On 12 May 2020, the Court of Appeal ("CA") gave its judgment on an appeal against the ruling of the Competition Appeal Tribunal ("CAT") on costs relating to the appeals by Pfizer and Flynn against the 2016 CMA decision which fined Pfizer and Flynn for abusing their dominant positions by charging unfair and excessive prices for phenytoin sodium capsules. The CA held that, even though the CMA had been unsuccessful on the main issues in the appeal, no order for costs should be made against the CMA which had been acting in its capacity as a regulatory body.
| what you need to know - key takeaways |
- The Court of Appeal has confirmed the default position is that the CMA should not be subject to adverse costs orders, even where the CMA is unsuccessful on the main issues in the appeal.
- The ruling rejected the CAT's position that the CMA should be singled out from other regulatory bodies because of its discretion to bring cases and freedom to impose financial penalties.
- The CAT has discretion to depart from the default position for good reason, but such approach must take into account the fact that the CMA is a public body carrying out a public interest function.
- The Court of Appeal's ruling will shape how the CAT approaches costs in future regulatory appeals involving the CMA.
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Background
The present costs ruling comes against a backdrop of litigation between Pfizer, Flynn and the CMA following the CMA's 2016 decision which found that both Pfizer and Flynn were dominant in the relevant markets and had infringed competition law by charging excessive and unfair prices in the UK for phenytoin sodium capsules. The background to the substantive appeal and the CA's March 2020 ruling remitting the case back to the CMA is set out in a previous article.
Following its 2018 decision on the substantive appeal, the Competition Appeal Tribunal ("CAT") ruled on costs in March 2019 ([2019] CAT 9). The CAT referred to the CA decision in British Telecommunications plc v Office of Communications [2018] EWCA Civ 2542 ("BT v Ofcom"), in which the CA had found that Ofcom should not be subject to adverse costs orders in situations where it was acting purely in its regulatory capacity in prosecuting or resisting a claim before the CAT, even if it was unsuccessful, provided that its actions were reasonable and in the public interest.
The CAT, however, held that the CA's reasoning in BT v Ofcom did not apply as the CMA as a competition authority was not merely performing its regulatory function; rather, it had discretion to bring an infringement case and extensive powers to impose financial penalties. Rule 104 of the Competition Appeal Tribunal Rules 2015 ("CAT Rules") provides that the CAT may "at its discretion…make any order it thinks fit in relation to the payment of costs in respect of the whole or part of the proceedings".
Accordingly, the CAT held that its established practice was that the starting point for its exercise of discretion was that the unsuccessful party should pay the successful party’s costs. From this starting point the CAT considered who had won and who had lost on the various main issues in the substantive appeal; ultimately ruling that the CMA should pay a proportion of the costs of both Flynn and Pfizer.
The Court of Appeal ruling
In the present judgment, the CA concluded that the starting point is, as set out in BT v Ofcom, 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. In this case the CMA was performing its statutory duty under the Enterprise and Regulatory Reform Act 2013; namely, that the CMA must promote competition for the benefit of consumers. The CA found that this starting point may be departed from for good reason, but the mere fact that the regulator has been unsuccessful, as was the case here, is not enough.
The CA was unconvinced by the CAT's reasons for distinguishing competition infringement cases from other regulatory cases. It was not of great significance that the CMA has discretion as to whether or not to pursue an investigation and a power to impose financial penalties. Additionally, since an appeal of a CMA decision to the CAT is a merits appeal, it is entirely appropriate to consider the CMA's role in such appeal as defending a regulatory decision.
While the CA recognised the CAT does have discretion under rule 104 of the CAT Rules and its approach to costs can, under that rule, explicitly consider the degree of success of failure of a party, the CA ultimately ruled that the CAT must still consider the fact that the CMA is a public body carrying out a public interest function.
Comment
The CA's choice not to depart from its ruling in BT v Ofcom provides some additional certainty for the CMA, and places the CMA's capacity as competition authority on the same level as other regulatory bodies for the purposes of costs. With no costs order having been made, the CMA will now reconsider the substantive issue as to whether Pfizer and Flynn had abused their dominant positions and, if so, what fine should be imposed. A remittal case timetable was published on 8 June 2020, and the initial investigation will take place from June to October 2020.
With thanks to Helen Chamberlain of Ashurst for her contribution.
