The Competition Appeal Tribunal (Tribunal) has upheld appeals against the Competition and Markets Authority (CMA) infringement decision relating to the anti-nausea medication prochlorperazine (the Decision).
The Decision, issued in 2022, found that four companies had participated in an unlawful "market exclusion agreement" (MEA) in breach of the Chapter I Prohibition of the Competition Act 1998. The Tribunal found that the CMA had made “material errors” in its assessment of the evidence and overturned the findings of an MEA1.
The decision
The CMA found that, from 2013 to 2018, Alliance Pharmaceuticals, Lexon, Focus and Medreich had participated in certain supply arrangements that amounted to an MEA.
According to the CMA, these supply arrangements were entered into pursuant to an agreement between Alliance and Lexon not to compete in respect of the supply of prochlorperazine tablets in the UK. In particular, the CMA found that Alliance agreed to appoint a third-party (Focus) to distribute a de-branded version of its prochlorperazine product, with Focus at the same time agreeing to pay to Lexon and Medreich a share of the profits it earned by selling Alliance's product. The CMA found that in return, Lexon and Medreich agreed not to enter the market by selling their own generic prochlorperazine tablets in the UK. Before entering into the arrangement, Lexon and Medreich had been taking steps (including obtaining a regulatory licence) to launch a jointly developed version of prochlorperazine.
The CMA imposed fines totalling over £35m on the businesses involved in the conduct (including on Focus' previous owner, the private equity firm Cinven).
The appeals and judgment
This is a notable case as all the key issues related to the factual evidence and whether the CMA's findings were substantiated, rather than points of law. On these questions, the Tribunal found that the CMA had made “material errors…in its assessment of the factual evidence”.
The Tribunal, having assessed the documentary and witness evidence in the round, found that the evidence “…does not demonstrate on the balance of probabilities that there was a MEA” between Alliance and Lexon and that “…there was no such agreement”. At its most extreme, the Tribunal reached opposing conclusions to those of the CMA, finding that certain correspondence relied upon by the CMA was exculpatory rather than inculpatory.
The Tribunal criticised the CMA's interpretation of documentary evidence such as contemporaneous emails. In particular, the Tribunal noted that where the CMA's interpretation of certain documents was speculative, the Tribunal was entitled to give the document its plain meaning, subject to any evidence to the contrary. It also noted that the CMA did not call any witnesses, and relied only on written documents and transcripts of interviews conducted by the CMA during its investigation. In contrast, the appellants presented oral evidence from the directors of the appellate companies and factual evidence from an expert economist regarding the various economic forecasts from the period of the alleged infringements. Repeatedly throughout the judgment, the Tribunal noted and emphasised that it found the appellants' witnesses to be reliable and credible – particularly those who appeared for Alliance.
In assessing the evidence, the Tribunal noted and followed its 2008 judgment in T-Mobile v Ofcom2, which made clear that the Tribunal should only interfere if it concludes that the regulator has made a material error. In this case the Tribunal found it was not enough for the CMA to assert its own version of events or to provide speculative explanations of documents without showing a factual basis for that interpretation. Accordingly, it is clear that the party asking the Tribunal to draw an inference from an ambiguous document must provide evidence to bolster that inference. In the face of clear, reliable oral evidence to the contrary, the factual evidence presented by the CMA was considered insufficient to conclude that the parties had entered into the MEA.
As the Tribunal set aside the Decision and found that there was no infringement, it also found that the first limb of the test for disqualification of directors (being a director of a company that committed an infringement) was not met. By way of background, the CMA had applied to the High Court for directors disqualification proceedings against various directors of the parties alleged to have committed an infringement. In light of the company's appeals, and following the agreement of the various parties, the High Court remitted the first limb of the test for disqualification of directors to the Tribunal to be heard together with the appeals by the companies. The Tribunal's findings applied to all of the directors who were party to the appeals, including a director of Medreich, the only company that did not appeal the Decision.
The CMA has not appealed the Tribunal's judgment.
Commentary
The ruling is no doubt a major blow for the CMA, both in terms of its outcome and the Tribunal's criticism of the CMA's analysis of the evidence. It will be interesting to see how this impacts the CMA's approach going forward, in particular as to:
1. The CMA's efforts to produce shorter documents and decisions
The CMA may look to bolster its decisions, either by committing more pages to analysing the elements (though it should be noted that the Decision ran to over 700 pages, including nearly 300 pages dedicated to the CMA's legal assessment of the evidence of the MEA) or seeking to expand the scope of its findings to “cover more angles” and/or include multiple theories of harm. In this case, the CMA's theory of harm tied multiple agreements to the existence of a single MEA between Alliance and Lexon, such that the failure to establish that MEA resulted in all elements of the alleged infringement falling away. Indeed, the Tribunal stated that “[a]s we have held there was no MEA, if follows that there was nothing for Focus and Medreich to participate in…”.
2. The extent to which the CMA can rely on the Tribunal “fixing” its decisions
Notably, in its opening arguments the CMA invited the Tribunal to substitute the CMA's findings with the Tribunal's own findings in the event of the Tribunal not finding an MEA involving Alliance. The Tribunal does not appear to have entertained this idea, nor did it give the CMA the opportunity to “fix” the Decision itself, as it set aside the Decision rather than remitting it to the CMA for further consideration.
3. Evidence, including the use and cross-examination of witnesses by the CMA in future appeals
It is worth noting that, in both this case and the appeal of the CMA's decision in Hydrocortisone Tablets3, the CMA has faltered in its approach to witness evidence. In this case the CMA failed to call witnesses, and was criticised by the Tribunal in this regard; in the Hydrocortisone Tablets appeal, the Tribunal found that the CMA failed to put certain allegations directly to the alleged cartelists' witnesses and that this constituted a failure of due process such that the finding of infringement of the Chapter I Prohibition had to be set aside. The due process aspects of the Hydrocortisone Tablets decision were recently heard by the Court of Appeal on an expedited basis and it remains to be seen whether further guidance will be provided in this regard.
Footnotes
1.Advanz Pharma Corp. Limited & Others v CMA [2024] CAT 36
2.T-Mobile v Ofcom [2008] EWCA Civ 1373
3.Case 50277
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