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In this post, Karishma Gadhia, an associate in the litigation and arbitration team at CMS and Tobias Seger, a trainee at CMS, comment on the decision handed down in early November 2020 by the UK Supreme Court in the matter of Secretary of State for Health and others v Servier Laboratories Ltd and others [2020] UKSC 44.

On 6 November 2020, the UK Supreme Court handed down an important judgment confirming the scope of the EU law principle of absolute res judicata, and the circumstances in which a judicial decision of the EU courts is binding in other proceedings.

Background

The Secretary of State for Health & Social Care and the NHS Business Services Authority (“the Secretary of State”) claimed that Servier, an international pharmaceutical group which developed and manufactured Perindopril (an angiotensin converting enzyme (“ACE”) inhibitor medicine used to treat cardiovascular disease) breached Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) by entering into “pay-for-delay” agreements with other potential manufacturers and/or suppliers of generic Perindopril, in which those competitors agreed not to enter the market for the supply of Perindopril in return for payments, thereby delaying market entry of cheaper generic versions of the medicine.

The Secretary of State also alleged that Servier abused its dominant position contrary to Article 102 TFEU.

In 2014, the European Commission (“the Commission”) found that Servier had contravened Articles 101 and 102 TFEU and imposed fines (Commission Decision of 9.7.2014).

Servier appealed the decision to the General Court (“the GC”), which delivered its judgment in December 2018 (Case T-691/14). The GC annulled one of the findings of infringement of Article 101 TFEU and annulled all findings of infringement of Article 102 TFEU on the basis that the Commission had defined the relevant market too narrowly. The GC determined that the relevant market extended to all ACE inhibitors generally, and any finding that Servier was dominant in that market could not stand.

Both the Commission and Servier appealed to the Court of Justice of the European Union (“the CJEU”) (C-176/19 P and C-201/19 P), and the decision from the CJEU remains pending.

Meanwhile, the parties agreed to participate in a preliminary issues trial in the domestic proceedings in an effort to seek to resolve ancillary issues. In relation to the Secretary of State’s Article 101 TFEU damages claim, Servier reminded the court that even if it was found liable, the GC had held that the relevant market was wide enough to include other ACE inhibitors, and the Secretary of State should have encouraged its doctors to prescribe cheaper, generic ACE inhibitors alternatives to Perindopril when treating patients. Servier argued that that their failure to do so amounted to a failure to mitigate their losses and contributory negligence. In making this argument, Servier was seeking to rely on the factual decisions made in the GC’s 2018 ruling, on the basis that those were binding on the national court in line with the principle of res judicata.

Both the High Court and the Court of Appeal found that those factual propositions did not constitute res judicata for the purposes of the preliminary issues trial. This was appealed to the UK Supreme Court.

Judgment of the UK Supreme Court

The UK Supreme Court’s judgment was handed down by Lord Lloyd-Jones with whom the other judges agreed.

As an initial point, Lord Lloyd-Jones noted that it was a clearly established principle of the case of law of the EU that absolute res judicata only applies to judicial decisions which have become definitive, after all rights of appeal have been exhausted, or after expiry of the time limits provided to exercise those rights. As the GC’s 2018 judgment could be reversed or otherwise amended (given that the parties had appealed to the CJEU), the decision of the GC could not be deemed definitive, and subsequently res judicata did not apply.

With that comment, Lord Lloyd-Jones had forecasted the decision of the UK Supreme Court. In the view of the UK Supreme Court, there could not be a definitive judicial ruling on the issues of this case until the judgment of the CJEU had been handed down. However, the court also recognised that the underlying legal issues raised were important, and therefore set out its conclusions on those in more detail, as if the GC’s findings were definitive.

The UK Supreme Court referred to the case of P&O European Ferries CJEC (C-442/03 P and C-471/03 P). In this case, a service agreement had been entered into by P&O with the Basque and the Biscay local authorities in 1992, which the Commission found was incompatible with State Aid law. P&O Ferries therefore entered into a new agreement with the local authority in Biscay in 1995 and notified the Commission, which led to them terminating their initial investigation. That decision was challenged by BAI, one of P&O’s competitors, and the GC annulled the Commission’s decision on the grounds that it had misinterpreted the State Aid rules (Case T-14/96 Bretagne Angleterre Irelande (BAI) v European Commission). Following the decision of the GC, the Commission ruled that the new agreement did constitute a breach of the State Aid rules. This was challenged by P&O Ferries and the Biscay local authority. The Commission’s plea of res judicata was rejected by the GC, and the court argued that this would only apply if the case arose between the same parties in relation to the same subject matter. Neither P&O Ferries, nor the local authority of Biscay were a part of the original challenge by BAI (Case T-116/01 and T-118/01 P&O European Ferries and Disputacion Foral de Vizcaya v European Commission).

The decision was appealed to the CJEU, which held that where a Commission decision was annulled on substantive grounds, it is the judgment itself that would become binding if res judicata applied, and it would therefore bind all and not just the parties, to ensure stability of legal relations. The court also explained that where res judicata applies, it extends not only to the operative part of the judgment that is binding, but also the factual findings that provided necessary support to the operative part of the judgment.

Applying this test to Servier, the UK Supreme Court noted that the operative part of the GC’s 2018 judgment simply annulled the finding that there had been an infringement of Article 102 TFEU. As above, the GC annulled this on the basis that the Commission had incorrectly defined the market and made a number of findings of fact in that regard, which Servier sought to now rely on. Lord Lloyd-Jones explained that in order to be able to rely on those findings of fact, Servier would need to show that each of those four findings were an essential basis for the GC’s decision to annul the Commission’s decision on Article 102 TFEU, and therefore formed part of the ratio decidendi.

However, the UK Supreme Court suggested that this was not what Servier was seeking. Lord Lloyd-Jones noted that the national proceedings concerned issues of causation, remoteness and mitigation of loss as for Article 101 TFEU, and consequently the findings of fact which led to the annulment of the Commission’s decision regarding Article 102 TFEU were not engaged nor significant to those issues. In the view of the UK Supreme Court, it was not necessary to treat those findings as binding in any other legal context in order to preserve the authority of the annulling judgment.

The UK Supreme Court therefore dismissed Servier’s appeal and concluded that even if the GC’s 2018 findings were definitive, their binding effect would apply only with regard to the conclusions reached on the relevant market in respect of the Article 102 TFEU claim, and not mitigation of loss in respect of Article 101. To apply res judicata to a wholly different context to that of the annulling judgment (as Servier had sought) could lead to arbitrary and unjust application of the doctrine and would jeopardise its promotion of legal certainty, effective judicial control of EU institutions and maintenance of EU legal order.

Comment

The judgment makes two key points. First, it offers a helpful reminder of the basic requirements for a judgment to be considered res judicata. In this case it was shown that the application for res judicata was premature in any case, as the CJEU had not yet made its final decision. The UK Supreme Court reaffirmed that a judgment can only become res judicata once a final judgment had been reached and all routes of appeal had been exhausted.

The UK Supreme Court also provided a useful guide for ratio decidendi in those cases. Lord Lloyd-Jones made it clear that it is important to not only look at the final decision, but also to look at the factors that have been taken into account when reaching that decision. Whether a certain fact forms part of the ratio decidendi will depend on the individual facts of the case. However, the UK Supreme Court also stressed the importance not to take the decision out of context. In this case, this meant that any findings of fact which may have been said to support the GC’s decision to annul the Commission’s decision regarding an infringement of Article 102 TFEU were not engaged and could not be applied to the national proceedings relating to Article 101 TFEU.

One might ask whether this discussion is relevant now that the UK has left the EU. However, it is important to remember that retained EU law, so far as unmodified, will to be continued to be interpreted in line with EU case law which was decided before 1 January 2021 (see the European Union (Withdrawal) Act 2018, s. 6(3)). As a result, these issues are likely to continue to be relevant for the UK in the foreseeable future.