Walter Rechberger and Others vs.Republic of Austria

Case C-140/97 Walter Rechberger and Others vs. Republic of Austria

The case raises the issue of how the full rights of consumers in the case of the insolvency of the tour operator can be guaranteed by member states.

Parties

Reference to the Court under Article 177 of the EC Treaty (now Article 234 EC) by the Landesgericht Linz, Austria, for a preliminary ruling in the proceedings pending before that court between Walter Rechberger and Renate Greindl, Hermann Hofmeister and Others and Republic of Austria.

The Directive 90/314/EEC

The purpose of the Directive on is to set out minimum standards concerning the information provided to the consumer, formal requirements for package travel contracts, to provide compulsory rules applicable to the contractual obligations (cancellation, modification, the civil liability of package tour organisers or retailers, etc.) and to achieve an effective protection for consumers in the case of the package tour organiser's insolvency.

Package holidays and package tours Directive is designed to protect consumers who contract package travel in the EU. It covers the sale of a pre-arranged combination:

• 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 over-night accommodation.

The Directive also prescribes rules on the 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 Article 7 of the Directive prescribes:

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.

The Directive and Austrian Legislation

The Directive was transposed into Austrian law by a series of legislative measures. As regards Article 7 of the Directive, the Austrian Government adopted, on 15 November 1994, the Reisebüro-Sicherungsverordnung (Regulation on security provided by travel agencies, BGBl. No 881 of 15 November 1994, p. 6501, hereinafter `the Regulation'). Paragraph 3(1) of the Regulation provides that the travel organiser must, by entering into a contract of insurance with an insurance company authorised to operate in Austria, guarantee the traveller the refund of money paid over, in so far as the travel services have not been provided, whether wholly or in part, as a result of the organiser's insolvency and the refund of the costs of repatriation incurred as a result of the organiser's insolvency. Under Paragraph 4 of the Regulation the organiser may also guarantee the traveller the services mentioned above by setting up an irrevocable and unconditional bank guarantee issued by a credit institution authorised to conduct business in Austria, or by way of a similar declaration of guarantee issued by a body governed by public law.

Background of the Case

Publishers of an Austrian newspaper offered to subscribers (the plaintiffs) a present of a trip which included flight and accommodation. The trip was arranged through “Arena-Club-Reiser”. Subscribers were only obliged to pay certain travel costs (single room occupancy and airport taxes). The offer was vastly more popular than the organisers had anticipated and the travel agency became the subject of insolvency proceedings. Finally, nearly double the projected number of subscribers applied resulting in Arena's insolvency. The plaintiffs' trips were cancelled and they brought proceedings seeking compensation from the Austrian government for all the payments made by the plaintiffs to Arena.

Questions to the Court

(1) Does the protective purpose of Article 7 of Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours also extend to trips for which, on the basis of the contract, the principal contractor has to pay
(a) if he travels alone, apart from airport security tax (departure tax), only a single-room supplement, or
(b) if he is accompanied by one or more persons paying the full price, only the airport security tax (departure tax)
and nothing in respect of the flight and accommodation in a room with two or more beds?
(2) Do such trips fall within the scope of the directive even when they are offered by the highest circulation daily newspaper of a Member State as a "gift" exclusively for its subscribers as part of an advertising campaign that constitutes an anti-competitive practice?

If the answers to Questions 1 and 2 are in the affirmative:

(3) Has Article 7 of the directive been transposed within the period prescribed if the national legislation published on 15 November 1994 only applies to package travel, package holidays and package tours booked after 1 January 1995 with a departure date of 1 May 1995 or later, particularly
(a) in view of the fact that the Republic of Austria became part of the European Economic Area on 1 January 1994, and
(b) taking into account the accession of the Republic of Austria to the European Union on 1 January 1995?

If the answer to Question 3 is in the negative:

(4) Does the failure to transpose a single article of the directive (Article 7) within the prescribed period constitute in itself a serious breach of Community law such as to give rise to a right to reparation for those who have sustained loss or damage where the Member State has adopted appropriate measures within the prescribed period to transpose all other provisions of the directive?
(5) Is Article 7 of the directive to be interpreted as meaning that its objectives are not attained where national legislation
(a) requires, for the coverage of risk, only an insurance contract or bank guarantee with a sum insured (cover) of no less than 5% of the organiser's turnover in the corresponding quarter of the previous calendar year,
(b) only requires the organiser, in his first year of business, for the purpose of determining the sum insured (cover), to base the amount of cover on his estimated turnover from his intended business as a travel organiser,
(c) does not in this connection take account of any increase in the organiser's turnover during the current year, and
(d) does not impose any duty on the Member State to monitor the sums required by way of security?
(6) Is there a direct causal link between late or incomplete transposition of Article 7 and loss or damage caused thereby to the consumer, such as to render the Member State liable to reimburse unsecured payments in full, where the Member State shows that unlawful conduct on the part of the organiser (a third party) or a wholly exceptional and unforeseeable increase in risk is the cause (or an essential contributory cause) of the loss or damage?'

Opinion of the Advocate General

The non-transposition of the relevant provision of the Directive (Article 7) into Austrian law before the prescribed date constitutes a sufficiently serious breach of Community law. It is immaterial that Austria had taken measures with respect to other provisions of the Directive, because it failed to secure the consumers' guarantee in issue. That guarantee concerns the complete reimbursement of the monies paid in the event of insolvency of the tour operator. This obligation is clearly and precisely laid down in the Directive; therefore, Austria cannot successfully plead that it regarded as a correct implementation of the Directive in good faith, a less than total reimbursement. Finally, the causal link between the breach and the loss is not severed by any unlawful conduct by third parties such as the tour operator, nor by unforeseeable risks. Although it is for the national court to decide this issue, Austria's argument of lack of causal connection should not be upheld where it is precisely the kind of conduct the Directive intends consumers to protect against which caused them damage in the first place. Had a guarantee fund, or the like, been put in place, they would have been reimbursed.

Background for the Decision

In its judgment in case Rechberger, the European Court of Justice cites the judgment' given in the Case E-9/97 Sveinbjörnsdóttir given by the Court of the European Free Trade Association (EFTA Court) which establishes the principle of State liability for breach of the Agreement creating the European Economic Area by EFTA States.

The principle of EFTA State liability itself is laid down in equally broad terms as under Community law. As the EFTA Court expresses it:

"It follows from all the foregoing that it is a principle of the EEA Agreement that the Contracting Parties are obliged to provide for compensation for loss and damage caused to individuals by breaches of the obligations under the EEA Agreement for which the EFTA States can be held responsible" (para. 62).

So, case Rechberger could be seen as an example how ECJ interpreting provisions of EEA law. These both decisions could be considered as significant contributions to the theory of international law concerning the development of the principle of State liability.

Court's Decision

In its decision the Court has largely agreed with the opinion of the Advocate General.

The first and second questions

Article 7 of the Directive applies to trips which are offered by a daily newspaper as a gift exclusively to its subscribers as part of an advertising campaign that contravenes national competition law and for which the principal contractor, if he travels alone, pays airport taxes and a single-room supplement or, if he is accompanied by one or more persons paying the full rate, airport taxes only.

The third question

A Member State which acceded to the European Union on 1 January 1995 has not properly transposed Article 7 of the Directive if it has adopted legislation which protects travellers who have booked package travel after 1 January 1995 but limits that protection to trips with a departure date of 1 May 1995 or later.

The fourth question

Transposition of Article 7 of the Directive in a way that limits the protection prescribed by that provision to trips with a departure date four months or more after the expiry of the period prescribed for transposing the Directive constitutes a sufficiently serious breach of Community law, even where the Member State has implemented all the other provisions of the Directive.

The fifth question

Article 7 of the Directive has not been properly transposed where national legislation does no more than require, for the coverage of the risk, a contract of insurance or a bank guarantee under which the amount of cover provided must be no less than 5% of the organiser's turnover during the corresponding quarter of the previous calendar year, and which requires an organiser just starting up in business to base the amount of cover on his estimated turnover from his intended business as a travel organiser and does not take account of any increase in the organiser's turnover during the current year.

The sixth question

Once a direct causal link has been established a Member State's liability for breach of Article 7 of the Directive cannot be precluded by imprudent conduct on the part of the travel organiser or by the occurrence of exceptional or unforeseeable events.

Message and Role of Rechberger Case

Because the ECJ attaches the greatest of importance to the protection of individual rights, more attention has to be drawn to the nature of the rights a directive confers on individuals. In this respect Rechberger has been very clear now. Dealing with the substantial correctness of the Austrian transposition measure, the Court stressed that a directive will only be transposed properly if the national law does in its effects ascertain the objectives prescribed in the directive. The question is not whether the measures that have been taken were at that point of time apt to reach the objectives prescribed with reasonable certainty.

This makes obvious that rights conferred by a directive cause an obligation of result and create a guarantee in favour of the protected class of individuals. This qualification must be of consequence for the judgement on liability as well. Liability in this case is based on the idea of guarantee instead of responsibility for (personal) wrongdoing.

The message Rechberger gives is, that the failure to fulfill an obligation of result prevents the question to be raised, if there had been an excusable error of law. There is no space for examining whether the State was in an error about the appropriate measures that should be taken to reach the prescribed objectives or whether the State erred about the exact scope and content of these objectives. Here the idea of protection of individual rights prevails over the interest that a State may have, to be liable only for careless actions of his servants.

In this case the assessment was mainly left to the national court. So, if the ECJ does not give enough guidance as to interpretation of the conditions for liability, the scope of the principle may remain unclear and this may undermine its effectiveness.

Moreover, after the Rechberger judgment it can truly be argued that there are two different lines of jurisdiction concerning State liability for Breach of Community Law: One was developped in Brasserie de PÊcheur and is based on the idea of sanction for severe wrongdoing, and the other has been started with Francovich, continued in Dillenkofer and is based on the idea of guarantee.

This case has resolved further issues, relating principally to the application of the "sufficiently serious breach" criterion. In fact, complete non-implementation of a directive by the due date is regarded as per se a serious breach. Therefore, Rechberger fits in with the case law so far because the Court did not speak about a breach per se but referred to the element that a precise and clear obligation had been breached.

Personal Opinion:

Austria had incorrectly transposed the Directive by applying its implementing Act - even though it entered into force on the date of expiry of the transposition period (1 January 1995) - to package tours taking place after 1 May 1995. The Directive, including its consumer guarantees, must apply to all contracts concluded after 1 January 1995: the end of the transposition period. Being agreed with the Court's decision it is necessary to emphasize that incorrect implementation by Austria constitutes a sufficiently serious breach of Community law.

As the Directive contains rules concerning the liability of package organisers and retailers, they must accept responsibility for the performance of the services offered. Even in the exceptional cases, such as force majeure", or similar circumstances which could be neither foreseen nor overcome, the operator must do the best to help consumers. As for the compensation, its amount must be of a reasonable degree, even though limited, which may apply under international conventions.

To sum up it must be said that the right of the consumers to be reimbursed or repatriated in the event of the insolvency of the tour operator must be inviolable.

Sources: