British Airways is facing a multi-million-pound compensation bill after failing to keep secret a deal in which it has agreed to pay passengers £430 each for cancelling their flights.

The deal opens the way for thousands of passengers — who were left stranded in February because of an industrial dispute — to make claims against the airline.

It will also strengthen the hand of airline unions in future disputes because both sides will know that strikes could not only cost the companies lost revenue but leave them with a crippling compensation bill.

BA had rejected claims relating to the dispute with cabin crew. It argued that a clause in the European Union regulation on passenger rights meant that it did not have to pay compensation.

But after months of negotiations, the airline has agreed to pay compensation and legal costs for two passengers who were stranded in Cape Town after their flight was cancelled on February 2.

BA tried to keep the offer secret and prevent other passengers from claiming by insisting that the passengers and claims handling company signed a confidentiality agreement. But the Netherlands-based company, EUclaim, has refused and yesterday informed BA that it would be applying for the case to be heard in a Dutch court.

It said that it had been contacted by 400 other BA passengers and travel agents acting on behalf of multinational companies who were all seeking compensation.

BA is anxious to avoid a court hearing because it does not want to establish a precedent that could leave airlines unable to resist compensation claims for cancellations.

In a letter seen by The Times from BA to EUclaim, the airline wrote: “Although the cancellation of BA42 on 2 February, 2007, was due to extraordinary circumstances and as such cancellation compensation would not be payable, on this occasion BA may not choose to prove the defence in court if an amicable settlement can be reached.”

It said that BA was “prepared to pay the relevant compensation amount under the EU regulation” but added that this was “subject to the settlement agreement reached remaining confidential”.

Hendrik Noorderhaven, chief executive of EUclaim, said: “We have refused to be silenced. We want this case to go to court to establish a clear ruling which will save passengers from having to spend a great deal of time fighting their cases.” He said that BA had been wrong to invoke the clause on strikes in the EU regulation because this was not intended to protect airlines that pushed disputes to the limit in order to extract the best deal from unions.

“Passengers were the victims of a plan by Willie Walsh [the BA chief executive] to save £50 million in cabin crew costs and therefore generate more profit for shareholders. If people are stranded because an airline fails to resolve a dispute in time with its cabin crew, they deserve compensation.”

BA cancelled 1,200 flights five days before the strikes were due to take place. The stoppages were later called off but a deal came too late for all the flights to be reinstated. Many that did operate flew almost empty because people had had to change their plans.

The European Commission has expressed concern that airlines are abusing the clause in the regulation to avoid paying compensation for cancellations. Jacques Barrot, the Commission Vice-President, said on April 4 that he would give airlines six months to prove that they were complying with the spirit of the regulation or they would face new laws giving passengers stronger rights.

A spokesman for Unite, the largest aviation union, which represents most BA cabin crew, said that EUclaim’s case would force airlines to work harder to reach an agreement in disputes, adding: “Anything which makes an airline realise there are serious consequences to its decisions will help resolve disputes more quickly.”

A BA spokesman said that it had made the offer to EUclaim without admitting liability. “We notified passengers that we were cancelling flights and gave them the option to rebook or refund their flight,” he added.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts