Rabilizirov v A2 Dominion London Ltd & Ors

An indemnity clause covering liability, loss, claims or proceedings arising from defective works may extend to the costs of an appeal. The question is whether the appeal is sufficiently connected with the underlying trial to fall within the same proceedings. The court retains discretion under CPR 44.2(1) whether to award costs, but should generally give effect to a contractual indemnity when exercising that discretion. The indemnity does not remove the need to consider proportionality and assessment. Where the contractual allocation of costs is engaged, costs may properly be ordered on the indemnity basis and subjected to detailed assessment.

This was a costs ruling following an appeal from an order of HHJ Bailey in the Technology and Construction Court at the County Court at Central London. The substantive appeal concerned Ground Construction Ltd’s liability to indemnify Durkan Ltd for loss of rent arising from defective groundworks and water ingress at a newly constructed building. The appeal had been dismissed by judgment dated 5 February 2019, reported at [2019] EWHC 186 (QB).

The remaining dispute concerned whether the contractual indemnity between the A2 companies and Durkan covered the costs of the appeal and, if so, how the court should exercise its costs discretion.

1. Indemnity clause. The contractual clause made the contractor liable for, and required it to indemnify the employer against, any expense, liability, loss, claim or proceedings arising out of or in the course of the works, to the extent caused by the contractor’s negligence, breach of statutory duty, omission or default. The court held that “any proceedings” included the appeal. The appeal was an adjunct to the trial: permission had been granted on all grounds, the relevant chain of parties remained the same, and the appeal substantially overlapped with the trial issues. Separating the trial and appeal would have been artificial.
2. Costs discretion. The court retained a discretion under CPR 44.2(1) whether costs should be payable. The indemnity clause did not determine the order automatically. Nevertheless, the authorities indicated that the discretion should generally reflect a contractual right to an indemnity. The court accepted that approach, applying Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171, and treating the same principle as having been applied in Astrazeneca UK Ltd v International Business Machines Corporation [2011] EWHC 3373 (TCC).
3. Application and order. Although the A2 companies’ costs were disproportionate compared with the other parties’ costs, the contractual indemnity, the parties’ success on the appeal and the agreed payment by Ground Construction Ltd justified an indemnity costs order. Durkan was ordered to pay the A2 companies’ appeal costs on the indemnity basis, subject to detailed assessment if not agreed. Ground Construction Ltd was ordered to pay the same amount to Durkan. No order was made for the A2 companies’ costs of the post-hearing submissions.

1. High Court (Queen’s Bench Division): the appeal from HHJ Bailey’s order was dismissed by judgment dated 5 February 2019, reported at [2019] EWHC 186 (QB). The present judgment determined the outstanding costs issues.
2. County Court at Central London, Technology and Construction Court: HHJ Bailey ordered Ground Construction Ltd to pay Durkan Ltd £340,000 in respect of loss of rent.