Costs Follow the Event in Competition Act Appeals: Comprehensive Guidance Following CMA v Flynn Pharma Ltd & Anor

Introduction

In Competition and Markets Authority v Flynn Pharma Ltd & Anor ([2022] UKSC 14), the United Kingdom Supreme Court addressed a pivotal issue concerning the allocation of legal costs in competition law appeals. The appellants, Flynn Pharma and Pfizer, successfully appealed decisions by the Competition and Markets Authority (CMA) that fined them for abusing their dominant positions in the market for phenytoin sodium capsules. The core dispute arose over whether the CMA should be ordered to pay a proportion of the appellants’ legal costs following their partial victory in the Competition Appeal Tribunal (CAT). This case examines the appropriate starting point for cost orders in appeals involving public bodies acting in their regulatory capacities.

Summary of the Judgment

The Supreme Court upheld the decision of the Court of Appeal, which had set aside the CAT’s order directing the CMA to pay a proportion of the appellants’ costs. The Court of Appeal had previously established that, in the absence of an express rule, the default position should be that no costs order is made against a public body like the CMA acting in the public interest, unless compelling reasons indicate otherwise. The Supreme Court agreed with this interpretation, emphasizing that there is no universal principle mandating cost orders against all public bodies in similar contexts. Instead, each case must be assessed on its individual merits, considering factors such as the potential "chilling effect" on regulatory bodies.

Analysis

Precedents Cited

The judgment extensively references a series of pivotal cases that have shaped the discourse on cost orders involving public bodies:

Bradford Metropolitan District Council v Booth [2000]: Established foundational principles for awarding costs against public bodies, emphasizing the need to consider financial prejudice and the encouragement of sound administrative decisions.
Baxendale-Walker v Law Society [2007]: Highlighted that costs orders against regulatory bodies should not follow a rigid "costs follow the event" rule, especially when public duties are involved.
R (Perinpanathan) v City of Westminster Magistrates' Court [2010]: Reinforced that regulatory bodies acting in the public interest should not automatically be subjected to cost orders upon losing an appeal.
British Telecommunications plc v Ofcom (Business Connectivity) [2018]: Clarified that cost orders should not be presumptively ordered against regulators like Ofcom in appeals unless specific circumstances warrant such orders.
Racecourse Association v Office of Fair Trading [2006]: Demonstrated the CAT’s nuanced approach in applying cost orders, balancing between fairness and the unique roles of regulatory bodies.

Legal Reasoning

The Supreme Court delved into the legislative and procedural frameworks governing the CAT’s authority to award costs. It underscored that the CAT’s broad discretion under the Competition Act does not inherently mandate a "costs follow the event" approach. Instead, the CAT must evaluate each case based on its specific context, the nature of the public body involved, and the potential ramifications of cost orders on regulatory functions.

The Court emphasized that rigid adherence to precedents mandating cost orders against public bodies could deter these entities from executing their regulatory duties effectively. Such a deterrent effect would undermine the public interest by discouraging public bodies from making prudent regulatory decisions. Therefore, the CAT’s discretion should remain flexible, allowing for cost orders only when justified by factors like unreasonable conduct or significant financial hardship.

Impact

This judgment has profound implications for future competition law appeals. It reaffirms that regulatory bodies like the CMA retain significant discretion in handling cost orders, ensuring that such orders are not automatically imposed simply based on the outcome of a case. This approach fosters a balanced legal environment where regulatory bodies can perform their functions without undue financial burdens, while also ensuring that appellants are treated fairly when they successfully challenge regulatory decisions.

Additionally, the decision signals to public bodies that they must maintain high standards of conduct in their regulatory activities to avoid justifying adverse cost orders. For appellants, it clarifies the conditions under which they might recover legal costs, promoting transparency and fairness in competition law proceedings.

Complex Concepts Simplified

Costs Follow the Event: A legal principle where the losing party in a case is typically required to pay the winning party's legal costs.
Chilling Effect: A situation where the threat of legal consequences may discourage public bodies from taking necessary regulatory actions.
Competition Appeal Tribunal (CAT): A specialist judicial body in the UK that hears appeals against decisions made by competition authorities like the CMA.
Public Body: An organization that operates under the authority of the government and is responsible for implementing public policies and regulations.

Conclusion

The Supreme Court’s decision in CMA v Flynn Pharma Ltd & Anor [2022] UKSC 14 fundamentally clarifies the approach to awarding legal costs in competition law appeals involving public bodies. By rejecting a blanket "no order as to costs" starting point, the judgment upholds the importance of flexible, case-by-case assessments that consider both fairness to the appellants and the operational integrity of regulatory bodies. This balanced approach ensures that public interest is maintained without imposing undue financial burdens on regulatory authorities, thereby fostering an effective and fair competition law framework.