Competition costs ruling risks CMA appeals 'chilling effect'

Robert Vidal of Pinsent Masons, the law firm behind Out-Law, said the judgment indicates that the CMA is permitted to recover costs it incurred in defending decisions it has taken during appeal proceedings in the cases it wins, but be immune from cost awards against it in the appeal cases it loses.

The ruling could have a "significant chilling effect" on business' willingness to challenge CMA decisions in future, he said.

Vidal was commenting after the Court of Appeal ruled that pharmaceuticals manufacturer Pfizer and distributor Flynn Pharma were not entitled to an award of costs against the CMA, despite earlier this year succeeding in an appeal against the CMA.

The regulator previously fined the companies almost £90 million between them in 2016 – £84.2m for Pfizer, and £5.2m for Flynn – 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 Competition Appeal Tribunal (CAT) and the case was subsequently appealed again to the Court of Appeal. In March this year the Court of Appeal ruled that the fairness of the prices charged to the NHS had to be reassessed by the CMA.

Pfizer and Flynn Pharma tried to recover the costs of their successful appeal from the CMA. However, in a judgment issued on Wednesday, the Court of Appeal rejected their application.

According to the court, the "default" position on costs is that the CMA should not be liable for other parties' costs when it brings or defends proceedings acting purely in its regulatory capacity. The court decided there was 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 even when such decisions are successfully overturned.

That "default" position "may be departed from for good reason; but the mere fact that the regulator has been unsuccessful is not enough", the court said. 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. There may be additional factors, specific to a particular case, which might also permit a departure from the starting point, the court said.

"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'," Vidal said. "If the CMA wins an appeal it can claim very significant costs from the losing appellant. For example, Ping Europe was recently forced to pay over £800,000 of the CMA’s costs following its unsuccessful appeal to the CAT. It appears Ping will have had to pay well over £2 million in legal costs when the total fine issued by the CMA in the case was £1.25 million. This judgment by the Court of Appeal would mean that even where the CMA loses an appeal it would be immune, as parties would find it very difficult to claim back the costs incurred defending themselves from what are quasi-criminal penalties. It will be interesting to see if this judgment is now appealed to the Supreme Court."

"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," he said.