Securing evidence from overseas: competition investigations and new law for the digital age

The ordinary citizen instinctively recoils from being subjected to trial in another country or to any form of overseas process (such as a requirement to answer questions or produce documents) without recourse to the protection of their own legal system. Underpinning this response is a fundamental legal principle: the presumption against extraterritorial effect. Unless the contrary intention is indicated, our courts will generally not apply English statutes to ‘the subjects of another sovereign’ (R (Al-Skeini) v Secretary of State for Defence [2007] UKHL 26 at 45).

Background

In practice, this means that, as a general principle, a police officer or other law enforcement agent in one country cannot carry out investigations or obtain evidence in another country without the consent of that other country’s courts or government. An exception exists where cooperation between the countries is executed through a pre-existing supranational agency, an example of which is the Joint Investigation Team tool used by Eurojust (in which the UK continues to participate post-Brexit, albeit in the reduced role as a third-country partner). Otherwise, the powers of investigators are generally limited to the territory of their own country.

If, for example, the Director of the Serious Fraud Office (SFO) wants to obtain documents from overseas, they will usually need to send a letter of request to ask that country to obtain the documents for them and transmit them to the UK. The same applies to other agencies investigating criminal offences. They typically use the international treaty-based mutual legal assistance (MLA) process to seek assistance from overseas agencies who can expect reciprocal assistance in return. The Crime (International Co-operation) Act 2003 (CICA) provides the legal framework for making outgoing, and processing incoming, MLA requests. But MLA is time consuming, both for the requesting and executing authority. It can also be expensive and resource intensive. Requesting states often complain of delays in the execution of MLA requests, and of refusals for inconsistent reasons. Due to the post-Brexit loss of the European Investigation Order (which imposed a mandatory 90-day timeframe for compliance), the UK Central Authority (which coordinates MLA requests in the UK) now has to rely on the generally slower pace at which the relevant agency of an executing judicial authority is prepared to process UK requests.

In the past few years, the SFO (in a purely criminal investigation), the Financial Conduct Authority (FCA) (in a twin-track criminal and civil investigation) and the Competition and Markets Authority (CMA) (in a purely civil investigation) have each had the extraterritorial reach of their investigatory powers tested in – and, in one case, specifically affirmed by – the courts. This article considers all three cases.

The most recent, a decision by the Court of Appeal in January this year, was Competition and Markets Authority v Volkswagen AG & BMW AG (‘VW/BMW’), which concerned what the Competition Appeal Tribunal (CAT) described at first instance as an “aggressively extraterritorial” construction of the CMA’s document production powers. The CMA’s interpretation was vindicated in its appeal by the unanimous judgment, reversing the CAT ruling.

The appeal was from the single judgment of the CAT and the High Court, which dealt with the extraterritorial scope of the CMA’s information-gathering powers under Section 26 of the Competition Act 1998 (‘CA 98’). This section provides that the CMA can require ‘any person’ to produce documents or information relating to an investigation. The German companies BMW AG and Volkswagen AG, respectively, applied: (a) to the CAT to challenge the CMA’s decision to impose a penalty for BMW’s failure to comply with this Section 26 notice, and (b) to the High Court to judicially review the decision of the CMA to issue VW with a Section 26 notice. Given the common issues shared by these applications, they were case managed and heard together.

The issue for determination was whether the powers under Section 26 apply extraterritorially. (Note that this case did not concern the CMA’s compulsory interview power under Section 26A of the Competition Act 1998.) The parties’ arguments turned on the meaning of ‘any person’ in Section 26. The CMA argued that parliament’s intention when drafting Section 26 was that ‘any person’ was to include “any undertaking”, given that Section 59 of CA 98 states that ‘’person’ […] includes any undertaking’. The CMA argued that a Section 26 notice addressed to an undertaking would operate on all legal and natural persons constituting that undertaking, irrespective of where they were situated, provided only that one part of that undertaking had some territorial link to the UK.

At first instance, the CAT disagreed with the CMA’s expansive argument, and held that a Section 26 notice can only be issued to an undertaking “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 required to comply with the notice depends on whether “they have or do not have a UK territorial connection”. If they do not, then they cannot be compelled to respond.

The CMA appealed against the judgment and, on 17 January 2024, won on all grounds in the Court of Appeal. The Court of Appeal’s unanimous decision was that parliament intended Section 26 to have extraterritorial effect. Section 26, the Court held, falls under the umbrella of Section 25 (which is extraterritorial), as the requirement in Section 26(2) that the CMA serve upon a person a notice which sets out the ‘substance’ of the investigation relates back to the existence of ‘reasonable grounds for susp[icion]’ under Section 25, which includes where the relevant entities operate outside the UK. The Section 26 power, therefore, “proceeds from, and is an implementation of, two separate building blocks both of which are extraterritorial”.

In overturning the first instance ruling, the Court of Appeal found that parliament “intended to impose an obligation upon the widest possible array of entities. Section 26 is imposed upon ‘any person’ which includes ‘undertaking’ and there is no basis for reading down ‘any person’ so that it means any person who is a natural or legal person having a proper connection to the UK. [To do so would be] a radical rewrite.”

The Court of Appeal’s reasoning that parliament had intended the presumption against extraterritoriality to be displaced involved a review of the historic and international context of cartel enforcement, drawing on the colourful dictum of Lord Denning in an early cartel case from the 1960s: “People who combine together to keep prices up do not shout about it from the rooftops. They keep it quiet. They make their own arrangements in the cellar where no one can see. They will not put anything into writing, nor even into words. A nod or a wink will do. Parliament was well aware of this” (Competition and Markets Authority v Volkswagen AG & BMW AG [2023] EWCA Civ 1506 at 59), US antitrust cases and the EU competition regime. There was no basis for thinking that parliament had not intended the Competition Act 1998 to have extraterritorial effect simply because of a theoretical risk to comity. It was found to be significant that Section 26 was no longer backed by a criminal sanction for non-compliance, civil sanctions under Section 40A having been inserted in 2013 in place of the original criminal offence. It was also significant that there existed no statutory competition framework for mutual legal assistance in contrast to that which exists in criminal matters and that Section 26 created a power (not a duty) to act extraterritorially.

The SFO case

The Court of Appeal’s conclusion about the extraterritorial scope of the CMA’s document production powers is, of course, very different to the Supreme Court’s analysis of the SFO’s analogous powers several years ago in a purely criminal investigation (R (on the application of KBR, Inc) v Director of the Serious Fraud Office [2021] UKSC 2). In that case, the Supreme Court held that a notice served by the SFO on a foreign company could not compel it to produce documents outside the UK where that company has never had or carried on business in the UK. In those circumstances – where the SFO could rely on its MLA powers, this being a purely criminal investigation – parliament had not intended to displace the presumption against extraterritoriality. This may appear to be inconsistent with the Court of Appeal’s reasoning in VW/BMW but in fact it is not. The Supreme Court recognised that statutory provisions compelling the production of documents should always be analysed individually, since they are often enacted for different purposes and operate in different contexts. The Court of Appeal’s decision in VW/BMW illustrates a statutory provision which has a different purpose and operates in a different context to the statutory provision in KBR.

Cause for concern

The fact that the two cases do not reach inconsistent conclusions does not mean that the Court of Appeal’s decision is necessarily invulnerable. Aspects of that decision give rise to serious concern, not least the fact that so much faith was placed in the safeguard that the use of an extraterritorial power was discretionary. There was also no reference to the criminal offence of providing false or misleading information (see Section 44) that applies both to Section 26 and to the power under Section 26A to compel answers to questions. The absence of a clear route for the enforcement of sanctions for non-compliance with a Section 26 (or a Section 26A) requirement is also at odds with the Court of Appeal’s wholehearted affirmation of the CMA’s extraterritorial interpretation of its powers. An appeal to the Supreme Court seems likely.

Taken together, these two judgments reflect the complex analysis required of statutory provisions enacted many years (sometimes decades) before the increasingly transnational and ‘cloud-based’ nature of information storage (and sharing) in the modern world. The globalisation of data has driven the government’s legislative policy in recent years, both in the sphere of economic crime and in regulating digital markets. One of the aims of this policy is to extend the jurisdictional powers of the UK authorities beyond borders, in an attempt to streamline the process of securing evidence from abroad and to ensure the rapid capture of evidence of regulatory infringements. An example of this is to be found in the new law designed to regulate the enormous transnational economic power of ‘Big Tech’.

Digital Markets, Competition and Consumers Bill

The government’s latest legislation to police the global digital marketplace and protect UK consumers is now at the House of Lords Committee stage. The Digital Markets Bill (DMB) seeks to broaden the territorial scope of the prohibition under Section 21(1) CA 98, known as the Chapter 1 prohibition. At present, this prohibits ‘agreements between undertakings’ which ‘may affect trade within the UK’ and ‘have as their object or effect the prevention, restriction or distortion of competition within the UK’. It applies only if the agreement, decision or practice is, or is intended to be, implemented in the UK. It applies to anti-competitive cartels or arrangements. In its summary briefing on competition reform policy, the government decried the Chapter I prohibition as ‘too restrictive in a digital age’. Particularly now that the UK has left the EU, the government believes that the CMA is enfeebled by the requirement that it must prove implementation within the UK before enforcement action can be taken.

Clause 118 of the DMB would remedy this weakness by extending the Chapter I prohibition to arrangements, agreements or concerted practices that are likely to have an immediate, substantial and foreseeable effect on UK trade, even where they are implemented outside the jurisdiction.

The DMB also introduces a specific provision that seeks to displace the presumption against extraterritoriality. Clause 69 of the DMB would empower the CMA to require a person ‘to give specified information to it where it considers that the information is relevant to a digital markets function’. This power would be exercisable ‘in relation to information whether it is stored within or outside the United Kingdom’. It would also be possible for an information notice to be given to a person outside the UK provided that the extraterritorial requirements of Clause 111 are met. These provide for specific extraterritorial application of the CMA’s powers to require the production of information from designated undertakings, individual persons named as senior managers or nominated officers, as well as UK nationals, UK companies and other persons carrying on business there. Undertakings can be designated where the CMA considers they are very powerful in relation to particular digital market activities linked to the UK in which they have Strategic Market Status (clause 2 of the DMB). While these new extraterritorial powers apply to the digital market, Schedule 12 also provides more broadly for the service and extraterritorial application of Section 26 notices under CA 98 and Parts 3 and 4 of the Enterprise Act 2002 (Mergers and Market Studies and Market Investigations). This presents a serious risk for UK companies and their employees operating overseas where the reach of UK law will be much more wide ranging than before if the Bill becomes law.

There are certain powers exercisable by the CMA which are modified by the DMB, and which in the light of the Court of Appeal’s judgment, may have extraterritorial application. These include the power to conduct compelled interviews and to mount dawn raids (although the CMA’s counsel in court said that extraterritorial exercise of the latter power would be “out of the question”). In the case of compelled interviews, the DMB provides for remote exercise of this power and widens it to apply to ‘any person’, not just those with a connection to the undertaking under investigation (clause 141). That is not to say that the CMA cannot invite a foreign witness directly to attend an interview voluntarily instead of using Section 26A (as the CMA and other foreign agencies have certainly done). In such a case the interviewee would be well advised to seek legal advice both in the UK and in their home state as to the consequences of accepting such an invitation or even engaging in a phone conversation which can give rise to onerous obligations as a witness and severe consequences if allegations are made of misleading statements (or worse still if a criminal cartel investigation is under way).

Conclusion

In the future much greater cross-border sharing of data in investigations will take place in order to protect consumers both from the increasing power of global data companies and the proliferation of serious economic crimes. The displacement of the presumption against extraterritoriality is likely to become a more routine feature of modern law-making, but mutual legal assistance arrangements will also need to be expanded if the enforcement of criminal and regulatory laws is to be a truly effective deterrent.

So far, however, there is no evidence that the government – whether through the DMB or other new legislation – is seeking to dilute a different tenet of the MLA regime: the principle that evidence received from a foreign state cannot be used for any purpose other than that specified in the MLA request, absent the consent of the executing state (Section 9(2) CICA). To use documents for a collateral purpose without that consent threatens the executing state’s willingness to cooperate in similar investigations. The High Court reaffirmed this principle in the third major MLA case in recent years, FCA v Papadimitrakopoulos & Gryparis [2022] EWHC 2792 (Ch). In that case (which is now subject to appeal), the FCA opened a dual-track civil/criminal investigation into the defendants. The FCA made MLA requests to several foreign states in connection with its initial, criminal investigation. It subsequently deployed the material obtained in later civil proceedings without having first obtained consent from the executing states for its collateral use (the wording of the FCA’s MLA requests only enabled material to be used in proceedings ‘connected with [the criminal] investigation’). The Court ruled that the MLA material would be inadmissible in the civil proceedings. As Jackson LJ stated in Tchenguiz & Ors v Serious Fraud Office & Ors [2014] EWHC 2597 (Comm), the collateral purpose rule as applied in criminal litigation “underlines the high public interest in ensuring the integrity of the criminal process”.

The DMB has extensive provisions governing the provision by the CMA of MLA to an overseas regulator and the obtaining of MLA from overseas regulators by the CMA. Assistance in an overseas criminal investigation is generally prohibited – it would only be possible under a qualifying cooperation arrangement (clause 319(6)(b)), which could involve overseas criminal cartel investigations. Care will be needed, once the new law is in force, to examine the basis on which any evidence has been obtained from overseas regulators or provided to them and any restrictions there may be on its deployment, particularly for the purpose of criminal proceedings.

Peter Binning is a partner and Edward Hodgson is an associate at Corker Binning
corkerbinning.com