UK competition law enforcement costs ruling welcomed

The judgment overturns an earlier decision by the Court of Appeal in London that had drawn criticism from experts in competition law and litigation.

Robert Vidal of Pinsent Masons welcomed the Supreme Court ruling.

“The Court of Appeal had previously decided that the ‘default’ position on costs was that the CMA should not be liable for the other parties' legal costs when it brought or defended proceedings in its regulatory capacity,” Vidal said.

“The CMA could issue a decision and impose heavy fines for an alleged infringement of competition law and any party that contemplated an appeal would find that they had to pay the CMA’s legal costs if they lost the appeal while the CMA was effectively immune from an adverse costs order if the appeal succeeded. The CMA was in a position of 'tails I win, heads I win'. This would inevitably have exerted a chilling effect on attempts to appeal poor CMA decisions. The Supreme Court judgment helps to level the playing field, at least from a costs perspective,” he said.

The issue of liability for legal costs arising from appeal proceedings raised against competition enforcement by the CMA was considered by the Supreme Court in the context of an underlying dispute between the CMA and two businesses operating in the pharmaceuticals sector – manufacturer Pfizer and distributor Flynn Pharma.

The CMA imposed fines totalling almost £90 million against the two companies 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 the CMA’s decision to the Competition Appeal Tribunal (CAT) and again to the Court of Appeal.

In March 2020, the Court of Appeal ruled that the fairness of the prices for the drug 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 in May 2020, the Court of Appeal rejected their application. Pfizer and Flynn Pharma raised a subsequent appeal before the Supreme Court which has now ruled in their favour.

In its ruling, the Court of Appeal said 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. The “default” position on costs, therefore, was that the CMA should not be liable for other parties' costs when it brings or defends proceedings acting purely in its regulatory capacity.

However, the Supreme Court reassessed case law and said the Court of Appeal’s view on the default position was wrong.

“In my judgment, there is no generally applicable principle that all public bodies should enjoy a protected status as parties to litigation where they lose a case which they have brought or defended in the exercise of their public functions in the public interest,” said Supreme Court judge Lady Rose.

“Where I depart from the CMA’s argument and from the decision of the Court of Appeal in this case is in making the jump from a conclusion that in some circumstances the potential chilling effect on the public body indicates that a no order as to costs starting point is appropriate, to a principle that in every situation and for every public body it must be assumed that there might be such a chilling effect and hence that the body should be shielded from the costs consequences of the decisions it takes,” she said.

“Whether there is a real risk of such a chilling effect depends on the facts and circumstances of the public body in question and the nature of the decision which it is defending – it cannot be assumed to exist. Further in my judgment, the assessment as to whether a chilling effect is sufficiently plausible to justify a starting point of no order as to costs in a particular jurisdiction is an assessment best made by the court or tribunal in question, subject to the supervisory jurisdiction of the appellate courts,” she said.