Hi EXxB. In law, human error and employer liability are not mutually exclusive. The concept of 'vicarious liability' means that an employer is liable for all of acts and omissions of their employees in the course of their employment.
BA's attempt to absolve itself of liability under Reg.261 is understandable, but was unlikely to ever succeed given the common law precedents. Such an argument also runs contrary to previous decisions by the European Court of Justice - I'm thinking specifically of
Walletin Herman v Alitalia which contains an interesting discussion about the limits of the 'extraordinary circumstances' defence.
Your question is quite interesting. Where does liability end? Undoubtedly, those on the LHR-OSL flight fall within the ambit of Regulation 261. I suspect that anyone else who was flying BA (metal or ticket) that day would have a strong claim under Regulation 261 too, as the cause of the delay was within the control of BA. Passengers on third party airlines would have a much more difficult time of things as the cause of the delay is genuinely 'extraordinary', in the sense that the third party airline had no control over it. However, they would still have a duty of care to their passengers (food, drink, accommodation etc), the financial cost of which BA could be liable for.
In my opinion, the main problem is not with the extraordinary circumstances clause, but airlines making up their own arbitrary interpretations. In this incident, BA initially adopted an indefensible position. Last year, Monarch decided that it did not owe a duty of care to passengers delayed due to technical faults discovered mid flight, nor would it pay 261 compensation (despite the Regulation and the Alitalia case above clearly indicating that this position was unlawful). Regulation 261 is quite technical, but it is relatively clear in straightforward situations. Airlines often deny initial claims, but pay out if legal action is threatened as they do not want legal precedents to be set. This creates uncertainty, which is bad for all parties...