CMA v Volkswagen: Clarifying Extraterritorial Enforcement of Competition Law

Introduction

In the landmark case Competition and Markets Authority v Volkswagen Aktiengesellschaft, R (On the Application Of) ([2023] EWCA Civ 1506), the England and Wales Court of Appeal (Civil Division) addressed pivotal issues concerning the extraterritorial application of the Competition Act 1998 ("CA 1998"). The case involved statutory notices issued by the Competition and Markets Authority ("CMA") to German parent companies Volkswagen Aktiengesellschaft ("VWAG") and Bayerische Motoren Werke AG ("BMWAG"), along with their UK subsidiaries, alleging involvement in an anti-competitive cartel related to the take-back, dismantling, and recycling of end-of-life vehicles.

The central questions revolved around:

Whether the CMA's investigatory and enforcement powers under Part I CA 1998 could be exercised extraterritorially against entities solely located outside the UK.
The interpretation of "undertaking" within the context of the Act, specifically whether joint and several liability among components of an undertaking was preserved.

Ultimately, the Court upheld the validity of extraterritorial application of section 26 CA 1998 and affirmed the joint and several liability inherent in the concept of an "undertaking."

Summary of the Judgment

The Court of Appeal examined two main issues: the extraterritorial reach of the CMA's powers under section 26 CA 1998 and the interpretation of "undertaking" as it pertains to joint and several liability. Initially, the lower courts had restricted the CMA's ability to serve notices on foreign parent companies, limiting enforcement to entities with a UK presence.

On appeal, the Court overturned this view, holding that the CMA's powers under section 26 are indeed extraterritorial. The judgment emphasized that "undertakings" should be treated as unitary entities capable of bearing joint and several liability, in line with EU competition law principles. Consequently, the penalties imposed on VWAG and BMWAG were quashed, and the CMA's approach was deemed both lawful and in alignment with legislative intent.

Analysis

Precedents Cited

The judgment extensively referenced both domestic and EU jurisprudence to shape its reasoning. Key precedents included:

R (Al-Skeini) v Secretary of State for Defence [2008]: Established the presumption against extraterritoriality in statutory interpretation.
Regina (KBR) v Director of the Serious Fraud Office [2021]: Provided guidance on extraterritorial application of investigatory powers.
Cases 89/85, 104/85, 116-117/85 & 125-129/85 A Ahlstrom OY and others v Commission [1998] 4 CMLR 901 ("Woodpulp"): A pivotal CJEU case outlining the necessity of "implementation" within the EU for competition law to have territorial effect.
Sumal SL v Mercedes-Benz Trucks Espana SL [2021]: Clarified the autonomous concept of "undertaking" under EU law, reinforcing joint and several liability.

These precedents collectively underscored the necessity for competition law to adapt to the globalized nature of modern commerce, ensuring that anti-competitive practices cannot evade jurisdictional boundaries through offshore operations.

Legal Reasoning

The Court delved into statutory interpretation, emphasizing a purposive approach aligned with the legislative framework:

Extraterritorial Intent: The Court held that the CMA's investigatory powers are intended to be extraterritorial, drawn from the broader purpose of sections 2 and 25 CA 1998, which themselves have extraterritorial reach.
Definition of "Undertaking": Consistent with EU law, "undertaking" encapsulates an economic unit wherein entities share joint and several liability. This interpretation ensures that all parts of the undertaking, irrespective of their geographical location, can be held accountable.
Legislative Purpose: Parliament's intent to follow the EU model was clear, aiming for consistency and effectiveness in enforcing competition laws against international cartels.
Comity and Safeguards: While recognizing potential conflicts with international comity, the Court determined that the statutory safeguards within section 26 CA 1998 adequately balanced enforcement needs with respect for international boundaries.

The judgment meticulously argued that without extraterritorial enforcement capabilities, the CMA would be rendered ineffective against sophisticated, multinational cartels.

Impact

This decision has profound implications for the enforcement of competition law in the UK, particularly in the post-Brexit landscape. By affirming the extraterritorial application of the CMA's powers, the Court ensures that:

Enhanced Enforcement: The CMA retains the ability to investigate and penalize international undertakings that engage in anti-competitive practices affecting the UK market.
Alignment with EU Law: Despite Brexit, UK competition law remains harmonized with EU principles, facilitating smoother cooperation and mutual recognition in cross-border enforcement.
Clarification of "Undertaking": Reinforcing the concept of joint and several liability within an undertaking simplifies legal processes, making enforcement actions more straightforward and comprehensive.

Future cases involving international entities will likely cite this judgment to support the extraterritorial enforcement of UK competition laws, thereby strengthening market oversight and consumer protection.

Complex Concepts Simplified

Extraterritoriality

Extraterritoriality refers to the application of a country's laws beyond its geographical boundaries. In this context, it means the CMA can enforce the Competition Act 1998 against companies that are based outside the UK if their actions impact the UK market.

Undertaking and Joint and Several Liability

An "undertaking" is a single economic unit that may consist of multiple legal entities (e.g., parent and subsidiary companies). Joint and several liability means that each entity within the undertaking can be independently responsible for compliance, ensuring that the CMA can hold any part of the undertaking accountable.

Section 26 CA 1998

This section grants the CMA the authority to require any person, including undertakings, to provide documents or information relevant to an investigation. The judgment clarified that this power applies even to foreign parent companies, provided they are part of an undertaking with a UK presence.

Conclusion

The Court of Appeal's decision in CMA v Volkswagen marks a significant affirmation of the CMA's extraterritorial enforcement powers under the Competition Act 1998. By upholding the broad interpretation of "undertaking" and confirming the extraterritorial reach of section 26, the judgment ensures robust enforcement against international cartels, aligning UK competition law with global standards. This precedent not only enhances the CMA's ability to protect UK markets and consumers but also reinforces the principle that anti-competitive behavior will not find safe havens across borders.

Legal practitioners and multinational corporations must now navigate the strengthened scope of the CA 1998, recognizing that compliance extends beyond domestic operations. The clarity provided by this judgment fosters a more transparent and accountable competitive environment, crucial for maintaining fair market practices in an increasingly interconnected global economy.