Utting v City College Norwich
High Court (SCCO)
22 May 2020
When a receiving party ultimately incurs less in costs than they budgeted for, they can only recover from the paying party the costs incurred and not the higher budgeted figure due to the operation of the indemnity principle.
The key question that poses for paying parties is whether that downwards "departure" from the budgeted costs means that it is then open for argument that there should be further reductions without any other good reason being established?
That question has been bubbling along largely beneath the surface of costs assessments for a few years, with only occasional breaches of the surface in the form of non-binding decisions. The two most widely-cited judgments to date arrived at directly contradictory conclusions. In a recent decision from the Senior Court Costs Office, Master Brown has now added his views into that melee.
Departing from an agreed or approved budget
The issue flows from the wording of CPR 3.18(b) which states: "In any case where a costs management order has been made, when assessing costs on the standard basis, the court will…not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so".
In Harrison v University Hospitals Coventry & Warwickshire NHS Trust  EWCA Civ 792, that rule was interpreted by the Court of Appeal as follows (para 44):
"Where there is a proposed departure from budget - be it upwards or downwards - the court on a detailed assessment is empowered to sanction such a departure if it is satisfied that there is good reason for doing so."
Downward departures – two different conclusions
A proposed downward departure from a budget will routinely occur because of simple underspend, in which case the indemnity principle will cap recoverable costs at the lower sum, i.e. what was actually spent. Somewhat curiously, that was described in Harrison as "capable of being a good reason for departing from the approved budget", begging the question of when it would ever not be a good reason.
Nonetheless, where there is such a downward departure because of simple underspend the question becomes what effect that departure has on the costs assessment.
On the one hand is the view that once there is a departure in any particular phase (for whatever reason), that phase is opened up to scrutiny more generally without any further good reason being required. This was the view of HHJ Dight in Salmon v Bart Health NHS Trust .
On the other hand is the view that a departure downwards because of the operation of the indemnity principle is limited to that departure unless further specific good reason is shown to depart downwards further still. This was the view of DJ Lumb in Chapman v Norfolk and Norwich University Hospital NHS Foundation Trust, March 2020.
Utting v City College Norwich, 22 May 2020
In Utting v City College Norwich  EWHC B20 (Costs), Master Brown came down on DJ Lumb's side of the argument, agreeing largely with his reasoning. In Utting, the Claimant was injured during the course of her employment as a teacher; her subsequent claim, said by her to be worth close to £1.85 million, settled for £300,000 shortly before the trial was due to commence. As such, most budgeted phases had been substantially completed. However, her Bill claimed costs at most phases in lower sums than had been budgeted.
During the detailed assessment of the Claimant's costs, the Defendant argued that the underspend meant that further good reason to depart did not need to be shown to argue for further reductions, relying on Salmon.
Notwithstanding Master Brown having sat as an assessor to HHJ Dight in the Salmon case, he disagreed with the Judge's reasoning in that case (as mentioned in the judgement). In Utting he set out his view as follows (para 19):
"19. 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. 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. There is however nothing per se unjust if a receiving party were to receive a sum by way of costs which is less than the budgeted sum. This is, of course, 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."
He also added 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  of Harrison) – an aim which is liable to be thwarted if ‘underspend’ could of itself be a “good reason” for departing from a budget" (para 21).
However, Master Brown did depart from DJ Lumb's reasoning in one crucial respect, namely whether non-completion of a phase can (and in this case did) amount to a good reason to depart from the budget. In relation to the Trial Preparation and Trial phases, the Master made this observation:
"However, at the risk of stating the obvious, there was to my mind a clear and obvious distinction between an ‘underspend’ and the situation that arose in respect to the Trial and Trial Preparation phases where plainly there was at the very least substantial non-completion of the phase."
Given the continued absence of any binding authority, and the apparent ambiguity of the Court of Appeal's reasoning in Harrison, it seems likely that this issue is one that is likely to rumble on. However, it also seems likely that many costs judges will be persuaded by the united approach taken by two of their colleagues and that Salmon will increasingly be seen as an outlier to that position.