Introduction

The case of Competition and Markets Authority v Volkswagen Aktiengesellschaft, R (On the Application Of) ([2023] EWCA Civ 1506) represents a pivotal moment in the interpretation and enforcement of the Competition Act 1998 (CA 1998) within the United Kingdom. The appeal, heard by the England and Wales Court of Appeal (Civil Division) on January 17, 2024, centered on whether the powers granted to the Competition and Markets Authority (CMA) under Section 26 of the CA 1998 could be exercised extraterritorially. The primary parties involved were the CMA and the German automotive giants Bayerische Motoren Werke AG (BMWAG) and Volkswagen Aktiengesellschaft (VWAG).

At the heart of the dispute was the CMA's authority to issue statutory notices to foreign parent companies and their subsidiaries operating within the UK, compelling them to produce documents and information related to an alleged cartel. The German companies challenged these notices, leading to a legal battle that questioned the breadth and territorial scope of the CMA's investigative powers.

Summary of the Judgment

Initially, both the Competition Appeal Tribunal (CAT) and the High Court dismissed the CMA's notices, ruling that Section 26 of the CA 1998 did not confer extraterritorial powers. Consequently, the CMA lacked the authority to serve notices on the German parent companies located outside the UK. However, the CMA appealed this decision, arguing for the extraterritorial application of its investigatory powers.

The Court of Appeal, upon thorough examination, overturned the lower courts' rulings. It concluded that Section 26 does indeed possess extraterritorial effect, empowering the CMA to issue notices to any person or entity, irrespective of their physical location, provided there is a connection to the UK market. This landmark decision reinforces the CMA's ability to combat anti-competitive practices that transcend national boundaries, ensuring comprehensive enforcement of competition laws.

Analysis

Precedents Cited

The judgment extensively referenced both domestic and EU case law to substantiate the extraterritorial reach of the CMA's powers. Notable among these were:

• R (Al-Skeini) v Secretary of State for Defence [2008] 1 AC 153 – Establishing the interpretative presumption against extraterritoriality.
• Regina (KBR) v Director of the Serious Fraud Office [2021] UKSC 2 – Reinforcing the presumption against extraterritorial application unless clearly intended by Parliament.
• Cases C-89/85 to C-129/85 A Ahlstrom OY and others v Commission [1998] 4 CMLR 901 ("Woodpulp") – Highlighting the importance of implementation within the jurisdiction for extraterritorial application.
• Sumal SL v Mercedes-Benz Trucks Espana SL (C-882/19) – Affirming the joint and several liability within undertakings under EU law.
• Aalborg Portland A/S and others v Commission [2004] ECR I-403 ("Aalborg") – Emphasizing the necessity of aligning investigatory powers with competition prohibitions.

These precedents collectively shaped the court's understanding of how statutory provisions should be interpreted in light of both domestic intentions and international legal principles.

Legal Reasoning

The court's legal reasoning hinged on several key points:

1. Interpretative Presumption Against Extraterritoriality: The court acknowledged the longstanding legal principle that statutes are presumed not to have extraterritorial effect unless explicitly stated. However, it emphasized that this presumption can be rebutted through clear legislative intent, especially when the statute's purpose aligns with extraterritorial application.
2. Parliamentary Intent: An in-depth analysis of the CA 1998’s scheme, context, and objectives revealed that Parliament intended for the CMA to have comprehensive investigatory powers to effectively combat anti-competitive practices that could harm the UK market, regardless of where such practices were orchestrated.
3. Alignment with EU Law: The CA 1998 was modeled closely after EU competition laws, which inherently possess extraterritorial scope. The court found that aligning the CMA's powers with EU practices was both intentional and necessary for the effective enforcement of competition regulations.
4. Concept of Undertaking: The term "undertaking" was treated as an autonomous concept, incorporating all entities within it under a single economic unit. This interpretation upheld the principle of joint and several liability, ensuring that the CMA could enforce notices across the entire undertaking, irrespective of individual entities' locations.
5. Practical Enforcement Considerations: The court recognized the evolving nature of cartels and the necessity for regulatory bodies to adapt their enforcement mechanisms. The extraterritorial application of Section 26 was deemed essential for the CMA to remain effective in a globalized market.

Ultimately, the court concluded that the combined effect of the CA 1998’s provisions, coupled with the identified legislative intent, supported an extraterritorial interpretation of Section 26.

Impact

This judgment has profound implications for the enforcement of competition laws in the UK. By affirming the extraterritorial power of the CMA under Section 26 CA 1998, the decision:

• Enhances Regulatory Reach: Empowers the CMA to effectively investigate and prosecute anti-competitive practices that have ramifications beyond the UK’s borders, thereby fostering a fairer and more competitive market environment.
• Promotes International Cooperation: Encourages domestic and international businesses to adhere to competition laws, knowing that regulatory bodies possess the authority to enforce compliance across jurisdictions.
• Aligns with Global Standards: Harmonizes the UK’s competition law enforcement with global practices, particularly those of the EU, ensuring consistency and predictability in how anti-competitive behaviors are addressed.
• Increases Accountability: Holds parent companies accountable for the actions of their subsidiaries, discouraging attempts to evade legal obligations by restructuring or relocating entities.

Future cases involving cross-border competition issues will likely hinge on this precedent, setting a clear framework for the extraterritorial application of investigatory powers.

Complex Concepts Simplified

Extraterritoriality

Extraterritoriality refers to the application of a country's laws beyond its physical borders. In this case, it questions whether UK competition laws can be enforced against companies operating outside the UK but whose actions affect the UK market.

Undertaking

An undertaking is a term used in competition law to describe any entity engaged in economic activity, regardless of its legal form. Under EU and UK law, an undertaking includes all natural and legal entities within a single economic unit, implying joint and several liability and responsibility.

Joint and Several Liability

Joint and several liability means that all members of an undertaking can be held individually responsible for the entirety of the infringement. This prevents entities within an undertaking from evading responsibility by claiming lack of control or awareness over certain actions.

Section 26 of the Competition Act 1998

Section 26 CA 1998 empowers the CMA to request any person or undertaking to produce documents or provide information relevant to an investigation into anti-competitive practices.

Conclusion

The Court of Appeal's decision in Competition and Markets Authority v Volkswagen AG marks a significant reinforcement of the CMA's investigatory powers under the Competition Act 1998. By affirming the extraterritorial application of Section 26, the judgment ensures that anti-competitive practices targeting the UK market can be effectively addressed, regardless of where they originate. This not only aligns UK competition law with international standards but also enhances the CMA's capacity to safeguard consumer interests and maintain a competitive marketplace in an increasingly globalized economy.

Moving forward, businesses operating within or targeting the UK market must be acutely aware of the extended reach of the CMA's powers. Compliance with competition laws will necessitate greater transparency and accountability, particularly for multinational corporations. This judgment sets a clear precedent that the CMA possesses the authority to act beyond the UK's physical confines, thereby closing loopholes that could previously be exploited to undermine competition.