CMA High Court victory opens the door to more domestic dawn raids

On 22 April 2024, the High Court ruled in favour of the CMA and declared that the Competition Appeal Tribunal (Tribunal) had erred in law in refusing an application by the CMA for a warrant to inspect the residential premises of an individual living in Scotland.

In an era of increased homeworking, the judgment1 has significant implications for the way in which the CMA conducts investigations under the Competition Act 1998 (CA 98). In particular, in its ruling the Tribunal had set a high threshold for the CMA to meet in order to obtain a warrant in respect of domestic premises (one the CMA would likely have struggled to satisfy in practice) and indicated that the ruling should serve as a guideline judgment to be cited before any court in respect of future applications. The High Court’s judgment undoes all that. However, there remains some uncertainty as to what the CMA must establish to satisfy the Court that a warrant to search an individual’s home is justified in the circumstances.

Background

In connection with its investigation into suspected anti-competitive conduct in relation to the supply of chemicals for use in the construction industry, the CMA applied for four warrants to conduct inspections: three in respect of business premises under s28 CA 98, and one in respect of residential premises under s28A CA 98. The Tribunal heard the applications ex parte at a hearing on 12 October 2023. It granted the CMA the warrants sought in respect of business premises; but refused the application in respect of domestic premises.

The Tribunal handed down its judgment in private, but later decided that an open version should be made available, which was published on 7 December 2023 (the Warrant Judgment).

The Warrant Judgment

Power to grant a warrant

Sections 28 and 28A CA 98 grant the CMA the power to apply for a warrant to search business and residential premises. The Tribunal identified the following test for granting a warrant:

The Tribunal may issue a warrant [if] it is satisfied that there are reasonable grounds for suspecting:

  • that there are on the premises (business or domestic, as the case may be) documents which the CMA has power under section 26 to require to be produced
  • where, if those documents were required to be produced, they would not be produced, but would be concealed, removed, tampered with or destroyed.

The Tribunal was generally satisfied that there were reasonable grounds for suspecting that documents existed that could be requested under the CMA’s section 26 powers, such that the first limb above was satisfied. 

As to the second limb, the Tribunal considered the risks both to the CMA’s investigation and the rights of those subject to the warrant, including in particular the latter’s right to respect for a private and family life under Article 8 ECHR. 

In this regard the CMA pointed to the fact that the investigation concerned a secret cartel, and argued that this created an inherent risk of documents being concealed, removed, tampered with, or destroyed. Whilst the Tribunal agreed that in such circumstances the CMA was entitled to a “strong following wind” that would suffice to grant a warrant for business premises, it ruled that this was insufficient in respect of an individual’s residential premises. The Tribunal was unwilling to accept that it could be inferred from the suspected existence of a secret cartel alone that a named individual would be at risk of destroying documents. Instead, the CMA needed to point to some other factor suggesting a propensity to destroy evidence on the part of the individual whose home was to be searched.

Publication of the Warrant Judgment

After it was handed down privately, the CMA applied to withhold publication of the Warrant Judgment (at least without redaction of nearly all the details within). The Tribunal rejected that application, emphasising that the use of closed proceedings is a derogation from the principle of open justice and must be applied narrowly. In doing so it held that the Warrant Judgment was a “guideline judgment” that could be cited before any court considering similar questions in future, and that the CMA being unhappy with the outcome or concerned about its precedent value was not a valid reason to prevent the Judgment’s publication.

Proceedings before and judgment of the High Court

In the absence of a right of appeal under the CA 98, the CMA made an application for judicial review of the Tribunal’s decision. The CMA no longer sought the warrant in question, but considered that the Tribunal had erred on a point of law of general application and the Tribunal’s approach would unduly fetter its ability to obtain warrants under s28A CA 98 going forward.

As is usual where the defendant to a judicial review is a court or tribunal, the Tribunal took no part in the proceedings. The subjects of the CMA’s investigation also took no part. An Advocate to the Court was therefore appointed to respond to the CMA’s arguments.

The test for granting a warrant under s28A CA 98

The CMA contended that the Tribunal had erred in law, on the basis that since the wording of sections 28 and 28A CA 98 are identical, they should be given the same meaning and effect. The CMA accepted that an application for a warrant to search domestic premises required a higher degree of scrutiny, but rejected the Tribunal’s position that this requires use of a distinct legal test. Finally, the CMA also submitted that it would be very rare for it to have evidence of an individual’s propensity to destroy documents, particularly at the launch of an investigation, such that the Tribunal’s approach made it practically impossible for the CMA to obtain warrants to search domestic premises.

In response, the Court Advocate noted that the broader context in which s28A was added to the CA 98 implied a desire to strengthen safeguards for domestic premises. Consequently, even though sections 28 and 28A are identically worded, each must be considered separately with regard to the facts at hand, and it may be appropriate to infer a risk of document destruction in the case of business premises but not in the case of domestic premises. Further, the risk of document destruction or removal was likely greater at business premises (where the undertaking under investigation is based and other staff are likely present), such that for domestic premises that risk should only be inferred in the case of more culpable involvement in the cartel by the individual concerned.

For its part, the Court considered that the Tribunal had gone “too far” in concluding that the existence of a secret cartel is never enough to justify the issuing of a warrant for domestic premises, and that a propensity to destroy/remove documents must always be shown. 

The Court accepted that, due to their very nature, a risk of document destruction can be inferred whenever secret cartels are investigated, and that this inference is as applicable to domestic premises as it is to business premises. Further, there may well be cases in which the position of the individual(s) in the business under investigation, and/or their involvement in the conduct, mean that such inference is enough to justify the issuing of a warrant to search domestic premises. Whether or not the inference is sufficient will depend upon the facts of each case. Therefore, the principle espoused by the Tribunal, that such inference is insufficient and that a propensity to destroy must always be evidenced by the CMA, amounted to an error of law.

Status as a guideline judgment

Given that the Warrant Judgment contained an error of law, it should not be treated as a guideline judgment going forward. However, the Court also ruled that the Tribunal had, in any event, exceeded its powers in ruling that the Judgment could be cited in any court, since it had no authority to dictate the status of the Judgment in any court other than the Tribunal itself.

Commentary

The High Court’s ruling represents a significant victory for the CMA. In a press release announcing the ruling, CMA CEO Sarah Cardell stated: “The [Warrant Judgment] risked seriously undermining our ability to enforce effectively against illegal cartels. With the increase in remote-working – and electronic communication – it’s essential that we are able to search domestic premises to secure evidence of potential breaches of competition law ...

Prior to the Warrant Judgment, there had been nine cases since 2017 in which the CMA had obtained a warrant to search domestic premises. Going forward, we can expect the CMA to continue to make use of this tool as it seeks aggressively to investigate cartel activity. However, exactly what the CMA must show in order to obtain such a warrant is, arguably, less clear than it was prior to the High Court’s ruling, and the CMA may continue to face significant obstacles in this regard.

In particular, the Court’s reasoning implies that there will still be cases in which reasonable suspicion of a secret cartel is not enough to justify the issuing of a warrant for domestic premises, such that the CMA will need to be able to point to more (which it did not do in this case, instead relying on the secrecy element alone). 

Whilst it is very helpful for the CMA that it no longer has to demonstrate a propensity to destroy evidence, the Court provided relatively little in the way of guidance as to what other factors should be present for a court to satisfy itself that the interests of the CMA’s investigation outweigh those of the individuals living at the premises. Given the Warrant Judgment is the only such ruling to have been published to date, and there is little prospect of the High Court’s decision being appealed, this lack of clarity is unlikely to be resolved any time soon.

 

 

1 R (CMA) v The Competition Appeal Tribunal [2024] EWHC 904