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Utting v Norwich City College: the High Court rules against using underspend as a reason to depart from budgets
Colin Cook, Hatch Brenner Partner and Head of Dispute Resolution commented: "As many Claimant practitioners will be painfully aware, Defendant legal teams, instructed by insurers, regularly seek to depart from costs budgets on detailed assessment to effectively use the budgeting process to gain a double assessment of the Claimant’s costs. This can open up opportunity to obtain additional reductions on costs bills where work has been genuinely and properly undertaken in accordance with the approved costs budgets.
"In many instances this undermines the purpose to budgeting.
"One of the latest tactics has been to use the fact that there has been an underspend on the budget as a reason to invite the assessing costs judge as a reason to depart from the budget.
"It is a quite incredulous argument.
"Imagine if you were provided with an estimate for building works and the final bill came in under the original estimate. Would you then challenge the costs because is was too low?
"This is the point some Defendants have been making on costs assessments."
In the case of Utting v Norwich City College in which Hatch Brenner Solicitors was instructed in the High Court, Master Brown ruled against the Defendant legal team (DWF LLP) seeking to raise this point in his written judgment:
“… 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. “
“… one of the perceived benefits of cost budgeting is that the need for, and scope of, detailed assessments would be reduced … – an aim which is liable to be thwarted if ‘underspend’ could of itself be a “good reason” for departing from a budget.”
“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.”