Beware relying on irrelevant defences; they could reduce your costs award

A recent judgment issued by the Competition Appeal Tribunal (CAT) provides a useful lesson on the perils of relying on irrelevant defences, particularly once the CAT starts calculating costs.

In July 2022, the Competition Appeal Tribunal unanimously dismissed a claim by Churchill Gowns for loss and damage against Ede & Ravenscroft Ltd (E&R) and others.

Churchill Gowns, a business-to-consumer supplier of graduation services, alleged that E&R, a business-to-business supplier of ceremonial robes, had abused its dominant position in the market for the sale and hire of academic dress.

According to the claimant, E&R’s use of official supplier agreements with universities in the UK prevented Churchill Gowns from accessing the same market, ultimately leading to the appreciable prevention, restriction, or distortion of competition in the UK.

Although the CAT acknowledged E&R’s dominant position, it held that London’s oldest tailor had not abused its position, and that its agreements with universities were not anti-competitive for the purposes of Chapter 1 prohibition.

Following this, E&R applied for an order for Churchill Gowns to pay E&R’s costs of the proceedings on the standard basis, subject to detailed assessment if not agreed, plus a payment on account of £1.2m.

This application was complicated, however, by a defence E&R had used during the initial claim’s proceedings. According to E&R, Churchill Gown’s claim was barred by the doctrine of illegality, a general principle of contract law stating that terms are unenforceable if the performance of the contract is tainted by illegality.

The CAT rejected this defence. Crucially, however, it also accounted for this when publishing its unanimous costs ruling in October 2022.

Legally irrelevant

The CAT started by confirming that E&R was the winner and, therefore, entitled to its costs. It also decided, however, to draw a distinction between the costs of the competition issues, and the costs of the illegality issues raised by E&R.

Insofar as the competition issues were concerned, the CAT held that the “justice of the case” was best met by a costs order reflecting the claimant’s failure to establish the essential elements of abuse or anti-competitive effect.

In addition, the CAT did not consider E&R’s losses in relation to dominance, objective justification, analogous defences, and joint and several liability as sufficient reasons to depart from the usual order.

The illegality issues were, on the other hand, wholly distinct. While it was not unreasonable for E&R to raise them, doing so was not necessary to defeat the competition claim. According to the CAT, the illegality issues were “irrelevant legally” – a conclusion that needed to be reflected by a reduction in the costs E&R was entitled to recover from Churchill Gowns.

Two offers in October

The CAT also considered the impact of two offers pursuant to Rule 45 of the Tribunal Rules made by E&R on 30 October 2020 and 13 October 2021.

At the time of the October 2020 offer, E&R had not yet raised the illegality issues. The CAT therefore decided that it would be unjust to burden Churchill Gowns with all costs incurred by E&R from that point onwards.

By the time of the October 2021 offer, however, the illegality issues were in play. Consequently, E&R was entitled to recover its costs from the date on which that second offer expired, unless doing so would be unjust.

While the CAT did not think it unjust to require Churchill Gowns to pay all E&R’s costs for the competition issues, it did deem it so for the payment of illegality issues. This defence was, according to the CAT, wholly separate from the issues raised by the claimant and therefore “ultimately irrelevant.”

As a result, the CAT applied a 20% reduction to E&R’s costs. Churchill Gowns was ordered to pay 80% of E&R’s costs of the proceedings, with interest at a rate of 1% above the Bank of England base rate. It was also ordered to pay £1m on account.

A lesson in relevance

This decision is a useful example of how the CAT will deal with costs issues at the end of a dispute.

Even where a party is successful, it will not necessarily be entitled to recover all its costs from the losing party if it has incurred unnecessary and avoidable costs by raising irrelevant arguments and points of law. For those preparing defences, it should serve as a cautionary tale.