Competition and Markets Authority v Flynn Pharma Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Floyd,Lord Justice Arnold |
| Judgment Date | 12 May 2020 |
| Neutral Citation | [2020] EWCA Civ 617 |
| Docket Number | Case No: C3/2019/1293 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 May 2020 |
[2020] EWCA Civ 617
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMPETITION APPEAL TRIBUNAL
(PETER FREEMAN QC, PAUL LOMAS, PROFESSOR MICHAEL WATERSON)
[2019] CAT 9
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lewison
Lord Justice Floyd
and
Lord Justice Arnold
Case No: C3/2019/1293
Sir James Eadie QC, Rob Williams QC, and David Bailey (instructed by The Competition and Markets Authority) for the Appellant
Kelyn Bacon QC, Dan Stacey and Tom Pascoe (instructed by Macfarlanes LLP) for the First and Second Respondents
Mark Brealey QC, Tim Johnston and Clare Reffin (instructed by Clifford Chance LLP) for the Third and Fourth Respondents
Hearing dates: 29 and 30 April 2020
Approved Judgment
Introduction
Rule 104 of the Competition Appeal Tribunal Rules 2015 (“the CAT rules”) provides that the Competition Appeals Tribunal (“the CAT”) may “at its discretion … make any order it thinks fit in relation to the payment of costs in respect of the whole or part of the proceedings”. It is common ground that this rule confers a discretion on the CAT. The question on this appeal is whether there is a starting point for the exercise of that discretion; and, if so, what it is.
The proceedings with which we are concerned arose out of an investigation by the Competition and Markets Authority (“the CMA”) into the pricing of an epilepsy drug called phenytoin sodium. By its decision of 7 December 2016, after an investigation lasting over three years, it found that Flynn and Pfizer had abused their dominant positions in the UK market for phenytoin sodium capsules under both domestic and EU competition law by charging excessive prices. It imposed a fine of £84.2 million on Pfizer and £5.2 million on Flynn.
Both Flynn and Pfizer appealed to the CAT. The CAT recognised in its substantive decision the “importance of this case for the public interest”: [2018] CAT 11 at [5]. After a four week trial, the CAT found that although Flynn and Pfizer held dominant positions in the market in question, the CMA had made errors in deciding that they had abused their positions. The CAT therefore set aside the penalties and remitted the question of abuse to the CMA for redetermination. The CMA's subsequent appeal to this court in large part failed; but that court also recognised that the issues “were of considerable public importance”: [2020] EWCA Civ 339 at [15].
Following its decision on the substantive appeal, the CAT considered the question of costs. In its ruling of 29 March 2019 ( [2019] CAT 9) it held that the established practice of the CAT in appeals of this nature was that the starting point for the exercise of discretion was that the unsuccessful party should pay the successful party's costs. I refer to this starting point as “costs follow the event”. It considered the decision of this court in British Telecommunications plc v Office of Communications (“ BT v Ofcom”) [2018] EWCA Civ 2542, [2019] Bus LR 592, but decided that the decision in that case did not require a different starting point. From that starting point the CAT considered who had won and who had lost on the various main issues. Its ultimate ruling was that the CMA should pay a proportion of the costs of both Flynn and Pfizer.
The CMA challenge that conclusion. In the skeleton argument filed on their behalf, it was argued that the starting point is that no order for costs should be made against a public body performing its functions in the public interest unless it has acted unreasonably. They described this as “the Principle” (with a capital P). The Principle may be displaced where rules of court or equivalent lay down a different starting point (such as the general rule in CPR Part 44.2 (2) (a) that the unsuccessful party pays the successful party's costs). But there is nothing in the CAT rules which displaces the Principle. In the oral submissions presented by Sir James Eadie QC, the CMA adopted a more nuanced position. The principle for which the CMA now argues is that in proceedings by or against a regulator in the exercise of its statutory functions, the default position (or starting point) is that no order for costs should be made against the regulator, except for good reason. The mere fact of an outcome adverse to the regulator is not, of itself, a good reason. But a good reason would include unreasonable conduct by or on behalf of the regulator, or financial hardship likely to be suffered by a successful party if no costs order is made.
Flynn and Pfizer, on the other hand, say that it was open to the CAT to adopt “costs follow the event” as its starting point; and that, as the CAT held, the decision of this court in BT v Ofcom does not require a different approach.
The legal framework
The CMA was established by section 25 of the Enterprise and Regulatory Reform Act 2013. Section 25 (3) provides:
“The CMA must seek to promote competition, both within and outside the United Kingdom, for the benefit of consumers.”
In very broad terms, the CMA has succeeded to the powers and duties of the Office of Fair Trading (and before that the Director General of Fair Trading) in investigating and dealing with anti-competitive practices.
The CMA has a range of powers which enable it to carry out an investigation where it has reasonable grounds to suspect an infringement of competition law. As Mr Brealey QC pointed out on behalf of Pfizer, those powers are extensive. They include power to enter business premises without a warrant, power to require the provision of documents or information, and power to interview persons. An investigation by the CMA into a suspected breach of competition law may be, and often is, protracted. As mentioned, in the present case the investigation took over three years. If, as a result of its investigations, the CMA is minded to find a breach of competition law, it must give notice to the persons likely to be affected, and give them an opportunity to make representations. Those representations may be (and usually are) followed up by a hearing which, Mr Brealey said, is to all intents and purposes akin to a trial (although this latter point was disputed by Sir James). This stage (referred to as the administrative phase) can be very expensive for the subjects of the investigation, requiring the engagement of both lawyers and expert economists, as well as the expenditure of management time; and any expenses they incur in the administrative phase cannot be recouped from the CMA, whatever the outcome of the investigation or an appeal to the CAT.
Once the CMA has decided that there has been a breach of competition law, it has a range of powers open to it. These include the making of directions designed to bring the anti-competitive conduct to an end. The CMA has power to apply to the court to enforce such directions. Section 36 of the Competition Act 1998 enables the CMA to impose financial penalties on undertakings if it is satisfied that the infringement of competition law has been committed intentionally or negligently by the undertaking. A decision by the CMA to this effect is an appealable decision, giving rise to a right of appeal to the CAT: Competition Act 1998 s 46.
The CAT must determine the appeal on the merits by reference to the grounds of appeal set out in the notice of appeal: Competition Act 1998 Sched 8 para 3 (1). Because the appeal is an appeal “on the merits” rather than akin to judicial review, the CAT will often hear detailed evidence, both factual and expert. This may in some cases include evidence that was not considered by the CMA in arriving at its contested decision. The CAT may confirm or set aside the decision which is the subject of the appeal, or any part of it, and may:
(a) remit the matter to the CMA;
(b) impose or revoke, or vary the amount of, a penalty;
(c) give such directions, or take such other steps, as the CMA could itself have given or taken; or
(d) make any other decision which the CMA could itself have made.
The CMA is not the only body with power to enforce competition law. The same scheme applies to regulators in the communications and postal services, electricity, gas, water and sewerage, railways, air traffic and air operation services, payment systems, healthcare services in England and financial services sectors.
In addition to dealing with appeals against infringement decisions, the CAT also deals with challenges to decisions of the CMA or the Secretary of State in connection with a market investigations or merger situations. In that kind of case, the appeal is not an appeal on the merits, but the CAT applies the principles of judicial review. The principles of judicial review have applied to an appeal to the CAT against a decision of Ofcom under the Communications Act 2003 since July 2017 (when s.194A of the Act was enacted).
Rule 4 of the CAT rules is headed “Governing principles”. It provides, so far as relevant:
“(1) The Tribunal shall seek to ensure that each case is dealt with justly and at proportionate cost.
(2) Dealing with a case justly and at proportionate cost includes, so far as is practicable—
(a) ensuring that the parties are on an equal footing;”
As noted, rule 104 of the CAT rules gives the CAT the power to make such costs order as it thinks fit. Rule 104 (4) lists a number of factors that the CAT may take into account in making an order. They are:
“(a) the conduct of all...
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