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Underspending in a phase does not lead to an assessment of costs - Utting v City College Norwich [2020] EWHC B20 (Costs)

View profile for Mark Holloway
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Underspending in a phase should not open that phase to a full detailed assessment of the costs therein.

Background

The claimant valued their claim in the region of £1.85 million. The claim proceeded until 20 days before trial at which point it settled for £300,000.00 with costs to be assessed on the standard basis.

All phases apart from the trial preparation phase and trial phase were either substantially complete or complete. The costs incurred in other phases were lower than the amount allowed in the budget.

The paying party argued that where there is a phase with an underspend, whether it is modest or large, that phase would be subject to detailed assessment. The paying party also argued that there was good reason to depart from the trial preparation phase and trial phase as they were substantially incomplete.

Salmon v Barts Health NHS Trust [2019]

The paying party relied on the decision of HHJ Dight, who in Salmon concluded that if good reason is established to depart from the budgeted figure, then the relevant phase would be open to detailed assessment in the usual manner. HHJ Dight confirmed the following two examples constituted good reason to depart; the first is if the amount claimed in the bill is less than that allowed in the budget; and the second is if a phase in the bill was not substantially complete.

Chapman v Norfolk and Norwich University Hospital NHS Foundation Trust [2020]

The receiving party relied on the decision of District Judge Lumb, who concluded that if there is a reduction to the budgeted figure in the costs claimed, based on the indemnity principle, that would not open the phase to an assessment and a further good reason would need to be established.

Decision

Master Brown, who sat as an assessor in Salmon, confirmed that the indemnity principle applies to costs budgeting and the receiving party is not automatically entitled to the budgeted sum. However on the issue of whether an underspend amounts to good reason, Master Brown sided with District Judge Lumb. Efficient solicitors should not be penalised for working within the budget, a further good reason would need to be established for an additional reduction to be applied. If, however, the phase was substantially incomplete and the full budget had been incurred then good reason could be established

“Moreover it seems to me that the approach of the District Judge Lumb is more consistent with the general reasoning which underpins the decision in Harrison in particular that one of the perceived benefits of cost budgeting is that the need for, and scope of, detailed assessments would be reduced (see [34] of Harrison) – an aim which is liable to be thwarted if ‘underspend’ could of itself be a “good reason” for departing from a budget.”

The paying party argued that in the issue and statements of case phase no counter schedule was served. This could be considered good reason to depart, as the phase was not substantially complete. Master Brown considered that on a broad-brush basis the costs claimed in the phase fell substantially short of the budgeted figure and therefore did not justify a further reduction.

On the general point that the claim settled for a far lower figure than pleaded, Master Brown concluded that the main action still settled for a substantial sum and this was therefore not enough to justify that the costs were unreasonably incurred.

Conclusion

The Master has not provided any detail in his Judgement regarding how the trial preparation phase or trial phase would be dealt with as they were substantially incomplete. Based on the judgement it can be assumed that, if on a broad-brush basis the costs incurred and the work undertaken bear a reasonable relationship to the budgeted figure and the work  that was anticipated to be undertaken for that phase, then no further reduction should be applied. The Master makes clear that budgets are not set with the same precision as is found at a detailed assessment. However that is not a justification for a line by line assessment as this is not the purpose of the costs budgeting regime. Nevertheless it is implied if the costs do not bear a reasonable relationship then a line by line assessment appears to be the only remaining option.

Opinion

The decision confirms what many have thought since Salmon; that penalising receiving parties for working within the budget cannot be the correct approach to be applied.

Further detail would have been useful on what would happen where a phase is substantially incomplete. However this claim supports Chapman and the certainty of budgeting.

Unfortunately, as this is also a further non-binding decision it will only serve to be a counter argument to paying parties seeking good reason to depart based on the decision by HHJ Dight.

 

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