This month’s CLIP is the recent judgment of the UK Competition Appeal Tribunal (CAT) concerning the territorial scope of the CMA’s investigatory powers under section 26 of the Competition Act 1998 (CA98).  Significantly, the CAT held that the CMA acted beyond its powers by issuing section 26 information requests to the foreign-domiciled parent companies of BMW and Volkswagen (VW) during its investigation into the end-of-life vehicle recycling sector.

Background

Under section 26 CA98, the CMA can require “any person” to produce documents or information relevant to an investigation. Failure to comply with a section 26 notice can result in significant penalties.

As part of its vehicle recycling investigation, the CMA sent section 26 notices to BMW UK, VW UK and their German-domiciled parent companies, BMW AG and VW AG. The notices were also addressed to “any other legal entities” within the two groups.  BMW UK and VW UK complied with their respective notices but claimed that they lacked the ability to access or call for any documents held by their parent companies or other group companies domiciled outside the UK. In December 2022 the CMA issued a penalty notice to BMW AG, imposing a £30,000 fixed fine and a £15,000 daily penalty. BMW AG appealed to the CAT and sought an expedited hearing. VW AG made a judicial review application to the High Court, challenging the CMA’s decision to issue it with a section 26 notice at all.

Due to the similarity of the BMW and VW challenges, VW’s JR application was transferred to the CAT, which heard the cases together and issued a single ruling.

The key issue

The central question was whether the CMA’s section 26 powers have extra-territorial application. The answer to that question essentially turns on what exactly is meant by “any person” in section 26.

The CMA relied on section 59 CA98, which states that the definition of “person” includes “any undertaking”.  It thus sought to argue that a section 26 notice addressed to any undertaking would affect all legal entities within that undertaking, wherever they were situated, provided only that a part of that undertaking had a UK territorial connection (here BMW UK / VW UK).  The CMA also suggested that since the Chapter I and Chapter II prohibitions applied to undertakings, it made “good sense” for the CMA’s investigatory powers to be applicable to undertakings too.

BMW AG and VW AG submitted that such a far-reaching interpretation could not possibly have been Parliament’s intention. They relied in particular on the case of R (KBR Inc) v. Director of the Serious Fraud Office, in which it was held that unless the contrary intention appears, there is a presumption against extraterritorial effect of legislative powers.

The CAT’s judgment

It was not in dispute that BMW UK and VW UK were obliged to comply with section 26 notices since they had a UK territorial connection.  It was also common ground that if and to the extent that BMW UK and VW UK controlled documents or information located outside the UK, they would be obliged to produce those documents or that information.

However, the CAT rejected the CMA’s interpretation of section 26 as “aggressively extraterritorial”. In doing so, it noted that foreign jurisdictions were “unlikely to be impressed by the imposition of an obligation on a legal entity operating solely in its jurisdiction to provide an administrative authority in another jurisdiction (under threat of sanction) with documents and information”. Such an approach was “very likely to undermine comity between nations”.

The CAT concluded that although the term “person” can extend to an undertaking, that does not absolve the CMA from needing to direct a section 26 notice to a legal or natural person within that undertaking which has sufficient territorial connection to the UK. The CAT also observed that, provided the notice is clearly addressed to the undertaking, there is an obligation to inform all group companies within the undertaking of the notice.  But whether those individual companies are themselves obliged to respond to the notice depends on whether they have a UK territorial connection. If they do not have such a connection, then the presumption against extraterritoriality applies and there is no obligation to respond.

What next?

The CMA has already made clear that it intends to appeal. On the day the judgment was handed down, a CMA spokesperson said:

“We need effective tools to investigate suspected unlawful conduct and ensure robust enforcement under the Competition Act. Increasingly, our investigations involve cross-border, multinational 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.”

The Government may also seek to amend the Competition Act to clarify the territorial scope of the CMA’s investigatory powers in due course.  In the meantime, the CAT’s judgment may prompt the CMA to intensify its efforts to conclude agreements with other competition authorities to improve international cooperation and coordination in antitrust investigations. Whilst the CMA signed the Multilateral Mutual Assistance and Cooperation Framework (MMAC) with its counterparts in Australia, Canada, New Zealand and the US in 2020, it is yet to enter into such an arrangement with the EU. A formal memorandum of understanding between the CMA and the European Commission would facilitate information sharing between the two agencies – and perhaps enable the CMA to avoid some of the issues it has come up against in the BMW and VW cases.