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Transport Sector Update: Aviation

  • United Kingdom
  • Transport

13-06-2013

Italy watchdog fines Ryanair over online booking procedures

The Italian Competition Authority (ICA) has fined Irish budget airline Ryanair €400,000 (£341,300) for failing to deliver on its commitment to simplify online ticket sales.

The decision in question was made in light of previous dealings the ICA has had with Ryanair on this same issue.

In June 2011 the ICA found that Ryanair had applied a price surcharge on customers buying tickets through credit cards on the Internet. According to the ICA, since the final rates were available solely when selecting the means of payment, conditions set by Ryanair on its website were likely to materially distort the economic behaviour of the average consumer as well as likely to deceive the average consumer in relation to the price or the manner in which the price is calculated.

A year later, in May 2012 the ICA found that these same conditions were still being offered by Ryanair on the Internet. The ICA made a decision to issue a fine at this stage, but this was reduced considerably, as Ryanair pledged to cease such conduct as of December 2012.

In its decision the ICA stated that Ryanair’s conduct was in breach of its commitments to cease unfair commercial practices by the date pledged.

In the period December 1-February 7, Ryanair introduced at the end of the online brooking process a 2 percent processing fee on a series of credit cards, the antitrust body stated.

The ICA said ticket prices should be "clearly and fully indicated from the very first contact with the consumer in such a way as to make the final price immediately clear,"

Under the new legal framework introduced by in 2012 the ICA is now empowered to impose fines up to Euro 5 million on companies not complying with its order as well as on those found in breach of commitments made binding by the ICA. Prior to this reform, fines applicable for the same conducts could not go beyond the statutory limit of Euro 150,000.

The fine follows a similar reprimand by the Netherlands Consumer Authority in March which fined Ryanair 370,000 euros for hidden costs associated with tickets purchased online by Dutch travellers.

Certificates of acceptance: how bullet proof are they?

ACG Acquisition XX LLC v Olympic Airlines (In Special Liquidation) [2013] EWCA Civ 369

The English Court of Appeal recently considered the effect of certain contractual machinery designed to allocate commercial risks between the parties under an aircraft lease agreement. The Court of Appeal once again took a commercial and pragmatic approach in construing the terms of the contract. It upheld the effect of the certificate of acceptance declaring the satisfactory condition of the aircraft on delivery.

In so doing, the court gave the message that contractual parties can have the confidence to rely on their contractual mechanisms, such as certificates of acceptance, to allocate commercial risks. These mechanisms provide certainty and avoid unnecessary time and cost which would otherwise need to be incurred, for example, in debating the actual condition of the aircraft or payment obligations of the parties under the lease.

Background

ACG and Olympic entered into a five-year lease of a Boeing 737 where Clause 7.9 provided as follows: "Delivery by lessee to lessor of the certificate of acceptance will be conclusive proof as between lessor and lessee that lessee has examined and investigated the aircraft, that the aircraft and the aircraft documents are satisfactory to lessee and that lessee has irrevocably and unconditionally accepted the aircraft for lease hereunder without any reservations whatsoever (except for any discrepancies which may be noted in the certificate of acceptance)". Olympic, as the lessee, executed a certificate of acceptance in the form prescribed by the lease when taking delivery of the aircraft from the lessor, ACG. The aircraft was subsequently grounded for around 2 years due to defects unknown to both parties at the time of delivery. Olympic withheld the payment of rent on the basis that it had never been able to operate the aircraft. ACG then issued proceedings claiming for the outstanding rent and maintenance reserves. The High Court found that the aircraft was not in fact on delivery in the condition required by the lease and neither was it in an airworthy condition.

Decisions of the courts

Both the High Court and the Court of Appeal gave judgment for ACG in respect of the sums claimed, but based on different reasons. The High Court refused to recognise the effect of the certificate of acceptance as giving rise to a contractual estoppel. It nonetheless held that by signing the certificate of acceptance Olympic had made a representation upon which ACG had reasonably relied to its detriment, and hence it was precluded from arguing that the aircraft was not delivered in the condition required by the lease. However, depending on the facts and available evidence, one might not be able to establish a case of estoppel by representation in every claim. The High Court’s ruling arguably casted doubt over the effect of a certificate of acceptance which is a practical machinery widely adopted in aircraft lease agreements.

The Court of Appeal dismissed Olympic’s appeal taking a commercial construction of the clause providing for the mechanism of certificate of acceptance. The court upheld the natural meaning of the clause which was regarded as being in conformity with its commercial purpose. The Court acknowledged the complexity of a modern passenger aircraft meaning that short of complete disassembly, which is impractical, it is impossible to inspect an aircraft fully and therefore correspondingly impossible to eliminate the risk of undiscovered defects upon delivery. Therefore, it is commonplace for parties in the aircraft lease business to contract on the basis that the lessee, by accepting the delivery, has agreed to assume the risk of any latent defects that the aircraft may have at the time of delivery and that might render it in non-compliance with the required delivery condition.

Referring to Lord Browne-Wilkinson in the case of Westdeutsche Landesbank v Islington LBC, the Court reiterated the importance of recognising that “certainty and speed are the essential requirements for the orderly conduct of business affairs.” The contractual mechanism of certificate of acceptance is a necessary method for allocating commercial risks for the benefit of achieving such certainty and speed of business transactions in the aviation industry. It is therefore imperative to uphold the finality of a certificate of acceptance for this purpose. The court held that a different reading would be a most unlikely and uncommercial construction of the clause and would be essentially wholly inconclusive of anything of any value to either party.

Practical implications

In a wider sense, the English court has once again demonstrated a commercial approach in giving effect to intended purposes of terms of commercial contracts and in meeting practical requirements of business transactions. It illustrates that what one party might say is an unfair contractual term may be upheld by the English court if it represents a common practice established for the sake of certainty and speed of business transactions.

In light of this judgment, parties should consider the scope of their drafting of their certificate clause. In order to ensure the enforceability of the certificate of acceptance, lessors should also make sure that contractual inspection and delivery procedures are strictly followed. As a result of this judgment, lessees may want to engage more experienced engineers in the aircraft inspection process and place greater reliance on the annex to the certificate of acceptance in order to effectively identify defects of the aircraft delivered and shift commercial risks. Lessors in return may focus on the extent of date declaration of discrepancies or defective items identified in the annex to the certificate. Parties should also seek to agree on suitable procedures designed to facilitate the delivery process with a view to avoid unnecessary disputes and delay in connection with the inspection of the aircraft and the execution of the certificate of acceptance.