Tuesday 4 December 2012

Virgin Atlantic waives privilege to Part 36 offer by referring to a term of the offer



Virgin Atlantic Airways Ltd. v Zodiac Seats UK Ltd and others [2012] EWHC 3318 (Pat)



On 27th July 2012, the High Court handed down judgment in this action: [2012] EWHC 2153 (Pat) (“the main judgment”).

On the 8th November 2012, the Court heard argument in relation to the form of the order to be made in relation to the main judgment and issues relating to costs. Virgin Atlantic Limited (Virgin) had revealed in its skeleton argument, that it had made a Part 36 offer to Zodiac Seats UK Limited, (‘Zodiac’, formerly Contour Aerospace Limited) in relating to another set of proceedings. The Court held that by referring to what it considered a main term of the offer, Virgin had waived its without prejudice privilege and therefore could not prevent the Court being presented with the remaining terms.  

Virgin had argued that whilst it did not take issue with the Court being aware of the offer, its terms were still protected and should not be revealed to the Court pursuant to the parties’ without prejudice privilege. Virgin further argued, that in previous case law, where there had been a split trial to decide liability and the assessment of damages separately, (e.g. HSS Hire Services Group plc v BMB Builders Merchants Ltd [2005] EWCA Civ 626), it was acceptable to disclose the fact that such an offer had been made, pursuant to CPR 36.19(3). This did not mean, however, that the terms of the offer were disclosable. It was submitted that the reasoning in HSS Services Group should be expanded to be applied in cases, such as the present one, where there were related actions or disputes. 

Zodiac submitted the following arguments in response, (a) when the Court is dealing with costs is it is permitted under CPR 36.13(1) to be presented with the terms of the offer; (b) by referring to the term of the offer, Virgin had waived privilege; and (c) if strict rules regarding privilege were enforced where a Part 36 offer was made in relation to a different action, it would became too easy for a party to prevent the court from dealing with costs at the conclusion of an action.

In hearing these arguments, the Court decided that it should be presented with the terms of the Part 36 offer at the present stage. In giving reasons for his judgment, Floyd J stated, that:

1.       Firstly, there exists a very strong presumption that the court should be able to deal with all outstanding issues including costs at the end of a trial. The court must be satisfied that a strong reason exists if it is to a take a different course;

2.       Secondly, the court cannot be satisfied that it should not deal with costs at the end of the trial merely because of the possibility of the existence of a relevant offer. This is distinguishable from cases involving split trials- where, if an offer exists, there is an “inherent plausibility” that it will be inclusive of quantum and therefore relevant to costs; there is no such inherent plausibility in the case of an offer about a separate cause of action.

3.       Thirdly, a rigid that a court is prohibited from knowing the terms of an offer could be open to abuse.

4.       Fourthly, although caution should be taken before deciding that a party is obliged to waive their privilege, in the present case, Virgin could have presented the existence of the Part 36 offer to Court at a later stage or not at all. Instead, in this instance, Virgin divulged the existence of the offer in order to ask the court to delay dealing with costs until a later date. In deciding whether to allow the delay, it was right that the Court saw the terms of the offer to see whether it was justified.

Read the judgment here