The Australian Competition and Consumer Commission (ACCC) has been given powers to serve investigation notices outside Australia. These notices, issued under section 155 of the Competition and Consumer Act 2010 (CCA), require persons served, to produce documents and information even if doing so would incriminate the person or expose them to penalties. It is an offence to fail to comply with such a notice unless the person is not capable of complying with the notice.
This new approach to anti-competitive investigations extending across international borders has been demonstrated in a recent UK decision upholding notices served in the UK on UK-based subsidiary companies, being enforced against parent companies based in Germany.
While there may yet be further appeals in the UK case, the decision is likely to encourage regulators and other agencies to use these investigative powers to seek to compel persons and corporations outside Australia to produce information to Australian agencies.
The UK Competition and Markets Authority serves notices
In 2022, the UK Competition and Markets Authority (CMA) served notices under section 26 of UK competition legislation inside the UK addressed to two UK subsidiaries of two German domiciled entities. However, each notice required production not only from the UK subsidiary but also from the German parent entity and any other legal entities forming part of the same "undertaking".
One German parent entity was fined a maximum of £30,000 for not complying with the notice and daily fines of £15,000, which it appealed on the basis that section 26 notices may not have extraterritorial effect. The other challenged whether the CMA had the power to compel information and documents held by a foreign company overseas.
In February 2023, at first instance, the UK Court held that the CMA did not hold the requisite powers, noting that the CMA's interpretation was "aggressively extraterritorial" and "very likely to undermine comity between nations".
How far do the UK Competition and Markets Authority's powers go?
Extraterritoriality: On appeal the CMA notices were upheld. The Court of Appeal held that the investigatory and enforcement powers in the UK statute were intended to have extraterritorial effect. It gave the example of a cartel between undertakings in the USA, Canada and Japan with no physical presence in the UK, but intended to be implemented in the UK, as falling within the scope of the section. In Australia there is little doubt now that section 155 is also intended to have extraterritorial effect. This UK decision indicates it is open to domestic law to authorise the execution of these powers outside the jurisdiction if that is clearly intended.
UK concept of an "undertaking": One difference with Australia is that in the UK the phrase "any person" in section 26 is expressly defined to include an "undertaking" and it is therefore open to the CMA to exercise section 26 investigation powers against any entity within an undertaking (whether located inside or outside the UK), so long as one part of the undertaking has a presence in the UK.
The Court of Appeal held that when the CMA serves a notice upon an entity within an "undertaking", that entity is not entitled to state that it cannot compel the production of documents elsewhere in the undertaking due to contract / company law terms or otherwise.
The Court of Appeal noted however, that in serving notices on undertakings, the CMA must respect fundamental and procedural rights including the right to defence. The court held there was no evidence of procedural or fundamental rights being violated. The UK subsidiaries were served with the notices which were then brought to the attention of the German parent companies, and it was made clear that the obligation of production applied to the undertaking as a whole. The German parent companies had exercised their "right of access to a court and to a fair and objective adjudication of their challenges".
Key takeaways in Australia
This case reinforces a trend for international investigations being supported by the Courts. To date however there is no local ruling whether businesses based offshore are within reach of the ACCC's broadened investigative powers. The new form of section 155 does indicate a clear intention that offshore entities could be served offshore with a section 155 notice requiring the production of information, documents or giving of evidence relating to possible breaches of the CCA.
The UK case did not deal with notices being served on foreign entities outside the UK. The notices were served on and addressed to the UK subsidiaries, but the documents held offshore by the foreign parent companies were brought within the CMA's reach due to the extraterritorial scope of the CMA's investigation powers. Interestingly, penalties for non-compliance were not imposed on the UK subsidiary but only on the German parent company.
A question remains in Australia: can the ACCC overcome the hurdle of being able to compel such production from an overseas entity which fails to comply with the statutory notice, particularly in the absence of the broad concept of an "undertaking" in Australia?
This problem was noted by the UK Court of Appeal when it referred to the EU Commission's recognition of the:
"practical difficulty of seeking to extract, upon a compulsory basis, information from undertakings located outside the EEA [European Economic Area]. The solution adopted was to exercise the power against entities present in the jurisdiction upon the basis that, given the breadth of the concept of undertaking, an entity in the EEA was treated, in law, as having access to documents held elsewhere within the undertaking, even if physically held outside the jurisdiction."
In Australia, the extension of the ACCC's section 155 powers to have extraterritorial reach and the significant penalties applicable for a failure to comply with a section 155 notice, including fines and possible imprisonment for individuals, are different.
Australia does not recognise the "undertaking" concept or the notion that by serving a section 155 notice on a subsidiary in Australia, the ACCC can require the Australian subsidiary to obtain and produce relevant information from its offshore related entities where that information is not within the Australian subsidiary's own possession, power or control.
Nonetheless, international businesses should be aware of the strong co-operation between the ACCC and overseas regulators to target overseas persons/entities capable of providing information, documents or evidence relating to potential breaches of the CCA, and to ensure that such overseas participants are not immune from investigation.