The Supreme Court held there is no general principle requiring courts or tribunals to adopt a ‘no order as to costs’ starting point against unsuccessful public bodies. The Competition Appeal Tribunal was entitled to apply a ‘costs follow the event’ starting point in Competition Act appeals, having properly considered chilling effect concerns.
Background
The Competition and Markets Authority (CMA) found that Flynn Pharma and Pfizer had abused their dominant positions in the supply of phenytoin sodium capsules by charging excessive prices, contrary to section 18 of the Competition Act 1998 and Article 102 TFEU. The CMA imposed fines of £84.2m on Pfizer and £5.2m on Flynn. Both companies appealed to the Competition Appeal Tribunal (CAT), which upheld the CMA’s finding on dominance but set aside part of the decision on abuse, remitting that issue to the CMA.
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On costs, the CAT applied its established ‘costs follow the event’ starting point for Competition Act appeals, making an issues-based order requiring the CMA to pay Pfizer 58% and Flynn 55% of their allowable costs. The CMA appealed against the costs ruling in proceedings separate from the appeals on the substantive competition decision. The Court of Appeal allowed the CMA’s appeal, holding that the CAT had erred by disregarding a principle derived from Bradford Metropolitan District Council v Booth [2000] 164 JP 485 and related authorities. The Court of Appeal substituted an order of no costs.
The Issue(s)
The central question was whether there exists a general legal principle that, where a tribunal’s costs power contains no express default position, the starting point must be that no order for costs should be made against a public body which has unsuccessfully brought or defended proceedings in the exercise of its statutory functions in the public interest. If no such principle exists, the subsidiary question was whether the CAT had nonetheless erred in adopting a ‘costs follow the event’ starting point in Competition Act appeals by failing adequately to consider the CMA’s position and the risk of a ‘chilling effect’.
The Parties’ Arguments
The Appellants (Flynn and Pfizer)
The appellants argued there was no such general principle. The case law established only that the risk of a chilling effect on a public body is an important factor for a court or tribunal to weigh when considering costs. They contended the CAT was best placed to assess whether such a risk existed in the particular context of Competition Act appeals and had rightly concluded that no ‘no order as to costs’ starting point was warranted.
The CMA
The CMA supported the Court of Appeal’s reasoning, contending that the Booth line of authority mandated a starting point of no order as to costs against a regulator acting in the public interest. It argued that this principle applied across all the CAT’s jurisdictions where the respondent was a public body exercising statutory functions.
The Court’s Reasoning
No General Principle of Protected Status for Public Bodies
Lady Rose, delivering the unanimous judgment, held that the Booth line of cases does not establish a generally applicable principle that all public bodies enjoy protected status as to costs. She stated:
In my judgment, there is no generally applicable principle that all public bodies should enjoy a protected status as parties to litigation where they lose a case which they have brought or defended in the exercise of their public functions in the public interest.
Rather, the principle supported by the Booth line of cases is that where a public body is unsuccessful, an important factor for the court or tribunal to take into account is the risk of a chilling effect on the body’s future conduct if costs orders are routinely made against it. However, whether such a risk actually exists depends on the facts and circumstances of the particular body and the nature of its decisions — it cannot simply be assumed.
An appeal is not sufficiently analogous to the Booth line of cases merely because the respondent is a public body and the power to award costs is expressed in unfettered terms. Whether there is a real risk of such a chilling effect depends on the facts and circumstances of the public body in question and the nature of the decision which it is defending – it cannot be assumed to exist.
The Assessment Belongs to the Specialist Tribunal
The Court emphasised that the assessment of whether a chilling effect is sufficiently plausible to justify a particular starting point is best made by the court or tribunal in question, subject to appellate oversight:
Further in my judgment, the assessment as to whether a chilling effect is sufficiently plausible to justify a starting point of no order as to costs in a particular jurisdiction is an assessment best made by the court or tribunal in question, subject to the supervisory jurisdiction of the appellate courts.
Analysis of the Booth Line of Authority
The Court examined Booth, Baxendale-Walker v Law Society [2007] EWCA Civ 233, Perinpanathan [2010] EWCA Civ 40, and BT v Ofcom (Business Connectivity) [2018] EWCA Civ 2542. Lady Rose found that none of these authorities established the general principle for which the CMA contended. Stanley Burnton LJ in Perinpanathan had emphasised that whether the principle applied in other contexts depended on the substantive legislative framework and applicable procedural provisions. The Court of Appeal in BT v Ofcom (Business Connectivity) had remitted the case to the CAT expressly to reconsider the applicable starting point — not simply to determine whether there was reason to depart from a presumed ‘no order as to costs’ position.
The CAT’s Established Approach Was Correct
The Court held that the CAT had properly considered chilling effect arguments across its various jurisdictions and had adopted different starting points for different types of proceedings. In Competition Act appeals specifically, the CAT was entitled to adopt ‘costs follow the event’ as the starting point for several reasons:
- The CMA’s enforcement decisions are quasi-criminal in nature, involving substantial fines, and the appeal to the CAT is the addressee’s first opportunity to put its case before an independent tribunal.
- Investigated parties bear significant irrecoverable costs during the investigation stage.
- The Court relied on the CMA’s arrangement with HM Treasury allowing it to offset its litigation costs, including adverse costs awards, against Competition Act penalties it collected. That reduced the risk that an adverse award would deter the CMA from enforcing competition law.
- The CMA takes a limited number of decisions each year, unlike the high-volume licensing decisions in the Booth line of cases.
Lady Rose cited the CAT’s own reasoning with approval:
The appeal to the Tribunal is the parties’ first opportunity to put their case to an independent and impartial appeal body and for the CMA to defend its decision. It is an appeal ‘on the merits’. It is thus an essential part of the system by which competition authorities, in return for receiving extensive enforcement powers, are held to account by the courts.
Procedural Framework Supports the CAT’s Approach
The Court noted that Rule 104 of the CAT Rules 2015 confers a broad discretion listing success or failure as a relevant factor but does not list chilling effect. The statutory power to make different costs provision for different proceedings had been used very sparingly. The CAT’s established practice of applying ‘costs follow the event’ in Competition Act appeals was well known when the rules were reviewed in 2015, and no change was made.
Other Mechanisms Accommodating Chilling Effect Concerns
The Court rejected the suggestion that only the starting point could accommodate chilling effect concerns. The CAT’s practice of making issues-based orders, substantial reductions in costs claimed, detailed reasoning in costs decisions, and active case management all served to protect public bodies from disproportionate costs exposure even where ‘costs follow the event’ was the starting point.
Practical Significance
This decision is of considerable importance for costs practice before the CAT and potentially for other specialist tribunals. It confirms that there is no overarching principle requiring a ‘no order as to costs’ starting point wherever a public body is the unsuccessful party. It vindicates the CAT’s long-standing differentiated approach to costs across its varied jurisdictions, recognising the tribunal’s expertise in calibrating costs rules to the specific regulatory and enforcement contexts in which it operates. It preserves the discipline that potential costs liability places on public enforcement bodies to take well-founded decisions and defend them proportionately. The decision also affirms the importance of specialist tribunals maintaining control over their own procedural approaches, subject to appellate supervision on points of legal principle.
Verdict: The Supreme Court unanimously allowed the appeal. The Court of Appeal’s judgment was set aside and the CAT’s Costs Ruling ordering the CMA to pay Pfizer 58% and Flynn 55% of their allowable costs was restored. The CAT had properly exercised its costs jurisdiction by applying a ‘costs follow the event’ starting point in Competition Act appeals, having considered all relevant factors including the potential for a chilling effect on the CMA.
Reported citations [2022] 1 WLR 2972; [2022] 2 All ER (Comm) 937; [2022] LLR 668; [2022] WLR(D) 230; [2022] WLR 2972
