The starting point in the Competition Appeal Tribunal (CAT) is that no order for costs should be made against an unsuccessful regulator acting purely in its regulatory capacity, the Court of Appeal has ruled.
There could be good reason to depart from this, it continued, but the mere fact that the regulator has been unsuccessful is not enough.
The ruling could have a “significant chilling effect” on businesses’ willingness to challenge Competition and Markets Authority (CMA) decisions in future, according to a competition law specialist.
The regulator previously fined pharmaceuticals manufacturer Pfizer and distributor Flynn Pharma almost £90m between them in 2016 after determining that a price increase they oversaw for a major epilepsy drug constituted an abuse of market dominance under competition rules.
However, the companies appealed to the CAT and the case was subsequently appealed again to the Court of Appeal. In March, the Court of Appeal ruled that the fairness of the prices charged to the NHS had to be reassessed by the CMA.
The CAT ordered the CMA to pay on proportion of Pfizer and Flynn Pharma’s costs, but the appeal court overturned this, saying the tribunal had been wrong to start from the position that costs followed the event.
Giving the main ruling, Lord Justice Lewison reviewed the law in analogous situations – including cases brought by the Solicitors Regulation Authority before the Solicitors Disciplinary Tribunal – and the 2018 CAT case of BT v Ofcom.
He found that the appeal court “has comprehensively rejected the proposition that the starting point, even in a merits or judicial review appeal in the CAT, is that costs follow the event”.
Rather, “the starting point or default position is that no order for costs should be made against a regulator who has brought or defended proceedings in the CAT acting purely in its regulatory capacity”.
This may be departed from for good reason, but the mere fact that the regulator has been unsuccessful is not, without more, a good reason. “I do not consider that it is necessary to find ‘exceptional circumstances’ as opposed to a good reason.”
Lewison LJ continued: “A good reason will include unreasonable conduct on the part of the regulator, or substantial financial hardship likely to be suffered by the successful party if a costs order is not made.”
Hardship would not be a relevant consideration under the CPR, he noted. But the CAT could take into account the level of irrecoverable costs that the successful party had borne in the administrative stage of the investigation.
“The conduct of the parties would also be a relevant consideration as the rule again envisages. It may be that if the CMA were to pursue a small or medium-sized enterprise as a test case, that would justify a departure from the starting point.
“But whatever approach is adopted the CAT must also put into the scales the fact that the CMA is a public body carrying out functions in the public interest; and that there is a public interest in encouraging public bodies to exercise their public function of making reasonable and sound decisions without fear of exposure to undue financial prejudice, if the decision is successfully challenged.”
The judge said there may be additional factors, specific to a particular case, which might also permit a departure from the starting point.
He also found that the CAT misinterpreted the BT v Ofcom decision by saying that competition infringement cases were different from other categories of cases.
To the suggestion that the “asymmetric” approach of this starting point could have a “chilling effect” on businesses challenging decision, Lewison LJ said it did not “preclude the CAT from adopting a symmetric approach, if it chooses to”.
He added: “In deciding whether or not to do so, it will no doubt consider whether the potential exposure to a liability for costs would deter appeals by some or all undertakings.”
The judge also clarified that the decision only applied to orders for costs in proceedings before the CAT at first instance, and not appeals.
While concurring with his colleague, Lord Justice Arnold said the courts had reached the starting position reinforced in this case through the common law method of relying upon “the experience and judgment of the judges involved, some of whom were very distinguished”.
He continued: “It is fair to say, however, that the decisions have not been evidence-based, nor have the courts been able to take into account any wider considerations of policy than those discussed in the cases. In those circumstances there may be merit in the issue being considered by the Law Commission.”
Robert Vidal, a competition partner at Pinsent Masons, commented: “Apportioning costs for an appeal of a CMA decision on this basis is problematic as it indicates the CMA is in a position of ‘tails I win, heads I win’…
“It is difficult to understand why the Court of Appeal felt the state, with its significant enforcement powers and much deeper pockets, needed to be further advantaged in this way.
“If the judgment is allowed to stand, it will undoubtedly exert a significant chilling effect on companies that are considering an appeal of a poor CMA decision.
“The fact the CMA is currently seeking to increase its legal powers and further narrow the scope of future appeals does not bode well.”