On 25 May 2022, the UK Supreme Court gave its judgment on CMA v Flynn Pharma Ltd and Pfizer Inc in relation to a CAT decision on costs for public regulators.
This is a vitally important case in relation to public interest enforcement of the law. It reaffirms that the judge must decide who pays the costs when one side loses but does not provide any certainty of outcome. This will make a difference to the prioritisation of cases by regulators and competition authorities. After a quick review of the decision, we discuss potential consequences.
The Supreme Court Judgment
Lady Rose affirmed that given the CMA had made certain errors in determining whether Pfizer and Flynn Pharma had each abused their respective dominant positions under UK and EU competition law, Pfizer and Flynn are entitled to recover some of their costs from the CMA. The UKSC overturned the Court of Appeal’s decision, which set out that the default position for ‘costs decisions’ should be that no order for costs is mandated where a regulator has brought or defended proceedings in the CAT. Instead, the UKSC asserted that there is no such principle that exempts public bodies from paying costs where the court does not find in their favour. It stressed the importance of discretion in each case, and decisions should be made depending on the specific circumstances. The CAT should therefore adopt a ‘costs following the event’ approach.
Significance and Consequences
The judgment is significant for a number of reasons. Firstly, it serves as judicial confirmation that the CMA and other public bodies are not immune from paying costs where it is found that their actions are ill-founded.
Secondly, because the UKSC has emphasised that the CAT has discretion in every case to determine whether costs should be payable by a regulator that has lost its case, this increases uncertainty as to which successful appellants will be awarded recoupment of their costs. Going forward, the CAT will be required to conduct a balancing act that weighs the interests of a dominant entity who has potentially abused its position, and a government entity who has rendered an incorrect analysis. Deterrence from disputing the CMA’s position may therefore suffer as a result.
Thirdly, the decision will impact on prioritisation of enforcement action. At the moment, enforcement actions are few and far between with the CMA pursuing a single-figure number of cases in a ‘good’ year. A thought experiment is worth conducting to consider what will happen, in practice, to the calculation of risk and reward facing a regulator or other authority with competition powers. Cases can be categorised into firstly, those which are substantially important, i.e., those being difficult to win but will be significant in establishing important precedents. Then we can imagine middling cases which are more likely than not to be successful, but with limited precedential importance. Finally, we can consider ‘easy wins’ with limited importance, and every grade of alternative in between. When deciding what to pursue, the risk of loss affects budgets and impacts on authority discussions with the Treasury over the amount of budget for next year. It also more fundamentally affects the credibility of the authority. So, at the moment, it might be reasonable to suggest that low numbers of cases indicate a level of risk aversion in the authorities. If so, what does the increased uncertainty of this judgment mean for future enforcement? On any analysis it is not likely to improve the chances that cases will be taken. Important and hard cases are less likely to be taken than less important, easy ones.
Finally, the type of case being taken is likely to be affected. Since the CAT’s discretion to decide whether the CMA is to pay an appellant’s costs is hard to predict, the CMA may be less inclined to pursue regulatory action against wealthy monopolists whose ability and incentive to incur high costs will likely be very high. Even short trials can cost millions. The defendant monopolists can afford it: if they lose, they pay and are not much worse off. If they win, the authority must pay the bill, which tends to be off-putting for future cases, to say the least. The rule of law is likely to suffer: the authority may be more inclined to accept more settlements to avoid these discretionary costs orders.
Please contact Tim Cowen if you have any questions.