South Bank Hotel Management Company Limited v Galliard Hotels Limited & Ors

Contractual costs indemnities are construed by reference to their precise wording. A requirement that costs be properly incurred concerns the circumstances in which expenditure was incurred, while a separate requirement of reasonableness concerns its amount. The cumulative use of indemnity language, “all” costs and these qualifications may nevertheless correspond to assessment on the indemnity basis.

Indemnity costs require conduct or circumstances taking the case outside the norm. A failed fraud allegation creates no automatic entitlement to indemnity costs, but persistence after disclosure may justify them. A percentage reduction requires case-specific justification, not exceptional circumstances. Departure from the usual Civil Procedure Rules 1998 Part 36 consequences requires particular circumstances making the usual order unjust.

The judgment determined consequential matters following the court’s substantive judgment in [2024] EWHC 2484 (Ch) in two related proceedings. The court considered whether Lodgeshine had contractual rights to recover its costs of the Main Claim and Rent Claim under the Underlease, and whether those costs fell to be assessed on the standard or indemnity basis.

The court also determined costs of interlocutory applications, the appropriate basis and percentage of recovery for the Main Claim, the consequences of a successful Part 36 offer in the Rent Claim, interest, allocation of residual costs, permission to appeal and a stay. The central issues were the proper construction of the contractual indemnity and the application of the discretionary costs regimes.

1. The court refused Galliard’s requested declaration that any equitable interest of SBHMC in Lodgeshine’s leasehold title was extinguished. The declaration was broad, insufficiently explored at trial and risked unintended consequences. It would add insufficient utility to the judgment.

2. Lodgeshine was not entitled to a determination that all costs of the Main Claim fell within clause 4.4.1 or, alternatively, clause 4.33 of the Underlease. The Main Claim included claims extending beyond rent, including economic tort and knowing receipt claims. Without evidence identifying what the costs were incurred for, the court could not determine that all were connected with recovery of rent.

3. Clause 4.4.1 applied to the Rent Claim and, by a slender margin, corresponded to assessment on the indemnity basis. “Properly incurred” concerned whether it was proper to incur the expenditure, rather than proportionality. The separate reference to reasonable costs addressed amount and did not distinguish the indemnity from the standard basis. The use of “indemnity” and “all” costs supported the conclusion.

4. For compromised applications, the court’s discretion is at large and there are no general principles beyond pragmatic case management. The disclosure and expert applications attracted no order for costs; the first-day disclosure application was costs in the case; and costs were allocated for the amendment and strike-out applications at the pre-trial hearing.

5. Under Civil Procedure Rules 1998 rule 44.2, the normal basis is standard. Indemnity costs require circumstances or conduct taking the case outside the norm. A failed fraud allegation creates no presumption, but persistence with extensive fraud allegations after 15 May 2024 justified indemnity costs thereafter. Galliard recovered 85% of its Main Claim costs, assessed on the standard basis to that date and the indemnity basis thereafter.

6. A percentage costs reduction requires case-specific justification, without any requirement that the case be exceptional or that issues have been taken unreasonably. Construction and rectification overlapped substantially with the dishonesty defence, but generated some additional evidence and costs, justifying the 15% reduction.

7. The successful Part 36 offer was not unjust merely because it did not resolve the counterclaim. The usual consequences under Civil Procedure Rules 1998 rule 36.17(4) therefore applied. The compensatory interest rate was base rate plus 2%. Lodgeshine recovered Rent Claim costs on the indemnity basis before expiry of the relevant period, reduced by 20% to reflect the unsuccessful counterclaim.

8. Permission to appeal was refused. A stay was granted for approximately two months in respect of removal of the UN1, subject to a cross-undertaking, to allow SBHMC to seek permission from the Court of Appeal.

The judgment itself records the earlier substantive judgment in the related proceedings as [2024] EWHC 2484 (Ch). This was a consequential judgment of the High Court and not an appeal.