A senior costs judge has backed the principle that a so-called ‘underspend’ of budgeted sums is not a good reason to depart from the set budget.
Master Brown, sitting in Utting v City College Norwich, said that he would not reduce the sums claimed for phases that 'had not been substantially completed'.
The defendant (the paying party) had argued that there was a ‘good reason’ to depart from the budget for phases that had not been substantially completed. This would have triggered a detailed assessment of the associated budgeted costs.
The claimant submitted that an underspend did not amount to ‘good reason’ to depart from the budget and opposed any reduction to the sums claimed.
Master Brown concluded that an underspend was not a ‘good reason’ to depart on the basis that treating it as such would undermine the effectiveness of costs budgeting.
He made clear, however, that receiving parties should not expect to receive the full amount or budgeted sum where only a small amount of the assumed work had been undertaken.
‘Inevitably budgets are not produced with a degree of precision that can be applied in a detailed assessment; but I do not see that as a justification for having a line by line assessment,’ he said. ‘[Otherwise] 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 decision followed the conclusions of District Judge Lumb in Chapman v Norfolk and Norwich UH NHSFT, who previously found that an underspend was not a ‘good reason’ to depart from a costs budget pursuant to CPR r3.18.
The situation has been unclear because of an unreported judgment in Salmon v Bart Health NHS Trust, which came to a different conclusion to Chapman. District Judge Dight ruled that an ‘underspend’ is a good reason to depart because of the indemnity principle. The decision in Utting is not definitive and it is possible that the issue could be challenged again in a higher court.