BMW and VW succeed in appeal over the extraterritorial reach of the CMAs investigatory powers

Bayerische Motoren Werke AG ("BMW AG") and Volkswagen Aktiengesellschaft ("VW AG") succeeded in their appeals against the Competition and Markets Authority ("CMA"), with the Competition Appeal Tribunal ("CAT") finding the CMA's power to request documents and information does not extend to companies outside the United Kingdom. 

Key takeaways

• The CAT found that the CMA has no power to request information held outside of the UK from foreign companies.
• BMW succeeded in its appeal of the penalty imposed by the CMA for not responding to its information request over the end-of-life-vehicles investigation.
• The CAT granted VW a judicial review of the CMA's decision to issue the section 26 notice.

On 15 March 2022, the CMA launched its investigation into suspected anti-competitive conduct infringing Chapter I of the Competition Act 1998 ("CA98") relating to the recycling of end-of-life vehicles by a number of vehicle manufacturers. A parallel investigation is being conducted by the European Commission.

As part of its investigation, the CMA issued an information request to BMW UK and its ultimate parent company, BMW AG in Germany, under the powers of section 26 of the CA98, which provides that "the CMA may require any person to produce to it a specified document…".  The CMA also issued a section 26 notice to VW UK and its parent company VW AG, also based in Germany. BMW UK complied with the section 26 request, but BMW AG responded to the CMA stating that it would not produce documents (beyond those already provided by the UK subsidiary) because the CMA did not have the power under section 26 to require it – as a German domiciled company with no branches or offices in the UK – to do so. The CMA maintained that BMW was legally required to respond to the section 26 notice, and on 6 December 2022 issued a penalty notice to BMW AG for its failure to comply. BMW appealed the penalty notice to the CAT, arguing that section 26 CA98 does not give the CMA the power to oblige a German company to respond. 

VW AG also challenged the section 26 notice by way of judicial review to the High Court, on essentially the same grounds as BMW's appeal to the CAT.  Raising as they did the same question – namely whether the CMA has the power, under section 26 CA98, to compel the production of documents from companies outside the UK – the appeal and the judicial review were heard together in December 2022.

To be clear, BMW AG and VW AG did not argue that their UK subsidiaries could not be required to produce documents to which the UK subsidiaries had access, even if those documents were located outside the UK.  The only issue therefore was whether the German parent companies could be required to produce these documents, in circumstances where their only UK territorial connection was a UK subsidiary within the same undertaking.

The judgment was handed down on 8 February 2023, and held that section 26 CA98 does not give the CMA the power to compel companies outside the UK (here, BMW AG and VW AG) to produce documents. Any assertion of an obligation on those companies to respond was ultra vires section 26 CA98, and the section 26 notices were therefore held to be ineffective insofar as they concerned BMW AG and VW AG. 

Statutory interpretation: section 26 CA98

The case turned on the question of what is the correct statutory interpretation of section 26 CA98 and, specifically, whether it was intended to have extraterritorial effect. 

As previously noted, section 26(1) CA98 provides that "For the purposes of an investigation, the CMA may require any person to produce to it a specified document, or to provide it with specified information …" (emphasis added).

Section 59 CA98 – which provides for the interpretation of Part 1 of the CA 98 (including section 26) – states that ""person”, in addition to the meaning given by the Interpretation Act 1978, includes any undertaking".  In the relevant part, the Interpretation Act 1978 states that "“Person” includes a body of persons corporate or unincorporate".  As the CAT therefore noted, "the effect of section 59 of the 1998 Act is to re-write the meaning of “person” for the purposes of Part 1 of the 1998 Act [including section 26] so that “Person” includes a body of persons corporate or unincorporate and an undertaking." 

The concept of an "undertaking" is not defined in the CA98 but is a well-established concept of EU law – essentially, an entity engaged in economic activity, which could as a matter of law consist of several natural or legal persons.

The CMA's argument

The nub of the CMA's argument was that, insofar as Part 1 of the CA98 (including section 26) is concerned, Parliament was clear that it applies to persons and undertakings, and so a section 26 notice can validly be addressed to a legal entity outside the UK that is part of an undertaking which is the subject of a CMA investigation.  The CAT characterised the CMA's argument essentially as being that a section 26 notice addressed to the "BMW Undertaking" or to the "VW Undertaking" would therefore affect all legal or natural persons within the undertaking, wherever situated, provided only a part of the undertaking (here BMW UK and VW UK) had a UK territorial connection. 

Based on that understanding, the CMA argued that as long as part of the undertaking has a UK territorial connection - in this instance, the UK subsidiaries of BMW and VW  - then taken as a whole, the entire undertaking can be compelled to respond to the section 26 notice.

The CAT's judgment

The CAT rejected the CMA's approach, which it characterised as rendering section 26 "aggressively territorial", in circumstances where undertakings "…(particularly these days) will, more often than not, be international …".  The CAT was clearly troubled by the inexorable consequence of the CMA's construction, that "a single section 26 notice, addressed to an undertaking, would trigger an obligation to respond in every single legal or natural person within that undertaking, provided only that a single legal or natural person within that undertaking had a UK territorial connection". 

The CAT also considered that the mechanics of serving a section 26 notice – which cannot be served on an undertaking but must be served on a legal or natural person – "fatally undermine[d] the CMA's construction of section 26".  This, coupled with the aggressively extraterritorial consequences outlined above and the presumption of statutory interpretation against extraterritorial effect, led the CAT to conclude that:

"… a section 26 notice can be made to an undertaking; but only via a natural or legal person with sufficient connection to the jurisdiction. Provided the notice is clearly addressed to the undertaking, there is an obligation to inform all constituent elements of the undertaking of the notice. Whether those constituent elements are themselves obliged to respond to the notice depends on whether – considering their status as natural or legal persons, and disregarding their position as a part of an undertaking – they have or do not have a UK territorial connection. If they do, then they must respond as if the notice were directed to them specifically. If they do not, then the presumption against extraterritoriality applies, and there is no obligation to respond."

The CAT therefore found that the CMA had no power to assert an obligation on BMW AG or VW AG (neither of which themselves had a UK territorial connection) to respond to the section 26 notice.

Comment

This is the first time the extraterritorial reach of the CMA's CA98 investigatory powers has been tested since the UK's departure from the EU, and it is a significant clarification of the limits of those powers.

The judgment appears certain to impact the CMA's ability effectively to conduct CA98 investigations, in a world where the CMA is no longer part of the European Competition Network of EU competition authorities and can no longer access the cooperation mechanisms to more easily obtain foreign documents and information. The judgment's repercussions may also have wider implications beyond CA98 investigations.

The CAT acknowledged that the issues in this case were "by no means straightforward", and the judgment states that the CAT "would be minded to give [permission to appeal]" should the CMA seek to do so.  Undoubtedly, any such appeal will be watched with interest.

With thanks to Florence Chan of Ashurst for her contribution .