Court of Appeal confirms CMA power to require production of documents from non-UK companies

by Becket McGrath

The Court of Appeal for England and Wales has confirmed that the CMA has the power to require the production of information and documents by non-UK companies, overturning a judgment of the Competition Appeal Tribunal that reached the opposite conclusion

Bearing in mind how often an antitrust investigation requires competition authorities to use their compulsory powers to require production of documents and other information from companies based outside their jurisdiction, the question of whether the authority actually has the jurisdiction to do so has received relatively limited attention in the case law.  Generally, companies prefer to provide the information requested, rather than pick a procedural fight.  The legal challenges brought by two German car companies, Volkswagen AG and BMW AG, to attempts by the UK Competition and Markets Authority (‘CMA’) to compel them to produce documents held in Germany has therefore been interesting to watch.   In the latest development, on 17 January the Court of Appeal unanimously ruled that the CMA did have such a power, thereby overturning equally unequivocal judgments of the Competition Appeal Tribunal (‘CAT’) and High Court to the opposite effect.

The background to this case is an investigation by the CMA relating to suspected anticompetitive agreements concerning the return, dismantling and recycling of end-of-life cars and vans in the UK, in breach of the Chapter I prohibition of the Competition Act 1998 (‘CA98’).  This investigation is being run in parallel to the European Commission’s investigation of the same conduct.  Shortly after opening the investigation in March 2022, the CMA sent formal requests for information under section 26 CA98 to both BWM AG and VW AG requiring production of certain documents and information.  In the latter case, this followed a dawn raid on the premises of VW AG’s UK subsidiary.  Each was addressed to the UK operating company, the German parent and all other entities forming part of the same undertaking.  (The concept of ‘undertaking’ is a creation of EU competition law that essentially enables a competition authority to treat all legal entities within a corporate group as equally liable for a competition law infringement instigated by employees of a single entity within that group.) Notably, neither BWM AG nor VW AG did business in the UK, since each relied on its UK subsidiary for that.

While BMW UK responded to the notice, its parent BMW AG refused, on the grounds that the CMA did not have the power to require a company domiciled in Germany to provide information, as its information gathering powers did not have extraterritorial effect.  Crucially, the company argued that it was unable to provide the requested documents and information voluntarily, since to do so would place it in breach of European and German data protection laws.  (While these laws can be overridden by mandatory legal requirements, these would clearly not apply if the UK law had no effect in Germany.)  As a German company, it had to respect the laws to which it was subject and hence, it argued, its hands were tied.  After some back and forth between the company and the CMA, the CMA issued a penalty notice against BMW AG on 8 December 2022 for its lack of response, imposing a fine of £30,000 and a daily penalty of £15,000.  BMW AG promptly appealed this penalty to the CAT. 

The procedure against VWAG followed similar lines, albeit without the CMA issuing a penalty notice.  Since there was no penalty notice, and hence the CAT had no jurisdiction to hear an appeal, VW AG challenged the CMA’s underlying decision to issue the section 26 notice by means of judicial review in the High Court.  In a sign of the flexibility of the UK system for competition law litigation, the cases were heard at the same time, with Mr Justice Marcus Smith sitting as both a High Court judge for the VW AG judicial review and as the Chair of a CAT panel, with the addition of two experienced competition lawyers as wing members, for the BMW appeal.  (For simplicity, the combined judgment of 8 February 2023 on both cases is attributed to the CAT in this note.)

The CAT found in favour of BMW AG and VW AG.  In doing so, it placed heavy reliance on the legal presumption against extraterritoriality when interpreting UK statutes.  Section 26 CA98 empowers the CMA to require “any person” to produce specified documents or information. Section 59 CA98 defines person as including “any undertaking”.  The CMA argued that its information gathering powers were wide enough to apply to persons located outside the UK, even where they had no UK territorial connection.  In the CAT’s view (relying on the Supreme Court’s judgment in R (KBR Inc) v Director of the Serious Fraud Office), this approach was “aggressively extraterritorial” and “obviously wrong”, on the basis that it was “very easy” to imply a territorial limitation to the term “any person”.  The CAT was unpersuaded by the CMA’s claim that the presumption against extraterritoriality could be rebutted on the grounds that its investigative powers needed to match its jurisdiction to penalise infringements of the CA98’s prohibitions, which extend extraterritorially.  Neither did it help the CMA that it had addressed the section 26 notices to all entities in the respective “undertakings”.  In the view of the CAT, while the undertaking is the “economic unit of account” for competition law, a section 26 notice must be addressed to a specific natural or legal person within the undertaking.  If a notice is addressed to an undertaking, it can, at most, bind only those legal entities within the undertaking that had a UK territorial connection.  (This concept was not defined by the CAT but it was common ground that neither BMW AG nor VW AG had such a connection.)

The CAT’s finding clearly had significant implications for the CMA’s enforcement activities.  While this case shows that it continues to investigate suspected anticompetitive conduct extending beyond the UK, including in coordination with European authorities, due to Brexit it no longer benefits from the extensive information sharing and mutual assistance that it enjoyed as a member of the European Competition Network.  As a result, it can no longer rely on the European Commission or national competition authorities in a company’s home country to gather information that it is unable to obtain directly.  While it is impossible to know for sure, it is possible that the companies in this case would have been less willing to test the jurisdictional point if the CMA had still been operating within the EU framework.  In an unusually strongly worded press release, a CMA spokesperson was quoted as saying that the authority was “disappointed” with the judgment, on the grounds that it needed “effective tools to investigate suspected unlawful conduct and ensure robust enforcement under the Competition Act.”  The spokesperson went on to note that “Increasingly, our investigations involve cross-border, multi-national organisations, and today’s judgment substantially risks undermining our ability to investigate, enforce against and deter anti-competitive conduct that harms consumers, businesses and markets in the UK.”  Unsurprisingly, therefore, it sought permission to appeal, which was duly granted.

Notwithstanding the categorical nature of the CAT’s judgment, the Court of Appeal had no problem reaching the opposite conclusion in its judgment of 17 January 2024.  Crucially, it concluded that, while there was no express language in the CA98 demonstrating an express intention by Parliament that section 26 notices should have extraterritorial effect, such an effect could be construed from other provisions in the Act.  Drawing on EU law precedent (notably the 1998 Woodpulp judgment of the CJEU), the Court noted the extraterritorial effect of the Chapter I prohibition, under which an agreement entered into anywhere in the world can infringe the prohibition as long as it is implemented in the UK (stated expressly in section 2 CA98).  In addition, the Court noted that section 25 CA98 empowers the CMA to investigate any agreement which may affect trade within the UK and has the object or effect of restricting competition in the UK.   Given this express wording, the Court had no problem concluding that the CMA’s powers of investigation and enforcement were coterminous and hence both had extraterritorial effect.   In the words of the Court, the power to require production of documents and information under section 26 “proceeds from and is an implementation of two separate building blocks [ie sections 2/’enforcement’ and 25/’investigation’], both of which are extraterritorial”.  Given this context, Parliament would have had to say expressly that section 26 did not have extraterritorial effect for the CMA’s jurisdiction under this provision to be limited to UK entities. 

This conclusion was also supported by a survey of the policy behind the CA98.  In the view of the Court, “the scheme, context and purpose of section 26 CA 1998 support the conclusion that Parliament intended it to have extraterritorial effect”.  To reach a different conclusion would have left “a gaping lacuna” in the effectiveness of the CMA to perform its statutory function”.

Having comprehensively dealt with this point, the Court went on to address the discrete argument over the implications of addressing a section 26 notice to an undertaking.  Again, relying heavily on EU case law (including the 2021 – so post-Brexit – judgment of the CJEU in Sumal v Mercedes Benz), the Court emphasised the core principle that all entities within an undertaking are jointly and severally liable and responsible for the undertaking’s conduct.  As the Court trenchantly put it, “Nothing in logic, policy, case law or legislative history supports the proposition that Parliament intended the concept of ‘undertaking’ to be understood as shorn of its defining characteristic of joint and several liability and responsibility as firmly established under EU law.”  Bearing in mind that the CA98 was closely based on the EU competition law regime, and the fact that Parliament had explicitly extended the concept of person to include “any undertaking”, it would be “jurisprudentially inconsistent” to conclude that service upon a subsidiary was insufficient to bind parent entities, regardless of their location.  As a result, since in competition law an undertaking is an indivisible entity, the undertaking must comply with any notice served on an entity within the undertaking.  Put differently, service on a subsidiary is done so on the basis that the subsidiary has access to all documents and information of the entire undertaking of which it forms part.  Traditional concepts of legal personality familiar from company or contract law simply do not apply.

According to reports, VW AG is now seeking leave to appeal the Court of Appeal’s judgment to the UK Supreme Court.  Given the analytical strength of the judgment (no doubt helped by the fact that one of the judges, Lord Justice Green, was in a former life leading competition law barrister Nicolas Green QC), a further reversal of course seems unlikely.  In any event, the CMA will not be losing sleep over the prospect of a loss at the Supreme Court (however unlikely that may be), since Parliament is currently considering an amendment to the CA98 that would expressly confirm the extraterritorial scope of section 26.   Specifically, Schedule 12 of the mammoth Digital Markets, Competition and Consumers Bill (the ‘DMCC Bill’) contains a new section 44B CA 98 called (tellingly) “Extra-territorial application of notices under sections 26 and 40ZD”, which will explicitly empower the CMA to issue a notice to any person outside the UK and require production of documents or information held outside the UK, as long as the person has “a UK connection”.  (Similar provisions are added to the Enterprise Act 2002 (‘EA02’) confirming the extraterritorial scope of the CMA’s information gathering powers in merger reviews.)  Unlike the Court of Appeal, the DMCC Bill defines what is meant by a UK connection, namely that the person must be a UK national, an individual habitually resident in the UK, a body incorporated in the UK or a person who carries on business in the UK. While at first sight somewhat this provision is somewhat narrower than the Court of Appeal’s approach, the Court’s reasoning on the concept of the undertaking should ensure that the CMA can compel production from any entity within an undertaking, as long as any part of the undertaking is incorporated, or carries on business, in the UK. 

Interestingly, this is the second time that the Court of Appeal has arguably removed the need for an amendment helpfully included by the Government in the DMCC Bill to help the CMA out of a tight spot created by a CAT judgment.  In the other instance, the DMCC Bill is set to insert new wording into section 134 EA02 confirming that the CMA can make a market investigation reference, notwithstanding a previous market study report and decision not to do so, if more than two years have elapsed since the earlier market study report or there has been a material change of circumstances.  In an echo of the latest case, on 30 November 2023 the Court of Appeal unanimously overturned a similarly trenchant judgment of the CAT on an appeal by Apple.  In that case, the CAT had found that the CMA lacked the jurisdiction to launch a market investigation into mobile browsers and cloud gaming, since it had previously decided not to make an investigation and was unable to change its mind, due to the specific market study regime set out in the EA02.  The Court of Appeal (again, with Lord Justice Green on the bench) found that the CMA had broad powers to make market investigation references that were not constrained by the specific statutory wording on market studies.  The CMA was therefore able to recommence its market investigation, which had been on ice for ten months, without waiting for the DMCC to complete the Parliamentary process.

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