Compensation for legal costs in the administrative process

In a recent judgment, the Supreme Administrative Court clarified the principles of the procedural framework for awarding legal costs to the successful party in administrative proceedings. In this article, Setterwalls’ Johan Reimer and Anja Siöstedt explain the implications for companies in the life science sector.

Life science companies act in a highly regulated environment, where contacts with supervising authorities are common. Public authorities are in many cases responsible for the fundamental decisions on, for example, market access, approval, fees etc. Accordingly, a decision from a public authority can be critical and affect the most fundamental business conditions for a company. It is therefore critical and fundamental that any decision from a public authority can be appealed and heard at an independent court. In Sweden, decisions from a public authority can be appealed at the administrative courts.

It is a longstanding and uncontroversial principle in Swedish procedural law that a party that is successful in a dispute before the general courts may recover its legal costs from the opposing party. However, no such general principle applies in relation to companies or persons who litigate before the administrative courts.

In a highly anticipated ruling from the Administrative Supreme Court issued earlier this spring, the question of the possibility for an applicant to submit a request for compensation for its legal costs in proceedings before the administrative courts was tried. The judgment in question concerned an application for change of surname that had been denied by the Swedish Tax Agency. The case was appealed several times and ultimately, the applicant’s appeal was upheld. However, the issue of whether the successful party (that is, the applicant) could claim compensation for legal costs was referred to the Supreme Administrative Court in plenary, that is, for the full court to consider whether established case law of non-reimbursement ought to change.

The Swedish legislative framework for administrative proceedings does not regulate the division or award of legal costs, save for certain proceedings in tax matters governed by the Tax Procedure Act. On that basis, the administrative courts have considered themselves legally prevented from awarding a successful party any compensation for legal costs in proceedings before the administrative courts, meaning that each party bears its own legal costs irrespective of the outcome of the case. In the absence of constitutional support, such claims for compensation have not been considered by the administrative courts, with the result that the claim is either rejected or refused without being tried on its merits.

It has been argued that the current state of affairs is in conflict with the Instrument of Government (Sw. Regeringsformen), the European Convention on Human Rights (ECHR) and the Charter of Fundamental Rights of the European Union, in that companies and individuals are essentially deprived of the right to a fair trial, in the sense that an individual party that is successful in pleading its case before an administrative court is unable to recover its legal costs.

Following a number of rulings by the Supreme Court in recent years, the question of compensation for legal costs before the administrative courts has once again come to the fore. Public authorities can appear as parties against individuals and companies in certain cases that are handled by the general courts, as being subject to Swedish Court Matters Act. For example, general courts handle matters regarding attachment and sale in which the Swedish Tax Agency is the creditor. In such circumstances, the Supreme Court held, in a ruling from 2015, that not awarding compensation to an individual or a company who successfully asserts their claim in such a matter (see the case NJA 2015 p. 374) may, depending on the context, be in conflict with the Instrument of Government.  The ruling has since been confirmed through several subsequent judgments by the Supreme Court (e.g. NJA 2020 p. 908 and NJA 2021 p. 235).

Despite the position taken by the Supreme Court, the Administrative Supreme Court has maintained its position and rejected or refused any claim for compensation (see inter alia HFD 2019 Ref. 72 and HFD 2020 Note 47), at least until the issue was referred to the Supreme Administrative Court in plenary.

In the case at hand, a majority of the Supreme Administrative Court upheld the established rule in administrative proceedings that each party must bear its own legal costs incurred through the proceedings, irrespective of the outcome. As such, the established principle in Swedish administrative procedural law that a litigating party cannot be awarded compensation for its costs in absence of a legal provision stipulating otherwise was upheld.

The majority held that the fact that there is no legal support for apportioning of legal costs in administrative proceedings means that the administrative courts are not to take a position on such issues. The rational for this procedure is that the administrative process does not entail any fees for the litigating parties; the proceedings are mainly in writing and fairly low procedural requirements are placed on the parties. Furthermore, the public authorities and the administrative courts have a responsibility for ensuring that the matter at hand has been sufficiently investigated before issuing a reasoned ruling.

The majority also addressed the issue of the right to a fair trial raised by the applicant. In some instances, the procedure applied by the administrative courts could be considered to be contrary to the principle of a fair trial. However, the majority noted that the right to a fair trial does not mean that the administrative court must award compensation for legal costs in the particular administrative case before it. For example, another route to compensate the successful party is by awarding a compensatory amount as damages in subsequent proceedings. As a result, claims for compensation for legal costs are to be rejected by the courts without any substantive assessment of the facts.

As is not uncommon when it comes to judgments issued in plenary, the court was not wholly in agreement. A minority argued that the issue of awarding compensation for legal costs in the administrative process should indeed be tried by the administrative court. The minority also opposed the solution that legal costs, alternatively, could be reimbursed through subsequent proceedings before the Office of the Chancellor of Justice (sw. Justitiekanslern) or in general courts in proceedings for damages. The basis for the minority’s argument was that legal support for reimbursement of legal costs in the administrative process could actually be found in the Instrument of Government. The right to a fair trial, as also codified in the ECHR, is a constitutional principle that has been applied by the Supreme Court on several occasions, and the reasonable conclusion ought to have been that the issue of awarding compensation for legal costs cannot be dismissed by the administrative court, but rather that a substantive assessment must be made on a case-by-case basis.

The Supreme Administrative Court has, through the ruling, upheld the previous position that the administrative courts do not have the competence to award compensation for legal costs in administrative proceedings. Regardless of how interesting the minority’s arguments are, it will prove very difficult to successfully argue, going forward, that compensation should be awarded to the winning party in proceedings between an individual or a company and a public authority.

The authors of this article find the outcome of the case to be expected, but unfortunate. In recent years, it has become more and more evident that the use of specialised counsels is in many cases a prerequisite for success in administrative proceedings. Although Swedish public authorities have a responsibility for investigating the matter ex officio and the administrative courts have a corresponding responsibility to clarify the issues at hand and ensure that the matter is sufficiently investigated before a decision is issued, the administrative courts are often very unwilling to revoke or invalidate a decision by the competent authority. The position taken by the Administrative Supreme Court thus amplifies the inequality of arms that has become more and more evident in proceedings before the administrative courts in recent years. In fact, SMEs (small and medium-sized companies) may not have the financial resources to continuously litigate before the administrative courts in Sweden, even if they would ultimately be successful in their efforts, raising concerns as to whether the fundamental principles on access to justice is being upheld.

Despite the position of the Supreme Administrative Court, we are convinced that the last word has not been said regarding the matter of compensation for legal costs in administrative proceedings. Setterwalls’ Life Science team often assists clients in proceedings before the administrative courts and will monitor any further developments on this topic.