13th January 2020
Karl Anders and Nick Lees, partners in Walker Morris’ Litigation & Dispute Resolution Departments, explain what a contractual entitlement to “all reasonable costs” has been interpreted to mean by the High Court in the recently reported case of Alafco v Hong Kong Airlines Ltd .
The High Court considered the meaning of a recovery of costs clause. The clause was contained in a lease, but a similar provision is likely to be found in a wide variety of commercial contracts.
The clause stated that the tenant had to pay the landlord’s reasonable costs and expenses incurred in preserving the landlord’s rights under the lease, including legal costs.
Following litigation concluded in it’s favour, the landlord argued that the recovery of costs clause meant it was entitled to recover its legal costs on the indemnity basis (rather than the standard basis), despite the reference in the clause to “reasonable” costs.
Contracting parties should note that the High Court in Alafco concluded that a recovery of costs clause in a lease is a contractual entitlement to recover costs on the indemnity basis.
Whether or not a clause states that a party is entitled to recover “all costs” or “all reasonable costs” is irrelevant. The presence of the word “reasonable” does not preclude recovery on the indemnity basis (because the indemnity basis is, itself, already subject to reasonableness).
 Alafco Irish Aircraft Leasing Sixteen Ltd v Hong Kong Airlines Ltd  11 WLUK 355
 Civil Procedure Rule 44.3