CMA v Volkswagen AG & BMW AG

Hearing dates: Wednesday 1st & Thursday 2nd November 2023

Approved Judgment

This judgment was handed down remotely at 12 noon on Wednesday 17 th January 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Sir Julian Flaux, Chancellor of the High Court, Lord Justice Coulson,

A. Introduction

This is the judgment of the Court. The appeal is from the single judgment of 8 ^th February 2023 (“ the Judgment”) of the Competition Appeal Tribunal (“ CAT”) and the High Court (collectively “the Court”). Permission to appeal was given by the Court. Both proceedings raise the same issue of statutory construction and were joined for hearing and judgment. The facts concern statutory notices served by the Competition and Markets Authority (“ CMA”) on German parent companies, their indirect subsidiaries in the UK, and any other legal entities forming part of the same “ undertaking”, to produce documents and information relating to an alleged cartel. The notices were challenged by the German parent companies and were set aside by the Court. The CMA appeals. Bayerische Motoren Werke AG ( “BMWAG”), and Volkswagen Aktiengesellschaft ( “VWAG”) are respondents to the appeal. Two main issues arise.

The first is whether the powers of investigation and enforcement available to the CMA under Part I Competition Act 1998 (“ CA 1998”) can be exercised extraterritorially i.e. against entities physically located outside the UK. This raises an issue of statutory interpretation of section 26 CA 1998 which confers a power on the CMA to issue a notice to “ any person” requiring them to provide information and evidence. The Court held that notwithstanding the ostensible breadth of section 26 it was to be construed as precluding extraterritorial effect and the notice could only be served upon a natural or legal person or entity with a connection to the territory of the UK. The result of this was that the CMA had no power to serve the notices upon the German parent companies.

The second concerns the phrase “ undertaking” in Part I CA 1998. The expression “ any person” in section 26 is defined by section 59(1) to include an “ undertaking”. This is a well understood phrase and relates to an economic entity or unit comprising all of the natural and legal entities within the unit. According to long established case law an undertaking has joint and several liability and responsibility for compliance with private and public and regulatory obligations for all its component entities. In this case, the UK subsidiaries say that they have no access to the information and evidence sought because, in traditional company or contract law terms, they have no power to compel production from other entities in the wider undertaking. The Court agreed and held that the CMA had legal power only to serve upon entities with a connection to the UK and even then, such entities were required only to provide information and evidence in their possession or over which they had legal control. The effect was to preclude the CMA from being able to compel production of documents or other material held abroad even where it was able to serve a notice upon an entity with a sufficient connection to the UK.

B. Legal Framework

There are a number of statutory provisions relevant to this appeal.

Section 2 CA 1998 – The Chapter I Prohibition

Section 2(1) CA 1998 prohibits “ agreements between undertakings” which “ may affect trade within the United Kingdom” and “have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom”. Section 2(3) provides that the prohibition “ applies only if the agreement, decision or practice is, or is intended to be, implemented in the United Kingdom”. This is referred to as the “ Chapter I prohibition” and it is concerned with the control of anti-competitive cartels and other collusive arrangements.

Section 18 CA 1998 – The Chapter II Prohibition

Section 18 CA 1998 prohibits “ any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position”, where that conduct “ may affect trade within the United Kingdom”. This is referred to as the “ Chapter II prohibition”.

Section 25 CA 1998: Power of the CMA to investigate

Section 25 CA 1998, entitled “ Powers of CMA to investigate”, empowers the CMA to conduct investigations where it has “ reasonable grounds” for suspecting that the Chapter I and/or Chapter II prohibitions have been infringed. Section 25, in material part, provides:

“(1) In any of the following cases, the CMA may conduct an investigation.

(2) The first case is where there are reasonable grounds for suspecting that there is an agreement which—

(a) may affect trade within the United Kingdom; and

(b) has as its object or effect the prevention, restriction or distortion of competition within the United Kingdom.

…

(4) The third case is where there are reasonable grounds for suspecting that the Chapter II prohibition has been infringed.

…

(6) The fifth case is where there are reasonable grounds for suspecting that, at some time in the past, there was an agreement which at that time—

(a) may have affected trade within the United Kingdom; and

(b) had as its object or effect the prevention, restriction or distortion of competition within the United Kingdom.

….

(12) It is immaterial for the purposes of subsection (6) whether the agreement in question remains in existence.

Section 25A CA 1998 – Power of the CMA to publish notice of investigation

Section 25A, entitled “ Power of CMA to publish notice of investigation” empowers the CMA, where it decides to conduct an investigation, to publish a notice which indicates and summarises the matter being investigated and identifies any undertaking whose activities are being investigated as part of the investigation. At the conclusion of an investigation, the CMA may decide that the prohibitions have been infringed. In such a case, the CMA must give written notice to the person(s) likely to be affected by the proposed decision and provide them with a chance to make representations (see section 31 CA 1998). Where the CMA makes a decision, it may give directions to such person(s) to bring the infringement to an end (see sections 32 and 33 CA 1998). If a person fails without reasonable excuse to comply with such a direction, the CMA may apply to the appropriate court to compel compliance (see section 34 CA 1998). The CMA may also impose a financial penalty provided it is satisfied that the infringement has been committed intentionally or negligently (see section 34 CA 1998).

Section 26 CA 1998: Investigations: powers to require documents and information

To allow the CMA to effectively conduct investigations, Parliament enacted various powers of investigation which include Section 26 CA 1998, the provision at the heart of this appeal.

Section 26, entitled “ Investigations: powers to require documents and information” gives the CMA the power to require the production of documents or information by “ any person” for the purposes of an investigation. This provides as follows:

“(1) 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, which it considers relates to any matter relevant to the investigation.

(2) The power conferred by subsection (1) is to be exercised by a notice in writing.

(3) A notice under subsection (2) must indicate—

(a) the subject matter and purpose of the investigation; and

(b) the nature of the offences created by sections 43 and 44.

(4) In subsection (1) “specified” means—

(a) specified, or described, in the notice; or

(b) falling within a category which is specified, or described, in the notice.

(5) The CMA may also specify in the notice—

(a) the time and place at which any document is to be produced or any information is to be provided;

(b) the manner and form in which it is to be produced or provided.

(6) The power under this section to require a person to produce a document includes power—

(a) if the document is produced—

(i) to take copies of it or extracts from it;

(ii) to require him, or any person who is a present or past officer of his, or is or was at any time employed by him, to provide an explanation of the document;

(b) if the document is not produced, to require him to state, to the best of his knowledge and belief, where it is.”

Section 59 CA 1998 and the Interpretation Act 1978 – the definition of “person”

Section 26 empowers the CMA to require “ any person” to produce to it a specified document. A “ person” is defined under section 59(1) CA 1998 which is drafted to include an “ undertaking”:

“‘person’, in addition to the meaning given by the ...