A win for the CMA: the Court of Appeal confirms Section 26 does have extra-territorial reach
The Judgment confirms that the CMA can serve section 26 notices on any entity within an undertaking, regardless of its location or connection to the UK, and that the presumption against extraterritoriality does not apply to the CMA's statutory task of enforcing competition law. The implications of the Judgment going forward are limited as the purported gap in the CMA’s powers identified by the Competition Appeals Tribunal is in any event closed by the proposed changes to the CMA's powers in the DMCC bill.
On 17 January 2024, the Court of Appeal (CoA) sided with the UK Competition and Markets Authority (CMA), overturning a previous judgment of the Competition and Appeal Tribunal (CAT) and the High Court regarding the scope of the CMA’s investigatory powers under section 26 of the Competition Act 1998 (CA 1998).
The CMA’s appeal concerned two cases brought by the car makers BMW and Volkswagen (VW), which sought to challenge section 26 notices received as part of the CMA's investigation into the "end of life" vehicles (ELVs) market. In its judgment, the CoA confirmed that section 26 does apply extraterritorially and does permit the CMA to compel the production of information and documents from a foreign company.
In March 2022, the CMA opened an investigation into suspected anti-competitive conduct in relation to the recycling of ELVs. In connection with this investigation, the CMA issued section 26 notices to the German parent companies of BMW and VW (BMW AG and VW AG) and their UK subsidiaries, together with “any other legal entities within the same undertaking”. While BMW’s UK subsidiary fulfilled its obligations under the section 26 request, BMW AG refused to provide the requested information as it considered that the CMA’s request was ultra vires and compliance would purportedly risk breaching its obligations under German and EU data protection law. The CMA imposed the maximum statutory penalty to BMW AG for non-compliance with a section 26 notice (£30,000, plus an additional £15,000 daily fine for continued non-compliance) and BMW AG appealed the fine to the CAT. Similarly, VW AG objected to the section 26 notice sent to it on the basis that the CMA did not have the power to compel a foreign company to produce documents and issued a claim to the High Court for judicial review of the CMA’s decision to fine it for non-compliance with the information request.
Both cases concerned the CMA’s powers to request the production of documents and information held outside the UK from foreign-domiciled companies with no presence in the UK and were therefore joined and heard together in January 2023.
On 8 February 2023, the CAT and the High Court issued a single judgment, finding that the CMA had acted ultra vires in issuing section 26 notices requiring foreign companies with no UK presence to produce information and documents held outside the UK. The judgment was based on the presumption against extraterritoriality in English law, and the statutory interpretation of the words "any person" in section 26(1), and more specifically on whether an “undertaking” is a “person”.
The CAT considered that the CMA's interpretation of section 26 would render it "aggressively extraterritorial" due to the typically international nature of economic entities, and therefore found that the presumption against extraterritoriality was “fully engaged”.
The CMA’s central case on statutory interpretation was that the phrase “any person” in section 26(1) was sufficiently wide to include persons outside the territory of the UK, even where there was no UK territorial connection. Whilst the judgment recognised that the CA 1998 specifically states that a "person" includes "an undertaking", the CAT held that section 26 notices can only be made to an undertaking via a natural or legal person with a sufficient UK connection. In practice, this meant that the CMA could require a response from any company with a UK territorial connection (or their subsidiaries) but could not oblige subsidiaries to require production of documents held by non-UK parent or sister companies. This meant that BMW AG and VW AG were not compelled to provide the information requested in the section 26 notices to the CMA.
The CoA overturned the decision of the lower court, holding that section 26 does has extraterritorial effect and can require any person, including any undertaking, to produce any relevant documents or information. In particular, the CoA noted that limiting the exercise of the CMA’s powers to only those entities physically connected to the UK would leave a “gaping lacuna” in the effectiveness of its powers and the CMA’s “ability to perform its statutory task would be badly compromised.” The COA also held that the concept of an undertaking in the CA 1998 incorporated the principle of joint and several liability and responsibility, and that the CMA could validly serve a section 26 notice on any entity within an undertaking (i.e. a subsidiary or its parent), regardless of its physical or legal control over the documents or information sought.
The CoA’s judgment is an important confirmation of the expansive scope of the CMA’s information gathering powers when investigating infringements of the Chapter I and Chapter II prohibitions. It means that in practice, a company issued with a section 26 notice is required to provide information and documents in the possession of the undertaking of which is forms part, irrespective of whether the legal entity holding the information or documents is located or connected to the UK. While this power might appear burdensome, the CoA noted that it would be easy for “conspirators to move offshore to organise cartels directed at harming the United Kingdom market and they would more or less be immune from investigation” absent this jurisdiction, especially in an increasingly digital age.
The position reached by the CoA in its judgment echoes the proposed changes to competition enforcement legislation in the Digital Markets, Competition and Consumers (DMCC) bill. The DMCC bill provides that the CMA’s powers under section 26 CA 1998 are exercisable (i) in respect of persons who are outside the United Kingdom and (ii) to require the production of specified information held outside the United Kingdom, provided that the relevant person’s activities are being investigated as part of an investigation into possible anti-competitive conduct in the UK or the person has a UK connection.
VW AG has indicated that it will seek permission to appeal the COA’s judgment, so we will wait to see whether this is really the end of this story. However, considering the proposed amendments in the DMCC bill highlighted above, any appeal would be relevant only in deciding whether or not VW AG is liable to pay a fine, rather than giving rise to any meaningful precedent for future cases.
