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Commercial Leases and litigation costs: "all reasonable costs" clause in commercial lease secures payment of litigation costs on indemnity basis

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The Commercial Court has recently held in the case of Alafco Irish Aircraft Leasing Sixteen Ltd v Hong Kong Airlines Ltd [2019] EWHC 3668 (Comm) (22 November 2019) that a commercial lease which made provision for a party to recover "all reasonable costs and expenses" of litigation, meant that it was entitled to an assessment of costs on an indemnity basis and not the standard basis. It is more beneficial for the receiving party to secure costs payable on an indemnity basis as the Court does not need to be concerned with whether the costs incurred are proportionate and instead merely be concerned whether the costs were reasonably incurred. Moreover, on the indemnity basis it is for the paying party to prove the costs incurred were unreasonable.

The litigation had concerned a commercial lease and the claimant sought costs on the indemnity basis, following a successful summary judgment application. The lease made provision for "all reasonable costs" to be paid in association with the litigation. The lease did not provide for "all costs", but the use of the wording “all reasonable” did not exclude costs being assessed on the indemnity basis as a party was only entitled to recover costs that had been reasonably incurred.

The Judge rejected an alternative argument that indemnity costs should be ordered because of the defendant's conduct.

This article has been published as part of the latest issue of our Commercial Brief, detailed within the In Brief section. You can view the other In Brief articles below:


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