituted a licensing system under which a travel organiser/retailer needs to fulfil certain requirements in order to obtain a license that would allow him to pursue his business, whereas others have not. This makes it easier for businesses to implement themselves in one country rather than another. In addition, despite the existence of European jurisprudence ix to the contrary, the Commission is aware of allegations that some Member States may require a business trading cross border to comply with their national rules although the business has complied with the rules of its country of establishment. The EP Resolution calls for the current wide variations in interpretation by Member States to be significantly reduced in order to give equally effective consumer protection throughout the EU. The Commission, in its report on the Implementation of the Directive also includes a list of principles that should be observed by national measures implementing Article 7 of the Directive. QUESTIONS: 1. Have you encountered problems with implementing this provision into your national legislation? Yes.

The security for insolvency is one of the most important key elements for consumer protection. Article 7 does not guarantee sufficient protection, an appropriate system is missing. ECJ cases have proven that the Directive should lay down further and more precise provisions eg. What is sufficient evidence? How can Member States insure it? Amounts/threshold need to be specified, etc. 2. Do you agree that a harmonised guarantee scheme (guarantee fund, mandatory insurance or other), at the European level, would be an adequate measure in order to ensure reimbursement and compensation for all EU consumers in case of bankruptcy or insolvency of travel organisers/retailers? We can agree with a harmonised guarantee scheme, besides after the adoption of the new Directive on Services in the Internal Market it will be essential. The revised Directive should appoint the forms of the insolvency (eg. funds, insurance etc.) and the possible amounts. 3. if the answer to the previous question is negative, have you comments/remarks to make to the principles outlined by the Commission to implement Article 7 ? 4. Do you have other observations/suggestions? Tour operators not established in the EU and selling in the EU should have a financial guarantee in at least one EU Member State. This solution should be in accordance with the Rome Convention and EU Regulation on competent jurisdiction. The tour operator established in the EU should be responsible for all sales, wherever its products are sold and disregarding the fact that they are sold directly or not. This is a key issue as well. The tour operator must be insured in accordance with the criteria provided for in the legislation of the Member State where it is established. All consumers must be protected irrespective of their place of residence in the EU. The tour operator has an obligation to inform the consumer about his financial protection scheme and about the entity to contact in case of bankruptcy. FINAL QUESTION Do you have other observations/suggestions in addition to what you have pointed out above? In order to ensure a level playing field between all market players across the European Union and considering the increasing development of cross-border sales, the revised Directive should be a harmonization Directive, from which Member States are not allowed to depart, instead of approximation Directive (see Article 1.).

2. The revised Directive shall clearly lay down if the scope extends to travel agents or not. Travel agent or/and tour operator expression is not unambiguous and the Member States adopt different solutions for it in their legislations. 3. According to the Directives general provisions the consumer should in certain circumstances be free to withdraw before departure from a package travel contract. We have encountered serious problems with this provision, certain circumstances need to be clarified and the cancellation charges/time. There are many different systems existing in Member States fro the adoption. In Hungary prior 35 days of the departure the consumer can withdraw the package without charges except the tour operator has other obligation to their foreign suppliers.

4.

The tour operators liability for their suppliers should be also revised according to the ECJ case law and the experiences of the Member States. It is a very strict liability and the national courts decisions seem to be very different. (Article 5)

Official Journal L 158 , 23/06/1990, pages 59 64 Report on the Implementation of Directive 90/314/EEC on Package Travel, Package Holidays and Package Tours in the Domestic Legislation of EC Member States [SEC(1999) 1800 final]. iii EP Resolution of 16 January 2002, on general aspects of consumer protection policy and, in particular, consumer information and education with regard to the application of Directive 90/314/EEC. iv Council Conclusions of 13 April 2000. v Members of a TDMC pay a membership joining fee, an annual membership fee and pay separately for every holiday taken (flights, travel, car hire, insurance, etc.) vi Judgment of 30April 2002 on Case C-400/00 vii Report on the Implementation of Directive 90/314/EEC on Package Travel, Package Holidays and Package Tours in the Domestic Legislation of EC Member States [SEC(1999) 1800 final], page 7 viii Case C-168/00 ix Case C 410/96 but see also cases C-140/97, C-364/96 and C-178/94 regarding the implementation of Article 7.
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