The complete judgment can be found at this site:
http://curia.europa.eu/jurisp/cgi-bi...&Submit=Submit
The reasoning was based on the principle of equal treatment. Delayed passengers are equally affected as those on cancelled flights and so should be treated equally. See the excerpt below.
It would seem that whether the delayed passengers got on another flight whether their same flight was delayed makes no difference to their situation.
The question of "extraordinary circumstances" remains a defence to the airline.
"48 In that regard, all Community acts must be interpreted in accordance with primary law as a whole, including the principle of equal treatment, which requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified ...
"50 In this instance, the situation of passengers whose flights are delayed should be compared with that of passengers whose flights are cancelled....
"69 In the light of the foregoing, the answer to the second part of the questions referred is that Articles 5, 6 and 7 of Regulation No 261/2004 must be interpreted as meaning that passengers whose flights are delayed may be treated, for the purposes of the application of the right to compensation, as passengers whose flights are cancelled and they may thus rely on the right to compensation laid down in Article 7 of the regulation where they suffer, on account of a flight delay, a loss of time equal to or in excess of three hours, that is, where they reach their final destination three hours or more after the arrival time originally scheduled by the air carrier."