As Covid-19 took hold in the UK earlier this year, most scheduled events were cancelled and many people were forced to cancel holidays they had booked because of lockdown restrictions. Understandably, they requested refunds from providers. Most businesses took a sensible view and agreed to provide at least a partial refund. However, other businesses resisted, claiming force majeure or a similar provision in the contract meant they were not obliged to do so.
In response to growing concerns, the Competition and Markets Authority (CMA) launched a Covid-19 Taskforce on 20 March 2020 to investigate businesses exploiting the situation and/or breaching consumer protection law.
On 9 June 2020 the Taskforce’s first major target was announced. Vacation Rentals (operator of Hoseasons and Cottages.com) agreed to “voluntarily” change its refund policy following an investigation into its practices. The company has given undertakings to the CMA under the Enterprise Act 2002, including to:
- offer a full refund to customers who booked holiday homes but could not stay in them due to lockdown restrictions;
- communicate its new policy clearly on its website and via social media;
- provide the CMA with monthly reports on how many refund offers have been made and accepted.
On 3 July 2020, Sykes Cottages gave similar undertakings to the CMA.
Whilst this action has been taken against holiday accommodation providers, it is anticipated that the CMA will seek similar action from any event organiser it decides is failing to act as required. It has also threatened court action for any companies that fail to comply.
What is the guidance from the CMA on refunds for events that cannot go ahead as a result of Covid-19?
The CMA has set out clear guidance on refunds following cancellations caused by Covid-19 or any similar circumstance that prevents an event from being run or services provided. These were set out in ‘The Coronavirus (Covid-19) pandemic, consumer contracts, cancellation and refunds’ on 30 April 2020.
They say the consumer may be due a full refund when:
- a business has cancelled a contract without providing any of the promised goods or services, e.g. a wedding venue cancelled on or before the date;
- no service is provided by a business, for example because this is prevented by Government public health measures, e.g. professional sport mandated to be behind closed doors;
- the consumer cancels, or is prevented from receiving any services, because Government public health measures mean they are not allowed to use the services; the consumer cannot attend an event due to a local lockdown.
These are all the case even if a pre-payment has been described as a “non-refundable deposit” or “advance payment”.
There may, however, be limited exceptions. For example, a partial refund should be due for services part used or received, such as if only half a sporting season ticket is fulfilled. The same applies for ongoing contracts such as gym memberships. Further payments may be withheld until services can be provided and received.
In limited circumstances, deductions can be made as a contribution to costs incurred in relation to a contract, but only when the business cannot recover them elsewhere. An example could be where the business has committed to expenditure in relation to the customer’s contract which it cannot cancel or obtain a refund for, and for which it cannot make a claim under an insurance policy.
Other key points to note from the CMA’s guidance are:
- businesses should not charge an admin fee (or equivalent) for processing refunds in these circumstances;
- alternatives to refunds, such as credits, vouchers, rebooking or rescheduling can be offered but a refund should always be a clear and easily available option for the consumer;
- businesses may be afforded extra time to process refunds at present but these should still be made within a reasonable timeframe;
- for future contracts, a business should not seek payments for a service it knows it will be unable to provide.
What should event organisers and holiday companies do to comply with the CMA guidance?
Businesses cannot treat a force majeure clause, or a similar provision such as non-refundable deposit clause, as a silver bullet that allows them to terminate the contract without considering the impact on the consumer. Doing this could lead to them being deemed unfair and not binding on the consumer. As we have seen, it also runs the risk of a CMA investigation and enforcement action, which could be extremely damaging from a PR perspective.
Businesses should aim to treat consumers fairly and achieve a result that balances their rights against those of the consumer. This is especially the case when exercising rights under force majeure clauses or other similar provisions.
Event organisers should consider what they can offer the consumer so they are not disproportionately affected by a cancelled event. A refund should be one option but alternatives can be offered, provided the consumer is not pressured against requesting a refund.
Finally, event organisers should ensure they are fully equipped to respond should the much-feared “second wave” of cases emerge. This is particularly true if it happens once events are back up and running. This will include having clear policies and procedures on offering and processing refunds for cancelled events.
This is because the CMA is likely to have very little sympathy for any business that fails to conduct cancellations or offer refunds appropriately during any second wave of cases. The CMA has made its position clear.
This article does not constitute legal advice. Specific legal advice should be taken before acting on any of the issues covered.