Cosmos Holidays Plc v Dhanjal Investments Ltd

At the permission stage, a contractual construction challenge is sufficiently arguable where broad indemnity wording appears in a clause directed principally to safety at particular premises and is linked to related, premises-specific obligations. A potentially onerous term does not, for commercial contracting parties, by itself justify a separate argument that it required greater notice. The reasonableness of a settlement is principally a matter for the trial judge. An appellate court should not reassess it with hindsight where the decision is open on the evidence, and unreasonableness must be clearly proved. Permission was granted on the construction issue but refused on the onerous-term and settlement grounds.

Cosmos Holidays, a tour operator, contracted with Dhanjal Investments, a Kenyan hotelier operating a hotel and safari camp in Mombasa. After an armed attack at the camp, Cosmos settled claims brought by nine clients and sought indemnity and other contractual relief from Dhanjal.

Following a trial of preliminary issues, His Honour Judge Grenfell held Dhanjal liable to indemnify Cosmos. The renewed application for permission concerned whether the indemnity in clause 2(a) extended beyond the hotel to the camp, whether the indemnity was so onerous that it required greater notice, and whether Cosmos’s settlement was reasonable.

1. Disposition. Lord Justice Tuckey granted permission to appeal on the contractual construction issue. Permission was refused on the onerous-term and settlement grounds. Lord Justice Longmore agreed.
2. Construction. The first sentence of clause 2(a), together with clauses 2(b) to 2(e), was directed to the safety of clients at the hotel. The indemnity referred back to that wording and appeared within the same contractual framework. Although the indemnity might have extended to the camp if read in isolation, it was sufficiently arguable that its context confined it to matters occurring at the hotel. The application therefore raised an arguable construction issue. The first-instance judge had referred to the contractual-construction principles in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, but the Court of Appeal did not determine the merits of the construction.
3. Onerous term. The argument could be advanced as part of the construction issue, but it did not constitute a freestanding basis for requiring greater notice. The parties were commercial parties and were to be taken to know the terms of their contract.
4. Settlement. The reasonableness of Cosmos’s settlement was an issue principally for the trial judge’s impression. The judge’s conclusion was open on the evidence, including advice that Cosmos’s prospects were approximately even and the presence of several claimants with substantial claims. Settlement is encouraged. The court should not characterise a settlement as unreasonable with hindsight, and unreasonableness had to be clearly proved. Permission was accordingly refused on this ground.

• Court of Appeal (Civil Division): On the renewed application for permission to appeal, permission was granted on the construction issue and refused on the other two grounds: [2008] EWCA Civ 1114.
• Queen’s Bench Division, Leeds District Registry: Following a trial of preliminary issues, His Honour Judge Grenfell held Dhanjal Investments Ltd liable to indemnify Cosmos Holidays under the contract.