CPR 3.18(b) | Underspend Does Not Constitute Good Reason To Depart From An Approved Budget

Utting v City College Norwich

Master Brown (costs judge) has joined the debate about the effect of an underspend in a costs budgeted case.

In March last year we reported on the decision in Salmon v Barts Health NHS Trust [2019] wherein HHJ Dight held that if the sum claimed on assessment in any given phase of a bill is lower than the budgeted figure for that phase, because the anticipated work had not been completed and/or by virtue of the indemnity principle, this was, in and of itself, capable of being a ‘good reason to depart’ under CPR 3.18(b) thus opening that phase to a traditional line by line assessment. He said:

“Awarding the lower figure would be, in my judgment, a departure from the budget, which requires a good reason to be established: in this case, once that had been done it was open to the paying party to challenge the figure which was then being claimed by the receiving party, and they did not have to assert a further good reason to enable the court to do so.”

In March this year, we reported on the contrasting decision of DJ Lumb in Chapman v Norfolk and Norwich University Hospitals Foundation Trust who respectfully disagreed with HHJ Dight, saying:

“In so far as HHJ Dight at paragraph 36 of his judgment in Salmon has concluded that if a party has not spent the totality of the budgeted figure for a phase that amounts to a good reason per se and the door is therefore open for the paying party to make further submissions on an appropriate figure for the phase, I respectfully disagree. If that approach was correct virtually 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 (who sat an as assessor with HHJ Dight in Salmon and agreed with him on the outcome of the appeal but not necessarily with the route by which he reached it) has now had to determine the issue himself in the course of a detailed assessment in the Senior Courts Costs Office.

In doing so, the Master drew a distinction between mere underspend and the situation where a phase is substantially incomplete.

In respect of whether mere underspend in a phase is in and of itself ‘good reason to depart’ from the budget, he said:

“I agree with [DJ Lumb] 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. As the Judge effectively observed, 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…

“even if ‘underspend’ were a “good reason” for the purpose of CPR 3.18 it does not follow that there should be a deduction from the sums claimed. Plainly, the fact that a party has spent less than its budget for a phase does not mean there is therefore in fact a good or appropriate reason for any further reduction and I was not satisfied that there was any additional “good reason” for any such reduction.”

In slight contrast to the decision of DJ Lumb, the Master found that the situation may be different where the anticipated work in a phase was not substantially completed. In such a case, he said:

“…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.”

He went on to find however that it would be unjust to make any deductions in any of the incomplete phases in this case given that the sums claimed had in any event fallen short of the budgeted amount:

“In respect of the Issue and Statements of Case phase the Defendant argued that no Counter Schedule was served as anticipated. This might, potentially, have amounted to a “good reason” for departing from the budgeted sum as it might have been argued, that the phase was not substantially completed. However, given that the sums claimed for the phase fell substantially short of the budgeted figure, taking a broad-brush approach, it did not, to my mind, justify any further reduction.”