Costs can be Indemnifying

In the case of Alafco Irish Aircraft Leasing Sixteen Ltd v Hong Kong Airlines Ltd [2019] EWHC 3668 (Comm) the landlord was awarded indemnity costs following a summary judgment application, notwithstanding the word “reasonable” within the costs provisions of the lease.

Background

Following a landlord’s successful summary judgment application, it initiated costs proceedings against the tenant claiming the tenant was required to pay the landlord’s costs connected to preserving their rights under the lease. The main issue to be decided was whether the landlord’s costs would be assessed on the standard basis or the indemnity basis.   On the indemnity basis for assessment of costs of litigation, rather than the standard basis, there is no requirement for costs to be proportionate and the onus is on the paying party to show the costs claimed are unreasonable.

Decision

The landlord recovered costs on the indemnity basis.  Although the wording of the lease clause did not mention an ‘indemnity’, the Court held that it corresponded more closely with costs assessed on the indemnity basis than on the standard basis. The court also decided the phrase ‘all reasonable costs’ did not exclude indemnity costs, as a party was only entitled to recover costs that had been reasonably incurred. It should be noted the court rejected an argument that indemnity costs should be ordered as a result of the tenant’s conduct.