Virgin Atlantic Airways Ltd v K.I. Holdings Company Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Burton |
| Judgment Date | 22 May 2014 |
| Neutral Citation | [2014] EWHC 1671 (Comm) |
| Docket Number | Case No: 2013 FOLIO 598 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 22 May 2014 |
[2014] EWHC 1671 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Burton
Case No: 2013 FOLIO 598
Michael Crane QC, James Cutress and Richard Power (instructed by Bird & Bird LLP) for the Claimant
Vernon Flynn QC and Christopher Howitt (instructed by Wilmer Cutler Pickering Hale and Dorr LLP) for the First Defendant
John Lockey QC and Alexander Milner (instructed by Ince & Co LLP) for the Second Defendant
Hearing date: 15 April 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Between 2001 and 2008 the Claimant, Virgin Atlantic Airways Ltd ("Virgin") acquired 25 ship-sets and one part ship-set of aircraft seats (either 'Kash' seats or 'Alpha' seats) designed, manufactured and tested in Japan by the First Defendant, K.I. Holdings Co. Limited ("KIH"), either direct from KIH or from the Second Defendant, Mitsubishi Corporation International (Europe) PLC ("MCUK"), which, although certified by KIH as airworthy and in accordance with applicable regulations and technical specifications, were not.
On 2 June 2011, the European Aviation Safety Agency ("EASA") issued an Airworthiness Directive ("2011AD"), which read:
" The Japan Civil Aviation Bureau (JCAB) have informed EASA that a review of the safety of passenger seats manufactured by [Koito] has disclosed discrepancies which include falsification of static, dynamic and flammability testing, as well as uncontrolled changes to production data (material and dimensional). In addition, JCAB confirmed that Koito records, showing evidence of falsification, could not be deemed complete.
Examples include:
• Fictitious dynamic test pulse plots inserted into test reports following failure to meet required certification requirements.
• Flammability test coupons not representative of production parts, for instance by use of alternative adhesive not specified on the approved drawing.
• Fictitious deformation values entered in test reports when values exceeded the maximum allowed.
JCAB and EASA have concluded that all data (both design and manufacturing) generated by Koito must be treated as suspect.
Results from tests performed by Koito with the supervision of JCAB confirmed that a high proportion of seat models failed the requirements for structural, flammability and occupant injury criteria.
The exact level of airworthiness risk for each seat model can only be determined through further dynamic or static testing (as per the applicable certification basis) and flammability testing."
At a press conference on 8 February 2010, KIH's President, Mr Takashi Kakegawa had admitted that " fraudulent acts were conducted across the organisation … Fraudulent acts can be traced back to the mid-1990's, as far back as we have records. It was one organisational fraud, as such conduct has been found in multiple divisions". Further in a letter dated 12 March 2010 to the JCAB, KIH stated:
" Our wrongful acts concerning seats for aircraft severely impair our credibility as an enterprise that engages in aviation related business, and we feel remorse for, and sincerely apologize for, having caused considerable inconvenience and concern to customers and all other parties concerned".
Virgin claims against KIH in contract and in tort (by way of fraudulent, alternatively negligent, misrepresentations, set out in detail in the pleadings) and against MCUK in contract. KIH is a Japanese company: MCUK is an English company, served within the jurisdiction. There was no issue before me as to the existence or arguability of these causes of action. The issues have related to the applications by KIH to set aside the permission to serve out of the jurisdiction granted to Virgin, in respect of its claims against KIH in contract and tort, on 28 June 2013, and to MCUK, in respect of its Part 20 claims for breach of contract, tort and contribution, on 1 August 2013, each granted by Blair J.
There is no dispute that the seats were designed and manufactured in Japan by KIH. Prices and specifications of seats were agreed directly between KIH and Virgin. MCUK were the 'middle man'. On occasion the seats were sold by KIH through MCUK to Virgin, an issue now being whether in relation to some of such arrangements MCUK was acting as buyer and on-seller or was acting as agent for KIH.
There are 3 main contracts or groups of contracts involved:
(i) The "Mitsubishi Agreement" dated 14 May 2001. This was between Virgin and MCUK, and it related to up to 14 Kash sets of seats. It is described as a " Koito Seat Pricing and Specification Agreement".
(ii) The four "Retrofit Agreements" made between 2001 and 2003 between Virgin and KIH alternatively MCUK (as explained above). These related to the supply of sets or part sets of Kash seats to four aircraft, VHOT, VBIG, VFAB and VWOW.
(iii) The General Terms Agreement ("GTA") dated 8 September 2005 between Virgin and KIH (Mitsubishi being a party to the agreement but not, in this case, suggested to be the seller). This relates to eight Alpha sets of seats. The claim under this Agreement by Virgin is, in quantum terms, much the largest.
In respect of the Mitsubishi Agreement, Virgin claims damages for breach of contract against MCUK, and MCUK claims over against KIH. In relation to the GTA, Virgin's contractual claim is only against KIH. MCUK has asserted that it was not party to the Retrofit Agreements, but was simply agent for KIH, and that it is therefore not liable in contract to Virgin (there is no claim against MCUK in tort). Consequently Virgin has, in respect of those agreements, sued KIH and MCUK in the alternative. There is no dispute that that is a proper course in terms of English procedure. MCUK claims over against KIH if it be found liable.
Virgin claims that, for the purposes of service out, it can establish a necessary gateway in respect of all its claims in contract and in tort against KIH. MCUK submits similarly in respect of its Part 20 claim.
Apart from the question of establishing a gateway, a claimant seeking service out must of course also show that there is a serious issue to be tried so far as the facts are concerned, and must establish that England and Wales is clearly an appropriate forum. There is, as can be seen from paragraphs 2 and 3 above, at least at this stage no issue as to the arguable existence of breaches of the various contracts set out above, or as to making, falsity or reliance in respect of the fraudulent or negligent misrepresentations alleged.
There are however two other matters, raised by Mr Flynn QC for KIH, in the context of serious issue to be tried, which, since they relate across the board to all the various gateways alleged by both Mr Crane QC for Virgin and Mr Lockey QC for MCUK, I shall deal with compositely at this stage:
(i) Limitation. There was a Standstill Agreement between the parties on 7 September 2012, which has the effect of stopping the limitation period running from that date. As for any claims therefore, the 6 year limitation period in respect of tort and contract at English law (subject to any statutory extension) cannot go back beyond 7 September 2006. There is some doubt as to whether all of the 8 sets of Alpha seats were delivered prior to 6 September 2006: 4 or it may be 5 were not. In addition, so far as the GTA is concerned, there are sufficiently pleaded claims by reference to a 10 year warranty in clause 14 and an indemnity in clause 25, which would extend beyond the 6 year period, and there is a similar warranty in the Mitsubishi Agreement. Moreover Virgin and MCUK assert/accept that Virgin has at least a serious issue to be tried at this stage by reference to s32 of the Limitation Act 1980, by reference to deliberate concealment. S32(1)(b) provides as follows:
" (1) … where in the case of any action for which a period of limitation is prescribed by this Act, either —
…
(b) any fact relevant to the [claimant's] right of action has been deliberately concealed from him by the defendant; or
…
the period of limitation shall not begin to run until the [claimant] has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.
References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent.
(2) … deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty."
It is not in dispute so far as concerns the GTA that there is a serious issue to be tried that by reference to s32 a limitation defence will not be available to KIH, at least in respect of the period prior to 2009/2010. The same applies to Virgin's claims in tort against KIH. As for the contractual claims (in the alternative) against KIH under the Mitsubishi Agreement or the Retrofit Agreements, the same obviously applies. With regard to the Part 20 etc claims over by MCUK, if MCUK has been found liable it will be because it was the contracting party; Virgin would then be entitled to contend reliance on s32(1)(b) as against MCUK as such contracting party, by virtue of the dishonest concealment by its agent, the manufacturer: Applegate v Moss [1971] 1 QB 406 is relied on. I am wholly unpersuaded that there is any inconsistency, given the alternative nature of the claim, between MCUK asserting on the one hand that it was...
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