The Competition Appeal Tribunal ("CAT")'s ruling on costs in the case of T-Mobile (UK) Ltd (and others) v Office of Communications [2009] CAT 8 was the first in which an award of costs has been made against Ofcom. The case reaffirms the position that public interest arguments against exposing regulators to adverse costs orders can be outweighed by considerations of fairness.

Key points

  • Unlike in civil proceedings, including judicial review, there is no presumption in regulatory proceedings that the loser should pay the winner's costs. In practice, although the costs award made following a successful "defence" of regulatory action should depend on all the circumstances, it is more difficult for a successful defendant to recover its costs against the regulator. This raises issues about fairness, in circumstances where a person subject to regulatory action may have no choice but to seek redress before a particular tribunal rather than through the courts.
  • The case provides clarification regarding the exercise of discretion in relation to the specific exercise of the discretion to make costs awards in the CAT. Despite the public interest arguments, tribunals should not refrain from awarding costs to successful appellants where to do so would be fair in all the circumstances.

Background

The CAT's costs ruling followed a judgment on appeals brought under s.192 Communications Act 2003 by various mobile phone companies against Ofcom. Those appeals had succeeded in overturning Ofcom's resolution, under s.185 of the 2003 Act, of various disputes between the mobile phone companies concerning the rates charged for mobile voice call termination. Under the Tribunal rules, the Tribunal has discretion to make any order it thinks fit in relation to the payment of costs by one party to another.

The appellants sought orders that Ofcom should pay all or a substantial proportion of their costs. Ofcom resisted on the basis that (1) the Tribunal's consistent approach to costs on appeals under s.192 had been to make no order for costs save where a party had conducted itself unreasonably or there were exceptional circumstances justifying an award; and (2) under s.185 it was bound to accept and determine disputes referred to it and it should not therefore be exposed to adverse costs orders where it was in the public interest to defend appeals.

The decision on costs against Ofcom

Notwithstanding these arguments the Tribunal made a costs order against Ofcom for part of the appellants' reasonably incurred costs.

The Tribunal rejected Ofcom's argument that an adverse costs order against it may have a “chilling effect” on its ability to fulfil its regulatory obligations, stating that it would remain able to stand by “honest, reasonable and apparently sound administrative decisions made in the public interest”.

The Tribunal recognised the force in Ofcom's argument that it was required by the 2003 Act to determine disputes referred to it and was therefore in a unique quasi-judicial role; it also recognised the importance of taking a consistent approach to costs against a regulator in such a position. However, Ofcom's "unique" position, the need for consistency, and the fact that there had been no award against Ofcom thus far did not establish a principle that no such award of costs should be made, since each case must be approached on its own particular facts.

The circumstances relied on by the Tribunal in this case were that Ofcom had been found, in the substantive judgment on the core issues, to have failed to have regard to information that it should have taken into account, placed too much weight on one relevant consideration, applied a test that was seriously flawed, and failed to have proper regard to its regulatory objectives. Virtually all of the relevant appellants' arguments were accepted in the substantive judgment, and had been known to Ofcom at the time that the appealed decision was made.

The interests of justice therefore favoured awarding costs against Ofcom, and the Tribunal indicated that to hold otherwise would be tantamount to requiring bad faith and unreasonable behaviour on the part of Ofcom before awarding costs against it.

Commentary - Costs in regulatory proceedings

In regulatory proceedings there is no presumption akin to that in civil litigation that the loser should pay the winner's costs, and it has been made clear in many different regulatory contexts that costs orders against regulators will not be made lightly, even where their decisions are held to have been flawed. The starting point for such reasoning is Lord Bingham's view in Bradford MDC v Booth (2000) 164 J.P. 485 that when regulatory decisions are successfully appealed the court should consider, in addition to any other relevant circumstances: (1) the financial prejudice to the appellant if not awarded costs; and (2) the need to encourage public authorities to make and stand by honest and reasonable administrative decisions without fear of being subject to undue financial prejudice if these decisions are successfully challenged.

This reasoning still runs through costs decisions involving regulators. However, the decision of the Tribunal in this case appears to represent a retreat from its position in the case of BT v Office of Communications (RBS Backhaul) [2005] CAT 20 (a case subsequently relied on in other costs decisions involving regulators) which held that an award of costs against Ofcom would potentially have a "chilling effect" on regulators' resolve to defend their decisions, especially when faced with appellants with market power and large financial resources. The subsequent case of Baxendale-Walker v Law Society [2007] EWCA Civ 233 took a similar line on the basis that exposing regulators to the risk of an adverse costs order simply because properly-brought proceedings were unsuccessful might have effects on the regulator's behaviour which would be to the public's disadvantage.

The costs landscape has not fundamentally changed in light of this decision. It is true that in awarding costs against Ofcom the CAT was breaking new ground in respect of that particular regulator. But in doing so it accepted the difficulty Ofcom faces in being bound, save in limited circumstances, to determine disputes referred to it, and acknowledged the wider public interest arguments that this situation raises. The determining factor was really that although Ofcom had not acted unreasonably or in bad faith, the appeal against it had been successful on virtually all grounds, which grounds were known to Ofcom at the time of their original decision.

The status quo thus remains intact – regulators in general should not in the ordinary way bear their opponents' costs when their decisions are successfully overturned on appeal in regulatory tribunals. However the case provides clarification regarding the exercise of discretion. Neither bad faith nor unreasonableness are necessary for an award of costs against a regulator, but tribunals will be willing to award costs to successful appellants where to do so would be fair in all the circumstances.