The Supreme Court reinstates the Competition Appeal Tribunal’s judgment

25 May 2022

In its judgment handed down on 25 May 2022, the Supreme Court has reinstated the Competition Appeal Tribunal’s (the Tribunal) judgment awarding Flynn’s and Pfizer’s costs in connection with their successful appeals against the Competition and Markets Authority’s (the CMA) decision alleging Flynn and Pfizer charged unfair prices for phenytoin capsules.

The Tribunal has substantial discretion in relation to the award of costs. In reaching its original judgment to award Flynn and Pfizer a portion of the costs of their appeals before the Tribunal, it considered a range of issues, including as a starting point whether the parties had been successful in their appeals. Notably the Tribunal did not award Flynn and Pfizer all of their costs, finding that although the CMA’s decision was set aside, the Tribunal had upheld the CMA’s findings on dominance. The Tribunal’s approach reflected a long line of cases, which broadly speaking established a starting point that parties successfully appealing a finding of anti-competitive behaviour will be awarded their costs (or a proportion of those costs).

In Flynn Pharma and Pfizer v CMA, the CMA sought to reverse this established position. The CMA argued that the starting point should be that a court or tribunal should not award costs against a public body (which would include the CMA) where that public body has not succeeded in defending its decision, unless there is a good reason to do so. These “good reasons” would include bad faith or unreasonableness of the public body. Flynn and Pfizer argued that there is no such principle, and that the case law only establishes that an important factor for a court or tribunal to take into account is whether making adverse costs orders will have a “chilling effect” on the conduct of that public body (of which, in the case of the CMA, there was none).

Whilst the Court of Appeal sided with the CMA, the Supreme Court has today allowed Flynn’s and Pfizer’s appeals and ordered the reinstatement of the Tribunal’s original judgment on costs. The Supreme Court confirmed that where a public body is unsuccessful in an appeal, an important factor that a court or tribunal should take into account when determining costs is the risk that there will be a “chilling effect” on the conduct of that public body. In particular:

  1. whether a chilling effect is sufficient to justify a starting point of no order of costs against the public body, is an assessment best made by the relevant court or tribunal in question. In other words, in relation to Competition Act 1998 appeals such as that in the Flynn and Pfizer appeals, the Tribunal is best placed to make such an assessment;
  2. the volume of decision-making activity of local authorities, the police and professional disciplinary bodies (where the courts have found there can be chilling effects from adverse costs orders) is of an entirely different order from that of the CMA which takes a limited number of decisions each year;
  3. the way that the CMA is permitted to fully offset its litigation costs against its Competition Act 1998 penalty income under its accounts dispels any concerns that its conduct will be influenced by the risk of adverse costs orders;
  4. the CMA is incentivised to investigate and sanction infringements by large undertakings, even though they may be more likely to appeal against a decision and spend more on that appeal. This is because the level of penalty that the CMA can impose is linked to the turnover of the company, and the penalty can even be increased to ensure it is sufficient to deter the infringing undertaking taking account of its size; and
  5. the CMA does not appear to have been deterred from pursuing major market participants to date under the established position on costs.

Accordingly, for businesses considering an appeal against a CMA decision finding anti-competitive behaviour, the starting point is that successful appellants can recover their costs. Notably, this does not mean costs will be awarded in full. The Tribunal has frequently awarded costs on an issue-by-issue basis (i.e. awarding costs based on the successes of the parties on the separate issues addressed, even if one of those parties is deemed successful overall) and the Tribunal often makes substantial reductions in the costs that the CMA is ordered to pay. Notwithstanding this, the Supreme Court’s judgment is a positive outcome in holding the CMA to account for its infringement decisions.

Macfarlanes represented Flynn Pharma in this appeal. The Supreme Court judgment can be accessed at: Competition and Markets Authority (Respondent) v Flynn Pharma Ltd and another (Appellants) and Competition and Markets Authority (Respondent) v Pfizer Inc and another (Appellants) (