Virgin dismisses new BA arbitration offer: Acrimony in dirty tricks row hits settlement hopes as Marshall gives shareholders a robust defence

THE dirty tricks dispute between British Airways and Richard Branson's Virgin Atlantic appeared still farther from being settled last night after a day of accusation and counter-accusation that culminated in Virgin dismissing a renewed offer of arbitration from BA.

The offer of arbitration came at an unexpectedly muted and downbeat BA annual meeting in London, where Sir Colin Marshall, addressing shareholders for the first time as chairman, gave a robust and lengthy defence of the airline's role in the affair.

Sir Colin, who succeeded Lord King in February, said BA would pay the costs of an independent arbitrator, appointed by Christopher Chataway, chairman of the Civil Aviation Authority, who could conduct hearings in public if Virgin wished.

Last night Mr Branson rejected the offer, saying: 'We might just as well settle the matter with a transatlantic hot air balloon race as go to arbitration.' A Virgin spokesman said arbitration was not on because it had tried to settle the matter out of court but had been let down after BA withdrew an offer to pay pounds 9m in compensation. Arbitration, he added, was an excuse for 'obfuscation and filibustering'.

The increasingly acrimonious stand-off between the two airlines suggests that the row will only be settled in court. Virgin has issued a High Court writ against BA and submitted a formal complaint to the European Commission, although the British court case is not expected to be heard until the middle of next year.

Before the meeting began at the Barbican Centre in London, Brian Basham, a former public relations adviser to BA who was sacked for his part in the campaign against Virgin, publicly challenged Sir Colin to resign over the affair. 'It is entirely implausible that Colin Marshall did not know about the computer accessing or hacking that was going on,' Mr Basham said. 'If he didn't know he is incompetent. If he did know, he is lying. In either case he should go.'

Sir Colin responded by going on the offensive. In his speech to shareholders, more than a third of which was taken up by an account of the dispute, Sir Colin accepted that a few BA employees had engaged in unacceptable behaviour but reiterated that this had not been part of a wide-ranging centrally orchestrated campaign to which the board had been privy.

'I repeat the assurance here to you today and state further, without qualification, that I did not direct, authorise or implement any improper activities or conduct against Virgin or its chairman,' he said. 'I did not know about them at the time they occurred. I did not - and do not - condone any such activities.'

Virgin had been offered arbitration several times but had refused, proclaiming its intention to sue BA 'based on vague allegations of 'dirty tricks' and unspecified anti-trust claims', Sir Colin said. If these charges were not to be dealt with by arbitration then they should be resolved in court 'and not continue to be the subject of a press campaign'.

Virgin executives were last night puzzled by Sir Colin's comments, pointing out that a writ had indeed been filed in the High Court to which BA had submitted its defence on Monday. It was, Virgin added, BA that had withdrawn the offer of compensation when that was all that stood between the two airlines and a settlement.

Nevertheless Sir Colin's robust defence of BA'a actions helped to subdue an expected shareholders' revolt over the dirty tricks affair, the meeting passing off in an anodyne stream of questions about aircraft purchasing, BA's anti-smoking policy, the noise from Concorde and the carriage by air of other primate species.

Only one shareholder raised the Virgin affair directly, by asking whether Sir Colin and his fellow board members would resign if the pending legal action ended up costing BA more than pounds 9m.

He was told by Sir Michael Angus, BA's deputy chairman, that the question was hypothetical and not relevant to the resolution being voted upon, which was Sir Colin's re- election as a director.

Separately, Sir Michael disclosed that Sir Colin, whose basic salary has risen from pounds 415,000 to pounds 475,000, will move from a rolling three-year contract to a fixed contract this November when he reaches 60.

(Photograph omitted)