Aviation – Human rights – Air passenger duty – Flights – Package holidays – Peaceful enjoyment of possessions – Proportionality

R (on the application of Federation of Tour Operators & Ors) v HM Treasury: CA (Civ Div) (Lords Justice Waller (V-P), Buxton, Smith): 2 July 2008

The appellants (F), the Federation of Tour Operators and two representative tour operators, appealed against a decision ([2007] EWHC 2062 (Admin), (2008) STC 547) that the manner in which an increase in air passenger duty had been imposed on them was lawful.

In December 2006, the government had announced the doubling of the duty to take effect seven weeks later. Airlines were able to pass the duty on to passengers with whom they had direct contracts and to tour operators where they had not, even in relation to pre-booked flights. However, unlike the airlines, package holiday tour ­operators were largely precluded by the Package Travel, Package Holidays and regulation 11 of the Package Tours Regulations 1992 from passing on the increase to passengers who had already booked their holidays. F brought to the attention of the ­government that the implementation of the increase in duty at short notice, with no exception for bookings made before the date of the announcement, would mean they would not be able to recover the duty from passengers, but the government refused to postpone the introduction of the increase.

The judge held that there were substantial reasons for not deferring the implementation of the increase in duty or exempting package holiday bookings. F submitted that the timing of the implementation of the increase in duty gave rise to unjustified ­interference with their rights under article 1 to protocol 1 of the European Convention on Human Rights, and that the provision relating to rates of air passenger duty, namely section 12 of the Finance Act 2007, was incompatible with that article. F argued that the government had made the decision to increase the duty without taking into account the regulations and, therefore, had ignored the impact of the increases on tour operators. F also argued that the environmental aim of the increase, namely to reduce air travel, could not be accomplished in relation to existing bookings. F further argued that on previous occasions the ­implementation of an increase in duty had been postponed.

Held: By the time that section 12 was enacted by Parliament, the ­legislators were absolutely aware of the likely effect on the tour operators. If F were to have a legitimate complaint it had to be on the basis that the government knowingly imposed a tax burden on them in an illegitimate way. Although the duty was in fact not imposed on tour operators, it was ­necessary to investigate the realities of the situation, Sporrong & Lonnroth v Sweden (A/52) [1983] 5 EHRR 35 ECHR applied. On that basis, the duty had to be treated as de facto a duty on tour operators. The duty was not aimed at tour operators alone but was imposed on operators of aircraft, the justification for which in general terms would not be susceptible of challenge under article 1 to protocol 1. It was impossible to conclude that if section 12 failed to exempt passengers who had booked with tour operators prior to December 2006, it imposed either an excessive, disproportionate or ­individual burden on tour operators or was devoid of reasonable foundation. It was an entirely understandable ­decision not to exempt only ­passengers who had pre-booked through tour operators. When on ­previous occasions the interests of tour operators had been taken into account and dates for implementation extended, the extensions had applied across the board.

A postponement for tour operators alone would have been difficult to justify to the operators of airlines and postponement of implementation across the board would have involved a very substantial loss of revenue. As regards any passengers who had ­­pre-booked, whether direct with airlines or through tour operators, the tax was not going to discourage them from flying and thus the direct environmental impact was not present.

The tour operators were not uniquely ­disadvantaged. The airlines would have to take a commercial risk if they passed the increase on to pre-booked passengers.

Tour operators could in fact mitigate the harmful effect by increasing charges for passengers who booked after December 2006. Tour operators were not unable to absorb the impact even if it did have an effect in the short term on their profits.

Appeal dismissed.

Charles Haddon-Cave QC, Tim Ward (instructed by Herbert Smith) for the appellant; David Anderson QC, Sarah Lee (instructed by the Treasury Solicitor) for the respondent.