Underspend, not good reason to depart from budget, unless phase substantially incomplete

The Costs Budget remains essential to costs recovery and monitoring continues to play an all-important role. The courts have previously ruled that an underspend of any phase constitutes a good reason to depart from the budget, however during a recent detailed assessment of costs in Utting v City College Norwich [2020] EWHC B20 (Costs) Master Brown adopted a different approach, agreeing with DJ Lumb in the case of Chapman v Norfolk & Norwich University Hospitals NHSFT [2020], as he commented:

“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.”

Consequently, the opportunity to secure a full recovery of budgeted costs (i.e. those estimated costs that have been incurred), is increased if the costs incurred fall within the budget.

Master Brown largely sided with DJ Lumb’s approach in the case of Chapman when he determined that underspending in a phase was not a good reason to depart from the budget. A budgeted phase coming up short is limited to the sum spent because of the indemnity principle, but that does not open it up to scrutiny more generally in the absence of further “good reason”.

Counsel for the Defendant in Utting submitted that if the amount of a phase does not match the budgeted sum then the costs of that phase are subject to detailed assessment including where there has been an underspend. The claim had settled some 20 days before trial following an unsuccessful joint settlement meeting. The bill claimed costs slightly lower than those budgeted but Master Brown deemed all phases to be complete, save for the Trial Preparation phase and Trial phase. For the phases regarded as complete he opined:

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.

The Defendant was however given permission to argue “good reason” for departure in the Trial Preparation and Trial phases on the grounds that these phases had not substantially been completed and described this as:

“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

This was the key difference to the approach taken by DJ Lumb in Chapman. The thrust of the ruling in Chapman seemed to be that once a budget was set, a party could spend a budgeted phase however it chose.

In Utting the Defendant sought to rely on the 2019 ruling in Barts Health NHS Trust v Salmon where not spending the totality of the budgeted figure for a particular phase, by virtue of the indemnity principle itself, did constitute “good reason”. The point of settlement of this case was pre-agreement of joint expert meeting agendas and before any JSM and so unsurprisingly the sums claimed in the Expert and ADR phases were less than the sum which had been budgeted for. Master Brown made reference to the fact he sat as an assessor in Barts Health NHS Trust v Salmon but justified taking a different tack in Utting on the basis that in Barts Health  “the assumptions upon which the budget had been prepared were not fulfilled”.

The approach taken in Barts health essentially incentivised a receiving party to overspend to avoid detailed assessment. DJ Lumb recognised this in Chapman and highlighted how it was problematic. Although Master Brown in Utting agreed with DJ Lumb as to the overall effect of the ruling in Barts Health, Master Brown went on to comment:

“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.”

As none of the cases referred to above are binding there remains an absence of clarity surrounding “good reason” to depart from a budget when the receiving party has underspent. The decision in Utting does however seem to have refined the approach in Chapman, causing Barts Health to appear to be more of an anomaly, further highlighting the importance of budgets and budget monitoring.

Anna Lockyer is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at anna.lockyer@clarionsolicitors.com and 0113 288 5619, or the Clarion Costs Team on 0113 246 0622

Filing a Costs Budget Late: High Court Decisions in 2020

Back in January of this year Lionel Persey QC, sitting as a Deputy Judge of the High Court, took a fairly lenient approach towards the defaulting party in the case of Manchester Shipping Ltd v Balfour Shipping Limited & Anor [2020] EWHC 164 (Comm) when he granted relief from sanctions to Defendants who filed a costs budget 13 days late.

The Judge took the stance that “The breach, although serious in terms of lateness, did not prevent the litigation from being conducted efficiently or at proportionate cost. No inconvenience was caused to the court or to other court users”. This ruling seemed to mark a shift from the strict application of CPR 3.14 which provides that: unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees.

More recently however, His Honour Judge Simon Barker QC in Heathfield International LLC v (1) Axiom Stone (London) Ltd & (2) Medecall Limited [2020] EWHC 1075 (Ch) determined that the defaulting party, in this case the second Defendant, was to be treated as having filed a budget comprising only the applicable court fees.

The surrounding circumstances were that the defaulting party failed to file a Budget 21 days before the originally listed CCMC. This first CCMC was vacated 4 days before it was due to take place as a result of the parties making applications in respect of security for costs. The second Defendant attempted to excuse the fact it had not filed a budget on the basis that the parties had agreed for the CCMC to be relisted. The timing of this agreement was ambiguous and could not be substantiated. The second Defendant then failed to file and serve its budget 21 days before the relisted CCMC and did so late by at least 5 days. Furthermore, they did not file and serve a Precedent R or engage in budget discussions. Relief from sanctions was subsequently applied for 2 days before the re-listed CCMC.

Counsel for the second Defendant attempted to use Manchester Shipping in support but it was found to be incomparable on the facts.

HHJ Barker QC commented on the fact that the first Defendant’s response to the Claimant’s claim had been the cause of the second Defendant on a secondary alternative basis “but that does not entitle D2 to take a more relaxed or casual approach to participation as a party in this litigation”.

The sums of money in issue, at approximately £260k plus £100k for interest and statutory penalty, and the type of litigation as a claim for unpaid invoices were also referred to in the context that “costs may easily become disproportionate” thus “costs control and costs budgeting are all the more important”.

Reference was also made to the court’s discretion under CPR 3.14 being “entirely open”.

A form of hybrid relief was contemplated but ultimately it was decided that the defaulting party should be treated as having filed a budget comprising of court fees only.

Anna Lockyer is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at anna.lockyer@clarionsolicitors.com and 0113 288 5619, or the Clarion Costs Team on 0113 246 0622