One question which comes up time and time again in cost circles is ‘What constitutes a good reason to depart from a budget at assessment?” Judicial guidance on this is spread thin but Costs Judge Leonard recently decided this question in circumstances which may crop up now and again.
In Reed v Woodward Property Developments Ltd & Anor [2023] EWHC 36 (SCCO) Costs Judge Leonard dealt with a couple of significant issues concerning the validity of the Claimant’s retainer and the division of costs between those incurred against two different Defendants. The Judge’s decision on these two points has lead to some commentary from others (Spoiler alert: the decisions went in favour of the Defendant receiving party) but the part of the Judgment which caught my eye was in relation to the third issue at stake: Whether the Second Defendant was entitled, for the purposes of assessment, to rely upon an approved costs budget or whether there was good reason under CPR 3.18(b) to depart from the budgeted costs.
This question crops up very frequently at cost seminars, where eager practitioners are hoping for concrete guidance and several different examples but usually come away with a little disappointed. Most of the guidance we do have tells us what does not constitute a good reason. In Nash v Ministry of Defence [2018] EWHC B4 (Costs) and Jallow v Ministry of Defence [2018] EWHC B7 (Costs) it was held that a reduction to hourly rates is not a good reason to depart from a budget.
If the costs of a phase come in under budget then, through the operation of indemnity principle, the costs are reduced. Some have sought to argue that the mere fact there is a reduction along these lines itself means the entire phase should be open to assessment. Whilst that argument was successful in Salmon v Barts Health NHS Trust [2019] it is now seen as something of an anomaly following the cases of Chapman v Norfolk and Norwich University Hospital NHS Foundation Trust (2020) and Utting v City College Norwich [2020] EWHC B20 (Costs). A paying party will need a distinct good reason from the indemnity principle point to see the court assess a phase.
An incomplete phase may constitute a good reason to depart if the anticipated work has not actually been completed. This was Cost Judge Brown’s view in Utting.
In Reed the Claim was originally pursued against two Defendants. A budget was prepared on behalf of both Defendants and approved in July 2017. Subsequently, the first Defendant went into liquidation and essentially took no part in the proceedings. The budget was updated (and increased) and the court recorded it as being the Second Defendant’s updated costs budget.
After trial, Judgment was found for the Claimant against the First Defendant, but the claim was dismissed against the second Defendant.
This lead to a problem in the detailed assessment proceedings. Whilst the updated budget approved additional sums for the Second Defendant, it begged the question ‘additional to what?’ The original budget did not distinguish between the costs of each Defendant.
At para 106 of Reed, Costs Judge Leonard stated as follows
- ……. First, the fact that the Claimant succeeded as against the First Defendant but not the Second Defendant gives good reason to depart from a budget which incorporate the costs of both Defendants without distinguishing between them.
The clarity of this point could be significant. On many occasions there are budgets which incorporate the costs of more than one party and there is no breakdown of the costs between those parties. It is also not uncommon for those parties to sometimes have differing results. If so, any party who wishes to depart from the budget will be encouraged by this Judgment. It is not an appellate court decision and issues like this will always be case specific but it seems like a sound judgment on circumstances which do arise on a number of occasions.
