Many companies are careless about whether they act as agents or principals in transactions and it could cost them their business.

Leading industry lawyer Cynthia Barbor, a partner in law firm K&L Gates, said: “It may be tempting to think it does not matter whether you sell as an agent or principal, but it is vitally important.

“Many companies have not considered their potential liability and ways to guard against it or, if they have, are getting it wrong.” Confusion about what constitutes a package holiday has only added to the difficulties, she said.

“Where services are put together to form a holiday, they may or may not constitute a package under the Package Travel Regulations.” These give European holidaymakers legal redress in their home country if something goes wrong and determine a company’s liability.

Whether companies act as principals or as agents retailing the service, determines their liability.

Barbor said: “Companies often assume they are not liable because they say they are not. That can prove an expensive mistake. A court will look behind the wording to examine the precise nature of relationships.

“You need to look at contracts with suppliers, contracts with consumers, websites, brochures, offers and advertisements and ensure they are consistent. Often, companies say one thing in one place and another elsewhere. If you are acting as an agent, say so and make sure the documentation reflects it.”

She warned against inadvertently offering packages for sale by combining services and presenting them at an inclusive price.

Barbor also advised companies to examine insurance policies closely. “Are you covered for the cost of defending civil and criminal claims in the UK and overseas?” she said. “Are you covered for the costs of an inquest? Are there exclusions? Does your insurance only cover you as an agent when you sometimes act as a principal?”

ABTA head of legal services Simon Bunce said: “If you don’t know which side your business falls you will be in trouble. The difficulty is that people are being creative in they way they do business and forgetting the fundamentals.”

For a full report from the ABTA law seminar plus a special report on how industry lawyers view agent liability see this week’s Travel Weekly.