Kerry Underwood

WHO REGULATES THE REGULATORS?

with 4 comments


This piece, in slightly different form, first appeared on the Practical Law Dispute Resolution Blog.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

Below I report the decision of the Court of Appeal in

Competition and Markets Authority v Flynn Pharma Ltd and others [2020] EWCA Civ 617

concerning the circumstances in which a regulator who brings regulatory proceedings and loses should pay the successful party’s costs.

This raises the wider question of whether regulators should enjoy virtual immunity from costs, and indeed regulation and accountability.

The traditional idea that a regulator is a quasi-judicial body enjoying the respect and confidence of those who it regulates is, in the modern age, laughable.

The Law Society Gazette, on 18 May 2020, reported that the Junior Lawyers Division has lost confidence in the Solicitors Regulation Authority fairly to prosecute young solicitors whose judgment is clouded by pressures of work. The chair of that organization has written to the chief executive of the SRA calling for an immediate review of its approach to handling junior lawyers who report mental health issues or a toxic working environment.

This follows the striking off of recently qualified solicitor Claire Matthews who lied to her employer to cover her mistake of leaving sensitive documents on a train.

Ms Matthews is appealing, but the significance is in the flood of lawyers rushing to her support, both with money and pro bono representation.

Hers is not the first such case.

One of the features of that case was that Ms Matthews was ordered to pay costs of £10,000 and that the costs risk if she loses her appeal is around £40,000, and all of these costs are those of the regulator as her own lawyers are acting free of charge.

It is fair to say that the Legal Ombudsman system is regarded as nothing short of a Star Chamber by many lawyers. It serves no purpose and should be scrapped immediately.

My personal workload involves a considerable amount of football law, including appearing before the Football Association to represent managers and players etc.

Now the Football Association’s Judicial Services Team– and that is what it is called – is efficient, well run, well resourced and the FA’s courtroom facilities far exceed anything you will find in any Magistrates’ Court, Crown Court or County Court. The Legal Ombudsman and Solicitors Regulation Authority it most certainly is not.

Nevertheless, this entirely unregulated and unaccountable body has the power of economic life or death over those who appear before it and often hands out what football lawyers consider to be harsh, and inconsistent, sentences.

Put simply the suspicion is that if you are a Premier League Player or a manager whose participation in the sport brings in billions of pounds from Sky, you will get a less serious penalty than if you are a Non-League Player.

The point about all of these bodies is their lack of accountability, although it is fair to say that there is an appeal to the High Court from the Solicitors Disciplinary Tribunal.

My proposal is that there be a regulatory Court of Appeal, presided over by a High Court Judge with an automatic right of appeal to that court from any decision of any regulator.

This would be a far wider right than Judicial Review or the equivalent.

I would also abolish forthwith any legal assumption that a losing regulator should be immune from costs.

 

Competition and Markets Authority Case

In

Competition and Markets Authority v Flynn Pharma Ltd and others [2020] EWCA Civ 617

it was common ground that Rule 104 of the Competition Appeal Tribunal Rules 2015 conferred a discretion on the Tribunal to award costs.

The Court of Appeal said that the question is whether there is a starting point for the exercise of that discretion, and if so what it is.

Here the Competition Appeal Tribunal overturned a finding against Flynn Pharma Limited and Pfizer of abusing a dominant market position, and this decision was due to errors made by the Competition and Marketing Authority (CMA), whose appeal to the Court of Appeal against the decision of the Competition Appeal Tribunal largely failed.

The matter was remitted to the Competition Appeal Tribunal which held that its established practice was that the starting point for the exercise of discretion was that the unsuccessful party should pay the successful party’s costs, that is that costs follow the event.

It ruled that the Competition and Markets Authority should pay a proportion of the defendants’ costs.

The Competition and Markets Authority appealed to the Court of Appeal and that appeal is the subject of this judgment.

It argued that the starting point is that no order for costs should be made against a public body performing its functions in the public interest, unless it has acted unreasonably.

It was not disputed that the CMA had swingeing powers. Section 46 of the Competition Act 1998 gives a party a right to appeal to the Competition Appeal Tribunal. That Tribunal is able to hear detailed evidence as the appeal is on the merits and is not in the nature of judicial review.

Here the Court of Appeal referred to other bodies that had similar powers as the CMA, such as the regulators of communication and postal services, electricity, gas, water and sewerage, railways, air traffic and air operation services, payment systems, healthcare services in England and financial services.

Although the costs rules of the Competition Appeal Tribunal are similar to those in the Civil Procedure Rules there is no equivalent to the general Civil Procedure Rule that “unsuccessful party will be ordered to pay the costs of the successful party”.

Here the Court of Appeal set out the relevant legal principles to be derived from its extensive review of the case law, and set them out as follows:

i) Where a power to make an order about costs does not include an express general rule or default position, an important factor in the exercise of discretion is the fact that one of the parties is a regulator exercising functions in the public interest.

ii) That leads to the conclusion that in such cases the starting point or default position is that no order for costs should be made against a regulator who has brought or defended proceedings in the CAT acting purely in its regulatory capacity.

iii) The default position may be departed from for good reason.

iv) The mere fact that the regulator has been unsuccessful is not, without more, a good reason. I do not consider that it is necessary to find “exceptional circumstances” as opposed to a good reason.

v) A good reason will include unreasonable conduct on the part of the regulator, or substantial financial hardship likely to be suffered by the successful party if a costs order is not made.

vi) There may be additional factors, specific to a particular case, which might also permit a departure from the starting point.

Here, the Court of Appeal held that those principles applied to proceedings before the Competition Appeal Tribunal and consequently allowed the appeal of the Competition and Markets Authority and substituted a finding that there be no order for the costs of the proceedings before the Competition Appeal Tribunal.

The Court of Appeal stated here that the starting point or default position is that no order for costs should be made against a regulator who has brought or defended proceedings in the Competition Appeal Tribunal acting purely in its regulatory capacity.

It said that that starting point may be departed from for good reason, but the mere fact that the regulator has been unsuccessful is not enough.

That statement is one of general application to regulators.

It said, “there is a public interest in encouraging public bodies to exercise their public function of making reasonable and sounded decisions without fear of exposure to undue financial prejudice, if the decision is successfully challenged.”

However, the Court of Appeal said that the courts have been unable to take into account wider considerations of policy and consequently “there may be merit in the issue being considered by the Law Commission.”

 

Comment

Why should it be that a publicly funded body which has the power to destroy individuals and businesses should enjoy costs protection, but those individuals and businesses whose lives are destroyed enjoy no such protection?

The reality is that regulators, as recognised here, have power, without trial, to impose criminal sanctions on individuals and businesses.

The power of, and the protection given to, regulators is enormous and threatens the whole basis of democracy and accountability in the United Kingdom.

Written by kerryunderwood

June 3, 2020 at 7:48 am

Posted in Uncategorized

4 Responses

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  1. Hear ,hear
    Martin Littler

    Martin Littler | Barrister

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    From: Kerry Underwood
    Reply to: Kerry Underwood
    Date: Wednesday, 3 June 2020 at 07:50
    To: Martin Littler
    Subject: [New post] WHO REGULATES THE REGULATORS?

    kerryunderwood posted: “This piece, in slightly different form, first appeared on the Practical Law Dispute Resolution Blog. Kerry Underwood offers consultancy services in relation to this and other matters and details are here. Below I report the decision of the Court of Appeal”

    Martin Littler

    June 3, 2020 at 10:52 am

  2. Excellent article, well done Kerry,.

    On a different constitutional point, have you seen this brilliant but alarming critique of the Quarantine Law: https://www.ft.com/video/c5a6da25-c416-48fa-b653-d7e873fbda52

    Nicholas Bevan

    June 11, 2020 at 5:40 pm

    • Thank you Nick.

      No, I have not read or heard the piece you referred to me, but I have now listened to it – thank you.

      I agree, I strongly dislike Statutory Instruments and would scrap them.

      If something is really urgent, it can be got through parliament by way of an Act of Parliament. Otherwise, the answer is to draft the Primary Legislation properly in the first place and have the regulations etc. as a schedule to the Act , which was the way it generally used to be done.

      Kerry

      kerryunderwood

      June 12, 2020 at 11:42 am


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