On 8 March, the Competition Appeal Tribunal (the “CAT”) handed down a third judgment in two years in the hydrocortisone litigation (the“Judgment”),[1] overturning its own Hydrocortisone (Cartel Infringements) judgment of 29 September 2023.  The CAT found that the provisional findings of the Hydrocortisone (Cartel Infringements) judgment were “unsafe in the most fundamental way” as a result of “a very serious failure of due process” (Judgment, para. 10), referring to a failure by the CMA to cross-examine two Appellant witnesses on a point that formed the basis of the CMA’s case. The CAT overturned fines of nearly £100 million that the CMA had imposed on a number of companies that it found to have been party to an unlawful agreement.[2] The Judgment does not affect a separate finding of abuse of dominance relating to the same products.

The CMA intends to appeal the CAT’s decision, claiming the Judgment is “fundamentally misconceived” and “highly concerning”.  The CAT has already indicated permission to appeal will be granted. 

The Underlying CMA Decision – “Some of the Most Serious Abuses Uncovered in Years”

In its July 2021 Hydrocortisone Decision (the “CMA Decision”), the CMA found that the Appellants had infringed UK competition law by engaging in the following conduct:

1. Participating in anticompetitive agreements (Chapter 1 infringement).  The CMA found that the Appellants had entered into market sharing agreements relating to 10mg hydrocortisone tablets from October 2012 to June 2016. According to the decision, the 10mg Agreement was initially oral but was later put into written form later in two separate written agreements.

The CMA did not contend that these written agreements infringed the Chapter 1 prohibition in themselves. Rather, the Decision found that the written agreements were incomplete statements of the true arrangement between the parties, and that there was, in addition, a “collateral understanding” that (i) Auden Mckenzie/Actavis would supply Waymade and then AMCo with 10mg hydrocortisone tablets on terms that amounted to monthly payments (or “value transfers”) to them; and (ii) in exchange for these payments, each of Waymade and AMCo would not enter the market independently with its own 10mg hydrocortisone tablets; together this was known as the 10mg Agreement.[3] The CMA found that the 10mg Agreement gave Auden Mckenzie, and later Actavis UK, the ability to deny the NHS the potential savings that could have resulted if the companies had begun competing independently in the market.

2. Abuse of dominance (Chapter 2 infringement). The CMA found that Auden Mckenzie and Actavis UK had charged the NHS excessively high prices for hydrocortisone tablets for almost a decade. The CMA found that Auden Mckenzie and Actavis UK increased the price of 10mg and 20mg hydrocortisone tablets by over 10,000% compared to the original branded version of the drug. After competitors entered the market, prices fell gradually, but Actavis UK continued to charge high prices and higher prices than its rivals.[4]

The CMA imposed fines of more than £260 million for the competition law breaches.  At the time of the CMA Decision, Andrea Coscelli, Chief Executive at the CMA said the infringements were “without doubt some of the most serious abuses we have uncovered in recent years.”

Background to the Appeals

The Appellants appealed against the CMA Decision. The CAT handed down two separate judgments in September 2023:

1. First, a judgment dated 18 September 2023, dismissing the Appellants’ appeals against the abuse of dominance infringements (the “Abuse of Dominance Infringements Judgment”), and

2. Second, a closed judgment dated 29 September 2023, provisionally dismissing the Appellants’ appeals in relation to the cartel infringements (the “Cartel Infringements Judgment”). The Cartel Infringement Judgment emphasized its findings were provisional, pending parties submissions on the due process point that formed the basis of the CAT’s March 2024 Judgment.  In particular, the CAT was concerned that the CMA had failed to cross-examine two Appellant witnesses on the “collateral understanding” from which the CMA had drawn inferences. 

Due Process Failures “Fatally Undermined” CAT’s Earlier Judgment

The CAT found that the CMA’s failure to put its “collateral understanding” case to the Appellant witnesses in cross-examination constituted a significant due process failure that rendered the earlier Cartel Infringements Judgment unsafe.

The Appellant witnesses, Mr Sully and Mr Beighton, had denied the existence of any collateral understanding regarding the 10mg Agreements. The CAT held that the CMA had failed to articulate how the collateral understanding was formed at trial, and had simply inferred this by denying the credibility of the Appellant witnesses.[5]  But the existence of the collateral understanding was a “fundamental part”[6] of the CMA’s cartel infringement findings, the “single most important factual question”[7] and “an issue central to the decision under appeal”[8]. In these circumstances, the CAT found that the CMA was obliged to put their case as to the existence of the collateral understanding to Mr Sully and Mr Beighton in cross-examination because the witnesses had put forward a positive case that the CMA’s inference was wrong. 

The following factors were relevant to the CAT’s decision on the need to cross-examine the witnesses:

• Witnesses’ willingness to testify.  The CAT acknowledged that it is rare for those centrally involved in allegations of serious cartelists misbehaviour to expose themselves to the rigour of cross-examination.  But the circumstances of the particular case were “different from the norm,”[9] with the presence of the Appellant witnesses “chang[ing] the dynamic and [making] cross-examination inevitable.”[10]  Had Mr Beighton and Mr Sully never been called, the CAT would have been entirely comfortable with the CMA Decision. But the fact the witnesses were called and given an “unequivocal”[11] denial of the collateral understanding made it necessary cross-examine them on this point.
• Gravity of the allegations.  The CMA’s case involved allegations of misconduct, including dishonesty. The serious implications and consequences of the allegations the CMA made against the Appellant Witnesses – in particular, suggesting that Mr Beighton had “deceived” his General Counsel, his company’s solicitors and Auden’s solicitors – required the CMA to put its case to the witnesses properly.
• Reminders to the CMA during trial. During the trial, the CMA was expressly asked to put questions relating to its “collateral understanding” to the Appellant witnesses, including by the CAT and the Appellants’ counsel. The CMA failed to do so, despite these reminders.[12]
• Absence of time constraints. There was no time pressure on the CMA in terms of cross-examining the witnesses. The CMA cross-examined both Appellant witnesses over the course of there days and at no point during the proceedings did the CMA suggest that its cross examination was at risk of being curtailed by reason of time pressure.[13]

Lessons from the CAT: If A Witness Is Called, Question Them

The CAT emphasized that where a witness is called by a party, it is incumbent upon the opposing party to “put its case” to that witness, to the extent that that witness is able to give relevant evidence on any point. If serious allegations—such as dishonesty—are made against a witness, those allegations must be fairly pleaded, and put to the relevant witness in cross-examination. 

Consequences of not “putting one’s case” to the other side may be damning. Where the failure to cross-examine is a culpable one and not a mere technicality, “it is very difficult for the court to rectify the deficiency in due process, save by recalling or causing to be recalled the witness to whom the matter ought to have been put…If [that] is not possible, a court will not have any option but to dismiss the claim (where a trial) or allow the appeal.”[14]

Hydrocortisone: The Saga Continues

All eyes are now on the Court of Appeal, which will ultimately determine whether the CAT was correct to allow the appeal based purely on findings of due process, and whether the substance of the Cartel Infringement Judgment and CMA decision will ultimately stand.

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[1]             Allergan plc and Others v Competition and Markets Authority [2024] CAT 17.

[2]             The Judgment dealt only with the Hydrocortisone (Cartel Infringement) judgment.  CAT’s

Hydrocortisone (Abuse of Dominance Infringements), which upheld the findings of and fines for the

abuse of dominance infringements under the CMA’s Hydrocortisone Decision, stands.

[3]             Judgment, pp. 22-24. The CAT emphasised that the term “collateral understanding” refers to an

arrangement between Auden and AMCo that might fall far short of the contractual.  “Collateral

understanding” covers any morally binding commitment – it is sufficient if the undertakings have expressed their joint intention to conduct themselves in the market in a particular way that “crosses the line”.

[4]             See CMA Decision, paras. 6.930-6.932. (“The evidence shows that each acted in full knowledge of the

objective of the Agreements, which was to make substantial payments to Waymade and AMCo in

exchange for each of Waymade and AMCo agreeing not to enter the market independently with its own hydrocortisone tablets… This enabled Auden to maintain abusively high prices for hydrocortisone tablets over an extended period of time.”)

[5]             CMA Decision, para. 6.12.

[6]             Judgment, p. 14.

[7]             Judgment, p. 43.

[8]             Judgment, p. 43.

[9]             Judgment, p. 35.

[10]            Judgment, p. 56.

[11]            Judgment, p. 68.

[12]            Judgment, pp. 50-51.

[13]            Judgment, p. 43.

[14]            Judgment, p. 41.