The question of whether underspending on a phase is a good reason to depart from a budget has come under the spotlight again after a costs judge ruled that it was not.
It is an area of law that seems ripe for determination by a higher court after Master Brown in the Senior Courts Costs Office explicitly supported the decision earlier this year of District Judge Lumb, the regional costs judge in Birmingham.
Both judges disagreed with the decision last year of Salmon v Barts by His Honour Judge Dight – in which he sat with Master Brown as assessor. HHJ Dight noted that, whilst Master Brown agreed with him on the outcome of the appeal, he did not necessarily agree with the route by which he reached it.
Ruling last week in Utting v City College Norwich  EWHC B20 (Costs) – an employer’s liability claim that settled for £300,000 – Master Brown explained that he found there was good reason to depart in Salmon “because the assumptions upon which the budget had been prepared were not fulfilled”.
But when it came to an underspend, he agreed with DJ Lumb in Chapman that, if this were a good reason for departing from a budget, “it would be liable to substantially undermine the effectiveness of cost budgeting”.
Master Brown explained: “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.”
Master Brown questioned the way HHJ Dight reached his conclusion by relying on obiter comment in the Court of Appeal’s 2017 ruling in Harrison, which set the ‘good reason’ benchmark.
Master Brown said the approach of DJ Lumb was more consistent with the general reasoning which underpinned 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”.
This aim was liable to be thwarted if underspend could of itself be a good reason.
Even if he was wrong on this, Master Brown said it would not be appropriate to reduce the sums claimed for the underspent phases.
“I could see no proper basis for having a line-by-line assessment in respect of these phases. The sums claimed fall within those sums which were agreed or approved as reasonable and proportionate for the work to be done.
“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: indeed it seems to be incompatible with the aims of costs budgeting.”