John Greenbourne considers the Supreme Court’s Judgment in X v Kuoni Travel Ltd [2019] UKSC 37

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Last week the Supreme Court referred to the Court of Justice of the European Union two questions arising in a claim by Mrs X against Kuoni with whom she contracted for the provision of a package holiday in Sri Lanka comprising flights and accommodation. The questions have potentially far reaching consequences in relation to the effectiveness of defences for tour operators under the Package Travel, Package Holidays and Package Tours Regulations 1992 (S.I. 1992/3288) “the Regulations”) which implemented Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours (“the Directive”). The Regulations have been replaced with effect from 1 July 2018 by the Package Travel and Linked Travel Arrangements Regulations 2018 (S.I. 2018/634).

The claim and the legislation

Mrs X was on her way through the hotel grounds to the reception. N, who she knew was an electrician employed by the hotel offered to show her a shortcut to reception. He was on duty and wearing the uniform of a member of the maintenance staff. He lured her into the engineering room where he raped and assaulted her. She sued Kuoni for breach of contract and under the Regulations. Kuoni relied upon a clause of its Booking Conditions which was intended to replicate regulation 15(2)(c) which was itself intended to implement article 5 of the Directive.

The relevant parts of Article 5 of the Directive provide:

1. Member states shall take the necessary steps to ensure that the organizer and/or retailer party to the contract is liable to the consumer for the proper performance of the obligations arising from the contract, irrespective of whether such obligations are to be performed by that organizer and/or retailer or by other suppliers of services without prejudice to the right of the organizer and/or retailer to pursue those other suppliers of services.
2. With regard to the damage resulting for the consumer from the failure to perform or the improper performance of the contract, member states shall take the necessary steps to ensure that the organizer and/or retailer is/are liable unless such failure to perform or improper performance is attributable neither to any fault of theirs nor to that of another supplier of services, because:
   • the failures which occur in the performance of the contract are attributable to the consumer,
   • such failures are attributable to a third party unconnected with the provision of the services contracted for, and are unforeseeable or unavoidable,
   • such failures are due to a case of force majeure such as that defined in article 4(6), second subparagraph (ii), or to an event which the organizer and/or retailer or the supplier of services, even with all due care, could not foresee or forestall.”

The relevant parts of Regulation 15 of the Regulations provide:

1. The other party to the contract is liable to the consumer for the proper performance of the obligations under the contract, irrespective of whether such obligations are to be performed by that other party or by other suppliers of services but this shall not affect any remedy or right of action which that other party may have against those other suppliers of services.
2. The other party to the contract is liable to the consumer for any damage caused to him by the failure to perform the contract or the improper performance of the contract unless the failure or the improper performance is due neither to any fault of that other party nor to that of another supplier of services, because:
   • the failures which occur in the performance of the contract are attributable to the consumer;
   • such failures are attributable to a third party unconnected with the provision of the services contracted for, and are unforeseeable or unavoidable; or
   • such failures are due to:
     • unusual and unforeseeable circumstances beyond the control of the party by whom the exception is pleaded, the consequences of which could not have been avoided even if all due care had been exercised; or
     • an event which the other party to the contract or the supplier of services, even with all due care, could not foresee or forestall.

The Directive and the Regulations prohibit contracting out of such liabilities (subject to exceptions not relevant to this case).

Pursuant to section 13 of the Supply of Goods and Services Act 1982, Kuoni was required to carry out the services promised under the contract with reasonable care and skill.

The Claimant’s case

At trial, Mrs X’s case was essentially that the rape and assault amounted to the improper performance of a contractual obligation. Before the Supreme Court, although a claim for breach of the 1992 Regulations was maintained, the emphasis was that the claim was essentially a claim for breach of contract. Mrs X accepted that there was no basis for suggesting that N should have been identified by anyone as a risk. Nor was it her case that there was systemic or organisational negligence on the part of Kuoni or the hotel (such as failure to supervise N or carelessness in selecting N as an employee) causative of the attack. The assault was caused by N alone.

Kuoni’s case

Kuoni admitted that it was “responsible to the claimant for the proper performance of obligations under the holiday contract whether or not such obligations were to be performed by the defendant or another supplier of services” and that the “said obligations would be performed with reasonable skill and care”. However, Kuoni denied that the rape and assault by N constituted a breach of any obligations owed by Kuoni to Mrs X under the contract or the Regulations. In particular it denied that they constituted improper performance of any obligation under the contract. Furthermore, Kuoni relied, by way of defence, on clause 5.10(b) of the Booking Conditions and regulation 15(2)(c)(ii) of the 1992 Regulations.

The first instance judgment

The trial judge concluded that “holiday arrangements” in clause 5.10(b) did not include a member of the hotel maintenance staff conducting a guest to reception and, obiter, that Kuoni would in any event have been able to rely on the statutory defence under regulation 15(2)(c)(ii) because the assault was an event which could not have been foreseen or forestalled (by inference by the hotel) even with all due care. Although it was not necessary to decide the point, he held that the hotel would not have been vicariously liable for the assault under Sri Lankan law, which it was agreed was the same as English law for these purposes.

The Court of Appeal decision

The Court of Appeal dismissed the appeal by a majority (Longmore LJ dissenting). They considered it unnecessary to decide the question of vicarious liability on the part of the hotel for N’s conduct because even if the hotel were vicariously liable Kuoni could nevertheless rely on the statutory defence. Longmore LJ was far from certain that the hotel would not be vicariously liable under English law for a rape carried out by an employee in uniform and represented to the world as a reliable employee.

The majority (Sir Terence Ethertion Mr and Asplin LJ) held that:

• the words “holiday arrangements” in clause 5.10(b) did not include a member of the hotel’s maintenance team conducting the guest to the hotel’s reception. This was no part of the functions for which the employee was employed.
• The 1992 Regulations were not designed to facilitate a claim against a tour operator for wrongful conduct by an employee of a supplier where that conduct was “not part of the role in which he was employed” and where the supplier would not have been vicariously liable under either the consumer’s domestic law or the foreign law applicable to the supplier.
• Kuoni was not liable under either the express terms of clause 5.10(b) or regulation 15 since N was not a “supplier” within the meaning of those provisions – the hotel was the supplier. The judge had properly held that the hotel and not N was the supplier of any services performed by N. There had to be a direct contractual or promissory relationship between Kuoni and whoever was to be regarded as a supplier. There was not such relationship between Kuoni and the hotel’s employee.
• There were no discernible policy reasons for imposing liability on a tour operator when neither it nor the hotel were “at fault” and the express exclusion of liability under regulation 15(2)(c)(ii) pointed clearly to the contrary.

Longmore LJ took a somewhat different view:

• He was not sure that Kuoni was correct in denying that there was a contractual obligation on the hotel or its staff to guide guests to reception but he was sure that if a member of the hotel staff offered to do so, that was a service for which Kuoni accepted responsibility for it being done to a reasonable standard.
• He rejected Kuoni’s submission, founded on the judge’s finding that N had lured Mrs X to the engineering room, that N was not providing a service at all. Mrs X thought that N was providing a service and had every reason to suppose that he was. His actual motive was irrelevant.
• For the “holiday arrangements” at a four-star hotel, which Kuoni had contracted to provide, to be provided to a reasonable standard, hotel staff must be helpful to guests when asked for or offering assistance. Therefore the holiday arrangements for Mrs X were not of a reasonable standard and constituted improper performance within regulation 15(2). Kuoni must, subject to any available defences, take responsibility for that.
• The question whether N was also supplying the service is critical when it comes to a consideration of the defences. If, as the judge held, it was the Hotel and only the Hotel which was the supplier, Kuoni has a good defence since the improper performance was due neither to Kuoni nor the Hotel because, on the findings of the judge, the failure of proper performance was due to an event which neither Kuoni nor the Hotel, even with all due care, could foresee or forestall. If, however, N was a supplier of the service of assisting, rather than or as well as, the Hotel, then he (as that supplier) could foresee or forestall his own criminal activity.
• The arguments as to who was the supplier were finely balanced and were to be decided on principle. In English law, the governing principle is that a person who undertakes contractual liability retains liability for his side of the bargain even if he performs it through others. The whole point of the Directive and the Regulations was to give the holiday maker a remedy against his contractual opposite. It should be left to the tour operator to sort out the consequences of the ruined holiday with those with whom it had itself contracted.
• There was no justification for concluding that the concept of supplier should stop with the hotel in the case of an independent contractor or an employee. The concept of supply may be no more than a question of degree but there could be no doubt that some employees should be regarded as suppliers. An example is the captain of a cruise ship, who supplies the service of navigating the ship without exposing it to danger; the fact that he is the employee of the shipping line makes little difference to the holiday makers on board and the travel operators should not be able to deny responsibility.

The issues before the Supreme Court and the reference to the ECJ

On appeal to the Supreme Court there were two main issues.

1. Did the rape and assault of Mrs X constitute improper performance of the obligations of Kuoni under the contract?
2. If so, is any liability of Kuoni in respect of N’s conduct excluded by clause 5.10(b) of the contract and/or regulation 15(2)(c) of the Regulations?

The request for a preliminary ruling on a point of EU law relates specifically to the second issue.

The question for the ECJ

For the purposes of the reference, the ECJ is asked to assume that guidance by a member of the hotel’s staff of Mrs X to the reception was a service within the “holiday arrangements” which Kuoni had contracted to provide and that the rape and assault constituted improper performance of the contract.

The Supreme Court has referred the following questions to the ECJ:

1. Where there has been a failure to perform or an improper performance of the obligations arising under the contract of an organizer or retailer with a consumer to provide a package holiday to which Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours applies, and that failure to perform or improper performance is the result of the actions of an employee of a hotel company which is a provider of services to which that contract relates:
   • is there scope for the application of the defence set out in the second part of the third alinea to article 5(2) ; and, if so,
   • by which criteria is the national court to assess whether that defence applies?
2. Where an organizer or retailer enters into a contract with a consumer to provide a package holiday to which Council Directive 90/314/EEC applies, and where a hotel company provides services to which that contract relates, is an employee of that hotel company himself to be considered a “supplier of services” for the purposes of the defence under article 5(2) , third alinea of the Directive?

Comment

The 1992 Regulations apply to packages concluded before 1 July 2018 so they will apply to many claims pending or yet to be begun. In the 2018 Regulations which came into effect on that date, the successor to regulation 15 of the 1992 Regulations is regulation 16. It is differently worded and the outcome of a case under the new regulations might well be different to that under the 1992 ones, whatever the result in X v Kuoni turns out to be. However, the obvious importance of the outcome of this case given its application to pre-July 2018 packages is highlighted by the fact that ABTA was allowed to intervene and participate in the appeal to Supreme Court. If the ECJ’s answers to the questions referred to it are as Mrs X contends they should be, so that an employee of a hotel (or other provider of services which are part of the package) is a supplier of services for the purpose of Regulation 15, the scope of the statutory defences under regulation 15(2)(c) will be somewhat limited if they have any practical effect at all. For the moment, the position is as stated by the Master of the Rolls and Asplin LJ in the Court of Appeal. It will be quite some time before it is known whether their decision will continue to be good law.

A link to the Supreme Court judgment can be found here.

John Greenbourne