Competition and Markets Authority v Flynn Pharma Ltd & Ors

Where the Competition Appeal Tribunal has a broad costs discretion but no express general default, a regulator acting purely in its regulatory capacity and in the public interest is not treated as an ordinary litigant. The starting point is that no order for costs should be made against the regulator. The tribunal may depart from that position for good reason. An unsuccessful outcome alone is insufficient. Relevant considerations include unreasonable conduct, substantial hardship to the successful party and other case-specific factors. The approach applies to competition infringement and merits appeals. Costs follow the event is not the starting point, although success on particular issues, conduct and irrecoverable administrative-stage costs may remain relevant.

The Competition and Markets Authority imposed substantial penalties on Flynn and Pfizer after finding that they had abused dominant positions in the market for phenytoin sodium capsules. The Competition Appeal Tribunal allowed their substantive appeals in part, set aside the penalties and remitted the abuse issue. On the subsequent costs ruling, the CAT adopted costs follow the event as its starting point and ordered the CMA to pay part of Flynn’s and Pfizer’s costs: [2019] CAT 9.

The CMA appealed. The central issue was whether Rule 104 of the Competition Appeal Tribunal Rules 2015 permitted, or required, a different starting point where a regulator defended an infringement decision in the public interest.

1. Appeal allowed. Lewison LJ gave the leading judgment, with Floyd LJ and Arnold LJ agreeing. The CAT’s costs ruling was set aside, and no order for the costs of the proceedings before the CAT was made.
2. Rule 104 of the Competition Appeal Tribunal Rules 2015 confers a broad discretion and contains no equivalent to the general costs rule in the CPR. The principles developed in Bradford, Baxendale-Walker and Perinpanathan, as applied and explained in BT v Ofcom, therefore remain relevant.
3. The starting point in CAT proceedings is that no order for costs should be made against a regulator which is acting purely in its regulatory capacity and in the public interest. That applies to merits appeals, including competition infringement appeals. The fact that the regulator has lost is not, without more, a good reason to depart from the starting point.
4. Departure may be justified by unreasonable conduct, substantial financial hardship likely to be suffered by the successful party, or other case-specific factors. Success or failure on particular issues, party conduct, irrecoverable administrative-stage costs and the pursuit of a test case involving a small or medium-sized enterprise may be relevant. The CAT must nevertheless give weight to the public interest in encouraging regulators to make and defend reasonable decisions without undue financial exposure.
5. The CAT had misinterpreted BT v Ofcom and wrongly treated competition infringement cases as outside the regulatory principle. The distinctions relied upon by the CAT, including the CMA’s operational discretion, the quasi-criminal character of penalties and the merits nature of the appeal, were not compelling. Remittal was unnecessary because the CAT had found no unreasonable conduct and no financial hardship, while its other reasons for departing from the correct starting point were inadequate.

• Court of Appeal (Civil Division) allowed the CMA’s appeal and made no order for the CAT costs: [2020] EWCA Civ 617.
• Competition Appeal Tribunal adopted costs follow the event as the starting point and ordered the CMA to pay part of Flynn’s and Pfizer’s costs: [2019] CAT 9.
• Earlier substantive proceedings The CAT set aside the penalties and remitted the abuse issue: [2018] CAT 11. The subsequent substantive appeal largely failed: [2020] EWCA Civ 339.