CMA v Flynn Pharma: Establishing No Default Cost Orders Against Regulatory Bodies in CAT Proceedings

Introduction

The case of Competition and Markets Authority v. Flynn Pharma Ltd & Others ([2020] EWCA Civ 617) before the England and Wales Court of Appeal (Civil Division) addresses a pivotal issue in administrative and competition law: the determination of cost orders in proceedings before the Competition Appeals Tribunal (CAT). This case scrutinizes whether the prevailing principle of "costs follow the event" should serve as the default stance in appeals involving regulatory bodies, particularly the Competition and Markets Authority (CMA), alleging abuse of dominant market positions by pharmaceutical companies concerning drug pricing.

The appellant parties, Flynn Pharma Ltd and Pfizer, challenged the CMA's imposition of substantial fines for alleged anti-competitive practices in the pricing of the epilepsy drug phenytoin sodium. Following a CAT decision that overturned the initial CMA findings and remitted the matter for redetermination, the CMA contested the resultant cost order. The crux of the appeal lies in whether the CAT may adopt a default principle that costs should be accessible to successful parties ("costs follow the event"), or whether a different starting point should prevail when dealing with public regulatory bodies acting in the public interest.

Summary of the Judgment

The Court of Appeal, presided over by Lord Justice Lewison, overturned the CAT's cost order that required the CMA to pay a portion of Flynn and Pfizer's legal costs. The court clarified that the principle of "costs follow the event" is not the default position in CAT proceedings involving regulatory authorities acting in the public interest. Instead, the default stance should be that no costs are ordered against such regulators unless there is a compelling reason to do so. The court emphasized that merely being unsuccessful in a case does not automatically justify a costs order against a public regulatory body. Instead, factors such as unreasonable conduct by the regulator or significant financial hardship to the successful party must be considered.

Consequently, the Court of Appeal allowed the appeal, setting aside the CAT's costs decision. The judgment underscores the importance of balancing the public interest in allowing regulators to perform their functions without undue financial pressure against the rights of individuals or companies to recover legal costs where justified.

Analysis

Precedents Cited

The judgment extensively references several key cases that have shaped the legal landscape regarding costs orders in tribunal proceedings involving regulatory bodies:

Bradford Metropolitan District Council v Booth (2000): This case established that costs should not automatically follow the event against public authorities unless there is unreasonable conduct.
Baxendale-Walker v Law Society [2007]: Reinforced the principle from Bradford, emphasizing that costs should not be ordered against regulators absent bad faith or unreasonable behavior.
R (Perinpanathan) v City of Westminster Magistrates' Court [2010]: Further solidified the notion that regulatory bodies should not incur costs orders without just cause.
British Telecommunications Plc v Office Of Communications (BT v Ofcom) [2018] EWCA Civ 2542: Initially suggested "costs follow the event" in CAT proceedings but was later critiqued and deemed insufficiently aligned with established principles.
Eden Brown Ltd v Office of Fair Trading [2011]: Differentiated between various types of case proceedings, leaning towards "costs follow the event" in certain competitive infringement cases.
Competition and Markets Authority v Flynn Pharma Ltd & Ors ([2020] EWCA Civ 617): The current case refines and ultimately rejects the adoption of "costs follow the event" as a default in regulatory proceedings before the CAT.

These precedents collectively emphasize the judiciary's approach to shielding regulatory bodies from undue financial burdens unless clearly justified by their conduct during proceedings.

Legal Reasoning

The core legal reasoning in this judgment revolves around interpreting Rule 104 of the Competition Appeal Tribunal Rules 2015, which grants the CAT discretion in making cost orders. The CMA contended that public bodies acting in the public interest should not face cost orders unless they acted unreasonably. Conversely, Flynn and Pfizer argued for "costs follow the event" as a starting principle.

The Court of Appeal delved into the doctrinal underpinnings of costs in Tribunal proceedings, aligning with established case law that prioritizes the public interest in enabling regulators to perform their duties without the deterrent of adverse cost orders. The court rejected the notion that regulatory appeals should default to "costs follow the event," instead affirming that costs should only be awarded against regulators when there is evidence of unreasonable or bad-faith conduct.

Additionally, the court scrutinized the CAT's reliance on the BT v Ofcom decision, noting that while BT v Ofcom introduced the concept of "costs follow the event," it did not account for the nuanced roles of regulatory bodies like the CMA. The appellate court emphasized that AT tribunals like the CAT must base their cost decisions on established legal principles that consider the regulatory body's public duty and the need to encourage effective oversight.

Impact

This judgment sets a significant precedent for future proceedings before the CAT and similar tribunals. By rejecting "costs follow the event" as a default in cases involving regulatory bodies acting in the public interest, the court reinforces the protection of public authorities from automatic cost liabilities. This ensures that regulators can undertake necessary enforcement actions without the fear of incurring prohibitive legal costs, thereby facilitating robust competition and market oversight.

For appellants, this decision underscores the importance of demonstrating specific grounds—such as unreasonable conduct by the regulator—to justify the recovery of costs. It also signifies a judicial preference for allowing tribunals to assess cost orders on a case-by-case basis, fostering a more nuanced and equitable approach to cost allocation in regulatory disputes.

Moreover, the ruling may influence legislative reforms and the development of tribunal rules to further clarify the principles governing cost orders in regulatory proceedings, ensuring consistency and fairness in the application of costs.

Complex Concepts Simplified

Costs Follow the Event: A legal principle where the losing party in litigation is generally required to pay the legal costs of the winning party.
Competition Appeal Tribunal (CAT): An independent judicial body in the UK that hears appeals against decisions made by the CMA and other competition regulators.
Regulatory Capacity: When a body acts in its role of enforcing regulations and public policy, rather than for its own commercial interests.
Merits Appeal: An appeal that involves a review of the factual and legal basis of the original decision, rather than just procedural or legal errors.
Enterprise and Regulatory Reform Act 2013: UK legislation that, among other things, established the CMA and outlines its functions and powers.

Conclusion

The case of CMA v Flynn Pharma Ltd & Ors ([2020] EWCA Civ 617) marks a pivotal development in the landscape of administrative and competition law within the UK. By decisively rejecting the "costs follow the event" principle as the default stance in cases involving regulatory bodies acting in the public interest, the Court of Appeal has reinforced the protective shield around public authorities like the CMA. This ensures that such bodies can perform their essential functions without the looming threat of automatic cost orders, which could potentially hinder their regulatory effectiveness.

The judgment emphasizes a balanced approach, allowing cost orders to be made against regulators only when justified by egregious or unreasonable conduct. This aligns with broader principles of fairness and proportionality in legal proceedings, ensuring that cost allocations are equitable and context-sensitive.

Moving forward, this precedent will guide the CAT and similar tribunals in their discretionary power over cost orders, promoting consistency and fairness in handling disputes involving public regulatory bodies. It also underscores the judiciary's role in safeguarding the public interest by ensuring that regulatory actions remain uncompromised by financial deterrents.