The recent English High Court decision in Virgin Atlantic Airways Ltd. v Zodiac Seats UK Ltd and others [2012] EWHC 3318 (Pat) is a reminder of the importance of carefully considering the effects of disclosing the existence of a "without prejudice" settlement offer to the Court when seeking to have costs issues considered at a later stage.

In presenting its arguments relating to various costs issues, Virgin had revealed that it had made an offer to settle under Part 36 of the Civil Procedure Rules to Zodiac Seats in relation to another set of proceedings. Virgin argued that although it had disclosed the existence of the offer, the terms of the offer were still protected by without prejudice privilege and therefore should not be revealed to the Court. Virgin further argued that in previous case law where there had been a split trial to decide liability and the assessment of damages separately, disclosure that such an offer had been made did not mean that its terms were disclosable. Virgin argued that this reasoning should be expanded to be applied in cases, such as the present one, where there were related actions or disputes.

The Court disagreed and 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 disclosure of the remaining terms of the settlement offer. The reasons of the Court were as follows:

  • There is a very strong presumption that a court should be able to deal with all outstanding issues including costs at the end of a trial. There must be a strong reason to justify a different approach
  • The mere possibility of the existence of a relevant offer is not sufficient reason to justify the delay of the consideration of costs issues. The present case was distinguishable from cases involving split trials, as in those cases, 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
  • A rigid rule that a court is prohibited from knowing the terms of an offer could be open to abuse
  • Although caution should be taken before deciding that a party has waived 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, Virgin disclosed to the Court 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.