Competition and Markets Authority v Flynn Pharma Ltd; Competition and Markets Authority v Pfizer Inc [2022] UKSC 14

Flynn Pharma and Pfizer successfully appealed to the CAT against a CMA decision finding they had abused dominant positions by charging excessive prices for epilepsy drug phenytoin sodium. The CAT ordered the CMA to pay a proportion of the appellants' costs. The Court of Appeal reversed this, applying a 'no order as to costs' starting point for public bodies. The Supreme Court allowed the appellants' appeal, restoring the CAT's costs order and holding there is no general principle protecting public bodies from adverse costs orders.

Facts

The Competition and Markets Authority (CMA) investigated Flynn Pharma and Pfizer for allegedly abusing their dominant position by charging excessive prices for phenytoin sodium capsules, an epilepsy drug. In December 2016, the CMA found an infringement and imposed fines of £84.2m on Pfizer and £5.2m on Flynn. Both companies appealed to the Competition Appeal Tribunal (CAT).

The CAT partially allowed the appeals, setting aside parts of the CMA’s decision and remitting the abuse issue for reconsideration. The CAT then made a costs order requiring the CMA to pay the appellants a proportion of their costs, applying a ‘costs follow the event’ starting point established in previous CAT jurisprudence for Competition Act appeals.

The CMA appealed the costs ruling to the Court of Appeal, which allowed the appeal and substituted a ‘no order as to costs’. The Court of Appeal held that the CAT had erred by disregarding a principle derived from Bradford Metropolitan District Council v Booth [2000] 164 JP 485 and subsequent cases, which established that where a tribunal’s costs power does not include an express general rule, the starting point should be no order for costs against a public body acting in its regulatory capacity.

Issues

Primary Issue

Whether there exists a general principle that courts or tribunals exercising an unfettered costs discretion must adopt a starting point of making no order for costs against an unsuccessful public body defending a decision taken in the exercise of its public functions.

Secondary Issue

If no such general principle exists, whether the CAT erred in adopting a ‘costs follow the event’ starting point in Competition Act appeals by failing to give adequate consideration to the position of the CMA and the risk of a chilling effect.

Judgment

The Supreme Court unanimously allowed the appeal, restoring the CAT’s original costs order. Lady Rose delivered the judgment with which all other Justices agreed.

No General Principle of Protection

Lady Rose held that there is no generally applicable principle that all public bodies should enjoy protected status as parties to litigation where they lose cases brought or defended in the exercise of their public functions. She stated:

In my judgment, there is no generally applicable principle that all public bodies should enjoy a protected status as parties to litigation where they lose a case which they have brought or defended in the exercise of their public functions in the public interest.

The Booth Line of Cases

The Court examined the Booth line of cases including Baxendale-Walker v Law Society [2007] EWCA Civ 233 and R (Perinpanathan) v City of Westminster Magistrates Court [2010] EWCA Civ 40. Lady Rose concluded that these cases establish only that the risk of chilling effect is an important factor to consider, not a presumption:

The principle supported by the Booth line of cases is, rather, that where a public body is unsuccessful in proceedings, an important factor that a court or tribunal exercising an apparently unfettered discretion should take into account is the risk that there will be a chilling effect on the conduct of the public body, if costs orders are routinely made against it in those kinds of proceedings, even where the body has acted reasonably in bringing or defending the application.

Tribunal Expertise

The Court emphasised that the assessment of whether a chilling effect is sufficiently plausible to justify a ‘no order as to costs’ starting point is best made by the specialist tribunal in question:

Further in my judgment, the assessment as to whether a chilling effect is sufficiently plausible to justify a starting point of no order as to costs in a particular jurisdiction is an assessment best made by the court or tribunal in question, subject to the supervisory jurisdiction of the appellate courts.

CMA’s Distinctive Position

The Court noted several features distinguishing the CMA from the public bodies in the Booth line of cases, including its limited number of annual decisions, its ability to offset litigation costs against penalty income, and the quasi-criminal nature of its enforcement powers. The CAT was entitled to conclude that Competition Act appeals have significant differentiating characteristics from licensing or regulatory decisions.

Implications

This judgment clarifies that specialist tribunals have considerable autonomy in developing their own costs practices appropriate to their particular jurisdictions. The CAT’s established practice of applying a ‘costs follow the event’ starting point in Competition Act appeals was endorsed, though the Court recognised this starting point often results in significantly moderated awards through issues-based orders and substantial reductions.

The decision confirms that public bodies defending enforcement decisions are not automatically insulated from adverse costs orders merely because they act in the public interest. However, the judgment does not disturb the application of the Booth principles in contexts where they have traditionally applied, such as licensing appeals and professional disciplinary proceedings.

The case is significant for competition law enforcement and tribunal procedure more broadly, affirming that different starting points may be appropriate for different types of regulatory appeals depending on the substantive legislative framework and applicable procedural provisions.

Verdict: Appeal allowed. The Court of Appeal’s judgment was set aside and the Competition Appeal Tribunal’s costs order restored, requiring the CMA to pay Pfizer 58% and Flynn 55% of their allowable costs.

Source: Competition and Markets Authority v Flynn Pharma Ltd; Competition and Markets Authority v Pfizer Inc [2022] UKSC 14