Competition and Markets Authority v Flynn Pharma Ltd and another

An unsuccessful public body has no general immunity from an adverse costs order merely because it acted reasonably in the public interest. Where the governing costs discretion contains no express default rule, the risk that routine adverse orders may chill the body’s performance of its functions is an important but context-sensitive factor.

The relevant court or specialist tribunal should assess whether that risk is real in its particular jurisdiction. It may adopt a consistent starting point, including costs following the event, provided that it considers the applicable procedural rules, legislative framework and all relevant circumstances. A starting point remains subject to modification through issue-based orders, proportionality controls and other measures needed to achieve justice.

The Competition and Markets Authority found that Flynn Pharma and Pfizer had abused dominant market positions by charging excessive prices for phenytoin sodium capsules. On their appeals under section 46 of the Competition Act 1998, the Competition Appeal Tribunal set aside the finding of abuse and remitted that issue. It subsequently ordered the Authority to pay proportions of the appellants’ costs.

The Court of Appeal, in [2020] EWCA Civ 617, set aside the costs order. It held that a tribunal with an apparently unfettered costs discretion should ordinarily make no costs order against an unsuccessful regulator acting in its public capacity unless good reason existed.

The appellants challenged that proposed default rule. The central issues were whether the authorities beginning with Bradford Metropolitan District Council v Booth established such a general rule and whether the Tribunal had otherwise failed properly to consider the possible chilling effect of adverse costs orders on competition enforcement.

1. The appeals were allowed unanimously. Lady Rose, with whom Lord Hodge, Lord Sales, Lord Leggatt and Lord Stephens agreed, held that the Competition Appeal Tribunal’s costs order was a proper exercise of its jurisdiction. The Court of Appeal had erred by substituting a general presumption protecting unsuccessful public bodies from adverse costs orders.

2. The authorities beginning with Bradford Metropolitan District Council v Booth did not establish that every public body defending a public-interest decision must receive protected status. They established that a court or tribunal exercising an apparently unfettered costs discretion must treat a plausible chilling effect as an important factor. Whether such a risk exists depends on the body, its functions, the decision being defended and the nature of the proceedings. The mere presence of a public body and an unfettered discretion does not make proceedings analogous to the licensing and disciplinary contexts considered in that line of authority.

3. A court or tribunal may adopt guidance or a conventional starting point to promote consistency and predictability. The specialist tribunal is ordinarily best placed to assess the appropriate starting point in its jurisdiction, subject to appellate supervision. The starting point remains only the beginning of the discretionary exercise. All relevant circumstances must still be considered.

4. The Tribunal was entitled to use costs following the event as its starting point in appeals under the Competition Act 1998. Rule 104 of the Competition Appeal Tribunal Rules 2015 conferred a broad discretion, expressly permitted consideration of success and contained no protection for public bodies. Rule 4 required cases to be dealt with justly, proportionately and on an equal footing.

5. The substantive framework also supported the Tribunal’s approach. Competition infringement decisions employ extensive enforcement powers and may impose substantial penalties. An appeal is the addressee’s first opportunity to place its case before an independent tribunal, while investigation costs remain irrecoverable. The Authority’s funding arrangements also dispelled a plausible concern that adverse costs liability would deter proper enforcement.

6. The Tribunal had repeatedly considered chilling-effect arguments and could accommodate them without adopting a no-costs default. Issue-based orders, reductions for disproportionate or unreasonable expenditure, active case management and consideration of the parties’ resources all permitted a just and proportionate result. The original order requiring the Authority to pay specified proportions of the appellants’ allowable costs was therefore restored.

1. United Kingdom Supreme Court: The appeals were allowed unanimously. The Competition Appeal Tribunal’s costs order was held to be a proper exercise of its discretion.
2. Court of Appeal: In [2020] EWCA Civ 617 , the court allowed the Authority’s appeal, set aside the Tribunal’s costs ruling and substituted no order as to costs.
3. Competition Appeal Tribunal: In [2019] CAT 9, the Tribunal ordered the Authority to pay 58% of Pfizer’s allowable costs and 55% of Flynn’s allowable costs. The underlying substantive decision and remittal rulings were [2018] CAT 11 and [2018] CAT 12. The subsequent substantive appeal and cross-appeal were largely dismissed in [2020] EWCA Civ 339 .