The CAT’s Creativity Curtailed — Court of Appeal Sides With CMA in Hydrocortisone

The Court of Appeal (CoA) has overturned the decision of the Competition Appeal Tribunal (CAT) in Hydrocortisone¹, which stated that the UK Competition and Markets Authority (CMA) had failed to properly put its case to a witness in cross-examination. The CoA concluded that the CAT had strayed from the appropriate procedural path in a number of ways. The CoA’s decision is a reminder that the procedural flexibility that the CAT may exercise is not unlimited. The judgment also clarified that dishonesty does not form part of the legal test for proving a breach of the Chapter I prohibition in the Competition Act 1998.

Case Background

In July 2021, the CMA imposed fines on various pharmaceutical companies for abusing their dominant position and charging excessive prices for hydrocortisone tablets, as well as entering into anti-competitive agreements with potential competitors.

The pharmaceutical companies appealed to the CAT against the CMA’s decision on various grounds, including that the CMA had erred in finding that there were any anti-competitive agreements and had imposed disproportionate fines. The CAT issued a judgment in September 2023, agreeing in substance with the CMA’s findings. Uniquely, the CAT went beyond the CMA’s July 2021 decision by finding that the companies had acted dishonestly in concluding agreements for hydrocortisone tablets, and that Mr. Beighton, the former CEO of Advanz, had behaved dishonestly in concluding the infringing agreements. Taking a novel step, the tribunal stated that its judgment was “provisional,” and would be subject to a further “due process hearing.” The due process hearing re-opened fundamental questions regarding the CMA’s case including whether any dishonesty had to be alleged and proven by the CMA in order to challenge Mr. Beighton’s evidence. Following the due process hearing, the CAT concluded in March 2024 that the CMA had failed to put its case properly to Mr. Beighton in cross-examination. The CAT found that the CMA’s procedural failure “fatally undermine[d]” its original judgment and, therefore, reversed its earlier judgment of September 2023.

The CMA appealed arguing that the CAT had no basis to overturn its original substantive findings, and that the CMA had put its case properly to the witnesses as the CMA had not alleged any dishonesty (and there was no need to do so). The CoA ruled overwhelmingly in favor of the CMA.

The CoA found that it was inappropriate for the CAT to have called a further due process hearing, or to make its original substantive decision in September 2023 provisional pending the outcome of the due process hearing. Instead, the CAT should have finalized its conclusions in September 2023 based on the evidence that it had heard.

Moreover, the CoA stated that it was unnecessary to assess the question of dishonesty, which was clearly not part of the CMA’s case nor part of the legal test for proving an anti-competitive agreement. While the CAT accepted that the legal test for establishing a breach of the Chapter I prohibition of the Competition Act 1998 did not require providing dishonesty, the tribunal had concluded that the CMA’s case involved an element of dishonesty and that this should have been put to Mr. Beighton in cross-examination. The CoA disagreed with the CAT on both points, stating that the CMA’s case did not include any allegations of dishonesty and that the CMA’s cross-examination of Mr. Beighton “demonstrates precisely how a case of anti-competitive conduct can and should be put to a recalcitrant witness without needing to go so far as putting that they were dishonest.”

Further, the CoA criticized the CAT for having inappropriately engaged in a fresh examination of the CMA’s case in the due process hearing as this afforded the pharmaceutical companies a “second bite at the cherry.”

Implications of the CoA Judgment

It is well established that the legal test for a breach of the Chapter I prohibition of anti-competitive agreements does not require proving dishonesty. The CoA judgment confirms this position and clarifies that having found a breach, the CMA does not then need to demonstrate dishonesty to impose a penalty on the undertaking.

The judgment also illustrates the limits of the CAT’s case management powers. While the CAT enjoys a degree of flexibility, the decision serves as a reminder that there are limits to these powers. The CoA’s strong criticism of the tribunal’s unorthodox procedure in Hydrocortisone may encourage the CAT to adopt a less interventionist approach in future cases.

*Naina Gupta contributed to this Advisory. Ms. Gupta is a trainee solicitor in the firm’s London office. She is not admitted to the practice of law.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.