Does agreeing to “reasonable costs” mean assessment on the indemnity basis?

Does agreeing to “reasonable costs” mean assessment on the indemnity basis?

All Business Dispute Commercial Litigation Costs

Yes, held the Commercial Court.

In Alafco Irish Aircraft Leasing Sixteen Ltd v Hong Kong Airlines Ltd [2019] EWHC 3668 (Comm) the parties had entered into a lease which contained a clause that the Defendant (who was the lessee) was to pay all of the Claimant’s (the lessor’s) “reasonable costs and expenses” of litigation, including its legal costs.

The Claimant had successfully obtained summary judgment against the Defendant and sought costs on the indemnity basis (rather than the standard basis), which meant that their costs did not have to be proportionate. Moulder J commented in particular that the word “reasonable” did not mean that indemnity costs could not be sought.

It is a common clause in lease agreements that lessees agree to paying the lessor’s reasonable costs and expenses, which include legal costs in the event that action is needed to recover arrears of rent, for example. Often, a lessee will sign a lease agreement including this clause without realising the potentially catastrophic consequences.

It is important that before entering into a lease you seek advice in relation to its terms in order to protect your position.

For further information on the above, please contact us on 0207 467 3980 and speak to a member of our dispute resolution team now. Alternatively, email us with your query at and we will be sure to call you back straightaway at a time convenient for you. All communications will, of course, be dealt with in the strictest of confidence.