Supreme Court reinstates CAT's decision to award costs against the CMA in Pfizer and Flynn v CMA

In 2016 the CMA found that Pfizer and Flynn had abused their dominant market position by charging excessively high prices for anti-epilepsy drugs. The infringement was a breach of the abuse of dominance prohibition contained in the Competition Act 1998 ("CA98") and Pfizer and Flynn were fined £84.2 million and £5.2 million respectively.  Pfizer and Flynn appealed to the CAT to challenge the CMA's decision.  The appeal was granted in part.  The CAT upheld the CMA's findings on market definition and dominance but set aside its conclusion that the companies' prices were an unlawful "abuse" of dominance.  The CAT referred the matter back to the CMA for further consideration (the "Remittal") which is considered further below. 

The CAT has a wide discretion in relation to the award of costs under the Competition Appeal Tribunal Rules 2015 (the "CAT Tribunal Rules") and, whilst it may make "any order it thinks fit in relation to the payment of costs", its practice in CA98 appeals is to follow 'costs follow the event' as a starting point.  In this case, the CAT ordered that the CMA should pay to Pfizer and Flynn a percentage of their costs in respect of the parts of the appeal relating to the abuse element of the claim, i.e., that part of the appeal that the CMA had lost before the CAT (the "CAT's Costs Ruling").

In reaching its decision, the CAT considered the specific context of the case as well as historic case law. The CAT concluded that the recent judgment of the Court of Appeal in BT v Ofcom (where the CAT's decision to award costs against Ofcom on the basis of 'costs follow the event' was overturned) did not justify a departure from the established starting point in CA98 appeals that 'costs follow the event', and that CA98 appeals are distinguishable from the application of the regulatory regime for communications (such as in BT v Ofcom) or a CMA market investigation. The CAT ordered that the CMA should pay to Pfizer and Flynn 58% and 55% of their respective costs relating to the relevant part of the appeal.

The CMA appealed the CAT's Costs Ruling to the Court of Appeal. The Court of Appeal set aside the CAT's Costs Ruling and ordered that there should be no order as to costs of the appeal before the CAT.

The Court of Appeal considered that the CAT had disregarded the principle set down in a line of cases which included Bradford Metropolitan District Council v Booth [2000] 164 JP 485 ("the "Booth line of cases"). The Booth line of cases established that, in the absence of an express rule, the starting point is that no order for costs should be made against a public body that has been unsuccessful in defending proceedings in the exercise of its statutory functions provided that it has acted reasonably. The Court of Appeal emphasised that this starting point may be departed from where there is good reason, such as bad faith or unreasonable conduct on the part of the public body, but the fact that the regulator was unsuccessful is not a good reason.

Following the Court of Appeal's decision, the CMA decided to reinvestigate the matters remitted by the CAT.

The Supreme Court overturned the Court of Appeal's decision and reinstated the CAT's Costs Ruling. The Supreme Court noted that the CAT's jurisdiction to rule on costs (as set out in the CAT Tribunal Rules) is different to that generally applicable under the Civil Procedure Rules ("the CPR") and other rules that apply in different tribunals. Further, and as explained above, the long-standing practice of the CAT in CA98 appeals is that 'costs follow the event', and the CAT has a wide discretion as to the approach to take.

The Supreme Court disagreed with the Court of Appeal that there is a generally applicable principle established in the Booth line of cases that public bodies should have protected status as a party to litigation where they lose the case they have brought or defended in the exercise of public function for the public interest. Rather, the Supreme Court confirmed that where a public body is unsuccessful in proceedings "an important factor that a court or tribunal exercising an apparently unfettered discretion should take into account is the risk that there will be a chilling effect on the public body" (emphasis added) if there are regular costs orders for such conduct even when the body has acted reasonably.

The Supreme Court emphasised that the chilling factor cannot be presumed in every situation and for every public body – whether there is a real risk of such chilling effect depends on the facts and circumstances of the public body in question and the nature of the decision it is defending.   The Supreme Court held that the assessment of this potential chilling effect is one best made by the court or tribunal which has jurisdiction over the public body.  

The Supreme Court held that the CAT's Costs Ruling was correct to distinguish between the cases taken by public authorities such as Booth (which involved an appeal before the magistrates' court relating to a vehicle licensing decision taken by a local authority) from the decisions made by the CMA under the CA98.  The Supreme Court held that the CAT's Costs Ruling demonstrated a proper exercise of its costs jurisdiction, arrived at after considering all relevant factors.  The Supreme Court confirmed that the factors to be taken into account are varied: there are consistent factors such as unreasonable conduct, but there are also case dependent factors, including disparity in resources, importance of not deterring small undertakings from appealing or not deterring competitors from challenging a decision to clear a proposed merger. 

Further, given that the CMA is a government funded body, there is less risk that its conduct may be influenced by an adverse costs order on the basis that the CMA can offset a costs order against income that it receives from fines for competition law infringements. The CMA is also incentivised to investigate substantial undertakings (which are in turn more likely to appeal) as fines for infringements are linked to turnover and ensuring the fine imposed is sufficient to deter future behaviour. The Supreme Court noted that the adoption of 'costs follow the event' does not appear so far to have deterred the CMA from pursuing major market participants.

Following additional evidence gathering and analysis after the remittal, on 21 July 2022 the CMA found again that Pfizer and Flynn had abused their dominant positions when supplying anti-epilepsy drugs by charging unfair prices. The CMA imposed final fines of £63.3 million and £6.7 million on Pfizer and Flynn respectively.

Parties engaged in proceedings involving the CMA should bear in mind the following key points:

• The CMA, and other public bodies, do not automatically have protected status as parties to litigation when they lose a case brought or defended in the exercise of their public function in the public interest. For CA98 appeals, the starting point is that 'costs follow the event', but the question of success on appeal is generally considered on an issue-by-issue basis.
  
  
• In practice, this means that companies who successfully appeal a CA98 decision may be able to recover from the CMA reasonable costs relating to the element(s) of the case that it won on appeal, but this will not include any costs for prior investigation work or separate elements of the case.
  
  
• This judgment will impact all public bodies: the relevant court or tribunal will consider the risk that there will be a chilling effect on the conduct of the public body, if costs orders are made routinely against it in similar proceedings. In this case, specific features of the CAT and the CA98 regime weighed into the analysis of the Supreme Court, such as the CAT's standard practice and wide discretion.
  
  
• The Supreme Court emphasised the discretion that the CAT has in every case to determine whether costs should be paid by an unsuccessful regulator on appeal: whilst there is a possibility of recovering costs on a CA98 appeal, the level of discretion leads to uncertainty as to whether appellants in other regulatory, merger or market appeals would be awarded recovery of their costs.

Read the full judgment.