When Compensation Is Limited: The Specific Case of No-Show Clauses from an English and European Perspective
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WHEN COMPENSATION IS LIMITED:
THE SPECIFIC CASE OF NO-SHOW CLAUSES
FROM AN ENGLISH AND EUROPEAN PERSPECTIVE.
DELPHINE DEFOSSEZ*
1. Introduction
Penalty clauses are parts of our daily lives, but we are unaware of
their existence until a breach of contract occurs. Penalty clauses
are not limited solely to the payment of money, in certain circum-
stances, they can also exclude liability and compensation, as is
exemplified by the no-show clauses (hereinafter referred to as
NSCs) present on every flight ticket. This clause, embodied in
Articles 3.3.1 and 3.3.2 of the International Air Transport Asso-
ciation (hereinafter referred to as IATA) General Conditions of
Carriage Recommended Practice 1724, allows airlines to cancel
without refunding a reservation in two situations: a) when the
passenger missed the first leg of a multi-leg itinerary or b) when
the passenger missed the outbound flight of a round-trip itiner-
ary. At first sight, it seems that penalty clauses are detrimental to
consumers as they limit the liability of airlines and waive passen-
gers' right of compensation and should, therefore, be abolished.
However, as will be argued, NSCs play an important role in pro-
tecting airlines and should be preserved in situation a), but abol-
ished in situation b).
NSCs are a difficult subject that only a few legislators and
judges have addressed.' Indeed, although NSCs obviously limit
the carrier liability for no good reason, as the ticket was paid and
passengers should be able to use it as they wish, NSCs also protect
airlines. NSCs leave a great liberty to carriers while restricting the
freedom of passengers by, in a sense, obliging passengers to use
their tickets or lose their money without any compensation. By
the simple fact that the passenger did not board on the first flight
and did not call the airline company, the contract is automatically
broken, and all subsequent tickets are cancelled.
NSCs seem to qualify as penalty clauses as understood in Eng-
lish law and under EU law. Despite the fact that some EU instru-
ments have been enacted to regulate unfair contract terms, the
UK has taken a somewhat different approach. Indeed, English
1 For instance, in Brazil, such clauses have already been successfully challenged in court: TJ-DF -
Apelagao Civel no Juizado Especial ACJ 20050110145947 DF (TJ-DF), 01/12/2005.
Since 2015, airlines are prohibited to cancel the return flight even though the passenger did
not use the outbound part of the ticket: TJ-PR - Processo Civel e do Trabalho, Recursos RI
003490039201481601820 PR 0034900-39.2014.8.16.0182/0 (Ac6rdao) (Ti-PR), 25/06/2015; TJ-RJ -
Recurso Inominado RI 00091142820148190208 RJ 0009114-28.2014.8.19.0208 (Ti-Ri), 14/10/2015.
The UN Convention on Contractsfor the International Sale of Goods (CISG) does not regulate penalty
clauses. In fact, the drafters agreed to leave these clauses out of the convention, due to wide diver-
gences in the different legal system.
courts rely on the English doctrine on penalties, which focuses on
the freedom of contract and which upholds commercially justifi-
able clauses. Even after the ruling of the European Court of Justice
(hereinafter referred to as ECJ) in the Aziz case', which provides
some guidance on a similar matter, English courts, unlike other
European courts that will be briefly discussed, have continued
ignoring EU law. In the UK, airlines can limit compensation with-
out restrictions leaving consumers in a very weak position, while
consumers should be protected as they can barely influence the
content of the contract.
In English law, penalty clauses are unenforceable contractual
terms as their main aim is to deter breaches through high amount
of damages, mostly disproportionate to the loss suffered. Penal-
ty clauses limit or even annul the liability of one of the parties
without providing for any compensation. Due to their complex-
ity, courts often struggle in deciding whether a clause amounts to
a penalty or not, creating more questions than answers. Recent-
ly, the Supreme Court had to determine whether penalty rules
should be abolished altogether or not.3 The Court admitted that
consumer contracts are already regulated by English law imple-
menting EU legislation. Although the Unfair Contract Terms Di-
rective (UCTD)4 covers similar clauses, English judges invariably
avoid referring to the Directive, enabling airlines to avoid com-
pensating passengers
Despite of being sometimes detrimental to consumers, NSCs
are also protecting airlines by enabling the parties to assess with
certainty their liability in case of breach. In order to demonstrate
that, this article is divided into two parts. The first part introduc-
es NSCs and the law of penalties. The second part analyses and
explains the difficulties therewith, arguing that, in multi-leg con-
tract, NSCs should be upheld as reasonable commercial penalties.
Indeed, consumers should be protected but not mothered, and
the law should be developed with that premise in mind.
2 Case C-415/11, Mohamed Aziz v Caixa d Estalvis de Catalunya, Tarragona i Manresa (Catalunya-
caixa) ECLI:EU:C:2013:164.
3 Cavendish Square Holding BV vTalal El Makdessi and ParkingEye Ltd v Beavis [2015] UKHL 67.
4 Council Directive 93/13/EEC of 5 April 1993 on unfairterms in consumer contracts, 0i1 L95/29.
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When Compensation Is Limited: The Specific Case of No-Show Clauses from an English and European Perspective
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