Utting v City College Norwich [2020] EWHC B20 (Costs) – Underspend is NOT a good reason to depart from a Costs Budget

This is a matter in which the Defendant attempted to argue that there was “good reason” to depart from the Costs Budget on the basis that the phases had not been substantially completed.

The Defendant relied on part of the Judgment reached in Salmon v Bart Health NHS Trust [2019] (which involved departure on the basis that the assumed work in respect of Expert Reports had not been completed) which stated that “…the fact that the sum claimed is lower than the budgeted figure, because of the indemnity principle, is itself capable of being a good reason“ and “…once a good reason has been established, and the court is given the right to depart from the budget, it will assess the costs of that phase in the usual way…”

In response, the Claimant relied on the decision of DJ Lumb in the case of Chapman v Norfolk and Norwich University Hospital NHS Foundation Trust (March 2020) whereby it was stated, that he respectfully disagreed with the approach in Salmon and opined that “If that approach was correct every case would go to Detailed Assessment and there would be a perverse incentive to a prospective receiving party to overspend and marginally exceed every phase in order to avoid a Detailed Assessment.”

Master Brown considered both arguments and ultimately preferred the argument set out by DJ Lumb in the case of Chapman and concluded that the following

“…if an underspend were to be a good reason for departing from a budget it would be liable to substantially undermine the effectiveness of cost budgeting…solicitors who had acted efficiently and kept costs within budget would find their costs subject to detailed assessment, whereas less efficient solicitors who exceeded the budget would, absent any other “good reason”, receive the budgeted sum and avoid detailed assessment.”

The Master distinguished the case in question from the case of Salmon by stating “(The current case is) to be contrasted with the situation where a phase is not substantially completed, where it would, to my mind, be unjust for a receiving party to receive the full amount of a budgeted sum in circumstances where only a modest amount of the expected work had been done.”

The case demonstrates that a simple underspend does not amount to a good reason to depart downwards on a previously approved Costs Budget. However, if a party spent the limit of phase on completing only half of the work assumed (i.e. in the Costs Budget assumptions) there is a strong argument that this would be “good reason” to depart from a budget and costs would likely be reduced.

Please see the full Judgment here.

Please contact Karl Robson here if you have any queries.

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