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Utting V City College Norwich - Is An Underspent Phase A Good Reason To Depart From An Approved Costs Budget?

12 June 2020

Master Brown’s recent decision in Utting v City College Norwich [2020] EWHC B20 (Costs) gives further guidance on how an underspent costs budget phase should be treated on detailed assessment; namely that it is not in itself good reason to make further reductions to the claimed budgeted costs.

This decision forms part of growing case law defining good reason to depart from an approved costs budget on detailed assessment as described in CPR 3.18 (b). In June 2017, the Court of Appeal decided in Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792 that on detailed assessment incurred costs were not budgeted and therefore the need for “good reason” to did not apply. However, for estimated costs “good reason” was required to depart upwards or downwards from an approved or agreed costs budget.

The Harrison decision clearly sets out the position on detailed assessment when costs are claimed in excess of an approved or agreed costs budget.  Unless there is good reason, those costs claimed in excess of the costs budget will be disallowed.

The position is less clear when budgeted costs claimed are less than those in the approved or agreed costs budget, primarily due to the indemnity principle limiting costs that can be claimed. One concern for paying parties is when a costs budget phase has not completed before a case settles.  For example, if a case settles two weeks before trial, is “good reason” needed for reductions to be made to the Trial Preparation phase if the budgeted costs claimed are less than those in the approved costs budget?

HH Judge Dight in Salmon v Bart Health NHS Trust [2019] decided that costs claimed below the amount in the approved costs budget was in itself good reason to depart from that costs budget and further reductions could be made. In his judgment he stated “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”.  He added “once the court has a right to depart from the budget, neither the receiving party nor the paying party needs to establish a further good reason within CPR 3.18 if they wish to persuade the costs judge to make a further or different adjustment to the bill.”

Following this judgment, when budgeted costs claimed in a bill of costs are less than those in the approved costs budget, there is then good reason to depart from that costs budget and make further reductions.

District Judge Lumb was subsequently asked to decide a similar point in Chapman v Norfolk and Norwich University Hospital NHS Foundation Trust [2020].  He disagreed with the decision of HH Judge Dight, stating “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.” 

Following these decisions, Master Brown undertook the detailed assessment of the Claimant’s costs in Utting.  Master Brown was also assessor to HH Judge Dight in Salmon and importantly his decision on the assessment of costs in the underspent costs budget phases follows the decision in Chapman rather than Salmon.  In para. 19 of his judgment, the Master stated “As to whether an ‘underspend’ amounts to a “good reason” I respectfully agree with District Judge Lumb’s decision, essentially for the reasons given by him. I agree with the learned District Judge that 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.” 

Master Brown proceeded with a broad-brush detailed assessment of budgeted costs with the paying party having to provide good reasons for further reductions to be made to phases where costs were within the approved costs budget. At one point the Master did accept that where a Counter-Schedule had not been served but had been anticipated in the costs budget, that might potentially be “good reason” to depart from the costs budget. However in this case, as the amount claimed in the Issue/Statements of Case phase was already substantially short of the budgeted figure he was not minded to make any further reductions. 

Master Brown’s decision follows Harrison and due to his considerable experience on this issue his judgment is likely to be followed.  It is important to add that even if a costs budget underspend is not automatically “good reason” to depart from an approved costs budget, it is still possible for a paying party to argue that there are “good reasons” to make further reductions to an underspent costs budget if it can be shown, on a broad-brush basis, that the budgeted costs claimed are unreasonable and/or disproportionate for the work actually undertaken.