Supreme Court rejects a one-size-fits-all approach to costs orders against public authorities (CMA v Flynn Pharma Ltd & Ors [2022] UKSC 14)

On 25 May 2022, the UK’s Supreme Court issued a decision on the apportionment of costs in the Competition Appeal Tribunal (the “CAT”). This decision has implications for future costs rulings of the CAT where the Competition and Markets Authority (“CMA”) is a party. The decision is also of broader significance insofar as it rejects a one-size-fits-all approach to costs orders against public bodies.

Background

In Flynn Pharma, the CMA’s decision to fine two pharmaceutical companies for breaches of the Competition Act was appealed successfully before the CAT. The CAT then ordered the CMA to pay a portion of the appellants’ costs in a separate costs ruling.

It is this costs ruling (issued on 29 March 2019) which was overturned by the Court of Appeal, leading to a further appeal to the Supreme Court. The Supreme Court found that there was no general principle that public bodies should be insulated from adverse costs awards because of their public function. Rather, the nature, functions and conduct of any given public body stood to be considered on a case-by-case basis with due consideration being given to the risk of a “chilling effect” whereby a public body would be unduly deterred from exercising its functions for fear of bearing the often substantial litigation costs.

The two starting points

There are two basic starting points for the apportionment of costs: a court may choose to make no order as to costs (sometimes referred to as “costs-lie-where-they-fall” since parties pay the costs they each incurred in proceedings); or it may apportion costs according to the principle that “costs follow the event”. Under the latter approach, the court will review such matters as i) the relative success of the parties issue-by-issue; ii) the conduct of the parties in proceedings; and iii) any admissible offers of settlement (CPR Rule 44.2(4)).

Whereas the general rule in the Civil Procedure Rules is that the unsuccessful party will be ordered to pay the costs of the successful party (CPR 44.2(2)(a)), Rule 104(2) of the CAT Rules 2015 (“the CAT Rules”) confers a discretion on the Competition Appeal Tribunal to make any order it thinks fit in relation to the payment of costs in respect of the whole or part of the proceedings, without specifying a starting point.

The Competition Appeal Tribunal’s Approach to Costs

The CAT is a specialised independent tribunal established by the Enterprise Act 2002 (“the Enterprise Act”). Much of the work of the CAT sees it examining the decisions of public bodies and regulators, which appear as parties, incurring costs in putting their cases to the CAT. The CAT has developed different approaches to costs, depending on which jurisdiction it is exercising.

In its costs ruling in Flynn Pharma, the CAT accepted the appellants’ argument that the CAT should not alter its established approach of ordering costs against an unsuccessful public body where appropriate, citing the decision in Eden Brown Ltd v Office of Fair Trading [2011] CAT 29 (“Eden Brown”).

Eden Brown received particular attention, for its rejection of the argument that a public body should be treated differently purely because of its nature and public function. The ruling in Eden Brown equally did not narrow the CAT’s discretion under Rule 104: the CAT was free to approach costs differently as the context demanded. Furthermore, the logic of costs following the event did not imply that one party’s costs must be awarded to another (see Quarmby Construction Co Ltd v Office of Fair Trading [2012] EWCA Civ 1552).

In Flynn Pharma, the CAT’s review of its growing list of precedents interpreting Rule 104 led to the conclusion that the proper starting point should be that costs follow the event, such that the unsuccessful party should pay the successful party’s costs (although the circumstances of the case should be taken into consideration, including the risk of a chilling effect to a public body).

The CMA appealed.

The Court of Appeal Decision

The CMA’s argument on appeal was that a general principle applied to decisions on costs when ordered against a public authority.

This originated in the administrative law decision in City of Bradford Metropolitan District Council v Booth [2000] EWHC Admin 444 (“Booth”), where Lord Bingham stated that where a public body was “acting honestly, reasonably, properly and on grounds that reasonably appeared to be sound, in exercise of its public duty,” the court should take into account inter alia the public policy interest in ensuring that authorities continue to decide in the public interest “without fear of exposure to undue financial prejudice if the decision is successfully challenged.

The principle was said to apply to the CAT, thanks to the decision of the Court of Appeal in an appeal of a CAT costs ruling in British Telecommunications plc v Office of Communications (“BT v Ofcom”) [2018] EWCA Civ 2542. In BT v Ofcom, the court rejected the “costs follow the event” approach adopted by the CAT, in view of the public function of Ofcom, stating that “if Ofcom has acted purely in its regulatory capacity in prosecuting or resisting a claim before the CAT and its actions are reasonable and in the public interest, it is hard to see why one would start with a predisposition to award costs against it, even if it were unsuccessful.”

Lord Justice Lewison gave particular weight to BT v Ofcom, which he referred to as being “designed to give general guidance to the CAT”. Lewison LJ concluded that while success or failure (either overall or on discrete issues) is a relevant factor in apportioning costs, the flaw common to the CAT’s costs ruling in both BT v Ofcom and the present case, was the failure to engage with the prior consideration of the CMA’s position as a public authority carrying out its functions in the public interest. That was said to be “the feature that is relevant in considering what (if any) order for costs should be made” (paragraph 91).

As such, the Court of Appeal’s judgment set aside the CAT’s costs ruling and made no order for costs.

The Supreme Court Decision

Upon reaching the Supreme Court, the case attracted interveners in support of both sides: representatives of the pharmaceutical industry, and various public bodies and industry regulators, including the Solicitors Regulation Authority (“SRA”).

The leading judgment was given by an ex-president of the Competition Appeal Tribunal, Lady Rose who reconciled the Booth and Eden Brown lines of cases by identifying a logical leap in the CMA’s argument: it was true that “in some circumstances” the risk of a chilling effect made no order as to costs the appropriate starting point in relation to an unsuccessful public body. However, this should not be equated to “a principle that in every situation and for every public body it must be assumed that there might be such a chilling effect and hence that the body should be shielded from the costs consequences of the decisions it takes” (paragraph 98).

On the specific issue of the starting point for costs awards in Competition Act appeals before the CAT, Lady Rose reviewed the applicable procedural provisions (the CAT Rules and underlying legislation), noting that the wide costs discretion exercised by the CAT under its previous procedural rules had been carried forward in Rule 104 in the 2015 CAT Rules “without adding the potential chilling effect to the list of factors and without taking away the reference in the list to the success or failure of the parties” (paragraph 120).

Having found that no general principle militated against an adverse costs order in relation to a public body, Lady Rose considered the facts of Flynn Pharma, examining the CMA’s position.

Lady Rose found that there could be no chilling effect in circumstances where the CMA issued penalties which generated an income of £56.7m in the financial year 2020/2021, which could be used to offset adverse costs orders amounting to £2m in the same year. This, and a number of other factors contributed to the conclusion that the CMAshould be subjected to “the discipline associated with having to pay the successful appellant’s costs if ultimately the CAT concludes that the infringement decision or the fine imposed was not well-founded” (paragraph 135).

Comment

Flynn Pharma rejects the expansion of the proposition that public policy dictates that some public bodies require protection from adverse costs awards in order to safeguard their proper functioning into a general principle against awarding adverse costs against public bodies. Nonetheless, as established in Booth and the cases which followed this, the risk of a chilling effect which threatened that public authority’s future functioning was an important factor to be considered.

In relation to the CMA, no plausible risk of a chilling effect could be identified in relation to appeals against its Competition Act infringement decisions. The “costs follow the event” approach adopted by the CAT was both consistent with the discretion in Rule 104 of the CAT Rules, and was a starting point which encouraged the CAT to consider costs in great detail issue-by-issue, leaving open the option of making no order as to costs at the end of its analysis.

The Supreme Court concluded that the CAT had exercised its costs jurisdiction correctly, adopting an appropriate starting point that costs follow the event, and having given due consideration to all relevant factors.

Published
Categorized as Uncategorized