Capital letters: Phone rates

At the end of last month, the Office of Fair Trading issued the latest pronouncement in its battle against package tour operators' cancellation charges, writes Richard Colbey.

It said that if Thomson's, Airtours, JMC and First Choice failed to provide the information that supposedly justifies these charges by the end of this week it would definitely take legal action.

In January the OFT was "considering its position" after 15 months of fruitless negotiations with the industry over this matter. In response to a number of complaints from the public, the OFT had earlier decided it was probably unfair for holiday companies to rely on the small print that enables them to charge the full cost of the holiday when a customer cancels. Most companies reserve the right to cancel holidays with little or no compensation.

The OFT's research shows that charges here are higher than those levied in other countries. Swedish operators typically charge 50% for last minute cancellations, Danish ones 60%. The British industry's response has been that its charges less for holidays and that relatively high cancellation charges are one of the factors that enable it to do so.

Even so, the Unfair Contract Terms Regulations, which the OFT enforces, do not suggest that commercial considerations need be taken into account when considering fairness. The OFT might also argue that it has to balance the interests of business and consumers before taking enforcement action.

The industry has defended cancellation charges on the basis that holiday insurance usually covers them. This is one of the reasons why tour operators are so insistent on customers taking out, often needless, insurance.

The OFT is concerned about the lack of information from the industry. It could seek an injunction preventing companies relying on the terms until the matter can be fully resolved by a court. That relatively simple procedure would end cancellation charges within weeks.

Since John Vickers was appointed director-general last October, the OFT has appeared to be taking a tougher line on abuses. Most encouragingly, a £3.2m fine was imposed last week on Napp Pharmaceuticals. In breach of the Competition Act it had grossly over-charged for drugs supplied in the community, while undercharging hospitals to cut out competitors. This was the biggest penalty imposed by the OFT, and its level could prove controversial.

While the issues are very different to those involved in consumer protection, it shows that the OFT need not be held back by the caution that appears to afflict its dealings with unfair terms.


Richard Colbey is a barrister