Competition and Markets Authority (Respondent) v Flynn Pharma & Pfizer (Appellants) [2022] UKSC 14

We previously covered this case, in which the Court of Appeal gave clear guidance as to circumstances in which a regulator can be ordered to pay costs. In short, the appeal arose from a decision by the CMA that Flynn Pharma and Pfizer had abused their dominant positions in the UK market by charging excessive prices for an epilepsy drug. Flynn Pharma and Pfizer appealed this decision to the Competition Appeals Tribunal (CAT), which found the CMA had erred in its assessment of abuse of dominant position. In respect of costs, the CAT adopted a starting point of “costs follow the event”, and decided that Flynn and Pfizer were entitled to recover some of their costs from the CMA.

The CMA appealed the costs decision to the Court of Appeal, relying on the principle in Bradford Metropolitan Council v Booth [2000] 164 JP 485, that where a complainant has successfully challenged a regulator’s decision, the default position in relation to costs should be “no order for costs”, unless the regulatory authority has acted unreasonably.

The Booth principle was applied by the Court of Appeal in a case involving professional disciplinary proceedings before the Solicitors Disciplinary Tribunal (Baxendale-Walker v The Law Society [2007] EWCA Civ 233). In that case, Sir Igor held (at paragraph 39) that save for the situation where a case had been a “shambles from start to finish”, an order for costs should not ordinarily be made against a regulator in the event of a successful challenge by a complainant as this would otherwise lead to a “chilling effect on the exercise of its regulatory obligations, to the public disadvantage”.

Applying these authorities to the case in hand, the Court of Appeal allowed the CMA’s appeal and replaced the costs order with no order for costs in respect of the proceedings before the CAT. Following the decision, Flynn Pharma and Pfizer appealed to the Supreme Court. What follows is the update from that decision.

Costs follow the event

Flynn Pharma and Pfizer appealed to the Supreme Court and judgment was delivered on 25 May 2022. The Supreme Court allowed the appeal, reversing the Court of Appeal’s decision. The CAT was entitled to apply the starting point of “costs follow the event”.

The Supreme Court provided several reasons why a blanket prohibition of no adverse costs against a regulator in successful challenges could not be the proper approach. Alongside the need to protect individuals from being wronged by actions of a public body where proceedings have been poorly brought, the Court noted that the potential finding of adverse costs orders against a regulator would encourage better decision-making and more efficient and proportionate approaches to the conduct of proceedings.

Professional regulators distinguished

While the Supreme Court’s decision might at first glance appear to be a significant departure from the principle as per Booth and Baxendale-Walker, it is not quite the death knell for professional regulators who are unsuccessful in disciplinary proceedings. First of all, the Supreme Court acknowledged that even though the starting point adopted should be “costs follow the event”, this would not preclude the possibility of a chilling effect to be considered. In addition, the Court distinguished the position where a regulator is funded predominantly by the profession it regulates via practising certificate fees, from that of the CMA which under the Competition Act 1998 is entitled to offset its litigation costs against any penalties it receives.

Indeed, the Solicitors Regulation Authority (SRA) were an intervening party in the Supreme Court proceedings for this reason. The SRA argued that to depart from Baxendale-Walker would have a chilling effect if the SRA were exposed to adverse costs orders, as this would necessarily result in members of the profession being subjected to higher practising certificate fees. In her judgment, Lady Rose addressed this concern:

“[the SRA] is funded predominantly by practising certificate fees and other fees paid by the solicitors’ profession. Although, following Baxendale-Walker, it is not usually subject to an adverse costs order where the solicitor is successful, it does usually recover its costs from the unsuccessful solicitor when the Disciplinary Tribunal upholds the complaint. These costs can be considerable and if they were not recovered by the SRA from the unsuccessful solicitor, the costs would have to be borne by the profession. I recognise the importance of the Baxendale-Walker authority for the continued proper functioning of the SRA and I do not regard this judgment as casting any doubt on the correctness of that decision.” [122]

Conclusion

The Supreme Court’s decision in this case clarifies the position on costs when a complainant successfully challenges disciplinary proceedings, particularly against the CMA. In these situations, the CAT has the unfettered discretion to adopt the starting point of “costs follow the event”, and may properly order adverse costs against the CMA. In doing so, the CAT is not precluded from considering the possibility of a chilling effect. However, in respect of regulators that are funded predominantly by their members, the judgment may have less of an impact owing to the Supreme Court’s explicit preservation and precedence of Baxendale-Walker.