Posted Thursday 20th February 2020
It was held in the recent Commercial Court case of Alafco Irish Aircraft Leasing Sixteen Ltd v Hong Kong Airlines Ltd [2019 EWHC 3668 (Comm) (22 November 2019)] that where a contract specifies that a party was entitled to “all reasonable costs and expenses” of litigation, in connection with preserving its contractual rights, this meant that it was entitled an assessment of costs on an indemnity basis.
Despite the clause referring to “reasonable” costs, and although the wording in a contract may not expressly refer to an indemnity, parties may still be entitled to recover its costs on an indemnity basis. The judge held in this case that the wording used was more closely aligned to an assessment on an indemnity basis than on a standard basis. This is welcome clarity from the Courts on this issue.
Compared to an assessment on the standard basis, where costs have to be reasonable and proportionate, indemnity costs still have to be reasonable but are not subject to the proportionality requirement. Given this, costs assessed on an indemnity basis provide a greater recoverability rate than on a standard basis and is a far more favourable method of assessment for the receiving party. This is clearly an advantageous position for the party relying on the clause and for the paying party, to proceed with caution and achieve resolution of the dispute as quickly as possible in order to minimise its costs exposure.
This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.
