When does a regulator pay costs? The Court of Appeal has spoken

25 September 2020

CMA v Flynn Pharma Ltd, Flynn Pharma Holdings Ltd, Pfizer Inc and Pfizer Ltd [2020] EWCA Civ 617
 

Background

In December 2016, the Competition and Markets Authority (CMA) concluded a three year long investigation into the pharmaceutical companies Flynn and Pfizer. The CMA determined that Flynn and Pfizer had charged excessive prices for the epilepsy drug, phenytoin sodium, thereby abusing their dominant position in the UK market under domestic and EU competition law.

The CMA fined Flynn and Pfizer £5.2 million and £84.2 million respectively. Both companies appealed to the Competition Appeal Tribunal (CAT) and were successful in having the penalties set aside. The CAT decided that the CMA had made errors when it decided that there had been an abuse of market position.

The CAT then turned to the question of costs. The CAT held that when the tribunal exercises its discretion as to costs, the starting point should be that the unsuccessful party pays the costs of the successful party. As Flynn and Pfizer had succeeded in having the penalties set aside, the CAT ordered CMA to pay a proportion of Flynn and Pfizer’s costs.

The CMA challenged this decision in the Court of Appeal (CoA). It argued that the CAT had used the incorrect starting point when it determined costs in the proceedings. The CMA submitted that, in proceedings brought by or defended by a regulator exercising its statutory functions, the default position should be no order for costs, unless there is a good reason to do otherwise.

The Proceedings in the CoA

The CoA reviewed the relevant authorities, including Baxendale-Walker v Law Society [2007] EWCA Civ 233, and clarified the law as to when costs will be awarded against a regulator.

It stated that, where there is a power to make an order for costs with no express general rule or default position, the fact that one of the parties is a regulator – that exercises functions in the public interest – is an important consideration. The CoA recognised the need for public authorities to make reasonable decisions in the public interest without fear of being exposed to financial prejudice if a decision is challenged successfully. Therefore, where a regulator brings or defends proceedings in its regulatory capacity, the starting point should be that no order for costs is made. This default position, however, may be departed from where there is a good reason.

The court gave some examples of it considered to be good reasons to depart from this position:

  • Where the regulator has conducted itself unreasonably; and/or
  • Where the successful party is likely to suffer substantial hardship if a costs order is not made.

The mere fact that a regulator has been unsuccessful will not constitute a good reason. However, it is unnecessary to find “exceptional circumstances” as opposed to a good reason. There might be additional factors, specific to a particular case, which might also permit a departure from the starting point.

The CoA held that the CAT had misinterpreted the relevant authorities when it decided that the starting point in awarding costs in the proceedings is that the unsuccessful party pays the costs of the successful party. Consequently, the court allowed the CMA’s appeal and no order for the costs of the proceedings before the CAT was made.

Commentary

This case has provided welcome clarity on the law as to when costs will be awarded against a regulator. The bar has been set at a ‘good reason’ to depart from the default position of no order for costs; whether or not the regulator has acted unreasonably is a necessary assessment as part of any such departure. The mere fact the regulator has been unsuccessful does not constitute a good reason. 

Further Information

If you have any questions or concerns about the content covered in this blog, please contact Shannett Thompson or any member of the Regulatory team.

 

About the Authors

Shannett Thompson is a Partner in the Regulatory team. She is a highly experienced lawyer taking the lead in defending health professionals before their regulatory bodies including the GMC. She has substantial experience in advising individuals in relation to their regulatory obligations in the wider context.

Imogen Roberts is a trainee solicitor in Kingsley Napley’s Regulatory team, where she assists with investigating and preparing fitness to practice cases relating to professional misconduct, ill-health and lack of competence.

 

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