On 16 November 2017 the UK High Court ruled that the Competition and Markets Authority (CMA) cannot rely on redacted or withheld evidence when defending an application to discharge or vary search warrants. The judgment results from Concordia’s challenge to a search warrant that had been granted as part of the CMA’s investigation into alleged collusion in the market for hydrocortisone.

Background

The hydrocortisone investigation is focussed on agreements under which Concordia was allegedly incentivised not to sell hydrocortisone tablets (a steroid treatment). In March 2017 the CMA issued a statement of objections to the effect that such agreements enabled another party, Actavis UK, to remain the sole supplier of hydrocortisone tablets, prolonging high prices in the market and depriving the NHS of significant price reductions.

The CMA’s powers of search

When conducting investigations, the CMA has the power to apply to court for a 'section 28 warrant’ to enter and search a business premises for evidence if there are reasonable grounds to suspect that such evidence would be concealed, tampered with or destroyed if it was requested through normal procedures.1 Inthis case, such an application was made on 5 October 2017 and the warrant granted the following day.2 The warrant was executed on 10 October 2017 and on the same day Concordia applied to the High Court to partially discharge or vary the warrant.

The judgment

The pivotal issue in this case was deciding which pieces of evidence the court should consider when assessing a challenge to the validity of the warrant. More specifically, how material potentially protected by public interest immunity (PII)3 is to be treated when there is an application to vary or revoke a warrant issued pursuant to section 28, based in part on such material.

This is the first time that a section 28 warrant has been challenged and therefore this issue had never been tested before and there is no specific statutory guidance. The CMA argued that the court should consider all evidence submitted in the original warrant application. This included evidence that the CMA had withheld from Concordia on the grounds of PII. Under PII, the CMA may withhold evidence where disclosure would jeopardise further investigations (such as investigations into collusion in other markets). However the court found that by relying on PII to withhold evidence from Concordia while simultaneously trying to rely on such evidence to justify the search warrant, the CMA was proposing a process that was intrinsically unfair and one which could not be adopted without legislative endorsement.4

The court also found that while it is appropriate that the CMA can obtain a warrant ex parte without notice, if and when there is a challenge to the warrant and an inter partes hearing is held, the court should approach the matter afresh and the application to vary or discharge the warrant issued under section 28 should be by way of a complete rehearing. In such a rehearing the CMA can only rely on evidence that both parties can access and scrutinise.

The procedure recommended by the court

The court, being alive to the risk of hindering the effectiveness of the CMA’s investigating powers, held that going forward the approach to be adopted should balance both the public interest in the effective investigation of infringements of competition law and in protecting the rights of a business from infringement and invasion.

Accordingly, the court stated that all evidence, including that allegedly protected by PII, should be submitted to the court when the CMA originally applies for a section 28 warrant at an ex parte hearing. The CMA should highlight to the court any evidence that it wishes to protect from the other party under PII. If the warrant is then challenged, the application for the warrant will be reheard with both parties present and able to submit arguments.

If, at this inter partes hearing, the CMA still wishes to withhold information on the basis of PII, this information will not be directly considered by the court. Instead the CMA and the court will discuss the withheld evidence to ascertain whether the “gist” of the redacted information could be provided to the other party without revealing the sensitive material. Such communication could be made by the CMA in an affidavit.

Press reports suggest that the CMA intends to appeal this decision.