The Covid-19 pandemic, and the Government’s response to it, has had a devastating effect on businesses’ ability to deliver goods and services. In particular, we have seen UK holidays cancelled.
Consumers have naturally looked to the holiday providers for a refund, but as I have been highlighting over the past few weeks, many have either rejected a refund (instead offering a credit or voucher), or have simply not responded.
Many consumers who have experienced the above, and paid with their debit or credit card, have made a claim via the chargeback scheme, or made a section 75 claim. However, the bank/card providers are rejecting section 75 claims, claiming there is no entitlement to claim as there has been ‘no breach of contract’. Here’s my view:
WHAT IS SECTION 75?
In 1974 a new law was introduced into the UK called ‘The Consumer Credit Act 1974’ (‘the Act’). Section 75 of the Act provides that the credit card company is jointly and severally liable for any breach of contract, or misrepresentation, by the retailer or trader.
In practice, this means that if anything goes wrong with a purchase you make using your credit card, and you are legally entitled to a remedy (i.e. refund, partial refund, repair or repeat service), but the trader fails to provide such remedy, you can make a section 75 claim.
This right is particularly useful if the retailer or trader has gone bust, or does not respond to your letters or phone calls.
Section 75 of the Consumer Credit Act also applies to foreign transactions as well as goods bought online, or by telephone or mail order, for delivery to the UK from overseas.
WHAT ARE THE RULES?
To be eligible to make a section 75 claim, you must satisfy the following:
• The price of the goods or services you have purchased must be between £100.01 – £30,000. Note: it does not matter if you did not pay the full amount on your credit card. So, if you purchased a holiday for £1000, paid £50 on your card and paid the remaining £950 with cash, you can still make a section 75 claim.
• Generally, you must have paid the trader direct. If you paid via a payment platform (such as PayPal), or via an agent (such as a ticket agent), you may not be able to claim.
• There must have been a ‘breach of contract’ by the trader. This means that you must be able to point to something that the trader was legally obligated to do within the contract formed with you, but which it has failed to do.
It is the ‘breach of contract’ element that is causing the problem with cancelled holiday refunds, as property owners and holiday providers are claiming that they are not in ‘breach of contract’, largely due to the Covid-19 pandemic.
UK HOLIDAY REFUNDS
I have heard FIVE scenarios:
1) The section 75 claim was refused as the consumer made the claim in relation to an agent (for example: Sykes), as opposed to the property owner. Here, the bank/card provider says that Sykes had no contractual obligation to provide the holiday (the contract being between the consumer and the property owner), so there is no breach of contract on the part of Sykes.
2) The section 75 claim was refused as the consumer did not pay the trader/property owner direct (for example: the consumer paid Sykes (as agent)).
3) The section 75 claim was refused as the holiday provider had the right to cancel due to its ‘force majeure’ clause in the terms and conditions (this is a clause which states the trader will have no liability if it is unable to fulfil its obligations under the contract due to an unforeseen event outside of its control – such as a pandemic). In these circumstances, the bank/card provider’s view is that there is no ‘breach of contract’.
4) The section 75 claim was refused as the holiday provider has not cancelled the holiday, as it is due to take place post-June, and there is therefore no breach of contract.
5) The voucher offered is an ‘adequate remedy’ so section 75 cannot be engaged.
Scenario 1 is a problem, as section 75 can only be used where you are claiming against a party to the contract. This means you must claim against the property owner when you book via an agent such as Sykes.
Scenario 4 is also a problem, as we currently do not know if bookings for post-June will need to be cancelled as we do not yet know if we will still be in lockdown. In these circumstances, you cannot claim that the holiday provider/owner is in breach of contract.
Scenario 2 may not be a problem, according to UK Finance, the voice for the banking and finance industry. It states on its website “If you booked through a travel agent your ability to claim under Section 75 depends on exactly who took your payment and what it was for. Section 75 usually only applies when the payment is made directly to the merchant who is actually providing you with services. However, the travel agent may have taken payment as agent for the supplier of the travel and you might therefore be covered”.
Scenario 3 affects many of the consumers I have heard from and in my view is not a problem. The questions here are: i) does the force majeure clause have legal effect?; and ii) are there any other breaches of contract, on the part of the trader, that could give rise to a section 75 claim?
Force majeure clauses
A force majeure clause is a term in a contract that excuses a party for non-performance of its obligations, if such non-performance is caused by an event that generally was unanticipated, unforeseen, and beyond the control of the party relying upon the clause.
It is therefore true to say that where there is a valid force majeure clause, and a party relies upon this, there may not be a breach of contract. However, before reaching this conclusion, the force majeure clause in question needs to be analysed, as force majeure clauses do not always have legal effect. To have effect, a force majeure clause must:
i) adequately describe the event relied upon, and the more serious the event, the more descriptive the clause should be; and
ii) explain what happens with the contract in the event of a force majeure event.
Many of the clauses I have seen do not satisfy the above. For example, the Sykes’ force majeure clause states:
25.6 Events or circumstances beyond our or an Owner’s reasonable control. If we or an Owner is prevented or delayed from complying with any obligations under these Booking Conditions by anything you (or anyone acting on your behalf) does or fails to do or due to events or circumstances beyond our or an Owner’s reasonable control, the inability or delay in performing those obligations will not be treated as a breach of the terms of these Booking Conditions. Examples of such events or circumstances include fire, flood and other acts of God, strikes, trade disputes, lock outs, restrictions of imports or exports, riot, accident, disruption to energy supplies, civil commotion, acts of terrorism or war.
This clause makes no mention of a pandemic or lockdown, so could fail on this point alone. It also makes no mention of what happens if there is a force majeure event (i.e. does the contract go on hold until the force majeure event ends etc?).
So, those banks which have already said that a section 75 claim in relation to a Sykes’ property owner fails, due to the force majeure clause are, in my view, wrong. My opinion is that this force majeure clause has no legal effect or, if it does, the only effect is that it brings the contract to an end, following which consumers are entitled to a refund. The same can probably also be said of other holiday providers.
Breach of contract
Many people have booked holidays via a ‘booking agent’ (such as Sykes and Hoseasons). Most of these bookings will have been made on the phone or via the internet, meaning they are ‘distance’ sales (also known as an ‘off premises’ sale). The effect of this is that the rules in The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (known as the ‘Consumer Contracts Regulations) become engaged. These regulations impose various obligations upon traders, one being that the trader provides the consumer with certain information ‘pre-contract’.
Schedule 2 of the Consumer Contracts Regulations sets out the information that must be provided to consumers; Interestingly Schedule 2 (a) and (d) read as follows:
The consumer must be told [my wording]:
(b)the identity of the trader (such as the trader’s trading name);
(d)where the trader is acting on behalf of another trader, the geographical address and identity of that other trader;
In most of the contracts I have seen (including those provided by Sykes and Hoseasons), (d) above has not been provided (i.e. the details of the property owner have not been provided).
Section 18 of the Consumer Contract Regulations provides that every contract is treated as including a term that the above information (i.e. the owner’s details) has been provided. This means that the effect of the failure to provide this information is that there has been a breach of contract, which consumers can point to when making a section 75 claim.
I have seen many banks/card providers reject section 75 claims under scenario 5 above (i.e. “a voucher has been offered and this is an adequate remedy”); I disagree as in every case I have seen, the consumer will inevitably end up paying more for the holiday if they take the voucher and rebook for a future date, as future holiday dates are more expensive.
By way of example, Mr X told me that he paid £598 for 3 days at a holiday let in Devon. Upon cancellation, he was told he could only have a voucher to be used for a future date. When he looked to make a future booking, he discovered that he would have to pay a further £46 to the booking, as the price had now increased.
In my view, the effect of the above situation is that the term in the trader’s/property owner’s terms/contract which allows for this is ‘unfair’ in law. Here’s why:
Section 62(4) of the Consumer Rights Act states: A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
Schedule 2 of the Act provides a list of what would be deemed to be unfair and, in this respect, item 15 in the list, states:
15. A term which has the object or effect of permitting a trader to increase the price of goods, digital content or services without giving the consumer the right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded.
The trader/property owner having the right to effectively cancel your holiday and make you re-book for a later date, at a higher cost, falls foul of item 15 above, and is therefore an ‘unfair term’. Any bank/card provider that therefore cites that an “adequate remedy” has been offered under the circumstances, is, in my view, wrong.
1. The first step to take should always be to approach the trader/property owner and give them time to respond.
2. If your refund request is rejected, and you paid by card, make a chargeback claim before attempting a section 75 claim. In this respect, Martin Lewis (from Money Saving Expert) has been advocating this route (and I agree with him), stating “That’s because under the chargeback process, which is part of the Visa, Mastercard or Amex rules, your bank is asking for money back from the holiday firm’s bank, which your bank is unlikely to have an issue doing”
3. If your chargeback claim is unsuccessful, and you paid by credit card, make a section 75 claim using my template letter below.
4. As a last resort, issue a claim in the small claims court.
TEMPLATE SECTION 75 LETTER – UK HOLIDAY REFUNDS (Sykes/Hoseasons/other holiday agent)
Credit card no: [insert no] (“My Credit Card”) Consumer Credit Act 1974 (as amended)
I am writing to make a section 75 claim.
1.1 On [date of purchase] I booked a holiday, via [insert – for example Sykes] (“the Agent”), with an undisclosed property owner (“the Supplier”) to commence on [date] (“the Holiday”).
1.2 The cost of the Holiday was £[insert amount] and I paid for this using My Credit Card. The monies were paid to the Supplier via the Agent and therefore still satisfies the requirement of the rule that payments ‘must be made direct’.
1.3 The Holiday has been cancelled due to the Covid-19 pandemic. Following this, I asked the Supplier for a full cash refund, but this request has been rejected. Instead, the Supplier has offered me a voucher, or alternative booking date.
2. My Claim
2.1 When I made my booking, the Supplier had a legal obligation, pursuant to The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (see schedule 2 (b) and (d) ), to provide me with details of their identity. The Supplier failed to do this, as I was only provided with the details of the Agent.
Section 18 of the Consumer Rights Act 2015 provides that every contract is treated as including a term that the information required at Schedule 2 of the Consumer Contract Regulations has been provided. This means that the effect of the Supplier’s failure to provide this information, is that there has been a breach of contract. I am therefore entitled to treat the contract as being at an end, and to claim a full refund.
IN THE ALTERNATIVE:
2.2 Following the cancellation of the booking, the Supplier has refused to provide me with a cash refund and has instead asserted that I am only entitled to a voucher, or alternative booking date. However, if I were to accept this remedy, I would have to pay more than I originally agreed for the holiday (as prices have now increased), and this therefore amounts to an unfair term, in accordance with section 62(4) of the Consumer Rights Act, and Schedule 2, item 15 of the Act.
2.3 The only remedy permitted under the contract is therefore a cash refund. In breach of contract, the Supplier has refused this.
2.4 As you supplied the credit for this purchase, I hold you jointly and severally liable for the breach of contract with the Supplier under section 75 of the Consumer Credit Act 1974.
You therefore have a duty to offer me the same solution to the problem as I have already asked the Supplier to provide, namely a cash refund in the sum of £[amount].
Finally, I draw your attention to the statement released by the Competition and Markets Authority (CMA), which clearly expresses the view that holiday providers have a legal obligation to provide consumers with cash refunds. You can see the statement on the CMA website.
I look forward to receiving your response within the next 14 days.